1962 (11) TMI 26 - SC - VAT and Sales Tax

Taxability of sales of tea under the Travancore- Cochin General Sales Tax Act questioned Held that - Appeal allowed.In the present case, therefore, the sale was an outside sale and cannot be said to be an inside sale qua Travancore-Cochin because the title passed at Fort Cochin which is in the State of Madras. Apart from that, money was paid there and the delivery order was also received there even though the actual physical delivery of goods was made at Willingdon Island in the State of Travancore-Cochin. The fiction created by the Explanation to Article 286(1)(a) is inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State. Also in the case of those goods exported out of India from Willingdon Island it cannot be said that there was a sale inside the State of Travancore- Cochin because the same considerations will apply to those sales as to the sales already discussed, i.e., goods the title to which passed at Fort Cochin were delivered at Willingdon Island and were delivered for consumption in parts of India other than Travancore-Cochin.

Summary

Issues:
Taxability of sales of tea under the Travancore-Cochin General Sales Tax Act during the assessment period of 1952-53.

Detailed Analysis:

The judgment by the Supreme Court of India dealt with the taxability of sales of tea under the Travancore-Cochin General Sales Tax Act during the assessment period of 1952-53. The appellant, an assessee-company, contested the tax levied on a turnover of Rs. 3,77,644 by the Deputy Commissioner of Agricultural Income-tax and Sales Tax. The sales of tea in question were conducted through public auctions at Fort Cochin, with delivery taking place at Willingdon Island in Travancore-Cochin. The key issue revolved around whether these sales should be considered "outside sales" or "inside sales" under Article 286(1)(a) of the Constitution, which prohibits the imposition of tax on sales outside the state.

The appellant argued that since the title in the goods passed at Fort Cochin, which was outside Travancore-Cochin, the sales should be considered outside the state and not subject to tax. However, the Sales Tax Appellate Tribunal differentiated between sales of "full lots" and portions, determining that the title passed at Fort Cochin only for full lots. The High Court upheld the taxability of the sales, ruling that the location of the passing of property determined tax liability, not the transfer of ownership under the Sale of Goods Act.

The Supreme Court analyzed the legal principles governing auction sales under the Sale of Goods Act, emphasizing that the passing of property within a state is crucial for determining tax liability. Referring to the precedent set in India Copper Corporation Ltd. v. State of Bihar, the Court held that the state where the property passes has the power to levy tax on the sale. As the title in the tea passed at Fort Cochin, the sales were deemed to be outside Travancore-Cochin's jurisdiction, making them non-taxable under the Act.

Additionally, the Court addressed the sales of tea exported from Willingdon Island, concluding that the same principles applied, and those sales should also be considered outside the state for tax purposes. Ultimately, the Supreme Court allowed the appeal, setting aside the High Court's judgment and ruling in favor of the appellant. The appellant was awarded costs in both the Supreme Court and the High Court.

In conclusion, the judgment clarified the taxability of sales of tea under the Travancore-Cochin General Sales Tax Act, emphasizing the significance of the passing of property in determining tax liability and upholding the appellant's position that the sales were outside the state's jurisdiction, thus not subject to tax under the Act.