1967 (2) TMI 61 - SC - VAT and Sales Tax

Whether in the facts and circumstances of the case the sales of sleepers (for railways) made by the non-applicant (Bengal Timber Trading Co. Ltd.) under the agreement with the President of India came under Article 286(1)(a) of the Constitution read with the Explanation thereto and therefore were exempt from the imposition of tax under the C.P. and Berar Sales Tax Act 1947? Held that - Appeal allowed. In the result it must be held that the sales in these cases were covered by the Explanation to Article 286(1) and as such not taxable by the State of Madhya Pradesh.

Issues Involved:
1. Applicability of Article 286(1)(a) of the Constitution and its Explanation to the sales of sleepers.
2. Determination of the place of actual delivery of goods.
3. Interpretation of contract clauses regarding delivery and acceptance of goods.
4. Jurisdiction of the State of Madhya Pradesh to tax the transactions.

Detailed Analysis:

1. Applicability of Article 286(1)(a) of the Constitution and its Explanation to the sales of sleepers:
The central issue was whether the sales of sleepers made by the appellant under an agreement with the President of India fell under Article 286(1)(a) of the Constitution, thereby exempting them from the imposition of tax by the State of Madhya Pradesh. Article 286(1)(a) prohibits the imposition of tax on sales or purchases that take place outside the State. The Explanation to Article 286(1)(a) deems a sale to have taken place in the State where the goods are actually delivered for consumption, regardless of where the property in the goods passes under general law.

The Court referred to previous decisions, including Bajarang Jute Mills Ltd. v. State of Andhra Pradesh and Bengal Immunity Company Ltd. v. The State of Bihar, to interpret the Explanation. The Explanation creates a legal fiction, fixing the State where the goods are delivered for consumption as the only State with the authority to levy sales tax. This prevents multiple taxation on a single transaction.

2. Determination of the place of actual delivery of goods:
The Court examined the terms of the contract to determine whether the actual delivery of the sleepers took place in Madhya Pradesh or outside the State. The contract specified that the sleepers were to be delivered to the consignee, who was always outside Madhya Pradesh. Clauses 3(a), 11(g), 12, and 14 of the contract indicated that delivery was linked to final acceptance by the consignee at the destination, not merely the loading of the goods onto the railway at Dhamtari.

The Court concluded that the actual physical delivery was not complete until the goods were accepted by the consignee at the destination. Therefore, the sales were covered by the Explanation to Article 286(1)(a) and were not taxable by Madhya Pradesh.

3. Interpretation of contract clauses regarding delivery and acceptance of goods:
The Court analyzed various clauses of the contract to ascertain the intention of the parties regarding delivery. Clause 3(a) mentioned that the prices covered all charges until the goods were finally accepted. Clause 11(g) allowed the consignee to inspect and reject the goods at the destination, indicating that delivery was not complete until final acceptance. Clause 12 stated that payment would only be made for sleepers approved and delivered to the consignee.

The Court rejected the argument that delivery was complete once the goods were loaded onto the railway at Dhamtari. Instead, it held that the contract required actual delivery to be completed at the destination, where the consignee would inspect and accept the goods.

4. Jurisdiction of the State of Madhya Pradesh to tax the transactions:
Given the Court's interpretation of the contract and the applicability of the Explanation to Article 286(1)(a), it held that the sales were not taxable by the State of Madhya Pradesh. The actual delivery took place outside Madhya Pradesh for the purpose of consumption, falling under the deeming provision of the Explanation.

The Court also referred to judgments from other High Courts, including the Patna High Court in Birendranath Guha & Co. v. State of Bihar and the Assam High Court in Birendra Nath Guha v. Commissioner of Taxes. The Court disagreed with the Patna High Court's view that title passing at the loading station implied delivery. Instead, it aligned with the Assam High Court's view that actual delivery was at the destination.

Conclusion:
The Supreme Court allowed the appeals, holding that the sales were covered by the Explanation to Article 286(1)(a) and, therefore, not taxable by the State of Madhya Pradesh. The Court emphasized that actual delivery was only complete upon final acceptance by the consignee at the destination, outside Madhya Pradesh.

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