# TOBACCO MANUFACTURERS (INDIA) LTD v. THE COMMISSIONER OF SALES-TAX

- **Citation:** [1961] 2 S.C.R. 106
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeals Nos. 202 and 203 of 1958
- **Bench:** S. K. Das, M. Hidayatullah, K. c. DAS GUPTA, J.C. Shah, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tobacco-manufacturers-india-ltd-v-the-commissioner-of-sales-tax-2198
- **Pages:** 14

## Headnote

Sales Tax-Sale-Goods delivered outside State for consumption
in the State of first delivery-Goods delivered for consumption in
other States-Liability to tax-Constitution of India, Art. z86(r)(a)
-Bihar Sales Tax Act.
2 S.C.R. SUPREME COURT REPORT~
107
The appellants who were manufacturers of cigarettes and
196o
tobacco in the Slate of Bihar contested the levy of sales-tax on
sales effected bv them during the financial years 1949-50 and
Tobacco
1950-51 on the ground that as a direct result of every sale effecAlanufact1ners
ted by them the goods concerned were delivered outside the
(India) Ltd.
State of Bihar and were, therefore, exempted from tax liability
v.
under Art. 286(r)(a) of the Constitution. Both the Superinten- He Commissioner
dent of sales-tax and the DeP.uty Commissioner of sales-tax,
of Sales-tax,
Bihar, o,verruled the objection ot the appellants, and following
Bihar, Patna
a previous ruling of the Board of Reve,nue of Bengal in a case
known as the Bengal Timber Case (61 of 1952) held the appellants
liable to pay the tax. The appellants paid the tax demanded
but filed an application in revision to the Board of Revenue,
claiming a constitutional exemption from tax on every sale effected by them as a result of which goods were delivered outside
the State of Bihar-whether the delivery was for consumption
in the State of first delivery or not.
The Board passed the
following order on the revision petition.
"As regards the admitted despatches of the goods outside
the State after the 26th January, 1950, when the Constitution
came into force, the learned lower court has been guided by the
decision of the Board in the Bengal Timber Case (No. 61 of 1952).
But this ruling of the Board stands superseded by the subsequent decision of the Supreme Court in the United Motors Case
According to the decision of the Supreme Court, no tax could be
levied on despatches to the places outside the state after the
26th January, 1950, and on this point the petitions are allowed,
and the sales tax officer directed to recalculate the amount of
tax payable by the assessee ".
The appellants taking the above order to he in their favour
claimed refund of the tax already paid by them and the sales
tax authorities c0ntested the position and claimed that they
were bound to refund the tax only on those sales wherein the
goods were delivered outside the State for consumption in the
State of first delivery. The department thereafter sought clarification of the above order. The Board refused to clarify or exp!ain its order and passed an order saying that "no further clarification was really required in view of the specific reference to
the judgment of the Supreme Court in the United Motors Case ".
Thereafter as the authorities still refused to refund the balance
of the tax the appellants filed two applications in the High
Court for the issue of a writ of mandamus to compel the refund.
The High Court held that the Board's decision that sales in
which the goods were delivered outside the State for consumption, not in the State of first delivery but in other States were
also <'xempted from tax, was wrong and that the appellants
were not entitled to a writ of mandamus for enforcing a wrong
order. On appeal by special leave,
Held, that the proper construction of the Board's orders was
that the sales tax officer was directed to decide the relief that
108
.SUPREME COURT REPORTS
[1961]
r960
should be giv.en to the assessee on the officers' interpretation of
,•
the decision of this Court in the United Motors Case. The Board
Tobacco
did not determine the effect of that judgment and did not decide
Manufacturers that every sale in which the goods were delivered outside the
(India) Ltd.
State of Bihar was exempted from liability to tax.
v. . .
The principle that a subordinat~ tribunal should not refuse
The Comtnissioner to carry out the directions of a superior tribunal was therefore
af Sales-tax,
not applicable to the instant ca~e.
Bihar, PaJna
Bhopal Sugar Mills v

## Text

106
SUPREME COURT REPORTS
[1961]
'96°
to the non-evacuees; and (2) the payment to the
•
Admunissa
Custodian by the non-evacuees of the money value of
~- Ott.m
the share of the evacuees were not available to him.
v.
