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N.D. Georgopoulos Vs. the State of Maharashtra - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax References Nos. 20 and 21 of 1968
Judge
Reported in[1976]37STC187(Bom)
ActsAndhra Pradesh Gen. Sales Tax Act, 1957 - Sections 2, 7 and 9; Bombay Sales Tax Act, 1959 - Sections 2, 2(13), 2(28), 4(2), 7, 8, 9, 34, 46 and 75; Central Sales Tax Act, 1956 - Sections 2, 3, 4, 4(2), 5, 14 and 15
AppellantN.D. Georgopoulos
RespondentThe State of Maharashtra
Appellant AdvocateP.V. Surte and ;A.G. Nirgudkar, Advs.
Respondent AdvocateV.C. Kotwal, Adv.
Excerpt:
sales tax - purchase tax - sections 2, 7a and 9 of bombay sales tax act, 1959 and sections 2, 3, 4, 5, 14 and 15 of central sales tax act, 1956 - whether tribunal was justified in holding that applicants were liable to pay purchase tax under section 7a on their purchases of goatskins from unregistered dealers and were not entitled to claim exemption under notification - applicants contended that they had purchased goods for resale therefore no tax on their purchases levied by reason of entry 3 - department stated that resale made by applicant were not resale within state of bombay - goatskins were shipped by applicants from bombay to russian port - at time of their appropriation to said contract they were within state therefore sale took place within state - question was answered in.....madon, j. 1. these are two references under section 34(1) of the bombay sales tax act, 1953 (hereinafter referred to as 'the bombay act'), in which a common question of law is involved. these references first reached hearing before this high court on 2nd november, 1968, when, after considerable debate on both sides, it was realized by the parties concerned that it was not possible to dispose of the references on the basis of the statement of the case drawn up by the tribunal, as it did not acquaint the court either with the facts of the case or the contentions of law advanced on both sides. accordingly, the parties arrived at an agreement that a fresh statement of the case should be called for from the tribunal under section 34(4) of the bombay act on the basis of the materials which.....
Judgment:

Madon, J.

1. These are two references under section 34(1) of the Bombay Sales Tax Act, 1953 (hereinafter referred to as 'the Bombay Act'), in which a common question of law is involved. These references first reached hearing before this High Court on 2nd November, 1968, when, after considerable debate on both sides, it was realized by the parties concerned that it was not possible to dispose of the references on the basis of the statement of the case drawn up by the Tribunal, as it did not acquaint the court either with the facts of the case or the contentions of law advanced on both sides. Accordingly, the parties arrived at an agreement that a fresh statement of the case should be called for from the Tribunal under section 34(4) of the Bombay Act on the basis of the materials which might be placed before it. Accordingly, with the consent of the parties the Division Bench directed that both the parties should be allowed to file the original documents which were produced or which were available to the Sales Tax Officer or the certified copies or agreed copies thereof to enable the Tribunal to draw up a proper statement of the case. These references now again come up before us after the Tribunal, in pursuance of the aforesaid directions given by the High Court, has drawn up a fresh statement of the case. We regret to observe that the fresh statement of the case is only in some negligible degrees less unsatisfactory than the statement of the case as originally drawn up by the Tribunal. Fortunately, however, the copies of all the relevant documents which were produced before the sales tax authorities have been forwarded to this court with the fresh statement of the case and we have been able to gather the facts which have given rise to these references with the assistance of counsel for both the parties and the documents, and it transpires that the facts really are not in dispute and we fail to see why the Tribunal could not have drawn up a fresh statement of the case setting out these facts. Fortunately, the parties are in agreement as to what the facts which have given rise to these references are, and we will now proceed to relate the said facts.

2. The applicants were registered as dealers under the Bombay Act. A contract dated 27th December, 1958, was entered into between the applicants and Vsesojuznoje Exportno-Importnoje Objedinen 'Raznoexport' of Moscow (hereinafter for the sake of brevity referred to as 'Raznoexport') whereunder the applicants sold 2,50,000 pieces of best seasoned dry salted goatskins of Indian origin to Raznoexport for the prices mentioned in appendix No. 1 to the said contract. Under clause 2 of the said contract the prices shown in the said appendix were fixed in English Pounds Sterling f.o.b. Bombay, including the cost of packing. Clauses 4 and 5 of the said contract provided as follows :

'4. Delivery : The sold goods to be delivered within February-March, 1959.

3. The date of the bill of lading is to be taken as the date of delivery. 'The seller' will inform the 'the buyer' at least 15 days before shipment that the goods are ready for shipment.

'The buyer' has the right to inspect the goatskins at 'the seller's' godown and at the port prior to the loading of the goods on board the steamer as well.

5. Packing and marking : Goatskins of each kind are to be packed separately, in new standard jute sack cloth, suitable for export packing.

Each bale is to be marked as follows : V/O 'RAZNOEXPORT', Contract No. 3228484, Trans. No. 72805, No. of bales, quantity of pieces, gross and nett weights.'

4. Under clause 6 payment was to be effected in Indian rupees through an 'at sight' irrevocable and confirmed letter of credit to be opened by Raznoexport with the Bank of China, Bombay, and part shipment of the goods was allowed. Under clause 7 final inspection of the goatskins was to be in the warehouse of destination. The goods supplied by the applicants to Raznoexport under the said contract were purchased by them locally, that is, within the State, both from registered dealers and unregistered dealers. They remained within the State of Bombay until they were shipped to a port in the U.S.S.R. in pursuance of the terms and conditions of the said contract between the applicants and Raznoexport. There were subsequently similar contracts entered into between the applicants and Raznoexport for the sale of goatskins by the applicants to Raznoexport upon the same terms and conditions as contained in the said contract dated 27th December, 1958, except with respect to the quantity and price.

