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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 ..... nd mandamus, the Tata Iron & Steel Co., Ltd., hereinafter referred to as the company challenges the authority of the Commercial Tax Officer, Lyons Range, Calcutta, to demand payment of Rs. 41,14,718-12 nP. to the West Bengal Government as tax leviable under the Central Sales Tax Act, No. 74 of 1956, in respect of certain sales of steel goods. The company has its registered office in Bombay, its head sales office in Calcutta in the State of West Bengal and its factories in Jamshedpur in the State of Bihar. The company is registered as a "dealer" under the Bihar Sales Tax Act, and is also registered as a "dealer" in the State of West Bengal under the Central Sales Tax Act, 1956. For the period of assessment July 1, 1957, to March 31, 1958, the company submitted its return of taxable sales to the Commercial Tax Officer, Lyons Range, Calcutta, disclosing a gross taxable turnover of Rs. 9,561-71 nP. in respect of sales liable to Central sales tax in the State of West Bengal. By his memorandum dated August 12, 1959, the Commercial Tax Officer directed the company to submit a statement of sales from Jamshedpur for the period under assessment, "documents relating to which were tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Article 32 of the Constitution is not maintainable because no fundamental right of the company is infringed by the order passed by the Commercial Tax Officer and the remedy of the company, if it feels aggrieved by the order, is to seek relief by resorting to the machinery provided by the West Bengal Sales Tax Act, Counsel relies in support of his contention upon the judgments of this Court in Ramjilal v. Income- tax Officer, Mohindargarh [1951] S.C.R. 127; 19 I.T.R. 174, and Laxmanappa Hanumantappa Jamkhandi v. The Union of India and Another [1955] 1 S.C.R. 769. In Ramjilal's case [1951] S.C.R. 127; 19 I.T.R. 174., this Court held that the protection against imposition and collection of tax save by authority of law directly arises from Article 265 and is not secured by clause (1) of Article 31; and Article 265 not being in Chapter III of the Constitution, its protection is not a fundamental right which can be enforced by an application under Article 32 of the Constitution. It was observed in Ramjilal's case [1951] S.C.R. 127; 19 I.T.R. 174., that the right secured by Article 265 may be enforced by adopting appropriate proceedings under the Act authorising levy of tax but a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l right of the company to hold its property and the company is entitled to approach this Court under Article 32 of the Constitution. The preliminary objection raised by counsel for the respondents must therefore fail. To appreciate the arguments advanced on the merits of the claim made by the company, it is necessary to set out the relevant legislative history and the course of judicial decisions. Under the Government of India Act, 1935, power to make laws in respect of "taxes on sale of goods and advertisements" was conferred by section 100(1) read with entry 48 of List II in Schedule VII upon the Provincial Legislatures. This power was exercised by all the Provinces and by picking out one or more ingredients constituting a sale, as determinative of the place where the sale took place, they brought within the taxing laws transactions substantially outside the territorial limits of their authority. Statutes so enacted led to multiple taxation of the same transaction by several Provinces, each Province seeking to rely upon some ingredient of the sale within its jurisdiction as establishing a territorial nexus. This burden lay heavily upon the consumer. The Constituen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The scope of Article 286 fell to be determined in the State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133., in an appeal to this Court in which the validity of the provisions of the Bombay Sales Tax Act, 1952, was challenged. By the Bombay Act, liability to pay tax was imposed on sales of goods which had been actually delivered in the State of Bombay as a direct result of sales for the purpose of consumption in that State even if property in the goods had, by reason of such sales, passed in another State. The High Court of Bombay in a petition under Article 226 held that the definition of sale in the Act included certain sales which were by Article 286 of the Constitution exempt from liability to tax by the State and the tax imposed was therefore wholly void. A majority of Judges hearing an appeal from that judgment to this Court held that Article 286(1)(a) prohibited taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were actually delivered for the purpose of consumption therein, and the effect of the Explanation thereto was to convert inter-State transactions into intra-State transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." Simultaneously, the Parliament was authorised by the incorporation of item 92A in List I of the Seventh Schedule, to legislate for levying tax on the sale purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce, and by the amendment of item 54 of List II excluded that field of taxation from the competence of the State Legislatures. Article 269, clause (1)(g), which was also amended by clause (3) to that Article read after the amendment as follows: "Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce payment of any tax under the general sales tax law of the appropriate State shall on behalf of the Government of India assess, collect and enforce payment of any tax payable by any dealer under the Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected. It is manifest that by section 6, which is the charging section, liability to pay tax on inter-State sales is imposed upon all sales effected by any dealer in the course of inter- State trade or commerce. The liability to pay tax under the Central Sales Tax Act arises as an inter-State sale. The tax though collected by the State in which the sale takes place is