MESSRS MOHANLAL HARGOVIND DAS, BIDI MERCHANTS, JABALPUR (M.P.) versus THE STATE OF MADHYA PRADESH & ANOTHER.

MESSRS MOHANLAL HARGOVIND DAS, BID! MERCHANTS, JABALPUR (M.P.) v. THE STATE OF MADHYA PRADESH & ANOTHER.

[S. R. DAS, ACTING c. J., BHAGWATI, }AGANNADHA-DAS, }AFF..R IMAM and CHANDRASEKHARA A1YAR JJ.]

Constitution of India-Art. 286(2)-Central Provinces and Berar Sa!es Ta:r Act, 1947 (XX/ of 1947), sA(6)-Petitioners-Bidi merchants of Madhya Pradesh-Importing tobacco from the State of Bombay-Whether mch transactions. of sales of goods-Affected by the ban under Art. 286(2) of the Constitution-Petitioners registered 111 "dealers" under Central Provinces and Berar Sales Ta:r Act, 1947 and dealers in Bombay selling or supplying tobacco to the petitioners also registered as "dealers" under Central Provinces and Berar Sales Ta:r Act, 1947-Whether makes the transactions as intra-State trans-actions between two registered dealers in the State of Madhya Pradesh.

The petitioners arc carrying on business on very ·large scale of ·making and selling bidis having their head office in Jabalpur in the State of Madhya Pradesh and arc registered as "dealer" for the pur-poses of the Central Provinces and Berar Sales Tax Act, 1947. In the course of their said business, the petitioners import tobacco from the State of Bombay in very large quantities after it is blended in that State by the veridors with various other types of indigenous tobacco by an elaborate process.

This finished tobacco, after its import within the State of Madhya Pradesh is rolled into bidis which arc exported to various other States, largely to the State of Uttar Pradesh. The dealers in the State of Uttar Pradesh and sur.h other States who buy bidis from the petitioners sell the same to various other dealers and 'on-sumers in those States. The Sales Tax authorities in the State of Madhya Prndesh re-quired the petitioners under threat of criminal prosecution to file statement of return of the total purchases of tobacco made by them out of Madhya Pradesh and delivered to them in Madhya Pradesh with view to assess and levy pur~hase tax on the transa.:tions of purchases made by the petitioners as stated above. Held, that the State of Madhya Pradesh had no authority to impose or to authorise the imposition of such tax and that the action of the State authorities contravened the provisions of Art. 286(2) of the Constitution inasmuch as the transactions in question were in the course of inter-State trade or commerce :is the finished tobacco which was supplied to the petitioners moved from the State of Bombay to the State of Madhya Pradesh.

M11w1 Molw&lal Horgorind Da1, Bidi M1rdonls, Jab<l/Jfll (M.P.) v. TNSl.Uof Ma4Ji1• """'"° """·-·

The contention that not only the petitioners were the register~. ed dealers under Ruic 8 of the Central Provinces and Berar Sales Tax Rules, 1947 but the dealers in Bombay who sell or supply tobacco to them were registered as "dealers" for the purpose of the Central Provinces and Bcrar Sales Tax Act, 1947 and therefore the transactions were between two registered dealers in the St.ate of Madhya Pradesh and thus constituted purely internal sales of the goods was without force because what one has to look at is the real narurc of the transactions and not the outside form and as the tn.nt~ actions in dispute invo}vcd movement of the goods across the border they were clearly tran~ctions of sales of goods in the course of intu· State trade or commerce and were hit by the ban under ArL 286(2) of the Constitution.

OatGINAL Juuso1cnoN : Petition No. 67 of. 1955.

Under Article 32 of the Constitution of India for the enforcement of Fundamental Rights.

M. C. Setalvad, Attorney-Genoral of India, C. K. Daphtary, Solicitor-General of India, G. S. Pathak_, (!. B. Dadachanji, A. P. Sen, Rameshtuar Nath .and Rajinder Narain, with them), for the petitioners.

T. L. Shevde, Advocate-General of Madhya Pradesh (M. Adhikari and /. N. Shroff, with him), for the State of Madhya Pradesh.

1955. September, 20. The Judgment of the Court was ddi vered by

BHAGWATI J.-The pet1t1oners are firm carrying on business on very large scale of making and sell-ing bidis having their head office in Jabalpur in the State of Madhya Pradesh. They are registered as "dealer" for the purpose of the Central Provinces and Berar Sales Tax Act, 1947.

