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The Cement Marketing Co. Of India Private Ltd. And Another v. The State Of Mysore And Another.
Factual and Procedural Background
The petition was filed under Articles 226 and/or 227 of the Constitution seeking certiorari (or a writ in the nature of certiorari) to call for and quash the records of assessment of sales tax on the petitioners' turnover for the year 1955–56 and to quash the assessment order and notice of demand dated 31 March 1958. The petitioners also sought a writ of prohibition restraining the respondents from giving effect to the assessment and demand.
The material facts: the second petitioners were manufacturers of cement with factories outside the State of Mysore; the first petitioners were distributors with a branch at Bangalore, registered as a dealer under the Mysore Sales Tax Act. The petitioners supplied cement to the public and to the Director-General of Supplies and Disposals (DGS&D), Government of India, for consumption within Mysore during 1 April 1955 to 31 March 1956. The Sales Tax Officer determined taxable turnover at Rs. 44,21,226-6-2 based on the first petitioners' return and assessed tax payable at Rs. 2,07,244-15-6, issuing a notice of demand for a balance of Rs. 1,92,490-15-6. The petitioners sought administrative stays and explanations from revenue authorities but received no replies and thereafter filed this writ petition contending the sales were inter-State and therefore not taxable by Mysore.
Legal Issues Presented
- Whether the sales of cement to the public in the State of Mysore for the period 7 September 1955 to 31 March 1956 were sales "in the State" (and therefore taxable by the State of Mysore) or were in the course of inter-State trade or commerce and hence beyond the State's taxing power under Article 286(1)(a) and section 27 of the Mysore Sales Tax Act.
- Whether supplies of cement to the Director-General of Supplies and Disposals, Government of India (under an annual rate contract, F.O.R. ex-works), are transactions in the course of inter-State trade and commerce falling within the prohibition of Article 286(2) and section 27, and thus not taxable by the State of Mysore.
- Whether any part of the levy for the earlier period (1 April 1955 to 6 September 1955) could be challenged in view of the Sales Tax Laws Validation Act and the Supreme Court decision in Sundararamier & Co. v. State of Andhra Pradesh.
Arguments of the Parties
Petitioners' Arguments
- The petitioners (through their counsel Sri M.K. Srinivasa Iyengar) argued that sales to the public in Mysore after 7 September 1955 were inter-State because orders were accepted at Bangalore but actual supply/delivery originated from factories situated outside Mysore (goods loaded at factory sidings outside Mysore and despatched), and therefore Article 286(1)(a) and section 27 prohibited Mysore from taxing them.
- In respect of supplies to the DGS&D under an annual rate contract, the petitioners argued that the contract term F.O.R. ex-works meant the sale was completed at the seller's factory (outside Mysore) once goods were loaded into railway wagons, making those sales transactions in the course of inter-State trade and commerce and therefore beyond the State's taxing power under Article 286(2) and section 27.
- The petitioners conceded counsel could not reasonably challenge the levy for the period 1 April 1955 to 6 September 1955 because of the Sales Tax Laws Validation Act and the Supreme Court decision in Sundararamier & Co. v. State of Andhra Pradesh; accordingly the challenge was confined to the period 7 September 1955 to 31 March 1956.
Respondents' Position (as reflected in the record)
- The Sales Tax Officer rejected the petitioners' contention that the sales were inter-State and determined taxable turnover and tax payable, issuing an assessment order and notice of demand dated 31 March 1958. The opinion does not contain a detailed narrative of the respondents' legal arguments beyond the assessment, rejection of the inter-State contention, and refusal to grant administrative relief.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sundararamier & Co. v. The State of Andhra Pradesh, 1958 A.I.R. 468; 9 S.T.C. 298 | Applied in the context of the Sales Tax Laws Validation Act: the Supreme Court decision (referred to) supported validation of levies for a specified earlier period. | The petitioners' counsel conceded that in view of this decision and the Sales Tax Laws Validation Act, the levy for 1 April 1955 to 6 September 1955 could not reasonably be challenged. |
| Bengal Immunity Co. Ltd. v. State of Bihar (Supreme Court) | Held that the phrase "actual delivery" in the explanation to Article 286(1)(a) means delivery to the purchaser or his agent; delivery to a common carrier is not "actual delivery". | The Court relied on and reproduced this reasoning to reject the petitioners' contention that delivery to a carrier outside Mysore meant the sale took place outside Mysore; since actual delivery to purchasers occurred within Mysore, the sales were taxable by the State. |
| Writ Petition No. 312 of 1957: Sree Sitaram & Co. v. State of Mysore | Used as an earlier local decision adopting the view that deliveries to a carrier outside the State do not necessarily make a sale inter-State where actual delivery to purchaser occurs within the State. | The Court remarked it had taken the same view in that writ petition and was not persuaded to change that view in the present matter. |
| In the matter of the Deputy Commissioner of Sales Tax, Bangalore (Former High Court of Mysore) | Former High Court of Mysore also adopted a view consistent with treating delivery to purchaser within the State as "actual delivery" for the purposes of Article 286/section 27. | The Court noted that the former High Court had taken the same view and this supported the present decision to reject the petitioners' inter-State contention. |
Court's Reasoning and Analysis
The Court began by identifying the controlling constitutional and statutory provisions: Article 286(1)(a) and (2) of the Constitution (including the explanation to sub-clause (a)) and section 27 of the Mysore Sales Tax Act, which contain parallel rules about when a State may impose sales tax. The explanations to Article 286(1)(a) and section 27 make clear that if actual delivery of goods takes place in a State as a direct result of a sale for consumption in that State, the State may tax the transaction notwithstanding that property may have passed elsewhere.
