1. The precise point argued before us is not covered by any authority. But we have come to the conclusion that the assessee, who is the common petitioner, must succeed. The petitioner is a registered dealer with its head office at Madras and branches in Madurai, Rajapalayam and Salem inside the State and also in certain places in the States of Kerala and of Andhra Pradesh including Hyderabad. During the years 1960-61 to 1964-65 and 1966-67 up to October, 1966, it was dealing in iron and steel, electrical goods, sanitary wares, paints, cement, hardware materials, manure, cloth, yarn etc. and was being assessed to tax under the Madras General Sales Tax Act on the turnover relating to the business. The gross turnover of the petitioner included sales of yarn by Madurai Mills Limited to the petitioner at its head office in Madras and also branches. The usual manner in which yarn was purchased was this. The head office used to place orders from Madras on Madurai Mills Limited after receiving quotation of price of yarn and supplies were made by the Madurai Mills either to the petitioner's head office or to its branches in accordance with the instructions. Where deliveries were made to the petitioner inside the State, the seller collected the tax due under the Madras General Sales Tax Act with reference to item 3 of the Second Schedule to the Act. But in respect of deliveries made to the petitioner's branches outside the State, the Madurai Mills collected tax under Section 3 of the Central Sales Tax Act. During the year 1965-66 the petitioner brought over to the Madras State certain quantities of yarn from the stock so purchased at its branches in the States of Andhra Pradesh and Kerala, and sold the same to local dealers. On the view that the sales so effected were chargeable to tax as first sales in the State, the respondent called upon the petitioner to produce accounts and certain other documents. This was resisted by the petitioner on the ground that the sales were second sales not liable to tax. On the ground that the respondent has already made up his mind against the assessee, the petitioner has moved this Court, and in one of these petitions the prayer is to quash the notice of the respondent dated 16th November, 1966. This notice required the petitioner to produce the general ledgers and purchase invoices including branch transfer vouchers for cotton yarn relating to the years 1960-61 to 1964-65 and 1966-67 (up to October, 1966) in respect of all the places of business in Madras State to enable the respondent to verify the claim of the petitioner that the sales made in the State out of the stock transferred from branches in the States of Andhra Pradesh and Kerala were not liable to tax. There is no dispute that the sales by the Madurai Mills to the petitioner in which deliveries were made to branches in the States of Andhra Pradesh and Kerala have been charged to tax under the provisions of the Central Sales Tax Act. But the point in controversy is whether the sales made locally of yarn transferred to this State from the stocks of yarn in the States of Andhra Pradesh and Kerala referable to inter-State sales already charged to tax, are again liable to tax as first sales in the State of Madras.
2. In order to appreciate the point we may notice the relevant statutory provisions. Section 3 of the Madras General Sales Tax Act, 1959, is the charging section. Sub-section (1) contemplates a multi-point tax. The following sub-section provides for levy of tax in the case of sale of goods mentioned in the First Schedule and at the rate and only at the points specified therein on the turnover in each year relating to such goods. Section 4, however, provides that notwithstanding anything contained in Section 3, the sales of declared goods shall be charged to tax only at the rate and at the point specified in the Second Schedule to the Act. If sales of declared goods have already been charged as inside sales and the same goods were the subject-matter of subsequent inter-State sales, the tax paid on the earlier sales should be refunded as provided by Section 4-A which was introduced by Madras Act 6 of 1963. Section 6 directs that tax under the Act is intended to be in addition to the tax under the Central Act or any other law. Under the Second Schedule to the Act cotton yarn, excluding cotton yarn waste, is liable to tax under the local Act at the point of first sale in the State at the rate of two per cent. The Central Sales Tax Act defines 'declared goods' as those declared under Section 14 to be of special importance in inter-State trade or commerce. Section 3 lays down the principles for determination when a sale or purchase of goods takes place in the course of inter-State trade or commerce, and Section 4 the principles where a sale or purchase takes place. Section 6 in the Central Act is the charging section, and Section 8 prescribes the rates of tax on inter-State sales. Under Section 14 cotton yarn, but not including cotton yarn waste, has been declared to be of special importance in inter-State trade or commerce. Section 15 as amended in 1958 by Act 31 of 1958 is as follows:
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.
3. In effect Section 15 appears to ensure that in the case of declared goods, they should in all circumstances only bear a single burden at a specified stage and at the prescribed rate.
