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PETITIONER: STATE TRADING CORPORATIONOF INDIA LTD.

       Vs.

RESPONDENT: STATE OF MYSORE

DATE OF JUDGMENT: 28/08/1962

BENCH: SARKAR, A.K. BENCH: SARKAR, A.K. DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M. DAYAL, RAGHUBAR

CITATION:  1967 AIR  585  CITATOR INFO :  R          1971 SC 870  (13,14)

ACT: Sales  Tax-Supply made to purchasers within the  State  from factories  outside  the  State-If  inter-State  sale-Central Sales Tax Act, 1956(74 of 1956), s.3-Constitution of  India, as  amended by the Constitution (Sixth Amendment) Act,  1956 Arts . 286(2), 269(1)(g), Entry 92A of List I, 19(1)(f) 31.

HEADNOTE: Clause (1) of Art. 269 of the Constitution as amended by the Constitution  (Sixth Amendment) Act, 1956, which  came  into force   on   September   11,  1956,   provided   that   "The following...  ..taxes shall be levied and collected  by  the Government  of  India (g) taxes on the sale of  goods  other than  newspapers,  where such sale . ..takes  place  in  the course of Inter-State trade. . . . . . " Clause (3) of  that article  provided  that  "Parliament may  by  law  formulate principles  for determining when a sale takes place  in  the course  of  inter-State trade.. .." By s. 3 of  the  Central Sales Tax Act, passed by Parliament on December 21, 1956, it was  provided that "A sale shall be deemed to take place  in the  course of inter-State trade if the sale  (a)  occasions the movement of goods from one State to another.  " In 1957-58 the C. Company made various sales of cement which were supplied from factories outside the State of Mysore  to purchasers within that State The State of Mysore levied  tax on these sales under two Sales Tax Acts passed by the Mysore legislature.   The  C. Company applied under Art.32  of  the Constitution  to quash the assessment orders on  the  ground that Mysore State had no power to tax the sales as they  had taken place in the course of inter-State trade. Held,  that a sale occasions the movement of goods from  one State to another within s.3(a) of the Central Sales Tax  Act when the movement is the result of a covenant or incident of the contract of sale. Tata  Iron  and Steel Co. Ltd. v. S. R.  Sarkar,  [1961],  1 S.C.R. 379, followed. 793

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As  the  sales  were  made  under  permits  issued  by   the Government  and on the terms contained in them, and  as  the permits  provided  that  the  supply had  to  be  made  from factories outside State of Mysore the contracts of sale must be deemed to have contained a covenant that the goods  would be  supplied  in  Mysore from a place  situate  outside  its borders.   The  Sales  were,  therefore,  inter-State  sales within  s.3(a)  of the Central Sales Tax Act which  a  State could not tax in view of Art. 269 of the Constitution. The  taxing officer had no jurisdiction to  tax  inter-State sales in view of the Constitutional Prohibition and he could not  give  himself  jurisdiction  to do  so  by  deciding  a collateral fact wrongly.  ’the petitions are, therefore, not incompetent  under the principle laid down In  Ujjain  Bai’s case. Ujjam  Bai v. The State of Uttar Pradesh [1963] I  S.C.R.778 held inapplicable.

JUDGMENT: ORIGINAL JURISDICTION : Petitions Nos. 65 and 66 of 1960. (Under   Article  32  of  the  Constitution  of  India   for enforcement of Fundamental Rights.) R.   J.  Kolah, J. B. Dadachanji, O. C. Mathur and  Ravinder Narain for the Petitioners. C.   K. Daphtary, Solicitor General of India, R.   Gopalakrishnan and P. D. Memon for the respondents. 1962.  August 28.  The Judgement of the court was  delivered by SARKAR,  J.-These  are two Petitions under Art.  32  of  the Constitution  asking for writs to quash  certain  assessment orders  impossing  sales tax and for  consequential  reliefs preventing  the  levy  and  collection  of  that  tax.   The petitioners  allege  that the assessment orders  are  wholly void  and  therefore affect their fundamental  rights  under Art. 19 (1) (f) and Art. 31. 794 There are two petitioners in each case, the first being  the State Trading Corporation of India Ltd. and the second,  the Cement  Marketing Company of India Ltd.  There are also  two respondents in each petition, the first of whom is the State of  Mysore  which through one of its  officers,  the  second respondent, passed the assessment orders imposing the tax. The  impugned assessment orders were made on  the  Marketing Company in respect of certain sales of cement made by it  in the  year  1957,58. The petitioners say that  the  Marketing Company   made   those  sales  as  agent  of   the   Trading Corporation.  Whether this is correct or not is not strictly relevant  in  this case for the Marketing Company  does  not deny  its  liability  to  be  taxed  as  the  agent  of  the Corporation.  The only dispute is whether the sales in which the  goods were moved from outside the State of Mysore  into it  were liable to be taxed.  The petitioners  contend  that they  were  not  so liable as they were sales  made  in  the course  of  inter-State  trade,  which no  law  of  a  State legislature could tax. Though  the assessment year was one, namely, 1957-58,  there were  two assessment orders.  That was because in that  year there  were in force in Mysore two Sales Tax  Acts,  namely, the  Mysore  Sales Tax Act, 1948, and the Mysore  Sales  Tax Act,  1957,  the latter of which repealed the  earlier  with effect from October 1, 1957.  The disputed sales which  took place  between April 1, 1957, and September 30,  1957,  were taxed  under the 1948 Act and those that took place  between

