The State of Bombay & ANR Vs. The United Motors (India) Ltd. & Ors [1953] INSC 24 (30 March 1953)
SASTRI, M. PATANJALI (CJ) MUKHERJEA, B.K.
BOSE, VIVIAN HASAN, GHULAM BHAGWATI, NATWARLAL H.
CITATION: 1953 AIR 252 1953 SCR 1069
CITATOR INFO :
R 1953 SC 274 (6) R 1953 SC 333 (7,24,60) R 1954 SC 403 (7) O 1955 SC 661 (5,8,10,16,18,21,23,26,28,29, RF 1955 SC 765 (6,32) F 1957 SC 628 (12,15,19,20) RF 1957 SC 790 (10) F 1958 SC 328 (22) E 1958 SC 452 (9,14) RF 1958 SC 468 (8,9,17,24,28,29,30,31,39,52, R 1958 SC 560 (14,32) F 1958 SC 643 (5,17) E&F 1959 SC 725 (10) R 1960 SC 378 (3,4,11) F 1961 SC 65 (5,9,22,45,49,57) R 1961 SC 232 (57) D 1961 SC 311 (8) R 1961 SC 315 (21) F 1961 SC 347 (7,24,25) RF 1961 SC 402 (4,5,6,12,13,14,15,17) F 1961 SC 408 (9) RF 1961 SC1183 (16) R 1961 SC1433 (9,10) RF 1961 SC1438 (2) R 1961 SC1615 (11) R 1962 SC1006 (34,81) R 1962 SC1406 (9) F 1962 SC1563 (15) R 1962 SC1621 (12,39,46,165) RF 1963 SC 906 (19) F 1963 SC1207 (40) RF 1964 SC 584 (3) R 1964 SC 922 (6) R 1965 SC1636 (24) R 1965 SC1942 (10) R 1966 SC1350 (10) RF 1967 SC 344 (4) RF 1968 SC 339 (6) RF 1969 SC 147 (8) RF 1970 SC 306 (4,7) RF 1971 SC 946 (8) RF 1974 SC1505 (3) RF 1977 SC2279 (54) RF 1984 SC1194 (4) RF 1985 SC 218 (17) RF 1985 SC 901 (10) D 1988 SC1531 (191) RF 1989 SC1371 (5) R 1989 SC1933 (21) R 1989 SC2227 (32)
ACT:
Bombay Sales Tax Act (XXIV of 1952), ss.2(14), 5,6,7,11 -Bombay Sales Tax Rules, 1952, rr. 5,6-State law imposing sales tax -Validity -Power of States to levy tax on interState sales -Limitations-Rlules-Whether form part of ActConstitution of India, 1950, arts. 286 (2) and (2), 14, 801, 304, 226 -Meaning and scope of art. 286 (1) and art. 286 (2)-Application under art. 226 -Duty of High Court to find whether fundamental rights have been infringed.
HEADNOTE:
The Legislature of Bombay passed an Act entitled the Bombay Sales Tax Act, 1952, which imposed (by s. 5) a general tax on every dealer whose turnover in respect of sales within the State of Bombay during the prescribed period exceeded Rs. 30,000 and (by s. 10) a special tax on every dealer whose turnover in respect of sales of special goods made within the State of Bombay exceeded Rs. 5,000 during the prescribed period. The term 'sale' was defined [in s. 2 (14)] as meaning any transfer of property in goods for cash or deferred payment or other valuable consideration, and an Explanation to this definition provided that the sale of any goods which have actually been delivered in the State of Bombay, as a direct result of such sale for the purpose of consumption in the said State shall be deemed, for the purposes of the Act to have taken place in the said State irrespective of the fact to at the property in the goods has, by reason of such sale, passed in 139 1070 another State. Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, which were brought into force on the same day on which ss. 5 and 10 of the Bombay Sales Tax Act came into force provided for the deduction of the following sales in calculating the taxable turnover, viz., sales which take place (a) in the course of the import of the goods into, or the export of the goods out of, the territory of India, and (b) in the course of inter-State trade or commerce (being the two kinds of sales referred to cl. (1)(b) and cl. (2) respectively of art. 286 of the Constitution). Rule 5 (2) (1), however, required, as a condition of the aforesaid deductions, that the goods should be consigned by a railway, 'shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. In an application under art. 226 of the Constitution challenging the validity of the Act and praying inter alia for a writ against the State of Bombay and the Collector of Sales Tax, Bombay, restraining them from enforcing the provisions of the Act, the High Court of Bombay held that the definition of 'sale' in the Act was so wide as to include the three categories of sale exempted by art. 286 of the Constitution from the imposition of tax by the States, and as the Act imposed a tax on all such sales, it was wholly void. On appeal Held, per (Patanjali Sastri C. J., Mukherjea, Ghulam Hasan and Bhagwati JJ.-Bose T. dissenting)-that the Bombay Sales Tax Act (XXIV of 1952) was not ultra vires the State Legislature on the ground that it contravened art. 14 or art. 286 of the Constitution. But clause (1) of sub-rule (2) of Rule 5 of the Bombay Sales Tax Rules, 1952, was ultra vires in so far as it provided that in order that sales mentioned in clause (1) (b) and clause (2) of art. 286 of the Constitution may be exempt from tax, the goods shall be consigned only through a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. These provisions of Rule 5 (2) (1) were, however, severable from the other provisions of the Act and could be ignored.
