RESEARCH PAPER SUBMITTED IN THE FULFILLMENT OF THE COURSE TITLED PRINCIPLE OF

TAXATION FOR OBTAINING THE DEGREE B.A. LL.B. (HONS) DURING THE ACADEMIC YEAR 2023 - 2024

CASE ANALYSIS ON TATA IRON STEEL & CO vs. STATE OF BIHAR AIR (1958)
SC 452

SUBMITTED BY: SUBMITTED TO:

MITALI ARYAN MR. MANI PRATAP SINGH
CUSB2013125070 ASSISTANT PROFESSOR
B.A. L.L.B (HONS) DEPARTMENT OF LAW
7TH SEMESTER SCHOOL OF LAW AND
SESSION: 2020 -2025 GOVERNANCE
 ACKNOWLEDGEMENT

I would like to express my thanks and gratitude to our faculty of Investment Law, Mr Mani
Pratap Singh for providing me the chance to work on this particular assignment on the topic
“Tata Iron & Steel & Co vs. State of Bihar AIR (1958) SC 452”. I am obliged to thank our
faculty in the respective subject to provide me with the necessary support required while
making this assignment and for mentoring me throughout this assignment. The whole journey
of completing the assignment was quite interesting, I was completely engrossed and dived
deeper to seek more information related to the topic. I would not have been able to complete
this assignment without the help of my friends, colleagues, and my family members, so I would
like to express my gratitude and thank them as well.

Thank you!!

Mitali Aryan
CUSB2013125070
7TH SEMESTER
B.A. LL.B. (Hons.)
TATA IRON AND STEEL AND CO. vs STATE OF BIHAR

CITATION: 1958 AIR 452, 1958 SCR 1355

DATE OF JUDGMENT: 19TH February, 1958

COURT: Supreme Court
APPELLANT: Tata Iron and Steel & Co.
RESPONDENT: State of Bihar
BENCH: CJ Sudhi Ranjan Das, T. L. Venkatarama Iyer, S.K. Das, A.K Sarkar, Vivian
Bose
LEGAL PROVISION: Section 4 (1) and Section 2 (g) of Bihar Sales Tax Act,1947
ACTS REFERRED:
i) Bihar Sales Act, 1947 (Section 14 A, Section 2, Section 2 (4), Section 4 and
Section 4 (1)
ii) Constitution of India: Article 246, Article 246 (3) and Article 286
iii) Government of India Act,1935: Section 100, Section 100 (3)

FACT OF THE CASE:

Tata Iron and Steel and Co. carry their business in Jamshedpur, Bihar. The business was
manufacturing iron and steel in their own factory. This company sends its goods (iron and steel)
from Jamshedpur to various parts of India. The company was assessed to sales tax for two
periods under Bihar Sales Tax Act, 1947. This act was enacted by the Bihar Legislature in
exercise of exclusive power under Government of India Act, 1935. In the railway receipt, the
company itself shows as the consignee, so the company pays the freight and sends the receipt
either to their branch officers or bankers and when the price of goods is paid by the purchaser
then only hand over the receipt to the purchaser. The amount shown as the gross turnover in
the two returns for the two intervals, the company claimed the deduction in certain amounts on
the grounds that none of the transactions in respect to the above claim sum in the property
where the goods are purchased by a purchaser in Bihar. The company claimed such deduction
as it will give company a benefit consideration for the goods manufactured in Bihar but sold,
delivered and consumed outside Bihar (other parts of country). The appellant also claimed
another deduction on the railway freight which is paid by the company.

Sales Tax Officer invalids both the claims and added the amounts of sales tax realized by the
appellant which was from its purchasers to the taxable turnover. Later the case was appealed
in the High Court, where one part of the matter was given in the favour of appellant and
respondent did not appeal that part. The favour judgement was that the legality of adding the
sales tax to the turnover and the other question decided by the Court was against the appellant
that was related to the vires of the Act and validity of retrospective levy of sales tax under
Section 4 (1)1 of the Act.

