Citation Codes

Equivalent Citations

citation codes

Case Number

S.A No. 272/2 of 1952-1953

Advocates

For the Appellant: Venkatarao Savarikar for Sadasiv Rao, Advocates.
For the Respondent: N.S. Raghavan, Chowsalkar, Advocates.

Judges

Mohammad Ahmed Ansari, J.

Acts

S.2, Sales Tax Laws Validation Act - Sales Tax. Sales Tax Laws Validation Act (7 of 1956), S.2. Constitution of India, Art.265 and Art.286. interpretation of statutes. Civil P.C. (5 of 1908),
31 -8 -1955. Madras General Sales Tax Act (9 of 1939), S.2(h) and S.22 - SALES TAX
Madras General Sales Tax Act, 1939, by the amending Act of 1947.
Section 22 into the Madras General Sales Tax Act, sales
SECTION 2 SALES TAX LAWS VALIDATION ACT 1956
S. 69 of the Hvderabad Evidence Act, whose provisions
S. 22 into the Madras General Sales Tax Act, sales
section 22 of the Madras General Sales Tax Act
Section and Section 46 and the Validating Act,
provisions of S. 33 (1) of the Registration Act
SALES TAX LAWS VALIDATION ACT
S. 26 (1) of the Hyderabad Registration Act.
S. 27 (b) of the Hyderabad Registration Act.
Section 69 of the Hyderabad Evidence Act
section 2 (13) the Explanation to Art. 286
S. 32 of the Indian Registration Act.
Madras General Sales Tax Act 1939.
Bombay Sales Tax Act (III of 1953)
provisions of the Sales Tax Act
SALE OF GOODS ACT 1930
clauses (a) and (b) of Section 22
Madras General Sales Tax Act.
GOVERNMENT OF INDIA ACT 1935
S. 32 of the Registration Act.
S. 26 (1) of the Hyderabad Act,
S. 85 of the Evidence Act.
Sales Tax Act
section 46 (b)

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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The supplied opinion comprises two principal matters recorded in the same document:

Property/title appeal: The plaintiff (appellant) appealed against a decree of the Lower Appellate Court which dismissed his suit seeking declaration of title to a house (No. 31, Sadar Bazar, Bolaram). The property had been attached in execution of a decree against Abdul Majid Khan on 16 June 1949. The appellant purchased the house by a sale deed dated 20 June 1949. The sale deed was executed by certain persons who claimed to act under two powers of attorney from four persons alleged to be the owners (some of whom were then in Pakistan). The lower appellate court varied the trial court decree and dismissed the appellant's suit on the ground that the powers of attorney were not proved and therefore title was not established. The present appeal challenges that dismissal.
Sales tax revision: A revision was filed against an order of the Andhra Sales Tax Appellate Tribunal concerning the liability to sales tax of an assessee who carried on business in cotton yarn at Chirala. The Deputy Commercial Tax Officer (17-9-1954) determined turnover including transactions with inter-State elements (sales delivered to an agent at Madras). On appeal the Tribunal treated part of that turnover as taxable by holding the respondent to be the "first dealer" for the inter-State transactions. The Government filed the revision challenging the Tribunal's finding; the parties disputed the effect of the Sales Tax Laws Validation Act, 1956 and the construction of provisions of the Madras General Sales Tax Act (including Section 2 (definition of "sale") and Section 22).

Legal Issues Presented

Whether the sale deed in favour of the appellant conferred title when the executants acted under powers of attorney that were not properly authenticated and the sale deed registration proceeded on the assumption that those executants were duly authorised (i.e., the lawfulness and evidentiary effect of registration and the presumption of authority under the Hyderabad Registration and Evidence enactments).
Whether the presumption as to powers of attorney arises under Section 69 of the Hyderabad Evidence Act (and its similarity to Section 85 of the Evidence Act) where the powers were executed and registered in Pakistan but lacked the particular authentication described in Section 69.
Whether the Sales Tax Laws Validation Act, 1956 validates state-imposed taxes on sales or purchases that took place in the course of inter-State trade or commerce during the period 1 April 1951 to 6 September 1955 for the purposes of the Madras General Sales Tax Act as then in force; and relatedly, whether Explanation (2) to Section 2 (definition of "sale") or Section 22 of the Madras Act should be read so as to render inter-State sales taxable when goods were delivered for consumption within the State.

Arguments of the Parties

Property/title appeal — Appellant's Arguments

The appellant contended that he purchased the house by a sale deed dated 20 June 1949 and that the sale deed was registered; because the executants who presented the deed had themselves presented it for registration, a presumption arises (relying on the Registrar's act in registering the sale deed) that the powers of attorney were genuine and the executants were duly authorised.
The appellant's counsel relied on the word "executant" in Section 26(1) of the Hyderabad Registration Act (similar to Section 32 of the Indian Registration Act) to argue that a person executing and presenting a document for registration satisfies the relevant compliance and that a separate question of their authority (i.e., power of attorney) does not arise.

Property/title appeal — Respondent / Lower Court Position (as distilled from the opinion)

The lower appellate court held that the appellant had failed to prove the powers of attorney and thus failed to establish his title. The Registrar had not been satisfied as to proper authentication required by the law, and the powers were not proved by oral evidence as to signature verification.

