The Bengal Immunity Company
Limited Vs. The State of Bihar & Ors [1954] INSC 120 (4 December 1954)
ACT:
Constitution of India-Arts. 141, 226, 286(1),
(2) and (3)Art. 286(1)(a) read with the Explanation-Construction ofWhether
controlled by Art. 286(2)-Situs of a sale or purchase determined by general law
or created by fiction in the Explanation-Whether relevant for ascertaining
interState character of such sale or purchase Appellant company registered in
Calcutta-Bihar Sales Tax Act, 1947 (Bihar Act XIX of 1947)-S. 13-Whether
appellant company liable to Sales Tax-Where goods delivered in the State of
Bihar as a direct result of sale for purposes of consumption there-Art. 226Petition
there under-Maintainability of-Supreme Court whether competent to modify or
review its prior decisions-Art. 141Meaning of-Bihar Sales Tax Act, 1947, s.
33-Taxing sales or purchases taking place in the course of inter-State trade Validity
of-Act whether wholly ultra vires and void.
HEADNOTE:
The appellant company, having its registered
office in Calcutta and its factory and laboratory in the District of
24-Parganas in West Bengal, carried on the business of manufacturing and
selling sera, vaccines, biological products and medicines. It was registered as
a dealer under the Bengal Finance (Sales Tax) Act: Its products having
extensive sales throughout India and abroad were despatched from Calcutta
against orders accepted by the appellant company in Calcutta. It had no agent
or manager in Bihar nor any office or laboratory in that State. A notice under
s. 13(5) of the Bihar Sales Tax Act, 194,7 was issued by the Bihar Sales Tax
authorities calling upon the appellant company to apply for registration and to
submit returns showing its turn over for a period between the 26th of January,
1950 and 30th September 1951. The appellant company denied its liability on the
grounds inter alia that it was not resident in Bihar, it carried on no business
there and none of its sales took place in Bihar. It characterized the notice '
under s. 13(5) as ultra vires and illegal and called upon the Sales Tax
authorities to cancel it forth-, with. The Bihar Sales Tax authorities
maintained that all sales in West Bengal or in any other State under which
goods had been delivered in the State of Bihar as a direct. result of the sale
for the purposes of consumption in that State were liable to Bihar Sales Tax.
Ultimately the appellant company presented before the High Court ,at Patna a
petition under Art. 226 of the Constitution claiming the reliefs mentioned
above. The High Court dismissed the. petition holding that it was not
maintainable. On appeal under a certificate 77 604 under Art. 132(1) of the
Constitution:Held, (per curiam) (i) that the High Court was not right in
holding that the petition under Art. 226 was misconceived.
In so holding the High Court overlooked the
fact that the petitioners' contention was that the Act, in so far as it
purported to tax a non-resident in respect of inter-State sales or purchases of
goods was ultra vires the Constitution. There are various provisions in the Act
laying down certain conditions, which dealers must comply with or submit to.
They constituted restrictions on the fundamental right guaranteed to every
citizen of India by Art. 19(1)(g) of the Constitution and these onerous
conditions could not be justified as reasonable restrictions within the meaning
of clause (6) of Art. 19 and further the remedy under the Act cannot be said to
be adequate and was indeed useless if the Act providing for such remedy was
itself ultra vires and void:
(ii)that there is nothing in the Constitution
which prevents the Supreme Court from departing from a previous decision of its
own if the court is satisfied of its error and its baneful effect on the
general interests of the public.
Held, per S. R. DAS, ACTING C. J., VIVIAN
BOSE, BHAGWATI and
JAFER IMAM JJ. (JAGANNADHADAS, VENKATARAMA
AYYAR and B. P.
SINHA JJ., dissenting) that the present is a
fib case for reviewing the previous majority decision of the Supreme Court in
The State of Bombay v. The United Motors (India) Ltd. ([1953] S.C.R. 1069), in
view of several circumstances relating to the case.
Held, per S. R. DAS, ACTING 0. J., VIVIAN
BOSE, BHAGWATI and
JAFER. IMAM JJ. (JAGANNADHADAS, VENKATARAMA
AYYAR and B.P. SINHA JJ., dissenting). The operative provisions of the several
parts of Art. 286, namely clause (1)(a), clause (1)(b), clause (2) and clause
(3) are intended to deal with different topics and, one cannot be projected or
read into another and therefore the Explanation in clause (1) (a) cannot be
legitimately extended to clause (2) either as an exception or as a proviso
thereto or read as curtailing or limiting the ambit of clause (2).
The sales or purchases made by the appellant
company which were sought to be taxed by the State of Bihar actually took place
in the course of inter-State trade or commerce.
Parliament not having by law otherwise
provided, no State law could, therefore, tax these sales or purchases, that is
to say, Bihar could not tax by reason of clause (2) although they fell within
the Explanation and other States could not tax by reason of both clause (1)(a)
read with the Explanation and clause (2).
What is an inter-State sale or purchase
continues to be so irrespective of the State where the sale is to be located
either under the general law when it is finally determined what the general law
is or by the fiction created by the Explanation. The situs of a sale or
purchase is wholly irrelevant as regards its inter-State character.
605 Until Parliament by law made in exercise
of the powers vested in it by clause (2) of Art. 286 provides otherwise, no
State can impose or authorise the imposition of any tax on sales or purchases
of goods when such sales or purchases take place in the course of inter-State
trade or commerce and the majority decision in The State of Bombay v. The
United Motors (India)Ltd.. ([1953] S.C.R. 1069) in so far as it decides to the
contrary cannot be accepted as well founded on principle or authority.
In view of the above interpretation upon Art.
286 the charging section of the Bihar Sales Tax Act, 1947 read with the
relevant definitions cannot operate to tax inter-State sales or purchases and
as Parliament has not otherwise provided, the Act, in so far as it purports to
tax sales or purchases that take place in the course of inter State trade or
commerce, is unconstitutional, illegal and void.
The Act imposes tax on subjects divisible in
their nature but does not exclude in express terms subjects exempted by the Constitution.
In such a situation the Act need not be declared wholly ultra vires and void
for it is 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.
Held (per JAGANNADHADAS, VENKATARAMA AYYAR
and B. P. SINHA JJ.). The scheme of Art. 286(1)(a) is, that it fixes the situs
of the sales with a view to avoid multiple taxation and for that purpose it
divides them into two categories inside sales and outside sales and enacts that
a State cannot tax an outside sale. When in the same context the Explanation
declares that a sale in the course of interState trade must be deemed to have
taken place in the State in which the goods are delivered for consumption, its
purpose is clearly to take it out of inter-State trade and stamp it with the
character of an intrastate sale.
Whether regard is had to the object of the
enactment or its language, the Explanation must be held to authorise the
imposition of tax by the delivery State.
Article 286(2) applies to sales in the course
of inter-State trade. The sales which fall within the Explanation are
intrastate sales. The grounds covered by this two provisions are distinct and
separate. Each has operation within its own sphere, and there is no conflict
between them.
According to the view expressed by Bose J. in
The State of Bombay v. The United Motors (India) Ltd. ([1953] S.C.R. 1069) and
by Das J. in State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory
([1954] S.C.R. 53) Article 286(2) controls the Explanation. This cannot be
sustained on the language of the enactment. The Explanation is not expressed to
be subject to Art. 286(2). Nor does the latter contain the words
"notwithstanding anything contained in the Explanation to Art.
286(1)(a)". These are simple and familiar expressions used by the
legislature when it intends that a particular provision in the Statute should
be subject to or override 606 another. Nor is there anything in the language of
the explanation providing that its operation is not to be in praesenti but
contingent on Parliamentary legislation under Art. 286(2). To construe,
therefore, Art. 286(2) as controlling the Explanation, one must import into-the
Statute words which are not there and thereby cut down the operation of the
Explanation which on its terms is of equal authority and potency with Art.
286(2).
The impugned Act in so far as it authorises
the imposition of tax on sales falling within the Explanation to Art.
286(1)(a) is neither ultra vires the powers
of the State Legislature nor bad on the ground that it is extraterritorial in
its operation.
Per JAGANNADHADAS J. The only reasonable
construction of Art. 286(1)(a) taken with the Explanation is that this
provision while intended to prohibit taxation by States on outside sales was
also meant to demarcate the boundary between inside sales and out., side sales
and to assimilate one particular category of outside sales into the field of
inside sales and to make it available for taxation by the consuming State.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 159 of 1953.
Appeal under Article 132(1) of the
Constitution of India from the Judgment and Order dated the 4th December 1952
of the High Court of Judicature at Patna in Misc. Judicial Case No. 241 of
1952:
N. C. Chatterji (V. S. Sawhney, S. N. Mukerji
and B. B. Biswas, with him) for the appellant company. The High Court was wrong
in holding that there was no warrant for issuing a writ under article 226 of
the Constitution on the facts of the case. Although no actual assessment was
made by the Sales Tax authorities the issue of notice by them constituted a
sufficient threat which the High Court had jurisdiction to quash by means of a
writ under article 226 of the Constitution: see Himmatlal Harilal Mehta v. The
State of Madhya Pradesh ([1954] S.C.R. 1122), The State 'of Bombay v. The
United Motors (India) Ltd. ([1953] S.C.R. 1069), Mohammad Yasin v. The Town
Area 'Committee., Jalalabad ([1952] S.C.R. 572), The King v. -Commissioners for
the General Purposes of the Income-Tax for Kensington ([1914] 3 K.B. 429),
General Commissioners for the purposes of Income Tax.for Kensington v. Aramayo
([1916] 1 A.C. 215), Madan Gapal Kabra v. The Union of India ([1951] I.T.R.
214), Sales 607 Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash
([1955] 1 S.C.R. 423), Commissioner of Police, Bombay v.
Gordhandas Bhanji ([1952] S. C. R. 135).
Article 286(2) which is in Part XII of the Constitution is meant to implement
the supremacy of Parliament with regard to interState trade or commerce. That
Article puts an embargo on the power of the State Legislature to levy any tax
with respect to interState trade or commerce. Only when the embargo is lifted
by appropriate Parliamentary Legislation that the State Legislature can levy
any tax on sales or purchases in the course of inter-State trade or commerce.
Article 286 puts a fetter on the State
Legislatures and the Explanation to article 286(1) (a) does not confer any
power on any State Legislature to levy any tax. The Explanation is meant to
explain only clause (1) (a) of article 286, that is, what is an outside sale or
purchase. It does not remove fetter and it does not convert any inter-State
sale or purchase into an intrastate transaction. See the judgment of Bose J. in
The State of Bombay v. The United Motors (India) Ltd. ([1953] S.C.R. 1069) and
that of Das J. in The State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut
Factory ([1954] S.C.]V. 53). The construction of the Explanation by the learned
Judges of the High Court is not correct. They were wrong in assuming that if
article 286(2) is construed in a full and unqualified sense, the Explanation to
article 286 (1) (a) would become nugatory and of no effect. They also erred in
holding that the Explanation expressly confers legislative power, and that the
Explanation is in the nature of an exception which excludes a particular class
from a larger class. The High Court erred in holding that the Explanation
created a nexus for conferring jurisdiction on the State Legislature. Test of
territorial nexus is no longer applicable after the coming into force of the
Constitution. See The State of Bombay v. The United Motors (India) Ltd. ([1953]
-S.C.R. 1069).
On a proper reading of all the sections of
the Bihar Sales Tax Act, 1947 the idea seems to be that the intention was only
to tax the dealers within the 608 State of Bihar, as some of the provisions of
the Act would be incapable of enforcement outside the State. Consequently the
appellant which has no office or agent within the State could not be taxed. See
ss. 1, 2(c), 2(g), 4, 10, 14-A, 17, 26(a) (c) (b) & (k), of the Act. Bihar
Legislature has no power to authorise imposition of tax on outside dealers. The
legislative competence of a State Legislature is derived from Article 246 read
with the Lists.
Under article 245(2) Parliament is given
power to enact legislation with respect to extra-territorial operation.
State Legislature has no such power. The
combined effect of article 246(3) read with item 54 of List 11 is that the
State Legislature is competent only to make law imposing tax on sale or
purchase of goods for the whole or any part of that State. Under article 245 of
the Constitution power is limited within the boundary of the State. Taxable
event must happen in that State. See Swifte v. Attorney-General for Ireland
([1912] A.C. 276), Commercial Cable Company v. Attorney-General for
Newfoundland ([1912] A. C. 820) and MacLeod v. Attorney-General for New South
Wales ([1891] A.C. 455). High Court failed to appreciate the true effect of the
judgment in Wallace Brother sand Co., Ltd. v. Commissioner of Income-Tax,
Bombay City and Bombay Suburban District ([1948] 75 I.A. 87). The Australian
case cited by the High Court viz.) O. Gilpin Limited v. Commissioner for Road
Transport and Tramways (New South Wales) ([1935] 52 C.L.R. 189) has been
overruled in Hugher and Vales Proprietary, Ltd. v. State of-New South Wales
([1954] 3 All.
E.R. 607).
M. C. Setalvad, Attorney-General of India (B.
Sen and P. K. Bose, with him), for the State of West Bengal (Intervener). Bihar
Sales Tax Act has to be read as a whole and on a correct reading of the Act it
clearly appears that the Act is intended to apply only to dealers in Bihar.
Bihar cannot tax the sale because it takes place in the course of inter-State
trade or commerce and the State is barred from taxing such sales by reason of
clause (2) of article 286.
The question is whether the majority view in
the case of State 609 of Bombay v. United Motors (India) Ltd. ([1953] S.C.R.
1069) is correct. Article 245 read with Entry 54 in List 11 gives the
Legislative power whereas article 286 imposes restrictions on such Legislative
power of a State. There are four restrictions placed by that articlethe first
by clause (1) (a), the second by clause (1)(b), the third by clause (2.) and
the fourth by clause (3). Basis of article 286(2) is to ensure freedom of
movement throughout the country which principle is to be found in article 301.
Article 286(2) gives authority to the
Parliament to watch over the principles underlying article 301 and to see what
restrictions are necessary. In determining the ambit of clause (2) it is not
permissible to apply the Explanation.
If you do so then logically you must also
apply it to clause If the majority decision in state of Bombay v. United
Motorola (India) Ltd ([1953] S.C.R 1069 ) id right on the interpretation of
clause(2) then that clause (2) then that clause becomes absolutely meaningless.
The Supreme Court can overrule its previous
decision if it is satisfied that the decision was erroneous: London Street
Tramways Company v. London County Council ([1898] A. C.
375), In re Transferred Civil Servants
(Ireland) Compensation ([1929] A.C. 242), The Tramways case (No. 1) (18 C. L. R.
54), Smith v. All wright (321 U.S. 649; 88 L. Ed. 987) and Vinayak v. Moreshwar
(I.L.R. [1944] Nag. 342).
Even if the ban imposed by clause (2) of
article 286 did not apply, Bihar is not competent to tax on a reading of
article 246(3), Entry 54, List II and article 289(1)(a). The word sale in Entry
54 means passing of property in the sense of the Sale of Goods Act, S. 4. See
Sales Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash ([1955] 1 S.C.R.
p. 243).
On a true construction of the Explanation to
article 286(1) (a) Bihar is competent to levy a purchase tax and not a sales
tax in respect of transactions entered into by dealers residing outside. The
Explanation cannot be read as extraterritorial. It must be read as consistent
with article 245. Although the Federal 610 Legislature had. extra-territorial
power under the Government of India Act, 1935 the Provincial Legislature did
not have such power. The position is the same under the Constitution: The,
Governor-General in Council v. The Raleigh Investment Co., Ltd. ([1944] F.C,R.
229) and In re S. Mohan Kumaramangalam (A.I.R. 1951 Mad. 583). So far, nexus
theory has been applied to extra-territoriality as between two independent
States. Decision of the Supreme Court in Poppatlal Shah's case is applicable to
component parts of the same State; Poppatlal Shah v. The State of Madras (1953]
S.C.R. 677), The State of Bombay v. The United Motors (India) Ltd. ([1953]
S.C.R. 1069, 1078) and The Governor-General in Council v. The Raleigh
Investment Co. Ltd. ([1944] F.C.R. 229). It is doubtful if nexus theory is
applicable to this kind of legislation. In any event the" nexus theory is
not applicable under the Constitution of India. If machinery for enforcement of
the Act has extraterritorial operation and is linked up with the charging
section the whole scheme of taxation is bad due to the provisions of article
245. In any event the machinery is bad.
M.C. Setalvad, Attorney-General of India
(Rajeswari Prasad and S. P. Varma,, with him) for Tata Iron and Steel Co. Ltd.,
(Intervener) supported the appellant.
T.N. Subramanya Aiyar (T. V. R. Tatachari,
with him) for M. A. Kuriakose (Intervener) adopted the arguments of the
Attorney-General and referred to V. O. Vakkan v. The Government of the Province
of Madras ([1952] 2 M.L.J. 353), Poppatlal Shah v. State of Madras (A.I.R. 1953
Mad.91) Tobacco Manufacturers (India) Ltd., Monghyr. The State of Bihar (A I.R.
1950 Pat.'450), The State of Bihar v. Bengal Chemical and Pharmaceutical Works
Ltd. (A.I.R. 1954 Pat.
14), Maxwell on Interpretation of Statutes,
10th Edn., p. 148 and Craies on Statute Law, 5th Edn,, p. 174.
Lal Narain Sinha (B.K.P. Sinha and B.C.
Prasad, with him) for the respondent (State of Bihar).
611 Article 246(3) read with Entry 54 of List
II is by itself enough to grant legislative competence to the making of laws
imposing tax on sales of inter-State character having a real and sufficient
territorial connection with the taxing State.
Delivery of goods within the State where such
delivery takes place in performance of the contract of sale is by itself real
and sufficient territorial connection. The position was the same under section
100 of the Government of India Act, 1935 read with Entry 48 of List II. A
legislation on the basis of a real and sufficient connection is not invalid on
the ground of extra-territorial operation. The GovernorGeneral in Council v.
The Raleigh Investment Co., Ltd. (1944 F.C.R. 229), Wallace Brothers and Co.
Ltd. v. Commissioner of Income-Tax, Bombay City and Bombay Suburban District
([1948] 75 I.A. 86), Broken Hill South Limited (Public Officer) v. The
Commissioner of Taxation (New South Wales) (56 C.L.R. 337), Commissioners of
Taxation v. Kirk (1900 A.C. 588) and In re S. Mohan Kumara mangalam (A.I.R.
1951 Mad. 583, 588). So far as conception of sale is concerned it comprises of
several elements. The situs of the sale is where the various ingredients of the
sale take place.
Article 286(1) (a) does not govern the whole
of inter State trade or commerce. It does not apply to a case where goods are
delivered in the purchasing State for purposes other than consumption. Article
286 (1) (a) has no application to cases where the Explanation itself does not
apply. If a Bengal dealer sells to a Bihar purchaser and delivery takes place
in Bihar and if the purpose is consumption then the Explanation applies and
Bihar alone can tax. If the purpose is not consumption the Explanation does not
apply, the matter is set at large, and States will be entitled to tax on ' the
nexus theory. The ban imposed by clause (2) of article 286 does not apply to
cases covered by article 286(1) (a). The class of sales falling under the
purview of Article 286(1) (a) form a special class of inter-State sales which
on general principles of interpretation cannot be affected by the general
provisions of clause (2). Article 286(1) (a) and article 286(2) are exactly on
the same topic and they 78 612 are to achieve the same purpose, i.e.,
elimination of multiple taxation on a single sale. The device employed in article
286(1) (a) read with the Explanation is to convert inter-State sale into an
intra-state sale and thereby to localise a sale and to take away the taxing
power of other States. Article 286(1) (a) and article 286(2) are complimentary
to each other and they have to be interpreted harmoniously so that each of them
can operate within its own field. Whilst article 286(2) comprises all classes
of inter-State trade, article 286(1) (a) deals with a special class. If article
286(2) applies to cases covered by article 286 (1) (a) and the Explanation then
it will result in discrimination against local trade in favour of interstate
trade and this will be inconsistent with the provisions of Part XIII of the
Constitution. The purpose of article 286 being to eliminate multiple taxation
and article 286(1) (a) having achieved that purpose in regard to a class of
sales falling within it, it is no longer necessary for that purpose to apply
article 286(2) to the aforesaid class. The Constitution itself has divided interState
sales into two categories. In regard to one class it has itself provided as to
which State will tax the sale and under what conditions. In regard to the other
class the Constitution itself has imposed a ban in general terms and granted
Parliament power in general to relax that ban to such extent as Parliament
thinks fit. The sale though of an interState character has been converted into
an intrastate sale by reason of the legal fiction. If power of taxation is
given all ancillary powers are included in that very power.
V.K. T. Chari, Advocate-General of Madras (K.
Veerasami, with him) for the State of Madras (Intervener). A State is sovereign
within the limits of the subject matter of List II as well as within its
geographical area. The test of legislative competence both as regards the
subject matter and the geographical limits is the same whether it is the
Parliament or the State Legislature. As to the subject matter the rule that
applies is that of "pith and substance" and incidental invasion of
the other Lists is permitted.
As 613 to area, the test is the territorial
connection or nexus as the limiting factor. The connection must be relevant and
real and if the connection is real then any impact on persons, things, acts or
events, outside the State is permissible and valid. The word
'extra-territoriality is used in the sense of legislation with respect to
conduct of citizens when they are outside the country. [Reference was made to
Charter Act of 1833, s. 43, Government of India Act, 1915, s. 65(1) (a), Hodge
v. The Queen (9 A.C. 117), the Commissioner of Stamp Duties (New South Wales)
v. Miller and another (48 C.L.R. 618), The Australasian Scale Company Limited
v. The Commissioner of Taxes (Queens Land) (53 C.L.R. 534), Broken Hill South
Limited v. The Commissioner of Taxation (New South Wales) (56 C. L. R. 337) ].
Under the Government of India Act, 1935 the requirement of levying sales tax
was that the goods belonging to the seller must be located within the Province
and that those goods should have been made the subject matter of a sale
transaction. To establish territorial connection for sale transaction the sine
qua non is that the goods belonging to the seller must be located within the
Province and that the goods should be made the subject matter of a sale
transaction. The Explanation to article 286 (1) (a) is a deliberate reversal of
the pre-existing position.
T.L. Shevde, Advocate-General of Madhya
Pradesh and M. Adhikari (I. N. Shroff, with them) for the State of Madhya
Pradesh (Intervener). Whereas the legislative power of all, States under
article 246(3) read with Entry 54 List II to tax all outside transactions of
sale or purchase has been curtailed or restricted by clause I (a) and also by
clause (2) of article 286 the said legislative power of the delivery State is
fully saved by the Explanation of clause I (a) and is not subject to the
provisions of clause (2).
Every delivery State is competent to tax
extra-territorially -within the ambit of the Explanation and is not fettered by
clause (2). Clause (2) puts a ban on all inter-State transactions except those
covered by the Explanation. The contention that the Explanation does not come
into effect until the ban under 614 clause (2) is lifted by Parliament is
incorrect and untenable and moreover such a contention directly contravenes the
provisions of article 394 of the Constitution. The operation of the Explanation
excludes the operation of clause (2) and vice versa. Sales Tax is in fact and
substance only a purchase tax paid on one and the same transaction. Intention
was to put an end to the evil of multiple taxation.
S.M. Sikri, Advocate-General of Punjab
(Jindra Lal and P. G. Gokhale, with him) for the state of Punjab (Intervener).
Article 286(1) (a) like article 286(2) deals
with only sales or purchases which take place during the course of interState
trade or commerce, i.e., trade or commerce in which more than one State have
interest. The words 'inter-State trade or commerce' have to be given the widest
possible meaning. The Explanation has the effect of divesting a transaction of
its inter-State character. Commonwealth of Australia v. Bank of New South Wales
(1950 A.C. 235 and Bank of N. S. fV. v. The Commonwealth (76 C. L. R. 1).
Assuming that the Supreme Court has jurisdiction
to overrule its own decision there is no reason for doing so. See Denning on
The Changing Law, 1935 Edn., p. 5.
Nittoor Sreenivasa Rao, Advocate-General of
Mysore, (R. Ganapathy Iyer and P. G. Gokhale, with him) for the State of
Mysore, K. S. Hajela, Advocate-General of Rajasthan (P. G. Gokhale, with him)
for the State of Rajasthan, Lachman Das.Kaushal, Advocate-General of Pepsu (P.
G. Gokhale, with him) for the State of Pepsu, K. B. Asthana and C. P. Lal, for
the State of Uttar Pradesh, P. A. Mehta and P. G. Gokhale, for the State of
Orissa and T. R.Balakrishnan and Sardar Bahadur Saharya, for the State of
Travancore-Cochin (Interveners), supported the respondent.
N. C. Chatterji replied.
1955. September 6. The judgment of S. R. Das,
Acting Chief Justice, Bose and Jafer Imam JJ. was delivered by S. R. Das Acting
Chief Justice. Bhagwati, Jagannadhadas, Venkatarama Ayyar and B. P. Sinha JJ,
delivered separate judgments, 615
DAS ACTG. C.J.-This appeal, filed under a
certificate of
fitness granted by the High Court of Patna,
is directed against the judgment of that High Court pronounced on the 4th
December 1952 whereby it dismissed the application made by the appellant
company under article 226 of the Constitution praying for ,an appropriate writ
or order quashing "the proceedings issued by the opposite parties for the
purpose of levying and realising a tax which is not lawfully leviable on the
petitioners" and for other ancillary reliefs.
The relevant facts appearing from the
petition filed in support of the appellant company's aforesaid application are
as follows: The appellant company is an incorporated company carrying on the
business of manufacturing and selling various sera, vaccines, biological
Products and medicines.
Its registered head office is at Calcutta and
its laboratory and factory are at Baranagar in the district of 24-Perganas in
West Bengal. It is registered as a dealer under the Bengal Finance (Sales Tax)
Act and its registered number is S. L. 683A. Its products have extensive sales
throughout the Union of India and abroad. The goods are dispatched from
Calcutta by rail, steamer ,or air against orders accepted by the appellant
company in Calcutta. The appellant company has neither any agent or manager in
Bihar nor any office, godown or laboratory in that State. On the 24th October
1951 the Assistant Superintendent of Commercial Taxes, Bihar wrote a letter to
the appellant company which concluded as follows:"Necessary action may
therefore be taken to get your firm registered under the Bihar Sales Tax Act.
Steps may kindly be taken to deposit Bihar Sales Tax dues in any Bihar Treasury
at an early date under intimation to this Department".
On the 18th December, 1951 a notice was
issued by the Superintendent, Commercial Taxes, Central Circle Bihar, Patna
calling upon the appellant company (i) to apply for registration and (ii) to
submit returns showing its turnover for the period commencing from the 26th
January, 1950 and ending with the 30th 616 September, 1951. This notice was issued
under section 13(5) of the Bihar Sales Tax Act, 1947 (hereinafter called the
Act) read with rule 28. It was drawn up according to Form No. 8 prescribed by
the rules and was headed "Notice of hearing under section 13(5)". The
reason for issuing this notice, as recited therein, was that on information
which had come to his possession the Superintendent was satisfied that the
appellant company was liable to pay tax but had nevertheless willfully failed
to apply for registration under the Act. Thereafter there was some
correspondence between the appellant company and the Bihar Sales Tax
authorities to which it is not necessary to refer in detail. Suffice it to say
that while the appellant company denied its liability on the ground, inter
alia, that it was not resident in Bihar, it carried on no business there, none
of its sales took place in Bihar and that it did not collect any sales tax from
any person of that State, the Bihar Sales Tax authorities maintained that under
section 33, which was substantially based on article 286 of the Constitution
and was inserted in the Act by the President's Adaptation Order promulgated on
the 4th April, 1951, all sales in West Bengal or any other State under which
the goods had been delivered in the State of Bihar as a direct result of the
sale for the purpose of consumption in that State were liable to Bihar Sales
Tax. Eventually on the 29th May, 1952 the Assistant Superintendent of Sales
Tax, Bihar called upon the appellant company to comply with the notice by the
14th June, 1952 and threatened that, in default of compliance, he would proceed
to take steps for assessment to the best of his judgment.
The appellant company by its letter dated the
7th June, 1952 characterised the notice under section 13 (5) as ultra vires and
entirely illegal and called upon the Superintendent to forthwith rescind and
cancel the same.
On the 10th June, 1952 the appellant company
presented before the High Court at Patna a petition under article 226 claiming
the reliefs herein before mentioned. The respondents did not file any affidavit
in opposition controverting any of the allegations of facts made in the
petition and it must) accordingly, be taken that those facts are admitted as
correct by the respondents. The High Court dismissed the petition on the 4th
December, 1952 but on the next day issued a certificate, under article 132(1)
of the Constitution, that the case involved a substantial question of law as to
the interpretation of the Constitution. Hence the present appeal.
In view of the importance of the issues
involved in this appeal the States of Madras, Uttar Pradesh) Madhya Pradesh,
West Bengal, Orissa, Punjab, Pepsu, Mysore, TravancoreCochin and Rajasthan
applied for and obtained leave to intervene in this appeal. Similar leave was
applied for by and was granted to Tata Iron and Steel Company Ltd., and one M.
K. Kuriakose. The State of West Bengal, Tata Iron & Steel Company Ltd., and
M. K. Kuriakose have supported the appellant company while the rest of the
interveners have opposed the appeal.
Before the High Court the question of
maintainability of the. petition was raised by the respondents as a preliminary
objection and it was answered in their favour by the High Court. In its
judgment the High Court noticed that facts bad not been investigated nor had
the liability of the appellant company been determined and that in fact no
order of assessment had been made. It pointed out that it was not a case for
the Sales Tax Officer usurping a jurisdiction not vested in him by law or acting
in excess of his jurisdiction or acting mala fide. The High Court took the view
that the Act undoubtedly conferred jurisdiction on the Sales Tax Officer to
investigate the question of liability of a dealer to Sales Tax under the Act
and accordingly he was acting well within his jurisdiction in issuing the
impugned notice.
If on assessment the Sales Tax Officer
erroneously holds the appellant liable to any tax, the Act provides for
rectifying that error by appeal or revision under sections 24 and 25 of the
Act. According to the High Court such a decision, however erroneous, will,
nevertheless, be a decision within the ambit of his jurisdiction and the High
Court cannot interfere with it by 618 a writ of prohibition or certiorari to
quash. The High Court accordingly held that the petition was not maintainable
and was liable to be dismissed.
We are unable to agree with the above
conclusion. In reaching that conclusion the High Court appears to have
overlooked the fact that the main contention of the appellant company, as set
forth in its petition, is that the Act, in so far as it purports to tax a
nonresident dealer in respect of an inter-State sale or purchase of goods, is
ultra vires the Constitution and wholly illegal. In the impugned Act there are
various provisions laying down conditions which dealers must comply with or
submit to, namely, to give only a few instances, compulsory registration of
dealers (Section 10), filing of returns (Section 12), attendance and production
of evidence in support of the return (Section 13), production, inspection and
seizure of books of account or documents and search of premises (Section 17).
Section 26 prescribes penalties for contravention of the provisions of the Act.
These and other like provisions in the Act undoubtedly constitute restrictions
on the fundamental right to carry on business which is guaranteed to every
citizen of India by article 19(1)(g) of the Constitution. If, as contended, the
Act is ultra vires the Constitution and consequently void these onerous conditions
can never be justified as reasonable restrictions within the meaning of clause
(6) of that article as this Court held in the case of Mohammad Yasin v. The
Town Area Committee Jalalabad(1). The same view was also expressed in the State
of Bombay v. The United Motors (India) Ltd.(2), and again only recently in
Himmatlal Harilal Mehta v. The State of Madhya. Pradesh(3).
It is urged that the appellant being a
company is not a citizen and cannot, therefore, claim any fundamental right
under article 19 which is available only to citizens and, therefore, the
decisions of this Court referred to above have no application. While it is
noteworthy that the second case mentioned above (1) [1952] 3 S.C.R. 572.
(2) [1953] 4 S.G.R. 1069, 1077.
(3) [1951] 5 S.C.R. 1122, 1127.
619 was concerned with the rights of a
company, it is, nevertheless, unnecessary, for the purposes of this appeal, to
decide whether a juristic person like a company is a citizen as defined in Part
II of the Constitution and as such entitled to the benefits of Article 19. Nor
is it necessary to consider whether there has been any infraction of the right
to equal protection of the laws guaranteed by article 14 in that being a
juristic person it cannot claim any of the rights under article 19 which only
citizens can do. It is also true that article 31 which protects citizens and
non-citizens alike cannot be availed of as it deals with deprivation of
property otherwise than by way of levying or collecting taxes as held by this
Court in Ramjilal v. Income-Tax Officer, Mohindargarh(1) and that, therefore,
the Act does not constitute an infringement of the fundamental right to
property under that article. It is, however, clear from article 265 that no tax
can be levied or collected except by authority of law which must mean a good
and valid law. The contention of the appellant company is that the Act which
authorises the assessment, levying and collection of sales tax on inter-State
trade contravenes and constitutes an infringement of article 286 and is,
therefore, ultra vires, void-and unenforceable. If, therefore, this contention
be well founded, the remedy by way of a writ must, on principle and authority,
be available to the party aggrieved.
It has been argued that the application was
premature, for there has, so far, been no investigation or finding on facts and
no assessment under section 13 of the Act. The appellant company, contending,
as it does., that the Act is ultra vires and void, should have ignored the
notice served on it and should not have rushed into Court at this stage.
This line of argument appears to us to be
utterly untenable.
In the first place, it ignores the plain fact
that this notice, calling upon the appellant company to forthwith get itself
registered as a dealer, and to submit a return and to deposit the tax in a
treasury in Bihar, places (1) (1951] 2 S.C.R. 127.
79 620 upon it considerable hardship,
harassment and liability which, if the Act is void under article 265 read with
article 286 constitute, in present , an encroachment on and an infringement of
its right which entitles it to immediately appeal to the appropriate Court for
redress. In the next place, as was said by this Court in Commissioner of
Police, Bombay v. Gordhandas Bhanji(1), when an order or notice emanates from
the State Government or any of its responsible officers directing a person to
do something, then, although the order or notice may eventually transpire to be
ultra vires and bad in law, it is obviously one which prima facie compels
obedience as a matter of prudence and precaution. It is, therefore, not
reasonable to expect the person served with such an order or notice to ignore
it on the ground that it is illegal, for he can only do so at his own risk and
peril. This Court has said in the last mentioned case that a person placed in
such a situation has the right to be told definitely by the proper legal
authority exactly where he stands and what he may or may not do.
Another plea advanced by the respondent State
is that the appellant company is not entitled to take proceedings praying for
the issue of prerogative writs under article 226 as it has adequate alternative
remedy under the impugned Act by way of appeal or revision. The answer to this
plea is short and simple. The remedy under the Act cannot be said to be
adequate and is, indeed, nugatory or useless if the Act which provides for such
remedy is itself ultra vires and void and the principle relied upon can,
therefore, have no application where a party comes to Court with an allegation
that his right has been or is being threatened to be infringed by a law which
is ultra vires the powers of the legislature which enacted it and as such void
and prays for appropriate relief under article 226. As said by this Court in
Himmatlal Harilal Mehta v. The State of Madhya Pradesh (supra) this-plea of
the, State stands negatived by the decision of this Court in The State of
-Bombay v. The United Motors (1) [1952] 3 S.C.R. 135, 148,149. 621 (India) Ltd.
(supra). We are, therefore,Of the opinion, for reasons stated above, that the
High Court *as not right in holding that the petition under article 226 was
misconceived or was not maintainable. It will, therefore, have to be examined
and decided on merits.
Coming, then, to the merits of the petition,
the principal question is whether the tax threatened to be levied on the sales
made by the appellant company and implemented by delivery in the circumstances
and manner mentioned in its petition is leviable by the State of Bihar. The
legalcapacity of the State of Bihar to tax these sales is questioned on the
following grounds, namely:(A) that the sales sought to be taxed having taken
place in the course of inter-State trade or commerce and Parliament not having
by law provided otherwise, all States are debarred from imposing tax on such
sales by reason of article 286(2);
(B) that even if the ban under article 286(2)
did not apply, the State of Bihar is not competent to impose tax on such sales
on a correct reading of article 246(3) read with Entry 54 of List II in the
Seventh Schedule and article 286(1);
(C) that the Bihar Sales Tax Act, 1947 can
have no extraterritorial operation and cannot, therefore, impose tax on such
sales by a non-resident seller(D) that on a true construction of the Act itself,
it does not apply to the sales sought to be taxed.
Re (A): The main controversy in this appeal
has centered round this ground. It raises a question of construction of article
286 of the Constitution. In the judgment under appeal the High Court took the view
that sales or purchases in the course of inter-State trade or commerce referred
to in article 286 (2) must be construed so as to exclude the particular 'Class
of sales or purchases described in the Explanation to clause (a) of article 286
(1) and that, therefore, the provisions of the Bihar Sales Tax Act , 1947, in
so far as they purported to impose tax on such sales, were not in conflict with
article 286 (2) as so construed.
After this decision of the Patna High Court
the question came up for consideration before a Constitution Bench of this
Court in The State of Bombay v. The United Motors (India) Ltd. (supra). the
majority of that Bench held that article 286(1)(a), read with the Explanation
thereto and construed in the light of articles 301 and 304, prohibited the
taxation of sales or purchases involving inter-State elements by all States
except the State in which the goods were actually delivered for the purpose of
consumption therein and that clause (2) of article 286 did not affect the power
of the State in which delivery of the goods was so made to tax the sales or
purchases of the kind mentioned in the Explanation, the effect of which was to
convert such inter-State transactions into intrastate transactions and to take
them out of the operation of clause (2) of that article. It is quite clear that
if this majority view is to prevail this ground urged by learned counsel for
the appellant company and strongly supported by the learned Attorney-General
appearing for the interveners, the State of West Bengal and Tata Iron and Steel
Company Ltd., and by learned counsel for M. K. Kuriakose must fail.
It has, accordingly, been pressed upon us
that we are not bound by the majority decision in that appeal from Bombay and
that it is still open to us to examine and ascertain for ourselves the true
meaning, import and scope of the article in question. Learned counsel for some
of the interveners question our authority to go behind the majority decision.
It is, therefore, necessary at this stage to
determine this preliminary question before entering upon a detailed discussion
on the question of construction of article 286.
In England, the Court of Appeal has imposed
upon its power of review of earlier precedents a limitation, subject to certain
exceptions. The limitation thus accepted is that it is bound to follow its own
decisions and those of courts of Co-ordinate jurisdiction, and the
"full" Court is in the same position in this respect as a division
Court consisting of three members. The only exceptions to this rule are: (1)
the Court is entitled and bound to decide which of the two conflicting
decisions of its own it will follow; (2) the Court is bound to refuse to follow
a decision of 623 its own which, though not expressly overruled, cannot, in its
opinion stand with a decision of the House of Lords; and (3) the Court is not
bound to follow a decision of its own, if it is satisfied that the decision was
given per incuriam, e.g., where a Statute or a rule having statutory effect
which would have affected the decision was not brought to the attention of the
earlier Court. [See Young v. Bristol Aeroplane Co. Ltd. (1) which, on appeal to
the House of Lords, was approved by Viscount Simon in L.R. 1946 A.C. 163 at p..
169]. A decision of the House of Lords upon a question of law is conclusive and
binds the House in subsequent case. An erroneous decision of the House of Lords
can be set right only by an Act of Parliament. [See Street Tramways v. London
County Council(2)]. This limitation was repeated by Lord Wright in Radcliffe v.
Ribble Motor Services Ltd.(3).
The High Court in Australia, which is the
highest Court in that Commonwealth, has not adopted such a rigid rule. In the
Tramways case(3) the rule was thus laid down by Griffith, C.J. at p. 58:
"In my opinion, it is impossible to
maintain an abstract proposition that Court is either legally or technically
bound by previous decisions. Indeed, it may, in a proper case, be its duty to
disregard them. But the rule should be applied with great caution, and -only
when. the previous decision is manifestly wrong, as, for instance, if it
proceeded upon the mistaken assumption of the continuance of a repealed or
expired Statute, or is contrary to a decision of another Court which this Court
is bound to follow; not, I think, upon a mere suggestion that some or all of
the members of the later Court might arrive at a different conclusion if the
matter was res integra. Otherwise there would be grave danger of want of
continuity in the interpretation of law".
In the same case Barton, J. in the concluding
paragraph of his judgment at p. 69 expressed himself thus:
"In conclusion, I would say that I never
thought (1) L.R. 1944 X.B 718 C.A.
(3) 1939 A.C. 215, 245.
(2) 1898 A.C. 375.
(4) [1914] 18 C.L.R,. 54.
624 that it was not open to this Court to
review its previous decisions upon good cause. The question is not whether the
Court can do so, but whether it will, baying due regard to the need for
continuity and consistency in the judicial decision. Changes in the number of
appointed Justices can, I take it, never of themselves furnish a reason for
review.
That the prior decision was that of little
more than half their number might be urged with greater fairness, but it cannot
be urged against Whybrow's case which was decided by ,the whole Court then in
existence save the Justice who as President' of the Arbitration Court, was a
party respondent to the order nisi. But the Court can always listen to argument
as to whether it ought to review a particular decision, and the strongest
reason for an overruling is that a decision is manifestly wrong and its
continuance is injurious to the public interest".
It is interesting to note that in that case
all the Judges agreed that the decision in Whybrow's case was to be treated as open
to review (Per Griffith, C. J. at p. 58) although in the end, after reviewing
the position afresh in the light of new arguments advanced before it, the Court
came to the same conclusion. Amalgamated Society of Engineers v. Adelaide
Steamship Co.(1) may also be referred to as an instance where the High Court of
Australia departed from its previous decision.
In the United States of America there have
been a considerable number of cases in which the Supreme Court has explicitly
and avowedly overruled its prior decisions but there have been more instances
in which the doctrines declared in prior cases have been in part evaded or
'modified without explicit repudiation. (Willoughby Constitution of the United
States, 2nd Edn., Vol. 1, pp. 7475). In State of Washington v. Dawson &
Co.(2), Brandies, J. in his dissenting judgment said:
"The doctrine Of stare decision should
not deter us from overruling that case and those which follow it, (1) [1920] 28
C.L.R. 129.
(2) 264 U.S. 646; 68 L.Ed. 219.
625 The decisions are recent ones. They have
not been acquiesced in. They have not created a rule of property around which
vested interests have clustered. They affect solely matters of a transitory
nature. On the other hand, they affect seriously the lives of men, women and
children, and the general welfare. Stare decisis is ordinarily a wise rule of
action. But it is not a universal, inexorable command. The instances in which
the Courts have disregarded its admonition are many".
In a foot-note to this judgment the learned
Judge set out a large number of instances where the earlier decisions had been
overruled. In another dissenting judgment in David Burnet v. Coronado Oil &
Gas Company(1) the same learned Judge, after quoting a passage from the
judgment of Mr. Justice Lurton in Hertz v. Woodman(2) proceeded to say:
"Stare decisis is usually the wise
policy, because in most matters it is more important that the applicable rule
of law be settled right. Compare National Bank v. Whitney, 103 U.S. 99; 26
L.Ed. 443-444. This is commonly true even where the error is a matter of
serious concern, provided correction can be bad by, legislation. But in cases
involving the Federal Constitution, where correction through legislative action
is practically impossible, this Court has often overruled its earlier
decisions. The Court bows to the lessons of experience and the force of better
reasoning recognising that the process of trial and error, so fruitful in the
physical sciences, is appropriate also in the judicial function".
In his separate but concurring judgment in
Mark Graves v.People of the State of New York(3) Frankfurter, J. observed:
"Judicial exegesis is unavoidable with
reference to an act like our Constitution, drawn in many particulars with
purposed vagueness so as to leave room for the unfolding future. But the
ultimate touchstone of constitutionality is the Constitution itself and not (1)
285 U.S. 393; 76 L.Ed. 815.
(2) 218 U.S. 205, 212; 51 L.Ed. 1001, 1005.
(3) 306 U.S. 466; 83 L. Ed. 927.
626 what we have said about it".
In this case two previous decisions were
expressly overruled and two more were impliedly overruled.
We now come to the Privy Council which, prior
to the commencement of our Constitution, was the highest Court of Appeal to
hear appeals from the Indian High Courts. In a case about Compensation to Civil
Servants(1), in repelling the contention that the Board was bound in law, and
without examination, to follow an earlier decision whether they considered it
right or wrong the Marquess of Reading said:
"Their Lordships are unable to hold that
this proposition stated in such an extreme form is established. It may well be
said that the Board would hesitate long before disturbing a solemn decision by
a previous Board which raised an identical or even ,a similar issue for
determination;'but for the proposition that the Board is, in all circumstances,
bound to 'follow a previous decision, as it were, blindfold, they are unable to
discover any adequate authority. In other words, no inflexible rule, which
falls in all circumstances to be applied has been laid down".
In the Attorney-General of Ontario v. The
Canada Temperance Federation(,) Viscount Simon stated the practice of the Board
in the following terms:
"Their Lordships do not doubt that in
tendering humble advice to His Majesty, they are not absolutely bound by
previous decisions of the Board, as is the House of Lords by its own judgments.
In ecclesiastical appeals, for instance on more than one occasion the Board has
tendered advice contrary to that given in a previous case, which further
historical research has shown to have been wrong. But on constitutional
questions it must be seldom indeed that the Board would depart from a previous
decision which it may be assumed will have been acted upon both by Governments
and subjects".
Finally, in Phanindra Chandra Neogy v. The,
King(3) Lord Simonds said at p. 88:
(1) L.R. 1929 A.C. 242; A.I.R. 1929 P.C. 84,
87.
(2) [1946] 50 C.W.N 535; A.I.R 1946 P.O. 88.
(3) L.R. 76 I.A. 10; 1939 Dom. L.R. 87 (P.C).
627 "Their Lordships then have before
them a decision upon facts which in no material respect differ from those of
the present case. Even so, it is, as they recognise, competent for them humbly
to tender advice to His Majesty inconsistent with a previous decision,, though
it can only be in most exceptional circumstances. that such a course should be
taken................ Recognising the possibility, they have beard full
argument and, having done so, see no reason to doubt the validity of the
reasoning or the correctness of the conclusion in Gill's case, and they do not
think it necessary to repeat what was said there".
In considering the applicability of the
principles laid down in the decisions here in before mentioned, it should be
borne in mind that the English decisions may well have been influenced by
considerations which can no longer apply to the circumstances prevailing in
India. The error, if any, of the Court of Appeal in England, may be corrected
by the House of Lords or eventually by Parliament by a simple majority. The
mistakes, if any, made by the High Court of Australia, if not corrected by
itself in a subsequent case, could be set right by the Privy Council when
appeals were taken there or by the appropriate legislative authority. An error
made by the House of Lords or the Privy Council can easily be rectified by
Parliament by a simple majority by an amending statute. But in a country
governed by a federal constitution, such as the United States of America and
the Union of India are, it is by no means easy to amend the Constitution if an
erroneous interpretation is put upon it by this Court. (See article 368 of our
Constitution). An erroneous interpretation of the Constitution' may quite
conceivably be perpetuated or may at any rate remain unrectified for a
considerable time to the great detriment to public well being. The
considerations adverted to in the decisions of the Supreme Court of America
quoted above are, therefore, apposite and apply in full force in determining
whether a previous decision of this Court should or should not be disregarded
or overruled. There is nothing in our Constitution which 80 628 prevents us
from departing from a previous decision if we are convinced of its error and
its baneful effect on the general interests of the public. Article 141 which
lays down that the law declared by this Court shall be binding on all Courts
within the territory of India quite obviously refers to Courts other than this
Court. The corresponding provision of the Government of India Act, 1935 also
makes it clear that the Courts contemplated are the Subordinate Courts.
There are several circumstances relating to
the majority decision of the Court in The State of Bombay v. The United Motors
(India) Ltd. (supra) to which reference must be made.
That appeal was heard immediately before the
hearing of the appeal reported as The State of Travancore-Cochin v.
Shanmugha Vilas Cashew Nut Factory(1)
commenced. The two appeals were, as a matter of fact, heard one after the other
and judgments were reserved in both of them. The constitution of the Benches
was, however, different. In the first appeal one of the Judges of that Bench
expressly differed from the majority decision and another learned Judge did not
accept the majority decision on many points.
