Full Judgment Text
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PETITIONER:
THE TATA IRON & STEEL CO., LTD.
Vs.
RESPONDENT:
THE STATE OF BIHAR
DATE OF JUDGMENT:
19/02/1958
BENCH:
DAS, SUDHI RANJAN (CJ)
BENCH:
DAS, SUDHI RANJAN (CJ)
AIYYAR, T.L. VENKATARAMA
DAS, S.K.
SARKAR, A.K.
BOSE, VIVIAN
CITATION:
1958 AIR 452 1958 SCR 1355
ACT:
Sales Tax-Provincial legislation imposing tax in certain
circumstances-Validity-Power of Provincial Legislature-
Retrospective levy, legality of-Theory of territorial nexus,
if applicable Bihar Sales Tax Act, 1947 (No. XIX of 1947)
as amended by Bihar Sales Tax (Amendment) Act, 1948 (VI of
1949), ss. 4(1), 2(g).
HEADNOTE:
The appellant company, carrying on business as manufacturer
of iron and steel, with its factory and works at Jamshedpur
in Bihar, was assessed to sales tax for two periods prior to
the Constitution, under the Bihar Sales Tax Act, 1947 (No.
XIX Of 1947), enacted by the Bihar Legislature in exercise
of its exclusive power under the Government of India Act,
1935. The company used to send its goods from Jamshedpur to
various parts of India. In the railway receipt the company
itself figured as the consignee, it paid the freight and the
receipt was sent either to its branch offices or bankers to
be handed over to the purchaser when he paid the price.
From the amounts shown as gross turn-over in the two returns
for the two periods, the company claimed deduction of
certain amounts, being the valuable consideration for the
goods manufactured in Bihar but sold, delivered and consumed
outside, on the ground that in none of the transactions in
respect of the said sums did property in the goods pass to
the purchasers in Bihar. The appellant claimed further
deductions on account of the railway freight paid by it.
The Sales Tax Officer disallowed both the claims and added
the amounts of sales tax realised by the appellant from its
purchasers to the taxable turnover. The company appealed
against the orders of assessment, but the Commissioner of
Sales Tax dismissed its appeals. The Board of Revenue, in
revision, confirmed the orders of the Commissioner with
certain modifications and remanded the matters to the Sales
Tax Officer. On the appellant’s application for reference
of certain questions of law, the Board referred them to the
High Court. One of them related to the legality of adding
the Sales Tax to the turn-over and was answered in favour of
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the appellant and the respondent did not appeal. The other
questions decided by the High Court against the appellant
related to the vires of the Act and the validity of
retrospective levy of sales tax under S. 4(1) of the Act.
The appellant’s contentions in the appeals were that the tax
levied under s. 4(1) read with S. 2(g) second proviso, cl.
(II), of the Act, was not a sales tax within the meaning of
Entry 48 in List II of the Seventh Schedule to the Govern-
ment of India Act, 1935, but was in the nature of excise
duty
172
1356
which a provincial legislature had no power to impose, that
the theory of territorial nexus was inapplicable to sales
tax and, in any case, there was no real or sufficient nexus
in the present cases and that retrospective levy of the
sales tax under s. 4(1) Of the Act destroyed the indirect
nature of the tax, thus making it a direct tax on the
dealer which could not be passed on to the consumer:
Held, (per Das, C. J., Venkatarama Aiyar, S. K. Das and A.K.
Sarkar, jj., Bose, J. dissenting), that the contentions
raised on behalf of the appellant must be negatived.
The provisions of S. 4(1) read with S. 2(g), second
proviso, of the Bihar Sales Tax Act, as amended by the Bihar
Sales Tax (Amendment) Act, 1948, (VI Of 1949), were within
the legislative competence of the Legislature of the
Province of Bihar. Both before and after the amendment, the
word ’sale’ as used in s. 4(1) and as defined by S. 2(g) of
the Act, meant the transfer of property in the goods sold.
The second proviso added by the amending Act did not extend
that meaning so as to include a contract of sale. What it
actually did was to lay down certain circumstances in which
a sale, although completed elsewhere, was to be deemed to
have taken place in Bihar. Those circumstances did not
constitute the sale, but only located the situs of the sale.
Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash jai
Prakash, [1955] 1 S.C.R. 243, distinguished.
Nor was it correct to contend that the tax levied under s.
4(1) read with S. 2(g) Of the Act was in the nature of
excise duty. Under cl. (ii) of the second proviso to S.
2(g) of the Act the producer or manufacturer became liable
to pay the tax not because he produced or manufactured the
goods but because he sold them.
Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R.
go and Governor General v. Province of Madras, (1945) L.R.
72 I.A. 91, referred to.
There can be no doubt that the theory of territorial nexus
does apply to sales tax legislation. Although sales tax can
be levied only on a completed sale, this theory has its use
in indicating the circumstances in which the tax may be
enforced in a particular case. One or more of the several
ingredients of a sale may furnish the connection between the
taxing State and the sale.
State of Bombay v. United Motors (India) Ltd., [1953] S.C.R.
1069, Poppatlal Shah v. The State of Madras, [1953] S.C.R.
677 and The State of Bombay v. R.M.D. Chamarbaugwala, [1957]
S.C.R. 874, relied on.
Bengal Immunity Co. Ltd. v. The State of Bihar, [1955] 2
S.C.R. 603, considered.
Case law reviewed.
1357
As in a sale of goods, the goods must necessarily play an
important part, the circumstances mentioned in the proviso
to s. 2(g) of the Act, namely, the presence of the goods in
Bihar at the date of the agreement of sale or their
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production or manufacture there must be held to constitute a
sufficient nexus between the taxing province and the sale
wherever that might take place.
Governor General v. Raleigh Investment, [1944] F.C.R. 229,
relied on.
Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R.
go, distinguished.
It would not be correct to contend that the theory of nexus
might lead to multiple taxation or obstruct inter-State
trade. Article 286(2) of the Constitution and the relevant
entries in the Legislative List are a complete safeguard to
any such contingency.
Although as a matter of economic theory, sales tax maybe an
indirect tax realisable from the consumer, it need not be
legally so and is not so under the Bihar Sales Tax Act,
1947, which imposes the primary liability on the seller. A
buyer, moreover, is not bound to pay sales tax over and
above the agreed sale price unless he is by contract bound
to do so. There can, therefore, be no scope for the
argument that the retrospective enforcement of the tax under
S. 4(1) of the Act could destroy the character of the tax or
that it was beyond the legislative competence of the Bihar
Legislature.
Love v. Norman Wright (Builders) Ltd., L.R. (1944) 1 K.B.
484, referred to.
