Case: State Of Madras Vs. T. Narayanaswami Naidu And Anr

2. A common point of law is involved in both the cases and it will suffice if we give facts in Tax Case No. 105 of 1963 (Civil Appeal No. 633 of l966) in which the respondent was one T. Narayansawami Naidu, hereinafter referred to as the assessee. The assessee is a dealer in cotton and cotton seeds. Before the Additional Commercial Tax Officer, Coimbatore, he claimed to deduct the sum of Rs. 12,32,756.45 as the value of purchases other than the last purchases of cotton. The Commercial Tax Officer exempted Rs. 10,11,534.40 but disallowed the remaining amount on the ground that cotton worth Rs. 2,27,250.00 was in stock on March 81, 1961. He found that subsequent disposal in the next year had not been proved and, therefore, it was liable to be taxed as a last purchase. In holding this he followed the decision of the Kerala High Court in Abdulsalam Rowther v. State of Kerala, 1961-12 STC 98  (Ker). The Appellate Assistant Commissioner (Commercial Taxes) upheld the order, but the Sales Tax Appellate Tribunal, dissenting from the decision of the Kerala High Court in 1961-12 STC 98  (Ker) accepted the appeal of the assessee and remanded the case to the Appellate Assistant Commissioner for disposal afresh in the light of observations made by it. The Department filed a revision under S. 38 of the Madras General Sales Tax Act, hereinafter referred to as the Madras Act, and the High Court dismissed the revision. The State of Madras having obtained special leave, the appeal is now before us.

Court's reasoning:
7. In our opinion, this reasoning is fallacious. It is true that Ss. 3 and 4 speak of "a year", i.e., the financial year, and it is only the turnover during that year that is liable to taxation in the hands of the assessee, but S. 4 has to be read with the Second Schedule, and reading S. 4 with the Second Schedule, it seems to us clear that a dealer is not liable to pay a tax on the purchases until the purchases acquire the quality of being the last purchases inside the State. In other words, when he files a return and declares the stock in hand, the stock in hand cannot be said to have been acquired by last purchase because he may still during the next assessment year sell it or he may consume it himself or the goods may be destroyed, etc. He would be entitled to claim before the assessing authorities that the character of acquisition of the stock in hand was undetermined; in the light of subsequent events it may or may not become the last purchase inside the State.8. In our view this construction is in consonance with S. 15 of the Central Act. If the argument of the learned counsel for the State were to be accepted it would mean that the States could with impunity levy purchase tax on declared goods at more than one stage, i.e. on purchases in the hands of one dealer during one assessment year and purchases of the same goods in the hands of another dealer in a subsequent assessment year, and so on. Therefore, we agree with the Madras High Court that the assessee is right in contending that he was entitled to claim deduction in respect of the value of the stock of Rs. 2,27,250 as being the purchases other than last purchases of cotton.9. The Kerala High Court in 1961-12 STC 98  (Ker) following certain cases decided under the Income-tax Act, was influenced by the consideration that an assesses could not rely on subsequent events in order to escape taxation. That may be so even under the Sales Tax Act, but, according to our view, the assessee is not liable till the purchase of declared goods acquires the character of a last purchase within the Second Schedule referred to above. In 1962-13 STC 773  (Mys) the Mysore High Court also seems to have been impressed by similar considerations.10. The judgment under appeal draws a distinction between taxable event and a stage at which the levy of tax in the case of declared goods is subject to single point levy. This may cause confusion, and indeed, the High Court gives one illustration, which it found unnecessary to dealour opinion, in this illustration, the assessee would be liable in the financial year 1960-61 as the purchases became the last purchases in thatthis connection it may be mentioned that S 14 ofthe Central Sales Tax Act, 1956, hereinafter referred to as the Central Act, declares certain goods as of special importance intrade and commerce, and cotton is one of the goods included in S. 14.