In the second appeal one Judge of the Bench,
who was not a party to the first appeal, differed from the majority decision in
the first appeal. The result, therefore, was that the majority decision was
definitely differed from by two Judges. Bhagwati J. has now in the judgment he
has written in the present appeal which we have had the advantage of reading
reconsidered the matter and on further reflection he thinks that the majority
decision on the present issue was erroneous and he now agrees substantially
with the view of article 286(1)(a),read with the Explanation and article 286(2)
which was expressed in the two minority judgments referred to above and which
is adopted in the judgment now being delivered in the present appeal. If
Bhagwati J. had then expressed the views he is now doing, then the majority in
the Bombay appeal would have been 3 to 2 and if we add the opinion of the
dissenting Judge in the -Travancore-Cochin appeal then judicial opinion would
(1) [1954] 5 S.C.R. 53.
629 have been divided 3 to 3. In this
juxtaposition it is difficult to give the majority decision in the Bombay
appeal that amount of sanctity and reverence which is usually attributed to an
unretracted majority decision of this Court.
The majority decision does not merely determine
the rights of the two contending parties to the Bombay appeal. Its effect is
far reaching as it affects the rights of all consuming public. It authorises
the imposition and levying of a tax by the State on an interpretation of a
constitutional provision which appears to us to be unsupportable. To follow
that interpretation will result in perpetuating what, with humility we say, is
an error and in perpetuating a tax burden imposed on the people which,
according to our considered opinion, is manifestly and wholly an authorised. It
is not an ordinary pronouncement declaring the rights of two private
individuals inter se.
It involves an adjudication on the taxing
power of the States as against the consuming public generally. If the decision
is erroneous, as indeed we conceive it to be, we owe it to that public to
protect them against the illegal tax burdens which the States are seeking to
impose on the strength of that erroneous recent decision.
The third circumstance is that there appears
to be some vagueness, if not inconsistency, in the majority judgment itself. At
p. 1084 of the authorised report the majority judgment says:
"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".
This passage seems to suggest that it is only
the buyers falling within the Explanation who are liable to be taxed by what
has been called in the discussion 630 before us as the delivery State.
According to this passage, read by itself, the out-of-State sellers are not
considered liable to be taxed on the sales. The whole trend of the rest of the
majority judgment and the actual decision therein run counter to this
conclusion, for the out-of-State sellers were, by reason of the Explanation,
subjected to the taxing power of the delivery State. Indeed, Bihar is claiming
to tax the appellant company, an out-of-the-State seller, by virtue of the majority
decision and all other States intervening and supporting Bihar read the
judgment in that way and none of them accepts the quoted passage as containing
the actual ratio deciding of the majority judgment. This confusion, we
consider, is also a cogent reason for re-examining that decision.
Reference is made to the doctrine of finality
of judicial decisions and it is pressed upon us that we should not reverse our
previous decision except in cases where a material provision of law has been
overlooked or where the decision has proceeded upon @the mistaken assumption of
the continuance of a repealed or expired statute and that we should not differ
from a previous decision merely because a contrary view appears to us to be
preferable. It is needless for us to say that we should not lightly dissent
from a previous pronouncement of this Court. Our ;power of review, which
undoubtedly exists, must be exercised with due care and caution and only for
advancing the public well being in the light of the surrounding circumstances
of each case brought to our notice but we do not consider it right to confine
our power within rigidly fixed limits as suggested before us If on a
re-examination of the question we come to the conclusion, as indeed we have,
that the previous majority decision was plainly erroneous then it will be our
duty to say so and not to perpetuate our mistake even when one learned Judge
who was party to the previous decision considers it incorrect on further
reflection. We should do so all the more readily as our decision is on a
constitutional question and our erroneous decision has imposed illegal tax
burden on the consuming public and has 631 otherwise given rise to public
inconvenience or hardship, for it is by no means easy to amend the Constitution.
Sometimes frivolous attempts may be made to
question our previous decisions but if the reasons on which our decisions are
founded are sound they will by themselves be sufficient safeguard against such
frivolous attempts. Further, the doctrine of stare decisis has hardly any
application to an isolated and stray decision of the Court very recently made
and not followed by a series of decisions based thereon.
The problem before us does not involve
overruling a series of decisions but only involves the question as to whether
we should approve or disapprove, follow or overrule, a very recent previous
decision as a precedent. In any case, the doctrine of stare decisis is not an
inflexible rule of law and cannot be permitted to perpetuate our errors to the
detriment to the general welfare of the public or a considerable section
thereof It is pointed out that all the States are realising sales tax in
respect of sales or purchases of goods where the goods are actually delivered
for consumption within their respective boundaries on the faith of our previous
decision and a reversal of that decision will upset the economy of the States
and will indeed render them liable to refund moneys already collected by them
as taxes. This circumstance, it is pressed upon us, should alone deter us from
differing from the previous decision. We are not impressed by this argument. It
has not yet been decided by this Court that moneys paid under a mutual mistake
of law induced by a wrong judicial interpretation of a statute or the Constitution
must necessarily be refundable as money had and received. If, as contended,
moneys so paid are in law refundable the States cannot complain any more than a
private individual in similar circumstances could do.
Finally, if the State economy is upset the
appeal must be to Parliament which under article 286(2) itself has ample power
to make suitable legislation.
The impugned decision is a recent one. The
judicial opinion was divided, if not evenly balanced. One of 632 the four
Judges who formed the majority has revised his opinion as stated above. The
decision on the point noted above seems to be somewhat inconsistent and is, at
any rate, not quite clear. It has encouraged the imposition of tax burdens on
the consuming public on an interpretation of the Constitution which appears to
us to be plainly erroneous.
It has given rise to considerable
inconvenience and hardship to business people who have not acquiesced in it by
any means. To rectify the error by the legislative process is difficult, for a constitutional
amendment requires a specified majority which may not always be available and
if it involves an amendment of the legislative lists it will require the
consent of a requisite number of the States which, in this instance, cannot
reasonably be expected. In the premises, we think that it is precisely a case
where, in the public interests, the meaning, scope and effect of article 286
should be re-examined afresh in the light of the fresh arguments now advanced
before us and the experience we have since acquired. In our judgment the
majority decision in The State of Bombay v. The United Motors (India) Ltd. (supra)
is, in the circumstances alluded to, open to review and we are entitled to
re-examine article 286 in order to ascertain its true meaning, scope and effect
so far as it is necessary for the purposes of this appeal and we proceed on
this basis.
It is a sound rule of construction of a
statute firmly established in England as far back as 1584 when Heydon's case(1)
was decided that".................... for the sure and true interpretation
of all Statutes in general (be they penal or beneficial, restrictive or
enlarging of the common law) four things are to be discerned and considered:1st.
What was the common law before the making of the Act., 2nd. What was the
mischief and defect for which the common law did not provide., 3rd. What remedy
the Parliament hath resolved and appointed to cure the disease of the
Commonwealth., and (1) 3 Co. Rep. 7a; 76 ElR. 637, 633 4th. The true reason of
the remedy; and then the office of all the judges is always to make such
construction as shall suppress the mischief, and advance the remedy, and to
suppress subtle inventions and evasions for continuance of the mischief, and
pro privato commodo, and to add force and life to the cure and remedy,
according to the true intent of the makers of the Act, pro bono publico".
In re Mayfair Property Company(1) Lindley,
M.R. in 1898 found the rule "as necessary now as it was when Lord Coke
reported Heydon's case". In Eastman Photographic Material Company v.
Comptroller General of Patents, Designs and Trade Marks(2) Earl of Halsbury
re-affirmed the rule as follows:
"My Lords,, it appears to me that to
construe the Statute in question, it is not only legitimate but highly
convenient to refer both to the former Act and to the ascertained evils to
which the former Act had given rise, and to the later Act which provided the
remedy' These three being compared I cannot doubt the conclusion".
It appears to us that this rule is equally
applicable to the construction of article 286 of our Constitution. In order to
properly interpret the provisions of that article it is, therefore, necessary
to consider how the matter stood immediately before the Constitution came into
force, what the mischief was for which the old law did not provide and the
remedy which has been provided by the Constitution to cure that mischief.
The position with respect to taxation on
sales or purchases of goods that prevailed in the country had better be stated
in the language of Patanjali Sastri, C. J. who delivered the majority judgment
in the State of Bombay v. The United Motors (India) Ltd. (supra). After
expressing the view, based on the authority of the Walk" Brothers' Case(3)
that in the case of sales tax, it was not necessary that the sale 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 and that, broadly speaking, local activities of buying and 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 that such
activities ultimately resulted in a concluded sale to be taxed, the learned
Chief Justice proceeded to say:"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 the Central Provinces and Berar 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 Provinces and cumulation 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.
635 In their attempt to harmonise and achieve
these somewhat conflicting objectives, they enacted articles 286, 301 and
304".
Leaving out, for the moment, the question as
to whether articles 301 and 304 have any bearing on the question of
construction of article 286, as to which we entertain a contrary opinion, the
above passage quite adequately depicts the picture of chaos and confusion that
was brought about in inter-State trade or commerce by indiscriminate exercise
of taxing power by the different Provincial Legislatures founded on the theory
of territorial nexus between the respective Provinces and the sales or
purchases sought to be taxed. It was to cure this mischief of multiple taxation
and to preserve the free flow of inter-State trade or commerce in the Union of
India regarded as one economic unit without any provincial barrier that the
Constitution makers adopted article 286 in the Constitution which runs 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 place (a) outside the State; or (b) in the course of the import
of the goods into, or export of the goods out of, the territory of India.
Explanation. -For the purposes of sub-clause
(a), a sale or purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State, notwithstanding the fact
that 2under 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 81 636 that any tax on the sale or purchase of goods which was being
lawfully levied by the Government of any St-ate immediately before the
commencement of this Constitution shall, notwithstanding that the imposition of
such tax is contrary to the provisions of this clause, continue to be levied
until the thirty-first day of March, 1951.
(3)No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax. on the sale or purchase of
any such goods as have been declared by Parliament by law to be essential for
the life of the community shall have effect unless it has been reserved for the
consideration of the President and has received his assent".
Article 286 is in Part XII of the
Constitution which deals with "Finance, Property, Contracts and
Suits". it is one of the several articles which are grouped under the
heading "Miscellaneous Financial Provisions" in Chapter I of that
Part. It is to be noted that it has not found a place in Part XI, Chapter I
whereof deals with "Legislative Relations" including
"Distribution of Legislative Powers" between Parliament and the
Legislatures of States. The marginal note to article 286 is "Restrictions.
as to imposition of tax on the sale or purchase of goods", which, unlike
the marginal notes in Acts of the British Parliament, is part of the
Constitution as passed by the Constituent Assembly, prima facie, furnishes some
clue as to the meaning and purpose of the article. Apart from the marginal
note, the very language of that article makes it abundantly clear that its
object is to place restrictions on the legislative power of the States with
respect to the imposition of taxes on the -sales or purchases of goods. It will
be recalled that section 100(3) of the Government of India Act, 1935 read with
Entry 48 of List 11, of the Seventh Schedule to that Act gave power to the
Provincial Legislatures to make laws with respect to "Taxes on sale of
goods and on advertisements". Pursuant to the legislative power thus
conferred on them the Provincial Legislatures enacted Sales Tax Acts for their
respective Provinces. Although in most of those Acts 637 'Sale" was, first
defined a,% meaning transfer of the property in the goods, so as to make the
passing of the property within the Province the principal basis, for the
imposition of the tax, yet by means of Explanations to that definition, those
Acts gave extended meanings to that word and thereby enlarged the scope of
their operation. The imposition of tax on the sales or purchases of goods on
the basis of a very slight territorial connection or nexus resulted in what has
been graphically described by Patanjali Sastri, C.J. in the passage quoted
above from the majority judgment in the Bombay appeal. This imposition of
multiple taxes on one and the same transaction of sale or purchase was
certainly calculated to hamper and discourage free flow of trade within India
regarded as one economic unit. This undesirable state of affair is had to be
put right.
Therefore, while the Constitution makers by
article 246(3) read with Entry 54 in List 11 of the Seventh Schedule to the
Constitution conferred power on the Legislatures of Part A and Part B States to
make law with respect to "Taxes on the sale or purchase of goods other
than newspapers" they at the same time by article 286 clamped on that
legislative power several fetters. Broadly speaking, the fetters thus placed on
the taxing power of the States are that no law of a State shall impose or
authorise the imposition of a tax on the sale or purchase of goods where such
sale or purchase takes place, (a) outside the State or (b) in the course of
import or export or (c) except in so far as Parliament otherwise provides, in
the course of inter-State trade or commerce and lastly (d) that 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. It should be noted that these are four separate and independent
restrictions placed upon the legislative competency of the States to make a law
with respect to matters enumerated in Entry 54 of List II. In order 638 to make
the ban effective and to leave no loophole the Constitution makers have
considered the different aspects of sales or purchases of goods and placed
checks on the legislative power of the States at different angles. Thus in
clause (1) (a) of article 286 the question of the situs of a sale or purchase
engaged their attention and they forged a fetter on the basis of such situs to
cure the mischief of multiple taxation by the States on the basis of the nexustheory.
In clause (1) (b) they considered sales or purchases from the point of view of
our foreign trade and placed a ban on the States' taxing power in order to make
our foreign trade free from any interference by the States by way of a tax
impost. In clause (2) they looked at sales or purchases in their inter-State
character and imposed another ban in the interest of the freedom of internal
trade. Finally, in clause (3) the Constitution makers' attention was riveted on
the character and quality of the goods themselves and they placed a fourth
restriction on the States' power of imposing. tax on sales or purchases of
goods declared to be essential for the life of the community. These several
bans may overlap in some cases but in their respective scope and operation they
are separate and independent. They deal with different phases of a sale or
purchase but, nevertheless, they are distinct and one has nothing to do with
and is not dependent on the other or others. The States' legislative power
,with respect to a sale or purchase may be bit by one or more of these bans.
Thus, take the case of a sale of goods
declared by Parliament as essential by a seller in West Bengal to a purchaser
in Bihar in which goods are actually delivered as a direct result of such sale
for consumption in the State of Bihar. A law made by West Bengal without the
assent of the president taxing this sale will be unconstitutional because (1)
it will offend article 286(1)(a) as the sale has taken place outside the
territory by virtue of the Explanation to clause (1)(a), (2) it will also
offend article 286(2) as the sale has taken place in the course of inter-State
trade or commerce. and (3) such law will also be contrary to article 286(3) as
the goods are 639 essential commodities and the President's assent to the law
was not obtained as required by clause (3) of article 286.
This appears to us to be the general scheme
of that article.
We come now to the particular bans. Although
the Legislatures of the States were empowered by article 246(3) read with Entry
54 of List II to make a law with respect to taxes on sales or purchases of
goods, the different State Legislatures, as already mentioned, considered
themselves free to make a law imposing tax on sales or purchases of goods
provided they bad some territorial nexus with such sales or purchases, e.g.,
that one or other of the ingredients or events which go to make up a sale or
purchase was found to exist or had happened within their respective
territories. Whether they were right or wrong in. so acting is a question which
has not been finally decided by the Courts but the fact is that they did so.
This resulted in multiple taxation which manifestly prejudiced the interests of
the ultimate consumers and also hampered the free flow of inter-State trade or
commerce. So the Constitution makers had to cure that mischief. The first thing
that they did was to take away the States' taxing power with respect to sales
or purchases which took place outside their respective territories. This they
did by clause (1)(a). If the matter had been left there, the solution would
have been imperfect, for then the question as to which sale or purchase takes
place outside a State would yet have remained open. So the Constitution makers
had to explain what an outside sale was and this they did by the Explanation
set forth in clause (1). The language employed in framing the Explanation, however,
has given scope for argument to counsel and presented considerable difficulties
to the Court in ascertaining its purpose and intendment. If the Explanation simply
said "For the purposes of subclause (a), a sale or purchase shall be
deemed to have taken place outside a State when the goods have actually been
delivered for the purpose of consumption in another State, notwithstanding the
fact, etc., etc.)) then none of the difficulties would have arisen 540 at all.
But' why, it is asked did the Constitution makers seek to explain what was an
outside sale or purchase by saying that a sale or purchase was to be deemed to
take place inside the particular State mentioned in the Explanation? Was the
purpose of the Explanation only to explain what was an outside sale or purchase
or was it also its purpose to allot or assign a particular class of sales or
purchases of the. kind mentioned therein to a particular State so as to put the
question of situs of the sales or purchases of that description beyond the pale
of controversy? These are questions which arise and are raised because of the
somewhat involved language of the Explanation. Four different views as to the
true meaning and effect of the Explanation have been suggested for our
consideration and arguments have been advanced for and against the correctness
of each of them. In the view we have taken, it is not necessary for us to
express any final opinion in the matter. We propose accordingly to note the
possible views and record very briefly the criticisms relating to each of those
views and the suggested answers to such criticisms.
One view which has been called the strict
view is this. In clause (1) (a) the Constitution makers have placed a ban on
the taxing power of the States with respect to sales or purchases which take
place outside the State. If the matter had been left there the ban would have
been imperfect, for the argument would have still remained as to where a
particular sale or purchase took place. Does a sale or purchase take place at
the place where the contract of sale is made, or where the property in the
goods passes or where the goods are delivered? These questions are answered by
the Explanation. That Explanation is "for the purposes of sub-clause
(a)" i.e., for the purpose of explaining which sale or purchase is to be
regarded as having taken place outside a State. By saying that a particular
sale or purchase is to be deemed to take place in a particular State the
Explanation only indicates that such sale or purchase has taken place outside
all other States, The Explanation is neither an 641 Exception nor a Proviso but
only explains what is an outside sale-referred to in sub-clause (a). This it
does by creating a fiction. That fiction is only for the purposes of sub-clause
(a) and cannot be extended to any other purpose. It should be limited to its
avowed purpose. To say that this Explanation confers legislative power on what
for the sake of brevity has been called the delivery State is to use it for a
collateral purpose which is not permissible. Further, it is utterly illogical
and untenable to say that article 286 which was introduced in the Constitution
to place restrictions on the legislative powers of the States, by aside wind,,
as it were, gave enlarged legislative powers to the State of delivery by an
explanation sandwiched between two restrictions. This construction runs counter
to the entire scheme of the article and the explanation and one may see no
justification for imputing such indirect and oblique purpose to this article.
Had the Constitution makers so desired they could have done so in a more direct
and straight-forward way. To hold that the Explanation has, besides its
declared purpose, another hidden purpose of conferring or enlarging legislative
power is to build up a fanciful argument merely on the unfelicitous and
involved language used in the Explanation although it is distinctly not the
purpose of the Explanation and although it does not purport substantively and
proprio vigore, to confer any legislative power on any State. Its only purpose
is to explain what an outside sale is so that, by one stroke, as it were, it
takes away the taxing power, in respect of sales or purchases of the kind
referred to in the Explanation, of all States other than the State where such
sales or purchases are, by the Explanation, to be deemed to have taken place.
This view of the Explanation was taken in the dissenting judgment in the case
of the State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory
(supra). The view that the Explanation is only for the purposes of sub-clause
(a) of clause (1) and cannot be carried over to clause (2) was also taken in
the dissenting judgment in the State of Bombay v. The United Motors (India)
Ltd. (supra) at p. 1103.
642 The criticism that has been leveled
against this strict view of the Explanation is that it will not entirely
eliminate the claims of the States to tax sales or purchases on the basis of
the nexus theory. Suppose, it is said, Parliament lifts the ban placed on
inter-State trade or commerce by clause (2), all States will, in that
situation, claim the right to tax sales or purchases if any one of the
ingredients or events making up the sale is to be found to exist or to have
happened in that State. It has been suggested in reply to this criticism that
this apprehension is not at all well-founded. When Parliament will lift the ban
imposed by clause (2), the Explanation will continue to operate, so that inter-State
sales or purchases falling within it will still be deemed to have taken place
in the delivery State and, therefore, outside all other States none of which
latter States will, by reason of the ban imposed by clause (1) (a), be entitled
to tax such sale. The ban under clause (2) being lifted the delivery 'State
will become free to tax such sales or purchases in exercise of the taxing power
conferred on it by article 246(3) read with Entry 54 in List II. Then, it is
asked, what will happen to those sales or purchases which do not fall within
the Explanation? After Parliament lifts the ban under clause (2) which State
will tax sales or purchases in which goods are actually delivered in a
particular State, not for consumption in that State but, say, for re-export to
another State for consumption? One of the suggested answers was that those
sales or purchases were not likely to be numerous, for ordinarily a dealer
would not actually get the goods imported into a State only for re-exporting
the same to another State for consumption in the last mentioned State but would
find it more convenient and economical to arrange for the delivery of the goods
straight to the last mentioned State. A further suggestion was that it might
well be that when Parliament would by law lift the ban of clause (2) it would,
by the same law, provide which of the States would tax such inter-State sales
or purchases which were not covered by the Explanation and on what basis.
643 This suggested answer, in its turn,
raises a question as to the scope and ambit of the legislative power conferred
on Parliament by clause (2). The opening words of clause (2), namely,
"Except in so far as Parliament may by law otherwise provide" clearly
indicate that the lifting of the ban may be total or partial, that is to say,
Parliament may lift the ban wholly and unconditionally or it may lift it to
such extent as it may think fit to do and on such terms as it pleases. It is to
be remembered that under Entry 42 of List I Parliament alone may make law with
respect to inter-State trade or commerce. It is, therefore, conceded that in
exercise of its legislative powers under that entry read with article 286(2)
Parliament may make a law permitting the States to tax interState sales or
purchases of certain commodities only. It is also not questioned that
Parliament may, by way of regulating inter-State trade or commerce, fix a
ceiling rate of tax on sales or purchases of goods which the law made by the
States under Entry 54 of List II, may not exceed. Can Parliament also override
the Explanation? If not, cannot Parliament at least provide which of the States
may tax inter-State sales or purchases of goods which do not fall within the
Explanation? These are some of the questions which may arise as and when Parliament
will choose to make a law in exercise of the powers conferred on it and it will
then be time enough to discuss and decide those questions. It is not for the
Courts to advise Parliament in advance as to the scope of its legislative
competency under clause (2) and, therefore, -we only note those questions and
leave them here.
The second view as to the meaning and effect
of the Explanation is that it once for all-fixes the situs of a sale or
purchase so that one knows when such a sale or purchase is outside a State and
when it is inside a State.
To put it differently, States are told when a
sale or purchase is inside a particular State and, therefore, the States are
also told when a sale or purchase is outside a State. In short the Explanation
not only explains what is an outside sale or purchase but also actually fixes
the situs of a sale or 82 644 purchase in a particular State. This view of the
Explanation was taken in the majority decision in the State of Bombay v. The
United Motor8 (India) Ltd. (supra). The majority decision quite clearly
concedes that the Explanation does not, by itself, confer any legislative power
on any State, not even the delivery State, with respect to sales or purchases
of the kind mentioned therein but as it fixes the situs of such sales or
purchases in the delivery State that State is left free to tax them in exercise
of its legislative powers under article 246 (3) read with Entry 54 of List 11.
The criticism offered against this view is, first of all, that it uses the Explanation
for a purpose which is beyond that of sub-clause (a). This view turns the
fiction created expressly for sub clause (a) into a reality fixing the location
of such sales and purchases for all purposes. In the next place this view
ignores the existence of clause (2) which imposes a different ban on the
legislative power of all States including the delivery State also, so that as
long as Parliament does not lift the ban no State, not even the delivery State,
may tax sales or purchases which take place in the course of inter-State trade
or commerce, even though they may fall within the Explanation. The further
objection is that this view also does not completely eliminate the confusion
arising from the nexus theory. Suppose Parliament lifts the ban under clause
(2), which State will tax sales or purchases which do not come within the
Explanation? The same answer was suggested as was done in reply to similar
objections to the first view. That, as we have said, will call for decision if
and when Parliament exercises its legislative powers under clause (2).
The third view, which was adumbrated and
discussed in the separate judgment of Bhagwati, J. in the case of The State of
Bombay v. The United Motor8 (India) Ltd. (supra) is that the Explanation
concerns itself with notionally fixing the situs of sales or purchases in the
delivery State only but in no way affects the taxing power of the State in
which, under the general law relating to the sale of goods, the property in the
goods has passed. The result of this view is 645 said to be that the State in
which the sales or purchases are to be deemed to have taken place may tax them
but the State in which, under the general law relating to the sale of goods,
the property in the goods has passed may also tax them if and when Parliament
lifts the ban of clause (2).
This view, it is said, is open to all the
criticisms to which the second view is subject and in addition to that a
further objection has been suggested against this view, namely, that it will
perpetuate double, if not multiple, taxation on one and the same transaction of
sale or purchase at least after Parliament lifts the ban.
A fourth view has also been suggested before
us as a possible view although it was not put forward on the previous occasion.
It is founded on the non-obstante clause in the Explanation. It is said that
clause (1) (a) and the Explanation concern themselves with only two States,
namely the title State, i.e., the State in which, under the general law, title
to the goods passes to the purchaser and the delivery State, i.e., the State in
which goods are actually delivered as a direct result of the sale or purchase
for consumption in that State. The purpose of the Explanation is said to be to
demarcate the taxing power of only these two States by taking out the sales or
purchases of the kind mentioned therein from the sphere of the taxing power of
the title State and subjecting them to the taxing power of the delivery State.
In the juxtaposition of those two States clause (1) (a) read with the
Explanation provides that the title State cannot tax because such sales or
purchases are, by the fiction, made to take place outside its territory and
that the delivery State can tax because the sales or purchases in question are,
by the fiction, made to take place inside its territory. In short, the result
of clause (1) (a) read with the Explanation, according to this view, is that
the State which cannot tax such sales or purchases on the ground that they have
taken place outside its territory is only that State in which the property in
the goods has passed. The criticism is immediately put forward. that if clause
(1) (a) and the Explanation are limited in their operation only to the two
States mentioned above then the other States which also claimed to tax on the
strength of the nexus theory, e.g the State where the contract was made, or the
State where the goods were produced or manufactured or were found, will be
outside the ban and the mischief of multiple taxation which the Constitution
makers were out to curb will continue to be rampant and unabated. This view is
also subjected to some of the other criticisms mentioned in connection with the
other views of the Explanation.
As we have already stated, we do not desire,
on this occasion, to express any opinion on the validity claimed for or the
infirmities imputed to any of these several views, for, in our opinion, it is
not necessary to do so for disposing of this appeal. Whichever view is taken of
the explanation it should be limited to the purpose the Constitution makers bad
in view when they incorporated it in clause (1). It is quite obvious that it
created a legal fiction. Legal fictions are created only for some definite
purpose. Here the avowed purpose of the Explanation is to explain what an
outside sale referred to in sub-clause (a) is. The judicial decisions referred
to in the dissenting judgment in The State of Travancore-Cochin v. Shanmugha
Vilas Cashew Nut Factory (supra) at pp. 81 and 82 and the case of East End
Dwellings Co. Ltd. v. Finsbury Borough Council(1) clearly indicate that a legal
fiction is to be limited to the purpose for which it was created and should not
be extended beyond that legitimate field. It should further be remembered that
the dominant, if not the sole, purpose of article 286 is to place restrictions
on the legislative powers of the States, subject to certain conditions in some
cases and with that end in view article 286 imposes several bans on the taxing
power of the States in relation to sales or purchases viewed from different
angles and according to their different aspects. In some cases the ban is
absolute as, for example, with regard to outside sales covered by clause (1)
(a) read with the Explanation, or with regard to imports and exports covered by
clause (1)(b) and in some cases it is conditional, e.g., in the cases of
inter-State sales or purchases under clause (2) which is, in terms, made
subject to the proviso thereto and also to the power of Parliament to lift the
ban. Again, in some cases the bans may overlap but nevertheless, they are
distinct and independent of each other. The operative provisions of the several
parts of article 286, namely, clause (1) (a), clause (1)(b), clause (2) and
clause (3) are manifestly intended to deal with different topics and,,
therefore., one cannot be projected or read into another. On a careful and
anxious consideration of the matter in the light of the fresh arguments
advanced and discussions held on the present occasion we are definitely of the
opinion that the Explanation in clause (1) (a) cannot be legitimately extended
to clause (2) either as an exception or as a proviso thereto or read as
curtailing or limiting the ambit of clause (2). Indeed, in The State of Bombay
v. The United Motors (India) Ltd. (supra) at pp. 1083-1084 and again at p. 1086
the majority judgment also accepted the position that the Explanation was not
an exception or proviso either to clause (1) (a) or to clause (2). If,
therefore, the Explanation cannot be read into clause (2) because of the
express language of the Explanation and also because of the difference in the
subject-matter of the operative provisions of the two clauses, then it must
follow that, except in so far as Parliament may by law provide otherwise, no
State law can impose or authorise the imposition of any tax on sales or
purchases when such sales or purchases take place in the course of inter-State
trade or commerce and irrespective of whether such sales or purchases do or do
not fall within the Explanation. It is not necessary, for the purposes of this
appeal, to enter upon a discussion as to what is exactly meant by inter-State
trade or commerce or by the phrase "in the course of", for it is
common ground that the sales or purchases made by the appellant company which
are sought to be taxed by the State of Bihar actually took place in the course
of inter-State trade or commerce. Parliament not having by law otherwise
provided, no State law can, therefore, tax these sales , or purchases, that is
648 to say, Bihar cannot tax by reason of clause (2) although they fall within
the' Explanation and other States cannot tax by reason of both clause (1) (a)
read with the Explanation and clause (2). This conclusion leads us now to
consider the arguments by which the respondent State and the intervening States
which support the respondent State seek to get over this position.
In the forefront is placed the argument that
found favour with the majority of the Bench which decided the case of The State
of Bombay v. The United Motors (India) Ltd. (supra).
That argument is to be found in the majority
judgment at pp. 1085-1086. Shortly put, the majority opinion was that the
operation of clause (2) stood excluded as a result of the legal fiction enacted
in the Explanation. In their view the effect of the Explanation in regard to
inter-State dealings was to invest what, in truth, was an inter-State
transaction with an intrastate character in relation to the State of delivery
and clause (2) could, therefore, have no application. They recognised that the
legal fiction was to operate "for the purposes of sub clause (a) of clause
(1)" and that that meant merely that the Explanation was designed to
explain the meaning of the expression "outside the State" in clause
(1) (a). They, nevertheless, came to the conclusion that when once it was
determined with the aid of the fictional test that a particular sale or
purchase had taken place within the taxing State, it followed as a corollary,
that the transaction lost its inter-State character and fell outside the
purview of clause (2), not because the fiction created by the Explanation was
used for the purpose of clause (2), but because such sale or purchase became,
in the eye of the law, a purely local transaction. In his own inimitable
language the learned Chief Justice, who wrote and delivered the majority
judgment, concluded the discussion on this point by saying that the statutory
fiction completely masked the inter-State character of the sale or purchase
which, as a collateral result of such masking, fell outside the scope of clause
(2). In spite of the great respect we always entertain for the 649 opinions of
the then learned Chief Justice and the other learned Judges who constituted the
majority we are unable to accept the aforesaid arguments or the conclusions as
correct for the reasons we now proceed to state.
The situs of an intangible concept like a
sale can only be fixed nationally by the application of artificial rules
invented either by Judges as part of the judge made law of the land, or by some
legislative authority. But as far as we know, no fixed rule of universal
application has yet been definitely and finally evolved for determining this
for all purposes. There are many conflicting theories: One, which is more
popular and frequently put forward and is referred to and may, indeed, be urged
to have been adopted by the Constitution in the non-obstante clause of the
Explanation, favours the place where the property in the goods passes, another
which is said to be the American view and which was adopted in G. Govindarajulu
Naidu & Co. v. The State of Madras(1) fixes upon the place where the
contract is concluded, a third which prevails in the continental countries of
Europe prefers the place where the goods sold are actually delivered, a fourth
points to the place where the essential ingredients which go to make up a sale
are most densely grouped. In this situation if the Explanation were not there
and the ban under clause (2) were to be raised unconditionally it would become
necessary for the Courts to reach a conclusion and choose between these
conflicting views. Article 286(1)(a), it should be noted, does not say that
inside sale may be taxed. It only says that no outside sale shall be taxed. Now
if a State claims that the sale is inside because part of its ingredients lies
within its boundaries, by the same logic it is also an outside sale because the
remaining parts are outside its territories and if it is an outside sale it
cannot be taxed whether or not it can be deemed to be inside for some
particular purpose. The prohibition of article 286(1) (a) is against taxing an
outside sale and if the sale is outside even partially it may well be argued
that no State legislature can (1) A.I.R. 1953 Mad. 116.
650 override the Constitution by deeming it
to be an inside sale. Therefore, if the last of the aforesaid theories were to
be adopted, then either no State would be able to tax, or all having the
requisite nexus would be able to do so. But this in our opinion, is the very
mischief which the Constitution makers wished to avoid and that, as we
understand the majority judgment in the Bombay case, was their view also. So
that view can be placed on one side.
On any one of the other views the situs would
have to be fixed artificially in one place and then one would have to apply the
logic of the majority decision and hold that as soon as the situs is determined
to be in one place by judicial fiction, i.e., a fiction enunciated by judicial
decision, the inter State character of the transaction must cease. The majority
hold that this is the result when the situs is placed in only one State,
namely, the delivery State, because of the fiction which the Explanation
creates.
The same result would have to follow
logically if the situs were to be established by judicial fiction instead of by
a constitutional one. The reasoning of the majority, pushed to its logical
conclusion, will inevitably lead us to hold that all inter-State transactions
must eventually be converted into intrastate transactions and, therefore,
become amenable to the taxing power of the State within whose territories they
are, by the constitutional or judicial fiction, to be deemed to take place. In
this view there will remain no inter-State transaction on which clause (2) may
possibly operate. The argument which leads to this astounding conclusion has
only to be stated to be rejected.
The truth is that what is an interState sale
or purchase continues to be so irrespective of the State where the sale is to
be located either under the general law when it is finally determined what the
general law is,or by the fiction created, by the Explanation. The situs of a
sale or purchase is wholly irrelevant as regards its inter-State character. We
find no cogent reason in support of the argument that a fiction created for
certain definitely expressed purposes, namely, the purposes of clause (1) (a)
can legitimately be used for the entirely foreign and 651 collateral purpose of
destroying the inter-State character of the transaction and converting it into
an intra State sale or purchase. Such metamorphosis appears to us to be beyond
the purpose and purview of clause (1)(a) and the Explanation thereto. 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 had the facts supposed to be true been the
actual facts from the start. Now, even when the situs of a sale or purchase is
in fact inside a State, with no essential ingredient taking place outside,
nevertheless, if it takes place in the course of inter-State trade or commerce,
it will be hit by clause (2). If the sales or purchases are in the course of
inter-State trade or commerce the stream of inter-State trade or commerce will
catch up in its vortex all such sales or purchases which take place in its
course wherever the situs of the sales or purchases may be. All that the
Explanation does is to shift the situs from point A in the stream to point X
also in the stream.
It does not lift the sales or purchases out
of the stream in those cases where they form part of the stream. The shifting
of the situs of a sale or purchase from its actual situs under the general law
to a fictional situs under the Explanation takes the sale or purchase out of
the taxing power of all States other than the State where the situs is
fictionally fixed. That is all that clause (1) (a) and the Explanation do.
Whether the delivery State will be entitled to tax such a sale or purchase will
depend on the other provisions of the Constitution. The assignment of a
fictional situs to a sale or purchase has no bearing or effect on the other
aspects of the sale or purchase, e.g., its inter-State character or its export
or import character which are entirely different topics. This fixing of a situs
for a sale or purchase in any particular State either under the general law or
under the fiction does not conclude the matter. It has yet to be ascertained
whether that sale or purchase which by virtue of the Explanation has taken
place in the delivery State was made in the course of inter-State trade or
commerce. For this 83 652 purpose the Explanation can have no relevancy or
application at all.
Another argument adumbrated in the majority
judgment in The State of Bombay v. The United Motors (India) Ltd. (supra) at p.
1081 and at pp. 1086-1087 and elaborated before us is that just as the freedom
of trade referred to in article 301 has been made to give way to the States'
power of imposing nondiscriminatory taxes by article 304 so must article 286(2)
be regarded as subject to the States' taxing power, for the protection of
article 286(2) could not have been intended to be larger. This argument was
refuted by the dissenting judgment in that Bombay case (supra) at pp. 11021103
and p. 1127 and also by the dissenting judgment in The State of Travancore
Cochin v. Shanmugha Vilas Cashew Nut Factory (supra) at p. 89. Nothing that we
have heard on the present occasion induces us to depart from the views
expressed on this subject in those dissenting judgments.
It is next urged that the Explanation in
effect operates as an exception or a proviso to clause (2). This view runs
directly counter to the express language of the Explanation itself. So the
argument is formulated in a slightly different way. It is said that clause (2)
contains the enunciation of the general rule and the Explanation embodies a
particular or special rule. According to a cardinal rule of construction the
particular or special rule must control or cut down the general rule. This view
was adopted by the High Court in the judgment under appeal and also found
favour with one of the Judges in the Bombay case (supra). It appears to us that
this argument overlooks the basic fact that clause (1) (a) to which is appended
the Explanation and clause (2) deal with different topics altogether. The
Explanation is concerned with explaining what is an outside sale or purchase by
fixing a fictional situs. It cannot be read as a provision independent of
clause (1) (a). It does not, by itself and in terms, confer any legislative
power on any State. It is true that the Explanation may apply to fix the Situs
Of many inter-State transactions but that is only for ascertaining, for the 653
purposes of clause (1) (a), whether it has taken place in side or outside a
particular State. The inter-State aspect of the sales or purchases is not
within the purview of clause (1) (a) which looks at sales or purchases from the
point of view of their location only. Clause (2), on the other hand, takes note
of the inter-' State character of sales or purchases which is an entirely
different topic.
The two provisions do not relate to the same
subject and, therefore, it is not possible to hold that one is the enunciation
of a general rule and the other the enunciation of a particular or special rule
on one and the same subject.
The principle of construction relied upon
cannot, in our opinion, be called in aid in construing clause (2) and the
Explanation of clause (1)(a). If the Explanation cuts down clause (2), it must
also, on a parity of reasoning, cut down clause (3) which, as will hereinafter
be explained more fully, could not possibly have been intended by the
Constitution makers. It must also cut down clause (1) (b) dealing with import
and export; but to hold that would run counter to the decision in State of
Travancore-Cochin and others v. The Bombay Co. Ltd. (1). In our opinion to use
the Explanation to cut down the operation of clause (2) or clause (3) will be
to use it for a purpose other than its legitimate and avowed purpose.
The same argument is put in a slightly
different way and in a more attractive form. It is said that we must construe
article 286 as a whole and give meaning to every part of it.
Sales or purchases which fall within the
Explanation to clause (1) (a) clearly partake of the character of inter State
transactions. Therefore, if we construe clause (2) of article 286 literally and
strictly then the whole of clause (1) (a) and the Explanation will be redundant
and useless and will have no immediate operation and will remain a dead letter,
at any rate, until Parliament, in exercise of its powers under clause (2),
lifts the ban. We must, it is urged, make an attempt to avoid such a result and
adopt such a construction as will not only give effect to each part of the
article but also make each part applicable in present. That, it is pointed out,
can well be done if clause (2) is interpreted in a restricted manner.
The argument runs-give full and immediate
effect to the Explanation and then leave clause (2) to govern or operate on
cases which do not fall within the Explanation. In effect this argument means
that we must treat all transactions of sales or purchases falling within, the Explanation
as outside clause (2). Shorn of its thin veneer of disguise this argument is
nothing more than the argument that the Explanation, in effect, operates as an
exception ,to clause (2) and all the criticisms applicable to that construction
will apply mutatis mutandis to the argument in the present form. Apart from
that there are obvious fallacies which render the argument utterly
unacceptable. We now proceed to deal with these fallacies seriatim.
(i)In the first place, the mere circumstance
that a provision in the Constitution will, on a proper construction, take
effect on the happening of a future event can, by itself, be no ground for not
giving effect to the plain language of that provision. Take the very next
provision in article 286 itself, namely, clause (3). It has no present
application and its usefulness will ensue only when Parliament by law declares
certain goods to be essential for the life of the community. The fact that the
Explanation, in so far as it relates to inter-State sales, may not have an
immediate operation until Parliament lifts the ban under clause (2) need not
unnecessarily oppress us or lead us to adopt a forced construction only to give
the whole of it an immediate and present operation.
(ii)In the second place, it is not correct to
say that the Explanation, construed as suggested above, can have no immediate
operation at all. It certainly has immediate operation to render sales and
purchases which fall within the explanation to be outside sales and purchases
so as immediately to take away the taxing power of all States other than the
delivery State with respect to them. Further cases may arise in which purchases
or sales which are outside clause (2) may, nevertheless, fall within and be
immediately 655 governed by the Explanation. We do not wish to express any
opinion on hypothetical cases but the following illustration will show that on
a given view of the law the Explanation would be called into play despite the
fact that clause (2) was not attracted. Take, for instance, a case where both
the seller and the buyer reside and carry on business in Gurgaon in the State
of Punjab. Let us say that the seller has a godown in the State of Delhi where
his goods are stored and that the buyer has also a retail shop at Connaught
Circus also in the State of Delhi. The buyer and the seller enter into a
contract at Gurgaon for the sale of certain goods and a term of the contract is
that the goods contracted to be sold will be actually delivered from the
seller's godown to the buyer's retail shop, both in the State of Delhi, for
consumption in the State of Delhi.
Pursuant to this contract made in Gurgaon in
the State of Punjab, the buyer pays the full price of the goods at Gurgaon and
the seller hands over to the buyer also at Gurgaon a delivery order addressed
to the seller's godownkeeper in Delhi to deliver the goods to the buyer's
retail shop. As a direct result of this sale the seller's godownkeeper, on the
presentation of this delivery order, actually delivers the goods to the buyer's
retail shop at Connaught Circus for consumption in the State of Delhi. On one
view of the law, the situs of such a sale would be Gurgaon. We need not decide
that it is, because that type of case is not before us and there may be other
views to consider, but it is certainly a possible view. It is also possible to
hold that this is not inter-State trade or commerce, because there is no
movement of goods across a State boundary.
Again, we need not decide that because that
also may be controversial. But given these two postulates the transaction would
fall squarely within the Explanation and yet it would not come within clause
(2) for there is no movement of the goods across the border of any State and
both the seller and the buyer are in the same place.
Surely, the Explanation will, in presenti,
govern such cases irrespective of whether Parliament has lifted the ban under
clause 656 (2). If these postulates are accepted then by virtue of clause (1)
(a) read with the Explanation the State of Delhi alone will be entitled to
impose a tax on such a sale or purchase and the State of Punjab will be
precluded from doing so by reason of the fictional situs assigned to such a
sale or purchase by the Explanation, although the contract was made, price was
paid and symbolical or constructive delivery of the goods by the handing over
of the delivery order took place in Gurgaon in the State of Punjab.
(iii)It is not correct to say that clause (1)
(a) read with the Explanation is wholly useless. It may well be argued that there
was scope for the operation of clause (1)(a) and the Explanation as and when
the President exercised the powers vested in him by the Proviso to clause (2).
It will be noticed that under that proviso the President's order was to take
effect "notwithstanding that the imposition of such tax is contrary to the
provisions of this clause". This non obstante clause does not, in terms,
supersede clause (1) at all and, therefore, prima -facie, the President's order
was subject to the prohibition of clause (1)(a) read with the Explanation. It
is, however, pointed out that the proviso says that any tax which was being
lawfully levied by the States immediately before the commencement of the
Constitution will continue to be levied until the date therein specified. It is
said that before the Constitution sales tax was levied by the different States
on the basis of the nexus theory irrespective of the situs of the sales or
purchases and, therefore, this very proviso clearly indicates that the
intention of the Constitution makers was that all taxes imposed on the basis of
the nexus theory must continue irrespective of the provisions of the
Explanation which fictionally fixes the situs of the sales or purchases in the
delivery State. The argument is not without some force but cannot prevail. It
is true that the different States used to levy sales tax on the basis of slight
nexus but the legality of them had not, at the date of the Constitution, been
tested in a Court of law. Therefore, the proviso authorised the President by
order to continue only such of them as were 657 being "lawfully"
levied and consequently there is no reason to think that the President's order
was intended to continue all sales taxes previously levied irrespective of
their legality. In the next place, there is nothing to be surprised at if the
President's order was made to operate subject to the prohibition of clause (1)
(a) read with the Explanation. Finally, to accede to this argument must mean
that we must read into the proviso something which is not there. To give effect
to this argument we shall have to alter the non obstante clause towards the end
of the proviso and substitute the words "of the foregoing clauses"
for the words "of this clause". However, we need not rest our decision
on this point. It will certainly operate as soon as Parliament, in exercise of
the power vested in it by clause (2), lifts the ban imposed on the States. Upon
the lifting of the ban by Parliament those inter-State sales or purchases which
fall within the Explanation will, by virtue of it, be deemed to take place
within the deli-very State and such sales or purchases being, as a result of
such fiction, outside all other States none of them will be entitled to tax
such sales or purchases. Whether the delivery State will be entitled to make a
law imposing tax on such sales or purchases in exercise of the legislative
powers vested in it by article 246 (3) read with Entry 54 in List II or whether
Parliament, while lifting the ban, may also by the same law authorise the delivery
State to do so or what is the extent of the authority vested in Parliament by
the opening words of clause (2) are questions which will arise for
consideration only after the ban under clause (2) is lifted and we need not in
advance express any opinion on a future problem.
(iv) If we accept the argument that we are to
give full effect to clause (1) (a) and the Explanation and let it operate
immediately on all transactions which come within their terms and leave clause
(2) to govern only those cases which are outside clause (1) (a) read with the
Explanation then, on a parity of reasoning, we shall have to give effect to
clause (1) (a) and the Explanation and leave clause (1) (b) and 'also clause
(3) to govern only those cases which do not 658 fall within clause (1)(a) read
with the Explanation. To illustrate this point, take clause (3). Suppose under
clause (3) Parliament by law declares certain goods, say wheat, to be essential
for the life of the community. Suppose there is a sale of such essential goods by
a seller in the State of Delhi to a buyer in Gurgaon in the State of Punjab in
which as a direct result of such sale the 'goods are delivered in Gurgaon in
Punjab for consumption in that State. According to the argument we have to give
full effect first to clause (1) (a) and the Explanation and accordingly we must
hold that the transaction is wholly covered by the Explanation and, therefore,
Punjab will be entitled to tax it and clause (3) must be left to govern only
cases other than those which fall within the Explanation. If the argument were
sound it must follow that the State of Punjab will be perfectly justified in
saying that for the purpose of making a law imposing a tax on such sales or
purchases its law need not be reserved for the assent of the President at all.
It may well say that the restrictive requirements of reserving the bill for the
President's assent and of obtaining such assent before the law may take effect
apply only to a law which imposes tax on sales or purchases which are outside the
Explanation. In other words, the State of Punjab, in our illustration, will be
entitled to say that clause (3) governs only those cases of sales or purchases
of essential goods which do not come within the description mentioned in the
Explanation, namely, for instance, only those sales or purchases in which essential
goods are delivered in a State not for consumption in that State but for
re-export to another State. This will rob clause (3) of practically the best
part of its content and, therefore, of its usefulness and defeat the very
purpose the Constitution makers obviously had of safeguarding sales or
purchases of essential commodities by imposing the restriction requiring the
reservation of the bill for the President's assent and the obtaining of such
assent. When a famine is raging in say Punjab, and sales and purchases are made
of wheat which is declared as essential 659 to the life of the community and as
a direct result of such sale wheat is delivered in the Punjab for consumption
there the State of Punjab may, according to the reasoning underlying the
argument, put up the price of these essential goods by imposing a sales tax by
making a law to that effect and ignoring the safeguards prescribed by clause
(3). An argument which leads us to a result so utterly absurd and untenable in
reason cannot for a moment be countenanced.
No less than five reasons have been suggested
in support of the argument that a restricted construction should be placed on
clause (2) of article 286. It will be convenient to deal with them at this
stage one by one.
(a) In the first place, it is urged that
clause (2) should be construed in a restricted way because the class of sales
falling within article 286(1) (a) forms a special class of inter-State sales
and they cannot be affected by the general provisions of article 286(2). This
argument totally overlooks the real scheme of article 286. It fails to note
that by this article the Constitution makers were imposing restrictions on the
taxing power of the States with respect to sales or purchases in their
different aspects viewed from entirely different angles which we have
heretofore already explained. The subject-matters of the different parts of
article 286 are, therefore, different and distinct and the principle of interpretation,
namely, the special provision cutting down the general provision cannot be
properly invoked.
