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TMI Blog1954 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... uch turnover. A dealer whose total turnover in any year is less than ten thousand rupees is not liable to pay any tax for that year. [Section 3, sub-section (3).] For the purposes of section 3 and other provisions of the Act, turnover is to be determined in accordance with such rules as may be prescribed. There is a proviso which enacts that in respect of the same transaction of sale, the buyer or the seller, but not both, shall be taxed. Section 5, in so far as it is material, runs thus: "Subject to such restrictions and conditions as may be prescribed, including conditions as to licences and licence fees- (1) [1954] 5 S.T.C. 199; (1954) 2 M.L.J. 312. (vi) the sale of hides and skins, whether tanned or untanned shall be liable to tax under section 3, sub-section (i), only at such single point in the series of sales by successive dealers as may be prescribed." The definitions of "dealer" and "turnover" are as follows: "Section 2(b): 'dealer' means any person who carries on the busi- ness of buying or selling goods." "Section 2 (i): 'turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shall also submit a receipt from a Government treasury or a crossed cheque in favour of the assessing authority for the full amount of the tax payable for the month to which the return relates." "16. (1) In the case of hides and skins, the tax payable under section 3(1) shall be levied in accordance with the provisions of this rule. (2) No tax shall be levied on the sale of untanned hides or skins by a licensed dealer in hides or skins except at the stage at which such hides or skins are sold to a tanner in the State or are sold for export outside the State. (i) In the case of all untanned hides or skins sold to a tanner in the State, the tax shall be levied from the tanner on the amount for which the hides or skins are bought by him. (ii) In the case of all untanned hides or skins which are not sold to a tanner in the State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer not exempt from taxa- tion under section 3 (3) who buys them in the State on the amount for which they were bought by him. (3) Sales by licensed dealers of hides or skins which have been tanned within the State shall be exempt from taxation provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir total turnovers. The assessees claim that the tax so levied is in contravention of Article 286(1)(b) of the Constitution, which says: "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-(b) in the course of the import of the goods into, or export of the goods out of, the territory of India." The learned judges in State of Madras v. Rallis (India) Ltd., Madras(1), held that the amount of purchase price which, according to rule 16(2)(ii), should be included in the total turnover is exempt from tax, because of Article 286(1)(b) of the Constitution. The reasoning of the learned judges was this: In the case of untanned hides and skins sold by a licensed dealer for export outside the State, the stage or the (1) [1954] 5 S.T.C. 199; (1954) 2 M.L.J. 312. event which attracts the tax is when the goods are sold for export out- side the State, though the turnover is to be calculated on the amount for which the goods were purchased by him. The taxable event being the sale for export outside the State, the assessee could be taxed only when the goods were sold for export outside the State. It cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State, because they overlooked the scheme of the Turnover and Assessment Rules, according to which (1) [1953] 4 S.T.C. 205; 1953 S.C.J. 471. (2) [1954] 5 S.T.C. 199; (1954) 2 M.L.J. 312. in the case of untanned hides and skins exported outside the State by a licensed dealer, the dealer is taxed as the purchaser and not as the seller [vide rule 4(2)(d)]. The same provision is also found in rule 16(2)(ii), which expressly states that the tax is levied on the last dealer (not exempt from taxation) as buyer. He relied upon the ruling of a Bench of this Court, to which I was a party, in Govindarajulu Naidu and Co. v. State of Madras(1), which was a case of untanned hides and skins exported outside the State. That decision has been upheld by the Supreme Court in Civil Appeal No. 186 of 1953. Reference was also made by him to the decision in Syed Mohamed and Co. v. State of Madras(2), which was heard and disposed of by the same Bench, and which has since been affirmed by the Supreme Court in Syed Mohamed and Co. v. Slate of Andhra(3). Dr. John, for some of the assessees, maintained the correctness of the decision in the State of Madras v. Rallis (India) Ltd., Madras(4). His argument was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utional exemption illusory. Of course, if the prior purchase were independently taxable even without reference to the export, exemption cannot be claimed on the strength of an export which took place later. In addition to these main contentions, Mr. Venkata- subramania Iyer also raised another contention that the imposition of sales tax on licensed dealers under rule 16(2)(ii) would be in contraven- tion