M.P. V. Sundararamier & Co. Vs.
The State of Andhra Pradesh & ANR [1958] INSC 19 (11 March 1958)
AIYYAR, T.L. VENKATARAMA BOSE, VIVIAN DAS,
SUDHI RANJAN (CJ) DAS, S.K.
SARKAR, A.K.
CITATION: 1958 AIR 468 1958 SCR 1422
ACT:
Sales Tax-Inter-State sales--Sale outside
State but goods delivered for consumption within StateCompetence of States to
levy tax-Conditional legislation--Power of Parliament to authorise such
taxation-President's Adaptation Order-Scope of--Nature of Retrospective
operation-Enactment unconstitutional in Part-Effect -Madras General Sales Tax
Act, 1939 (Mad. 9 of 1939), as adapted to Andhra, SS. 2(h), 22-Sales Tax Laws
Validation Act, 1956 (7 of 1956), S. 2Constitution of India, Arts. 246, 286,
301, 372, Sch. VIl, List 1, Entry 42, List 11, Entry 54.
HEADNOTE:
The petitioners were dealers carrying on
business in the City of Madras in the sale and purchase of yarn. The dealers in
the State of Andhra used to place orders for the purchase of yarn with the
petitioners in Madras, where the contracts were concluded and the goods were
delivered exgodown at Madras and thereafter despatched to the purchasers who
would take delivery of them within their State. The present dispute related to
sales in which property in the goods sold passed outside the State of 1423
Andhra, but the goods themselves were actually delivered as a result of the
sale for consumption within that State.
After the coming into force of the
Constitution of India the President in the exercise of the powers conferred by
Art. 372(2) made Adaptation Orders with reference to the Sales Tax Laws of all
the States, and as regards the Madras General Sales Tax Act, 1939, he issued an
Amendment inserting a new section, S. 22 in that Act, which was a verbatim
reproduction of the Explanation to Art. 286 (i)(a) of the Constitution. Oil
July 13, 1954, the Board of Revenue (Commercial Taxes) in the State of Andhra,
acting on the decision in The State of Bombay and another v. The United Motors
(India) Ltd., and others, [1953] S.C.R. 1069, called upon dealers in the State
of Madras to submit returns of their turnover of sales in which goods were
delivered in the State of Andhra for consumption. Thereupon they filed the
present petitions under Art. 32 Of the Constitution challenging the demand on
the grounds, inter alia, that the sales proposed to be taxed were inter-State
sales and that they were immune from taxation under Art. 286(2) Of the
Constitution. While the petitions were pending the Supreme Court pronounced on
September 6, 1955, its judgment in The Be gal Immunity Company Limited v. The
State of Bihar and others, [1055] 2 S.C.R. 603, according to which the
petitioners were not liable to be taxed. But before final orders were passed on
the petitions Parliament passed Sales Tax Laws Validation Act, 1956, S. 2
whereof provided that no law of a State imposing or authorising the imposition
of tax on inter-State sales during the period between April 1, 1951, and
September 6, 1955, shall be deemed to be invalid or ever to have been invalid
merely by reason of the fact that the sales took place in the course of the
inter-State trade.
That section further provided that taxes
levied or collected on such sales during the aforesaid period shall be deemed
to have been validly levied or collected. It was the contention of the State of
Andhra that by reason of the aforesaid provision it had the right to impose tax
on inter State sales during the aforesaid period. On the other hand the
petitioners contended, inter alia, that (I) S. 22 Of the Madras General Sales
Tax Laws Validation Act, 1956, which gave validity to laws which imposed a tax,
did not authorise the imposition, (2) the Sales Tax Laws Validation Act was
ultra vires Art. 286(2), (3) S. 22 of the Madras Act was not a "law of a
State" within Art. 286(2) and S. 2 of the impugned Act, (4) the impugned
Act only validated levies already made and did not authorise the initiation of
fresh proceedings for imposing tax, (5) S. 22 having been unconstitutional when
it was enacted and therefore void, no proceedings could be taken there under on
the basis of the Validation Act, as the effect of unconstitutionality of the
law was to efface it out of the statute book, and (6) the proposed levy was bad
as infringing the Rule which provided that the sale of yarn could be taxed only
at one point. It was also contended that under the Constitution it was only the
Parliament that has the competence to impose tax on inter-State sales and that
the Sales Tax Laws Validation Act 1424 was bad in that it gave validity, to the
laws of the State to impose the tax :
Held (Sarkar J. dissenting), that S. 22 of
the Madras General Sales Tax Act, 1939, did in fact impose a tax on the class
of sales covered by the Explanation to Art. 286(1)(a) but that it was
conditional on the ban enacted on Art.
286(2) being lifted by law of Parliament as
provided therein, and that it was therefore validated by S. 2 of the Sales Tax
Laws Validation Act, 1956.
The construction put upon the Explanation to
Art. 286(1)(a) of the Constitution in The Bengal Immunity Company case that it
merely prohibited the outside States from imposing a tax on the class of sales
falling within the Explanation and did not confer on the delivery State any
power to impose a tax on such sales has no application to a taxing statute of a
State the object of which was primarily to confer power on the State to levy
and collect tax.
Section 22 and S. 2(h) of the Madras General
Sales Tax Act must be read together as' defining the sales which are taxable
under the Act.
Mettur Industries Ltd. v. State of Madras,
A.I.R. 1957 Mad.
362, The Mysore Spinning and Manufacturing
Co. Ltd. v. Deputy Commercial Tax Officer, Madras, A.I.R. 1957 Mad. 368 and
Dial Das v. P. S. Talwalkay, A.I.R. 1957 Bom. 71, approved.
Mathew v. Travancore-Cochin Board of Revenue,
A.I.R. 1957 T.
C. 300, Cochin Coal Co. Ltd. v. The State of
Travancore Cochin, (1956) 7 Sales Tax Cases 731 and The Government of Andhra v.
Nooney Govindarajulu, (1957) 8 Sales Tax Cases 297, disapproved.
Queen v. Burah, (1878) 5 I.A. 178 and In Ye
The Delhi Laws Act, 1912, etc. [1951] S.C.R. 747, relied on :
Held (Per S. R. Das, C. J., Venkatarama
Aiyar, S. K. Das and Vivian Bose, JJ.) that (i) the Sales Tax Laws Validation
Act, 1956, is in substance one lifting the ban on taxation of interState sales
and is within the authority conferred on Parliament tinder Art. 2 6(2) and
further that under that provision it was competent to Parliament to enact a law
with retrospective operation.
Punjab Province v. Daulat Singh, (1946) L.R.
73 I.A. 59, distinguished.
The United Province v. Atiqa Bcgum, [1940]
F.C.R. 110, (2) the Adaptation Order made by the President under Art.
372(2) is valid and is not open to attack on
the ground that it goes beyond the limits contemplated by that Article.
(3)the expression " law of a State
" in Art. 286(2) and S. 2 of the Sales Tax Laws Validation Act means
whatever operates as law in the State, and that S. 22 of the Madras General
Sales Tax Act is a law within those enactments.
1425 (4) s. 2 of the Sales Tax Laws
Validation Act validates not only the levies already collected but also
authorises the imposition of tax on sales falling within the Explanation which
had taken place during the period specified in S. 2.
The Act is not a temporary Act though its
operation is limited to sales taking place within a specified period.
Dial Das v. P. S. Talwalkay, A.I.R. 1937 Bom.
71, in so far as it held that it was not competent to the State to start fresh
proceedings for assessment, disapproved.
(5) though S. 22 of the Madras General Sales
Tax Act was unconstitutional when enacted the effect of the unconstitutionality
was not to efface it out of the statute book.
Unconstitutionality might arise either
because the law is in respect of a matter not within the competence of the
legislature or because the matter itself being within the competence, its
provisions offend some constitutional restrictions. Which a law which is not
within the competence of the legislature is a nullity a law on a topic within
its competence but repugnant to any constitutional prohibition is only
unenforceable. In the latter class of legislation when once the constitutional
prohibition is removed the law becomes enforceable without re-enactment.
Where an enactment is unconstitutional in
part but valid as to the rest, assuming that the two portions are severable, it
cannot be held to have been wiped out of the statute book, as admittedly it
must remain there for the purpose of enforcement of the valid portion. Moreover
in the view that the impugned law is conditional legislation it cannot be held
to have become non est.
Behram Khurshed Pesikaka v. The State of
Bombay, [1955] I S.C.R. 6I3 and A. V. Fernandez v. State of Kerala, [1957]
S.C.R. 837, distinguished.
Bhikaji Narayan Dhakras and others v. The
State of Madhya Pradesh and a other, [1955] 2 S.C.R. 589, relied on.
(6) under Entry 42 in List 1, Sch. VII of the
Constitution, legislation with respect to inter-State trade and commerce is
exclusively within the competence of Parliament. Under Entry 54, List 11, taxes
on sale of goods is within the exclusive competence of the State Legislature,
and reading the two Entries together Entry 42 must be construed as excluding
the power to tax sale of goods. The scheme of the Entries in the Lists is that
taxation is regarded as a distinct matter and is separately set out.
Entry 42, List 1, must therefore be construed
as not including the power to impose tax on inter-State sales.
(7) the proposed imposition does not infringe
the rule that the sales of yarns should be subject to taxation at a single
point because the proposed levy is by the State of Andhra and the rule in
question prohibits only multiple taxation in the same State.
Per Sarkar J.-The Sales Tax Act does not
authorise the taxation of a sale under which goods are delivered in the State
of 1426 Andhra but the property in them passes outside that State.
The Explanation in S. 22 of the Act only
contemplates a State other than Andhra as the State inside which a sale shall
be deemed to have taken place. The words " for the purposes of clause
(a)(i) " have the same meaning in the Explanation in Art. 286(1) as in the
Explanation in S. 22 of the Act, and the present case is not distinguishable
from the decision in The Bengal Immunity Company Limited v. The State of Bihar
and others, [1955] 2 S.C.R. 603.
ORIGINAL JURISDICTION: Petitions Nos. 220,
222, 240 and 380 to 395 of 1955.
Petitions under Article 32 of the
Constitution of India for the enforcement of Fundamental Rights.
1957. Dec. 10, 11, 12, 13, 17, 18, 19. 1958.
Jan. 7, 8, 9.
D. Narsa Raju, Advocate-General for the State
of Andhra Pradesh and T. M. Sen, for the respondent. The petitions are
premature and incompetent as the facts of each transaction of sale are yet to
be investigated and it is not possible to know the character of each sale, nor
can it be determined which sales can be and which cannot be taxed by Andhra
Pradesh.
[CHIEF JUSTICE. You should be reasonably
satisfied that the sales are of such a nature that you can levy tax on them
before you issue a notice.
BOSE J. You must state the facts on which you
think you can tax the sales.] S. K. DAS J. Your stand is that all transactions
could be taxed by the delivery State.] D. Narsa Raju. My State is taxing under
the decision of this Court in the United Motors case ( [1953]S. C. R. 1069).
[ Upon the counsel for the petitioners
stating that he would confine his arguments to the imposition of tax on
Explanation sales only, which some of the transactions indisputably were, the
Court indicated that it would hear the petitions. ] K. S. Krishnaswami Iyengar,
N. Srinivasan and R. Ganapathy Iyer, for the petitioners. The Andhra (Madras)
Act does not seek to tax Explanation sales 1427 at all. It talks of "
property passing " only and as such Andhra can tax only such sales where
property passes in Andhra. See Poppatlal Shah v. State of' Madras, ( [1953] S. C.
R. 677). Section 22 does not enlarge the definition of sales; it only restricts
the power of the State to tax. The explanation to s. 22, like the explanation
to Art. 236(1), is merely for the purpose of defining what is an outside sale
and not for determining what is an inside sale. See Bengal Immunity Company
case ( [1955] 2 S. C. R. 603 at 640). The power of the President under Art.
372(2) being merely to bring the State laws into conformity with Art.
286, s. 22, which was introduced by the
Presidential Adaptation Order under Art. 372(2), cannot be construed as
permitting the imposition of tax on Explanation sales which was prohibited by
Art. 286. If s. 22 was construed to permit such imposition it was unconstitutional,
illegal and void and must be deemed to be non est. See Bengal Immunity Company
case ( [1955] 2 S. C. R. 603 at 667). What did not exist could not be
validated.
The Sales Tax Laws (Validation) Act, 1956,
was not valid legislation under Art. 286(2). Article 286(2) only empowers
Parliament to lift the ban on the imposition of tax on inter-State -ales and
after it has lifted the ban the State legislature may impose the tax.
Parliament is not competent to impose sales tax; such power is vested only in
the State legislatures. Article 286(2) does not give Parliament power to
validate or ratify laws of the State legislatures. The power under Art. 286(2)
can be exercised only once and finally and fully, not partially. Parliament can
only lift the ban as from the day the power is exercised and riot
retrospectively. Punjab Province v. Daulat Singh, (73 I. A. 59); Behram
Khurshed Pesikaka v. The State of Bombay ( [ 1955 ] I S. C. R. 613, 654 and
655). The case of Dialdas v.
Talwalkar (A. 1. R. 1957 Bom. 71) has been
wrongly decided.
But even this decision helps the petitioners
in so far as it lays down that where tax had neither been collected nor levied
the Validation Act did not confer power to assess or levy. The whole 181 1428
policy of the Validation Act was to save the State from disgorging the, tax
illegally collected. Both levy and collection must be within the period
specified in s. 2 of the, Act. Mettur Industries Ltd. v. The State of Madras
(A. 1. R. 1957 Mad. 362) and Mysore Spinning and Manufacturing Co. Ltd. v.
Deputy Commercial Tax Officer (A. 1. R. 1957 Mad. 368) are against the
petitioners.
R. Ganapathy Iyer followed. Section 22 of the
Andhra (Madras) Act did riot enlarge the powers of taxation. Mathew v.
Travancore-Cochin Board of Reventue (A. 1. R. 1957 T. C. 300). The validation
being for a temporary period which expired on September 6, 1.955, no action can
be taken after that date under the validated laws. Kesavan Madhava Menon v. The
State of Bombay, ( [1951] S. C. R. 228, 234, 235), S. Krishnan v. The State of
Madras, ( [1951]S. C. R. 62 1, and State of Punjab v. Mohar Singh,[1955 ] I S.
C. R. 893). The tax being a sinole pointtax under the Act, and the petitioners
having already paid the tax at the time of the purchase of the yarn from the
Mills, no second tax was payable. The Andhra (Madras) Act being a new Act the
tax on yarn is hit by the Essential Commodities Act (52 of 1952) read with Art.
286(3) of the Constitution. Petitioners are not dealers in Andhra Pradesh and
cannot be assessed. There are no sales in Andhra; all sales being in Madras.
V.L. Narasimhamoorthy, J. B. Dadachanji and
Rameshtvar Nath, for the Mysore Spinning & Mfg. Co., Ltd., and Minerva
Mills Ltd., (Interveners), supported the petitioners.
Section 22 does not authorise the imposition
of tax on Explanation sales. It could not have been the intention of the
President to allow the State to add a new category of sales the Explanation
Sales -to be taxed. The language of Art. 286(2) indicates that the lifting of
the ban is a condition precedent to legislation by the States imposing tax on
inter-State sales. Alternatively, the power to tax inter-State sales is with
Parliament under Entry 97 of List I of Schedule VII of the Constitution.
Section 22 was wiped out and obliterated by the judgment in the 1429 Bengal
Immunity Company case. See Behram Khurshed Pesikaka v. The State of Bombay,
([1955] 1 S. C. R. 613); Newberry v. United States, (65 L. Ed. 913). The same
interpretation must be given to the explanation to s. 22 as has been given to
the explanation to Art. 286(1)(a). The non-obstante clause in s. 22 has only
the effectof subtracting something from the power to tax andriot of adding to
it. Ram Narain Sons Ltd. v. Asst. Commissioner of Sales Tax ([1955] 2 S.C..R.
