Holding

Amounts deducted at source by the Corporation must be deposited with the Commercial Tax Department; the Corporation is directed to deposit the undisputed balance.

Summary

Supra Marketing Agencies, a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957 and the Central Sales Tax Act, 1956, entered into a supply agreement with the Andhra Pradesh Backward Classes Cooperative Finance Corporation for the Adarna project. The State Commercial Tax Department directed the Corporation to deduct sales tax at source on payments to the dealer and to deposit the deducted amount with the tax department. The Corporation deducted tax but deposited only part of it, leading the tax authorities to attach the dealer’s bank account to recover the balance. The dealer challenged the attachment in a writ petition, which the High Court dismissed, holding that the circular authorising deduction was invalid. On appeal, the Supreme Court held that the deduction was made under valid circulars issued by the Commissioner and that the corporation is obligated to deposit the entire amount deducted at source with the Commercial Tax Department, irrespective of any dispute over the dealer’s claim.

Issues considered

Whether the circular issued by the Deputy Commissioner, acting on behalf of the Commissioner, is a valid instrument directing deduction of tax at source under the Andhra Pradesh General Sales Tax Act, 1957.
Whether amounts deducted at source by a third party must be deposited with the Commercial Tax Department under Section 42-A of the Andhra Pradesh General Sales Tax Act.
Whether the tax authorities can attach the dealer’s bank account to recover the balance when the corporation has not deposited the deducted tax.

Legislation cited

Subjects

sales taxtax deducted at sourceAndhra Pradesh General Sales Tax ActCentral Sales Tax Actcircularcommercial tax departmentdeposit of taxattachmentwrit petition

Judgment

...
A MIS SUPRA MARKETING AGENCIES
v.
COMMERCIAL TAX OFFICER, HYDERABAD AND ORS.

NOVEMBER 13, 2006

B [ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.] -~

Andhra Pradesh General Sales Tax Act, 1957/Central Sales Tax, 1956-.
Sales Tax-Direction from Revenue-To Corporation seeking services /rvm
assessee-dealer-To deduct sales tax at source on the payments made by it
c to the assessee-dealer-Due to some dispute regarding amounts payable to
the assessee, only part of the sales tax deducted at· source deposited by
t,
Corporation to the Revenue-Revenue demanding balance amount from the
assessee-Demand challenged in Writ Petition-Dismissed-On appeal, held:
It is the Corporation and not the assessee who is required to deposit the
D tax-Since the tax had been deducted at source by the Corporation in terms
of directions given by the Revenue.
< f

Appellant was a dealer registered underr Andhra Pradesh General Sales t
r
Tax Act, 1957 and Central Sales Tax Act, 1956. State Commercial Tax

E
Department issued a letter to the Andhra Pradesh .Backward Classes
Cooperative Finance Corporation, directing that taxes are to be deducted at f
source on the payments made by it to the appellant The Corporation, for the
purpose of a project entered into an agreem~nt with the appellant for supply
of certain articles. Corporation deducced certain amounts at source in respect
of sales tax payable. There W?~ some dispute between the Corporation and the
appellants with regard to the amount payable to the appellants. The
F
Corporation deposited only a part of the amount deducted at so~rce. The Sales
Tax Authorities wanted to recover the balance amount from the appellant
Respondent-Revenue issued notices of attachment to .Bank to attach bank ·"\.
account of the appellant to the extent of the balance amount due. Appellant
filed Writ Petition, questioning the act and the same was dismissed by High
G Court. Hence the present appeal.