The former in this case was neither claimed nor could
The Deputy Gus-the Custodian be expected to pay such a large sum of
todian. Evacuee money to the non-evacuees. The order of the CompePropedies.
tent Officer of March 20, 1956, shows that the nonDis1ric1 Deoria
h
& Others
evacuee co-s arers were not prepared to pay to the
Custodian the money value of the shares of the evaKap"' J.
cuees. Of the remaining alternatives the third alternative was the partitioning of the property but that also
was
rn~t possible in the present case because of the
nature of the composite property which comprised of
a sugar mill which in the very nature of things could
not be partitioned. Consequently the only a vai!able
mode of separation was the one adopted by the
Custodian, i.e., by sale of the property and division of
the ~ale proceeds. In the circumstances the action of
the Competent Officer could not be termed unreasonable or violative of Art. 19(l)(f) nor does it violate
Art. 31 because it cannot be said to be deprivation of
the non-e.vacuees of their property without the authoOctober 26,
rity of law.
·
In the result this petition fails and is dismissed with
costs.
Petition· dismissed.
TOBACCO MANUFACTURERS (INDIA) LTD.
v.
THE COMMISSIONER OF SALES-TAX,
BIHAR, PATNA.
(S. K. DAS, M. HIDAYATULLAH, K. c. DAS GUPTA,
J.C. SHAH and N. RAJAGOPALA AYYANGAR, JJ.)
Sales Tax-Sale-Goods delivered outside State for consumption
in the State of first delivery-Goods delivered for consumption in
other States-Liability to tax-Constitution of India, Art. z86(r)(a)
-Bihar Sales Tax Act.
2 S.C.R. SUPREME COURT REPORT~
107
The appellants who were manufacturers of cigarettes and
196o
tobacco in the Slate of Bihar contested the levy of sales-tax on
sales effected bv them during the financial years 1949-50 and
Tobacco
1950-51 on the ground that as a direct result of every sale effecAlanufact1ners
ted by them the goods concerned were delivered outside the
(India) Ltd.
State of Bihar and were, therefore, exempted from tax liability
v.
under Art. 286(r)(a) of the Constitution. Both the Superinten- He Commissioner
dent of sales-tax and the DeP.uty Commissioner of sales-tax,
of Sales-tax,
Bihar, o,verruled the objection ot the appellants, and following
Bihar, Patna
a previous ruling of the Board of Reve,nue of Bengal in a case
known as the Bengal Timber Case (61 of 1952) held the appellants
liable to pay the tax. The appellants paid the tax demanded
but filed an application in revision to the Board of Revenue,
claiming a constitutional exemption from tax on every sale effected by them as a result of which goods were delivered outside
the State of Bihar-whether the delivery was for consumption
in the State of first delivery or not.
The Board passed the
following order on the revision petition.
"As regards the admitted despatches of the goods outside
the State after the 26th January, 1950, when the Constitution
came into force, the learned lower court has been guided by the
decision of the Board in the Bengal Timber Case (No. 61 of 1952).
But this ruling of the Board stands superseded by the subsequent decision of the Supreme Court in the United Motors Case
According to the decision of the Supreme Court, no tax could be
levied on despatches to the places outside the state after the
26th January, 1950, and on this point the petitions are allowed,
and the sales tax officer directed to recalculate the amount of
tax payable by the assessee ".
The appellants taking the above order to he in their favour
claimed refund of the tax already paid by them and the sales
tax authorities c0ntested the position and claimed that they
were bound to refund the tax only on those sales wherein the
goods were delivered outside the State for consumption in the
State of first delivery. The department thereafter sought clarification of the above order. The Board refused to clarify or exp!ain its order and passed an order saying that "no further clarification was really required in view of the specific reference to
the judgment of the Supreme Court in the United Motors Case ".
Thereafter as the authorities still refused to refund the balance
of the tax the appellants filed two applications in the High
Court for the issue of a writ of mandamus to compel the refund.
