# DELm CLOTH AND GENERAL MILLS CO. LTD. ETC v. COMMISSIONER OF SALF.S TAX, INDORE

- **Citation:** [1971] Supp. 1 S.C.R. 945
- **Court:** Supreme Court of India
- **Decided:** 1971-07-28
- **Case number:** Civil Appeals Nos. 1272 and 1273 of 1967
- **Bench:** K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delm-cloth-and-general-mills-co-ltd-etc-v-commissioner-of-salf-s-tax-indore-5469
- **Pages:** 6

## Headnote

Madhya Pradesh General Sales Tax A.ct, 1958, ss. 2(c), (o), (t), and 4Sales Tax recovered from buyer-If part of turnover.
The assessee, while selling goods, charged the sales tax separately
and collected it from the buyers. It did not include the sales-tax so collec·
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ted in its turnover. The authorities under the Madhya Pradesh General
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Sales Tax Act, 1958, as well as the High Court, held that the sales tax collected from the buyers was a part of the price of the goods sold and tborefore should have been included in the assessee's turnover.
In appeal to this Court,
HELD: · Under s. 4 of the Act the liability to pay tax is that of the
dealer. There is no provision in the Act imposing any liability on the
purchaser to pay the tax so imposed on the dealer and there ~ no law
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empowering the dealer to collect the tax from bis buyer. Hence the dealer
would not be legally entitled to collect the tax payable by him from his
buyer, and whatever collection the dealer makes from his customers can
only be by adding the tax to the price, so that, the tax becomes part of
the valuable consideration given by a purchaser for the goods purchased
by him.
Therefore, the distinction between the two amounts-tax and
price-loses all significance, and the tax becomes a part of the sale price as
defined in s. 2(c) of the Act and must be taken into consideration in comE
puling the turnover. (9480-G ; 950A)
Tata Iron & Steel Co. Ltd. v. Stat• of Bihar, [1958) S.C.R. 1355, Mis.
·George Oaks (P) Ltd. v. State of Madras, 12 S.T.C. 476, Paprika Ltd, .t
Anr. v. Board of Trade, (1944) All. E.R. 372 and Lov. v, Norman Wright
(Buil<krs) Ltd., [1944] I All. E.R. 618, referred to.
Deputy Commissioner of Commercial Taxes, Coimbatore, v. M. Krisllnaswamy Mudaliar & Sons, 5 S.T.C. 88, distinguished.
QVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1272
and 1273 of 1967.
Appeals by special leave from the judgment and order dated
July 10, 1967 of the Madhya Prad_esh High Court in Misc. Civil
Cases Nos. 61 and 62 of 1967.
AND
Civil Appeal No. 2453 of f968.
S. T. Desai, A. N. Sinha and G. S. Chatterjee for the appellant (in C.As. Nos, 1272 and 1273 of 1967).
A. N. Sinha, for the appellant (in C.A. No. 2453 of 1968).
I. N. Shroff, for the respondent (in all the appeals).
6~-1 s.c. India/71
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## Text

845
DELm CLOTH AND GENERAL MILLS CO. LTD. ETC.
A
v.
COMMISSIONER OF SALF.S TAX, INDORE
July 28, 1971
[K. S. HEGDE AND A. N. GROVER, JJ.)
Madhya Pradesh General Sales Tax A.ct, 1958, ss. 2(c), (o), (t), and 4Sales Tax recovered from buyer-If part of turnover.
The assessee, while selling goods, charged the sales tax separately
and collected it from the buyers. It did not include the sales-tax so collec·
B
ted in its turnover. The authorities under the Madhya Pradesh General
C
Sales Tax Act, 1958, as well as the High Court, held that the sales tax collected from the buyers was a part of the price of the goods sold and tborefore should have been included in the assessee's turnover.
In appeal to this Court,
HELD: · Under s. 4 of the Act the liability to pay tax is that of the
dealer. There is no provision in the Act imposing any liability on the
purchaser to pay the tax so imposed on the dealer and there ~ no law
D
empowering the dealer to collect the tax from bis buyer. Hence the dealer
would not be legally entitled to collect the tax payable by him from his
buyer, and whatever collection the dealer makes from his customers can
only be by adding the tax to the price, so that, the tax becomes part of
the valuable consideration given by a purchaser for the goods purchased
by him.
Therefore, the distinction between the two amounts-tax and
price-loses all significance, and the tax becomes a part of the sale price as
defined in s. 2(c) of the Act and must be taken into consideration in comE
puling the turnover. (9480-G ; 950A)
Tata Iron & Steel Co. Ltd. v. Stat• of Bihar, [1958) S.C.R. 1355, Mis.
·George Oaks (P) Ltd. v. State of Madras, 12 S.T.C. 476, Paprika Ltd, .t
Anr. v. Board of Trade, (1944) All. E.R. 372 and Lov. v, Norman Wright
(Buil<krs) Ltd., [1944] I All. E.R. 618, referred to.
