M/S. Ram Narain Sons Ltd. Vs. Asst.
Commissioner of Sales Tax & Ors [1955] INSC 41 (20 September 1955)
BHAGWATI, NATWARLAL H.
AIYAR, N. CHANDRASEKHARA DAS, SUDHI RANJAN
JAGANNADHADAS, B.
IMAM, SYED JAFFER
CITATION: 1955 AIR 765 1955 SCR (2) 483
ACT:
Constitution of India-Article 286(2)-Proviso
thereto-Whether the proviso is meant to lift the ban only under Article 286(2)
and no other-And thus does not lift the ban under Article 286(1)(a) read with
the Explanation-Assessment consisting of a single undivided sum in respect of
totality of property-Wrongful inclusion therein of certain item of property
expressly exempted from taxation-Legal effect thereof-Central Provinces and
Berar Act 1947 (XXI of 1947) -Explanation II to Section 2(g) as originally
enacted-before its amendment by Madhya Pradesh Act IV of 1951-Whether offended
Article 286(1)(a) read with the Explanation-Whether the President's order
issued under the proviso to Article 286(2) protected the same.
HEADNOTE:
Held, per S. B. DAs ACTING CHIEF JUSTICE,
BHGWATI,JAFER
IMAM and CHANDRASEKHARA AIYAR JJ.
(JAGANNADHADAS J.
484 dissenting). The bans imposed by Article
286 of the Constitution on the taxing powers of the States are independent and
separate and each one of them has to be got over before a State Legislature can
impose tax on transactions of sale or purchase of goods. The Explanation to
Article 286(1)(a) determines by the legal fiction created therein the situs of
the sale in the case of transactions coming within that category and once it is
determined by the application of the Explanation that a transaction is outside
the State it follows as a matter of course that the State, with reference to
which the transaction can thus be predicated to be outside it, can never tax
the transaction.
The ban under Article 286(1)(a) read with the
Explanation is effective independently of the fact that the transaction may
have taken place in the course of interState trade or commerce or with
reference to goods as have been declared by Parliament by law to be essential
for the life of the community. The ban imposed under Article 286(2) is an
independent and separate one and looks at the transactions entirely from the
point of view of their having taken place in the course of inter-State trade or
commerce., Even if such transactions may also fall within the category of
transactions covered by Article 286(1)(a) and the Explanation thereto or
Article 286(3) the moment Article 286(2) is attracted by reason of the
transactions being in the course of inter-State trade or commerce, the ban
under Article 286(2) operates and such transactions can never be subjected to
tax at the instance of a State Legislature except in so far as Parliament by
law may otherwise provide or such power of taxation is saved by the President's
order contemplated in the proviso. The ban under Article 286(2) may be saved by
the President's order but that does not affect or lift the ban under Article
286(1)(a) read with the Explanation.
Apart from the aforesaid construction put
upon the several clauses of Article 286 in The Bengal Immunity Co. case the
terms of the proviso to Article 286(2) itself make it abundantly clear that the
proviso is meant only to lift the ban under Article 286(2) and no other. It is
a cardinal rule of interpretation that a proviso carves out an exception to the
main provision to which it is enacted as a proviso and to no other. This is
made further clear by the non obstante clause which states in express terms
that it is enacted only with reference to "this clause" i.e. Article
286(2).
The proviso cannot be extended to any of the
other provisions of Article 286 and it has. therefore, not the effect of
lifting the ban which is imposed by Article 286(1)(a) and the Explanation
thereto.
Therefore, so far as the post-Constitution
period is concerned the ban imposed by Article 286(1)(a) and the Explanation
thereto could not be removed by the President's order which was issued under
the proviso to Article 286(2) in the present case.
Explanation 11 to Section 2(g) of the Central
Provinces and Berar Sales Tax Act, 1947 offended Article 286(1)(a) -road with
the 485 Explanation to the same and the State of Madhya Pradesh was therefore,
not entitled to tax the transactions of sale in which goods had actually been
delivered as a direct result of such sale for purposes of consumption outside
Madhya Pradesh and the said Explanation was riot protected by the President's
order issued under the proviso to Article 286(2).
Where an assessment consists of a single
undivided sum in respect of the totality of the property treated as assessable,
the wrongful inclusion in it of certain items of property which by virtue of a
provision of law were expressly exempted from taxation, renders the assessment
invalid in toto.
Bennett & White (Calgary) Ltd. and
Municipal District of Sugar City No. 5 (1951 Appeal Cases 786 at p. 816),
referred to.
JAGANNADHADAS J. (Dissenting)-'The two bans
under Articles 286(1)(a) and 286(2) are overlapping and-the fact that they are
imposed from different angles cannot obscure the result, viz., that the bring
about the demareation of the same-or substantially the same field of no
taxation.
To construe the two bans as independently and
cumulatively operative is -to impute to them some kind of picturesque potency
and is to miss the reality, viz., that all the bans under Article 286 are meant
to serve the same purpose, viz., that of imposing restrictions and thereby
demarcating the fields of no taxation. The bans and the proviso are part&
of the same Article and have to be harmoniously construed.
The unequivocal and positive language of one
part, cannot be taken to have been obliterated by the negative language of ,the
other part so as to result in futility.
The result of construing the proviso and by
parity of reasoning the saving clause, as merely removing the ban of a
particular nature leaving another overlapping ban to operate, would be to reader
both the saving clause in,. and the proviso to, Article 286(2) virtually
nugatory.
A non-obstante clause does not normally add
to or subtract from the main provision of which it is a part, It is often
enough inserted by way of extra caution. But it does not have the effect of
limiting the operation of the main provision, The suggestion that the
Presidential action lifts the ban only as regards the inter-State sales would
be to read the phrase "notwithstanding that" as meaning "in so
far". There is no warrant for any such reading.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 132, 133 and 137 of 1955 and Petition No. 567 of 1954.
