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PETITIONER: KURAPATI VENKATASATYANARAYANA & OTHERS

       Vs.

RESPONDENT: THE STATE OF ANDHRA PRADESH

DATE OF JUDGMENT: 01/08/1969

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. (CJ) GROVER, A.N.

CITATION:  1970 AIR  306            1970 SCR  (1) 743  1969 SCC  (2) 439

ACT:    Constitution  of  India,  Art.  285 (  1  )  (a)  --Sales outside   the  State--Whether burden of proof on  dealer  to show    consumption    in      delivery    State--Assessment Order--Comprehensive  order  covering  sales  taxable    and those not taxable--lf severable.

HEADNOTE:    The appellant, a dealer in pulses in Vijayawada in Madras State  made     certain sales outside the State  during  the assessment  year 1949-50.  The appellant  claimed  exemption from  sales tax of sales effected outside the  State  during the  year but the Deputy Commercial Tax  Officer  disallowed the  claim.  A first appeal and a revision petition  to  the Board   of   Revenue  were  unsuccessful.    The   appellant thereafter brought a suit for the  recovery of tax collected from  him  with  interest  contending  that  part  of  sales effected  outside  the State could not be taxed  under  Art. 285(1)(a) of the    Constitution.  The Trial Court held that the  assessment to tax of the sales during the  period  from April  1, 1949 to January 25, 1950’ could not  be  impeached but the sales from January 26 to March 31 outside the  State were not liable to sales-tax; as there was a single order of assessment  ’for the whole year, the entire  assessment  was illegal. In appeal to the High Court, and upon a direction from  that Court, the Trial Court gave a finding that deliveries of the goods  were not made for purposes of consumption within  the delivery State only.  The High Court. therefore. allowed the appeal  holding  that  the appellant  could  not  claim  the benefit  under Article 286(1)(a) in the absence of  evidence as  to  how  the whole-sales disposed  of  the  goods  after obtaining  delivery and therefore the entire  turn-over  for the year 1949-50 would be assessable to tax.     In the appeal to this Court, it was contended inter-alia (i) that the    High Court was in error in holding that  the burden of proof was on the appellant to show that there  was not  only  delivery  of goods  for  consumption  within  the delivery States but there was actual consumption of goods in those  States:  (ii) the assessment must be  treated  as  an

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indivisible one and if a part of the assessment was illegal, the  entire  assessment must be deemed to  be  infected  and treated as invalid.     HELD: Allowing the appeal,     (i) The part of the turnover which related to sales from January 26,  1960 to March 31. 1960 was not liable to sales- tax  and  the levy of sales-tax from the appellant  to  this extent was illegal.      It  was  rightly contended that the appellant  did  not carry the burden of showing that there was not only delivery of  goods  for consumption within the States  but  that  the goods were actually  consumed in  those  States. [749 C]       India  Copper Corporation Ltd. v. The State of  Bihar, 12 S.T.C. 56 relied upon. 744     (ii) In the present case though there was a single order of assessment for the period from April 1, 1949 to March 31, 1950, the assessment could be split up and dissected and the items  of sales separated and taxed for  different  periods. It  was possible to ascertain the turnover of the  appellant for the pre-Constitution and post-Constitution periods  from the  figures  furnished  in  the  plaint  by  the  appellant himself.   It  was, therefore. open to the  Court  in  these circumstances  to sever the illegal part of  the  assessment and give a declaration with regard to the illegal part alone instead of1 declaring the entire assessment void. [752 B]     Case law referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1451  of 1968.     Appeal from the judgment and decree dated March 11, 1965 of the Andhra Pradesh High Court in A.S. Nos. 93 and 169  of 1957.     Rajeshwara Rao and B. Parthasarathi, for the appellant.     D. Munikanniah and A.V.V. Nair, for the respondent.     The Judgment of the Court was delivered by     Ramaswami,  J.   This appeal is brought  by  certificate from the judgment of the High Court of Andhra Pradesh  dated March 11, 1965 in A.S. Nos. 93 and 169 of 1957.     The  appellant  was  a  firm of  dealers  in  pulses  at Vijayawada.It  was sending pulses like green gram and  black gram to other States viz.: Bombay, Bengal, Madras and Kerala by  rail in the course of their business.  The  consignments were  addressed  to  ’self’ and the  railway  receipts  were endorsed  in favour of Banks for delivery against  payments. The purchasers obtained the railway receipts after  payments and  took delivery of the goods.  The total turnover of  the business  of  the  appellant for the year  1949-50  was  Rs. 17,05,144-2-2.   Of   the  said  turnover  a   sum   of  Rs. 3,61,442-7-3  represented  the turnover  of  sales  effected outside  the  then Madras State.  For  the  assessment  year 1949-50   the Deputy Commercial Tax Officer collected  sales tax on the total turnover without exempting the value of the sales  effected  outside  the  State.   The  appellant   was permitted to pay sales tax under(r. 12 of the Madras General Sales  Tax (Turnover and Assessment) Rules.   The  appellant submitted  monthly  returns  and  paid  sales  tax   without claiming  any such exemption till the end of January,  1950. But  in, the returns for the months of February  and  March, 1950  the  appellant  claimed exemption  on  sales  effected outside the State.  The appellant submitted  a  consolidated return  Ex.  A-18 to the Deputy Commercial  Tax  Officer  on

