Tobacco Manufacturers (India) Ltd. Vs.
The Commissioner of Sales-Tax, Bihar, Patna  INSC 178 (26 October 1960)
AYYANGAR, N. RAJAGOPALA DAS, S.K.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1961 AIR 402 1961 SCR (2) 106
CITATOR INFO :
RF 1966 SC 376 (6)
Sales Tax-Sale-Goods delivered outside State
for consumption in the State of first delivery-Goods delivered for consumption
in other States-Liability to tax-Constitution of India, Art. 286(1)(a) Bihar
Sales Tax Act. 107
The appellants who were manufacturers of
cigarettes and tobacco in the State of Bihar contested the levy of sales- tax
on sales effected by them during the financial years 1949-5o and 1950-51 on the
ground that as a direct result of every sale effected by them the goods
concerned were delivered outside the State of Bihar and were, therefore,
exempted from tax liability under Art. 286(i)(a) of the Constitution. Both the
Superintendent of sales-tax and the Deputy Commissioner of sales-tax, Bihar,
overruled the objection of the appellants, and following a previous ruling of
the Board of Revenue of Bengal in a case known as the Bengal Timber Case (61 of
1952) held the appellants liable to pay the tax. The appellants paid the tax
demanded but filed an application in revision to the Board of Revenue, claiming
a constitutional exemption from tax on every sale effected by them as a result
of which goods were delivered outside the State of Bihar-whether the delivery
was for consumption in the State of first delivery or not. The Board passed the
following order on the revision petition.
" As regards the admitted despatches of
the goods outside the State after the 26th January, 1950, when the Constitution
came into force, the learned lower court has been guided by the decision of the
Board in the Bengal Timber Case (No. 61 of 1952). But this ruling of the Board
stands superseded by the subsequent decision of the Supreme Court in the United
Motors Case According to the decision of the Supreme Court, no tax could be
levied on despatches to the places outside the state after the 26th January,
1950, and on this point the petitions are allowed, and the sales tax officer
directed to recalculate the amount of tax payable by the assessee ".
The appellants taking the above order to be
in their favour claimed refund of the tax already paid by them and the sales
tax authorities contested the position and claimed that they were bound to
refund the tax only on those sales wherein the goods were delivered outside the
State for consumption in the State of first delivery. The department thereafter
sought clarification of the above order. The Board refused to clarify or
explain its order and passed an order saying that " no further
clarification was really required in view of the specific reference to the
judgment of the Supreme Court in the United Motors Case ". Thereafter as
the authorities still refused to refund the balance of the tax the appellants
filed two applications in the High Court for the issue of a writ of mandamus to
compel the refund. The High Court held that the Board's decision that sales in
which the goods were delivered outside the State for consumption, not in the
State of first delivery but in other States were also exempted from tax, was
wrong and that the appellants were not entitled to a writ of mandamus for
enforcing a wrong order. On appeal by special leave, Held, that the proper
construction of the Board's orders was that the sales tax officer was directed
to decide the relief that 108 should be given to the assessee on the officers'
interpretation of the decision of this Court in the United Motors Case. The
Board did not determine the effect of that judgment and did not decide that
every sale in which the goods were delivered outside the State of Bihar was
exempted from liability to tax.
The principle that a subordinate tribunal
should not refuse to carry out the directions of a superior tribunal was
therefore not applicable to the instant case.
Bhopal Sugar Mills v. Commissioner of
Income-tax,  1 S.C.R. 474, held inapplicable.
The United Motors Case merely decided that
sales in which goods were delivered outside the State for consumption in the
State of first delivery would fall under the Explanation to Art. 286(1) of the
Constitution and would therefore be exempted from tax liability, but it did not
deal with other sales in which the goods thus delivered were for consumption,
not in the State of first delivery but in other states. Such sales would on the
order of the Board of Revenue which was binding on the appellant be liable to
tax in accordance with the previous decision of the Board of Revenue in the
Bengal Timber Case.
State of Bombay v. United Motors (India) Ltd.
and Ors.,  S.C.R. 1069, explained and applied.
Board of Revenue of the State in the Bengal
Timber Case, 61 of 1952, referred to.
CIVIL APPELLATE JURISDICTION: Civil, Appeals
Nos. 202 and 203 of 1958.
Appeals from the judgment and decree dated
October 5, 1956, of the Patna High Court in Misc. Judicial Cases Nos. 330 and
331 of 1955.
K. D. Chatterjee, S. N. Andley and J. B.
Dadachanji, for the appellants.