483); Aswini Kumar Ghosh v. Arbinda Bose ([1953] S.C.R. 1, 22, 24); A. V.
Fernandez v. The State of Kerala, ([1957] S. C. R. 837).
N. A. Palkhiwala, J. B. Dadachanji and
Rameshwar Nath, for Tata Iron & Steel Co., Ltd., (Intervener). There must
be a factual levy before Parliament can validate it. Section 22(ii) removes
inter-State sales from the purview of the Act. Fernandez's case supports this
contention. On a proper construction of Art. 286(2), according to the decision
in the Bengal Immunity Company case, there was no levy on interState sales and
there was nothing for Parliament to lift the ban for. ( [ 1955 ] 2 S. C. R.
603, 621, 662, 667).
There is a vital difference between
retrospective and retroactive operation. There is no power in Parliament to
validate ex post facto a violation of Art. 286(2).
Parliament must first lift the ban and then
the State legislation may come imposing tax on inter-State sales.
Parliament is competent to prevent what
otherwise would have been a violation of the Constitution, but it is not
competent to condone an accomplished violation. Section 2 of the Validating Act
will operate only where taxes have already been collected or have been finally
assessed.
P. N. Bhagwati and .1. N. Shroff, for
Pashebbhai Patel & Co., Ltd., (Intervener) supported the petitioners.
D. Narsa Raju, Advocate-General of Andhra
Pradesh and T. M. Sen, for the respondents. Article 372(2) must take regard of
the provision of the Constitution to bring the State laws into conformity with
which the power of adaptation is to be exercised. That provision 1430 is Art.
286. Implicit in Art. 286(1) is the recognition that the delivery State alone
may tax. The -President would be acting within his power to enable the delivery
State to tax -Such power is in accordance with the provisions of the
Constitution. The power of the legislature to bring the laws in accordance with
the Constitution is conferred upon the President. Consequently, the explanation
to s. 22 can be read along with the definition of sale and it does add to that
definition by bringing Explanation sales within it.
K. V. Subramania Iyer, D. N. Mukherjee and B.
N. Ghosh, for Madura Mills Co., Ltd., (Intervener). The Adaptation Order made
by tile President is not 'law of a State' within the meaning of the Validating
Act. 'Law of a State' in the Validating Act must mean the same thing as in Art.
286(2).
The President exercising power under Art.
372(2) is not controlled by Art. 286; he exercises a power which belongs to the
President and not a power on behalf of the State.
Section 22 of the Andhra (Madras) Act is not
law made by the State Legislature and is not validated by the Validating Act.
The power of imposition of sales tax on inter-State sales was taken away from
the States. The bail under Art.
286(2) is only in respect of existing laws;
there is no power in the States to enact laws imposing tax on interstate sales.
The power to impose tax on inter-State sales is within the exclusive domain of
Parliament under Entry 42 of List I of the Seventh Schedule of the Constitution
and Entry 54 of List 11 must be construed as not including such power.
A reference to Art. 301 reinforces this
interpretation. The freedom under Art. 301 includes freedom from sales tax. See
The Commonwealth v. The State of South Australia, (38 C. L.
R. 408). The Validation Act is not
legislation within Entry 42. See Bank of N. S. W. v. The Commonwealth, (76 C.
L. R. 1, 381); Robbins v. Taxing District of Shelby County ((1877) 30 L. Ed.
694); McLeod v. Dilworth Co. ((1944) 88 L. Ed. 1304).
C. K. Daphtary, Solicitor-General of India,
G. N. 1431 Joshi and T. M. Sen, for the Union of India (Intervener).
The Sales Tax Laws Validation Act, 1956, is
valid legislation tinder Art. 286(2). In effect and in substance the Validation
Act is a law which removes the ban imposed by Art. 286(2), and is not really a
Validating Act. Article 286(2), in respect of existing laws, merely said that
they should not be effective or operative. It did not take away the competency
of the legislatures to make laws providing for taxes oil inter-State sales.
Such a law may be against the provision of the Constitution, but that does not
repeal or obliterate it. It is only in abeyance. See Bhikaji Narain Dhakra,s
and others v. The State Of Madhya Pradesh and another, ([ 1955] 2 S.C.R. 589,
600). Legislative power generally includes the power to legislate
retrospectively.
There is no limitation in Art. 286(2) as
respects retrospective legislation. Parliament could, therefore, lift the ban
retrospectively. Section 22 is a piece of conditional legislation. As soon as
the ban under Art.
286(2) was lifted by Parliament it came into
operation. The Validation Act is not a temporary statute. A temporary statute
is one which says that it is to be effective for a particular period. The
Validating Act operates even now and is effective, though it is in respect of
sales of a particular period. It is open to the States to initiate proceedings
now for taxing the Explanation sales made during the period mentioned in s. 2
even though no such proceedings had been taken during that period. Entry 42 of
List I which reads: " Inter-State trade and commerce " does not
confer any power of taxation on Parliament. In the scheme of our Constitution a
general Entry does not include the power of taxation. Taxes, duties, etc., are
enumerated in a separate group in Entries 82-92 in List I.
V. K. T. Chari, Advocate-General for the
State of Madras, B. R. Gopalakrishnan and T. M. Sen for the State of Madras
(Intervener). In construing s. 22 of the Andhra (Madras) Act regard must be had
to the law as it stood till September 6, 1955, when judgment was delivered in
the Bengal Immunity Company case. In view of the decision in the United Motors
1432 case ([1953] S. C. R. 1069, 1085, 1086, 1093, 1094), Explanation sales
were regarded as 'inside sales' in the delivery State, and the delivery State
was entitled to tax sales. The law of a State which imposed tax on Explanation
sales would remain on the statute book, in spite of the decision in The Bengal
Immunity Company case, but could not be enforced. See Bhikaji Narain Dhakras
and others v. The State of Madhya Pradesh and another ([1955] 2 S.C.R. 589);
Ulster Transport Authority v. James Brown
& Sons Ltd. ((1953) Northern Ireland Reports 79). Section 2 of the
Validating Act refers to such a law.
Mahabir Prasad, Advocate-General for the
State of Bihar, Rajeshwar Prasad and S. P. Varma, for the State of Bihar
(Intervener); G. C. Mathur and C. P. Lal, for the State of Uttar Pradesh
(Intervener) supported the respondents and the Union of India.
R. Ganapathy Iyer, for the petitioners,
replied.
K. V. Subramania Iyer, for Madura Mills Co.,
Ltd., (Intervener), also replied with the permission of the Court.
1958. March II. The judgment of Das C. J., Venkatarama
Aiyar, S. K. Das and Vivian Bose, JJ. was delivered by Venkatarama Aiyar J.
Sarkar J. delivered a separate judgment.
VENKATARAMA AIYAR J.-The petitioners are
dealers carrying on business in the City of Madras in the sale and purchase of
yarn, and they have filed the present applications under Art. 32 of the
Constitution for the issue of a writ of prohibition or other appropriate writ
restraining the State of Andhra from taking proceedings for imposing tax on
certain sales effected by them in favour of merchants who are residing or
carrying on business in what is now the State of Andhra Pradesh, on the ground,
inter alia, that the said sales were made in the course of inter-State trade,
and that no tax could be levied on them by reason of the prohibition contained
in Art. 286(2) of the Constitution.
The course of dealings between the parties
resulting 1433 in the above sales has been set out in para. 5 in Petition No.
220 of 1955. It is therein stated that the dealers in Andhra would place orders
for the purchase of yarn with the petitioners in Madras, that the contracts
would be concluded at Madras, that the goods would be delivered ex-godown at
Madras and would thereafter be despatched to the purchasers either by lorries
or by rail as might be directed by them, that when the goods were sent by rail,
the railway receipts would be taken either in the name of the consignees, and
sent to them by post or in the name of the consignor and endorsed to the
purchasers and delivered to them in Madras or sent to them by post endorsed in
favour of a bank and the purchasers would take delivery of those receipts after
payment to the bank. It is said that in all cases price of the goods was paid
in Madras.
On the above allegations, it is manifest that
the sales mentioned therein are not all of the same kind, and in point of law,
the incidents attaching to them might be different.
A consideration of the validity of the
imposition with reference to the several classes of sales mentioned above would
he wholly airy and pointless without a determination of the facts relating to
them, which, however, have not been investigated. Counsel for the petitioners,
however, concedes that the, dispute in these proceedings is confined to the
proposed imposition of tax, in so far as it relates to sales of the character
mentioned in the Explanation to Art. 286(1)(a), that is to say, sales in which
the property in the goods sold passed outside the State of Andhra but the goods
themselves were actually delivered as a result of the sale for consumption
within that State. These sales have been referred to in the arguments before us
as "Explanation sales ", and it will be convenient to adopt that
expression in referring to them in this judgment.
It will be seen that the above sales would
all of them have been intrastate, so long as the Andhra State formed part of
the composite State of Madras, and questions of the character now agitated
before us could not then have arisen.
On September 14, 1953, 1434 Parliament
enacted the Andhra State Act (30 of 1953), whereby a separate State called the
State of Andhra was constituted incorporating therein territories which had
previously thereto formed part of the State of Madras, and this Act came into
force on October 1, 1953. Under s. 53 of the Andhra State Act, the laws in
force in the territories in the Andhra State prior to its constitution are to
continue to be in force even thereafter, and one of those laws is the Madras
General Sales Tax Act (Madras 9 of 1939), hereinafter referred to as the Madras
Act. Section 54 of the Andhra State Act conferred on the Government a power to
adapt laws for the purpose of facilitating the application of any law
previously made, and in exercise of the power conferred by this section, an
Adaptation Order was passed on November 12, 1953, whereby the word "
Andhra " was substituted for the word "Madras" in the Madras
Act. We shall hereafter refer to the Madras Act as continued and applied in the
State of Andhra as the Andhra (Madras) Act.
It will be convenient at this stage to refer
to the relevant provisions of this Act. The preamble to the Act states that
" it is expedient to provide for the levy of a general tax on the sale of
goods in the State of Madras". "Sale" is defined in s. 2(h),
omitting what is not material, as meaning " 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." Section 2(i)
defines " turnover " as " the aggregate amount for which goods
are either bought by or sold by a dealer, whether for cash or for deferred
payment or other valuable consideration ". Section 3 is the charging
section and provides that every dealer shall pay for each year tax on his total
turnover for such year. By the Madras General Sales Tax (Amendment) Act No. 25
of 1947, a new Explanation was added to the definition of " sale ",
and it is as follows:
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 1435 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." This amendment
came into force on January 1, 1948.
In Poppatlal Shah v. The State of Madras (1),
this Court had to consider the scope of the definition of " sale " in
s. 2(h) and of Explanation 2, and it was therein held that though the power to
tax a sale was really a power to tax a transaction of sale and a law imposing
such tax would be competent if any of the ingredients of sale had taken place
within the State, the Madras Act had, by its definition of " sale "
in s. 2(h) prior to the enactment of Explanation 2, imposed a tax only when the
property in the goods passed within the State, and that in respect of sales
which had taken place prior to the amendment, the tax would be unauthorised if
the property in the goods passed outside the State of Madras. It was also
observed that after the amendment came into force, a tax on a sale which came
within Explanation 2 would be valid. That was the position in law under the
Madras Act prior to the enactment of the Constitution.
It is now necessary to refer to the changes
effected in the law by the Constitution. Article 286, which is relevant for the
present purpose, 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; or (b) in the
course of the import, of the goods into, or export of the goods out of, the
territory of India.
(1) [1953] S.C.R. 677.
182 1436 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
take,,; place in the course of interstate trade or commerce:
Provided that the President may by order
direct that any tax on the sale or purchase of goods which was being lawfully
levied by the Government of any State immediately before the commencement of
this Constitution shall, notwithstanding that the imposition of such tax is
contrary to the provisions of this clause, continue to be levied until the,
thirty-first day of March, 1951.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax on the sale or purchase of
any such goods as have been declared by Parliament by law to be essential for
the life of the community shall have effect unless it has been reserved for the
consideration of the President and has received his assent." Article
372(2) enacts that, " For the purpose of bringing the provisions of any
law in force in the territory of India into accord with the provisions of this
Constitution, the President may by order make such adaptations and
modifications of such law, whether by way of repeal or amendment, as may be
necessary or expedient, and provide that the law shall, as from such date as
may be specified in the order, have effect subject to the adaptations and
modifications so made, and any such adaptation or modification shall not be
questioned in any court of law." In exercise of the power conferred by
this provision, 1437 the President made Adaptation Orders with reference to the
Sales Tax Laws of all the States, and as regards the Madras Act, he issued on
July 2, 1952, the Fourth, Amendment inserting a new section, s. 22 in that Act.
It runs as follows:
" Nothing contained in this Act shall be
deemed to impose or authorise the imposition of a tax on the sale or purchase
of any goods where such sale or purchase takes place(a) (i) outside the State
of Madras, or (ii)in the course of import of the goods into the territory of
India or of the export of the goods out of such territory, or (b) except in so
far as Parliament may by law otherwise provide, after the 31st March, 1951, in
the course of interState trade or commerce, and the provisions of this Act
shall be read and construed accordingly.
Explanation:-For the purposes of cl. (a) (i)
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 noticed that the Explanation to Art. 286 (1) (a) is reproduced verbatim in
s. 22 of the Madras Act. The true meaning and scope of this Explanation came up
for consideration before this Court in The State of Bombay and another v. The
United Motors India Ltd., and others (1).
Therein, it was held by a majority that
though the sales falling within the Explanation would, in fact, be in the
course of inter State trade, they became, by reason of the fiction introduced
therein, invested with the character of intra-State sales, and would be liable
to be taxed by the State within which the goods were delivered for consumption.
Acting on this judgment, the Board of Revenue
(Commercial Taxes) Andhra State, issued a (1) [1953] S.C.R. 1069.
1438 notification on July 13, 1954, calling
upon dealers to submit returns of their turnover of sales in which goods were
delivered in the Andhra State for consumption, and a copy thereof was sent to
the Madras Yarn Merchants' Association, of which the petitioners are members.
The Association disputed the liability of the Madras dealers to pay any tax in
respect of the sales to the Andhra dealers, and after some correspondence, the
Andhra State finally issued on June 30, 1955, notices to the petitioners to
send their returns of turnover by July 15, 1955, failing which it was stated
that assessments would be made on the best judgment basis, and that, further,
the dealers would be liable to the penalties prescribed by the law (Vide
Annexure H to the petition). Thereupon, the petitioner a have filed the present
petitions challenging the validity of the demand made by the Andhra State on
the ground, inter alia, that the sales proposed to be taxed were inter-State
sales, and that they were immune from taxation under Art. 286(2). These
petitions were filed on various dates in July and August, 1955.
While they were pending, the question of the
true scope of the Explanation to Art. 286 (1) (a) came up again for
consideration before this Court in The Bengal Immunity Company Limited v. The
State of Bihar and others (1). By its judgment dated September 6, 1955, this
Court held, again by a majority, that the sales falling within the Explanation
being inter-State in character, could not be taxed by reason of Art. 286(2),
unless Parliament lifted the ban, that the Explanation to Art. 286 (1) (a)
controlled only that clause and did not limit the operation of Art. 286 (2), and
that the law had not been correctly laid down in The United Motors case (2). On
the decision in The Bengal Immunity Company case(1) it cannot be doubted that
the claim of the Andhra State to tax Explanation sales would be
unconstitutional, and indeed, that was admitted by the State in a statement
filed on October 21, 1955, wherein it was stated that having regard (1) [1955]2
S.C.R. 603.
(2) [1953] S.C.R. 1069.
1439 to the decision aforesaid, the petitions
might be allowed but without costs. Before final orders were passed on the
petitions, however, the Sales Tax Validation Ordinance No.
III of 1956, was promulgated on January 30,
1956, and that was later replaced by the Sales Tax Laws Validation Act (7 of
1956) and that came into force on March 21, 1956.
