Full Judgment Text
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PETITIONER:
KURAPATI VENKATASATYANARAYANA & OTHERS
Vs.
RESPONDENT:
THE STATE OF ANDHRA PRADESH
DATE OF JUDGMENT:
01/08/1969
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C. (CJ)
GROVER, A.N.
CITATION:
1970 AIR 306 1970 SCR (1) 743
1969 SCC (2) 439
ACT:
Constitution of India, Art. 285 ( 1 ) (a) --Sales
outside the State--Whether burden of proof on dealer to
show consumption in delivery State--Assessment
Order--Comprehensive order covering sales taxable and
those not taxable--lf severable.
HEADNOTE:
The appellant, a dealer in pulses in Vijayawada in Madras
State made certain sales outside the State during the
assessment year 1949-50. The appellant claimed exemption
from sales tax of sales effected outside the State during
the year but the Deputy Commercial Tax Officer disallowed
the claim. A first appeal and a revision petition to the
Board of Revenue were unsuccessful. The appellant
thereafter brought a suit for the recovery of tax collected
from him with interest contending that part of sales
effected outside the State could not be taxed under Art.
285(1)(a) of the Constitution. The Trial Court held that
the assessment to tax of the sales during the period from
April 1, 1949 to January 25, 1950’ could not be impeached
but the sales from January 26 to March 31 outside the State
were not liable to sales-tax; as there was a single order of
assessment ’for the whole year, the entire assessment was
illegal.
In appeal to the High Court, and upon a direction from that
Court, the Trial Court gave a finding that deliveries of the
goods were not made for purposes of consumption within the
delivery State only. The High Court. therefore. allowed the
appeal holding that the appellant could not claim the
benefit under Article 286(1)(a) in the absence of evidence
as to how the whole-sales disposed of the goods after
obtaining delivery and therefore the entire turn-over for
the year 1949-50 would be assessable to tax.
In the appeal to this Court, it was contended inter-alia
(i) that the High Court was in error in holding that the
burden of proof was on the appellant to show that there was
not only delivery of goods for consumption within the
delivery States but there was actual consumption of goods in
those States: (ii) the assessment must be treated as an
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indivisible one and if a part of the assessment was illegal,
the entire assessment must be deemed to be infected and
treated as invalid.
HELD: Allowing the appeal,
(i) The part of the turnover which related to sales from
January 26, 1960 to March 31. 1960 was not liable to sales-
tax and the levy of sales-tax from the appellant to this
extent was illegal.
It was rightly contended that the appellant did not
carry the burden of showing that there was not only delivery
of goods for consumption within the States but that the
goods were actually consumed in those States. [749 C]
India Copper Corporation Ltd. v. The State of Bihar,
12 S.T.C. 56 relied upon.
744
(ii) In the present case though there was a single order
of assessment for the period from April 1, 1949 to March 31,
1950, the assessment could be split up and dissected and the
items of sales separated and taxed for different periods.
It was possible to ascertain the turnover of the appellant
for the pre-Constitution and post-Constitution periods from
the figures furnished in the plaint by the appellant
himself. It was, therefore. open to the Court in these
circumstances to sever the illegal part of the assessment
and give a declaration with regard to the illegal part alone
instead of1 declaring the entire assessment void. [752 B]
Case law referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1451 of
1968.
Appeal from the judgment and decree dated March 11, 1965
of the Andhra Pradesh High Court in A.S. Nos. 93 and 169 of
1957.
Rajeshwara Rao and B. Parthasarathi, for the appellant.
D. Munikanniah and A.V.V. Nair, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate
from the judgment of the High Court of Andhra Pradesh dated
March 11, 1965 in A.S. Nos. 93 and 169 of 1957.
The appellant was a firm of dealers in pulses at
Vijayawada.It was sending pulses like green gram and black
gram to other States viz.: Bombay, Bengal, Madras and Kerala
by rail in the course of their business. The consignments
were addressed to ’self’ and the railway receipts were
endorsed in favour of Banks for delivery against payments.
The purchasers obtained the railway receipts after payments
and took delivery of the goods. The total turnover of the
business of the appellant for the year 1949-50 was Rs.
17,05,144-2-2. Of the said turnover a sum of Rs.