Appeals under Article 132(1) of the
Constitution of India from the Judgment and Order dated the 18th October 1954
of the Nagpur High Court in Misc. Peti486 tions Nos. 265, 348 and 275 of 1953
respectively and Petition under Article 32 of the Constitution for the
enforcement of fundamental rights.
M. C. Setalvad, Attorney-General of India R.
M. Hajarnavis and G. C. Mathur, with him) for the appellant in C.A. No. 132 of
1955.
N. C. Chatterji, (R. M. Hajarnavis and G. C.
Mathur, with him) for Intervener No. 1 in C. A. No. 132 of 1955.
R. M. Hajarnavis and G. C. Mathur, for
Intervener No. 2 in C. A. No. 132 of 1955.
R. M. Hajarnavis and G. C. Mathur, for the
appellant in C. A. No. 133 of 1955.
R. M. Hajarnavis and G. C. Mathur, for the
appellant in C.A. No. 137 of 1955.
M. Adhikari, Deputy Advocate-General of
Madhya Pradesh and I. N. Shroff, for respondents in allappeals.
M. C. Setalvad, Attorney-General of India and
C. K. Daphtary, Solicitor-General of India (A. P. Sen, J. B. Dadachanji and
Rajinder Narain, with them) for the petitioner in Petition No. 567 of 1954.
T. L. Shevde, Advocate-General of Madhya
Pradesh (M. Adhikari, Deputy Advocate-General of Madhya Pradesh and I. N.
Shroff, with him) for respondents.
J. B. Dadachanji, R. M. Hajarnavis and
Rajinder Narain, for the Intervener.
1955. September 20. The judgment. of S. R.
Das,. Acting Chief Justice, Bhagwati, Jafer Imam and Chandrasekhara Aiyar JJ.
was delivered by Bhagwati J. Jagannadhadas J. delivered a separate judgment.
Civil Appeals Nos. 132, 133 and 137 of 1955
BHAGWATI J.-These 3 appeals with certificate under article 132(1) of the
Constitution involve the interpretation of the proviso to article 286(2) and
raise a common question as to whether that proviso also saves 487 the
transactions of sale or purchase covered by the Explanation to article 286(1)
(a) from the ban imposed therein.
The Appellants in Civil Appeal No. 132 of
1955 are Messrs Ramnarain Sons Ltd., a firm registered as a As.
"dealer" under the Central Provinces and Berar Sales Tax Act, 1947,
and carrying on business at Amravati and at other places in Madhya Pradesh.
After the Cotton Control Order, 1949, came into force on the 12th September,
1949, the Appellants entered into agreements with several mills situated
outside Madhya Pradesh by which they undertook to purchase kapas in the various
markets in Madhya Pradesh as their agents on their account and on their behalf
The kapas after purchase was to be ginned and pressed into bales and sent to
the mills. All the expenses involved in the process were to be borne by the
mills which were also to be credited with the sale proceeds of the cotton seeds
and the Appellants were only entitled to commission on a percentage basis. The Appellants
worked as such agents for the period 1st October, 1949 to 30th September, 1950.
By his order dated the 30th June, 1953 the Assistant Commissioner of Sales Tax,
Amravati, Respondent No. 1, included the transactions valued at Rs.
72,86,454-5-10 with the said mills in the Appellants' turnover and ordered the
Appellants to pay Rs. 1,13,850-13-6 as sales tax on the said transactions. The
Appellants filed an appeal to the Commissioner of Sales Tax, Madhya Pradesh,
Respondent No. 2, on the 30th July, 1953.
The appeal was, however, entertained by the
Deputy Commissioner of Sales Tax, Madhya Pradesh, Respondent No. 3, who ordered
the Appellants to pay Rs. 25,000/by the 31st August., 1953. The Appellants
thereupon filed a petition under Article 226, being Misc. Petition No. 265 of
1953, in the High Court of Judicature at Nagpur, asking inter alia for the
quashing of the order of 30th June, 1953, passed by Respondent No. I and for
consequential reliefs. The Respondents filed a return denying the contentions
of the Appellants and praying for the dismissal of the petition with costs.
62 488 The Appellants in Civil Appeal No. 133
of 1955 are the Eastern Cotton Company, a firm registered as a
"dealer" under the Central Provinces and Berar Sales Tax Act, 1947,
and carrying on business at Amravati and at other places in Madhya Pradesh.
They also, during the period 1st October, 1949 to 30th September, 1950, worked
as agents of certain mills situated outside Madhya Pradesh, procured kapas for
them in Madhya Pradesh and sent it to the mills for consumption outside the
State. By his order dated the 9th September, 1953, the Respondent No. I
included the transactions valued at Rs. 33,47,405-5-6 with the said mills in
the Appellants' turn-over and ordered the Appellants to pay Rs. 52,303-4-0 as
tax on the said transactions. These Appellants also filed a petition under
article 226, being Misc. Petition No. 348 of 1953, in the High Court of
Judicature at Nagpur for quashing the order dated the 9th September, 1953,
passed by Respondent No. 1 and for consequential reliefs. The Respondents filed
a return denying their contentions.
The Appellants in Civil Appeal No. 137 of
1955 are the firm, Ramdas Khimji Brothers, Bombay, registered as a
"dealer" under the Central Provinces and Berar Sales Tax Act., 1947
and carrying on business as cotton dealers in Madhya Pradesh. During the period
1st October, 1950 to 30th September, 1951, the Appellants sold cotton worth Rs.