due to the Central Government and is payable at the rates prescribed in respect of intra-State sales by the State in which it is collected. Sale is defined in section 2(g) as meaning any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration and includes a transfer of goods on the hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich there is "transfer of goods" on the hire-purchase or other systems of payment by instalments is included in the definition of "sale". The question whether a mere contract in which goods are delivered under a hire-purchase agreement is a sale within the meaning of section 2, clause (g), and therefore covered by clause (a) of section 3 does not fall to be determined in this case: nor are we called upon to express our opinion on the question whether the clause authorising imposition of sales tax on what may be merely a contract of sale is unconstitutional. We are in this case concerned to decide the competing claims of the States of West Bengal and Bihar to levy sales tax from the company in respect of transactions of completed sales and not in respect of any hire-purchase transactions. Cases of this Court, viz., State of Travancore-Cochin and Others v. The Bombay Co. Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434. and State of Travancore-Cochin and Others v. Shanmugha Vilas Cashew-nut Factory and Others [1954] S.C.R. 53; 4 S.T.C. 205. relied upon by counsel for the State of West Bengal have no bearing on the interpretation of section 3, clauses (a) and (b). In those cases, the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds have been moved by reason of such sale; (2) in the case of any such sale falling within clause (b) of section 3, the place where the sale is effected." This definition made the State in which the place of business is situate, the appropriate State; and by the Explanation, the expression "place of business" was defined in relation to the two classes of sales in section 3 as sales in the course of inter-State trade or commerce. By the first part of the definition, in case of sale of goods falling within clause (a), the place from which the goods have been moved is the place of business and by clause (2), in the case of sales falling within clause (b) of section 3, the place where the sale is effected is the place of business. This evidently is a highly artificial definition. By a fiction, the place from which goods have been moved by reason of the sale falling within clause (a) of section 3, that is, that place from which the goods have been moved under the contract of sale for the purpose of delivery to the purchaser in another State was declared the place of business. By another fiction, the place where the sale is effected in inter-State transactions fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution (Sixth Amendment) Act, 1956. In the United Motors case [1953] S.C.R. 1069; 4 S.T.C. 133., it was opined by a majority of the Judges of this Court that Article 286(1)(a) prohibited taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein, and the latter State was left free to tax such sales or purchases and that power was not derived from the Explanation to Article 286(1) but under Article 246(3) read with entry 54 in List II. Mr. Justice Bose who disagreed with the majority held that the basic idea underly- ing Article 286 was to prohibit taxation in the course of inter-State trade and commerce until the ban under clause (2) of the said Article was lifted by Parliament and always in the case of imports and exports, and when the ban was lifted, the Explanation to clause (1) of Article 286 came into play to determine the situs of the sale, the Explanation not governing clause (2) as it applied to transactions which in truth and in fact took place in the course of inter-State trade and commerce. Mr. Justice Bhagwati who agreed with the conclusion of the majori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (3). By clause (2) as amended, the Parliament was authorised to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1); and by the addition of item 92A in List I of the Seventh Schedule, the Central Government alone could tax sales or purchases of goods which take place in the course of inter-State trade or commerce. By incorporating clause (3) to Article 269, the Parliament assumed to itself the power to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. It is after this amendment was made that the Central Sales Tax Act, 1956, was enacted with a view to provide for collection of a tax on sales or purchases in the course of inter-State trade or commerce. The Parliament had to define sales in the course of inter- State trade or commerce, sales in the course of import or export, and intra-State sales. The Parliament set out by section 3 to define sales of goods which can be said to take place in the course of inter-State trade or commerce, by section 4(1) to define when a sale is said to take place outside a State, and by section 5 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of this sub- section shall apply as if there were separate contracts in respect of the goods at each of such places." Sub-section (2) defines what sales or purchases shall be deemed to take place inside a State. The terms of sub-section (2) are quite general, and the Parliament has thereby attempted to locate the place where a sale takes place. The clause does not deal with the conditions which "effect" a sale; nor is there any warrant for the view that sub-section (2) of section 4 only seeks to locate the place of sales which are not in the course of inter-State trade or commerce. By enacting Chapter II, the Parliament sought as evidenced by the title of the chapter to exercise its power under Articles 269(3) and 286(2). By section 3, the Parliament formulated principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce and in so doing, it exercised authority conferred upon it by Article 269(3). In enacting section 4, clause (1), the Parliament sought to formulate principles for determining when a sale takes place outside a State and in enacting that section, it