Indian Copper Corporation Ltd. Vs. The
State of Bihar & Ors [1960] INSC 190 (7 November 1960)
AYYANGAR, N. RAJAGOPALA DAS, S.K.
HIDAYATULLAH, M.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1961 AIR 347 1961 SCR (2) 276
CITATOR INFO :
F 1964 SC 569 (9) F 1965 SC 161 (3,4,5) RF
1966 SC 376 (6) APL 1970 SC 306 (2,8,9)
ACT:
Sales Tax--" Explanation Sales
"--Sale in one State but delivery outside--Consumption not in State of
first destination--Whether "outside" sale--Constitution of India Art.
286(1)(a)--Bihar Sales Tax Act, 1947 (Bihar XIX of 1947), ss. 2(g) and 33.
HEADNOTE:
The appellant effected sales during the
period 26-1-1950 to 31-3-1950, where under the property in the goods passed in
the State of Bihar but delivery was effected outside Bihar for consumption
outside Bihar. In some of these sales the goods were delivered in the State of
first destination for consumption therein whilst in other cases the goods were
not for consumption in the State of first delivery of destination. The
appellant contended that both these categories of sale were exempt from tax
under Art. 286(1)(a) as they were outside sales.
Held (per Hidayatullah, Das Gupta and
Rajagopala Ayyangar, JJ.) that the sales where delivery in the State of first destination
was for consumption therein, were outside the State of Bihar within the
Explanation to Art. 286(1)(a) and Bihar could not tax them, but the sales where
delivery in the State of first destination was not for consumption therein were
not " Explanation Sales " and were not " outside " sales
and Bihar could tax them. Where the property in the goods passed within the
State as a direct result of the sale the sale was not an " outside "
sale for the purpose of Art. 286(1)(a) unless it fell within the Explanation.
In the first category of sales the appellant was entitled to the. exemption and
it was not necessary for it to prove that the goods delivered for consumption
in the State of first destination were actually consumed therein.
The State of Bombay v. United Motors (India)
Ltd., [1953] S.C.R. 1060 and Bengal Immunity Company Ltd. v. The State of
Bihar, [1955] 2 S.C.R. 603, referred to.
Burmah Shell Oil Storage & Distributing
Co. of India Ltd. v. The Commercial Tax Officer, C. A. No. 751 of 57 and C. A. No.
10 of 1958 (Unreported), relied on.
Per S. K. Das and Shah, Jj.--Section 33
introduced in the Bihar Sales Tax Act by the Adaptation of Laws Order, 1951,
engrafted the same restrictions on the taxing power of the State on the
pre-Constitution statutes as were imposed by Art. 286 upon post-Constitution
statutes. Section 33(1)(a)(1) of the Act took away only the power to tax "
Explanation Sales " but not the power to tax " non- Explanation Sales
". A sale in which goods had been delivered outside Bihar, but not as a
direct result of 277 the sale or not for the purpose of consumption in the
State of first delivery was not covered by the Explanation, and the right to
tax the sale, if it arose otherwise under the Act, was not impaired by S.
33(1)(a)(i).
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 210 of 1959.
Appeal by special leave from the judgment and
order dated January 16, 1958, of the Patna High Court in Mis. Judicial case No.
156 of 1957.
B. C. Ghose and P. K. Chatterjee, for the
Appellant.
S. P. Varma, for Respondents Nos. 1 to 5.
R. C. Dutta, for Respondents Nos. 6 to 20.
1960. November 7. The Judgment of
Hidayatullah, Das Gupta and Ayyangar, JJ., was delivered by Ayyangar, J., and
that of S. K. Das and Shah, JJ., was delivered by Shah, J.
AYYANGAR. J.-The sole question which arises
in this appeal, which comes by way of special leave is as to whether sales
under which goods were delivered outside the State of Bihar for the purpose of
consumption but not within the State of first delivery or first destination,
are exempt from the levy of sales-tax by the Bihar State by virtue of Art.
286(1)(a) of the Constitution as it stood
before the recent amendment.
