The State of Bombay & ANR Vs. The
United Motors (India) Ltd. & Ors [1953] INSC 24 (30 March 1953)
SASTRI, M. PATANJALI (CJ) MUKHERJEA, B.K.
BOSE, VIVIAN HASAN, GHULAM BHAGWATI,
NATWARLAL H.
CITATION: 1953 AIR 252 1953 SCR 1069
CITATOR INFO :
R 1953 SC 274 (6) R 1953 SC 333 (7,24,60) R
1954 SC 403 (7) O 1955 SC 661 (5,8,10,16,18,21,23,26,28,29, RF 1955 SC 765
(6,32) F 1957 SC 628 (12,15,19,20) RF 1957 SC 790 (10) F 1958 SC 328 (22) E
1958 SC 452 (9,14) RF 1958 SC 468 (8,9,17,24,28,29,30,31,39,52, R 1958 SC 560
(14,32) F 1958 SC 643 (5,17) E&F 1959 SC 725 (10) R 1960 SC 378 (3,4,11) F
1961 SC 65 (5,9,22,45,49,57) R 1961 SC 232 (57) D 1961 SC 311 (8) R 1961 SC 315
(21) F 1961 SC 347 (7,24,25) RF 1961 SC 402 (4,5,6,12,13,14,15,17) F 1961 SC
408 (9) RF 1961 SC1183 (16) R 1961 SC1433 (9,10) RF 1961 SC1438 (2) R 1961
SC1615 (11) R 1962 SC1006 (34,81) R 1962 SC1406 (9) F 1962 SC1563 (15) R 1962
SC1621 (12,39,46,165) RF 1963 SC 906 (19) F 1963 SC1207 (40) RF 1964 SC 584 (3)
R 1964 SC 922 (6) R 1965 SC1636 (24) R 1965 SC1942 (10) R 1966 SC1350 (10) RF
1967 SC 344 (4) RF 1968 SC 339 (6) RF 1969 SC 147 (8) RF 1970 SC 306 (4,7) RF
1971 SC 946 (8) RF 1974 SC1505 (3) RF 1977 SC2279 (54) RF 1984 SC1194 (4) RF
1985 SC 218 (17) RF 1985 SC 901 (10) D 1988 SC1531 (191) RF 1989 SC1371 (5) R
1989 SC1933 (21) R 1989 SC2227 (32)
ACT:
Bombay Sales Tax Act (XXIV of 1952),
ss.2(14), 5,6,7,11 -Bombay Sales Tax Rules, 1952, rr. 5,6-State law imposing
sales tax -Validity -Power of States to levy tax on interState sales
-Limitations-Rlules-Whether form part of ActConstitution of India, 1950, arts.
286 (2) and (2), 14, 801, 304, 226 -Meaning and scope of art. 286 (1) and art.
286 (2)-Application under art. 226 -Duty of High Court to find whether fundamental
rights have been infringed.
HEADNOTE:
The Legislature of Bombay passed an Act
entitled the Bombay Sales Tax Act, 1952, which imposed (by s. 5) a general tax
on every dealer whose turnover in respect of sales within the State of Bombay
during the prescribed period exceeded Rs. 30,000 and (by s. 10) a special tax
on every dealer whose turnover in respect of sales of special goods made within
the State of Bombay exceeded Rs. 5,000 during the prescribed period. The term
'sale' was defined [in s. 2 (14)] as meaning any transfer of property in goods
for cash or deferred payment or other valuable consideration, and an
Explanation to this definition provided that the sale of any goods which have
actually been delivered in the State of Bombay, as a direct result of such sale
for the purpose of consumption in the said State shall be deemed, for the
purposes of the Act to have taken place in the said State irrespective of the
fact to at the property in the goods has, by reason of such sale, passed in 139
1070 another State. Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, which
were brought into force on the same day on which ss. 5 and 10 of the Bombay
Sales Tax Act came into force provided for the deduction of the following sales
in calculating the taxable turnover, viz., sales which take place (a) in the
course of the import of the goods into, or the export of the goods out of, the
territory of India, and (b) in the course of inter-State trade or commerce
(being the two kinds of sales referred to cl. (1)(b) and cl. (2) respectively
of art. 286 of the Constitution). Rule 5 (2) (1), however, required, as a
condition of the aforesaid deductions, that the goods should be consigned by a
railway, 'shipping or aircraft company or country boat registered for carrying
cargo or public motor transport service or by registered post. In an
application under art. 226 of the Constitution challenging the validity of the
Act and praying inter alia for a writ against the State of Bombay and the
Collector of Sales Tax, Bombay, restraining them from enforcing the provisions
of the Act, the High Court of Bombay held that the definition of 'sale' in the
Act was so wide as to include the three categories of sale exempted by art. 286
of the Constitution from the imposition of tax by the States, and as the Act
imposed a tax on all such sales, it was wholly void. On appeal Held, per
(Patanjali Sastri C. J., Mukherjea, Ghulam Hasan and Bhagwati JJ.-Bose T.
dissenting)-that the Bombay Sales Tax Act (XXIV of 1952) was not ultra vires the
State Legislature on the ground that it contravened art. 14 or art. 286 of the
Constitution. But clause (1) of sub-rule (2) of Rule 5 of the Bombay Sales Tax
Rules, 1952, was ultra vires in so far as it provided that in order that sales
mentioned in clause (1) (b) and clause (2) of art. 286 of the Constitution may
be exempt from tax, the goods shall be consigned only through a railway,
shipping or aircraft company or country boat registered for carrying cargo or
public motor transport service or by registered post. These provisions of Rule
5 (2) (1) were, however, severable from the other provisions of the Act and
could be ignored.
Per Bose T.-The Bombay Sales Tax Act, 1952,
is wholly ultra vires.
Per Patanjali Sastri C.J., Mukherjea and
Ghulam Hasan JJ.
-Article 286 (1) (a) of the Constitution read
with the Explanation thereto and construed in the light of art, 301 and art.
304 prohibits the taxation of sales or purchases involving inter State elements
by all States except the State in which the goods are delivered for the purpose
of consumption therein. The latter State is left free to tax such sales or
purchases and it derives this power not by virtue of the Explanation to art.
286 (1) but under art. 246 (3) read with entry 54 of List II. The view that the
Explanation does not deprive the State in which the property in the goods
passed, of its taxing power and that consequently both the State in which the
property in the goods passes and the State 1O71 in which the goods are
delivered for consumption have the power to tax, is not correct.
(ii)The expression "for the purpose of
consumption in that State" in the Explanation to el. (1) of art. 286 must
be understood as having reference not merely to the individual importer or
purchaser but as contemplating distribution eventually to consumers in general
within the State. and all buyers within the State of delivery from out-of
-State sellers, except those buying for re-export out of the State, would be
liable to be taxed. by the State.
(iii) Clause (2) of art. 286 does not affect
the power of the State in which delivery of goods is made to tax inter-State
sales or purchases of the kind mentioned in the Explanation to el. (1). The
effect of the Explanation is that such transactions are saved from the ban
imposed by art. 286 (2).
(iv) The fact that sales which take place (a)
in the course of the import of the goods into, or export of the goods out of,
the territory of India and (b) in the course of inter-State trade or commerce,
are not expressly exempted by the Bombay Sales Tax Act could not render the Act
ultra vires inasmuch as the Rules framed under the Act and brought into force
simultaneously must be -read as a part of the Act and Rules 5 and 6 of these
Rules exempt such sales. Delhi Laws Act, In re ([1951] S.C.R. 747) referred to.
(v) The fact that the Bombay Sales Tax Act
does not expressly exclude from its operation the transactions mentioned in
art. 286 (1) (a) of the Constitution, viz., sales and purchases outside the
State, does not render the Act ultra vires inasmuch as, on a true construction
of the Explanation to art. 286 (1) (a) sales or purchases in respect of goods
delivered for consumption outside Bombay are not taxable under the Act, even if
the goods are in Bombay and the sale is effected there.
(vi) The provisions of the charging sections
5 and 10 of the Act fixing Rs. 30,000 and Rs. 5,000 as the minimum taxable
turnover for general tax and special tax respectively are not discriminatory
and void under art. 14 read with art. 13 of the Constitution as such classification
is perfectly reasonable and no discrimination is involved in it.
(vii) Taxing statutes imposing tax on
subjects divisible in their nature which do not exclude in express terms
subjects exempted by the Constitution, should not for that reason be declared
wholly ultra vires and void, for, in such case it is always feasible to
separate taxes levied on authorised subjects from those levied on exempted
subjects and to exclude the latter in the assessment to tax. In such cases the
statute itself should be allowed to stand, the taxing authority being prevented
by injunction from imposing the tax on subjects exempted by the Constitution.
1072 Bowman v. Continental Co. (256 U. S.
642; 65 L. Ed.
1130) relied on, Punjab Province v. Daulat
Singh and Another ([1942] F.C.R. 67) distinguished.
(viii)A sale "in the course of
inter-State trade" in art. 286 (2) of the Constitution includes a sale by
a trader in one State to a consumer in another State. The expression is not
confined to sales between two traders only.
(ix)The expression "for such State or
any part thereof" in art. 246(3) of the Constitution cannot be taken to
import into entry 54 of List II the restriction that the sale or purchase
referred to must take place within the territory of that State. All that it
means is that the laws which a State is empowered to make must be for the
purposes of that State.
(x)It is always desirable when relief under
art. 226 is sought on allegations of infringement of fundamental rights, that
the Court should satisfy itself that such allegations are well founded before
proceeding further with the matter.
Bose J.-(1) Article 286 (2) cannot be
construed in the light of art. 304 (1) as the two articles deal with different
matters.
(ii)The basic idea underlying art. 286 is to
prohibit taxation in the case of inter-State trade and commerce until the ban
under el. (2) of the said article is lifted by Parliament, and always in the
case of imports and exports.
When the' ban is lifted, the Explanation to
cl. (1) of 286 comes into play to determine the situs of the sale. This
Explanation does not govern el. (2) of art. 286 and, as it can only apply to
transactions which in truth and in fact take place in the course of inter-State
trade and commerce, there is no need to call it in aid until the ban is
removed.
(iii)Explanation (2) to the definition of
sale in s. 2 (14) of the Bombay Sales Tax Act, 1952, which embodies word for
word the provisions of the Explanation to art. 286 (1) directly offends cl. (2)
of the said article as the ban under el. (2) has not been lifted by the
Parliament.
(iv)Assuming that the Bombay Sales Tax Rules
exclude all sales which are exempt from taxation under the Constitution, they
cannot save the Act, for the Rules are made by a subordinate authority which is
not the legislature and the validity of an Act of the legislature cannot be
made to depend on what a subordinate authority choses to do or not to do.
(v)The good portion of the Act cannot be
separated from the bad in this case, even if the Explanation to s. 2 (14) is
expunged and the whole Act is therefore ultra vires.
Bhagwati J.-(1) Under the general law
relating to sale of goods, a sale must be regarded as having "taken
place"in the State in which the property in the goods sold has passed to
the 1073 purchaser and that State is entitled to tax the sale or purchase as
having taken place inside the State. The Explanation to art. 286 (1) does not
take away the right which the State in which the property in the goods passed
has to tax the sale or purchase but only deems such purchase or sale, by a
legal fiction, to have taken place in the State in which the delivery of the
goods has been made for consumption therein so as to enable the latter State
also, to tax the sale or purchase in question. The Explanation only lifts the
ban imposed by cl. (1) (a) on taxation of sales or purchases which take place
outside the State, to the extent of the transactions mentioned in the
Explanation to enable the delivery State also to tax them.
(ii) Delivery of the goods for the purpose of
consumption in the delivery State means delivery for the purpose of use by
the-consumers, and does not include delivery to a dealer purchasing the goods
across the border for dealing with or disposing of the same in the ordinary
course of trade, and the Explanation to art. 286 (1) therefore only covers
those cases where, as a direct result of the sale or purchase, goods are
delivered for consumption in the delivery State by the consumer and the
delivery State can tax only this limited class of transactions under the
Explanation.
(iii) The general provision enacted in art.
286 (2) against the imposition -of tax on the sale or purchase of goods in the
course of inter-State trade or commerce should give way to the special
provision which is enacted in the Explanation to art. 286 (1) (a) enabling the
delivery State to tax such sale or purchase in the limited class of cases
covered by the Explanation, the transactions covered by the Explanation being
thus lifted out of the category of transactions in the course of inter-State
trade or commerce and assimilated to transactions of sale or purchase which
take place inside the State and thus invested with the character of an
intra-state sale or purchase so far as the delivery State is concerned.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
204 of 1952.
Appeal under article 132 (1) of the
Constitution of India from the Judgment and Order dated 11th December, 1952, of
the High Court of Judicature at Bombay (Chagla C.J. and Dixit J.) in
Miscellaneous Application No. 289 of 1952. The material facts are stated in the
judgment.
