# MESSRS MOHANLAL HARGOVIND DAS, BIDI MERCHANTS, JABALPUR (M.P.) v. THE STATE OF MADHYA PRADESH & ANOTHER

- **Citation:** [1955] 2 S.C.R. 509
- **Court:** Supreme Court of India
- **Decided:** 1954-09-11
- **Bench:** S. R. Das, ACTING c. J, Bhagwati, }Agannadhadas, }Aff..R Imam, Chandrasekhara A1Yar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/messrs-mohanlal-hargovind-das-bidi-merchants-jabalpur-m-p-v-the-state-of-madhya-1506
- **Pages:** 9

## Headnote

509
Constitution
of India-Art. 286(2)-Central
Provinces and
Berar Sa!es
Ta:r Act, 1947 (XX/ of 1947), sA(6)-PetitionersBidi merchants of Madhya Pradesh-Importing tobacco from the State
of Bombay-Whether mch transactions. of sales of goods-Affected by
the ban under Art. 286(2) of the Constitution-Petitioners registered
111 "dealers" under Central Provinces and Berar Sales Ta:r Act, 1947
and dealers in Bombay selling or supplying tobacco to the petitioners
also registered as "dealers" under Central Provinces and Berar Sales
Ta:r Act, 1947-Whether makes the transactions as intra-State transactions between two registered dealers in the State of Madhya Pradesh.
The petitioners arc carrying on business on a very ·large scale of
·making and selling bidis having their head office in Jabalpur in the
State of Madhya Pradesh and arc registered as "dealer" for the purposes of the Central Provinces and Berar Sales Tax Act, 1947. In the
course of their said business, the petitioners import tobacco from the
State of Bombay in very large quantities after it is blended in that
State by the veridors with various other types of indigenous tobacco
by an elaborate process.
This finished tobacco, after
its import within
the State of
Madhya Pradesh is rolled into bidis which arc exported to various
other States, largely to the State of Uttar
Pradesh.
The dealers in
the State of Uttar Pradesh and sur.h other States who buy bidis
from the petitioners sell the same to various other dealers and 'onsumers in those States.
The Sales Tax authorities in the State of Madhya Prndesh required the petitioners under threat of criminal prosecution to file a
statement of return of the total purchases of tobacco made by them
out of Madhya Pradesh and delivered to them in Madhya Pradesh
with a view to assess and levy pur~hase tax on the transa.:tions of
purchases made by the petitioners as stated above.
Held, that the
State of Madhya
Pradesh
had no authority
to impose or to
authorise the imposition of such a tax and that the action of the
State authorities contravened the provisions of Art. 286(2) of the
Constitution inasmuch as the transactions in question were in the
course
of inter-State trade or commerce :is the finished tobacco
which was supplied to the petitioners moved from the State of
Bombay to the State of Madhya Pradesh.
1955
M11w1 Molw&lal
Horgorind Da1,
Bidi M1rdonls,
Jab<l/Jfll (M.P.)
v.
TNSl.Uof
Ma4Ji1• """'"°
"""·-·
510
SUPREME COURT REPORTS
[1955]
The contention that not only the petitioners were the
register~.
ed dealers under Ruic 8 of the Central Provinces and Berar Sales
Tax Rules, 1947 but the dealers in
Bombay who sell or supply
tobacco to them were registered as "dealers" for the purpose of the
Central Provinces and Bcrar Sales Tax Act, 1947 and therefore the
transactions were between two registered dealers in the
St.ate of
Madhya Pradesh and thus constituted purely internal sales of the
goods was without force because what one has to look at is the real
narurc of the transactions and not the outside form and as the tn.nt~
actions in dispute invo}vcd movement of the goods across the border
they were clearly tran~ctions of sales of goods in the course of intu·
State trade or commerce and were hit by the ban under ArL 286(2)
of the Constitution.
OatGINAL
Juuso1cnoN :
Petition
No.
67
of.
1955.
Under Article 32 of the Constitution of India for
the enforcement of Fundamental Rights.
M. C. Setalvad, Attorney-Genoral of India, C. K.
Daphtary, Solicitor-General of India,
G.