(b)The second reason urged is that if article
286(2)applies to the class of sales or purchases falling within article
286(1)(a) then it will result in discrimination against local trade and in
favour of interState trade and this will be inconsistent with the provisions of
Part XIII of the Constitution. It is said that when a Bihar dealer sells
certain goods to a Bihar purchaser the former is obliged to pay sales tax which
he passes on to the Bihar purchaser but when the Bihar purchaser directly
imports into Bihar similar goods from say a West Bengal dealer for consump84
660 tion in Bihar that transaction will not the liable to Bihar Sales Tax as it
will be an inter-State transaction. This, it is said, will prejudice the Bihar
seller for all Bihar purchasers will then be driven to purchasing goods from
outof-State sellers and local producers will suffer a set back.
The argument is that as a literal construction
of clause (2) will result in such discrimination against local trade, the
cardinal rule of interpretation, namely, reading the written provision
literally and giving to the words their ordinary natural meaning should give
way to a restricted construction. This argument overlooks several basic things.
If there is any real hardship of the kind
referred to, there is Parliament which is expressly invested with the power of
lifting the ban under clause (2) either wholly or to the extent it thinks fit
to do. Why should the Court be called upon to discard the cardinal rule of
interpretation for mitigating a hardship, which after all may be entirely
fanciful, when the Constitution itself has expressly provided for another
authority more competent to evaluate the correct position to do the needful?
This argument also fails to take into account the benefit which the consuming
public derives from the free flow of goods from one State to another resulting
in lower prices. Further, the argument overlooks the fact that the so-called
hardship, if any, is brought about, not really by reason of the liberal
construction of clause (2) but by reason of the State of Bihar imposing a sales
tax on an intrastate transaction.
The State of Bihar is not obliged to levy a sales
tax on sales or purchases of goods in respect of which there is competition
between out-of-State producers, manufacturers and dealers and the Bihar
producers, manufacturers and 'dealers and, indeed, if it intends to encourage
its local manufacturers or producers it should not do so. It will not do for
the State of Bihar to say that it must levy a sales tax on intrastate sales or
purchases which it is not obliged to do and at the same time that it must
protect the Bihar dealers or producers, and enable them to compete with outside
dealers or producers and, therefore, ask us to construe the 661 Constitution in
an unnatural way so as to enable it to have the best of both worlds. It is
immediately retorted that the welfare State must have sufficient revenue to run
itself, that if it is to forego sales tax its economy will be totally upset.
This harrowing picture of economic collapse of the States has been pressed upon
this Court on this as on the previous occasion and it evidently oppressed the
minds of the Judges who were parties to the majority decision. It is,
therefore, necessary to examine the matter a little more closely. Ordinarily,
inter-State trade or commerce is done between a dealer in one State and a
dealer in another State. The dealer in the consuming State in his turn sells
the goods in retail to actual *consumers. There can be no objection to
insisting upon all inside dealers getting them selves registered and submitting
returns showing goods imported and sold by them and bringing their annual
turnovers to tax which they will pass on to the actual consumers. Call it a
purchase tax vis-a-vis the earlier transaction under which the goods were
delivered in Bihar for consumption in that State or call it a sales tax
vis-a-vis the subsequent local sales by the Bihar dealer to actual consumers in
Bihar, the State will get the full revenue on these local sales or purchases
from the local sellers. There can be no doubt that sales or purchases of this
kind to or from one dealer to another dealer actually form the bulk of
inter-State trade or commerce. To take them out of clause (2) will be to make
the protection of inter-State trade or commerce wholly illusory and to rob
clause (2) of the best part of its content and utility.
Ordinarily individual local consumers buy
goods in the local market and do not generally bring goods for their personal
consumption from outside dealers. It is only in exceptional cases that a local
consumer will be energetic enough to bring goods from outside the State for his
consumption and their number will be small. It is only those stray individual
consumers who are energetic enough to get goods direct from a dealer in another
State and may be willing to pay freight, etc., and undertake the risk of loss
or damage who may evade 662 the tax. The difficulty in tracing such stray
actual local consumers cannot be any cogent reason for adopting the unnatural
construction sought to be put upon clause (2) of article 286. If big Bihar
purchasers, e.g., Tata Iron & Steel Co. Ltd., who are very heavy consumers
of coal, prefer to get their supply of coal from Ranigunge coal fields in West
Bengal for consumption in their large factories at Tatanagar in Bihar to
getting their supplies from the Jharia coal fields in Bihar and thereby evade
sales tax to the detriment of the revenues of the State of Bihar, then again
there is Parliament to mitigate such hardship by making suitable laws in
exercise of its power under article 286(21.
Such supposed hardship is, in our view, no
ground for putting a forced and unnatural interpretation upon article 286.
(c) The third reason in support of a
restricted construction of article 286(2) is thus formulated: The purpose of
article 286 being to eliminate multiple taxation and article 286(1) (a) having
already achieved that purpose with regard to the class falling within the
Explanation, it was no longer necessary for that purpose to apply article
286(2) to that class. This reasoning appears to us to be untenable. It
overlooks the patent fact that the different parts of the article look upon
sales and purchases from different perspectives and place different bans on the
taxing power of the States at different angles. The circumstance that the bans
may in given cases overlap is no justification for concluding that the
subject-matter of the different provisions is the same. This line of reasoning
assumes that the only purpose of article 286 is to eliminate multiple taxation.
The purposes of the different parts of the article have to be ascertained from
the language of the article itself read in the light of the contemporary
history of the legislative activities of the different States with respect to
taxes on sales or purchases of goods and the chaos and confusion that arose and
the havoc that ensued as a result of those activities. There was multiple
taxation which imposed a heavy burden on the consumers and which was also
calculated to impede and hinder the free flow of inter663 State trade or
commerce. The Constitution makers., therefore, imposed several bans on the
taxing power of the States with respect to sales or purchases, namely, first on
the basis of their situs, secondly and thirdly on the basis of the character of
the transactions, e.g., foreign trade or inter-State trade and fourthly on the
basis of the nature or quality of the goods sold or purchased, i.e., whether
they have been declared to be essential to the life of the community. As
regards inter-State trade or commerce the clear intention of the Constitution
makers was to place an absolute ban for the time being, subject to the proviso,
and to give some time to Parliament to study the situation and to evaluate the
result of the ban and to lift the ban to such extent as it thought fit in the
interest of the general public and that of interState trade or commerce. If the
matter is approached in this way it becomes abundantly clear that this part of
the argument we are now considering proceeds on a wrong assumption of the
purpose of the Constitution.
(d)A restricted construction of article
286(2) is said to be necessary and called for because the Constitution itself
has divided inter-State sales or purchases into two categories and in regard to
one class it has itself provided both as to which State will tax them and under
what condition and in regard to the other class the Constitution has imposed a
ban in general terms and granted power to Parliament in general terms to relax
such ban as Parliament thinks fit. This is clearly begging the question and
does not require any elaborate refutation.
(e)Another string to the bow is that because
of the legal fiction created by the Explanation the inter-State sales or
purchases were converted into intraState transactions.
This, it will be recalled, was the reasoning
adopted in the majority decision in The State of Bombay v. The United Motors
(India) Ltd. (supra). We are unable to accept this argument for the reasons
given above which Deed not be repeated here.
It is said that the picture of harassment and
inconvenience to the traders referred to in the dissenting 664 judgments is
more imaginary than real. It is pointed out that it is only big traders who
will have sales of their goods in all the States in the Union of India. Those
big traders maintain a large staff of clerks and accountants and there can be
no difficulty if they are obliged to file returns in each State where they sell
their goods. This argument overlooks the practical effects of the different
sales tax laws enacted by different States. All big traders will have to get
themselves registered in each State, study the Sales Tax Acts of each State,
conform to the requirements of all State laws which are by no means uniform
and, finally, may be simultaneously called upon to produce their books of
account in support of their returns before the officers of each State. Anybody
who has any practical experience of the working of the sales tax laws of the
different States knows how long books are detained by the officers of each
State during assessment proceedings. There are different stages of these
proceedings, original, appellate and revisional and there will be as many
proceedings under each heading as there are States where the goods are sold.
The harassment to traders is quite obvious and needs no exaggeration. On the
other hand if any risk to the economy of the States ensues from the
construction of article 286 which commends itself to us, the appeal must be to
Parliament which can by law made under the opening words of clause (2) mitigate
that risk.
For all the foregoing reasons we are
definitely of opinion that, until Parliament by law made in exercise of the
powers vested in it by clause (2) provides otherwise, no State can impose or
authorise the imposition of any tax on sales or purchases of goods when such
sales or purchases take place in the course of inter-State trade or commerce
and the majority decision in The State of Bombay v. The United Motor8 (India)
Ltd. (supra) in so far as it decides to the contrary cannot be accepted as well
founded on principle or authority.
In the view we have taken on question (A) it
is not necessary for us, on this occasion, to discuss the other questions (B),
(C) or (D). All that remains to 665 be seen is whether as a result of our
finding on question (A) the Bihar Sales Tax Act, 1947 is ultra vires and void
in its entirety or it is only bad in so far as it seeks to impose a sales tax
on out-of-State sellers in respect of inter-State sales or purchases. This will
depend on whether the objectionable parts of the Act are severable from the
rest of its provisions. It will be necessary here to refer to a few provisions
of the Act.
The long title of the Act is "An Act to
provide for the levy of a tax on sales of goods in Bihar". The preamble
recites that "It is necessary to make an addition to the revenues of Bihar
and for that purpose to impose a tax on the sale of goods in Bihar". The
Act extends to the whole of the State of Bihar. "Dealer" was
originally defined in section 2(c) as meaning:
"any person who sells or supplies any
goods in Bihar whether for commission, remuneration or otherwise and includes
any firm or a Hindu joint family and any society, club or association which
sells or supplies goods to its members" ' By the Bihar Finance Act, 1950
the words "in Bihar" were omitted from this definition. Clause (g) of
the same section defines sale. That definition has undergone various changes
from time to time. The period we are concerned with in this appeal is from 26th
January 1950 to the 30th September 1951. Between 1st October 1948 and 31st
March 1951 which covers the earlier part of the relevant period the clause
stood as follows:"Sale" means., with all its grammatical variations
and cognate expressions, any transfer of property in goods for cash or deferred
payment or other valuable consideration, including a transfer of property in
goods involved in the execution of contract but does not include a mortgage,
hypothecation, charge or pledge:
Provided that a transfer of goods on
hire-purchase or other installment system of payment shall, notwithstanding the
fact that the seller retains a title 666 to any goods as security for payment
of the price, be deemed to be a sale:
Provided further that notwithstanding
anything to the contrary in the Indian Sale of Goods Act, 1930 (III) of 1930),
the sale of any goods-(i)which are actually in Bihar at the time when, in
respect thereof, the contract of sale as defined in section 4 of that Act is
made, or (ii)which are produced or manufactured in Bihar by the producer or
manufacturer thereof, shall, wherever the delivery or contract of sale is made,
be deemed for the purposes of this Act to have taken place in Bihar:
Provided further that the sale of goods in
respect of a forward contract, whether goods under such contract are actually
delivered or not, shall be deemed to have taken place on the date originally
agreed upon for delivery".
This definition was amended and between the
1st April 1951 and the 31st March 1952 which covers the latter part of the
relevant period it read as follows:
" sale" means,, with all its grammatical
variations and cognate expressions, any transfer of property in goods for cash
or deferred payment or other valuable consideration, including a transfer of
property in goods involved in the execution of contract but does not include a
mortgage, hypothecation, charge or pledge:
Provided that a transfer of goods on hire
purchase or other installment system of payment shall, notwithstanding the fact
that the seller retains a title to any goods as security for payment of the
price, be deemed to be a sale:
Provided further that the sale of goods in
respect of a forward contract, whether goods under such contract are actually
delivered or not, shall be deemed to have taken place on the date originally
agreed upon for delivery Explanation.-The sale of any goods actually delivered
in Bihar as a direct result of such sale for the purpose of consumption in
Bihar shall be deemed for the purpose of this Act to have taken place in 667
Bihar., notwithstanding the fact that under the general law relating to sale of
goods, the property in the goods has, by reason of such sale, passed in another
State".
It will be noted that the Explanation which
is substantially a reproduction of the Explanation to article 286(1) (a) was
introduced for the first time by this amendment.
"Turn over" is defined in section
2(1). The charging section is section 4 which provides, amongst other things,
that subject to -the provisions of sections 5, 6, 7 and 8 and with effect from
the commencement of the Act every dealer whose gross turn over during the year
immediately preceding the date of such commencement on sales which have taken
place both in and outside Bihar exceeds Rs. 10,000 shall be liable to pay tax
under this Act on sales which have taken place in Bihar and from the date of such
commencement. It will be noticed that although the long title and the preamble
refer to the sale of goods in Bihar the words "in Bihar" were deleted
from the definition of the word "sale" in section 2(g). There are
various provisions for working out the scheme of the Act to which no detailed
reference need be made. It may, however, be pointed out that a new section was
inserted by the Adaptation of Laws (Third Amendment) Order, 1951 which
substantially reproduced the provisions of article 286(1) and (2). Although,
therefore, the charging section read with the definition of "dealer"
and "sale" may be wide enough to cover inter-State sales, the new
section 33 makes all those provisions subject to its provisions which are
nothing but a reproduction of the corresponding provisions of article 286. In
view of the interpretation we have put upon article 286 it must follow that the
charging section of the Act read with the relevant definitions cannot operate
to tax inter-State sales or purchases and it must be held that as Parliament
has not otherwise provided, the Act, in so far as it purports to tax sales or
purchases that take place in the course of interState trade or commerce, is
unconstitutional, illegal and void. This being the position the question arises
85 668 whether the Act is bad ?In to or is bad only in so far as it offends the
provisions of article 286 as construed above.
It appears to us that the Act imposes tax on
subjects divisible in their nature but does not exclude in express terms
subjects exempted by the Constitution. In such a situation the Act need not be
declared wholly ultra vires and void, for it is 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 these circumstances it is
difficult to say that the scheme of taxing interState sales forms such an
integral part of the entire scheme of taxation on sales or purchases of goods
as to be inextricably interwoven with it. There is no reason to presume that
had the Bihar Legislature known that the provisions of the Act might be held
bad in so far as they imposed or authorised the imposition of a tax on inter State
trade or commerce even though Parliament had not by law provided otherwise it would,
nevertheless, not have passed the rest of the Act.
The result, therefore, is that this appeal
must be allowed and we issue an order directing that, until Parliament by law
provides otherwise, the State of Bihar do forbear and abstain from imposing sales
tax on out-of-State dealers in respect of sales or purchases that have taken
place in the course of inter-State trade or commerce even though the goods have
been delivered as a direct result of such sales or purchases for consumption in
Bihar. The State must pay the costs of the appellant in this -Court and in the
Court below. The interveners must bear and pay their own costs.
BHAGWATI J.-I agree with the reasoning and
the conclusions reached in the judgment just delivered by my Brother S.R. Das.
In so I far however as I was a party to the judgment in The State, of Bombay
and Another v. The United Motor8 (India) Ltd. and Others(1) it is but proper
that I should record my reasons for doing so.
(1) [1953] S.C.R 1069.
669 The Appellant is a company incorporated
under the Indian Companies Act having its registered office at No. 153,
Dharamtala Street, Calcutta and laboratory and factory at Baranagar in the
District of 24 Parganas in West Bengal and carrying on business of
manufacturing and selling various sera, vaccines, biological products and
medicines, etc., in Calcutta. The Appellant has extensive sales of its products
throughout the whole of the Union of India and the goods are despatched by the
Appellant from Calcutta by rail, steamer or air against orders accepted at
Calcutta and all sales take place within the State of West Bengal. The
Appellant has no offices, agents, managers, godowns or laboratories in the
State of Bihar. It is not a resident of Bihar nor has a place of business in
Bihar and does not enter into any transaction of sale within the State of
Bihar.
On the 24th October 1951 the Assistant
Superintendent of Commercial Taxes, headquarters Patna, wrote to the Appellant
to get itself registered under the Bihar Sales Tax Act and to take necessary
steps to deposit the Bihar Sales Tax dues in any Bihar treasury at an early
date, contending that all sales in West Bengal in which the goods had been
delivered in the State of Bihar as a direct result of the sale for the purpose
of consumption in Bihar were leviable to Bihar Sales Tax with effect from the
26th January 1950. The Appellant denied the right of the State of Bihar to tax
the sales effected in West Bengal and by his letter dated the 18th December
1951 the Superintendent of Commercial Taxes, Central Circle, Bihar sent a
notice under section 13(5) of the Bihar Sales Tax Act to the Appellant calling
upon it to apply for registration and to submit the return, showing its
turn-over for the period from the 26th January 1950 to the 30th September 1951.
Correspondence thereafter ensued in which
both the parties made futile attempts to convince each other of the legality of
the stand taken by it. The Appellant asserted that it was not liable to
assessment under the Bihar Sales Tax Act and denied the authority of the State
of Bihar to levy sales tax upon 670 the Appellant. The Assistant Superintendent
of Commercial Taxes, Central Circle, Bihar, ultimately by his letter dated the
28th May 1952 rejected the contention of the Appellant and asked it to comply
with the notice under section 13(5) of the Bihar Sales Tax Act failing which he
threatened to proceed to take steps for assessment to the best of his judgment.
The Appellant thereupon by its letter dated the 7th June 1952 called upon the
Superintendent of Commercial Taxes, Central Circle, Bihar to forthwith rescind
and cancel the notice issued under section 13(5) of the Bihar Sales Tax Act as
the said notice was ultra vires of the Constitution and also the Bihar Sales
Tax Act and was entirely illegal and inoperative.
As the aforesaid demand was not complied with
the Appellant filed in the High Court of Judicature at Patna a petition under
article 226 of the Constitution asking for appropriate reliefs by way of issue
of a writ of mandamus, certiorari and prohibition and any other appropriate
writs or orders quashing the proceedings issued for the purpose of levying and
realising a tax which was not lawfully leviable on the Appellant and asking the
Appellant to file a return and register itself as a dealer. The State of Bihar,
Respondent 1, The Superintendent of Commercial Taxes, Central Circle, Patna,
Respondent 2 and Assistant Superintendent of Commercial Taxes, Central Circle,
Bihar, Respondent 3 were the opposite parties to the petition. They did not
file any affidavit in reply. The facts alleged by the Appellant were not denied
but arguments on questions of law arising out of the petition were addressed by
the Government Pleader appearing for them before the High Court. The High Court
held:
(1) That the Respondent 3 was acting within
his jurisdiction in issuing the notice under section 13(5) and holding that the
applicant was liable to pay the tax, that if he made an assessment under
section 13 (5) the Act provided a right of appeal whereby any error of law
might be corrected by the Appellate authorities prescribed under the Act, that
sections 24 and 25 of the Act furnished a complete and effective machinery for
appeal and revision against assessments made under the Act and that there was
therefore no warrant for issuing a writ under article 226 of the Constitution;
(2) That the phrase "sale or purchase in
the, course of inter-State trade or commerce" in article 286 (2) must be
construed so as to exclude the particular class of sales or purchases described
in the explanation to article 296(1) and that therefore the amended clauses (c)
and (g) of section 2 and section 33 of the Bihar Sales Tax Act were not in
conflict with article 286(2);
(3) That the Bihar Sales Tax Act was in pith
and substance not a law with respect to sale of goods but a law imposing tax on
the sale of goods and the legislation fell entirely within Item 54 of List II
of the Seventh Schedule to the Constitution, viz., taxes on the sale or
purchase of goods other than newspapers and that the Act could not therefore be
said to be invalid under article 254;
(4) That the Bihar Sales Tax Act had been
enacted for the purpose of imposing tax on the sale of goods and not for
regulating inter-State or intrastate trade and commerce and that therefore the
Act did not contravene in any way article 304; and (5) That the Act was also
not invalid on the ground that it was extra-territorial in operation, that the
jurisdiction to tax existed not only in regard to persons or property but also as
regards the business done within the State, that it was not necessary for the
purposes of jurisdiction that the entire transaction of sale should have taken
place within the territories, that on the other hand the fact that the goods
,were delivered in Bihar for consumption constituted sufficient nexus or
territorial connection which conferred jurisdiction upon the Bihar legislature
to impose the tax and that the explanation to article 286(1)(a) expressly
conferred upon the State power to tax sales or purchases of goods which were
actually delivered for consumption inside the State.
The High Court therefore dismissed. the
petition with costs.
672 The Appellant applied for leave to appeal
to this Court and the High Court granted the requisite certificate under
article 132(1) of the Constitution.
At the hearing of the appeal before us the
State of West Bengal, Tata Iron & Steel Company, Calcutta, the State of
Madras, the State of Mysore, the State of Uttar Pradesh, the State of Orissa,
the State of Pepsu, the State of Rajasthan, the State of Madhya Pradesh, the
State of Travancore-Cochin, the State of East Punjab and one M. K. Kuriakose
applied for and were granted leave to intervene and counsel for the Interveners
appeared before us and urged their respective points of view.
The first question as regards the
maintainability of a petition for writ under article 226 on the facts disclosed
in the petition can be disposed of very shortly in the words of Mahajan, C. J.
in Himmatlal Harilal Mehta v. The State of Madhya Pradesh & Others(1) where
he repelled a similar contention urged by the Advocate-General of the State of
Madhya Pradesh:"The learned Advocate-General of the State........ however
contended that on the principle enunciated by the Privy Council in Raleigh
Investment Co. v. The Governor-General-in-Council(2), jurisdiction to question
assessment otherwise than by use of the machinery expressly provided by the
Act, was inconsistent with the statutory obligation to pay, arising by virtue
of the assessment and that the liability to pay the sales tax under the Act is
a special liability created by the Act itself which at the same time gives a
special and particular remedy which ought to be resorted to, and therefore the
remedy by a writ ought not to be allowed to be used for evading the provisions
of the Act, especially a fiscal Act............................
In our opinion the contentions raised by the
learned Advocate-General are not well founded. It is plain that the State
evinced an intention that it could certainly proceed to apply the penal
provisions of the Act against the appellant if it failed to make the return or
to meet the demand (1) [1954] S.C.R. 1122, 1126.
(2) 74 I.A. 50 673 and in order to escape
from such serious consequences threatened without authority of law, and
infringing fundamental rights, relief by way of a writ of mandamus was clearly
the appropriate relief In Mohd. Yasin v. The Town Area Committee(1), it was
held by this Court that a licence fee on a bussiness not only takes away the
property of the licensee but also operates as a restriction on his fundamental
right to carry on his business and therefore if the imposition of a licence fee
is without authority of law it can be challenged by way of an application under
article 32, a fortiori also under article 226. These observations have apposite
application to the circumstances of the present case. Explanation 11 to section
2(g) of the Act having been declared ultra vires, any imposition of sales tax
on the appellant in Madhya Pradesh is without the authority of law, and that
being so a threat by the State by using the coercive machinery of the Impugned
Act to realize it from the appellant is a sufficient infringement of his
fundamental right under article 19(1) (g) and it was clearly entitled to relief
under article 226 of the Constitution.
The contention that because remedy under the
impugned Act was available to the appellant it was disentitled to relief under
article 226 stands negatived by the decision of this Court in The State of
Bombay v. The United Motors (India) Ltd.(2), above referred to. There it was
held that the principle that a court will not issue a prerogative writ when an
adequate alternative remedy was available could not apply where a party came to
the court with an allegation that his fundamental right had been infringed and
sought relief under article 226. Moreover, the remedy provided by the Act is of
an onerous and burdensome character. Before the appellant can avail of it he
has to deposit the whole amount of the tax. Such a provision can hardly be
described as an adequate alternative remedy".
This sufficiently disposes of that contention
and I am of the opinion that the High Court was in error when it held that
there was no warrant for issuing a writ (1) [1952] S.C.R. 572.
(2) [1953] B.C.R. 1069, 674 under article 226
of the Constitution on the facts disclosed in the appellant's petition.
On the merits Shri N. C. Chatteriee appearing
for the appellant urged:(1)That article 286 put a fetter on State Legislature
and the explanation did not confer any power on any State Legislature to levy
any taxes but was meant to explain only clause 1(a), i.e." what was an
outside sale or purchase and that it did not remove -any restrictions or
fetters and did not convert any inter-State sale or purchase into an intrastate
or local or domestic transaction;
(2)That article 286(2) in Part XII was meant
to implement the supremacy of Parliament with regard to inter-State trade or
commerce and it put an embargo on the power of State Legislature to levy any
tax on sale or purchase with respect to inter State trade or commerce and that
it was only when the embargo was lifted by appropriate Parliamentary
legislation that State Legislature could levy any tax on sales or purchases in the
course of inter-State trade or commerce; and (3)That legislative competence of
a State Legislature was derived from article 246 read with the lists of the
Seventh Schedule to the Constitution, that under article 245(2) only Parliament
was given the power to enact legislation with extra-territorial operation and
the State Legislatures had no such power, and that the combined effect of
article 246(3) and article 245 read with Item 54 of List II was that the State
Legislature was only competent to make laws imposing tax on sale or purchase of
goods for the whole or part of that State.
The determination of these questions involves
a construction of the provisions of article 286(1) and (2) of the Constitution
and their true scope and effect. These provisions read as follows:"Article
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 place(a)
outside the State; or 675 (b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.
Explanation.-For the purposes of sub-clause
(a), a sale or purchase shall be deemed to have taken place in the State in
which the goods have actually been delivered as a direct result of such sale or
purchase for the purpose of consumption in that State, notwithstanding the fact
that under the general law relating to sale of goods the property in the goods
has by reason of such sale or purchase passed in another State.
(2) Except in so far as Parliament may by law
otherwise provide, no law of a State shall impose, or authorise the imposition
of, a tax on the sale or purchase of any goods where such sale or purchase
takes place in the course of inter-State trade or commerce:
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".
They are enacted in Part XII of the
Constitution which relates to finance, property, contracts and suits and fall
under the caption of 'Miscellaneous Financial Provisions'.
Their main purpose is to lay down the
restrictions on State Legislatures to enact laws imposing or authorising the
imposition of tax on the sale or purchase of goods. Article 286(1) lays down
such restrictions where such sale or purchase takes place-(a) outside the
State, or (b) in the course of the import of the goods into, or export of the
goods out of, the territory of India. Article 286(2) lays down such
restrictions where such sale or purchase takes place in the course of inter-State
trade or commerce.
Article 286(1) is hedged in with the
explanation and article 286(2) is hedged in with the exception "in so far
as Parliament may by law otherwise provide" and the proviso under which
the President might direct that any tax which was being lawfully 86 676 levied
by the Government of any State immediately before the commencement of the
Constitution may, notwithstanding the provisions of article 286(2), continue to
be levied until the 31st March 1951. Except for these special dispensations the
restrictions laid down by article 286(1) and (2) prevail and the true scope and
extent of these restrictions would have to be culled out of the terms in which
these provisions, are couched.
These provisions came to be considered by
this Court in two cases, (1) The, State of Bombay and Another 'v. The. United
Motors (India) Ltd. and others(1) and (2) State of Travancore-Cochin and Others
v. Shanmugha Vilas Cashew Nut Factory and Others(2). The first of these cases
was concerned with the constitutionality of the Bombay Sales Tax Act XXIV of
1952. The High Court of Bombay had declared the Bombay Sales Tax Act, 1952
ultra vires the State Legislature and had issued a writ in the nature of
mandamus against the State of Bombay and the Collector of Sales Tax, Bombay,
directing them to forbear and desist from enforcing the provisions of the said
Act against the respondents. The main ground of attack in the High Court had
been that the Act purported to tax sales and purchases of goods regardless of
restrictions imposed on the State legislative power by article 286 of the
Constitution and in that connection the provisions of article 286(1) and (2)
came to be considered by this Court. The majority judgment of this Court
delivered by Patanjali Sastri, C. J. with which Mukherjea, J. and Ghulam Hasan,
J. concurred held that article 286 (1) (a) of the Constitution read with the
explanation thereto and construed in the light of articles 301 and 304
prohibits the taxation of sales or purchases involving interState 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 article 28611) but under
article 246(3) read with Entry 54 of List II. The majority judgment (1) [1953]
S.C.R. 1069. (2) [1954] S.C.R. 53.
677 differed from the view which was taken by
me that the Explanation does not deprive the State in which the property in the
goods passed of this taxing power and that consequently both the State in which
the property in the goods passes and the State in which the goods are delivered
for consumption. have the power to tax and characterised it as not correct. The
majority judgment also held that clause (2) of article 286 does not affect the
power of the State in which the delivery of goods is made to tax inter-State
sales or purchases of the kind mentioned in the Explanation to clause (1). The
effect of the Explanation is that such transactions are saved from the ban
imposed by article 286(2). Bose, J. and myself agreed that article 286(2) could
not be construed in the light of article 304(1) as the two articles dealt with
different matters. Bose, J. however held that the basic idea underlying article
286 is to prohibit taxation in the case of inter-State trade and commerce until
the ban under clause (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
clause (1) of article 286 comes into play to determine the situs of the sale.
This Explanation does not govern clause (2) of article 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. The majority judgment as well as Bose, J. recognised that the
provisions of article 286(1) and (2) had been enacted in order to prevent
multiple taxation which used to be levied by the States before the commencement
of the Constitution having resort to the nexus theory. They however did not
discard that theory altogether and' were of the opinion that it was sufficient
to invest the State Legislature with jurisdiction to impose a tax on sale or
purchase of goods, if any of the essential ingredients of sale had taken place
within its territory.
The did not accept the transfer of ownership
in the goods or the passing of property therein as the sole criterion
determining the situs of the sale and thus investing the State within 678 whose
territories the sale had thus taken place as the only State entitled to impose
the tax on sale or purchase of goods. I however held that 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 purchaser, and
that State is entitled to tax the sale or purchase as having taken place inside
the State. The Explanation to article 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 clause (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.
I also held that the general provision
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 oases 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 intrastate sale or purchase so far as the delivery State is concerned.
There was thus a divergence between the learned Judges as regards the true
scope and effect of the Explanation to article 286(1) (a) read with article
286(2) and even though the same conclusion was reached by the majority Judges
and myself we reached the same on different grounds. The interpretation put on
article 286(1)(a) read with the Explanation thereto therefore was that the
delivery State is left free to tax such, 679 sales or purchases as fall within
the terms of the Explanation and article 286(2) does not affect the power of
such a State to tax inter-State trade or commerce of the kind mentioned in the
Explanation. The Explanation saves such transactions from the ban imposed by
article 286(2).
It may be noted that though there was a consensus
of opinion that article 286(1) was designed to avoid the multiple taxation of a
sale or purchase by various States having resort to the nexus theory there was
divergence of opinion as regards the real purpose of the Explanation as also
the construction of the non-obstante clause and the true concept of consumption
as embodied therein. According to the majority view the Explanation explained
what is an outside sale by defining what is an inside sale. Bose, J. was of the
opinion that the purpose of the Explanation is to explain what is not outside
the State and therefore what is inside. I was of the view that what is
otherwise a sale or purchase which takes place outside the State is deemed to
have taken place inside the delivery State and the only purpose of the
Explanation is to introduce a legal fiction whereby the delivery State is also
entitled to tax the transaction of sale or purchase along with the State in
which the transfer of ownership has taken place or the property in the goods
has passed. The non-obstante clause also was differently interpreted. I took
the view that the non-obstante clause is incorporated in the Explanation to
state what according to the Constitution makers is the basic idea of fixing the
situs or the location of the sale or purchase in the place where the transfer
of ownership takes place or the property in the goods passes and to indicate
that notwithstanding that fact a sale or purchase which falls within the
category mentioned in the Explanation is nevertheless to be deemed to have
taken place inside the delivery State. The majority judgment stated that the
nonobstante clause is inserted in the Explanation simply with a view to make it
clear beyond all possible doubt that it is, immaterial where the property in the
goods passes as it might otherwise 680 be regarded as indicative of the place
of sale. Bose, J.
stated that the object of the Explanation is
to fix the location of a sale or purchase by means of a fiction, but he
disagreed with the view expressed by me that the non obstante clause enunciates
the general law on this point.
He stated that there was no general law which
fixed the situs of a sale, not even the Sale of Goods Act,
that 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 has that
ever been regarded as the determining factor. As regards the concept of
consumption the majority were of the view that it should 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.
Bose, J. construed that word to mean the usual use made of an article for the
purposes of trade and commerce.
I adopted the Dictionary meaning of the term
and held that the Explanation 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 did not accept the contention that the words "for the purpose of
consumption" must be accepted in a comprehensive sense as having reference
to immediate as well as ultimate consumption within the State and excluding
only resales out of the State.
In regard to article 286(2) all the Judges
were agreed that transactions of sale or purchase in the course of inter State
trade or commerce are within the restriction and no State can tax such
transactions, except in the two excepted cases, viz., (1) except in so far as
Parliament may by law otherwise provide and (2) provided that the President may
by order direct that any tax on sale or purchase of goods which was being
levied by the Government of any State immediately before the commencement of
the Constitution shall continue to be levied until the 31st March 195 1.
The Explanation to article 286 (1) (a) though
it is specifically stated to be for the purposes of subclause (a) was construed
by me as an exception or proviso to article 286(2), thus enabling the delivery
State to tax the transactions of sale or purchase taking place in the course of
inter-State trade or commerce. The majority Judges differed from this view and
held that the Explanation converts the inter State transaction into an
intra-State one and therefore there is no scope at all for the operation of
article 286(2) in cases covered by the Explanation. Bose, J. was of the view
that the article 286(2) bans the delivery State also from taxing such
transactions, because if the transactions were in the course of inter-State
trade or commerce the Explanation merely shifts the point from A to B but this
shifting is of no consequence at all, because both the points are caught in the
vortex of inter-State trade and commerce. It is only when the Parliament
otherwise provides or the President gives the directions within the meaning of
the proviso that this ban is lifted and the Explanation is there to settle a
matter of considerable controversy regarding the situs of a sale. The argument
that on this construction being put on the Explanation to article 286(1) and on
article 286(2) the Explanation would become nugatory though accepted by me was
rejected by Bose, J. by pointing out that once the Parliament by law otherwise
provided or the President by order gave the direction within the meaning of the
proviso the Explanation would come into operation and would determine the situs
of the sale thus enabling the appropriate State to impose a tax on such
transaction of sale or purchase.
The second case concerned itself with the
construction of article 286(1) (b) in connection with the Sales Tax levied by
the State of Travancore-Cochin upon certain dealers in cashew nuts within its
territory under the provisions of the Travancore-Cochin General Sales Tax Act,
1124 M.E. (Act No.
XVIII of 1124 M.E.) and the question for the
consideration of the Court was whether certain sales and purchases could 682 be
said to be in the course of the import of the goods into or the export of the
goods out of the territory of India.
The High Court had put a very wide
construction on the words of article 286(1)(b) and held that the clause is not
restricted to the point of time at which goods are imported into or exported
from India and the series of transactions which necessarily precede export or
succeed import of goods will come within the purview of this clause. There was
a divergence of opinion between Patanjali Sastri, C.J., Mukherjea, J., Bose, J.
and Ghulam Hasan, J. on the one side and S.R. Das, J. on the other so far as
the construction of the words "in the course of" was concerned. But
apart from this construction of article 286(1) (b) S.R. Das, J. who was not a
party to the earlier decision hereinbefore referred to put on record his views
on the construction of article 286(1)(a), the Explanation thereto and article
286(2) expressing his disagreement with the interpretation which the majority
judgment in that case bad put up on the same.
He agreed that the Provincial Legislatures
purporting to act under Entry 48 in List II of the Seventh Schedule to the
Government of India Act, 1935, bad enacted the Sales Tax Acts imposing tax on
sales or purchases of goods on the basis of one or more of the ingredients of
sale having some connection with the Province and that this practice had
resulted in the imposition of multiple taxes on a single transaction of sale or
purchase thereby raising the price of the commodity concerned to the serious
detriment to the consumer, that this evil had to be curbed and that is what has
been done by clause (1)(a) of article 286. He however was of the opinion that
in imposing the ban that no law of a State shall impose or authorise the
imposition of a tax on the sale or purchase where such sale or purchase takes
place outside the State, the Constitution proceeds on the footing that a sale
or purchase has a location or situs. He further held that the non-obstante
clause in the Explanation also clearly implies that the framers of the
Constitution adopted the view that a sale or purchase has a situs and further
that it ordinarily takes place at the place 683 where the property in the goods
passes. In effect, therefore, the Constitution, by this Explanation to clause
(1) (a), acknowledges that under the general law the sale or purchase of the
kind therein mentioned may not really take place in the delivery State, but
nevertheless requires it to be treated as if it did. That is to say, the
Explanation creates a legal fiction. So far he agreed with me, but he differed
from me in holding that the only effect of this assignment of a fictional
location to a,particular kind of sale or purchase in a particular State is to
attract the ban of clause (1) (a) and to take away the taxing power of all
other States in relation to such a sale or purchase even though the other
ingredients which go towards the making up of a sale or purchase are to be
found within these States or even if under the general law the property in the
goods passes in any of those States. The purpose of the Explanation ends there
and cannot be stretched or extended beyond that purpose. He therefore held that
the effect of clause (1) (a) read in the light of the Explanation is not to
permit both States, viz., the State where the property passes under the general
law as well as the State in which, by force. of the Explanation, the sale or
purchase is deemed to take place, to tax such sale or purchase, because in that
event it will stultify the very purpose of that clause and it will fail to
prevent the imposition of multiple taxes which it is obviously designed to
prevent. In his opinion clause (1)(a) in terms only takes away the taxing power
of all States with respect to a sale or purchase which, by reason of the
fiction introduced by the Explanation, is to be deemed to take place outside
their respective territories and the purpose of the Explanation is only to
explain the scope of clause (1) (a) The Explanation is neither an exception nor
a proviso. It is not its purpose nor does it purport, substantively and proprio
vigore, to confer any power on any State, not even on the delivery State, to
impose any tax. Whether the delivery State can tax the sale or purchase of the
kind mentioned in the Explanation will depend on other provisions of the
Constitution. Neither clause (1) (a) nor 87 684 the Explanation has any bearing
on that question.
So far as the -purpose and design of clause
(2) are concerned he was of the opinion that clause (2) places yet another ban
on the taxing power of the State under Entry 54 read with article 246(3), in
addition to the ban imposed by clause (1) (a). A sale or purchase contemplated
by the Explanation to clause (1) (a) undoubtedly partakes of the nature of a
sale or purchase made in the course of interState trade and, therefore, no
State, whether it is the State in which the property in the goods passes under
the general law or the State where the goods are delivered as mentioned in the
Explanation, can impose a tax on such sale or purchase, unless and until
Parliament lifts this ban. He differed from the view taken by me that the
Explanation to article 286(1) (a) must be regarded not only as having
authorised the delivery State to impose the tax on the sale or purchase covered
by the Explanation, but having also exempted it from the ban imposed by clause
(2). He also differed from the majority view that what was an inter-State
transaction within the ban of article 286 (2) is converted into an intrastate
or local or domestic transaction by virtue of the Explanation to article 286(1)
(a). He saw no warrant for the argument that the fiction embodied in the
Explanation for this definitely expressed purpose, can be legitimately used for
the entirely foreign purpose of destroying the inter-State character of the
transaction and converting it into an intrastate sale or purchase for all
purposes. Such metamorphosis is completely beyond the purpose and purview of
clause (1) (a) and the Explanation thereto.
After expressing himself as above, he made
the following observations which are very apposite to the appeal before us:"To
accede to this argument will mean that the Sales Tax officer of the delivery
State will have jurisdiction to call upon dealers outside that State to submit
returns of their turn over in respect of goods delivered by them to dealers in
that State under transactions of sale made by them with dealers within that
State. Thus a dealer in, say, Pepsu who 685 delivers goods to a dealer in, say,
Travancore-Cochin will become subject to the jurisdiction of the last mentioned
State and will have to file returns of their turn over and support the same by
producing their books of account there.
I cannot imagine that our Constitution makers
intended to produce this anomalous result. On the contrary, it appears to me
that they enacted clauses (1) (a) and (2) for the very purpose of preventing
this anomaly. I repeat that it is not permissible, on principle or on
authority, to extend the fiction of the Explanation beyond its immediate and
avowed purpose which I have explained above. In my judgment, until Parliament
otherwise provides, all sales or purchases which take place in the course of
inter-State trade or commerce are, by clause (2) of article 286, made immune
from taxation by the law of any State, irrespective of the place where the
sales or purchases way take place, either under the general law or by virtue of
the fiction introduced by the Explanation to clause (1)(a). If a particular
inter-State sale or purchase takes place outside a State, either under the
general law or by virtue of the fiction created by the Explanation, it is
exempted from taxation by the law of that State both under clause (1) (a) and
clause (2). If such inter-State sale or purchase takes place within a
particular State, either under the general law or by reason of the Explanation,
it is still exempt from taxation even by the law of that State under clause
(2), just as a sale or purchase which takes place within a State, either under
the general law or by reason of the Explanation, cannot be taxed by the law of
that State if such sale or purchase takes place in the course of import or
export within the meaning of clause (1) (b) ".
It may be observed that the contentions urged
before us by the Appellant are in conformity with the above observations of
S.R. Das, J.
Normally speaking the construction put by the
majority judgment on the article 286(1), the Explanation thereto and article
286(2) of the Constitution in the Bombay Sales Tax appeal would be the law bind686
ing on all parties and in the judgment just referred to in the
Travancore-Cochin Sales Tax Appeal S. R. Das, 'J. rightly expressed that
decision to be binding on him so long as it stands. The Appellant has however
sought to urge before us that that decision was erroneous and has attempted to
persuade us to reconsider the same and put a construction on article 286(1)(a),
the Explanation thereto and article 286(2) which is different from that adopted
by the majority Judges in the Bombay Sales Tax Appeal.
The question therefore arises whether we are
entitled to reconsider that decision.
The House of Lords in England has always
considered itself bound by its previous decisions. These decisions, as
distinguished from the opinions which are delivered by the Judicial Committee
of the Privy Council as advice to the Crown, are pronounced in the form of
judgments and are binding on the House as precedents. The question whether the
House bad the power to reconsider the previous decisions of its own and if it
thought the decisions wrong to overrule ,or depart from them in subsequent
cases was considered in Street Tramways v. London County Council(1). Earl of
Halsbury, L.C. who delivered the judgment of the House observed at page 379:"A
decision of this House once given upon a point of law is conclusive upon this
House afterwards, and that it is impossible to raise that question again as if
it was res integra and could be reargued, and so the House be asked to reverse
its own decision. That is a principle which has been, I believe, without any
real decision to the contrary, established now for some centuries, and I am
therefore of opinion that in this case it is not competent for us to rehear and
for counsel to reargue a question which has been recently decided".
The reason of the rule was thus stated at
page 380-" "Of course I do not deny that cases of individual hardship
may arise, and there may be a current of opinion in the profession that such
and such a judgment was erroneous; butwhat is that occasional (1) [1896] Appeal
Cases 375, 687 interference with what is perhaps abstract justice as compared
with the inconvenience-the disastrous inconvenience-of having each question
subject to being reargued and the dealings of mankind rendered c ,doubtful by
reason of different decisions, so that in truth and in fact there would be no
real final Court of T, Appeal? My Lords, "interest rei publicae."
that there should be "finis litium" at some time, and there could be
no "finis litium" if it were possible to suggest in each case that it
might be reargued, because it is "not an ordinary case," whatever they
may mean". and the conclusion was thus recorded at page 381:"Under
these circumstances it appears to me that your Lordships would do well to act
upon that which has been universally assumed in the profession, so far as I
know, to be the principle, namely, that a decision of this House upon a
question of law is conclusive, and that nothing but an Act of Parliament can
set right that which is alleged to be wrong in a judgment of this House".
The Judicial Committee of the Privy Council
on the other hand has held that it is free to differ from its own decisions or
from those of the House of Lords. The power of the Privy Council to reconsider
its own decisions was discussed in In re Compensation to Civil Servants(1). In
that case an earlier decision of the Board in Wigg v.
Attorney-General of the Irish Free State(2)
was attempted to be reviewed and after discussing the case-law on the point the
Board came to the conclusion that the Privy Council is not bound in law and
without examination to follow the decision in a prior appeal whether they
considered it to be right or wrong although the Privy Council would hesitate
long before disturbing a solemn decision by a previous Board, which raised an
identical or even a similar issue for determination. While laying down this
principle the Board discussed the earlier cases and in particular the case of
Ridsdale v. Clifton(3) which was followed in Tooth v.
Power(4) and Read v. Bishop of Lincoln(5) and
the proposition was thus laid (1) A.I.B. 1929 P.C. 84. (2) 1928 P.C. 239.
(3) (1877] 2 P.D. 276. (4) [1891] A.C. 284.
(5)[18921 A.C. 644.
688 down in the last mentioned case:"In
the present case their Lordships cannot but adopt the view expressed in
Ridsdale v. Clifton(1) as to the effect of previous decisions. Whilst fully
sensible of the weight to be attached to such decisions, their Lordships are at
the same time bound to examine the reasons upon which the decisions rest, and
to give effect to their own view of the law".
The same principle was reiterated by the
Privy Council in Attorney-General of Ontario and Others V. Canada Temperance
Federation and Others(2). The Board was there concerned with the consideration
of a constitutional question. An earlier decision of the Board in Russell V.
Reg(3) had upheld the validity of the impugned statute. That decision bad stood
unreversed for 63 years and had moreover received express approval of the Board
in subsequent cases between 1883 and 1937. It was contended that the case had
been wrongly decided and ought to be overruled and their Lordships repelled
that contention:"Their Lordships do not doubt that in tendering humble
advice to His Majesty they are not absolutely bound by previous decisions of
the Board, as is the House of Lords by its own judgments. In ecclesiastical
appeals, for instance, on more than one occasion, the Board has tendered advice
contrary to that given in a previous case, which further historical research
has shown to have been wrong. But on constitutional questions it must be seldom
indeed that the Board would depart from a previous decision which it may be
assumed will have been acted upon both by governments and subjects, In the
present case the decision now sought to be overruled has stood for over sixty
years; the Act has been put into operation for varying periods in many places
in the Dominion; under its provisions businesses must have been closed, fines
and imprisonments for breaches of the Act have been imposed and suffered. Time
and again the occasion has arisen when the Board could have overruled the
decision had it thought it wrong. Accordingly, in (1) [18T7] 2 P.D. 276. (2)
A.I.R. 1946 P.C. 88.
(3) [1862] 7 A.C. 829, 689 the opinion of
their Lordships, the decision must be regarded as firmly embedded in the
constitutional law of Canada and it is impossible now to depart from it".
It is therefore settled law so far as England
is concerned that their Lordships of the Privy Council do' not consider
themselves bound in law and without examination to follow their decision in a
prior appeal whether they consider it to be right or wrong but feel themselves
bound to examine the reasons upon which the decisions rest and to give effect
to their own view of the law. We here are the highest Court of the land and
would derive considerable assistance from the practice of the Privy Council set
out above.
The High Court of Australia is the highest
Court of Appeal in the Commonwealth and concerns itself ,inter alia with
deciding constitutional questions. The question whether it is bound by its
previous decisions came up for consideration in the Tramways Case (No. 1)(1)
and the High Court held that it was not bound by its previous decision but
would only review a previous decision when that decision was manifestly wrong.
Griffith, C.J. in this connection made the following observations at page 58:"In
my opinion it is impossible to maintain as an abstract proposition that the
Court is 'either legally or technically bound by previous decisions. Indeed, it
may in a proper case be its duty to disregard them. But the rule should be
applied with great caution, and only when the previous decision is manifestly
wrong........ Otherwise there would be grave danger of a want of continuity in
the interpretation of the law".
Barton, J. observed at page 69:"In
conclusion, I would say that have never thought that it was not open to this
Court to review its previous decisions upon good cause. The question is not
whether the Court can do so, but whether it will, having due regard to the need
for continuity and consistency in judicial decisions.
Changes in the number of appointed Justices
can, I take it, never of (1) 18 C.L.R. 51.
690 themselves furnish a reason for review.
That the prior decision was that of little more than half their number might be
urged with greater fairness, but it cannot be urged against an earlier
case........ But the Court can always listen to argument as to whether it ought
to review a particular decision, and the strongest reason for an overruling is
that a decision is manifestly wrong, and its maintenance is injurious to the public
interest".
Powers, J. at page 86 referred to an earlier
decision given by him in the case of The Australian Agricultural Co. v.
Federated Engine-Drivers and Firemen's
Association of Australasia(1):"I am at all times prepared to consider the
review of any decision of this Court, by a Full Bench called to consider that
question, and to reverse any decision if it is shown to be clearly wrong,
subject to the well known considerations to be applied to the particular case
in question at the time, according to the well known judicial policy of
British, Australian -and American Courts, and I think of all Courts of Appeal
in English-speaking communities"-except the House of Lords "I decline
even to consider a question of reversing a decision of this Court casually, or
even seriously, raised by counsel, not clearly urgent, and not raised before as
full a bench as is available. If we do not show some respect to our own Court's
decisions, no counsel will feel safe in advising the public, and it will create
uncertainty and confusion......... 'Under those circumstances I think it would
have to be shown that the decision was clearly wrong, and, as it has been
followed by this Court in other cases, that it would be in the interests of the
public to reverse it".
