1. Inter-state sale of goods — Dispute over the appropriate state for levying tax under the Central Sales Tax Act, 1956 — Conflict between state of origin and state of document transfer. (Para 1 , 2 , 3 )
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1960 Supreme(SC) 191
Supreme Court Of India
B.P.SINHA, C.J.I., S.J.IMAM,A.K.SARKAR,K.C.DAS GUPTA, J.C.SHAH, JJ.
Tata Iron and Steel Bombay - Appellant
Versus
S.R.Sarkar - Respondent
Petition No. 199 of 1959
Decided On : 08/29/1960
Advocates Appeared:
M/s. A. V. Viswantha Sastri and N. A. Palkhivala, Senior Advocates, (M/s. S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co., with them), for Petitioner; Mr. B. Sen, Senior Advocate, (M/s. K. C. Mukherjee and P. K. Bose, Advocates, with him), for Respondents (Nos. 1 and 2):Mr. Lal Narayan Sinha, Senior Advocate, (Mr. S. P. Varma, Advocate, with him), for Respondent (No. 3); Mr. C. K. Daphtary, Solicitor General of India (M/s. R. Ganapathy Iyer, R. H. Dhebar and T. M. Sen, Advocates, with him), for Respondent (No. 4).
M/s. A. V. Viswantha Sastri and N. A. Palkhivala, Senior Advocates, (M/s. S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co., with them), for Petitioner; Mr. B. Sen, Senior Advocate, (M/s. K. C. Mukherjee and P. K. Bose, Advocates, with him), for Respondents (Nos. 1 and 2):Mr. Lal Narayan Sinha, Senior Advocate, (Mr. S. P. Varma, Advocate, with him), for Respondent (No. 3); Mr. C. K. Daphtary, Solicitor General of India (M/s. R. Ganapathy Iyer, R. H. Dhebar and T. M. Sen, Advocates, with him), for Respondent (No. 4).
For inter-State sales under Section 3(b) of the Central Sales Tax Act, the 'appropriate State' is where the transfer of documents of title occurs, provided such transfer passes the property in the goods. Section 4(2) does not determine the situs for such inter-State sales.
Headnote:(A) Central Sales Tax Act, 1956 - Sections 2(a), 3, 4, 6, 9 - Constitution of India - Articles 19(1)(g), 32, 269, 286 - Inter-State sales - Jurisdiction to assess tax - Maintainability of petition under Article 32 - An illegal levy of tax, even if the Act itself is not challenged as ultra vires, infringes the fundamental right to hold property and carry on business under Article 19(1)(g), making a petition under Article 32 maintainable. (Paras 5, 37)
(B) Central Sales Tax Act, 1956 - Section 3 - Interpretation of clauses (a) and (b) - Clauses (a) and (b) are mutually exclusive to prevent multiple taxation of the same sale - Clause (a) covers sales occasioning movement of goods from one state to another, while clause (b) covers sales effected by transfer of documents of title during such movement - Where a sale falls under both, it is governed by clause (b). (Paras 15, 44-52)
(C) Central Sales Tax Act, 1956 - Section 2(a) and Section 4 - Determination of "Appropriate State" - For sales under Section 3(b), the "appropriate State" is where the sale is "effected," which is the place where the transfer of documents of title resulting in transfer of property occurs - Section 4(2), which defines sales "inside a State," is intended to determine "outside sales" under Article 286(2) and does not apply to determine the "appropriate State" for inter-State sales under Section 3(b). (Paras 19, 53-66)
Facts of the case:
A company with factories in one state and a sales office in another was assessed for sales tax by the taxing authority of the destination state. The authority claimed jurisdiction because documents of title were transferred within its territory for goods moving from the origin state. The company contended that the origin state was the appropriate state as the goods were located there at the time of the contract of sale or appropriation to the contract.
Findings of Court:
The taxing authority erred by assuming that the mere physical transfer of documents in the destination state automatically made it the appropriate state, without verifying if the transfer of documents actually passed the property in the goods as per the agreement between the parties.
Issues: 1. Whether a petition under Article 32 is maintainable when the taxing statute is not challenged as ultra vires. 2. Whether Sections 3(a) and 3(b) of the Central Sales Tax Act are mutually exclusive. 3. Whether the "appropriate State" for a sale under Section 3(b) is determined by Section 4(2) or by the place where the sale is "effected" under Section 2(a).
Ratio Decidendi: The court held that for inter-State sales under Section 3(b), the "appropriate State" is where the transfer of documents of title occurs, provided such transfer passes the property in the goods. Section 4(2) is irrelevant for this determination as it pertains to "outside sales." The taxing authority must establish that the transfer of documents actually effected the sale (transfer of property) rather than just the physical delivery of documents.
Result: Petition allowed; writ of certiorari issued quashing the order of assessment.
