# tl d 1 1 d b tl t . 1 v. a owe an tic c ccrecs passe

- **Citation:** [1962] 2 S.C.R. 570
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 280 and 281 of 1960
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayatullah, J.C. Shah, T. L. VENKATARAMA ArYAR
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tl-d-1-1-d-b-tl-t-1-v-a-owe-an-tic-c-ccrecs-passe-2275
- **Pages:** 17

## Headnote

Sales Tax-Turnover-If includes tax collected by sellerDecnzing statute-Constitutionality-Constitution of India, Entry
54, List II Seventh Schedule-Government of India Act, z935 (26
Geo. 5 GI Ed. 8 Ch. 2), Entry 48, List II, Sch. VII-Madras
General Sales Tax Act, (Mad. Act IX of r939), ss. 2(i), 2(h), 8BM adras General Sales (Definition of Turnover and Validation of
Assessments) Act, r954 (Mad. XV II of r954), ss. 2, 3-Turnover
and Assessment Ruks, rr. 4, 5, 6. II.
Certain amounts collected by the appellants as salrs tax
were included in their turnover by the sales tax authorities.
They contested the constitutional validity of the Madras
General Sales (Definition of Turnover and Validation of Assessments) Act, 1954. on the ground inter alia that the Sate Legislature went beyond its legislative competence under entry 54
of List II of the Constitution in enacting by the impugned Act
that the amounts collected by the dealer by way of tax shall he
deemed to have formed part of his turnover.
Held, that entry 54 of List II of the Seventh Schedule of
the Constitution is similar to entry 48 of List II of Sch. VII of
the Government of India Act, 1935 sales under which have been
held to be transactions passing ti tie to the Goods from the
seller to the buyer and that a mere executory agreement was
not a sale within the meaning of that entry. The same meaning must be given to entry 54.
2 s.c.R. SUPREME COUR'r REPORTS
571
State of Madras v. Gannon Dullkerly & Co., Ltd., [r959] S.C.R.
379 and Sales Tax Officer v. M/s. Budh Prakash ]ai Prakash,
[r955] r S.C.R. 243, referred to.
Under ss. 2(i) and 2(h) of the Madras General Sales Tax
Act, 1939, the expression "turnover" means the aggregate
amount for which goods are sold either for cash or deferred
payment or other valuable consideration, and when a sale
attracts purchase tax which is passed on to the consumer what
the buyer has to pay includes the tax and the aggregate amount
to be paid would fall under the definition of turnover. \\'hen the
seller passes on the tax and the buyer agrees to pay sales tax
in addition to the price, the tax is really part of the entitle considerations.
Papreka Ltd. v. Board of Trade, [r944] I All E.R. 372, Love
v. Norman Wright (Builders) Ltd., [r944] l All E. R. 618,
followed.
Asoka Mar/1eting Co. Ltd. v. The State of Bihar, [r959] 10
S.T.C. 110 and Tata Iron and Steel Co. v. The State of Bihar,
[r958] S.C.R. 1355. referred to.
Although s. BB of the Madras General Sales Tax Act, r939
and the Turnover and Assessment Rules separately mentioned
the amounts collected as tax for the purpose of paying such
amounts to the Government, no immutable distinction was
drawn between the sale price and the tax nor was any such
distinction maintained under s. 2 of the impugned Act. Assuming that such a distinction did exist the Legislature was competent to enact under entry 54 in List II of the Constitution
that the tax shall be deemed to have formed part of the turn·
over and obliterate the distinction for the limited period
during which the impugned Act operated. The impugned Act
was therefore valid.
The Deputy Commissioner of Commercial Taxes v. M. Krishna.
swami Mudaliar, [r954] 5 S.T.C. 88, held not applicable.
Sri Sundararajan & Co. v. The State of Madras, [r956] 7
S.T.C. 105, approved.
The Government of Andhra v. East India Commercial Co., Ltd.,
[1957] 8 S.T.C. n4 and Bengal Immunity Co., Ltd. v. State of
Bihar, [r955] 2 S.C.R. 603, referred to.
CIVIL
APPELLATE
JURISDICTION: Civil Appeals
Nos. 280 and 281 of 1960.
Appeal from the judgment and order dated April
20, 1956, of the Madras High Court, in T. R. C. Nos.
101 and 102 of 1956.
R. Ganapathy Iyer and G. Gopalakrishnan, for the
appellant.
M. M. Ismail and T. M. Sen, for the respondent.
I96I
George Oakes
(P.) Ltd,
v.
State of Madras
George Oakes
(P.) Ltd.
v.
State of lt!adras
572
SUPREME COURT REPORTS
[1962]
D. V. Sastri and T. M. Sen, for Intervener No. 1.
Naunit Lal, for Intervener No. 2.
