judgement:
Civil Appeal No. 1599 of 1974 400 From the Judgment and Order dated 19.7.1973 of the Allahabad High Court in I.T. Reference No. 200 of 1971.
and Civil Appeal No. 1546 of 1974 From the Judgment and Order dated 21.7.1972 of the Allahabad High Court in I.T. Reference No. 172 of 1971.
S.L.P. No. 4815A of with 1977 B.B. Ahuja for the Appellant in C.A. No. 1599 of 1974.
Dalip Singh, Ms. A. Subhashini and K.C. Dua for the Appellant in C.A. No. 1546 of 1974 and S.L.P. No. 4815A of 1977.
Harish Salve, K.J. John, Ranjit Kumar and B.P. Singh for the Respondents.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
In Civil Appeal No. 1546 of 1974 the following items were involved: (a) Capital Reserve (b) Stocks and stores reserves, (c) Bad and doubtful debts reserves, (d) Obsolescence reserve, (e) Loans and Insurance reserve (f) Investment reserve and (g) Forfeited moneys reserves.
The question was whether these were to be included in the computation of capital according to the provisions in the second schedule to the .
Under Section 4 of the , every company shall be charged for every assessment year commencing from 1st April, 1963 a tax as Super Profits tax in respect of so much of its chargeable profit of the previous year as exceed the standard deductions at the rate or rates specified in the third schedule. 'Standard deduction ' had been defined in clause (9) of section 2 as follows: "An amount equal to six per cent of the capital of the company as computed in accordance with the provisions of the second schedule; on an amount of Rs.50,000 whichever is greater.
" The second schedule contained rules for computation of capital of a company for the purpose of the said Act.
401 None of the reserves claimed by the assessee had been allowed as deductions in the computation of its profits under the relevant Income tax Act.
The question was whether these represented reserves.
The Tribunal has referred to this Court the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that: (a) Capital Reserve, (b) Stocks and stores reserves, (c) Bad and Doubtful debts reserve (d) Obsolescence reserve, (e) Loans and Insurance reserves, (f) Investment reserve and (g) Forteited moneys reserves were to be included in the computation of capital according to the provisions in the second schedule to the ?" We must observe that so far as the capital reserves are concerned, in view of the findings recorded by the High Court that the amount represented reserve and it was not ear marked for any existing liability for being utilised by the company, it must be held to be reserve.
The capital reserve which was a sum of Rs. 11,73,952 consisted of two amounts namely Rs.12,212 and Rs.11,61,770.
The amount of Rs.12,212 represented an insurance claim received by the assessee company on account of a fire which had destroyed some assets of the assessee company.
The said receipt of fire insurance claim has directly been credited to the capital account and the sum of Rs.11,61,770 was credited by transfer from the Profit & Loss Account in the earlier years.
This was not provided for against any existing or future liability.
It was rightly treated as capital reserve.
The next item was Stocks and Stores Reserve.
This was created in 1950 by transfer from the Profit and Loss Appropriation Account.
This did not represent any existing provision for existing liability to meet any specific contingency for safeguarding against diminution of the value of the stocks and stores.
It was in the nature of a reserve for safeguarding against any possible diminution of the value of stocks and stores on any future occasion.
In our opinion, the Tribunal was right in treating it as reserve.
Bad and Doubtful Debts Reserve was created in 1956 through the Profit and Loss Appropriation Account.
The amount involved was 402 Rs.5,00,000.
It was submitted on behalf of the assessee by Shri Salve that this was created by transfer from the Appropriation Account and not a charge against profit.
Furthermore, a separate provision was made for bad and doubtful debts which provision was reduced from the value of the assets.
It was not the revenue 's case that the provision for bad and doubtful debts provided was less than the amount reasonably necessary to be provided.
If the amount as it appears to be is more than the amount reasonably necessary to be provided in respect of bad and doubtful debts then it constituted a 'reserve '.
It is not correct to state that by very nomenclature this was not a reserve.
True nature of the transaction has to be examined.
The next item is Obsolescence Reserve of Rs.1,72,259.
This was created in 1959 by transferring a sum of Rs.12,05,000 from the Profit and Loss Account.
Some amounts were written off out of this reserve in 1960 and 1961.
This appears to be provision to meet future liability and contingency.
But there are not much facts about it.
Had it been necessary we might have remanded the matter to the High Court to direct the Tribunal to find facts on this aspect.
But as in that view of the matter, this item was not pressed before us, so this item is deleted from reserve of the assessee.
So far as Loan and Insurance Reserve is concerned, this was created prior to 1947.
It was found that it was free from any burden and it was not utilised for any purpose and was transferred to the General Reserve Account in 1963.
Therefore, it was rightly treated, in view of the principles mentioned hereinbefore as reserve.
The next item is Investment Reserve.
This fund was created out of the surplus on the sale of investment which was not held by the respondent company as its stock in trade.
The surplus did not have its origin in business profits and was transferred directly to the reserve account but this was created prior to 1954 and was further credited in 1955 to 1957 out of the profits on sale of investments.
In the later years, whenever a loss of a capital nature was incurred it was debited to this account.
It appears that at the time of creating this Reserve, the Directors could not have possibly anticipated the losses which might occur in future but merely created a reserve so that losses which do normally arise in the course of business might be adjusted against this amount.
It appears therefore that this was a reserve created out of the capital profit.
This reserve can rightly be treated as other reserves.
Forfeited moneys reserve, in our opinion, cannot be treated as 403 reserve, and the High Court has also not treated it as such.
In that view of the matter except the item indicated as Obsolescence Reserve which is deleted from the reserve as indicated before, we uphold the order of the High Court.
This appeal is dismissed subject to the extent indicated above.
There will be no order as to costs.
In Civil Appeal No. 1599 of 1974, the following facts were recorded: "The assessee is a limited company.
In proceedings under the Super Profit Tax Act, 1963, the assessee claimed that the following amounts appearing as credit balances in the various accounts mentioned against each be treated as reserves and included in the capital of the company for the purposes of determining the standard deductions, as contemplated under section 2(9) of the Act: (a) Capital reserve Rs.9,41,488 (b) Rehabilitation reserve Rs.6,00,000 (c) Stores reserve Rs. 75,000 (d) Forfeited moneys reserve Rs. 8,000 (e) Bad and doubtful debts reserve Rs. 25,000 The Income tax Officer rejected the assessee 's claim.
On appeal the Appellate Assistant Commissioner allowed the claim of the assessee in part.
The revenue and the assessee both went up in appeal before the Tribunal.
The Tribunal had allowed the claim of the assessee in full.
The revenue feeling aggrieved referred the following question to the High Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that: (a) Capital reserve (b) Rehabilitation reserve, (c) Stores Reserve (d) Forfeited moneys reserve; and (e) Bad and doubtful debts reserve, 404 were to be included in computation of capital according to the provisions of the second Schedule to the Supper Profits Tax Act (Surtax) 1963.
" So far as the capital reserve is concerned, in the light of discussion in Civil Appeal No. 1665 of 1974 CIT, Kanpur vs The Elgin Mills Ltd., Kanpur (Infra p. 408) and also in Civil Appeal No. 1546 of 1974 CIT, Kanpur vs M/s British India Corporation Ltd., the High Court was right in treating this account as reserve.
It must be further noted that so far as capital reserve was concerned, the Appellate Commissioner had allowed a sum of Rs.7,19,488 out of a claim of Rs.9,41,488.
In appeal, the Tribunal upheld the order of the Appellate Commissioner.
The assessee did not seek a reference against this in the High Court.
The controversy before the High Court was confined to the claim allowed by the Appellate Commissioner.
The High Court held in favour of the assessee in treating it a reserve.
The High Court was right.
So far as the rehabilitation reserve and stores reserve are concerned, in view of the facts found by the Tribunal and in the light of the reasons indicated in Civil Appeal No. 1546 of 1974, in our opinion, this must be treated as reserve as was held by the Tribunal.
The High Court has disallowed the forfeited money reserve to be treated as reserve.
We are of the opinion that the High Court was right.
So far as Bad and Doubtful Debts are concerned, in the light of the observations made in Civil Appeal No. 1546 of 1974 and in the light of the facts found, this must be treated as reserve.
In the aforesaid view of the matter, the appeal fails and is accordingly dismissed.
In the facts and circumstances of the case, there is no order as to costs.
Special Leave Petition No. 4815A of 1977 arises out of the decision of the Bombay High Court where the High Court rejected the application under section 256(2) of the Income tax Act, 1961, for an order directing the Income tax Appellate Tribunal, Bombay to state a case in relation to the various items specified in the question.
The question was as follows: "Whether, on the facts and in the circumstances of the 405 case, the Tribunal was right in holding that Gratuity A Reserve of Rs.2,00,000 Reserve for Special Survey of Rs.13,04,600, Reserve for Contingencies of Rs.56,00,000.
