Case: Commissioner of Sales Tax, U.P Vs. Bishamber Singh Layaq Ram

The Commissioner of Sales Tax submitted that the first question should b e answered in the negative and the second in the affirmative. The High Court decided in favour of the assessee and against the Commissioner, holding that the submission of the assessee was right and answered both the questions to the contrary. Fro m this decision the appellant, the Commissioner of Sales Tax, hasreference arose out of assessment for the assessment year 1967-68 of Messrs Bishamber Singh Layaq Ram which carries on business in jaggery, amchur, khandsari et c. on its own account and as kuccha arhatiya in jaggery, foodgrains etc. at Shahpur in the district of Muzaffarnagar, and is registered as a dealer under s. 8-A of the Act (hereinafter referred to as thematerial facts m ay be stated as follows: During the assessment year in question, the Sales Tax Officer, Muzaffarnagar by his order dated December 27, 1968 rejected the account books of the assessee on the basis of some discrepancies found during the four surveys carried out at his shop and made a best judgment assessment under sub-s. (3) of s. 7 of the Act, determining the taxable turnover of purchases effected by it as a kutcha arhatiya at Rs. 5, 30, 000 and the tax payable thereon at Rs. 25, 4 50. On appeal the Assistant Commissioner (Judicial), Sales Tax, Muzaffarnagar by his order dated August 11, 1969 reduced the taxable turnover of purchases by Rs. 1, 50, 000 and the tax by Rs. 7, 500.There were two cross-revisions by the Commissioner of Sales Tax and by the assessee, both of which were allowed by the Additional Judge (Revisions), Sales Tax, Meerut who by his order dated February 10, 1970 while negativing the plea of the assessee that he was not a dealer, however, felt that on the material on record, the taxable turnover of the assessee could not reasonably be determined at Rs. 3, 80, 000. He accordingly set aside the orders of the Assistant Commissioner (Judicial) and of the Sales Tax Officer and directed that there should be a fresh best judgmentreference, the High Court on question No. 2, as to the liability of the assessee to tax on transactions effected by it as kutcha arhatiya held that the assessee was not a dealer,the assessee is a Kutcha Arhatiya then he is not liable to sales tax. The change in the definition of the word dealer in 1961 upon which the Judge (Revisions) has relied does not change the situation. A person can be liable to tax as a dealer only if he acts as an agent having the authority to pass title in the goods sold. A kutcha arhatiya merely brings together the seller and the purchaser and helps in settling the price and weighing the goods etc. The fact that he sometimes advances money to cultivators who bring their produce for sale or sometimes pays the entire sale price to the cultivator from his own pocket is not inconsistent with his being a kutcha arhatiya."

Court's reasoning:
The finding arrived at by the High Court that the assessee as a kutcha arhatiya merely brought together the seller and the buyer charging an additional sum by way of commission and, therefore, could not be regarded as a dealer, i.e., a person engaged in the business of buying and selling goods, is contrary to the admitted facts of the case. The facts stated in the agreed statement of the case clearly show that the assessee is not a kutcha arhatiya, in the usual sense of the term, but his business brings into existence the relation of vendor andbasic distinction between a kutcha and a pucca arhatiya is that a kutcha arhatiya acts as an agent on behalf of his constituent and never acts as a principal to him. The person with whom he enters into a transaction on behalf of his constituent is either brought into contact with the constituent or at least the constituent is informed of the fact that the transaction has been entered into on his behalf with a particular person. But in the case of a pucca arhatiya, the agent makes himself liable upon the contract not only to third parties but also to his constituent. He does not inform his constituent as to the third party with whom he has entered into a contract on hisa pucca arhatiya acts as a principal as regards his constituent and not as a disinterested middleman who brings about two principals together, there being no privity of contract between the constituent and the third party, and may substitute his own goods towards the contract made for the principal and buy the principals goods on his personal account. On the other hand a kutcha arhatiya usually denotes a person who merely brings together the buyer and the seller charging his commission, who has no dominion or control over the goods, unlike a pucca arhatiya who deal s as a principal in