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TMI Blog1953 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of what is constitutionally exempt. The principle, as it is tersely put in the American case, is that severability in such cases includes separability in enforcement. We accordingly set aside the declaration made by the Court below and quash the writ issued by it except in regard to Rule 5(2)(i). An injunction shall, however, issue restraining the appellants from imposing or authorising the imposition of a tax on sales and purchases which are exempted from taxation by Article 286 as interpreted above. Appeal allowed. - Civil Appeal No. 204 of 1952, - - - Dated:- 30-3-1953 - PATANJALI SASTRI M. C.J. AND MUKHERJEA AND VIVIAN BOSE AND GHULAM HASAN AND BHAGWATI N.H. The Judgment of PATANJALI SASTRI, C.J., MUKHERJEA and GHULAM HASAN, JJ., was delivered by PATANJALI SASTRI, C.J. BOSE, J., and BHAGWATI, J., delivered separate judgments. Per PATANJALI SASTRI, C. J., MUKHERJEA and GHULAM HASAN, JJ- The Legislature of any State has, under the provisions of Article 246(3) read with Entry 54 of List II of the Seventh Schedule of the Constitution, the exclusive power to make laws for such State or any part thereof with respect to taxes on the sale or purchase of goods oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porter 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 Explanation and liable to be taxed by the State on their inter-State transactions. The Explanation deals only with inter-States or purchases and not with purely local or domestic transactions which are subject to the taxing power of the State. The sale by a trader in one State to a user in another State would be a sale in the course of inter-State trade according to the natural meaning of those words and there is no reason for importing the restriction that the transaction should be one between two traders only. The operation of clause (2) of Article 286 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 Explanation in regard to inter-State dealings is to invest what, in truth, is an inter-State transaction with an intra-State character in relation to the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transport by which the goods were despatched and there was no reason why sales of goods despatched by other modes of transport should not also be deducted from the taxable turnover. But Rule 5(2)(i), being clearly severable from Rule 5(1)(i), could be ignored and the exemption under Rule 5(1)(i) might be allowed to stand. No obligation can reasonably be raised if the taxing authority insists on certain modes of proof being adduced before a claim to exclusion can be allowed. The provisions of the charging Sections 5 and 10 of the Bombay Sales Tax act, 1952, fixing Rs. 30,000 and Rs. 5,000 as the minimum taxable turnover for general tax and special tax respectively were not discriminatory and were not therefore void Article 14 read with Article 13 of the Constitution. As the tax is imposed, in ultimate analysis, on receipts from individual sales or purchases of goods effected during the accounting period, it is possible to separate at the assessment the receipts derived from exempted sales or purchases and allow the State to enforce the statute with respect to the constitutionally taxable subjects, it being assumed that the State intends naturally to keep what it could lawful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinate authority chooses to do or not to do. Per BOSE and BHAGWATI, JJ.- Article 286 and 304 deal with different things and Article 286 should be construed without reference to Article 304. Per BHAGWATI, J.- Whereas before the Constitution the taxing power could be exercised by reason of a sufficient territorial connection involving either one or more of the ingredients of a sale in the shape of agreement to sell, the payment of price, transfer of ownership, delivery of goods etc. the completion of a transaction of sale or purchase by the transfer of ownership, or the passing of the property in the goods was enacted to be the sole criterion for taxability in Article 286. Delivery of goods for the purpose of consumption in the delivery State means the delivery for the purpose of using by the consumer and it has no application to the case of a dealer purchasing the goods across the border for dealing with or disposing of the same in the ordinary course of trade. The general provision which is enacted in Article 286(2) against the imposition of tax on the sale or purchase of goods in the course of inter-State trade or commerce should give way to the special provision which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 9 th October, 1952, by notification issued under Section 1 (3) of the Act, except Sections 5, 9, 10 and 47 which came into operation on 1st November, 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. On 3rd November, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned 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 prevades 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 decision of this Court in Mohammad Yasin v. The Town Area Committee, Jalalabad [1952] S.C.R. 572., 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 II 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cumulation 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 and 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 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 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... importer or purchaser but as contemplating distribution eventually to consummers 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 inter-State 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intra-State 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 intra-State 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 masking, falls outside