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PETITIONER: SHREE BAJRANG JUTE MILLS LTD.

       Vs.

RESPONDENT: STATE OF ANDHRA PRADESH

DATE OF JUDGMENT: 06/02/1964

BENCH: SHAH, J.C. BENCH: SHAH, J.C. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. GUPTA, K.C. DAS AYYANGAR, N. RAJAGOPALA

CITATION:  1966 AIR  376            1964 SCR  (6) 691  CITATOR INFO :  R          1968 SC 339  (6)

ACT: Sales  Tax-Goods  delivered  to  places  outside  State  for consumption  in those States-Liability  to  tax-"Explanation Sales"-Expression   "Actually   delivered",   meaning    of- Constitution  of India, Art. 286(1)(a)-Indian Sale of  Goods Act, 1930, v. 39.

HEADNOTE: The  appellant,  carrying on business as a  manufacturer  of jute  goods  with its factory at Guntur, used to  send  jute bags  by  railway  to the cement  factories  of  the  A.C.C. outside the State of Andhra.  For securing a regular  supply of  jute bags, the A.C.C. entered into a contract  with  the appellant  and  under the despatch  instructions  from  that company,  the  appellant  loaded the goods  in  the  railway wagons, obtained railway receipts in the name of the  A.C.C. as consignee and against payment of the price, delivered the receipts  to the Krishna Cement Works, Tadepalli, which  was for the purpose of receiving the railway receipt and  making payment,  the agent of the A.C.C. From the amounts shown  as gross  turnover in the return for the assessment year  1954- 55,  the appellant claimed reduction of certain  amounts  in respect of the goods supplied by rail to the A.C.C.  outside the State of Andhra Pradesh under its despatch instructions. The  Commercial Tax Officer and the Deputy  Commissioner  of Commercial  Taxes disallowed the claim and held that as  the railway  receipts were delivered to the agent of  the  buyer within the State of Andhra, and price was also realized from the  agent  of  the buyer within the State,  goods  must  be deemed  to have been delivered to the buyer in the State  of Andhra  Pradesh, and the appellant was liable to pay tax  on the  sales.   On  appeal, this order  was  reversed  by  the Appellate Tribunal.  In revision the High Court restored the order  of the Deputy Commissioner of Commercial Taxes.   The question  for determination in this appeal was  whether  the sales  to  the A.C.C. by the appellant may  be  regarded  as "non-Explanation   sales",   i.e.   falling   outside    the

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Explanation to Art. 286(1). Held:(i)  If the goods were delivered pursuant  to  the contracts  of  sale  outside the State  of  Andhra  for  the purpose  of  consumption in the State into which  the  goods were  delivered, the State of Andhra could have no right  to tax those sales by virtue of the restriction imposed by Art. 286(1)(a) read with Explanation. To  attract  the Explanation, the goods had to  be  actually delivered as a direct result of the sale, for the purpose of consumption in the State in which they were delivered.   The expression  "actually delivered’ in the context in which  it occurs, can only mean physical delivery of 692 the  goods,  or  such  action  as  puts  the  goods  in  the possession  of the purchaser; it does not  contemplate  mere symbolical or notional delivery. C.Govindarajulu Naidu & Co. v. State of Madras, A.I.R.  1953 Mad. 116, M/s.  Capco Ltd. v. Sales Tax Officer, A.I.R. 1960 All. 62 and Khaitan Minerals v. Sales Tax Appellate Tribunal for Mysore, A.I.R. 1963 Mysore 141. followed. Poppat Lal Shah v. State of Madras, [1953] S.C.R. 677,  Tata Iron & Steel Co. Ltd. v. State of Bihar, [1958] S.C.R. 1355, Tobacco Manufacturers(India)  Ltd.  v.  Commissioner  of Sales Tax, Bihar, [1961] 2 S.C.R.106,    Indian     Copper Corporation Ltd. v. State of Bihar, [1961] 2 S.C.R.276 and State of Kerala v. Cochin Coal Co. Ltd., [1961] 2 S.C.R. 219, referred to. (ii)Section  39  of the Indian Sale of Goods Act  will  not make  mere  delivery of the  railway  receipts  representing title to the goods, actual delivery of goods for the purpose of  Art.  286.   The  rule contained  is  s.  39(1)  has  no application in dealing with a constitutional provision which while  imposing a restriction upon the legislative power  of the States entrusts exclusive power to levy sales tax to the State  in which the goods, have been actually delivered  for the purpose of consumption.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 542 of 1962. Appeal  from the judgment and order dated April 7, 1960,  of the Andhra Pradesh High Court in Tax Revision case No. 27 of 1958. M.c  . Setalvad, K. Srinivasamurthy and Naunit  Lal,  for the appellant. A.Ranganadham  Chetty  and  B. R. G. K.  Achar,  for  the respondent. February  6, 1964.  The Judgment of the Court was  delivered by SHAH,  J.-With  certificate of fitness granted by  the  High Court  of Andhra Pradesh this appeal is preferred  by  Shree Bajrang Jute Mills Ltd. The  appellant is engaged in the manufacture of jute  goods, and  is a registered dealer under the Madras  General  Sales Tax  Act.   For the assessment year  1954-55  the  appellant submitted  its return for sales-tax claiming a deduction  of Rs. 21,80,118-1-3 from the turnover in respect                             693 of the jute goods supplied by rail to the Associated  Cement Company Ltd.-hereinafter for the sake of brevity called ’the A.C.C.  under despatch instructions from that Company.   The Commercial  Tax Officer rejected the claim of the  appellant for deduction and that order was confirmed in appeal to  the Deputy  Commissioner of Commercial Taxes.  In appeal to  the

