Full Judgment Text
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PETITIONER:
STATE OF MADRAS
Vs.
RESPONDENT:
A.HABIBUR REHMAN SONS (With Connected Appeals)
DATE OF JUDGMENT:
30/08/1967
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
WANCHOO, K.N. (CJ)
BACHAWAT, R.S.
MITTER, G.K.
HEGDE, K.S.
CITATION:
1968 AIR 339 1968 SCR (1) 381
ACT:
Constitution of India, 1950, Art. 286(1)(a), Explanation,
before amendment by the Constitution (Sixth Amendment) Act,
1956; ,Madras General Sales Tax Act (9 of 1939) s.
2(h),Explanation (2); and Sales Tax Laws Validation Act (7
of 1956), s. 2-Ban on taxation of inter-State Sales
lifted--Outside sales, if could be taxed.
HEADNOTE:
Under Explanation (2) to s. 2(h) of the Madras General Sales
Tax Act, 1939, a sale is deemed to have taken place in that
State, wherever the contract of sale might have been made,
if the goods were actually in the State at the time when the
contract in respect thereof was made. The Constitution, by
Art. 286 as it was originally enacted, imposed four bans
upon the legislative power of the States to impose sales
tax. Clause (1)(a) prohibited every State from imposing or
authorising the imposition of, a tax on outside sales. Am
outside sale was defined by defining an inside sale in the
Explanation to the clause, as a sale which shall be deemed
to have taken place in the State in which the goods have
actually been delivered as a direct result of such sale for
the purpose of consumption in that State notwithstanding the
fact that under the general law relating to sale of goods
the property in the goods has by reason of such sale passed
in another State. Clause (1)(b) prohibited the imposition
of tax on sales in the course of import into or export out
of, the territory of India. Clause (2) prohibited the
imposition of tax on the sale of goods where such sale took
place in the course of inter-State trade or commerce unless
Parliament otherwise provided. Clause (3) prohibited the
State from imposing or authorising the imposition of a tax
on the sale of any goods declared by Parliament by law to be
essential for the life of the community, unless the
legislation was reserved for the consideration of the
President and had received his assent. This Court, in its
judgment in the Bengal Immunity Co. Ltd. Case, [1955] 2
S.C.R. 603 delivered on September 6, 1955, held that because
of Art. 286(2), the State legislature could not impose
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sales-tax on inter-State sales until Parliament provided
otherwise. By the Sales Tax Laws Validation Act, 1956,
Parliament removed the ban contained in Art. 286(2) retro-
spectively, during the period between April 1, 1951, and
September 6, 1955, with the result that, transactions of
sale, even though they were inter-State sales, could, for
that period be lawfully charged to tax. [386C-E; 387D, F-H;
388A-D]
The respondent was a beedi manufacturer in the appellant-
State. Beedies, which were within the territory of the
appellantState at the time the contract of sale in respect
of them was made were sold to non-resident buyers. On the
question whether the sales during the period from April 1,
1955 to September 5, 1955 were taxable by virtue of
Explanation 2 to s. 2(h) of the Madras General Sales Tax
Act, 1939, in view of the lifting of the ban on the levy of
tax on inter-State sales by the Sales Tax Laws Validation
Act, the High Court relying on additional affidavits filed
before it, held 381
382
that the sales were outside sales and that the State had no
jurisdiction to impose sales tax.
In appeal by the State;
Held: (1) The restrictions imposed by the several clauses of
Art. 286 as it stood were cumulative, and the legislative
power of the State to tax sale or purchase transactions
could be exercised only if it was not hit by any of those
limitations. The Validation Act merely lifted the ban under
Art. 286(2) but the ban imposed by Art. 286(1)(a) was still
effective, and could not be removed by any legislation of
Parliament. Thus. even if the ban under Art. 286 (2) was
removed by the Validation Act, no State could tax an inter-
State sale or purchase which took place outside its
territorial limits. The sales falling within the
Explanation to Art. 286(1)(a) were fictionally to be
regarded as inside the State in which the goods were
actually delivered for consumption and so within the taxing
power of that State and as being outside all other States
and so, exempt from sales-tax by those other States.
