1. Dispute over taxability of inter-State sales and purchases under the Madras General Sales Tax Act, 1939, involving goods delivered outside the State for consumption. (Para 2 , 3 )
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1967 Supreme(SC) 213
SUPREME COURT OF INDIA
K.N. WANCHOO, C.J.I., R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE, JJ.
State of Madras, etc., Appellants
Versus
M/s. A. Habibur Rehman and Sons, etc., Respondents.
Civil Appeals Nos. 495, 539 and 540, 684, 694, 717 and 857 of 1966,
D/- 30-8-1987.
Advocates Appeared
Mr. G. Ramanujam, Government Pleader and Mr. A. V. Rangam, Advocate, for Appellants (In all the Appeals); Mr. T. A. Ramachandran, Advocate for M/s. J. B. Dadachanji and Co., for Respondent (In C. A. No. 495 of 1966); M/s. M. S. K. Sastri and M. S. Narasimhan, Advocates, for Respondent (In C. As. Nos. 539 and 540 of 1966); M/s. A. N. Sinha and D. N. Gupta, Advocates, for Respondent (In C. A. No. 684 of 1966); M/s. S. Kartar Singh Suri and E. C. Agarwala, Advocates, for Respondent (In C. A. No. 694 of 1966); Mr. Avad Behari Advocate, for Respondent (In C. A. No. 717 of 1966); Mr. G. N. Dikshit, Advocate, for Respondent (In C. A. No. 857 of l966).
Important Points
The Sales Tax Laws Validation Act, 1956, only lifted the ban on inter-State trade under Article 286(2) of the Constitution; it did not remove the ban on "outside sales" under Article 286(1)(a). Thus, sales where goods are delivered outside the State for consumption remain non-taxable by the originating State.
Subject
Tax Law - Sales Tax
Act Referred
Headnote
(A) Constitution of India - Article 286 - Sales Tax Laws Validation Act, 1956 - State General Sales Tax Act - Section 2(h) and Section 3 - Taxability of inter-State sales - The restrictions imposed by Article 286 are cumulative. The ban under Article 286(2) regarding inter-State trade and commerce is distinct from the ban under Article 286(1)(a) regarding sales taking place outside the State. The Validation Act, which retrospectively removed the ban on inter-State sales for a specific period, only lifted the restriction under Article 286(2) and did not remove the ban under Article 286(1)(a). (Paras 6, 7)
(B) Constitution of India - Article 286(1) - Explanation - "Outside sale" - A sale is deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale for the purpose of consumption in that State. If goods are delivered outside the State for consumption therein, the taxing State has no jurisdiction to tax such sales, regardless of where the property in the goods passed. (Paras 6, 7)
(C) High Court - Revisional Powers - Evidence - Where a party does not object to the admission of additional evidence, such as affidavits, during the proceedings in the High Court, such objection is deemed waived and cannot be raised in a subsequent appeal. (Para 8)
Facts of the case:
A manufacturer was assessed to sales tax, and the State sought to include certain inter-State sales in the taxable turnover, contending that the Validation Act lifted the ban on taxing such sales. The High Court held that since the goods were delivered outside the State for consumption, they constituted "Explanation sales" under Article 286(1) of the Constitution and were therefore not taxable by the State.
Findings of Court:
The Court found that the Validation Act only removed the ban under Article 286(2) and not the ban under Article 286(1)(a). Since the goods were delivered outside the State for consumption, the State lacked the constitutional jurisdiction to tax those transactions.
Issues: Whether the State had jurisdiction to levy sales tax on "Explanation sales" (inter-State sales delivered outside the State for consumption) during the period between April 1, 1955, and September 5, 1955, by virtue of the Validation Act lifting the ban on inter-State trade.
Ratio Decidendi: The restrictions under Article 286 are cumulative. Lifting the ban on inter-State trade under Article 286(2) via the Validation Act does not authorize a State to tax sales that are "outside sales" under Article 286(1)(a). A sale where goods are delivered outside the State for consumption is fictionally deemed to take place in the State of delivery and is therefore outside the taxing power of the originating State.
