# HANSRAJ BAGRECHA v. STATE 01<' BIHAR & ORS

- **Citation:** [1971] 2 S.C.R. 412
- **Court:** Supreme Court of India
- **Decided:** 1971
- **Bench:** J. C. Shah, K. S. Hegde, N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hansraj-bagrecha-v-state-01-bihar-ors-5133
- **Pages:** 11

## Headnote

Constitmion of India, A.·rts. 301 & 304-The Bihm· St1les Tax A.ct,
l9S9.as amended by BiharFinance A.ct, 1966, ss. 3A, SA., & 42-The Bihar
Sales Tax Rules, 1959, R.31B-Levy of purchase tax on goods whether
pe1· se restrlct/\•e of freedom of tarade-Pres/demial msent whether rt·
q1rlr~d for levy o~ tax-Stctlons 3A. d SA. of Bll1ar A ct whether lnva,Jld
011 gro11nd of contra~·entlon of .s. 15 of Ctnlral S<ole.1· T11x Act, 1956Rules 3 IB restricts tran.1port of goods p11rs11an1 to tr1111.1·1wtlon.1 In course
.uf inter-State trade-Hence Invalid.
Under s. SA of the Bibar Sales Tax Act J 959 a< umende.d by the
Bihar Finance Act, 1966 the purchase tax on goods declared under
s. 3A was to be levied at the point of purchase made from a person
.other than a registered dealer.
By a notification dated September 14,
i966 the Governor of Bihar declared jute as a commodity
liable
to
purchase tax at the rate specified in the notification. The .ippellant
carried on business in jute. In the course of his business he purchased
raw jute from producers in West Bengal, transported it to Kishenganj
Railway Station in Bihar and then re-exported it to purchasers in West
Bangal. He also bought raw jute in Bihar and exported it to merchants.
and mill-owners in West Bengal by rail from Kishenganj Railway Station.
After the enactment of ss. 3A and 5A the State Government issued a
notification dated December 26, 1961 purporting io
exercise
power
under s. 42 of the Bihar Sales Tax Act, 19591 read with r. 31B of the
Bihar Sales Tax Rules, 1959 notifying that no person shall tender nt
any railway station mentioned in Sch. ll any consignment of goods
mentioned in Sch. I exceeding the quantity specified for transport to
any place inside the State of Bihar and no person shall accept such
tender in accordance with the conditions laid dow:i in the said R; 3 IB.
Under Sch. I jute exceeding 800 kg. could nor be tendered for transport
without a despatch permit and Kishenganj was one of
the
railway
stations mentioned in Sch. II.
In July 1967 the Superintendent of Co.n·
mercial Taxes prohibited the railway authorities from
loading
and
despatching jute goods from any railway station in Purnea district without
the production of a registration certificate. For non-production of such
certificate the railway authorities refused to despatch from Kishenganj
the jute goods booked by the appellant.
The appellant moved :i writ
petition iri the High Court of Patna challengir.g inter alla the validity
of ss. 3A and SA of the Bihar Sales Tax Act and of R.3 !B. The High
Court dismissed the petition. With certificate t,he present appeal was
filed.
In support of the petition it was urged (i) that ss. 3A and SA
infringed the guarantee of freedom of trade under
Art. 301
of
the
Constitution and since the amendment by the Finance Act, 1966 intro·
ducing these sections did not receive the assent of the President under
A'rt. 304(bl the amendment was not saved; (ii) that ss. 3A and SA were
contrarv to
s. 15 of the Central Sales Tax Act, 19S6 and accordingly
void; (iii) that R. 318 framed hv the State Govcr~ment and. the notification issued on December 26. 1967 were unauthomcd and hable to be
struck down.
HELD : (i) The aS>umption that the levy of purchase tax must be
deemed in all circun1stancc.s to violate the guarantee unJi:r Art. 301 and
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HANSRAJ v. B!HAR (Shah, .J.)
413
the levy will be valid oolY. if the Act is enacted by the State U$islature
with Ille previous sanction of the President cannot be accepted a8 correct.
Imposition of tax may in certain circumstances impede free fiow of trade,
commerce and intercourse. But every tax does not have that effect.
[417 G; 419 EJ
State of Madras v. N. K. Nataraja Mudaliar [1968] 3 S.C.R. 829.
