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Report No. 30

73. Tata Iron Company' case.-

Of the cases decided by the Supreme Court after the amendment of Article 286 which deal with inter-State sales, the most important is Tata Iron & Steel Co. v. S.R. Sarkar, (1961) 1 SCR 379: AIR 1961 SC 65 (71, 72): 11 STC 655., on which the decision of the Supreme Court in K.G. Khosla's case is primarily founded. In the Tata Iron case, the facts were, that the company had its registered office in Bombay and a Head Sales Office at Calcutta and its factory in Jamshedpur in the State of Bihar.

It was registered as a dealer under the Bihar Sales Tax Act, and also as a dealer in the State of West Bengal. For the period of assessment, the company submitted its return of taxable sales to the Commercial Tax Officer at Calcutta, disclosing its gross taxable turnover in respect of sales liable to Central sales tax in the State of West Bengal.

The company was directed by the Commercial Tax Officer, Calcutta to submit a statement of sales from Jamshedpur for the period under assessment, documents relating to which were transferred in West Bengal and for any other sales which might have taken place in West Bengal under section 3(b) of the Central Sales Tax Act.

The company denied its liability and the jurisdiction of the Calcutta Sales Tax Officer. Its contention was, that all sales from Jamshedpur were of the type mentioned in section 3(a) of the Central Sales Tax Act, and some of them fell under the category in section 3(b) of the Act. The Commercial Tax Officer, under these circumstances, made a "best judgment assessment", and called upon the company to pay about 41 lacs rupees as tax under the Sales Tax Act.

The total turnover in respect of inter-State sales, as shown in its return to the Bihar Taxation authorities, was about 26 crores rupees, on which the company had paid 71 lacs rupees and odd as advance tax under the Sales Tax Act. The Company impugned the validity of the order of the Commercial Tax Officer of Bengal, and that was how the matter came to the Supreme Court.

74. Mr. Justice Shah, in delivering the majority judgment, said that the effect of the various amendments made by the Constitution (Sixth Amendment) Act of 1956 was, to invest Parliament with exclusive authority to enact laws imposing tax on sales or purchases taking place in the course of inter-State trade, and that the liability of tax under the Central Sales Tax Act on inter-State sales was imposed upon all sales effected by any dealer in the course of inter-State trade or commerce. The liability to pay tax arises, as the inter-State Sales-tax, though collected by the State in which the sales take place, is due to the Central Government and is payable at the rates prescribed in respect of inter-State sales by the State in which it is collected.

75. In the opinion of the majority, the decision in the two Travancore-Cochin cases had no bearing on the interpretation of section 3, clauses (a) and (b). In those cases, the expressions "in the course of import and export" and "in the course of inter-State trade or commerce" used in Article 286 fell to be determined.

The Constitution did not define those expressions, and Parliament had, in the Central Sales Tax Act, sought to define by section 3 when a sale or purchase is said to take place in the course of inter-State trade or commerce and by section 5 to define when a sale or purchase is said to take place in the course of import or export, and by section 4(1) to define when a sale or purchase of goods is said to take place outside a State. In delivering the majority judgment, Mr. Justice Shah observed1.-

"In interpreting these definition clauses, it would be inappropriate to requisition in aid the observations made in ascertaining the true nature and incidents without the assistance of any definition clause of "sale outside the State" and "sale in the course of import or export" and "sale in the course of inter-State trade or commerce" used in Article 286.

"In our view, therefore, within clause (b) of section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto: clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State.".

1. Tata Iron etc. v. S.R. Sarkar, (1961) 1 SCR 379 (391): AIR 1961 SC 65 (71, 72): 11 STC 655.

76. In his minority judgment, Mr. Justice Sarkar (as he then was) expressed the view, that a sale cannot fall under both clause (a) and clause (b) of section 3. For, then, it would be liable to be taxed twice. Clauses (a) and (b) were mutually exclusive. Interpreting these two clauses, Mr. Justice Sarkar said, that clause (a) of section 3 contemplates a sale where the contract of sale occasions the movement of the goods sold, and clause (b), a sale where transfer of property in the goods sold is effected by a transfer of documents of title to them. Of course, in the first case, the movement of the goods must be from one State to another, and in the second, the documents of title must be transferred during such movement.

77. To sum up, in the Tata case, the Supreme Court, hel.-

(1) That Parliament having defined the phrase "in the course of" in sections 3 and 5 of the Central Sales Tax Act, the decision in the two Travancore cases had become inappropriate in interpretation of the phrase "in the course of" and therefore in regard to the question before the Supreme Court.

(2) Sales included in clause (b) of section 3 of the Sales Tax Act were those where the property in the goods passed during the movement of the goods from one State to another by transfer of documents of title.

(3) Clause (a) of section 3 of that Act included sales where movement was a consequence of a covenant or an incident of the contract of sale.



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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