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March  30,   1950  claiming  exemption  in  respect   of   a sum  of  Rs.  10,37,334-7-9 being the  value  of  the  sales effected outside the 745 State or the period commencing from April 1, 1949 and ending January 31, 1950.  The Deputy Commercial Tax Officer   fixed the taxable turnover of the appellant at Rs.  17,05,14-4-2-2 and issued a notice Ex. A-23 dated October 24, 1950 to  show cause why the appellant should not be assessed  accordingly. The   appellant  was thereafter held liable   to   pay   tax amounting   to  Rs.  26,642-14-0 on a net  turnover  of  Rs. 17,05,144-2-2.   The  appellant preferred an appeal  to  the Commercial Tax Officer and a revision petition to the  Board of  Revenue,  Madras but was unsuccessful.   The  appellant, therefore brought a suit for the recovery of Rs. 21,270-13-0 being  the  amount  of  tax  illegally  collected  from  him together   with  interest,  contending   that   the    sales effected outside the State could not be taxed under Art. 285 (1)(a)  of the Constitution of India.  The State  of  Madras contested the suit on the ground that the sales were taxable as they fell within the purview of explanation 2 to s.  2(h) of  the  Madras  General Sales  Tax  Act,  1939  hereinafter referred  to. as the Act).  The Subordinate Judge held  that for  the period from April 1, 1949 to January 25,  1950  the appellant was not entitled to impeach the assessment on  the turnover relating to sales outside the State. As regards the period from March 26, 1950 to March 31, 1950 the Subordinate Judge took the view that the past of  the  turnover relating to,  outside sales was not liable to salestax but  as  there was  a  single order of assessment for the   entire   period the   entire assessment was illegal.  Again the judgment  of the  Subordinate Judge both the appellant and the respondent filed  appeals  A.S. No. 93 of 1957 and A.S. No. 169 of 1957 to  the High Court of Andhra Pradesh.  But its  order  dated April  18,  1960 in Appeal No. 169 of 1957  the  High  Court called  for a finding  from  the trial court as  to  whether the  appellant was able to prove the facts entitling him  to invoke  the  explanation to Art. 286(1)(a).   By  its  order dated  July 21, 1962 the trial court submitted a finding  to the effect that in view of the decision of the Supreme Court in  India Copper Corporation Ltd. v. The State  of  Bihar(1) the  burden of proof was not on the appellant and  that  the finding  will  have to be given in its favour.  But  by  its order  dated  March  5, 1963 the  High  Court  directed  the Subordinate Judge to record a finding after considering  the evidence adduced by the  appellant  as  to whether the goods in  question  were delivered  for   consumption  within  the delivery  States.   In its order dated March  22,  1963  the trial  court,  after considering the evidence given  by  the appellant’s  witnesses  came  to  the  conclusion  that  the deliveries were not made for purposes of consumption  within the  delivery  States  only.  The High  Court  by  a  common judgment dated March 11, 1965 in A.S.  No. 93 and 169 of 1957 held that the  appellant  could not   claim  the  benefit  under  Art.  286(1)(a)   of   the Constitution in the (1) 12S.T.C. 56. 746 absence  of evidence as to how the wholesalers disposed   of the goods after obtaining delivery and therefore the  entire turnover  for the year 1949-50 would be assessable  to  tax. In  the result A.S. No. 169 of 1957 flied by the  respondent was  allowed  and A.S. No. 93 of 1957 filed by the appellant was dismissed.     The Madras General Sales Tax Act, 1939  was  enacted  in

