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TMI Blog1956 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessable turnover objection was taken. The first item of the claim under the head of exemption by reason of the sales being of an inter-State character was allowed by the Tribunal, and is no longer in dispute before us. The third of the items, viz., the inclusion in the turnover of the sales tax collected by the assessee, is now validated by Madras Act VII of 1954. This was disallowed by the Tribunal, and because of the validating enactment, this was not contested before us. The only matter now in controversy relates to item (2), viz., the turnover of Rs. 19,41,362, being the value of the cotton purchased during the year by the mills. Section 3(1) of the Madras General Sales Tax Act enacts: "Every dealer shall pay for each year a tax on his total turnover for such year;" This is subject to the provisions of section 5, sub-section (ii) of which enacts: "As regards the sale of cotton, the tax is to be levied only at such single point in the series of sales by successive dealers as may be prescribed." The relevant rule which prescribes and fixes this single point for taxation is rule 4(2)(b) of the Turnover and Assessment Rules, read with rule 4A of the same rules. The net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or collected, be deemed always to have been validly levied or collected as if this Ordinance were in force on the date on which such tax was levied or collected." It will be seen that section 2 is composed of two parts, the first one validating the law, and the later one validating the levy or collection. The scope, however, of the two limbs is identical, and while the collection of the tax is validated by the second; the imposition itself is rendered valid by the first. In view of the terms of this Ordinance, the question that has to be considered is, "was there a law imposing or authorising the imposition of the tax now sought to be levied by the State, under the Madras General Sales Tax Act?" For, if there was, notwithstanding that such taxation and levy would have been in contravention of Article 286(2), it is now rendered valid by the provisions of this Ordinance. We shall therefore have to examine the scope of the sales tax law of this State, and ascertain, whether before 6th September, 1955, a tax was imposed on the purchase of the goods now in dispute, since the other terms of the Ordinance are satisfied, in that the purchase transaction of the assessee, on which he is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected to the original Sales Tax Act of 1939 by an Amending Act of 1947. These were the provisions in force at the date of the Constitution, i.e., on 26th January, 1950. As the Sales Tax Act was enacted by a Provincial Legislature constituted under the Government of India Act of 1935, the ambit of its territorial extent was determined by sections 99 and 100 of the Government of India Act, 1935, under which a Provincial Legislature might make laws "for the Province", with respect to the matters enumerated in the Provincial Legislative List, to refer only to those now relevant. In the light of this territorial limitation, the transaction, which could be the subject of tax under this enactment, must obviously have been "sales" which were effected within the territory or which had a real and substantial nexus with this State. The Sale of Goods Act, however, does not define the situs of a sale. So this had to be. determined on the basis of other principles. As emphasis was laid in the main definition of "sale" on the transfer of property in goods, it would have followed that the Sales Tax Act conceived, as a sale within the State of Madras, primarily a transaction in which the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le later, after we set out certain other provisions which bear upon the questions we are now considering. In terms of the proviso to sub-section (2), the President issued the Sales Tax Continuance Order, 1950, on the day the Constitution came into force. It ran: "Any tax on the sale or purchase of goods which was being law- fully levied by the Government of any State immediately before the commencement of the Constitution of India shall, until the 31st day of March, 1951, continue to be levied notwithstanding that the imposition of such tax is contrary to the provisions of clause (2) of Article 286 of the said Constitution." The life of this Order came to an end on the 1st of April, 1951. On the 2nd July, 1952, the President promulgated the Adaptation of Laws (Fourth Amendment) Order, 1952, by which a new section was introduced into the Madras General Sales Tax Act, numbered as section 22, which ran: "Act not deemed to impose or authorise taxation in certain cases- Nothing contained in this Act shall be deemed to impose, or authorise the imposition of, a tax on the sale or purchase of any goods, where such sale or purchase takes place- (a)(i) outside the State of Madras, or (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2) to section 2(h), the tax liability in regard to that sale would depend upon whether or not the sale is effected "in the course of inter- State trade or commerce." If it is, there would be no liability to tax because of the exemption granted by Article 286(2). But if the transaction of sale is completed here, by delivery to the buyer, and the transport across the boundary is not an integral part of the sale, the tax liability imposed by the extended definition in section 2(h) would not be relieved