Satyanarayana Raju, J.
1.The questions formulated for the decision of the Full Bench are:
1. Whether transactions falling within the definition of 'sale' in the Madras General Sales Tax Act and not proved to be 'outside sales' within the Explanation to Article 286(1)(a) of the Constitution of India can be assessed to sales tax under the said Act?
2. Whether after the coming into force of the Constitution of India, the Slate is competent to legislate and levy tax on sales and purchases on the basis of the theory of nexus as embodied in the Explanation 2 to Sub-section (h) of Section 2 of the Madras General Sales Tax Act?
2. These questions involve the determination of the true meaning and scope of the provisions of Article 286(1) of the Constitution. Having regard to the general terms of the reference it is not necessary to set out the facts in each of the above cases.
3. The levy and collection of taxes on the sale of goods came into vogue when as a result of the world-wide economic depression which followed the First War, Governments of the European countries were forced to seek new sources of revenue.
4. In 1935 the Parliament of Great Britain enacted the Government of India Act, and for the first time in India, a unitary Government had been converted into a Federal system and autonomous Provinces had been created. For the autonomous Provinces to exist and thrive, adequate financial resources were necessary and for that purpose they had been given the powers of taxation mentioned in the Provincial Legislative List. The mainstay of the Provincial Exchequers was till then land revenue and excise on liquor.
It is a well-known fact that land revenue is an inelastic source, and Parliament was even then anticipating the decrease and ultimate extinction of excise revenue on account of the policy of prohibition. In order, therefore, to supplement their slender resources, Section 100(3) of the Government of India Act, read with Entry 48 of List II of the Seventh Schedule to that Act, gave them power to make laws with respect to 'Taxes on the sale of goods'.
For financing the nation building activities entrusted to them, the Provinces very soon began to exploit this new avenue of taxation. The Madras Legislature was the first in the field to undertake Sales Tax Legislation and enacted the Madras General Sales Tax Act (No. IX of 1939) (hereinafter referred to as 'the Madras Act''). The Madras Act received the assent of the Governor on the 4th June, 1939, and was first published in the official Gazette on 13-6-1939.
5. The preamble to the Act says that it is expedient to provide for the levy of a general tax on the sale of goods in the State of Madras. 'Sale' is defined in Section 2(h), omitting what is not material, as meaning
'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'.
Section 2(i) defines 'turnover' as the aggregate amount for which goods are either brought by or sold by a dealer whether for cash or for deferred payment or other valuable consideration. Section 3 is the charging section and provides that ;
'every dealer shall pay for each year a tax on his total turnover for such year'.
6. An initial attempt to have the Madras Act declared ultra vires the powers of the provincial Legislature led to the decision of the Federal Court of India in Province of Madras v. Boddu Paidanna and Sons, 1942 2 M LJ 327: AIR 1942 FC 33. The Federal Court ruled that the power of the Provincial Legislatures to levy a tax on the sale of goods extended to sales of every kind, whether first sales or not, that the levy of the tax on the first turnover of the manufactured goods was not illegal and that the provisions of the Act enabling such a levy were not ultra vires. This view was affirmed by the Privy Council in Governor General in Council v. Province of Madras . After this initial attack on the vires of the Act had failed, the Madras Act was more or less having a smooth course till the advent of the Constitution.
7. By the Madras General Sales Tax (Amendment) Act (XXV of 1947) a new Explanation (Ex-planation 2) was added to the definition of 'sale', and it is as follows:
'Notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930, the sale or purchase of any goods shall be deemed for the purposes of this Act, to have taken place in the Province, wherever the contract of sale or purchase might have been made --
(a) If the goods were actually in this province at the time when the contract of sale or purchase in respect thereof was made, or
(b) in case the contract was for the sale or purchase of future goods by description, then, if the goods are actually produced in this province at any time after the contract of sale or purchase in respect thereof was made'.
8. This amendment came into force on 1-1-1948.
9. Under the original definition of 'sale' in the Madras Act, stress was laid on the element of. 'transfer of property' in a sale and no other. Under the extended definition, which was introduced by means of the above Explanation, transactions which could not be considered to be sales within the Province of Madras under the original definition itself were declared to be so by resort to a legal fiction.
The presence of the goods within the Province at the time of the contract or the production of the goods within the Province at any time after the contract would undoubtedly make the sale if subsequently completed, a sale within the Province by reason of the Explanation.
