Case: State of Orissa Vs. Minerals &amp; Metals Trading Corporation of India Limited

2. A three Judge-Bench of the High Court by its judgment dated May 11, 1976 answered the questions as under:(1) on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was no contravention of the declarations given under Rule 27(2) of the Orissa Sales Tax Rules and, therefore, the proviso to Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act was not attracted.(2) In the fact and circumstances of the case, the sales by the assessee to the Japanese buyer are covered by the embargo under Article 286(1)(b) of the Constitution of India read with Section 5 of the Central Sales Tax Act and, therefore, are not exigible to sales-tax under the Orissa Act.The remaining question, in view of what we have already stated, does not survive for answer.4. The Minerals and Metals Trading Corporation of India Limited, respondent in the appeals herein, is a government company within the meaning of Section 617 of the Companies Act, 1956. The respondent-assessee is registered as a dealer under the Act. During the years 1966-67, 1967-68 and the quarters ending June, September and December 1968, the respondent purchased mineral ores from the mine owners, who were registered dealers under the Act. While purchasing mineral ores from the mine owners the respondent gave declarations in terms of Rule 27 of the Orissa Sales Tax Rules, 1947 (the Rules) to the effect that the said mineral Ores would be resold within the State of Orissa. The Sales Tax Officer while examining the accounts relating to the relevant period found that the respondent has sold the mineral ores in the course of export to the Japanese buyers with whom the assessee had pre-existing export contracts. The Sales Tax Officer came to the conclusion that the mineral ores were sold in violation of the declarations furnished by the respondent and, us such, contravened the provisions of Section 5(2)(A)(a)(ii) of the Act. The Sale Tax Officer added the amount of the relevant sales to the taxable turnover of the respondent and issued a demand for payment of the tax. The respondent filed an appeal before the first appellate authority which was dismissed. Aggrieved by the order of the first appellate authority, the respondent filed a second appeal before the Sales Tax Tribunal. It was contended before the Tribunal that the goods were resold in Orissa and the transaction with the Japanese buyers being sale in the course of export, it was not liable to tax by virtue of Article 236(1)(b) of the Constitution of India. The Tribunal came to the conclusion that the sale by the respondent in favour of the Japanese buyers, was within the State of Orissa and, as such there was no violation of the terms of the declarations. The Tribunal, however, did not agree with the other contention that the transactions were in the course of export and, therefore, not exigible to sales tax. The Tribunal rejected the second contention. The net result was that the assessed was not found liable on account of violation of the undertaking in the declarations but the assessees sale in favour of the Japanese buyers was found liable to tax. As the accounts had to be re-verified to ascertain the correct, figures, the Tribunal remanded the matter. The Tribunal stated the cases and referred the questions at the instance of both the Revenue as also the assessee for the opinion of the High Court.21. The High Court classified the batch of petitions into the following three categories:1. Assessments in which unamended declarations in Form No.XXXIV under Rule 27(2) of the Orissa Sales Tax Rules, 1947 were given and purchases were made without payment of tax.2. Assessment and imposition of tax on sale or purchase of declared goods in violation of Section 15 of Central Sales Tax Act, 1956 and Section 14-B of the OST Act read with Rule 42-A of the OST Rules.3. Assessment and imposition of tax after the amendment of Form No.XXXIV, that is, after 26.4.1978. Declarations in amended form were given and purchases were made with out payment of tax.22. The High Court allowed the writ petitions falling under category Nos. (1) and (2) above and the assessment and imposition of tax in respect of those petitioners was quashed. So far as the writ petitions falling under category No. (3) above are concerned, those were dismissed with no order as to costs.26. The appellants challenged the validity of Section 5(2)(A)(a)(ii) of the Orissa Sales Tax, 1947 (the OST Act) as amended by Section 2(c) of the Orissa Sales Tax (Amendment) Act, 1978 by way of a writ petition under Article 226 of the Constitution of India before the Orissa High Court. The order of the Sales Tax Officer, Cuttack III Circle pertaining to the assessment year 1982-83 was also sought to be quashed in the writ petition. The challenge to the validity of Section 5(2)(A)(a)(ii) of the OST Act was on the following grounds:(i) that it is beyond the legislative competence of the State legislature to enact the provision since the tax relates to inter State sale/export sale in respect of which the Parliament has the exclusive competence to legislate. In this connection reliance is placed on Article 286 of the Constitution and Entry 54 of List II of the Seventh Schedule of the Constitution;(ii) that the provision is repugnant to Sections 3, 4 and 5 of the C.S.T Act and hence it is hit by Articles 254 and 269 of the Constitution.;(iii) that they levy of tax is discriminatory and therefore hit by Article 14 of the Constitution; and(iv) that it affects the petitioners right of freedom of trade and commerce embodied in Article 19(1)(g).27. In