M. P. Amin, Advocate-General of Bombay, (Ill.
M. Desai and G. N. Joshi, with him) for the appellants.
N. M. Seervai and J. B. Dadachanji for the
respondents.
1074 M. C. Setalvad, Attorney-General for
India, (Porus A. Mehta, with him) for the Union of India.
Lal Narain Sinha for the State of Bihar.
V. K. T. Chari, Advocate-General of Madras,
(A. Kuppuswami, with him) for the State of Madras.
A. R. Somnatha Iyer, Advocate-General of
Mysore, (R. Ganapathy Iyer, with him) for the State of Mysore.
B. Sen for the State of West Bengal.
K. L. Misra, Advocate-General of Uttar
Pradesh, K. B. Asthana, with him) for the State of Uttar Pradesh.
S. M. Sikri, Advocate-General of Punjab, (M.
L. Sethi, with him) for the State of Punjab.
T. N. Subrahmanya Iyer, Advocate-General of
Travancore-Cochin State, (M. R. Krishita Pillai, with him) for the State of
Travancore-Cochin.
1953. March 30. The judgment of Patanjali
Sastri C. J., Mukherjea and Ghulain Hasan JJ. was delivered by Patanjali Sastri
C. J. Vivian Bose and Bhagwati JJ.
delivered separate judgments.
PATANJALI SASTRI C. J.-This is an appeal from
the judgment and order of the High Court of Judicature at Bombay declaring the
Bombay Sales Tax Act, 1952, (Act XXIV of 1952), ultra vires the State
Legislature and issuing a writ in the nature of mandamus against the State of
Bombay and the Collector of Sales Tax, Bombay, appellants herein, directing
them to forbear and desist from enforcing the provisions of the said Act
against the respondents who are dealers in motor cars in Bombay.
The Legislature of the State of Bombay
enacted the Bombay Sales Tax Act, 1952, (hereinafter referred to as ,the
Act") and it was brought into force on October 9, 1952, by notification
issued under section 1 (3) of the Act, except sections 5, 9, 10 and 47 which
came into operation on November 1, 1952, as notified under section 2 (3). On,
the same day the rules made by the State Government in exercise of the power
conferred by section 45 of the Act also came into force.
1075 On November 3, 1952, the respondents 1
to 6, who are companies incorporated under the Indian Companies Act, 1913, and
respondent No. 7, a partnership firm, all of whom are carrying on business in
Bombay of buying and selling motor cars, presented a petition to the High Court
under article 226 of the Constitution challenging the validity of the Act on
the ground that it is ultra vires the State Legislature, inasmuch as it
purported to tax sales arid purchases of goods regardless of the restrictions
imposed on State legislative power by article 286 of the Constitution. It was
also alleged that the provisions of the Act were discriminatory in their effect
and, therefore, void under article 14 read with article 13 of the Constitution.
The respondents accordingly prayed for the issue of a writ in the nature of
mandamus against the appellants preventing them from enforcing the provisions
of the Act against the respondents. A further ground of attack was added by
amendment of the petition to the effect that the Act being wholly ultra vires
and void, the provisions requiring dealers to apply for registration in some
cases and to obtain a licence in some others as a condition of carrying on
their business, infringed the fundamental rights of the respondents under
article 19 (1) (g) of the Constitution.
In the affidavit filed in answer the
appellants traversed the allegations in the petition and contended, inter alia,
that the Act was a complete code and provided for special machinery for dealing
with all questions arising under it, including questions of constitutionality,
and, therefore, the petition was not maintainable, that the present ease was
not an appropriate one for the issue of a writ under article 226 as the
validity of the imposition of a tax was questioned, that no assessment
proceedings having been initiated against the respondents and no demand notice
having been issued, the respondents had no cause of action, and that, properly
construed, the Act and the Rules did not contravene article 286 or any other
provisions of the Constitution and did not infringe any fundamental right of
the respondents, 1076 The petition was heard by a Division Bench of the High
Court consisting of Chagla C. J. and Dixit J. Chagla C. J., who delivered the
judgment, Dixit J. concurring, overruled the preliminary objection dis distinguishing
the decisions cited in support thereof by pointing out that the principle that
a court would not issue a prerogative writ when an adequate alternative remedy
was available could not apply where, as here, a party came to the court with an
allegation that his fundamental rights had been infringed and sought relief
under article 226. The learned Judges however thought, in view of the
conclusion they had come to on the question of competency of the State
Legislature to pass the Act, it was "not necessary to consider the
challenge that has been made to the Act under articles 14 and 19" and
expressed no opinion on the alleged infringement of the respondents'
fundamental rights.
On the merits, the learned Judges held that
the definition of "sale" in the Act was so wide as to include the
three categories of sale exempted by article 286 from the imposition of sales
tax by the States, and, as the definition governed the charging sections 5 and
10, the Act must be taken to impose the tax' on such sales also in
contravention of article 286. The Act must, therefore, be declared wholly void,
it being impossible to sever any specific offending provision so as to save the
rest of the Act, as "the definition pervades the whole Act and the whole
scheme of the Act is bound up with the definition of sale".
The learned Judges rejected the argument that
the Act and the Rules must be read together to see whether the State has made a
law imposing a tax in contravention of article 286, remarking that "if the
Act itself is bad,, the rules, made under it cannot have any greater
efficacy". Nor was the Government, which was authorised to make rules for
carrying out the purpose of the Act, under an obligation to exclude the
exempted sales. The rules, too, did not exclude all the three categories of
exempted sales but only two of them, and even such exclusion was hedged 1077 In
view of the importance of the issues involved, notice of the appeal was issued
to the Advocates General of States under Order XLI, Rule 1, and many of them
intervened and appeared before us. The Attorney-General of India, to whom
notice was also sent, intervened on behalf of the Union of India. We have thus
had the assistance of a full argument dealing with all aspects of the case.
The Advocate-General of Bombay, appearing on
behalf of the appellants, took strong exception to the manner in which the
learned Judges below disposed of the objection to the maintainability of the
petition. He complained that, having entertained the petition on the ground
that infringement of fundamental rights was alleged, and that the remedy under
article 226 was, therefore, appropriate, the learned Judges issued a writ
without finding that any fundamental right had in fact been infringed. Learned
counsel for the State of West Bengal also represented that parties in that
State frequently got petitions under article 226 admitted by alleging violation
of some fundamental right, and the court sometimes issued the writ asked for
without insisting on the allegation being substantiated. We are of opinion that
it is always desirable, when relief under article 226 is sought on allegations
of infringement of fundamental rights, that the court should satisfy itself
that such allegations are well founded before proceeding further with the
matter. In the present case, however, the appellants can have no grievance, as
the respondents' allegation of infringement of their fundamental right under
article 19 (1) (g) was based on their contention that the Act was ultra vires
the State Legislature, and that contention having been accepted, by the Court
below, there would clearly be an un authorised restriction on the respondents'
right to carry on their trade, registration and licence being required only to
facilitate collection of the tax imposed. As Mr. Seervai for the respondents
rightly submitted, the fact that the Court below left the question undecided,
though the point was concluded by the 140 1078 decision of this Court in
Mohammad Yasin v. The Town Area Committee, Jalalbad (1), which was brought to
the notice of the learned Judges, was not the fault of the respondents and gave
no real cause for complaint.
Before considering whether the appellant
State has made a law imposing, or authorising the imposition of, a tax on sales
or purchases of goods in disregard of constitutional restrictions on its
legislative power in that behalf, it is necessary to ascertain the scope of
such power and the nature and extent of the restrictions placed upon it by
article 286. The power is conferred by article 246 (3) read with entry 54 of
List 11 of the Seventh Schedule to the Constitution. The Legislature of any
State has, under these provisions, the exclusive power to make laws "for
such State or any part thereof" with respect to "taxes on the sale or
purchase of goods other than newspapers". The expression "for such
State or any part thereof" cannot, in our view, be taken to import into
entry 54 the restriction that the sale or purchase referred to must take place
within the territory of that State. All that it means is that the laws which a
State is empowered to make must be for the purposes of that State. As pointed
out by the Privy Council in the Wallace Brothers case (2) in dealing with the
competency of the Indian Legislature to impose tax on the income arising abroad
to a non-resident foreign company, the constitutional validity of the relevant
statutory provisions did not turn on the possession by the legislature of
extra-territorial powers but on the existence of a sufficient territorial
connection between the taxing State and what it seeks to tax. In the case of
sales-tax it is not necessary that the sale or purchase should take place
within the territorial limits of the State in the sense that all the
ingredients of a sale like the agreement to sell, the passing of title,
delivery of the goods, etc., should have a territorial connection with the
State. Broadly speaking, local activities of buying or selling carried on in
the State in relation to local goods would be a sufficient basis to sustain the
taxing power of the State, provided of course,' such (1) [1952] S.C.R. 572.
(2) [1948] S.C.R. I 1079 activities ultimately
resulted in a concluded sale or purchase to be taxed.
In exercise of the legislative power
conferred upon them in substantially similar terms by the Government of India
Act, 1935, the Provincial Legislatures enacted sales-tax laws for their
respective Provinces, acting on the principle of territorial nexus referred to
above; that is to say, they picked out one or more of the ingredients
constituting a sale and made them the basis of their sales-tax legislation.
Assam and Bengal made among other things the
actual existence of the goods in the Province at the time of the contract of
sale the test of taxability. In Bihar the production or manufacture of the
goods in the Province was made an additional ground. A net of the widest range
perhaps was laid in Central Provinces and Bert where it was sufficient if the
goods were actually "found" in the Province at any time after the
contract of sale or purchase in respect thereof was made. Whether the
territorial nexus put forward as the basis of the taxing power in each case
would be sustained as sufficient was a matter of doubt not having been tested
in a court of law. And such claims to taxing power led to multiple taxation of
the same transaction by different Provinces and accumulation of the burden
falling ultimately on the consuming public. This situation posed to the
Constitution makers the problem of restricting the taxing power on sales or
purchases involving inter-State elements, and alleviating the tax burden on the
consumer.
At the same time they were evidently anxious
to maintain the State power of imposing non-discriminatory taxes on goods
imported from other States, while upholding the economic unity of India by
providing for the freedom of inter-State trade and commerce. In their attempt
to harmonise and achieve these somewhat conflicting objectives they enacted
articles 286, 301 an 304. These articles read as follows:
286. (1) No law of a State shall impose, or
authorise the imposition of, a tax on the sale or purchase of goods where such
sale or purchase takes place1080 (a) outside the State ; or (b) in the course
of the import of the goods into, nor export of the goods out of, the territory
of India.
Explanation.-For the purposes of sub-clause
(a), a sale or purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State, notwithstanding the fact
that under the general law relating to sale of goods the property in the goods
has by reason of such sale or purchase passed in another State.
(2) Except in so far as Parliament may by law
otherwise provide, no law of a State shall impose, or authorise the imposition
of, a tax on the sale or purchase of any goods where such sale or purchase
takes place in the course of inter-State trade or commerce :
Provided that the President may by order
direct that any tax on the sale or purchase of goods which was being lawfully
levied by the Government of any State immediately before the commencement of
this Constitution shall, notwithstanding that the imposition of such tax is
contrary to the provisions of this clause, continue to be levied until the
thirty-first day of March, 1951.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax on the sale or purchase of
any such goods as have been declared by Parliament by law to be essential for
the life of the community shall have effect unless it has been reserved for the
consideration of the President and has received his assent.
301, Subject to the other provisions of this
Part, trade, commerce and intercourse throughout the territory of India shall
be free.
304. Notwithstanding anything in article 301
or article 303, the Legislature of a State may by law(a) impose on goods
imported from other States any tax to which similar goods manufactured or 1081
produced in that State are subject, so, however, as not to discriminate between
goods so imported and goods,&, so manufactured or produced; and (b) impose
such reasonable restrictions on the freedom of trade, commerce or intercourse
with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the
purposes of clause (b) shall be introduced or moved in the Legislature of a
State without the previous sanction of the President.
It will be seen that the principle of freedom
of interState trade and commerce declared in article 301 is expressly
subordinated to the State power of taxing goods imported from sister States,
provided only no discrimination is made in favour of similar goods of local
origin. Thus the States in India have full power of imposing what in American
State legislation is -called the use tax, gross receipts tax, etc. not to speak
of the familiar property tax, subject only to the condition that such tax is
imposed on all goods of the same kind produced or manufactured in the taxing
State, although such taxation is undoubtedly calculated to fetter inter-State
trade and commerce. In other words, the commercial unity of India is made to
give way before the State-power of imposing " any " non-discriminatory
tax on goods imported from sister States.
