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PETITIONER: THE STATE OF ASSAM

       Vs.

RESPONDENT: REMESH CHANDRA DEY AND OTHERS

DATE OF JUDGMENT: 14/04/1961

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

CITATION:  1962 AIR  107            1962 SCR  (1) 986  CITATOR INFO :  RF         1979 SC1475  (30)

ACT: Sales Tax-Law Providing for exclusion of sales of goods pur- chased for resale-Amendment confining such sales to those in the State-Whether amendment offends law prohibiting levy  of tax on inter-State sales-Assam Sales Tax Act, 1947 (Assam 17 of 1947), as amended by Assam Act 4 of 1951, ss. 3(1)A(iii), 15-Assam Sales Tax Rules, r. 80-Constitution of India,  Art. 286(2).

HEADNOTE: Section  15 of the Assam Sales Tax Act, 1947, as  originally enacted, provided that in calculating the net turnover of  a registered  dealer  for  tax purposes,  all  sales  made  to another registered dealer of goods specified in the latter’s certificate  of  registration were to be excluded  from  the gross  turnover, if the goods were brought for  resale.   In 1951,  the section was amended by the addition of the  words "in  the  State" after the word " resale", as  a  result  of which the exclusion was confined only to sales of goods  for resale  in the State.  Rule 80 was framed to give effect  to the  amendment.   The  petitioner, a  registered  dealer  in Assam, and whose business consisted mainly of buying tea  in Assam  and selling it either in Assam or in Calcutta,  chal- lenged the legality of the amendment on the ground that  the result  of  the amendment was that tax could  be  levied  on interState  sales and that, therefore, it  contravened  Art. 286(2) of the Constitution of India. Held: (1) that a sale of goods to a dealer within the  State who  purchased  them  for the purpose  of  selling  them  to dealers  outside the State, and who, in fact, so sold  them, would not make it a sale in the course of inter-State  trade as the two sales were distinct and separate.  The first sale was  an intra-State sale and a tax imposed thereon  did  not offend Art. 286(2) of the Constitution. Endupuri Narasimham v. State of Orissa, [1962] 1 S.C.R. 314, followed. (2) that s. 15 of the Assam Sales Tax Act, 1947, and Rule 80

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framed  under that Act were not ultra vires Art.  286(2)  of the  Constitution.   The object of s. 15 of the Act  was  to avoid taxation at multiple points and the amendment to  that section in 1951 or Rule 80 did not enable the levy of tax on sales in the course of inter-State trade twice.  Such  sales were  expressly  saved  from tax by the  operation  of  Art. 286(2)  and  S. 3(1)(A)(iii) of the Act.  Once  those  sales were  outside the charging section there was no need to  re- enact  that  prohibition  in s. 15  which  was  a  machinery section and would stand cut down by the limitation placed by the charging section and the Constitution. 987

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 167 of 1960. Appeal  from the judgment and order dated July 16,  1956  of the  Assam  High Court at Gauhati in Civil Rule No.  128  of 1954. A. V. Viswanatha Sastri and Naunit Lal, for the appellant. The Respondents did not appear. 1961.  April 14.  The Judgment of the Court was delivered by HIDAYATULLAH, J.-This appeal has been filed by the State  of Assam  against a judgment of the High Court of  Assam  dated July 16, 1956.  By the judgment under appeal, the High Court held  that s. 15 of the Assam Sales Tax Act, 1947, and  Rule 80 framed under the Act were ultra vires, being a breach  of Art.  286(2) of the Constitution.  The High Court granted  a certificate under Art. 132(1) of the Constitution. R.  C. Dey, the answering respondent, is a wholesale  dealer in tea, and has been in business since 1949.  He  registered himself as a dealer under the Assam Sales Tax Act on January 14,  1950.   His business consists mainly of buying  tea  in Assam  and  selling it either in Assam or in  Calcutta.   In respect of tea sold in Calcutta, R. C. Dey consigns the  tea to  himself after purchasing it in Assam.  This tea is  then approved by prospective purchasers, to whom the documents of title are endorsed on receipt of the price. In  1951, the Assam Sales Tax Act was amended by  the  Assam Sales Tax (Amendment) Act, 1951 (4 of 1951).  Section 15  of the  Act before the amendment provided that  in  calculating the net turnover of a registered dealer for tax purposes all sales  made to another registered dealer of goods  specified in  the  latter’s  certificate of registration  were  to  be excluded  from the gross turnover, if the goods were  bought for  resale.   By  the amendment in 1951,  the  section  was amended  by the addition of the words "in the  State"  after the word "resale".  Thus, in calculating the net turnover of a registered dealer, the goods intended 988 for  resale  in the State could alone be excluded  from  the gross turnover.  This amendment was followed by amendment of the Rules.  Rule 80 was enacted to provide as follows:               "80.  (1) A dealer who wishes to  deduct  from               his gross turnover the amount of sales on  the               ground  that  he  is  entitled  to  make  such               deductions under clause (b) of sub-section (1)               of  section  15 shall, on  demand  produce  in               respect of such sales the copy of the relevant               cash  memo or bill according as the sale is  a               cash  sale  or a sale on credit,  and  a  true               declaration  in  writing  by  the   purchasing               dealer  or  by such  responsible  person  duly               authorised  by the purchasing dealer  in  this

