K. Veeraswami, J.
1. We have before us two batches of cases, the first raising the question whether Sections 8(2), (2-A), (5) and 9(3) of the Central Sales Tax Act, 1956 violates Articles 301 and 303(1) of the Constitution. In the other batch, the scope and effect of Sections 3 to 6, 8, 9, 14 and 15 of the Act and their applicability to the facts fall to be considered. We shall first notice the facts in one of the petitions in the first batch which is more or less typical of the others in that batch which will suffice to show how the constitutional validity of the sections has been raised.
2. The petitioner in W.P. No. 836 of 1966 is a registered dealer and describes himself as a manufacturer of matches at Sankarankoil with a sales depot at Ongole in Andhra Pradesh. The business is carried on under the name and style of Lakshmi Match Works. For the accounting year 1963-64, the petitioner filed monthly returns in Form I showing a total taxable turnover of Rs, 26,300 under the Central Sales Tax Act, 1956. The Deputy Commercial Tax Officer, Sankarankoil, on his scrutiny of the assessee's accounts fixed the total taxable turnover at Rs. 1,16,749.62. Pursuant to an order dated 25th March, 1966, a demand was made on the assessee to pay a tax of Rs. 1,808.99 after giving credit to Rs. 526 already paid The petitioner had also filed in Form 'A-2' monthly returns to the Deputy Commercial Tax Officer, Ongole, showing a gross and net turnover of Rs. 84,250.93 and Rs. 68,686.68 respectively for the year 1963-64. A turnover of Rs. 74,873.57 was brought to tax and it included a turnover of Rs. 6,049.33 representing first sales of matches from 1st April, 1963 to 31st July, 1963, subject to tax at 5 per cent. The rest of the turnover was said to consist of second sales of matches from 1st August, 1963 to 31st March, 1964, which was taxed, at 2 per cent. The assessment order at Ongole resulted in a tax demand of Rs. 1,678.93. Both the assessment orders followed notices to the assessee to show cause against proposed assessments and a consideration of the objections. According to the assessee, a turnover of Rs. 90,437.62 out of Rs. 1,16,749.62. determined by the Madras Officer related to depot sales at Ongole in Andhra Pradesh. But the assessing Officer declined to accept his case and found with reference to the relative records that the movement of the goods stocked at Sankarankoil in the Madras State to Ongole in Andhra Pradesh was occasioned by sales and that though the sales were not covered by 'C' declaration Forms, he would limit the tax to 2 per cent. The assessing officer described the transaction thus:
The movement of the goods was by lorry 'By self' through the delivery notes on lorry freight 'To pay' while goods were consigned by the representative at Ongole to whom remuneration had been paid. Such lorry charges incurred were subsequently credited for against Lakshmi Match Works, Sankarankoil by the representative at Ongole, money received by means of bank draft and Telegraphic transfer of pre-paid advances and balance amount. Registration certificate, godown licence and Municipal licence were not produced till date.
3. He also noted that the goods moved from the Madras State to Andhra State at the risk of Lakshmi Match Works and that no insurance had been made in respect of it. He was of the View that goods moved from this State through lorry on prepaid advances and the balances of sale proceeds were received later through bank drafts, that sales were made at the rate fixed by the seller at Sankarankoil and debted for in depot account at Ongole, that the final settlement of accounts in the depot was made at Ongole and that these facts showed that the existence of depot agency at Ongole could not be accepted as genuine. He considered that the goods moved from the godown stock and the movement was of packed appropriate goods in pursuance of the assessee's contract of sale to buyers out of State. In another place of his order the assessing officer stated that the value of the goods was received, before actual sale. The Deputy Commercial Tax Officer at Ongole thought that the sales forming the aggregate turnover of Rs. 74,873.57 were all depot sales of matches in the State of Andhra Pradesh. Evidently he felt that the assessee supplied the goods from Sankarankoil to his Ongole depot and, effected sales thereof in Andhra Pradesh.
4. The assessee in the first instance moved this Court under Article 226 of the Constitution to issue a rule forbidding the Deputy Commercial Tas Officer, Sankarankoil, from making any assessment in pursuance of his notice dated 28th February, 1966, but since later it was found that assessment was actually made by him on 25th March, 1966, the prayer for prohibition is sought by the assessee to be modified into one for certiorari, quashing the order of assessment. The view of the Deputy Commercial Tax Officer, Sankarankoil, as to the character of the transactions as inter-State sales chargeable to tax in the Madras State has not been canvassed before us. The argument of Mr. Abdul Karim for the assessee attacking the validity of some of the provisions of the Central Sales Tax Act and that of learned Advocate-General have proceeded on the assumption that the transactions are inter-State sales. We have not, therefore, examined the transactions in question and do not express any opinion as to their character. We may, however, conveniently at this stage dispose of an objection to the maintainability of the writ petitions. This, is on the ground that the assessee has a right of appeal and, in fact, the right has been availed of in some of his cases. It is undoubtedly true that when for the first time a statute creates rights and liabilities not existing at common law and provides for a remedy, let alone a hierarchy of remedies, to aggrieved persons, the Court in exercise of its extensive jurisdiction under Article 226 of the Constitution will not normally allow a party to by pass such remedies and straightaway resort to the high constitutional remedy. It is also to be borne in mind that jurisdiction under Article 226 is not appellate and is no substitute for other ordinary remedies at law; nor is the original jurisdiction. under the Article as wide as that in trial of suits. Where, without finding of facts on evidence, it is not possible or is premature to decide a question raised by the aggrieved party, the extraordinary jurisdiction under the Constitution will not be exercised. If equally expeditious and efficacious remedies are available, that will be a strong factor dissuading entertainment of a petition under the Article. Though these principles are generally to be followed, there are exceptions justified by special circumstances. They include a question of vires of a statute or rule or a patent error of jurisdiction or error of law apparent on the face of the record, obvious bias and violation of fundamental rights or principles of natural justice. As observed by the Supreme Court in a recent judgment in Tata Engineering and Locomotive Company Ltd. v. The Assistant Commissioner of Commercial Taxes Since reported in (1967) 1 I.T.J. 866 : (1967) 2 S.C.J. 116:
One such exception is where action is being taken under an invalid law or arbitrarily without the sanction of law. In such a case, the High Court may interfere to avoid hardship to a party which will be unavoidable if the quick and more efficacious remedy envisaged by Article 226 were not allowed, to be invoked.
In that case the appellant-company asserted that property in certain goods which at its yards still belonged to it and neither the property therein had passed to any one else nor had they been appropriated to a contract of sale. For this purpose, certain documents were produced to illustrate sample sales and it was contended that in law the transactions could not be regarded as sales in the course of inter-State sale or commerce or outside sales. The High Court of Patna took the view that the company ought to resort to an appeal which was available to it and since the payment of the balance of demand was within its capacity, it was not by itself an onerous circumstance to merit interference under Article 226. The appeal by special leave against that judgment was allowed by the Supreme Court further observing:
There is nothing to show that any further evidence beyond documents produced to illustrate sample sales was necessary. Nor did the learned Additional Solicitor-General suggest that this was going to be an issue of fact rather than of law. It would certainly have avoided circuitry of action and proved altogether more satisfactory if the High Court had considered whether the sample transaction as illustrated by the document, disclosed a transaction of sale outside the State of Bihar and not in the course of inter-State trade or commerce.
In the present instance too no complicated or disputed facts have first to be found on evidence in order to appreciate and decide the contention as to the validity of some of the statutory provisions. The contention proceeds on the basis that the provisions of Section 8(2), (2-A), (5) and 9(3) of the Central Sales Tax Act, 1956 in effect impose or authorise imposition of varying rates of taxes in different States on some or similar inter-State transactions and the resultant inequality in the burden of tax affects and impedes inter-State trade, commerce and intercourse, there by violating the freedom vouchsafed by Article 301 of the Constitution. We are of the view that the Departmental Authorities cannot possibly decide such a question and no controversial facts for deciding it fall to be determined by us on evidence.
5. We shall now proceed to deal with the validity of the said statutory provisions. The circumstances in which the Central Sales Tax Act, 1956 came to be enacted will be noticed later in this judgment, while considering the question of interpretation of some of its provisions and their application to the facts of particular cases in the second batch. Bengal Immunity Co., Ltd. v. The State of Bihar (1955) S.G.J. 672 : (1955) 2 S.C.R. 168 : (1955) 2 M.L.J. (S.C.) 603 : 6 S.T.C.446, which was decided by the Supreme Court on 6th September, 1955 eventually led to the Constitution (Sixth Amendment) Act, 1956. Article 286 was recast omitting the Explanation to Clause (1) and providing by Clause (2) for Parliament to formulate by law principles for determining when a sale or purchase of goods takes place in any of the places outside the State or in the course of the import of the goods into or export of the goods out of, the territory of India. By Clause (3) as amended, restrictions and conditions have been placed on the power of the State to impose or authorise imposition of tax on the sale or purchase of goods declared by Parliament to be of special importance in inter-State trade or commerce in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. The principles envisaged by Article 286(2) have since been formulated by Parliament in the Central Sales Tax Act, 1956 and conformably to Clause (3) of the Article., Section 14 of the Act declares certain specified goods to be of special importance in inter-State trade or commerce and by Section 15 restrictions and conditions in regard to tax on sale or purchase of declared goods within a State are prescribed. Section 6 is the charging section and it has imposed a liability to pay tax on all sales effected by a dealer in the course of inter-State trade or commerce during a year. Sub-section (1) appears to provide for a multi-point tax but this is subject to the other provisions of the Act. This qualification which is reflected in the other provisions of the Act restricts the levy to a single point but subject to certain conditions, restrictions and circumstances. Sub-section (2) of Section 6 exempts from levy a subsequent inter-State sale of goods of the description referred to in Sub-section (3) of Section 8 of the category under Section 3(a) and (3)(b), provided a certificate as mentioned in the proviso to Sub-section (2) is produced. But a subsequent sale of that category not falling within Section 6(2) will, however, attract tax because of the proviso to Section 9(1). Section 8 deals with rates of tax on sales in the course of inter-State trade or commerce; For the purpose of rates, the section makes a classification between inter-State sales by a registered dealer to a registered dealer and those not falling in that category but not including inter-State sales by a registered dealer to the Government. A further classification is made between inter-State sales of declared goods and non-declared goods and also of goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him or for use by him in the manufacture or processing any goods for sale or in mining or in the generation or distribution of electricity or any other form of power and certain other goods mentioned in Section 8(3)(c) and (d). A rate of two per cent. is applied to sales by registered dealers of any goods to the Government or of goods of the description referred to in Sub-section (3) of Section 8 to a registered dealer provided, however, the requirement in Sub-section (4) of 'C' form certificate is complied with. Even if the sales do not come under that category, still sales of declared goods shall be charged at the rate applicable to sale or purchase of such goods inside the appropriate State which, however, can, in no case, because of Section 51(1), exceed two per cent. But, inter-State sales of goods other than declared goods not falling within the first category under Section 8(1) will attract tax at the rate of ten per cent. or at the rate applicable to the sale or purchase of such goods inside the appropriate State whichever is higher. Before the Central Act VIII of 1963 the rates were one per cent. and seven per cent. which were substituted by two per cent. and ten per cent. by the Amending Act. Sub-section (2-A) of Section 8 provides that if inter-State sales of certain goods are exempt from tax or subject to tax at a rate lower than two per cent., the tax payable on inter-State sales of such goods would be nil or at the corresponding lower rate as the case may be. This sub-section has an explanation the effect of which is that the benefit of the sub-section is limited to general exemption under the State law and not extended to exemption in specified circumstances or under specified conditions or in relation to sales on which tax is levied at specified stages or otherwise than with reference to a turnover of the goods. The State Government is given power under Sub-section (5) of Section 8 to grant exemption of tax or permit lower rate of tax in respect of any inter-State sales of particular goods or classes of goods as may be mentioned by a notification but before exercising this power, the State Government should be satisfied that it is necessary so to do in public interest. Section 9 is concerned with levy and collection of tax and penalties. Sub-section (1) says that tax on inter-State sales shall be levied and collected by the Government of India in the manner provided in Sub-section (3) in the State from which the movement of the goods commenced. The proviso to this sub-section is to the effect that where 'subsequent' inter-State sale does not fall within the ambit of Section 6(2), tax thereon shall be levied and collected in the State from which the registered dealer effecting such sale obtained the form prescribed for the purposes of Clause (a) of Sub-section (4) of Section 8 in connection with the purchase of such goods. Subsection (2) provides for the manner of collection of penalty imposed under Section 10-A. As the Central Act itself does not contain specific provisions for procedure for assessment, collection and enforcement of payment of tax, it assimilates by Section 9(3) and applies for that purpose the provisions, as to similar matters including authorities under each of the appropriate State laws. This applies also to filing of returns, appeals, reviews, revisions, references, penalties and compounding of offences. Where there is no general sales tax law in force in any State, the Central Government may, however, make rules covering these matters. Sub-section (4) of Section 9 says that though the Central Sales Tax Act has been enacted by the Parliament, the tax collected thereunder by each State is assigned to that State and shall be retained by it and it is only the proceeds attributable to Union Territories that shall form part of the Consolidated Fund of India. Sections 10 to 12 are concerned with penalties, imposition of penalty in lieu of prosecution, cognizance of offences and indemnity. Section 13 confers upon both the Central and the State Governments rule-making power in respect of specified matters. Sections 14 and 15 have been enacted pursuant to Article 286(3) of the Constitution as amended. By Section 14, certain goods are specified to be of special importance in inter-State trade or commerce and by the next section a two-fold provision is made. The first is that no Sales Tax Act of the State shall impose or authorise imposition of a tax on inside sale or purchase of declared goods in excess of two per cent. and that such tax shall not be levied at more than one stage. The second provides for refund of such tax levied on such transactions if the same goods are sold in the course of inter-State trade or commerce.
