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TMI Blog1960 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... must issue quashing the assessment. It will be for the Commercial Tax Officer of West Bengal to reassess the company in respect of transactions of sale which are properly taxable within the State of West Bengal by the application of the tests which we have already set out. On this view, the rule is made absolute and it is directed that a writ of certiorari will issue quashing the order of assessment made by the Commercial Tax Officer, Lyons Range, Calcutta, West Bengal. Appeal allowed. - Petition No. 199 of 1959 - - - Dated:- 29-8-1960 - SINHA B.P., IMAM S.J., SARKAR A.K., DAS GUPTA K.C. AND SHAH J.C. JJ. B. Sen, Senior Advocate, (K.C. Mukherjee and P.K. Bose, Advocates, with him), for respondents Nos. 1 and 2. Lal Narain Sinha, Senior Advocate (S.P. Varma, Advocate, with him), for respondent No. 3. A.V. Viswanatha Sastri and N.A. Palkhivala, Senior Advocates, (S.N. Andley, J.B. Dadachanji, Rameshwar Nath and P.L. Vohra, Advocates of Messrs Rajinder Narain and Co., with them), for the petitioner. C.K. Daphtary, Solicitor-General of India (R. Ganapathy Iyer, R.H. Dhebar and T.M. Sen, Advocates, with him), for respondent No. 4. ------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar either at the time of the contract of sale or at the time of appropriation to the contract. By his order dated October 21, 1959, the Commercial Tax Officer made a "best judgment assessment" on a gross turnover of Rs. 9,00,09,561-71 nP. of inter-State sales and called upon the company to pay Rs. 41,14,718-12 nP. as tax under the Central Sales Tax Act. The company had, on December 15, 1958, filed with the Sales Tax Officer, Jamshedpur, a return of inter-State sales made from Jamshedpur for the period July 1, 1957, to March 31, 1958, and a return for the same period for the sales made from Dhanbad with the Sales Tax Officer, Dhanbad. In these returns, the company included all sales in which movement of the goods had taken place from the State of Bihar to destinations outside that State. The total turnover in respect of such inter-State sales as shown in the return exceeded Rs. 26 crores and the company paid as required by the Bihar Sales Tax Act Rs. 71 lakhs odd as advance tax under the Central Sales Tax Act, 1956. By this petition the company impugns the validity of the order of the Commercial Tax Officer and claims a writ of certiorari quashing and setting aside the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infringed the fundamental right of the citizens and recourse to the High Court for protection of the fundamental right was not prohibited because of the provisions contained in Article 265. In the case before us, the vires of the Central Sales Tax Act, 1956, are not challenged; but in Kailash Nath and Another v. The State of Uttar Pradesh and Others(1), a petition challenging the levy of a tax was entertained by this Court even though the Act under the authority of which the tax was sought to be recovered was not challenged as ultra vires. It is not necessary for purposes of this case to decide whether the principle of Kailash Nath's case A.I.R. 1957 S.C. 790; 8 S.T.C. 358. is inconsistent with the view expressed by this Court in Ramjilal's case [1951] S.C.R. 127. Evidently, the company has paid to the Sales Tax Officer, Bihar, tax due under the Central Sales Tax Act on its turnover including sales on which the tax is sought to be levied by the Commercial Tax Officer, West Bengal. Under the Central Sales Tax Act, there is a single liability to pay tax on inter-State sales. The company having paid the tax to the Bihar State for and on behalf of the Central Government, the threat to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except in so far as President may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce: Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent." As framed, the Article attempted to enunciate restraints upon the legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Sons Ltd. v. Assistant Commissioner of Sales Tax and Others(2), which was decided after the Bengal Immunity Co.'s case(1), this Court held, "The bans imposed by Article 286 of the Constitution on the taxing powers of the States are independent and separate and each one of them has to be got over before a State Legislature can impose tax on transactions of sale or purchase of goods. The Explanation to Article 286(1)(a) determines by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and once it is determined by the application of the Explanation that a transaction is outside the State, it follows as a matter of course that the State, with reference to which the transaction can thus be predicated to be outside it, can never tax the transaction." The Constitution was thereafter amended, Explanation 1 of Article 286 was deleted and clauses (2) and (3) thereto were altered by the amendment. As amended, Article 286 stands as follows: (1) [1955] 2 S.C.R. 603; 6 S.T.C. 446. (2) [1955] 2 S.C.R. 483; 6 S.T.C. 627. "Article 286-(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject." By Chapter II of the Act, sections 3, 4 and 5, those principles were formulated and by Chapter III, detailed provisions were made for impos- ing liability to pay tax on inter-State sales, for registration of dealers, fixing rates of tax and for levy and collection of tax and for imposing penalties for breach of the provisions of the Act relating to levy and collection of inter-State sales tax. By section 6, every dealer was made liable to pay tax on all sales effected by him in the course of inter-State trade or commerce. By sub-section (2) of section 8, the rates of tax on sales in the course of inter-State trade or commerce were directed to be calculated at the same rates and in the same manner as would have been done if the sale had in fact taken place inside the appropriate State. By section 9, the machinery for levy and collection of tax was prescribed. The tax payable by any dealer under the Act was to be levied and collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within clause (a) of section 3, will be excluded from the purview of clause (b) of section 3; otherwise certain sales may be liable to tax under both the clauses and