TaxTMI 
TaxTMI 
1958 (3) TMI 40
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....in & Co., for Intervener No. 6. P.N. Bhagwali & I.N. Shroff, Advocates, for Intervener No. 8. V.L. Narasimhamoorty, Advocate, and J.B. Dadachanji & Rameshwar Nath, Advocates of Rajinder Narain & Co., for Interveners Nos. 4 & 5. G.C. Mathur & C.P. Lal, Advocates, for Internever No. 3. V.K.T. Chari, Advocate-General for the State of Madras, B.R. Gopalakrishnan & T.M. Sen, Advocates, with him, for Interner No. 2. -------------------------------------------------- The Judgment of S.R. Das, C.J., Venkatarama Aiyar, S.K. Das and Vivian Bose, JJ., was delivered by Venkatarama Aiyar, J. Sarkar, J., delivered a separate Judgment. VENKATARAMA AIYAR, J.-The petitioners are dealers carrying on business in the City of Madras in the sale and purchase of yarn, and they have filed the present applications under Article 32 of the Constitution for the issue of a writ of prohibition or other appropriate writ restraining the State of Andhra from taking proceedings for imposing tax on certain sales effected by them in favour of merchants who are residing or carrying on business in what is now the State of Andhra Pradesh, on the ground, inter alia, that t....
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...., Parliament enacted the Andhra State Act (XXX of 1953), whereby a separate State called the State of Andhra was constituted incorporating therein territories which had previously thereto formed part of the State of Madras, and this Act came into force on October 1, 1953. Under section 53 of the Andhra State Act, the laws in force in the territories in the Andhra State prior to its constitution are to continue to be in force even thereafter, and one of those laws is the Madras General Sales Tax Act (Madras IX of 1939), hereinafter referred to as the Madras Act. Section 54 of the Andhra State Act conferred on the Government a power to adapt laws for the purpose of facilitating the application of any law previously made, and in exercise of the power conferred by this section, an Adaptation Order was passed on November 12, 1953, whereby the word "Andhra" was substituted for the word "Madras" in the Madras Act. We shall hereafter refer to the Madras Act as continued and applied in the State of Andhra as the Andhra (Madras) Act. It will be convenient at this stage to refer to the relevant provisions of this Act. The preamble to the Act states that "it is expedient to provide for....
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....s the position in law under the Madras Act prior to the enactment of the Constitution. It is now necessary to refer to the changes effected in the law by the Constitution. Article 286, which is relevant for the present purpose, is as follows: 286(1). "No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation.-For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except in so far 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 t....
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....ctually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State." It will be noticed that the Explanation to Article 286(1)(a) is reproduced verbatim in section 22 of the Madras Act. The true meaning and scope of this Explanation came up for consideration before this Court in The State of Bombay and Another v. The United Motors (India) Ltd., and Others [1953] S.C.R. 1069; 4 S.T.C. 133. Therein, it was held by a majority that though the sales falling within the Explanation would, in fact, be in the course of inter-State trade, they became, by reason of the fiction introduced therein, invested with the character of intra-State sales, and would be liable to be taxed by the State within which the goods were delivered for consumption. Acting on this judgment, the Board of Revenue (Commercial Taxes) Andhra State, issued a notification on July 13, 1954, calling upon dealers to submit returns of their turnover of sales in which goods were delivered in the Andhra State f....
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....of any court no law of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951, and the 6th day of September, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter- State trade or commerce; and all such taxes levied or collected or pur- porting to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law." On February 19, 1957, the Andhra State which had become the State of Andhra Pradesh under section 3(1) of the States Reorganisation Act (XXXVII of 1956) filed a fresh statement that by reason of the Validation Act the State was entitled to impose a tax on the Explanation sales, which had taken place during the period between the 1st day of April, 1951, and the 6th day of September, 1955, which will hereinafter be referred to as the specified period, and that the petitions should therefore be dismissed. Th....
