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Citation Codes
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citation codes
Case Number
Judges
  • Rajagopalan
  • Ramachandra Iyer, JJ.
Acts
  • section 8-B of the Madras General Sales Tax Actthe
  • Validation of Assessments) Act, 1954, section 2
  • Act, including section 8-B
  • section 8-B
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Rajagopalan
  • Ramachandra Iyer, JJ.
Acts
  • section 8-B of the Madras General Sales Tax Actthe
  • Validation of Assessments) Act, 1954, section 2
  • Act, including section 8-B
  • section 8-B
See more information ...
Smart Summary

Structured Summary of the Opinion (Rajagopalan, J.)

Factual and Procedural Background

The assessee was a dealer in automobiles (and other articles). For the assessment year 1951–52 the Tribunal included two items in the assessee's assessable turnover:

  • Rs. 14,42,225-5-9: described as the purchase price paid to the assessee-firm for the sale of motor cars to sub-dealers who resided outside the State of Madras; the cars were delivered at Madras to the sub-dealers or their agents and subsequently taken outside the State by those sub-dealers for sale in their respective areas outside Madras.
  • Amounts collected by the assessee by way of tax under section 8-B of the Madras General Sales Tax Act (the exact amount was not ascertained by the Tribunal, which held that the Government were to assess tax only at 3 pies per rupee).

The assessee filed an application under section 12-B of the Act contending that neither of these items should have been included in its assessable turnover. The matter was argued before the Court; the Court examined prior decisions bearing on the questions and ultimately dismissed the petition.

Legal Issues Presented

  1. Whether the sale transactions represented by Rs. 14,42,225-5-9 (sales completed by delivery within Madras to sub-dealers who then transported the cars outside the State for sale) were intra‑State sales or sales "in the course of" inter‑State trade or commerce within the meaning of Article 286(2) of the Constitution (as it stood at the relevant time).
  2. Whether the amounts collected by the assessee under section 8-B of the Madras General Sales Tax Act should be included in the assessee's assessable turnover (and whether the Madras Legislature's validation by Act XVII of 1954, deeming such amounts part of turnover, was constitutionally competent and valid).

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The earlier decisions of this Court (including Ashok Leyland Ltd. v. State of Madras and other related decisions) that treated similar deliveries as intra‑State sales required reconsideration; the questions should be treated as res integra.
  • Authorities from other jurisdictions (notably Queen v. Wilkinson; ex parte Brazell, Garlick & Co. — an Australian High Court decision — and the commercial-significance test applied there, and the American test in Phillips Petroleum Co. v. State of Wisconsin) support treating such deliveries as part of an inter‑State commercial flow and therefore as sales in the course of inter‑State trade.
  • Act XVII of 1954 (the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954) was beyond the legislative competence of the Madras Legislature, and therefore could not validly deem amounts collected under section 8-B to be part of turnover.
  • Section 8-B provided for the collection of a tax; if the amounts collected were a tax in substance they could not be treated as falling within Entry 54, List II, Schedule VII (i.e., part of the sale price / turnover) merely by legislative label.
  • Counsel relied on the Privy Council principle (cited from Motor Transport Commissioner v. Antill Ranger & Co.) that a legislature cannot confer upon itself legislative taxing competence it does not, in reality, possess.