Fleet Replacement Reserve of Rs.54,35,250, Reserve for exempted profits under section 84 of Rs.1,64,900, Reserve for Investment depreciation of Rs.7,09,144 and Dividend Equalisation Reserve of Rs.2,00,000 were reserves with the meaning of the Second Schedule to the Act?" The Tribunal by its order dated 21st July, 1976, rejected this application as one of fact and the principles not being in dispute.
The revenue thereafter applied to the High Court under section 256(2) of the Act read with section 18 of the .
By its order dated 20th June, 1977, the Bombay High Court allowed the application only in relation to the Reserve for Special Survey for Rs.13,04,600 and rejected the application so far as other items are concerned.
Being aggrieved, the assessee has come in Special Leave Petition.
The facts regarding the same as found by the Tribunal are as follows: "(i) The Gratuity Reserve of Rs.2,00,000 was created for the first time during the preceding year.
The amount was not claimed as revenue expenditure.
Some payments were actually paid during the preceding accounting year.
The amount was to be included in the capital base as "other Reserves".
(ii) Reserve for Special Survey: Rs.13,04,600: The balance in this reserve account on the first day of the preceding accounting year was Rs.9,32,500 to which was added Rs.15 lakhs by transfer from the Profits and Loss Account making a total of Rs.24,32,500.
During that preceding year expenses of Rs.11,26,900 were incurred and debited to this reserve and the balance of Rs.13,04,600 was carried forward.
This amount was to be included in the capital base.
(iii) Reserve for contingencies: Rs.56,00,000: This reserve account was meant to be utilised in case of contingencies and there was no specific liability for spending even a of this amount on the first day of the accounting year and it was therefore includible in the capital base.
(iv) Fleet replacement reserve: Rs.54,35,250: This reserve was like the reserve for contingencies.
Here also there was no liability in presenti towards purchase of any vessel on the first day of the accounting year and this sum also was includible in the capital base.
(v) Reserve for exempted profits under section 84 of the Income tax Act: Rs.1,64,900: This was not meant for meeting any liability and had therefore to be included in the capital base.
(vi) Reserve for investment depreciation: Rs.7,09,144: This reserve was created originally in order to cushion the effect of fluctuations in the prices of foreign securities held by the assessee.
This amount was ultimately transferred in 1971 to the Profits and Loss Appropriation Account.
Here also the reserve was not created by way of making provision for liability already accrued on or before the first day of the accounting year and had therefore to be included in the capital base.
(vii) Dividend Equalisation Reserve: Rs.2,00,000: This reserve was set apart to enable the assessee to declare reason able dividend in a year in which the profit was likely to go down.
This amount was subsequently transferred to the General Reserve in 1971.
This amount was also to be included in the capital base.
" In view of the facts as recorded by the Tribunal and in the light of the principles settled by various decisions and reiterated by this Court in Civil Appeal No. 1665 of 1974, (supra) it is not necessary to call for any statement of the case and the High Court was right.
It may be mentioned that where the liability has actually arisen or anticipated legitimately by the assessee though the quantum of the liability has not been determined, to meet such present liability cannot be treated as 'reserve '.
A fund, however, created for payment of a liability which had not already arisen or fallen due but only a provision with regard to the sum that might become liable to be paid is 'other reserve within the meaning of rule (1) of second schedule and should be taken into ac 407 count in computing the capital of the company for the purpose of the Companies (Profit) Surtax Act, 1964.
In that view of the matter, we are of the opinion that the decision of the High Court was right.
The principles applicable in these types of cases have been discussed by this Court in several decisions.
It is not necessary to reiterate these again.
In the premises this application fails and is accordingly dismissed.
In the facts of this case, parties will pay and bear their own costs.
S.R. Appeals allowed in part.

summary/full:
The assessee, in CA 1546 of 1974, M/s British India Corporation Ltd. claimed capital Reserve, Stocks and Stores Reserves, Bad and doubtful debts Reserves, Obsolescence reserve, Loans and Insurance reserve, investment reserve and forfeited moneys reserves as "standard deduction" as defined in section 2(a) of the in the computation of its profits under the relevant Income Tax Act.
The claim having been disallowed, the question has been referred to this Court by the Tribunal.
In Civil Appeal No. 1599/74 the Saran Engineering Company Ltd. claimed similar deductions in respect of capital reserve, Rehabilitation Reserve, Stores Reserve forfeited moneys Reserve and Bad and doubtful debts reserve.
The Income Tax Officer rejected the claim.
On appeal the Appellate Assistant Commissioner allowed the claim in part.
The Tribunal however allowed the assessee 's claim in full in further appeal while rejecting the Revenue 's appeal against A.A.C 's order.
At the instance of the Revenue, the Tribunal referred the matter to the High Court.
The High Court answered the reference partly in favour of the Revenue by negativing the claim as to forfeited moneys reserve and 399 restricting the quantum of amount allowed by the AAC regarding capital reserve, as the assessee did not seek a reference against it.
Hence the appeal by Revenue by Special Leave.
In the Special Leave Petition No. SLP (C) 4815A/77 the High Court 's rejection order of the revenue 's request under section 256(2) for calling for a case against the Tribunal 's findings regarding the Gratuity Reserve, Reserve for Sepcial Survey, Reserve for contingencies, fleet Replacement reserve, Reserve for exempted Profits under section 84 of the Income Tax Act, Reserve for Investment depreciation and Dividend Equalisation Reserve but allowing only in relation to the Reserve for special Survey come to be considered.
Allowing the two civil appeals in part and dismissing the Special Leave Petition, the Court ^ HELD: 1.
In the facts and circumstances of the case, except the obsolescence Reserve and the forfeited moneys reserve, all the Reserves, namely, capital Reserve, Stocks and Stores Reserve, Bad and doubtful debts reserves, Loans and Insurance Reserve, Investment reserve, and rehabilitation reserve are to be included in the computation of capital according to the provisions in the Second Schedule to the . 2.
Where the liability has actually arisen or anticipated legitimately by the assessee though the quantum of the liability has not been determined, to meet such present liability cannot be treated as "reserve".
A fund, however, created for payment of a liability which had not already arisen or fallen due but orly a provision with regard to the sum that might become liable to be paid is "other reserve within the meaning of rule (1) of second schedule and should be taken into account in computing the capital of the company for the purpose of the Companies (Profit) Surtax Act, 1964.
Except the item relating to Reserve for special survey, it is not necessary to call for any statement of the case in respect of other items in SLP (C) 4815A/77.
[406G H; 407A] Commissioner of Income Tax, Kanpur vs The Elgin Mills Ltd., Kanpur, [1986] 3 SCR P. 408, followed.


judgement:
ivil Appeal No. 1118 of 1981 etc.
From the Judgment and Order dated 17.11.1980 of the Andhra Pradesh High Court in W.P. No. 5468 of 1979.
A. Subba Rao for the Appellants.
Dr. Y.S. Chitate and T.V.S.N. Chari for the Respondents.
The Judgment of the Court was delivered by THAKKAR, J.
In a batch of Writ Petitions and T.R.C. cases before the High Court the question raised in substance was formulated as under: "The question, therefore, that arises in both these cases, is whether the amount collected by the seller from the buyer which comprises of the two components the actual sale price and the sale tax is a part of the "turnover" and comes within the expression "any other sum charged by the dealer whatever be the description, name or object thereof" occurring in the definition in Section 2 (s)1 of the Act.
In the former case it is shown expressly as sales tax and in the latter case it is shown in the form of debit notes.
But in both the cases it is collected by the seller from the buyer at the time of the sale or rather as a condition of sale.
" 1. Section 2(s) of the Andhra Pradesh General Sales Tax Act 1957 "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 for the sale or purchase of goods whether such consideration be cash, deferred payment or any other thing of value including any sums charged by the dealer for anything done in respect of goods sold at the time or before the delivery to the goods and any other sums charged by the dealer, whatever, be the description, name, object thereof: Provided that in the case of a sale by a person whether by himself or through an agent of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgage, tenant or otherwise the amount of the consideration relating to such sale shall be excluded from his turnover when such produce is sold in the form in which it was produced, with out being subjected to any physical chemical or other proc ess for being made fit for consumption save mere cleaning grading or sorting.
X X X X X X X X X X X X" 950 The High Court repulsed the plea of the assessees that the amount of sales tax so collected from the buyers was not includible in the turnover for the purposes of computing the sales tax liability of the assessees.
The concerned asses sees have approached this Court by way of the present group of appeals by Special Leave.
Sales tax is levied under the authority of Section 5 and Section 5 A on the 'turnover ' of a dealer.
The expression 'turnover ' has been defined by Section 2(s) inter alia to include the total amount set out in the bill of sale or the total amount charged as consideration for the sale or pur chase of goods whether such sales includes any other sum charged by the dealer whatever be the description, name or object thereof.
