State of Maharashtra Vs. The Central
Provinces Manganese Ore Co. Ltd.  INSC 270 (29 October 1976)
BEG, M. HAMEEDULLAH BEG, M. HAMEEDULLAH RAY,
A.N. (CJ) SHINGAL, P.N.
CITATION: 1977 AIR 879 1977 SCR (1)1002 1977
SCC (1) 643
E 1980 SC 86 (5) D 1986 SC 515 (106) D 1986
SC1323 (71) RF 1988 SC 740 (19)
Sales Tax--Central Provinces and Berar Sales
Tax Act, 1947, s. 2(g), Expln. II--Goods within State at the time of contract
of sale, mixed up outside State and the mixture sold---"Sale' if taxable.
Interpretation of Statutes--Provision in Act
substituted by another--Amending provision void--Effect.
Words and Phrases--`Substituted; meaning of.
Section 2(g) of the Central Provinces and
Berar Sales Tax Act, 1947 defines 'sale' and Explanation II to the sub-section
provides that notwithstanding anything to the contrary in the Indian Sale of
Goods Act, 1930, the sale of any goods which are actually in the State at the
time when the contract of sale, as defined in that Act in respect thereof is
made, shall, wherever the contract of sale is made, be deemed for the purpose
of this Act to have taken place in the State. The Amending Act of 1949
substituted for this Explanation another Explanation but as the amendment did
not receive the assent of the Governor General under S. 107 of the Government
of India Act, 1935, it was void.
The assessee owned manganese ore mines in the
State and was entering into contracts at places outside the State for the
despatch abroad of manganese ore through different ports. The contracts
contained specifications of strengths of manganese ore to be supplied with
permissible percentages of other ingredients and mixtures. The assessee
arranged for the transport of various grades of menganese ore in railway wagons
from one or more of the mines, and the order in which trucks were loaded and
unloaded was so arranged that the required average consistency or strength of
manganese ore specified in the contracts was obtained in the course of such
unloading. The assessee described the particular type of conglomerate as
'Oriental mixture.' The assessee contended (1) that the original Explanation II
was validly repealed by the Amending Act and since no substitution of the new
provision had taken place, only the repeal survived, and that, therefore
neither the old un-amended provision nor its replacement were in operation,
with the result that the Sales after the date of amendment were.
not subject to sales tax, and (2) even
assuming that the un-amended provision was in force, 'Oriental Mixture', as a
taxable commodity came into existence only after the ores got mixed up in the
process of unloading and not before so that, its sale could not be taxed as
'goods which are actually in the State', at the time when contracts: were
The High Court on a reference held the first
contention against the assessee and the second in favour of the assessee. Both
sides appealed to this Court.
Dismissing the appeals of the assessee and
allowing the appeals of the State.
HELD: (1) As the period involved is
preconstitution period, Art. 286 of Constitution, which is not retrospective in
operation would not help the assessee even though the assessment was after the
Constitution came into force. [1007 F] (2) There was no repeal of the existing
Explanation when 'substitution' by means of the amending Act failed to be
effective and so the sale could be taxed under it. [1012 AB] (a) The question is
one of gathering the intent from the use of words in the enacting provisions
seen in the light of the procedure gone through, and from the nature of the
action of the authority which functions, [1010 B] 1003 (b) The word
'substitution' does not necessarily or 'always connote two severable steps, one
of repeal and another of a fresh enactment, even if it implies two steps. The
natural meaning of the word 'substitution' is to indicate that the process
cannot be so split up. If the process described as substitution fails, it is
totally ineffective so as to leave intact what was sought to be displaced. It
could not be inferred that; what was intended was that in case the substitution
failed or proved ineffective, some repeal, not mentioned at all, was brought
about and remained effective so as to create what may be described as a vacuum
in the statutory law on the subject-matter. The term 'substitution' when it
occurs without anything else in the language used or in the context of it or in
the surrounding facts and circumstances, means, ordinarily, that unless the
substituted provision is there to take its place, in law and in effect, the
preexisting provision continues.
[1009 H, 1010 A-G] (c) In the present case,
the whole legislative process termed substitution was abortive. because, it did
not take effect for want of the assent of the Governor General.
Considering the actual procedure, even if the
Governor had assented the substitution, yet the amendment would have been
effective as a piece of valid legislation only when the assent of the
Governor-General had also been accorded to it.
It could not be said that what the
Legislature intended or what the Government had assented to consisted of a
separate repeal and a fresh enactment. The two results were to follow from one
and the same effective legislative process.