Per Bose T.-The Bombay Sales Tax Act, 1952, is wholly ultra vires.
Per Patanjali Sastri C.J., Mukherjea and Ghulam Hasan JJ.
-Article 286 (1) (a) of the Constitution read with the Explanation thereto and construed in the light of art, 301 and art. 304 prohibits the taxation of sales or purchases involving inter State elements by all States except the State in which the goods are delivered for the purpose of consumption therein. The latter State is left free to tax such sales or purchases and it derives this power not by virtue of the Explanation to art. 286 (1) but under art. 246 (3) read with entry 54 of List II. The view that the Explanation does not deprive the State in which the property in the goods passed, of its taxing power and that consequently both the State in which the property in the goods passes and the State 1O71 in which the goods are delivered for consumption have the power to tax, is not correct.
(ii)The expression "for the purpose of consumption in that State" in the Explanation to el. (1) of art. 286 must be understood as having reference not merely to the individual importer or purchaser but as contemplating distribution eventually to consumers in general within the State. and all buyers within the State of delivery from out-of -State sellers, except those buying for re-export out of the State, would be liable to be taxed. by the State.
(iii) Clause (2) of art. 286 does not affect the power of the State in which delivery of goods is made to tax inter-State sales or purchases of the kind mentioned in the Explanation to el. (1). The effect of the Explanation is that such transactions are saved from the ban imposed by art. 286 (2).
(iv) The fact that sales which take place (a) in the course of the import of the goods into, or export of the goods out of, the territory of India and (b) in the course of inter-State trade or commerce, are not expressly exempted by the Bombay Sales Tax Act could not render the Act ultra vires inasmuch as the Rules framed under the Act and brought into force simultaneously must be -read as a part of the Act and Rules 5 and 6 of these Rules exempt such sales. Delhi Laws Act, In re ([1951] S.C.R. 747) referred to.
(v) The fact that the Bombay Sales Tax Act does not expressly exclude from its operation the transactions mentioned in art. 286 (1) (a) of the Constitution, viz., sales and purchases outside the State, does not render the Act ultra vires inasmuch as, on a true construction of the Explanation to art. 286 (1) (a) sales or purchases in respect of goods delivered for consumption outside Bombay are not taxable under the Act, even if the goods are in Bombay and the sale is effected there.
(vi) The provisions of the charging sections 5 and 10 of the Act fixing Rs. 30,000 and Rs. 5,000 as the minimum taxable turnover for general tax and special tax respectively are not discriminatory and void under art. 14 read with art. 13 of the Constitution as such classification is perfectly reasonable and no discrimination is involved in it.
(vii) 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 case 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 to tax. In such cases the statute itself should be allowed to stand, the taxing authority being prevented by injunction from imposing the tax on subjects exempted by the Constitution.
1072 Bowman v. Continental Co. (256 U. S. 642; 65 L. Ed.
1130) relied on, Punjab Province v. Daulat Singh and Another ([1942] F.C.R. 67) distinguished.
(viii)A sale "in the course of inter-State trade" in art. 286 (2) of the Constitution includes a sale by a trader in one State to a consumer in another State. The expression is not confined to sales between two traders only.
(ix)The expression "for such State or any part thereof" in art. 246(3) of the Constitution cannot be taken to import into entry 54 of List II the restriction that the sale or purchase referred to must take place within the territory of that State. All that it means is that the laws which a State is empowered to make must be for the purposes of that State.
(x)It is always desirable when relief under art. 226 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.
Bose J.-(1) Article 286 (2) cannot be construed in the light of art. 304 (1) as the two articles deal with different matters.
(ii)The basic idea underlying art. 286 is to prohibit taxation in the case of inter-State trade and commerce until the ban under el. (2) of the said article is lifted by Parliament, and always in the case of imports and exports.
When the' ban is lifted, the Explanation to cl. (1) of 286 comes into play to determine the situs of the sale. This Explanation does not govern el. (2) of art. 286 and, as it can only apply to transactions which in truth and in fact take place in the course of inter-State trade and commerce, there is no need to call it in aid until the ban is removed.