S.
Pathak_,
(!. B. Dadachanji, A. P. Sen, Rameshtuar Nath .and
Rajinder Narain,
with them), for the petitioners.
T. L. Shevde, Advocate-General of Madhya Pradesh
(M. Adhikari and /. N. Shroff, with him), for the
State of Madhya Pradesh.
1955.
September,
20.
The

## Text

2 S.C.R.
SUPREME COURT REPORTS
MESSRS MOHANLAL HARGOVIND DAS,
BID! MERCHANTS, JABALPUR (M.P.)
v.
THE STATE OF MADHYA PRADESH &
ANOTHER.
[S. R. DAS, ACTING c. J., BHAGWATI, }AGANNADHADAS, }AFF..R IMAM and CHANDRASEKHARA A1YAR JJ.]
509
Constitution
of India-Art. 286(2)-Central
Provinces and
Berar Sa!es
Ta:r Act, 1947 (XX/ of 1947), sA(6)-PetitionersBidi merchants of Madhya Pradesh-Importing tobacco from the State
of Bombay-Whether mch transactions. of sales of goods-Affected by
the ban under Art. 286(2) of the Constitution-Petitioners registered
111 "dealers" under Central Provinces and Berar Sales Ta:r Act, 1947
and dealers in Bombay selling or supplying tobacco to the petitioners
also registered as "dealers" under Central Provinces and Berar Sales
Ta:r Act, 1947-Whether makes the transactions as intra-State transactions between two registered dealers in the State of Madhya Pradesh.
The petitioners arc carrying on business on a very ·large scale of
·making and selling bidis having their head office in Jabalpur in the
State of Madhya Pradesh and arc registered as "dealer" for the purposes of the Central Provinces and Berar Sales Tax Act, 1947. In the
course of their said business, the petitioners import tobacco from the
State of Bombay in very large quantities after it is blended in that
State by the veridors with various other types of indigenous tobacco
by an elaborate process.
This finished tobacco, after
its import within
the State of
Madhya Pradesh is rolled into bidis which arc exported to various
other States, largely to the State of Uttar
Pradesh.
The dealers in
the State of Uttar Pradesh and sur.h other States who buy bidis
from the petitioners sell the same to various other dealers and 'onsumers in those States.
The Sales Tax authorities in the State of Madhya Prndesh required the petitioners under threat of criminal prosecution to file a
statement of return of the total purchases of tobacco made by them
out of Madhya Pradesh and delivered to them in Madhya Pradesh
with a view to assess and levy pur~hase tax on the transa.:tions of
purchases made by the petitioners as stated above.
Held, that the
State of Madhya
Pradesh
had no authority
to impose or to
authorise the imposition of such a tax and that the action of the
State authorities contravened the provisions of Art. 286(2) of the
Constitution inasmuch as the transactions in question were in the
course
of inter-State trade or commerce :is the finished tobacco
which was supplied to the petitioners moved from the State of
Bombay to the State of Madhya Pradesh.
1955
M11w1 Molw&lal
Horgorind Da1,
Bidi M1rdonls,
Jab<l/Jfll (M.P.)
v.
TNSl.Uof
Ma4Ji1• """'"°
"""·-·
510
SUPREME COURT REPORTS
[1955]
The contention that not only the petitioners were the
register~.
ed dealers under Ruic 8 of the Central Provinces and Berar Sales
Tax Rules, 1947 but the dealers in
Bombay who sell or supply
tobacco to them were registered as "dealers" for the purpose of the
Central Provinces and Bcrar Sales Tax Act, 1947 and therefore the
transactions were between two registered dealers in the
St.ate of
Madhya Pradesh and thus constituted purely internal sales of the
goods was without force because what one has to look at is the real
narurc of the transactions and not the outside form and as the tn.nt~
actions in dispute invo}vcd movement of the goods across the border
they were clearly tran~ctions of sales of goods in the course of intu·
State trade or commerce and were hit by the ban under ArL 286(2)
of the Constitution.
OatGINAL
Juuso1cnoN :
Petition
No.
67
of.
1955.