Therefore, in the present case, even though the sales fell
within Explanation (2) to s. 2(h) of the Madras General
Sales Tax Act, it was beyond the competence of the Madras
State to tax them as the assessee had delivered the goods
for consumption outside the State and were thus outside
sales covered by the ban imposed by Art. 286(1)(a). [390E-H]
Observations at p. 1082 in State of Bombay v. United Motors,
(India) Ltd., [1953] S.C.R. 1069, The Bengal Immunity Co.
Ltd. V. State of Bihar and Ors., [1955] 2 S.C.R. 603, Shree
Bajrang Jute Mills v. State of Andhra Pradesh [1964] 6
S.C.R. 691 and Singareni Collieries Co. Ltd. v. State of
Andhra Pradesh, [1966] 2 S.C.R. 190, followed.
Messrs. Ashok Leyland Co. Ltd. v. The State of Madras
[1962] 1 S.C.R. 607, explained.
(2) The appellant-State, not having raised any objection
before the High Court that the High Court, in exercising the
revisional powers under s. 38 of the Madras General Sales
Tax Act could not take the affidavits in evidence could not
urge in this Court that the High Court acted illegaly in
taking them in evidence. [392E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 495, 539
and 540, 684, 694, 717 and 857 of 1966.
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Appeals by special leave from the judgment and orders dated
September 23, 1963, April 29, 1963, July 29, 1964, March 13,
1964, June 22, 1964 and June 24, 1964 of the Madras High
Court in Tax Cases Nos. 246 of 1962 (Revision No. 96) 202
and 203 of 1961, 67 of 1963 (Appeal No. 6), 43 of 1964
(Revision No. 17), 12 of 1963 (Appeal No. 2) and 112 of 1964
(Revision No. 64) respectively.
G. Ramanujam and A. V. Rangam, for the appellants (in all
the appeals).
T. A. Ramachandran, for respondent (in C.A. No. 495 of
1966).
M. S. K. Sastri and M. S. Narasimhan, for respondent (in
C. As. Nos. 539 and 540 of 1966).
A. N. Sinha and D. N. Gupta, for respondent (in C. A. No.
684 of 1966).
383
Kartar Singh Suri and E. C. Agrawala, for the respondent (in
C.A. No. 694 of 1966).
Avad Behari, for respondent (in C.A. No. 717 of 1966).
G. N. Dikshit for respondent (in C.A. No. 857 of 1966).
Civil Appeal No. 495 of 1966
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave,from
the judgment of the Madras High Court dated September 23,
1963, in Tax Case No. 246 of 1962.
The respondent who was a Beedi manufacturer in Gudiyattam,
Madras State was assessed to sales tax on a taxable turnover
of Rs. 1,73,502/11/10 for the assessment year 1955-56 by the
Deputy Commercial Tax Officer. Against this order of
assessment dated February 15, 1957 the respondent appealed
to the Appellate Assistant Commissioner of Commercial Taxes,
Salem disputing the inclusion of a sum of Rs. 1, 1 1,299 / -
and odd on the ground that the said amount represented
either second purchases or purchases made outside the State
of Madras. Pending the appeal the Madras General Sales Tax
Act, 1959 was passed and the earlier Act of 1939 was
repealed and by force of the provisions in the 1959 Act, the
appeal was finally disposed of by the Appellate Assistant
Commissioner of Commercial Taxes, Salem. By his order dated
July 2, 1960, the Appellate Assistant Commissioner held that
the excise duty paid by the respondent could not form part
of his purchase turnover but in purported exercise of his
powers under the new Act enhanced the assessment of the
turnover by including a gum of Rs. 1,15,406/14/9 as inter-
State purchases from April 1, 1955 to September 5, 1955.
