# TATA IRON AND STEEL CO., LIMITED, BOMBAY v. S. R. SARKAR AND OTHERS

- **Citation:** [1961] 1 S.C.R. 379
- **Court:** Supreme Court of India
- **Decided:** 1959-08-12
- **Bench:** B. P. Sinha, Jafer Imam, A. K. Sarkar, K. c. DAS GUPTA, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-iron-and-steel-co-limited-bombay-v-s-r-sarkar-and-others-2171
- **Pages:** 38

## Headnote

Sales Tax-Inter-State sales-Sale effected by transfer of
documents of title to goods during their movement from one State to
another-Appropriate State to tax such sale-Place where sale
effected-Central Sales Tax Act, I956 (74 of I956), ss. 2(a), 3, 4Constitution of India, Art. 286.
The petitioner, a limited company carrying on the business
of manufacturing and selling fron and steel goods, with its
factory at Jamshedpur in Bihar and its head Sales Office in
Calcutta in west Bengal, was served with a notice on August 12,
1959, by the Commercial Tax Officer of West Bengal directing it
to submit a statement of sales from Jamshedpur for the period
of assessment July l, 1957, to March 31, 1958, "the documents
relating to which were transferred in West Bengal or of any other
sales that may have taken place in West Bengal under s. 3(b) of
the Central Sales Tax Act, 1956."
For the same period, i.e.,
July 1, 1957 to March 31, 1958, of assessment the petitioner had
on December 15, 1958, filed with the Sales Tax Officer, Jamshedpur, a return of inter-State sales made from Jamshedpur, in
which were included all sales in which movement of the goods
had taken place from the State of Bihar to destinations outside
the State, and had paid advance tax nnder the Central Sales Tax
Act, 1956. The petitioner contended before the Taxing Officer
of West Bengal, inter alia, that in so far as its inter-State sales
from Jamshedpur were concerned the situs of snch sales, as
determined nnder s. 4(2) of the Act, would always be in the State
of Bihar as the goods were in Bihar and that the State of West
Bengal could not tax a sale where goods were under the contract
of sale moved from Bihar to Bengal even though the documents
of title to the goods sold were transferred in Bengal, such sales
being taxable only by the State of Bihar. The Taxing Officer,
however, taxed all the sales effected by the company under
s. 3(b) on the view that the sales in which the documents of title
were handed over in Calcutta were taxable in the State of West
Bengal because (1) all the sales effected in favour of West Bengal
parties satisfied the conditions prescribed by s. 3(b), and (2) the
place where the documents were delivered by the company to
the purchaser was the place where the sale was effected.
Held, (per Sinha, C. J.,- Imam and Shah, JJ., Sarkar and
Das Gupta, JJ., dissenting): (1) that within cl. (b) of s. 3 of the
49
August ag.
1960
'fttftt Iron ls.
Strei Cn., l.td.
v.
'
380
SUPRK\IE COURT REPORTS
[1961]
Central Sales Tax Act, 1956, are included sales in which property
in the goods pa.ssPs during the rnovernent of the goods from one
State to another by transfer of documents of title thereto clause
(a) of s. 3 covers sales, other than those included in cl. (h). in
which the movement of goods from one State to another is the
result of a covenant or inci<hnt of the contract of sale, and property in !:le goods passes in either State.
(2) that sub-s. (2) of s. 4 of the Act defines what sales or
purchases shall be deemed to take place inside a State and,
thereby, locates the place wl1ere a sale is effected. The terms of
the sub-scctiori-heing quite general provide also for cases where
sales are effected in the course of inter-State trade or commerce
under s. 3 of the Act.
·
Cll that the Taxing authorities in West Bengal had to ascertain, before they could order payment of tax under the Central
Sales Tax Act, whether on t1e materials they were satisfied (a)
that the goods at the time of transfer of documents of title were
in movement from the State of Bihar to the State of West
Bengal, and (b) that the pJa.:e where the sale was effected was,
under s,4, cl. (2). withi1i the State of West Ilengal.
Per Sarkar and Das Gupta. Jj.--A sale contemplated by
s. 3(b) ul the Central Sales Tax Act, 1956, is one where the transfer of property in the goods sold takes place hy the transfer of
documents of title to them during their movement from one
State to another and is effected withi

## Text

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•
1 S.C.R. SUPREME COURT REPORTS
379
TATA IRON AND STEEL CO., LIMITED,
BOMBAY
v.
S. R. SARKAR AND OTHERS.
(B. P. SINHA, c. J., JAFER IMAM, A. K. SARKAR,
K. c. DAS GUPTA AND J. c. SHAH, JJ.)
Sales Tax-Inter-State sales-Sale effected by transfer of
documents of title to goods during their movement from one State to
another-Appropriate State to tax such sale-Place where sale
effected-Central Sales Tax Act, I956 (74 of I956), ss. 2(a), 3, 4Constitution of India, Art. 286.
The petitioner, a limited company carrying on the business
of manufacturing and selling fron and steel goods, with its
factory at Jamshedpur in Bihar and its head Sales Office in
Calcutta in west Bengal, was served with a notice on August 12,
1959, by the Commercial Tax Officer of West Bengal directing it
to submit a statement of sales from Jamshedpur for the period
of assessment July l, 1957, to March 31, 1958, "the documents
relating to which were transferred in West Bengal or of any other
sales that may have taken place in West Bengal under s. 3(b) of
the Central Sales Tax Act, 1956."