the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o imposition of tax on goods, while Article 286 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 quality, 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 [1939] F.C.R. 18, 42; 1 S.T.C. 1.: "It is common ground that the Court is entitled to look at the real substance of the Act imposing it, at what it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal 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 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 inter-State trade on an equal footing. The delivery State would tax both local and out-of-State de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and cancellation of registration or licence. Chapter VII deals with proceedings including appeals 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, 1st November, 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): (i) 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urporting 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 1st November, 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 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 rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sport 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)(i) is ultra vires the rule-making authority and therefore void. But it is clearly severable from Rule 5(1)(i). 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) (i) relates, can be ignored and the exemption under Rule 5(1)(i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorize the taxation of what is constitutionally exempt. The principle, as it is tersely put in the American case, is that severability in such cases includes separability in enforcement. Our attention was drawn to the decision of the Privy Council in Punjab Province v. Daulat Singh and others [1946] F.C.R. 1. as condemnatory of this principle. The case is, however, clearly distinguishable. Their Lordships were dealing with a Provincial enactment providing for the avoidance of benami transactions as therein specified and the question was whether it was ultra vires the legislature as contravening Section 298(1) of the Government of India Act, 1935, which for bade the prohibition, inter alia, of disposition of property by an Indian subject on certain grounds which included "descent". It was found that in some cases the impugned enactment would operate as a prohibition on the ground of descent alone. The Federal Court by majority expressed the view that the Act could not, for that reason, be invalidated as a whole but that the circumstances in which its provisions would be inoperative must be limited to cases where the statute actually operated in contravention of the constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree that the object of the Explanation is to fix the locus of a sale or purchase by means of a fiction, but with respect I cannot agree with my brother Bhagwati that the non-obtante clause enunciates the general law on this point. I know of no general law which fixes the situs of a sale, not even the Sale of Goods Act. What the general law does is to determine the place where the property passes in the absence of a special agreement, but the place where the property passes is not necessarily the place where the sale takes place, nor has that ever been regarded as the determining factor. What, in my opinion, happened was this. Before the passing of the Constitution, different States (or Provinces as they then were) claimed the right to tax the same transaction for a variety of reasons which have been pointed out by my Lord the Chief Justice. The result was that the price of certain commodities became inordinately high. Take, for example, the case of steel rails manufactured by the Tata Iron and Steel Works at Tatanagar and purchased by the Government of India for its railways. The Central Government found itself called upon to pay a sale or purchase tax to different States on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyse them. When this is done, a sale is found to consist of a number of ingredients which can be said to be essential in the sense that if any one of them is missing there is no sale. The following are some of them: (1) the existence of goods which form the subject-matter of the sale, (2) the bargain or contract which, when executed, will result in the passing of the property in the goods for a price, (3) the payment, or promise of payment, of a price, (4) the passing of the title. When all take place in one State, there is no difficulty. The situs of the sale is the place in which all the ingredients are brought into being. But when one or more ingredients take place in different States, what criterion is one to employ. It is impossible to say that any of these ingredients is more essential than any other because the result is always the same the moment you take one away. There is then no sale. Therefore, one either has to adopt the ultra logical view and hold that the only State which can tax is the one in which all the ingredients take place and that no State can tax when a single ingredient takes place elsewhere, or resort to the old view and hold that every State i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on "goods imported from other States" was accidental, nor do I think we will be justified in ignoring the fact that the two are placed in different parts of the Constitution. I therefore prefer to hold that Articles 286 and 304 deal with different things and to construe Article 286 without reference to 304. In this I agree with my brother Bhagwati. Coming back to the Explanation, its object is, I think, to resolve the difficulty regarding the situs of a sale. The Constitution having decided that the only State which can tax a sale or a purchase is the State in which the transaction takes place, and having before it the conflict of views regarding nexus and situs, resolved the