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PETITIONER: MESSRS MOHANLAL HARGOVIND DAS,BIDI MERCHANTS, JABALPUR (M.P.

       Vs.

RESPONDENT: THE STATE OF MADHYA PRADESH & ANOTHER.

DATE OF JUDGMENT: 20/09/1955

BENCH: BHAGWATI, NATWARLAL H. BENCH: BHAGWATI, NATWARLAL H. AIYAR, N. CHANDRASEKHARA DAS, SUDHI RANJAN JAGANNADHADAS, B. IMAM, SYED JAFFER

CITATION:  1955 AIR  786            1955 SCR  (2) 509

ACT:   Constitution  of India-Art. 286(2)-Central  Provinces  and Berar  Sales Tax Act, 1947 (X of 1947),  s.4(6)-Petitioners- Bidi merchants of Madhya Pradesh-Importing tobacco from  the State of Bombay-Whether such transactions of sales of goods- Affected  by the ban under Art. 286(2) of the  Constitution- Petitioners registered as "dealers" under Central  Provinces and Berar Sales Tax Act, 1947 and dealers in Bombay  selling or  supplying tobacco to the petitioners also registered  as "dealers"  under Central Provinces and Berar Sales Tax  Act, 1947-Whether  makes  the transactions as  intrastate  trans- actions  between  two  registered dealers in  the  State  of Madhya Pradesh.

HEADNOTE:   The  petitioners are carrying on business on a very  large scale  of making and selling bidis having their head  office in  Jabalpur  in  the  State  of  Madhya  Pradesh  and   are registered  as  "dealer"  for the purposes  of  the  Central Provinces  and Berar Sales Tax Act, 1947.  In the course  of their said business, the petitioners import tobacco from the State of Bombay in very large quantities after it is blended in  that  State by the vendors with various other  types  of indigenous tobacco by an elaborate process. This finished tobacco, after its import within the State of Madhya  Pradesh is rolled into bidis which are  exported  to various other States, largely to the State of Uttar Pradesh. The  dealers  in the State of Uttar Pradesh and  such  other States  who buy bidis from the petitioners sell the same  to various other dealers and consumers in those States.   The  Sales Tax authorities in the State of Madhya  Pradesh required   the   petitioners  under   threat   of   criminal prosecution  to  file  a statement of return  of  the  total purchases of tobacco made by them out of Madhya Pradesh  and delivered  to them in Madhya Pradesh with a view  to  assess and levy purchase tax on the transactions of purchases  made by the petitioners as stated above.  Held, that the State of Madhya  Pradesh had no authority to impose or  to  authorise the  imposition  of such a tax and that the  action  of  the

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State authorities contravened the provisions of Art.  286(2) of the Constitution inasmuch as the transactions in question were  in the course of inter-State trade or commerce as  the finished tobacco which was supplied to the petitioners moved from the State of Bombay to the State of Madhya Pradesh. 510 The  contention  that  not only  the  petitioners  were  the registered dealers under Rule 8 of the Central Provinces and Berar-Sales  Tax Rules, 1947 but the dealers in  Bombay  who sell or supply tobacco to them were registered as  "dealers" for the purpose of the Central Provinces and Berar Sales Tax Act,  1947 and therefore the transactions were  between  two registered  dealers in the State of Madhya Pradesh and  thus constituted  purely internal sales of the goods was  without force because what one has to look at is the real nature  of the transactions and not the outside form and as the  trans- actions in dispute involved movement of the goods across the border  they were clearly transactions of sales of goods  in the  course of interState trade or commerce and were hit  by the ban under Art. 286(2) of the Constitution.