6,01,949-1-9 to various persons outside Madhya Pradesh. The cotton was
delivered to the buyers for consumption outside Madhya Pradesh as a direct
result of such sales. By his order dated the 29th December, 1952, the Sales Tax
Officer, Amravati, in the assessment of the Appellants for the same period,
included the said transactions in the Appellants' turn-over and assessed sales
tax thereon. The Appellants filed an appeal to Respondent No. I but the same
was dismissed by an order dated the 10th July, 1953. The Appellants filed on
22nd August, 1953, a revision before the Commissioner of Sales Tax, Madhya
Pradesh. The Appellants also filed a petition under Article 226, being Misc.
Petition No. 274 of 1953, in the High Court
of Judicature at 489 Nagpur, asking for a writ of certiorari quashing the order
of Respondent No. I passed by him in Sales Tax Appeal No.
13-A dated the 10th July, 1953, and for
consequential reliefs. The Respondents filed a return denying the contentions
of the Appellants and A asking that the petition be dismissed with costs.
These petitions came up for hearing and final
disposal before the High Court of Judicature at Nagpur along with Misc.
Petitions No. 288 of 1953 and No. 132 of 1954. A considered judgment was
delivered in Miscellaneous Petition No. 132 of 1954 and the reasoning contained
therein governed the decision in the connected Petitions Nos. 265, 274 and 348
of 1953. The High Court held that the Explanation II to section 2(g) of the
Central Provinces and Berar Sales Tax Act, 1947, as amended by the Central
Provinces and Berar Act XVI of 1949 having been declared invalid from its
inception by the High Court in Messrs Shriram Gulabdas v. Board of Revenue
(I.L.R. 1953 Nagpur 332) and by this Court in 1954 S.C.R. 1122, the original
Explanation remained in force until the 1st April, 1951, when it was amended by
the Madhya Pradesh Act IV of 1951. Explanation II originally enacted was in the
terms following:"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".
The Appellants contended that this
Explanation offended article 286(1) (a) read with the Explanation to the same
and the State of Madhya Pradesh was, therefore, not entitled to tax the transactions
of sale in which goods had actually been delivered as a direct result of such
sale for the purpose of consumption outside Madhya Pradesh. The Respondents, on
the other hand, contended that the said Explanation was protected until the
31st March, 1951, by the Sales Tax Continuation Order No. 7 of 1950 issued by
the 490 President on' the 26th January, 1950, under the proviso to article
286(2).
The High Court was of the opinion that the
original Explanation was validly enacted as the assent of the Governor-General
to the enactment was given on the 23rd May, 1,947, and that under that
Explanation the tax prior to the commencement of the Constitution was lawfully
levied on the sales of goods wherever the contracts of sale took place if the
goods were actually in the State at the time the contracts of sale were made.
This power could be exercised by the State even if the sales took place during
the course of inter-State trade or commerce and the goods were delivered as a
direct result of the sales for the purpose of consumption outside the State.
This was because the situs of the goods constituted a sufficient nexus between
the transactions and the taxing State which was the foundation for taxation
prior to the commencement of the Constitution. This position continued until
the commencement of the Constitution and on the 26th January, 1950, the
President issued the Sales Tax Continuation Order No. 7 of 1950 in exercise of
the powers conferred by the proviso to article 286(2). The sales in question
had taken place in the course of inter-State trade or commerce and accordingly
they were covered by article 286(2) and would, therefore, be liable to tax even
after the commencement of the Constitution by virtue of the President's order.
Reliance was further placed on the majority judgment of this Court in The State
of Bombay v. The United Motors (India) Ltd. (1953 S.C.R. 1069) where it was
held that the transaction vis-avis the delivery State lost its inter-State
character if it fell within the Explanation to article 286(1) (a) and was
accordingly made liable to taxation by the delivery State.
So far, however, as the exporting State was
concerned, it retained its character of an inter-State transaction and would
not, therefore, be liable to taxation by that State, vide article 286(2). The
President's order, however, removed this ban and. the exporting State was
entitled to tax the transaction by virtue of the power derived by it from the
same. On a construction of 491 the relevant provisions of article 286(1) and
article 286(2) the High Court was of the opinion that it would be making the
proviso to article 286(2) nugatory if it was held that article 286(1) overrides
it and takes away the taxing power of all States in inter-State trade or
commerce except the delivery State. The High Court accordingly dismissed the
petitions with costs.
The learned Attorney-General appearing for
the Appellants before us contended that so far as the post-Constitution period
is concerned, the position is governed by our judgment in The Bengal Immunity
Co. Ltd. v. The State of Bihar delivered on the 6th September, 1955. He urged
that the bans imposed on the powers of the State Legislatures to levy taxes on
the sale or purchase of goods in the several clauses of article 286 are independent
and separate and that the transactions of sale or purchase referred to in the
various clauses must be looked at from different viewpoints.
Even if a transaction might fall within the
category of inter-State sale or purchase and the President's order under the
proviso to article 286(2) might enable the State to levy any tax on such sale
or purchase which was being lawfully levied by the State immediately before the
commencement of the Constitution, such transaction had also to surmount the ban
imposed under article 286(1) (a) and the Explanation thereto so that, if, as a
direct result of such sale, the goods were actually delivered for the purpose
of consumption in another State, the exporting State ,(to use the phraseology
of the Nagpur High Court) or the title-State (to use the phraseology adopted in
some of the judgments in The Bengal Immunity Co.'s Appeal) would not be
entitled to levy a tax on such sale the transaction being fictionally outside
the State by reason of the Explanation and therefore coming within the ban of
article 286(1)(a).