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.... Iron and Steel Co., Ltd., and the Madura Mills, Co. Ltd., and counsel appearing for them have, in general, supported the petitioners. Counsel for the Madura Mills Co. Ltd., raised a further contention different from and inconsistent with the position taken by the petitioners and other interveners, and that is that under Entry 42 in List I of the Seventh Schedule to the Constitution, inter-State trade and commerce is the exclusive domain of the Union Legislature, that tax on inter-State sales is comprised therein, that the States have accordingly no power to tax such sales, and that Parliament is not competent to authorise them to impose such a tax, and that, accordingly, the impugned Act is wholly misconceived and inoperative. On these contentions, the questions that arise for our determination are: (I) Whether the Andhra (Madras) Act, in fact, imposes a tax on the class of sales falling within the Explanation to Article 286(1)(a); (II) Whether the impugned Act is ultra vires on the ground that it is not authorised by the terms of Article 286(2); (III) (a) Whether section 22 of the Andhra (Madras) Act is within the protection of the impugned....
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....at Explanation, all sales falling within its ambit would be sales inside the State of Madras, they became taxable as sales within the definition in section 2(h) of the Madras Act; and that accordingly under section 22 of the Andhra (Madras) Act the Explanation sales become taxable by the Andhra State as sales within that State. The petitioners dispute this position, and contend that that is not the true effect of the Explanation, and that properly construed, it does not authorise the imposition of any tax which was not leviable under the provisions of the Act, prior to its enactment. It is argued that the object of Article 286 of the Constitution was merely to impose restrictions on the power which the States had under Entry 54 in List II to enact laws imposing tax on sales, and that, in that context, the true scope of the Explanation to Article 286(1)(a) was that it merely took away from the State its power to tax a sale in which the property passed inside it if the goods were actually delivered under the sale for consumption in another State and not to confer on the delivery State a power to tax such a sale, and that the Explanation in section 22 which is, word for word, ....
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....286(1)(a) and quite a different one in section 22 of the Madras Act; and on the construction put by this Court on the Explanation to Article 286(1)(a), the Explanation to section 22 of the Andhra (Madras) Act must be interpreted as prohibiting States other than Andhra from taxing sales under which goods are delivered for consumption outside those States, even though property passed inside them and not as authorising the State of Andhra to tax sales in which goods are delivered therein for consumption, even though property in the goods passed outside that State. It is argued that this conclusion is reinforced by the opening words of section 22, viz., "Nothing contained in this Act shall be deemed to impose or authorise the imposition of a tax on the sale or purchase of any goods". The effect of this, it is said, is to impose a restriction on the power which the State previously possessed, of taxing sales coming within the definition in section 2(h) and not to enlarge it. The decision in Government of Andhra v. Nooney Govindarajulu [1957] 8 S.T.C. 297 is cited in support of these contentions. The error in this argument lies in this that it focusses attention exclusively on th....
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....the nexi as the basis of taxation. This resulted in multiple taxation, as a consequence of which the free flow of commerce between the States became obstructed and the larger economic interests of the country suffered. It was to repair this mischief that the Constitution, while retaining the power in the States to tax sales under Entry 54 in List II sought to impose certain restrictions on that power in Article 286. One of those restrictions is contained in Article 286(1)(a) which prohibits a State from taxing outside sales. The Explanation now under consideration is attached to this provision, and it is in this context, viz., in its setting in an Article, the object of which was to impose fetters on the legislative powers of the States, that this Court observed that though positive in form, it was in substance negative in character, and that its true purpose was not to confer any fresh power of taxation on the State but to restrict the power which it previously had under Entry 54. These considerations will clearly be inapposite in construing a taxing statute like the Madras Act, the object of which is primarily to confer power on the State to levy and collect tax. When we ....
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....it, and its operation cannot be cut down by reference to the non-obstante clause. It cannot be put against this construction that it renders the non- obstante clause ineffective and useless. According to the definition in section 2(h), a sale in which property passes inside the State of Madras will be liable to be taxed, even though the goods are delivered for consumption outside that State, but under the Explanation such a sale will be deemed to have taken place in the outside State in which goods are delivered for consumption, and therefore the State of Madras will have no power to tax it. The purpose which the non-obstante clause serves is to render the Explanation effective against the definition in section 2(h) and not to render it ineffective in its own sphere, as deter- mined on its terms. But it is contended that in order to reach this result it was necessary that the Explanation to section 22 should have been made a part of the definition of "sale" under section 2(h), because under section 3, which is the charging section, it is the turnover of sales that is subject to tax, that sale for the purpose of that section is only what is defined as "sale" under se....
