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Jeewanlal (1929) Ltd. Vs. Commercial Tax Officer, Lyons Range Charge and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKolkata High Court
Decided On
Case Number Appeal from Original Order No. 127 of 1965
Judge
Reported in[1967]20STC345(Cal)
AppellantJeewanlal (1929) Ltd.
RespondentCommercial Tax Officer, Lyons Range Charge and ors.
Appellant Advocate S.R. Banerjee, Adv.
Respondent Advocate K.C. Mukherjee, Adv.
DispositionAppeal dismissed
Cases ReferredThe State of Mysore v. Guduthur Thimmappa and Son and Anr.
Excerpt:
- sankar prasad mitra, j.1. in this appeal from a judgment of sinha, j., as he then was, the principal point involved is the meaning of inter-state trade or commerce. the appellant is a manufacturer and supplier of aluminium utensils. it has its registered office in calcutta. it submitted tenders for the supply of aluminium utensils to the government of india in its directorate of supplies and disposals required for military purposes. the tenders were made to the director of supplies and disposals, ministry of works, housing and supply at 6, esplanade east, calcutta. the schedule to the acceptance of tender contained, inter alia, the following particulars :-1. name and address of the messrs jeewanlal (1929) limit-contractor ... ed, 31, netaji subhas road,calcutta.3. name of indentor ... c......
Judgment:

Sankar Prasad Mitra, J.

1. In this appeal from a judgment of Sinha, J., as he then was, the principal point involved is the meaning of inter-State trade or commerce. The appellant is a manufacturer and supplier of aluminium utensils. It has its registered office in Calcutta. It submitted tenders for the supply of aluminium utensils to the Government of India in its Directorate of Supplies and Disposals required for military purposes. The tenders were made to the Director of Supplies and Disposals, Ministry of Works, Housing and Supply at 6, Esplanade East, Calcutta. The schedule to the acceptance of tender contained, inter alia, the following particulars :-

1. Name and address of the Messrs Jeewanlal (1929) Limit-contractor ... ed, 31, Netaji Subhas Road,Calcutta.3. Name of indentor ... C. 0. D. Kanpur.7. Conditions of contract as W.S.B. 133 as amended to date.contained in Form No. ...8. The indenting department Government/Central/Military/is ... Commercial.10. Place of delivery ... Free delivery at A.I.I.G.S.,Hastings.(a) Terms of delivery ... Calcutta, (loose) for onwarddespatch to consignee.11. Consignee ... To Commandant C.O.D., Kan-pur (siding).14. Inspection(a) Inspection authority ... A.I.I.G.S., Hastings, Calcutta.15. Payment(a) By the ... P. & A.O..W.H. & S., Calcutta.(b) During the year ... 1956-57.The general conditions contained in W.S.B. 133 are, inter alia,as follows:II. Delivery.(v)(a) Place of delivery ... The contractor shall as may berequired by the Secretary, Departmentof Supply, deliver the stores eitherfree at, or F.O.R. the place or placesdetailed in the schedule hereto, andnot later than on the dates specifiedin the acceptance of tender.16. System of payment.

(i) Unless otherwise agreed between the parties payment for the delivery of the stores will be made on submission of bills in the prescribed form.

(ii) Payment for the stores or for each delivery will be made to the contractor on submission of bills in accordance with the procedure laid down by the Secretary, Department of Supply (now Ministry of Works, Housing and Supply) as detailed below :-

(a) 90 per cent, of the price of each consignment will be paid on proof of despatch of stores to the consignee and on production of an inspection note issued by the Inspector. The balance of 10 per cent, will be paid on receipt of consignment in good condition by the consignee, with his certificate to that effect endorsed on the copy of the inspection note which shall accompany the bill submitted by the contractor.

(b) Where the Inspector also acts as the consignee or where inspection is carried out by the consignee himself at destination and in all cases of local delivery full payment shall be made on submission of 'final 100 per cent, bills' supported by the inspection certificate and the consignee's receipt to the Accounts Officer concerned.

2. On three several dates, namely 13th September, 1955, 25th September, 1955, and 8th October, 1955, the appellant delivered the goods to A.I.I.G.S., Hastings. The appellant submitted its bills after delivery to the Deputy Accountant-General, Industries and Supplies at P-2, Mission Row Extension, Calcutta, for the value of the goods supplied.