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exercise  of  the legislative authority conferred  upon  the Provincial Legislatures by Entry 48 of List II read with  s. 100(3)   of   the  Government  of  India  Act,  1935.    The explanation to s. 2(h) of this Act is as follows:                   "Notwithstanding anything to the  contrary               in   the  Indian Sale of Goods Act,  1930  the               sale or purchase of any goods shall be deemed,               for  the  purpose of this Act, to  have  taken                             place  in this Province, wherever the  contract               of sale or purchase might have been made.                   (a)  If the goods. were actually  in  this               Province at the time when the contract of sale               or purchase in respect thereof was made or,                   (b) in case the contract was for the  sale               or  purchase of future goods  by  description,               then,  if the goods are actually  produced  in               this Province at  any time after the  contract               of  sale  or purchase in respect  thereof  was               made."     Under  Entry  48 of List II of the Government  of  India Act,  1935the  Provincial Legislatures could  tax  sales  by selecting  some  fact  or  circumstances  which  provided  a territorial nexus with the taxing power of the State even if the  property in the goods sold passed outside the  Province or  the  delivery  under the contract  of  sale  took  place outside the Province.  Legislation  taxing  sales  depending solely upon the existence of a nexus, such as production  or manufacture  of the goods, or presence of the goods  in  the Province  at the date of the contract of sale,  between  the sale  and  the  legislating Province  could  competently  be enacted   under   the Government of India Act,  1935.   [see Tata  Iron  & Steel Ca. Ltd. v. The State  of  Bihar(1)  and Poppatlal Shah v. The State of  Madras ( 2 ) ].     By  Art.  286 of the Constitution certain  fetters  were placed upon the legislative powers of the States as follows:    "(1)  No  law of a State shall impose, or  authorise  the imposition  of,  a tax on the sale  or  purchase   of  goods where such sale or purchase takes place-- (1) [1958] S.C.R. 1355.      (2) [19531 S.C.R. 677. 747 (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.      Explanation.--For  the  purposes of sub-clause  (a),  a sale or purchase shall be deemed to have taken place in  the State in which the goods  have  actually  been delivered  as a direct result of such sale or purchase for the purpose  of consumption  in  that State, notwithstanding the  fact  that under the general law relating to sale of goods the property in  the goods has by reason of such sale or purchase  passed in another State.      (2)  Except  in  so  far  as  Parliament   may  by  law otherwise  provide,  no  law of a State  shall  impose,   or authorise  the imposition of, a tax on the sale or  purchase of any goods where such sale or purchase takes place in  the course of inter-State trade or commerce;       Provided  that the President may by order direct  that any  tax  on  the  sale or purchase  of  goods   which   was being  lawfully  levied  by  the  Government  of  any  State immediately  before  the commencement of  this  Constitution shall,  notwithstanding that the imposition of such  tax  is contrary  to the provisions of this clause, continue  to  be levied until the thirty-first day of March, 1951.       (3)  No  law  made  by the  Legislature   of  a  State