relation to both his constituent and to the thirdis evident from the statement of the case that the business carried on by the assessee was more or less similar to that of a pucca arhatiya and it is a misnomer to call it a kutcha arhatiya. It actually purchased the goods from the sellers, i.e., the cultivators, and then sold them in the market to the other buyers, as if they were its own, obviously at a profit. It paid to the cultivators the price of the goods it purchased and received from the buyers the price at which is sold. Selling of goods was not simultaneous with receiving them. These facts can lead to no other conclusion except that it bought and then sold goods and not merely brought buyers into contact with sellers and arranged transactions between them. In these circumstances, the High Court should have held the assessee to be a dealer under s. 2(c) of the Act, read with the ExplanationHigh Court treating the question referred to be a composite one, embarked upon an enquiry as to whether the Sales Tax Authorities were justified in rejecting the account books and in making the best judgment assessment under s. 7(3). I t has referred to the four surveys carried out on August 11, 1967, December 13, 1967, January 7, 1968 and March 8, 1968. In the first survey held on August 11, 1967 it was found that the Nagal Bahi had not been written for eleven days. The High Court observes that no adverse inference could be drawn on this account because the assessees explanation was that there were no cash transactions for this period, and, therefore, the Nagal Bahi had not been written. With regard to the second survey carried out on December 13, 1967 it was discovered that there was a loose parcha containing several entries. One of the entries of Rs. 371.17 in the name of Sakh Chand Udit Mohan alone was entered in the account books. That too on December 13, 1967 after inspection while the payment was actually made on December 11, 1967, i.e., it was not contemporaneous with the transaction. The High Court observes that it has not been found that any other entry contained in the loose parcha had not been entered in the account books, With regard to the third survey carried out on January 7, 1968 when twelve bags of wheat were found in stock, the stock register was not shown to the surveying officer. The High Court has again accepted the explanation of the assessee saying that there was no duty cast on the assessee to produce the stock register and it was not shown since there was no demand for it. It observes that there is nothing in s. 13 or in any other provisions of the Act or the rules framed thereunder which requires a dealer to produce his books of accounts and other documents, before the surveying officer. As regards the last survey held on March 8, 1968 the Mondhi Bahi was found to be posted upto February 29, 1968. Thus there were no entries for eight days. The explanation of the assessee was that it had not entered into any contract during the eight days in question. The High Court observes that as there was no material whatever for rejecting his explanation, no adverse inference could be drawn with regard to the veracity of the accounts, since Mondhi Bahi is not a necessary account book. We are not inclined to agree with this line of reasoning. While we refrain from expressing any opinion on the requirements of s. 13(2) of the Act, we are satisfied that the finding of the High Court that there was nothing wrong with the method of accounting adopted by the assessee cannot ben our opinion, the High Court should have declined to go into the question of the applicability of s. 7(3) of the Act. When a question of law was neither raised before the Addl. Judge (Revisions) nor considered by him nor did it arise on the findings given by him, it will not be a question arising out of hisquestion as to whether the Sales Tax officer was justified in making a best judgment assessment under s. 7(3) of the Act was not referred to the High Court. It was, therefore, not open to the High Court to go into the question. It could not allow the new point to be raised for the first time in reference. Nor was the High Court entitled on a reference under s. 11(4) of the Act to set aside the finding of the Addl. Judge (Revisions) merely because on a reappraisal of the evidence it would have come to a contrary conclusion. It was also not entitled to examine whether the explanation of the assessee in regard to the deficiencies found in the account books should or should not be accepted. It may be that the Sales Tax Authorities should have accepted the explanation of the assessee with regard to the aforesaid deficiencies, but it may as well be that there are various other deficiencies which the assessee will have still to explain.