6. The charge levelled by the petitioners is, as we mentioned earlier, that Sections 8 and 9(3) offend Articles 301 and 303(1) of the Constitution. It is said that subsection (3) of Section 9 applies the State laws for the purpose of the Central Act as regards levy and, collection of tax and that sub-sections (2) and (2-A) of Section 8 directly apply to inter-State sales not falling within Section 8(1), the exemptions or different rates of tax obtaining in different States which bring about inequality and discrimination directly affecting free flow of inter-State trade or commerce. We have, therefore, to examine the scope of Articles 301 to 303 of the Constitution.
7. Part XIII of the Constitution contains provisions relating to trade, commerce and intercourse within the territory of India. Article 301 declares freedom of trade, commerce and intercourse. It directs that trade, commerce and intercourse throughout the territory of India shall be free. But the freedom so declared is not an absolute one. It is subject to the other provisions of Part XIII. The difficulties of inter-State trade, commerce and intercourse in the days of British India and Native States, the geographical and economic unity of India since it attained independence and the necessity for free flow of inter-State trade, commerce and intercourse throughout the country have been borne in mind by the founding Fathers of the Constitution and these considerations should naturally have a bearing on the interpretation of Part XIII of the Constitution. Article 301 regards the territory of India as one unit for the purpose of the freedom which shall not be affected like any artificial borders or barriers, political, economic social or any other. The word "throughout" in the Article implies that there should be free flow of trade, commerce and intercourse right through and across the entire country as if there were no territorial divisions like States and Union Territories, for the freedom under the Article knows but only the borders of India as a whole. As trade, commerce and intercourse mean and include various acts, activities, men and things, as well as rights and liabilities, the freedom must necessarily cover all of them within its range. The limit or limits of the freedom are only those contained in the provisions following Article 301 in Part XIII.
8. Article 302 is one of such provisions which permits Parliament to impose restrictions on the freedom of trade, commerce and intercourse between one State and another or any portion of the territory of India but only such restrictions as may be required in the public interest. But this concession to Parliament is hedged in by the conditions mentioned in Article 303(1). The authority of Parliament to place by law restrictions in the public interest on the freedom does not extend to making or authorising any preference to or any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. In fact, an embargo is placed on the legislative power of both Parliament and of State Legislatures from making or authorising the making of any legislation involving such preference and discrimination. The embargo will, however, not prevent Parliament from making such legislation if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Similarly the ban will not under Article 304 apply to State legislation which imposes non-discriminatory taxes on goods imported from other States or Union territories compared with goods manufactured or produced in the taxing State or imposes such reasonable restrictions on the freedom of trade, commerce or intercourse as may be required in public interest. But in the last case, the conditions found in the proviso to Article 304(b) have to be complied with, that is, any State Bill or amendment intended to impose reasonable restrictions such as are in public interest can only be introduced or moved in the Legislature with the previous sanction of the President. Whether in view of the non obstante clause in the opening words of Article 304 the ban imposed by Article 303(1) against preferential or discriminatory legislation controls State legislation falling within Article 304(b) does not arise at the moment in this case.
9. Article 301 and the other provisions in Part XIII came up for interpretation in Atiabari Tea Co), Ltd. v. State of Assam . It was there held by the majority opinion of the
Supreme Court that Article 301 imposed a constitutional limitation on the legislative power of Parliament and of the States, embodied and enshrined a principle of paramount importance that the economic unity of the country would provide the main sustaining force for the stability and progress of the political and cultural unity of the country. It was also held that the freedom of trade guaranteed by Article 301 was freedom from all restrictions except those which were provided by the other Articles of Part XIII. Further it was stated that the freedom provided for by Article 301 was larger than the freedom contemplated by Section 297 of the Government of India Act, 1935 and that restrictions freedom from which was guaranteed by Article 301 would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. The Supreme Court definitely ruled in that case that taxes might and did amount to restrictions but that it was only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The Supreme Court there was concerned with the validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954. On the view that transport or movement of goods was taxed under the Act solely on the basis that the goods were carried or transported in a particular manner under the Act, the Act was held directly to offend the freedom of trade contemplated under Article 301 of the Constitution. The provisions of Part XIII again came up for consideration in Automobile Transport Ltd. v. State of Rajasthan , which related to the validity of the Rajasthan Motor Vehicles Taxation Act, 1951. The majority of the learned Judges in this case accepted the majority opinion in the earlier case but subject to the clarification:
Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(A) of the Constitution.
It was also held by the majority in Automobile Transport Ltd. v. State of Rajasthan , that what was called the narrower
interpretation in Atiabari Tea Co., Ltd. v. State of Assam , could not be accepted. On this aspect, this is what the Supreme Court said (at page 1422):
After carefully considering the arguments advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the States cannot be accepted, namely, that the relevant Articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the lists of the Seventh Schedule.
His Lordship Subba Rao, J., as he then was, concurring with that view said (at page 1434):.
But a difficulty that confronts one is whether the limitation on the laws is confined only to the law made by virtue of the entries referring to trade and commerce or by virtue of any entry in the Seventh Schedule which may affect trade and commerce. The entries which refer to trade and commerce are entries 41, and 42 of List I, entry 26 of List II and entry 33 of List III of the Seventh Schedule to the Constitution. But it is contended that the words 'by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule' are of wider import than the words 'by virtue of the said entries' and, therefore, any law specified in Article 303 made by virtue of any entry in any of the lists in the Seventh Schedule, if it relates to trade and commerce would be covered by the exception. The words 'any entry relating to trade and commerce in any of the lists' are of the widest import and they yield to a very liberal interpretation. The phraseology used supports this interpretation. The reason for the exception also sustains it. There cannot be any distinction on principle, from the standpoint of the mischief sought to be averted between a law made by virtue of an entry ex facie referring to trade and commerce and that made by virtue of any entry affecting trade and commerce... I would therefore hold that any law made by Parliament by virtue of any entry imposing the said discriminatory restrictions would be bad under the said article.
This opinion of the majority in Automobile Transport Ltd. v. State of Rajasthan , on this aspect of the scope of Article
303(1) should be taken to be conclusive. In view of this, we cannot accept the contention of the learned Advocate-General that this aspect requires reconsideration.
10. It must be taken to have been well settled by the two majority opinion of the Supreme Court referred to: (1) that the freedom guaranteed by Article 301 is not to be interpreted as to its scope and ambit in the light of the other provisions of Part XIII but the freedom is wide and absolute except for such restrictions subject to specified conditions as are to be found in the provisions other than Article 301 in Part XIII; (2) that the fiscal laws clearly fall within the ambit of Article 301; (3) that the restrictions contemplated in Part XIII do not, however, include regulatory or compensatory measures; and (4) that the last words in Article 303(1) are not restricted as to the topic of law under particular heads but any law made by Parliament by virtue of any Entry imposing discriminatory restrictions contemplated by Article 303(1) would be bad under it.
11. The attack before us is (1) the imposition of varying or unequal rates of tax in different States on inter-State sales of same or similar goods, declared or undeclared, violates Article 301 of the Constitution and is not saved by any of the provisions in Part XIII of the Constitution; (2) the procedural restraint or lack of common authority to resolve conflicts in assessment orders in different States also impedes freedom of trade, commerce and intercourse; and (3) the adoption of different State laws in Section 9(3) of the Central Sales Tax Act is unconstitutional. We will deal with these points seriatim.
12. We have also noticed in brief the structure of taxation of inter-State sales and the different rates and exemption applicable to them in each State. The main challenge is to the validity of Section 8. So far as inter-State sales which fall within Section 8(1) are concerned, they attract uniform tax at the rate of one per cent. before 1st April, 1963, and two per cent. thereafter by reason of Section 2 of the Central Act VIII of 1963. As such sales bear equal burden under Section 8(1) in all the States and Union Territories, the validity of this provision cannot be questioned on ground of preference or discrimination under Article 303(1). But it is said that sub-sections (2), (2-A) and (5) of Section 8 violate Article 301 and are not saved by the several other provisions of Part XIII.,. It is beyond question now that taxing laws operate as restrictions, if they impede free flow of trade, commerce and intercourse. Taxation as a regulatory or compensatory measure is a different matter, and the law which imposes such tax may not be a restriction on the freedom. This is what the Supreme Court observed in Firm A.T.B. Mehtab Majid & Co. v. State of Madras .
It is therefore now well settled that taxing laws can be restrictions on trade, commerce and inter course, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures.
