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TMI Blog1956 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... posing tax on sales and purchases. Turning first to the legislative competence of Parliament, we find entry 42 in List I of the Seventh Schedule which deals with inter-State trade and commerce. Turning to List II which deals with the legislative competence of the State Legislatures, under entry 54 power is conferred upon the State Legislature to legislate with regard to taxes on the sale or purchase of goods other than newspapers. Article 286 imposes a restriction on the legislative competence of the State Legislature and the restriction falls under four different heads. The State Legislature is prevented from imposing tax on the sale or purchase of goods where such sale or purchase takes place outside the State, or in the course of the import of the goods into, or export of the goods out of, the territory of India, and from imposing 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, and from imposing 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. It will be noticed that the restriction with regard to taxing sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anguage of the learned Chief Justice (at p. 1085): "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 Explanation in regard to inter-State dealings is, in our view, to invest what, in truth, is an inter-State transaction with an intra-State character in relation to the State of delivery.............." This question was later reconsidered by the Supreme Court and the Supreme Court in Bengal Immunity Co. Ltd. v. The State of Bihar and Others(2) came to a contrary conclusion, and what the Supreme Court held was that the Explanation cannot be extended to clause (2) of Article 286 and it cannot control or limit the ambit of clause (2). In other words, the view taken by the Supreme Court was that each of the restrictions to which attention has been drawn is separate and in- dependent and it is not permissible to read into clause (2) of Article 286 the words of the Explanation which on the face of it are only intended for the purposes of the restriction contained in Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llected during the aforesaid period. The Act has been challenged on various grounds and we will proceed to deal with the various grounds which have been very ably and very strenuously put forward before us by Mr. Palkhivala. The first contention is that Parliament has no competence to legislate with regard to sales or purchase tax. It is pointed out rightly that the power of the State Legislature to legislate with regard to taxes on purchase or sale arises. from the Constitution itself. It is the Constitution that confers the power upon the State Legislature. It is not a power that is conferred upon the State Legislature by Parliament, nor does the State Legislature act as a delegate or an agent of Parliament in legislating with regard to sales or purchase tax. It is therefore said that Parliament can only validate such law as it can itself pass and if Parliament cannot enact a sales or purchase tax Act, much less can it validate the imposition of such a tax. In advancing this argument what is overlooked is the true nature and character of the law passed by Parliament. It is erroneous to suggest that in placing Act VII of 1956 on the statute book, Parliament was legislating with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the doctrine of validation can only apply where an act has been performed by an agent without authority and the principal makes good that lack of authority by confirming or validating the act of the agent, and it is pointed out that if the State Legislature is not the agent of Parliament, the doctrine of validation cannot apply to the relationship subsisting between Parliament and the State Legislature under the Constitution. Attention was drawn to two American cases, United States v. Conrad Heinszen(1) and Rafferty v. Smith, Bell Co.(2), where the doctrine of ratification is explained. In one case the President of the American Republic passed a law with regard to the Philippine Islands without the sanction of the Congress, and in the other case the Philippine Legislature passed a law without the sanction of the Congress, and in both the cases the Congress ratified the Acts of the President and the Legislature, and what the Supreme Court of America held was that the ratification or validation was proper. In our opinion, the doctrine of ratification has no application to the question that we have to consider. As we have already pointed out, this is not a case where Parliamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , place of birth, descent, colour or any of them be ineligible for office under the Crown in India, or be prohibited on any such grounds from acquiring, holding or disposing of property or carrying on any occupation, trade, business or profession in British India". Then there was an exception under sub-section (2) and that was to the following effect: "Nothing in this section shall affect the operation of any law which-(a) prohibits, either absolutely or subject to exceptions, the sale or mortgage of agricultural land and situate in any particular area, and owned by a person belonging to some class recognised by the law as being a class of persons engaged in or connected with agriculture in that area to any person not belonging to any such class...................." The Punjab Legislature passed a law with regard to past sales or mortgages; in other words, the Punjab Legislature retrospectively wanted to exempt sales or mortgages under sub-section (2) from the operation of section 298(1), and the question that the Privy Council had to consider was whether the attempt of the Punjab Legislature was lawful, and the Privy Council accepts the view of Mr. Justice Varadachariar that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Legislature; that is an undisputed fact. If the State Legislature were to pass a law taxing inter-State sales, that law cannot be challenged on the ground of competence. But what the Constitution has done is to have placed a limitation or restriction upon that power and once that restriction is removed the competence is unquestioned and undisputed. There- fore, Article 286(2) deals not with any condition precedent, nor with the compliance of any condition, before the State Legislature can legislate, but it deals with a restriction or a ban which has to be removed in the manner laid down by that Article in order to make the law passed by the State Legislature valid. Therefore, if Parliament could remove the restriction antecedent to the State legislation, equally so it could remove the ban retrospectively and validate a law which was only invalid because the ban had not been lifted and the restriction had not been removed. The next head of Mr. Palkhivala's arguments is on the basis that the Parliamentary legislation is a valid legislation. His contention is that even if the ban was retrospectively lifted, the State law which was unconstitutional and therefore dead should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time antecedent to your legislation, and if Parliament was retrospectively validating the law or lifting the ban or removing the restriction, then that power