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....at the power of the President under Article 372(2) is merely to bring the provisions of the State laws into conformity with Article 286, and that having regard to the interpretation put on that Article in The Bengal Immunity Company case [1953] S.C.R. 1069; 4 S.T.C. 133., the Explanation in section 22 would be valid in so far as it prohibits the State of Madras from imposing a tax on sales in which goods are delivered outside Madras, though property therein passed inside that State, but that in so far as it makes taxable sales in which property passes outside the State of Madras but the goods themselves are delivered for consumption in Madras, it is much more than bringing the State law into conformity with Article 286, and is, in consequence, unauthorised and bad. It is argued that such a provision could be enacted by the Legislature of Madras, as was in fact done by the legislatures of many of the States, but the President could not do it in exercise of the special and limited power conferred on him by Article 372(2). That power is merely, it is contended, to take the definition of "sale" in section 2(h) of the Madras Act, strike out therefrom whatever is repugnant to Article 286....
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....sting law into conformity with Article 286. We are unable to agree. If the Adapta- tion Order is within the scope of Article 372(2), then it is valid of its own force, and does not require the aid of a clause such as is contained in the concluding portions thereof. It is only when the adaptation amounts to something more than merely bringing the State law into conformity with the Constitutional provisions that there can arise a need for such a clause. In our opinion, the effect of the concluding words of Article 372(2) is to render the question of the validity of the adaptation non-justiciable. The Adaptation Order in question must, accordingly, be held to be not open to attack on the ground that it goes beyond the limits contemplated by Article 372(2). It is then argued that even though the Adaptation Order of the President might not be open to question even if it had imposed for the first time a tax on sales which had not been previously imposed by the Act, nevertheless in deciding whether it does, in fact, impose such a tax, it would be relevant to take into account that the object of Article 372(2) was only to bring the State laws into conformity with the Constitution, ....
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....ate a power to tax Explanation sales. There is one other contention relating to this aspect of the matter, which remains to be considered, and that is that even if the Explanation could be construed as authorising the imposition of a tax on the sales mentioned therein, a reading of the section as a whole makes it clear that, in fact, no such tax was imposed, as it expressly enacts that "nothing contained in this Act shall be deemed to impose a tax on inter-State sales". The argument is that the Explanation sales being inter-State sales and the section having exempted them from taxation, they go out of the statute book altogether, and do not exist for the purpose of the impugned Act. We are unable to agree with this contention. Article 286(2) consists of two parts, one imposing a restriction on the power possessed by the States to tax sales under Entry 54 in so far as such sales are in the course of inter-State trade and commerce and another, vesting in Parliament a power to enact a law removing that restriction. If section 22 had merely enacted that portion of Article 286(2) which prohibited imposition of taxes on inter-State sales, that might have furnished some plausible ....
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....hich such restriction will cease to operate, an adaptation made pursuant thereto must also be similar in its con- tents. Nor is there in Article 286(2) any prohibition of any legislation by the State Legislature against enacting laws imposing tax on inter- State sales. It merely enacts that such law can have no effect. The words "No law of a State shall impose" mean only that no such law shall be effective to impose a tax. It is also contended that under the Sales Tax Act, the levy of tax is annual and the rules contemplate submission of quarterly returns and payment of taxes every quarter on the admitted turnover, and that a conditional legislation under which payment of tax will become enforceable in futuro would be inconsistent with the scheme of the Act and the rules. But this argument, when examined, comes to no more than this that the existing rules do not provide a machinery for the levy and the collection of taxes which might become payable in future, when Parliament lifts the ban. Assuming that that is the true position, that does not affect the factum of the imposition, which is the only point with which we are now concerned. That the States will have to frame rul....
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....tax on the Explanation sales, and the decision in Mettur Industries Ltd. v. Madras State(1) was not followed. In Mysore Spinning and Manufacturing Co., Ltd. v. Deputy Commercial Tax Officer, Madras, the Madras High Court re-affirmed the view which it had taken in Mettur Industries Ltd. v. State of Madras and held that section 22 had the effect of imposing a tax on the Explanation sales. In The Government of Andhra v. Nooney Govindarajulu, the true effect of section 22 of the Madras Act came up for consideration before the Andhra High Court, and it was held therein, differing from mettur Industries Ltd. v. State of Madras and Dialdas v. P.S. Talwalkar, that in view of the observations of this Court as to the scope of the Explanation in Article 286(1)(a), the Explanation in section 22 could not be construed as imposing a tax on the sales mentioned therein, and that that conclusion also followed on the opening words of the section that "Nothing contained in this Act shall be deemed to impose, or authorise the imposition of a tax....................." For the reasons already given, we are unable to agree with the decisions in Mathew v. Travancore-Cochin Board of Revenue [1957] ....