The India Copper Corporation Ltd. (referred
to hereafter as the assessee-company) carries on business in copper and various
other materials and mineral pro. ducts and the office of its General Manager is
in the district of Singhbhum in Bihar. The period covered by the assessment now
in dispute is January 26, 1950 to March 31, 1950. The normal practice of the
assessee-company was to deposit sums of money from time to time provisionally
towards payment of sales-tax in advance and have the amount finally adjusted
after the completion of the assessment of each year. The assessee-company followed
this practice in respect of the amount of sales-tax due by it for the year
1949-50. For the financial year April 1, 1949 to March 31, 1950, the
Superintendent of Sales-tax, Singhbhum, 278 computed the tax liability of the
company in the sum of Rs.
3,60,703-4-0 by an order of assessment dated
November 13,1950, and the company made payment of the amount due by it beyond
the sums already paid. It would be noticed that this financial year comprised
two periods-(1) before the Constitution, viz., April 1, 1949 to January 25,
1950, and (2) the post-Constitution period from January 26, 1950 to March 31,
1950. There is now no controversy as regards the sales-tax payable in respect
of sales effected during the pre-Constitution period. The assessee-company
however raised a dispute that in respect of the post-Constitution period, it
was not liable to pay any sales-tax in respect of sales to buyers, under which
though the property in the goods passed within the State, delivery of the goods
was effected outside the State of Bihar for consumption outside that State on
the ground that such sales were exempted from tax by Art. 286(1)(a) of the
Constitution as it originally stood. It addressed a formal letter to the
Commissioner of Commercial Taxes, Bihar, on December 30, 1952, making this
demand enclosing a statement showing full particulars of the goods sold, the
bill numbers, the date and the amount etc., to enable the refund claimed to be
calculated. The assessee-company followed it up by a formal petition for review
of the assessment order by filing a revised return under s. 12(2) of the Bihar
Sales-tax Act together with an application for refund. The departmental
authorities rejected these applications by order dated July 20, 1953.
Further proceedings before the department by
way of revision etc. failed to secure to the assessee-company the relief which
it claimed and thereafter it filed an application under Arts. 226 and 227 of
the Constitution before the High Court of Patna praying for the issue of a writ
to quash the order of assessment dated November 30, 1950, and the orders
rejecting the prayers for review, reassessment and refund and for a direction
to the departmental authorities to refund the sum realised by them in so far as
the tax related to sales as a result of which goods were delivered outside the
State of Bihar.
279 The learned Judges of the High Court held
that the order of the Superintendent of Sales-tax, Singhbhum, dated November
13, 1950, should be set aside and that the matter should go back to the Superintendent
to make a reassessment according to law for the post Constitution period. A
further direction was added requiring the respondent to refund to the assessee
so much of the tax as had been paid in excess of the amount of reassessment to
be made by the Superinten- dent in accordance with the law as laid down by the
Court.
In formulating the law applicable, the
learned Judges drew a distinction between sales as a direct result of which
goods were delivered in a State outside the State of Bihar and consumed in that
State and those cases in which the goods thus delivered, were not consumed in
the State of first destination but were re-exported from the State of first
destination to other States. They held that the first category of sales were
covered by the Explanation to Art.
286 (1)(a) of the Constitution and were
" inside " the State of first delivery and consequently "
outside " the State of Bihar within the meaning of the Article and
therefore exempt from tax by the Bihar State. In regard, however, to the second
category of sales, it was held that they were not within the Explanation and
were therefore outside the constitutional exemption under Art. 286(1)(a).
The assessee-company not being satisfied,
filed an application to the High Court for a Certificate of fitness under Arts.
132 and 133 of the Constitution, but this having been rejected, they applied to
and obtained special leave from this Court under Art. 136 of the Constitution
and that is how the appeal is now before us.
Three points were urged before us by Mr. B.
C. Ghose, learned Counsel for the appellants: (1) that on a proper construction
of Art. 286(1)(a) and the Explanation thereto (as it stood before the Article
was amended by the Constitution Sixth Amendment Act, 1956) every sale as a
direct result of which goods were delivered for consumption outside the State,
was not within the taxing power of the State in which the 280 goods were at the
time of the sale, and ,in which property passed as a result thereof, and that
it was immaterial whether the delivery was for the purpose of consumption in
the State of first destination or whether the delivery in such State was not
for the purpose of consumption therein but, for re-export to other States, (2)
that even if Art.