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Sales  Tax Appellate Tribunal, the order was  reversed,  the Tribunal   holding  that  the  appellant  was  entitled   to exemption in respect of the turnover for the goods  supplied to  the  A.C.C. A revision petition  presented  against  the order  to the High Court of Andhra Pradesh was heard with  a large number of other petitions which raised certain  common questions.   The  High  Court  reversed  the  order  of  the Tribunal  and  restored  the  order  passed  by  the  Deputy Commissioner of Commercial Taxes. The  factory  of the appellant is situated at  Guntur.   The A.C.C.  owns cement factories at many places (including  one at  Tadepalli  in  the State of Andhra  called  the  Krishna Cement Works) and for the purpose of marketing its  products it  requires  jute  packing bags.  For  securing  a  regular supply of jute bags, the A.C.C. entered into a contract with the  appellant  of which the following four  conditions  are material :               "1.  All  the  goods are  sold  F.O.R.  Guntur               unless  otherwise  expressly  stated  in  this               contract.               2.    Goods to be packed .... well pressed and               marked in.... bound bales of.... per each.               3.    Payments   to  be,  made  in  cash,   in               exchange  for Mills Delivery Order on  sellers               on  due  date or for Railway receipts  or  for               Dock receipts, or for Mate’s receipts,  (which               Dock  receipts  or Mate’s receipts are  to  be               handed  by a Dock’s or Ship’s Officer  to  the               seller’s representative).               4.    The  buyers agree that the  property  in               the goods sold shall not pass from the sellers               to  the buyers so long as the sellers  are  in               possession  of  any bills of  lading,  railway               receipts, dock-warrants or Mate’s receipts  or               any other document of               694               title whether such documents are in the  names               of sellers or buyers, until payment is made in               full.               (a)   The buyers agree that the risk of  loss,               deterioration  or damage in the  goods  during               transit  whether  by land or canal or  sea  or               when  the  goods  are in the  custody  of  the               seller  or  any third person in  a  warehouse,               dock  or  any premises shall be borne  by  the               buyers  notwithstanding that the  property  in               the  goods does not pass to the buyers  during               such transit or custody." As  and  when  the gunny bags were needed  for  packing  its products  the  A.C.C. issued despatch  instructions  calling upon  the  appellant  to send jute bags by  railway  to  the cement factories of the A.C.C. outside the State of  Andhra. Pursuant  to  those instructions the  appellant  loaded  the goods  in the railway wagons, obtained railway  receipts  in the  name of the A.C.C. as consignee and against payment  of the  price,  delivered the receipts to  the  Krishna  Cement Works,  Tadepalli-which,  it is common ground, was  for  the purpose  of receiving the railway receipts and  making  pay- ment, the agent of the A.C.C. It is also common ground  that the  jute  bags were sold to the A.C.C. for the  purpose  of packing cement by the factories of the A.C.C. to which  they were sent and not for any other purpose. The  assessing  authority and the Deputy  Commissioner  held that as the railway receipts were delivered to the agent  of the  buyer  within the State of Andhra, and price  was  also

