Case: Tata Iron And Steel Co., Limited,Bombay Vs. S. R. Sarkar And Others


Decision reasoning: 1[ds]Evidently the company has paid to the Sale Tax Officer, Bihar, tax due under the Central Sales Tax Act on its turnover including sales on which the tax is sought to be levied by the Commercial Tax Officer, West Bengal. Under the Central Sales Tax Act, there is a single liability to pay tax on inter-State sales. The company having paid the tax to the Bihar State for and on behalf of the Central Government, the threat to recover again sales-tax on behalf of the Central Government in respect of the same sales, i.e., sales which are included in the assessment proceedings before the Bihar Sales Tax authorities prima facie infringes the fundamental right of the company to hold its property and the company is entitled to approach this court under Art. 32 of the Constitution. The preliminary objection raised by counsel for the respondents must therefore fail.By chapter 2 of the Act, Ss. 3, 4 and 5, those principles were formulated and by Chapter 3, detailed provisions were made for imposing liability to pay tax on inter-State sales, for registration of dealers, fixing rates of tax and for levy and collection of tax and for imposing penalties for breach of the provisions of the Act relating to levy and collection of inter-State sales tax. By S. 6, every dealer was made liable to pay tax on all sales effected by him in the course of inter-State trade or commerce. By sub-s. 2 of S. 8, the rates of tax on sales in the course of inter-State trade or commerce were directed to be calculated at the same rates and in the same manner as would have been done if the sale had in fact taken place inside the appropriate State. By S. 9, the machinery for levy and collection of tax was prescribed. The tax payable by any dealer under the act was to be levied and collected by the appropriate State in the manner provided by sub-s. 2 which enacts that the authority for the time being empowered to assess, collect and enforce payment of any tax under the General Sales Tax Law of the appropriate State shall on behalf of the Government of India assess, collect and enforce payment of any tax payable by any dealer under the Act in the same manner as the tax on the sale or purchase of goods under the General Sales Tax Law of the State is assessed, paid and collected. It is manifest that by S. 6 which is the charging section, liability to pay tax on inter-State sales is imposed upon all sales effected by any dealer in the course of inter-State trade or commerce. The liability to pay tax under the Central Sales Tax Act arises as an inter-State sale. The tax though collected by the State in which the sale takes place is due to the Central Government and is payable at the rates prescribed in respect of intra-State sales by the State in which it isthose cases, the meaning of the expressions, " in the course of import and export and " in the course of inter-State trade or commerce used in Art. 286 fell to be determined. The Constitution does not define these expressions. The Parliament has inthe Central Sales Tax Act, 1956 sought to define by S. 3 when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce and by S. 4(1) to define when a sale or purchase of goods is said to take place outside a State and by S. 5, when a sale or purchase is said to take place in the course of import or export. In interpreting these definition clauses, it would be inappropriate to requisition in aid the observations made in ascertaining the true nature and incidents without the assistance of any definition clause of "sales outside the State" and "sales in the course of import or export and "sales in the course of inter-State trade or commerce" used in Art. 286.In our view, therefore, within cl. (b) of S. 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: cl. (a) of S. 3 covers sales, other than those included in cl. (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.This definition made the State in which the place of business is situate, the appropriate State; and by the Explanation, the expression " place of business was defined in relation to the two classes of sales in S. 3 as sales in the course of inter-State trade or commerce. By the first part of the definition, in case of sale of goods falling within cl. (a), the place from which the goods have been moved is the place of business and by Cl. 2, in the case of sales falling within cl. (b) of S. 3, the place where the sale is effected is the place of business. This evidently is a highly artificial definition. By a fiction, the place from which goods have been moved by reason of the sale falling within cl. (a) of S. 3, that is, that place from which the goods have been moved under the contract of sale for the purpose of delivery to the purchaser in another State was declared the place of business. By another fiction, the place where the sale is effected in inter-State transactions falling within S. 3(b) was declared the place of business. In ascertaining the place of business as defined by the Explanation, for cases falling within cl. (a) of S. 3, little practical difficulty arises. But in cases of sales falling within cl. (b). the location of the place where " the sale is effected for ascertainment of the place of business within the meaning of the Explanation raises difficult problems.Ex facie, Cl. 2 of the Explanation to S. 2(a) does not seek to locate the place where the sale is effected in cases falling within cl. (b) of S. 3 at the place where the transfer of documents of title to the goods was effected. Parliament has classified the sales " in the course of inter-State