TMI Blog1958 (5) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... se additional points will be dealt with in separate judgments, but it will not be necessary therein to decide once again the common points of law. The facts in the present case are briefly as follows: The petitioner in this case is the Indian Standard Wagon Co. Ltd., a company incorporated under the Indian Companies Act. This company and Messrs Burn Co., Ltd., are well-known companies, having their registered offices situate in Calcutta and having a common managing agent, namely, Messrs Martin Burn Ltd. Both these companies manufacture railway rolling stock including wagons, and have been doing so far a long number of years. On or about 2nd July, 1951, the Railway Board placed an order with Messrs Martin Burn Ltd. as managing agents of the two companies mentioned above, for 3,500 Indian Railway Standard Broad Gauge 4-wheeled covered wagons "C.R." type, against its programme for the year 1952-53. A copy of this order is Exhibit "A" to the petition. The following terms in the order are of importance: "(4) Delivery F.O.R. your work siding is required to be completed by 31st March, 1953. (6) Accounting and payments: The F.A. and C.A.O., E.I. Rly. will maintain accounts and arrange al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to be manufactured by Messrs. I.S.W. Co., Ltd. It is not disputed that the transactions between the Railway Board and the Calcutta manufacturers including the petitioner are of a long standing. A letter has been disclosed and annexed to the affidavit of Dhirendra Nath Banerji, which shows that Messrs Burn Co. Ltd. had tendered for the supply of wagons for the period 1946-47-48 which tender was accepted by the Railway Board. There also, in the letter of acceptance it was stated that the distribution of the wagons to different railways and the procedure for accounting thereof will be intimated to the manufacturing company in due course. In the annexures to the petition we find copies of letters in respect of transactions subsequent to the period 1952-53, in respect of the Railway Board's programme for 1953-54 and 1954-55. Sometimes we find a slight variation, in the sense that the company makes a tender first. But in all cases, an order is placed by the Railway Board and it is accepted by the manufacturers, either directly or through their managing agents. What happened in the 1953-54 and 1954-55 programmes is that the Railway Board gave an advanced intimation to the manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-payment of the sales tax. On or about 16th April, 1955, the petitioner preferred an appeal before respondent No. 4. On or about 29th July, 1955, the order of penalty was set aside, but otherwise the appeal was dismissed. Meanwhile, on 24th June, 1954, the petitioner submitted a return of sales tax for the year ending 31st March, 1954. In the return, the petitioner deducted from the gross turnover the sum of Rs. 1,34,48,084 being the value of 997 wagons sold and delivered during the accounting period ending on 31st March, 1954. The value of 183 wagons and 30 steel coaches supplied in West Bengal is mentioned as also of a sum of Rs. 66,492 deducted in respect of sales prior to 31st March, 1949, but nothing was heard in the argument with regard to this item, and I need not deal with them. In all these returns the deductions were claimed to be on the ground that the sale was of goods required for consumption outside the State of West Bengal. The deductions were however disallowed. Thereafter, certain proceedings were commenced for realisation of the tax. This Rule was issued on or about 8th September, 1955, and is directed against the assessment orders whereby the deductions claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngal, the goods were manufactured in that State and delivery was made inside the State, where also payment was or ought to have been received. It is argued that the contract is for delivery at the work siding of the manufacturing company, which is at Burnpur within the State of West Bengal. After delivery, the company was not concerned with what happened subsequently. Of course, if it is an intra-State sale, then there can be no doubt that the State Act applies and sales tax is payable. Coming to the first question, namely, whether it is an outside sale as contemplated by Article 286(1)(a), I think it can be easily disposed of. The sale of goods is governed by the Sale of Goods Act, but that Act does not deal with the situs of a sale. It provides as to when a contract for sale is complete and such other matters but is silent with regard to the situs of a sale. Therefore, if a sale is completed within a particular State and the delivery made therein, it is difficult to consider it as an outside sale. Then comes the Explanation in Article 286, which has been incorporated in section 27(2) of the Bengal Act. It has, however, been held in Bengal Immunity Co. v. State of Bihar[1955] 6 S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been set out above. By the 11th Schedule to the Adaptation Laws Order, 1950, there was introduced into the Bengal Act, a new section being section 27. The relevant part thereof