D. P. Singh, for the respondents.
1960. October 26. The Judgment of the Court
was delivered by AYYANGAR J.-These two appeals are from a common judgment of
the High Court of Patna dated October 5, 1956, in two petitions under Art. 226
of the Constitution and have been filed pursuant to a certificate granted by
the High Court under Art. 132.
The Tobacco Manufacturers (India) Ltd., the
appellants in the above appeals are an incorporated company manufacturing
cigarettes and tobacco in their factory at Monghyr in the State of Bihar, and
these 109 appeals are concerned with the legality of the levy of sales-tax
under the Bihar Sales Tax Act (hereafter referred to as the Act) on the
appellants in respect of sales effected during the financial years 1949-50 and
The point urged in these appeals is a very
narrow one and relates to the proper construction to be placed on certain
orders of the Board of Revenue passed in regard to the tax properly leviable
for these two years.
The facts relevant to this point are briefly
these The assessment of the appellants for both the years was completed by the
Superintendent of Sales Tax, Monghyr, on May 7, 1952, and the total tax
liability was determined in the sum of Rs. 6,44,940-2-6 and Rs. 7,46,876-1-3
for the two assessment years 1950-51 and 1951-52 respectively. Before the
assessing officer, the appellants contended that all sales effected by them as
a direct result of which the goods were delivered outside the State of Bihar
were exempted from tax liability under Art. 286(1)(a) of the Constitution.
This objection was overruled, the reason
assigned being, that the sales were completed in Bihar, and that the entire
turnover of the appellants was therefore subjected to tax under the Act. In
taking this view the assessing authority followed a previous ruling of the
Board of Revenue of the State in the Bengal Timber case (Case 61 of 1952). An
appeal preferred to the Deputy Commissioner of Sales Tax, Bihar, by the
appellants was dismissed on October 8, 1952, on the same grounds.
The appellants paid the tax demanded for both
the years and invoked the revisional jurisdiction of the Board of Revenue.
In their petitions to the Board the
appellants pointed out, that the sales of goods delivered for consumption
outside the State of Bihar which involved a tax liability of Rs.
1,23,813-0-2 in the earlier year and Rs.
7,10,185-12-0 in the later year were made up of two types of transactions:
(a) those in which the goods thus delivered
were for consumption in the State of first delivery or first destination, (b)
those in which the goods thus delivered were 110 for consumption, not in the
State of first delivery but in.
(These two classes would be referred to
hereafter for convenience as typo (a) and type (b) respectively). The
appellants claimed that on the proper construction of Art.
286(1) & (2) they were entitled to have
both these types of sales excluded from their taxable turnover. By the date of
the hearing of these petitions by the revisional authority, this Court had
rendered the decision in State of Bombay v. United Motors (India) Ltd. and
Others (1) expounding the scope of the explanation to Art. 286(1)(a) and its
inter- relation to the exemption under Art. 286(2), and naturally this decision
was brought to the attention of the member of the Board at the hearing. Without
examining whether the decision cited did or did not cover both the two (a) &
(b) types of sales effected by the appellants, the Board passed on August 28,
1953, a laconic order in these terms:
"The two points urged in this Court were
among those points urged in the Lower Court and they are- (i) No tax should
have been levied on the Company's canteen sales.
(ii) that despatches outside the State for
consumption in other States should not have been taxed for the period after the
Constitution came into force.
As regards the admitted despatches of goods
out. side the State after the 26th January, 1950, when the Constitution came
into force, the learned Lower Court has been guided by the decision of the
Board in the Bengal Timber case (Case No. 61 of 1952). But this ruling of the
Board stands superseded by the subsequent decision of the Supreme Court in the
United Motor's case,. According to the decision of the Supreme Court, no tax
can be levied on despatches to the places outside the State after the 26th
January, 1950 and on this point the petition are allowed, and the (1) 
111 sales-tax officer directed to recalculate
the amount of tax payable by the assessee ".
Apparently the appellants understood this
order as meaning that all sales, whereunder goods were delivered outside the
State, whether or not for consumption in the State of first delivery (i.e.,
both types (a)& (b)) were exempted from the tax levy. The sales-tax
authorities, however, took the order to mean that only those sales in which
deliveries were made outside the State for consumption in the State of first
destination, i. e., those of type (a) were intended to be exempted, and these
rival interpretations were put forward in the correspondence that passed
between the appellants and the sales-tax authorities. The appellants made an
application for the refund of the amount of tax attributable to all the sales
under which goods were delivered outside the State, but the tax authorities
sticking to their interpretation of the order of the Board and of their
interpretation of the decision of this Court in the United Motors case (1)
refunded the tax collected on the sales falling within type (a) but refused to
refund Rs. 20,923-15- 2 for the 1st year and Rs. 1,29,823-5.0 for the later
year- these amounts representing the tax on sales of type (b).