The opinion does not contain a detailed account of the respondent's (State's) separate, specific arguments in the same granular manner as the appellant's contentions; the Court's treatment focuses on prior decisions, statutory provisions, and the submissions of the assessee's counsel.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ashok Leyland Ltd. v. State of Madras Held that sales completed by delivery within Madras to buyers (or their agents) who subsequently transported goods outside the State were intra‑State sales and not sales in the course of inter‑State trade under Article 286(2) (as it then stood). The Court accepted and followed Ashok Leyland as binding authority and applied its principle to hold the Rs. 14,42,225-5-9 item properly included in assessable turnover.
Indian Coffee Board v. State of Madras Earlier decision laying down principles about what constitutes a sale in the course of inter‑State trade / export context (referred to as antecedent authority for Ashok Leyland). Referenced as part of the line of authority reaffirmed in Ashok Leyland; used to support treating the deliveries as intra‑State sales.
State of Madras v. India Coffee Board, Bathalagundu Part of earlier decisions addressing similar questions about sales and the scope of Article 286. Treated as antecedent authority supporting the same principle as Indian Coffee Board and Ashok Leyland; used to justify following the established line.
Sundararajan & Co., Ltd. v. State of Madras Upheld the validity of the Madras validation statute (Act XVII of 1954) which deemed amounts collected under section 8-B to form part of turnover; addressed whether such collected amounts could be taxed as part of the sale price. The Court held Sundararajan binding and applied it to conclude that amounts collected under section 8-B were properly included in assessable turnover.
State of Madras v. Bangalore Automobiles Decision reaffirming the principle in Sundararajan and related cases about the treatment of such transactions. Referenced as part of a consistent line of decisions supporting the inclusion of section 8-B receipts and the Ashok Leyland principle.
State of Travancore‑Cochin v. Shanmugha Vilas Cashew‑nut Factory Supreme Court decision interpreting "in the course of" in Article 286(1)(b) — held that a sale/purchase within the State for purposes of export was not a sale in the course of export. Described as an authoritative Supreme Court ruling that settled the scope of Article 286(1)(b); Court felt bound by this reasoning and by extension applied similar significance to Article 286(2) issues.
State of Madras v. Gurviah Naidu Supreme Court authority reaffirming the interpretation of "in the course of" as to export and import under Article 286(1)(b). Used to support the conclusion that the expression "in the course of" should not be expanded (i.e., the Court declined to apply broader tests from other jurisdictions).
State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. Another Supreme Court decision affirming scope of "in the course of" under Article 286(1)(b). Referenced together with Gurviah Naidu as part of the settled Supreme Court position which the Court would follow.
Queen v. Wilkinson; ex parte Brazell, Garlick & Co. (High Court of Australia) Applied a test of "commercial significance" and regarded delivery within State to buyer's agent as an integral step in inter‑State transportation, thus a sale in the course of inter‑State trade. The Court discussed this authority but expressly declined to adopt the Australian "commercial significance" test for the present Article 286(2) question, noting it would not enlarge "in the course of" on that basis.
Clements & Marshall Pty Ltd. v. Field Peas Marketing Board (Dixon, J.) Earlier Australian principle emphasizing consideration of the commercial significance of transactions as part of a continuous flow of trade. Noted as the principle re‑affirmed in Queen v. Wilkinson; the Court declined to apply that test in the present matter.
Phillips Petroleum Co. v. State of Wisconsin (U.S. Supreme Court) U.S. test referred to when goods are destined for consumption in another State — cited by counsel for a similar commercial-significance approach. The Court noted the counsel's reliance on this test but declined to apply the American test to expand the meaning of "in the course of" for Article 286(2).
State of Madras v. Messrs. K.H. Chambers Ltd. Discussed and drew on the Supreme Court's Travancore decision in construing Article 286(1)(b) and the application to purchases immediately prior to export. Quoted by the Court to show the persuasive effect of the Supreme Court's authoritative pronouncement; supported refusal to adopt alternate foreign tests.
Deputy Commissioner of Commercial Taxes v. Messrs. M. Krishnaswami Mudaliar Held that amounts collected by a registered dealer from the consumer by way of sales tax and paid over to Government should not be included in turnover under the scheme as it then stood (prior to Madras validation Act XVII of 1954). Referred to explain the context in which the Madras Legislature enacted Act XVII of 1954; the Court noted the legislative response and the subsequent judicial treatment in Sundararajan.
Motor Transport Commissioner v. Antill Ranger & Co., Pty. Ltd. (Privy Council) Re-affirmed the principle that a legislature cannot give itself legislative power to tax something if in reality it lacks legislative competence to do so. Cited by counsel in support of the competence challenge to Act XVII of 1954; the Court considered the challenge but observed Sundararajan had negatived this contention.
Bengal Immunity Co., Ltd. v. State of Bihar Observations on economic incidence of taxation and the seller as collector of tax passed on to the consumer. Cited to explain the economic reality that the seller acts as collector; the Court noted this observation but relied on Sundararajan in deciding that the passed-on amount could be treated as part of price/turnover.

