KES’ Shri. Jayantilal H.

Patel Law College, Mumbai

CASE LAW :
State of Bihar vs Bengal Chemical and Pharmaceutical Works ltd
1953

CONTRACT – II

A project submitted in partial fulfilment of the requirements for

The eighth Semester of B .A ,LL.B Course
By
DEVANSHI SANGHAVI
Fourth Year B.A, LL.B
Division B
Roll No – 20
Under the Supervision of
Asst. Prof . Ambari Patwardhan
22nd March , 2024

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 ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Prof. Ambari Patwardhan for

assigning the task of researching and analysing Contract 2, specifically focusing
on a landmark case law. Your guidance and support throughout this assignment
have been invaluable in deepening my understanding of contract law principles
and their application in real-world scenarios.
Additionally, I extend my appreciation to my peers for their insightful
discussions and feedback, which have contributed to enriching my learning
experience. This assignment has been an enriching journey, and I am grateful
for the opportunity to delve into such a significant aspect of legal studies.

- Devanshi Sanghavi

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 STATE OF BIHAR
VS
BENGAL CHEMICAL AND
PHARMACEUTICAL WORKS LTD
ON 8 MAY 1953

1. EQUIVALENT CITATIONS: 1954 AIR(Pat) 14 ; 1954 5 STC

28 ; 1953 Supreme(Pat) 88

2. CASE NO.: Miscellaneous Judicial Case No. 232 of 1951

3. PETITIONER: State of Bihar
4. RESPONDENT: Bengal Chemical and Pharmaceutical works
ltd
5. DATE OF JUDGMENT: 08/05/1953
6. BENCH: MR. JUSTICE DAS, MR. JUSTICE RAMASWAMY
& MR. JUSTICE RAI
7. JUDGMENT: Ramaswami, J.

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FACTS OF THE CASE

- The company involved is Bengal Chemical and Pharmaceutical Works, Ltd.,

located at 94 Chittaranjan Avenue, Calcutta.

- The sales tax assessment was conducted by the Sales-tax Officer from
Bhagalpur Circle.

- Sales tax amounting to Rs. 250 per quarter was assessed for eight quarters
starting from 1-10-1944.

- Additionally, a penalty of Rs. 375 was imposed for each of these eight
quarters.

- The company contested the jurisdiction of the Sales-tax Officer, arguing that
sales of chemicals occurred in Calcutta, not Bihar.

- They also claimed they were not considered a dealer as defined by the relevant
Act.

- Legal arguments centered around the interpretation of the Sales Tax Act
concerning jurisdiction and dealer status.

- The location of the sales was a crucial point in determining tax liability.

- The company sought relief from the assessed sales tax and penalties through
their defense.

- There was a dispute over whether the company qualified as a dealer under the
Act based on their activities.

- Legal proceedings were anticipated to resolve jurisdiction and dealer status

disputes, potentially involving appeals and further litigation.

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FINDINGS OF THE COURT

The assessee was a dealer within the meaning of Sec.2 (c), Bihar Sales Tax
Act, 1947. The sales of chemicals to the Bhagalpore Municipality and to
Bhagalpore District Board for which tax has been assessed were effected in
West Bengal and as such were not liable to be taxed in Bihar under the
provisions of the Bihar Sales-tax Act of 1944.

Issues: 1. Whether on the facts and circumstances of the case the assessee
is a dealer within the meaning of Sec.2 (c) of the Bihar Sales Tax Act?
2. Whether on the facts and circumstances of the case, there was any sale by
the assessee in Bihar within the meaning of Sec.2 (g) of the Bihar Sales Tax
Act?

Ratio Decidendi: The word supply or supplying should be interpreted in

association with the word sale. The Bihar Sales Tax Act, 1944 imposed a tax
on sales in Bihar, that is, the transfer of property in goods for cash or deferred
payment or other valuable consideration in Bihar.

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SUMMARY OF THE JUDGMENT

The Bengal Chemical and Pharmaceutical Works, Ltd., contested sales tax
assessments by the Bihar Sales Tax authorities for eight quarters, arguing that
the sales took place in Calcutta, not Bihar, and that they were not liable as
dealers under the Act. They claimed that goods were supplied under orders from
Bhagalpur Municipality to their Calcutta office, and payments were made there.
However, investigations revealed that goods were consigned to Bihar officials
and payments were made through a Bhagalpur bank. Despite appeals, the Sales-
tax Officer ruled the sales were completed in Bihar and imposed taxes
accordingly. The penalty was remitted, but the tax assessments were upheld by
higher authorities, leading to dismissal of the company's appeals.