(iii)Explanation (2) to the definition of sale in s. 2 (14) of the Bombay Sales Tax Act, 1952, which embodies word for word the provisions of the Explanation to art. 286 (1) directly offends cl. (2) of the said article as the ban under el. (2) has not been lifted by the Parliament.
(iv)Assuming that the Bombay Sales Tax Rules exclude all sales which are exempt from taxation under the Constitution, they cannot save the Act, for the Rules are made by a subordinate authority which is not the legislature and the validity of an Act of the legislature cannot be made to depend on what a subordinate authority choses to do or not to do.
(v)The good portion of the Act cannot be separated from the bad in this case, even if the Explanation to s. 2 (14) is expunged and the whole Act is therefore ultra vires.
Bhagwati J.-(1) Under the general law relating to sale of goods, a sale must be regarded as having "taken place"in the State in which the property in the goods sold has passed to the 1073 purchaser and that State is entitled to tax the sale or purchase as having taken place inside the State. The Explanation to art. 286 (1) does not take away the right which the State in which the property in the goods passed has to tax the sale or purchase but only deems such purchase or sale, by a legal fiction, to have taken place in the State in which the delivery of the goods has been made for consumption therein so as to enable the latter State also, to tax the sale or purchase in question. The Explanation only lifts the ban imposed by cl. (1) (a) on taxation of sales or purchases which take place outside the State, to the extent of the transactions mentioned in the Explanation to enable the delivery State also to tax them.
(ii) Delivery of the goods for the purpose of consumption in the delivery State means delivery for the purpose of use by the-consumers, and does not include delivery to a dealer purchasing the goods across the border for dealing with or disposing of the same in the ordinary course of trade, and the Explanation to art. 286 (1) therefore only covers those cases where, as a direct result of the sale or purchase, goods are delivered for consumption in the delivery State by the consumer and the delivery State can tax only this limited class of transactions under the Explanation.
(iii) The general provision enacted in art. 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 art. 286 (1) (a) enabling the delivery State to tax such sale or purchase in the limited class of cases covered by the Explanation, the transactions covered by the Explanation being thus lifted out of the category of transactions in the course of inter-State trade or commerce and assimilated to transactions of sale or purchase which take place inside the State and thus invested with the character of an intra-state sale or purchase so far as the delivery State is concerned.
CIVIL APPELLATE JURISDICTION Civil Appeal No. 204 of 1952.
Appeal under article 132 (1) of the Constitution of India from the Judgment and Order dated 11th December, 1952, of the High Court of Judicature at Bombay (Chagla C.J. and Dixit J.) in Miscellaneous Application No. 289 of 1952. The material facts are stated in the judgment.
M. P. Amin, Advocate-General of Bombay, (Ill. M. Desai and G. N. Joshi, with him) for the appellants.
N. M. Seervai and J. B. Dadachanji for the respondents.
1074 M. C. Setalvad, Attorney-General for India, (Porus A. Mehta, with him) for the Union of India.
Lal Narain Sinha for the State of Bihar.
V. K. T. Chari, Advocate-General of Madras, (A. Kuppuswami, with him) for the State of Madras.
A. R. Somnatha Iyer, Advocate-General of Mysore, (R. Ganapathy Iyer, with him) for the State of Mysore.
B. Sen for the State of West Bengal.
K. L. Misra, Advocate-General of Uttar Pradesh, K. B. Asthana, with him) for the State of Uttar Pradesh.
S. M. Sikri, Advocate-General of Punjab, (M. L. Sethi, with him) for the State of Punjab.
T. N. Subrahmanya Iyer, Advocate-General of Travancore-Cochin State, (M. R. Krishita Pillai, with him) for the State of Travancore-Cochin.
1953. March 30. The judgment of Patanjali Sastri C. J., Mukherjea and Ghulain Hasan JJ. was delivered by Patanjali Sastri C. J. Vivian Bose and Bhagwati JJ.
delivered separate judgments.
PATANJALI SASTRI C. J.-This is an appeal from the judgment and order of the High Court of Judicature at Bombay declaring the Bombay Sales Tax Act, 1952, (Act XXIV of 1952), ultra vires the State Legislature and issuing a writ in the nature of mandamus against the State of Bombay and the Collector of Sales Tax, Bombay, appellants herein, directing them to forbear and desist from enforcing the provisions of the said Act against the respondents who are dealers in motor cars in Bombay.
The Legislature of the State of Bombay enacted the Bombay Sales Tax Act, 1952, (hereinafter referred to as ,the Act") and it was brought into force on October 9, 1952, by notification issued under section 1 (3) of the Act, except sections 5, 9, 10 and 47 which came into operation on November 1, 1952, as notified under section 2 (3). On, the same day the rules made by the State Government in exercise of the power conferred by section 45 of the Act also came into force.
