Full Judgment Text
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PETITIONER:
TOBACCO MANUFACTURERS (INDIA) LTD.
Vs.
RESPONDENT:
THE COMMISSIONER OF SALES-TAX, BIHAR, PATNA.
DATE OF JUDGMENT:
26/10/1960
BENCH:
AYYANGAR, N. RAJAGOPALA
BENCH:
AYYANGAR, N. RAJAGOPALA
DAS, S.K.
HIDAYATULLAH, M.
GUPTA, K.C. DAS
SHAH, J.C.
CITATION:
1961 AIR 402 1961 SCR (2) 106
CITATOR INFO :
RF 1966 SC 376 (6)
ACT:
Sales Tax-Sale-Goods delivered outside State for consumption
in the State of first delivery-Goods delivered for
consumption in other States-Liability to tax-Constitution of
India, Art. 286(1)(a) Bihar Sales Tax Act.
107
HEADNOTE:
The appellants who were manufacturers of cigarettes and
tobacco in the State of Bihar contested the levy of sales-
tax on sales effected by them during the financial years
1949-5o and 1950-51 on the ground that as a direct result of
every sale effected by them the goods concerned were
delivered outside the State of Bihar and were, therefore,
exempted from tax liability under Art. 286(i)(a) of the
Constitution. Both the Superintendent of sales-tax and the
Deputy Commissioner of sales-tax, Bihar, overruled the
objection of the appellants, and following a previous ruling
of the Board of Revenue of Bengal in a case known as the
Bengal Timber Case (61 of 1952) held the appellants liable
to pay the tax. The appellants paid the tax demanded but
filed an application in revision to the Board of Revenue,
claiming a constitutional exemption from tax on every sale
effected by them as a result of which goods were delivered
outside the State of Bihar-whether the delivery was for
consumption in the State of first delivery or not. The
Board passed the following order on the revision petition.
" As regards the admitted despatches of the goods outside
the State after the 26th January, 1950, when the
Constitution came into force, the learned lower court has
been guided by the decision of the Board in the Bengal
Timber Case (No. 61 of 1952). But this ruling of the Board
stands superseded by the subsequent decision of the Supreme
Court in the United Motors Case According to the decision of
the Supreme Court, no tax could be levied on despatches to
the places outside the state after the 26th January, 1950,
and on this point the petitions are allowed, and the sales
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tax officer directed to recalculate the amount of tax
payable by the assessee ".
The appellants taking the above order to be in their favour
claimed refund of the tax already paid by them and the sales
tax authorities contested the position and claimed that they
were bound to refund the tax only on those sales wherein the
goods were delivered outside the State for consumption in
the State of first delivery. The department thereafter
sought clarification of the above order. The Board refused
to clarify or explain its order and passed an order saying
that " no further clarification was really required in view
of the specific reference to the judgment of the Supreme
Court in the United Motors Case ". Thereafter as the
authorities still refused to refund the balance of the tax
the appellants filed two applications in the High Court for
the issue of a writ of mandamus to compel the refund. The
High Court held that the Board’s decision that sales in
which the goods were delivered outside the State for
consumption, not in the State of first delivery but in other
States were also exempted from tax, was wrong and that the
appellants were not entitled to a writ of mandamus for
enforcing a wrong order. On appeal by special leave,
Held, that the proper construction of the Board’s orders was
that the sales tax officer was directed to decide the relief
that
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should be given to the assessee on the officers’
interpretation of the decision of this Court in the United
Motors Case. The Board did not determine the effect of that
judgment and did not decide that every sale in which the
goods were delivered outside the State of Bihar was exempted
from liability to tax.
The principle that a subordinate tribunal should not refuse
to carry out the directions of a superior tribunal was
therefore not applicable to the instant case.
Bhopal Sugar Mills v. Commissioner of Income-tax, [1961] 1
S.C.R. 474, held inapplicable.