The Court focused on the factual sequence: buyers placed orders (often at Bangalore); the first petitioners accepted orders, collected sale price, and instructed the second petitioners' factories to dispatch cement; the undisputed fact was that the actual delivery to buyers occurred within Mysore and the cement was consumed there.
The petitioners' core contention was that placing goods into railway wagons at factory sidings outside Mysore constituted "actual delivery" outside the State, making the transactions inter-State. The Court examined the reasoning of the Supreme Court in Bengal Immunity which rejected the proposition that delivery to a common carrier equals "actual delivery" to the purchaser. The Supreme Court's analysis emphasized that statutory deeming provisions (e.g., section 39(1) of the Sale of Goods Act) create a fiction for certain purposes (such as risk of loss in transit) but do not convert delivery to a carrier into the factual "actual delivery" contemplated by Article 286's explanation. "Actual delivery" denotes the purchaser obtaining possession; delivery to a carrier is constructive, not actual.
Applying that principle, the Court held that because the goods were actually delivered to the purchasers within Mysore, the sales were sales in Mysore for the purposes of Article 286(1)(a) and section 27 and therefore susceptible to state taxation. The Court noted it had taken the same view previously in Sree Sitaram & Co. v. State of Mysore and that the former High Court of Mysore had reached consistent conclusions.
On the supplies to the Defence (DGS&D) under an F.O.R. ex-works contract, the Court observed that although the contract allocated transit risk (seller not bearing transit risk) and provided for ex-works delivery, these contractual allocation terms did not alter the essential characteristic that the sale was concluded within Mysore and the goods were actually delivered within Mysore and used there. Therefore those transactions did not fall within the prohibition of Article 286(2) or section 27.
The Court also accepted the practical concession that claims against the levy for the earlier period (1 April 1955 to 6 September 1955) could not reasonably be advanced because of the Sales Tax Laws Validation Act and the Sundararamier decision. No other points were argued or sustained.
Holding and Implications
Holding: The writ petition was dismissed. The Court's final decision was: PETITION DISMISSED (the opinion records: "Petition dismissed" and earlier states the writ petition fails and is dismissed with costs).
Direct effect on the parties:
- The assessment order and notice of demand dated 31 March 1958 were not quashed by this Court and remain effective as against the petitioners.
- The petitioners' contention that the sales to the public (from 7 September 1955 to 31 March 1956) and the supplies to the DGS&D were inter-State and therefore not taxable by Mysore was rejected.
- The petition was dismissed with costs, and advocate's fees of Rs. 100 were awarded.
Broader implications: The opinion applies existing constitutional and statutory principles (notably the Supreme Court's approach in Bengal Immunity) to hold that delivery to a carrier is not "actual delivery" for Article 286 purposes; it does not announce a novel legal proposition. The Court did not state that it was setting a new precedent beyond applying and reaffirming the cited authorities and prior local decisions.
H. Hombe Gowda, J.:— This is a petition under Articles 226 and/or 227 of the Constitution for issue of certiorari or a writ in the nature of certiorari or other writ, direction or order against the respondents calling for the records relating to the assessment of sales tax on the turnover of the petitioners for the year 1955-56 and to quash the purported assessment order and the notice of demand dated 31st of March, 1958, The petitioners have further prayed for a writ of prohibition to the respondents prohibiting them from giving any further effect to the said assessment order and the notice of demand.