3,61,442-7-3 represented the turnover of sales effected
outside the then Madras State. For the assessment year
1949-50 the Deputy Commercial Tax Officer collected sales
tax on the total turnover without exempting the value of the
sales effected outside the State. The appellant was
permitted to pay sales tax under(r. 12 of the Madras General
Sales Tax (Turnover and Assessment) Rules. The appellant
submitted monthly returns and paid sales tax without
claiming any such exemption till the end of January, 1950.
But in, the returns for the months of February and March,
1950 the appellant claimed exemption on sales effected
outside the State. The appellant submitted a consolidated
return Ex. A-18 to the Deputy Commercial Tax Officer on
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March 30, 1950 claiming exemption in respect of a
sum of Rs. 10,37,334-7-9 being the value of the sales
effected outside the
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State or the period commencing from April 1, 1949 and ending
January 31, 1950. The Deputy Commercial Tax Officer fixed
the taxable turnover of the appellant at Rs. 17,05,14-4-2-2
and issued a notice Ex. A-23 dated October 24, 1950 to show
cause why the appellant should not be assessed accordingly.
The appellant was thereafter held liable to pay tax
amounting to Rs. 26,642-14-0 on a net turnover of Rs.
17,05,144-2-2. The appellant preferred an appeal to the
Commercial Tax Officer and a revision petition to the Board
of Revenue, Madras but was unsuccessful. The appellant,
therefore brought a suit for the recovery of Rs. 21,270-13-0
being the amount of tax illegally collected from him
together with interest, contending that the sales
effected outside the State could not be taxed under Art. 285
(1)(a) of the Constitution of India. The State of Madras
contested the suit on the ground that the sales were taxable
as they fell within the purview of explanation 2 to s. 2(h)
of the Madras General Sales Tax Act, 1939 hereinafter
referred to. as the Act). The Subordinate Judge held that
for the period from April 1, 1949 to January 25, 1950 the
appellant was not entitled to impeach the assessment on the
turnover relating to sales outside the State. As regards the
period from March 26, 1950 to March 31, 1950 the Subordinate
Judge took the view that the past of the turnover relating
to, outside sales was not liable to salestax but as there
was a single order of assessment for the entire period
the entire assessment was illegal. Again the judgment of
the Subordinate Judge both the appellant and the respondent
filed appeals A.S. No. 93 of 1957 and A.S. No. 169 of 1957
to the High Court of Andhra Pradesh. But its order dated
April 18, 1960 in Appeal No. 169 of 1957 the High Court
called for a finding from the trial court as to whether
the appellant was able to prove the facts entitling him to
invoke the explanation to Art. 286(1)(a). By its order
dated July 21, 1962 the trial court submitted a finding to
the effect that in view of the decision of the Supreme Court
in India Copper Corporation Ltd. v. The State of Bihar(1)
the burden of proof was not on the appellant and that the
finding will have to be given in its favour. But by its
order dated March 5, 1963 the High Court directed the
Subordinate Judge to record a finding after considering the
evidence adduced by the appellant as to whether the goods
in question were delivered for consumption within the
delivery States. In its order dated March 22, 1963 the
trial court, after considering the evidence given by the
appellant’s witnesses came to the conclusion that the
deliveries were not made for purposes of consumption within
the delivery States only. The High Court by a common
judgment dated March 11, 1965 in
A.S. No. 93 and 169 of 1957 held that the appellant could
not claim the benefit under Art. 286(1)(a) of the
Constitution in the
(1) 12S.T.C. 56.
746
absence of evidence as to how the wholesalers disposed of
the goods after obtaining delivery and therefore the entire
turnover for the year 1949-50 would be assessable to tax.
In the result A.S. No. 169 of 1957 flied by the respondent
was allowed and A.S. No. 93 of 1957 filed by the appellant
was dismissed.
The Madras General Sales Tax Act, 1939 was enacted in
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exercise of the legislative authority conferred upon the
Provincial Legislatures by Entry 48 of List II read with s.
100(3) of the Government of India Act, 1935. The
explanation to s. 2(h) of this Act is as follows:
"Notwithstanding anything to the contrary
in the Indian Sale of Goods Act, 1930 the
sale or purchase of any goods shall be deemed,
for the purpose of this Act, to have taken
place in this Province, wherever the
contract
of sale or purchase might have been made.
