the State of Tamil Nadu v. Madurai South India Corporation (P) Ltd.

Judgment

The Judgment of the Court was delivered by P. JAGANMOHAN REDDY, J.-These three appeals by certificate under Article 133 (1) ( c) of the Constitution are against the judgment of the Madras High Court which allowed the three Writ Petitions filed by the respondent under Article 226 of the Constitution of India by which it challenged the proceedings proposed to be taken by the Sales Tax Officer under the Madras General Sales Tax Act 1959 (hereinafter called the Act) and the rules thereunder in respect of sale transactions in the assessments 1960-61 to 1964-65 and 1966-67 (upto October, 1966). The first petition was for quashing the summons issued under the Act and requiring the respondent to furnish certain vouchers of cotton yarn. branch transfer accounts and particulars relating to the years .1960-61 to 1964-65 !IJld 1966-67 (upto October, 1966).

The second petition was for directing the appellant to forbear from taking any steps for verification and in disallowing the exemption for the second and subsequent sales of yarn purchased by th_e respondent company from the Madurai Mills Limited in respect of the aforesaid period. The third petition prayed for the issue of m11nrl11muv to the appellant to forbear from disallowing the exemntion for the second and subsequent sales of yarn estimated at Rs. 5.08.247 /-for the assessment year 1965-66. The Hig1'. Court of Madras allowed all the three petitions and quashed the proceedings as prayed for. The respondent is a re1>:istered dealer with its head office at Madras and branches in Madur~i. Raianalayam and Salem inside the State of Tamil Nadu and also in-certain nlaces in the States of Kerala and Andhra Pradesh includine Hyderabad.

During the years 1960-61 to 1964-65 and 1966-67 unto October, 1966, it was dealing in various goods including cloth, yarn, etc. and was being assessed to taic under the Act on the turnover of the business. The gross turnover of the respondent included sales of yarn by the Madurai Mills Limited to the respondent to its head II Ii- TAMIL NADU v. -MADUllAI COllP. (laganmohan Reddy, /.) on the sale or purchase insklo the state of declared goods at the rate and only at the point specified against each in the Second Schedule on the turnover in such gocds in each year, whatever be the quantum of turnover in that year." 4-A.-.( I) Where a tax has been levied and collected under section 4 in respect of the sale or purchase of declan:d goods and such goods are sold in the course of inter-State trade or commerce the tax so levied and collected shall be refunded to s11ch person in such manner and subject to such conditions as may be prescribed. (2)

Where a .tax at the point of last purchase in the State has been levied and collected under this Act in respect of goods liable to tax at such point and where the said purchase ceases to be the last purchase in the State by reason of a subsequent purchase of such goods by another dealer in the State, the tax so levied and collected shall be. refunded to the dealer concerned in such n:v1nner and subject to such conditions as may be . prescribed." The declared goods are specified in· the second schedule to the Act to which cotto.n yarn, excluding cotton yarn waste, is liable to tax under the Act at the point of first sale in the State at the rate of 2 per cent. The Central Act defines 'declared goods' as those declared under Section 14 to be of special importance in inter-State trade or commerce. Section 3 Jays down the princi· pies for determining when a sale or purchase of goods is said to · take place.

In the course of inter-state trade gr Commerce under section 14(ii)(b) cotton yam, but not including cotton yam waste, has been declared to be of special importance in inter-State trade or commerce. Section 1 S ensures that in the case of declared goods they should in all circumstances bear only a single burden at a specified stage and at the prescribed rate. This section as amended in 1958 is as follows :- "Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods be subject to the following restrictions and conditions, namely :-. (a) The tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed two per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; 14 SUPUMB COUltT IU!POl.TS [1973] 2 s.c.•.

( b) .Where a tax has ben levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-state trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be provided in any law in fore: in that State."

The High Court of Madras on the interpretation of the afore- ·said provisions and having regard to the modus operandi of the respondent in respect of the inside sales or inter-state sales of cotton yam was of the view :-"Where the terms of a first sale are such that it may well be said to be an inside sale but it bea.ta also the characteristics of an inter-state sa!e, and, therefore, it has been taxed under the Central Act, that sale being physically a first sale inside the State out of which the inter-state sale has been carved out, it should follow that as the· ta"< levied on the interstate sale must prevail, there will be no tax liability on the same sale under the loca) Act on the ground that it is an inside sale".

In this view it held that"when the goods pursuant to the interstate sale have been delivered outside the State but brought back into the State and then sold, that sale cannot in fact or in law be re11arded as the first sale within the meaning of the secor.d schedule to the local Act. It did not, however, think it necessary to · consider on the facts of the case "what the position will be when a sale is an inside sale withih the meaning of Section 4 of the Central Act and is also an inter-state sale, because it occasioned the movement of the goods to another State and out of the goods delivered outside the State pursuant to the inter-state sale, a part has been brought into the. State and sold again as an inside sale, in the sense that every incident including delivery is in the State".

In our view, this question does not arise because what we have to consider is having regard to the course of transactions of sale which bas not been traversed by the appellant, whether the sale by the Madurai Mills pursuant to the orders placed by the respon• dent, the cotton yam sold to. its branches in Andhra Pradesh and Kerala in respect of which the price was paid in the State of Madras, is an inside sale, and also a fint sale in the State. It apPears to us that when the cotton yam was sold to the respondent in Madras as the goods were in the State of Madras when the contract of inter-state was entered into, it will be a first sale ll ll in the State.

Once that sale bas taken place. and the goods were delivered in the States of Andhra Pradesh and Kerala, pursuant to that inter-state sale, there was no further sale to the II resPon~ent when it transferred to its branches those goods which "have already been ~ubiect to tax in Madras nor caa such salea if they were sold in Madras be subject to tax. TAMIL NADU v. MADURAI COllP. (laganmohan Reddy, I.) IS .

Whethet the provisions of Section 1 S makes an inroad into the texture of the local law, so that section 6 of the local Act will have to be read subject to and in conformity with the proYisions of section 1 S and the policy underlining that section and whether section 6 will be inapplicable to sales of declared goods. need not be considered in this case because we arc clearly of the view that the sale of cotton yam sold to the branches of the respondent in Andhra Pradesh and Kerala though they were interstate sales of declared goods, were the first sales inside the State of Tamil Nadu and that being so if those gOods are transferred to Madras and sold in Madras, they are exempt from being taxed again since they have already been subjected to tax on the first sale iilside the State. We are, therefore, in agreement with the conclusions of the Madras High Court. The appeal is, accordingly, dismissed with costs. K.B.N. Appeal dismiued