Atiabari Tea Co. Ltd. v. State of Assam, (1967] l S.C.R. 809 alld The
Andhra Sugars Ltd. v. State of Andhra Pradesh, 21 S.T.C. 212, applied.
In the present case the petitioner has made no averments in his petition which suppor

## Text

412
HANSRAJ BAGRECHA
v.
STATE 01<' BIHAR & ORS.
September 18, J 970
[J. C. SHAH, K. S. HEGDE AND A, N. GROVER, JJ.J
Constitmion of India, A.·rts. 301 & 304-The Bihm· St1les Tax A.ct,
l9S9.as amended by BiharFinance A.ct, 1966, ss. 3A, SA., & 42-The Bihar
Sales Tax Rules, 1959, R.31B-Levy of purchase tax on goods whether
pe1· se restrlct/\•e of freedom of tarade-Pres/demial msent whether rt·
q1rlr~d for levy o~ tax-Stctlons 3A. d SA. of Bll1ar A ct whether lnva,Jld
011 gro11nd of contra~·entlon of .s. 15 of Ctnlral S<ole.1· T11x Act, 1956Rules 3 IB restricts tran.1port of goods p11rs11an1 to tr1111.1·1wtlon.1 In course
.uf inter-State trade-Hence Invalid.
Under s. SA of the Bibar Sales Tax Act J 959 a< umende.d by the
Bihar Finance Act, 1966 the purchase tax on goods declared under
s. 3A was to be levied at the point of purchase made from a person
.other than a registered dealer.
By a notification dated September 14,
i966 the Governor of Bihar declared jute as a commodity
liable
to
purchase tax at the rate specified in the notification. The .ippellant
carried on business in jute. In the course of his business he purchased
raw jute from producers in West Bengal, transported it to Kishenganj
Railway Station in Bihar and then re-exported it to purchasers in West
Bangal. He also bought raw jute in Bihar and exported it to merchants.
and mill-owners in West Bengal by rail from Kishenganj Railway Station.
After the enactment of ss. 3A and 5A the State Government issued a
notification dated December 26, 1961 purporting io
exercise
power
under s. 42 of the Bihar Sales Tax Act, 19591 read with r. 31B of the
Bihar Sales Tax Rules, 1959 notifying that no person shall tender nt
any railway station mentioned in Sch. ll any consignment of goods
mentioned in Sch. I exceeding the quantity specified for transport to
any place inside the State of Bihar and no person shall accept such
tender in accordance with the conditions laid dow:i in the said R; 3 IB.
Under Sch. I jute exceeding 800 kg. could nor be tendered for transport
without a despatch permit and Kishenganj was one of
the
railway
stations mentioned in Sch. II.
In July 1967 the Superintendent of Co.n·
mercial Taxes prohibited the railway authorities from
loading
and
despatching jute goods from any railway station in Purnea district without
the production of a registration certificate. For non-production of such
certificate the railway authorities refused to despatch from Kishenganj
the jute goods booked by the appellant.
The appellant moved :i writ
petition iri the High Court of Patna challengir.g inter alla the validity
of ss. 3A and SA of the Bihar Sales Tax Act and of R.3 !B. The High
Court dismissed the petition. With certificate t,he present appeal was
filed.
In support of the petition it was urged (i) that ss. 3A and SA
infringed the guarantee of freedom of trade under
Art. 301
of
the
Constitution and since the amendment by the Finance Act, 1966 intro·
ducing these sections did not receive the assent of the President under
A'rt. 304(bl the amendment was not saved; (ii) that ss. 3A and SA were
contrarv to
s. 15 of the Central Sales Tax Act, 19S6 and accordingly
void; (iii) that R. 318 framed hv the State Govcr~ment and. the notification issued on December 26. 1967 were unauthomcd and hable to be
struck down.
HELD : (i) The aS>umption that the levy of purchase tax must be
deemed in all circun1stancc.s to violate the guarantee unJi:r Art. 301 and
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HANSRAJ v. B!HAR (Shah, .J.)
413
the levy will be valid oolY. if the Act is enacted by the State U$islature
with Ille previous sanction of the President cannot be accepted a8 correct.
Imposition of tax may in certain circumstances impede free fiow of trade,
commerce and intercourse. But every tax does not have that effect.
[417 G; 419 EJ
State of Madras v. N. K. Nataraja Mudaliar [1968] 3 S.C.R. 829.
