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State of Kerala Vs. CochIn Coal Co. Ltd., Cochin - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1968SC389; [1968]1SCR415; [1968]21STC403(SC)
ActsTravancore Cochin General Sales Tax Act - Sections 12(2); General Sales Tax Act - Sections 26 and 26(1); Constitution of India - Article 286; Constitution (sixth Amendment) Act, 1956
AppellantState of Kerala
RespondentCochIn Coal Co. Ltd., Cochin
Cases ReferredCochin Coal Co. Ltd. v. The State of Travancore
Excerpt:
sales tax - tax on inter-state sale - section 12 (2) of travancore cochin general sales tax act, section 26 and 26 (1) of general sales tax act, article 286 of constitution of india and constitution (sixth amendment) act, 1956 - assessee not residing in state supplied goods to purchasers - assessment year ends on 04.09.1955 - sales tax officer assessed respondent for total sales during year - assistant commissioner of agricultural income tax and sales tax, ernakulam allowed assessee appeal in part and reduced taxable turnover by omitting sales after 06.09.1955 - appellate tribunal on appeal declared inter-state sale not taxable under section 26 (1) (b) after amendment made by act 12 of 1957 - high court rejected the application - supreme court observed that provision of state sales tax..........disposed of on january 2, 1962 in favour of the assessee. the tribunal held that the sales being inter-state sales were, according to the decision of the kerala high court in t.r.cs. 1, 2 and 3 of 1961 (reported in 14 sales tax cases 850) not taxable. the tribunal held that s. 26(1)(b) of the general sales tax act, as amended by s. 13(ii) of act 12 of 1957 prohibited the taxation of inter-state sales after march 31, 1951. the deputy commissioner of agricultural income tax and sales tax central zone, ernakulam, went up to the high court of kerala under s. 15-b(1) of the act. the question of law raised for decision by the high court was, 'whether in the light of the amending act 9 of 1962 the finding of the tribunal is correct ?' 3. in rejecting the application, the high court reasoned.....
Judgment:

Mitter, J.

1. This appeal, by special leave, is from a judgment and order of the High Court of Kerala dated August 16, 1963 passed in tax Revision Case No. 17 of 1962 filed by the respondent Cochin Coal Co. Ltd. against the order of the Sales Tax Appellant Tribunal, Trivandrum.

2. The facts necessary for the disposal of this appeal are as follows. The respondent-assessee was a non-resident dealer (not resident in Travancore-Cochin) during the year 1955-56. The period we are concerned with here ends on September 4, 1955. It used to supply to consumers in Travancore Cochin State which later became Kerala. For the assessment year in question (1955-56) the assessee was asked to file statements showing its turnover of supplies of coal made to purchasers in the State of Kerala and in reply to the notice under s. 12(2)(b) of the Travancore Cochin General Sales Tax Act, it stated that the sales of coal to steamers arriving and berthed in Travancore Cochin State waters were not taxable because the good were stored by the steamers for consumption on the high seas. The assessee however did not question its liability to pay tax in respect of supplies made to other consumers in the state of Kerala. On March 7, 1959 the Sales Tax Officer, Circle I, Mattancherry assessed the respondent on a turnover of Rs. 1,29,352/-. The respondent filed an appeal therefrom and the Assistant Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam allowed the appeal in part and reduced the turnover by omitting the position of it after 6th September, 1955. In the result, the assessee, is turnover was reduced to Rs. 69,407/-. There was a further appeal to the Kerala Sales Tax Appellate Tribunal. This was disposed of on January 2, 1962 in favour of the assessee. The Tribunal held that the sales being inter-State sales were, according to the decision of the Kerala High Court in T.R.Cs. 1, 2 and 3 of 1961 (reported in 14 Sales Tax cases 850) not taxable. The Tribunal held that s. 26(1)(b) of the General Sales Tax Act, as amended by s. 13(ii) of Act 12 of 1957 prohibited the taxation of inter-State sales after March 31, 1951. The Deputy Commissioner of Agricultural Income Tax and Sales Tax Central zone, Ernakulam, went up to the High Court of Kerala under s. 15-B(1) of the Act. The question of law raised for decision by the High Court was,

'Whether in the light of the amending Act 9 of 1962 the finding of the Tribunal is correct ?'

3. In rejecting the application, the High Court reasoned as follows :-

(1) Central Act 7 of 1956 was intended to validate State laws imposing or authorising the imposition of taxes on the sale or purchase of goods in the course of inter-State trade or commerce.

