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1954 DIGILAW 201 (KER)

Fernandez v. State

1954-11-24

M.S.MENON, SUBRAMONIA.IYER

body1954
Judgment :- 1. The petitioner is a registered manufacturer of cocoanut oil and cake who has obtained a certificate of registration in Form VI as provided in sub-r. (i) of R. 20 of the Travancore-Cochin General Sales-tax Rules, 1950. Cocoanuts and copra are taxed at the purchase point and according to sub-r. (2) of the said rule a registered manufacturer like the petitioner is entitled to a deduction under Cl. (k) of sub-r. (1) of R.7 equal to the value of the cocoanut and/or copra purchased and converted by him into oil and cake "provided that the amount for which the oil is sold is included in his turn-over". 2. Sales-tax is levied on the net turn-over of a dealer and what R.7(1)(k) does is to direct that in determining the net turn-over all amounts which a registered manufacturer of cocoanut oil and cake may be entitled to deduct from his gross turn-over under R.20 should be deducted in accordance with the conditions specified in that rule. The petitioner has been denied the deduction under R.7(1)(k) read with R.20(2) on the ground that he sold the cocoanut oil manufactured by him not within but outside the State of Travancore-Cochin, and his attempt in this petition is to challenge the validity of that denial. 3. The main question for determination, therefore, is whether the sale price of the cocoanut oil sold outside the State can be considered as part in his turnover for purposes of the Travancore-Cochin General Sales Tax Act, 1125 and, the rules framed thereunder. 3. The main question for determination, therefore, is whether the sale price of the cocoanut oil sold outside the State can be considered as part in his turnover for purposes of the Travancore-Cochin General Sales Tax Act, 1125 and, the rules framed thereunder. The relevant portions of the definition of the terms "sale" and "turnover" as given in S. 2 of the Act read as follows: "0) "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 considerations 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 Sale of Goods Acts for the time being in force, the sale or purchase of any goods shall be deemed for the purpose of this Act, to have taken place in the State of Travancore-Cochin whereever the contract of sale or purchase might have been made - (a) if the goods were actually in the State of Travancore-Cochin 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 the State of Travancore-Cochin at any time after the contract of sale or purchase in respect thereof was made, (k) "turnover" means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover". and going by the definition there can be no doubt that the petitioner's sales at Kozhikode in the Madras State of the cocoanut oil manufactured by him in this State are sales within the meaning of S.20) and the prices obtained by him for the said sales are part of his turnover as defined in S.2(k) of the Travancore-Cochin General Sales Tax Act, 1125. 4. 4. The Travancore-Cochin General Sales Tax Act, 1125, is a pre-Constitution enactment and in order to bring it into conformity with Art.286 of the Constitution, S.26 was added by the Travancore-Cochin General Sales Tax (Amendment) Act, 1951, with effect from the 26th January 1950. S.26 reads as follows: "(1). Notwithstanding anything contained in this Act - (a) a tax on the sale or purchase of goods shall not be imposed under this Act - (i) Where such sale or purchase takes place outside the State of Travancore-Cochin; or (ii) where such sale or purchase takes place in the course of import of the goods into or export of the goods out of, the territory of India; (b) a tax on all the sale or purchase of any goods shall not, after the 31st day of March 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide. (2) The Explanation to Cl. (i) of Art. 286 of the Constitution of India shall apply for interpretation of sub-cl. (1) of Cl. (a) of sub-s. (1)". 5. Art.286 provides that "No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods", where such sale or purchase takes place in the circumstances specified in that Article and what S. 26 has done according to the petitioner is to incorporate into the Act that restriction on the imposition of a tax on such sale and purchase of goods by a specific provision and not to amend the definition of the term "sale" in S.20) by confining it to those cases alone in which a sales tax can be collected by the State without violating the provisions of Art. 286 of the Constitution. The words "Notwithstanding anything contained in this Act" with which S.26 opens give considerable force to the contention that the ambit of the definition has been left untouched by the introduction of that section by the amending Act of 1951 and we propose to assume that the contention has to be sustained. 6. The words "Notwithstanding anything contained in this Act" with which S.26 opens give considerable force to the contention that the ambit of the definition has been left untouched by the introduction of that section by the amending Act of 1951 and we propose to assume that the contention has to be sustained. 6. The definitions given in S. 2 of the Travancore-Cochin General Sales Tax Act, 1125, however, will apply only in the absence of "anything repugnant in the subject or context" and on a perusal of the Act and the rules we cannot resist the conclusion that the definition embodied in S. 20) and (k) of the Act are clearly inapplicable to the provisions with which we are concerned. There can be no doubt that what has been intended is a taxation of copra at the purchase point and the avoidance of sales tax in respect of the oil extracted by a registered manufacturer from such copra to the extent of the value of the copra used for the said manufacture in all those cases where but for the concession he would have been liable to pay both the purchase tax on copra and the sales tax on oil under the Travancore-Cochin General Sales Tax Act, 1125. In other words, the object is the avoidance of a double taxation by the State, one at the purchase point of copra and the other at the sale point of oil, and it is impossible to invoke the definition and say that the concession will be available to a registered manufacturer even in those case where only