That case was concerned with the Madras General Sales Tax Act, 1939 and the Rules made thereunder. The Act was considered not to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities and it was pointed out that the sales-tax, which had the effect of discriminating between goods of one State and goods of another might affect the free flow of trade and would offend Article
301. Rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules framed under the 1939 Act subjected sales of hides and skins, whether tanned or untanned, at a prescribed single point in the series of sales by successive dealers. Sub-rule (2)(i) related to levy of tax on sales of hides and skins tanned outside the State. The tax in cases of such sales is levied and collected from the dealer who in the State is the first dealer in such hides or skins. The tax is computed on the turnover of first sales in the State. Clause (ii) of Sub-rule (2) provided for an identical levy on first sales on hides and skins tanned within the State. But by reason of a proviso to Sub-clause (ii) if the dealer proved that the hides and skins had suffered tax in the State in their untanned condition, no tax would then be leviable on the first sales in the State of tanned hides or skins. It was contended that Rule 16(2) was discriminatory not in the rate of tax but inasmuch as the rate was applied to different turnovers according to the first sales in the State, being made of tanned hides or skins imported from other States or of tanned hides or skins made out of raw hides and skins within the State. The effect of this provision was thus summed up by the Supreme Court at page 362:
If the dealer has purchased the raw hide or skin in the State, he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside and having not therefore paid any tax under Sub-rule (1).
Sub-rule (2) of Rule 16 was held invalid and not saved by Article 304(a) and in so holding, it was observed by the Supreme Court at page 360:
Article 304(a) enables the Legislature of a State to make laws affecting trade, commerce and intercourse. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which axe imported from other States. This means that if the effect of the sales tax on tanned hides or skins imported from outside is that the latter becomes subject to a higher tax by the application of the proviso to Sub-rule (a) of Rule 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down.
A similar point was again decided by the Supreme Court in Hajee Abdul Shukoor & Co. v. State of Madras (1965) 1 An.W.R. (S.C.) 39 : (1965) 1 M.L.J. (S.C.) 39 : (1965) 1 S.C.J. 337 : (1964) 15 S.T.C. 719 : (1964) 8 S.C.R. 217 : A.I.R. 1964 S.C. 1729. Sub-section(l) of Section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963 was struck down as offending Article 301. The sub-section was introduced to meet the position left by Firm A.T.B. Mehtab Majid & Co. v. State of Madras . The invalidity of the Sub-section (1) of Section 2 was declared on the following grounds:
The effect of Sub-section (1) of section a of the Act is the same as was the effect of Sub-rule (2) of Rule 16 of the Turnover and Assessment Rules, 1939, and which was held to be invalid by this Court in Mehtab's case . The impugned sub-section
provides for the assessment of tax on the sale of dressed hides and skins which are not subject to tax under the 1939 Act as raw hides and skins and thus exempt from taxation in accordance with the provisions of Sub-section (1) of Section 2 of the Act, the sale of tanned hides and skins with respect to which tax had been paid on their sale in the raw condition. Such tanned hides and skins had been exempted from taxation under Sub-clause (ii) of Rule 2 of the Turnover and Assessment Rules. The same is the position in the present case. The present rule therefore is discriminatory and invalid for the same reasons which led this Court to hold Sub-rule (2) of Rule 16 invalid in Mehtab's case (1964) 1 S.C.J. 355 : (1964) 1 M.L.J. (S.C.) 115 : (1964) 1 An.W.R. (S.C.) 115 : A.I.R. 1963 S.C. 928 : 14 S.T.C. 355. There is no escape from this conclusion.
The difference between the two cases is that in Firm A.T.B. Mehtab Majid & Co. v. State of Madras , the same rate of tax was applied to higher and lower turnovers depending on whether the tanned hides and skins were imported from out of State in that condition or were made within the State out of raw hides and skins, but in. Hajee Abdul Shukoor & Co. v. State of Madras (1965) 1 An.W.R. (S.C.) 39 : (1965) 1 M.L.J. (S.C.) 39 : (1965) 1 S.C.J. 337 : (1964) 15 S.T.C. 719 : (1964) 8 S.C.R. 217 : A.I.R. 1964 S.C. 1729, the rate of tax on the sale of tanned hides and skins was higher than that on the sale of untanned hides and skins. As pointed out by the Supreme Court, the rate of tax on the sale of tanned hides and skins was 2 per cent. on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and, skins in the State during 1955 to 1957 is three pies per rupee; the difference in tax was a little less than &frac;12 naya paise per rupee. Still the Supreme Court was of the view (at page 726):
Such a discrimination would affect the taxation upto the 1st August, 1957, when the rate of tax. on the sale of raw hides and skins was raised to two per cent. of the sale price.
The sales tax imposed by certain notifications under Section 5(2) of the Madhya Bharat Sales Tax Act, 1950 was held by the Supreme Court in State of Madhya Pradesh v. Bhailal Bhai , to be
invalid on the ground that the impost discriminated between imported tobacco and tobacco produced in the State of Madhya Bharat. The sale of imported tobacco suffered tax while tobacco produced in the State was not subjected to any tax in that case. That being the case the Supreme Court said:
There can be no doubt therefore that even though it is the sale in Madhya Bharat of the imported goods that creates the liability to tax and not the import by itself, the trade and commerce as between Madhya Bharat and other parts of India is directly impeded by this tax.
13. In the light of these decisions it is forcibly argued that the adoption by subsection (2) of Section 8 of the Central Sales Tax Act of different rates of tax or exemption prevailing under different State laws in respect of similar goods and their application to inter-State sales of similar goods falling within Section 8(2) is discriminatory and places an unequal burden on inter-State trade and commerce, affecting its free flow between the States. In the case of sales of matches different rates of local sales tax prevailed in different States. In Madras, it was two per cent. upto 31st March, 1966. Until then tax was leviable on turnover of local sales of matches excluding of course excise duty. This was a multipoint tax. After that date by virtue of an amendment no tax is leviable on hand-made matches but on machine made matches one per cent. is levied on the turnover without excluding excise duty. Punjab and Delhi levied no tax on sales of matches. In West Bengal there was no sales tax on sales of matches upto May, 1963 and thereafter a tax at 5 per cent. at a single point is exacted. In Maharashtra tax is at two per cent., and is at a single point. The tax in Gujarat is three per cent., in Madhya Pradesh at seven per cent., Mysore and Kerala at two per cent., Uttar Pradesh at seven per cent., Bihar at four per cent., and in Andhra Pradesh for the last three years at three per cent. The point at which tax is levied in some of the States is either multi-point or single point. There is thus no uniformity in the local rates of tax in the various States. Some of the writ petitions cover transactions between this State and certain others. Though on inter-State sales of declared goods falling within Section 8(2), the rate of tax to be imposed on that cannot exceed two per cent. in view of Section 15(1), nevertheless, there can be varying rates in different States, but all below two per cent. Likewise inter-State sales of goods other than declared goods are chargeable at the rate of ten per cent. or at the rate prevailing in the taxing State, whichever is higher. If, however, under the law of the taxing State, local sales of any goods by a dealer are exempt from tax generally or subject to tax at lower than two per cent. such exemption or lower rate of tax will apply to turnover of inter-State sales of such goods. This is what is provided in Sub-section (2-A) of Section 8. The Explanation to the sub-section limits the scope of applicability of local exemptions in certain circumstances to inter-State sales. Sub-section (5) of Section 8 confers power upon the State Government to allow by notification exemption or lower rate of tax on inter-State sales of any class or classes of specified goods, notwithstanding the fact that under the State law there is no exemption or a different rate of tax obtains.
14. The effect of such a scheme of taxation is obviously to our minds, quite discriminatory and considerably affects the freedom of trade, commerce and intercourse. The differential rates or exemptions in various States have an unequal burden on some or similar goods which affects their free movement or flow in inter-State trade and commerce. If, for instance, the local rate of tax on inter-State sales of certain goods in a State is five per cent. and a lower rate of tax or exemption is operative in another State in respect of local sales of similar goods, it is not difficult to see their effect on inter-State trade. The unequal burden in such cases on the same goods in the different States which is applied to Central taxation will doubtless impede or prevent the free flow of trade in such goods, for if similar goods are costlier in a particular State because of the rate of tax, they cannot flow freely to another State where similar goods are less costly on account of lower rate of tax or exemption. The higher rate of tax in a State works as a barrier to the free movement of similar goods to another State where there is no tax or a lower rate of tax. In order that trade in respect of particular goods declared or undeclared to be free throughout the territory of India, the rate of tax or exemption as the case may be must be uniform. The unequal burden because of different rates of tax or exemption in the States brings about inequality in the conditions and circumstances necessary for free flow of trade or commerce from one State to another. Differential rates or exemptions obtaining in the several States being automatically applied by virtue of Section 8(2) to Central taxation, they will certainly have the effect of discriminating between the goods of one State and the goods of another and may affect the free flow of trade in such goods as between the States. Sub-sections (2-A) and (5) of Section 8, in our opinion, will only aggravate the discrimination.
15. In has been contended for the State that the object of Section 8(2) of the Central Sales Tax Act is clearly to see that in so far as the essential goods are concerned, there should be no difference in the taxation under the State Act and under the Central Sales Tax Act and that necessarily because the rates of taxation may differ in the various States, the rates under the Central Sales Tax Act differ from State to State with the limitation present in Section 15(1) but that this is not discriminatory in the sense that is understood under Article 303, since it ensures that inter-State trade in the State as well as inter-State in that commodity will suffer the same rate of tax. We are unable to accept this view. When the Central Act adopts for purposes of Section 8(2) the different rates or exemption under the State laws, its effect is as if such different rates or exemption were provided by the Central Act itself. If the Central Act itself provided such different rates or exemptions as being applicable to different States, it would be impossible to contend that it is not discrimination between one State and another within the meaning of Article 303(1) of the Constitution. We are of the view that the position is no different because the Central Act instead of providing itself, adopts and applies for its purpose, the different rates or exemptions obtaining under the State laws. What is preference to one State over another? It means that when there should be free flow of trade between one State and another, one of them is selected and given an advantage over another. For instance, be it essential declared or other goods if the rate is made lower or exemption from tax is allowed in respect of particular goods in a State, while in respect of the same goods in another State, there is no exemption from tax but a higher rate of tax is applied, there is preference to the former State over the latter from the standpoint of free flow of trade, commerce and intercourse, because trade, commerce and intercourse are very sensitive and sharply react to higher or lower rate of taxation or exemption and the flow of trade, commerce and intercourse in goods will naturally tend to be from the State where the goods bear a lesser burden or no burden of tax to the State where there is in force a higher rate of taxation in respect of the same goods; conversely, the flow from the latter to the former will definitely be impeded if not halted. Such a preference also implies discrimination between one State and another. It clearly covers adoption and application for such Central taxation different rates and exemptions under the State laws in respect of similar or same goods. Under Article 304(a) differential rates between imported and local goods are prohibited on ground of discrimination. A similar ban is implicit under Article 303(1). Export is facilitated and its free flow is rendered possible by a lower rate of tax or exemption of goods from tax in the exporting State, as compared to another State where similar goods have to suffer a higher burden. This is another kind of discrimination which is also forbidden by Article 303(1). Such preference or discrimination will be permissible only in the circumstances mentioned in Article 303(2). It is not the situation in the cases before us.