The respondent took the matter in further appeal to the
Sales Tax Appellate Tribunal. The appellant also filed
petitions before the Tribunal for enhancement of the
assessment by Rs. 3,66,213/12/- on the ground that the
amount represented sales of manufactured beedies to non-
resident buyers during the period May 12, 1955 to September
5, 1955 and that the goods, in question were within the
territory of the State at the time the contract of sale in
respect thereof was made. It was contended on behalf of the
appellant that the sales were taxable by virtue of
Explanation (2) to s. 2(h) of the Madras General Sales Tax
Act, 1939 in view of the lifting of the ban on the levy of
tax on inter-State sales by the Sales Tax Laws Validation
Act, 1956 (Central Act VII of 1956), hereinafter called the
’Validation Act’, and that it was wrongly excluded from the
taxable turnover by the taxing authorities. By its order
dated July 13, 1962 the Appellate Tribunal allowed the
petition for enhancement and rejected the contention of the
respondent that the sales were agency sales through
Commission Agents. As regards the alleged second purchases
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or outside purchases of raw tobacco, the Appellate Tribunal
remanded the case to the Appellate Assistant Commissioner.
Against the order of the Appellate Tribunal the respondent
filed a petition in the High Court, of
384
Madras under s. 38 of the Madras General Sales Tax Act,
1959. By its order dated September 23, 1963 the High Court
held: (1) that the inclusion of the inter-State purchases
from April 1, 1955 to September 5, 1955 of Rs.
1,15,406/14/9. was bad as the Appellate Assistant
Commissioner had no jurisdiction to include that turnover;
(2) that the turnover of Rs. 3,66,213/12/- included by the
Appellate Tribunal could not be brought to tax as the
beedies, which were the subject of the relevant sales, were
delivered outside the State for purposes of consumption and
as the sales therefore constituted Explanation sales under
Art. 286(1) of the Constitution as it stood prior to the
Sixth Amendment and consequently the Madras State had no
jurisdiction to tax the said sales. Being aggrieved by that
part of the decision of the Madras High Court on the
question of taxability of the said transactions of inter-
State sales effected prior to September 6, 1955, the State
of Madras has brought the present appeal.
The question presented for consideration in this appeal is
whether the Madras State had jurisdiction to levy sales tax
on the alleged "Explanation sales" by the respondent during
the period between April 1, 1955 to September 5, 1955 by
virtue of Explanation (2) to s. 2(h) of the Madras General
Sales Tax Act, 1939.
Section 2(h) of the Madras General Sales Tax Act, 1939
states:
"2. In this Act, unless there is anything
repugnant in the subject or context-
(h)’sale’ with all its grammatical variations
and cognate expressions means every transfer
of the property in goods by one person to
another in the course of trade or business for
cash or for deferred payment or other valuable
consideration, and includes also a transfer of
property in goods involved in the execution of
a works contract, and in the supply or
distribution of goods by a co-operative
society, club, firm or any association to its
members for cash or for deferred payment or
other valuable consideration but does not
include a mortgage, hypothecation, charge or
pledge;
Explanation (2)-The sale or purchase of any
goods shall be deemed, for the purposes of
this Act, to have taken place in this State,
wherever the contract of sale or purchase
might have been made-
(a) if the goods were actually in this State
at the time when the contract of sale or
purchase, in respect thereof was made, or
(b) in case the contract was for the sale or
purchase of future goods by description, then,
if the goods are actually produced in this
State at any time after the contract of sale
or purchase in respect thereof was made.
385
Section 3 which is the charging section provides as follows:
"Subject to the provisions of this Act,-
(a) every dealer shall pay for each year a
tax on his total turnover for such year; and
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(b) the tax shall be calculated at the rate
of three pies for every rupee in such
turnover:
Provided that if and to the extent to which such turnover
relates to articles of food or drink or both sold in a
hotel, boarding house, restaurant, stall or any other place,
the tax shall be calculated at the rate of four and a half
pies for every rupee, if the turnover relating to those
articles is not less than twenty-five thousand rupees.
Under the Government of India Act, 1935, it was open to
every Provincial Legislature to enact legislation
authorising the levy of tax on sale of goods in respect of
transactions whether within or outside the Province,
provided the Province had a territorial nexus with one or
more elements constituting the sale. This resulted in levy
of sales tax by many Provinces in respect of the same
transaction--each Province fixing upon one or more elements
constituting the sale wish which it had a territorial nexus.