Sales tax revision — Government (Petitioner) Arguments

The Government pleader argued that the Tribunal's finding (that the turnover representing sales possessing inter-State elements was liable to tax) relied on State of Bombay v. United Motors (India) Ltd. (1953-4 STC 133 : AIR 1953 SC 252) which, according to the Government, was overruled by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar (1955-6 STC 446 : AIR 1955 SC 661), and therefore that the Tribunal's reliance on the earlier authority made its finding wrong.

Sales tax revision — Assessee (Respondent) Arguments

The assessee's counsel conceded that Bengal Immunity might undermine the Tribunal's reliance on United Motors but sought to sustain the Tribunal's finding by invoking the Sales Tax Laws Validation Act, 1956 — arguing that that Act validated taxes levied on inter-State sales during the specified period and therefore preserved liability.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sitaram Laxman Rao v. Dharmasukhram, ILR 51 Bom 971 : AIR 1927 Bom 487	Held that if a person executed a document even as an agent and presented it for registration, compliance with the registration provision (then S.33(1)) was satisfied and the question of power of attorney did not arise.	The court noted this Bombay Full Bench view but declined to follow it in preference to the Calcutta decision and later Privy Council authority; it treated the Bombay view as conflicting with later authority.
Satish Chandra v. Harendra Kumar, 40 Cal WN 1051 : AIR 1936 Cal 442	Calcutta High Court held that an agent executing a document on behalf of a principal is not "the person executing" within the meaning of S.32 of the Registration Act.	The court preferred this Calcutta decision to the Bombay Full Bench decision and adopted the reasoning that an agent does not incur the obligations under the instrument and therefore is not the "person executing" for registration presumptions.
Puran Chand v. Monmotho Nath, 55 Ind App 81 : AIR 1928 PC 38 (Privy Council)	Lord Sumner's observation that "person executing" cannot be read merely as "person signing"; it denotes the person who by a valid execution enters into obligations under the instrument.	The court relied on this Privy Council observation to support the Calcutta view and to reject the Bombay Full Bench approach; it used the principle to require proper authentication of powers and to deny the presumption for mere presentation by an agent.
Ratilal Nathu-bhai v. Rasiklal Maganlal, ILR 1950 Bom 473 : AIR 1950 Bom 326	Bombay High Court adhered to the earlier Bombay view that a presenting executant satisfies registration requirements even if acting as agent.	The court observed that where decisions conflict, the later Privy Council authority and the Calcutta view are to be preferred; accordingly Ratilal's adherence to the earlier Bombay view was not followed.
Jambu Prasad v. Muhammad Aftab Ali Khan, 42 Ind App 22 : AIR 1914 PC 16	Authority establishing that registration made without required authentication/form can be fatal to the validity of registration (i.e., improper registration may be invalid).	The court applied this Privy Council authority to hold that registration of the sale deed, given the lack of required authentication of the powers of attorney, was invalid and the defect was fatal; thus no presumption of authority could arise from registration.
State of Bombay v. United Motors (India) Ltd., 1953-4 STC 133 : AIR 1953 SC 252	Earlier Supreme Court decision construed Article 286 to permit taxation by States of certain transactions possessing inter-State elements (sustained power of States to tax such transactions).	The court noted that the Tribunal had relied on this decision; but the Government argued and the court accepted that this view was later superseded by Bengal Immunity and therefore reliance on United Motors was not decisive.
Bengal Immunity Co. Ltd. v. State of Bihar, 1955-6 STC 446 : (S) AIR 1955 SC 661	The Supreme Court held that the Explanation to clause (1)(a) of Article 286 could not be extended to clause (2); absent parliamentary provision, State laws could not validly impose tax on sales in the course of inter-State trade or commerce.	The court invoked this later Supreme Court authority to show that the Tribunal's reliance on the earlier United Motors decision was incorrect; this decision shaped the interpretation of Section 22 of the Madras Act and the effect of the Validation Act.
Dialdas Paramauand Kripalani v. Talwalkar, 1956-7 STC 675 : AIR 1957 Bom 71	Bombay High Court's construction that in the Bombay Act the Explanation was incorporated into the definition of "sale" so that inter-State sales could be treated as within the State and the validating legislation made tax exigible retrospectively.	The court distinguished this Bombay decision because, in the Madras Act, the Explanation was not added to the definition of "sale"; therefore Dialdas could not support the respondent's position under the Madras Act.
Mettur Industries Ltd. v. State of Madras, 1956-7 STC 691 : AIR 1957 Mad 362	Division Bench of the Madras High Court had treated Section 22 and its Explanation as making certain sales taxable and held that the validating Ordinance applied; the present opinion records that decision and also records disagreement with treating the Explanation as transferred to the definition of "sale".	The court noted Mettur Industries directly covered the point but expressly disagreed with the reasoning that read the Explanation in Section 22 as an Explanation to the definition of "sale"; the present court rejected that approach and did not follow Mettur on that point.
State of Bombay / other Madras/Bombay High Court authorities (various citations in the text)	Various cases referenced for construction of statutory definitions, Article 286 and application of validating legislation to sales tax laws.	The court conducted a comparative statutory and precedential analysis, distinguishing jurisdictions where the Explanation was part of the definition from the Madras enactment where it was not, and concluded the Validation Act did not operate to validate inter-State sales tax liability under the Madras Act for the period in question.