3. The appellant is a dealer under the West Bengal Finance (Sales Tax) Act, 1941 (hereinafter called 'the West Bengal Act'). In its return submitted before the Commercial Tax Officer, West Bengal, for the assessment year ending 31st December, 1955, the appellant claimed deduction of a total sum of Rs. 21,550.00 being the amount of the bills in respect of the above deliveries under Section 5(2)(a)(v) of the West Bengal Act which provides, inter alia, as follows :-

Section 5. (2) In this Act the expression 'taxable turnover' means, in the case of a dealer who is liable to pay tax under Section 4, that part of the gross turnover during any period which remains after deducting therefrom-.

(v) sales of goods which are shown to the satisfaction of the Commissioner...to have taken place in the course of inter-State trade or commerce, within the meaning of Section 3 of the Central Sales Tax Act, 1956...

4. The Commercial Tax Officer disallowed the claim for deduction ; the appellant then preferred an appeal to the Assistant Commissioner of Commercial Taxes, Calcutta (South) Circle; the appeal was rejected; then the appellant preferred an appeal to the Additional Commissioner of Commercial Taxes which was also rejected ; the appellant, thereupon, filed a revision application before the Additional Member, Board of Revenue, Government of West Bengal, and this application was also refused.

5. The authorities mentioned above were of the view that the sale was completed within the State of West Bengal and was liable to payment of sales tax under the West Bengal Act. Then the appellant invited the said Additional Member to refer certain questions of law to the High Court. The appellant's application for reference was held to be barred. The appellant then came to the High Court with an application for reference which was also not entertained on the ground of limitation. Thereupon, on the 17th May, 1961, the appellant made an application under Article 226 of the Constitution and a rule was issued upon the respondents to show cause why a writ in the nature of mandamus should not be issued directing the respondents to forbear from giving effect to the illegal order of assessment dated the 27th June, 1956, and why a writ in the nature of certiorari should not be issued setting aside the several orders mentioned hereinbefore and for other reliefs. Sinha, J., by his Lordship's order of 9th December, 1964, has discharged the rule.

6. Before we proceed any further it is necessary to consider the relevant provisions of Section 27 of the West Bengal Act which runs thus:-

Section 27. (1) Notwithstanding anything contained in this Act-.

(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.

7. Mr. Banerjee appearing for the appellant has urged for our consideration the following points :-

1. In order to be an inter-State sale the place where the property has passed is inconsequential.

2. In an inter-State sale the decisive factor is the movement of the goods sold either as a covenant of the contract of sale or as an incident of the contract.

3. In an inter-State sale, the sale need not precede the movement of the goods.

4. In an inter-State sale there need not be any obligation at all on the selling dealer to despatch the goods.

8. With regard to the first three points of Mr. Banerjee no dispute was raised by learned counsel for respondents. It is his fourth point that we have to consider in this appeal. In support of this fourth point Mr. Banerjee has relied on certain decisions which have to be noted. In Tata Iron and Steel Co. Ltd. v. S. R. Sarkar and Ors. [1960] 11 S.T.C. 655, the assessee had its registered office in Bombay, its principal sales office in Calcutta and its factories in Jamshedpur. The assessee was a registered 'dealer' under the Bihar Sales Tax Act, 1947, and, so far as West Bengal was concerned, under the Central Sales Tax Act, 1956, for the period 1st July, 1957 to 31st March, 1958. West Bengal assessed the assessee under Section 3(b) of the Central Sales Tax Act on sales which under the contract moved from Bihar to West Bengal and the documents of title to the goods were transferred in West Bengal. The Supreme Court in this case has construed the provisions of Section 4(2) of the Central Sales Tax Act and also those of Section 3. Section 4(2) runs thus :-

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 unascertaiped 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.

9. Section 3 of the Central Sales Tax Act is as follows :- '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.

10. The Supreme Court has held that the Assessing Officer had to ascertain (a) whether the goods at the time of transfer of documents of title were in movement from the State of Bihar to the State of West Bengal and (b) the place where the sale was effected under Section 4(2). At page 667 Shah, J., observes as follows :-

In our view, therefore, within Clause (b) of Section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto : Clause (a) of Section 3 covers sales, other than those included in Clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State.