286(1)(a) exempted only sales in which as a
direct result of the sale the goods were delivered for the purpose of
consumption in the State of first destination, on the pleadings and the
evidence before the Court the assessee- company must be taken to have
established that all the sales effected by it and in regard to which exemption
from payment of tax was claimed, conformed to this requirement, (3) a narrower
submission, that even it be that to fall within the Explanation the delivery
has to be for the Purpose of consumption in the State of first destination, the
learned Judges of the High Court erred in requiring the assessee- company to
prove not merely that the goods were delivered for the purpose of consumption
but further that the goods so delivered were actually consumed within that
State.
We shall now deal with these points in that
order. Article 286(1)(a) together with the Explanation on whose construction
the first point depends ran in these terms:
" Article 286(1). 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- (a) outside the State; or
(b)...............................................................
Explanation.-For the purposes of sub-clause
(a) a sale or purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State, notwithstanding the fact
that under the general law relating to sale of goods the property in the goods
has by reason of such sale or purchase passed in another State." The scope
and the purpose of this Explanation was 281 discussed and explained by this
Court in The State of Bombay v. Unitea Motors (India) Ltd. (1) and it is the
passage in this judgment extracted below on which reliance was placed by the
learned Counsel in support of his submission:
".............. The authors of the
Constitution had to devise a formula of restrictions to be imposed on the
State- power of taxing sales or purchases involving inter-State elements which
would avoid the doubts and difficulties arising out of the imposition of
sales-tax on the same transaction by several Provincial Legislatures in the
country before the commencement of the Constitution. This they did by enacting
clause (1) (a) with the Explanation and clause (2) of Article 286. Clause
(1)(a) prohibits the taxation of all sales or purchases which take place
outside the State but a localised sale is a troublesome concept, for, a sale is
a composite transaction involving as it does several elements such as agreement
to sell, transfer of ownership, payment of the price, delivery of the goods and
so forth, which may take place at different places. ............ To solve the
difficulty an easily applicable test for determining what is an outside sale
had to be formulated, and that is what, in our opinion, the Explanation was
intended to do. It provides by means of a legal fiction that the State in which
the goods sold or purchased are actually delivered for consumption therein is
the State in which the sale or purchase is to be considered to have taken
place, notwithstanding the property in such goods passed in another State
...... An " outside " sale or purchase is explained by defining what
is an inside sale, and why actual delivery and consumption in the State are
made the determining factors in locating a sale or purchase will presently
appear. The test of sufficient territorial nexus was thus replaced by a simpler
and more easily workable test: Are the goods actually delivered in the taxing
State, as a direct result of a sale or purchase, for the purpose of consumption
therein ? Then, such sale or purchase shall be deemed to have taken place (1)
[1953] S.C.R. 1069, 1081 36 282 in that State and outside all other States. The
latter States are prohibited from taxing the sale or purchase; the former alone
is left free to do go. Multiple taxation of the same transaction by different
States is also thus avoided." It might be mentioned that this portion of
the judgment is unaffected by the dissent expressed in the later decision in
The Bengal Immunity Company Ltd. v. The State of Bihar (1).
The argument based upon this passage was
broadly on these lines: Article 286 (1)(a) imposes a ban on the legislative
power to levy a tax on sales which are outside " the taxing State. What
sales are " outside is not easy to decide because that depends upon "
the situs " of a sale, which cannot, in most cases, be located in any one
place with certainty-being dependent on a variety of factors which might or
might not converge. The Constitution makers did not directly define what was
meant by a ,sale that was " outside the State " but achieved the same
purpose by explaining an " inside " sale with the result that what
was not an " inside " sale should be held to bean ,outside"
sale. It must however be pointed out that it was not disputed that the terms of
the " Explanation " would not be satisfied unless the delivery was
for the purpose of consumption therein, i.e. in the State of first destination,
If the terms of the Explanation were satisfied, the State of " delivery.
cum-consumption ", (to coin a convenient expression to designate the State
in which goods are delivered as a direct result of the sale for the purpose of
consumption therein), used in the Explanation, would have power to tax the sale
as being one fictionally " inside " it. In such an event all the
other States in India, barring that State would be prevented from taxing that
sale because the sale would be " outside " those States. This
however, it was urged, would not exhaust the operation of the Explanation, but
further that the Explanation was exhaustive of what the Constitution makers
conceived to be a sale which alone may be the subject of tax by a State. The
deduction learned Counsel made from these premises was twofold (1) that (1)
[1955] 2 S.C.R. 603.