The United Motors Case merely decided that sales in which
goods were delivered outside the State for consumption in
the State of first delivery would fall under the Explanation
to Art. 286(1) of the Constitution and would therefore be
exempted from tax liability, but it did not deal with other
sales in which the goods thus delivered were for
consumption, not in the State of first delivery but in other
states. Such sales would on the order of the Board of
Revenue which was binding on the appellant be liable to tax
in accordance with the previous decision of the Board of
Revenue in the Bengal Timber Case.
State of Bombay v. United Motors (India) Ltd. and Ors.,
[1953] S.C.R. 1069, explained and applied.
Board of Revenue of the State in the Bengal Timber Case, 61
of 1952, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil, Appeals Nos. 202 and
203 of 1958.
Appeals from the judgment and decree dated October 5, 1956,
of the Patna High Court in Misc. Judicial Cases Nos. 330
and 331 of 1955.
K. D. Chatterjee, S. N. Andley and J. B. Dadachanji, for
the appellants.
D. P. Singh, for the respondents.
1960. October 26. The Judgment of the Court was delivered
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by
AYYANGAR J.-These two appeals are from a common judgment of
the High Court of Patna dated October 5, 1956, in two
petitions under Art. 226 of the Constitution and have been
filed pursuant to a certificate granted by the High Court
under Art. 132.
The Tobacco Manufacturers (India) Ltd., the appellants in
the above appeals are an incorporated company manufacturing
cigarettes and tobacco in their factory at Monghyr in the
State of Bihar, and these
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appeals are concerned with the legality of the levy of
sales-tax under the Bihar Sales Tax Act (hereafter referred
to as the Act) on the appellants in respect of sales
effected during the financial years 1949-50 and 1950 51.
The point urged in these appeals is a very narrow one and
relates to the proper construction to be placed on certain
orders of the Board of Revenue passed in regard to the tax
properly leviable for these two years.
The facts relevant to this point are briefly these The
assessment of the appellants for both the years was
completed by the Superintendent of Sales Tax, Monghyr, on
May 7, 1952, and the total tax liability was determined in
the sum of Rs. 6,44,940-2-6 and Rs. 7,46,876-1-3 for the two
assessment years 1950-51 and 1951-52 respectively. Before
the assessing officer, the appellants contended that all
sales effected by them as a direct result of which the goods
were delivered outside the State of Bihar were exempted from
tax liability under Art. 286(1)(a) of the Constitution.
This objection was overruled, the reason assigned being,
that the sales were completed in Bihar, and that the entire
turnover of the appellants was therefore subjected to tax
under the Act. In taking this view the assessing authority
followed a previous ruling of the Board of Revenue of the
State in the Bengal Timber case (Case 61 of 1952). An
appeal preferred to the Deputy Commissioner of Sales Tax,
Bihar, by the appellants was dismissed on October 8, 1952,
on the same grounds.
The appellants paid the tax demanded for both the years and
invoked the revisional jurisdiction of the Board of Revenue.
In their petitions to the Board the appellants pointed out,
that the sales of goods delivered for consumption outside
the State of Bihar which involved a tax liability of Rs.
1,23,813-0-2 in the earlier year and Rs. 7,10,185-12-0 in
the later year were made up of two types of transactions:
(a) those in which the goods thus delivered were for
consumption in the State of first delivery or first
destination,
(b) those in which the goods thus delivered were
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for consumption, not in the State of first delivery but in.
other States.
(These two classes would be referred to hereafter for
convenience as typo (a) and type (b) respectively). The
appellants claimed that on the proper construction of Art.
286(1) & (2) they were entitled to have both these types of
sales excluded from their taxable turnover. By the date of
the hearing of these petitions by the revisional authority,
this Court had rendered the decision in State of Bombay v.
United Motors (India) Ltd. and Others (1) expounding the
scope of the explanation to Art. 286(1)(a) and its inter-
relation to the exemption under Art. 286(2), and naturally
this decision was brought to the attention of the member of
the Board at the hearing. Without examining whether the
decision cited did or did not cover both the two (a) & (b)
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types of sales effected by the appellants, the Board passed
on August 28, 1953, a laconic order in these terms:
"The two points urged in this Court were among those points
urged in the Lower Court and they are-
(i) No tax should have been levied on the Company’s canteen
sales.
