Poppatlal Shah Vs. The State of Madras
 INSC 27 (30 March 1953)
BHAGWATI, NATWARLAL H.
SASTRI, M. PATANJALI (CJ) BOSE, VIVIAN HASAN,
CITATION: 1953 AIR 274 1953 SCR 677
CITATOR INFO :
R 1955 SC 661 (93,147) RF 1958 SC 452 (14,26)
RF 1958 SC 468 (6,14,17) R 1958 SC 560 (14,32) R 1959 SC 887 (16) RF 1961 SC
347 (20) RF 1961 SC1065 (4) R 1963 SC1207 (42,50) R 1965 SC 161 (8) RF 1966 SC
376 (5) F 1985 SC1034 (15) R 1988 SC2031 (9)
Madras Sales Tax Act (IX of 1939), Ss. 2, 8
(before amendment of 1947)-" Sale within the province", meaning ofLevy
of tax on sales where property in the goods passed outside the
province-Legality-Provincial LegislatureTerritorial jurisdiction.
Under the Madras Sales Tax Act, 1939, as it
stood before it was amended by the Madras Act XXV of 1947,the mere fact that
the contract of sale was entered into within the Province of 88 678 Madras did
not make a transaction which was completed in another province where the
property in the goods passed, a sale within the Province of Madras and no tax
could be legally levied upon such a transaction under the provisions of the
Though a Provincial Legislature could not
pass a taxation statute which would be binding on any other part of India it was quite competent for a province to enact a legislation imposing taxes on
transactions concluded outside the province provided there was a sufficient and
real territorial nexus between such transactions and the taxing province.
The title and preamble, whatever their value
might be as aids to the construction of a statute, undoubtedly throw light on
the intention and design of the Legislature and indicate the scope and purpose
of the legislation itself.
It is a settled rule of construction that to
ascertain the legislative intent all the constituent parts of a statute are to
be taken together and each word phrase or sentence is to be considered in the
light of the general purpose and object of the statute.
Judgment of the Madras High court reversed.
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeal No. 92 of 1952.
Appeal under articles 132(1) and 134(1) (c)
of the Constitution of India from the Judgment and Order dated the 29th August,
1952, of the High Court of Judicature At Madras (Rajamannar C.J. and
Venkatarama Ayyar J.) in Criminal Appeal No. 129 of 1952 arising out of
the-order dated the 25th February, 1952, of the Court of the VII Presidency
Magistrate, Egmore, Madras, in C. T. No. 1358 of the Calendar for 1950.
B. Somayya (C. B. Pattabhi Baman, with him)
V. K. T. Chari, AdvocateGeneral of Madras (V.
V. Rahavan and Alladi Kuppuswami with him) for the respondent.
M. C. Setalvad, Attorney-General for India
(G. N. Joshi and P. A. Mehta, with him) for the Union of India.
B. K. P. Sinha for the State of Bihar.
S. M. Sikri, Advocate-General of Punjab (M.
L, Sethi, with him) for the State of Punjab.
679 A. R. Somanatha Iyer, Advocate-General of
Mysore (R. Ganapathy lyer, with him) for the State of, Mysore.
K. B. Asthana for the State of Uttar Pradesh.
T. N. Subramanya Iyer, Advocate-General of
TravancoreCochin (M. B. Krishna Pillai and Balakrishna Iyer, with him) for the
State of Travancore Cochin.
V. N. Sethi for the State of Madhya Pradesh.
Hajarnavis for Husain Kasam Dada (India) Ltd.
(Intervener No. 8).
1953. March 30. The Judgment of the Court was
delivered by MUKHERJEA J.-This appeal, which has come before us on a
certificate granted by the Madras High Court under articles 134(1) (e) and 132(1)
of the Constitution, is directed against an appellate judgment of a Division
Bench of the High Court of Madras, passed in Criminal Appeal No. 129 of 1952,
by which the learned Judges affirmed an order of the Seventh Presidency
Magistrate, Madras, dated February 25, 1952, convicting the appellant of an
offence punishable under section 15 of the Madras General Sales Tax Act and
sentencing him to pay a fine of Rs. 1,000; in default to suffer imprisonment
for a period of 3 months.
The appellant is a partner of a firm of
merchants called Indo-Malayan Trading Company" which has its head office
in the city of Madras and carries on the business of selling and purchasing
groundnut oil, sago and kirana articles. For the period-April 1, 1947, to
December 31, 1947-the company was assessed to sales tax under the Madras Act IX
of 1939 for an amount of Rs. 37,771 annas odd on a total turnover of Rs.
37,75,257 and for failure to pay the same were instituted against him under the
provision of section 15 of the Act which resulted in his conviction as
The course of business, which is usually
followed by the company 680 and which was actually followed during the period
for which assessment is made, is as follows: The company receives orders-in its
Madras office from' Calcutta merchants for supply of certain articles. These
articles are purchased in the local markets and they are despatched to Calcutta
by rail or steamer. The railway receipts and bills of lading are taken in the
name of the vendor company and so also are the insurance policies, and they are
sent to the company's bankers in Calcutta who deliver the same to the
consignees on payment of prices and other charges. The sole point that requires
consideration is, whether in these circumstances the sale transactions were
liable to be taxed under the General Sales Tax Act of Madras? Before the High
Court both the parties seem to have accepted the position that if on the facts
stated above, which were not disputed by either side, the sales could be hold
to have taken place within the Province of Madras, the tax could legitimately
be levied on them but not otherwise.
