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PETITIONER:

POPPATLAL SHAH

Vs.

RESPONDENT:

THE STATE OF MADRAS.UNION OF INDIA AND OTHERS-Interveners.

DATE OF JUDGMENT:

30/03/1953

BENCH:

MUKHERJEA, B.K.

BENCH:

MUKHERJEA, B.K.

BHAGWATI, NATWARLAL H.

SASTRI, M. PATANJALI (CJ)

BOSE, VIVIAN

HASAN, GHULAM

CITATION:

1953 AIR 274 1953 SCR 677

CITATOR INFO :

R 1955 SC 661 (93,147)

RF 1958 SC 452 (14,26)

RF 1958 SC 468 (6,14,17)

R 1958 SC 560 (14,32)

R 1959 SC 887 (16)

RF 1961 SC 347 (20)

RF 1961 SC1065 (4)

R 1963 SC1207 (42,50)

R 1965 SC 161 (8)

RF 1966 SC 376 (5)

F 1985 SC1034 (15)

R 1988 SC2031 (9)

ACT:

Madras Sales Tax Act (IX of 1939), Ss. 2, 8 (before

amendment of 1947)-" Sale within the province", meaning of-

Levy of tax on sales where property in the goods passed

outside the province-Legality-Provincial Legislature-

Territorial jurisdiction.

HEADNOTE:

Under the Madras Sales Tax Act, 1939, as it stood before

it was amended by the Madras Act XXV of 1947,the mere fact

that the contract of sale was entered into within the

Province of

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Madras did not make a transaction which was completed in

another province where the property in the goods passed, a

sale within the Province of Madras and no tax could be

legally levied upon such a transaction under the provisions

of the Act.

Though a Provincial Legislature could not pass a taxation

statute which would be binding on any other part of India it

was quite competent for a province to enact a legislation

imposing taxes on transactions concluded outside the

province provided there was a sufficient and real

territorial nexus between such transactions and the taxing

province.

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The title and preamble, whatever their value might be as

aids to the construction of a statute, undoubtedly throw

light on the intention and design of the Legislature and

indicate the scope and purpose of the legislation itself.

It is a settled rule of construction that to ascertain the

legislative intent all the constituent parts of a statute

are to be taken together and each word phrase or sentence is

to be considered in the light of the general purpose and

object of the statute.

Judgment of the Madras High court reversed.

JUDGMENT:

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 92 of

1952.

Appeal under articles 132(1) and 134(1) (c) of the

Constitution of India from the Judgment and Order dated the

29th August, 1952, of the High Court of Judicature At Madras

(Rajamannar C.J. and Venkatarama Ayyar J.) in Criminal

Appeal No. 129 of 1952 arising out of the-order dated the

25th February, 1952, of the Court of the VII Presidency

Magistrate, Egmore, Madras, in C. T. No. 1358 of the

Calendar for 1950.

B. Somayya (C. B. Pattabhi Baman, with him) for

theappellant.

V. K. T. Chari, Advocate- General of Madras (V. V.

Rahavan and Alladi Kuppuswami with him) for the respondent.

M. C. Setalvad, Attorney-General for India (G. N. Joshi

and P. A. Mehta, with him) for the Union of India.

B. K. P. Sinha for the State of Bihar.

S. M. Sikri, Advocate-General of Punjab (M. L,

Sethi, with him) for the State of Punjab.

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A. R. Somanatha Iyer, Advocate-General of Mysore (R. Ganapathy

lyer, with him) for the State of, Mysore.

K. B. Asthana for the State of Uttar Pradesh.

T. N. Subramanya Iyer, Advocate-General of Travancore-

Cochin (M. B. Krishna Pillai and Balakrishna Iyer, with

him) for the State of Travancore Cochin.

V. N. Sethi for the State of Madhya Pradesh.

Hajarnavis for Husain Kasam Dada (India) Ltd. (Intervener

No. 8).

1953. March 30. The Judgment of the Court was delivered

by

MUKHERJEA J.-This appeal, which has come before us on a

certificate granted by the Madras High Court under articles

134(1) (e) and 132(1) of the Constitution, is directed

against an appellate judgment of a Division Bench of the

High Court of Madras, passed in Criminal Appeal No. 129 of

1952, by which the learned Judges affirmed an order of the

Seventh Presidency Magistrate, Madras, dated February 25,

1952, convicting the appellant of an offence punishable

under section 15 of the Madras General Sales Tax Act and

sentencing him to pay a fine of Rs. 1,000; in default to

suffer imprisonment for a period of 3 months.

The appellant is a partner of a firm of merchants called

Indo-Malayan Trading Company" which has its head office in

the city of Madras and carries on the business of selling

and purchasing groundnut oil, sago and kirana articles. For

the period-April 1, 1947, to December 31, 1947-the company

was assessed to sales tax under the Madras Act IX of 1939

for an amount of Rs. 37,771 annas odd on a total turnover of

Rs. 37,75,257 and for failure to pay the same were

instituted against him under the provision of section 15 of

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the Act which resulted in his conviction as mentioned above.

