Recently Punjab & Haryana High Court in Gheru Lal Bal Chand vs State of Punjab has held that no liability can be fastened on the purchasing registered dealer on account of non-payment of tax by the selling registered dealer in the treasury unless it is fraudulent, or collusion or connivance with the registered selling dealer or its predecessors with the purchasing registered dealer is established.Punjab & Haryana High Court has taken the view on the basis of the decision of the Supreme Court in State of Punjab and Others V Atul Fastners Ltd., (2007) 4 SCC 471 and in Corporation Bank v. Saraswati Abharansala and another, (2009) 19 VST 84 (SC) wherein it has been held as under:

“Sales tax is leviable on sale of goods. It must be collected by the dealer as an agent of the State at such rate as may be specified. Neither the State nor the agent is entitled to collect tax at a rate higher than specified.”

Whereas the Bombay High Court in M/S.Mahalaxmi Cotton Ginning … vs The State Of Maharashtra & Ors WRIT PETITION NO.33 OF 2012 decided on 11 May, 2012 has upheld the validity of provisions of section 48(5) of MVAT Act which allows input credit of tax actually paid into the treasury by the seller, collected by him from his purchaser.

Bombay High Court in the above case refrained from giving the similar judgement as in Gheru Lal Bal Chand case and also held that selling dealer is not an agent of the Government while collecting tax as the primary liability to pay sales tax is on the seller whether he collects sales tax from the purchaser or not.
Bombay High Court relied upon the earlier judgement of Supreme Court in Central Wines v. Special Commercial Tax Officer,4 the Supreme Court, wherein it was held 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.Bombay High Court further observed that in State of Punjab vs. Atul Fasteners Ltd. 5 and in Corporation Bank vs. Saraswati case (supra) there are two sentences indicating that sales tax is collected by a dealer as an agent of the State. The position of the selling dealer was, however, not an issue which arose for consideration in either of the two cases and in any event, the two decisions cannot be regarded as laying down a principle contrary to the earlier decisions of the Constitution Benches noted above.

Bombay High Court relying upon the earlier Supreme Court Judgements held that in Atul fastner case the fundamental principles in regard to sales tax legislation emerging from Constitution Bench decisions of the Supreme Court. In Tata Iron and Steel Company v. State of Bihar, were not specifically over ruled.

In the above case Supreme Court, while considering the provisions of the Bihar Sales Tax Act, 1947 observed that the primary liability to pay sales tax, so far as the State is concerned, is on the seller. Though sales tax legislation may permit the seller who is a registered dealer to collect the sales tax as a tax from the purchaser, that as the Supreme Court observed, does not do away with the primary liability of the seller to pay the sales tax.

The Supreme Court also held that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and in some cases as a result of competitive conditions the dealer may find it profitable not to do so. Consequently as the Supreme Court held :

“This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise.”

Thus Bombay High Court and Punjab & Haryana High Court have taken contrary views on a same issue i.e whether selling dealer is an agent of the State Government or not, while collecting tax on sale of goods.

Whereas Bombay High Court has taken the view that the selling dealer is not an agent of the State Government while collecting VAT/sales tax on the goods sold, on the other hand Punjab & Haryana High Court has taken the view that selling dealer is an agent of the State Government while collecting tax on the sale of goods.

Thus there are two opposite verdicts by Different High Courts on a same issue seem to have created a confusion about the position of selling dealer i.e whether he is an agent of the State Government when collecting tax or not?

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(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

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