Section 2 of this Act runs as follows:
" Notwithstanding any judgment, decree
or order of any court no law of a State imposing, or authorising the imposition
of, 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 during the period between
the 1st day of April, 1951, and the 6th day of September, 1955, shall be deemed
to be invalid or ever to have been invalid merely by reason of the fact that
such sale or purchase took place in the course of interstate trade or commerce;
and all such taxes levied or collected or purporting to have been levied or
collected during the aforesaid period shall be deemed always to have been
validly levied or collected in accordance with law." On February 19, 1957,
the Andhra State which had become the State of Andhra Pradesh under s. 3 (1) of
the States Reorganisation Act (37 of 1956) filed a fresh statement that by
reason of the Validation Act the State was entitled to impose a tax on the
Explanation sales, which had taken place during the period between the 1st day
of April, 1951, and the 6th day of September, 1955 (which will hereinafter be
referred to as the specified period), and that the petitions should therefore
be dismissed.
The petitioners challenge the correctness of
this position.
They contend that the Andhra (Madras) Act
does not, in fact, impose a tax oh the Explanation sales, and that, in
consequence, the Validation Act can have no effect on it;
that the Validation Act is itself unconstitutional
and void;
that the Act even if valid, does not validate
s. 22 of the Andhra (Madras) Act; that it validates only levies and collections
of tax already made, and does not authorise the initiation 1440 of fresh
proceedings for assessment of tax or for realisation of the same; that even if
the Act authorised fresh imposition of taxes, that could not be done without
further legislation pursuant thereto by the State, and that no action could be
taken on the basis of s. 22 of the Andhra (Madras) Act, as, being
unconstitutional when enacted, it was for all purposes non est ; that tax on
the sale of yarn could under the Act be levied only at a single point and the
State of Madras having imposed a tax on the sale of goods now proposed to be
taxed, the Andhra State could not impose a tax once again on the sale of the
self-same goods, and that, further, the tax on yarn would, so far as the Andhra
State is concerned, be bad as being hit by the Essential Commodities Act (52 of
1952), read with Art. 286 (3).
It must be mentioned that similar to the
Adaptation Order which enacted s. 22 in the Madras Act, there were Adaptation
Orders by the President with reference to the Sales Tax Laws in all the States,
and provisions similar to s. 22 were enacted therein. As any decision by this
Court on the questions raised in the petitions must conclude similar questions
under the laws of other States, those States applied for and obtained
permission to intervene in these proceedings, and we have heard the
Advocates-General of Madras, Uttar Pradesh and Bihar on the questions. As the
main point for determination is the vires of the Sales Tax Laws Validation Act
(which will hereinafter be referred to as the impugned Act), the Union of India
has intervened, and the learned Solicitor-General has addressed us on the
questions relating to the validity of that Act. Certain assessees who are
interested in the decision of the above questions also applied for and obtained
permission to intervene, and they are the Mysore Spinning and Manufacturing
Co., the Minerva Mills, Ltd., the Tata Iron and Steel Co. Ltd., and the Madura
Mills Co. Ltd., and counsel appearing for them have, in general, supported the
petitioners.
Counsel for the Madura Mills Co. Ltd., raised
a further contention different from and inconsistent with 1441 the position
taken by the petitioners and other inter.
veners, and that is that under Entry 42 in
List I of the Seventh Schedule to the Constitution, inter-State trade and
commerce is the exclusive domain of the Union Legislature, that tax on
inter-State sales is comprised therein, that the States have accordingly no
power to tax such sales, and that Parliament is not competent to authorise them
to impose such a tax, and that, accordingly, the impugned Act is wholly misconceived
and inoperative.
On these contentions, the questions that
arise for our determination are:
(I) Whether the Andhra (Madras) Act, in fact,
imposes a tax on the class of sales falling within the Explanation to Art.
286 (1) (a);
(II)Whether the impugned Act is ultra vires
the ground that it is not authorised by the terms of Art. 286(2);
(III) (a) Whether s. 22 of the Andhra
(Madras) Act is within the protection of the impugned Act, and (III)(b) Whether
the impugned Act validates only levies and collections made during the
specified period, or whether it authorises the imposition and collection of
taxes on such sales in future;
(IV)Whether s. 22 of the Madras Act was null
and void on the ground that it was in contravention of Art. 286 (2), and whether
the proceedings sought to be taken thereunder on the strength of the impugned
Act are incompetent;
(V) Whether tax on inter-State sales is
within the exclusive competence of Parliament, and whether the impugned Act is,
in consequence, bad as authorising the States to levy tax ;
(VI)Whether the proposed imposition of tax is
illegal on the ground that successive sales of yarn are subject under the law
to be taxed at only one point, and as the State of Madras has already taxed the
present sales, the State of Andhra cannot again levy a tax on them ; and
(VII)Whether the proposed imposition of tax on yarn by the Andhra State is hit
by the Essential Commodities Act, read with Art. 286(3), and is illegal? 1442
(1):The first question that falls to be determined is whether the Andhra
(Madras) Act, in fact, imposes a tax on the Explanation sales. Only if it does
that, would the further questions as to the vires and the operation of the
impugned Act arise for consideration. We have already referred to the relevant
provisions of the Madras Act and to the decision of this Court in Poppatlal
Shah v. The State of Madras (1), wherein it was held that under the definition
of " sale " in s. 2(h) of that Act and apart from the Explanations to
it which are not material for the present discussion, power had been taken by
the Province of Madras to tax only sales in which property in the goods passed
inside the State. It must, therefore, be taken that under the Act, as it stood
prior to the Constitution, the State of Madras had no power to impose a tax on
sales of the kind mentioned in the Explanation to Art. 286 (1)(a). Now, the
question is whether the Adaptation Order of the President (Fourth Amendment)
dated July 2, 1952, has, by the insertion of s. 22 in the Madras Act, altered
the position. The contention of the respondent is that it has, because it has
bodily incorporated the Explanation to Art. 286 (1) (a) in the section itself,
and as under that Explanation, all sales falling within its ambit would be
sales inside the State of Madras, they became taxable as sales within the
definition in s. 2 (h) of the Madras Act; and that accordingly under s. 22 of
the Andhra (Madras) Act the Explanation sales become taxable by the Andra State
as sales within that State.
The petitioners dispute this position, and
contend that that is not the true effect of the Explanation, and that properly
construed, it does not authorise the in position of any tax which was not
leviable under the provisions of the Act, prior to its enactment. It is argued
that the object of Art. 286 of the Constitution was merely to impose
restrictions on the power which the States had under Entry 54 in List 11 to
enact laws imposing tax on sales, and that, in that context, the true scope of
the Explanation to Art.
286 (1) (a) was that it merely took away from
the State its power to (1) [1953] S.C.R. 677.
1443 tax a sale in which the property passed
inside it if the goods were actually delivered under the sale for consumption
in another State and not to confer on the delivery State a power to tax such a
sale, and that the Explanation in s. 22 which is, word for word, a reproduction
of the Explanation to Art. 286 (1) (a) must be construed as having the same
import. Reliance is placed in support of this contention on the following
observations of this Court in The Bengal Immunity Company case(1) at p. 640:
" 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 -,ale 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 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 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
a side wind, as it were, (1) [1955] 2 S.C.R. 603.
183 1444 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." Now, the contention of the petitioners
is that these observations are decisive of the present controversy, because the
same provision expressed in ipsissima verba cannot have one meaning in Art.
286(1) (a) and quite a different one in s. 22 of the Madras Act; and on the construction
put by this Court on the Explanation to Art.
286(1) (a), the Explanation to s. 22 of the,
Andhra (Madras) Act must be interpreted as prohibiting States other than Andhra
from taxing sales under which goods are delivered for consumption outside those
States, even though property passed inside them and not as authorising the
State of Andhra to tax sales in which goods are delivered therein for
consumption , even though property in the goods passed outside that State. It
is argued that this conclusion is reinforced by the opening words of s. 22,
viz., "Nothing contained in this Act shall be deemed to impose or
authorise the imposition of a tax on the sale or purchase of any goods".
The effect of this, it is said, is to impose a restriction on the power which
the State previously possessed, of taxing sales coming within the definition in
s. 2 (h) and not to enlarge it. The decision in Government of Andhra v. Nooney
Govindarajulu (1) is cited in support of these contentions.
The error in this argument lies in this that
it focuses attention exclusively on the terms in which the Explanations are
couched in Art. 286(1) (a) and in s. 22 and completely overlooks the
fundamental difference in the context and setting of these two enactments. The
scope and purpose of Art. 286 have been considered at length in the decisions
of this Court in The United Motors case (2) as also in The Bengal Immunity
Company case (3), and it is sufficient to briefly recapitulate them. Under
Entry 48 in List 11 of the (1) (1957) 8 Sales Tax Cases 297. (2) [1953] S.C.R,
1069.
(3) [1955] 2 S.C.R. 603.
1445 Seventh Schedule to the Government of
India Act, 1935, the Provincial Legislature had the exclusive competence to
enact a law imposing a tax on the sale of goods, and under s. 99 (1), such a
law could be made " for the Province or for any part thereof ". In
Wallace Brothers & Co. Ltd. v. Income-tax Commissioner (1), the question
arose as to the validity of certain provisions of the Indian Income-tax Act,
which sought to tax non-resident foreigners in respect of their foreign income.
The Indian Legislature had under Entry 54 in List I of the Government of India
Act power to enact laws imposing tax on income other than agricultural income,
and under s. 99(1) the law could be made " for the whole of :British India
or for any part thereof ". It was held by the Privy Council that the
requirements of s. 99 were satisfied if there was sufficient territorial
connection between the State imposing the tax and the person who was sought to
be taxed, and the receipt of income by the assessees in British India furnished
sufficient nexus to give validity to the legislation imposing tax on their
foreign income. If this doctrine of nexus is applicable to laws imposing tax on
sales-and it was applied by this Court to those laws in the United Motors case
(2) at p. 1079 and in Poppatlal Shah's case (3) at pp. 682-683-then it would be
competent to the State to enact a law imposing a tax on sales not merely when
the property in the goods passed within the State but even when it (lid not, if
there was sufficient connection between the State and the transaction of sale,
such as the presence of the goods in the State at the date of the agreement, as
was held recently by this Court in Tata Iron & Steel Co. Ltd. v. State of
Bihar (4). In fact, acting on the nexus theory the Legislatures of the States
enacted Sales Tax Laws adopting one or more of the nexi as the basis of
taxation.
This resulted in multiple taxation, as a
consequence of which the free flow of commerce between the States became
obstructed and the larger economic interests of the country suffered. It was to
repair this mischief that the Constitution, while (1) (1948) L.R. 75 I.A. 86.
(2) [1953] S.C.R. 1069.
(3) [1953] S.C.R. 677.
(4) [1958] S.C.R. 1355.
1446 retaining the power in the States to tax
sales under Entry 54 in List II sought to impose certain restrictions on that
power in Art. 286. One of those restrictions is contained in Art. 286(1)(a)
which prohibits a State from taxing outside sales. The Explanation now under
consideration is attached to this provision, and it is in this context, viz.,
in its setting in an Article, the object of which was to impose fetters on the
legislative powers of the States, that this Court observed that though positive
in form, it was in substance negative in character, and that its true purpose
was not to confer any fresh power of taxation on the State but to restrict the
power which it previously had under Entry 54.
These considerations will clearly be in apposite
in construing a taxing statute like the Madras Act, the object of which is
primarily to confer power on the State to levy and collect tax. When we find in
such a statute a provision containing a prohibition followed by an Explanation
which is positive in its terms, the true interpretation to be put on it is that
while the prohibition is intended to prevent taxation of outside sales on the
basis of the nexus doctrine, the Explanation is intended to authorise taxation
of sales falling within its purview, subject of course to the other provisions
of the Constitution, such as Art. 286 (2). It should be remembered that unlike
the Constitution, the law of a State can speak only within its own territories.
It cannot operate either to invest another State with a power which it does not
possess, or divest it of a power which it does possess under the Constitution.
Its mandates can run only within its own
borders. That being the position, what purpose would the Explanation serve in
s. 22 of the Madras Act, if it merely meant that when goods are delivered under
a contract of sale for consumption in the State of Madras, the outside State in
which property in the goods passes has no power to tax the sale ? That is not
the concern of the State of Madras, and indeed, the Legislature of Madras would
be incompetent to enact such a law. In its context and setting, therefore, the
Explanation to s. 22 must mean that it 1447 authorises the State of Madras to
impose a tax on sales falling within its purview. Thus, while in the context of
Art. 286 (1) (a) the Explanation thereto could be construed as purely negative
in character though positive in form, it cannot be so construed in its setting
in s. 22 of the Madras Act, where it must have a positive content.
Nor is there much force in the contention
that the non obstante clause in s. 22 has only the effect of substracting
something from the power to tax conferred on the State by the charging section,
s. 3, read with s. 2 (h) and not of adding to it. In Aswini Kumar Ghosh and
another v. Arabinda Bose and another (1), It was observed by this Court that
" the enacting part of a statute must, where it is clear, be taken to
control the non-obstante clause where both cannot be read harmoniously ".
Now, as the Explanation lays down in clear and unambiguous terms that the sales
of the character mentioned therein are to be deemed to have taken place inside
the State in which goods are delivered for consumption, full effect must be
given to it, and its operation cannot be cut down by reference to the non obstante
clause. It cannot be put against this construction that it renders the
non-obstante clause ineffective and useless. According to the definition in s.
2 (h), a sale in which property passes inside the State of Madras will be liable
to be taxed, even though the goods are delivered for consumption outside that
State, but under the Explanation such a sale will be deemed to have taken place
in the outside State in which goods are delivered for consumption, and
therefore the State of Madras will have no power to tax it:
The purpose which the non-obstante clause
serves is to render the Explanation effective against the definition in s. 2
(h) and not to render it ineffective in its own sphere, as determined on its
terms.
But it is contended that in order to reach
this result it was necessary that the Explanation to s. 22 should have been
made a part of the definition of " sale " under s. 2 (h), because
under s. 3, which is the charging (1) [1953] S.C.R. 1, 24.
1448 section, it is the turnover of sales
that is subject to tax, that sale for the purpose of that section is only what
is defined as " sale " under s. 2 (h), and that the Explanation sales
not having been brought within that definition, no charge could be imposed thereon.
The Explanation in s. 22, it is argued, cannot override s. 2 (h), and if its
object was to confer on the State a power to tax sales falling within its
ambit, that has not, in fact, been achieved. It is pointed out by way of
contrast that in the Sales Tax Laws of some other States, such as Bihar and
Uttar Pradesh, the Explanation has been added to the definition of sale. Now, a
contention that what the Legislature intended to bring about it has failed to
do by reason of defective draftsmanship is one which can only be accepted in
the last resort, when there is no avenue left for escape from that conclusion.
But that clearly is not the position here.
Section 22 opens with the words "
Nothing contained in this Act ", and that means that that section is to be
read as controlling, inter alia, the definition of sale in s. 2 (h).
Otherwise, sales in which property passes in
Madras but delivery is outside that State would be taxable under s. 2 (h) and
under s. 3, even though they are within the prohibition enacted in s. 22. If
the provisions of s. 22 are effective for the purpose of limiting the operation
of s. 2 (h), we do not see any difficulty in construing the Explanation therein
as equally effective for the purpose of enlarging it. Again, it is a rule of
construction well established that the several sections forming part of a
statute should be read, unless there are compelling reasons contra, as
constituting a single scheme and construed in such manner as would give effect
to all of them. On this principle, s. 2 (h) and s. 22 must be read together as
defining what are sales, which are taxable under the Act and what are not, and
so read, the Explanation really means that in sales in which goods are
delivered for consumption in the State of Madras, the property therein shall be
deemed to have passed inside that State, notwithstanding that it has, under the
Sale of Goods Act, passed outside that State. On this construction, those 1449
sales will fall within the definition in s. 2 (h) and will be taxable. The
contention of the petitioners highly technical and based oil the non-insertion
of the Explanation in s. 2 (h) must, in our opinion, be rejected as unsound.