For the same period, i.e.,
July 1, 1957 to March 31, 1958, of assessment the petitioner had
on December 15, 1958, filed with the Sales Tax Officer, Jamshedpur, a return of inter-State sales made from Jamshedpur, in
which were included all sales in which movement of the goods
had taken place from the State of Bihar to destinations outside
the State, and had paid advance tax nnder the Central Sales Tax
Act, 1956. The petitioner contended before the Taxing Officer
of West Bengal, inter alia, that in so far as its inter-State sales
from Jamshedpur were concerned the situs of snch sales, as
determined nnder s. 4(2) of the Act, would always be in the State
of Bihar as the goods were in Bihar and that the State of West
Bengal could not tax a sale where goods were under the contract
of sale moved from Bihar to Bengal even though the documents
of title to the goods sold were transferred in Bengal, such sales
being taxable only by the State of Bihar. The Taxing Officer,
however, taxed all the sales effected by the company under
s. 3(b) on the view that the sales in which the documents of title
were handed over in Calcutta were taxable in the State of West
Bengal because (1) all the sales effected in favour of West Bengal
parties satisfied the conditions prescribed by s. 3(b), and (2) the
place where the documents were delivered by the company to
the purchaser was the place where the sale was effected.
Held, (per Sinha, C. J.,- Imam and Shah, JJ., Sarkar and
Das Gupta, JJ., dissenting): (1) that within cl. (b) of s. 3 of the
49
August ag.
1960
'fttftt Iron ls.
Strei Cn., l.td.
v.
'
380
SUPRK\IE COURT REPORTS
[1961]
Central Sales Tax Act, 1956, are included sales in which property
in the goods pa.ssPs during the rnovernent of the goods from one
State to another by transfer of documents of title thereto clause
(a) of s. 3 covers sales, other than those included in cl. (h). in
which the movement of goods from one State to another is the
result of a covenant or inci<hnt of the contract of sale, and property in !:le goods passes in either State.
(2) that sub-s. (2) of s. 4 of the Act defines what sales or
purchases shall be deemed to take place inside a State and,
thereby, locates the place wl1ere a sale is effected. The terms of
the sub-scctiori-heing quite general provide also for cases where
sales are effected in the course of inter-State trade or commerce
under s. 3 of the Act.
·
Cll that the Taxing authorities in West Bengal had to ascertain, before they could order payment of tax under the Central
Sales Tax Act, whether on t1e materials they were satisfied (a)
that the goods at the time of transfer of documents of title were
in movement from the State of Bihar to the State of West
Bengal, and (b) that the pJa.:e where the sale was effected was,
under s,4, cl. (2). withi1i the State of West Ilengal.
Per Sarkar and Das Gupta. Jj.--A sale contemplated by
s. 3(b) ul the Central Sales Tax Act, 1956, is one where the transfer of property in the goods sold takes place hy the transfer of
documents of title to them during their movement from one
State to another and is effected within the State in which the
documents of title are transferred, that State is the "appropriate
State" in respect of such sale
(2) The purpose of s. 4(2) of the
Act is to formulate principles .'or determining when a sale. takes
place "outside a State", and not to fix the place where a sale
under s. 3(b) can be said to have taken effect. The place of that
sale is fixed by cl. (ii) of the Explanation in s. 2(a).
ORIGINAL JURISDICTION:
Petition No. 199of1959.
Petition under Article 32 of the Constitution of India
for enforcement of Fundamental Rights.
A. V. Viswanatha Sastri, N. A. Palkhfrala, S. N.
Andley, J. B. Dadachanji, Rameshwar Nath and P. L.
Vohra, for the petitioner.
B. Sen, K. C. Mukherjee and P. K. Bose, for respondents X os. l and 2.
Lal Narriyan Sinha and S. P. Varma, for re~pondent
No. 3.
C. K. Daphtary, Solicitor-General of India, R. Ganapathy Iyer, R. H. Dhebar and T. JI. Sen for respondent
No. 4.
I s.c.R. SUPREME COURT REPORTS
381
1960.
August 29.
The judgment of the Court was
delivered by
SHAH J.--By this petition for writs of certiorari
and mandamus, the Tata Iron and Steel Co., Ltd.,
hereinafter referred to as the company, challenges the
authority of the Commercial Tax Officer, t.yons Range,
Calcutta, to demand payment of Rs. 41,14,718·12 nP.
to the West Bengal Government as tax leviable under
the Central Sales Tax Act No. 74 of 1956 in· respect of
certain sales of steel goods.
