1. Sales tax assessment under the Orissa Sales Tax Act — dispute over validity of notification under Section 4(1) and taxability of inter-state sales under Article 286. (Para 2 , 3 , 4 , 10 , 12 , 21 , 22 , 24 )
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1958 Supreme(SC) 57
SUPREME COURT OF INDIA
15th April, 1958
S.R. DAS, C.J.I., T.L. VENKATARAMA AYYAR, S.K. DAS, A.K. SARKAR AND VIVIAN BOSE, JJ.
Sales Tax Officer Cuttack and another, Appellants
Versus
M/s. B. C. Patel and Co. Respondents.
Civil Appeal No. 230 of 1956.
Advocates appeared
Mr. C. K. Daphtary, Sollicitor-General of India, M/s. R. Ganapathi Ayer and R. H. Dhebar, Advocates, with him for Appellants; M/s. S. N. Andley, J. B. Dadachanaji and Rameshwar Nath Advocates of M/s. Rajinder Narain and Co. for Respondents.
Advocates:
B.Ganapathy Iyer, C.K.DAFTARY, J.B.DADACHAN, R.H.Dhebar, RAMESHWAR NATH ROY, S.N.ANDLEY
B.Ganapathy Iyer, C.K.DAFTARY, J.B.DADACHAN, R.H.Dhebar, RAMESHWAR NATH ROY, S.N.ANDLEY
A notification appointing a date for tax liability is severable if the part incorrectly specifying the class of dealers is distinct from the date appointment. Additionally, sales delivered for consumption outside a State are non-taxable under Article 286 of the Constitution.
Headnote:(A) Sales Tax Act - Section 4(1) and 4(2) - Notification - Severability - A notification issued under Section 4(1) to appoint a date for tax liability contained a mistake regarding the relevant period for determining the class of dealers. The portion appointing the date is severable from the invalid portion specifying the class of dealers. The notification remains valid in so far as it appoints the date, making the charging section operative. (Para 6)
(B) Sales Tax Act - Section 4(2) - Liability - A dealer who does not fall under the liability created by Section 4(1) may still be liable under Section 4(2) if their gross turnover first exceeds the prescribed limit during a subsequent year. (Paras 7, 15)
(C) Constitution of India - Article 286 - Inter-State Trade - A State is prohibited from taxing sales where goods are delivered for consumption outside the State, as such sales are deemed to take place outside the State. This prohibition applies notwithstanding any Presidential order under the proviso to Article 286(2). (Paras 5, 19)
Facts of the case:
A partnership firm was assessed for sales tax for five quarters. The assessing authority relied on a notification issued under the Sales Tax Act which mistakenly identified the year for determining dealer liability. The High Court quashed the assessments for both pre- and post-Constitution periods, holding the notification invalid and the post-Constitution sales as inter-state trade.
Findings of Court:
The assessments for the pre-Constitution period were valid as the notification's date-appointment was severable and the dealers were liable under Section 4(2). The post-Constitution assessments were invalid as the sales involved delivery for consumption outside the State, violating constitutional prohibitions on taxing such sales.
Issues: Whether a notification appointing a date for tax liability is wholly invalid if it incorrectly specifies the class of dealers; whether liability under Section 4(2) arises independently of a valid Section 4(1) notification; and whether sales delivered for consumption outside the State are taxable.
Ratio Decidendi: A notification can be severed if the invalid part (specifying the class of dealers) is not inextricably linked to the valid part (appointing the date). Furthermore, constitutional bans on taxing sales taking place outside the State (delivery for consumption outside the State) are independent and not superseded by Presidential orders intended to save inter-state trade taxes.
Result: Appeal allowed in part.
