CASE NO.: Appeal (civil) 344 of 1957 PETITIONER: MAHADAYAL PREMCHANDRA RESPONDENT: COMMERCIAL TAX OFFICER CALCUTTA & ANR. DATE OF JUDGMENT: 15/04/1958 BENCH: S.R. DAS (CJI) & N.H. BHAGWATI & S.K. DAS & J.L. KAPUR & V. BOSE JUDGMENT:
JUDGMENT
1959 SCR 551 = AIR 1958 SC 667
Civil Appeal No. 344 of 1957 (Appeal by special leave from the order dated
January 15, 1955, of the Commercial Tax Officer, Calcutta, in case No. 283
of 1952-53 (R.C. No. CSI/1630-A)), decided on April 15, 1958.
The Judgment was delivered by BHAGWATI J. :
BHAGWATI J. for the This appeal with Special Leave is directed against the
order dated January 15, 1955, passed by the Commercial Tax Officer, Canning
Street (District I) Charge, Calcutta, assessing the appellants to sales-tax
in respect of transactions valued at Rs. 6, 21, 369-10-3 and assessing
sales-tax thereon at 9 pies in the rupee at Rs. 27, 816, under the
provisions of the Bengal Finance (Sales-tax) Act (Ben. VI of 1941)
hereinafter referred to as “the Act”.
The appellants carry on the business of (1) selling goods or of dealers,
partly in wholesale and partly retail, of woollen and cotton fabrics and
other products, (2) as well as of commission agents of woolen and cotton
fabrics and in their latter capacity are and have been the agents or
representatives of the British India Corporation Ltd., Proprietor, The
Kanpur Woollen Mills, both at Kanpur in Uttar Pradesh, for the territory
comprising West Bengal and Assam and parts of Bihar and Orissa under the
terms of an agreement between themselves and their principals dated June 2,
1952, supplemented by a letter dated July 7, 1952, addressed to them by the
principals.
The appellants are duly registered as “dealers” in West Bengal under the
provisions of the Act with respect to their aforesaid business of wholesale
and retail distribution or sale of goods and their certificate of
Registration is numbered O.S. 1/1630A. On or about December 15, 1952, the
appellants submitted to the 1st respondent their return for sales-tax in
the prescribed form for the return period ending Dewali 2009 Sambat
corresponding to October 17, 1952 (i.e., for the year 1951-52).
The gross turnover in the said return was calculated at Rs. 1, 25, 24,
883-14-3 and after allowing therefrom the permissible exemptions and
deductions the taxable turnover amounted to Rs. 2, 42, 480-10-3 on which
sales-tax 9 pies in the rupee under the provisions of section 5(1) of the
Act amounting to Rs. 11, 366-5 was duly paid by the appellants.It appears
that in the course of examination of books of account and Purchase Vouchers
of M/s. Khubiram Dhansiram of Calcutta, an unregistered dealer, it came to
the notice of the Assistant Commissioner, (C.S.) that the said dealer had
purchased woollen goods worth Rs. 59, 530-13 during the period from
November 20, 1952, to December 18, 1952, from M/s. British India
Corporation Ltd., Kanpur Woollen Mills Branch. Invoices, copies of which
were enclosed therewith, had been drawn by the British India Corporation
Ltd., for Kanpur Woollen Mills from Kanpur and the goods in question were
reported to have been dispatched to M/s. Khubiram Dhansiram from Kanpur.
Orders Nos. quoted in the invoices were the Nos. of orders placed to Kanpur
Woolen Mills by their sole agents in West Bengal, the appellants herein,
and the Assistant Commissioner (C.S.) was of the opinion that under
Explanation 2 of section 2(g) of the Act, the sales of Kanpur Woollen Mills
from Kanpur as referred to above should be deemed to have taken place in
West Bengal and under Explanation 3 of section 2(c) of the Act the
appellants should be deemed to be the dealer in West Bengal on account of
the sales of Kanpur Woollen Mills and as such were liable to pay the tax at
that end. The Assistant Commissioner (C.S.), therefore, asked the first
respondent by his letter dated January 21, 1953, to verify as to whether
the appellants had accounted for those transactions in their books of
account and had paid the taxes due by them.