Deputy Commissioner of Commercial Taxes, Coimbatore, v. M. Krisllnaswamy Mudaliar & Sons, 5 S.T.C. 88, distinguished.
QVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1272
and 1273 of 1967.
Appeals by special leave from the judgment and order dated
July 10, 1967 of the Madhya Prad_esh High Court in Misc. Civil
Cases Nos. 61 and 62 of 1967.
AND
Civil Appeal No. 2453 of f968.
S. T. Desai, A. N. Sinha and G. S. Chatterjee for the appellant (in C.As. Nos, 1272 and 1273 of 1967).
A. N. Sinha, for the appellant (in C.A. No. 2453 of 1968).
I. N. Shroff, for the respondent (in all the appeals).
6~-1 s.c. India/71
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SUPRBMll COURT REPORTS
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The Judgment of the Court was delivered by
Hegde, J.-These appeals by special leave arise trom the
decision of the High Court of Madhya Pradesh in three references
under s. 44(1) of the Madhya Pradesh General Sales Tax Act,
1958 (to be hereinafter referred to as the Act). Those references
were made at the instance of the assessee who is the appellant in
all these appeals. The question of law referred to the High Court
for its opinion in each one of these cases is identical and that
question reads:
"In the facts and circumstances of the case is the
sales tax recovered by the petitioner a part of the sale
price as defined in clause (o) of Section 2 of the Madhya
Pradesh General Sales Tax Act, 1958."
Herein we are concerned with. the assessment years 1961-1962,
1962-1963 and 1963-1964. The assessee is-a dealer in Vanaspati.
The facts found are that while selling Vanaspati, the assessee
~barged the sales tax separately and collected the same from his
buyers. To each of its buyer it issued a receipt in respect of
each sale transaction wherein it showed the price of the goods as
such and the sales tax payable on the price of those goods. In the
turnover returned it did not include the sales tax collected by it
from its buyers but the authorities under the Act as well as the
High Court held that sales tax collected by it from its buyers was
a part of the price of the goods sold and therefore the same. will
have to be taken into consideration in computing its turnover.
The assessee is challenging that conclusion.
Section 4 of that Act is the charging section. Sub-s. (!) thereof
says:
"Every dealer whose turnover during a period of
twelve months inJt:nediatelv preceding the commencement
of this Act exceeds the limit specified in sub-section (5),
shall from such commencement be liable to pay tax
under this Act on his taxable turnover in respect of sales
or supplies of goods effected in Madhya Pradesh."
A dealer is defined in s. 2(d) as
meaning any person who
carries on the business of buying, selling, supplying or distributing
goods, directly or otherwise, whether for cash, or for deferred
payment, or for commission,
remuneration or other valuable
consideration, be it a society, a club, firm or association which
buys goods from or sells, supplies or distributes goods to its members or commission . agent, a broker, a del-creders agent. an
auctioneer or any other mercantile agent, by whatever name called,
who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal.
n.c.M. v. COMMR. SALES TA.X (Hegde, J.)
"Turnover" is defined thus in s. 2(t) :
" "turnover" used in relation to any period means
the aggregate of the amount of sale prices received and
receivable by a dealer in respect of any sale or supply
or distribution of goods made during that period, whether or not the whole or any portion of such turnover
is liable to tax hut after deducting the amount, if any,
refunded by the dealer to a purchaser, in respect of any
goods pμrchased and returned by the purchaser w.ithin
the prescribed period :
Provided that in the case of a sale by a person of
agricultural or horticultural produce grown by himself
or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, the amount of the ·consideration relating to such
sale shall be excluded from his turnover when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other
process for being made fit for consumption save mere
dehusking, cleaning, grading or sorting."
"Sale price" is defined in s. 2(o) :
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" 'sale price' ,means the amount payable to a
dealer as valuable consideration for the sale of any goods,
les.s any sum allowed as cash discount according to or<fi.
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nary trade practice but includillg any sum charged for
anything done by the dealer in respect of the goods at
the time or before delivery thereof other than the cost
of installation when such cost is <Separately charged and
the expression 'purchase price' shall be construed accordingly."
F
In view of the definition of sale price. all that we have to see
is whether the ,collection of sales tax. ,by the dealer from his pur·
chasers can be considered as valuable consideration received by
lliln for the sale of goods.
Under s. 4 the liability to pay tax is that of the dealer. The
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purchaser bas no liability to pay tax. There is no provision in the
Act from which it can be gathered that the Act imposes any
liability on the purchaser to pay the tax imposed on the dealer.
If the dealer passes on his tax burden to bis purchasers be can
only do it by adding the tax in question to the price of the goods
·sold. In that event the price fixed for the goods including the tax
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payable becomes the valuable consideration given by the purchasers for the goods purchased by him. If thai be so, the tax collect·
~ by the dealer from his purchasers becomes a part of the sale
948
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SUPREME COURT REPORTS
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price fixed, as defined in s. 2(o). In some of the Sales Tax Acts
power bas been conferred on the dealers to pass on the incidence
of tax to the purchasers subject to certain conditions. Those
provisions may call for different consideration. In the Act there
is no such provision except s. 7-A which was introduced into the
Act by Madhya Pradesh Act 23 of 1963. That provision would
have relevance only in respect of the assessment for the year
1963-64.