11. Learned counsel for the appellant emphasises before us the expression 'incident of the contract of sale' which the Supreme Court has used. According to him this expression is wider in scope and application than the expression 'covenant of a contract of sale'. Even though, he argues, it is not one of the terms of the contract of sale that the seller would have anything to do with the movement of goods from one State to another, the transaction may be said to be in the course of inter-State trade or commerce, provided that the contract shows that the goods were intended to be moved from one State to another. In other words, it may not be the obligation of the seller to take steps for the carriage of goods from one State to another ; but so long as it appears from the contract that the goods were not to remain in the State in which they are sold but would be taken to some other State, the Court should come to the conclusion that it was a transaction in the course of inter-State trade or commerce.

12. In this appeal one of the matters we have to decide is what the expression 'incident of the contract of sale' really means. This expression was used in Tata Iron and Steel Co.'s case [1960] 11 S.T.C. 655 and also later on in Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes [1966] 17 S.T.C. 197.

13. Our task has been made easier by the Supreme Court's decision in K. G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473.

14. But before we come to the Supreme Court case it is worthwhile referring to a decision of the Madras High Court in Bengal Corporation Private Ltd. v. The State of Madras [1965] 16 S.T.C. 62. In this case under a contract between the petitioner and the Iron and Steel Controller, Calcutta, the petitioner agreed to import and supply steel to the Integral Coach Factory at Madras. The contract provided that the petitioner would get the goods manufactured in U.K.; the goods would be shipped to the Madras Port; but before shipment a nominee of the buyer should inspect the goods to satisfy himself whether they were in accordance with the specification. The petitioner had to submit to the Controller advance information of all expected shipments and should deliver the materials to the Deputy Controller of Stores, Integral Coach Factory, Madras. On completion of delivery the petitioner would submit its 100 per cent, bill for payment.

15. The Madras High Court held that the sale was a sale in the course of import within the meaning of Section 5(2) of the Central Sales Tax Act, 1956, because the movement of the goods from U.K. to the Madras Port was the result of a covenant as well as of an incident of the contract of sale and, therefore, the sale was not taxable.

16. This judgment of the Madras High Court gives an indication that substantially there is no difference between 'covenant of a contract of sale' and 'incident of a contract of sale' which Mr. Banerjee for the appellant seeks to establish.

17. For a clearer statement on this point, we would now come to the Supreme Court's decision in K. G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473. The assessee, in this case, entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according to specifications and the Director-General in London or his representative had to inspect the goods and issue an inspection certificate. Another inspection was provided for at Madras. The assessee was entitled to be paid 90 per cent, after inspection and delivery of the stores to the consignee and the balance of 10 per cent, on final acceptance. In the case of deliveries on F.O.R. basis the asssssee was entitled to 90 per cent, payment after inspection on proof of despatch and 10 percent, after receipt of stores in good condition. The assessee was entirely responsible for the execution of the contract and the safe arrival of the goods. The contract provided that notwithstanding approval or acceptance by an inspector, the consignee was entitled to reject the goods, if they were not in conformity with the contract. The manufacturers consigned the goods by ship to the assessee under bills of lading and the goods were cleared at the Madras Harbour and then despatched for delivery to the Southern Railway in Madras and Mysore.

18. The decision of the Supreme Court in this case is one of latest pronouncements on the subject. The Supreme Court has said that the expression 'occasions the movement of the goods' in Section 3(a) of the Central Sales Tax Act, 1956, and the expression 'if the sale ...occasions such import' in Section 5(2) had the same meaning; secondly, before a sale could be said to have occasioned the import it was not necessary that the sale should have preceded the import; and thirdly, the movement of the goods from Belgium to India was incidental to the contract that the goods would be manufactured in Belgium, inspected there and imported into India for the consignee, and it was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. The Supreme Court thought, on the facts of the case, that there was no possibility of the goods being diverted by the assessee for any other purpose and, therefore, the sales took place in the course of import of goods within Section 5(2) of the Act, and were exempt from taxation. At pages 488 to 489 Sikri, J., has explained what is 'incidental to the contract' in these words :

The next question that arises is whether the movement of axle-box bodies from Belgium into Madras was the result of a covenant in the contract of sale or an incident of such contract. It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle-box bodies would be manufactured in Belgium, inspected there and imported into India for the consignee. Movement of the goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within Section 5(2) of the Act and are, therefore, exempt from taxation.

