Case: Tata Iron &amp; Steel Company, Limited Vs. State of Bihar

2. The appellant company is a company incorporated under the Indian Companies Act. Its registered office is in Bombay; its factory and works are at Jamshedpur in the State of Bihar and its head sales office is in Calcutta in the State of West Bengal. It has store yards in the States of Madras, Bombay, West Bengal, Uttar Pradesh, Hyderabad, Madhya Pradesh, Punjab and Andhra. It carries on business as manufacturer of iron and steel and is a registered dealer under the 1947 Act, the registration No. being S. C. 905. Its course of dealing is thus described in the judgment under appeal:"The intending purchaser has to apply for a permit to the Iron and Steel Controller at Calcutta, who forwards the requisition to the Chief Sales Officer of the assessee working in Calcutta. The Chief Sales Officer thereafter makes a "works order" and forwards it to Jamshedpur. The "works order" mentions the complete specification of the goods required. After the receipt of the "works order" the Jamshedpur factory initiates a "rolling" or "manufacturing" programme. After the goods are manufactured, the Jamshedpur factory sends the invoice to the Controller of Accounts who prepares the forwarding notes, and on the basis of these forwarding notes, railway receipts are prepared. The goods are loaded in the wagons at Jamshedpur and despatched to various stations, but the consignee in the railway receipt is the assessee itself and the freight also is paid by the assessee. The railway receipts are sent either to the branch offices of the assessee or to its bankers, and after the purchaser pays the amount of consideration, the railways receipt is delivered to him. These facts are admitted and the correctness of these facts is not disputed by the State of Bihar."3. The appellant company was separately assessed for two periods: (1) from July 1, 1947 to March 31, 1948, and (2) from April 1, 1948 to March 31, 1949. For the first period the appellant company filed a return under S. 12 (1) of the 1947 Act before the Sales Tax Officer showing a gross turnover of Rs. 12,80,15, 327-8-5. From this gross turnover the appellant company claimed to deduct a sum of Rs. 2,88,60,787-13-0 being the amount of valuable consideration for the goods manufactured at Jamshedpur in the State of Bihar but sold, delivered and consumed outside that State on the ground that in none of the thansactions in respect of the said sum did the property in the goods pass to the purchasers in the State of Bihar. The appellant company further claimed a deduction of Rs. 1,10,87,125-13-0 on account of railways freight actually paid by it for the despatch of the goods. The Sales-tax Officer, by his assessment order dated July 22,1949, disallowed both the claims for deduction and on the other hand added a sum of Rs. 13,66,496-11-0, being the amount of sales tax realised by the appellant company from its purchasers, to its taxable turnover and assessed the appellant company to sales tax amounting to Rs. 15,31,374-5-9. For the second period the appellant company filed a return showing a gross turnover of Rs. 21,64,45,450-0-0. From this gross turnover the appellant company claimed a deduction of Rs. 10,71,66, 233-11-0 being the amount of valuable, consideration for goods manufactured at Jamshedpur in the State of Bihar, but sold, delivered and consumed outside that State on the same ground as hereinbefore mentioned. The appellant company also claimed a deduction of Rs. 40,89,973-9-0 on account of railway freight actually paid by it for the despatch of the goods. The Sales Tax Officer by his assessment order dated September 24, 1949, disallowed both the claims and added the sum of Rs. 22,37,919-4-0, being the amount of sales tax realised by the appellant company from its purchasers, to its taxable turnover and assessed the appellant company to sales tax amounting to Rs. 28,30,458-6-0.4. Against these two assessment orders the appellant company preferred two appeals under S. 24 of the 1947 Act to the Commissioner of Sales Tax of Chota Nagpur who, on April 29, 1950, dismissed both the appeals. The appellant company went up to the Board of Revenue on two revision applications against the two orders of the Commissoner. The Board of Revenue, by its order dated August 30, 1952, confirmed the orders of the Commissioner with certain modifications and remanded the cases to the Sales Tax Officer. The appellant company applied under S. 25 of the 1947 Act to the Board of Revenue in Reference Cases Nos. 495 and 496 of 1952 for reference of certain questions of law to the High Court. By a common order dated October 5, 1953, made in the said two references the Board of Revenue referred the following questions of law to the High Court for its decision :"(1) Is the Bihar Sales Tax Act, 1947, as amended in 1948, ultra vires the Provincial Legislature in view of the extended meaning of the expression taxes on sale of goods given in the Act in the light of the provisions of the Government of India Act, 1935?