Thansingh Nathmal And Ors. vs A. Mazid, Superintendent Of Taxes on 4 February, 1964

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: Not extracted

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

In this matter, the appellants filed appeals that were granted certificates by the High Court of Assam under Article 132 of the Constitution. The certificates were issued against orders that had been made in several petitions filed by the appellants, in which they sought writs of certiorari or other appropriate writs for the purpose of setting aside orders that related to the assessment of sales tax. They also asked that the Superintendent of Taxes at Dhubri and other officers be prohibited from taking any enforcement action under those orders. Because the appeals raised identical questions of law and fact, the Court indicated that they could be resolved together in a single judgment.

The appellants were merchants who dealt in jute and carried on their principal business in Calcutta. They maintained a branch office at Dhubri in the State of Assam, where they were registered as dealers under the Assam Sales Tax Act, 1947 (Act 17 of 1947). The appellants bought jute at Dhubri and at other locations within Assam and then dispatched bales of jute to various factories located outside the province. For the period from March 1948 to March 1950, the appellants filed turnover returns for sales‑tax purposes with the Superintendent of Taxes at Dhubri, as required by the Assam Sales Tax Act. The Superintendent, invoking section 17(2) of the Act, ordered the appellants to produce their books of account and any other evidence that would support the returns, and he gave them a reasonable period within which to comply. The appellants failed to produce the requested documents within the allotted time. Consequently, the Superintendent exercised the power authorized by section 17(4) of the Act and made “best judgment assessments,” after which he issued demand notices for the tax that he had determined. The appellants challenged those assessments before the Assistant Commissioner of Taxes. During the hearing before the Assistant Commissioner, the appellants produced only a portion of their books and documentary evidence. They argued, among other points, that the definition of “sale” contained in section 2(12) of the Act exceeded the legislative competence of the Provincial Legislature, that the tax was being imposed on sales that occurred outside the State, and that the levy amounted to an “export tax,” which the Provincial Legislature was not authorised to impose. Notably, they did not raise before the Assistant Commissioner the argument that, at the time the contracts were made, the jute bales whose sale price was included in the turnover were not physically present within the State of Assam, and therefore the explanation to section 2(12) should have excluded that sale price from the turnover. The Assistant Commissioner of Taxes, Assam, dismissed the appeals.

In the revision applications filed before the Commissioner of Taxes, Assam, the appellants introduced for the first time an argument that had not been raised before the Assistant Commissioner of Taxes. They contended that the amount of jute price, which had been added to their turnover by the orders of the Superintendent of Taxes, should not be subject to tax. Their reasoning was that, within the meaning of the Explanation to section 2(12) of the Act, the goods were not physically present in the Province of Assam at the time the contracts were concluded. The Commissioner examined the matter and rejected this contention after consulting what he described as the “time‑table of cultivation.” He explained that the usual period for marketing a new jute crop extended from July of one year to June of the following year, with planting ordinarily occurring in or about February and the crop becoming ready for marketing around June. He further observed that the contracts in question had been made on various dates between March and September, while the deliveries required under those contracts were effected after July, when the new crop entered the market. Consequently, the contracts entered into between March and July related to the preceding year’s crop, and the jute sold under those contracts must have actually been in the Province of Assam on the dates the contracts were executed. After reaching this conclusion, the Commissioner made certain modifications to the assessment order; however, those modifications are not the subject of the present appeals.

Against the order issued by the Commissioner, the appellants filed petitions under article 226 of the Constitution seeking writs of certiorari and prohibition. Before the High Court they raised two specific grounds that remain for determination in the present appeals. The first ground asserted that the Explanation to section 2(12) of the Act was beyond the legislative competence of the Assam Legislature under the Government of India Act 1935, and therefore the tax could not be levied on sales regardless of the location where the contracts were made, even if the goods were actually in the Province of Assam at the time of sale. The second ground challenged the Commissioner’s finding, characterising it as “speculative” that the goods were actually in the Province of Assam when the contracts were concluded. The High Court held that, with respect to the period preceding the Constitution, the Explanation to section 2(12) was not ultra vires the authority of the Provincial Legislature. Moreover, the Court noted that no attempt had been made before the appellate authority to show, through the books of account, that the goods were not actually present in the State of Assam at the time of the contracts of sale. The High Court further concluded that the reasons given by the Commissioner in support of his finding were not “altogether unjustified” and that the taxing authorities were fully aware that a fundamental element of tax liability was the actual presence of the goods in the State of Assam at the time of the contracts.