The company has its registered office in Bombay, its
Head Sales office in Calcutta in the State of West
Bengal and its factories in Jamshedpur in the State
of Bihar. The company is registered as a "dealer"
under the Bihar Sales Tax Act, and is also registered
as a " dealer " in the State of West Bengal under the
Central Sales Tax Act, 1956. For the period of assessment July 1, 1957, to March 31, 1958, the company
submitted its return of taxable sales to the Commercial Tax Officer, Lyons Range, Calcutta, disclosing a
gross taxable turnover of Rs. 9,561-71 nP. in respect
of sales liable to Central sales tax in the State of
West Bengal. By his memorandum dated August 12,
1959, the Commercial Tax Officer directed the company to submit a statement of sales from Jamshedpur
for the period under assessment, "documents relating
to which were transferred in West Bengal or of any
other sales that may have taken place in West Bengal
under s. 3(b) of the Central Sales Tax Act, 1956 ".
The company, by its letter dated September 30, 1959,
informed the Tax Officer that the requisition for production of statement of sales made from Jamshedpur
in the course of inter-State trade or commerce was
without jurisdiction. The company contended that
" all the sales from J amshed pur were of the type
mentioned in s. 3(a) of the Central Sales Tax Act and
at the same time, some of them also fell within the
category mentioned in s. 3(b) of the Act ", that even
if the sales were "of the type mentioned in s. 3(b) of
the Act, the appropriate State of the place where the
sales take place or are effected alone had jurisdiction
Tata Iron &
Steel Co., Ltd.
v.
Sarkar
Shah ].
Tata Iron lS·
Steel Co , Ltd.
v.
Sarkar
Shah ].
382
SCPRE:IIF. COURT REPORTS
[1961]
to assess such sales to Central sales tax ", a1 d that in
respect of inter-Sta.to s.1les from Jamshedpur, the situs
of the sale was always the State of Biha.r as the goods
were in Bihar either at the time of the contract of
sale or at the time of appropriation to the contract.
By his order dated October 21, 1959, the Commercial
Tax Officer made a " best judgment assessment" on a
gross turnover of Rs. 9,00,09,56I·iJ nP. of interState sales and called upon tho company to pay
Rs. 41,14,718·12 nP. as tax under the Central Sales
Tax Act.
The company had, on December 15, 1958, filed with
the Sales Tax Officer, Jamshcdpur, a return of int€rState sales made from Jamshedpur for the period
July 1, 1957, to .March 31, 1958, and a return for the
same period for the sales made from Dhanbad with
the Sales Tax Officer, Dhanbad. Jn these returns,
the company included all sales in which movement of
the goods had taken place from tho State of llihar to
destinations outside that State. The total turnO\·or in
respect of such inter-Stat~ sales as shown in the return
exceeded Rs. 26 crores and the company pa.id as
required by the Biha.r Sales Tax Act Rs. 71 lakhs odd
as advance tax under the Central Sales Tax Act, 1956.
By this petition the company impugns the validity of
the order of the Commercial Tax Officer and claims a
writ of certiorari quashing and setting aside the assessment order dat~d October 21, 1959, and a writ of
mandamus directing the Commercial Tax Officer t-0
refrain from ta.king steps in enforcement or implementa.t.ion of the order.
Counsel for the respondents contends that the petition under Art. 32 of tho Constitution is not ma.inta.ina.blo because no fundamental right of the company is
infringed by the order passed by the Commercial Tax
Officer and the remedy of the company, if it feels
aggrieved by the order, is to seek relief by resorting to
the ma.chi'!ery provided by the West Bengal Sales
Tax Act.
Counsel relics in support of his contention
upon the judgments of this court in Ramjilal v. Income Tax Officer, Mohinilargarh (') and Laxmanappa
(1) (19l1) S.C.R. n7.
1 S.C.R. SUPREME COURT REPORTS
383
Hanumantappa Jamkhandi v. The Union of India and
another (1). In Ramjilal's case('), this Court held that
the protection against imposition and collection of tax
save by authority of law directly arises from Art. 265
and is not secured by cl. 1 of Art. 31 ; and Art. 265
not being in Ch. III of the Constitution, its protection
is not a fundamental right which can be enforced by
an application under Art. 32 of the Constitution. It
was observed in Ramjilal's case(') that the right secured by Art. 265 may be enforced by adopting appropriate proceedings under the Act authorising levy of
tax but a petition founded on Art. 32 read with
Art. 31(1) was misconceived and must fail. That view
was reiterated in Laxmanappa's case (1).
But it has
been held that a threat by the State to realize without
authority of law tax from a citizen by using ·coercive
machinery of an impugned Act is an infringement of
the fundamental right guaranteed to him under
Art. 19(l)(g) and gives to the aggrieved citizen a right
to seek relief by a petition under the Constitution (see
Himmatlal Harilal Mehta v. The State of Madhya
Pradesh and others('), The Bengal Immunity Company Ltd. v. The State of Bihar and others(') and The
State of Bombay v. The United Motors (India) Ltd. and
others('). In these cases, in appeals from orders
passed by the High Courts in petitions under Art. 226,
this Court held that an attempt to levy tax under a
statute which was ultra vires infringed the fundamental right of the citizens and recourse to the High
Court for protection of the fundamental right was not
prohibited because of the provisions contained in Art.
265. In the case before us, the vires of the Central
Sales Tax Act, 1956, are not challenged; but in
Kailash Nath and another v. The State of U ttar Pradesh
and oth.ers (5) a petition challenging the levy of a tax
was entertained by this Court even though the Act
under the authority of which the tax was sought to be
recovered was not challenged as ultra vires. It is not
necessary for purposes of this case to decide whether
the principle of Kailash Nath's case (6) is inconsistent
(l) [1955] l S.C.R. 769
(2) [1951] s.c.R. 127.