It is next contended that the power of the
President under Art,. 372 (2) is merely to bring the provisions of the State
laws into conformity with Art. 286, and that having regard to the
interpretation put on that Article in The Bengal Immunity Company case (1), the
Explanation in s. 22 would be valid in so far as it prohibits the State of
Madras from imposing a tax on sales in which goods are delivered outside
Madras, though property therein passed inside that State, but that in so far as
it makes taxable sales in which property passes outside the State of Madras but
the goods themselves are delivered for consumption in Madras, it is much more
than bringing the. ,State law into conformity with Art. 286, and is, in
consequence, unauthorised and bad. It is argued that such a provision could be
enacted by the Legislature of Madras, as was in fact, done by the legislatures
of many of the States, but the President could not do it in exercise of the
special and limited power conferred on him by Art. 372(2). That power is
merely, it is contended, to take the definition of " sale " in s.
2(h) of the Madras Act, strike out there from whatever is repugnant to Art.
286, such as sales in which goods are delivered for consumption outside Madras,
and leave it there and not to add to it.
We are not satisfied that that is a correct
view to take of the powers of the President under Art. 372(2). It is to be
observed that Art. 286(1)(a) and the Explanation thereto form, in their setting
in a taxing statute, integral parts of and different facets of the same
concept. Sales in which property passes outside the State of Madras but delivery
for consumption is inside Madras are at once inside sales for Madras and
outside sales for the other States. Now, if in exercise of the power to adapt,
the enactment of the Explanation is requisite to give effect to one aspect of
that (1) [1955] 2 S.C.R. 603.
1450 concept, that is, for prohibiting the
State of Madras from taxing sales when goods are delivered outside, we fail to
see why it should not operate to give effect to the other aspect of the concept
which is so integrally connected with it, viz., taxing of sales in which goods
are delivered for consumption in the State of Madras, if its language is
comprehensive and wide enough to include such sales. We find it difficult to
hold that the self-same Explanation is intra vires the powers of the President
in so far as it prohibits the State from taxing gales, in which goods are
delivered Outside the State but is ultra vires in so far as it authorises that
State to tax sales in which goods are delivered inside it.
It should be remembered in this connection
that the power which the President has under Art. 372(2) to adapt is the
legislative power of the State whose law is adapted, and that includes the
power to repeal and amend any provision.
Provided that the law as adapted is within
the legislative competence of the State and its enactment is in the process of
bringing the State law into conformity with Art. 286, it seems to us that it is
within the ambit of the power conferred by Art. 372(2). The question, however,
is of academic interest, because of the concluding words of Art.
372(2), which enact that no adaptation order
made under that provision shall be liable to be questioned. It was suggested
for the -petitioners that these words would have no application when the
adaptation order went beyond the terms of Art. 372(2), and that it was open to
them to challenge its validity on the ground that it amounted to more than
bringing the existing law into conformity with Art. 286. We are unable to
agree. If the adaptation order is within the scope of Art. 372(2), then it is
valid of its own force, and does not require the aid of a clause such as is
contained in the concluding portions thereof. It is only when the adaptation
amounts to something more than merely bringing the State law into conformity with
the Constitutional provisions that there can arise a need for such a clause. In
our opinion, the effect of the concluding words of Art. 372(2) is to 1451
render the question of the validity of the adaptation non-justiciable. The
Adaptation Order in question must, accordingly, be held to be not open to
attack on the ground that it goes beyond the limits contemplated by Art.
372(2).
It is then argued that even though the
Adaptation Order of the President might not be open to question even if it had
imposed for the first time a tax on sales which had not been previously imposed
by the Act, nevertheless in deciding whether it does, in fact, impose such a
tax, it would be relevant to take into account that the object of Art. 372(2)
was only to bring the State laws into conformity with the Constitution, and
that, in consequence, the Explanation in s. 22 must be construed as having the
same meaning as the Explanation in Art. 286(1)(a). This would, no doubt, be a
legitimate consideration in interpreting the language of the Explanation, but
then, it must be remembered that at the time when the Adaptation Order was
made, the true interpretation of the Explanation to Art. 286(1)(a) had not been
the subject matter of any decision, and it is therefore difficult to impute to
the framers of s. 22 the construction put by this Court on the Explanation to
Art. 286(1)(a) in The Bengal Immunity Company case (1) any more than the one
put on it in The United Motors case (2). We are therefore thrown back on the
language of the Explanation itself to discover its true scope. If, in enacting
the Explanation, the Adaptation Order merely intended to prohibit the State of
Madras from imposing tax on sales under which goods are delivered for
consumption outside that State even though property therein passed inside that
State, it would clearly have expressed that intention in words to the following
effect: " For the purposes of clause (a)(i), a sale under which goods are
delivered for consumption outside the State of Madras shall be deemed to have
taken place outside that State, notwithstanding that property in those goods
passed inside that State ". But the language of the Explanation is
general, and fixes the situs of sales of (1) [1955] 2 S.C.R. 603.
(2) [1953] S.C.R. 1069.
184 1452 an inter-State character in the
State in which goods are actually delivered for consumption. Under this
Explanation, a sale under which goods are delivered outside the State of Madras
will be an outside sale for that State even though property in the goods passed
inside that State, and likewise, a sale under which goods are delivered inside
the State of Madras will be an inside sale for that State, even though property
in the goods passed outside that State. As the language of the Explanation is
general and of sufficient amplitude not merely to restrict but also to add to
the power of the State to tax Explanation sales, and as the reasons for
construing it as purely restrictive in Art.
286(1)(a) are, as already stated, without
force in their application to a taxing statute, we must give full effect to the
words of the enactment, and bold that they operate to confer on the State a
power to tax Explanation sales.
There is one other contention relating to
this aspect of the matter, which remains to be considered, and that is that
even if the Explanation could be construed as authorising the imposition of a
tax on the sales mentioned therein, a reading of the section as a whole makes
it clear that, in fact, no such tax was imposed, as it expressly enacts that "Nothing
contained in this Act shall be deemed to impose a tax on inter-State sales
". The argument is that the Explanation sales being inter-State sales and
the section having exempted them from taxation, they go out of the statute book
altogether, and do not exist for the purpose of the impugned Act. We are unable
to agree with this contention. Article 286(2) consists of two parts, one
imposing a restriction on the power possessed by the States to tax sales under
Entry 54 in so far as such sales are in the course of inter-State trade and
commerce and another, vesting in Parliament a power to enact a law removing
that restriction. If s. 22 had merely enacted that portion of Art. 286(2) which
prohibited imposition of taxes on interstate sales, that might have furnished
some plausible ground for the contention now urged by the petitioners. but it
enacts both the parts of Art. 286(2), 1453 the restriction imposed therein and
also the condition on which that restriction is to cease, viz., Parliament
providing otherwise by law. Taken along with the admitted power of the States
to impose tax on sales under Entry 54, the true scope of s. 22 is that it does
impose a tax on the Explanation sales, but the imposition is to take effect
only when Parliament lifts the ban. In other words, it is a piece of
legislation imposing tax in present but with a condition annexed that it is to
come into force in future as and when Parliament so provides. It is not
contended that there is in the Constitution any inhibition against conditional
legislation. In The Queen v. Burah (1), it was held by the Privy Council that a
legislature acting within the ambit of authority conferred on it by the
Constitution has the power to enact a law either absolutely or conditionally,
and that position has been repeatedly affirmed in this Court. Vide In The Delhi
Laws Act, 1912, etc. (2) and Sardar Inder Singh v. State of Rajasthan(3).
It would clearly be within the competence of
the Madras Legislature to enact a law imposing a tax on sales conditional on
the ban enacted in Art. 286(2) being lifted by Parliamentary legislation, and
that, in our opinion, is all that has been done in s. 22. The Madras Act
defines the event on which the tax becomes payable and the person from whom and
the rate at which it has to be levied, and forms a complete code on the topic
under consideration. It could have no immediate operation by reason of the bar
imposed by Art. 286(2), but when once that is removed by a law of Parliament,
there is no impediment to its being enforced.
That satisfies all the requirements of a
conditional legislation. But it was argued that s. 22 of the Madras Act could
not be so construed, because it was not open to the President acting in
exercise of the power conferred on him under Art. 372 (2) to impose a
conditional levy ; nor would it be competent to the Legislature of Madras to
make a levy conditional or otherwise, unless Parliament had authorised it. We
see no force in this argument. As (1) (1878) L.R. 5 I.A. 178. (2) [1951] S.C.R.
747.
(3) [1957] S.C.R. 605.
1454 Art. 286(2) is itself in two parts, one
a restriction on the power of the State and the other, a condition on which
such restriction will cease to operate, an adaptation made pursuant thereto
must also be similar in its contents. Nor is there in Art. 286 (2) any
prohibition of any legislation by tile State Legislature against enacting laws
imposing tax on interstate sales. It merely enacts that such law can have no effect.
The words "No law of a State shall impose " mean only that no such
law shall be effective to impose a tax.
It is also contended that under the Sales Tax
Acts, the levy of tax is annual and the rules contemplate submission of
quarterly returns and payment of taxes every quarter on the admitted turnover,
and that a conditional legislation under which payment of tax will become
enforceable in futuro would be inconsistent with the scheme of the Act and the
rules.
But this argument, when examined, comes to no
more than this that the existing rules do not provide a machinery for the levy
and the collection of taxes which might become payable in future, when
Parliament lifts the ban. Assuming that that is the true position, that does
not affect the factum of the imposition, which is the only point with which we
are now concerned. That the States will have to frame rules for realizing the
tax which becomes now payable is not a ground for holding that there is, in
fact, no imposition of tax.
It should also be mentioned in this
connection that the Madras Act makes a clear distinction between sales which
are outside the operation of the Act, and sales which are within its operation
but are exempt from taxation. Section 4 provides that the provisions of the Act
shall not apply to the sale of electrical energy, motor spirit, manufactured
tobacco and certain other articles. In contrast to this is the language of s.
22, which expressly enacts that the Act shall not be deemed to impose a tax on
inter-State sales, except in so far as Parliament may by law otherwise provide.
We are of opinion that, on the true
construction of s. 22 of the Act, there is an imposition of tax on Explanation
sales but that it could be enforced only when Parliament so provides.
1455 We have so far considered the question
on principle and on the language of the statute. We may now.,. refer to the
decisions of the High Courts, wherein this question has been considered. In
Mettur Industries Ltd. v. State of Madras (1), the point directly arose for
decision as to whether s.
22 of the Madras Act did. in fact, levy a tax
on the Explanation sales so as to fall within the protection of the Sales Tax
Laws Validation Act. It was held that the Explanation to s. 22 had' the effect
of rendering the sale one inside the State so as to fall within the definition
of that word in s. 2 (h), and that it was taxable. Next in point of time is the
decision of the Bombay High Court in Dial Das v. P. S. Talwalkar (2) in which
the question arose with reference to s. 46 of the Bombay Sales Tax Act (Bom.
III of 1953), corresponding to s. 22 of the
Madras Act. It was held that it did impose a tax, though it was to operate only
if Parliament so provided. Then, there are two decisions of the
Travancore-Cochin High Court, Mathew v. Travancore-Cochin Board of Revenue(3)
and Cochin Coal Co., Ltd. v. State Of Travancore-Cochin(4), in which it was
held that s. 26 of the Travancore-Cochin General Sales Tax Act corresponding to
s. 22 of the Madras Act, had not the effect of imposing, of its own force, a
tax on the Explanation sales, and the decision in Mettur Industries Ltd. v.
Madras State (supra) was not followed. In The -Mysore Spinning and
Manufacturing Co., Ltd. v. Deputy Commercial Tax Officer, Madras (5) the Madras
High Court re-affirmed the view which it had taken in Mettur Industries Ltd. v.
State of Madras (supra), and held that s. 22 had the effect of imposing a tax
on the Explanation sales. In The Government of Andhra v. Nooney Govindarajulu
(supra), the true effect of s. 22 of the Madras Act came up for consideration
before the Andhra High Court, and it was held therein, dffering from Mettur
Industries Ltd. v. State of Madras (1) and Dial Das v. P. S. Talwalkar (2) that
in view of the observations of this Court as to the scope of the (1) A.I.R.
1957 Mad. 362.
(2) A.I.R. 1957 Bom. 71.
(3) A.I.R. 1957 T.C. 300.
(4) (1956) 7 Sales Tax Cases 731.
(5) A.I.R. 1957 Mad. 368.
1456 Explanation in Art. 286 (1) (a), the
Explanation in s. 22 could not be construed as imposing a tax on the sales
mentioned therein, and that that conclusion also followed on the opening words
of the section that " Nothing contained in this Act shall be deemed to
impose, or authorise the imposition of a tax.................. For the reasons
already given, we are unable to agree with the decisions in Mathew v.
Travancore-Cochin Board of Revenue(1), Cochin Coal Co.
Ltd. v. State of Travancore-Cochin(2) and The
Government of Andhra v. Nooney Govindarajulu (3). We are of opinion that the
law has been correctly laid down in Mettur Industries Ltd. v. State of Madras
(4) and Dial Das v. P. S. Talwalkar (5). We accordingly hold that s. 22
operated to impose a tax falling within the Explanation, subject to
authorisation by Parliament as provided in Art. 286 (2). In this view, the
contention urged on behalf of the States that the Explanation to Art. 286 (1)
(a), being a provision of the Constitution, operated by its own force to impose
a tax on the sales covered by it, and did not require to be supplemented by any
State legislation to become effective, does not call for any detailed
consideration. Suffice it to say that it cannot be maintained if the true scope
of Art.
286 is to define and limit the powers of
State Legislatures with reference to imposition of sales tax and not to itself
impose it.
(11) That brings us on to the next question
which is whether the impugned Act, Sales Tax Laws Validation Act, is ultra
vires on the ground that it is not authorised by the terms of Art. 286 (2).
Now, it is a well-known rule of interpretation that in order to understand the
true nature and scope of an Act it is necessary to ascertain what the evils
were which were intended to be redressed by it. The starting point of the
trouble which ultimately led to the enactment of the impugned Act is the
Explanation to Art.
286(1)(a), which came into force on January
26, 1950. The terms in which it is worded undoubtedly suggest that sales (1)
A.I. R. 1957 T.C. 300.
(2) (1956) 7 Sales Tax Cases 731.
(3) (1957) 8 Sales Tax Cases 297.
(4) A.I.R. 1957 Mad. 362.
(5) A.I.R. 1957 Bom. 71.
1457 of the description mentioned therein are
to be treated as sales inside the delivery State for purposes of taxation.
That is how it would seem to have been
understood in the Adaptation Order under which s. 22 was inserted in the Madras
Sales Tax Act and in the Adaptation Orders relating to the Sales Tax Laws of
other States; for, as already stated, in a taxing statute the language of the
Explanation can only mean that a sale failing within its purview is an inside
sale enabling the State to tax it. In The United Motors case (1), the
construction put by this Court on the Explanation was that though but for it
the sales mentioned therein would be in the course of inter State trade and
commerce, its effect was to convert them into intrastate sales, so as to bring
them within the taxing power of the delivery State. It was only later that this
Court held finally in The Bengal Immunity Company case (2) that the Explanation
sales were not divested of their character as inter-State sales as the
Explanation to Art. 286 (1) (a) did not govern Art. 286 (2), and that in the
absence of Parliamentary legislation as contemplated by Art. 286 (2), taxation
of sales falling within its purview would be unconstitutional. This judgment
was delivered on September 6, 1955.
