Shree Bajrang Jute Mills Ltd. Vs.
State of Andhra Pradesh [1964] INSC 29 (6 February 1964)
06/02/1964 SHAH, J.C.
SHAH, J.C.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
GUPTA, K.C. DAS AYYANGAR, N. RAJAGOPALA
CITATION: 1966 AIR 376 1964 SCR (6) 691
CITATOR INFO :
R 1968 SC 339 (6)
ACT:
Sales Tax-Goods delivered to places outside
State for consumption in those States-Liability to tax-"Explanation
Sales"-Expression "Actually delivered", meaning ofConstitution
of India, Art. 286(1)(a)-Indian Sale of Goods Act, 1930, v. 39.
HEADNOTE:
The appellant, carrying on business as a
manufacturer of jute goods with its factory at Guntur, used to send jute bags
by railway to the cement factories of the A.C.C.
outside the State of Andhra. For securing a
regular supply of jute bags, the A.C.C. entered into a contract with the
appellant and under the despatch instructions from that company, the appellant
loaded the goods in the railway wagons, obtained railway receipts in the name
of the A.C.C.
as consignee and against payment of the
price, delivered the receipts to the Krishna Cement Works, Tadepalli, which was
for the purpose of receiving the railway receipt and making payment, the agent
of the A.C.C. From the amounts shown as gross turnover in the return for the
assessment year 195455, the appellant claimed reduction of certain amounts in
respect of the goods supplied by rail to the A.C.C. outside the State of Andhra
Pradesh under its despatch instructions.
The Commercial Tax Officer and the Deputy
Commissioner of Commercial Taxes disallowed the claim and held that as the
railway receipts were delivered to the agent of the buyer within the State of
Andhra, and price was also realized from the agent of the buyer within the
State, goods must be deemed to have been delivered to the buyer in the State of
Andhra Pradesh, and the appellant was liable to pay tax on the sales. On appeal,
this order was reversed by the Appellate Tribunal. In revision the High Court
restored the order of the Deputy Commissioner of Commercial Taxes. The question
for determination in this appeal was whether the sales to the A.C.C. by the
appellant may be regarded as "non-Explanation sales", i.e. falling
outside the Explanation to Art. 286(1).
Held:(i) If the goods were delivered pursuant
to the contracts of sale outside the State of Andhra for the purpose of
consumption in the State into which the goods were delivered, the State of
Andhra could have no right to tax those sales by virtue of the restriction
imposed by Art.
286(1)(a) read with Explanation.
To attract the Explanation, the goods had to
be actually delivered as a direct result of the sale, for the purpose of
consumption in the State in which they were delivered. The expression
"actually delivered' in the context in which it occurs, can only mean
physical delivery of 692 the goods, or such action as puts the goods in the
possession of the purchaser; it does not contemplate mere symbolical or
notional delivery.
C.Govindarajulu Naidu & Co. v. State of
Madras, A.I.R. 1953 Mad. 116, M/s. Capco Ltd. v. Sales Tax Officer, A.I.R. 1960
All. 62 and Khaitan Minerals v. Sales Tax Appellate Tribunal for Mysore, A.I.R.
1963 Mysore 141. followed.
Poppat Lal Shah v. State of Madras, [1953]
S.C.R. 677, Tata Iron & Steel Co. Ltd. v. State of Bihar, [1958] S.C.R.
1355, Tobacco Manufacturers(India) Ltd. v. Commissioner of Sales Tax, Bihar,
[1961] 2 S.C.R.106, Indian Copper Corporation Ltd. v. State of Bihar, [1961] 2
S.C.R.276 and State of Kerala v. Cochin Coal Co. Ltd., [1961] 2 S.C.R.
219, referred to.
(ii)Section 39 of the Indian Sale of Goods
Act will not make mere delivery of the railway receipts representing title to
the goods, actual delivery of goods for the purpose of Art. 286. The rule
contained is s. 39(1) has no application in dealing with a constitutional
provision which while imposing a restriction upon the legislative power of the
States entrusts exclusive power to levy sales tax to the State in which the
goods, have been actually delivered for the purpose of consumption.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 542 of 1962.
Appeal from the judgment and order dated
April 7, 1960, of the Andhra Pradesh High Court in Tax Revision case No. 27 of
1958.
M.c . Setalvad, K. Srinivasamurthy and Naunit
Lal, for the appellant.
A.Ranganadham Chetty and B. R. G. K. Achar,
for the respondent.
February 6, 1964. The Judgment of the Court
was delivered by SHAH, J.-With certificate of fitness granted by the High Court
of Andhra Pradesh this appeal is preferred by Shree Bajrang Jute Mills Ltd.