Court's Reasoning and Analysis

Property/title appeal — reasoning:

The Court reviewed the short and undisputed factual matrix: the house was attached in execution and sold; the sale deed was executed and registered; some executants purported to act under two powers of attorney executed and registered in Pakistan (Ex. P.6 and Ex. P.7), but those powers were not produced on the record and lacked the particular certification required by the Hyderabad Evidence Act (S.69) for the presumption to apply.
The lower appellate judge had called for and obtained from the Sub-Registrar copies of the powers and found them not to be properly certified for the purposes of S.69 of the Hyderabad Evidence Act (similar to S.85 of the Evidence Act). There was no oral evidence to prove the signatures on those powers.
The appellant argued that the Registrar, having registered the sale deed and acted under Section 26(1) of the Hyderabad Registration Act, must have been satisfied and hence a presumption of authority arises. The Court considered whether, as a matter of law, presentation by the executants themselves removes the question of their authority when they act as agents.
Analysing the authorities, the Court preferred the Calcutta High Court decision (Satish Chandra) and the Privy Council observation in Puran Chand over the earlier Bombay Full Bench decision (Sitaram Laxman Rao). The Court adopted the principle that "person executing" implies the person who by valid execution enters into obligations under the instrument; an agent executing for a principal does not thereby incur such obligations and is not that person for registration presumptions.
Consequently, the Registrar should have acted under Section 27(b) of the Hyderabad Registration Act to require satisfaction about the form and authentication of the powers of attorney. The powers were admitted not to be authenticated in the form required by that sub-section; therefore the sale deed was not properly registered on presentation by a duly constituted agent and the defect in registration is fatal.
On the evidentiary point, Section 69 of the Hyderabad Evidence Act permitted a presumption only where the document had been executed before a court of the then Hyderabad State or before an officer of the British Government; the powers here bore endorsements of registration in Pakistan and not the certification required to trigger the presumption. The appellant failed to produce evidence of execution by the purported signatories or to produce proper certification.
Given these conclusions — invalid registration and failure to prove the executants had valid powers — the sale deed conferred no title on the appellant and the lower appellate court correctly dismissed the suit. The appeal was disallowed with costs.

Sales tax revision — reasoning:

The Court framed the central statutory question: whether during the period 1 April 1951 to 6 September 1955, under existing law, sales or purchases in the course of inter-State trade or commerce were liable to tax for the purposes of applying the Sales Tax Laws Validation Act, 1956.
The Court recited the factual backdrop of the assessee's turnover and the Tribunal's finding that part of the turnover (sales booked via the agent at Madras) gave rise to tax liability, the Tribunal relying upon State of Bombay v. United Motors.
The Government argued that United Motors was overtaken by Bengal Immunity, which held that the Explanation to clause (1)(a) of Article 286 could not be extended to clause (2), and that absent parliamentary provision no State could validly tax inter-State sales. The assessee sought to rely on the Validation Act to sustain liability despite Bengal Immunity.
The Court examined the Madras General Sales Tax Act (Preamble; Section 2(h) definition of "sale" and Explanation (2) introduced by amendment). It observed that the Madras Act was a provincial enactment confined to the province's territorial competence and that Explanation (2) introduced a fiction limited to the circumstances specified (goods actually in the State when contract made, or future goods produced in the State afterwards).
The Court analysed Section 22 (introduced by adaptation order and described as not deeming the Act to impose tax in certain cases including inter-State transactions except as Parliament may otherwise provide) and concluded Section 22 was in effect a reproduction of Article 286(1) and (2) of the Constitution and was a restriction on the Act's taxing power rather than an enlargement.
On the point whether the Explanation added to Section 22 could be read as the Explanation to the definition of "sale", the Court rejected that approach. It reasoned that if the Legislature had intended the Explanation to form part of the definition it would have placed it in the definition; transplanting an Explanation from one section to another offended canons of construction.
The Court compared other High Court decisions: it distinguished the Bombay decision (Dialdas / Chagla C.J.) where the Explanation appeared in the definition and thus a different result followed, and it rejected the Mettur Industries (Madras) reasoning to the extent Mettur treated Section 22's Explanation as a definitional explanation. The Court concluded that, even after Section 22, sales in the course of inter-State trade or commerce were not liable to tax under the Madras Act unless Parliament had by law removed the constitutional fetter; absent a pre-existing state law imposing such a tax the Validation Act's Section 2 could not operate to validate such non-existent pre-existing law.
Because the Madras Act did not make inter-State sales taxable by incorporating the Explanation into the definition of "sale", and because Section 22 did not enlarge the Act's taxing power, the Validation Act did not operate to validate the State's imposition of tax on the inter-State transactions in question. Therefore the Tribunal's finding against the Government was unsustainable on the asserted basis.
As a result the Court held the respondent must be deemed the first dealer in the State for the relevant turnover and is liable to tax; the Tribunal's order was set aside and the respondent was to pay costs to the petitioner (advocate's fee Rs. 50/-).

Holding and Implications

Property/title appeal — Holding: DISMISSED. The appeal was disallowed with costs throughout. The Court held that the sale deed did not confer title on the appellant because the powers of attorney on which the executants relied were not proved or properly authenticated and the sale deed registration was invalid for lack of required authentication; therefore no presumption of authority arose from registration.