Whether or not sales tax collected by the dealers from the buyers would fail under the inclusive part of aforesaid definition is the question raised in these appeals.
It has arisen in the context of two categories of cases, namely: (i) wherein the sales tax has been separately set out in the bill of sale and is collected by the seller at the time of sale immediately after or at the time of delivery of the goods.
(ii) wherein the sales tax is not mentioned in the bill at all but simultaneously collected with the delivery of the goods separately under debit notes whereby the exact amount of sales tax due is collected from the purchaser by the seller but the said amount is kept in the suspense account.
The submissions which were unsuccessfully urged before the High Court and are reiterated before us on behalf of the assessees are: 1.
That where the amount is collected specifically as 'tax ', it cannot be deemed to be a part of the consideration for the sale of the goods and as such it cannot form part of the turnover within the meaning of Section 2(s) of the Act.
Inasmuch as the Act does not prohibit the dealer to pass on the sales tax component of the sale price to the purchaser, the dealer should be deemed to be an agent of the Government for collecting the sales tax amount.
In repelling the aforesaid contentions, strong reliance was placed by the High Court on its full bench decision in Government of Andhra Pradesh vs East India Commercial Compa ny Ltd., [1957] 8 STC 114 951 wherein an cartier decision of a Division Bench State of Andhra Pradesh vs Bujranga Jute Mills Ltd., [1955] 6 STC 376 to the effect that sales tax collected by the dealer from the buyers cannot be included in his turnover and is not liable to be taxed again was over ruled.
It may incidentally be mentioned that the aforesaid full bench judgment of the High Court was noted with approval by this Court in M/s George Oakes (P) Ltd. vs State of Madras., [1961] 12 S.T.C. 476.
Some salient features require to be underscored in order to test the merits of these submissions: (1) There is no provision in the Act which imposes a legal obligation on the vendor of the goods to recover sales tax on the goods sold to the vendee.
For instance the vendor is not prohibited from selling the goods without recovering the sales tax from the vendee.
The seller may not charge or recover the sales tax from the buyer.
He will not be violat ing any provision of the Act or incurring any penal conse quence by doing so.
In other words the collection of the sales tax from the buyer is a matter of his choice.
He may or may not do so.
If he does not do so he does not expose himself to any penal consequence or legal liability.
(2) There is no legal obligation imposed by the Act on the buyer of the goods to pay sales tax at the time of the purchase of the goods.
If the vendor does not insist on such payment and if the buyer does not pay the tax he does not violate any provision of the law or incur any legal liabili ty.
(3) There is no provision in the Act which casts any legal duty on the vendor to mention in the bill or the voucher issued to the buyer that sales tax has been recov ered from the buyer.
Nor is there any obligation on him to show that sales tax is included in the price charged or to specify the amount of sales tax separately in the bill or voucher.
(4) Nothing in the Act requires the dealer to set apart the amount recovered from the vendee by way of sales tax.
He is neither bound to keep a separate account of the amount so recovered nor to keep it in a separate cash box.
He can treat it as his own money, keep it in his own cash box, and use it as if it were his own property.
If the amount is stolen or is misappropriated by his employee it is he who loses his own money and it is not the Revenue which has to bear the loss.
952 (5) His liability to pay sales tax is analogous to his liability to pay the Municipal taxes or the Income tax etc.
The liability is to pay from his own property and not from any property earmarked for that purpose from out of the collection of tax made from the buyers.
(6) The dealer is no doubt required to deposit along with salestax return periodically the amount of tax due on the sales effected by him.
But that is merely a convenient mode of discharging his liability at the intervals as en joined by Act.
It is neither linked nor dependent on recov ery if any made by him from the buyer (which he may or may not make).
(7) The dealer is not paid any remuneration or reward for collecting the sales tax.
If he was acting as an Agent, the State would be obliged to pay him some remuneration or reward for the State cannot oblige him to work as its agent gratis.
It would amount to forced labour if it were other wise.
The aforesaid factors, viewed cumulatively, make it evident that a dealer who sells the goods does not act as an agent for the State in collecting the sales tax from the persons to whom he sells the goods.
If he was acting as an Agent he would be required to take reasonable care of the sale proceeds as a bailee.
He would also be required to set apart the same without intermingling with his own money, for, he cannot use the monies belonging to the State for his own private purposes.
If the intention of the legislature was to make him an agent, the legislature would have imposed penal liability on the vendor if he were not to collect the taxes.
He would be obliged to maintain separate accounts of the collection made by him as also to treat the collections as the collections made by the agent on behalf of the prin cipal.
It is therefore futile to contend that the sales tax component of the sale price charged by the vendor to the vendee is collected by him as an agent of the State Govern ment.
Even if therefore the bill or the voucher issued to the purchaser indicates the amount of sales tax separately what is collected by the vendor from the vendee is not tax but is merely a part of the sale price charged by the vendor to the vendee.
So far as the statute is concerned it does not cast any obligation on the purchaser of the goods to pay any tax and therefore what is collected by the vendor from the vendee by way of consideration for passing the property in the goods to the vendee is the price charged by him and not tax collected by him from the purchaser.
The amount of money which goes from the pocket of the vendee to the pocket of the vendor as a 953 condition or consideration for passing of the property in the goods is thus the sale price and not the tax.
It is the amount, but for the payment of which, the vendor would not transmit his title to the goods in favour of the vendee, and not any amount paid by the vendee towards any tax liability incurred by him on making the purchase of the goods.
It is no doubt true that a dealer as a prudent businessman would pass on the burden in ' the context of the sales tax liabili ty to the buyer.
But then he would be doing so in order that he may not make a loss on the transaction.
Inasmuch as no businessman Carries on business with a view to incur loss, that he would take into account this factor at the time of collecting the sale price from the vendee stands to reason.
That however does not mean that he is collecting the tax from the purchaser (for which in fact he has no authority in law under the Act).
Just as a businessman would take into account the expenses that he would have to incur for the running of the business such as rent, salary, and other establishment charges, just as he would keep a reasonable profit margin in the context of the investment made by him, he would also take into account the factor that he would have to pay sales tax on the turnover having regard to the statutory liability imposed on him by the Act.
That however does not mean that what he is charging from the vendee is the tax and not a part of the sale price.
So also it would not mean that he has been acting as an agent for Revenue.
Nothing would turn on whether the bill or voucher issued to the vendee is so made out to show that the sales tax is charged separately.
If he does so he would be doing so only for the sake of his accounting purposes and convenience.
The consideration obtained by him from the vendee would in the eye of law be the sale price regardless of what nomenclature is given to a part of the price charged by him.
Thus there is no substance whatever in the contention that the sales tax component included in the sale price is not includible in making the aggregate for the purpose of the turnover, it being a tax recovered from the purchaser and not the price of the goods charged to the vendee.
What is more, in George Oakes (Pvt.) Ltd. vs State of Madras, [1961] 12 STC 476 this Court had an occasion to consider a similar challenge made in the context of the constitutional validity of Section 8 B of Madras General Sales Tax Act 1939 wherein this Court has repelled this very argument in no unclear terms: ' 'Obviously.
it is not the name the legislature accords to a payment by a purchaser to a seller, who is a dealer as 954 defined by the Act, that determines the question of the legislative competence.
No doubt section 8 B 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 Act and the Rules.
But it is well recognised that whatever be the form of the statutory provisions, the ultimate economic incidence of the tax is on the consumer, the purchaser.
It was that well settled principle that was re stated in Bengal Immunity Co. Ltd. vs State of Bihar.
Even if the registered dealer col lects the amount by way of tax under the authority of sec tion 8 B 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.
" Reliance was placed by the appellants on McDowel & Company vs Commercial Tax Officer ; in sup port of the plea that the amount collected from the buyers if kept apart cannot be included in computing the turnover of the dealer.
In our opinion, this submission is clearly misconceived.
In McDowel 's case this Court was dealing with the question as regards the includibility of excise duty and countervailing duty in the aggregate turnover of the dealer.
This court has taken that view inasmuch as the excise duties and countervailing duties were paid directly by the purchas ers to the excise authorities before removing the same from the distilleries or the bonded warehouses and accordingly the same were not includible in the turnover of the dealers.
Since the amount was not charged or paid by the dealers but by the manufacturers, this Court upheld the contention of the assessees (vide paragraph 12 of the judgment).
This decision can be of no avail to the appellants because in the present case the amount in question is charged or recovered by the sellers from the buyers whether it is mentioned as Sales tax or not.
The principle laid down in McDowel 's case cannot be applied to the factsituation in the present case.
In fact in McDowel 's case the full Bench decision of the Andhra Pradesh High Court Govt.
of Andhra Pradesh vs East India Commercial C. Ltd., AIR 1967 Andhra Pradesh 83 has been noted with approval in paragraph 17 of the judgment.