[1010 CD] (d) It is easier to impute an
intention to an executive rule-making authority to repeal altogether, in any
event, what is sought to be displaced by another rule, because the repeal as we11
as replacement are capable of being achieved and inferred from a bare issue of
fresh instructions on the same subject. In the case of a legislative provision
sought to be amended by a fresh enactment, the procedure for enactment is far
more elaborate and formal. A repeal and a replacement of a legislative
provision by a fresh enactment can only take place after such elaborate
procedure has been followed in to. Even the analogy of a merger of an order
into another which was meant to be its substitute could only where there is a
valid substitute. [1011 C-F, 1012 A-B] Koteswar Vittal Kamath v.K. Rangappa
Balica & Co. AIR 1969 SC & 509  (3) SCR 40. @ 47 Firm .A.T.B.
Mehtab Majid & Co. v. State Madras  Suppl. 2, SCR 435 and B.N. Tewari
v. Union of India & Ors.  2 SCR. 421 explained.
Shriram Gulabdas v. Board of Revenue, Madhya
Pradesh & Anr. (1952) 3 STC 343 @ 367 approved.
3. The present case is not one of mixing
various ingredients at a 'mixing works', and the product which comes into
existence being sold as a separate commercial commodity in the market. The
goods got mixed up in the process of unloading without employing any mechanical
or chemical process of manufacture. The mere fact that the specifications in
the conrtacts were satisfied when they got so mixed up is not a good enough
ground for holding that a new product has been manufactured. The mere giving of
the new name 'Oriental mixture by the assessee to. what is really the same
product is not the manufacture of a new product. [1013 A-D, G-H, 1014 A-B] The
Stale of Madras v. Bell Mark Tobacco Co. (1967) 19 STC 129, The State of Madras
v. Swasthik Tobacco Factory (1966) 17 STC 316 and Anwarkhan Mchboob Co. v. The
State of Bombay (Now Maharashtra) & Ors. (1960) 11 STC 698 and Shaw Bros
& Co. v. The State of West Bengal (1963) 14 STC 878 referred to.
Shaw Wallace & Co. Ltd. v. The State of
Tamil Nadu (1976) 37 STC 522 explained.
Nilciri Ceylon Tea Supplying Co. v. The State
of Bombay (1959) 10 STC 500 approved.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 446--449 of 1976.
Appeals by Special Leave from the judgment
and Orders dated.
14-1338SCI/76 1004 7-4-1969 and 25-1-1972 of
the Bombay High Court (Nagpur Bench) In S.T.R. Nos. 17 to 20 of 1964 and CIVIL
APPEAL NOS. 450453 OF 1976.
Appeals by Special Leave from the judgment
and order dated 28-1-1972 of the Bombay High Court (Nagpur Bench) in G.S.T.
Reference Nos. 17-20/64.
V. p. Raman, Addl. Sol. General for India,
S.B. Wad and M. N Shroff for Appellants in CAs. 450 to 453/76.
G.L. Sanghi, A. S. Bobde, M.L. Vaidya, V.A.
Bobde, A. G. Meneses, J.B. Dadachanji, K.J. John, O.C. Mathur and Ravinder
Narain for the Respondents in CAs. 446-449/76 and Appellants in (2. As.
450-453/76 The Judgment of the Court was delivered by BEG, J.--The eight
appeals before us by special leave arise out of four Sale "Tax References,
under Section 23(1) of the Central Provinces and Berar Sales Tax Act, 1947,
(hereinafter referred to as 'the Act'). Six common questions arose here relating
to assessments for different periods on identically similar facts stated below.
Five of these were decided by a Division Bench of the Bombay High Court. As it
answered the main question determining liability to pay the sales tax under the
Act against the State, there are four appeals against it by the State. The
sixth question, which was one of law only, was referred by the Division Bench
to a Full Bench, and, this was determined in favour of the State. There are,
therefore, four appeals by the assessee against the Full Bench decision.
M/s. Central Provinces Manganese Ore Co.
Ltd., the assessee, has its Head Office in London. It carries on business on an
extensive scale. It owns 22 manganese ore mines in Madhya Pradesh from where
manganese ore, after being excavated, is sent mostly abroad through different
ports. The Company is a registered dealer under the Act.
It used to enter into contracts at places
outside Madhya Pradesh for the dispatch of what came to be known, in the
special parlance of this company's business, as "Oriental Mixture"
But the contracts contain specifications only of strengths of manganese ore to
be supplied with permissible percentages of other ingredients as admixtures.
