Report No. 2
IV. Sales or Purchases outside A State
19. The laying down of principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce does not relieve us of the necessity of laying down principles for determining when a sale or purchase takes place outside a State. The Taxation Enquiry Commission has pointed out that all transactions of sale or purchase not made in the course of import into or export out of the territory of India should suffer sales-tax which is increasingly becoming one of the main sources of the revenues of States.
At the same time provisions have to be framed to prevent the same transaction of sale or purchase being taxed by more than one State. The main purpose of Article 286(1)(a) is to prevent the multiple taxation of a single transaction. A test which can be applied with little difficulty in order to determine whether a transaction of sale or purchase is without or within a State can alone prevent such overlapping taxation.
20. As stated by the Supreme Court, the general law of the sale of goods while it lays down when a sale takes place nowhere provides where a sale is deemed to take place. The problem of giving a situs to a sale is not free from difficulty. A transaction of sale has several ingredients. The essential ingredients are:
(a) the conclusion of the contract of sale,
(b) the appropriation of the goods to the contract,
(c) the passing of the property in the goods,
(d) the payment of the price, and
(d) the delivery of the goods.
One or more of these ingredients have been used in the 'legislation enacted by the States for fixing the situs of a sale within a particular State. The question for consideration is which out of these ingredients affords a certain and easily workable basis for fixing the situs of a sale.
21. The Explanation to Article 286(1)(a) which is now proposed to be omitted attempted to fix as the situs of a sale the State in which goods were actually delivered for consumption. That attempt led to numerous difficulties. Controversies arose as to what constituted actual delivery and consumption. In effect that provision laid down that the tax should go with consumption and that the exporting State should not be entitled to levy any part of it.
As pointed out by the Taxation Enquiry Commission the Constitutional provision as interpreted. placed the exporting States and States with a backward economy in a disadvantageous position. (T.E.C. Report, p. 48, para. 8). In selecting the appropriate ingredient with reference to which the situs of a sale may be determined these considerations will have to be borne in mind.
22. We are of the view that the location of the goods will be a very suitable test to apply in determining the situs of a sale. The physical existence of the goods at a place at a particular time is easily capable of ascertainment and such a test will avoid legal controversies. The difficulty, however, is in fixing the point of time at which the location of the goods should be taken as determining the situs of the sale. Is it to be the time of the making of the contract or the appropriation of the goods to the contract or the passing of the property in the goods or the delivery of the goods?
We have given very careful consideration to the various questions which would arise in the event of one or the other of these points of time being taken with reference to the location of the goods as indicative of the situs of a sale. We have come to the conclusion that in the case of all sales of specific or ascertained goods their location at the time of the making of the contract of sale should determine their situs for the purpose of Article 286(1)(a). In regard to unascertained or future goods two views were considered by us. It was suggested that in regard to such sales the location of the goods at the time when the goods first became ascertained should be taken as the situs of the sale.
The other suggestion was that the location of the goods at the time of their appropriation to the contract of sale should be regarded as the situs of the sale. We rejected the former view as the ascertainment of goods with reference to contracts for the sale of unascertained or future goods is not a distinct legal concept. Ascertainment is but a part of the process of appropriation which is a well-accepted legal concept and which results, generally speaking, in the passing of property in the goods. We are, therefore, of the view that in the case of sales of unascertained or future goods their location at the time of their appropriation to the contract of sale should be the test for determining the situs of the sale.
23. In some cases of the sale of unascertained or future goods it may happen that the seller or the buyer may make an appropriation of the goods without the assent of the other party and put them into the course of transit. It may in such cases happen that the location of the goods when the assent of the buyer or seller is given to the appropriation may be different from their location at the time when the seller or the buyer made the appropriation.
We do not know whether such cases would arise frequently in practice. But in order to provide for them we have in framing the principle used language which makes it clear that the location of the goods at the time of the appropriation by the seller or the buyer irrespective of their location at the time when the assent of the other party is given to the appropriation should be the decisive factor in determining the situs of the sale.
24. We have thought it necessary also to provide for cases where a single contract of sale comprises goods located in different States. In order to obviate difficulties in determining the situs of the sale by reference to the location of the goods in such cases we have suggested that such contracts of sale or purchase should be regarded as separate contracts in respect of the goods situated at different places.
25. Article 286(1)(a) of the Constitution prohibits a State from taxing a sale outside the State. The principles we have suggested will indicate the State within which the sale has taken place. It will, therefore, have further to be provided that as soon as a sale is deemed to have taken place within a State it shall be deemed to have taken place outside all other States. It will be recalled that the absence of such a provisions in Article 286(1)(a) read with the Explanation proposed to be deleted caused a great deal of controversy and resulted in varying interpretations being put on that Article read with the Explanation.
26. The principles we enunciate under this head are as follows:'
"1. A sale or purchase of goods shall be deemed to take place where the goods are'
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale, by the seller or by the buyer whether the assent of the other party is prior or subsequent to such appropriation.
Explanation.' Where there is a single contract of sale or purchase of goods situated at more places than one, the above provision shall apply as if there were separate contracts in respect of the goods at each of such places.
2. When a sale or purchase of goods is determined in accordance with sub-clause (1) to be within a State, such sale or purchase shall be deemed to have taken place outside all other States."
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