# SDPREME COURT REPORTS (1963) STATE TRADING CORPORATI0:-1 OF INDIA LTD v. STATE OF MYSORE

- **Citation:** [1963] 3 S.C.R. 792
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** S. K. Das, J. L. Kapur, A. Ic 8.Arkar, M. II:cDAY.ATULLAH, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sdpreme-court-reports-1963-state-trading-corporati0-1-of-india-ltd-v-state-of-2674
- **Pages:** 8

## Headnote

Sales Tax-Supply matie to purchasers within the State
}rom factories outside the State-If inter-State aale-Oentral
Sales Tax Act, 1956(74 of 1956), s.3-0onstitution of Intiia,
aa amentkti by the Oonslitution (Sixth Amendment) Act, 195~
Arta.286(2;, 269(1)(g), Entrg 92A of List I, 19(1)(/), 31.
Clause (I} of Art. 269 of the Constitution as amended by
the Constitution (Sixth Amendment) Act, 1956, which came
into force
on September II, 1956, provided that "The
following. • . . . taxes shall be levied and collected by the
Government of India ...•.. (g} taxes on the sale ...... of
goods other than newspapers, where such sale .... takes
place in the course of inter-State trade ...... "
Clause ( 3)
of that article provided that "Parliament may by law formulate principles for determining whon a .•ale ...... takes place
in the course of inter-State trade .... "
Bys. 3 of the Central
Sales Tax Act, passed by Parliament on December 21, 1956,
it was provided that "A sale ..•... shall be deemed to take
plare in the course of inter-State trade ...... if the sale ..... .
(a} occasions the movement of goods from one State to
another."
In 1957-58 the C. Company made various sales of cement
which were supplied from factories outside the State of Mysore
to purchasers within that State. The State of Mysore levied
tax on these sales under two Sales Tax Acts passed by the
Mysore legislature. The C. Company applied under Art.32
of the Constitution to quash the assessment orders on the
ground that Mysore State had no power to tax the sales as
they had taken place in the course of inter-State trade.
Held, that a sale occasions the movement of goods from
one State to another within s.3(a} of the Central Sales Tax
Act when the movement is the result of a covenant or incident
of the contract of sale.
Tata Iron and Stm Co. Ltd. v. S. R. Sarkar, [1961],
l S.C.R •. 379, followed,
3S.C.R.
SUPREME COURT REPORTS
793
~- ,
As the sales were made under permits issued by the
Government a11d on the terms contained in them, and as the
permits provided that the supply had to be made from
factories outside State of Mysore the contracts of sale must
be deemed to have contained a covenant that the goods would
be supplied in Mysore from a place situate outside its borders.
The Sales were, therefore, inter-State sales within s.3( a) of
the Central Sales Tax Act which a State could not tax in view
» , of Art. 2-69 of the Constitution.
>•
-The taxing officer had no jurisdiction t'l tax inter-State
~ales in view of the Constitutional prohibition and he could
not give himself jurisdiction to do so by deciding a collateral
fact wrongly. The petitions are, therefore, not incompetent
under the principle laid down in Ujjam Bai,'s case.
Ujjam Bai v. The State of Uttar Pradesh [1963]1S.C.R.778
held inapplicable.
ORIGIN.AL Ju&ISDIOTION: Petitions Nos. 65
and 66 of 1960.
(Under Article 32 of the Constitution of India
for enforcement of Fundamental Rights.)
R. J. Kolah, J. B. Dadachanji, 0. 0. Mathur
and Ravinder Narain for the Petitioners.
0. K. Daphtary, Solicitor General of India,
R. Gopalakrishnan and P. D. Memon
for the
respondents.
1962. August 28. The Judgement of the court
was delivered by
SaRK.AR, J.-These are two
petitions under
Art. 32 of the Constitution asking for writs to quash
certain assessment orders impossing sales tax and far
c?n11eqential reliefs preventing the levy and 001lect10n of that tax. The petitioners allege that the
assessment orders are wholly void and therefore
1r' affect their fundamental rights under Art. 19 (I) (f)
and Art. 31.
Slate Trading
Co-porali°" of
lnd•a L.1d.
v.
S101, of M;fio•e
1961
Slal1 Trud1ng
Co1po1 otion of
India Ltd.
v.
State of Mysore
Sar~ar J,
794
SUPREME COURT REPORTS [1963)
There are two petitioners in eaoh oasA, the first
.. ,,.\
being the State Trading Corporation of India Ltd.
and the second, the {foment Marketing Company of
India Ltd. There are also two respondents in each
petition, the first of whom is the State of Mysore
whi

## Text

1962
792
SDPREME COURT REPORTS (1963)
STATE TRADING CORPORATI0:-1
OF INDIA LTD.
v.