The term "Oriental Mixture" was evidently employed by the Company
itself to describe a particular type of conglomerate which the unloading at one
place of Various types of manganese ore produced. The required average
consistency or strength of manganese ore specified in the contracts, which did
not contain a reference to any "Oriental Mixture", was said to be
obtained in the course of this mechanical process of transportation when
various grades of manganese ore were heaped together. These grades of manganese
ore were transported, in railway wagons, from one or more mines, and, it
appears that the order in which trucks were. loaded in goods trains and
unloaded was also so, arranged that the mixture came into existence, as
described above, in the mere process of unloading at the port.
1005 But, this procedure did not seem to
involve a process of "Manufacture", as that term is ordinarily
understood, to which the assessee could be said to have subjected its manganese
The case of the assessee company was that the
"Oriental Mixture" as a taxable commodity came into existence only
after the ores got mixed up in the process of unloading and not before so that
it could not be taxed as "goods in existence" in Madhya Pradesh at
the time when ,contracts relating to these goods were made. This is the crucial
and simple question, largely one of fact, which resulted in considerable
:argument before the High Court and before us also.
Other questions ,appear to be subsidiary.
Nevertheless; we have to consider them 'before coming to the crucial question
which is: Is the process described above one of "manufacture" so that
a new kind of goods, known as "Oriental Mixture", came into existence
at the port where manganese ore trucks were unloaded? As the High Court pointed
out, the periods involved in the four references before it were not governed by
the provisions of the Constitution. They related to the following period:
1. Reference No. 17 of 1964 for the period
1st January, 1947 30th September, 1947.
2. Reference No. 18 of 1964 for the period
1st October, 1947 to 31st December, 1948.
3. Reference No. 19 of 1964 for the period
1st January, 1949 to 31st December, 1949.
4. Reference No. 20 of 1964 for the period
1st January, 1950 to 25th January, 1950.
We, therefore, agree with the High Court's
view that Article 286 of the Constitution, which is not retrospective in
operation, could not help the assessee merely because it was there at the time
The next question to be considered, which was
referred to the Full Bench, flows from Explanation (II) to Section 2(g) of the
Act which was amended by the C.P. & Berar Sale Tax (Amendment) Act No. XVI
of 1949, came into force on 11th April, 1949. Hence, the law, as found after
the amending Act, could apply, .if valid, only to the last two references. But,
the question which arose, on the assumption that the amendment was ineffective,
was whether the un-amended law could be applied at all after the purported
Section 2(g) of the Act, with its two
explanations, before it was amended, may be reproduced here in to. It reads as
"2(g) 'sale' with all its grammatical
variations and cognate expressions means any transfer of property in goods for
cash or deferred payment or other valuable consideration, including a transfer
of property in goods made in course of the execution of a contract, but does
not include a mortgage, hypothecation, charge or pledge:
Explanation (I): A transfer of goods on hire purchase
or other installment system of payment' shall, notwithstanding 1006 that the
seller retains a title to any goods as security for payment of the price, be
deemed to be a sale;
Explanation (11): Notwithstanding anything to
the contrary in the Indian Sale of Goods Act, 1930, the sale of any goods which
are actually in the Central Provinces and Berar at the time when the contract
of sale as define in that Act in respect thereof is made, shall wherever the.
said contract of sale is made, be deemed for the purpose of this Act to have
taken place in the Central Provinces and Berar".
Section 2 of the Amending Act of 1949 provided:
2. In section 2 of the Central Provinces and
Berar Sales Tax Act 1947 (hereinafter referred to as the said Act), (a) in
clause (g) for Explanation (I1) the following shall be substituted :-Explanation
(I1) :--Notwithstanding anything to the contrary in the Indian Sale of Goods
Act 1930, the sale or purchase of any goods shall be deemed for the purposes of
this Act, to have taken place in this province, wherever the contract of sale
or purchase might have been made--"(a) if the goods were actually in this
province at the time when the contract of sale or purchase in respect thereof
was made, or (b) in case the contract was for the sale or purchase of future
goods by description, then, if the goods are actually produced or found in this
Province at any time after the contract of sale or purchase in respect thereof
The submission made on behalf of the
assessee, which was accepted by the High Court was that, as the amendment did
not receive the assent of the Governor General under Section 107 of the Govt.
of India Act, it was void. It was, however, also urged, on behalf of the
assessee, that a repeal of the previously existing section did not require the
assent of the Governor General at all. The argument was that the original
provision was validly repealed, but, as no substitution of the new provision
could take place, because the assent of the Governor General was not obtained,
only the repeal survived. The result of accepting such a submission would be
that the substitution will have to be split up into two distinct enactments;
firstly, a repeal of the original section 2(g) of the Act; and, secondly, the
substitution of the new provision for the repealed one. The assessee's argument
was that two processes, one of repeal and another of substitution, are
necessarily implied in such an amendment as the one before us. It was urged
that both had received the assent of the Governor, but, since the substituted
provision alone required the assent of the Governor General, which was not
obtained, a repeal, which was assented to by the Governor, stood on its own
Thus, the result was said to be a repeal
simpliciter without the enactment of the fresh provision meant to replace it.
