TATA ENGINEERING AND LOCOMOTIVE COMPANY LTD. vs ASSISTANT COMMISSIONER OF COMMERCIAL TAXES

Headnote Court Copy Facts Arguments Court observation Judicial Analysis Case Map Category Hierarchy Table of Content

1967 Supreme(SC) 53

G.K. Mitter, J.M. Shelat, M. Hidayatullah, JJ.
TATA ENGINEERING AND LOCOMOTIVE COMPANY LTD.
Versus
THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES AND ANOTHER
C.W.J.C. No. 252 of 1966, Civil Appeal No. 1604 of 1966
Decided On: Decided On : 24-02-1967

Important Points

The High Court may exercise its extraordinary jurisdiction under Article 226, despite available alternative remedies, if the action is arbitrary or without legal sanction, particularly when the dispute involves a question of law rather than fact, to avoid unavoidable hardship and circuity of action.

Subject

Tax Law - Sales Tax

Act Referred

Bihar Sales Tax Act
Central Sales Tax Act: S.4(2)
Constitution of India: Art.226
Contract Act: S.84

Headnote

(A) Constitution of India - Article 226 - Extraordinary jurisdiction - Not a substitute for ordinary remedies - Exception: Action taken under an invalid law or arbitrarily without the sanction of law - High Court may interfere to avoid unavoidable hardship.

(B) Sales Tax - Taxability of sales from stock-yards located in states other than the home state - Question of whether such sales are in the course of inter-State trade and commerce or are outside sales.

Facts of the case:
A company manufacturing vehicles and spare parts sells its products through stock-yards located in various states. The company excluded sales from these stock-yards from its tax returns in the home state, contending they were not taxable there. The tax authority rejected this plea and raised a substantial tax demand. The company filed a writ petition in the High Court challenging the jurisdiction of the tax authority. The High Court dismissed the petition, stating that internal remedies of appeal and revision had not been exhausted and the deposit required for appeal was not too onerous.

Findings of Court:
The High Court should have exercised jurisdiction under Article 226 to determine if the transactions disclosed a sale outside the home state or in the course of inter-State trade, as this was a question of law and not a disputed question of fact.

Issues: Whether the High Court ought to have exercised its extraordinary jurisdiction under Article 226 despite the availability of alternative remedies when the dispute involves a question of law and a significant tax demand.

Ratio Decidendi: The jurisdiction under Article 226 is extraordinary and used sparingly, but it can be invoked where action is taken arbitrarily or without legal sanction to avoid hardship. If the issue is a question of law and not a finding of fact, the High Court should intervene to avoid circuity of action.

Result: Appeal allowed; order of the High Court set aside and case remitted for further consideration.

Legal Category Hierarchy

Advocates Appeared:
N.A. Palkhiwala, Senior Advocate (S.P. Mehta and Ravinder Narain and O.C. Mathur of J.B. Dadachanji and Co. with him), for the appellant
Niren De, Additional Solicitor-General of India (U.P. Singh with him), for the respondents

JUDGMENT

HIDAYATULLAH, J.

The appellant is a public limited company which manufactures the well-known Tata Mercedes-Benz trucks, bus chassis, their spare parts and other accessories at Jamshedpur in the State of Bihar and they are sold to the Government of India, the State Governments, State Transport Corporations and others. In the course of its business the appellant-company sells its products, particularly the trucks and bus chassis, to dealers in various parts of India and the dealers resell them to consumers all over India. According to the appellant-company, its sales in the Indian market are of three kinds :

(a) Sales inside Bihar State;

(b) Sales in the course of inter-State trade and commerce; and

The present appeal concerns sales in the last category and the question arises in the following circumstances.

The appellant-company filed returns for the quarter ending on June 30, 1965, under the Bihar Sales Tax Act and the Central Sales Tax Act respectively, including in the former, sales to consumers in Bihar State and in the latter, sales in the course of inter-State trade or commerce, and paid full tax due on such sales. The appellant-company did not include sales from the stock-yards, in any of its returns.

On November 12, 1965, the Assistant Commissioner of Commercial Taxes, Jamshedpur, sent a notice (No. 11284) informing the appellant-company that the returns appeared to be incorrect as all sales were not included and directed the appellant-company to include all its sales in revised returns and all returns to be filed in future. The appellant-company demurred that sales from their stock-yards in other States were neither sales in the State of Bihar, nor sales in the course of inter-State trade or commerce and were thus not taxable in Bihar. This plea was not accepted and revised returns for the quarters ending on June 30 and September 30, 1965, were ordered to be filed. The appellant-company filed amended returns under protest and without prejudice to its contentions. At the same time the appellant-company disclosed the entire procedure of sales ex-stock-yards and relied upon section 4(2) of the Central Sales Tax Act to exclude such sales. The appellant-company also inquired whether these sales were to be treated as sales in Bihar for the purposes of the Bihar Sales Tax Act or as sales in the course of inter-State trade and commerce for purposes of the Central Sales Tax Act but no reply was given. The appellant-company further asked for an opportunity to produce declarations from its customers, who are also registered dealers, with a view to claiming a rebate, but this opportunity was denied. The appellant-company objected to the assessment for a period of six months under a tax legislation, which it claimed, was intended to operate yearly but to no effect. According to the revised returns filed under compulsion, the break-up of the sales was as follows : The total gross turnover was Rs. 33,99,23,595. The appellant-company claimed to deduct (a) sales from stock-yards at extra State points (Rs. 15,09,24,204); (b) sales in the course of export out of India (Rs. 34,83,671); and (c) sales effected in Bihar on which Bihar sales tax was payable (Rs. 3,64,79,209). The balance of Rs. 14,90,36,510, according to the appellant-company, consisted of sales (Rs. 14,33,02,855) to registered dealers taxable at 2 per cent. and sales of the balance to unregistered dealers taxable at 10 per cent. The tax for the period April 1, 1965 to September 30, 1965, was computed at Rs. 34,05,028. The appellant-company stated to have paid against it Rs. 34,45,699 as tax in the Government Treasury and denied any further liability.

The Assistant Commissioner after turning down the requests for adjournments proceeded to assess the appellant-company. The gross turnover for the two quarters was taken to be Rs. 35,13,60,725. The difference (Rs. 1,14,37,129) arose because tax