Under Article 32 of the Constitution of India for
the enforcement of Fundamental Rights.
M. C. Setalvad, Attorney-Genoral of India, C. K.
Daphtary, Solicitor-General of India,
G.
S.
Pathak_,
(!. B. Dadachanji, A. P. Sen, Rameshtuar Nath .and
Rajinder Narain,
with them), for the petitioners.
T. L. Shevde, Advocate-General of Madhya Pradesh
(M. Adhikari and /. N. Shroff, with him), for the
State of Madhya Pradesh.
1955.
September,
20.
The
Judgment
of the
Court was ddi vered by
BHAGWATI
J.-The pet1t1oners
are a firm carrying
on business on a very large scale of making and selling bidis having their head office in Jabalpur in the
State of
Madhya
Pradesh.
They are registered as
"dealer" for the purpose of the Central Provinces and
Berar Sales Tax Act, 1947.
In
the course of their said busines, the petitioners
import tobacco from the
State of Bombay in very
large quantities after it is blended in that State by
the vendors
with various
other
types of indigenous
tobacco
by
an elaborate
process.
This
finished
tobacco, after its imnort within the State
of
Madhya
Pradesh
is rolled
into hidis
which are exported to
various other States,
largely
to the State of Uttar
Pr.1rlesh.
The rk:ikrs in the Statr: of Uttar Pradesh
' -.:.
-• 1
~
2 S.C.R.
SUPREME COURT REPORTS
511
and such other States who buy bidis from the petitioners sell the same to various other dealers and consumers in those States.
The Sales Tax authorities in the State of Madhya
Pradesh
required
the
petitioners under threat
of
criminal prosecution to file a statement of return of
the total
purchases of tobacco made by them out of
Madhya Pradesh and delivered
to them in Madhya
Pradesh with a view to assess and levy purchase tu
on the transactions of purchases made by the petitioners as above.
The petitioners filed under protest
two returns dated the 11th September 1954 and 3rd
December 1954 for the periods 3rd May 1954 to 29th
July
1954 and 30th July
1954 to 26th October 1954
respectively but without prejudice to their right to
challenge the validity of the assessment and levy of
the said tax on the aforesaid transactions.
The Sales
Tax authorities further called
upon the petitioners to
deposit
the
alleged purchase tax which amounts to
thou5ands of rupees in every quarter of the year.
The petitioners thereupon filed this petition under
article 32 of the Constitution for a writ of mandamus
or any appropriate direction or order seeking to
restrain the State of Madhya Pradesh and the Commissioner of Sales Tax, Madhya Pradesh, from enforcing
the
said Act and its provisions against the petitioners
and for consequential reliefs.
·
The petitioners averred that the imposition of tax
on sale or purchase of tobacco rolled into bidis exported out of Madhya Pradesh in the manner described was in contravention of article 286(1) (a) of the
Constitution, that the tobacco purchased by them for
the purpose of making bidis exported outside
Madhya
Pradesh was never intended for
use as raw material
for the making of bidis for
the purpose of consumption in Madhya Pradesh and section 4, sub-section (6)
of the Act had no application to the tobacco so used
and there was no liability
to pay the alleged tax and
that to the best of the petitioners' information tobacco
had not been notified hy the State Government in the
Gazette for the puq1o<:c of section 12( A) of the Act
1955
hl1ur1 Mohan/al
H1W.fni1UI Das,
lliJi Mntllanb,
,....(M.P.)
..
Th181.t1of
~
l'wld1JJ
•...nn.
.......,.,.
1955
M1ssrs Moftanlal
Hargooind Das,
Bi!fi Merci.ants,
Jab•lpur {M.P.J
v.
The Stat• of
Madlr!a Prad4sh
and anotha
512
SUPREME COURT REPORTS
[1955]
and that the Sales Tax authorities, under the Act.
were, therefore, not entitled to levy any tax on the
petitioners.
The petitioners also submitted that the
transactions in question had taken place in the course
of
inter-State
commerce, that the State
of Madhya
Pradesh had no authority to impose or to authorise
the imposition
of such a tax and that the action of
the State authorities contravened the
provisions of
article 286(2) of the Constitution.