Result: Appeals dismissed.
(B) Constitution of India - Article 286(1) - Explanation - "Outside sale" - A sale is deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale for the purpose of consumption in that State. If goods are delivered outside the State for consumption therein, the taxing State has no jurisdiction to tax such sales, regardless of where the property in the goods passed. (Paras 6, 7)
(C) High Court - Revisional Powers - Evidence - Where a party does not object to the admission of additional evidence, such as affidavits, during the proceedings in the High Court, such objection is deemed waived and cannot be raised in a subsequent appeal. (Para 8)
Facts of the case:
A manufacturer was assessed to sales tax, and the State sought to include certain inter-State sales in the taxable turnover, contending that the Validation Act lifted the ban on taxing such sales. The High Court held that since the goods were delivered outside the State for consumption, they constituted "Explanation sales" under Article 286(1) of the Constitution and were therefore not taxable by the State.
Findings of Court:
The Court found that the Validation Act only removed the ban under Article 286(2) and not the ban under Article 286(1)(a). Since the goods were delivered outside the State for consumption, the State lacked the constitutional jurisdiction to tax those transactions.
Issues: Whether the State had jurisdiction to levy sales tax on "Explanation sales" (inter-State sales delivered outside the State for consumption) during the period between April 1, 1955, and September 5, 1955, by virtue of the Validation Act lifting the ban on inter-State trade.
Ratio Decidendi: The restrictions under Article 286 are cumulative. Lifting the ban on inter-State trade under Article 286(2) via the Validation Act does not authorize a State to tax sales that are "outside sales" under Article 286(1)(a). A sale where goods are delivered outside the State for consumption is fictionally deemed to take place in the State of delivery and is therefore outside the taxing power of the originating State.
Result: Appeals dismissed.
Legal Category Hierarchy
Advocates:
A.N.SINHA, A.V.RANGAM, AVAD BEHARI, D.N.GUPTA, E.C.AGARWAL, G.N.DIKSHIT, G.RAMANUJAM, J.B.DADACHAN, M.S.K.Shastri, M.S.NARASIMHAN, S.KARTAR SINGH SURI, T.A.Ramachandran
A.N.SINHA, A.V.RANGAM, AVAD BEHARI, D.N.GUPTA, E.C.AGARWAL, G.N.DIKSHIT, G.RAMANUJAM, J.B.DADACHAN, M.S.K.Shastri, M.S.NARASIMHAN, S.KARTAR SINGH SURI, T.A.Ramachandran
Table of Contents
2. Whether the Sales Tax Laws Validation Act, 1956, lifted the constitutional ban on taxing inter-State sales delivered outside the State for consumption. (Para 6 )
3. The Validation Act removed the ban under Article 286(2) but not the independent ban under Article 286(1)(a) regarding sales delivered outside the State for consumption. (Para 6 , 7 )
4. Sales where goods are delivered outside the State for consumption are deemed outside sales under Article 286(1) and remain non-taxable regardless of the Validation Act. (Para 6 , 7 )
5. Appeals dismissed; the State lacked jurisdiction to tax sales of goods delivered outside the State for consumption. (Para 9 , 13 )
6. Does the Sales Tax Laws Validation Act, 1956, authorize States to tax all inter-State sales?
No. The Validation Act only removed the ban under Article 286(2) of the Constitution. It did not remove the ban under Article 286(1)(a), which prohibits taxing sales where goods are delivered outside the State for consumption. (Para 6 , 7 )
7. How is the location of a sale determined for the purpose of Article 286(1) of the Constitution?
A sale is deemed to have taken place in the State where the goods are actually delivered as a direct result of the sale for the purpose of consumption in that State. (Para 6 )
8. What is the meaning of actual delivery under the Explanation to Article 286(1)?
Actual delivery refers to the physical delivery of goods or actions putting the goods in the purchaser's possession, excluding symbolic or notional delivery. (Para 6 )
9. Is a party precluded from challenging the use of affidavits in High Court if they failed to object during the proceedings?