16. It is said that the State Legislature can never put higher rate of tax on inter-State trade in relation to the essential commodities than it puts on the intra-State trade as is clear from Sections 8(2)(a) and 15(1) and that if the State has got a surplus of such essential commodities and wishes to see them enter the stream of inter-State trade more easily than inter-State trade, it is open to the State to exempt that commodity from the incidence of the General Sales Tax and thus make it easier for it to get into the stream of inter-State trade or commerce. In our opinion it is no answer to the charge of discrimination between one State and another by adopting and applying to the Central taxation different rates of taxes and exemptions under the respective State laws. The discrimination alleged by the assessees is not that between rates or exemptions on or of local and inter-State sales. Nor does the power given to the State under the Central Act to make the rate or exemption equal if it so desires or considers it necessary make any difference to render Section 8(2) less discriminative. In fact as we said, the power under sub-sections (2-A) and(5) of Section 8 makes the discrimination under Section 8(2) even worse.
17. A further argument for the State is that in any event the difficulty which may be experienced by the trader since the rate of taxation may be higher than the rate of taxation in another State is not due to the Act of Parliament but to the rate of taxation fixed by the State law of his own State and if Parliament's decision to fix the same rate for declared or essential goods as exists under the local State law works any hardship in a particular State, that hardship can also be removed by the State resorting to its powers under Section 8(5). As to the first limb of the argument we fail to see how the differential burden or exemption on same or similar goods in different States can be brought about by an Act other than that of Parliament. As we already pointed out, there is no difference between Parliament itself fixing differential rates or exemptions in respect of similar goods in different States and Parliament instead of doing so, adopting and applying such rates and exemptions under diverse State laws. Our attention is, however, drawn to Colonial Sugar Refining Co., Ltd. v. Irving L.R. (1906) A.C. 360 at 367, and in particular the following observation therein is. relied on for the State:
The rule laid down by the Act is a general one, applicable to all the States alike, and the fact that it operates unequally in the several States arises not from anything done by the Parliament, but from the inequality of the duties imposed by the States themselves.
The Judicial Committee there was concerned with Excise Tariff, 1902 and the Customs Tariff, 1902, both Acts of the Australian Commonwealth Parliament. The first Act imposed a certain uniform duty of excise including a duty on manufactured sugar the produce of Australia as from 8th October, 1901. The second Act imposed uniform duties of customs as from 16th October, 1902. The appellants before the Board instituted a suit to recover back excise duties on manufactured sugar collected from them between 8th October, 1901 and 26th July, 1902, on the ground, among others, that the duties were imposed in a manner which discriminated between States. This ground was based upon Section 5 of Excise Tariff which allowed exemption in the case of goods on which customs or excise duties had been paid before 8th October, 1901. But it was contended for the appellants that inasmuch as the scale of duties differed in the several States, and in Queens land, for example, no excise duty was imposed on sugar, the exemption operated unequally on the traders and manufacturers of the several States and therefore the grant of such an exemption was a discrimination between the States within the meaning of Section 51 of the Constitution Act. The Board rejected the contention and in doing so, it said before the observation already extracted:
Their Lordships cannot accede to this argument. The substance of the enactment in question is that goods which have already paid customs or excise duties shall not pay over again, and some such provision is obviously necessary in the transition from the old order to the new.
It may be seen that in that case the inequality in exemption was not one that was brought about by the Commonwealth Act. It applied to all States alike and said that exemption from duty was allowed in the case of goods on which customs or excise duties had already been paid under State legislation before 8th October, 1901. That is not the case in respect of sub-sections (2), (2-A) and (5) of Section 8. Instead of adopting a uniform rate of tax on inter-State sales of similar goods, the Act adopts and applies to its purpose the differential rates and exemptions under various State laws. The effect is as if the Central Sales Tax Act itself has provided for different rates or exemptions as the case may be in respect of the same or similar goods in different States in inter-State trade, commerce and intercourse. We think that the principle in Cameron v. Deputy Federal Commissioner of Taxation (1928) 32 Com. L.R. 68, 72 is more apposite in relation to the Central Sales Tax Act. There the Income-tax Regulations 46 and 46-A read with Table III of the Commonwealth Income-tax Regulations, 1917 in effect provided that in ascertaining for purposes of income-tax the value at which live-stock was to be taken into account and the profits made on the sale of live-stock different values should be placed on stock of the same class indifferent States. Holding that the Regulations were discriminatory, Knox, C.J., with whose observations the other learned Judges agreed, said:
In the case now before us, as I have already pointed out, the only test supplied by the regulations for determining the value of live-stock is the State or part of a State in which it is found. In order to determine by reference to this table whether cattle shall be valued at 6 or 3 or 2 or some other sum the only question to be answered, except in the case of cattle in Western Australia is : 'In what State were such cattle at the relevant date? '. I find it difficult to conceive a clearer case of discrimination between States.
No doubt the point was not in that case approached from the standpoint of inter-State trade; nevertheless, the decision was that Commonwealth Income-tax imposed on the basis of different standards of place of live-stock in different States was clearly discriminatory between the States. Different rates or exemptions from tax in respect of similar goods depending on in which State the goods are, are likewise discriminatory as between the States and inasmuch as such discrimination immediately and directly affects the free flow of inter-State trade, commerce and intercourse, it offends Article 301 of the Constitution and is not within the other saving provisions of Part XIII. The second limb of the argument as to the State applying Sub-section (5) of Section 8, as we have already indicated does not impress us. That sub-section no doubt can be utilised by the States to equalise rates and exemptions but that circumstance does not in any way make any difference to the unconstitutional discrimination between the States in Section 8(2). To reiterate Sub-section (5) like Sub-section (2-A) may as well enable the retention and perpetuation of inequality in rates or exemptions as a particular State may find it beneficial or not as the case may be.
18. Though Section 92 of the Australian Constitution is worded differently from Article 301 of our Constitution nevertheless, it is useful to note that the Privy Council in James v. Commonwealth of Australia L.R. (1936) A.C. 578 at 583 and 584, said that the freedom envisaged by Section 92 was that trade and commerce were to be conducted as if the borders were not there and that trade could pass as freely between adjacent States as between adjacent countries in England. The Privy Council proceeded to say:
The words freedom of trade in Section 92 mean freedom from financial impost by whomsoever imposed, and those words are meant not only to be a limitation on any legislative authority, but also upon any executive act... The proviso to Section 92 equalizes taxation : it is a limitation on the generality of Section 92.
Article 301 of our Constitution for its purposes recognises no State borders and trade, commerce and intercourse should flow as if the State barriers were not there; and the entire territory of India is one integral unit from economic, social and political points of view.
19. There is one more aspect to be noticed which was touched upon by the learned Advocate-General for the State. He says that if a State feels that in relation to a particular commodity there is a certain scarcity of such a commodity in that State and that commodity is not a declared commodity in terms of Section 14 of the Act, then the State is entitled to increase the rate of tax beyond two per cent. and collect ten per cent. under the Central Sales Tax Act and submits that such a restriction would be a reasonable restriction in terms of Article 19(1) as well as Article 304(b). In our opinion, the only exception to the ban of discrimination or preference under Article 303(1) is the one mentioned in Article 303(2). If the Central taxation provision is a reasonable provision in public interest, still it may be open to challenge on the ground of discrimination unless such a discrimination is permissible under Article 303(2).
20. Finally it is said that though the Central Sales Tax Act is an Act of Parliament, the taxation is in effect for purposes of the States as Section 9(4) indicates and that as the financial needs of States are not uniform, the inequality in Central rates cannot be said to be discriminatory. The answer is to be found in Part XII of the Constitution. Section 9(4) of the Central Sales Tax Act is in accordance with Article 269(1)(g) which was introduced by the Constitution (Sixth Amendment) Act, 1956. The tax raised by the Central Sales Tax Act is a Central tax even as the power to tax on sale or purchase of goods in the course of inter-State trade is. Apart from that, the distribution of revenue between the Union and the States is a different matter governed by the provisions of Part XII of the Constitution. The different financial needs of several States will not in our opinion be justification of discrimination or preference under Article 303(1).
21. After a careful consideration, we have reached the conclusion and hold that sub-sections (2)(2-A) and (5) of Section 8 offend Articles 301 and 303(1) of the Constitution and are unconstitutional and void.
22. As to Section 9(3), the argument for the assessees is that in cases of conflicting orders of assessment in different States on the same inter-State sales of goods, there is no common authority set up to resolve the conflict which leads to harassment and multi-taxation by different States on the same transactions. Prima facie there appears to be some force in the argument. In respect of the same inter-State transaction one State may take the view that it is an inside sale or the goods were there when the sale occasioned the movement. But another State on the same transaction may take the view that the sale was inside its borders or an inter-State sale on which it could levy tax. It is complained that when such a situation arises, the authorities in neither of the States will take notice and give to the orders of their counter-part credit in the other State, with the result that the dealer is mulcted with tax in both the States and, driven to parallel appeals and revisions in the two States. It is said that this situation arises out of Section 9(3) and the absence of a Central authority to resolve the conflict so that a procedural restraint or inequality is brought about. This according to the argument makes Section 9(3) unconstitutional. We do not accept the contention. We certainly assent to the proposition that as was pointed out in State of Mysore v. Lakshminarasimhiah Setty & Sons , full credit should be given by the authorities in one State to orders passed by the authorities in another State both functioning under their respective State laws as sanctioned by Section 9(3). But the conflicting orders by the authorities of the different States in respect of the same transactions result not from what Parliament has sanctioned or intended but have their origin to erroneous interpretation or application of the provisions of the Central Act according to the judgments of the authorities in each of the States. Though it is advisable and necessary to relieve hardship and to set up a common authority to resolve conflicting assessments, the absence of it does not, in our opinion, affect the validity of Section 9(3). It seems to us that having regard to Section 9(4), the procedure envisaged by Section 9(3) is grounded on convenience and it is not open to challenge on ground of procedural restraint as it is called.
23. Another contention urged on behalf of the assessee is that inclusion of excise duty in the turnover of inter-State sales brought to tax offends Article 301. In Khader & Co. v. State of Madras (1966) 1 M.L.J. 541 : I.L.R. (1967) 1 Mad. 709 : 17 S.T.C. 396, a Division Bench of this Court was of the opinion that while under the Madras General Sales Tax Act, 1959 and the Rules made thereunder provision had been made for deduction of excise duty in the computation of chargeable turnover there was no such enabling provision in the Central Sales Tax Act and the Rules made thereunder. This view was expressed because Rule 6(f) of the Madras General Sales Tax Rules, 1959, expressly allowed deduction of excise duty if any paid to the Central Government in respect of goods sold by a dealer. The argument there was that if, as held by State of Mysore v. Lakshminarasimhiah Setty & Sons , by "levied" in Section 9(1) of the Central Act, what was meant was "levied as under the State Act," that would include also the State rules enabling deductions in the computation of the turnover. This Court rejected the argument on the ground that though the Central Government framed the Central Sales Tax (Registration and Turnover) Rules, 1957, which provided for certain deductions, they did not include excise duty. It is, therefore, said that to the extent the excise duty is not deductible from taxable turnover under the Central Act unlike under the Madras General Sales Tax Act, there is discrimination under Section 9(1) between one State and another. We do not think so. In the matter of non-deductibility of excise duty from the turnover of inter-State sales, the Central Act has equal application and makes no discrimination. The Central Act does not say that excise duty will be deductible in one State and not in another. It is not deductible from the turnover of the inter-State sales and this rule is uniformly applied to all inter-State sales. There is, therefore, no question of inequality or discrimination forbidden by Article 303(1) and there is no question of contravention of Article 301 either. In our opinion, the attack on the validity of Section 9(1) and (3) fails.