But acting on the apparent tenor and import
of the Explanation and the construction put upon it in The United Motors case
(1), the States in India had been levying taxes oil the sales falling within
its purview. The position on September 6, 1955, was that the States had imposed
and collected large amounts by way of tax on Explanation sales;
that there were proceedings pending for
assessment of tax on such sales; and that apart from this, the States would
have been entitled to take, but for the decision in The Bengal Immunity Company
case (2), proceedings for the assessment of tax in respect of those sales. Now,
the result of the decision in The Bengal Immunity Company case (2) was that the
levy of the tax on the Explanation sales became unauthorised and the States
were faced with large claims for restitution of the (1) [1953] S.C.R. 1069.
(2) [1955] 2 S.C.R. 603.
1458 amounts realised, involving threat to
their economic stability. It should also be mentioned that quite a large number
of dealers had, acting under provisions of the Sales Tax Acts which empowered
them to pass the tax on, collected it from their purchasers for the purpose of
payment to the State, and as after the decision in The Bengal Immunity Company
case (1) they could no longer be called upon to pay it, they stood to make an
unjust gain of it.
These were the evils which called for
redress, and it was to remedy them that Parliament enacted the Sales Tax
Validation Ordinance No. III of 1956, and eventually replaced it by the
impugned Act. Section 2 of the Act provides that no law of a State imposing a
tax on sales which took place in the course of interState trade or commerce
between April 1, 1951, and September 6, 1955, shall be deemed to be invalid or
ever to have been invalid merely by reason of the fact that such sales were in
the course of inter-State trade.
The section further provides that all taxes
levied or collected under such a law during the specified period shall be
deemed to have been validly levied or collected. The policy behind the Act is
obviously to declare the law as interpreted in The United Motors case (2) as
the law governing sales filling within the Explanation up to the date of the
judgment in The Bengal Immunity Company case(1) and to give effect to the law
as laid down in that decision for the sales effected subsequent thereto.
The question is whether this Act is
unconstitutional as being ultra vires the powers of Parliament tinder Art' 286
(2). The petitioners maintain that it is, and put forward several grounds in
support of that position. It is firstly contended by them that under Entry 54
in List II, the power to make laws in respect of tax on sales is vested
exclusively in the States, that the power which is conferred on Parliament
under Art. 286(2) is only to enact a law directing or permitting the States to
impose a tax on inter States sales and not to itself enact a law with reference
thereto that the impugned Act being one to validate Sales (1) [1955] 2 S.C.R.
603.
(2) [1953] S.C.R. 1069.
1459 Tax Laws is substantive in character and
is not authorised by the terms of Art. 286 (2) and is, in consequence,
unconstitutional. It is argued that to validate is to confirm or ratify, and
that can be only in respect of acts which one could have himself performed, and
that if Parliament cannot enact a law relating to sales tax, it cannot validate
such a law either, and that such a law is accordingly unauthorised and void.
The only basis for this contention in the Act is its description in the Short
Title as the " Sales Tax Laws Validation Act " and the marginal note
to s. 2, which is similarly worded. But the true nature of a law has to be
determined not on the label given to it in the statute but on its substance.
Section 2 of the impugned Act which is the only substantive enactment therein
makes no mention of any validation. It only provides that no law of a State
imposing tax on sales shall be deemed to be invalid merely because such sales
are in the course of inter-State trade or commerce. The effect of this
provision is merely to liberate the State laws from the fetter placed on them
by Art. 286 (2) and to enable such laws to operate on their own terms. The true
scope of the impugned Act is, to adopt the language of this Court in the
decisions in The United Motors case (1) and The Bengal Immunity Company case
(2), that it lifts the ban imposed on the States against taxing inter-State
sales and not that it validates or ratifies any such law. Considering the
legislation on its substance, we have .no doubt that it is within the scope of
the authority conferred on Parliament by Art. 286 (2) and is not ultra vires.
It is next contended that the impugned Act is
wholly retrospective in character in that it operates on sales which took place
during the specified period, and that such a legislation is, having regard to
the intendment of Art.
286 (2), outside its terms. It is argued that
this Article, to start with, enacts a restriction on the power of the State to
impose taxes on inter-State sales and then vests in Parliament a power (1)
[1933] S.C.R. 1069.
(2) [1955] 2 S.C.R. 603.
185 1460 to remove that restriction, and that
in logical sequence therefore, there should first be a legislation by
Parliament authorising the States to impose a tax on inter State sales and then
a law of the State made in accordance therewith, and that that order having
been reversed in the present case, the impugned Act is unconstitutional. We do
not agree with this contention. Article 286 (2) merely provides that no law of
a State shall impose tax on inter-State sales " except in so far as
Parliament may by law otherwise provide ". It places no restrictions on
the nature of the law to be passed by Parliament. On the other hand, the words
" in so far as " clearly leave it to Parliament to decide oil the
form and nature of the law to be enacted by it. What is material to observe is
that the power conferred on Parliament under Art. 286 (2) is a legislative
power, and such a power conferred on a Sovereign Legislature carries with it
authority to enact a law either prospectively or retrospectively, unless there
can be found in the Constitution itself a limitation on that power. Now, there
is nothing express in Art. 286 (2) imposing a restriction on the power of
Parliament to enact a law with retrospective operation. But it is argued for
the petitioners that such a restriction is to be implied from the scheme of it,
which is that there is a prohibition on the power of the State to enact a law
imposing tax on inter-State sales, unless Parliament lifts the ban, and it is
said that a prohibition operates only in future and therefore a law removing
that prohibition must also operate in future. The decision of the Privy Council
in Punjab Province v. . Daulat Singh (1) is relied on in support of this
proposition. There, the question arose with reference to the validity of a
mortgage of agricultural lands in the Punjab executed in the year 1933. Section
13-A of the Punjab Alienation of Land Act which came into force in 1939 enacted
that transfer of a land by a member of an agricultural tribe in favour of
another member of the tribe was void if the transferee was a benamidar for a
person who was not a member of that tribe, whether such transfer was (1) (1946)
L.R. 73 I.A. 59.
1461 made before or after the Act. The
mortgagee instituted a suit, challenging the vires of this section on the
ground that it contravened s. 298(1) of the Government of India Act, 1935,
which provided that no subject of His Majesty domiciled in India shall be
prohibited from acquiring, holding or disposing of property on grounds only of
religion, place of birth or descent. The mortgagor in reply relied on s. 298
(2) which enacted that nothing in that section shall affect the operation of
any law which prohibits the sale or mortgage of agricultural land situate in
any particular area and owned by a person belonging to the agriculturist class.
In rejecting this contention, the Privy Council observed that what was saved by
s. 298 (2) was a law prohibiting certain kinds of transfers, that the word
" prohibition " could properly apply only to acts to be done in
futuro, and that the impugned provision, s. 13-A, was intra vires the
Constitutional provision in so far as it prohibited transfers after the date of
its enactment, but to the extent that it avoided transfers which had taken
place prior to that date, it was ultra vires. This decision proceeded solely on
the connotation of the word " prohibits " in s. 298 (2) of the
Government of India Act, and can be of no assistance in the construction of
Art. 286 (2), wherein that word does not occur. And even on the substance of
it, we see no real analogy between the case in Punjab Province v. Daulat Singh
(1) and the present. There, the law which was authorised by s. 298 (2) was one
prohibiting certain transfers; here the law which Parliament is authorised to
make is one not prohibiting the States from imposing tax on inter-State sales,
but permitting them to do so. While a law prohibiting transfers must be prospective,
a law authorising imposition of tax need not be. It can be both prospective and
retrospective.
A decision more directly in point is the one
in The United Provinces v. Atiqa Begum(2). There, the question arose on the
construction of s. 292 of the Government of India Act, 1935, which enacted
that, " Notwithstanding the repeal by this Act of the (1) (1946) I. R. 73
I. A. 59.
(2) [1940] F. C. R. 110.
1462 Government of India Act, but subject to
the other provisions of this Act, all the law in force in British India
immediately before the commencement of Part III of this Act shall continue in
force in British India until altered or repealed or amended by a competent
Legislature or other competent authority." The Legislature of the United
Provinces had enacted a law modifying the pre-existing law relating to the
payment of rents by tenants to landlords and giving it retrospective operation.
The question was whether the enactment was repugnant to s. 292 which had
provided that the preexisting law was to continue in force until it was
altered. It was held that the power of a legislature to pass a law included a
power to pass it retrospectively, and that the words of s. 292 did not operate
to impose any restriction on that power, and that the legislation was intra
vires. In our opinion, the principle of this decision is applicable to the
present case, and the impugned Act cannot be held to be bad on the ground that
it is retrospective in operation.
It is next contended that the impugned Act is
ultra vires, inasmuch as it is much more than a mere retrospective law, and
that it is really a piece of ex post facto legislation, which is not authorised
by Art. 286(2). The argument in support of this contention may thus be stated :
A' State legislature is competent under Entry 54 in List II to enact a law
taxing sale of goods, and when such a law is made to operate retrospectively it
may not be open to challenge on constitutional grounds, though its propriety
may be open to question on grounds of policy. Parliament has no competence to
enact laws in respect of tax on sales filling within Entry 54 in List 11, but
Art. 286(2) confers on it a power to authorise the States to impose a tax on
inter-State sales. The impugned Act does not do that, but validates ex post facto
laws of States imposing such a tax retrospectively for the specified period.
Such a general law may be intra vires the States but not Parliament, nor is it
one which can be justified by the power granted to it to " provide
otherwise." It is therefore unconstitutional and void, In 1463 our
opinion, this argument is only an amalgam of the two contentions already dealt
with, and does not require further detailed consideration. The impugned Act,
though it is in name a validating Act, is in essence a law lifting the ban
under Art. 286 (2), and if no limitation on the character of that law could be
spelt out of the language of that Article, then it must be upheld as within the
authority conferred by it.
It is also argued that even if the power to
make a law conferred on Parliament under Art. 286 (2) comprehends a power to
enact a law with retrospective operation, that power cannot extend to
authorising what is unconstitutional, and that as s. 22 of the, Madras Act and
the corresponding provisions in the statutes of other States were
unconstitutional and illegal when made as contravening the prohibition enacted
in Art. 286 (2), the impugned Act must be held to be unauthorised and bad in
that it seeks to give effect to those provisions. But this is to beg the very
question which we have to decide. If it is competent to the legislatures of the
States to enact a law imposing a tax on inter-State sales to take effect when
Parliament so provides, there is nothing unconstitutional or illegal either in
s. 22 of the Madras Act or in the corresponding provisions in the Acts of other
States. If conditional legislation is valid, as we have held it is, then s. 22
is clearly intra vires, and the foundation on which this contention of the
petitioners rests, disappears and it must fall to the ground. In the result, we
are of opinion that the impugned Act is intra vires, and is not open to
challenge on any of the grounds put forward by the petitioners.
(111) (a). We have now to consider the
contention that even if the impugned Act is valid, that would not give efficacy
to s. 22 of the Madras Act or the corresponding provisions in the laws of other
States which came in by adaptation under Art. 372 (2). The ground urged in
support of this contention is that the expression " law of a State "
in Art. 286 (2) has a technical import, and means a law which is enacted by the
legislature of a State in the manner prescribed by the Constitution and open to
challenge in courts if 1464 it is unconstitutional, that that expression
occurring ,-in s. 2 of the impugned Act must bear the same meaning which it has
in Art. 286 (2) as it was enacted, pursuant to the authority contained therein,
and that s. 22 of the Madras Act is not a law of that description, as it was
made by the President in exercise, of the special power conferred on him by
Art. 372 (2), and is, as provided therein, not open to attack in a court of
law.
We do not see why we should restrict the
connotation of the words " law of a State " in the manner contended
above. The law of a State signifies, in its ordinary acceptation, whatever is
an expression of the legislative, as distinguished from the executive or
judicial power of a State. Its normal mode under the Constitution is no doubt
that it is enacted by the legislature of the State constituted in accordance
with the procedure prescribed therein. But that is not the only mode in which
the legislative power of the State could be exercised. Under Art. 213, the
Governor is authorised, subject to the conditions laid down therein, to issue
Ordinances which have the force of law, and these Ordinances are clearly laws
of the State and not the less so by reason of their not having been passed by
the State legislature. Under Art. 252, it is open to Parliament acting on
resolutions of the legislatures of two or more States, to enact laws on
subjects which are within the exclusive competence of the States, a recent
instance of such legislation being Act 42 of 1955, the validity of which was
the subject of consideration in R. M. D. Charnarbaugwalla v. Union of India(1).
Can it, be contended that these are not laws of the States for which they were
enacted, because they were not passed by the legislatures of those States ? We
entertain no doubt that by the expression " law of a State " in Art.
286 (2) and s. 2 of the impugned Act is meant whatever operates as law in the
state, and that s. 22 of the Madras Act is a law within those enactments. Nor
does it affect this conclusion that that law may not be open to challenge in a
court of law. A right to challenge a (1) [1957] S.C.R. 930.
1465 law must depend on the provisions of the
Constitution governing the matter, and if those provisions enact that it is not
open to question in a court of law or' that it is liable to be questioned only
on certain specified grounds, that will not have the effect of depriving a
statute duly enacted of its character as law. We are also not satisfied that a
law as adapted under Art. 372 (2) is not open to attack on the ground that it
contravenes some constitutional provision. We are disposed to think that the
concluding words of Art. 372 (2) preclude an attack on the Adaptation Order
only on the ground that it does more than merely bringing the State law into
conformity with the Constitution and is, in consequence, ultra vires the powers
conferred by that article. In the result, we must hold that s. 22 of the Madras
Act is within the protection afforded by s. 2 of the impugned Act.
(111) (b) : The next contention of the
petitioners that falls to be considered is whether even on the footing that the
impugned Act is intra vires the powers of Parliament under Art. 286 (2), the
proceedings which are proposed to be taken by the State of Andhra against them
for assessment of tax are incompetent, because the Act validates only levies or
collections made during the specified period but does not authorise the
initiation of fresh proceedings for levy or collection of tax. It is contended
that though s. 2 of the impugned Act consists of two clauses, one giving effect
to laws of States imposing tax on inter-State sales in so far as they took
place during the specified period and the other validating levy or collection
of tax made during that period, the first clause has no independent operation,
the only purpose which it serves being to lead up to the second which is the
only effective clause in the section. It is argued that if the intention of the
legislature was not merely to validate the levies or collections already made
but also to maintain the laws in force so as to enable the States to take fresh
proceedings for assessment and levy of tax, then there was no need whatsoever
for the second clause, as effectuation of the Act would automatically validate
the levies and collections made there under. It is said 1466 that the object of
the legislation was only to see that the States had not to refund amounts
collected by them, and that for achieving that object it was necessary only to
give effect to the second clause. The decision in Dialdas v. P. S. Talwalkar
(1) already cited, was relied on as supporting the petitioners on this point.
In our judgment, the language of the
enactment is too clear and unambiguous to admit of this contention. If the
purpose of the enactment is what the petitioners contend it to be, then nothing
would have been easier for the legislature than to have so framed the section
as to confine its operation to levies or collections already made, without
giving effect to the law itself. On the contention of the petitioners, the
first clause has to be discarded as wholly inoperative, and we should be 10th
to adopt a construction which leads to that result. It is true that on the
contention of the State that the first clause has independent operation the
second clause would be unnecessary, as even without it, the result sought to be
achieved by it must follow on the first clause itself. But it is to be noted
that the first clause has reference to the exercise of legislative power while
the second is concerned with administrative action, and it is possible that the
second clause might have been enacted by way of abundant caution. It is nothing
strange or unusual for a legislature to insert a provision ex abundanti
cautela, so as to disarm possible objection; but it is inconceivable that it
should enact a provision which is wholly inoperative. Of two alternative
constructions of which one leads to the former and the other involves the
latter result, there cannot be any question that it is the former that is to be
preferred. Nor is it permissible to cut down the plain meaning of the terms of
the statute on considerations of policy behind the legislation. But even from
that point of view, there was the fact that there were dealers who had
collected taxes from their purchasers for payment to the State, but were
relieved of (1) A.I.R. 1957 Bom. 71.