S. M. Sikri, Advocate-Gene

## Text

570
SUPREME COURT REPORTS
[1962]
r961
hearing cases would refer the matter for the decision
of a Full Court,. In the result these appeals are
Jaisri Sahu
11
tl
d 1 1
d b tl t . 1
t
v
a owe
an tic c ccrecs passe
y
ie ria cour rcsRajdewa;, Dubey tored with costs throughout. One set of hearing
costs.
Ve11kataraina
Aiyar ].
1961
April z8.
Appeals allowed.
M/S. GEOl~GE OAKES (P.) LTD.
v.
STATE OF MADRAS
(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH,
J.C. SHAH and T. L. VENKATARAMA ArYAR, JJ.)
Sales Tax-Turnover-If includes tax collected by sellerDecnzing statute-Constitutionality-Constitution of India, Entry
54, List II Seventh Schedule-Government of India Act, z935 (26
Geo. 5 GI Ed. 8 Ch. 2), Entry 48, List II, Sch. VII-Madras
General Sales Tax Act, (Mad. Act IX of r939), ss. 2(i), 2(h), 8BM adras General Sales (Definition of Turnover and Validation of
Assessments) Act, r954 (Mad. XV II of r954), ss. 2, 3-Turnover
and Assessment Ruks, rr. 4, 5, 6. II.
Certain amounts collected by the appellants as salrs tax
were included in their turnover by the sales tax authorities.
They contested the constitutional validity of the Madras
General Sales (Definition of Turnover and Validation of Assessments) Act, 1954. on the ground inter alia that the Sate Legislature went beyond its legislative competence under entry 54
of List II of the Constitution in enacting by the impugned Act
that the amounts collected by the dealer by way of tax shall he
deemed to have formed part of his turnover.
Held, that entry 54 of List II of the Seventh Schedule of
the Constitution is similar to entry 48 of List II of Sch. VII of
the Government of India Act, 1935 sales under which have been
held to be transactions passing ti tie to the Goods from the
seller to the buyer and that a mere executory agreement was
not a sale within the meaning of that entry. The same meaning must be given to entry 54.
2 s.c.R. SUPREME COUR'r REPORTS
571
State of Madras v. Gannon Dullkerly & Co., Ltd., [r959] S.C.R.
379 and Sales Tax Officer v. M/s. Budh Prakash ]ai Prakash,
[r955] r S.C.R. 243, referred to.
Under ss. 2(i) and 2(h) of the Madras General Sales Tax
Act, 1939, the expression "turnover" means the aggregate
amount for which goods are sold either for cash or deferred
payment or other valuable consideration, and when a sale
attracts purchase tax which is passed on to the consumer what
the buyer has to pay includes the tax and the aggregate amount
to be paid would fall under the definition of turnover. \\'hen the
seller passes on the tax and the buyer agrees to pay sales tax
in addition to the price, the tax is really part of the entitle considerations.
Papreka Ltd. v. Board of Trade, [r944] I All E.R. 372, Love
v. Norman Wright (Builders) Ltd., [r944] l All E. R. 618,
followed.
Asoka Mar/1eting Co. Ltd. v. The State of Bihar, [r959] 10
S.T.C. 110 and Tata Iron and Steel Co. v. The State of Bihar,
[r958] S.C.R. 1355. referred to.
Although s. BB of the Madras General Sales Tax Act, r939
and the Turnover and Assessment Rules separately mentioned
the amounts collected as tax for the purpose of paying such
amounts to the Government, no immutable distinction was
drawn between the sale price and the tax nor was any such
distinction maintained under s. 2 of the impugned Act. Assuming that such a distinction did exist the Legislature was competent to enact under entry 54 in List II of the Constitution
that the tax shall be deemed to have formed part of the turn·
over and obliterate the distinction for the limited period
during which the impugned Act operated. The impugned Act
was therefore valid.
The Deputy Commissioner of Commercial Taxes v. M. Krishna.
swami Mudaliar, [r954] 5 S.T.C. 88, held not applicable.
Sri Sundararajan & Co. v. The State of Madras, [r956] 7
S.T.C. 105, approved.
The Government of Andhra v. East India Commercial Co., Ltd.,
[1957] 8 S.T.C. n4 and Bengal Immunity Co., Ltd. v. State of
Bihar, [r955] 2 S.C.R. 603, referred to.
CIVIL
APPELLATE
JURISDICTION: Civil Appeals
Nos. 280 and 281 of 1960.
Appeal from the judgment and order dated April
20, 1956, of the Madras High Court, in T. R. C. Nos.
101 and 102 of 1956.
R. Ganapathy Iyer and G. Gopalakrishnan, for the
appellant.
M. M. Ismail and T. M. Sen, for the respondent.
I96I
George Oakes
(P.) Ltd,
v.
State of Madras
George Oakes
(P.) Ltd.
v.