19. In this judgment, therefore, we have guidance mainly with respect to two matters. First, the principles which apply to the expression 'if the sale...occasions such import' in Section 5(2) of the Central Sales Tax Act, 1956, would also apply to the expression 'occasions the movement of the goods' in Section 3(a). The second point is that the movement in question must be one of the terms or covenants of the contract of sale or as a result of such term or covenant or in pursuance of the conditions of the contract. And expressions like 'incident of the contract of sale' or 'incidental to the contract of sale' do not convey a different meaning.

20. It is in this context that we have to study the Supreme. Court's judgment in Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes [1966] 17 S.T.C. 197, which Mr. Banerjee for the appellant strongly relied on. In this case during three financial years the 'appellant supplied coal to allottees outside the taxing State. The supplies were made pursuant to directions of the Coal Commissioner under the Colliery Control Order, 1945. By this order the supply, use and disposal of coal were strictly regulated from the stage of production to that of consumption. The procedure was that the Coal Commissioner authorised the appellant to despatch specified quantities to specified consumers; the consumer then requested the appellant to despatch by rail the quantity allotted and gave instructions as to booking, the name of the consignee and the collection of price. The appellant loaded the coal in railway wagons making out a 'sale note' mentioning the cost per ton F.O.R. colliery, with freight to pay. So far as the appellant was concerned, the property in the coal consigned passed to the allottee when the goods were loaded into the railway wagons for conveyance and thereafter all losses and any new taxes had to be borne by the consignee.

21. In the present appeal we are not concerned with the claims of the Singareni Collieries Co. Ltd. in respect of periods prior to 10th September, 1956. As regards the periods 11th September, 1956 to 4th January, 1957, and 5th January, 1957 to 31st March, 1957, the Singareni Collieries Co. Ltd. claimed that the aforesaid sales were inter-State sales chargeable under the Central Sales Tax Act, 1956, alone and the Hyderabad General Sales Tax Act, 1950, had no application to these sales. The Supreme Court upheld this contention and stated that during the said periods coal was transported from the colliery of the company to consumers outside the taxing State, as a result of the covenant or incident of the contract of sale. The facts of the case are clear enough for us to conclude that by using the words 'incident of the contract of sale' the Supreme Court was not widening the scope of inter-State sales. There is no doubt that the movements of goods, outside the State concerned, were in accordance with the terms of the contracts of sales and, as such, they were inter-State sales.

22. There is another case to which Mr. Banerjee drew our attention. This is a Bench decision of our Court recently given. In S. K. Roy v. Additional Member, Board of Revenue, West Bengal [1966] 18 S.T.C. 379, the assessee, a coal company, was registered under the Bengal Finance Sales Tax Act, 1941. Under the provisions of the Colliery Control Order, 1945, coal could not be exported out of India without the sanction of the Government of India. The Government placed orders for export through selected dealers and the dealers delivered the coal to specified shipping agents. The assessee executed such orders and the coal was, in fact, exported in pursuance thereof. The names of the foreign buyers were, however, unknown to the assessee. The assessee submitted bills to the shipping agents and received payments from them. The shipping agents got their money from the Government. There was no contract of sale between, the assessee and the shipping agents and the goods were received by the shipping agents as nominees of the Government. It has been held that a sale for the purposes of export would be exempt under Article 286(1)(b) if the export or the movement of the goods out of the territory of India (that is outside the customs barrier of India) takes place as a result of the covenant or contract between the seller and the purchaser, so that the sale and the resultant export are parts of the same transaction and they cannot be dissociated from each other. According to this Bench decision the purchase from the assessee (if it was a purchase) was a part of an arrangement for exporting the goods outside the territory of India and the contract was completed by the assessee by delivering the goods to the shipping agents for being loaded into ships outside the customs barrier. In such a case, the sale by the assessee could not be dissociated from .the export. The export took place in pursuance of the contract or arrangement as between the Government and the assessee.

