1955 (9) TMI 37 - SC - VAT and Sales Tax

Levying and realising a tax questioned - Held that - The Act imposes tax on subjects divisible in their nature but does not exclude in express terms subjects exempted by the Constitution. In such a situation the Act need not be declared wholly ultra vires and void, for it is feasible to separate taxes levied on authorised subjects from those levied on exempted subjects and to exclude the latter in the assessment of the tax. In these circumstances it is difficult to say that the scheme of taxing inter-State sales forms such an integral part of the entire scheme of taxation on sales or purchases of goods as to be inextricably inter-woven with it. There is no reason to presume that had the Bihar Legislature known that the provisions of the Act might be held bad in so far as they imposed or authorised the imposition of a tax on inter-State trade or commerce even though Parliament had not by law pro- vided otherwise it would, nevertheless, not have passed the rest of the Act. The appeal is allowed and an order shall be issued directing that, until Parliament by law provides otherwise, the State of Bihar do forbear and abstain from imposing sales tax on out- of-State dealers in respect of sales or purchases that have taken place in the course of inter-State trade or commerce even though the goods have been delivered as a direct result of such sales or purchases for consumption in Bihar. The State must pay the costs of the appellant in this Court and in the Court below.

Summary

Issues Involved:
1. Maintainability of the writ of prohibition.
2. Authority of the State Legislature under the Explanation to Article 286(1)(a).
3. Interaction between the Explanation to Article 286(1)(a) and Article 286(2).
4. Extra-territorial operation and validity of the Bihar Sales Tax Act, 1947.
5. Specific application of the Explanation to Article 286(1)(a) to the appellant's case.

Detailed Analysis:

1. Maintainability of the Writ of Prohibition:
The appellant argued that the Bihar Sales Tax Act, 1947, was ultra vires and unconstitutional, and thus, the proceedings under Section 13(5) of the Act were without jurisdiction. The Court held that the existence of another remedy under the Act did not preclude the issuance of a writ of prohibition when the statute itself was challenged as ultra vires. The Court emphasized that if the statute was void, the proceedings under it would be without jurisdiction, making a writ of prohibition appropriate.

2. Authority of the State Legislature under the Explanation to Article 286(1)(a):
The Explanation to Article 286(1)(a) was designed to fix the situs of a sale for taxation purposes to avoid multiple taxation. The Court concluded that the Explanation was positive in character and conferred authority on the delivery State to tax sales when goods were delivered for consumption within that State. This interpretation was necessary to achieve the object of avoiding multiple taxation and provided a clear basis for the delivery State to impose sales tax under Entry 54 in List II.

3. Interaction between the Explanation to Article 286(1)(a) and Article 286(2):
Three views were considered:
- The majority view held that the Explanation converted inter-State sales into intra-State sales, thus taking them out of the purview of Article 286(2).
- Bhagwati, J., opined that the Explanation, being a special provision, prevailed over the general provision of Article 286(2).
- Bose, J., and Das, J., argued that the Explanation was controlled by Article 286(2) and could only operate when the ban under Article 286(2) was lifted by Parliamentary legislation.

The Court ultimately held that the Explanation and Article 286(2) related to different subjects, with the former dealing with intra-State sales and the latter with inter-State trade, thus avoiding any conflict.

4. Extra-territorial Operation and Validity of the Bihar Sales Tax Act, 1947:
The Court examined whether the Act was ultra vires on the ground of extra-territorial operation. It held that under Articles 245(1) and 246 of the Constitution, the State Legislature had plenary powers to enact laws for its territory even if they had extra-territorial impact, provided there was sufficient territorial connection. The Court rejected the contention that the Act was invalid on this ground, emphasizing that the power to tax sales included the power to tax either the seller or the purchaser, irrespective of their location.

5. Specific Application of the Explanation to Article 286(1)(a) to the Appellant's Case:
The appellant argued that the Explanation did not authorize the imposition of tax on non-resident sellers and that the goods were delivered in Bengal, not Bihar. The Court held that the Explanation applied to all sales where goods were delivered for consumption within the State, regardless of the seller's location. It also clarified that "actual delivery" referred to physical delivery to the purchaser, not to the common carrier. Thus, the sales in question were deemed to have taken place in Bihar, making them taxable under the Bihar Sales Tax Act, 1947.

Conclusion:
The Court allowed the appeal, directing the State of Bihar to refrain from imposing sales tax on out-of-State dealers for inter-State sales, even if the goods were delivered for consumption in Bihar, until Parliament legislates otherwise. The decision reaffirmed the principles laid down in The State of Bombay v. The United Motors (India) Ltd. and clarified the scope and application of Article 286 and its Explanation.