TMI Blog1983 (8) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... inter alia imposing the incidence of tax on the despatch of the manufactured goods to a place outside the State to its branch or commission agent or any other person on behalf of the manufacturer. This imposition was assailed by a number of manufacturers in this Court and ultimately, a Division Bench in Goodyear India Limited v. State of Haryana [1983] 53 STC 163; 1983 RLR 68 struck down the notification aforesaid as ultra vires of section 9 of the Act. To override the effect of said judgment, the Governor of Haryana issued Ordinance No. 1 of 1983 on 13th January, 1983, whereby section 9 of the Act was sought to be amended with retrospective effect to include within its sweep the despatch of manufactured goods to a place outside the State in any manner otherwise than by way of sale and the impugned notification, annexure P-2, was also validated. Meanwhile, the Constitution (Forth-sixth Amendment) Act, 1982, which had been passed much earlier was enforced with effect from 2nd February, 1983. Thereby inter alia entry No. 92-B in List I of the Seventh Schedule to the Constitution was inserted. The meaningful effect of this and other provisions of the Constitution (Forty-sixth Amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to why penalty be not imposed under the sections referred to above. In pursuance of the said directions, the Assessing Authority then issued the notice annexure P-3. 5.. Whilst assailing the levy of tax and the notification purportedly authorising the same, the petitioner-company's stand is that neither packing material nor lubricants are purchased or used stricto sensu in the manufacture of canvas shoes which is the end-product. It is the claim that what section 9 of the Act and the law chooses to tax are the materials used in the manufacture of the end-product, and not merely employed for the manufacture of the same. It is sought to be pointed out that lubricants for running the machinery employed for the making of canvas shoes, are not used in their manufacture but purely for the manufacturing process employed therefor and consequently is not an integral part or component of the end-product. Similarly, the packing material for the shoes, e.g., cardboard boxes or plastic wrapping, is highlighted to be materials not even remotely used strictly in the manufacture of canvas shoes. 6.. Again as regards the legal aspect, it is the stand that the goods merely transferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outside the State in any manner otherwise than by way of sale in the course of inter-State trade or commerce has expressly been brought within the sweep of the law by the amendment in section 9(1)(b) of the Act. It is the claim that in view of this amendment, the ratio of the Goodyear India Limited's case [1983] 53 STC 163; 1983 RLR 68 is no longer attracted and in any case is no longer good law. Basic reliance of the respondents as regards legislative competence is sought to be derived from entry No. 54 of List II of the Seventh Schedule. It is reiterated that the Haryana Legislature is competent to enact the law and tax transactions of the consignment or despatch of goods outside the State of Haryana by virtue of the aforesaid entry. It is averred that the exercise of this power in no way infracts articles 301 to 305 of the Constitution pertaining to the freedom of trade, nor does it violate any other constitutional provision including articles 14 and 19(1)(g). Reliance is also sought to be placed on the registration certificate issued under the Act including the one in favour of the writ petitioners and it is sought to be alleged that the despatch of goods outside the State wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competence of the Haryana Legislature on the subject. 11.. As is now manifest, the particular challenge by the writ petitioners is rested on some of the specific changes wrought in the Constitution by the Forty-sixth Amendment. Before quoting and adverting to them individually, the larger question that first falls for consideration is as to what was the true intention of Parliament in bringing about these amendments, in particular, the pointed insertion of sub-clause (h) in article 269(1) [and the change introduced in clause (3) thereof] as also entry No. 92-B in List I. Since it is a constitutional change which we are called upon to construe, obviously the exercise is not to be done in any narrow isolationism but on a much wider spectrum. Perhaps in the context of a constitutional amendment the celebrated rule in Heydon's case [1584] 3 Co Rep 7a is attracted with even greater vigour. One must, therefore, first closely examine as to what were the existing provisions of the Constitution prior to the Forty-sixth Amendment thereof. Therein one must look for the mischief or defect for which the provisions thereof did not then provide. The amending provisions have then to be seen to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one or the other element of the territorial nexus, the same transaction had to suffer tax in different States with the inevitable hardship to trade and consumers in the same or different States. The framers of the Constitution being fully alive to the intricacies of the problem, sought to check the same by a somewhat complex constitutional scheme and by imposing restrictions on the States' power with regard to levy tax on the sale or purchase of goods under article 286. However, in the actual and practical application of the various States' sales tax laws serious complications arose leading to an equally acute conflict of judicial opinion with regard to the scope and nature of sales in the course of inter-State trade or commerce or in the course of import or export. It was this situation which necessitated the Sixth Amendment