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TMI Blog1955 (11) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal by his order, dated 23rd August, 1951 (Exhibit C1 enclosed). The assessee then came up in revision before the Board of Revenue by petition filed on 18th October, 1951. Revision petition before the Board is enclosed (Exhibit D1). The Board, after hearing the parties, rejected the petition. The Board's order, dated 30th August, 1952, is enclosed (Exhibit E1). The assessee being aggrieved at the orders of the Board, moved the Board of Revenue by petition, dated 26th November, 1952, for referring the following three questions of law: "(i) Whether the despatch of goods to Jalpaiguri at the head office of the assessee constitutes a sale within the meaning of the Bihar Sales Tax Act? (ii) Whether Explanation (ii) to clause (g) of section 2 of the Bihar Sales Tax Act, 1947, is ultra vires of the Provincial Legislature? and (iii) Whether on the facts and circumstances of this case, Expla- nation (ii) to clause (g) of section 2 of the Bihar Sales Tax Act has any application?" The reference petition is enclosed (Exhibit F1). The Board again heard the petitioner on this, and for reasons recorded in its order, dated 19th January, 1953, did not admit the said reference petition. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (11) to clause (g) of section 2 of the Bihar Sales Tax Act, 1947, is ultra vires the Provincial Legislature? and (iii) Whether on the facts and circumstances of this case, Explana- tion (ii) to clause (g) of section 2 of the Bihar Sales Tax Act has any application?" The reference petition is enclosed (Exhibit F). The Board again heard the petitioner on this; and for reasons recorded in its order, dated 19th January, 1953, did not admit the said reference petition. The Board's order is enclosed (Exhibit G). The assessee then moved the High Court in the matter, and the Board has been asked to state a case only on two points as noted below: "(1) Whether the assessee, Debijhora Tea Co. Ltd. of Jalpaiguri has been validly assessed to sales tax on the sale of tea to the extent of Rs. 9,300 including a penalty of Rs. 60? (ii) Whether the newly incorporated section 2(g) of the Bihar Sales Tax Act by the amending Act (Bihar Act VI of 1949) is constitu- tionally valid?" RAMASWAMI, J.- In these cases the assessee is an incorporated company, namely, Debijhora Tea Co. Ltd., with its head office located in Jalpaiguri. The business of the assessee is manufacture and export of tea. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment it reads as follows: "'Sale' means, with all its grammatical variations and cognate ex- pressions, any transfer of property in goods for cash or deferred pay- ment or other valuable consideration including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge or pledge: Provided further that notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930 (III of 1930), the sale of any goods- (1) which are actually in Bihar at the time when, in respect thereof, the contract of sale as defined in section 4 of that Act is made, or (ii) which are produced or manufactured in Bihar, by the pro- ducer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for the purposes of this Act to have taken place in Bihar". The section has been further amended in 1951 by Bihar Act VII of 1951, but we are not concerned in these cases with this amendment. In M.J.C. No. 82 of 1953 the Board of Revenue has submitted the following questions of law for the opinion of the High Court. "(1) Whether the assessee Debijhora Tea Co., Ltd. of Jalpaiguri has been validly assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions which were challeng- ed in that case were section 2 (h) of the U.P. Sales Tax Act, Explana- tion III to that section and also section 3B of the same Act. Section 2(h) was to the following effect: " 'Sale' means, within its grammatical variations and cognate ex- pressions, any transfer of property in goods for cash or deferred payment or other valuable consideration and includes forward contracts." Explanation III to section 2 (h) stated: "Where goods under a forward contract are not actually delivered, the sale in respect of such contract shall be deemed to have been com- pleted on the date originally agreed upon for delivery". Section 3B further enacted that "notwithstanding anything con- tained in section 3, the turnover of any dealer in respect of transactions of forward contracts, in which goods are not actually delivered, shall be taxed at a rate not exceeding rupees two per unit as may be prescribed." It was held by the Supreme Court that those provisions of the U.P. Sales Tax Act were ultra vires of the Provincial Legislature and Entry 48 of the Seventh Schedule could not be construed to mean that the Pro- vincial Legislature was empowered to impose a tax on a mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Provincial Legislature to make a law imposing sales tax is granted by section 100 (3) of the Government of India Act read with item 48 of List 11 of the Seventh Schedule. The Legislature of the Province has under these provisions the exclusive power to make laws "for a Province or any part thereof" with respect to "taxes on the sale of goods and on advertisements". But the expression "for a Province or any part thereof" in section 100 (3) of the Government of India Act cannot be interpreted to mean that the sale of goods must take place within the