State of lt!adras
572
SUPREME COURT REPORTS
[1962]
D. V. Sastri and T. M. Sen, for Intervener No. 1.
Naunit Lal, for Intervener No. 2.
S. M. Sikri, Advocate-General, Punjab and D. Gupta,
for Intervener No. 3.
S. M. Sikri, Advocate-General, Punjab, N. S. Bindra
and D. Gupta, for Intervener No. 4.
G. C. Kasliwal, Advocate-General, Rajasthan, 8. J(.
Kapur and D. Giipta, for Intervener No. 5.
1961. April 28.
The Judgment of the Court was
delivered by
s. R. Das J.
S. K. DAS, J.-These are two appeals on certificates
granted by the High Court of Madras and consolidated by its orders dated March 22, 1957. They are
from the judgment and orders of the said High Court
dated April 20, 1956 and July 30, 1956 in two Tax
Revision Cases, by which the High Court dismissed
two petitions filed by the appellants under s. 12-B of
the Madras General Sales Tax Act (Madras Act IX of
1939), hereinafter called the principal Act, in the following circumstances.
Messrs. George Oakes (Private) Limited, appellants
herein, are dealers in Ford motor cars, spare parts and
accessories. For the two years 1951-52 and 1952-53
the appellants submitted their returns under the relevant provisions of the principal Act and claimed
exemption from tax with regard to certain amount
realis"d on transactions of sales which the appellants
contended were inter-State sales and hence exempt
from tax under Art. 286 of the Constitution as it stood
at the relevant time. The Deputy Commercial Tax
Officer, Madras, not only rejected the claim of exemption, but a<l<led to the turnover cerlain amounts which
the appellants had collected by way of tax. The
amounts so added for 1951-52 were-(a) Rs. 8,000 to
the net. turnover assessable at 3 pies per rupee, an<l
(b) Rs. 4,30,000 to the turnover assessable at 9 pies
per rupee. For -'52-53 the amounts so added were
-(a) Rs. 30,132 odd and (b) Rs. 2,92,257 odd respectively.
Aggrieved by the orders of the Deputy Commercial
I
'j
•1
2 S.C.R. SUPREME COURT REPORTS
573
Tax Officer, the appellants preferred two appeals to
the Special Commercial Tax Officer, Appeals, Madras
City. These appeals were dismissed. The matter was
then taken to the Sales Tax Appellate Tribunal by
means of two appeals. By this time the Madras
Legislature had passed the Madras General Sales
(Definition of Turnover and Validation of Assess.
ments) Act, 1954, being Madras Act No. XVII of 1954.
This Act we shall refer to as the impugned Act in
this judgment, because its constitutional validity is
now the only question for decision in these appetLls.
Tho Tribunal negatived the claim of the appellants
arising out of the contention that some of the sale
transactions in the relevant years were in effect inter.
Strite sales and therefore exempt from tax; the tribun111 declined to go into the second question of the
constitutional validity of the impugned Act. We may
strite here, though nothing now turns upon this, that
the Tribunal held that when sales tax was included in
the turnover, it was proper to tax the amounts so included at the minimum rate only, viz., 3 pies in the
rupee under s. 3(1) of the principal Act.
Thereafter the appellants filed two revision petitions
to the High Court under s. 12-B of the principal Act.
These were dismissed in limine.
By the orders dated
April 20, 1956 the High Court held that the contention as to some of the transactions being inter-Strite
sales wris concluded bv one of its earlier decisions,
which came before us· in Ashok Leyland Ltd. v. The
Stute of llfodras, Civil Appeal No. 446 of 1958. In
that appeal we delivered judgment on March 28, 1961
and held that the Sales Tax Laws (Validation) Act,
1956 applied and it was unnecessary to consider the
true nature of tho transactions which the appellant.•
contended were inter-State sales. Learned Counsel
for the appellants has conceded before us that that
decision governs the present appeals, and the first
question no longer survives.
As to the secnnd question, the High Court by oversight did not deal with it ih its orders dated April 20,
1956.
When the matter was brought to the notice of
73
Geo, ge Oaf1(s
(P.) Ltd.
v.
State nf ,~1atlras
S. K. Das J
I96I
George OaJ,es
(P.) Ltd,
v
State of Madras
S. K. Das ],
574
SUPREME COURT REPOR~;s
[1962]
the High Court, it said in its orders dated July 30, ·
1956 that the second question was also c:oncluded by
its decision in Sri Sundararajan and Co., Ltd. v. The
State of Madras (1) where the validity of the impugned Act was upheld.
