TMI Blog1967 (8) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... in C.A. No. 717 of 1966. G.N. Dikshit, for the respondent in C.A. No. 857 of 1966. -------------------------------------------------- (Civil Appeal No. 495 of 1966) The judgment of the Court was delivered by RAMASWAMI, J.- This appeal is brought, by special leave, from the judgment of the Madras High Court dated September 23, 1963, in Tax Case No. 246 of 1962. The respondent who was a beedi manufacturer in Gudiyattam, Madras State, was assessed to sales tax on a taxable turnover of Rs. 1,73,502-11-10 for the assessment year 1955-56 by the Deputy Commercial Tax Officer. Against this order of assessment dated February 15, 1957, the respondent appealed to the Appellate Assistant Commissioner of Commercial Taxes, Salem, disputing the inclusion of a sum of Rs. 1,11,299 and odd on the ground that the said amount represented either second purchases or purchases made outside the State of Madras. Pending the appeal the Madras General Sales Tax Act, 1959, was passed and the earlier Act of 1939 was repealed and by force of the provisions in the 1959 Act the appeal was finally disposed of by the Appellate Assistant Commissioner of Commercial Taxes, Salem. By hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the Sixth Amendment and consequently the Madras State had no jurisdiction to tax the said sales. Being aggrieved by that part of the decision of the Madras High Court on the question of taxability of the said transactions of inter-State sales effected prior to September 6, 1955, the State of Madras has brought the present appeal. The question presented for consideration in this appeal is whether the Madras State had jurisdiction to levy sales tax on the alleged "Expla- nation sales" by the respondent during the period between April 1, 1955 to September 5, 1955, by virtue of explanation (2) to section 2(h) of the Madras General Sales Tax Act, 1939. Section 2(h) of the Madras General Sales Tax Act, 1939, states: "2. In this Act, unless there is anything repugnant in the subject or context- (h) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes also a transfer of property in goods involved in the execution of a works contract, and in the supply or distribution of goods by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, 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. (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, 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: Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n September 6, 1955. The President then issued the Sales Tax Laws Validation Ordinance, 1956, on January 30, 1956, the provisions of which were later embodied in the Sales Tax Laws Validation Act, 1956. Section 2 of this Act provided: "Validation of State Laws imposing, or authorising the imposition of, taxes on sale or purchase of goods in the course of inter-State trade or commerce.-Notwithstanding any judgment, decree or order of any Court, no law of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951, and the 6th day of September, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter-State trade of commerce; and all such taxes levied or collected or purporting to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law..........." By this Act therefore the Parliament removed the ban contained in Article 286(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore that even if the ban under Article 286(2) is lifted by Parliament by the enactment of the Validation Act, the Madras State cannot still tax inter-State sales or purchases which take place outside its territorial limits because of the ban under Article 286(1)(a) of the Constitution. What is an "outside sale" is defined by the Constitution by the Explanation to Article 286(1) which states what should be deemed to be an "inside sale". As provided by the Explanation to Article 286(1), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of the sale 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 legal position was stated by this Court in The State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069, 1082; 4 S.T.C. 133, 145. as follows: "It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain amounts in respect of the goods supplied by rail to the A.C.C. outside the State of Andhra Pradesh under its despatch instructions. The Commercial Tax Officer and the Deputy Commissioner of Commercial Taxes disallowed the claim and held that as the railway receipts were delivered to the agent of the buyer within the State of Andhra, and price was also realized from the agent of the buyer within the State, goods must be deemed to have been delivered to the buyer in the State of Andhra Pradesh, and the appellant was liable to pay tax on the sales. The question for determination in this Court was whether the sales by the appellant to the A.C.C. may be regarded as "non-Explanation sales", i.e., falling outside the Explanation to Article 286(1). It was held by this Court that if the goods were delivered pursuant to the contracts of sale outside the State of Andhra for the purpose of consumption in the State into which the goods were delivered, the State of Andhra could have no right to tax those sales by virtue of the restriction imposed by Article 286(1)(a) read with the Explanation. To attract the Explanation, the goods had to be actually delivered as a direct result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resided or carried on business. The legal position therefore is that the Validation Act merely lifted the ban under article 286(2) of the Constitution on the States' power to legislate but the ban imposed by Article 286(1)(a) of the Constitution was still effective and could not be removed by legislation of Parliament. In other words, even if the ban under Article 286(2) is removed by the Validation Act, no State can tax an inter-State sale or purchase which takes place outside its territorial limits. What is an "outside sale" is defined by the Constitution as Explanation to Article 286(1) which states what should be deemed to be an "inside sale". It is well settled that by Article 286(1) (as it stood before the Sixth Amendment) sales as a direct result of which goods were delivered in a State for consumption in such State, i.e., the sales falling within the Explanation to Article 286(1) were fictionally to be regarded as inside that State for the purpose of clause (1)(a) and so within the taxing power of the State in which such delivery took place and being outside all other States exempt from sales tax by those other States. As we have already said, the Validation Act has lifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass such order in relation to the matter as the High Court thinks fit. (b) Where the High Court remits the matter under clause (a) with its opinion on the question of law raised, the Appellate Tribunal shall amend the order passed by it in conformity with such opinion. (5) Before passing an order under sub-section (4), the High Court may, if it considers it necessary so to do, remit the petition to the Appellate Tribunal, and direct it to return the petition with its finding on any specific question or issue. ................................................................... (8) (a) The petitioner or the respondent may apply for review of any order passed by the High Court under clause (a) of sub-section (4) on the basis of the discovery of new and important facts which after the exercise of due diligence were not within his knowledge or could not be produced by him when the order was made. (b) The application for review shall be preferred within such time, and in such manner as may be prescribed, and shall where it is preferred by any party other than the Deputy Commissioner be accompanied by a fee of one hundred rupees. ............................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 495 of 1966, and for the reasons given in that case, we hold that the Madras State had no authority to levy sales tax on such transactions of sale and the High Court was right in holding that the constitutional ban under Article 286(1)(a) was not lifted by the Validation Act. In Civil Appeals Nos. 539 and 540 of 1966 counsel for the appellant took an additional point that the High Court ought not to have called for an affidavit from the respondent "regarding the mode of sale of wool to the Bangalore merchants". It was also said that the High Court had no power to take that affidavit into evidence and come to a finding that the sales were "Explanation sales" within the meaning of Article 286(1)(a) of the Constitution. It, however, appears that the appellant did not object to the production of the affidavit in the High Court. It must be taken that the objection was waived and it is not now open to the appellant to argue that the High Court had no power to take the affidavit into evidence. We accordingly reject the argument of the appellant on this point. In Civil Appeal No. 717 of 1966 it was argued for the appellant that the High Court erred in assuming that in the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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