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             behalf   that  the  goods  in   question   are               specified  in the certificate of  registration               of such dealer.               (2) For purposes of this rule, the declaration               shall be in the following form:-               I/We  hereby declare that I/We have  purchased               the  goods herein mentioned for  the  purposes               for  use in the manufacture of goods for  sale               in the State, or for use in the execution of a               contract  in  the State or for resale  in  the               State,  and further declare that  these  goods               have  been  specified  in/our  certificate  of               registration bearing No in the District of R.   C.  Dey  filed  a  petition  under  Art.  226  of   the Constitution,  challenging the amendment and the  Rule,  and contended  that they offended against Art. 286(2)  and  Part XIII  of  the Constitution, and were thus ultra  vires.   He also submitted that the amendment and the Rules were void as offending Art. 19 (1)(g).  The last submission was given  up in the High Court, and the objection about Part XIII of  the Constitution,  which was decided against him, must be  taken to have been abandoned, because none appeared on his  behalf to  urge this point.  We need not refer to Art. 19  or  Part XIII  of  the  Constitution.   The  High  Court  upheld  his contention  about Art. 286(2).  In the High Court,  separate judgments  were delivered by the learned Chief  Justice  and Ram Labhaya, J. They both agreed that s. 15, as amended, and the Rule were ultra vires Art. 286(2).  The reasons given 989 by  the  learned Judges were different.   According  to  the Chief Justice, the amendment and the Rule had the effect  of taxing sales in the course of inter-State trade or  commerce and  were, therefore, illegal.  Ram Labhaya, J.,  held  that the  sale to R. C. Dey and the sale by him in Calcutta  were separate  sales,  and  that the first sale was  not  in  the course  of inter-State trade or commerce, and  was  taxable. He, however, held that though by s. 3, which is the charging section,  sales  in  the  course  of  inter-State  trade  or commerce  were  excluded  from the ambit of  the  Act,  this section  remained  only "a pious declaration",  because  its effect  was  not  incorporated  in  the  machinery  section, namely,  s.  15.  According to the learned Judge,  what  was taxable  under the Act was the net turnover of a  registered dealer.   The machinery section showed how the net  turnover was to be ascertained, and it provided that to arrive at the net  turnover,  certain deductions could be  made  from  the gross turnover.  In the original section, anything which was sold  for resale was so excluded; but by the amendment,  the exclusion  was  only  in respect of the sale  of  goods  for resale  in  the State.  According to the learned  Judge,  if sales  which  did not lead to resale in the State  were  not excluded  from  the gross turnover, then  the  not  turnover would  comprehend  such sales and, therefore,  there  was  a taxation of sale of goods in the course of inter-State trade or  commerce.  Putting it briefly, while the  learned  Chief Justice  felt  that  the, amendment and  the  Rule  directly affected  inter-State  trade or commerce, Ram  Labhaya,  J., held  that  they  affected  inter-State  trade  or  commerce indirectly,  inasmuch  as sales outside the State  were  not excluded from the gross turnover. We shall take up these two points separately.  III so far as the  decision of the Chief Justice is concerned,  the  point has  been  before this Court in another case.   In  Endupuri Narasimham  &  Son  v. State of Orissa  and  others  (1),  a similar  question had arisen in connection with  the  Orissa