When we heard these appeals along with Ashok
Leyland Ltd. v. The State of Madras, Civil Appeal
No. 446 of 1958, we expressed the view tbat there was
some divergence of opinion in the High Courts on the
second question and the substantial point for consideration before us was whether the impugned Act
was validly made under entry 54 of the State List in
the Seventh Schedule to the Constitution: thus the
question raised was one of legislative competence and
affected all the States. The State of Madras was
already a party respondent to these appe:tls. Accordingly, we directed the issue of notices to the Advocates-General of all other States also. In pursuance
of the said notices the Advocates-General of Andhra
Pradesh, Assam, West Bengal, Gujarat, Maharashtra,
Punjab and Rajasthan have appeared before us. They
have unanimously supported the State of Madras in
its submi~sion that the impugned Ant iEi valid; some
of them have added supplementary arguments in support of that submission.
l<'or convenience and brevity we shall refer in this
judgment to the main arguments as representing two
differing points of view; firstly, there is the argument
on behalf of the appellants that the several provisions
of the principal Act as also s. 2 of the impugned Act
make a distinction between the sale ptice of goods
sold and the amount collected by way of tax and in
view of that distinction made, what the impugned
Act seeks to impose is a 'tax on sales-ta.x', a subject
which does not come within the ambit of entry 54 of
List II which at the relevant time read faS "Taxes on
the sale or purchase of goods other than newspapers."
On the other side, the argument is that what the
impugned Act seeks to do is to enlarge tne scope of
the definition of 'turnover' so as to include the amount
collected by way of tax in the turnover by a deeming
(1) (1956) 7 S,T,C, 105.
2 S.C.R. SUPREME COURT REPORTS
575
provision, and this the State Legislature was competent to enact under entry 54 of the State List. These
are the main arguments on two sides; but there are
several subsidiary points in support of the main argument on each side, and it would be an over simplification to ignore these alt.ogether. We shall, therefore,
consider them also when dealing with the main argument on each side.
We shall first refer to the relevant provisions of the
principal Act and of the impugned Act, in so far as
they bear on the points debated before us. Under s. 3
of the principal Act which is the charging section,
every dealer is liable to pay, subject to the provisions
of the Act, for each year a tax on his total turnover
for that year calculated at a particular percentage of
such turnover. What is 'turnover' is defined in s. 2{i).
The definition substantially states-" 'turnover' means
the aggregate amount for which goods are either
bought or sold by a dealer whether for cash or for
deferred payment or other valuable consideration ..... "
'Sale' is defined in s. 2(h) and means (we are reading
so much of the definition only as is material for our
purpose) "every transfer of property in goods by one
person to another in the course of trade or business
for cash or deferred payment or other valuable consideration." It is worthy of note here that the tax
imposed by the principal Act is a tax on total turnover, and turnover means the aggregate amount for
which goods are either bought or sold by a dealer.
Therefore, one of the questions which fall for consideration is whether the State Legislature went beyond
its legislative competence in enacting by the impugned Act that the amounts collected by the dealer by
way of tax shall be deemed to have formed part of
his turnover.
This brings us to s. SB of the principal
Act, which provides in sub.s. (1) that no person who
is not a registered dealer shall collect any amount by
way of tax; nor shall a registered dealer make any such
collection except in accordance with such conditions
and restrictions, if any, as may be prescribed; sub-s. (2)
provides inter alia that every person who has collected or collects by way of tax any amounts shall pay
Gear gt- Oakes
(P.) Ltd.
v.
State of Madras
S, K. Das J.
576
SUPREME COURT REPORTS
[1962]
over the same to the State Government. Section 15
provides for penalties for a contravention of some of
Gco,gc Oakes
the provisions of the principal Act including the
(P.) Ltd,
v.
provisions of s. SB.
State of Mad'"'
In The Deputy Commissioner of Commercial Taxes,
S. [(, Das ].
Coimbatore Division v. M. Krishnaswami Mudaliar &
Sons(') the Madras High Court held that the amount
collected by a registered dealer from the consumer by
way of sales tax and paid over to Government should
not be included in the turnover of the registered
dealer as part of the sale price of the goods sold and
it was not liable to be taxed again. This decision was
given on January 7, 1954. In July 1954 was enacted
the impugned Act sections 2 and 3 whereof need only
be set out here.
"S. 2. Sales Tax. Collections by dealers to be deemed
part of turnover.-In the case of sales made by a
dealer before the 1st April 1954, amounts collected
by him by way of tax under the Madras General
Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinaner referred to as the principal Act), shall be
deemed to have formed part of his turnover.
3. Validation of certain assessment and collections.-
( I) All assessments, and collections made, all orders
passed, all actions taken by any officer in the
exercise or purported exercise of jurisdiction or
power conferred by the principal Act, and all judgments, decrees or orders pronounced by any Tribunal or Court in the exercise of its jurisdiction or
powers with respect to matters in the principal Act,
on the basis that amounts collected by a dealer by
way of tax under the principal Act before the 1st
April 1954, formed part of the turnover of the
dealer are hereby declared to have been validly
made, passed, taken or pronounced, as the case may
be; and any finding recorded by any offie;er, Tribunal or Court to a contrary effect and any order,
judgment or decree in so far as such order, judgment
or decree embodied or is based on any such finding
and does not relate merely to the costs of the
proceeding which result in the judgment, decree or
order shall be void and of no effect:
(2) [1954] 5 S.T.C 88.