1075 On November 3, 1952, the respondents 1 to 6, who are companies incorporated under the Indian Companies Act, 1913, and respondent No. 7, a partnership firm, all of whom are carrying on business in Bombay of buying and selling motor cars, presented a petition to the High Court under article 226 of the Constitution challenging the validity of the Act on the ground that it is ultra vires the State Legislature, inasmuch as it purported to tax sales arid purchases of goods regardless of the restrictions imposed on State legislative power by article 286 of the Constitution. It was also alleged that the provisions of the Act were discriminatory in their effect 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 ease 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 respondents and no demand notice having been issued, the respondents had no cause of action, and that, properly construed, the Act and the Rules did not contravene article 286 or any other provisions of the Constitution and did not infringe any fundamental right of the respondents, 1076 The petition was heard by a Division Bench of the High Court consisting of Chagla C. J. and Dixit J. Chagla C. J., who delivered the judgment, Dixit J. concurring, overruled the preliminary objection dis distinguishing the decisions cited in support thereof by pointing out that the principle that a court would not issue a prerogative writ when an adequate alternative remedy was available could not apply where, as here, a party came to the court with an allegation that his fundamental rights had been infringed and sought relief under article 226. The learned Judges however thought, in view of the conclusion they had come to on the question of competency of the State Legislature to pass the Act, it was "not necessary to consider the challenge that has been made to the Act under articles 14 and 19" and expressed no opinion on the alleged infringement of the respondents' fundamental rights.
On the merits, the learned Judges held that the definition of "sale" in the Act was so wide as to include the three categories of sale exempted by article 286 from the imposition of sales tax by the States, and, as the definition governed the charging sections 5 and 10, the Act must be taken to impose the tax' on such sales also in contravention of article 286. The Act must, therefore, be declared wholly void, it being impossible to sever any specific offending provision so as to save the rest of the Act, as "the definition pervades the whole Act and the whole scheme of the Act is bound up with the definition of sale".
The learned Judges rejected the argument that the Act and the Rules must be read together to see whether the State has made a law imposing a tax in contravention of article 286, remarking that "if the Act itself is bad,, the rules, made under it cannot have any greater efficacy". Nor was the Government, which was authorised to make rules for carrying out the purpose of the Act, under an obligation to exclude the exempted sales. The rules, too, did not exclude all the three categories of exempted sales but only two of them, and even such exclusion was hedged 1077 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 under article 226 admitted by alleging violation of some fundamental right, and the court sometimes issued the writ asked for without insisting on the allegation being substantiated. We are of opinion that it is always desirable, when relief under article 226 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. In the present case, however, the appellants can have no grievance, as the respondents' allegation of infringement of their fundamental right under article 19 (1) (g) was based on their contention that the Act was ultra vires the State Legislature, and that contention having been accepted, by the Court below, there would clearly be an un authorised restriction on the respondents' right to carry on their trade, registration and licence being required only to facilitate collection of the tax imposed. As Mr. Seervai for the respondents rightly submitted, the fact that the Court below left the question undecided, though the point was concluded by the 140 1078 decision of this Court in Mohammad Yasin v. The Town Area Committee, Jalalbad (1), which was brought to the notice of the learned Judges, was not the fault of the respondents and gave no real cause for complaint.
Before considering whether the appellant State has made a law imposing, or authorising the imposition of, a tax on sales or purchases of goods in disregard of constitutional restrictions on its legislative power in that behalf, it is necessary to ascertain the scope of such power and the nature and extent of the restrictions placed upon it by article 286. The power is conferred by article 246 (3) read with entry 54 of List 11 of the Seventh Schedule to the Constitution. The Legislature of any State has, under these provisions, the exclusive power to make laws "for such State or any part thereof" with respect to "taxes on the sale or purchase of goods other than newspapers". The expression "for such State or any part thereof" cannot, in our view, be taken to import into entry 54 the restriction that the sale or purchase referred to must take place within the territory of that State. All that it means is that the laws which a State is empowered to make must be for the purposes of that State. As pointed out by the Privy Council in the Wallace Brothers case (2) 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 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 goods would be a sufficient basis to sustain the taxing power of the State, provided of course,' such (1) [1952] S.C.R. 572.
(2) [1948] S.C.R. I 1079 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 respective Provinces, acting on the principle of territorial nexus referred to above; that is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of their sales-tax legislation.
