TMI Blog1952 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... thority looked into their accounts, bill books, cash register and ledger and found that their figures tallied with the return. The Sales Tax Officer while dealing with the assessee's claim for deductions came to the conclusion that the deductions claimed by the assessee cannot be allowed as exports are not mentioned in Section 2(j)(a) and (b). The Sales Tax Officer, therefore, made only the 2 per cent. deduction mentioned in Section 2(j)(b) and assessed the sales tax payable as Rs. 3,959-3-0 only. 4. The assessee preferred an appeal to the Sales Tax Commissioner. It was claimed before him that as the goods had simply been transferred from their warehouse within Madhya Pradesh to their warehouse at Muzaffarpur for sale there or had been sent to different persons for sales outside the State of Madhya Pradesh, the assessee was not liable to pay any tax. The appeal was dismissed on the ground that the appellant's office at Muzaffarpur was only a delivery office and that in any event the sales were covered by Explanation II under clause (g) of Section 2 of the Act. The Commissioner also held that the contracts entered into with the agents were really contracts of sale and not con- tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer bidis worth Rs. 27,533-10-0 were sold to registered dealers in Bihar and Assam. But according to the affidavit dated 23rd June, 1949, bidis worth Rs. 26,811-9-0 were sent to registered dealers in Bihar and Assam and to Jummansingh, the salesman of the assessee. The counsel of the assessee when questioned about these discrepancies assures me that the facts stated in the affidavit dated 23rd June, 1949, are quite correct. 8. The correctness of the facts mentioned in the affidavit dated 23rd June, 1949, has not been verified by anyone. 9. On the subject of the invoices the contention of the assessee is that they were used unnecessarily and inadvertently and that no im- portance should be given to the printed conditions in the invoice forms. 10. Under Section 23 (3) the Board of Revenue refers the following questions for the decision of those questions by the High Court of Judicature at Nagpur: (1) Whether the sending of goods to Muzaffarpur shop belonging to the assessee constitutes a sale within the meaning of the Sales Tax Act. (2) Whether the sending of goods to persons outside the limits of this State constitutes a sale within the meaning of the Act (3) Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct? (iii) Whether the sending of goods to customers outside this State, to whom railway receipts were sent through a bank, constitutes a sale within the meaning of the Act? (iv) Whether the sending of goods to salesmen out of the Province amounts to a sale within the meaning of the Act? and (v) Whether Explanation II to clause (g) of Section 2, which makes an agreement of sale taxable even though the sale may have taken place outside the Province, is ultra vires of the Provincial Legislature? 4. Before dealing with the questions involved in this reference, it is necessary to see how the Act is constructed. The preamble to the Act states that it is an Act to levy a tax on the sale of goods in the Central Provinces and Berar. The Act begins by defining certain terms for the purposes of the Act. Of these we are concerned with the definitions of "dealer ", "goods", "sale", "taxable quantum" and "turnover" in the present reference. It is not necessary to quote all the definition clauses relating to the above terms. "Dealer" has been defined to include both a principal and an agent in reference to the business of selling or supplying goods, whether on remuneration, commission or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing therefrom-" (here follow certain deductions.....) 7. Section 3 establishes the taxing authorities. Section 4 is the charging section. That section was amended in 1948 by Act No. 59 of 1948. We are concerned in this reference with the unamended section and the first sub-section of that section may be quoted here: "4. (1) Subject to the provisions of Section 6, every dealer whose turnover during the year preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the commencement of this Act: Provided that the tax shall not be payable on sales made in the course of the execution of a contract which is shown to the satisfaction of the Commissioner to have been entered into before the commencement of this Act". After the amendment, the first sub-section reads as follows: "Every dealer whose turnover during the year preceding the com- mencement of this Act exceeded the taxable quantum shall be liable to pay tax in accordance with the provisions of this Act on all sales effected after the commencement of this Act." 8. Section 5 gives the rates of tax. For this purpose a schedule classifying the goods is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal to make such additions or alterations therein as the Court may direct in that behalf. (5) The High Court upon the hearing of a reference under this section shall decide the question of law raised thereby and shall deliver judgment thereon containing the grounds of decision and shall send to the Tribunal a copy of the judgment under the seal of the Court and the signature of the Registrar, and the Tribunal shall dispose of the case accordingly. (7) Tax ordered by the Tribunal to be paid by an order in respect of which an application has been made under sub-section (1) shall, notwithstanding the making of such application or any reference in consequence thereof, be payable upon the making of the order." 10. Sections 24 and 25 provide for offences and penalties and com- pounding of offences. Section 26 gives protection to public authorities, and Section 27 makes the returns etc. confidential. Section 28 gives power to the Provincial Government to make rules. Since the rules were not questioned before us, it is not necessary to refer to the various clauses enabling the Provincial Government to make rules or to the rules themselves. Similarly, it is not necessary to refer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4). It was further stated in the Australian case that when the Court is construing the enactment of a body whose powers are limited, it is material to bear in mind that the intention of the legislating body must have been to make its enactment effectual, and that it knew its efforts would be futile if those limits were trans- gressed; that a transgression, if any, might arise from inadvertence in expression or from a mistaken belief as to the extent of power, but in either case, the error must clearly appear from the language used and cannot be assumed. 