JUDGEMENT

- (1.)THIS is an application for an appropriate writ in order to quash the orders of the Petrol Taxation Officer directing the petitioner to pay tax on retail sales under the Jammu and Kashmir Motor Spirit Act.
(2.)THE facts out of which this application has arisen may be summarised as follows:
The Director General of Supplies at Delhi entered into a contract with the General Manager Caltex (India) Limited Bombay for the supply of petrol, HSD and power Kero to the State Mechanized farm at Nandpur, within the State of Jammu and Kashmir which farm is really a Government of India concern. In pursuance of this contract the petitioners bulk depot at Pathankot used to supply the said petrol and power Kero to Nandpur farm between the years 1952 to 1960.

To begin with the Nandpur farm used to send its tanks to Pathankot depot, which used to collect the supplies and bring them to its farm at Nandpur. As this mode of supply was not convenient, the parties to the contract agreed that a better course would be for the consumer farm at Nandpur to instal a pump with the aid of the petitioner company and the supplies should be made into that pump. The petitioner in February 1953 suggested to the Government of India that a consumer pump at the farm should be installed to ensure cleaner supplies. The petitioner agreed to hire out the pumping apparatus at a nominal cost of Re. 1/ -.

The suggestion of the petitioner company found favour with the Government of India as would appear from a letter D/ - 21 -4 -1953 marked as Annexure "D" which is at page 59 of the record.

Thereafter, the petitioner company got a pump installed in Nandpur farm at a rental of Re. 1/ - per month. The ownership of the pump, no doubt, rested with the company but it was used by the consumer on payment of a monthly rent of Re. 1/ -. Thus from March 1953 the Procedure of the supplies was that the officer in charge of the Central Mechanised Farm at Nandpur used to send indents for supply to the bulk depot of the petitioner company at Pathankot in State of Punjab. On receipt of the indents the petrol and power kero were taken in the companys trucks from Pathankot to Nandpur and the supplies were decanted into the consumer pump at Nandpur. This state of affairs continued till the year 1959 after which the contract with the petitioner company was put to an end to and the pumping apparatus was taken away by the company.

Thus according to the petitioner, between March 1953 to December 1959 the goods in question moved from the Pathankot depot to Nandpur where these goods were decanted in the consumers pump at Nandpur. By a letter dated 21 -5 -1959 the Petrol Taxation Officer called upon the petitioner to furnish the return of the Sales made by it to Nandpur farm between years 1955 to 1959. The petitioner furnished the necessary statements and contested the right of the said officer to demand tax in respect of these sales.

By another letter dated 3 -10 -1960 the petitioner company was called upon to deposit an amount of Rs. 39,619.75 as sale tax payable by the petitioner on the sales made to the farm at Nandpur upto May, 1959. The petitioners allegation is that he was not given an opportunity to make representations regarding the taxes imposed. By a letter dated 8 -10 -1960 the petitioner company pointed out to the first respondent that the taxes could not be levied because tile sales ware in the course of inter -state trade and commerce and were, therefore, exempt from taxation. The petitioner also informed the first respondent that the figures of sale for the period between 1952 to 1959 could not be ascertained as the relevant record had been destroyed. Ultimately by a letter dated 7 -12 -1960; the first respondent called upon the petitioner to pay the sale tax demanded within a fortnight of the sale failing which the petitioner was threatened with the cancellation of its license in the Jammu and Kashmir State and institution of legal proceedings for recovery of the taxes.

The petitioner again replied on 11 -12 -60 contesting the right of the respondent to levy the taxes. The petitioner was served with a demand notice and was threatened with action under Section 16(C) of the Jammu and Kashmir Motor Spirit Act, if the tax was not paid within 10 days from the date of service. Similarly by another notice dated 21 -12 -1960 the petitioner was required by respondent No. 2 to appear before him and to show cause why action under Section 9 of the said Act should not be taken against the petitioner company. Thereafter, the petitioner has come up to this court for an appropriate writ.

(2a) The main point which has been canvassed before me in this petition is as to whether the sales in question are in the course of interstate trade and commerce and, therefore exempt from taxation. The facts narrated above, are more or less admitted and the only dispute between the parties is on the question as to whether the pump at Nandpur was hired by the farm from the petitioner company or whether the pump was installed by the company in order to supply the goods to the farm. In this connection, I might mention that in the original petition filed by the petitioner, the company had taken a clear stand that the pump was hired by Nandpur farm and was in fact the consumers pump. This allegation by the petitioner found ample support from one of the documents filed by the respondents with their counter -affidavit which is at page 76 of the file and the relevant part of it runs as follows:

"To be delivered free into consumer pump the Mechanized State Farm at Nandpur."

