Territorial nexus and retrospective sales tax law upheld; collected tax excluded from turnover, and pre-Constitution assessments remained valid.

A provincial sales tax is valid where there is a real territorial nexus between the taxing Province and the transaction, even if the sale is completed outside the Province, and retrospective amendment of the charging provision is competent absent a constitutional bar. Amounts collected from purchasers as sales tax are not part of the dealer's taxable turnover, because they are separately referable to tax collection rather than sale price. Tax liabilities and assessments completed before the Constitution came into force are not displaced by Article 286, since constitutional provisions do not retrospectively unsettle accrued liabilities, and a pending appeal does not reopen the completed levy.

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Issues: (i) whether the Bihar Sales Tax Act, as amended, was within legislative competence in so far as it applied to sales connected with goods manufactured in Bihar though the sale transactions were completed outside the Province and whether the retrospective amendment of the charging provision was valid; (ii) whether the amount collected from customers as sales tax formed part of the dealer's taxable turnover; and (iii) whether the assessments made before the Constitution came into force were invalid by reason of Article 286 and whether the appellate authority was bound to apply the Constitution to those completed liabilities.

Issue (i): whether the Bihar Sales Tax Act, as amended, was within legislative competence in so far as it applied to sales connected with goods manufactured in Bihar though the sale transactions were completed outside the Province and whether the retrospective amendment of the charging provision was valid.

Analysis: The power to levy sales tax under the Government of India Act depended on a sufficient territorial nexus with the taxing Province and did not require every element of the sale, including passing of title, to occur within the Province. Manufacture or production of the goods in Bihar provided a real territorial connection with the transactions sought to be taxed. The charge was imposed on the sale transaction as such and not as an excise on manufacture. The retrospective amendment of the charging provision was also competent, because the Provincial Legislature possessed plenary power to enact fiscal legislation with retrospective effect and no constitutional restriction barred such taxation retrospectively.

Conclusion: The provision was constitutionally valid and the challenge to the retrospective levy failed, in favour of the Revenue.

Issue (ii): whether the amount collected from customers as sales tax formed part of the dealer's taxable turnover.

Analysis: The statutory scheme distinguished between the sale price, the taxable turnover, and the dealer's liability to collect and pay over tax. The amount recovered by a registered dealer from purchasers as sales tax was authorised by the amending provisions and was separately referable to tax collection, not to the price paid for the goods. It therefore could not be treated as part of the sale price or the dealer's turnover for assessment purposes.

Conclusion: The collected sales tax did not form part of the taxable turnover, in favour of the Assessee.

Issue (iii): whether the assessments made before the Constitution came into force were invalid by reason of Article 286 and whether the appellate authority was bound to apply the Constitution to those completed liabilities.

Analysis: Constitutional provisions were not retrospective so as to unsettle liabilities already accrued under a valid charging law. The liability to pay sales tax arose from the charging section, while assessment merely quantified that liability. Since the statutory charge and assessments had already been made before the Constitution commenced, Article 286 did not invalidate the completed levy, and the pendency of an appeal did not reopen the accrued tax liability.

Conclusion: The pre-Constitution assessments remained valid and the appellate authority was not bound to apply Article 286, in favour of the Revenue.

Final Conclusion: The reference was answered by upholding the constitutional validity of the levy and the pre-Constitution assessments, while excluding sales tax collections from taxable turnover.

Ratio Decidendi: A provincial sales tax is valid where a real territorial nexus exists between the taxing province and the transaction, retrospective fiscal legislation is competent in the absence of a constitutional bar, and tax already levied under a valid charging provision is not displaced merely because an appeal remains pending when a later Constitution comes into force.

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