1007 It was submitted that the High Court,
after finding the substituted provisions of section 2(g) of the Act to be
invalid, had erred in holding that the repeal was also ineffective. It was
contended that such a view resulted in attributing to the legislature an
intention contrary to that which it had unmistakably expressed by repealing the
un-amended provision. It was urged that the repeal, which was clearly intended,
must be held to be valid. According to this submission, neither the old un-amended
provision nor the replacement of it were in operation during the last two.
assessment periods. Of course, this argument
assumes that the repeal and the new' enactment are separate.
In Shriram Gulabdas v. Board of Revenue,
Madhya Pradesh & Ant. C) which was cited before us, it was held, on the
question argued before us (at p. 366-367):
" ...... we have already shown that the
second Explanation in clause (g) of Section 2, which makes an agreement of sale
taxable even though the sale may have taken place outside. the province, is not
ultra vires the Provision Legislature. We must make it clear that our answer to
this question is in the affirmative, free from considerations arising under
Article 286. We have shown that the necessary power to make the un-amended
Explanation did exist in the State Legislature; but we have also made it clear
that by virtue' of Article 286 the Explanation can no longer be enforced
because under the present Constitution the sales tax can only be collected at
the market and where the goods are delivered for consumption. We may also state
that the amended Explanation II is not validly enacted because it makes drastic
changes in the rules as found in the Sale of Goods Act without obtaining the'
assent of the Governor-General. The effect of the amended Explanation going out
would be to rehabilitate the old Explanation as it existed because the
amendment being unconstitutional will fail to work any change in the law (See
the opinion given by one of us, Hidayatullah, J., in Laxmibai v. The State
(I.L.R. 1951) Nag. 563, 608, 610 (F.B.)".
No question relating to the enforcement of
the Sales-tax by any collection to be made after the Constitution came into
force was raised the cases before us. Only questions relating to taxability
arise here As we have already indicated, Article 286 does not stand in the way
of taxability. This was held to be the correct position in the case of Shriram
Gulabdas (Supra). It was also clearly held there that the 'result of the
invalidity of the amended explanation was to leave the law unaltered as it
stood before the amendment. We approve of this pronouncement made long ago on
this very question.
It was urged on behalf of the assessee that
the case of Shriram Gulabdas (supra) contained what was merely an observation
with regard the "rehabilitation" of the preexisting law as that
question was no directly under consideration there. It was also submitted that
this observation must be deemed to have been over-ruled by subsequent
pronouncements of this Court.
(1) (1952) 3 S.T.C. 343. 367.
1008 The passage cited above by us occurs in
answering the fifth question considered there which was framed as follows:
"(v) Whether Explanation II to clause
(g) of Section 2, which makes an agreement of sale taxable even though the sale
may have taken placed outside the Province, ultra vires of the Provincial
Legislature ?" Other questions framed indicate that it was not only the
validity of the provision, both before and after its amendment, which was
directly considered and pronounced upon, but the application of the concept of
sale under the un-amended law and its effects were also under consideration.
Therefore, we think that the decision was directly on a question which
necessarily arose for determination before the Court on that occasion. We think
that the view that the un-amended law was in operation was not a mere obiter
dictum. It was necessary to decide that question before other questions could
be determined. We give out own reasons below for accepting the correctness of
the view taken then.
The following passage was also cited from
Koteswar Vittal Kamath V.K. Rangappa Baliga & Co. (at p. 509):
"Learned counsel for the respondent,
however, urged that the Prohibition Order of 1119 cannot, in any case, be held
to have continued after 8th March, 1950, if the principle laid down by this
Court in Firm A.T.B. Mehtab Majid & Co. v. State of Madras, (1963) Supp. 2
SCR 435-(AIR 1963 SC 928) is applied.
In that case, rule 16 of the Madras General
Sales Tax (Turnover and Assessment) Rules, 1939, was impugned. A new R. 16 was
substituted for the old Rule 16 by publication on September 7, 1955, and this
new rule was to be effective from 1st April, 1955. The Court held that the' new
Rule 16(2) was invalid because the provisions of that. rule contravened the
provisions of Article 304(a) of the Constitution. Thereupon, it was urged
before the Court that, if the impugned rule be held to be invalid, the old Rule
16 gets revived, so that the tax assessed on the basis of that rule will' be
good. The Court rejected this submission by holding that :
'Once the old rule has been substituted by
the new rule, it ceases to exist and it does not automatically get revived when
the new rule is held to be invalid'.
