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TMI Blog1956 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner was liable to pay sales tax only in the case of sales to non-registered dealers within the State; but section 15(1)(b) of the Act was amended by Amending Act IV of 1951. As a result of the amendment, the relevant portion of the section reads as follows: "The net turnover shall be determined by deducting from a dealer's gross turnover during any given period(1) his turnover during that period on * * * * * (b) sale to a registered dealer of-(i) goods specified in the purchasing dealer's certificate of registration as being intended by him for (a) resale in the State." The underlined words "in the State" were introduced in the Act in consequence of the said amendment. This was followed by a notification No. FMT 14/50/42, dated 22nd August, 1951, which also introduced corresponding changes in the rules inserting rules 79 and 80. Rule 80, inter alia, requires the dealer to submit a declaration in the following form: "I/We.......hereby declare that I/We have purchased the goods hereinmentioned for the purposes for use in the manufacture of goods for sale in the State or for use in the execution of a contract in the State or for resale in the State, and further declare that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to pay sales tax under the Act arises under section 3 thereof. Divested of details, which are irrelevant at present, the section requires that a dealer would be liable to pay tax under the Act on all sales effected, after the relevant date mentioned in the section, where his gross turnover during the year preceding exceeds the sum of Rs. 12,000, the taxable quantum. The gross turnover is determined, according to section 14 of the act, by taking the aggregate of the sale prices of goods sold during that period. Under section 5 of the Act, the tax is to be charged at specified rates on the total net turnover of a dealer. This "net turnover" of the dealer, as defined in section 2(7) of the Act, means the turnover referred to in section 15 of the Act, which section I shall prescently discuss. Section 9 of the Act lays down that no dealer shall, while being liable to pay tax under the provisions of this Act, carry on business as a dealer unless he has been registered and possesses a certificate of registration. The dealer is, therefore, required to apply for registration to the Commissioner of Taxes in the prescribed manner and obtain such a certificate, and if the Commissioner finds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom him. Thus, under the law as it stood prior to the amendment, the dealer who sells and the dealer who purchases, both enjoyed exemption form sales tax provided they were both registered dealers and the commodity sold was a commodity specified for sale in their certificate of registration. It follows, therefore, that whether the purchasing dealer bought the commodity for resale within the State or outside or in the course of inter-State trade or commerce, it made no difference to his non-liability to pay sales tax so long as the above conditions were fulfilled. The paramount question is-whether the new law has made any difference. As a result of the amendment, it obviously has. Now the dealers have lost the exemption unless the purchasing dealer expressly buys the commodity for resale in the State. This is what the amendment in terms provides, and rule 80 further provides that, in order to be entitled to the exemption, the dealer or some one authorised on his behalf, has to make a declaration or give an undertaking to that effect. If the dealer is not so prepared to give an undertaking or make a declaration as required by the said rule, the dealer who sells will realise the tax f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntends that the petitioner in the present case is not entitled to any relief. He submits that the petitioner has not established that the transactions carried on by him are in the course of inter-State trade or commerce. He points out that the pur chase made by him should be so integrated as to be the immediate cause of the inter-State sale. In other words, the transactions should be so intimately connected with each other in time and sequence that one should occasion the other and the inter-State sale or purchase must go hand in hand, as it were, being integral parts of the same transaction. He illustrates the legal position with reference to three decisions of the Supreme Court. The first is the decision in State of TravancoreCochin v. Bombay Co. Ltd.[1952] 3 S.T.C. 434; A.I.R. 1952 S.C. 366. Patanjali Sastri, C.J., there laid down that a sale by export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of 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 resultant expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds: "The reasonings adopted by the learned Judges in the above cases apply with full force not only to clause(2) but also to clause (1)(b) of Article 286, and we should construe the words 'in the course of' in the same way as it has been done in the case of Queen v. Wilkinson [1952] 85 C.L.R. 467. So construed, the purchases made by the exporter even without any previous order for export form 'an essential and integral, even if initial, step' in the exportation of the goods. They form an 'integral part of a continuous flow' which is commercially involved in the export process. No 'legal nexus' between these purchases and the actual physical export is required to secure immunity from State taxation. In my judgment the last purchase by the exporters-whether in fulfilment of foreign orders already secured or in anticipation of future orders-must, in a commercial sense, be 'in the course of' the export. The only way to give business efficacy to Article 286(1)(b) is to construe it in this commercial sense. Tax such purchases and you tax the export itself and by that process eventually cripple our export trade and bring about an adverse trade balance against us in the long run. It must a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r [1955] 6 S.T.C. 446; A.I.R. 1955 S.C. 661. In that case, there was no assessment order, and all that had happened was that the taxing officer had issued notice on the petitioner to get himself registered. S.R. Das, C.J., held as