10. In Poppat Lal Shah v. State of Madras, the Supreme Court had to consider the scope of the definition of 'sale' in Section 2(h) and the Explana-tion 2 and it was therein held that though the power to tax a sale was really a power to tax a transaction of sale and a law imposing such tax would be competent if any of the ingredients of sale had taken place within the State, the Madras Act had, by its definition of 'sale' in Section 2(h) prior to the enactment of Explanation 2, imposed a tax only when the property in the goods passed within the State, and that in respect, of sales which had taken place prior to the amendment, the tax would be unauthorised if the property in the goods passed outside the State of Madras. It was also observed that after the amendment came into force, a tax on a sale which came within Explanation 2 would be valid. That was the position in law under the Madras Act prior to the enactment of the Constitution,
11. As mentioned earlier, the power of the Provincial Legislature to make a law imposing sales tax was granted by Section 100(3) of the Government of India Act, 1935, read with Entry 48 in List II of the Seventh Schedule and such a law could be made 'for the Province or for any part thereof'. Basing themselves on the doctrine of sufficient territorial nexus, the Legislatures of the several Provinces enacted Sales Tax Laws adopting one or more of the next as the basis of taxation. This resulted in multiple taxation of the same commodity by various Provinces, substantially increasing the burden of tax on the consumer who, in the ultimate analysis, has to bear its incidence.
The localisation of a sale was, in many cases, a difficult problem when different stages of the 'transaction of sale were reached in different places, as, when the contract of sale was made in one Province, the transfer of ownership in the goods took place in another, the payment of the price in a third Province and the delivery of the goods in yet another Province. Ill such cases, there was a real danger of different Provinces claiming to tax the same transaction on the basis of a sufficient territorial connection between the Province and what it sought to tax.
12. This presented a somewhat complex problem to the framers of the Constitution. On the one hand, they were anxious to avoid multiple taxation; and at the same time, they did not want that the Provincial exchequers should be depleted. With a view to provide a modus vivendi, the Constitution makers enacted Article 286, which runs as follows:
(1) No law of a State shall impose, or 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 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 the Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirtyfirst day of March, 1951.
(3) No law made by the Legislature of a State imposing, or authorising the imposition of, 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 shall have effect unless it has been reserved for the consideration of the President and has received his assent'.
13. In exercise of the powers conferred by the proviso to Clause (2) of Article 286 of the Constitu-tion, the President promulgated the Sales Tax Continuance Order, 1950, on the day the Constitution came into force, Section 2 whereof ran as follows:
'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 the Constitution of India shall, until 31-3-1951, 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'.
14. The life of this Order came to an end on 1-4-1951.
15. On the 2nd July, 1952, pursuant to the power conferred by Article 372(2), which enacts:
'For the purpose of bringing the provisions of any law in force in the territory of India into accord with the provisions of this Constitution, the President may by order make such adaptations and modifications of such law, whether by way of repeal or amendment, as may be necessary or expedient, and provide that the law shall, as from such date as may be specified in the order, have effect subject to the adaptations and modifications so made, and any such adaptation or modification shall not be questioned in any court of law',
the President made the Adaptation of Laws (Fourth Amendment) Order, 1952, by which a new section Was introduced into the Madras Act, numbered as Section 22, which ran:
'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) in the course of the import of the goods-into the territory of India or of the export of the goods out of such territory, or
(b) except in so far as Parliament may, by law, otherwise provide, after 31-3-1951, in the course of inter-state trade or commerce, and the provisions of this Act shall be read and construed accordingly.
EXPLANATION: For the purpose of Clause (a) (i) 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'.
16. It will be seen that Section 22 is a verbatim reproduction of Article 286(1) and (2) and was designed to ensure that the Madras , Act was in conformity with the Constitution.
17. The true meaning and purpose of the Explanation to Article 286(1)(a) came for consideration before the Supreme Court in State of Bombay v. United Motors (India) Ltd., . Therein it was held by a majority that though the sales falling within the Explanation would, in fact, be in the course of inter-state trade, they became, by reason of the fiction introduced therein invested with the character of inter-state Sales, and would be liable to be taxed by the State within which the goods were delivered for consumption. This decision was rendered on 30-3-1953.
18. The same question again arose for decision by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar . By its Judgment, dated 6-9-1955, the Supreme Court held by a majority, that the sales falling within the Explanation being inter-state in character, could not be taxed by reason of Article 286(2) unless Parliament lifted the ban, that the Explanation to Article 286(1)(a) controlled only that clause and did not limit the operation of Article 286(2) and that the law had not been correctly laid down in United Motors Case . We will revert to these two decisions a little later.
19. On 30-1-1956 the President promulgated the Sales Tax Validation Ordinance (III of 1956) and that was later replaced by the Sales Tax Laws Validation Act (VII of 1956) which came into force on 21-3-1956. Section 2 of this Act reads as follows:
'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 or 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'.