This question came for consideration again by
the High Court of Australia in The Amalgamated Society of Engineers v. The
Adelaide Steamship Company Limited and Others(2) and the majority judgment
stated at p. 142:"It is therefore, in the circumstances, the manifest duty
of this Court to turn its earnest attention (1) 17 C.TA.R. 261, 292.
(2) 28 C.L.R. 129.
691 to the provisions of the Constitution
itself. That instrument is the political compact of the whole of the people of
Australia, enacted into binding law by the Imperial Parliament, and it is the
chief and special duty of this Court faithfully to expound and give effect to
it according to its own terms, finding the intention from the words of the
compact, and upholding it throughout precisely as framed. In doing this, we
follow, not merely previous instances in this Court and other Courts in
Australia, but also the precedent of the Privy Council in Read v. Bishop of
Lincoln(1), where the Lord Chancellor., speaking for the Judicial Committee in
relation to reviewing its own prior decisions, said: "Whilst fully
sensible of the weight to be attached to such decisions, their Lordships are at
the same time bound to examine the reasons upon which the decisions rest, and
to give effect to their own view of the law". The ground upon which the
Privy Council came to that conclusion we refer to, but need not repeat, adding,
however, that as the Commonwealth and State Parliaments and Executives are
themselves bound by the declarations of this Court as to their powers inter se,
our responsibility is so much the greater to give the true effect to the
relevant constitutional provisions. In doing this, to use the language of Lord
Macnaughten in Vacher & Sons Ltd. v. London Society of Compositors(2),
"a judicial tribunal has nothing to do with the policy of any Act which it
may be called upon to interpret. That may be a matter for private judgment. The
duty of the Court, and its only duty, is to expound the language of the Act in
accordance with the settled rules of construction". " Higgins, J. at
page 160 added:"But the decision is now directly impugned by the claimant;
and it is our duty to reconsider the subject,
and to obey the Constitution and the Act rather than any decision of this
Court, if the decision be shown to have been mistaken".
The High Court of Australia has therefore
considered itself free to review its own decisions just as much (1) [1892] A.C.
644.
(2) [1913] A.C. 107, 118.
88 692 as the Judicial Committee of the Privy
Council, examine the reasons upon which the decisions rest and to give effect
to its own views of the law, in other words to reconsider the subject and to
obey the Constitution and the Act rather than any decision of the Court if the
decision be shown to have been mistaken.
Our Constitution has drawn freely inter alia
upon the Constitution of the United States and it would be helpful to consider
what is the position in the United States in regard to the re-consideration of
its previous decisions by the Supreme Court. There have been numerous decisions
of the Supreme Court in which the Court has departed from the doctrine of stare
decision and has either refused to follow or overruled its previous decisions.
In Hertz v. Woodman(1) Mr. Justice Lurton
observed:"The rule of stare decision, though one tending to consistency
and uniformity of decision, is not inflexible.
Whether it shall be followed or departed from
is a question entirely within the discretion of the court, which again is
called upon to consider a question once decided".
Mr. Justice Brandies while delivering his
dissenting opinion in Washington v. Dawson & Co. (2) thus expressed himself
with regard to the propriety upon the part of the Supreme Court of departing
from its earlier doctrines if it has come to consider those doctrines as
erroneous:"The doctrine of stare decisis should not deter us from@
overruling that case and those which follow it. The decisions are recent ones.
They have not been acquiesced in. They have not created a rule of property
around which vested interests have clustered. They affect solely matters of a
transitory nature. On the other hand, they affect seriously the lives of men,
women, and children, and the general welfare. Stare decisis is ordinarily a
wise rule of action. But it is not a universal, inexorable command. The
instances (1) 218 U.S. 205.
(2) 264 U.S. 219.
693 in which the court has disregarded its
admonition are many".
The same learned Judge in a dissenting
opinion in David Burnet v. Coronado Oil & Gas Company(1) reiterated the same
position in the manner following:
"Stare decisis is not, like the rule of
res judicata, a universal, inexorable command" After quoting the passage
from the judgment of Mr. Justice Lurton in Hertz v. Woodman(1) above cited the
learned Judge proceeded:"Stare decisis is usually the wise policy, because
in most matters it is more important that the applicable rule of law be settled
than that it be settled right............................ This is commonly true
even where the error is a matter of serious concern, provided correction can be
had by legislation. But in cases involving the Federal Constitution, where
correction through legislative action is practically impossible, this Court has
often overruled its earlier decisions. The Court bows to the lessons of
experience and the force of better reasoning, recognizing that the process of
trial and error, so fruitful in the physical sciences, is appropriate also in
the judicial function.................... Recently, it overruled several
leading cases, when it concluded that the States should not have been permitted
to exercise powers of taxation which it 'had theretofore repeatedly sanctioned.
In cases involving the Federal Constitution
the position of this Court unlike that of the highest court of England, where
the policy Of stare decisis was formulated and is strictly applied to all
classes of cases. Parliament is free to correct any judicial error; and the
remedy may be promptly invoked".
It will be instructive at this juncture to
note the following passages to be found in foot-note 3 at p. 825 in the report
of this case(3):
"Compare Taney, Ch. J. in Passenger
Cases, 7 How. 283, 470;
12 L. Ed., 702, 780: After such opinions
judicially delivered, I had supposed that question to be settled, so far as any
question upon the construction of the Constitution ought to be regarded (1) 285
T.T.S. 393.
(2) 218 U.S. 205.
(3) 76 L. Ed. 815, 694 as closed by the
decision of this Court. I do not, however object to the revision of it, and am
quite willing that it be regarded hereafter as the law of this court, that its
opinion upon the construction of the Constitution is always open to discussion
when it is supposed to have been founded in error, and that its judicial
authority should hereafter depend altogether on the force of the reasoning by
which it is supported".
Compare Field, J. in Barden v. Northern P.R.
Co.(1):
"It is more important that the court
should be right upon later and more elaborate consideration of the cases than
consistent with previous declarations. Those doctrines only will eventually
stand which bear the strictest examination and the test of experience " .
In Mark Graves v. People of the State of New
York(") Mr. Justice Frankfurter stated:"But the-ultimate touchstone
of constitutionality is the Constitution itself and not what we have said about
it".
The same principle was reiterated in Smith v.
All wright(3):"In reaching this conclusion we are not unmindful of the
desirability of continuity of decision in constitutional questions. However,
when convinced of former error, this Court has never felt constrained to follow
precedent. In constitutional questions, where correction depends upon amendment
and not upon legislative action this Court throughout its history has freely
exercised its power to reexamine the basis of its constitutional decisions.
This;has long been accepted practice, and this practice has continued to this
day".
and in United States of America v.
South-Eastern Underwriters Association (1) in the dissenting judgment of Stone,
C.J. at p. 579:"This Court has never committed itself to any rule or
policy that it will not "bow to the lessons of experience and the force of
better reasoning" by overruling a mistaken precedent....................
This is (1) 154 U.S. 288, 322.
(3) 321 U.S. 649 (2) 306 U.S. 466,491.
(4) 322 U.S. 533 695 especially the case when
the meaning of the Constitution is at issue and a mistaken construction is one
which cannot be corrected by legislative action. To give blind adherence to a
rule or policy that no decision of this Court is to be overruled would be
itself to overrule many decisions of the Court which do not accept that view.
But the rule of stare decisis embodies a wise policy because it is often more
important that a rule of law be settled than that it be settled right. This is
especially so, where as here, Congress is not without regulatory power........
The question then is not whether an earlier decision should ever be overruled,
but whether a particular decision ought to be.
And before overruling a precedent in any case
it is the duty of the Court to make certain that more harm will not be done in
rejecting than in retaining a rule of even dubious validity".
The position has been thus summarised by
Willoughby on the Constitution of the United States-Vol. I-Second Edition-at p.
74:"There are indeed good reasons why the doctrine Of stare decisis should
not be so rigidly applied to the constitutional as to other laws. In cases of
purely private import, the chief desideratum is that the law remain certain,
and, therefore, where a rule has been judicially declared and private rights
created there under, the courts will not., except in the clearest cases of
error, depart from the doctrine of stare decisis When, however, public interests
are involved, and especially when the question is one of constitutional
construction, the matter is otherwise.
An error in the construction of a statute may
easily be corrected by a legislative act, but a Constitution and particularly
the Federal Constitution, may be changed only with great difficulty. Hence an
error in its interpretation may for all practical purposes be corrected only by
the court's repudiating or modifying its former decision".
These then are the principles which should
guide us in determining whether, we should reconsider the earlier decisions of
this Court. We are here not merely concerned with legislative enactments which
it would 696 be within the competence of either the Union Legislature or the
State Legislatures. to enact if our earlier decisions were erroneous. We are
concerned with the construction of the Provisions of the Constitution which it
will be almost impossibleto amend. The House of Lords considered itself bound
by its previous decisions, because it felt that the Act of Parliament could set
right an erroneous decision of the House by enacting appropriate legislation.
But the High Court of Australia as well as the Supreme Court of the United
States felt themselves free to reconsider their earlier decisions because of
the practical impossibility of correcting the erroneous decisions through
legislative action. They considered it their bounden duty to construe the
constitutional provisions and be guided the provisions of the Constitution
itself and not what had been their earlier decisions on the questions of its
construction. The only safeguard which they put on the exercise of such
power" of reconsideration was that the earlier decision should be
manifestly wrong or erroneous. We here also are concerned with the construction
of the provisions of the Constitution which cannot be amended so easily and if
we come to the conclusion that the earlier decision was manifestly Wrong or
erroneous and that public interest demanded that the same should be
reconsidered we should not have the slightest hesitation in doing so. We
therefore approach the consideration of the earlier decision of this Court in
the Bombay Sales Tax Appeal bearing in mind the principles above enunciated.
It will be necessary at the outset to take
stock of the situation as it obtained before the enactment of article 286 of
the Constitution. The Government of India Act, 1935 contained provisions in
regard to the distribution of legislative powers between the Dominion and the
Provincial Legislatures in sections 99 and 100. The Dominion Legislature was
competent to make laws including laws having extra-territorial operation for
the whole or -any part of the Dominion and the Provincial Legislatures were
competent to make laws for the Provinces for any part thereof, 697 The
legislative heads in respect of which the laws could be made by the respective
Legislatures were enumerated in the lists of the Seventh Schedule to the Act
and the.
demarcation between the powers of the
Dominion Legislature and the Provincial Legislatures in that behalf was to be
found in section 100. Entry 48 in List II of the said Schedule gave the power
to the Provincial Legislatures in respect of "taxes on the sale of goods
and on advertisements". Even though the entry mentioned taxes on sale of
goods that head was construed to mean in reality a power to tax the transaction
and the power to tax the transaction carried with it the power to tax either
party thereto. The expression "taxes on sale" was therefore construed
to include also a tax on purchases of goods, as the transaction resulted in
change of ownership from one person to another and was from its very nature a
bilateral transaction with a seller on the one hand and the purchaser on the
other. (Vide V. M. S. Md. & Co. v. State of Madras(1)), The same
distribution of legislative powers obtained when the Constitution came to be
enacted and article 245 provided that Parliament may make laws for the whole or
any part of the territory of India, and the Legislature of a State may make
laws for the whole or any part of the State. Exclusive power to make laws with
respect to the legislative heads enumerated in the Union List (List I) and the
State List (List II) of the Seventh Schedule to the Constitution was given to
Parliament and the State Legislature respectively by article 246. Entry 54 of
the State List gave the exclusive power to the State Legislatures with respect
to taxes on the sale or purchase of goods other than newspapers. What was
implicit in the phraseology of Entry 48 of List II of the Seventh Schedule to
the Government of India Act was thus made explicit by the phraseology adopted
in Entry 54 of the State :List in the Seventh Schedule to the Constitution.
Prima facie laws enacted by State
Legislatures would have operation within the territories of the States.
Primarily legislation of a country is territorial (1) A.1 R. 1958 Madras 105,
698 and the general rule is "extra territorium jus dicenti impunne non
paretur". The laws of a nation apply to all its subjects and to all things
and acts within its territories.
(See Maxwell on the Interpretation of
Statutes-10th Edn. page 144). Craies' on Statute Law-5th Edn. at p. 174
contains the following citation from the speech of Lord Cranworth in Jefferys
v. Boosey(1) "Prima facie the Legislature of this country must be taken to
make laws for its own subjects exclusively".
The same principle has been applied also to
sales tax and it is stated in American Jurisprudence-Vol. 47, p. 202 Para. 5
under the caption "Territorial Jurisdiction" that:"The general
rule that a State may not tax persons, property or interests which are not
within its territorial jurisdiction is applicable to sales taxes".
It would therefore appear that when the State
Legislatures enacted laws in respect of taxes on sales or purchases of goods
they would only have operation within the territories of the States and the
sales or purchases of goods even though they are not specified in the relative
entry to be "within the territories" of the States would Prima facie
be such as take place within the respective territories of the States.
This power to tax the sales or purchases of
goods would again have to be construed with reference to the connotation of the
term "sale" as it was understood in the legislative practice of the
country at the time when the power was conferred. As was observed by Their
Lordships of the Privy Council in Croft v. Dunphy(2):"When a power is
conferred to legislate on a particular topic it is important, in determining
the scope of the power, to have regard to what is ordinarily treated as
embraced within that topic in legislative practice and particularly in the
legislative practice of the State which has conferred the power".
The expression "Sale of goods" in
Entry 48 in List (1) [1854] 4 H.L.C. 815, 955.
(2) [1933] A.C. 156, 165.
699 11 of the Seventh Schedule to the
Government of India Act, 1935 came to be construed by this Court in Sales Tax
Officer v. Budh Prakash Jai prakash(1) in relation to an attempt by the State
of Uttar Pradesh to tax forward contracts of sale and this Court held:"There
having existed at the time of the enactment of the Government of India Act,
1935, a welldefined and wellestablished distinction between a sale and an
agreement to sell it would be proper to interpret the expression 'sale of
goods' in Entry 48 in the sense in which it was used in legislation both in
England and India and to hold that it authorises the imposition of a tax only
when there is a completed sale involving transfer of title".
The expression "sale of goods" was
construed in the light of the definition thereof to be found in section 4 of
the Indian Sale of Goods Act (Act III of 1930) as also the corresponding
provision of the English Sale
of Goods Act and the relevant passage from Halsbury's Laws of England, Vol.
15, Para 13 quoted therein. Section 4 of the Indian Sale
of Goods Act runs as
follows:"(1) A contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price.
There may be a contract of sale between one part-owner and another.
(3) Where under a contract of sale the property in the
goods is transferred from the seller to the buyer, the contract is called a
sale, but where the transfer of the property in the goods is to take place at a
future time or subject to some condition thereafter to be fulfilled, the
contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time
elapses, or the conditions are fulfilled subject to which the property in the
goods is to be transferred".
The corresponding provision in section I of the English Sale of Goods Act is as follows:"(1) A contract of sale of goods is a
contract (1) [1955] 1 S.C.R. 243. 89 700 whereby the seller transfers or agrees
to transfer the property in goods to the buyer for a money consideration,
called the price. There may be a contract of sale between one part-owner and
another.
(3)Where under a contract of sale the
property in the goods is transferred from the seller to the buyer the contract
is called a sale; but where the transfer of the property in the goods is to
take place at a future time or subject to some condition thereafter to be
fulfilled the contract is called an agreement to sell.
(4)An agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled subject to which the property
in the goods is to be transferred".
This being the legislative practice in India
as well as in England at the time when the power to tax sales or purchases of
goods was conferred on the State Legislatures the scope of that power would
have been ordinarily determined by the definition of the sale of goods to be found
in theserespective Sales of Goods Acts and the State Legislatures would have
had the power to tax sales or purchases of goods in which the property in the
goods passed within the respective territories of the States. This was not a
power to tax a seller or a purchaser in personam. It was a power to tax the
sale or purchase of goods which took place within the territories of the State
and was to be exercised in those cases where the property in the goods which
were the subject matter of the sale or purchase passed within the territories
of the State.
This position however was not acceptable to
the various States which wanted to enlarge the scope of their power to tax
sales or purchases of goods. There was therefore an attempt made to analyse the
concept of sale into its various ingredients and to fasten upon any one of the
ingredients as conferring upon them the power to tax the sale or purchase of
goods by having resort to the theory of territorial connection or nexus. As was
observed by Bose, J. in The State of Bombay and 701 Another v. The United
Motors (India) Ltd. & Others(1) at p. 1101:"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".
Having analysed the concept of the sale thus
into its essential ingredients the only essential condition which was
considered necessary to be satisfied was the completion of the transaction of
sale wheresoever it may take place and the taxable event was taken to be any
one of these essential ingredients provided it took place within the territories
of the State,. Reliance was placed for this purpose on the decision of the
Federal Court in In re The Central Provinces and Berar Sales of Motor Spirit
and Lubricants Taxation Act, 1938 (O. P. & Berar Act No. XIV of 1938)(2)
where Their Lordships observed that:"Tax on sale of goods must necessarily
be a tax imposed at the time of the sale of goods and must exclude other forms
of transfer like mortgages, leases, etc." Similar observations were also
to be found in the Province of Madras v. Boddu Paidanna & Sons(3) where it
was stated that a tax on the sale of goods is a tax levied on the occasion of
the sale of goods and the liability to tax arises on the occasion of the sale.
The sale was therefore taken to be the concrete event which gave rise to the power
of the State to tax the sale of goods but was taken as not necessarily taking
place within the territories of the taxing State, the only thing considered
essential for the purpose being the (1) [1953] S.C.R. 1069. (2) [1989] F.C.R.
18, 86, 87, (3) [1942] F.C.R. 90, 101.
702 territorial connection or nexus between
the taxing State and one or more of the necessary ingredients of sale analysed
as above. The territorial connection or nexus theory was sought to be supported
by reference to certain decisions of the High Court of Australia, e.g., The
Wanganui Rangitikey Electric Power Board v. The Australian Mutual Provident
Society(1) where Dixon, J. observed:"So long as the statute selected some
fact or circumstance which provided some relation or connection with New South
Wales, and adopted this as the ground of its interference, the validity of an
enactment reducing interest would not be open to challenge".
and the dissenting judgment of Rich, J. in
Broken Hill South Ltd. v. Commissioner of Taxation (N.S. W.)(2) which stated
that:"I do not deny that once any connection with New South Wales appears
the legislature of that State may make that connection the occasion or subject
of the imposition of a liability. But the connection with New South Wales must be
a real one and the liability sought to be imposed must be pertinent to that
connection".
These observations of the learned Judges of
the High Court of Australia were referred to with approval by our Federal Court
in Governor-General-in-Council v. Raleigh Investment Co. Ltd.(3). It was an
income-tax case and the dispute related to the claim of the Indian Government
to levy income-tax and super tax on the dividends paid to the assessee company
(which was a joint stock company incorporated under the English Companies Act
having its registered offices in the Isle of Man and its main offices in
England) by nine sterling companies, the bulk of whose shares were held by the
assessee company. These sterling companies were registered under the English
Companies Act and were controlled in London where the Boards of Directors sat,
the share registers were situate and dividends were declared. They however
carried on the business (1) (19341 50 C.L.R. 581, 600.
(2) [1937] 56 C.L.R. 331, 361.
(8) A.I.R. 1944 F.C. 51 s.c. 1944 F.C.R. 229
703 of manufacturing and selling tobacco and cigarettes in India and the
business in India where all profits were made was managed by the local boards
which were constituted by the Boards in London. The financial policies of these
companies were controlled by the London Boards and in all important matters of
business the London Boards were consulted and all the general meetings of the
Companies were held in England.
The dividends of these Companies were also
declared by them in England and paid by them in England to the assessee company
in England. It was however held that the source of the dividends paid to the
assessee company by the sterling companies was British Indian and when the
attempt was to tax income and not the corpus and the question to be considered
was the 'source' of that income it was legitimate to take into account the
place where the business from which the income was derived was in fact carried
on and not to treat the situs of the shares in the eyes of the law as concluding
the matter. The Court was therefore of the opinion that the source of the
dividends paid to the assessee company by the sterling companies was British
Indian and that in making them liable to income-tax on that basis the Indian
Legislature was not giving its law any extra-territorial operation. Spens, C.
J. who delivered the judgment of the Court further quoted with approval the
following passage from the judgment of Evatt, J. in Trustees, Executors &
Agency Co. Ltd. v. Federal Commissioner of Taxation(1) at p.
236:"The Constitution requires that it
must be possible to predicate of every valid law that it is for the peace,
order and good government of the Dominion with respect to a granted subject,
e.g., customs, taxation, external affairs.
In such cases, the presence of
non-territorial elements in the challenged law has to be considered upon a
slightly different footing and those affirming its validity have to show not
only that the Dominion has some real concern or interest in the matter, thing or
circumstance dealt with by the legislation, but that the concern or interest is
of such (1) [1933] 49 C.L.R. 220.
704 a nature that the challenged law is truly
one with respect to an enumerated subject-matter".
Two more decisions of the Federal Court reiterating
the same principle may be noted in this context: Wallace Bros. & Co. Ltd.
v. Commissioner of Income-tax, Bombay City(1) and A. H. Wadia v. Commissioner
of Income-tax, Bombay(2). In the former case the Court held that where the
Imperial Parliament has conferred a power to legislate on a particular topic it
is permissible and important in determining the scope and meaning of the power
to have regard to what is ordinarily treated as embraced within that topic in
the legislative practice of the United Kingdom.
The general conception as,to the scope of the
legislative practice in the United Kingdom with regard to income-tax is that
given a sufficient territorial connection between the person sought to be
charged and the country seeking to tax him, income-tax may properly extend to
that person in respect of his foreign income. That general conception, both on
a consideration of the British legislation and as a matter of construction of
the Government of India Act, 1935, finds a place in the phrase "taxes on
income" as used in that Act and the principle of sufficient territorial
connection is implicit in the power conferred by the Act of 1935. The
derivation from British India of the major portion of its income for a year
gives to a company as respects that year a territorial connection sufficient to
justify the company being treated as at home in British India for all purposes
relating to taxation on its income for that year from whatever source it may be
derived, and if it is so at home in British India it is a person properly
subject to the jurisdiction of the Central Indian legislature. In the latter
case the Court held that a law imposing a tax' cannot be impugned on the ground
that it is extra-territorial if there is a connection between the person who is
subjected to the tax and the country which imposes that tax. The connection
must however be a real one and the liability sought to be imposed must be
pertinent to that connection;
but, if these conditions are satis(1) [1948]
F.C.R. 1.
(2) [1948] F.C.R. 121, 705 fled it is of no
importance on the question of validity that the liability imposed is, or may
be, disproportionate to the territorial connection. Kania, C. J. also observed
at p.
141:"As mentioned above, the aspect of
it affecting persons who are beyond the jurisdiction of the municipal courts
cannot be considered sufficient for the Court to hold it ultra vires. The
municipal courts are bound to enforce the law.
Whether after obtaining the opinion or decree
the same is enforceable against the other side or not, is not a matter for the
Court's consideration. The Court has only to see that the legislation is within
the ambit of the powers of the Legislature".
Having resort therefore to the territorial
Connection or the nexus theory enunciated in the cases above noted and
analysing the concept of sale into its necessary ingredients as above the
various State Legislatures enacted laws in respect of taxes on sales or
'purchases of goods spreading their net as wide as they could having regard to
the situation obtaining in their respective territories. A transaction of sale
or purchase of goods thus came to be taxed by more States than one even though
really there was only one transaction of sale or purchase of goods as between
the seller and the purchaser. The consumer was the last person who ever counted
in the scramble for taxes on sales or purchases of goods and even the free flow
of inter-State trade and commerce was affected. The state of affairs was thus
graphically described by Patanjali Sastri, C. J. in his judgment in Bombay
Sales Tax Appeal(1) at p. 1079:"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 (1) [1953] S.C.R. 1069.
706 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
Berar 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".
Apart from the States resorting to the
territorial connection or nexus theory in the manner aforesaid the courts also
appeared to lend their support to the theory and the High Court of Madras in
particular in two decisions, Poppatlal Shah v. State of Madras(1) and C. G.
Naidu & Co. v. State of Madras(2), gave its imprimatur to this theory.
In the former case the expression "sale
of goods" was understood in its popular sense as distinct from its legal
sense and it was held that the sales tax could be levied if the transaction
substantially took place within the State notwithstanding that the property did
not pass within the State. In the latter case it was held that the power of the
State to impose taxes was not conditioned on the subjectmatter being wholly
within its jurisdiction and the exercise of the power was valid if there was
sufficient territorial connection with reference to the subject-matter. After
discussing the American case law on the subject the Court came to the conclusion
that in respect of inter-State sales the State in which the contract was
concluded was the (1) A.I.R. 1953 Madras 91. (2) A.I.R. 1953 Madras 117.
707 only State which had the power to impose
a tax. This Court also in the majority judgment in the Bombay Sales Tax
Appeal(1) while summarising the position as it obtained before the enactment of
the Constitution incidentally expressed its opinion in this behalf at p. 1078
as under:"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 activities ultimately resulted in a concluded sale or purchase to be
taxed".
In another case decided immediately
thereafter Poppatlal Shah v. The State of Madras(3) this Court understood this
expression of opinion in the majority judgment as laying down the principle of
territorial connection or nexus:"It admits of no dispute that a Provincial
Legislature could not pass a taxation statute which would be binding on any
other part of India outside the limits of the Province, but it would be quite
competent to enact a legislation imposing taxes on transactions concluded
outside the Province, provided that there was sufficient and a real territorial
nexus between such transactions and the taxing Province.
This principle, which is based upon the
decision of the Judicial Committee in Wallace Brothers & Company v. (1)
[1953] B.C.R. 1069. (2) [1948] F.C.R. 1. (3) [1953] S.C.R. 677, 90 708
Commissioner of Income-tax, Bombay(1) has been held by this court to be
applicable to sale tax legislation, in its recent decision in the Bombay Sales
Tax Act case(2) and its propriety is beyond question. As a matter of fact, the
legislative practice in regard to sale tax laws adopted by the Provincial
Legislatures prior to the coming into force of the Constitution has been to
authorise imposition of taxes on sales and purchases which were related in some
manner with the taxing Province by reason of some of the ingredients of the
transaction having taken place within the Province or by reason of the
production or location of goods within it at the time when the transaction took
place".
It may be observed that in the Bombay Sales
Tax Appeal the question of the territorial connection or nexus was not directly
in dispute and in Poppatlal's case(3) referred to above it was taken as decided
by this Court in the Bombay Sales Tax Appeal that the theory of territorial
connection or nexus was applicable to sales tax legislation. It is a moot point
whether this theory of territorial connection or nexus which has been mainly
applied in income-tax cases is also applicable to sales tax legislation, the
spheres of an income-tax legislation and sales tax legislation being quite
distinct. Whereas in the case of income-tax legislation the tax is levied
either on a person who is within the territory by exercising jurisdiction over
him in personam or upon income which has accrued or arisen to him or is deemed
to have accrued or arisen to him or has been derived by him from sources within
the territory and it is therefore germane to enquire whether any part of such
income has accrued or arisen or has been derived from a source within the
territory, in the case of sales-tax legislation it is the sale or purchase of
goods which is the subject-matter of taxation and it cannot be predicated that
the sale or purchase takes place at one or more places where the necessary
ingredients of sale happen to be located. The theory of territorial connection
or nexus was not put to the test at any time prior to the enactment of (1)
[1948] F.C.R. 1.
(2)[1953] S.C.R. 1069.
(3) [1953] S.C R. 677.
709 the Constitution and it is not necessary
also for us to give a definite pronouncement on the subject. Suffice it to say
that there was this evil which was rampant in the pre Constitution period by
reason of the various States fastening upon one or more ingredients of the sale
and arrogating to themselves the power to tax sales or purchases of goods by
reason of the territorial connection or nexus which they claimed to have with
one or more of the ingredients of the sale provided however that a sale or
purchase ultimately did take place either within their territories or anywhere
else. It was this evil amongst others which was sought to be remedied by the
Constitution makers when they came to enact article 286 of the Constitution.
The Constitution-makers enacted several
provisions in Part XIII relating to trade, commerce and intercourse within the
territory of India with an eye towards India as an economic unit and enacted in
article 301 that trade, commerce and intercourse throughout the territory of
India shall be free and by article 302 they empowered the Parliament to impose
such restrictions on the, freedom of trade, commerce and intercourse between
one State and another or within any part of the territory of India as may be
required in the public interest. Broad based on this conception of freedom of
trade, commerce and intercourse throughout the territory of India and also with
a view inter alia to relieve the consumer of the burden of multiple taxation
which he was subjected to by the various State Legislatures by having resort to
the territorial connection or nexus theory as aforesaid the Constitution-makers
in article 286 enacted restrictions on the power of the State Legislatures in
regard to the imposition of tax on the sale or purchase of goods and these
restrictions were fourfold: (1) State Legislatures were restrained from
imposing a tax on the sale or purchase of goods where such sale or purchase
took place outside the State;
(2) The State Legislatures were restrained
from imposing a tax on the sale or purchase of goods where such sale or
purchase took place in the course of, the 710 import of the goods into or
export of the goods out of the territory of India;
(3) The State Legislatures were restrained
from imposing a tax on the sale or purchase of any goods where such sale or
purchase took place in the course of inter-State trade or commerce except in so
far as the Parliament might by law otherwise provide;
and (4) The State Legislatures were
restrained from imposing a tax on the sale or purchase of any such goods as had
been declared by Parliament by law as essential for the life of the community
unless such law had been reserved for the consideration of the President and
had received his assent.
These were the four restrictions which were
put upon the powers of the State Legislatures to impose a tax on the sales or
purchases of goods and were imposed with different objectives in view.
The first restriction was devised to achieve
the objective of relieving the consumer of the burden of multiple taxation and
put it out of the power of a State to tax the sale or purchase of goods where
such sale or purchase took place outside the State. The Sale of Goods Act contained
several provisions which determined when a sale or purchase took place or in
other words when the property in the goods sold passed from the seller to the
purchaser. But it was silent in regard to the place where the sale or purchase
took place. There was no rule of law enacted therein which determined the situs
or location of such sale or purchase and resort was therefore had to the
general law of the land for the purpose. The territorial connection or nexus
theory had an eye over the various ingredients of a sale or purchase and if
anyone or more of these ingredients fixed the situs or the location of the sale
it would mean that a sale had more situses or locations than one. This state of
affairs could not be allowed to continue any further having, regard to the
interests of the consumer and it was therefore thought necessary, when the
State Legislatures were restrained from imposing a tax on sale or purchase of
goods where such sale or purchase took place outside the State, also to
determine when 711 such sale or purchase could be said to take place outside
the State. It was for this purpose that the Explanation to article 286(1) (a)
was enacted and it was enacted for the express purpose therein mentioned, viz.,
"for the purposes of sub-clause (a)". The Explanation was thus
enacted for the express purpose of determining what sales or purchases could be
said to have taken place outside the State and the basic idea which was adopted
therein was that under the general law relating to Sale of Goods property in
the goods would by reason of such sale or purchase pass in a particular State
which would therefore be the situs or location of such sale or purchase. But
notwithstanding that fact the sale or purchase was 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 purposes of consumption in that State. The
antithesis appears to have been between the State in which the property in the
goods has by reason of such sale or purchase passed and 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 and in the competition between
-these two States the Explanation provided that the sale or purchase in those
circumstances 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 therein. This Explanation was interpreted in
various ways, one view being that It defined an outside sale and went no
further and that the situs of the sale was determined for the limited purpose
of telling the State what it could not tax by telling it that in the cases
covered by the Explanation in spite of the property in the goods having passed
within its territories it was an outside sale qua that State. The other view
was that besides fixing the situs of sale in this manner it also. defined what
was a sale or purchase which shall be deemed to have taken place in the
delivery State and thus fulfilled a double function of investing only the
delivery State with the power to tax such sale or pur712 chase to the'
exclusion of all other States qua whom the sale or purchase was deemed to be an
outside sale. The third view was that the Explanation was concerned with fixing
the situs of sale in respect of the delivery State only and did not affect the
power of the State in which the property in the goods had passed to tax such
sale or purchase which it enjoyed by reason of the fact that the property in
the goods had passed within its territories. A fourth possible view was that
the only State which could not tax such sale or purchase on the ground that the
sale was outside the State was the State in which the property in the goods had
passed leaving open to the other States to tax such sales or purchases by
having resort to the power which they possessed under article 246(3) and Entry
54 of List 11 of the Seventh Schedule to the Constitution. Whatever be the
correct view to take of this Explanation one fact remained that article 286 (1)
(a) and the Explanation thereto were enacted with the one and only motive to
relieve the consumer of the burden of multiple taxation to which he was
subjected by having resort to the territorial connection or nexus theory and to
replace the nexus theory by what may be described as the situs theory fixing
the situs or the location of the sale or purchase and putting a restriction on
the taxing power of the States qua which it could be predicated that such sale
or purchase took place outside the State, thus leaving only one State in which the
goods have been actually delivered as a direct result of such sale or purchase
for the purpose of consumption therein "free to tax the sale or purchase
having resort to the powers vested in the State Legislature by article 246(3)
and Entry 54 of List II of the Seventh Schedule to the Constitution.
If therefore the situs or location of the
sale was laid down as the criterion of the taxing power of the State the non obstante
clause contained in the Explanation gave the clue as to what was in mind of the
Constitution-makers when they substituted the situa theory in place of the
nexus theory which theretofore prevailed. They took cognisance of the general
law 713 relating to the sale of goods under which the property in the goods
passed by reason of such sale or purchase. The conception of the transfer of
ownership of the goods by the seller to the purchaser was thus accepted by them
as determining the situs or location of the sale or purchase and this
conception had its roots in the relevant provisions of the Sale of Goods Acts
both in India and in England and in spite of the fact that those provisions did
not in terms say where the sale took place or the transfer of ownership came
about or the property in the goods passed by reason of such sale or purchase,
the general law relating to sale of goods was taken in the Explananation to fix
the situs or location of such sale or purchase within the territories of a
particular State and that event could only take place in one State and not in
more States than one. There could be only one situs or location of the sale or
purchase and if that were so the State in whose territories such sale or
purchase took place or in which the property in the goods passed by reason of
such sale or purchase was the State which could claim the power to tax such
sale or purchase by reason of its having taken place within its territory. It
would therefore appear that the Constitution-makers had in enacting the
Explanation the one and only motive of negativing the territorial connection or
nexus theory and replacing it by the situs theory and fixing the situs or
location of the sale or purchase within the State in which the property in the
goods passed by reason of such sale or purchase. While doing so they also
created a legal fiction whereby in the competition between what may be called
the title State and the delivery State the delivery State was given the power
to impose a tax on sale or purchase of goods where the goods had actually been
delivered as a direct result of such sale or purchase for the purpose of
consumption in that State. If the object to be achieved was the relief of the
consumer from the burden of multiple taxation that object could only be
achieved by subjecting him to taxation at the instance of one State only and not
by more States than one and to that extent the view 714 that both the title
State and the delivery State would be entitled to impose the tax on the sale or
purchase falling within the Explanation was clearly erroneous, the only State
which would be in a position to tax the sale or purchase in question being the
State in which the goods had been actually delivered as a direct result of such
sale or purchase for the purpose of consumption therein.
The second restriction on the taxing power of
the State Legislatures was devised to safeguard the import and export trade of
the country and embraced transactions of sale or purchase of goods where such
sales or purchases took place in the course of the import of the goods into or
export of the goods out of the territory of India, vide article 286(1) (b). It
is significant to observe that the Explanation to article 286(1)(a) was
definitely put for the purposes of sub clause (a) and it had therefore no
application to the cases which were covered by article 286(1) (b). This concept
was quite distinct from the concept which was dealt within article286(1)(a).
The sales or purchases were looked at from different view-points and the
particular aspect which was dealt with in article 286(1)(b) was the import export
aspect of the transactions of sales or purchases.
That aspect was separately dealt with even
though for the sake of economy of words the provisions in regard thereto were
incorporated in article 286(1). They had nothing in common with the provision
contained in article 286 (1) (a).
The third restriction was devised to protect
inter State trade or commerce and covered transactions of sale or purchase of
any goods where such sale or purchase took place in the course of inter-State
trade or commerce except in so far as Parliament might by law otherwise
provide. This was still another viewpoint and this restriction was put with a
view to safeguard the freedom of trade, commerce and intercourse throughout the
territory of India. The imposition of this restriction meant that the States
would be deprived of a large part of their income which they used to derive
from taxing sales or purchases falling 716 within this category before the
commencement of the Constitution. A proviso was therefore enacted 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 the Constitution shall, notwithstanding that the
imposition of such tax is contrary to the provisions of article 286(2),
continue to be levied until the thirty-first day of March, 1951. This proviso
enabled the State Governments to levy the taxes which they used to levy before
the commencement of the Constitution up to the 31st March 1951 within which
period they were expected to adjust their economies and replenish their
treasuries by having resort to their legitimate powers of taxation. By the 31st
March 1951 the States could also make representations to the Centre and induce
the Parliament to otherwise provide by appropriate legislation within the
meaning of article 286(2) and autborise them to impose taxes on the sale or
purchase of any goods where such sales or purchases took place in the course of
inter-State trade or commerce. But until that ban was lifted by appropriate
legislation by the Parliament the by imposed under article 286(2) was absolute
and no transaction of sale or purchase of goods where such sale or purchase
took place in the course of inter-State trade or commerce could ever be made
the subject-matter of taxation at the instance of a State Legislature. The
Explanation to article 286(1) (a) being expressly for the purpose of subclause
(a), i.e., for the purpose of determining what transaction of sale or purchase
was outside the State or inside the State as above stated could not be read
into article 286(2) nor could it be read as an exception or proviso to article
286(2). Reading it as such exception or proviso would be contrary to the
express terms of the Explanation and would also stultify the purpose of the
enactment of article 286 (2) thus taking a large slice out of the transactions
falling within that category. The rule as to the exclusion of the general
provision by a special provision would also not apply for the simple reason
that 91 716 the object of article 286(1)(a) and the Explanation thereto is
quite distinct from the object of article 286(2) and the objects being quite
different these provisions do not cover. the same subject-matter and therefore
there would be no occasion for the application of that rule of construction.
To this extent the view taken by me in the
Bombay Sales Tax Appeal(1) that the Explanation to article 286(1)(a) was an
exception or proviso to article 286(2) was clearly erroneous.
The last restriction on the taxing powers of
the State Legislatures was devised to maintain the supply of essential
commodities and related to the imposition of a tax on the sale or purchase of
any goods as have been declared by Parliament by law to be essential for the
life of the community unless such law has been reserved for the consideration
of the President and has received his assent.
This restriction also though of another
nature was a restriction put on the power of the State Legislatures to tax such
transactions of sale or purchase and was absolute in terms having nothing
whatever to do with the restrictions put in the earlier clauses of article 286.
These transactions comprised a distinct category by themselves and were not
affected by the restrictions put in the earlier clauses of the article. It may
be noted that the transactions covered by article 286(1) (a), article 286(2)
and article 286(3) though looked at from different view-points-may overlap. A
transaction which is covered by article 286(1) (a) may also be covered by
article 286(2) and both these sets of transactions may be covered by article
286(3). Such overlapping would not necessarily mean that the provisions of one
particular clause have to be read as fastening upon the transactions falling within
the category comprised therein and treating them as lifted out of the ban
sought to be imposed by the other clauses of the article. Each ban has got to
be effective and imposed on the transactions falling within its ambit and even
though the transaction may be saved out of the ban imposed in one particular
clause it may just as (1) [1958] S.C.R 1069.
717 well fall within the ban imposed in
another clause and thus be excluded from the taxing power of the State
Legislatures.
It cannot therefore be urged that the
Explanation to article 286(1)(a) lifts the transaction out of the ban imposed
by article 286(2) or by article 286(3) and leaves such transaction of sale or
purchase as is covered by the Explanation free to be taxed by the delivery
State in spite of the same being of an inter-State character or being in regard
to goods declared by Parliament by law to be essential for the life of the
community.
The whole scheme of article 286 is that four,
different restrictions are put on the taxing power of the State Legislatures in
regard to the sales or purchases of goods and each one of these restrictions
has got to be considered separately by itself and it is only those transactions
of sale or purchase which do not fall within any of those categories that can
be taxed by the State Legislatures by having resort to their powers under
article 246(3) and Entry 54 of List 11 of the Seventh Schedule to the
Constitution.
The learned Government Advocate for Bihar
however urged five distinct reasons why article 286(2) cannot apply to the
transactions of sale or purchase covered by article 286(1) (a) and the
Explanation thereto and they were:(1) The class of sales falling under article
286(1) (a) form a special class of inter-State sales which on general
principles ought not to be affected by the general provisions of article
286(2);
(2) If article 286(2) applies to the class of
sales covered by article 286(1)(a) and the Explanation thereto it would result
in discrimination against local trade in favour of inter-State trade and it
will be inconsistent with the provisions of Part XIII of the Constitution;
(3) The purpose of article 286 being to
eliminate multiple taxation and article 286(1) (a) having already achieved that
purpose with regard to the class of sales falling within it it was no longer
necessary for that purpose to apply article 286(2) to that class of sales;
718 (4) The Constitution itself has divided
inter-State sales into two categories and in relation to one class it has
itself provided which State will tax and under what conditions and in relation
to the other class the Constitution itself has imposed a ban in general terms
and granted Parliament power in general terms again to relax that ban as and
when Parliament thinks fit;
and (5) By a legal fiction, the inter-State
sale is converted into an intrastate sale.
We shall deal with these reasons seriatim.
As to reason (1): it was submitted that the
transactions of sale covered by article 286(1) (a) and the Explanation thereto
and the transactions of sale covered by article 286(2) were of the same
category and both these provisions dealt with the same topic. That being so,
article 286(2) contained a general provision whereas article 286(1) (a) and the
Explanation thereto contained a special provision having reference to the
transactions of sale or purchase falling within that category, with the result
that the rule of harmonious construction applied and the special provision was
to be read as an exception to the general provision.
This argument found favour with the High
Court below as well as myself in the Bombay Sales Tax Appeal(1). This rule of
harmonious construction no doubt would apply if the topics covered by both
these provisions were the same, and the subject matters dealt with in both
these provisions were identical. There is this difference however between the
two provisions, viz., that the transactions covered by both do not fall within
the same category and a transaction of sale which is looked at from the point
of view of its being an outside or an inside sale may just as well be a sale in
the course of inter-State trade or commerce. In article 286(1)(a) the
transaction is looked at from the point of view of its situs or location and in
article 286(2) it is looked at from the point of view of its being in the
course of inter-State trade or commerce and the two approaches are quite
distinct one from the other. That being so it cannot (1) (1953) B.C.R. 1059.
719 be said that the topics which are dealt
with by both these provisions are the same or that the subjectmatters thereof
are identical. The ban which is, imposed by article 286(1)(a) and the rule of
harmonious construction and the exception of the special provisions from the
general one as indicated above would' have no application in the matter of the
construction of both these provisions.
As to reason (2): there is no question of
discrimination against local trade in favour of inter-State trade if article
286(2) applied to the class of sales covered by article 286(1) (a) and the
Explanation thereto. The local trade would certainly be liable to the levy of
intra-State sales tax which could be avoided if a transaction takes place in
the course of interState trade or commerce. For the working of the Union as an
economic unit and for the free flow of trade, commerce and intercourse
throughout the territory of India it is necessary that no fetter should be
placed on the course of inter-State trade or commerce. The consumers within a
State who would resort to transactions of purchase across the border with a
view to avoid the payment of the intrastate sales tax would be comparatively
few and could in conceivable cases be caught within the net by imposing a tax
on goods of a non-discriminatory nature within the meaning of article 304(a).
This reason is therefore no deterrent to our holding that the ban under article
286(2) is absolute and unaffected by article 286(1) (a) and the Explanation
thereto.
As to reason (3): it postulates that the only
purpose of the enactment of article 286 (1) (a) and the Explanation thereto is
to eliminate multiple taxation. If that was the only purpose of the article it
might conceivably be argued that once that purpose is achieved in regard to the
particular set of transactions which are covered by article 286(1)(a) and the
Explanation there to there is no further need of putting any ban under
article286(2). As has been already observed before, the purposes of the
enactment of article 286 were manifold and they were achieved by enacting the
four distinct provisions in the manner indicated 720 above and the restrictions
which were put on the powers of the State Legislatures to tax transactions of
sale or purchase were mutually exclusive even though the transactions might so
far as their nature and character be concerned overlap in certain events. Even
though therefore a transaction fell within the ban of article 286(1)(a) it
could nonetheless be subjected to the ban which was imposed by article 286(2)
and it could be taxed only if it survived this scrutiny also, which could be
done if the Parliament by law otherwise provided as set out in article 286(2).
As to reason (4): it assumes that the
Constitution itself has divided transactions of sale or purchase in the course
of inter-State trade and commerce into two distinct categories, one falling
within article 286 (1) (a) and the Explanation thereto and the other falling
within article 286(2). There is no warrant for holding that transactions in the
course of inter-State trade or commerce are divided into such distinct categories
for the purpose of the imposition of the ban. The transaction of sale or
purchase would be one but it is subject to the imposition of distinct bans
having regard to the view-point from which it is being looked at. If it is
looked at from the view-point of its being an outside or an inside sale it may
be caught within the ban of article 286(1) (a). If it is looked at from the
view-point of its being a transaction in the course of inter-State trade or
commerce it may be caught within the ban imposed by article 286(2). These bans
are mutually exclusive and may have to be applied to the same transaction of
sale or purchase, one ban not necessarily excluding the other.
As to reason (5): the argument totally
ignores the purpose and efficacy of a legal fiction. A legal fiction presupposes
the correctness of the state of facts on which it is based and all the
consequences which flow from that state of facts have got to be worked out to
their logical extent.
But due regard must be had in this behalf to
the purpose for which the legal fiction has been created. If the purpose of
this legal fiction contained in the Explanation to article 286(1)(a) is solely
for the purpose of sub-clause (a) as expressly 721 stated it would not be
legitimate to travel beyond the scope of that purpose and read into the
provision any other purpose howsoever attractive it may be. The legal fiction
which was created here was only for the purpose of determining whether a
particular sale was an outside sale or one which could be deemed to have' taken
place inside the State and that was the only scope of the provision. It would
be an illegitimate extension of the purpose of the legal fiction to say that it
was also created for the purpose of converting the inter-State character of the
transaction into an intrastate one. This type of conversion could not have been
in the contemplation of the Constitution makers and is contrary to the express
purpose for -Which the legal fiction was created as set out in the Explanation
to article 286(1)(a).
All these reasons therefore taken
individually or collectively are not sufficient to negative the position that
the transactions covered by article 286(1) (a) and the Explanation thereto are
not excluded from the operation of article 286(2) and that the ban under
article 286(2) also applies to the same.
It was also urged that this-construction put
upon article 286(1)(a) and the Explanation thereto and article 286(2 would
render the Explanation nugatory and that the Constitution makers at the very
commencement of the Constitution would not have given the power by one hand and
taken it away by the other and that therefore the Explanation to article 286(1)
(a) should be read as an exception or a proviso to article 286(2). This
argument no doubt found favour with me in the Bombay Sales Tax Appeal(1) and
also with the High Court below. If due regard however is had to the purpose of
the enactment of article 286 as a whole and also to the various considerations
which have been set out herein above it is clear that this argument is
untenable. The transactions of sale and purchase covered by the Explanation to
article 286(1) (a) are not necessarily co-extensive or conterminous with the
transactions of sale or purchase covered by article 286(2). There are transactions
which would be covered by the (1) (1953] S.C.R. 1069.