Having thus provided for the freedom of
inter-State trade and commerce subject to the important qualification mentioned
above, 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
inter-State elements which would avoid the doubts and difficulties arising out of
the imposition of sales-tax 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, 1082 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. How, then, is it to be determined whether a particular sale or purchase
took place within or outside the State ? It is difficult to say that any one of
the ingredients mentioned above is more essential to a sale or purchase than
the others. 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. Why an " outside " sale or purchase is
explained by defining what is an inside sale, and why actual delivery and
consumption in the State are made the determining factors in locating a sale or
purchase will presently appear. The test of sufficient territorial nexus was
thus replaced by a simpler and more easily workable test: Are the goods
actually delivered in the taxing State, as a direct result of a sale or
purchase, for the purpose of consumption therein ? Then, such sale or purchase
shall be deemed to have taken place in that State and outside all other States.
The latter States are prohibited from taxing
the sale or purchase; the former alone is left free to do so. Multiple taxation
of the same transaction by different States is also thus avoided.
It is, however, argued on behalf of Bombay
that the Explanation does not say that the State of delivery is the only State
in which the sale or purchase shall be deemed to have taken place. If that was
the intention, it would have been easy to say so. On the other hand, the
non-obstante clause in the Explanation is said to indicate that, apart from
cases covered by the legal fiction, the passing of property in the goods is to
determine the place of sale.
Thus, both the State of delivery 1083 and the
State in which the property in the goods sold passes are, it is claimed,
empowered to tax. We are unable to accept this view. It is really not necessary
in the context to use the word " only " in the way suggested, for,
when the Explanation says that a sale or purchase shall be deemed to have taken
place in a particular State, it follows that it shall be deemed also to have
taken place outside the other States. Nor can the non-obstante clause be
understood as implying that, under the general law relating to the sale of
goods, the passing of the property in the goods is the determining factor in
locating a sale or purchase. Neither the Sale of Goods Act nor the common law
relating to the sale of goods has anything to say as to what the situs of a
sale is, though certain rules have been laid down for ascertaining the
intention of the contracting parties as to when or under what conditions the
property in the goods is to pass to the buyer. That question often raises
ticklish problems for lawyers and courts, and to make the passing of title the
determining factor in the location of a sale or purchase would be to replace
old uncertainties and difficulties connected with the nexus basis with new
ones.
Nor would the hardship of multiple taxation
be obviated if two States were still free to impose tax on the same transaction.
In our opinion, the non-obstante clause was inserted in the Explanation simply
with a view to make it clear beyond all possible doubt that it was immaterial
where the property in the goods passed, as it might otherwise be regarded as
indicative of the place of sale.
It is also to be noted in this connection
that, on the construction suggested by the Advocate-General of Bombay, namely,
that the Explanation was not intended to deprive the State in which the
property in the goods passed of its taxing power, but only to exclude the sales
or purchases of the kind described in the Explanation from the operation of
clause (1) (a) which prohibits taxation of outside sales or purchases, the
Explanation would operate, not as an explanation, but as an exception or a
proviso to that clause. It 1084 may be that the description of a provision
cannot be decisive of its true meaning or interpretation which must depend on
the words used therein, but, when two interpretations are sought to be put upon
a provision, that which fits the description which the legislature has chosen
to apply to it is, according to sound canons of construction, to be adopted
provided, of course, it is consistent with the language employed, in preference
to the one which attributes to the provision a different effect from what it
should have according to its description by the legislature.
It was then said that the formula of delivery
for consumption within a State could only cover the comparatively few cases of
sales or purchases taking place directly between the consumers in the delivery
State and dealers in other States, and inter-State sales or purchases between
dealers in either State, which must be larger in number and volume, would still
be outside the scope of the Explanation, which could not, therefore, have been
intended to empower only one State, namely, the delivery State, to tax all
inter-State sales or purchases. We see no force in this objection. It is to be
noted that the Explanation does not say that the consumption should be by the
purchaser himself. Nor do the words "as a direct result" have
reference to consumption. They qualify " actual delivery ".
The expression " for the purpose of
consumption in that State " must, in our opinion, be understood as having
reference not merely to the individual importer or purchaser but as
contemplating distribution eventually to consumers in general within the State.
Thus all buyers within the State of delivery from out-of-State sellers, except
those buying for re-export out of the State, would be within the scope of-the
Explanation and liable to be taxed by the State on their inter-State
transactions. It should be remembered here that the Explanation deals only with
interState sales.
or purchases and not with purely local or
domestic transactions. That these are subject to the taxing power of the State
has never been questioned.
We are therefore of opinion that article 286
(1) (a) read with the Explanation prohibits taxation of sales 1085 or purchases
involving inter-State elements by all States except the State in which the
goods are delivered for the purpose of consumption therein in the wider sense
explained above. The latter State is left free to tax such sales or purchases,
which power it derives not by virtue of the Explanation but under article 246
(3) read with entry 54 of List II.
We will now consider the effect of article
286(2) on the taxability of inter-State sales or purchases of the kind
envisaged by the Explanation to clause (1) (a). As both the Explanation and
clause (2) deal only with inter-State transactions, it may appear at first
blush that whatever taxing power the Explanation may have reserved to the state
of delivery is nullified by clause (2), at any rate until Parliament chooses to
lift the ban under the power reserved to it by the opening words of clause (2).
As one way of avoiding this result I it was suggested by the Advocate Gneral of
Bombay that the expression "inter-State trade and commerce" in clause
(2) may be construed as meaning dealings between a trader in one State and a
trader in another, so that the clause would be applicable only to sales or
purchases in the course of dealings between such traders.
The ban under clause (2) could not in that
view, affect the taxability of a sale by a trader in one State to a consumer or
user in another. We cannot agree with this restrictive interpretation of the
expression " inter-State trade and commerce". The sale by a trader in
one State to a user in another would be a sale "in the course of
inter-State trade" according to the natural meaning of those words, and we
can see no reason for importing the restriction that the transaction should be
one between two traders only. This is, however, not to say that the ban under
clause (2) extends to the taxing power which the delivery State is left free,
under the Explanation, to exercise. We are of opinion that the operation of
clause (2) stands excluded as a result of the legal fiction enacted in the
explanation, and the State in which the goods are;' actually delivered for
consumption can impose tax on; inter-State sales or purchases. The effect of
the 141 1086 Explanation in regard to inter-State dealings is, in our view, to
invest what, in truth, is an inter-State transaction with an intrastate
character in relation to the State of delivery, and clause (2) can, therefore,
have no application. It is true that the legal fiction is to operate " for
the purposes of sub-clause (a) of clause (1)", but that means merely that
the Explanation is designed to explain the meaning of the expression
"outside the State" in clause (1) (a). When once, however, it is
determined with the aid of the fictional test that a particular sale or purchase
has taken place within the taxing State, it follows, as a corollary, that the
transaction loses its inter-State character and falls outside the purview of
clause (2), not because the definition in the Explanation is used for the
purpose of clause (2), but because such sale or purchase becomes in the eye of
the law a purely local transaction. It is said that even though all the
essential ingredients of a sale took place within one State and the sale was,
in that sense, a purely intrastate transaction, it might involve transport of
the goods across the State boundary, and that would be sufficient to bring it
within the scope of clause (2). We find it difficult to appreciate this
argument. As already stated, the Explanation envisages sales or purchases under
which out-of-State goods are imported into the State. That is the essential
element which makes such a transaction inter-State in character, and if it is
turned into an intrastate transaction by the operation of the legal fiction
which blots out from view the inter-State element , it is not logical to say
that the transaction, though now become local and domestic in the eye of the
law, still retains its inter-State character. The statutory fiction completely
masks the inter-State character of the sale or purchase which, as a collateral
result of such making, falls outside the scope of clause (2).
It is said that, on this view, clause (2)
would become practically redundant, as clause (1) (a) read with the explanation
as construed by us would itself preclude taxation by other States of
inter-State sales or purchases of the kind referred to in the explanation. As
1087 We have already pointed out, the Explanation does not cover cases of
inter-State sales or purchases under which the goods are imported into the
State for re export to other States and possibly other categories of sales or
purchases which do not satisfy all the requirements of the explanation. Whether
such transactions are sufficiently numerous for the Constitution to take note
of is a matter of opinion and it cannot have much bearing on the question of
construction.
On the other hand there are, in our judgment,
cogent considerations which tend to support the view we have expressed above
that clause (2) was not intended to affect the power of the delivery State to
tax inter-State sales or purchases of the kind mentioned in the Explanation. As
we have seen, in our Constitution the principle of freedom of inter-State trade
and commerce is made to give way before the State-power of imposing non-discriminatory
taxes on goods imported from other States. Now, article 286(2) is but one phase
of the protection accorded to inter State trade and commerce from the fettering
power of State taxation. As article 286 deals with restrictions on the power of
the States to impose tax on the sale or purchase of goods, the Constitution
makers evidently thought that it should contain also a specific provision
safeguarding sales or purchases of an inter-State character against the taxing
power of the States.
It is however, reasonable to suppose that
this particular form of protection to inter-State trade and commerce provided
in article 286(2) was not intended to have a wider operation than what is
contemplated in Part XIII which declares the general principle of freedom of
inter-State commerce and defines the measure of constitutional protection it
should enjoy. If such protection is intended to give way before the State-power
of taxing goods imported from sister States, subject only to the condition
against discrimination, it is legitimate to suppose that the ban under article
286(2) should not operate so as to nullify that power. True, article 304 (a)
deals with the restrictions as to imposition of tax on goods, while article 286
1088 deals with the restrictions as to imposition of tax on sales or purchases
of goods. But this distinction loses its practical importance in the case of
sales-tax imposed by the delivery State under the conditions mentioned in the
Explanation, for, if we look behind the labels at the substance of the matter,
it becomes clear that a tax on sales or purchases imposed by the State in which
the goods are delivered for consumption, in the sense already explained, is, in
economic effect practically indistinguishable from a tax on the consumption or
use of the goods. The words " in which the goods have actually been
delivered " ensure that the goods have come into the State, and the
expression " for the purpose of consumption in the State" shows that,
though the tax is formally laid on sales, its incidence is aimed at the
consumers in the State.
Discussing the true nature of a duty of
excise and a tax on the sale of goods, Gwyer C. J. observed in the Central
Provinces and Berar Sales Tax case (1) : " It is common ground that the
Court is entitled to look at the real substance of the Act imposing it, at what
it does and not merely at what it says, in order to ascertain the true nature
of the tax. Since writers on political economy are agreed that taxes on the
sale of commodities are simply taxes on the commodities themselves, it is
possible to regard a tax on the retail sale of motor spirit -and lubricants as
a tax on those commodities". Therefore, sales-tax, the incidence of which
is really directed against the consumer, is, in substance, a tax on the goods
imposed, no doubt, on the occasion of the sale as a taxable event.
It will now be seen why the Explanation
insists on actual delivery of the goods in the State and their consumption in
the State, and why an "outside" sale or purchase is explained by
defining what is an inside sale. The object clearly is to assimilate the
conditions, under which the delivery State is left free to tax inter-State
sales or purchases, to those under which a State is empowered to impose tax on
goods imported into the State from other States under article 304 (a). If then,
a non-discriminatory use or consumption tax imposed under (1) [1939] F.C.R. 18,
42.
1089 article 304 on goods imported from other
States does not infringe the freedom of inter-State commerce declared by
article 301, parity of reason and policy requires that a tax on sales or
purchases imposed by the State in which the goods are actually delivered for
consumption in the State should not be regarded as violative of the ban under
article 286 (2), and that is what the statutory fiction enacted in the
Explanation was, in our judgment, designed to achieve by divesting the sale or
purchase of the kind referred. to in the Explanation of its inter-State
character in relation to the State of delivery.
There is another important consideration
which strongly supports the view we have indicated above, namely article 286
(2) does not affect the taxation of such sale or purchase by the State of
delivery. If both the exporting State and the delivery State were entitled,
notwithstanding article 286(2), to tax the inter-State sale or purchase, as
suggested by the Advocate-General of Bombay, it would mean that the transaction
is subjected to double taxation as compared with a sale by a local dealer which
pays only one tax. It is precisely this type of discriminatory burden which the
principle of freedom of inter-State commerce seeks to avoid, for, it places
inter-State trade at a disadvantage in competition with local trade. On the
other hand, if neither State could tax such sale or purchase as is referred to
in the explanation, until Parliament lifted the ban, as the Advocate-General of
Madras was inclined to think, the result would be that consumers could get
out-of-State goods more cheaply than local goods, and local dealers would
suffer competitive disadvantage as compared with outside dealers. Does the
principle of freedom of inter-State commerce require that a State should foster
such commerce to the detriment of domestic trade ? It is one thing to avoid
impeding inter-State commerce by imposing discriminatory burdens upon it which
internal trade does not have to bear, but quite another to place local products
and local business at a disadvantage in competition with outside goods and
dealers. It would be 1090 a curious perversion of the principle of freedom of
inter-State commerce to drive local custom across the border to outside
dealers, and that, in our opinion, could not have been contemplated.
