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TMI Blog1956 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... n ground that the assessees are licensed dealers carrying on business in hides and skins in the State and are not exempt from taxation under section 3(3) of the Act. The tax is sought to be levied on them as the last dealers who bought untanned hides and skins in the State on the amounts for 'which they were bought, the said amounts being included in their total turnovers. Two questions arise for our decision: (1) Whether the levy of the tax is authorized by the Act and the Rules and (2) Whether, even if so authorized, the Act and the Rules are not repugnant to Article 286(1)(b) of the Constitution. Mr. N. Rajeswara Rao, the learned Advocate for the assessees, refer- red to the title and preamble as well as to the definition of "sale" in sec- tion 2, clause (h), of the Act in support of his contention that the Act contemplated a tax only on sales and not on purchases and that liabi- lity was illegally sought to be imposed by the rules on the purchasers of untanned hides and skins. This argument, however, was not further developed. Sales tax, as observed in Province of Madras v. Boddu Paidanna(1), is a tax levied on the occasion of the sale of goods and is a tax on the proceeds th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain in respect of the sale of such goods effected by him. As a result of the aforesaid provisions, multipoint taxation or levy of tax on each occasion of sale of the goods is allowed. But sec- tion 5 introduces exceptions to this rule, one of which relates to hides and skins. Section 5, clause (vi), provides that "the sale of hides and skins, whether tanned or untanned, shall be liable to tax under sec- tion 3(1) only at a single point in the series of sales by successive dealers as may be prescribed." Section 19 gives the power to the State Government to make rules. In these cases we are concerned with rules 4 and 16. Rule 4(2), so far as it is relevant, runs as follows: "4. (2) In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer. (c) untanned hides and skins bought by a licensed tanner in the State, and (d) untanned hides and skins exported outside the State by a licensed dealer in hides and skins. " Rule 16 is the crucial rule fixing the points at which sales tax on hides and skins is leviable. The relevant portion of rule 16 is as follows: "16. (1) In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e raw material. Tax on untanned hides and skins is leviable at a single point in the series of sales by successive dealers. Rule 4(2)(d) prescribes that the turnover of a dealer in untanned hides and skins is the amount for which the goods are bought by him. In other words, the tax is levied on the purchaser or at the purchase point. In the case of untanned hides and skins exported abroad rule 16(2)(ii) provides for the levy of tax from the dealer who was the last dealer who bought untanned hides and skins in the State, on the amount for which they were bought by him. For the purpose of fixing the single point in the series of sales, the last purchase of untanned hides and skins for sale and export outside the State was taken. Whether for reasons of practical convenience or otherwise, the framers of the rules fixed the single point at the stage of export of the goods, when the series of sales of untanned hides and skins as such would have come to a termination. The single point is selected by making the last purchaser in the series of sales liable for the tax and it is only when the stage of export is reached in the series of sales by successive dealers, that the tax becomes exigib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to tax on their pur- chase turnover of untanned hides and skins. The further argument of the learned counsel for the assessees is that rule 16(2), which had been framed before the Constitution, was repugnant to Article 286(1)(b) and had therefore become void and inoperative. This argument was accepted by the learned judges of the Madras High Court who decided State of Madras v. Rallis (India) Ltd., Madras(1). There was an earlier decision of a Bench of that Court in Govindarajulu Naidu Co. v. State of Madras(2) to the contrary. Both these cases related to the levy of sales tax on untanned hides and skins sold and exported outside the State. On account of this conflict, the point was referred to a Full Bench of the Madras High Court in State of Madras v. Chambers Ltd.(3) The Full Bench decided that sales tax on the purchase of untanned hides and skins by a licensed dealer, levied under rules 4(2)(d) and 16(2) of the Act, is not illegal by reason of any contravention of Article 286(1)(b) of the Constitution. It was suggested by the learned counsel for the assessees that as the decision of the Full Bench was rendered after the constitution of the Andhra High Court, it was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decisions of the Supreme Court to which reference will presently be made. The earliest case of the Supreme Court in this connection is State of TravancoreCochin v. The Bombay Co., Ltd.(1) The actual decision in that case was that sales and purchases which themselves occasioned the export or import of the goods out of or into the territory of India, fell within Article 286(1)(b) of the Constitution even though property in the goods might pass to a foreign buyer and the sale in that sense might be said to have been completed within the State before the goods commenced their outward journey. Such a sale was nevertheless regarded as having taken place in the course of the export and exempted under Article 286(1)(b) of the Constitution. In the case last cited, the learned Chief Justice delivering the judgment of the Supreme Court observed: "A sale by export thus involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated, and the sale and resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem to implement orders already received from a foreign buyer or expected to be received subsequently in the course of business, was not within the protection of Article 286(1)(b). A purchase for the purpose of export was regarded only as an act preparatory to export and was not regarded as an act done in the course of the export of the goods out of the territory of India. The Court was of the opinion that a sale in the course of export should be understood in the context of Article 286(1)(b) as meaning a sale taking place not only during the activities directed to the end of the exportation of the goods out of the country but also as part of, or connected with, such activities. The Court refused to regard a purchase for export as an activity so inte- grated with the exportation that the former could be regarded as done "in the course of" the latter. This decision completely negatives the argument based on an integration between the last purchase and the succeeding export sale. In Govindarajulu Naidu Co. v. State of Madras(2) the assessees were taxed as the last purchasers within the State, of untanned hides and skins, who also exported the goods and the tax was imposed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt cited above, it must now be taken to be finally established that the exemption under Article 286(1)(b) does not apply to dealers in the position of the assessees in these cases. It was stressed by the learned counsel for the assessees that the sales of untanned hides and skins were effected outside the State by the employment of commission agents doing business outside the State and (1) [1953] 4 S.T.C. 205. (3) [1952] 3 S.T.C. 434. (2) [1955] 6 S.T.C. 717. the deliveries were made by those commission agents outside the State through the normal commercial channels. It was argued that the export sales having been effected outside the State, the State was incompetent to tax such sales under the Act. The transactions that are sought to be taxed are not the export sales but the purchases preceding the export sale made by the assessees within the State. As already stated, the Act and the Rules permit the levy of sales tax at the point of purchase of untanned hides and skins by licensed dealers who sell and export them to foreign buyers. To attract the liability to tax, it is not sufficient if there is an intention to export or a plan which contemplates exportation at the time when unt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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