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PETITIONER: THE STATE OF TAMIL NADU

       Vs.

RESPONDENT: MADURAI SOUTH INDIA CORPORATION (P) LTD.

DATE OF JUDGMENT01/09/1972

BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1972 AIR 2263            1973 SCR  (2)  10

ACT: Inter-state  Sale-Madras General Sales Tax Act  1959-Central Saks Tax Act, 1956-Sale in the State of Tamil Nadu  pursuant to  contract  of inter-state sale Goods  thus  purchased  by branches outside State transferred to Tamil Nadu and sold to local  dealers-Whether again chargeable to tax in the  State as first sale.

HEADNOTE: The  respondent is a registered dealer with its head  office at  Madras and branches inside the State of Tamil  Nadu  and also  in certain places in the States of Kerala  and  Andhra Pradesh.  During the years 1960-61 to 1964-65 and 1966-67 it was dealing in various goods including cloth, yarn, etc. and was  being assessed to tax under the Act on the turnover  of the business.  The gross turnover of the respondent included the  sales  of  yarn, by the Madurai Mills  Limited  to  the respondent  to  its head office in Madras and  also  to  its branches.  The method which was followed by the head  office of the respondent was that it would place orders from Madras on Madurai Mills Limited pursuant to which supplies would be made  by the Madurai Mills either to the  respondent’s  head office   or   to  its  branches  in  accordance   with   the instructions  given  by the head-office.   Where  deliveries were  made  to the respondent inside the  State  the  seller collected  the tax due under Madras General  Sales-tax  Act, 1959, with reference to item 3 of the second Schedule to the Act.  But in respect of deliveries made to the  respondent’s branches outside the State, the Madurai Mills collected  tax under  s. 3 of the Central Sales-tax Act.  During  the  year 1965-66  the  respondent transferred to the State  of  Tamil Nadu certain quantities of yarn from the stocks so purchased at its branches in the States of Andhra Pradesh and  Kerala and sold the same to local dealers.  The appellant thereupon called  upon the respondent to produce accounts and  certain other documents on the assumption that the sales so effected were  chargeable  to tax as first sales in the  State.   The respondent objected to these proceedings on the ground  that the sales were second sales not liable to tax and filed writ petitions in the High Court.  The writs were allowed by  the High Court.  Dismissing the appeal HELD  :  When  cotton yarn was sold  to  the  respondent  in

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Madras,  the goods were in the State of Tamil Nadu when  the contract  of interstate sale was entered into, it will be  a first  sale in the State.  Once that sale has  taken  place, and the goods were delivered in the States of Andhra Pradesh and Kerala pursuant to that inter-state sale, there was  not further  sale to the respondent when it transferred  to  its branches those goods which have already been subject to  tax in  the State of Tamil Nadu.  They are exempted  from  being taxed again since they have already been subjected to tax on the first sale inside the State. [14 H] [The  Court  did  not  find it  necessary  to  consider  the question whether the provisions of section 15 of the Central Sales-tax Act makes an inroad into the texture of the  local law so that section 6 of the local Act will have to be  read subject to and in conformity with the provisions of  Section 15  and  the  policy underlining that  section  and  whether Section 6 will he inapplicable to sales of declared  goods.] [15A]  11

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos.  1845-1847 of 1969. Appeals  by certificate from the orders dated 3rd July  1967 of  the High Court of Madras in Writ Petitions Nos. 2684  to 2686 of 1966. S.   T.  Desai,  A.  V. Rangam and A.  Subhashini,  for  the appellant. C.   K.  Daphtary,  Gobind  Das and Lilly  Thomas,  for  the respondent. The Judgment of the Court was delivered by P.   JAGANMOHAN REDDY, J.-These three appeals by certificate under Article 133(1)(c) of the Constitution are against  the judgment  of the Madras High Court which allowed  the  three Writ Petitions filed by the respondent under Article 226  of the  Constitution of India by which it challenged  the  pro- ceedings proposed to be taken by the Sales Tax Officer under the  Madras General Sales Tax Act 1959  (hereinafter  called the  Act)  and  the  rules thereunder  in  respect  of  sale transactions in the assessments 1960-61 to 1964-65 and 1966- 67 (upto October, 1966). The first petition was for quashing the summons issued under the  Act  and requiring the respondent  to  furnish  certain vouchers  of  cotton  yam,  branch  transfer  accounts   and particulars  relating  to the years 1960-61 to  1964-65  And 1966-67  (upto October, 1966).  The second petition was  for directing the appellant to forbear from taking any steps for verification and in disallowing the exemption for the second and  subsequent  sales of yam purchased  by  the  respondent company  from  the Madurai Mills Limited in respect  of  the aforesaid  period.  The third petition prayed for the  issue of mandamus to the appellant to forbear from disallowing the exemption  for  the  second and  subsequent  sales  of  yarn estimated at Rs. 5.08,247/- for the assessment year 1965-66. The High Court of Madras allowed all the three petitions and quashed the proceedings as prayed for. The  respondent is a registered dealer with its head  office at  Madras  and branches in Madurai, Rajanalavam  and  Salem inside the State of Tamil Nadu and also in certain places in the States of Kerala and Andhra Pradesh including Hyderabad. During  the  years  1960-61  to  1964-65  and  1966-67  upto October,  1966, it was dealing in various  good,,  including cloth,  yarn, etc. and was being assessed to tax  under  the