Allowing the appeal, the Court

HELD: The amount which has been deducted at source by the
Corporation is required to be deposited with the Commercial Tax Department
H 1120
'-" SUPRA MARKETING AGENCIES i: COMMERCIAL TAX OFFICER, HYDERABAD [PASAYAT. J.] 1121

The amounts have been deducted in terms of the directions given by the A
Commissioner. The stand of the Corporation that it has raised the di£pute
about the amounts payable is really unconnected with the issue under.
consideration. Undisputedly, since the amounts have been deducted at source
from the amounts paid to the appellant for supply of articles, Corporation had
to deposit the amounts. In the Circular of the Deputy Commissioner, it has B
been clearly stated that the tax is to be deducted at source wherever tax is
leviable. In the Commissioner's Circular, it has been clearly stated that in a
meeting it was decided to deduct tax at source in respect of all purchases
made by the Corporation and to deposit the said amount with the Commissioner.
In view of the factual position, it is directed that the Corporation should deposit
the amounts which have not yet been deposited in respect of amounts deducted C
at source as tax. (1123-D-E; 1124-A-D)

CIVIL APPELLATE JURISDICTION: Civil Appeal No.4912 of2006.

From the Judgments and final Orders dated 9-8-2005 and 28. I 0.2005 of
the High Court of Judicature, Andhra Pradesh at Hyderabad in W.P. No.3398/ D
2005 and Review WPMPNo. 28707/2005 in W.P. No.3398/2005 respectively.

D. Dave, Rana Mukherjee, Siddarth Gautam and Goodwill Indeevar for
the Appellant .

R. Sunderavardhan, Manoj Saxena, Rajni Kr. Singh, Rahul Shukla, T.V. E
George and Mrs. D. Bharathi Reddy For the Respondents.

The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. Leave granted.
F
The controversy in the present appeal lies within a narrow compass.
Th~ appellant is a dealer registered under the provisions of Andhra Pradesh
General Sales Tax Act, 1957 (in short the 'Act') and the Central Sales Tax Act,
1956 (in short the 'CST Act'). The present disputes relates to the assessment
years I 998-1999 and 1999-2000. The State Government in the Commercial Tax
Department issued a letter to the Andhra Pradesh Backward Classes G
Cooperative Finance Corporation Limited (in short 'Corporation') directing
that taxes are to be deducted at a source on the payments made by it to the
appellant. It was stipulated that the amounts so deducted at source are to be
deposited with the Commercial Tax Department. The Corporation directed to
its Executive Director to credit sales tax deducted at source by Account Payee H
1122 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A cheque in favour of the concerned Assessing Officer in terms of discussion
held at a meeting held on 27 .03 .1999 where the Managing Director of the
Corporation and the Commissioner of Commercial Taxes were present. The
Corporation had floated a project known as Adarna for the purpose of
ameliorating the conditions of poor backward class artisans. The Corporation
had taken a decision to procure number of articles used by artisans. An
B agreement was entered into between the appellant and the Corporation for
supply of milk cans, insulating boxes etc. Undisputedly, certain amounts had
been deducted at source in respect of sales tax payable. The appellant brought
it to the notice of the Corporation that by letter dated 7. 7 .1999 in view of the
Circular issued by the Commissioner of Commercial Tax (in short the
C 'Commissioner') in terms Section 42-A of the Act, it was the responsibility
of the Corporation to discharge the sales tax liability under the Act and CST
Act. A Circular had been issued by the Commissioner directing all the Deputy
Commissioners to implement the instructions issued in respect of payments
made in the Adama scheme. The Corporation in terms of Circular had deposited
Rs.5,50,089/- which is a part of the amount deducted at source. The balance ·
D amount undisputedly is Rs.10,44,396/-. The Sa!es Tax Authorities wanted to
recover the said amount from the appellant. Placing reliance on the Circular
issued by the Deputy Commissioner on behalf of the Commissioner and
"' (
Commissioner on 17.12.1998 and 7.7.1999 respectively, appellant requested
the Sales Tax Authorities to collect the amounts from the Corporation. It
E appears that there was some dispute about the amounts payable to· the
appellant. The stand of the Corporation appears to be that payment in excess
of the actual dues had been made to the appellant. The present dispute does
not relate to the said controversy.