JUDGMENT:   ORIGINAL JURISDICTION: Petition No. 67 of 1955. Under  Article  32  of the Constitution  of  India  for  the enforcement of Fundamental Rights. M.   C. Setalvad, Attorney-General of India, C. K. Daphtary, Solicitor-General   of   India,  G.  S.  Pathak,   (J.    B. Dadachanji,  A. P. Sen, Rameshwar Nath and Rajinder  Narain, with them), for the petitioners. T.   L. Shevde, Advocate-General of Madhya Pradesh (M.  Adhikari  and 1, N. Shroff, with him) for the State  of Madhya Pradesh. 1955.   September,  20.   The  Judgment  of  the  Court  was delivered by BHAGWATI J.-The petitioners are a firm carrying on  business on  a  very large scale of making and selling  bidis  having their  head  office  in  Jabalpur in  the  State  of  Madhya Pradesh.  They are registered as "dealer" for the purpose of the Central Provinces and Berar Sales Tax Act, 1947.   In  the  course of their said  business,  the  petitioners import  tobacco  from  the State of  Bombay  in  very  large quantities after it is blended in that State by the  vendors with  various  other  types  of  indigenous  tobacco  by  an elaborate process.  This finished tobacco, after its  import within  the  State of Madhya Pradesh is  rolled  into  bidis which  are exported to various other States, largely to  the State  of Uttar Pradesh.  The dealers in the State of  Uttar Pradesh 511 and  such  other States who buy bidis from  the  petitioners sell  the  same to various other dealers  and  consumers  in those States.   The  Sales Tax authorities in the State of Madhya  Pradesh required   the   petitioners  under   threat   of   criminal prosecution  to  file  a statement of return  of  the  total purchases of tobacco made by them out of Madhya Pradesh  and delivered  to them in Madhya Pradesh with a vie*  to  assess and levy purchase tax on the transactions of purchases  made by  the petitioners as above.  The petitioners  filed  under protest  two returns dated the 11th September 1954  and  3rd December 1954 for the periods 3rd May 1954 to 29th July 1954 and  30th  July 1954 to 26th October 1954  respectively  but without  prejudice to their right to challenge the  validity

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of the assessment and levy of the said tax on the  aforesaid transactions.  The Sales Tax authorities further called upon the  petitioners to deposit the alleged purchase  tax  which amounts to thousands of rupees in every quarter of the year.   The  petitioners  thereupon  filed  this  petition   under article 32 of the Constitution for a writ of mandamus or any appropriate direction or order seeking to restrain the State of Madhya Pradesh and the Commissioner of Sales Tax,  Madhya Pradesh,  from  enforcing the said Act  and  its  provisions against the petitioners and for consequential reliefs.   The petitioners averred that the imposition of tax on sale or  purchase  of tobacco rolled into bidis exported  out  of Madhya Pradesh in the manner described was in  contravention of article 286 (1) (a) of the Constitution, that the tobacco purchased  by them for the purpose of making bidis  exported outside  Madhya  Pradesh was never intended for use  as  raw material for the making of bidis for the purpose of consump- tion in Madhya Pradesh and section 4, sub-section (6) of the Act had no application to the tobacco so used and there  was no liability to pay the alleged tax and that to the best  of the  petitioners’ information tobacco bad not been  notified by  the State Government in the Gazette for the  purpose  of section 12(A) of the Act 65 512 and  that  the Sales Tax authorities, under the  Act,  were, 0therefore, not entitled to levy any tax on the petitioners. The  petitioners  also submitted that  the  transactions  in question  had  taken  place in  the  course  of  inter-State commerce, that the State of Madhya Pradesh had no  authority to impose or to authorise -the imposition of such a tax  and that  the  action of the State authorities  contravened  the provisions of article 286(2) of the Constitution-.  The  Respondents filed a return denying the contentions  of the  petitioners  and  submitted  that  the  petitioners  by purchasing  tobacco which was entered in their  registration certificate as raw material for the manufacture of bidis for sale by actual delivery in Madhya Pradesh for consumption in that  State  made  themselves  liable  to  pay  the  tax  by exporting bidis to other States and thus utilising it for  a different  purpose  under  section 4(6) of  the  Act.   They admitted  that  the petitioners imported  tobacco  from  the State  of  Bombay in large quantities but  stated  that  the tobacco,  after  its arrival in the petitioners’  bidi  fac- tories, was cleaned, sieved and blended.   A  few  more  facts  relevant for  the  decision  of  this petition  may  be  stated in this  context.   Not  only  the petitioners  but  also  the dealers in Bombay  who  sell  or supply   tobacco  to  the  petitioners  are  registered   as "dealers"  for  the -purpose of the  Central  Provinces  and Berar Sales Tax Act, 1947.  The petitioners are the  holders of  a certificate of registration, No. LDG/ 53  obtained  by them  under Rule 8 of the Central Provinces and Berar  Sales Tax  Rules, 1947.  When making purchases of the  tobacco  in question they also made declarations in the form required by Rule 26(II) declaring that they had purchased the said goods from Shri Shah Chhaganlal Ugarchand Nipani, a dealer holding registration  certificate  No.  BMY/93/  MP  and  from  Shri Maniklal  Chunanlal  Baroda, a dealer  holding  registration certificate   No.  BMY/341MP  on  different  dates   therein mentioned  for  use as raw material in  the  manufacture  of goods for sale by actual delivery in Madhya Pradesh for  the purpose of consumption in that State. in the return which 513 was filed by the petitioners for the quarter beginning  from