5. During the assessment period 1st April, 1958, to 31st March, 1959, the applicants purchased goatskins of the aggregate value of Rs. 4,68,041 from registered dealers and of the aggregate value of Rs. 2,34,963 from unregistered dealers, and during the assessment period 1st April, 1959, to 31st December, 1959, the applicants purchased goatskins of the aggregate value of Rs. 10,40,091 from registered dealers and of the aggregate value of Rs. 6,90,846 from unregistered dealers. All these goatskins were sold and delivered by the applicants to Raznoexport in fulfilment of their said contract.

6. The dispute between the revenue and the applicants is with respect to the purchases of goatskins made by the applicants from unregistered dealers during the aforesaid two periods. According to the department, the applicants were liable to pay purchase tax on these purchases under section 7A of the Bombay Act, while according to the applicants the said purchases were not exigible to tax by reason of the provisions of Notification No. STA.1058-G-1 dated 7th October, 1958, and the Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959, by which the said notification of 7th October, 1958, was amended. In their assessment for the aforesaid periods the applicants claimed exemption in respect of the said purchases on the basis of the said notifications. The Sales Tax Officer disallowed the said claim for exemption on the ground that the condition subject to which the said exemptions were granted had not been fulfilled by the applicants. The applicants' appeals to the Assistant Commissioner of Sales Tax were dismissed. The applicants thereafter approached the Commissioner of Sales Tax in revision, which revision applications too were dismissed. Thereafter the applicants went in revision to the Sales Tax Tribunal, which revision applications also met with the same fate. A common judgment in both the said revision applications was delivered by the Tribunal and arising out of the said judgment the Tribunal has, at the instance of the applicants, referred the following question of law to the High Court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the levy of purchase tax in view of the provisions of section 7A read with the notifications dated 7th October, 1958, and 10th September, 1959 ?'

7. Just as the original statement of the case drawn up by the Tribunal was highly unsatisfactory, so is the above question framed by the Tribunal and referred to us. The question before the Tribunal was not whether the levy of purchase tax under section 7A of the Bombay Act was justified, because that question would really relate to the constitutionality of the levy of the said tax which was neither in question nor could have been called in question before the taxing authorities or the Tribunal. The real point of controversy between the parties was whether the applicants were liable to pay purchase tax under section 7A of the Bombay Act on their purchases of goatskins from unregistered dealers in view of the provisions of the said two notifications. Accordingly, in order to bring out the real question of law which actually falls to be determined by us, we have, with the consent of the parties, reframed the aforesaid question as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the applicants were liable to pay purchase tax under section 7A of the Bombay Sales Tax Act, 1953, on their purchases of goatskins from unregistered dealers and were not entitled to claim exemption under Notification No. STA 1058-G-1 dated 7th October, 1958, and Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959 ?'

8. Sales Tax Reference No. 20 of 1968 relates to the assessment period 1st April, 1958, to 31st March, 1959, and Sales Tax Reference No. 21 of 1968 relates to the assessment period 1st April, 1959, to 31st December, 1959.

9. In order to appreciate the rival submissions advanced at the Bar it is first necessary to set out certain relevant statutory provisions. Section 14 of the Central Sales Tax Act, 1956 (hereinafter referred to as 'the Central Act'), declares certain goods to be of special importance in inter-State trade or commerce. These goods are known as 'declared goods' and are so defined in section 2(c) of the Central Act. Section 15 of the Central Act imposes certain restrictions and conditions in regard to the levy of a State tax on the sale or purchase of declared goods within a State. At the relevant time, the said section provided as follows :

'Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State. - Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely :-

(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed two per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage;

(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be provided in any law in force in that State.'

10. Section 7A of the Bombay Act provides as follows :

'Levy of tax on declared goods. - Subject to the provisions of section 7 there shall be levied sales tax or purchase tax on the turnover of sales or, as the case may be, of purchases, of goods specified in Schedule AA at such rate not exceeding 2 naye paise in the rupee and at such one stage as may be specified by the State Government by notification in the official Gazette.'

11. Schedule AA to the Bombay Act contains a list of declared goods, the purchases of which become exigible to purchase tax under section 7A. Though section 15 of the Central Act, as reproduced above, was substituted for the original with effect from 1st October, 1958, and section 7A of the Bombay Act inserted in the Bombay Act also with effect from the said date, it is unnecessary to refer either to the old section 15 or to the position under the Bombay Act prior to the insertion of section 7A therein as, as admitted by both the parties, the business of the applicants commenced on 2nd December, 1958. In pursuance of the power conferred by section 7A of the Bombay Act, the erstwhile Government of Bombay issued Notification No. STA. 1058-G-1 dated 7th October, 1958, under which it was directed that sales tax or purchase tax on the turnover of sales or, as the case may be, on purchases of goods specified in the first column of the schedule annexed to the said notification was to be levied at the rates respectively specified against them in column 2 of the said schedule at the stages specified in column 3 of the said schedule. Hides and skins, whether in a raw or dressed state, form the subject-matter of entry No. 3 in the schedule to the said notification. The said entry provided as follows :

------------------------------------------------------------------------ 'Goods Rate Stage 1 2 3 ------------------------------------------------------------------------ Hides and skins, Two naye (i) Sale to a person who is not a whether in a raw paise in registered dealer or to a registered or dressed state. the rupee. dealer who purchases the goods for a purpose other than resale, or (ii) Purchase by a dealer who is liable to pay tax under the Act for any purpose other than resale from a person who is not a registered dealer : Provided that in either case no tax has been paid or is payable on an earlier sale or purchase of the goods.' ------------------------------------------------------------------------

12. The said notification was amended by Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959. The only amendment made in the said entry No. 3 was to add the following explanation thereto :

'In the case of goods purchased for resale, 'resale' means resale of the goods in the same form in which they were purchased or after processing or altering them in such manner that the goods produced after such process or alternation continue to be goods falling under the same entry under which they fell before such process or alteration.'

