Himmatlal Harilal Mehtav vs The State Of Madhya Pradesh And Othe

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 20 of 1952

Decision Date: 16 March, 1954

Coram: Mehar Chand Mahajan, B.K. Mukherjea, Vivian Bose, Ghulam Hasan

In this matter, the Court recorded that the appeal titled Himmatlal Harilal Mehtav versus The State of Madhya Pradesh and others was decided on 16 March 1954. The judgment was authored by Justice Mehar Chand Mahajan, who sat with Justices B. K. Mukherjea, Vivian Bose, and Ghulam Hasan. The petitioner was Himmatlal Harilal Mehtav and the respondents were the State of Madhya Pradesh and other parties. The case citation appears as 1954 AIR 403 and 1954 SCR 1122, with further references in subsequent reports. The issues presented to the Court involved the constitutional validity of Explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947 as amended by the Central Provinces and Berar Act, 1949, and whether the State’s threat to employ the coercive machinery of that Act to recover tax without lawful authority infringed the petitioner’s fundamental right to carry on trade under Article 19(1)(g) of the Constitution, thereby entitling him to relief under Article 226. The headnote of the judgment stated that Explanation II to section 2(g) was ultra vires the State Legislature and that a State threat to realise tax by means of the impugned Act constituted a sufficient infringement of the petitioner’s fundamental right, granting him a right to seek judicial relief. The Court further observed that the Act’s requirement that the assessee deposit the entire tax before obtaining any relief did not constitute an adequate alternative remedy. Earlier decisions referred to included State of Bombay v. United Motors (India) Ltd. (1953 SCR 1069), Baleigh Investment Co. v. Governor‑General in Council (L.R. 74 I.A. 50), and Mohd Yasin v. Town Area Committee (1952 SCR 572). The civil appellate jurisdiction for this appeal was recorded as Civil Appeal No. 20 of 1952, filed under Article 132(1) of the Constitution in order to challenge the judgment and order dated 25 April 1952 of the High Court of Judicature at Nagpur in Miscellaneous Petition No. 1623 of 1951. Counsel for the appellant, assisted by counsel, represented the petitioner, while the Advocate‑General of Madhya Pradesh, accompanied by counsel, represented the first respondent, and the Advocate‑General of Madras, with counsel, appeared for the intervener. The judgment was delivered by Justice Mahajan, Chief Justice, and began with a statement that this was an appeal by leave from the High Court judgment dated 25 April 1952, which had dismissed a petition under Article 226 questioning the constitutional validity of certain provisions of the Central Provinces and Berar Sales Tax Act, 1947.

On the 25th of April, 1952, the High Court of Judicature at Nagpur dismissed a petition that had been filed under article 226 of the Constitution of India by the appellant. The petition contested the constitutional validity of certain provisions of the Central Provinces and Berar Sales Tax Act, 1947. The appellant, C. Parakh and Company (India) Limited, was a corporation incorporated under the Indian Companies Act, 1913. Its registered head office was situated in Bombay, and it maintained a number of branch offices within the State of Madhya Pradesh. The principal business activity of the company consisted of the trade in cotton.

The head office in Bombay entered into contracts for the sale of cotton bales with various mills and individual buyers. These contracts were administered in accordance with the regulations and control exercised by the Textile Commissioner at Bombay. After a contract was concluded, the cotton bales—once ginned and pressed—were dispatched from locations such as Khamgaon and other points within Madhya Pradesh. Although the goods originated in Madhya Pradesh, they were ultimately delivered in Bombay or in other destinations outside Madhya Pradesh as directed by the head office. The transportation of the cotton bales was carried out by rail, and each consignment was insured in favour of the appellant. Delivery to the purchaser was effected upon the tender of a railway receipt and the receipt of payment for the price in Bombay.

Under the Central Provinces and Berar Sales Tax Act, 1947 (Act XXI of 1947), cotton was declared liable to sales tax effective 11 April 1949. From that date the appellant began to pay the tax on all purchases it made, and it continued to do so until 31 December 1950. For the financial quarter that ended on 31 March 1951, however, the appellant refused to pay the tax on purchases made during that period. The company had become aware that, under the law, it might not be liable to pay the tax for transactions that took place in Madhya Pradesh because such transactions did not constitute “sales” within that State. Fearing that it could be compelled to pay a tax for which there was no legal authority, the appellant filed an application before the Nagpur High Court seeking an appropriate writ or writs that would protect the company from the operation and enforcement of the contested provisions of the Act.

The appellant alleged that Explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947, as amended by Act XVI of 1949, was ultra‑vires and therefore illegal. This petition, together with a reference to another matter (Miscellaneous Civil Case No. 258 of 1951, A.I.R. 1952 Nag 378), was heard by a division bench of the Nagpur High Court. The court held that Explanation II to section 2(g) could not be enforced because, according to the Constitution, sales tax could be levied only in the State where the goods were delivered for consumption. The court further held that Explanation II, as amended by Act XVI of 1949, was not validly enacted because it effected drastic modifications to the provisions of the Sale of Goods Act.