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Act on the turnover of the business.  The gross turnover  of the  respondent included sales of yarn by the Madurai  Mills Limited to the respondent to its head 12 office  in  Madras and also to its  branches.   The,  method which was followed by the head office of the respondent  was that  it  would place orders from Madras  on  Madurai  Mills Limited pursuant to which the supplies would be made by  the Madurai Mills Limited either to the respondent’s head office or to its branches in accordance with the instructions given by  the  head  office.  Where deliveries were  made  to  the respondent inside the State the seller collected the tax due under  the  Act  with  reference to item  3  of  the  second Schedule  to the Act.  But in respect of deliveries made  to the  respondent’s  branches outside the State,  the  Madurai Mills collected tax under section 3 of the Central Sales Tax Act  (hereinafter called the Central Act).  During the  year 1965-66  the respondent transferred to Madras State  certain quantities  of  yam  from  the stock  so  purchased  at  its branches in the State of Andhra Pradesh and Kerala and  sold the  same to local dealers. The appellant thereupon  called upon  the respondent to produce ,accounts and certain  other documents, on the assumption that the sales so effected were chargeable  to  tax  as  first  sales  in  the  State.   The respondent objected to these proceedings on the ground  that the  sales  were second sales not liable to  tax  and  filed three writ petitions which are subject of these appeals. It  was not disputed that the sales by the Madurai Mills  to the respondent in which deliveries were made to branches  in the State of Andhra Pradesh and Kerala have been charged  to tax  under  the  provisions of the Central  Act.   The  only question  in ,controversy is whether the sales made  locally of  yam transferred to the Madras State from the  stocks  of yarn  in the States of Andhra Pradesh and Kerala in  respect of Sales tax which had already been charged as inter  states sales  are again liable to tax :as first sales in the  State of Madras. In order to resolve this controversy, it would be useful  to notice  the relevant provisions of the Act and Central  Act. Section  3 (1 ) of the Act imposes a multi point tax,  while sub-section  (2)  provides  that  notwithstanding   anything contained  in sub-section (1) in the case of sale  of  goods mentioned in the first Schedule the tax under the Act  shall be  payable  by a dealer at the rate and only at  the  point specified  therein on the turnover in each year relating  to such  goods whatever may be the quantum of turnover in  that year.   Section  4 deals with levying of tax in  respect  of ,declared goods, while section 4-A, which was introduced  by Madras Act 6 of 1963, provides for refund of tax in  certain cases.   Section  6 enjoins that the tax under  the  Act  is addition to the tax under the Central Act or any other law.               Sections 4 and 4-A are as under :-               "4.  Notwithstanding  anything  contained   in               section               3, the tax under this Act shall be payable  by               a dealer               13               on  the sale or purchase inside the  state  of               declared  goods  at the rate and only  at  the               point  specified  against each in  the  Second               Schedule on the turnover in such goods in each               year,  whatever be the quantum of turnover  in               that year."               4-A.-(1) Where a tax has been levied and  col-               lected under section 4 in respect of the  sale