283 in cases where goods were as a direct
result of the sale delivered outside the State of Bihar for the purpose of
consumption in the State of first destination, the conditions of the
Explanation were satisfied and the sales being " outside " the State
of Bihar could not be taxed by that State. So far there is no dispute and
indeed the learned Judges of the High Court have, subject to a matter of detail
to which reference will be made later, accepted the contention of the assessee.
(2) a further consequence, that in cases where goods were delivered as a result
of the sale outside the State of Bihar, but not for the purpose of consumption
in such State of first destination, the terms of the Explanation were no doubt
not satisfied and consequently the, sale was not inside such State of delivery
and indeed not " inside " any State in India within the Explanation,
but that such sales also must be held to be " outside " every State
in India within Art. 286 (1)(a).
The learned Judges of the High Court repelled
this contention and, in our opinion, correctly. The passage in the judgment of
the United Motors case extracted earlier dealt with Explanation sales and with
none else. When the terms of the Explanation were satisfied such sales were by
a fiction deemed to be " inside " the State of delivery-cum-
consumption and therefore " outside " all other States. In such cases
therefore, only the State " inside " which the sale is deemed to take
place by virtue of the Explanation, is exempt from the ban imposed by Art.
286(1)(a). All other States would be subject to that ban in respect of such
sales.
The learned Chief Justice however did not, in
the passage extracted, deal with the case of sales which did not satisfy the
terms of the Explanation. The situs of what might be termed 1 non-Explanation'
sales has therefore to be determined independently of the terms of the
Explanation.
Such sales would be exempt from tax only if
the sale took place " outside the State but not otherwise.
The next question is, does a sale take place
" outside " the State, where as a result of the contract of 284 sale,
the property in the goods passes to the purchaser within the State; in other
words, is a sale completed by the passing of property within the State not
" inside" a State, for the more reason that as a direct result of the
sale the goods are delivered outside the State. The answer depends on the
meaning to be attributed to the words " a sale or purchase which has taken
place " outside the State occurring in the body of Art. 286 (1). The
expression " outside the State " is capable of being understood in
more senses than one. It could be understood as comprehending cases where no
element or ingredient which constitutes a sale takes place within the State; in
other words as applying solely to those cases where there exists no territorial
nexus between the State imposing the tax and the sale. Obviously, this could
not have been intended to be incorporated in Art. 286(1) because the tax in
such cases would be beyond the legislative power of the State under Entry 54 of
the State List read with Art. 246 of the Constitution. The expression "
outside " has therefore to be understood not as a sale so " outside
" as not to have any territorial connection between the State in question
and the sale, but in a somewhat narrower sense. The real difficulty arises in
ascertaining the precise content of the narrower sense in which the word is used
as meaning a sale in substance " outside " the State, though there
might be some elements of the sale which if the exemption under Art.
286(1)(a) were not enacted, would enable a
State to levy a tax on the sale on the ground that it was within the legislative
power of the State under Art. 246 read with Entry 54.
As already pointed out, the situs of a sale
is not easy to determine and several factors which constitute a completed
transaction of sale including the delivery of the goods, lay claim to be considered
as in themselves constituting sufficient next to justify their being treated as
determining the locus of a sale. Thus, merely by way of illustration, the place
where the goods are at the time of the contract of sale, the place where the
contract of sale is concluded, the place where the property in the goods passes
and that 285 in which the delivery takes place compete for recognition as
constituting the locus of a sale. Before the Constitution, these and other
similar factors were treated as affording sufficient territorial connection to
endow the State in which any of the events occurred with legislative competence
to tax the sale. This led to a multiplicity of the taxation of the same
transaction of sale by a plurality of States, with the result that the consumer
was hard hit and trade itself, and national economy suffered in the process. It
has been pointed out that Art. 286(1)(a) was designed to counteract that state
of affairs.
If a single State was designed to have the
power to tax any particular transaction of sale, the question that next falls
to be considered is the determination of that State in regard to which it could
be predicted that the sale in question was not " outside " that State
or in other words, the determination of the particular State in regard to which
it could be said that the sale was " inside " that State.
