S.O.R v. B. c. Patel &- Co

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 Hs. 59,530-13 during the period from November 20, Coa1me»,;a1 Tax 1952, to December 18, 1952, from M/s. British India 'Woollen Mills Branch. Offim, Calrnlla Corporation Ltd., Kanpur Invoices, copies of which were enclosed therewith, hp,d been drawn by the British India Corporation Ltd., for Kanpur Woollen Mills from Kanpur and the goods in question were reported to have been despatched to M/s. Khubiram Dhansiram from Kanpur. Orders Nos. quoted in the invoices were the Nos.-of orders placed to Kanpur Woollen Mills by their sole agents in Vil est Bengal, the appellants herein, and the Assistant Commissioner (C.S.) was of the opinion that under Explanation 2 of s. 2(g) of the Act, the sales of K~npur Woollen Mills from Kanpur as referred to above should be deemed to have taken place in West Bengal and under. Explanation 3 of s. 2(c) of the Act the appellants should be deemed to be tlie dealer in West Bengal on account of the sales of Kanpur Vi' oollen 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 ss. 11 and 14(1) of the Act stating that ho was not satisfied that the return filed by the appellants ror the year ending October 17, 1952, was correct and complete and asked the appellants to produce before him their books of account.· The representatives of the appellants had an inter view with th~ first respondent on the said date and on February Hi, 1953, the appellants submitted to the Jirst respondent a statement in connection with their agency transactim18 with the Kanpur \Voollen Mills, Ka111mr which showed that there were three ty1Jes of .transactions entered into by them as selling agents of the Mills, viz., • (l) The appellants booked orders on behalf of and • ' S.C..R. SUPREME COURT REPORTS imbjcct to acceptance by the Mills and were entitled to get commission on the va, lue of the invoices made out in the name of the party who placed the order, such invoices with other customary documents being sent direct through their Bankers. the parties by the Mills (2) Orders were placed direct by the parties re:!ident in the territories in which the appellants wern selling agents and the goods were supplied directly by the Mills to those parties. There also the appellants were entitled to their commission. Mahadayal Prentc!tandra v. Conimercial Ta:r Officer, Calcietta Bhagwati ]. . , (: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 In regard to the two former categories, of th~ goods. 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) fo.r information with reference to his memo. No. 385;3It- 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 respond ent made an entry in the Order-Sheet dated .lVIay 26, 1953, asking that the following further details may be sent to the Assist. Commissioner (C. S.) to elicit his opini"n in the matter: "The dealer appeared with books of account on· January 21, 1953. On examination it was found that • • llf ah11dayal Premcha11dra , .. C0111nzercial Ta."¥ Officer, Calcutta Bhagwati ] . 55G SUPREME COURT REPORTS [19:39] the dealer made entries onlv of commission received from Messrn. Kanpur W oolle1{ Mills, Kanpur for goods supplied to his customers in West Bengal from Kanpur. In this connection I may point out that the dealer i,rn commission agent of the .Kanpur Woollen J\'1ills for the State of West Bengal earning a commission 011 all sales of goods effected by the Mills within the tcni torial limits n,ssigned to the dealer. Jn most cases ihe deale1· ·secures orders from parties and forwards the same to the Kanpur Mills who supply the goods to the respective parties direct, a percentage of com mission on the value of the goods so supplied being credited to the dealer. 'L'he goods being delivered in \-Vest Bengal for con sumption, no doubt satisfy the requirements of the Explanation to clause (1) of Article 281:i of the Con stitution of India. It is, therefore, conceded tha'.t the ~n,le took place in vVest Bengal. But the fad remains that the seller in such circumstances would obvioush 'L'he privity be the Kanpur Mills and not the dcnJer. of contract is resting with the l(,~rnpur Mills on the one hand and the pnrclmRer on the other. The posi tion of the Kanpur Mills is that of a named and In view of the above observa disclosed principal. tions, 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 \-Vest Bengal direct from Kanpur by Messrs. Kanpur vVoollen Mills." This memorandum was submitted bv the first respondent to the Assistant Commissione"i: (C. S.) for bis 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 n,ccountable for all sales in respect of which the goods were delivered in \-Vest Bengal and thn,t they were commission agents who received commission on all Ralcs made in vVcst Bengal by the Kanpur \-Voo!len Mills, Kanpur and being the commission agents of the Kanpur NJ.ill~ were ·accountable for therefore, . ordered the first respondent to do the needful. The transactions. He, . • , r r MaJurdayal Premcha11dra \'. Cn1n-mercial Ta."