The appellant is engaged in the manufacture
of jute goods, and is a registered dealer under the Madras General Sales Tax
Act. For the assessment year 1954-55 the appellant submitted its return for
sales-tax claiming a deduction of Rs. 21,80,118-1-3 from the turnover in
respect 693 of the jute goods supplied by rail to the Associated Cement Company
Ltd.-hereinafter for the sake of brevity called 'the A.C.C. under despatch
instructions from that Company. The Commercial Tax Officer rejected the claim
of the appellant for deduction and that order was confirmed in appeal to the
Deputy Commissioner of Commercial Taxes. In appeal to the Sales Tax Appellate
Tribunal, the order was reversed, the Tribunal holding that the appellant was
entitled to exemption in respect of the turnover for the goods supplied to the
A.C.C. A revision petition presented against the order to the High Court of
Andhra Pradesh was heard with a large number of other petitions which raised
certain common questions. The High Court reversed the order of the Tribunal and
restored the order passed by the Deputy Commissioner of Commercial Taxes.
The factory of the appellant is situated at
Guntur. The A.C.C. owns cement factories at many places (including one at
Tadepalli in the State of Andhra called the Krishna Cement Works) and for the
purpose of marketing its products it requires jute packing bags. For securing a
regular supply of jute bags, the A.C.C. entered into a contract with the
appellant of which the following four conditions are material :
"1. All the goods are sold F.O.R. Guntur
unless otherwise expressly stated in this contract.
2. Goods to be packed .... well pressed and
marked in.... bound bales of.... per each.
3. Payments to be, made in cash, in exchange
for Mills Delivery Order on sellers on due date or for Railway receipts or for
Dock receipts, or for Mate's receipts, (which Dock receipts or Mate's receipts
are to be handed by a Dock's or Ship's Officer to the seller's representative).
4. The buyers agree that the property in the
goods sold shall not pass from the sellers to the buyers so long as the sellers
are in possession of any bills of lading, railway receipts, dock-warrants or
Mate's receipts or any other document of 694 title whether such documents are
in the names of sellers or buyers, until payment is made in full.
(a) The buyers agree that the risk of loss,
deterioration or damage in the goods during transit whether by land or canal or
sea or when the goods are in the custody of the seller or any third person in a
warehouse, dock or any premises shall be borne by the buyers notwithstanding
that the property in the goods does not pass to the buyers during such transit
or custody." As and when the gunny bags were needed for packing its
products the A.C.C. issued despatch instructions calling upon the appellant to
send jute bags by railway to the cement factories of the A.C.C. outside the
State of Andhra.
Pursuant to those instructions the appellant
loaded the goods in the railway wagons, obtained railway receipts in the name
of the A.C.C. as consignee and against payment of the price, delivered the
receipts to the Krishna Cement Works, Tadepalli-which, it is common ground, was
for the purpose of receiving the railway receipts and making payment, the agent
of the A.C.C. It is also common ground that the jute bags were sold to the
A.C.C. for the purpose of packing cement by the factories of the A.C.C. to
which they were sent and not for any other purpose.
The assessing authority and the Deputy
Commissioner held that as the railway receipts were delivered to the agent of
the buyer within the State of Andhra, and price was also realized from the
agent of the buyer within the State, the goods must be deemed to have been
delivered to the buyer in the State of Andhra, and the appellant was liable to
pay sales-tax on the price of the goods sold. With that view the High Court
agreed Under the Government of India Act, 1935, the Legislatures of every
Province could legislate for levying tax on sales of goods in respect of all
transactions, whether the property in the goods passed within or without the
Province, provided the Province had a territorial nexus with one or more
elements constituting the transaction of sale : Poppat 695 Lal Shah v. The
State of Madras(1) and The Tata Iron & Steel Company Ltd. v. State of
Bihar(1). But this resulted in simultaneous levy of sales tax by many Provinces
in respect of the same transaction each fixing upon one or more element
constituting the sale, with which it had a territorial nexus. With the dual
purpose of maintaining an important source of revenue to the States, and
simultaneously preventing imposition of an unduly heavy burden upon the
consumers by multiple taxation upon a single transaction of sale, the
Constitution made a special provision imposing restrictions upon the
legislative power of the States in Art. 286 which as originally enacted ran as
follows :
"(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.
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.
(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 (1) [1953] S.C.R.
677.
(2) [1958] S.C.R. 1355 696 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." After the
enactment of the Constitution, by a Presidential Order the Provincial Sales Tax
Acts were made to accord with the restrictions imposed by Art. 286 of the
Constitution.
It is manifest that by Art. 286 the
legislative authority of the States to impose taxes on sales and purchases was
restricted by four limitations-in respect of sales or purchases outside the
State, in respect of sales or purchases in the course of imports into or
exports out of India, in respect of sales or purchases which take place in the
course of inter State trade or commerce and in respect of sales and purchases
of goods declared by Parliament to be essential for the life of the community.
These limitations may overlap, but the power of the State to tax sale or
purchase transactions may he exercised only if it is not hit by any of the
limitations. The restrictions are cumulative.
The sales in the present case are not sales,
which have taken place in the course of inter-State trade or commerce.
The only point of contest is whether they are
"outside the State' of Andhra. It is now well-settled that by Art.
286(1) (as it stood before it was amended by
the Constitution Sixth Amendment Act, 1956) sales as a direct 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 to be regarded
as inside that State for the purpose of cl. (1) (a) and so within the taxing
697 power of the State in which such delivery took place and being outside all
other States exempt from sales-tax by those other States : Tobacco
Manufacturers (India) Ltd. v.
