9911796707
TMI Blog1958 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ding certain questions referred to it by the Board of Revenue, Bihar under section 25 of the Bihar Sales Tax Act, 1947 (No. XIX of 1947) hereinafter referred to as the 1947 Act. The said references arose out of two orders passed by the Board of Revenue in revision of two sales tax assessment orders made against the appellant company. The appellant company is a company incorporated under the Indian Companies Act. Its registered office is in Bombay; its factory and works are at Jamshedpur in the State of Bihar and its head sales' office is in Calcutta in the State of West Bengal. It has store-yards in the States of Madras, Bombay, West Bengal, Uttar Pradesh, Hyderabad, Madhya Pradesh, Punjab and Andhra. It carries on business as manufacturer of iron and steel and is a registered dealer under the 1947 Act, the registration No. being S.C. 905. Its course of dealing is thus described in the judgment under appeal: "The intending purchaser has to apply for a permit to the Iron and Steel Controller at Calcutta, who forwards the requisition to the Chief Sales Officer of the assessee working in Calcutta. The Chief Sales Officer thereafter makes a 'works order' and forwards it to Jams ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for goods manufactured at Jamshedpur in the State of Bihar, but sold, delivered and consumed outside that State on the same ground as hereinbefore mentioned. The appellant company also claimed a deduction of Rs. 40,89,973-9-0 on account of railway freight actually paid by it for the despatch of the goods. The Sales Tax Officer by his assessment order dated September 24, 1949, disallowed both the claims and added the sum of Rs. 22,37,919-4-0, being the amount of sales tax realised by the appellant company from its purchasers, to its taxable turnover and assessed the appellant company to sales tax amounting to Rs. 28,30,458-6-0. Against these two assessment orders the appellant company prefer- red two appeals under section 24 of the 1947 Act to the Commissioner of Sales Tax of Chotanagpur who, on April 29, 1950, dismissed both the appeals. The appellant company went up to the Board of Revenue on two revision applications against the two orders of the Commissioner. The Board of Revenue, by its order dated August, 30, 1952, confirmed the orders of the Commissioner with certain modifications and remand- ed the cases to the Sales Tax Officer. The appellant company applied under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (ii), is not a tax on sale within the meaning of Entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935. (2) The doctrine of nexus is not applicable to sales tax. (3) In any event the nexus in the present case is not real and sufficient but is illusory. (4) Having regard to the provisions of the law mentioned above, the tax levied is in the nature of duty of excise rather than a tax on sale. (5) The retrospective levy by reason of the amendment of section 4(1) destroys its character as a sales tax and makes it a direct tax on the dealer instead of an indirect tax to be passed on to the consumer." In order to appreciate the arguments that have been advanced before us on the points noted above, it is necessary to refer to the relevant statutory provisions, which were in force at the material times. Section 99 of the Government of India Act, 1935, authorised a Provincial Legislature, subject to the provisions of that Act, to make laws for the Province or for any part thereof. Section 100(3) of that Act provided that, subject to the two preceding sub-sections, the Provincial Legislature had, and the Federal Legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replaced by Bihar Sales Tax (Amendment) Act, 1948 (VI of 1949) hereinafter referred to as the amending Act. Section 16 of this amending Act provided that the substituted section 4(1) should form part of the 1947 Act and should always be deemed to have formed part thereof with effect from its commencement, that is to say, from July 1, 1947, as hereinbefore mentioned. Two things should be noted, namely, (1) that the person sought to be charged was every dealer whose gross "turnover" during the specified period on "sales" which had taken place both in and out- side Bihar exceeded Rs. 10,000 and (2) that the liability to pay tax was on "sales" which had taken place in Bihar on and from the date of such commencement. This takes us back to section 2(g) which defines "sale". The material part of the definition of "sale", previous to the amendment made by the amending Act, read as follows: "'Sale' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on sales involved in the execution of a contract which is shown to the satisfaction of the Commissioner to have been entered into by the dealer concerned on or before the 1st day of October, 1944." Although the amending Act received the assent of the Governor- General on March 15, 1949, it came into force on October 1, 1948, as provided in section 1(2) thereof. Section 16 of the amending Act, however, provided that the amendment made by section 3 should form part and should be deemed always to have formed part of the 1947 Act as if the said Act had been enacted as so amended from the commencement thereof, that is to say, from July 1, 1947. The 1947 Act was further amended in 1951 by Bihar Act VII of 1951 and again in 1953 by Bihar Act XIV of 1953, but we are not, in the present case, concerned with those amendments. Although the charging section, namely, section 4(1), as amended, operates from July 1, 1947, the definition of "sale", as amended, became operative only from October 1, 1948. Therefore, the definition of "sale", as it stood prior to the amendment, was applicable