Yes. If a party does not raise an objection before the High Court when affidavits are taken into evidence, the objection is considered waived. (Para 8 , 11 )
Judgement
RAMASWAMI, J. :- This appeal is brought, by special leave, from the judgment of the Madras High Court dated September 23, 1963, in Tax Case No. 246 of 1962.
2. The respondent who was a Beedi manufacturer in Gudiyattam, Madras State was assessed to sales tax on a taxable turnover of Rs. 1,73,502-11-10 for the assessment year 1955-56 by the Deputy Commercial Tax officer. Against this order of assessment dated February 15, 1957 the respondent appealed to the Appellate Assistant Commissioner of Commercial Taxes, Salem disputing the inclusion of a sum of Rs. 1,11,299 and odd on the ground that the said amount represented either second purchases or purchase made outside the State of Madras. Pending the appeal the Madras General Sales Tax Act, 1959 was passed and the earlier Act of 1939 was repealed and by force of the provisions in the 1959 Act the appeal was finally disposed of by the Appellate Assistant Commissioner of Commercial Taxes, Salem. By his order dated July 2, 1960, the Appellate Assistant Commissioner held that the excise duty paid by the respondent could not form part of his purchase turnover but in purported exercise of his powers under the new Act enhanced the assessment of the turnover by including a sum of Rs. 1,15,406-14-9 as inter-State purchases from April 1, 1955 to September 5, 1955. The respondent took the matter in further appeal to the Sales Tax Appellate Tribunal. The appellant also filed petitions before the Tribunal for enhancement of the assessment by Rs. 3,66,213-12-0 on the ground that the amount represented sales of manufactured beedies to non-resident buyers during the period May 12, 1955 to September 5, 1955 and that the goods in question were within the territory of the State at the time the contract of sale in respect thereof was made. It was contended on behalf of the appellant that the sales were taxable by virtue of Explanation (2) to Sec.2 (h) of the Madras General Sales Tax Act, 1939 in view of the lifting of the ban on the levy of tax on inter-State sales by the Sales Tax Validation Act, 1956 (Central Act 7 of 1956), hereinafter called the Validation Act , and that it was wrongly excluded from the taxable turnover by the taxing authorities. By its order dated July 13, 1962, the Appellate Tribunal allowed the petition for enhancement and rejected the contention of the respondent that the sales were agency sales through Commission Agents. As regards the alleged second purchases or outside purchases of raw tobacco, the Appellate Tribunal remanded the case to the Appellate Assistant Commissioner. Against the order of the Appellate Tribunal the respondent filed a petition in the High Court of Madras under Section 38 of the Madras General Sales Tax Act, 1959. By its order dated September 23, 1963 the High Court held: (1) that the inclusion of the inter-State purchases from April 1, 1955 to September 5, 1955 of Rs. 1,15406-14-9 was bad as the Appellate Assistant Commissioner had no jurisdiction to include that turnover; (2) that the turnover of Rs. 3,66,213-12-0 included by the Appellate Tribunal could not be brought to tax as the beedies, which were the subject of the relevant sales, were delivered outside the State for purposes of consumption and as the sales therefore constituted Explanation sales under Article 286 (1) of the Constitution as it stood prior to the Sixth Amendment and consequently the Madras State had no jurisdiction to tax the said sales. Being aggrieved by that part of the decision of the Madras High Court on the question of taxability of the said transactions of inter-State sales effected prior to September 6, 1955, the State of Madras has brought the present appeal.
3. The question presented for consideration in this appeal is whether the Madras State had jurisdiction to levy sales tax on the alleged "Explanation sales" by the respondent during the period between April 1, 1955, to September 5, 1955 by virtue of Explanation (2) to Section 2 (h) of the Madras General Sal
