Endupuri Narasimham and Son Vs. The
State of Orissa & Ors  INSC 93 (14 March 1961)
AIYYAR, T.L. VENKATARAMA DAS, S.K.
CITATION: 1961 AIR 1344 1962 SCR (1) 314
CITATOR INFO :
APL 1962 SC 107 (5) R 1963 SC 980 (11,12) RF
1971 SC 477 (7)
Sales Tax-Transactions ultra--State and
inter-State--Test-Constitution of India, Art. 286(2)--Orissa Sales Tax Act,
1947 (XIV of 1947), S. 5(2)(a)(II).
The petitioner who was a,-registered dealer
under the Orissa Sales Tax Act, 1947, was carrying on the business of
purchasing and reselling castor seeds, etc., in the State of Orissa. Under a
declaration given by him for the purpose of obtaining his registration certificate
the goods purchased by him in Orissa were to be resold in that State. He
purchased certain commodities inside the State but in contravention of his
declaration sold, the goods to dealers outside the State. The Sales Tax Officer
included in the taxable turnover of the petitioner the purchase made by him
inside the State in accordance with s. 5(2)(a)(II) of the Act. The contention
of the petitioner was that the purchase was in course of inter-State trade and
was exempted under Art. 286(2) of the Constitution of India.
Held, that the transaction of sale which has
been taxed was wholly inside the State of Orissa and was distinct and separate
from the sale made by the purchaser to dealers outside the State. The former
transaction was taxable under s. 5(2)(a)(II) of the Act while the latter was
exempted under Art. 286(2) of the Constitution.
Messrs. Mohanlal Hargovind Das v. The State
of Madhya Pradesh,  2 S.C.R. 509, distinguished.
In order that a sale or purchase might be
inter-State, it is essential that there must be transport of goods from one
State 315 to another under the contract of sale or purchase. A purchase made
inside a State, for sale outside the State cannot itself be held to be in the
course of inter-State trade and the imposition of tax thereon is not repugnant
to Art. 286(2) of the Constitution.
Bengal Immunity Company Limited v. The State
of Bihar,  2 S.C.R. 603 and State of Travancore-Cochin v.
Shanmugha Vilas Cashew Nut Factory, 
S.C.R. 53, followed.
ORIGINAL JURISDICTION: Petition No. 12 of
Petition under Art. 32 'of the Constitution
of India for enforcement of fundamental rights.
R.Gopalakrishnan, S. N. Andley, J. B.
Dadachanji, Rameshwar Nath and P. L. Vohra, for the petitioners.
C.K. Daphtary, Solicitor-General of India, B.
Ganapathy Iyer and T. M. Sen, for the respondents.
1961. March 14. The Judgment of the Court was
delivered by VENKATARAMA AIYAR, J. -The petitioner is a joint Hindu family firm
carrying on business at Berhampur in the State of Orissa, and registered as a
dealer under the provisions of the Orissa Sales Tax Act, 1947, hereinafter
referred to as the Act. Its business consists in the purchase of castor seeds,
turmeric, gingili and other commodities locally, and selling them to demlers
outside the State. The Sales Tax Officer, Berhampur, included in the taxable
turnover of the petitioner the purchase of goods made by it inside the State
but sold, as aforesaid, to dealers outside the State and imposed a tax of Rs.
27,161-13-0 on account of such sales during the sixteen quarters commencing
from April 1, 1952, and ending with March 31, 1956. In the present application
filed under Art. 32, the petitioner challenges the validity of the tax on the
ground that the purchases in question were made in the course of inter-State
trade, and that a tax thereon was in contravention of Art. 286(2) The impugned
tax has be-en levied under s. 5 of the Act, which, omitting what is not
relevant, runs as follows:
5. (1) The tax payable by a dealer under this
316 Act shall be levied at the rate of one quarter of an anna in the rupee on
his taxable turnover:
(2) In, this Act the expression "taxable
turnover" means that part of a dealer's gross turnover during any period
which remains after deducting there-from:
(a) his turnover during that period on................................