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....ales, so as to bring them within the taxing power of the delivery State. It was only later that this Court held finally in The Bengal Immunity Company case [1955] 2 S.C.R. 603; 6 S.T.C. 446, that the Explanation sales were not divested of their character as inter-State sales as the Explanation to Article 286(1)(a) did not govern Article 286(2), and that in the absence of Parliamentary legislation as contemplated by Article 286(2), taxation of sales falling within its purview would be unconstitutional. This judgment was delivered on September 6, 1955. But acting on the apparent tenor and import of the Explanation and the construction put upon it in The United Motors case [1953] S.C.R. 1069; 4 S.T.C. 133., the States in India had been levying taxes on the sales falling within its purview. The position on September 6, 1955, was that the States had imposed and collected large amounts by way of tax on Explanation sales; that there were proceedings pending for assessment of tax on such sales; and that apart from this, the States would have been entitled to take, but for the decision in The Bengal Immunity Company case [1955] 2 S.C.R. 603; 6 S.T.C. 446., proceedings for the assessment of ....
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....ales and not to itself enact a law with reference thereto, that the impugned Act being one to validate Sales Tax Laws is substantive in character and is not authorised by the terms of Article 286(2) and is, in consequence, unconstitutional. It is argued that to validate is to confirm or ratify, and that can be only in respect of acts which one could have himself performed, and that if Parliament cannot enact a law relating to sales tax, it cannot validate such a law either, and that such a law is accordingly unauthorised and void. The only basis for this contention in the Act is its description in the Short Title as the "Sales Tax Laws Validation Act" and the marginal note to section 2, which is similarly worded. But the true nature of a law has to be determined not on the label given to it in the statute but on its substance. Section 2 of the impugned Act which is the only substantive enactment therein makes no mention of any validation. It only provides that no law of a State imposing tax on sales shall be deemed to be invalid merely because such sales are in the course of inter-State trade or commerce. The effect of this provision is merely to liberate the State laws from the fe....
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.... a prohibition on the power of the State to enact a law imposing tax on inter-State sales, unless Parliament lifts the ban, and it is said that a prohibition operates only in futuro and therefore a law removing that prohibition must also operate in futuro. The decision of the Privy Council in Punjab Province v. Daulat Singh [1946] L.R. 73 I.A. 59 is relied on in support of this proposition. There, the question arose with reference to the validity of a mortgage of agricultural lands in the Punjab executed in the year 1933. Section 13-A of the Punjab Alienation of Land Act which came into force in 1939 enacted that transfer of a land by a member of an agricultural tribe in favour of another member of the tribe was void if the transferee was a benamidar for a person who was not a member of that tribe, whether such transfer was made before or after the Act. The mortgagee instituted a suit, challenging the vires of this section on the ground that it contravened section 298(1) of the Government of India Act, 1935, which provided that no subject of His Majesty domiciled in India shall be prohibited from acquiring, holding or disposing of property on grounds only of religion, place of bir....
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....ction 292 which had provided that the pre-existing law was to continue in force until it was altered. It was held that the power of a Legislature to pass a law included a power to pass it retrospectively, and that the words of section 292 did not operate to impose any restriction on that power, and that the legislation was intra vires. In our opinion, the principle of this decision is applicable to the present case, and the impugned Act cannot be held to be bad on the ground that it is retrospective in operation. It is next contended that the impugned Act is ultra vires, inasmuch as it is much more than a mere retrospective law, and that it is really a piece of ex post facto legislation, which is not authorised by Article 286(2). The argument in support of this contention may thus be stated: A State Legislature is competent under Entry 54 in List II to enact a law taxing sale of goods, and when such a law is made to operate retrospectively it may not be open to challenge on Constitutional grounds, though its propriety may be open to question on grounds of policy. Parliament has no competence to enact laws in respect of tax on sales falling within Entry 54 in List II, but Ar....