In this case, the Court noted that at the time the contracts of sale were executed the High Court had refused to examine whether the factual conclusions drawn by the taxing authorities were correct. Nevertheless, the High Court held that the challenge to the validity of section 2(12) and its accompanying Explanation raised a significant constitutional question, and therefore it granted certificates of fitness under article 132 of the Constitution. When the appeals were heard, counsel for the appellants applied for leave to contest the finding that, at the moment the contracts were made, the goods were actually situated within the Province of Assam. The Court heard counsel for the appellants at length on this application for leave to appeal on matters that were not limited to the constitutional issue on which the certificates had been issued. After a careful review of the arguments, the Court was of the opinion that the appellant had made out a case sufficiently strong to warrant the granting of the requested leave. The Court explained that a person who files an appeal under article 132 of the Constitution may not question the correctness or propriety of the decision being appealed on grounds other than those for which the certificate was issued, unless this Court itself grants leave to raise additional issues. Such leave is ordinarily awarded only when the trial before the High Court resulted in a grave miscarriage of justice, or when the appeal presents substantial questions that, if an application were made to this Court under article 136 of the Constitution, would merit the granting of leave to challenge the decision on those broader questions.

The Court then turned to the provisions of the Assam Sales Tax Act, 1947, which was originally enacted in 1947. Under section 2(3) the term “dealer” is defined to include any person who carries on the business of selling or supplying goods within the Province, and the Explanation extends this definition to cover the manager or agent of a dealer who resides outside the Province but conducts the business of selling or supplying goods in the Province, treating such manager or agent as a dealer for the purposes of the Act. Clause 12 of section 2 provides the definition of “sale”. Section 3 serves as the charging provision, while section 4 prescribes the rates of tax applicable. The sales‑tax authority, if dissatisfied that a dealer’s return is correct and complete, may issue a notice requiring the dealer either to appear in person or to produce any evidence upon which the dealer intends to rely in support of the return, as authorized by sub‑section 2 of section 17. Should the dealer fail to file a return or neglect to comply with the notice, the authority may make an assessment according to its best judgment. Section 30 grants an aggrieved dealer the right to appeal to the authority designated by the rules, and section 31 confers revisional jurisdiction on the Commissioner of Sales Tax to examine orders of the sales‑tax authorities. Section 32 further stipulates additional procedural mechanisms, the details of which follow in the subsequent provisions of the Act.

According to the statute, a dealer who receives an order on appeal or revision may, within sixty days of the service of that order, submit a written application requesting that either the Board of Revenue or the Commissioner, as appropriate, refer any question of law arising from the order to the High Court. If the Board or the Commissioner declines to state the case for the High Court, the dealer may then apply directly to the High Court, asking it to compel the Board or the Commissioner to state the case. When the High Court receives such an application and is not satisfied that the Commissioner’s decision is correct, it may order the concerned authority to state the case and to refer the matter. Upon receipt of such a requisition, the authority is required to comply by stating and referring the case to the High Court.

When the High Court hears a reference, it decides only the legal question that has been raised and issues a judgment that sets out the reasons for its decision, as provided for in subsection eight of the relevant provision. The Act therefore creates a hierarchy of tax‑tribunals that are empowered to determine questions of tax liability under the Assam Sales Tax Act, while also giving parties a right to obtain a determination of any legal issues that arise from those tribunal orders before the High Court of the Province.

The initial assessment of tax liability is made by the Superintendent of Taxes. An aggrieved party may appeal the Superintendent’s order to the Assistant Commissioner of Taxes, and may subsequently seek a revision of the Assistant Commissioner’s order before the Commissioner. If a party wishes to challenge a legal question in the Commissioner’s order, it may request that the High Court be asked to consider that question. Should the Commissioner refuse to make such a reference, the party may move the High Court, asking it to direct the Commissioner to refer the question.

The legislative scheme therefore assigns all questions of fact to the various taxing authorities, while reserving the High Court’s role for the determination of legal questions that arise from the decisions of those authorities. The High Court does not have authority to decide factual matters, which remain exclusively within the competence of the tax authorities. Moreover, the High Court is not an appellate body for the Commissioner’s decision; its function is limited to giving an opinion on the legal issues presented by that decision. Whether the Commissioner’s decision lacks evidentiary support or is based on a factual view that could not reasonably be entertained is itself a question of law that the High Court may consider.