13. There is no dispute between the parties that the goatskins purchased by the applicants from unregistered dealers were sold and delivered by them to Raznoexport in the same form in which they were purchased. What the applicants, however, contend is that they had purchased these goods for resale and, therefore, no tax on their purchases could be levied by reason of the said entry No. 3. According to the department, the resales made by the applicants to Raznoexport were not resales within the erstwhile State of Bombay, but were sales which occasioned the export of the said goatskins out of the territory of India and were, therefore, exigible to tax.

14. The first point, therefore, which arises for determination is the meaning to be given to the expression 'resale' in the said two notifications. Neither of the said two notifications defines the expression 'sale' or 'purchase' or 'resale'. 'Sale' is, however, defined by clause (13) of section 2 of the Bombay Act as follows :

''Sale' means a sale of goods made within the pre-Reorganisation State of Bombay excluding the transferred territories, for cash or deferred payment or other valuable consideration and includes any supply by a society or club or an association to its members on payment of price or fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; the words 'sell', 'buy' and 'purchase' with all their grammatical variations and cognate expressions shall be construed accordingly;

Explanation. - For the purposes of this clause a sale within the pre-Reorganisation State of Bombay excluding the transferred territories, includes a sale determined to be within the pre-Reorganisation State of Bombay, excluding the transferred territories in accordance with the principles specified in sub-section (2) of section 4 of the Central Sales Tax Act, 1956.'

15. Thus, so far as the expression 'resale' used in the Bombay Act is concerned, it would mean a resale within the pre-Reorganisation State of Bombay excluding the transferred territories, unless there were anything repugnant in the subject or context in which the said expression is used, because the opening words of the said section 2, which is the definition section, contains this qualification. The question is whether the same meaning should be given to the expression 'resale' in the said two notifications. These notifications have been issued in exercise of the powers conferred upon the State Government by section 7A of the Bombay Act. Section 20 of the Bombay General Clauses Act, 1904, provides as follows :

'Construction of orders, etc., issued under Bombay Acts or Maharashtra Acts. - Where, by any Bombay Act or Maharashtra Act, a power to issue any notification, order, scheme, rule, by-law or form is conferred, then expressions used in the notification, order, scheme, rule, by-law or form, if it is made after the commencement of this Act, shall, unless there is anything repugnant in the subject or context, have the same respective meanings as in the Act conferring the power.'

16. The expression 'resale' in the said two notifications must, therefore, in our opinion, bear the same meaning as given to it by clause (13) of section 2 of the Bombay Act, inasmuch as it is an expression cognate to the expression 'sale'.

17. It was, however, submitted by Mr. Kotwal, the learned counsel for the respondent, that the meaning to be given to the expression 'resale' in the said notifications must be the one contained in the said clause (13) of section 2 of the Bombay Act without the explanation thereto. In order to appreciate this submission it is necessary to set out sections 3, 4 and 5 of the Central Act. These sections provide as follows :

'3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase -

(a) occasions the movement of goods from one State to another; or

(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.

Explanation 1. - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

Explanation 2. - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.

4. When is a sale or purchase of goods said to take place outside a State. - (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.

(2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State -

(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and

(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.

Explanation. - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.

5. When is a sale or purchase of goods said to take place in the course of import or export. - (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.'

18. In Mr. Kotwal's submission, if a sale took place in the course of inter-State trade or commerce or had occasioned the export of the goods out of the territory of India, such a sale could not at the same time come under section 4 of the Central Act and could not be termed as 'an intra-State sale'. Mr. Kotwal has further submitted that the legislative powers of a State do not extend to levying any tax on the sale or purchase of goods taking place in the course of inter-State trade or commerce or in the course of the import of the goods into or the export of the goods out of the territory of India, since under article 286 of the Constitution there is a constitutional ban on the levy of tax on these classes of sales and purchases. According to Mr. Kotwal, the State has no power to exempt a transaction of sale or purchase from a State levy unless it has the power to tax that transaction. It will be useful at this stage to refer to the relevant constitutional provisions. Article 286 of the Constitution provides as follows :

'Restrictions as to imposition of tax on the sale or purchase of goods. - (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place -

(a) outside the State; or

(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.

(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).

(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.'

18. List I in the Seventh Schedule to the Constitution specifies the topics in respect of which the Union Parliament may legislate. Entries 92 and 92A of the said List I provide as follows :

'92. Taxes on the sale or purchase of newspapers and on advertisements published therein.

92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.'

20. The Central Act was passed by the Parliament in order to formulate principles for determining when a sale or purchase of goods takes place either outside the State or in the course of the import of the goods into, or the export of the goods out of, the territory of India, to declare certain goods to be of special importance in inter-State trade or commerce and to prescribe the restrictions and conditions in regard to the imposition of State tax on the sales and purchase of such goods. Thus, the constitutional position with respect to the States' power to levy sales tax or purchase tax is that no such tax can be levied by a State on any sale or purchase which takes place outside the State or which takes place in the course of inter-State trade or commerce or in the course of the export of the goods out of the territory of India or in the course of the import of the goods into the territory of India. When a sale or a purchase can be said to have taken place outside the State is to be determined by the principles formulated by the Parliament in section 4 of the Central Act. A sale or a purchase must take place at some place and when it takes place at a particular place, it obviously taken place outside all other places. Therefore, in order to determine when a sale or a purchase should be considered as an outside State sale or purchase, the Parliament under section 4 of the Central Act has formulated principles for determining the State inside which such sale or purchase should be deemed to take place. Once on an application of the said principles it is determined that the sale or purchase has taken place within a particular State, both according to ordinary notions and by the express words of sub-section (1) of section 4 of the Central Act it should be deemed to have taken place outside all other States and thereafter in respect of such sale or purchase no State other than the State inside which such sale or purchase has taken place, by reason of the principles enunciated by section 4 of the Central Act, can impose any tax on such sale or purchase.