Per Bose, J.-Sales tax can be imposed only on the sale. It
is, therefore, wrong to look to the goods or the agreement
to sell or any other elements that constitute a sale in
order to impose the tax.
A State can tax a sale of goods that takes place within its
boundary. It has no power to tax extra-territorially, and
since a completed sale can have only one situs no State
Legislature can be allowed to break up a sale into its
component parts, which are separate and distinct from the
sale itself, and by an application of the theory of nexus
claim that ,,he sale wholly took place within it. The nexus
can only be in respect of the entire sale, wherever it may
take place and not of its several parts.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 412 and 413
of 1956.
Appeals by special leave from the judgment and order dated
October 17, 1955, of the Patna High Court in M.J.C. No. 577
of 1953, made on reference by the Board of Revenue, Bihar in
Appeals Nos. 495 and 496 of 1952.
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M. C. Setalvad, Attorney-General, for India, Rajeshwari
Prasad and S. P. Varma, for the appellant.
Mahabir Prasad, Advocate-General for the State of Bihar and
R. C. Prasad, for the respondent.
1958. February 19. The Judgment of Das, C.J. Venkatarama
Aiyar, S. K. Das and Sarkar, JJ. ",as delivered by Das C.
J. Bose, J. delivered a separate judgment.
DAS C. J.-These two appeals, which have been filed with the
special leave granted by an order made by this Court on
April 3, 1956, and which have been consolidated together by
the same order, are dire-led against the judgment pronounced
by the Patna high Court on October 17, 1955, in
Miscellaneous Judicial Case No. 577 of 1953, deciding
certain questions refer. red to it by the Board of Revenue,
Bihar under s. 25 of the Bihar Sales Tax Act, 1947 (No. XIX
of 1947) hereinafter referred to as the 1947 Act. The said
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references arose out of two orders passed by the Board of
Revenue in revision of two sales tax assessment orders made
against the appellant company.
The appellant company is a company incorporated under the
Indian Companies Act. Its registered office is in Bombay;
its factory and works are at Jamshedpur in the State of
Bihar and its head sales’ office is in Calcutta in the State
of West Bengal. It has store yards in the States of Madras,
Bombay, West Bengal, Uttar Pradesh, Hyderabad, Madhya
Pradesh, Punjab and Andhra. It carries on business as
manufacturer of iron and steel and is a registered dealer
under the 1947 Act, the registration No. being S. C. 905.
Its course of dealing is thus described in the judgment
under appeal:-
" The intending purchaser has to apply for a permit to the
Iron and Steel Controller at Calcutta, who forwards the
requisition to the Chief Sales Officer of the assessee
working in Calcutta. The Chief Sales Officer thereafter
makes a "works order" and for. wards it to Jamshedpur. The
" works order " mentions the complete specification of the
goods required.
1359
After the receipt of the "works order" the Jamshedpur
factory initiates a " rolling " or " manufacturing "
programme. After the goods are manufactured, the Jamshedpur
factory sends the invoice to the Controller of Accounts who
prepares the forwarding notes, and on the basis of these
forwarding notes, railway receipts are prepared. The goods
are loaded in the wagons at Jamshedpur and despatched to
various stations, but the consignee in the railway receipt
is the assessee itself and the freight also is paid by the
assessee. The railway receipts are sent either to the
branch offices of the assessee or to its bankers, and after
the purchaser pays the amount of consideration, the railway
receipt is delivered to him. These facts are admitted and
the correctness of these facts are not disputed by the State
of Bihar."
The appellant company was separately assessed for two
periods: (1) from July 1, 1947 to March 31, 1948, and (2)
from April 1, 1948 to March 31, 1949. For the first period
the appellant company filed a return under s. 12(1) of the
1947 Act before the Sales Tax Officer showing a gross
turnover of Rs. 12,80,15,327-8-5. From this gross turnover
the appellant company claimed to deduct a sum of Rs.
2,88,60,787-13-0 being the amount of valuable consideration
for the goods manufactured at Jamshedpur in the State of
Bihar but sold, delivered and consumed outside that State on
the ground that in none of the transactions in respect of
the said sum did the property in the goods pass to the
purchasers in the State of Bihar. The appellant company
further claimed a deduction of Rs. 1,10,87,125-13-0 on
account of railway freight, actually paid by it for the
despatch of the goods. The Sales-tax Officer, by his
assessment order dated July 22, 1949, disallowed both the
claims for deduction and, on the other hand added a sum of
Rs. 13,66,496-11-0, being the amount of sales tax realised
by the appellant company from its purchasers, to its taxable
turnover and assessed the appellant company to sales tax
amounting to Rs. 15,31,374-5-9. For the second period the
appellant company filed a return showing a gross turnover of
Rs. 21,64,45,450-0-0.
1360
From this gross turnover the appellant company claimed a
deduction of Rs. 10,71,66,233-11-0 being the amount of
valuable consideration for goods manufactured at Jamshedpur
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in the State of Bihar, but sold, delivered and consumed
outside that State on the same ground as hereinbefore
mentioned. The appellant company also claimed a deduction
of Rs. 40,89,973-9-0 on account of railway freight actually
paid by it for the despatch of the goods. The Sales Tax
Officer by his assessment order dated September 24, 1949,
disallowed both the claims and added the sum of Rs.
22,37,919-4-0, being the amount of sales tax realised by the
appellant company from its purchasers, to its taxable
turnover and assessed the appellant company to sales tax
amounting to Rs. 28,30,458-6-0.
Against these two assessment orders the appellant company
preferred two appeals under S. 24 of the 1947 Act to the
Commissioner of Sales Tax of Chota Nagpur who, on April 29,
1950, dismissed both the appeals. The appellant company went
up to the Board of Revenue on two revision applications
against the two orders of the Commissioner. The Board
of Revenue,by its order dated August 30, 1952, confirmed the
orders of the Commissioner with certain modifications and
remanded the cases to the Sales Tax Officer. The appellant
company applied under S. 25 of the 1947 Act-to the Board of
Revenue in Reference Cases Nos. 495 and 496 of 1952 for
reference of certain questions of law to the High Court. By
a common order dated October 5, 1953, made in the said two
references the Board of Revenue referred the following
questions of law to the High Court for its decision
" (1) Is the Bihar Sales Tax Act, 1947, as amended in 1948,
ultra vires the Provincial Legislature in view of the
extended meaning of the expression taxes on sale of goods
given in the Act in the light of the provisions of the
Government of India Act, 1935 ?
(2)Are the provisions of section 2(g) of the 1947 Act ultra
vires the Provincial Legislature ?
1361
(3) Is it legal to include sales tax in the taxable
turnover of an assessee like the petitioner ?
(4) Was the Bihar Sales Tax (Amendment) Act of 1948 legally
extended to Chotanagpur ?