On February 3, 1953, the first respondent issued a notice under sections 11
and 14(1) of the Act stating that he was not satisfied that the return
filled by the appellants for the year ending October 17, 1952, was correct
and complete and asked the appellants to produce before him their books of
a account.The representatives of the appellants had an interview with the
first respondent on the said date and on February 16, 1953, the appellants
submitted to the first respondent a statement in connection with their
agency transactions with the Kanpur Woollen Mills, Kanpur which showed that
there were three types of transactions entered into by them as selling
agents of the Mills, viz.,
(1) The appellants booked orders on behalf of and subject to acceptance by
the Mills and were entitled to get commission on the value of the invoices
made out in the name of the party who placed the order, such invoices with
other customary documents being sent direct to the parties by the Mills
through their Bankers.
(2) Orders were placed direct by the parties resident in the territories in
which the appellants were selling agents and the goods were supplied
directly by the Mills to those parties. There also the appellants were
entitled to their commission.
(3) The goods were ordered and invoiced in the name of the appellants and
dealt with by them as dealers either in wholesale or retail. The appellants
would be entitled to commission on the invoice value of goods. In regard to
the two former categories, the appellants did not come in the picture
except for their commission and consequently no entry was made in their
books of account for the value of those goods. As to the last category the
value of the invoice was accounted for in their books of account to the
debit of goods account and the sale proceeds were credited as and when the
goods were sold by the appellants. The appellants contended that it was
only in respect of the goods of the last category that they were “dealer”
within the meaning of that term as defined in the Act and they were
therefore liable to pay sales tax only in regard to the same.This letter
was endorsed by the first respondent on March 6, 1953, as under :
“Copy forwarded to A.C. (Central Section) for information with reference to
his memo. No. 385/3R-40/52 dated 21st January 1953 and soliciting further
instructions in the matter.”
After completing the examination of the books of account produced by the
appellants, the first respondent made an entry in the Order-Sheet dated May
26, 1953, asking that the following further details may be sent to the
Assist. Commissioner (C.S.) to elicit his opinion in the matter :
“The dealer appeared with books of account on January 21, 1953. On
examination it was found that the dealer made entries only of commission
received from Messrs. Kanpur Woollen Mills, Kanpur for goods supplied to
his customers in West Bengal from Kanpur. In this connection I may point
out that the dealer is a commission agent of the Kanpur Woollen Mills for
the State of West Bengal earning a commission on all sales of goods
effected by the Mills within the territorial limits assigned to the dealer.
In most cases the dealer secures orders from parties and forwards the same
to the Kanpur Mills who supply the goods to the respective parties direct,
a percentage of commission on the value of the goods so supplied being
credited to the dealer.
The goods being delivered in West Bengal for consumption, no doubt satisfy
the requirements of the Explanation to clause (1) of Article 286 of the
Constitution of India. It is, therefore, conceded that the sale took place
in West Bengal. But the fact remains that the seller in such circumstances
would obviously be the Kanpur Mills and not the dealer. The privity of
contract is resting with the Kanpur Mills on the one hand and the purchaser
on the other. The position of the Kanpur Mills is that of a named and
disclosed principal. In view of the above observations, I feel that the
dealer incurs no liability under the B.P. (S.T.) Act of 1941 in respect of
the goods supplied to his customers in West Bengal direct from Kanpur by
Messrs. Kanpur Woollen Mills.”
This memorandum was submitted by the first respondent to the Assistant
Commissioner (C.S.) for his opinion.
On August 29, 1953, the Assistant Commissioner (C.S.) made a note that the
first respondent should not have made a direct reference to him. He
recorded his opinion that the appellants were accountable for all sales in
respect of which the goods were delivered in West Bengal and that they were
commission agents who received commission on all sales made in West Bengal
by the Kanpur Woollen Mills, Kanpur and being the commission agents of the
Kanpur Mills were accountable for the transactions. He, therefore, ordered
the first respondent to do the needful. The first respondent made an entry
in the order sheet on September 2, 1953, stating that action was being
taken accordingly. He also ordered the appellants to appear with books of
account for further examination, and to produce their Agency Contract with
Kanpur Mills and a list of the dealers in Calcutta who received goods
direct from Kanpur.
