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TMI Blog1955 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... a Reddy and Umamaheswaram, JJ., who could not reach an agreed decision. Chandra Reddy, J., was of the opinion that the assessments objected to were valid under the proviso to clause (2) of Article 286 and the Order of the President made thereunder. Umamaheswaram, J., was inclined to the view that clause (1) of Article 286 and the Explanation to that clause would govern the cases and that the assessments would be illegal if the facts were such as to warrant the application of the Expla- nation. Chandra Reddy, J., was for dismissing the revision petitions, but directed the cases to be placed before the Chief justice for being posted before a third Judge on the footing that there was a difference of opinion between him and Umamaheswaram, J. Under section 12-B of the Madras General Sales Tax Act, 1939, read with section 98 of the Code of Civil Procedure and clause 36 of the Letters Patent, it is only if there is a division in opinion between the two judges of a Division Bench, the point on which there is a difference between them should be referred to a third judge. Umamaheswaram, J., though inclined to a contrary opinion, did not in terms dissent from the view of Chandra Reddy, J., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen, if the goods are actually produced in this State at any time after the contract of sale or purchase in respect thereof was made." The localisation of a sale was, in many cases, a difficult problem when different stages of the transaction of sale were reached in different places, as for example, when the contract of sale was made in one State, the transfer of ownership in the goods took place in another, the (1) [1954] 5 S.T.C. 269; (1954) 2 M.L.J. 585. (2) [1955] A.L.T. 53. payment of the price in a third State and the delivery of the goods in yet another State. In such cases there was a real danger of different States claiming to tax the same transaction on the basis of a sufficient territorial connection between the State and what it sought to tax. The Constitution enacted provisions designed to keep the taxing power of the States within bounds and to preserve freedom of trade and com- merce with foreign countries as well as between the States of the Union. Article 286 of the Constitution, so far as it is now material, runs as follows: "Article 286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above nature transgresses the prohibition in clause (1) of Article 286 and is therefore illegal. Reliance was placed in support of this contention on a recent decision of the Supreme Court to which reference will presently be made. The opposite point of view may be stated thus: Article 286(1)(a) deals only with sales or purchases of goods taking place outside the State and debars a State from taxing such outside sales. The Explanation is stated to be an Explanation only to clause (1)(a) and merely fixes the place where such outside sales have to be taxed. In view of the provision in clause (1)(a) that outside sales shall not be taxable by a State, the Explanation appended to that sub-clause has to be construed as fixing the locus of an outside sale by providing that though under the general law a sale might be regarded as having taken place in an outside State, say A, still if the goods are actually delivered as a result of such sale in an outside State, say B, for consumption in that State, the sale should be regarded as one outside State A. Clause (1) of Article 286 does not deal with sales or purchases in the course of inter-State trade or commerce for which special provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c 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 pur- chases .." "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 mean- ing of those words, and we can see no reason for importing the restric- tion 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 Explana- tion, to exercise. We are of opinion that the operation of clause (2) stands excluded as a result of the legal fiction enacted in the Explana- tion, and the State in which the goods are actually delivered for con- sumption can impose tax on inter-State sales or purchases. The effect of the Explanation in regard to inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliveries taken by their own paid servants outside the State of Travancore-Cochin, and it was thus a case of a person buying goods and taking delivery thereof outside the State and bringing them across the border after the transaction was completed in all respects outside the State. On the other hand, the contention on behalf of the State was that though the purchases were made outside the State in the neighbouring districts of Madras, deliveries were effected through the ordinary commercial channels by employing commission agents who made the purchases and arranged for the deliveries at the respondents' depots at Trichur or Quilon. All that can be said here is that, if the (1) [1953] 4 S.T.C. 205; (1953) 2 M.L.J. 123. transactions took place in the manner alleged by the respondents in these two appeals, they would be exempt under clause (1)(a). This indeed was not disputed by the Advocate-General of the appellant State. On the other hand, if, as claimed by the Advocate-General, the purchases were effected by the employment of firms doing business as commission agents outside the State, and the deli- veries were made through normal commercial channels, the transac- tions would part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates except the State in which the goods are delivered for the purpose of consumption therein and that 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 in which the goods are delivered for consumption have the power to tax, is not correct." The learned Chief justice evidently regarded the earlier decision of the majority of the Supreme Court in State of Bombay v. United Motors (India) Ltd.(1), as an authority which remained in full force even after the Travancore case. In a recent case, East India Match Factory v. State of Madras(2), the Madras High Court was of the opinion that the judgment of the Supreme Court in the Travancore case limited the scope of the observations of that Court in the earlier case of State of Bombay v. United Motors (India) Ltd.(1) In the Madras case the assessees were manufacturers and dealers in matches in the State of Madras. They sold matches to buyers outside the State and despatched the goods from Madras. They were assessed to tax on such sales for the period 1950- 51. They claimed exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ments of the Government Pleader, we are of the opinion that the autho- rity of the decision in State of Bombay v. United Motors (India) Ltd.(1) remains unshaken by the Travancore case and that we must follow the decision in the former case wherever the facts call for its application. If the assessees in these revision petitions are able to prove facts entitling them to invoke the aid of the Explanation to Article 286(1)(a) the sales would be exempt from taxation. In the absence of such proof, the sales would fall within Article 286(2) of the Constitution and would be liable to sales tax under the proviso to Article 286(2) and the Order of the President made thereunder. It is not disputed that the turnover in these cases was liable to sales tax under the Madras General Sales Tax Act before 26th January, 1950. The President's Order under the proviso to Article 286(2) of the Constitution would save the right of the Madras State to tax such sales up to 31st March, 1951, if the Explanation to Article 286(1)(a) is found, on the facts, to be inappli- cable to the sales in question. In order to give an opportunity to the petitioners to adduce evidence as to whether the sales sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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