(a) If the goods. were actually in this
Province at the time when the contract of sale
or purchase in respect thereof was made or,
(b) in case the contract was for the sale
or purchase of future goods by description,
then, if the goods are actually produced in
this Province at any time after the contract
of sale or purchase in respect thereof was
made."
Under Entry 48 of List II of the Government of India
Act, 1935the Provincial Legislatures could tax sales by
selecting some fact or circumstances which provided a
territorial nexus with the taxing power of the State even if
the property in the goods sold passed outside the Province
or the delivery under the contract of sale took place
outside the Province. Legislation taxing sales depending
solely upon the existence of a nexus, such as production or
manufacture of the goods, or presence of the goods in the
Province at the date of the contract of sale, between the
sale and the legislating Province could competently be
enacted under the Government of India Act, 1935. [see
Tata Iron & Steel Ca. Ltd. v. The State of Bihar(1) and
Poppatlal Shah v. The State of Madras ( 2 ) ].
By Art. 286 of the Constitution certain fetters were
placed upon the legislative powers of the States as follows:
"(1) 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--
(1) [1958] S.C.R. 1355. (2) [19531 S.C.R. 677.
747
(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, notwithstanding the fact that
under the general law 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
authorise 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 commerce;
Provided 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 thirty-first day of March, 1951.
(3) No law made by the Legislature of a State
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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."
Therefore, by incorporating s. 22 of the Madras Act read
with Art. 286, notwithstanding the amplitude of the power
otherwise granted by the charging section read with the.
definition of ’sale’, a cumulative fetter of triple
dimension was imposed upon the taxing power of the State.
The Legislature of the Madras State could not since January
26, 1950, levy a tax on sale of goods taking place outside
the State or in the course of import of the goods into, or
export of the goods out of, the territory of India, or on
sale of any goods where such sale took place in the course
of inter-State trade or commerce. By the Explanation to
Art. 286(1)(a) which is incorporated by s. 22 of the Madras
Act a sate is deemed to take place in the State in which the
goods are actually delivered as a. direct result of such
sale for the purpose
748
of consumption in that State even though under the law
relating to sale of goods the property in the goods has by
reason of such sale passed in another State. In the State
of Bombay and Anr. v. The United Motors (India) Ltd.(1) it
was held that since the enactment of Art. 286(1)(a) a sale
described in the Explanation which may for convenience be
called an "Explanation sale" is taxable by that State
alone in which the goods sold are actually delivered as a
direct result of sale for the purpose of consumption in that
State.
With a view to impose restrictions on the taxing power
of the States under the pre-Constitution statutes,
amendments were made in those statutes by the Adaptation of
Laws Order. As regards the Madras Act the President issued
on July 8, 1952 the Fourth Amendment inserting a new
section, s. 22 in that Act. It runs as follows:
"Nothing contained in this Act shall be
deemed to impose or authorise the imposition
of a tax on the sale or purchase of any goods
where such sale or purchase takes place--
(a) (i) outside the State of Madras, or
(ii) in the course of import of the goods
into the territory of India or of the export
of the goods out of such territory, or
(b) except in so far as Parliament may by
law otherwise provide, after the 31st March.,
1951, in the course of inter-State trade or
commerce, and the provisions of this Act shall
be read and construed accordingly.
Explanation :--For the purposes of cl.
(a)(i) 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,
notwithstanding the fact that under the
general law relating to sale of goods the
property in the goods has by reason of such
sale or purchase passed in another State."
By this amendment the same restrictions were engrafted on
the pre-Constitution statute as were imposed by Art. 286 of
the Constitution upon post-Constitution statutes.
As regards the sales for the period from April, 1949
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to January 25, 1950 it was admitted before the Deputy
Commercial
(1) [1953] S.C.R. 1069.
749
Tax Officer that the goods were actually in the Madras State
at the time the contract of sale was concluded. It was for
this reason that the Deputy Commercial Tax Officer negatived
the claim which the appellant made in respect of those
sales. It appears that in the trial court the appellant
challenged the constitutional validity of explanation to s..