It was, however, urged on behalf of the State
of Madhya Pradesh that the President's order not only saved the transactions
from the ban of article 286(2) but also from the ban of article 286 (1) (a),
because the transactions covered by the Explanation to article 492 286(1)(a)
were of the same category as transactions covered by article 286(2) and were
all in the course of inter-State trade or commerce. It was further urged that
if the transactions covered by the Explanation to article 286 (1) (a) were not
saved from the ban by the President's order, the whole intention of the
Constitution-makers in maintaining the status quo qua the taxes on sales or
purchases of goods which were being lawfully levied by the State immediately
before the commencement of the Constitution would be frustrated, because the
transactions covered by the Explanation to article 286(1) (a) being necessarily
in the course of inter-State trade or commerce the President's order would be
rendered nugatory and the exporting State or the title State would' be
restrained from levying tax on such transactions in spite of the ban having
been lifted by the President's order.
We are unable to accept this contention. As
held by the majority Judges in The Bengal Immunity Co.'s Appeal, the bans
imposed by article 286 on the taxing powers of the States are independent and
separate and each one of them has to be got over before a State Legislature can
impose tax on transactions of sale or purchase of goods. These bans have been
imposed from different view-points, and, even though the transactions of sale
or purchase may in conceivable cases overlap so far as these different
viewpoints are concerned, each of those bans is operative and has to be
enforced. So far as article 286(1) (a) is concerned, the Explanation determines
by the legal fiction created therein the situs of the sale in the case of
transactions coming within that category and when a transaction is thus
determined to be inside a particular State it necessarily becomes a transaction
outside all other States. The only relevant enquiry for the purposes of article
286(1) (a), therefore, is whether a transaction is outside the State and once
it is determined by the application of the Explanation that it is outside the
State it follows as a matter of course that the State with reference to which
the transaction can thus be predicated to be outside it can never 493 tax the
transaction. This ban is effective independently of the fact that the,
transaction may also have taken place in the course of inter-State trade or
commerce or with reference to goods as have been declared by Parliament by law
to be essential for the life of the community. The ban imposed under article
286(2) is an independent and separate one and looks at the transactions
entirely from the point of view of their having taken place in the course of
inter State trade or commerce. Even if such transactions may also fall within
the category of transactions covered by article 286 (1)(a) and the Explanation
thereto or article 286(3), the moment article 286(2) is attracted by reason of
the transactions being in the course of inter State trade or commerce, the ban
under article 286 (2) operates and such transactions can never be subjected to
tax at the instance of a State Legislature except in so far as Parliament by
law may otherwise provide or such power of taxation is saved by the President's
order contemplated in the proviso. The ban under article 286(2) may be saved by
the President's order but that does not affect or lift the ban under article
286 (1 (a) read with the Explanation.
Apart from the construction thus, put upon
the several clauses of article 286 by the majority of the Judges in The Bengal
Immunity Co.'s Appeal as above, the terms of the proviso itself make it
abundantly clear that the proviso is meant only to lift the ban under article
286 (2) and no other. It is a cardinal rule of interpretation that a proviso to
a particular provision of a statute only embraces the field which is covered by
the main -provision. It carves out an exception to the main provision to which
it has been enacted as' a proviso and to no other. Even if the non' obstante
clause: "Notwithstanding that the imposition of such tax is contrary to
the provisions of this clause":
had not been enacted in the proviso, the
proviso could only have been construed as operating upon the field enacted in
article 286(2) and could not be extended to any of the other provisions of
article 286. The non-obstante clause, however, makes it abundantly and further
clear and states in 494 explicit terms that it is enacted only with reference
to "this clause", i.e., article 286(2). The President's order may
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 was to continue to be levied until 31st March, 1951, but the
effect of that order was to raise the ban in so far as it was imposed by the
provisions of "this clause".
The President's order therefore, only lifted
the ban in so far as the transactions took place in the course of interstate
trade or commerce and could not be projected into the sphere of any other
clause of article 286. It bad, therefore' not the effect of lifting the ban
which was imposed by article 286(1)(a) and the Explanation thereto, even though
the transactions covered by the Explanation to article 286(1) (a) by and large
fell within the category of transactions which took place in the course of
inter-State trade or commerce. The ban imposed by article 286(1) (a) was
independent and separate and could not be lifted by the President's order which
had operation only in regard to the interState -character of the transactions.
The moment it was determined that the transactions were outside the State by
virtue of the Explanation to article 286(1)(a) the ban imposed by article
286(1)(a) attached to the same and could not be lifted by the President's order
which operated only on the interState character of the transactions and saved
only those inter-State transactions which did not come within the Explanation.
If the contention urged on behalf of the
State of Madhya Pradesh is accepted it would mean that we should re-write, or
amend the proviso to article 286(2) in, order to effectuate the supposed
intention of the Constitution makers. The supposed intention of the
Constitution-makers was alleged to be to preserve to the States all the taxes
on sale or purchase of goods which were being lawfully levied by them
immediately before the commencement of the Constitution by having resort to the
territorial connection or nexus theory. We have no evidence before us of this
495 supposed intention of the Constitution-makers, Whatever their intention was
can only be gathered from the language which they have used and where the
language is plain there is no scope whatever for speculation in that behalf
When the Constitution-, makers themselves used the words "Notwithstanding
that the imposition of such a tax is contrary to the provisions Of this
clause" it would not be legitimate for us to go behind the plain words and
try to read into the proviso something which would involve either a deletion of
the non-obstante clause 'or a re-writing thereof as suggested. Whatever be the
effect of our judgment on the treasuries of the exporting or title States we
cannot assist them by reading something into the proviso which is not warranted
by any canon of construction. The proviso has reference only to article 286(2)
and cannot be projected into any other clause of article 286.