2. The facts necessary for the appreciation of the contentions raised in the case, briefly narrated, are as follows:— The second petitioners are the manufacturers and the first petitioners are the distributors of cement in India. The second petitioners had a dozen factories for manufacturing cement spread all over India except in the State of Mysore at the relevant period. The first petitioners have a branch office at Bangalore in the State of Mysore and are registered as a dealer under the Mysore Sales Tax Act. The petitioners supplied cement to the members of the public and also to the Director-General of Supplies and Disposals, Government of India, New Delhi, or to such persons authorised by the said office for consumption within the State of Mysore during the year 1955-56 commencing from 1st of April, 1955, and ending with 31st March, 1956. The total turnover of such sales of cement within the State of Mysore as determined by the Sales Tax Officer was Rs. 44,21,226-6-2 and the same is based on the return submitted by the first petitioners. Having submitted a final return of taxable turnover for the period referred to above to the Sales Tax Officer the first petitioners urged that no tax was payable on the said turnover as the sales did not fall within the purview of the Mysore Sales Tax Act being inter-State transactions and the supplies to the Director-General of Supplies and Disposals, Government of India, New Delhi, were done in the course of inter-State trade and commerce. The Sales Tax Officer rejected the contention of the first petitioners and determined the net total turnover at Rs. 44,21,226-6-2 and the tax payable thereon at Rs. 2,07,244-15-6. The first petitioners had credited certain amounts along with their quarterly returns and after giving deduction to the same, a notice of demand for the balance of Rs. 1,92,490-15-6 was issued to the first petitioners by the Sales Tax Officer. The notice inter alia stated that the amount should be paid within twenty-one days from the date of service of the said notice and that if it is not done a fine as provided in section 20 of the Mysore Sales Tax Act will be levied. The order of assessment and the notice of demand were both dated 31st March, 1958. The first petitioners addressed letters to the Sales Tax Officer, to the Secretary to the Government of Mysore (Finance Department), Bangalore, and the Commissioner of Sales Tax, Bangalore, asking for stay of realisation of the purported levy of the tax pending appeal and/or to re-call the said wrong and illegal assessment order and the notice of demand and to forbear and refrain from giving effect to the said order and the notice of demand. The respondents did not send any reply to the first petitioners. The petitioners have presented this writ petition for issue of a writ of certiorari quashing the order of assessment on the ground that the imposition of tax on them in respect of the sale of cement is void, illegal and inoperative in law and is without or in excess of or improper exercise of jurisdiction, competence or authority of the Sales Tax Officer. The main contention of the petitioners is that the transactions relating to the sale and supply of cement to the public in the State of Mysore during the relevant period are in the nature of inter-State sales and, therefore, the respondents have no jurisdiction to levy any sales tax on them. In so far as the supplies made to the Director-General of Supplies and Disposals, Government of India, New Delhi, are concerned, the contention of the petitioners is that they are in the nature of transactions in the course of inter-State trade and commerce and cannot be subject to any tax by the State of Mysore. In other words, the contention of the petitioners is that the transactions relating to the sale of cement to the public and the Director-General of Supplies and Disposals, Government of India, New Delhi, are not liable to be taxed though the cement so sold has been consumed within the territories of Mysore as all of them come within the ban of Article 286 of the Constitution.
3. Sri M.K Srinivasa Iyengar, the learned, counsel for the petitioners fairly conceded at the time of arguments that he cannot reasonably challenge the levy of sales tax on all the transactions from 1st April, 1955, to 6th September, 1955, in view of the promulgation of the Ordinance (sic.) known as Sales Tax Laws Validation Act passed by the Parliament which validated the levy or collection of taxes levied or collected bet-ween certain period irrespective of the fact that the sales had taken place in the course of inter-State trade or commerce and also in view of the decision of the Supreme Court in Sundararamier & Co. v. The State of Andhra Pradesh 1958 A.I.R 1958 S.C 468; 9 S.T.C 298.. But he challenged the legality of the levy of sales tax on all the transactions from 7th September, 1955, to 31st March, 1956. It was contended by Sri Srinivasa Iyengar that all the transactions relating to the sale of cement to the public from 7th September, 1955, to 31st March, 1956, are in the nature of inter-State transactions inasmuch as, though the orders for the supply of cement were accepted at Bangalore, the actual supply or delivery of cement to the buyers was made in one of the factories situated outside the State of Mysore and, therefore, the State of Mysore had no jurisdiction to levy any sales tax in view of Article 286(1)(a) of the Constitution and section 27 of the Mysore Sales Tax Act, 1948. He also contended that in so far as the supply to the Defence Department is concerned, all the supplies were governed by the annual rate contract entered into between the second petitioners and the Director-General of Supplies and Disposals, Government of India, New Delhi, and as per the terms of the contract the cement had to be supplied at works sidings of one of the factories of the second petitioners which are admittedly situated outside the State of Mysore and, therefore, the transactions must be deemed to be in the course of inter-State trade and commerce and fall within the prohibition imposed under Article 286(2) of the Constitution. On this basis, it is urged that the State of Mysore had no jurisdiction to levy any sales tax on such sales. Article 286 of the Constitution of India reads thus:—
“(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 the 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 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 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.”