The Constitution with a view to prevent imposition of
manifold taxes on the same transaction of sale, imposed by
Art. 286 restrictions on the levy of sale and purchase taxes
on certain classes of transactions. Article 286, as it was
originally enacted, read as follows:
(1) No law of a State shall impose, or
authorise the imposition of, a tax on the sale
or purchase of goods where such sale or
purchase takes place-(.a) outside the State;
or
(b) in the course of the import of the goods
into, or export of the goods out of, the
territory of India.
Explanation.-For the purposes of sub-clause (a), a sale or
purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct
result of such sale or purchase for the purpose of
consumption in that State, notwithstanding the fact that
under the general law relating to sale of goods the property
in the goods has by reason of such sale or purchase passed
in another State.
(2) Except in so far as Parliament may by law otherwise
provide, no law of a State shall impose, or authorise the
imposition of, a tax on the sale or purchase of any goods
where such sale or purchase takes place in the course of
inter-State trade or commerce:
386
Provided that the President may by order
direct that any tax on the sale or purchase of
goods which was being lawfully levied by
the’Government of any State immediately before
the commencement of this Constitution shall,
notwithstanding that the imposition of such
tax is contrary to the provisions of this
clause, continue to be levied until the
thirty-first day of March, 1951.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a
tax on the sale or purchase of any such goods
as have been declared by Parliament by law to
be essential for the life of the community
shall have effect unless it has been reserved
for the consideration of the President and has
received his assent.".
Article 286 thus imposed four bans upon legislative power of
the States. Clause (1) prohibited every State from imposing
or authorising the imposition of, a tax on outside sales and
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on sales in the course of import into or export outside the
territory of India. By el. (2) the State was prohibited
from imposing tax on the sale of goods where such sale took
place in the course of inter-State trade or commerce. But
the ban could be removed by the legislation made by the
Parliament. By el. (3) the Legislature of a State was
incompetent to impose or authorise imposition of a tax on
the sale or purchase of any goods declared by the Parliament
by law to be essential for the life of the community, unless
the legislation was reserved for the consideration of the
President and had received his assent.
In The Bengal Immunity Co. Ltd., v. The State of Bihar and
Others(1), it was held by this Court that the operative
provisions of the several parts of Art. 286, namely el.
(1)(a), el. (1)(b), el. (2) and el. (3), are intended to
deal with different topics and one cannot be projected or
read into another, and therefore the Explanation in el.
(1)(a) cannot legitimately be extended to el. (2) either as
an exception or as a proviso thereto or read as curtailing
or limiting the ambit of el. (2). It was further held that
until the Parliament by law made in exercise of the powers
vested in it by el. (2) of Art. 286 provides otherwise, no
State may impose or authorise the imposition of any tax on
sales or purchases of goods when such sales or purchases
take place in the course of inter-State trade or commerce,
and therefore the State Legislature could not charge inter-
State sales or purchases until the Parliament had otherwise
provided. The judgment of this Court in The Bengal Immunity
Company’s(1) case was delivered on September 6, 1955. The
President then issued the Sales Tax Laws Validation Ordi-
nance, 1956, on January 30, 1956, the provisions of which
were later embodied in the Sales Tax Laws Validation Act,
1956. Section 2 of this Act provided:
(1) [1955] 2 S.C.R. 603,
387
"Validation of State laws imposing, or
authorising the imposition of, taxes on sale
or purchase of goods in the course of inter-
State trade or commerce.Nothwithstanding any
judgment, decree or order of any Court, no law
of a State imposing, or authorising the
imposition of, a tax on the sale or purchase
of any goods where such sale or purchase took
place in the course of inter-State trade or
commerce during the period between the 1st day
of April 1951, and the 6th day of September,
1955, shall be deemed to be invalid or ever to
have been invalid merely by reason of the fact
that such sale or purchase took place in the
course of inter-State trade or commerce; and
all such taxes levied or collected or purport-
ing to have been levied or collected during
the aforesaid period shall be deemed always to
have been Validly levied or collected in
accordance with law..............."
