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TMI Blog1964 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the same. Broadly stated, the case for the petitioners is that the appropriate authorities purporting to act under the different Sales Tax Acts are attempting to recover from the petitioners sales tax in respect of transactions to which the petitioners were parties, though the said transactions are not taxable under article 266 of the Constitution. Article 286(1)(a) provides that no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State, and the argument is that the sales in question are all sales which took place outside the State and, as such, are entitled to the protection of article 286(1)(a). The authorities under the respective Sales Tux Acts have rejected the petitioners' contention that the transactions in question are inter-State sales and have held that article 286(1)(a) is not applicable to them. A similar finding has been recorded against the petitioners under article 286(2). The petitioners' grievance is that by coming to this erroneous conclusion, a tax is being levied against them in respect of transactions protected by article 286(1)(a) and that constitutes a br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a majority of its shareholders are Indian citizens, two of whom have joined the present petitions. The petitioners in W. Ps. Nos. 79 and 80 of 1962 are the Automobile Products of India Ltd. and another. The majority of the shareholders of this company are also citizens of India and one of them has joined the petitions. Writ petitions Nos. 202-204 of 1961 have been filed by the State Trading Corporation of India Ltd. The shareholders of this Corporation are the President of India, and two Additional Secretaries, Ministry of Commerce and Industry, Government of India; one of these Secretaries has joined the petitions. It may incidentally be stated as this stage that these writ petitions were heard by a Special Bench of this court on the 26th July, 1963, in order to determine the constitutional question as to whether the State Trading Corporation Ltd. can claim to be a citizen within the meaning of article 19 of the Constitution. The majority decision rendered in these writ petitions on the preliminary issue referred to the Special Bench was that the petitioner as a State Trading Corporation is not a citizen under article 19, and so, could not claim the protection of the fundamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of the writ petitions, and that is based upon the decision of this court in the case of the State Trading Corporation of India Ltd.'s case (supra). It is urged that the decision of the court that the State Trading Corporation is not a citizen, necessarily means that the fundamental rights guaranteed by article 19 which can be claimed only by citizens cannot be claimed by such a corporation, and so, there can be no scope for looking at the substance of the matter and giving to the shareholders indirectly the right which the corporation as a separate legal entity is not directly entitled to claim. The respondents have urged that in dealing with the plea of the petitioners that the veil worn by the corporation as a separate legal entity should be lifted and the substantial character of the corporation should be determined without reference to the technical position that the corporation is a separate entity, we ought to bear in mind the decision of this court in the case of the State Trading Corporation of India Ltd.'s case (supra) Basing themselves on this contention the respondents have also argued that if the fundamental rights guaranteed by article 19 are not available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the citizens and, as such, would justify the petitioners in moving this court under article 32. On the other hand, the respondents urged that the effect of the decision in Ujjam Bai's case (supra ) plainly tends to show that if a quasi-judicial decision has determined a matter in regard to the taxability of a given transaction, there can be no question about the breach of fundamental rights which would justify an application under article 32. The argument is that the intervention of a quasi-judicial order changes the complexion of the dispute between the parties, and in cases of that character, the only remedy available to an aggrieved citizen is to take recourse to the appeals and other proceedings prescribed by the taxing statute in question. Article 32 is not intended to confer appellate jurisdiction on this court so as to review or examine the propriety of quasi-judicial orders passed by appropriate authorities purporting to exercise their powers and jurisdictions under the several taxing statutes. It may be that after exhausting the remedies by way of appeals and revisions prescribed by the statute, the party may come to this court under article 136, but article 32 is inappli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 may be justified. Proceeding on this view, the learned judge held that, the construction placed by the taxing authority was not shown to be patently erroneous, and so, he was not prepared to grant any relief to Ujjam Bai. That is how the learned judge agreed with the majority decision. Mudholkar J., who also agreed with the majority decision, was disposed to make an exception in cases where an erroneous construction of the law would lead to the recovery of a tax which is beyond the competence of the legislature, or is violative of the provisions of Part III or of any other provisions of the Constitution. It would, thus, be seen that though the majority decision was that Ujjam Bai's petition should be dismissed, the reasons given in the judgments pronounced by the learned judges who agreed with the majority decision are not all uniform and do not disclose an identity of approach or of reasons, and that