24. We shall now turn to the question of interpretation and application of Sections 3 to 6 of the Central Sales Tax Act to the particular facts. In T.C. No. 99 of 1964 the assessee who is the petitioner is a registered limited liability company and a dealer in cotton yarn at Singanallur, Coimbatore district. For the year 1960-61 the petitioner was assessed on a turnover of Rs. 77,67,000 and odd which mainly represented purchase value of cotton and sale value of yarn. The assessee having failed substantially in the appeal before the Appellate Assistant Commissioner took the matter before the Tribunal on further appeal disputing liability to tax on a turnover of Rs. 16,46,828 taxed at one per cent. and another sum of Rs. 13,336 taxed at two per cent. It was claimed that the first item represented the value of cotton purchased by the assessee in the course of import. We are not at the moment concerned with the second item. The assessee's case was that it had placed orders with various dealers in Bombay for supply of Egyptian, East African and American cotton, that the various dealers, pursuant to the orders, imported cotton from abroad on the strength of the import licence granted to the assessee and delivered the cotton to the assessee. It was, therefore, contended before the Tribunal that the purchases of cotton by the assessee occasioned import of the cotton and therefore the turnover relating to such purchases was exempt from tax. Under the Madras General Sales Tax Act, the last purchase of cotton inside the State attracts tax. The assessee purchased the cotton for spinning and has actually used the same for the purpose. There was no question that the assessee was the last purchaser. The point was whether the purchase was within the State or occasioned the import. There was no dispute with regard to the course of the transactions except in the case of a few transactions. The assessee had obtained import licences in its own name called actual user,s licence for import of cotton. It entered into contracts with the sellers in India for supply of foreign cotton. On the strength of the assessee's orders and of the actual user's licence in its name, the sellers entered into contracts with the foreign dealers in cotton, imported cotton against such licences and delivered the same to the assessee. The Tribunal took the view that it was only the purchase by the assessee's sellers that had occasioned the import there was no privity of contract between the assessee and the foreign sellers of cotton and that the fact that the import licences stood in the name of the assessee did not materially alter the position. In the other cases, the sellers endorsed the bills of lading to the assesses even when the goods were on the high seas. Nevertheless, the sellers eventually cleared the goods from the Customs and effected ex-mill delivery to the assessee. The assessee's case was that the sellers in so doing acted merely as its agents in clearing the goods from the Customs. The Tribunal held that these classes of transactions represented purchases in the course of import. T.C. No 99 of 1964 is by the appellant-assessee against the order of the Tribunal in so far as it held against it in the first class of transactions and T.C. No. 145 of 1964 is by the Department in so far as the Tribunal found against it in respect of the second class of transactions. T.C. Nos. 248 and 284 of 1964 as well as W.P. Nos. 2441 to 2444 of 1965 which are by different assessees are cases of transactions similar to the first class of transactions in which there was import of cotton against actual users' licence through a dealer in India who on the strength of orders contacted foreign sellers and brought about import. In the writ petitions a further fact was that the machinery imported was, fabricated abroad for the specific purpose of the assessee. The Revenue was inclined to take the view that as the inspection was at Neyveli and the bill of lading was not in the name of the assessee, the transfer of property took place in Madras. On that view, the turnover in dispute was brought to tax and on the view that the turnover was deliberately suppressed, penalties had been levied. The Tax Cases and Writ Petitions we have mentioned fall under a category which may be called as cases of import against actual users' licence. In W.P No 739 of 1966 the Buckingham and Carnatic Company Ltd., Madras were the buyers and Patel Volkart Private Ltd., Bombay were the sellers. There was a contract between them on 30th October, 1964, for sale and purchase of cotton of certain specified quantity and quality. The price was fixed so much per candy of so many lbs. f. o. r. Madras Mill siding inclusive of Central Sales Tax. Weighment was to be effected immediately on arrival at the Mills in the presence of the seller's representative and payment of full invoice amount was to be made against railway receipt. In case of total or partial loss, buyers were not entitled to replacement of cotton and all consequences of war, civil commotion, strike and quarantine or other sanitary restrictions and of force majeure were at the risk and for account of buyers. For the year 1964-65 the assessing authority dealing with the assessment of the Buckingham and Carnatic Company Ltd, admitted that under what was claimed to be purchases in the course of inter-State trade, goods had moved from other States to Madras but it was of the view that the inter-State movement was not under the contract of sale. The assessing authority considered that the contract must itself provide as an integral and essential part of it that the goods should be transported from one State to another and that as the contracts before it did not provide for such movement of the goods from one State to another, the purchases were not in the course of inter-State trade. The question really turns on the construction and effect of the terms of the contracts. On the terms of the contracts between the Buckingham and Carnatic Company Ltd., Madras and Patel Volkart Private Ltd., it will be noticed that there will be no difficulty, in our opinion, in holding that the contracts themselves occasioned the movement of cotton to the State of Madras from other States. Not only because it was in the contemplation of both the parties that under the contract the goods which were not in Madras, had to be despatched from other States to and delivered in the State of Madras but the term relating to the price was f. o. r. Madras Mill siding inclusive of Central Sales Tax. The contracts themselves authorised the sellers to sell goods by a carrier and when the goods were put on the carrier there was appropriation by the sellers. This batch of cases we may refer to as the second batch. There is a third batch relating to depot sales, T.C. Nos. 300 to 302 of 1965 and W.P. No. 2377 of 1966 and connected cases. In T.C. No. 300 of 1965 the assessee was a dealer in safety matches and colour matches bearing a certain name. It had set up depots in Devanagere in Mysore State and Bombay in Maharashtra State. The buyers in Mysore and Bombay placed orders for the supply of particular varieties of matches on the sales depot at Devanagere or at Bombay as the case may be. There were depot managers in the sales depots in both the States. On receipt of orders either written or oral the depot managers communicated the same to the head office at Sivakasi in Madras and indented for sale of the required goods directly to the respective buyers in the Mysore and Maharashtra States. The indent was acknowledged by the head office which despatched the required goods within a few days directly to the respective buyers in the two depots with the named lorries and intimation to the concerned sale depots. The depots were asked to arrange to take delivery but the respective buyers took delivery on behalf of the depots. Thereafter the sales depots prepared sale bills for the goods and the cost in favour of the respective buyers and copies of sale invoices along with stock accounts and statements were sent to the head office. The department contended that these were direct sales by the head office at Sivakasi to the respective buyers in the other States, that in pursuance of such sales, goods were transported from Madras to the other States, that for purposes of canvassing buyers the depots were installed in the Mysore and Maharashtra States, that the orders placed on the sale depots should be considered as orders placed with the head office itself, that the goods were not sent to the two States as stock transfers from head office at Sivakasi through the sale depots in the other States, that the contracts of sale implied a covenant for transfer of goods from Sivakasi at Madras to the buyers, destination in the other States and that, therefore, the sales which occasioned movement of the goods from the State of Madras to the States of Mysore and Maharashtra were inter-State sales chargeable to tax in Madras. But the Tribunal on appeal by the assessee held that they were outside sales. The Tribunal recognised that at the time of placing orders in the other States, the goods were in the Madras State. But it said that at the time of actual sale the goods were in the Mysore State. In its opinion no covenant could be implied in the contracts for supply of goods from Sivakasi involving inter-State movement.
25. In approaching the three batches of cases, general arguments have been addressed to us on the proper interpretation and scope of Sections 3 to 6, and 9(1) including the proviso to it. Before we deal with the sections, we ought to make certain general observations as to the position of taxation on sales of goods prior to the Central Sales Tax Act, 1956. Before the Constitution, as is well known, each State tried to subject under its law the same transactions to tax on the nexus doctrine. A sale of goods consists of various elements : goods, agreement to sell, transfer of property in the goods, the consideration for the sale and delivery of goods. It is possible that the elements in a concluded sale may be distributed over more than one State. Each State relied on one or more such elements as having a territorial nexus and brought the sale to tax, with the result that the same transaction had to suffer tax in different States with the concomitant hardship to trade and consumers in the same or different States. The makers of the Constitution being fully alive to the problem sought to check this phenomenon. Accordingly Article 286 of the Constitution forged out the checks and said that no law of a State could bring to tax a sale taking place outside or a sale taking place in the course of import of goods into or export of goods out of the territory of India. A similar ban was put on taxation of inter-State sale or purchase, except as authorised by Parliament by law. There was also a further limitation on State law, namely, that no law of a State Legislature could validly impose a tax on sale or purchase of goods declared by Parliament by law to be essential for the life of the community unless it has been reserved for the consideration of the President and has received his assent. An Explanation with reference to an outside sale stated that
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.
In the State of Bombay v. United Motors (India) Ltd. , the Supreme Court held that Article 286(1)(a) read with this Explanation forbade taxation of sale or purchases involving inter-State elements by all States except the State in which the goods were delivered for purposes of consumption therein and that by reason of the Explanation to Article 286(1)(a), the operation of Clause (2) of the Article stood excluded as a result of a legal fiction enacted in the Explanation. It was pointed out that the effect of the Explanation in regard to inter-State dealing was to invest, what in truth was an inter-State transaction with an intra-State character in relation to the State of delivery and Clause (2) could, therefore, have no application. This interpretation of the Article led to certain difficulties for the trade, and to the assessment and collection of tax from non-resident dealers. The taxing authorities of the State in which the goods were delivered for consumption started calling upon the non-resident dealers to file returns, produce accounts, get themselves registered and comply with the demands of tax. But the view as to the scope of Article 286 as expressed in the State of Bombay v. United Motors (India) Ltd. , was reversed by a majority
opinion of a Fuller Bench of the Supreme Court in Bengal Immunity Co., Ltd. v. The State of Bihar . According to the majority opinion:
Until Parliament by law made in exercise of the powers vested in it by Clause (2) provides otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-State trade or commerce.
It was held the ban imposed against taxation under each of the clauses in Article 286 was a separate and independent limitation and each of them had to be got over before the State law could impose tax on inter-State sale or purchase of goods. The Supreme Court considered that each of the bans was imposed from a different view point, as for instance the Explanation looked at the matter from the view point of what was an outside sale, Clause (2) of the Article had in mind the character of the transaction as an inter-State one and Clause (3) dealt with the essentiality of certain goods to the country. If it was an outside sale to the State, it could not tax it. If a sale resulted in delivery of goods for consumption in the taxing State, the tax thereon would be attracted by the Explanation. If that transaction were of an inter-State character, the ban under Clause (2) of the Article should have to be got over before a State imposed a tax thereon. This led to further difficulties and some of the States had perforce to refund taxes which they had already collected. Bengal Immunity Co. Ltd. v. The State of Bihar , was decided on 6th September, 1955. On 30th January, 1956, the Sales Tax Laws Validation Ordinance of 1956, was promulgated by the President and then followed the Sales Tax Laws Validation Act of 1956, with effect from 21st March, 1956. The effect of the Ordinance and the Validation Act was to legalise the taxes collected by the various States during the period from 1st April, 1951 to 6th September, 1955. The validity of the Ordinance and the Validation Act was attacked with the result that different views were expressed by different High Courts on their scope and validity. Eventually the Supreme Court in Sundararamier and to and Ors. v. State of Andhra Pradesh , upheld the view expressed in
Dialdas Parmanand Kripalani v. Talwalkar (1956) 7 S.T.C. 675 : I.L.R. (1957) Bom. 63 : A.I.R. 1957 Bom. 71. Ashok Leyland Ltd. v. State of Madras , followed Sundararamier and Co. and Ors. v.
