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Report No. 30

69. Bengal Immunity case.-

In the Bengal Immunity Company 1case, the Company was registered as a dealer under Bengal Finance (Sales Tax) Act. Its products were sold throughout India and abroad, and were despatched from Calcutta against orders accepted by the Company in Calcutta. The Company had no agent or manager in Bihar nor any office or laboratory in that State. Notice was issued to the Company under the Bihar Sales Tax Act, calling upon it to apply for registration and to submit returns showing its turnover over a particular period.

The Company denied its liability on the ground, inter alia, that it was a non-resident and that, it did not carry on any business in Bihar, and that the notice was ultra vires as the notice was hit by the prohibition against taxation of inter-State trade or commerce. The Supreme Court, by a majority, held, that the sales or purchases made by the Company which were sought to be taxed, aptly took place in the course of inter-State trade or commerce, and as there was no Parliamentary enactment providing otherwise, the State law could not tax these sales or purchases. The Acting Chief Justice observed.-

"The truth is that what is an inter-State sale or purchase continues to be so irrespective of the State where the sale is to be located either under the general law when it is finally determined what the general law is or by the fiction created by the Explanation. The situs of a sale or purchase is wholly irrelevant as regards its inter-State character."

"We find no cogent reason in support of the argument that a fiction created for certain definitely expressed purposes, namely, the purposes of clause (1)(a), can legitimately be used for the entirely foreign and collateral purpose of destroying the inter-State character of the transaction and converting it into an inter-State sale or purchase. Such metamorphosis appears "to us to be beyond the purpose and purview of clause (1)(a) and the Explanation thereto. When we apply a fiction all we do is to assume that the situation created by the fiction is true.

Therefore, the same consequences must flow from the fiction as would have flown nad the facts supposed to be true been the actual facts from the start. Now, even when the situs of a sale or purchase is in fact inside a State, with no essential ingredient taking place outside, nevertheless, if it takes place in the course of inter-State trade or commerce, it will be hit by clause (2).

If the sales or purchases are in the course of inter-State trade or commerce the stream of inter-State trade or commerce will catch up in its vortex all such sales or purchases which take place in its course wherever the situs of the sales or purchases may be.

All that the Explanation does is to shift the situs from the point A in the stream to point X also in the stream. It does not lift the sales or purchases out of the stream in those cases where they form part of the stream. The shifting of the situs of a sale or purchase from its actual situs under the general law to a fictional situs under the Explanation takes the sale or purchase out of the taxing power of all States other than the State where the situs is fictionally fixed."

1. Bengal Immunity Co. v. State of Bihar, (1955) 2 SCR 603 (650): AIR 1955 SC 661: 6 STC 446.

70. The majority also held that fetters had been placed on the power of the States to make levy by way of sales tax ove.-

(a) sales and purchases outside the State;

(b) sales and purchases in the course of import or export;

(c) except in so far as Parliament may otherwise provide, sales and purchases in the course of inter-State trade or commerce; and lastly

(d) essential goods.

71. Venkatarama Ayyar J., in his minority judgment, in interpreting the words "in the course of inter-State trade", said:1-2

"A sale could be said to be in the course of inter-State trade only if two conditions concur: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade.".

1. Bengal Immunity Co. v. State of Bihar, (1955) 2 SCR 603.

2. The decision in Endupuri Narasimham v. State of Orissa, (1962) 1 SCR 314 (319), expressly adopts this approach: AIR 1961 SC 1344: 12 STC 292.

Section 5 of the Central Sales Tax Act, 1956 - Taxation by the States of Sales in the Course of Import Back

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