The High Court held that the Board's decision that sales in
which the goods were delivered outside the State for consumption, not in the State of first delivery but in other States were
also <'xempted from tax, was wrong and that the appellants
were not entitled to a writ of mandamus for enforcing a wrong
order. On appeal by special leave,
Held, that the proper construction of the Board's orders was
that the sales tax officer was directed to decide the relief that
108
.SUPREME COURT REPORTS
[1961]
r960
should be giv.en to the assessee on the officers' interpretation of
,•
the decision of this Court in the United Motors Case. The Board
Tobacco
did not determine the effect of that judgment and did not decide
Manufacturers that every sale in which the goods were delivered outside the
(India) Ltd.
State of Bihar was exempted from liability to tax.
v. . .
The principle that a subordinat~ tribunal should not refuse
The Comtnissioner to carry out the directions of a superior tribunal was therefore
af Sales-tax,
not applicable to the instant ca~e.
Bihar, PaJna
Bhopal Sugar Mills v. Commissioner of Income-tax, [1961] I
S.C.R. 474, held inapplica91e.
The United Motors Case merely decided that sales in which
goods were delivered outside the State for consumption in the
State of first delivery would fall under the Explanation to Art.
286(1) of the Constitution and would therefore be exempted
from tax liability, but it did not deal with other sales in which
·the goods thus delivered were for consumption, not in the State
of first delivery but in other states. Such sales would on the
order of the Board of Revenue which was binding on the appellant be liable to tax in accordance with the previous decision
of the Board of Revenue in the Bengal Timber Case.
State of Bombay v. United Motors (India) Ltd. and Ors., [1953]
S.C.R. 1069, explained and applied.
Board of Revenue of the State in the Bengal Timber Case, 61 of
1952, referred to.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 202 and 203 of 1958.
Appeals from the judgment and decree dated October 5, 1956, of the Patna High Court in Misc. Judicial
Cases Nos. 330 and 331 of 1955.
K. D. Chatterjee, S. N. Andley and J. B. Dadachanji,
for the appellants.
D. P. Singh, for the respondents.
1960. October 26.
The Judgment of the Court
was delivered by
·
/
Ayyangar J.
AYYANGAR J.-These two appeals are from a. common judgment of the High Court of Patna. dated October 5, 1956, in two petitions under Art. 226 of the
Constitution and have been filed pursuant to a. certificate granted by the High Court under Art. 132.
The Tobacco Manufacturers (India) Ltd., the appellants in the above appeals are an incorporated company manufacturing cigarettes and tobacco in their
factory at Monghyr in the State of Bihar, and these
2 S.C.R. SUPREME COURT REPORTS
109
appeals are concerned with the legality of the levy of
r96o
sales-tax under the Bihar Sales Tax Act (hereafter
Tobace-0
referred to as the Act) on the appellants in respect of Manufacturers
sales effected during the financial years 1949-50 and
(India) Ltd.
1950-51. The point urged in these appeals is a very
v.
narrow one and relates to the proper construction to The Commissioner
be placed on certain orders of the Board of Revenue
of Sales-ta1',
Bihar, Patna
passed in regard to the tax properly leviable for these
two years.
Ayyangar J.
The facts relevant to this point are briefly these :
The assessment of the appellants for both the years
was completed by the Superintendent of Sales Tax,
Monghyr,on May 7, 1952, and the total tax liability
was determined in the sum of Rs. 6,44,940-2-6 and
Rs. 7,46,876-1-3 for the two assessment years 1950-51
and 1951-52 respectively. Before the assessing officer,
the appellants contended that all sales effected by
them as a direct result of which the goods were delivered outside the State of Bihar were exempted from
tax liability under Art. 286(l)(a) of the Constitution.
This objection was overruled, the reason assigned
being, that the sales were completed in Bihar, and
that the entire turnover of the appellants was ·therefore subjected to tax under the Act. In taking this
view the assessif!g authority followed a previous ruling of the Board of Revenue of the State in the Bengal Timber case {Case 61 of 1952).
An appeal preferred to the Deputy Commissioner of Sales Tax, Bihar,
by the appellants was dismissed on October 8, 1952,
on the same grounds.