Legal Category Hierarchy
Table of Contents
2. Validity of notification under Section 4(1) — applicability of Section 4(2) upon invalidity of Section 4(1) — taxability of sales delivered for consumption outside the state. (Para 4 , 14 , 15 , 18 , 26 , 27 )
3. Severability of notification provisions — interpretation of dealer liability under Section 4 — impact of Article 286 and Section 30 on sales delivered outside the state. (Para 6 , 7 , 15 , 19 )
4. Invalid portions of a notification are severable if not inextricably linked — sales delivered for consumption outside a state are non-taxable under Article 286(1)(a). (Para 6 , 19 )
5. Appeal partly allowed — pre-Constitution assessments restored as valid — post-Constitution assessments quashed as invalid. (Para 8 , 20 , 36 )
6. Can a notification be held valid in part if a portion exceeds the statutory power?
Yes, if the invalid portion is clearly severable from the valid part and not inextricably wound up, the valid portion remains effective while the invalid part is treated as surplusage without legal efficacy. (Para 6 )
7. Does a dealer become liable under Section 4(2) if they are not liable under Section 4(1)?
Yes, Section 4(2) applies to dealers to whom Section 4(1) does not apply, creating liability from the commencement of the year immediately following that during which their gross turnover first exceeded the threshold. (Para 7 , 15 , 16 )
8. Can a state tax sales where goods are delivered for consumption outside that state?
No, under Article 286(1)(a) of the Constitution and corresponding state law, a tax on the sale or purchase of goods cannot be imposed where such sale or purchase takes place outside the state. (Para 19 )
Judgment
S. R. DAS, CJI.: We agree that this appeal must be allowed in part but we prefer to rest our judgment on one of the material points on a ground which is different from that adopted by our learned Brother S. K. Das, J., in the judgment which has just been delivered by him and which we have had the advantage of perusing.
2. The Orissa Sales Tax Act, (Orissa XIV of 1947), hereinafter referred to as the said Act received the assent of the Governor-General on 26th April 1947, when S. 1 of the Act came into force. On 1st August 1947, a Notification was issued by the Government of Orissa bringing the rest of the said Act into force in the Province of Orissa, as it was then constituted. Section 4, as it stood at all times material to this appeal, ran as follows :
"4(1) Subject to the provisions of sections 5, 6, 7 and 8 and with effect from such date as the Provincial Government may, by notification in the Gazette, appoint, being not earlier than thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded Rs. 5,000 shall be liable to pay tax under the Act on sales effected after the date so notified.
Provided that the tax shall not be payable on sale involved in the execution of a contract which is shown to the satisfaction of the Collector to have been entered into by the dealer concerned on or before the date so notified.
(2) Every dealer to whom sub-section (1) does not apply shall be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which his gross turnover first exceeded Rs. 5,000.
(3) Every dealer who has become liable to pay tax under this Act shall continue to be so liable until the expiry of three consecutive years, during each of which his gross turnover has failed to exceed Rs. 5,000 and such further period after the date of such expiry as may be prescribed and on the expiry of this latter period his liability to pay tax shall ceases.
(4) Every dealer whose liability to pay tax has ceased under the provisions of sub-section (3) shall again be liable to pay tax under this Act with effect from the commencement of the year immediately following that during which the gross turnover again exceeds Rs. 5,000."
On 14th August 1947, a notification was issued by the Government of Orissa appointing 30th September 1947, as the date with effect from which that sub-section was to come into force in the then province of Orissa.
3. On 1st January 1948, by a covenant of merger executed by its ruler, the feudatory State of Pallahara merged into the province of Orissa. In exercise of the powers delegated to it by the Government of India under what was then known as the Extra Provincial Jurisdiction Act, 1947, the Government of Orissa on 14th December 1948, issued a notification under S. 4 of that Extra Provincial Jurisdiction Act, extending the Orissa Sales Tax Act to the territories of the erstwhile feudatory States, including Pallahara which had merged into the province of Orissa, on 1st March 1949, a notification under S. 1(3) was issued by the Government of Orissa, bringing Ss. 2 to 29 of the said Act into force in the added territories. On the same day another notification was issued under S. 4 (1) of the Act, which was in the following terms :
"In exercise of the powers conferred by Sub-section (1) of Section 4 of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947) as applied to Orissa State, the Government of Orissa are pleased to appoint the 31st March, 1949, as the date with effect from which every dealer whose gross turnover during the year ending the 31st March 1949, exceeded Rs. 5,000 shall be liable to pay tax under the said Act on sales effected after the said date."
It was after this notification had been issued that the respondents were sought to be made liable to tax.
4. The respondents were assessed under the said Act for five quarters ending respectively on 30