Court's Reasoning and Analysis

The Court conducted a stepwise legal analysis constrained by existing pronouncements of higher and coordinate courts:

  1. On the intra‑State versus inter‑State question (Rs. 14,42,225-5-9): the Court observed that this Court had dealt directly with the same question in Ashok Leyland and related decisions and that the Supreme Court had settled the interpretation of the expression "in the course of" in Article 286(1)(b) in a way that supported treating sales completed by delivery within the State as intra‑State sales even if the buyer subsequently exported the goods. The Court felt bound by those authorities and accepted Ashok Leyland as correct and binding.
  2. The Court considered alternative tests proposed by the assessee's counsel (the Australian "commercial significance" test from Queen v. Wilkinson and the American test from Phillips Petroleum). It declined to apply those tests to expand the scope of "in the course of" for Article 286(2) issues, stating it was not justified at that stage to enlarge the phrase's scope on those lines and that it would follow the Supreme Court's established interpretation.
  3. On the inclusion of amounts collected under section 8-B: the Court traced the statutory and decisional history. Initially, in Deputy Commissioner v. M. Krishnaswami Mudaliar the court had held such amounts should not form part of turnover. The Madras Legislature then enacted Act XVII of 1954 to deem those amounts part of turnover. The Division Bench in Sundararajan upheld the validity of that validation statute and held that the amounts constituted part of the price paid by the purchaser and fell within Entry 54 of List II when read with Article 246(3).
  4. The assessee's contention that section 8-B merely provided for collection of a tax and that these amounts could not be so characterized as part of turnover was addressed by reference to Sundararajan: even if labelled a tax, vis‑à‑vis the dealer the payment was in reality part of the price paid by the purchaser and thus taxable as turnover; the Court found no error in Sundararajan's reasoning and was bound to follow it.
  5. Because the Court considered the earlier authorities binding (including Supreme Court authorities and this Court's own decisions), it declined to reconsider or depart from them in the present case and concluded that the Tribunal had rightly included both contested items in the assessable turnover.

The opinion thus rests on adherence to binding precedent (both Supreme Court and this Court) and explicitly rejects adopting the foreign commercial-significance tests urged by the assessee's counsel.

Holding and Implications

Holding: The petition is dismissed. The Court held that the Tribunal correctly included both (a) the sum of Rs. 14,42,225-5-9 arising from the deliveries to sub‑dealers in Madras who exported the cars for sale outside the State, and (b) the amounts collected under section 8-B, in the assessee's assessable turnover for the assessment year 1951–52. Costs were awarded and counsel's fee of Rs. 250 was ordered.

Implications

  • Direct effect on the parties: the Tribunal's inclusion of the two challenged items in assessable turnover is upheld; the petitioner's challenge fails and the petitioner must pay costs with a counsel fee directed by the Court.
  • On precedent and legal principle: the Court expressly followed prior decisions of this Court (including Ashok Leyland and Sundararajan) and Supreme Court authority interpreting Article 286(1)(b), and declined to expand the meaning of "in the course of" by adopting the Australian or American tests relied upon by counsel. The Court did not purport to create a new rule; rather, it affirmed and applied the existing line of authority.
Show full summary ...

    Addison & Co., Ltd., Madras v. The State Of Madras.

