BENGAL CORPORATION PRIVATE LIMITED Vs. STATE OF MADRAS

JUDGEMENT

(1.) MESSRS Bengal Corporation Private Ltd., Netaji Subhas Road, Calcutta, a private limited company dealing in iron and steel goods is the petitioner in this revision petition relating to the assessment year 1957-1958.

(2.) THE brief facts are : Tenders for the supply of M.S. Sheets were called for by the Government of India, and the tender of the petitioner-company was accepted and a contract was entered into on 14th May, 1957, between the Government of India, Iron and Steel Controller, Calcutta, and the petitioner-company. In pursuance of this contract the steel material was imported by the petitioner from London and delivered over to the Deputy Controller of Stores, I.C.F., Madras. THE turnover in dispute is Rs. 34, 51, 010-98. THE contention of the department is that the assessee imported the goods from London, cleared the from the customs frontier at Madras and then sold the same at Madras to the Deputy Controller of Stores, I.C.F., and therefore it was a local sale, and that the import effected by the petitioner was only for the purpose of enabling itself to perform its contract, namely, for the sale and delivery of the iron and steel within the State of Madras. On the other hand, the contention of the assessee is that this was a case of a sale in the course of import within the meaning of section 5(2) of the Central Sales Tax Act, 1956 inasmuch as the import of the goods in question was solely occasioned by the contract, that the contract itself involved the movement of the goods from the manufacturers in London to the purchaser (the I.C.F.), and that if the nature of the transaction, its incidents and the specific object underlying the same are taken into account it would be clear that the movement of the goods was as a direct result of a covenant in and as an essential incident of the contract of sale. It was also contended on behalf of the assessee, that the goods were not situate in Madras when the contract for sale was entered into and that the appropriation of the goods took place only in London at the time of the shipment and therefore under section 4(2)(b) of the Central Sales Tax Act it was clearly a sale outside the State of Madras, and that the levy of sales tax is illegal in view of the embargo in Article 286(1)(a) of the Constitution. It is necessary to set out the entire contract which runs as follows :

(3.) THE power of the State of levy sales tax was made subject to the limitations contained in Article 286 of the Constitution. THEre was sharp divergence of judicial opinion about (1) the tests to be applied for determining when a sale was an outside sale outside the State or a local sale and (2) the tests to be applied for determining when a sale takes place in the course of inter-State trade or commerce and when a sale took place in the course of import or export. THE majority judgment of the Supreme Court in the Bengal Immunity Co. case decided that the purpose of the Explanation to Article 286(1) was only to explain what an outside sale referred to in sub-clause (a) of Article 286(1) was, that the Explanation did not confer or enlarge the legislative powers of the State, and that the Explanation cannot be legitimately extended to clause (2) either as an exception or as a proviso, with the result that whenever a sale took place in the course of inter-State trade or commerce within the meaning of Article 286(2) the State Legislature will have no power to levy sales tax. As the test of delivery for consumption dealt with in the Explanation to Article 286(1) was based upon a legal fiction for fixing the situs of a sale the problem still remained as to the situs of the sale when the Explanation did not cover a particular sale (conveniently called as non-explanation sales). Difficulties arose on account of overlapping of jurisdiction of the several States and multiple taxation. In the interests of national economy of India and in the interests of inter-State trade and commerce it became necessary for the Parliament to enact law regarding the levy of sales tax on inter-State sales. THEre was again sharp divergence of judicial opinion as to the tests applicable for determining when a sale could be said to have taken place in the course of import or export as well as in the course of inter-State trade and commerce. Article 286(1)(b) did not contain a statutory definition of an inter-State sale or a sale in the course of import or export, and the problem in each case had to be solved by the application of the tests laid down in the decisions of the Supreme Court in the First Travancore case and the Second Travancore case It was naturally realised that Article 286, as it then stood, which contained provisions merely delimiting the jurisdiction of the States to levy sales tax, did not serve the real purpose, and that, in the interests of uniformity and in view of the great importance of the export and import trade and inter-State trade and commerce there was real necessity for legislation, defining a local sale as distinguished from an outside sale, as well as a sale in the course of import and export and a sale in the course of inter-State trade and commerce. Important amendments were introduced by the Constitution Sixth Amendment of 1956. Entry No. 92-A was added in List I by which tax on sale or purchase in the course of inter-State trade or commerce was made an exclusive Union subject and Entry No. 54 of List II (State List) providing for levy of tax by the States on the sale or purchase of goods was made expressly subject to the provisions of Entry No. 92-A of List I. A new provision, Article 286(2), was enacted to the effect that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned hereunder : (a) when a sale is a local sale or an outside sale, and (b) when a sale takes place in the course of import or export. Article 286(3) is another new provision introduced containing restrictions to be observed by the States in the matter of levy of sales tax on the sale or purchase of goods declared by Parliament to be of special importance in inter-State trade or commerce. Corresponding amendments were also carried out in Article 269 of the Constitution. All these amendments took effect from 11th September, 1956.In pursuance of the Constitution Sixth Amendment the Parliament enacted the Central Sales Tax Act, 1956. Section 3 of the Act formulates the principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce and section 5 for determining when a sale or purchase takes place in the course or import or export. Section 4 deals with one of the important aspects of the Central legislation, containing the definition of the locale or the situs of the sale. Sale or purchases specifying the conditions of section 4(2)(a) and (b) alone are regarded as local sales or purchases empowering the States to levy sales tax thereon and all other sales or purchases are regarded as outside the States. THE test of delivery of the goods for the purpose of consumption or the test of passing of property was given up and it ceased to be of significance. THEy run as follows : 'section 3 : A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another.