by Article 286(2), and so, not also by section 22(b) of the Sales Tax Act. The third class of cases would be, where the goods were originally outside the State, but are brought into the State by reason of the purchase, where the transportation into the State is an integral part of the sale. In this class of cases, whether the property in the goods passed within the State or not, the tax liability would be attracted by virtue of the main portion of the definition of "sale" in section 2(h) read with section 22. In regard to them, Article 286(1)(a) and the Explanation thereto, which, by reason of their introduction into the Madras General Sales Tax Act as section 22, have to be read a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic 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 scope of clause (2)." This decision was rendered on the 30th March, 1953, and held the field till 6th September, 1955, when the Supreme Court again by a majority, disapproved of it in Bengal Immunity Co., Ltd. v. State of Bihar(2). In the later case, the majority of the Court decided that the Explanation to clause (1)(a) of Article 286 could not legitimately be extended to clause (2), either as an exception or as a proviso, or be read as curtailing or limiting the ambit of that clause. Their Lordships therefore held that it followed that "except in so far as Parliament may by law provide otherwise, no State law can impose or authorise (1) [1953] 4 S.T.C. 133. (2) [1955] 6 S.T.C. 446; [1955] 2 S.C.R. 603. the imposition of any tax on sales or purchases when such sales or purchases take place in the course of inter-State trade or commerce, irrespective of whether such sales or purchases do or do not fall within the Explanation." They further held that "a deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore need State legislation to give effect to it, and the Constitution cannot, by itself, be deemed to alter the State law, so as to impose a tax on (1) [1953] 4 S.T.C. 133. "explanation sales" if none existed before. As we have already point- ed out, the State purported to tax only sales "within the State", and this has to be understood as meaning sales where the property in the goods passed within the jurisdiction. Where the goods were outside, and the property also passed outside the State, the fact that they were brought over into the State for delivery or consumption was not by itself an element which attracted tax liability on the terms of the Madras General Sales Tax Act as it stood on 26th January, 1950. We, however, consider his alternative submission based on the terms of section 22 of the Act well-founded. The argument was that even if the "explanation sales", where the property in the goods passed outside the State, were not within the Madras General Sales Tax Act, read in the light of the Constitution, the position was altered when section 22 was introduced by the Adaptation of Indian Laws (Fourth Amendment) Order. As we have already indicated, the effect of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we propose to discuss next the effect of the Ordinance on the tax liability on such transactions also, as we consider that it would tend to convenience as well as completeness. This other category of cases would comprise those, where goods in this State are the subject of a sale, and where the sale transaction involves inter-State elements, i.e., where the transport from this State across its border is an integral part of the sale. It will be seen that these sales would have been liable to tax prior to the Constitution by reason of the extended definition of "sale" introduced by the Amending Act of 1947, and which now figures as explanation (2) to section 2(h) of the Act. Tax on such sales could have been lawfully levied even after the Constitution came into force by virtue of the President's Order dated 26th January, 1950, which postponed the application of the prohibition contained in Article 286(2), upto 31st March, 1951. When the President's Order expired on the 1st of April, 1951, the levy of the tax became subject to the ban imposed by Article 286(2). In other words, sales tax was levied by this State, only it was unenforceable by virtue of the protection afforded by Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possessing an inter-State character could be validly collected by reason of the Ordinance. If ex hypothesi there was no tax on the sales covered by the second explanation to section 2(h) after the enactment of section 22, the condition posited by the Ordinance is not satisfied and hence the Ordinance cannot be availed of by the State. Secondly, we feel unable to accept an argument, which imputes to the Ordinance a twin effect of imposing a tax on such transaction and validating its levy. Parliament cannot impose a tax on sales; the imposition could be effected by State legislation; Parliament can relax the fetter imposed by Article 286(2) and nothing more. Nor are we impressed by the contention, that section 22 should be regarded as a piece of conditional legislation, i.e., an enactment which levied a tax on inter-State sales, subject to the condition of the liability being dormant so long as the ban imposed by Article 286(2) continued to operate, and that when the ban was removed the tax liability became automatically attracted. In our opinion, the submission in this form also suffers from the same fallacy, viz., it imputes to Parliament the power to enact a sales tax legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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