Case Note & Summary
The dispute arose from sales tax assessments under the Orissa Sales Tax Act, 1947 for the quarters ending September 30, 1957 and December 31, 1957. The assessee, M/s Utkal Distributors (P) Ltd., sold iron and steel goods and was a controlled stockholder appointed under the Iron and Steel Control Order, 1956. During the assessment, the assessee claimed a deduction from its gross turnover of Rs. 3,874.49 for the September quarter, representing central sales tax paid on its purchases and collected from customers. The Sales Tax Officer disallowed the deduction, and the Collector of Sales Tax, Orissa affirmed that order. On second appeal, the Sales Tax Tribunal, Orissa allowed the claim, holding that the central sales tax realised by the assessee from customers was not part of the price charged and therefore did not fall within the definitions of sale price and taxable turnover. The Tribunal relied on the fact that the assessee was a controlled stockholder and by virtue of condition No. 4(ii) of the Iron & Steel (Control) Notification dated October 18, 1958, the customer was required to pay the central sales tax incurred by the controlled stockholder in obtaining the material and on the sale. The Commissioner of Sales Tax sought a reference to the High Court, and the Tribunal referred two questions under section 24(1) of the Orissa Sales Tax Act, 1947. The Orissa High Court answered both questions in favour of the assessee, following the principle from Deputy Commissioner of Commercial Taxes v. M. Krishnaswami Mudaliar & Sons and Bata Shoe Co. Ltd. v. Member, Board of Revenue, West Bengal that where a dealer is authorised by law to collect tax from purchasers, such collection retains its character as tax and never forms part of the purchase price. The State of Orissa appealed to the Supreme Court by special leave. The appellant State argued that the expression 'tax' in sections 2(i) and 5(2)(b) of the Orissa Sales Tax Act referred only to sales tax under that Act, not central sales tax; that 'valuable consideration' in section 2(h) included the central sales tax realised; and that the central sales tax paid at the purchase point was a sum charged for anything done by the dealer in respect of the goods. The Supreme Court did not decide the first argument but assumed that 'tax' did not include central sales tax. The Court focused on the fact that the controlled stockholder was statutorily prohibited from charging a price higher than that fixed by the Government of India. Therefore, the valuable consideration for the sale was only the fixed price, and the central sales tax amount collected under the notification condition was a separate statutory impost passed on to the customer, not part of the sale price. The Court expressly did not rely on section 9(A) of the Orissa Sales Tax Act or the principle in the Madras decision, leaving those questions open. Ultimately, the Supreme Court upheld the High Court's decision, answering the first referred question in the affirmative and finding it unnecessary to answer the second question. The appeals were dismissed.
Headnote
A) Sales Tax - Sale Price and Turnover - Exclusion of Central Sales Tax from Sale Price - Orissa Sales Tax Act, 1947, Sections 2(h), 2(i), 5(2) - The assessee, a controlled stockholder under the Iron and Steel Control Order, 1956, collected central sales tax from customers as per condition 4(ii) of the Iron & Steel (Control) Notification dated 18 October 1958. The court held that 'valuable consideration' for sale was the Government-fixed price only, and the central sales tax component did not form part of sale price or taxable turnover. Held that the claim for deduction was rightly allowed. (Paras not numbered) B) Sales Tax - Statutory Price Fixation - Effect on Turnover Calculation - Orissa Sales Tax Act, 1947 and Iron and Steel Control Order, 1956 - Because the controlled stockholder was statutorily barred from charging more than the Government-fixed price, the central sales tax paid over to the authority could not be treated as part of the price charged. The court reasoned that the customer's liability to pay central sales tax arose from the notification, separate from the sale consideration. Held that the central sales tax did not form part of sale price. (Paras not numbered) C) Sales Tax - Interpretation of 'Tax' in Definitions - Not Decided - Orissa Sales Tax Act, 1947, Sections 2(i), 5(2)(b) - The State argued that 'tax' in the turnover definitions meant only Orissa sales tax, not central sales tax. The court assumed without deciding that 'tax' did not include central sales tax, and disposed of the appeal on the primary basis of statutory price fixation. Held that it was unnecessary to decide this question. (Paras not numbered)
Issue of Consideration
Whether central sales tax paid by the assessee at its purchase point and charged to its customers formed part of the sale price of the commodity sold so as to be taxable under the Orissa Sales Tax Act, 1947; whether allowance of deduction of central sales tax collected from customers was permissible under the Act and rules.
Final Decision
The Supreme Court dismissed the appeals and upheld the Orissa High Court's decision. It held that the central sales tax collected by the assessee from its customers did not form part of the sale price or taxable turnover under the Orissa Sales Tax Act, 1947, because the assessee as a controlled stockholder could not charge more than the statutorily fixed price. The first referred question was answered in the affirmative, and the second question was not addressed.
Law Points
- Legal points not extracted
- Central sales tax collected by a controlled stockholder from customers under Iron and Steel (Control) Notification condition 4(ii) did not form part of sale price
- statutory price fixation under Iron and Steel Control Order
- 1956 means valuable consideration is limited to fixed price only
- turnover under Orissa Sales Tax Act
- 1947 excludes amounts collected as central sales tax by such controlled stockholder
- word 'tax' in ss. 2(i) and 5(2)(b) not decided but assumed not to include central sales tax.