two States may, in respect of a single sale, claim to levy the tax contrary to the plain intendment of sections 6 and 9 of the Act. The sale contemplated by clause (b) is one which is effected by transfer of documents of title to the goods during their movement from one State to another. Where the property in the goods has passed before the movement has commenced, the sale will evidently not fall within clause (b); nor will the sale in which the property in the goods passes after the movement from one State to another has ceased be covered by the clause. Accordingly a sale effected by transfer of documents of title after the commencement of movement and before its conclusion as defined by the two terminii set out in Explanation (1) and no other sale will be regarded as an inter-State sale under section 3(b). The definition of the expression "sale" undoubtedly includes transfer of goods on hire-purchase or other systems of payment by instalments, but thereby, a mere contract of sale which does not result in transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods passes during the movement of the goods from one State to another by transfer of documents of title there- to: clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State. The question to which attention must then be directed is, which out of the two or more States concerned with the goods sold under an inter-State sale is entitled to collect the tax under Act 74 of 1956. By section 9, the tax payable by any dealer under the Act is to be levied and collected in the "appropriate State". The expression "appro- priate State" was at the material time defined by section 2(a) as follows: "'Appropriate State' means- (i) in relation to a dealer who has one or more places of business situate in the same State, that State; (ii) in relation to a dealer who has one or more places of business situate in different States, every such State with respect to the place or places of business situate within its territory; Explanation: 'Place of business' means, (1) in the case of a sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he place where the property in the goods passes, another which is said to be the American view...........fixes upon the place where the contract is concluded, a third which prevails in the continental countries of Europe prefers the place where the goods sold are actually delivered, a fourth points to the place where the essential ingredients which go to make up a sale are most densely grouped." Ex facie, clause (2) of the Explanation to section 2(a) does not seek to locate the place where the sale is effected in cases falling within clause (b) of section 3 at the place where the transfer of documents of title to the goods was effected. Parliament has classified the sales "in the course of inter-State trade or commerce" in clauses (a) and (b) of section 3 and by the first clause of the Explanation to section 2(a), in cases of sales falling within section 3(a) the place of business is the place from which movement has commenced and in the case of sales falling within section 3(b), it is the place where the sale is effected. But there is in the Explanation no material for ascertaining the place where the sale is effected. There was a sharp conflict of opinion as to the true m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside sales, and enacted that the State cannot tax outside sales and the purpose of the Explanation which declared a sale in the course of inter-State trade must be deemed to have taken place inside the State in which the goods are delivered for consumption was clearly to take it out of the inter-State trade and impress it with the character of an intra- State sale. This view was followed in M/s. Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax and Others [1955] 2 S.C.R. 483; 6 S.T.C. 627. Evidently, by the interpretation placed by this Court on the scope and meaning of Article 286 as originally enacted, Parliament was faced with a difficult problem. The Parliament had to examine the problem of taxing inter-State trade and commerce in the light of three principal factors, namely, (1) the constitutional freedom of trade, commerce and intercourse guaranteed by Article 301, (2) the inadvisability of allowing the States unrestricted freedom to levy or impose taxes on sales or purchases of goods with inter-State content, and (3) the necessity to impose restrictions on multiple taxation of the same sale by different States. The Parliament deleted the Explanation to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent States. Is it then to be assumed that the Parliament still left the law in so far as it related to a class of sales covered by the description of sales in the course of inter-State trade or commerce in the same unsatisfactory condition without enacting where the sales in cases falling within clause (b) of section 3 were effected. Before proceeding to answer that query, attention may be directed to section 4 of Act 74 of 1956. It is as follows: "(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State- (a) in the case of specific or ascertained goods, at the time the con- tract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation: Where there is a single contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale is effected" as used in clause (ii) of the Explanation to section 2(a), the Legislature would have expressly stated so. Nor are we able to agree with the contention that section 4 only seeks to define "outside sales" and is not intended to locate the place where a sale is effected. The argument that by the application of section 4, sub-section (2), in cases where the goods sold are unascertained or future goods, there will be difficulty in ascertaining the place where the sale is effected, has also no force. In any event, section 4(2) may not be denied its full operation, merely because difficulty may be encountered in some cases in ascertaining the place where it is effected by the application of the rules set out therein. The Commercial Tax Officer has observed in his order that, "In this case, it should be remembered that section 3(b) refers to transfer of documents and not only to transfer of documents by endorsement. Thus, even if the documents are in the name of the buyer as consignee but