(3) [1954] S.C.R. uu.
(4) [1955] 2 S.C.R. 603.
(5) [1953] S.C.R. Io69.
(6) A.I.R. 1957 s. c. 790.
z960
Tata Iron &.
Steel Co., Ltd.
v.
Sarkar
Shah ].
Tata Tron 0.
St~rl Co .. Lid.
v.
Shah }.
384
SCPREi\l.E. COUHT REPORTS
[1961]
with the view expressed by this Court in Ramjilal's
case('). Evidently, ihe company has paid t.o the Sales
Tax Officer, Rihar, tax due under the Central Sales
Tax Act on its turnover including sales on which the
tax is sought to be le\·ied by the Commercial Tax
Officer, West Bengal.
Under the Central Sales Tax
Act, there is a single liabilit.y to pay t.ax on inter.State
sales. The company having paid tht• tax tot.he Bihar
State for and on beho.lf of the Central Go\·ernment, the
threat to recover again sales tax on belrnlf of the
Central Government in respect of the same sales, i. e.,
sales which are included in the aP.sessment proceedingR
before the Bihar Sales Tax authoritieR prima facie
infringes the fundamontal right of the company to
hold its property and the company is entitled to
approach this Court under Art. 32 of the Co11stitution.
The preliminary objection raised by counsel for the
respondents must therefore fail.
To appreciate the arguments ad\•anced 011 the merits
of the claim made by the company, it is necessary to
set out tho rele\·ant legislative history and the course
of judicial decisions.
Cnder the Government of India Act, 1935, po11·er to
make laws in respect '.>f" taxes on sale of goods and
advertisements" waE conferred bys. 100(1) read with
entry 48 of List II in Schedule VII upon the Pro\'ineial Legislatures. This power was !'X~rciscd by all the
Provinces and by picking out one or more ingredients
constiluting a Rale, as determinative of the place
where the sale took place, they brought within the
taxing laws transactions substantially outside the
territorial limits of their authority. Statutes so enacted led to multiplo tax1itio11 of the same tra.nRa.c:tion by
several Provinces, each Province seeking to rely upon
some ingredient of the sale \\ ithin its jurisdiction as
establishing a territorial nexus.
This burden lay ho,al"ily upo11 the conRumer.
The
Constituent Assembly was seriously exercioed over this
situation and tried to meet the problem by placi11g
restrictions upon the taxing power of the 8tates in
respect of sales and purchases having inter-State
elements.
Article 2813 of the Constitution was one of
(1) [t951] S.C.R. 127.
1 S.C.R. SUPREME COURT REPORTS
385
the Articles enacted for that purpose. That Article
before it was amended by the Constitution (Sixth
Amendment) Act, 1956, stood as follows:
(l) No law of a State shall impose, or authorise the
imposition of, a tax on the sale or purchase of goods
where such sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.
Explanation :-For the purposes of sub-clause (.a), a
sale or purchase shall be deemed to .have taken place
in the State in which the goods have actually been
delivered as a direct result of such sale or purchase
for the purpose of consumption in that State, relating
to sale of goods the property in the goods has by
reason of such sale or purchase passed in another
State.
(2) Except in so far as Parliament may by law
otherwise provide, no law of a State shall impose, or
autho1ise 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 commerceProvided that the President may by order direct
that any tax on the sale or purchase of goods which
was being lawfully levied by the Government of any
State immediately before the commencement of this
Constitution, shall, notwithstanding that the imposition of such tax is contrary to the provisions of this
clause, continue to be levied until the thity-first day
of March, 1951.
.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax on
the sale or purchase of any such goods as have been
declared by Parliament by law to be essential for the
life of the community shall have effect unless it has
been reserved for the consideration of the President
and has received his assent.
As framed,
the Article attempted to enunciate
restraints upon the legislative power of the States:
but the somewhat inartistic form in which the Article
and particularly the Explanation was couched, obscured instead of clarifying the meaning of the Constituent
Tata Iron &
Sltel Co., Lid.
v.
Sarkar
Shah ].
'
Tata Iron S.
Sl1tl Co., ltd.
v.
Sar/tor
Sita~ ].
386
SUPREME COURT REPORTS
[ 1961]
Assembly. The scope of Art.. 286 fell tCJ be determined in The State of Bombay v. United Motors (India)
Ltd. (')in a.n appeal to this court in which the validity
of the provisions of the Bombay Sa.Jes Tax Act, 1952
was challenged. By the BombA.y Act; liability to pay
tax was imposed on sales of goods which had been
actually delivered in the State of Bombay as a. direct
result of sales for th" purpose of consumption in that
State even if property in the goods bad, by reason of
such sales, passed in another State. The High Court
of Born bay in a. petitiCJn under Art. 226 held that the
definition of ea.le in the Act included certain sales
which were by Art. 286 of the Constitution exempt
from liability to tax by the State and the tax imposed
was therefore wholly void.
