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PETITIONER: POPPATLAL SHAH

       Vs.

RESPONDENT: THE STATE OF MADRAS.UNION OF INDIA AND OTHERS-Interveners.

DATE OF JUDGMENT: 30/03/1953

BENCH: MUKHERJEA, B.K. BENCH: MUKHERJEA, B.K. BHAGWATI, NATWARLAL H. SASTRI, M. PATANJALI (CJ) BOSE, VIVIAN HASAN, GHULAM

CITATION:  1953 AIR  274            1953 SCR  677  CITATOR INFO :  R          1955 SC 661  (93,147)  RF         1958 SC 452  (14,26)  RF         1958 SC 468  (6,14,17)  R          1958 SC 560  (14,32)  R          1959 SC 887  (16)  RF         1961 SC 347  (20)  RF         1961 SC1065  (4)  R          1963 SC1207  (42,50)  R          1965 SC 161  (8)  RF         1966 SC 376  (5)  F          1985 SC1034  (15)  R          1988 SC2031  (9)

ACT: Madras  Sales  Tax  Act  (IX of  1939),  Ss.  2,  8  (before amendment of 1947)-" Sale within the province", meaning  of- Levy  of  tax on  sales where property in the  goods  passed outside   the   province-Legality-Provincial    Legislature- Territorial jurisdiction.

HEADNOTE:   Under  the Madras Sales Tax Act, 1939, as it stood  before it  was amended by the Madras Act XXV of 1947,the mere  fact that  the  contract  of sale was  entered  into  within  the Province of 88 678 Madras  did  not make a transaction which was  completed  in another  province where the property in the goods passed,  a sale  within  the  Province of Madras and no  tax  could  be legally levied upon such a transaction under the  provisions of the Act. Though  a Provincial Legislature could not pass  a  taxation statute which would be binding on any other part of India it was  quite competent for a province to enact  a  legislation imposing   taxes  on  transactions  concluded  outside   the province   provided   there  was  a  sufficient   and   real territorial  nexus between such transactions and the  taxing province.

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The  title  and preamble, whatever their value might  be  as aids  to  the construction of a statute,  undoubtedly  throw light  on  the intention and design of the  Legislature  and indicate the scope and purpose of the legislation itself. It  is a settled rule of construction that to ascertain  the legislative  intent all the constituent parts of  a  statute are to be taken together and each word phrase or sentence is to  be  considered in the light of the general  purpose  and object of the statute. Judgment of the Madras High court reversed.

JUDGMENT: CRIMINAL  APPELLATE JURISDICTION: Criminal Appeal No. 92  of 1952. Appeal   under  articles  132(1)  and  134(1)  (c)  of   the Constitution of India from the Judgment and Order dated  the 29th August, 1952, of the High Court of Judicature At Madras (Rajamannar  C.J.  and  Venkatarama Ayyar  J.)  in  Criminal Appeal  No. 129 of 1952 arising out of the-order  dated  the 25th  February,  1952, of the Court of  the  VII  Presidency Magistrate,  Egmore,  Madras,  in  C. T.  No.  1358  of  the Calendar  for 1950. B.   Somayya   (C.   B.  Pattabhi  Baman,  with   him)   for theappellant. V.   K.  T.  Chari,  Advocate- General  of  Madras  (V.   V. Rahavan and Alladi Kuppuswami with him) for the respondent.    M. C. Setalvad, Attorney-General for India (G.  N. Joshi and P. A.  Mehta, with him) for the Union of India.   B.     K. P. Sinha for the State of Bihar.   S.     M.  Sikri,  Advocate-General  of  Punjab  (M.   L, Sethi, with him) for the State of Punjab. 679 A.   R. Somanatha Iyer, Advocate-General of Mysore (R.  Ganapathy lyer, with him) for the State of, Mysore. K.   B. Asthana for the State of Uttar Pradesh. T.   N.  Subramanya  Iyer, Advocate-General  of  Travancore- Cochin  (M.   B. Krishna Pillai and Balakrishna  Iyer,  with him) for the State of Travancore Cochin.  V. N. Sethi for the State of Madhya Pradesh. Hajarnavis  for Husain Kasam Dada (India)  Ltd.  (Intervener No. 8).  1953.  March 30.  The Judgment of the Court was  delivered by   MUKHERJEA J.-This appeal, which has come before us  on  a certificate granted by the Madras High Court under  articles 134(1)  (e)  and  132(1) of the  Constitution,  is  directed against  an  appellate judgment of a Division Bench  of  the High  Court of Madras, passed in Criminal Appeal No. 129  of 1952,  by which the learned Judges affirmed an order of  the Seventh  Presidency Magistrate, Madras, dated  February  25, 1952,  convicting  the appellant of  an  offence  punishable under  section  15 of the Madras General Sales Tax  Act  and sentencing  him  to pay a fine of Rs. 1,000; in  default  to suffer imprisonment for a period of 3 months.  The  appellant is a partner of a firm of merchants  called Indo-Malayan  Trading Company" which has its head office  in the  city of Madras and carries on the business  of  selling and purchasing groundnut oil, sago and kirana articles.  For the  period-April 1, 1947, to December 31, 1947-the  company was  assessed to sales tax under the Madras Act IX  of  1939 for an amount of Rs. 37,771 annas odd on a total turnover of Rs.  37,75,257  and  for  failure  to  pay  the  same   were instituted against him under the provision of section 15  of