In the course of their said busines, the petitioners import tobacco from the State of Bombay in very large quantities after it is blended in that State by the vendors with various other types of indigenous tobacco by an elaborate process. This finished tobacco, after its imnort within the State of Madhya Pradesh is rolled into hidis which are exported to various other States, largely to the State of Uttar Pr.1rlesh. The rk:ikrs in the Statr: of Uttar Pradesh

2 S.C.R.

and such other States who buy bidis from the peti-tioners sell the same to various other dealers and con-sumers in those States. The Sales Tax authorities in the State of Madhya Pradesh required the petitioners under threat of criminal prosecution to file statement of return of the total purchases of tobacco made by them out of Madhya Pradesh and delivered to them in Madhya Pradesh with view to assess and levy purchase tu on the transactions of purchases made by the peti-tioners as above. The petitioners filed under protest two returns dated the 11th September 1954 and 3rd December 1954 for the periods 3rd May 1954 to 29th July 1954 and 30th July 1954 to 26th October 1954 respectively but without prejudice to their right to challenge the validity of the assessment and levy of the said tax on the aforesaid transactions. The Sales Tax authorities further called upon the petitioners to deposit the alleged purchase tax which amounts to thou5ands of rupees in every quarter of the year. The petitioners thereupon filed this petition under article 32 of the Constitution for writ of mandamus or any appropriate direction or order seeking to res-train the State of Madhya Pradesh and the Commis-sioner of Sales Tax, Madhya Pradesh, from enforcing the said Act and its provisions against the petitioners and for consequential reliefs. · The petitioners averred that the imposition of tax on sale or purchase of tobacco rolled into bidis ex-ported out of Madhya Pradesh in the manner des-cribed was in contravention of article 286(1) (a) of the Constitution, that the tobacco purchased by them for the purpose of making bidis exported outside Madhya Pradesh was never intended for use as raw material for the making of bidis for the purpose of consump-tion in Madhya Pradesh and section 4, sub-section (6) of the Act had no application to the tobacco so used and there was no liability to pay the alleged tax and that to the best of the petitioners' information tobacco had not been notified hy the State Government in the Gazette for the puq1o<:c of section 12( A) of the Act

hl1ur1 Mohan/al H1W.fni1UI Das, lliJi Mntllanb, ,....(M.P.) .. Th181.t1of ~ l'wld1JJ •...nn. .......,.,.

M1ssrs Moftanlal Hargooind Das, Bi!fi Merci.ants, Jab•lpur {M.P.J v. The Stat• of Madlr!a Prad4sh and anotha

and that the Sales Tax authorities, under the Act. were, therefore, not entitled to levy any tax on the petitioners. The petitioners also submitted that the transactions in question had taken place in the course of inter-State commerce, that the State of Madhya Pradesh had no authority to impose or to authorise the imposition of such tax and that the action of the State authorities contravened the provisions of article 286(2) of the Constitution.

The Respondents filed return denying the conten-tions of the petitioners and submitted that the peti-tioners by purchasing tobacco which was entered in their registration certificate as raw material for the manufacture of bidis for sale by actual delivery in Madhya Pradesh for consumption in that State made themselves liable to pay the tax by exporting bidis to other States and thus utilising it for different purpose under section 4(6) of the Act. They admitted that the petitioners imported tobacco from the State of Bombay in large quantities but stated that the tobacco, after its arrival in the petitioners' bidi fac-tories, was cleaned, sieved and blended· few more facts relevant for the decision of this petition may be stated in this context. Not only the petitioners but also the dealers in Bombay who sell or supply tobacco to the petitioners are registered as "dealers" for the purpose of the Central Provinces and Berar Sales Tax Act, 1947. The petitioners are the holders of certificate of registration, No. LDG 53 obtained by them under Rule 8 of the Central Provinces and Berar Sales Tax Rules, 1947. When making purchases of the tobacco in question they also made declarations in the form required by Rule 26(II) declaring that they had purchased the said goods from Shri Shah Chhaganlal Ugarchand Nipani, dealer holding registration certificate No. Blv!Y /93-MP and from Shri Maniklal Chunanlal Baroda, dealer holding registration certificate No. BMY/341-MP on different dates therein mentioned for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose .of consumption in that State. In the return which

2S.C.R.