The appellants paid the tax demanded for both the
years and invoked the revisional jurisdiction of the
Board of Revenue. In their petitions to the Board
the appellants pointed out, that the sales of goods
delivered for consumption outside the State of Bihar
which involved a tax liability of Rs. 1,23,813-0-2 in
the earlier year and Rs. 7,10,185-12-0 in the later
year were made up of two types of transactions:
(a) those in which the goods thus delivered were
for consumption in the State of first delivery or first
destination;
(b}
those in which the goods thus delivered were
llO
SUPREME COURT REPORTS
[196!]
for consumption, not in tho State of first deliverv hut
in othN States.
•
(These two classes would be referred to hereafter
.lf 11nufr1clurf!rs
(lndia) Ltd.
for convenience as type (a) and type (b) respC'ctively).
Tchriccn
v.
The appellants claimed that on the proper construcThe Cammissfo1ur tion of Art. 286(1) & (2) they were entitled to have
01 Sales·1·•x.
both these types of sales excluded from their taxable
Bil""' Patna
t
B
th
d t
f th h
·
f h
·
'
urnover.
y
e
a e o
e earing o · t ese pet1Ayya11gar J.
tions by the revisional authority, this Court had rendered the decision in
State of Bombay '. United.
Motors (India) Ltd. and Others (1) expounding the
scope of the explanation to Art. 286(l)(a) and its interrelation to the exemption under Art. 286(2), and naturally this decision was brought to the attention of the
member of the Board at the hearing. 'Vithout examining whether the decision cited did or did not cover
both the two (a.) & (b) types of sales effectPd by the
appellants, the Board passed on August 28, 1953, ti.
laconic order in these terms :
" The two points urged . in this Court were
among those points urged in the Lower Court and
they are-
(i)
No tax should have been levied on the Company's canteen sales.
(ii) that despatches outside the_ State for cuns111nption in other States should not have been tax<'ri
for the
period after the Constitution ca.me into
force .
. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .
As regards the admitted despatches of goods out-
~ide the State after the 26th January, 1950, when the·
Oonstih1tion came into force, the learned Lower Court
ha8 been guided by the decision of the Board in the
Bengal Timber case (Case No. 61 of 1952). But this
ruling of the Board stands superseded by the subsequent decision of the Supreme Court in the United
ill otor' s case.
According to the decision of t.he Sup·
reme Court, no tax can bo levied on despatches to the
places outside the State after the 26th .January, 1950
and on this point the .petition are allowed, and the
(t) [1953] S.C.R xo6g.
•
2 S.C.R. SUPREME COURT REPORTS
111
sales-tax officer directed to recalculate the amount of
tax payable by the assessee ".
Tobacco
Apparently the appellants understood this order as ill anuf acl1'rers
meaning that all sales, whereunder goods were deli-
(Indiai Ltd.
vered outside the State, whether or not for consumpv.
tion in the State of first delivery (i.e., both types (a) & The Commisoioner
(b)) were exempted from the tax levy. The sales-tax
0! Sales-1,,x,
authorities, however, took the order to mean that only
B·ilrnr, Putua
those sales in which deliveries were made outside the
Ayyangar J.
State for consumption in the State of first destination,
i.e., those of type (a) were intended to be exempted,
and these rival interpretat.ions were put forward in the
correspondence that passed between the appellant!!
and the s1tles-tax authorities. The appellants made
an application for the refund of the amount of tax
attributable to all the sales under which goods were
delivered outside the State, but the tax authorities
sticking to their interpretation of the order of the
Board and of their interpretation of the decision of
this Court. in the United Motors case (1) refunded the
tax collected on the sales falling within type (a) but
refused to refund Rs. 20,923-15-2 for the 1st year and
Rs. 1,29,823-5-0 for the later year-these amounts
representing the tax on sales of type (b).
The appellants however persisted in pressing their claim for the
refund of these amounts also.
In this state of affairs, the State of Bihar moved the
Boa.rd of Revenue to review its order dated August
28, 1953, or at any rate clarify it so as to confine its
operation to sales falling within type (a), urging that
this would bring it in accord with the interpretation
of Art. 286(1) by this Court in the United Motors
case (1).