4. Section 27 of the Mysore Sales Tax Act, 1948, reads as follows:—
“Notwithstanding anything contained in this Act—
(a) a tax on the sale or purchase of goods shall not be imposed under this Act,
(i) where such sale or purchase takes place outside the State of Mysore; or
(ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territories of India;
(b) a tax on the sale or purchase of any goods shall not be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide.
Explanation.—For the purposes of sub-clause (i) of 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.”
5. It is clear from the explanation to Article 286(1)(a) of the Constitution of India and the explanation to section 27 of the Mysore Sales Tax Act that if actual delivery of goods takes place as a direct result of sale or purchase in the State and that such delivery be for the purpose of consumption within the State, there will be no bar for the State levying sales tax on the transaction. The question for consideration is whether the transaction relating to the sale of cement to the public made by the petitioners subsequent to 7th September, 1955, for the period from 7th September, 1955, to 1st April, 1956, can be considered to be sales in the State of Mysore so as to entitle the State of Mysore to levy a tax on them. It is submitted by the petitioners that the first petitioners have a branch office at Bangalore, that is, within the State of Mysore and that the public place orders for the supply of cement against permits granted to them with the petitioners. It is also not disputed that the first petitioners accept the offer for the supply of cement and collect the value of the cement to be supplied from the intending purchaser and in their turn direct one of the factories of the second petitioners to supply cement to the purchasers. It is also not disputed that the actual delivery to the buyer is made within the State of Mysore. The contention of Sri Srinivasa Iyengar is that in spite of the fact the first petitioners accepted the offer of a buyer, collected the sale price of cement from him and physical delivery of the goods was effected within the State of Mysore, since the cement was supplied from one of the factories of the second petitioners situated outside the State of Mysore, the goods were directly despatched to the purchaser, the transactions are sales in the course of inter-State trade. In other words, the contention of Sri Srinivasa Iyengar is that once the goods are loaded into the railway wagons at the railway sidings of one of the factories of the second petitioners and the goods are despatched to the buyer it should be deemed that the delivery was effected outside the State and, therefore, the transactions are in the nature of inter-State transactions and cannot, therefore, be subjected to any levy of sales tax by the State of Mysore. The point whether a delivery to a carrier amounts to a delivery to the purchaser as contemplated in Article 286(1)(a) of the Constitution of India was considered by their Lordships of the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar. His Lordship Venkatarama Ayyar, J., in the course of his judgment repelled an argument similar to the one that is advanced before us with the following observations:—
“It was then contended that the sales proposed to be taxed did not take place in Bihar as the goods were actually delivered as contemplated by the explanation not there but in Bengal. The argument is that the words ‘actual delivery’ in the explanation are used in contrast to constructive or symbolic delivery as meaning physical delivery of goods, that under section 39(1) of the Sale of Goods Act, 1930 (Act III of 1930) the common carrier is the agent of the purchaser, and that therefore, delivery of the goods to the railway authorities in Bengal was actual delivery thereof to the purchaser in Bengal. Section 39(1) is as follows:—
‘Where in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody is prima facie deemed to be a delivery of the goods to the buyer.’
It is difficult to see what there is in this section to support the contention that delivery to a common carrier is actual delivery to the purchaser. The section does not say so. On the other hand, it proceeds on the assumption that there was, in fact, no delivery to the purchaser, actual or otherwise, a thing deemed to be something only, when as a fact it is not that, and then enacts on that basis a fiction that delivery to a common carrier shall be deemed prima facie to be delivery to the buyer. What is the purpose of this fiction? It is, as will be clear from section 39(2), to fix on whom the loss is to fall in case the goods are lost or damaged in course of transit. But where no such question arises, the fiction has to be ignored, and the matter will have to be decided on the factual basis whether the goods were actually delivered.
A reference to section 51(1) of the Sale of Goods Act is very instructive. It runs as follows:—
‘Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.’
