1. Challenge to sales tax demands on transactions alleged to be inter-state sales protected under Article 286 of the Constitution — Petition under Article 32. (Para 1 , 2 )
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1964 Supreme(SC) 52
SUPREME COURT OF INDIA
P.B.Gajendragadkar, C.J.I., J.C.Shah, K.N.Wanchoo, N.Rajagopala Ayyangar, S.M.Sikri, JJ.
Tata Engineering And Locomotive Company Limited: Automobile Products Of India Limited: State Trading Corporation Of India Limited
Versus
State Of Bihar: Mohd.Sharfuddin Sales-tax Officer Bombay: Commercial Tax Officer
Case No. : 112 , 113 of 1961
Date of Decision : 2/25/64
Advocates Appeared: Agrawal S.C. : Bindra N.S. : Chetty A.Ranganadham : Dadachanji J.B. : Dhebar R.H. : Dutta B. : Garg R.K. : Gupta S.V. : Mathur O.C. : Narain Ravindra : Palkhivala N.A. : Pathak G.S. : Ramamurthi M.K. : Setalvad M.C. : Singh D.P. : Sinha Lal Narain : Tatachari T.V.R.
Advocates:
A.RANGANADHAM CHETTY, B.DUTTA, D.P.Singh, G.S.PATHAK, J.B.DADACHAN, LAL NARAIN SINHA, M.C.SETALVAD, M.K.RAMAMURTHY, N.A.PALKHIWALA, N.S.BINDRA, O.C.MATHUR, R.H.Dhebar, R.K.GARG, Ravindra Narayan, S.C.AGRAWAL, S.V.Gupta, T.V.R.TATACHARI
A.RANGANADHAM CHETTY, B.DUTTA, D.P.Singh, G.S.PATHAK, J.B.DADACHAN, LAL NARAIN SINHA, M.C.SETALVAD, M.K.RAMAMURTHY, N.A.PALKHIWALA, N.S.BINDRA, O.C.MATHUR, R.H.Dhebar, R.K.GARG, Ravindra Narayan, S.C.AGRAWAL, S.V.Gupta, T.V.R.TATACHARI
A corporation is a separate legal entity and not a "citizen" under Article 19 of the Constitution. Consequently, it cannot invoke the doctrine of lifting the corporate veil to claim fundamental rights reserved for citizens through its shareholders.
Headnote:(A) Constitution of India - Articles 19, 32, and 286 - Fundamental rights of citizens - Whether a corporation can claim protection under Article 19 by invoking the doctrine of lifting the corporate veil to represent its shareholders who are citizens - A corporation is a separate legal entity distinct from its shareholders (Para 24) - Article 19 guarantees rights specifically to citizens and not to juristic persons (Para 28) - The doctrine of lifting the corporate veil cannot be used to indirectly grant a corporation rights that it cannot claim directly (Para 28).
(B) Constitution of India - Article 19(1)(c) and (g) - Right to form associations and right to carry on trade - The right to form an association is exercised upon the incorporation of the company; once formed, the business is that of the corporation and not the individual citizens (Para 29).
Facts of the case:
Petitioners, being corporate entities, challenged sales tax demands on the ground that the transactions were inter-state sales protected under the Constitution. They filed writ petitions under Article 32, alleging infringement of fundamental rights. To address the requirement of citizenship for Article 19, the petitions were filed in the names of the companies and some of their shareholders, arguing that the corporate veil should be lifted to recognize the rights of the citizen shareholders.
Findings of Court:
The court held that corporations are not citizens within the meaning of Article 19. The doctrine of lifting the corporate veil cannot be applied to allow a corporation to indirectly claim fundamental rights reserved for citizens.
Issues: Whether a company or corporation, through its shareholders, can maintain a writ petition under Article 32 for the enforcement of fundamental rights guaranteed specifically to citizens under Article 19.
Ratio Decidendi: A corporation is a separate legal entity. Since Article 19 is explicitly restricted to "citizens," and corporations are not citizens, they cannot invoke these rights. Lifting the corporate veil to allow shareholders to claim these rights would circumvent the constitutional limitation. The exercise of the right to form an association under Article 19(1)(c) is complete upon incorporation; subsequent business activities are those of the corporate entity, not the individual citizens.
Result: Writ petitions dismissed as being incompetent under Art. 32 of the Constitution.