Atiabari Tea Co. Ltd. v. State of Assam, (1967] l S.C.R. 809 alld The
Andhra Sugars Ltd. v. State of Andhra Pradesh, 21 S.T.C. 212, applied.
In the present case the petitioner has made no averments in his petition which supported tho plea that imposition of purchase-tax directly
and lmmcdlatefy mtricta or impedes · the free 11ow of trado. Since
power to Impose purchase tax under 1. 3A wa1 not shuwn to l'i"Strict
or Impede the free 11ow of trade directly ano immediately, it neod not
seok to derive for its validity, support from Art. 304(b). 1.419 OJ
(Ii) By •· IS of the Central Sales Tax Act1 tax liable in respect of
doclared aoods on transactions of sale or purc.naie is restricted to 3 %
and ii not leviable at more than one staae. There was no dispute that
the purchase tax on ju,le was leviable at the ftrst point of purchase under
a. 3A of the Bihar Sales Tax Act, and the rate of tax was not shown
to exceed the maximum prescribed by s. 15 of the Central Sales Tax Act.
The provisions of ss. 3A and SA of the Bihar Sales Tax Act Ill'• not
therefore inconsistent with the provisions of s. 15 of the Central Sales
Tax Act. [420 E]
(ill) Rule 31B of the Bihar Sales Tax Rules must however be struck
down as ultra vires. (420 Fl
The power of the State Legislature is restricted to legislate in respect
of intra-state transactions of sale and purchase and to matters ancillary
or incidental thereto : it has no power to legislate for levy of tax on
sales and purchase in the course of inter-State transactions.
The power
conferred by s. 42 authorising the imposition of restriction or transport
or movement of goods may ooly be exercised in respect of transactions
which facilitate levy, collection and recovery of tax on transactions of
intra-State sale or purchase.
w.ben r. 3 IB prohibits transport of gQ(>d~
to any place outside the State of Ribar unless a certificate is optained
from the appropriate authority, it seeks to prohibit transport of goods
put'!'uant to transactions wihich may not even be of the nature of sale
or purchase transactim1s; in any case it restricts transport pursuant to
transactions in the course of inte-State trade and commerce. The operation of the rule is not restricted only to transactions in the course of
intra-s!ate trade and commerce. The role authorises
restiictions
on
inter.state transactions and is on that account unaulborise4. ·For the
same, reasons the notification issued on December 26, 1967 must be
regarded as also unauthorised. [421 E-G]
CML APPELLATE JURISDICTION : Civil Appeal No. 1'985 of
1969.
Appeal from the judgment and order !Jated. Janullry 4, 1969
of the Patna High Court in Civil Writ Jurisdiction case No. 520
of 1967.
M. C. Chag/a, D. P. Singh and V. J. Francis, for the appellqnt.
L. M. Singhvl and U. P. Singh, for respondents Nos. 1 to 4.
414
SUPREME COURT REPORTS
[1971] 2 ~.R.
The Judgment of the Court was delivered by
SHAH, J.
This appeal is filed with certificate granted by the
High Court of Patna urider Art. 133( 1) (a) of the Constitution.
The appellant Hansraj Bagrecha carries on business in jute.
In the course of his business the appellant buys raw jute from producers in West Bengal, transports it to Kishanganj Railway
Station (which is within the State of Bihar) and then re-exports it
to purchasers in West Bengal. He also buys raw jute in Bihar
and exports it to the merchants or mill owners in West Bengal
by rail from Kishanganj Railway Station.
The Bihar Sales Tax Act, 1959, as originally enacted did not
,provide for levy of purchase tax.
By the Bihar F'inance Act,
· 1966, with effect from April l, 1967, among others the following
· sections were incorporated in the Bihar Sales Tax Act, 1959 :
S. 3 A "'The State Government may from time to
time, by notification declare any goods to be liable to
purchase tax on turnover. of purchase :
Provided that general sales tax and special sales ta.X
shall not be payable on the sale of goods or class of
goods declared under. this section."
S. SA· "The purchase tax on goods declared under
section 3A shall be levied at the point of purchase made
from a person other than a registered ,dealer."
.By a notification dated September 14, 1966 the Governor ofBihar
declared 'jute' as a commodity liable to purchase tax at the rate
specified in the notification.