Undisputedly; arbitration proceedings have been initiated. The
F Commercial Tax Officer, respondent No. I issued notices of attachment to
Lakshmi Vilas Bank Limited, Secunderabad to attach bank account of the
appellant to the extent Rs. 10,44,396/-. Writ Petition was filed before the High
C:>urt questioning the action. The High Court by impugned judgment dismissed
the writ petition holding that there was no valid Circular in existence. The
G High Court was of the view that letter issued by the Deputy Commissioner,
Commercial Taxes cannot be equated with the circular which the Commissioner
alone could have issued. It is also not relevant that in the arbitration
proceedings, Corporation has been held liable to pay amounts which have
been deducted at source at tax as Commercial Tax Officer was not a party to
such proceedings.
H
SUPRA MARKETING AGENCIES 1•. COMMERCIAL TAX OFFICER. HYDERABAD [PASAYAT, J.] } J23

In support of appeals, learned counsel for the appellant submitted that A
notwithstanding the fact that the parties accept the position that whatever
has been deducted at source has to be deposited with the Commercial Tax
Department, the appellant is being asked to pay the amount again. Nobody
disputes that the Corporation was required to deduct the amount and to
deposit it. In fact the dispute on which the Corporation placed reliance has B
.... nothing to do with the question of deposit of amounts which has been
deducted at source. The State Government accepts that the Deputy
Commissioner had issued communication in question acting on behalf of the
Commissioner and it is a Circular by the Commissioner. It has also accepted
that the Corporation is to deposit amounts which it has deducted at source.

Learned counsel for respondents I and 2 submitted that Commercial Tax
c
Officer and the State Government did not dispute the stand that the Corporation
has to deposit the amounts which has been deducted at source. The stand
of the Corporation essentially is that there is some dispute about the amounts
to be paid to the appellant and in fact its stand is that the payment in excess
of what is legally due has been made. D
The basic issue is whether the amount which has been deducted at
source by the Corporation is required to be deposited with the Commercial
Tax Department. There is no scope for any controversy on this score. The
amounts have been deducted in terms of the directions given by the
Commissioner. The relevant portion of the Circular dated 17 .12.1998 reads as E
follows:

"During the course of meeting, I have made it clear to the suppliers
that the tax should be deducted at source, that is by the Corporation
in respect of the supplies of goods wherever tax is leviable. I, therefore, F
request you to kindly to confirm to the Commissioner of Commercial
Taxes that the Corporation will be undertaking to deduct tax at source
before paying the consideration to all the suppliers of goods ADARNA
PROJECT. The tax so deducted from these suppliers, in case they are
registered with ACTO Punjagutta Circle, under the said proceedings,
may be paid through crossed cheque drawn in favour of Commercial G
Tax Officer, Punjagutta Circle, Hyderabad duly indicating the names of
suppliers and the tax amount deducted from them in the covering
letter. A certificate of the deduction may also be issued to the individual
suppliers. In respect of suppliers who are already registered in this
State other than in Punjagutta Circle, such crossed cheques may be H
1124 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R. ~
"
A issued in favour of the concerned C.T.O. in the State and sent by
registered post to that C.T.O.".

The stand of the Corporation that it has raised the dispute about the
amounts payable is really unconnected with the issue under consideration.
Undisputedly, since the amounts have been deducted at source from the
B amounts paid to the appellant for supply of articles, Corporation had to
~·
deposit the amounts.

In the Circular of the Deputy Commissioner as quoted above, it has
been clearly stated that the tax is to be deducted at source wherever tax is
leviable. In the Commissioner's Circular dated 7.7.1999, it has been clearly
c stated that in the meeting held on 27 .3. I 999, it was decided to deduct tax at
source in respe_ct of all purchases made by the Corporation and to deposit
the said amount with the Commissioner.

In view of the aforesaid factual position, we direct that the Corporation
should deposit the amounts which have not 'yet be~n deposited in respect
D of amounts deducted at source as tax. The deposit shall be made within one
month from today. It is unnecessary to state that we have not expressed any .;;: 1
opinion on the dispute relating to the entitlement of the appellant and the
question whether there has been any over payment as claimed by the
Corporation. The appeals are allowed to the aforesaid extent. No costs.
E
K.K.T. Apppeal allowed.