1958 Supreme(Cal) 154

HIGH COURT OF CALCUTTA
D. N. SINHA, J.
Indian Standard Wagon
Versus
Commercial Tax Officer
Matter No.161 of 1955
Decided On : 29-05-1958

The Sales Tax Laws Validation Act, 1956 (VII of 1956) validated the levy of tax on inter-State sales during the period between April 1, 1951 and September 6, 1955.

Headnote:

SALES TAX - Inter-State trade or commerce - Exemption - Sales Tax Laws Validation Act, 1956 (VII of 1956) - Whether validated the levy of tax on inter-State sales during the period between April 1, 1951 and September 6, 1955 - Held, yes.

Fact of the Case:

The petitioner, a company incorporated under the Indian Companies Act, manufactured railway rolling stock and had been doing so for a long number of years. On or about July 2, 1951, the Railway Board placed an order with the petitioner for 3500 Indian Railway Standard Broad Gauge 4-wheeled covered wagons "C. R." type, against its programme for the year 1952-53. The order was accepted by the petitioner by their letter dated July 28, 1951. The wagons were meant for the Western Railway which is situated wholly outside the State of West Bengal, having its headquarters at Ajmer. Between December 10, 1952 and November 27, 1953, the petitioner duly delivered the said 1,800 wagons at its work siding at Burnpur. Thereafter the petitioner sent its bills to the Eastern Railway, Calcutta. On or about May 23, 1953 certain bills were sent back on the ground that they related to goods meant for consumption outside West Bengal, and, therefore, no sales-tax was payable, but the matter had to await the decision of the West Bengal Sales-tax Authorities. Similar intimations were received by the petitioner from the Financial Adviser and Chief Accounting Officer, Eastern Railway. The petitioner submitted a return of sales-tax for the year ending March 31, 1953. In the return, the petitioner showed a gross turnover of Rs. 2,74,44,544/-, out of which, a deduction was made for Rs. 84,90,470/- under the heading "Sales to railways for consumption outside West Bengal". This represented the value of 803 wagons which were sold and delivered within the accounting year, that is, up to March 31, 1953 to the Western Railway. On or about January 20, 1955 the Commercial Tax Officer, Esplanade Charge rejected the above-mentioned deduction and imposed sales-tax to the extent of Rs. 3,87,343/3/6. On or about March 30, 1955 a penalty of Rs. 25,000/- was imposed for non-payment of the sales-tax. On or about April 16, 1955 the petitioner preferred an appeal before respondent No. 4. On or about July 29, 1955 the order of penalty was set aside, but otherwise the appeal was dismissed. Meanwhile, on June 24, 1954 the petitioner submitted a return of sales-tax for the year ending March 31, 1954. In the return, the petitioner deducted from the gross turnover the sum of Rs. 1,,34,48,084/- being the value of 997 wagons sold and delivered during the accounting period ending on March 31, 1954. The value of 183 wagons and 30 steel coaches supplied in West Bengal is mentioned as also of a sum of Rs. 66,492/- deducted in respect of sales prior to March 31, 1949, but nothing was heard in the argument with regard to this item, and the court need not deal with them. In all these returns the deductions were claimed to be on the ground that the sale was of goods required for consumption outside the State of West Bengal. The deductions were however disallowed. Thereafter, certain proceedings were commenced for realisation of the tax. The petitioner issued a Rule on or about September 8, 1955 and is directed against the assessment orders whereby the deductions claimed as aforesaid have been disallowed.

Finding of the Court:

The court held that the transactions in question were in the course of inter-State trade or commerce and were, therefore, exempt from State sales tax under Article 286(2) of the Constitution. However, the court also held that the Sales Tax Laws Validation Act, 1956 (VII of 1956) validated the levy of tax on inter-State sales during the period between April 1, 1951 and September 6, 1955, and that the respondents were therefore within their rights in imposing sales tax upon the transactions in question.

Issues: 1. Whether the transactions in question were in the course of inter-State trade or commerce and were, therefore, exempt from State sales tax under Article 286(2) of the Constitution? 2. Whether the Sales Tax Laws Validation Act, 1956 (VII of 1956) validated the levy of tax on inter-State sales during the period between April 1, 1951 and September 6, 1955?

Ratio Decidendi: 1. The court held that the transactions in question were in the course of inter-State trade or commerce and were, therefore, exempt from State sales tax under Article 286(2) of the Constitution. The court reasoned that the purchaser and the seller were in different States, that the contract of sale contemplated movement of the goods over the State boundary, and that the goods were intended to be consumed outside the State. 2. The court also held that the Sales Tax Laws Validation Act, 1956 (VII of 1956) validated the levy of tax on inter-State sales during the period between April 1, 1951 and September 6, 1955. The court reasoned that the Act validated the existing law, which included the power to tax inter-State sales, and that the ban on such taxation imposed by Article 286(2) of the Constitution had been lifted by the Act.

Final Decision: The court dismissed the petitioner's application and held that the respondents were within their rights in imposing sales tax upon the transactions in question.