Section 42 of the Bihar Sales Tax Act by the first sub-section
provided:
"No person shall transport from any railway station,
steamer station, air-port, post office or any other placi:,
·whether of similar nature. or otherwise, notified in this
behalf by the State Govt., any consig1m1ent of such
goods, exceeding such quantity, as may be specified in
the notification, except in accordance with such conditions as may be prescribed and such conditions shall
be made with a view to ensuring that there is no evasion
of tax payable under this Act."
Section 46 of the Act invested the State Government with power
to-make rules for all matters expressly required or allowed by the
Act to be prescn"bed and generally for carrying out the purposes
of the Act and regulating the procedure to be followed, forms to
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HANSRAJ v. B!HAR (Shah, J.)
415
be adopted and fees to be paid m connection with proceedings
under the Act and all other matters ancillary or incidental thereto.
In exercise of the powers conferred under s. 46( l) •the State
of Bihar promulgated under Rules 31 B and 8C, Rule 31B,
which provided :
·
" ( 1) No person shall tender at any railway station,
steamer station, air-port, post-office or any other place,
whether of similar nature or otherwise, notified under
section 42, any consignment of such goods exceeding
such quantity, as may be specified in the notification,
for transport to any place outside the State of Bihar,
unless such person has obtained a despatch permit in
Form XXVIII-D from the appropriate authority referred to in the ExplanBlion to rule 31 and no person shall
accept such tender unless the said permit is surrendered
to him."
Rule 30 ( 1) provided :
"The first purchase of goods declared under section 14 of the Central Sales Tax Act, 1956, shall be
leviable to tax in terms of sections 3, 3A and SA of the
Act and no subsequent safos or purchases in respect
of the said goods shall be liable to any tax under the
Act."
!j:
After the enactment of ss. 3A and SA the State Government
issued a notification dated December 26, 1967 purporting to
exercise power under s. 42 of the Bihar Sales Tax Act, 1959 read
with r. 31B of the Bihar Sales Tax Rules, 1959, notifying that
no person shall tender at any railway station mentioned in Sch. II,
and consignment of goods mentioned' in Sch. I, exceeding the
r
quantity specified for transport to any place outside the State of
Bihar and no person shall accept such tender in accordance with
the conditions prescribed in r. 3 lB of the Bihar Sales Tax Rules,
1959.
Under Sch. I 'Jute' exceeding 800 Kg. could not be
tendered for transport without "a despatch permit", and Kisha11ganj was one of the Railway Stations mentioned in Sch. Il.
In July 1967 the Superintendent of Commercial Taxes addresG
sed a letter prohibiting the railway authorities from loading jute
goods and despatching them from any railway station within the
Pumea District of Bihar, except on production of a "registratioa
certificate". By his Jetter dated July 10, 1967 the Station Master
Kishanganj called upon the Secretary, Jute Merchants Association,
Kishanganj, to produce a .certificate as required in the letter Gf the
H
Superintendent of Commercial Taxes, before "loading jute goods
for despatch was commenced" and informed them thaf in default
wagons allotted to the jute merchants shall be
cancelled and
I S-L308SupCint
416
SUPREME COURT REPORTS
[1971] 2 s.c.t.
registration fees , forfeited and that "demurrage" will be charged.
The appellant's request that jute booked by him be despatched
from Kishanganj was turned down by the railway authorities, because the registration certificate issued by the Superintendent of
Commercial Taxes, Purnea for the movement of jute from the
place was not produced.
The appellant then moved a petition before the High Coun of
Patna on August 29, 1967 challenging the villidity of ss. 3A, SA,
42 and 46 and r. 31B of the :Bihar Sales Tax Rules, 19S9. The
High Court of Patna dismissed the petition.
With
certificate
granted by the High Coun this appeal has been preferred by the
appellant.
In support of the appeal counsel for the appellant raised three
contentions :
(I) that ss. 3A & SA as incorporated 4th Finance .Act
of 1966 infringed the guarantee of freedom of
trade under Art. 301 of the Constitution and since
the amendment made by the Finance Act, 1966
did not receive the assent of the President under
Art. 304 (b) the amendment was not saved;
(2) that ss. 3A & SA and r. SC "wc(e contrary to"
s. IS of the Central Sales Tax Act, 19S6 and were
void on that account; and
(3) that r. 31B framed by the State Government and
the notification issued. on December 26, 1967 were
unauthorised and liable to be struck down.