Implications: The direct effect is that the appellant's claim to title to the disputed house fails and the lower appellate court's dismissal stands. The opinion emphasises that where agents execute and present documents, the Registrar must be satisfied about the authority and the form/authentication of powers of attorney as required by statute; registration made without such required authentication may be invalid. The court expressly preferred the Calcutta/Privy Council approach on the meaning of "person executing" over the earlier Bombay Full Bench view, but the opinion does not purport to set a novel precedent beyond applying established authorities to the facts.

Sales tax revision — Holding: ORDER SET ASIDE. The Court set aside the Tribunal's order, held the respondent to be the first dealer for the inter-State turnover in question and liable to tax; the Sales Tax Laws Validation Act, 1956 was held not to be applicable to validate a pre-existing State law imposing tax on inter-State sales in the circumstances of the Madras Act as construed by the Court. The respondent was ordered to pay the costs of the petitioner (advocate's fee Rs. 50/-).

Implications: The decision clarifies that where an Explanation relevant to Article 286 is placed in a particular section (Section 22) rather than in the definition of "sale", that Explanation should not be transposed into the definition by construction; Section 22 reproduces constitutional fetters and does not expand the State's taxing power. Consequently, the Validation Act cannot validate a non-existent pre-existing State power to tax inter-State sales where statutory wording does not make those sales taxable. The court overturned the Tribunal's reliance on older authority in light of later Supreme Court decisions (notably Bengal Immunity) and distinguished contrary high court authorities on the precise placement of the Explanation in the statute.

Source: summary prepared strictly from the provided opinion text. No information beyond the text has been inferred or added.

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D. Sardar Singh v. Seth Pussumal Harbhagwandas Bankers, Through The Manager And Attorney Kishendas .

Judgement

This appeal by the plaintiff is against the decree of the Lower appellate Court, whereby the appellants suit for the declaration of his title to a house has been dismissed and the decree of the trial Court varied.

2. The facts in the case are not complicated. On June 16, 1949, the respondent had a house No. 31, Sadar Bazar, Bolaram, attached in execution of his decree against Abdul Majid Khan. The appellant by a sale deed of June 20, 1949, has purchased the same house. Some of the executants of the sale deed are not the owners; but profess to be holders of two powers of attorney from four persons, who claim to be the owners and were then in Pakistan. One of such executants is Mohd. Ayud Khan and purports to be the holder of a power of attorney from Abdul Majid Khan. The other, Abdul Rahman Khan, claims to have another power of attorney in his favour by Abdul Aziz Khan. Abdul Haq Khan and Mt. Kulfatbi.

Both these powers of attorney are admitted to have been executed and registered in Pakistan. Ex. P. 6 is the document in favour of Abdul Majid, and Ex. P. 7 is in favour of the Abdul Rahman Khan. These, however, are not on the records of the case; but the learned Judge of the lower appellate Court had called them from the office of the Sub-Registrar, and had found them not to have been properly certified for purposes of S. 69 of the Hvderabad Evidence Act, whose provisions were similar to S. 85 of the Evidence Act. The appellant on the basis of the sale deed in his favour, had objected to the execution of the decree against the house, and being unsuccessful in the execution proceedings, has filed the suit from which this second appellate Court has dismissed the claim.

The learned Judge of the lower appellate Court has allowed the appeal on the ground that the appellant had failed to prove the powers of attorney and has, therefore, failed to establish his title to the disputed house. There is no oral evidence on the record to prove the signatures of the executants of the two powers, and if those documents be held to be otherwise not proved, both the authorities to execute the sale deed and the registration of the deed would fail. The learned Judge of the lower appellate Court has referred to certain authorities concerning the failure of the Registrar to satisfy himself about the authority of the person presenting the document for registration, but he does not specifically decide the registration of the sale deed to be invalid.

The objection as to proper registration of the document was not specifically raised in the trial Court. But there is an issue as to whether the sale deed in favour of the appellant is by a duly authorised person, and the learned Advocate of the appellant has argued that as the two powers of attorney had been acted upon by the Registrar when he registered the sale deed, there is a presumption about their being genuine. Such a presumption cannot arise if the sale deed was not properly registered, which must be, therefore, determined in the case. The facts are not disputed that the sale deed has been executed by the persons holding the two powers and the Registrar had registered the deed on the assumption that the two executants were duly authorised.

Evidently, the Registrar has acted under S. 26 (1) of the Hyderabad Registration Act. The Advocate of the appellant had argued that because the executants have themselves presented the document for registration, no question of their having been properly authorised to present the deed for registration by the two powers of attorney arose. He relies on the use of the word "executant" in S. 26 (1) of the Hyderabad Act, which is similar to S. 32 of the Indian Registration Act. Admittedly, there is divergence of authorities on the point. In Sitaram Laxman Rao v. Dharmasukhram, ILR 51 Bom 971 : (AIR 1927 Bom 487) (A), the Full Bench of the Bombay High Court had taken the view that if a person executed a document even though as an agent of the owner and presented it for registration, the provisions of S. 33 (1) of the Registration Act was complied with and no question of his having a power of attorney arose.

