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Shree Bajarang Jute Mills Ltd. v. State Of A.P.
Factual and Procedural Background
Shree Bajrang Jute Mills Ltd. (“the appellant”) manufactures jute goods at Guntur and is a registered dealer under the Madras General Sales Tax Act. For the assessment year 1954-55 it claimed a deduction of Rs 21,80,118-1-3 from its turnover on the footing that jute bags supplied by rail to Associated Cement Company Ltd. (“A.C.C.”) were not taxable in Andhra State. The Commercial Tax Officer disallowed the deduction, a decision affirmed by the Deputy Commissioner. The Sales Tax Appellate Tribunal reversed those orders, but the High Court of Andhra Pradesh reinstated the Deputy Commissioner’s view. The present appeal is brought with the High Court’s certificate of fitness.
Under the supply contract, goods were “sold F.O.R. Guntur,” payment was to be made against railway receipts, and title was not to pass until full payment, although risk during transit lay with the buyer. When A.C.C. required bags, it instructed the appellant to despatch them by rail to its cement factories located outside Andhra. Railway receipts named A.C.C. as consignee; they were delivered, together with payment, to Krishna Cement Works at Tadepalli (A.C.C.’s agent for this purpose in Andhra).
Legal Issues Presented
- Whether the sales to A.C.C. were “outside the State” for the purposes of Article 286(1)(a) of the Constitution, read with its Explanation, thereby placing them beyond the taxing power of Andhra State.
- Whether handing over railway receipts within Andhra constituted “actual delivery” of goods so as to localise the sale inside the State and validate the tax levy.
Arguments of the Parties
Appellant’s Arguments
- The goods were physically delivered only when they reached A.C.C.’s factories outside Andhra; therefore they were “actually delivered” for consumption in other States, attracting the constitutional bar in Article 286(1)(a) and its Explanation.
- Mere transfer of railway receipts in Andhra amounted to symbolic, not physical, delivery and could not fix the situs of the sale within Andhra.
Respondent State’s Arguments
- Section 39(1) of the Sale of Goods Act, 1930 deems delivery to a carrier to be delivery to the buyer; hence, when the seller handed the railway receipts to A.C.C.’s agent within Andhra, delivery – and therefore the sale – occurred inside the State.
- Because property in the goods passed in Andhra upon such delivery, the State was entitled to levy sales tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Poppat Lal Shah v. State of Madras (1953) SCR 677 | Under the Government of India Act 1935, Provinces could tax sales having a territorial nexus even if property passed elsewhere. | Referenced to show the multiplicity of taxes that Article 286 sought to curtail. |
| Tata Iron & Steel Co. Ltd. v. State of Bihar (1958) SCR 1355 | Simultaneous provincial taxation on a single sale led to heavy burdens, prompting constitutional restrictions. | Cited to explain the background and purpose of Article 286. |
| Tobacco Manufacturers (India) Ltd. v. C.S.T., Bihar (1961) 2 SCR 106 | Sales that result in delivery for consumption in a State are deemed “inside” that State under Article 286(1) Explanation. | Relied upon to clarify the scope of “inside sales.” |
| Indian Copper Corporation Ltd. v. State of Bihar (1961) 2 SCR 276 | Same constitutional interpretation of Article 286(1) Explanation. | Used to support the principle that only the State of actual delivery may tax. |
| State of Kerala v. Cochin Coal Co. Ltd. (1961) 2 SCR 219 | Reaffirmed that the Explanation confers exclusive taxing power on the State where goods are physically delivered for consumption. | Invoked to underscore the exclusivity of taxing power. |
| C. Govindarajulu Naidu & Co. v. State of Madras AIR 1953 Mad 116 | “Actual delivery” in Article 286 means physical, not constructive, delivery. | Quoted with approval to reject the notion that delivery of documents equals delivery of goods. |
| Capco Ltd. v. Sales Tax Officer AIR 1960 All 62 | Supported the requirement of physical delivery for the Explanation to apply. | Cited as consistent authority. |
| Khaitan Minerals v. Sales Tax Tribunal, Mysore AIR 1963 Mys 141 | Also endorsed the physical-delivery interpretation. | Cited as further corroboration. |
Court's Reasoning and Analysis
The Court first noted that the sales were not “in the course of inter-State trade or commerce” under Article 286(2); the sole inquiry was whether they were “outside the State” of Andhra within Article 286(1)(a). Relying on prior Supreme Court authority, it emphasised that the Explanation to Article 286(1) grants taxing power only to the State where goods are actually delivered for consumption.