of Article 14 of the Constitution, inasmuch as in respect of untanned hides and skins exported, a licensed dealer will be liable to tax, whereas an unlicensed dealer would escape from it by reason of Article 286. Mr. Venkatasubramania Aiyar relied on certain decisions of the Supreme Court of the United States in support of his contention. They may be dealt with before the decisions of this Court and the Supreme Court bearing on the question. The earliest case is Coe v. Errol(1). That case was not concerned with anything like a sales tax. The question was whether certain timber logs and lumber were subject to taxation in the State of New Hampshire on the ground that they were property within the State on the first day of April. They belonged to residents of the States of Maine and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, from laying any imposts or duties on imports or exports." The decision in Richfield Oil Corporation v. State Board of Equaliza- tion(1) was strongly relied on. In that case, the levy of a State sales tax in respect of a sale to a purchaser in a foreign country, although the actual delivery was made in the State, was held to be obnoxious to the constitutional prohibition contained in the Import-Export clause of the Constitution. The assessee was engaged in producing and selling oil in California. He entered into a contract with the New Zealand Government for the sale of oil. The delivery was made to the order of Naval Secretary, Naval Office, Wellington, into New Zealand Naval tank steamer "Nucula" at Los Angeles, California. The Corporation carried the oil by pipeline from its refinery in California to storage tanks at the harbour, where "Nucula" appeared to receive the oil. When the ship was ready to receive the oil, the assessee pumped it from the storage tank into the vessel. The shipping documents designated the assessee as the shipper and the consignee as the Naval Officer in Auckland. It was assessed to a retail sales tax measured by the gross receipts from the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the course of the debate, to various American decisions which hold that the power 'to regulate' inter-State commerce vested exclusively in the Congress by Article I, section 8 (3), of the American Constitution (the commerce clause) excludes by implica- tion the States' power of taxation only when the goods enter 'the export stream', and until then such goods form part of 'the general mass of property in the State' subject, as such, to its jurisdiction to tax, and that (1) 29 L. Ed. 715. (2) [1952] 3 S.T.C. 434 at p. 440; (1953) 1 M.L.J. 1 at p. 5. this principle was also applicable to cases arising under Article 1, sec- tion 9(5), and section 10(2) (the import-export clause) (See, e.g., Empresa Siderurgica v. Merced Co.(1). These clauses are widely different in langu- age, scope and purpose, and a varying body of doctrines and tests have grown around them interpreting, extending or restricting, from time to time, their operation and application in the context of the expanding American commerce and industry, and we are of opinion that not much help can be derived from them in the solution of the problems arising under Article 286 of the Indian Constitution." I am, therefore, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judges of the High Court. But it was not necessary to pronounce finally as to which view was correct, because even taking the narrowest of the views, it was clear that the sales in question which occasioned the export fell within the scope of the exemp- tion under Article 286(1)(b). The appeals relating to transactions in cashew-nuts which had been remained came up for final disposal before the Supreme Court with the findings of the High Court, and their final decision is reported in State of Travancore-Cochin v. Shanmugha Vilas Cashew-Nut Factory, Quilon(1). The only question debated before them was whether in addition to the export sale and import purchase which had been held in their previous decision to be covered by the exemption under Article 286(1)(b), two other categories of sale or purchase would also fall within the scope of that exemption, of which we are now concerned with one, namely, "The last purchase of goods made by the exporter for the purpose of exporting them to implement orders already received from a foreign buyer or expected to be received subsequently in the course of business, and the first sale by the importer to fulfil orders pursuant to which the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self occasioned the export as the ground for holding that such a sale was one taking place in the course of export. It is, however, contended that on this principle of connected or integrated activities a purchase for the purpose of export must be regarded as covered by the exemption under clause (1) (b). We are unable to agree." The learned Chief Justice also explained the phrase "integrated activities", which was also used in the argument before us. It is only when a sale which occasions the export cannot be dissociated from the export without which it cannot be effectuated and the sale and the resultant export form parts of a single