The course of business, which is usually followed by the

company

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and which was actually followed during the period for which

assessment is made, is as follows: The company receives

orders-in its Madras office from' Calcutta merchants for

supply of certain articles. These articles are purchased in

the local markets and they are despatched to Calcutta by

rail or steamer. The railway receipts and bills of lading

are taken in the name of the vendor company and so also are

the insurance policies, and they are sent to the company's

bankers in Calcutta who deliver the same to the consignees

on payment of prices and other charges. The sole point that

requires consideration is, whether in these circumstances

the sale transactions were liable to be taxed under the

General Sales Tax Act of Madras?

Before the High Court both the parties seem to have

accepted the position that if on the facts stated above,

which were not disputed by either side, the sales could be

hold to have taken place within the Province of Madras, the

tax could legitimately be levied on them but not otherwise.

The parties differed, however? as regards the test to. be

applied, in determining whether the sales did take place

within the Province of Madras or not. On behalf of the

appellant the contention raised was that the place of sale

in regard to all the transactions was Calcutta, as the

property in the goods sold admittedly passed to the

purchasers in that city. The contention of the respondent

State on the other hand was that the true test for

determining the locality of the sale was not where the

property in the goods sold passed, but where the actual

transaction was put through. As the company had its head

office in the city of Madras, its accounts were maintained

there and the goods were delivered to the common carrier in

that city, the sale, according to the respondent, must be

deemed to have taken place in Madras even though the

property in the goods sold passed outside the province.

The High Court accepted this contention of the respondent

State. In the opinion of the learned

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Judges, the word "sale" has both a legal and a popular

meaning. In the legal sense, it imports passing of property

in the goods and it is in this sense that the word is used

in the Sale of Goods Act. 'In the popular sense, however,

it signifies the transaction itself which results in the

passing of property. As the object of the Legislature in

the Sales Tax Act is to impose a tax on the occasion of the

sale, it is immaterial that the sale has been completed

outside the province. The place where the property passes

is, it is said, a matter of no concern to the taxing author-

ity and in such context the popular meaning of the word is

more appropriate and should be adopted. The further

contention raised on behalf of the appellant, that if this

view was accepted, the sales tax would have to be regarded

as being extra-territorial, in its operation and as such

ultra vires the Provincial Legislature, was repelled by the

High Court on the authority of the well known decision of

the Judicial Committee in Wallace Brothers etc., & Company

v. Commissioner of Income-tax, Bombay(1).

It is the propriety of this decision that has been

challenged before us and the contentions raised by Mr.

Somayya, who appeared in support of the appeal, are of a

two-fold character : The learned counsel has argued in the

first place that the Provincial Legislature functioning

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under the Government of India Act, 1935, was

constitutionally incompetent to enact a legislation of this

character which according to the interpretation put upon it

by the High Court is capable of operating on sale

transactions concluded outside the province. The other

contention is that on a proper construction of the relevant

provisions of the Madras Sales Tax Act the High Court ought

to have held that they do not authorise the imposition of

sale tax in respect of a transaction of sale where property

in the goods sold passes outside the province.

The first contention appears to us to be unsustainable.

Section 100 (3) of the Government of India

(1) (1948] F.C.R. I (P.C.).

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Act, 1935, upon which Mr.Somayya relied and which

corresponds to article246(3) of the Constitution runs as

follows :

``Subject to the two preceding sub-sections, the

Provincial Legislature has and the Federal Legislature has

not, power to make laws for a province or any part thereof

with respect to any of the matters enumerated in List II in

the Second Schedule."

The entry in the Provincial List that is relevant for our

purpose is Entry No. 48 and that speaks of " taxes on the

sale of goods and on advertisements." The entry does not

suggest that a legislation imposing tax on sale of goods can

be made only in respect of sales taking place within the

boundaries of the province ; and all that section 100(3)

provides is that a law could be passed by a Provincial

Legislature for purposes of the province itself. It admits

of no dispute that a Provincial Legislature could not pass a

taxation statute which would be binding on any other part of

India outside the limits of the province, but it would be

quite competent to enact a legislation imposing taxes on

transactions concluded outside the province, provided that

there was sufficient and a real territorial nexus between

such transactions and the taxing province. This principle,

which is based upon the decision of the Judicial Committee

in Wallace Brothers etc. & Company v. Commissioner of

Income-tax, Bombay(1) has been - held by this court to be

applicable to sale tax legislation, in its recent decision

in the Bombay Sales Tax Act case (2) and its propriety is

beyond question. As a matter of fact, the legislative

practice in regard to sale tax laws adopted by the

Provincial Legislatures prior to the coming into force of

the Constitution has been to authorise imposition of taxes

on sales and purchases which were related in some manner

with the taxing province by reason of some of the

ingredients of the transaction having taken place within the

province or by

(1) [1948] F.C.R. I (P.C.).

(2) The State of Bombay d Another v. United Motors (India)

Ltd. & Others-Civil Appeal NO. 204 Of 1952.

683

reason of the production or location of goods within it at

the time when the transaction took place. If in the Madras

Sales Tax Act the basis adopted for taxation is the location

of the place of business or of the goods sold, within the

Province of Madras, undoubtedly it would be a valid piece of

legislation to which no objection on constitutional grounds

could be taken. The controversy, therefore, narrows down to

the short point as to what exactly has been adopted as the

basis of the levy of sale tax by the Madras Legislature.