On that analogy, it was argued that, if we
hold that the Prohibition Order of 1950 was invalid, the previous Prohibition
Order of 1119 cannot be held to be revived. This argument ignores the
distinction between supersession of a rule, and substitution of a rule. In the
case of (1963) Supp. 2 SCR 435(AIR 1963 SC 928) (supra), the new Rule 16 was
substituted for the old Rule 16. The process of substitution consists of two
steps. First, the old rule is made to cease to exist, and, next, the new rule
is brought into existence in its place. Even if the new rule be invalid, the
first step of the (1) A.I.R. 1969 S.C. 504. 509:  3 S.C.R. 40. 47.
1009 old rule ceasing to exist comes into
effect and it was for this reason that the Court held that, on declaration of
the new rule as invalid, the old rule could not be held to be revived".
In the above mentioned passage, this Court
merely explained the argument which was accepted in the case of firm A.T.B.
Mehtab Majid & Co. v. State of Madras(1). After doing so, it distinguished
the facts in Koteswar's case (supra), relating to an alleged substitution of
one Prohibition Order by a subsequent order which was found to be invalid. It
recorded its conclusion as follows (at p. 509):
"In the case before us, there was no
substitution of the Prohibition Order of 1950 for the Prohibition Order of
1119. The Prohibition Order of 1950 was promulgated independently of the
Prohibition Order of 1119, and because of the provisions of law it would have
had the effect of making the Prohibition Order of 1119 inoperative if it had
been a valid order. If the Prohibition Order of 1950 is found to be void ab
initio, it could never make the Prohibition Order of 1119 inoperative".
The argument before us is that since the word
"substituted" is used in the amending Act of 1949, it necessarily
follows that the process embraces two steps. One of repeal and another of the
new enactment. But, this argument is basically different from the argument
which prevailed in Koteswar's case (supra) where a distinction was drawn between
a "substitution" and "supersession". It is true that, as
the term substitution was not used there, the old rule was not held to have
been repealed. Nevertheless, the real basis of that decision was that what was
called supersession was void ab initio so that the law remained what it would
have been if no such legislative process had taken place at all. It was held
that the void and inoperative legislative process did not affect the validity
of the pre-existing rule. And, this is precisely what is contended or by the
State before us.
In the case before us although the word
"substitution" is used in the amending Act, yet the whole legislative
process termed substitution was itself abortive. The whole of that process did
not take effect as the assent of the Governor-General, required by Section 107
Govt. of India Act, was lacking. Such ineffectiveness was the very reason why,
in the case of Sriram Gulabdas (supra), it was held that the previous law stood
unaffected by the attempted legislation called substitution. Moreover, the case
of Shriram Gulabdas (supra) is a direct authority on the very provisions now
before us. Other cases cited are on very different legislative provisions.
We do not think that the word substitution
necessarily or always connotes two severable steps, that is to say, one of
repeal and another of a fresh enactment even if it implies two steps. Indeed,
the natural meaning of the word "substitution" is to indicate that
the process cannot be split up into two pieces like this. If the process described
as substitution fails, it is totally ineffective so as to leave intact what was
sought (1)  Suppl. 2 S.C.R. 435.
1010 to be displaced. That seems to us to be
the ordinary and natural meaning of the words "shall be substituted".
This part could not become effective without the assent of the
Governor-General. The State Governor's assent was insufficient. It could not be
inferred that, what was intended was that, in case the substitution failed or
proved ineffective, some repeal, not mentioned at all, was brought about and
remained effective so as to create what may be described as a vacuum in the
statutory law on the subject matter. Primarily, the question is one of
gathering the intent from the use of words in the enacting provision seen in
the light of the procedure gone through. Here, no intention to reveal, without
a substitution, is deductible. In other words, there' could be no repeal if
substitution failed. The two were a part and parcel of a single indivisible
process and not bits of a disjointed operation.
Looking at the actual procedure which was
gone through, we find that, even if the Governor had assented to the
substitution, yet the amendments would have been effective, as a piece of valid
legislation, only when the assent of the Governor-General had also been
accorded to it. It could not be said that what the Legislature intended. or
what the Governor had assented to consisted of a separate repeal and a fresh
enactment. The two results were to follow from one and the same effective
Legislative process. The process had, therefore, to be so viewed and
Some help was sought to be derived by the
citation of B.N. Tewari v. Union of India & Ors.,(1) and the case of Firm
A.T.B. Mehtab Majid & Co v. State of Madras (supra).
