TaxTMI 
TaxTMI 
1953 (3) TMI 16
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....must be for the purpose of that State. In the case of sales tax it is not necessary that the sale or purchase should take place within the territorial limits of the State in the sense that all the ingredients of a sale like the agreement to sell, the passing of title, delivery of the goods etc. should have a territorial connection with the State. Broadly speaking, local activities of buying or selling carried on in the State in relation to local activities of buying or selling carried on in the State in relation to local goods would be a sufficient basis to sustain the taxing power of the State, provided such activities ultimately resulted in a concluded sale or purchase to be taxed. The Explanation to Article 286(1) of the Constitution provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place notwithstanding the fact that the property in goods passed in another State. Under the Explanation if the goods are actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption ther....
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....loses its practical importance in the case of sales tax imposed by the delivery State under the conditions mentioned in the Explanation, for such tax is, in economic quality, practically indistinguishable from a tax on the consumption or use of the goods. If a non-discriminatory use or consumption tax imposed under Article 304 on goods imported from other States does not infringe the freedom of inter-State commerce declared by Article 301, parity of reason and policy requires that a tax on sales or purchases imposed by the State in which the goods are actually delivered for consumption in the State should not be regarded as violative of the ban under Article 286(2). It is always desirable, when relief under Article 226 of the Constitution of India is sought on allegations of infringement of fundamental rights, that the Court should satisfy itself that such allegations are well-founded before proceeding further with the matter. Per PATANJALI SASTRI, C. J., MUKHERJEA, GHULAM HASAN and BHAGWATI, JJ. (BOSE J., dissenting).-The Bombay Sales Tax Act, 1952, did not contravene the provisions of Article 286(1)(a) by purporting to charge sales or purchases excluded by that Article from St....
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.... and until the ban under clause (2) is lifted and always in the case of exports and imports; and when the ban is lifted, the Explanation is there to settle a matter of considerable controversy regarding the situs of a sale. The Explanation is limited to cases of sales which in truth and in fact take place in the course of inter-State trade and commerce and so long as the ban under clause (2) exists the Explanation will not come into play. The object of the Explanation is to fix the locus of a sale or purchase by means of a fiction. The non-obstante clause does not enunciate the general law on the point. By virtue of the Explanation the State where the goods are actually delivered for the purpose of consumption therein has alone the right to impose the tax. The word consumption, in its economic sense, means the use which a purchaser chooses to make of the goods purchased for his own purposes. Therefore a dealer who purchases from another dealer outside the State is a consumer and can be taxed if the ban is lifted even if he purchases for re-export outside the State. But when he re-exports his sale to the outside consumer cannot be taxed if the Explanation is attracted. The words a....
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....tually delivered for the purpose of consumption therein the delivery state would be entitled to tax the transaction. The State in which the property in the goods passes would not be able to tax such sale or purchase in the absence of a provision enacted by law by Parliament within the meaning of Article 286(2). Once that ban is lifted by the appropriate legislation enacted by the Parliament the State in which the property in the goods passes would also be entitled to tax such sale or purchase but not otherwise. Represented by: H.M. Seervai and J.B. Dadachanji, Advocates, instructed by Rajinder Narain, Agent, for the respondents. State of Bihar: Lal Narain Sinha, Advocate, instructed by R.C. Prasad, Agent, for the interveners. State of Madras: V.K.T. Chari, Advocate-General of Madras (Alladi Kuppuswamy, Advocate, with him) instructed by G.H. Rajadhyaksha, Agent, for the interveners. State of Travancore-Cochin: T.N. Subramania Iyer, Advocate-General of Travancore-Cochin (M.R. Krishna Pillai, Advocate, with him) instructed by G.H. Rajadhyaksha, Agent, for the interveners. M.P. Amin, Advocate-General of Bombay, (M.M. Desai and G.N. Joshi, Advocates, with him) instructed by G.H. ....
