Bharat Sabaigrass Limited vs The Collector of Commercial Taxes

Mohapatra, J.—This reference u/s 24 of the Orissa Sales Tax Act, 1947, arises in the following circumstances. The Petitioner (M/s. Bharat Sabaigrass Ltd.) is a limited company, incorporated under the Indian Companies Act, 1913, with its Head office at Calcutta. The Company carries on business in bamboos and sabaigrass and supplies the above articles to Orient Paper Mills of Sambalpur, Titaghar Paper Mills and other Bengal Paper Mills. The Petitioner, inspite of carrying on business for a long time, did not take steps to get itself registered u/s 9 of the Orissa Sales Tax Act. The sales-tax officer therefore, having issued notice u/s 12(5) or the Act assessed the Petitioner to pay a Tax of Rs. 3,115/10/- by his order dated 16th December, 1949, for the periods beginning from the quarter ending 31st December, 1947 to 30th September, 1949. He has also ordered to pay a penalty of Rs. 500/- u/s 12(5).

In response to the notice u/s 12(5), the Petitioner took up the plea of non-liability to pay any tax and has been sticking to this plea all along. The order of the sales-tax officer having been confirmed by all the authorities under the Act and the Commissioner having refused to state a case and refer the matter to this Court, the Petitioner filed a petition u/s 24(2)(b) of the Act praying for directing the Commissioner, Northern Division, Sambalpur to state a case. By the order dated 29th July, 1952, this Court directed the Commissioner to state a case on the following point of law

Whether in the circumstances of the case the assessment is legal being based on the position that mere contract for sale within the State of Orissa and the export of goods from Orissa is sufficient for taxation under the Orissa Sales Tax Act, 1947.

The order of the sales-tax officer Gated 16th December, 1949, as I find from the order of this Court, was merely based upon the letter of the Collector of Commercial Taxes No. 3264-C.T/328-C.T. of 48, dated the 22nd September, 1948. On a perusal of the order of the sales-tax officer, the aforesaid letter of the Collector and the letter written to the Collector by the Assistant Manager of the Petitioner, dated 20th September, 1948, \\we were of the view that the assessment in question was solely based upon mere contract for sale within the Stale of Orissa and export of goods from the State of Orissa. Accordingly we framed the question of law as reproduced above.

In formulating the point of law we had relied'' upon a decision of the Allahabad High Court reported in Budh Prakash Jai Prakash and Another Vs. The Sales Tax Officer and Others, . In the meantime the Sales Tax officer appealed against the judgment of the Allahabad High Court and their Lordships of the Supreme Court have upheld the decision of the Allahabad High Court in dismissing the appeal. The Supreme Court decision has been reported in The Sales Tax Officer, Pilibhit Vs. Budh Prakash Jai Prakash, . The point before their Lordships was the same as the point before us, that is, whether a contract for sale can be the basis for taxation. Their Lordships of the Supreme Court observed that there was always a distinction between the two concepts-sale ad agreement to sell-both according to Indian and English laws. In a contract for sale there is no transference of ownership while a completed sale always means a transfer of ownership. Under the Government of India Act, 1935 the Provincial Legislature derived its power to impose tax on sale of goods under Entry No. 48 in List II of Seventh Schedule - the subject running as "Sale of goods and advertisements". Their Lordships observed as follows after discussing the distinction between a sale and an agreement to sell in England and in India.

Thus, there having existed at the time of the enactment of the Government of India Act, 1935, a well defined and well established distinction between a sale and agreement to sell it would be proper to interpret the expression ''sale of goods in Entry 48 in the sense in which it was used in legislation both in England and in India and to hold that it authorise the imposition of a tax only when there is a completed sale involving tenser of title. Their Lordships further laid down-

The position there is that a liability to be assessed to sales tax can arise only if there is a completed sale under which price is paid or is payable and not when there is only an agreement to sell, which can only result in a claim or damges.

In the concluding lines their Lordships further made it clear-

The State Legislature cannot, by enlarging the definition of ''sale'' as including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution Act, and the definition of sale in Section 2(h) of Act XV of 1948, must, to that extent, be declared ultra vires.

Mr. Mohapatra, appearing on behalf of the sales-tax authorities, strongly relies upon two other decisions of the Supreme Court Poppatlal Shah Vs. The State of Madras, and State of Bombay v. United Motors Ltd. AIR 1953 S.C. 253. In the case reported in Poppatlal Shah Vs. The State of Madras, , Poppatlal Shah filed an appeal against the order of conviction of an offence punishable u/s 15 of the Madras General Sales Tax Act. The Appellant had his Head Office in the city of Madras and carried on business of selling and purchasing ground-nut oil and Sago etc. The point taken by the Appellant was that the place of sale in regard to all the transactions was at Calcutta as the property in goods sold admittedly passed to the purchasers in that city. The State of Madras however contested the point on the position that the true test or determining the locality of the sale was not where the property in the goods sold passed but where actually the transaction was put through. Mr. Mohapatra draws our attention to the observations of their Lordships of the Supreme Court running as follows

The entry in the Provincial list that is relevant for our purpose is Entry No. 48 and that speaks of taxes on the sale of goods and on advertisement''. The entry does not suggest that a legislation imposing tax on sale of goods can be made only in respect of sales taking place within the boundaries of the province and all that Section 100(3) provides is that a law could be passed by a Provincial Legislature for purposes of the province itself. It admits of no dispute that a Provincial Legislature could not pass a taxation statute which would be binding in any other part of India outside the limits of the province, but it would be quite competent to enact a legislation imposing taxes on transactions concluded outside the province, provided that there was sufficient and a real territorial nexus between such transactions and the taxing province.