20. To complete the history of the legislation on this subject, it may be noted that by the Constitution (Sixth Amendment) Act, 1956, Article 286 was amended by omitting the Explanation in Clause (1).
21. Now Article 286 imposes certain definite restrictions on the taxing power of the Provinces which came to be designated as States under the Constitution. They are that no law of a State shall impose or authorise the imposition of tax on a sale or purchase of goods where such sale or purchase takes place (a) outside the State, or (b) in the course of import or export, or (c) except in so far as Parliament otherwise provides in the course of interstate trade or commerce, and lastly (d) that no law made by the Legislature of a State imposing or authorising the imposition of 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 shall have effect unless it has been reserved for the consideration of the President and has received his assent. It should be noted that these are four separate and independent restrictions placed upon the legislative competency of the States to make a law with respect to matters enumerated in Entry 54 of List II.
22. The questions raised in this reference overlap to some extent. They really resolve themselves into one substantial question as to whether tax can be levied on sales coming within the extended definition contained in the Explanation to Section 2(11) of the Madras Act and not coming within the scope of Article 286(1) and the Explanation thereto. This problem which has arisen because of the somewhat 'involved language' of the Explanation, has not been finally set at rest by the Supreme Court. It, therefore, becomes necessary for us to deal with it.
23. Two points of view have been pressed before us. On behalf of the assessees, it is contended that the several amendments made by the State Legislatures enlarging the scope of the definition of 'sale' constituting, as they do, sufficient territorial nexus the basis of levy of tax, do not survive after the Constitution. The Explanation to Article 286(1)(a) lays down a restriction on the power of the States that they shall not tax outside sales. All sales which are outside sales are ipso facto not inside sales.
24. The argument on behalf of the State may be summarised thus: The Sale of Goods Act, which is the law governing sales or purchases, does not fix the situs of a sale. The power of a State to impose tax on the sale or purchase of goods is attributable not to Article 286 but to the legislative competence of the States and that carries with it the ancillary power to take all or any of the ingredients of a sale as the basis of tax. The non-obstante clause contained in Article 286 does not have the effect of recognising the transfer of property as the basis. It was put in by way of abundant caution.
The words 'outside the Stale' in the main Article have to be read along with the Explanation, If the sale takes place within the limits of a State, it is not necessary that the transfer of property should also take place within its limits. The Presidential Order and the Validation Act lift the ban imposed by Article 286(2) and when that ban is lifted, the field is free and there is nothing in the Explanation to Article 286(1)(a) which prohibits the State from levying tax on sales other than what are popularly known as 'Explanation Sales.'
25. The scope of the Explanation to Article 286(1)(a) has been the subject-matter of much debate and discussion in the post-Constitution era, and it will be a stupendous task to review all the decisions which have considered its purpose and intendment. There are, however, certain decisions rendered by the highest Court of this land which furnish guidance for the interpretation of the provision.
26. Initially, it may be noted that the Explanation deals only with inter-State sales or purchases and not with purely local or domestic transactions. That these are subject to the taxing power of the State has never been questioned.
27. In the United Motors Case it was held by the Supreme Court that Article 286(1)(a) read within the Explanation thereto, and construed in the light of Articles 301 and 304, prohibited the taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein. Their Lordships therein affirmed that the latter State had authority to tax such sales or purchases not by virtue of the Explanation to Article 286(1)(a) but under Article 246(3) read with Entry 54 of List II, of the Constitution.
28. Section 100(3) of the Government of India Act 1935, which corresponds to Article 246(3) of the Constitution ran as follows :
'Subject to the two preceding sub-sections, the Provincial Legislature has, and the Federal Legislature has not power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in the said Schedule.'
29. Entry No. 48 in the Provincial List empowered, the Provinces to levy 'tax on the sale of goods and on advertisements.' Under this entry a legislation imposing tax on sale of goods could be made only in respect of sales taking place within the boundaries of the Province; and Section 100(3) provided that a law could be passed by a Provincial legislature for purposes of the province Itself. Therefore, it is beyond dispute that a Provincial Legislature could not pass a taxation statute which would be binding on any other part of India, outside the limits of the province.