13. It would follow, therefore, that there is a presumption in favour of the validity of statutes and in the case of limited legislatures there is a further presumption that the legislature intends to keep within the four corners of its powers. To the same effect are the observations of Gwyer, C.J., in In re Central Provinces Motor Spirit Act(5). 14. Apart from the presumption of validity, it is to be observed that the Courts should be reluctant to pronounce too readily that an enactment is invalid. The salutary rule to bear in mind was pronounced by Isaacs, J., (later Chief Justice) in The Federal Commissioner of Taxation v. Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny solution in the meaning of the word "tax", as has been done by the Board of Revenue in the case to which we shall refer later. A tax is no more than an imposition by Government for the purposes of the State. Frequently, the tax is imposed also by Local Authority; but the principle is the same. The best definition of "tax" is by Cooley in his Constitutional Limitations, Volume II, 8th edition, page 986, where he says that taxes are burdens or charges imposed by legislative power upon persons or property to raise money for public purposes. The power of a legislature to impose a particular tax, or in other words a burden upon all or some of the subjects, must necessarily depend upon the nature of the Constitution to which the legislature owes its existence. If after the identification of the tax the power to impose it is found inherent in the legislature, the tax must be upheld; if it does not, then the tax must be disallowed, and any attempt to impose it must be declared as ultra vires the legislature. 16. There is only one method of finding out the nature of the tax. It is to find out the subject-matter which is to be burdened with the (1) [1891] A.C. 455. (3) (1911) 12 C.L.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the manner of the imposition and the taxable event which it seeks to choose as the foundation for the levy vis-a-vis the power of the Legislature to make that imposition or to use that taxable event. (1) [1933] A.C. 710, 721. (3) (1945) A.I.R. 1945 P.C. 98; 1 S.T.C. 135. (2) (1951) N.L.J.503; 2 S.T.C. 176. 19. Judging the matter from this angle, we have first to find out what is the nature of the tax and next to refer to the organic docu- ment by which the powers of the Legislature passing that enactment have been created. The Act has been analysed by us above and we shall presently advert to the charging section to find out the nature and the incidence of the tax. The entry under which the Legislature purports to act is Entry No. 48 in List II in the Seventh Schedule appended to the Government of India Act, 1935. That entry reads: "Taxes on the sale of goods and on advertisements". An examination of the charging section shows that every dealer whose turnover during the assessment year exceeds a fixed quantum is liable to pay the tax on all sales effected after the commencement of the Act in accordance with a particular schedule of rates. The tax is therefore upon the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provinces may choose to tax the sale of goods taking place in their pro- vince. It is suggested that the intention was that all completed sales in a province could be the subject-matter of taxation in that province, but the province had no power to bring by a fiction sales taking place elsewhere for purposes of taxation, in the province. It is also argued that there would be a liability to multiple taxation on one transaction of sale because two provinces might by fiction bring the same transaction into their own jurisdiction to tax. 23. Certain principles here emerge. The power of taxation is indis- pensable to any orderly government and is justified on the assumption of an equivalent rendered to the taxpayer in the shape of protection of his person and property and the consequent addition to the value of his property. It is also justified on the assumption of a return in the shape of public conveniences in which he shares. A person trading in a manner which requires the protection of more than one State cannot complain if he has to pay a price for governmental protection and main- tenance in all the States in which he does business. He is liable to be taxed in all the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wisdom of the legislature, that power is limited by a principle inherent in the very nature of constitutional government,-namely, that the taxation imposed must have relation to a subject within the jurisdiction of the taxing government." 26. In all cases where a certain element of extra-territoriality creeps in, either inadvertently or advisedly, it is always necessary to find out whether the jurisdiction does or does not exist. The jurisdic- tion is found to exist if there is a sufficient territorial connection bet- ween the person or the transaction sought to be charged and coun- try seeking to tax him or the transaction. These principles are neces- sary to be borne in mind because the Explanation creates a fiction, and the question is whether there are substantial grounds for holding that the fiction can be created and when created, establishes the necessary nexus. 27. The Explanation begins by referring to the Indian Sale of Goods Act and notwithstanding it, it provides that the sale or purchase of any goods shall be deemed for the purposes of taxation to have taken place in this province, wherever the contract of sale or purchase might have been made if the goods were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich in its nature is spread over different territories may for the purposes of taxation be viewed at any of its ends; and if a necessary connection is established, it may be used as the foundation for the levy of a tax at either end. If the intention be to allow provinces to raise a revenue by taxing the sale of goods or the proceeds thereof the province can substantially show the connection with these, the province will have the power to create a fiction by which it brings in the rest of the transactions into its own territory to levy a tax. Thus, if a dealer is registered in this province and the goods are also situated here in respect of which a sale has taken place, the liability to tax can be created by saying, as is done in the Explanation, that the entire transaction