A) ABSTRACT / HEADNOTE
The Supreme Court in A. V. Fernandez v. The State of Kerala, AIR 1957 SC 657, adjudicated on the correct methodology for assessing sales tax in light of Article 286 of the Constitution of India and Section 26 of the Travancore-Cochin General Sales Tax Act, 1125 M.E. The appellant, a coconut oil and cake manufacturer, contested the inclusion and exclusion of certain components in the computation of assessable turnover. The Court laid down a significant interpretation of non-obstante clauses and their overriding effect on conflicting statutory provisions, particularly post-Constitution enactments. The judgment clarified that sales effected in the course of inter-State trade must be excluded altogether from both gross and net turnover, not merely exempted for tax liability but entirely outside the scope of the taxing statute. The Court emphasized that statutory liability must arise from explicit language in tax statutes and not through inference or intention, firmly rooting its reasoning in fiscal jurisprudence established by English and Indian courts.
Keywords: Inter-State Trade, Non-Obstante Clause, Gross Turnover, Net Turnover, Sales Tax, Article 286, Travancore-Cochin Sales Tax Act, Coconut Oil Manufacturer, Tax Assessment, Constitutional Bar.
B) CASE DETAILS
i) Judgement Cause Title: A. V. Fernandez v. The State of Kerala
ii) Case Number: Civil Appeal No. 232 of 1955
iii) Judgement Date: 2nd April 1957
iv) Court: Supreme Court of India
v) Quorum: Justices Bhagwati, Jagannadhadas, Jafek Imam, Govinda Menon, and J. L. Kapur
vi) Author: Justice Bhagwati
vii) Citation: A. V. Fernandez v. The State of Kerala, AIR 1957 SC 657, 1957 SCR 837
viii) Legal Provisions Involved:
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Article 286 of the Constitution of India
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Section 26, Travancore-Cochin General Sales Tax Act, 1125 (Act XI of 1125 M.E.)
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Sections 2(j), 2(k), 3, and 24, of the same Act
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Rules 4, 7(1)(k), and 20(2) of the Travancore-Cochin General Sales Tax Rules, 1950
ix) Judgments Overruled by the Case (if any): None explicitly overruled.
x) Case is Related to which Law Subjects:
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Constitutional Law
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Taxation Law
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Interpretation of Statutes
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Administrative Law
C) INTRODUCTION AND BACKGROUND OF JUDGEMENT
The dispute in this case revolved around the method of calculating taxable turnover under the Travancore-Cochin General Sales Tax Act, 1125 M.E., after the enforcement of the Constitution of India in 1950. The appellant, a registered dealer and manufacturer of coconut oil and cake, challenged an assessment order that allegedly incorrectly computed his net assessable turnover for the financial year 1951-52. He asserted that sales effected in the course of inter-State trade should have been excluded entirely from the computation of his turnover. This case unfolded in a legal environment where many provincial sales tax legislations, such as the Madras General Sales Tax Act, 1939 and others, were seeking compatibility with Article 286 of the Constitution, which prohibits states from taxing inter-State trade. The matter reached the Supreme Court under Article 132(1) due to the constitutional issues involved in the interpretation of statutory and constitutional provisions regarding sales tax assessment.
D) FACTS OF THE CASE
The appellant purchased copra worth ₹7,16,048.14 during the year 1951-52. He manufactured coconut oil and cake and sold the oil partly inside and partly outside the State of Travancore-Cochin. The value of the total oil sold was ₹6,76,719.11, of which ₹3,67,816.10.1 represented inter-State sales. The cake was sold entirely within the State for ₹67,155.15.5. He filed returns showing a gross turnover of ₹14,59,923.1.8 and claimed deductions under Rule 7(1)(k) read with Rule 20(2), arguing he should be allowed to deduct the entire value of copra purchased, as the entire output was manufactured using the same. He also contended that the inter-State sales should be excluded altogether from assessable turnover by virtue of Section 26 of the Act read with Article 286 of the Constitution. However, the Sales Tax Officer excluded only the value of copra corresponding to intra-State sales and included only the intra-State sales of oil and cake in the turnover, arriving at a net assessable turnover of ₹7,54,144.8.4. His appeals before the Assistant Commissioner and the High Court failed.
E) LEGAL ISSUES RAISED
i) Whether inter-State sales fall outside the taxing power of the State under Section 26 of the Travancore-Cochin Sales Tax Act read with Article 286 of the Constitution.
ii) Whether the entire value of the purchased copra is deductible from gross turnover or only the portion relatable to intra-State sales.
iii) Whether a dealer can include inter-State sales in gross turnover for purposes of deduction computation but still claim exemption under Section 26.
iv) Whether Rule 20(2) permits full deduction of input value irrespective of destination of sales.
