Appellate Asstt. Commr. Etc. Etc. v. L.M.S. Sadak Tamby & Co., Etc. Etc.

Judgment

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1366, 1850to 1863 &2550to 2551ofl969,1355 & 1356ofl970and 1292and 1293 of 1973. From the Judgments & Order dated the !st March/26th February; 1969/29th July/2nd August, 1971 of the Madras High Court in W.Ps. Nos. 1895 of 1966, 1084, 1192, 1194, 1800, 1896, 1898, 1907-1910, 2089 of 1966, 646 of 1967, 3536-3537 of 1965 and Tax Cases Nos. 57 & 58of1969 and 191 & 197 ofJ971 respectively. [1975) 2 ~.C.R. Govind Swaminathan, Advocate Genera/for the State of Tamil Nadu, .A. V. Rangam, K. Venkataswami, N.S. Sivam and A. Subhashini, for the appellants (In all the Appeals & SLP No. 1974/70) A. Abdul Karim and K. Rajendra Choudhary, for the respondents (In 1366, 18~0-53 & 1858-·186.l/69) K. V. Pillai~ for the respondents (In 18.54/69) E.C. Agarwala, for the applicant/intervener. A.K. Sen and S. Gopalakrishnan, for respondents (In 2550-51/69, 1355-1356/70. and 1292-1293/73).

The JudJnent of the Court was delivered by ALGIRJSWAMI, J.-Thes1: appeals raise the question of the validity of section 2(1) of Madras Act 37 of 1964. That section reads as follows : "Spe¢ial provisions in respect of tax on rnle of dremd hides and skins in certain cases :- Notwithstanding anythingcontained in the Madras General Sales Ta~: Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the said Act), or in the nlles ma.de thereunder (hereinaft¢r referred to as the said Rules), in respect of sale of dressed hides and skin~ (which we:re not subjected to tax under the said Act as raw hides & skins), the tax under the said Act shall be levied from the dealer who in the State is the first seller in such hides and skins not exempt from taxation under sub-sec. (3) of Sec. 3 of the said Act:- (i) for the period commencing on the 1st April;

1955 and ending on the :list March 1957, at the rate ofone & nine-sixteenth per cent, and (ii) for the period commencing on the 1st April, 1957 and ending on the 31st March 1959, at the rate of two per cent, of the amount for .which such hides and skins were last purchased in the untanned condition." In order to understand the implications of this section it is necc:ssary to refer to certain other provisions of law and two previous decisions of l:his Court. Rule 16 of the Madras Gc:neral Sales TfLX. Rules made lunder Madras Act JX of 1939 read as follows : "In the case of un.tanm:d hides and/or skins the tax under Sec. 3(1) shall be levied from the dealer who is the last purchaser in the State not exempt from taxation under Sec. 3(3) on the amount for which they are bought by him. 2(i) In the case of hides or skins whirh have been tanned outside the State the tax under Sec. 3(1) shall be levied from the de . .ler who in the State: is the first dealer in such hides or skins not exempt from taxation under Sec. 3(3) on the amount for which they are sold by him.

APPEL. ASST. COMMR. v. L.M.S. SADAI: co. (Alagiriswami, 1.) 421) (ii) In the case of tanned hides or skins which have been tanned within the S~ate, the tax under sec. 3(1) sl:!aUbe levied, from a person who is the first dealer in such hides or skins r.ot exempt from taxation under Sec. 3(3) on the arr.cunt for which they are sold by him. Provided that, if he pro\ cs that tax has alrci:dy tern kvicd under Sub-rule (l)on the untanned hides and skins out of which the. tanned hides and skins had been prcduccd, he 1hall not te so liable.'' This'.Rule was struck down by this Court on the grour.d that where a tanner buys raw hides and skins inside the State and sells them after tanning he pays the ta:x: only on the purcharn price of raw hides and whereas a dealer who purchases raw hides and skins from outside the State and sells the tanned hides and skins pays the tax on the price for which tanned hides and skins are sold and therefore pays more tax. The judgment of this Court in Firm A.T.B. Mehtab Majid & Co. v. State of Madras is reported in [1963]

Supp. (2) S.C.R. 435. Thereafter the Madras Legislature passed Act 11 of 1963 to deal with this · situation. Section 2(1) of that Act reads as follows : "Special provision in respect of tax on sale of drem.d hides and skins in certain cases:- Notwithstanding anjrthing contained in the Madras General Sales Tax Act 1939 (Act IX of 1939) (hereinafter referred to as the said Act), or in the rules made thereunder (hereinafter referred to as the said Rules), during the pericd commencing on 1st April, 1955 and ending on the 31st March, 1959, in respect of sale of dressed hides and skins (which were not subjected to tax under the said Act as raw hides and skins) the tax under the said Act shall be levied from the dealer whc in the State is tho first seller in such Iiides and skirui not exempt from. taxation under sub-sec. (3) of Sec. (3) of the said Act at the rate of two per cent of the amount for which such hides and skins were last purchased in the untanned condition."