2(h) of the Act. But in view of the decision of this Court
in the Tata Iron & Steel Co’s case(1) and Poppatlal Shah’s
case(2) counsel on behalf of the appellant did not seriously
dispute the validity of the assessment in regard to sales
from April 1, 1949 to January 25, 1950.
With regard to the period from January 26, 1950 to
March 31, 1950 the contention of the appellant’ is that the
High Court was in error in holding that the burden of proof
was on the appellant to show that there was not only
delivery of goods for consumption within the delivery States
but there was actual consumption of the goods in those
States. In our opinion the argument is well-founded and
must be accepted as correct. In India Copper Corporation’s
case(3) it was pointed out by this Court that if the goods
were as a direct result Of a sale delivered outside the
State of Bihar for the purpose of consumption in the State
of first delivery, the assessee would be entitled to the
exemption from sales tax by virtue of the Explanation to Art
286(1)(a) of the Constitution and it would not be necessary
for the assessee to prove further that the goods so
delivered were actually consumed in the State of first
destination.
In the present case the Subordinate Judge has, upon a
consideration of the evidence adduced by the parties stated
in his report dated June 27, 1962 that the intention of the
appellant was that the sale and delivery should be for the
purpose of consumption in the delivery States. It is true
that in his subsequent report dated March 22, 1963 the
Subordinate Judge gave a different finding. But it is
obvious that the subsequent report of the Subordinate Judge
is vitiated because the principle laid down by this Court in
India Copper Corporation’s case(3) has not been taken into
account. Having regard to the evidence adduced by the
appellant in this case we are satisfied that the part of the
turnover which related to sale from 2, January 26, 1950 to
March 31, 1950 was not liable to sales tax and the levy of
sales tax from the appellant to this extent is illegal.
The next question arising in this appeal is whether
the assessment order of the Deputy Commercial Tax Officer
for the year 1949-50 is illegal in its entirety
notwithstanding the fact that the State Government had a
right to levy sales tax on outside sales
(1) [1958] S.C.R. 1355. (2) [1953] S.C.R. 677.
(3) 12 S.T.C. 56.
750
which were effected prior to January 26, 1950. It was
argued for the appellant that the assessment must be treated
as one and indivisible and if a part of the assessment is
illegal the entire assessment must be deemed to be infected
and treated as invalid. In support of this argument
reference was made to the decision of this Court in Ram
Narain Sons Ltd. v. Assistant Commissioner of Sales Tax(1)
in which this Court observed as follows:
"The necessity for doing so; is, however,
obviated by reason of the fact that the
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assessment is one composite whole relating to.
the pre-Constitution as well as the post-
Constitution periods and is invalid in toto.
There is authority for the proposition that
when an assessment consists of a single
undivided sum in respect of the totality of
the property treated as assessable, the
wrongful inclusion in it of certain items of
property which by virtue of a provision of
law were expressly exempted from taxation
renders the assessment invalid in toto."
The Court cited with approval a passage from the judgment of
the Judicial Committee in Bennett & White (Calgary)
Ltd.and Municipal District of Sugar City No. 5(2).
"When an assessment is not for an entire
sum, but for separate sums, dissected and
earmarked each of them to a separate
assessable item, a Court can sever the
items and cut out one or more along with the
sum attributed to it, while affirming the
residue. But where the assessment consists
of a single undivided sum in respect of the
totality of property treated as assessable,
and when one component (not dismissible as
’de minimis’) as on any view not assessable
and wrongly included, it would seem clear that
such a procedure is barred, and the
assessment is bad wholly. That matter is
covered by authority. In Montreal Light, Heat
& Power Consolidated v. City of Westmount(3)
the Court (see especially per Anglin, C.J) in
these conditions held that an assessment which
was bad in part was infected throughout, and
treated it as invalid. Here their Lordshis
are of opinion, by parity of reasoning, that
the assessment
was invalid in toto."
Applaying the principle to the special facts are
circumstances of the case the Court set aside the orders of
assessment and directed that the case should be remanded to
the Assessment Officer for reassessment of the appellants
in accordance with law. The same principle was applied but
with a different result in the later case
(1) 6 S.T.C. 627 at 637. (2) [1951] A.C. 786 at p. 816.
(3) [1926] S.C.R. (Can) 515.