legislated in exercise of authority under Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; But under the Sale of Goods Act, if a document of title to goods is used in the ordinary course of business as proof of the possession or control of goods, endorsement or delivery thereof according to mercantile practice will amount to delivery of the goods thereby represented. The transfer of documents contemplated by section 3(b) is therefore such transfer as in law amounts to delivery of the goods. Transfer of documents either by endorsement or delivery does complete transfer of title, but in the absence of an indication to that effect in the statute, the place where the documents are transferred is not the place of sale. If the view which appealed to the Commercial Tax Officer is accepted, there is a possibility of large scale evasion of tax. For instance, the documents may be handed over outside India. If documents of title to goods are handed over by the vendor either directly or through his agent to the purchaser or his agent outside India, on the view taken by the Commercial Tax Officer, even though the sale has taken place in India and the goods are in India, the sale would not be taxable. This result could not have been contemplated by the Legislature. We are theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) that the goods at the time of transfer of documents of title were in movement from the State of Bihar to the State of West Bengal, (b) that the place where the sale was effected was under section 4, clause (2), within the State of West Bengal. The Commercial Tax Officer has, in our view, failed to apply the correct tests and has made assumptions which are not warranted and on a true interpretation of the provisions of the Central Sales Tax Act, the order of assessment discloses an error apparent on its face and a writ of certiorari 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. The company will be entitled to its costs of this petition. SARKAR, J.-The petitioner was assessed to sales tax on some of its sales by the Government of West Bengal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the Act is not challenged, the imposition of the tax does not result in any violation of the fundamental right guaranteed by Article 31(1) of the Constitution and this petition based on such alleged violation is, there- fore, not competent. Such a view was indeed taken by this Court in Ramjilal v. Income-tax Officer, Mohindargarh [1951] S.C.R. 127; 19 I.T.R. 174.. This case was followed in Laxmanappa Hanumantappa Jamkhandi v. Union of India [1955] 1 S.C.R. 769. The present case however does not complain of a violation of any funda- mental right under Article 31. The fundamental right the infringement of which is alleged by the assessment order, is the right to hold property and carry on business under Article 19(1)(f) and (g). In Kailash Nath v. The State of U.P. A.I.R. 1957 S.C. 790; 8 S.T.C. 358., this Court held that an illegal levy of sales tax on a trader under an Act the legality of which was not challenged violates his fundamental rights under Article 19(1)(g) and a petition under Article 32 with respect to such violation lies. The earlier case of Ramjilal v. Income-tax Officer, Mohindargarh [1951] S.C.R. 127; 19 I.T.R. 174., does not appear to have been considered. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction to assess such sales to central sales tax. Section 4(2) lays down the principles for ascertain- ing where the sale takes place, or, in other words, the situs of the sale. This section creates a legal fiction for ascertaining the situs of the sale. So far as our inter-State sales from Jamshedpur are concerned the situs of such sales will always be in the State of Bihar as the goods will be in Bihar either at the time of contract of sale (ascertained goods) or at the time of their appropriation to the contract (unascertained goods). We have accordingly filed our returns of sales made in the course of inter-State trade or commerce from Jamshedpur with the Bihar Sales Tax Authorities under the Central Sales Tax Act, 1956, and have paid to them the tax on the basis of these returns." The Taxing Officer of the Government of West Bengal did not accept the petitioner's contention. He held, "In the case of sale under section 3(b) no property in the goods passes unless the documents of title to goods are in the hands of the buyer. In such a case the 'appropriate State' to levy the tax should be that State in which the sale has been effected; or, in other words, that State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moved from Bihar to Bengal even though the documents of title to the goods sold were transferred in Bengal, such sales being taxable only by the Government of Bihar. It is clear from what we have said that the Government of West Bengal purported to tax sales under section 3(b); it taxed sales where during their movement from Bihar to Bengal, the property in the goods sold passed, by a transfer in West Bengal of the documents of title to them. Two questions arise, namely, what is a sale under section 3(b) and which is the "appropriate State" to tax such sales. We take up the first question now. In order to decide it, we have to consider section 3 as a whole. The section, so far as material, is in these terms: Section 3.