(2) This Court has decided in the State of Kerala and Others v. The Cochin Coal Co., Ltd. : [1961]2SCR219 that s. 26 of the General Sales Tax Act, 1125 imposed a tax on the sale or purchase of goods in the course of inter-State trade or commerce and taxation of such sales during the period between 1-4-1951 and 6-9-1955 was validated by the above Central Act.

(3) S. 26 of the General Sales Tax Act, 1125 prior to its amendment by Act 12 of 1957 was in pari materia with s. 22 of the Madras General Sales Tax Act which came up consideration in the case of M. P. V. Sundararamier & Co. and others v. The State of Andhra Pradesh and another : [1958]1SCR1422 . The Supreme Court held that s. 22 of the Madras Act 'intended to authorise taxation or sales falling within the Explanation, subject to authorisation by Parliament as Provided in Art. 286(2)'.

(4) Act 12 of 1957 Raised the controversy as to whether Central Act 7 of 1956 could be considered as savaging the levy of tax on inter-State sales after the amendment introduced in s. 26. According to the decision in T.R.Cs. 1, 2 and 3 of 1961 inter-State sales after 31st March, 1951 were not taxable.

(5) The Constitution (sixth Amendment) Act, 1956 made substantial changes as regards levy of tax in inter-State sales. As a result of the amendment of Art. 269 taxes on the sale or purchase of goods other then newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce were to be levied and collected by the Government of India and it was for parliament to formulate principles for determining when a sale or purchase of good takes place in the course of inter-State trade or commerce.

(6) The Validating Act 9 of 1962 was enacted subsequent to the constitution (sixth amendment) Act which came into force on 11th September, 1956. In view of the amendment of the Constitution in 1956 the Legislature of Kerala had not the competence to pass any legislation on the subject of inter-State sales Whether prospective or retrospective or both in the year 1962 with the result that the State could not call in aid the provisions of Act 9 of 1962 to tax inter-State sales.

4. The appellant's case was argued by the learned Solicitor general. One E. J. Mathew was allowed to intervene in this matter. In our view, the High Court failed to construe the effect of the relevant statutes and apply the decisions of this Court rendered before they heard the matter. Proceeding Chronologically, the legal position developed as follows.

5. Before the Constitution came into force. The Travancore Cochin State General Sales Tax Act, XI of 1125 levied a tax on sale of goods under s. 3 of the Act. The tax was to be paid by the dealer on his turnover in each year. There was then no question of any exemption of inter-State sales form taxation, s. 26 was inserted in the main Act 12 of 1951 and it ran as follows :

1. '(1) Notwithstanding anything contained in this Act -

(a) a tax on the sale or purchase of goods shall not be imposed under this Act :

(i) where such sale or purchase takes place outside the State; or

(ii) where such sale or purchase takes place in the course of import of the goods into or export of the goods out of the territory of India.

(b) a tax on the sale or purchase of any goods shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide.

(2) The explanation to clause (1) of Art. 286 of the constitution of India shall apply for the interpretation of sub-clause (i) of clause (a) sub-section (1)'.

6. This was to bring the Act into line with art. 286 of the constitution of India Then come the Judgment in the case of the Bengal Immunity Company Ltd. v. The State of Bihar and others : [1955]2SCR603 on September 6, 1955. There it was decided that the sales or purchases made by the appellant company in that case which were sought to be taxed by the State of Bihar actually took place in the course of inter-State trade or commerce and Parliament not having by law otherwise provided, no Bihar law could tax these sales or purchase although they fell within the Explanation to Art. 286(1) and other States could not tax the same by reason of both clause 1(a) read with the Explanation and clause (2) of Art. 286. This led to the passing of Central Act 7 of 1956. The object of the Act was to validate laws of states imposing or authorising the imposition of taxes on the sale or purchase of goods in the course of inter-State trade or commerce, S. 2. of the Act provided that :

'Notwithstanding any judgment, decree or order of any court no law of a state imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April 1951 and the 6th day of September, 1955 shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or commerce took place in the course of inter-State trade or commerce; and all such taxes levied or collected or purporting to have been validity levied or collected during the aforesaid period shall be deemed always to have been validity levied or collected in accordance with law. . . . . . .'

7. A question here arises as to whether this statutory provision served to lift the ban imposed by s. 26 of the General Sales Tax Act.