Legal Category Hierarchy
- constitutional law
- tax law
- administrative law
Table of Contents
2. Maintainability of petition under Article 32 — Determination of appropriate state for inter-state sales — Interpretation of Section 3(b) and Section 4(2) of the Central Sales Tax Act. (Para 5 , 37 , 39 , 40 )
3. Mutual exclusivity of Section 3(a) and 3(b) — Distinction between determining situs for inter-state sales versus determining sales taking place outside a state under Section 4. (Para 15 , 18 , 26 , 44 , 47 , 52 , 59 , 62 , 64 , 65 , 66 )
4. For sales under Section 3(b), the appropriate state is where the transfer of documents of title resulting in transfer of property is completed. (Para 59 )
5. Writ of certiorari issued quashing the assessment order — Liberty granted to the taxing authority to re-assess based on the interpreted legal tests. (Para 30 , 31 , 69 , 71 )
6. Is a petition under Article 32 maintainable against an illegal tax levy if the statute's validity is not challenged?
Yes, if the threat to recover tax without authority of law or double taxation infringes fundamental rights, such as the right to hold property under Article 19(1)(f) or the right to carry on business. (Para 5 , 37 )
7. Are sales under Section 3(a) and Section 3(b) of the Central Sales Tax Act, 1956, mutually exclusive?
Yes, they are mutually exclusive to prevent double taxation. If a sale satisfies both, it falls under Section 3(b) where property passes by transfer of documents of title during movement. (Para 15 , 44 , 47 , 51 , 52 )
8. How is the appropriate state determined for inter-state sales effected by the transfer of documents of title under Section 3(b)?
The appropriate state is the state where the sale is effected, which is the place where the transfer of documents of title resulting in the transfer of property is completed. (Para 54 , 59 )
9. Does Section 4(2) of the Central Sales Tax Act, 1956, determine the situs of a sale for the purpose of identifying the appropriate state in inter-state trade?
No, Section 4(2) defines when a sale is deemed to take place inside a state solely to determine if it took place outside all other states under Article 286(2). (Para 26 , 61 , 62 , 64 , 65 , 66 )
10. Does the mere physical transfer of documents of title in a state automatically make that state the appropriate state for taxing a sale under Section 3(b)?
No, the physical transfer only makes the state appropriate if the parties agreed that such transfer would result in the transfer of property in the goods. (Para 28 , 68 )
Judgement
SHAH, J. (for himself, Sinha C.J.I. and Imam, J.) : By this petition for writs of certiorari and mandamus, the Tata Iron and Steel Co., Ltd., hereinafter referred to as the company, challenges the authority of the Commercial Tax Officer, Lyons Range, Calcutta to demand payment of Rs. 41,14,718-12 nP. to the West Bengal Government as tax leviable under the Central Sales Tax Act No. 74 of 1956 in respect of certain sales of steel goods.
2. The company has its registered office in Bombay, its Head Sales office in Calcutta in the State of West Bengal and its factories in Jamshedpur in the State of Bihar. The company is registered as a " dealer under the Bihar Sales Tax Act, and is also registered as a " dealer in the State of West Bengal under the Central Sales Tax Act, 1956. For the period of assessment July 1, 1957 to March 31, 1958, the company submitted its return of taxable sales to the Commercial Tax Officer, Lyons Range, Calcutta disclosing a gross taxable turnover of Rs. 9,561-71 nP. in respect of sales liable to Central Sales tax in the State of West Bengal. By his memorandum dated August 12, 1959, the Commercial Tax Officer directed the company to submit a statement of sales from Jamshedpur for the period under assessment, " documents relating to which were transferred in West Bengal or of any other sales that may have taken place in West Bengal under S. 3(b) of the Central Sales Tax Act, 1956. The company, by its letter dated September 30, 1959, informed the Tax Officer that the requisition for production of statement of sales made from Jamshedpur in the course of inter-State trade or commerce was without jurisdiction. The company contended that " all the sales from Jamshedpur were of the type mentioned in S. 3(a) of the Central Sales Tax Act and at the same time, some of them also fell within the category mentioned in S. 3(b) of the Act, that even if the sales were " of the type mentioned in S. 3(b) of the Act, the appropriate State of the place where the sales take place or are effected alone had jurisdiction to assess such sales to Central Sales tax, and that in respect of inter-State sales from Jamshedpur, the si us of the sale was always the State of Bihar as the goods were in Bihar either at the time of the contract of sale or at the time of appropriation to the contract. By his order dated October 21, 1959, the Commercial Tax Officer made a " best judgment assessment on a gross turnover of Rs. 9,00,09,561-71nP. of inter-State sales and called upon the company to pay Rs. 41,14,718-12 nP. as tax under the Central Sales Tax Act.
3. The company had, on December 15, 1953, filed with the Sales Tax Officer, Jamshedpur a return of inter-State sales made from Jamshedpur for the period July 1, 1957 to March 31, 1958 and a return for the same period for the sales made from Dhanbad with the Sales tax Officer, Dhanbad. In these returns, the company included all sales in which movement of the goods had taken place from the State of Bihar to destinations outside that State The total turnover in respect of such inter-State sales as shown in the return exceeded Rs. 26 crores and the company paid as required by the Bihar Sales Tax Act Rs. 71 lakhs odd as advance tax under the Central Sales tax Act, 1956.
4. By this petition the company impugns the validity of the order of the Commercial Tax Officer and claims a writ of certiorari quashing and setting aside the assessment order dated October 21, 1959, and a writ of mandamus directing the Commercial Tax Officer to refrain from taking steps in enforcement or implementation of the order.
5. Counsel for the respondents contends that the petition under Act. 32 of the Constitution is not maintainable because no fundamental right of the company is infringed by the order passed by the Commercial Tax Officer and the remedy of the company if it feels aggrieved by the order, is to seek relief by resorting to the machinery provided by the West Bengal Sales Tax Act. Counsel relies in suppo