But as was pointed in it would be quite competent to enact a legislation imposing taxes on transactions concluded outside the Province, provided that there was a sufficient and real territorial nexus between such transactions and the taxing province. This principle, which is based upon the decision of the Judicial Committee in Wallace Brothers and Co. Ltd. v. Commissioner of Income Tax, Bombay has been held by the Supreme Court to be applicable to Sales tax legislation and its - propriety is now beyond question. At page 193 (of STC): (at p. 276 of AIR). Mr. Justice Mukherjee, who delivered the opinion of the Court in the Poppat Lal Shah's case observed :
'As a matter of fact, the legislative practice in regard to sales tax laws adopted by the Provincial Legislatures prior to the coming into force of the Constitution has been to authorise imposition of taxes on sales and purchases which were related in some manner with the taxing province by reason of some of the ingredients of the transaction having taken place within the province or by reason of the production or location of goods within it at the time when the transaction took place. If in the Madras Sales Tax Act the basis adopted for taxation is the location of the place of business or of the goods sold, within the province of Madras, undoubtedly it would be a valid piece of legislation to which no objection on constitutional ground could be taken.'
30. In the above case, the Supreme Court expressed the view that the Provincial Legislature could impose tax on transactions concluded outside the Province provided there was sufficient and real territorial nexus between such transactions and the taxing Province.
31. That the doctrine of nexus is applicable to sales tax legislation was affirmed in the United Motors Case . There the majority as well as Bose, J., were of the opinion that it was sufficient to invest the State Legislature with jurisdiction to impose a tax on the sale or purchase of goods, if any of the essential ingredients of sale had taken place within its territory. They did not accept the transfer of owner-ship in the goods or the passing of property therein as the sole criterion in determining the situs of the sale. The authority of the decision of the Supreme Court in the United Motors Case on this point has not been affected or in any way shaken by the subsequent decision of the Supreme Court in Bengal Immunity Company Case .
32. The decision of the Supreme Court in Tata Iron and Steel Co. Ltd. v. State of Bihar, contains an exhaustive discussion on the doctrine of nexus.
At page 281 (of STC): (at p. 461 of AIR) it was observed as follows:
'....... .it appears to us to be too late is the day to contend that the theory of nexus does not apply to sales tax legislation at all. Indeed an examination of the decisions of this Court will clearly show that the applicability of the theory of nexus to sales tax legislation has been clearly recognised by this Court.'
At page 282 (of STC): (at p. 461 of AIR) their Lordships of the Supreme Court explained the scope of the nexus theory thus :
'The learned Attorney-General submits that the theory of nexus cannot be applied to Sales tax legislation because such legislation is concerned with a tax on the transaction of sale, that is to say, a completed sale and to break up a sale into its component parts and to take one or more of such parts and to apply the theory to it will mean that the State will be entitled to impose a tax on one or more of the ingredients or constituent elements of the transaction of sale which by itself or themselves will not amount to a sale. This argument overlooks the fact that the provisions of the sales tax legislation we are considering 'limit its charging section to 'sale'. In order to attract the charging section there must be a completed sale involving the transfer of property in the goods sold from the seller to the buyer. The nexus theory does not impose the tax. It only indicates the circumstances in which a tax imposed by an Act of the Legislature may be enforced in a particular case and unless eventually there is a concluded sale in the sense of passing of the property in the goods no tax liability attaches under the Act. One or more of the several ingredients constituting a sale only furnished the connection between the taxing State and the 'sale'. The learned Attorney-General also said that one and the same transaction of sale may be taxed by different States by applying the nexus theory and there will be multiple taxation which will obstruct the free flow of inter-State trade. There is no force in this argument for Article 286(2) of the Constitution as it stood originally, was a complete safeguard against such eventuality and after the amendment of that Article and the relevant entries in the Legislative List such contingency will not arise. In our opinion the arguments advanced by the learned Attorney-General on this point cannot be accepted.'
33. It is evident from the above extracts that the theory of nexus is not confined only to preconstitution sales or purchases which their Lordships were considering, but to post-Constitution sales or purchases as well.
34. But then the question is: What is the purpose and intendment of Article 286? On this question again, there is a consensus of opinion that the Article was designed to avoid multiple taxation of sale or purchase by various States having resort to the nexus theory though there was divergence of opinion as regards the real purpose of the Explanation as also the construction of the non-obstante clause and the true concept of consumption as embodied therein. According to the majority view in United Motors Case the Explanation explains what is an outside sale by defining what is an inside sale.
The majority judgment stated that the non-obstante clause was inserted in the Explanation simply with a view to make it clear beyond all possible doubt that it was immaterial where the property in the goods passed as it might otherwise be regarded as indicative of the place of sale. In regard to Article 286(2) all the learned Judges were agreed that transactions of sale or purchase in the course of inter-State trade or commerce were within the restriction and no State could tax such transactions save in the two excepted cases, viz.,
'(1) except in so far as Parliament may by law otherwise provide, and
(2) Provided the President may by order direct that any tax on sale or purchase of goods which was being levied by the Government of any State immediately before the commencement of the Constitution shall continue to be levied until the 31st March, 1951.'