could not be exercised if the law which it was seeking to validate was dead and had to be re-enacted. Then the removal of the restriction by Parliament would be prospective and the State Legislature would have to re-enact the law. The final answer is that it is incorrect to suggest that the State law we are considering is unconstitutional. The doctrine of Professor Cooley, assuming it is a (1) [1955] 1 S.C.R. 707. (2) 140 U.S. 545. valid doctrine applicable to India, a point we will presently consider, only applies to unconstitutional laws and it is impossible to suggest that the State laws imposing tax on purchases and sales which take place in the course of inter-State trade or commerce, were unconstitutional laws. As already pointed out, they were passed by a Legislature which was competent to legislate on that topic. They did not contravene any fundamental right embodied in Part III. The only defect in the law was that it was passed, as it were, without the prior sanction or permission of Parliament. Such a law cannot be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lkhivala is that inasmuch as when the Act was passed Parliament had not other- wise provided, interstate sales and purchases were exempted. In our opinion, the proper view to take of this legislation is that there was an imposition of tax on all sales including inter-State sales, but the imposition on inter-State sales was not effective until the restriction under Article 286 was removed, and that is exactly what section 46 (b) pro- vided. It did not exempt inter-State sales or purchases altogether, but the tax was to operate upon the sales or purchases if Parliament by law so provided, and therefore when the restriction was removed retrospectively we must read this Act and construe it as if before the passing of the Act Parliament had provided that the State Legislature may impose tax on inter-State sales and purchases. Therefore, reading the charging sections and section 46 and the validating Act, there can be no doubt that on the validating Act being passed the inter-State sales and purchases were subjected to tax and they came within the operation of the charging sections 8, 9 and 10. What is finally urged by Mr. Palkhivala under this head is that everything being conceded, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the Bihar Sales Tax Authorities. What is urged by Mr. Palkhivala is that four questions were raised by the Supreme Court as requiring decision, and the fourth question was that on a true construction of the Act itself it does not apply to the sales sought to be taxed, and Mr. Palkhivala points out that the Supreme Court has left this question undecided. At page 664 it is stated in the judgment: "In the view we have taken on question (A) it is not necessary for us, on this occasion, to discuss the other questions (B), (C) or (D)". And (D) is the fourth question relevant for this discussion. What Mr. Palkhivala has overlooked is the passage at page 667 of the judgment, where after interpreting Article 286 and after dissenting from the earlier decision of the Supreme Court, the learned Acting Chief Justice says: "In view of the interpretation we have put upon Article 286 it must follow that the charging section of the Act read with the relevant definitions cannot operate to tax inter-State sales or purchases and it must be held that as Parliament has not otherwise provided, the Act, in so far as it purports to tax sales or purchases that take place in the course of inter-S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law imposing a tax. It may therefore, as far as construction is concerned, fall in the same category as a taxing statute, and it is well settled that if there is any doubt or ambiguity as to the construction, the benefit of the doubt or construction must go to the subject. If Parliament or the State Legislature imposed a tax or intended to collect any moneys due as a result of an imposition of tax, then clear words must be used which would render the subject liable. What has happened in this petition is that the assessment order has been passed on the 29th February, 1956, and the contention of Mr. Palkhivala is that inasmuch as the order of assessment is passed after the period specified in the Act, viz., between 1st April, 1951, and the 6th September, 1955, the assessment order is not a valid order and no action can be taken pursuant to that order. What is said by counsel appearing on behalf of the Union of India, the State of Bombay and the State of Bihar is that the first part of section 2 validates the law imposing the tax and once that is done any action taken under a valid law cannot be challenged. If the Sales Tax Act validly imposes a tax on inter- State sales and purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution, Articles 269 and 270, which deal with the power of the Union Government. Article 269 deals with the duties and taxes which' shall be levied and collected by the Government of India, and Article 270 deals with the taxes on income other than agricultural income which shall be levied and collected by the Government of India. Therefore, "levy" in our opinion in this context must mean any step taken or. any proceeding initiated for the ultimate purpose of (1) (1940) 42 Bom. L.R. 10 at p. 56; 7 I.T.R. 670. determining the liability of the assessee and finally collecting the tax. In every taxing statute the various processes are the imposition of the tax by the Legislature itself, the determination of the quantum of tax to which the subject is liable for which usually a machinery is set up, and finally a machinery for the summary recovery of the tax. The first question that we have to consider is, would this section apply if no step whatever had been taken by the taxing authority between the period specified in section 2 and the proceedings were initiated for the first time after the 6th September, 1955? In our opinion, it would not be true to say of proceedings initiated after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce from the 26th January, 1951. Therefore, the position is that although the Act is a pre-Constitution Act, on the 26th January, 1951, after the Constitution came into force the Constitutional provision embodied in Article 286 was incorporated in that Act. Now, what is said about this Act is that whatever might be the position with regard to the Bombay Act, there was no lifting of the ban under the validating Act as far as this Act was concerned, because the Act was passed as far back as 1947. In putting forward this contention what is ignored is the competence of the Provincial Legislature under the Government of India Act. Under the Government of India Act the Bihar Legislature was competent to tax all sales including sales which were effected in the course of inter-State trade or commerce. Therefore Act XIX of 1947 was passed by a competent Legislature. Section 33, to use the language of the Supreme Court, imposed a conditional ban which prevented the charging section from operating to tax certain sales which came within the ban and that ban was lifted on the 1st April, 1951, and once that ban was lifted, under the charging section the inter-State sales and purchases could be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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