STATE OF MYSORE
( S. K. Das, J. L. KAPUR, A. IC 8.ARKAR, M.
II:cDAY.ATULLAH and RAGHUBAR DAYAL, JJ.)
Sales Tax-Supply matie to purchasers within the State
}rom factories outside the State-If inter-State aale-Oentral
Sales Tax Act, 1956(74 of 1956), s.3-0onstitution of Intiia,
aa amentkti by the Oonslitution (Sixth Amendment) Act, 195~
Arta.286(2;, 269(1)(g), Entrg 92A of List I, 19(1)(/), 31.
Clause (I} of Art. 269 of the Constitution as amended by
the Constitution (Sixth Amendment) Act, 1956, which came
into force
on September II, 1956, provided that "The
following. • . . . taxes shall be levied and collected by the
Government of India ...•.. (g} taxes on the sale ...... of
goods other than newspapers, where such sale .... takes
place in the course of inter-State trade ...... "
Clause ( 3)
of that article provided that "Parliament may by law formulate principles for determining whon a .•ale ...... takes place
in the course of inter-State trade .... "
Bys. 3 of the Central
Sales Tax Act, passed by Parliament on December 21, 1956,
it was provided that "A sale ..•... shall be deemed to take
plare in the course of inter-State trade ...... if the sale ..... .
(a} occasions the movement of goods from one State to
another."
In 1957-58 the C. Company made various sales of cement
which were supplied from factories outside the State of Mysore
to purchasers within that State. The State of Mysore levied
tax on these sales under two Sales Tax Acts passed by the
Mysore legislature. The C. Company applied under Art.32
of the Constitution to quash the assessment orders on the
ground that Mysore State had no power to tax the sales as
they had taken place in the course of inter-State trade.
Held, that a sale occasions the movement of goods from
one State to another within s.3(a} of the Central Sales Tax
Act when the movement is the result of a covenant or incident
of the contract of sale.
Tata Iron and Stm Co. Ltd. v. S. R. Sarkar, [1961],
l S.C.R •. 379, followed,
3S.C.R.
SUPREME COURT REPORTS
793
~- ,
As the sales were made under permits issued by the
Government a11d on the terms contained in them, and as the
permits provided that the supply had to be made from
factories outside State of Mysore the contracts of sale must
be deemed to have contained a covenant that the goods would
be supplied in Mysore from a place situate outside its borders.
The Sales were, therefore, inter-State sales within s.3( a) of
the Central Sales Tax Act which a State could not tax in view
» , of Art. 2-69 of the Constitution.
>•
-The taxing officer had no jurisdiction t'l tax inter-State
~ales in view of the Constitutional prohibition and he could
not give himself jurisdiction to do so by deciding a collateral
fact wrongly. The petitions are, therefore, not incompetent
under the principle laid down in Ujjam Bai,'s case.
Ujjam Bai v. The State of Uttar Pradesh [1963]1S.C.R.778
held inapplicable.
ORIGIN.AL Ju&ISDIOTION: Petitions Nos. 65
and 66 of 1960.
(Under Article 32 of the Constitution of India
for enforcement of Fundamental Rights.)
R. J. Kolah, J. B. Dadachanji, 0. 0. Mathur
and Ravinder Narain for the Petitioners.
0. K. Daphtary, Solicitor General of India,
R. Gopalakrishnan and P. D. Memon
for the
respondents.
1962. August 28. The Judgement of the court
was delivered by
SaRK.AR, J.-These are two
petitions under
Art. 32 of the Constitution asking for writs to quash
certain assessment orders impossing sales tax and far
c?n11eqential reliefs preventing the levy and 001lect10n of that tax. The petitioners allege that the
assessment orders are wholly void and therefore
1r' affect their fundamental rights under Art. 19 (I) (f)
and Art. 31.
Slate Trading
Co-porali°" of
lnd•a L.1d.
v.
S101, of M;fio•e
1961
Slal1 Trud1ng
Co1po1 otion of
India Ltd.
v.
State of Mysore
Sar~ar J,
794
SUPREME COURT REPORTS [1963)
There are two petitioners in eaoh oasA, the first
.. ,,.\
being the State Trading Corporation of India Ltd.
and the second, the {foment Marketing Company of
India Ltd. There are also two respondents in each
petition, the first of whom is the State of Mysore
which
through one of its officers, the second
respondent, passed the assessment orders imposing
the tax.
