Case Note & Summary
The Supreme Court of India considered a writ petition under Article 32 of the Constitution filed by Endupuri Narasimham and Son, a joint Hindu family firm carrying on business at Berhampur in Orissa as a registered dealer under the Orissa Sales Tax Act, 1947. The petitioner purchased castor seeds, turmeric, gingili and other commodities locally in Orissa under a declaration that the goods were intended for resale within Orissa, but subsequently sold them to dealers outside the State in breach of that declaration. The Sales Tax Officer, Berhampur, included the purchase turnover in the taxable turnover under Section 5(2)(a)(ii) of the Act and imposed a tax of Rs. 27,161-13-0 for sixteen quarters from 1 April 1952 to 31 March 1956. The petitioner challenged the assessment, contending that the purchases were in the course of inter-State trade and therefore exempt from State tax under Article 286(2) of the Constitution. The Court examined Section 5 of the Orissa Sales Tax Act, which excludes from a seller's taxable turnover sales to registered dealers who declare goods are for resale in Orissa, but includes in the purchasing dealer's turnover the price of goods used for other purposes. Since the petitioner sold the goods outside Orissa in violation of the declaration, the purchases became liable to tax. The petitioner relied on Mohanlal Hargovind Das v. State of Madhya Pradesh, where purchases from Bombay involving movement of goods to Madhya Pradesh were held exempt. The Court distinguished that case on the ground that the present purchases involved no movement of goods outside Orissa. Relying on Bengal Immunity Company Limited v. State of Bihar and State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory, the Court reiterated that for a sale or purchase to be inter-State, there must be transport of goods from one State to another under the contract of sale or purchase. The taxed transactions were wholly inside Orissa—sales by persons in Orissa to persons within Orissa of goods located in Orissa. The subsequent sales by the petitioner to outside dealers were distinct inter-State transactions, but the purchases themselves remained intrastate. Consequently, the Court held that a purchase made inside a State for sale outside the State cannot itself be held to be in the course of inter-State trade, and the imposition of tax on such purchases is not repugnant to Article 286(2). The petition was dismissed with costs.
Headnote
A) Constitution Law - Inter-State Trade and Commerce - Test for Inter-State Sale or Purchase - Constitution of India, 1950, Article 286(2) - The petitioner purchased goods inside Orissa under a declaration for resale in Orissa but sold them to dealers outside the State. The Supreme Court held that for a sale or purchase to be inter-State there must be transport of goods from one State to another under the contract of sale or purchase. Since the purchases sought to be taxed involved no movement of goods outside Orissa and were distinct from the later inter-State sales, they were purely intrastate and not exempt under Article 286(2). (Paras 1-4) B) Sales Tax - Taxable Turnover - Section 5(2)(a)(ii) Orissa Sales Tax Act, 1947 - Liability of Registered Dealer on Breach of Declaration - Orissa Sales Tax Act, 1947, Section 5(2)(a)(ii) - When a registered dealer declares goods are intended for resale in Orissa and later sells them outside the State in breach of that declaration, the price of such goods must be included in his taxable turnover. The Court upheld the assessment of Rs. 27,161-13-0 as the taxed transactions were wholly inside Orissa and not part of inter-State trade. (Paras 1-4)
Issue of Consideration
Whether purchases of goods made inside the State of Orissa by a registered dealer under a declaration for resale within Orissa, but subsequently sold by that dealer to purchasers outside the State, constitute purchases in the course of inter-State trade and are therefore exempt from State sales tax under Article 286(2) of the Constitution of India.
Final Decision
The Supreme Court dismissed the petition with costs, holding that the purchases taxed under Section 5(2)(a)(ii) of the Orissa Sales Tax Act, 1947 were intrastate transactions wholly inside Orissa and did not fall within the prohibition of Article 286(2) of the Constitution. The assessment of Rs. 27,161-13-0 was upheld.
Law Points
- A sale or purchase is inter-State only if goods are transported from one State to another under the same contract of sale or purchase
- a purchase made inside a State for subsequent sale outside the State is intrastate and taxable
- Article 286(2) of the Constitution prohibits state tax only on inter-State sales or purchases and does not exempt an intrastate purchase which later leads to an inter-State sale
- Section 5(2)(a)(ii) of the Orissa Sales Tax Act
- 1947 includes in taxable turnover purchases made under a declaration for resale in Orissa when goods are actually sold outside the State in breach of declaration