So, the appellant appeal to the higher court on the matter which was given against the appellant.

ISSUES RAISED:

i) Whether the tax levied under Section 4 (1) read with Section 2 (g) of Bihar Sales
Tax, 1947 falls under the meaning of sales tax in Entry 48 in List II of the seventh
schedule of the Government of India, 1935?
ii) Whether the Act was vire and also the validity of retrospective imposition (levy) of
Sales tax under Section 4 (1) of the Act?
iii) Whether there is sufficient nexus between the law and object that has been taxed?

APPELLANT’S CONTENTION:

The appellant, Tata Iron and Steel Co. Ltd. presented four major contentions:

Unconstitutional Taxation: TISCO contended that the provisions of the Bihar Sales Tax Act,
1947, which sought to impose a sales tax on goods manufactured by them, were
unconstitutional. They argued that these provisions exceeded the legislative authority of the
Bihar State Legislature.

Inter-State Sales: TISCO argued that the state of Bihar did not have the constitutional power
to tax the sale of goods involved in inter-state trade. Since their iron and steel products were
sold and consumed outside Bihar in various parts of India, they should not be subject to sales
tax under Bihar’s jurisdiction.

Deductions: The appellant claimed deductions on certain amounts from their gross turnover.
TISCO asserted that these deductions should be allowed because the transactions associated
with these amounts did not pertain to the property where the goods were purchased by buyers

1
Bihar Sales Tax, 1947
in Bihar. They sought these deductions as a benefit for goods manufactured in Bihar but sold,
delivered, and consumed outside the state.

Railway Freight Deduction: TISCO also claimed a deduction related to the railway freight
charges they had paid. They argued that these charges should not be included in the taxable
turnover.

These contentions formed the basis of TISCO’s challenge to the taxation imposed by the Bihar
Sales Tax Act and their appeal to the courts to seek a favourable resolution of these issues.

RESPONDENT’S CONTENTION:

The respondent, State of Bihar, made several contentions in defence of the Bihar Sales Tax Act
and the taxation imposed on Tata Iron and Steel Company (TISCO). Some of the key
contentions made by the respondent were as follows:

Legislative Competence: The State of Bihar argued that the Bihar Sales Tax Act, 1947, was
enacted by the Bihar Legislature in exercise of its exclusive power under the Government of
India Act, 1935. Therefore, the Act was within the legislative competence of the state and
validly imposed taxes on sales within Bihar.

Intra-State Transactions: The respondent contended that the Bihar Sales Tax Act applied to
intra-state sales transactions, including those involving goods manufactured within Bihar. They
argued that the Act’s provisions were intended to regulate and tax sales occurring within the
state’s jurisdiction.

Taxation Authority: The respondent asserted that the Bihar State Legislature had the authority
to tax sales made within the geographical boundaries of the state, even if the goods were
destined for consumption outside Bihar. They argued that such taxation was a legitimate
exercise of the state’s fiscal powers.

Relevance of Railway Receipts: Regarding the railway receipts showing TISCO as the
consignee and the payment of freight charges by the company, the respondent likely argued
that these factors did not alter the nature of the transactions. They may have contended that the
actual sale and transfer of property occurred within Bihar, justifying the application of the Bihar
Sales Tax Act.
Taxable Turnover: The respondent may have argued that the amounts collected by TISCO as
sales tax from its purchasers should be included in the taxable turnover, as these represented
the actual proceeds of sales subject to taxation under the Act.

JUDGMENT:

At the core of the case was the question of the constitutional validity of specific provisions
within the Bihar Sales Tax Act, 1947, in relation to Tata Iron and Steel Company (TISCO). The
Court first examined the validity of the Bihar Sales Tax Act as it applied to intra-state sales. It
ruled in favor of the Act’s constitutionality in this regard, affirming the state’s competence to
tax transactions occurring entirely within its borders. This decision established the state’s
authority to levy sales tax on goods sold and consumed within Bihar.

