Statutory deeming of inter-State sales as inside sales was saved by the Validation Act, defeating the tax challenge.

A statutory deeming provision under Explanation (2) to section 2(h) of the Madras General Sales Tax Act treated certain inter-State sales as inside sales for tax purposes, and when read with the charging scheme it brought those transactions within the Validation Act, 1956. The court construed section 2 of the Validation Act broadly enough to save State laws authorising tax on sales or purchases in the course of inter-State trade or commerce during the relevant validation period. The levy was therefore held authorised, and the challenge based on Article 286 failed.

---

---

Issues: Whether the tax levied on inter-State sales deemed to be inside sales under Explanation (2) to section 2(h) of the Madras General Sales Tax Act was validated by the Sales Tax Laws Validation Act, 1956 despite the restrictions in Article 286 of the Constitution of India.

Analysis: The turnover related to inter-State transactions during the statutory validation period. The constitutional ban under Article 286(1)(a) and Article 286(2) had created difficulty for State sales tax levies imposed under the earlier understanding of the law. The court held that Explanation (2) to section 2(h) did not merely create a fiction without tax consequences, but treated the covered transactions as inter-State sales statutorily deemed to be inside sales within the charging scheme. The language of Section 2 of the Sales Tax Laws Validation Act, 1956 was read broadly enough to save any State law authorising tax on sales or purchases in the course of inter-State trade or commerce during the relevant period.

Conclusion: The tax was held to be authorised and covered by the Validation Act, and the challenge to its levy failed.

Ratio Decidendi: A statutory deeming provision treating an inter-State sale as an inside sale for purposes of tax, when read with the charging provision, can fall within a validation enactment that saves taxes on sales in the course of inter-State trade or commerce during the specified period.

---