There is no concept of ‘constructive delivery’ of goods under the Central Sales Tax Act, 1956, and the inter-state movement of goods will terminate only when physical delivery is taken.
The Supreme Court has observed that tax Administration Authorities cannot give their own interpretation to legislative provisions on the basis of their own perception of trade practices.
Based on this, the court held as illegal the circulars issued by the Rajasthan Commercial Tax department, which stated 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.
Observing that the department had no authority to prescribe such cut-off date for termination of inter-state transit, the SC held that there is no concept of ‘constructive delivery’ of goods under the Central Sales Tax Act, 1956 and that the inter-state movement of goods will terminate only when the actual physical delivery is taken.
The case (Commercial Tax Officer vs M/s Bombay Machinery Store) pertained to 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 (2) of Section 6 will not be available in such cases.
The issue before the Court was whether 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 are remaining with the transporter, without physical delivery after a reasonable time, the transit will be deemed to have come to an end. On this basis, the subsequent sales effected while such goods are lying with the transporter were not regarded as intra-state sale, and were subjected to local sales tax.
In the instant case, the Commercial Tax officer in the respective orders treated retention of goods beyond 30 days in the transporters’ godown as the cut-off period. After that date, the assessee (Bombay Machinery) was deemed to have had taken constructive delivery of goods and sale beyond that period within the State of Rajasthan was held to be local sales and subjected to sales tax under the State Law.
The Rajasthan HC disagreed with this approach of the department. The HC held that the department had no authority to issue such circulars, prescribing cut-off for delivery.
This led the department to come in appeal before the SC.
In SC, a bench comprising Justices Deepak Gupta and Aniruddha Bose noted that the Section 3 of the CST -which defines ‘inter-state’ sale – specifies that movement of the goods would be deemed to commence at the time when goods are delivered to a carrier and shall terminate at the time when delivery is taken from such carrier. The said provision does not qualify the term ‘delivery’ with any time-frame within which such delivery shall have to take place.
“In such circumstances fixing of time-frame by order of the Tax Administration of the State in our opinion would be impermissible”, the bench observed.
Delhi HC decision overturned
The department placed reliance on a judgment of the Delhi High Court in the case of Arjan Dass Gupta and Brothers vs. Commissioner of Sales Tax, Delhi Administration.
In that case, the HC observed that 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 this reasoning was not in consonance with Section 3 of the Act.
“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 has 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.”
The SC categorically held that Arjan Dass Gupta did not lay down the “correct proposition of law”.
Tax administration authorities cannot give their own interpretation of statutory provisions based on the perception of trade practice.
The top court stressed that there was no scope for such an incorporating a condition to qualify the expression “delivery”.
“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 the 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 it was not open to the tax authorities to give their own interpretation to legislative provisions on the basis of their own perception of trade practice.
“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 a legislative amendment. The Tax Administration Authorities cannot give their own interpretation to legislative provisions on the basis of their own perception of trade practice. This administrative exercise, in effect, would result in supplying words to legislative provisions, as if to cure omissions of the legislature”.