This leads us to the question of interpretation of the

statute which is involved in the second point raised by Mr.

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Somayya.

It is a settled rule of construction that to ascertain the

legislative intent, all the constituent parts of a statute

are to be taken together and each word, phrase or sentence

is to be considered in the light of the general purpose and

object of the Act itself. The title of the Madras Sales Tax

Act describes it to be an Act, the object of which is to

provide for the levy of a general tax on the sale of goods

in the Province of Madras and the very same words are

repeated in the preamble which follows. The title and

preamble, whatever their value might be as aids to the

construction of a statute, undoubtedly throw light on the

intent and design of the Legislature and indicate the scope

and purpose of the legislation itself. The title and

preamble of the Madras Sales Tax Act clearly show that its

object is to impose taxes on sales that take place within

the province, though these words do not necessarily mean

that the property in the goods sold must pass within the

province. The expression "sale of goods " is a composite

expression consisting of various ingredients or elements.

Thus, there are the elements of a bargain or contract of

sale, the payment or promise of payment of price, the

delivery of goods and the actual passing of title, and each

one of them is essential to a transaction of sale though the

sale is not completed or concluded unless the purchaser

becomes the owner of the property. The question is-what

element or elements have been accepted

684

by the Madras Legislature as constituting a sale in the

province upon which it is the object of the statute to levy

tax. Section 2(h) gives the definition 'of "sale" and it is

defined as meaning, 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

consideration, but does not include a mortgage,

hypothecation, charge or pledge."

Unmistakably the stress is laid in this definition on the

element of transfer of property in a sale and no other. The

language gives no indication of the popular meaning of sale

in which according to the High Court, the word was used. It

is to be noticed that there was no provision by way of

explanation of this definition, in operation, at the

material time to indicate in what cases a sale would be

regarded as taking place within the Province of Madras,

although the property in the goods sold did pass outside the

boundaries of the province. Such explanations were added by

the Madras Act XXV of 1947 and one of these explanations,

namely explanation 2, provides as follows :

" Notwithstanding anything to the contrary in the Indian

Sale of Goods Act, 1930, the sale or purchase of any goods

shall be deemed, for the purposes of this Act, to have taken

place in this Province, wherever the contract of sale or

purchase might have been made-

(a) if the goods were actually in this Province, 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 this Province at any time after the

contract of sale or purchase in respect thereof was made."

It would be clear from this that these transactions were

not considered by the Legislature to constitute sales within

the Province of Madras under the definition itself, but by

resort to a legal fiction they were

685

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declared to be so, notwithstanding any provision in the

Sale of Goods Act to the contrary which it was assumed,

would otherwise be applicable,. The explanation further

shows that in defining "sale" in section 2(h), the

Legislature had in mind a sale in the Province of Madras and

as these words occur in the title and preamble of the Act it

was not deemed necessary to repeat them in the definition or

the charging sections. Section 3 is the charging section in

the Act and it provides for the levy of a tax on the total

turnover of a dealer for a particular year. A "turnover" is

defined to be the aggregate amount for which goods are

either bought or sold. The charging section purports to

levy a tax on the sale of goods and the tax is on the sale

of goods in the Province of Madras as defined in section

2(h) of the Act read in the light of its title and preamble.

In our opinion, the mere fact that the contract for sale

was entered into within the Province of Madras does not make

the transaction, which was completed admittedly within

another province, where the property in the goods passed, a

sale within the Province of Madras according to the

provisions of the Madras Sales Tax Act and no tax could be

levied upon such a transaction under the provisions of the

Act. A contract of sale becomes a sale under the Sale of

Goods Act only when the property in the goods is transferred

to the buyer under the terms of the contract itself. The

presence of the goods within the province at the time of the

contract would undoubtedly make the sale, if subsequently

completed, a sale within the province by reason of the

explanation added by Act XXV of 1947 ; but as this

explanation was not in operation during the relevant period

with which we are concerned, the assessment of sale tax, in

our opinion, on the transactions during this period is

illegal and not warranted by the provisions of the Act. It

is worthwhile to mention in this connection that except for

the period in question no tax was attempted to be levied on

similar transactions of the appellant by the taxing

authorities in any of the

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previous years,though the Act came into operation as early

as the year 1939. It is not disputed also that the company

is paying sale tax on its transactions with the Calcutta

merchants since the explanation added by Act XXV of 1947

came into force. 'In our opinion, the appeal should be

allowed and the conviction and sentence passed by the courts

below should be set aside. The fine and sale tax, if

actually paid, should be refunded to the appellant.

Appeal allowed.

Agent for the appellant: M. S. K. Aiyangar.

Agent for the respondent (the State of Madras), the Union of

India, and the States of Punjab,

Mysore, Madhya Pradesh and Travancore Cochin (Interveners):

G. H. Rajadhyaksha.

Agent for the State of Bihar: B. C. Prasad.

Agent for the State of U. P. C. P. Lal.

Agent for Intervener No. 8: Bajinder Narain.