Although property in the bags passed in Andhra when railway receipts were surrendered to A.C.C.’s agent, the Court held that “actual delivery” requires physical transfer or possession by the buyer. Symbolic or constructive delivery—such as entrusting goods to a common carrier or transferring documents of title—does not suffice. The Court approved the Madras High Court’s reasoning in C. Govindarajulu Naidu and aligned with similar views in Capco and Khaitan Minerals.
The respondent’s reliance on Section 39(1) of the Sale of Goods Act was rejected; the statutory presumption of delivery to a carrier cannot override the constitutional scheme that allocates taxing power based on physical delivery for consumption. On the undisputed facts, the jute bags were consumed outside Andhra; hence the taxing competence resided in the States where such consumption occurred, not in Andhra.
Holding and Implications
APPEAL ALLOWED; High Court judgment set aside and Tribunal order restored.
Andhra State may not levy sales tax on transactions where goods are physically delivered and consumed outside its territory, notwithstanding that title and payment pass within the State. The decision reinforces a strict, physical-delivery interpretation of Article 286(1) Explanation, thereby limiting the reach of State sales-tax legislation and preventing multiple taxation on inter-State consignments.
Shah, J.— With certificate of fitness granted by the High Court of Andhra Pradesh this appeal is preferred by Shree Bajrang Jute Mills Ltd.
2. The appellant is engaged in the manufacture of jute goods, and is a registered dealer under the Madras General Sales Tax Act. For Assessment Year 1954-55 the appellant submitted its return for sales tax claiming a deduction of Rs 21,80,118-1-3 from the turnover in respect of the jute goods supplied by rail to the Associated Cement Company Ltd. — hereinafter for the sake of brevity called “the A.C.C” under despatch instructions from that Company. The Commercial Tax Officer rejected the claim of the appellant for deduction and that order was confirmed in appeal to the Deputy Commissioner of Commercial Taxes. In appeal to the Sales Tax Appellate Tribunal, the order was reversed, the Tribunal holding that the appellant was entitled to exemption in respect of the turnover for the goods supplied to the A.C.C A revision petition presented against the order to the High Court of Andhra Pradesh was heard with a large number of other petitions which raised certain common questions. The High Court reversed the order of the Tribunal and restored the order passed by the Deputy Commissioner of Commercial Taxes.
3. The factory of the appellant is situated at Guntur. The A.C.C owns cement factories at many places (including one at Tadepalli in the State of Andhra called the Krishna Cement Works) and for the purpose of marketing its products it requires jute packing bags. For securing a regular supply of jute bags, the A.C.C entered into a contract with the appellant of which the following four conditions are material:
“1. All the goods are sold F.O.R Guntur unless otherwise expressly stated in this contract.
2. Goods to be packed ... well pressed and marked in ... bound bales of ... per each.
3. Payments to be made in cash, in exchange for Mills Delivery Order on sellers on due date or for railway receipts or for dock receipts, or for Mate's receipts, (which dock receipts, or mate's receipts are to be handed by a Dock's or Ship's Officer to the seller's representative).
4. The buyers agree that the property in the goods sold shall not pass from the sellers to the buyers so long as the sellers are in possession of any bills of lading, railway receipts, dock — warrants or mate's receipts or any other document of title whether such documents are in the names of sellers or buyers, until payment is made in full.
(a) The buyers agree that the risk of loss, deterioration or damage in the goods during transit whether by land or canal or sea or when the goods are in the custody of the seller or any third person in a warehouse, dock or any premises shall be borne by the buyers notwithstanding that the property in the goods does not pass to the buyers during such transit or custody.”