problem by introducing the fiction embodied in the Explanation. The purpose of the Explanation is, in my view, to explain what is not outside the State and therefore what is inside. With respect I cannot agree that the Explanation is really an exception, and I do not think the non-obstante clause means that under' the general law the place where the property passes was regarded as the place where the sale takes place, for that in itself would be a fiction. There is no such law. In my opinion, all it means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of export or import. When we examine clause (2) and sub-clause (b), it is not enough, in my judgment, to see where the sale took place. We have also to see whether it was in the course of inter-State trade and commerce in the one case, or in the course of export or import in the other, for the stream of inter-State trade and commerce, as also that of export and import, will catch up in its vortex all sales which take place in its course wherever the situs of the sale may be. All that the Explanation does is-to shift the situs from point A or B or C in the stream to a point X, also in the stream. It does not lift the sale out of the stream in those cases where it forms part of the stream. I have also another criticism to meet. The Explanation can only come into play when the transaction is in truth and in fact inter-State, and the argument runs that if clause (2) is to ban taxation in every such case, the Explanation becomes useless. The answer to that is two-fold. Clause (2) has a proviso. Under it the President is empowered to direct the continuation for a period of a tax which was being lawfully levied at the date of the Constitution even though the transaction is of an int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er) can of course be taxed. The ban does not apply and there is no need to call in aid the Explanation, for I repeat that the Explanation is limited to cases which in truth and in fact take place in the course of inter-State trade and commerce. On the view I take the need for the Explanation only arises when the ban is lifted. I now come to matters of greater detail. What do the words "for the purpose of consumption" mean? This is best understood by reference to a concrete case: A, a dealer in Bombay, actually delivers goods to B, a dealer in Madras, for the purpose of sale by B, the Madras dealer, to purchasers C, D and E in Madras. Can either the sale by A to B or the purchase by B from A be taxed? In my view, it cannot, for B is, in my judgment, as much a consumer as C, D and E. It is true the word can be used in a wide as well as a narrow sense but I see no reason to restrict its meaning in the present case. What after all does " consumption " mean? In its economic sense it is just the use which a purchaser chooses to make of the goods purchased for his own purposes. He does not have to destroy them nor does he have to diminish their value or utility. A man who purchases a val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the consumers C, D and E in Madras and actually delivers the goods to them for the purpose of consumption in Madras, neither State can tax unless the ban is lifted, and then Madras alone will be able to tax. Next, what do the words "actually been delivered" mean. In the normal course, a dealer in Bombay, who sends goods either to a dealer or consumer in Madras, would put them on a train or send them by a public or a private carrier. The cases in which a dealer would take them himself to Madras and hand them over in person or send one of his own men there would be exceptional. In the former class of case, the carrier would normally be regarded as the agent of the Madras purchaser and the result would be that delivery would in that event be deemed to be delivery in Bombay and that would give Bombay the right to tax and not Madras. See Badische Anilin Und Soda Fabrik v. Basle Chemical Works, Bindschedler [1898] A.C. 200., and Badische Anilin Und Soda Fabrik v. Hickson [1906] A.C. 419. But such a construction would make the Explanation useless. I think that is the reason why the words "actually" and "consumption" have been used. If the normal rule were to apply, there would be no n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feasibly taxable trade in this country, if not the bulk of it, at any rate in most States, is in the hands of retail dealers resident in the various States. They obtain their wares from wholesale importers or large dealers in other States. In the illustration I have put above, if B in Madras gets his goods from A in Bombay, then, on the learned Chief Justice's view, B pays a purchase tax on his purchase from A and again a sales tax on his sale to the consumer C. The consumer is therefore saddled with a double tax. But if C, still in Madras, purchases direct from A in Bombay, there is only one tax in the transaction on my Lord's view. That still gives A an advantage over B. Therefore, there is a large class of cases in which the local dealer is at a disadvantage even on the other view. The only class of case in which the local dealer is not at a disadvantage on my Lord's view, and is on mine, is when the goods are manufactured locally. In that event, B, the manufacturer in Madras, pays no initial sales tax. He only pays when he sells to the consumer C in Madras. If the goods can also be manufactured locally in Bombay, then the dealer A in Bombay does have a theoretical advantag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, sales made in the course of export and import and sales falling within the Explanation made to consumers in outside States. As I have explained above, the mere fact that a sale is made in the State of Bombay will not prevent it from being a sale effected in the course of inter-State trade or commerce or in the course of export or import. Even when the whole transaction of