Thansingh Nathmal And Ors vs A. Mazid, Superintendent Of Taxes on 3 February, 1964

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 86 to 97 of 1962

Decision Date: 3 February 1964

Coram: J.C. Shah, P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta, N. Rajagopala Ayyangar

In Thansingh Nathmal And Ors versus A. Mazid, Superintendent Of Taxes, the Supreme Court of India gave its judgment on 3 February 1964. Justice J.C. Shah authored the opinion, and the bench included Justices J.C. Shah, P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta and N. Rajagopala Ayyangar. The petitioners were Thansingh Nathmal and other traders, while the respondent was A. Mazid, who held the office of Superintendent of Taxes. The case was reported in 1964 AIR 1419 and 1964 SCR at page 654, and later cited in D 1967 SC 1401 and C 1991 SC 2251. The dispute involved the Assam Sales Tax Act of 1947, focusing on assessments by the Superintendent of Taxes and the denial of appeals by the Assistant Commissioner and the Commissioner of Taxes. The petitioners contended that the explanation to section 2(12) exceeded the Assam Legislature’s competence and that the tax could not be imposed on sales irrespective of where the contract was made. They also disputed the Commissioner’s finding that the goods were in Assam when the contract was made, claiming the conclusion was based only on speculation. The factual background showed that the petitioners, jute merchants in Calcutta, filed sales‑tax returns under the Assam Sales Tax Act, 1947, but when the Superintendent demanded their books for inspection they failed to comply. Consequently, the Superintendent made a “best judgment assessment” under section 17(4) of the Act, determining tax liability without the books. The petitioners appealed this assessment to the Assistant Commissioner of Taxes and then filed a revision petition before the Commissioner of Taxes, Assam; both petitions were dismissed. Unsatisfied with the administrative remedies, the petitioners instituted writ petitions under article 226 of the Constitution in the High Court of Assam, raising the two objections previously stated. The High Court examined the submissions and ultimately dismissed the writ petitions, finding no merit in the challenges raised. The petitioners then sought a certificate under article 132(1) of the Constitution to take the matter to the Supreme Court. While the case was pending before the Supreme Court, the petitioners applied for leave under article 132(3) to contest the High Court’s finding that the goods were within Assam at the time contracts were made. The Supreme Court held that leave under article 132(3) must be refused and that the appeal should be confined to the constitutional question of law that had been certified by the High Court. The Court further observed that, had the petitioners wished to raise those issues, they should have requested the Commissioner to refer the dispute to High Court under section 32 of the Assam Sales Tax Act.

The Court explained that the appellant parties should have approached the High Court if the Commissioner had declined to refer the matter to that court under the provisions of the Act. The Act itself contained a specific mechanism for obtaining relief, and the Court held that this mechanism had to be used and could not be ignored or bypassed. In general, the High Court does not entertain a writ petition under Article 226 where the petitioner possesses an alternative remedy that is not unduly burdensome and that provides an equally effective result. Moreover, the High Court ordinarily refrains from dealing with questions that require a detailed examination of evidence in order to determine the rights that the writ seeks to enforce. The High Court also does not, in exercising its jurisdiction under Article 226, function as an appellate body to correct factual errors made by a court or tribunal. The scheme of the Assam Sales Tax Act mandates that all questions of fact be decided by the taxing authorities, while the High Court may be approached for opinions on questions of law that arise from the decisions of those authorities. Accordingly, the High Court, under the Act, has no power to determine questions of fact that are exclusively within the competence of the taxing authorities. The Court further held that the explanation to section 2(12) of the Act was not beyond the legislative competence of the Legislature. The judgment then set out the civil appellate jurisdiction, noting that the appeals numbered 86 to 97 of 1962 arose from the judgment and order dated 25 July 1955 of the Assam High Court in several civil rules. Counsel for the appellants and counsel for the respondents were listed. The judgment dated 4 February 1964 was delivered by Justice Shah. The appeals, which were certified by the Assam High Court under Article 132 of the Constitution, challenged orders issued in petitions filed by the appellants seeking certiorari or other appropriate writs to quash assessments of sales tax and to prohibit the Superintendent of Taxes at Dhubri and other officers from enforcing those orders. The Court noted that the appeals raised common legal questions and could be decided in a single judgment. The appellants were described as merchants dealing in jute, with their principal place of business in Calcutta and a branch office at Dhubri, Assam, where they were registered dealers under the Assam Sales Tax Act, 1947 (Act 17 of 1947). They purchased jute in Dhubri and other locations within Assam and dispatched bales of jute to various factories outside the province. The appellants had filed returns of turnover for sales‑tax purposes with the Superintendent of Taxes, Dhubri, concerning transactions that occurred between March 1948 and March 1950. The Superintendent, invoking section 17(2) of the Act, had requisitioned the appellants to produce their books of account and related evidence.