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October  1,  1957, and March 31, 1958, under the  1957  Act. Both   the   assessment  orders  are   challenged   by   the petitioners. The tax was levied under State laws.  Now Art. 286(2) of the Constitution  as originally framed laid down that except  in so far as Parliament by law 795 otherwise  provided, a State could not pass a law taxing  an inter-State sale or purchase.  This provision was deleted by the  Constitution  (Sixth Amendment) Act, 1956,  which  came into  force on September 11, 1956.  The Constitution  (Sixth Amendmant)  Act also amended Art. 269, the relevant  portion of which after such amendment reads as follows :               Art.  269  (1) "The     following  duties  and               taxes  shall  be levied and collected  by  the               Government of India...............               (2)   taxes  on the sale or purchase of  goods               other  than  Newspapers, where  such  sale  or               purchase  takes place in the course of  inter-               State trade or commerce.........               (3)   Parliament may by law formulate  princi-               ples  for determining when a sale or  purchase               of  goods takes place in the course of  inter-               State trade or commerce. The Constitution Amendment Act had also amended the  Seventh Schedule by adding item 92A to List I and thereby giving the Union  the  power to tax sales or purchases of  goods  other than  newspapers made in the course of inter-State trade  or commerce and by substituting for old item 54 in List II anew item  which  gave the State the power to tax  all  sales  or purchases  of goods other than newspapers subject  to  entry 92A  of  List I. Since this amendment  of  the  Constitution therefore  the  States can not tax an  inter-State  sale  or purchase. On  December 21, 1962.  Parliament passed the Central  Sales Tax  Act,  s.3 of which defined an inter-State  sale.   This section  came  into force on January 5,  1957.   The  taxing provisions  of this Act however came into force  much  later but with them we are not concerned in these , oases. 796 The  whole of the assessment year 1957-58 was after a. 3  of the Central Sales Tax Act, 1956 had come into force.  During that  year, therefore, the State could not tax a sale  which was  an  interState sale as defined in s. 3 of  the  Central Sales Tax Act.  That section defined an inter-State sale  in two  ways  one  of  which is in these terms:  "  A  sale  or purchase  of  goods  shall be deemed to take  place  in  the course  of  inter  State trade or commerce if  the  sale  or purchase-(a) occasions the movement of goods from one  state to another." The petitioners contend that the disputed sales were  of this variety and the respondent,  therefore,  could not tax them. The question then is, did the sales occasion the movement of cement from another State into Mysore within the meaning  of the  definition  ?  In Tata Iron & Steel Co.  Ltd.  v.  S.R. Sarkar(1) it was held that a sale occasions the movement  of goods  from  one  State to another within s. 3  (a)  of  the Central Sales Tax Act, when the movement is the result of  a covenant  or  incident of the contract of sale".   That  the cement  concerned in the disputed sales was  actually  moved from   another  State  into  Mysore  in  not  denied.    The respondents  only  contend  that the movement  was  not  the result  of a covenant in or an incident of the  contract  of sale. The result of this appeal will therefore turn on whether the