By this Act therefore the Parliament removed the ban
contained in Art. 286(2) of the Constitution retrospectively
but limited only to the period between April 1, 1951 and
September 6, 1955. All transactions of sale, even though
the were inter-State sales could for that period be lawfully
charged to tax.
On behalf of the appellant the argument was put forward that
the Validation Act having lifted the ban on taxation of
interState sales, the transactions of the respondent for the
period from April 1, 1955 to September 5, 1955 were
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assessable to tax under the provisions of the Madras General
Sales Tax Act, 1939 operating on its own terms. Counsel for
the appellant particularly based his argument on the second
Explanation to s.2(h) of that Act and the decision of this
Court in Messrs Ashok Leyland Ltd. v. The State of
Madras(1). In our opinion, the argument put forward on
behalf of the appellant is not warranted. The decision of
this Court in Ashok Leyland’s(1) case has no bearing on the
question presented for determination in this case. The
reason is that in that case the deliveries of motor vehicles
were inside the Madras State and the inter-State sales in
question were not "Explanation Sales" falling within Art.
286(1)(a). It is a well-settled proposition that the
operative provisions of the several parts of Art. 286.
namely el. 1(a), el. 1(b), el. (2) and el. (3), are intended
to deal with different topics and one cannot be projected or
read into another, and therefore the Explanation in el.
(1)(a) cannot legitimately be extended to el. (2) either as
an exception or as a proviso thereto or read as curtailing
or limiting the ambit of el. (2). In other words, the
legislative authority of the States to impose taxes on sales
and purchases was restricted by four limitations-in respect
of sales or purchases outside the State, in respect of sales
or purchases in the course of imports into or exports out of
India, in respect of sales or purchases which take place in
the course of
(1) [1962] 1 S.C.R. 607.
388
inter-State trade or commerce and in respect of sales and
purchases of goods declared by Parliament to be essential
for the life of the community. These limitations overlap to
some extent, but the legislative power of the State to tax
sale or purchase transactions may be exercised, only if it
is not hit by any of the limitations. The restrictions
imposed by Art. 286 are cumulative. It follows therefore
that even if the ban under Art. 286(2) is lifted by Parlia-
ment by the enactment of the Validation Act, the Madras
State cannot still tax inter-State sales or purchases which
take place outside its territorial limits because of, the
ban under Art. 286(1)(a) of the Constitution. What is an
"outside sale" is defined by the Constitution by the
explanation to Art. 286(1) which states what should be
deemed to be an ’inside sale’. As provided by the Ex-
planation to Art. 286(1), a sale or purchase shall be deemed
to have taken place in the State in which the goods have
actually been delivered as a direct result of the sale
notwithstanding the fact that under the general law relating
to sale of goods the property in the goods has, by reason of
such sale or purchase, passed in another State. The legal
position was stated by this Court in The State of Bombay v.
The United Motors (India) Ltd.(1) as follows:
"It provides by means of a legal fiction that
the State in which the goods sold or purchased
are actually delivered for consumption therein
is the State in which the sale or purchase is
to be considered to have taken place,
notwithstanding the property in such goods
passed in another State. Why an ’outside’
sale or purchase is explained by defining what
is an inside sale, and why actual delivery and
consumption in the State are made the
determining factors in locating a sale or
purchase will presently appear.The test of
sufficient territorial nexus was thus replaced
by a simpler and more easily workable test:Are
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the goods actually delivered in the taxing
State, as a direct result of a sale or
purchase, for the purpose of consumption
therein? Then, such sale or purchase shall be
deemed to have taken place in that State and
outside all other States. The latter States
are prohibited from taxing the sale or
purchase; the former alone is left free to do
so. Multiple taxation of the same transaction
by different States is also thus avoided."
This observation was not in any way dissented from by the
judgment of this Court in the later case-The Bengal Immunity
Company’s(2) case. The result therefore is that if the
terms of the Explanation are satisfied such sales are by a
fiction deemed to be ’inside’ the State of delivery-cum-
consumption and therefore ’ outside’ all other States. In
such cases therefore only the State ’inside’ which the sale
is deemed to take place by virtue of the
(1) [1953] S.C.R, 1069, 1082.