On November 21, 1952, the representative of the appellants submitted a
statement to the first respondent clarifying the whole position. It was
pointed out that the appellants acted as agents of M/s. Lalimli Mills of
Kanpur and got a commission once at the end of every year on all the sales
effected by the Mills in the State of West Bengal. The orders were placed
directly by the customers of the Mills with the Mills; the Mills executed
the orders and consigned the goods direct to those customers; recording the
said customers as the consignees; the said customers negotiated bills
through the banks, cleared the goods from the carriers and sold them as
they liked. The Mills only maintained a personal account of the appellants
in which the commission at the end of a year was credited. The Mills never
debited the appellants with the value of the goods; neither did the
appellants credit the Mills with the value of the goods nor debited their
goods account. At no stage of these transactions was the property in the
goods either transferred to or acquired by the appellants, and nobody could
transfer any goods which he did not acquire or possess. Besides, the
accounts of the said customers of the Mills did not indicate any
transactions at all with the appellants in the State of West Bengal. It was
therefore submitted that the appellants could not be deemed or held in law
or in fact to be the dealer qua those sales in West Bengal much less liable
to pay any sales tax on those sales. It was also pointed out that the
appellants had earned the maximum commission of 2.4% which was less than
even the sales tax which worked out to about 4.2% and this could never have
been intended by the law.On June 19, 1954, the representative of the
appellants submitted a further statement to the first respondent. He
pointed out that at no stage whatever did the appellants have physical
possession or control over the goods in question and also drew the
attention of the first respondent to several sales tax cases in support of
the position taken up by the appellants. He also repeated that all through
the appellants had been working as mere commission agents at 2.4% for the
transactions effected by them between their principals on the one hand and
different customers on the other. Now, the department wanted to levy tax at
4.2% on the total transactions, which meant an addition of 1.8% from their
own pocket to the total commission earned which he felt could never be the
intention of the law.
On August 12, 1954, the first respondent recorded a note wherein he stated
that on the materials placed before him he was doubtful whether the
appellants could be considered as the sole agent of M/s. Kanpur Woollen
Mills as per provision of Explanation 3 of section 2(c) of the Act. He
requested the Assistant Commissioner (C.S.) to reconsider the matter in the
context of the facts mentioned and give his “valued opinion”.
On September 23, 1954, the then Assistant Commissioner (C.S.) wrote that
his predecessor had already advised the first respondent on this matter and
if the appellants were aggrieved they might prefer a regular revision or
appeal petition before the competent authority as provided under the law.
The first respondent made an entry on September 30, 1954, stating that he
had seen the notes and that action was being taken accordingly.
The first respondent ultimately on January 15, 1955, made the assessment
order assessing these disputed transactions to sales tax on the following
ground :-
“On inspection of the books of account, I found that the dealer was a
commission agent of the Cawnpore Woollen Mills for the State of West Bengal
earning commission on all sales made in West Bengal by the Cawnpore Woollen
Mills, Cawnpore. Though the principal is at Cawnpore, the dealer, being the
commission agent of the Cawnpore Woollen Mills, is definitely accountable
for the transactions or sales within the State of West Bengal. The dealer
denied this liability on various grounds, vide his letters dated 21st
November, 1953 and 19th June, 1954, which appear to be not at all
satisfactory. I hold the dealer liable for all such sales, made by M/s.
Cawnpore, in Woollen Mills, Cawnpore, in West Bengal. The statement of such
sales filed by the dealer shows that sales of such nature, effected in West
Bengal amounts to Rs. 6, 21, 369-10-3 which were found to have not been
entered in books of account. As such, I now include this amount in G.T. and
add the same to Balance A. So G.T. is finally assessed at Rs. 13, 146,
255-8-4.”