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3rd May 1954 and ending with 29th July 1954, the petitioners mentioned  Rs. 16,47,567-3-3 as the purchase price of  goods purchased  on  declaration as being goods specified  in  the registration certificate as intended for use as raw material in  the manufacture of goods for sale by actual delivery  in Madhya Pradesh for the purpose of consumption in that  State but utilised for any other purpose.  In the return which was filed by them for the quarter beginning from 27th July  1954 and ending with 26th October 1954, they did not fill in  any figure  but showed the above item as blank  contending  that the  Sales  Tax authorities were not entitled  to  levy  any purchase tax against them in respect of the same.   The learned Attorney-General appearing for the petitioners before  us contended (1) that the transactions  in  question were  in  the  course  of  inter-State  commerce  and  were, therefore, within the ban of article 286(2) and the State of Madhya  Pradesh had no authority to impose or  to  authorise imposition  of  tax on these transactions, (2) that  in  any event the goods were delivered for consumption in the  State of Uttar Pradesh and were not liable to a levy of tax at the instance  of the State of Madhya Pradesh, (3)  that  section 4(6) of the Act was invalid inasmuch as it offended  against the  provisions of article 286(1) (a), and lastly  (4)  that even  if the above contentions were negatived, section  4(6) of the Act had, on its true construction, no application  to the  facts of the present case.  He, however, urged that  if the Court was with him on his first contention, viz...  that the  transactions  in question took place in the  course  of interState  commerce  it was not necessary to  go  into  the other contentions.   We are of the opinion that this contention of the  learned Attorney-General  is sound.  It was in fact admitted by  the Respondents  in their return that the  petitioners  imported tobacco  from the State of Bombay in large quantities.   The Bombay suppliers processed tobacco in their godowns situated within the State of Bombay and supplied the finished tobacco 514 to  the  petitioners  in Madhya  Pradesh.   The  petitioners imported  this  finished tobacco into  Madhya  Pradesh  from these  suppliers who were carrying on business in the  State of  Bombay and there was of necessity, as a result of  these transactions,  the movement of the goods across the  border. As  a  result  of  the  transactions  entered  into  by  the petitioners with these suppliers the finished tobacco -which was supplied to the petitioners moved from the State of Bom- bay  to the State of Madhya Pradesh and  these  transactions were, therefore, in the course of inter-State trade or commerce.   The  only answer which was made by the  learned  Advocate- General  of  Madhya Pradesh was that  Shri  Shah  Chhaganial Ugarchand  Nipani  and Shri Maniklal Chunanlal  Baroda  were themselves  dealers holding registration  certificates  Nos. BMY/93/MP and BMY/ 341-MP being registered as such under the provisions of the Central Provinces and Berar Sales Tax Act, 1947, and that, therefore. the transactions were between two registered  dealers  in  the State  of  Madhya  Pradesh  and therefore  constituted purely internal sales of  the  goods. If  they were thus internal sales there was no  question  of their being transactions in the course of inter-State  trade or  commerce and therefore they were not subject to the  ban imposed under article 286(2).   This  answer suffers from over-simplification.  No  doubt, the  dealers  who  supplied  the  finished  tobacco  to  the petitioners  were  registered  dealers  under  the   Central Provinces  and Berar Sales Tax Act, 1947, but that  fact  by

