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Judgment
Ramanujam, J.—In these tax revision cases filed by the assessee the question that arises for consideration is whether the sales tax paid by
the assessee could be excluded from the total turnover as claimed by the assessee.
The assessee in these cases is the producer of, and dealer in, tea. The tea produced by the assessee is normally sold in auction through brokers
to whom the stocks of tea are sent by the assessee for sale. The tea is auctioned and sold at a price inclusive of sales tax. Immediately after the
auction, the broker sends sale note to the assessee who is the seller indicating that the tea has been sold at a particular rate inclusive of sales tax to
a particular person. Similarly he sends a bought note to the purchaser which also indicates the price the purchaser has to pay and the price is to
include sales tax. Thus, both the purchaser and the seller are made aware of the fact that the price at which the tea has been auctioned includes the
sales tax payable by the seller on the sale. Neither the sale note the bought note sent by the tea broker separately refers to the quantum of tax
included in the sale price. But the sale has been made with the specific understanding that the price includes sales tax payable on the sale. At the
time of the completion of the assessment for the assessment year 1975-76, the assessee claimed that out of the aggregate price for which the tea
has been auctioned, a sum of Rs. 33,599.15 towards sales tax and a sum of Rs. 3,359.91 towards additional sales tax paid by the assessee,
should be excluded. The assessing authority did not accept the assessee''s claim on the ground that the assessee has not collected specified amount
by way of sales tax from the purchasers and since no sales tax as such has been collected from the purchaser the assessee is not entitled to seek
the deduction in respect of the sales tax paid and the additional sales tax paid by the assessee. These was an appeal to the Appellate Assistant
Commissioner and that having failed he filed a further appeal to the Sales Tax Appellate Tribunal. The Tribunal also did not grant the relief to the
assessee as prayed for by him on the ground that the purchasers not having been made aware of the actual amount payable as sales tax on the sale
and only a consolidated price has been paid by the purchaser, the sales tax paid by the assessee cannot be excluded from the total amount
collected from the purchasers. This view of the Tribunal has been challenged in these cases.
On a due consideration of the matter, we are of the view that the view taken by the Tribunal cannot legally be sustained and that the said view is
quite inconsistent with the consistent view taken by this Court in at least three earlier decisions, viz., Lipton (India) Ltd. v. State of Tamil Nadu
[1973] 32 STC 194, State of Tamil Nadu v. Ultramarine and Pigments Ltd. [1977] 39 STC 53 and State of Tamil Nadu v. Shaw Wallace and
Co. [1979] 43 STC 48 and the decision of the Patna High Court in Radha Krishna Surajmal v. Commissioner of Commercial Taxes [1979] 43
STC 203. In more or less similar situation, this Court in Lipton (India) Ltd. v. State of Tamil Nadu [1973] 32 STC 194 held that the sales tax
collected either specifically as such or as part of the sale price could be deducted from the aggregate amount paid by the purchaser. In that case,
the assessee, a wholesale dealer in tea, sold consignments of tea to retail dealers throughout India at fixed wholesale rates shown in the price list
supplied to those dealers. While the price list set out the net price as well as the aggregate of the net price and the sales tax payable thereon in
respect of the various brands of tea, in the actual sale bills made out by the assessee, only the aggregate amount referred to in the price list was
found and there was no specific reference to the net price and sales tax. The assessee and its purchasers, however, knew fully well the actual price
and the tax collected in respect of the sale covered by each of the bills. The departmental authorities and the Tribunal did not accept the contention
of the assessee that the sales tax included in the bills made out by the assessee could not form part of the turnover. When the matter was taken to
this Court, it was held that though the bills referred to an inclusive amount, it was on the basis of a clear understanding between the assessee and its
purchasers that that amount would represent the sale price proper and the sale tax thereon, the break-up of which had already been set out in the
price list supplied to the purchasers, that the assessee therefore clearly intended to pass on the sales tax to its purchasers, though in the bills, the
sales tax payable had not been shown separately, and that the assessee should, therefore, be taken to have substantially complied with the
conditions set out in the executive instructions of the Board of Revenue (S.O. 13), which provided that if sales tax collected was separately shown,
the dealer could be entitled to the exclusion of that amount from the taxable turnover. The S.O. 13 issued by the Board of Revenue was as follows
: ""Sales tax collected as such, by a dealer from his customers should not be included in the total turnover of the dealer."" In that case, even though
the sale bill did not show the sales tax collected separately the court held that having regard to the fact that there was an understanding between the