The view which we have expressed above avoids
either anomaly and would place local trade and interstate trade on an equal
footing. The delivery State would tax both local and out-of-State goods equally
without discrimination against either and that, we think, is the only measure
of protection which article 286 could reasonably be supposed to accord to inter
State sales or purchases, when it is construed in the light of articles 301 and
304.
The question next arises as to whether the,
Act contravenes all or any of the restrictions imposed by article 286. It is
the respondents' case that the sales and purchases made by them in Bombay, in
the course of their business, include all the three categories excluded from
the scope of State taxation by article 286, and the Act seeking to bring all of
them within its scheme of taxation is bad. It is, therefore, necessary to make
a brief survey of the main provisions of the Act and of the rules made there under,
in order to see whether the respondents' complaint is well founded, and, if so,
whether the whole or any part of the Act is to be declared unconstitutional and
void.
The Act provides for levy of two kinds of
taxes, called the "general tax" and the "special tax", by
the two charging sections 5 and 10 respectively. "Dealer" is defined
in section 2 (7) as a person who carries on the business of selling goods in
the State of Bombay whether for commission, remuneration or otherwise and
includes a State Government which carries on such business and any society,
club or association which sells goods to its members. The Explanation (2) to this
definition provides that the manager or agent of a dealer who resides outside
the State of Bombay and carries on the business of selling goods in the State
of Bombay shall, in respect of such business, be deemed to be a dealer for the
purpose of the Act. "Sale" is defined by section 2 (14) with all 1091
its grammatical variations and cognate expressions as meaning any transfer of
property in goods for cash or deferred payment or other valuable consideration
and includes any supply by a society, a club, or an association to its members
on payment of price or of fees or subscriptions but does not include a
mortgage, hypothecation, charge or pledge. The words "buy" and
"purchase" are to be construed accordingly. There are two Explanations
attached to this definition of which the second, which is obviously based on
the Explanation to clause (1) (a) of article, 286, provides that the sale of
any goods which have actually been delivered in the State of Bombay as a direct
result of such sale for the purpose of consumption in the said State, shall be
deemed, for the purposes of this Act, to have taken place in the said State,
irrespective of the fact that the property in the goods has, by reason of such
sale, passed in another State. "Turnover" is defined by section 2(21)
as the aggregate of the amounts of sale price received and receivable by a
dealer in respect of any sale of goods made during a given period after
deducting the amount, if any, refunded by the dealer to a purchaser in respect
of any goods purchased and returned by the purchaser within the prescribed
period. Section 5 imposes the general tax on every dealer whose turnover in
respect of sales within the State of Bombay during any of the three consecutive
years immediately preceding the first day of April, 1952, has exceeded Rs.
30,000 or whose turnover in respect of such sales exceeds the said limit during
the year commencing on the first day of April, 1952.
The tax is to be levied on his taxable
turnover in respect of sales of goods made on or after the appointed day, i.e.,
1st November, 1952, at the rate of 3 pies in the rupee (section 6). By section
7 the taxable turnover is to be determined by first deducting from the turnover
of the dealer in respect of all his sales of goods during any period of his
liability to pay the general tax, his' turnover during that period, in respect
of (a) sales of any goods declared from time to time as tax-free under section
8 and(b) ,',such other sales as may be prescribed," No dealer 1092 liable
to pay the general tax shall carry on business as a dealer unless he has
applied for registration (section 9). A more or less similar scheme is provided
for the levy of a special tax on the sale of certain special goods specified in
Schedule II. By section 10 every dealer whose turnover in respect of sales of
special goods made within the State of Bombay has exceeded Rs. 5,000 during the
year ended 31st March, 1952, or exceeds the said limit during the year
commencing from 1st April, 1952, is charged with a special tax at the rate
specified in Schedule 11 on his taxable turnover in respect of the sales of
special goods made on or after the appointed day, i.e., 1st November, 1952. By
section II the taxable turnover is to be determined by first deducting, from
the turnover of the dealer in respect of his sales of special goods during any
period of his liability, his turnover in respect of (a) sales of special goods
purchased by him, on or after the appointed day at a place in the State of
Bombay from a dealer holding a licence under section 12 and (b) " such
other sales as may be prescribed." Every dealer liable to pay the special
tax is required to obtain a licence as a condition of his carrying on his
business (section 12). Then follow certain provisions for returns, assessment,
payment and recovery of tax. Section 18 imposes a purchase tax at the rate of 3
pies in the rupee on the purchases of such goods as may be notified by the
State Government from time to time which have been despatched or brought from
any -place in India outside the State of Bombay or are delivered as a direct
result of a sale to a buyer in, the State of Bombay for consumption therein,
and also an additional tax if the goods are special goods. Section 21 (2)
prohibits any person selling goods from collecting from the purchaser any
amount by way of tax unless he is a registered dealer or a licensed dealer and
is liable to pay the tax under this Act in respect of such sale. Chapter VI
contains provisions for production of accounts, supply of information and cancellation
of registration or licence. Chapter VII deals with proceedings including
appeals 1093 and revision and the determination of certain questions of law by
reference to the High Court. Section 45 empowers the State Government to make
rules "for carrying out the purposes of this Act." In particular,
such rules may prescribe, among other things, "the other sales, turnover
in respect of which may be deducted from a dealer's turnover in computing his
taxable turnover as defined in section 7 and in section 11" [sub-section
(2) (e)].
In exercise of the powers conferred by this
section, the State Government made and published rules called the Bombay Sales
Tax Rules, 1952, which were brought into force on the same day on which the
charging sections 5 and 10 of the Act were also brought into force, namely,
November 1, 1952. Of these, Rules 5(1) and 6(1) are important, and they provide
for the deduction of the following sales in calculating taxable turnover under
section 7 (general tax) and section 11 (special tax) : (1) sales which take
place (a) in the course of the import of the goods into or export of the goods
out of the territory of India or (b) in the course of inter-State trade or
commerce. It is to be noted that these are the excluded categories of sales or
purchases under article 286 (1) (b) and (2) respectively. Rule 5(2) (1)
requires, as a condition of the aforesaid deductions, that the goods should be
consigned by certain specified modes of transport. Clause (v) lays down a rule
of presumption to be acted upon in the absence of evidence of actual
consignment of the goods within three months of the sale, that the sale has not
taken place in the course of export or of inter State trade as the case may be.
It is not necessary to refer to the provisions of the other rules.
Now, it will be seen from the provisions
summarised above that the Act does not in terms exclude from its purview the
sales or purchases taking place outside the State of Bombay while it does
include, by Explanation (2) to the definition of "sale", the `sales
or purchases under which the delivery and consumption take place in Bombay
which, by virtue of the Explanation to article 286(1)(a), are to be regarded as
local 142 1094 sales or purchases. On the construction we have placed upon that
Explanation, sales or purchases effected in Bombay in respect of goods in
Bombay but delivered for consumption outside Bombay are not taxable in Bombay.
Now, the respondents complain that the latter category of sales or purchases
thus held not to be taxable are not expressly excluded by the Act which,
therefore, contravenes article 286 (1)(a). No doubt, there is no provision in
the Act excluding in express terms sales of the kind referred to above, but
neither is there any provision purporting to impose tax on such sales or
purchases. On the other hand, the two charging sections of the Act, section 5
and section 10, purport, in express terms, to impose the tax on all sales made
"within the State of Bombay", and section 18, which lays the tax on
purchases, is limited in its operation to purchases of goods delivered to a
buyer in the State of Bombay for consumption therein, that is to say, to
purchases which unquestionably are taxable by Bombay according to both parties.
The charging sections cannot, therefore, be taken to cover the class of sales
or purchases which, on our construction of the Explanation, are to be regarded
as taking place outside the State of Bombay. We see no force, therefore, in the
argument that the Act contravenes the provisions of article 286(1)(a) by
purporting to charge sales or purchases excluded by that article from State taxation.
As regards the other two categories of sales
or purchases excluded by article 286(1)(b) and (2), it is true that the Act
taken by itself does not provide for their exclusion.
But, as pointed out already, rules 5 and 6,
which deal respectively with deduction of certain sales in calculating the
taxable turnover under sections 7 and 11 exclude these two categories in
express terms, and these rules were brought into force simultaneously with the
charging sections 5 and 10 on November 1, 1952. The position, therefore, was
that, on the date -when the general tax and the special tax became leviable
under the Act, sales or purchases of the kind described under article 286(1)
(b) and (2) stood in fact excluded from taxation, and the State of 1095 Bombay
cannot be considered to have made a "law imposing or authorising the
imposition of a tax" on sales or purchases excluded under the aforesaid
clauses of article 286. The Act and the rules having been brought into
operation simultaneously, there is no obvious reason why the rules framed in
exercise of the power delegated by the Legislature should not be regarded as
part of the "law" made by the State. [See observations at page 862 in
the Delhi Laws Act case(1)]. The position might be different if the rules had
come into operation sometime later than the charging sections of the Act, for,
in that case, it is arguable that if the legislation, without excluding the two
classes of sales or purchases, was beyond the competence of the Legislature at
the date when it was passed, the exclusion subsequently effected by the rules
cannot validate such legislation. But, as already stated, that is not the
position here, and the learned Judges below fell into an error by overlooking
this crucial fact when they say "If the Legislature had no competence on
the date the law was passed, the rules subsequently framed cannot confer
competence on the Legislature".
Even so, it was contended, the exclusion of
the sales covered by clause (1)(b) and clause (2) of article 286 was hedged
round with conditions and qualifications which neither the Legislature nor the
rule-making authority was competent to impose on the exclusion and, therefore, such
rules, even if read as part of the Act, could not cure the constitutional
transgression. The conditions and qualifications complained of are mostly found
to relate to mere matters of proof, e.g., rule 5(2), Explanation (2), which
insists on the production of a certificate from an appropriate authority,
before a motor vehicle, despatched to a place outside the State of Bombay by
road and driven by its own power, could be exempted as an article sold in the
course of interState trade. No objection can reasonably be raised if the taxing
authority insists on certain modes of proof being adduced before a claim to
exclusion can be allowed. Objection was also taken to clause (1) of (1) [1951]
S.C.R. 747.
1096 sub-rule (2) of rule 5 as imposing an
unauthorised limitation upon the exemption of sales and purchases allowed by
rule 5(1), that is to say, while rule 5(1)(1) (allows the deduction of the
sales covered by clause (1) (b) and (2) of article 286 in calculating taxable
turnover, sub-rule (2) (1) of the same rule provides that, in order to claim
such deduction the goods shall be consigned only through a railway, shipping or
aircraft company or country boat registered for carrying cargo or public motor
transport service or by registered post. It is said that there is no reason why
sales of goods despatched by other modes of transport should not also be
deducted from the taxable turnover, because article 286 (2) in exempting sales
in the course of inter-State trade, makes no distinction between modes of
transport by which the goods are despatched. This limitation, it was claimed,
was beyond the competence of the rule-making authority. The argument is not
without force, and it must be held that rule 5(2)(1) is ultra vires the
rule-making authority and therefore void. But it is clearly severable from rule
5(1)(1). The restriction regarding the mode of transport of the goods sold or
purchased in the course of inter-State trade, to which alone sub-rule (2)(1)
relates, can be ignored and the exemption under rule 5(1)(1) may well be
allowed to stand.
Finally, Mr. Seervai attempted to make out
that the provisions of the charging sections 5 and 10 fixing Rs.
30,000 and Rs. 5,000 as the minimum taxable
turnover for general tax and special tax respectively were discriminatory and
void under article 14 read with article 13 of the Constitution, and he gave us
several tables of figures showing how the imposition of the tax actually works
out in practice in hypothetical cases. It is unnecessary to go into. the
details of these cases which have been worked out in figures, for it must be
conceded that the general effect of fixing these minimum limits must
necessarily be to enable traders whose taxable turnover is below those limits
to sell their goods at lower prices to their customers than dealers whose
turnover exceeded 1097 those limits, for the latter have to add the sales-tax
to the prices of their goods. But no discrimination is involved in this
classification which is perfectly reason-, able when it is borne in mind that
the State may not' consider it administratively worthwhile to tax sales by
small traders who have no organisational facilities for collecting the tax from
their buyers and turn it over to the Government. Each State must, in imposing a
tax of this nature, fix its own limits below which it does not consider it
administratively feasible or worthwhile to impose the tax. It is idle to
suggest that any discrimination is involved in such classification.