It was further argued by learned counsel for the appellants draw 955 ing inspiration from Anand Swarup Mahesh Kumar vs The Com missioner of Sales Tax; , that the matter requires reconsideration in the light of the observations made therein.
We are unable to accede to this submission.
In Anand Swarup Mahesh Kumar 's case this Court was concerned with the market fee ' collected by a dealer from the purchas er for being passed on to the market committee under U.P. Act No. XXV of 1964.
It was an amount which the statute authorised the dealer to collect from the purchaser sepa rately and directly under the authority of Section 17 (iii) (b)(1) of the said Act and to pass it on or make it over to the Market Committee.
It is evident that it was an amount collected by the dealer underthe statutory authority as an agent of the Market Committee for being passed on to the Management Committee and therefore could not be treated as a component of the sale price of the goods which were sold to the purchaser.
It was in this context that this Court came to the conclusion that the Market fee so collected could not be included in the turnover as is evident from the pertinent passage: "From the observations made in the decisions referred to above, it follows that where a dealer is authorised by law to pass to any tax payabIe by him on the transaction of sale to the purchaser, such tax does not form part of the consid eration for purposes of levy of tax on sales or purchases but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration when he includes it in the price and realizes the same from the purchaser.
The essen tial factor which distinguishes the former class of cases from the latter class is the existence of a statutory provi sion authorising a dealer to recover the tax payable on the transaction of sale from the purchaser.
It is on account of the above distinction that this Court held in Joint Commer cial Officer, Division II, Madras 1 vs Spencer & Co. (1975 Supp SCR 439) that the sales tax which a seller 'of foreign liquor was liable to pay under Section 21 A of the Madras Prohibition Act, 1937 did not form part of the turnover on which sales tax could be levied under the Madras General Sales Tax Act, 1959 because the seller was entitled to recover the sales tax payable by him from the purchaser.
The relevant part of Section 21 A of the Madras Prohibition Act, 1937 referred to above read thus: 21 A.
Every person or institution which sells foreign 956 liquor shall collect from the purchaser and pay over to the government at such intervals and in such manner as may be prescribed, a sales tax calculated at the rate of eight annas in the rupee, or at such the other rate as may be notified by the government from time to time, on the price of the liquor so sold.
" It will thus be seen that this Court has again reaf firmed the position that the includibility must turn on the question as to whether or not the tax is recoverable from the purchasers under a statutory obligation.
This decision cannot therefore be of any avail to the appellants inasmuch as there is no such statutory provision in the Act with which we are concerned.
Lastly it was argued that in the second category of cases where the sales tax was not included in the bill and was kept in the suspense account by the seller, it could not be included in the total turnover.
This fallacious argument was rightly negatived by the High Court for the obvious reason that the amount includible in the turnover on the true interpretation of the relevant provisions cannot become excludible merely by reason of the accountancy device adopt ed by the assessee concerned.
There is no substance in any of the contentions urged on behalf of the appellants.
The view taken by the High Court is unexceptionable.
The appeals fail and are dismissed.
The interim orders shall stand vacated.
The appellants assessees will be liable to pay the amount due as sales tax along with interest thereon @ 12% as per the condition imposed by this Court at the time of granting the interim stay.
The sales tax authorities may recover the amount due by encashing Bank Guarantee as also by effecting recovery in accordance with law.
S.R. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
In Andhra Pradesh, Sales tax is levied under the author ity of sections 5 and 5A of the A.P. General Sales Tax Act, 1957 on the 'turnover ' of a dealer.
The expression 'turn over ' has been defined in section 2(s) inter alia to include the total amount set out in the bill of sale or the total amount charged as consideration for the sale or purchase of goods whether such sales includes any other sum charged by the dealer whatever be the description, name or object thereof.
Whether or not sales tax collected by the dealers from the buyers would fall under the inclusive part of aforesaid definition is the question raised in these ap peals.
It has arisen in the context of two categories of cases, namely: (i) wherein the sales tax has been separately set out in the bill of sale and is collected by the seller at the time of sale immediately after or at the time of delivery of the goods.
(ii) wherein the sales tax is not mentioned in the bill at all but simultaneously collected with the delivery of the goods separately under debit notes whereby the exact amount of sales tax due is collected from the purchaser by the seller but the said amount is kept in the suspense account.
The submissions urged by the appellants before the High Court in their Writ Petitions were: 1.
That where the amount is collected specifically as 'tax ', it cannot be deemed to be a part of the consideration for the sale of 946 the goods and as such it cannot form part of the turnover within the meaning of section 2(s) of the Act.
Inasmuch as the Act does not prohibit the dealer to pass on the sales tax component of the sale price to the purchaser, the dealer should he deemed to he an agent, of the Government for collecting the sales tax amount.
The High Court repulsed the plea of the assessees that the amount of sales tax so collected from the buyers was not includible in the turnover for the purposes of computing the sales tax liability of the assessees.
The concerned asses sees have approached the Supreme Court by way of the present group of appeals by Special Leave.
Dismissing the appeals, the Court, HELD: 1.1 The sales tax component of the sale price charged by the vendor to the vendee is not collected by him as an agent of the Revenue (State Government).
[ 953D E] 1.2 Some of the salient features of the A.P. General Sales Tax, 1957 are: (1 ) There is no provision in the Act which imposes a legal obligation on the vendor of the goods to recover sales tax on the goods sold to the vendee.
For instance the vendor is not prohibited from selling the goods withont recovering the sales tax from the vendee.
The seller may not charge or recover the sales tax from the buyer.
He will not he violat ing any provision of the Act or incurring any penal conse quence by doing so.
In other words the collection of the sales tax from the buyer is a matter of his choice.
He may or may not do so.
If he does not do so he does not expose himself to any penal consequence or legal liability.
(2) There is no legal obligation imposed by the Act on the buyer of the goods to pay sales tax at the time of the purchase of the goods.
If the vendor does not insist on such payment and if the buyer does not pay the tax he does not violate any provision of the law or incur any legal liabili ty.
(3) There is no provision in the Act which casts any legal duty on the vendor to mention in the bill or the voucher issued to the buyer that sales tax has been recov ered from the buyer.
Nor 947 is then any obligation on him to show that sales tax is included in the price charged or to specify the amount of sales tax separately in the bill or voucher.
(4) Nothing in the Act requires the dealer to set apart the amount recovered from the vendee by way of sales tax.
He is neither bound to keep a separate account of the amount so recovered nor to keep it in a separate cash box.
He can treat it as his own money, keep it in his own cash box, and use it as flit were his own property.
If the amount is stolen or is misappropriated by his employee it is he who loses his own money and it is not the Revenue which has to bear the loss.
(5) His liability to pay sales tax is analogous to his liability to pay the Municipal taxes or the Income tax etc.
The liability is to pay from his own property and not from any property earmarked for that purpose from out of the collection of tax made from the buyers.
(6) The dealer is no doubt required to deposit along with sines tax return periodically the amount of tax due on the sales effected by him.
But that is merely a convenient mode of discharging his liability at the intervals as enjoined by the Act.
It is neither linked nor dependent on recovery if any made by him from the buyer (which he may or may not make).
(7) The dealer is not paid any remuneration or reward for collecting the sales tax.
If he was acting as an Agent, the State would he obliged to pay him some remuneration or reward, for, the State cannot oblige him to work as its agent gratis.
It would amount to forced labour if it were otherwise.
[951C H; 952A D] The aforesaid factors, viewed cumulatively, make it evident that a dealer who sells the goods does not act as an agent for the State in collecting the sales tax from the persons to whom he sells the goods.
If he was acting as an Agent he would be required to take reasonable care of the sale proceeds as a bailee.
He would also he required to set apart the same without intermingling with his own money, for, he cannot use the monies belonging to the State for his own private purposes.
If the intention of the legislature was to make him an agent, the legislature would have imposed penal liability on the vendor if he were not to collect the taxes.
He would he obliged to maintain separate accounts of the collection made by him as also to treat the collections as the collec 948 tions made by the agent on behalf of the principal.
[952D F] 2.1 The sales tax component included in the sale price is includable in making the aggregate for the purpose of the 'turnover ' within the meaning of section 2(s), even though it is recovered as a tax from the purchaser and not as the price of the goods charged to the vendee.
[953F] 2.2 Recovery of tax from the purchasers is not under a statutory obligation, in the instant case.
Even if therefore the bill or the voucher issued to the purchaser indicates the amount of sales tax separately what is collected by the vendor from the vendee is not tax but is merely a part of the sale price charged by the vendor to the vendee.
So far as the statute is concerned it does not cast any obligation on the purchaser of the goods to pay any tax and therefore what is collected by the vendor from the vendee by way of consideration for passing the property in the goods to the vendee is the price charged by him and not tax collected by him from the purchaser.
The amount of money which goes from the pocket of the vendee to the pocket of the vendor as a condition or consideration for passing of the property in the goods is thus the sale price and not the tax.