23. Learned counsel for the respondent told us that the State of West Bengal was preferring an appeal from this judgment. It seems to us that the principles enunciated in this case were those which the Supreme Court had laid down in a number of cases we have already referred to which we propose to mention hereinafter ; but whether or not those principles were correctly applied to the facts of the case is a matter on which we should express no opinion particularly when this point is likely to be dealt with by the Supreme Court.

24. We may now turn to a detailed discussion on the legal principles involved in inter-State trade or commerce. Learned Judges of the Supreme Court in Bengal Immunity Co. Ltd. v. The State of Bihar [1955] 6 S.T.C. 446 and the Madras High Court in The Indian Coffee Board v. State of Madras [1956] 7 S.T.C. 135 have quoted certain observations in this connection of Gavit, Willoughby and Rottschaeffer. Gavit says in his 'Commerce Clause' (1932 Edition): 'The dividing line between an inter-State sale and intra-State sale is rather fine, although clear. If the goods are shipped into a State without a previous sale, any sale within the State is intra-State commerce.... Thus if the sale succeeds the transportation in point of time, however close, the State may license it.' Willoughby in his' 'Constitution of the United States' at page 753 states: '...the test whether agreements to purchase or to sell are to be deemed constituent parts of inter-State commercial transactions is as to whether inter-State transportation of goods is necessarily involved in their execution.' The statements in Rottschaeffer's 'Constitutional Law' (1939 Edition) at pages 229 and 235 are more categorical. Here it is stated : 'The activities of buying and selling constitute inter-State commerce if the contracts therefor contemplate or necessarily involve the movement of goods in inter-State commerce.' Again Rottschaeffer at page 235 observes : 'The decisive factor that renders making a contract an act of inter-State commerce is that it contemplates or necessarily involves the movement of goods in inter-State commerce, and this test applies whether it be a contract to buy or one to sell.'

25. The position, therefore, according to these authorities, is that a sale is an inter-State sale if the contract (a) contemplates or (b) necessarily involves the movement of goods from one State to another. In other words, the contract must be of a nature which necessitates inter-State movement of goods. Venkatarama Ayyar, J., of the Supreme Court in Bengal Immunity Co.'s case [1955] 6 S.T.C. 446 at pp. 583 to 584 has explained an inter-State trade in these words :

A sale could be said to be in the course of inter-State trade only if two conditions concur : (1) a sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade. Thus, if X, a merchant in State A goes to State B, purchases goods there and transports them into A, there is undoubtedly a movement of goods in inter-State commerce. But that is not under any contract of sale. X might be entitled under Article 301 to certain rights in the matter of transportation. But Article 286(2) has no application, as there is no sale in the course of inter-State trade or commerce. In the same illustration, if X after transporting the goods into State A sells them, then also there is no sale in the course of inter-State trade. It is true that there is a sale, and there is also a movement of goods from one State to another. But that movement has not been under the sale, there having been no sale at the time of transportation...

26. These are the principles which have to be followed in every case in which a claim is made that there has been an inter-State sale or purchase. They have been followed again and again by the High Courts in India as well as by the Supreme Court. It may be that learned Judges have used different expressions in different judgments but the principles enunciated appear to be the same. We may, in this connection, refer to the Supreme Court's decisions in Mohanlal Hargovind v. State of Madhya Pradesh [1955] 6 S.T.C. 687, The Cement Marketing Co. of India (Private) Ltd. and Anr. v. State of Mysore and Anr. [1963] 14 S.T.C. 175, Shree Bajarang Jute Mills Ltd., Guntur v. The State of Andhra Pradesh [1964] 15 S.T.C. 430, Ben Gorm Nilgiri Plantations Co. v. The Sales Tax Officer, Ernakulami [1964] 15 S.T.C. 753 and The State of Mysore v. Guduthur Thimmappa and Son and Anr. [1967] 19 S.T.C. 35, the decision of the Madras High Court in Indian Coffee Board v. The State of Madras [1956] 7 S.T.C. 135, the decision of the Calcutta High Court in Associated Electrical Industries (India) (P.) Ltd. v. Commercial Tax Officer and Ors. (1964) 68 C.W.N. 776, the decision of the High Court of Madhya Pradesh in C. P. Timber Works v. Commissioner of Sales Tax, M.P. and Ors. [1964] 15 S.T.C. 602 and the decision of the Punjab High Court in Prem Payari Aggarwal v. Punjab State [1966] 18 S.T.C. 150.