1467 that obligation by the judgment in The
Bengal Immunity Company case (1) and that, further, to validate only levies and
collections made would give an advantage to those who evaded the law as then
understood, over those who loyally obeyed it. It follows that we are unable to
agree with the decision in Dialdas v. P. S. Talwalkar (2), in so far as it held
that it was not competent to the State to start fresh proceedings for
assessment of tax on the strength of the impugned Act. In our opinion, the true
construction of s. 2 is that the two clauses therein are, as indicated by the
conjunction, distinct and independent in their operation, and that the laws of
the States are kept in force in respect of sales which had taken place during
the specified period, and that proceedings in respect thereof for assessment
are within the protection of the Act.
It was next argued that the impugned Act is a
temporary statute, as its operation is limited to sales which took place during
the specified period, and that period having expired, no proceedings could now
be taken on the strength of the provisions of that Act, and reliance was placed
on the observations of this Court in Keshavan Madhava Menon v. The State of
Bombay (3), in support of this position. But the impugned Act is in no sense a
temporary Act. Its life is not limited to any specified period. It is a
permanent statute operating on all sales which took place during the specified
period. The fallacy in this contention of the petitioners lies in mixing up the
period, the sales during which are brought within the operation of the Act,
with the period of the operation of the Act itself. The former may be said to
be temporary, but the latter clearly is not.
(IV) It is next contended that even if the
impugned Act authorised starting of fresh proceedings for assessment of tax on
the Explanation sales which had taken place during the specified period, no
action in that behalf could be taken under s. 22 of the (1) [1955] 2 S.C.R.
603. (2) A.I.R. 1957 Bom. 71.
(3) [1951] S.C.R. 228, 235.
186 1468 Andhra (Madras) Act, because it was,
when it was enacted, repugnant to Art. 286(2) of the Constitution, and was
therefore void. It is argued that a statute which is unconstitutional is a
nullity and must be treated as non est and that the impugned Act could not
infuse life into it. It may be open, it is said, to the Legislature of the
State of Andhra to enact a fresh law giving it even retrospective operation as
provided in the impugned Act, but in the absence of such a legislation, the
provisions of the Act as they stood prior to the impugned Act are incapable of
enforcement. It would be sufficient answer to this contention that s. 22 of the
Madras Act is only a piece of conditional legislation, imposing tax on inter State
sales when Parliament should enact a law lifting the ban, and if such
legislation is competent as we have held it is, then no question of
unconstitutionality of the section when it was enacted could arise. But it
would be more satisfactory to decide the point on its own merits, as the
question raised has been, of late, the subject of considerable discussion in
this Court.
Now, in considering the question as to the
effect of unconstitutionality of a statute, it is necessary to remember that
unconstitutionality might arise either because the law is in respect of a
matter not within the competence of the legislature, or because the matter
itself being within its competence, its provisions offend some constitutional
restrictions. In a Federal Constitution where legislative powers are
distributed between different bodies, the competence of the legislature to
enact a particular law must depend upon whether the topic of that legislation
has been assigned by the Constitution Act to that legislature. Thus, a law of
the State on an Entry in List 1, Sch. VII of the Constitution would be wholly
incompetent and void. But the law may be on a topic within its competence, as
for example, an Entry in List II, but it might infringe restrictions imposed by
the Constitution on the character of the law to be passed, as for example,
limitations enacted in Part III of the Constitution. Here also, the law to the
extent of the repugnancy will be 1469 void. Thus, a legislation on a topic not
within the competence of the legislature and a legislation within its
competence but violative of constitutional limitations have both the same
reckoning in a court of law; they are both of them unenforceable. But does it
follow from this that both the laws are of the same quality and character, and
stand on the same footing for all purposes ? This question has been the subject
of consideration in numerous decisions in the American Courts, and the
preponderance of authority is in favour of the view that while a law on a
matter not within the competence of the legislature is a nullity, a law on a
topic within its competence but repugnant to the constitutional prohibitions is
only unenforceable. This distinction has a material bearing on the present
discussion. If a law is on a field not within the domain of the legislature, it
is absolutely null and void, and a subsequent cession of that field to the
legislature will not have the effect of breathing life into what was a
still-born piece of legislation and a fresh legislation on the subject would be
requisite. But if the law is in respect of a matter assigned to the legislature
but its provisions disregard constitutional prohibitions, though the law would
be unenforceable by reason of those prohibitions, when once they are removed, the
law will become effective without re-enactment.
Willoughby on the Constitution of the United
States, Vol. 1, at p. 11 says :
" The validity of a statute is to be
tested by the constitutional power of a legislature at the time of its
enactment by that legislature, and, if thus tested it is beyond the legislative
power, it is not rendered valid, without re-enactment, if later, by
constitutional amendment, the necessary legislative power is granted.
However, it has been held that where an act
is within the general legislative power of the enacting body, but is rendered
unconstitutional by reason of some adventitious circumstance, as for example,
when a State legislature is prevented from regulating a matter by reason of the
fact that the Federal 1470 Congress has already legislated upon that matter, or
by reason of its silence is to be construed as indicating that there should be
no regulation, tile act does not need to be re-enacted in order to be enforced,
if this cause of its unconstitutionality is removed." In Cooley on
Constitutional Law at p. 201, it is stated that " a finding of
unconstitutionality does not destroy the statute but merely involves a refusal
to enforce it". In Wilkerson v. Rahrer (1), the State of Kansas had
enacted a law in 1889 forbidding the sale of intoxicating liquor.
This was bad in so far as it related to sales
in the course of interstate trade, as it was in contravention of the Commerce
Clause. But in 1890, the Congress passed a law conferring authority on the
States to enact prohibition laws. The question was whether a prosecution under
the law of 1889 in respect of a breach of that law subsequent to the Congress
legislation in 1890 was maintainable. Repelling the contention that the statute
of 1889 was a nullity when it was passed and could not be enforced without
reenactment, the Court observed:
" This is not the case of a law enacted
in the unauthorized exercise of a power exclusively confided to Congress, but
of a law which it was competent for the State to pass, but which could not
operate upon articles occupying a certain situation until the passage of the
Act of Congress. That Act in terms removed the obstacle, and we perceive no
adequate ground for adjudging that a re-enactment of the state law was required
before it could have the effect upon imported which it had always had upon
domestic property." It should be noted that in this case the law of 1889
applied to intrastate sales also, and it was admittedly valid to that extent.
The impugned legislation was therefore unconstitutional only in part.
Rottschafer after referring to the conflict of authorities on 'this question in
the States, refers to the decision in Wilkerson v. Rahrer (1) as embodying the
better view. Vide American Constitutional Law, 1939 Edn. p. 39.
A similar view was taken in Ulster Transport
(1) (1891) I40 U.S. 545; 35 L. Ed. 572.
1471 Authority v. James Brown & Sons Ltd.
(1). There, construing s. 5(1) of the Act of 1920 which enacts that " any
law made in contravention of the restrictions imposed by this subsection shall
so far as it contravenes these restrictions, be void ", Lord MacDermott L.
C. J. observed:
" I am not aware of any authority for
the view that language such as this necessarily means that contravention must
produce an actual gap in the statute book in the sense that the measure
concerned, or some specific part thereof, simply drops out of the authorized
text. As well as this vertical severability, if I may so describe it, I see no
reason why, if the circumstances warrant such a course, the terms of section
5(1) should not be sufficiently met by what I may call a horizontal severance,
a severance that is which, without excising any of the text, removes from its
ambit some particular subject-matter, activity or application.
This, I think, would give effect to the words
' so far as it contravenes' without impinging on the meaning or weight to be
attached to the word ' void '. " It will be noted that this decision also
deals with a statute which was in part unconstitutional.
Coming to the authorities of this Court where
this question has been considered: In Behram Khurshed Pesikaka v. The State of
Bombay (2) the question arose with reference to the Bombay Prohibition Act of
1949 which, subject to certain exceptions provided therein, prohibited the
consumption of liquor. In The State of Bombay and another v. F. N. Balsara (3)
this Court had held that this provision was obnoxious to Art. 19(1)(g) of the
Constitution in so far as it related to medicinal and toilet preparations
containing alcohol. The appellant was prosecuted for the offence of consuming
liquor, and his defence was that he had taken medicine containing alcohol. The
point in dispute was whether the burden was upon the appellant to prove that he
had taken such a medicine or for the prosecution to show that he had not. This
(1) (1953) Northern Ireland Reports 79.
(2) [1955] 1 S. C. R. 613, 654. (3) [1951] S.
C. R. 682.
1472 Court held that the onus was on the
prosecution, and the same not having been discharged, the appellant was entitled
to be acquitted. In the course of the judgment, Mahajan C.
J. made the following observations, which are
relied on by the petitioners:
" The constitutional invalidity of a
part of section 13(b) of the Bombay Prohibition Act having been declared by
this Court, that part of the section ceased to have any legal effect in judging
cases of citizens arid had to be regarded as null and void in determining
whether a citizen was guilty of an offence." It must be observed that the
question of the constitutionality of the Act did not arise directly for determination
and was incidentally discussed as bearing on the incidence of burden of proof.
And further, these observations have reference to the enforceability of the
provisions of the Bombay Prohibition Act, while the bar under Art. 19 continued
to operate. There was no question of the lifting of ban imposed by Art. 19,
'and the question as to the effect of lifting of a ban did not arise for
decision. In the context in which they occur, the words " null and void
" cannot be construed as implying that the impugned law must be regarded
as non est so as to be incapable of taking effect, when the bar is removed.
They mean nothing more than that the Act is unenforceable by reason of the bar.
In A. V. Fernandez v. State of Kerala (1) the
question arose with reference to the Travancore-Cochin General Sales Tax Act
and the Rules made there under. Prior to the Constitution, the assessees were
liable to pay tax on the total turnover of sales including those inside the
State and those outside the State. Where the sales were of coconut oil, there
was a provision for deduction of the price paid for the purchase of copra from
the total turnover. After the coming into force of the Constitution, a new
section, s. 26, corresponding to s. 22 of the Madras Act, was introduced
incorporating therein the provisions of Art. 286, and consequent thereon, the
sales which took place outside the State were excluded from the turnover. On
this, (1) [1957] S. C. R. 837.
1473 a question arose as to the quantum of
deduction to which the assessee was entitled in respect of his purchase of
copra.
He claimed that he was entitled to deduct the
price paid for copra not only in respect of oil which was sold inside the State
but also oil sold outside the State. This contention was rejected by the High
Court, which limited the deduction to purchase of copra relating to the sales
inside' the State, and in affirming that decision, this Court observed :
" In our opinion, section 26 of the Act,
in cases falling within the categories specified under Article 286 of the
Constitution has the effect of setting at nought and of obliterating in regard
thereto the provisions contained in the Act relating to the imposition of tax
on the sale or purchase of such goods and in particular the provisions
contained in the charging section and the provisions contained in rule 20(2)
and other provisions which are incidental to the process of levying such tax.
So far as sales falling within the categories specified in Article 286 of the
Constitution and the corresponding section 26 of the Act are concerned, they
are, as it were, taken out of the purview of the Act and no effect is to be
given to those provisions which would otherwise have been applicable if section
26 had not been added to the Act. " On the strength of the above
observations, the petitioners contend that the provisions relating to
inter-State sales must be treated as non-existent, and that, therefore, a fresh
enactment of the statute would be necessary to bring them into operation. Here
again, the point for decision was only as to the effect of the ban under Art.
286 on the transactions which came within its purview. That ban had not then
been lifted and the effect of the lifting of such a ban on the existing law did
not fall to be considered. We are unable to read the observations relied on by
the petitioners as implying that s. 22 of the Madras Act must be taken to have
been blotted out of the statute book.
A case directly in point is Bhikaji Narayan
Dhakras and others v. The State of Madhya Pradesh and another (1).
There, the question arose with reference (1)
[1955] 2 S. C. R. 589.
1474 to the C. P. & Berar Motor Vehicles
(Amendment) Act, 1947 (Act 3 of 1948). That Act had amended s. 43 of the Motor Vehicles
Act, 1939, by introducing provisions which authorised the Provincial Government
" to take up the entire motor transport business in the Province and run
it in competition with and even to the exclusion of motor transport operators
". These provisions, though valid at the time when they were enacted,
became void on the coming into force of the Constitution as infringing the
rights of citizens to carry on business, protected by Art. 19(1)(g).
The Constitution, however, was amended on
June 18,1951, and Art. 19(6) was amended so as to authorise the State to carry
on business " to the exclusion, complete or partial, of citizens or
otherwise ". Subsequent to this amendment, the Government issued a
notification under s. 43 of the Amendment Act of 1948, and it was the validity
of that notification that was in issue. The contention was that as s. 43 of the
Act of 1948 had become void at the date of the Constitution, a notification
issued by the Government under that section after the date of the amendment of
the Constitution was not valid, as it must be taken to have become non est. It
was held by this Court that s. 43 of the Act of 1948 could not be held to have
been effaced out of the statute book, because it continued to operate on
transactions prior to the coming into force of the Constitution, and that even
after the Constitution, it would be operative as against non-citizens, that the
consequence of s. 43 being repugnant to Art. 19(1)(g) was that it could not be
enforced so long as the prohibition contained therein was in force, but that
when once that prohibition had been removed as it was by the First Amendment, the
provisions of that Act which had been dormant all the time became active and
enforceable.
The result of the authorities may thus be
summed up: Where an enactment is unconstitutional in part but valid as to the
rest, assuming of course that the two portions are severable, it cannot be held
to have been wiped out of the statute book as it admittedly must remain there
for the purpose of enforcement of 1475 the valid portion thereof, and being on
the statute book, even that portion which is unenforceable on the ground that
it is unconstitutional will operate proprio vigore when the Constitutional bar
is removed, and there is no need for a fresh legislation to give effect
thereto. On this view, the contention of the petitioners with reference to the
Explanation in s. 22 of the Madras Act must fail. That Explanation operates, as
already stated, on two classes of transactions. It renders taxation of sales in
which the property in the goods passes in Madras but delivery takes place
outside Madras illegal on the ground that they are outside sales falling within
Art. 286(1) (a). It also authorises the imposition of tax on the sales in which
the property in the goods passes outside Madras but goods are delivered for
consumption within Madras. It is valid in so far as it prohibits tax on outside
sales, but invalid in so far as sales in which goods are delivered inside the
State are concerned, because such sales are bit by Art. 286(2).
The fact that it is invalid as to a part has
not the effect of obliterating it out of the statute book, because it is valid
as to a part and has to remain in the statute book for being enforced as to
that part. The result of the enactment of the impugned Act is to lift the ban
under Art. 286(2), and the consequence of it is that that portion of the
Explanation which relates to sales in which property paws outside Madras but
the goods are delivered inside Madras and which was unenforceable before,
became valid and enforceable. In this view, we do not feel called upon to
express any opinion as to whether it would make any difference in the result if
the impugned provision was unconstitutional in its entirety.
There is one other aspect of the question to
which reference must be made. The decisions in Behram Khurshed Pesikaka v. The
State of Bombay (1) and Bhikaji Narain Dhakras and others v. The State of
Madhya Pradesh and another (2) both turn on the construction of Art. 13 of the
Constitution, which enacts that laws shall be void to the extent they are (1)
[1955] 1 S.C.R. 613. 187 (2) [1955] 2 S.C.R. 589, 187 1476 repugnant to the
provisions of Part III. We are concerned in these petitions not with
infringement of any of the provisions of Part III but of Art. 286(2), and the
point for our decision is as to the effect of the infringement of that
provision. Art. 286(2) does not provide that a law which contravenes it is
void, and when regard is had to the context of that provision, it is difficult
to draw the inference that that is the consequence of contravention of that
provision. Art. 372(1) provides for the continuance in force of all laws
existing at the date of the Constitution.