The key to the problem is afforded by two
indications in the Article itself: (1) the opening words of Article 286(1)
which speak of a sale or purchase taking place and (2) the non-obstante clause
in the Explanation which refers to the general law relating to " sale of
goods under which property in the goods has, by reason of such sale or
purchase, passed in another State." These two together indicate that it is
the passing of property within the State that is intended to be fastened on,
for the purpose of determining, whether the sale in question is " inside
" or " outside " the State, and therefore, subject to the
operation of the " Explanation " that State in which property passes
would be the only State which would have the power to levy a tax on the sale.
As was explained in the recent decision of this Court in Burmah Shell Oil
Storage & Distributing Co., of India, Ltd. v. The Commercial Tax Officer
(1) :
" By sale here (Art. 286(1)(a) ) is
meant a completed transaction by which property in the goods passes. Before the
property in the goods passes, the contract (1) C.A. 751 of 1957 & C.A. 10
of 1958 (Unreported).
286 of sale is only executory, and the buyer
has only a chose in action................. The Constitution thinks in terms of
a completed sale by the passing of property and not in terms of an executory
contract for the sale of goods." Notwithstanding that is not an "
outside " sale, the power of the State to tax might be negatived by the
operation of the Explanation which by its non-obstante clause-shifts the situs
of the sale and renders the sale transaction one within the
delivery-cum-consumption State, i.e. as the State in which the sale transaction
must be deemed to take place.
Where the terms of the Explanation are
satisfied, the sale transaction will, by a legal fiction created by it, be
deemed to take place "inside" the State of delivery and therefore
" outside " the State in which the property passes. The conclusion
reached therefore is that where the property in the goods passes within a State
as a direct result of the sale, the sale transaction is not outside the State
for the purpose of Art. 286(1)(a), unless the Explanation operates. We need
also add that the power of the State to impose the tax might still not be
available unless the transaction in question is unaffected by the other bans
imposed under sub-cl. (1)(b), (2) and (3) of Art.
286. The submission therefore of learned
Counsel for the appellants, that in respect of non-Explanation sales the State
of Bihar has no power to levy a tax by reason of such sales being 'outside
" the State within Art. 286(1)(a) must be rejected.
The second contention urged by the learned
Counsel for the appellant was that even assuming he was wrong on the first
point, all the sales by the assessee-company fell within the terms of the
Explanation to Art. 286(1)(a) being sales as a direct result of which the goods
were delivered for consumption in the State of first destination, and that the
learned Judges of the High Court were in error in considering, that some of the
sales did not conform to this requirement. In support of this submission
learned counsel drew our attention to two matters. He first referred us to the
application dated December 30, 1952 made on behalf 287 of the assessee-company
to the Commissioner of Commercial Taxes, Bihar, Patna in which the claim for
refund of the tax paid was rested on the following ground :
After getting out that the tax on sales
effected between the period January 26, 1950 to March 31, 1950 was not
assessable by virtue of Art. 286 of the Constitution, the application stated:
" Total sales of raw materials of copper and brass sheet and circles sold
by us and despatched under railway receipts for buyers' consumption are as
follows". Then followed the sales effected and the tax paid in respect of
the sales. The claim in this form was annexed to and made part of the petition
to the High Court under Art. 226 and 227 of the Constitution and in paragraph 9
of the petition, this letter was referred to and a copy thereof was
incorporated and marked as 1A. In this paragraph which was the other matter
relied on the claim for refund was said to be " on sales made to buyers
outside Bihar State for consumption ". Learned Counsel strongly pressed
upon us that paragraph 9 and the annexure had clearly asserted that the sales
which were the, subject of the claim for refund involved a delivery of the
goods outside the State of Bihar for consumption in the State of first
destination and the State of Bihar not having filed any counter-affidavit
challenging the correctness of these allegations, the High Court should have
held that the terms of the Explanation were satisfied and should have ordered
the refund claimed.
We however consider that this submission is
without force.