27. We have seen, when Mr. Banerjee was arguing, that expressions like 'there was of necessity as a result of these transactions the movement of the goods across the border'; 'the sale and export form parts of a single transaction'; 'the sale and the export were integrally connected'; 'the export is the result of the sale.'; 'the export is inextricably linked up with the sale'; and 'movement of goods in connection with the sale'. We have also discussed what is meant by 'an incident of the contract of sale'. And, according to us, all these expressions connote one and the same thing, namely, there must be (a) a sale of goods and (b) a transport of goods from one State to another under the contract of sale. The Supreme Court even in Singareni Collieries Co. Ltd. v. Commissioner of Commercial Taxes and Ors. [1966] 17 S.T.C. 197 has quoted the material portions of the said observations of Venkatarama Ayyar, J., at page 209 and has placed reliance on them. Mr. Banerjee tried to convince us that by reason of the other expressions noted above the law on the subject can no longer be confined to a transport or movement under the contract of sale. Mr. Banerjee's contention is that 'inter-State trade or commerce' must have a wider amplitude than that which Venkatarama Ayyar, J., prescribed in the Bengal Immunity case [1955] 6 S.T.C. 446. We are unable to uphold this contention. And the history of the law which the Supreme Court has discussed in Shree Bajarang Jute Mill's case [1964] 15 S.T.C. 430 would support the view that we are taking. Let us go into that history as briefly as possible.

28. Under the Government of India Act, 1935, the Legislatures of the Provinces could legislate on levying of taxes on sales of goods irrespective of whether the property in the goods passed within the Province or not. The only limitation was that the Province concerned had to have a territorial nexus with one or more elements constituting the transaction of sale. The result of this provision was that sales tax could be levied by more than one Province with respect to the same transaction depending upon the territorial nexus of the Province to one or more elements constituting the sale.

29. Now, for the purpose of preventing imposition of an unduly heavy burden upon consumers by reason of multiple taxation on the same goods as well as preserving an important source of revenue to the constituent units of the Indian Union, the Constitution made certain special provisions in Article 286 which, as originally enacted, ran as follows :-

286.(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.

Explanation.-For the purposes of Sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.

(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce :

Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951.(3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has* been reserved for the consideration of the President and has received his assent.

30. After Article 286 came into operation the Sales Tax Acts in different States were brought into conformity with the provisions of this article by a Presidential Order. This article, therefore, restricted a State's legislative authority to impose taxes on sales or purchases in respect of (1) sales or purchases outside the State, (2) sales or purchases in the course of imports into or exports out of India, (3) sales or purchases taking place in the course of inter-State trade or commerce, and (4) sales or purchases of goods which the Parliament has declared to be essential for the life of the community. These limitations to a certain extent overlap one another. But after the enactment of Article 286 the States had no power to tax sales or purchases falling within the above limitations.

31. Article 286 was amended in 1956 by the Constitution (Sixth Amendment) Act, 1956. The article, as amended, stands thus :

286. (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.

32. This amendment, therefore, inter alia, gave authority to Parliament to prescribe the principles governing sales or purchases in Clause (1) of Article 286. That is why, Section 3 of the Central Sales Tax Act of 1956 made provisions determining these principles. We have already taken note of these provisions in this judgment; but for the sake of completing the short history of these legislations, I propose to set it out once again. This section is as follows :?-

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.

33. For purposes of deciding this appeal we have to construe the expression 'occasions the movement of goods from one State to another'. If a sale or purchase occasions such movement it would be a sale or purchase in the course of inter-State trade or commerce. In our view, a sale or purchase 'occasions the movement of goods' either when the contract for such sale or purchase itself contemplates or necessarily involves the movement. In other words, the movement must occur under the contract. When the movement is not under the contract but due to reasons extraneous to the obligations under the contract, it cannot be said to be a movement in the course of inter-State trade or commerce.