The appellants objected to the jurisdiction
of the Board of Revenue to review its previous decision and on April 25, 1955, it passed the following
order:
" These are what appear to be two miscellaneous
petitions filed on behalf of the State of Bihar seeking
certain clarifications regarding the interpretation of
the Board's order dated 28-8-1953 in Cases Nos. 514
of 1952.
After argument was heard it was conceded
(1) [1953] S.C.R. 1o6g.
112
SUPREME COUR'l.' REPORTS
[1961]
z96o
by both pa.rties that there is no provision in the Act
Tobacco
under which the parties concerned may move the
Manufacturers court to clarify or explain the order passed, this func-
(Jndia) Ltd.
tion essentially being a matter of legal ad vice. It
v.
was also agreed that no further clarification was really
The Commissfon" required in view of the specific reference to the judgo/ Sales-tax,
ment of the Supreme Court in the United Motor's case.
JJilair, Patna
The petitions are, therefore, rejected."
Ayyangar .r.
If the order of the Board dated August 28, 1953,
was laconic and ambiguous, the later order dated
April 25, 1955, was if anything more obscure. The
appellants, however, considered it an order in their
favour, because the petition by the State for clarification of the first order on the lines of the interpretation
put upon it by the tax authorities had been dismissed,
and when the refusal to refund the two sums of tax
referred to earlier was continued, they filed two petitions in the High Court of Patna. under Art. 226 of
the Constitution for the issue of writs of mandamus
to compel the refund of the tax on the principal
ground that a. duty to do so had been imposed by the
orders of the Boa.rd of Revenue, though the petition
made an incidental reference to the appellants being
entitled to such refund on a proper construction of
Art. 286(1) & (2) of the Constitution, even apart from
the order of the Board of Revenue.
The learned Judges of the" High Court however in
the main considered the question whether on a proper
interpretation of the relevant Articles of the Constitution, sales under which goods were delivered outside
Bihar but for consumption not in the State of first
delivery, were exempt from tax under the Biha.r Sales
Tax Act and decided the point against the appellants.
They next dealt with the central point urged in the
petitions, viz., that the Board of Revenue by its order
dated August 28, 1953, had allowed the appellant's
revision in regard to "the second point" which included sales of a.II categories whether or not for the
purpose of consumption in the State of first destination outside Bihar, and directed the Sales-tax Officer
to recompute the tax by allowing this exemption, and
-that the officer was therefore statutorily bound to
2 S.C.R. SUPREME COURT REPORTS
113
give effeot to the order of the Board, be the same right
r960
or wrong, partioularly when the Board refused to
Tobacco
vary or modify it so as to exolude particular types of Manufactums
sales from the soope of the exemption when moved to
(India) Ltd.
do so by the State Government. In regard to this
v.
point after stating that the orders of the Board of The Commissioner
Revenue were ambiguous, the learned Judges proof Sales-tax,
d d
h
.
h
.
Bihar Patna
cee e to answer t e question on t e assumpt10n that
'
the Board of Revenue had direoted the officer to
Ayyancar 1.
recompute the tax on the basis that all the outside
sales-both the (a) and the (b) types were exempted
from liability. The learned Judges then pointed out
that the order of the Board would be clearly erroneous
in regard to the (b) type sales-and that the petitioner
in a writ of mandamus oould not insist on a manifestly
wrong order being enforced. The petitions were therefore dismissed.
The appellants applied to the High Court for certificates under Arts. 132 and 133, but the learned J udgeR
granted a certifioate under Art. 132 alone and it is on
the strength of these certificates that the appeals are
before us.