to the Constitution in 1956, which radically amended article 286 and further separated the power to tax inter-State sales from the State List and put it in the Union List by inserting entry No. 92-A in List I of the Seventh Schedule. Further clause (g) was added to article 269 for assigning to the States taxes on the sale or purchase of goods other than ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to look into seven specific questions and other related problems arising out of the administration of the Central sales tax and the constitutional restrictions on the imposition of sales tax by the State Governments. This reference was the subject-matter of a very close and illuminating examination of the said problems by the Law Commission of India culminating in its 61st Report on certain problems connected with powers of the States to levy tax on the sale of goods and with the Central Sales Tax Act, 1956. To prevent any diffusion of focus, one must concentrate on the following specific question which was referred to the Law Commission: "Intro. 8(ii): Evasion of Central sales tax by means of transfer of goods from one State to another, on what purports to be a consignment transfer or a transfer to another branch of the same institution." The aforesaid question was pointedly considered in Chapter 2 of the 61st Report of the Law Commission (hereinafter called "the Report"), wherein the problem was posed as under: "2.2: It has been stated that difficulties exist in relation to the taxation of 'consignment transfers',-i.e., transfer of goods by one branch of a commercial age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are described sometimes as 'consignment transfers' are not taxable as sales under the present law. The Union can tax them under the residuary power, but even if such a tax is levied, the proceeds of the tax cannot be distributed to the States without amending article 269(1)(g) and 269(3) of the Constitution. Therefore, if, as a matter of policy consignments are to be included in the Central Sales Tax Act, it will be necessary first to amend article 269(1)(g) and 269(3) of the Constitution, by adding an explanation to that article, somewhat on the following lines: 'Explanation.-For the purpose of this article, the expression "sale or purchase" includes a consignment of goods occasioning their movement from one place to another, by a dealer to any other place of his business or to his agent or principal'." 15.. The aforesaid recommendation contained as it is in the 61st Report of the Law Commission of India, was rendered in May, 1974. It would appear that the matter remained under a prolonged consideration by the Government of India and it was not till 1981 that the Constitution (Forty-sixth Amendment) Bill was brought forward and ultimately passed by Parliament in 1982 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of inter-State trade or commerce shall be assigned to the States. Clause (3) of that article is proposed to be amended to enable Parliament to formulate by law principles for determining when a consignment of goods takes place in the course of inter-State trade or commerce. * * * 14.. The Bill seeks to achieve the above objects." 16.. It is now apt and indeed necessary to quote the changes wrought by the Forty-sixth Amendment for ease of reference and it would suffice to read the relevant provisions of article 269 and entries Nos. 92-A and 92-B of List I of the Seventh Schedule: "269. Taxes levied and collected by the Union, but assigned to the States(1) The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2), namely: (a) ..................................................... (b) ..................................................... (c) ..................................................... (d) ..................................................... (e) ..................................................... (f) ................................................. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Constitution (Forty-sixth Amendment) Act, 1982. 3.. Amended by the Constitution Forty-sixth Amendment. 4.. Inserted by the Constitution (Sixth Amendment) Act, 1956. 5.. Inserted by the Constitution (Forty-sixth Amendment) Act, 1982. 18.. Now a bare reference to the heading of article 269 would make it plain that the taxes enumerated in clause (1) thereof are those, which are both levied and collected by the Union of India. These are areas of legislation which are exclusively in the Central field. A reference to sub-clauses (a) to (f) of clause (1) of article 269 is again indicative of the nature of taxation which is ear-marked for levy and collection by the Union, but is to be later assigned to the States. Historically, sub-clause (g) pertaining to taxes on sale or purchase of goods where such sale or purchase took place in the course of inter-State trade or commerce, was inserted by the Sixth Amendment to remedy the somewhat similar evil of the different States attempting to tax the same transaction of sale and purchase in inter-State trade and commerce. Complementary thereto entry No. 92-A was also added to the Union List to exclusively vest the legislative powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular, those authorising the levy of tax are to be given their widest connotation that it would be wasteful to multiply authorities. Suffice it to recall the following observations in Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925: Page No: 238 ".......It is hardly necessary to emphasise that entries in three Lists in the Seventh Schedule which confer legislative competence on the respective legislatures to deal with the topics covered by them must receive the widest possible interpretation ; and so it would be unreasonable to read in the entry any limitation of the kind which Mr. Pathak's argument seems to postulate. Besides, it