    Rajagopalan, J.:— The assessee was a dealer in automobiles among other articles. Two of the items finally included by the Tribunal in the assessable turnover of the assessee for the assessment year 1951-52 were, (i) Rs. 14,42,225-5-9 and (ii) the amounts collected by the assessee by way of tax under section 8-B of the Madras General Sales Tax Act—the exact amount has yet to be ascertained, as the Tribunal held that the Government were held to assess tax only at 3 pies per rupee. The first of these items represented the purchase price paid to the assessee-firm for the sale of motor cars to its sub-dealers, who resided outside the State of Madras and who were bound under the terms of their contract with the assessee to sell those cars within their respective areas, all of which were outside the State of Madras. Those cars were however delivered to the sub-dealers or their agents at Madras and were subsequently taken by those sub-dealers outside the State for sale within their respective areas.

    2. The assessee contended before us, in his application preferred under section 12-B of the Act, that neither of these items should have been included in its assessable turnover. Normally we should have held that the question, whether each of these items is assessable to sales tax, is concluded by the authority of prior decisions of this Court. It was held in Askok Leyland Ltd. v. State of Madras1, that such sales completed by delivery of the cars within the State of Madras, though the sales were for subsequent transport of those cars to areas outside the State for further sales there, were intra-State sales within the State of Madras and were not sales in the course of inter-State trade within the scope of Article 286(2) of the Constitution, as it stood in the relevant year before it was amended. The principle applied in Ashok Leyland case was the one laid down in the earlier decisions of this Court, Indian Coffee Board v. State of Madras [1956] 7 S.T.C 135. and State Of Madras… v. India Coffee Board, Bathalagundu…. [1956] 7 S.T.C 522.. If the principle thus re-affirmed in Ashok Leyland case were to apply, the contention of the assessee will have to be negatived in this case also. Similarly, if the principle laid down in Sundararajan & Co., Ltd. v. State Of Madras [1956] 7 S.T.C 105., and re-affirmed in the unreported decision of this Court in T.R.C No. 46 of 1955 etc., and again in State of Madras v. Bangalore Automobiles [1956] 7 S.T.C 537., were to apply, the second of the contentions of the assessee, that the amounts collected by the assessee under section 8-B by way of tax should not be included in its assessable turnover, will also have to be rejected.

    3. The endeavour of Mr. Venkatasubramania Aiyar, learned counsel for the assessee-petitioner, was to convince us that those earlier decisions of this Court, to each of which one of us was a party, required reconsideration. We have heard him in full as if the questions at issue were res integra. We are, however, unable to accept his contention that those decisions require reconsideration. We should also mention that the decision of this Court in Ashok Leyland case is under appeal to the Supreme Court. In these circumstances we do not consider it necessary to discuss in full all the contentions the learned counsel urged before us.

    4. As we said, Ashok Leyland case is a direct decision of this Court on one of the two questions at issue, whether the sales of the motor cars were intra-State sales or were sales in the course of inter-State trade or commerce within the meaning of Article 286(2) of the Constitution, as it stood before it was amended. The principle, that a sale completed by the delivery of the goods within the State to the buyer or his agent was not a sale in the course of inter-State trade or commerce even if the buyer bought the goods solely for transporting them outside the State and did transport them, was based among other things to a large extent on the interpretation placed by the Supreme Court on the scope of the expression, “in the course of the import of the goods into, or export of the goods out of, the territory of India” within the meaning of Article 286(1)(b) of the Constitution. It must be held that the scope of Article 286(1)(b) has been finally settled by the Supreme Court. What was laid down by the majority of the Judges in the State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, that a sale and purchase within the State for the purposes of exporting those goods was not a sale in the course of export, was re-affirmed by the Supreme Court in State of Madras v. Gurviah Naidu and State of Mysore v. Mysore Spinning and Manufacturing Co., Ltd. We are still of the view that the expression “in the course of” should have the same significance when it related to export and import trade to which Article 286(1)(b) of the Constitution applied and also when it related to inter-State trade or commerce which was regulated in the relevant period by Article 286(2) as it stood before it was amended.

