TMI Blog1951 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... o consign goods, as per orders received, to the customers' stations, but all addressed to self. The branch office carries out instructions and sends bills prepared at cost price (including, of course, packing and similar charges) along with the relative railway receipts to the head office. The head office prepares bills for payment to customers (adding profit and and other charges to the cost price bills received) as per terms agreed upon and sends the bills along with the railway receipts to customers through a bank or by V.P.P. 2.. On these facts, it is contended on behalf of the applicant that (a) the property in the goods remains with the firm until the railway receipt is accepted by the customer, which acceptance takes place outside the Province, (b) the transfer of property in the goods or the sale of bidis thus takes place outside the Province, (c) the Act provides for a levy of tax only on the sale of goods in the Central Provinces and Berar, and (d) the sales in dispute are not, therefore, liable to taxation under the Act. 3. In rejecting this contention, the Sales Tax Commissioner relied wholly on Explanation II to Section 2(g) of the Act. This Explana- tion II, aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intend to exceed its territorial or other jurisdiction, it has been urged that unless Explana- tion II to Section 2(g) is to be held ultra vires the Provincial Legisla- ture the only meaning that could be read into it would be somewhat as follows: "If the transfer of property in the goods takes place in C.P. and Berar, the fact that the contract of sale was made elsewhere would not matter-provided the goods were in the Province when the contract of sale was made." According to this reading, it would appear prima facie that there was no need for introducing the Explanation because, even without it, it should be obvious that a transfer of property in goods that has actually taken place in the Province is a sale in the Province within the mean- ing of Section 2(g) becoming automatically subject to the taxing pro- visions of the Act. But if we discard this reading and adopt the plain meaning suggested earlier, we shall have to consider the alternative argument that Explanation II is ultra vires the Provincial Legisla- ture. 6.. The first question that arises in this connection is whether the Board of Revenue is competent to declare Explanation II ultra vires the Provincial Legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that Section 67 has to be construed." 7.. Now Section 21 of our Sales Tax Act is analogous to Section 67 of the Income-tax Act in barring the jurisdiction of civil Courts. Section 22 of our Act provides for appeal and revision to the Sales Tax Commissioner and the Board of Revenue; and Section 23 contains provisions analogous to those contained in Section 66 of the Income- tax Act on the subject of statement of case to the High Court. Thus, on the authority of the ruling citied, it may be said that our Sales Tax Act also contains machinery which enables an assessee effectively to raise on the assessment made upon him is ultra vires and the civil Court's jurisdiction being barred in this matter, that machinery itself should be employed in getting a decision on such a question. The contention is, therefore, correct that the Board of Revenue can enter- tain the question whether Explanation II is ultra vires the Provincial Legislature. 8.. The case for the applicant on this question would appear to be as follows: (a) Under Section 99(1) and Section 100(3) of the Government of India Act, 1935, (which was in force when the Sales Tax Act was pas- sed by the Provincial Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w materials sells them to the dealer-manufacturer (provided, of course, the latter is a "registered dealer"). Developing this argument, he suggests that, in a case like the one before us, the transfer of property in the finished product should be considered as synonymous and synchronising with the transformation of property (raw materials) into the finished product (bidis)-such transformation being purposely made for passing on the finished product to the ultimate consumer. If this argument prevails, the transformation of property having taken place at Sagar within this Province, the transfer of property or the sale will also have taken place within the Province and the bottom will thus be knocked out of the argument that sales outside the Province have been taxed. The argument, as already stated, is undoubtedly ingenious and extremely interesting; but the metaphysical conception it involves in construing a certain processing of goods or their mere physical transformation as the transfer of property in them seems to me rather too far-fetched for the practical business of every-day life. I would, therefore, discard the implications of this argument and hold that in this case the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icants Taxation Act, 1938(1); (b) the Federal Court in The Provinice of Madras v.Boddu Paidanna Sons(2), and (c) the Privy Council in Governor- Ceneral in Council v. The Province of Madras(3) arising mostly out of (1) [1939] 1 S.T.C. 1; A.I.R. 1939 F.C. 1. (2) [1942] 1 S.T.C. 104; A.I.R.1942 F.C. 33. (3) [1945] 1 S.T.C. 135; A.I.R. 1945 P.C. 98. (b) above. It is hardly necessary to quote at length from these most illuminating judgments which contain a full discussion on the nature of taxes on sales vis-a-vis duties of excise. The following, however, from the judgment of the Privy Council in the last-mentioned case deserves reproduction, as it clinches the whole issue: ".......A duty of excise is primarily a duty levied upon a manu- facturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods.......The two taxes, the one levied upon the manu- facturer in respect of his goods, the other upon a vendor in respect of his sales.......are separate and distinct imposts." In other words, in the Privy Council's view, a sales tax as well as an excise duty is a tax on persons-upon a vendor in respect of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be any absolute bar to extra-territorial