A majority of Judges
hearing a.n appeal from that judgment to this Court
held that Art. 286(l)(a) prohibited taxation CJf sales or
purchases involving inter-State ele"ments by a.11 St>i.tes
except the State in which the goods were actually
delivered for the purpose of consumption therein, and
· the effect of t.he Explanation thereto was to convert
inter-State transactions into intra-State transactions
and lo remove them from the operation of cl. 2. On this
view, the majority of the Judges held th>i.t the Bombay
Sales Tax Act did not contravene Art. 286. This
jnterpreta.tion of Art. 286 did not meet with the
approval of a larger Bench of this Court which heard
and decided the Bengal Immunity Co.'s case('). In
that case four out of the seven judges constituting the
Bench held that the operative provisions of the several
parts of Art. 286, namely cl. l(a), cl. l(b) and els. 2
and 3 were intended to deal with different topics and
one "could not be projecl{!d or read into another".
According to the minority view, Art. 286{l)(a.) located
the situs of the sales with a view to a.void multiple
taxation and for that purpose, it divided the sa.le8 into
two categories-" inside sales" and "outside sales",
and that Art. 286(2) applied to the sales in the course
of inter-State trade and the sales which fell within
the Explanation were intra-State sales. In M fa. Ram
Narain Sona L/.d. v. Assistant Commissioner of Sales
(1) [1953) s.c.R 1o6g.
(3) [1955] l S.C.R. 6o3.
1 S.C.R. SUPREME COURT REPORTS
387
Tax and others(') which was decided after the Bengal
Immunity Oo.'s case('), this Court held:
"The bans imposed by Art. 286 of the Constitution on the taxing powers of the States are independent and separate and each one of them has to be got
over before a State Legislature can impose tax on
transactions of sale or purchase of goods. The Explanation to Art. 286(l)(a) determines by the legal fiction
created therein the. situs of the sale in the case of
transactions coming within that category and once it
is' determined by the application of the Explanation
that a transaction is outside the State, it follows as a
matter of course that the State, with reference to
which the transaction can thus be predicated to be
outside it, can never tax the transaction."
The Constitution was thereafter amended, Explanation 1 of Art. 286 was deleted and els. 2 and 3 thereto
were altered by the amendment.
As amended, Art.
286 stands as follows :
Art 286 :-1. No law of a State shall impose, or
authorise the im-position of, a tax on the sale or purchase of goods, where such sale or purchase takes
place-
( a) outside the State; or
(b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.
2. Parliament may by law formulate principles for
determining when a sale or purchase of goods takes
place in any of the ways mentioned in cl. 1.
3.
Any law of a State shall, in so far as it imposes,
or authorises the impositio!l of,. a tax on the sale or
purchase of goods ·declared by Parliament by law to
be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions
iri regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
Simultaneously, the Parliament was authorised by
the incorporation of item 92A in List I of the seventh
schedule, to legislate for levying tax on the sale or
purchase of goods other than newspapers, where such
(t) [1955] 2 S.C.R. 483:
50
(2) [1955] 2 S.C.R. 603.
I960
Tata Iron 6'
Steel C )., Ltd.
v
Sa· ar
.•"tiah
T
Tata Iron &
Slttl Co., Ltd.
v.
Sarkar
Shah ].
388
SU'PREME COlJRT REPORTS
[1961]
sale or purchaBc takes place in the course of inter.
State tra<le or rommerce, and by the amendm!'nt of
item 54 of List 11 oxdu<led that ncld of taxation from
the competence of the State LegislatureB.
Art. 269,
cl. l(g), which was aho amended by cl. 3 to that Article read after the amendment as follows:
"Parliament may by law formulate principles for
determining when a sale or purchase of goo<ls takes
place in tho course of inter-State trade or commerce".
Tho effect of these diverse amendments made by
the Constitution (Sixth Amendment) Act, 1956, was
to invest the Parliament with exclusive aut.hority to
enact laws imposing tax on sale or purchase of goods
where such sa.le or purchase takes place in the course
of inter-State trade or commerce, and the tax collected
by the States was to be assigned in the manner provided by cl. 2 of Art. 269 to the State within which the
tax was leviahle.
In exercise of authority conferred upon the Parlia.
ment by Art. 286 and Art. 269, cl. 3, the Parliament
enacted the Central S11les Tax Act (74 of 1956). The
Act was enacted as the preamble recites:
"to formulate principles for determining when a
sale or purchase of goods takes place in the course of
inter-State trade or commerce or outside a State or in
the course of import into or export from India, to provide for the levy, collection and distribution of taxes
on sales of goods in the course of inter-State trade or
commerce and to declure certain goods to be of special
importance in inter-Sta.Le trade or commorco and
specify the restrictions and conditions to which State
laws impo8ing taxes on the sale or purchase of such
goods of special importance shall be subject".
By chapter 2 of the Act., ss. 3, 4 and 5, those principles were formulated and by chapter 3, detailed provisions were made for imposing liability to pay tax ou
inter-St,ate sales, for registration of dealers, fixing
rates of tax and for lovy and collection of tax and for
imposing penalties for breach of the provisions of the
Act relating to levy and collection of inter-State ·sales
tax.
