The Apex Court observed that tax Administration Authorities cannot give interpretation to legislative provisions on the basis of their own perception of trade practices.
On the basis of the above observation, the court held that the circulars issued by the Rajasthan Commercial Tax department stating that goods imported from other states will be regarded as ‘constructively delivered’ after a reasonable period of lying with the transporter in the imported state were illegal.
Adding that the department had no authority to prescribe a cut-off date for termination of inter-state transit, the court held that the concept of ‘constructive delivery’ had no legal basis under the Central Sales Tax Act, 1956, and the inter-state movement of goods would terminate only after the actual physical delivery was done.
The case (Commercial Tax Officer vs M/s Bombay Machinery Store) dealt with the interpretation of Section 6(2) of the Central Sales Tax Act.
As per this provision, a subsequent sale during the course of inter-state transit of goods will also be treated as inter-state sale. If the movement of the goods from one State to another terminates, the subsequent sales will be treated as intra-State sales and benefit of the above subsection would not be available in such cases.
The issue before the Court was, when will the inter-state movement be treated as terminated – when the actual movement comes to an end or when the actual delivery is taken.
The Commercial Taxes Department of Rajasthan issued circulars in 1997 stating that if the goods remain with the transporter without physical delivery, the transit will be deemed to have come to an end after a reasonable time.
On this basis, the subsequent sales were effected as such goods that were lying with the transporter were not regarded as intra-state sale, and hence were subjected to local sales tax.
In the case at hand, the Commercial Tax officer in the respective orders treated 30 days as the cut-off period for the retention of goods in the transporters’ godown. After that date, the assessee (Bombay Machinery) was deemed to have had taken constructive delivery of goods and sale beyond that period was considered to be local sales and was subjected to sales tax under the State Law.
The Rajasthan HC disagreed with this approach of the department and held that the department had no authority prescribe such cut-off dates.
This led the department to appeal before the SC.
In SC, a bench comprising Justices Deepak Gupta and Aniruddha Bose noted that the Section 3 of the CST defining ‘inter-state’ sale does not specify any time-frame for the delivery of the goods whereas it specifically mentioned that it shall terminate at the time when delivery is taken from such carrier.
It stated, “In such circumstances fixing of time-frame by order of the Tax Administration of the State in our opinion would be impermissible.”
Delhi HC decision overturned
The department argued while placing reliance on a judgment of the Delhi High Court in the case Arjan Dass Gupta and Brothers vs. Commissioner of Sales Tax, Delhi Administration, where the court observed, “if taking delivery is the test of termination of movement and not the landing of the goods it will lead to anomalous results.”
The SC observed that the reasoning was not in consonance with Section 3 of the Act. It stated,
“In our opinion, however, such construction would not be proper to interpret the provisions of Section 3 of the 1956 Act. A legal fiction is created in first explanation to that Section. That fiction is that the movement of goods, from one State to another shall terminate, where the good have been delivered to a carrier for transmission, at the time of when delivery is taken from such carrier. There is no concept of constructive delivery either express or implied in the said provision in an importing State.”
While categorically stating that Arjan Dass Gupta did not lay down the “correct proposition of law”, the SC held,
“Tax administration authorities cannot give their own interpretation of statutory provisions based on perception of trade practise.”
The top court stressed that there was no scope for incorporating any condition to qualify the expression “delivery”.
It observed, “On a plain reading of the statute, the movement of the goods, for the purposes of clause (b) of Section 3 of the 1956 Act would terminate only when delivery is taken, having regard to first explanation to that Section. There is no scope of incorporating any further word to qualify the nature and scope of the expression “delivery” within the said section. The legislature has eschewed from giving the said word an expansive meaning”.
The judgment authored by Justice Aniruddha Bose held that the tax authorities could not give their own interpretation to legislative provisions.
“In the event, the authorities felt any assessee or dealer was taking unintended benefit under the aforesaid provisions of the 1956 Act, then the proper course would be legislative amendment. The Tax Administration Authorities cannot give their own interpretation to legislative provisions on the basis of their own perception of trade practise. This administrative exercise, in effect, would result in supplying words to legislative provisions, as if to cure omissions of the legislature”.
Thus, the appeal was dismissed.
Read the Judgment here: