Territorial nexus in sales tax upheld where goods were in the Province at contract time, validating the deeming fiction.

Explanation II to Section 2(g) of the Sales Tax Act was treated as creating a valid legal fiction by deeming sales to have taken place in the Province where the goods were actually present at the time of contract, even if the contract and transfer of property occurred elsewhere. The Court accepted that the Provincial Legislature could enact a taxing provision with an extra-territorial element where sufficient territorial nexus existed, and held that the levy remained within the sales tax field rather than becoming an excise duty. Section 297 was found not to bar the provision, and objections based on equity or double taxation did not affect its validity.

---

---

Issues: Whether Explanation II to Section 2(g) of the Sales Tax Act was ultra vires the Provincial Legislature and whether sales of goods actually in the Province at the time of contract, though completed outside the Province, were deemed to have taken place in the Province and were liable to sales tax.

Analysis: The Explanation created a legal fiction by deeming the sale to have taken place in the Province whenever the goods were actually within the Province at the time of the contract of sale, even if the contract and transfer of property occurred elsewhere. The Board held that the sales tax machinery under Sections 21, 22 and 23 of the Act enabled the validity of the taxing provision to be questioned in revision, and that the Provincial Legislature, under the Government of India Act, 1935, was competent to enact a taxing provision with an extra-territorial element so long as there was sufficient territorial nexus. The levy remained a tax on sales within the legislative field of item 48 in List II and did not convert into an excise duty under item 45 in List I. Section 297 did not bar the provision, since the Act did not prohibit exports or discriminate in the manner contemplated by that section. The plain meaning of the Explanation was therefore to be given effect, and the plea based on equity or alleged double taxation did not affect legal validity.

Conclusion: Explanation II to Section 2(g) was valid and effective, the sales in question were deemed to have taken place in the Province, and the assessment was sustainable against the applicant.

---