Tewari's case (supra) related to the
substitution of what was described as the "carry forward" rule
contained in the departmental instruction which was sought to be substituted by
a modified instruction declared invalid by the Court. It was held that when the
rule contained in the modified instruction of 1955 was struck down the rule
contained in a displaced instruction did not survive. Indeed, one of the
arguments there was that the original "carry forward" rule of 1952
was itself void for the very reason for which the "carry forward"
rule, contained in the modified instructions of 1955, had been struck down.
Even the analogy of a merger of an order into another which was meant to be its
substitute could apply only where there is a valid substitution.
Such a doctrine applies in a case where a
judgment of a Subordinate Court merges in the judgment of the Appellate Court
or an order reviewed merges in the order by which the review is granted. Its
application to a legislative process may be possible only in cases of valid
substitution. The legislative intent and its effect is gathered, inter alia,
from the nature of the action of the authority which functions. It is easier to
impute an intention to an executive rule making authority to repeal altogether
in any event what is sought to be displaced by another rule. The cases cited
were of executive instructions. We do not think that they could serve as useful
guides in interpreting a Legislative provision sought to be amended by a fresh
enactment. The procedure for enactment is far more elaborate and formal. A
repeal and a displacement of a Legislative provision by a fresh enactment can
only take place after that elaborate procedure has been followed in toto. In
the case of any rule contained in an executive instruction.
(1)  2 S.C.R. 421.
1011 on the other hand, the repeal as well as
displacement are capable of being achieved and inferred from a bare issue of
fresh instructions on the same subject.
In Mehtab Majid & Co's case (supra) a
statutory role was held not to have revived after it was sought to be substituted
by another held to be invalid. This was also a case in which no elaborate legislative
procedure was prescribed for a repeal as it is in the case of statutory
enactment of statutes by legislatures. In every case, it is a question of
intention to be gathered from the language as well as the acts of the
rulemaking or legislating authority in. the context in which these occur.
A principle of construction contained now in
a statutory provision made in England since 1850 has been:
"Where an Act passed after 1850 repeals
wholly or partially any former enactment and substitutes provision for the
enactment repealed, the repealed enactment remains in force until the
substituted provisions come into operation".
(See: Halsbury's Laws of England, Third Edn.
Vol. 36, P. 474; Craies on "Statute Law", 6th Edn. p.386).
Although, there is no corresponding provision
in our General Clauses Acts, yet, it shows that the mere use of words denoting
a substitution does not ipso facto or automatically repeal a provision until
the provision which is to take its place becomes legally effective. We have, as
explained above reached the same conclusion by considering the ordinary and
natural meaning of the term "substitution" when it occurs. without
anything else in the language used or in the context of it or in the
surrounding facts and circumstances to lead to another inference. It means,
ordinarily, that unless the substituted provision is there to take its place,
in law and in effect, the pre-existing provision continues.
There is no question of a
This question of interpretation was referred
separately to the Full Bench of the Bombay High Court which drew a distinction
between the two meanings of the word "substituted"; firstly, where it
involved a direction as to what would have to be removed or repealed
simultaneously with another as to what was to be substituted, so as to involve
two directions and secondly where the "substitution" merely carried
one direction to modify . It is difficult to see how a single direction to -one
direction to modify.
It is difficult to see how a single direction
to substitute would be effective without implying in it another to remove 'what
was to be displaced. Perhaps more simply and correctly stated, the difference
between two meanings of the word "substituted" is one 'where it
stands for two separable legislative process and another where it stands for
one total or completed legislative procedure, including the assent of the
Governor-General, which would be covered by the words "shall be
substituted". The Full Bench came to the conclusion that, in the context in
which the words directing substitution occur, they do not imply that in the
event of the failure of the amendment, taken as a whole a repeal would survive.
To be able to "Survive" a repeal 1012 had first to come into
existence. In the situation before us no repeal came into legal existence.
The real question for determination is always
one of the meaning of words used in a purported enactment in a particular
context. We think that the Full Bench of the High Court correctly held that
there was no repeal of the existing provision when "substitution", by
means of an amendment, failed to be effective. It had also rightly
distinguished some of the cases cited before it on the ground that, in those
cases, the process for substitution was interpreted to necessarily imply both a
repeal and re-enactment out of which only the repeal which took place had
survived when the re-enactment proved abortive.
On the question whether the particular goods
existed in Madhya Pradesh at all at the time of the contracts, so that the
contract could be said to be referable to them, the High Court had observed:
" .... the question was whether Oriental
Mixture was present in the former State of Madhya Pradesh when the contracts of
sale in respect of Oriental Mixture were made by the applicant company. On this
point, which was purely a question of fact, the decision of the second
appellate authority was final and that decision was that Oriental Mixture in
the form in which the contracts to sell that commodity were made was present in
the State of Madhya Pradesh at the time when those contracts were made.