(2) [1955] 2 S.C.R. 603.
389
Explanation is exempt from the ban imposed by Art.
286(1)(a); all other States would be subject to that ban in
respect of such sales. This principle underlies the
decision of this Court in Shree Bajrang Jute Mills Ltd. v.
State of Andhra Pradesh(1). In that case, the appellant,
carrying on business as a manufacturer of jute goods with
its factory at Guntur, used to send jute bags by railway to
the cement factories of the A.C.C. Outside the State of
Andhra. For securing a regular supply of jute bags, the
A.C.C. entered into a contract with the appellant and under
the despatch instructions from that company, the appellant
loaded the goods in the railway wagons, obtained railway
receipts in the name of the A.C.C. as consignee and against
payment of the price, delivered the receipts to the Krishna
Cement Works, Tadepalli, which was for the purpose of
receiving the railway receipt and making payment, the agent
of the A.C.C. From the amounts shown as gross turnover in
the return for the assessment year 1954-55, the appellant
claimed reduction of certain amounts in respect of the goods
supplied by rail to the A.C.C. outside the State of Andhra
Pradesh under its despatch instructions. The Commercial Tax
Officer and the Deputy Commissioner of Commercial Taxes
disallowed the claim and held that as the railway receipts
were delivered to the agent of the buyer within the State of
Andhra, and price was also realized from the agent of the
buyer within the State, goods must be deemed to have been
delivered to the buyer in the Stale of Andhra Pradesh, and
the appellant was liable to pay tax on the sales. The
question for determination in this Court was whether the
sales by the appellant to the A.C.C. may be regarded as
’nonExplanation sales’, i.e., failing outside the
Explanation to Art. 286(1). It was held by this Court that
if the goods were delivered pursuant to the contracts of
sale outside the State of Andhra for the purpose of
consumption in the State into which the goods were
delivered, the State of Andhra could have no right to tax
those sales by virtue of the restriction imposed by Art.
286(1)(a) read with the Explanation. To attract the
Explanation, the goods had to be actually delivered as a
direct result of the sale, for the purpose of consumption in
the State in which they were delivered. The expression
’actually delivered’ in the context in which it occurs, can
’Only mean physical delivery of the goods, or such action as
puts the goods in the possession of the purchaser and it
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does not contemplate mere symbolical or notional delivery.
It was accordingly held that the State of Andhra had no
authority to levy tax in respect of these sale transactions
in which the goods were sent under railway receipts to
places outside the State of Andhra and actually delivered
for the purpose of consumption in those States. The same
view was reiterated by this Court in Singareni Collieries
Co. Ltd. v. State of Andhra Pradesh(2). In that case, the
appellant company carried on the business of mining coal
from its collieries and supplying it to consumers both
within and outside the State.
(1) [1964] 6 S.C.R. 691. (2) [1966] 2 S.C.R. 190.
390
In proceedings for assessment to Sales tax, the company
claimed that it was not liable to pay sales tax under the
Hyderabad General Sales Tax Act, 1950, on the price of coal
supplied to allottees outside the taxing State pursuant to
the directions of the Coal Commissioner issued under the
Colliery Control Order, 1945. This claim was rejected by
the Sales Tax Officer on the ground that the coal in
question was sold F.O.R. colliery siding and was actually
delivered to the consumers within the State when it was
loaded on their account in railway wagons at the colliery
siding. The appeals against that decision to the appellate
authorities as well as to the High Court were dismissed. It
was decided by this Court that so far as the period between
April 1, 1954 and September 6, 1955 was concerned, sales of
coal for delivery to consumers outside the State could not
be taxed under the Hyderabad Act because they were covered
by the explanation to Art. 286(1)(a) as it stood before
amendment. It was held that the Explanation defines the
State in which the goods have actually been delivered for
consumption, as the State in which for the purpose of
cl.(1)(a) of Art. 286 the sale shall be deemed to have taken
place, and that State alone in which the sale is deemed to
take place has the power to tax the sale, and for this
purpose it is immaterial that property in the goods has
under the general law relating to sale of goods passed in
another State in which the allottee resided or carried on
business.
