Judgment:
ORDER
Raju, J.
1. The above second appeal has been filed by the defendant in O.S. No. 1300 of 1981 on the file of the Principal District Munsif, Tiruchirappalli, who succeeded before the learned Trial Judge but lost before the first appellate court. The respondent- plaintiff has filed the suit for a direction to the defendant- appellant to return or refund or pay the sum of Rs. 10,810 with subsequent interest thereon to-the plaintiff.
2. The case of the plaintiff is that he is a contractor with the defendant-corporation, that he was the highest bidder in the matter of felling and collection of eucalyptus trees in Managiri forest in Udayarpalayam range and for which purpose, they have also entered into an agreement dated 3.6.1976 marked as Ex.A-1 and 16.7.1976 and in accordance with the same, the plaintiff claimed to have deposited a sum of Rs. 29,455 and also Rs. 11,090 as security, the contracts were said to have been duly fulfilled and when the plaintiff claimed for the return of the deposit, the defendant deducted Rs. 7,894 and Rs. 2,956.60 towards sales tax on the articles sold. The plaintiff contended that the defendant had no authority to collect sales tax because the defendant was not a dealer within the contemplation of sales tax law and the 'timber' cannot be an eucalyptus tree. Per contra, the appellant-defendant corporation filed a written statement contending that the plaintiff was the highest bidder in the auction held on 5.5.1976 for collecting and removing eucalyptus tree, that the sale in favour of the plaintiff was confirmed and that he also paid the sums required. While admitting the deduction as contended by the plaintiff from the security deposit, it was claimed the same was in terms of Rule 24 (16) of the Sales Tax Rules, 1959 and as per item 84 of the first schedule to Tamil Nadu General Sales Tax Act, the plaintiff is liable to pay sales-tax, which has been paid by the defendant and consequently, the deduction was correct. The suit was also contended to be barred by time and the plaintiff is not entitled to any relief.
3. On the above claims and counter claims, the suit came to be tried and both oral and documentary evidence was adduced by both parties. On a consideration of the relevant materials on record, the learned trial Judge by the judgment and decree dated 25.3.1982 dismissed the suit holding that the transaction in favour of the plaintiff was found to be taxable and the tax actually levied by the sale tax department has to be paid and therefore, the plaintiff is not entitled to the relief, the defendant has rightly deducted the amount paid towards sales tax on the transactions with the plaintiff. Aggrieved, the plaintiff pursued the matter on appeal in A.S. No. 156 of 1982 (originally A.S. No. 203 of 1982 on the file of the District Court, Tiruchirappalli) and the learned V Additional Subordinate Judge, Tiruchirappalli, has chosen to allow the appeal and decreed the suit as prayed for. The learned first appellate Judge was of the view that since the contract did not specifically contain any provision for payment of sales tax and the statute also does not provide for the collection of tax from the purchaser, the deduction was unwarranted. Hence, the above second appeal by the defendant corporation.
4. At the time of admission, the following substantial questions of law were formulated as arising for considering of this Court:
1. Whether on the facts and in the circumstances of the case, the interpretation placed on Clause 45 of Ex.A-1 as not entitling the appellant to collect sales tax in addition to the price of the goods sold is correct?
2. Is the lower appellate court right in holding that the Tamil Nadu General Sales Tax Act, 1959, does not authorise a registered dealer to collect sales tax from the purchaser.
3. Whether the lower appellate court is right in holding that Section 64-A of the Sale of Goods Act cannot help the appellant to collect sales tax suffered on the sale made to the respondent?