Assam and Bengal made among other things the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the goods in the Province was made an additional ground. A net of the widest range perhaps was laid in Central Provinces and Bert where it was sufficient if the goods were actually "found" in the Province at any time after the contract of sale or purchase in respect thereof was made. Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a court of law. And such claims to taxing power led to multiple taxation of the same transaction by different Provinces and accumulation of the burden falling ultimately on the consuming public. This situation posed to the Constitution makers the problem of restricting the taxing power on sales or purchases involving inter-State elements, and alleviating the tax burden on the consumer.
At the same time they were evidently anxious to maintain the State power of imposing non-discriminatory taxes on goods imported from other States, while upholding the economic unity of India by providing for the freedom of inter-State trade and commerce. In their attempt to harmonise and achieve these somewhat conflicting objectives they enacted articles 286, 301 an 304. These articles read 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 place1080 (a) outside the State ; or (b) in the course of the import of the goods into, nor 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 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 authorising 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(a) impose on goods imported from other States any tax to which similar goods manufactured or 1081 produced in that State are subject, so, however, as not to discriminate between goods so imported and goods,&, so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.
It will be seen that the principle of freedom of interState trade and commerce declared in article 301 is expressly subordinated to the State power of taxing goods imported from sister States, provided only no discrimination is made in favour of similar goods of local origin. Thus the States in India have full power of imposing what in American State legislation is -called the use tax, gross receipts tax, etc. not to speak of the familiar property tax, subject only to the condition that such tax is imposed on all goods of the same kind produced or manufactured in the taxing State, although such taxation is undoubtedly calculated to fetter inter-State trade and commerce. In other words, the commercial unity of India is made to give way before the State-power of imposing " any " non-discriminatory tax on goods imported from sister States.
Having thus provided for the freedom of inter-State trade and commerce subject to the important qualification mentioned above, the authors of the Constitution had to devise a formula of restrictions to be imposed on the State power of taxing sales or purchases involving inter-State elements which would avoid the doubts and difficulties arising out of the imposition of sales-tax on the same transaction by several Provincial Legislatures in the country before the commencement of the Constitution. This they did by enacting clause (1) (a) with the Explanation and clause (2) of article 286. Clause (1) (a) prohibits the taxation of all sales or purchases which take place outside the State, 1082 but a localised sale is a troublesome concept, for, a sale is a composite transaction involving as it does several elements such as agreement to sell, transfer of ownership, payment of the price, delivery of the goods and. so forth, which may take place at different places. How, then, is it 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 had 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 be deemed to have taken place in that State and outside all other States.
The latter States are prohibited from taxing the sale or purchase; the former alone is left free to do so. Multiple taxation of the same transaction by different States is also thus avoided.
It is, however, argued on behalf of Bombay that the Explanation does not say that the State of delivery is the only State in which the sale or purchase shall be deemed to have taken place. If that was the intention, it would have been easy to say so. On the other hand, the non-obstante clause in the Explanation is said to indicate that, apart from cases covered by the legal fiction, the passing of property in the goods is to determine the place of sale.
Thus, both the State of delivery 1083 and the State in which the property in the goods sold passes are, it is claimed, empowered to tax. We are unable to accept this view. It is really not necessary in the context to use the word " only " in the way suggested, for, when the Explanation says that a sale or purchase shall be deemed to have taken place in a particular State, it follows that it shall be deemed also to have taken place outside the other States. Nor can the non-obstante clause be understood as implying that, under the general law relating to the sale of goods, the passing of the property in the goods is the determining factor in locating a sale or purchase. Neither the Sale of Goods Act nor the common law relating to the sale of goods has anything to say as to what the situs of a sale is, though certain rules have been laid down for ascertaining the intention of the contracting parties as to when or under what conditions the property in the goods is to pass to the buyer. That question often raises ticklish problems for lawyers and courts, and to make the passing of title the determining factor in the location of a sale or purchase would be to replace old uncertainties and difficulties connected with the nexus basis with new ones.
Nor would the hardship of multiple taxation be obviated if two States were still free to impose tax on the same transaction. In our opinion, the non-obstante clause was inserted in the Explanation simply with a view to make it clear beyond all possible doubt that it was immaterial where the property in the goods passed, as it might otherwise be regarded as indicative of the place of sale.
It is also to be noted in this 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 1084 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 sales or purchases taking place directly between the consumers in the delivery State and dealers in other States, and inter-State sales or purchases between dealers in either State, which must be larger in number and volume, would still be outside the scope of the Explanation, which could not, therefore, have been intended to empower only one State, namely, the delivery State, to tax all inter-State sales or purchases. We see no force in this objection. It is to be noted that the Explanation does not say that the consumption should be by the purchaser himself. Nor do the words "as a direct result" have reference to consumption. They qualify " actual delivery ".