The appellants obtained Special Leave from this Court under Art. 136 of the
Constitution to appeal against this order of the first respondent.
From the detailed narration of the facts regarding this particular
assessment it is quite clear that the first respondent did not exercise his
own judgment in the matter of the assessment in question. Even though he
was convinced to the contrary, he asked for the instructions of the
Assistant Commissioner (C.S.) and followed the same and assessed the
appellants to sales-tax in respect of the disputed transactions. The order
which he ultimately passed on January 15, 1955, further showed that he was
merely voicing the opinion of the Assistant Commissioner (C.S.) without any
conviction of his own and the only thing he had to say in regard to the
various grounds mentioned in the letters dated November 21, 1953, and June
19, 1954, was that they appeared to him to be “not at all satisfactory”.
This was hardly a satisfactory way of dealing with the matter. If the
Assistant Commissioner (C.S.) had been dealing with the same he could have
by all means given in the assessment order which he made his reasons for
doing so and these reasons would have been open to scrutiny in further
proceedings taken by the appellants either by way of appeal or otherwise.
The Assistant Commissioner (C.S.) however, had delegated this work of
assessment to the first respondent and then it was the duty of the first
respondent to make the assessment order giving his own reasons for doing
so. The file of the assessee, however, shows that even though the 1st
respondent was satisfied on the materials placed by the appellants and
their representative before him that the appellants were not liable to pay
sales-tax in regard to these transactions, he referred the matter first for
instructions and then for obtaining the “valued opinion” of his superior,
the Assistant Commissioner (C.S.) and the latter expressed his opinion that
the appellants were liable in respect of these transactions. All this was
done behind the back of the appellants and the appellants had no
opportunity of meeting the point of view which had been adopted by the
Assistant Commissioner (C.S.) and the first respondent quietly followed
these instructions and advice of the Assistant Commissioner (C.S.)We are
really surprised at the manner in which the first respondent dealt with the
matter of this assessment. It is clear that he did not exercise his own
judgment in the matter and faithfully followed the instructions conveyed to
him by the Assistant Commissioner (C.S.) without giving the appellants an
opportunity to meet the points urged against them. The whole procedure was
contrary to the principles of natural justice. The procedure adopted was,
to say the least, unfair and was calculated to undermine the confidence of
the public in the impartial and fair administration of the sales-tax
Department concerned. We would, have, simply on this ground, set aside the
assessment order made by the first respondent and remanded the matter back
to him for his due consideration in accordance with law; but as the matter
is old and a remand would lead to unnecessary harassment of the appellants,
we have preferred to deal with the appeal on merits.
The determination of this appeal turns on the construction of the
definition of the terms “dealer” and “Turnover” given in section 2 of the
Act, the relevant portions of which run as under :
Section 2 :- In this Act, unless there is anything repugnant in the subject
or context,
(c) “Dealer” means any person who carries on the business of selling goods
in the State of West Bengal and includes the
Government………………………..
Explanation 2 : A factor, a broker, a commission agent, a del credere
agent, an auctioneer or any other mercantile agent, by whatever name
called, and whether of the same description as hereinbefore mentioned or
not, who carries on the business of selling goods and who has, in the
customary course of business, authority to sell goods belonging to
principals is a dealer;
Explanation 3 : The manager or an agent in West Bengal of a dealer who
resides outside West Bengal and carries on the business of selling goods in
West Bengal shall, in respect of such business, be deemed to be a
dealer……………………..(i) “Turnover”: used in relation to any
period means the aggregate of the sale-prices or parts of sale-prices
receivable or if a dealer so elect, actually received by the dealer during
such period after deducting the amounts, if any, refunded by the dealer in
respect of any goods returned by the purchaser within such period.”
It may be noted that under section 4 of the Act every dealer whose gross
turnover during the year immediately preceding the commencement of the Act
exceeded the taxable quantum was liable to pay tax under the Act on all
sales effected after the date so notified; and under section 5 the tax
payable by a dealer under the Act was levied at the rate therein specified
on his taxable turnover. Unless, therefore, the sales were effected by the
dealer and the sale proceeds received by him such sales could not be
included in his taxable turnover and he would not be liable to pay sales-
tax thereon.