In this appeal the Court observed that the State had acted without obtaining the assent of the Governor‑General, which was required by section 107 of the Government of India Act, 1935. The Court further noted that merely reducing the goods within a State was insufficient to render the tax payable unless the goods were appropriated to a specific contract; imposing tax at that stage would amount to an excise duty rather than a tax on the sale of goods. Despite these observations, the High Court declined to grant a writ and dismissed the petition filed under article 226 of the Constitution. The High Court’s reasoning was that a writ of mandamus is issued only to compel an authority to perform or refrain from performing an act, that such a writ is rarely anticipatory, and that it never issues where the authority’s action depends on some act of the petitioner. In the present case the petitioner had not even filed his return and consequently no demand for tax could be made against him. In the present appeal counsel for the appellant argued that an illegal and unjust imposition constitutes an illegal restraint on trade and violates fundamental rights. He contended that the High Court, having held that article 286 of the Constitution makes delivery of goods for consumption the decisive factor for determining which State may tax such sales, and having therefore declared the Explanation to the definition of “sale” unconstitutional, ought to have issued a writ of mandamus restraining the respondent State from enforcing that portion of the Act. To appreciate these contentions, the Court set out the relevant provisions of the Act which the High Court had declared ultra vires the State legislature. Act XXI of 1947 defines “sale” in section 2(g) as any transfer of property in goods for cash, deferred payment or other valuable consideration, including transfers made in the course of executing a contract, but expressly excludes a mortgage, hypothecation, charge or pledge. Explanation (I) deems a transfer of goods on hire‑purchase or other instalment system to be a sale even though the seller retains title as security. Explanation (II) provides that, notwithstanding any contrary provision in the Indian Sale of Goods Act, 1930, the sale of any goods actually situated in the Central Provinces and Berar at the time the contract of sale is made shall, irrespective of where the contract is made, be deemed for the purposes of this Act to have taken place in the Central Provinces and Berar. This provision was later amended by the Central Provinces and Berar Act XVI of 1949.

The amendment that became effective on the eleventh day of April, nineteen forty‑nine, modified Explanation II of section 2(g) so that the provision now read: “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—if either (a) the goods were actually in this Province at the time the contract was executed, or (b) the contract concerned future goods described in advance and those goods were subsequently produced or found in this Province at any time after the contract was made.” Subsequent legislative changes were introduced by Act IV of 1951, which came into force on the first day of April, nineteen fifty‑one, but those later modifications were held to be irrelevant to the question presently before the Court. The High Court had previously concluded that the newly inserted Explanation II exceeded the powers of the State Legislature and that the mere presence of goods in the Province could not, by itself, give rise to tax liability unless the goods were actually appropriated to a specific contract. That conclusion could no longer be disturbed because of the authoritative majority judgment of this Court in State of Bombay v. United Motors (India) Ltd., where it was held that article 286(1)(a) of the Constitution, read together with its Explanation and interpreted in the light of articles 301 and 304, bars any State from taxing sales or purchases that involve inter‑State elements, except the State in which the goods are delivered for consumption; consequently, the view that the Explanation allowed both the State where title passed and the State of consumption to levy tax was rejected as incorrect. The learned Advocate‑General of the State, rather than contest the High Court’s determination of ultra vires, acknowledged that the Explanation was plainly beyond the State’s legislative competence. Nonetheless, he argued, relying on the principle articulated by the Privy Council in Raleigh Investment Co. v. Governor‑General in Council, that seeking to challenge an assessment by any means other than the specific procedure prescribed in the Act conflicted with the statutory duty to pay the tax arising from that assessment, and that the liability to pay sales tax created by the Act constituted a special liability which, at the same time, provided a distinct remedial avenue that should not be circumvented by invoking a writ, lest the provisions of a fiscal statute be evaded.

The Court observed that the writ of mandamus cannot be permitted merely as a device for circumventing the provisions of a fiscal statute. It was further contended that the requisites for issuing a mandamus were absent in the present matter and that Article 226 of the Constitution was not intended to settle a purely academic dispute. The Court found these contentions put forward by the learned Advocate‑General to be without merit. It was clear that the State had manifested an intention to invoke the penal provisions of the statute against the appellant should he fail to file the required return or satisfy the demand. Such a threat, being unsupported by any legal authority and thereby infringing the appellant’s fundamental rights, made relief by way of a writ of mandamus the appropriate remedy. In support of this view, the Court referred to the decision in Mohd. Yasin v. The Town Area Committee (2) [1952] S.C.R. 572, where it was held that a licence fee not only deprives the licence holder of property but also restricts his fundamental right to conduct business, and that an unauthorised imposition of such a fee may be challenged under Article 32 and, a fortiori, under Article 226. The Court applied those observations to the facts of the present case, concluding that the same principles justified the issuance of the writ in the present circumstances.

The Court noted that Explanation II to section 2(g) of the Act had been declared ultra vires, rendering any attempt to levy sales tax on the appellant in Madhya Pradesh without legal authority. Consequently, the State’s attempt to enforce the tax by resorting to the coercive machinery of the impugned Act amounted to a direct infringement of the appellant’s fundamental right under Article 19(1)(g). The Court held that this infringement entitled the appellant to relief under Article 226. The contention that the availability of a statutory remedy barred the use of Article 226 was rejected, citing the decision in The State of Bombay v. The United Motors (India) Ltd. (1) [1953] S.C.R. 1069, which affirmed that the doctrine denying a prerogative writ when an alternative remedy exists does not apply when a fundamental right is alleged to have been violated. Moreover, the statutory remedy was characterised as onerous because it required the appellant to deposit the entire tax amount before any relief could be obtained, a condition that could not be regarded as an adequate alternative. For these reasons, the Court concluded that the High Court erred in dismissing the appellant’s application on the basis that Explanation II to section 2(g) was ultra vires, and that the appellant was indeed entitled to the writ of mandamus.

The Court observed that the High Court had concluded that the appellant could not obtain relief under article 226 of the Constitution. On reviewing the submissions and the earlier findings, the Court determined that this conclusion was erroneous. Accordingly, the appeal was allowed, with the appellant awarded costs. The Court further directed the issuance of an appropriate writ that would restrain the first respondent from imposing, or authorising the imposition of, any tax upon the appellant in exercise of the authority conferred by Explanation 11, which the Court held to be void. The order thus affirmed the appellant’s right to relief and prohibited the illegal tax measure. The decision was recorded in the Supreme Court Reports, volume I, page 1069, dated 1953.