34. Mr. Banerjee for the appellant submitted to us that in the instant case the contract required or envisaged or postulated the physical despatch of goods from one State to another. He invited us to look into exhibit 'A' to the supplementary affidavit of Ramchandra Durlavji Trivedi affirmed on behalf of the appellant on the 15th December, 1962, being inspection note No. 126114 dated May 31, 1955/July 18, 1955, at pages 92 to 95 of the paper book. Item No. 5 of this document gives the name of the consignee as 'A.I., I.G.S., E.I., Calcutta (Ult. Con.:-Comdt, C.O.D. Kanpur).' This shows that the immediate consignee might have been in Calcutta but the ultimate consignee was in Kanpur. Then, item No. 7 runs thus: 'Stores delivered for inspection on...13-9-55'. According to Mr. Banerjee the appellant delivered the stores at Calcutta for inspection only on behalf of the ultimate consignee. Mr. Banerjee then relied on pages 96 to 97 of the paper book to show that out of 35 items of goods delivered to the immediate consignee for inspection in Calcutta, 34 were accepted and one was rejected altogether. Learned counsel for the appellant also placed reliance on sub-paragraphs (vi), (vii) and (viii) of paragaaph 2 of the said supplementary affidavit (at page 89 of the paper book) of Ramchandra Durlavji Trivedi which are as follows :-

(vi) that, on completion of the inspection, the said Inspectorate at Hastings, Calcutta did grant an inspection certificate and on satisfaction of the consignee at Kanpur, the said consignee did grant a receipt to the petitioner;

(vii) that, only on the rendering of a bill accompanied by such certificate of inspection and such a receipt of the consignee, the petitioner was entitled to and did demand the 10 per cent, balance of the contractual price ;

(viii) that, it is only on production of such an inspection certificate and consignee's receipt, that the sum of Rs. 21,300 referred to in paragraph No. 4 of the original petition, being the sale proceeds of the goods sold in terms of that contract in the material accounting year, Calendar 1955, were received by the petitioner and were subjected to the charge and assessment of West Bengal sales tax.

35. Mr. Banerjee also referred to paragraphs 4 and 5 of this supplementary affidavit (at page 90 of the paper book) which run thus :

4. That the utensils required to be sold by the contract were at the time of the contract, unascertained and/or future goods.

5. That the process of ascertainment of the goods into the contractual goods required the tender of the utensils before the said Inspectorate at Hastings and the further receipt of the consignments of the utensils to the satisfaction of and by the consignee, the C.O.D. at Kanpur, (sic) to tender the goods completely ascertained and thereafter in a deliverable state.

36. The appellant's counsel states that in paragraphs 6 and 7 (at page 113) of the affidavit of Nirode Baran Mitra, the Commercial Tax Officer, affirmed on 22nd January, 1963, in reply to the said supplementary affidavit, the said averments in paragraphs 4 and 5 of the said supplementary affidavit have been disputed ; but there is no specific denial of the statements made in the said sub-paragraphs (vi), (vii) and (viii) of paragraph 2.

37. For all the reasons aforesaid, the appellant's counsel contends, the movement of goods outside the State in the present case was embedded in the contract of sale. In other words, the contract necessarily involved this movement. There cannot be, submits Mr. Banerjee, any other conclusion having regard to the wider connotation of inter-State sale or commerce which he has urged us to accept.

38. It appears that the appellant claimed exemption under Section 5(2)(v) of the West Bengal Act. It provides, inter alia, that sales in the course of inter-State trade or commerce within the meaning of Section 3 of the Central Sales Tax Act, 1956, are to be excluded from an assessee's gross turnover during any period for purposes of ascertaining his 'taxable turnover'. And Section 27 clearly provides, inter alia, that the West Bengal sales tax shall not be imposed where the sale or purchase takes place outside the State or in the course of inter-State trade or commerce after the 31st March, 1951.

39. The petitioner's claim for exemption was disallowed. I intend to quote in this connection certain observations from the order of the Additional Commissioner passed in revision. He has said (at page 51 of the paper book):.The schedule of the acceptance of the tender relating to the said sales, a copy of which was given to me, shows that the place of delivery and the terms of delivery were stated to be free delivery at Hastings, Calcutta. The Inspecting Officer was stated to be A.I., I.G.S., Hastings, and the place at which (the goods were) to be tendered for inspection was noted to be Hastings, and the payment was also due to be made by the Pay and Accounts Officer, Calcutta. Under the despatch instructions, however, it was noted that the stores were to be delivered to A.I., I.G.S., Calcutta, for onward despatch to the ultimate consignee at Kanpur. Evidently the A.I., I.G.S., received the goods at Calcutta and inspected the same here on behalf of the purchaser and with his approval of the goods the same were appropriated to the contract...