The position as it obtains in the present case is that even according to
the first respondent’s own showing in the assessment order the sales in
question were made by the Kanpur Woollen Mills, Kanpur, in West Bengal and
they were primarily the dealers in regard to such sales. The appellants
were however sought to be made liable to sales-tax in respect of these
sales by virtue of the expanded definition of the term “dealer” given in
Explanation 3 to section 2(c) of the Act. The question, therefore, arises
whether the appellants fall within the definition of “dealer” therein
mentioned.
Explanation 2 to section 2(c) does not apply for the simple reason that
even though the appellants were the commission agents of the Mills they had
not in the customary course of business authority to sell goods belonging
to the principals. As a matter of fact, Cl. 14 of the Agreement dated June
2, 1952, in terms provided that the selling agents shall under no
circumstances whatsoever make or purport to make, or hold themselves out as
empowered to make, on behalf of the Mills any contract or contracts for the
purchase or supply of any goods manufactured by the Mills. Explanation 3 to
section 2(c) was, therefore, relied upon; but that also would not apply to
the appellants. The appellants were no doubt agents of the Mills which
“resided outside West Bengal” but it could not be said of them that they
carried on the business of selling goods in West Bengal. The Mills had
neither any office in West Bengal nor had they established any business
through the appellants or otherwise of selling the goods in question in
West Bengal. The only thing which was done in this connection was that the
appellants canvassed orders as commission agents of the Mills in West
Bengal and forwarded these orders to the Mills, which accepted them and
executed the same. The privity of contract was established between the
customers on the one hand and the Mills on the other; but, that also could
only be on the acceptance of these orders by the Mills in Kanpur. Even
though a number of orders placed in this manner by the appellants with the
Mills were accepted by the Mills in Kanpur, it could not be said that the
Mills were carrying on business of selling goods in West Bengal. The
business was, if at all, one of selling goods in Kanpur and despatching
them to West Bengal for the purpose of consumption therein. These
transactions were, therefore, not covered by the Explanation 3 to section
2(c) of the Act and the appellants could not in respect of such business be
deemed to be a “dealer” within the meaning of that explanation. The
position which was adopted by the first respondent, though under the behest
of the Assistant Commissioner (C.S.) was therefore untenable.A more
formidable difficulty, however, faces the first respondent and it is that
the sale price of the goods thus delivered by the Mills to the respective
customers in West Bengal could not be included in the gross turnover of the
appellants. The goods in question were directly supplied by the Mills to
the customers, whether they were supplied in pursuance of the orders placed
by the appellants with the Mills or were supplied in pursuance of orders
directly placed by the customers with them. The invoices were all made out
in the names of the customers and the relevant documents were negotiated by
the Mills with the customers through the Banks. The customers released
those documents from the Banks on payment of the relevant drafts and the
sale price of the goods was thus received by the Mills through those Banks.
At no time whatever was there any handling of the goods or the receipt of
the sale price thereof by the appellants in regard to the goods in question
and under those circumstances the sale price thereof could to be included
in the gross turnover of the appellants. If that was the true position, the
appellants were not liable to sales-tax in respect of the disputed
transactions, even though, perchance, they could be included within the
expanded definition of “Dealer” in the Explanation 3 to section 2(c) of the
Act a contention which we have already negatived.
It, therefore, follows that in regard to the disputed transactions which
were of the total value of Rs. 6, 21, 369-10-3, the appellants were not at
all liable to pay sales tax thereupon and the first respondent was clearly
in error in assessing the same to sales-tax.
The appeal will accordingly be allowed and the assessment order made by the
first respondent on January 15, 1955, will be set aside. The sales-tax of
Rs. 27, 816 assessed by the first respondent on the appellants, if paid,
will be refunded and the appellants will get from the first respondent the
costs of this appeal as also the costs incurred by them in contesting the
proceedings before the first respondent.