Thereafter, the petitioner applied to this court for an opportunity to file an additional affidavit with certain documents to prove the history as to how the pump was installed at the farm and this opportunity being granted, a further affidavit along with a number of annexures were filed by the petitioner company on 20 -11 -1961. A perusal of the additional affidavit as also the annexures thereto particularly annexures (C), (D), (E) and (F) dearly show that the stand taken by the petitioner is correct and cannot be doubted for a moment. In fact, the respondents in their counter -affidavit have not specifically denied the state of affairs regarding the installation of pump as alleged by the petitioner but have only contested the allegation of the petitioner on a point of law namely that the sales were not in the course of interstate trade or commerce and, therefore not exempt from taxation.

In this connection the petitioner made a clear allegation in para Nos. 6 and 7 of the additional affidavit regarding the circumstances in which the pump was installed arid hired by Nandpur farm. Replying to the allegations in these two paragraphs the second respondent in para 6 of their additional affidavit averred as follows:

"Referring to Para 6 of the affidavit I say that the tanks as well as pumps attached to them belonged to the petitioner company and the sales were inside sales. I further say that the petitioner company removed these fixtures after the termination of their contract. In this connection I crave leave to refer and rely on the letter of the officer in charge No. Mech 2(61)/1601 Nandpur dated 14 -12 -4961 to the address of Excise and Taxation Officer Jammu, relevant portion of which is as under:

The H. S. D. and power kero pumps installed at the farm belonged to M/S. Caltex Co. This farm had got no concern with these pumps from the very beginning. Referring to para 7 of the petition I say that the petitioner company has tried to introduce irrelevant matters merely to cloud the real issues involved in the case. It cannot escape liability by resorting to these subterfuges.

Referring to Para 8 of the petition I say that there was no hiring out of the pump as such and the mere payment of the rent has no bearing on the case and cannot lift the transactions out of the category of inside sales."

It is, therefore, clear that the respondents did not specifically contest the allegations made by the petitioner in Para Nos. 6 and 7 of their additional affidavit but take the position merely that the pump belonged to the company and that the sale was an inside sale. It is obvious that even if the pump was hired at Nandpur farm, the ownership would, no doubt vest in the petitioner company though the actual possession was with Nandpur farm as long as the lease lasted. It is just like Nandpur Farm having taken a godown on rent from the supplier and ask the supplier to send the supplies, into its godown. In these circumstances, therefore, the fact that the pump installed at Nandpur Farm was in possession of Nandpur farm and the petrol and power kero was decanted into it has not been and could not be challenged by the respondents. Even in the course of arguments,, the Advocate General has not seriously challenged this fact.

It is also admitted in this case that during the relevant period the petitioner company had no pump or any business of its own in the State of Jammu and Kashmir. It is also not disputed that the period during which the taxes are claimed by the respondents is between the years 1955 to 1959 that is to say during the period when the consumer pump at Nandpur farm had already been installed.

(3.)I would now come to the main points that have been Canvassed before me in this petition. Mr. Sen appearing for the petitioner has contended in the first place, that having regard to the circumstances of the case, the transactions were in the course of inter -state trade or commerce and, therefore, were exempt from taxes under Art. 286 clause (2) of the Constitution of India. It is conceded that this Article was applied to the State of Jammu and Kashmir in the Year 1954 that is to say before the relevant period. In fact the Article was applied by the Constitution Application to Jammu and Kashmir Order, 1954 dated 14 -5 -1954.
Article 286(2) of the Constitution of India runs as follows :

Except in so far 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 goods where such sale ox purchase takes place in the course of inter -state trade or commerce."

It is, therefore, clear that if the present transaction is held to be one in the course of inter -State trade or commerce then as long as the ban referred to in this clause is not lifted no state is entitled to tax such sales. There was a good deal of controversy regarding the explanation to Article 286 and its connection with clause (2) of Article 286 of the Constitution of India.

In the State of Bombay v. United Motors (India) Ltd., AIR 1953 SG 252, the majority judgment of the Supreme Court held that the explanation imports a fiction by which inter state transactions are converted into intra state transactions and the delivery state is, therefore entitled to tax the sales. In other words, the view taken in that case was that in order to avoid multiple taxation by a number of states relying on their territorial nexus the explanation has been incorporated, which notionally fixes the situs of sale by giving the State where goods are actually delivered for consumption in that state and thus the sate where such delivery takes place become entitled to tax the sale.