The Board of Revenue referred two questions to the High Court regarding the
Bengal Chemical and Pharmaceutical Works Ltd.'s sales tax case:

1. Whether the assessee qualifies as a "dealer" under the Bihar Sales Tax
Act?
 Mr. Dutt, representing the assessee, acknowledged that the
company could be considered a dealer based on the method of sales
to various dealers in Bihar, where railway receipts were sent
through Lalji Sao of Bhagalpore, who collected payment from
buyers before handing over the receipts. This method implied that
the title to the goods passed in Bhagalpore, not Calcutta, and thus,
the company could be deemed a dealer under the Act.
2. Whether the sales to Bhagalpore Municipality and District Board
constituted sales in Bihar under the Act?
 Mr. Dutt argued that these sales were conducted in Calcutta, not
Bhagalpore, based on evidence that goods were consigned to

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 Bhagalpore officials but payments were made through a
Bhagalpore bank. He asserted that title passed and delivery was
completed at the company's factory in Panihati, Bengal, and
therefore, the Sales-tax Officer had no jurisdiction to tax these
sales under the Act.

The Government Pleader argued that the contract of sale occurred in

Bhagalpore, asserting that communication of acceptance was completed upon
receipt of the railway receipt by the Bhagalpore Municipality or District Board,
as per Section 4 of the Contract Act. However, the argument was countered
citing Section 8 of the Indian Contract Act, which states that performance of a
proposal's condition or acceptance of consideration constitutes acceptance of the
proposal. This distinction between acceptance by promise and acceptance by act
was supported by legal precedents. The court concluded that the contract of sale
was completed in West Bengal based on the findings of the Sales-tax Officer,
dismissing the Government Pleader's argument.

The argument presented on behalf of the State of Bihar was that even if the title
to the goods passed in West Bengal, the transaction would still fall within the
jurisdiction of the Bihar Sales-tax Act due to the goods being dispatched to
Bhagalpore and payments being made through the Bhagalpore branch of the
Imperial Bank. This argument was based on a decision of the court in another
case but was deemed irrelevant to the current matter. The court clarified that the
issue at hand was not the constitutional validity of Bihar's authority to tax sales
in Bengal but rather the interpretation of the Bihar Sales Tax Act of 1944. The
relevant sections of the Act were examined, including definitions of "sale,"
"dealer," and "sale price." It was argued on behalf of the State that anyone
supplying goods in Bihar, regardless of where the title transfer occurred, would
be considered a dealer under the Act. However, the court disagreed, interpreting
the word "supply" in Section 2(c) of the Act to encompass the concept of sale,
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rather than an independent act of providing goods. This interpretation was based
on the principle of noscitur a sociis, which suggests that words take meaning
from their context, and the broader term should be understood in a manner
consistent with the narrower terms used alongside it. Thus, the court held that
"supply" in the Act should be understood to include the notion of sale.

In summary, the court determined that:

1. The Bihar Sales-tax Act of 1944 imposes tax only on sales, not on the
mere supply of goods.
2. Considering the Act's title, preamble, and other provisions, it's evident
that the intention was to tax transactions where the transfer of title
occurred in Bihar.
3. The court disagreed with the Government Pleader's argument that
assessments made under Sec.10(5) of the Act cannot be challenged
legally, stating that the legal basis of such assessments is always open to
scrutiny.
4. Referring to legal precedents, the court emphasized that even in cases
where the assessee fails to submit a return, assessments must be made
judiciously and based on honest estimation.
5. The Sales-tax Officer's findings, based on inspection of records at the
Bhagalpore Municipal and District Board offices, confirmed that sales
were completed in Bihar, which provided sufficient material for proper
determination.
6. The court concluded that the assessee qualified as a dealer under Sec.2(c)
of the Act, but the sales of chemicals to the Bhagalpore Municipality and
District Board were deemed to have occurred in West Bengal, thus not
subject to tax under the Bihar Sales-tax Act. However, other sales, where
railway receipts were sent to a Bhagalpore agent, were deemed taxable
under the Act.
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The court discussed the questions raised by the Board of Revenue in a sales tax
case concerning the Bengal Chemical and Pharmaceutical Works, Ltd. The
questions revolved around whether the company was liable to pay sales tax
under the Bihar Sales Tax Act of 1944 for its transactions in Bihar. Here's a
summary of the key points:

The court disagreed with the view that the second question posed by the Board
of Revenue did not cover the sale of chemicals to the District Board and the
Municipality of Bhagalpore. It held that the question indeed encompassed these
sales, which constituted a significant part of the taxable turnover.

