Case: COMMERCIAL TAXES OFFICER  Vs. M/S. BOMBAY MACHINERY STORE

2. We shall narrate the factual context of Civil Appeal No.2217 of 2011, before we address the legal issue involved in these appeals, treating this to be the lead case. The dispute relating to the other three appeals are not identical, but the question of law being the same in all these appeals, we shall avoid narrating in detail the sequence of events which led to filing of the said appeals, except to the extent such narration is necessary for understanding the scope of these appeals. In Civil Appeal No.2217 of 2011, the period of assessment is 1995-96. The respondent-assessee Bombay Machinery Store had purchased electricity motors and its parts in the said financial year out of the State and sold them to purchasers within the Kota region of the State of Rajasthan. For such sales, they obtained the benefit of exemption under Section 6(2) of the 1956 Act. These goods had remained with the transport company upon arrival in Kota for more than a month. Revenues case is that after importing these goods into Rajasthan, sale was effected through bilty (transport receipt) on obtaining separate orders. Such sale, it is the revenues case, constituted sale within the State and hence taxable @12% per annum under the Rajasthan Sales Tax Act, 1954. Civil Appeal No.2220 of 2011 relates to the same firm but for the assessment year 1994-95. Quantum of sales for the year 1994-95 effected through the same process was Rs.3,15,639/- and for 1995-96 it was Rs.2,60,93/-. Claim of benefit under Section 6(2) of the 1956 Act was rejected and tax along with interest and penalty was imposed under the State Act by Commercial Tax Officer, Anti-Evasion Circle-I, Kota after a survey by two orders, both dated 11 th December, 1997. The appeals by Bombay Machinery Stores were allowed by the Deputy Commissioner (Appeals), Commercial Taxes, Kota following a decision delivered on 8 th March, 1996 by the Rajasthan Tax Board in the case of CTO vs. Bhagwandas & Sons (1996 Tax World 107). The orders of the first appellate authority were passed on interpretation of the first explanation to Section 3B(1) of the 1956 Act. Imposition of tax, interest and penalty under the State Act was quashed. In State Tax authoritys appeal before the Tax Board, reliance was placed on two circulars issued by the Commissioner bearing S.No.1132A: CCT Circular F.11(3)CST/Tax/CCT/1/61 dated 15 th April, 1998, clarified by a further circular dated 19 th July, 1999. The Board did not take into consideration these two circulars. These were not referred to in the orders of the Tax Assessment Officer. The Board sustained the view of the Deputy Commissioner (Appeals) in a composite order. This order was challenged by the revenue by filing two revision petitions before the High Court, as two appeals were disposed of by the Board by its order dated 24.11.2004. The High Court, in the judgment delivered on 14 th September, 2007 confirmed the Boards order and quashed two circulars bearing S.No.115B dated 16 th September, 1997 and S.No.1132A dated 15 th April, 1998. These circulars sought to impose a time limit on retention of goods in the carriers godown, beyond which time the revenue was to treat obtaining of constructive delivery of the goods involved. That judgment is under appeal before us. Before we deal with this judgment, we shall briefly refer to the other appeals which have been heard together3. In Civil Appeal No.2220 of 2011, incidences of sale relate to different dates between 24 th March, 1994 and 30 th January, 19954. Civil Appeal No.10000 of 2017 and Civil Appeal No. 10001 of 2017 relate to another assessee, Unicolour Chemicals Company. That firm purchased chemical and colour from a Gujarat based company, and the goods reached the godown of the carrier transport company on 12 th May, 2000. They were sold to a firm in Jaipur in two tranches, after 55 days and 80 days from the date of arrival. The monetary value of these goods was Rs.1,27,592. In Civil Appeal No. 10001 of 2017, revenues case is that survey of the business place of the same firm revealed that:-the stock of taxable good colour chemical of price Rs.4,72,653/- has been found less and on doubt on the nature of sale showing in the Section 6(2) of the Central Sales Tax Act and seeing the possibility of tax evasion the record found in the survey of the business firm has been seized(quoted from the order annexed to the paper book)These goods had reached the godown of the transport company on 25 th July, 2001. These were brought against bilty and the documents were transferred to the same firm on 4 th September, 2001. There was thus delay of 41 days. The tax fixation authorities directed application of the State Act treating the transactions to be local sales. This order was sustained by the Deputy Commissioner (Appeals) and the order of the Tax Board also went against Unicolour. The High Court, following the judgment in the case of Bombay Machinery Store (which we are treating as the lead case in this judgment), quashed the orders of the statutory authorities in both the appeals and also invalidated the two circulars5. The two circulars issued by the Commissioner, Commercial Taxes Department, Rajasthan have been quoted in the impugned judgment in the case of Bombay Machinery Store. Henceforth, wherever we refer to the expression judgment under appeal, we shall imply that judgment only, unless we specifically refer to any of the three other decisions under appeal. These circulars read:-S. No. 1115B : CCT Circular F.11(3)/CST/Tax/CCT/1997/1563 dated 16.9.1997As you are aware of the fact that to avoid multiple taxation of goods sold by transfer of documents of title to the goods in their single movement from one State-to another, provisions for exemption of such transaction are embodied in S. 6(2), CST Act, 1956. It appears that application of this provision has been made more or less mechanical by the assessing authorities in as much as on furnishing form E-I/E-II and C forms without looking into the material facts regarding single inter-State movement of such goods, benefits are conferred to such dealers. If the movement of the goods from one State to another terminates, the subsequent sales will be treated as intra- State sales and benefit of the above sub- section (2) of Section 6 will not be available in such cases. It is found that trade is often claiming large exemptions under this provision, particularly in respect of paper, dyes and chemicals, etc. It is, therefore, directed that all the assessing authorities should specifically examine the nature of transactions