(5) Were the levy and collection of sales taxes for periods
prior to the 26th January 1950, under the Sales Tax Act then
in force rendered illegal by the provisions of the
Constitution ?
(6) Was the Commissioner, who passed orders, in appeal,
after the Constitution came into force, bound to decide the
appeal according to the provisions of the Constitution in
respect of taxes levied or sought to be levied for periods
prior to the 26th January, 1950, when the Constitution came
into force ?"
Out of these six questions, question No. 3 was decided in
favour of the appellant company and the respondent State has
not preferred any appeal against that decision or questioned
its correctness. Question No. 4 was not pressed before the
High Court and does not survive before us. Questions Nos.
1, 2, 5 and 6 were decided against the appellant company and
the two consolidated appeals are directed against the High
Court’s decision on these questions. It will be noticed
that questions Nos. I and 2, in effect, raise the same
problem, namely, as to the vires of the 1947 Act and
questions Nos. 5 and 6 are concerned with the validity of
the retrospective levy of sales tax by reason of the
amendment of s. 4 of the 1947 Act.
The following points, as formulated by the learned Attorney-
General appearing for the appellant company, have been urged
before us in support of these appeals:
" (1) The tax levied under s. 4(1) read with s. 2(g), second
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proviso, cl. (ii), is not a tax on sale within the meaning
of Entry 48 in List II of the Seventh Schedule to the
Government of India Act, 1935.
(2) The doctrine of nexus is not applicable to sales tax.
(3) In any event the nexus in the present case is not real
and sufficient but is illusory.
1362
(4)Having regard to the provisions of the law mentioned
above, the tax levied is in the nature of duty of excise
rather than a tax on sale.
(5)The retrospective levy by reason of the amendment of s.
4(1) destroys its character as a sales tax and makes it a
direct tax on the dealer instead of an indirect tax to be
passed on to the consumer."
In order to appreciate the arguments that have been advanced
before us on the points noted above, it is necessary to
refer to the relevant statutory provisions, which were in
force at the material times. Section 99, of the Government
of India Act, 1935, authorised a Provincial Legislature,
subject to the provisions of that Act, to make laws for the
Province or for any part thereof. Section 100(3) of that
Act provided that, subject to the two preceding sub-
sections, the Provincial Legislature had, and the Federal
Legislature had not, power to make laws for any Province or
any part thereof with respect to any of the matters
enumerated in List 11 of the Seventh Schedule to that Act.
The matter enumerated in Entry 48 in List II was as follows:
" Taxes on the sale of goods and on advertisements." It is
in exercise of this legislative power that the Provincial
Legislature of Bihar passed the 1947 Act which received the
assent of the Governor General on June 21, 1947, and came
into force on July 1, 1947, by virtue of a notification made
in the official gazette under s. 1(3) of the said Act. The
relevant portion of s. 4(1) of the 1947 Act, which was the
charging section, was, prior to its amendment hereinafter
mentioned, expressed in the following terms:-
" Subject to the provisions of sections 5, 6, 7 and 8 and
with effect from such date as the Provincial Government may,
by notification in the official gazette, appoint, being not
earlier than 30 days after the date of the said
notification, every dealer whose gross turnover -during the
year immediately preceding the commencement of this Act on
sales which had taken place both in and outside Bihar
exceeded Rs. 10,000 shall be liable to pay tax under this
Act
1363
on sales which have taken place in Bihar after the date was
notified."
It should be noted that, although the 1947 Act came into
force on July 1, 1947, by virtue of a notification published
in the official gazette under s. 1(3) thereof, the charging
section quoted above did not come into operation because, by
its own terms, it required a further notification in the
official gazette to bring it into effect. For some reason,
not apparent on the record, the Provincial Government did
not issue any notification as contemplated by s. 4(1). To
cure this omission Ordinance III of 1948 was promulgated by
the Governor amending s. 4(1)(a) of the 1947 Act. Section
4(1), as amended, read as follows:
" Subject to the provisions of sections 5, 6, 7 and 8 and
with effect from the commencement of this Act, every dealer,
whose turnover during the year immediately preceding the
date of such commencement, on sales which have taken place
both in and outside Bihar exceeded Rs. 10,000, shall be
liable to pay tax under this Act on sales which have taken
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place in Bihar on and from the date of such commencement."
On March 22, 1949, Ordinance III of 1948 was replaced by
Bihar Sales Tax (Amendment) Act, 1948 (VI of 1949)
hereinafter referred to as the amending Act. Section 16 of
this amending Act provided that the substituted s. 4(1)
should form part of the 1947 Act and should always be deemed
to have formed part thereof with effect from its
commencement, that is to say, from July 1, 1947, as
hereinbefore mentioned. Two things should be noted, namely,
(1) that the person sought to be charged was every dealer
whose gross " turnover" during the specified period on "
sales " which had taken place both in and outside Bihar
exceeded Rs. 10,000 and (2) that the liability to pay tax
was on " sales " which had taken place in Bihar on and from
the date of such commencement. This takes us back to s.
2(g) which defines " sale ". The material part of the
definition of " sale ", previous to the amendment made by
the amending Act,
173
1364
read as follows:
" ’Sale’ means, with all its grammatical variations and
cognate expressions, any transfer of property in goods for
cash or deferred payment or other valuable consideration,
including a transfer of property in goods involved in the
execution of contract but does not include a mortgage,
hypothecation, charge or pledge:
Provided ..................................................
Provided further that notwithstanding anything to the
contrary in the Indian Sale of Goods Act, 1930 (III of
1930), the sale of any goods which are actually in Bihar at
the time when, in respect thereof, the contract of sale as
defined in section 4 of that Act is made, shall, wherever
the said contract of sale is made be deemed for the purpose
of this Act to have been made in Bihar.
..........................................................
Section 2 of the amending Act amended s. 2(g) of the 1947
Act by substituting a new proviso to cl. (g) for the
original second proviso thereto. The material part of s.
2(g), thus amended, read as follows:
" ’Sale ’means, with all its grammatical variations and
cognate expressions, any transfer of property in goods for
cash or deferred payment or other valuable consideration,
including a transfer of property in goods involved in the
execution of contract but does not include a mortgage,
hypothecation, charge, or pledge:
Provided .................................................
Provided further that notwithstanding anything to the
contrary in the Indian Sale of Goods Act, 1930 (111 of
1930), the sale of any goods-
(i) which are actually in Bihar at the time when, in
respect thereof, the contract of sale as defined in section
4 of that Act is made, or
(ii) which are produced or manufactured in Bihar by the
producer or manufacturer thereof, shall, wherever the
delivery or contract of sale is made, be
1365
deemed for the purposes of this Act to have taken place in
Bihar.
