Report No. 61

3.47. Case decided exclusively on section 5.-

Khosla's case was decided exclusively1 on section 5 of the Central Sales Tax Act, and irrespective of Article 286(1). Whether, after the passing of the legislation by Parliament formulating the principles referred to in Article 286-i.e., the Central Sales Tax Act, 1956, sections 3, 4 and 5-it is still necessary, in testing the validity of taxation by a State of the particular sale or purchase, to have recourse to Article 286 of the Constitution, or whether the Court is to apply only the provisions of the Central Sales Tax Act relevant to the exemption claimed, is a question which is of considerable importance.

It was presumably assumed in Khosla's case that since Parliament had formulated principles in section 5, the test was to be sought only in that section. Apparently because of this implicit assumption, when Khosla's case was argued, the earlier decisions, particularly the decisions in the two Travancore cases, were not referred to, and the judgment of the court seems to have been based entirely on the language of section 5, without the aid of the discussion and pronouncements in the two Travancore cases.

Interpreting then, section 5, and taking into account only the language of section 5, the Supreme Court, in Khosla's case, selected, out of the two views possible as to a sale which is to be exempt as occasioning import, the wider view, which had the effect of holding that the chain of sales exempt is not necessarily confined to the import or to the sale ending with the entry of the goods into India at the customs barrier, but could, at least in the situation which presented itself in Khosla's case, extend beyond that point.

1. Para. 3.29, supra.

3.47A. In regard to the decision in Khosla's case, it is relevant to repeat that during the course of the arguments, the two Travancore decisions, which would have supported the case of the State, do not appear to have been cited on behalf of the State, nor were they cited by the assessee. And, for the assessee, reliance was placed mainly on the Tata Iron & Steel case. Since the parties in the case concentrated their attention on section 5, Khosla's case appears to have been decided independently of Article 286, and on the basis only of section 5 of the Act. Because of the several distinct features of the transactions with which the Court was dealing in Khosla's case, the purchase by Khosla from the Belgium firm and the sale by him to the Railways constituted, were regarded as inseparable. The argument that there were two different and distinct transactions-the first of which was exempt from tax, but the second was not (on the principle laid down by the Supreme Court in the two Travancore cases), does not appear to have been advanced.