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....t and, therefore, void under Article 14 read with Article 13 of the Constitution. The respondents accordingly prayed for the issue of a writ in the nature of mandamus against the appellants preventing them from enforcing the provisions of the Act against the respondents. A further ground of attack was added by amendment of the petition to the effect that the Act being wholly ultra vires and void, the provisions requiring dealers to apply for registration in some cases and to obtain a licence in some others as a condition of carrying on their business, infringed the fundamental rights of the respondents under Article 19 (1)(g) of the Constitution. In the affidavit filed in answer the appellants traversed the allegations in the petition and contended, inter alia, that the Act was a complete code and provided for special machinery for dealing with all questions arising under it, including questions of constitutionality, and, therefore, the petition was not maintainable, that the present case was not an appropriate one for the issue of a writ under Article 226 as the validity of the imposition of a tax was questioned, that no assessment proceedings having been initiated against the re....
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....he rule-making authority had no power to impose under the Constitution. On all these grounds the whole Act was declared ultra vires and void, and a writ was issued as prayed for by the respondents. In view of the importance of the issues involved, notice of the appeal was issued to the Advocates-General of States under Order XLI, Rule 1, and many of them intervened and appeared before us. The Attorney-General of India, to whom notice was also sent, intervened on behalf of the Union of India. We have thus had the assistance of a full argument dealing with all aspects of the case. The Advocate-General of Bombay, appearing on behalf of the appellants, took strong exception to the manner in which the learned judges below disposed of the objection to the maintainability of the petition. He complained that, having entertained the petition on the ground that infringement of fundamental rights was alleged, and that the remedy under Article 226 was, therefore, appropriate, the learned judges issued a writ without finding that any fundamental right had in fact been infringed. Learned counsel for the State of West Bengal also represented that parties in that State frequently got petitions u....
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....48] F.C.R. 1; 16 I.T.R. 240. In dealing with the competency of the Indian Legislature to impose tax on the income arising abroad to a non-resident foreign company, the constitutional validity of the relevant statutory provisions did not turn on the possession by the legislature of extra-territorial powers but on the existence of a sufficient territorial connection between the taxing State and what it seeks to tax. In the case of sales tax it is not necessary that the sale or purchase should take place within the territorial limits of the State in the sense that all the ingredients of a sale like the agreement to sell, the pas- sing of title, delivery of the goods etc., should have a territorial connection with the State. Broadly speaking, local activities of buying or selling carried on in the State in relation to local goods would be a sufficient basis to sustain the taxing power of the State, provided of course, such activities ultimately resulted in a concluded sale or purchase to be taxed. In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India Act, 1935, the Provincial Legislatures enacted sales tax laws for their res....
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....as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce: Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) No law made by the Legislature of a State imposing, or authorizing the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. 301.. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. 304.. Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law- (....
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.... to be determined whether a particular sale or purchase took place within or outside the State. It is difficult to say that any one of the ingredients mentioned above is more essential to a sale or purchase than the others. To solve the difficulty an easily applicable test for determining what is an outside sale head to be formulated, and that is what, in our opinion, the Explanation was intended to do. It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, notwithstanding the property in such goods passed in another State. Why an "outside" sale or purchase is explained by defining what is an inside sale, and why actual delivery and consumption in the State are made the determining factors in locating a sale or purchase will presently appear. The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test: Are the goods actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption therein? Then, such sale or purchase shall ....
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....is connection that, on the construction suggested by the Advocate-General of Bombay, namely, that the Explanation was not intended to deprive the State in which the property in the goods passed of its taxing power, but only to exclude the sales or purchases of the kind described in the Explanation from the operation of clause (1) (a) which prohibits taxation of outside sales or purchases, the Explanation would operate, not as an explanation, but as an exception or a proviso to that clause. It may be that the description of a provision cannot be decisive of its true meaning or interpretation which must depend on the words used therein, but, when two interpretations are sought to be put upon a provision, that which fits the description which the legislature has chosen to apply to it is, according to sound canons of construction, to be adopted provided, of course, it is consistent with the language employed, in preference to the one which attributes to the provision a different effect from what it should have according to its description by the legislature. It was then said that the formula of delivery for consumption within a State could only cover the comparatively few cases of sal....