territory of the Province. All that the section means is that the law which a Province is empowered to make must be for the purpose (1) [1954] 5 S.T.C. 193; A.I.R. 1954 S.C. 459. of that Province. A transaction of sale is a composite transaction and consists of many legal ingredients, like agreement of sale, passing of title and delivery of goods. But it is not necessary for the purpose of legislative jurisdiction that all or any of the legal ingredients of sale should take place within the Province. It is sufficient if there is some territorial nexus or connection between the taxing authority and the transaction sought to be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation (1) [1948] F.C.R. 1; 16 I.T.R. 240. (2) [1953] 4 S.T.C. 133; 1953 S.C.R. 1069. thereto and construed in the light of Article 301 and Article 304 prohi- bited the taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein. It was expressly decided by the Supreme Court that the latter State had authority to tax such sales or purchases not by virtue of the Explanation to Article 286(1), but by virtue of Article 243(3) read with Entry 54 of List II of the Constitution. In a recent decision, Bengal Immunity Company Limited v. State of Bihar(1) (Civil Appeal No. 159 of 1953, decided on the 6th of September, 1955) a Full Bench of the Supreme Court held by a majority that the previous decision in The State of Bombay v. The United Motors (India) Ltd.(3) should be reversed so far as the interpretation of Article 286(i)(a) and Article 286(2) of the Constitution was concerned. It was held by the majority of the learned judges that Article 286(2) prohibited the im- position of any tax on sales and purchases of goods even though the goods had actually been delivered as a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced the judgment for the unanimous Court, states: "The first contention appears to us to be unsustainable. Sec- tion 100(3) of the Government of India Act, 1935, upon which Mr. Somayya relied and which corresponds to Article 246 (3) of the Constitution runs as follows: 'Subject to the two preceding sub-sections, the Provincial Legisla- ture has, and the Federal Legislature has not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in the said Schedule'. The entry in the Provincial List that is relevant for our purpose is Entry No. 48 and that speaks of 'taxes on the sale of goods and on advertisements'. The entry does not suggest that a legislation imposing tax on sale of goods can be made only in respect of sales taking place within the boundaries of the Province ; and all that section 100 (3) provides is that a law could be passed by a Provincial Legislature for purposes of the Province itself. It admits of no dispute that a Provin- cial Legislature could not pass a taxation statute which would be binding on any other part of India outside the limits of the Province, but it would be quite competent to enact a legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by counsel on behalf of the assessee that production of goods was not an element in the transaction of sale and there was hence no real nexus. It was pointed out that there were many elements in a transaction of sale, like agreement of sale, passing of title and delivery of goods. It was argued that unless any one of these elements was located within the territorial limits of Bihar, the legislature would have no jurisdiction to impose the tax. I am unable to accept this argument as correct. It is not necessary for the purpose of legislative jurisdiction to investigate as to whether any of the elements of a transaction of sale is located within the territorial limits of the State. The real question is whether there is a real and pertinent connection between the subject matter of law and the territorial limits of the State. The connection must be between the transaction of sale and the territorial limits of the taxing State and not that any com- ponent of the transaction of sale should take place within the State's territorial limits. If the question is examined from this point of view, it is clear that there is a real and pertinent connection between the production of tea in Bihar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validly taxed by the Australian authority on the ground that the money borrowed had been used by the borrowing company for carrying on business in Australia or had been secured by the mortgage of any property in Australia. In Broken Hill South Ltd. v. Commissioner of Taxation(3), Dixon, J., has clearly stated the position: "The important question remains whether the attempt to include in the income liable to tax interest on money secured by the mortgage of any property in New South Wales exceeds the territorial limitations upon the legislative power. The power to make laws for the peace, order and good government of a State does not enable the State Parlia- ment to impose by reference to some act, matter or thing occurring outside the State a liability upon a person unconnected with the State (1) [1948] F.C.R. 121; 17 I.T.R. 63. (3) (1937) 56 C.L.R. 337 at p. 375. (2) (1934) 51 C.L.R. 172. whether by domicile, residence or otherwise. But it is within the com- petence of the State Legislature to make any fact, circumstance, occurrence or thing in or connected with the territory the occasion of the imposition upon any person concerned therein of a liability to taxation or of any oth ..... 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