The prinoipal point that Mr. Chatterjee, learned
Counsel for the appellants, argued before us related
to the duty of the tax authorities to obey the orders
of the Board of Revenue and give effeot to them, and
he submitted that t.he High Court erred in denying
his clients the relief of mandamus on the ground that
.that order was erroneous. In support of this argument learned Counsel sought reliance on a recent
decision of this Court in Bhopal Sugar Mills v. Commissioner of Income-tax (1) in which it was held that
when an order was made by a superior tribunal (in
that case the Income-tax Appellate Tribunal) directing the Income-tax Officer to compute the income of
an assessee on a particular basis and that order had
become final, the subordinate officer had no right to
disregard the directiol'1, because it was wrong and
that the High Court w,hen approached by the assessee
for the issue of a writ of mandamus, was bound to
(1) (1961] 1 s.c. R. 474·
15
114
SUPREME COURT REPORTS
[1961]
I960
enforce the final order of the superior Tribunal and
could not refuse to do so because it considered the
Tobacco
order of the Tribunal to be wrong. This Court pointed
M;n;ifac~~;" out that when the order which the Tribunal had juris-
·< n ·:> . diction to pass became final, it bound all parties to it
The commissin"" and its correctness could not be challenged collaterally
of Sales-tax.
in proceedings for enforcing that order. The attempt
Riha" Patna
of learned Counsel for tbe appellants was to bring this
case within the scope of the above ruling.
Ayyangar J.
The ratio of this decision is to be foun<l in this
passage:
" By that or<ler the respondent virtually refused
to carry out the directions which a superior tribunal
had given to him in exercise of its appellate powers in
respect of an order of assessment made by him. Such
refusal is in effect a denial of justice, and is furthermore destructive of one of the basic -principles in the
administration of justice based as it is in this country
on a hierarchy of courts. If a subordinate tribunal
refuses to carry out directions given to it by a superior
tribunal in the exercise of its appellate powers, the
result will be chaos in the administration of justice
and we have indeed found it very difficult to appreciate the process of reasoning by which the learned
Judicial Commissioner while roundly condemning the
respondent for refusing to carry out the directions of
the superior tribunal, yet held that no· mauifost injustice resulted from such refusal."
To attract the principle thus enunciated, it is neces-.
sary that there should be an order of a superior tribunal clear, certain and definite in its terms, and without any ambiguity, to which the subordinate authority or officer to whom it is addressed, could give
effect. We are clearly of the opinion that the decision referred to cannot apply to the situation in
the present case.
Taking the earlier order of tho Board first-it is to
put it at the mildest ambiguous. The Board referred
to the Bengal Timber case whic.h had been followed
by the lower authorities in disallowing the appellants'
claim to exemption to both the (a) and (b) type sales,
involving out of State delivery. A reference was then
2 S.C.R. SUPREME COURT REPORTS
115
made to the decii>ion of this Court in the State of
'960
Bombay v. United Motors (India) Ltd. and others(1) as
'Tobacco
superseding the previous decision of the Board, adding Manufacturm
that according to the decision of this Court no tax
(India) Ltd.
could be levied on despatches outside the State after
v.
the 26th January, 1950, and on that point the peti· Tiie Commissioner
tions were allowed. It will be noticed that the memof Sales-ta.•,
Bihar, Pa.fua
her did not set out the precise extent to which the
ruling of this Court superseded the previous decision
Ayyangar J.
of the Board, and this was left in a state of uncertainty. It was suggested by learned Counsel for the
appellants that Mr. Bakshi, the member of the Board,
drew no distinction between sales of type (a) or (b),
and had included both of them as falling within a
single category of sales in which delivery had taken
pla.ce outside the Sta.te for consumption in other
States, and for that reason we should hold that the
member had rightly or wrongly treated the decision
in the United Motors' case as applicable to all such
sales. We find ourselves unable to agree in this construction of the oi;der.
We cannot presume that Mr.
Bakshi did not peruse the judgment in the United
Motors' case when he referred to it in his order, nor
that he did not acquaint himself with the terms of
the Explanation. to Art. 286(l)(a) of the Constitution,
the scope and signifipance of which was analysed and
elaborated in that decision.
We are rather inclined
to agree with the construction which the member·
himself put on this order in April, 1955, that he left
it to the Sales-tax Officer to decide for himself the
relief to which the appellants were entitled on. that
officer's interpretation of the judgment of this Court.
It may be that this was not a satisfactory method of
disposing of the revision petition-leaving the point
which arose for decision by the member of the Board
of Revenue, to be decided by the Sales-tax Officer,
but we are now only concerned with the simple question whether Mr. Bakshi had or had not determined
the true scope and effect of the judgment of thi_s
Court and decided it as meaning that all sales as a
result of which goods were delivered outside the State
(1) (1953] S.C.R. 1069.