(ii) that despatches outside the State for consumption in
other States should not have been taxed for the period after
the Constitution came into force.
As regards the admitted despatches of goods out. side the
State after the 26th January, 1950, when the Constitution
came into force, the learned Lower Court has been guided by
the decision of the Board in the Bengal Timber case (Case
No. 61 of 1952). But this ruling of the Board stands
superseded by the subsequent decision of the Supreme Court
in the United Motor’s case,. According to the decision of
the Supreme Court, no tax can be levied on despatches to the
places outside the State after the 26th January, 1950 and on
this point the petition are allowed, and the
(1) [1953] S.C.R. 1069.
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sales-tax officer directed to recalculate the amount of tax
payable by the assessee ".
Apparently the appellants understood this order as meaning
that all sales, whereunder goods were delivered outside the
State, whether or not for consumption in the State of first
delivery (i.e., both types (a)& (b)) were exempted from the
tax levy. The sales-tax authorities, however, took the
order to mean that only those sales in which deliveries were
made outside the State for consumption in the State of first
destination, i. e., those of type (a) were intended to be
exempted, and these rival interpretations were put forward
in the correspondence that passed between the appellants and
the sales-tax authorities. The appellants made an
application for the refund of the amount of tax attributable
to all the sales under which goods were delivered outside
the State, but the tax authorities sticking to their
interpretation of the order of the Board and of their
interpretation of the decision of this Court in the United Motors case
(1) refunded the tax collected on the sales
falling within type (a) but refused to refund Rs. 20,923-15-
2 for the 1st year and Rs. 1,29,823-5.0 for the later year-
these amounts representing the tax on sales of type (b).
The appellants however persisted in pressing their claim for
the refund of these amounts also.
In this state of affairs, the State of Bihar moved the Board
of Revenue to review its order dated August 28, 1953, or at
any rate clarify it so as to confine its operation to sales
falling within type (a), urging that this would bring it in
accord with the interpretation of Art. 286(1) by this Court
in the United Motors case (1). The appellants objected to
the jurisdiction of the Board of Revenue to review its
previous decision and on April 25, 1955, it passed the
following order :
" These are what appear to be two miscellaneous petitions
filed on behalf of the State of. Bihar seeking certain
clarifications regarding the interpretation of the Board’s
order dated 28-8-1953 in Cases Nos. 514 of 1952. After
argument was heard it was conceded
(1) [1953] S.C.R. 1069.
112
by both parties that there is no provision in the Act under
which the parties concerned may move the court to clarify or
explain the order passed, this function essentially being a
matter of legal advice. It was also agreed that no further
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clarification was really required in view of the specific
reference to the judgment of the Supreme Court in the United
Motor’s case. The petitions are, therefore, rejected."
If the order of the Board dated August 28, 1953, was laconic
and ambiguous, the later order dated April 25, 1955, was if
anything more obscure. The appellants, however, considered
it an order in their favour, because the petition by the
State for clarification of the first order on the lines of
the interpretation put upon it by the tax authorities had
been dismissed, and when the refusal to refund the two sums
of tax referred to earlier was continued, they filed two
petitions in the High Court of Patna under Art. 226 of the
Constitution for the issue of writs of mandamus to compel
the refund of the tax on the principal ground that a duty to
do so had been imposed by the orders of the Board of
Revenue, though the petition made an incidental reference to
the appellants being entitled to such refund on a proper
construction of Art. 286(1) & (2) of the Constitution, even
apart from the order of the Board of Revenue.
