TMI Blog1958 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... chooses, collect the tax from the purchaser and sometimes by reason of com- petition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. Appeal dismissed. - Civil Appeal No. 412, 413 of 1956, Appeal No. 495, 496 of 1952 - - - Dated:- 19-2-1958 - DAS S.R. .J. AND VENKATARAMA AIYAR T.L. AND DAS S.K. AND SARKAR A.K. AND VIVIAN BOSE JJ. M.C. Setalvad, (Attorney-General for India), Rajeshwari Prasad and S.P Varma, Advocate, with him, for the appellant. Mahabir Prasad (Advocate-General for the State of Bihar), R.C. Prasad, Advocates, with him, for the respondents. -------------------------------------------------- The Judgment of Das, C.J., Venkatarama Aiyar, S.K. Das and Sarkar, JJ., was delivered by Das, C.J. Bose, J., delivere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness of these facts are not disputed by the State of Bihar." The appellant company was separately assessed for two periods: (1) from July 1, 1947 to March 31, 1948, and (2) from April 1, 1948 to March 31, 1949. For the first period the appellant company filed a return under section 12(1) of the 1947 Act before the Sales Tax Officer showing a gross turnover of Rs. 12,80,15,327-8-5. From this gross turnover the appellant company claimed to deduct a sum of Rs. 2,88,60,787-13-0 being the amount of valuable consideration for the goods manufactured at Jamshedpur in the State of Bihar but sold, delivered and consumed outside that State on the ground that in none of the transactions in respect of the said sum did the property in the goods pass to the purchasers in the State of Bihar. The appellant company further claimed a deduction of Rs. 1,10,87,125-13-0 on account of railway freight actually paid by it for the despatch of the goods. The Sales Tax Officer, by this assessment order dated July 22, 1949, disallowed both the claims for deduction and on the order hand added a sum of Rs. 13,66,496-11-0, being the amount of sales tax realised by the appellant company from its purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended to Chotanagpur. (5) Were the levy and collection of sales taxes for periods prior to the 26th January, 1950, under the Sales Tax Act then in force rendered illegal by the provisions of the Constitution? (6) Was the Commissioner, who passed orders, in appeal, after the Constitution came into force, bound to decide the appeal according to the provisions of the Constitution in respect of taxes levied or sought to be levied for periods prior to the 26th January, 1950, when the Constitution came into force." Out of these six questions, question No. 3 was decided in favour of the appellant company and the respondent State has not preferred any appeal against that decision or questioned its correctness. Question No. 4 was not pressed before the High Court and does not survive before us. Questions Nos. 1, 2, 5 and 6 were decided against the appel- lant company and the two consolidated appeals are directed against the High Court's decision on these questions. It will be noticed that questions Nos. 1 and 2, in effect, raise the same problem, namely, as to the vires of the 1947 Act and questions Nos. 5 and 6 are concerned with the validity of the retrospective levy of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gazette, appoint, being not earlier than 30 days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act on sales which had taken place both in and outside Bihar exceeded Rs. 10,000 shall be liable to pay tax under this Act on sales which have taken place in Bihar after the date was notified." It should be noted that, although the 1947 Act came into force on July 1, 1947, by virtue of a notification published in the official Gazette under section 1(3) thereof, the charging section quoted above did not come into operation because, by its own terms, it required a further notification in the official Gazette to bring it into effect. For some reason, not apparent on the record, the Provincial Government did not issue any notification as contemplated by section 4(1). To cure this omission Ordinance III of 1948 was promulgated by the Governor amending section 4(1)(a) of the 1947 Act. Section 4(1), as amended, read as follows: "Subject to the provisions of sections 5, 6, 7 and 8 and with effect from the commencement of this Act, every dealer, whose turnover during the year immediately preceding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er valuable consideration, including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge, or pledge: Provided....................................................... Provided further that notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930 (III of 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 section 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. ............................................................." The amending Act by section 3 substituted for the old sub-section (1) of section 4 of the 1947 Act the following sub-section, namely: "(1) Subject to the provisions of sections 5, 6, 7 and 8 and with effect from the commencement of this Act, every dealer whose gross turnover during the year immediately preceding the date of such commencement, on sales which have taken p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Entry 48 in List II of the Seventh Schedule thereto authorised the Legislature of Bihar to make a law with respect to tax on the sale of goods. "Sale of goods", as a legal topic, has well defined and well understood implications both in English and Indian law. The English Common Law relating to sale of goods has been codified in the English Sale of Goods Act, 1893. In India the matter was originally governed by the provisions of Chapter VII of the Indian Contract Act, 1872. Those provisions have since been replaced by the Indian Sale of Goods Act, Act III of 1930. Our attention has been drawn to section 4 of the Indian Sale of Goods Act which clearly makes a distinction between a sale and an agreement for sale. It is pointed out that that section groups "sales" and "agreements to sell" under the single generic name of "contract of sale", following in this respect the scheme of English Sale of Goods Act, 1893, and that it treats "sales" and "agreements to sell" as two separate categories, the vital point of distinction between them being that whereas in a sale there is a transfer of property in goods from the seller to the buyer, there is none in an agreement to sell. It is then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in that proviso in Bihar. The basis of liability under section 4(1) remained as before, namely, to pay tax on "sale". The fact of the goods being in Bihar at the time of the contract of sale or the production or manufacture of goods in Bihar did not by itself constitute a "sale" and did not by itself attract the tax. The taxable event still remained the "sale" resulting in the transfer of ownership in the thing sold from the seller to the buyer. No tax liability actually accrued until there was a concluded sale in the sense of transfer of title. It was only when the property passed and the "sale" took place that the liability for paying sales tax under the 1947 Act arose. There was no enlargement of the meaning of "sale" but the proviso only raised a fiction on the strength of the facts mentioned therein and deemed the "sale" to have taken place in Bihar. Those facts did not by themselves constitute a "sale" but those facts were used for locating the situs of the sale in Bihar. It follows, therefore, that the provisions of section 4(1) read with section 2(g), second proviso, were well within the legislative competency of the Legislature of the Province of Bihar. The vires of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of points 1 and 4 are untenable and cannot be accepted. Re. Point No. 2: The theory of nexus has been applied in sup- port of tax legislation in more cases than one, not only in this country but also in Australia and England. In Wanganui-Rangitikei Electric Power Board v. Australian Mutual Provident Society [1934] 50 C.L.R. 581, 600. Dixon, J., ob- served: "So long as the statute selected some fact or circumstance which provided some relation or connection with New South Wales, and adopted this as the ground of its interference, the validity of an enactment............would not be open to challenge." The same learned Judge in Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) [1937] 56 C.L.R. 337., said at page 375: "If a connection exists, it is for the legislature to decide how far it should go in the exercise of its powers. As in other matters of jurisdiction or authority courts must be exact in distinguishing between ascertaining that the circumstances over which the power extends exist and examining the mode in which the power has been exercised. No doubt there must be some relevance to the circumstance in the exercise of the power. But it is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance that the nine sterling companies derived their income, profits or gains, out of business carried on by them in British India out of which they paid dividends to the assessee company was regarded as sufficient nexus so as to fasten the tax liability on the assessee company in respect of the income, profits or gains, it derived from the nine sterling companies. Even such a distantly derivative connection with the source of income was held as a sufficient nexus to enable the British Indian tax authorities to charge the assessee company with income-tax. The conclusions reached by Spens, C.J., in Raleigh Investment Co.'s case [1944] F.C.R. 229; 12 I.T.R. 265. are formulated thus at page 253: "If some connection exists, the legislature is not compelled to measure the taxation by the degree of benefit received in particular cases by the taxpayer. This affects the policy and not the validity of the legislation". In Wallace Brothers' case the connection of the assessee company with British India was not so remote as in Raleigh Investment Co.'s case [1944] F.C.R. 229; 12 I.T.R. 265., for in the former case the assessee company was a partner in a firm which carried on business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheres of income-tax legislation and sales tax legislation being quite distinct. Whereas in the case of income- tax legislation the tax is levied either on a person who is within the territory by exercising jurisdiction over him in personam or upon income which has accrued or arisen to him or is deemed to have accrued or arisen to him or has been derived by him from sources within the territory and it is, therefore, germane to enquire whether any part of such income has accrued or arisen or has been derived from a source within the territory, in the case of sales tax legislation it is the sale or purchase of goods which is the subject-matter of taxation and it cannot be predi- cated that the sale or purchase takes place at one or more places where the necessary ingredients of sale happen to be located. The theory of territorial connection or nexus was not put to the test at any time prior to the enactment of the Constitution and it is not necessary also for us to give a definite pronouncement on the subject." Apart from the fact that the concluding words in the passage quoted above may be read as indicating that the observations were obiter, it appears to us to be too late in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, The State of Bombay v. R.M.D. Chamarbaugwala, which was concerned with tax on cross- word competition, this court applied the theory of nexus and upheld the legislative competency of the Bombay Legislature to impose tax on the gambling competitions. At page 711 this court said: "The doctrine of territorial nexus is well established and there is no dispute as to the principles. As enunciated by learned counsel for the petitioners, if there is a territorial nexus between the person sought to be charged and the State seeking to tax him the taxing statute may be upheld. Sufficiency of the territorial connection involves a consideration of two elements, namely, (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that