    5. Mr. Venkatasubramania Aiyar referred to Queen v. Wilkinson; ex parte Brazell, Garlic, and Co, the principles laid down in which were quoted with approval by Das, J., as he then was, in his separate and dissenting judgment in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory. Mr. Venkatasubramania Aiyar urged that neither that decision nor the observations of Das, J., were considered in any of the three decisions of this Court including that in Ashok Leyland's case [1957] 8 S.T.C 210.. Even so, we are unable to accept his contention that those decisions require reconsideration.

    6. No doubt in Queen v. Wilkinson; ex parte Brazell, Garlic and Co., despite the fact that the goods in question, potatoes, were delivered at Dorrigo to the buyer's agent within the State of New South Wales for being consigned to Queensland for sale, the High Court of Australia came to the conclusion, that it was a sale in the course of inter-State trade. The learned Judges of the Australian High Court observed, “the delivery of the potatoes from the lorry into the railway truck can bear only the aspect of an essential and integral, even if initial, step in the transportation of the potatoes to Queensland.”

    7. In that case the principle laid down by Dixon, J., in an earlier decision, Clements and Marshall Pty Ltd. v. Field Peas Marketing Board 98 Law Ed. 1035 at 1046., was re-affirmed.

    “We should consider the commercial significance of transactions and whether they form an integral part of a continuous flow or course of trade, which, apart from theoretical legal possibilities, must commercially involve transfer from one State to another.”

    8. What arose for decision in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory was what was a sale in the course of export within the meaning of Article 286(1)(b) of the Constitution. It was in considering that question that Das, J., as he then was, referred to Queen v. Wilkinson; ex parte Brazell, Garlick and Co, to explain the scope of the expression “in the course of”, though the Australian case itself dealt with a sale in the course of inter-State trade. It was apparently after considering this case also that the majority of the learned Judges held in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, that a sale for export was not a sale in the course of export within the scope of Article 286(1)(b). That principle was re-affirmed by Das, J., himself as acting Chief Justice in State of Madras v. Gurviah Naidu, in explaining the scope of the expression “in the course of”. We feel bound by the principles laid down by the Supreme Court, though those decisions were with reference to sales within the scope of Article 286(1)(b) of the Constitution. We do not feel justified at this stage in enlarging the scope of the expression “in the course of” only in relation to inter-State trade and commerce on the lines explained in Queen v. Wilkinson; ex parte Brazell, Garlick and Co We are unable to apply at this stage the test of commercial significance of the transaction postulated by the Australian High Court in the earlier decision and re-affirmed in Queen v. Wilkinson; ex parte Brazell, Garlick and Co.

    9. Learned counsel referred to the test laid down by the Supreme Court of America in Phillips Petroleum Co. v. State of Wisconsin, where the goods were destined for consumption in a State outside the one in which the goods were sold. In view of what we have said earlier, we feel unable to apply this test either in deciding the question at issue whether the sales of the motor cars were sales in the course of inter-State trade or commerce.

    10. In State Of Madras v. Messrs. K.H. Chambers Ltd., the learned Chief Justice referred to State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, and observed:

    “I must confess that but for the authoritative pronouncement of the Supreme Court in the Second Travancore case, I would have felt considerable difficulty in the construction of Article 286(1)(b) in its application to sales or purchases immediately preceding the actual export, which are related to the export factually. For instance, when a dealer in the State, to perform a contract of sale, entered into with a foreign buyer, purchases the goods which he subsequently exports, it may well be held that the purchase was in the course of the export. Indeed one of the learned Judges of the Supreme Court, Das, J., took that view, though the majority took a contrary view. But the learned Chief Justice of India, who delivered the judgment on behalf of the majority, took up this very question and held that such a purchase would not be covered by the exemption. This is conclusive on this question.”