The Respondents filed a return denying the contentions of the petitioners and submitted
that the petitioners by purchasing tobacco which was entered in
their registration certificate
as raw material for the
manufacture of bidis for sale by actual delivery in
Madhya Pradesh for consumption in that State made
themselves liable
to pay the tax by exporting bidis
to other States and thus utilising it for a different
purpose under section 4(6) of the Act.
They admitted
that the petitioners imported tobacco from the State
of Bombay in large quantities but stated that the
tobacco, after its arrival in the petitioners' bidi factories, was cleaned, sieved and
blended·
A few more facts relevant for the decision of this
petition may be stated in this context.
Not only the
petitioners but also the dealers in Bombay who sell
or supply tobacco to the petitioners are registered as
"dealers" for the purpose of the Central Provinces
and Berar Sales Tax Act, 1947.
The petitioners are
the holders of a certificate of registration, No. LDG
53 obtained by them under Rule 8 of the Central
Provinces and
Berar
Sales Tax Rules, 1947. When
making purchases of the tobacco in question they also
made declarations in the form required by Rule 26(II)
declaring that they had purchased the said goods
from
Shri Shah Chhaganlal Ugarchand Nipani, a
dealer
holding registration certificate No.
Blv!Y /93MP and from Shri
Maniklal Chunanlal Baroda, a
dealer holding registration
certificate No. BMY/341MP on different
dates therein mentioned for use
as raw material in the manufacture of goods for sale
by actual delivery in Madhya Pradesh for the purpose
.of consumption in that State.
In the return which
r
2S.C.R.
SUPREME COURT REPORTS
513
was filed
by the petitioners for the quarter beginning
from 3rd May
1954 and ending with 29th July 1954,
the petitioners mentioned
Rs.
16,47,567-3-3 as
the
purchase price
of goods
purchased on declaration as
being goods specified in the registration certificate :is
inten<led for use as raw material
in the manufacture
of
goods
for sale
by
actual delivery in Madhya
Pradesh for the purpose of consumption in that State
but utilisc<l for any other purpose.
In the return
which was filed
by them for the quarter beginning
from 27th July
1954 and ending with 26th October
1954,
they
di<l not fill in any
figure but showed the
ahove
item as blank contending that the Sales Tax
authorities were not entitled to levy any
purchase
tax against them in respect of the same.
The
learned
Attorney-General
appearing for
the
pet1t10ners
before
us
contended ( 1) that the transactiom in question were in the course of inter-State
commerce
and
were,
therefore,
within the ban
of
article 286(2) and the State of Madhya Pradesh had no
authority to impose or to authorise imposition of tax
on these transactions, (2) that
in any event the goods
were delivered for consumption in the State of Ut'.:ar
Pradesh and
were
not liable to a levy of tax at the
instance of
the State of Madhya Pradesh,
(3) that,
section 4(6)
of
the Act was invalid inasmuch as it
offended against the provisions of article 286(1)
(a),
and lastly ( 4) that even if the above contentions were
negatived, section 4(6) of the Act had, on its true
constructioil,
no application to
the facts
of the present
case.
He, however, urged that if the Court was
with
him
0'.1 his first contention, viz., that the transactions in question took place in the course of interState commerce it was not necessary
to go into the
other contentions.
We are of the opinion that this contention of the
learned Attorney-General
i~;
sound.
It was
in fa::t
admitted by the RespoPdents
in their return that the
petitioners imported
tobacco from
the State of
Bombay in large quantities.
The Bombay suppliers processed tobacco
in
their go<lowns situated within the
·State
of
Bombay and supplied the finished tobacco
1955
Mes,rs Moha1Jlal
Hargovind Das,
Bidi Merchant.r,
Jabalpur (M. 1-'.)
v.
The StaU of
Madhya Pradtsh
and anolM1.
Bhagwati J.
1955
Mmn Mohatrlal
HMtouitul Da.i,
Bidi Mmlumll,
Jaolp (M.P.)
v.
Tlw8"'*•/
M~Proi<d
""'.,,.,,,.,,
·~.,.,.,, ].