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imposing,  or  authorising the imposition of, a tax  on  the sale or purchase of any such goods as have been declared  by Parliament  by  law  to be essential for  the  life  of  the community  shall have effect unless  it  has  been  reserved for the consideration of the President and has received  his assent." Therefore,  by  incorporating s. 22 of the Madras  Act  read with  Art. 286, notwithstanding the amplitude of  the  power otherwise  granted  by the charging section read  with  the. definition   of  ’sale’,  a  cumulative  fetter  of   triple dimension  was imposed upon  the taxing power of the  State. The Legislature of the Madras State could not since  January 26, 1950, levy a tax on sale  of  goods taking place outside the  State or in the course of import of the goods into,  or export  of the goods out of, the territory of India,  or  on sale  of any goods where such sale took place in the  course of  inter-State trade or commerce.  By the  Explanation   to Art. 286(1)(a) which is incorporated by s. 22 of the  Madras Act a sate is deemed to take place in the State in which the goods  are  actually delivered as a. direct result  of  such sale for the purpose 748 of  consumption  in  that State even though  under  the  law relating  to sale of goods the property in the goods has  by reason  of such sale passed in another State.  In the  State of  Bombay and Anr. v. The United Motors (India) Ltd.(1)  it was held that  since  the enactment of Art. 286(1)(a) a sale described  in the Explanation which may for  convenience  be called  an  "Explanation  sale"  is taxable  by  that  State alone  in which the goods sold are actually delivered  as  a direct result of sale for the purpose of consumption in that State.     With  a view to impose restrictions on the taxing  power of   the   States  under  the   pre-Constitution   statutes, amendments were made in those statutes by the Adaptation  of Laws Order.  As regards the Madras Act the President  issued on  July  8,  1952  the Fourth  Amendment  inserting  a  new section, s. 22 in that Act.  It runs as follows:                   "Nothing  contained in this Act  shall  be               deemed  to impose or authorise the  imposition               of a tax on the sale or purchase of any  goods               where such sale or purchase takes place--                    (a) (i) outside the State of Madras, or                    (ii) in the course of import of the goods               into  the territory of India or of the  export               of the goods out of such territory, or                    (b) except in so far as Parliament may by               law otherwise provide, after the 31st  March.,               1951,  in the course of inter-State  trade  or               commerce, and the provisions of this Act shall               be read and construed accordingly.                    Explanation  :--For the purposes  of  cl.               (a)(i)  a sale or purchase shall be deemed  to               have  taken  place in the State in  which  the               goods have actually been delivered as a direct               result  of  such  sale  or  purchase  for  the               purpose   of   consumption  in   that   State,               notwithstanding   the  fact  that  under   the               general  law  relating to sale  of  goods  the               property  in the goods has by reason  of  such               sale or purchase passed in another State." By  this amendment the same restrictions were  engrafted  on the pre-Constitution statute as were imposed by Art. 286  of the Constitution upon post-Constitution statutes.     As  regards the sales for the period from  April,   1949

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to  January  25,  1950 it was  admitted  before  the  Deputy Commercial (1) [1953] S.C.R. 1069. 749 Tax Officer that the goods were actually in the Madras State at the time the contract of sale was concluded.  It was  for this reason that the Deputy Commercial Tax Officer negatived the  claim  which  the appellant made in  respect  of  those sales.   It  appears that in the trial court  the  appellant challenged the constitutional validity of explanation to s.. 2(h) of the Act.  But in view of the decision of this  Court in  the Tata Iron & Steel Co’s case(1) and Poppatlal  Shah’s case(2) counsel on behalf of the appellant did not seriously dispute  the validity of the assessment in regard  to  sales from April 1, 1949 to January 25, 1950.      With  regard  to the period from January  26,  1950  to March 31, 1950 the contention of the appellant’ is that  the High Court was in error in holding that the burden of  proof was  on  the  appellant  to show that  there  was  not  only delivery of goods for consumption within the delivery States but  there  was  actual consumption of the  goods  in  those States.   In  our opinion the argument is  well-founded  and must be accepted as correct.  In India Copper  Corporation’s case(3) it was pointed out by  this  Court that if the goods were  as  a direct result Of a sale  delivered  outside  the State  of Bihar for the purpose of consumption in the  State of  first  delivery, the assessee would be entitled  to  the exemption from sales tax by virtue of the Explanation to Art 286(1)(a) of the Constitution and it would not be  necessary for  the   assessee   to prove further  that  the  goods  so delivered  were  actually  consumed in the  State  of  first destination.      In  the present case the Subordinate Judge has, upon  a consideration of the evidence adduced by the parties  stated in  his report dated June 27, 1962 that the intention of the appellant  was that the sale and delivery should be for  the purpose  of consumption in the delivery States.  It is  true that  in  his  subsequent report dated March  22,  1963  the Subordinate  Judge  gave  a different finding.   But  it  is obvious that the subsequent report of the Subordinate  Judge is vitiated because the principle laid down by this Court in India  Copper Corporation’s case(3) has not been taken  into account.   Having  regard to the evidence adduced   by   the appellant in this case we are satisfied that the part of the turnover  which related to sale from 2, January 26, 1950  to March  31, 1950 was not liable to sales tax and the levy  of sales tax from the appellant to this extent is illegal.       The  next question arising in this appeal  is  whether the  assessment order of the Deputy Commercial  Tax  Officer for   the   year   1949-50  is  illegal  in   its   entirety notwithstanding  the fact that the   State Government had  a right to levy sales tax on outside sales (1) [1958] S.C.R. 1355.  (2) [1953] S.C.R. 677. (3) 12 S.T.C. 56. 750 which  were  effected  prior to January 26,  1950.   It  was argued for the appellant that the assessment must be treated as  one and indivisible and if a part of the  assessment  is illegal the entire assessment must be deemed to be  infected and  treated  as  invalid.  In  support  of  this   argument reference  was  made to the decision of this  Court  in  Ram Narain  Sons Ltd. v. Assistant Commissioner of Sales  Tax(1) in which this Court observed as follows:                   "The necessity for doing so; is,  however,               obviated  by  reason  of  the  fact  that  the