. .
2 S.C.R.
SUPREME COURT HEP01{,TS
577
Provided that no act or omission on the part of
any person shall be punishable as an offence which
woultl not have been so punishable if this Act, had
not been passed.
(2) Nothing in sub-section (I) shall be construed
as authorising any officer, in assessing any dealer in
the exercise or purported exercise of jurisdiction or
powers conferred by tho principal Act, to include in
the turnover of the dealer amounts collected by him
after the 1st April 1954 by way of tax under the
principal Act."
The validity of the impugned Act was then questioned in the Madras High Court and in Sri Sundararajan and Co., Ltd. v. The State of .Madras(') it was
held that the impugned Act was valid. The High
Court pointed out that the earlier decision in Kr·ishnaswami Mudaliar's case(') was not that the State
Legislature could not make the amounts collected by
a registered dealer by way of tax under s. SB part of
the assessable turnover, but that the principal Act as
it stood at the relevant time did not make such
amounts part of the assessable turnover. It held that
in pith and substance the impugned Act validated the
assessments already made before April 1, 1954 and
that even where the registered dealer collected any
amount by way of tax under the authority of s. SB,
the prtyment by the purchaser was on the occasion of
the sale by the dealer and vis-a-vis the latter it was
in reality part of the price the purchaser paid the
seller for purchasing the goods. The same view was
also expressed by the Patna High Court in Asoka
Marketing Company Ltd. v. The State of Bihar (') with
regard to the Bihar Sales Tax (Definition of Turnover
and Validation of Assessments) Act, 195S.
The question before us is whether the aforesaid view is correct.
The relevant legislative entry, as we have said
earlier, is entry 54 of List II-"Taxcs on the sale or
purchase of goods other than newspapers." A similar
entry (no. 4S) in List II of Schedule VII to the
Government of India Act, 1935 read as "Taxes on the
(l) (r956J 7 S.T.C. 10,5.
(2) (1954] 5 S.T.C. 88,
(3) [r959J •o S.T.C. no.
George Oakes
(P.) Ltd.
v.
State of l\fadras
S. Ti. Das J.
578
SUPREME COURT REPORTS
[1962]
1?61
sale of goods." The true scope and effect of that entry
was considered by this Court in the State of Madras v.
George 01ilas
'J
(P.) Lrd,
Gannon Dunkerley and Co. (Madras) Ltd. (1) and on a
v.
review of several decisions bearing on the subject it
State of Madras held that the expression "sale of goods" was a term of
well-recognised legal import in the general law relats. K. Das f.
ing to sale of goods and in the legislative practice
relating to that topic and must be interpreted as
having the same meaning as in the Sale of Goods Act,
1930; in other words, it was held that sales contemplated by entry 48 of the Government of India Act, 1935
were transactions in which title to the goods passed
from the seller to the buyer, and in The Sales Tax
Officer, Pilibhit v. Messrs. Budh Prakash J ai Prakash(')
it was held that a mere executory agreement was not
a sale within the meaning of that entry.
We think
that the same meaning must be given to entry 54 of
List II of the Seventh Schedule to the Constitution.
The question before us is that giving that meaning to
the entry, is the impugned Act a valid piece of legislation by a competent Legislature?
Now, learned Counsel for the a.ppcllants has not
raised before us the ext.reme contention that in no
case could the State Legislature validly make a law
which would include the amount collected by way of
tax as part of the turnover of the dealer. He bas
submitted that it is unnecessary for him in this case
to press into service any such wide proposition. His
argument is that the principal Act by ss. SB and 15
and the impugned Act by s. 2 thereof having made a
distinction between what he calls the sale price and
what is collcct~d by way of .tax by the dealer, the
question of the validity of the impugned Act must be
determined on the basis of that distinction and so
determined, what the impugned Act does is to impose
what learned Counsel ca.Us "a tax on tax" and therefore not covered by the relevant legislative entry.
His submission further is that what is collected by
way of tax being distinct from sale price and therefore
from turnover, it must be necessarily held that the
amount collected by way of tax is not essentially
(1) [195 >] S.C.R. 379.
(2) [r955J 1 S.C.R. 243.
2 S.C.R.
SUPREME COURT REPORTS
579
connected with the transaction of sale and therefore
the imposition of "a tax on tax" has no necessary
connexion with the transaction of sale as understood
in the general law relating to sale of goods.
\Ve are unable to accept this argument as correct.