Section 7-A says:
"No dealer shall collect any amount, by way
of
sales-tax or purchase tax, from a person who sells agricultural or horticultural produce grown by himself or
grown on any land in which he has an interest, whetll~r
as owner, usufructuary mortgagee, tenant or otherwis~.
when such produce is sold in the form in which it was
produced, without being subjected to any physical, chemical or other process for being made fit for consumption save niere dehusking, cleaning, grading or sorting."
In these appeals, it is not necessary to examine the relevance
of that provision. But that provision does not give any statutory
power to collect sales tax as such from any class of buyers.
There is no other provision in the Act which. confers such a
power on the dealers. Unless the price of an article is controlled, it is always open to the buyer and the seller to agree
upon the price to be payable. While doing so it is open to the
dealer to include in the price the tax payable by him to the government. If he does so, he cannot be said to be collecting the tax
payable by him from his buyers. The levy and collection of tax is
regulated by law and not by contract. So long as there is no law
empowering the dealer to collect tax from h.is buyer or seller,
there is no legal basis for saying that the dealer is entitled to collect
the tax payable by him from his buyer or seller. Whatever collection that may be made by the dealer from his customers the same
can only be considered as valuable consideration for the goods
sold.
In MI s. George Oakes (Private) Ltd. v. The State of Madras
and Ors. (') this Court was called upon to consider whether
a dealer can pass on his tax liability as such to his customer. In
that decision while rejecting the contention that the tax liability
as such can be transferred to the buyers this Court referred to the
observations of Lawrence J. in Paprika Ltd. and anr. v. Board of
(I) 12 S.T.C. 476.
D.C.M. v. COMMR. SALES TAX (Hegde, J.)
949
Trade(') and Goddard L. J. in Love v. Norman Wright (Builders)
A
Ltd.(').
In the former case Lawrence J. observed :
"Whenever a sale attracts purchase tax,
that tax
presumably affects; the price which the seller who is
liable to pay the tax demands but it does not cease to
be the price which the buyer has to pay even if the
price is expr~ssed as x plus purchase tax."
In Love's case (supra) Goddard L. J. observed :
"Where an article is taxed,
whether
by
purchase
tax, customs duty, or excise duty, the tax becomes part
ofl the price which ordinarily the buyer will have to
pay. The price of an ounce of tobacco is what it is
because of the rate of tax, but on a sale there is only
one consideration though made up of cost plus profit
plus tax. So, if a seller offers goods for sale, it is for
him to quote a price which Includes the tax if he de·
sires to pass it on to the buyer. If the buyer agrees
to the price, it is not for him to consider how it is
made up or whether the seller has included tax or not."
In that decision reference was also made to the decision of
this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar(')
Therein Das C. J. who delivered the majority judgment of the
Court said :
"The
circumstance that the
1947 Act, after the
amendment, permitted the seller who was a registered
dealer to collect the sales tax as a tax from the pur·
chaser does not do away with the primary liability of
the seller to pay the sales tax.
This is further made
clear by the fact that the registered dealer need not, if
he so pleases or chooses, collect the tax from the pur·
chase~ 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. This also makes it clear
that the sales tax need not be passed on to the purcha·
sers and this fact does not alter the real nature of the
tax, which by the express provisions of the law, is cast
upon the seller. The buyer is under no li~bility to pay
sales tax in addition to the agreed sale pnce unless the
contract specifically provides otherwise.
See Love v.
Norman Wright (Builders), Ltd."(')
(I} [1944] I, All. E.R. 372.
(2) [1944]1 All. E.R. 618.
(3) [19S9] S. C. R. 13SS.
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From all these observations, it is clear that when the seller
passed on his tax liability to the buyer, the amount recovered by
dealer is really part of the entire consideration paid by the buyer
and the distinction between the two amounts, tax and price looses
all significance.
In support of his contention tbA: appellant relied on the
decision of the Madras High Court in The Deputy Commilsioner of Commercial Taxes, Coimbatore v. M.
Krishna.rwamy
Mudaliar and sons('). Therein on an interpretation of ~
relevant
provisions of the Madras General Sales Tax Act, the court came
to the conclusion that the sales tax which the dealer was authori&-
ed to collect from his customers was not a part of the sale price
received by him. This conclusion was primarily based on s. 8(B)
(!) of the Madras ·General Sales Tax Act, 1939. There is no
similar provision in the Act. Therefore it is not necessary for
us to consider the correctness of that decision.
In the result these appeals fail and they are dismissed with
costs. Hearing fee one set.
V. P. S.
Appeals dismissed • .
(I) SS. T.C. 88.
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