before granting benefit under the said sectionIt may be argued that in view of the Explanation I to Section 3 of the CST Act, 1956, inter-State movement of goods continues until the consignee obtains physical delivery of goods from the carrier, after arrival of these goods at the destination. This argument is based on the incorrect notion that delivery in the Explanation means only physical delivery. This argument can be countered on the basis of the well settled proposition of constructive deliveryThe material fact to be looked into by the assessing authorities while granting benefit of Section 6(2) of the CST Act relate to the termination of the movement of goods in the inter-State transactions. If after arrival of the goods at the destination, the consignee asks the transporter expressly or impliedly, to retain the goods at his godown until further directions, then the carrier ceases to hold the goods as transporter, and in the eyes of law, the goods are as much in possession of the consignee as if he had taken them into his own godown. As per the settled legal concept this sequence of events tantamounts to constructive delivery of the goods by transporter to the consignee and transit ends. Any sale by the consignee thereafter will be local sale and benefit of Section 6(2) will not be availableThe transporters, whether Railways or Roadways, impose condition of delivery of goods transported through them at the destination usually within ten days and the consignee is required to check up with such transporting agency as to the arrival of the goods. In these circumstances, if the carrier retains the goods for an extended period, then there is a clear inference that the consignee was aware of the arrival of his goods and the transporter is holding the goods on his behalf as a bailee for the consignee. These factual matrix leads to the conclusion that there is a local sale and not sale under said Section 6(2). Payment of warehouse rent/demurrage charges by the consignee to the transporter is conclusive evidence that transporters have assumed the role of bailee and transit having ended. It may be observed that bailment can be either gratuitous or for remuneration or partially both. In law, there can also be bailment without contractAs per legal position, transit gets over as soon as a reasonable time elapses for the consignee to elect whether he would take the goods away or leave them in the transporters premises, because at the conclusion of reasonable time there is deemed to be a constructive delivery of goods from the transporters to the consignee. If a dealer claims that the had not obtained the delivery of goods, the burden of proving that the goods really remained with the carrier from the date of their arrival till the date of their clearance is on the dealer. If the dealer fails to furnish this proof, then the assessing authority would be justified in concluding that the dealer had himself taken physical delivery of the goods from the carrier and thereby disallowing his claim of exemption under S. 6(2), CST ActThe decision of the Delhi High Court in Arjun Dass Gupta and Bros. v. Commer of Sales Tax, New Delhi, reported in (1980) 45 STC 52 , lays down the basic guidelines regarding exemption of sales under S. 6(2), CST Act. The Delhi High Court had held that Explanation I to S. 3(b) of the CST Act, 1956 did not permit the dealer to expand the movement of goods beyond the time of physical landing of the goods in the Union Territory of Delhi. As to the knowledge except this there are no other directly relevant or contra judgment reported from any other High Court. It is understood that Special Leave Petition is pending in the Supreme Court on the issue but there is no stay. As such Delhi High Court judgment holds the fieldIt is therefore, enjoined upon the assessing authorities that in future they should not grant the benefit of exemption under S. 6(2), CST Act, simply on furnishing of the Form E-I/E-II and C Form. If on the contrary it is found that assessee had taken physical delivery or the goods remained with the transporter beyond a reasonable time looking to the facts and circumstances of each case, the doctrine of constructive delivery should be invoked and action be taken accordinglyS. No. 1132A : CCT Circular F.11(3) CST/Tax/CCT/61 dated 15.04.1998It may be recalled that vide circular dated 16.9.1997 [S. No.1115B], instructions were issued clarifying therein the legal position of granting benefits under Section 6(2) of the CST Act, 1956. It has been clarified that the concept of constructive delivery shall also be invoked while determining when the transit comes to an end. It was also clarified that the Railways or Roadways usually impose conditions of delivery of goods transported by them at the destination within 10 days and the consignee is required to check up with such transporting agency as to the arrival of the goods. In view of this, it was desired by the above referred circular that the AAs should ascertain the fact that whether the goods remained with the transporter beyond reasonable time. Looking to the facts and circumstances of each case, the doctrine of constructive delivery should be invoked and action be taken accordinglyThe representatives of various associations of trade and industry had brought to the notice that in almost all cases the AAs are invoking the doctrine of constructive delivery in a mechanical manner immediately after ten days of arrival of the goods at the destination. As per these Associations, this approach has resulted in hardship to the dealers and avoidable harassment is being caused to them with adverse effect on the trade. They have requested for increasing this limitKeeping in view these factual aspects and the discussions at the Govt; level, it is reiterated that the reasonability of the time should be looked into after analysing the facts and circumstances of each case and the usual period of treating constructive delivery which may even extend upto thirty days instead of ten days as suggested in the above referred circularDeputy Commissioner (Admn) should ensure that, while ensuring the State revenue, no harassment shall be caused to the dealers by enthusiastic assessing authorities while determining the end of transit6. The High Court has referred to two decisions, one by the Rajasthan High Court itself, in the case of Guljag Industries Limited vs. State of Rajasthan & Another reported in (2003) 129 STC 3 (Raj.) and the other of the Delhi High Court in the case of Arjan Dass Gupta and Brothers vs. Commissioner of Sales Tax, Delhi Administration (1980) 45 STC 52 (Delhi).