naturally has given rise to the arguments in the present writ petitions, both parties suggesting that the majority decision in the case of Ujjam Bai's case (supra) supports the rival views for which they contend. Mr. Setalvad has strongly urged that if a misconstruction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kailash Nath v. State of U.P. [1957] 8 S.T.C. 358 (SC) was not right, he approved of the other decisions which were cited at the Bar and exhaustively discussed on the ground that those decisions " fall under the category in which an executive authority acts without authority of law, or a quasi-judicial authority acts in transgression of a constitutional prohibition and without jurisdiction". These decisions are : Thakur Amar Singhji v. State of Rajasthan [1955] 2 S.C.R. 303 ; Mohanlal Hargovind Das v. State of Madhya Pradesh [1955] 2 S.C.R. 509 ; [1955] 6 S.T.C. 687 ; Y. Mahboob Sheriff v. Mysore State Transport Authority [1960] 2 S.C.R. 146; J. V. Gokal and Co. ( P.) Ltd. v. Assistant Collector of Sales Tax ( Inspection) [1960] 2 S.C.R. 852 ; [1960] 11 S.T.C. 186 and Universal Imports Agency v. Chief Controller of Imports and Exports [1961] 1 S.C.R. 305. To the same effect is the observation made by Kapur J., when the learned judge stated that in the case of Mohanal Hargovind Das's case (supra) the dispute did not turn upon a misconstruction of any statute by any quasi-judicial authority, but that was a case in which the very transaction was outside the taxing powers of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal fact; and that clearly cannot be the effect of the charging sections of the different Acts. In regard to the point of constitutional limitations and prohibitions raised by Mr. Palkhivala, Mr. Setalvad contends that if the provisions of article 280(1)(a) makes the decision of the Sales Tax Officer on the character of the sale transaction one of jurisdiction, then it is difficult to see why his decision on other points should also nut partake of the same character. In that connection, he emphasised the fact that the provisions of article 286(1)(a) cannot be distinguished from the provisions of article 265. As we have already indicated, having regard to the fact that we have come to the conclusion that the other preliminary objection urged by the respondents must be upheld, we do not propose to express any opinion on this part of the controversy between the parties. That takes us to the question as to whether the petitioners, some of whom are companies registered under the Indian Companies Act and one of whom is the State Trading Corporation, can claim to file the present writ petitions under article 32 having regard to the decision of this court in the case of the State Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent petitions, we would be justified in acceding to the argument that the veil of the petitioning corporations should be lifted and it should be held that their shareholders who are Indian citizens should be permitted to invoke the protection of article 19, and on that basis, move this court under article 32 to challenge the validity of the orders passed by the Sales Tax Officers in respect of transactions which, it is alleged, are not taxable. Mr. Paikhivala has very strongly urged before us that having regard to the fact that the controversy between the parties relates to the fundamental rights of citizens, we should not hesitate to look at the substance of the matter and disregard the doctrinaire approach which recognises the existence of companies 4s separate juristic or legal persons. If all the shareholders of the petitioning companies are Indian citizens, why should not the court look at the substance of the matter and give the shareholders the right to challenge that the contravention of their fundamental rights should be prevented. He does not dispute that the shareholders cannot claim that the property of the companies is their own and cannot plead that the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acking open the corporate shell" when compelled to do so by the clear words of the statute; indeed they have gone out of their way to avoid this construction whenever possible. Thus, at present, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt "themselves able to ignore the corporate entity and to treat the individual shareholder as liable for its acts" Gower's Modern Company Law, 2nd Ed., pp. 193 and 195, the same course has been adopted. Summarising his conclusions, Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lilted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles 10 and 11. On the other hand, the fact that Parliament has not chosen to make any such provision indicates that it was not the intention of Parliament to treat corporations as citizens. Therefore, it seems to us that in view of the decision of this court in the case of the State Trading Corporation of India Ltd. [1963] 33 Comp. Cas. 1057 (SC), the petitioners cannot be heard to say that their shareholders should be allowed to file the present petitions on the ground that, in substance, the corporations and companies are nothing more than associations of shareholders and members thereof. In our opinion, therefore, the argument that in the present petition we would be justified in lifting the veil cannot be sustained. Mr. Palkhivala sought to draw a distinction between the right of a citizen to carry on trade or business which is contemplated by article 19(1)(c) from his right to form associations or unions contemplated by article 19(1)(c). He argued that article 19(1)(c) enables the citizens to choose their instruments or agents for carrying on the business which it is their fundamental right to carry on. If citizens decide to set up a corporation or a company as their ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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