Tata Aircraft Limited Vs. Member, Board of Revenue - Court Judgment

G.K. Mitter, J.

1. In this reference under Section 21(1). of the Bengal Finance (Sales Tax) Act, 1941, the only question referred to this Court is :-

Whether sales tax is a tax only on the sale of goods or is it a tax also on the commodity sold?

2. On the frame of the question it is hardly necessary, to refer to the facts of the case but a short synopsis thereof is given as follows. The assessee Tata Aircraft Limited had got itself registered as a dealer under the Bengal Finance (Sales Tax) Act, 1941, hereinafter referred to as the Act. On the allegation that the assessee had failed to submit returns for the four quarters ending on 31st March, 1948, in time, the Commercial Tax Officer, 24 Parganas, issued two notices on it under Sections 11 and 14 of the Act for production of the books of account etc., before the said authority. The assessee submitted returns sometime afterwards claiming that no amount was payable by it for sales tax for the periods in question as it was not a dealer within the meaning of Section 2(c) of the Act. Ultimately the Assistant Commissioner assessed the assessee on the basis of taxable sales as estimated by the Commercial Tax Officer rejecting the contention that it was not a dealer. The assessee filed appeals against the assessment orders before the Commissioner of Commercial Taxes and produced a copy of the agreement entered into by it with the Government of India. According 'to the assessee it had only taken part in the disposal of some surplus stores of the Government of the United States of America and the United States Army taken up by the Government of India for sale on the terms and conditions specified in the agreement. The Commissioner of Commercial Taxes held that though the goods belonged to the Government of India the actual sale transactions were put through by the assessee in its own name and that so long as the assessee sold the goods, no matter to whom the property in them belonged, the assessee was liable to pay sales tax as a dealer under the Act. Against this order the assessee filed two revision petitions before the Board of Revenue under Section 21(3) of the Act contending that no tax could be levied under the Government of India Act, 1935, on property belonging to the Central Government. The Board rejected this contention. The assessee then filed two petitions before the Board requiring it to refer to this Court certain questions of law alleged to have arisen out of the Board's order dated 10th January, 1953. The Board heard the assessee and referred to this Court the sole question set forth above.

3. It will be noted that although questions might have been raised as to (a) whether the assessee was a dealer in the facts and circumstances of this case within the meaning of the Act, or (b) whether even if the assessee was a dealer any tax was payable by it by reason of the fact that the property in the goods lay in the Government of India, no such problems were posed before the Court and we are not called upon to go into them.

4. The main provisions in the agreement between the assessee and the Governor-General in Council dated 29th May, 1947, are :--

Clause (i) whereby the Government appointed the assessee as their sole and exclusive agent for and on account of the Government for the following purposes :

(i) to take over from the representatives of the U. S. A. Foreign Liquidation Commission in India the surplus stores lying at various places;

(ii) to retain the said stores in their custody or control;

(iii) to sell and dispose of the said stores from time to time.

5. The stores to be taken over were to be held by the assessee at the risk of Government.

6. Clause (6) whereby the assessee was to take the same care of the property as if the same belonged to the assessee.

7. Clause (12) whereby the assessee was free to sell and dispose of all the stores at such time or times in such manner as the assessee should consider best in the interest of Government : the assessee was to assume all del credere risks in connection with the sale and disposal of the stores and any claims made by purchasers for defects in goods, short deliveries etc. were to be on Government account and to be covered by the indemnity provided by Clause 19.

8. Clause (15) whereby the realisations from sales made by the assessee were to be credited to separate banking accounts to be maintained by the assessee and 90 per cent, of the balance thereof was to be paid to Government from time to time ; the remaining 10 per cent, was to be utilised by the assessee for meeting disbursements on sales account and/or for reimbursing their remuneration under the provisions of Clause 16 at certain rates. Clause 19 under which the Government was to indemnify the assessee against all claims for infringement of patent, registration of designs, trade mark etc. and against all claims, damages, suits and proceedings made against or sustained or incurred by the assessee while acting in good faith in the execution of the agreement.

9. To decide the question referred to, we have only to look into certain provisions of the Act and consider certain decisions which were cited at the Bar. The preamble to the Act shows that the enactment was made with the object of adding to the revenues of West Bengal and for that purpose to impose a general tax on the sale of goods in West Bengal. Section 2(c) of the Act defines a dealer to be a person who carries on the business of selling goods in West Bengal and includes the Government. Under Section 4 every dealer whose gross turnover exceeds the taxable quantum is liable to pay tax on all sales effected. 'Turnover' has been denned as the aggregate of the amounts of sale prices and parts of sale prices received by any dealer during a given period. Both the preamble to the Act and the provisions noted above show that the tax was an incident to the sale although it cannot be doubted that the incidence of the tax would in the ultimate analysis be found to attach to the goods. Sales of certain goods mainly in the nature of foodstuffs were exempt from tax. Sales of other goods which were not exempt were not to bear the burden of taxation unless the gross turnover of the dealer exceeded the taxable quantum. It would there-.ore not be right to say that Government sought to levy a tax on the goods themselves no matter who sold them or the conditions under which they were sold. The periods for which the assessee was called upon to pay tax fell before the coming into force of the Constitution of India but this does not make any difference.