In Satish Chandra v Harendra Kumar, 40 Cal WN 1051 : (AIR 1936 Cal 442) (B). this view has been held to be contrary to the decision of the Privy Council in Puran Chand v. Monmotho Nath, 55 Ind App 81 : (AIR 1928 PC 38) (C), and, therefore, no longer correct. In the aforesaid case, the Calcutta High Court has held that a person who has a power of attorney from another to execute a document and on the basis of such a power signs a document on behalf of the executant, is not a person executing a document within the meaning of S. 32 of the Registration Act. The learned Judges have based their judgment on the following observations of Lord Sumner in 55 Ind App 81 : (AIR 1928 PC 38) (C) :

Hence the words person executing

" in the Act cannot be read merely as person signing. They mean something more, namely the person who by a valid execution enters into obligation under the instrument."

3. Obviously, an agent executing the document on behalf of the principal, does not incur such an obligation under the instrument, and, therefore, cannot be said to be the person executing the document. The reason is sound and, accordingly I prefer the Calcutta decision to the later authority of the Bombay High Court in Ratilal Nathu-bhai v. Rasiklal Maganlal, ILR 1950 Bom 473 : (AIR 1950 Bom 326) (D). Therein the Bombay High Court has adhered to the view taken in ILR 51 Bom 971 : (AIR 1927 Bom 487) (A), on the ground that the view is supported by an earlier decision of the Privy Council in 55 Ind App 81 : (AIR 1928 PC 38) (C). It is clear that where there are conflicting decisions the later authority is to be preferred and admittedly the later authority of the Privy Council does not favour the Bombay view. The observations there are in support of the decision of the Calcutta High Court and, in these circumstances, I would follow the Calcutta view.

4. Therefore, the Registrar, when the sale deed was presented to him for registration, should have acted under S. 27 (b) of the Hyderabad Registration Act. He should have satisfied himself whether the powers of Attorney were in the form and authenticated in the manner required, by the Sub-section. It is admitted before me that the powers of Attorney are not authenticated in the form required by the sub-section and, therefore, the registration of the sale-deed cannot be on presentation by a duly constituted agent. This defect is fatal, and makes the registration invalid. This is well established by the decision of the Privy Council in Jambu Prasad v. Muhammad Aftab Ali Khan, 42 Ind App 22 : (AIR 1914 PC 16) (E). In these circumstances, the presumption on which the Advocate of the appellant strenuously relies, cannot arise. Moreover, the sale deed due to its not being properly registered confers no title on the appellant.

5. The learned Judge of the lower Court has held that the two powers of attorney were not proved because they do not purport to be properly authenticated. Section 69 of the Hyderabad Evidence Act had provided that a presumption as to powers of attorney should be made only if the document had been executed before a Court of the then Hyderabad State or before an officer of the British Government. Admittedly, the powers of attorney on whose basis the sale deed in the case has been executed, bear no such certificate. They are admitted to have been registered in Pakistan and carry endorsement by such a Registrar.

Therefore, the presumption under S. 69 cannot arise. It is urged that the powers should be taken as a public document and presumed to be rightly registered. But the advocate of the appellant has failed to satisfy me how such a presumption can be raised regarding the acts of a person who is not a public officer of this country. There should have been evidence regarding the document having been executed by those whose signatures they purport to bear, or they should have been properly certified. Neither has been done. Therefore, the executants having valid powers of attorney to sell or register, is not proved in the case, and, in these circumstances, the suit has rightly been dismissed by the lower Appellate Court. I disallow this appeal with costs throughout.

Appeal dismissed. AIR 1958 ANDHRA PRADESH 109 (VOL. 45, C. 36) "Andhra Govt. v. N. Govindarajulu"

ANDHRA PRADESH HIGH COURT

Coram : 2 SUBBA RAO, C.J. AND MOHAMMED AHMED ANSARI, J. ( Division Bench )

Government of Andhra (Now Andhra Pradesh), Petitioner v. Noone Govindarajulu, Respondent.

T. R. C. No. 39 of 1956, D/- 31 -1 -1957. from order of Andhra Sales Tax Appellate Tribunal, Guntur, D/- 31 -8 -1955.

Madras General Sales Tax Act (9 of 1939), S.2(h) and S.22 - SALES TAX - OBJECT OF AN ACT - INTERPRETATION OF STATUTES - CESS - PREAMBLE - Sales Tax - Scope and object of S.22 - Explanation to section if can be read as explanation to definition of sale - Effect of S.2, Sales Tax Laws Validation Act - Sales Tax.

Sales Tax Laws Validation Act (7 of 1956), S.2.

Constitution of India, Art.265 and Art.286.

interpretation of statutes.

Civil P.C. (5 of 1908), Pre..

AIR 1957 Mad 362, Dissented from.

