Bombay Company Private Ltd. vs State of Madras

Ramakrishnan, J.—This appeal arises from the order of the Board of Revenue revising the assessment on the assessee in exercise of its

power u/s 34 of the Madras General Sales Tax Act of 1959. The assessing authority examined the transactions of the appellant in regard inter alia

to a claim made for exemption for a turnover of Rs. 6,14,144-4-9 under the heading of inter-State sales. It found that except in the case of a

turnover of Rs. 1,521-1-9, the invoices in the remaining cases showed that the claim for exemption was sustainable and granted exemption

accordingly for a sum of Rs. 6,12,623-3-0. This order was passed on 29th September, 1958. The Board of Revenue, by an order passed on 1st

September, 1962, set aside this claim for exemption. It relied upon a later decision of the Supreme Court in Ashok Leyland''s case [1961] 12

S.T.C. 379. In the view of the Board of Revenue, the effect of the Sales Tax Laws Validation Act, 1956, as well as the amendment to Section 22

of the Madras General Sales Tax Act, was to remove the fetter of Article 286(2) of the Constitution, and to preserve the power of the State of

Madras to tax sales which would fall under the charging Section, viz., Section 3 of the Act, read with the definition of ""sale"" in Section 2(h) of the

Madras General Sales Tax Act, 1939. In other words, in the view of the Board of Revenue, if the goods were in the Madras State at the time

when the contract of sale in respect of them was entered into, the sales tax on them would be exigible in the Madras State without reference to the

bans provided in Article 286 of the Constitution either under Sub-section (1)(a) or under Sub-section (2) of that Article as it stood before the

amendment of the Constitution in 1956.

The assessee, who is the appellant before us, has referred to the several decisions of this Court rendered subsequent to that of the Supreme

Court in the Ashok Leyland''s case [1961] 12 S.T.C. 379, which have explained the scope of the decision of the Supreme Court aforesaid. The

latest of these decisions reported in A. Jainulabdeen Sahib v. State of Madras [1964] 15 S.T.C. 413 has put the position succinctly thus :

After an exhaustive analysis of all the decisions...the Bench in Ramaswami Mudaliar v. State of Madras [1962] 13 S.T.C. 785 explained that there

were several distinct and independent bans imposed on the power of a State to levy tax and that the removal of the ban imposed by Article 286(2)

of the Constitution did not amount to the removal of the ban imposed by Article 286(1)(a), which prohibited a State from taxing a sale which took

place outside the State....In the light of the interpretation of the decisions, it seems to us that the Ashok Leyland''s case [1961] 12 S.T.C. 379

cannot be relied upon for enabling the Madras State to tax these sales, which both under the Indian Sale of Goods Act as well as the constitutional

Explanation became located as sales in States other than the Madras State. The Madras State is an outside State in so far as these sales are

concerned, and the ban on the levy of a tax in respect of a sale, which is an outside sale, being inviolate, the Madras State cannot tax these sales.

In the case which is now before us in appeal, the Board of Revenue has not at all adverted to the ban under Article 286(1)(a) of the Constitution

in respect of sales found to be inter-State sales and for which exemption has been granted by the assessing authority. It seems to have assumed

that by virtue of the decision in the Ashok Leyland''s case [1961] 12 S.T.C. 379 the Madras State has derived power to tax sales solely by the

force of Section 3, read with Section 2(h) of the Madras General Sales Tax Act, without reference to the ban under Article 286(1)(a) of the

Constitution, which would still debar the Madras State from assessing what would patently be outside sales within the meaning of that Article. As

pointed out in the decision which we have just now referred to, the sales may be outside sales so far as Madras State is concerned, either by virtue

of the Indian Sale of Goods Act or they may be cases where the goods were delivered for consumption outside the Madras State and therefore

became sales outside the State. In such cases, the ban would operate. This aspect of the matter had not been considered at all by the Board of

Revenue in the order under appeal. Consequently, the order has to be set aside and we do so accordingly.

The learned Government Pleader, appearing for the State of Madras, submitted that the case should be remanded to the Board of Revenue for

fresh disposal after determining whether to the particular transactions in hand the ban under Article 286(1)(a) would apply. But it is submitted by

the learned counsel appearing for the appellant that the transactions themselves took place in 1955 and 1956, that is nearly eight years ago, and

that ordinarily accounts of dealings would not be retained beyond five years. The learned counsel referred to a rule framed under the Madras

General Sales Tax Act. Apart from this claimed put forward by the learned counsel we are impressed by another submission of his, viz., that the

transactions covered by these inter-State sales are very large in number, about 4,000 and odd transactions, and that most of the invoices

themselves are each for a comparatively small value. The finding of the assessing authority in all the cases where exemption had been granted by

him, was that the actual deliveries of goods were made outside the Madras State. The few invoices which are extracted in the assessment order

show that they were for small amounts in regard to Articles like paint, aluminium, tar and other Articles. It is quite likely, as claimed by the

appellant''s learned counsel that in the exempted transactions, the goods besides being delivered to places outside the Madras State were also

intended for consumption in the delivery States. In the above circumstances, it is hardly worthwhile to direct a remand of the case for fresh

investigation and disposal. We are of opinion that no remand is called for.

The appeal is allowed and the order of the Board of Revenue is set aside. There will be no order as to costs.