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             or  purchase of declared goods and such  goods               are sold in the course of inter-State trade or               commerce the tax so levied and collected shall               be refunded to such person in such manner  and               subject   to   such  conditions  as   may   be               prescribed.               (2)   Where  a  tax  at  the  point  of   last               purchase  in  the State has  been  levied  and               collected  under this Act in respect of  goods               liable to tax at such point and where the said               purchase ceases to be the last purchase in the               State  by reason of a subsequent  purchase  of               such goods by another dealer in the State, the               tax so levied and collected shall be  refunded               to  the  dealer concerned in such  manner  and               subject   to   such  conditions  as   may   be               prescribed." The  declared goods are specified in the second schedule  to the  Act to which cotton yarn, excluding cotton yarn  waste, is liable to tax under the Act at the point of first sale in the  State  at  the, rate of 2 per cent.   The  Central  Act defines ’declared goods’ as those declared under Section  14 to  be  of  special  importance  in  inter-State  trade   or commerce.    Section   3  lays  down  the   principles   for determining  when  a sale or purchase of goods  is  said  to take place.  In the course of inter-state trade or Commerce under  section  14 (ii) (b) cotton yarn, but  not  including cotton  yam  waste,  has  been declared  to  be  of  special importance  in  inter-State trade or commerce.   Section  15 ensures  that in the case of declared goods they  should  in all  circumstances bear only a single burden at a  specified stage, and at the prescribed rate.. This section as  amended in 1958 is as follows :-               "Every  sales tax law of a State shall, in  so               far as it imposes or authorises the imposition               of  a tax on the sale or purchase of  declared               goods be subject to the following restrictions               and conditions, namely :-                (a)  The  tax  payable  under  that  law   in               respect of any sale or purchase of such  goods               inside the State shall not exceed two per cent               of  the  sale or purchase price  thereof,  and               such tax shall not be levied at more than  one               stage;               14               (b)   Where  a tax has ben levied  under  that               law in respect of the sale or purchase  inside               the State of any declared goods and such goods               are sold in the course of inter-state trade or               commerce, the tax so levied shall be  refunded               to  such person in such manner and subject  to               such conditions as may be provided in any  law               in force in that State." The High Court of Madras on the interpretation of the afore- said  provisions and having regard to the modus operandi  of the respondent in respect of the inside sales or inter-state sales  of cotton yam was of the view :"Where the terms of  a first sale are such that it may well be said to be an inside sale  but  it bears ,also the characteristics of  an  inter- state  sale,  and, therefore, it has been  taxed  under  the Central Act, that sale being physically a first sale  inside the State out of which the inter-state sale has been  carved out,  it should follow that as the tax levied on the  inter- state  sale must prevail, there will be no tax liability  on the  same sale under the local Act on the ground that it  is

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an  inside sale".  In this view it held that when the  goods pursuant to the interstate sale have been delivered  outside the  State  but brought back into the State and  then  sold, that sale cannot in fact or in law be regarded as the  first sale within the meaning of the second schedule to the  local Act.  It did not, however, think it necessary to consider on the facts of the case "what the position will be when a sale is  an  inside sale within the meaning of Section 4  of  the ’Central  Act  and is also an inter-state sale,  because  it occasioned  the movement of the goods to another  State  and out of the goods delivered outside the State pursuant to the inter-state sale, a part has been brought into the State and sold  again  as  an inside sale, in  the  sense  that  every incident including delivery is in the State’.  In our  view, this  question  does  not  arise because  what  we  have  to consider  is having regard to the course of transactions  of sale which has not been traversed by the appellant,  whether the sale by the Madurai Mills pursuant to the orders  placed by  the respondent, the cotton yarn sold to its branches  in Andhra Pradesh and Kerala in respect of which the price  was paid  in the State of Madras, is an inside sale, and also  a first  sale  in the State.  It appears to us that  when  the cotton yam was sold to the respondent in Madras as the goods were in the State of Madras when the contract of inter-state was  entered  into, it will be a first sale  in  the  State. Once that sale has taken place, and the goods were delivered in the States of Andhra Pradesh and Kerala, pursuant to that inter-state   sale,  there  was  no  further  sale  to   the ’respondent when it transferred to it-, branches those goods which  have  already been subject to tax in Madras  nor  can such sales if they were sold in Madras be subject to tax.  15 Whether  the provisions of Section 15 makes an  inroad  into the texture of the local law, so that section 6 of the local Act  will have to be read subject to and in conformity  with the provisions of section 15 and the policy underlining that section and whether section 6 will be inapplicable to  sales of  declared  goods,  need not be considered  in  this  case because  we are clearly of the view that the sale of  cotton yam sold to the branches of the respondent in Andhra Pradesh and  Kerala  though they were interstate sales  of  declared goods,  were the first sales inside the State of Tamil  Nadu and  that being so if those goods are transferred to  Madras and  sold in Madras, they are exempt from being taxed  again since  they have already been subjected to tax on the  first sale inside the State.  We are, therefore, in agreement with the conclusions of the Madras High Court. The appeal is, accordingly, dismissed with costs. K.B.N.                                                Appeal dismissed 1 6