The untenability of the contentions of the
Respondents will be clear from the following illustration Suppose the goods are
in the State of Madhya Pradesh at the time the contracts of sale of those goods
are made in, say, the State of Bombay. Suppose further that the property in the
goods has by reason of such sales passed in the State of Bombay but the goods
as a direct result of such sales have been delivered for consumption in the
State of Madras. According to the Respondents, the President's order made under
the proviso to article 286(2) saves the transactions from the ban of article
286 (1) (a) read with the Explanation. Then the State of Madras will be able to
tax by virtue of article 286(1) (a) read with the Explanation or on the nexus
theory by reason of the goods being delivered there for consumption; the State
of Bombay will be able to tax because the title to the goods passed there; and
the State of Madhya Pradesh will also be able to tax under the Explanation 11
to section 2(g) of the Act because the goods were in the State of Madhya
Pradesh at the time when the contracts of sale were made in the State of
Bombay. Nobody will say that the Constitution makers intended to perpetuate
multiple taxation of 63 496 this kind and yet that will be the result if we
were to accede to the arguments advanced by the Respondents.
The result, therefore, is that so far as the
post-Constitution period is concerned the ban which is imposed by article 286
(1) (a) and the Explanation thereto cannot be removed by the President's order
which was issued under the proviso to article 286(2) and the High Court was in
error when it construed the proviso to article 286(2) as projecting into the
field of article 286 (1) (a) and lifting the ban imposed therein.
On the above reasoning, Civil Appeal No. 137
of 1955 filed by the firm of Ramdas Khimji Brothers, Bombay, which relates only
to the post-Constitution period will be allowed and the order of assessment
dated the 29th December, 1952, will be, set aside. The Respondents will pay the
costs of the Appellants here as well as in the Court below.
As regards Civil Appeals Nos. 132 of 1955,and
133 of 1955, however, the assessments therein relate not only to the
post-Constitution period but also the pre Constitution period to which
different considerations would apply. The validity of the assessment in regard
to the same would have to be canvassed having regard to the various contentions
of law and fact which could be urged against the same by the Appellants. There
are two outstanding questions which have been mooted before us by the learned
Attorney General in regard to this period, viz., (1) a question of fact, as to
whether the Appellants were agents of the various mills in regard to the
transactions which were the subject-matter of the assessment, and (2) a
question of law, whether the law under which the tax was levied, viz.,
Explanation II to section2(g) of the Act was validly,, enacted. Both these
contentions, though they are also relevant to the post Constitution period were
not specifically pressed before us because the argument based on the proviso to
article 286 (2) was considered sufficient to set aside the assessment for that
period. They would, however, appropriately arise and be urged by the appellants
when the liability to assessment for the pre-Constitution 497 period is to be
determined and if we were to determine that liability we would have to deal
with the same. The necessity for doing so is, however, obviated by reason of
the fact that the assessment is one composite whole relating to the
pre-Constitution as well as the post-Constitution periods and is invalid in to.
There is authority for the proposition that when an assessment consists of a
single undivided sum in respect of the totality of the property treated as
assessable, the wrongful inclusion in it of certain items of property which by
virtue of a provision of law were expressly exempted from taxation renders the
assessment. invalid in to. '.The Privy Council have observed in Bennett &
White (Calgary) Ld. And Municipal District of Sugar City No. 5 (1951 Appeal
Cases, 786 at page 816):-"When an assessment is not for an entire sum, but
for separate sums, dissected and earmarked each of them to a separate
assessable item, a court can sever the items and cut out one or more along with
the sum attributed to it, while affirming the residue. But where the assessment
consists of a single undivided sum in respect of the totality of property
treated as assessable, and when one component (not dismissible as "de
minimis") is on any view not assessable and wrongly included, it would
seem clear that such a procedure is barred, and -(,he assessment is bad wholly.
That matter is covered by authority. in Montreal Light, Heat & Power
Consolidated V. City of Westmount ( (1926) S.C.R. (Can.) 515) the court (see
especially per Anglin, C.J.) in these conditions held that an assessment which
was bad in part was infected throughout, and treated it as invalid. Here their
Lordships are of opinion, by parity of reasoning, that the assessment was
invalid in to".
It was, therefore, urged that on the facts of
this case the assessment was invalid in to and that it should be set aside. The
learned Deputy Advocate-General of Madhya Pradesh did not seriously contest
this position and the result, therefore, is that the order of assessment dated
the 30th June, 1953, in Civil Appeal No. 132 of 1955 and the order of
assessment dated the 498 9th September, 1953, in Civil Appeal No. 133 of 1955
are liable to be set aside. The appeals will therefore be allowed, the orders
of assessment will be set aside and the matters will go back to the Assessment
Officer for reassessment of the Appellants in accordance with law. The
Appellants will be at liberty to urge before the Assessment Officer
the-contentions -of law and fact available to them in the fresh assessment
proceedings including those adverted to above. The Respondents will pay the
costs of these Appellants here as well as in the Court below.
Petition No. 567 of 1954.
BHAGWATI J.-This petition under article 32 of
the Constitution also involves the interpretation of the proviso to article
286(2) and raises the same question as to the meaning, scope and operation of
the proviso as was raised in the Civil Appeals Nos. 132, 133 and 137 of 1955
just disposed of The facts giving rise to this Petition may be shortly stated.
The petitioners are a partnership firm carrying on business of manufacturing
bidis at Jabalpur and registered as a "dealer" under the Central
Provinces and Berar Sales Tax Act, 1947. The petitioners had their branches at
Lucknow, Kanpur, Faizabad, Agra, Bombay and Bhopal. They had also their selling
agents at various places in Uttar Pradesh and elsewhere outside the Stae of Madhya
Pradesh.