Heard the learned counsel for the appellant, who reiterated the stand taken before the courts below. As for the substantial question of law No. 1 formulated, it has to be seen from the relevant Clause No. 46 of Ex.A-1 that the same provides for payment of the consideration for the contract and does not militate against the tax being recovered on the transaction if becomes due and liable. At any rate there is no restriction on the corporation to pass on the tax liability incurred by it on the transaction to which the plaintiff was a party to the plaintiff. As for question of law No. 2, formulated, I am of the view that the seller in respect of a transaction of sale involving transfer of property in the goods, which is exigible to tax and as a matter of fact, is subjected to tax, is entitled to pass on the liability incurred in respect of the sale to the purchaser or part of the sale price. It is on the light of the said position of law that the relevance of Section 64-A of the Sales of Goods Act assumed significance and importance. Section 64-A of the Sales of Goods Act reads as follows:
(1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in Sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulations to the payment of tax where tax was not chargeable at the time of the making of the contract or for the sale or purchase of such goods tax-paid where tax was chargeable at the time -
(a) if such imposition or increase so taxes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition and
(b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for or in respect of such deduction.
2. The provisions of Sub-section (1) apply to the following namely:
(a) any duty of customs or excise on goods.
(b) any tax on the sale or purchase of goods.
The learned first appellate judge appears to have taken the view that Section 64-A of the Sale of Goods Act will have no application to the case on hand. I am afraid, I can countenance such conclusion. Taking of such a view would amount to defeating the very object of the provision of Section 64-A incorporated in the Sale of Goods Act that where the price payable is determined on the basis of existing position relating to levy or the rates of duty or tax neither party shall be prejudiced or benefit by reason of the imposition, increase or decrease of the tax. In M. Sundareswaran v. Krishna Refineries, : AIR1977Mad109 , a Division Bench of this Court has dealt with the relevance of Section 64-A of the Sale of Goods Act and the statutory entitlement of the contracting parties. The Division Bench observed in this context as hereunder:
'Section 64-A is a special provision in the Sale of Goods Act which provides for a specified contingency. In contracts of sale of goods, if during the working or performance of the same, customs or excise duty or tax on the sale or purchase of goods is imposed by any law for the time being in force, then if such an imposition takes effect, Section 64-A(a) provides that the seller may add so much of such increase to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax and he shall be entitled to be paid and to sue for and recover such addition. This statutory entitlement vested in the seller to claim the increase in excise duty, as this case, in case such a duty takes effect during the course of the working of the contract is in our view, a right which is per se enforceable. Of course, there may be a contract to the contrary. So long as there is none, the force of this section could compel the seller to demand as of right the payment of such levy or increase in levy in excise duty and add the same to the contract price and ask for its payment. The compendium of the said initial contract price and the tax or the duty or the increase in the excise duty would automatically become the agreed price between the parties. Such payment of price and delivery of goods are concurrent conditions and one is in exchange for the other. As already referred to in Section 32 of the Sale of Goods Act, any attempt on the part of the buyer to avoid such a statutory obligation would entitle the seller not to perform his reciprocal concurrent obligation of delivering the goods.'
5. In my view, the principles laid down in the above decision and the rights flowing Under Section 64-A of the Sales of Goods Act, would entitle the appellant corporation to appropriate from the security deposit the liability to sales tax, which in turn was incurred in respect of the very same transaction covered by the agreement of sale marked Ex.A-1 and entered into between the parties. The contract being one for a period and a running contract, the corporation was entitled to recover or to reimburse itself of the liability incurred, which was not in dispute and the same could not have been anticipated at the time when the contract was entered into between the parties and before the claims under the contract have been finally settled and if this is not for the purpose for which the security deposit is taken under the contract to meet the unexpected eventualities and other commitments or violations, I fail to appreciate the very need or necessity for taking the security deposit. Therefore, the deduction of the sales tax paid by the corporation on the very transaction with the plaintiff from out of the security deposit was well merited and justified in law and the plaintiff, therefore, could not succeed in his claim. The learned first appellate Judge has committed a grave error in misconstruing the rights of parties on a wrong and erroneous construction of the provisions contained in Section 64-A of the Sale of Goods Act. Consequently, the judgment and decree of the learned first appellate Judge are hereby set aside and the second appeal shall stand allowed. The judgment and decree of the learned trial judge are restored. There will be no order as to costs.