751
the State of Jammu & Kashmir v. Caltex (India) Ltd. (1)
in which the question arose as regards the validity of an
assessment of sales tax of all retails sales of motor
spirit. The Petrol Taxation Officer assessed the respondent
to pay sales tax for the period January 1955 to May, 1959
under s. 3 of the Jammu & Kashmir Motor Spirit (Taxation of
Sales) Act, 2005. The respondent applied under s. 103 of
the Constitution of Jammu & Kashmir and a single Judge of
the High Court held that the respondent was liable to pay
sales tax only in respect of the sales which took place
during the period January to September, 1955 and issued a
writ restrainig the appellants from levying tax for the
period October, 1955 to May, 1959. On appeal a Division
Bench of the High Court quashed the assessment for the
entire period. On appeal to this Court it was held that
though there was one order of assessment for the period
January 1, 1955 to May 1959 the assessment could be
split up and dissected and the items of sale could be
separated and taxed for different periods. It was pointed
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out that the sales tax was imposed in the ultimate analysis
on receipts from individual sales or purchases of goods
effected during the entire period, and, therefore, a writ of
mandamus could. be issued directing the appellant not to
realise sales tax with regard to transactions of sale
during the period from September 7, 1955 to May, 1959.
A similar question arose for determination in an
American case [Frank Rattarman v. Western Union Telegraph
Co.(2)]. The question in that case was "whether a single
tax, assessed under the Revised Statutes of Ohio, section
2778, upon the receipts of a telegraph company which
receipts were derived partly from inter-state commerce and
partly from commerce’ within the State but which were
returned and assessed in gross and without separation or
apportionment, is wholly invalid, or invalid only in the
proportion and to the extent that the said receipts were
derived ,from interstate commerce". It was held unanimously
by the Supreme Court of the United States that the
assessment was not wholly invalid but it was invalid only in
proportion to the extent that such receipts were derived
from interstate commerce. It was observed that where the
subjects of taxation can be separated so that that which
arises from interstate commerce can be distinguished from
that which arises from commerce wholly within the State, the
Court will act upon this distinction, and will restrain the
tax on interstate commerce. while permitting the State to
collect that upon commerce wholly within its own territory.
The principle of this case has been consistetly followed in
American cases: [see Bowman v. Continental Company(3)].
This case has been cited with approval by this Court in The
State of Bombay
(1) 17 S.T,C. 612. (2) 127 U.S. 411.
(3) 250 U.S. 642.
C.I./69---4
752
v. The United Motors (India) Ltd.(1) wherein it was observed
that the same principle should be applied in dealing with
taxing statutes in this country also.
In the present case we are of opinion that though there
is a single order of assessment for the period from April 1,
1949 to March 31, 1950 the assessment could be split up and
dissected and the items of sale separated and taxed for
different periods. It is quite easy in this case to
ascertain the turnover of the appellant for the pre-
Constitution and post-Constitution periods for these
figures are furnished in the plaint by the appellant
himself. It is open to the Court in these circumstances to
sever the illegal part of the assessment and give a
declaration with regard to that part alone instead of
declaring the entire assessment void. For these reasons we
hold that the appellant should be granted a declaration
that the order of assessment made by the Deputy Commercial
Tax Officer for the year 1949-50 is invalid to the extent
that the levy of sales tax is made on sales relating to.
goods which were delivered for the purpose of consumption
outside the State for the period from January 26, 1950 to
March 31, 1950. The result is that the appellant is
entitled to a refund of the amount illegally collected from
him for the period from January 26, 1950 to March 31, 1950.
The trial court has already found that the appellant is
entitled to claim exemption with regard to. turnover for
this period to the extent of Rs. 3,34,107-15-6 and the tax
payable on this sum is Rs. 5,220-7-0. The appellant is.
therefore, entitled to a decree for the refund of Rs.
5,220-7-0. The appellant is also entitled to interest at 6%
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per annum from the date of suit till realisation of this
amount.
For these reasons we allow this appeal and set aside
the judgment of the Andhra Pradesh High Court dated March
11, 1965 in A.S. Nos. 93 and 169 of 1957 and allow this
appeal to the extent indicated above.
There will be no order with regard to costs.
R.K.P.S. Appeal allowed.
(1) [1953] S.C.R. 1069 at 1097.
753