these are physically transferred to the buyer in West Bengal then that sale is taxable in West Bengal. In case of goods con- signed to 'self' there is no question that delivery t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e practice followed in supplying goods to the Government and Railways, to the "engineering firms and the bazaar parties" are set out. In the light of clauses 4, 5, 10 and 15 of the Iron and Steel (Control) Order, it was urged that all the sales effected by the company under the direction of the Controller fall within section 3, clause (a). But we do not think it necessary to express any opinion on this argument at this stage, without a more complete picture of the modus operandi followed. The Commercial Tax Officer has taxed all the sales effected by the company under section 3, clause (b), on the view that sales in which the documents of title were handed over in Calcutta were taxable in the State of West Bengal. The assessment is made on two assumptions, (1) that all the sales effected in favour of West Bengal parties satisfied the conditions prescribed by section 3(b), and (2) that the place where the documents are delivered by the company through its head sales office to the purchaser is the place where the sale is effected. Neither of these assumptions is correct. The Commercial Tax Officer had, in our judgment, to ascertain before he could order payment of tax under the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later and took the stand that the tax on the sales was assessable by the Government of Bihar and not by the Government of West Bengal. The Taxing Officer of the Government of West Bengal did not accept the contention of the petitioner and in the absence of a return by it, made a best judgment assessment on October 21, 1959, assessing the petitioner to a tax of Rs. 41,14,718-12 nP. The petitioner seeks to have this order quashed. The respondents to this petition are the Government of West Bengal, its officer who made the assessment, the Government of Bihar and the Union of India. No relief is however claimed against the last two respondents. The questions raised by this petition depend on the construction of certain provisions of the Central Sales Tax Act, 1956. The Act was amended with effect from October 1, 1958. This case however has to be decided on the Act as it stood prior to the amendment, for the period covered by the impugned order of assessment was from July 1, 1957, to March 31, 1958. It may be stated here that the validity of the Act has not been challenged by the petitioner. A preliminary objection to this petition is taken on behalf of the Government of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer is not in dispute. Section 9(1) provides that the tax payable by any dealer under the Act shall be levied and collected in the "appropriate State" by the Government of India. Section 9(2) provides that the authorities empowered to assess and collect tax under the general sales tax law of the "appropriate State" shall, on behalf of the Government of India, assess and collect the tax payable under the Act and for such purpose, exercise all powers under its general sales tax law. Under the provisions of sub-section (3) of section 9, the State collecting the tax becomes entitled to retain it substantially. It is therefore clear that the tax is payable to the Union and is collected by a State for the Union. The contention of the petitioner before the Taxing Officer of the Government of West Bengal may be reproduced in its own words: "We contend that all our sales from Jamshedpur are of the type mentioned in section 3(a) of the Central Sales Tax Act and at the same time some of them also fall within the category mentioned in section 3 (b) of the Act. Even if the sales are of the type mentioned in section 3(b) of the Act, the appropriate State of the place where the sales tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of section 3 and section 4 deals with quite independent sphere of commercial transactions." Finally, he made the best judgment assessment, earlier mentioned, remarking that, "The dealer has himself admitted that he has some sales under sec- tion 3(b). From my experience of examining the books of accounts of the dealer for some earlier years I am of the opinion that a very substantial portion of the total sales are effected by transfer of documents in West Bengal. The dealer has refused to comply with my direction to submit a statement of such sales. I have, therefore, to make an estimate. On examining the records of the dealer under the State law and keeping in view the fact that there had been considerable expansion of sales of iron and steel in recent years I estimate the turnover during the period of assessment to be Rs. 9 crores; i.e., an average of Rs. 1 crore per month." Now in this case the petitioner's complaint is not that there should not have been a best judgment assessment. It does not say that that assessment is arbitrary or, for any other reason, unfair. Its point is that the Government of West Bengal could not tax a sale where goods were under the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiple taxation of the same sale by different States resulting in hardship to the ultimate consumer: see State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133. and Bengal Immunity Co., Ltd. v. The State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446. Since these cases were decided, the Constitution has no doubt been amended, but the observations made in them still apply. This being so, the Act could not have intended to tax the same sale twice. But apart from this consideration of a somewhat general nature, the provisions of the Act plainly make it impossible to levy two taxes on the same sale. Under section 8(1), the tax is a certain percentage of the dealer's "turnover". Section 2(j) defines "turnover" as meaning the aggregate of the sale prices in respect of the dealer's sales. So the tax is a percentage of the sale price and as each sale produces one price, it follows that it can be taxed only once. Again, section 9 by providing that the tax shall be collected in the "appropriate State" by the Government of India, plainly indicates that there is one tax payable to the Government of India which is collected by one