trade or commerce in cls. (a) and (b) of S. 3 and by the first clause of the explanation to S. 2(a), in cases of sales falling within S. 3(a) the place of business is the place from which movement has commenced and in the case of sales falling within S. 3(b), it is the place where the sale is effected. But there is in the Explanation no material for ascertaining the place where the sale is effected.Evidently, by the interpretation placed by this Court on the scope and meaning of Art. 286 as originally enacted, Parliament was faced with a difficult problem. The Parliament had to examine the problem of taxing inter- State trade and commerce in the light of three principal factors, namely, (1) the constitutional freedom of trade, commerce and intercourse guaranteed by Art 301, (2) the inadvisability of allowing the States unrestricted freedom to levy or impose taxes on sales or purchases of goods with inter-State content, and (3) the necessity to impose restrictions on multiple taxation of the same sale by different States. The Parliament deleted the Explanation to Cl. 1 of Art. 286 which had given rise to this serious conflict of views and recast Cls. 2 and 3. By Cl. 2 as amended, the Parliament was authorised to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Cl. 1; and by the addition of item 92A in List I of the seventh schedule, the Central Government alone could tax sales or purchases of goods which take place in the course of inter-State trade or commerce. By incorporating Cl. 3 to Art. 269, the Parliament assumed to itself the power to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. It is after this amendment was made thatthe Central Sales Tax Act, 1956 was enacted with a view to provide for collection of a tax on sales or purchases in the course of inter-State trade or commerce. The Parliament had to define sales in the course of inter-State trade or commerce, sales in the course of import or export, and inter-State sales. The Parliament set out by S. 3 to define sales of goods which can be said to take place in the course of inter-State trade or commerce, by S. 4(1) to define when a sale is said to take place outside a State, and by S. 5 when a sale is said to take place in the course of import and in the course of export. By S. 9, authority to tax was conferred upon the appropriate State, and that expression was defined by S. 2 as the State where the dealer had his place of business, and in respect of sales which fall within cl. (b) of S. 3, the place of business of the dealer was declared to be the place where the sale is effected. By S. 3, it was intended to define the class of sales which shall be deemed to be sales in the course of inter-State trade or commerce, but the conditions which go to make such transactions, sales in the course of inter-State trade or commerce as set out by cls. (a) and (b) were not intended to locate the place where the sale takes place.But under the Sale of Goods Act, if a document of title to goods is used in the ordinary course of business as proof of the possession or control of goods endorsement or delivery thereof according to mercantile practice will amount to delivery of the goods thereby represented. The transfer of documents contemplated by S. 3(b) is therefore such transfer as in law amounts to delivery of the goods. Transfer of documents either by endorsement or delivery does complete transfer of title, but in the absence of an indication to that effect in the statute the place where the documents are transferred is not the place of sale. If the view which appealed to the Commercial Tax Officer is accepted there is a possibility of large scale evasion of tax. For instance, the documents may be handed over outside India. If documents of title to goods are handed over by the vendor either directly or through his agent to the purchaser or his agent outside India, on the view taken by the Commercial Tax Officer, even though the sale has taken place in India and the goods are in India, the sale would not be taxable. This result could not have been contemplated by the Legislature. We are therefore unable to agree with the view taken by the Commercial Tax Officer.The Commercial Tax Officer has taxed all the sales effected by the company under S. 3 cl. (b) on the view that sales in which the documents of title were handed over in Calcutta were taxable in the State of West Bengal. The assessment is made on two assumptions, (1) that all the sales effected in favour of West Bengal parties satisfied the conditions prescribed by S. 3(b), and (2) that the place where the documents are delivered by the company through its Head Sales Office to the purchaser is the place where the sale is effected. Neither of these assumptions is correct. The Commercial Tax Officer had, in our judgment, to ascertain before he could order payment of tax under the Central Sales Tax Act, whether on the materials he was satisfied, (a) that 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, (b) that the place where the sale was effected was under S. 4, Cl. (2) within the State of West Bengal. The Commercial Tax Officer has, in our view, failed to apply the correct tests and has made assumptions which are not warranted and on a true interpretation of the provisions of the Central Sales Tax Act, the order of assessment discloses an error apparent on its face and a writ of certiorari must issue quashing the assessment. It will be for the Commercial Tax Officer of West Bengal to re-assess the company in respect of transactions of sale which are properly taxable within the State of West Bengal by the application of the tests which we have already set out.