First of all, we do not think that either the principal
Act or the impugned Act proceeds on any immufable
distinction between sale price and tax such as learned
Counsel for the appellants has suggested. The principal Act does not contain any separate definition of
sale price. We have already referred to the definitions
of 'sale' and 'turnover'; those definitions do not show
any such distinction. On the contrary, the expression
'turnover' means the aggregate amount for which
goods are bought or sold, whether for cash or for
deferred payment or other valuable consideration, and
when a sale attracts purchase tax and the tax is passed on to the consumer, what the buyer has to pay for
the goods includes the tax as well and the aggregate
amount so paid would fall within the definition of
turnover. In Paprika Ltd. and Another v. Board of
Trade(') Lawrence, J. said "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 expressed as x plus
purchase tax." The same view was again expressed in
Love v. Norman Wright
(Build~rs), Ltd.(') when
Goddard, L. J. said:
"Where an article is taxed, whether by purchase
tax, customs duty, or excise duty, the tax becomes
part of 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 desires 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."
(I) (1944] r All E.R. 372.
(2) ['9H] I All E.R. 618.
George Oakes
(P.) I.td.
v,
State of Madras
S. [(. Das J.
580
SUPREME COUR'f REPORTS
[1962]
r96r
We think that these observations i>re apposite even
in the context of the provisions of the Acts we are
Georg~ Oakes
(P.J Ltd.
considPring now, and there is nothing in those proviv.
sions which would indicate that I\ hen the dealer
State of Madras collects any amount by way of tax, that cannot be
part of the sale price. So far as the purchaser is cons. K. Das f.
cerned, he pays for tho goods what the seller demands,
viz., price even though it may include tax. That is the
whole consideration for the sale and there is no .reason
why the whole amount paid to the seller by the purchas<ir should not be treated as the consideration for
the sale and included in the turnover.
But, argues learned Counsel for the appellants, s.
8-B of the principal Act and Turnover and Assessment Rules made under s. 19 show that under the
scheme of the principal Act a distinction is drawn
between the amount collected by way of tax and the
amount of purchase price. It is indeed true thr>t in
s. 8-B the amount collected by way of tax is sepi>rately mentioned, and while sub-s. (l) thereof is merely
enabling in the sense that a registered dealer may
pass on the tax, sub-s. (2) imposes an obligation on
the registered dealer to pay over the amount of tax
collected by him to Government. The position under
the Turnover and Assessment Rules is correctly summarised in the following extract from the judgment
in Krishnaswamy Mudaliar's case (1):
"Rule 4 provides that the gross turnover of a
dealer for the purposes of the rules is the amount
for which goods are sold by the dealer. Provision is
made in rule 5 for certain deductions, and the mode
or manner in which the tax to be levied has to be
arrived at. The object of these rules is to assess the
net turnover on which the tax is to be levied under
the charging section. It is therefore clear that
under the charging section, tr>x is to be paid on the
turnover which is assessed according to the rules.
Rule 11 requires that every dealer should submit a
return under rule 6 every year to the assessing
authority in Form A in which he has to show the
actual gross and net turnover for the preceding
(1) [1054] 5 S.T.C. 88.
2 s.c.R. SUPREME COURT REPORTS
581
year and the amounts by way of tax or ta.xes
1961
actua.lly collected during that year. In Form A
1
0 I
h
d h
George Oakes
co umns 1 to 1 re ate to t e gross turnover an t e
(P.) Ltd.
deductions to be made from the gross turnover;
v.
column 10 requires the net turnover liable to tax to State of Madras
be shown. In column 11 the amount actually
collected by way of tax or taxes under s. 8-B has to s. I<. Das 1 ·
be shown."
The question however still remains-do the aforesaid
provisions show suQb a distinction under the scheme
of the two Acts that the amount collected by way of
tax cannot be part of the turnover of the dealer and if
the impugned Act ma.kes it a part of the turnover by a
deeming provision, it must be struck down as being
outsidcthe legislative competence of the State Legislature? It is necessary to emphasise here that no question of legislative competence a.rose in Krishnaswamy
Mudaliar's case(') the decision being based on a construct.ion of s. 8-B and the Turnover and Assessment
Rules only.
We do not think that the distinction drawn in
Krishnaswamy Mudaliar's case (1) whether right or
wrong on a question of construction only, is material
to the question of legislative competence. In The Tata
Iron & Steel Go., Ltd. v. The State of Bihar (') this
Court dealt with a provision in the Bihar Sales Tax
Act, 194 7 similar to s. 8-B of the principal Act. Das,
C. J., delivering the majority opinion said:
"The circumstance that the 194 7 Act, after the
amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from
the purchaser does not do away with the primary
liability of the seller to pay the sales tax. This is
further made clear by the fa.ct that the registered
dealer need not, if he so pleases or chooses, collect
the te.x from the pt1.rcha.stir and sometimes by reason
of competition witti 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
(1) [1954] .I S.T.C. 88.
