1. Retail dealer of motor spirit consumed stock-in-trade for own vehicles — liability for sales tax under the Madhya Bharat Sales of Motor Spirit Taxation Act, 1953. (Para 1 , 2 )
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1962 Supreme(SC) 444
SUPREME COURT OF INDIA
B.P. SINHA. C.J.I., P.B.GAJENDRAGADKAR, K.N. WANCHOO, K.C. DAS GUPTA AND J.C. SHAH, JJ.
Bhopal Sugar Industries Ltd., Madhya Pradesh, Appellant
Versus
D. P. Dube, Sales Tax Officer, Bhopal Region, Bhopal, Respondent.
Civil Appeal No. 578 of 1962.
Advocates appeared
Mr. S. T. Desai, Senior Advocate. (M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him), for Appellant Mr. B. Sen, Senior Advocate, (M/s. K. L. Hathi and I. N. Shroff, Advocates, with him) for Respondent
Advocates:
B.SEN, I.M.SHROFF, J.B.DADACHAN, K.L.Hathi, O.C.MATHUR, Ravindra Narayan, S.T.DESAI
B.SEN, I.M.SHROFF, J.B.DADACHAN, K.L.Hathi, O.C.MATHUR, Ravindra Narayan, S.T.DESAI
High Courts should not use Art. 226 to bypass statutory appellate machinery for determining the factual nature of taxable transactions unless constitutional or jurisdictional issues are involved. Lawfully imposed taxes by a competent legislature do not infringe fundamental rights under Art. 19(1)(f) and (g).
Headnote:(A) Constitution of India - Art. 226, Art. 19(1)(f) and (g), Schedule 7, List II, Entry 54 - Taxing Statute - Sections 2(k) and 3 - Jurisdiction of High Court under Art. 226 - High Court normally does not exercise jurisdiction by entertaining petitions against orders of taxing authorities when the statute provides a remedy by way of appeal or revision, thereby bypassing statutory machinery - High Court may intervene where the statute is beyond legislative competence, defies constitutional restrictions, infringes fundamental rights, or where the authority has committed a serious error of procedure or lacks power. (Para 5)
(B) Fundamental Rights - Levy of a tax lawfully imposed under a statute within the competence of the legislature cannot be deemed to infringe the fundamental rights guaranteed by Art. 19(1)(f) and (g). (Para 7)
(C) Sale - Appropriation of stock-in-trade owned by a retail dealer for his own use does not constitute a sale within the meaning of the taxing statute. (Para 5)
Facts of the case:
A company registered as a retail dealer of motor spirit and lubricants used a portion of its stock for its own vehicles. The taxing authority assessed this consumption as a taxable retail sale. The company filed a petition under Art. 226 of the Constitution to quash the order, contending that consumption of own goods is not a sale and that the tax was unconstitutional. The High Court dismissed the petition, holding that the company was an agent of the supplier and thus the consumption constituted a purchase from the principal.
Findings of Court:
The High Court erred in deciding the petition on a ground not raised by the taxing authority and in investigating the factual nature of the transaction. Such determinations must be made through the statutory machinery provided under the Act. The challenge regarding fundamental rights was rejected as the state had the power to levy the tax.
Issues: Whether the High Court under Art. 226 can determine the factual nature of a transaction when statutory remedies exist, and whether a lawfully imposed sales tax infringes fundamental rights under Art. 19(1)(f) and (g).
Ratio Decidendi: The High Court should not bypass statutory appellate machinery to ascertain the nature of a transaction unless there is a constitutional or jurisdictional issue. A tax lawfully imposed by a competent legislature does not violate fundamental rights. The question of whether goods consumed by a dealer belong to the dealer or a principal is a factual matter for the taxing authorities to determine.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether consumption of own stock constitutes a retail sale — whether the taxing statute is unconstitutional and infringes fundamental rights to carry on business and hold property. (Para 3 )
3. High Court erred by bypassing statutory appeal machinery to determine the nature of a transaction instead of deciding the constitutional validity of the taxing statute. (Para 5 , 6 )
4. High Courts should not exercise jurisdiction under Article 226 to determine the nature of a taxable transaction when a statutory appeal remedy exists. (Para 5 , 6 )
5. Appeal dismissed — Company permitted to challenge the tax liability before the appropriate taxing authorities. (Para 9 )
6. When can a High Court entertain a petition against the order of taxing authorities under Article 226 if a statutory appeal exists?