Neither in the claim put forward in Exh. 'A'
nor in para- graph 9 of the petition was any distinction drawn between sales
under which deliveries were effected outside the State of Bihar for the purpose
of consumption in the State of first destination and those in which the
deliveries outside the State were effected for the purpose of consumption not
in the State of first destination but in other States. In fact, this was made
clear in the later paragraphs of the petition to the High Court from which it
is apparent that the assessee-company made a claim for tax exemption in 288
respect of sales in which the delivery took place outside the State of Bihar,
whether the delivery was for the purpose of consumption in the State of first
destination or otherwise. In paragraph 17(1) of the petition to the High Court
the assessee stated: " (the petitioner was not liable to pay tax on goods
delivered outside the State of Bihar which was also for consumption outside the
State of Bihar ", and again in clause (iii) of the same paragraph this was
repeated: " the goods being outside the State of Bihar, delivered outside
the State of Bihar and consumed outside the State of Bihar were not liable to
sales-tax by the State of Bihar " and similarly in cl. (v) of the same
paragraph a reference was made to " goods delivered outside the State of
Bihar for consumption outside the State of Bihar ". The same idea is
emphasized in paragraph 19 also which contained the prayer of the petition. On
these averments it is clear that the claim made by the assessee was that to
invoke the exemption contained in Art. 286(1)(a) it was sufficient that the
goods were delivered outside the State of Bihar and that it was immaterial
whether the delivery was for the purpose of consumption in the State of first
destination or otherwise. This involved the same argument which was raised by
the learned Counsel that we have dealt with earlier. The learned Judges of the
High Court were therefore right in drawing a distinction between the two types
of sales which we have already indicated.
The last point that was urged by the learned
Counsel was that the learned Judges of the High Court erred in requiring the
assessee to prove that the goods delivered outside the State of Bihar were
actually consumed in the State of first destination before the exemption from
tax could be availed of In their judgment now under appeal the learned Judges
have stated:
"The petitioner would not be entitled to
exemption if the goods were not consumed in the State of first destination but
were re-exported from the State of first destination to other States)'.
Learned Counsel for the appellant complained
that 289 under the Explanation to Art. 286(1)(a) there need be no proof of
actual consumption of the goods delivered in the State of first destination but
that the Explanation was satisfied if the purpose of the delivery tinder the
sale was for consumption in that State. If after a sale that satisfied that
requirement, viz., for the purpose of consumption in the State of first
destination, the buyer under such a sale for his own purposes reexported the
goods that was not a matter with which the seller was concerned and would not
affect the character of the sale as one falling within the Explanation to Art.
286(1)(a). Learned Counsel therefore urged that the learned Judges of the High
Court went wrong in requiring proof on the part of the assessee that the goods
were actually consumed within the State of first delivery outside Bihar and
that this was an unwarranted addition to the requirements of the Explanation.
We consider this submission well-founded and
indeed the learned Counsel for the respondent did not dispute that the actual
order of the High Court went beyond the terms of the Explanation to Art.
286(1)(a). The order of the High Court will, therefore, be modified by making
it clear that if the goods were as a direct result of the sale delivered
outside the State of Bihar for the purpose of consumption in the State of first
delivery the assessee would be entitled to exemption of the sales-tax imposed
and that it would not be necessary for the assessee to prove further that the
goods so delivered were actually consumed in the State of first destination.
Subject to this modification, the appeal
fails, but in the circumstances of the case there will be no order as to costs.
SHAH J.-We agree with the conclusion of Mr.
Justice Rajagopala Ayyangar, J., but because our approach to the question is
somewhat different, we propose to record our reasons separately.
The Bihar Sales Tax Act, 1947, was enacted in
exercise of legislative authority conferred upon the Provincial Legislatures by
entry 42 in List II read 37 290 with s. 100(3) of the Government of India Act,
1935. By s. 2(g) of the Act, " sale " was defined (in so far as it is
material) as meaning any " transfer of property in goods for cash or
deferred payment or other valuable consideration....... provided.......
provided further that notwithstanding anything to the contrary in the Indian
Sales of Goods Act, 1930, the sale of any goods- (i) which are actually in
Bihar at the time when, in respect thereof, the contract of sale as defined in
s. 4 of that Act is made, or (ii) which are produced or manufactured in Bihar
by the producer or manufacturer thereof, shall, wherever the delivery or
contract of sale is made, be deemed for the purposes of this Act to have taken
place in Bihar." Under entry 42 of List II of the Government of India Act,
1935, the Provincial Legislatures could tax sales by selecting some fact or
circumstance which provided a territorial nexus with the taxing power of the
State even if the property in the goods sold passed outside the Province or the
delivery under the contract of sale took place outside the Province.