In our view, the observations made in this ease will not be a safe guide to us, particularly when there is a direct case on the point before us decided by their Lordships of the Supreme Court. In the Madras case, the pertinent point before us "whether a mere contract for sale or export from Orissa can serve as the basis for taxation" was not before their Lordships for decision as will appear from the points raised in the case indicated above. On the contrary, there are certain observations made by their Lordships which will support our view. In the last paragraph of the judgment in the beginning their Lordships observed

The mere fact that the contract for sale was entered into within the province of Madras does not make the transaction, which was completed admittedly within another province, where the property in goods passed, a sale within the province of Madras according to the provisions of the Madras Sales Tax Act and no tax could be levied upon such a transaction under the provisions of the Act. A contract of sale becomes a sale under the Sale of Goods Act only when the property in the Goods is transferred to the buyer under the terms of the contract itself.

But nevertheless by a subsequent legislation of Madras Act XXV of 1947 the following new provision was added to the definition of ''sale'' by way of an explanation

Notwithstanding anything to the contrary is the Indian Sale of Goods Act, 1930, the sale or purchase of any goods shall be deemed, for the purposes of this Act, to have taken place in this Province, whereever the contract of sale or purchase might have been made if the goods were actually in this Province at the time when the contract of sale or purchase in respect thereof was made. Their Lordships did not discuss or give an opinion whether this explanation is intra vires or ultra vires as the question did not arise in the case before their Lordships and as the period of taxation was prior to the introduction of this explanation. Their Lordships in conclusion set aside the order of conviction and sentence and allowed the appeal.

In the case of The State of Bombay and Another Vs. The United Motors (India) Ltd. and Others, , the observations relied upon by Mr. Mohapatra are as follows-

Before considering whether the Appellant state has made a law imposing, or authorising the imposition of a tax on sales or purchases of goods in disregard of constitutional restrictions on its legislative power in that behalf, it is necessary to ascertain the scope of such power and the nature and extent of the restrictions placed upon it by Article 286. The power is conferred by Article 246(3) read with Entry 54 of List II of Schedule 7 to the constitution. The Legislature of any State has, under these provisions, the exclusive power to make laws for such State or any part thereof'' with respect to taxes on the sale or purchase of goods other than newspapers''. The expression for such State or any part thereof cannot, in our view, be taken to import into Entry 54 the restriction that the sale or purchase referred to must take place within the territoy of that State.

This was a case of sales and purchases involving inter-State elements and the main point before their Lordships was interpretation of the provisions of Article 286 of the Constitution. In paragraph 16 of the judgment, their Lordships laid down the proposition as follows-

We are therefore of opinion that Article 286(1)(a) read with the Explanation prohibits taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein in the wider sense explained above. The latter State is left free to tax such sale or purchase, which power it derives not by virtue of the Explanation but under Article 246(3) read with Entry 54 of List II (corresponding to entry No. 48 of List II of Schedule VII of the Government of India Act, 1935).

It is to be noted here that the most significant feature that distinguishes this case from the Allahabad case referred to above is that the decision in the Bombay case is based upon an assumption that there has already been a completed sale for giving taxation power to the Province where the goods are delivered for the purpose of consumption. The point whether mere contract for sale within the State and export of goods from that State is sufficient for taxation was not before their Lordships. In the above circumstances, therefore, with great respect, we follow the decision of their Lordships of the Supreme Court in the Allahabad case reported in The Sales Tax Officer, Pilibhit Vs. Budh Prakash Jai Prakash, and accordingly we answer the question in the negative, that is to say, we are unhesitatingly of the opinion that the assessment in question is not legal. The reference is accordingly disposed of. The Petitioner is entitled to costs incurred in the proceedings in the High Court. Hearing fee is assessed at Rs. 100/- (one-hundred rupees).

After the arguments were closed, Mr. Mohapatra has drawn our attention to a decision of the Madras High Court in the case of Louis Drefus & Co., Madras v. State of Madras wherein their Lordships decided, under Explanation 2 to Section 2(h) of the Madras General Sales Tax Act, 1939, (which is similar to Section 2(g) of the Orissa Sales Tax, 1947 that it was open to the State to justify the imposition of the levy of the sales tax if the goods were actually in the State at the time of the contract of sale. This decision was prior to the decision of the Supreme Court in the Allahabad case on which we have respectfully relied. Manifestly, therefore, the Supreme Court decision was not before their. Lordships and the Allahabad decision also was not placed before their Lordships. The decision therefore does not change our view. Moreover in the case before us the assessment is not based upon the finding that the goods were in Orissa when the sale was completed outside Orissa.

Misra, J.

I agree.