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....rticle 372(2). The ground urged in support of this contention is that the expression "law of a State" in Article 286(2) has a technical import, and means a law which is enacted by the legislature of a State in the manner prescribed by the Constitution and open to challenge in Courts if it is unconstitutional, that that expression occurring in section 2 of the impugned Act must bear the same meaning which it has in Article 286(2) as it was enacted pursuant to the authority contained therein, and that section 22 of the Madras Act is not a law of that description, as it was made by the President in exercise of the special power conferred on him by Article 372(2), and is, as provided therein, not open to attack in a court of law. We do not see why we should restrict the connotation of the words "law of a State" in the manner contended above. The law of a State signifies, in its ordinary acceptation, whatever is an expression of the legislative, as distinguished from the executive or judicial, power of a State. Its normal mode under the Constitution is no doubt that it is enacted by the Legislature of the State constituted in accordance with the procedure prescribed therein. But....
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....Andhra against them for assessment of tax are incompetent, because the Act validates only levies or collections made during the specified period but does not authorise the initiation of fresh proceedings for levy or collection of tax. It is contended that though section 2 of the impugned Act consists of two clauses, one giving effect to laws of States imposing tax on inter- State sales in so far as they took place during the specified period and the other validating levy or collection of tax made during that period, the first clause has no independent operation, the only purpose which it serves being to lead up to the second which is the only effective clause in the section. It is argued that if the intention of the Legislature was not merely to validate the levies or collections already made but also to maintain the laws in force so as to enable the States to take fresh proceedings for assessment and levy of tax, then there was no need whatsoever for the second clause, as effectuation of the Act would automatically validate the levies and collections made thereunder. It is said that the object of the legislation was only to see that the States had not to refund amounts colle....
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....d that it was not competent to the State to start fresh proceedings for assessment of tax on the strength of the impugned Act. In our opinion, the true construction of section 2 is that the two clauses therein are, as indicated by the conjunction, distinct and independent in their operation, and that the laws of the States are kept in force in respect of sales which had taken place during the specified period, and that proceedings in respect thereof for assessment are within the protection of the Act. It was next argued that the impugned Act is a temporary statute, as its operation is limited to sales which took place during the specified period, and that period having expired, no proceedings could now be taken on the strength of the provisions of that Act, and reliance was placed on the observations of this Court in Keshavan Madhava Menon v. The State of Bombay [1951] S.C.R. 228, 235., in support of this position. But the impugned Act is in no sense a temporary Act. Its life is not limited to any specified period. It is a permanent statute operating on all sales which took place during the specified period. The fallacy in this contention of the petitioners lies in mixing u....
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...., as for example, an Entry in List II, but it might infringe restrictions imposed by the Constitution on the character of the law to be passed, as for example, limitations enacted in Part III of the Constitution. Here also, the law to the extent of the repugnancy will be void. Thus, a legislation on a topic not within the competence of the Legislature and a legislation within its competence but violative of Constitutional limitations have both the same reckoning in a Court of law; they are both of them unenforceable. But does it follow from this that both the laws are of the same quality and character, and stand on the same footing for all purposes? This question has been the subject of consideration in numberous decisions in the American Courts, and the preponderance of authority is in favour of the view that while a law on a matter not within the competence of the Legislature is a nullity, a law on a topic within its competence but repugnant to the Constitutional prohibitions is only unenforceable. This distinction has a material bearing on the present discussion. If a law is on a field not within the domain of the Legislature, it is absolutely null and void, and a subsequent ces....
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....se of a power exclusively confided to Congress, but of law which it was competent for the State to pass, but which could not operate upon articles occupying a certain situation until the passage of the Act of Congress. That Act in terms removed the obstacle, and we perceive no adequate ground for adjudging that a re-enactment of the State law was required before it could have the effect upon imported which it had always had upon domestic property." It should be noted that in this case the law of 1889 applied to intra-State sales also, and it was admittedly valid to that extent. The impugned legislation was therefore unconstitutional only in part. Rottschafer after referring to the conflict of authorities on this question in the States, refers to the decision in Wilkerson v. Rahrer (1891) 140 U.S. 545; 35 L. Ed. 572 as embodying the better view. Vide American Constitutional Law, 1939 Edition, page 39. A similar view was taken in Ulster Transport Authority v. James Brown & Sons Ltd. (1953) Northern Ireland Reports 79. There, construing section 5(1) of the Act of 1920 which enacts that "any law made in contravention of the restrictions imposed by this sub-section shall....