40. Upon examination of the terms of the contract before us, it seems that the Additional Commissioner had come, to the correct conclusion.

41. In the grounds of appeal to the Board of Revenue the appellant has stated that 'the contract and the facts and circumstances of the case and the relevant documents clearly establish the fact that the goods were actually despatched to Kanpur in the course of inter-State trade.' (vide page 53). The Additional Member, Board of Revenue, has not accepted this contention. He has also held that the sales were complete before the goods were despatched from Calcutta : vide page 55.

42. From the terms of the contract placed before us we also cannot come to any other conclusion. And as regards the appellant's contention based on splitting up of the payment, that is to say, that 90 per cent, would be paid initially and 10 per cent, on the rendering of a bill accompained by a certificate of inspection, it does not appear from the bill in the paper book at page 36 that this system was being followed. True, the State of West Bengal has not denied these allegations; but we do not think they could be said to have any knowledge of these matters. In any event, this system of payment does not make any difference. We have already noted the facts in K. G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473. There also the payment of the total sum due was split up; but the Supreme Court's main concern was to find out whether the movement of the goods from Belgium into India was in pursuance of the conditions of the contract. In this connection we may also refer to a judgment of the Madhya Pradesh High Court. This is the case of C. P. Timber Works v. Commissioner of Sales Tax, M.P. and Ors. [1964] 15 S.T.C. 602. Here, the assessee entered into a contract of sale of timber with the Director-General of Stores, Supplies and Disposals, Government of India. Under the contract, the place of delivery was 'F.O.R.' a railway station within the State of Madhya Pradesh. The assessee kept the timber logs ready for inspection at that place. The inspecting authority inspected the timber, issued an inspection certificate and put a mark on the approved timber. The assessee despatched the timber by goods train to places outside Madhya Pradesh, obtained railway receipts in the name of the consignee, sent the receipts by registered post and received 90 per cent, of the price. The balance of 10 per cent, the assessee received after the consignee had obtained the goods in good condition. The consignee had a right of re-inspection at the place of destination. This was a case of transaction before the amendment of Article 286. The Madhya Pradesh High Court held that the actual delivery of the timber was within the State of Madhya Pradesh and the property in the goods also passed to the purchaser within that State. The State of Madhya Pradesh, therefore, had the power to levy sales tax on the transaction. It appears that payment of price to the assessee in two stages as aforesaid was not a relevant consideration. The principal point was the determination of the place where the goods were delivered and the property in the goods had passed.

43. There is one other case to which reference has to be made as it has some similarity with the facts of the present case. This is the latest decision of the Supreme Court in The State of Mysore v. Guduthur Thimmappa and Son and Anr. [1967] 19 S.T.C. 35. In this case, the respondents sold cotton to dealers outside the Madras State. The respondents consigned the goods by rail from a railway station in Madras State in their own names. The railway receipts were sent through bankers.

44. The goods were despatched in such a way that the consignees could get the goods at the other end without payment to the bankers. The non-resident buyers obtained the necessary transport permit under the Cotton Control Order, 1950, and insured the cotton bales as owners for purposes of transmission on the railway. The Supreme Court has held that the property in the goods did not pass during the movement of the goods from one State into another by transfer of documents of title, and the movement of the goods from the Madras State to places outside the State was not the result of any covenant or incident of the contract of sale. The Supreme Court was of the view that the contract of sale was completely carried through within the Madras area itself, where the respondents had received the price and the cotton bales were delivered to the buyers; the movement outside the Madras State was by the buyers themselves after the property in them had passed to them; and the sales were not sales in the course of inter-State trade.

45. In our case too the goods were delivered in West Bengal; the property in the goods had passed to the buyers in West Bengal; the price and the transportation of the goods, if any, from Calcutta to Kanpur was made by or on behalf of the buyer with which the seller had nothing to do. In the premises, we hold that these transactions were not in the course of inter-State trade or commerce. And the transactions were subject to payment of sales tax under the West Bengal Act, or under Article 286 of the Constitution.

46. In the result, this appeal is dismissed with costs.

Ghose, J.

47. I agree.


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