1971 (7) TMI 133 - SC - VAT and Sales Tax

Sales tax collected by dealer is part of sale price under Madhya Pradesh Sales Tax Act

The Supreme Court held that sales tax collected by a dealer constitutes part of the sale price under the Madhya Pradesh General Sales Tax Act, 1958. The ... Sales tax as part of sale price - turnover inclusion of tax collected - dealer's liability to pay tax - pass through of tax by agreement as consideration - absence of statutory power to collect tax from purchaserSales tax as part of sale price - turnover inclusion of tax collected - dealer's liability to pay tax - pass through of tax by agreement as consideration - absence of statutory power to collect tax from purchaser - Whether sales tax collected by the dealer from buyers forms part of the sale price and must be included in turnover under the Act for the assessment years in question. - HELD THAT: - The court held that the liability to pay the tax is that of the dealer and the purchaser has no statutory liability to pay it. If the dealer adds the amount of tax to the price and the buyer agrees to that price, the whole amount paid by the buyer constitutes the valuable consideration for the goods. Consequently the amount recovered by the dealer from his customers in the form of sales tax becomes part of the sale price as defined in the Act and falls within the definition of turnover. The absence in the Act of any provision expressly empowering dealers to collect tax from purchasers means there is no separate statutory character to such collection; it is treated as part of the contractual price. The court noted that a statutory provision authorising collection (where present in other Acts) might call for different considerations, but no such provision exists in the Act for the years before the court (section 7-A, introduced later, was not applicable). The court relied on consistent authority holding that when a seller passes on the incidence of tax by including it in the price, the tax component becomes part of the single consideration paid by the buyer.Sales tax collected by the dealer from buyers is part of the sale price and must be included in turnover for the assessment years 1961-62, 1962-63 and 1963-64.Final Conclusion: The appeals are dismissed; the High Court was right in holding that sales tax collected from buyers forms part of the sale price and is includible in turnover for the assessment years in question. Issues:Interpretation of the term 'sale price' under the Madhya Pradesh General Sales Tax Act, 1958 and whether sales tax collected by the dealer from buyers constitutes a part of the sale price.Analysis:The appeals before the Supreme Court arose from references made to the High Court of Madhya Pradesh under section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958. The question at hand was whether the sales tax collected by the appellant, a dealer in vanaspati, from buyers should be considered a part of the sale price of the goods sold. The authorities held that the sales tax collected should be included in the turnover, a decision challenged by the appellant.The court delved into the relevant provisions of the Act, particularly focusing on the definitions of 'dealer,' 'turnover,' and 'sale price.' The definition of a dealer includes any person engaged in buying, selling, or distributing goods, while turnover encompasses the amount of sale prices received by the dealer. 'Sale price' is defined as the amount payable to a dealer for the sale of goods, including any sum charged for services related to the goods. The key question was whether sales tax collected could be considered valuable consideration for the sale of goods.The court emphasized that under the Act, the liability to pay tax lies with the dealer, not the purchaser. While a dealer may pass on the tax burden to buyers by incorporating it into the price of goods, there is no provision allowing dealers to collect tax separately from buyers. The court highlighted the distinction between tax and price, emphasizing that the collection of tax by the dealer forms part of the consideration paid by the buyer.Drawing on previous judgments, including George Oakes (Private) Ltd. v. State of Madras, the court reiterated that when a seller passes on tax liability to the buyer, the amount collected becomes part of the entire consideration paid by the buyer. The court also referenced the decision in Tata Iron and Steel Co. Ltd. v. State of Bihar, emphasizing that the primary liability to pay sales tax rests with the seller, and buyers are not obligated to pay tax in addition to the agreed sale price unless specified in the contract.In considering the appellant's reliance on a Madras High Court decision, the court noted the absence of a similar provision in the Act and declined to delve into the correctness of that decision. Ultimately, the court dismissed the appeals, affirming that the sales tax collected by the dealer should be considered part of the sale price, leading to the inclusion of such tax in the turnover calculation.In conclusion, the judgment provides a detailed analysis of the interpretation of the term 'sale price' under the Madhya Pradesh General Sales Tax Act, emphasizing the legal framework governing the collection of sales tax by dealers and its impact on the determination of turnover.