·'"
The impughed assessment orders were made on
the Marketing Company in reapect of certain sales
of cement made by it in the year 1957-58. The
petitioners say that the Marketing Company made
those sales as agent of the Trading Corporation.
Whether this is correct or not is not strictly relevant
in this case for the Marketing Company does not
deny its liability to be taxed as the agent of the
Corporation. The only dispute is whether the sales
in which the goods were moved from outaide the
State of Mysore into it were liable to be hxed. The
petitioners contend that they were not so liable as
they were sales made in the ~ourse of inter.State
trade, which no law of a State legislature could tax.
Though the assessment year was one, namely,
1957-58, there were two assessment orders. That was
because in that year there were in force in Mysm:e
two Sales Tax Acts, namely, the Mysore Sales Tax
Act, 1948, and the Mysere Sales Tax Act, 1957, the
latter of which repealed the earlier with effeot from
October 1, 1957. The disputed sales which took place .•
between April 1, 1957, and September 30, 1957,. were
taxed under the 1948 Act and thoHe that took place
between October 1, 1957, and Maroh 31, 1958, under
the 1957 Act. Both the assessment orders are challenged by the petitioners.
The tax was levied under State laws. Now Art.
286(2) of the Constitution as originally framed la.id
down that except in so far as Parliament by law
>·
3 S.C.R.
SUPREME COURT REPORTS
795
•
otherwise provided, a State could not pass a law
taxing an inter-State sale or purchase. This provision
was deleted by the Constitution (Sixth Amendment)
Act, 1956, which came into force on September 11,
1956. The Constitution (Sixth Amendmant) Act also
amended Art. 269, the relevant portion of which
after such amendment reads as follows :
Art. 269 (l)-"The
following
duties
and taxes
shall be levied and collected by the
Government of India .............. .
(<?) taxes on the sale or purchase of goods
other than mewspapers, where such sale
or purchase takes place in the course of
inter-State trade or commerce ........ .
(3) Parliament may by law formulate principles for determining when a sale or
purchase of. goods takes place in the
course of inter-State trade or commerce.
The Constitution Amendment Act had also
amended the Seventh Schedule by adding item 92A
to List I and thereby giving the Union the power
to tax sales or purchases of goods other than
newspapers made in the course
of inter-St.ate
trade or commerce and by substituting for old
item 54 in List II a new item whichgave the State the
power to tax all sales or purohases of goods other
than newspapers, subject to entry 92A of Listi. Since
this amendment of the Constitution therefore the
States can not tax an inter-State sale or purchese.
On December ~l, 1962. Parliament passed the
Central Sales Tax Act, s.3 of which defined ·an
inter-State sale. This section came into force on
January 5, 1957. The taxing provisi1ms of this Act
however came into force much later but with them
we a.re not concerned in these cases.
19112
Slale Tradi nt
Corporal,.n of
India Ltd.
v.
Sl,1te of Myso••
Sarkar J,
! ,1968
Stat1 rrading
Oorpo,.ahon of
India Ltd.
••
Staid of M1Jo .. c
Saf'kar J.
796
SUPREME COURT REPORTS (1963]
•
The whole of the assessment year 1957-58
was afters. 3 of the Central Sales Tax Act, 1956
had come into force.
During that year, therefore,
the State could not tax a sale which was an interState sale ag defined in s. 3 of the Central Sales 'fax
Act. That sect.ion defined an inter-State sale. in
two ways one of which is in these terms: " A sale
or purchase of goods shall be deemed to take place
in the course of iuter -State trade or commerce if
the sale or purchase-(al occasions the movement of
goods from one state to another." The petitioners
contend that the disputed sales were of this variety
and the respondent, therefore, could not tax them.
The question then is, did the sales occasion
the movement of cement from
another
State
• ·
into . Mysore
within
the meaning
of
the
definition?
In Tata Iron & Steel Co. Ltd. v.
S.R. Sarkar(1) it was held that a sale occasions the
movement of goods from one State to another
within s. 3 (a) of the Central Sales Tax Act, when
the movement is the result of a covenant or incident of the contract of sale". That the cement
concerned in the disputed sales was actually moved
from another State into Mysore is not denied. The
respondents only contend that the movement waa
not the result of a covenant in or an incident of the
contract of sale.
The result of this appeal will therllfore turn
on whether the movement of cement from another
• ·
State into Mysore was the result of a covenant in
the contract of sale or an incident of such contract.