The amending Act by s. 3 substituted for the old sub-s. (1)
of s. 4 of the 1947 Act the following sub-’ section, namely:
" (1) Subject to the provisions of sections 5, 6, 7 and 8
and with effect from the commencement of this Act, every
dealer whose gross turnover during the year immediately
preceding the date of such commencement, on sales which have
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taken place both in and outside Bihar exceeded Rs. 10,000
shall be liable to pay tax under this Act on sales which
have taken place in Bihar on and from the date of such com-
mencement:
Provided that the tax shall not be payable on sales involved
in the execution of a contract which is shown to the
satisfaction of the Commissioner to have been entered into
by the dealer concerned on or before the 1st day of October,
1944. "
Although the amending Act received the assent of the
Governor General on March 15, 1949, it came into force on
October 1, 1948, as provided in s. 1(2) thereof. Section 16
of the amending Act, however, provided that the amendment
made by s. 3 should form part and should be deemed always to
have formed part of the 1947 Act as if the said Act had been
enacted as so amended from the commencement thereof, that is
to say, from July 1, 1947. The 1947 Act was further amended
in 1951 by Bihar Act VII of 1951 and again in 1953 by Bihar
Act XIV of 1953, but we are not, in the present case,
concerned with those amendments.
Although the charging section, namely, s. 4(1), as amended,
operates from July 1, 1947, the definition of sale as
amended, became operative only from October 1, 1948.
Therefore, the definition of " sale ", as it stood prior to
the amendment, was applicable to all sales made by the
appellant throughout the first period hereinbefore
mentioned, i.e., the period from July 1, 1947 to March 31,
1948 and also to those made during the period from April 1,
1948 to October 1, 1948, which was only a portion of the
second
1366
period hereinbefore mentioned and the amended definition
applied to all sales made by the appellant during the
remaining portion of the second period, i.e., from October
1, 1948 to March 31, 1949.
Bearing in mind the relevant provisions of the 1947 Act as
they stood both before and after the amendment and the
period of their applicability we now proceed to consider the
points urged before us by the learned Attorney General
appearing for the-appellant company.
Re. Points Nos. 1 and 4: It will be convenient to take up
those two points together for they have been dealt with
together by the learned Attorney General. The validity of
s. 4(1) read with s. 2(g), second proviso, is challenged in
two ways. In the first place it is urged that s. 100(3) of
the Government of India Act, 1935 read with Entry 48 in List
II of the Seventh Schedule thereto authorised the
Legislature of Bihar to make a law with respect to tax on
the sale of goods. " Sale of Goods ", as a legal topic, has
well defined and well understood implications both in
English and Indian Law. The English Common Law relating to
sale of goods has been codified in the English Sale of Goods
Act, 1893. In India the matter was originally governed by
the provisions of Chapter VII of the Indian Contract Act,
1872. Those provisions have since been replaced by the
Indian Sale of Goods Act, Act III of 1930. Our attention
has been drawn to s. 4 of the Indian Sale of Goods Act which
clearly makes a distinction between a sale and an agreement
for sale. It is pointed out that that section groups "
sales " and " agreements to sell " under the single generic
name of " contract of sale ", following in this respect the
scheme of English Sale of Goods Act, 1893, and that it
treats " sales " and "agreements to sell " as two separate
categories, the vital point of distinction between them
being that whereas in a sale there is a transfer of property
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in goods from the seller to the buyer, there is none in an
agreement to sell. It is then urged, on the authority of a
decision of this Court in the Sales Tax Officer, Pilibhit v.
Messrs. Budh Prakash
1367
Jai Prakash (1) that there having thus existed at the time
of the enactment of the Government of India Act, 1935, a
well defined and well established distinction between a "
sale " and an " agreement to sell " it would be proper to
interpret the expression " sale of goods " in Entry 48 in
the sense in which it was used in legislation both in
England and in India and to hold that it authorised an
imposition of a tax only when there was a completed sale
involving the transfer of title in the goods sold.
Reference is then made to the decision of the Federal Court
in the case of Province of Madras v. Boddu Paidanna and Sons
(2) where the Federal Court at page 101 observed that in the
case of sales tax the liability to tax arose on the occasion
of a sale " which Patanjali Sastri C. J. in his judgment in
the State of Bombay v. United Motors (India) Ltd. (3)
described as " the taxable event. " The argument is that
the Bihar Legislature could only make a law imposing a tax
on the sale of goods, that is to say, on a concluded sale
involving the transfer of property in the goods sold from
the seller to the buyer as contemplated by the Sale of Goods
Act. The Bihar Legislature could not, by giving an extended
definition to the word "sale", extend its legislative power
under Entry 48 in List II of the Seventh Schedule to the
Government of India Act, 1935, so as to impose a tax on
anything which is short of a sale. For our present purpose
no exception need be taken to the proposition thus
formulated and indeed in Budh Prakash Jai Prakash’s case (1)
this Court struck down that part of the definition of it
sale " in s. 2(h) of the Uttar Pradesh Sales Tax Act, 1948,
which enlarged the definition of " sale " so as to include "
forward contracts". But is the position the same here? We
think not. It will be noticed that s. 4(1) imposed on the
dealer the liability to pay a tax on " sale " as defined in
s. 2(g). Both before and after the amendment of s. 2(g) the
principal part of the definition meant the transfer of the
property in goods. All that the second proviso did was not
to extend the
(1) [1955] 1 S.C.R. 243, 247. (2) [1942] F.C.R. 90.
(3) [1953] S.C.R. 1069, 1088.
definition of "" sale but only to locate the I" sale " in
certain circumstances mentioned in that proviso in Bihar.
The basis of liability under s 4(1) remained as before,
namely, to pay tax on " sale . The fact of the goods being
in Bihar at the time of the contract of sale or the
production or manufacture of goods in Bihar did not by
itself constitute a " sale " and did not by itself attract
the tax. The taxable event still remained the " sale "
resulting in the transfer of ownership in the thing sold
from the seller to the buyer. No tax liability actually
accrued until there was a concluded sale in the sense of
transfer of title. It was only when the property passed and
the " sale " took place that the liability for paying sales
tax under the 1947 Act arose. There was no enlargement of
the meaning of " sale " but the proviso only raised a
fiction on the strength of the facts mentioned therein and
deemed the " sale " to have taken place in Bihar. Those
facts did not by themselves constitute a" sale " but those
facts were used for locating the situs of the sale in Bihar.
It follows, therefore, that the. provisions of s. 4(1) read
with s. 2(g), second proviso, were well within the
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legislative competency of the Legislature of the Province of
Bihar.