one and not both the taxes can be realised from him under the provisions of the Act. 7. The provisions applicable to registered manufacturers of groundnut oil and cake under the Madras General Sales-tax Act, 1939 and the Madras General Sales-tax (Turnover and Assessment) Rules, 1939, are similar to those applicable to the petitioner and in 67 Law Weekly 480 the Madras High Court said: "The assessees are registered manufacturers of groundnut oil. They purchased groundnuts and extracted oil from them but sold the oil outside the State, i.e., in Bombay. They were taxed on the turnover of the purchase price. They purchased groundnuts and extracted oil from them but sold the oil outside the State, i.e., in Bombay. They were taxed on the turnover of the purchase price. They now claim that as the oil was sold outside the State, and as that sale is exempted from taxation under Art. 286 of the Constitution, they are entitled to claim a rebate of tax they paid on the purchase turnover in respect of the groundnuts from which they extracted the oil, under R.18(2) of the Madras General Sales-tax Turnover and Assessment Rules. This contention was not accepted by the Tribunal. We think that the conclusion reached by the Tribunal is correct, and there is no ground admitting these revision petitions. Under the Madras General Sales-tax Act, the groundnuts are taxable on the purchase turnover, and R.5(i)(k) of the Turnover and Assessment Rules provides that all amounts, which a registered manufacturer of groundnut oil, (other than refined groundut oil) and cake may be entitled to deduct from his gross turnover under S.18 subject to the conditions specified in that rule, shall be deducted for ascertaining the net turnover on which the assessment is levied. That is clear from the opening words of R. 5. The object, therefore, of R.5 is to arrive at the taxable net turnover. To determine the net turnover, certain deductions are allowed under that rule, and sub-r. (k) of R.5(1) relates to the groundnuts and groundnut oil. R.18(2) provides: "Every such manufacturer shall be entitled to a deduction under Cl. (k) of sub-r. (1) of R. 5 equal to the value of the groundnut and/or kernel purchased and converted by him into oil and cake provided that the amount for which the oil is sold is included in his turnover". The object of R.5 being to determine the taxable net turnover, the turnover of the sale of the oil, which is contemplated by R.18(2), is the taxable turnover from which the purchase turnover of the groundnuts from which the oil was extracted should be deducted. The exemption is based upon the principle, that on the same commodity the dealer should not be called upon to pay the tax twice over. The exemption is based upon the principle, that on the same commodity the dealer should not be called upon to pay the tax twice over. If he had already paid tax on the purchase turnover, and if he converted those groundnuts into oil and sold the oil, on the sale turnover of the oil which includes the purchase price of the groundnuts, he should not again be called upon to pay the tax. For that purpose and in order to avoid double taxation on the same commodity this deduction is allowed. All this, of course, is on the assumption that otherwise the entire turnover of the sale of the oil would be liable to tax. If the assessees were exempted from paying on the sale turnover of the oil as the sale was outside the State, they cannot claim the benefit of the deduction under R.18(2) of the Turnover and Assessment Rules. This was the conclusion reached by the Appellate Tribunal and we think that is sound". and in 67 Law Weekly 784: "The third point urged by the assessee was that in allowing the deduction under R.18 of the Madras General Sales-tax Turnover and Assessment Rules read with R.5(1)(k), the assessee was entitled also to deduct the purchase price of groundnut or groundnut kernel when the purchases were made outside the taxable territory. We agree with the Tribunal in rejecting this contention also. The scheme of the taxation is not to provide for any special concession for the manufacture and sale of the groundnut oil as such. The scheme, as we understand it, is that, if a registered manufacturer of oil purchases groundnut and pays the tax under R.4(2) on the purchase of that groundnut, if he subsequently converts that groundnut into oil and sells the oil, he would normally be liable to further sales-tax on the sales turnover of that oil but for Rs. 18(2). Therefore, if he has already paid the tax on the purchase of the groundnut which was subsequently converted into oil, he is given a deduction under R.18(2) read with R.55(1)(k) of the Turnover and Assessment Rules. We have already discussed the question in other cases and held that where oil is sold without liability to sales-tax no question of deduction arises. The converse of it is what we have to consider in this case. We have already discussed the question in other cases and held that where oil is sold without liability to sales-tax no question of deduction arises. The converse of it is what we have to consider in this case. Such deduction is allowed only where the purchase has already been made subject to tax under the Sales-tax Act. If the purchases were made outside the State of Madras, these purchases would not come within the scope of R.4(2); and if groundnut oil is extracted from groundnut on the purchase of which no tax was paid, the sales turnover of such oil would be liable to tax under the scheme of the Sales tax Act, and R.18(2) would not apply to the turnover of the oil so extracted from groundnut on the purchase of which no tax was paid". 8. The only further question that arises for consideration is whether the provisions above mentioned violate Part XIII of the Constitution by affording a concession when the sale of oil is made within the State and denying the same when it is effected outside the State. 9. Art.301 provides that subject to the other provisions of Part XIII "trade, commerce and intercourse throughout the territory of India shall be free" and Art.303(1) that the Legislature of a State shall not have power to make any law giving, nor authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule". The only entry in the Seventh Schedule relating to "trade and commerce" as far as a State Legislature is concerned is Entry 26 of List II - "trade and commerce within the State subject to the provisions of Entry 33 of List III - and as sales-tax legislation by a State is supported not by that entry but by Entry 54 of List II - "taxes on the sale or purchase of goods other than newspapers" - it is clear that the provisions impugned are in no way open to challenge under Art.303(1) of the Constitution. 