(ii) sales to a registered dealer of goods
specified in the purchasing dealer's certificate of registration as being
intended for resale by him in Orissa or for use by him in the execution of any
contract in Orissa, and on sales to a registered dealer of containers or other
materials for the packing of such goods:
Provided that when such goods are used by the
registered dealer for purposes other than those specified in his certificate of
registration the price of goods so utilised shall be included in his taxable
It will be seen that under this section when
a sale takes place, the seller has to include it in his taxable turnover;
but when the sale is to a registered dealer
who declares that his purchases are for resale in Orissa, then it is excluded
from the seller's turn. over. If the registered dealer-purchaser sells the
goods outside the State in breach of the condition, the purchases by him are
liable to be included in his turnover, and assessed to sales tax. That
precisely is what has happened in this case. The sales to the petitioner were
not included in the taxable turnover of the sellers by reason of the
registration certificate which the petitioner had obtained on a declaration
that the goods were to be resold in 'Orissa. But in violation of this
declaration he sold the goods to dealers outside the State, and so he became
liable to be taxed under s. 5(2)(a)(ii) of the Act.
The contention of the petitioner is that
these purchases were made in the course of inter-State trade, and that the
imposition of sales tax thereon is, in 317 consequence, ultra vires The
provision applicable is Art.
286(2), as it stood prior to the sixth
amendment, and it ran as follows:
"Except in so far as, Parliament 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." The
argument on behalf of the petitioner is that as the goods were purchased for
the purpose of being sold to dealers outside the State, and they were in fact
so sold, the purchases were in the course of inter-State trade, and the levy of
tax thereon was within the prohibition enacted by Art. 286(2). We do not agree
with this contention. The transactions of sales which have been taxed were
wholly inside the State of Orissa. They were sales by persons in the State of
Orissa to persons within the State of Orissa, of goods which were in Orissa.
The fact that the purchaser sold those very goods to dealers outside the State
is not relevant, as those sales are distinct and separate from the sales on
which the taxes in question have been imposed. The present levy is not on the
sales by the petitioner to persons outside the State, but on the purchases by
him inside the State. The former sales are in the course of inter-State trade,
and are not taxable under Art. 286(2), but the latter are purely intrastate
sales, and a tax imposed thereon does not offend Art. 286(2).
In support of his, contention that the
purchases are hit by Art 286(2), the petitioner relies on the, decision of this
Court in Messrs. Mohanlal Hargovind Das V. The State of Madhya Pradesh (1). In
that case, the petitioners who were registered dealers under the Central
Provinces and Berar Sales Tax Act, 1947, were carrying on business in the
manufacture and sale of bidis in Madhya Pradesh. For the purpose of their
business, they imported processed tobacco from the State of Bombay in large
quantities, rolled them into bid is and sold them to dealers in other States.
(1)  2 S.C.R 509.
318 The sales tax authorities imposed a tax
on the purchases made by them, on the ground that they had, in breach of the
declaration in the registration certificate, sold them to merchants outside
Madhya Pradesh. The contention of the petitioners was that the purchases by
them were in the course of inter-State trade, and that the imposition of tax
thereon was therefore repugnant to Art. 286(2). It was this contention that was
accepted by this Court. It will be noticed that the in this case the assessment
of sales tax was on very purchases from dealers in Bombay, under which the
goods were transported from the State of Bombay to Madhya Pradesh. In the
present case, the purchases which are sought to be assessed involved no
movement of the goods outside the State of Orissa. In order that a sale or
purchase might be inter-State, it is essential that there must be transport of
goods from one State to another under the contract of sale or purchase. In the
Bengal Immunity Company Limited v. The State of Bihar (1) occur the following
observations which are apposite:
"A sale could be said to be in the course
of interstate trade only if two conditions concur: (1) A sale of goods and (2)
a transport of those goods from one State to another under the contract of
sale. Unless both those conditions are satisfied, there can be no sale in--the
course of interstate trade." With reference to the analogous provision
286(1)(b) prohibiting the imposition of tax
on the sale or purchase of goods in the course of import or export, it has been
field by this Court that it is only a sale or purchase which occasions the
export or import of the goods out of or into the territory of India or a sale
in the State by the exporter or importer by transfer of shipping documents,
while the, goods are beyond the customs barrier, that is within the exemption,
and that a sale which precedes such export or import or follows it is not
exempted, vide State of Travancore. Cochin v. Shannugha Vilas Cashew Nut
Factory (2). On the same principles, a purchase, made inside a State, for sale
outside the State cannot itself be held (1)  2 S.C.R. 603. 784-785.
(2)  S.C.R. 53.
319 to be in the course of inter-State trade,
and the imposition of a tax thereon is not repugnant to Art. 286(2) of the
Constitution. In the result this petition is dismissed with costs.