was filed by the petitioners for the quarter beginning from 3rd May 1954 and ending with 29th July 1954, the petitioners mentioned Rs. 16,47,567-3-3 as the purchase price of goods purchased on declaration as being goods specified in the registration certificate :is inten<led for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilisc<l for any other purpose. In the return which was filed by them for the quarter beginning from 27th July 1954 and ending with 26th October 1954, they di<l not fill in any figure but showed the ahove item as blank contending that the Sales Tax authorities were not entitled to levy any purchase tax against them in respect of the same.The learned Attorney-General appearing for the pet1t10ners before us contended ( 1) that the transac-tiom in question were in the course of inter-State commerce and were, therefore, within the ban of article 286(2) and the State of Madhya Pradesh had no authority to impose or to authorise imposition of tax on these transactions, (2) that in any event the goods were delivered for consumption in the State of Ut'.:ar Pradesh and were not liable to levy of tax at the instance of the State of Madhya Pradesh, (3) that, section 4(6) of the Act was invalid inasmuch as it offended against the provisions of article 286(1) (a), and lastly ( 4) that even if the above contentions were negatived, section 4(6) of the Act had, on its true constructioil, no application to the facts of the pre-sent case. He, however, urged that if the Court was with him 0'.1 his first contention, viz., that the trans-actions in question took place in the course of inter-State commerce it was not necessary to go into the other contentions. We are of the opinion that this contention of the learned Attorney-General i~; sound. It was in fa::t admitted by the RespoPdents in their return that the petitioners imported tobacco from the State of Bom-bay in large quantities. The Bombay suppliers pro-cessed tobacco in their go<lowns situated within the ·State of Bombay and supplied the finished tobacco

Mes,rs Moha1Jlal Hargovind Das, Bidi Merchant.r, Jabalpur (M. 1-'.) v. The StaU of Madhya Pradtsh and anolM1. Bhagwati J.

Mmn Mohatrlal HMtouitul Da.i, Bidi Mmlumll, Jaolp (M.P.) v. Tlw8"'*•/ M~Proi<d ""'.,,.,,,.,, ·~.,.,.,, ].

to the petitioners in Madhya Pradesh. The peti-tioners imported this finished tobacco into Madhya Pradesh from these suppliers who were carrying on business in the State of Bombay and there was of necessity, as result of these transactions, the mOTe-ment of the goods across the border. As result of the transactions entered into by the petitioners with these suppliers the finished tobacco which was sup-plied to the petitioners moved from the State of Bom-bay to the State of Madhya Pradesh and these traru> actions were, therefore, in the course of inter-State trade or commerc(. The only answer which was made by the learned Advocate-General of Madhya Pradesh was that Shri Shah Chhaganlal Ugarchand Nipani and Shri Maniklal Chunanlal B:!toda were themselves dealers holding registration certificates Nos. BMY /93/MP and BMY / 341-MP being registered as such under the provisions of the Central Provinces and Berar Sales Tax Act, 1947, and that, therefore, the transactions were bet-ween two registered dealers in the State of Madhya Pradesh and therefore constituted purely internal sales of the goods. If they were thus internal sales there was no question of their being transactions in the course of inter-State trade or commerce and there-fore they were not subject to the ban imposed under article 286(2).

This answer suffers from over-simplification. No doubt, the dealers who supplied the finished tobacc0o to the petitioners were registered dealers under the Central Provinces and Berar Sales Tax Act, 1947, but that fact by itself would not be sufficient to invest the transactions which otherwise were in the course of inter-State trade or commerce with the character of intra-State · transactions or internal sales or pur-chases. What one has got to look at is the real namre of the transactions and not the outside form. per-son who carries on business of selling or supplying goods in Madhya Pradesh and who comes within the definition of "dealers" given in section 2(c) of the Act has, under pain of penalty visited upon him uncler section 24 of the Act, to register himself as dealer

2S.C.R.

and possess registration certificate under section 8(1) of the Act. Merely because he got himself registered as such to avoid the penalty which would otherwise be visited upon him by the State it cannot be stated that whatever transactions he entered into with other dealers in the State of Madhya Pradesh were all intra-State transactions or internal sales or purchases irres.-pcctive of the fact that the transactions involved movement of the good51, across the border and were clearly transactions of sale of goods in the course of inter-State trade or commerce, We were taken by the learned Attorney-General through the several provi• sions of the Act and we arc confirmed in our opinion that these transactions sought to be taxed by the Sales Tax authorities of the State of Madhya Pradesh were transactions in the course of inter-State trade or commerce. The activities of selling or supplying goods in Madhya Pradesh if carried on habitually would amount to carrying on of the business of sell-ing or supplying goods in the State of Madhya Pra-desh and even an outside merchant who indulged in such activities may in such event be said to be carry-ing on business in Madhya Pradesh and would come within the definition of "dealer" given in section 2(c) of the Act. When we come, however, to section 8 which deals with the registration of dealers, that sec-tion requires that dealer while being liable to pay tax under the Act shall not carry on business as dealer unless he has been registered as such and pos-sesses registration certificate. The liability to pay tax under the Act is thus postulated and unless and until person is liable to pay such tax he need not get himself registered as dealer. All the transac-tions entered into by registered dealer, however, do not necessarily import liability to pay tax under the Act because, whenever the question arises in regard to his liabilty to pay any tax under the Act, such liability would have to be determined in spite of his being registered dealer with reference, inter alia, to the provisions of section 27-A of the Act which in-corporates within its terms the bans w!iich have been imposed on the powers of the State Legislatures to