The appellants however persisted in pressing
their claim for the refund of these amounts also.
In this state of affairs, the State of Bihar
moved the Board of Revenue to review its order dated August 28, 1953, or at any
rate clarify it so as to confine its operation to sales falling within type
(a), urging that this would bring it in accord with the interpretation of Art.
286(1) by this Court in the United Motors case (1). The appellants objected to
the jurisdiction of the Board of Revenue to review its previous decision and on
April 25, 1955, it passed the following order :
" These are what appear to be two
miscellaneous petitions filed on behalf of the State of. Bihar seeking certain
clarifications regarding the interpretation of the Board's order dated
28-8-1953 in Cases Nos. 514 of 1952. After argument was heard it was conceded
(1)  S.C.R. 1069.
112 by both parties that there is no
provision in the Act under which the parties concerned may move the court to
clarify or explain the order passed, this function essentially being a matter
of legal advice. It was also agreed that no further clarification was really
required in view of the specific reference to the judgment of the Supreme Court
in the United Motor's case. The petitions are, therefore, rejected." If
the order of the Board dated August 28, 1953, was laconic and ambiguous, the
later order dated April 25, 1955, was if anything more obscure. The appellants,
however, considered it an order in their favour, because the petition by the
State for clarification of the first order on the lines of the interpretation
put upon it by the tax authorities had been dismissed, and when the refusal to
refund the two sums of tax referred to earlier was continued, they filed two
petitions in the High Court of Patna under Art. 226 of the Constitution for the
issue of writs of mandamus to compel the refund of the tax on the principal
ground that a duty to do so had been imposed by the orders of the Board of
Revenue, though the petition made an incidental reference to the appellants
being entitled to such refund on a proper construction of Art. 286(1) & (2)
of the Constitution, even apart from the order of the Board of Revenue.
The learned Judges of the High Court however
in the main considered the question whether on a proper interpretation of the
relevant Articles of the Constitution, sales under which goods were delivered
outside Bihar but for consumption not in the State of first delivery, were
exempt from tax under the Bihar Sales Tax Act and decided the point against the
appellants. They next dealt with the central point urged in the petitions,
viz., that the Board of Revenue by its order dated August 28, 1953, had allowed
the appellant's revision in regard to " the second point " which
included sales of all categories whether or not for the purpose of consumption
in the State of first destination outside Bihar, and directed the Sales-tax
Officer to recompute the tax by allowing this exemption, and that the officer
was therefore statutorily bound to 113 give effect to the order of the Board,
be the same right or wrong, particularly when the Board refused to vary or
modify it so as to exclude particular types of sales from the scope of the
exemption when moved to do so by the State Government. In regard to this point
after stating that the orders of the Board of Revenue were ambiguous, the
learned Judges proceeded to answer the question on the assumption that the
Board of Revenue had directed the officer to recompute the tax on the basis
that all the outside sales- both the (a) and the (b) types were exempted from
The learned Judges then pointed out that the
order of the Board would be clearly erroneous in regard to the (b) type
sales-and that the petitioner in a writ of mandamus could not insist on a
manifestly wrong order being enforced. The petitions were therefore dismissed.
The appellants applied to the High Court for
certificates under Arts. 132 and 133, but the learned Judges granted a
certificate under Art. 132 alone and it is on the strength of these certificates
that the appeals are before us.