The proviso to Art. 286(2) enacts that the
President may by an order continue the operation of the Sales Tax Laws up to
March 31, 1951, and Art. 286(2) itself enacts that no law of a State shall
impose a tax. In the context in which they occur, the true meaning to be given
to these words is, as already observed, that no law of a State shall be
effective to impose a tax; that is to say, the law cannot be enforced in so far
as it imposes such a tax. Whether we consider the question on broad principles
as to the effect of unconstitutionality of a statute or on the language of Art.
286(2), the conclusion is inescapable that s.
22 of the Madras Act and the corresponding provisions in the other statutes
cannot be held to be null and void and non est by reason of their being,
repugnant to Art. 286(2) and the bar under that Article having been now
removed, there is no legal impediment to effect being given to them.
(V) We shall now deal with the contention of
the learned counsel for the Madura Mills Ltd., who struck a new path cutting
across the lines on which the petitioners and the other interveners proceeded.
He contended that the decisive factor in the determination of the question was
Entry 42 in List I of the Seventh Schedule, "Inter-State trade and
commerce", that under that Entry, Parliament had the exclusive power to
enact laws in respect of inter-State trade and commerce and that included power
to impose a tax on inter-State sales, that the States had therefore no
competence under the Constitution to enact a law imposing tax on such sales,
that the laws passed 1477 by the States after the Constitution imposing such a
tax were ultra vires and void, that the impugned Act purporting to give effect
to such laws was likewise ultra vires and inoperative, and that, in
consequence, the proceedings sought to be taken under s. 22 of the Madras Act
and the corresponding provisions in the sister Acts of other States were unauthorised
and illegal. The argument in support of this contention was as follows: Entry
42 in List I is based on the Commerce Clause of the American Constitution, Art.
1, s. 8 that " The Congress shall have power to regulate commerce among
the several States ", and that has been interpreted by the Supreme Court
of the United States as meaning that the States have no power to enact a law
imposing a tax on the carrying on of inter-State trade (Vide Robins v. Taxing
District of Shelby County (1), or imposing tax on inter-State sales (Vide
McLeod v. Dilworth Co. (2)).
The contents of Entry 42 are the same as
those of the Commerce Clause, and it must therefore be construed as of the same
effect. It is also a well-established rule of construction that the Entries in
the Legislative Lists must be interpreted liberally and in a wide sense. The
true interpretation therefore to be put upon Entry 42 is that Parliament has,
and therefore, in view of the non-obstante clause in Art. 246(1) and of the
words "subject to" in Art.
246(3), the States have not, the power to
impose tax on inter-State sales. Article 301 which provides that trade and
commerce in the territory of India shall be free is also intended to achieve
the same result. It reproduces s. 92 of the Commonwealth of Australia
Constitution Act, and the authorities on that section have held that imposition
of a tax on inter-State trade would be obnoxious to that provision. That the
freedom in Art. 301 includes freedom from taxation is also implicit in Art. 304
(a) in which an exception to Art. 301 is made in respect of the imposition of
tax on goods imported from other States. The result is, it is argued, that
after the Constitution no law of a State can impose a tax on (1) (1887) 120
U.S. 489; 30 L. Ed. 694.
(2) (1044) 322 U.S. 327 ; 88 L. Ed. 1304.
1478 inter-State sales, and in consequence,
s. 22 of the Madras Act, which came into force after the Constitution, would,
if it is construed as imposing a tax, be bad, and the impugned Act which
proceeds on the view that the States have the power to enact laws imposing a
tax on inter-State sales and seeks to give effect to them would also be
unconstitutional and void.
This contention suffers, in our opinion, from
serious infirmities. It overlooks that our Constitution was not written on a
tabula rasa, that a Federal Constitution had been established under the
Government of India Act, 1935, and though that has undergone considerable
change by way of repeal, modification and addition, it still remains the
framework on which the present Constitution is built, and that the provisions
of the Constitution must accordingly be read in the light of the provisions of
the Government of India Act. It fails to give due weight to the setting of the
relevant provisions of the Constitution and the interpretation which is to be
put upon them in their context. In the Government of India Act, 1935, there was
no Entry corresponding to Entry 42 in List I of the Constitution. But there was
in List II, Entry 48 which corresponds to Entry 54 in the Constitution. It is
not in dispute that under Entry 48 the States had power to pass a law imposing
a tax on inter-State sales, because the terms of the Entry are wide and would
include inter-State as well as intrastate sales. It was on this view that the
Provinces had enacted laws imposing tax on inter-State sales. Then the Constitution
came into force, and it included for the first time a new Entry 42 in List 1.
It also reproduced Entry 48 in Entry 54 in List II in terms, for our -purposes,
identical.
Having regard to the connotation of that
Entry in the Government of India Act, 1935, one would have expected that if it
was intended by the Constitution-makers that the States should be deprived of
the power to tax interstate sales which they had under Entry 48 in the
Government of India Act, that would have been made clear in the Entry itself.
It is material to note that while Entry 48 in the Government 1479 of India Act
was "Taxes on the sale of goods and on advertisement ", Entry 54 in
List II of the Constitution as originally enacted was " Taxes on the' sale
or purchase of goods other than newspapers". Thus, the Constitution did
limit the scope of Entry 48 by excluding from it newspapers, and if it was its
intention to exclude inter-State sales from its purview, nothing would have
been easier for it than to have said so, instead of leaving that result to be
inferred on a construction of Entry 42 in List I in the light of the American
authorities on the Commerce Clause.
This Is strong indication that Entry 42 is
not to be read as including tax on inter-State sales. This conclusion is
further strengthened, when regard is had to the scheme of the Lists in the
Seventh Schedule and the principle underlying the enumeration of heads of
legislation therein.
In List 1, Entries I to 81 mention the
several matters over which Parliament has authority to legislate. Entries 82 to
92 enumerate the taxes which could be imposed by a law of Parliament. An
examination of these two groups of Entries shows that while the main subject of
legislation figures in the first group, a tax in relation thereto is separately
mentioned in the second. Thus, Entry 22 in List I is " Railways ",
and Entry 89 is " Terminal taxes on goods or passengers, carried by
railway, sea or air; taxes on railway fares and freights ". If Entry 22 is
to be construed as involving taxes to be imposed, then Entry 89 would be
superfluous. Entry 41 mentions "Trade and commerce with foreign countries;
import and export across customs frontiers ". If these expressions are to
be interpreted as including duties to be levied in respect of that trade and
commerce, then Entry 83 which is " Duties of customs including export
duties " would be wholly redundant.
Entries 43 and 44 relate to incorporation,
regulation and winding up of corporations. Entry 85 provides separately for
Corporation tax. Turning to List II, Entries I to 44 form one group mentioning
the subjects on which the States could legislate. Entries 45 to 63 in that List
form another group, and they deal with 1480 taxes. Entry 18, for example, is
" Land " and Entry 45 is " Land revenue ". Entry 23 is
" Regulation of mines " and Entry 50 is " Taxes on mineral
rights ". The above analysisand it is not exhaustive of the Entries in the
Lists-leads to the inference that taxation is not intended to be comprised in
the main subject in which it might on an extended construction be regarded as
included, but is treated as a distinct matter for purposes of legislative
competence. And this distinction is also manifest in the language of Art. 248,
Cls. (1) and (2), and of Entry 97 in List I of the Constitution. Construing
Entry 42 in the light of the above scheme, it is difficult to resist the
conclusion that the power of Parliament to legislate on inter-State trade and commerce
under Entry 42 does not include a power to impose a tax on sales in the course
of such trade and commerce.
Article 286 has a direct bearing on the point
now under discussion. It imposes various restrictions on the power of the State
to enact laws imposing taxes on sale of goods and one of those restrictions has
reference to taxes on inter State sales, vide Art. 286(2). It is implicit in
this provision that it is the States that have got the power to impose a tax on
such sales, as there can be no question of a restriction on what does not
exist. That is how Art. 286(2) has been construed by this Court both in The
United Motors case (1) and in The Bengal Immunity Company case (2). It was
observed therein that under Entry 54, as under Entry 48 of the Government of
India Act, the power to tax sales rested with the States, and that Art. 286(2)
was enacted with the object of avoiding multiple taxation of inter-State sales
in exercise of the power conferred by that Entry.
This again strongly supports the conclusion
that Entry 54 must be interpreted as including the power to tax inter State
sales and Entry 42 as excluding it.
In order to get over this hurdle, learned
counsel put forward the contention that Art. 286(2) had reference only to laws
which were in existence at the time when the Constitution came into force, and
that the (1) [1953] S.C.R. 1069.
(2) [1955] 2 S.C.R. 603.
1481 power given to Parliament was one to
continue those laws.
Reference was made to the proviso to Art.
286(2) which authorised the President to direct that the taxes which were being
levied by the State before the commencement of the Constitution might be
continued to be levied until March 31, 1951, and it was said that the power
conferred under Art.
286(2) was of the same character, and that it
merely enabled Parliament to continue pre-Constitution laws.
Now, it cannot be disputed that the language
of Art. 286(2) would, in terms, comprehend future legislation. Language similar
to the one used in Art. 286 (2) is also to be found in Art. 287, and there, it
clearly has reference to laws to be enacted after the Constitution. Indeed, it
was conceded that on the wording of Art. 286(2) both existing and future
legislation would be included. But it was contended that its operation should
be limited to existing laws, because as Entry 42 in List I includes tax on
inter-State sales, any law of the State subsequent to the Constitution imposing
such a tax would be incompetent. This, however, is petition principal. The
point for decision is whether tax on inter State sales is included within Entry
42. The inference to be drawn from the plain language of Art. 286(2) is that it
is not. It is no answer to this to say that Entry 42 includes it, and that,
therefore, the meaning of Art. 286(2) should be cut down. We cannot accede to
such a contention.
To sum up: (1) Entry 54 is successor to Entry
48 in the Government of India Act, and it would be legitimate to construe it as
including tax on inter State sales, unless there is anything repugnant to it in
the Constitution, and there is none such. (2) Under the scheme of the Entries
in the Lists, taxation is regarded as a distinct matter and is separately set
out. (3) Article 286(2) proceeds on the basis that it is the States that have
the power to enact laws imposing tax on inter-State Sales. it is a fair
inference to draw from these considerations that under Entry 54 in List 11 the
States are competent to enact laws imposing tax on inter-State sales.
We must now consider the arguments that have
1482 been put forward as supporting the opposite conclusion. It is firstly
contended that the Entries in the Legislative Lists must be construed broadly
and not narrowly or in a pedantic manner, and that, in accordance with this
principle, Entry 42 should be construed, there being no limitation contained
therein, as inclusive of the power to tax sales in inter-State trade and
commerce. The rule of construction relied on is no doubt well-established; but
the question is as to the application of that rule in the present case. The
question here is not simpliciter whether a particular piece of legislation
falls within an Entry or not. The point in dispute before us is whether between
two Entries assigned to two different Legislatures the particular subject of
legislation falls within the ambit of the one or the other. If Entry 42 in List
I is to be construed liberally, so must Entry 54 in List II be, and the point
is not settled by reference to Art. 246, Cls. (1) and (3) and to the principle
laid down in Union Colliery Company of British Columbia v. Bryden (1) that
where there is a conflict of jurisdiction between a Central and a Provincial
Legislature, it is the law of the Centre that must prevail.
Art. 246, Cls. (1) and (3) have to be invoked
only if there is a conflict as to the scope of two Entries in the two Lists and
not otherwise. What has therefore first to be decided is whether there is any
conflict between Entry 42 in List I and Entry 54 in List 11. If there is not,
the application of the non-obstante clause in Art. 246(1) or of the words
" subject to " in Art. 246(3) does not arise.
There is another rule of construction also
well settled that the Entries in two Legislative Lists must be construed if
possible so as to avoid a conflict. In Province of Madras v. Boddu Paidanna and
Sons (2) the question was as to whether the first sales by a manufacturer of
goods were liable to be taxed by the Province under Entry 48 in List II, or
whether it was really a tax on excise which was within the exclusive competence
of the Centre under Entry 45 in List 1. It was held by the Federal Court that
the (1) [1899] A. C. 580.
(2) [1942] F.C.R. 90.
1483 correct approach to the question was to
see whether it was possible to effect a reconciliation between the two Entries
so as to avoid a conflict and overlapping,' and that, in that view, though
excise duty might in a extended sense cover the first sales by the
manufacturer, in the context of entry 48 in List II it should be held not to
include it, and that therefore the Province had the right to tax the first
sales. This view was approved by the Privy Council in Governor General in
Council v. Province of Madras (1). If it is possible therefore to construe
Entry 42 as not including tax on interstate sales, then on the principle enunciated
in Province of Madras v. Boddu Paidanna and Sons (2) and Governor-General in
Council v. Province of Madras (1) we should so construe it, as that will avoid
a conflict between the two Entries.
It was also argued in support of the
contention that Entry 42 in List I must be held to include the power to tax,
that that was the interpretation put by the American authorities on the
Commerce Clause, and that there was no reason why a different construction
,should be put on Entry 42 in list I of our Constitution. It is true that our
Constitution makers bad before them the Commerce Clause and the authorities
thereon, but it is a mistake to suppose that they intended to bodily transplant
that clause in Entry 42.
We had in the Government of India Act, 1935,
a fully fledged Federal Constitution in force in this Country, and what the
Constitution-makers did was to draw from other Federal Constitutions of the
world, adapt and modify the provisions so as to sent our conditions and fit
them in our Constitution. In this new context, those provisions do not
necessarily mean what they meant in their old setting. The threads were no
doubt taken from other Constitutions, but when they were woven into the fabric
of our Constitution, their reach and their complexion underwent changes.
Therefore, valuable as the American decisions
are as showing how the question is dealt with in a sister (1) (1945) L.R. 72
I.A. 91.
(2) [1942] F.C.R. 90.
188 1484 Federal Constitution, great care
should be taken in applying them in the interpretation of our Constitution. We
should not forget that it is our Constitution that we are to interpret, and
that interpretation must depend on the context and setting of the particular
provision which has to be interpreted. Applying these principles and having
regard to the features already set out, we must hold that Entry 42 in List I is
not to be interpreted as including taxation.
The same remarks apply to the argument based
upon s. 92 of the Commonwealth of Australia Constitution Act and Art. 301 of 'our
Constitution. We should also add that Art. 304 (a) of the Constitution cannot
be interpreted as throwing any light on. the scope of Art. 301 with reference
to the question of taxation, as it merely reproduces s. 297 (1) (b) of the
Government of --India Act, and as there was no provision therein corresponding
to Art. 301, s. 297 (1)(b) could not have implied what is now sought to be
inferred from Art. 304 (a).
In the result, we are of opinion that if the
States had the power under Entry 54 to impose a tax on inter State sales
subject only to the restriction enacted in Art. 286 (2), then by virtue of the
impugned Act such law is rendered operative and proceedings taken there under
are valid. We have reached this conclusion on a construction of the statutory
provisions bearing on the question without reference to the Sixth Amendment of
the Constitution which, proceeding on the view that the States had the power to
tax inter State sales under Entry 54, has amended the Constitution, and has
vested the power to tax interstate sales in the Centre.
(VI) Another contention urged by the
petitioners is that the levy of tax proposed to be made by the Andhra State on
the sale of yarn by them to dealers in the State of Andhra is illegal, because
under the Madras Act and the Rules made there under, where there are successive
sales of yarn the tax can be imposed at only one point, and as the Government
of Madras had already imposed a tax on the sale within that State, a second
levy on the self-same goods by the State of Andhra is unauthorised. and that
therefore 1485 the threatened proceedings for assessment are incompetent.