It is the amount, but for the payment of which, the vendor would not transmit his title to the goods in favour of the vendee, and not any amount paid by the vendee towards any taxability incurred by him on making the purchase of the goods.
Nothing would turn on whether the bill or voucher issued to the vendee is so made out to show that the sales tax is charged separately.
If he does so he would be doing so only for the sake Of his accounting purposes and convenience.
The consid eration obtained by him from the vendee would in the eye of law be the sale price regardless of what nomenclature is given to a part of the price charged by him, [952F H; 953A E] 2.3 The amount includible in the turnover on the true interpretation of the relevant provisions cannot become excludible merely by reason of the accountancy device adopt ed by the assessee concerned.
[956D E] M/s George Oakes (P) Ltd. vs State of Madras, [1961] 12 STC 476, followed.
McDowel & Company vs Commercial Tax Officer, ; and Anand Swarup Mahesh Kumar vs The Commissioner of Sales Tax, ; , distinguished.
Government of Andhra Pradesh vs East India Commercial Company Ltd., [1957] 8 STC 114 and State of Andrha Pradesh vs Bujranga Jute Mills Ltd., [1955] 6 STC 376, referred to. 948


judgement:
Criminal Appeal No. 25 of 1987.
From the Judgment and Order dated 22.7.86 of the Punjab & Haryana High Court in Crl.
Revision No. 615 of 1986 Prem Malhotra for the Appellant.
M.S. Gujral, C.V. Subba Rao and Ms. Kailash Mehta for the Respondent.
The Judgment of the Court was delivered by THAKKAR, J.
Can a sanction to PROSECUTE surrogate for a sanction to take COGNIZANCE? Two safeguards are provided in regard to prosecution of members of the Armed Forces or of the forces charged with the maintenance of public order sought to be prosecuted for use of excessive force in the discharge of purported dis charge of their duty: (1) They cannot be "prosecuted" without obtaining a sanction to prosecute from the appropriate Government (Section 1321 of the Code of Criminal Procedure) (Cr.P.C.) (2) No Court can take "cognizance" of an offence against such an official in the absence of the previous sanction of the 1. "132.
protection against prosecution for acts done under Preceding sections (1)No Prosecution against any person for any act purporting to be done under Section 129, Section 139 or Section 13 1 shall be instituted in any Criminal Court except (a) with the sanction of the Central Government where such person is an officer or member of the armed forces; (b) with the sanction of the State Government in any other case.
. . . . . . . . . . " 994 appropriate Government (see Section 197 2 of Cr.
P.C. ) In the present case the Trial Court has taken cognizance without the previous sanction (of the State Government) as envisioned by Section 197(2) read with Section 197(3) of the Code of Criminal Procedure in respect of a charge that the appellant had in the purported discharge of his duties used force in excess of what was necessary and thereby committed on offence.
Admittedly, there is no such previous sanction authorising any court to take 'cognizance ' of the offence against the appellant.
The High Court has, however, taken the view that inasmuch as the State Government itself had accorded sanction to 'prosecute ' the appellant in exercise of powers under Section 132 of the Cr.
P.C. there was no need for sanction under Section 197 of Cr.
The reasoning runs along these lines: Both sanctions are (1) to be given by the State Government, (2) in respect of the same person, and (3) on the same allegations.
Therefore, the sanction under one provision (Sec. 132) can be treated as a sanction under the other provision (Sec.
197(3) as well).
We are afraid, the High Court has overlooked the scope, purpose and character of sanction under Section 132 of Cr.
P.C. on the one hand and Section 197 Cr.
P.C. on the other.
Six significant points of difference need to be highlighted: (1) The two sanctions are addressed to altogether different persons.
While sanction under Sec.
132 is addressed to the intending complainant, sanction "197.
Prosecution of Judges and public servants (1) xxxx 2.
No Court shall take cognizance of any offence alleged to have been committed by any member of the Armed Forces of the Union while acting or purporting to act in the discharge of his official duty, except with the previous sanction of the Central Government.
The State Government may, by notification, direct that the provisions of subsection (2) shall apply to such class or category of the members of the Forces charged with the maintenance of public order as may be specified therein.
Wherever they may be serving, and thereupon the provisions of that sub section will apply as if for the expression "Central Government~. occurring therein, the expression "State Government" were substituted.
The Central Government or the State Government.
as the case may be, may determine the person by whom, the manner in which, and the offence or offences for which the prosecution of such a Judge, Magistrate or public servant is to be conducted, and may specify the Court before which the trial is to be held.
" 995 under Section 197 is addressed to the Magistrate presiding over a Court.
(2) The two sanctions serve two altogether different pur poses.
While the sanction under Section 132 clothes the intending complainant with authority to institute a com plaint and set the machinary of the criminal court in mo tion, the sanction under Section 197 clothes the court with the jurisdiction to take cognizance of the offence.
Without the former, the intending complainant cannot trigger the proceedings, without the latter the Magistrate cannot have seisin over the matter or act in the matter.
(3) The absence of sanction in each case visits different persons with different consequences.
Absence of the former disables the intending complainant whereas absence of the latter disables the Court.
(4) The disability operates in two different spheres.
Want of sanction under Sec.
132 renders the complaint invalid.
Want of sanction under Sec.
197 vitiates all the proceedings in the Court.
For want of the former, the complainant cannot complain, for want of the latter the court cannot try the case.
(5) The sanctioning authority has to address itself to different questions.
In regard to a sanction under Sec.
132 Cr.
P.C. the question to be answered is whether the intending complainant is a suitable person to be authorized for prose cuting the matter in good faith.
In regard to the sanction under Sec.
197 the question to be answered is which particu lar court should be empowered to try the case '.
So also in granting sanction under Sec.
197 the sanctioning authority has to consider whether or not to exercise the powers under Section 197(4) to specify "the person by whom, the manner in which, and the offence or offences for which" the concerned public servant should be tried and "the court before which the trial is to be held".
The authority seized of the matter in the context of sanction under Sec.
132 does not have to address himself to these questions and in fact has no compe tence in this behalf.
(6) One is an authority to an individual to 'prosecute ' the alleged offender, the other is an authority to 'try ' the alleged offender.
996 Therefore, a sanction under Section 132 is no substitute for a sanction under Section 197.
Under the circumstances, the court could not have taken cognizance of the offence in so far as the appellant was concerned for there was no jurisdiction to do so in the absence of the requisite sanc tion.
The appeal must, therefore, be allowed, the order passed by the High Court must be set aside, and the proceed ings against the appellant must be quashed as lacking in jurisdiction.
No doubt, this order will not operate as an acquittal on merits and the appellant can be proceeded against afresh.
Whether or not to do so is for the competent authority to decide.
So far as the proceedings giving rise to the present appeal are concerned, the same will stand quashed.
The appeal is disposed of accordingly.
M.L.A. Appeal dis posed of.

summary/full:
The Trial Court, without any previous sanction of the State Government under s.197 Cr.
P.C. took cognizance in respect of a charge, that the appellant had, in the purport ed discharge of his duties, used force in excess of what was necessary and thereby committed an offence.
The High Court, in appeal by the appellant, however, took the view that inasmuch as the State Government itself had accorded sanction to 'prosecute ' the appellant in exer cise of powers under s.132 of the Cr.
P.C. there was no need for sanction under s.197 of Cr.
Allowing the appeal to this Court, Held: 1.
The proceedings against the appellant must be quashed as lacking in jurisdiction.
The Court could not have taken cognizance of the offence, for there was no jurisdic tion to do so in the absence of the requisite sanction.
This order will not operate as an acquittal an merits, and the appellant can be proceeded again.
it afresh.
Whether or not to do so is for the competent authority to decide.
[996B C] 2.1 Two safeguards are provided in regard to prosecution of members of the Armed Forces or of the forces charged with the maintenance of public order sought to be prosecuted for use of excessive force in the discharge or purported dis charge of their duty.
The first safeguard provided in section 132 Cr.
P.C. is that they cannot be "prosecuted" without obtain ing a sanction to prosecute from the appropriate Government and the second safeguard is the one provided under section 197 that no Court can take "Cognizance" of an offence against such an official in the absence of the previous sanction of the appropriate Government.
[993D F; 994A] 992 2.2 A sanction under s.132 of the Cr.
P.C. is no substi tute for a sanction under section 197 of the Cr.
P.C. Six signifi cant points of difference need to be highlighted.
[994D] 1.
The two sanctions are addressed to altogether different persons.
While sanction under sec.
132 is addressed to the intending complainant, sanction under section 197 is addressed to the Magistrate presiding over a Court.
[994E 995A] 2.
The two sanctions serve two altogether different pur poses.
While the sanction under s.132 clothes the intending complainant with authority to institute a complaint and set the machinary of the criminal court in motion, the sanction under section 197 clothes the court with the jurisdiction to take cognizance of the offence.
Without the former, the intending complainant cannot trigger the proceedings.