The parties differed, however? as regards the
test to. be applied, in determining whether the sales did take place within the
Province of Madras or not. On behalf of the appellant the contention raised was
that the place of sale in regard to all the transactions was Calcutta, as the
property in the goods sold admittedly passed to the purchasers in that city.
The contention of the respondent State on the other hand was that the true test
for determining the locality of the sale was not where the property in the
goods sold passed, but where the actual transaction was put through. As the
company had its head office in the city of Madras, its accounts were maintained
there and the goods were delivered to the common carrier in that city, the
sale, according to the respondent, must be deemed to have taken place in Madras
even though the property in the goods sold passed outside the province.
The High Court accepted this contention of
the respondent State. In the opinion of the learned 681 Judges, the word
"sale" has both a legal and a popular meaning. In the legal sense, it
imports passing of property in the goods and it is in this sense that the word
is used in the Sale of Goods Act. 'In the popular sense, however, it signifies
the transaction itself which results in the passing of property. As the object
of the Legislature in the Sales Tax Act is to impose a tax on the occasion of
the sale, it is immaterial that the sale has been completed outside the
province. The place where the property passes is, it is said, a matter of no
concern to the taxing authority and in such context the popular meaning of the
word is more appropriate and should be adopted. The further contention raised
on behalf of the appellant, that if this view was accepted, the sales tax would
have to be regarded as being extra-territorial, in its operation and as such
ultra vires the Provincial Legislature, was repelled by the High Court on the
authority of the well known decision of the Judicial Committee in Wallace
Brothers etc., & Company v. Commissioner of Income-tax, Bombay(1).
It is the propriety of this decision that has
been challenged before us and the contentions raised by Mr. Somayya, who
appeared in support of the appeal, are of a two-fold character : The learned
counsel has argued in the first place that the Provincial Legislature
functioning under the Government of India Act, 1935, was constitutionally
incompetent to enact a legislation of this character which according to the
interpretation put upon it by the High Court is capable of operating on sale
transactions concluded outside the province. The other contention is that on a
proper construction of the relevant provisions of the Madras Sales Tax Act the
High Court ought to have held that they do not authorise the imposition of sale
tax in respect of a transaction of sale where property in the goods sold passes
outside the province.
The first contention appears to us to be
Section 100 (3) of the Government of India
(1) (1948] F.C.R. I (P.C.).
682 Act, 1935, upon which Mr.Somayya relied
and which corresponds to article246(3) of the Constitution runs as follows :
``Subject to the two preceding sub-sections,
the Provincial Legislature has and the Federal Legislature has not, power to
make laws for a province or any part thereof with respect to any of the matters
enumerated in List II in the Second Schedule." The entry in the Provincial
List that is relevant for our purpose is Entry No. 48 and that speaks of "
taxes on the sale of goods and on advertisements." The entry does not
suggest that a legislation imposing tax on sale of goods can be made only in
respect of sales taking place within the boundaries of the province ; and all
that section 100(3) provides is that a law could be passed by a Provincial
Legislature for purposes of the province itself. It admits of no dispute that a
Provincial Legislature could not pass a taxation statute which would be binding
on any other part of India outside the limits of the province, but it would be
quite competent to enact a legislation imposing taxes on transactions concluded
outside the province, provided that there was sufficient and a real territorial
nexus between such transactions and the taxing province. This principle, which
is based upon the decision of the Judicial Committee in Wallace Brothers etc.
& Company v. Commissioner of Income-tax, Bombay(1) has been held by this
court to be applicable to sale tax legislation, in its recent decision in the
Bombay Sales Tax Act case (2) and its propriety is beyond question. As a matter
of fact, the legislative practice in regard to sale tax laws adopted by the
Provincial Legislatures prior to the coming into force of the Constitution has
been to authorise imposition of taxes on sales and purchases which were related
in some manner with the taxing province by reason of some of the ingredients of
the transaction having taken place within the province or by (1)  F.C.R.
(2) The State of Bombay d Another v. United
Motors (India) Ltd. & Others-Civil Appeal NO. 204 Of 1952.
683 reason of the production or location of
goods within it at the time when the transaction took place. If in the Madras
Sales Tax Act the basis adopted for taxation is the location of the place of
business or of the goods sold, within the Province of Madras, undoubtedly it
would be a valid piece of legislation to which no objection on constitutional
grounds could be taken. The controversy, therefore, narrows down to the short
point as to what exactly has been adopted as the basis of the levy of sale tax
by the Madras Legislature.