722 Explanation to article 286 (1) (a)
without their being transactions of sale or purchase in the course of inter State
trade or commerce and which therefore would without anything more be covered by
the Explanation and would be the subject matter of taxation by the delivery
State by the appropriate exercise of its power of taxation. There is also a
further fact to be noted and it is that even though the transactions covered by
both these provisions may be conceivably coextensive or conterminous with each
other, the Explanation to article 286(1)(a) would come into operation the
moment the ban of article 286(2) was lifted by an otherwise provision enacted
by Parliament and it was certainly lifted up to the 31st March 1951 by the
President directing the continuance of the operation of the sales tax laws
which previously existed in the various States. It could not therefore be
stated that the construction put upon article 286(1)(a) and the Explanation thereto
and article 286(2) as above would render the Explanation nugatory. if the
States thought that the operation of the ban under article 286(2) prevented
them from taxing transactions of sale or purchase which take place in the
course of inter-State trade and commerce and which are also covered by the
Explanation to article 286 (1) (a) it was open to them to adopt proper measures
for lifting the ban under article 286(2) and making themselves free to tax the
transactions of sale or purchase covered by the Explanation. Parliament would
in that event consider the proposals made by the respective States in their
proper perspective having regard to the provisions of the Constitution in
regard to the freedom of trade, commerce and intercourse throughout the territory
of India, the convenience or inconvenience of the public and the needs of the
respective States and lift the ban in the manner and to the extent it thought
fit.
The majority judgment in the Bombay Sales Tax
Appeal has been construed by the various States as giving them an authority to
impose a tax on the transactions of sale or purchase covered by the Explanation
to article 286(1) (a) and authorising them to 723 impose such tax on the seller
even though he may be residing outside their territories. The non-resident
businessmen therefore who entered into transactions of sales of goods where as
a direct result of such sales the goods are actually delivered for the purpose
of consumption in a particular State have been sought to be subjected to the levy
of sales tax at the instance of these States with great inconvenience and
harassment to themselves, and the warrant for their action in this behalf is
stated by these States to be the majority judgment of this Court. The various
States however in the scramble for taxes have been oblivious to the fact that a
transaction of sale or purchase is not a unilateral transaction but a bilateral
one and when it is looked at from the point of view of a sale or purchase it is
one transaction which has two facets. From the point of view of a seller it is
a sale transaction and from the point of view of a purchaser it is a purchase
transaction. When therefore the transaction is one on which a tax on sale or
purchase can be levied it does not necessarily mean that only a sales tax can
be levied and not a purchase tax. The inside dealer may therefore be taxed on
his purchases or if be sells in retail to actual consumers in the State be may
be taxed on the sales. If the inside dealer is himself the consumer then there
will be no difficulty in assessing him for his books will show how much he has
imported from other States and how much he has consumed. In any case, the
convenience or inconvenience of collecting a sales tax or a purchase tax is not
a relevant consideration when one is considering the validity or otherwise of
such a tax, as was observed by Kania, C. J. in the case of A. Lt. Wadia v. Commissioner
of Income-tax, Bombay(1) at p. 141. In the very judgment of the majority in the
Bombay Sales Tax Appeal(2) there is a passage at p. 1084 which indicates that
all buyers within the delivery State 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 such transactions and it would be an unwarranted assumption on
(1) [1948] F.C.R. 121. (2) [1908] B.C.R. 1069, 92 724 the part of anyone who
read that judgment to say that the delivery State was entitled to levy a tax on
the sale or purchase of goods falling within the Explanation to article 286(1)
(a) on the seller alone. The seller would be outside the territories of the
taxing State and would primarily not be liable to the jurisdiction of the Sales
Tax Act enacted by the taxing State. It would be by adopting the theory of the
territorial connection or nexus as it was being done prior to the enactment of
the Constitution that the taxing State would seek to reach the non-resident
businessmen outside its territories and if regard be had to the fact that the
taxation is either in personam or in relation to the transaction of sale or
purchase which takes place within its territory there is no warrant at all for
taxing the outside businessmen on the transactions of sale or purchase covered
by the Explanation to article 286(1 ) (a). All the provisions contained in the
Bihar Sales Tax Act with regard to the registration 'of the outside dealer, the
maintenance of the books of account, submission of returns by him to the Sales
Tax authorities of the State of Bihar, the production and inspection of books
of account before the Sales Tax authorities, the search of the premises of the
outside dealer by them and the imposition of penalties on him by reason of his
noncompliance with the various provisions contained in the Act amongst others
are unwarranted and illegitimate exercise of the powers incidental to the power
of taxing sales or purchases conferred upon the State of Bihar by article
246(3) and the Entry-54 in List 11 of the Seventh Schedule to the Constitution
and do not affect nonresident businessmen who are outside the territories of
the State of Bihar.
The majority judgment in the Bombay Sales Tax
Appeal(1) did not say that the delivery State was entitled to tax the sellers
in the transactions of sale or purchase covered by the Explanation to article 286(1)
(a). The question whether the seller or the purchaser would be subject to the
levy of a tax on the transaction of sale or purchase at the instance of the
delivery (1) [1953] S.G.A. 1069.
725 State was not before the Court -and the
observations contained in the majority judgment were made with reference to a
pure question of the interpretation of article 286(1) (a) and the Explanation
thereto. As a matter of fact the passage above-quoted from the judgment(1) at
p. 1084 would go to show that they contemplated the purchasers being amenable
to tax at the instance of the delivery State in the case of transactions
covered by the Explanation to article 286(1) (a). Even though it is not
strictly relevant to consider the consequences of a particular position in law
when construing a statutory provision it is nonetheless necessary to visualise
those consequences when one tries to probe into the mind of the legislators and
see whether they could have ever contemplated such consequences. If the
construction sought to be put upon the Explanation to article 286(1) (a) and
the majority judgment in relation thereto by the State Legislatures were
accepted, all outside dealers where so ever they may be located or residing or
carrying on their business all over the Union would be amenable to the levy of
sales tax at the instance of the delivery State and one dealer in a particular
State who had a very large business and was entering into transactions of sale
with consumers in outside States all over the Union would be amenable to the
jurisdiction of several States in the matter of his transactions of sale of his
goods. There are as many as 21 Sales Tax Acts to be found in the Manual of
Sales Tax Acts and if a dealer in one State was going to be held amenable to
the levy of sales tax at the instance of all the other States it would mean
that he would have to ascertain from the purchaser in each of the transactions
of sale which he enters into the State to which the purchaser be. longs,
whether the purchaser is purchasing the goods for the purpose of consumption
within that State, to get himself registered as a dealer in that State, to
maintain his books of account with a view to produce them and subject them to
inspection by the Sales Tax authorities in that State, to submit returns of the
sales tax recovered by him from the purchasers (1) [1953] S.C.R. 1069, 726 in
that State before the Sales tax authorities of that State and make himself
liable for the non-observance of the various requirements of the Sales Tax Act
enacted by that State. The task of fulfilling the requirements qua one State
would be formidable enough. But when one visualises that the dealer who enters
into such transactions of sale with the various customers may be subjected to
this process at the instance of each and every State within whose territory the
purchaser may happen to be importing the goods as a direct result of such sale
for actual consumption within the territories of that State, one can easily
understand what untold harassment and inconvenience the dealer would have to
suffer from. It will be easy to understand that if those were the circumstances
attendant upon his business the dealer may as well close down his business
rather than submit to all this harassment at the hands of the various States. The
free flow of trade, commerce and intercourse throughout the territory of India
will be thoroughly choked up and we are quite sure that neither the
Constitution makers nor the majority judgment in the Bombay Sales Tax Appeal
would ever have contemplated these consequences. It is legitimate therefore to
hold that no such thing could ever have been ,contemplated by them and nothing
would have been farthest from their minds than such a position. The seller in
such cases would certainly not be amenable to the levy of a sales tax at the
instance of the delivery State and no law passed by the delivery State in
regard to a levy of sales tax would have any operation against the non-resident
businessman who enters into a transaction of sale where as a direct result of
such sale the goods are actually delivered for consumption within the taxing
State.
If however the majority judgment be construed
to have said that the seller could be subjected to the levy of a sales tax at
the instance of the delivery State in the case of transactions covered by the
Explanation to article 286(1) (a) I am of the opinion that it was clearly
erroneous and public interests demand that the same should be reversed, 727
After further and fuller consideration of the matter in the light of the very
elaborate arguments which have been addressed before us by the learned Counsel
for the Appellants and the Respondents and also the Interveners, I feel that
the conclusion reached in the Bombay Sales Tax Appeal(2) needs to be revised
and I am of the opinion that article 286(2) puts an absolute restriction on the
taxing power of the States where transactions of sale or purchase take place in
the course of inter-State trade or commerce unless and until the ban is lifted
by Parliament within the terms thereof and until such ban is lifted no delivery
State within the meaning of the Explanation to article 286(1) (a) much less the
other States are in a position to impose a tax on transactions of sale or
purchase covered by the Explanation.
The appeal should therefore be allowed and a
direction should issue against the State of Bihar to refrain from taxing the
sales or purchases of goods which take place in the course of inter-State trade
or commerce even though the goods as a direct result of such sale or purchase
are actually delivered in Bihar for consumption in that State until Parliament
otherwise provides within the meaning of that expression in article 286(2). The
Appellant should get its costs throughout from the State of Bihar, the rest of
the parties appearing before us to bear and pay their respective costs of this
appeal.
JAGANNADHADAS J.-The, first, and to my mind,
the most important, point that requires careful consideration in this case is
whether, and if so within what limits,, this Court will observe the rule as to
the binding character of a judicial precedent with reference to its own prior
decisions Admittedly the question that has been raised in this case as to the
construction of article 286 of the Constitution is one that is directly covered
by a recent -decision of this Court in the State of Bombay v. The United Motors
(India) Ltd.(1). The rule as to the binding character of judicial precedents is
one which is normally accepted (1) (1958) S.C.B. 1069.
728 by all the Courts which function on the
pattern of the British Judicial system. This rule, in its very strict form., is
observed by the English Courts. (Vide Young v. Bristol Aeroplane Co., Ltd. (1)
and Williams v. Glasbrook Brothers Ltd.(1)). The House of Lords has ruled,
after careful consideration, in its judgment in the case in London Street
Tramways Co., Ltd, v. London County Council(3) that the House is bound to
follow its own previous decisions and will not allow any question settled
thereby to be reopened and argued again nor can the House be asked to reverse
its own prior decision. Such reversal, if needed, is one that has to be brought
about by parliamentary legislation. The Judicial Committee of the Privy Council
has however, not adopted this extremely rigorous view but has felt itself free,
in appropriate cases, to reconsider its prior decisions. (Vide In Be.
Transferred Civil Servants (Ireland) Compensation(4)). The same is the case
with the Supreme Court of the United States of America. (See Willough by on the
Constitution of the United States, Vol. I, page 74).
Our Constitution which has made detailed
provision about various matters relating to the Supreme Court including a
matter relating to its practice, such as, whether there can be a dissenting
judgment (see article 145(5)) has not, in terms, made any provision in this
behalf. Article 141, no doubt, provides that "the law declared by the
Supreme Court shall be binding on all Courts within the territory of
India". It has been urged before us that the phrase "all Courts"
is comprehensive enough to include the Supreme Court. It is, pointed out, that
since every decision declares the law, a later decision declaring the law in a
contrary sense, would in effect, be the exercise of legislative function which
must be taken to have been impliedly prohibited. While these arguments are not
without force, it is reasonably clear, in the context of article 141, that the
phrase "all Courts" must refer to Courts other than the Supreme
Court. In the absence, therefore, of any clear provision in the (1) [1944] K.B.
718.
(3) [1898] A.C. 376.
(2) (1947] 2 All E.R. 884.
(4) [1929] A.C. 242, 729 Constitution and in
view of the fact that this Court has historically succeeded to the preexisting
Federal Court and the Judicial Committee of the Privy Council., we cannot deny
to this Court, the competence to reconsider its prior decisions.
But, it does not follow that such power can
be exercised without restriction or limitation or that a prior decision can be
reversed on the ground that, on later consideration, the Court disagrees with
the prior decision and thinks it erroneous. The necessity for certainty and
continuity in the declaration of law by the highest courts in the country is
recognised on all hands. That necessity is all the greater, and not the less,
by reason of the Constitution itself having formally provided that the
decisions of this Court are declaratory of the law. The rule as to the binding
character of a judicial precedent is based on a juristic principle of universal
application. The reason for its adoption is ''the disastrous inconvenience of
subjecting each question decided by a previous judgment to re argument, thereby
rendering the dealings of mankind doubtful by different decisions; so that in
truth and in fact there would be no real final court of appeal" (See
,London Street Tramways Co., Ltd. v. The London County Council(1) at page 380).
It is, therefore, necessary to consider within what limits the competency of
this Court to reconsider its prior decisions may well be exercised. For this
purpose the actual practice of other comparable Courts as affording guidance
requires close examination.
The practice of the Supreme Court of America
is indicated in the following passage from Willoughby on the Constitution of
the United States of America, Vol. I, page 74."ln cases of purely private
import, the chief desideratum is that the law remain certain, and, therefore,
where a rule has been judicially declared and private rights created there under,
the courts will not, except in the clearest cases of error, depart from the
doctrine of stare decisis.
When, however, public interests are involved,
and especially when the question is one of constitutional construction, the
matter is otherwise. An error in the construction of a statute may easily be
corrected by a legislative act, but a Constitution and particularly the Federal
Constitution, may be changed only with great difficulty. Hence an error in its
interpretation may for all practical purposes be corrected only by the Court's
repudiating or modifying its former decision".
It would appear, therefore, that the power of
reconsideration of a prior decision is somewhat freely exercised by the Supreme
Court of America in Constitutional cases.
The reason for such free exercise, or to the
same extent, does not exist under our Constitution. To appreciate this, it is
necessary to compare the provisions in the two Constitutions for amendment of
the Constitution. The machinery for amendment of the Constitution of the United
States is provided in Article V thereof and is as follows:
"The Congress, whenever two thirds of
both houses shall deem it necessary, shall propose amendments to this
Constitution, or, on the application of two thirds of the several States, shall
call a convention for proposing amendments, which, in either case, shall be
valid to all intents and purposes, as part of this Constitution, when ratified
by the legislatures of three fourths of the several States, or by conventions
in three fourths thereof, as the one or the other mode of ratification may be
proposed by the Congress".
Under article 368 of our Constitution, the
normal procedure provided for amendment, except in respect of specified matters
to be presently enumerated, is as follows:
"An amendment of this Constitution may
be initiated by the introduction of a Bill for the purpose in either house of
Parliament, and when the Bill is passed in each House by a majority of the
total membership of that House and by a majority of not less than two-thirds of
the members of that House present and voting, it shall be presented to the
President for his assent and upon such assent being given to the Bill, the
Constitution shall stand amended in accordance6 with the terms of the
Bill".
731 In respect, however, of a limited number
of matters specified in the Constitution, an additional step is required,
namely, that "before the Bill making provision for such amendment is
presented to the President for assent, the amendment shall also require to be
ratified by the Legislatures of not less than one half of the States specified
in Parts A and B of the First Schedule by resolutions to that effect passed by
those Legislatures".
Now the special matters where amendment is
conditional on this additional requirement relate to the election of President
(articles 54 and 55), extent of the executive power of the Union (article 73),
extent of the executive power of a State (article 162), provisions relating to
the Union Judiciary (Supreme Court) (Chapter IV of Part V), and to the High
Courts of the various States, in Parts A and B (Chapter V of Part VI) and in
Part C (article 241), and the relations between the Union and the States
(Chapter I of Part XI), as also the distribution of the legislative powers and
the various lists in the Seventh Schedule, the representation of the States in
Parliament, and the provision in the Constitution relating to the machinery for
amendment of the Constitution. Thus, it will be seen, excepting in respect of a
few basic matters-of which it may be noticed article 286 is not one-the normal
machinery for the procedure of amendment is the same as that for the passing of
any statute by Parliament except that a specified majority in each of the
Houses is essential, the securing of which would be difficult or easy according
to the strength of the Government at the time in each of the Houses. The
requirement of special majority as a condition for the passing of legislation
in respect of certain specified items of business is not altogether an unknown
feature. However that may be, it is quite clear that while the amendment of the
Constitution does not depend upon the ordinary majority rule under which
Parliament conducts its business, the machinery there for is by invoking the
very same Parliament and not anything so difficult, cumbrous and dilatory as
that envisaged in article V of the American Constitution. Even as regards the
93 732 few specified matters for which an additional requirement of
ratification by State Legislatures is provided for, our machinery for amendment
is clearly much easier and less cumbersome. It does not appear to me.,
therefore, right-to rely upon the American practice -as a safe guide to
determine our practice on the question as to the binding character of a
judicial precedent. Neither, are we bound to adopt the very rigid rule which
the House of Lords has formulated for its own practice. The problem of
interpreting a written Constitution does not generally arise before it.
The only other comparable courts whose
practice has been brought to our notice, through citation of cases, are the
Judicial Committee of the Privy Council and the High Court of Australia. As
this is the first case in this Court wherein this question arises, it is
desirable to consider that practice carefully for our guidance, though it is
not necessary to lay down any absolutely rigid or inelastic formula. It is
worthwhile at this stage to notice what, according to the Constitution of
Australia., is the machinery for the alteration of their Constitution. This is
to be gathered from section 128 of the Commonwealth Act of 1900 which -broadly
speaking-shows that what is required there is an absolute majority in each of
the Houses and the approval of each State to be obtained by a referendum to the
electors of each State. This is definitely much more difficult, cumbersome and
dilatory than what obtains in our Constitution. Therefore, there can be no
reason for our adopting a less rigid standard than that adopted by the High
Court of Commonwealth of Australia, nor is there any reason for our adopting a
standard less rigid than that of the Judicial Committee of the Privy. Council,
who while feeling themselves free not to follow the very strict rule of the
House of Lords, were under no constitutional limitations in this behalf.
The practice of the Judicial Committee as to
the limits within which they generally exercise the freedom to reconsider their
prior decisions can be gathered from the cases in In Re. Transferred Civil
Servants 733 (Ireland-) Compensation(1); Attorney-General for Ontario v.
Canada Temperance Federation(3); and
Phanindra Chandra Neogy v. The King(3). The matter was discussed elaborately
and various prior decisions of the Privy Council were considered and the
conclusion was summed up as follows in Be.
Transferred Civil Servants (Ireland)
Compensation(1):
"There is no inherent incompetency in
ordering rehearing of a case already decided by the Board, even when a question
of a right of property is involved but such an indulgence will be granted in
very exceptional circumstances only. It is of the nature of an extraordinarium
remedium".
After the above formulation of their
practice, the Privy Council in this case permitted itself to reconsider the
previous decision in Wigg's case(4), on two grounds. (1) The case came up
before them on a reference under section 4 of the Judicial Committee Act of
1933, and that reference would have been futile if it did not necessarily
involve such reconsideration. (2) The reference itself was granted on account of
an alleged material mistake of fact, into which the previous Board of the
Judicial Committee bad fallen. On such reconsideration the previous decision
was affirmed. In Attorney-General for Ontario v. Canada Temperance
Federation(2) the Judicial Committee expressed itself as follows at page 206:
"The appellants' first contention is
that Russell's case(5) was wrongly decided and ought to be overruled. Their
Lordships do not doubt that in tendering humble advice to His Majesty they are
not absolutely bound by previous decisions of the Board, as is the House of
Lords by its own judgments. In ecclesiastical appeals, for instance, on more
than one occasion, the Board has tendered advice contrary to that given in a
previous case, which further historical research has shown to have been wrong.
But on constitutional questions it Must be seldom indeed that the Board would
depart from a previous decision which it may be (1) [1929] A..C. 242.
(3) 76 I.A. 10.
(2) [1946] A.C. 198.
(5) 7 A. C. 829.
(4) [1927] A.C. 674.
734 assumed will have been acted on both by
Governments and subjects".
In this case the Privy Council was invited to
reconsider the correctness of the law laid down by them in Russell v. The
Queen(1) but they declined to do so on two grounds, viz., (1) on constitutional
questions the Board seldom departs from its previous decisions, and (2) the
prior decision stood unchallenged for over 60 years.
In Phanindra Chandra Neogy v. The King(2) the
Privy Council stated that it is only "in the most exceptional cases"
that they would tender advice to His Majesty inconsistent with a previous
decision and reaffirmed the decision in Gill's case(3).
Three cases of the High Court of Australia
out of those brought to our notice are instructive. In the Tramways case(3) the
position was expressed in the following terms.
Griffith, C. J. observed as follows:
"In my opinion it is impossible to
maintain as an abstract p imposion that the Court is either legally or
technically bound by previous decisions. Indeed, it may, in a proper case, be
its duty to disregard them. But the rule should be applied with great caution,
and only when the previous decision is manifestly wrong, as, for instance, if
it proceeded upon the mistaken assumption of the continuance of a repealed or expired
statute, or is contrary to a decision of another Court which this Court is
bound to follow; not, I think upon a mere suggestion that some or all of the
members of the later Court might arrive at a different conclusion if the matter
were res integra. Otherwise there would be grave danger of want of continuity
in the interpretation of the law".
Justice Barton observed as follows:
"I have never thought that it was not
open to this Court to review its previous decisions upon good cause. The
question is not whether the Court can do so, but whether it will, having due
regard to the need for continuity and consistency in judicial decisions.
Changes in the number of appointed Justices can, I (1) 7 A.C. 829. 2) 76
I.A.110.
(3) 76 I.A. 41. (4) la C. L. B. 54, 735 take
it, never of themselves furnish a reason for review............. But the Court
can always listen to argument as to whether it ought to review a particular
decision, and the strongest reason for an overruling is that a decision is
manifestly wrong, and its maintenance is injurious to the public
interest".
Having so laid down the rule of practice for
their Court, the learned Judges, on account of the special circumstances in
that case, unanimously agreed to reconsider the prior decision and on such
reconsideration affirmed it. In so reaffirming the prior decision, one of the
learned Judges, Justice Powers, stated his grounds to the following effect:
"In Whybrow's case(1), the Court
consisted of all the Justices of this Court who could sit on the application.
The case was very fully argued. Both parties
and two of the States were represented by counsel. The judgments were
considered judgments delivered more than two weeks after the preliminary
objection was taken.............. Under the circumstances I have no hesitation
in following the judgment".
The same learned Judge at another portion of
his judgment stated as follows:
"If we do not show some respect to our
own Court's decisions, no counsel will feel safe in advising the public, and it
will create uncertainty and confusion".
The principles so laid down have been
reiterated in a recent case of the High Court of Australia in Perpetual
Executors and Trustees Association of Australia Ltd. v. Federal Commissioner of
Taxation in the following terms:
"The Court is not bound by its previous
decisions so as absolutely to preclude reconsideration of a principle approved
and applied in a prior case, but, as was stated in Cain v. Malone(3), the
exceptions to the rule are exceptions which should be allowed only with great
caution and in clear cases" Then the above quotation from the judgment of
Justice Barton in the Tramways Ca8e(4) was repeated (1) 11 C.L.R. 1. k$) 66
C.L.R. 10, (2) 77 C.L.B. 493.
(4) 18 O.L.R. 54.
736 and the principle indicated therein was
reaffirmed. In this case the Court was asked to overrule their prior decision
in Trustees Executors and Agency Co. Ltd. v. Federal Commissioner of
Taxation(1). The learned Judges declined to reconsider it with the following
observations:
"The decisions of a superior Court have
a double aspect.
They determine the controversy between the
parties, and in deciding the case they may include a statement of principle
which it is the duty of that Court and of all subordinate courts to apply in
cases to which that principle is relevant. Continuity and coherence in the law
demand that, particularly in this Court, which is the highest court of appeal
in Australia, the principle of stare decision should be applied, save in very
exceptional cases".
The criterion, viz., that of manifest error
plus injury to public interest by maintenance of previous decision laid down in
the above cases as being the ground on which a reconsideration can be granted
was reiterated by Justice Williams in his judgment in Attorney-General for
N.S.W. v.
Perpetual Trustee Co. Ltd(2). In this case
the High Court was asked to reconsider the correctness of the majority decision
in a prior case) viz., that in Commonwealth v.
Quince(3). On reconsideration the Judges by a
majority affirmed the prior decision. One of the learned Judges, Justice Dixon,
considered the matter on its merits elaborately and came to the conclusion that
if the matter were to be considered afresh he should prefer a view contrary to
that which had been expressed in the prior decision but concurred with the
majority view with the following observations:
"There appears to me to be no ground for
reconsidering the decision in Quince case(3) unless it be a sufficient ground
simply that the opposite conclusion is to be preferred. It is evident that the
decision was reached only after a very full examination of the question. It
cannot be said that any compelling consideration or important authority was
overlooked or that the decision conflicts with well established principle or
fails (1) 69 C.L.R. 270, (2) 85 C.L.R. 237.
(3) 68 C.L.R. 227, 737 to go with a definite
stream of authority. It is a recent and well considered decision upon what is
evidently a highly disputable question.
I do not think that we should reconsider the
correctness of that decision. The proper course judicially is to follow and
apply that decision".
This is a strong case of the year 1951-1952
indicating, the most recent practice of that Court, and the above passage aptly
summarises almost the very considerations applicable to the present case.
A consideration of these cases shows that
while the highest courts other than the House of Lords have reserved to
themselves theoretically the competency to reconsider the correctness of a
prior decision, they have also carefully confined the actual exercise of that
power within very narrow limits. In a number of cases in which they did permit
themselves to reconsider, they have ultimately declined to overrule the prior
decision notwithstanding that another view might well have been taken. The only
instances brought to our notice where, on a reconsideration, a previous
decision was not followed, are two. One is the Amalgamated Societal of
Engineers v. The Adelaide Steamship Co. Ltd.(1). 'that was a case where the
question which arose was a very important one as to the power of State
Legislature to encroach on the field of the Commonwealth Legislature by virtue
of a rule of construction laid down in an earlier case, viz., Rail-way
Servants' case(2). The learned Judges were of the opinion that that was a
question of far reaching public importance and that the prior decision being
manifestly wrong and opposed to the rules Of Construction laid down by the
Privy Council in a number of cases, should be reconsidered and overruled. It
would be seen that in this case the Court acted upon the limitations which they
have laid down in the course of their decisions, that reconsideration and
overruling of a prior decision is to be confined to cases where the prior
decision is manifestly wrong and its maintenance (1) 28 C.L.R 129.
(2) 4 C.L.R. 488.
738 is productive of great public mischief.
The second is the case in Gideon Nkambule v. The King(1), where the Privy
Council declined to follow its prior decision in Tumahole's case(2). In this
case, the Privy Council, while it reaffirmed the proposition that a prior
decision upon a given set of facts ought not to be reopened without the
greatest hesitation, explained why they, in fact, differed from the previous
one in the following passage:
"From a perusal of the judgment in
Tumahole's case(2), it is apparent that the history of the adoption and
promulgation of the various statutes and proclamations dealing with the effect
of the evidence of accomplices in South Africa was only partially put before
the Board, and much material which has now been ascertained was not presented
to their Lordships on that occasion. The present case, therefore, is one in
which fresh facts have been adduced which were not under consideration when
Tumahole's case was decided, and accordingly it is one in which, in their
Lordships' view, they are justified in reconsidering the foundations on which
that case was determined".
This was a case where the question arose as
to the applicability of the English rule of law relating to accomplice evidence
as laid down in Rex v. Baskerville(3), viz., that a particular portion of the
rule which lays down that the evidence of one accomplice cannot be corroborated
by that of another. What was under consideration of the Privy Council was
whether a prior decision of the Judicial Committee, construing a particular
section of the relevant statute applicable in that case in consonance with the
above rule, was correct. It will be noticed that the overruling of the prior
decision in this case was based on the fact that important and relevant
material was not placed before the Judicial Committee in the earliar case.
These cases emphasise under what exceptional circumstances a prior decision of
the highest and final court in a country is treated as not binding on itself.
(1) [1950] A.C,. 379. (2) [1949] A.C. 258.
(3)[1916] 2 K.B. 658.
Now what are the grounds in the present case
to justify a reconsideration of the prior decision ' At this stage, I cannot
help noticing that the argument before us-as it appears to me has taken a
somewhat unusual course. I should have thought that when the decision in a case
so recent as that in the United Motors case(2) given after full consideration,
is sought to be challenged, the first question to have been considered was
whether or not there were circumstances to justify a reconsideration. It is
only after the Court came at least to a prima facie conclusion on that
preliminary matter that a reargument on the merits of that decision should have
been permitted. What has happened, however, is that the correctness of the
prior decision was straightaway canvassed be. fore us and the question as to
the competency or the desirability of such reconsideration occupied a later and
subordinate part in the arguments. I must confess to the feeling that this all
important question has accordingly suffered for want of due consideration
thereof at the stage of arguments before us.
Now., let us see what are the facts relating
to the prior decision. The decision was given on the 30th March, 1953.
The case itself was heard for 12 working
days, i.e., from the 9th February, to the 25th February, 1953. The Union of
India and as many as eight States were permitted to intervene and their
arguments were also heard. A perusal of the judgments then given shows that
every possible aspect had been fully presented and considered. The decision was
that of a majority as against that of one dissenting Judge.
One of the learned Judges in the majority,
though concurring on the main point, was prepared to go further on one point
than what the majority held (though, as appears now, he is prepared to go back
on his concurrence). It is true that in a later decision in State of
Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory(2), another Judge of
this Court expressed a view in disagreement with the view of the majority in
this case. But that was a decision given on the 8th May, 1953, more than a
month after the judgment in the prior (1) [1958] B.C.B. 1069.
(2) [1954] S.C.R.53 94 740 case had been
delivered and had become binding. The question that directly arose for
consideration in the later case was not the one that had come in for
consideration in the earlier case. However this may be, it may also be noticed
that in a later decision of this Court in Himmatlal Harilal Mehta v. The State
of Madhya Pradesh(1) the law as laid down in the earlier decision in the United
Motors case(2), was reiterated and it was stated that the correctness of the
view could no longer be questioned. (See page 1126). In view of the above
facts, it appears to me prima facie, that there was no reason for
reconsideration except the fact that a different view had been taken by two of
the learned Judges of this Court and except the chance of a differently constituted
majority emerging on rehearing.
This, however, is sought to be justified on
various grounds.
It is said that the prior decision does not
merely determine the rights of the two contending parties to that case but has
far reaching effects on the rights of the consuming public and that it involves
the adjudication of the taxing power of the States as against the consuming
public in general. It is, therefore, said that, if that decision is erroneous,
it is our duty not to perpetuate the error. It appears to me, with respect,
that this is begging the question. There is no absolute standard by which the
erroneous character of a previous decision can be ascertained. What a previous
decision has determined, must be presumed to be right unless it can be pronounced
to be perverse or manifestly wrong. It is, therefore, a strong thing to
characterise a previous decision as erroneous where, even on reconsideration,
no unanimity is reached and the previous view is supported by a substantial
minority.
Nor, can the mere fact of one of the prior
learned Judges having gone back on his views be any criterion to determine
which out of his two views is erroneous. As regards the suggestion of tax
burden on the consuming public, it is relevant to notice that the burden, if
any, which arises under the prior decision can only be by legis(1) [1954]
S.C.R. 1122.
(2) [1953] S.C.R. 1069.
741 lative action of the very State in which
the consuming public are residents. The removal of the burden, if called for,,
is a matter which, under the Constitution, can be brought about by democratic
process which is available to the consuming public, through its representatives
in the State Legislature. It appears to me that that is not a matter for our
consideration. I may be permitted to add that in the course of the arguments
there has been no serious grievance made about the alleged burden on the
consuming public. But there has been a good deal of emphasis on the harassment
to the business community, i.e., to the out-of-State dealers, from whom the tax
is primarily collected and passed on, under the law, to the consumer. We are
not, however, concerned with any question arising from such alleged hardship.
The hardship such as it is, is one that may have to be obviated by the adoption
of a common and agreed machinery by all the States for the assessment (as
distinguished from levy) and collection of the tax from outof-State dealers, or
if necessary, by the passing of the requisite legislation enabling this to be
done. But that hardship, if any, can afford no reason for reversing the prior
decision which, as will be shown later, has construed article 286 consistently
with the entire scheme of the Constitution. That decision enables the consuming
State to derive an elastic source of revenue from its own residents to make it
available for the expanding needs of the State in the discharge of the
responsibilities allotted to it under the Constitution. It is not for this
Court now to choose between the alleged hardship of the business community and
the interests of the consuming State and treat the former as a ground for
reconsideration.
It is next suggested that there is some
vagueness, if not inconsistency, in the prior majority judgment which justifies
reconsideration. It is said, with reference to a particular passage quoted from
the judgment, that it is only buyers falling within the Explanation who were
contemplated as liable and not the out-of-State dealers, but that the whole
trend of the rest of the judgment and the actual, decision runs 742 counter to
this. With -very great respect, it is hardly fair to read the decision as being
in any way vague or inconsistent with itself by extracting one single passage.
The passage relied on is at page 1084 and
appears, in the context where the question was being considered, as to whether
the phrase "actual delivery for consumption" has reference to
"delivery to the actual consumer-purchaser" or delivery also to
Cc& purchaser for eventual distribution to the consumers in the
State". The view indicated in the extracted passage was that delivery to a
purchaser for eventual distribution to the consumer in the State was also
"actual delivery for consumption" and hence the designation of
purchaser as liable to tax in that passage. That the extracted passage was not
meant to indicate that only such purchaser was taxable and not the seller is
quite clear from the various passages in the immediately succeeding paragraph
at pages 1084 and 1085 where "taxation of sales or purchases involving
inter-State elements by the State in which the goods are delivered for consumption
in the sense explained above" is repeatedly referred to. All that can, if
at all, be said is that the decision has not, in terms, indicated the choice
between the seller or the purchaser as regards taxability but has indicated
either of them as taxable.
It has next been said that the impugned
decision is a recent one and that "judicial opinion was divided, if not
evenly balanced". It is no doubt true that the prior decision is only two
years old. But that is not by itself a ground for reconsideration. On the other
hand, I should have thought that the very fact of its being recent should
militate against reconsideration. The real test to my mind, as indicated by
Justice Dixon in Attorney-General for N.S.W. v. Perpetual Trustee Co. Ltd.(1)
is whether it was a fully considered judgment and whether any fresh material
has been brought to the notice of the Court. In considering the question
whether a decision is open to reconsideration on account of its being recent,
it is of importance to observe that our decisions become (1) 85 C.L.R. 237, 743
declarations of law under article 141 and must be treated normally as final
from the very moment they are pronounced.
The finality of the decisions of this Court,
which is the court of last resort, will be greatly weakened and much mischief
done if we treat our own judgments, even though recent, as open to
reconsideration.
It has next been suggested that rectification
of the error, if any, in the view taken by the previous decision, is difficult
and that this could be brought about only by the amendment of the legislative
lists necessitating the consent of the requisite number of States. With
respect, I am unable to appreciate this. The points of difference in the two
opposing views ultimately boil down to this. (1) Does the Explanation to
article 286(1) (a) taken with the relevant legislative entry enable the
consuming State to tax fictional inside sales? (2) If so, does article 286(2)
override this taxing power? If the right construction of article 286(2) is not
what has been accepted by the majority in the prior decision, what all was
required to correct that error would be to amend article 286(2) so as to make
it clear that it overrides article 286(1)(a) taken with the Explanation by the
insertion therein of some appropriate phrase like "notwithstanding
Explanation to article 286(1)(a)". The responsibility for any such
amendment, if called for, should be left to the Parliament who, as recent experience
has shown, is quite capable of bringing about constitutional amendments when it
felt the clear necessity for it.
The proper course for this Court, therefore,
is to adopt the attitude of Justice Dixon in the case in Attorney-General for
N.S. W. v. The Perpetual Trustee Co. Ltd.(1) wherein notwithstanding that he
came to a contrary conclusion, he declined to disturb the prior decision. The
case for not disturbing the prior decision is all the stronger, where, as
happens in the present case, no unanimous opinion could be reached in favour of
overruling the prior decision.
Notwithstanding my opinion that there is no
ground for reconsideration of the prior decision of this Court (1) 85 C.L.R.
237, 744 in the United Motors case(1), I propose, out of respect for my learned
brothers, who are prepared to take the opposite view, to give my reasons why,
on a fresh consideration of the question involved, I am clearly in agreement
with the decision of the majority in the said case. Having had the benefit of
reading the judgments of my learned brothers, Justice S. R. Das and Justice
Venkatarama Ayyar, I propose to confine myself mainly to the consideration of
the construction of article 286.
There can be no doubt that article 286 taken
as a whole has to be read in the context of the power vested in the States for
levying taxes on the sales or purchases of goods (other than newspapers) under
Entry 54 of List 11 of the Seventh Schedule taken with article 246(3). Entry 54
does not, in terms, say that the sales or purchases of goods contemplated
thereby as taxable are to be sales or purchases "within the State".
In this respect it is in contrast with Entry 26 which vests in the State the
power to legislate in respect of trade and commerce "within the
State". The apparently wide language of Entry 54 is in recognition of the
theory that in substance a tax on sale or purchase of goods is a tax on the
goods with reference to the event of sale or purchase thereof. (See the United
Motors case(1).Article 286 appears in Part XII of the Constitution relating to
finance, property, contracts and suits and is in Chapter I thereof relating to
finance. This is mainly concerned with the problem of allocation of finances
between the Centre and the States in order to enable each to carry on the respective
governmental functions allotted to it under the Constitution. Keeping this
context in view as also the avowed purpose of the article as indicated by the
marginal note, it may be taken that article 286 was intended to indicate
clearly the ambit of the taxing power of the State on sales or purchases of
goods and to limit it to a demarcated field. To determine the exact scope of
this ambit and of the limitations, it is relevant to consider what was the
sales-tax law in operation just prior to the new Constitution, (1) [1963]
S.C.R. 1069.
745 A careful land thorough examination of
the Provincial Sales tax Acts at the time discloses the. following. There were
sales tax laws in operation in all the then nine Provinces, which subsequently
became Part A States under the Constitution, as also in one Native State of
-Mysore. The pattern of the sales-tax laws in every one of the ten units had
the following common features (with minor additions and variations). Under the
charging section in each of these Acts, tax was levied as against a
"dealer" whose turnover of sales (or purchases) exceeded a particular
amount. A C 'dealer" was defined as a person carrying -on the business of
selling or supplying goods in the Province. "Sale" was defined as
meaning transfer of property in goods in the course of trade for valuable
consideration. In addition, each one of these Sales-tax Acts had an Explanation
to the definition of the word "sale" to the effect that,
notwithstanding anything to the contrary in the Indian Sale of Goods Act, a sale or purchase of goods "which were actually in
the Province" at the time when the contract of sale or purchase is made,
shall be deemed to have taken place in the Province, wherever the 'contract for
sale or purchase may have been made. This was, broadly speaking, the common
pattern of every one of the sales-tax laws just prior to the 'Constitution, subject
to some further additions to the definition of sale by a few of the States,
which will be presently noticed. This pattern indicates, that apart from the
purely internal sales-in respect of which the power of taxation by the States
was undoubted-the States claimed the power to tax sales with an outside element
in the following two cases: (1) Where the transfer of ownership in the goods
was within the State (assumed to be so) according to the Indian Sale of Goods
Act. (2) Where the goods which are the subject-matter of the sale are actually
in the Province at the time when the contract of sale is made, i.e., at the
crucial moment of transfer of ownership. If I may express this in another way,
these Sales-tax Acts purported to tax sales as being within the State, with
reference to (1) situs (as assumed) under the Sale of Goods Act, and 746 (2)situs (as probably assumed to be) under the
general law.
It is possible that this general law was so
assumed with reference to the dictum of Lord Loreburn in Badische Anilin Und
Soda Fabrik v. Hickson(1) which suggests that the situs Of the goods at the
time of appropriation of the goods to a particular sale is the situs of the
sale. Whether the underlying assumptions as regards both these criteria were
right or wrong is not material at this stage. While this was the general
pattern, four of the States claimed the taxing power with reference to some
additional criteria.
Madras and Mysore had an additional
Explanation as follows:
"In case the contract was for the sale
or purchase of future goods by description, then, if the goods are actually
produced in the Province at any time, after the contract of sale or purchase in
respect thereof was made, the sale or purchase shall be deemed to have taken
place in the Province, wherever the contract of sale or purchase might have
been made, notwithstanding anything to the contrary in the Indian Sale of Goods Act".
Bihar and United Provinces had the following
additional Explanation. (Taken from the U. P. Act).
"Notwithstanding anything in the Indian Sale of Goods Act, the sale of any goods which are produced or manufactured
in the Province by the producer or manufacturer thereof, shall, wherever the
delivery or contract of sale is made, be deemed for the purposes of the Act to
have taken place in the Province".
Both these additions refer to future goods.
Madras and Mysore apparently treated such future goods as having been
appropriated to the sale the moment they were "actually produced in the
Province". The Bihar and U.P. addition was more or less the same and is
limited to the case of sale by the very manufacturer or/producer. The above
additions are in effect the same as category No. 2 of the general pattern as
applied to future goods. The underlying assumption appears to be that future
goods which are contracted to be sold get appropriated thereto on their coming
(1) [1906] A.G. 419.
747 into existence and that thus a taxable
sale emerges.
Besides the above mentioned variations from
the general pattern, Bihar and Uttar Pradesh had further additions to the
definition of sale relating to forward contracts which virtually amounted to
treating "agreement to sell" itself as being the taxable event. This,
it may be seen, had nothing to do with the nexus theory of taxation of sales
and has been pronounced invalid by this Court in The Sales Tax Officer,
Pilibhit v. Messrs Budh Prakash Jai Prakash(1).
From the above broad summary it will be seen
that the Provinces were deriving sales-tax revenues not only in respect of
purely internal sales, but also in respect of sales with an outside element.
But in the generality o such sales, the tax was leviable at either or both of
the above mentioned two points, i. e., (1) transfer of ownership within the
State, (2) actual existence of goods within the State at the moment of such transfer.
The ultimate consumer in respect of ,such sales would normally be not a person
within the taxing State. Hence having, regard to the structure of the sales-tax
and the universally accepted machinery there for which brings about the passing
on, of the incidence thereof, to the ultimate consumer, this must have been
felt to be inequitable. It appears to me that in the adjustments called for on
the passing of the Constitution it was this feature of the pre-existing salestax
law which called for being remedied by the imposition of a ban on taxation of
sales with an outside element. But that very consideration would equally
indicate the permissibility of taxing an outside sale where the ultimate burden
of it could be passed on to the resident of the very taxing State. This could
be done by making the consuming State the taxing State. This, in my opinion,
was the background with reference to which article 286 was incorporated in the
Constitution, The Constitution wanted to put a ban on taxation of sales with an
outside element on account of the inequity of making the residents of other
States (1) [1955] 1 S.C.R. 243.
95 748 contribute towards the resources of
the selling State. But in doing so it could not have intended to confine the
resources of the State under this head to the come paratively small field of
purely internal sales. Having regard to the expanding needs of a social welfare
State and the limited taxing powers allocated to it, the Constitution could not
have meant to limit an elastic source of taxation payable by its own consumers
to the very small field of purely internal sales,. it, therefore, selected and
took out one category of sale with an outside element from the field of
restriction, by adopting the device of a fictional inside sale and left that
category taxable so that the incidence thereof may be the same as that of a
purely internal sale.
This, to my mind, is the reason for the
positive approach in the Explanation by a deeming provision as to an inside
sale.
It is on account of this common feature, as
to the incidence of taxation, that the fictional inside sale indicated in the
Explanation was assimilated to a purely internal or intraState sale. It appears
to me not very reasonable to assume that the Explanation to article 286(1) (a)
was required in order merely to determine what an outside sale is. If the
Constitution intended nothing more than to ban taxation on outside sales, it
might well have contented itself with declaring such a ban. I do not think that
the Courts would then have found any serious difficulty in construing
"outside sale" to mean, a sale with a substantial outside element, or
in the alternative, as a sale in which the ownership has passed outside the
State in the assumed sense of the Sale of Goods Act.
It was quite unnecessary and indeed out of the way to define an outside sale as
the implied negative of a fictional inside sale. Nor can the purpose of the
Explanation be readily assumed to be to obviate the supposed chaotic condition
arising out of the adoption of the nexus theory in the Sales-tax Acts. This
could have been sufficiently and effectively provided for-as in fact it was
done-by the ban imposed under article 286(2).
It has been suggested that the Explanation
covers some outside ,sales which do not fall within article 286(2) and that 749
therefore the Explanation was necessary. But the possibility of a few
ingenuously illustrated cases like the Gurgaon-Delhi illustration put forward in
the course of arguments-as falling outside the ambit of article 286(2) and
within the scope of article 286(1) (a) taken with the Explanation, would not
have been any adequate reason for the Constitution involving itself in two such
provisions, mostly overlapping in effect. It appears to 'me, therefore, that
the reasons for having these two provisions were distinct and different.
Article 286 (1) (a) with the Explanation was meant to prevent taxation whose
ultimate incidence would fall on residents of outside States. Article 286 (2)
was meant to prevent the taxing structure of the States being availed so as
unduly to hamper the freedom of inter-State trade and commerce which, for the
first time, the Constitution declared by article 301. In this context it also
became necessary to provide that the foreign trade of the country should not be
affected at all by the sales-tax structure of the States, while at the same
time indicating that the internal trade could be permitted to bear a limited
burden of taxation. It is in reconciliation of these various ideas that article
286(1) and 12) were drafted.
Judged in this light the following is the
only reasonable construction of article 286(1)(a) taken with the Explanation.
This provision, while intended to prohibit taxation by States on outside sales
was also meant to demarcate the boundary between inside sales and outside sales
and to assimilate one particular category of outside sales into the field of
inside sales and to make it available for taxation by the consuming State. The
underlying aim of this demarcation was to obviate the inequity of one State
levying a tax whose ultimate incidence was on the residents of another State
but to provide instead an elastic source of taxation which in its effect was to
be against its own residents. The field of export trade is completely marked
off as not being available for the operation of sales-tax by article 286 (1)
(b). Then the ban on sales in the course of inter-State trade and commerce is
declared, This ban, which was for a 750 totally different purpose cannot be so
construed as to nullify the positive results intended and brought about by
article 286(1) (a) read with the Explanation. To such a situation the principle
of harmonious construction would apply as enunciated by Lord Herschell in John
Carter Colquhoun v. Henry Brooks(1) at page 506 in the following terms:
"It is beyond dispute that we are
entitled and indeed bound when construing the terms of any provision found in a
statute to consider any other parts of the Act which throw light upon the
intention of the legislature and which may serve to shew that the particular
provision ought not to be construed as it would be if considered alone and
apart from the rest of the Act".
If, as my learned brother, Justice Venkatarama
Aiyar, is inclined to think, a sale cannot be said to have occurred in the
course of inter-State trade and commerce if the sale follows the completion of
the inter. State transportation of goods, as for instance, would be the case
when a hawking pedlar brings goods across a State boundary and vends it from
door to door in another State, then clearly the fiction which brings about the
notional inside sale would by itself be sufficient to take such a sale out of
the category " of the course of inter-State trade and commerce".
Because, in such a situation, while the transportation of goods across State
boundaries remains as a fact, the sale itself is deemed to be inside the
consuming State, the very purpose of the fiction being to shift the situs of the
sale for the purpose of taxability. It is) I think, in this sense that in the
earlier decision, the learned then Chief Justice laid down that by virtue of
the Explanation this particular category of inter-State sale became an
intrastate sale, of course, not for all purposes, but for the limited purposes
for which the Explanation was inserted I viz., the purpose of demarcating the
taxable field from the non-taxable field.
Looked at either on the ground of harmonious
construction or on the ground that the notional inside sale brought about by
the Explanation ceased, (1) [1889] 14 A.C. 493, 506, 751 by that very fiction,
to be part of the course of interState trade and commerce for taxation
purposes, the only proper construction of article 286(2) would be that it
cannot override article 286 (1) (a) taken with the Explanation.
Having indicated the' broad lines on which I
have, on independent consideration of the construction of articles 286(1) and
(2), arrived at the same construction as that adopted in the United Motors
case(1), it is unnecessary for me to deal with all the various aspects raised
before us in the course of the arguments, except to express my general
agreement with a good deal of the reasoning of my learned brother, Justice
Venkatarama Aiyar, on this part of the case. It is, however, necessary to refer
to a few matters referred to in the contrary view.
The contrary opinion adopted by my learned
brothers is based almost entirely on the view that article 286 is inspired by
the anxiety of the Constitution to prevent the mischief of multiple taxation,
which arose from the operation of the preexisting sales-tax laws. It is said
that this result was achieved by covering all loopholes from various angles,
articles 286(1)(a), 286(1)(b), 286(2) and 286(3) being said to be the four
plugging points. With respect, I can only think that this is the outcome of an
overdrawn picture as to the chaos said to have been created by the earlier preConstitution
sales-tax laws. As already pointed out, the common feature of all the previous
ten Sales-Tax Acts, was to bring about limited multiple taxation in respect of
outside sales at two points, viz., (1) transfer of ownership within the taxing
State, and (2) the actual presence of goods in the taxing State at the point of
time when the transfer of ownership takes place in another State.