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realized  from the agent of the buyer within the State,  the goods must be deemed to have been delivered to the buyer  in the  State  of Andhra, and the appellant was liable  to  pay sales-tax  on the price of the goods sold.  With  that  view the High Court agreed Under the Government of India Act, 1935, the Legislatures of every  Province could legislate for levying tax on sales  of goods  in respect of all transactions, whether the  property in the goods passed within or without the Province, provided the  Province  had  a territorial nexus  with  one  or  more elements constituting the transaction of sale : Poppat                             695 Lal Shah v. The State of Madras(1) and The Tata Iron & Steel Company  Ltd. v. State of Bihar(1).  But this  resulted   in simultaneous levy of sales tax by many Provinces in  respect of the same transaction each fixing upon one or more element constituting  the  sale,  with which it  had  a  territorial nexus.   With the dual purpose of maintaining  an  important source   of  revenue  to  the  States,  and   simultaneously preventing  imposition  of an unduly heavy burden  upon  the consumers by multiple taxation upon a single transaction  of sale,  the  Constitution made a special  provision  imposing restrictions  upon  the legislative power of the  States  in Art. 286 which as originally enacted ran 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-               (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               (1) [1953] S.C.R. 677.               (2) [1958] S.C.R. 1355               696               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 imposing, or authorising the  imposition               of, a tax on the sale or purchase of any  such               goods  as have been declared by Parliament  by

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             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." After  the enactment of the Constitution, by a  Presidential Order the Provincial Sales Tax Acts were made to accord with the  restrictions imposed by Art. 286 of  the  Constitution. It is manifest that by Art. 286 the legislative authority of the  States  to  impose taxes on  sales  and  purchases  was restricted  by  four  limitations-in  respect  of  sales  or purchases  outside  the  State,  in  respect  of  sales   or purchases  in the course of imports into or exports  out  of India, in respect of sales or purchases which take place  in the course of interState trade or commerce and in respect of sales  and purchases of goods declared by Parliament  to  be essential for the life of the community.  These  limitations may  overlap,  but  the power of the State to  tax  sale  or purchase transactions may he exercised only if it is not hit by any of the limitations.  The restrictions are cumulative. The  sales  in the present case are not  sales,  which  have taken place in the course of inter-State trade or  commerce. The  only point of contest is whether they are "outside  the State’  of  Andhra.   It is now well-settled  that  by  Art. 286(1)   (as  it  stood  before  it  was  amended   by   the Constitution  Sixth Amendment Act, 1956) sales as  a  direct result  of  which  goods  were  delivered  in  a  State  for consumption in such State i.e. the sales falling within  the Explanation  to Art. 286(1) were fictionally to be  regarded as  inside that State for the purpose of cl. (1) (a) and  so within the taxing                             697 power  of  the State in which such delivery took  place  and being  outside  all other States exempt  from  sales-tax  by those  other States : Tobacco Manufacturers (India) Ltd.  v. The  Commissioner  of  Sales-tax,  Bihar,  Patna(1):  Indian Copper Corporation Ltd,-- The State of Bihar and others  (2) and  The State of Kerala and others v. The Cochin Coal  Com- pany Ltd.(3). But the Explanation is not exhaustive of  what may  be called "inside sales".  Clause (1)(a) excludes  from the  reach  of tile power of the States  sales  outside  the State  but it does not follow from the Explanation  that  it localises  the situs of all sales.  The power of  the  State under Entry 54 List II of the Seventh Schedule to tax  sales [not  falling  within cls. (1)(b), (2) and  (3)]  which  are outside  the  Explanation,  and which may for  the  sake  of brevity be called  4non-Explanation’   sales,   remains unimaired.  It is not necessary for the purpose of this case to  express  an opinion, whether the theory  of  territorial nexus of ;the taxing State, with one or more elements  which go   to   make  a  completed  sale  authorises   since   the promulgation of the Constitution the exercise of legislative power under Entry 54, List II of the Seventh Schedule to tax sales,  where  property in goods has not passed  within  the taxing State. The  question which then falls to be determined  is  whether the sales to the A.C.C. by the appellant may be regarded  as "non-Explanation sales".  There can be no doubt that if  the goods  were  delivered  pursuant to the  contracts  of  sale outside  the State of Andhra for the purpose of  consumption in the State into which the goods were delivered, the  State of  Andhra could have no right to tax those sales by  virtue of the restriction imposed by Art. 286(1) (a) read with  the Explanation. The facts found by the taxing authorities clearly  establish that  property  in  the goods despatched  by  the  appellant