The principal point that Mr. Chatterjee,
learned Counsel for the appellants, argued before us related to the duty of the
tax authorities to obey the orders of the Board of Revenue and give effect to
them, and he submitted that the High Court erred in denying his clients the
relief of mandamus on the ground that that order was erroneous. In support of
this argument learned Counsel sought reliance on a recent decision of this
Court in Bhopal Sugar Mills V. Com- missioner of Income-tax (1) in which it was
held that when an order was made by a superior tribunal (in that case the
Income-tax Appellate Tribunal) directing the Income-tax Officer to compute the
income of an assessee on a particular basis and that order had become final,
the subordinate officer had no right to disregard the direction, because it was
wrong and that the High Court when approached by the assessee for the issue of
a writ of mandamus, was bound to (1)  1 S.C. R 474 15 114 enforce the
final order of the superior Tribunal and could not refuse to do so because it
considered the order of the Tribunal to be wrong. This Court pointed out that
when the order which the Tribunal had jurisdiction to pass became final, it
bound all parties to it and its correctness could not be challenged
collaterally in proceedings for enforcing that order. The attempt of learned
Counsel for the appellants was to bring this case within the scope of the above
The ratio of this decision is to be found in
" By that order the respondent virtually
refused to carry out the directions which a superior tribunal had given to him
in exercise of its appellate powers in respect of an order of assessment made
by him. Such refusal is in effect a denial of justice, and is furthermore
destructive of one of the basic principles in the administration of justice
based as it is in this country on a hierarchy of courts. If a subordinate
tribunal refuses to carry out directions given to it by a superior tribunal in
the exercise of its appellate powers, the result will be chaos in the
administration of justice and we have indeed found it very difficult to
appreciate the process of reasoning by which the learned Judicial Commissioner
while roundly condemning the respondent for refusing to carry out the
directions of the superior tribunal, yet held that no manifest injustice
resulted from such refusal." To attract the principle thus enunciated, it
is necessary that there should be an order of a superior tribunal clear, certain
and definite in its terms, and with. out any ambiguity, to which the
subordinate authority or officer to whom it is addressed, could give effect. We
are clearly of the opinion that the decision referred to cannot apply to the
situation in the present case.
Taking the earlier order of the Board
first-it is to put it at the mildest ambiguous. The Board referred to the
Bengal Timber case which had been followed by the lower authorities in
disallowing the appellants' claim to exemption to both the (a) and (b) type sales,
involving out of State deliver. A reference was then 115 made to the decision
of this Court in the State of Bombay v.
United Motors (India) Ltd. and others (1) as
superseding the previous decision of the Board, adding that according to the
decision of this Court no tax could be levied on despatches outside the State
after the 26th January, 1950, and on that point the petitions were allowed. It
will be noticed that the member did not set out the precise extent to which the
ruling of this Court superseded the previous decision of the Board, and this
was left in a state of uncertainty. It was suggested by learned Counsel for the
appellants that Mr.
Bakshi, the member of the Board, drew no
distinction between sales of type (a) or (b), and bad included both of them as
falling within a single category of sales in which delivery had taken place
outside the State for consumption in other States, and for that reason we
should hold that the member had rightly or wrongly treated the decision in the
United Motors' case as applicable to all such sales. We find ourselves unable
to agree in this construction of the order.
We cannot presume that Mr. Bakshi did not
peruse the judgment in the United Motors' case when he referred to it in his
order, nor that he did not acquaint himself with the terms of the Explanation
to Art. 286(1)(a) of the Constitution, the scope and significance of which was
analysed and elaborated in that decision. We are rather inclined to agree with
the construction which the member himself put on this order in April, 1955,
that he left it to the Sales-tax Officer to decide for himself the relief to
which the appellants were entitled on that officer's interpretation of the
judgment of this Court. It may be that this was not a satisfactory method of
disposing of the revision petition-leaving the point which arose for decision
by the member of the Board of Revenue, to be decided by the Sales-tax Officer,
but we are now only concerned with the simple question whether Mr. Bakshi had
or had not determined the true scope and effect of the judgment of this Court
and decided it as meaning that all sales as a result of which goods were
delivered outside the State (1)  S.C.R. 1069.
116 of Bihar were within the Explanation and
so were exempt from the tax liability. Notwithstanding the cryptic language
used by the Member of the Board, we are clearly of the opinion that he did not
intend to decide this point in favour of the appellants in the manner contended
for by them.
It is now common ground that when the Board
of Revenue was approached by the State Government to review or clarify this
order, Mr. Bakshi, by his order dated April 25, 1955, expressed himself as
having decided earlier that he had directed the sales-tax officer to give
effect to the judgment of this Court in the United Motors case and had done
nothing further. Learned Counsel for the appellants strongly pressed before us
that the member of the Board having accepted the preliminary objection that
there was no provision in the Bihar Sales-tax Act by which a party concerned
might move the Board to clarify or explain the order, he had no jurisdiction to
effect any clarification of his previous order and that whatever was said by
the Board on the second occasion could not be held to modify the earlier order
or deny the appellants such benefits as were granted to them by the earlier
order of August 28, 1953.