Article 301 of the Constitution guarantees freedom of trade,
commerce and intercourse throughout the territory of India. By
Art. 302 the Parliament is authorised by law to impose such
restrictions on the freedom of trade, commerce o~ intercourse
between one State and another or within any part of the territory
of India as may be required in the public interest. Art. 303 ( 1)
imposes restrictions upon the power which the Parliament or the
Legislature of a State may exercise to make any law giving, or
authorising the giving of, any preference to one State over another,
or making or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to
trade and commerce in any of the Lists in the Seventh Schedule.
But that clause does not operate to restrict the power of the
Parliament to make any law giving, or authorise the giving of,
any preference or making or authorising the making of, any
discrimination, if it is declared by such law that it is necessary
to do so for the purpose of dealing with a situation arising from
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HANSRAJ "I'. BIHAB. (Shah, /.)
417
scarcity of goods in any part of the territory of India; Art. 303
(2). Art. 304 provides in so far as it is relevant :
"Notwithstanding anything in article 301 or article
303, the Legislature of a State may by law-
(a)
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or
within that State as may be required in the public interest :
Provided that no Bill or amendment for the purpose of clause (b) shall be introduced or moved in the
Legislature of a State without the previous sanction of
the President."
Art. 304 is in terms a restriction on the freedom guaranteed by
Art. 301. Notwithstanding the amplitude of the freedom of trade,
commerce and intercourse throughout the territory of India, the
Legislature of a State may by law impose among others such
reasonable restrictions on the freedom of trade, commerce or
intercourse with or within that State as may be required in the
public interest. But that authority to impose reasonable restrictions on the freedom of trade, may only be exercised
by the
Legislature of a State if the Bill or amendment for the purpose of
cl. (b) is introduced or moved in the Legislature of a State with
the previous sanction of the President.
It was contended that since s. 3A providing for the levy of
purchase tax imposes a restriction on the freedom of trade, commerce and intercourse and on that account violates the freedom of
trade guaranteed by Art. 30 l, it may be saved only if it is legislation of the nature comtemplated by Art. 304 (b) and the Bill which
was enacted into the Act received the previous assent of the
President.
The assumption that the levy of purchase tax must
be deemed in all circumstances to violate the guarantee under
Art. 301, and the levy will be valid only if the Act is enacted by
the State Legislature with the previous sanction of the President,
cannot be accepted as correct. This Court in The State of Madras v. N. K. Natara;a Mudallor(')-examined the validity of laws
which impose taxes on sale in the light of Art. 301. It was
observed at p. 839 :
"This Article (Art. 301) is couched in terms of
the widest amplitude; trade, commerce and intercourse are thereby declared
free
and
unhampered
throughout the territory of India. The freedom of trade
(I) [1968) 3 S. C. R. 829.
418
SUPREME COURT REPORTS
[1971] 2 S.C.R. .
so declared is against the imposition of barriers or
"
obstructions within the State as well as inter-State : all
restrictions which dir1=Ctly and immediately affect the
movement of trade are declared by Art. 301 to be ineffective.
The extent to which Art. 30 I operates to
make trade and commerce free has been considered
by this Court in several cases. In Atiabari Tea Co. Ltd.
B
v. The State of Assam and others(') Gajendragadkar,
J., speaking for himself and Wanchpo and Das Gupta
JJ, observed at p. 860 :
" ...... we think it would be reasonable and proper
to hold that restrictions, freedom from which is guaranteed by Art. 30 I, would be such restrictions as directly
and imma:!iately restrict or impede the free flow or move-·
ment of trade.''.
"In Automobile Transport (Rajasthan) Ltd v. The
State of Rajasthan and others ( 2 ) the view expressed
by Gajendragadkar, J., in Atiabari Tea Co's case was
. accepted by the majority. Subba Rao, J., who agreed
With the majority observed that the freedom declared
under Art. 301 of the Constitution of India referred to
the right of free movement of trade without any obstruc0 tions by way of barriers, inter-State or intra-State, or
other impediments operating as 'such barriers. The same
view was expressed in Firm A.T.B. Mehtab
Majid
and Company v. State of Madras and Another(•) by a
unanimous Court. It must be taken as settled Jaw that
lhe restrictions Or impediments which directly and imma:liately impede or hamper the free flow of trade,
commerce and . intercourse fall within the prohibitlon
· imposed by Art. 301 and subject to the other provisions
of the Constitution they may be regarded as void;
.