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Sales  Tax Act, 1947.  In dealing with transactions such  as these, this Court pointed out that only sales which affected inter- (1) [1962] 1 S.C.R. 314. 990 State  trade or commerce directly and were an integral  part thereof,  were saved under Art. 286(2).  On  that  Occasion, reference  was  made to all the authorities  of  this  Court which  had  discussed the question from the  angle  of  Art. 286(1) of the Constitution, and it was pointed out that  the same reasoning applied also to Art. 286(2).  It was observed in the case as follows:               "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  im.               posed.   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 tax imposed thereon does               not offend Art. 286(2)." These observations are entirely applicable in the context of the  facts, as are to be found in this appeal.  Indeed,  all that is necessary to apply the above passage to the facts of this case is to substitute "Assam" in the place of "Orissa". In  our  opinion, this point must be held  to  be  concluded against the respondent. That leaves over for consideration the reasons given by  Ram Labhaya,  J., in his concurring judgment.  Section 3 of  the Act  which created a liability to tax, was amended by Act  4 of 1951 by the introduction of sub- s. (1)A in that section.  That sub-section reads as follows:               "(1)A.   Nothing  in  sub-section  (1)  shall,               except  in cases covered by the first  proviso               to sub-section (12) of section 2 of this  Act,               be deemed to 991               render any dealer liable to tax on the sale of               goods where such sale takes place:-               (i)   outside the State of Assam;               (ii)  in the course of the import of the goods               into,  or  export  of the goods  out  of,  the               territory of India;               or               (iii)  in the course of inter-State  trade  or               commerce except in so far as Parliament may by               law otherwise provide." The  introduction of sub-s. (1)A did no more than repeat  in the  Act the prohibition contained in Art. 286.   The  first

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two  clauses of this sub-section reiterate  the  prohibition contained  in Art. 286(1), and the third  clause  reiterates the   prohibition   contained   in  Art.   286(2)   of   the Constitution.   The  first  proviso to s.  2(12),  which  is referred  to in sub-s. (1)A, enacts the Explanation  to  cl. (1) of Art. 286. Now,  it  is  quite clear that from  the  operation  of  the charging  section sales of a particular character  are  kept out.    This  provision  saves  from  taxation   all   those transactions  which, if they were taxed, would  have  fallen within the ban of Art. 286.  The effect of this saving is to make such transactions immune from taxation, and no  further amendment of the law in the machinery section was necessary. What  s.  15 does, is to grant an  additional  exemption  in respect  of  sales  in which the goods,  though  sold  to  a registered  dealer,  are  meant for  resale  in  the  State, itself.  It is quite easy to see that unless this  exemption was  granted,  it was possible that there  would  have  been sales-tax  at more than one point, namely, at the  point  at which the first registered dealer sold to the second  regis- tered  dealer and again, when the second  registered  dealer sold  in his turn.  To avoid taxation at multiple points  on transactions of sale of the same goods within the State,  it was  provided  that the tax shall be paid only on  the  last sale and not on the previous sales, so long as the  previous sales were from registered dealers to registered dealers  in respect  of goods mentioned in the registration  certificate of the latter and provided the goods were for resale in  the State.   When the charging section itself excluded  taxation of sales in the course of inter-State trade 992 or  commerce,  it  was  hardly  necessary  to  look  for   a repetition  of the same exemption in the machinery  section. It is an error to think that because the machinery  section, namely,  s. 15, does not repeat the exemption given  by  the charging section, the turnover of a dealer would necessarily include  the  sales in the course of  inter-State  trade  or commerce.   Even  if the net turnover did, so  include  such sales, the dealer would, under sub-s. (1)A of s. 3, be  able to  claim that those transactions were not taxable,  because they fell within the ban of Art. 286(2) as well as s.  3(1)A (iii)  of  the Act.  What has already been excluded  by  the operation  of  the Constitution and the  Act  cannot  become taxable, because the net turnover has to be calculated in  a particular manner.  From that net turnover, such sales  must be excluded by the operation of Art. 286(2) and s. 3(1)A  of the  Act.  In our opinion, the ban of Art. 286(2), which  is again  reenacted  by s. 3(1)A, makes it incumbent  that  the sales  falling  within those previsions should  be  excluded from the net turnover. Reference  was made to sub-s. (2) of s. 3, and it  was  said that sub-s. (2) stated that every dealer to whom sub-s.  (1) did  not apply, shall be liable to be taxed under this  Act, and  that  there  was no mention of subs.  (1)A  there.   No doubt,  sub-s. (2) does not mention sub-s. (1)A; but  sub-s. (1)A  is  not rendered ineffective by  the  omission.   Sub- section  (1)A speaks of its own force, and has to  be  given effect  to, along with the remaining sub-sections of  s.  3. Sub-section (1)A has the added support of Art. 286, and  the Constitution  must prevail.  Thus, both Art. 286 and  sub-s. (1)A  of s. 3 are there to save from taxation all  sales  in the course of inter-State trade or commerce, and there is no need  to look further into the Act to see whether  they  are exempted once again or not. In  our opinion, the appeal must succeed.  The  decision  of

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the  High Court under appeal is set aside, and the  petition is  ordered to be dismissed with costs here and in the  High Court.                                    Appeal allowed. 1