is well-settled that when a power is conferred on the legislature to levy a tax, that power itself must be widely construed; it must include the power to impose a tax and select the articles or commodities for the exercise of such power; it must likewise include the power to fix the rate and prescribe the machinery for the recovery of the tax ........" Reference in this connection may also be made to Navinchandra Mafatlal, Bombay v. Commissioner of Income-tax. Bombay City AIR 1955 SC 58 and Waverly Jute Mills Co. Ltd. v. Raymon and Co. (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of export out of the territory of the State in any manner otherwise India within the meaning of sub-secthan by way of sale in the course of tion (1) of section 5 of the Central inter-State trade or commerce or in the Sales Tax Act, 1956. course of export outside the territory of India within the meaning of sub-section (1) of section 5 of the Central Sales Tax Act, 1956. * * * (bb) ................." 24.. To correctly appreciate and focus oneself on the real issue, it may straightaway be highlighted that herein the challenge on behalf of the petitioners is directed only to the insertion of the aforesaid underlined words. These offending words alone are assailed (of course with their consequential results of validation, etc.) on behalf of the writ petitioners as beyond the legislative competence of the Haryana Legislature for allegedly trenching on the exclusive parliamentary field of legislation. No attack herein is levelled against the other situations visualised by section 9(1)(b), namely, with regard to the disposal of the manufactured goods in any manner otherwise than by way of sale in the State or in the course of export outside the territory of India. To immaculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches outside the State. It seems axiomatic that such a despatch of goods by the consignee to himself is not a sale of goods and indeed never can be so. It deserves highlighting that in such a situation what, in essence, takes place is nothing more than the shifting of goods from one place to another or in essence from one branch to another branch of the same owner. There is not the remotest change in the ownership of the goods. Equally, there is no change in the control over the said goods or the capacity to later dispose them of by the real owner. There is merely a change in the physical situs of the goods without any change in the basic incidents of ownership and control. Therefore, in its true nature a mere despatch of goods outside the State to another branch of the original institution is and never can be the equivalent of a sale either as a term of art in the existing sales tax legislation and not remotely so in common parlance and its dictionary meaning. 27.. As I will presently attempt to demonstrate in the amended provision of section 9(1)(b) of the Act, the real taxing event is the despatch of the manufactured goods to a place outside the State in any manner otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in Parliament. Thus on the broader and larger conspectus, each and every tax on the consignment of goods by whatever name called is now reserved for being levied by the Union of India. However, the amended provisions of section 9(1)(b) of the Haryana General Sales Tax Act attempt to levy an identical tax in the garb of a levy on the despatch of manufactured goods to places outside the State of Haryana, and therefore, intrudes and trespasses into an arena exclusively reserved for taxation by the Union of India. 28.. Though the above finding would in a way conclude the matter in favour of the writ petitioners, yet the same results seem to flow on a closer analysis of the real taxing event spelt out by the impugned provisions of section 9(1)(b) of the Act. Adverting to its specific terms and placing them on the well-known anvils, it is first plain that the "taxable person" herein is in terms specified as the dealer liable to pay tax under the Act. The phrase "dealer" has been expressly defined in section 2(c) of the Act and thus no ambiguity with regard to the "taxable person" under section 9 of the Act remains. Similarly, the "taxable goods" are equally determinable with precis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -State trade or commerce; or, (iii) disposal or despatch of the manufactured goods in the course of export outside the territory of India. It is these three exigencies alone which are the taxable events in the amended section 9(1)(b) of the Act. As already noticed, the challenge is levelled only to the taxable event of the mere despatch of the manufactured goods to a place outside the State in category (ii) above. Consequently, in a statute where the taxable event is the despatch or consignment of goods outside the State, the same would come squarely within the wide sweep of entry No. 92-B and thus excludes taxation by the States. 30.. Even placing the case of the respondent-State at the highest, it appears to me that it still cannot escape the wide sweep of entry No. 92-B. It was sought to be argued on behalf of the respondent-State that the taxable event was not necessarily the very ultimate act of despatch, but a composite one. Assuming entirely for the sake of argument (without holding so), it would follow that the taxable event herein would be the manufacture of goods and their despatch outside the State. Now analysing the situation, it is obvious that the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still remain the despatch thereof because the tax on the manufacture of goods is admittedly beyond the legislative competence of the States' sales tax laws. It would follow, therefore, that any levy which imposes a tax on the consignment of goods simpliciter or compositely with their manufacture and consignment as such, would still come within the umbrella of entry No. 92-B alone. It is worthwhile to remember that the competence to tax such transactions is not even remotely in the Concurrent List and is now exclusively in the Union List. Therefore, even when viewed from the aspect of a composite taxable event as well, the legislative power would still be covered by entry No. 92-B alone. 