-"A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another." The first thing that strikes us is that the section has to be so con- strued that the two clauses in it are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Section 3 by the use of the word "or" between clauses (a) and (b) in it also suggests that the clauses are exclusive of each other. One sale then cannot be taxed twice. A sale cannot fall under both clause (a) and clause (b) of section 3, for then it would be liable to tax twice. Clauses (a) and (b) are hence mutually exclusive. Keeping this basic consideration in mind, we proceed to construe section 3. We take clause (a) of section 3 first. That clause contemplates a sale which occasions the movement of goods from one State to another. The words "sale occasions the movement" should create no difficulty. It is apparent from the Explanation in section 2(a) which will be set out later, that they mean "moved by reason of the sale". The question then arises, when does a sale occasion the movement of goods sold? It seems clear to us that a sale can occasion the movement of the goods sold only when the terms of the sale provide that the goods would be moved; in other words, a sale occasions a movement of goods when the contract of sale so provides. We turn now to the sale contemplated by clause (b) of section 3. That is a sale effected by a transfer of documents of tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moved from one State to another. All such sales would come within clause (a). But it may so happen that in some of these sales, the property in the goods passes by a transfer of documents of title to them during their movement. Such sales would fall within clause (b) also. To avoid this result we have to exclude from clause (a) such of the sales coming under it in which the property in the goods passes by a transfer of documents of title to them during their movement. In the other words, where a sale comes under both the clauses, it has to be held to fall under clause (b). We, therefore, think that the two clauses should be construed in the following way: Clause (a) contemplates a sale where under the contract of sale the goods sold are moved from one State to another, provided however that such a sale will not come under clause (a) but fall under clause (b) if the property in the goods sold is passed by a transfer of the documents of title to them during their movement from one State to another. Clause (b), on the other hand, contemplates a sale where the property in the goods sold is passed by a transfer of documents of title to them during their movement from one State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be decided from clause (ii) of the Explanation in section 2(a). Under that clause the "appropriate State" in respect of such a sale is the State "where the sale is effected". The question is, does this definition by itself give sufficient guidance to ascertain the "appropriate State"? The learned counsel for the State of Bihar contends that the words "where the sale is effected" do not indicate any place of sale and are not intended to indicate the "appropriate State". The "appropriate State", according to him, has to be decided by resort to section 4(2) which was intended to be explanatory of Explanation (ii) in section 2(a). We will consider section 4(2) a little later. But before we do that, let us examine the argument that the words "where the sale is effected" in clause (ii) of the Explanation in section 2(a) do not indicate any place or the "appropriate State". The learned counsel gave several reasons why the words "where the sale is effected" in clause (ii) of the Explanation in section 2(a) cannot indicate any place. First, he referred to certain observations in State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133., indicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in them; that State is the "appropriate State" in respect of such sale. In this view of the matter no question of resorting to section 4(2) for fixing the place where a sale under section 3(b) is effected, arises. The place of that sale is fixed by clause (ii) of the Explanation in section 2(a) itself. It also appears to us to be absolutely clear that the purpose of section 4(2) was not to fix the place where a sale under section 3(b) can be said to have taken effect. That section is in these terms: Section 4.-"When is a sale or purchase of goods said to take place outside a State.- (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 contract 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 trade and a sale taking place outside a State. If a sale happens to come under both definitions, it would have to be taken as a sale in the course of inter- State trade for section 4 has been made subject to section 3. That being so, it would be impossible to hold that section 4(2) indicates where a sale falling under section 3(b) is to be held to have been effected. Lastly, it seems clear to us that section 4 was enacted under the power conferred on the Parliament by Article 286(2) to formulate principles for determining when a sale takes place "outside a State", the State Legislatures having been prevented by clause (1) of that Article from passing any law imposing tax on such a sale. This is clear from a consideration of sections 3, 4 and 5 which together constitute Chapter II of the Act. Section 5 states when a sale is said to take place in the course of export or import. The power to enact this section is also derived from Article 286(2). Section 3 formulates the principles for determining when a sale is said to take place in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermission 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 railway wagons at Jamshedpur, the property in them passed under section 23(1) of the Sale of Goods Act to the purchaser, because, in view of the Iron and Steel (Control) Order, 1956, the goods became unconditionally appropriated to the contract by the seller with the assent of the buyer. The case of Commissioner of Sales Tax, Bihar v. New India Sugar Mills [1959] 10 S.T.C. 74, was cited as authority for this view. This case was decided under a different order. We do not propose to go into the question whether in any particular sale property was transferred from the seller to the buyer or how and when. That point can be taken before the appropriate taxing authorities. It appears to us that the Taxing Officer of the West Bengal Government took the same view of section 3(b) as we have done. He said that in the case of a sale under section 3(b) "no property in the goods passes unless the documents of title to the goods are in the hands of the buyer." This, of course, means that in the case of a sale under clause (b) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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