21. Mr. Kotwal, the learned counsel for the respondent, has, however, submitted that even though a sale may be said to have taken place inside a particular State by reason of the provisions of section 4 of the Central Act, it may nonetheless be a sale in the course of inter-State trade or commerce or in the course of the export of the goods out of the territory of India or the import of the goods into the territory of India and a State Legislature cannot tax such transactions of sale or purchase because sections 3, 4 and 5 of the Central Act must be read as forming a harmonious whole. He further submitted that once by the application of the principles formulated by section 3 of the Central Act it was found that a sale or a purchase was in the course of inter-State trade or commerce or by the application of the principles formulated by section 5 of the Central Act it was found that a sale or a purchase had taken place in the course of the import of the goods into the territory of India or the export of the goods out of the territory of India, section 4 of the Central Act had no application. In support of his submissions, Mr. Kotwal has referred to several authorities to which we will come a little later. It is not possible for us to accept Mr. Kotwal's submissions. We are not concerned with the context in which section 4 of the Central Act occurs in that Act. We are concerned with section 4 of the Central Act only to the extent its provisions are made part and parcel of clause (13) of section 2 of the Bombay Act and not with any other sections of that act. Since the taxing power of a State extends only to the sales and purchases of goods made within the State, it became necessary for the State Legislature to define when a sale could be said to have occurred within the State. In the context of these references before us we are using the expression 'within the State' as a convenient mode of expressing the phrase 'within the pre-Reorganisation State of Bombay, excluding the transferred territories', a phrase which came to be introduced in the Bombay Act, by reason of the fact that there were in force in difference areas of the Reorganised State of Bombay several State Sales Tax Acts. The State Legislature could have defined when a sale or purchase could be said to have taken place inside the State by reproducing ad verbatim in the explanation to clause (13) of section 2 of the Bombay Act the provisions of section 4 of the Central Act. It, however, preferred a briefer and a more logical form of draftsmanship by stating that such a sale should be determined 'in accordance with the principles specified in sub-section (2) of section 4 of the Central Sales Tax Act, 1956'. Thus, what the legislature has done is to incorporate the provisions of sub-section (2) of section 4 of the Central Act by referring to that sub-section in the explanation to clause (13) of section 2 of the Bombay Act. The effect of the incorporation of the provisions of one Act into another Act fell to be considered by the Court of Appeal in In re Wood's Estate : Ex parte Her Majesty's Commissioners of Works and Buildings (1886) 31 Ch.D. 607. In that case the question was of the incorporation of certain provisions of an earlier Statute of 1840, namely, Act 14 and 15 Vict. c. 42, into the Downing Street Public Offices Extension Act, 1855 (18 & 19 Vict. c. 95), by section 9 of the Act of 1855. Lord Esher, M.R., thus explained the effect of the said incorporation (at pages 615-616) :

'The material sections of the Act of 1855 are the 9th and the 11th. By the 9th section certain sections of the Act of 1840 are incorporated into the Act of 1855. That Act of 1840 was passed before the Lands Clauses Act. Now what is the legal effect of the 9th section of the Act of 1855, which brings into that Act those sections of the former Act It is to put them into the Act of 1855, just as if they had been written into it for the first time. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen, or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all. For all practical purposes, therefore, those sections of the Act of 1840 are to be dealt with as if they were actually in the Act of 1855.'

22. A similar question arose before the Supreme Court in Shamrao V. Parulekar v. District Magistrate, Thana, Bombay : 1952CriLJ1503 , in which the Supreme Court observed as follows :

'The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all. This is the rule in England : see Craies on Statute Law, 5th Edition, page 207; it is the law in America : see Crawford on Statutory Construction, page 110; and it is the law which the Privy Council applied to India in Keshoram Poddar v. Nando Lal Mallick. (1927) 54 I.A. 152 (P.C.)'.

23. The same principles must govern the incorporation of section 4 of the Central Act into the explanation to clause (13) of section 2 of the Bombay Act. Once the said section is incorporated in the said clause (13) of section 2, there is, in the words of Lord Esher, no occasion to refer to the Central Act at all.

24. So far as Mr. Kotwal's submission that a State Legislature can exempt from tax only a transaction which it could tax is concerned, Mr. Kotwal submitted that since the State Legislature could not have taxed the sale by the applicants to Raznoexport, it could not have by the said notifications exempted that sale from taxation. We really fail to see how this submission at all arises or is justified. No tax has been sought to be levied on any sale made by the applicants to Raznoexport nor by the said notifications is such a sale made exempt from taxation. What is sought to be exempted by the said notifications is not a sale made in the course of the export of the goods or which occasioned the export of the goods but the preceding purchase made by the exporter. It is not disputed that the preceding purchase made by the exporter could have been made subject to the levy of a purchase tax under section 7A of the Bombay Act, but for the exemption granted by the said notifications, provided the notifications applied. The notifications, therefore, do not relate to the taxability or otherwise of the sales made by the applicants but to the taxability of the purchases made by the applicants, which indisputably the State Legislature had the power to tax.