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....ether a citizen was guilty of an offence." It must be observed that the question of the constitutionality of the Act did not arise directly for determination and was incidentally discussed as bearing on the incidence of burden of proof. And further, these observations have reference to the enforceability of the provisions of the Bombay Prohibition Act, while the bar under Article 19 continued to operate. There was no question of the lifting of ban imposed by Article 19, and the question as to the effect of lifting of a ban did not arise for decision. In the context in which they occur, the words "null and void" cannot be construed as implying that the impugned law must be regarded as non est so as to be incapable of taking effect, when the bar is removed. They mean nothing more than that the Act is un- enforceable by reason of the bar. In A.V. Fernandez v. State of Kerala [1957] 8 S.T.C. 561; A.I.R. 1957 S.C. 657, 663., the question arose with reference to the Travancore-Cochin General Sales Tax Act and the Rules made thereunder. Prior to the Constitution, the assessees were liable to pay tax on the total turnover of sales including those inside the State and those ....
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.... that section 22 of the Madras Act must be taken to have been blotted out of the statute book. A case directly in point is Bhikaji Narayan Dhakras and Others v. The State of Madhya Pradesh and Another [1955] 2 S.C.R. 589. There, the question arose With reference to the C.P. & Berar Motor Vehicles (Amendment) Act, 1947 (Act III of 1948). That Act had amended section 43 of the Motor Vehicles Act, 1939, by introducing provisions which authorised the Provincial Government "to take up the entire motor transport business in the Province and run it in competition with and even to the exclusion of motor transport operators". These provisions, though valid at the time when they were enacted, became void on the coming into force of the Constitution as infringing the rights of citizens to carry on business, protected by Article 19(1)(g). The Constitution, however, was amended on June 18, 1951, and Article 19(6) was amended so as to authorise the State to carry on business "to the exclusion, complete or partial, of citizens or otherwise". Subsequent to this amendment, the Government issued a notification under section 43 of the Amendment Act of 1948, and it was the validity of ....
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....iterating it out of the statute book, because it is valid as to a part and has to remain in the statute book for being enforced as to that part. The result of the enactment of the impugned Act is to lift the ban under Article 286(2), and the consequence of it is that that portion of the Explanation which relates to sales in which property passes outside Madras but the goods are delivered inside Madras and which was unenforceable before, became valid and enforce- able. In this view, we do not feel called upon to express any opinion as to whether it would make any difference in the result if the impugned provision was unconstitutional in its entirety. There is one other aspect of the question to which reference must be made. The decisions in Behram Khurshed Pesikaka v. The State of Bombay [1955] 1 S.C.R. 613 and Bhikaji Narain Dhakras and Others v. The State of Madhya Pradesh and Another [1955] 2 S.C.R. 589, both turn on the construction of Article 13 of the Constitution, which enacts that laws shall be void to the extent they are repugnant to the provisions of Part III. We are concerned in these petitions not with infringement of any of the provisions of Part III but of Arti....
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....other States were unauthorised and illegal. The argument in support of this contention was as follows: Entry 42 in List I is based on the Commerce Clause of the American Constitution, Article I, section 8, that "The Congress shall have power to regulate commerce among the several States", and that has been interpreted by the Supreme Court of United States as meaning that the States have no power to enact a law imposing a tax on the carrying on of inter-State trade (vide Robbins v. Taxing District of Shelby County 120 U.S. 489; (1887) 30 L. Ed. 694., or imposing tax on inter-State sales. (Vide McLeod v. Dilworth Co. 322 U.S. 327; (1944) 88 L. Ed. 1304). The contents of Entry 42 are the same as those of the Commerce Clause, and it must therefore be construed as of the same effect. It is also a well-established rule of construction that the entries in the Legislative Lists must be interpreted liberally and in a wide sense. The true interpretation therefore to be put upon Entry 42 is that Parliament has, and, therefore, in view of the non- obstante clause in Article 246(1) and of the words "subject to" in Article 246(3), the States have not the power to impose tax on inter- States sale....