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passed  to  the A.C.C. within the State of Andhra  when  the railway receipts were handed over to the agent of the A.C.C. against payment of price.  The question still remains : were (1) [1961] 2 S.C.R. 106 (2) [1961] 2 S.C.R. 276 (3)  [1961] 2 S.C.R. 219. 698 the   transactions  ’non-Explanation  sales’  i.e.   falling outside  the  Explanation to Art. 286(1)?   To  attract  the Explanation,  the  goods had to be actually delivered  as  a direct result of the sale, for the purpose of consumption in the State in which they were delivered.  It is not  disputed that the goods were supplied for the purpose of  consumption outside the State of Andhra, and in the States in which they were supplied.  It is submitted that the goods were actually delivered  within the State, when the railway receipts  were handed  over to the agent of the buyer.  But the  expression "a  actually delivered" in the context in which  it  occurs, can only mean physical delivery of the goods, or such action as  puts the goods in the possession of the purchaser  :  it does  not contemplate mere symbolical or  notional  delivery e.g.  by entrusting the goods to a common carrier,  or  even delivery of documents of title like railway receipts.  In C. Govindarajulu   Naidu  &  Company  v.  State  of   Madras(1) Venkatarama  Ayyar, J., dealing with the concept  of  actual delivery  of goods, so as to attract the application of  the Explanation to Art. 286(1) (a) rightly observed:               "In  the  context it can  mean  only  physical               delivery and not constructive delivery such as               by  transfer  of  documents of  title  to  the               goods.  The whole object of the Explanation is               to  give  a power of taxation  in  respect  of               goods  actually  entering the  State  for  the               purpose of use therein and it will defeat such               a purpose if notional delivery of goods as  by               transfer  of documents of title to  the  goods               within  the State is held to give the State  a               power  to  tax,  when the  good  are  actually               delivered in another State." A  similar view has been expressed in two other  cases  M/s. Capco  Ltd.  v. The Sales Tax Officer and another (2  )  and Khaitan Minerals v. Sales Tax Appellate Tribunal for  Mysore (3). (1)  A.I.R. 1953 Mad. 116. (3)  A.I.R. 1963 Mysore 141. (2) A.I.R. 1960 AM. 62. 699 Counsel for the respondent-State relied upon s. 39ofthe Indian Sale of Goods Act, 1930, which provides inso far as it is material, by the first sub-section that where,in pursuance of a contract of sale, the seller is authorisedto send the goods to the buyer, delivery of the goods toa carrier,  for the purpose of transmission to the  buyer,  is prima facie deemed to be delivery of the goods to the buyer. But  that  provision  will not make  mere  delivery  of  the railway  receipts  representing title to the  goods,  actual delivery  of  goods for the purpose of Art. 286.   The  rule contained in s. 39(1) of the Indian Sale of Goods Act raises a  prima facie inference that the goods have been  delivered if  the conditions prescribed thereby are satisfied: it  has no  application in dealing with a  constitutional  provision which  while  imposing a restriction  upon  the  legislative power  of the States entrusts exclusive power to levy  sales tax  to  the  State in which the goods  have  been  actually delivered for the purpose of consumption.

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The High Court was therefore in error in inferring from  the fact that the property had passed within the State of Andhra against  delivery  of the railway receipts, that  the  goods were actually delivered within the State.  If the  inference raised  by  the  High Court that  the  goods  were  actually delivered within the State of Andhra cannot be accepted,  on the facts found there is no escape from the conclusion  that the State of Andhra had no authority to levy tax in  respect of  those  sale transactions in which the  goods  were  sent under railway receipts to places outside the State of Andhra and  actually  delivered for the purpose of  consumption  in those States. The appeal must therefore be allowed.  The order of the High Court  is set aside and the order of the Appellate  Tribunal is  restored.  The appellant to get its costs in this  Court and the High Court from the respondent-State. Appeal allowed... 700