The Commissioner of Sales-tax, Bihar,
Patna(1): Indian Copper Corporation Ltd,-The State of Bihar and others (2) and
The State of Kerala and others v. The Cochin Coal Company Ltd.(3). But the
Explanation is not exhaustive of what may be called "inside sales".
Clause (1)(a) excludes from the reach of tile power of the States sales outside
the State but it does not follow from the Explanation that it localises the
situs of all sales. The power of the State under Entry 54 List II of the
Seventh Schedule to tax sales [not falling within cls. (1)(b), (2) and (3)]
which are outside the Explanation, and which may for the sake of brevity be called
4non-Explanation' sales, remains unimaired. It is not necessary for the purpose
of this case to express an opinion, whether the theory of territorial nexus of
;the taxing State, with one or more elements which go to make a completed sale
authorises since the promulgation of the Constitution the exercise of
legislative power under Entry 54, List II of the Seventh Schedule to tax sales,
where property in goods has not passed within the taxing State.
The question which then falls to be
determined is whether the sales to the A.C.C. by the appellant may be regarded
as "non-Explanation sales". There can be no doubt that if the goods
were delivered pursuant to the contracts of sale outside the State of Andhra
for the purpose of consumption in the State into which the goods were
delivered, the State of Andhra could have no right to tax those sales by virtue
of the restriction imposed by Art. 286(1) (a) read with the Explanation.
The facts found by the taxing authorities
clearly establish that property in the goods despatched by the appellant passed
to the A.C.C. within the State of Andhra when the railway receipts were handed
over to the agent of the A.C.C.
against payment of price. The question still
remains : were (1) [1961] 2 S.C.R. 106 (2) [1961] 2 S.C.R. 276 (3) [1961] 2
S.C.R. 219.
698 the transactions 'non-Explanation sales'
i.e. falling outside the Explanation to Art. 286(1)? To attract the
Explanation, the goods had to be actually delivered as a direct result of the
sale, for the purpose of consumption in the State in which they were delivered.
It is not disputed that the goods were supplied for the purpose of consumption
outside the State of Andhra, and in the States in which they were supplied. It
is submitted that the goods were actually delivered within the State, when the
railway receipts were handed over to the agent of the buyer. But the expression
"a actually delivered" in the context in which it occurs, can only
mean physical delivery of the goods, or such action as puts the goods in the
possession of the purchaser : it does not contemplate mere symbolical or
notional delivery e.g. by entrusting the goods to a common carrier, or even
delivery of documents of title like railway receipts. In C.
Govindarajulu Naidu & Company v. State of
Madras(1) Venkatarama Ayyar, J., dealing with the concept of actual delivery of
goods, so as to attract the application of the Explanation to Art. 286(1) (a)
rightly observed:
"In the context it can mean only
physical delivery and not constructive delivery such as by transfer of
documents of title to the goods. The whole object of the Explanation is to give
a power of taxation in respect of goods actually entering the State for the
purpose of use therein and it will defeat such a purpose if notional delivery
of goods as by transfer of documents of title to the goods within the State is
held to give the State a power to tax, when the good are actually delivered in
another State." A similar view has been expressed in two other cases M/s. Capco
Ltd. v. The Sales Tax Officer and another (2 ) and Khaitan Minerals v. Sales
Tax Appellate Tribunal for Mysore (3).
(1) A.I.R. 1953 Mad. 116.
(3) A.I.R. 1963 Mysore 141.
(2) A.I.R. 1960 AM. 62.
699 Counsel for the respondent-State relied
upon s. 39ofthe Indian Sale of Goods Act, 1930, which provides in so far as it
is material, by the first sub-section that where, in pursuance of a contract of
sale, the seller is authorized to send the goods to the buyer, delivery of the
goods to a carrier, for the purpose of transmission to the buyer, is prima
facie deemed to be delivery of the goods to the buyer.
But that provision will not make mere
delivery of the railway receipts representing title to the goods, actual delivery
of goods for the purpose of Art. 286. The rule contained in s. 39(1) of the
Indian Sale of Goods Act raises a prima facie inference that the goods have
been delivered if the conditions prescribed thereby are satisfied: it has no
application in dealing with a constitutional provision which while imposing a
restriction upon the legislative power of the States entrusts exclusive power
to levy sales tax to the State in which the goods have been actually delivered
for the purpose of consumption.
The High Court was therefore in error in
inferring from the fact that the property had passed within the State of Andhra
against delivery of the railway receipts, that the goods were actually delivered
within the State. If the inference raised by the High Court that the goods were
actually delivered within the State of Andhra cannot be accepted, on the facts
found there is no escape from the conclusion that the State of Andhra had no
authority to levy tax in respect of those sale transactions in which the goods
were sent under railway receipts to places outside the State of Andhra and
actually delivered for the purpose of consumption in those States.
The appeal must therefore be allowed. The order
of the High Court is set aside and the order of the Appellate Tribunal is
restored. The appellant to get its costs in this Court and the High Court from
the respondent-State.
Appeal allowed...
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