But it is said that by imposing tax on sale&, .. no restriction
hampering trade is imposed. In the Atiab<lrl Tea Company's
case, Gajendragadkar, J., observed :
"Taxes may and do amount to restrictions; but it ·is
only such taxes as directly and imma:!iately · restrict
trade that would fall within the purview of, Art., 301.
The argument that all taxes should be governed by Art.
301 whether or not their impact on trade is ·immediate
or mediate, direct or remote, adopts, in our. opinion, an
extreme approach which cannot be-upheld."
In a recent judgment of this Court in The Andhra Sugars Ltd.
'11uJ Another v. The State '!f Andhra Pradesh and . othert(')
(I) [' 961] I S.C.R. ll09.
(2) [1963} S•Jpp. 2 S. C. Jl. 435.
(3)[1963] I S.C.R; 491.
(4) 21 S.T.C. 212
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HANSRAJ v. B!HAR (Shah, /.)
419
Bachawat, J., speaking for the Court after r:ferri!1g to the
observations made by Gajendragadkar, J., m Atiabari Tea Company's case(') observed :
"This interpretation of Article 301 was not dissented
from in Automobile Transport ( Rajasthan) Ltd. v.
State. of Raj<Mtluin( 2 ). Normally, a tax on sale ot
goods does not directly impede the free movement or
transport of goods.
Section 21
is no exception. It
does not impede the free movement or transport of
goods and is not violative of Article 301."
Section 21 of the Andhra Pradesh Sugar Cane (Regulation of
Supply and Purchase) Act which was referred to in tile judgment
authorised tile State Government to levy a tax at such rate,
"not exceeding five rupees per metric tonne as may
be prescribed on tile purchase of cane required for use,
consumption or sale in a factory. It must, therefore, be
regarded as settled law that a tax may in certain cases
directly and immediately restrict or hamper the flow of
trade, but every imposition of tax does not do so."
Imposition of tax of the nature of purchase tax does not by
itself restrict freedom of trade, commerce or intercourse. Imposition of tax may in certain circumstances impede free flow of
trade, commerce or intercourse.
But every tax does not have
that effect.
Imposition of a purchase-tax by the State does not
by itself infringe tile guarantee of freedom under Art. 301
The argument tllat imposition of· sales or purchase tax must
be regarded in all cases as infringing the guarantee of freedom
under Art. 301 cannot be accepted as correct.
The appellant filed tile petition out of which their appeal
arises soon after the Station Master informed the Jute Merchants
Association about his inability to book consignments of jute. He
h~s made no averments in the petition which support the J!lea
that imposition of purchase-tax "directly and immediately restricts or impedes" tile free flow of trade. Since power to impose
purchase tax under s. 3A on notified goods is-not shown to restrict
or impede the free flow of trade directly and immediately, it need
not seek to derive, for its validity, support from Art. 304(b).
The contention tllat ss. 3A & SA are inconsistent with s. 15
of the Central Sales Tax Act, 1956 is without substance. By s. 14
of the Central Sales Tax Act, 1956 certain classes of goods are
declared goods of special importance in inter-State trade or
c<>mmerce. Jute is one of such classes of goods. By s. 15 as
(ll [1961] IS. C.R. 809.
(2) [1%3] IS. C.R. 491.
420
SUPREME COURT REPORTS
[1971} 2 S.C.R.
amended by the Central Sales Tax Second Amendment Act XXXI
of 19 5 8 it is provided :
"Every sales tax law of a State shall, in so far as it
imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the
following restrictions and conditions, namely :--
(a) the tax payable under that Jaw in respect of any
sale of purchase of such goods inside the state
shall r.ot exceed three per c:nt of the sale or
purchase price therQef, ancl such tax shall not
be levied at more than one stage;
( b) where a tax has been levied under that law in
respect of the sale or purchase inside the state
of any declared goods and such goods are sold
in the course of inter-state trade or commerce,
the tax so levied shall be refunded to such person
in such manner and subject to such conditions as
may be provided in any law in force in that
State."