It must be mentioned that none of the
Sales-Tax Acts took the mere presence of goods in the State as enabling it to
levy the tax. What was taken as enabling taxation was the existence of goods
within the State at the crucial point of time, viz., the point at which the
ownership became transferred wherever it may be. Once this is appreciated, it
is difficult to agree with the assumption that (1) [1958] S.C.R. 1069.
752 under the pre-existing law, the taxation
might get multiplied in the course of the transit of goods under sale through
a, number of States, if the goods happened to remain in, the successive States
for some time. In none except one of the States would the goods be in actual existence
-at the single crucial point of time of transfer of ownership.
Hence, I am clear in my mind that the
previous legislation would not have normally involved taxation of the same sale
with an outside element, at more than two points. (Whether even this would not
get limited by the fact that a "dealer" is defined in all the then
Acts as "within the Province" would be a matter for consideration).
Four of the then provincial units had, as, already stated, an additional
criterion for taxation. But, so far as Madras and Mysore were concerned that
criterion which relates to future goods cannot be cumulative with criterion
two. So Car as U.P. and Bihar are concerned which authorised the manufacturing
State as such to levy the tax, it appears to me that if it is borne in mind
that this is limited to the sale by the very manufacturer, this. was also not
likely to operate as a cumulative point. Even otherwise these additional
criteria might, if at all, have given rise to taxation at a third point, when
the sale transaction had to be put through via these particular States. But
even so there is no justification for the impression of chaotic conditions
resulting there from which has been assumed. There is no evidence before us
that prior to the Constitution there was in fact multiple taxation of sales in
operation, at any rate at more than the two points as explained by me above.
Hence in the light of the detailed scrutiny of the provisions in the various
Sales-Tax Acts which were in force prior to the Constitution) I cannot help
feeling that the mischief of multiple taxation which might if at all have
existed in a limited measure as pointed out above, has been overstated.
No doubt, the future prevention of such
multiple taxation by invoking the nexus theory recognised by the Privy Council
in Wallace's case(1) may well be one of the result of article 286, (1) [1948]
F.C.R. 1.
753 But I am unable to think that the main
purpose underlying each and every one of the provisions of article 286 was to
prevent the continuance of preexisting chaotic conditions of multiple taxation
by virtue of the nexus theory. I cannot help feeling that a wholly wrong
impression of the preexisting state of law in this respect has been created by
overlooking that the existence of goods in a particular State has been taken as
a taxing point only if that existence was at the crucial moment of transfer of
ownership. (A statement showing the definition of " sale" under each
of the Sales-Tax Acts in operation just prior to the Constitution is appended-as
Appendix I-for reference).
I On the construction of article 286,
reference has also been made in the dissenting view to sub-article (3) of
article 286 which runs as follows:
"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".
With great respect, I am unable to see its
bearing on the question at issue. It is a totally different kind of restriction
from what sub-articles (1) and (2) bring about.
While sub-articles (1) and (2) impose certain
bans on taxation what sub-article (3) does is not to impose a ban at all but to
impose a fetter in respect of taxation on sales of essential goods declared as
such by the Parliament by requiring that before such a taxation-law can have
any effect, it should be reserved for the consideration of the President and
receive his assent. In this respect it is in line with what would happen if any
other State legislation passed by that Legislature is presented to the Governor
for his assent and be reserves the same for the consideration of the President.
The only difference is that while in the latter the reservation for the
President is optional, in the case of such essential goods the reservation is
compulsory.
Subject to 754 this, even essential goods
continue to be, in theory and by Constitution, taxable (by the States
themselves) in respect of sales thereof. I am, therefore, unable to see the
bearing of this provision on the construction of the other two provisions which
bring about a total or contingent ban of taxation in respect of the sales to
which they have reference.
There is one other matter which has been
stressed or implied in the dissenting view and it is this. The assumption is
that even a single point tax on a sale arising in the course of inter-State
trade would be a burden on the freedom of inter-State trade and commerce
guaranteed under the Constitution by article 301 which runs as follows:
"Subject to the other provisions of this
Part, trade, commerce and intercourse throughout the territory of India shall
be free".
Now it is not disputed that a tax on a purely
internal sale which occurs as a result of the transportation of goods from a
manufacturing centre within the State to a purchasing market within the same
State is clearly Permissible and not hit by anything in the Constitution. If a
sale in that kind of trade can bear the tax and is not a burden on the freedom
of trade, it is difficult to see why a single point tax on the same kind of
sale where a State boundary intervenes between the manufacturing centre and the
consuming centre need be treated as a burden, especially where that tax is
ultimately to come out of the residents of the very State by which such sale is
taxable. Freedom of trade and commerce applies as much within a State as
outside it. It appears to me again, with great respect, that there is no
warrant for treating such a tax as in any way contrary either to the letter or
the spirit of the freedom of trade, commerce and intercourse provided under
article 301.
For all the above reasons', I am quite clear
in my mind that the view taken in the prior decision, viz., that the consuming
State has the present power to tax a fictional inside sale which falls within
the scope of the Explanation and that the said power is not affected by article
286(2) and that article 286(2) 755 cannot be construed as overriding article
286 (1) (a) read with the Explanation, is correct and that there is no reason
to depart from that decision.
The real difficulty, if any, that arises from
this view is as regards what has been called the extraterrestrial operation of
the tax which such a view may involve. In the conclusion reached by my learned
brothers who are prepared to uphold the dissenting, view taken in the prior
decision that question does not arise for consideration and has, been left
untouched. I do not, therefore, feel called upon to go into it or to commit
myself to any particular view on this somewhat difficult, question. I am
doubtful whether, as between the component States of a Union of the kind, which
India is under the Constitution, there can be any question of
extra-territoriality. in the sense of the doctrine that one nation does not act
in aid of the revenue laws of another (and foreign) nation. It is true that a
defined geographical part of India constitutes the territory of each unit
called the State and that the governance of that unit is committed to that
State. But it appears to me that on that account, the territory of one State is
not a foreign territory in respect of another State, when freedom of movement and
a number of other common fundamental rights are guaranteed. On the other hand,
I think it permissible to suggest that where the various States owe their
existence to the same Constitution and are subject to its common operation, any
taxing power vested in an individual State must carry with it the incidental
implication of enforceability, if need be, in any other State within the Union
when the very nature of that tax,, as contemplated by the Constitution involves
it. In this context article 261 (1), which enjoins that full faith and credit
shall be given throughout the territory of India to public acts, records and
judicial proceedings of the Union and of every State, may well be relied upon
to justify such a view. I am aware that this has been generally taken as
applicable to judicial and legislative proceedings. But the language of the
article is capable of wider application. I do not, however, wish to go into
the, 96 756 matter further because even if in the course of the administration
of sales-tax, of the kind permissible, in the view of article 286 which the
prior decision has accepted, there emerges the element of extra-territorial
operation of such a tax, that by itself can be no reason for negativing the
construction of articles 286(1) and (2) above indicated.
In this context it is necessary to bear in
mind the following clear dictum of the Privy Council in British Columbia
Electric Railway Co., Ltd. v. The King(1):
"A legislature which passes a law having
extraterritorial operation may find that what it has enacted cannot be directly
enforced, but the Act is not invalid on that account, and the courts of its
country must enforce the law with the machinery available to them".
The question, therefore, of
extra-territoriality is not germane for construction of article 286.
At the present stage we are not concerned
with the enforcement of the levy of the assessed tax but with the assessment of
the tax. All that we are concerned with is the validity of the steps so far
taken by the assessment authorities and particularly of the notice dated the
29th May, 1952, which intimates that on non-compliance before the 14th June,
1952, proceedings for assessment on the basis of "best judgment" will
be made. That step, to my mind, is perfectly valid as appears from the
following. In Whitney v. Commissioners of Inland Revenue (1), the House of
Lords by a majority held that where a tax was leviable on a nonresident, a
requisition served upon him by post to file a return and to produce accounts
was valid so as to entitle the taxing authority to make an assessment on the
basis of best judgment on non-compliance with the requisition. The following
passage from Lord Wrenbury's speech at page 56 is instructive:
"There is a second question in the
case-namely, whether the appellant has been duly brought within the machinery
for assessment provided by the Act. This turns upon section 7.
There was sent to the appellant by post
addressed to him in the United (1)[1946]A.C.527,542.
(2) [1926] A.C. 87.
757 States a notice under section 7,
sub-section 2, requiring him to make a return. It is contended that there 'was
no right to post him such a notice so addressed. The case, it is contended, is
similar to the case of service of a writ out of the jurisdiction. I do not agree.
It is similar rather to the service of a notice of dishonour of a bill or of a
notice to quit or of a notice requiring payment of calls upon shares as a
preliminary to forfeiture in default of payment. It is not a step in judicial
proceeding but a step which will create inter-partes a state of things in which
judicial proceedings can subsequently be taken in default of compliance".
It may be that some or all of the provisions
in the Bihar Act which contemplate enforcement out of State or create penalties
for non-compliance out of State may require closer examination when the
validity thereof is directly challenged. It may also be that the harassment
consequent on such outside operation may require to be remedied either by
agreed co-ordination between the States or by appropriate legislation, if need
be. These, however, are not relevant considerations for us on the question we
have now to deal with.
I am accordingly clear in my opinion that
this appeal should be dismissed with costs.
APPENDIX-1.
STATEMENT SHOWING THE DEFINITION OF
"SALE" UNDER EACH OF THE
SALES-TAX ACTS IN OPERATION JUST PRIOR TO THE
COMMENCEMENT
OF THE CONSTITUTION.
(Vide Page 753).
MADRAS SALES-TAX ACT, 1939.
"Sale" (with all its grammatical
variations and cognate expressions) means every transfer of the property in
goods by one person to another in the course of trade or business for cash or
for deferred payment or other valuable consideration, (and includes also a
transfer of property in goods involved in the execution of a works contract,
but does not include a mortgage, hypothecation, charge or pledge;) (Explanation
1: A transfer of goods on the hire purchase or other installment system of
payment shall, notwithstanding the fact that the seller retains the title in
the goods as security for payment of the price, be deemed to be a sale.)
Explanation 2: Notwithstanding anything to the contrary in the Indian Sale of Goods Act,
1930, the sale or purchase of any goods shall be
deemed, for the purposes of this Act, to have taken place in this Province,
wherever the contract of sale or purchase might have been made(a)if the goods
were actually in this Province at the time when the contract of sale or
purchase in respect thereof was made, or (b)in case the contract was for the
sale or purchase of future goods by description, then, if the goods are
actually produced in this Province at any time after the contract of sale or
purchase in respect thereof was made.
BENGAL FINANCE (SALES-TAX) ACT, 1941.
"Sale" means any transfer of
property in goods for cash or deferred payment or other valuable consideration
ration....
Explanation 2: Notwithstanding anything to
the contrary in the Indian Sale of Goods Act, 1930, the
sale of any goods which are actually in West Bengal at the time when the
contract of sale (as defined in that Act) in respect thereof is made, shall,
wherever the said contract of sale is made, be deemed for the purposes of this
Act to have taken place in West Bengal.
BOMBAY SALES-TAX ACT, 1946.
"Sale" means any transfer of
property in goods for cash or deferred payment or other valuable
consideration...........
759 Explanation 2: Notwithstanding anything
to the contrary in the Indian Sale of Goods Set, 1930, the sale of any goods
which are actually in the Province of Bombay at the time when the contract for
sale (as defined in that Act) is made in respect thereof, shall, wherever the said
contract of sale is made, be deemed for the purposes of this Act to have taken
place in the Province of Bombay.
ASSAM SALES-TAX ACT, 1947.
"Sale" means any transfer of
property in goods by any person for cash or deferred payment or other valuable
consideration * * * * Explanation: Notwitbstanding anything to the contrary in
the Indian Sale
of Goods Act, 1930,
the sale of any goods which are actually in the Province at the time when the
contract of sale (as defined in that Act) in respect thereof is made, shall,
irrespective of the place where the said contract is made, be deemed for the
purposes of this Act to have taken place in the Province.
BIHAR SALES-TAX ACT, 1947.
"sale" means * * * any transfer of
property in goods for cash or deferred payment or other valuable
consideration....
* * * * * * Provided further that
notwithstanding anything to the contrary in the Indian Sale of Goods Act,
1930, the sale of any goods(i) which are actually in
Bihar at the time when, in respect thereof, the cntract of sale as defined in
section 4 of that Act is made, or (ii) which are produced or manufactured in
Bihar by the producer or manufacturer thereof, shall, wherever the delivery of
contract of sale is made, be deemed for the purposes of this Act to have taken
place in Bihar;
Provided further that the sale of goods in
respect of a forward contract, whether goods under such con760 tract are
actually delivered or not, shall be deemed to have taken place on the date
originally agreed upon for delivery.
CENTRAL PROVINCES AND BERAR SALES-TAX ACT,
1947.
"Sale means any transfer of property in
goods for cash or deferred payment or other valuable consideration * * * * * *
Explanation 2: Notwithstanding anything to the contrary in the Indian Sale of Goods Act,
1930, the sale of any goods which are actually in the
Central Provinces and Berar at the time when the contract of sale as defined in
that Act in respect thereof is made, shall wherever the said contract of sale
is made, be deemed for the purpose of this Act to have taken place in the
Central Provinces and Berar.
ORISSA SALES-TAX ACT, 1947.
"Sale" means any transfer of
property in goods for cash or deferred payment or other valuable
consideration...........
* * * * Provided further that notwithstanding
anything to the contrary in the Indian Sale of Goods Act, 1930, the sale of any goods which are actually in Orissa at the
time when, in respect thereof, the contract of sale as defined in section 4 of
that Act is made, shall, wherever the said contract of sale is made, be deemed
for the purpose of this Act to have taken place in Orissa.
MYSORE SALES-TAX ACT, 1948.
"Sale" means every transfer of the
property in goods by one person to another in the course of trade or business
for cash or deferred payment or other valuable consideration....
* * * * * 761 the Sale of Goods Act, 1932,
the sale or purchase of any goods shall be deemed, for the purposes of this
Act, to have taken place in Mysore, wherever the contract of sale might have been
made;
(a) if the goods were actually in Mysore at
the time when the contract of sale or purchase in respect thereof was made, or
(b)in case the contract was for the sale or purchase of future goods by
description, then, if the goods are actually produced in Mysore at any time
after the contract of sale or purchase in respect thereof was made.
EAST PUNJAB GENERAL SALES-TAX ACT, 1948.
"Sale" means any transfer of
property in goods for cash or deferred payment or other valuable
consideration.........
Explanation 2: Notwithstanding anything to
the contrary in the Indian Sale of Goods
Act, 1930, the sale of any goods which are actually
in East Punjab at the time when the contract of sale (as defined in that Act)
in respect thereof is made, shall, wherever the said contract of sale is made,
be deemed for the purposes of this Act to -have taken place in East Punjab.
UNITED PROVINCES SALES-TAX ACT, 1948.
"Sale" means any transfer of property
in goods for cash or deferred payment or other valuable consideration
Explanation II: Notwithstanding anything in the Indian Sale of Goods Act, 1930, or any
other law for the time being in force, the sale of any goods(i) which are
actually in the United Provinces at the time when in respect thereof, the
contract of sale as defined in section 4 of that Act is made, or (ii)which are
produced or manufactured in the United Provinces by the producer or
manufacturer 762 thereof, shall, wherever the delivery or contact of sale is
made, be deemed for the purposes of this Act to have taken place in the United
Provinces.
Explanation 111. Where goods under a forward
contract are not actually delivered, the sale in respect of such contract shall
be deemed to have been completed on the date originally agreed upon for
delivery.
Note: The omitted portions in the definitions
other than those in the Madras Act are to the same effect as those shown within
brackets in the Madras definition.
VENKATARAMA AYYAR J.-The appellant is a
Company registered under the Indian Companies Act carrying on business in the
manufacture and sale of sera, biological products and medicines. Its registered
office is at No. 153, Dharamtalla Street, Calcutta, and its laboratory and
factory are situated at Baranagar, 24 Parganas, West Bengal. The first
respondent is the State of Bihar, and respondents 2 and 3 are respectively the
Secretary and the Assistant Secretary of Commercial Taxes. On the 18th December
1951, the second respondent issued a notice under section 13(5) of the Bihar
Sales Tax Act, 1947 (Act XIX of 1947) (hereinafter referred to as the Act)
calling upon the appellant to register itself as a dealer under the Act and to
submit a return for assessment of sales tax., To this the appellant sent a
reply on the 8th January, 1952 disputing its liability on various grounds, and
after further correspondence between the parties which it is needless to set
out,, the third respondent sent a notice on the 20th May 1952 that if the
appellant failed to comply with the notice dated the 18th December 1951 by the
14th June 1952, steps would-be I taken to assess tax on the basis of best
judgment. The appellant replied by filing the application out of which the
present appeal arises, under article 226 of the Constitution for a writ of
prohibition restraining the respondents from proceeding with 763 the assessment.
It was alleged in the petition that as the appellant had no place of business
within the State of Bihar, the provisions of the Act under which it was sought
to be taxed were ultra vires as extraterritorial in operation, and that further
those provisions were repugnant to article 286(2) of the Constitution and were
therefore void. The State of Bihar, which will hereafter be referred to as the
respondent, resisted the application on the ground firstly, that it was not
maintainable for the reason that the appellant had, under the provisions of the
Act, a right of appeal against the assessment to the appropriate authorities,
and secondly, that as the sales proposed to be taxed must be deemed to have
taken place by reason of the Explanation to article 286(1) (a) within Bihar,
the provisions of the Act imposing tax on a non-resident seller were neither
ultra vires nor unconstitutional. The learned Judges of the High Court upheld
both these contentions and dismissed the application, and this appeal has been
preferred against their judgment on a certificate granted under article 132(1)
of the Constitution. In view of the importance of the issues involved, leave of
the Court was sought by and granted to ten States, one commercial firm and one
individual dealer. Nine out of the ten States, namely Orissa, PEPSU, Punjab,
Madhya Pradesh, Madras, Mysore, Rajasthan, Travancore-Cochin and Uttar Pradesh,
have intervened and supported the respondents. One State, West Bengal,
represented by the learned Attorney-General supported the appellant, and so did
the Tata Iron and Steel Co., Ltd., and one M. K. Kuriakose.
On the arguments addressed before us, the
following points arise for determination:
1.Whether the application for a writ of
prohibition is maintainable? 2.Whether the Explanation to article 286(1)(a)
confers authority on the State Legislatures to impose tax on sales falling
within its purview? 3.Whether the sales covered by the Explanation to article
286(1) (a) are subject to the prohibition contained in article 286(2)? 97 764
4.Whether the Bihar Sales Tax Act, 1947 is invalid on the ground that it is
extra-territorial in its operation, and ultra vires the power of the State
Legislature? 5.Whether the assessment proposed to be made on the appellant is
not authorised by the Explanation to article 286(1) (a)?
1. On the question of the maintainability of
the application for a writ of prohibition, it was observed by the learned
Judges that under section 13(5) of the impugned Act, the Commissioner was
competent to decide whether the appellant was a person liable to pay tax under
the Act, that even if he came to an erroneous conclusion on the merits, that
did not affect his jurisdiction over the subject matter, that the Act itself
provided in sections 24 and 25 a complete and effective machinery by way of
appeal and revision for correction of such errors, and that accordingly a writ
of prohibition was not the proper remedy. If the learned Judges intended to lay
down that a writ of prohibition should not issue because another remedy was
open under the Act, that cannot be supported. The existence of another remedy
is a very material circumstance to be taken into account when the Court is
called upon to issue a writ of certiorari, but wholly different considerations
arise when the writ asked for is prohibition. Writ of prohibition is issued
whenever a subordinate Court or Tribunal usurps jurisdiction which does not
belong to it, and when that has been shown, the issue of the writ, though not
of course, is of right and not discretionary. The point to be determined,
therefore, is whether in taking proceedings under section 13(5) of the Act,
respondents 2 and 3 acted without jurisdiction or in excess of it. The
contention of the appellant is that the Bihar Legislature had no competence to
tax the sales in question, because they were effected in Bengal, and the
appellant was not carrying on business within the State of Bihar. If this
contention is well founded, then section 13(5) of the Act would be void and
inoperative in its application as against the appellant, and the proceedings
taken there under would 765 in consequence be without jurisdiction. We are not
here concerned with a statute whose vires is not in question, and which confers
jurisdiction on any authority to take proceedings if certain facts exist and
the enquiry directed by the authority is as to whether those facts exist. The
determination in such a case is incidental to the effective exercise by the
authority of its undisputed jurisdiction and if, as a result of that enquiry,
it came to an erroneous conclusion, there is no error of jurisdiction, and it
might well be contended in that case that the remedy of the party aggrieved was
to resort to the machinery provided in the statute itself by way of appeal or
revision, and that a writ of prohibition would be misconceived. But here, the
contention of the appellant is that the statute itself is void in so far as it
authorises the imposition of a tax on dealers who are not residents within the
State or do not carry on business there, and that, in consequence, the
proceedings taken under section 13(5) of the Act should be restrained on the
ground of want of jurisdiction. It is no answer to this contention that the
appellant should seek redress through the channels provided in the Act there for.
Indeed, the contention that the Act is ultra
vires is not one which the Tribunals constituted under the Act, whether
original, appellate, or revisional, could entertain,, their duty being merely
to administer the Act.
It was argued by Mr. N. C. Chatterjee that if
the tax was illegal, as contended by the appellant, then the proceedings taken
for imposing the same would amount to unconstitutional interference with the
fundamental right of the appellant to carry on business guaranteed under article
19(1) (g), and that the courts were bound to interfere under article 226.
He relied on the decisions of this court in
Mahommad Yasin v. The Town Area Committee, Jalalabad(1), The State of Bombay v.
The United Motors (India) Ltd.("), and Himmatlal Harilal Mehta v. The
State of Madhya Pradesh(3). That is undoubtedly the position in law, but as the
appellant is a Company registered under (1) [1952] S.C.R. 578. (2) [1953]
S.C.R. 1069, (3)[1954] S.C.R. 1122.
766 the Indian Companies Act and the question
whether a juristic person is a citizen for the purpose of article 19(1) (g) is
still an open one, I would prefer not to rest my decision on this ground. It is
sufficient for the purpose of this appeal to hold that a writ of prohibition
should issue, if the appellant establishes that the proceedings taken against
it under section 13(5) of the Act are without jurisdiction.
The contentions urged in support of that
position must now be examined.
2. It is firstly argued that the Explanation
to article 286 (1) (a) on which the validity of the impugned Act depends
confers no authority on the State Legislature to impose a tax on sales falling
within its purview. To appreciate the contentions advanced on either side, it
must be mentioned that the Act as passed in 1947 contemplated the imposition of
a tax on residents within the State. They might be natural persons, or they
might be juristic persons carrying on business within the State. The business
might be carried on in person or through agents. But if the persons who carried
on the business of buying and selling did not reside within the State or carry
on business there, then the Act did not authorise the imposition of tax on
them. That was the effect of the definition of "dealer" as meaning
"any person who carries on the business of selling or buying goods in
Bihar". Then came the Constitution, and the Explanation to article 286(1)
(a) enacted that sales shall be deemed to have taken place in that State in
which the goods are delivered for consumption, notwithstanding that title to
them passed in another State. The construction which the respondent puts on the
Explanation is that it confers on the States proprio vigore, a power to tax
sales when the conditions mentioned therein are satisfied.
Agreeably to this view, the Bihar Finance
Act, 1950 (Act XVII of 1950) substituted for the words "who carries on
business of selling or buying goods in Bihar" the word$ "who sells or
supplies any goods". The point to be noted is that the words "in Bihar"
which occurred in the previous definition were omitted, In 1951 by the
Adaptation 767 of Laws Order, a new section, section 33, was added, and that is
as follows:
"33. (1) Notwithstanding anything
contained in this Act, (a) a tax on the sale or purchase of goods shall not be
imposed under this Act(i) where such sale or purchase takes place outside the
State of Bihar; or (ii) where such sale or purchase takes place in the course
of import of the goods into, or export of the goods out of, the territory of
India;
(b) a tax on the sale or purchase -of any
goods shall not, after the 31st day of March 1951, be Imposed where such sale
or purchase takes place in the course of inter-State trade or commerce except
in so far as Parliament may by law otherwise provide.
(2) The Explanation to clause (1) of article
286 of the Constitution shall apply for the interpretation of sub clause (1) of
clause (a) of sub-section (1)".
(2) The contention of the respondent is that
the appellant has become liable to be taxed under these provisions.
The appellant replies that article 286(1) (a)
is restrictive in its scope, that it merely takes away a power to tax which the
State might otherwise possess, but that it does not positively confer on a
State a power to tax where it did not previously exist, and that on its true
construction, it would operate to divest Bengal of its power to tax but not to
vest it in Bihar. To decide which of these two contentions is the correct one,
it is necessary to examine what the law was prior to the enactment of article
286(1) (a) and the Explanation, what the defect was which was disclosed in the
working of that law, and how it was proposed to remedy it.
Under the Government of India Act, 1935, the
power to enact a law imposing tax on sale of goods was conferred on the
Provincial Legislature by Entry 48 in List II. Under sections 99(1) and 100(3)
that law must be for the Province, and as interpreted in Wallace Bros. v. 1. T.
Commissioner, Bombay(1), that meant that there should be sufficient territorial
(1) (1948] F.C.R. I., 768 connection between the person proposed to be taxed
and the State seeking to tax with reference to the subject matter of the
taxation. Dealing with this aspect of the matter, Patanjali Sastri, C. J.
observed in The State of Bombay v. The United Motors (India) Ltd.(1) as
follows:
"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.................................... 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 and 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 activities ultimately resulted in a concluded sale or purchase to
be taxed".
This statement of the law was again adopted
by this Court in Pappatlal Shah v. The State of Madras(2) . Vide the
observations of Mukherjea, J. (as he then was) at pages 682 and 683. In this
view, a law of the State imposing a tax on sales must, to be valid, fulfill two
conditions. Firstly, there must be a completed sale involving the transfer of
title in the goods to the purchaser. It is only then that the power to tax
arises. That was held by this Court in The Sales Tax Officer, Pilibhit v.
Messrs Budh Prakash Jai Prakash (1). Secondly, there must be sufficient
territorial nexus between the transaction and the State which seeks to tax it.
This condition undoubtedly introduced an element of uncertainty and vagueness
in the law with the result that the power to tax which was linked up with it, had
indefiniteness which could ].end itself to (1) [1953] S.C.R. 1069. (2) [1953]
S.C.R, 677.
(3) [1955] 1 S.C.R. 243, 769 abuse. How
expansive was the area open to the State Legislature to impose a tax on the
basis of the nexus theory is forcibly brought out by Bose, J. in the following
observations in The State of Bombay v. The United Motors (India) Ltd.(1) at
page 1101:
"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".
Many were the problems which this state of
the law created both for the State and for the consumers. Whether the fact on
which a State law seeks to tax is sufficient nexus must, except in some obvious
cases, be open to debate, and until a court pronounces on it, there must be a
cloud of uncertainty hanging over the validity of the enactment. More than
that, when the several elements which go to make up a sale are distributed over
different States it might happen that the same transaction might be subjected
to tax by more States than one and the burden thereof must ultimately fall on
the consumers. It was this, the possibility of multiple taxation that was the
most serious defect in the law as it stood prior to the Constitution, and it
was to remedy this that a new provision., article 286(1)(a) with its
Explanation was (1) [1953] S.C.R. 1069.
770 enacted. It is 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 place(a) outside the State.
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".
It will be convenient hereafter to refer to
the State in which title to the goods passes as the selling State, and the
State in which goods are delivered for consumption as the delivery State.
Now we may examine how this provision is
designed to put an end to multiple taxation. The scheme of the enactment is to
fix, what had not been done under the Government of India Act, 1935, the situs
of the sale, and for that purpose, to classify it into two categories, sale
inside the State and sale outside the State. On what principle the situs was
fixed will presently be considered. But when once that is done, the problem is
solved. If a sale is inside a State, the power of that State to tax it under
Entry 54 remains unaffected. But if the sale is outside a State, article 286(1)
(a) prohibits that State from taxing it. This process must have the effect of
eliminating multiple taxation, because a sale must be either inside or outside
a State, and if it is inside one State it must be outside all other States. In
this respect, article 286(1) (a) effected a fundamental alteration in the law
under Entry 48 in List II and section 100(3) of the Government of India Act,
1935, as construed by the courts. Whereas under these provisions a State could
tax irrespective of where a sale took place, provided there was sufficient
territorial nexus, under article 286(1) (a) that power can be exercised only
771 when it takes place inside the State, mere nexi being insufficient to support
such a power. The theory of nexus as a source of jurisdiction to tax was thus
abandoned, and the power to tax was annexed to the situs of the sale to be
exercised by the State wherein it is fixed and as a given sale can take place
only in one State and in no other, it must follow that the power of taxing that
sale is capable of exercise only by one State and not others.
The foundation on which this scheme rests is
the location of a sale in a particular State. But how is this to be done? When
all the essential elements of a sale take place within one State, the question
presents no difficulty. But what, if they are distributed over several States?
It is to deal with this situation that the Explanation has been enacted.
Its purpose is to fix the situs of a sale
when it is of an inter-State character,, and it does that by providing that it
shall be deemed to have taken place in that State in which the goods are
delivered for consumption. What the significance of the words " for
consumption" is, will be considered in due course. But that apart, it is
delivery of the goods that has been adopted by the Constitution as the
determining factor in fixing the situs of the sale, not the agreement to sell,
nor the passing of title to the goods, nor other ingredients of sale, and there
is good reason for this. Where an agreement to sell is concluded by
correspondence as generally it must be when the transaction is of an
inter-State character., difficult questions might crop up as to where the
agreement was concluded. Likewise, the conception as to passing of property in
the goods is largely juristic and not seldom obscured by legal subtleties and
refinements, and it is conceivable that there might be conflict among the
States as to in which of them the title has passed. ]But delivery is a matter
of fact, about which there ought to be no dispute, and it is consistent with
the purpose of article 286(1)(a) that the Explanation should have chosen
delivery as the determining element in the transaction of sale. Now, the question
to be decided ,is whether in the light of the above discussion, the 98 772
contention of the appellant that the Explanation operates only to deprive the
selling State of its power to tax the sale, and that it confers no authority on
the delivery State to impose a tax can be accepted. An obvious objection to
this view might at once be stated. If the Explanation has no application to any
but the selling State, it must follow that all the other States including the
delivery State will have power to impose a tax under Entry 54 uncontrolled by
the Explanation, and that will bring into play the nexus theory with its
attendant evil of multiple taxation. On this contention, therefore, article 286
(1) (a) must be held to have failed to achieve what it set about to do. A
construction which leads to such a conclusion cannot be accepted unless there
are cogent reasons there for. What are those reasons? It is urged that article
286 (1) (a) does not, in terms, purport to confer a power on the State to
impose a tax on sale, that, on the other hand, it assumes the pre-existence of
such a power in the State, and then proceeds to restrict it, that the
substantive provisions which confer power to tax are Entry 54 in List II and
article 246(3), that when a State has no power to tax under those provisions,
then article 286(1) (a) could have no application as there could be no question
of restricting what does not exist, and that it could not, therefore, operate
to confer on it such a power. In support of this position, reliance is placed
on the form of article 286(1) (a) that no law of a State shall impose a tax on
outside sale. This prescription, it is argued, is merely negative and
destructive and not positive and creative in its content.
But this contention does not give sufficient
effect to the Explanation which is in substance and form positive, and it also
fails to take adequately into consideration the purpose of the enactment. The
object of article 286(1)(a)-and there is no dispute about it -is to avoid
multiple taxation and that, as already stated, was sought to be achieved by
fixing the situs of sale in one State in accordance with the Explanation. The
scheme of the enactment must, by its very nature, have both a positive and a
negative 773 aspect. In so far as it lays down which of the several States
could tax-and it does that in the Explanation -it is positive in its aspect,
and in so far as it prohibits the other States from imposing tax-and it does
this in the body of article 286(1)(a)-it is negative in its aspect. The body of
article 286(1) (a) and the Explanation together form parts of a single
enactment charged with a single purpose and to refer to it either as negative
or positive in character can only be a partial and not an accurate statement of
the true position. It is no doubt true that article 286 (1) (a) assumes that
there is in the State a power to tax aliunde, and then proceeds to restrict it.
But it is not inconsistent with this to construe the Explanation as positive in
character. The problem of multiple taxation, which it is the object of the
enactment to avoid, is possible only when the sale is of an inter State
character, and when the Explanation enacts that in such cases the sale shall be
deemed to have taken place in the delivery State, that is at once a recognition
and a declaration by the Constitution that delivery is sufficient nexus on
which the State can tax the sale under Entry 54. The object of this declaration
was to remove the question from the arena of controversy and settle it once and
for all. It is thus a positive enactment and not the less so, because it is
declaratory in character and it is also restrictive in that it takes away by
necessary implication the power of taxation on the basis of other next which
other States would have had under Entry 54. No purpose would be served by
entering into a subtle disputation as to whether the Explanation conferred a
new and substantive power, or whether it affirmed an existing power. In either
case, the power of the delivery State to tax could not be challenged.
Looking at the form of the Explanation, it is
emphatically positive in that it declares that the sale shall be deemed to have
taken place in the delivery State, and that is all the more significant in view
of the fact that the body of article 286(1) (a) to which it is appended is
negative in form. The change over from the negative of the body of article
286(1)(a) to 774 the positive of the Explanation is highly significant, and the
appellant has been unable to suggest any reason for this, except inadvertence
and slovenliness on the part of the draftsman.
The marginal note to article 286 was also
referred to as showing that the Explanation was merely restrictive in
character. In Phakuraiit Balraj Kunwar v. Rae Jagat Pal Singh(1) Lord
Macnaghten observed:
"It is well settled that marginal notes
to the sections of an Act of Parliament cannot be referred to for the purpose
of construing the Act. The contrary opinion originated in a mistake, and it has
been exploded long ago. There seems to be no reason for giving the marginal
notes in an Indian statute any greater authority than the marginal notes in an
English Act of Parliament".
The reason on which this rule rests was thus
stated by Baggallay, L. J. in Attorney-General v. G. E. Ry. (2):
"I never knew an amendment set down or
discussed upon marginal notes to a clause. The House of Commons has nothing to
do with a marginal note". Vide also the observations of Lord Hanworth,
M.R., in Nixon v. Attorney General(3). This reasoning applies with equal force
to marginal notes in Indian statutes. In my opinion, the marginal note to
article 286(1)(a) cannot be referred to for construing the Explanation. It is
clearly inadmissible for cutting down the plain meaning of the words of the
Constitution. Vide Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai and
Co.(4).
Two other views as to the scope of the
Explanation which were discussed by the learned Attorney-General in the course
of his argument must now be noticed. One is that the Explanation does not
deprive the selling State of its power to tax under Entry 54 but confers
additional power of taxation on the delivery State. And the other is that the
Explanation merely settles the competing claims of the selling and of the
delivery State, and leaves untouched the power of the (1) 31 I.A,. 132, 142,
143.
(3) [1930] 1 Ch. 666, 593.
(2) [1879] 11 Ch. D. 449 461.
(4) [1950] S.C.R. 835, 353.
775 other States to tax on the basis of the
nexus theory.
Neither of these views has been pressed by
any of the parties before us, and both of them are open to the objection that
they would result in multiple taxation, which it was the purpose of the
Explanation to avoid, and must in consequence be rejected. In the result, 7
whether regard is had to the object of the enactment or its language, the
Explanation must be held to authorise the imposition of tax by the delivery
State.
3. It is next contended by the appellant that
the sales covered by the Explanation to article 286(1)(a) are within the
prohibition contained in article 286(2) and that in consequence the charge
sought to be imposed on such sales by the impugned Act is illegal and void.
That raises the question as to what the scope of the Explanation to article
286(1) (a) is, and whether it is controlled by article 286(2). The Explanation
declaring as it does that the situs of a sale for purposes of taxation is the
delivery and not the selling State can apply, by its very terms, only to sales
of an inter-State character, and that is the basis on which the argument of
both the parties to the appeal has proceeded. Article 286(2) prohibits the
imposition of tax on sales in the course of inter-State trade. Thus, the field
on which the Explanation operates falls within the area covered by article
286(2), and there is apparently a conflict between them. Now the question is
how the power of a State to tax on the basis of the Explanation is affected by
the impact of article 286(2), and on that, three views have been put forward:
(a) The Explanation fixes the situs of the
sale in the delivery State. It becomes thereby a sale inside that State and
outside all other States. It accordingly ceases to be a sale in the course of
inter-State trade and becomes an intrastate sale and is, therefore, outside the
purview of article 286(2); and the power of the delivery State to tax under the
Explanation remains unaffected. That was the view taken by the majority of the
learned Judges in The State of Bombay v. The United Motors (India) Ltd. (1),
and according (1) [1953] B.C.R 1069.
776 to it, there is no conflict between the
Explanation and article 286(2).
(b) The sales to which the Explanation
applies are in the course of inter-State trade, and fall within the coverage of
article 286(2), and there is thus a conflict between the two provisions, but
the Explanation deals with a special topic, and therefore prevails against
article 286(2) on the principle of generalia specialisus non derogant, and the
power to tax thereunder is unaffected. That was the view taken by Bhagwati, J.
in The State of Bombay v. The United Motors(India) Ltd.(1).
(c)The sales to which the Explanation applies
are in the course of inter-State trade, and are hit by article 286(2) and
unless Parliament lifts the ban as provided therein, no tax can be levied on
them. According to this view, the two provisions are irreconcilably in
conflict, and article 286(2) must prevail as against the Explanation unless its
operation is superseded by Parliamentary legislation. This was the view taken
by Bose, J. in The State of Bombay v. The United Motors (India) Ltd.(1), and by
Das, J. in State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory(2).
The points for determination are thus whether there is conflict between the
Explanation to article 286(1)(a) and article 286(2), and if so, which of them
is to prevail. To decide this, it is necessary to examine first what the
position was under the Government of India Act, 1935, and next how it has been
affected by the, provisions of the Constitution.
Under the Government of India Act, 1935, the
Provinces had under Entry 48 in List II the exclusive power to make laws in
respect of taxes on sale of goods, and under Entry 27, in respect of trade and
commerce within its territory. There was no entry relating to trade and
commerce among the Provinces though several topics relating to inter-State
trade and commerce were specifically enumerated in List 1.
Nor was there any provision for regulating
inter-State commerce though under section 297 some restrictions were placed on
the powers of the Provincial Legislature with (1) [1953] S.C.R. 1069.
(2) [1954] S.C.R. 53, 777 reference thereto.
The conception of a commerce clause, as we now have it, was unknown to the
Government of India Act, 1935. It came in for the first time as part of the
Constitution. To understand its true scope, it would be legitimate and indeed
necessary to examine its bearings and incidents in other systems of law. The
American Constitution is the oldest written Federal Constitution in the world,
and the problems it had to deal with were what many Federal Governments have
had since to face. The commerce clause is one of its notable provisions, and it
was before the framers of the British North America Act, 1867 and of the
Commonwealth Act of Australia, 1900. Our Constitution also has largely been
influenced by it, and it would be useful to examine it to see what light it
throws on the present controversy.
In America the authority of the Congress to
enact laws on the matters delegated to it under the constitution is supreme. In
respect of all other matters, the States possess plenary powers of legislation
subject to the inhibition contained in the Constitution. It is in exercise of
these powers that the States enact laws regulating sales and imposing tax on
them. Under section 8 of article I of the Constitution, the power "to
regulate commerce among the States" is vested in the Congress. Thus, while
intra-State commerce is within the exclusive jurisdiction of the State,,
inter-State commerce is within the exclusive jurisdiction of the Congress. A
question which came up frequently for decision before the Courts was whether
the States had the power to enact laws with reference to goods which had come
into a State in the course of inter-State trade, and it was settled on the highest
authority that if the sale was for the purposes of consumption within the State
it became domestic in its character,, and fell within the power of the State to
regulate and to tax, but that if it was for purposes other than consumption
such as re-sale, then that was in the course of interState commerce, and
Congress alone had the jurisdiction to legislate in respect of it. In
Pennsylvania 778 Gas Co. v. Public Service Commission(1) the question was as to
the validity of a statute of New York regulating the rates which could be
charged for sale of natural gas for consumption within the State. The gas was
transported into the State by pipe lines from outside, and it was accordingly
held that the regulation was in respect of inter-State trade and commerce, and
was therefore "subject to applicable Constitutional limitations" but
that the State law was valid because "the thing which the State Commission
has undertaken to regulate, while part of inter-State transmission, is local in
its nature, and pertains to the furnishing of natural gas to local consumers
within the city of Jamestown, in the State of New York". In Missouri ex
rel. Barrett v.
Kansas Natural Gas Co.(2), the facts were
similar except that the sales were not for consumption within the State but for
resale. It was held that those sales continued to retain the character of
inter-State trade, and fell within the commerce clause. Vide also Public
Utilities Commission v. Attleboro Steam & Electric Co.(3). The principle
underlying these decisions would appear to be that goods which are transported
in inter-State trade must necessarily come to the end of their journey when
they are consumed, and that, therefore, sales for consumption take them out of
the course of inter-State trade. But if the goods are sold for resale, they are
still moving in inter-State journey and therefore the commerce clause applies.
In 1938 the Congress enacted a legislation with reference to sales in the
course of inter-State trade for purposes of resale. Examining the question
whether the States had thereafter the power to enact a law regulating sales
which take place in the course of inter-State trade but for local consumption,
the Supreme Court held in Panhandle Eastern Pipe Line Co. v. Public Service
Commission of India(1) that they had, and observed:
"Prior to that time (1938) this Court in
a series of decisions bad dealt with various situations arising from State
efforts to regulate the sale of imported (1) 252 U.S. 23: 64 L.Ed. 434.
(3) 273 U.S. 83; 71 L. Ed. 549.
(2) 265 U.S. 298; 68 L. Ed. 1027.
(4) 332 U.S. 507; 92 L. Ed. 128.
779 natural gas. The story has been
adequately told and we do not stop to review it again or attempt reconciliation
of all the decisions or their groundings. Suffice it to say that by 1938 the
Court had delineated broadly between the area of permissible state control and
that in which the states could not intrude. The former included interstate
direct sales to local consumers, the latter, service interstate to local
distributing companies, for resale".
It further held that, the Congress
legislation was itself a recognition of the distinction established by the
decisions "between sales for resale and direct sale for consumption.
"This decision was -followed quite
recently in Panhandle Eastern Pipeline Co. v. Michigan Public Service
Commission(1). Four propositions might accordingly be taken as well-settled in
American law:
(i)The States have plenary and exclusive
power of legislation in respect of intrastate sales.
(ii)Regulation of inter-State commerce is a
topic within the exclusive jurisdiction of the Congress.
(iii)Sales which take place in the course of
inter State trade are local in character and within the jurisdiction of the
State, if they are for consumption within the State.
(iv)Where such sales are for other purposes
than consumption such as resale, they retain their character as sales in the
course of inter-State trade and are within the exclusive jurisdiction of the
Congress.
The provisions of the Indian Constitution
bearing on this subject may now be referred to:(a)The States have exclusive
jurisdiction under Entry 54 to impose sales tax and under Entry 26 to regulate
trade and commerce within the State. Legislative powers in respect of these
matters were conferred on the Provinces by the Government of India Act, 1935,
and these powers have been continued in the States by the Constitution.
(b)Article 301 enacts that trade and commerce
within the territory of India shall be free, and under Entry 42 in List I, the
power to legislate on inter State trade and commerce is vested exclusively in
the (1) 341 U.S. 329; 95 L. Ed. 993. 99 780 Union. There was nothing
corresponding to, these provisions in the Government of India Act, 1935.
(c) Under the Explanation to article
286(1)(a), a sale is deemed to take place within the State in which the goods
are delivered for consumption. This again is a new provision introduced in the
Constitution.
(d) No law of a State can impose a tax on a
sale which takes place in the course of inter-State trade. That is article
286(2) which is also a new provision.
Reading side by side the law on the subject
both in America and under the Indian Constitution, it is difficult to avoid the
conclusion that the Explanation to article 286(1) (a) and article 286(2) have
been inspired by the American law on the subject, and that their spheres of
operation correspond respectively to the jurisdiction of the State and of the
Congress in America as delineated in Missouri ex rel.
Barrett v. Kansas Natural Gas Co.(1), and
Panhandle Eastern Pipe Line Co. v. Public Service Commission of India(2) .
I shall now pass on to consider which of the
three views which have been placed before us as to the effect of article 286(2)
on the Explanation to article 286(1)(a) deserves to be accepted. The first view
is that the sales falling within the Explanation are intra-State in character,
and are therefore outside the area covered by article 286(2). This derives
considerable support from the language of the enactment. The scheme of article
286(1)(a) is, as already stated, that it fixes the situs of the sales with a
view to avoid multiple taxation, and for that purpose it divides them into two
categories-inside sales and outside -sales-and enacts that a State cannot tax
an outside ,-sale. When in the same context the Explanation declares that a
sale in the course of inter-State trade that this is its scope is common
ground-must be deemed to have taken place in the State in which the goods are
delivered for consumption, its purpose is clearly to take it out of inter-State
trade and stamp it with the character of an intra-State sale. Under Entry 26 in
List II, it is the State that has jurisdiction in respect of trade and commerce
within the State, and reading that with the language of the Explanation that
the sales covered by it are deemed to take place in the State, the inference is
irresistible that the intention of the Constitution-makers was to bring those
sales within the exclusive jurisdiction of the 7 State for purposes of taxation
under Entry 54. The result is that with reference to sales for local
consumption made in the course of interState trade, the law under the
Constitution is exactly what it is in America and indeed, the similarity is too
striking to be merely accidental. The position may thus be summed up: Article
286(2) applies to sales in the course of interState trade. The sales which fall
within the Explanation are intrastate sales. The grounds covered by the two
provisions are distinct and separate. Each has operation within its own sphere,
and there is no conflict between them.
The appellant resists this conclusion on
several grounds, and they will now be considered. It was argued firstly that the
conclusion that the Explanation and article 286(2) relate to two different
subjects and that they operate on different fields could be reached only by
importing the Explanation into article 286(2), and that could not be done
because it is in terms stated to be "for the purposes of subclause
(a)" and also because such a course could not be supported on any
recognised rule of interpretation. Now, what is the significance of the words
"for the purposes of sub-clause(a)" occurring in the Explanation? In
the context, its purpose is only to exclude its application to article
286(1)(b). Article 286(1) deals with two matters, sales outside the State and
sales in the course of export and import. The former is dealt with in
sub-clause (a) and the latter in sub-clause (b). If the Legislature intended
that the Explanation should apply to the former and not to the latter, the most
natural and obvious mode of expressing that intention would be to enact, as it
has, that it is "for the purposes of sub-clause (a)". This problem
would not have arisen if the two matters had been dealt with in two different
clauses as logically they 782 might have been. If that had been done, the
article simplifying it, would run as follows:
"286. (1) No law of a State shall impose
a tax on a sale, where it takes place outside that State.
Explanation: A sale shall be deemed to have
taken place within that State where the goods are delivered for consumption as
a direct result of the sale.
** * * * * 286. (4) No law of a State shall
impose a tax on a sale in the course of export or import".
Article 286(1) as drafted above, relegating
sub-clause (b) to a separate clause and omitting the words "for the
purposes of sub-clause (a)" in the Explanation would convey precisely the
import of article 286(1) (a) as it now stands with sub-clause (b) and with the
words" for the purposes of sub-clause(a)". That would clearly show
that the force of the words "for the purposes of sub-clause (a)"
becomes spent when article 286 (1) (b) is excluded from the operation of the
Explanation.
But then, it is contended that whatever the
form in which the Explanation may be couched, it could not be extended beyond
article 286(1) (a) and projected into article 286(2), and that unless that was
done, it was not possible to hold that the sales falling within the Explanation
are taken out of the purview of article 286(2). In my opinion, this argument
proceeds on a misconception of the real reasoning on which the conclusion that
the Explanation and article 286 (2) relate to two different subjects is based.
In view of the insistence with which this contention was pressed by the
appellant, it seems desirable to examine the position in some detail. To start
with, the two relevant provisions to be considered are article 286(1)(a) with
the Explanation and article 286(2). Omitting what is not material, they would
run as follows:
"286. (1) No law of a State shall impose
a tax on a sale, where it takes place outside that State.
Explanation: A sale in the course of
inter-State 783 trade is inside that State in which goods are actually
delivered for consumption.
(2) No law of a State shall impose tax on a
sale in the course of inter-State trade".