sale is constituted in Bombay in the sense that every essential ingredient necessary to constitute a sale takes place there, (that is to say, even when the Explanation is not called into play), the sale would, given other considerations, be in the course of export or import or in the course of inter-State trade or commerce. An illustration will make my point clear. A, a Bombay dealer, sells goods to B, a dealer in Madras, for consumption in Madras. I will assume that delivery is made to B himself in Bombay and that he carries the goods across in person. If that is the normal way in which trade and commerce in that particular line of goods flows across the boundary, then that would, in my opinion, be a sale in the, course of inter-State trade and commerce despite the facts, including delivery, mentioned above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hape they took was not even in contemplation. Say the Rules were to be amended tomorrow by striking out these saving clauses, which would be ultra vires, the Act or the Rules. It would be impossible to hold that the Rules are ultra vires the Act, for they would not in the event I am contemplating travel one whit beyond the Act. It is the Act which would be bad. And if the Act is held to be ultra vires in an event like that, would it be competent to the Rule-making authority to come to the rescue of the legislature and rehabilitate the Act by re-enacting the Rules which it had deleted a few days before. It would, in my judgment, be no more competent for a Rule-making authority to do that than it would have been competent for it to validate this Act if the Rules had been brought into being even one day after Sections 5 and 10 came into force. I can understand this Court saying to a petitioner: "You are not yet hurt by this Act nor is there any immediate likelihood of your being hurt and until that happens we are not going to entertain your petition, for we are not here to examine hypothetical situations which may never arise". But that sort of objection cannot lie in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with Entry 54 of List 2 of the Seventh Schedule of the Constitution. That power has got to be widely construed and it would embrace the power to tax the sales or purchases of goods by reason of a sufficient territorial connection between the taxing State and what it seeks to tax. This was also the position which obtained before the Constitution and was responsible for double or multiple taxation of the same transaction by different States. The Constitution-makers therefore thought it fit to impose restrictions on the imposition by the States of taxes on the sales or purchases of goods by enacting Article 286. These restrictions were three-fold: (1) no tax could be imposed on the sale or purchase of goods where such sale or purchase took place outside the State, (2) no tax could be imposed on the sale or purchase of goods where such sale or purchase took place in the course of the import of goods into or the export of the goods out of the territory of India, and (3) no tax could be imposed the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce except in so far as Parliament might by law otherwise provide. These we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship took place or the property in the goods passed that the sale or purchase was completed and the sale or purchase took place and the situs or the location of the sale or purchase was in the place where the transfer of ownership took place or the property in the goods passed under the general law relating to the sale of goods. (See Badische Aniline Und Soda Fabrick v. Basle Chemical Works, Bindschedler [1898] A.C. 200. and Badische Aniline Und Soda Fabrick v. Hickson[1906] A.C. 419. The situs or location of the sale or purchase therefore assumed an importance under Article 286 and the Constitution-makers had before them not only the legislative practice prevailing in the various States before the Constitution but also the concept of sale as defined in the Indian Sale of Goods Act. They therefore incorporated in Article 286 the notion of a sale or purchase taking place, i.e., being completed by the transfer of ownership or the passing of property in the goods under the general law relating to sale of goods, and enacted that those sales or purchases which took place outside the State or which even though they took place inside the State took place in the course of the import or exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or commerce enters the transaction. The transactions of sale or purchase which take place between dealers and dealers and dealers and customers all within the State are really comprised in the category of transactions of sale or purchase which take place inside the State and these transactions do not at all fall within the purview of the explanation. It would be surprising to find a definition of a transaction of sale or purchase which takes place inside the State given in the manner in which it is alleged to have been done in the explanation covering only those transactions of sale or purchase in which the goods have actually been delivered in the delivery State as a direct result of such sale or purchase for the purpose of consumption in that State. A definition if at all it has any significance should cover all the transactions which come within that particular category and cannot be enacted in the form of a legal fiction in the manner it has been done in the explanation. It is no definition at all. It has no reference to facts but it merely enacts a legal fiction under which a sale which under the general law relating to sale of goods is completed outside the State by the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was nonetheless to be deemed to have taken place inside the delivery State. If the explanation to Article 286(1)(a) is construed in the