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1964 (3) TMI 70 - SC - VAT and Sales TaxWhether on the facts the property in the goods sold by auction conducted at Fort Cochin really passed at Fort Cochin in the Madras State? Whether it passed in Willingdon Island in Travancore-Cochin when the goods were actually delivered to the buyer? Whether the sale is inside or outside the State? Held that - Appeal allowed. Exercising the power under clause (2) the Parliament has enacted the Central Sales Tax Act (74 of 1956), and by section 4(2) the doctrine of territorial nexus has been given legislative recognition, though in some- what limited form. Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub- section shall apply as if there were separate contracts in respect of the goods at each of such places
Issues Involved:
1. Taxability of auction sales of tea conducted outside the state. 2. Interpretation of "outside sales" under Article 286(1)(a) of the Indian Constitution. 3. Applicability of the doctrine of territorial nexus in sales tax legislation. Issue-wise Detailed Analysis: 1. Taxability of Auction Sales of Tea Conducted Outside the State: The appellant, owning several tea estates, was assessed to sales tax by the Sales Tax Officer in Travancore-Cochin for the years 1954-55 and 1955-56. The appellant contended that sales conducted by auction at Fort Cochin, which was in Madras State, were "outside" sales under Article 286(1)(a) and thus exempt from taxation by Travancore-Cochin. The Sales Tax Officer included these sales in the taxable turnover. The Appellate Assistant Commissioner upheld this inclusion, reasoning that the tea was physically in Travancore-Cochin at the time of sale. The Sales Tax Appellate Tribunal, however, ruled in favor of the appellant, excluding the auction sales from the taxable turnover. The High Court reversed this decision, reinstating the Sales Tax Officer's assessment. 2. Interpretation of "Outside Sales" Under Article 286(1)(a) of the Indian Constitution: The core issue was whether the auction sales at Fort Cochin could be deemed "outside" sales. The High Court had previously held in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum v. A. V. Thomas and Co. that the location of the goods at the time of sale determined taxability, not the transfer of property per the Sale of Goods Act. However, this decision was reversed by the Supreme Court in A. V. Thomas and Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum, which clarified that the state in which the property in goods passes is the only state that can tax the sale, provided the sale is not an "Explanation sale" under Article 286(1)(a). 3. Applicability of the Doctrine of Territorial Nexus in Sales Tax Legislation: The Supreme Court reaffirmed that the passing of property within a state is crucial for determining whether a sale is "inside" or "outside" the state. The doctrine of territorial nexus, which allowed states to tax transactions with a territorial connection, was not entirely excluded by Article 286. However, the majority opinion held that for non-Explanation sales, the state where the property passes has the exclusive right to tax. This principle was reiterated in the India Copper Corporation Ltd. v. State of Bihar, where the court emphasized the importance of the property passing within the state for taxability. Separate Judgment by Shah, J.: Shah, J., while concurring with the majority's decision, expressed a differing view on the doctrine of territorial nexus. He believed that Article 286(1)(a) did not completely exclude the application of territorial nexus in sales tax legislation. He cited previous judgments, including India Copper Corporation Ltd. v. State of Bihar, to support the view that states could tax sales based on territorial connections, even if the property passed outside the state. Shah, J., also noted that the Central Sales Tax Act, enacted post the Constitution (Sixth Amendment) Act, recognized the doctrine of territorial nexus, albeit in a limited form. Conclusion: The appeals were allowed, reversing the High Court's order and restoring the Sales Tax Appellate Tribunal's decision. The Supreme Court held that the auction sales at Fort Cochin were "outside" sales and not taxable by Travancore-Cochin. The appellant was awarded costs for the proceedings in both the Supreme Court and the High Court.
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