Without the latter the Magistrate cannot have seisin over the matter or act in the matter.
[995B] 3.
The absence of sanction in each case visits different persons with different consequences.
Absence of the former disables the intending complainant whereas absence of the latter disables the Court.
[995C] 4.
The disability operates in two different spheres.
Want of sanction under section 132 renders the complaint invalid.
Want of sanction under section 197 vitiates all the proceedings in the Court.
For want of the former, the complainant cannot com plain, for want of the latter the court cannot try the case.
[995D] 5.
The sanctioning authority has to address itself to different questions.
In regard to sanction under sec.
132 Cr.
P.C. the question to be answered is whether the intending complainant is a suitable person to be authorized for prose cuting the matter in good faith.
In regard to the sanction under sec.
197 the question to he answered is which particu lar court should be empowered to try the case.
So also in granting sanction under sec.
197 the sanctioning authority has to consider whether or not to exercise the powers under section 197(4) to specify "the person by whom, the manner in which, and the offence or offences for which" the concerned public servant should be tried and "the court before which the trial is to be held".
The authority seized of the matter in the context of sanction under sec.
132 does not have to address himself to these questions and in fact has no compe tence in this behalf.
[995E 995G] 993 6.
One is an authority to an individual to 'prosecute ' the alleged offender, the other is an authority to 'try ' the alleged offender.
[995H]


judgement:
ivil Appeal Nos.
4483 & 4484 of 1986 From the Judgment and Order dated 26.6.86 of the Bombay High Court in Notice of Motion No. 1418/86 in Appeal No. 512/86 in W.P. 1007/86.
F.S. Nariman, O. Chenoy, A.K. Verma, D.N. Mishra and D.N. Bhansaria for the Appellant.
Soli J. Sorabjee, M.M. Jayakar and B.R. Aggarwala for the Respondents.
935 The Judgment of the Court was delivered by VENKATARAMIAH, J.
These appeals by special leave are filed against the Order dated 26.6.1986 passed in Appeal No. 512 of 1986 in Writ Petition No. 1007 of 1986 and the Order dated 26.6.1986 in Appeal No. 535 of 1986 in Writ Petition No. 1424 of 1986 of the High Court of Bombay.
Since these two are connected matters, they are disposed of by this common judgment.
The facts of these two cases are these.
The appellant in both these appeals is the Board of Trustees of the Port of Bombay (hereinafter referred to as 'the Port Trust ') and the 1st Respondent in both these appeals is a partnership firm by name M/s. Jai Hind Oil Mills Company.
The 1st Respondent imported 5 consignments of Propylene of 10 metric tons each in January, 1986 by S.S. Maribor.
The general landing date of the said consignments was 20th January, 1986 and the last free date in respect of them was 23rd January, 1986.
There after the said consignments were incurring demurrage.
The bills of entry were submitted by the 1st Respondent to the Customs authorities in the same month.
Disputes arose be tween the 1st Respondent and the Customs authorities with regard to the basic customs duty payable in excess of 32.50% (as goods were imported from the Republic of Korea which was a developing country), with regard to loading the assessable value with customs duty for calculation of the additional duty and with regard to loading the CIF value with the landing charges.
Not being satisfied with the contentions of the Customs authorities the 1st Respondent filed a writ petition in Writ Petition No. 122 of 1986 for the issue of certain directions to the Customs authorities with regard to the levy of customs duty.
In that Writ Petition on January 21, 1986 the High Court passed an interim order which di rected the Customs authorities not to insist on payment of the customs duty in dispute pending hearing and disposal of the Writ Petition on the 1st Respondent furnishing a Bank Guarantee to the extent of the 90 per cent of the disputed amount of duty in respect of one item and 100 per cent of the disputed amount of duty in respect of two other items in favour of the Collector of Customs.
Thereafter some corre spondence ensued between the 1st Respondent and the Customs authorities in connection with the description of the above goods.
It would appear that while the Bill of Lading and the Invoice described the goods as 'Propylene ' the marks on the consignments indicated that they contained 'Polypropylene '.
The 1st Respondent was asked to explain the discrepancy by the Customs authorities.
There was also some dispute raised as regards the invoice price.
The 1st Respondent could not, however, clear the goods 936 from the Port of Bombay.
Thereafter the 1st Respondent filed another Writ Petition No. 519 of 1986 for the issue of a direction to the Customs authorities to permit it to clear the consignments.
On April 2, 1985 the learned Single Judge of the High Court of Bombay who heard the said Writ Petition passed an order allowing the 1st Respondent to dear the consignments on furnishing an Import Trade Control bond for the value of the consignments calculated at the rate of U.S $ 735 per metric ton and furnishing a Bank Guarantee of a nationalised bank in favour of the Collector of Customs, Bombay to the satisfaction of the Prothonotary & Senior Master, High Court, Bombay, for a sum equivalent to the difference in the value between U.S $ 7 15 and U.S $ 735 per metric ton without prejudice to the rights and contentions of the 1st Respondent.
The said order provided that the Customs authorities could continue their investigation and adjudicate upon the duty payable by the 1st Respondent.
On the basis of the above order the 1st Respondent was allowed to withdraw the Writ Petition with liberty to file a fresh petition, if required.
Since there was a delay in the clear ance of the consignments in question and the 1st Respondent had become liable to pay demurrage to the Port Trust, the 1st Respondent addressed a letter to the Collector of Cus toms, Bombay asking him to issue a Detention Certificate stating that the goods had been detained for bona fide Import Trade Control formalities so that it could claim the remission of demurrage payable to the Port Trust.
The 1st Respondent followed up the above letter by another Writ Petition No. 1007 of 1986 which was filed on or about the 17th April, 1986 against the Customs authorities for the issue of a writ directing them to issue a Detention Certifi cate in respect of all the 5 consignments.
On the 24th April, 1986 the learned Single Judge passed a final order directing the Customs authorities to issue a Detention Certificate to the 1st Respondent on the 1st Respondent giving an undertaking to the Court that it would pay the amount, if it failed in Writ Petition 122 of 1986.
Pursuant to the Order ' dated 24th April, 1986 passed in Writ Petition No. 1007 of 1986 the 1st Respondent gave an undertaking to the Court that it would pay the amount upon its not succeed ing in Writ Petition No. 122 of 1986.
On the 21st May, 1985 the Port Trust received a letter dated 19th May, 1986 from the Assistant Collector of Customs in which it had been stated inter alia that five Detention Certificates had been sent along with the said letter.
Actually no enclosures were received along with the said letter.
But later on they received two Detention Certificates in respect of two out of the five consignments on that day.
They related to two bills of entry bearing Nos. 3133/219 and 3 133/220.
On the same day the Docks Manager of the Port Trust received a letter from the clearing agent of the 1st Respondent asking 937 the Port Trust to grant the remission of demurrage in view of the Detention Certificates issued by the Customs authori ties.
Since the Port Trust was not a party to any of the Writ petitions, referred to above; and no Bank Guarantee or Demand Draft had been furnished by the 1st Respondent cover ing the 80% amount of the demurrage fees, the Port Trust wrote a letter dated 30th May, 1986 to the 1st Respondent asking the 1st Respondent to give a Bank Guarantee to the effect that in the event.
of the 1st Respondent losing Writ Petition No. 122 of 1986 it would pay to the Port Trust, Bombay the entire amount of remission along with interest at 15% per annum.
When the aforesaid letter was sent, the Port Trust was not aware of the Order dated 2nd April, 1986 passed in Writ Petition No. 519 of 1986.
Thereupon, on June 12, 1986 the 1st Respondent and its partner Sham Lal Kishna ni, who is 2nd Respondent herein filed another Writ Petition No. 1424 of 1986 in the High Court against the Port Trust for quashing the communication dated 30th May, 1986, re ferred to above, under which the Port Trust had asked the 1st Respondent to furnish the Bank Guarantee or a Demand Draft to the extent of 80% of the demurrage fees claimed by the Port Trust and for compelling the Port.
Trust to honour the Detention Certificates issued by the Customs authorities pursuant to the Order dated 24th April, 1986 and to permit the clearance of the goods without payment of demurrage and without insisting upon the furnishing of a Bank Guarantee or a Demand Draft, as stated above.
They also asked for an interim order of the effect that pending hearing and final disposal of the said Writ Petition, the Port Trust should forthwith honour the Detention Certificates issued by the Customs authorities and allow the clearance of the goods without payment of demurrage and without insisting on the Bank Guarantee or the Demand Draft.
In that Writ Petition an interim order was passed on the 17th June, 1986 as prayed for by the 1st Respondent.
Thereafter the Port Trust was advised to file an appeal before the Division Bench against the Order dated 2nd April, 1986 passed in Writ Petition No. 519 of 1986 and the Order dated 17th June, 1986 passed in Writ Petition No. 1424 of 1986.