Legislation taxing sales depending solely upon the existence of a nexus, such
as production or manufacture of the goods, or presence of the goods in the
Province at the date of the contract of sale, between the sale and the
Legislating Province could competently be enacted under the Government of India
Act, 1935 see the Tata Iron and Steel Co., Ltd. v. The State of Bihar and
Poppatlal Shah v. The State of Madras (2).
By Art. 286 of the Constitution, certain
fetters were placed upon the legislative powers of the States as follows:
Art. 286:-" (1) 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- (a) outside the State ; or (b) in the
course of the import of the goods into, or export of the goods out of, the
territory of India.
(1) [1958] S.C.R. 1335.
(2) [1953] S.C.R. 677.
291 Explanation:For the purposes of sub-cl.
(a) a sale or purchase shall be deemed to have taken place in the State in which
the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State notwithstanding the fact
that under the general law relating to sale of goods the property in the goods
has by reason of such sale or purchase passed in another State.
(2) 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 :
Provided that the President may by order
direct that any tax on the sale or purchase of goods which was being lawfully
levied by the Government of any State immediately before the commencement of
this Constitution shall, notwithstanding that the imposition of such tax is
contrary to the provisions of this clause, continue to be levied until the
thirty-first day of March, 1951.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax on the sale or purchase of
any such goods as have been declared by Parliament by law to be essential for
the life of the community shall have effect unless it has been reserved for the
consideration of the President and has received his assent." With a view
to impose restrictions on the taxing power of the States under the
pre-Constitution statutes, amendments were made in these statutes by the
Adaptation of Laws Order.
By the Adaptation of Laws Order, 1951, in the
Bihar Sales Tax Act was incorporated with retrospective operation from January
26, 1950, s. 33, which provided:
"' (1) Notwithstanding anything
contained in this Act,- (a) a tax on the sale or purchase of goods shall not be
imposed under this Act- (i) where such sale or purchase takes place outside the
State of Bihar ; or 292 (ii) where such sale or purchase takes place in the
course of import of the goods into, or export of the goods out of, the
territory of India ;
(b) a tax on the sale or purchase of any
goods shall not, after the 31st day of March, 1951, be imposed where such sale
or purchase takes place in the course of inter-State trade or commerce except
in so far as Parliament may by law otherwise provide;
(2) The Explanation to cl. (1) of Art. 286 of
the Constitution shall apply for the interpretation of sub-cl.
(1) of cl. (a) of sub-s. (1)." By this
amendment, on the taxing power of the Bihar State the same restrictions were
engrafted on the pre-Constitution statute as were imposed by Art. 286 of the
Constitution upon post-Constitution statutes.
This court has held in the Bengal Immunity
Co., Ltd. v. The State of Bihar (1) that the operative provisions of the
several parts of Art. 286 namely cl. (1) (a), (1)(b) and (2) and cl. (3) were
intended to deal with different topics and one could not be projected or read
into another. Therefore, by the incorporation of s. 33 in the Bihar Sales Tax
Act read with Art. 286, notwithstanding the amplitude of the power otherwise
granted by the charging section read with the definition of " sale ",
a cumulative fetter of triple dimension was imposed upon the taxing power of
the State.
The Legislature of the Bihar State could not
since January 26, 1950, levy a tax on sale of goods taking place outside the
State or in the course of import of the goods into, or export of the goods out
of the territory of India, or on sale of any goods where such sale took place
in the course of inter-State trade or commerce. By the Explanation to Art.
286(1)(a) which is incorporated by sub-s. (2) s. 33 of the Bihar Sales Tax Act,
a sale is deemed to take place in the State in which the goods are actually
delivered as a direct result of such sale for the purpose of consumption in
that State even though under the law relating to sale of goods the property in the
goods has by reason of such sale passed in another State. In the State of
Bombay v. The United Motors (India) Ltd. (2), it was held that (1) [1955] 2
S.C.R. 603.
(2) [1953] S.C.R. 1069.
293 since the enactment of Art. 286(1)(a), a
sale described in the Explanation which may for convenience be called an "
Explanation sale " is taxable by that State alone in which the goods sold
are actually delivered as a direct result of sale for the purpose of
consumption in that State. The right to tax arises because the sale is deemed
to take place in that State and outside all other States and the latter States
are prohibited from taxing the sale ; the former alone is left free to do so.