to all sales made by the appellant throughout the first period herein- before mentioned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment of the Government of India Act, 1935, a well defined and well established distinction between a "sale" and an "agreement to sell" it would be proper to interpret the expression "sale of goods" in Entry 48 in the sense in which it was used in legis- lation both in England and in India and to hold that it authorised an imposition of a tax only when there was a completed sale involving the transfer of title in the goods sold. Reference is then made to the decision of the Federal Court in the case of Province of Madras v. Boddu Paidanna and Sons [1942] F.C.R. 90; 1 S.T.C. 104 where the Federal Court at page 101 observed that in the case of sales tax the liability to tax arose "on the occasion of a sale" which Patanjali Sastri, C.J., in his judgment in The State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069, 1088; 4 S.T.C. 133 described as "the taxable event." The argument is that the Bihar Legislature could only make a law imposing a tax on the sale of goods, that is to say, on a concluded sale involving the transfer of property in the goods sold from the seller to the buyer as contemplated by the Sale of Goods Act. The Bihar Legislature could not, by givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 45 in List I of the Seventh Schedule to the Government of India Act, 1935, with respect to which the Provincial Legislature could not, under section 100 of that Act, make any law. Our attention is drawn to clause (ii) of the second proviso which contemplated a sale of the goods by the producer or manufacturer thereof. It is urged that, according to this clause, tax was not imposed on all sales of goods produced or manufactured in Bihar, but was imposed only on those goods produced or manufactured in Bihar which were sold by the producer or manufacturer. It is pointed out, as and by way of an illustration, that if the goods produced or manufactured in Bihar were taken out of the Province of Bihar and then gifted away by the producer or manufacturer to a person outside Bihar and that person sold the goods, he would not be liable under the proviso. This argument, however, overlooks the fact that under clause (ii) the producer or manufacturer became liable to pay the tax not because he produced or manufactured the goods, but because he sold the goods. In other words the tax was laid on the producer or manufacturer only qua seller and not qua manufacturer or producer as pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting Judge Rich, J., accepted the theory of nexus at page 361: "I do not deny that once any connection with New South Wales appears, the legislature of that State may make that connection the occasion or subject of the imposition of a liability. But the connection with New South Wales must be a real one and the liability sought to be imposed must be pertinent to that connection." The Estate Duty Assessment Act 1914-1928 which charged estate duty on movable properties situate abroad which had passed from a deceased person domiciled in Australia by gift inter vivos made by him within a year of his death was not struck down for extra-territoriality but was upheld as constitutional in The Trustees Executors and Agency Co., Ltd. v. The Federal Commissioner of Taxation [1933] 49 C.L.R. 220. The nexus theory was applied in full force in Governor-General v. Raleigh Investment Co. [1944] F.C.R. 229; 12 I.T.R. 265.; Wallace Brothers and Co., Ltd. v. Commissioner of Income-tax, Bombay City [1948] F.C.R. 1; 16 I.T.R. 240, and A.H. Wadia v. Commissioner of Income-tax, Bombay [1948] F.C.R. 121; 17 I.T.R. 63. In Raleigh Investment Co.'s case [1944] F.C.R. 229; 12 I.T.R. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee as a partner in the firm but also its income, profits or gains which accrued without British India in the previous year. In Wadia's case, also an income-tax case, it was held that a law imposing a tax cannot be impugned on the ground that it is extra-territorial, if there is a connection between a person who is sub- jected to a tax and the country which imposes that tax. The connection must, however, be a real one and the liability sought to be imposed must be pertinent to that connection. At page 140 Chief Justice Kania observed: "Generally, States can legislate effectively only for their own territories, but for purposes of taxation and similar matters, a State makes laws designed to operate beyond its territorial limits." The learned Attorney-General points out that the three last men- tioned cases in which the nexus theory was applied were income-tax cases and submits that that principle cannot be extended to sales tax laws. He points out that in Bengal Immunity Co., Ltd. v. The State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446, this Court expressly left open the question, whether the theory of nexus applied to legislation with respect to sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of this Court will clearly show that the applicability of the theory of nexus to sales tax legislation has been clearly recognised by this Court. In The State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133., this court had to interpret the true meaning of the explanation to Article 286(1)(a) of the Constitution. That explanation created a fiction locating the situs of a sale or purchase in the State in which the goods had actually been delivered as a result of such sale or purchase for the purpose of consumption in that State notwithstanding the fact that, under the general law relating to sale of goods, the property in the goods had, by reason of such sale or purchase, passed in another State. This