31. To sum up, it would appear that the respondent-State of Haryana on its zeal to tax the mere consignment of goods outside the State in the course of inter-State trade or commerce had earlier issued the impugned notification, annexure P-2, by attempting to bring the same within its scope. In Goodyear India Limited's case [1983] 53 STC 163; 1983 RLR 68, it was held that such consignment of goods was beyond the existing provisions of section 9 of the Act which authorised levy of purchase tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, be negativing the whole constitutional exercise culminating in the relevant provisions of the Forty-sixth Amendment for confining the taxation power on inter-State consignment of goods to the Union of India alone. 33.. In fairness to the learned Advocate-General, Haryana, one must refer to his insistent reliance on the single Bench judgment in Malabar Fruit Products Company, Bharananganam, Kottayam v. The Sales Tax Officer, Palai [1972] 30 STC 537, which was affirmed by the Letters Patent Bench in Yusuf Shabeer v. State of Kerala [1973] 32 STC 359, and was also approvingly referred to by their Lordships of the Supreme Court in State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC). A close analysis of the Malabar Fruit Products Company's case [1972] 30 STC 537 would indicate that the challenge to the somewhat similar provisions of section 5A of the Kerala General Sales Tax Act, 1963, was primarily on the ground that the tax imposed thereby was not, in essence, a tax on sale or purchase but in fact was a tax on the use or consumption of goods. It was this contention which was repelled by the learned single judge and affirmed in appeal by the Letters Patent Bench. Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the writ petitioners, that his firm stand was that the insertion of entry No. 92-B and the relevant changes introduced in article 269 of the Constitution were more in the nature of a categoric declaration of the existing constitutional position rather than any radical change thereof. It was the argument in the alternative that even prior to the Forty-sixth Amendment, the legal position was substantially the same and the States did not possess the legislative competence to tax a mere consignment of goods in the course of interState trade or commerce under entry No. 54 of the State List. 35.. Now it appears to me that the aforesaid stand is both plausible and not devoid of merit. As has been noticed at some length in the earlier parts of this judgment, the real nature of a mere consignment of goods by a manufacturer to his own branches outside the State, does not in any way amount to a sale or disposal of the goods as such. This is the more so in view of the strict construction placed on a sale or purchase under the sales tax statutes way back in State of Madras v. Gannon Dunkerely Co (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, and the long line of later decisions f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative competence of the States, vide entry No. 54 of List II, the consignment of goods being neither a sale nor purchase thereof was consequently outside the same. Prior to the Forty-sixth Amendment, this somewhat grey or penumbral area could be brought in only under the residual entry No. 97 of List I. However, the Forty-sixth Amendment on this point seems to have declared the constitutional position by clearly placing the consignment of goods in the course of inter-State trade or commerce in the exclusive parliamentary field. Apart from entry No. 92-B in List I, the basic constitutional mandate with regard to the legislative competence is provided by articles 245 to 248, which seems to make it manifest that the States' legislative powers are somewhat limited and residual legislative power under our constitutional scheme is vested in the Union of India and not in the States. 37.. As is sometimes inevitable in thinly divided issues, even if two interpretations were possible, there appear to be added weightly reasons for tilting to the view which I am inclined to take. As has already been noticed, the upholding of the impugned amendment by the respondent-State of Haryana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated in List II or List III including any tax not mentioned in either of those lists is to be within the Union List. It is thus plain that the residuary power is vested in the Union of India. Assuming entirely for the sake of argument that there is a grey or a penumbral area around entry No. 92-B pertaining to matters ancillary, complementary and consequential to the clear-cut power of taxation on the consignment of goods, then one should tilt to allocate the same to the Union of India by the hallowed rule of the wide amplitude of legislative entries as also because of the ultimate residual power in the Union of India. 40.. Lastly, it would appear that the consignment of goods by manufacturers to their various branches all over India in the course of inter-State trade or commerce is a national level feature. The scheme of article 269, as is evident from sub-clauses (c) to (h) of clause (1), would appear to be that the taxes of this nature are visualised to be both levied and collected by the Union. Consequently, taxes on the consignment of goods in the course of inter-State trade or commerce all over the country would aptly fall in this class. Equally, in the field of the somewh ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