F) PETITIONER/APPELLANT’S ARGUMENTS
i) The counsels for Petitioner / Appellant submitted that
The appellant’s counsel argued that under the then-prevailing tax regime and the specific Rules 7(1)(k) and 20(2), once the sale value of oil was included in turnover, the entire value of input copra was deductible. They maintained that the law did not make any distinction between intra-State and inter-State sales in calculating gross turnover. It was further asserted that the introduction of Section 26 post-Constitution added a constitutional bar that prohibited taxation of inter-State sales, and thus, such sales should be excluded from assessable turnover. However, for the limited purpose of claiming deductions under Rule 20(2), the appellant should still be entitled to include such sales in his gross turnover, which would enable him to claim the entire deduction of copra value. They relied on fiscal jurisprudence laid down in IRC v. Duke of Westminster [1936 AC 1] and Whitney v. Commissioners of Inland Revenue [1926 AC 37], to argue that taxing provisions must be interpreted strictly and no tax can be levied unless expressly stated by statute[1].
G) RESPONDENT’S ARGUMENTS
i) The counsels for Respondent submitted that
The State argued that Section 26, being a non-obstante clause, nullified the applicability of all provisions of the Act concerning inter-State sales. Consequently, such transactions could not be part of the gross or net turnover. Thus, the corresponding input copra value could also not be deducted under Rule 20(2). They emphasized that since the sale of oil outside the State was statutorily exempt and not subject to tax, the conditions for deduction under Rule 20(2) were not satisfied. They also pointed out that the law aimed to prevent double taxation — once at purchase of copra and again at sale of oil. If the sale is outside State jurisdiction and untaxable, there exists no risk of double taxation, thus rendering the deduction redundant in such cases. The High Court and the Sales Tax Officer rightly excluded inter-State sales and allowed deduction of input only for intra-State oil sales[2].
H) RELATED LEGAL PROVISIONS
i) Article 286 of the Constitution of India: Bars states from imposing taxes on inter-State sales unless Parliament authorizes.
ii) Section 26 of the Travancore-Cochin General Sales Tax Act, 1125: Incorporates Article 286 into the State tax law, overriding other provisions.
iii) Section 2(j) and 2(k): Define “sale” and “turnover” respectively under the Act.
iv) Rule 7(1)(k): Allows deductions for registered manufacturers under conditions.
v) Rule 20(2): Specifies conditions under which registered manufacturers may claim deductions of input goods like copra.
I) JUDGEMENT
a. RATIO DECIDENDI
i) The Court held that Section 26 of the Act, echoing Article 286 of the Constitution, excluded inter-State sales entirely from the scope of the Act. Therefore, such sales cannot form part of gross or net turnover. Consequently, deduction of input copra corresponding to such sales is impermissible. The Court clarified that since these sales are statutorily outside the purview of taxation, they must be ignored altogether when computing taxable turnover. There exists no distinction between assessable and taxable turnover; if there is no statutory liability, assessment procedures become redundant[3].
b. OBITER DICTA
i) The Court observed that although legislative intent might have been to prevent double taxation, statutory language must prevail in taxation matters. It reiterated that courts must interpret taxing statutes strictly, as laid down in Partington v. Attorney General (1869) 4 HL 100 and Bank of Chettinad v. CIT AIR 1940 PC 183. It rejected the High Court’s reliance on presumed legislative intention, emphasizing clarity of statute over implied purposes[4].
c. GUIDELINES
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Non-obstante clauses override all conflicting statutory provisions, including charging and deduction sections.
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Inter-State sales are completely outside the taxing power of States, thus cannot be included in turnover.
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Conditions for deduction under Rules 7(1)(k) and 20(2) are not fulfilled if sale is statutorily exempt.
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Fiscal statutes must be interpreted strictly, and tax liability cannot arise by inference or analogy.
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Sales tax computation must reflect only transactions within taxing jurisdiction, ensuring compliance with Article 286.
J) REFERENCES
a. Important Cases Referred
i) IRC v. Duke of Westminster, [1936] AC 1
ii) Whitney v. Commissioners of Inland Revenue, [1926] AC 37
iii) Aswini Kumar Ghosh v. Arabinda Bose, [1953] SCR 1
iv) Bank of Chettinad v. CIT, AIR 1940 PC 183
v) Partington v. Attorney General, (1869) 4 HL 100
vi) Chatturam Horilram Ltd. v. CIT, [1955] 2 SCR 290
vii) Chatturam v. CIT, [1947] FCR 116
b. Important Statutes Referred
i) Travancore-Cochin General Sales Tax Act, 1125 (Act XI of 1125 M.E.)
ii) Travancore-Cochin General Sales Tax Rules, 1950
iii) Article 286, Constitution of India