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....t it was suggested by the Advocate-General of Bombay that the expression "inter-State trade and commerce" in clause (2) may be construed as meaning dealings between a trader in one State and a trader in another, so that the clause would be applicable only to sales or purchases in the course of dealings between such traders. The ban under clause (2) could not, in that view, affect the taxability of a sale by a trader in one State to a consumer or user in another. We cannot agree with this restrictive interpretation of the expression " inter-State trade and commerce". The sale by a trader in one State to a user in another would be a sale "in the course of inter-State trade " according to the natural meaning of those words, and we can see no reason for importing the restriction that the transaction should be one between two traders only. This is, however, not to say that the ban under clause (2) extends to the taxing power which the delivery State is left free, under the Explanation, to exercise. We are of opinion that the operation of clause (2) stands excluded as a result of the legal fiction enacted in the Explanation, and the State in which the goods are actually delivered for con....
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....es under which the goods are imported into the State for re-export to other States and possibly other categories of sales or purchases which do not satisfy all the requirements of the Explanation. Whether such transactions are sufficiently numerous for the Constitution to take note of is a matter of opinion and it cannot have much bearing on the question of construction. On the other hand, there are, in our judgment, cogent considerations which tend to support the view we have expressed above that clause (2) was not intended to affect the power of the delivery State to tax inter-State sales or purchases of the kind mentioned in the Explanation. As we have seen, in our Constitution the principle of freedom of inter-State trade and commerce is made to give way before the State-power of imposing non-discriminatory taxes on goods imported from other States. Now, Article 286 (2) is but one phase of the protection accorded to inter-State trade and commerce from the fettering power of State taxation. As Article 286 deals with restrictions on the power of the States to impose tax on the sale or purchase of goods, the Constitution-makers evidently thought that it should contain also....
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....y directed against the consumer, is, in substance, a tax on the goods imposed, no doubt, on the occasion of the sale as a taxable event. It will now be seen why the Explanation insists on actual delivery of the goods in the State and their consumption in the State, and why an "outside" sale or purchase is explained by defining what is an inside sale. The object clearly is to assimilate the conditions, under which the delivery State is left free to tax inter-State sales or purchases, to those under which a State is empowered to impose tax on goods imported into the State from other States under Article 304(a). If then, a non-discriminatory use or consumption tax imposed under Article 304 on goods imported from other States does not infringe the freedom of inter-State commerce declared by Article 301, parity of reason and policy requires that a tax on sales or purchases imposed by the State in which the goods are actually delivered for consumption in the State should not be regarded as violative of the ban under Article 286 (2), and that is what the statutory fiction enacted in the Explanation was, in our judgment, designed to achieve by divesting the sale or purchase of the kind ref....
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.... respondents case that the sales and purchases made by them in Bombay, in the course of their business, include all the three categories excluded from the scope of State-taxation by Article 286, and the Act seeking to bring all of them within its scheme of taxation is bad. It is, therefore, necessary to make a brief survey of the main provisions of the Act and of the Rules made there-under, in order to see whether the respondents' complaint is well-founded, and, if so, whether the whole or any part of the Act is to be declared un- constitutional and void. The Act provides for levy of two kinds of taxes, called the "general tax" and the "special tax", by the two charging Sections 5 and 10 respectively. "Dealer" is defined in Section 2(7) as a person who carries on the business of selling goods in the State of Bombay whether for commission, remuneration or otherwise and includes a State Government which carries on such business and any society, club or association which sells goods to its members. The Explanation (2) to this definition provides that the manager or agent of a dealer who resides outside the State of Bombay and carries on the business of selling goods in the State of B....