35. In the Bengal Immunity Company Case their Lordships of the Supreme Court, by a majority, held that until Parliament by law made in exercise of the powers vested in it by Clause (2) of Article 286 provided otherwise, no State could impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases took place in the course of inter-State trade or commerce and the majority decision in the United Motors Case in so far as it decided to the contrary, could not be accepted as well-founded on principle or authority. It was therein explained that
'the dominant, if not the sole, purpose of Article 286 is to place restrictions on the legislative powers of the States, subject to certain conditions in some cases and with that end in view Article 286 imposes several bans on the taxing power of the States in relation to sales or purchases viewed from different angles and according to their different aspects.' It was pointed out by Das, Ag. C. J., as follows : 'In some cases the ban is absolute as, for example with regard to outside sales covered by Clause (1)(a) read with the Explanation, or with regard to imports and exports covered by Clause (1) (b) and in some cases it is conditional, e.g., in the cases of inter-State sales or purchases under Clause (2), which is, in terms, made subject to the proviso thereto and also to the power of Parliament to lift the ban. Again in some cases the bans may overlap but nevertheless they are distinct and independent of each other. The operative provisions of the several parts of Article 286 namely, Clause (1)(a), Clause (1)(b) Clause (2) and Clause (3) are manifestly intended to deal with different topics and, therefore, one cannot be projected or read into another. On a careful and anxious consideration of the matter in the light of the fresh arguments advanced and discussions held on the present occasion we are definitely of the opinion that the Explanation in Clause (1)(a) cannot be legitimately extended to Clause (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of Clause (2)'
36. In United Motors Case Mr. Justice Bose, agreed with the majority that the object of the Explanation is to fix the locus of a sale or purchase by means of a fiction but differed with Mr. Justice Bhagwati that the non-obstante clause enunciates the general law on this point. He has pointed out that there is no general law which fixes the situs of a sale, not even the Sale of Goods Act; that what the general law does is to determine the place where the property passes in the absence of a special agreement, but the place where the property passes is not necessarily the place where the sale takes place, nor had that ever been regarded as the determining factor.
37. Das, Ag. C. J., pointed Out in Bengal Immunity Company Case, as follows:
'The situs of an intangible concept like a sale can only be fixed notionally by the application of artificial rules invented either by Judges as part of the Judge made law of the land, or by some legislative authority. But as far as we know, no fixed rule of universal application has yet been definitely and finally evolved for determining this for all purposes.'
38. The following observations of the learned Chief Justice, with reference to the scope of the Explanation, may also be usefully set out:
'Whichever view is taken of the Explanation it should be limited to the purpose the Constitution makers had in view when they incorporated it in Clause (1). It is quite obvious that it created a legal fiction. Legal fictions are created only for some definite purpose,. Here the avowed put-pose of the Explanation is to explain what an outside sale referred to in Sub-clause (a) is. The judicial decisions referred to in the dissenting judgment in State of 'Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory and the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council, 1952 A.C. 109 at p, 132 clearly indicate that a legal fiction is to be limited to the purpose for which it was created and should not be extended beyond that legitimate field.'
39. The following principles emerge from a consideration of the decisions of the Supreme Court:
(1) The power to levy tax on the sale or purchase of goods is not derived from Article 286 but is referable to the legislative power vested in the States under Article 246(3) read with Entry 54, List II, of Schedule VII.
(2) The object of Article 286 is to place restrictions on the legislative powers of the States with respect to the imposition of taxes on the sales or purchases of goods in the course of inter-stale trade or commerce.
(3) The Explanation to Article 286(1) creates a legal fiction and a legal fiction must be limited for the purpose for which it is created and should not be extended beyond that legitimate field.
(4) The non-obstante clause in the Explanation to Article 286(1)(a) is inserted with a view to make it clear that it is immaterial where the property in the goods passes.
(5) There is no general law, which fixes the situs of a sale, not even the Sale of Goods Act.
(6) The theory of territotial nexus has not altogether ceased to operate even after the coming into force of the Constitution and will apply to sales or purchases not covered by Article 286(1) arid the Explanation thereto.
40. Now, we may refer to the two decisions of this Court which have occasioned the reference to the Full Bench. In Srirama Purchase and Sale Society Ltd. v. State of Madras, a Division Bench of this Court, consisting of Bhimasankaram and Sanjeeva Row Naidu, JJ., observed :
'There can be little doubt that under the general law, normally a sale takes place in the State in which the property in the goods passes, that general rule is by the Explanation cut into to the extent specified and no more; but, it does not seem to us that there cannot be an outside sale or purchase with reference to a particular State unless it can be postulated that there is a State in respect of which a particular transaction is an inside sale by reason of the Explanation.'