514
SUPREME COURT REPORTS
[1955]
to the petitioners in Madhya
Pradesh.
The petitioners imported this finished tobacco into Madhya
Pradesh from these suppliers who were carrying on
business
in
the State of Bombay and there was of
necessity, as a result of these transactions, the mOTement of the goods across the border.
As a result of
the transactions
entered into by the petitioners with
these suppliers the finished tobacco which was supplied to the petitioners moved from the State of Bombay to the State of Madhya Pradesh and these traru>
actions were, therefore, in the course of inter-State
trade or commerc(.
The only answer which was made by the learned
Advocate-General of Madhya Pradesh was that Shri
Shah Chhaganlal Ugarchand Nipani and Shri Maniklal
Chunanlal B:!toda were themselves
dealers holding
registration certificates Nos. BMY /93/MP and BMY /
341-MP being registered as such under the provisions
of the Central Provinces and Berar Sales
Tax Act,
1947, and that, therefore, the transactions were between two registered dealers in the State of Madhya
Pradesh
and therefore
constituted purely
internal
sales of the goods.
If they were thus internal sales
there was no question of their being transactions in
the course of inter-State trade or commerce and therefore they were not
subject
to the ban imposed under
article 286(2).
This answer
suffers from over-simplification. No
doubt, the dealers who supplied the finished tobacc0o
to the petitioners were
registered
dealers under the
Central Provinces and Berar Sales Tax Act, 1947, but
that fact by itself would not be sufficient to invest
the transactions which otherwise were
in the course
of inter-State trade or commerce with the character
of intra-State · transactions or internal sales or purchases.
What one has got to look at is the real namre
of the transactions and not the outside form. A person who carries on business of selling or supplying
goods
in Madhya Pradesh and who comes within the
definition of "dealers" given in section 2(c) of the Act
has,
under
pain of penalty visited upon him uncler
section 24 of the Act, to register himself as a dealer
2S.C.R.
SUPREME COURT REPORTS
515
and possess a registration certificate under section 8(1)
of the Act.
Merely because he got himself registered
as such to avoid the penalty which would otherwise
be visited
upon him by the State it cannot be stated
that whatever transactions he entered into with other
dealers in the State of Madhya Pradesh were all intraState transactions or internal
sales or purchases irres.-
pcctive
of the fact that the transactions involved
movement of the good51, across the border and were
clearly transactions of sale of goods in the course of
inter-State
trade
or commerce,
We were taken by the
learned Attorney-General through the several provi•
sions of the Act and we arc confirmed in our opinion
that these transactions sought to be taxed by the
Sales
Tax authorities of the State of Madhya Pradesh
were transactions in the course of inter-State trade
or commerce.
The activities of selling or supplying
goods in Madhya Pradesh if carried on habitually
would amount to a carrying on of the business of selling or supplying goods in the State of Madhya Pradesh and even an outside
merchant
who indulged in
such activities may in such event
be said to be carrying on business in Madhya Pradesh and would come
within the definition of "dealer" given in section 2(c)
of the Act.
When we come, however, to section 8
which deals with the registration of dealers, that section requires that a dealer
while being liable to pay
tax under the Act shall not carry on business as a
dealer unless he has been registered as such and possesses a registration certificate.
The liability to pay
tax under the Act is thus postulated and unless and
until
a person
is liable to pay such tax he need not
get himself registered
as a dealer.
All the transactions entered into by a registered dealer, however, do
not necessarily import a liability to pay tax under
the Act because,
whenever the question arises
in
regard to his liabilty to pay any tax under the Act,
such liability would have to be determined in spite of
his being a registered dealer with reference,
inter alia,
to the provisions of section 27-A of the Act which incorporates within its terms the bans w!iich have been
imposed on the powers of the
State Legislatures to
1955
Mnm Malumllll
HMgaoirttl Do1,
Bidi M1rcba1111,
Ju•llW (M. r:r
...
TlllSto~of
"'"""'• Proifl1f!
--""'·
.,..,iJ.
1955
Mes!rl Mohan/al
Hartovind Das,
Ridi Merchants,
Jabalpur (M. P.)
v.