The expression " for the purpose of consumption in that State " must, in our opinion, be understood as having reference not merely to the individual importer or purchaser but as contemplating distribution eventually to consumers in general within the State. Thus all buyers within the State of delivery from out-of-State sellers, except those buying for re-export out of the State, would be within the scope of-the Explanation and liable to be taxed by the State on their inter-State transactions. It should be remembered here that the Explanation deals only with interState sales.
or purchases and not with purely local or domestic transactions. That these are subject to the taxing power of the State has never been questioned.
We are therefore of opinion that article 286 (1) (a) read with the Explanation prohibits taxation of sales 1085 or purchases involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein in the wider sense explained above. The latter State is left free to tax such sales or purchases, which power it derives not by virtue of the Explanation but under article 246 (3) read with entry 54 of List II.
We will now consider the effect of article 286(2) on the taxability of inter-State sales or purchases of the kind envisaged by the Explanation to clause (1) (a). As both the Explanation and clause (2) deal only with inter-State transactions, it may appear at first blush that whatever taxing power the Explanation may have reserved to the state of delivery is nullified by clause (2), at any rate until Parliament chooses to lift the ban under the power reserved to it by the opening words of clause (2). As one way of avoiding this result I it was suggested by the Advocate Gneral 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 consumption can impose tax on; inter-State sales or purchases. The effect of the 141 1086 Explanation in regard to inter-State dealings is, in our view, to invest what, in truth, is an inter-State transaction with an intrastate character in relation to the State of delivery, and clause (2) can, therefore, have no application. It is true that the legal fiction is to operate " for the purposes of sub-clause (a) of clause (1)", but that means merely that the Explanation is designed to explain the meaning of the expression "outside the State" in clause (1) (a). When once, however, it is determined with the aid of the fictional test that a particular sale or purchase has taken place within the taxing State, it follows, as a corollary, that the transaction loses its inter-State character and falls outside the purview of clause (2), not because the definition in the Explanation is used for the purpose of clause (2), but because such sale or purchase becomes in the eye of the law a purely local transaction. It is said that even though all the essential ingredients of a sale took place within one State and the sale was, in that sense, a purely intrastate transaction, it might involve transport of the goods across the State boundary, and that would be sufficient to bring it within the scope of clause (2). We find it difficult to appreciate this argument. As already stated, the Explanation envisages sales or purchases under which out-of-State goods are imported into the State. That is the essential element which makes such a transaction inter-State in character, and if it is turned into an intrastate transaction by the operation of the legal fiction which blots out from view the inter-State element , it is not logical to say that the transaction, though now become local and domestic in the eye of the law, still retains its inter-State character. The statutory fiction completely masks the inter-State character of the sale or purchase which, as a collateral result of such making, falls outside the scope of clause (2).
It is said that, on this view, clause (2) would become practically redundant, as clause (1) (a) read with the explanation as construed by us would itself preclude taxation by other States of inter-State sales or purchases of the kind referred to in the explanation. As 1087 We have already pointed out, the Explanation does not cover cases of inter-State sales or purchases 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 a specific provision safeguarding sales or purchases of an inter-State character against the taxing power of the States.
It is however, reasonable to suppose that this particular form of protection to inter-State trade and commerce provided in article 286(2) was not intended to have a wider operation than what is contemplated in Part XIII which declares the general principle of freedom of inter-State commerce and defines the measure of constitutional protection it should enjoy. If such protection is intended to give way before the State-power of taxing goods imported from sister States, subject only to the condition against discrimination, it is legitimate to suppose that the ban under article 286(2) should not operate so as to nullify that power. True, article 304 (a) deals with the restrictions as to imposition of tax on goods, while article 286 1088 deals with the restrictions as to imposition of tax on sales or purchases of goods. But this distinction loses its practical importance in the case of sales-tax imposed by the delivery State under the conditions mentioned in the Explanation, for, if we look behind the labels at the substance of the matter, it becomes clear that a tax on sales or purchases imposed by the State in which the goods are delivered for consumption, in the sense already explained, is, in economic effect practically indistinguishable from a tax on the consumption or use of the goods. The words " in which the goods have actually been delivered " ensure that the goods have come into the State, and the expression " for the purpose of consumption in the State" shows that, though the tax is formally laid on sales, its incidence is aimed at the consumers in the State.
Discussing the true nature of a duty of excise and a tax on the sale of goods, Gwyer C. J. observed in the Central Provinces and Berar Sales Tax case (1) : " It is common ground that the Court is entitled to look at the real substance of the Act imposing it, at what it does and not merely at what it says, in order to ascertain the true nature of the tax. Since writers on political economy are agreed that taxes on the sale of commodities are simply taxes on the commodities themselves, it is possible to regard a tax on the retail sale of motor spirit -and lubricants as a tax on those commodities". Therefore, sales-tax, the incidence of which is really 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 (1) [1939] F.C.R. 18, 42.