addition to the above grounds it was also contended that while selling the goods in the course of inter State sale the appellants-petitioners did not contravene the declaration in as much as the sale took place within the State of Orissa and, as such, could not be exigible to tax under the OST Act but for the supervening circumstance of the constitutional bar as provided under the Central Sales Tax Act.31. The respondent-assessee is a registered dealer under the Orissa Sales Tax Act 1947, (the Act). The assessee purchased certain goods from a registered dealer on the basis of declaration furnished by it for resale of the purchased goods in the State of Orissa. The goods were however sold in the course of inter-State trade. The Sales Tax Officer came to the conclusion that the declaration furnished by the assessee was violated and, as such, it became liable under the proviso to Section 5(2)(A)(a)(ii) of the Act. Against the assessment made, the respondent preferred appeals under the Act before the Assistant Commissioner of Sales Tax which were dismissed. The assessee thereafter preferred appeals before the Sales Tax Tribunal, Orissa. The Tribunal by its order dated March 2, 1973 annulled the assessment and directed the refund of fax and penalty, if paid. The Tribunal - at the instance of the appellant - referred the above quoted question for the opinion of the High Court.33. The High Court answered the question in favour of the assessee on the following reasoning:In this case there is no dispute that specific or ascertained goods were the subject-matter of sale because these goods were purchased from registered dealers, There is no material on the record to show that the goods were not within the State of Orissa when the contract of sale was made. In the facts before us normally it should be presumed that the goods were actually within the State unless the Taxing Department established the contrary. Therefore, in view of the definition of sale, it must be deemed that the sale took place within the State in regard to the goods.... Under the scheme of the Act, sales tax is leviable at a single point and a registered dealer at the point of sale is entitled to pass on the incidence of sales tax to the buyer. Where the buyer is a registered dealer, upon furnishing a declaration in terms of Section 5(2)(A)(a)(ii) of the Act he is entitled to exemption from payment of sales tax and the payment of tax is shifted and deferred to a point where the sale takes place in favour of a consumer, an unregistered dealer or is a transaction in respect of which no declaration has been furnished even when the purchasing dealer is a registered dealer. Section 5(2)(A)(a)(ii) authorises a dealer to exclude from the gross turnover the sales to a registered dealer of goods specified in the purchasing dealers certificate of registration as being intended for resale by him in Orissa. The proviso occurring in Section 5(2)(A)(a)(ii) requires the sale price of goods used by the purchasing dealer for the purposes other than those mentioned in his certificate of registration to be included in his taxable turnover. The assessee before us had purchased bini from registered dealers and had furnished declaration. It is not disputed that it was entitled to make such purchases free of tax on furnishing declarations. Its declarations contemplated that it would resale the goods so purchased in Orissa. As we have already found, the goods purchased by the assessee were as a fact resold in Orissa, but these sales, by application of the provisions of the Central Act became the first sales under the Central Act. It is true that the scheme under the Act collecting Orissa sales tax at the deferred point has not worked out, bill it the facts of the case it cannot be said that the assessee used the goods purchased by it for a purpose other than that specified in its certificate of registration which alone would attract the application of the proviso under which the additional demand has been raised. It the assessee as a fact resold the goods in Orissa, but on account of some supervening law that transaction is made taxable under some other Act and tax under the Orissa Sales Tax Act was not imposable, it would not amount to any violation of the declarations by the assessee. We agree with the contention raised on behalf of the assessee that the Proviso cannot be applied to a case of this type. In our opinion, the Tribunal came to the correct conclusion in the matter.Before the High Court the appellants had relied upon the Full Bench Judgment of the Orissa High Court in MMTC case (supra) in support of their contentions. The High Court rejected the contentions of the appellants and upheld the validity of the amended Section 5(2)(A)(a)(ii) of the OST Act on the following reasoning:Under the scheme of the Act, the taxable event is postponed until the registered dealer sells the goods to an unregistered dealer or a consumer, or in breach of the undertaking given. Law is well settled that the competent legislature can enact law after removing the infirmities or deficiencies as pointed out by the Court. All that is to be seen in such cases is that the amended law is within the competence of the legislature. Powers of the State Legislature under Entry 54 of List II of the VII Schedule to the Constitution are plenary. The impugned amended Act is an attempt by the State Legislature to ensure the single point levy by nullifying the effect of the two decisions of this Court. The question is whether such action is within the competence of the State Legislature and is in conformity with Article 286 of the Constitution of India.