State of Andhra Pradesh , but was interpreted by the Revenue as authorising it to levy a tax on inter-State sales but falling within the Explanation; but this view did not find favour in certain Madras cases. The position by this time was that there was a great deal of uncertainty because of conflicting decisions of various High Courts as to the scope and nature of sales in the course of import or export. It was in this background that the Sixth Amendment to the Constitution was made in 1956, which radically amended Article 286, separated the power to tax inter-State sales from the State List and put it in the Union List. Article 269(1)(g) was also amended assigning to the States taxes on the sale or purchase of goods other than newspapers where such sale or purchase took place in the course of inter-State trade or commerce. A new clause to Article 269 provided that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. So far as Article 286 was concerned, the Explanation to Clause (1)(a) was omitted and Clause (2) was amended so as to read "Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (a), namely, outside sales, or sales which took place in the course of import into or export out of the territory of India". Clause (3) as amended is to the effect that any law of a State shall, in so far as it imposes or authorises the imposition 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 in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. In exercise of the powers conferred on Parliament by the Sixth Amendment to the Constitution, it enacted the Central Sales Tax Act, 1956, which received the assent of the President on 21st December, 1956. It is in this historical background that we must approach and interpret the provisions of the Central Act.
26. To reiterate, the two main problems posed by the events before and after the Constitution were : (1) the States relying on nexus doctrine selected one or more ingredients of a single transaction of sale of goods and charged the sales to tax with the result that it suffered tax in each of such States; and (2) there was so much of difference of opinion and uncertainty in fixing the situs of sale of goods, particularly when it took place in the course of inter-State trade or commerce or import into or export out of the territory of India. The test generally in vogue to fix the situs or to see where the property in the goods passed under the agreement to sell in the light of circumstances like payment of price and where it was made, delivery of goods and conditions attached thereto including place and manner of delivery, appropriation of goods, ascertained, and unascertained to the contract of sale, conditional or final, right of rejection on inspection etc. Under the State laws, the place where the agreement of sale was entered into or situs of goods in certain circumstances and like ingredients of sale of goods was by legislation fixed as the locus of the sale for the purpose of sales tax. It is well known that the Sale of Goods Act itself provides no definite solution to fix the situs of a sale of goods. When a sale could be said to take place in the course of inter-State trade or commerce or import into or export out of the territory of India was the subject of conflicting or differing ideas and opinions even in the context of similar facts and circumstances of sale of goods. It was also settled by the Bengal Immunity case (1955) a M.L.J. (S.C.) 168 : (1955) S.C.J. 672 : (1955) 6 S.T.C. 446 (1955) 2 S.C.R. 603 : A.I.R. 1955 S.C. 661, that the bans imposed by Article 286 before its amendment in 1956, were separate and independent and each of them should be got over by Parliamentary legislation intended to bring to tax sales in the course of inter-State trade, commerce and intercourse or import into or export out of the territory of India.
27. The Central Sales Tax Act, 1956 professedly formulates 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 and providing for levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce. It also declares certain goods to be of special importance in inter-State trade or commerce and specifies the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. Of the definitions in Section 2 appropriate State' means in relation to a dealer who has one or more places of business situate In the same State that State or in relation to a dealer who has places of business situate in different States, every such State with reference to the place or places situate within its territory. "Place of business" is to include in the case of a dealer carrying on business through an agent, the place of business of such agent; a warehouse, godown or other place where a dealer stores his goods; and a place where a dealer keeps his books of account. These provisions as amended by the Amending Act XXXI of 1958, came into force on 1st October, 1958. "Sale", "sale price", "Sales tax law" and "turnover" are the other expressions defined by Section 2. A sale or purchase of goods which occasions the movement of goods from one State to another or is effected by a transfer of documents of title to the goods during their movement from one State to another is deemed to take place in the course of inter-State trade or commerce. The movement commences when the goods are delivered to a carrier or other bailee for transmission and terminates when delivery is taken from such carrier or bailee but where the destination of the goods notwithstanding their movement from one State to another is the original State of despatch or delivery the sale or purchase is not in the course of inter-State movement of goods. These are the provisions made by Section 3. But no concept of inter-State trade can be comprehensive without knowing what is an outside sale and, therefore, an inside sale. An inside sale or an outside sale is related to its situs and if the situs of an inside sale is fixed on certain tests, what is not an inside sale will be an outside sale provided there is a completed contract of sale of goods. Section 4(2) defines an inside sale in terms of certain tests for its situs. A sale or purchase of goods is deemed to take place inside a State in the case of specific or ascertained goods at the time the contract of sale is made; and in the case of unascertained or future goods at the time of their appropriation to the contract of sale by the seller or the buyer whether assent of the other party is prior or subsequent to such appropriation. An Explanation to Sub-section (2) says where there is a single contract of sale or purchase of goods situate at more places than one, the provisions of the subsection shall apply as if there were separate contracts in respect of the goods at each of such places. The place where the goods are at the time when the contract of sale is made in the case of ascertained goods or when appropriation is made in the case of unascertained goods determines both the situs of such a sale as well as its character as an inside sale. Once a sale is fixed as having taken place inside a State, with reference to such tests, it should be deemed to have taken place outside all other States. While providing for this, Sub-section (1) of Section 4 makes it subject to the provisions contained in Section 3. The opening words of Sub-section (1) of Section 4 in effect mean that Section 3 controls the scope of sale or purchase inside a State which is necessarily a sale or purchase outside all other States. In our opinion, having regard to the definitions of "appropriate State" and "place of business" and the language employed by Sections 3 and 4, a sale or purchase inside a State as defined by Section 4(2) is the starting point and out of such sale or purchase is carved out and separated, a sale or purchase which occasions the movement of goods from one State to another or is effected by transfer of documents of title to the goods during their movement from one State to another and by this process such an inter-State sale or purchase is distinguished and excluded from an outside sale or purchase. At the same time, an inter-State sale or purchase while separated from an inside sale is also integrated with it for purposes of its situs and fiscal and territorial jurisdiction to tax it. Tests similar to these applicable to inter-State sale or purchase are applied by Section 5 to sale or purchase taking place in the course of import into or export out of the territory of India, only with this difference that the movement of goods in the case of import into or export out of the territory of India terminates or commences at the customs frontiers of India.
28. It may immediately be seen that by the foregoing provisions, the conventional tests of locus of contracts for purposes of jurisdiction regarding the causes of action or proper law of contract to be applied in cases of conflict of laws are at one stroke done away with and tangible or physical tests are specified for fixing the situs of a sale of goods for purposes of taxation of inter-State sale or purchase which necessarily being integrated with an inside sale eliminates the applicability of the nexus doctrine under the State laws relating to general sales tax. The essential tests of a sale or purchase in the course of inter-State trade, commerce and intercourse or import into export out of the territory of India are (1) whether there is movement of goods from one State to another or into or out of the territory of India, (2) whether such movement is occasioned by the contract of sale or purchase, and (3) alternatively whether, during such movement, the sale or purchase is effected by transfer of documents of title to the goods. The commencement and terminus of such movement should be delimited with reference to the two explanations to Section 3 in respect of a sale of the type under Section 3(b) or the indicia mentioned in Section 5 in relation to import or export of goods. These tests will only enable to determine the character of the transaction as an inter-State one or in the course of import or export but will not help to fix its situs for jurisdiction to tax it. For that purpose, one has to turn to Section 4. Once the tests under Section 4(2) are answered in favour of a State, that becomes the appropriate State having jurisdiction to tax the sale or purchase and no other State will have the power to tax the Same transaction. The contract of sale or purchase is given a situs at the dealer's place of business where he sells. This is manifest from the definition of "appropriate State" and "place of business" as amended by the Central Act XXXI of 1958 with effect from 1st October, 1958, and this aspect is woven into the texture of the tests under Section 4(2).
29. When a sale or purchase occasions inter-State movement of goods has been settled by a number of cases decided by the Supreme Court and, therefore, we are relieved of the task of addressing ourselves to the problem as one res Integra. In Bengal Immunity Co., Ltd. v. The State of Bihar , Venkatarama Ayyar, J., observed:
A sale could be said to be in the course of inter-State trade only if two conditions concur : (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade.
This view seems to have been adopted in Section 3(a). Tata Iron and Steel Co., Ltd. v. S.P. Sarkar , interpreted this very provision and said:
A sale being by the definition, transfer of property becomes taxable under Section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another...
We may also extract another observation from this decision
In our view, therefore, within Clause (b) of Section 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 : Clause (a) of Section 3 covers sales, other than those included in Clause (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.
The two kinds of sale are, therefore, distinct and different. They are mutually exclusive. It does not matter for either type of sales where the property passes. What is of the essence of the inter-State character of a sale or purchase under Section 3(a) is that the inter-State movement of goods springs from the terms of the contract of sale or purchase or is incidential there to. The movement of goods need not necessarily be preceded by an agreement of sale or purchase but may be part of or incidental to it, or arise out of it. State Trading Corporation v. State of Mysore , and K.G. Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes , are illustrative of the principle. The Cement Marketing Co. of India (P. ) Ltd. v. State of Mysore , related to a period of assessment from 6th September, 1955 to 31st March, 1956. The first appellant was the sales manager of the second appellant, who was manufacturing cement and had a number of factories in different parts of India but not in the State of Mysore. The first appellant had its head office at Bombay and a branch office at Bangalore and was registered as a dealer in both the places under the local Sales tax law in force. The buyer placed an order with the first appellant at its branch in Bangalore who accepted the same and instructed its Bombay office to despatch cement in accordance with the instructions of the buyer and the authorisation therefore from the authorities under the Cement Control Regulations. The goods were delivered from the other States to the buyer in the State of Mysore. The cement was during that time a controlled commodity and the authorisation of its movement was subject to certain conditions. It should be utilised within a certain period and the cement released under the authorisation could only be utilised for the purpose for which it was given; the authorisation was not transferable. The delivery of cement to the buyer in the Mysore State was directly in accordance with the authorisation and despatched from outside the State of Mysore into that State at the buyer's risk from the time the delivery was made by them out of State factory to the carriers and the railway receipt was obtained for the goods. The Supreme Court reversing the judgment of the Mysore High Court held that the sales were inter-State sales which though covered by the Explanation to Article 286(1)(a) were exempt from sales tax because under the contract of sale there was transport of the goods from outside the State of Mysore into the State of Mysore and the transactions themselves involved movement of goods across the border. State Trading Corporation v. State of Mysore , also
related to a sale of cement but during the periods between 1st April, 1957 and 3,0th September, 1957, and also between 1st October, 1957 and 31st March, 1958. The contract of sale did not itself provide for inter-State movement of cement. There was no term in the contract that cement should be supplied to the buyer from any particular factory in any particular State. But the contract was subject to the terms of permit issued under the Cement Control Regulations. The Supreme Court applied the decision in Tata Iron and Steel Co. Ltd. Bombay v. S.R. Sarkar , and held that the sale occasioned the
movement of goods from one State to another within Section 3(a) of the Central Sales Tax Act, 1956, when the movement was the result of a covenant or incident of the contract of sale. It further observed that although a contract of sale of cement did not itself contain any covenant that the supply had to be made from any particular factory, as the contract was subject to the terms of the permit which provided that the supply had to be made form one or other factory situated outside Mysore State, the contract must be deemed to have contained a covenant that the cement would be supplied in Mysore from a place situated outside its borders and a sale under such a contract would clearly be an inter-State sale as defined in Section 3, (a) of of the Central Sales Tax Act, 1956. Khosal & Co. (P.) Ltd. v. Deputy Commissioner of Commercial faxes applied the same principle to
Section 5(2) on the view that the expression "occasions the movement of goods" in Sections 3(a) and 5(2) had the same meaning. This is a case of import of goods from abroad under what may be termed as actual users' licence. The facts may conveniently be extracted from the head-note;
The assessee entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according; to specifications and the D.G.I.S.D., London or his representative had to inspect the goods at the works of the manufacturers and issue an inspection certificate. Another inspection was provided for at Madras. The assessee was entitled to be paid go per cent. after inspection and delivery of the stores to the consignee and the balance of 10 per cent. was payable on final acceptance by the consignee. In the case of deliveries on f.o.r. basis the assessee was entitled to go per cent. payment after inspection on proof of despatch and balance of 10 per cent. after receipt of stores by the consignee in good condition. The assessee was entirely responsible for the execution of the contract and for the safe arrival of the goods at the destination. The contract provided that not withstanding any approval or acceptance given by an Inspector, the consignee was entitled to reject the goods, if it was found that the goods were not in conformity with the terms and conditions of the contract in all respects. The manufacturers consigned the goods to the assessee by ship under bills of lading and the goods were cleared at the Madras Harbour by the assessee's clearing agents and despatched for delivery to the Southern Railway in Madras and Mysore.