25. It was next submitted by Mr. Kotwal, the learned counsel for the respondent, that the tax levied by section 7A of the Bombay Act is accordance with the restrictions and conditions imposed by section 15 of the Central Act was a single point levy and it must, therefore, fall at least at one stage of a series of transactions, and if the applicants' contention were to be accepted, the result would be that there would be no stage at which the tax under section 7A of the Bombay Act would be attracted. We are equally unable to appreciate this submission. The arguments of Mr. Kotwal proceed upon the basis that there is some compulsion or obligation on the State to levy a tax on declared goods, at least at one stage of the transactions. Neither any provision of the Constitution nor section 15 of the Central Act casts any obligation upon the State Legislature to impose sales tax or purchase tax on declared goods. They merely confer power upon the State Legislature to impose these taxes if it so wants to, and prescribe the restrictions subject to which such taxing power is to be exercised. Subject to the constitutional bans laid down by article 286 of the Constitution, a State Legislature can levy taxes on the sale or purchase of goods, other than newspapers, and sales or purchases other than those taking place in the course of inter-State trade or commerce or the export or import of goods. The State Legislature has, however, not sought to tax all such sales or purchases while enacting the Bombay Act. It chose to tax certain classes of sales and purchases only, namely, those sales and purchases which were made in the course of his business by a dealer whose turnover exceeded the prescribed limit. All sales and purchases made by dealers, though made in the course of their business, were exempt from tax if the dealers' turnover did not exceed the prescribed limit. If Mr. Kotwal's submissions were correct, this position would not have been there. It has also been conceded by Mr. Kotwal that by reason of the provisions of sections 8 and 9 of the Bombay Act, there can be a series of transactions relating to the same goods in respect of which tax is not attracted at any stage by reason of the various exemptions provided in the Act. If that is so, we fail to see why there should be an exception in respect of declared goods only, namely, that in the case of declared goods tax must be levied at one stage, and that every exemption in respect of declared goods should be so construed as to attract the tax at one stage at least. The sole condition subject to the compliance with which in the present case exemption could be claimed by the applicants for their purchases from unregistered dealers is that the goods should have been resold. As we have seen, 'resold' means 'resold within the State'. The only question, therefore, is whether these goods have been resold by the applicants inside the State as provided by the explanation to clause (13) of section 2 of the Bombay Act. It was, however, submitted by Mr. Kotwal that if a sale had occasioned an export of the goods out of the territory of India, that sale could never be said to be an intra-State sale even if, according to the principles formulated by section 4 of the Central Act, it would otherwise be an intra-State sale; for, according to Mr. Kotwal, no sales tax could be levied by the State Legislature on a sale which occasioned the export. This submission is based upon the same fallacy, namely, that by incorporating sub-section (2) of section 4 of the Central Act into the explanation to clause (13) of section 2 of the Bombay Act the Legislature has incorporated therein all the provisions of sections 3, 4 and 5 of the Central Act. The fallacy lies in the approach adopted by the revenue authorities. The approach was to see whether the transaction was exigible to State tax so that it could be made a subject-matter of exemption. As we have pointed out earlier, the sales made by the applicants to Raznoexport are not sought to be taxed or sought to be exempted from tax, because the States' power of taxation did not extend to them by reason of article 286(1) of the Constitution. What is sought to be exempted by the said notifications is a transaction which the State Government could validly tax, namely, the purchases made by the applicants, and the only things which falls to be determined in these references is whether the resales made by the applicants were within the State or outside the State. Even an inter-State sale or purchase or a sale in the course of the export or a sale which occasioned the export of goods out of the territory of India must have a situs. In the case of every sale a situs must be in one State or another. To fix the situs of the sale, as is sought to be done by the explanation to clause (13) of section 2 of the Bombay Act, is a wholly different matter from taxing that transaction. The situs of a sale may fall to be determined both from the point of view of its exigibility to tax as also its exemption from tax either under the Constitution or under the taxing statute itself. Thus, viewed from one angle a sale, by applying the principles formulated by section 4 of the Central Act, might be an intra-State sale and a sale outside all other States; while the same transaction, viewed from another angle, might be a sale which has taken place in the course of inter-State trade or commerce in respect of which the State Legislature cannot impose a tax but only the Parliament can do so, as it has done under the Central Act, or it might be a sale in the course of the export of the goods out of the territory of India or in the course of the import of the goods into the territory of India, in which cases also, the State Legislature would have no power to tax the transaction. The question whether an intra-State sale is also one which is made in the course of inter-State trade or commerce or, as in the present case, is one which has occasioned the export of the goods out of the territory of India only falls to be considered when tax is sought to be levied in respect of it and not otherwise. It may be that when, once a transaction falls under section 3 or section 5 of the Central Act, it is taken wholly out of the ambit of section 4 of the Central Act so far as the State's power to levy tax in respect of it is concerned, but that is a question wholly different from the one with which we are concerned. In this connection, it will be useful to refer to the decision of the Supreme Court in Bengal Immunity Company Limited v. State of Bihar : [1955]2SCR603 . Article 286 of the Constitution prior to its amendment by the Constitution (Sixth Amendment) Act, 1956, imposed a ban on a State's power to levy tax on sales and purchases of goods taking place outside the State or in the course of the import of the goods into the territory of India or their export out of the territory of India as also, except in so far as the Parliament might by law provide, upon any sales or purchases taking place in the course of inter-State trade or commerce. The explanation to clause (1) of the unamended article 286 provided that a sale should be deemed to have taken place in that State in which the goods were actually delivered as a direct result of such sale or purchase for the purpose of consumption therein.