Section 22 in terms did not create a liability to tax if a transaction was not liable to be taxed under the Act. The opening words of the section indicate that the section was intended as a restriction on the power conferred under the Act and not to enlarge the scope of that power. The said section was in effect a verbal reproduction of Art. 286 (1) and (2) of the Constitution of India. Its object was to bring the Act in conformity with the Constitution. The section is in pari material with Art. 265 of the Constitution. If under Article 286 of the Constitution, all the bans imposed therein are to be read separately, for the same reasons, S. 22 must be construed in a similar way. If so construed cls. (a) and (b) of S. 22 are separate and independent bans and though a sale is within the state within the meaning of the Explanation, the ban imposed by clause (b) exempts it from taxation if it is held in the course of inter-state trade or commerce. Therefore, even after the introduction of S. 22 into the Madras General Sales Tax Act, sales or purchases made in the course of interstate hade or commerce were not liable to tax though the goods were delivered for the purpose of consumption in the State. If that was the position, it follows that there was no pre-existing state Law imposing or authorising the imposition of a tax on the sale or purchase of any goods in the course of inter-state trade or commerce. Section 2 of the Sales Tax Laws Validation Act, 1956 operates on the pre-existing law mentioned therein and when there is none, it cannot obviously be invoked. Section 22 cannot be treated as an Explanation to the definition of sale under the Act. It offends all canons of construction to transplant the Explanation added to one section to another. AIR 1957 Bom 71, Distinguished. AIR 1957 Mad 362, Dissented from. (Para 7)

Anno : AIR Com. Const, of India Art. 265 N. 2; S. 286 N. 3; AIR Com. C. P. C, Pre N. 149.

Cases Referred : Chronological Paras

(A) AIR 1953 SO 252 (V 40) : 1953-4 STC 133 2, 3, 4, 7, 10

(B) (S) AIR 1955 SC 661 (V 42) : 1955-6 STC 446 3, 4, 7, 10

(D) AIR 1957 Mad 362 (V 44) : 1956-7 STC 691 10

Government Pleader (M. Seshachalapati), for Petitioner; N. Rajeswara Rao and M.S.R. Sastry, for Respondent.

Judgement

SUBBA RAO, C.J. : -

The Revision is filed against the order of the Andhra Sales Tax Appellate Tribunal and it raises the question of the scope of the Sales Tax Laws Validation Act, 1956.

2. The relevant facts may be briefly stated. The assessee was carrying on business in cotton yarn at Chirala. On 17-9-1954, the Deputy Commercial Tax Officer, Chirala, determined the assessees business in cotton yarn that was purchased from non-resident dealers from 1-10-1953 to 31-3-1954 at Rs. 32,360-8-6. Out of the said amount, a turnover of Rs. 19,756-10-6 represented the transactions in respect of which delivery was given to the assessee in Chirala for consumption and payment was made through Bank at Chirala. The balance represented sales in respect of goods delivered to the agent of the assessee at Madras and booked by him therefrom to Chirala.

On appeal, the Trbunal held that the assessee was the first dealer liable to tax in respect of the latter turnover and that he was not liable to tax on the former. Though the former transaction had inter-State elements as the goods were delivered for consumption in the Andhra State, the Tribunal, relying upon State of Bombay v. United Motors (India) Ltd., 1953-4 STC 133 : (AIR 1953 SC 252) (A) held against the assessee. On that finding, the Tribunal gave a direction to the assessing authority to revise the assessment. The Government filed the aforesaid revision questioning the finding of the Tribunal in so far as it was against them.

3. Learned Government Pleader contends that the decision of the Tribunal in so far as it held that the turnover representing sales possessing inter-State elements was liable to be taxed was wrong as it was based upon 1953-4 STC 133 : (AIR 1953 SC 252) (A) which was overruled by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar, 1955-6 STC 446 : ((S) AIR 1955 SC 661) (B). Learned Counsel for the assessee, while conceding that on the basis of the Bengal Immunity Case (B), the finding of the Tribunal may be wrong, seeks to sustain the said finding on the foot of the Sales Tax Laws Validation Act (VII of 1956).

"Notwithstanding any judgment, decree or order of any Court no law of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951, and the 6th day of September, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter-State trade or commerce; and all such taxes levied or collected or purporting to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law."

4. It may be convenient at this stage to narrate briefly the circumstances under which the said Act had to be passed by the Parliament. Even after the Constitution came into force, sales tax authorities purporting to act under the provisions of the Sales Tax Act were imposing tax on sales possessing inter-State elements if the goods were delivered for consumption in the State. The Supreme Court in 1953-4 STC 133 : (AIR 1953 SC 252) (A), on the construction of the provisions of Art 286 of Constitution, sustained the power of the States to tax such transactions.

But the same Court in 1955-6 STC 446 : ( (S) AIR 1955 SC 661) (B) came to a contrary conclusion. The Supreme Court, in the latter case, held that the Explanation to clause (1) (a) of art. 286 could not be extended to clause (2) and, therefore, except in so far as Parliament provided otherwise, no State law could impose or authorise the imposition of any tax on sales or purchases when such sales or purchases took place in the course of interstate trade or commerce. This decision had the effect of invalidating assessment made by sales tax authorities in respect of sales taking place in the course of inter-State trade and of bringing about serious economic crises in various States.

To get over the effect of the said decision and with a view to bring about the economic stability of the States the said Validation Act was passed. It purported to validate laws imposing a tax on the sale or purchase of any goods in the course of inter-State trade or commerce during the prescribed period, namely between 1st April, 1951 and 6th September, 1955. The question, therefore, is whether under law during the prescribed period sales or purchases, which took place in the course of inter-State trade or commerce, were liable to be taxed.

5. The law that governed the imposition of tax on sales was embodied in the Madras General Sales Tax Act 1939. It is therefore, necessary to scrutinise that Act to ascertain if sales tax on such transactions was leviable. The material provisions of that Act read as follows : Preamble :

"Whereas it is expedient to provide for the levy of a general tax on the sale of goods in the State of Madras.