116
SUPREME COURT REPORTS
[1961]
r96o
of Bihar were within the Explanation and so were
Tobacco,
exempt from the tax liability. Notwithstanding the
Manufacturm cryptic language used by the Member of the Board,
(India) Ltd.
we are clearly of the opinion that he did not intend
v.
to decide this point in favour of the appellants in the
The Commissioner manner contended for by them.
of Sales-tax,
It is now common ground that when the Board of
Bihar, Patna
S
G
Revenue was approached by the tate
overnment
AJ·yangar ;. to review or clarify this order, Mr. Bakshi, by his
order dated April 25, 1955, expressed himself as having decided earlier that he had directed the sales-tax
officer to give effect to the judgment of this Court in
the United MotorB case and had done nothing further.
Learned Counsel for the appellants strongly pressed
before us that the member of the 'Board having
accepted the preliminary objection that there was no
provision in the Bihar Sales-tax Act by which a party
concerned might move the Board to clarify or explain
the order, he had no jurisdiction to effect any clarification of his previous order and that whatever was
said by the Board on the second occasion could not be
held to modify the earlier order or deny the appellants
such benefits as were granted to them by the earlier
order of August 28, 1953. But as against this, it has
to be noted· that before the Board both the parties, i.~.,
the State Government as well as the appellants-agreed
that clarification was not needed because "of the specific reference to the judgment of the Supreme Court
in the United ltfotors case". As this observation was
embodied in the later order with the consent of both
the parties, we consider that it is too late now for the
appellants to raise any technical objection to this
sentence being given effect to. In view, however, of
the conclusion that we have reached as to the construction of the earlier order of August, 1953, it is
unnecessary to pursue the matter any further.
If, therefore, as a result of the order or orders passed by the Board, the sales-tax officer was directed to
give effect to the judgment of this Court in the United
Motors caBe, it followed that the interpretation of the
judgment was left to that officer.
We have already
pointed out that to such a situation the principle of
2 S.C.R. SUPREME COURT REPORTS
117
the decision of this Court in Bhopal Sugar Mills v.
iy6o
Commissioner o1 Income Tax (1) is inapplicable. We
~
Tob~cco
might also point out that even if the deoision applied
Manufacturers
and the High Court issued an order in the p.ature of
(India) Ltd.
ma.ndamus to the sales-tax officer, it could only take
v.
the form of a direction to effect the reassessment in the The Commissione,
light of the decision fo the United Motors case (2)-an
°! Sales-tax,
order which would leave the appellants in the same
Bihar, Patna
position in which they now find themselves without
Ayyangar 1.
such an order by the High Court.
The next question for consideration is whether on a
proper construction of the decision in the United
Motors case (9) the exclusion of type (b) sales from
those exempted under Art. 286(1) was erroneous. Mr.
Chatterjee, learned Counsel for the appellants sought
to establish that this Court bad decided in the United
Motors case three points: (1) that sales as a result of
which goods were delivered in a State for consumption
in such State, i.e., the sales falling within the Explanation to Art. 286(1) were fictionally inside that State
for all purposes and so within the taxing power of the
State in which such delivery took place, (2) that sales
which by the fiction created by the Explanation were
inside a particular State, were "outside" all other
States, and so exempt from tax levy by all such other
States, (3) that further and beyond this, all sales
which did not satisfy the terms of the Explanation
but in which goods were delivered outside the State in
which title passed were "outside sales" over which
no State would have power to levy a tax. In other
words, the argument was that this Court bad laid
down that every sale which was not "an Explanation
sale" and therefore not an · " inside sale " within a
particular State was an "outside sale " for all States
and therefore exempt from the levy of sales-tax by
every State in India. In support of this submission
learned Counsel relied on a passage in the judgment
of the learned Chief Justice at page 1081 of the Report which ran:
" ............... The authors of the Constitution had
to devise a formula of restrictions to be imposed on
the State-power of taxing sales or purchases involving
l1) [1961] I S.C.R. 474·
(i) [I9S3] S.C.R.:1069.