But as against this, it has to be noted that
before the Board both the parties, i.e., the State Government as well as the
appellants-agreed that clarification was not needed because " of the
specific reference to the judgment of the Supreme Court in the United Motors
case ". As this observation was embodied in the later order with the
consent of both the parties, we consider that it is too late now for the
appellants to raise any technical objection to this sentence being given effect
to. In view, however, of the conclusion that we have reached as to the
construction of the earlier order of August, 1953, it is unnecessary to pursue
the matter any further.
If, therefore, as a result of the order or
orders passed by the Board, the sales-tax officer was directed to give effect
to the judgment of this Court in the United Motors case, it followed that the
interpretation of the judgment was left to that officer. We have, already
pointed out that to such a situation the principle of 117 the decision of this
Court in Bhopal Sugar Mills v. Commissioner of Income Tax (1) is inapplicable.
We might also point out that even if the decision applied and the High Court
issued an order in the nature of mandamus to the sales-tax officer, it could
only take the form of a direction to effect the reassessment in the light of
the decision in the United Motors case (2)-an order which would leave the
appellants in the same position in which they now find themselves without such
an order by the High Court.
The next question for consideration is
whether on a proper construction of the decision in the United Motors case (2)
the exclusion of type (b) sales from those exempted under Art. 286(1) was
erroneous. Mr. Chatterjee, learned Counsel for the appellants sought to
establish that this Court had decided in the United Motors case three points:
(1) that sales as a result of which goods were delivered in a State for consumption
in such State, i.e., the sales falling within the Explanation to Art. 286(1)
were fictionally inside that State for all purposes and so within the taxing
power of the State in which such delivery took place, (2) that sales which by
the fiction created by the Explanation were inside a particular State, were
" outside " all other States, and so exempt from tax levy by all such
other States, (3) that further and beyond' this, all sales which did not
satisfy the terms of the Explanation but in which goods were delivered outside
the State in which title passed were " outside sales " over which no
State would have power to levy a tax. In other words, the argument was that
this Court had laid down that every sale which was not " an Explanation sale
" and therefore not an " inside sale " within a particular State
was an " outside sale" for all States and therefore exempt from the
levy of sales-tax by every State in India. In support of this submission
learned Counsel relied on a passage in the judgment of the learned Chief
Justice at page 1081 of the Re. port which ran:
"............... 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 (1)  1 S.C.R 474 (2)
 S.C.R 1069 118 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
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 a purchase, for the purpose of consumption therein ?
Then, such sale or purchase shall be deemed to have taken place 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 so. Multiple taxation of
the same transaction by different States is also thus avoided." In our
opinion, this passage explains the scope of the Explanation and deals with what
might be termed " Explanation sales ". If there is a sale falling
within the terms of the Explanation, it is " inside" the State of
delivery-cum-consumption and that State alone can levy the tax. Such a sale is
outside all other 119 States, which are prohibited from taxing such a sale by
reason of any territorial nexus however close or cogent.
The passage extracted, however, does not deal
with cases where the sale in question does not satisfy the requirements of the
Explanation leading to the fixation of the fictional situs of the sale deter-
mining the State by which the tax might be levied. Whether any and, if so,
which is the State which can levy a tax on a sale not covered by the
Explanation, is not dealt with by this decision at all.
From this it would follow that sales of type
(a) would be exempt from the levy of tax under the Bihar Sales-Tax Act by
reason or their being "inside" sales within the State of
delivery-cum-consumption and therefore being " outside" sales quoad
the State of Bihar. Sales of type (b), however, not having been dealt with by
the decision in the United Motors case, it would follow that on the orders of
the Board of Revenue, the previous decision of the Board in the Bengal Timber
case would have still held the field and the transactions would be liable to
the levy of tax and the tax levied on those sales would continue to be valid.
Learned Counsel for the appellants was certainly right in his submission that
as the orders of the Board of Revenue had became final as between the parties,
the liability to tax must be determined on the basis of these orders-be they
right or wrong. It is therefore unnecessary to consider whether, apart from the
decision of this Court in the United Motors case, the appellants would be entitled
to any further relief on the basis of any other decision of this Court
interpreting Art. 286(1) & (2).
As already stated, the appellants have
already been granted a refund in regard to the tax collected in respect of the
sales falling within type (a). As, in our opinion, the appellants were not on
the orders of the Board of Revenue entitled to a refund of the tax on
transactions falling within type (b), the judgment of the High Court dismissing
their petitions is clearly right. The appeals fail and are dismissed, but in
the circumstances of the case there will be no order as to costs.