1952 (4) TMI 32 - HC - VAT and Sales Tax

Interstate Sales Tax Act: Goods sent to customers or salesmen outside State not necessarily constitute sales

The court concluded that sending goods to the assessee's shop in Muzaffarpur did not constitute a sale under the Sales Tax Act. Sending goods to persons ... - Issues Involved:1. Whether the sending of goods to Muzaffarpur shop belonging to the assessee constitutes a sale within the meaning of the Sales Tax Act.2. Whether the sending of goods to persons outside the limits of this State constitutes a sale within the meaning of the Act.3. Whether the sending of goods to customers outside this State, to whom railway receipts were sent through a bank, constitutes a sale within the meaning of the Act.4. Whether the sending of goods to salesmen out of the Province amounts to a sale within the meaning of the Act.5. Whether Explanation II to clause (g) of Section 2, which makes an agreement of sale taxable even though the sale may have taken place outside the Province, is ultra vires of the Provincial Legislature.Detailed Analysis:Issue 1: Sending of Goods to Muzaffarpur ShopThe court examined whether the transfer of goods to the assessee's own shop in Muzaffarpur constituted a sale under the Sales Tax Act. It was determined that the mere transportation of goods to another shop owned by the assessee, without a contract of sale, does not constitute a sale. The court concluded that the act of sending goods to the Muzaffarpur shop was for business purposes and unconnected with any sale as contemplated in Entry No. 48. Therefore, the first question was answered in the negative.Issue 2: Sending of Goods to Persons Outside the StateThe court considered whether sending goods to persons outside the State constitutes a sale. It was clarified that the mere act of sending goods does not per se constitute a sale. However, if the goods are sent in furtherance of a contract of sale by a registered dealer, the transaction can be regarded as a sale within the State, based on the Explanation which creates a fiction for tax purposes. Thus, the court answered the second question in the affirmative, assuming it covers the scenario where goods are sent in furtherance of a contract of sale.Issue 3: Sending Goods to Customers with Railway Receipts through a BankThe court found that sending goods to customers outside the State, with railway receipts sent through a bank, constitutes a sale within the meaning of the Act. This scenario falls under the Explanation, which deems such transactions as taking place within the State for tax purposes. Therefore, the third question was answered in the affirmative.Issue 4: Sending Goods to Salesmen Outside the ProvinceThe court analyzed whether sending goods to salesmen outside the Province amounts to a sale. It was determined that if the goods are sent in furtherance of a contract of sale, the transaction can be deemed to have taken place within the State. However, if the goods are merely sent to stockists without a purchase contract, the tax cannot be levied. The court's answer to the fourth question depended on the specific circumstances of each case.Issue 5: Validity of Explanation II to Clause (g) of Section 2The court examined whether Explanation II to clause (g) of Section 2, which makes an agreement of sale taxable even if the sale occurs outside the Province, is ultra vires of the Provincial Legislature. The court held that the unamended Explanation was validly framed and not ultra vires. However, the amended Explanation was not validly enacted as it made significant changes without the Governor-General's assent. The court concluded that the unamended Explanation was within the legislative competence but could not be enforced under Article 286 of the Constitution, which mandates that sales tax can only be collected at the market end where the goods are delivered for consumption. The fifth question was answered in the affirmative, free from considerations under Article 286.Conclusion:The court provided detailed answers to each question, emphasizing the need for a substantial nexus between the taxing State and the subject-matter of the tax. The court also addressed the implications of Article 286 of the Constitution on the enforceability of the Sales Tax Act. The reference was answered accordingly, with costs awarded to the assessee.