The Superintendent of Taxes had initially requested that the appellants produce their books of account and any other evidence supporting the returns they had filed, and he had allowed them a period of time to comply with this demand. The appellants, however, did not comply with the requisition. Consequently, the Superintendent exercised the authority granted to him by section 17(4) of the Assam Sales Tax Act and made assessments on the basis of his own judgment, thereafter issuing demand notices for the tax that he had determined. The appellants challenged these assessments by filing appeals before the Assistant Commissioner of Taxes. During the proceedings before that appellate authority, the appellants were able to produce only a portion of their books of account and supporting documents, not the complete set they were required to produce.

In the submissions made before the Assistant Commissioner, the appellants raised several arguments. They claimed, among other points, that the definition of “sale” contained in section 2(12) of the Act exceeded the legislative competence of the Provincial Legislature. They further contended that the tax was being imposed on sales that took place outside the State of Assam and that, by doing so, the Provincial Legislature was effectively levying an “export tax,” a matter that the Legislature was not empowered to address. Notably, the appellants did not argue before the Assistant Commissioner that the jute bales whose sale price had been included in the turnover figures were, at the time the contracts were made, not physically present in the State of Assam. Accordingly, they did not rely on the Explanation to section 2(12) to claim that the sale price should be excluded from their turnover.

The Assistant Commissioner of Taxes in Assam dismissed the appeals. The appellants then filed revision applications before the Commissioner of Taxes, Assam, challenging the Assistant Commissioner’s order. For the first time in these revision proceedings, the appellants asserted that the price of jute incorporated in their turnover should not be subject to tax because, according to the Explanation to section 2(12), the goods were not actually located in the Province of Assam at the time the contracts were executed. The Commissioner examined this contention by referring to what he described as the “time‑table of cultivation.” He explained that the usual period for marketing a new crop of jute extended from July of one year to June of the following year, with planting typically occurring in February and the crop becoming ready for marketing around June. He further noted that the contracts in question had been executed on various dates ranging from March to September, and that deliveries under those contracts occurred after July, when the new crop entered the market. Consequently, the Commissioner concluded that contracts signed between March and July pertained to the previous year’s crop, meaning the jute concerned must have been physically present in the Province of Assam at the time those contracts were made.

Based on this analysis, the Commissioner made certain modifications to the assessment order; however, those specific modifications are not the focus of the present appeals. Dissatisfied with the Commissioner’s order, the appellants filed petitions under article 226 of the Constitution seeking writs of certiorari and prohibition. In the proceedings before the High Court, the appellants advanced several grounds of challenge, of which two principal grounds remained for determination in these appeals.

In the present appeals the parties relied on two specific grounds, and only those two issues remained for determination. The first ground contended that the Explanation to section 2(12) of the Assam Sales Tax Act was beyond the legislative competence of the Assam Legislature because it conflicted with the powers granted to the provincial legislature under the Government of India Act, 1935. Accordingly, the appellants argued that the tax could not be imposed on sales merely on the basis that, at the time the contracts of sale were executed, the goods to be sold were physically located within the Province of Assam, irrespective of where the contracts themselves were made. The second ground asserted that the Commissioner’s finding—that the goods were actually situated in the Province of Assam at the moment the contracts were concluded—was merely speculative and not supported by concrete evidence. The High Court examined these submissions and held that the Explanation to section 2(12) pertained to a period preceding the Constitution and therefore was not ultra vires the authority of the Provincial Legislature. Moreover, the High Court observed that the appellant had failed to demonstrate, before the appellate authority, that the accounting records contradicted the Commissioner’s contention that the goods existed in the State of Assam at the time of the contracts. The Court further concluded that the reasons given by the Commissioner to support his finding were not “altogether unjustified” and that the tax authorities were fully aware that a fundamental element of liability under the Act required the goods to be physically present in the State of Assam when the contracts were executed. Consequently, the High Court declined to reassess the factual conclusions drawn by the taxing authorities. Nevertheless, the High Court recognized that the question concerning the validity of section 2(12) and its Explanation raised a substantial constitutional issue regarding the interpretation of the Constitution, and therefore it granted certificates of fitness under Article 132 of the Constitution.