As and when the gunny bags were needed for packing its products the A.C.C issued despatch instructions calling upon the appellant to send jute bags by railway to the cement factories of the A.C.C outside the State of Andhra. Pursuant to those instructions the appellant loaded the goods in the railway wagons, obtained railway receipts in the name of the A.C.C as consignee and against payment of the price, delivered the receipts to the Krishna Cement Works, Tadepalli — which, it is common ground, was for the purpose of receiving the railway receipts and making payment, the agent of the A.C.C It is also common ground that the jute bags were sold to the A.C.C for the purpose of packing cement by the factories of the A.C.C to which they were sent and not for any other purpose.
4. The assessing authority and the Deputy Commissioner held that as the railway receipts were delivered to the agent of the buyer within the State of Andhra, and price was also realized from the agent of the buyer within the State, the goods must be deemed to have been delivered to the buyer in the State of Andhra, and the appellant was liable to pay sales tax on the price of the goods sold. With that view the High Court agreed.
5. Under the Government of India Act, 1935, the legislatures of every Province could legislate for levying tax on sales of goods in respect of all transactions, whether the property in the goods passed within or without the province, provided the province had a territorial nexus with one or more elements constituting the transaction of sale: Poppat Lal Shah v. The State of Madras (1953) SCR 677 and Tata Iron and Steel Company Ltd. v. State of Bihar (1958) SCR 1355. But this resulted in simultaneous levy of sales tax by many provinces in respect of of the same transaction each fixing upon one or more elements constituting the sale, with which it had a territorial nexus. With the dual purpose of maintaining an important source of revenue to the States, and simultaneously preventing imposition of an unduly heavy burden upon the consumers by multiple taxation upon a single transaction of sale, the Constitution made a special provision imposing restriction upon the legislative power of the States in Article 286 which as originally enacted ran as follows:
“(1) No law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place—
(a) outside the State or
(b) in the course of the import of the goods into, or export of the goods out of the territory of India.
Explanation.— For the purposes of sub-clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
(2) Except insofar 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.”
After the enactment of the Constitution, by a Presidential Order the Provincial Sales Tax Acts were made to accord with the restrictions imposed by Article 286 of the Constitution. It is manifest that by Article 286 the legislative authority of the States to impose taxes on sales and purchases was restricted by four limitations in respect of sales or purchases outside the State, in respect of sales or purchases in the course of imports into or exports out of India, in respect of sales or purchases which take place in the course of inter-State trade or commerce and in respect of this and purchases of goods declared by Parliament to be essential for the life of the community. These limitations may overlap, but the power of the State to tax sale or purchase transactions may be exercised only if it is not hit by any of the limitations. The restrictions are cumulative.
6. The sales in the present case are not sales, which have taken place in the course of inter-State trade or commerce. The only point of contest is whether they are “outside the State” of Andhra. It is now well settled that by Article 286(1) (as it stood before it was amended by the Constitution Sixth Amendment Act, 1956) sales as a direct result of which goods were delivered in a State for consumption in such State i.e the sales falling within the Explanation to Article 286(1) were fictionally to be regarded as inside that State for the purpose of (1)(a) and so within the taxing power of the State in which such delivery took place and being outside all other States exempt from sales tax by those other States: Tobacco Manufacturers (India) Ltd. v. Commissioner of Sales Tax, Bihar, Patna (1961) 2 SCR 106; Indian Copper Corporation Ltd. v. State of Bihar (1961) 2 SCR 276; and State of Kerala v. Cochin Coal Company Ltd. (1961) 2 SCR 219. But the Explanation is not exhaustive of what may be called “inside sales”. Clause (1)(a) excludes from the reach of the power of the States sales outside the State but it does not follow from the Explanation that the localises the situs of all sales. The power of the State under Entry 54 List II of the Seventh Schedule to tax sales [not falling within clauses (1)(b), (2) and (3)] which are outside the Explanation, and which may for the sake of brevity be called “non-Explanation” sales, remains unimpaired. It is not necessary for the purpose of this case to express an opinion, whether the theory of territorial nexus of the taxing State, with one or more elements which go to make a completed sale authorises since the promulgation of the Constitution the exercise of legislative power under Entry 54, List II of the Seventh Schedule to tax sales, where property in goods has not passed within the taxing State.