The legal position therefore is that the Validation Act
merely lifted the ban under Art. 286(2) of the Constitution
on the State’s power to legislate but the ban imposed by
Art. 286(1)(a) of the Constitution was still effective and
could not be removed by legislation of Parliament. In other
words, even if the ban under Art. 286(2) is removed by the
Validation Act, no State can tax an interState sale or
purchase which takes place outside its territorial limits.
What is an "outside sale" is defined by the Constitution as
Explanation to Art. 286(1) which states what should be
deemed to be an "inside sale". It is well-settled that by
Art. 286(1) (as it stood before the Sixth Amendment) sales
as a direct result of which goods were delivered in a State
for consumption in such State, i.e., the sales failing
within the Explanation to Art. 286(1) were fictionally to be
regarded as inside that State for the purpose of cl. (1)(a)
and so within the taxing power of the State in which such
delivery took place and being outside all other States
exempt from sales-tax by those other States. As we have
already said, the Validation Act has lifted the ban under
Art. 286(2) alone but did not remove the ban under Art.
286(1) which continued to apply without being affected by
the Validation Act. Therefore, even if a sale fell within
the Explanation under s. 2(h) of the Madras General Sales
Tax Act, 1939 it was beyond the competence of the Madras
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State to tax if the assessee had delivered the goods outside
the State for consumption therein. It follows therefore in
the present case that the goods sold and delivered outside
391
the State during the period from April, 1955 to September,
1955 were not liable to tax under the Madras General Sales
Tax Act, 1939 and the taxing authorities had no jurisdiction
to include Rs. 3,66,213/12/- in the turnover of the
respondent.
We proceed to consider the next question raised in this
case, viz., that the High Court acted illegally in
entertaining and relying upon the affidavits filed by the
respondent while exercising its revisional powers under s.
38 of the Madras General Sales Tax Act, 1959 (Madras Act I
of 1959). It was contended for the appellant that the High
Court could not itself record a finding of fact after taking
additional evidence and there was no express power conferred
by s. 38 upon the High Court for taking additional evidence.
Section 38 of the Madras General Sales Tax Act, 1959 states:
"38. (1) Within ninety days from the date on
which a copy of the order under sub-section
(3) of section 36 is served in the manner
prescribed, any person who objects to such
order or the Deputy Commissioner may prefer a
petition to the High Court on the ground that
the Appellate Tribunal has either decided
erroneously or failed to decide any question
of law:
Provided that the High Court may admit a
petition preferred after the period of ninety
days aforesaid if it is satisfied that the
petitioner had sufficient cause for not
preferring the petition within the said
period.
..................................
(4)(a) If the High Court does not dismiss the
petition summarily, it shall, after giving
both the parties to the petition a reasonable
opportunity of being heard, determine the
question of law raised and either reverse,
affirm or amend the order against which the
petition was preferred or remit the matter to
the Appellate Tribunal, with the opinion of
the High Court on the question of law raised
or pass such order in relation to the matter
as the High Court thinks fit.
(b) Where the High Court remits the matter
under clause (a) with its opinion on the
question of law raised, the Appellate Tribunal
shall amend the order passed by it in
conformity with such opinion.
(5) Before passing an order under sub-section
(4), the High Court may, if it considers it
necessary so to do, remit the petition to the
Appellate Tribunal, and direct it to return
the petition with its finding on any specific
question or issue.
.......................................
392
(8) (a) The petitioner or the respondent may
apply for review of any order passed by the
High Court under clause (a) of sub-section (4)
on the basis of the discovery of new and
important facts which after the exercise of
due diligence were not within his knowledge or
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could not be produced by him when the order
was made.
(b) The application for review shall be
preferred within such time, and in such manner
as may be prescribed and shall where it is
preferred by any party other than the Deputy
Commissioner be accompanied by a fee of one
hundred rupees.
....................................