Even if the question was not precisely framed, the court asserted its authority to
reframe it to accurately reflect the actual issue between the parties.

The court cited precedents to support its position that the High Court could
reframe questions in a reference case to ensure that the real point at issue is
addressed.

The court reviewed the factual background of the case, highlighting that the
company supplied goods to various customers in Bihar, including the District
Board and the Municipality of Bhagalpore. It noted that the company had not
registered itself as a "dealer" under the Bihar Sales Tax Act.

The court provided relevant definitions from the Bihar Sales Tax Act, including
those of "dealer," "sale," and "sale price," to contextualize the legal arguments.

It was acknowledged that the company qualified as a "dealer" under the Act,
given its business activities in Bihar.

Ultimately, the court affirmed that the company was liable to pay sales tax
under the Bihar Sales Tax Act for its transactions in Bihar, as it met the criteria
set forth in the Act.
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Overall, the court's analysis focused on interpreting the questions posed by the
Board of Revenue, examining relevant legal provisions, and determining the
company's tax liability under the Bihar Sales Tax Act.

The case involves a dispute over the liability of the Bengal Chemical and
Pharmaceutical Works, Ltd. to pay sales tax under the Bihar Sales Tax Act of
1944. Here's a summary of the key points from the arguments presented by the
judges:

1. Issue of Sales Location: The central question revolves around whether the
sales made by the assessee to the District Board and the Municipal Board
of Bhagalpur should be considered as having taken place in Bihar or West
Bengal for the purpose of taxation.
2. Interpretation of Second Question: The judges debated whether the
second question referred by the Board of Revenue should be answered
with regard to individual sales or sales in general. One judge argued that
the question pertained to sales in general, while the other emphasized the
need to consider individual sales.
3. Contention of the State: The counsel for the State argued that the question
of liability on individual sales did not arise initially and was raised only
later by the assessee when seeking a reference to the High Court.
Therefore, it was contended that the Court lacked sufficient facts to
answer questions related to individual sales.
4. Assessment Procedure: It was noted that the assessment was based on a
best judgment assessment under Sec. 10(3) of the Bihar Sales Tax Act,
1944, as the assessee did not submit any returns. This fact complicated
the determination of liability on individual sales.
5. Conclusion: The judges agreed on the interpretation of the second
question and the need to consider individual sales for determining
liability under the Bihar Sales Tax Act. They acknowledged the
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 complexities arising from the lack of documentation and the assessment
procedure followed. Ultimately, the disagreement between the judges led
to the case being referred to another judge for resolution.

In this portion of the case, several arguments were presented regarding the
liability of Bensraj Chemical and Pharmaceutical Works, Ltd. to pay sales tax
under the Bihar Sales Tax Act of 1944. Here's a summary of the key points
made:

Assessment Order Basis: The assessment order itself indicates that the assessee
was assessed on the sale of chemicals to the Bhagalpur Municipality and the
District Board. The assessee denied liability for tax on these sales, arguing that
they did not take place in Bihar. The Sales Tax Officer's findings were based on
inspections of records at the Municipality and the District Board offices.

Availability of Facts: It was argued that sufficient facts were available to

determine liability on sales to the Municipality and the District Board, as the
taxing authorities had conducted investigations and provided clear findings.

Scope of Second Question: Despite the broader wording of the second question
referred by the Board of Revenue, it was argued that the real issue at hand was
whether the sales to the Municipality and the District Board of Bhagalpur were
subject to tax in Bihar. Therefore, the Court should answer this question.

Interpretation of Sale: Reference was made to the Sale of Goods Act, 1930,
particularly Section 23, to establish that the property in the goods passed at
Panihati in Bengal. Therefore, the sales were deemed to have taken place in
Bengal, not Bihar.

Construction of Bihar Sales Tax Act: The contention that liability under the
Bihar Sales Tax Act extends beyond sales in Bihar was refuted. The Act

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imposes tax on sales in Bihar, which involves the transfer of property in goods
within the state. Since the sales in question did not occur in Bihar, the assessee
was not liable for tax under the Act.

Emphasis on Legislative Intent: It was emphasized that the legislative intent of

the Bihar Sales Tax Act focused on the transfer of property in goods within
Bihar. Therefore, liability for tax should be determined based on where the sales
took place according to the Act's provisions.

Based on these arguments, it was concluded that the sales of chemicals to the
Municipality and the District Board did not occur in Bihar, and thus the assessee
was not liable for tax under the Bihar Sales Tax Act. The second question was
to be answered accordingly.

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