manner indicated above it follows that 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 the sale shall be deemed to have taken place in the delivery State and the delivery State would be entitled to tax the sale or purchase. That does not however mean that it is only the delivery State which will be entitled to tax the sale or purchase. Under the general law relating to the sale of goods the property in the goods having by reason of such sale or purchase passed in another State that State will no doubt be entitled to tax the sale or purchase as having taken place inside the State. That position will continue to obtain in spite of the fact that by the enactment of the legal fiction in the explanation such sale or purchase will be deemed to have taken place inside the delivery State. The object of the explanation is not and could not be to take away the right which the State in which the property in the goods passed had to tax the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its existence in the book case 'A' can never be obliterated. The legal fiction only operates to treat it as if it were in the book case 'B' and to involve all the consequences of its being in the book case 'B'. The two positions are not mutually exclusive. They can co-exist side by side and the legal consequences of the actual fact of the book being in the book case 'A' can be worked out simultaneously with the legal consequences of the notional existence of the book in the book case 'B' by reason of the operation of the legal fiction. If this position is borne in mind it is clear that not only would the State in which the property in the goods passed continue to be entitled to tax the sale or purchase because of such sale or purchase having taken place inside the State, but the delivery State would also be entitled to tax such sale or purchase by reason of the operation of the legal fiction in so far as the goods have actually been delivered as a direct result of such sale or purchase in the delivery State for the purpose of consumption in that State. According to the position as discussed above both the States would thus be entitled to tax such sales or purchases. Before I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate therefore means the delivery for the purpose of using by the consumer and it has no application to the case of a dealer purchasing the goods across the border for dealing with or disposing of the same in the ordinary course of trade. The explanation therefore covers only 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 it is only that limited class of transactions which are covered by the explanation and which are liable to tax by the delivery State. I do not accept the contention that the words "for the purpose of consumption" must be understood in a comprehensive sense as having reference both to immediate and ultimate consumption within the State and excluding only resale out of the State. In my opinion they have reference only to immediate consumption within the State and no further. If the matters stood thus and there was no further provision to be considered the position would be that in a transaction of sale or purchase covered by the explanation construed as above both the State in which the property in the goods passed and the delivery State would be entitled to tax such sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to have contemplated such a possibility at the very inception of the Constitution leaving it to the Parliament by having recourse to the provision contained in Article 286(2) to remedy such a state of affairs. Such a possibility could not be contemplated and an effort should therefore be made in so far as it was reasonably possible to do so to reconcile the provisions of the explanation to Article 286(1)(a) and Article 286(2). It is a well-known rule of the interpretation of statutes that a "particular enactment is not repealed by a general enactment in the same statute." (Beal on the Cardinal Rules of Legal Interpretation, 3rd Edition, Part VII, Sec. IX, p. 516). Reliance is placed in support of the above proposition on the following observations of Best, C.J., in Churchill v. Crease (1828) 5 Bing. 177 at p. 180 : "The rule is, that where a general intention is expressed, and the Act expresses also a particular intention incompatible with the general intention, the particular intention is to be considered in the nature of an exception." To the same effect also are the observations of Quain, J., in Dryden v. Overseers of Putney, (1876) 1 Ex. D. 223 at p. 232. quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured or produced in that State are subject so however as not to discriminate between goods so imported and goods so manufactured or produced. Whereas Article 286 refers to taxes on sales or purchases of goods, Article 304(a) refers to tax on imported goods. The two concepts are thus entirely different. The only argument which was addressed before us on Articles 301 and 304 of the Constitution was by the Government Pleader of Patna who referred to these provisions in order to substantiate his point that only one State, viz. the delivery State, should tax the sales or purchases covered by the explanation and argued what the results would be if it was held that both the States could tax or neither of them could tax such sale or purchase. This aspect was however not stressed or presented during the course of the arguments and I would prefer not to express any opinion on the scope or meaning of Article 304. I would therefore base my construction of the explanation to Article 286(1)(a) and Article 286(2) on the rule as to the interpretation of statutes which I have referred to above, lifting the transaction of sale or purchase covered by the explanation to Article 286(1)(a) out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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