The vires of s. 4(1) read with s. 2(g), second proviso, is
also questioned on the ground that it is in reality not a
tax on the sale of goods but is in substance a duty of
excise within the meaning of Entry 45 in List I of the
Seventh Schedule to the Government of India Act, 1935, with
respect to which the Provincial Legislature could not, under
s. 100 of that Act, make any law. Our attention is drawn to
cl. (ii) of the second proviso which contemplated a sale of
the goods by the producer or manufacturer thereof. It is
urged that, according to this clause, tax was not imposed on
all sales of goods produced or manufactured in Bihar, but
was imposed only on those goods produced or manufactured in
Bihar which were sold by the producer or manufacturer. It
is pointed out, as and by way of an illustration, that if
the goods produced or manufactured in Bihar were taken out
of the Province of Bihar and then gifted away by the
producer or
1369
manufacturer to a person ’outside Bihar and that person sold
the goods, he would not be liable under the proviso. This
argument, however, overlooks the fact that under cl. (ii)
the producer or manufacturer became liable to pay the tax
not because he produced or manufactured the goods, but
because he sold the goods. In other words the tax was laid
on the producer or manufacturer only qua seller and not qua
manufacturer or producer as pointed out in Boddu. Paidanna’s
case (1). In the words of their Lordships of the Judicial
Committee in Governor General v. Province of Madras (2), " a
duty of excise is primarily a duty levied on a manufacturer
or producer in respect of the commodity manufactured or
produced. It is a tax on goods and not on sales or the
proceeds of sale of goods." If the goods produced or
manufactured in Bihar were destroyed by fire before sale the
manufacturer or producer would not have been liable to pay
any tax under s. 4 (1) read with s. 2 (g), second proviso.
As Gwyer C. J. said in Boddu Paidanna’s Case (1) at page 102
the manufacturer or producer would be "liable, if at all, to
a sales tax because he sells and not because he manufactures
or produces; and he would be free from liability if he chose
to give away everything which came from his factory." In our
judgment both lines of the argument advanced- by the learned
Attorney General in support of points and 4 are untenable
and cannot be accepted.
Re. point No. 2: The theory of nexus has been applied in
support of tax legislation in more cases than one, not only
in this country but also in Australia and England. In
Wanganui-Rangitikei Electric Power Board v. Australian
Mutual Provident Society (3) Dixon J. observed:
" So long as the statute selected some fact or circumstance
which provided some relation or connection with New South
Wales, and adopted this as the ground of its interference,
the validity of an enactment......... would not be open to
challenge."
The same learned Judge in Broken Hill South Ltd. v.
(1) [1942] F.C.R. 90.
(3) (1934) 50 C.L.R. 581, 600.
(2) (1945) L.R. 721.A. 91, 103.
1370
Commissioner of Taxation (N. S. W.)(1), said at page 375:
" If a connection exists, it is for the legislature to
decide how far it should go in the exercise of its ,powers.
As in other matters of jurisdiction or authority courts must
be exact in distinguishing between ascertaining that the
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circumstances over which the power extends exist and
examining the mode in which the power has been exercised.
No doubt there must be some relevance to the circumstance in
the exercise of the power. But it is of no importance upon
the question of validity that the liability imposed is, or
may be, altogether disproportionate to the territorial
connection."
Even the dissenting Judge Rich J. accepted the theory of
nexus at page 361:
" I do not deny that once any connection with New South
Wales appears, the legislature of that State may make that
connection the occasion or subject of the imposition of a
liability. But the connection with New South Wales must be
a real one and the liability sought to be imposed must be
pertinent to that connection."
The Estate Duty Assessment Act 1914-1928 which charged
estate duty on moveable properties situate abroad which had
passed from a deceased person domiciled in Australia by gift
intervivos made by him within a year of his death was not
struck down for extra territoriality but was upheld as
constitutional in The Trustees Executors and Agency Co. Ltd.
v. The Federal Commissioner of Taxation (2).
The nexus theory was applied in full force in Governor
General v. Raleigh Investment Co. (3); Wallace Brothers and
Co. Ltd. v. Commissioner of Income Tax, Bombay City (4)
and A. H. Wadia v. Commissioner of Income Tax, Bombay
(5). In Raleigh Investment Co.’s case(3) the assessee
company was a company incorporated in England. Its
registered office was in England. It held shares in nine
Sterling Companies incorporated
(1) (1937) 56 C.L.R. 337. (2) (1933) 49 C.L.R. 220.
(3)[1944) F.C.R. 229. (4) [1948] F.C.R. 1. (5) [1948]
F.C.R. 121.
1371
in England. Those nine Sterling Companies carried on
business in British India and earned income, profits or
gains in British India and declared and paid dividends in
England to its shareholders including the assessee company.
Tile assessee company was charged to income-tax under s. 4
(1) of the Indian Income-tax Act. It should be noted that
the assessee company was not resident in British India,
carried on no business in British India and made no income,
profits or gains out of any business carried on by it in
British India. It invested its money and acquired shares in
England in the nine Sterling Companies which were English
Companies. It was only when those nine Companies declared
and paid dividends in England that the assessee company
really earned its income, profits or gains, out of its
investments in England in shares of nine Sterling Companies.
The circumstance that the nine Sterling Companies derived
their income, profits or gains, out of business carried on
by them in British India out of which they paid dividends to
the assessee company was regarded as sufficient nexus so as
to fasten the tax liability on the assessee company in
respect of the income, profits or gains, it derived from the
nine Sterling Companies. Even such a distantly derivative
connection with the source of income was held as a
sufficient nexus to enable the British Indian tax autho-
rities to charge the assessee company with income-tax. The
conclusions reached by Spens C. J. in Raleigh Investment
Co.’s case, (1) are formulated thus at page 253:
" If some connection exists, the legislature is not
compelled to measure the taxation by the degree of benefit
received in particular cases by the taxpayer. This affects
the policy and not the validity of the legislation ".
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In Wallace Brothers case (2) the connection of the assessee
company with British India was not so remote as in Raleigh
Investment Co.’s case (1), for in the former case the
assessee company was a partner in a
(1) [1944] F.C.R. 229. 174
(2) [1948] F.C.R. 1.
1372
firm which carried on business in British India but that
connection was held to be sufficient nexus to bring to
British Indian tax not only the income, profits or gains
made by the assessee as a partner in the firm but also its
income, profits or gains which accrued without British India
in the previous year. In Wadia’s case (1), also an income-
tax case, it was held that a law imposing a tax cannot be
impugned on the ground that it is extra territorial, if
there is a connection between a person who is subjected to a
tax and the country which imposes that tax. The connection
must, however, be a real one and the liability sought to be
imposed must be pertinent to that connection. At page 140
Chief Justice Kania observed:
" Generally, States can legislate effectively only for their
own territories, but for purposes of taxation and similar
matters, a State makes laws designed to operate beyond its
territorial limits."