8. Then came the Constitution (Sixth Amendment) Act, 1956 on September 11, 1956. It made substantial and important changes in Art. 286 of the Constitution by deletion the Explanation to Art. 286(1) and by substitution new Art. 286(2) and 286(3). It also amended Art. 269. It inserted item 92A in the Union List of the Seventh Schedule and substituted a new entry 54 in place of the old one in the State List of the said Schedule. As a result of these amendments, taxes on the sale or purchase of goods other then newspapers, where such sale or purchase took place in the course of inter-State trade or commerce could be levied and collected by the Government of India which was empowered to assign the same to the States in terms of clause (2) of Art. 269. Art. 269(3) empowered Parliament by law to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. The new item 92A added to the Union List read :

'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.'

9. The old entry 54 in the State List was substitutes by a new entry reading :

'Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.'

10. It would therefore appear that after the amendment of the Constitution in 1956 the State Legislatures were not competent to legislate in respect of taxes on the sale or purchase of goods other than newspapers which took place in the course of inter-State trade or commerce.

11. Next in order of date is the Travancore-Cochin General Sales Tax (Amendment) Act, 1957 (12 of 1957) which came into force on August 7, 1957, s. 13 of this Act introduced several changes in s. 26 of Act XI of 1125. In the first place it substituted the word 'State' for the words 'State of Travancore Cochin' in sub-clause (i) of clause (a) of sub-s. (1) of s. 26. It also deleted the words :

'except in so far as Parliament may by law otherwise provide'

in clause (b) of sub-s. (1) and omitted sub-s. (2) of the section. By its terms the amendment was only prospective. It did not seek to disturb the position in law obtaining up to that date, it was argued before us that the State Legislature was not competent to legislate in this field after the constitution (Sixth Amendment) Act.

12. On March 11, 1958 Sundararamier & Co.'s case : [1958]1SCR1422 was decided by this court. That case dealt with the competence of the States to levy tax on inter-State sales and to enact conditional legislation on the subject. The statute which came up for consideration was the Madras General Sales Tax Act, 1339 (Madras Act 9 of 1939) as adapted to Andhra read with s. 2 Sales Tax Laws Validation Act (7 of 1956) S. 22 of the Madras General Sales Tax Act was inserted in the statute by an Adaptation order of the president issued on July 2, 1952 and clause (a) thereof was substantially similar to s. 26(1)(a) of the Travancore-Cochin General Sales Tax Act XI of 1125. The effect of clause (b) of s. 22 was that nothing in the Act (Madras Act) was to be deemed to impose or authorise the imposition of a tax on the sale or purchase of any goods where such sale or purchased takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide after 31st March, 1951 and the provisions of the Act were to be read and construed accordingly. There was an Explanation to this section which is a verbatim reproduction of the Explanation to Art. 286(1)(a). It was held by this Court (at page 1453) that :

'Taken along with the admitted power of the States to impose tax on sales under Entry 54, the true scope of s. 22 is that it does impose a tax on the Explanation sales, but the imposition is to take effect only when parliament lifts the ban. In other words, it is a piece of legislation imposing tax in praesenti but with a condition annexed that it is to come into force in future as and when Parliament so provides ..................It would clearly be within the competence of the Madras Legislature to enact a law imposing a tax on sales condition on the ban enacted in Art. 286(2) being lifted by Parliamentary legislation, and that, in our opinion is all that has been some in s. 22. The Madras Act defines the event on which the tax becomes payable and the person from whom and the rate at which it has to be levied and forms a complete code on the topic under consideration. It would have no immediate operation by reason of the ban imposed by Art. 286 but when once that is removed by a law of Parliament, there is no impediment to its being enforced That satisfied all the requirements of a conditional legislation.'

13. Discussing various authorities cited at the Bar this Court approved of the decision in Mettur Industries Ltd., v. State of Madras : AIR1957Mad362 Dial Das v. P. S. Talwalkar A.I.R. 1957 Bom. 71 and held that s. 22 operated to impose a tax on sales falling within the Explanation subject to authorisation by Parliament as provided in Art. 286(2). At page 1463, the Court went on to observed :

'If it is competent to the legislatures of the States to enact a law imposing a tax on inter-State sales to take effect when Parliament so provides, there is nothing unconstitutional or illegal either in s. 22 of the Madras act or in the corresponding provisions in the Acts of other States. If conditional legislation is valid, as we have held it is then s. 22 is clearly intra vires, and the foundation on which this contention of the petitioners rests, disappears and it must fall to the ground.'