Therefore, that point was not open for decision before the Tribunal and it is
not necessary to dilate on the facts relating to that question".
It also said:
"In Commissioner of Sales Tax, Eastern
Division, Nagpur v. Hesenali Adamji & Co.
(1959) (10 STC 297), there was no evidence
that at the date when the agreement for sale was made, the particular logs
delivered there under were in Central Provinces in the shape of logs at all, and
a standing tree which was in existence at the date of the agreement of sale and
out of which the logs were later on prepared cannot be said to be the form of
the commodity in respect of which the agreement of sale was made. The Tribunal
relied on the observations in the Judgment of the Supreme Court at page 310
which are to the effect that the goods must, at the date of the contract, be
there in the taxing State in the form in which they are agreed to be sold. In
that case, the agreement of sale can be said to be in respect of those goods.
Here, as found by the second appellate authority, ore in the form of Oriental
Mixture was present in the taxing State when contracts of sale in respect of
Oriental Mixture were made by the Head Office of the applicant company".
After giving the findings set out above, on
the question whether the. goods existed in the State of Madhya Pradesh when
they were sold and, whether the contracts were referable to these goods, the
High Court 1013 proceeded to consider the question whether "Oriental Mixture"
itself had come into existence in Madhya Pradesh or at the port where the goods
forming the "Oriental Mixture" became mixed up in the process of
unloading and transportation. Apparently, what the High Court had meant by its
earlier findings was not that the "Oriental Mixture" was in existence
in Madhya Pradesh, but that the ingredients which went into its composition
existed in Madhya Pradesh at the time when the contracts were made. It had
finally reached the conclusion that the Mixture itself was formed at the port
where the ingredients were unloaded.
We are unable to accept the High Court's
reasoning that, while the goods which went into the composition of the
"Oriental Mixture" existed in Madhya Pradesh when the contracts were
made, yet, they were not taxable in Madhya Pradesh because' the "Oriental
Mixture" came into existence at the port. In other words, it held that a
mere mixture of goods, even if it occurs in the process of unloading, converts
the goods, which existed in Madhya Pradesh and were transported to the port,
into separately identifiable commercial commodity Known as "Oriental
Mixture". As already mentioned above, this term is not used in the
contracts but is a term employed by the firm itself to indicate the
specifications contained in the contracts of goods ordered. It is difficult to
see what process of manufacture is gone through so as to bring a new category
or genus of commercial goods into existence at the port.
The High Court had relied on cases where raw
tobacco subjected to various processes, such as sprinkling of jaggery juice or
water on it and allowing it to ferment for some time before cutting it up and
packing it, was held to become a new commodity. These cases were: The State of
Madras v. Bell Mark Tobacco Co. C); The State of Madras v. Swasthik Tobacco
Factory(2); Anwarkhan Mehboob Co. v. The State of Bombay (Now Maharashtra)
& Ors. (3).
Reliance was also placed on behalf of the
assessee on Shaw Wallace & Co. Ltd. v. The State of Tamil Nadu(4), where it
was held that goods were actually subjected to a process of manufacturing when
chemical fertilisers and fillers like "China clay",
"gypsum", and other ingredients, were mixed at a "mixing
works" of a company, by means of shovels, so as to conform to a particular
formula. It was held there by this Court that the resulting product was a
commercially distinct commodity. Several cases of manure mixtures are referred
to in the case. Now,' in the case of manure mixtures, made out of different
ingredients, at a "mixing works", it can perhaps be said that a
chemical process is gone through. In any case, the product which came into
existence was known and sold as a separate commercial commodity in the market.
It required a process to be gone through at what were known as mixing works of
the company to convert it into that commodity. On the other hand, in the case
before us, it seems to us that what has been "manufactured" by the
assessee is the same "Oriental Mixture" (1) (1967) 19 S.T.C. 129. (2)
(1966) 17 S.T.C. 316.
(3) (1960) 11 S.T.C. 698. (4) (1976) 3 S.T.C.
1014 only if the term "manufacture"
can be employed at all to anything done by the assessee. What is to be
determined is whether there has been the manufacture of a new product which has
a separate commercially current name in the market. The mere giving of a new
name by the seller to what is really the same product is not the
"manufacture" of a new product. There is, it appears to us, no new
process of the manufacture of goods at all by the assessee before us.