The Bihar Sales Tax Act enacted in exercise
of the power conferred by entry 42 of List II of the Government of India Act,
1935, upon the Provincial Legislatures is saved by Art.
372 of the Constitution as existing law, but
by the combined operation of sub-ss. (1) and (2) of s. 33, the Bihar State is
incompetent to tax sales of goods in the course of imports into and exports out
of the territory of India, and after March 31, 1951, sales of goods in the
course of inter State trade or commerce. In view of the exposition of the
content of the Explanation to Art. 286(1)(a) by this court in the United Motors
case (1), the Bihar State is also incompetent to tax " Explanation sales
" where the goods are delivered in another State as a direct result of the
sale for consumption in that State. By this last ban, to the extent provided by
subs. (1)(a)(i) and sub-s. (2) of s. 33, the State of Bihar is deprived of its
power to tax sales;
but the ban does not wholly extinguish the
power of the State to tax sales relying upon a real territorial nexus between
the sale and the State. In other words, by enacting that a tax shall not be
imposed under the Act when the sale takes place outside the State of Bihar in
s. 33(1)(a)(i), only the power to tax " Explanation sales " which do
not take place within the State of Bihar in taken away, but not the power to
tax " non-Explanation sales " in which though under the general law
of sale of goods the property passes outside the State, there exists between
the taxing power of the State and the sale a nexus as contemplated by the
definition of sale in s. 2(g). If the sale is one in which the goods have been
delivered outside the State of (1) [1953] S.C.R. 1069.
294 Bihar, but not as a direct result of the
sale or not for the purpose of consumption in the State of first delivery, the
sale will not be covered by the Explanation, and the right to tax the sale, if
arising-otherwise under the Act relying upon the territorial nexus, will not be
impaired by the prohibition imposed by cl. (1)(a)(i) of s. 33. The right of the
State of Bihar to tax a sale relying upon a real territorial nexus not being
impaired by s. 33 of the Act, all sales as defined by s. 2(g) of the Bihar
Sales Tax Act are liable to be taxed, except those falling within s. 33(1)(a)(ii),
s. 33(2) and " Explanation sales " outside the State of Bihar.
The appellant company carries on the business
of manufacturing copper and other mineral products in the State of Bihar. It
has its registered office and its place of business in the District of
Singhbhum in the State of Bihar and is registered as a " dealer " under
the Bihar Sales Tax Act, 1947. The appellant company sent out its products to
various places in India in the year of assessment ending on March 31, 1950 and
has paid the tax assessed by the Sales Tax Officer. The appellant is now
seeking to obtain a refund of the tax paid for the period between January 26
and March 31, 1950, on the plea that the tax was paid under a misapprehension
of the law. The High Court in an application under Art. 226 of' the
Constitution directed the Sales Tax authorities to refund so much of the tax as
was not proved to have been paid in respect of sales of goods delivered and
consumed in the State of first destination.
On the goods delivered and consumed in the
State of first destination outside Bihar, the appellant could not be called
upon to pay sales tax. That is undisputed. The appellant also claimed that on
the goods delivered for consumption in the State of first delivery outside
Bihar, it was not liable to pay sales tax, even if there was no evidence to
prove that the goods were in fact consumed in such State. In our judgment, the
High Court was in error in directing that the exemption provided by Art.
286(1)(a) read with the Explanation which was at the material time incorporated
by s. 33 in the Bihar Sales Tax Act by the Adaptation of 295 Laws Order, 1951,
only applied to all sales of goods delivered and consumed in the State of first
destination.
If the goods were delivered for consumption,
it is immaterial whether they were in fact consumed in the State where they
were delivered. The power of the State to levy sales tax relying upon the
territorial nexus between the taxing power of the State and the sale, is
impaired for reasons already set out to the extent to which it is restricted by
the incorporation of Art. 286(1)(a)(i) and the Explanation thereto, in that
Act. Therefore, sales effected on or after January 26, 1950, where goods are as
a direct result of the sale delivered in another State for consumption in that
other State, are not liable to be taxed.
The directions issued by the High Court will
therefore be modified as follows:
The order of the Superintendent of Taxes is
set aside. He is directed to grant refund of tax paid in the light of this
judgment. The appellant will be entitled to exemption from payment of tax if
the goods are, as a direct result of the sale, delivered in another State for
the purpose of consumption in that State.
Appeal dismissed subject to modification.
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