It was argued for the appellant that under S. 38 the High
Court was empowered to interfere with the order of the
Appellate Tribunal only if it bad either decided a question
of law erroneously or bad failed to decide any question of
law. It was said that in any case the High Court should
have remitted the matter to the Appellate Tribunal if it
considered it necessary for the proper disposal of the case
to take in evidence any additional facts under S. 38(5) of
the Act before passing an order under sub-s. (4) remitting
the matter to the Appellate Tribunal on any specific
question or issue. In our opinion there is considerable
force in the argument put forward on behalf of the
appellant. But we do not wish to, express any concluded
opinion on this point in the present case. It appears that
the appellant did not raise any objection before the High
Court when the affidavits were taken into evidence. Having
preferred no objection before the High Court it is not now
open to the appellant to gay that the High Court acted
illegally in taking those affidavits in evidence. It was
submitted for the respondent that the transactions
themselves took place in 1955, nearly 12 years back and
ordinarily accounts of dealings would not be retained beyond
five years. Counsel for the respondent referred in this
connection to a rule framed under the Madras General Sales
Tax Act. In these circumstances it was hardly worthwhile
for the High Court to remand the case for a fresh
investigation. We therefore reject the argument of the
appellant on this aspect of the case.
For the reasons assigned we hold that this appeal has no
merit and must be dismissed. In the circumstances of the
case we do not propose to make any order as to costs.
Civil Appeals Nov. 539 & 540 of 1966, 717 of 1966, 684 of
1966, 694 of 1966 and 857 of 1966.
The main question to be considered in these appeals is whe-
ther, after the enactment of the Validation Act, Madras
State had the constitutional power to tax "Explanation
sales" falling under Art. 286(1)(a) of the Constitution
i.e., where goods were delivered for consumption outside the
State and whether the ban under Art. 296(1)(a) was an
independent ban and whether it could be removed by
Parliamentary legislation under Art. 286(2). This question
393
has been the subject-matter of consideration in Civil Appeal
No. 495 of 1966, and for the reasons given in that case, we
hold that the Madras State had no authority to levy sales
tax on such transactions of sale and the High Court was
right in holding that the constitutional bar under Art.
286(1)(a) was not lifted by the Validation Act.
In Civil appeals Nos. 539 and 540 of 1966 Counsel for the
appellant took an additional point that the High Court ought
not to have called for an affidavit from the respondent
"regarding the mode of sale of wool to, the Bangalore
merchants". It was also said that the High Court had no
power to take that affidavit into evidence and come to a
finding that the sales were "’Explanation sales" within the
meaning of Art. 286(1)(a) of the Constitution. It, however,
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appears that the appellant did not object to the production
of the affidavit in the High Court. It must be taken that
the objection was waived and it is not now open to the
appellant to argue that the High Court had no power to take
the affidavit into evidence. We accordingly reject the
argument of the appellant on this point.
In Civil Appeal No. 717 of 1966 it was argued for the appel-
lant that the High Court erred in assuming that in the
transactions in question the goods were delivered for
consumption outside the Madras State. It was said that the
case should have been remanded by the High Court to the
Appellate Tribunal for a fresh finding on the point. The
High Court has, however, taken the view that the
transactions took place in 1955-56 and ordinarily accounts
of dealings would not be retained by the assessee beyond
five years. The High Court has observed that apart from
this the transactions were very large in number, about 4000
and odd and most of them were for a comparatively small
value. Some of the invoices referred in the assessment
order show that they were for small amounts in regard to
articles like paint, aluminium, tar and other articles. In
these circumstances the High Court came to the conclusion
that the goods were delivered to places outside the Madras
State for the purpose of consumption in the deliver States.
The High Court added that it was hardly worthwhile in these
circumstances to direct a remand of the case to the
Appellate Tribunal for a fresh enquiry. It is manifest that
the finding of the High Court on this point is a finding on
a question of fact and as there is proper material to
support the finding of the High Court it is not possible to
accept the contention of. the appellant that the finding is
in any way defective in law. We accordingly reject the
argument of the appellant on this point.
For the reasons expressed we hold that these appeals have no
merit and they are accordingly dismissed. In the
circumstances of the case we do not propose to make any
order as to costs except in C ’ ’A. 71.7 of 1966, In that
appeal, the respondent will be entitled to costs as already
ordered on 29th July 1965.
V.P.S. Appeals dismissed.
394