At the subsequent hearing of these appeals, counsel for the appellants sought permission to challenge the correctness of the finding that the goods were within the Province of Assam at the time the contracts were made. The Court listened at length to the appellants’ arguments on this application for leave to appeal on matters other than the constitutional question that had been the basis of the certificates granted by the High Court. After careful consideration, the Court concluded that the appellants had not made a sufficient case to be granted the requested leave. The Court explained that a party invoking Article 132 may not contest the correctness or propriety of the impugned decision on grounds other than those covered by the certificate, unless the Court itself grants leave to raise additional issues. Such leave is ordinarily bestowed only where the trial before the High Court resulted in a grave miscarriage of justice or where the appeal presents substantial questions that would likely merit leave under Article 136. The Court therefore refused the application for leave to raise the non‑constitutional issues. The Assam Sales Tax Act, 1947, had been enacted in 1947, and the discussion of its provisions continued in the following portions of the judgment.

In the Assam Sales Tax Act of 1947, section 2(3) defines the term “dealer” as any person who conducts the business of selling or supplying goods within the Province. An accompanying explanation adds that the manager or agent of such a dealer, even if that manager or agent lives outside the Province, is to be regarded as a dealer for the purposes of the Act when he carries on the business of selling or supplying goods in the Province. Section 2 also contains clause (12), which provides the definition of “sale.” Section 3 operates as the charging provision of the statute, while section 4 lays down the rates of tax that are applicable.

The statute gives the sales‑tax authority certain powers if it doubts the correctness or completeness of a dealer’s return. Under subsection (2) of section 17, the authority may serve a notice on the dealer requiring the dealer either to appear in person or to cause the production of any evidence on which the dealer intends to rely in support of the return. If the dealer either fails to file a return or does not comply with the notice, the authority is empowered to make an assessment according to its best judgment. Section 30 creates a right of appeal for a dealer who is aggrieved by an order; the appeal must be made to the authority specified by the rules. Section 31 provides that the Commissioner of Sales Tax may exercise revisional jurisdiction over orders issued by the sales‑tax authorities.

Section 32 sets out a procedure for invoking the High Court on questions of law. Within sixty days after service of any order made on appeal or revision, the dealer may file a written application asking the Board of Revenue or, where appropriate, the Commissioner to refer any legal question arising from that order to the High Court. If the Board or the Commissioner declines to state the case, the dealer may approach the High Court and request that the Board or Commissioner be called upon to state the case. The High Court, if it is not satisfied with the correctness of the Commissioner’s decision, may direct the concerned authority to state the case and refer it. Once a requisition is received, the authority must state and refer the case as directed. The High Court then hears the reference, determines the legal question presented, and issues a judgment that includes the reasons for its decision, as provided in subsection (8).

Consequently, the Act establishes a hierarchical system of tax tribunals competent to adjudicate the liability of taxpayers under the Assam Sales Tax Act, while also providing a mechanism for obtaining authoritative rulings on questions of law from the High Court of the Province. The primary assessment of tax liability is performed by the Superintendent of Taxes. An appeal against an assessment made by the Superintendent lies to the Assistant Commissioner of Taxes; a revision against the Assistant Commissioner’s order lies to the Commissioner; and against an order of the Commissioner, a reference on questions of law may be demanded in the manner described above.

In the statutory scheme created by the Legislature for determining tax liability, the authorities that collect tax were given the responsibility to decide every question of fact, while the High Court was permitted to give its opinion only on questions of law that arose from the decisions of those authorities. The High Court possessed no power to decide any factual issue, because such issues were exclusively within the competence of the taxing authorities. Likewise, the High Court was not an appellate body for the Commissioner’s order; its function was limited to expressing an opinion on legal questions that followed from that order. When a decision of the Commissioner lacked any evidential support, or when it rested on a factual view that could never be reasonably entertained, the deficiency was characterised as a question of law springing from the order. Under the Act, a party dissatisfied with the Commissioner’s decision could request a reference to the High Court if it could demonstrate that a legal question arose. The appellants, however, failed to follow this statutory procedure. Instead of seeking a reference under the Act, they directly approached the High Court, challenging the Provincial Legislature’s power to broaden the definition of “sale” and invoking the extraordinary jurisdiction granted by Article 226 of the Constitution. Their petition asked the High Court to reopen the taxing authorities’ decision on factual grounds, a matter that the statute assigned solely to the tax officials. By not first raising the issue before the Superintendent of Taxes or the Assistant Commissioner, the appellants bypassed the process intended to allow a reference on legal questions.

