PETITIONER: ENDUPURI NARASIMHAM AND SON Vs. RESPONDENT: THE STATE OF ORISSA AND OTHERS DATE OF JUDGMENT: 14/03/1961 BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C. CITATION: 1961 AIR 1344 1962 SCR (1) 314 CITATOR INFO : APL 1962 SC 107 (5) R 1963 SC 980 (11,12) RF 1971 SC 477 (7) ACT: Sales Tax-Transactions ultra--State and inter-State--Test-- Constitution of India, Art. 286(2)--Orissa Sales Tax Act, 1947 (XIV of 1947), S. 5(2)(a)(II). HEADNOTE: The petitioner who was a,-registered dealer under the Orissa Sales Tax Act, 1947, was carrying on the business of purchasing and reselling castor seeds, etc., in the State of Orissa. Under a declaration given by him for the purpose of obtaining his registration certificate the goods purchased by him in Orissa were to be resold in that State. He purchased certain commodities inside the State but in contravention of his declaration sold, the goods to dealers outside the State. The Sales Tax Officer included in the taxable turnover of the petitioner the purchase made by him inside the State in accordance with s. 5(2)(a)(II) of the Act. The contention of the petitioner was that the purchase was in course of inter-State trade and was exempted under Art. 286(2) of the Constitution of India. Held, that the transaction of sale which has been taxed was wholly inside the State of Orissa and was distinct and sepa- rate from the sale made by the purchaser to dealers outside the State. The former transaction was taxable under s. 5(2)(a)(II) of the Act while the latter was exempted under Art. 286(2) of the Constitution. Messrs. Mohanlal Hargovind Das v. The State of Madhya Pradesh, [1955] 2 S.C.R. 509, distinguished. In order that a sale or purchase might be inter-State, it is essential that there must be transport of goods from one State 315 to another under the contract of sale or purchase. A purchase made inside a State, for sale outside the State cannot itself be held to be in the course of inter-State trade and the imposition of tax thereon is not repugnant to Art. 286(2) of the Constitution. Bengal Immunity Company Limited v. The State of Bihar, [1955] 2 S.C.R. 603 and State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory, [1954] S.C.R. 53, followed. JUDGMENT:
ORIGINAL JURISDICTION: Petition No. 12 of 1959.
Petition under Art. 32 ‘of the Constitution of India for
enforcement of fundamental rights.
R.Gopalakrishnan, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the petitioners.
C.K. Daphtary, Solicitor-General of India, B. Ganapathy
Iyer and T. M. Sen, for the respondents.
1961. March 14. The Judgment of the Court was delivered by
VENKATARAMA AIYAR, J. -The petitioner is a joint Hindu
family firm carrying on business at Berhampur in the State
of Orissa, and registered as a dealer under the provisions
of the Orissa Sales Tax Act, 1947, hereinafter referred to
as the Act. Its business consists in the purchase of castor
seeds, turmeric, gingili and other commodities locally, and
selling them to demlers outside the State. The Sales Tax
Officer, Berhampur, included in the taxable turnover of the
petitioner the purchase of goods made by it inside the State
but sold, as aforesaid, to dealers outside the State and
imposed a tax of Rs. 27,161-13-0 on account of such sales
during the sixteen quarters commencing from April 1, 1952,
and ending with March 31, 1956. In the present application
filed under Art. 32, the petitioner challenges the validity
of the tax on the ground that the purchases in question were
made in the course of inter-State trade, and that a tax
thereon was in contravention of Art. 286(2)
The impugned tax has be-en levied under s. 5 of the Act,
which, omitting what is not relevant, runs as follows:-
5. (1) The tax payable by a dealer under
this
316
Act shall be levied at the rate of one quarter
of an anna in the rupee on his taxable
turnover:
…………………………..
(2) In, this Act the expression “taxable
turnover” means that part of a dealer’s gross
turnover during any period which remains after
deducting there-from:
(a) his turnover during that period on-
…………………………..
(ii) sales to a registered dealer of goods
specified in the purchasing dealer’s
certificate of registration as being intended
for resale by him in Orissa or for use by him
in the execution of any contract in Orissa,
and on sales to a registered dealer of contai-
ners or other materials for the packing of
such goods:
Provided that when such goods are used by the
registered dealer for purposes other than
those specified in his certificate of
registration the price of goods so utilised
shall be included in his taxable turnover.