By s. 6, every dealer was made liable to pay tax
on all sales effected by him in the course of inter-State
'
· 1 S.C.R. SUPREME COURT REPORTS
389
trade or commerce. By sub-s. 2 of s. 8, the rates of
tax on sales in the course of inter-State trade or commerce were directed to be calculated at the same rates
and in the same manner as would have been done if
the sale had in fact taken place inside the appropriate
State. By s. 9, the machinery for levy and collection
of tax was prescribed. The tax payable by any dealer
under the Act was to be levied and collected by the
appropriate State in the manner provided by sub-s. 2
which enacts that the authority for the time being
empowered to assess, collect and enforce payment of
any tax under the General Sales Tax Law of the
appropriate State shall on behalf of the _Government
of Ind.ia assess, collect and enforce payment of any
tax payable by any dealer under the Act in the same
manner as the tax on the sale or purchase of goods
under the General Sales Tax Law of the State is
assessed, paid and collected. It is manifest that by
s. 6 which is the charging section, liability to pay tax
on inter-State sales is imposed upon all sales effected
by any dealer in the course of inter-State trade or.
commerce. The liability to pay tax under the Central
Sales Tax Act arises as an inter.State sale. The tax
though collected by the State in which the sale takes
place is due to the Central Government and is payable at the rates prescribed in respect of intra.State
sales by the State in which it is collected.
Sale is defined ip s. 2(g) as meaning any transfer of
property in goods by one person to another for cash or
for deferred payment or for any other valuable consideration and includes a transfer of goods on the hirepurchase or other system of payment by instalments,
but does not include a mortgage or hypothecation of
or a charge or pledge on goods.
By s. 3, a sale or
purchase of goods is deemed to ta.ke 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 transfer of
documents of title to the goods during their movement
from one State to another. A transaction of sale is
subject to tax under the Central Sales Tax Act on the
completion of the sale, and a mere contract of sale· is
Tata Iron ~ ·
Steel Co., Ltd.
v.
Sarkar
Shah ].
Tata Tron 6Sf1el Co., I.Id
v.
sa,kar
Shah ].
390
S"CPRE'.\IE COURT REPORTS
[1961]
not. a sale within ihe definition of sale in s. 2(g). A
sale being by the definition, transfer of property,
becomes taxable under s. 3(a) if the movement of goods
from one State to another is under a. covenant or incident oft.he contract of 8alc, and the property in the
goods passes to t.he purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another. In respect of an
inter-State sale, the tax is leviable only once and that
indicates that the two clauses of s. 3 are mut.ua.lly
exclusive.
A sale taxable a.s falling within cl. (a) of
s. 3, will be excluded from the purview of cl. (b) of s. 3 ;
otherwise certain sales may, be liable to tax under both
the clauses and two States may, in respect of a. single
sale, claim to levy the tax contrary to the plain
intend ment of ss. 6 and 9 of the Act.
The sale contemplated by cl. (b) is one which is
effected by transfer of documents of title to the goods
during their movement. from one State to another .
. Where the property in the goods has passed before t.he
movement has commenced, tho sa.lo will evidentlv not
fall within cl. (b); nor will the sale in which the. property in the goods passes after the movement from
one State to another has ceased be covered by the
clause. Accordingly a sale effected by transfer of .
documents of title after the commencement of movement and before its conclugion as defined by the two
terminii set out in Explanation (l) and no other sale
will he regarded a.s a.n inter-State sale under s. 3(b).
The definition (lf the expression "salo" um.loubtedly
includes transfer of goods on hire-purchase or other
systems of payment by instalments, but thereby, a.
more contra.ct of sale which does not result in transfor
of property occasioning movement of goods from one
State to another does not fall within tho terms of
s. 3(a.).
That transact.ion alone in which there is
"transfer of goods " on the hire-purchase or other
systems of payment by instalments is included in the
definition of" sale". Tho question whether a. mere
contra.ct in which goods a.re delivered under a. hirepurcha.se agreement is a sale within the meaning of
s. 2, cl. (g) and therefore, covered by cl. (a.) of s. 3 does
1 S.C.R. SUPREME COURT REPORTS
391
not fall to be determined in this case : nor are we
called upon to express our opinion on the question
Tai• Iron ,s.
whether the clause authorising imposition of sales tax
5
1 c
LI'
lee
o.,
•·
on what may be merely a contract of sale is unconstitutional. We are in this case concerned to decide the
competing claims of the States of West Bengal and
Bihar to levy sales tax from the company in respect
of transactions of completed sales and not in respect
of any hire-purchase transactions.
Cases of this Court, viz., State of Travancore-Cochin
and others v. The Bombay Co., Ltd. (1) and State of
Travancore - Cochin and others v. Shanmugha Vilas
Cashew Nut Factory and others(') relied upon by counsel for the State of West Bengal have no bearing on
the interpretation of s. 3, els. (a) and (b). In those
cases, the meaning of the expressions, " in the course
of import and export " and "in the course of interState trade or commerce "-used in Art. 286 fell to be
determined. The Constitution does not define these
expressions. The Parliament has in the Central Sales
Tax Act, 1956, sought to define by s. 3 when a sale or
purchase of goods is said to take place in the course
of inter-State trade or commerce and by s. 4(1) to
define when a sale or purchase of goods is said to take ·
pla.qe outside a State and by s. 5, when a sale or purchase is said to take place in the course of import or
export. In interpreting these definition clauses, it
would be inappropriate to requisition in aid the observations ma,de in ascertaining the true nature and incidents without the .assistance of any definition clause
of " sales ontside the State " and " sales in the course
of import or export" and" sales in the course of intetS,tate trade or commerce" used in Art. 286.