4. The contention for the petitioner before us is that out of inside sales are carved out inter-State sales and that, therefore, when inter-State sales of declared goods are charged under the Central Sales Tax Act, it is no longer open to the State to tax the subsequent sales of the same goods inside the State as first sales and bring them to tax. We are referred to the history of the law prior and subsequent to 26th January, 1950, and told that the charge under the local sales tax law was made on inter-State sales regarded as inside sales on the basis of the nexus doctrine and that this basis of taxation has been adopted under the Central Sales Tax Act. We agree that it is so. If, therefore, a sale of declared goods can well be said to be a local sale, because of the incidence of the sale, but it also bears the characteristics of an inter-State sale and hence taxed under the Central Sales Tax Act, and if such a sale is in point of fact also a first sale in the State, though of inter-State character, according to the argument of learned counsel for the petitioner, there cannot again be a first sale of the same goods inside the same State, for, it is from the inside sale, which is the first sale in the State, the inter-State sale, which has been charged to tax, has been carved out under the provisions of Sections 3 and 4 of the Central Act. On the other hand, for the revenue the contention is that the inside sale, which followed the inter-State sale, is the first sale in the State, and as under Section 6 of the local Act the tax therein is in addition to the inter-State sales tax, the State is entitled to tax the sales as first sales. It is maintained that the moment the goods are taken outside the State, it brings an end to the chain of local sales and if the goods are brought into the State again and sold, a new chain of sales starts in which the first sale attracts the tax under the Second Schedule to the Act.
5. In our opinion, where the terms of a first sale are such that it may well be said to be an inside sale but it bears also the characteristics of an inter-State sale and, therefore, it has been taxed under the Central Act, that sale being physically a first sale inside the State out of which the inter-State sale has been carved out, it should follow that as the tax levied on the inter-State sale must prevail, there will be no tax liability on the same sale under the local Act on the ground that it is an inside sale. Logically the result will be that when the goods pursuant to the inter-State sale have been delivered outside the State but brought back into the State and then sold, that sale, as we consider, cannot in fact or in law be regarded as the first sale within the meaning of the Second Schedule to the local Act. What the position will be when a sale is an inside sale within the meaning of Section 4 of the Central Act and is also an inter-State sale, because it occasioned the movement of the goods to another State and out of the goods delivered outside the State pursuant to the inter-State sale, a part has been brought into the State and sold again as an inside sale, in the sense that every incident including delivery is in the State, we need not decide on the facts of this case. Possibly it may even be argued in that case that once a sale is held to be an inside sale under Section 4 but it is also an inter-State sale under Section 3, there cannot be a subsequent sale inside the State which can be regarded as a first sale for the purpose of the local Act.
6. The course of transaction as described in the affidavit and which has not been traversed in the counter statement is that Madurai Mills pursuant to the orders placed by the petitioner put the goods on rail destined to the States of Andhra Pradesh and Kerala and the price was paid in the State of Madras. Quite apart from Section 4 of the Central Act, that will be an inside sale and also the first sale in the State. Even under the provisions of Section 4, inasmuch as the goods were in this State when the contract on inter-State sale was entered into, it will be on that test too an inside sale, and in any case, it will be such a sale on the appropriation test.
7. We are not impressed by the contention of the learned Special Government Pleader that Section 6 of the local Act enables the State to treat the subsequent sale in the State of Madras as a first sale therein and bring it to tax in addition to the inter-State sales tax. Section 15 of the Central Act is clear enough and it places restrictions and conditions upon the local law. Its intention is that declared goods should suffer tax at only one point and at a prescribed rate. That being the case, the provisions of Section 15 make an inroad into the texture of the local law, so that Section 6 of the local Act will have to be read subject to and in conformity with the provisions of Section 15 and the policy underlying that section. In other words, Section 6 will be inapplicable to sales of declared goods. We also think that because the goods pursuant to the inter-State sale were delivered in the States of Andhra Pradesh and Kerala and from out of the stocks transferred to Madras, there were subsequent sales inside the State, there is no snapping of the chain of successive sales. Though the sales inside the State followed the inter-State sales, in point of fact the inter-State sales were the first sales in the State but for their inter-State character, so long as the goods involved in the transactions are identical.
8. On that view it seems to us that there is no question of charging the sales inside the State which followed the inter-State sales and then making a refund of the local tax. As in our opinion the inter-State sale was also factually the inside sale, which occasioned the movement of the goods, that is the first sale in the State, which attracts the tax under the Central Sales Tax Act, and the goods having thus suffered tax, there is no subsequent liability on them to a further single point tax under the local law.
9. The petitions are allowed but with no costs.