They also entered into transactions direct
with merchants in Uttar Pradesh. The transactions in. question which were the
subject-matter of assessment at the instance of the Sales Tax authorities were
for the period of assessment 21st October, 1949 to 9th November, 1950., and
spread over two periods, viz., (1) the period between 21st October, 1949 to
25th January, 1950, which may be called the pre-Constitution period, and (2)
the period subsequent to the inauguration of the Constitution on the 26th
January, 1950, up to the 9th November., 1950, which may be called the post Constitution
period. The petitioners' gross turn-over was determined to be Rs. 49,40,140-6-9
and the 499 amount of Sales Tax assessed on the transactions was Rs. 1,51,291-13-0
as per the order of the Deputy Commissioner, Sales Tax, Madhya Pradesh,
Respondent No. 3, dated the 14th July, 1954, in Sales Tax Appeal No. 6/A-1.6.54.
The petitioners preferred a second appeal to the Respondent No. 2 against the
said order. The Respondent No. 2, however, refused to admit or register the
appeal unless the amount of tax assessed was paid up. The petitioners paid
about Rs. 91,000/towards the amount of tax assessed but finding it difficult to
pay the balance filed this Petition against the State of Madhya Pradesh,
Respondent No, 1, the Commissioner of Sales Tax, Madhya Pradesh, Respondent No.
2, and the Deputy Commissioner of Sales Tax, Madhya Pradesh, Respondent No. 3,
for a writ of certiorari quashing the said order dated the 14th July, 1954,
made by Respondent No. 3 and for consequential reliefs. The Respondents filed a
return denying the contentions of the petitioners and maintaining that the
Sales Tax was lawfully assessed by them against the petitioners.
The position as regards the petitioners'
turn-over for the period of assessment was as stated below:Nature of the
Parties. Sales Prices of goods. Rs. (a) Direct to selling agents on
orders................... 6,15,2363-0 (b) Direct to merchants on orders.
3,99,4502-0 (c) Direct to destinations other than branches or depots but
accounted for against branchesand depots. 6,20,996-14-0 (d) Direct to Stations
or destinations having branches or depots owned by the proprietors of this
registered firm-Kanpur, Bombay, Lucknow and Faizabad..............
31,06,739-13-0 500 The Sales Tax authorities treated all these transactions as
transactions of sale coming within the definition contained in Explanation II
to section 2(g) of the Act and assessed the petitioners to sales tax in respect
of the same, negativing the contentions of the petitioners that they were in
any event sales effected by them outside the State of Madhya Pradesh and that
the State of Madhya Pradesh was, therefore, not entitled to impose a tax on
those transactions by virtue of the provisions of article 286(1) (a) and the
Explanation thereto.
The learned Attorney-General who appeared for
the petitioners contended that the bidis manufactured by the petitioners were
all actually delivered as a direct result of the transactions of sale for the
purpose of consumption in the State of Uttar Pradesh and that after the
inauguration of the Constitution on the 26th January, 1950, it was only the
State of Uttar Pradesh which was the delivery State that alone had the right to
impose the tax on these transactions notwithstanding the fact that under the
general law relating to the sale of goods the property in the goods might have
passed in the State of Madhya Pradesh.
He, therefore, urged that these transactions
were sales outside the State of Madhya Pradesh and that the State of Madhya
Pradesh was not entitled to impose a tax on such sales.
The learned Advocate-General of Madhya
Pradesh on the other hand contended that these were purely intra-state
transactions entered into by the petitioners within the State of Madhya Pradesh
and that the Explanation to article 286(1)(a) did not come into play at all
because the goods were not actually delivered as a direct result of such sales
for the purpose of consumption in the State of Uttar Pradesh. He, therefore,
maintained that even for the post Constitution period there was no ban on the
State of Madhya Pradesh imposing the sales tax on what were purely "inside
sales".
It is necessary in view of these rival
contentions to ascertain the true nature of the transactions in question.
In paragraph 15 of the Petition,, the
petitioners 501 had averred that the bidis manufactured by the firm were all
delivered in the State of Uttar Pradesh for consumption in that State and that
after the 26th January, 1950, the delivery State, viz., the State of Uttar
Pradesh, had alone the right to impose tax on the sales of the commodity. They
had further submitted that the State of Madhya Pradesh where the bidis were
manufactured and from where they were sent could not any more exercise its
right to levy a tax on such transactions of sale taking place elsewhere by
reason of the inhibition contained in article 286. In the return filed by the
Respondents, they did not deny the allegation made by the petitioners in their
Petition that the bidis manufactured by the firm were all delivered,-in the
State of 'Uttar Pradesh for consumption in that State. In substance, they
contended that in spite of the State of Uttar Pradesh being the delivery State
within the meaning of the Explanation to article 286 (1) (a), the liability of
these transactions to sales tax at the instance of the State of Madhya Pradesh
was saved by the President's order made under the proviso to article 286(2) and
that the imposition of such tax at the instance of the State of Madhya Pradesh
was lawful and did not contravene the provisions of article 286(1)(a) read with
the Explanation thereto.
Both the order which was made by the
Assistant Commissioner of Sales Tax, Jabalpur, in the original assessment case
No. 16 of 1950-51, dated the 7th August, 1953, and the order which was made in
Sales Tax Appeal No.
6/A-1.6.54 by the Deputy Commissioner of
Sales Tax, Madhya Pradesh, Respondent No. 3, dated the 14th July, 1954,
proceeded on the basis that even though the transactions in question were
transactions of sale where the goods had actually been delivered as a direct
result of such sales for the purpose of consumption in the State of Uttar
Pradesh, the President's order made under the proviso to article 286 (2) saved
the transactions also from the ban of article 286(1) (a) and the Explanation
thereto and that the State of Madhya Pradesh was, therefore, entitled to impose
a tax on the same. It was never.
502 contended before either of them that the
sales were purely "inside sales" and that the Explanation to article
286(1)(a) did not come into play at all under the circumstances of the case.