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....tical. Having regard to the connotation of that entry in the Government of India Act, 1935, one would have expected that if it was intended by the Constitution-makers that the States should be deprived of the power to tax inter-State sales which they had under Entry 48 in the Government of India Act, that would have been made clear in the entry itself. It is material to note that while Entry 48 in the Government of India Act was "Taxes on the sale of goods and on advertisement", Entry 54 in List II of the Constitution as originally enacted was "Taxes on the sale or purchase of goods other than newspapers". Thus, the Constitution did limit the scope of Entry 48 by excluding from it newspapers, and if it was its intention to exclude inter-State sales from its purview, nothing would have been easier for it than to have said so, instead of leaving that result to be inferred on a construction of Entry 42 in List I in the light of the American authorities on the Commerce Clause. This is strong indication that Entry 42 is not to be read as including tax on inter-State sales. This conclusion is further strengthened, when regard is had to the scheme of the Lists in the Seventh Schedule and ....
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....ods and one of those restrictions has reference to taxes on inter-State sales, vide Article 286(2). It is implicit in this provision that it is the States that have got the power to impose a tax on such sales, as there can be no question of a restriction on what does not exist. That is how Article 286(2) has been construed by this Court both in The United Motors case [1953] S.C.R. 1069; 4 S.T.C. 133. and in The Bengal Immunity Company case [1955] 2 S.C.R. 603; 6 S.T.C. 446. It was observed therein that under Entry 54, as under Entry 48 of the Government of India Act, the power to tax sales rested with the States, and that Article 286(2) was enacted with the object of avoiding multiple taxation of inter-State sales in exercise of the power conferred by that entry. This again strongly supports the conclusion that Entry 54 must be interpreted as including the power to tax inter-State sales and Entry 42 as excluding it. In order to get over this hurdle, learned counsel put forward the contention that Article 286(2) had reference only to laws which were in existence at the time when the Constitution came into force, and that the power given to Parliament was one to continue thos....
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....here being no limitation contained therein, as inclusive of the power to tax sales in inter-State trade and commerce. The rule of construction relied on is no doubt well-established; but the question is as to the application of that rule in the present case. The question here is not simpliciter whether a particular piece of legislation falls within an entry or not. The point in dispute before us is whether between two entries assigned to two different Legislatures the particular subject of legislation falls within the ambit of the one or the other. If Entry 42 in List I is to be cons- trued liberally, so must Entry 54 in List II be, and the point is not settled by reference to Article 246, clauses (1) and (3), and to the principle laid down in Union Colliery Company of British Columbia v. Bryden that where there is a conflict of jurisdiction between a Central and a Provincial Legislature, it is the law of the Centre that must prevail. Article 246, clauses (1) and (3), have to be invoked only if there is a conflict as to the scope of two entries in the two Lists and not otherwise. What has therefore first to be decided is whether there is any conflict between Entry 42 in List I and ....
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....as to suit our conditions and fit them in our Constitution. In this new context, those provisions do not necessarily mean what they meant in their old setting. The threads were no doubt taken from other Constitutions, but when they were woven into the fabric of our Constitution, their reach and their complexion underwent changes. Therefore, valuable as the American decisions are as showing how the question is dealt with in a sister Federal Constitution, great care should be taken in applying them in the interpretation of our Constitution. We should not forget that it is our Constitution that we are to interpret, and that interpretation must depend on the context and setting of the particular provision which has to be interpreted. Applying these principles and having regard to the features already set out, we must hold that Entry 42 in List I is not to be interpreted as including taxation. The same remarks apply to the argument based upon section 92 of the Commonwealth of Australia Act, 1900, and Article 301 of our Constitution. We should also add that Article 304(a) of the Constitution cannot be interpreted as throwing any light on the scope of Article 301 with reference to....
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....d for Madras in the Madras General Sales Tax Act. There is no substance in this contention. (VII) Lastly, it is argued that the Essential Commodities Act (LII of 1952) enacted by Parliament in exercise of the power conferred by Article 286(3) has declared that yarn is an essential commodity, and that if the Madras Act is to be construed as a fresh enactment for the Andhra State by reason of section 53 and 54 of the Andhra State Act and the Adaptation Order dated November 12, 1953, then it would be bad inasmuch as the procedure prescribed in that provision had not been followed. The basis of this contention is that the Madras Act as applied to the Andhra State is a new Act for purposes of Article 286(3), but that is not so. The Madras Act was in force in the territories which now form part of the Andhra State until October 1, 1953, and thereafter that Act continues to be in operation by force of section 53 of the Andhra State Act. Moreover, the Madras Act became operative in the new State of Andhra not under any law passed by the Legislature of the State of Andhra but under section 53 of a law enacted by Parliament and therefore Article 286(3) has no application. We should a....