However, the most significant aspect of the judgment revolved around the taxation of inter-
state sales. The Court held that the provisions of the Bihar Sales Tax Act, which sought to tax
goods involved in inter-state trade, were ultra vires (beyond the powers) of the state legislature.
This landmark ruling reaffirmed the principle of fiscal federalism embedded in the Indian
Constitution, emphasizing that the exclusive power to tax inter-state sales rested with the
Parliament of India, as specified in Entry 92A of List I (Union List) of the Seventh Schedule.
In effect, the judgment emphasized the importance of establishing a valid territorial connection
between the taxing state and the economic activity being taxed, illustrating the application of
the doctrine of territorial nexus in the context of Indian taxation law.

Regarding deductions claimed by TISCO, the Court recognized the company’s right to certain
deductions from its gross turnover. These deductions were allowed as they pertained to
transactions occurring outside Bihar, thus benefiting goods manufactured in the state but sold,
delivered, and consumed in other parts of the country.

Although the Court’s judgment provided essential clarity on the constitutional framework for
taxation in India, it is worth noting that specific details about the railway freight deduction,
another issue in contention, are not provided in the available records. Nevertheless, the case
remains significant for establishing the boundaries of state taxation powers in relation to inter-
state commerce and reaffirming the supremacy of the central government in taxing such
transactions. This decision continues to influence Indian taxation jurisprudence and the
division of fiscal powers between the centre and the states.
CRITICAL ANALYSIS OF THE CASE:

The case of Tata Iron and Steel Co. vs. State of Bihar (1958) is of significant importance in the
context of taxation law in India. It deals with the interpretation and application of Article 286
of the Indian Constitution, which has a profound impact on the taxation of sales of goods,
especially in the context of interstate commerce. Here's an analysis of the case in the context
of taxation law:

Article 286 of the Indian Constitution, at the time, contained provisions related to the power of
the states to impose taxes on the sale or purchase of goods. It made a distinction between
intrastate sales (sales within a state) and interstate sales (sales between different states).

The decision in this case clarified that the state governments in India could not impose sales
tax on goods that were part of interstate commerce. It established that the power to levy taxes
on interstate sales rested with the central government, thereby ensuring a unified and consistent
tax regime for interstate transactions. This was seen as essential for promoting free and
unrestricted trade and commerce between different states of India.

The case underscored the constitutional principles of fiscal federalism. It prevented state
governments from imposing taxes that could hinder or obstruct the flow of goods across state
borders. The decision aimed to maintain a balance between the taxing powers of the states and
the center, ensuring the smooth functioning of the Indian economy.

The judgment in this case has had a lasting impact on taxation law in India. It established a
clear demarcation between the authority of state and central governments in taxing interstate
sales. It has been cited and relied upon in various subsequent cases to uphold the principles
enshrined in Article 286 and to prevent states from imposing taxes that interfere with interstate
commerce.

CONCLUSION:

In summary, the Tata Iron and Steel Co. vs. State of Bihar case is a landmark decision in
taxation law in India. It solidified the constitutional framework for the taxation of goods in
interstate commerce, ensuring that state governments could not impose taxes that obstructed
the free movement of goods across state boundaries. This case remains a crucial reference point
in discussions related to the constitutional validity of taxation laws, especially those impacting
interstate trade and commerce in India.
 REFERENCE

WEBSITES:
• https://indiankanoon.org/doc/1629177/
• https://www.casemine.com/judgement/in/56092cdfe4b01497111faae4
• https://prepp.in/news/e-492-doctrine-of-territorial-nexus-indian-polity-notes
• https://legalvidhiya.com/tata-iron-and-steel-and-co-ltd-vs-state-of-bihar-air-1958-sc-
452/
• https://dullbonline.wordpress.com/2020/08/17/tata-iron-steel-co-ltd-v-state-of-bihar-
air-1958-sc-452/
• https://www.courtkutchehry.com/Judgement/Search/t/907974-tata-iron-and-steel-co

ACTS AND LEGISLATION:

• Bihar Sales Tax Act,1947

• Constitution of India
• Government of India Act, 1935