Deeming sales tax nexus upheld where goods were produced in the State and reference rights were treated as procedural.

Goods manufactured or produced in Uttar Pradesh were treated as taxable under the deeming provision even where the contracts of sale were concluded after the goods had left the State, because the provision fastened liability on sales of goods produced or manufactured in the State by the seller. The deeming rule was upheld as within provincial legislative competence, since production or manufacture in the taxing State supplied a real territorial nexus sufficient to sustain the tax. The amendment enlarging the class of persons entitled to seek a reference was held procedural and applicable to pending matters, so the Commissioner's reference was competent. The constitutional and procedural objections therefore failed.

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Issues: (i) Whether goods manufactured or produced in Uttar Pradesh were taxable under the deeming provision when the contracts of sale were entered into after the goods had left the State; (ii) whether the deeming provision in the sales tax law was within the legislative competence of the Provincial Legislature; (iii) whether the Commissioner of Sales Tax could seek a reference to the High Court after the amendment to the reference provision.

Issue (i): Whether goods manufactured or produced in Uttar Pradesh were taxable under the deeming provision when the contracts of sale were entered into after the goods had left the State.

Analysis: The deeming clause was read as fastening tax liability on sales of goods produced or manufactured in the State by the dealer, regardless of the place or timing of the contract of sale, so long as the goods were produced or manufactured in Uttar Pradesh by the person making the sale. The language of the provision did not require that manufacture must follow the contract of sale.

Conclusion: The sales were taxable and the assessee's challenge on construction failed.

Issue (ii): Whether the deeming provision in the sales tax law was within the legislative competence of the Provincial Legislature.

Analysis: A sale is a composite transaction, but for legislative competence it is sufficient if there is a real and pertinent territorial nexus between the taxing State and the transaction. The production or manufacture of goods in the State provided such nexus, and a deeming provision treating those sales as taking place in the State was upheld as valid under the provincial taxing power.

Conclusion: The provision was not ultra vires and was valid.

Issue (iii): Whether the Commissioner of Sales Tax could seek a reference to the High Court after the amendment to the reference provision.

Analysis: The amendment enlarging the class of applicants for reference was treated as procedural. The right to apply for reference depended on the existence of an order under the revision provision when the application for reference was made, and the amendment did not impair any vested right of the assessee.

Conclusion: The reference at the instance of the Commissioner was competent.

Final Conclusion: The statutory scheme validly applied to the disputed outside sales, the constitutional challenge failed, and the procedural objection to the reference was rejected, leaving no merit in the appeals.

Ratio Decidendi: A sales tax law may validly deem sales taxable in the taxing State where the goods were produced or manufactured there, because such production or manufacture creates a sufficient territorial nexus to support legislative competence; procedural amendments enlarging the class of persons entitled to seek a reference apply to pending matters unless they affect vested rights.

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