It will be seen that under this section when a sale takes
place, the seller has to include it in his taxable turnover;
but when the sale is to a registered dealer who declares
that his purchases are for resale in Orissa, then it is
excluded from the seller’s turn. over. If the registered
dealer-purchaser sells the goods outside the State in breach
of the condition, the purchases by him are liable to be
included in his turnover, and assessed to sales tax. That
precisely is what has happened in this case. The sales to
the petitioner were not included in the taxable turnover of
the sellers by reason of the registration certificate which
the petitioner had obtained on a declaration that the goods
were to be resold in ‘Orissa. But in violation of this
declaration he sold the goods to dealers outside the State,
and so he became liable to be taxed under s. 5(2)(a)(ii) of
the Act.
The contention of the petitioner is that these purchases
were made in the course of inter-State trade, and that the
imposition of sales tax thereon is, in
317
consequence, ultra vires The provision applicable is Art.
286(2), as it stood prior to the sixth amendment, and it ran
as follows:
“Except in so far as, Parliament may by law
otherwise provide, no law of a State shall
impose, or authorise the imposition of, a tax
on the sale or purchase of any goods where
such sale or purchase takes place in the
course of inter-State trade or commerce.”
The argument on behalf of the petitioner is that as the
goods were purchased for the purpose of being sold to
dealers outside the State, and they were in fact so sold,
the purchases were in the course of inter-State trade, and
the levy of tax thereon was within the prohibition enacted
by Art. 286(2). We do not agree with this contention. The
transactions of sales which have been taxed were wholly
inside the State of Orissa. They were sales by persons in
the State of Orissa to persons within the State of Orissa,
of goods which were in Orissa. The fact that the purchaser
sold those very goods to dealers outside the State is not
relevant, as those sales are distinct and separate from the
sales on which the taxes in question have been imposed. The
present levy is not on the sales by the petitioner to
persons outside the State, but on the purchases by him
inside the State. The former sales are in the course of
inter-State trade, and are not taxable under Art. 286(2),
but the latter are purely intrastate sales, and a tax
imposed thereon does not offend Art. 286(2).
In support of his, contention that the purchases are hit by
Art 286(2), the petitioner relies on the, decision of this
Court in Messrs. Mohanlal Hargovind Das V. The State of
Madhya Pradesh (1). In that case, the petitioners who were
registered dealers under the Central Provinces and Berar
Sales Tax Act, 1947, were carrying on business in the
manufacture and sale of bidis in Madhya Pradesh. For the
purpose of their business, they imported processed tobaco
from the State of Bombay in large quantities, rolled them
into bidis and sold them to dealers in other States.
(1) [1955] 2 S.C.R 509.
318
The sales tax authorities imposed a tax on the purchases
made by them, on the ground that they had, in breach of the
declaration in the registration certificate, sold them to
merchants outside Madhya Pradesh. The contention of the
petitioners was that the purchases by them were in the
course of inter-State trade, and that the imposition of tax
thereon was therefore repugnant to Art. 286(2). It was this
contention that was accepted by this Court. It will be
noticed that the in this case the assessment of sales tax
was on very purchases from dealers in Bombay, under which
the goods were transported from the State of Bombay to
Madhya Pradesh. In the present case, the purchases which
are sought to be assessed involved no movement of the goods
outside the State of Orissa. 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 the Bengal Immunity
Company Limited v. The State of Bihar (1) occur the
following observations which are apposite:
“A sale could be said to be in the course of
interState 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 those conditions are satisfied, there can
be no sale in–the course of interstate
trade.”
With reference to the analogous provision under Art.
286(1)(b) prohibiting the imposition of tax on the sale or
purchase of goods in the course of import or export, it has
been field by this Court that it is only a sale or purchase
which occasions the export or import of the goods out of or
into the territory of India or a sale in the State by the
exporter or importer by transfer of shipping documonts,
while the, goods are beyond the customs barrier, that is
within the exemption, and that a sale which precedes such
export or import or follows it is not exempted, vide State
of Travancore. Cochin v. Shannugha Vilas Cashew Nut Factory
(2). On the same principles, a purchase, made inside a
State, for sale outside the State cannot itself be held
(1) [1955] 2 S.C.R. 603. 784-785.
(2) [1954] S.C.R. 53.
319
to be in the course of inter-State trade, and the imposition
of a tax thereon is not repugnant to Art. 286(2) of the
Constitution. In the result this petition is dismissed with
costs.
Petition dismissed.