Section 2 :

(h) Sale with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract but does not include a mortgage, hypothecation, charge or pledge :

Explanation (2) :

Notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930, the sale or purchase of any goods shall be deemed, for the purpose of this Act, to have taken place in this State, wherever the contract of sale or purchase might have been made.

(a) if the goods were actually in this State at the time when the contract of sale or purchase in respect thereof was made, or

(b) in case the contract was for the sale or purchase of future goods by description, then, if the goods are actually produced in this State at any time after the contract of sale or purchase in respect thereof was made".

6. Explanation 2 to the definition was added as a result of the amendment effected to the original Madras General Sales Tax Act, 1939, by the amending Act of 1947. On 2nd July, 1952, the President promulgated the Adaptation of Laws (IV) (Amendment; Order 1952 by which Section 12 was introduced into the Madras General Sales Tax Act. It says :

"Act not deemed to impose or authorise taxation in certain cases nothing contained in this Act shall be deemed to impose or authorise the imposition of a tax on the sale or purchase of any goods, where such sale or purchase takes place.

(a) (i) outside the State of Madras, or

(ii) in the course of the import of the goods, into the territory of India or of the export of the goods out of such territory, or

(b) except in so far as Parliament may by law otherwise provide after the 31st day of March, 1951, in the course of interstate trade or commerce and the provisions of this Act shall be read and construed accordingly.

Explanation : For the purpose of clause (a) (i) 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 mule 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".

7. It is not disputed that, under the Madras General Sales Tax Act, only sales in the State of Madras which at that time included the entire area were liable to be taxed. The Sales Tax Act was enacted by the provincial Legislature under the Government of India Act, 1935. and the Legislature could only make laws under the Act for the province in respect of matters enumerated in the provincial list. It is, therefore, obvious that the law made by the said Legislature could only effect the sales held within the State (then the Province of Madras).

Explanation 2 only introduced a fiction whereby the sale or purchase of any goods, wherever the contract of sale or purchase might have been made, should be deemed to have taken place in that State if the goods were actually in that State at the time when the contract of sale or purchase in respect thereof was made or in case the contract was for the sale or purchase of future goods by description, then if the goods are actually produced in that State at any time after the contract of sale or purchase in respect thereof was made. A sale, which took place in the course of any inter-State trade or commerce, was not a sale within the State factually or fictionally and, therefore, was not liable to be taxed under the Act.

Learned Counsel called in aid the provisions of section 22 and contended that the Explanation to that section must be read as an Explanation to the definition of the word sale (in the Act and, if so read, a sale or purchase would be deemed to have taken place in the State in which the goods were actually delivered as the direct result of such sale or purchase Section 22 in terms did rot create a liability to tax if a transaction was not liable to be taxed under the Act. The opening words of the section viz. ; Nothing contained in this Act shall be deemed to impose, or authorize the imposition of, a tax on the sale or purchase of any goods" indicate that the section was intended as a restriction on the power conferred under the Act and not to enlarge the scope of that power.

The said Section was in effect a verbal reproduction of Art. 288 (1) and (2) of the Constitution of India. Its abject was to bring the Act in conformity with the Constitution. The Section is in pari materia with Art. 265 of the Constitution. The interpretation put upon Art. 265 of the Constitution by the Supreme Court in 1955-2 Mad LJ (SC) 168 : 1955-6 STC 446 : ((S) AIR 1955 SC 661) (B) would govern the interpretation of this section. Das, Ag. Chief Justice, in construing the provisions of Art. 286, made the following observations at page 182 : (of Mad LJ) : (at p. 676 of AIR).

"These several bans may overlap in some cases but in their respective scope and operation they are separate and independent. They deal with different phases of a sale or purchase but nevertheless, they are distinct and one has nothing to do with and is not dependent on the other or others."

After reviewing the case law on the subject, the learned Chief Justice, who expressed the majority view, concluded his discussion at page 196 (of Mad LJ) : (at p. 687 of AIR) thus :

"For all the foregoing reasons we are definitely of opinion that, until Parliament by law in exercise of the powers vested in it by clause (2) provides otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of golds when such sales or purchase take pace in the course of inter-State trade or commerce and the majority decision in the State of Bombay v. United Motors (India) Ltd. ; (A) in so far as it decides to the contrary cannot be accepted as well-founded on principle or authority"

If, under Article 286 of the Constitution, all the bans imposed therein are to be read separately, for the same reasons, Section 22 which as we have already stated, is a reproduction of the said Article, must be construed in a similar way. If so construed, clauses (a) and (b) of Section 22 are separate and independent bans and though a sale is within the State within the meaning of the Explanation, the ban imposed by clause (b) exempts it from taxation if it is held in the course of inter-State trade or commerce.

Therefore, even after the introduction of Section 22 into the Madras General Sales Tax Act, sales or purchases made in the course of interstate trade or commerce were not liable to tax though the goods were delivered for the purpose of consumption in the State. If that was the position, it follows that there was no pre-existing State Law imposing or authorising the imposing of a tax on the sale or purchase of any goods in the course of inter-State trade or commerce. Section 2 of the Sales Tax Laws Validation Act. 1956 operates on the pre-existing law mentioned their in and, when there is none, it cannot obviously be invoked. We are not able to appreciate the argument of the learned Counsel that the Explanation to clause (a)(i) of section 22 should be treated as an Explanation to the definition of Sale under the Act.