( Ofjicer. Calcutta Bhagwal'i ]. s.c.n. first respondent made an entry in the order sheet 011 September 2, l9:J3, 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 }1 list of the dealern in Calcutta who received goods direct from Kanpur. • On ~ ovember 21, l!J32, the representative of the appellants submitted a statement to the first respond ent clarifying the whole position. It was pointed out that the :ippellants acted as agents of l\I/s. Lalimli Mills of Kanpur and got a commission once at the Pnd of every year on all the sales pffected by the Mills in the State of W eRt Bengal. The orders were placed directly bv thP customers of the Mills with the Mills; the Mills executed the ordors and consigned the goods direct to those customers; recording the Raid eusto men; as the eorniign0es ; the said customers 1wgoti11ted bills through the hanks, clt-~ar0d the goods from the carriers and sold them as they liked. The Mills onl v maintained a personal account of the ltppellants i;l which the commission at the encl of a vcar was credit ed. The }lills never debited the ap1~ellants with the vnlne 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 transactiorn; was the property in the goods either transferred to or acquired by the appellants, and nobody could transfer any g0ods which he did not acquire or possess. Besides, the accounts of the said customers of the Mills did not indicate any transactions nt all with the:~ It was there appellants in the State of West Bengal. fore 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 pt9y any sales tax on those sales. It was also pointed out that the appellants had earned the nrnximum 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 iiitended by the law· lants submitted a further statement to On June 19, 1954, the representative of the appel. the fii:at • 55S SUPREME COURT R:E)PORTS [1959] v. 1958 respondent. He pointed out that at.no stage what- ever did the appellants have physical possession or . p~,:;;::;.;:. control over the goods in question and also drew t.he attention of the first respondent to several sales tax Com•ner~ial Tax cases in support of the position taken up by the Offi"'· ca1cu11a appellants. He' also repeated that all through the appellants had been· working as mere commission agents at 2·4% for the transactions effected by tkem 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 l '8% from their own pocket to 1the total commission earned which he felt could never be the intention of the law. Bhagwati J. 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 Mh. Kanpur :Woollen Mills as per provision of Explanation 3 of s. 2 ( c) of the Act. 1 He requested the Assistant Commis sioner (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 Com missioner (C. S.) wrote that his predecessor had already advised the . first respondent on this matter and if. the appellants. were aggrieved they might . pre.fer a reg1;1lar revjsion m 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 comn1issi6n agent of the Cawn pore Woollen Mills for the State of Vilest Bengal 'earning commission on all sales made in West Bengal by the Cawnpore Woollen Mills, Cawnpore. Though '·the principal is at Cawnpore, the dealer, befog the c.ommission ·agent of the Cawnpore Woollen Mills, is . . defini~ely 1jiCC9~µt11-ble fo!;' ~he tr1His1,1,c.tions or eii.lei?, . • , r Ma!tadayal Prenichandra v. C01nmercial Tax Officer, Calcutta Bhagwati ]. / . ' S.C.R. SUPREME COURT REPORTS 559 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, Woollen Mills, Cawnpore, in West Bengal. The state moot 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. assessed at Rs. 13,146,255-8-4." So G. T. is finally 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 asseRsment it is quite clear that the first respondent did not exercise his own judgment in the matter of the asBessnrnnt in question. Evon though he was convinced to the contrary, he asked for the instructions of the AsBistant CommiBsioner (C. S.) and followed the same and aBsesBed the appel lants to sales-tax in respect of the disputed transac tions. The order which he ultimately paBsed on January 15, 1955, further Bhowcd that he was merely voicing the opinion of the Assisfont Commissioner (C.S.) without any conviction of his own and the only thing he had to say in regard to the various grounds mention ed in the letters dated November 21, 1953, and June 19, 1954, waB that they appeared to him to be "not at alf satisfactory". This ~was hardly a satisfactory way of dealing with the matter. If the Ai;siBtant Commissioner (C. S.) had been dealing with the same he could have by all means given in the assessment ord"er which he made his reasons for doing so and theBe 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.) how ever, had delegated this work of assessment to the first respondent and then it was the duty of the first re:>pondent to make tho assei:;sment ocder giving lri~ Mahadayal J1 remchuudra v. Coinniercial Tox Officer. Calcutla Bha_gwati ]. u60 SUPREME COURT REPORTS [1959] own reasons for doing so. The file of the assessee, however, shows that even though the ht 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 instruc tions 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 Com missioner (C. S.) and the first respondent quietly followed these instructions and ad vice of the Assistant Commissioner (C. S.) • "' e are really surprised at the manner in which the first respondent dealt ·with the matter of this assess ment. 