It is not necessary for me to advert to decision in great detail because the view taken by the majority judgment in this case does not appear to have found favour on this point in a latter decision of the Supreme Court - Bengal Immunity Co. Ltd. v. State of Bihar, (S) AIR 1955 SC 661. This case is really the sheet anchor of the argument of learned counsel for the petitioner. The view taken, by the majority judgment in this case is that the explanation is only for a limited purpose of explaining what is an. outside sale within the meaning of Article 286 (a) and cannot be extended or projected into Clause (2) either as an exception or as a proviso in order to curtail or to limit the ambit of Clause (2) Thus once where a sale or purchase takes place in the course of inter -state trade no state can tax such a sale whether such a transaction falls or not within the explanation. The previous view of the Supreme Court that by a fiction inter -state trade will be converted into and intra -state trade by virtue of the -explanation was not accepted by his decision.

In this connection Das Acting, C.J. as he -then was observed as follows:

"On a careful and anxious consideration of the matter in the light of fresh arguments advanced and discussions held on the present occasion we are definiely of the opinion that the explanation in cl. (l)(a) cannot be legitimately extended to Cl. (2) either as an exception, or as a proviso thereto or read as curtailing; or limiting the ambit of clause (2). Indeed in AIR 1953 SC 252 (supra) at p. 258 and again at p. 259 the majority judgment also accepted the position that the explanation was not an exception or proviso either to cl. (1) (a) or to Clause (2). If, therefore, the Explanation cannot be read into cl. (2) because of the express -language of the Explanation and also because of the difference in the subject matter of the operative provisions of the two clauses, then it must follow that, except in so far as Parliament may by law provide otherwise1, no state -law can impose or authorise the imposition of any tax on sales or purchases when such sales or purchases take place in the course of inter -state trade or commerce and irrespective or whether such sales or purchases do or do not fall within the Explanation."

In other words, the view taken in Bengal Immunity case, (S) AIR 1955 SC 661, is that until the Parliament lifts the ban contemplated by Cl. (2) of Article 286 no state whether it is a delivery state or not can tax sales or purchases which are in the course of inter -state trade or commerce. The Advocate General has not controverted this position but he has vehemently, argued that the present sale is purely an inside -sale and cannot be deemed to be a sale in the course of inter -state trade or commerce. He contended that under the contract of sale, the goods -were supplied from Pathankot depot to Nandpur farm into the State of Jammu and Kashmir for purpose of consumption in that state. As the sale had been completed by delivery in the State of J. and K. State, the sale is an inside -sale and cannot be deemed to be an inter -state sale.

I am unable to agree with this contention because the contention tries to put the same argument which was adopted by the majority judgment in the United Motors Case, AIR 1953 SC 252 and which was not accepted in the later decision of the Supreme Court in Bengal Immunity case, (S) AIR 1955 SC 661, only the. argument has been put in a different form. In fact, we do not have to look to the Explanation at all when we are deating with a case to which Article 286(2) applies directly. In fact, the question of situs of sale or purchase is wholly irrelevant in considering the question as to whether a particular transaction is in the course of inter -state trade or commerce.

In Bengal Immunity case (S) AIR 1955 SC 661, Das Actg. C. J. clearly observed as follows:

The shifting of the situs of a sale or purchase from its actual situs under the general law to a fictional situs under the explanation takes; the sale or purchase out of the taxing power of all States other than the State where the situs is fictionally fixed. That is all that Cl. (l)(a) and the Explanation do. Whether the delivery State will" be entitled to tax such a sale or purchase will depend on the other provisions el the Constitution. The assignment of a fictional situs to a sale or purchase e.g. its Inter -stale character or its export or import character which are entirely different topics.

This fixing of a situs for a sale or purchase is any particular State either under the general law or under the fiction does not conclude the matter. It has yet to be ascertained whether that sale or purchase which by virtue of the explanation had taken place in the delivery State was made in the course of inter -State trade or commerce. For this purpose the explanation can have no relevancy or application at all.

Indeed, the question where a sale is complete is a vexed question and is dependent on various circumstances. One view may be that the sale is complete where the transaction is concluded. Another view is that the sale is complete where the goods pass or where the delivery is made. It is, therefore, rightly held by Das Acting, C. J in the case quoted above, that these questions are irrelevant when we are really considering whether a particular sale or purchase is in the course of inter state trade or commerce.

The next question is as to what is meant by the term in the course of inter -state trade or commerce." It is true that the term has not been defined either in the Constitution or in any of the decisions of the Supreme Court, but there are ample materials in a number of decisions which clearly indicate the connotation of this term.

In the first place, I would refer to the observations made by Das J. in Bengal Immunity case (5) AIR 1955 SC 661, at p. 685, which runs as under:

"Ordinarily, inter -State trade or commerce is done between a dealer in one State and a dealer in another State. The dealer in the consuming State in his turn sells die goods in retail to actual consumers."



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