DEPUTY COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX TRIVANDRUM Vs. MALAYALAM PLANTATIONS LTD

JUDGEMENT

(1.) This batch of seven revision petitions arise in the four assessment years for 1951-'52, 1952-'53, 1953-'54 and 1954-'55. Three of the aforesaid petitions are by the Deputy Commissioner of Sales Tax Trivandrum and the remaining four are by a registered dealer. The former set of petitions seeks to vary that part of the order by the Appellate Tribunal, wherein the tax on inter States sales of tea in the aforesaid assessment years 1952-'53, 1953-'54 and 1954-'55 has been held not to be legal; whereas the dealer petitioner seeks reversal of the remaining parts of the Order that has upheld tax on other sales of tea in the four assessment years. In all the cases the dealer is Messrs. Malayalam Plantation Ltd., and for the assessment year 1951-'52 has been charged Rs. 13,155-3-1 as the tax under the Madras General Sales Tax Act. The amount has been levied on Rs. 25,367-4-0, which is the price of Wynad Teas stored in and sold at Port Cochin to T. Campbell & Co. Ltd. with a view to export to the Australian Tea Control Board; and on Rs. 22,85,117-12-6, which is the price of Travancore Teas similarly sold at the auction held and delivery taken at Fort Cochin. The tax in the next assessment year amounted to Rs. 16,967-15-0 and has been levied on Rs. 29,63,989/- which is the price of tea similarly auctioned and delivered; and on Rs. 16,81,883-9-0 being the price of Travancore Tea sold to Brook Bonds (India) Ltd. and Lipton Ltd. for consumption in India. The Tribunal has found the latter to be inter State sales and therefore legally not then taxable. In the third assessment year the sales tax has been found to be Rs. 18,240-15-0 and has been assessed on Rs. 39,69,213-11-0 and Rs. 5,99,635/-, these being the sales consideration realised in that year at the auctions and sales of tea at Fort Cochin in order to export. The sales of the same commodity to Brook Bonds (India) Ltd. and Lipton Ltd. for consumption within the country in the year came to Rs. 15,67,512-13-0 which have been exempted by the Tribunal on ground of not being then taxable. Coming to the last year the prices realised at the auctions held at Fort Cochin of the tea available for the export are Rs. 49,05,685-12-0 and Rs. 2,30,797-4-0. For the same year the sales to Brook Bonds (India) Ltd. and Lipton Ltd. amount to Rs. 16,19,792-4-0.

(2.) The dealer had appealed to the Commercial Tax Officer, Malabar North, against the assessment orders, and succeeded in getting partial reduction in the assessment. Again the dealer had appealed to the Appellate Tribunal of the then Madras State; but these appeals came to be decided by the Sales Tax Appellate Tribunal, Trivandrum. The aforesaid Tribunal, following the majority decision in Shanmugha Vilasom Cashew-nut Factory case (4 Sales Tax Cases 205) has held that purchases in the State by the exporter for the purpose of export are not within the exemption of Article 286(1)(b) of the Constitution, and has further refused to accept the argument of the Counsel for the dealer that the explanation in Article 286(1) defines what is inside sales, so that transactions resulting in delivery but not for consumption within the State are extra State and would not be liable to taxation in exercise of powers under item 54 of list 2 of Schedule 7 of the Constitution. The Counsel has urged before us the latter part of the same argument in support of petitions by the dealer,

(3.) The Deputy Commissioner of Sales Tax seeks to reverse what the Tribunal has held not to be liable. These are sales in favour of Brook Bonds (India) Ltd. and Lipton Ltd. in the last three assessment years which the Tribunal has held to be inter State sales, covered by the Bengal Immunity Case (6 Sales Tax Cases 446) and not saved by S.2 of the Sales Tax Laws Validation Act of 1956. The reason for holding the validation Act not to be applicable is that S.22 of the Madras General Sales Tax Act did not levy any tax and the taxes would not be therefore saved by the enactment. Similar view had been taken in Cochin Coal Co. Ltd. v. The State of Travancore - Cochin (7 Sales Tax Cases 31) and in Soundararajan v. Special Asst. Commercial Tax Officer (8 Sales Tax Cases 257) and the Tribunal had found it to be preferable. The view, however, has not been upheld by the Supreme Court in Sundararamier & Co. v. State of Andhra Pradesh (9 Sales Tax Cases 298) where Venkitarama Aiyar J. delivering the majority decision has held that while in the context of Article 286(1)(a) the Explanation thereto can be construed as purely negative in character, though positive in form, it cannot be so construed in its setting in S.22 of the Madras General Sales-Tax Act, 1939. The learned Judge has further held that the Explanation in the section lays down in clear and unambiguous terms about the sales mentioned therein being intended as having taken place in the same State in which goods are delivered for consumption and its operation cannot be cut down by reference to the non obstante clause. The learned Judge has therefore held that S.2(h) and S.22 of the Madras General Sales Tax Act must be read together as defining what sales were taxable and therefore the Explanation meant sales of goods delivered for consumption in the State of Madras to fall within the definition in S.2(h) and to be taxable. The Supreme Court authority may not directly cover the revision petitions by the Deputy Commissioner because the sales in favour of Brook Bonds and Lipton Ltd. are not shown to be governed by S.22 of the Madras General Sales-Tax Act, the delivery in pursuance of the contracts not having been proved to be for consumption within the State of Madras. Nevertheless the Tribunal's decision that as intra-State sales they are not amenable to sales tax cannot be sustained. It is well known that the construction on the Explanation to Article 286(1) put by the Supreme Court in the United Motors case ((1955) 2 S. C. R. 603) was that though but for it the sales mentioned therein would be in the course of intra-State trade, its effect was to convert them into inter State sales, so as to bring them within the taxing power of the delivery State. It is also well known that the Supreme Court in the Bengal Immunity case (6 Sales Tax Cases 446) had held that the Explanation sales were not divested of their character as inter State sales as the Explanation to Article 286(1)(a) did not govern Article 286(2) and in the absence of Parliamentary legislation as contemplated by Article 286(2), taxation of sales falling within its purview would be unconstitutional. It is equally well known that acting on the apparent tenor of the Explanation and the construction put upon it in the United Motors case ( 1955 (2) SCR 603 ) the States had been levying taxes on the sales falling within its purview, and by September 6, 1955, collected large amounts by way of tax on Explanation sales. That apart there were proceedings pending for assessment of tax on such sales as well. To remedy these evils the Sales tax Validation Ordinance No. III of 1956 was enacted which was eventually replaced by the Validation Act. S.2 of the Act provides that no law of a State imposing a tax on sales which took place in the course of inter State trade or commerce between April 1, 1951, and September 6, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sales were in the course of inter State trade. The section further provides that all taxes levied or collected under such a law during the specified period shall be deemed to have been validly levied or collected. It is therefore clear that the effect of the Act is to liberate the States from the fetter placed on them by Article 286(2) and to enable the Madras General Sales Tax Act to operate on its own terms. It is equally clear that because of the Act the taxes not only on those covered by the Explanation but on all inter States sales had become validated provided they fall within the period. We therefore hold that the Tribunal has incorrectly afforded the dealer the exemption in the three assessment years. It can no longer be disputed that S.2(h) and 22 of the Madras General Sales Tax Act are comprehensive enough to cover the exempted sales of tea and the assessment years are within the period mentioned in the Sales Tax Laws Validations Act of 1956. Therefore we allow the revision petitions by the Deputy Commissioner.