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             assessment is one composite whole relating to.               the  pre-Constitution  as well  as  the  post-               Constitution  periods and is invalid in  toto.               There  is authority for the  proposition  that               when  an  assessment  consists  of  a   single               undivided  sum in respect of the  totality  of               the   property  treated  as  assessable,   the               wrongful  inclusion in it of certain items  of               property   which  by virtue of a provision  of               law  were  expressly  exempted  from  taxation               renders the assessment invalid in toto." The Court cited with approval a passage from the judgment of the  Judicial  Committee  in  Bennett  &  White    (Calgary) Ltd.and Municipal District of Sugar City No. 5(2).                   "When  an assessment is not for an  entire               sum,  but   for separate sums,  dissected  and               earmarked   each  of  them   to   a   separate               assessable  item,  a Court   can   sever   the               items  and cut out one or more along with  the               sum  attributed  to it,  while  affirming  the               residue.   But where the  assessment  consists               of  a single undivided sum in respect  of  the               totality  of property treated  as  assessable,               and  when  one component (not  dismissible  as               ’de  minimis’) as on any view  not  assessable               and wrongly included, it would seem clear that               such   a  procedure  is  barred,    and    the               assessment  is  bad wholly.   That  matter  is               covered by authority.  In Montreal Light, Heat               &  Power Consolidated v. City of  Westmount(3)               the Court (see especially per Anglin, C.J)  in               these conditions held that an assessment which               was  bad in part was infected throughout,  and               treated  it as invalid.  Here  their  Lordshis               are  of opinion, by parity of reasoning,  that               the assessment               was invalid in toto."    Applaying   the  principle  to  the  special  facts   are circumstances of the case the Court set aside the orders  of assessment and directed that the case should be remanded  to the  Assessment Officer for  reassessment of the  appellants in accordance with law.  The same principle was applied  but with a different result in the later case (1)  6 S.T.C. 627 at 637.     (2) [1951] A.C. 786 at p. 816. (3) [1926] S.C.R. (Can) 515. 751 the  State of Jammu & Kashmir v.  Caltex  (India)  Ltd.  (1) in  which the question arose as regards the validity  of  an assessment  of  sales  tax of all  retails  sales  of  motor spirit.  The Petrol Taxation Officer assessed the respondent to  pay sales tax for the period January 1955 to  May,  1959 under s. 3 of the Jammu & Kashmir Motor Spirit (Taxation  of Sales)  Act, 2005.  The  respondent applied under s. 103  of the  Constitution of Jammu & Kashmir and a single  Judge  of the  High Court held that the respondent was liable  to  pay sales  tax  only in respect of the sales  which  took  place during  the period January to September, 1955 and  issued  a writ  restrainig  the appellants from levying  tax  for  the period  October,  1955 to May, 1959.  On appeal  a  Division Bench  of  the  High Court quashed the  assessment  for  the entire  period.   On appeal to this Court it was  held  that though  there was  one  order  of assessment for the  period January  1, 1955 to  May     1959  the assessment  could  be split  up  and  dissected and the items  of  sale  could  be separated  and taxed for different periods.  It was  pointed