Apart from the considerations set forth above
which tend to support the constitutional validity of the Act, it was broadly
contended before us that taxing statutes imposing tax on subjects divisible in
their nature' which do not exclude in express terms subjects exempted by the
Constitution, should not, for that reason, be declared wholly ultra vires and
void, for, in such cases, it is always feasible to separate taxes levied on
authorised subjects from those levied on exempted subjects and to exclude the
latter in the assessment of the tax. In such cases, it is claimed, the statute
itself should be allowed to stand, the taxing authority being prevented by
injunction from imposing the tax on subjects exempted by the Constitution. Our
attention was called to certain American cases where this principle has been
consistently followed:
(see Bowman v. Continental Company(1), where
all the previous cases are collected). In the present case the tax is imposed,
in ultimate analysis, on receipts from individual sales or purchases of goods
effected during the accounting period, and it is therefore possible to separate
at the assessment the receipts derived from exempted sales or purchases and
allow the State to enforce the statute with respect to the constitutionally
taxable subjects, it being assumed that the State intends naturally to keep
what it could lawfully tax, even where it purports to authorize the taxation of
what is constitutionally exempt. The principle, as it (1) 256 U.S. 642 65 L.
Ed.
1098 is tersely put in the American case, is
that severability in such cases includes separability in enforcement.
Our attention was drawn to the decision of
the Privy Council in Punjab Province v. Daulat Singh and Others(1) as
condemnatory of this principle. The case is however, clearly distinguishable.
Their Lordships were dealing with a Provincial enactment providing for the
avoidance of benami transactions as therein specified and the question was
whether it was ultra vires the Legislature as contravening section 298(1) of
the Government of India Act, 1935, which forbade the prohibition, inter alia,
of disposition of property by an Indian subject on certain grounds which
included "descent". It was found that in some cases the impugned
enactment would operate as a prohibition on the ground of descent alone. The
Federal Court(1) by majority expressed the view that the Act could not, for
that reason, be invalidated as a whole but that the circumstances in which its
provisions would be inoperative must be limited to cases where the statute
actually operated in contravention of the constitutional inhibition.
Disagreeing with this view their Lordships made the following observations
which were strongly relied on before us:
" The majority of the Federal Court
appear to have contemplated another form of severability, namely, by a
classification of the particular cases on which the impugned Act may happen to
operate, involving an inquiry into the circumstances of each individual case.
There are no words in the Act capable of being so construed, and such a course
would in effect involve an amendment of the Act by the court, a course which is
beyond the competency of the court, as has long been well established."
The subject of the constitutional prohibition was single and indivisible,
namely, disposition of property on grounds only of (among other things) descent
and if, in its actual operation, the impugned statute was found to transgress
the constitutional mandate, the whole Act had to be held void as the words used
(1) [1946] F.C.R. 1. (2) [1942] F.C.R. 67.
1099 covered both what was constitutionally
permissible and what was not. The same principle was applied by this court in
the Cross Roads case(1). It was, indeed, applied also in Bowman's case(1) with
respect to the licence tax imposed generally on the entire business conducted
including interState commerce as well as domestic business, but was not
applied, as stated above, with respect to excise tax which was laid on every
gallon of gasolene sold and was thus divisible in its nature. It is a sound
rule to extend severability to include separability in enforcement in such
cases, and we are of opinion that the principle should be applied in dealing
with taxing statutes in this country, We accordingly set aside the declaration
made by the court below and quash the writ issued by it except in regard to
rule 5 (2) (1). An injunction shall, however, issue restraining the appellants
from imposing or authorising the imposition of a tax on sales and purchases
which are exempted from taxation by article 286 as interpreted above.
Each party will bear its own costs
throughout.
BOSE J.-I have had the advantage of reading
the judgments of my Lord the Chief Justice and my learned brother Bhagwati. I
regret I am unable to agree with either. The range of disagreement is not large
but unfortunately it vitally affects the result.
I agree with the construction which my Lord
has placed upon entry No. 54 of List II. I also agree that the object of the
Explanation is to fix the locus of a sale or purchase by means of a fiction,
but with respect I cannot agree with my brother Bhagwati that the non-obstante
clause enunciates the general law on this point. I know of no general law which
fixes the Situs of a sale, not even the Sale of Goods Act. What the general law
does is to determine the place where the property passes in the absence of a
special agreement, but the place where the property passes is not necessarily
the place where the sale takes place, nor (1) [1950] S.C.R. 594 (2) 256 U.S.
642, 1100 has that ever been regarded as the determining factor.
What, in my opinion, happened was this.
Before the passing of the Constitution,
different States (or Provinces as they then were) claimed the right to tax the
same transaction for a variety of reasons which have been pointed out by my
Lord the Chief Justice. The result was that the price of certain commodities
became inordinately high. Take, for example, the case of steel rails
manufactured by the Tata Iron and Steel Works at Tatanagar and purchased by the
Government of India for its railways. The Central Government found itself
called upon to pay a sale or purchase tax to different States on a single
transaction of purchase. I am not sure how many times over it had to pay but on
the notions then current it was open to Bihar to claim the right to tax because
the goods were manufactured there, to Bengal because the transaction of sale
took place at Calcutta where the head offices of the company were, to a third
Province because the goods were delivered there and to a fourth because they
were "found" there. It hardly matters whether all or any of this
would have stood scrutiny in a court of law because the fact remains that
various States were actually taxing the one transaction of sale on the nexus
theory. and a real danger existed of more and more of them coming in to claim a
share of the spoils. It seems to me that the Constitution makers considered
"this detrimental to the development and exercise of trade and commerce
and so determined to put a stop to the practice but at the same time left
Parliament a discretion to restore a part of the status quo if and when it
should think it safe and desirable to do so.
The narrowing of the powers was accomplished
by stating in article 286 that no State can impose a tax on a sale or purchase
which takes place outside the State, by stating that it cannot tax a sale or
purchase in the course of import or export and by prohibiting taxes on sales
and purchases which take place in the course of inter-State trade or commerce
unless Parliament chooses to lift the ban.
Reading these together 1101 in a simple and
straightforward way it seems clear to me that the idea was to permit States to
tax only what I might call intra-state sales and purchases, at, any rate, to
begin with.
But in legal enactments simplicity of
language seldom evokes clarity of thought. So long as the ban imposed by clause
(2) remains, there is no difficulty because when parts of a sale take place in
different States the transaction is inter-State and no tax can be imposed. On
the other hand, when all the ingredients are intrastate clause (2) is not
attracted. Complications only arise when the ban is lifted. The Constitution
makers had before them the existing practice of the States based on the nexus
theory, and so it became necessary to define just where a sale takes place in
order to carry out the main theme that only intra-astate sales can be taxed.
The difficulty is apparent when one begins to
split a sale into its component parts and analyse them. When this is done, a
sale is found to consist of a number of ingredients which can be said to be
essential in the sense that if any one of them is missing there is no sale. The
following are some of them: (1) the existence of goods which form the
subject-matter of the sale, (2) the bargain or contract which, when executed,
will result in the passing of the property in the goods for a price, (3) the
payment, or promise of payment, of a price, (4) the passing of the title. When
all take place in one State, there is no difficulty. The situs of the sale is
the place in which all the ingredients are brought into being. But when one or
more ingredients take place in different States, what criterion is one to
employ ? It is impossible to say that any of these ingredients is more
essential than any other because the result is always the same the moment you
take one away.
There is then no sale. Therefore, one either
has to adopt the ultra logical view and hold that the only State which can tax
is the one in which all the ingredients take place and that no State can tax
when a single ingredient 143 1102 takes place elsewhere, or resort to the old
view and hold that every State in which any single ingredient -takes place can
tax. The only alternative to these extremes is to make an arbitrary selection
or to introduce a fiction. The Constitution chose the latter course and enacted
the Explanation.
I have deemed it proper to refer to the then
existing practice regarding taxation because in construing a statute it is
legitimate to take into account existting laws and the manner in which they
were acted upon and enforced. [See Gwyer C. J. in In re The Central Provinces
and Berar Act No.
XIV of 1938(1) and Croft v. Dunphy(2)]. I
think this rule is even more appropriate in the case of the Constitution
because the Constitution itself continues in force all laws which were in
existence at the date when it came into being except those which are
inconsistent with itself.
I am with respect unable to agree that
article 286 (2) is to be interpreted in the light of article 304 (a). In my
opinion, the two articles deal with different things.
Article 286 is concerned with sales and
purchases, while article 304 relates to goods imported from other States.
The stress in the one case is on the
transaction of sale or purchase; in the other, on the goods themselves and on
the act of import. Article 286 is related to Entry No. 54 of List II and to
Entries 41 and 42 in List I. Article 304(a) to Entries 26 and 27 of List II
read with Entry 33 in List III and to Entries 51, 52 and 56 of List II. The distinction
is, I think, clear when it is realised that (apart from the Explanation) a sale
or a purchase can be taxed even though the goods are never actually delivered
and even if they never reach the taxing State, for the right is to tax the sale
or purchase and that is something quite independent of actual delivery. The
goods might be destroyed by flood or fire before there is any chance of actual
delivery. They might, as in the case of the steel rails purchased by the (1)
[1939] F.C.R. 18 at 53.
(2) [1933] A.C. 156 at 165.
1103 Government of India, be delivered in a
totally different State, but the tax could still be levied if there was no
Explanation to stop it. I find it difficult to see how,,, article 286(2) could
ever come into effective play if" article 304 is applied to sales and
purchases which take place in the course of inter-State trade or commerce. -A I
do not think the change in language, "a tax on the sale or purchase of any
goods" in the one case and a tax on "goods imported from other States"
was accidental, nor do I think we will be justified in ignoring the fact that
the two are placed in different parts of the Constitution. I therefore prefer
to hold that articles 286 and 304 deal with different things and to construe
article 286 without reference to 304.
In this I agree with my brother Bhagwati.
Coming back to the Explanation, its object
is, I think, to resolve the difficulty regarding the situs of a sale.
The Constitution having decided that the only
State which can tax a sale or a purchase is the State in which the transaction
takes place, and having before it the conflict of views regarding nexus and
Situs, resolved the problem by introducing the fiction embodied in the
Explanation. The purpose of the Explanation is, in my view, to explain what is
not outside the State and therefore what is inside. With respect I cannot agree
that the Explanation is really an exception, and I do not think the
non-obstante clause means that under the general lay the lace where the
property passes was regarded as the place where the sale takes place, for that
in itself would be a fiction. There is no such law. In my opinion all it means
is that there was a school of thought which regarded that as the crucial
element on the nexus view and that the Constitution has negatived that idea.
I am also unable to agree that the
Explanation governs clause (2) of article 286, for it limits itself in express
terms to sub-clause (a) of clause (1). It says that is an Explanation "for
the purposes of sub-clause (a)". In view of that I do not feet justified
in carrying it over to clause (2) and holding that it governs there as well. In
my judgment, the only purpose of the 1104 Explanation is to explain where the
situ8 of a sale is.
clause (2) has a different object. Its
purposes to prohibit taxation on sales and purchases which take place in the
course of inter-State trade or commerce.
If the Explanation is carried over to clause
(2) it must, in my judgment, be equally applicable to subclause (b) of clause
(1). As I understand the argument, the reasoning is this. The Explanation turns
an inter-State sale into an intra-state sale by means of a fiction. Having
served its purpose it follows as a corollary that there is no interState
transaction left and so clause (2) is not called into play. In my opinion, by
parity of reasoning, if the sale is intrastate and cannot now be regarded as
external to the State, it equally cannot be said to take place in the course of
export or import in a case of that kind, for export and import predicate the
movement of goods across a boundary just as surely as inter-State trade and
commerce. But such a contention would militate against our decision in The
State of Travancore-Cochin & Others v. The Bombay Co. Ltd.(1).
This line of reasoning does not appeal to me
for another reason also. It concentrates on the situs of the sale and does not
give sufficient weight to the words "in the course of ". When we
apply a fiction all we do is to assume that the situation created by the fiction
is true.
Therefore, the same consequences must flow
from the fiction as would have flown head the facts supposed to be true been
the actual facts from the start. Now, even when the situs of a sale is in truth
and in fact inside a State, with no essential ingredient taking place outside
nevertheless if it takes place in the course of inter-State trade and commerce,
it -will be hit by clause (2) just as surely as it is hit by sub-clause (b)
when it takes place in the course of export or import. When we examine clause
(2) and sub-clause (b), it is not enough, in my judgment, to see where the.
sale took place. we have also to see (1) [1952] S.C.R. 1112.
whether it was in the course of inter-state
trade and commerce in the one case, or in the course of export or import in the
other, for the stream of inter-State trade& and commerce, as also that of
export and import, will catch up in its vortex all sales which take place in
its course wherever the situs of the sale may be. All that the Explanation does
is to shift the sutis from point A or B or C in the stream to a point X, also
in the stream. It does not lift the sale out of the stream in those cases where
it forms part of the stream.
