1960 (11) TMI 91 - SC - VAT and Sales Tax

Whether sales under which goods were delivered outside the State of Bihar for the purpose of consumption but not within the State of first delivery or first destination, are exempt from the levy of sales tax by the Bihar State by virtue of Article 286(1)(a) of the Constitution as it stood before the recent amendment? Held that - Appeal allowed. The power of the State to levy sales tax relying upon the territorial nexus between the taxing power of the State and the sale is impaired for reasons already set out to the extent to which it is restricted by the incorporation of Article 286(1)(a) and the Explanation thereto, in that Act. Therefore, sales effected on or after January 26, 1950, where goods are as a direct result of the sale delivered in another State for consumption in that other State, are not liable to be taxed. The order of the Superintendent of Taxes is set aside. He is directed to grant refund of tax paid in the light of this judgment. The appellant will be entitled to exemption from payment of tax if the goods are, as a direct result of the sale, delivered in another State for the purpose of consumption in that State.

Issues Involved:
1. Whether sales under which goods were delivered outside the State of Bihar for consumption but not within the State of first delivery or first destination are exempt from the levy of sales tax by the Bihar State by virtue of Article 286(1)(a) of the Constitution.
2. Whether the appellant must prove that goods delivered outside Bihar were actually consumed in the State of first destination to claim exemption from sales tax.
3. The interpretation and application of Article 286(1)(a) and its Explanation in the context of the Bihar Sales Tax Act.

Detailed Analysis:

Issue 1: Exemption from Sales Tax under Article 286(1)(a)
The core issue was whether sales, where goods were delivered outside Bihar for consumption but not within the State of first delivery, are exempt from sales tax by the Bihar State under Article 286(1)(a) of the Constitution. The Court examined the interpretation of Article 286(1)(a) and its Explanation, which states that a sale is deemed to have taken place in the State where goods are delivered as a direct result of the sale for the purpose of consumption in that State, even if the property in the goods passed in another State.

The Court held that the Explanation to Article 286(1)(a) covers sales where goods are delivered in a State for consumption in that State, making such sales "inside" the State of delivery and "outside" the State of origin. Therefore, the Bihar State cannot levy sales tax on such transactions. However, if the goods were delivered outside Bihar but not for consumption in the State of first destination, the sale does not fall within the Explanation and is not exempt from Bihar's sales tax.

Issue 2: Proof of Actual Consumption
The High Court had required the appellant to prove that goods delivered outside Bihar were actually consumed in the State of first destination to claim exemption. The appellant contended that under the Explanation to Article 286(1)(a), it is sufficient if the goods were delivered for the purpose of consumption in the State of first destination, irrespective of whether they were actually consumed there.

The Supreme Court agreed with the appellant, stating that the requirement is satisfied if the goods were delivered for the purpose of consumption in the State of first destination. The actual consumption of the goods in that State is not necessary to claim exemption. The High Court's requirement for proof of actual consumption was deemed an unwarranted addition to the Explanation's requirements.

Issue 3: Interpretation and Application of Article 286(1)(a)
The Court discussed the legislative intent behind Article 286(1)(a) and its Explanation, emphasizing that the provision aims to prevent multiple taxation by different States on the same transaction. The Explanation provides a legal fiction to determine the locus of a sale based on delivery and consumption, simplifying the complex issue of determining the "situs" of a sale.

The Court noted that the Bihar Sales Tax Act, as adapted post-Constitution, incorporates the restrictions of Article 286, preventing the State from taxing sales deemed to take place outside Bihar under the Explanation. However, sales not covered by the Explanation but having a real territorial nexus with Bihar could still be taxed by the State.

Conclusion
The Supreme Court modified the High Court's order, clarifying that the appellant is entitled to exemption from sales tax if goods were delivered outside Bihar for the purpose of consumption in the State of first destination, without needing to prove actual consumption. The appeal was otherwise dismissed, with no order as to costs. The Bihar State's power to levy sales tax is restricted by the Explanation to Article 286(1)(a), preventing it from taxing sales deemed to take place outside Bihar.

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