Court's reasoning:
6. The undisputed scheme of the Act is that a dealer becomes liable to pay tax at the time of purchase but being a registered dealer under the Act a facility is given to him and the liability to pay the tax is deferred to a later stage, when he resells the goods. To ensure that the sale does not escape tax altogether a declaration is taken from the dealer to the effect that the goods are meant for resale within the State. In other words, the Act has adopted a single point tax. Under the scheme, the taxable event is postponed until a registered dealer sells the goods to an unregistered dealer, a consumer or in breach of the undertaking diverts the goods for other purposes. The proviso to Section 5(2) of the Act operates when the purchasing dealer violates his undertaking and he becomes liable to pay the tax which he had avoided on the basis of the declaration.7. It is not disputed that the assessee purchased mineral ores from the mine owners - who were registered dealers under the Act - upon furnishing declaration as provided in Rule 27(2) of the Rules. The assessee had not paid sales tax on those purchase. The declaration makes it obligatory for the assessee to resell the mineral ores, so purchased, within the State of Orissa.8. The learned Counsel for the appellant has not challenged before us the finding of the High Court that the sale by the assessee to the Japanese buyers is covered by the embargo under Article 286(1)(b) of the Constitution of India read with Section 5 of the Central. Sales Tax Act and, therefore, is not exigible to sales tax under the Act.15. It is, therefore, clear that the export sale envisaged under Article 286(1)(b) of the Constitution of India continue to be in the process of completion till the goods reach the destination.16. The argument of the learned Counsel for the respondent that the assessee by the deposit of the mineral, ores at Paradeep Port made a sale to the foreign buyer at the port is fallacious and overlooks the fact that the purchase had been made by the assessee from the registered dealers, to satisfy his pre-existing contract with the Japanese buyer and the goods were deposited or believed at Paradeep Port for transportation, put of the country, to the destination of the foreign buyer, to satisfy the requirements of the pre-existing contract, the delivery of the goods at the Paradeep Port was thus in discharge of the obligation under the contract on the part of the exporter-assessed and formed but a single transaction. It was not a second sale to the foreign buyer in the State of Orissa. The effort to confuse the delivery of goods at Paradeep Port for transportation to the destination of the foreign buyer with a sale at Paradeep Port is a futile attempt to wriggle out of his mis-declaration. In the declaration filed by the assessee, he. not only misstated that the goods were meant for re-sale within the State of Orissa but also concealed the fact that there was a pre-existing contract between the assessee and the Japanese buyers to satisfy which the mineral ores were being purchase, for export, from the registered dealers. The declaration made by the assessee concealed more than what is revealed. The assessee, therefore, made a declaration which was palpably incorrect. The assessee thus contravened the provisions of Section 5(2)(A)(a)(ii) of the Act and rendered itself liable under the proviso to the said Section,The State of Orissa has not come up in appeal against the judgment of the High Court allowing the writ petitions of the petitioners falling under category Nos. (1) and (2) before the High Court. We are not expressing any opinion in respect of the part of the judgment of the High Court which is not under appeal before us.28. We have been taken through the judgment of the High Court wherein all the points raised by the appellants-petitioners have been dealt with by giving detailed reasons in respect of each of the points. We see no ground to interfere with the judgment of the High Court. We agree with the reasoning and the conclusions reached therein.29. We have today pronounced judgments in civil Appeals Nos. 1811-15(NT) of 1977 titled State of Orissa v. Minerals and Metals Trading Corporation of India Limited and also in Civil Appeal Nos.343-347 of 1987 .titled Industrial Minerals & Metals and Anr. v. The Sales Tax Officer and Anr. Even on the force of the reasoning and conclusions in these judgments, this appeal has to be dismissed.34. We are of the view that the High Court fell into patent error in holding that the sales in dispute were made by the assessee within the State of Orissa. It is not disputed that the said sales were in the course of inter-state trade. If the goods were to retain within the State of Orissa the sales could not be in the course of Inter-State trade. To make a sale in the course of inter-State trade, it is necessary that the contract must envisage the completion of the sale as well as the movement of the goods to the other State in the course of inter-State trade. The very fact that the sales in dispute were the sales in the course of inter-State trade, they could not be the sales within the state in terms of Section 2(g) of the Act. The Act provides for a single point levy and the tax is payable at one point or the other. When the assessee purchased the goods free of tax by giving an undertaking that the goods would be resold within the State of Orissa and subsequently violates the undertaking by selling the goods in the course of inter-State trade and commerce, the proviso to Section 5(2)(A)(a)(ii) of the Act is directly attracted and the assessee is liable to pay tax. A sale cannot be inside Orissa and at the same time in the course of inter-State trade and commerce. In order that a sale or purchase might be inter-State, it is essential that there must be transport of goods from one State to another under the contract of sale or purchase. In Bengal Immunity Company Limited v. State of Bihar [1955]2SCR603 , occur the following observations which are apposite: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-Statet is the