The facts as found by the Sales Tax authorities also emphasized that these
transactions fell within the definition of sale contained in the Explanation 11
to section 2(g) of the Act and that so far as the post Constitution period was
concerned they were saved from the ban of article 286 (1) (a) and the
Explanation thereto by the President's order made under the proviso to article
286(2). It was, however, urged by the learned Advocate General of Madhya
Pradesh that the transactions were pure "inside sales" entered into
by the petitioners in Madhya Pradesh on orders received by them from outside
the State.
These orders were accepted by the petitioners
in the State of Madhya Pradesh and goods were appropriated to the contracts and
the property in the goods passed within the State of Madhya Pradesh and that,
therefore, they were pure intra State sales or "inside sales" which
it was within the competence of the State of Madhya Pradesh to tax.
This contention of the learned
Advocate-General of Madhya Pradesh is untenable. So far as direct supplies to
selling agents on orders and direct supplies to merchants on orders covered by
items (a) and (b) above are concerned, it was found that these supplies were
made to the merchants buying the goods on commission basis or profit on their
previous orders, instructions or indents which were either in printed forms or
in ordinary letters and the sale prices were realised by sending bills and
railway receipts through some scheduled banks. The very fact that the bills and
the railway receipts were sent through the scheduled banks went to show that
the petitioners reserved the right of disposal of goods covered by those
railway receipts and the property in the goods passed in the State of Uttar
Pradesh only after the relative bills were either accepted or honoured by the
purchasers and the railway receipts delivered by the scheduled banks to them. It
is clear, therefore, that 503 in those cases the sales were completed in the
State of Uttar Pradesh and were not intra-State sales or "inside
sales" qua the State of Madhya Pradesh. As regards the direct supplies to
destinations other than branches or depots but accounted for against the
branches or depots being item (c) above, it was found that the petitioners
despatched the goods and billed them to depot managers who were responsible for
the collection of the orders and then the railway receipts and bills were sent
there. The managers prepared other bills adding incidental or other charges and
delivered the railway receipts to the customers to whom the goods were sent
from the State of Madhya Pradesh. Here also the despatches of the goods were
made from the State of Madhya Pradesh by the petitioners to their depot
managers and it was the depot managers who in their turn prepared and submitted
their own bills and handed over the railway receipts to the respective
customers appropriating the goods themselves to the contracts of sale which had
been entered into by them with the latter and completing the sales in the State
of Uttar Pradesh. These transactions also were, therefore, sales effected in
the State of Uttar Pradesh and did not fall within the category of intra-state
sales or "inside sales" qua the State of Madhya Pradesh.
The direct supplies to Stations or
destinations having branches or depots owned by the proprietors of the firm,
Kanpur, Bombay, Lucknow and Faizabad being item (d) above, also were outside
sales qua the State of Madhya Pradesh inasmuch as the branch managers asked the
petitioners to send stocks of goods to execute the orders which they had
obtained from the customers to make their own supplies to them. As a matter of
fact it was found that several consolidated indents were placed by the depot
managers with the petitioners in respect of the previous orders which had been
collected by them and the petitioners supplied the goods to the depots or
branches in pursuance of such indents. If this was the true position qua these
supplies, these sales also were completed in 64 504 the State of Uttar Pradesh
by the depots or branches supplying the goods in their turn to several
customers.
There could be no sales as such between the
petitioners on the one hand and their depots or branches on the other hand and
the State of Madhya Pradesh could certainly not be at all in a position to tax
the same.
The whole theory, therefore, of "inside
sales" falls to the ground and the only thing which we are left with
is-that these transactions were inter-State transactions in which as a direct
result of such sales the goods were actually delivered for the purpose of
consumption in the State of Uttar Pradesh. The Explanation to article 286(1)(a)
determined the State of Uttar Pradesh to be the State in which the sales took
place and which alone was entitled to tax these transactions, the State of
Madhya Pradesh becoming an "outside" State for the purpose.
Apart from the ban imposed on the State of
Madhya Pradesh under article 286(1) (a) and the Explanation thereto, these
transactions were also in the course of inter-State trade or commerce and were
hit by the ban of article 286(2). The President's order no doubt lifted that
ban but was not competent to lift the ban under article 286 (1) (a) and the
Explanation thereto with the result that in spite of that order the State of
Madhya Pradesh was not in a position to impose a tax on these transactions
during the post-Constitution period.
The assessment of these transactions to tax
for the post Constitution period, therefore, is invalid and cannot be
sustained. The assessment, moreover, is a composite one covering the
pre-Constitution period as well. The case, therefore, falls within our judgment
in Civil Appeals Nos.
132, 133 and 137 of 1955 just delivered, and
following the reasoning contained therein, we are of the opinion that the order
dated the 14th July, 1954, made by the Deputy Commissioner, Sales Tax, Madhya
Pradesh, Respondent No. 3, in Sales Tax Appeal No. 6/A1.6.54 should be set
aside.
We accordingly allow the Petition, set aside
the 505 said order dated the 14th July, 1954, and the matter will go back to
the Assessment Officer for re-assessment of the petitioners in accordance with
law. The petitioners will be at liberty to urge before the Assessment Officer
the contentions of law and fact available to them in the fresh assessment
proceedings. The Respondents will pay the costs of the petition.
JAGANNADHADAS J.-I regret I feel constrained
to differ from the view taken by my learned brothers as regards the
construction of proviso to article 286(2) and the effect of the Presidential
order issued there, under.
There is no dispute that the proviso has to
be construed as part of article 286(2). It is meant to empower the President to
keep the ban arising there under in temporary abeyance so that the States may
continue to levy taxes on sales by virtue of their pre Constitution sales-tax
laws (if then lawful) for a limited period. It is urged, however, that the
proviso (meaning thereby also the Presidential order there under) is effective
to lift only the ban under article 286(2) and that the ban under article
286(1)(a) is operative nonetheless. Now, it may be correct to say that these
two bans are imposed from different angles and are in that sense independent.