The argument of the appellant that article
286(2) is comprehensive and includes all sales in the course of inter State
trade and that therefore the sales covered by the Explanation fall within its
purview, takes into account only article 286(2) and the Explanation, and it
would have been unassailable if the question had to be decided on a construction
only of these two provisions. But that, however, is not the position. An
explanation appended to a section or clause gets incorporated into it, and
becomes an integral part of it, and has no independent existence apart from it.
There is, in the eye of law, only one enactment, of which both the section and
the Explanation are two inseparable parts. "They move in a body if they
move at all". When, therefore, the question is whether sales falling
within the Explanation are comprised within article 286(2), what has to be
construed is that article in relation to, not merely the Explanation taken in
isolation but to article 286(1) (a) read with the Explanation. If the matter is
thus considered, the resultant position might thus be stated. Article 286(1) (a)
confers on States power to tax sales inside their territory. Article 286(2)
prohibits them from taxing sales in the course of inter-State trade.
Explanation to article 286(1) (a) enacts that
sales in the course of inter-State trade in which goods are delivered for
consumption in a State shall be deemed to have taken place inside that State.
The combined effect of all these provisions is that States can tax sales in the
course of inter-State trade if they fall within the Explanation. This
conclusion is reached, it will be seen, not by reading the Explanation into
article 286 (2) as a sort of exception but giving to all the provisions the
status of independent enactments and determining what, on a construction of
the, language, their respective spheres of operation are.
In this view, the argument that if the
Explanation could be read into article 286(2) it might as well be 784 read into
article 286 (1) (b) and article 286 (3) does not call for consideration. As the
question is one of determining on a reading of the entire article the precise
operation of the several parts thereof, there can be no objection to examining
the scope of article 286(1) including the Explanation in relation to article
286(1)(b) and article 286(3). Article 286(1) (a) relates to sales inside a
State, and article 286(1)(b) to sales in the course of export from or import
into the country, and there could not be any interaction between them, and that
is made abundantly clear by the words "for the purposes of sub-clause
(a)" in the Explanation. Likewise, reading article 286(1) (a) including
the Explanation along with article 286 (3), the result is that the power to tax
which the State otherwise possesses has to be exercised subject to the
conditions mentioned in the latter, when there is a Parliamentary declaration
there under. The impact of article 286(3) is, it should be noted, not confined
to the Explanation but extends to the whole of article 286(1) (a). It operates
not only on the inter-State sales falling within the Explanation but also on
sales which are indisputably intrastate, and it controls both of them on the
principle of generalia specialibus non derogant.
It is next contended that the sales to which
the Explanation applies, takes place as a fact in the course of inter-State
trade, and that the Explanation could not be construed as altering that fact,
and that its true scope was merely to shift the situs of the sale from the
selling to the delivery State. Conceiving inter State trade as a stream flowing
from point A in the selling State to a point B in the delivery State, it was
argued that what the Explanation did was to shift the situs of the sale from
point A to point B, that the stream was still there despite the shifting and
that the sale therefore did not cease to be in the course of inter State trade.
With respect, the fallacy in this argument lies in thinking that after the
shifting of the situs from point A to B; the sale could be regarded as one in
the course of inter-State trade. A sale could be said to be in the course of
inter-State trade only if two conditions concur: (1) A sale of goods, 785 and
(2) a transport of those goods from one State to another under the contract of
sale. Unless both these conditions are satisfied, there can be no sale in the
course of interState trade. Thus, if X, a merchant in State A goes to State B,
purchases goods there and transports them into A, there is undoubtedly a
movement of goods in inter-State commerce. But that is not under any contract
of sale. X might be entitled under article 301 to certain rights in the matter
of transportation. But article 286C2) has no application, as there is no sale
in the course of interstate trade or commerce. In the same illustration, if X
after transporting the goods into State A sells them, then also there is no
sale in the course of inter-State trade. It is true that there is a sale, and
there is also a movement of goods from one State to another. But that movement
has not been under the sale, there having been no sale at the time of
transportation. In Rottschaefer on Constitutional Law (1939 Edition) sale in
the course of inter-State commerce is thus defined:
"The activities of buying and selling
constitute inter-State commerce if the contracts there for contemplate or
necessarily involve the movement of goods in inter-State commerce".
The law is thus stated by Gavit in
"Commerce Clause" (1932 Edn.)-"The dividing line between an
interstate sale and intrastate sale is rather fine, although clear.. If the
goods are shipped into a State without a previous sale, any sale within the
State is intra-State commerce..................
Thus if the sale succeeds the transportation
in point of time, however close, the state may license it".
In William T. Wagner v. City of Covington(1),
it was held that local sales of goods brought into the State from outside for
the very purpose of the sale were not parts of inter-State commerce. The
following observations at page 197 might be quoted:
"Of course the transportation of
plaintiffs' goods across the state line is of itself interState commerce;
(1) 252 U S. 95: 64 L.Ed. 157.
786 but it is not this that is taxed by the
city of Covington, nor is such commerce a part of the business that is taxed,
or anything more than a preparation for it. So far as the itinerant vending is
concerned the goods might just as well have been manufactured within the State
of Kentucky; to the extent that plaintiffs dispose of their goods in that kind
of sales, they make them the subject of local commerce; and this being so, they
can claim no immunity from local regulation, whether the goods remain in
original packages or not".
In the light of the above principles, what is
the legal character of the sales effected by the appellant and sought to be
taxed by the respondent? There is firstly the fact that the goods were actually
delivered in Bihar, and secondly, there is the fiction enacted by the
Explanation that the sale had taken place not in Bengal but in Bihar.
If both sale and delivery are in Bihar, it is
difficult to see how the sale can be said to be in the course of interState
trade. The argument of the appellant that there was, in fact, a movement of
goods from Bengal to Bihar and that stood unaffected by the fictional shifting
of the situs of the sale from Bengal to Bihar, overlooks that by this very
shifting, the character and complexion of the sale become altered, because, as
the sale follows the transport of goods, it cannot, according to the principles
already stated, be said to be in the course of inter-State trade.
It may be urged as against this conclusion
that as the Explanation to article 286(1) (a) merely shifts the situs of the
sales, and leaves unaffected the agreements to sell which must in the present
case be held to have been made at Calcutta when the appellant executed the
orders received from the Bihar purchasers, the transport of goods from Bengal
to Bihar was under the above contracts to sell, and that therefore the sales
were in the course of inter-State trade. Such a contention would be untenable,
because the expression "contract of sale" in this context has the
same meaning as the words "contract of buying and selling" I in the
definition of inter-State commerce given by Rottschaefer in the passage already
quoted, 787 and they both refer to the bargain resulting in the sale
irrespective of whether it is in the stage of an agreement to sell, or whether
it is a sale in which title to the goods has passed to the purchaser. That is
also the definition of `contract of sale' in section 5(1) of the Indian Sale of Goods Act. As there can be only 2 one final and concluded bargain in
respect of any particular sale, and as that is fixed by the Explanation at
Bihar, it follows that there could not be any bargain with reference thereto in
Calcutta, and the movement of goods from Bengal to Bihar was not under any
contract of sale. The position in law is exactly the same as if the goods had been
sent by the seller from Bengal to Bihar on his own account and then sold there
and delivered to the purchaser, in which case it would be indistinguishable
from William T. Wagner v. City of Covington(1), and the sale would clearly be
intrastate.
This conclusion does not negative the factum
of inter-State movement of goods, and does not prevent any rights being put
forward on that footing under article 36-1. it only negatives the notion of a
sale in the course of inter-State trade, and thus takes it out of the purview
of article 286(2 ).
It was argued that the Explanation merely
enacted a legal fiction, and that it being a well-established rule of
construction that legal fictions should be limited to the purpose for which
they are enacted, it would be contrary to this rule to hold that the
Explanation not merely shifted the situs of the sale but also obliterated the
course of inter-State commerce. But the conclusion that the sales covered by
the Explanation cease to be in the course of inter-State trade is not the
result of any extension of the fiction because, as already stated, the factum
of interState transportation is not ignored. That is the legal consequence of
the fictional shifting of the situs. it will be useful in this connection to
quote what Lord Asquith observed in dealing with a similar contention in East
End Dwellings Co. Ltd. v. Finsbury Borough Council(2).
"If you are bidden to treat an imaginary
state of (1) 251 U.S. 95: 64 L. Ed. 157.
(2) 11952] A.C. 109, 132.
100 788 affairs as real, you must surely,
unless prohibited from doing so, also imagine as real the consequences and
incidents which, if the putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it. One of these in this case is
emancipation from the 1939 level of rents. The statute says that you must
imagine a certain state of affairs; it does not say that having done so, you
must cause or permit your imagination to boggle when it comes to the inevitable
corollaries of that state of affairs".
It is next contended that the view that sales
in which goods are delivered for consumption within the State are not within
article 286(2) would render that provision practically useless, because sales
for purposes other than consumption such as for resale must be very few and
negligible. Why should a seller for consumption, it is asked, get his goods
from an intermediary and not directly from the manufacturer? But then, the
Constitution has itself recognised in clear and unmistakable terms a distinction
between sales in which goods are delivered for consumption and sales in which
they are delivered for purposes other than consumption such as resale, and what
purpose this distinction serves, the appellant has been unable to explain.
Besides, what are the materials on which we can brush it aside on the ground
that it is not one of substance? One of the developments of modern big business
is the agency system under which middlemen enter into contracts with
manufacturers, stipulate for monopoly of the distribution rights within a
specified area, guarantee a certain volume of business, and are granted liberal
commission on the sales. In such cases, retail sellers can get the goods only
from the distributors, and even when there is no grant of monopoly, it is
nothing unusual in business that large distributors are able to get the goods
from the manufacturers on rates more favourable than retail sellers can obtain
and that consequently, it is more economical for the latter to buy them from
the distributors than from the manufacturers. And it is not without
significance that the distinction between the two classes of sales has been
recognised in com789 mercially advanced America for now nearly a century and
recognised for this very purpose; and how can such a distinction be
characterised as unsubstantial? It was finally contended by the learned
Attorney-General that if article 286(2) were to be construed as not
comprehending sales falling within the Explanation., then there would be
nothing on which it could operate. The argument was thus presented: Article
286(1)(a) bars the selling State, in the present case Bengal, from taxing the
sale because by reason of the Explanation, it becomes an outside sale', and if
article 286(2) is to be construed as not barring the delivery State, in the
instant case Bihar, from taking the sale, then there is no sale to which it can
apply, and it will serve no purpose. The error in this argument lies in taking
the illustration as exhausting the entire range of inter-State trade. But that
is not correct.
Inter-State commerce consists in a flow of
goods not merely from one State to another but in its continuous flow through
several States, and article 286(2) is designed to protect such a flow without
being burdened by State taxes. Thus, if A in Bengal sells to B in Bihar., and
if in his turn B sells the same goods to C in U. P. for local consumption,
there will be interState commerce under article 286(2) and in the course
thereof, there will be two sales. Taking first the sale from Bengal to Bihar,
Bengal -can tax it under article 286(1) (a) because the Explanation thereto is
not applicable as the delivery to Bihar is not for local consumption. But
article 286(2) would interpose a bar. Bihar cannot tax the sale under article
286(1) (a), because that is an outside sale,, the Explanation being
inapplicable. Coming next to the sale by Bihar to U.P., Bihar will be entitled
to tax it under the body of article 286(1)(a) as the sale took place inside its
limits. But it cannot do so as under the Explanation, it becomes an outside
sale. But U. P. will be entitled to tax the sale under the Explanation as it
was for consumption within that State. Thus, the effect of the combined
operation of both article 286(2) and article 286(1) (a) read with the
Explanation is that the only State which can tax the. sale is the one in 790
which the goods are sold for local consumption.
These are the objections advanced by the
appellant against the view that the sales covered by the Explanation are
outside article 286(2), and they are not of sufficient weight to overthrow it.
The consideration of this question will,
however, be incomplete without an examination of the other two views that have
been put forward as to the true meaning and scope of article 286(2). The second
view-and that was taken by Bhagwati, J. in The State of Bombay v. The United
Motors (India) Ltd.(2) -is that the sales covered by the Explanation are in the
course of inter-State trade and they are, therefore, within the purview of
article 286(2), but that as the latter is a general provision covering all
sales in the course of inter-State trade, and the former deals only with a
special class thereof, the maxim generalia specialibus non derogant applies,
and the Explanation prevails as against article 286(2). It will be noticed that
this agrees with the first view in its conclusion but it differs from it on the
reasoning by which it reaches it.
According to the first view, sales in the
course of interState trade contemplated by article 28612) include only those
under which goods are delivered for purposes other than local consumption;
whereas according to the second, they include all sales including those in
which goods are delivered for consumption within the State and those in which
they are delivered for other purposes. According to this view, therefore, there
is conflict between the Explanation and article 286(2), and the solution for it
is to be sought in the application of the rule of construction that general
provisions do not derogate from the special. As between these two views, the
first view in for the reasons already given, to be preferred. But if the
contention that article 286(2) applies both to sales in which goods are
delivered for local consumption and those in which they are delivered for other
purposes is correct, then it is difficult to see how the appellant can escape
the conclusion reached by Bhagwati, J. in The State of Bombay v. The United (1)
(1953] B.C.R. 1069.
791 Motors (India) Ltd.(1). The appellant is
plainly in the horns of a dilemma. Sales in which goods are delivered for local
consumption 'fall either outside article 286(2) or inside it. If they fall
outside article 286(2), then the appellant can claim no immunity from taxation
under that provision. In case they fall inside article 286(2), then the
Explanation must prevail as against it on the principle generalia specialibus
non derogant, and the sales will be liable to be taxed. To get out of this
difficulty, the appellant contended that article 286(2) and the Explanation
related to two different matters, and therefore the maxim in question had no
application. The argument was that article 286 imposed a number of restrictions
on the power of the State to tax sale of goods from different angles, e.g.,
when they were outside the State, article 286(1)(a); in the course of export or
import, article 286(1)(b); in the course of inter-State trade, article 286(2);
and in relation to commodities declared essential by Parliamentary legislation
under article 286(3); that the Explanation was enacted from the standpoint
whether the sales were outside or inside and article 286(2) from the standpoint
whether they were in the course of inter-State trade or intraState trade, and
that the purpose and the policy of the two provisions being different, their
subject-matter must be held to be different and that therefore the maxim was
inapplicable.
I see no force in this contention. It is a
cardinal rule of construction that when there are in a Statute two provisions
which are in conflict with each other such that both of them cannot stand, they
should, if possible, be so interpreted that effect can be given to both, and
that a construction which renders either of them inoperative and useless should
not be adopted except in the last resort. This is what is known as the rule of
harmonious construction. One application of this rule is that when there is a
law generally dealing with a subject and another dealing particularly with one
of the topics comprised therein, the general law is to be construed as yielding
to the special in (1) [1953] S.C.R. 1069.
792 respect of the matters comprised therein.
Now, the reason of the rule requires that it should apply whenever there is
overlapping of the fields occupied by two conflicting enactments, and when that
is shown, it would not be logical to exclude its application on the ground that
the enactments have been made with a different purpose. It is the identity of
the subject matter of the conflicting provisions, not the identity of their
purpose or angle of vision that is essential for the application of the maxim.
No authority was cited for limiting it in the manner contended for by the
appellant. Now, it is the appellant's own contention that the sales covered by
the Explanation are within the purview of article 286(1)(a), and are therefore
exempt from taxation there under, and that such taxation would be permissible
only when the hold of article 286(2) over the Explanation is removed by
Parliamentary legislation under that sub-clause.
That is to say, the subject-matter of the
Explanation is within the coverage of article 286(2), and that the two
provisions are directly in conflict. It is difficult to see how consistently
with this stand the appellant could resist the application of the maxim
aforesaid. It is true that Bhagwati, J. who took that view in The State of
Bombay v.
The United Motors (India) Ltd.(1) has now
retreated from that position. But with respect, there is irrefragable logic in
his reasoning in that decision, and that commends itself to me.
Then, there is the third view that the sales
to which the Explanation applies are in the course of inter State trade, and
therefore fall within the purview of article 286(2), and that in consequence,
the power of the delivery State to tax those sales is incapable of exercise, as
it is within the prohibition contained in that article, and that when the
Parliament enacts a law in terms of article 286(2) lifting the ban there under,
then and not until then could the Explanation have any operation. That was the
view expressed by Bose, J. in The State of Bombay v. The United Motors (India)
Ltd.(1) and by Das, J. in State of Travancore Cochin v. Shanmugha. Vilas Cashew
Nut Factory(2).
(1) [1953] S.C.R. 1069.
(2) [1954] S.C.R. 53.
793 Briefly, according to this view article
286(2) controls the Explanation. Can this be sustained on the language of the
enactment?' The Explanation is not expressed to be subject to article 286 (2).
Nor does the latter contain the words "notwithstanding anything contained
in the Explanation to article 286(1) (a)". These are simple and familiar
expressions used by the legislature when it intends that a particular provision
in the Statute should be subject to or override another. Nor is there anything
in the language of the Explanation providing that its operation is not to be in
praesenti but contingent on Parliamentary legislation under article 286(2). To
construe, therefore, article 286(2) as controlling the Explanation, we must
import into the Statute words which are not there and thereby cut down the
operation of the Explanation which on its terms is of equal authority and
potency with article 286(2).
There being nothing express in the language
of the enactment to lead to the conclusion that the Explanation is controlled
by article 286(2), it has to be seen whether that conclusion can be drawn on a
construction of the relevant provisions of the Statute. The appellant argues
that it can be, and relies firstly on the saving clause in article 286(2), and
secondly, on the proviso thereto as supporting it. The argument based on the
saving clause may thus be stated: The contention that article 286(2) controls
the Explanation would have resulted in rendering the latter wholly nugatory, if
the words "except in so far as Parliament may bylaw otherwise
provide" had not been there. But that result is avoided by the saving
clause under which the Explanation can come into operation when there is
Parliamentary legislation lifting the ban under article 286(2). This
construction, it is argued, gives effect to the plain language of the article
and also to both the provisions. But when examined, it will be seen that far
from giving effect to both the Explanation and article 286(2), this
construction results in destroying one or the other of them. The harmonious
construction which the law favours is one which gives operation to both 794 the
provisions at the same time but in their respective spheres. But according to
the appellant, if article 286(2)is in force then the Explanation cannot
operate, and if the Explanation is to operate, it can only be if the Parliament
puts an end to article 286(2) by legislation there under.
This construction, far from reconciling the
two provisions and giving operation to both of them, renders them uncompromisingly
hostile, and makes their coexistence and cooperation impossible.
It is also open to question whether the
saving clause could be referred to for the purposes of determining the
respective spheres of operation of the Explanation and the body of article
286(2). The scope of a saving clause or an exception is that it operates within
the area covered by the main provision on which it is engrafted. It cannot add
to it though, when in force, it can detract from it. It would, therefore "
be inadmissible for enlarging what would otherwise be the sphere in which
article 286(2) would operate. If the view that article 286(2) controls the
Explanation cannot be maintained on a construction of the body of article
286(2) and the Explanation, it cannot properly be adopted on the strength of
the saving clause annexed thereto.
There was considerable discussion before us
as to the nature and scope of the law that could be enacted under article
286(2). It must be confessed that the matter is not free from doubts and
difficulties. But about one thing, there can be no dispute. The law to be
enacted by Parliament cannot run counter to any of the provisions of the
Constitution. Thus, it cannot itself impose a tax on sales, that being within
the exclusive jurisdiction of the states under Entry 54 in List II. Nor can it
confer a power to tax a sale in the course of inter-State commerce on any State
of its own choice in contravention of the Explanation to article 286(1) (a),
Its operation can only be negative. It can lift the ban imposed by article
286(2).
It was suggested for the appellant that it
can do that as regards particular commodities or with reference to particular
States, and that further in so limiting 795 the operation it could enact
suitable provisions for an equitable adjustment of the interests of all the
States.
But laws limited in their operation to
specified commodities and States must in their very nature, be temporary
legislation to be withdrawn and re-enacted from time to time suitable to the
ever changing conditions of inter-State trade and commerce. If that was the
sort of legislation that the Constitution-makers had in mind, one would have expected
that the authority contemplated by article 307 would have been empowered to
deal not merely with the matters mentioned in articles 301 to 304 but also
article 286(2), and it is also not a little surprising that no legislation
should have been enacted on those lines during all these years. In any event,
it must be a profitless task to speculate on the scope and effect of a hypothetical
legislation under article 286(2), and it would be unsafe to base any conclusion
as to the true scope of the Explanation on the existence of a power in the
Parliament to enact a law under article 286(2).
The contention based on the proviso to article
286(2) must now be considered. It was argued that while the proviso is to have
operation notwithstanding anything contained in article 286(2) it does not
similarly override article 286 (1) (a) and that therefore when the President
issued an order under that proviso, the Explanation would have operation, and
that therefore it was not useless. To this contention, there are two answers:
(1) An order issued by the President under the proviso can operate only to
continue existing taxes. It cannot go further, and authorise the imposition of
a tax even when the conditions mentioned in the Explanation are satisfied, if,
in fact, it had not been previously collected. Therefore, the Explanation can
have no practical effect on the operation of the proviso. If, in fact, a
delivery State had been levying a tax before the commencement of the
Constitution, that would continue to be valid under the proviso, not by the
operation of the Explanation but by reason of the fact that it had been levied
before. Thus, the Explanation as such has no operation. (2) It should also be
mentioned that prior to 101 796 the Constitution no State was actually levying
a tax on the basis of delivery and therefore the Explanation could have no
practical effect even when the President made the order.
The Constitution-makers presumably had before
them the sales tax legislation of all the States, and it is a legitimate
inference that they could not have thought of the Explanation as deriving any
force or operation by reason of an order of the President under the proviso.
Mr. Taikad Subramanya lyer, counsel for M. K.
Kuriakose, one of the interveners, arguing in support of the contention of the
appellant that article 286(2) is the controlling provision, suggested a third
category of cases wherein the Explanation could operate apart from a law under
the saving clause in article 286(2) or the order of the President under the
proviso thereto. His argument was this: Suppose that both the seller and the
purchaser are in State 'A' and the goods are located in State 'B'. The
instrument of sale is executed in State A, and pursuant thereto, the purchaser
gets actual delivery of the goods in State B. Article 286(2) has no application
to the sale as there is no inter-State movement of goods thereunder. But for
the Explanation, State A would have been entitled to tax the sale as it was
inside that State. But the Explanation bars it, and confers on State B the
right to tax it. This) it is contended, gives operation to the Explanation
consistently with the view that it is controlled by article 286(2). The
assumption underlying this argument is that the property in the goods passed in
State A when the instrument of sale was executed, though the goods were then
located in State B. But this is not correct. It is one thing to say that title
to the goods passes at the time when the instrument of sale was executed and
quite a different thing to state that it passes at the place where it is
executed. Considering the matter with particular reference to the power of a State
to impose tax, sale is a practical conception having relation to the right to
enjoy and dispose of the goods, and it is a well settled feature of all
sales-tax legislation that the power to tax the sale is annexed to the place
where 797 the goods are located at the time of the contract. Under the general
law also, the position is that title to the goods passes in the State in which
the goods are situated at the time of the sale. In Badische c Anilin Und Soda
Fabrik v. Hickson(1), there was a contract of sale signed by both the parties
in England with reference to goods situated in Switzerland. The action was laid
in England for breach of patent, and the point for decision was whether it was
maintainable there. It would have been maintainable there if the sale was in
England but not if it was in Switzerland.
It was held by the House of Lords that the
sale was not in England, and that the action did not lie. The position in law
was thus stated by Lord Loreburn, L.C. at page 421:
"As I understood him, Mr. Cripps argued
that the defendant had 'vended' these goods in England within the terms of the
patent. He admitted that merely to make a contract of sale would not be
'vending' or, to use a word in sense equivalent and in use more familiar,
selling. But the maintained that if the contract to sell was made in England,
and, in pursuance of it goods were, by the consent of buyer and seller,
appropriated to meet the contract, then the transaction became a sale completed
in England, and that it did not signify whether the goods were at the time of
such appropriation in England or abroad.
I cannot accept that view. A contract to sell
unascertained goods is not a complete sale, but a promise to sell. There must
be added to it some act which completes the sale, such as delivery or the
appropriation of specific goods to the contract by the assent ' express or
implied, of both buyer and seller. Such appropriation will convert the
executory agreement into a complete sale.
* * * * * * In my opinion, if you must decide
in what country an appropriation of goods by consent takes place, it takes
place not where the consent is given, but where the goods are at the time
situate", (1) [1906] A.C. 419, 798 In view of these observations, it
cannot be contended that the title to the goods passed in State A and that
State B gets the right to tax by reason of the Explanation. State B gets the
power to tax the sale not under the Explanation but under the general law. This
contention, it should be noted, has reference to cases which ex hypothesi are
outside article 286(2), and has only an indirect bearing on the question
whether article 286(2) controls the Explanation.
It is necessary now to refer to the arguments
addressed by both parties based on what were stated to be the broad principles
underlying the Constitution and on considerations of hardship or inconvenience
arising from one view or the other. It was argued for the appellant that the
intention of the Constitution-makers as disclosed in article 301 was to
encourage the free flow of trade and commerce within the Union unimpeded and
unobstructed by State legislation, that article 286(2) was enacted in
furtherance of that policy, as taxation by the States might become so heavy as
to become burdensome to inter-State commerce; that the normal situation
envisaged by that article was, therefore, that no tax should be levied on sales
in the course of inter-State trade, power being reserved in Parliament to
intervene in appropriate cases and that consistently with this policy, article
286(2) should be construed as the controlling provision and the Explanation as
an emergency reserve. The reply of the respondent was that the intention of the
Constitution as expressed in article 286(1) (a) was to avoid multiple taxation
of sales in the course of inter-State trade, and not to free them from any
taxation, that the Constitution did contemplate the levy of one tax on every
sale, and that the construction of the appellant, if accepted, must place local
sales in a greatly disadvantageous situation as against sales in the course of
inter-State trade, and that must result in driving out local trade and business
across the borders of the State.
The appellant is undoubtedly right in his
contention that the Constitution intended trade and commerce within the Union
to be free. But the question 799 is whether that requires that there should be
no tax at all at any stage even when the goods have come to the end of their
journey as a result of sale. That clearly is not the law in America where
inter-State commerce is highly developed and jealously protected. That the
Constitution did contemplate one tax on a sale-in the course of interState
trade when it is for local consumption is clear from the Explanation. To argue
that freedom from taxation under article 286(2) is the normal condition, and
that taxation under the Explanation is an exception is to beg the very question
that we have got to decide. No other provisions of the Constitution have been
cited as expressive of that intention. On the other hand, such indication as
there is, tends in the opposite direction. Article 304(a) which is an exception
to article 301 authorises the imposition of a tax on imported goods when
similar goods locally manufactured are subject to a State tax provided that such
imposition is not discriminatory. It is true, as contended by the learned
Attorney General, that under article 304 (a) the taxis levied on the goods
whereas under article 286(2) it is laid on the transaction of buying and
selling. But on a question of policy, what difference would it make whether the
tax is imposed on the transaction of sale or on the import of goods, as in
either case it must fall on the consumers? That clearly is the reasoning of the
majority of the learned Judges in The State of Bombay v. The United Motors
(India ) Ltd.(1), and there has been no satisfactory answer to it by the
appellant.
On the other hand, article 304(a) lends
considerable support to the contention of the respondent that it could not have
been the intention of the Constitution to place local sales in a worse position
than sales in the course of inter-State commerce, which must be the result of
holding that sales in the course of inter State trade are immune from taxation
under article 286(2), while intrastate sales are liable to be taxed under Entry
54. What reason or justice can there be for making a local purchaser of goods
pay a higher price therefore than what a purchaser of the same goods (1) [1953]
S.C.R. 1069, 1088.
800 across the State line would have to pay?
The only answer that was suggested was that the State might refrain from taxing
even intra-State sales of those commodities which are the subject-matter of
inter State trade. Seeing that inter State trade is happily an expanding factor
in national life, and that it tends to comprehend an increasing variety of
goods, there will be left, if the suggestion of the appellant is to be
followed, very few commodities which the State could tax, and Entry 54 might as
well be effaced from out of the Constitution. There is, besides, the apprehension
expressed by the respondent-and it cannot be brushed aside as fanciful-that if
the contention put forward by the appellant is accepted, then it must
inevitably result in local trade shifting on to adjacent States. If the scheme
of the Constitution is, as I conceive it to be, to put both intrastate sales
and sales in the course of inter-State trade on the same footing -and that is
manifest on the language of article 301 -it must follow that as the former are
liable to be taxed under Entry 54, the latter should also be similarly liable
to be taxed, and that is precisely what the Explanation provides for.
It was next argued for the appellant that the
view that under the Explanation delivery States would be entitled to tax all
sales in the course of inter-State trade if goods are delivered for consumption
there, would render sellers liable to be taxed in all the States in which their
goods are sold, and that would subject them to a perplexing multitude of
assessment proceedings in several States and that must cause great
inconvenience and hardship in business circles. Our attention was also invited
to the provisions of the impugned Act relating to assessment and collection of
tax, and it was contended that they must result in considerable harassment of
the assessees. As against this, the respondent contended that the sellers had
really no grievance in the matter as the tax would be ultimately paid by the
consumers, and that, on the other hand, if the contention of the appellant were
to be accepted, the States would have to lose a substantial portion of the
revenue derived from 801 sales tax and that must seriously affect their
economy.
It must be conceded that in the view that the
Explanation authorises the imposition of tax on all sales in the course of
inter-State trade falling within its purview, nonresident sellers will be
liable to be taxed in every State in which the goods are sold for consumption,
and that they must in consequence be exposed to multiple assessment proceedings
in different jurisdictions and that that must cause inconvenience. But then,
that is necessarily inherent in the Explanation whether it operates when the
ban under article 286(2) is lifted by Parliamentary legislation as contended
for by the appellant, or even without such law, as the respondent maintains.
That does not, therefore, appear to be very material in construing the scope of
the Explanation. The right which residents of one State have to trade freely in
other States is one conferred by article 301 and is a creature of the
Constitution, and when the same Constitution provides for taxation of sales in
the course of inter-State trade -by the Explanation to article 286(1) (a), and
the inconvenience complained of results from that provision and is incidental
to its enforcement, it does not sound logical that the sellers should, while
electing to take the benefit under article 301, disclaim their obligations
under the Explanation.
The point of substance against the appellant
is that the sellers are not the persons really affected, as the incidence of
taxation will ultimately fall on the consumers.
The Explanation applies to goods delivered
for consumption within the State, and the tax imposed on the sale of such goods
is really a tax laid on the purchasers for consumption. It might happen that
such purchasers are numerous and scattered all over the State, and that must be
so when the goods sold are,' as in the present case, medicines. The power to
tax in such a case can be effectively exercised only through the seller. No
administrative machinery can succeed in reaching the consumers when their name
is legion, and as the seller is merely to pass on the tax to the consumer, he
is, in fact, constituted collector of the tax on behalf of the State.
This is the 802 practice largely adopted in
America in the collection of Use Tax, and its validity has been repeatedly
affirmed. A recent decision on the question is that in General Trading Co. v.
State Tax Commission of the State of Iowa(1). There, the State of Iowa imposed
a Use Tax on a foreign Company in respect of goods distributed by it for
consumption within the State. In upholding the tax, Frankfurter, J. observed:
"To make the distributor the tax
collector for the State is a familiar and sanctioned device. Monamotor Oil Co.
v. Johnson(1), Felt & T. Mfg. Co. v. Gallagher(3)".
It was argued by the appellant that in the
above case the foreign company was "a retailer maintaining a place of
business" within the State. But as the tax in question was not a sale-tax
but a use tax payable by the purchasers it would be wholly irrelevant whether
the distributor bad a place of business within the State, and that indeed is
what is stated in the judgment itself.
Even looking at the matter from the practical
standpoint, it is easy to exaggerate the inconvenience which the Explanation
might cause. If sellers have trade and commerce all over the States, theirs
must undoubtedly be a big business. That means that they would have, for the
purpose of the business, adequate clerical establishment accountants,
correspondence clerks and so forth. Regular account books would be maintained
showing the dispatch of goods to dealers and purchasers in other States. And
thus, all the materials on which returns have to be made would be already
there. The additional burden will consist in this that in posting the entries
in the ledger accounts, separate folios will have to be opened for the several
States. This is no doubt additional work thrown on the sellers, but viewed in
its true perspective, it is too unsubstantial to deny the States a substantive
power to tax. It is said that there would be considerable harassment of the
sellers under the provisions of the impugned Act. But why should there (1) 332
U.S. 385; 88 L. Ed. 1309.
(2) 292 U.S. 86; 78 L. Ea. 1141, 1147, 1148.
(3 306 U.S. 62; 82 L. Ed. 488.
803 be? It must be presumed that sales-tax
officers will do nothing unfair or oppressive, and the correspondence between
the parties preceding the proceedings shows a just and sympathetic attitude on
the part of the respondent. True, some of the provisions of the Act are of a
stringent character. But they have' terrors only for those who would evade and
avoid tax, and persons like the appellant doing big business Of an all-India
character and maintaining regular and correct accounts have nothing to fear
from them.
Now, let us look at the other side of the
picture. Prior to the Constitution, the States bad the power to tax even sales
in the course of interstate trade and commerce, and it is stated that a
substantial portion of their revenue was derived from this source. The
Constitution enacted article 286 (1) (a) with a view to avoid multiple taxation
of sales in the course of inter-State trade, and it is the contention of the
respondent that the Explanation on its true interpretation provides for a
single taxation of those sales, at the stage of consumption. If the contention
of the appellant as to the scope of the Explanation and of article 286(2) is
accepted, this tax could not be levied after the 31st March 1951, and the
States would have lost a substantial source of revenue. What is the substitute
that the Constitution has provided there for? None. In the result, there must
be, as argued by the respondent, a financial crisis in the affairs of the
States. The position, therefore, is that we have to choose between depriving
the States of their power to impose a tax on which their very existence
depends, and exposing the sellers having business outside their State to the
inconvenience of multiple assessment proceedings. In that situation, can there
be any doubt as to what our decision should be? Surely, the claim of the State
should have precedence over that of individuals. It is very significant that
all the States which have intervened have, with one exception, strongly
supported the stand of the respondents. That exception is the State of West
Bengal. The learned Attorney-General appearing for this State did not contend
for any right in it to tax the sales. His argument was that neither West Bengal
nor Bihar was entitled to tax by reason of article 286(2). The intervention of
West Bengal is, therefore, not for protecting its rights but for the
vindication of the law, as it conceives it to be.
It was suggested for the appellant that the
solution to the problem lay in the Centre taking over the subject of tax on
sales in the course of inter-State trade, provision being made for distribution
of the receipts among the States under article 269 after making the necessary
amendments to the Constitution. Our duty is to construe the provisions as they
stand and not to discuss questions of policy which it is for the Legislature to
decide; and if I examine the suggestion of the appellant, it is only for the
purpose of finding out what light it throws on the present controversy, and how
far it will be an improvement on the present position under the Constitution.
Under Entry 48 in List II of the Government of India Act, 1935, the States had
the power to impose tax on sale of goods and advertisements.
When dealing with this topic, the
Constitution-makers took over advertisement of newspapers to the Union List,
the residue being left to the States. Thus, the decision to entrust the power
to tax sales to the States was deliberate, and there is good reason for it.
Sales might take place either in the course of inter-State trade or be intra State.
There can be no question of the Centre taking
over taxation of intrastate sales. To confer a power on the Centre to tax sales
in the course of inter-State trade alone would be to dichotomise the power to
impose sales tax and distribute it between the States and the Centre. For such
a course, there does not appear to be any precedent, anywhere, and the
practical inconvenience attendant thereon is obvious.
Moreover, let us assume that the Centre takes
over the taxation of sales in the course of inter-State trade. What difference
will it make in the present position? So far as sellers are concerned, they
will have to submit one consolidated statement of all the sales outside their
State instead of splitting them according to the States in which the sales are
effected, and there will 805 be a single assessment proceeding instead of as
many as the States where the sales take place., That would no doubt avoid much of
inconvenience. But, so far as the burden of taxation on the sellers is
concerned, the position would be exactly what it is now. And on what principle
is the Centre to distribute the tax realisations among the States? It can only
be on the basis of receipts from the several States.
And there is justice in each State claiming
what is realised from the consumers resident within its territory. That is
precisely the scope of the consumption tax under the Explanation. Thus, the
suggestion of the appellant, if acted upon, will not relieve it from the
liability to be taxed; it will only reduce the assessment proceedings from many
to one. In other words, the relief will be with reference not to substantive
rights, but to a matter of procedure. But the contention of the appellant that
article 286(2) controls the Explanation is directed not against the procedure
in the assessment of tax, but against the very liability to be assessed to it,
the argumentum ab inconvenient being availed of as a ground for denying it.
The suggestion, therefore, that the taxation
of sales in the course of inter-State trade should be left to the Centre lacks
substance. 'Even with reference to the inconvenience that might result from the
multiplicity of assessment proceedings, it is one which is capable of being
removed without disturbing the existing scheme of the Constitution, by
Parliament enacting a law constituting an authority under article 367 and
conferrinly on it power to receive from the sellers one consolidated -statement
of all their sales outside their State and determining the precise extent
thereof effected in the several States and making that determination final for
purposes of assessment by the States. That would, on the one hand, secure to
the States the finance legitimately due to them under the Explanation, and at
the same time,, save the sellers from the harassment of multiplicity of
proceedings. Such a law cannot be impugned as trespassing on the exclusive
domain of the States to impose sales tax under Entry 54, as the authority to
impose the tax would continue 806 to be the States. It is the law of the
several States that will determine the conditions under which, and the rate at
which, the tax will be chargeable. It is the machinery set up by the States
that will make the assessment and collect the taxes, and these realisations
will find their way into the coffers of the States. The effect of the Act would
be only to enact a rule of evidence, on which the assessing authorities have to
act. Such a law would not conflict with any of the provisions of the
Constitution. It is scarcely necessary to add that this suggestion is only by
way of answer to the one put forward by the appellant, and even if there are
Constitutional difficulties in the way of acting on it, that would not affect
the decision of this appeal, which must turn on the provisions of the
Constitution as they stand.
Having carefully considered the arguments
addressed by the learned counsel appearing for the parties to the appeal and
for the interveners, I am clearly of opinion that the sales falling within the
Explanation are, by reason of the fiction enacted therein, intraState sales,
that accordingly they fall outside the ambit of article 286(2) and are
unaffected by the prohibition contained therein. In coming to this conclusion,
I have considered the question afresh and on its own merits as if it were res
integra. But, in fact, it is concluded by the decision of this Court in The
State of Bombay v. The United Motors (India) Ltd. (1) to which reference has been
made in the course of the discussion. It is conceded that if this decision is
to govern, then this point would have to be found against the appellant. But it
is contended that it is erroneous and should not be followed. That raises the
question whether this Court has the power to reconsider a previous judgment
given by it on the identical issue. As the point arises for decision for the
first time before this Court, and as our pronouncement thereon must be of the
highest importance, we have heard arguments as to what the practice is in the
highest judicial tribunals of other countries with reference to this matter.
(1) [1953] S.C.R. 1069.
807 In Street Tramways v. London County
Council(,), it was held by the House of Lords that its decision on a question of
law was conclusive and binding on the House in subsequent cases and that if it
was erroneous, it could be set right only by an Act of Parliament. The practice
before the Privy Council however has been different. In Ridsdale v. Clifton(1),
Lord Cairns dealing with this question observed as follows:
"In the case of -decisions of final
Courts of appeal on questions of law affecting civil rights, especially rights
of property, there are strong reasons for holding the decisions, as a general
rule, to be final as to third parties. The law as to rights of property in this
country is to a great extent based upon and formed by such decisions. When once
arrived at, these decisions become elements in the composition of the law, and
the dealings of mankind are based upon a reliance on such decisions.
Even as to such decisions it would perhaps be
difficult to say that they were, as to third parties, under all circumstances
and in all cases absolutely final, but they certainly ought not to be reopened
without the very greatest hesitation".
The case before the Board was one involving
questions of ecclesiastical law, and it was held that in such cases their
Lordships were free to examine for themselves the reason on which the prior
decision rested and to decide on their own view of the matter. The authorities
bearing on this question were reviewed by the Privy Council at some length in
Re: Transferred Civil Servants (Ireland) Compensation(3), and the result was
thus summed up:
"There is no inherent incompetency in
ordering a rehearing of a case already decided by the Board, even when a
question of a right of property is involved, but such an indulgence will be
granted in very exceptional circumstances only. It is of the nature of an
extraordinarium remedium".
This opinion was reiterated in
Attorney-General of Ontario v. Canada Temperance Federation(1) wherein Viscount
Simon said:
(1) [1898] A.C. 875.
(2) [1877] 2 P.D. 276.
(3) [1929] A.C. 242.
(4) A.I.R. 1946 P.C. 88.
808 "Their Lordships do not doubt that
in tendering humble advice to His Majesty they are not absolutely bound by
Previous decisions of the Board, as is the House of ]Lords by its own
judgments. In ecclesiastical appeals, for instance, on more than one occasion,
the Board has tendered advice contrary to that given in a previous case, which
further historical research has shown to have been wrong.
But on constitutional questions it must be
seldom indeed that the Board would depart from a previous decision which it may
be assumed will have acted upon both by Governments and subjects".
Thus, the practice of the Privy Council has
been to recognise a power to reconsider its previous decisions, but it is
exercised only in exceptional circumstances. In James v. Commonwealth(1) the
High Court of Australia has ruled that it has the power to examine the
correctness of its previous decisions. The practice of the Supreme Court of
America is that it has considered itself free to reconsider its previous
decisions especially when they relate to questions of constitutional law. (Vide
Willoughby on Constitutional Law, Vol. 1, pages 74 and 75 and the cases cited
there). The reason given for this view is that while errors of law not bearing
on constitutional provisions could be corrected by ordinary process of
legislation, an error on a question of constitutional law could be set right
only by resort to the dilatory and cumbersome machinery of amending the
Constitution. (Vide Smith v. Allright(2)). This reasoning will also be
applicable to decisions involving interpretation of our Constitution. It was
argued for the respondents that article 141 gives the decisions of this Court
the status of law, and that, therefore, if they are to be changed that could be
only by process of legislation.
Article 141 only enacts that the decisions of
this Court are binding on all courts, and that does not stand in the way of
this Court itself, reversing or modifying a previous decision, as when that is
done, such decision would thereafter become itself the law under that article.
There is, therefore, good (1) 18 C.L.R. 54. (2) 321 U.S. 659: 88 L.Ed. 987.
809 reason for holding that this Court has
the power to reconsider, inappropriate cases, a previous decision given by it.
The question then arises as to the principles
on which and the limits within which this power should be exercised. It is of
course not possible to enumerate them exhaustively, nor is it even desirable
that they should be crystallised into rigid and inflexible rules. But one
principle stands out prominently above the rest, and that is that in general,
there should be finality in the decisions of the highest courts in the land,
and that is for the benefit and protection of the public. In this connection,
it is necessary to bear in mind that next to legislative enactments, it is
decisions of Courts that form the most important source of law. It is on the
faith of decisions that rights are acquired and obligations incurred, and
States and subjects alike shape their course of action. It must greatly impair
the value of the decisions of this Court, if the notion came to be entertained
that there was nothing certain or final about them, which must be the consequence
if the points decided therein came to be reconsidered on the merits every time
they were raised. It should be noted that though the Privy Council has
repeatedly declared that it has the power to reconsider its decisions, in fact,
no instance has been quoted in which it did actually reverse its previous
decision except in ecclesiastical cases. If that is the correct position, then
the power to reconsider is one which should be exercised very sparingly and
only in exceptional circumstances, such as when a material provision of law had
been overlooked, or where a fundamental assumption on which the decision is
based turns out to be mistaken. In the present case, it is not suggested that
in deciding the question of law as they did in The State of Bombay v. The
United Motors (India) Ltd.(1) the learned Judges ignored any material
provisions of law, or were under any misapprehension as to a matter fundamental
to the decision. The arguments for the appellant before us, were in fact only a
(1) [1953] S.C.R. 1069.
810 repetition of the very contentions which
were urged before the learned Judges and negatived by them. The question then
resolves itself to this. Can we differ from a previous decision of this Court,
because a view contrary to the one taken therein appears to be preferable? I
would unhesitatingly answer it in the negative, not because the view previously
taken must necessarily be infallible but because it is important in public
interest that the law declared should be certain and final rather than that it
should be declared in one sense or the other. That, I conceive, is the reason
behind article 141. There are questions of law on which it is not possible to
avoid difference of opinion, and the present case is itself a signal example of
it. The object of article 141 is that the decisions of this Court on these
questions should settle the controversy, and that they should be followed as
law by all the Courts, and if they are allowed to be reopened because a
different view appears to be the better one, then the very purpose with which
article 141 has been enacted will be defeated, and the prospect will have been
opened of litigants subjecting our decisions to a continuous process of attack
before successive Benches in the hope that with changes in the personnel of the
Court which time must inevitably bring, a different view might find acceptance.
I can imagine nothing more damaging to the prestige of this Court or to the
value of its pronouncements. In James v. Commonwealth(1), it was observed that
a question settled by a previous decision should not be allowed to be reopened
"upon a mere suggestion that some or all of the Members of the later Court
might arrive at a different conclusion if the matter was res integra.
Otherwise, there would be grave danger of want of continuity in the
interpretation of the law" (per Griffiths, C.J. at page 58). It is for
this reason that article 141 invests decisions of this Court with special
authority, but the weight of that authority can only be what we ourselves give
to it.
It was suggested as a ground for
reconsidering the correctness of the decision in The State of Bombay v. (1) 18
C.L.R. 64.
811 The United Motors (India) Ltd.(1) that it
had caused great hardship to the business world. I have already held that there
is not much of substance in this complaint. On the other hand, acting on the
view that the Explanation confers on the delivery States power to tax the
sales, several States amended their Sales Tax Acts in 1951 by inserting
appropriate provisions and it is represented before us that for some years,
taxes have been collected by the States on the basis of these provisions. If we
are now to hold that the view taken in The State of Bombay v. The United Motors
(India) Ltd.(1) is erroneous, the consequences will be to render the amended
provisions inoperative and the collections of taxes made there under illegal.
The States will then be not merely powerless to tax sales falling within the
Explanation in future, but will have actually to refund whatever they might
have collected in the past. I can see no end to the chaos, confusion and
trouble that must ensue on such a decisions situation that can be retrieved
only by Parliament removing article 286(2) out of the scene with retrospective
operation, and all this, to benefit not the consumers who are the persons
really affected but the sellers who are only statutory middlemen for collection,
some of whom are stated to have collected sales tax from purchasers outside
their States. I consider it wholly inexpedient that our power of
reconsideration should be exercised for that end. This, of course, is apart
from my conclusion that on a correct interpretation of the Explanation and
article 286(2), the respondents have the power to tax. In the result, this
point must be held against the appellant.
4. I shall now consider the question urged by
the appellant that the Bihar Sales Tax Act is invalid on the ground that it is
extra-territorial in operation and ultra vires the powers of the State
Legislature. The Constitutional provisions bearing on this question are
articles 245(1) and 246(3) which are as follows:
"245. (1) Subject to the provisions of
this Constitution, Parliament may make laws for the whole or any part of the
territory of India, and the Legis(1) (1953] S.C.R. 1069. 103 103 812 lature of
a State may make laws for the whole or any part of the State.
246.(3) Subject to clauses (1) and (2), the
Legislature of any State specified in Part A or Part of the First Schedule has
exclusive power to make laws for such State or any part thereof with respect to
any of the matters enumerated in List II in the Seventh Schedule (in this
Constitution referred to as the "State List")".
The contention of the appellant is that the
words "for the whole or any part of the State" in article 245(1) and
"for such State or any part thereof with respect to any of the matters
enumerated in List II" in article 246(3), impose a territorial limitation
on the jurisdiction of the State Legislature; that under these provisions it
can enact laws only for persons and properties within the State and that the
provisions of the Act to the extent that they impose tax on sellers who are
outside the State are ultra vires. It was also contended that the impugned
provisions were extraterritorial in their operation, and were beyond the competence
of the State Legislature. The questions thus raised are of great importance involving
the determination of the nature and extent of the power which a State has to
make laws in respect of the matters enumerated in List II.
It is necessary, to begin with, to define the
precise meaning of the words "extra-territorial operation". A sovereign
State has plenary jurisdiction to enact laws for its own territory. Such laws
may be in respect of persons within the territory whether citizens or not, of
property, immovable or movable, situated within the State; or of acts and
events which occur within its borders. In Maxwell on Interpretation of Statutes
(10th Edn. p. 144) the law is thus stated:
"Primarily, the legislation of a country
is territorial.