Legal Category Hierarchy
Table of Contents
2. Whether quasi-judicial assessment orders are challengeable under Article 32 and whether corporations can claim fundamental rights under Article 19 by lifting the corporate veil. (Para 5 , 6 , 23 , 25 , 29 )
3. Corporations are separate legal entities; the corporate veil cannot be lifted to grant them fundamental rights reserved for citizens under Article 19. (Para 24 , 26 , 27 , 28 , 29 )
4. A corporation is not a citizen and cannot invoke fundamental rights guaranteed exclusively to citizens under Article 19, regardless of the citizenship of its shareholders. (Para 28 )
5. Writ petitions dismissed as incompetent under Article 32. (Para 30 )
6. Can a corporation claim fundamental rights guaranteed only to citizens under Article 19?
No. A corporation is a separate legal entity and not a citizen. The Constitution intends that rights under Article 19 are guaranteed only to citizens, and corporations cannot claim these benefits. (Para 24 , 28 )
7. Can the doctrine of lifting the corporate veil be used to allow shareholders to claim Article 19 rights for a company?
No. While the corporate veil can be lifted in cases of fraud or trading with the enemy, it cannot be lifted to indirectly grant a corporation rights that it cannot achieve directly as a non-citizen. (Para 24 , 26 , 27 , 28 )
8. Does the right to form associations under Article 19(1)(c) allow a company to exercise the right to trade under Article 19(1)(g)?
No. The right to form an association is exercised upon the company's incorporation. Once formed, the company's business is its own, and it cannot claim the individual fundamental rights of its citizen shareholders. (Para 29 )
P.B.GAJENDRAGADKAR, CJI.
(1) THESE writ petitions have been placed for hearing before us in a group, because they raise a common question of law in regard to the validity of the demand for sales tax which has been made against the respective petitioners by the Sales-tax Officers for different areas. The facts in respect of each one of the writ petitions are not the same and the years for which the demand is made are also different; but the pattern of contention is uniform and the arguments urged in each one of them are exactly the same. Broadly stated. the case for the petitioners is that the appropriate authorities purporting to act under the different Sales Tax Acts are attempting to recover from the petitioners sales-tax in respect of transactions to which the petitioners were parties, though the said transactions are not taxable under Art. 286 of the Constitution. Art. 286(1) (a) provides that no law of a Sales shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State; and the argument is that the sales in question are all sales which took place outside the State and as such, are entitled to the protection of Art. 286(1) (a). The authorities under the respective Sales Tax Acts have rejected the petitioners contention that the transactions in question are inter-State sales and have held that Art. 286(1)(a) is not applicable to them. A similar finding has been recorded against the petitioners under Art. 286(2). The petitioners grievance is that by coming to this erroneous conclusion, a tax is being levied against them in respect of transactions protected by Art. 286(1)(a) and that constitutes a breach of their fundamental rights under Art. 3 1 (1). It is this alleged infringement of their fundamental rights that they seek to bring before this court under Art. 32(1). It has been urged on their behalf that the right to move this court under Art. 32(1) is itself a fundamental right, and so, under Art. 32(2) an appropriate order should be passed setting aside the directions issued by the Sales-tax Authorities calling, upon the petitioners either to pay the sales-tax, or to comply with other directions issued by them in that behalf.
(2) FOR dealing with the points raised by these writ petitions, it is not necessary to set out the facts in respect of each one of them. For convenience we will refer to the facts set out by the Tata Engineering & Locomotive Co. Ltd., the petitioner in W.Ps. Nos. 112 and 113 of 1961. The petitioner is a company registered under the Indian Companies Act, 1913 and carries on the business of manufacturing, inter alia, Diesel Truck and Bus chassis and the spare parts and accessories thereof at Jamshedpur in the State of Bihar. The company sells these products to dealers, State Transport Organisations and others doing business in various States of India. The registered office of the petitioner is in Bombay. In order to promote its trade throughout the country, the petitioner has entered into Dealership Agreements with different persons. The modus adopted by the petitioner in carrying on its business in different parts of India is to sell its products to the dealers by virtue of the relevant provisions of the Dealership Agreements. Accordingly, the petitioner distributes and sells its vehicles to dealers, State Transport Organisations and consumers in the manner set out in the petition. The petitioner contends that the sales in respect of which the present petitions have been filed were effected in the course of inter-State trade and as such, were not liable to be taxed under the relevant provisions of the Sales Tax Act. The Sales-tax Officer, on the other hand, has head that the sales had taken place within the State of Bihar and were intra-State sales and as such, were liable to assessment under the Bihar Sales Tax Act. In accordance with this conclusion, further steps are threatened against the petitioner i