1089 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 referred. to in the Explanation of its inter-State character in relation to the State of delivery.
There is another important consideration which strongly supports the view we have indicated above, namely article 286 (2) does not affect the taxation of such sale or purchase by the State of delivery. If both the exporting State and the delivery State were entitled, notwithstanding article 286(2), to tax the inter-State sale or purchase, as suggested by the Advocate-General of Bombay, it would mean that the transaction is subjected to double taxation as compared with a sale by a local dealer which pays only one tax. It is precisely this type of discriminatory burden which the principle of freedom of inter-State commerce seeks to avoid, for, it places inter-State trade at a disadvantage in competition with local trade. On the other hand, if neither State could tax such sale or purchase as is referred to in the explanation, until Parliament lifted the ban, as the Advocate-General of Madras was inclined to think, the result would be that consumers could get out-of-State goods more cheaply than local goods, and local dealers would suffer competitive disadvantage as compared with outside dealers. Does the principle of freedom of inter-State commerce require that a State should foster such commerce to the detriment of domestic trade ? It is one thing to avoid impeding inter-State commerce by imposing discriminatory burdens upon it which internal trade does not have to bear, but quite another to place local products and local business at a disadvantage in competition with outside goods and dealers. It would be 1090 a curious perversion of the principle of freedom of inter-State commerce to drive local custom across the border to outside dealers, and that, in our opinion, could not have been contemplated.
The view which we have expressed above avoids either anomaly and would place local trade and interstate trade on an equal footing. The delivery State would tax both local and out-of-State goods equally without discrimination against either and that, we think, is the only measure of protection which article 286 could reasonably be supposed to accord to inter State sales or purchases, when it is construed in the light of articles 301 and 304.
The question next arises as to whether the, Act contravenes all or any of the restrictions imposed by article 286. It is the 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 unconstitutional 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 Bombay shall, in respect of such business, be deemed to be a dealer for the purpose of the Act. "Sale" is defined by section 2 (14) with all 1091 its grammatical variations and cognate expressions as meaning any transfer of property in goods for cash or deferred payment or other valuable consideration and includes any supply by a society, a club, or an association to its members on payment of price or of fees or subscriptions but does not include a mortgage, hypothecation, charge or pledge. The words "buy" and "purchase" are to be construed accordingly. There are two Explanations attached to this definition of which the second, which is obviously based on the Explanation to clause (1) (a) of article, 286, provides that the sale of any goods which have actually been delivered in the State of Bombay as a direct result of such sale for the purpose of consumption in the said State, shall be deemed, for the purposes of this Act, to have taken place in the said State, irrespective of the fact that the property in the goods has, by reason of such sale, passed in another State. "Turnover" is defined by section 2(21) as the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period after deducting the amount, if any, refunded by the dealer to a purchaser in respect of any goods purchased and returned by the purchaser within the prescribed period. Section 5 imposes the general tax on every dealer whose turnover in respect of sales within the State of Bombay during any of the three consecutive years immediately preceding the first day of April, 1952, has exceeded Rs. 30,000 or whose turnover in respect of such sales exceeds the said limit during the year commencing on the first day of April, 1952.
The tax is to be levied on his taxable turnover in respect of sales of goods made on or after the appointed day, i.e., 1st November, 1952, at the rate of 3 pies in the rupee (section 6). By section 7 the taxable turnover is to be determined by first deducting from the turnover of the dealer in respect of all his sales of goods during any period of his liability to pay the general tax, his' turnover during that period, in respect of (a) sales of any goods declared from time to time as tax-free under section 8 and(b) ,',such other sales as may be prescribed," No dealer 1092 liable to pay the general tax shall 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 11 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 II 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 (section 12). Then follow certain provisions for returns, assessment, payment and recovery of tax. Section 18 imposes a purchase tax at the rate of 3 pies in the rupee on the purchases of such goods as may be notified by the State Government from time to time which have been despatched or brought from any -place in India outside the State of Bombay or are delivered as a direct result of a sale to a buyer in, the State of Bombay for consumption therein, and also an additional tax if the goods are special goods. Section 21 (2) prohibits any person selling goods from collecting from the purchaser any amount by way of tax unless he is a registered dealer or a licensed dealer and is liable to pay the tax under this Act in respect of such sale. Chapter VI contains provisions for production of accounts, supply of information and cancellation of registration or licence. Chapter VII deals with proceedings including appeals 1093 and revision and the determination of certain questions of law by reference to the High Court. Section 45 empowers the State Government to make rules "for carrying out the purposes of this Act." In particular, such rules may prescribe, among other things, "the other sales, turnover in respect of which may be deducted from a dealer's turnover in computing his taxable turnover as defined in section 7 and in section 11" [sub-section (2) (e)].