41. Neither the Sale of Goods Act nor the general law has anything to say about the situs of a sale. The provisions of the Sale of Goods Act commencing with Section 18 and ending with Section 23 relate to the transfer of property in goods between the later and the buyer and they do not fix the locality at which the property in the goods passes. It is no doubt true that the property in the goods must necessarily pass at some place. But the Act merely lays down certain rules for ascertaining the intention of the contracting parties as to when and under what conditions the property in the goods is to pass to the buyer. It is therefore, clear that in the matter of the levy of sales tax, the provisions of the Sales Tax Act, subject to the Constitutional limitations, if any, must determine the situs of a sale.
42. Having regard to the avowed purpose of the Explanation in Article 286(1)(a) sales not hit by the other bans and not falling within the Explanation are to be dealt with according to the law of the State recognising the doctrine of sufficient territorial nexus. Where the assessee fails to establish the exemption for taxation, the case would be governed by the Explanation to Section 2(h) of the Madras Act. This was the view taken by the Division Bench of this Court in Batchu Subba Rao and Co. v. Commercial Tax Officer, and we find ourselves in agreement with this view. It may be pointed out that the Bench which decided did not take note of the Explanation to Section 2(h) and the decision of the Supreme Court in the Tata Iron and Steel Co., case, and we do not think that it lays down the law correctly.
43. There are two recent decisions, one of the Assam High Court in Surma Match and Industries Ltd. v. Commissioner of Taxes, AJR 1960 Assam 28 and the other of the Calcutta High Court in Indian Standard Wagon Ltd. v. Commercial Tax Officer, . The latter decision supports the view which we have taken though the former decision takes a contrary view.
44. Two other matters raised during the course of arguments by the learned counsel for the asses-sees now remain to be considered. It is stated that the burden of establishing that the goods are delivered actually for consumption in the State rests on the State and not on the assessee. We are unable to accede to this contention. The decision of the Full Bench of this Court in Satyanarayanamurthy and Bros, v. State of Madras as well as the decision of the Madras High Court in East India Match Factory v. State of Madras 1954 5 S.T.C. 269 (Mad) have clearly laid down that the asscssees must establish facts entitling them to invoke the aid of the Explanation to Article 286(1)(a) and it is only then that the sale; will be exempt from taxation. This must be so because the facts entitling the assessee to an exemption must be established by him and not by the State.
45. It is also contended that Section 22, introduced in the Madras Act conflicts with the Explanation to Section 2(h). The effect of Section 22 is that the ban which was previously imposed by the Constitution, became incorporated into the definition of sales which were subject to tax. If Article 286(1) which has been bodily incorporated into Section 22 of the Madras Act, is not destructive of the nexus theory with regard to sales or purchases not covered by the Article, we fail to see how Section 22 proprio- vigore affects Section 2(h). Section 22 cannot be read so as to achieve a result which Article 286(1) could not. If so much is conceded, it follows that there could be no conflict between the two Sections. The provisions of Section 22 and Section 2(h) along with the Explanation thereto have to be read together as one harmonious scheme and where the Explanation to Section 22 applies, that provision will govern the situation. Otherwise, the Explanation to Section 2(h) will operate.
46. For all the aforesaid reasons, both the questions formulated for the decision of the Full Bench must be answered in the affirmative.
(The case came for final hearing before Satya-narayana Raju and Kumarayya JJ. The judgment of the Division Bench was delivered on 23-3-1960 by)
47. These 18 Tax Revision Cases arising out of the orders passed by the Appellate Tribunal in the concerned appeals raise in common substantial questions of law involving interpretation of Article 286(1) of the Constitution of India. But for T.R.C. Nos. 3, 4 and 5 of 1957 and 54 of 1958 which are preferred by the assessees, all the other petitions have been made on behalf of the State. All the above cases for purposes of our decision, may be conveniently brought under two broad categories: T.R.C. Nos. 6, 8, 9, 10, 14, 35, 37, 40 to 42, 54 and 84 of 1957 and also 31 of 1958 fall under the first category while the remaining come under the second category.