This leads us to the question of
interpretation of the statute which is involved in the second point raised by
It is a settled rule of construction that to
ascertain the legislative intent, all the constituent parts of a statute are to
be taken together and each word, phrase or sentence is to be considered in the
light of the general purpose and object of the Act itself. The title of the
Madras Sales Tax Act describes it to be an Act, the object of which is to
provide for the levy of a general tax on the sale of goods in the Province of
Madras and the very same words are repeated in the preamble which follows. The
title and preamble, whatever their value might be as aids to the construction
of a statute, undoubtedly throw light on the intent and design of the
Legislature and indicate the scope and purpose of the legislation itself. The
title and preamble of the Madras Sales Tax Act clearly show that its object is
to impose taxes on sales that take place within the province, though these
words do not necessarily mean that the property in the goods sold must pass
within the province. The expression "sale of goods " is a composite
expression consisting of various ingredients or elements.
Thus, there are the elements of a bargain or
contract of sale, the payment or promise of payment of price, the delivery of
goods and the actual passing of title, and each one of them is essential to a
transaction of sale though the sale is not completed or concluded unless the
purchaser becomes the owner of the property. The question is-what element or
elements have been accepted 684 by the Madras Legislature as constituting a
sale in the province upon which it is the object of the statute to levy tax.
Section 2(h) gives the definition 'of "sale" and it is defined as
meaning, every, transfer of the property in goods by one person to another in
the course of trade or business for cash or for deferred payment or other
valuable consideration, but does not include a mortgage, hypothecation, charge
or pledge." Unmistakably the stress is laid in this definition on the
element of transfer of property in a sale and no other. The language gives no
indication of the popular meaning of sale in which according to the High Court,
the word was used. It is to be noticed that there was no provision by way of
explanation of this definition, in operation, at the material time to indicate
in what cases a sale would be regarded as taking place within the Province of
Madras, although the property in the goods sold did pass outside the boundaries
of the province. Such explanations were added by the Madras Act XXV of 1947 and
one of these explanations, namely explanation 2, provides as follows :
" Notwithstanding anything to the
contrary in the Indian Sale of Goods Act, 1930, the sale or purchase of any
goods shall be deemed, for the purposes of this Act, to have taken place in
this Province, wherever the contract of sale or purchase might have been made(a)
if the goods were actually in this Province, at the time when the contract of
sale or purchase in respect thereof was made, or (b) in case the contract was
for the sale or purchase of future goods by description, then, if the goods are
actually produced in this Province at any time after the contract of sale or
purchase in respect thereof was made." It would be clear from this that
these transactions were not considered by the Legislature to constitute sales
within the Province of Madras under the definition itself, but by resort to a
legal fiction they were 685 declared to be so, notwithstanding any provision in
the Sale of Goods Act to the contrary which it was assumed, would otherwise be
applicable,. The explanation further shows that in defining "sale" in
section 2(h), the Legislature had in mind a sale in the Province of Madras and
as these words occur in the title and preamble of the Act it was not deemed
necessary to repeat them in the definition or the charging sections. Section 3
is the charging section in the Act and it provides for the levy of a tax on the
total turnover of a dealer for a particular year. A "turnover" is
defined to be the aggregate amount for which goods are either bought or sold.
The charging section purports to levy a tax on the sale of goods and the tax is
on the sale of goods in the Province of Madras as defined in section 2(h) of
the Act read in the light of its title and preamble.
In our opinion, the mere fact that the
contract for sale was entered into within the Province of Madras does not make
the transaction, which was completed admittedly within another province, where
the property in the goods passed, a sale within the Province of Madras
according to the provisions of the Madras Sales Tax Act and no tax could be
levied upon such a transaction under the provisions of the Act. A contract of
sale becomes a sale under the Sale of Goods Act only when the property in the
goods is transferred to the buyer under the terms of the contract itself. The
presence of the goods within the province at the time of the contract would
undoubtedly make the sale, if subsequently completed, a sale within the
province by reason of the explanation added by Act XXV of 1947 ; but as this
explanation was not in operation during the relevant period with which we are
concerned, the assessment of sale tax, in our opinion, on the transactions
during this period is illegal and not warranted by the provisions of the Act.
It is worthwhile to mention in this connection that except for the period in
question no tax was attempted to be levied on similar transactions of the
appellant by the taxing authorities in any of the 89 686 previous years, though
the Act came into operation as early as the year 1939. It is not disputed also
that the company is paying sale tax on its transactions with the Calcutta merchants since the explanation added by Act XXV of 1947 came into force. 'In our
opinion, the appeal should be allowed and the conviction and sentence passed by
the courts below should be set aside. The fine and sale tax, if actually paid,
should be refunded to the appellant.
Agent for the appellant: M. S. K. Aiyangar.
Agent for the respondent (the State of Madras),
the Union of India, and the States of Punjab, Mysore, Madhya Pradesh and
Travancore Cochin (Interveners):
G. H. Rajadhyaksha.
Agent for the State of Bihar: B. C. Prasad.
Agent for the State of U. P. C. P. Lal.
Agent for Intervener No. 8: Bajinder Narain.