It would be noticed that this section deals with the st> Jes during the: period between 1st Apr'! 1955 and 31st March 1959. From lst April 1955 to 31st March 1957 the rate of taxation in Madras State was one and nine-sil~teenth. per cent. As the section provided . a uniform rate of two 'per cent for sales during the whole of the period between 1st April 1955 and 31st March 1959 it was struck down by this Court in A .. Haiee Abdul Shakoor & Co. v. State of Madras [1964] 8 S.C.R. 217) on the ground that for the period from 1st April, to 31st March, 1957 there was discrimination between a tanner who tans from raw hides and · skins purchased inside the State who would pay only one and ninesixteenth per cent on the raw hides and skins purchased by him ancJ & tanner who purchased skins and hides from outside the State who would .have tq pay at the rate of two per cent under this section. It SUPREME COURT llEPOR.TS [1975]

2 s.C.JR. is to get over this objection that the section first referred to has been passed. Und1r the section the tax, is leviable on the first seller of dresstd hid·JS and skins at the rate of one and n;ne-sixtGenth per cent for the p~riod betwr.Jn !st April 1955 and 31st March 1957. For the period batween !st IApril 1957 and 31st March 1959 it is to be at the rate of two pJr c~nt. The tax h on the amount for which such hides and skins wtre last ,purchased in the untanned condition. It would be notic3dthat it does not m'l.ke any distinction between the purch2.se of raw hid~s and skins inside the State and outsice the State. The tax itself is on th~ first sale of the tanned hides and skins but it is calculated on the basis of the purchase per price of the raw hides and skins whether they were purch1.sed inside the State or outside the State. The outof-State purbh'lse of raw hides and skins is not taxed. That would b~ subject tb tax under the Ct:ntral S1les Tax Act.

But what is taxed und~r the im'lugned statute is not the purcha~e of raw hides and skins wh~ther in~id~ or outsid1: the State. In both cases it is on the first sale of tann~d hides and skins. Even if a person purchases raw hide.s and skins inside the State and sells it aft~r tanning he pays the tax on the sale ofthe tanned hides and skins and not on the purchase of the raw h.ides and skins though the amount .of tax payable is ·calculated on the amount for which such raw hides and skins v1~re purchased. I Similar is the position with regard to raw hides and skins purchased outside .11he State. Thus there is no discrimina. tion between th" sellers of tanned hidc's and skins whether the raw h:d~s and skins out of which they were tanned were purchased inside the State or outside the State. The tax is not leviable even in case of raw hides and skins imported from another State but on hides and skins tanned from those raw hides and skins.

Only the tax is levied on the amount for which the raw skins and hides were purchased./ This amount is used ·only for the purpose of quantifica.tion of the tax. The tax is not on the purchase of the raw hides and skins. We do not, then.fore, ~ee how the tax levied on the sale of tanned hides and skins contravenes Articles 286 of the Constitution. Actually as the value of hides and skins in their tanned condition is higher tharl the value of raw hides and skins from out of which th~y are tanned the person impo1rting raw hides and skins from outside the State ca.n have no grievence that the tax is !ftvied not on the amount for which 1:he tanned hides and skins are sold but on the amount for which raw lhides and skins have been purchased. Nor does he pay a higher ta;x than the p3rson who sells hides and skins tanned from locally purchased raw hides and skins.

It was open to the State to have levied the tax on the sale price of tanned hides and skins in which case there c;.ould have been no ar11;ument that it was a tall: on the imported raw hides ilnd skins. But the State chose to lev) the tax on the basis of the purchase pric~ of raw hides and skins which would mean lesser tax. It does not suffer from the vice of taxation of the imported. raw hides and lskins. I We are unable to unders1tand the view of the High Court that if th~ s1le pric~ were taxed and rebate were given thell there would be no obj~ction to the ta11;. w~ do not understand how that can be done. APPEL. ASST. COMMll. v. L.M.S. sAl>AK co. (Alagiriswami, /,) We asked the learned advocates appearing for the respor.dents to tell us how that can be done and they were not able to do so. The cost of conversion of the raw hidts ·and skins to tanned hides and skins might differ from tanner to tanner.

It is ni.uch easier to get figures for the purchase price of 'the raw hides and skins or the sale price of the tanned hides and skins than the cost of ccnversicn. As the scheme of taxation is not on the basis' of the sale price of tanntd hides and skins the suggestion of the High Court cannot be adopted. We, therefore, hold that the High Court was in error in striking dcv. n the impugned provision of law. In S.L.P. No. 1974 of 1970, special leave to apreal is granted ar.d the appeal allowed. The appeals are allowed with costs. Appeals allowed. V.M,.K.