Case: The State Of Tamil Nadu Vs. Madurai South India Corporation (P) Ltd

1. These three appeals by certificate under Article 133(1)(c) of the Constitution are against the judgment of the Madras High Court which allowed the three Writ Petitions filed by the respondent under Article 226 of the Constitution of India by which it challenged the proceedings proposed to be taken by the Sales Tax Officer under the Madras General Sales Tax Act 19 59 (hereinafter called the Act) and the rules there under in respect of sale transactions in the assessments7 (up to October, 1966).      2. The first petition was for quashing the summons issued under the Act and requiring the respondent to furnish certain vouchers of cotton yam, branch transfer accounts and particulars relating to the years7 (up to October, 1966). The second petition was for directing the appellant to forbear from taking any steps for verification and in disallowing the exemption for the second and subsequent sales of yam purchased by the respondent company from the Madurai Mills Limited in respect of the aforesaid period. The third petition prayed f or the issue of mandamus to the appellant to forbear from disallowing the exemption for the second and subsequent sales of yarn estimated at Rs. 5.08, 247/for the assessment year. The High Court of Madras allowed all the three petitions an d quashed the proceedings as prayed for.      3. The respondent is a registered dealer with its head office at Madras and branches in Madurai, Rajanalavam and Salem inside the State of Tamil Nadu and also in certain places in the States of Kerala and Andhra Pradesh including Hyderabad. During the years7 up to October, 1966, it was dealing in various good, , including cloth, yarn, etc. and was being assessed to tax under the Act on the turnover of the business. The gross turnover of the respondent included sales of yarn by the Madurai Mills Limited to the respondent to its head office in Madras and also to its branches. The, method which was followed by the head office of the respondent was that it would place orders from Madras on Madurai Mills Limited pursuant to which the supplies would be made by the Madurai Mills Limited either to the respondents head office or to its branches in accordance with the instructions given by the head office. Where deliveries were made to the respondent inside the State the seller collected the tax due under the Act with reference to item 3 of the second Schedule to the Act. But in respect of deliveries made to the respondents branches outside the State, the Madurai Mills collected tax under section 3 of the Central Sales Tax Act (hereinafter called the Central Act). During the year6 the respondent transferred to Madras State certain quantities of yam from the stock so purchased at its branches in the State of Andhra Pradesh and Kerala and sold the same to local dealers. The appellant thereupon called upon the respondent to produce , accounts and certain other documents, on the assumption that the sales so effected were chargeable to tax as first sales in the State. The respondent objected to these proceedings on the ground that the sales were second sales not liable to tax and filed three writ petitions which are subject of these appeals.      4. It was not dispute d that the sales by the Madurai Mills to the respondent in which deliveries were made to branches in the State of Andhra Pradesh and Kerala have been charged to tax under the provisions of the Central Act.

Court's reasoning:
The High Court of Madras on the interpretation of the aforesaid provisions and having regard to the modus operandi of the respondent in respect of the inside sales orcotton yam was of the view:Where the terms of a first sale are such that it may well be said to be a n inside sale but it bears , also the characteristics of ansale, and, therefore, it has been taxed under the Central Act, that sale being physically a first sale inside the State out of which thehas been carved out , it should follow that as the tax levied on themust prevail, there will be no tax liability on the same sale under the local Act on the ground that it is an inside sale. In this view it held that when the goods pursuant to the interstate sale have been delivered outside the State but brought back into the State and then sold, that sale cannot in fact or in law be regarded as the first sale within the meaning of the second schedule to the local Act. It did not, however, think it necessary to consider on the facts of the case what the position will be when a sale is an inside sale within the meaning of Section 4 of the Central Act and is also ansale, because it occasioned the movement of the goods t o another State and out of the goods delivered outside the State pursuant to thesale, a part has been brought into the State and sold again as an inside sale, in the sense that every incident including delivery is in the State. In o ur view, this question does not arise because what we have to consider is having regard to the course of transactions of sale which has not been traversed by the appellant, whether the sale by the Madurai Mills pursuant to the orders placed by the respondent, the cotton yarn sold to its branches in Andhra Pradesh and Kerala in respect of which the price was paid in the State of Madras, is an inside sale, and also a first sale in the State. It appears to us that when the cotton yam was sold to the respondent in Madras as the goods were in the State of Madras when the contract ofwas entered into, it will be a first sale in the State. Once that sale has taken place, and the goods were delivered in the States of Andhra Pradesh and Kerala, pursuant to thatsale, there was no further sale to the respondent when it transferred to, branches those goods which have already been subject to tax in Madras nor can such sales if they were sold in Madras be subject to tax7. Whether the provisions of Section 15 makes an inroad into the texture of the local law, so that section 6 of the local Act will have to be read subject to and in conformity with the provisions of section 15 and the policy under lining that section and whether section 6 will be inapplicable to sales of declared goods, need not be considered in this case because we are clearly of the view that the sale of cotton yam sold to the branches of the respondent in Andhra Pradesh and Kerala though they were interstate sales of declared goods, were the first sales inside the State of Tamil Nadu and that being so if those goods are transferred to Madras and sold in Madras, they are exempt from being taxed again since they have already been subjected to tax on the first sale inside the State. We are, therefore, in agreement with the conclusions of the Madras High Court.