runs as follows: "27. (1) Notwithstanding anything contained in this Act,(a) a tax on sale of purchase of goods shall not be imposed under this Act(i)............................................................................. (ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India; (b) a tax on the sale or purchase of any goods shall not, after the thirty-first day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide." The date, 31st March, 1951, came to be mentioned because in terms of the proviso to Article 286(2) of the Constitution, the President issued an order known as "The Sales Tax Continuance Order, 1950," to come into operation on the very day that the Constitution came into force. The relevant part of that Order runs as follows: "Any tax on the sale or purchase of goods which is being la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of, any tax on sales when such sales take place in the course of inter-State trade or commerce, irrespective of the fact whether such sales do or do not fall within the Explanation. The result was that during the period between 1st April, 1951, and 6th September, 1955, the States had been realising taxes on inter-State sales which came within the Explanation, against the law. Obviously, if nothing was done, enormous amounts which might have already been realised, would have been refunded, and it was apprehended that budgetory provisions made by several States in expectation of realisation of such taxes would be upset and there would be great difficulty experienced by the State Governments. In order to remedy this, the President promulgated the Sales Tax Laws Validation Ordinance No. III of 1956 on 30th January, 1956, later on replaced by the Sales Tax Laws Validation Act (No. VII of 1956) which came into force on 21st March, 1956. Section 2 of the Act runs as follows: "Notwithstanding any judgment, decree or order of any Court, no law of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State of Bihar[1955] 6 S.T.C. 446; A.I.R. 1955 S.C. 661 at p. 734. , Aiyar, J., defined inter-State trade and commerce as follows: "A sale can 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." The learned Judge gave two illustrations. If X a merchant in State A goes to State B and purchases goods there and transports them into State A, there is a movement of goods but it is not under any contract of sale and is not protected. Secondly, if X after transporting goods into State A sells them, there is no sale in the course of interState trade although there is sale and also movement of goods from one State to another. The learned Judge quotes Rottschaefer on Constitutional Law (1939 Edn.) wherein a sale in the course of inter-State commerce is thus defined: "The activities of buying and selling constitute inter-State commerce if the contracts therefor contemplate or necessarily involve movement of goods in inter-State commerce." It will be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situs of the sale and the place of delivery are not material provided the sale is caught up in the vortex of inter-State trade and commerce. Applying the principle mentioned above, let us see how the matter stands in the present case. We have to remember that the exemption that is granted under Article 286(2) is not merely inter-State trade or commerce, but to a transaction "in the course of" inter-State trade and commerce. Here, the purchaser and the seller who happens to be also the manufacturer, are in different States. Mr. Mukherjee, appearing on behalf of the respondents, has contended that it was not known to the seller as to where the goods were to be consumed and in any event since the goods were to be delivered in West Bengal the seller did not care about the place of consumption. In my view, this is taking too narrow a view of the transactions with which we are dealing. In view of all the facts and circumstances mentioned above, it would be wholly unreal to think that the seller did not known that the goods were meant for consumption outside the State, or that the transaction was likely to cause movement of goods between two States. The petitioner as well as the other man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. In the present case, the wagons were all intended for the Western Railway having its head-quarters at Ajmer. As soon as the allocation was made the picture became complete, and the Western Railway entered into direct correspondence asking that the wagons may be marked in a particular fashion. In my opinion, therefore, although the goods were manufactured in West Bengal and delivered therein, it was intended under the contract and it was well-known between the contracting parties that the goods would be the subject of movement over the State boundary. Perhaps if the goods were allocated to the Eastern Railway which had its headquarters at Calcutta, something might have been said, but the particular goods we are dealing with were earmarked for the Western Railway. After all, to whom is the delivery made? Here, the common carriers themselves are the purchasers.To summarise, the position is as follows: The purchaser and the seller are in two different States. The purchaser places an order