Reasoning:
8. We must add here that the decision in the case of Guljag (supra) was subsequently carried up in appeal before this Court. It appears from the records of this Court that two of these appeals were disposed of on 30 th September, 2010 as the assessee chose to approach the statutory forum whereas another appeal was dismissed having regard to the quantum of tax involved in the appeal10. In the two appeals in which the respondent is Bombay Machinery Stores, sales pertained to financial years before the circulars came into subsistence. In these instances of sales, the Commercial Tax officer in the respective orders treated retention of goods beyond 30 days in the transporters godown as the cut-off period. After that date, the assessee was deemed to have had taken constructive delivery of goods and sale beyond that period within the State of Rajasthan was held to be local sales and subjected to sales tax under the State Law. Same reasoning was followed in the respective orders of the tax authorities forming subject-matters of two appeals involving Unicolour Chemicals Company. The Tax Board, while deciding the issue in favour of revenue, referred to the aforesaid two circulars in upholding the concept of constructive delivery11. As per the aforesaid circulars, retention of goods by the transporter beyond the time stipulated therein (being 30 days as per the later circular) would imply that constructive delivery of the goods has been made by the transporter to the consignee. In such a situation, the transit status of the goods would stand terminated and the deeming provision in first explanation to Section 3 of the 1956 Act conceiving the time-point of delivery as termination of movement shall cease to operate12. In this set of appeals we have already indicated that transfer of documents of title were effected subsequent to the goods reaching the location within destination State. But when the goods are delivered to a carrier for transmission, first explanation to Section 3 of the 1956 Act specifies that movement of the goods would be deemed to commence at the time when goods are delivered to a carrier and shall terminate at the time when delivery is taken from such carrier. The said provision does not qualify the term delivery with any timeframe within which such delivery shall have to take place. In such circumstances fixing of timeframe by order of the Tax Administration of the State in our opinion would be impermissibleThere is no material to suggest such an acknowledgment was made by the independent transporter in these appeals. In such circumstances we do not think the decision of the High Court requires any interference15. In the case of Arjan Dass Gupta (supra) principle akin to constructive delivery was expounded and we have quoted the relevant passage from that decision earlier in this judgment. In our opinion, however, such construction would not be proper to interpret the provisions of Section 3 of the 1956 Act. A legal fiction is created in first explanation to that Section. That fiction is that the movement of goods, from one State to another shall terminate, where the good have been delivered to a carrier for transmission, at the time of when delivery is taken from such carrier. There is no concept of constructive delivery either express or implied in the said provision. On a plain reading of the statute, the movement of the goods, for the purposes of clause (b) of Section 3 of the 1956 Act would terminate only when delivery is taken, having regard to first explanation to that Section. There is no scope of incorporating any further word to qualify the nature and scope of the expression delivery within the said section. The legislature has eschewed from giving the said word an expansive meaning. The High Court under the judgment which is assailed in Civil Appeal No.2217 of 2011 rightly held that there is no place for any intendment in taxing statutes. We are of the view that the interpretation of the Division Bench of the Delhi High Court given in the case of Arjan Dass Gupta does not lays down correct position of law. In the event, the authorities felt any assessee or dealer was taking unintended benefit under the aforesaid provisions of the 1956 Act, then the proper course would be legislative amendment. The Tax Administration Authorities cannot give their own interpretation to legislative provisions on the basis of their own perception of trade practise. This administrative exercise, in effect, would result in supplying words to legislative provisions, as if to cure omissions of the legislature.