(2) Art the provisions of S. 2(g) of the 1947 Act ultra vires the Provincial Legislature?(3) Is it legal to include sales tax in the taxable turnover of an assessee like the petitioner?(4) Was the Bihar Sales Tax (Amendment) Act of 1948 legally extended to Chotanagpur?(5) Were the levy and collecton of sales taxes for periods prior to 26-1-1950, under the Sales Tax Act, then in force rendered illegal by the provisions of the Constitution?(6) Was the Commissioner, who passed orders, in appeal after the Constitution came into force, bound to decide the appeal according to the provisions of the Constitution in respect of taxes levied or sought to be levied for periods prior to 26-1-1950, when the Constitution came into force?"Out of these six questions, question No. 3 was decided in favour of the appellant company and the respondent State has not preferred any appeal against that decision or questioned its correctness. Question No. 4 was not pressed before the High Court and does not survive before us. Questions Nos. 1, 2, 5, and 6 were decided against the appellant company and the two consolidated appeals are directed against the High courts decision on these question. It will be noticed that questions Nos. 1 and 2, in effect, raise the same problem, namely, as to the vires of the 1947 Act, and questions Nos. 5 and 6 are concerned with the validity of the retrospective levy of sales tax by reason of the amendment of S. 4 of the 1947 Act.

Reasoning: For our present purpose no exception need be taken to the proposition thus formulated and indeed in, 1955-1 SCR 243  : (AIR 1954 SC 459  ) (A), this Court struck down that part of the definition of "sale" in S. 2(h) of the Uttar Pradesh Sales Tax act, 1948 which enlarged the definition of "sale" so as to include "forward contracts." But is the position the same here? We think not.It will be noticed that S. 4(1) imposed on the dealer the liability to pay a tax on "sale" as defined in S. 2(g). Both before and after the amendment of S. 2(g) the principal part of the definition meant the transfer of the property in goods. All that the second proviso did was not to extend the definition of "sale", but only to locate the "sale" in certain circumstances mentioned in that proviso in Bihar. The basis of liability under S. 4(1) remained as before, namely, to pay tax on "sale". The fact of the goods being in Bihar at the time of the contract of sale or the production or manufacture of goods in Bihar did not by itself constitute a "sale" and did not by itself attract the tax. The taxable event still remained the "sale" resulting in the transfer of ownership in the thing sold from the seller to the buyer. No tax liability actually accrued until there was a concluded sale in the sense of transfer of title. It was only when the property passed and the "sale" took place that the liability for paying sales tax under the 1947 Act arose. There was no enlargement of the meaning of "sale" but the proviso only raised a fiction on the strength of the facts mentioned therein and deemed the "sales" to have taken place in Bihar. Those facts did not by themselves constitute a "sale" but those facts were used for locating the situs of the sale in Bihar. It follows, therefore, that the provisions of S. 4 (1) read with S. 2(g), second proviso, were well within the legislative competency of the Legislature of the Province ofargument, however, overlooks the fact that under Cl. (ii) the producer or manufacturer became liable to pay the tax not because he produced or manufactured the goods, but because he sold the goods. In other words the tax was laid on the produced or manufacturer only qua seller and not qua manufacturer or producer, as pointed out in 1942 FCR 90 : (AIR 1942 FC 33) (B).In the words of their Lordships of the Judicial Committee in Governor-General in Council v. Province of Madras, 72 Ind App 91 at p. 103 : (AIR 1945 PC 98   at p. 101) (D),"a duty of excise is primarily a duty levied on a manufacturer or producer introspect of the commodity manufactured or produced. It is a tax on goods and not on sales or the proceeds of sale of goods." If the goods produced or manufactured in Bihar were destroyed by fire before sale the manufacturer or producer would not have been liable to pay any tax under S. 4 (1) read with S. 2 (g), second proviso.As Gwyer, C. J., said in 1942 FCR 90: (AIR 1942 FC 33) (B) at p. 102 (of FCR : (at p. 35 of AIR) the manufacturer or producer would be "liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory." In our judgment both lines of the argument