While the Port Trust was in the process of getting the said appeals made ready for filing by their advocates, the 1st Respondent threatened the Port Trust with contempt proceedings by its letter dated 20th June, 1986.
Immediately after the receipt of the said letter, the Port Trust lodged the Appeal No. 512 of 1986.
By an order dated 26th June, 1986 the appeal filed against the Order dated 2nd April, 1986 passed in the Writ Petition No. 1007 of 1986 was summarily dismissed.
The said order, howev er, stated as under: "It is, however, clarified that it is clear from the im pugned 938 order dated 24.4.1986 that the undertaking pertains to the demurrage charges payable to the Port Trust.
if the Respond ents Nos. 1 and 2 (Petitioners) failed in Writ Petition No. 122 of 1986 on the footing that no valid detention certifi cate could have been issued in that event.
Mr. Chinoy contends that the detention certificate could not be issued, if in the adjudication proceedings the Petitioners are found at fault and the question of the Petitioners giving an undertaking to provide for this does not appear to have been present in the mind of the learned Judge when the order was passed.
Liberty to the Appellants 'to seek further clari fication and/or orders on this question from the learned Single Judge.
" The appeal filed against the Order dated 17th June, 1986 in Writ Petition No. 1424 of 1986 was numbered as Appeal No. 535 of 1986.
The said appeal was also summarily dismissed on 26th June, 1986.
As the Port Trust was advised to file an appeal in this Court by special leave, the Port Trust did not apply to the learned Single Judge for clarification as suggested in the Order passed in Appeal No. 512 of 1986.
It may be mentioned at this stage that the remaining three Detention Certificates relating to Bills of Entry Nos.
3133/221,222 and 223 were received by the Port Trust from the Customs authorities on 3rd July, 1986.
Two out of the five consignments were cleared by the 1st Respondent on 3rd July, 1986 and the remaining three consignments were cleared by the 1st Respondent on 5th July, 1986 on payment of an aggregate amount of Rs.49,510/50 paise for the charges of the Port Trust in accordance with the Order dated 17th June, 1986 passed in Writ Petition No.1424 of 1986 as against a total amount of Rs.3,53,514.75 paise due to the Port Trust for wharfage and demurrage charges upto the dates of the clearance of goods.
Thus a sum of Rs.3,04,004.25 in respect of wharfage and demurrage charges of the said five consign ments remains unpaid to the Port Trust.
Aggrieved by the two orders passed on 26th June, 1986 in Appeal No. 512 of 1986 and Appeal No. 535 of 1986 the Port Trust has filed these two appeals by special leave.
939 The principal contention urged in both these appeals is that the High Court should not have directed the Customs authorities to issue Detention Certificates without the Port Trust being made a party to the Writ Petition and in any event without passing an order duly providing for the pay ment of the wharfage and demurrage charges due to the Port Trust in the event of the 1st Respondent failing in its contention in Writ Petition No. 122 of 1986.
It is urged that a mere undertaking given in favour of the High Court agreeing to pay the amount was not sufficient security for the amount due to the Port Trust in the event of the 1st Respondent being held to be the party in default.
It is further contended that the High Court committed an error in directing the 1st Respondent to give a Bank Guarantee only in respect of the Customs duty payable by the 1st Respondent in the event of its Writ Petition being dismissed and in not making a similar order directing the 1st Respondent to furnish a Bank Guarantee in respect of the wharfage and demurrage charges payable to the Port Trust in the event of the 1st Respondent being ultimately held as the party in default.
The Port Trust is constituted under the (hereinafter referred to as the Act).
Under Section 5 of the Act every Board constituted under it is declared to be a body corporate having perpetual succession and a common seal with power, subject to the provisions of the Act, to acquire, hold or dispose of property and it may be the name by which i.t is constituted, sue or be sued.
The affairs of the Port Trust are managed by the Board of Trus tees and committees appointed by it in accordance with the provisions of the Act.
It is thus an independent statutory body and not just a department of Government.
Under Chapter VI of the Act the Board of Trustees of a Port Trust is empowered to impose and recover rates at Ports, for services rendered by the Port Trust or other persons at the port under its jurisdiction.
Sections 48 to 65 of the Act which are in Chapter VI of the Act deal with the said power of the Board of Trustees.
Section 48 authorises a Board from time to time to frame a scale of rates at which and a statement of the conditions under which, any of the services specified thereunder shall be performed by itself or any person autho rised by it at the port or port approaches.
Clause (d) of section 48 specifically empowers the Board to impose rates in respect of wharfage, storage or demurrage of goods on any such place.
Every scale of rates and every statement of conditions framed by the Board under the foregoing provi sions are required to be submitted to the Central Government for sanction and will have effect when so sanctioned and published by the Board in the Official Gazette.
It is, however, provided in section 53 of the Act that the Board of Trustees in special 940 cases and for reasons to be recorded in writing, may exempt either wholly or partially any goods or vessels or class of goods or vessels from the payment of any rate or of any charge leviable in respect thereof according to any scale in force under the Act or remit the whole or any portion of such rate or charge so levied.
The Port Trust has fixed the scale of rates charged at the docks.
A booklet containing the said rates which are revised upto 10.1.1985 is produced before the Court.
Section III of the said booklet which commences at page 14 thereof contains the Docks scale of rates ' fixed by the Port Trust.
In consultation with the Customs authorities, the Port Trust has provided for the grant of concession in the matter of payment of demurrage charges on the issue of Detention Certificate by the Customs authorities.
Section III A(c) of the said booket deals with the demurrage fees chargeable by the Port Trust.
Proviso (d) to the said clause (c) states that the goods detained by the Customs Department for special examination 'involving ana lytical or technical tests other than the ordinary processes of appraisement ' will be exempt from demunage fees during such period of detention as may be certified by the Collec tor of Customs to be not attributable to fault or negligence on the part of importers or exporters plus two working days and that the Certification by the Customs will be given by endorsement on relative duplicate copies of Bills of Entry or Shipping Bills.
On the suggestion of the Customs Depart ment the Port Trust has accepted to allow concession in the matter of demurrage charges to the extent indicated in Paragraph 4.10 of the note which is enclosed as Ext. 'B ' to the Special Leave Petition (Civil) No. 8466 of 1986.
It reads thus: "4.10 The best course seems to be to charge a rate per day which corresponds to our minimum charge for handling, stor age, care and custody or the goods after the expiry of the free days.
Wharfage constitutes handling costs plus storage charges for a period of four days.
Deducting handling costs, the balance represents storage charges for a period of four days.
It is estimated that, excluding the handling costs, storage charges per day are equal to 20% of total wharfage.
is, therefore, suggested that for the entire period of certified detention we may retain per day 20% of the wharf age to cover the services referred to herein.
" The above concession is extended by the Port Trust in appropriate cases where Detention Certificates are issued by the Customs authorities.
The Customs authorities have laid down the procedure for issue of Detention Certificates and the current procedure in 941 regard to the issue of Detention Certificates is embodied in the Bombay Custom House Public Notice No.111 dated 29th July, 1985.
Paragraph 2.of the said notice sets out the circumstances under which a regular Detention Certificate could be issued by the Customs House for facilitating the importers to get remission of demurrage charges.
They are as under: "(a) Where the goods are detained by Custom House for bona fide operation of Import Control Formalities without any default on the part of the importers.
(b) Where the goods have been released on caution (a regular Detention Certificate and not a Recommendatory letter).
(c) Where, the goods are detained the Custom House pending test report and the facility of clearance against provisional assessment has not been allowed.
Such Detention Certificates will be issued on merits for the period for which the goods were detained for the purpose.
(d) Where, the goods are detained for PHO formalities, the certificate will cover the period stretching between the date of drawal of the sample by the PHO and the date of his test results, and (e) In cases where samples have been drawn from the imported consignments by the Asstt.
Drug/Controller for ensuring compliance with the provisions of Drugs and Cos metics Act, 1940 and where the Assistant Drugs Controller is of the opinion that release cannot be allowed against a Letter of Guarantee pending test.
" The said Public Notice also states that Detention Cer tificates will not be issued in the following types of cases: (a) "Time taken by the Custom House Laboratory for analytical/chemical testing of samples drawn from the con signments, since the facility of clearing the goods on bond in terms of Section 18 already exists.
(b) Samples drawn from the imported consignments by the 942 Assistant Drugs Controller for ensuring compliance with the provisions of and for being forwarded to the Central Drugs Laboratory, Calcutta, as the importers can avail of the facility of clearing the goods against Letters of Guarantee and need not wait till the receipt of the test report.
The facility of allowing clearance of goods against letters of Guarantee is extended only on the specific recom mendations of the Assistant Drugs Controller on the Bill of Entry in each case.
(c) The period taken for mutilation of woollen rags in the Docks.
(d) Cases where goods are detained in the ordinary course of appraisement such as for determination of the Tariff classification of goods or their assessable value in terms of Section 14 of the Customs Act.