The learned Attorney General points out that the three last
mentioned cases in which the nexus theory was applied were
income-tax cases and submits that that principle cannot be
extended to sales tax laws. He points out that in Bengal
Immunity Co. Ltd. v. The State of Bihar (2) this Court
expressly left open the question, whether the theory of
nexus applied to legislation with respect to sales tax. The
passage at page 639 relied upon by the learned Attorney
General only refers to the fact that the different State
Legislatures considered themselves free to make a law
imposing tax on sales or purchases of goods provided the
State concerned had some territorial nexus with such sales
or purchases and went on to say that the question whether
they were right or wrong in so doing had not been finally
decided by the courts. That passage, properly understood,
can hardly be said to indicate that the theory of nexus does
not apply to sales tax legislation at all. The drift of the
meaning of the passage was that the sufficiency of the
different next relied on by the different States had not
been tested by the courts. The passage strongly relied upon
by the learned Attorney General is to be
(1) [1948] F.C.R. 121.
(2) [1955] 2 S.C.R. 603.
1373
found at page 708 where Bhagwati J. after referring to the
earlier cases, observed :
" It is a moot point whether this theory of territorial
connection or nexus which has been mainly applied in income-
tax cases, is also applicable to sales tax legislation, the
sphere of income-tax legislation and sales tax legislation
being quite distinct. Whereas in the case of income-tax
legislation the tax is levied either on a person who is
within the territory by exercising jurisdiction over him in
personam or upon income which has accrued or arisen to him
or is deemed to have or arisen to him or has been derived by
him from sources within the territory and it is, therefore,
germane to enquire whether any part of such income has
accrued or arisen or has been derived from a source within
the territory, in the case of sales tax legislation it is
the sale or purchase of goods which is the subject-matter of
taxation and it cannot be predicated that the sale or
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purchase takes place at one or more places where the
necessary ingredients of sale happen to be located. The
theory of territorial connection or nexus was not put to the
test at any time prior to the enactment of the Constitution
and it is not necessary also for us to give a definite
pronouncement on the subject."
Apart from the fact that the concluding words in the passage
quoted above may be read as indicating that the observations
were obiter, it appears to us to be too late in the day to
contend that the theory of nexus does not apply to sales tax
legislation at all. Indeed an examination of the decisions
of this Court will clearly show that the applicability of
the theory of nexus to sales tax legislation has been
clearly recognised by this Court.
In The State of Bombay v. The United Motors (India) Ltd. (1)
this Court bad to interpret the true meaning of the
explanation to Art. 286(1)(a) of the Constitution. That
explanation created a fiction locating the situs of a sale
or purchase in the State in which the goods had actually
been delivered as a result of such sale or purchase for the
purpose of consumption in that
(1) [1953] S.C.R. 1069, 1088.
1374
State notwithstanding the fact that, under the general law
relating to sale of goods, the property in the goods had, by
reason of such sale or purchase, passed in another State.
This Court by a majority then held that in view of the
fiction created by the explanation the sale which was in
reality an inter-State sale became an intrastate sale and
consequently the delivery and consuming State had the, right
to impose tax on that sale. It is true that that decision
has been departed from in the Bengal Immunity Co.’s case (1)
on the question of the interpretation of Art. 286 of the
Constitution, but on the point we are now discussing that
decision clearly implies a recognition of the applicability
of the nexus theory to the imposition of sales tax. The
observations of Patanjali Sastri C. J. on the question of
nexus in that case cannot, therefore, be said to be
unnecessary for the decision of that case. In Poppatlal
Shah v. The State of Madras (2) Mukherjea J. delivering the
unanimous judgment of the Constitution Bench of this Court
definitely applied the theory of nexus to sales tax
legislation. Support for that conclusion was found directly
in the decision of the Judicial Committee in Wallace
Brothers and Co. Ltd. v. Commissioner of Income Tax, Bombay
City (3) which, it was said, had been applied by this Court
to sales tax legislation in the United Motors’ case (4), but
it is quite clear that the decision had, independently of
the United Motors’ case (4), adopted the principle of
Wallace Brothers and Co.’s case (3) to sales tax legisla-
tion. In a recent case, The State of Bombay v. R.M.D.
Chamarbaugwala(5), which was concerned with tax on cross-
word competition, this Court applied the theory of nexus and
upheld the legislative competency of the Bombay Legislature
to impose tax on the gambling competitions. At page 901
this Court said:
" The doctrine of territorial nexus is well established and
there is no dispute as to the principles. As enunciated by
learned counsel for the petitioners, if there is a
territorial nexus between the person sought to be charged
and the State seeking to tax him the
(1) [1955] 2 S.C.R. 603.
(3) [1948] F.C.R. 1.
(5) [1957] S.C.R. 874,901.
(2) [1953] S.C.R. 677.
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(4) [1953] S.C.R. 1069, 1088.
1375
taxing statute may be upheld. Sufficiency of the
territorial connection involve a consideration of two
elements, namely, (a) the connection must be real and not
illusory and (b) the liability sought to be imposed must be
pertinent to that connection. It is conceded that it is of
no importance on the question of validity that the liability
imposed is or may be altogether disproportionate to the
territorial connection. In other words, if the connection
is sufficient in the sense mentioned above, the extent of
such connection affects merely the policy and not the
validity of the legislation."
Applying these principles to the facts of that case this
Court came to the conclusion that they constituted
sufficient territorial nexus which entitled the State of
Bombay to impose a tax on the gambling that took place
within its boundaries and that the law could not be struck
down on the ground of extra-territoriality. It is not
necessary for us on this occasion to lay down any broad
proposition as to whether the theory of nexus, as a
principle of legislation, is applicable to all kinds of
legislation. It will be enough, for disposing of the point
now under consideration, to say that this Court has found no
apparent reason to confine its application to income-tax
legislation but has extended it to sales tax and to tax on
gambling and that we see no cogent reason why the nexus
theory should not be applied to sales tax legislation.
The learned Attorney General submits that the theory of
nexus cannot be applied to sales tax legislation because
such legislation is concerned with a tax on the transaction
of sale,, that is to say, a completed sale and to break up a
sale into its component parts and to take one or more of
such parts and to apply the theory to it will. mean that the
State will be entitled to impose a tax on one or more of the
ingredients or constituent elements of the transaction of
sale which by itself or themselves will not amount to a
sale. This argument overlooks the fact that the provisions
of the sales tax legislation we are considering limit its
charging section to " sale ". In order to attract the
charging section there must be a completed
1376
sale involving the transfer of property in the goods sold
from the seller to the buyer. The nexus theory does not
impose the tax. It only indicates the circumstance in which
a tax imposed by an act of the ,Legislature may be enforced
in a particular case and unless eventually there is a
concluded sale in the sense of passing of the property in
the goods no tax liability attaches under the Act. One or
more of the several ingredients constituting a sale only
furnished the connection between the taxing State and the
"sale". The learned Attorney General also said that one and
the same transaction of sale may be taxed by different
States by applying the nexus theory and there will be
multiple taxation which will obstruct the free flow of
inter-State trade. There is no force in this argument, for
Art. 286(2) of the Constitution, as it stood originally, was
a complete safeguard against such eventuality and after the
amendment of that Article and the relevant entries in the
Legislative List such contingency will not arise. In our
opinion the arguments advanced by the learned Attorney
General on this point cannot be accepted.