The Supreme Court held that the assessee's sales to the Government Departments were effected in the course of import into the territories of India and were exempt from taxation under Section 5(2). Apart from the fact that the expression "occasions the movement of goods" in Section 3(a) and Section 5(2) had the same meaning, it was further pointed out (head-note).
that before a sale could be said to have occasioned the import it was not necessary that the sale should have preceded the import; that the movement of goods from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India for the consignee, and was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of the goods being diverted by the assessee from any other purpose and, therefore, the sale took place in the course of import of goods within Section 5(2) of the Act, and exempt from taxation...
The contention of the assessee that in this case the inspection and approval of the goods at Belgium at the Manufacturer's works amounted to an appropriation of the goods to the contract so that the property in the goods passed to the ultimate consignee even in Belgium and if that was so the sale took place out side India and could not be subject to any sales tax, was in effect rejected apparently on the view that these tests had no relevance in interpreting the expression "occasions the movement of goods" in Section 5(2) and did not in terms of the contract assist the assessee in respect of parts of the turnover. We may in passing observe that in view of Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes Rajeswari Mills Ltd. v. The State of Madras can no longer be regarded as laying down the correct proposition as to the scope of Section 3(a) and Section 5(2) of the Central Sales Tax Act.
30. Sales or purchases during movement of goods from one State to another by transfer of documents of title to the goods fall under Section 3(6). There may be inter-State movement of goods without any sale or purchase. A dealer in State 'A' may dispatch his goods to State 'B' consigned to self and may himself take delivery at State 'B' and thereafter sell the same. There is no inter-State sale involved in such a movement. But while the goods in the illustration are still in movement, the dealer may transfer the documents of title to the goods. Similarly that dealer may in his turn, before the movement of the goods from one State to another comes to a stop, effect a further sale by transfer of the documents of title to the goods. Both these sales clearly fall within the ambit of Section 3(b). Where the situs of the first and second sale is to be fixed for the purpose of taxation is another matter which we shall advert to in due course. The dividing line between sales or purchases under Section 3(a) and those under Section 3(b) is that in the former the movement of goods is under the contract of sale or purchase but in the latter the contract comes into existence after commencement and before termination of the inter-State movement of the goods. These are the tests to be applied in determining the character of a transaction as an inter-State sale or purchase and one not to be mixed up or confused with any other test. In both the classes of inter-State sales or purchases under Section 3(a) and (b), what is contemplated is completed sales. But how the sales or purchases under Section 3(a) or 3(b) are completed and where, are irrelevant for purposes of Section 3(a) and 3(b). What is relevant in the case of Clause (a) is whether the sale or purchase occasions the movement of the goods from one State to another and in the case of Clause (b) whether the sale or purchase is effected by transfer of documents of title to the goods when they are in movement from one State to another. No other test will appear to be necessary or appropriate.
31. Once the character of the transaction is determined, by the proper tests we mentioned, to be inter-State, the next question will be where is its situs or which is the appropriate State to bring it to tax. That will take us to Section 4(2). Where a sale or purchase occasions inter-State movement of goods, it may be comparatively easy to fix its situs. The situs of goods at the time when the contract of sale, which occasions the inter-State movement thereof, is made or at the time of appropriation of the goods if they are unascertained or future goods, is made to the contract of sale with the seller or buyer, will be the situs of the sale or purchase and, therefore the State in which such situs is situate will be the appropriate State entitled to bring the transaction to tax. The assent to appropriation may be prior or subsequent to it. That means the appropriation for purposes of Section 4(2) need not necessarily be accompanied by the assent of the party concerned. Appropriation of unascertained or future goods may be in a variety of ways. It may be by earmarking the goods with reference to a particular contract of sale or purchase by putting them into separated packages or by some other tangible means by which the intention of such appropriation may appear. The appropriation may also be by delivery to a certain carrier without a possibility of diversion of the goods for application to some other sale or purchase of goods. The appropriation must be a final one in that sense, so far as the seller or the buyer as the case may be who makes the appropriation is concerned. Any other test like right of inspection or rejection, the terms like, f, o. r. or f, o. b. or c. i. f., passing of property in the goods will be irrelevant for purposes of Section 4(2)(b). So too considerations based on Sections 39 and 51 of the Sale of Goods Act may have no bearing in the application of Section 4(2)(b).
32. The fixation of a situs for purposes of taxation of inter-State sale under Section 3(b) is not free from difficulty. It has been urged by some of the assessees that the first sale by transfer of documents of title to the goods during their inter-State movement should be deemed to fall within Section 3(a). Two reasons are given for this view. One is that though a contract in this case follows the movement of the goods, the situs of the goods in that case must be related back to the place where from they moved. Secondly, it is justified by terms of Section 9(1) as amended by the Central Act XXXI of 1958, namely, the tax payable on inter-State sale or purchase falling within Clause (a) or Clause (b) of Section 3 shall be levied and collected in the manner provided in Sub-section (3) of Section 9 in the State from which the movement of the goods commenced. We are inclined to accept this contention especially when its acceptance will avoid uncertainty as to the appropriate State which is entitled to tax such inter-State sale or purchase. Such inter-State sale or purchase which will clearly come within the purview of Section 3(b) is given a situs for purposes of taxation in the State from which the goods moved out. In our opinion Section 9(1) so far as it is concerned with the first sale under Section 3(b) has the effect of being a proviso to Section 4(2) and treating such sale or purchase as sale or purchase inside the State from which the goods moved. As to second and subsequent sales or purchases of goods by transfer of documents of title to the goods during their inter-State movement, there appears to be no material in Section 4(2) to fix their situs. But it is suggested that the ultimate place of destination of the goods should be deemed to be the situs. Cheshire in his Private International Law (Seventh Edition) says that the transfer of movables while they are in the course of transit raises a difficult question of choice of law and proceeds at page 418:
Suppose for instance, that a parcel of goods has been despatched overland from London to Bucharest, and that before reaching its destination it has been the subject of a sale or some other commercial transaction. The problems that such circumstances raise become more complex if the parties have different domiciles, or if the transaction is effected in some country other than Romania or England.
Then the author examines:
What law should be applied in such a case...
After stating that the other theories may not be apt, he observes:
The law of stipulated place of destination, though an appropriate choice in many circumstances suffers from the disadvantage that it may be and frequently is altered during the course of the transit.
Then he quotes from Inglis v. Robertson L.R. (1898) A.C. 616
I (Lord Watson) am not prepared to hold that whenever the cargo of a ship is destined to a port in one country, the dealings of the owner of the cargo with the bill of lading which represents and carries the property of the goods must in every other country be governed by the law of the locus where the ship is to unload.
The conclusion of Cheshire is that no one law governs exclusively all cases, and his suggestion is that the problems must be broken down. To quote his words again:
A dispute between the parties to a particular transaction, as for example, a mortgage of the goods granted by the assignee, will be governed by the proper law of the transaction. If the moveable come to rest sufficiently to admit of a dealing with them, as where they are seized by creditor in accordance with the local law or wrongfully sold by the carrier, the question of title must clearly be determined by the lex situs. If the transit is by sea in one ship, there is much to be said for applying the law of the flag.
We do not think that the reference to Cheshire really helps us to find the solution for the question. The question may arise only in respect of sales or purchases falling outside the purview of Section 6(2). The proviso to Section 9(1) says that the tax on such sales or purchases shall be levied and collected in the State from which the registered dealer effecting the subsequent sale obtained the form prescribed for the purposes of Clause (a) of Sub-section (4) of Section 8 in connection with the purchase of such goods. The effect of this proviso is not one of simplicity and it is not easy to discern how the jurisdiction to tax such subsequent sale or purchase is made to depend on the phrase where from "the dealer obtained the form prescribed under Section 8(4)(a)." In the cases before us we are not called upon to pursue the matter and would reserve the question for determination when the occasion requires it.