advanced by the learned Attorney General in support of points 1 and 4 are untenable and cannot bepassage, properly understood, can hardly be said to indicate that the theory of nexus does not apply to sales tax legislation at all. The drift of the meaning of the passage was that the sufficiency of the different nexi relied on by the different States had not been tested by thefrom the fact that the concluding words in the passage quoted above may be read as indicating that the observations were obiter, it appears to us to be too late in the day to contend that the theory of nexus does not apply to sales tax legislation at all. Indeed an examination of the decisions of this Court will clearly show that the applicability of the theory of nexus to sales tax legislation has been clearly recognised by thisis not necessary for us on this occasion to lay down any broad proposition as to whether the theory of nexus, as a principle of legislation, is applicable to all kinds of legislation.It will be enough, for disposing of the point under consideration, to say that this Court has found no apparent reason to confine its application to income-tax legislation but has extended it to sales tax and to tax on gambling and that we see no cogent reason why the nexus theory should not be applied to sales taxargument overlooks the fact that the provisions of the sales tax legislation we are considering limit its charging section to "sale". In order to attract the charging section there must be a completed sale involving the transfer of property in the goods sold from the seller to the buyer. The nexus theory does not impost the tax. It only indicates the circumstance in which a tax imposed by an act of the Legislature may be enforced in a particular case and unless eventually there is a concluded sale in the sense of passing of the property in the goods no tax liability attaches under the Act. One or more of the several ingredients constituting a sale only furnished the connection between the taxing State and theis no force in this argument, for Art. 286 (2) of the Constitution, as it stood originally, was a complete safeguard against such eventuality and after the amendment of that Article and the relevant entries in the Legislative List such contingency will not arise. In our opinion the arguments advanced by the learned Attorney General on this point cannot bethe purpose of the present case it is sufficient to state that in a sale of goods the goods must of necessity play an important part, for it is the goods in which, as a result of the sale, the property will pass. In our view the presence of the goods at the date of the agreement for sale in the taxing State or the production or manufacture in that State of goods the property wherein eventually passed as a result of the sale wherever that might have taken place, constituted a sufficient nexus between the taxing State and the sale. In the first case the goods are actually within the State at the date of the agreement for sale and the property in those goods will generally pass within the State when they are ascertained by appropriation by the seller with the assent of the purchaser and delivered to the purchaser or his agent. Even if the property in those goods passes outside the State the ultimate sale relates to those very goods. In the second case the goods, wherein the title passes eventually outside the State, are produced or manufactured in Bihar and the sale wherever that takes place is by the same person who produced or manufactured in Bihar and the sale wherever that takes place is by the same person who produced or manufactured the same in Bihar. The producer or manufacturer gets his sale price in respect of goods which were in Bihar at the date when the important event of agreement for sale was made or which were produced or manufactured in Bihar. These are relevant facts on which the State could well fasten its tax.If the facts in 1944 FCR 229: (AIR 1944 FC 51) (H), were sufficient nexus there is no reason why the facts mentioned in the proviso should not also be sufficient. Whatever else may or may not constitute a sufficient nexus, we are of opinion that the two cases with which we are concerned in this case are sufficient to doour judgment this argument is not sound.From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act the sellers had no authority to collect the sales tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods. The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise, See Love v. Norman Wright (Builders) Ltd., 1944-1 KB 484 (N). If that be the true view of sales tax then the Bihar Legislature acting within its own legislature and could make its law prospectively as well as retrospectively.We do not think that there is any substance in this contention either.