In exercise of the powers conferred by this section, the State Government made and published rules called the Bombay Sales Tax Rules, 1952, which were brought into force on the same day on which the charging sections 5 and 10 of the Act were also brought into force, namely, November 1, 1952. Of these, Rules 5(1) and 6(1) are important, and they provide for the deduction of the following sales in calculating taxable turnover under section 7 (general tax) and section 11 (special tax) : (1) sales which take place (a) in the course of the import of the goods into or export of the goods out of the territory of India or (b) in the course of inter-State trade or commerce. It is to be noted that these are the excluded categories of sales or purchases under article 286 (1) (b) and (2) respectively. Rule 5(2) (1) requires, as a condition of the aforesaid deductions, that the goods should be consigned by certain specified modes of transport. Clause (v) lays down a rule of presumption to be acted upon in the absence of evidence 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 142 1094 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 any provision purporting to impose tax on such sales or purchases. On the other hand, the two charging sections of the Act, section 5 and section 10, purport, in express terms, to impose the tax on all sales made "within the State of Bombay", and section 18, which lays the tax on purchases, is limited in its operation to purchases of goods delivered to a buyer in the State of Bombay for consumption therein, that is to say, to purchases which unquestionably are taxable by Bombay according to both parties. The charging sections cannot, therefore, be taken to cover the class of sales or purchases which, on our construction of the Explanation, are to be regarded as taking place outside the State of Bombay. We see no force, therefore, in the argument that the Act contravenes the provisions of article 286(1)(a) by purporting to charge sales or purchases excluded by that article from State taxation.
As regards the other two categories of sales or purchases excluded by article 286(1)(b) and (2), it is true that the Act taken by itself does not provide for their exclusion.
But, as pointed out already, rules 5 and 6, which deal respectively with deduction of certain sales in calculating the taxable turnover under sections 7 and 11 exclude these two categories in express terms, and these rules were brought into force simultaneously with the charging sections 5 and 10 on November 1, 1952. The position, therefore, was that, on the date -when the general tax and the special tax became leviable under the Act, sales or purchases of the kind described under article 286(1) (b) and (2) stood in fact excluded from taxation, and the State of 1095 Bombay cannot be considered to have made a "law imposing or authorising the imposition of a tax" on sales or purchases excluded under the aforesaid clauses of article 286. The Act and the rules having been brought into operation simultaneously, there is no obvious reason why the rules framed in exercise of the power delegated by the Legislature should not be regarded as part of the "law" made by the State. [See observations at page 862 in the Delhi Laws Act case(1)]. The position might be different if the rules had come into operation sometime later than the charging sections of the Act, for, in that case, it is arguable that if the legislation, without excluding the two classes of sales or purchases, was beyond the competence of the Legislature 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 they 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 interState trade. No objection can reasonably be raised if the taxing authority insists on certain modes of proof being adduced before a claim to exclusion can be allowed. Objection was also taken to clause (1) of (1) [1951] S.C.R. 747.
1096 sub-rule (2) of rule 5 as imposing an unauthorised limitation upon the exemption of sales and purchases allowed by rule 5(1), that is to say, while rule 5(1)(1) (allows the deduction of the sales covered by clause (1) (b) and (2) of article 286 in calculating taxable turnover, sub-rule (2) (1) of the same rule provides that, in order to claim such deduction the goods shall be consigned only through a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. It is said that there is no reason why sales of goods despatched by other modes of transport should not also be deducted from the taxable turnover, because article 286 (2) in exempting sales in the course of inter-State trade, makes no distinction between modes of transport by which the goods are despatched. This limitation, it was claimed, was beyond the competence of the rule-making authority. The argument is not without force, and it must be held that rule 5(2)(1) is ultra vires the rule-making authority and therefore void. But it is clearly severable from rule 5(1)(1). The restriction regarding the mode of transport of the goods sold or purchased in the course of inter-State trade, to which alone sub-rule (2)(1) relates, can be ignored and the exemption under rule 5(1)(1) may well be allowed to stand.
Finally, Mr. Seervai attempted to make out that the provisions of the charging sections 5 and 10 fixing Rs.
30,000 and Rs. 5,000 as the minimum taxable turnover for general tax and special tax respectively were discriminatory and void under article 14 read with article 13 of the Constitution, and he gave us several tables of figures showing how the imposition of the tax actually works out in practice in hypothetical cases. It is unnecessary to go into. the details of these cases which have been worked out in figures, for it must be conceded that the general effect of fixing these minimum limits must necessarily be to enable traders whose taxable turnover is below those limits to sell their goods at lower prices to their customers than dealers whose turnover exceeded 1097 those limits, for the latter have to add the sales-tax to the prices of their goods. But no discrimination is