7. The question which then falls to be determined is whether the sales to the A.C.C by the appellant may be regarded as “non-Explanation sales”. There can be no doubt that if the goods were delivered pursuant to the contracts of sale outside the State of Andhra for the purpose of consumption in the State into which the goods were delivered, the State of Andhra could have no right to tax those sales by virtue of the restriction imposed by Act 286(1)(a) read with the Explanation.
8. The facts found by the Taxing Authorities clearly establish that property in the goods despatched by the appellant passed to the A.C.C within the State of Andhra when the railway receipts were handed over to the agent of the A.C C. against payment of price. The question still remains: were the transactions “non-Explanation sales” i.e falling outside the Explanation to Article 286(1)? To attract the Explanation, the goods had to be actually delivered as a direct result of the sale, for the purpose of consumption in the State in which they were delivered. It is not disputed that the goods were supplied for the purpose of consumption outside the State of Andhra, and in the States in with they were supplied. It is submitted that the goods were actually delivered within the State, when the railway receipts were handed over to the agent of the buyer. But the expression “actually delivered” in the context in which it occurs, can only mean physical delivery of the goods, or such action as puts the goods in the possession of the purchaser: it does not contemplate mere symbolical or notional delivery e.g, by entrusting the goods to a common carrier, or even delivery of documents of title like railway receipts. In C. Govindarajulu Naidu and Company v. State of Madras AIR (1953) Mad 116 Venkatarama Ayyar, J., dealing with the concept of actual delivery of goods, so as to attract the application of the Explanation to Article 286(1)(a) rightly observed:
“In the context it can mean only physical delivery and not constructive delivery such as by transfer of documents of title to the goods. The whole object of the Explanation is to give a power of taxation in respect of the goods actually entering the State for the purpose of use therein and it will defeat such a purpose if notional delivery of the goods as by transfer of documents of title to the goods within the State is held to give the State a power to tax, when the goods are actualy delivered in another State.”
A similar view has been expressed in two other cases: Capco Ltd. v. Sales Tax Officer AIR (1960) All 62 and Khaitan Minerals v. Sales Tax Tribunal for Mysore AIR (1963) Mysore 141.
9. Counsel for the respondent State relied upon Section 39 of the Indian Sales of Goods Act, 1930, which provides insofar as it is material, by the first sub-section that where, in pursuance of a contract of sale, the seller is authorised to send the goods to the buyer, delivery of the goods to a carrier for the purpose of transmission to the buyer, is prima facie deemed to be delivery of the goods to the buyer. But that provision will not make mere delivery of the railway receipts representing title to the goods actual delivery of goods for the purpose of Article 286. The rule contained in Section 39(1) of the Indian Sale of Goods Act raises a prima facie inference that the goods have been delivered if the conditions prescribed thereby are satisfied: it has no application in dealing with a constitutional provision which while imposing a restriction upon the legislative power of the States entrusts exclusive power to levy sales tax to the State in which the goods have been actually delivered for the purpose of consumption.
10. The High Court was therefore in error in inferring from the fact that the property had passed within the State of Andhra against delivery of the railway receipts, that the goods were actually delivered within the State. If the inference raised by the High Court that the goods were actually delivered within the State of Andhra cannot be accepted, on the facts found there is no escape from the conclusion that the State of Andhra had no authority to levy tax in respect of those sale transactions in which the goods were sent under railway receipts to places outside the State of Andhra and actually delivered for the purpose of consumption in those States.
11. The appeal must therefore be allowed. The order of the High Court is set aside and the order of the Appellate Tribunal is restored. The appellant to get its costs in this Court and the High Court from the respondent State.
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