must be deemed to have taken place here. This power cannot be denied because a sufficient portion of the taxable event has taken place in the province, namely, the existence of the dealer and the existence of the goods, and the transportation of the goods to an extra-State point. In our judgment, the Explanation cannot be challenged on the ground of extra-territoriality because the entry gives the most extensiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Article 286 thereof. The learned Advocate-General claims that the Act cannot be questioned because it has been validated by the proviso to clause (2) of Article 286 of the Constitution and the Order of the President issued under that clause. That proviso, he contends, covers the entire Article and not merely clause (2). In answer to this, Shri Engineer contended that the Act cannot be enforced in the manner claimed by the learned Advocate- General because the first clause of Article 286 renders the present Explanation unenforceable, there being a contrary method stated in that clause. 34.. It is quite obvious that the intention in framing that Article was to obviate disputes, particularly those arising between one State and another. As we have already pointed out, it is difficult in any event "to give a seat" to an obligation and a contract is often between parties residing in different parts of the country. In such cases it is difficult to decide where the contract really took place and which State is entitled to levy the sales tax. To avoid multiple taxation at the goods and the market ends it has been thought necessary to put the matter beyond all dispute. Clause(1) of Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951." It is clear that the proviso is meant to govern only what is des- cribed as "this clause". 37. The learned Advocate-General contends that the proviso must be taken to qualify the whole of the Article and not merely the second clause. If it was the intention to make all existing legislation subsist till Parliament by law otherwise provided, notwithstanding the repugn- ance of such a law to clauses (1) and (2) of the Article, the Constitution has neither said so nor can it be taken to have expressed it by necessary implication. We cannot refer to the debates which took place in the Constituent Assembly over this clause. The intention of the legislature must be taken from what it has enacted, and not from what the legisla- tors said while discussing the Bill. 38. It is clear that the word "this" in the proviso refers to the next preceding clause, and that is clause (2). A similar scheme is followed in Articles 311, 356 and others. It would be impossible to contend that the provisos in those two articles cover the entire article. Where the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g laws out of the operation of the "commerce clause" as embodied in clause (2) of Article 286 read with Part XIII of the Constitution. The proviso and the President's Order, therefore, save the existing laws from the operation of the "commerce clause" only, and not from the operation of clause (1) of Article 286 which determines the venue for the imposition of a sales tax in India. 43. The learned Advocate-General contended that the word "lawfully" in the proviso denotes that this Court is not competent to question the legality of the Sales Tax Act at all. For one thing, the word "lawfully" cannot be read as equal to "unlawfully." If the law which imposed the tax was bad at its inception, the proviso would not save it; and, secondly, we are not estopped from questioning the validity of any existing law on the ground that it conflicts with the provisions of the Constitution. 44. Reference was made by the learned Advocate-General to Article 372. It provides that notwithstanding the repeal by the Cons- titution of the Government of India Act, 1935, all the law in force in the territory of India immediately before the commencement of the Constitution shall continue in force until a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights cannot be validated by any autho- rity in India. Article 372 gives the power to the President to adapt the laws to the changed conditions, but that power itself is subject to the provisions of the Constitution. The Constitution speaks in no uncertain terms, and if any provision of law is repugnant to the Con- stitution, the Constitution as the supreme law must prevail. That law can only be sustained if the Constitution says so or gives the power to some authority to sustain it by modifications, amendments or necessary repeals. We have already shown above that the provisions of the first clause of Article 286 conflict with the scheme under which the sales tax is collected under the impugned Act. There is no doubt whatever that it does conflict with the provisions of that clause and to that extent the clause must prevail and as from the date of the Constitution the collection of sales tax must be within the State where the goods are delivered. This opinion which we have given with considerable hesita- tion does not really arise in the present case where we are required only to answer certain questions which have been referred on the case stated. However, since the argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affirmative. 50. The third question is clearly covered by the Explanation and there is sufficient nexus to apply the Explanation to such a case. The question, therefore, must be answered in the affirmative. 51. The fourth question, whether the sending of goods to sales- men outside the province amounts to a sale within the meaning of the Act, would be answered in the affirmative if there is already a con- tract of sale entered into in respect of the goods which the registered dealer supplies from this State. It would not be so if the sellers merely are stockists, who have not purchased the goods but to whom the goods have been sent for dealing by them as they think best. In other words, if the goods are merely exported but not sent in furtherance of a contract, then the tax cannot be levied. But if the goods are sent on a Bijak to salesmen outside the State, then the tax can be validly levied on the registered dealer on the assumption that the whole of the transaction must be deemed to have taken place in the State. Our answer to the fourth question would, therefore, depend on the cir- cumstances of each case. 52. As regards the fifth question, we have already shown tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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