follows: "It is, therefore, not reasonable to expect the person served with such an order or notice to ignore it on the ground that it is illegal, for he can only do so at his own risk and peril. This Court has said in the last mentioned case that a person placed in such a situation has the right to be told definitely by the property legal authority exactly where he stands and what he may or may not do. Another plea advanced by the respondent State is that the appellant company is not entitled to take proceedings praying for the issue of prerogative writs under Article 226 as it has adequate alternative remedy under the impugned Act by way of appeal or revision. The answer to this plea is short and simple. The remedy under the Act cannot be said to be adequate and is, indeed, nugatory or useless if the Act which provides for such remedy is itself ultra vires and void and the principle relied upon can, therefore, have no application where a party comes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer for resale within the State. If now these provisions are held illegal, it would seriously affect the economy of the State and the sources of revenue on which it mainly depends. We quite appreciate the argument of the learned Advocate-General, but what cannot be done directly under the law cannot be indirectly permissible. The remedy, in my opinion, lies in article 286 itself, and in such cases, the President or the Parliament may, by law, provide for relief against hardship. I fell tempted to quite in this context the very appropriate remarks of S.R. Das, J., in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory[1953] 4 S.T.C. 205 at p. 231; A.I.R. 1953 S.C. 333 at p. 345.: "An argument is advanced suggesting that if all sales or purchases that take place in the course of inter-State trade and commerce are put beyond the taxing power of the States then that fact will very seriously and prejudicially affect the economy of the States and may prevent them from discharging the responsibilities, which all welfare States are expected to do. Apart from the benefit that a free flow of trade is likely to bring to the public generally the apprehended danger appears to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver during that period on- (a) the sale of goods exempted under section 6 and section 7; (b) sale to a registered dealer of (i) goods specified in the purchasing dealer's certificate of registration as being intended by him for(a) re-sale." The recitals in the certificate were in conformity with this provision. There was no conflict. Under clause (1)(b) of the section the dealer selling tea to the petitioner, which was intended for resale, was not liable to any tax. The turnover from tea sold was deductible from the gross turnover. In 1951 section 15 was amended. The relevant portion of section 15 reads as follows: "15(1)(b). Sale to a registered dealer of- (i) goods specified in the purchasing dealer's certificate of registration as being intended by him for (a) resale in the State." The words "in the State " have been added. The effect of the provisions is that the registered dealer from whom the petitioner makes his purchases can sell to him tea free of tax for resale in the State. If he purchase for resale outside the State, his seller would be liable to pay tax under section 15(1)(b) as it now stands. The result would be that the seller would charge him tax on tea for resale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the rule causes no difficulty to the petitioner. Clause (2) of the rule provides the form which the declaration should take and here the purchaser has to declare that the goods purchased are for use in the manufacture of goods or for sale in the State of for use in the execution of a contract in the State or for resale in the State and further declare that these goods have been specified in the certificate of registration. It is obvious that a dealer who wants to deduct the amount of sales to a registered dealer under section 15(1)(b) has to produce a declaration from the purchaser that the goods are for resale in the State, or they are such that they fall under other clauses of the declaration. The result is that to a dealer selling tea, the petitioner who is doing wholesale business in tea and is purchasing it in the State for resale must give a declaration that he is purchasing for resale in the State. Otherwise his seller will have to pay tax and the turnover from the sale would not be deductible under section 15(1)(b). Rule 80 thus provides the procedure by which section 15(1)(b) as amended is enforced and given effect to. The grievance of the petitioner as stated in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade. As a result of the amendment of section 15(1)(b) and the insertion of rule 80 of the Rules, tax is being levied on inter-State transactions. But the provisions are ultra vires as they offend against the provisions of the Constitution contained in Article 286(2). He urges that except in so far as Parliament may by law provide otherwise, no State can 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. He points out that it is immaterial if the sale or purchase in the course of inter-State trade is accompanied by delivery in the taxing State. In support of his contention he relies on the decision in Bengal Immunity Co., Ltd. v. State of Bihar[1955] 6 S.T.C. 446; A.I.R. 1955 S.C. 661. In this case the earlier decision of the Supreme Court in State of Bombay v. United Motors (India) Ltd [1953] 4 S.T.C. 133; A.I.R. 1953 S.C. 252. was held not well-founded on principle or authority. The majority view in this case was that Article 286(2) puts an absolute restriction on the taxing power of the States where transactions of sale or purchase take place in the course of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory of India, come within the exemption under Article 286(1)(b). Export sales of commodities to foreign buyers on c.i.f. or f.o.b. terms, therefore, fall within the scope of exemption under Article 286(1)(b). A sale by export 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 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. Even where the property in the goods passes to the foreign buyers and the sales are thus completed within the State before the goods commence their