Th~ State of
Madhya Pro.rfesh
and another
Bhagawati j.
516
SUPREME COURT REPORTS
[1955]
tax under article 286 (1) (a) and (2) of the Constitution.
If, therefore, a dealer who has got
him~elf
registered as dealer under the provisions of section 8 ( 1)
of the Act is sought to be made liable in respect of
transactions of sale effected
by
him he could claim
exemption from such liability if the transactions of
sale or purchase took place in the course of inter-State
trade or commerce after the 31st March,
1951, except
in so far as Parliament may by law otherwise provide.
In the case
before us there was no such provision
made by Parliament
and
the transactions in question
were all after the 31st March, 1951,
with
the
result
that
the ban imposed by article 286(2) was in operation and if the transactions took place in the course
of inter-State trade or commerce not only were Shri
Chhaganlal
U garchand Nipani
and
Shri Maniklal
Chunanlal
Baroda exempt
from the liability to pay
the tax on these transactions
but the petitioners also
were similarly
exempt.
No liability, therefore, could
be imposed either for Sales Tax or for Purchase Tax
within the terms
of
the Act on
these
transactions
which as above stated took place in the course of interState trade or commerce.
It was, however, urged that the petitioners had
made
declarations at the time of making
the purchases
of
this
finished
tobacco that they had
purchased the said goods for use as raw material.s in the
manufacture of goods
for sale
for actual delivery in
Madhya Pradesh for the purpose of consumption in
that State and that by virtue of the provisions of section 4(6) of the Act they were liable to pay the purchase tax on the purchase
price of goods which had
been utilised for any other purpose. Whatever
steps
rhe State of Madhya Pradesh may be able to take in
regard to nbn-compliance with the terms of the declarations by the petitioners we are clearly of opinion
that the State of Madhva Pradesh · is restrained from
imposing
any tax on the transactions
of purchasr: or
sale which take
place in the course of inter-St2te
trade or commerce and no question of liability of the
petitioners by
virtue of
such
declarations
survives
·because even
initially Shri
Shah Chhaganlal
Ugar-
2 S.C.R.
SUPREME COURT REPORTS
517
chand Nipani
and Shri Maniklal
Chunanlal
Baroda
were not liable to pay any tax
on these transactions
nor could
any such liability for tax be transferred to
the petitioners
by virtue
of such
declarations.
If,
therefore, there was no basis for any such liability,
the declarations
by themselves
cannot
create any
new liability and
the petitioners cannot be held liable
to tax even
by the operation of section 4(6) of the
Act,
the very basis of the liability sought to be imposed
therein having disappeared.
The result, therefore, is that the Respondents will be
restrained from enforcing
the Central Provinces and
Berar Sales Tax Act, 1947, and its provmons against
the petitioners and from imposing a tax in respect of
the transactions
in question and
in particular from
imposing a tax on the purchase price of goods purchased on the declarations under Rule 26 being goods
specified
in the registration certificate as intended for
use as raw
material in the manufacture of goods for
sale by actual
delivery
in Madhya Pradesh
for the
purpose of consumption in that State but utilised for
any other purpose under
the provisions of section
4(6) of the Act.
The Re~ondents will pay the petitioners' costs of this petition.
THE TROPICAL INSURANCE CO LTD.
& OTHERS
v.
THE UNION OF INDIA & ANOTHER
(and connected petition.)
[S. R. DAS, ACTING C.J., BHAGWATI, VENKA1'ARAMA AYYAR, JAFER IMAM and CHANDRASEKHARA AYYAR JJ.)
Insurance-Insurer
doing life insurance business along with
general insurance business-Power of Central Government to appoint
Administrator-Such power, if confined exclusively to life insurance
business-Grounds not taken in petition under Art 32, if can be
urged at the hearing-Insurance Act (IV of 1938), s. 52-A-Constitution of India, Art 32.
1955
Mmrs Mohdll/al
J/argovind Das,
Bidi Merthanls,
Jabalpur (M. P.)
v.
Tht Stale of
Madhya Pradesh
and anothtr
Bhagawati J.
1955
Sep11m/Jel 22