10. Appearing for the assessee, Mr. Chaudhury relied on certain observations in several decisions of the Federal Court of India and the Supreme Court to support his argument that sales tax was a tax on property and I shall therefore refer to these. The first case is that of The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1939] F.C.R. 18. There the issue was as to the competency of the Legislature which passed the Central Province and Berar Sales Tax Act. The question really was whether what was imposed was a tax on the sale of goods within the meaning of entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935, or whether it was a duty of excise within the meaning of entry 45 in List I of that Schedule. In considering the question as to whether it was a tax on the sale of goods or a duty of excise Gwyer, C.J., observed at page 42: 'Since writers on political economy are agreed that taxes on the sale of commodities are simply taxes on the commodities themselves, it is possible to regard a tax on the retail sale of motor spirit and lubricants as a tax on those commodities, and I will assume for the moment in favour of the Government of India that it is on that ground capable of being regarded as a duty of excise.

11. In State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069 Sastri, C.J., referred to the above observations and added : 'Therefore, sales tax the incidence of which is really directed against the consumer is, in substance, a tax on the goods imposed, no doubt, on the occasion of the sale as a taxable event.

12. In Bata Shoe Co. Ltd. v. Member, Board of Revenue, West Bengal 53 C.W.N. 278 Harries, C.J., remarked : 'It is common knowledge that the dealers in selling to the consumers charge the consumers the amount of sales tax payable on such sale and doubtless the legislature must have been aware that this tax, like every other tax would be passed on to the consumer, if possible.' But earlier the learned Chief Justice had observed that there was nothing in the two sections relied upon to suggest that 'the consumer is the person on whom the tax is levied.

13. This aspect was referred to by Das, C.J., in The Tata Iron and Steel Co. Ltd. v. The State of Bihar [1958] S.C.R. 469 at P. 487 where he said : 'From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so.' The learned Chief Justice went on to add that 'the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of : competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice, of the sales tax.

14. In my opinion, none of these authorities impel me to take the view that sales tax and specially that levied by the Act in question imposes a tax on the goods although no doubt the' imposition of sales tax will generally add to the price of a commodity, a sale of which would make a dealer liable to pay tax. The Judicial Committee had to consider the question in Governor-General in Council v. Province of Madras 72 I.A. 91. There the vires of the. Madras General Sales Tax Act of 1939 came up for consideration and delivering judgment of the Board Lord Simonds said (at page 101): 'Their Lordships have thought it desirable to refer to the provisions of the Madras Act in this detail in order to emphasize its essential character. Its real nature, its 'pith and substance', is that it imposes a tax on the sale of goods. No other succinct description could be given of it except that it is a tax on the sale of goods.' His Lord?-ship went on to consider the nature of a duty of excise and observed (at page 103) : 'Their Lordships are of opinion that a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case A.I.R. 1942 F.C. 33. The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise) which is attracted by the manufacture itself.... The tax imposed by the Madras Act is not a duty of excise in the cloak of a tax on sales. Lacking, the characteristic features of a duty of excise, such as uniformity of incidence and discrimination in subject matter, it is in its general scope and in its detailed provisions a tax on sales.

15. In Boddu Paidanna case, [1942] 1 S.T.C. 104, Gwyer, C.J., had observed: 'In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connection with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces ; and he would be free from liability if he chose to give away everything which came from his factory. In our opinion the power of the Provincial Legislatures to levy a tax on the sales of goods extends to sales of every kind, whether first sale or not.

16. In this reference we must address ourselves to the question raised from the point of view of a lawyer and not from that of a political economist. Under Section 21(1) of the Act the Court can only consider the legal aspect of the matter and give its opinion on the question of law formulated.

17. All these authorities can but lead to one conclusion in law, namely, that sales tax as imposed by the Act is a tax on the sale of goods as clearly mentioned in the preamble to the Act and the charging section and cannot be considered to be tax on the goods themselves. As the assessee's contention that the tax was a tax on the goods has not been accepted the assessee must pay the costs of this reference.

Ray, J.

18. I agree.