Mnm Malumllll HMgaoirttl Do1, Bidi M1rcba1111, Ju•llW (M. r:r ... TlllSto~of "'"""'• Proifl1f! --""'· .,..,iJ.

Mes!rl Mohan/al Hartovind Das, Ridi Merchants, Jabalpur (M. P.) v. Th~ State of Madhya Pro.rfesh and another Bhagawati j.

tax under article 286 (1) (a) and (2) of the Constitu-tion. If, therefore, dealer who has got him~elf registered as dealer under the provisions of section 8 ( 1) of the Act is sought to be made liable in respect of transactions of sale effected by him he could claim exemption from such liability if the transactions of sale or purchase took place in the course of inter-State trade or commerce after the 31st March, 1951, except in so far as Parliament may by law otherwise provide. In the case before us there was no such provision made by Parliament and the transactions in question were all after the 31st March, 1951, with the result that the ban imposed by article 286(2) was in opera-tion and if the transactions took place in the course of inter-State trade or commerce not only were Shri Chhaganlal U garchand Nipani and Shri Maniklal Chunanlal Baroda exempt from the liability to pay the tax on these transactions but the petitioners also were similarly exempt. No liability, therefore, could be imposed either for Sales Tax or for Purchase Tax within the terms of the Act on these transactions which as above stated took place in the course of inter-State trade or commerce. It was, however, urged that the petitioners had made declarations at the time of making the pur-chases of this finished tobacco that they had pur-chased the said goods for use as raw material.s in the manufacture of goods for sale for actual delivery in Madhya Pradesh for the purpose of consumption in that State and that by virtue of the provisions of sec-tion 4(6) of the Act they were liable to pay the pur-chase tax on the purchase price of goods which had been utilised for any other purpose. Whatever steps rhe State of Madhya Pradesh may be able to take in regard to nbn-compliance with the terms of the decla-rations by the petitioners we are clearly of opinion that the State of Madhva Pradesh · is restrained from imposing any tax on the transactions of purchasr: or sale which take place in the course of inter-St2te trade or commerce and no question of liability of the petitioners by virtue of such declarations survives ·because even initially Shri Shah Chhaganlal Ugar-

2 S.C.R.

chand Nipani and Shri Maniklal Chunanlal Baroda were not liable to pay any tax on these transactions nor could any such liability for tax be transferred to the petitioners by virtue of such declarations. If, therefore, there was no basis for any such liability, the declarations by themselves cannot create any new liability and the petitioners cannot be held liable to tax even by the operation of section 4(6) of the Act, the very basis of the liability sought to be im-posed therein having disappeared.

The result, therefore, is that the Respondents will be restrained from enforcing the Central Provinces and Berar Sales Tax Act, 1947, and its provmons against the petitioners and from imposing tax in respect of the transactions in question and in particular from imposing tax on the purchase price of goods pur-chased on the declarations under Rule 26 being goods specified in the registration certificate as intended for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilised for any other purpose under the provisions of section 4(6) of the Act. The Re~ondents will pay the peti-tioners' costs of this petition.

Mmrs Mohdll/al J/argovind Das, Bidi Merthanls, Jabalpur (M. P.) v. Tht Stale of Madhya Pradesh and anothtr Bhagawati J.

THE TROPICAL INSURANCE CO LTD. & OTHERS

THE UNION OF INDIA & ANOTHER (and connected petition.)

[S. R. DAS, ACTING C.J., BHAGWATI, VENKA1'A-RAMA AYYAR, JAFER IMAM and CHANDRA-SEKHARA AYYAR JJ.)

Insurance-Insurer doing life insurance business along with general insurance business-Power of Central Government to appoint Administrator-Such power, if confined exclusively to life insurance business-Grounds not taken in petition under Art 32, if can be urged at the hearing-Insurance Act (IV of 1938), s. 52-A-Consti-tution of India, Art 32.

1955 Sep11m/Jel 22