The Constitution’s Article 226 conferred a broad jurisdiction on the High Court, limited only by the territorial restrictions expressly set out in the provision. Although the jurisdiction was wide, its exercise was discretionary; the Court would not automatically intervene merely because it had the authority to do so. The very breadth of the power required the Court to impose self‑imposed limitations and to use the jurisdiction as a remedy of last resort, not as an alternative to the procedures prescribed by statute. Consequently, the Court ordinarily refused to entertain a writ petition under Article 226 when the petitioner possessed an alternative statutory remedy that was not unduly burdensome and that could provide an equally effective outcome. The High Court also refrained from addressing matters that demanded a detailed examination of evidence to determine the right to enforce the writ sought. In practice, the Court did not act as an appellate body to correct factual errors, nor did it assume jurisdiction under Article 226 in order to override a statutory mechanism intended to provide relief. When an aggrieved party could approach another tribunal, or the same tribunal in a different jurisdiction, the High Court normally declined to permit a petition that would circumvent the statutory remedial scheme.

In this matter, the Court explained that when a party files a petition under article 226 of the Constitution, it effectively sidesteps the procedure established by the relevant statute, and the party is then required to seek relief through the statutory process that has been set up. The appellants, who were dealers registered under the Assam Sales Tax Act, possessed a statutory avenue to obtain review of the tax decision. Specifically, they could have approached the Commissioner and requested that the Commissioner refer the dispute to the High Court under section 32 of the Act, and if the Commissioner declined to make such a reference, they could then move the High Court pursuant to that statutory provision. Nevertheless, the appellants chose not to use this statutory route. Instead, they directly invoked the jurisdiction of the High Court under article 226 of the Constitution, thereby inviting the Court to reopen the decision made by the tax authorities on questions of fact. The Court observed that the authority to determine those factual issues was vested exclusively in the tax authorities by the statute, and that the appellants had not first raised the questions before the Superintendent of Taxes or the Assistant Commissioner before seeking relief under article 226.

The record showed that the appellants had filed their sales‑tax returns with the Superintendent of Taxes but, when required, they failed to produce the complete books of account and other documentary evidence supporting those returns. Before the Assistant Commissioner, they produced only a portion of the books and evidence that had been demanded by the Superintendent. The Explanation to section 2(12) of the Assam Sales Tax Act defines the term “sale” to include, irrespective of the place where the contract is made, any sale of goods that are actually present in the Province at the time the contract is concluded; such sales are deemed, for the purposes of the Act, to have taken place in the Province. This definition operates differently from the Indian Sale of Goods Act of 1930, under which a sale is deemed to occur when the property in the goods passes from seller to buyer. For the purposes of the Assam Sales Tax Act, the legislature has created a fictional rule that treats a sale as having occurred within Assam whenever the goods are physically in the Province at the time of contract, regardless of where the contract itself was executed. Consequently, liability to pay sales tax arises only when the conditions laid down in the Explanation are satisfied—that is, when the goods are actually in the Province at the moment of contracting. Determining whether the goods were physically present in the Province at that date is a factual question that must be resolved by the sales‑tax authorities. The challenged liability before the Superintendent of Taxes did not include an argument that, at the time of the contract, the goods were not actually within the Province, and no such contention was ever raised before the Assistant Commissioner of Taxes. The matter later proceeded to the Commissioner in a revision application, which formed the context for the further considerations of the Court.

In the present appeals, the parties who were the appellants argued that a portion of the goods whose price the Commissioner had sought to include in the taxable turnover were not actually located within the Province of Assam at the time the contracts of sale were executed; consequently, the price of those goods could not be taken into account for the computation of turnover liable to tax. The Commissioner, however, held that, based upon the timetable of cultivation of jute and the period when the jute is normally brought to market for sale, the goods sold were situated within the Province on the dates of the contracts, and therefore their price should be included in the taxable turnover. The High Court, as previously noted, observed that the Commissioner’s finding was not “altogether unjustified” and that it could not be said that the Commissioner and the other taxing authorities were unaware of the requirements that give effect to the Explanation to section 2(12); the High Court also declined to order a re‑appraisal of the evidence, a task it considered to be within the exclusive competence of the taxing authorities.