In this clause the word ‘delivery’ is used to denote both the delivery of goods by the seller to the common carrier and the delivery to the purchaser by the common carrier. They cannot both be actual deliveries, as goods sold under a sale can actually be delivered only once. If the delivery of the goods to the common carrier was actual delivery, then what is the nature of delivery when the purchaser took possession of the goods from the common carrier? It is also physical delivery of the goods, and is therefore actual delivery on the appellant's own definition. The fact is that while for some purposes delivery to the common carrier is treated as delivery to the purchaser, there is delivery in fact and in its popular sense only when the purchaser obtains possession of the goods and it is this that is connoted by the words ‘actual delivery’. When section 51(1) refers to delivery to buyer or his agent, it refers to actual delivery, and delivery to common carrier is regarded as constructive, having regard to section 39(1). The section, it will be noticed, proceeds on the footing that a common carrier is not the agent of the buyer with reference to actual delivery. He is the agent of the purchaser for transmission of the goods to him.”
6. His Lordship concluded his judgment on this point in the following words:—
“It must accordingly be held that the expression ‘actual delivery’ in the explanation to Article 286(1)(a) means delivery of the goods to the purchaser or his agent, and delivery to the common carrier is not actual delivery, and that, in this case, the goods were actually delivered not in Bengal when they were delivered to the common carrier but in Bihar when they were delivered to the purchaser. This contention of the appellant must also be rejected.”
7. As already stated, it is undisputed that the delivery of cement to the buyers or the purchasers was made within the State of Mysore. I am, therefore, unable to accept the contention of Sri Srinivasa Iyengar that since the cement was put into the railway wagons at the railway sidings of the factories situated outside the State of Mysore and despatched to the purchasers, the transactions partake the nature of inter-State, transactions and, therefore, the State of Mysore has no right to levy any sales tax on such transactions. This is the view that we took in Writ Petition No. 312 of 1957 (Sree Sitaram & Co. v. State of Mysore) and I am not persuaded to change it. It may also be mentioned here that the former High Court of Mysore took the same view in In the matter of the Deputy Commissioner of Sales Tax, Bangalore. I am, therefore, clearly of the opinion that there is no substance in the contention advanced by Sri Srinivasa Iyengar that the several transactions relating to the sale of cement by the first petitioners to the public within the State of Mysore are in the nature of inter-State transactions and cannot, therefore, be subjected to any levy of tax by the respondents.
8. The next contention urged by Sri Srinivasa Iyengar relates to the supply of cement to the Director-General of Supplies and Disposals, Government of India, New Delhi, on what is styled as the “annual rate of contract”. It is urged by Sri Srinivasa Iyengar for the petitioners that according to the terms of the contract, a copy of which was produced along with the petition, the goods had to be supplied F.O.R ex-works and, therefore, once the goods were loaded into the railway wagons at the railway sidings of the factory, the sale was completed irrespective of the fact that the Director-General of Supplies and Disposals, Government of India, New Delhi, placed an order for supply of cement with the first petitioners at Bangalore and the goods were actually received within the State of Mysore and consumed by the Supply Department. It is not disputed by Sri Srinivasa Iyengar that the Director-General of Supplies and Disposals, Government of India, New Delhi, placed orders for supply of cement with the first petitioners at Bangalore, that the first petitioners in turn directed one of the factories of the second petitioners to supply the goods F.O.R and that the goods were actually delivered to the Director-General of Supplies and Disposals, Government of India, New Delhi, or to his authorised agent within the State of Mysore. Similarly it is not disputed that the entire quantity of cement so supplied was actually utilised for works within the State of Mysore. I am, therefore, of the opinion that the sales took place within the State of Mysore. The mere fact that one of the terms of the contract was that the cement was to be supplied F.O.R ex-works or that the seller has not taken any risks so far as loss during transit and that the responsibility for loss was fixed on the railway authority does not, in my opinion, change the characteristics of the transactions and make them transactions in the course of inter-State trade or commerce so long as the sale was concluded within the State of Mysore and the goods were actually delivered to the purchaser within the State of Mysore. I am clearly of the opinion that the transactions relating to the supply of cement to the supply department do not come within the prohibition of Article 286(2) of the Constitution or section 27 of the Mysore Sales Tax Act. The second contention of Sri Srinivasa Iyengar must, therefore, fail. No other point is raised. In the result, therefore, for the reasons stated above this writ petition fails and the same is dismissed with costs. Advocate's fees Rs. 100 (Rupees one hundred only).
S.R Das Gupta, C.J:— I agree.
9. Petition dismissed.
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