26. The effect of these bans imposed by the unamended article 286 of the Constitution came to be considered by the Supreme Court in the said case of Bengal Immunity Company Limited v. State of Bihar : [1955]2SCR603 . In that case by a majority judgment it was held that the dominant, if not the sole, purpose of article 286 was to place restrictions on the legislative powers of the States, subject to certain conditions in some cases, and with that end in view article 286 imposed several bans on the taxing power of the States in relation to sales or purchases viewed from different angles and according to their different aspects and that in some cases the ban was absolute, as in the case of the ban imposed by clause (1)(a) read with the explanation and clause (1)(b), namely, in the cases of outside-State sales and export or import sales and, in some cases, it was conditional, as in the case of the ban imposed by clause (2), namely, in the case of inter-State sales. It was further held that in some cases the bans may overlap but, nevertheless, they were distinct and independent of each other. In order to illustrate this, Das, Ag. C.J., pointed out that even when the situs of a sale or purchase was in fact inside a particular State, with no essential ingredient taking place outside, nevertheless, if it took place in the course of inter-State trade or commerce, it would be hit by clause (2), for if a sale or purchase were in the course of inter-State trade or commerce, the stream of inter-State trade or commerce would catch up in its vortex all such sales or purchases which take place in its course wherever the situs of the sales or purchases might be. In the course of his judgment, Das, Ag. C.J., observed (at pages 481-482) :

'All that the explanation does is to shift the situs from point A in the stream to point X also in the stream. It does not lift the sales or purchases out of the stream in those cases where they form part of the stream. The shifting of the situs of a sale or purchase from its actual situs under the general law to a fictional situs under the explanation takes the sale or purchase out of the taxing power of all States other than the State where the situs is fictionally fixed. That is all that clause (1)(a) and the explanation do. Whether the delivery State will be entitled to tax such a sale or purchase will depend on the other provisions of the Constitution. The assignment of a fictional situs to a sale or purchase has no bearing or effect on the other aspects of the sale or purchase, e.g., its inter-State character or its export or import character which are entirely different topics. This fixing of situs for a sale or purchase in any particular State either under the general law or under the fiction does not conclude the matter. It has yet to be ascertained whether that sale or purchase which by virtue of the explanation has taken place in the delivery State was made in the course of inter-State trade or commerce. For this purpose the explanation can have no relevancy or application at all.'

27. In our opinion, the above observations apply with equal force to the bans imposed by the amended article 286 and the formulation of the principles for ascertaining them prescribed by the Central Act. Each of the bans prescribed by article 286 views a transaction of sale or purchase from a different angle. It prohibits the levy of a State tax if, viewed from one angle, a sale or purchase comes under one of the bans even though, when viewed from a different angle, the sale or purchase would be outside the ban. A State could exercise its taxing power and levy tax on a sale or purchase of goods only if, according to the principles formulated by section 4 of the Central Act, such sale or purchase took place inside the State, but if, on the principles formulated by section 3 or section 5, as the case may be, the transaction were also determined to be a sale or purchase in the course of inter-State trade or commerce or in the course of the export of the goods out of the territory of India or the import of the goods into the territory of India, the bans imposed by clause (1) of article 286 would come into operation and the State could not constitutionally exercise its taxing power in respect of such sale or purchase merely because under section 4 of the Central Act it was a sale which had taken place inside that State. This position, however, would not alter the situs of the sale or purchase and its situs would continue to be inside the particular State as determined by the principles formulated by section 4 of the Central Act. The pertinent thing to bear in mind is that these bans operate only for the purpose of curtailing the taxing powers of the State and not for any other purpose.

28. We will now turn to the authorities relied upon by Mr. Kotwal, the learned counsel for the respondent.

29. The first authority relied upon by Mr. Kotwal was a decision of the Andhra Pradesh High Court in Guduthur Thimmappa & Son v. State of Andhra Pradesh [1964] 15 S.T.C. 299. In that case under item 5 of Schedule IV to the Andhra Pradesh General Sales Tax Act, 1957, tax at the rate of two naye paise in the rupee was levied in respect of cotton which falls in the category of declared goods, inter alia, 'at the point of purchase by the last dealer who buys it in the State'. The assessees in the case entered into contracts for the sale of cotton to a mill in Pondicherry. After receipt of the purchase notes, the assessees bought cotton in the open market, ginned it, pressed it into bales and earmarked the bales to Pondicherry. Thereafter weighment statements were prepared, insurance was effected in the name of Pondicherry mill and the goods were sent in a lorry and were taken delivery of in Pondicherry. The assessees contended that the transactions partook of the character of inter-State sales and that they were not liable to pay the purchase tax in this behalf as they could not be deemed to be the last dealer in the State and that the last dealer in the State would be the Pondicherry mill and that as such the liability to pay the purchase tax would be that of the Pondicherry mill and not of the assessees. In support of their contention the assessees relied upon clause (n) of section 2 of the Andhra Pradesh General Sales Tax Act, 1957, which defines 'sale' and, particularly, upon explanation II, which reproduces the provisions of section 4(2) of the Central Act. The question which the court had, therefore, to decide in that case was whether the assessees were the last purchasers within the State and, therefore, liable to pay the purchase tax or whether the Pondicherry mill was the last purchaser within the State and, therefore, liable to pay the purchase tax. The court held that though the situs of the sale could be located in Andhra Pradesh, having regard to the terms of explanation II it was not determinative of the matter and that to find an answer to the said question the court had first to determine the nature of the sale in the light of the other provisions of both the Andhra Pradesh General Sales Tax Act and the Central Act. After referring to the judgment of Das, Ag. C.J., in the case of Bengal Immunity Company Limited v. State of Bihar [1955] 65 S.T.C. 446 (S.C.), the court observed that it was not within the competence of a State to levy tax on sales occurring in the course of import or export. The court also referred to section 7 of the Andhra Pradesh General Sales Tax Act, which provided that where in the case of any goods tax was leviable at one point in a series of sales or purchases, such series should in the case of goods exported out of the State to any place outside the territory of India or to any other State in India be deemed to conclude at the stage of sale or purchase effected immediately before the export of such goods. The court held that though in one view of the matter the sales to the Pondicherry mill had taken place inside the State of Andhra Pradesh, as viewed from another angle, these were sales made in the course of the export of the goods out of the State, the question of the taxing power of the State coming into play by reason of the situs of the sale did not arise and, therefore, the last purchaser according to the provisions of section 7 of the Andhra Pradesh Act, namely, the assessees, was bound to pay the tax. We fail to see how this authority helps the respondent's case. On a careful analysis of what was held in that judgment, it is clear that on the contrary the observations made therein are against the contentions of the respondent.