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.... carry on business as a dealer unless he has applied for registration (Section 9). A more or less similar scheme is provided for the levy of a special tax on the sale of certain special goods specified in Schedule II. By section 10 every dealer whose turnover in respect of sales of special goods made within the State of Bombay has exceeded Rs. 5,000 during the year ended 31st March, 1952, or exceeds the said limit during the year commencing from 1st April, 1952, is charged with a special tax at the rate specified in Schedule II on his taxable turnover in respect of the sales of special goods made on or after the appointed day, i.e. 1st November, 1952. By Section 11 the taxable turnover is to be determined by first deducting, from the turnover of the dealer in respect of his sales of special goods during any period of his liability, his turnover in respect of (a) sales of special goods purchased by him on or after the appointed day at a place in the State of Bombay from a dealer holding a licence under Section 12 and (b) "such other sales as may be prescribed". Every dealer liable to pay the special tax is required to obtain a licence as a condition of his carrying on his business (....
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....ence of actual consignment of the goods within three months of the sale, that the sale has not taken place in the course of export or of inter-State trade as the case may be. It is not necessary to refer to the provisions of the other rules. Now, it will be seen from the provisions summarised above that the Act does not in terms exclude from its purview the sales or purchases taking place outside the State of Bombay while it does include, by Explanation (2) to the definition of "sale", the sales or purchases under which the delivery and consumption take place in Bombay which, by virtue of the Explanation to Article 286(1)(a), are to be regarded as local sales or purchases. On the construction we have placed upon that Explanation, sales or purchases effected in Bombay in respect of goods in Bombay but delivered for consumption outside Bombay are not taxable in Bombay. Now, the respondents complain that the latter category of sales or purchases thus held not to be taxable are not expressly excluded by the Act which, therefore, contravenes Article 286(1)(a). No doubt, there is no provision in the Act excluding in express terms sales of the kind referred to above, but neither is there....
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....gislature at the date when it was passed, the exclusion subsequently effected by the Rules cannot validate such legislation. But, as already stated, that is not the position here, and the learned judges below fell into an error by overlooking this crucial fact when then say "If the Legislature had no competence on the date the law was passed, the Rules subsequently framed cannot confer competence on the Legislature". Even so, it was contended, the exclusion of the sales covered by clause (1) (b) and clause (2) of Article 286 was hedged round with conditions and qualifications which neither the Legislature nor the rule-making authority was competent to impose on the exclusion and, therefore, such Rules, even if read as part of the Act, could not cure the constitutional transgression. The conditions and qualifications complained of are mostly found to relate to mere matters of proof, e.g., Rule 5 (2) Explanation (2) which insists on the production of a certificate from an appropriate authority, before a motor vehicle, despatched to a place outside the State of Bombay by road and driven by its own power, could be exempted as an article sold in the course of inter-State trade. No obje....
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....s of their goods. But no discrimination is involved in this classification which is 'perfectly reasonable when it is borne in mind that the State may not consider it administratively worth while to tax sales by small traders who have no organisational facilities for collecting the tax from their buyers and turn it over to the Government. Each State must, in imposing a tax of this nature, fix its own limits below which it does not consider it administratively feasible or worth while to impose the tax. It is idle to suggest that any discrimination is involved in such classification. Apart from the considerations set forth above which tend to support the constitutional validity of the Act, it was broadly contended before us that taxing statutes imposing tax on subjects divisible in their nature which do not exclude in express terms subjects exempted by the Constitution, should not, for that reason, be declared wholly ultra vires and void, for, in such cases, it is always feasible to separate taxes levied on authorised subjects from those levied on exempted subjects and to exclude the latter in the assessment of the tax. In such cases, it is claimed, the statute itself should be ....