But there can be no doubt that they are substantially overlapping in operation.
A transaction which brings about an outside sale is also an inter-State
transaction (barring, if at all, a few ingeniously conceived and illustrated
cases). The effect of each of the bans under article 286 is to demarcate the
fields within which the taxing power of the States on sales cannot operate. If,
as I conceive, the two bans under articles 286(1) (a) and 286(2), are overlapping,
the fact that they are imposed from different angles cannot obscure the result,
viz., that they bring about the demarcation of the same-or substantially the
same-field of no taxation. It appears to me that it is in this light that the
proviso and the Presidential order issued there under have to be construed.
Now, the proviso (with the Presidential order) declares the field covered by
sales in the course 506 of inter-State trade and commerce as taxable for a
limited period by stating positively and emphatically 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
continue to be levied until the 31st day of March, 1951". There is no
doubt the non-obstante clause which will be dealt with presently, and which
only emphasises the fact that this is a proviso to article 286(2). But there is
no mistaking the positive and mandatory terms of the proviso. The effect of
this is clearly and unequivocally to make the whole field of inter-State trade
and commerce temporarily taxable in respect of the sales which take place in
the course thereof.
-If this be so, it appears to me to be
implicit therein that no other ban on such taxation can operate, for the time
being, within that very field. To construe the two bans as independently and
cumulatively operative is to impute to them some kind of Picturesque potency
and is to miss the reality, viz., that all the bans under article 286 are meant
to serve the same purpose, viz., that of imposing restrictions and thereby
demarcating the fields of no taxation. The bans and the proviso are parts of
the same article and have to be harmoniously construed. The unequivocal and
positive language of one part, cannot be taken to have been obliterated by the
negative language of the other part so as to result in futility.
A similar situation as that contemplated by
the proviso would also arise with reference to the saving clause in article
286(2). If the proviso is to be construed in the way suggested by the learned
Attorney General, it would seem to follow that when and as the Parliament lifts
the ban under article 286(2), the lifting of that ban would equally become
futile by virtue of article 286(1)(a). The Parliament has not in terms Veen
given the power to lift the latter ban. This, therefore, will lead to the
extraordinary result that though the Constitution has in terms provided that
the ban on taxation of sales in the course of inter State trade and commerce can
be lifted, by the Parliament generally, and by the President for a 507 limited
period, the exercise of both these powers would become ineffective and
still-born by virtue of article 286(1)(a). It appears to me unreasonable to
impute any such intention as inevitably arising from the language used. It
appears to me, with great respect, that, whether it is by parliamentary
legislation or by the Presidential action that the ban on taxing sales in the
course of inter-State trade and commerce is lifted, the principle of harmonious
construction of article 286 taken as an integral whole, requires that the
lifting of the ban is to be construed as laying open for taxation the entire
field covered by article 286(2) and to carry with it the implication that no
other overlapping ban will be operative. No doubt, it has been suggested that
so far as lifting of the ban under article 286(2) by the Parliament is
concerned, the same would be at least partly operative by virtue of article
286(1) (a) taken with the Explanation under which the consumption-delivery
State may well be free to tax. This was the view expressed by the learned
dissenting Judge in the case in The State of Bombay v. The United Motors
(India) Ltd.(1). But the majority in the recent decision in the Bengal Immunity
Co. Ltd. v. State of Bihar(2) including the said learned Judge, have left that
question open. It is problematical whether having regard to the inevitable
extra-territorial operation of the levy of such a tax and the consequent
harassment to the business community which looms large, the Explanation will
receive that construction again and not receive the strict construction
preferred in the dissenting judgment in the case in State of Travancore-Cochin
v. Shanmugha Vilas Cashew Nut Factory(3). The result, therefore, of construing
the proviso and by parity of reasoning the saving clause, as merely removing
the ban of a particular nature leaving another overlapping ban to operate,
would be to render both the saving clause in, and the proviso to, article
286(2) virtually nugatory.
(1) [1953] S.C.R. 1069.
(2) Supreme Court Judgment in Civil Appeal
No. 159 of 1958, (3) [1954] S.C.R. 53.
508 The argument based on the non-obstante
clause in the proviso, viz. "Notwithstanding that the imposition of such tax
is contrary to the provisions of this clause" remains to be considered. It
is urged that this clause clearly indicates the intention that the operation of
the proviso is to be confined to the sole purpose of lifting the ban arising
under article 286(2). With respect, I am unable to agree. The non-obstante
clause undoubtedly affirms the fact that the 'proviso is operative in respect
of article 286(2).
But it does not purport to limit the effect
of the proviso, which a reasonable construction thereof may justify. A non obstante
clause does not normally add to or subtract from the main provision of which it
is a part. It is often enough inserted by way of extra caution. But it does not
have the effect of limiting the operation of the main provision. (See Aswini
Kumar Ghosh v. Arabinda Bose(1) and The Dominion of India v. Shrinbai A.
Irani(2)). The suggestion that the Presidential action lifts the ban only as
regards the inter-State sales would be to read the phrase "notwithstanding
that" as meaning "in so far as". I can see no warrant for any
such reading.
In my view, therefore, the pre-Constitution
sales tax laws, if then lawful, are not hit by article 286(1) (a)-at least to
the extent that the ban under article 286(1) (a) overlaps with that under
article 286(2). 'In this 'view, the orders of assessment in these cases cannot
be set aside and the validity of the relevant pre Constitution laws will have
to be considered and the further facts gone into.
But it is now not necessary to do so in these
cases in the view taken by my learned brothers and the order proposed by them
will govern these cases.
(1) [1958] S.C.R. 1, 21 and 24.
(2) [1955] 1 S.C.R. 206, 213.
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