10. 10. The commerce clause of the American Constitution, Art. I, S. VIII 3 - "To regulate commerce with foreign nations, and among the several States, and with the Indian tribes" - contains no express provisions guaranteeing the freedom of inter-State trade and commerce and the problem of discriminatory legislation by the States had to be solved by judicial interpretation to the effect that the power of Congress to regulate inter-State commerce is a power that is plenary and exclusive. American cases bearing on the commerce clause beginning with Gibbon v. Ogden (9 Wheat. 1) were cited before us but in view of the difference in language we have come to the conclusion that apart from providing an instructive background of judicial approaches and shifting ideologies they will not in any way save us from what Mr. Justice Franks further has described in an expressive phrase as "the anguish of judgment" 47 Col. L. Rev. 528. 11. The model for Art. 301 was not the commerce clause of the American Constitution but S. 92 of the Australian - "trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free" - which the Constituent Assembly widened to include not merely the freedom of inter-State trade commerce and intercourse but intra-State trade, commerce and intercourse, as well. No section of the Australian Constitution has given rise to so much litigation or so many differences of judicial opinion as S.92. In James v. Cowam 43 C.L.R. at 422) Rich, J. said: "The rhetorical affirmation of S. 92 that trade, commerce and intercourse between the States shall be absolutely free, has a terseness and elevation of style which doubtless befits the expression of a sentiment so inspiring. But inspiring sentiments are often vague and grandiloquence is sometimes obscure. If this declaration of liberty had not stopped short at the high-sounding words "absolutely free" the pith and force of its diction might have been sadly diminished. But even if it was impossible to define precisely what it was from which inter-state trade was to be free, neither because a common place definition form such a pedestrian conclusion or because it needs an exactness of conception seldom achieved where Constitutions are projected, yet obmutescence was both unnecessary and unsafe. But even if it was impossible to define precisely what it was from which inter-state trade was to be free, neither because a common place definition form such a pedestrian conclusion or because it needs an exactness of conception seldom achieved where Constitutions are projected, yet obmutescence was both unnecessary and unsafe. Some hint at least might have been dropped, some distant allusion made, from which the nature of the immunity intended could afterwards have been deduced by those whose lot it is to explain the elliptical and expound the enexpressed". and almost the last words of Latham, C.J., prior to his retirement in April 1952 was: "When I die, S.92 will be found written on my heart. It is quite time that some consideration was given to the possibility of doing something about S.92 when I say doing nothing, I mean doing something other than submitting to a series of judgments and endeavouring to work out a proposition which will be consistent with all of them", (Australian Law Journal, Volume 26, p. 2)." Equally potent is the comment of Sir Ivor Jennings on Part XIII of the Constitution in his lectures entitled "Some Characteristics of the Indian Constitution": "The new generation of Australian lawyers would like to get rid of S. 92 of their Constitution, which seems to them to be more trouble than it is worth. It seems certain that in twenty years Indian lawyers will be able to point out that the Australian lawyers do not know what trouble is". 12. The case before us is comparatively simple and in order to decide it there is no need to travel beyond the decision of the Privy Council in the Banking Case (79 C.L.R. 497) which adopted the distinction between prohibition and regulation of inter-State trade, and between direct and remote effect. Lord Porter delivering the reasons of their Lordships for dismissing the appeals said: "In this labyrinth there is no golden thread. But it seems that two general propositions may be accepted: (1) that regulation of trade, commerce and intercourse among the States is compatable with its absolute freedom, and (2) that S.92 is violated only when a legislative or executive act operates to restrict such trade, commerce and intercourse directly and immediately as distinct from creating some indirect or consequential impediment which may fairly be regarded as remote". and also settled, as stated by Dixon, J. in Mc Carter v. Brodie (80 C.L.R. 432), that "the object or purpose of an Act challenged as contrary to S. 92 is to be ascertained from what is enacted and consists in the necessary legal effect of the law itself and not in its ulterior effect socially or economically". 13. The question whether an enactment is regulatory or something more or whether a restriction is direct or only remote or incidental cannot but be based on questions of fact and degree but the distinction is real and very often a court may have no difficulty to decide on which side of the boundary a particular enactment falls and operates. The test suggested by the Privy Council certainly narrows the area of dispute though as stated by Lord Porter "It is beyond hope that it should be eliminated". 14. We are not concerned in this case with provisions that are regulatory or a contention that they are something more; the only matter we have to adjudge is whether any restriction on the freedom of trade and commerce that may result from the provisions impugned can be considered as the direct and immediate result of the provisions themselves. We have no doubt that they cannot be so considered and in that view this petition must fail and has to be dismissed. 15. We dismiss the petition with costs, Advocate's fee Rs. 150/-. Dismissed.