In our view, therefore, within cl. (b) of s. 3 are
included sales in which property in the goods passes
during the movement of the goods from one State to
another by transfer of documents of title thereto:
cl. (a) of s. 3 covers sales, other than those included in-c::
cl. (b), in which .the movement of goods from one
State to another is the result of a covenant or incident
of the contract of sale, and property in the goods
passes in either State.
(1) [19.50] S.C.R. 1112.
(2) [195+] S.C.R. 53•
v.
SOrkar
Shah ].
\
Fala !roil 6Stetl Co., I.Id.
v
Sarknr
Shah ].
392
SUPRE~IE COl'HT REPORTS
[ 1961]
The question to which attention must then be
directed is, which out of the two or more States concerned with the goods sold under an inter State sa.le is
entitled to collect the tax under Act 74 of 19fi6.
By
s. 9, the tax payable by any dealer under the Act is to
be levied and c·1llected in the "appropriate State".
The expression "appropriate State" was at the material time defined by s. 2(a) as follows:
"Appropriate Stato" means:-
(i) in relation to a dealer who has otH' or more
places of business situate in the same St ate, that
State;
(ii) in relation to a dealer who has one or moro
places of business situate in different States, every
such State with respect to the place or places of business situate within its territory;
Explanation:-" Placo of business" means,
(i) in the case of a sale of goods in the course of
inter-State trade or commerce falling within cl. (a) of
s. 3, the place fr:im which the goods have been moved
by rea.8on of such s:tle ;
(ii) in the case of any such sale falling within
cl. (b) of s. 3, the place where the sale is <'ffccted.
Thio definition mado the State in which tlw place
of business is situate, the appropriate State; and by
the Explanation, the expression "place of business"
wa.H dP.fined in relation to the two classes of sales in
s. 3 as snles in the course of inter-State trade or commerce.
By the first part. oft ho definit.ion, in case of
sale of goods falling within cl. (a), the place from
which the goods have been moved is tho placo of business and by cl. 2, in the case of sales falling within
cl. (b) of s. 3, the place where the sale is effected is the
place of buoincBs. This evidently is a highly artificial
definition.
By a fiction, the place from which goods
have been moved by reason of the sale falling within
cl. (a) of s. 3, that is, that place from which the goods
have been moved under the contract of sale for the
purpose of deliver.I' LO the purchaser in a not her State
was dedarwJ the place of business.
By another fiction, the place where the sale is dfocted in inter-State
transactious falling within s. 3(b) was declared the
1 S.C.R. SUPREME COURT REPORTS
· 393
place of business. In ascertaining the place of business as defined by the Explanation, for cases falling
within cl. (a) of s. 3, little practical difficulty arises.
But in cases of sales falling within cl. (b), the location
of the place where " the sale is effected " for ascertainment of the place of business within the meaning
of the Explanation raises difficult problems. As
observed by Das, Acting Chief Justice, in Bengal
Immunity Company's case (1) at p. 649:
" The situs of an intangible concept like a sale
can only be fixed notionally by the application of
artificial rules invented either by Judges as part of
the judge-made law of the land or by some legislative
authority. But so far as we know, no fixed rule of
universal application has yet been evolved for determining this for all purposes. There are many conflicting theories: One, which is more popular and
frequently put forward and is referred to and may
indeed be urged to have been adopted by the Constitution ............ favours the place where. the property
in the goods passes, another which is said to be the
American view ......... fixes upon the place where the
contract is concluded, a third which prevails in the
continental countries of Europe prefers the place
where the goods sold are actually delivered, a fourth
points to the place where ·the essential ingredients
which go to make up a sale are most densely
grouped".
Ex facie, cl. 2 of the Explanation to J>. 2(a) does not
seek to locate the place where the sale is effected in
cases falling within cl. (b) of s. 3 at the place where
the transfer of documents of title to the goods was
effected. Parliament has classified the sales " in the
course of inter-State trade or commerce" in els. (a)
and (b) of s. 3 and by the first clause of the Explanation to s. 2(a), in cases of sales falling within s. 3(a)
the place of business is the place from which movement has commenced and in the case of sales falling
within s. 3(b), it is the place where the sale is effected.
But there is in the Explanation no material for ascertaining the place where the sale is effected.
(t) [1955) 2 S.C.R. 603.
Tata Iron &
Steel Co., Ltd.
v.
Sarkar
Shah ].
Tata ]r0'1 6Steel Co .. Ltd.
v.
.~:iarAar
Shah j.
394
SUPREME COURT REPORTS
[1961]
There wa.s a sh<i.rp conflict of opinion as to the true
meaning of Art. 286, els. l(a) and (b) and the Explanation as they st.ood before the amendment by the
Constitution (Sixth Arnendme.nt) Act, 1956.