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 Com missioner (C. S.) without giving the appellants an opportunity to meet the points urged against them. The whole procedure 'rns contrary to the principles of natural justice. The procedure adopted was, to ,say the least, unfai~ and was calculated to undermine the confidence of the public in the impartial and fair .administration of the sales-tax Department concerned. Vl7e 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 con sideration in accordance with law; but as the matter is old and a remand would lead to unnecessary harass ment of the appellants, we have preferred to deal with the appeal on merits. The determination of this appeal turns on the con struction of the definitions of the terms " dealer " and " Turnover " given in s. 2 of the Act, the relevant portions of which run as under: Section 2 :-In this Act, unless repugnant in the subject or context, • ( c) " /)P,a(~r ;• mci\>ns ft.ny person who ca.rrie~ 011 tho there is an.ything • ' r Mahadayal l:Jre111chandra \', Conuncrcial Ta-.x Officer, Calcutta Bhagwati J. S.C.R. SUPl~El\iE COURT REPORTS 561 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 men tioned or not, who carries on the business of selling goods and who has, iu the customary c!burse of busi ness, authority to sell goods belonging to principals is a dealer; E:rplanation 3: The manager or an agent in West Bengal of a dealer who resides outside West Bengal mid carries on the business of selling goods in West Bengal shall, in n•spect of such business, be deemed to be 1t dealer. ....................................................... . (it "Tirrnorer" : used in relation to any period means the aggregate of the ;;ale-prices or parts of salc if a de1tler so ekct, actually price.g reeei ~·11ble, or reeeived by the dealer during such pm·iod after deduct ing the amounts, if any, refunded by the de; iler in resvect of an.v goods returned by the purchaser within such period." It may be noted that under s. 4 of the. Act every dealer ·whose gross turnover during the year immedi ately preceding the.commencement of the Aot exoeed ed the taxable qniiutum was liable to pay tax under the Act on all sales dfocted after the date so notified; the tax pay<tble by a denler under and under s. 5 the Act was levied 11t the rate therein specified on his tftxable turnover. Vnles;;, there.fore, the ;;ales were c~ected by the dealn rmd the sale proceeds receiYed by hnn su<:h sales could not lm included in hi8 fax able turn over and he would not be lia, ble to pay s1.dei::-t.ax thereon. The position <ts it obtains in the present ease is that evm1according to the tirst respondent's owll showing in the asst•s;;ment order the sales in <1uestion were made by the Kanpur vVoollen .Mills, J\.a,npur, in West Beugal 1md they \1·ere prima.rily the dealers in regard to .guch sales. The appellants were however sought to be ma&i liable to sn.les-tax in respect of these sales by virtue of the expanded definition of the term "dealer" giYen in E~.ylauation :3 to s. 2(c) of the Act. :n10 " \ r958 Mahadayal Prcmcl•andra v. 562 SUPREME COURT REPORTS [1959] question, therefore, arises whether the appellants fall within the definition of" dealer " therein mentioned. Bhagwati f. Explanation 2 to s. 2( c) does not apply for the simple reason that even though the appellants were Commercial Tax the commission agents of the Mills they had not in the customary course of business authori~y to sell Offic", Calcutta goods belonging to the principals. As a matter .-f fact, Cl. 14 of \he 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 s. 2(c) was, therefore, relied upon; but that also would not apply to the appellants. The appellants were no doubt agents of the Mills w11ich "resided outside \Vest Bengal " but it could not be said of them that they carried on the business of sell ing 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 \Vest Bengal. The only thing which was done in this connection was that the appel lants canvassed orders as commission agei1ts of the Mills in "Vest Bengal and forwarded these orders to the Mills, which accepted them and executed the same. The privity of contract was established between the custo mers 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 though a number of orders placed in this manner by the a ppel lants with the Mills were accepted by the Mills in Kanpur, it could not be said that the Mills were carry ing 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 s. 2(c) of the Act and the appellants could not in respe~t of s.uch 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 <>f the Assistii, nt Commi~~ioner (C, f?,) w&& there. w.e i;wto~bl,~. in Kanpur. Even . /· S.C.R. r958 Mahaday11l Premchandra v. Co1!1111erci(ll Ta.~ Officer, Calculla Bhagwati ]. 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 ques tion were directly supplied by the Mills to the custo mers, whether they were supplied in pursuance of the °'-'ders 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 thu~ 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 appel lants in regard to the goods in question and under those circumstances the sale price thereof could not 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 transac tions, even though, perchance, they could be included within the expanded definition of "Dealer " in the Explanation 3 to s. 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 respond~nt 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 respoi1dent 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. ., I ,~ Appeal allowecl, • •