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....ces of each individual case. There are no words in the Act capable of being so construed, and such a course would in effect involve an amendment of the Act by the court, a course which is beyond the competency of the court, as has long been well established." The subject of the constitutional prohibition was single and indivisible, namely, disposition of property on grounds only of (among other things) descent and if, in its actual operation, the impugned statute was found to transgress the constitutional mandate, the whole Act had to be held void as the words used covered both what was constitutionally permissible and what was not. The same principle was applied by this Court in the Cross Roads case [1950] S.C.R. 594. It was, indeed, applied also in Bowman's case 256 U.S. 642. With respect to the licence tax imposed generally on the entire business conducted including inter-State commerce as well as domestic business, but was not applied, as stated above, with respect to excise tax which was laid on every gallon of gasolene sold and was thus divisible in its nature. It is a sound rule to extend severability to include separability in enforcement in such cases, and we are of....
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....nd to a fourth because they were "found" there. It hardly matters whether all or any of this would have stood scrutiny in a court of law because the fact remains that various States were actually taxing the one transaction of sale on the nexus theory and a real danger existed of more and more of them coming in to claim a share of the spoils. It seem; to me that the Constitution makers considered this detrimental to the development and exercise of trade and commerce and so determined to put a stop to the practice but at the same time left Parliament a discretion to restore a part of the status quo if and when it should think it safe and desirable to do so. The narrowing of the' powers was accomplished by stating in Article 286 that no State can impose a tax on a sale or purchase *which takes place outside the State, by stating that it cannot tax a sale or purchase in the course of import or export and by prohibiting taxes on sales and purchases which take place in the course of inter-State trade or commerce unless Parliament chooses to lift the ban. Reading these together in a simple and straightforward way it seems clear to me that the idea was to permit States to tax only what I ....
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....xisting laws and the manner in which they were acted upon and enforced. (See Gwyer C.J., in In re The Central Provinces and Berar Act No. XIV of 1938 [1939] F.C.R. 18 at 53; 1 S.T.C. 1. And Croft v. Dunphy [1933] A.C. 156 at 165. I think this rule is even more appropriate in the case of the Constitution because the Constitution itself continues in force all laws which were in existence at the date when it came into being except those which are inconsistent with itself. I am with respect unable to agree that Article 286 (2) is to be interpreted in the light of Article 304 (a). In my opinion, the two articles deal with different things. Article 286 is concerned with sales and purchases while Article 304 relates to goods imported from other States. The stress in the one case is on the transaction of sale or purchase; in the other, on the goods themselves and on the act of import. Article 286 is related to Entry No. 54 of List II and to Entries 41 and 42 in List I: Article 304 (a) to Entries 26 and 27 of List II read with Entry 33 in List III and to Entries 51, 52 and 56 of List II. The distinction is, I think, clear when it is realised that (apart from the Explanation) a ....
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....clause (a)". In view of that I do not feel justified in carrying it over to clause (2) and holding that it governs there as well. In my judgment, the only purpose of the Explanation is to explain where the situs of a sale is. Clause (2) has a different object. Its purpose is to prohibit taxation on sales and purchases which take place in the course of inter-State trade or commerce. If the Explanation is carried over to clause (2) it must, in my judgment, be equally applicable to sub-clause (b) of clause (1). As I under-stand the argument, the reasoning is this. The Explanation turns an inter-State sale into an intra-State sale by means of a fiction. Having served its purpose it follows as a corollary that there is no inter-State transaction left and so clause (2) is not called into play. In my opinion, by parity of reasoning, if the sale is intra-State and cannot now be regarded as external to the State, it equally cannot be said to take place in the course of export or import in a case of that kind, for export and import predicate the movement of goods across a boundary just as surely as inter-State trade and commerce. But such a contention would militate against our decision in....