journey, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under Article 286(1)(b)." The proposition was summarised in para 14 of the judgment in the following terms: "We accordingly hold that whatever else may or may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd proposition laid down in the judgment of the Court was that "purchases in the State by the exporter for the purposes of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption". If therefore the relevant words in clause(2) are interpreted on grounds of analogy, according to the majority decision, the purchases by a dealer with a view to selling outside the State would not be covered by clause (2) on which Mr. Ghose has relied. Since both the learned counsel relied on these decisions and cited no others, in which the meaning or the import of the words "in the course of inter-State trade or commerce" in clause (2) came into question, the contention of Mr. Ghose cannot prevail. They do not lend any support to it. Their Lordships of the Supreme Court followed the two decisions referred to above, State of Travancore-Cochin v. Bombay Co. Ltd. [1952] 3 S.T.C. 434; A.I.R. 1952 S.C. 366. and State of Travancore-Cochin and Others v. Shanmugha Vilas Cashew-nut Factory[1953] 4 S.T.C. 205; A.I.R. 1953 S.C. 333. in State of Madras v. Gurviah Naidu and Co. Ltd. [1955] 6 S.T.C. 717; A.I.R. 1956 S.C. 158. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even there the sale is made when some prospective buyer is willing to purchase it after seeing the sample. The two transactions have absolutely no connection. It cannot be said that when the petitioner purchases, the purchase is in the course of an inter-State transaction. The mere fact that the petitioner purchases tea for resale in Calcutta does not bring him within the exemption in the view that their Lordships of the Supreme Court have taken of the meaning of the expression "in the course of". The emphasis of the view was that a sale in the course of export out of the country should be understood as meaning a sale taking place not only during the activities directed to the end of export of the goods out of the country but also as part of or connected with such activities. It is the second part of the requirement that is lacking in this case. The purchase transactions of the petitioner cannot be regarded as part of or connected with such activities. There is no connection between the two. The contention that the impugned provisions authorising as they do, by necessary implication, the imposition of tax on purchases of tea by the petitioner for resale at Calcutta are hit by Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge him tax which he is liable to pay under section 15(1)(b) of the Assam Sales Tax Act. If he pays the tax he is placed in a disadvantageous position qua the producer who exports the bulk of his tea to Calcutta and sells there. But the petitioner cannot claim any right, much less fundamental, to be placed on a level with his own producer or manufacturer. Even if he does not pay sales tax, the producer or the manufacturer would be in a somewhat advantageous position in the Calcutta market. The petitioner being an intermediary may have to pay tax, if a tax can be validly imposed. As observed by Bhagwati, J., in Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 S.T.C. 446; 1955 S.C. 661. : "When the transaction is one on which a tax on sale or purchase can be levied, it does not necessarily mean that only a sales tax can be levied and not a purchase tax. The inside dealer may therefore be taxed on his purchases or if he sells in retail to actual consumers in the State he may be taxed on the sales." There is no prohibition against purchases of the petitioner being taxed if the case does fall under Article 286(1) or Article 286(2) and indirect taxation of purchases for sale in Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no room for doubt that turnover from sales in the course of inter-State trade also is meant to be included in gross turnover. Effect to the general exemption allowed in section 3(2) is not given here. This interpretation of section 14 is supported by the provisions contained in section 15 which exempts turnover from sales of a specified kind which may be deducted from the gross turnover when ascertaining the net turnover on which a dealer is assessed to tax. Section 15 provides the mode for determining the net turnover. The provisions is as follows: "The net turnover shall be determined by deducting from a dealer's gross turnover during any given period- (1) his turnover during that period on- (a) the sale of goods exempted under section 6 and section 7; (b) Sale to a registered dealer of- (i) goods specified in the purchasing dealer's certificate of registration as being intended by him for- (a) resale in the State, (b) use in the manufacture or production of any goods, the sale of which is taxable under this Act, or (c) use in the execution of any contract. (ii) containers and other materials for the packing of such goods; and (c) such other sales as may be prescribed." Whilst t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstract principle which is embodied in the Constitution. In determining the taxable turnover effect is not given to the principle stated so clearly. The constitutional validity of section 15 thus remains open to objection. So far I assumed that the provisions in section 3(2) on which the learned Advocate-General has relied cover dealers of both the categories dealt with in the section. This assumption was for purposes of examining the contention of the learned Advocate. The assumption is not justified by the language of sub-sections(2) of section 3. As would appear from the terms of the sub-section, it qualifies a dealer's liability to tax under sub-section (1) only. Its requirement is that nothing in sub-section (1) shall, except in cases covered by the proviso to subsection (12) of section 2, be deemed to render any dealer liable to tax where the sale takes place outside the State of Assam, in the course of import of goods into or the export of goods out of the territory of India or in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide. The exemption is limited thus in its scope to cases of liability falling under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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