Again, cases in which logs of wood were cut
in order to convert them into planks [e.g. Shaw Bros & Co. v. The State of
West Bengal(1)] could be of no assistance in the case before us. That too could
be a process of "manufacture".
The High Court had also made a passing
reference to Nilgiri Ceylon Tea Supplying Co. v. The State of Bombay(2), a case
decided by the Bombay High Court, where different brands of tea, purchased in
bulk and "without application of any mechanical or chemical process",
were mixed so as to conform to a particular mixing formula, but this mixture
was held not to constitute a fresh commodity as neither processing nor
alteration of the ingredients of the tea in any manner had taken place. We think
that the similarity of the process to which goods sold were subjected in this
case seems to make the reasoning adopted in this case more properly applicable
to the cases before us than any other found in other cases mentioned above.
In any event, we are unable to see how,
without Subjecting to some process the various grades of ores, mixed up in the
process of transporting, so as to conform to the specifications given in the
contract, could result in a new commercial product as it is known in the
market. The ingredients were not even shown to have got so mixed up as to
become inseparable. As already mentioned above, this is a case in which the
term "Oriental Mixture" was nothing more than a name given by the
appellant company itself to the goods which were in the State of Madhya Pradesh
at the relevant time and sent from there specially in order to satisfy the
specifications given in the contracts. The goods get mixed up in the process of
unloading. The mere fact that the specifications in the contracts are satisfied
when they get mixed up is not a good enough ground for holding that a new
product has been manufactured. They could no more constitute a new commodity
than parts of some machinery sent by its manufacturer to a purchaser outside a
State, so that the buyer has to just fit in the various parts together, becomes
a new commodity when the parts are fitted in. The mere fitting up of parts or a
mixture of goods, without employing any mechanical or chemical process of
manufacture, could not, we think, result in a new commodity.
We, therefore, answer the following six
questions before the High Court as follows:
Q. 1. Was the Tribunal right in holding that,
although the assessment order was made after the Constitution of India came
into force, Article 286 was thereby not contravened, because such order related
to a period prior to 26.1.1950? (1) (1963) 14 S.T.C. 878. (2) (1959) 10 S.T.C.
1015 Ans. Yes, The provisions of Article 286
were not contravened.
Q. 2. Was the Tribunal right in holding that
Explanation (II) to Section 2(g) as was originally embodied in the Sales Tax
Act, 1947, got restored on the Statute-book because of the unconstitutionality
of the substituted Explanation enacted in the Sales Tax (Amendment) Act, 1949 ?
Ans. There is no question of restoration of un-amended explanation (II) to
Section 2(g) as the purported amendment itself did not take effect. Hence, the un-amended
provision stood as it was before the attempted amendment. The question framed
rests on a misconception that there was something to be restored. As nothing
was taken away, nothing was there to be restored. And, there was nothing added
Q. 3. Does the Tribunal's decision not contradict
the true meaning of the language "sale of any goods which are actually in
the Central Provinces and Berar at the time when the contract of sale as
defined in that Act in respect thereof is made", as occuring in
Explanation (II) to section 2(g) of the Sales Tax Act, with reference to
"in respect thereof" is reference to "specified or earmarked"
goods which are actually present in the taxing State when the contracts are
made ? Ans. This is a question of fact as to what contracts specify and whether
those goods were taxed, on which the finding already recorded are enough to
dispose it off against the assessee.
Q. 4. In any case, was the Tribunal right in
its interpretation, application and use of the provisions of original
Explanation (II) to section 2(g) of the Sales Tax Act even as they were ? Ans.
Q. 5. Was the Tribunal right in assuming the
law to be that the existence of ingredients of ores in the taxing State in
question, which were sufficient if and when mixed in the due proportion for
yielding different varieties of standard mixtures contracted for by the overseas
buyers, was in law enough to attract the tax ? Ans. There is no question of
assuming anything. The process which was revealed and findings of fact given on
it show that it did not result in the production of a new commodity at the
port. It was only manganese ore of different grades which was unloaded at the
port and gives the name of "Oriental Mixture" because the ingredients
got mixed up automatically in transportation and satisfied certain
specifications. No new commodity was produced in this process.
Q. 6. Was the Tribunal right in holding that
the Sales Tax Authorities had found as a fact that the goods consisting of
oriental mixture 1016 were in the Madhya Pradesh State when the contracts in
respect of these goods were made ? Ans. Yes.
Before we part with the case we may observe
that the questions could have been much more lucidly and simply and less
The appeals of the assessee company against
the decisions of the Full Bench are dismissed. The appeals of the State of
Maharashtra against the judgment of the Division Bench are allowed. Parties
will hear their own costs, V.P.S.