Case: State of Orissa Vs. M/s. Utkal Distributors (P) Ltd

3. These appeals are concerned with the assessments for the quarter ending September 30, 1957, and for the quarter ending December 31, 1957, but it would be sufficient if facts relating to the assessment for the quarter ending September 30, 1957, are given, because apart from figures there is no difference in the relevant facts. For the quarter ending September 30, 1957, the respondent, M/s. Utkal Distributors (P) Ltd., hereinafter referred to as the assessee, claimed to deduct from its gross turnover the sum of Rs. 3874.49 on the ground that it had paid this sum on the purchases made by it as Central Sales Tax. The Sales Tax Officer disallowed the claim. On appeal, the Collector of Sales Tax, Orissa, affirmed the order of the Sales Tax Officer. The Sales Tax Tribunal, Orissa, in second appeal, however, came to the conclusion that there was no justification to disallow the deduction claimed by the appellant. The Tribunal held that the Central Sales Tax realised by the assessee from its customers was not part of the price charged by it, and, therefore, it did not fall within the definitions of sale price and taxable turnover. The Tribunal relied on the fact that the assessee was a controlled stock-holder under the Iron and Steel (Control) Notification, dated Calcutta, the 18th October, 1958, and by virtue of condition No. 4 (ii) of the Notification, the Central Sales Tax paid by the customer was not part of the price. Condition No. 4 (ii) was to thiscustomer shall pay to the Controlled Stock-holder the Central Sales Tax incurred by the Controlled Stock-holder in obtaining the material and also pay such additional Central Sales Tax, if any, incurred on the sale to theNotification was issued under the Iron and Steel Control Order, 1956, which order was passed in exercise of the powers conferred by S. 3 of the Essential Commodities Act, 1955. Section 2 of the Control Order defined Controlled Stock-holder as "a stockholder appointed by the Controller to hold stocks of iron or steel under such terms and conditions as he may prescribe from time to time". It further appears that under the Iron and Steel Control Order, read with the Iron and Steel (Control) Notification, a controlled stock-holder was not entitled to charge a price higher than that fixed by the Government of India. As stated earlier in view of these provisions, the Tribunal came to the conclusion that Central Sales Tax paid or realised by the assessee from the customers at the time of sale of iron and steel goods to them could not be treated as sale price of goods and could not be included in the taxable turnover. The Commissioner of Sales Tax being dissatisfied with the order of the Tribunal sought a reference to the High Court and the Tribunal referred the case under S. 24 (1) of the Act, formulating two questions which have already been set out.4. The High Court answered the questions in the affirmative. Before the High Court the counsel for the State urged that the expression "tax" occurring in the definition of turnover in S. 2 (i) and in the definition of "taxable turnover" in S. 5 (2) (b) referred only to the Sales Tax paid under the Orissa Sales Tax Act and not to the tax paid under the Central Sales Tax Act, and that this was part of the consideration, and, therefore, the assessee was bound to include the Central Sales Tax in the taxable turnover. Following The Deputy Commr. of Commercial Taxes v. M. Krishnaswami Mudaliar and Sons, (1954) 5 STC 88: (AIR 1954 Mad 856  ), and Bata Shoe Co. Ltd. v. Member Board of Revenue, West Bengal, (1938-50) 1 STC 193 (Cal), the High Court held that as the assessee was authorised as a controlled stock-holder to realise Central Sales Tax from the customers by a special notification issued by the Central Government, the case fell within the principle laid down in (1954) 5 STC 88: (AIR 1954 Mad 856  ). The principle according to the Madras High Court in Krishnaswami Mudaliars case, (1954) 5 STC 88: (AIR 1954 Mad 856  ), was asour opinion, if we may say so with respect, this passage from the judgment of the learned Chief Justice [of the Calcutta High Court in Bata Shoe Co. case, (1938-50) 1 STC 193 (Cal.)] clearly brings out the distinction between cases where the dealer is not authorised by law to collect the tax but all the same adds it to the sale price in the bill of sale and collects it from the customer and cases where the dealer is so authorised. In the former case it is undoubtedly part of the purchase price, as all the collection made by the dealer from the purchaser must be treated as constituting part of the sale price. If, however, under the law, the dealer is empowered to pass on the sales tax to the purchaser, to collect it and pay it to the Government, what he is permitted to so collect under the law would continue to retain its character as tax and it would never form part of the purchaseHigh Court further observed that "the Union Government themselves fixed the price of iron material sold by him to his customers. He was not entitled to charge anything higher. In addition to that price he was permitted to charge Central Sales Tax which he was subsequently required to credit to Government. Section 9 (A) of the Orissa Sales Tax Act says that any amount collected by a registered dealer as sales tax from his purchasers shall be deposited by him in the Government Treasury. It is true that by its own force this section would apply only to Orissa Sales Tax Act. But by virtue of sub-s. (2) of S. 9 of the Central Sales Tax Act, 1957 [now sub-s. (3) in consequence of the amending Act of 1958] it would also apply to the Central Sales Tax collected by the Controlled Stock-holder". Thus, following the principles laid down in the Madras decision, the Orissa High Court held that the Central Sales Tax could never form part of the sale price as defined in the Orissa Sales Tax Act, and was rightly deducted while estimating the taxable turnover.

Court's reasoning:
8. We have set out condition No. 4(ii) of the Iron and Steel (Control) Notification above. It seems to us that it is clear from this condition, and the fact that the controlled stock-holder was not entitled to charge a price higher than that fixed by the Government of India, that the valuable consideration for the sale was the price fixed by the Government of India and did not include the Central Sales Tax which the customer had to pay to the assessee as a controlled stock-holder. We do not rely on the provisions of S. 9 (A) of the Orissa Sales Tax Act or the principle laid down in (1954) 5 STC 88: (AIR 1954 Mad 856  ). No arguments were addressed to us on this aspect and we express no opinion whether the principle laid down in the Madras decision and S. 9 (A) Orissa Sales Tax Act, would apply to an authorisation to collect Central Sales Tax under the provisions of the Iron and Steel Control Order, 1956, and the Iron and Steel (Control) Notification dated 18-10-1958.In our opinion, the facts that the price which the stock-holder was entitled to charge was statutorily fixed and the stock-holder was not entitled to and did not charge more are sufficient to enable us to come to the conclusion that the Central Sales Tax paid under the provisions of the Iron and Steel (Control) Notification did not form part of the price paid by the customer to the assessee.9. There is no force in the contention that the Central Sales Tax realised by the assessee falls within the expression "any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof". The assessee by paying the Central Sales Tax when he bought the goods did not do anything to the goods, and the tax was paid in respect of the transaction of purchase and not in respect of the goods.