In the
United Motors' cas.i (') it was opined by a majority of
tho judges of this Court that Art. 286(l)(a) prohibited
taxation of sales or purchases involving inter.State
elements by a.ll States except the State in which the
goods were delivered for the purpose of cons um pt ion
therein, a.nd the latter State wa.s left frro to ta.x such
sales or purchase> a.nd that power was not derived
from the ExplH.nation to Art. 286(1) but under Art.
246(3) read with entry 54 in List II. Mr. Justice Bose
who disagreed with the majority held that the basic
idea underlying Art. 286 was to prohibit taxH.tion in
the course of inter-State trade and commerce until the
ban under cl. 2 of the said Article was lifted by
Parliament and always in the case of imports nnd exports, and when the ba.n wa.s lift~d. the Explaua.tion
to ol. l of Art. 286 came into play to determine the
situs of the sale, the explanation not governing cl. 2
a.s it a.ppl\ed to transactions which in truth and in
fact took place in the course of inter-State t re.de a.nd
commerce.
Mr. Justice Bhagwati who a.greed with
tht• conclusion of the majority a.s to the vires of the
impugned Act, opined that the Explanation to Art.
286(1) did not take a.way the right which the Sta.to in
which the property in the goods passed had to tax the
sale or purchase, but only deemed such purchase or
sale by a legal fiction to have ta.ken place in the State
in which the delivery of the goods had been made for
consumption so as to enable the latter State also to
tax tho sale or purchase in quest.ion. In 'l'he Bengal
Immunity Go.'s case('), Das, Acting Chief Justice, in
delivering the judgment of the majority observed that
the several parts of Art. 286, viz., els. l(a), l(b), (2)
and (3) were intended to deal with different topics;
that the Explanation to cl. l{a) to Art. 286 should not
lt1gitima.tely be extended to cl. (b) either as an exception or as a proviso theret-0 or read as curtailing or
limiting the ambit of cl. 2; that Art. 286(1Xa) fixed
(1) [1953] S.C.R. 100g.
1 S.C.R.
SUPREME COURT REPORTS
. 395
the situs of the sales with a view to avoid multiple
taxation and for that purpose classified the sales into
two categories, inside sales and outside sales and
enacted that the State cannot tax outside sales and
the purpose of the Explanation which declared a sale
in the course of inter-State trade must be deemed to
have taken place inside the State in which the goods
are deliver~d for consumption was clearly to take it
out of the inter-State trade and impress it with the
character of an intra-State .sale.
This view was
follow~d in M/s. Ram Narain Sons Ltd. v. Assistant
Commissioner of Sales Tax & others (1 ).
Evidently, by the interpretation placed by this
Court on the scope and meaning of Art. 286 as originally enacted, Parliament was faced with a difficult
problerii. The Parliament had to examine the problem of taxing inter-State trade and commerce in the ·
light of three principal factors, namely, (1) the constitutfonal freedom of trade, commerce and intercourse
guaranteed by Art. 301, (2) the inadvisability of
.allowing the States unrestricted freedom to levy or
impose taxes on sales or purchases of goods with interState content, and (3) the necessity to impose restrictions on multiple taxation of the same sale by different
States. The Parliament deleted the Explanation to
cl. 1 of Art. 286 which had given rise to this serious
conflict of views and recast els. 2 and 3. By cL 2 as
amended, the Parliament was authorised to formulate
principles for determining when a sale or pnrchase of
goods takes place in any of the ways mentioned in
cl. 1 ; and by the addition of item 92A in List I of the
seventh schedule, the Central Government alone could
tax sales or purchases of goods which take place in
the course of inter-State trade or commerce. By incorporating cl. 3 to Art. 269, the Parliament assumed
to itself the power to formulate principles for determining when a sale or purchase of goods takes place
in the course of inter-State trade or commerce. It is
after this .amendment was made that the Central
Sales Tax Act, 1956, was enacted with a view to provide for collectio1l of a tax on sales or purchases in
(1) [1955] 2 S.C.R. 483.
51
Tata Iron &>
Steel Co., Ltd.
v.
Sarkar
Shah ].
Tata lro11 ,-;..
Strei C()., Lr-I.
"·
Sa1har
SJ:ah .f.
396
SCPRK\TE COCRT REPORTS
(1961 J
the course of int.er.State trado or commerce.
Tho
Par!i:urnmt had to define sales in the course of inter.
Stale trade or commc-.rc<',.Ralcs in the course of import
or export, and intra-Sl!•tc sales. The Parliament set
out by s. 3 to define sales of goods which ca.n be SH.id
to take place in th~ course of inter-State trado or
commerce, by R. 4(1) t.o define wlwn a sa.le is said to
tBke place outside a Stttte, and by s. ii when a.
sa.le is said to take place in the course of import and
in the course of export.
By s. 9, authority to tax was
conferred upon the appropriate State, and that expression was defined hv s. 2 as the State where the dealer
had
hi~ placo o( business, and in respect of salt's
which fall within cl. (h) of s. 3, the: place of business
of the dt>aler was dedared to be the place where the
salo i~ ptfected.
B1· f;, 3, it was intended to define the
class of sales whicli' s:iall b(I deemed to bo sales in the
course of intcr-Stato trade or commerct>, but the conditions which go to make such transaction~. sales in
the course of inter-State trade or commerce as sot. out
by els.