Inter-State trade sales tax bar prevents State levy on sales completed outside the State without parliamentary authorisation

Article 286 barred a State from levying sales tax on transactions completed outside the State but involving delivery and consumption within it where the sales formed part of inter-State trade. The traders had no place of business in Uttar Pradesh, the orders were accepted outside the State, and the attempted assessment was therefore treated as without jurisdiction. On that basis, the constitutional objection was upheld and the plea that the challenge was premature was rejected. The petitioners were entitled to mandamus restraining the sales tax authorities from proceeding under the U.P. Sales Tax Act.

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Issues: Whether the State could levy sales tax on sales by traders carrying on business outside Uttar Pradesh where orders were accepted outside the State and goods were despatched for delivery and consumption within Uttar Pradesh, and whether such proceedings were barred by Article 286 of the Constitution.

Analysis: The petitioners carried on business in Calcutta, had no place of business in Uttar Pradesh, and the transactions were completed outside Uttar Pradesh, though the goods were delivered within Uttar Pradesh for consumption there. The Court relied on the then prevailing constitutional position under Article 286 and on the later Supreme Court ruling that sales in the course of inter-State trade could not be subjected to State sales tax unless Parliament otherwise provided. On those facts, the attempted levy by Uttar Pradesh was treated as an unconstitutional attempt to tax inter-State trade, and the objection that the petition was premature was rejected because the taxing authorities were proceeding without jurisdiction.

Conclusion: The State had no power to assess or realise sales tax from the petitioners on the transactions in question, and the petitioners were entitled to mandamus restraining the sales tax authorities from proceeding against them under the U.P. Sales Tax Act.

Ratio Decidendi: A State cannot levy sales tax on transactions amounting to inter-State trade where the constitutional bar under Article 286(2) applies and Parliament has not authorised such levy.

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