Territorial nexus and Article 286 limit state sales tax on cross-border delivery transactions

State sales tax power under Article 246(3) read with Entry 54 of List II remains subject to Article 286. Goods delivered outside the State were not shown to have been delivered for consumption in the State, so the constitutional protection in Article 286(1)(a) did not apply. The Explanation to section 2(h) of the Madras General Sales Tax Act, which fixed the situs where the goods were within the State at the time of contract, was treated as valid, and the levy was supported by sufficient territorial nexus. The writ court would not remand the matter merely to allow further evidence where no jurisdictional error or legal infirmity was shown.

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Issues: Whether sales tax could be levied on transactions where the contract and goods were within the State, but the actual delivery took place outside the State, in the light of the Explanation to section 2(h) of the Madras General Sales Tax Act and Article 286(1)(a) of the Constitution of India.

Analysis: The taxing power of the State under Article 246(3) read with Entry 54 of List II was subject to the restrictions in Article 286. The Explanation to Article 286(1)(a) treated a sale as having taken place in the State only when goods were actually delivered there as a direct result of the sale for consumption in that State. On the facts, delivery outside the State was admitted, but there was no proof that such delivery was for consumption in that State. The Court held that the constitutional fiction could not be extended beyond its terms. It further held that Explanation 2 to section 2(h) of the Madras General Sales Tax Act, fixing the situs where goods were within the State at the time of contract, was valid and that, outside the limits of Article 286, the State levy was supported by sufficient territorial nexus. The writ court would not remand the matter merely to permit the assessee to adduce evidence when no jurisdictional error or legal infirmity in the assessment was shown.

Conclusion: The levy was upheld and the petition failed.

Final Conclusion: A State may tax sales having sufficient territorial nexus under its sales tax law, and Article 286(1)(a) protects only those transactions that fall within its express prohibition. In the absence of proof that the delivery outside the State was for consumption there, the assessee could not escape the assessment.

Ratio Decidendi: The constitutional fiction in Article 286(1)(a) applies only when goods are actually delivered in the State for consumption there, and transactions outside that fiction remain governed by the valid State sales tax law subject to the doctrine of sufficient territorial nexus.

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