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the Act which resulted in his conviction as mentioned above. The  course  of business, which is usually followed  by  the company 680 and which was actually followed during the period for  which assessment  is  made, is as follows:  The  company  receives orders-in  its  Madras office from’ Calcutta  merchants  for supply of certain articles.  These articles are purchased in the  local  markets and they are despatched to  Calcutta  by rail  or steamer.  The railway receipts and bills of  lading are taken in the name of the vendor company and so also  are the  insurance policies, and they are sent to the  company’s bankers  in Calcutta who deliver the same to the  consignees on payment of prices and other charges.  The sole point that requires  consideration is, whether in  these  circumstances the  sale  transactions were liable to be  taxed  under  the General Sales Tax Act of Madras?  Before  the  High  Court both the  parties  seem  to  have accepted  the  position that if on the facts  stated  above, which  were not disputed by either side, the sales could  be hold to have taken place within the Province of Madras,  the tax could legitimately be levied on them but not  otherwise. The  parties differed, however? as regards the test  to.  be applied,  in  determining whether the sales did  take  place within  the  Province of Madras or not.  On  behalf  of  the appellant  the contention raised was that the place of  sale in  regard  to  all the transactions was  Calcutta,  as  the property  in  the  goods  sold  admittedly  passed  to   the purchasers  in that city.  The contention of the  respondent State  on  the  other  hand  was  that  the  true  test  for determining  the  locality  of the sale was  not  where  the property  in  the goods sold passed, but  where  the  actual transaction  was put through.  As the company had  its  head office  in the city of Madras, its accounts were  maintained there and the goods were delivered to the common carrier  in that  city, the sale, according to the respondent,  must  be deemed  to  have  taken  place in  Madras  even  though  the property in the goods sold passed outside the province.  The High Court accepted this contention of the  respondent State.  In the opinion of the learned                            681 Judges,  the  word  "sale" has both a legal  and  a  popular meaning.  In the legal sense, it imports passing of property in  the goods and it is in this sense that the word is  used in  the Sale of Goods Act.  ’In the popular sense,  however, it  signifies  the transaction itself which results  in  the passing  of property.  As the object of the  Legislature  in the Sales Tax Act is to impose a tax on the occasion of  the sale,  it  is immaterial that the sale  has  been  completed outside  the province.  The place where the property  passes is, it is said, a matter of no concern to the taxing author- ity  and in such context the popular meaning of the word  is more  appropriate  and  should  be  adopted.   The   further contention  raised on behalf of the appellant, that if  this view  was accepted, the sales tax would have to be  regarded as  being  extra-territorial, in its operation and  as  such ultra vires the Provincial Legislature, was repelled by  the High  Court on the authority of the well known  decision  of the  Judicial Committee in Wallace Brothers etc., &  Company v. Commissioner of Income-tax, Bombay(1).  It  is  the  propriety  of this  decision  that  has  been challenged  before  us  and the contentions  raised  by  Mr. Somayya,  who  appeared in support of the appeal, are  of  a two-fold  character : The learned counsel has argued in  the first  place  that the  Provincial  Legislature  functioning