connection. It is conceded that it is of no importance on the question of validity that the liability imposed is or may be altogether disproportionate to the territorial connection. In other words, if the connection is sufficient in the sense mentioned above, the extent of such connection affects merely the policy and not the validity of the legislation." Applying these principles to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, was a complete safeguard against such eventuality and after the amendment of that Article and the relevant entries in the Legislative List such contingency will not arise. In our opinion the arguments advanced by the learned Attorney-General on this point cannot be accepted. Re. Point No. 3: The learned Attorney-General next contends that in any case the nexus must be real and pertinent to the subject- matter of taxation. He contends that the presence of the goods in Bihar referred to in the old second proviso, which is reproduced in clause (i) of the second proviso as amended, is of no consequence. The production or manufacture, according to him, has no connection with and never enters into the transactions of sale. He relies on the observations of Chief Justice Gwyer in Boddu Paidanna's case [1942] F.C.R. 90; 1 S.T.C. 104., at page 102, namely, that "a sale had no necessary connection with manufacture or production". That observation was made by the learned Chief Justice in order to emphasise the fact that the tax levied on the first sale by the manufacturer or producer was a tax imposed on him qua seller and not qua manufacturer or producer. The question whether the fact o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the learned Attorney-General, it cannot be imposed retrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer, for it cannot, at that stage, be passed on to the purchaser. According to him the seller collects the sales tax from the purchaser on the occasion of the sale. Once that time goes past, the seller loses the chance of realising it from the purchaser and if it cannot be realised from the purchaser, it cannot be called sales tax. In our judgment this argument is not sound. From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act the sellers had no authority to collect the sales tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is a matter on which many different views are possible but what is clear to me is that a sale cannot have more than one situs. It is not a mystical entity that can be one in many and many in one at one and the same time, here, there and everywhere all at once: nor is it a puckish elf that pops up now here, now there and next everywhere. It is a very mundane business transaction, of the earth, earthy. It can have only one existence and one situs. Opinions may differ on where that is and how it is to be determined, but it is our duty, as the supreme authority on the law of the land, to choose one of those many views and say that that is the law of our land and that in India the situs is determined in this way or that and, having determined it, make it uniform for the whole country. I am conscious that the selection must be arbitrary, but for all that, it must be made. Left to myself, I would have preferred Cheshire's view about the proper law of the contract set out by him in Chapter VIII of his book on Private International Law, 4th edition. I referred to this in The Delhi Cloth and General Mills Co. Ltd. v. Harnam Singh [1955] 2 S.C.R. 402, 418.. I quote him again: "The prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in your territory you cannot tax it." Our present Constitution did not adopt Cheshire's view. It made another choice. In the old Explanation to Article 286 (now repealed) it selected the place where the goods are actually delivered, as a direct result of the sale or purchase, as the situs. Well, so be it. That is as good as any other and I would have been as happy to select that as any of the other possibilities. But what I do most strongly press is that a Constitution Act cannot be allowed to speak with different voices in different parts of the land and that a mundane business concept well known and well understood cannot be given an ethereal omnipresent quality that enables a horde of hungry hawks to swoop down and devour it simultaneously all over the land: "some sale; some hawks" as Winston Churchill would say. I would therefore reject the nexus theory in so far as it means that any one sale can have existence and entity simultaneously in many different places. The States may tax the sale but may not disintegrate it and, under the guise of taxing the sale in truth and in fact, tax its various elements, one its head and one its tail, one its entrails and one its limbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is composed, you may tear that whole apart and seize on some element that is quite a different thing from that which you are entitled to tax and hold that the taxable entity is in your State simply because at some relevant point of time one of the ingredients that went to make up the whole but which is a separate and distinct thing from the whole, as different from it as chalk is from cheese, happened to be within your clutches. I do not intend to analyse the cases on this point because it is pointless to pursue a matter that will only be of academic interest. All I will do therefore is to say that the question of nexus has been referred to in the following cases and that none of them reaches a decision on this particular point. These cases are Governor-General in Council v. Raleigh Investment Co., Ltd. [1944] F.C.R. 229, 247, 253; 12 I.T.R. 265., A.H. Wadia v. Commissioner of Income-tax, Bombay [1948] F.C.R. 121, 153, 154, 165; 17 I.T.R. 63., Poppatlal Shah v. The State of Madras [1953] S.C.R. 677; 4 S.T.C. 188., State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory [1954] S.C.R. 53, 101; 4 S.T.C. 205. and The Bengal Immunity Co., Ltd. v. The State of Bihar [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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