33. In the light of the interpretation we have placed upon Sections 3, to 5 as also Section 9, we shall turn to a consideration of each of the cases before us. W.P. Nos. 739 and 681 of 1966, T.C. Nos. 99, 145, 248, 284 of 1964, W.P. Nos. 2441 to 2444 of 1965 are cases of imports into India of either foreign cotton or machinery fabricated abroad for a specific purpose on the strength of actual user's import licences. The petitioner in W.P. No. 739 of 1966 is the Buckingham and Carnatic Company Ltd., Madras, where a large variety of cotton textile goods are manufactured. For the purpose of its manufacturing activities of the mills, the petitioner purchases large quantities of cotton produced in States other than the State of Madras in the course of inter-State trade and also in countries outside India in the course of import. Cotton is one of the items of goods declared under Section 14 of the Central Sales Tax Act to be of special importance in inter-State trade and commerce. Under the provisions of the Madras General Sales Tax Act, the last purchase of cotton within the State attracts tax. For the year 1964-65 the petitioner claimed that a turnover of Rs. 2,32,67,093.64 related to purchases made in the course of inter-State trade from dealers in the States outside the State of Madras, that the turnover of Rs. 89,77,224.23 represented purchase in the course of import into the territory of India and that therefore both the turnovers were not liable to tax under the Madras General Sales Tax Act, 1959. The Department refused to allow the claim and brought the two categories of turnover to tax. This petition is to quash the order of assessment. As regards the first category of turnover, it is said that the movement of the goods from States outside Madras was under covenants of the contracts of sale between the outside State dealers and the petitioner and was incidental thereto, and that the contracts entered into specifically provided in terms and effect that the goods were to be despatched from outside States to the State of Madras in pursuance of the sales. Reliance is placed on the fact that the terms of sale are f. o. r. Madras Mill siding, price to be inclusive of Central Sales Tax which the sellers paid in the respective States from which the goods moved on consignment by rail. It seems to us that the assessing authority failed to find out whether the sales of cotton to the petitioner occasioned the movement thereof from other States to the State of Madras in the sense we have explained earlier in our judgment and proceeded upon considerations of appropriation and weighment. The other category of turnover in our opinion is clearly of purchases which occasioned the import of cotton into India. The contracts provided for import of cotton by the sellers from foreign countries where a particular type of cotton was produced, on terms f. o. b. foreign port. The actual users' import licences were obtained by the petitioners in their names from the Controller of Imports and Exports for importing foreign cotton with letters of authority in the names of the Bombay parties to import the cotton covered by the contracts. The Bombay parties placed orders with foreign exporters for the shipment of goods from foreign ports to Madras port on the strength of the actual user's import licences in favour of the petitioner for use of the cotton in its mills. As soon as the shipping documents were received the Bombay parties effected their transfer in favour of the petitioner by endorsement while the goods were still on the high seas and the petitioner later cleared the goods at the Madras port. It is thus clear that the import of cotton from foreign countries against the actual users' import licences obtained by the petitioner was occasioned by the contracts between the petitioner and the Bombay parties. The actual users import licence was part of the contract and import was not merely in the contemplation of the parties but was provided for as a term of the contracts. The fact that the documents of title were transferred while the goods were still in the high seas in favour of the petitioner and the latter cleared the goods at the Madras port would make no difference to the fact that the contract between the petitioner and the Bombay parties occasioned the import. The second category of transactions is, therefore. exempt from tax both under the Central Sales Tax Act and under the Madras General Sales Tax Act. The purposes included in the second category of turnover were not purchases made inside the State of Madras to attract local sales tax. The assessment order in relation to the second category of turnover in hereby quashed. It is said that an appeal against the assessment order is pending. The assessment order in respect of the first category of turnover is also quashed but with a direction to the appellate authority before whom the appeal is pending to examine the transactions in the light of our judgement and see whether they are than sections which occasioned the movement of cotton from one State to another or whether they are purchases made by transfer of documents of title to the goods while the goods were in transit from the other States to the State of Madras. W.P. No.739 of 1966 is allowed with costs subject to the direction in regard to the first category of turnover. Counsel's fee Rs. 100.
34. The turnover assessed to local sales tax in W.P. No. 861 of 1966 is almost similar to the king of transactions included in the second category of turnover in W.P. No. 739 of 1966. Here also the import of foreign cotton was against actual user's import licence granted to the assessee by the Controller of Imports and Exports for importing foreign cotton. The terms of the licence necessarily formed part of the contracts between the sellers and the assessee. The contracts themselves provided for the import of foreign cotton. They should be held, therefore, to be purchases of foreign cotton by the assessee which occasioned its import into India. The fact that the terms were f. o. r. Tirunelveli and delivery was to be at Mill premises against final payment made no difference to the character to the transactions as purchases that occasioned the import into India. The principle of Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes (1966) 2 S.C.J. 703 : (1966) 2 M.L.J. (S.C.) 81 : (1966) 2 An. W.R. (S.C.) 81 : (1966) 17 S.T.C. 473, has direct application to the turnover here as to the second category of the turnover in W.P. No. 739 of 1966. W.P. 681 of 1966 is allowed with costs. Counsel's fee Rs. 100.
35. T.C. No. 99 of 1964 by the assessee and T.C. No. 145 of 1964 by the Department arise out of a common order. In these cases also the transactions were similar and the import was under the actual users' import licences obtained by the assessee. The import was through various Bombay dealers and related to Egyptian, East African and American cotton. No doubt the sellers purchased the cotton from abroad and shipped the same in their own names and cleared the goods from the ports within the State of Madras and transported it to the assessee's miles, where deliveries were effected. But inasmuch as the contracts themselves provided for the import of foreign cotton and the terms of the actual users' import licences were part of the contracts the purchases undoubtedly occasioned the import of cotton. The circumstances that the Bombay dealers shipped foreign cotton in their own names cleared the gods in Madras port and gave delivery at the assesee's mills do not in any way detract from the character of the purchases as in the course of import. The ratio of Khosla and Co. (p.) Ltd. v. Deputy Commissioner of Commercial Taxes (1966) 2 S.C.J. 703 : (1966) 2 M.L.J. (S.C.) 81 : (1966) 2 An. W.R. (S.C.) 81 : (1966) 17 S.T.C. 473 governs these cases too and accordingly T.C. No. 99 of 1964 is allowed and T.C. No. 145 of 1964 is dismissed with costs in each. Counsel's fee Rs. 100 in each of them.
36. T.C. No. 248 and T.C. No. 284 of 1964 also involve transactions of the same type in which foreign cotton was imported against actual users' import licences obtained by the assesses. The contracts provided for the import of cotton and occasioned the import. That there was no private of contract between the assesses and the foreign exporter, the terms of delivery were f. o. r. at the premises of the mills and that the payment of balance of price was to be made after weighment of cotton can make no difference to the character of the transactions. Tax Cases Nos. 248 and 284 of 1964 are allowed with costs in each. Counsel fees Rs. 100.
37. In W.P. Nos. 2443 and 2444 of 1965 the assesses, Larsen and Toubro, Ltd., Madras, were asked by the Neyveli Lignite Corporation Ltd. to import for them certain machinery during the assessment year 1960-61 from abroad specially manufactured and intended for the Neyveli Lignite Corporation. There were two similar contracts, one in April and the other in October, 1960. The import licences were to be procured by the Neyveli Lignite Corporation. The manufacture and testing of equipment had to be inspected before the actual shipment or despatch and the goods were to be supplied over a period of two years, 1960 and 1961. Under the agreement the supply of the imported equipment was to be treated as made by the overseas principals to the Neyveli Lignite Corporation, the petitioner acting as agents in the processing of the order watching the receipt of the goods, their clearance and forwarding them to the Neyveli Lignite Corporation. The bill of lading was drawn in the first instance in the name of the assessees who were to transfer the same to the Neyveli Lignite Corporation while the goods were still in the high seas. The transfer of the bill of lading was to accompany the invoice covering 100 per cent. of the c.i.f. value and a certificate of inspection and soundness of the equipment. The assessee cleared the goods under the authority of the Neyveli Lignite Corporation. The price, it was said, was stipulated on the basis that no sales-tax was payable on the imported equipment but if sales-tax came to be levied it would be at the account of the Nevyeli Lignite Corporation. It appears the particular type of machinery was manufactured by the foreign principals of Messrs. Johnston Pumps India Ltd., Calcutta for whom the assessees Larsen & Toubro acted as agents. The assessees in order to fulfil their contract with Neyveli Lignite Corporation approached Johnston Pumps India Ltd. who in turn arranged for the supply of the machinery from their foreign principals. The representatives of the Neyveli Lignite Corporation were to inspect the goods at the place of the foreign manufacturers and it was only thereafter that the goods were to be despatched. It seems in a few cases the right of inspection was waived by Neyveli Lignite Corporation. The documents were sent through Bank of India, Ltd., Calcutta wherein Johnston Pumps India Ltd., Calcutta, the principals of the assessees, had opened a letter of credit. The consignee in the document was the Bank of India, Calcutta marked for DGMT, N.L.C. Ltd. After the payment, the documents were transferred by endorsement in favour of Neyveli Lignite Corporation by a Johnston Pumps India Ltd. when the goods were in the high seas and the Neyveli Lignite Corporation endorsed these documents in favour of the assessees for the limited purpose of clearing the goods as is claimed by the assessees. According to the assessees, no title to the goods was to pass to them under the endorsement. An examination of the relative contracts makes it manifest that they had clearly provided for the import of foreign machinery which as we said was to be supplied to the Neyveli Lignite Corporation and the goods were imported under the actual users' import licences obtained by the Neyveli Lignite Corporation. The terms of the licence were reflected in the contracts. These contracts have clearly occasioned the import of the foreign fabricated machinery into India. These goods also will be governed by Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes (1966) a S.C.J. 703 : (1966) 2 M.L.J. (S.C) 81 : (1966) 2 An.W.R. (S.C.) 81 : (1966) 17 S.T.C. 473. W.P. Nos. 2443 and 2444 of 1965 are allowed with costs one set, Counsel's fees Rs. 100. W.P. Nos. 2441 and 2442 of 1965 relate to levy of penalty. Inasmuch as we have allowed W.P. Nos. 2443 and 2444 of 1965, these petitions are also allowed but with no order as to costs.
38. T.C. Nos. 300 to 302 of 1965 are filed by the Department. They relate to what are described as depot sales. The tax cases cover the assessment period 1964-65 and the assessee is different in each of these cases. But the three transactions in dispute bear resemblance. The three assessees are said to be sister concerns manufacturing safety matches and colour matches of certain patent varieties bearing names "Anil" and "Moon". They have sales depots at Devangere in the Mysore State and Bombay in Maharashtra State. The buyers in the two depots outside Madras placed orders for the supply of "Anil" and "Moon" varieties of matches from the sales depots of the assessees in the States of Mysore and Maharashtra. On receipt of the orders, either written or oral, the depot managers in those States communicated the same to the head office of the assessees at Sivakasi and indented for the supply of required goods directly to the respective buyers in the two States. The head office acknowledged the indent and despatched the goods directly to the respective buyers and customers in the Mysore and Maharashtra State through named lorries. The depots were however asked to arrange to take delivery but it is not clear. The respective buyers took delivery on behalf of the depots. The sales depots then prepared sales bills including the costs of the goods supplied. The Madras departmental authorities considered those sales as inter-State sales which occasioned the movement of the goods from this State to the States of Mysore and Maharashtra. But the Tribunal on appeals by the assessees were of the opinion that they were local sales in the States of Mysore and Maharashtra and set aside the assessments. We are of the view that the Tribunal failed to bear in mind the correct principles regarding inter-State sales and purchases under Section 3 of the Central Act. It proceeded upon the assumption that "there was nothing from the indent form to warrant the inference of any pre-existing contract of sale in pursuance of which the goods were transported from Sivakasi ". The Tribunal has to ascertain the terms of the contract and see whether the movement of matches from the State of Madras to the States of Mysore and Maharashtra was occasioned by the contracts in the sense whether the contracts provided for such movement or whether it was an incident of the contract. The question is not whether the goods moved out of the State of Madras pursuant to a prior existing contract of sale. T.C. Nos. 300 to 302 of 1965 are allowed and the appeals are remitted to the file of the Tribunal for fresh disposal in accordance with this judgment.
39. In W.P. No. 836 of 1966 the facts have been briefly set out at the outset of this judgment. While under the Madras General Sales Tax Act the excise duty is deductible from the turnover, no such provision has been made for deduction of the excise duty from the turnover of inter-State sales or purchases under the Central Act with the result unequal burden will fall on differences in the quantum of turnover because of allowance in the one case and disallowance in another, of deduction of excise duty. That will impede the freedom of inter-State trade, commerce and intercourse under Article 301 of the Constitution and is not saved by Article 303. W.P. No. 836 of 1966 is allowed with costs. Counsel's fee Rs. 100.