    11. It is on similar considerations we have to hold that it is not permissible at this stage to decide the question at issue, even with reference to Article 286(2) of the Constitution as it stood then, by applying either the Australian test or the American test to which we have referred earlier. We accept the law laid down in Ashok Leyland's case as correct: It is authority binding on us. We hold that the Tribunal rightly included this item of Rs. 14,42,225-5-9 in the assessable turnover of the assessee.

    12. The next question is whether Sundararajan & Co., Ltd. v. State Of Madras requires reconsideration. In January, 1954, this Court held in Deputy Commissioner Of Commercial Taxes v. Messrs. M. Krishnaswami Mudaliar, that under the scheme of the Act, including section 8-B as it stood, the amounts collected by a registered dealer from the consumer by way of sales tax and paid over to the Government should not be included in the turnover of the registered dealer as part of the sale price of the goods sold, and that those amounts were not liable to be taxed over again to sales tax. Subsequent to that, the Madras Legislature enacted the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954, section 2 of which directed that the amounts so collected under section 8-B shall be deemed to have formed part of the turnover. The validity of that Act was challenged, but it was upheld by a Division Bench of this Court in Sundararajan & Co., Ltd. v. State Of Madras. If that decision prevails and the validity of the Act is to be upheld, then the Tribunal was right in including this item also in the assessable turnover of the assessee in the year of assessment in question.

    13. The main contention of Mr. Venkatasubramania Aiyar was that Act XVII of 1954 was beyond the legislative competence of the Madras Legislature. That was the very contention negatived in Sundararajan & Co., Ltd. v. State Of Madras.

    14. Learned counsel referred to the well-recognised principle re-affirmed by the Privy Council in Motor Transport Commissioner v. Antill Ranger and Co., Pty. Ltd., that a Legislature cannot give itself legislative power to tax something if in reality it did not have that legislative competence.

    15. Learned counsel urged that what section 8-B of the Act provided for was the collection of a tax, and, if what was collected was a tax, it could not be brought within the scope of Entry 54 of List II of Schedule VII of the Constitution. In dealing with a similar contention what was recorded in Sundararajan's case, was,

    “Even if the registered dealer collects the amount by way of tax under the authority of section 8-B of the Act, the payment is by the purchaser on the occasion of the sale by the dealer. Vis-a-vis the dealer it is in reality part of the price the purchaser has to pay the seller for purchasing the goods. A tax on such a payment, in our opinion, is well within the ambit of Entry 54 of List II, Schedule VII, read with Article 246(3) of the Constitution.”

    16. It was pointed out there that it is not the label that the legislature gave at one stage that really concluded the question at issue. Therefore, when section 8-B of the Act declared that the amounts were collected by way of tax, that did not conclude the question at issue. What was the real nature of the payment has to be taken into account in deciding whether it came within the ambit of Entry 54. Learned counsel referred to the observations of Venkatarama Aiyar, J., in Bengal Immunity Co., Ltd. v. State of Bihar. After pointing out that the incidence of taxation ultimately fell on the consumer the learned Judge recorded,

    “As the seller is merely to pass on the tax to the consumer, he is, in fact, constituted collector of the tax on behalf of the State.”

    17. The learned Judge was only explaining the reality of the situation with reference to the economic incidence of the tax. We are now concerned with the question whether what was so passed on could ever be part of the price the consumer has to pay and which could be correlated to the bargain or transaction of sale itself. That aspect we feel was considered in full in Sundararajan's case, and we are unable to hold that the view taken was erroneous or that it requires reconsideration. We are bound to follow the authority of the earlier decision, and we hold that the Tribunal rightly included this item also in the assessable turnover of the assessee.

    18. The petition fails and is dismissed with costs. Counsel's fee Rs. 250.

    19. Petition dismissed.

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    Comments

    Addison & Co., Ltd., Madras v. The State Of Madras.
    (Sep 15, 1959)