State only. Section 3 by the use of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not thinking only of delivery of goods. It does not appear to us to be a reasonable construction of the words "sale is effected" to hold that they mean delivery of the thing sold. Therefore, we think that clause (b) refers only to sales where transfer of property in the goods sold takes place by the trausfer of documents of title to them during their movement from one State to another. We have then come to this that clause (a) of section 3 contemplates a sale where the contract of sale occasions the movement of the goods sold and clause (b), a sale where transfer of property in the goods sold is effected by a transfer of documents of title to them. Of course, in the first case, the movement of the goods must be from one State to another and in the second, the documents of title must be transferred during such movement. Now it will be appearant that if this was the full construction of the two clauses, then they would often overlap. This, as earlier stated, was not intended. We have to narrow down the construction so as to make the clauses mutually exclusive. There may be sales under the terms of which the goods have to be moved from one State to another. All such sales wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the place or places of business situate within its territory; Explanation.-'Place of business' means- (i) in the case of a sale of goods in the course of inter-State trade or commerce falling within clause (a) of section 3, the place from which the goods have been moved by reason of such sale; (ii) in the case of any such sale falling within clause (b) of section 3, the place where the sale is effected;" So the "appropriate State" is that within whose territories the dealer has his place of business. The place of business has however to be decided in each case by reference to the kind of sale. The effect of section 2(a) appears to be this: If the sale is of the kind mentioned in clause (a) of section 3, the "appropriate State" is that from which the goods have been moved by reason of the contract of sale, while if the sale is of the kind mentioned in clause (b) of section 3, the "appropriate State" is that "where the sale is effected". We are in this case concerned only with sales under clause (b) of section 3 and the "appropriate State" in respect of such a sale has to be decided from clause (ii) of the Explanation in section 2(a). Under that clause the "appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that in the case of any sale falling within clause (b) of section 3 the appropriate State shall be the State where the sale is effected. Now, a sale under section 3(b) is a sale "effected" by a transfer of documents of title. The "effect" is the sale; the mode in which the "effect" is produced is by the "transfer of documents of title". As soon as this mode has completed itself, the "effect" has been produced. It is simple syllogism that the place where the mode is completed, that is, the transfer of documents of title takes place, is the place where the effect is produced, that is, the sale is effected. The act constituting the mode of effecting the sale being prescribed, the sale must be taken to have been effected where that act is performed. Clause (ii) of the Explanation in section 2(a), there- fore, itself fixes the place of sale and no question of any difficulty in fixing it arises. In our view, a sale contemplated by section 3(b) is effected within the State in which the documents of title to the goods sold are transferred resulting in a transfer of the property in them; that State is the "appropriate State" in respect of such sale. In this view of the matter no question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut- side a State. It contemplates commercial activities which take place in more than one State. Thirdly, section 4 is not really defining when a sale shall be deemed to take place inside a State. It is only defining when a sale shall be deemed to take place outside a State. It does so by saying that when a sale is to be deemed to be inside any State under sub-section (2), it shall be deemed to have taken place outside all other States. Sub- section (2) provides when a sale shall be deemed to take place inside a State only for the purpose of showing that it shall then be deemed to have then taken place outside all other States, and for no other purpose. This is clear from the section itself and is made further clear by the heading to the section. It seems to us that the heading is really a preamble to the section giving a key to its interpretation as was found to be the case in Martins v. Fowler [1926] A.C. 746, 750.. Fourthly, section 4 is expressly made subject to section 3. This can only mean that in case any conflict between the two sections appears, section 3 would prevail. Now these two sections define two kinds of sale, namely, a sale in the course of inter-State tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of import of goods into or export of goods out of, India. It would be legitimate to hold that similarly section 4 was enacted only for the purpose of formulating principles for determining when a sale is said to take place outside a State and not for any other purpose. For all these reasons, we hold that sub-section (2) of section 4 was not enacted for determining which is an "appropriate State" to collect the tax in the case of a sale falling under clause (b) of section 3. It was argued on behalf of the Government of Bihar that in any case the sales of the petitioner from Jamshedpur do not come under clause (b) of section 3 because all such sales were made pursuant to the permit granted under the provisions of Iron and Steel (Control) Order, 1956, issued under the Essential Supplies Act, 1955, the directions in which permit the petitioner was bound to carry out. It appears that iron and steel being controlled commodities, they could not under the provisions of the Act and Order aforesaid, be sold without the permission of the Iron and Steel Controller. It was contended that when on a contract made pursuant to such permission, the petitioner loaded the goods into the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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