The State of Bombay vs M/S. Ratilal Vadilal And Bros

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 429 of 1959

Decision Date: 15 November, 1960

Coram: M. Hidayatullah, J.L. Kapur, J.C. Shah

The State of Bombay filed a petition for special leave to appeal an order dated 6 December 1957 issued by the former Bombay Sales Tax Tribunal in Appeal No. 6 of 1956. The Tribunal had set aside an earlier order of the Collector of Sales Tax made under section 27 of the Bombay Sales Tax Act, 1953. The respondents, identified as Ratiland Vadilal & Bros., operated as commission agents and also performed functions as clearing and transport contractors. On 25 June 1954, they had submitted an application to the Collector of Sales Tax, Bombay, invoking sections 27(a), (b) and (c) of the Act. In that application they described the nature of their business and cited a specific instance, seeking a determination as to whether they could be classified as “dealers” within the meaning of the statute. The Collector, by his order, concluded that the respondents were dealers and consequently required them to register under the Act. The respondents contested this finding before the Sales Tax Tribunal, which ultimately held that they were not dealers. The State of Bombay, dissatisfied with the Tribunal’s decision, appealed to this Court, obtaining special leave under article 136 of the Constitution. The petition was presented before a bench consisting of Justice Hidayatullah, Justice J. L. Kapur and Justice J. C. Shah. Counsel for the appellant included the Solicitor‑General of India and two additional counsel, while counsel for the respondents comprised a team of senior advocates. The judgment was delivered by Justice Hidayatullah.

The Court observed that after the Collector’s determination, no step had been taken to refer the matter to the High Court of Bombay under section 34(1) read with sections 30(1) and (2) of the Act. The Court noted a recurring pattern where appellants had not exhausted all available remedies before approaching this Court. It emphasized that, as a general rule, this Court would not permit the bypassing of the High Court and that an appellant should first pursue all remedial avenues before invoking the jurisdiction of this Court under article 136. Nevertheless, the Court found the issue in the present case to be straightforward. The respondent’s counsel requested a determination of the legal question, arguing that his client, a small trader, would otherwise be subjected to protracted litigation. Accordingly, the Court proceeded to consider the classification of the respondents under the Act.

The State of Bombay had challenged the order of the Collector of Sales Tax, who had classified the respondents, Ratilal Vadilal & Bros., as “dealers” within the Bombay Sales Tax Act, 1953, and consequently required them to register under the Act. The Tribunal had reversed the Collector’s finding and held that the respondents were not “dealers,” which led the State to appeal to this Court. The record showed that no reference was made to the High Court of Bombay under section 34(1) read with sections 30(1) and 30(2) of the Act, a step that is ordinarily required before invoking the jurisdiction of this Court under article 136. The Court has often observed that an appellant must first exhaust all available remedies, and it is generally reluctant to allow the High Court to be bypassed. In the present matter, however, the learned counsel for the respondents argued that the issue was purely technical and that further litigation would unnecessarily burden a small trader who had merely sought clarification of the law. Accordingly, while the Court decided to hear the appeal, it expressly declined to establish a mandatory procedural course (cursus curiae) for future cases of this kind.

The factual backdrop concerned transactions that occurred after the Colliery Control Order, 1945, had become effective. Under that Order, any person who wished to acquire coal from a colliery had to obtain a priority certificate from the State Coal Controller, the authority of the Central Government. The Order permitted del credere agents to act as intermediaries and to levy a commission of one rupee per ton of coal. On 17 June 1954, a priority certificate was issued to Nanalal Karsandas, a brick manufacturer, for the purchase of 22 tons of coal. Karsandas obtained the coal from M/s S.C. Rungta Colliery, Burhar, through the respondents. Although the consignment was made out in Karsandas’s name, the Colliery sent its bill to the respondents, who in turn prepared a separate bill that added a commission of Rs 22 to the Colliery’s amount. The respondents argued that they merely acted as “middlemen” between the Colliery and Karsandas and did not purchase the coal for themselves. They sought from the Collector a determination as to whether, under the definition of “dealer” in the Bombay Sales Tax Act—“any person who carries on the business of selling goods in the State of Bombay, whether for commission, remuneration or otherwise”—they should be classified as dealers and consequently be required to register. The essential question, therefore, was whether the respondents were engaged in the business of selling goods in Bombay, specifically coal, within the meaning of the statute.

In this appeal the central question was whether the respondents were engaged in the business of selling coal within the meaning of the Bombay Sales Tax Act, 1953. The Court first examined the provisions of the Control Order, which made clear that a sale of coal could be lawfully effected only to a person who possessed a valid certificate issued under the Order. Any transaction that occurred without such a certificate would constitute a violation of the Control Order. The certificate that had been produced as evidence in the proceedings was issued in the name of the respondents; however, the document expressly identified the ultimate consumer as the consignee of the coal. This fact demonstrated that the coal was not transferred from the Colliery to the respondents as a purchaser, but rather that the Colliery delivered the coal directly to the consumer, Karsandas, while using the respondents merely as intermediaries. The respondents themselves, when preparing the invoice addressed to Karsandas, clearly stated on the invoice that Karsandas was the consignee and that the respondents were charging only a commission for acting as “middlemen.” Considering these circumstances, the Court found it difficult to accept the notion that a genuine sale had occurred from the Colliery to the respondents followed by a second sale from the respondents to Karsandas. In reality only a single sale took place, namely the sale by the Colliery directly to the consumer. Because the Colliery did not, and could not, sell the coal to the respondents without a certificate, the respondents never acquired ownership of the coal through purchase. Their role was limited to that of agents who facilitated the transaction with a disclosed purchaser and who guaranteed payment to the Colliery on behalf of their principal. Consequently, no actual business of selling coal was shown in the material placed before the Collector, and the Tribunal’s order, which had concluded that the respondents were not dealers under the Act, was affirmed as correct on the facts presented. Accordingly, the appeal was dismissed and the respondents were ordered to pay costs.