By s. 15 of the .Central Sales Tax Act in respect of the declared
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goods on transactions of sale or purchase the tax leviable is restrictl
ed to 3% and is not Jeviable at more than one stage. There is no
dispute that the purchase tax on jute is leviable at the first point
of purchase under s. 3 A of the Bihar Sales Tax Act, and the rate
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of tax also is not shown to exceed· the maximum prescribed by
s. 15 of the Central Sales Tax Act. The provisions of ss. 3A &
SA of the Bihar Sales Tax Act are not therefore inconsistent with
the provisions of s. 15 of the Central Sales Tax Act.
But, in our judgment, r. 31B of the Bihar Sales Tax Rules,
1959 and the notification issued on December 26, 1967 are unauthorised and must be struck down. The Bihar Sales Tax Att
is enacted by the Legislature to consolidate and amend the law
relating to the levy of tax on the sale and "purchase of goods in
Bihar.
The State Legislature is competent in enacting sales-tax
legislation to make a provision which is ancillary or incidental to
any provision relating to levy, collection and recovery of sales-tax
and purchase-tax.
A provision which is,made by the Act or
by the Rules which seeks to prevent evasion of liability to pay
tax on intra-State sales or purchase would therefore be within the
competence of the Legislature or the authority competent to mah>
the rules. But the State Legislature has rio power to legislate
for the levy of tax on transactions which are carried on in the
coune of inter-State trade or commerce or in the course of export.
Section 42 of the Bihar Sales Tax Act, 1959, prevent~ any person. from transporting from any railway station, steamer station,
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HANSRAJ v. BIHAR (Shah, /.)
421
air-port, post office or an¥ other place any consignment of such
goods exceeding the quantity specified with a view to ensuring that
there is no evasion of tax payable under the Act. But the power
under s. 42 can only be exercised in respect of levy, collection
and recovery of intra-State or purchase tax. It cannot be utilised
for the purpose of ensuring the effective levy of Inter-State sales
or purchase tax.
The appellant purchased jute both within and without the
State of Bihar. In respect of transactions of purchase within the
State of Bihar and despatch of goods liability to pay purchase-tax
at the point of purchase may arise. In respect of goods which
are purchased in the State of West Bengal and brought within the
State of Bihar and then despatched to other States in the course
of inter-State transactions no question of levy of purchase-tax
under the Bihar Sales Tax Act arises. R. 3 IB framed by the State
Government seeks to prohibit transport in pursuance of transactions which are inter State, for in terms it prohibits transporting
of goods to any place outside the State of Bihdr. Again transport of goods for personal consumption o~ use, or of goods gifted,
pledged or dealt with otherwise than by sale, falls within the in~
junction contained in r. 3 lB.
The power of the State Legislature is restricted to legislate in
respect of intra-State transactions of sale and purchase and to
matters ancillary or incidental thereto : it has no power to legislate for levy of tax on sales and purchase in the course of interstate transactions. The power conferred by s. 42 authorising the
imposition of restriction on transport or movement of goods may
only be exercised in respect of transactions which facilitate levy,
collection and recovery of tax on transactions of intra-State sale
or purchase. When r. 3 lB prohibits transport of goods to any
place outside the State of Bihar unless a certificate is obtained
from the appropriate authority, it seeks to prohibit transport of
goods pursuant to transactions which may not even be of the
nature of sale or purchase transactions; in illlY case it restricts
transport pursuant to transactions in the course of inter-State
trade and commerce. The operation of the rule is not restricted
only to transactions in the course of intra-State trade and commerce.
The rule authorises restrictions on inter-State transactions and is on that account unauthorised. For the same reasons
the notification issued on December 26, 1967 must l>e regarded
as also unauthorised.
In the view we have taken r. 31 B and the notification issued
by the State Government on December 26, 1967 must be declared ultra vires, and since r. 3 lB and the notification are ultra vires
the communication issued by the Superintendent of Commercial
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SUPREME COURT REPORTS
[1971] 2 S.C.R.
Taxes to the Railway Authorities must also be declared unauthorised.
A writ will therefore issue dechiring r. 3 !B and the notification issued by the Government of Bihar on December 26,
i 967 ultra i-ires, and the letter written by the Superintendent of
Commercial Taxes to the Railwav Authorities is also declared
unauthorised.
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Having regard to the circumstances, we think there should be
no order as to costs.
G.C.
B