legislation. To quote this authority again, "an intention that a statute shall have extra- territorial operation may be readily collected from the nature of the enactment." In the case of our Sales Tax Act, an intention of this kind is discernible in Explanation II. The applicant's learned counsel agrees that in the abstract a legislature can legislate extra-territorially. In his view, however, there is nothing to suggest that the Legislature has done so in this case (apart from the fact that he feels that it was not free to do so). He contends, with considerable force, that an Explanation cannot enlarge the scope of the original section nor can it override its provisions. This is, of course, clear from the observations in the case cited (Kishan Singh v. Prem Singh(1), even if an authority were necessary for a proposition of this kind. But the other authority cited, which concerns the nature of a proviso, does not appear to me equally apposite. "The proper function of a proviso (it has been stated in Madras Southern Mahratta Railway Co. Ltd. v. Bezwada Municipality(2) is to except and deal with a case which would otherwise fall within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature in enacting it. For a proper and a fuller understanding of the intention, it is necessary to study its provisions as a whole. When that study is made, one will find that the intention is to collect from certain classes of dealers, as defined is Section 2(c) read with Section 4, resident in the Province, a tax on the turnover of the sales effected by them of certain classes of goods [vide Sections 2(j), 2(d), 2(g), 6 and 71 situated within the Province, when the contract of sale was made. The intention is thus broader than could be surmised from the preamble itself. If the three elements involved in any kind of taxation to which reference has been made earlier (paragraphs 11 and 12, supra) namely (a) persons from whom the tax is to be collected, (b) the activities, actions or transactions of those persons in respect of which the levy is to be made, and (c) the goods or other property of those persons to be subjected to taxation, the Legislature intended that the persons and the goods were to have actual physical connection with the territory for which it was competent to make laws. It did not apparently consider that the third element need have similar connection with that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature is in truth minding its own business. It does not compel the conclusion that it is not. The enabling statute has to be fairly construed." Again, in his judgment in the third case cited, Kania, C.J., observed as follows: "Generally, States can legislate effectively only for their own territories, but for purposes of taxation and similar matters, a State makes laws designed to operate beyond its territorial limits." In both the Federal Court's judgments in the cases cited, the following principles suggested by Dixon, J., of the High Court of Australia, have been quoted with approval: (1) [1944] 12 I.T.R.265; A.I.R. 1944 F.C. 51, 60 (2) [1948] 16 I.T.R.240; A.I.R. 1948 P.C. 118,120. (3) [1949] 17 I.T.R. 63; A.I.R. 1949 F.C. 18, 25. "So long as the statute selected some fact or circumstance which provided some relation or connection with New South Wales and adopted this as the ground of its interference, the validity of an enactment would not be open to challenge." "If a connection exists, it is for the legislature to decide how far it should go in the exercise of its powers. As in other matters of jurisdic- tion or authority, courts must be exact in distinguishing bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Debendra Narain Roy v. Jogendra Narain Deb(1), generally known as the Bijni Succession Case, in which the question at issue was the competence of the Assam Legislature under the Government of India Act, 1919, to introduce an extra-territorial element in the Assam Bijni Succes- sion Act (II of 1931). The question was answered in favour of the Assam Legislature. In appeal before the Privy Council(2), however, their Lord- ships did not think it necessary to decide the particular question of extra- territoriality and they, therefore, left it open. All that need be added is that the legislative powers of a Provincial Legislature under the 1935 Act are not inferior to or less restricted than those under the 1919 Act. 19.. I might as well refer here to Section 297 of the Government of India Act, 1935, on the strength of which also it has been argued on behalf of the applicant that sales which in reality have taken place outside the Province could not be subjected to taxation in this Province. Now Sec- tion 297 prevents a Provincial Legislature from, "(i) passing any law prohibiting or restricting the entry into, or export from, the Province, of goods of any class or description, [s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of item 48 of List II of the Seventh Schedule to the Government of India Act, 1935, and not an excise duty, mentioned under item 45 of List I of that Schedule. Once this conclusion is reached, it follows that Explanation II should be given its plain meaning, as stated in paragraph 3 of this Order. When the plain meaning of the Explanation is not in doubt, and is the only meaning that could be accepted, there is no room for the argument that a taxing statute or fiscal enactment must be construed strictly in favour of the subject. The validity of this argument is not open to question when there is a reasonable doubt about the language of the statute. But in this case, we are going by the plain meaning of the impugned provision, which has been stated in reasonably clear and unambiguous language. 22.. A plea on grounds of equity has also been raised. It has been stated that taxes have been paid separately in Provinces or other areas where the sales actually took place. No proof has been adduced, and, in fairness to the applicant, it must be said that no proof was demanded. Even if the statement were true it would not affect the validity of any provision of the Act. The position ..... X X X X Extracts X X X X X X X X Extracts X X X X
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