This contention is clearly untenable. When
the Madras Act provides for a single levy on successive sales of yarn, it can
have only application to sales in the State of Madras, as it would be
incompetent to the Legislature of Madras to enact a law to operate in another
State. But it is argued that s. 53 of the Andhra State Act, 1953, on its true
interpretation enacts that though for political purposes Andhra is to be
regarded as a separate State, for the enforcement of laws as they stood on that
date it should be deemed to be a part of the State of Madras. We do not agree
with this interpretation. In our opinion, s. 53 merely provides that the laws
in existence in the territories which were constituted into the State of Andhra
should continue to, operate as before. In fact, by an Adaptation Order issued
on November 12, 1953, even the name of Andhra was substituted for Madrts in the
Madras General Sales Tax Act.
There is no substance in this contention.
(VII) Lastly, it is argued that the Essential
Commodities Act enacted by Parliament in exercise of the power conferred by
Art. 286 (3) has declared that yarn is an essential commodity, and that if the
Madras Act is to be construed as a fresh enactment for the Andhra State by
reason of ss. 53 and 54 of the Andhra State Act and the Adaptation Order dated
November 12, 1953, then it would be bad inasmuch as the procedure prescribed in
that provision had not been followed. The basis of this contention is that the
Madras Act as applied to the Andhra State is a now Act for purposes of Art. 286
(3), but that is not so. The Madras Act was in force in the territories which
now form part of the Andhra State until October 1, 1953, and thereafter that
Act continues to be in operation by force of s. 53 of the Andhra State Act.
Moreover, the Madras Act become operative in the new State of Andhra not under
any law passed by the Legislature of the State of Andhra but under s. 53 of a
law enacted by Parliament and therefore Art. 286 (3) has no application. We
should add that the Essential Commodities Act (LII of 1952) has itself 1486
been repealed and is no longer in operation. This contention of the petitioners
also should be rejected.
The petitioners sought to raise certain other
contentions such as that they are not "dealers" in the Andhra State,
and that the Explanation to s. 22 had no application to the sales sought to be
taxed, as the goods were delivered not in the State of Andhra but in Madras.
But these are questions which ought properly to be raised before the assessing
authorities, and cannot be gone into in these proceedings.
In the result, the petitions fail and are
rejected. The petitions have had a chequered career, their fortures fluctuating
with changes in the interpretation of the law and in the law itself. In the
circumstances, we direct the parties to bear their own costs.
SARKAR J.-The petitioners who are dealers in
cotton yarn carrying on business in the city of Madras had sold goods to
various persons in the State of Andhra. This State, the respondent in these
petitions, demanded taxes on these sales under the provisions of the Sales Tax
Act applying to its territories. The petitioners challenged the respondents
right to tax the, sales, and filed these petitions for writs of prohibition or
other suitable writs restraining the respondent from levying and collecting the
tax. The Act mentioned various kinds of sales which could be taxed under it.
The procedures followed by the petitioners in effecting the sales were diverse
and have not yet been ascertained, and it is not possible without such
ascertainment to decide whether they are or are not taxable under the
provisions of the Act read with other relevant laws. To avoid this difficulty
it has been agreed between the parties that the only question that will be
decided on these petitions is whether the respondent can tax a sale under which
the property in the goods sold passed outside the State of Andhra but the goods
were delivered in that State for consumption there. Before proceeding to
discuss this question it is necessary to refer to certain antecedent events.
On January 26, 1950, the Constitution of
India was 1487 promulgated. It continued the laws previously in force in the
territories of India subject to its provisions. Article 372(2) of the
Constitution provides that, "For the purpose of bringing the provisions of
any law in force in the territory of India into accord with the provisions of
this Constitution, the President may by order make such adaptations and
modifications of such law, whether by way of repeal or amendment, as may be
necessary or expedient." Article 286 of the Constitution as it stood prior
to its amendment in 1956, that being what this case is concerned with,
contained the following provisions :
" Art. 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 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 my 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
talks place in the course of inter-State trade or commerce : " In the year
1939 the legislature of Madras had enacted the Madras General Sales Tax Act and
this was continued in force by the Constitution after its promulgation. In
order to bring its provisions into accord with the Constitution, the President
under his power mentioned earlier, passed on July 2, 1952, the Adaptation of
Laws(Fourth Amendment) Order which 1488 added a new section to the Madras Act,
being s. 22. The terms of this section are important in this case and will be
set out later.
The effect of the Explanation in Art.
286(1)(a) came up for consideration by this Court in the case of The State of
Bombay v. The United Motors (India) Ltd. (1). This Court held by its judgment
pronounced by a majority, on March 30, 1953, that a State 'could tax a sale
under which goods were delivered within its territories for consumption there
though the property in the goods passed beyond its territories and a provision
in a State statute purporting to levy such a tax did not contravene Art. 286.
Andhra is a new State which came into
existence on October 1, 1953. It was created by the Andhra State Act, 1953,
largely out of territories previously belonging to the State of Madras. Later,
the new State came to be designated as the State of Andhra Pradesh but I will
refer to it as the State of Andhra or simply Andhra. Section 53 of the Andhra
State Act provided that the laws in force prior to the Constitution of the
State of Andhra in the territories included in it, were thereafter to continue
in force there. The Madras General Sales Tax Act therefor(, became applicable
to the State of Andhra and it became go applicable with the new s. 22
previously added to it. Subsequently, the Madras Act as applying in the State
of Andhra was, to suit the latter State, adapted by substituting for the name
Madras the name Andhra wherever it occurred in that Act. I will hereafter call
this Act the Sales Tax Act.
Sometime in the year 1954 the respondent, the
State of Andhra, issued notices to the petitioners demanding taxes under its
Sales Tax Act. As I have earlier stated the petitioners challenged the right of
the respondent to levy the tax and certain correspondence followed. As the
respondent insisted on collecting the tax, the petitioners instituted the
present proceeding,-, in July and August, 1955.
While these proceedings were pending, the
question of the effect of Art. 286 again came up for consideration (1) [1953]
S.C.R. 1069.
1489 by this Court in the case of the Bengal
Immunity Company Ltd. v. The State of Bihar(1). This Court by its judgment
pronounced, again by a majority, on September 6, 1955, held that until
Parliament by law made in the exercise of powers vested in it under Art. 286(2)
otherwise provided, no State could impose any tax on a sale or purchase of
goods when such sale or purchase took 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. (2) in so far as it decided to the contrary could not be
accepted and further that the explanation in Art. 286(1)(a)did not confer any
right on the State in which the goods were delivered under a sale, to tax it
notwithstanding that the property in the goods passed in another State.
In view of this decision the respondent was advised
that it could not oppose the petitions and on October 21, 1955, it actually
filed statements in these proceedings submitting that the petitions might be
allowed. Before however the petitions could be heard and disposed of, an
Ordinance called the Sales Tax Laws Validation Ordinance, 1956, was promulgated
by the President on January 30, 1956. This Ordinance was later, on March 21,
1956, replaced by the Sales Tax Laws Validation Act, 1956. Both these
enactments were in identical terms. The operative provision of the Validation
Act is set out below.
2. " Notwithstanding any judgment,
decree or order of any court no law of a State imposing, or authorising the
imposition of, 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 during the
period between the 1st day of April, 1951, and the 6th day of September, 1955,
shall be deemed to be invalid or ever to have been invalid merely by reason of
the fact that such sale or purchase took place in the course of interstate
trade or commerce ; and all such taxes levied or collected or purporting to
have been levied or collected during the (1) [1955] 2 S.C.R. 603.
(2) [1953] S.C.R. 1069.
1490 aforesaid period shall be deemed always
to have been validly levied or collected in accordance with law. " The
respondent was advised that the Validation Act had changed the situation and in
view of it the petitions could no longer succeed. Thereupon, the respondent on
February 19, 1957, filed fresh statements submitting that the petitions should
be dismissed. The petitions have now come up for hearing in these
circumstances.
The validity of the Validation Act itself has
been challenged. But I do not think it necessary to decide that question. I
will assume that that Act is perfectly valid.
It does not however itself levy any tax. Its
only effect, so far as these cases are concerned, is to permit the Sales Tax
Act to operate to tax sales which took place in the course of trade between
Andhra and any other State between certain dates. I will not refer to these
dates hereafter for what have to say applies to sales between them only.
As has been agreed between the parties, as
mentioned at the commencement of this judgment, the only question that we have to
decide is whether a sale under which the goods were delivered in Andhra for
consumption there though property in them passed in Madras, can be taxed by the
respondent. Such a sale would no doubt be a sale in the course of trade between
Andhra and Madras. It is said that such a sale cannot be taxed by the
respondent notwithstanding the Validation Act, because the Sales Tax Act does
not purport to tax it.
Does the Sales Tax Act then contain any
provision taxing such a sale ? Now the Act authorises the levy of a tax on
sales as defined in it. A sale is defined in s. 2(h) of the Act. It is not
disputed however that that definition does not include a sale under which goods
are delivered in Andhra for consumption there but property in them passes in
Madras and no further reference to that section is therefore necessary. It is
however said that the effect of the Explanation in s. 22 is to make such a
sale, a sale within the meaning of the Act and therefore liable to be taxed
under it. So I proceed to examine that section. Section 22 as it stood at the
relevant time reads thus:
1491 S.22. "Nothing contained in this
Act shall be deemed to impose, or authorise the imposition of, a tax on the
sale or purchase of any goods, where such' sale or purchase takes place (a) (i)
outside the State of Andhra, or (ii) in the course of the import of the goods
into the territory of India or of the export of the goods out of such
territory, or (b) except in so far as Parliament may by law otherwise provide,
after the 31st day of March 1951 in the course of inter-State trade or
commerce, and the provisions of this Act shall be read and construed
accordingly.
Explanation.-For the purposes of clause
(a)(i), 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. " Does the
Explanation in this section then say that when under a sale goods are delivered
in Andhra, the sale shall be deemed to have taken place there though the
property in the goods may have passed in another State, for example, Madras ?
It no doubt says, without specifying any particular State, that a sale shall be
deemed to have taken place in the State in which the goods were delivered under
it though the property in them has passed in another State. But it seems to me
impossible from the language used to say that it contemplated a case in which
the goods were delivered in Andhra though property in them passed in another
State. For the sake of clarity I have left out in what I have just said the
term as to consumption in the State in which the goods were delivered and no
question as to such consumption is in dispute in these cases.
The Explanation opens with the words "
For the purposes of clause (a) (i) ". What then is that clause ? 189 1492
It only contains the words "outside the State of -Andhra".
It completes the sentence part of which has
preceded it.
The complete sentence says, Nothing in this
Act shall be deemed to impose, or authorise the imposition of, a tax on the
sale or purchase of any good,,;, where such sale or purchase takes place (a)
(i) outside the State of Andhra.
It then savs that no tax shall be levied
under the Act on a sale which takes place outside Andhra. It is after this that
the Explanation comes and starts with the words " for the purposes of
clause (a) (i)". These words must therefore mean, for the purpose of
explaining which sale is to be regarded as having taken place outside Andhra.
The Explanation then is for this purpose. I will now turn to the remaining and
the substantive portion of the Explanation. That must explain when a sale is to
be regarded as having taken place outside Andhra. The substantive portion of
the Explanation however mentions a sale which is to be deemed to have taken
place inside a State. Keeping its purpose in mind, it must be taken by saying
that a certain sale is to be deemed inside a State, to say that it is outside
the State of Andhra. It follows that the Explanation does not contemplate that
the State inside which a sale is to be deemed to have taken place, can be the
State of Andhra. That State cannot be the State of Andhra, for then the
Explanation would not show when a sale is to be deemed to be outside Andhra and
that by its language is the only purpose for which it is enacted.
Therefore the Explanation can only be read as
contemplating a State other than Andhra as the State inside which a sale shall
be deemed to have taken place. This is the inevitable result produced by the
opening words of the Explanation understood according to their plain meaning.
So the Explanation, omitting portions of it for the sake of clarity, can only
be read in the manner shown below:
For the purposes of clause (a)(i) a sale or
purchase shall be deemed to have taken place in the State being a State other
than Andhra, in which the goods have 1493 been actually delivered
notwithstanding that the property in the goods has passed in the State of
Andhra.
I therefore find it impossible to say that
the Explanation states that a sale shall be deemed to have taken place inside
Andhra if under it the goods have been delivered there though the property in
them passed in another State.
The Explanation does not hence, in my view,
authorise the taxation of a sale under which goods are delivered in Andhra
though property in them passed in Madras.
The view that I have taken of the purpose of
the Explanation in s. 22 was taken of the purpose of the Explanation in Art.
286(1)(a) in the Bengal Immunity Company case
(1). It was said at p. 646 of the report, " Here the avowed purpose of the
Explanation is to explain what an outside sale referred to in sub-clause (a) is
". The language of the Explanations and the setting of each in its
respective provision are identical. That language must therefore have the same
meaning. It is said that the consideration that prevailed with the Court in the
Bengal Immunity Company case (1) in dealing with Art. 286 cannot apply in
dealing with s. 22 for the latter is a provision in a taxing statute which the
former is not. But I do not see that this comment, even if justified, would
lead to a different meaning being put on words used when they occur in a taxing
statute from that when they occur in a statute which does not purport to levy a
tax. As a matter of language only, words must have the same meaning. The words
"for the purpose of clause (a)(i)" must therefore have tile same
meaning in the Explanation in Art. 286(1)(a) as in the Explanation in s. 22. 1
am unable to distinguish the present case from the Bengal Immunity Company case
(1) for the purpose of determining the meaning of the words used.
It is then said that the Explanation in i. 22
has two facets; that when it talks of a sale inside one State, it at the same
time necessarily talks of a sale outside all other States. Therefore it is said
that when under a (1) [1955] 2 S.C.R. 603.
1494 sale goods are delivered in Andhra but
property in .them passes outside Andhra, the Explanation at the same time makes
such a sale inside Andhra and outside all other States. I do not follow this.
Why should the Explanation in this Andhra Act be concerned with saying when a
sale shall be deemed to have taken place outside all other States ? Andhra
cannot of course legislate for any other State.
Nor is there anything in this Act which makes
it necessary for the purposes of it to say when a sale shall be deemed to be
outside all other States. It follows therefore that a construction cannot be
put on the language used in tile Explanation which produces the result of
showing a sale to be inside Andhra and so outside all other States. Further, as
I have earlier pointed out, the words " For the purposes of clause
(a)(i)" with which the Explanation starts, show conclusively that it is
necessarily confined to a sale under which goods are delivered in a State other
than Andhra and the property in the goods passes in Andhra. It is no objection
to this reading of the Explanation to say that the Andhra Act would then be
saying when a sale is to be deemed to have taken place inside another State and
it has no power to do so as it can legislate only for itself and for no other
State. Such an objection would be pointless because Andhra by saying that a
sale shall be deemed to have taken place inside another State is only
legislating for itself and only saying that such a sale is therefore an outside
sale so far as it is concerned and cannot be taxed in view of s. 22(a) of its
Act. It may be that it is possible in construing the Explanation in Art.
286(1)(a) to conceive of two facets because that dealt with all States or any
two States at a time and for all these the Constitution was fully competent to
lay down the law. That however is not possible when construing a law passed by
a State legislature. Such law cannot regulate the laws of other States. And in
this case the conception is further impossible because the language shows that
the Explanation is for explaining when a sale is to be deemed to have taken
place outside the State of Andhra. It is not meant to 1495 explain when it is
deemed to have taken place outside any State whatsoever that State may be. I am
therefore unable to see that the Explanation has any facet showing what would
be a sale inside Andhra.
The conclusion that I reach is that the Sales
Tax Act with which these cases are concerned does not authorise '.he taxing of
a sale under which goods are delivered in Andhra but the property in them
passes in Madras. In this view of the matter I do not think it necessary to
discuss the various other grounds on which the respondent's right to tax these
sales was also challenged.
In the result I would allow these petitions.
BY COURT: In view of the opinion of the
majority, the petitions an dismissed. The parties are to bear their own costs.
Petitions dismissed.
Back