The learned Judges of the High Court however in the main
considered the question whether on a proper interpretation
of the relevant Articles of the Constitution, sales under
which goods were delivered outside Bihar but for consumption
not in the State of first delivery, were exempt from tax
under the Bihar Sales Tax Act and decided the point against
the appellants. They next dealt with the central point
urged in the petitions, viz., that the Board of Revenue by
its order dated August 28, 1953, had allowed the appellant’s
revision in regard to " the second point " which included
sales of all categories whether or not for the purpose of
consumption in the State of first destination outside Bihar,
and directed the Sales-tax Officer to recompute the tax by
allowing this exemption, and that the officer was therefore
statutorily bound to
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give effect to the order of the Board, be the same right or
wrong, particularly when the Board refused to vary or modify
it so as to exclude particular types of sales from the scope
of the exemption when moved to do so by the State
Government. In regard to this point after stating that the
orders of the Board of Revenue were ambiguous, the learned
Judges proceeded to answer the question on the assumption
that the Board of Revenue had directed the officer to
recompute the tax on the basis that all the outside sales-
both the (a) and the (b) types were exempted from liability.
The learned Judges then pointed out that the order of the
Board would be clearly erroneous in regard to the (b) type
sales-and that the petitioner in a writ of mandamus could
not insist on a manifestly wrong order being enforced. The
petitions were therefore dismissed.
The appellants applied to the High Court for certificates
under Arts. 132 and 133, but the learned Judges granted a
certificate under Art. 132 alone and it is on the strength
of these certificates that the appeals are before us.
The principal point that Mr. Chatterjee, learned Counsel for
the appellants, argued before us related to the duty of the
tax authorities to obey the orders of the Board of Revenue
and give effect to them, and he submitted that the High
Court erred in denying his clients the relief of mandamus on
the ground that that order was erroneous. In support of
this argument learned Counsel sought reliance on a recent
decision of this Court in Bhopal Sugar Mills V. Com-
missioner of Income-tax (1) in which it was held that when
an order was made by a superior tribunal (in that case the
Income-tax Appellate Tribunal) directing the Income-tax
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Officer to compute the income of an assessee on a particular
basis and that order had become final, the subordinate
officer had no right to disregard the direction, because it
was wrong and that the High Court when approached by the
assessee for the issue of a writ of mandamus, was bound to
(1) [1961] 1 S.C. R 474
15
114
enforce the final order of the superior Tribunal and could
not refuse to do so because it considered the order of the
Tribunal to be wrong. This Court pointed out that when the
order which the Tribunal had jurisdiction to pass became
final, it bound all parties to it and its correctness could
not be challenged collaterally in proceedings for enforcing
that order. The attempt of learned Counsel for the
appellants was to bring this case within the scope of the
above ruling.
The ratio of this decision is to be found in this passage:
" By that order the respondent virtually refused to carry
out the directions which a superior tribunal had given to
him in exercise of its appellate powers in respect of an
order of assessment made by him. Such refusal is in effect
a denial of justice, and is furthermore destructive of one
of the basic principles in the administration of justice
based as it is in this country on a hierarchy of courts. If
a subordinate tribunal refuses to carry out directions given
to it by a superior tribunal in the exercise of its
appellate powers, the result will be chaos in the
administration of justice and we have indeed found it very
difficult to appreciate the process of reasoning by which
the learned Judicial Commissioner while roundly condemning
the respondent for refusing to carry out the directions of
the superior tribunal, yet held that no manifest injustice
resulted from such refusal."
To attract the principle thus enunciated, it is necessary
that there should be an order of a superior tribunal clear,
certain and definite in its terms, and with. out any
ambiguity, to which the subordinate authority or officer to
whom it is addressed, could give effect. We are clearly of
the opinion that the decision referred to cannot apply to
the situation in the present case.
Taking the earlier order of the Board first-it is to put it
at the mildest ambiguous. The Board referred to the Bengal
Timber case which had been followed by the lower authorities
in disallowing the appellants’ claim to exemption to both
the (a) and (b) type sales,involving out of State deliver. A
reference was then
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made to the decision of this Court in the State of Bombay v.