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....on in that State as a direct result of a purchase or sale effected for that purpose. It will be noticed that the proviso is limited to cases in which the imposition of the tax would be "contrary to this clause", that is clause (2) and not to the Explanation to clause (1)(a). In the second place, Parliament is empowered to lift the ban imposed by clause (2). So long as the ban exists there is no need for the Explanation, for the Explanation only covers sales or purchases which are inter-State. But the moment the ban is lifted, the difficulties I have mentioned above arise and have to be met. I am clear that the Constitution makers envisaged this and resolved the doubts in the manner I have indicated; nor can I see anything inconsistent or illogical in this. The basic idea is to prohibit taxation in the case of inter-State trade and commerce unless and until the ban under clause (2) is lifted, and always in the case of exports and imports; and when the ban is lifted, the Explanation is there to settle a matter of considerable controversy regarding the situs of a sale. It is true it makes an arbitrary selection but then almost any selection would have to be arbitrary and this is as g....
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....erefore " consumes " them even though he does not keep them himself. This of course means that a dealer who purchases from another dealer outside the State is a "consumer" and can be taxed if the ban is lifted even if he purchases for re-export outside the State. But when he re-exports, his sale to the outside consumer cannot be taxed if the Explanation is attracted. I cannot agree that goods cannot be "consumed" more than once. It all depends on how you view the matter. Little fishes swallow smaller fishes and are in turn eaten by fishes larger than themselves. In the end, the smallest of the series is consumed by the biggest. Consider the case of a curio dealer who collects antiques for the purposes of sale. The older they are and the more they have been used, the more valuable they become, but that would not prevent them from being "consumed" over again when a "collector" buys them for display in his house. Broadly speaking, the object here is to stop multiple taxation on any single act of sale or purchase made in the course of inter-State trade and commerce. I would therefore construe "consumption" to mean the usual use made of an article for the purposes of trade and commerce....
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....arded as the agent of the Bombay seller. So far as the words "in the course of" in clause (2) are concerned, the "course" we have to consider is the course of the inter-State trade and commerce. In my opinion, the inter-State character of the course ends when the goods reach the first consumer in the taxing State. When he in turn sells to the ultimate consumer in that State, a different course begins, namely the course of intra-State trade. It is necessary to draw this distinction because interstate trade and commerce is a matter for the Centre, intra-State for that of the States. We have therefore to determine where the inter-State course ends and the intra-State course begins. I think the point at which I have drawn the line is logical and convenient. I do not think the same considerations will apply in the next set of cases where we are dealing with the Travancore-Cochin law relating to export and import. But it is not necessary to explain why in this case. It was contended in argument that the view I take of the ban on inter-State trade and commerce imposed by clause (2) would place the local dealer at a disadvantage. But that would only arise in one class of case and I cannot....
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....isadvantage is more theoretical than practical. For example, a wholesale importer, who also chooses to sell retail in the State of import, has a theoretical advantage over retailers who have to buy through him. But that did not prevent this Court from holding in State of Travancore-Cochin & Others v. The Bombay Co. Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434. that the sale which occasioned his import is free of tax. So here. I do not think this consideration should weigh. But apart from this, the matter is, I think, largely theoretical save perhaps in a few exceptional cases. In this class of case, the trade usually adjusts its own differences by allowing the local dealer a discount; in fact, in the case of many commodities, local dealers have to give an undertaking not to sell below a certain price in order to maintain a steady price level over the local market and avoid cut-throat competition. That is how most of the large motor agencies work, and the same applies to radios and petrol and kerosene oil. The price the ultimate consumer pays is the same wherever he purchases in a given area. Also the type of consumer who will take the trouble to buy in a cheaper foreign market with all th....
