1960 (9) TMI 74 - SC - VAT and Sales Tax

Constitutional validity of section 2(g) of the Bihar Sales Tax Act, XIX of 1947, as amended by the Bihar Sales Tax (Amendment) Act, VI of 1949, is challenged. Held that - Appeal dismissed. Section 2(g) of the Bihar Sales Tax Act as it stood at the material time was constitutionally valid and that the assessee in that case was properly taxed for the period 1st April, 1949, to 25th January, 1950

Issues Involved:
1. Constitutional validity of section 2(g) of the Bihar Sales Tax Act, 1947, as amended by the Bihar Sales Tax (Amendment) Act, 1949.
2. Legislative competence of the State of Bihar to enact section 2(g).
3. Liability to pay sales tax on goods manufactured in Bihar but sold outside the state.
4. Inclusion of railway freight in the taxable turnover.

Detailed Analysis:

1. Constitutional Validity of Section 2(g) of the Bihar Sales Tax Act:
The primary issue in these appeals was the constitutional validity of section 2(g) of the Bihar Sales Tax Act, 1947, as amended by the Bihar Sales Tax (Amendment) Act, 1949. The appellants challenged this provision, arguing that it was beyond the legislative competence of the State Legislature. The Supreme Court, referring to its previous decision in Tata Iron & Steel Co., Ltd. v. The State of Bihar [1958] S.C.R. 1355, upheld the validity of section 2(g). The Court reiterated that the second proviso to section 2(g) did not extend the definition of 'sale' but merely located the 'sale' in Bihar under certain circumstances. The taxable event remained the 'sale' resulting in the transfer of ownership. The Court concluded that the provisions of section 4(1) read with section 2(g) were within the legislative competence of the Bihar Legislature.

2. Legislative Competence of the State of Bihar to Enact Section 2(g):
The Court examined whether the presence of goods in Bihar constituted a sufficient nexus to justify the imposition of sales tax by the State. It was held that the presence of goods in Bihar at the time of the contract of sale or their production or manufacture in Bihar constituted a sufficient nexus between the taxing state and the sale. The Court emphasized that the goods must play an important part in the sale, and the presence of the goods in Bihar or their production or manufacture there was a relevant fact on which the State could base its tax.

3. Liability to Pay Sales Tax on Goods Manufactured in Bihar but Sold Outside the State:
The Court addressed the appellants' contention that goods manufactured in Bihar but sold outside the state should not be subject to Bihar sales tax. The Court held that, according to the law applicable at the material time, such goods were liable to pay sales tax if they were produced or manufactured in Bihar by the producer or manufacturer. The Court affirmed that even if the property in the goods passed outside Bihar, the sales were still taxable under the Bihar Sales Tax Act.

4. Inclusion of Railway Freight in the Taxable Turnover:
In Civil Appeals Nos. 339 and 340 of 1958, the appellants argued that the railway freight collected with the prices of materials sold should not be included in the taxable turnover. The High Court accepted this contention and directed that if the appellants satisfied the taxing authorities about the amount spent on freight and collected as such, they would be entitled to a deduction of that amount from the calculated turnover. The Supreme Court upheld this decision, allowing the deduction of railway freight from the taxable turnover.

Civil Appeal No. 338 of 1958:
The appellant, Bharat Sugar Mills Ltd., challenged the inclusion of sales of goods despatched to its registered office in Calcutta and sales delivered in other states in the taxable turnover. The High Court, following its earlier judgment in Tata Iron & Steel Co., Ltd. v. The State of Bihar, upheld the validity of section 2(g) and the assessment of sales tax. The Supreme Court affirmed the High Court's decision and dismissed the appeal with costs.

Civil Appeals Nos. 339 and 340 of 1958:
The appellant, Tata Iron & Steel Co. Ltd., contended that goods manufactured in Bihar but sold outside the state should not be taxed. The High Court, bound by its earlier judgment in Tata Iron & Steel Co., Ltd. v. The State of Bihar, rejected this contention. The Supreme Court dismissed the appeals, reiterating that the goods were taxable under the Bihar Sales Tax Act.

Civil Appeal No. 3 of 1960:
The appellant, C. & E. Morton (India) Ltd., challenged the inclusion of goods sent to its head office in Calcutta and goods delivered outside Bihar in the taxable turnover. The High Court, following its earlier judgment, upheld the validity of section 2(g) and the assessment of sales tax. The Supreme Court dismissed the appeal, affirming the High Court's decision.

Civil Appeals Nos. 791 and 792 of 1957:
The appellant, M/s. Debijhora Tea Co., Ltd., challenged the assessment of sales tax on goods manufactured in Bihar but sold outside the state. The High Court, following its earlier judgment, upheld the validity of section 2(g) and the assessment of sales tax. The Supreme Court dismissed the appeals, affirming the High Court's decision.

Conclusion:
The Supreme Court upheld the constitutional validity of section 2(g) of the Bihar Sales Tax Act, 1947, as amended by the Bihar Sales Tax (Amendment) Act, 1949. The Court affirmed that the presence of goods in Bihar or their production or manufacture in Bihar constituted a sufficient nexus for the imposition of sales tax by the State. The appeals challenging the assessment of sales tax on goods manufactured in Bihar but sold outside the state were dismissed, and the inclusion of railway freight in the taxable turnover was allowed to be deducted if proven by the appellants.

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