Tata Iron & Steel Co. Ltd. v State of Bihar, AIR 1958 SC 452.”

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Facts of the case:

The Tata Iron and Steel Company carries a business as a manufacturer of iron and steel. The appellant company had its registered office in Bombay, head office in West Bengal, and factory works in Bihar. The company was assessed sales tax for two months by the Bihar Sales Tax Act, 1947 on goods produced or manufactured in Bihar and goods in Bihar at the time of sale. TISCO was made liable to pay for the tonnage of washed coal when it was removed from the coal washery.  

The case was heard by a single judge who held that the royalty is to be paid on the coal removed from the leased area and so long it is not removed, no royalty is paid. However, the petitioner is liable to pay a royalty on the weightage of the coal. TISCO, a prominent industrial company, challenges the validity of this tax imposition. TISCO argued that the tax imposed by the state of Bihar is unconstitutional and that its rights are being violated.  

Issues regarding to case:

• Whether the tax levied under Section 4 (1) read with Section 2 (g) of Bihar Sales Tax, 1947 falls under the meaning of sales seventh schedule of the Government of India, 1935? 
• Whether the central issue revolves around the interpretation and application of article 286 of the constitution of India?

Appellant’s contention:

They argued that the tax levied was not sales tax rather it was excise duty which was being imposed on them under Section 4 (1) read with Section 2 (g) of Bihar Sales Tax, 1947 falls under the meaning of the sales tax under the seventh schedule of Government of India, 1935.

The appellant argued that the sale of iron should be classified as an inter-state sale because the goods were purchased by buyers in Bihar but sold in and delivered outside Bihar, which makes it an inter-state transaction. The appellant claimed that the sale and reductions on property transactions manufactured in Bihar should be exempted from the state’s taxation. 

Judgment:

The Supreme Court held the judgment of the appellant negative and that the nexus theory does not impose a tan, it only indicates circumstances in which a tan imposed by the legislature may be enforced in a particular case. It also laid down circumstances that, although completed elsewhere have to be deemed to have taken place in Bihar.

Therefore, it was not exempt from taxation by the state of Bihar. The court determined that the sale was intra-state, falling within the taxation jurisdiction of Bihar.

The judgment clarified the distinction between interstate and intra-state sales for taxation purposes and reaffirmed the constitutional powers of states to levy taxes on intra-state sales and also a significant judgment that defines the scope of Article 286 of the Indian constitution.

References:

ttps://indiankanoon.org/doc/1629177/

ttps://www.casemine.com/judgement/in/56092cdfe4b01497111faae4

Written by Gouravi sharma of Rayat Bahra Universtiy, Intern at Legal vidhiya,

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