I have also another criticism to meet. The
Explanation can only come into play when the transaction is in truth and in
fact inter-State, and the argument runs that if clause (2) is to ban taxation
in every such case, the Explanation becomes useless. The answer to that is
two-fold. Clause (2) has a proviso. Under it the President is empowered to
direct the continuation for a period of a tax which was being lawfully levied
at the date of the Constitution even though the transaction is of an interState
character; and we find that in some of the cases which have come before us that
was done the moment the Constitution came into force.
Therefore, the Explanation operated from the
start on that kind of case. But of course that means that the empowering can
only be in favour of the State in which the, goods are actually delivered for
the purpose of consumption in that State as a direct result of a purchase or
sale effected for that purpose. It will be noticed that the proviso is limited
to cases in which the imposition of the tax would be " contrary to this
clause", that is clause (2) and not to the Explanation to clause (1)(a).
In the second place, Parliament is empowered
to lift the ban imposed by clause (2). So long as the ban exists there is no
need for the Explanation, for the explanation only covers sales or purchases
which are inter-State. But the moment the ban is lifted, the difficulties I
have mentioned above arise and have to be met. I am clear that the Constitution
makers envisaged this and resolved the doubts in the manner 1106 I have
indicated; nor can I see anything inconsistent or illogical in this. The-basic
idea is to prohibit taxation in the case of inter-State trade and commerce
unless and until the ban under clause (2) is lifted and always in the case of
exports and ,imports; and when the ban is lifted, the Explanation is there to
settle a matter of considerable controversy regarding the situs of a sale. It
is true it makes an arbitrary selection but then almost any selection would
have to be arbitrary and this is as good as any other.
The question how ever arises what is to
happen to clause (1)(a) while the ban lasts if the Explanation is to be ignored
during that period ? How is the situs of a sale to be determined in the
difficult class of cases which arose before the Constitution and which, in my
view, occasioned the ban. My answer is that class of case can only arise in the
course of inter-State trade and commerce, for the moment any one of the
essential ingredients of a sale occurs in a State different from the taxing
State and the goods are contracted to move across a boundary, you get a sale in
the course of inter-State trade and commerce. Therefore, the problem about
situs does not arise. Sales and purchases which are in truth and in fact
intrastate (and the bulk of sales and purchases in the States are of that character)
can of course be taxed. The ban does not apply and there is no need to call in
aid the Explanation, for I repeat that the Explanation is limited to cases
which in truth and in fact take place in the course of inter-State trade and
commerce.
On the view I take the need for the
Explanation only arises when the ban is lifted.
I now come to matters of greater detail What
do the words "for the purpose of consumption" mean? This is best
understood by reference to a concrete case: A, a dealer in Bombay, actually
delivers goods to B, a dealer in Madras, for the purpose of sale by B, the
Madras dealer, to purchasers C, D and E in Madras. Can either the sale by A to
B or the purchase by B 1107 from A be taxed? In my view, it cannot, for B is in
my judgment, as much a consumer as C, D and E. It is true the word can be used
in a wide as well as a narrow sense but I see no reason to restrict its meaning
in the present case.
What after all does "consumption"
mean? In its economic sense it is just the use which a purchaser chooses to
make of the goods purchased for his own purposes. He does not have to destroy
them nor does he have to diminish their value or utility. A man who purchases a
valuable piece of sculpture or painting for preservation in a national museum does
not destroy it nor does he use it himself except for the purposes of presenting
it to the museum. But he is a consumer. In the same way, a man who purchases
goods for use in his business so that his business can be carried on by the
constant feeding of a stream uses the 'goods and therefore "consumes"
them even though he does not keep them himself. This of course means that a
dealer who purchases from another dealer outside the State is a
"consumer" and can be taxed if the ban is lifted even if he purchases
for reexport outside the State. But when he re-exports, his sale to the outside
consumer cannot be taxed if the Explanation is attracted.
I cannot agree that goods cannot be
"consumed" more than once. it all depends on how you view the matter.
Little fishes swallow smaller fishes and are in turn eaten by fishes larger
than themselves. In the end, the smallest of the series is consumed by the
biggest. Consider the case of a curio dealer who collects antiques for the
purposes of sale. The older they are and the more they have been used, the more
valuable they become, but that would not prevent them from being
"consumed" over again when a "collector" buys them for
display in his house. Broadly speaking, the object here is to stop multiple
taxation on any single act of sale or purchase made in the course of
inter-state trade and commerce. I would therefore construe
"consumption" to mean the usual use made of an article for the
purposes of trade and commerce. When dealer buys from dealer that is "consumption"
1108 for the purposes of the purchaser dealer's trade; when an ultimate
purchaser buys from a retailer, that is also "consumption" for his
purposes. Therefore, in my judgment, neither the sale by A to B in the
illustration put nor the purchase by B from A can be taxed so long as the ban
under clause (2) remains. But the sales by t to C, D and E can each be taxed by
the State of Madras as they are intra-state sales. If this is found to work
hardship on the States in practice, then Parliament, which has been given the
power to regulate inter-State trade and commerce under Entry 42 of List 1, can
step in and lift the ban. In that event, the Explanation comes into play and
Madras can tax both transactions but Bombay cannot.
On the other hand, if A, the Bombay dealer,
sells direct to the consumers C, D and E in Madras and actually delivers the
goods to them for the purpose of consumption in Madras, neither State can tax
unless the ban is lifted, and then Madras alone will be able to tax.
Next, what do the words "actually been
delivered" mean? In the normal course, a dealer in Bombay, who sends goods
either to a dealer or consumer in Madras, would put them on a train or send
them by a public or a private carrier. The cases in which a dealer would take
them himself to Madras and hand them over in person or send one of his own men
there would be exceptional. In the former class of case, the carrier would
normally be regarded as the agent of the Madras purchaser and the result would
be that delivery would in that event be deemed to be delivery in Bombay and
that would give Bombay the right to tax and not Madras. See Badische Anilin Und
Soda Fabrik v. Basle Chemiral Works, Bindschedler (1), Badische Anilin Und Soda
Fabrik v. Hickson (2). But such a construction would make the Explanation
useless. I think that is the reason why the words "actually" and
"consumption" have been used. If the normal rule were to apply, there
would be no need for the word "actual", as delivery to the carrier in
Bombay would of course (1) [1898] A.C. 200. (2) [1906] A.C. 419.
1109 be actual in the sense that it would be
physical and not notional. I think therefore that the words "actually
delivered" and "as a direct result" of the sale or purchase
"for the purpose of consumption in the State" have been used to
signify that in such a case the carrier must be regarded as the agent of the
Bombay seller.
So far as the words " in the course of
" in clause (2) are concerned, the "course" we have to consider
is the course of the inter-State trade and commerce. In my opinion, the
inter-State character of the course ends when the goods reach the first
consumer in the taxing State.
When he in turn sells to the ultimate
consumer in that State, a different course begins, namely the course of
intra-state trade. It is necessary to draw this distinction because inter-State
trade and commerce is a matter for the Centre, intra-state for that of the
States. We have therefore to determine where the inter-State course ends and
the intra-state course begins. I think the point at which I have drawn the line
is logical and convenient. I do not think the same considerations will apply in
the next set of cases where we are dealing with the Travancore Cochin law
relating to export and import. But it is not necessary to explain why in this
case.
It was contended in argument that the view I
take of the ban on inter-State trade and commerce imposed by clause (2) would
place the local dealer at a disadvantage. But that would only arise in one
class of case and I cannot see how inequality of this kind can be avoided in
every case even on my Lord the Chief Justice's view. There are bound to be some
in. equalities, whichever view is taken.
Consider these concrete cases. We have A, a
dealer in Bombay, B, a dealer in Madras, and C, a consumer also in Madras. If A
sells directly to C in such a way as to satisfy the Explanation, then. assuming
always that the ban is still in existence, this sale is not taxable on my view.
But if B in Madras sells to C in, Madras, it
is. Of course, B is then at a disadvantage vis-a-vis A. But so is A vis-avis B
with regard to 114 1110 consumers in Bombay. Consequently the tendency of ,the
consumer in one State to buy from a cheaper market in the other evens up in the
long run. But that apart, what happens on my Lord the Chief Justice's view? A
very large volume of the feasibly taxable trade in this country, if not the
bulk of it, at any rate in most States, is in the hands of retail dealers
resident in the various States. They obtain their wares from wholesale
importers or large dealers in other States. In the illustration I have put
above, if B in Madras gets his goods from A in Bombay, then, on the learned
Chief Justice's view, B pays a purchase tax on his purchase from A and again a
sales tax on his sale to the consumer C. The consumer is therefore saddled with
a double tax. But if C, still in Madras, purchases direct from A in Bombay,
there is only one tax in the transaction on my Lord's view. That still gives A
an advantage over B.
Therefore, there is a large class of cases in
which the local dealer is at a disadvantage even on the other view.
The only class of case in which the local
dealer is not at a disadvantage on my Lord's view, and is on mine, is when the
goods are manufactured locally. In that event, B, the manufacturer in Madras,
pays no initial sales tax. He only pays when he sells to the consumer C in
Madras. If the goods can also be manufactured locally in Bombay, then the
dealer A in Bombay does have a theoretical advantage over the dealer B in
Madras. But if the goods cannot also be manufactured in Bombay, the advantage
disappears, for 'A then pays an initial tax on his purchase from the outside
State.
I do not think considerations of this kind
should influence the construction of these articles because, in the first
place, some inequalities are inevitable and, in the next, the disadvantage is
more theoretical than practical. For example, a wholesale importer, who also
chooses to sell retail in the State of import, has a theoretical advantage over
retailers who have to buy 1111 through him. But that did not prevent this Court
from holding in The State of Travancore -Cochin & Others v. The Bombay Co.
Ltd.(1) that the sale which occasioned his import is free of tax. So here. I do
not think this consideration should weigh.
But apart from this, the matter is, I think,
largely theoretical save perhaps in a few exceptional cases. In this class of
case, the trade usually adjusts its own differences by allowing the local
dealer a discount; in fact, in the case of many commodities, local dealers have
to give an undertaking not to sell below a certain price in order to maintain a
steady price level over the local market and avoid cut throat competition. That
is how most of the large motor agencies work, and the same applies to radios
and petrol and kerosene oil. The price the ultimate consumer pays is the same
wherever he purchases in a given area. Also the type of consumer who will take
the trouble to buy in a cheaper foreign market with all the annoyances of
delay, transport, octroi and other import restrictions, is small. Most people
prefer to pay the extra price and save themselves endless trouble.
I now come to the impugned legislation-the
Bombay Sales Tax Act (No. XXIV of 1952). As mine is a dissenting view which
will not affect the result, I will content myself with very briefly indicating
why I consider the Act, or at any rate the relevant provisions in it, ultra
vires, and to begin with I will ignore the rules altogether and consider what would
happen if the rules were not there at all or had been brought into existence
after the Act.
The taxing sections 5 and 10 empower a levy
of tax on all sales made within the State of Bombay when the turnover reaches a
certain figure. This would include sales made in the course of inter-State
trade and commerce, sales made in the course of export and import and sales
falling within the Explanation made to consumers in outside States. As I have
explained above, the mere fact that a sale is made in the State (1) [1952]
S.C.R. 1112, 1112 of Bombay will not prevent it from being a sale effected in
the course of inter-state trade or commerce or in the course of export or
import. Even when the whole transaction of sale is constituted in Bombay in the
sense that every essential ingredient necessary to constitute a sale takes
place there, (that is to say, even when the Explanation is not called into
play), the sale would, given other considerations, be in the course of export
or import or in the course of inter-State trade or commerce. An illustration
will make my point clear.
A, a Bombay dealer, sells goods to B, a
dealer in Madras, for consumption in Madras. I will assume that delivery is
made to B himself in Bombay and that he carries the goods across in person. If
that is the normal way in which trade and commerce in that particular line of
goods flows across the boundary, then that would, in my opinion, be a sale in
the course of inter-State trade and commerce despite the facts, including
delivery, mentioned above. Ordinarily, goods of this nature are delivered to a
carrier but that makes my point all the stronger. So long as the ban imposed by
clause (2) remains the situs of the sale and the place of delivery are not
material provided the sale is caught up in the vortex of inter-State trade and
commerce. Similar considerations apply in the case of exports and imports.
On this view, the preamble to the Act and the
short title which limit the ambit of the law to the levy of tax on sales and
purchases of goods in the State of Bombay, do not serve to save the Act, nor do
the definitions of the words " sale ", " dealer " and
" turnover ". Actually, Explanation (2) to the definition of "
sale" directly offends clause (2) of article 286. It embodies almost word
for word every provision of the Explanation to article 286(1)(a). That would be
unobjectionable if the ban imposed by clause (2) had been lifted by Parliament.
But as it has not been lifted, the provision is ultra vires on the view which I
take of the Constitution.
