V.M.M. Venkatachalam Chettiar vs State of Madras

Ramanujam, J.—The only question that arises in this case is as to whether the disputed turnover of Rs. 14,859.75 represented the discount

allowed to buyers as contended by the petitioner. The petitioner is a manufacturer of ice fruits and ice cakes and he sells them through certain

street vendors. Those persons are supplied by the petitioner with ice boxes for the preservation of the products and bicycles for carrying them.

They take the goods along the streets and sell them. From the sale proceeds realised by the said vendors the petitioner allows them a commission

of 50 per cent in case of the vendors going to the villages and 35 per cent in case of vendors selling within the town. These vendors have been

treated by the assessing authority, appellate authority and the Tribunal as persons employed by the petitioner for selling the goods, their

remuneration being the said commission. The assessing authority treated the entire sale proceeds got by the vendors as the turnover of the

petitioner and brought it to charge. This was objected to by the petitioner. The petitioner contended that there was in fact a sale by him to the

various vendors and that it is the responsibility of those vendors to sell the same and while accounting for the value of the goods sold by them they

deduct the commission due to them. According to him, he is entitled to deduct the commission paid to the vendors as a discount in view of

explanation (2)(iii) of Section 2(r) of the Tamil Nadu General Sales Tax Act read with Rule 5-A of the Tamil Nadu General Sales Tax Rules. This

objection was overruled and the assessing and appellate authorities have held that the vendors are only employees of the petitioner who take

goods from the petitioner and sell them as his salesmen and settle the accounts at the end of the day, and that there is no sale directly to the

vendors by the petitioner. They have further held that the petitioner is not entitled to seek the deduction of the commission paid to the vendors as a

discount or commission for the sale effected to the consumers. The Tribunal also agreed with this view and upheld the assessment made by the

assessing authority. The Tribunal specifically found that there was no evidence to show that the petitioner sold the goods outright to the vendors

and had allowed a discount for those sales and that the sales chittai maintained by the petitioners would show that there was no sale at all when the

goods were handed over to the vendors.

The learned counsel for the petitioner contends before us that the finding of the authorities below that the goods were not sold by the petitioner

to the vendors is not correct and that in fact there has been a sale by the petitioner to the various vendors who took delivery of the goods and sold

them at their risk. But this contention has not been substantiated by any acceptable material. The Tribunal finds that the vendors at the end of the

day bring the sale proceeds along with the unsold goods and the accounts are settled excluding the value of the unsold goods. The fact that the

petitioner takes back the unsold goods from the vendors would clearly show that there has been no sale by the petitioner and that he only entrusted

the goods to the vendors for sale on commission basis. The commission of 50 per cent or 35 per cent, as the case may be, of the sale proceeds

realised by the vendors from the consumers can only represent the amount which the vendors get for the services rendered by them in taking the

goods along the streets and selling them. We are, therefore, of the view that on the findings given by the authorities below, the conclusion is

Inescapable that there is no outright sale by the petitioner to the various vendors who actually sold the goods to the consumers.

The learned counsel for the petitioner then contends that even if the vendors are treated either as agents or employees of the petitioner, still the

petitioner is entitled to the benefit of the deduction under Rule 5-A of the Rules. According to the learned counsel, neither explanation (2)(iii) of

Section 2(r) nor Rule 5-A makes it a condition that the discount shall be given only to the buyer so as to enable the petitioner to claim a deduction

under those provisions. In support of this contention he relies on the decision in Baidya Nath Ayuned Bhawan (P.) Ltd. v. Commissioner of Sales

Tax [1870] 26 S.T.C. 171. However, after going through the said decision, we find that that decision has no application to the facts of the present

case. That decision has not laid down, as contended by the learned counsel, that it is not necessary for getting the benefit under Rule 5-A that the

discount should be paid only to the buyer. A reading of explanation (2)(iii) of Section 2(r) and Rule 5-A would suggest that only the discount

allowed by the seller to the buyer on the sale price agreed will get excluded from the total turnover of the dealer.

In the present case, it is admitted by the petitioner that no discount was allowed to the actual consumers to whom the goods had been sold by

the vendors on behalf of the petitioner. If there is no sale by the petitioner to the vendors outright, there is no question of payment of discount in

respect of any particular sale. The amount of commission paid to street vendors by way of commission cannot be said to be a discount on the price

paid by the buyer, the buyer in this case being the consumer himself. We are fortified in this view by the decision in Hyderabad Chemicals and

Fertilisers Ltd. v. State of Andhra Pradesh [1968] 22 S.T.C. 298, wherein it has been held that where a company sells its products through selling

agents, commission paid to such agents cannot be deducted as a discount allowed to the buyer, as there have been no sales to the agents. We,

therefore, reject the alternative contention put forward by the learned counsel for the petitioner.

The tax case is, therefore, dismissed with costs. Counsel''s fee Rs. 150