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PETITIONER: ENDUPURI NARASIMHAM AND SON

       Vs.

RESPONDENT: THE STATE OF ORISSA AND OTHERS

DATE OF JUDGMENT: 14/03/1961

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1961 AIR 1344            1962 SCR  (1) 314  CITATOR INFO :  APL        1962 SC 107  (5)  R          1963 SC 980  (11,12)  RF         1971 SC 477  (7)

ACT: Sales Tax-Transactions ultra--State and  inter-State--Test-- Constitution  of India, Art. 286(2)--Orissa Sales  Tax  Act, 1947 (XIV of 1947), S. 5(2)(a)(II).

HEADNOTE: The petitioner who was a,-registered dealer under the Orissa Sales  Tax  Act,  1947,  was carrying  on  the  business  of purchasing and reselling castor seeds, etc., in the State of Orissa.  Under a declaration given by him for the purpose of obtaining  his registration certificate the goods  purchased by  him  in  Orissa were to be resold  in  that  State.   He purchased  certain  commodities  inside  the  State  but  in contravention of his declaration sold, the goods to  dealers outside  the State.  The Sales Tax Officer included  in  the taxable turnover of the petitioner the purchase made by  him inside  the State in accordance with s. 5(2)(a)(II)  of  the Act.  The contention of the petitioner was that the purchase was  in course of inter-State trade and was  exempted  under Art. 286(2) of the Constitution of India. Held, that the transaction of sale which has been taxed  was wholly inside the State of Orissa and was distinct and sepa- rate from the sale made by the purchaser to dealers  outside the  State.   The former transaction was  taxable  under  s. 5(2)(a)(II)  of the Act while the latter was exempted  under Art. 286(2) of the Constitution. Messrs.   Mohanlal  Hargovind  Das v. The  State  of  Madhya Pradesh, [1955] 2 S.C.R. 509, distinguished. In order that a sale or purchase might be inter-State, it is essential  that  there must be transport of goods  from  one State 315 to  another  under  the contract of  sale  or  purchase.   A purchase  made  inside a State, for sale outside  the  State cannot  itself  be held to be in the course  of  inter-State

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trade and the imposition of tax thereon is not repugnant  to Art. 286(2) of the Constitution. Bengal  Immunity  Company  Limited v. The  State  of  Bihar, [1955]  2  S.C.R.  603 and  State  of  Travancore-Cochin  v. Shanmugha  Vilas  Cashew  Nut  Factory,  [1954]  S.C.R.  53, followed.

JUDGMENT: ORIGINAL JURISDICTION: Petition No. 12 of 1959. Petition  under  Art. 32 ’of the Constitution of  India  for enforcement of fundamental rights. R.Gopalakrishnan,   S.  N.  Andley,  J.  B.   Dadachanji, Rameshwar Nath and P. L. Vohra, for the petitioners. C.K.  Daphtary, Solicitor-General of India, B.  Ganapathy Iyer and T. M. Sen, for the respondents. 1961.  March 14.  The Judgment of the Court was delivered by VENKATARAMA  AIYAR,  J.  -The petitioner is  a  joint  Hindu family  firm carrying on business at Berhampur in the  State of  Orissa, and registered as a dealer under the  provisions of  the Orissa Sales Tax Act, 1947, hereinafter referred  to as the Act.  Its business consists in the purchase of castor seeds, turmeric, gingili and other commodities locally,  and selling  them to demlers outside the State.  The  Sales  Tax Officer, Berhampur, included in the taxable turnover of  the petitioner the purchase of goods made by it inside the State but  sold,  as aforesaid, to dealers outside the  State  and imposed  a tax of Rs. 27,161-13-0 on account of  such  sales during  the sixteen quarters commencing from April 1,  1952, and ending with March 31, 1956.  In the present  application filed under Art. 32, the petitioner challenges the  validity of the tax on the ground that the purchases in question were made  in  the course of inter-State trade, and  that  a  tax thereon was in contravention of Art. 286(2) The  impugned  tax has be-en levied under s. 5 of  the  Act, which, omitting what is not relevant, runs as follows:-               5.    (1)  The tax payable by a  dealer  under               this               316               Act shall be levied at the rate of one quarter               of  an  anna  in  the  rupee  on  his  taxable               turnover:                ................................               (2)  In,  this  Act  the  expression  "taxable               turnover" means that part of a dealer’s  gross               turnover during any period which remains after               deducting there-from:                (a) his turnover during that period on-                ................................               (ii)  sales  to a registered dealer  of  goods               specified    in   the   purchasing    dealer’s               certificate of registration as being  intended               for resale by him in Orissa or for use by  him               in  the execution of any contract  in  Orissa,               and on sales to a registered dealer of contai-               ners  or  other materials for the  packing  of               such goods:               Provided that when such goods are used by  the               registered  dealer  for  purposes  other  than               those   specified   in  his   certificate   of               registration  the price of goods  so  utilised               shall be included in his taxable turnover. It  will be seen that under this section when a  sale  takes place, the seller has to include it in his taxable turnover;