Re. point No. 3: The learned Attorney General next contends
that in any case the nexus must be real and pertinent to the
subject-matter of taxation. He contends that the presence
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of the goods in Bihar referred to in the old second proviso,
which is reproduced in el. (i) of the second proviso as
amended, is of no consequence. The production or
manufacture, according to him, has no connection with and
never enters into the transactions of sale. He relies on
the observations of Chief Justice Gwyer in Boddu Paidanna’s
case (1), at page 102, namely, that " a sale bad no
necessary connection with manufacture or production." That
observation was made by the learned Chief Justice in order
to emphasise the fact that the tax levied on the first sale
by the manufacturer or producer was a tax imposed on him qua
seller and not qua manufacturer or producer. The question
whether the fact of production or manufacture of goods may
legitimately form a nexus between the transaction of sale
and the taxing
(1) [1942] F. C. R. 90.
1377
State was not in issue in that case at all. It is un-
necessary in this case to lay down any hard and fast test as
to the sufficiency of nexus which will enable a State to
impose a tax or to enumerate the instances of such
connection. For the purpose of the present, case it is
sufficient to state that in a sale of goods the goods must
of necessity play an important part, for it is the goods in
which, as a result of the sale, the property will pass. In
our view the presence of the goods -it the date of the
agreement for sale in the taxing State or the production or
manufacture in that State of goods the property wherein
eventually passed as a result of the sale wherever that
might have taken place, constituted a sufficient nexus
between the taxing State and the sale. In the first case
the goods are actually within the State at the date of the
agreement for sale and the property in those goods will
generally pass within the State when they are ascertained by
appropriation by the seller with the assent of the purchaser
and delivered -to the purchaser or his agent. Even if the
property in those goods passes outside the State the
ultimate sale relates to those very goods. In the second
case the goods, wherein the title passes eventually outside
the State, are produced or manufactured in Bihar and the
sale wherever that takes place is by the same person who
produced or manufactured the same in Bihar. The producer or
manufacturer gets his sale price in respect of goods which
were in Bihar at the date when the important event of
agreement for sale was made or which were produced or
manufactured in Bihar. These are relevant facts on which
the State could well fasten its tax. If the facts in the
Raleigh Investment Co.’s case (1), were sufficient nexus
there is no reason why the facts mentioned in the proviso
should not also be sufficient. Whatever else may or may not
constitute a sufficient nexus, we are of opinion that the
two cases with which we are concerned in this case are
sufficient to do so.
Re. point No. 5: The argument on this point is that sales
tax is an indirect tax on the consumer. The
(1) [1044] F.C.R. 229.
1378
idea is that the seller will pass it on to his purchaser and
collect it from them. If that is the nature of the sales
tax then, urges the learned Attorney General, it cannot be
imposed retrospectively after the, sale transaction has been
concluded by the passing of title from the seller to the
buyer, for it cannot, at that stage, be passed on to the
purchaser. According to him the seller collects the sales
tax from the purchaser on the occasion of the sale. On that
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time goes past, the seller loses the chance of realising it
from the purchaser and if it cannot be realised from the
purchaser, it cannot be called sales tax. In our judgment
this argument is not sound. From the point of view of the
economist and as an economic theory, sales tax may be an
indirect tax on the consumers, but legally it need not be
so. Under the 1947 Act the primary liability to pay the
sales tax, so far as the State is concerned, is on the
seller. Indeed before the amendment of tile 1947 Act by the
amending Act the sellers had no authority to collect the
sales tax as such from the purchaser. The seller could
undoubtedly have put up the price so as to include the sales
tax, which he would have to pay but he could not realise any
sales tax as such from the purchaser. That circumstance
could not prevent the sales tax imposed on the seller to be
any the less sales tax on the sale of goods. The
circumstance that the 1947 Act, after the amendment,
permitted the seller who was a registered dealer to collect
the sales tax as a tax from the purchaser does not do away
with the primary liability of the seller to pay the sales
tax. This is further made clear by the, fact that the
registered dealer need not, if he so pleases or chooses,
collect the tax from the purchaser and sometimes by reason
of competition with other registered dealers he may find it
profitable to sell his goods and to retain his old customers
even at the sacrifice of the sales tax. This also makes it
clear that the sales tax need not be passed on to the
purchasers and this fact does not alter the real nature of
the tax which, by the express provisions of the law, is cast
upon the seller. The buyer is under no liability to pay
sales tax in addition to the agreed sale price
1379
unless the contract specifically provides otherwise. See
Love v. Norman Wright (Builders) Ltd. (1). If that be the
true view of sales tax then the Bihar Legislature acting
within its own legislative field had the powers of a
sovereign legislature and could make its law prospectively
as well as retrospectively. We do not think that there is
any substance in this contention either.
For reasons stated above none of the contentions urged by
the learned Attorney General in support of these appeals can
be sustained. The result, therefore, is that these appeals
must be dismissed with costs.
BOSE J.-With great respect I cannot agree. It will not be
necessary to elaborate my point of disagreement at length
because this is pro-Constitution legislation and much of
what we decide in this case wilt not affect post-
Constitution Acts. Put very shortly, my view is this.
First, a State can only impose a tax on the sale of goods.
It has no power to tax extra territorially, therefore it can
only tax sales that occur in the State itself. With great
respect I feel it is fallacious to look to the goods, or to
the elements that constitute a sale, because the power to
tax is limited to the sale and the tax is not on the goods
or on the agreement to sell or on the price as such but only
on the sale. Therefore, unless the sale itself takes place
in the State, the State cannot tax.
That brings me to the next point, the situs of a sale. Now
I know that this is a matter on which many different views
are possible but what is clear to me is that a sale cannot
have more than one situs. It is not a mystical entity that
can be one in many and many in one at one and the same time,
here, there and everywhere all at once nor is it a puckish
elf that pops up now here, now there and next everywhere.
It is a very mundane business transaction, of the earth.
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earthy. It can have only one existence and one situs.