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under    the   Government   of   India   Act,   1935,    was constitutionally incompetent to enact a legislation of  this character which according to the interpretation put upon  it by   the  High  Court  is  capable  of  operating  on   sale transactions  concluded  outside the  province.   The  other contention is that on a proper construction of the  relevant provisions of the Madras Sales Tax Act the High Court  ought to  have held that they do not authorise the  imposition  of sale tax in respect of a transaction of sale where  property in the goods sold passes outside the province.  The  first contention appears to us to  be  unsustainable. Section 100 (3) of the Government of India (1)  (1948] F.C.R. I (P.C.). 682 Act,   1935,   upon  which  Mr.Somayya  relied   and   which corresponds  to  article246(3) of the Constitution  runs  as follows :  ‘‘Subject   to   the  two  preceding   sub-sections,   the Provincial  Legislature has and the Federal Legislature  has not,  power to make laws for a province or any part  thereof with respect to any of the matters enumerated in List II  in the Second Schedule."  The entry in the Provincial List that is relevant for  our purpose  is Entry No. 48 and that speaks of " taxes  on  the sale  of  goods and on advertisements." The entry  does  not suggest that a legislation imposing tax on sale of goods can be  made  only in respect of sales taking place  within  the boundaries  of  the province ; and all that  section  100(3) provides  is  that  a law could be passed  by  a  Provincial Legislature for purposes of the province itself.  It  admits of no dispute that a Provincial Legislature could not pass a taxation statute which would be binding on any other part of India  outside the limits of the province, but it  would  be quite  competent  to enact a legislation imposing  taxes  on transactions  concluded outside the province, provided  that there  was sufficient and a real territorial  nexus  between such transactions and the taxing province.  This  principle, which  is based upon the decision of the Judicial  Committee in  Wallace  Brothers  etc. &  Company  v.  Commissioner  of Income-tax,  Bombay(1) has been - held by this court  to  be applicable  to sale tax legislation, in its recent  decision in  the Bombay Sales Tax Act case (2) and its  propriety  is beyond  question.   As  a matter of  fact,  the  legislative practice  in  regard  to  sale  tax  laws  adopted  by   the Provincial  Legislatures prior to the coming into  force  of the  Constitution has been to authorise imposition of  taxes on  sales  and purchases which were related in  some  manner with   the  taxing  province  by  reason  of  some  of   the ingredients of the transaction having taken place within the province or by (1)  [1948] F.C.R. I (P.C.). (2) The State of Bombay d Another v. United  Motors  (India) Ltd. & Others-Civil Appeal NO. 204 Of 1952.                            683 reason  of the production or location of goods within it  at the time when the transaction took place.  If in the  Madras Sales Tax Act the basis adopted for taxation is the location of  the place of business or of the goods sold,  within  the Province of Madras, undoubtedly it would be a valid piece of legislation to which no objection on constitutional  grounds could be taken.  The controversy, therefore, narrows down to the  short point as to what exactly has been adopted as  the basis  of  the levy of sale tax by the  Madras  Legislature. This  leads  us  to the question of  interpretation  of  the statute which is involved in the second point raised by  Mr.