30. The next authority relied upon by Mr. Kotwal was a decision of the Supreme Court in National Tractors v. Commissioner of Commercial Taxes, Bangalore : AIR1971SC2277 . In that case the question which fell for decision again was, who was exigible to pay the purchase tax under section 5(3) of the Mysore Sales Tax Act, 1957, read with Schedule III to the said Act. The appellants in that case were dealers in iron-ore and had purchased iron-ore from mine-owners from Mysore. They sold the iron-ore to the State Trading Corporation for export. The Supreme Court held that the transaction between the appellants and the State Trading Corporation was in the course of export and the State Trading Corporation had no liability to pay the purchase tax and that, therefore, the appellants were the last purchasers in Mysore. In our opinion, this authority equally does not help Mr. Kotwal.

31. The third authority relied upon by Mr. Kotwal was a decision of the Madras High Court in Rallis India Ltd. v. State of Tamil Nadu [1974] 34 S.T.C. 326. There again the same question as in the two cases, referred to above, arose for the court's determination. In the Madras case [1974] 34 S.T.C. 326 also the assessees had purchased cotton locally and then sold it to dealers outside the State. The relevant provisions of section 9 of the Madras General Sales Tax Act, 1959, were almost identical with the provisions of section 9 of the Andhra Pradesh General Sales Tax Act, 1957, to which we have already referred. On a perusal of the relevant sections of the Madras General Sales Tax Act, including the said section 9, the court held that in respect of declared goods the tax payable by a dealer was only on the sale or purchase, as the case may be, inside the State, preceding the inter-State sale or purchase at the point specified against each in the Second Schedule to the said Act and as the assessees had purchased cotton locally and had then sold the same in the course of inter-State trade or commerce to dealers outside the State, the assessees were the last purchasers of cotton inside the State liable to pay the purchase tax.

32. Mr. Kotwal next relied upon a decision of the Delhi High Court in Fitwell Engineers v. Financial Commissioner, Delhi Administration, Delhi [1975] 35 S.T.C. 66. Under section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, as applied to Delhi, a dealer was entitled to exclude from his gross turnover his turnover of sales to a registered dealer of goods of the class or classes specified in the certificate of registration of such dealer as being intended for resale or for use as raw materials in the manufacture of goods for sale. In cases where a registered dealer purchasing the goods against his certificate of registration as aforesaid utilised the goods for any purpose other than the purpose certified, the price of the goods so purchased was to be included in the taxable turnover of the purchasing dealer. The assessees in that case purchased goods specified in their registration certificate for use by them in the manufacture of goods for sale. The actual resale of these goods, after manufacture by the assessees, however, took place outside Delhi. The revenue authorities contended that as the resales by the assessees had taken place outside Delhi, the assessees had contravened the terms of the certificates given by them to their sellers and were, therefore, liable to pay purchase tax. The assessees, on the other hand, contended that by reselling the goods they had complied with the conditions of the certificates and were not liable to pay any tax. The Delhi High Court held that the word 'sale' used by the legislature in respect of both the first and the second sale mentioned in section 5(2)(a)(ii) referred to taxable sales and that the resale should only be to registered dealers inside the State. In the course of the judgment, the Delhi High Court observed (at page 74) :

'........ the system of single point levy ..... depended on the fact that at least one sale of the same goods must be taxed within the State.'

33. We are not concerned with this decision in so far as it turns on the construction of the provisions of the Bengal Finance (Sales Tax) Act, 1941, as applied to Delhi, and it is not necessary, therefore, to examine the said decision from this point of view. With great respect to the learned Judge of the Delhi High Court who decided the said case, we are, however, unable to subscribe to the view that wherever a single point sales tax levy is in force in a State, at least one sale of the same goods must be taxed within the State. As mentioned earlier, there is no obligation on a State to introduce sales tax into its fiscal structure; but if a State does so, it is open to the state Legislature to select certain classes of transactions of sale or purchase and tax them and either exclude the remaining transactions or give exemptions in respect thereof. As pointed out above, by the scheme of licensing and authorisation introduced by sections 8 and 9 of the Bombay Act, there can be a series of transactions terminating either in a sale taking place in the course of export of the goods out of the territory of India or in the course of inter-State trade or commerce in which no sales tax or purchase tax is imposed at any stage.