1113 The Act came into force on 9th October,
1952, with the exception of the taxing sections. The rules were published in
the Gazette on 29th October, 1952, and together with the taxing sections, came
into effect simultaneously on 1st November, 1952. It was argued that the rules
save the Act in the following way. Under sections 7 and 11 a dealer is entitled
to deduct from his taxable turnover sales which are from. time to time declared
to be tax-free under section 8 and " such other sales as may be prescribed."
It is said that the rules have excluded all sales which offend the
Constitution, therefore under the " law " (by which is meant the Act
and the rules read together), which came into being on 1st November, 1952, no
sale exempted by the Constitution can be taxed. It follows that the " law
which is sought to be impugned is intra vires.
I need not examine the rules for this
purpose. I will assume without deciding that they do exclude all sales which
are exempt under the Constitution, nevertheless I am not prepared to agree that
rules can save an Act. Rules are made by a subordinate authority which is not
the Legislature and I cannot agree that the validity of an Act of a competent
Legislature can be made to depend upon what some subordinate authority chooses
to do or not to do. The rules were not passed by the Legislature and in theory
the particular shape they took was not even in contemplation. Say the rules
were to be amended tomorrow by striking out these saving clauses, which would
be ultra vires, the Act or the rules ? It would be impossible to hold that the
rules are ultra vires the Act, for they would not in the event I am
contemplating travel one whit beyond the Act. It is the Act which would be bad.
And if the Act is held to be ultra vires in an event like that, would it be
competent to the rule-making authority to come to the rescue of the Legislature
and rehabilitate the Act by re-enacting the rules which it had deleted a few
days before ? It would, in my judgment, be no more competent for a rule-making
authority to do that than it would have been competent for it to validate this
Act if the rules had been brought into 1114 being even one day after sections 5
and 10 came into force.
I can understand this court saving to a
petitioner:
You are not yet hurt by this Act nor is there
any immediate likelihood of your being hurt and until. that happens we are not
going to entertain your petition, for we are not here to examine hypothetical
situations which may never arise." But that sort of objection cannot lie
in this case for the reasons my Lord the Chief Justice has given. We are
therefore called upon to determine the validity of the Act and in doing so we
must, in my opinion, ignore the rules.
I have now to consider two more points. One
is about severability and the other is whether a taxing statute is to be
treated differently from other laws.
On the question of severability, I cannot see
how the good can be separated from the bad in this case even if the Explanation
to section 2 (14) be expunged unless the Constitution be read as part of the
Act and we are to read into the Act some such provision as follows :
" Notwithstanding anything which is said
in any part of this Act, all sales which the State is prohibited to tax under
the Constitution are excluded from the scope of this Act." But, in my
opinion, judges are not entitled to rewrite an Act. Offending provisions can be
struck out but if we do that the whole Act goes because the defect here is that
all sales are permitted to be taxed provided they are within the State of
Bombay, and the rulemaking authority is not restricted to taxation which is
constitutionally permissible. On the contrary, section 45 says that the
Government may make rules for carrying out the purposes of the Act and one of
the purposes is to tax all sales which the State Government wishes to tax.
The other matter is based on the American
view which treats taxing statutes differently from others and holds that in a
taxing statute one looks to the 1115 individual item of taxation and not to the
generality of the powers. With all respect to the American Judges who hold that
view, I would prefer not to make exceptions. When the question is whether an
Act of the Legislature is ultra vires, the same principles should govern throughout.
I would therefore hold that the Bombay Sales Tax Act, 1952 (Bombay Act No. XXIV
of 1952) is ultra vires the Constitution of India.
BHAGWATI J.-I had the benefit of reading the
judgment just delivered by my Lord the Chief Justice. While agreeing in the
main with the conclusions reached therein I am however unable to subscribe to
the reasoning as also the construction put upon the Explanation to article
286(1) (a).
I wish to place on record therefore my points
of disagreement and the reasons for the same.
The power given to a State Legislature to tax
the sales or purchases of goods is derived from article 246 (3) read with Entry
54 of List II of the Seventh Schedule of the Constitution. That power has got
to be widely construed and it would embrace the power to tax the sales or
purchases of goods by reason of a sufficient territorial connection between the
taxing State and what it seeks to tax.
This was also the position which obtained
before the Constitution and was responsible for double or multiple taxation of
the same transaction by different States. The Constitution makers therefore
thought it fit to impose restrictions on the imposition by the States of taxes
on the sales or purchases of goods by enacting article 286. These restrictions
were threefold :-(1) no tax could be imposed on the sale or purchase of goods
where such sale or purchase took place outside the State, (2) no tax could be
imposed on the sale or purchase of goods where such sale or purchase took place
in the course of the import of goods into or the export of the goods out of the
territory of India, and (3) no tax could be imposed on the sale or purchase of
any goods where such sale or purchase took place in the course of inter-State
trade or 1116 commerce except in so far as Parliament might by law otherwise
provide. These were the three categories of sales or purchases which came
within the ban imposed by article 286. The phraseology used in the article laid
particular stress on the fact that the sale or purchase should " take
place so as to fall within one or the other of these categories. The intention
was that the sale or purchase should take place, i.e., should be completed
either outside the State or in the course of import or export or in the course
of interState trade or commerce. Whereas before the Constitution the taxing
power could be exercised by reason of a sufficient territorial connection
involving either one or more of the ingredients of a sale in the shape of
agreement to sell, the payment of price, transfer of ownership, delivery of
goods etc the completion of a transaction of sale or purchase by the transfer
of ownership or the passing of the property in the goods was enacted to be the
sole criterion for taxability in article 286. The sales or purchases could be
divided into two broad categories-(1) sales or purchases which take place
inside the State and (2) sales or purchases which take place outside the State
and those which took place outside the State were certainly outside the taxing
powers of the State.
In regard to the sales or purchases which
took place inside the State, the sales or purchases which took place in the
course of import or export and in the course of inter-State trade or commerce
were also brought within the ban leaving the taxing power of the State
unfettered in regard to the other sales or purchases which took place inside
the State.
The restrictions which were thus imposed on
the taxing power of the State confined themselves to sales or purchases which
took place outside the State and those sales or purchases which took place
inside the State but took place in the course of import or export and in the
course of inter-State trade or commerce. Once the transfer of ownership or the
passing of the property in the goods was accepted as the sole criterion of
taxability it was not necessary at all to define what was a sale or purchase
which took place 1117 inside the State. Whether a sale or purchase took place
inside the State could be determined by applying the general law relating to
the sale of goods and ascertaining where the transfer of ownership took place
or the property in the goods passed. It was only when the transfer of ownership
took place or the property in the goods passed that the sale or purchase was
completed and the sale or purchase took place and the situs or the location of
the sale or purchase was in the place where the transfer of ownership took
place or the property in the goods passed under the general law relating to the
sale of goods. [See Badische Aniline Und Soda Fabrick v. Basle Chemical Works,
Bind Schedler (1) and Badische Aniline Und Soda Fabrick v. Hickson (2) The
situs or location of the sale or purchase therefore assumed an importance under
article 286 and the Constitution makers had before them not only the legislative
practice prevailing in the various States before the Constitution but also the
concept of sale as defined in the Indian Sale of Goods Act.
They therefore incorporated in article 286
the notion of a sale or purchase taking place, i.e., being completed, by the
transfer of ownership or the passing of property in the goods under the general
law relating to sale of goods and enacted that those sales or purchases which
took place outside the State or which even though they took place inside the
State took place in the course of the import or export or in the course of
inter-State trade or commerce should come within the ban imposed therein.
The Constitution makers however took count of
the fact that even though the property in the goods by reason of the sale or
purchase passed in a particular State the goods might as a direct result of
such sale or purchase be delivered in another State for the purpose of
consumption in that State. They wanted to give the delivery State in that event
the power to tax such sale or purchase and therefore introduced by the
Explanation to article 286 (1)(a) a legal fiction by which (1) [1898] A. C.
200. (2) [1906] A. C. 419.
145 1118 the sale or purchase in that event
was deemed to have taken place in the delivery State. What otherwise would have
been a sale or purchase which took place outside the State within the meaning
of article 286 (1) (a) was thus by legal fiction deemed to have taken place
inside the delivery State, thus assimilating the position to a sale or purchase
which took place inside the delivery State enabling the delivery State to tax
the sale or purchase in question. This legal fiction was thus introduced not
for defining what was a sale or purchase which took place inside the State as
distinct from a sale or purchase which took place outside the State. The
purpose of the enactment of the Explanation was not to provide a definition of
a sale or purchase which took place inside the State. That was determined under
the general law relating to the sale of goods by ascertaining where the
transfer of ownership took place or the property in the goods passed, which was
in another State and not the delivery State. What was a sale or purchase which
took place outside the State was by reason of the Explanation and the legal
fiction enacted therein deemed to be a sale or purchase which took place inside
the State so as to enable the delivery State to tax the sale or purchase in
question.
The sale or purchase transactions which are
covered by the Explanation are moreover of a limited character, viz., those in
which as a direct result of such sale or purchase the goods have actually been
delivered in the delivery State for the purposes of consumption in that State.
They do not comprise all the transactions of sale or purchase which take place
inside the State because besides those there are a large number of transactions
of sale or purchase which take place inside the State and in which no element
of interState trade or commerce enters the transaction. The transactions of sale
or purchase which take place between dealers and dealers and dealers and
customers all within the State are really comprised in the category of
transactions of sale or purchase which take place inside the State and these
transactions do not at all fall within the purview of the Explanation. It would
be surprising 1119 to find a definition of a transaction of sale or purchase
which takes place inside the State given in the manner in which it is alleged
to have been done in the Explanation covering only those transactions of sale
or purchase in which the goods have actually been delivered in the delivery
State as a direct result of such sale or purchase for the purpose of
consumption in that State. A definition, if at all it has any significance,
should cover all the transactions which come within that particular category
and cannot be enacted in the form of a legal fiction in the manner it has been
done in the Explanation. It is no definition at all. It has no reference to
facts but it merely enacts a legal fiction under which a sale which under the
general law relating to sale of goods is completed outside the State by the
transfer of ownership or the passing of the property in the goods in another
State is deemed to have taken place inside the delivery State because of the
goods having been actually delivered as a direct result of such sale or
purchase for the purpose of consumption in the delivery State. What is
otherwise a sale or purchase which takes place outside the State is thus deemed
to have taken place inside the delivery State and that is the only purpose of
the enactment of the Explanation. The contention of the Attorney-General and
Shri Seervai that the purpose of the enactment of the Explanation was to define
what was a sale or purchase which took place inside the State is therefore
unsound.
The non-obstante clause really takes count of
the fact that under the general law relating to the sale of goods the property
in the goods by reason of such sale or purchase would pass in another State and
that the situs or location of the sale would accordingly be therefore in
another State.
Notwithstanding that fact the Explanation
enacts the legal fiction that the particular transaction of sale or purchase is
deemed to have taken place within the delivery State.
The non-obstante clause has not been
incorporated in the Explanation with a view to emphasise the particular aspect
of the passing of 1120 property in the goods and negativing the same because
that was one of the ingredients which had been considered as important
territorial connection between the taxing State and what it sought to tax.
Besides this ingredient there were various other ingredients which had been
similarly considered sufficient territorial connections and to consider that
the ingredient of the passing of property in the goods was the only ingredient
which was considered important to be mentioned in the non-obstante clause is to
ignore the facts and do violence to the whole conception underlying the
incorporation of the non-obstante clause in the Explanation. It would be a more
natural way of reading the non-obstante clause to read into it an intention to
state what according to the Constitution makers was the basic idea of fixing
the situs or the location of the sale or purchase in the place where the
transfer of ownership took place or the property in the goods passed and to
indicate that notwithstanding that fact a sale or purchase which fell within
the category mentioned in the Explanation was none, the, less to be deemed to
have taken place inside the delivery State.
If the Explanation to article 286(1) (a) is
construed in the manner indicated above it follows that notwithstanding the
fact that under the general law relating to sale of goods the property in the
goods has by reason of such sale or purchase passed in another State the sale
shall be deemed to have taken place in the delivery State and the delivery
State would be entitled to tax the sale or purchase. That does not however mean
that it is only the delivery State which will be entitled to tax the sale or
purchase. Under the general law relating to the sale of goods the property in
the goods having by reason of such sale or purchase passed in another State
that State will no doubt be entitled to tax the sale or purchase as having
taken place inside the State. That position will continue to obtain in spite of
the fact that by the enactment of the legal fiction in the Explanation such
sale or purchase will be deemed to have taken 1121 place inside the delivery
State. The object of the Explanation is not and could not be to take away the
right which the State in which the property in the goods passed had to tax the
sale or purchase which took place inside that State. The object and purpose of
the Explanation could only to be to deem such purchase or sale by reason of the
legal fiction to have taken place in the delivery State so as to enable the
delivery State also to tax the sale or purchase in question. The object of
article 286 is to impose restrictions on the imposition of tax on sale or
purchase of goods and the only restriction which has been imposed in connection
with the sales or purchases which take place in this manner is that a State
shall not impose a tax on the sale or purchase of goods where such sale or
purchase takes place outside the State. That is a general ban which has been
imposed by article 286(1) (a) and what the Explanation seeks to do is to lift
the ban to the extent of the transactions of sale or purchase covered by the
Explanation and enable the delivery State also to tax such purchases or sales.