14. The case of the State of Kerala & Others v. The Cochin Coal Company Ltd. : [1961]2SCR219 was decided on October 31, 1960. There, the respondent who stocked bunker coal at Candla Island in the State of Madras sold the coal to steamers calling at the port of Cochin in the State of Travancore-Cochin and delivered it there. The respondent was assessed to sales tax on such sales for the years 1951-52 and 1952-53. The respondent contended inter alia that the sale being in the course of inter-State trade was covered by the ban contained in Art. 286(2) of the Constitution and was not taxable under the Travancore-Cochin General Tax Act. 1125. The state contended that this claim for exemption was not available in view of the Sales Tax Laws Validation Act, 1956. The High Court held that the Validation Act could not avail the State because on their construction of s. 26 of the Act, no tax had been levied or was leviable on sales in the course of inter state trade or commerce and that the Validation Act having Validated only taxes already levied could nor enable the State to levy tax which had not been imposed by the State Tax Act. This Court rejected the view of the High Court 7 S.T.C. 731 and held that 'the view of the learned Judges of the High Court regarding the construction of s. 26 of the Travancore-Cochin General Sales Tax Act must now be held to be incorrect in view of the decision of this Court in M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh : [1958]1SCR1422 .

15. The position which emerges from the above may be summarised below :-

(1) The enactment of the Travancore-Cochin General Sales Tax Act as it stood prior to the coming in to force of the Constitution, imposed a levy of sales tax on transaction of the nature disclosed in this case.

(2) S. 26 of the General Sales Tax Act, as amended in 1951 imposed a ban on the levy of tax after March 31, 1951 subject to any exception which Parliament may by law provide.

(3) Central Act 7 of 1956 was enacted for the purpose of validating the levy and collection of taxes between 1-4-1951 and 6-9-1955 which would otherwise be invalid by reason of the decision in the Bengal immunity Co.'s case : [1955]2SCR603 .

(4) In Sundararamier's case : [1958]1SCR1422 it was held by this Court that s. 22 of the Madras General Sales Tax Act operated to impose a tax subject to authorisation by Parliament as provided in Art. 286(2). Further, this Court did not agree with the view of the Kerala High Court in Cochin Coal Co. Ltd. v. State of Travancore-Cochin 7 S.T.C. 731.

(5) In the State of Kerala & Others v. The Cochin Coal Co. Ltd. : [1961]2SCR219 this court overruled the decision of the Kerala High Court in the Cochin Coal Co. Ltd. v. The State of Travancore-Cochin 7 S.T.C. 731 regarding the construction of s. 26 of the Travancore Cochin General Sales Tax Act; further the assessee's claim to relief on the strength of Art. 286(2) of the Constitution was held not to be available to them after the coming into force of the Sales Tax Validation Act 1956 : [1961]2SCR219 .

16. The effect of this was that the levy of sales tax up to 4th September, 1955 being the last date with which we are concerned in this case, was valid. The validity and the scope of the amendment introduced in s. 26 of the Travancore-Cochin General Sales Tax Act 12 of 1957 do not fall to be considered in this case inasmuch as the Act was only prospective and did not operate to invalidate any levy of tax imposed before.

17. In this view of the matter, we are really not concerned to go in to the question as to whether the State of Kerala had legislative competence to enact Act 9 of 1962 seeking thereby to amend s. 26 of the Travancore-Cochin General Sales Tax Act 1125 by substituting the date 6th September, 1955 in place of 31st March, 1951 and purporting to validate the levy and collection of taxes on sales and purchases falling within the purview of sub-s. (2A) of s. 26 of the Principal Act as inserted by the Act of 1962. The ban imposed by s. 26 of the General Sales Tax Act, 1125 having been lifted by the Central Sales Tax Validation Act, 1956, the State was competent to collect all taxes in respect of sales in the course inter-State trade and commerce up to September 5, 1955.

18. In the result, we hold that sales tax was properly leviable by the State of Kerala on the transactions which formed the subject matter of this case up to the 4th September, 1955; but the question raised in the application for revision was not correctly framed and should read as follows :

'Whether in the light of the Sales Tax Laws Validation Act, 1956 (Central Act 7 of 1956) read with the Travancore-Cochin General Sales Tax Act as amended up to 1956, the finding of the Tribunal is correct ?'

19. We amend the question accordingly. We allow the appeal and answer the question in the negative. The matter must now go back to the High Court and the High Court should remit the matter to the Appellate Tribunal with our option on the question as reframed. In the circumstances of this case, we make no order to costs.

20. Appeal allowed.


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