transaction that the two activities could be said to be integrated. In his opinion, a purchase for the purpose of export could not be regarded as an act done in the course of the export of the goods. In view of the distinct character and quality of the two transactions, it was not correct to speak of a purchase for export as an activity so integrated with the exportation that the former could be regarded as done "in the course of" the latter. Das, J., took a contrary view. In his view, a purchase made by an exporter to implement his agreement for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e felt considerable difficulty in the construction of Article 286(1)(b) in its application to sales or purchases immediately preceding the actual export, which are related to the export factually. For instance, when a dealer in the State, to perform a contract of sale, entered into with a foreign buyer, purchases the goods which he subsequently exports, it may well be held that the purchase was in the course of the export. Indeed, one of the learned Judges of the Supreme Court, Das, J., took that view, though the majority took a contrary view. But the learned Chief justice of India, who delivered the judgment on behalf of the majority, took up this very question and held that such a purchase would not be covered by the exemption. This is conclusive on this question. It will be seen that the decision in the Second Travancore case(1) and the Madras case referred to above furnish a complete answer (1) [1953] 4 S.T.C. 205; (1953) 2 M.L.J. 123. to one part of the argument of Mr. Venkatasubramania Aiyar based on a factual integration between the last purchase and the succeeding export sale. But learned counsel contended that the other part of his argument remains and invites our decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re bought by him. In the case of hides and skins exported, the tax is levied from the dealer who was the last dealer who bought them in the State on the amount for which they (1) [1953] 4 S.T.C. 205; (1953) 2 M.L.J. 123. were bought by him. If such last dealer was exempt from taxation under section 3 (3) of the Act, the dealer before him, who was not so exempt, was liable on the amount for which they were bought by him. The tax is not levied from the last purchaser because the goods were subsequently exported, any more than the tax is levied from the tanner because he bought the hides and skins for tanning. For the purpose of fixing the single point in the series of sales, the two events, namely, the sale to a tanner and export outside the State, were taken as the termini of the series of sales. If this be the correct position, I fail to see how the transaction of sale preceding the export sale can be said to be a sale in the course of export. Under rule 4(2) of the Turnover and Assessment Rules, in the case of untanned hides and skins exported outside the State by a licensed dealer in hides and skins, the gross turnover of the dealer is the amount for which the goods are bought by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while one transac- tion is the subject matter of the tax, the amount of tax is the amount in respect of another transaction. During the course of argument, I asked Mr. Venkatasubramania Aiyar whether logically his contention would not lead to the conclusion that even if the rule had been that in the case of exported untanned hides and skins the first of the series of sales which ended with the ex- port is the taxable transaction, even such first transaction would get the benefit of the exemption under Article 286(1)(b), and learned counsel was compelled to agree, though he was not quite happy about the result. Mr. Venkatasubramania Aiyar next contended that in any event rule 16 (2) (ii) makes the exporter liable though in the capacity of a buyer. Therefore, the tax must be deemed to be a tax on the transac- tion in the course of the export. This is not so always, as pointed out by the learned Advocate-General, because if the exporter is a dealer exempt under section 3 (3), then he would not be liable but his prede- cessor would be, who certainly would not be the exporter. With respect to the learned Judges who decided State of Madras v. Rallis (India) Ltd., Madras(1), I cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer sells to an unlicensed dealer, and when a licensed dealer sells to a licensed dealer. It may be that in one or other of these contingencies there might be difficulty in assessment. This is inevitable, but that fact alone would not justify us in holding that there has been an unwarranted discrimina- tion. Ultimately, the burden of the sales tax falls on the consumer, as the dealer paying the tax, whether he be licensed or unlicensed, generally passes on the tax. We do not see any substance in this contention. The case will be posted in the usual course before the Bench dealing with Tax Revision Cases. BALAKRISHNA AYYAR, J.-I agree. RAJAGOPALA AYYANGAR, J.