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itself  would not be sufficient to invest  the  transactions which  otherwise were in the course of inter-State trade  or commerce  with the character of intra-state transactions  or internal sales or purchases.  What one has got to look at is the  real  nature of the transactions and  not  the  outside form.   A  person  who carries on  business  of  selling  or supplying  goods in Madhya Pradesh and who comes within  the definition of "dealer" given in section 2(c) of the Act has, under  pain of penalty visited upon him under section 24  of the Act, to register himself as a dealer 515 and  possess a registration certificate under section 8  (1) of  the  Act.  Merely because he got himself  registered  as such  to avoid the penalty which would otherwise be  visited upon  him  by the State it cannot be stated  that  ’Whatever transactions he entered into with other dealers in the State of  Madhya  Pradesh  were  all  intraState  transactions  or internal  sales or purchases irrespective of the  fact  that the  transactions involved movement of the goods across  the border and were clearly transactions of sale of goods in the course  of inter-State trade or commerce.  We were taken  by the learned Attorney-General through the several  provisions of  the Act and we are confirmed in our opinion  that  these transactions sought to be taxed by the Sales Tax authorities of  the  State of Madhya Pradesh were  transactions  in  the course of inter-State trade or commerce.  The activities  of selling or ’supplying goods in Madhya Pradesh if carried  on habitually would amount to a carrying on of the business  of selling  or supplying goods in the State of  Madhya  Pradesh and even an outside merchant who indulged in such activities may  in  such event be said to be carrying  on  business  in Madhya  Pradesh  and  would come within  the  definition  of "dealer"  given in section 2(c) of the Act.  When  we  come, however,  to section 8 which deals with the registration  of dealers,  that  section requires that a dealer  while  being liable to pay tax under the Act shall not carry on  business as  a dealer unless he has been registered as such and  pos- sesses a registration certificate.  The liability to pay tax under  the  Act is thus postulated and unless  and  until  a person is liability to pay such tax he need not get  himself registered  as a dealer.  All the transactions entered  into by a registered dealer, however, do not necessarily import a liability  to  pay tax under the Act because,  whenever  the question  arises in regard to his liability to pay  any  tax under the Act, such liability would have to be determined in spite of his being a registered dealer with reference, inter alia, to the provisions of section 27-A of the Act which in- corporates within its terms the bans which have been imposed on the powers of the State Legislatures to 516 tax  under article 286 (1)(a) and (2) of  the  Constitution. If,  therefore, a dealer who has got himself  registered  as dealer  under the provisions of section 8(1) of the  Act  is sought to be made liable in respect of transactions of  sale effected,  by  him  he  could  claim  exemption  from   such liability if the transactions of sale or purchase took place in  the  course of inter-State trade or commerce  after  the 31st March, 1951, except in so far as Parliament may by  law otherwise provide.  In the case before us there was no  such provision  made  by  Parliament  and  the  transactions   in question  were  all  after the 31st March,  1951,  with  the result that the ban imposed by article 286(2) was in  opera- tion  and  if the transactions took place in the  course  of inter-State trade or commerce not only were Shri  Chhaganlal Ugarchand  Nipani and Shri Maniklal Chunanlal Baroda  exempt

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from the liability to pay the tax on these transactions  but the  petitioners also were similarly exempt.  No  liability, therefore,  could  be imposed either for Sales  Tax  or  for Purchase   Tax  within  the  terms  of  the  Act  on   these transactions which as above stated took place in the  course of interState trade or commerce.   It  was,  however,  urged that the  petitioners  had  made declarations  at  the time of making the purchases  of  this finished tobacco that they had purchased the said goods  for use  as raw materials in the manufacture of goods  for  sale for  actual  delivery in Madhya Pradesh for the  purpose  of consumption  in  that  State  and  that  by  virtue  of  the provisions  of section 4(6) of the Act they were  liable  to pay  the purchase tax on the purchase price of  goods  which had been utilised for any other purpose.  Whatever steps the State  of  Madhya Pradesh may be able to take in  regard  to non-compliance  with  the terms of the declarations  by  the petitioners,  we are clearly of opinion that the  State  -of Madhya  Pradesh is restrained from imposing any tax  on  the transactions  of  purchase or sale which take place  in  the course  of inter-State trade or commerce and no question  of liability of the petitioners by virtue of such  declarations survives because even initially Shri Shah Chhaganlal Ugar- 517 chand  Nipani  and Shri Maniklal Chunanlal Baroda  were  not liable  to pay any tax on these transactions nor  could  any such liability for tax be transferred to the petitioners  by virtue  of such declarations.  If, therefore, there  was  no basis for any such liability, the declarations by themselves cannot create any’ new liability and the petitioners  cannot be held liable to tax even by the operation of section  4(6) of the Act, the very basis of the liability sought to be im. posed therein having disappeared. The  result,  therefore,  is that the  Respondents  will  be restrained  from enforcing the Central Provinces  and  Berar Sales  Tax  Act,  1947,  and  its  provisions  against   the petitioners  and  from  imposing a tax  in  respect  of  the transactions  in question and in particular from imposing  a tax  on  the  purchase  price  of  goods  purchased  on  the declarations  under  Rule 26 being goods  specified  in  the registration certificate as intended for use as raw material in  the manufacture of goods for sale by actual delivery  in Madhya Pradesh for the purpose of consumption in that  State but utilised for any other purpose tinder the provisions  of section 4(6) of the Act.  The Respondents will pay the peti- tioners’ costs of this petition.