In the present case, an order for reference could have been sought against the Commissioner’s decision if the appellants had demonstrated to either the Commissioner or the High Court that a genuine question of law arose from the order. However, the appellants did not follow the statutory procedure that would have invoked the High Court’s jurisdiction. Instead, they approached the High Court directly, challenging the provincial legislature’s power to expand the definition of “sale” and invoking the Court’s extraordinary jurisdiction.

In this case the petitioners invoked the jurisdiction of the High Court under Article 226 of the Constitution and asked the Court to reopen the decision of the taxing authorities on questions of fact. The Constitution confers a very broad jurisdiction on the High Court under Article 226, and that jurisdiction is limited only by the territorial restrictions expressly mentioned in the Article. Nevertheless, the power is discretionary; the Court does not exercise it merely because the petition is legally permissible. Because the jurisdiction is so wide, the Court ordinarily applies its own self‑imposed limitations. The Court’s jurisdiction under Article 226 is not meant to serve as a substitute for a remedy that is available under a statute, whether by way of a suit or any other prescribed mode. Accordingly, the Court will usually refuse to entertain a writ petition under Article 226 when the petitioner possesses an alternative remedy that is not unduly burdensome and that can provide an equally effective relief. Moreover, the High Court generally avoids deciding questions that require a detailed examination of evidence in order to determine the right which the writ seeks to enforce. The Court therefore does not function as an appellate body to correct factual errors of a decision made by a court or tribunal, nor does it usurp an alternative statutory remedy for obtaining relief. When a dissatisfied party can approach another tribunal, or can pursue the remedy provided by a statute in a different forum, the High Court ordinarily declines to entertain an Article 226 petition so as not to bypass the statutory machinery that has been created for that purpose; the party is expected to use that machinery. In the present matter the appellants were entitled to request that the Commissioner refer the case to the High Court under section 32 of the Act, and they could have approached the High Court directly if the Commissioner refused to make such a reference. Instead, they bypassed that procedure and directly invoked the High Court’s Article 226 jurisdiction, asking the Court to reopen the taxing authorities’ decision on factual questions—questions that, under the statute, belong exclusively to the taxing authorities. They pursued this approach without first raising the issues before the Superintendent of Taxes or the Assistant Commissioner. The appellants, who were dealers registered under the Assam Sales Tax Act, had filed their returns with the Superintendent of Taxes but failed to produce their books of account and other supporting evidence when required. Even before the Assistant Commissioner they presented some, but not all, of the books and evidence demanded by the Superintendent. By the explanation to section 2(12) of the Act, the term “sale”, notwithstanding the provisions of the Indian Sale of Goods Act, 1930, includes the sale of

The Explanation to section 2(12) of the Assam Sales Tax Act defines that any goods which are physically present in the Province at the time a contract of sale concerning those goods is executed shall be treated, for the purposes of the Act, as if the sale had taken place within the Province, regardless of the location where the contract was actually made. Under the Indian Sale of Goods Act, a sale is deemed to occur when the ownership of the goods passes from seller to buyer. However, for the specific purposes of the Assam Sales Tax Act, the legislature has seized upon the factual circumstance of the goods’ location in order to create a legal fiction that the sale is considered to have happened inside the Province of Assam whenever the goods are situated there at the moment the contract is concluded.

The liability to pay sales tax on goods whose ownership is transferred outside the Province of Assam nevertheless arises if the conditions set out in the Explanation are satisfied; that is, the goods must be actually present in the Province at the time the contract of sale is made, and the liability does not arise in any other situation. Determining whether the goods were indeed in the Province on the contract date is a factual issue that must be decided by the sales‑tax authorities. When the appellants challenged the liability before the Superintendent of Taxes, they did not argue that the goods were not physically within the Province at the relevant time, and no such argument was raised before the Assistant Commissioner of Taxes either.

In the revision application before the Commissioner, the appellants contended that a portion of the goods whose price had been included in their turnover were not in the Province at the date of the contract, and therefore the value of those goods should not have been counted in calculating the taxable turnover. The Commissioner, after considering the “time‑table of cultivation of jute” and the period when jute is brought to market, concluded that the goods sold were located in the Province on the dates of the contracts and consequently held that their prices must be included in the taxable turnover.

