Pashabhai Patel And Company Private... vs S.I.H. Razvi

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

Court: Supreme Court of India

Case Number: Appeal (civil) 706 of 1957

Decision Date: 11 March 1958

Coram: S. R. Das, Venkatarama Aiyar, S. K. Das, A. K. Sarkar, Vivian Bose

In this case the Court recorded that the petitioner was a private limited company whose registered office was situated in Bombay and whose business consisted of dealing in agricultural machinery and tools within that city. The company had, in the ordinary course of its trade, entered into a number of contracts with the Government of Bihar and with local authorities of that State. These contracts required the supply and delivery of agricultural construction equipment, earth‑moving machinery and the related spare parts. The respondent, identified as the Commercial Tax Officer of Bihar, served notices on the company requiring it to file sales returns for sales to consumers in Bihar covering the period from 1 April 1953 to 31 March 1955. The notices also required the company to file returns for the period from 1 April 1955 to 6 September 1955, and demanded that the company produce its accounts so that the tax due on those sales could be assessed. The company challenged the legality of the proposed tax levy, contending that the assessment lacked statutory basis and was contrary to constitutional provisions. After an extended exchange of correspondence, it filed on 10 July 1957 an application in the Bombay High Court seeking a writ that would restrain the respondent from proceeding with any tax assessment on the disputed sales. The grounds relied upon by the company in contesting the assessment had previously been examined by a bench of the Bombay High Court. That bench delivered its judgment on 10 August 1956, and the decision was reported in Dialdas v. P. S. Talwalkar 1956 (7) STC 675; 1957 AIR (Bom) 71. In view of that earlier decision the High Court judges Tendulkar and Shelat dismissed the company’s application summarily on 10 July 1957. The company consequently filed the present appeal before this Court, seeking reversal of the lower court’s dismissal, and obtained special leave to do so. Counsel for the appellant argued that the sales which the respondent sought to tax were made in the course of inter‑State trade and therefore fell outside the scope of taxation under Article 286(2) of the Constitution. The counsel further submitted that Section 33 of the Bihar Sales Tax Act, 1947, which was invoked to impose the levy, did not, when properly construed, create a tax liability on the sales in question. The counsel also argued that even if the provision were construed as creating a tax, it could be regarded as a conditional levy. Such a levy required prior parliamentary authorization under Article 286(2), a condition which had not been satisfied, therefore rendering it invalid. The judgment of this appeal was delivered by Chief Justice S.R. Das, joined by Justices Venkatarama Aiyar, S.K. Das, A.K. Sarkar and Vivian Bose.

The appellants contended that a conditional levy would also be improper because authorisation by Parliament under Article 286(2) was a condition precedent to the enactment of such a law, and that condition had not been satisfied. They further submitted that the Sales Tax Laws Validation Act No. VII of 1956 was ultra vires because Article 286(2) did not authorise the enactment of legislation having a retrospective character. The appellants argued that nothing could be validated that was unconstitutional and illegal. They pointed out that the Bihar Sales Tax Act provided for assessment of sales tax on the basis of quarterly returns, and that making a retrospective assessment under section 33 would cause great hardship because the appellants were no longer in a position to pass the tax on to consumers. The appellants also maintained that the Validation Act validated only levies actually made up to 6 September 1955 and did not authorise the initiation of fresh proceedings for the imposition of tax. Moreover, they asserted that, in any event, section 33 of the Bihar Sales Tax Act was unconstitutional at the time of its enactment, rendering it void; consequently, the Validation Act could not revive a dead provision, and no proceedings could be taken thereunder. This appeal was heard together with Petitions Nos. 220, 222, 240 and 380 to 395 of 1955, in which similar contentions were raised. In the judgment delivered in those petitions, reported as M. P. V. Sundararamier & Co. and Others v. The State of Andhra Pradesh and Another 1958 (9) STC 298, the Court held that those contentions were unsustainable. Accordingly, the Court concluded that the appeal must fail. The appellants’ counsel also argued that, on the facts, the sales in question did not fall within the Explanation to section 33 of the Bihar Sales Tax Act. He explained that the contracts for sale were concluded in Bombay, the price was paid in Bombay, the goods were delivered free on rail in Bombay, and the railway receipts were made out in the names of the consignees and dispatched to them, so that the sales were wholly within Bombay and did not fall within the Explanation to section 33. The Court observed that such questions must be determined by the appropriate Sales Tax Authorities on the material placed before them and could not be raised in these proceedings. In the result, the appeal was dismissed with costs. Justice Sarkar, noting the majority decision delivered earlier in the day, agreed with that judgment.