Supreme Court Allows Assessee in Sales Tax Dispute Concerning Interstate Coal Sales Under Colliery Control Order. State Cannot Tax Sales Where Actual Delivery for Consumption Occurs Outside Taxing State and Coal Movement is Incident of Sale Contract Under Section 3(a) Central Sales Tax Act.

Sales tax assessment dispute concerning exemption of coal supplied to outside State allottees under the Colliery Control Order, 1945.

The appellant company sought exemption from sales tax under the Hyderabad General Sales Tax Act, 1950 on the price of coal supplied to allottees outside the taxing State pursuant to directions of the Coal Commissioner.

The Commercial Tax Officer rejected the company's claim for exemption for the assessment year 1956-57, and the Commissioner of Commercial Taxes later reopened assessments for 1954-55 and 1955-56 to bring previously exempted turnover to tax.

The Deputy Commissioner of Commercial Taxes and the Sales-tax Appellate Tribunal dismissed the appeal for 1956-57. The High Court of Andhra Pradesh dismissed the revision and special appeals, upholding the taxability of the supplies.

Whether the transactions of sale of coal supplied to outside State allottees under the Colliery Control Order, 1945 were exempt under the Explanation to Article 286(1)(a) of the Constitution before its amendment. Whether those transactions were sales in the course of inter-State trade or commerce and therefore not taxable by the State under Article 286(2) or the Central Sales Tax Act, 1956. Whether the reopening of assessments for 1954-55 and 1955-56 by the Commissioner of Commercial Taxes was barred by limitation.

Appellant argued that under the Colliery Control Order, coal was supplied for consumption by allottees outside the State, so actual delivery for consumption occurred outside the State and the sales were covered by the Explanation to Article 286(1)(a). It also contended that the movement of coal to outside State was an incident of the contract of sale, making the sales inter-State and beyond State taxing power. Respondents argued that coal was sold F.O.R. colliery siding and actually delivered within the State when loaded on railway wagons, so the sales were local and taxable under the Hyderabad General Sales Tax Act. They also maintained that reopening of assessments was not barred by limitation.

The expression 'actually delivered' in the Explanation to Article 286(1)(a) of the Constitution (before the Sixth Amendment) does not include mere symbolical or notional delivery such as entrusting goods to a common carrier or delivery of documents of title. Under the Colliery Control Order, coal supplied to an allottee was meant for consumption by that allottee; if the allottee was outside the State, the supply was for consumption in that State, thus falling within the Explanation and outside the State's taxing power. Further, when movement of goods from one State to another is a covenant or incident of the contract of sale, the sale is an inter-State sale under Section 3(a) of the Central Sales Tax Act, 1956, and the State Legislature cannot impose tax on such sales.

The question which falls to be determined in these appeals is "whether the appellant Company is liable to pay sales-tax assessed under the Hyderabad General Sales Tax Act, 1950 on the price of coal supplied to allottees outside the taxing State pursuant to directions of the Coal Commissioner issued under the Colliery Control Order, 1945". The expression "actually delivered" used in Explanation to Art. 286(1) (a) does not include mere symbolical or notional delivery e.g. by entrusting goods to a common carrier, or by delivery of documents of title like railway receipts. Coal was transported from the colliery of the company to consumers outside the taxing State as a result of a covenant or incident of the contract of sale and therefore the sale must be regarded as an inter-State sale within the meaning of s. 3 (a) of the Central Act and not liable to be taxed under the Hyderabad Act.

The Commercial Tax Officer, Hyderabad initially admitted the claim of exemption for the years 1954-55 and 1955-56 but rejected the claim for 1956-57. The appellant's appeal to the Deputy Commissioner of Commercial Taxes and the Sales-tax Appellate Tribunal against the 1956-57 assessment was dismissed. The High Court of Andhra Pradesh in revision (T.R.C. No. 17 of 1960) rejected the appellant's contentions. The Commissioner of Commercial Taxes subsequently reopened assessments for 1954-55 and 1955-56 by orders dated February 8, 1961 and November 16, 1960, bringing the previously exempted turnover to tax. These orders were challenged before the High Court in Special Appeals Nos. 1 and 2 of 1961, which were dismissed on July 25, 1961. The appellant then appealed to the Supreme Court.

• Hyderabad General Sales Tax Act, 1950: 2(k)
• Colliery Control Order, 1945: Clauses 4, 5, 6, 8, 9, 10-A(1), 10-A(2), 12-B, 12-E
• Constitution of India: Art. 286(1)(a), Art. 286(2), Explanation to Art. 286(1)(a)
• Central Sales Tax Act, 1956: 3(a)