Normally, the High Court does not bypass statutory machinery. However, it may intervene to decide legislative competence, constitutional restrictions, infringement of fundamental rights, lack of power, serious procedural errors, or erroneous interpretations of the statute. (Para 5 )
7. Does the appropriation of stock-in-trade by a retail dealer for own use constitute a sale?
If the goods are owned by the dealer, appropriation for own use does not constitute a sale. The determination of ownership and the nature of the transaction must be decided by the taxing authorities using the provided statutory machinery. (Para 5 , 8 , 9 )
8. Does a lawfully imposed tax under a competent statute infringe fundamental rights under Article 19(1)(f) and (g)?
No. A tax lawfully imposed under a statute within the legislative competence of the legislature cannot be deemed to infringe the fundamental rights to hold property or carry on business. (Para 7 )
Judgment
SHAH, J. : This is an appeal against the judgment of the Madhya Pradesh High Court dismissing a petition filed by the Bhopal Sugar Industries Ltd.. hereinafter called the Company for a writ under Art. 226 of the Constitution quashing the order of the Sales Tax Officer, dated May 1, 1960 which imposed liability upon the Company for payment of sales tax under the Madhya Bharat Sales of Motor Spirit Taxation Act, 20 of 1953 in respect of motor spirit and lubricants used for own vehicles.
2. The Company carries on the business of manufacturing sugar, and maintains for the propose of that business a fleet of motor trucks and other motor vehicles. The Company is also registered under the Act as a retail dealer of motor spirit and lubricants. During the period April 1, l957 and March 31, 1958 the Company consumed a part of its stock-in trade of motor spirits and lubricants for its own vehicles. The Sales Tax Officer, Bhopal Region, by order dated May 1, 1960 assessed the Company to pay tax in respect of motor spirits and lubricants consumed for its vehicles. The Company then filed a petition in the High Court of Madhya Pradesh at Jabalpur under Art. 226 of the Constitution for a writ in the nature of certiorari squashing the order dated May 1, 1960 passed by the Sales Tax Officer and the notice of demand issued in pursuance thereof, and for a writ of prohibition or mandamus restraining the Sales Tax Officer from recovering any tax in pursuance of the order.
3. The Company set up two grounds in support of its petition:
(1) That the Sales Tax Officer had power to levy tax on sale only i. e. on transfer of property for a price, and as there was no sale of motor oil and lubricants consumed by the Company for its own vehicles there being no transfer of property to any one, and no price being paid or promised, consumption of the articles was not taxable. That it was submitted is manifest from the charging Section 3 read with the definition under S. 2 (k) of the Act of retail sale which does not include consumption by a retail dealer of his own goods.
(2) That power of the State to levy tax on the sale or purchase of goods (other than newspapers) could be exercised only under Entry .54 of List II of Sch. 7 to the Constitution. Therefore the attempted levy of tax was illegal and without authority of law, and infringed the Company s fundamental right to carry on business and to hold and acquire property as guaranteed by Art. 19 (1) (f) and (g) of the Constitution.
4. At the hearing of the petition the High Court did not consider the grounds set up in support of the petition, but called upon the Company to produce a copy of its agreement with Caltex (India) Ltd. under which the supply of motor-spirits and lubricants was obtained by the Company, and proceeded to adjudicate the claim for relief in the light of the covenants of the agreement. The High Court dismissed the petition holding that the assumption made in the petition that the Company was the owner of the motor spirits and lubricants obtained from Caltex (India) Ltd. was not warranted. It was observed :
"These clauses and other clauses relating to the responsibility for loss, safeguard against contamination of petrol, sale by the dealer of the products of Caltex (India) Limited only, settlement of accounts - all point to the fact that the petitioner (the Company) was not constituted a full and absolute owner of the petrol supplied by Caltex (India) Limited at the petrol pump maintained by the petitioner at Sehore. The petrol remained the property of Caltex (India) Limited. and the petitioner sold it as an agent of the supplying Company. When, therefore, the petitioner obtained petrol for itself at the pump and used it in its own vehicles, there was a sale of the petrol by the petitioner as an agent of Caltex (India) Limited to the petitioner-company as a consumer. It was nothing but a purchase by the agent of property belonging to the principal. That being so, there was retail sale by