seller and the buyer that the amount paid by the buyer would be inclusive of the sales tax payable by the seller, the seller should be taken to have
collected the inclusive price referred to in the price list which consists of the actual price portion and the sales tax portion. Though the learned
counsel for the Revenue contends before us that the position was slightly different in that case and it is because of that the Tribunal has
distinguished the said decision, it is no doubt true that in that case apart from the wholesale price list there was another price list which gave the
break-up figures of the net price and the sales tax payable thereon. But that should not make any distinction for even here both the buyer and the
seller were made aware that the auction amount paid by the buyer includes the price proper and the sales tax payable by the seller. Therefore, it
cannot be claimed that the assessee has not collected any amount as tax. In that case, it is because of the Standing Order 13 the assessee had to
necessarily show that sales tax has been collected as such without including it in the sale price. But now in the place of the Standing Order 13, we
have got a statutory provision in section 2(r), explanation (1A) which says that any amount collected by a dealer by way of tax under this Act shall
not be included in the turnover. When a consolidated amount is collected from the buyer by the seller, the amount collected can be taken to consist
of two elements; one the price proper and another the amount by way of tax under the Act, for the rate obtained at the auction for the tea stocks
clearly includes sales tax and both the purchaser and the seller were aware that the rate obtained at the auction is inclusive of the sales tax.
The decision in Lipton (India) Ltd. v. State of Tamil Nadu [1973] 32 STC 194 has been applied and followed in State of Tamil Nadu v.
Ultramarine and Pigments Ltd. [1977] 39 STC 53 by another Division Bench of this Court. In that case also an all inclusive price was collected by
the seller from the purchaser but the purchaser was aware that the all inclusive price paid by him included sales tax payable by the seller. There
was also a price list which indicated that the price quoted is inclusive of sales tax. On these facts, the Court held that since the payment of sales tax
was not and could not be the subject-matter of bargain between the parties, as it is a statutory liability imposed by a statute on all transactions of
sales, it had to be inferred that the purchaser agreed to pay the tax and did pay sales tax when he paid the all inclusive price as fixed in the price list
and purchased the article and therefore it could be easily concluded that the assessee did collect sales tax as such and the purchasers also
consciously paid the tax and, therefore, the exclusion of the sales tax paid from the aggregate of all inclusive price paid by the purchaser was
justified.
State of Tamil Nadu v. Shaw Wallace and Co. [1979] 43 STC 48 is also a similar case. There also, there was clear indication that the price
fixed is not only the price of the goods but also the tax which is payable on the transaction, though they were not shown separately. Nonetheless
the Court held that the fact the price mentioned in the list is said to be inclusive of sales tax, it could be taken that what was collected represented
not merely the price of the goods but also the tax payable on the same provided the quantum of tax payable is discernible. The principle of that
decision also applies here. Though the price proper and the sales tax payable on the sale have not been shown separately in the sale note or the
bought note, since the rate of tax on tea has been fixed by the statute, the tax payable on the transaction is clearly discernible.
The case before the Patna High Court in Radha Krishna Surajmal v. Commissioner of Commercial Taxes [1979] 43 STC 203 is also on the
same lines. There also section 7(2)(a)(ii) provided for a deduction in respect of sales tax collected as such. The dealer in that case claimed
deduction in respect of sales tax on the ground that the value realised under the sale memos issued by him was inclusive of sales tax as all the sale
memos bore the rubber stamp ""including tax"". When the departmental authorities rejected this claim, the assessee took the matter to the High
Court and the High Court held that the Tribunal was not justified on the facts in holding that the deduction claimed by the dealer towards sales tax
realised from the customers was not admissible deduction in terms of section 7(2)(a)(ii) of the Act. The court has proceeded on the basis that
whether the amount shown in the sale memo included partly the value of the goods and partly sales tax realised on the sale, would depend upon the
bargain between the buyer and the seller and so long as the buyer and the seller have understood that what was paid in respect of the sale not only
includes the price proper but also sales tax, then the seller can claim deduction in respect of the sales tax payable on the sale notwithstanding the
fact that sales tax collected has not been separately shown in the sale bills.
In view of this preponderance of judicial opinion on the question, we are not in a position to agree with the Tribunal in this case. In our view, the
assessee in entitled to seek deduction of the sales tax paid by him from the gross turnover. The tax revision cases are therefore allowed. No costs.
Petitions allowed.