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....s. On this view, the preamble to the Act and the short title which limit the ambit of the law to the levy of tax on sales and purchases of goods in the State of Bombay, do not serve to save the Act, nor do the definitions of the words "sale", "dealer" and "turnover". Actually, Explanation (2) to the definition of "sale" directly offends clause (2) of Article 286. It embodies almost word for word every provision of the Explanation to Article 286 (1) (a). That would be unobjectionable if the ban imposed by clause (2) had been lifted by Parliament. But as it has not been lifted, the provision is ultra vires on the view which I take of the Constitution. The Act came into force on 9th October, 1952, with the exception of the taxing sections. The Rules were published in the Gazette on 29th October, 1952, and they, together with the taxing sections, came into effect simultaneously on 1st November, 1952. It was argued that the Rules save the Act in the following way. Under Sections 7 and 11 a dealer is entitled to deduct from his taxable turnover sales which are from time to time declared to be tax-free under Section 8 and "such other sales as may be prescribed." It is said that the Rules....
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...., I cannot see how the good can be separated from the bad in this case even if the Explanation to Section 2(14) be expunged unless the Constitution be read as part of the Act and we are to read into the Act some such provision as follows: "Notwithstanding anything which is said in any part of this Act, all sales which the State is prohibited to tax under the Constitution are excluded from the scope of this Act." But, in my opinion, judges are not entitled to re-write an Act. Offending provisions can be struck out but if we do that the whole Act goes because the defect here is that all sales are permitted to be taxed provided they are within the State of Bombay, and the Rule-making authority is not restricted to taxation which is constitutionally permissible. On the contrary, Section 45 says that the Government may make rules for carrying out the purposes of the Act and one of the purposes is to tax all sales which the State Government wishes to tax. The other matter is based on the American view which treats taxing statutes differently from others and holds that in a taxing statute one looks to the individual item of taxation and not to the generality of the powers. With all res....
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....ide the State or in the course of import or export or in the course of inter-State trade or commerce. Whereas before the Constitution the taxing power could be exercised by reason of a sufficient territorial connection involving either one or more of the ingredients of a sale in the shape of agreement to sell, the payment of price, transfer of ownership, delivery of goods etc. the completion of a transaction of sale or purchase by the transfer of ownership or the passing of the property in the goods was enacted to be the sole criterion for taxability in Article 286. The sales or purchases could be divided into two broad categories- (1) sales or purchases which take place inside the State and (2) sales or purchases which take place outside the State and those which took place outside the State were certainly outside the taxing powers of the State. In regard to the sales or purchases which took place inside the State, the sales or purchases which took place in the course of import or export and in the course of inter-State trade or commerce were also brought within the ban leaving the taxing power of the State unfettered in regard to the other sales or purchases which took place in....
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....nsumption in that State. They wanted to give the delivery State in that event the power to tax such sale or purchase and therefore introduced by the Explanation to Article 286(1)(a) a legal fiction by which the sale or purchase in that event was deemed to have taken place in the delivery State. What otherwise would have been a sale or purchase which took place outside the State within the meaning of Article 286(1)(a) was thus by legal fiction deemed to have taken place inside the delivery State, thus assimilating the position to a sale or purchase which took place inside the delivery State enabling the delivery State to tax the sale or purchase in question. This legal fiction was thus introduced not for defining what was a sale or purchase which took place inside the State as distinct from a sale or purchase which took place outside the State. The purpose of the enactment of the explanation was not to provide a definition of a sale or purchase which took place inside the State. That was determined under the general law relating to the sale of goods by ascertaining where the transfer of ownership took place or the property in the goods passed, which was in another State and not the....
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....med to have taken place inside the delivery State and that is the only purpose of the enactment of the explanation. The contention of the Attorney-General and Shri Seervai that the purpose of the enactment of the explanation was to define what was a sale or purchase which took place inside the State is therefore unsound. The non-obstante clause really takes count of the fact that under the general law relating to the sale of goods the property in the goods by reason of such sale or purchase would pass in another State and that the Page No: 171 situs or location of the sale would accordingly be therefore in another State. Notwithstanding that fact the explanation enacts the legal fiction that the particular transaction of sale or purchase is deemed to have taken place within the delivery State. The non-obstante clause has not been incorporated in the explanation with a view to emphasise the particular aspect of the passing of property in the goods and negativing the same because that was one of the ingredients which had been considered as important territorial connection between the taxing State and what it sought to tax. Besides this ingredient there were various other ingredients....