Opinions may differ on where that is and how it is to be
determined, but it is our duty, as the supreme authority on
the law of the land, to choose
(1) L.R. (1944) 1 K. B. 484. I75
1380
one of those many views and say that that is the law of our
land and that in India the situs is determined in this way
or that and, having determined it, make
it uniform for the whole country.
I am conscious that the selection must be arbitrary, but for
all that, it must be made. Left to myself, I would have
preferred Chesbire’s view about the proper law of the
contract set out by him in Chapter VIII of his book on
Private International Law, 4th edition. I referred to this
in The Delhi Cloth and General Mills Co. Ltd. v. Harnam
Singh(1). I quote him again:
"The proper law is the law of the country in which the
contract is localised. Its localisation will be indicated
by what may be called the grouping of its elements as
reflected in its formation and in its terms. The country in
which its elements are most densely grouped will represent
its natural seat."
He is not dealing with this question. He is dealing with
International Law and the difficulties that arise in dealing
with contracts whose elements are grouped in different
States with different, and often conflicting, laws. He is
developing the theme that for any one contract there should
be but one law to govern it in all its stages and that the
most logical conclusion is to select the law of the country
in which the contract has its natural seat. But whether his
view is accepted or any of the others that he discusses, he
stresses the need for one objective rule and contends
strongly that the choice should not be left to the parties
to the deal, even as I say that it should not be left to the
States. He quotes an American Judge, at page 203 of his
book, who says that-
" Some law must impose the obligation, and the parties have
nothing whatsoever to do with that, no more than with
whether their acts are torts or crimes."
Now none of that is of immediate application here but it
contains the germ of an idea and points to the embarrassment
and folly of letting differing laws run amuck in governing a
single transaction. Following up that thought I would say
that we are dealing here with a Constitution Act that speaks
with one voice
(1) [1955] 2 S.C.R. 402, 418.
1381
and authority throughout the land. It tells the various
States, as one day some international voice that will rule
the world will say to the peoples in it, " you may do this
and may not do that " ; and " this " and " that " mean, but
one thing everywhere. One writ runs throughout the land and
it has but one meaning and one voice. " When I say that you
may only legislate for your own territory and that you may
tax certain sales, you must realise that the meaning that I
give to I sale’ is the meaning that my Supreme Court shall
give to it and that it cannot mean differing things in
different areas ; and you must realise that the only sales
that you may tax are the ones that lie in your own
territory. My Supreme Court shall determine where a sale is
situated and once that is determined it cannot be situated
anywhere else. If it does not happen to be in your
territory you cannot tax it."
Our present Constitution did not adopt Cheshire’s view. It
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made another choice. In the old Explanation to Art. 286
(now repealed) it selected the place where the goods are
actually delivered, as a direct result of the sale or
purchase, as the situs. Well, so be it. That is as good as
any other and I would have been as happy to select that as
any of the other possibilities. But what I do most strongly
press is that a Constitution Act cannot be allowed to speak
with different voices in different parts of the land and
that a mundane business concept well known and well
understood cannot be given an ethereal omnipresent quality
that enables a horde of hungry hawks to swoop down and
devour it simultaneously all over the land: " some sale;
some hawks " as Winston Churchill would say.
I would therefore reject the nexus theory in so far as it
means that any one sale can have existence and entity
simultaneously in many different places. The States may tax
the sale but may not disintegrate it and, under the guise of
taxing the sale in truth and in fact, tax its various
elements, one its head and one its tail, one its entrails
and one its limbs by a legislative fiction that deems that
the whole is within its claws simply because, after tearing
it apart, it finds a hand
1382
or a foot or a heart or a liver still quivering in its
grasp. Nexus, of course, there must, be but nexus of the
entire entity that is called a sale, wherever it is deemed
to be situate. Fiction again. Of course, it is fiction,
but it is a fiction as to situts imposed by the Constitution
Act and by the Supreme Court that speaks for it in these
matters and only one fiction, not,
a dozen little ones.
My point is simple. If you are allowed to tax a dog it must
be within the territorial limits of your taxable,
jurisdiction. You cannot tax it if it is born elsewhere and
remains there simply because its mother was with you at some
point of time during the period of gestation. Equally,
after birth, you cannot tax it simply because its tail is
cut off (as is often done in the case of certain breeds) and
sent back to the fond owner, who lives in your jurisdiction,
in a bottle of spirits, or clippings of its hair. There is
a nexus of sorts in both cases but the fallacy lies in.
thinking that the entity is with you just because a part
that is quite different from the whole was once there. So
with a sale of a motor car started and concluded wholly and
exclusively in New York or London or Timbuctoo. You cannot
tax that sale just because the vendor lives in Madras, even
if the motor car is brought there and even assuming there is
no bar on international sales, for the simple reason that
what you are entitled to tax is the sale, and neither the
owner nor the car, therefore unless the sale is situate in
your territory, there is no real nexus. And once it is
determined objectively by the Constitution Act or in Supreme
Court how and where the sale is situate, its situs is fixed
and cannot be changed thereafter by a succession of State
legislatures each claiming a different situs by the
convenient fiction of deeming.
The only question is whether it is too late in the day to
take this view because of our previous decisions and those
of the Federal Court. I say not, for, though there is a
consensus of opinion that there must be a territorial nexus
and that it must not be illusory, no decision that I know of
says that when you are given the right to tax a certain
thing which is a composite
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entity, quite separate and distinct from the various
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elements of which it is composed, you may tear that whole
apart and seize on some, element that is quite a different
thing from that which you are entitled to tax and hold that
the taxable entity is in your State simply because at some
relevant point of time one of the ingredients that went to
make up the whole but which is a separate and distinct thing
from the whole, as different from it as chalk is from
cheese, happened to be within your clutches. I do not
intend to analyse the cases on this point because it is
pointless to pursue a matter that will only be of academic
interest. All I will do therefore is to say that the
question of nexus has been referred to in the following
cases and that none of them reaches a decision on this
particular point. These cases are Governor-General in
Council v. Ratleigh Investment Co., Ltd. (1), A. H. Wadia v.
Commissioner of Income-tax, Bombay Poppatlal Shah v. The
Slate of Madras (3), State of Travencore-Cochin v. Shanmugha
Vilas Cashew Nut Factory (4), and The Bengal Immunity Co.,
Ltd. v. The State of Bihar (5).
I would allow the appeals.
ORDER OF THE COURT.
In view of the opinion of the majority, the appeals are
dismissed with costs.
Appeals dismissed.
(1) [1944]-229, 247, 253.
(2) [1048] F.C.R. 121, 153, 154, 165.
(3) [1953] S.C.R. 677.
(4) [1954]S.C.R. 53, 101.
(5) [1955] 2 S.C.R. 603, 708, 768, 769.
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