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.... in force in the territory of India into accord with the provisions of this Constitution, the President may by order make such adaptations and modification of such law, whether by way of repeal or amendment, as may be necessary or expedient." Article 286 of the Constitution as it stood prior to its amendment in 1956, that being what this case is concerned with, contained the following provisions: Article 286. "(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation.-For the purposes of sub-clause(a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except in so far as Parliament m....
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.... right of the respondent to levy the tax and certain correspondence followed. As the respondent insisted on collecting the tax, the petitioners instituted the present proceedings in July and August, 1955. While these proceedings were pending, the question of the effect of Article 286 again came up for consideration by this Court in the case of The Bengal Immunity Company Ltd. v. The State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446. This Court by its judgment pronounced, again by a majority, on September 6, 1955, held that until Parliament by law made in the exercise of powers vested in it under Article 286(2) otherwise provided, no State could impose any tax on a sale or purchase of goods when such sale or purchase took place in the course of inter-State trade or commerce and the majority decision in The State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133, in so far as it decided to the contrary could not be accepted and further that the Explanation in Article 286(1)(a) did not confer any right on the State in which the goods were delivered under a sale, to tax it notwithstanding that the property in the goods passed in another State. ....
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....ion there though property in them passed in Madras, can be taxed by the respondent. Such a sale would no doubt be a sale in the course of trade between Andhra and Madras. It is said that such a sale cannot be taxed by the respondent notwithstanding the Validation Act, because the Sales Tax Act does not pur- port to tax it. Does the Sales Tax Act then contain any provision taxing such a sale. Now the Act authorises the levy of a tax on sales as defined in it. A sale is defined in section 2(h) of the Act. It is not disputed however that that definition does not include a sale under which goods are delivered in Andhra for consumption there but property in them passes in Madras and no further reference to that section is therefore necessary. It is however said that the effect of the Explanation in section 22 is to make such a sale, a sale within the meaning of the Act and therefore liable to be taxed under it. So I proceed to examine that section. Section 22 as it stood at the relevant time reads thus: Section 22: "Nothing contained in this Act shall be deemed to impose, or authorise the imposition of, a tax on the sale or purchase of any goods, where such sale or purch....
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....therefore mean, for the purpose of explaining which sale is to be regarded as having taken place outside Andhra. The Explanation then is for this purpose. I will now turn to the remaining and the substantive portion of the Explanation. That must explain when a sale is to be regarded as having taken place outside Andhra. The substantive portion of the Explanation however mentions a sale which is to be deemed to have taken place inside a State. Keeping its purpose in mind, it must be taken by saying that a certain sale is to be deemed inside a State, to say that it is outside the State of Andhra. It follows that the Explanation does not contemplate that the State inside which a sale is to be deemed to have taken place, can be the State of Andhra. That State cannot be the State of Andhra, for then the Explanation would not show when a sale is to be deemed to be outside Andhra; and that by its language is the only purpose for which it is enacted. Therefore the Explanation can only be read as contemplating a State other than Andhra as the State inside which a sale shall be deemed to have taken place. This is the inevitable result produced by the opening words of the Explanation understo....
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.... sale outside all other States. Therefore it is said that when under a sale goods are delivered in Andhra but property in them passes outside Andhra, the Explanation at the same time makes such a sale inside Andhra and outside all other States. I do not follow this. Why should the Explanation in this Andhra Act be concerned with saying when a sale shall be deemed to have taken place outside all other States. Andhra cannot of course legislate for any other State. Nor is there anything in this Act which makes it necessary for the purposes of it to say when a sale shall be deemed to be outside all other States. It follows therefore that a construction cannot be put on the language used in the Explanation which produces the result of showing a sale to be inside Andhra and so outside all other States. Further, as I have earlier pointed out, the words "for the purposes of clause (a)(i)" with which the Explanation starts, show conclusively that it is necessarily confined to a sale under which goods are delivered in a State other than Andhra and the property in the goods passes in Andhra. It is no objection to this reading of the Explanation to say that the Andhra Act would then be saying ....