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....x on sale or purchase of goods and the only restriction which has been imposed in connection with the sales or purchases which take place in this manner is that a State shall not impose a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. That is a general ban which has been imposed by Article 286 (1)(a) and what the explanation seeks to do is to lift the ban to the extent of the transactions of sale or purchase covered by the explanation and enable the delivery State also to tax such purchases or sales. It is no doubt true that in the explanation the word "only" has not been used nor has the word "also" been used and we have to gather the purpose of the enactment of the explanation from the words of the explanation itself. In order to arrive at a conclusion whether the object and purpose of the explanation was to enable the delivery State to tax such sales or purchases either in addition to the State in which the property in the goods had passed or in substitution thereof one has got to bear in mind the basic idea that a State would normally be entitled to tax a sale or purchase where such sale or purchase took place inside the State e....
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....is not every transaction which results in the goods being delivered across the border that comes within this category. It is only a transaction of sale or purchase which directly results in the delivery of goods for the purpose of consumption in the delivery State that comes within the category of transactions covered by the explanation. A dealer in the delivery State purchasing from a dealer in the State where the property in the goods passes by reason of such sale or purchase cannot be said to have purchased the goods for the purpose of consumption in the delivery State because the obvious purpose for which he purchases the goods is for dealing with those goods in the ordinary course of trade and not for consuming the same. A dealer who deals with the goods after purchasing the same does not consume the goods. He deals with or disposes of the same in the ordinary course of trade and he is a dealer or a trader in those goods. He is not a consumer of those goods. The word "consumption" has been thus defined in Webster's New International Dictionary, Vol. 1, Page 483: "Consumption.-(3) Economics.-The use of (economic) goods resulting in the diminution or destruction of their utilit....
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.... in the one State and the consumer in the, delivery State is nonetheless a transaction in the course of inter-State trade or commerce. I do not agree with the contention of the Advocate. General of Bombay that Article 286(2) should be interpreted as applying to the cases of transactions of sale or purchase taking place between dealers and dealers only and not as applying to the cases of transactions of sale or purchase taking place between dealers on the one hand and consumers on the other. Whether a transaction of sale or purchase takes place between a dealer on the one hand and a dealer on the other or between a dealer on the one hand and a consumer on the other in the respective States all these transactions are in the course of inter-State trade or commerce and therefore hit by Article 286(2) and the transactions which are covered by the explanation to Article 286(1)(a) would also be accordingly hit by the ban imposed under Article 286(2). So far as the State in which the property in the goods has passed is concerned it could certainly not tax the sale or purchase in question because the transaction of sale or purchase so far as the particular State is concerned takes place in....
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....52) at p. 205 Maxwell on the Interpretation of Statutes, 9th Edition (1946) at p. 176 and Crawford on the Construction of Statutes (Interpretation of Laws) 1940 Edition, Ch. XVIII 'Construction of Statutes' at p. 265, S. 167]. It therefore follows that the general provision which is enacted in Article 286(2) against the imposition of tax on the sale or purchase of goods in the course of inter-State trade or commerce should give way to the special provision which is enacted in the explanation to Article 286 (1)(a) enabling the delivery State to tax such sale or purchase in the limited class of cases covered by the explanation, transactions covered by the explanation being thus lifted out of the category of transactions in the ourse of inter-State trade or commerce covered by Article 286(2) and assimilated to transactions of sale or purchase which take place inside the State thus acquiring an intra-State character so far as the delivery State is concerned. It was suggested that this result could also be achieved by having resort to the principles which have been enunciated in Articles 301 and 304 of the Constitution which are included in Part XIII under the caption-Trade, com....