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movement  of cement from another State into Mysore  was  the result of a covenant in the contract of sale or an  incident of such contract.  This question will depend on the contract and  in  order  properly ’to  appreciate  the  contract  the procedure of the sales, as to which there is no dispute, has to  be referred to.  Now, at the relevant time cement  could be purchased only under a (1) [1961]  1 S.C.R. 379,391. 797 permit  issued by the Government and on the terms  contained in it.  This, it seems, was the result of certain  statutory provisions.  All the sales with which we are concerned  were under  such permits.  Unfortunately the petitioners did  not disclose  in their petitions any specimen copy of a  permit. As  however the existence of the permits was not in  dispute and  had  been mentioned in the petitions,  the  petitioners were allowed at the hearing to produce a specimen copy of  a permit  which was accepted by the respondents as  a  correct specimen.   It  appears from the specimen  produced  that  a cement  factory  which  was required to  supply  the  cement covered  by  the permit was named in it.  We  are  concerned with sales in which the permits required supplies to be made from factories outside Mysore.  These permits were issued to the  purchasers  and  the supplier named  in  them  was  the Marketing  Company.  On receipt of the permit the  purchaser placed an order with the Marketing Company and later a  firm contract with it was made. In  making  the  orders of assessment,  the  Taxing  Officer observed  that  the firm contracts did not provide  for  any supplies  being  made from any particular  factory  and  the supplies  had actually been made from factories outside  the State  of  Mysore  only  to  suit  the  convenience  of  the supplier,  the  Marketing Company, and not  because  of  any covenant  in  the contracts.  It is true  that  the  written contracts  did not themselves contain any covenant that  the supply  had  to be made from any particular factory  but  it seems  to us that the agreement between the parties was  not fully  set  out  ill them.  In any case  each  contract  was subject  to  the terms of the permit to which  it  expressly referred.  As it is not in dispute that the sale could  only be  under  a  permit and on the terms  contained  in  it,  a contract has to be read as subject to it.  Since 798 the  permits with which we are concerned provided  that  the supply  had  to be made from one or  other  factory  situate outside  Mysore.  the  contracts  must  be  deemed  to  have contained  a  covenant that the goods would be  supplied  in Mysore  from  a place situate outside it  borders.   A  sale under  such a contract would clearly be an inter-State  sale as defined in s. 3(a) of the Central Sales Tax Act.  In view of the provisions of the Constitution and the Central  Sales Tax  Act earlier referred to a State could not impose a  tax on such a sale.  Therefore it seems to us that the  petition should succeed. It  was however said that the petitions were incompetent  in view  of our decision in Smt.  Ujjam Bai v. State  of  Uttar Pradesh  (1)  in as much as the Taxing  Officers  under  the Mysore Acts had jurisdiction to decide whether a  particular sale was an Inter-State sale or not and any error  committed by  them  as quasi-judicial tribunals in  exercise  of  such jurisdiction  did not offend any fundamental right.  But  we think that that case its clearly distinguishable.  Das,  J., there  stated  that  "if  a  quasi-judicial  authority  acts without  jurisdiction  or wrongly  assumes  jurisdiction  by committing  an  error  as  to  a  collateral  fact  and  the

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resultant action threatens or violates a fundamental  right, the  question  of  enforcement of that right  arises  and  a petition under Art. 32 will lie."’ He also said that where a statute  is  intra-vires but the action taken is  with.  out jurisdiction,  then  a  petition  under  Art.  32  would  be competent.  That is the case here.  There is no dispute that the  Taxing Officer had no jurisdiction to  tax  inter-State sales,  there being a constitutional prohibition  against  a State  taxing them.  He could not give himself  jurisdiction to  do  so by deciding a collateral fact wrongly.   That  is what he seems to have done here.  Therefore we think (1)  (1963) 1 S.C.R. 778.                             799 the  decision in Ujjam Bai’s case (1), is not applicable  to the present case and the petitions are fully competent. The  result is that the petitions are allowed and we  direct that  appropriate  writs be issued quashing  the  orders  of assesment  mentioned  in the petitions and  restraining  the respondents from levying or collecting the tax in respect of sales  mentioned in the petitions in which the  goods  moved from outside into Mysore.  There will be Do order for  costs as the petitioners had omited to disclose to permits and had not  in  the petitions stated their case as  clearly  as  it could  have  been  done.   As they  had  been  granted  some indulgence we think it right to deprive them of the costs of these petition, Petitions allowed. (1) (1963) 1 S.C.R. 778. 800