Case: Shree Bajrang Jute Mills Ltd Vs. State Of Andhra Pradesh

2. The appellant is engaged in the manufacture of jute goods, and is a registered dealer under the Madras General Sales Tax Act. For the assessment year 1954-55 the appellant submitted its return for sales-tax claiming a deduction of Rs. 21,80,118-1-3 from the turnover in respect of the jute goods supplied by rail to the Associated Cement Ltd. - hereinafter for the sake of brevity called the A. C. C. under dispatch instructions from that Company. The Commercial Tax Officer rejected the claim of the appellant for deduction and that order was confirmed in appeal to the Deputy Commissioner of Commercial Taxes. In appeal to the Sales Tax Appellate Tribunal, the order was reversed, the Tribunal holding that the appellant was entitled to exemption in respect of the turnover for the goods supplied to the A. C. C.. A revision petition presented against the order to the High Court of Andhra Pradesh was heard with a large number of other petitions which raised certain common questions. The High Court reversed the order of the Tribunal and restored the order passed by the Deputy Commissioner of Commercial Taxes.3. The factory of the appellant is situated at Guntur. The A. C. C. owns cement factories at many places (including one at Tadepalli in the State of Andhra called the Krishna Cement Works) and for the purpose of marketing its products it requires jute packing bags. For securing a regular supply of jute bags, the A. C. C. entered into a contract with the appellant of which the following four conditions are material:"1. All the goods are sold F. O. R. Guntur unless otherwise expressly stated in this contract.2. Goods to be packed ....... well pressed and marked in ......... bound bales of ...... per each.3. Payments to be made in cash, in exchange for Mills Delivery Order on sellers on due date or for Railway receipts or for Dock receipts, or for mates receipts, (which Dock receipts or Mates receipts are to be handed by the Docks or Ships Officer to the sellers representative).4. The buyers agree that the property in the goods sold shall not pass from the sellers to the buyer so long as the sellers are in possession of any bills of lading, railway receipts, dock-warrant or Mates receipts or any other document of title whether such documents are in the names of sellers or buyers, until payment is made in full.(a) The buyers agree that the risk of loss, deterioration or damage in the goods during transit whether by land or canal or sea or when the goods are in the custody of the seller or any third person in a warehouse, dock or any premises shall be borne by the buyers notwithstanding that the property in the goods does not pass to the buyers during such transit or custody."As and when the gunny bags were needed for packing its products the A. C. C. issued dispatch instructions calling upon the appellant to send jute bags by railway to the cement factories of the A. C. C. outside the State of Andhra. Pursuant to those instructions the appellant loaded the goods in the railway wagons, obtained railway receipts in the name of the A. C. C. as consignee and against payment of the price, delivered the receipts to the Krishna Cement Works, Tadepalli - which, it is common ground, was for the purpose of receiving the railway receipts and making payment, for agent of the A. C. C. It is also common ground that the jute bags were sold to the A. C. C. for the purpose of packing cement by the factories of the A. C. C. to which they were sent and not for any other purpose.4. The assessing authority and the Deputy Commissioner held that as the railway receipts were delivered to the agent of the buyer within the State of Andhra, and price was also realized from the agent of the buyer within the State, the goods must be deemed to have been delivered to the buyer in the State of Andhra, and the appellant was liable to pay sales-tax on the price of the goods sold. With that view the High Court agreed.

Court's reasoning:
It is now well-settled that by Art. 286(1) (as it stood before it was amended by the Constitution Sixth Amendment Act, 1956) sales as a direct result of which goods were delivered in a State for consumption in such State i. e., the sales falling within the Explanation to Art. 286(1) were fictionally to be regarded as inside that State for the purpose of (1) (a) and so within the taxing power of the State in which such delivery took place and being outside all other States exempt from sales-tax by those other States: Tobacco Manufacturers (India) Ltd. v. Commissioner of Sales-tax, Bihar, Patna, 1961-2 SCR 106  : (AIR 1961 SC 402  ): Indian Copper Corporation Ltd. v. State of Bihar, 1961-2 SCR 276  : (AIR 1961 SC 347  ): and State of Kerala v. Cochin Coal Co. Ltd., 1961-2 SCR 219  : (AIR 1961 SC 408  ). But the Explanation is not exhaustive of what may be called "inside sales". Clause (1) (a) excludes from the reach of the power of the States sales outside the State but it does not follow from the Explanation that it localises the situs of all sales. The power of the State under Entry 54 List II of the Seventh Schedule to tax sales (not falling within cls. (1) (b), (2) and (3)) which are outside the Explanation, and which may for the sake of brevity be called non-Explanation sales, remains unimpaired. It is not necessary for the purpose of this case to express an opinion, whether the theory of territorial nexus of the taxing State, with one or more elements which go to make a completed sale authorises since the promulgation of the Constitution the exercise of legislative power under Entry 54, List II the Seventh Schedule to tax sales, where property in goods has not passed within the taxingcan be no doubt that if the goods were delivered pursuant to the contracts of sale outside the State of Andhra for the purpose of consumption in the State into which the goods were delivered, the State of Andhra could have no right to tax those sales by virtue of the restriction imposed by Art. 286(1) (a) read with the Explanation.8. The facts found by the taxing authorities clearly establish that property in the goods despatched by the appellant passed to the A. C. C. within the State of Andhra when the railway receipts were handed over to the agent of the A. C. C. against payment of price. The question still remains: were the transactions non-Explanation sales i. e. falling outside the Explanation to Art. 286(1) ? To attract the Explanation, the goods had to be actually delivered as a direct result of the sale, for the purpose of consumption in the State in which they were delivered. It is not disputed that the goods were supplied for the purpose of consumption outside the State of Andhra, and in the States in which they were supplied. It is submitted that the goods were actually delivered within the State, when the railway receipts were handed over to the agent of the buyer. But the expression "actually delivered" in the context in which it occurs, can only mean physical delivery of the goods, or such action as puts the goods in the possession of the purchaser: it does not contemplate mere symbolical or national delivery e. g., by entrusting the goods to a common carrier, or even delivery of documents of title like railwaythat provision will not make mere delivery of the railway receipts representing title to the goods actual delivery of goods for the purpose of Art. 286. The rule contained in S. 39(1) of the Indian Sale of Goods Act raises a prima facie inference that the goods have been delivered if the conditions prescribed thereby are satisfied: it has no application in dealing with a constitutional provision which while imposing a restriction upon the legislative power of the States entrusts exclusive power to levy sales tax to the State in which the goods have been actually delivered for the purpose of consumption.10. The High Court was therefore in error in inferring from the fact that the property had passed within the State of Andhra against delivery of the railway receipts that the goods were actually delivered within the State. If the inference raised by the High Court that the goods were actually delivered within the State of Andhra cannot be accepted, on the facts found there is no escape from the conclusion that the State of Andhra had no authority to levy tax in respect of those sale transactions in which the goods were sent under railway receipts to places outside the State of Andhra and actually delivered for the purpose of consumption in those States.