The main questions common to both the categories on reference by us, have been answered by the Full Bench by its order dated 11-3-1960. A perusal of the order would show that the object of Article 286 of the Constitution of India is to place restrictions on the legislative powers of the State with respect to the imposition of tax on the sales or purchases of goods in the course of inter-state trade or commerce, that the explanation to Article 286(1) creates a legal fiction which in reason has its appointed province and cannot therefore be stretched beyond the clear language of the provision, that the theory of territorial nexus is still available and that the sales not hit by the bans in Article 286 or explanation to Article 286(1)(a) can be dealt with according to the law of the State recognising or embodying the doctrine of sufficient territorial nexus.
It is further clear that the onus is always on the assessee who claims exemption invoking Article 286(1)(a). Unless it is established that the goods are delivered as a direct result of sale or purchase for purpose of consumption in that State, the assessee cannot possibly avail of the exemption in the provision. These matters being now concluded, we have to determine the other points of law raised in these cases. It will be necessary to make a brief Statement of facts which raise these points.
48. It may be stated at the very outset that in none of these cases the contract of sale has been reduced to writing. But the material facts, however, are not in dispute. In T.R.Cs. 6, 8 and 9 of 1957, the sellers are the rice millers and the purchasers are said to be the local purchasing agents. The contract was entered into and the bills were prepared by and in the names of the local agents. Later on, according to the instructions given by these buyers, the sailers booked the goods to places outside the State, in certain cases showing themselves both as consignor and consignee and in some others merely as consignee, the consignor being, shown as either the buyers or the third parties.
Railway receipts were obtained and were taken to the buyers, the endorsement was made in their, favour and full amount specified in the invoices was received. The facts in T.R.Cs. 10, 14, 35, 37, 40 to 42, 54 and 84 of 1957 and 31 of 1958 are exactly the same. In all these cases, the assessment period, is 1954-55 which period is covered by the Sales Tax Laws Validation Act, 1956 (Central Act VII of 1956). The facts of the second category of cases to which we will advert presently, are somewhat different in that there is paucity of evidence with regard to the manner in which the endorsement on the R. Rs. was effected and also the payment of consideration and the way in which it was made.
49. Before we refer to these, we propose to deal with the first category of cases. The Appellate Tribunal took the view that the property in the goods did not pass in the State before entrustment of the property to the railway, that the ownership and dominion over the goods remained vested with the sellers during the course of transport of the goods outside the State till their actual delivery, that as soon as the goods were loaded in the wagons, they entered the stream of inter-state trade or commerce and that consequently the sales being inter-State sales they are exempt from taxation.
50. The argument on behalf of the State is two-fold. It is submitted that the sales in question are neither outside sales within the explanation to Article 286(1)(a) nor are they sales in the course of inter-State trade or commerce within the meaning of Article 286(2) of the Constitution of India but they are all inside sales, inasmuch as the property in the goods passed, possession of the goods delivered and the payment of consideration made in the State itself. It is not a sale in the course of inter-state trade either as there was no privity of contract between the seller and any of the outside dealers and the goods did not move across the border as a direct result of such sale. It is further submitted that in any event, the Sales Tax Laws Validation Act, 1956, validated the levy and collection of sales tax.
51. We feel there is much force in this argument. The material facts which are not in dispute place the matter beyond doubt that all the component parts of sale were completed within the State. The contract was made in the State and that with the buyers residing in the State in' whose name the bills were prepared and who in fact paid the price. The possession of the goods was delivered to them in the manner required by them and that inside the State.
No doubt under the instructions of the buyers the goods were booked to some outstations by the sellers, but the sellers and not the buyers were the consignees and the railway receipts obtained were forthwith endorsed in favour of the buyers against payment of full invoice price of the consignment. As a result of such delivery, there remained nothing further to be done by the seller in furtherance of the contract. Nor was the seller thereafter left with any right or domain over the goods that he sold.
All his rights in the property became extinct because they passed on irrevocably to the buyers and this certainly took place within the State itself. It is no doubt true that the transaction could as well have been completed by physical delivery of goods before they are booked thus allowing no scope for controversy. Whatever the intentions of the parties, in resorting to such an involved mode of delivery, it is plain that the buyer chose to take possession of the property within the state is that manner and the seller sought to accommodate him for some reason or other taking care at the same time that by so doing he was not selling the goods to any outsider nor delivering possession outside the State.
The consignment was not directed to the buyer or his principal and the consignee being the vendor there was no occasion of reservation of right of disposal. The consignment besides was not made to appear that it was being made in pursuance of sale, for the buyer did not figure as consignee. The endorsement, however, made it clear that the delivery thus sought to be given was because of sale. But this endorsement was unqualified and in lieu of full payment of price. Thus there remained no longer any question of vendor's lien or his right of stoppage in transit.