United Motors (India) Ltd. and others (1) as superseding the
previous decision of the Board, adding that according to the
decision of this Court no tax could be levied on despatches
outside the State after the 26th January, 1950, and on that
point the petitions were allowed. It will be noticed that
the member did not set out the precise extent to which the
ruling of this Court superseded the previous decision of the
Board, and this was left in a state of uncertainty. It was
suggested by learned Counsel for the appellants that Mr.
Bakshi, the member of the Board, drew no distinction between
sales of type (a) or (b), and bad included both of them as
falling within a single category of sales in which delivery
had taken place outside the State for consumption in other
States, and for that reason we should hold that the member
had rightly or wrongly treated the decision in the United
Motors’ case as applicable to all such sales. We find
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ourselves unable to agree in this construction of the order.
We cannot presume that Mr. Bakshi did not peruse the
judgment in the United Motors’ case when he referred to it
in his order, nor that he did not acquaint himself with the
terms of the Explanation to Art. 286(1)(a) of the
Constitution, the scope and significance of which was
analysed and elaborated in that decision. We are rather
inclined to agree with the construction which the member
himself put on this order in April, 1955, that he left it to
the Sales-tax Officer to decide for himself the relief to
which the appellants were entitled on that officer’s
interpretation of the judgment of this Court. It may be
that this was not a satisfactory method of disposing of the
revision petition-leaving the point which arose for decision
by the member of the Board of Revenue, to be decided by the
Sales-tax Officer, but we are now only concerned with the
simple question whether Mr. Bakshi had or had not determined
the true scope and effect of the judgment of this Court and
decided it as meaning that all sales as a result of which
goods were delivered outside the State
(1) [1953] S.C.R. 1069.
116
of Bihar were within the Explanation and so were exempt from
the tax liability. Notwithstanding the cryptic language
used by the Member of the Board, we are clearly of the
opinion that he did not intend to decide this point in
favour of the appellants in the manner contended for by
them.
It is now common ground that when the Board of Revenue was
approached by the State Government to review or clarify this
order, Mr. Bakshi, by his order dated April 25, 1955,
expressed himself as having decided earlier that he had
directed the sales-tax officer to give effect to the
judgment of this Court in the United Motors case and had
done nothing further. Learned Counsel for the appellants
strongly pressed before us that the member of the Board
having accepted the preliminary objection that there was no
provision in the Bihar Sales-tax Act by which a party
concerned might move the Board to clarify or explain the
order, he had no jurisdiction to effect any clarification of
his previous order and that whatever was said by the Board
on the second occasion could not be held to modify the
earlier order or deny the appellants such benefits as were
granted to them by the earlier order of August 28, 1953.
But as against this, it has to be noted that before the
Board both the parties, i.e., the State Government as well
as the appellants-agreed that clarification was not needed
because " of the specific reference to the judgment of the
Supreme Court in the United Motors case ". As this
observation was embodied in the later order with the consent
of both the parties, we consider that it is too late now for
the appellants to raise any technical objection to this
sentence being given effect to. In view, however, of the
conclusion that we have reached as to the construction of
the earlier order of August, 1953, it is unnecessary to
pursue the matter any further.
If, therefore, as a result of the order or orders passed by
the Board, the sales-tax officer was directed to give effect
to the judgment of this Court in the United Motors case, it
followed that the interpretation of the judgment was left to
that officer. We have, already pointed out that to such a
situation the principle of
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the decision of this Court in Bhopal Sugar Mills v.
Commissioner of Income Tax (1) is inapplicable. We might
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also point out that even if the decision applied and the
High Court issued an order in the nature of mandamus to the
sales-tax officer, it could only take the form of a
direction to effect the reassessment in the light of the
decision in the United Motors case (2)-an order which would
leave the appellants in the same position in which they now
find themselves without such an order by the High Court.