In these appeals, counsel on behalf of the appellants, Mr Setalvad, contended that the record contained clear evidence showing that, even when the test laid down by the Commissioner was applied, certain contracts of sale were concluded before the jute had become marketable. Accordingly, the taxing authorities’ view that the goods existed within the Province of Assam on the date of each contract was “without any foundation”. Counsel further submitted that some of the contracts involved jute grown in Pakistan, and that for those contracts the Commissioner’s assumption that the goods were within the State of Assam at the contract date could not be justified. In addition, counsel pointed out that the contracts described the goods as bales, whereas the appellants’ purchase contracts referred to loose jute; because the goods purchased were not identical or readily ascertainable from the contracts made by the appellants, liability under section 2(12) of the Act should not arise.

The Court was unable to entertain these arguments because they had never been raised before the Superintendent of Taxes or the Assistant Commissioner, and the appellants had produced no evidence to support them at those earlier stages. Before the Commissioner, the appellants broadly argued that the goods referred to in the contracts could not have been present within the Province on the respective contract dates; however, the Commissioner had already rejected that argument for reasons previously explained, and the High Court had declined to permit the question of whether the Commissioner’s findings were “speculative” to be re‑opened. The appellants now seek to claim that the taxing authorities erred in holding that the goods satisfied the conditions prescribed by section 2(12) regarding the location of the goods at the dates of the contracts, thereby making the price liable to be included in the taxable turnover.

The Court explained that the tax provisions require the price of goods to be included in taxable turnover when the goods satisfy the conditions laid down in section 2(12) of the Act at the time the contracts of sale were made. The Legislature therefore gave the authorities charged with determining the facts on which a sale becomes taxable the power to ascertain those facts, and it allowed those authorities to refer questions of law to the High Court arising from the Commissioner of Taxes’ order. Accordingly, the Legislature intended that any taxpayer who wishes to rely on material evidence to claim that his transactions are not subject to tax must first present that evidence to the taxing authorities, giving them an opportunity to decide the claim. If, after a proper trial before the taxing authorities, the claim is rejected because the underlying facts have not been proved, the proceeding must terminate. Conversely, if the Commissioner’s adjudication is defective because it rests on no evidence, on conjecture, suspicion, irrelevant material, or otherwise lacks a fair trial, the High Court is empowered to advise the Commissioner on the questions properly referred to it under the Act.

The Court further held that the High Court cannot be asked to function as an appellate body reviewing the Commissioner’s decision on questions of fact or even of law. Even assuming that there is some merit to the appellants’ argument that the Commissioner’s decision was based on “speculative” grounds, the appellants were required to use the procedure laid down in the Act. Having failed to do so, they could not invoke the High Court as an appellate authority in contravention of the statutory scheme. Consequently, the Court declined to consider any application that sought to raise issues beyond those addressed by the certificate issued by the High Court, because those issues were factual matters that had not been raised at the appropriate stage before the taxing authorities, and the statutory mechanism for determining tax liability was being bypassed. The Court also noted that the constitutional question raised in the certificate did not require detailed consideration. By way of explanation, the Court cited the clarification to section 2(12) of the Act, which states that, notwithstanding any contrary provision in the Indian Sale of Goods Act, 1930, a sale is deemed complete when the goods are physically present within the State of Assam at the time the contract is made, regardless of where the contract was executed. While the Sale of Goods Act, 1930 ordinarily holds that, absent an agreement to the contrary, a sale is complete when title passes, the Assam Sales Tax Act deliberately fixes the location of the goods at the time of contract for the purpose of levying sales tax, thereby establishing a distinct statutory rule.

The Court observed that the legislation had defined the site of a sale for the purpose of levying sales tax by referring to the actual location of the goods within the Province on the date the contract was concluded. In this way, the tax authority determined liability by looking at where the goods physically stood at the moment the contract was made. The Court further noted that this method was in line with the principle articulated in Tata Iron & Steel Company Ltd. v. State of Bihar, where it was held that the legislature had not exceeded the constitutional limits of its power. Because the petitioners had not put forward any argument capable of sustaining a claim that the provision was unconstitutional, the Court found no basis for overturning the statutory scheme. Accordingly, the Court concluded that the appeals could not succeed. As a result, the Court ordered that all of the appeals be dismissed and that the parties bear the costs of the proceedings. In addition, the Court assessed a single hearing fee. The appellate applications were therefore dismissed.