-I entirely agree with the judgment which has just now been delivered by my Lord the Chief justice and the reasons given by him for holding that the decision reported in State of Madras v. Rallis (India) Ltd., Madras(2), is incorrect and has to be overruled. I would have been content to have left the matter there but I feel that out of regard to the learned judges who decided the case above mentioned I must add my reasons for the conclusions of the Full Bench. As my Lord the Chief justice has in his judgment set out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Chief justice thus stated the ratio of the decision: "We are clearly of opinion that the sales here in question, which occasioned the export in each case, fall within the scope of the exemp- tion under Article 286(1)(b). Such sales must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say, by employing the machinery of ex- port ............ Such a sale cannot be dissociated from the export without (1) [1952] 3 S.T.C. 434; (1953) 1 M.L.J. 1 at p. 5. which it cannot be effectuated, and the sale and resultant export form parts of a single transaction. Of these two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other." The Second Travancore case, i.e., State of Travancore-Cochin v. S.V.C. Factory, Quilon(1), considered the entire article afresh and the conclusions of the majority of the judges were summed up in these terms: "(i) Sales by export and purchases by import fall within the exemption under Article 286(1)(b). This was held in the previous decision. (2) Purchases in the State by the exporter for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their purchase of these goods simpliciter but on account of the fact that the goods which they purchased were in fact exported by them. It will be seen that this is not the ground upon which the learned Judges in State of Madras v. Rallis (India) Ltd.(1), have held the purchase tax to be invalid. The basis of that judgment is that in truth and in effect it is the sale by the licensed dealer for export that is taxed and not his purchase, though the turnover for computing the quantum of the tax is fixed on the basis of his purchase price. Dealing with the effect of the rules, Satyanarayana Rao, J., says: "..........the only inference possible is that it is the sale for export outside the State that attracts the tax and not the purchase by the licensed dealer with a view to export outside the State. Though the transaction which attracts the tax is the sale, the turnover, however, has to be computed on the amount for which the goods are bought by the dealer, and this is made clear by rule 4 and also rule 16(2)(ii)." With the greatest respect to the learned Judges, I cannot agree with this interpretation of the rules. The taxable event is really the purchase and the quantum of tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the American Constitution. Most of the American decisions are concerned with the validity of State as distinguished from Congressional taxation. The inhibition in the case of the States is of a twofold character, the first flowing from the commerce clause. Article 1, section 8(3): The Congress shall have power to regulate commerce with foreign nations and among the several States, and this provision which vests in Congress an exclusive power of regulation over inter-State and foreign commerce has been held to be a limitation on State power even in the absence of implementing legislation by Congress and to create of its own force an area of trade free from State interference. The second is the Import-Export clause, Article 1, section 10 (2): "No State shall without the consent of Congress lay any imposts or duties on imports or exports except what may be absolutely necessary to execute its inspection laws; and the net produce of all duties and imposts laid by any State on imports and exports shall be for the use of the treasury of the United States". There is further a constitutional embargo laid upon Congress levying any duty on exports for Article 1, section 9 (5), provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. In my judgment the American decisions dealing with the Import Export clause do not afford us any assistance either. The distinction between the scope of the prohibition enacted by the commerce clause and this has been clearly expressed by Douglas, J., in Richfield Oil Corporation v. State Board of Equalisation(2): "The two constitutional provisions while related, are not coter- minous. To be sure, a State tax has at times been held unconstitutional (1) 84 L. Ed. 565 at P. 571. (2) 91 L. Ed. 80 at p. 88. both under the Import Export clause and under the commerce clause But there are important differences between the two. The invalidity of the one derives from the prohibition of taxation on the import or export; the validity of the other turns nowise on whether the article was or had ever been, an import or export Moreover, the com- merce clause is cast, not in terms of a prohibition against taxes, but in terms of a power on the part of Congress to regulate commerce. It is well established that the commerce clause is a limitation upon the power of the States, even in the absence of action by Congress As we shall see, the question as to what is exportation is somewhat entwined ..... X X X X Extracts X X X X X X X X Extracts X X X X
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