court by a majority then held that in view of the fiction created by the explanation the sale which was in reality an inter-State sale became an intra-State sale and consequently the delivery and consum- ing State had the right to impose tax on that sale. It is true that that decision has been departed from in the Bengal Immunity Co.'s case [1955] 2 S.C.R. 603; 6 S.T.C. 446 on the question of the interpretation of Article 286 of the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State of Bombay to impose a tax on the gambling that took place within its boundaries and that the law could not be struck down on the ground of extra-territoriality. It is not necessary for us on this occasion to lay down any broad proposition as to whether the theory of nexus, as a principle of legislation, is applicable to all kinds of legislation. It will be enough, for disposing of the point now under consideration, to say that this court has found no apparent reason to confine its application to income-tax legislation but has extended it to sales tax and to tax on gambling and that we see no cogent reason why the nexus theory should not be applied to sales tax legislation. The learned Attorney-General submits that the theory of nexus cannot be applied to sales tax legislation because such legislation is concerned with a tax on the transaction of sale, that is to say, a com- pleted sale and to break up a sale into its component parts and to take one or more of such parts and to apply the theory to it will mean that the State will be entitled to impose a tax on one or more of the ingredients or constituent elements of the transaction of sale which by itself or themse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing State was not in issue in that case at all. It is unnecessary in this case to lay down any hard and fast test as to the sufficiency of nexus which will enable a State to impose a tax or to enumerate the instances of such connection. For the purpose of the present case it is sufficient to state that in a sale of goods the goods must of necessity play an import- ant part, for it is the goods in which, as a result of the sale, the property will pass. In our view the presence of the goods at the date of the agreement for sale in the taxing State or the production or manufacture in that State of goods the property wherein eventually passed as a result of the sale wherever that might have taken place, constituted a sufficient nexus between the taxing State and the sale. In the first case the goods are actually within the State at the date of the agree- ment for sale and the property in those goods will generally pass within the State when they are ascertained by appropriation by the seller with the assent of the purchaser and delivered to the purchaser or his agent. Even if the property in those goods passes outside the State the ultimate sale relates to those very goods. In the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of com- petition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. See Love v. Norman Wright (Builders) Ltd. [1944] 1 K.B. 484. If that be the true view of sales tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively. We do not think that there is any substance in this con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be indicated by what may be called the grouping of its elements as reflected in its formation and in its terms. The country in which its elements are most densely grouped will represent its natural seat." He is not dealing with this question. He is dealing with Inter- national Law and the difficulties that arise in dealing with contracts whose elements are grouped in different States with different, and often conflicting, laws. He is developing the theme that for any one contract there should be but one law to govern it in all its stages and that the most logical conclusion is to select the law of the country in which the contract has its natural seat. But whether his view is accepted or any of the others that he discusses, he stresses the need for one objective rule and contends strongly that the choice should not be left to the parties to the deal, even as I say that it should not be left to the States. He quotes an American Judge, at page 203 of his book, who says that- "Some law must impose the obligation, and the parties have nothing whatsoever to do with that, no more than with whether their acts are torts or crimes." Now none of that is of immediate appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s simply because, after tearing it apart, it finds a hand or a foot or a heart or a liver still quivering in its grasp. Nexus, of course, there must be but nexus of the entire entity that is called a sale, wherever it is deemed to be situate. Fiction again. Of course, it is fiction, but it is a fiction as to situs imposed by the Constitution Act and by the Supreme Court that speaks for it in these matters and only one fiction, not a dozen little ones. My point is simple. If you are allowed to tax a dog it must be within the territorial limits of your taxable jurisdiction. You cannot tax it if it is born elsewhere and remains there simply because its mother was with you at some point of time during the period of gestation. Equally, after birth, you cannot tax it simply because its tail is cut off (as is often done in the case of certain breeds) and sent back to the fond owner, who lives in your jurisdiction, in a bottle of spirits, or clippings of its hair. There is a nexus of sorts in both cases but the fallacy lies in thinking that the entity is with you just because a part that is quite different from the whole was once there. So with a sale of a motor car started and con ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