34. An authority relevant to the point which we have to decide is the decision of the Gujarat High Court in Commissioner of Sales Tax v. Godrej Soap Pvt. Ltd. [1969] 23 S.T.C. 489 relied upon by Mr. Surte, the learned counsel for the applicants. This was a case under the Bombay Sales Tax Act, 1959, as applicable to the State of Gujarat. Under that Act a dealer is entitled to obtain an authorisation if the turnover of sales of goods exported by him outside India during the relevant year exceeds the limit of Rs. 30,000. In support of the fact that their turnover exceeded the prescribed limit the assessees in that case relied upon a c.i.f. contract entered into by them for exporting the goods from Bhavnagar in the State of Gujarat to Spain. The Sales Tax Tribunal held that the said sale had taken place inside the State within the meaning of section 4(2) of the Central Act which was incorporated in the Bombay Sales Tax Act, 1959, as applicable to the State of Gujarat. This view was upheld by the Gujarat High Court. Section 75 of the Bombay Sales Tax Act, 1959, was in terms similar to section 46 of the Bombay Act, which provided as follows :

'75. Nothing in this Act or the Rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, where such sale or purchase takes place -

(a)(i) outside the State; or

(ii) in the course of the import of the goods into the territory of India, or the export of the goods out of such territory; or

(b) in the course of inter-State trade or commerce,

and the provisions of this Act and the said Rules shall be read and construed accordingly.

Explanation. - For the purpose of this section whether a sale or purchase takes place -

(i) outside the State, or

(ii) in the course of the import of the goods into the territory of India or the export of the goods out of such territory, or

(iii) in the course of inter-State trade or commerce,

shall be determined in accordance with the principles specified in sections 3, 4 and 5 of the Central Sales Tax Act, 1956.'

35. Relying upon the said section 75, it was contended on behalf of the revenue before the Gujarat High Court that the turnover of the said c.i.f. contract should not be included in the turnover of sales of the assessees for the purpose of determining whether that turnover had exceeded the prescribed limit so as to qualify them for obtaining an authorisation because the said section 75 prohibited imposition of a tax on any sale or purchase falling under one of the category of sales and purchases mentioned in article 286 of the Constitution. The Gujarat High Court pointed out that the said section 75 had been introduced in the Act to make the constitutional position clear by way of abundant caution by reiterating the bans under article 286 of the Constitution and that these bans being constitutional bans and as the State Legislature lacked the taxing power, it was in terms provided in the said section 75 that for creating liability to taxation, sales or purchases taking place outside the State or in the course of the import of the goods into or the export of the goods out of the territory of India or in the course of inter-State trade or commerce could not be included because they would not be within the purview of the Act. The explanation to the said section 75 only provided that the principles laid down under sections 3, 4 and 5 of the Central Act would be applied to determine when a sale or purchase took place outside the State or in the course of import or export or inter-State trade or commerce, and which had got to be excluded for the purpose of considering the liability for tax under the Act. The court further observed :

'Therefore, the non obstante clause in section 75 would have a very limited effect in so far as it must override any provision of the State law which seeks to impose a tax on such sales, notwithstanding the constitutional embargo. Except for that limited purpose such outside sales or sales in the course of inter-State transport or in the court of import or export would not be excluded from the operation of the Act for all other purposes, especially when the legislature includes all the sales in the definition of 'turnover of sales' and gives an artificial definition for finding out what are the 'sales within the State' on the basis of the principles mentioned in section 4(2) of the Central Act, which are incorporated by the explanation to section 2(28) of the Act. There would be nothing inconsistent in such a provision in the Act which would necessitate any departure from the statutory definition, when the purpose of inclusion is not to create a liability in respect of such sales, but only to take them into account for the purpose of registration of a dealer or issuing authorisation to him, so that in the case of sales to such a dealer, the relevant exemption could be given.'

36. We are in respectful agreement with these observations of the Gujarat High Court. Mr. Kotwal, the learned counsel for the respondent, has urged before us the same submissions based upon section 46 of the Bombay Act as were raised before the Gujarat High Court in respect of section 75 of the Bombay Sales Tax Act, 1959, as applicable to the State of Gujarat, and we reject these submissions on the same grounds as the Gujarat High Court did in the case before it.

37. In the case before us the question of taxing the sale by the applicants to Raznoexport does not arise and did not arise at any stage. The only question was of taxing the local purchases made by the applicants which the State had the power to tax, with this qualification that these goods should have been purchased by the applicants for a purpose other than resale. The only question, therefore, which falls for our determination is the liability of the applicants to pay purchase tax on their purchases, and any consideration of section 3 or 5 of the Central Act does not arise in this case.

38. Mr. Kotwal, the learned counsel for the respondent, next submitted that since these were sales which occasioned the export, even on the facts of the case the sales did not take place within the State as ascertained by the principles laid down in the explanation to clause (13) of section 2 of the Bombay Act. Before we turn to the facts to arrive at our finding of law, it may be useful to set out what the sale which occasioned an export is. A sale of goods occasions the export of the goods out of the territory of India when the movement of the goods from India to the foreign territory is the result of a covenant or incident of the contract of sale and the property in such goods passes either in India or in the foreign country. This position has been accepted by the Supreme Court in K. G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras : [1966]3SCR352 . In the present case there is no dispute that the terms of the contracts between the applicants and Raznoexport were carried out. Under the terms of the said contract the goatskins were shipped by the applicants from Bombay to a Russian port. Raznoexport had the right to examine the goatskins at the applicants' godown as also at the port prior to the loading of the goods on board the ship. The goods were packed in bales bearing certain specified marks. It is clear from the terms of the contract that these sales were of unascertained goods and at the time of their appropriation to the said contracts they were within the State and accordingly the sale of these goods by the applicants to Raznoexport took place within the State.

39. In the result, in both the said references we answer the question reframed by us in the negative.

40. The respondent will pay to the applicants the costs of both these references.

41. The fee of Rs. 100 paid by the applicants in each of the two references under sub-section (1) of section 34 of the Bombay Sales Tax Act, 1953, will be refunded to the applicants.

42. Reference answered accordingly.


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