The general rule is, that extra territorium
jus dicenti impune non paretur. The laws of a nation apply to all its subjects
and to all things and acts within its territories".
In "Conflict of Laws-Restatement of the
Law" by 813 the American Law Institute, the position is thus summed up:
"47. A State has jurisdiction over a
person:
(a) if he is within the territory of the
State,, (b) if he is domiciled in the State although not present there, (c) if
he has consented or subjected himself to the exercise of jurisdiction over him
either before or after the exercise of jurisdiction.
48. An immovable thing is subject to the
jurisdiction of the State within which it is.
49. A chattel is subject to the jurisdiction
of the State within which it is.
56. A State has jurisdiction over all acts
done or events occurring within the territory of the State, and over all
failures to act in cases where there is a legal duty to act within the
State".
The legislation in respect of the above
matters is intraterritorial, notwithstanding that it might operate on persons
residing outside the State. Thus, a law of a State taking over the management
of lands of absentee-landlords must operate on owners who are residing abroad.
But in strictness, this is not extraterritorial legislation but legislation in
respect of lands within the State. Likewise, a law with reference to acts or
events which occur within the State is not extra-territorial, though it might
have to be enforced against a person who is residing outside the State. Such a
law is one in respect of an act or event within the State. These laws, though
intra-territorial, are often loosely described as extra-territorial in
operation.
In this context the words
"extra-territorial operation" connote laws in respect of properties
or acts or events within a State but having impact or operation on persons
outside the State.
There is another sense in which these words
are used. When a State enacts a law with reference to an act or event which
takes place outside its territory, it is described as extraterritorial, and
such legislation is recognised as valid by rules of International Law where it
is directed against its own nationals and persons in its service. Thus, in
"Con814 flict of Laws-Restatement of Law" it is observed that "a
nation has jurisdiction over its nationals although not present within the
territorial limits of the nation". (Page 78). In Corpus Juris Secundum,
extraterritoriality is defined as "the act by which a State extends its
jurisdiction beyond its own boundaries into the territory of another
State", and it is added that "the almost selfevident proposition
should perhaps also be noted in this connection that a sovereignty has power to
make laws regulating the conduct of its subjects, while beyond the limits of
its territorial jurisdiction". (Volume 15, pages 868-869).
'Extra-territorial Legislation", says Wheare, "simply means
legislation which attaches significance for courts within the jurisdiction to
facts and events occurring outside the jurisdiction". (Statute of
Westminster and Domination Status by Wheare, 4th Edition, page 167). A typical
illustration of this class of legislation is furnished by section 4, Indian
Penal Code, which enacts that "the provisions of this Code apply also to
any offence committed by(1)any citizen of India in any place without and beyond
India;
(2)any person on any ship or aircraft
registered in India wherever it may be.
Explanation:In this section the word
'offence' includes every act committed outside (India) which, if committed in
(India) would be punishable under this Code.
Illustration: A (who is a citizen of India)
commits a murder in Uganda. He can be tried and convicted of murder in any
place in (India) in which he may be found".
In this connection, extra-territorial
legislation means a law of a State with reference to its own citizens in
respect of acts or events which take place outside the State.. In discussing
questions relating to extra-territorial operation, it is desirable that the two
connotations of the words should be kept distinct and separate. As the impugned
Act purports to tax sales within its territory, its operation against persons
who are residing outside but in respect of sales within the 815 State is
extra-territorial in the first sense, 'and it is the validity of the provisions
of the Act in this sense that this appeal is concerned with.
Now, the question is, can a State Legislature
make laws with extra-territorial operation in the sense stated above? The
appellant contends that it cannot, and calls in aid observations and decisions
of the Privy Council with reference to the powers of a subordinate or colonial
legislature to enact laws with extra-territorial operation.
In Macleod v. Attorney General for New South
Wales(1), the point for decision was whether an Act of New South Wales
conferred, on its true construction, jurisdiction on the Courts within the
Colony to try an offence of bigamy committed presumably by its national in
America. In construing it as intended to apply to crimes committed within the
State, Lord Halsbury, L.C. observed that the jurisdiction of the colonies to
enact laws was "confined within their own territories", and that
"it would have been beyond the jurisdiction of the Colony" to enact a
law in respect of a crime committed outside their territory. These observations
refer to extra-territorial operation in the second sense stated above, and have
no application when the law of the State is in respect of an act or event
taking place within its territories. In Commercial Cable Company v. AttorneyGeneral
of Newfoundland(3), the question was with reference to a law of Newfoundland
imposing a tax on telephone companies in respect of cables landed or
established in the Colony. In discussing the scope of these provisions, Lord
Macnaghten observed at page 826:
"While, of course, it was competent to
impose taxation on cables within its territorial jurisdiction, it was not
competent for the Government to lay a tax on cables outside its territorial
jurisdiction".
These observations again have no bearing on
the point now under consideration whether a law enacted in respect of an act or
event occurring within the State is incompetent, if it seeks to operate on a
person concerned in the act but residing outside the State. In (1) (1891] A.C.
455.
(2) [1912] A.C. 820.
816 Nadan v. The King(1), the question was as
to the validity of section 1025 of the Criminal Code of the Dominion of Canada
which enacted that "no appeal shall lie in criminal case to any authority
in the United Kingdom by way of appeal or petition to His Majesty in
Council". It was held by Viscount Cave, L.C., that that section was
repugnant to the Privy Council Acts of 1833 and 1844, and was therefore void
under the Colonial Laws Validity Act, 1865, and that accordingly the appeal to
the-Privy Council was competent.
He also observed that however widely the
powers of the Dominion Parliament be construed, they were confined to action to
be taken in the Dominion, and could not extend to annulling the prerogative
right of the King in Council to grant special leave to appeal. As the law in
question was in respect of crimes committed within the State, these
observations are capable of the construction which the appellant seems to put
on them that such a law would be incompetent to the extent that it is to have
operation outside the State. But it must be mentioned that the vires of the
action to be taken under the Act within the State itself was affirmed in
unqualified terms, and that is what we are concerned with in this appeal. The
question, however, must now be taken to be settled by the decision in Croft v.
Sylvester Dunphy(1). There, the question related to the validity of sections
151 and 207 of the Customs Act of Canada under which the officers of the State
were authorised to search ships within 12 miles of the coast, and seize
dutiable goods found in them, the provisions being obviously intended to aid in
the effective collection of customs. There was no dispute that the legislation
was within the competence of the Dominion Legislature, customs being one of the
topics enumerated in section 91 of the British North America Act, 1867, but the
attack was on the validity of sections 151 and 207 on the ground that their
operation was extra-territorial. Thus, the question raised is the very question
which now arises for determination. In holding that the legislation was valid,
Lord Macmillan observed as follows:
(1) (1926) A.C 482. (2) [1933] A.C. 156.
817 "Once it is found that a particular
topic of legislation is among those upon which the Dominion Parliament may
competently legislato as being for the peace, order and good Government of
Canada or as being one of the specific subjects enumerated in section 91,
British North America Act, their Lordships see no reason to restrict the
permitted scope of such legislation by any other consideration than is
applicable to the legislation of a fully Sovereign State".
The law as settled by this decision may thus
be stated:
Whether a subordinate Legislature has power
to enact laws with extra-territorial operation will depend on the terms of the
Constitution Act which creates it and subject to any limitations contained
therein, it has in respect of the topics assigned to it powers of legislation
as plenary as the Sovereign Legislature which constitutes it.
It was argued by Mr. N. C. Chatterjee that
subsequent to the decision in Croft v. Dunphy(1) the Privy Council had again to
consider in British Coal Corporation v. The King(1) the validity of a Canadian
law which had extra-territorial operation, and therein the grounds of the
decision in Nadan v. The King(1) were stated at page 516 with apparent
approval, and that though the legislation was held to be valid, it was because
of the Statute of Westminster, 1931, and that in the absence of a similar
statute for India, the Legislature of this country had only the limited powers
recognised in Nadan v. The King(1), and that extraterritorial legislation was
incompetent. But there is nothing in the observations in British Coal
Corporation v.
The King(1) relied on by the appellant, to
support the contention that the view expressed in Nadan's case('.) was adopted
in preference to that taken in Croft v. Dunphy(1);
in fact, there was no decision at all on this
point. Nor does the fact that the Statute of Westminster has conferred an
express power on the Colonial Legislature to enact laws with extra-territorial
operation affect the weight to be attached to the conclusions come to in Croft
v. Dun(1) [1933] A.C. 156. (2) [1935] A.C. 500, 516.
(3)[1926] A.C. 482.
818 phy(1), because they were reached, not
with reference to the Statute of Westminster about the applicability of which
retrospectively to the case before the Board there was controversy, but on
general principles, and what is more to the present case, it was the law as
declared in Croft v.
Dunphy(1) that was before the framers of the
Constitution when they enacted sections 99 and 100 of the Government of India
Act, 1935.
Turning now to the Constitutional provisions
under the Indian law, this topic is dealt with in sections 99(1) and 100(3) of
the Government of India Act. To understand the precise scope of these
provisions, it is necessary to examine the position under the previous
Constitution Acts.
Section 43 of the Charter Act, 1833 (3 and 4
Will. IV, Chap. 85) conferred power on the Governor-General in Council "to
make laws and regulations for all persons................ and for all Courts
and for all places and things whatsoever within and throughout the whole and
every part of the said territory". In the Government of India Act, 1915 (5
and 6 Geo. V) Ch. 61) the corresponding provision was section 65(1)(a) which
enacted that the Indian Legislatures have the "power to make laws for all
persons, for all Courts and for all places and things within the British
India". Under these provisions, it cannot be doubted that the Indian
Legislatures would have had no jurisdiction to enact laws operating on persons
who were not within the State as that would be plainly opposed to the
limitation that they should be "for persons within the territory".
Both section 43 of the Charter Act, 1833 and section 65(1) (a) of the
Government of India Act, 1915 are based on the theory which was then widely
held that a subordinate Legislature had no competence to enact laws with
extra-territorial operation. Then came the Government of India Act, 1935.
Sections 99(1) and 100(3) which are relevant provisions are as follows:
"99. (1) Subject to the provisions of
this Act, the Federal Legislature may make laws for the whole or any. part of
British India or for any Federated (1) [1933] A. C. 156.
819 State, and a Provincial Legislature may
make laws for the Province or for any part thereof.
100. (3) Subject to the two preceding
sub-sections, the Provincial Legislature has, and the Federal Legislature has
not, power to make laws for a Province or any part thereof with respect to any
of the matters enumerated in List II in the said Schedule (hereinafter called
the "Provincial Legislative List")".
The language of these sections marks, it will
be noticed, a wide departure from that of section 43 of the Charter Act and section
65 (1) (a) of the Government of India Act, 1915.
The limitation that the legislation should be
for persons or things within the territory has been removed. Instead, it is
enacted that it could be "for the whole or part of British India in the
case of Federal Legislature" and "for the Province or part thereof in
the case of Provincial Legislature", and under section 100(3), the power
is to make laws for a Province or a part thereof with respect to the matters
enumerated in List II. Under sections 99(1) and 100, the legislative power of
the Centre or the Province is determined by two conditions. It must be for the
territory specified, and it must be in respect of the topics enumerated in the
respective lists. If these conditions are satisfied, then the law is valid
notwithstanding that it may have impact or operation outside the State. The
scope of the legislative power conferred by sections 99(1) and 100 is precisely
the same as that conferred on the Legislatures of Canada under sections 91 and
92 of the British North America Act. That was also a power conferred on the
Dominion Parliament or the Provincial Legislature to make laws for the Dominion
or the Province in respect of the matters mentioned in sections 91 and 92
respectively. It is on the construction of these provisions that Lord Macmillan
held in Croft v. Dunphy(1) that the Dominion Legislature was competent to enact
laws in respect of those matters even if they had extra-territorial operation.
The framers of the Government of India Act, 1935, changed the language of
section 65(1)(a) of the Gov(1) [1933] A.C. 156. 104 104 820 ernment of India
Act, 1915, and substituted words similar to those in sections 91 and 92 of the
British North America Act, 1867. It is a reasonable deduction to make that they
intended to give effect to the law as declared in Croft v. Dunphy('-). A law
which satisfies the two conditions prescribed in sections 99 (1) and 100,
therefore, must be held to be intra vires, even though it might have extraterritorial
operation.
The precise extent of the powers conferred by
sections 99(1) and 100 has also been the subject of considerable judicial
consideration. In Governor-General in Council v. Raleigh Investment Co.
Ltd.(1), the question was as to the liability of a Company which was
incorporated under the English Companies Act having its main office in England
and no place of business in India to be assessed to income-tax under the
provisions of the Indian Income-tax Act. The Company held the bulk of shares in
nine Companies which were also registered in England and controlled from there,
and carried on business in British India and earned profits. Dividends in
respect of these profits were declared in London and paid to the assessee in
London. The Explanation to section 4(i) (c) of the Indian Income-tax Act enacts
that a dividend paid outside British India shall be deemed to be income
accruing in or arising in British India to the extent to which it has been paid
out of profits subjected to tax in British India.
The income-tax authorities claimed that the
dividends received by the assessee-Company were liable to be taxed under this
provision. The Company resisted the claim inter alia on the ground that as it
was not resident in British India and did not carry on business there, the
Indian Legislature had no competence to impose a tax on it, and that the
provisions of the Act were ultra vires as extraterritorial in their operation.
This contention succeeded before the High Court of Calcutta, the Chief Justice
observing that the impugned provision amounted to the "Legislature of
British India without specific or apparent authority stretching out its
legislative arm and physical band beyond British (1) [1983] A.C. 156.
(2) [19441 F.C.R. 229.
821 India into other countries in an attempt
to tax persons and property there not subject to its laws"; and Mitter, J.
characterising it as a "piece of
extra-territorial legislation not by a superior or Dominion Legislature but by
a subordinate Legislature". On appeal, this decision was reversed by the
Federal Court. Spens, C. J. who delivered the judgment of the Court held
firstly that as the source of the income which was subjected to tax was Indian,
it was competent for the Indian Legislature to impose a tax thereon, and no
question of extra-territorial operation arose. That is to say, Entry 54 in List
I gave power to the Indian Legislature to tax income which arises from British
India, even though the person to be taxed was not resident within British
India. He also held that even if an element of extra-territoriality was
involved, the legislation was not bad on that account, because section 99(1)
and section 100 of the Government of India Act, 1935 were intended to embody
the law as declared in Croft v. Dunphy(1) and to confer on the Indian
Legislature plenary powers of legislation in respect of matters mentioned in
the lists, departing in this respect from the position under section 65(1)(a)
of the Government of India Act, 1915.
In Wallace Brothers & Co. Ltd. v.
Commissioner of Income tax, Bombay(1), the appellant was a Company registered
in England and controlled from there. It held a 14/32 share in a firm called
Messrs Wallace & Co., which was carrying on business in Bombay. The
appellant was sought to be taxed not merely on its income as partner of the
Bombay firm about which there was no dispute but also on the income of over
seven lakhs of rupees which had arisen and bad accrued to it abroad. The
appellant resisted the claim on the ground that the provisions of the Indian
Act were ultra vires as their operation was extra-territorial, inasmuch as they
sought to tax income of a non-resident received abroad. The Federal Court
rejected this contention. It held that if the person proposed to be taxed had
sufficient business connection with British India, that would confer a
jurisdiction on the Indian Legislature to tax him, and that what heads of
income in his hands should be taxed was a matter of policy which was within the
province of the Legislature to decide.
It also held that the provisions of the Act
were "not in their operation extraterritorial in the strict legal
sense".
There was an appeal against this judgment to
the Privy Council, i.e., Wallace Bros. v. I. T. Commissioner, Bombay(1).
Affirming the judgment of the Federal Court, Lord Uthwatt observed that the
fact that the appellant "was a member of the partnership carrying on
business in British India" was irrelevant in considering whether the
legislation was intra vires; that it was to be assumed that there was "no
connection between the Companies and British India except the derivation from
British India of the larger part of their income", and that the validity
of the legislation should be determined on that basis. He then observed:
"There is no rule of law that the
territorial limits of subordinate legislature define the possible scope of its
legislative enactments or mark the field open to its vision.
The ambit of the powers possessed by a
subordinate legislature depends upon the proper construction of the statute
conferring those powers. No doubt the enabling statute has to be read against
the background that only a defined territory has been committed to the charge
of the legislature. Concern by a subordinate Legislature with affairs or
persons outside its own territory may therefore suggest a query whether the
Legislature is in truth minding its own business. It does not compel the
conclusion that it is not. The enabling statute has to be fairly
construed".
He then referred to section 99(1) and section
100 of the Government of India Act under which the Indian Legislature had power
to enact laws for the whole or part of British India with respect to tax on
incomes, and concluded:
"The resulting general conception as to
the scope (1) [1948] F.C.R. 1.
823 of income-tax is that given a sufficient
territorial connection between the person sought to be charged and the country
seeking to tax him income-tax may properly extend to that person in respect of
his foreign income............ The principle-sufficient territorial
connection-not the rule giving effect to that principle -residence-is implicit
in the power conferred by the Government of India Act, 1935.
The result is that the validity of the
legislation in question depends on the sufficiency for the purpose for which it
is used of the territorial connection set forth in the impugned portion of the
statutory test".
It is the contention of the respondent that
the present question is concluded by this decision. In A. H. Wadia v. I. T.
Commissioner, Bombay(1), the question related to the liability of the Gwalior
Durbar to be assessed to income-tax in respect of interest received at Gwalior.
There was a Company called the Providence Investment Co. Ltd. carrying on
business in Bombay. The shares of the Company were all held by the Durbar or by
its nominees. It was financed by the Durbar, the transaction taking the form of
loan advanced at Gwalior. On these facts., the Income-tax Officer assessed the
Agent of the Durbar to tax on the interest received at Gwalior. The validity of
this assessment was disputed on the ground that the statutory provisions under
which it was made were extra-territorial in their operation and therefore ultra
vires. It was held by all the learned Judges following the decisions in
Governor-General in Council v. Raleigh Investment Co. Ltd.(1) and Wallace Bros.
v. I. T. Commissioner, Bombay(1) that the
assessee would be liable to tax if there was sufficient business connection
between him and British India, and that, in that event, the provisions would
not be bad on the ground of extraterritorial operation. There was, however, a
difference of opinion among the learned Judges as to whether, on the facts,
sufficient territorial connection had been established, the majority holding
that it had been, while two learned Judges (1) [1949] F.C.R. 18.
(2) [1944] F.C.R. 229.
(3) [1948] F.C.R. 1.
824 thought otherwise. That, however, is not
material to the present discussion.
These authorities establish that under section
99(1) and section 100 of the Government of India Act, a law enacted by the
Indian Legislature in respect of the matters enumerated in the appropriate
list$ would -be valid provided it is for the territory entrusted to their
charge; that whether it was so or not would depend on whether there was
sufficient territorial connection between the person who is sought to be
charged or proceeded against under the law and the country which enacts the
law; and that when such connection exists, the law is not strictly speaking
extra-territorial, and it is not ultra vires on the ground that the person is
not residing within the State which enacts the law.
Then, we come to the Constitution. Articles
245(1) and 246 which deal with this subject reproduce sections 99(1) and 100
with only alterations of a formal character.' They confer on the Parliament and
the State Legislatures power to enact laws in respect of the topics mentioned
in the respective lists to be exercised for the territory over which they have
jurisdiction. It is a well-settled rule of construction that when a statute is
repealed and re-enacted and words in the repealed statute are reproduced in the
new statute, they should be interpreted in the sense which had been judicially
put on them under the repealed Act, because the Legislature is presumed to be
acquainted with the construction which the Courts have put upon the words, and
when they repeat the same words, they must be taken to have accepted the
interpretation put on them by the Court as correctly reflecting the legislative
mind. On a construction of articles 245(1) and 246, therefore, it will be
difficult to come to any other conclusion than that a sales tax legislation of
a State which is otherwise valid is not ultra vires on the ground that the person
proposed to be taxed is not resident within the territorial limits of the
State.
Three other contentions urged in opposition
to this conclusion must now be considered;
825 1.It is only the Central or Federal
Legislature that has the power to enact laws with extra-territorial operation,
and that the Legislatures of the States forming units of a Federal Union do not
possess such power.
2. Under article 245 (2) there is a
prohibition against States enacting laws with extra-territorial operation.
3. Some of the provisions of the Act forming
the machinery sections for the assessment and collection of taxes are, in any
event, unauthorised and the whole Act is void on the ground that the valid
provisions thereof cannot be separated from the invalid ones.
On the first question, it is argued by the
learned AttorneyGeneral that the decision in Croft v. Dunphy(1) had reference
to a law enacted by the Legislature of Dominion of Canada and not any of the
Provinces, and that the decisions in Governor-General in Council v. Raleigh
Investment Co.
(1), Wallace Brothers & Co. v. The
Commissioner of Incometax, Bombay(1) and A. H. Wadia v. Income-tax
Commissioner., Bombay(1) related to the Indian Income-tax Act which was enacted
by the Central Legislature, and that to apply the doctrine laid down in those
cases to laws passed by the States would be to extend its operation beyond
recognised limits, and that there was no warrant for it in the Constitution. On
principle, it is difficult to see why a law enacted by the State in respect of
the matters assigned exclusively to its jurisdiction should stand on a
different footing from a law passed by Parliament on a matter within its
jurisdiction. Both the Legislatures derive their authority from the same
source, whether it be the Government of India Act, 1935, or the Constitution of
India. Under these Statutes, the State is not subordinate to the Centre, its
authority being supreme in respect of the matters entrusted to it. Under the
Government of India Act, 1935, when the British Government decided to change
what was a unitary into a Federal Government, the process adopted for (1)
[1933] A.C. 156.
(2) [1944] F.C.R. 229.
(3) [1948] F.C.R. 1.
(4) [1949] F.C.R. 18.
826 that purpose was that the Parliament
resumed all the powers that had been granted under the previous Constitution
Act and redistributed them between the Centre and the Province.
The terms on which the redistribution was
made were identical both for the Centre and the Province, their authority under
sections 99(1) and 100 being to enact laws in respect, of the matters mentioned
in the appropriate lists an for their respective territory. The extent of this
authority must, therefore, be the same both in the case of the Centre and the
State, each being sovereign within its own sphere. The principle laid down in
Croft v. Dunphy(1) that a subordinate Legislature has plenary powers in respect
of the topics assigned to it will apply as much to the State with reference to
the matters enumerated in List 11 as to the Centre with reference to the topics
mentioned in Lists I and 111. In Hodge v. The Queen(1) which is one of the
cases on which the decision in Croft v. Dunphy(1) was based, the law under
challenge was that of the Province of Ontario in Canada in respect of a topic
enumerated in section 92 of the British North America Act of 1867. The question
whether States as distinct from the Commonwealth have competence to enact laws
with extra-territorial operation has also been considered in some of the
decisions of the Australian High Court. In Broken Hill South Limited v. The
Commissioner of Taxation (3) Evatt, J. in discussing this question observed as
follows at page 378:
"Some of the cases also illustrate the
fact, occasionally overlooked, that, constitutionally speaking, the status of
the States of Australia is equal to, or co-ordinate with, that of the
Commonwealth itself. Sovereignty is not attributable to one authority more than
to the others; it is divided between them in accordance with the demarcation of
functions set out in the Commonwealth Constitution. Within the limits so
prescribed, the legislative authority of the States is of precisely equivalent
quality and potency to that of the Commonwealth, the authority of which (1)
[1933] A.C. 156.
(2) [1883] 9 A.C. 117.
(3) 56 C.L.R. 337.
827 is, in sections 51 and 52 of the
Commonwealth Constitution, limited by reference to subject-matter. In short,
the Commonwealth Parliament may legislate for 'the peace, order and good
government of the Commonwealth with respect to' a large number of
subject-matters. Similarly, the State of New South Wales may legislate for 'the
peace, welfare and good government' of New South Wales. In relation to such a
subject-matter as that of taxation, and subject, of course, to any overriding
provision of the Commonwealth Constitution, it is quite impossible to deny to
the States in relation to their geographical area constitutional powers
precisely analogous to those possessed by the Commonwealth Parliament in
relation to its geographical area. The legislation of the States cannot be
deemed ultra vires merely because of territorial reasons, unless analogous
legislation of the Commonwealth Parliament would similarly be deemed
unconstitutional and void".
These observations are very apposite to the
present controversy. The conclusion is inescapable that the powers of the Union
and the State under sections 99(1) and 100 of the Government of India Act, as
also under articles 245(1) and 246 in respect of the matters mentioned in their
respective lists have the same content and quality, and that if legislation
with extra-territorial operation is within the competence of the Union, it is
equally within the competence of the State.
Coming now to the second contention, the
argument of the appellant is that in enacting that "no law of Parliament
shall be deemed to be invalid on the ground that it would have
extra-territorial operation", article 245(2) prohibits by implication the
enactment of such laws by the States.
This contention is unsound. The words
"extra-territorial operation" are used, as already stated, in two
different senses as connoting firstly, laws in respect of acts or events which
take place inside the State but have operation outside, and secondly, laws with
reference to the nationals of a State in respect of their acts outside; that in
its former sense, the laws are strictly 105 828 speaking intra-territorial
though loosely termed 'extraterritorial', and that under article 245(1) it is
within the competence of the Parliament and of the State Legislatures to enact
laws with extra-territorial operation in that sense. The words "laws with
extraterritorial operation" in article 245 (2) must be understood in their
second and strict sense as having reference to the laws of a State for their
nationals in respect of acts done outside the State.
Otherwise, the provision would be redundant
as regards legislation by Parliament and inconsistent as regards laws enacted
by States. This conclusion is placed beyond doubt when regard is had to the history
of legislation on this topic. Section 43 of the Charter Act, 1833 while
restricting the scope of legislative authority to persons and things within the
State thus denying the power to enact laws with extra-territorial operations in
the first sense, conferred a power to make laws "for all servants of the
Company within the Dominion of Princes and States in alliance with the said
Company". This was a power to enact extra-territorial legislation in the
second sense for servants of the Company. Section 65(1) of the Government of
India Act, 1915 followed the same pattern, and while limiting under sub-clause
(a) the power of Indian Legislatures to enact laws for persons and things
within British India conferred jurisdiction to enact laws with extra-territorial
operation in the second sense by sub clauses (b), (c), (d) and (e) which are as
follows:
"65. (1) The (Indian Legislature) has
power to make laws(b)for all subjects of His Majesty and servants of the Crown
within other parts of India; and (c)for all native Indian subjects of His
Majesty, without and beyond as well as within British India; and (d)for the
government of officers, soldiers, (airmen)and followers in His Majesty's Indian
forces, wherever they are serving, in so far as they are not subject to the
Army Act (or the Air Force Act); and (e) for all persons employed or serving in
or 829 belonging to the Royal Indian Marine Service". This topic was again
dealt with in section 99(2) of the Government of India Act, 1935, which runs as
follows:
"99. (2) Without prejudice to the
generality of the powers conferred, by the preceding sub-section, no Federal
law shall, on the ground that it would have extra-territorial operation, be
deemed to be invalid in so far as it applies(a) to British subjects and
servants of the Crown in any part of India; or (b) to British subjects who are
domiciled in any part of India wherever they may be; or (c) to, or to persons
on, ships or aircraft registered in British India or any Federated States
where-ever they may be; or (d) in the case of a law with respect to a matter
accepted in the Instrument of Accession of a Federated State as a matter with
respect to which the Federal Legislature may make laws for that State, to
subjects of that State wherever they may be; or (e) in the case of law for the
regulation or discipline of any naval, military, or air force raised in British
India, to members of, and persons attached to, employed with or following, that
force, wherever they may be".
In Governor-General in Council v. Raleigh
Investment Co.(1), the question was raised whether these provisions were
restrictive of the power of the Indian Legislature to enact laws with
extra-territorial operation in respect of matters other than those enumerated
in -section 99(2). Spens, C.J.
held that as the impugned provisions were
within the ambit of legislative power under sections 99(1) and 100 of the
Government of India Act, 1935, they were not extraterritorial in operation and
that even if they were, the words "without prejudice to the generality of
the powers conferred by the preceding sub-section" occurring in section
99(2) posited the existence of a power aliunde, and that the enumeration of the
specified topics in that sub-clause was by way of abundant caution. On the (1)
[1944] F.C.R. 229.
830 14th August, 1947, acting under section 9
of the Indian Independence Act the Governor-General issued an Adaptation Order,
and therein, for the words "for the whole or any part of British India or
for any Federated State" were substituted the words "including laws
having extraterritorial operation for the whole or any part of the
Dominion"; and sub-section (2) was omitted. When the Constitution was
enacted, the words "including laws having extra-territorial operation for
the whole or any part of the Dominion" were omitted and in their place,
article 245(2) was enacted. Thus, article 245(2) is a successor to section
65(1), sub-clauses (b), (c), (d) and (e) of the Government of India Act, 1915
and section 99(2) of the Government of India Act, 1935, and its scope is
extraterritorial legislation in the second sense. As we are concerned in this
appeal with extra-territorial operation in its first sensearticle 245 (2) has
no application, and the attack on the impugned Act on the ground that it is
barred by article 245(2) must fail.
The third contention has reference to the
machinery sections of the Act relating to the assessment and collection of
taxes. The argument was that even if the Bihar Legislature had the competence
to enact under Entry 54 a taxation law against non-residents, it had no power
to enforce it outside its own territorial limits, and some of the provisions
were bad on this ground, such as section 17 which authorised search of premises
and seizure of accounts, and section 26 which made it an offence to obstruct
such search or seizure.
But we are not called upon in these
proceedings to pronounce on the validity of these provisions. The respondent
issued notice under section 13(5) of the Act calling upon the appellant to send
his returns and proposing in case of default to make assessment on the basis of
best judgment.
It was at this stage that the appellant
rushed to the Court, and moved for a writ of prohibition to restrain the proceedings
on the ground of want of jurisdiction. That is the one and the only question
that now falls to be determined.
Even if some of the machinery sections ,Ire
bad-it is a question to be decided when it arises 831 whether they can be
justified on the ground that they are ancillary or incidental to the
substantive provisions, as to which see Attorney-General for Canada v. Cain(1)
and Croft v. Dunphy(2)-that would not affect the power of the State to impose a
tax, and it will therefore be foreign to the scope of this appeal to enter into
a discussion of their validity.
It was urged by the learned Attorney-General
that if the machinery sections were bad on the ground that they were
extra-territorial in their operation, and if the power to tax was so mixed up
with them as to be inseparable from them, then, when they fall it must also
fall. A power to tax is a matter of substantive law, whereas the machinery
sections providing for the execution of that power such as, assessment, and
collection of tax, pertain to the domain of adjectival law, and the two are
distinct and separable. It is elementary law that the power to tax does not
depend on the ability to realise it. In British Columbia Electric Railway Co.
Ltd. v The King(1) Viscount Simon observed:
"A legislature which passes a law having
extraterritorial operation may find that what it has enacted cannot be directly
enforced, but the Act is not invalid on that account, and the courts of its
country must enforce the law with the machinery available to them".
Without expressing any opinion, therefore, on
the validity of the machinery sections, I must hold that the impugned Act in so
far as it authorises the imposition of tax on sales falling within the
Explanation to article 286(1) (a) is neither ultra vires the powers of the
State Legislature nor bad on the ground that it is extra-territorial in its
operation.
5. Then there remains the contention of the
appellant that even assuming that the States could, under the Explanation,
enact a law imposing a tax on a non-resident and that such law would not be hit
by article 286(2), the impugned Act must even then be held to be bad for the
reason that it was not auth(1) [1906] A.C. 542.
(2) [1933] A.G. 156.
(3) [1946] A.C. 527.
832 orised by the terms of the Explanation.
Two grounds were urged in support of this contention: (1) that under the
Explanation truly construed, a seller could be taxed only if he is within the
State, and (2) that the goods were actually delivered not in Bihar but in
Bengal and that therefore the Explanation did not apply. The argument in
support of the first ground was that as the Explanation enacts that the sale or
purchase-not merely the sale-must be deemed to have taken place in the delivery
State, it must be construed in the light of the presumption that the laws of a
State are intended to operate on persons or things within its territory, and so
construed, it should be held to authorise the levy of a tax on the seller only
if he was within the State or on the purchaser who must be within the
territory.
The assumption on which this argument rests
is that States have jurisdiction only over persons and property within their
territory: but this, as already shown, is not correct.
A State has jurisdiction to enact laws in
respect of acts and events which occur within its territory, and if a sale
takes place within the State as under the Explanation it does by a legal
fiction, then its jurisdiction to enact a law imposing a tax thereon is
complete, and no question of its overstepping its territorial limits arises. It
should also be noted that the scope of the presumption that the laws of a State
are not intended to operate outside its territory is, as stated by Maxwell,
that "Parliament does not design its Statutes to operate on its subjects
beyond the territorial limits of the United Kingdom" (Maxwell's
Interpretation of Statutes, 10th Edn., page 145). That has reference to
extraterritorial operation in the second sense.
There is no presumption that the laws of a
State made with reference to acts and events occurring within its borders are
not intended to have operation outside its territory.
Moreover, a tax on sale of goods is, as
observed in The Province of Madras v. Messrs Boddu Paidanna & Sons(1)
"a tax levied on the occasion of the sale of goods" and the liability
to tax arises "on the occasion (1) A.I.R. 1942 F.C. 33.
833 of a sale". In The State of Bombay
v. The United Motors (India) Ltd. (1), it was stated that the sales tax was a
tax imposed "on the occasion of the sale as a taxable event".
It is thus, in essence, a tax levied on the
act of buying and selling. Sale is the result of a contract, and is bilateral
in character. There can be seller only in relation to a purchaser and vice
versa. It therefore follows that the power to impose a tax on sale imports a
power to tax either the seller or the purchaser.
In V. M. Syed Mohammad & Co. v. The State
of Andhra(1), the question was raised for decision whether Entry 48 in the
Provincial List of the Government of India Act 1935 "tax on sale of
goods" included a power to impose a tax on the purchaser. It was held that
it did, and it was observed that when Entry 54 in List II of the Seventh
Schedule of the Constitution substituted for the words "tax on sales"
occurring in Entry 48 the words "tax on sale or purchase", it did not
thereby enlarge the powers previously conferred by Entry 48 but "merely
expressed in clearer language what was implicit in that corresponding
entry". When article 286(1)(a)and the Explanation refer to a sale or
purchase, they merely conform to the terms of Entry 54, and these words cannot
therefore be construed as splitting up the power to tax sales into two parts,
one available against the purchaser at all times, as in the very nature of it
he must be within the State, and the other against a seller if he is within
jurisdiction. The power is one and indivisible to be exercised when the
conditions mentioned in the Explanation are satisfied against either a seller
or buyer as the Legislature might determine.
The language of the Explanation, it should be
marked, does not impose any limitation or condition on the exercise of this
power. It is general and unqualified, and will comprehend all cases in which
goods are delivered for consumption in the taxing State irrespective of whether
the seller is within the State or not. To hold that the tax could be imposed on
a seller only if he is within the State would be to (1) [1953] S.C.R. 1069.
(2) [1954] S.C.R. 1117.
834 add words to the Explanation which are
not there., and for this, there is no justification. On the other hand, there
are good reasons why the power should have been vested in the legislature to
determine whether it will tax the seller or the buyer. The tax imposed under
the Explanation really falls on the consumer-purchaser. While it is possible
that with reference to certain classes of goods the tax can effectively be
imposed on the purchaser, it must happen that with reference to other kinds of
goods as, for example, medicines in the present appeal, it cannot be so done,
and, as already pointed out, it is a "familiar and sanctioned device"
to make the seller the agent of the State for collection of taxes. In leaving
it to the States to determine whether they will tax the seller or the buyer,
the Explanation has merely given recognition to a familiar principle of
taxation laws sanctioned by usage and upheld by authority. This objection must
accordingly be overruled.
It was then contended that the sales proposed
to be taxed did not take place in Bihar as the goods were actually delivered as
contemplated by the Explanation not there but in Bengal. The argument is that
the words "actual delivery" in the Explanation are used in contrast
to constructive or symbolic delivery as meaning physical delivery of goods,
that under section 39(1) of the Sale of Goods Act, 1930 (Act III of 1930) the
common carrier is the agent of the purchaser, and that therefore delivery of
the goods to the railway authorities in Bengal was actual delivery thereof to
the purchaser in Bengal. Section 39(1) is as follows:
"Where in pursuance of a contract of
sale, the seller is authorised or required to send the goods to the buyer,
delivery of the goods to a carrier whether named by the buyer or not, for the
purpose of transmission to the buyer, or delivery of the goods to a wharfinger
for safe custody is prima facie deemed to be a delivery of the goods to the
buyer".
It is difficult to see what there is in this
section to support the contention that delivery to a common carrier is actual
delivery to the purchaser. The section 835 -does not say so. On the other hand,
it proceeds on the assumption that there was, in fact., no delivery to the
purchaser, actual or otherwise, a thing a being deemed to be something only,
when as a fact it is not that, and then enacts on that basis a fiction that delivery
to a common carrier shall be deemed prima facie to be delivery to the buyer.
What is the purpose of this fiction? It is, as will be clear from section
39(2), to fix on whom the loss is to fall in case the goods are lost or damaged
in course of transit. But where no such question arises, the fiction has to be
ignored, and the matter will have to be decided on the factual basis whether
the goods were actually delivered.
A reference to section 51 (I) of the Sale of Goods Act is very instructive. It runs as follows:
"Goods are deemed to be in course of
transit from the time when they are delivered to a carrier or other bailee for
the purpose of transmission to the buyer, until the buyer or his agent in that
behalf takes delivery of them from such carrier or other bailee". In this
clause, the word "delivery" is used to denote both the delivery of
goods by the seller to the common carrier and the delivery to the purchaser by
the common carrier. They cannot both be actual deliveries, as goods sold under
a sale can actually be delivered only once. If the delivery of the goods to the
common carrier was actual delivery, then what is the nature of delivery when
the purchaser took possession of the goods from the common carrier? It is also
physical delivery of the goods, and is therefore actual delivery on the
appellant's own definition.
The fact is that while for some purposes
delivery to the common carrier is treated as delivery to the purchaser, there
is delivery in fact and in its popular sense, only when the purchaser obtains
possession of the goods and it is this that is connoted by the words
"actual delivery". When section 51 (I) refers to delivery to buyer or
his agent, it refers to actual delivery, and delivery to common carrier is
regarded as constructive, having regard to section 39(1).
The section, it will be noticed, proceeds on
the. footing that a 106 836 common carrier is not the agent of the buyer with
reference to actual delivery. He is the agent of the purchaser for transmission
of the goods to him.
This position was well-established in the
common law of England, and was thus stated by Parke, B., in James v.
Griffin(1) in the following terms:
"The delivery by the vendor of goods
sold to a carrier of any description, either expressly or by implication named
by the vendee, and who is to carry on his account, is a constructive delivery
to the vendee; but the vendor has a right if unpaid, and if the vendee be
insolvent, to retake the goods before they are actually delivered to the
vendee, or some one whom he means to be his agent, to take possession of and
keep the goods for him, and thereby to replace the vendor in the same situation
as if he had not parted with the actual possession........ The actual delivery
to the vendee or his agent, which puts an end to the transitus or state of
passage, may be at the vendee's own warehouse, or at a place which he uses as
his own, though belonging to another, for the deposit of goods:
(Scott v. Prettit(2): Rowe v. Pickford(3));
or at a place where he means the goods to remain until a fresh destination is
communicated to them by orders from himself;
Dixon v. Baldwen(4); or it may be by the
vendee's taking possession by himself or agent at some point short of the
original intended place of destination".
In Ex parte Rosevear China Clay Company. In
Re Cock(1) James, L.J. said:
"The authorities show that the vendor
has a right to stop in transitu until the goods have actually got home into the
hands of the purchaser, or of some one who receives them in the character of
his servant or agent".
In the same case, the position was stated
even more fully by Brett, L.J., in the following terms:
"As soon as the clay was appropriated by
the vendors to this contract and was placed on board the ship, the property in
it passed to the purchaser and (1) 2 M. & W. 623; 115 E.R. 906, 910.
(2) [1803] 3 B. & P. 469.
(3) [1817] 8 Taunt. 83.
(4) [1804] 5 East 175.
(5) 11 Ch. D. 560.
837 at the same time as between the vendor
and the purchaser, there was a delivery of the claim to the latter. But it was
a constructive not actual delivery".
The same learned Judge again observed in
Kendal v.
Marshall(1) as follows:
"Where the goods have been appropriated
by the 7 vendor, and have been delivered by him to a carrier to be transmitted
to the vendee, a constructive possession exists in the vendee".
The law as declared in the above decisions
was embodied in section 32(1) of the English Sale of Goods Act, which has been
reproduced in section 51 (1) of the Indian Sale of Goods Act Vide also Benjamin on Sales, Eighth Edn., page 889 where
the possession of the carrier on behalf of the, buyer is stated to be
"constructive though not yet actual possession". It must accordingly
be held that the expression "actual delivery" in the Explanation to
article 286(1)(a) means delivery of the goods to the purchaser or his agent,
and delivery to the common carrier is not actual delivery, and that, in this
case, the goods were actually delivered not in Bengal when they were delivered
to the common carrier but in Bihar when they were delivered to the purchaser.
This contention of the appellant must also be rejected.
In the result, the appeal should, in my
judgment, be rejected with costs.
SINHA J.-I have had the advantage of perusing
the judgments prepared by my brothers, S. R. Das, N. H. Bhagwati, B. Jagannadhadas
and T. L. Venkatarama Aiyar. After a careful and anxious consideration of the
two viewpoints contained in the judgments respectively of my brother S. R. Das
holding that the previous decision of this court in The State of Bombay v. The
United Motors (India) Ltd. (2) should be overruled, and of my brother T. L.
Venkatarama Aiyar that it should be followed, I have come to the conclusion
that the latter view is more acceptable.
We are all agreed that the present case is
governed (1) 11 Q.B.D. 356, 364.
(2) [1953] S.C.R. 1069.
838 by the previous decision of this Court
just referred to and that if that case lays down the correct rule of law, this
appeal should be dismissed. We are also agreed that the language of article 286
of the Constitution on which the case depends is not felicitous and free from
vagueness, with the result that the interpretation of that article is not free
from doubt and difficulty. The very fact that in the case referred to, as also
in the later decision of this Court reported in State of Travancore-Cochin v.
Shanmugha Vilas Cashew Nut Factory(1) involving the construction of article
286, the Court was divided in its opinion shows that the interpretation of the
articles in question is by no means easy. The fact that the Court is sharply
divided in the present case also emphasizes the difficulty. The question we
have to determine at the outset is whether or not we should follow the previous
decision of this Court in The State of Bombay v. The United Motors (India)
Ltd.(1). We are all agreed that in a proper case it is permissible for this
Court to go back upon its previous decision; but we are again divided as to
whether this is a fit occasion for reviewing its previous decision. For the
reasons given by my brothers, Jagannadhadas and Venkatarama Aiyar, I would
agree with them in holding that sufficient grounds have not been made out for
overruling that decision which bad been taken after bearing, all the parties
interested in the result of the case. Not only the parties directly concerned
with the case but a number of States by way of interveners as in the present
case were also heard. After giving a very full hearing the Court gave its
judgment which is a very elaborate one,-the report of the case running into 60
pages in print. It is true that much can be said for the opposite view as
adumbrated in the judgment of my brother S. R. Das;
but, in my opinion, simply because another
view may be taken of the points in controversy is not a sufficient
justification for our reviewing the previous judgment of this Court. It has not
been suggested that any relevant provisions of the Indian Constitution or any
(1) [1954] S.C.R. 53.
(2) [1958] S.C.R. 1069.
839 other provision of law had not been
overlooked by this Court when it pronounced its previous ruling; nor has it
been suggested that this Court on the previous occasion proceeded on erroneous
suppositions. Under the Constitution and even otherwise this Court is naturally
looked upon by the country as the custodian of law and the Constitution, and if
this Court were to review its previous decisions simply on the ground that
another view is possible, the litigant public may be encouraged to think that
it is always worthwhile taking a chance with the highest court in the land.
Definiteness and certainty of the legal
position are essential conditions for the growth of the rule of law. In my
opinion, therefore, this Court should review its previous decisions' only in
exceptional circumstances as is the practice of the Judicial Committee of the
Privy Council in the cases referred to by my brothers Jagannadhadas and
Venkatarama Aiyar. If this Court has taken a view of the relevant provisions of
the Constitution which does not commend itself to the acceptance of the
Legislature, the latter can make necessary amendments, as has been done in the
recent past.
Coming to the merits of the case in hand, we
are all agreed that the Explanation to article 286(1) (a) of the Constitution
has created a legal fiction as a result of which a transaction of sale or a
purchase partaking of an inter-State character has been treated as a domestic
transaction. The fiction has localized sales or purchases contemplated by the
Explanation, by converting such transactions as would otherwise have' been
inter-State sales or purchases into sales or purchases inside one State in a
sense in which it is placed in a class distinct and separate from what is
referred to as sales or purchases "outside the state" in the main
body of article 286(1) (a) which prohibits imposition of tax by any State.
There is a general agreement amongst us, I take it, that the main purpose of
creating the fiction is to prevent multiple taxation of the same transaction,
but, it may be added, not altogether to stop the taxation of such transactions.
We are' also agreed that full effect must 840 be given to the legal fiction on
the supposition that the putative state of affairs is the real one. While thus
agreeing on the general principle bearing on the question of the purpose and
scope of a legal fiction, we are again divided on the question of how far the
legal fiction should be carried in its actual application. For the reasons
given by my brother Venkatarama Aiyar, I agree with him that the fiction
created by the Explanation brings such a sale within the taxing power of the
State within which such a sale is said to have taken place. Such a result is
brought about not by holding that the Explanation has conferred positively the
power on the relevant State to impose sales tax, but by holding that such an
inside sale is beyond the scope of the prohibition contained in the main body
of article 286 (1) (a) which interdicts the imposition of a tax on a sale
"outside the State". The Explanation has got to be read as an
integral part of article 286(1) (a) and thus read, it means negatively that a
sale or purchase outside a State cannot be taxed; and by necessary implication,
that a sale or purchase inside a State may be taxed by that State as falling
outside the mischief of the prohibition directed against the imposition of a
tax on a sale or purchase of goods outside a State; in other words, as soon as
a sale or purchase of goods is declared to be outside the pale of the
prohibition contained in article 286(1)(a), the State's power of imposing a tax
contained in article 246 read with item 54 of List II of the 7th Schedule comes
into operation. I do not find myself in agreement with the view propounded by
my brother S. R. Das chiefly because that view goes beyond the purpose of the
creation of the fiction which admittedly was to prevent multiple taxation. The
view as propounded by him besides preventing multiple taxation goes to the
length of prohibiting any imposition of sales tax by any State. Such, in my
opinion, was not the intention of the Constitution. Whereas the imposition of
multiple sales tax on transactions of sale or purchase may be an obstacle to
the free flow of inland trade and commerce, the imposition of sales tax by a single
State in which the sale, is 841 deemed to have taken place by virtue of the
Explanation cannot be predicated as having such an effect. The view propounded
by my learned brother Venkatarama Aiyar is thus not inconsistent with the
avowed purpose of the Constitution, as expressed in article 301, which provides
that trade, commerce and intercourse shall be free throughout the territory of
India. In my opinion, the view propounded by my learned brother S. R. Das about
the actual application of the legal fiction stops short of giving full effect
to that fiction. Allied with this question is the controversy as to whether
clause (2) of article 286 is subject to article 286(1)(a) read with the
Explanation or vice versa. In my opinion, for the reasons given by my learned
brother Venkatarama Aiyar the better view is that clause (2) of article 286 of
the Constitution is subject to article 286(1)(a) read with the Explanation. On
the whole, therefore, I would agree with the view that the previous decision of
this Court in 1953 S.C.R. 1069 should continue to hold good and govern the
present controversy also. In that view of the matter I would dismiss this
appeal with costs.
BY THE COURT.-The appeal is allowed and an
order shall be issued directing that, until Parliament by law provides
otherwise, the State of Bihar do forbear and abstain from imposing Sales Tax on
out-of State dealers in respect of sales or purchases that have taken place in
the course of inter-State trade or commerce even though the goods have been delivered
as a direct result of such sales or purchases for consumption in Bihar. The
State must pay the costs of the appellant in this Court and in the Court below.
The interveners must bear and pay their own costs.
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