admitted case of the assessee that the sales in question were the sales in the course of inter-State trade and if that is the position then the question of the same sales being the sales within the State did not arise.35. We have, today, pronounced judgment in Civil Appeals Nos. 343-347 of 1987 titled Industrial Minerals & Metals and Anr. v. The Sales Tax Officer and Anr. wherein we have held that a sale in the course of the export of goods out of the territory of India cannot be a sale at the same time within the State of Orissa. On the principles, a sale in the course of inter-State trade and commerce cannot be a sale within the State of Orissa.36. There is, thus, patent violation of the undertaking given by the assessee37. In Endurpuri Narasimhan & Son v. State of Orissa and Ors. (1961) 12 STC 282 , certain sales to the petitioner therein were not included in the taxable turnover of the seller by reason of the registration certificate which the petitioner had obtained on a declaration that the goods were to be resold in Orissa. In violation of the declaration the petitioner sold the goods to dealers outside the State and he was taxed under Section 5(2)(a)(ii) of the Act. This Court held that the imposition of the tax was not on the sales by the petitioner to person outside the State but on the purchases by him inside the State for which he gave an undertaking and violated the same by not selling the goods within the State of Orissa.38. Even otherwise, the High Court was not justified in holding that the onus for proving that the goods at the time of the contract were not within the State of Orissa was on the sales tax authority. The assessee on purchase of the goods became liable to pay the tax but he did not do so because it was a sale from a registered dealer to a registered dealer. The assessee saved the tax and postponed the event by giving an undertaking that he would sell the goods within the State. True to the undertaking the onus to show that the goods were actually sold within the State of Orissa was on the assessee. In any case, a contract of sale by which the goods are sold and are to be transported from one State to another cannot be made a lever for the argument that though the sale is in the course of inter-state trade and commerce but nevertheless it is a sale within the State of Orissa under Section 2(g) of the Act.43. We have today delivered judgment in Civil Appeals Nos. 2947-50 (NT) of 1977 wherein the High Court judgment in State of Orissa v. Johrimal Gajanand (1976) 37 STC 157  has been reversed.The High Court rejected the contentions of the appellants and upheld the validity of the amended Section 5(2)(A)(a)(ii) of the OST Act on the following reasoning:Under the scheme of the Act, the taxable event is postponed until the registered dealer sells the goods to an unregistered dealer or a consumer, or in breach of the undertaking given. Law is well settled that the competent legislature can enact law after removing the infirmities or deficiencies as pointed out by the Court. All that is to be seen in such cases is that the amended law is within the competence of the legislature. Powers of the State Legislature under Entry 54 of List II of the VII Schedule to the Constitution are plenary. The impugned amended Act is an attempt by the State Legislature to ensure the single point levy by nullifying the effect of the two decisions of this Court. The question is whether such action is within the competence of the State Legislature and is in conformity with Article 286 of the Constitution of India.It is the contention of the petitioners that the goods were meant for resale in Orissa and in fact were resold inside Orissa. The State Legislature has power to impose tax on the sale or purchase of goods other than news papers. This is subject to the provisions of Entry No. 92 A of List I. The petitioners would have paid the tax while purchasing the goods from a registered dealer. But while purchasing the goods, they have avoided the tax by giving a declaration that the goods purchased were meant for the purpose of resale in Orissa and such resale should be subject to levy tax under the O.S.T. Act. But subsequently, in violation of the declaration they have sold the same in course of inter-state trade or commerce or export and avoided payment of tax. Normally the tax should have been paid at the first point and the petitioners could not have avoided payment of such tax and would have paid the tax but for the declaration given by them. They have sold the goods in violation of the declaration given by them. As already held, in case of declared goods, they are entitled to reimbursement by virtue of Section 15 of the CST Act_ and Section 14-B of the O.S.T. Act and Rule 42-A of the O.S.T. Rules. From Section 15 of the CST Act_, it is abundantly clear that it places restrictions and conditions upon the local law. Its intention is that declared goods should suffer tax at only one point and at a prescribed rate, Section 15 does not bar levy of sales tax by a State on declared goods, but it provides for refund of such tax to the persons making such sale in the course of inter-State Trade or commerce, Therefore, Section 15 clearly shows that there is no bar for levy of charge on declaration goods but that is to be refunded. In Section 15, no provision has been made for refund of tax on goods other than declared goods. From this, it can be gathered that the State has also the power to impose tax on the declared goods. But by virtue of Section 15, it is to be reimbursed. If the intention were not to tax goods other than declared goods, such provision should have been clearly made. Viewed from this angle, it cannot be said that the assessment and the demand of tax made by the authorities are bad and should be struck down. The State by the amended provision has only wanted to impose tax on intra-State sale and it is within the competence and powers of the State Legislature under Entry 54 of List II of Schedule VII of the Constitution of India.44. We agree with the above quoted reasoning and the conclusions reached by the High Court.