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Somayya.  It is a settled rule of construction that to ascertain the legislative  intent, all the constituent parts of a  statute are  to be taken together and each word, phrase or  sentence is to be considered in the light of the general purpose  and object of the Act itself.  The title of the Madras Sales Tax Act  describes  it to be an Act, the object of which  is  to provide  for the levy of a general tax on the sale of  goods in  the  Province  of Madras and the  very  same  words  are repeated  in  the  preamble which follows.   The  title  and preamble,  whatever  their  value might be as  aids  to  the construction  of a statute, undoubtedly throw light  on  the intent and design of the Legislature and indicate the  scope and  purpose  of  the legislation  itself.   The  title  and preamble  of the Madras Sales Tax Act clearly show that  its object  is to impose taxes on sales that take  place  within the  province,  though these words do not  necessarily  mean that  the  property in the goods sold must pass  within  the province.   The expression "sale of goods " is  a  composite expression  consisting of various ingredients  or  elements. Thus,  there  are the elements of a bargain or  contract  of sale,  the  payment  or promise of  payment  of  price,  the delivery of goods and the actual passing of title, and  each one of them is essential to a transaction of sale though the sale  is  not completed or concluded  unless  the  purchaser becomes  the  owner of the property.  The  question  is-what element or elements have been accepted 684 by  the  Madras Legislature as constituting a  sale  in  the province upon which it is the object of the statute to  levy tax.  Section 2(h) gives the definition ’of "sale" and it is defined as meaning, every, transfer of the property in goods by one person to another in the course of trade or  business for   cash  or  for  deferred  payment  or  other   valuable consideration,   but   does   not   include   a    mortgage, hypothecation, charge or pledge."   Unmistakably the stress is laid in this definition on the element of transfer of property in a sale and no other.  The language gives no indication of the popular meaning of  sale in which according to the High Court, the word was used.  It is  to  be  noticed that there was no provision  by  way  of explanation  of  this  definition,  in  operation,  at   the material  time  to indicate in what cases a  sale  would  be regarded  as  taking place within the  Province  of  Madras, although the property in the goods sold did pass outside the boundaries of the province.  Such explanations were added by the  Madras Act XXV of 1947 and one of  these  explanations, namely explanation 2, provides 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 purposes 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."  It  would be clear from this that these transactions  were not considered by the Legislature to constitute sales within the  Province of Madras under the definition itself, but  by resort to a legal fiction they were 685

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declared  to  be so, notwithstanding any provision   in  the Sale  of  Goods Act to the contrary which  it  was  assumed, would  otherwise  be applicable,.  The  explanation  further shows   that  in  defining  "sale"  in  section  2(h),   the Legislature had in mind a sale in the Province of Madras and as these words occur in the title and preamble of the Act it was not deemed necessary to repeat them in the definition or the charging sections.  Section 3 is the charging section in the  Act and it provides for the levy of a tax on the  total turnover of a dealer for a particular year.  A "turnover" is defined  to  be  the aggregate amount for  which  goods  are either  bought  or sold.  The charging section  purports  to levy  a tax on the sale of goods and the tax is on the  sale of  goods  in the Province of Madras as defined  in  section 2(h) of the Act read in the light of its title and preamble.  In  our opinion, the mere fact that the contract for  sale was entered into within the Province of Madras does not make the  transaction,  which  was  completed  admittedly  within another province, where the property in the goods passed,  a sale  within  the  Province  of  Madras  according  to   the provisions  of the Madras Sales Tax Act and no tax could  be levied  upon such a transaction under the provisions of  the Act.   A contract of sale becomes a sale under the  Sale  of Goods Act only when the property in the goods is transferred to  the buyer under the terms of the contract  itself.   The presence of the goods within the province at the time of the contract  would undoubtedly make the sale,  if  subsequently completed,  a  sale  within the province by  reason  of  the explanation  added  by  Act  XXV  of  1947  ;  but  as  this explanation was not in operation during the relevant  period with which we are concerned, the assessment of sale tax,  in our  opinion,  on  the transactions during  this  period  is illegal and not warranted by the provisions of the Act.   It is worthwhile to mention in this connection that except  for the period in question no tax was attempted to be levied  on similar   transactions  of  the  appellant  by  the   taxing authorities in any of the 89 686 previous  years,though  the Act came into operation as early as the year 1939.  It is not disputed also that the  company is  paying  sale tax on its transactions with  the  Calcutta merchants  since  the explanation added by Act XXV  of  1947 came  into  force.  ’In our opinion, the  appeal  should  be allowed and the conviction and sentence passed by the courts below  should  be  set aside.  The fine  and  sale  tax,  if actually paid, should be refunded to the appellant.                                          Appeal allowed. Agent for the appellant: M. S. K. Aiyangar. Agent for the respondent (the State of Madras), the Union of India, and the States of Punjab, Mysore, Madhya Pradesh and Travancore Cochin  (Interveners): G. H. Rajadhyaksha. Agent for the State of Bihar: B. C. Prasad. Agent for the State of U. P.  C. P. Lal. Agent for Intervener No. 8: Bajinder Narain.