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but  when  the sale is to a registered dealer  who  declares that  his  purchases are for resale in Orissa,  then  it  is excluded  from the seller’s turn. over.  If  the  registered dealer-purchaser sells the goods outside the State in breach of  the  condition, the purchases by him are  liable  to  be included  in his turnover, and assessed to sales tax.   That precisely  is what has happened in this case.  The sales  to the petitioner were not included in the taxable turnover  of the sellers by reason of the registration certificate  which the petitioner had obtained on a declaration that the  goods were  to  be resold in ’Orissa.  But in  violation  of  this declaration he sold the goods to dealers outside the  State, and so he became liable to be taxed under s. 5(2)(a)(ii)  of the Act. The  contention  of the petitioner is that  these  purchases were  made in the course of inter-State trade, and that  the imposition of sales tax thereon is, in 317 consequence,  ultra vires The provision applicable  is  Art. 286(2), as it stood prior to the sixth amendment, and it ran as follows:               "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." The  argument  on behalf of the petitioner is  that  as  the goods  were  purchased  for the purpose  of  being  sold  to dealers  outside the State, and they were in fact  so  sold, the  purchases were in the course of inter-State trade,  and the  levy of tax thereon was within the prohibition  enacted by Art. 286(2).  We do not agree with this contention.   The transactions  of  sales which have been  taxed  were  wholly inside  the State of Orissa.  They were sales by persons  in the  State of Orissa to persons within the State of  Orissa, of goods which were in Orissa.  The fact that the  purchaser sold  those very goods to dealers outside the State  is  not relevant, as those sales are distinct and separate from  the sales on which the taxes in question have been imposed.  The present  levy  is  not on the sales  by  the  petitioner  to persons  outside  the  State, but on the  purchases  by  him inside  the  State.  The former sales are in the  course  of inter-State  trade, and are not taxable under  Art.  286(2), but  the  latter  are purely intrastate  sales,  and  a  tax imposed thereon does not offend Art. 286(2). In support of his, contention that the purchases are hit  by Art  286(2), the petitioner relies on the, decision of  this Court  in  Messrs.  Mohanlal Hargovind Das V. The  State  of Madhya Pradesh (1).  In that case, the petitioners who  were registered  dealers  under the Central Provinces  and  Berar Sales  Tax  Act,  1947, were carrying  on  business  in  the manufacture  and sale of bidis in Madhya Pradesh.   For  the purpose  of their business, they imported  processed  tobaco from  the State of Bombay in large quantities,  rolled  them into bidis and sold them to dealers in other States. (1)  [1955] 2 S.C.R 509. 318 The  sales  tax authorities imposed a tax on  the  purchases made by them, on the ground that they had, in breach of  the declaration  in the registration certificate, sold  them  to merchants  outside  Madhya Pradesh.  The contention  of  the petitioners  was  that  the purchases by them  were  in  the course of inter-State trade,  and that the imposition of tax thereon was therefore repugnant to Art. 286(2).  It was this

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contention  that  was accepted by this Court.   It  will  be noticed  that the in this case the assessment of  sales  tax was  on very purchases from dealers in Bombay,  under  which the  goods  were  transported from the State  of  Bombay  to Madhya  Pradesh.  In the present case, the  purchases  which are sought to be assessed involved no movement of the  goods outside  the  State  of Orissa.  In order  that  a  sale  or purchase  might be inter-State, it is essential  that  there must  be transport of goods from one State to another  under the  contract of sale or purchase.  In the  Bengal  Immunity Company  Limited  v.  The  State  of  Bihar  (1)  occur  the following observations which are apposite:               "A  sale could be said to be in the course  of               interState   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 those conditions are satisfied, there can               be  no  sale  in--the  course  of   interstate               trade." With  reference  to  the  analogous  provision  under   Art. 286(1)(b)  prohibiting the imposition of tax on the sale  or purchase of goods in the course of import or export, it  has been field by this Court that it is only a sale or  purchase which occasions the export or import of the goods out of  or into  the territory of India or a sale in the State  by  the exporter  or  importer by transfer  of  shipping  documonts, while  the,  goods are beyond the customs barrier,  that  is within  the exemption, and that a sale which  precedes  such export  or import or follows it is not exempted, vide  State of Travancore.  Cochin v. Shannugha Vilas Cashew Nut Factory (2).   On  the same principles, a purchase,  made  inside  a State, for sale outside the State cannot itself be held (1) [1955] 2 S.C.R. 603. 784-785. (2) [1954] S.C.R. 53. 319 to be in the course of inter-State trade, and the imposition of  a  tax thereon is not repugnant to Art.  286(2)  of  the Constitution.  In the result this petition is dismissed with costs.                              Petition dismissed.