74
(•I [1958] S.C.R. 1355·
George Oakes
(P.) Ltd.
v.
State of Madras
S. K. Das J.
582
SUPREME COURT REPORTS
[1962]
be passed on to the purchasers 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 liability to pay sales t.ax in
addition to the agreed sale price unless the contract
specifically provides otherwise. See Love v. Norman
Wright (Builders), Ltd. L. R. [1944] 1 K. B. 484."
These observations show that when the seller passes
on the tax and the buyer agrees to pay sales tax in
addition to the price, the tax is really part of the
entire consideration and the distinction between the
two amounts-tax and price-loses all significance
from the point of view of legislative competence. The
matter is not in any way different under the Turnover
and Assessment Rules. It is true that in column 11
of Form A t.he amount collected by way of tax under
s. 8-B has to be shown; that does not, however, mean
that an immutable distinction such as will go to the
root of legislative competence has been drawn and
must be always maintained. It appears to us that the
true effect of s. 8-B and the Turnover and Assessment
Rules is that (a) a registered dealer is enabled to pass
on the tax, (b) an unregistered dealer cannot do so,
and ( c) the amount collected by way of tax is to be
shown separately, for it has to be paid over to
Government. This does not mean that it is incompetent to the legislature enact.ing legislation pursuant
to ent.ry 54 in List II by suitable provision to make
the tax paid by the purchaser to the dealer together
with the sale price in consideration of the goods sold,
a part of the turnover of the dealer; nor does it mean
that in law the tax as imposed by Government is a
tax on the buyer making the dea)<ir a mere collecting
agency so that the tax must always remain outside
the sale price.
There is another aspect from which the question
may be considered. We shall assume that under the
scheme of the principal Act a distinction is drawn
between the amount collected by way tax and the
sale price other than the tax. Is such a distinction
continued and maintained by the impugned Act?
Learned Counsel for the appellants has referred us to
2 S.C.R. SUPREME COURT REPORTS
583
s. 2 of .the impugned Act where the expression
"collected by him by way of tax under the Madras
General Sales Tax Act, 1939" occurs. It is argued that
the aforesaid expression in the impugned Act has to
George Oakes
(P.) Ltd.
v.
be read with the provisions of the principal Act and State of Madras
so read, s. 2 maintains and continues the distinction
made under the principal Act.
Again, we are unable
to agree. The expression "collected by him by way
of tax etc." is merely descriptive of the "amounts" so
collected; the essential and operative part of s. 2 says
that the amounts so collected shall be deemed to have
formed part of the turnover of the dealer. Therefore, in express terms s. 2 states that the tax shall be
deemed to have formed part of the turnover and
obliterates the distinction, if any, between 'tax'
and 'turnover' for the limited period during which the
impugned Act operates. To hold that the distinction
is maintained and continued under the impugned Act
is to go against the express terms of s. 2. This aspect
of the question was adverted to in The Government of
Andhra v. East India Commercial Co. Ltd. (1) where
the Andhra High Court had occasion to consider the
question from a somewhat different point of view,
namely, an amendment made by the Andhra Pradesh
Legislature in the definition of the expression 'turnover' in the principal Act. Section 2 of the amending
Act substituted the following definition of 'turnover':-
"Turnover means the total amount set out in the
bill of sale (or if there is no bill of sale, the total
amount charged) as the consideration for the sale
or purchase of goods .. .including any sums charged
by the dealer for anything done in respect of the
goods sold at the time of or before the delivery
of the goods and any other sums charged by the
dealer, whatever be the description, name or object
thereof."
Section 4 of the amending Act repeated ss. 8-B and
8-C of the principal Act. Dealing with the effect of
these amendments, the High Court of Andhra Pradesh
said,
(1) [1957] B s.r.c. 114.
S. K. Das].
George Oakes
(I'.) Ltd
v.
Stale of Mad1as
s. /(. Das ].
584
SUPREME COURT REPORTS
[1962)
"The ultimate economic incidence of the sales tax
is on the consumer or the last purchaser and whatever he pays for the goods is paid only as price, that
is to say, as consideration for the purchase. The
statutory liability, however, for payment of sales
tax is laid on the dealer on his total 'turnover' whether or not he realises the tax from the purchasers.
Generally speaking, the price charged by the dealer
would be inclusive of sales tax, for, it is to his
interest to pass the burden of the tax to the purchaser. So far as the dealer is concerned, the payment of a sum covering the tax made by a purchaser on the occasion of sale, is really part of the
price which the purchasers pay for the goods."
Later, it referred with approval to the decision in Sri
Sundararajan and Co., Ltd. v. The State of Madras(').