It is no doubt true that in the Explanation
the word only' has not been used nor has the word 'also' been used and we have
to gather the purpose of the enactment of the Explanation from the words of the
Explanation itself. In order to arrive at a conclusion whether the object and
purpose of the Explanation was to enable the delivery State to tax such sales
or purchases either in addition to the State in which the property in the goods
had passed or in substitution thereof one has got to bear in mind the basic
idea that a State would normally be entitled to tax a sale or purchase where
such sale or purchase took place inside the State except in cases covered by
article 286(1) (b) and article 286(2). If that power of the State to tax the
sale or purchase where such sale or purchase took place inside the State was in
any manner whatever sought to be taken away it could only be taken away by an
express enactment in that behalf as in article 286 (1)(b) and article 286 (2)
and not by the backdoor as it were by enacting a legal fiction as it has been
done 1122 in the Explanation. The two book cases illustration which was
submitted before the court by Shri Seervai in the course of his arguments is a
very specious one. Merely because a book is by a legal fiction deemed to be in
the book case B it does not necessarily cease to exist in the book case 'A'.
As a matter of physical fact it is in the
book case 'A'. It continues in the book case 'A' and the physical fact of its
existence in the book case 'A' can never be obliterated.
The legal fiction only operates to treat it
as if it were in the book case 'B' and to involve all the consequences of its
being in the book case 'B'. The two positions are not mutually exclusive. They
can co-exist side by side and the legal consequences of the actual fact of the
book being in the book case 'A' can be worked out simultaneously with the legal
consequences of the notional existence of the book in the book case 'B' by
reason of the operation of the legal fiction. If this position is borne in mind
it is clear that not only would the State in which the property in the goods
passed continue to be entitled to tax the sale or purchase because of such sale
or purchase having taken place inside the State, but the delivery State would
also be entitled to tax such sale or purchase by reason of the operation of the
legal fiction in so far as the goods have actually been delivered as a direct
result of such sale or purchase in the delivery State for the ,purpose of
consumption in that State. According to the position as discussed above both
the States would thus be entitled to tax such sales or purchases.
Before I proceed to discuss the effect of
article 286 (2) on the taxing powers of both the States it is necessary to
consider what is the exact type of sale or purchase which is covered by the
Explanation. That sale or purchase has to be one as a direct result of which
the goods have actually been delivered in the delivery State for the purpose of
consumption in that State. It is not every transaction which results in the
goods being delivered across the border that comes within this category. It is
only a transaction of sale or purchase directly results in the delivery of
goods 1123 for the purpose of consumption in the delivery State that comes
within the category of transactions covered by the Explanation. A dealer in the
delivery State purchasing from a dealer in the State where the property in the
goods passes by reason of such sale or purchase cannot be said to have
purchased the goods for the purpose of consumption in the delivery State
because the obvious purpose for which he purchases the goods is for dealing
with those goods in the ordinary course of trade and not for consuming the
same. A dealer who deals with the goods after purchasing the same does not
consume the goods. He deals with or disposes of the same in the ordinary course
of trade and he is a dealer or a trader in those goods. He is not a consumer of
those goods. The word "consumption" has been thus defined in
Webster's New International Dictionary, Vol.1 , page 483:"
Consumption.-(3) Economics. The use of (economic) goods resulting in the
diminution or destruction of their utilities; opposed to production.
Consumption may consist in the active use of goods in such a manner as to
accomplish their direct and immediate destruction, as in eating food, wearing
clothes, or burning fuel; or it may consist in the mere keeping, and enjoying
the presence or prospect of, a thing, which is destroyed only by the gradual
processes of natural decay, as in the maintenance of a picture gallery.
Generally, it may be said that consumption
means using things, and production means adapting them for use." In the
Oxford New English Dictionary, Vol. 11, page 888, consumption is defined as:
(1) The action or fact of consuming or
destroying ;
destruction............ (7) Pol. Econ. The
destructive employment or utilisation of the products of industry."
Delivery of goods for the purpose of consumption in the delivery State
therefore means the delivery for the purpose of using by the consumer and it
has no application to the case of a dealer purchasing the 1124 goods across the
border for dealing with or disposing of the same in the ordinary course of
trade. The Explanation therefore covers only those cases where as -a direct
result of the sale or purchase goods are delivered for consumption in the
delivery State by the consumer and it is only that limited class of
transactions which are covered by the Explanation and which are liable to tax
by the delivery State. I do not accept the contention that the words "for
the purpose of consumption" must be understood in a comprehensive sense as
having reference both to immediate and ultimate consumption within the State and
excluding only resale out of the State. In my opinion they have reference only
to immediate consumption within the State and no further.
If the matters stood thus and there was no
further provision to be considered the position would be that in a transaction
of sale or purchase covered by the Explanation construed as above both the
State in which the property in the goods passed and the delivery State would be
entitled to tax such sale or purchase, the former by reason of the property in
the goods having passed inside that State and the latter by reason of the goods
having been delivered as a direct result of such sale or purchase for the
purpose of consumption in that State. We have however got to take count of
article 286 (2). The transaction of ,such sale or purchase even though it be as
between a dealer in the one State and the consumer in the delivery State is
nonetheless a transaction in the course of inter-State trade or commerce. I do
not agree with the contention of the Advocate-General of Bombay that article
286(2) should be interpreted as applying to the cases of transactions of sale
or purchase taking place between dealers and dealers only and not as applying
to the cases of transactions of sale or purchase taking place between dealers
on the one hand and consumers on the. other. Whether a transaction of sale or
purchase takes place between a dealer on the one hand and a dealer on the other
or between a dealer on the one hand and a consumer on the other in the
respective 1125 States all these transactions are in the course of inter State
trade or commerce and therefore hit by article 286(2) and the transactions
which are covered by the Explanation to article 286 (1)(a) would also be
accordingly hit by the ban imposed under article 286 (2).
So far as the State in which the property in
the goods has passed is concerned it could certainly not tax the sale or
purchase in question because the transaction of sale or purchase so far as the
particular State is concerned takes place in the course of inter-State trade or
commerce and could not be subjected to the imposition of tax except in so far
as Parliament might by law otherwise provide. So far however as the delivery
State is concerned the Explanation empowers the delivery State to tax such
transaction and if article 286(2) be construed as imposing a ban on the
taxation of such sale or purchase it will be tantamount to the giving of the
right to tax by one hand and the taking away of it by another.
It was contended and rightly so by the
Advocate General of Bombay that if the transactions which are covered by the
Explanation to article 286(1) (a) were thus hit by article 286(2) in the
absence of a provision otherwise enacted by Parliament the Explanation to
article 286(1) (a) would be rendered nugatory and the Constitution makers could
not be held to have contemplated such a possibility at the very inception of
the Constitution leaving it to the Parliament by having recourse to the
provision contained in article 286 (2) to remedy such a state of affairs. Such
a possibility could not be contemplated and an effort should therefore be made
in so far as it was reasonably possible to do so to reconcile the provisions of
the Explanation to article 286(1) (a) and article 286(2).
It is a well-known rule of the interpretation
of statutes that a "particular enactment is not repealed by a general
enactment in the same statute". (Beal on the Cardinal Rules of Legal
Interpretation, 3rd Edition, Part VII, Section IX, page 516). Reliance is 146
1126 placed in support of the above proposition on the following observations
of Best C. J. in Churchill v. Crease(1).
"The rule is, that where a general
intention is expressed, and the Act expresses also a particular intention
incompatible with the general intention, the particular intention is to be
considered in the nature of an exception." To the same effect also are the
observations of Quain J. in Dryden v. Overseers of Putney (2) quoted at page
426 of the same work:"It may be laid down as a rule for the construction
of statutes, that where a special provision and a general provision are
inserted which cover the same subject matter, a case falling within the words
of the special provision must be governed thereby and not by the terms of the
general provision." (See also Craies on Statute Law, 5th Edition (1952) at
p. 205; Maxwell on the Interpretation of Statutes 9th Edition.
(1946) at p. 176 and Crawford on the
Construction of Statutes (Interpretation of Laws) 1940 Edition, Ch. XVIII
'Construction of Statutes' at p.265 section 167). It therefore follows that the
general provision which is enacted in article 286 (2) against the imposition of
tax on the sale or purchase of goods in the course of inter-State trade or
commerce should give way to the special provision which is enacted in the
Explanation to article 286 (1) (a) enabling the delivery State to tax such sale
or purchase in the limited class of cases covered by the Explanation,
transactions ,covered by the Explanation being thus lifted out of the category
of transactions, in the course of inter State trade or commerce covered by
article 286 (2) and assimilated to transactions of sale or purchase which take
place inside the State thus acquiring an intra State character so far as the
delivery State is concerned.
It was suggested that this result could also
be achieved by having resort to the principles which have been enunciated in
articles 301 and 304 of the Constitution (1) (1828) 5 Bing, 177 at p. 180. (2)
(1876) 1 Ex. D. 232 at P 426, 1127 which are included in Part XIII under the
captionTrade, commerce and intercourse within the territory of India.
Even though these provisions of the
Constitution may by analogy support the conclusion that a transaction in the
course of inter-State trade or commerce is thus lifted out of that category and
assimilated to a transaction of sale or purchase which takes place inside the
State the analogy must stop there and cannot be worked any further. One cannot
construe the provisions of article 286 with reference to the provisions of article
304 (a) as is sought to be done.
Article 286 and article 304 (a) refer to
different states of affairs. Whereas article 286 provides restrictions on the
imposition of taxes on purchase or sale of goods, article 304 (a) gives the
State Legislature power to impose on goods imported from other States any tax
to which similar goods manufactured or produced in that State are subject so
however as not to discriminate between goods so imported and goods so
manufactured or produced. Whereas article 286 refers to taxes on sales or
purchases of goods, article 304 (a) refers to tax on imported goods. The two
concepts are thus entirely different. The only argument which was addressed
before us on articles 301 and 304 of the Constitution was by the Government
Pleader of Patina who referred to these provisions in order to substantiate his
point that only one State, viz., the delivery State, should tax the sales or
purchases covered by the Explanation and argued what the results would be if it
was held that both the States could tax or neither of them could tax such sale
or purchase. This aspect was however not stressed or presented during the
course of the arguments and I would prefer not to express any opinion on the
scope or meaning of article 304.
I would therefore base my, construction of
the Explanation to article 286 (1)(a) and article 286 (2) on the rule as to the
interpretation of statutes which I have referred to above, lifting the
transaction of sale or purchase covered by the Explanation to article 286(1) (a)
out of the category of the transactions in the course of inter-State trade or
commerce and assimilating it to 1128 a transaction of sale or purchase which
takes place inside the delivery State thus investing it with the character of
an intrastate sale qua the delivery State.
The result therefore is that the delivery State only would be entitled to tax the transaction of sale or purchase covered by
the Explanation. Such transaction would be a transaction of sale or purchase
where as a direct result of such sale or purchase the goods are delivered in
the delivery State for the purpose of consumption in that State' i.e., where
the transaction is between a dealer in the State in which the property in the
goods passes and a consumer in the delivery State. The State in which the
property in the goods passes would not be able to tax such sale or purchase in
the absence of a provision enacted by law by Parliament within the meaning of
article 286(2). Once that ban is lifted by the appropriate legislation enacted
by the Parliament the State in which the property in the goods passes would
also be entitled to tax such sale or purchase but not otherwise.
Save as above, I agree with the conclusions
reached by my Lord the Chief Justice in the judgment just delivered. I agree
that the Bombay Sales Tax Act, 1952, and the rules made, there under except
Rule 5(2)(1) do not contravene the provisions of article 286, that Rule 5(2)(1)
is clearly severable and can be ignored, that there is no substance in the
contention of Shri Seervai that there is a violation of the fundamental rights
guaranteed under article 14 and that the taxation statutes should be construed
in a manner so as to allow the statute itself to stand, the taxing authority
being prevented by injunction from imposing the tax on subjects excluded by the
Constitution from the purview of taxation by the State.
In the result the declaration 'Made by the
court below will be set aside, the writ issued by it will be quashed and the
State of Bombay will be prohibited from imposing or authorising the imposition
of a tax on sales or purchases which according to the interpretation put above
on article 286 are excluded from the purview 1129 of taxation by the State of
Bombay. Each party will bear and pay its own costs throughout.
Appeal allowed.
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