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out that the sales tax was imposed in the ultimate  analysis on  receipts  from individual sales or  purchases  of  goods effected during the entire period, and, therefore, a writ of mandamus  could.  be issued directing the appellant  not  to realise   sales   tax  with regard to transactions  of  sale during the period from September 7, 1955 to May, 1959.     A  similar  question  arose  for  determination  in   an American  case [Frank Rattarman v. Western  Union  Telegraph Co.(2)].  The  question in that case was "whether  a  single tax,  assessed under the Revised Statutes of  Ohio,  section 2778,  upon  the  receipts  of  a  telegraph  company  which receipts were derived  partly  from inter-state commerce and partly  from  commerce’  within the  State  but  which  were returned  and  assessed in gross and without  separation  or apportionment,  is  wholly invalid, or invalid only  in  the proportion  and  to the extent that the said  receipts  were derived ,from interstate commerce".  It was held unanimously by   the  Supreme  Court  of  the  United  States  that  the assessment was not wholly invalid but it was invalid only in proportion  to  the extent that such receipts  were  derived from  interstate  commerce. It was observed that  where  the subjects  of  taxation can be separated so that  that  which arises  from interstate commerce can be  distinguished  from that which arises from commerce wholly within the State, the Court will act upon this distinction, and will restrain  the tax  on interstate commerce. while permitting the  State  to collect that upon commerce wholly within its own  territory. The principle of this case has been consistetly followed  in American  cases:  [see Bowman  v.  Continental  Company(3)]. This  case has been cited with approval by this Court in The State of Bombay (1) 17 S.T,C. 612.    (2) 127 U.S. 411. (3) 250 U.S. 642. C.I./69---4 752 v. The United Motors (India) Ltd.(1) wherein it was observed that  the same principle should be applied in  dealing  with taxing statutes in this country also.     In the present case we are of opinion that though  there is a single order of assessment for the period from April 1, 1949 to March 31, 1950 the assessment could be split up  and dissected  and  the items of sale separated  and  taxed  for different   periods.  It  is  quite easy  in  this  case  to ascertain  the  turnover  of  the  appellant  for  the  pre- Constitution  and   post-Constitution  periods   for   these figures  are  furnished  in  the  plaint  by  the  appellant himself.  It is open to the Court in these circumstances  to sever  the  illegal  part  of  the  assessment  and  give  a declaration  with  regard  to that  part  alone  instead  of declaring the entire assessment void.  For these reasons  we hold  that the appellant should  be  granted  a  declaration that  the order of assessment made by the Deputy  Commercial Tax  Officer for the year 1949-50 is invalid to  the  extent that  the  levy of sales tax is made on sales  relating  to. goods  which were delivered for the purpose  of  consumption outside  the State for the period from January 26,  1950  to March  31,  1950.   The  result is  that  the  appellant  is entitled to a refund of the amount illegally collected  from him for the period from January 26, 1950 to March 31,  1950. The  trial  court has already found that  the  appellant  is entitled  to claim exemption with regard to.   turnover  for this period to the extent of Rs. 3,34,107-15-6 and  the  tax payable  on  this sum is Rs. 5,220-7-0.  The  appellant  is. therefore,  entitled  to  a decree for  the  refund  of  Rs. 5,220-7-0.  The appellant is also entitled to interest at 6%

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per  annum  from the date of suit till realisation  of  this amount.     For  these reasons we allow this appeal and  set   aside the  judgment of the Andhra Pradesh High Court  dated  March 11,  1965  in A.S. Nos. 93 and 169 of 1957  and  allow  this appeal to the extent indicated above. There will be no order with regard to costs. R.K.P.S.                                     Appeal allowed. (1) [1953] S.C.R. 1069 at 1097. 753