Sale of foreign liquor tax treatment clarified: tax under Madras Prohibition Act is purchaser's, not seller's, not turnover

Clarifies that sales tax levied under the Madras Prohibition Act on foreign liquor is a tax on the purchaser and the seller merely acts as a statutory collector; therefore amounts collected under that provision are not part of the sellers taxable turnover under the Madras General Sales Tax Act. It distinguishes collections made by a dealer to recover his own tax liability (which may form part of the price) from statutory collections where the dealer has no tax liability and simply pays over the tax to government; consequence: such statutory collections are excluded from taxable turnover.

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Issues:
1. Whether the sales tax collected by the assessees under section 21-A of the Madras Prohibition Act, 1937, can be treated as part of their total turnover under the Madras General Sales Tax Act, 1959.

The Supreme Court heard twelve appeals arising from a common judgment of the Madras High Court regarding writ petitions filed by respondents challenging orders of the assessing authority under the Madras General Sales Tax Act, 1959, proposing to redetermine the taxable turnover by including the sale price of foreign liquor. The High Court directed the sales tax authorities not to include the tax paid under section 21-A of the Madras Prohibition Act, 1937, in the assessable turnover. The appeals involved three different assessees and related to various assessment years. The assessees were dealers in foreign liquor among other goods and were assessed to sales tax under section 3(1) of the Madras General Sales Tax Act, 1959, which defines turnover and total turnover. The question was whether the sales tax collected under section 21-A of the Prohibition Act should be considered part of the total turnover. The appellants argued that the amounts collected by the assessees were part of their turnover and thus taxable under the Sales Tax Act, citing previous court decisions.

The court referred to past judgments, including George Oakes (P.) Ltd. v. State of Madras and State of Kerala v. Ramaswami Iyer & Sons, which held that the aggregate amount paid by the purchaser, including tax, should be considered turnover. However, the court distinguished the present case by highlighting that under section 21-A of the Prohibition Act, the tax collected by the seller is on the purchaser and not on the seller. The seller acts as a collector for the government and is obligated to pass on the tax to the government. The court emphasized that under the Sales Tax Act, the dealer has no statutory duty to collect sales tax from customers, and amounts collected under a statutory obligation cannot be part of the taxable turnover. Therefore, the court dismissed the appeals, stating that the amounts collected by the assessees under the statutory obligation were not part of their taxable turnover under the Sales Tax Act.

In conclusion, the Supreme Court ruled that the sales tax collected by the assessees under section 21-A of the Prohibition Act could not be considered part of their taxable turnover under the Madras General Sales Tax Act, 1959. The court emphasized the distinction between the obligations of the seller as a collector of tax for the government under the Prohibition Act and the absence of a statutory duty for the dealer to collect sales tax from customers under the Sales Tax Act. The appeals were dismissed with costs.

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