The next question for consideration is whether on a proper
construction of the decision in the United Motors case (2)
the exclusion of type (b) sales from those exempted under
Art. 286(1) was erroneous. Mr. Chatterjee, learned Counsel
for the appellants sought to establish that this Court had
decided in the United Motors case three points: (1) that
sales as a result of which goods were delivered in a State
for consumption in such State, i.e., the sales falling
within the Explanation to Art. 286(1) were fictionally
inside that State for all purposes and so within the taxing
power of the State in which such delivery took place, (2)
that sales which by the fiction created by the Explanation
were inside a particular State, were " outside " all other
States, and so exempt from tax levy by all such other
States, (3) that further and beyond’ this, all sales which
did not satisfy the terms of the Explanation but in which
goods were delivered outside the State in which title passed
were " outside sales " over which no State would have power
to levy a tax. In other words, the argument was that this
Court had laid down that every sale which was not " an
Explanation sale " and therefore not an " inside sale "
within a particular State was an " outside sale" for all
States and therefore exempt from the levy of sales-tax by
every State in India. In support of this submission learned
Counsel relied on a passage in the judgment of the learned
Chief Justice at page 1081 of the Re. port which ran:
"............... The authors of the Constitution had to
devise a formula of restrictions to be imposed on the State-
power of taxing sales or purchases involving
(1) [1961] 1 S.C.R 474
(2) [1953] S.C.R 1069
118
inter-State elements which would avoid the doubts and
difficulties arising out of the imposition of salestax on
the same transaction by several Provincial Legislatures in
the country before the commencement of the Constitution.
This they did by enacting Clause (1)(a) with the Explanation
and clause (2) of Article 286. Clause (1)(a) prohibits the
taxation of all sales or purchases which take place outside
the State but a localised sale is a troublesome concept,
for, a sale is a composite transaction involving as it does
several elements such as agreement to sell, transfer of
ownership, payment of the price, delivery of the goods and
so forth, which may take place at different
places..................... To solve the difficulty an
easily applicable test for determining what is an outside
sale had to be formulated, and that is what, in our opinion,
the Explanation was intended to do. 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............ 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
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easily workable test: Are the goods actually delivered in
the taxing State as a direct result of a sale or a 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."
In our opinion, this passage explains the scope of the
Explanation and deals with what might be termed "
Explanation sales ". If there is a sale falling within the
terms of the Explanation, it is " inside" the State of
delivery-cum-consumption and that State alone can levy the
tax. Such a sale is outside all other
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States, which are prohibited from taxing such a sale by
reason of any territorial nexus however close or cogent.
The passage extracted, however, does not deal with cases
where the sale in question does not satisfy the requirements
of the Explanation leading to the fixation of the fictional
situs of the sale deter- mining the State by which the tax
might be levied. Whether any and, if so, which is the State
which can levy a tax on a sale not covered by the
Explanation, is not dealt with by this decision at all.
From this it would follow that sales of type (a) would be
exempt from the levy of tax under the Bihar Sales-Tax Act by
reason or their being "inside" sales within the State of
delivery-cum-consumption and therefore being " outside"
sales quoad the State of Bihar. Sales of type (b), however,
not having been dealt with by the decision in the United
Motors case, it would follow that on the orders of the Board
of Revenue, the previous decision of the Board in the Bengal
Timber case would have still held the field and the
transactions would be liable to the levy of tax and the tax
levied on those sales would continue to be valid. Learned
Counsel for the appellants was certainly right in his
submission that as the orders of the Board of Revenue had
became final as between the parties, the liability to tax
must be determined on the basis of these orders-be they
right or wrong. It is therefore unnecessary to consider
whether, apart from the decision of this Court in the United
Motors case, the appellants would be entitled to any further
relief on the basis of any other decision of this Court
interpreting Art. 286(1) & (2).
As already stated, the appellants have already been granted
a refund in regard to the tax collected in respect of the
sales falling within type (a). As, in our opinion, the
appellants were not on the orders of the Board of Revenue
entitled to a refund of the tax on transactions falling
within type (b), the judgment of the High Court dismissing
their petitions is clearly right. The appeals fail and are
dismissed, but in the circumstances of the case there will
be no order as to costs.
Appeals dismissed.
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