This question will depend on the contract and in
ordel' properly to appreciate the contract the
procedure of the sales, a1 to which there is no dispute, has to be referred to. Now, at the relevant
time cement could be
purchased only under a
(I) ,L!S6IJ I S.C.R. 379, 391.
j
..
3 S.C.R.
SUPREME COURT REPORTS
797
permit issued by the Government and on the terms
contained in it. This, it seems, was the result of
certain statutory provisions.
All the sales with
which we are concerned were under such permits.
Unfortunately the petitioners did not disclose in
their petitions any specimen copy of a permit. As
however the existence of the permits was not in
dispute and had been mentioned in the petitions,
the petitioners were allowed at the hearing to produce a specimen copy of a permit wJiich was
accepted by the respondents as a correct specimen .
.. It appears from the specimen produced that a
cement factory which was required to supply the
cement covered by the permit was named in it. We
. are concerned with sales in which the permits required supplies to be made from factories outside Mysore.
These permits were issued to the purchasers and
the supplier named in them was the Marketing
Company. On receipt of the permit the purchaser
placed an order with the Marketing Company and
later a firm contract with it was made.
In making the orders of assessment, the Taxing Officer observed that the firm contracts did not
provide for any supplies being made from any
particular factory and the supplies had actually
been made from factories outside the State of
Mysore only to suit the convenience of the supplier,
the Marketing Company, and not because of any
covenant in the contracts. It is true that the
written contracts did not themselves contain any
covena.nt that the supply had to be made from any
particular factory but it seems to us that the agreement between the parties was not fully set out in
them. In any case each contract was subject to
the terms of the permit to which it expressly referred. As it is not in dispute that the sale could only
be under a permit and on the terms contained in
it, a contract has to be read as subject to it. Sin(}e
.
*
~ •
1961
Seal• Trading
Corporation of
India Ltd.
v.
Stale of My1ore
Sarkar r.
1962
S1a•1 Trading
Co,poration of
India Ltd.
v.
Stata of M,1ore
--
Sarka,r J.
798
SUPREME COURT REPORTS (1963]
the permits with which we are concerned provided
that the supply had to be made from one or
other factory-situate outside Mysore, the contracts
must be deemed to have contained a cove~iant that
the goods would be supplied in Mysore from a
place situate outside it
borders.
A sale under
1mch a contract would clearly be an inter-State
sale as defined in s. 3( a) of the Central Sales Tax
Act. In view of the provisions of the Constitution
and the Central Sales Tax Act earlier referred to
a State oould not impose a tax on such a sale.
Therefore it seems to us that the petition should
euooeed.
It was however said that the petitions were
incompetent in view of our deci11ion in Smt. Ujjam
Bai v. State of Uttar Pradesh (1) in as much as the
Taxing Officers under the Mysore Acts had jurisdiction to decide whether a particular sale was an
inter-State sale or not and any error committed by
them as quasi-judicial tribunals in exercise of such
jurisdiction did not offend any fundamental right.
But we think that that case is clearly distinguishable. Das, J., there stated that "if a quasi-judicial
authority acts without
jurisdiction or wrongly
assumes jurisdiction by committing an error as to
a collateral fact B.nd the resultant action threatens
or violates a fundamental right, the question of
enforcement of that right arises and a petition
under Art. 32 will lie." He also said that where a
statute is intra-vires but the action taken is without jurisdiction, then a petition under Art. 32 would
be competent.
That
is the case here. There is
no dispute that the Taxing Officer had no jurisdiction to tax inter-State sales, there being a constitutional prohibition against a State taxing them.
He could not give himself jurisdiction to do so by
ti
deciding a collateral fact wrongly. That is what
he seems to have done here. Therefore we think
(I) (1963) I S.C.R. na.
>·
·-v
3 S.C.R.
SUPREME COURT REPORTS
799
the decision in Ujjam Bai's case (1), is not applicable to the present case and the petitions are
fully competent.
The result is that the petitions are allowed
and we direct that appropriate writs be il'sued
quashing the orders of assesment mentioned in the
petitions and restraining the respondents from
levying or collecting the tax in respect of sales
mentir>ned in the petitions in which the goods
moved from outside into Mysore. There will .be
no order for costs as the petitioners had omited to
disclose to permits and had not in the petitions
stated their case as clearly as it could have been
done. As they had been granted some indulgence
we think it right to deprive them of the costs of
these petition,
Petition8 al"lowed.
(I) 1965) I S.C.R. 778.
1961'
Stat• Tr1ding
Co1 poi alion of
lttdia Ltd.
••
State of Myaor1
Sarkar J.