In this latter decision the validity of the impugned
Act was questioned and dealing with s. 2 of the
impugned Act, the High Court said:
"Section 2 only enacted that such amount shall
be 'deemed' to be part of the turnover a11d for a
limited period. It may not be necessary to set out
authorities for the well-settled principle of what
the effect is of the use of the expression 'deemed' in
a statute. Was the legislature competent to enact
section 2 including the deeming provision, is the
real question. If the validity of section 2 of the
impugned Act is established there should be little
difficulty in upholding the validity of section 3,
which gave effect to the legal fiction enacted by
section 2.
Obviously, it is not the name the legislature accords to a payment by a purchaser to a seller, who
is a dealer as defined by the Act, that determines
the question of the legislative competence. No
doubt section SB called the payment as amount
(collected) by way of tax. It is equally true that
the statutory liability to pay the sales tax is laid
on the dealer. What is taxable is not each transaction of sale but the total turnover of the dealer,
computed in accordance with the provisions of the
(1) (1956) 7 S.T.C. 105.
2 S.C.R.
SUPREME COURT REPORTS
585
Act and the Rules. But it is well-recognised that
r96r
whatever be the form of the statutory provisions,
the ultimate economic incidence of the tax is on the
George Oakes
( P.) Ltd.
consumer, the purchaser. It was that well-settled
v.
principle that was re-stated in Bengal Immunity Co. State of Madrns
Ltd. v. State of Bihar (' ).
Even if the registered
dealer collects the amount by way of tax under the s. K. Das J.
authority of section SB of the Act, the payment is
by the purchaser on the occasion of the sale by the
dealer. Vis-a-vis the dealer it is in reality part of
the price the purchaser has to pay the seller for
purchasing the goods.
A tax on such a payment,
in our opinion, is well within the ambit of Entry 54
of List II, Schedule VII, read with Article 246(3) of
the Constitution."
We are of the view that the aforesaid observations
correctly give the true effect of s. 2 of the impugned
Act, and s. 3 of the impugned Act is merely consequential.
Mr. Sikri appearing on behalf of the States of
Maharashtra and Punjab has drawn our attention to
certain American decisions which show that treating
tax as part of the sale price in cases where the tax is
passed on to tho buyer, is well-recognised and is not
unknown to law (see Lash's Products Company v. United States, 73 L. Edn. 251; Pure Oil Company v. State of
Alabama, 148 American Law Reports 260).
Wa consider it unnecessary t.o examine these decisions,
because the validity of the impugned Act must be
determined on its own terms in the context of tho
provisions of the principal Act. Reading the impugned Act in the light of the provisions of the principal
Act, it seems clear to us that the impugned Act cannot
be held to be bad on the ground of legislative incompetence. Under the definition of turnover the aggregate amount for which goods are bought or sold is
taxable. This aggregate amount includes the tax as
part of the price paid by the buyer. The amount
goes into the common till of the dealer till he pays
the tax. It is money which he keeps using for his
business till he pays it over to Government. Indeed,
(1) [1955] 2 S.C.R.6o3.
1961
George Orihes
(P.) Ltd.
v.
State of Madras
S. f(, Das j.
196c
April z8.
586
SUPREME COURT REPORTS
[1962]
he may turn it over again and again till he finally
hands it to Government.
There is thus nothing anoma.lous in the law treating it as part of the amount
on which tax must be paid by him. This conception
of a turnover is not new. It is found in England and
America and there is no reason to think that when
the legislatures in India defined 'turnover' to include
tax also, they were striking out into something quite
unknown aud unheard of before.
The only question which has been raised in these
appeals is regarding the validity of the impugned
Act. That question having been decided against the
appellants, the appeals fail and are dismissed with
costs. One hearing foe.
Appeals dismissed.
THE GENERAL MANAGER, SOUTHERN
RAILWAY
v.
RANG A CHARI
(P. B. GAJENDRAGADKAR, A. K. SARKAR,
K. N. W ANCHOO, K. C. DAS GUPTA and
N. RAJAGOPALA AYYANGAR, JJ.)
State Service-Power of Stale to reserve appointments and
posts for backward classes-Scope of such reservation-"Appointments or posts", Meaning of-Posts. if include selection posts in
tlze services-Constitution of India, Arts. 16(4), 335.
This appeal was directed against an order of the Madras
High Court issuing a writ of mandamus at the instance of the
respondent restraining the appellants from giving effect to two
circulars issued by the Railway Board reserving selection posts
in Class Ill of the Railway service in favour of the members of
the Scheduled Castes and Scheduled Tribes with retrospective
operation. It was urged on behalf of tbe respondent tl1at the
Constitution made a clear distinction between backward classes
on the one hand and Scheduled Castes and Scheduled Tribes on
the other, and th.at Art. 16(4) applied only to reservation of
posts at the stage of appointment and not to posts for promotions after appointment and, therefore, the circulars which fell