Ig6o
Tobacco
118
SUPREME COURT REPORTS
(1961]
inter-State elements which would avoid the doubts
aud difficulties arising out of the imposition of sales.
tax on the same transaction by several Provincial
M anufa.cturers
(India) Ltd.
Legislatures in the country before the commencement
v.
of the Constitution. This they did by enacting
Th• Commissio..,1· clause (l)(a) with the Explanation and clause (2) of
•!Sales-tax,
Article 286. Clause (l)(a) prohibits the taxation of
Biha•·, Patna
all sales or purchases which take place outside the
Ayyangar ;.
State but a localised sale is a troublesome concept,
for, a sale is a composite transaction involving as it
does several elements such as agreement to sell,
transfer of ownership, payment of the price, delivery
of the goods and so forth, which may take place at
different places ............. , ....... To solve the difficulty
an easily applicable test for determining what is an
outside sale had to be formulated, and that is what,
in our opinion, the Explanation was intended to do.
It provides by means of a legal fiction that the State
in which the goods sold or purchased are actually
delivered for consumption therein is the State in
which the sale or purchase is to be considered to have
taken place, notwithstanding the property in such
goods passed in another State ............ An "outside"
sale or purchase is explained by defining what is an
inside sale, and why actual delivery and consumption
in tho State are ma.de the determining factors in locat·
ing a sale or purchase will presently appear. The test
of sufficient territorial nexus wa.s thus replaced by a
simpler and more easily workable test : Are the goods
actually delivered in the taxing State as a direct
result of a sale or a purchase, for the purpose of consumption therein ? Then, such sale or purchase shall
be deemed to have taken place in that State and outside all other States. The latter States are prohibited
from taxing the sale or purchase; the former alone is
left free to do so. Multiple taxation of the same
transaction by different States is also thus avoided."
In our opinion, this passage explains the scope of
the Explanation and deals with what might be termed
"Explanation sales". If there is a sale falling within
the terms of the Explanation, it is "inside" the State
of delivery-cum-consumption and that State alone
can levy the tax. Such a sale is outside all other
2 S.C.R. SUPREME COURT REPORTS
119
States, which are prohibited from taxing such a sale
I960
by reason of any territorial nexus however close or
TPbacco
cogent. The passage extracted, however, does not
Manufacturers
deal with cases where the sale in question does not
(India) Ltd.
satisfy the requirements of the Explanation leading
v.
to the fixation of the fictional situs of the sale deter- The Commissioner
mining the State by which the tax might be levied.
of Sales-tax,
Wh h
d 'f
h' h • th St t
h' h
Bihar, Patna
et er any an , 1 so, w 10 is
e
a e w ic
can
levy a tax on a sale not covered by the Explanation,
Ayyangar J.
is not dealt with by this decision at all.
From this it would follow that sales of type (a)
would be exempt from the levy of tax under the
Bihar Sales-Tax Act by reason or their being "inside"
sales within the State of delivery-cum-consumption
and therefore being "outside" sales quoad the State
of Bihr.r. Sales of type (b), however, not having been
dealt with by the decision in the United Motors case,
it would follow that on the orders of the Board of
Revenue, the previous decision of the Board in the
Bengal. Timber case would have still held the field
and the transactions would be liable to the levy of
tax and the tax levied on those sales would continue
to be valid. Learned Counsel for the appellants was
certainly right in his submission that as the orders of
the Board of Revenue had became final as between
the parties, the liability to tax must be determined on
the basis of these orders-be they right or wrona. It
is therefore unnecessary to consider whether; ~part
from the decision of this Court in the United Motors
case, the appellants would be entitled to any further
relief on the basis of any other decision of this _Court
interpreting Art. 286(1) & (2).
As already stated, the appellants have already _been
granted a refund in regard to the tax collected in
respect of the sales falling within type (a). As, in our
opinion, the appellants were not on the orders of the
Boa.rd of Revenue entitled to a refund of the tax on
transactions falling within type (b), the judgment of the
High Court dismissing their petitions is clearly right.
The appeals fail and are dismissed, but in the circumstances of the cas"' there will be no order as to costs .
.Appeal8 dismissed.