The High Court, as previously noted, held that the Commissioner’s finding was not “altogether unjustified” and observed that it could not be said that the Commissioner and the other taxing authorities were unaware of the requirements that trigger the application of the Explanation to section 2(12). The High Court further observed that the taxing authorities declined to re‑examine the evidence, a task which, in the Court’s view, was within the exclusive competence of those authorities.

In the present appeals, counsel for the appellants argued that the record contained clear evidence showing that, even when applying the test articulated by the Commissioner, some contracts of sale were executed before the goods became marketable, and therefore the Commissioner’s view was erroneous.

In the appeal, counsel argued that the finding of the taxing authorities—that the goods existed within the Province of Assam on the date of each contract—lacked any foundation. Counsel further contended that several of the contracts involved jute cultivated in Pakistan, and therefore the Commissioner’s assumption that the goods were situated in Assam at the time the contracts were executed could not be justified. Moreover, counsel pointed out that the contracts of sale described the goods as bales, whereas the appellants’ purchase agreements concerned loose jute; because the goods purchased were not identical with, nor could they be precisely identified from, the goods described in the appellants’ contracts of sale, liability to tax under section 2(12) of the Act did not arise. The Court could not consider these submissions because they had never been presented before the Superintendent of Taxes or the Assistant Commissioner, and the appellants produced no evidence to support them. Earlier, before the Commissioner, the appellants had broadly argued that the goods underlying the contracts could not have been present within the Province at the relevant contract dates; however, that argument had been rejected by the Commissioner for reasons already discussed, and the High Court had refused to permit a challenge to the Commissioner’s findings on the ground that they were “speculative.” The appellants now seek to assert that the taxing authorities erred in concluding that the goods satisfied the situs requirements of section 2(12), which would cause the sale price to be included in taxable turnover. The legislation confers on the designated authorities the power to determine the facts that render a receipt of price taxable, while granting a right of appeal to the High Court on questions of law arising from the Commissioner’s order. Consequently, the Legislature envisaged that a taxpayer must present all material evidence supporting the claim that his transactions are non‑taxable before the taxing authorities, allowing them an opportunity to adjudicate the claim. If, after a proper trial, the claim is rejected because the supporting facts are unproved, the proceeding must end. Conversely, if the Commissioner’s adjudication is tainted by lack of evidence, reliance on conjecture, suspicion, irrelevant material, or any procedural unfairness that deprives the taxpayer of a fair trial, the High Court may advise the Commissioner on questions properly referred under the Act. Nonetheless, the High Court cannot be called upon to act as an appellate body over the Commissioner’s factual findings.

In this case the Court observed that even if there existed some merit in the allegation that the Commissioner’s adjudication was based on grounds described by the appellants as speculative, the appellants nevertheless possessed a statutory remedy under the Act. The Court noted that the appropriate course was to invoke the procedural mechanisms provided by the legislation. Because the appellants did not make use of those mechanisms, they could not now approach the High Court and request it to function as an appellate body, which would contravene the express provisions of the statute and would amount to a bypass of the legislative scheme. Consequently the Court declined to entertain the application that sought to raise matters beyond those specified in the certificate issued by the High Court. The Court explained that the matters the appellants wished to introduce were factual questions that had never been presented to the taxing authorities at the proper stage. Allowing those questions now would circumvent the established machinery for determining tax liability that the Act contemplates. The Court further held that the constitutional issue raised by the certificate did not require detailed analysis. The Court referred to the Explanation to s. 2(12) of the Act, which, notwithstanding any contrary provision in the Indian Sale of Goods Act, 1930, declares a sale to be complete when the goods are physically present in the State of Assam at the time the contract is made, regardless of where the contract is executed. While the Sale of Goods Act, 1930 provides that, absent an agreement to the contrary, a sale is complete at the moment property passes in the goods, the Assam Sales Tax Act deliberately fixes the situs of the sale for tax purposes on the basis of the actual location of the goods within the Province on the contract date. The Court observed that this approach did not exceed the legislature’s authority, citing Tata Iron & Steel Company Ltd. v. The State of Bihar ((1958) S.C.R. 1355). Because no substantial argument was advanced to demonstrate unconstitutionality, the Court found no basis to entertain that plea. Accordingly, all of the appeals were dismissed, costs were awarded, and a single hearing fee was imposed, resulting in the final dismissal of the appeals.