" It is agreed between the Customs authorities and the Port Trust that no Detention Certificate would, however, be issued by the Customs Department if there has been any default on the part of the importer or exporter.
It is thus clear that in the event of the importer or exporter being at fault, he would not be entitled to any concession in the matter of demurrage charges.
He has to pay whatever is payable in accordance with the 'scale of rates ' charged at the docks as fixed by the Port Trust.
The power of a Port Trust to fix rates of demurrage and to recover the same from an importer or exporter (although the question of an exporter paying demurrage arises rarely) under law and to show concession as regards demurrage charges in certain specified cases is recognised by this Court in the Trustees of the Port of Madras vs M/s. Amin chand Pyarelal & Others, ; and in the Board of Trustees of the Port of Bombay versus Indian Goods Sup plying Co.; , These decisions are no doubt based on the relevant laws which were in force at the mate rial time.
But the decisions are still relevant insofar as cases arising under the Act because the Act also contains provisions more or less similar to the statutory provisions considered in the said decisions.
Demurrage charges are levied in order to ensure quick clearance of the cargo from the harbour.
They are always fixed in such a way that they would make it unprofitable for 943 importers to use the port premises as a warehouse.
It is necessary to do so because congestion in the ports affects the free movement of ships and the loading and unloading operations.
As stated earlier.
the Port Trust shows conces sion to the party concerned in certain types of cases.
In the instant case the High Court by the order passed in the writ petition to which the Port Trust was not a party directed the Customs authorities to issue Detention Certifi cates in respect of the consignments in question.
In doing so while the High Court had safeguarded the interests of the Customs authorities by.
its earlier orders by directing the 1st Respondent to furnish a Bank Guarantee in respect of the duty payable to them, in respect of the demurrage charges payable to the Port Trust the High Court merely directed an undertaking to be given in favour of the High Court.
In the ordinary course, the High Court should have directed the 1st Respondent to furnish Bank Guarantee in respect of the demurrage charges payable to the Port Trust in the event of the 1st Respondent being held to be in default ultimately.
It is, however, to be observed that before compelling the Customs authorities to issue a Detention Certificate, the High Court should have issued notice to the Port Trust which was vitally interested in securing its own interests as regards the demurrage charges recoverable by it under law.
This was necessary because on the production of the Detention Certificate issued by the Customs authorities the Port Trust was under an obligation to permit the clearance of the goods without payment of full demurrage charges.
If ultimately the party concerned is found to be at fault and becomes liable to pay the full demurrage charges the Port Trust may not be in a position to recover such full demur rage charges from the party concerned, since it would have no longer any lien as provided by section 59 of the Act on the goods which are already cleared The Port Trust being a body corporate constituted under the Act is entitled to be heard by the Court before any order which affects its inter ests prejudicially is passed.
This case serves as an illus tration to what is stated above.
The Port Trust has been asked to permit the clearance of goods in respect of which demurrage charges of Rs.3,53,5 14.75 paise are payable in the event of the 1st Respondent being held liable in law to pay the full demurrage charges.
The orders passed by the High Court in the proceedings to which the Port Trust was not a party which had the effect of prejudicially affecting the interests of the Port Trust would not be binding on it in view of the violation of the principles of natural jus tice.
The High 944 Court erred in not imposing any condition on the 1st Re spondent for protecting the interests of the Port Trust even in the Writ Petition to which it was a party.
The impugned orders are contrary to the public notice issued by the Customs authorities as well as the rules of the Port Trust.
Having regard to the peculiar circumstances of this case in which the goods have already been cleared, the orders of the High Court of Bombay against which these appeals are filed are, therefore, to be modified appropriately in order to protect the interests of the Port Trust.
Accordingly, at the conclusion of the hearing of these appeals we passed an order on 16.12.1986 before reserving the appeals for judg ment directing the 1st Respondent to furnish within eight weeks a Bank Guarantee of a Nationalised Bank in favour of the appellant for due payment of Rs.3,04,004.25 paise to the appellant on demand, without any demur, being the balance of wharfage and demurrage charges in the event of the 1st Respondent not succeeding ultimately in Writ Petition No. 127 of 1986 and on failure to furnish such Bank Guarantee within eight weeks to pay in cash Rs.3,04,004.25 paise to the appellant forthwith.
This shall be the final order in these appeals.
These appeals are disposed of in the above terms.
The Customs authorities shall complete the adjudication proceed ings as expeditiously as possible and in any event within 16.3.1987.
P.S.S. Appeals disposed of.

summary/full:
The empowers by cl.(d) of s.48 the Board of Trustees, constituted under that Art, to impose rates in respea of wharfage, storage or demurrage of goods at the port.
Section 53 of the Act empowers and Board in special cases to exempt either wholly or partially any ' goods from payment of any rate or of any charge leviable in respect thereof or remit the whole or any portion of such rate or charge so levied.
The Port Trust had in consultation with the Customs authorities provided for grant of conces sion in the matter of payment of demurrage charges on the issue of detention certificate by the latter.
Paragraph 2(a) of the Bombay Customs House Public Notice No. 111 dated 29th July, 1985 provides for a regular deten tion certificate to be issued where the goods are detained by the Customs House for the bona fide operation of import control formalities.
A dispute arose between the 1st respondent and the Customs authorities with regard to the basic customs duty payable on the goods imported by the former.
By an interim order passed in a writ petition filed by the respondent, the High Court directed the Customs authorities to allow clear ance of the consignments on respondent furnishing a bank guarantee in respect of the disputed amount of duty payable, in favour of the Collector of Customs.
The respondent, however, failed to clear the goods from the Port.
Since the consignments were incurring demurrage the respondent filed another writ petition seeking a direction to the Customs authorities 933 to issue detention certificates, which was allowed by the Court on the 1st respondent giving an undertaking that it would pay the demurrage amount if it failed in the earlier writ petition.
The Customs authorities were, thus, obliged to issue the detention certificates.
The Port Trust was not made party to any of the writ petitions.
It refused to honour the detention certificates and to grant remission of demurrage unless the respondent gave a bank guarantee to the extent of 80 per cent of the fees claimed.
The High Court, however, by an interim order, in the writ petition filed against the Port Trust, directed the clearance of goods without payment of demurrage and without insisting on the bank guarantee.
The appeals filed against the aforesaid orders were summarily dismissed by the High Court.
In the appeals by special leave, it was contended for the appellantPort Trust, that the High Court should not have directed the Customs authorities to issue detention certifi cates without the Port Trust being made a party to the writ petition and in any event without passing an order duly providing for the payment of the wharfage and demurrage charges due to the Port Trust in the event of the first respondent failing in its contention, and that the High Court had committed an error in directing the first respond ent to give a bank guarantee only in respect of the customs duty payable and not making a similar order with regard to wharfage and demurrage charges payable to the Port Trust.
Disposing of the appeals, the Court, HELD: 1.
The power of the Port Trust to fix rates of demurrage and to recover the same from an importer and to show concession as regards demurrage charges in certain specified cases has been recognised.
[942F G] Trustees of the Port of Madras vs M/s. Aminchand Pyare lal & Others; , and The Board of trustees of the Port of Bombay vs Indian Goods Supplying Co., ; , referred to.
2.1 The orders passed by the High Court in the proceed ings to which the Port Trust was not a party, were not binding on the Port Trust in view of the violation of the principles of natural justice.
[943G H] 2.2 The Port Trust being a body corporate constituted under was entitled to he heard by the Court 934 before any order which affected its interests prejudicially was passed.
The High Court, therefore, before compelling the Customs authorities to issue a detention certificate should have issued notice to the Port Trust.
This was necessary because on the production of that certificate the Port Trust was under on obligation to permit the clearance of the goods without payment of full demurrage charges.
If ultimately the party concerned was found to he at fault and become liable to pay the full demurrage charges the Port Trust in the absence of a bank guarantee would not be in a position to recover full demurrage charges from the party concerned since it would have no longer any lien as provided by s.59 of the Act on the goods which were already cleared.
[943D F] 3.
The orders of the High Court in the proceedings to which the Port Trust was a party were contrary to the public notice issued by the Customs authorities as well as the rules of the Port Trust.
It erred in not imposing any condi tion on the first respondent for protecting the interests of the Port Trust.
It should have directed the first respondent to furnish bank guarantee in respect of the demurrage charges payable to the Port Trust in the event of the first respondent being held to be in default ultimately, rather than merely directing an undertaking to be given in favour of the High Court.
[943B D] 4.
The goods having already been cleared, to protect the interests of the Port Trust the order passed on December I6, 1986 directing the first respondent to furnish bank guaran tee in favour of the appellant with regard to the balance of wharfage and demurrage charges and in default thereof to pay the amount in cash would be the final order in the matter.
The customs authorities to complete the adjudication pro ceedings expeditiously and within March 16, 1987.
[944B E]