4. Commercial Tax Officer vs. M/s Bombay Machinery Stores Civil Appeal No. 2217 of 2011 Date of order: 7th April, 2011 (Supreme Court)
Constructive
delivery u/s 6(2) of the CST Act, 2002
FACTS
The Supreme Court in its
judgment in this case, overruled the Delhi High Court judgment in the case of Arjan
Das Gupta vs. The Commissioner, Delhi Administration (1980) 45 STC 52.
In that judgment, the Delhi High Court had developed a principle akin to constructive
delivery qua the termination of movement of goods as contemplated under
Explanation 1 to section 3 of the CST Act, 1956.
The High Court had said, ‘…
Normally, when the goods are carried by a carrier from one State to another,
the delivery is taken by the importer immediately after the goods land in the
importing State. Thus, normally, the landing of the goods in the importing
State and the delivery of the goods are almost simultaneous acts, although
technically there will be some hiatus between the two. Considering these
commercial facts, it is difficult to accede to the retailer’s contention that
the movement of goods continues even if the goods have landed in Delhi only
because the importer has transferred the documents of title to the purchasing
retailers and such retailers take delivery from the Railways at a subsequent
time. If taking delivery is the test of termination of movement and not the
landing of the goods in an importing State, Explanation 1 to section 3(b) of
the Central Sales Tax Act, 1956 would lead to anomalous results. If, after the
landing of the goods in Delhi, the Railway receipts are endorsed one after
another to ten persons and the delivery is taken by the tenth person, say after
3 months, the movement of goods would on the dealer’s interpretation
artificially continue for three months after the landing of the goods in Delhi.’
This decision of the Delhi
High Court, which held that Explanation 1 to section 3(b) of the CST Act, 1956
did not permit the dealers to expand the movement of goods beyond the time of
physical landing of the goods in the Union Territory of Delhi, was thereafter
followed in many other states. The assessing authorities in Maharashtra have
also followed this decision, more particularly in the case of yarn dealers and
such second sales (popularly known as in-transit sales) have been disallowed if
such sales in this state were not effected by such dealers immediately after
the landing of the goods in the state. In fact, some A.O.s held the view that
such second sales should be effected even before the landing of the goods in
the state.
The Commercial Tax Department
of the state of Rajasthan had issued two Circulars based on the said Delhi High
Court judgment. The first one was issued on 16th September, 1997
informing the trade that the reasonable time for effecting such second sale u/s
6(2) of the Act would be ten days after the goods land in their state, i.e. the
destination state. In the opinion of the said Department, normally the
transporters impose a condition of delivery of the goods at the destination
within ten days. Therefore, the Circular stated that if the carrier retained
the goods for a period beyond ten days, then there was a clear inference that
the consignee was aware of the arrival of the goods and the transporter was
holding the goods on his behalf as a bailee for the consignee. Any such second sale
effected after ten days was thus treated as local sale. Aggrieved by such
unreasonable limitation laid down by the Circular, the representatives of the
trade approached the authority and the authority was pleased to increase the
period from ten to 30 days by another Circular dated 15th April,
1998.
In this particular case, the
Bombay Machinery Store had purchased electric motors and their parts in the
year 1995-96 out of the state of Rajasthan and sold them to purchasers within
the Kota region of the same state. For such sales, they obtained the benefit of
exemption u/s 6(2) of the 1956 Act. These goods had remained with the transport
company upon arrival in Kota for more than a month. But this claim of sales u/s
6(2) was disallowed by the assessing authority for the reason that after
importing these goods into Rajasthan, sale was effected through transport
receipt on obtaining separate orders. Such sales, in the opinion of the
assessing authority, constituted sales within the state and hence were taxable
at 12% per annum under the Rajasthan Sales Tax Act, 1954. Even though the
second sales effected by the Bombay Machinery Stores u/s 6(2) of the CST Act,
1956 were prior to the issuance of the Circulars, the assessing authority had
disallowed such sales being beyond the period of 30 days. However, the appeal
against the assessment order was allowed by the Deputy Commissioner, Appeals.
And the Rajasthan Tax Board confirmed this order. The Rajasthan High Court
upheld the orders passed by the Rajasthan Tax Board. The impugned Circulars
were also quashed by the Rajasthan High Court. The Revenue then filed an appeal
to the Supreme Court.
HELD
The Apex Court rejected the
appeal of the Revenue with the following observations:
Para
12: ‘In this set of appeals we have already indicated that transfer
of documents of title were effected subsequent to the goods reaching the
location within destination State. But when the goods are delivered to a
carrier for transmission, first Explanation to section 3 of the 1956 Act
specifies that movement of the goods would be deemed to commence at the time
when goods are delivered to a carrier and shall terminate at the time when
delivery is taken from such carrier. The said provision does not qualify the
term “delivery” with any timeframe within which such delivery shall have to
take place. In such circumstances fixing of time frame by order of the Tax
Administration of the State in our opinion would be impermissible.’
The Revenue had relied on
section 51 of the Sale of Goods Act, 1930 before the High Court. In appeal, the
Supreme Court stated that section 51 was of no assistance since there was no
material available on the record which would indicate that the transporter had
informed the consignee that he was holding the goods as a bailee.
The Court also stated that
the Delhi High Court did not lay down a correct proposition of law in its
judgment in Arjan Das Gupta (Supra)
The Court observed that on a
plain reading of the statute, the movement of the goods for the purposes of
clause (b) of section 3 of the 1956 Act would terminate only when delivery is
taken, having regard to the first Explanation to that section. There is no
scope of incorporating any further word to qualify the nature and scope of the
expression ‘delivery’ within the said section. The Legislature had eschewed
from giving the said word an expansive meaning. The High Court rightly held
that there is no place for any intendment in taxing statutes. The Court further
stated that in the event the authorities felt that any assessee or dealer was
taking unintended benefit under the aforesaid provision of the 1956 Act, then
the proper course would be Legislative amendment. It also said that the tax
administration authorities could not give their own interpretation to
Legislative provisions on the basis of their own perception of trade practice.
This administrative exercise, in effect, would result in supplying words to
Legislative provisions, as if to cure omissions of the Legislature. The appeals
were allowed.
The Supreme Court, in this
judgment, has not laid down any new principle of law. In fact, the Constitution
Bench of the Supreme Court in the year 1978 itself had said that in the taxing
statute there is no room for intendment and effect should be given to the clear
meaning of the words. [See Hemraj Gordhandas vs. H.H. Dave, 1978 (2) ELT
J350.]