which is accepted by the seller who is also the manufacturer. The special point that is to be considered in order to determine whether it is an inter-State sale or an intra-State sale is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been validated is the law of the State imposing or authorising the imposition of tax in respect of the sale or purchase of any goods in the course of inter-State trade or commerce, during a specified period. It is argued that in so far as the State of West Bengal is concerned, there was in existence no such law at the relevant time. As has been mentioned above, prior to the Constitution there was no provision for exempting taxation on interState sales. Taxation on sale of goods was a Provincial subject and the Province was within its rights to impose taxation on a sale provided that it was concerned or had any nexus with the transaction. This however led to various Provinces simultaneously taxing the same transaction. The Constitution by Article 286 prohibited such taxation and exempted inter-State trade and commerce from the imposition of taxes by any State. Section 27 was introduced into the Bengal Act to bring it in line with the Constitution. Thus, the matter might come within the definition of sale under the Bengal Act, but read with section 27, it would be excluded. In other words, the definition of sale in the Bengal Act is wide, but section 27 imposes a restriction upon tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has accepted the view stated in the decision in the Bombay group of cases and has rejected the interpretation contained in the Madras and Travancore-Cochin group of cases. It is argued that the decision of Aiyar, J., is really confined to "explanation sales " that is to say, sales of the nature described in the Explanation to Article 286(1)(a) of the Constitution. Although it is true that the particular cases which were dealt with in the judgment were explanation sales, the general principles applicable have been exhaustively investigated and the point that we have to deal with here has been finally determined. The very points that have been argued by learned counsel here were considered in the judgment and the view was upheld, namely, that the law enabling taxation on sales, such as we have in the present case, was there in existence, but because of the exemption in Article 286(2) of the Constitution the application thereof was suspended. The Parliament had the power of lifting the ban, and this is exactly what has been done by the Validation Act. Thus, the ban having been lifted, there is now no impediment to the levy of taxation on inter-State sales, during the period covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions whereof are to a certain extent different from the Bengal and the Bombay Acts. In Government of Andhra v. Nooney Govindarajalu [1957] 8 S.T.C. 297., the above-mentioned Madras decision was dissented from. It was held there that section 22 of the Madras General Sales Tax Act did not create a liability to tax. Therefore, there was no pre-existing State law imposing or authorising the imposition of a tax on interState sales and consequently the Validation Act did not apply. This case also turned upon the special provisions of the Madras Act. As a matter of fact, the Bombay decision was distinguished on the ground that the provision of the Madras Act differed from the Bombay Act. In Mysore Spinning Manufacturing Co. V. Deputy Commercial Tax Officer[1957] 8 S.T.C.177; A.I.R. 1957 Mad. 368., it was held by a Division Bench of the Madras High Court that an unconstitutional law has a factual existence but was frozen and was incapable of enforcement by reason of its contravening the Constitution. When, however, the constitutional ban ceased to operate the fetters whose existence rendered that law moribund were removed and the law which therefore was so to speak in a state of hyber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with full force to the present case. I have held that the sales are inter-State sales. The question is whether they, being sales within a particular period covered by the Validation Act, came within its mischief. The ground that has been advanced is the same as has been advanced in practically all the cases mentioned above. It is said that the Act as it stands contains no provision for taxing or authorising taxation of inter-State sales, and consequently the Validation Act in its own terms cannot apply, because what it has validated is the existing law. That is one view of the matter. But the other view which has ultimately been accepted by the Supreme Court is that the law enabling the taxation of sales including inter-State sales was there, provided of course the matter came within the definition of "sale" as given in the Act. Section 27 has not totally taken away or obliterated the provision, but in line with the Constitution, has imposed a ban. As soon as the ban was lifted, such provision came into force and enabled taxation of sales, even though they constituted inter-State sales, that is to say, sales in the course of inter-State trade and commerce. Applying this principle ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