If the Legislature intended to introduce the Explanation as one to the definition of the word sale in the Act, it would have done so instead of adding it to Section 22. It offends all canons of construction to transplant the Explanations added to one section to another. As we have already pointed out, Section 22 only introduced with immaterial variations the constitutional bans embodied in Art. 286(1) and (2) of the Constitution of Ind. a and its abject was nothing more than to indicate that the power conferred on the State under the Act to levy sales tax was subject to those constitutional fetters. The fetters imposed could not enlarge the power conferred on the State under the Act to impose Sales tax.

8. Learned Counsel for the respondent relied upon the Judgment of the Bombay High Court in Dialdas Paramauand Kripalani v. Talwalkar, 1956-7 STC 675 : (AIR 1957 Bom 71) (C). There, the effect of the relevant sectons of the Bombay Sales Tax Act (III of 1953) is stated by Chagla, Chief Justice, at page 684 (of STC) : (at p. 75 of AIR) thus :

"Sections 8 and 9 deal with sales tax and section 10 with purchase tax and in the definition, of sale which is contained in section 2 (13) the Explanation to Art. 286 is incorporated. In other words, by reason of the charging section and by reason of the definition of sale accompanied by the provisions of the Explanation, it is clear that the Legislature charged to tax sales within the State including those sales which may be outside the State but by the legal fiction of the Explanation were deemed to be sales within the State. Now section 46 exempted from tax expressly (a) sales outside the State of Bombay or in the course of the import of the goods into the territory of India of the export of the goods cut of such territory or (b) in the course of inter-State trade on commerce, except in so far as Parliament may by law otherwise provide."

The learned Chief Justice gives the cumulative effect of the said provision alt page 685 (of STC) : (at p. 76 of AIR) thus :

"In our opinion, the proper view to take of this legislation is that there was an imposition of tax on all sales including inter-State sales, but the imposition on inter-State sales was not effective until the restriction under Article 286 was removed, and that is exactly what section 46 (b) provided. It did not exempt inter-State sales or purchases altogether but the tax was to operate upon the sales or purchases if - Parliament by law so provided, and therefore when the restriction was removed retrospectively, we must read this Act and construe it as if before the passing of the Act Parliament had provided that the State Legislature may impose tax on inter-State sales and purchases. Therefore, reading the charging Section and Section 46 and the Validating Act, there can be no doubt that on validating Act being parsed the inter-State sales and purchases were subject to tax and they came within the operation of the charging sections 8, 9 and 10."

9. It will be noticed from the aforesaid observations that the Explanation making the delivery State as that in which the sale is deemed to have taken place was added to the definition of sale itself and, therefore, but for section 46, which corresponds to section 22 of the Madras General Sales Tax Act the tax was exigible under the State law in respect of such sale. The learned Judges held that the conditional ban imposed by section 46 was retrospectively removed by the validating Act, and, therefore the said sale was subject to tax. This judgment cannot be invoked in support of the respondents contention as in the Madras Act the explanation was not added to the definition of sale and therefore, a sale covered by the Explanation was not liable to tax under the charging sections.

10. The decision of a Division Bench of the Madras High Court in Mettur Industries Ltd. v. State of Madras, 1956-7 STC 691 : (AIR 1957 Mad 362) (D), directly covers the point raised before us. Adverting to the argument based upon section 22 of the Madras General Sales Tax Act, Rajagopalan and RajagopaL Ayyengar, JJ., observed at page 701 (of STC) : (at p. 367 of AIR).

"As we have already indicated, the effect of section 22 was to render a sale within the State, one which fell under the Explanation to Art. 286 (1) (a), so that, from that date such sales became taxable under the Sales Tax Act, notwithstanding that in some cases, an inter-State element might have been involved in the transaction. This really did not affect the enforceability of the levy in view of the decision of the Supreme Court in 1953-4 STC 133 : (AIR 1953 SC 252) (A) which held that explanation sales were outside the fetter imposed by Art. 286 (2).

But when this view was overruled by the Supreme Court 1955-8 STC 446 : ((S) AIR 1955 SC 661) (B), the position which emerged was, that though these sales were inside sales for the purposes of the Sales Tax Act the tax, upon them became obnoxious to the provisions of Art. 286 (2) and therefore they would have been exempt from tax. The Ordinance, therefore, applied to such sales, and the tax liability arising thereon and after the Ordinance, the exemption based upon Art. 286

(2) would no longer be applicable. The conditions of the Ordinance are, therefore, fully satisfied. With great respect we cannot agree with the aforesaid observations. The reasoning of the learned Judges was based upon the assumption that the Explanation added to Section 22 could be read as an Explanation to the definition of sale. We regret our inability to share the same opinion.

11. In the result, as the Sales Tax Laws Validation Act is not applicable, the respondent must be deemed to be the first dealer in this State and is, therefore, liable to tax. The order of the Tribunal is set aside and the respondent will pay the costs of the petitioner. Advocates fee Rs. 50/-.

Order set aside.

D. Sardar Singh v. Seth Pussumal Harbha...