Not only that property in the goods passed to the vendee but also the goods were placed within his reach inside the State itself to enable him to appropriate the same at will without let or hindrance. The object sought to be achieved by resorting to such a complex process was to put the buyer exactly in the same position as he would have he en if the goods were physically delivered to him before entrustment to the railway. The goods had been placed in fact under his control.
It would appear from the provisions of Section 51 of the Sale of Goods Act that the goods shall be deemed to be in the course of transit from the time they are delivered to the carrier for purposes of transmission to the buyer until the buyer or his agent takes delivery of the same and that the course of transit need not endure till the appointed destination, for it may be brought to an end if the buyer obtains delivery of the goods. The buyer need not wait till the goods reach the appointed destination. He can obtain delivery at any point and with it the transit is at an end. The course followed by the parties therefore in its ultimate analysis admits of the only conclusion that possession was delivered to the vendee beyond power of recall by the vendor in this State. Therefore, it is not correct to state that it is not an inside sale.
It is argued that delivery of the goods to the common carrier does not amount to physical or actual delivery of goods to the buyer. But this argument fails to take into account the fact that immediately thereafter the receipt has been endorsed for full consideration in favour of the buyer with the result that the buyer came to have all the rights and interest of the consignor in the goods and as already observed, he can, without let or hindrance, actually take possession from the carrier at any time during the transit. He has now a complete domain and right over the property, so that it is difficult to believe that the possession in any manner still rests With fee consignor. Section 39(1) of the Sale of Goods Act relied upon reads thus :
'Where in pursuance of a contract of sale, the seller is authorised or required to send the goods- to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for sale custody, is prima facie deemed to be a delivery of the goods to the buyer.
(2) and (3) xx xx xx' But this fiction has been created for the purpose of Section 39(2) to fix on whom the loss is to fall in case the goods are damaged in course of transit. As observed by Venkatarama Aiyar, J. in this fiction certainly has to be ignored where no such question arises and the matter shall have to be decided on the factual basis where the goods were actually delivered. The other section relied on in this behalf to which reference has been already given is Section 51(1) which reads thus: 'Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.'
52. Here in this section delivery to the carrier and taking delivery from the carrier represent two different capacities of the carrier. As a result of first mentioned delivery which is for purposes of transmission, the carrier is an agent of the buyer but while actually delivering to the buyer he is the agent of the seller and not of purchaser. This distinction became necessary because the vendor has a right if unpaid and if the vendee has become insolvent, to retake the goods before they are actually delivered to the vendee or some one who is named as his agent, and on that ground it is only the actual delivery to the vendee or his agent that puts an end to the course of transit.
But, if all the rights of the sellers have been merged in the buyer with the result that the seller has no longer any right either of lien or stoppage in transit or reclamation of the property, this distinction between constructive and actual delivery comes to an end. That is how it has happened here in these cases. As soon as the consignor endorsed the railway receipt which is a document of title and received the full amount due he was left with no right in or domain over the goods sold and then buyer stepped in his shoes. This happened within the State itself.
It was open to the buyer under the very provisions of the Section 51 to take delivery at any point of time even without waiting for the appointed destination. We are also referred to two cases Capco Ltd. v. Sales Tax Officer, and AIR 1960 GAU28. But both these cases are not on point raised by the circumstances of the present case. The facts of those cases are entirely different. Unlike the present cases, the sales in these cases were made to the buyers outside the State and the goods were despatched in the name of the buyers to the outstations.
In the Allahabad case the transaction were on F.O.R. basis and the vendor being unpaid had right of stoppage till the transit came to an end outside the State. Besides sales contemplated were sales of goods for consumption outside the State. Thus the cases fell directly within the ambit of explanation to Article 286(1)(a). On the circumstances of the cases before us it is difficult to hold that the sales took place outside the State or that the goods were actually delivered by the vendors outside the State as a direct result of sale for consumption.
It is manifest that not only the sales were intended to be inside sales but also as a matter of fact all the essentials of sale were completed within the State. The property in the goods passed in this State and also possession was delivered unreservedly inside the State. Article 286(1)(a) has therefore no application. The argument that the sales in question are hit by Article 286(2) too is equally untenable in that the transactions not only have been completed inside the State but also do not contain inter-State elements whatsoever.
That apart, even if they did, the period of assessment being 1954-55, the matter would have been covered by the Sales Tax Laws Validation Act of 1956 and the validity of levy and collection of tax would not have been open to question. That such is the position in law may be gathered from the dictum of the Supreme Court in Sundaramier and Co. v. State of Andhra Pradesh, . The orders made by the Appellate Tribunal therefore cannot stand. The Revisions are allowed, with costs and the orders of the Tribunal to that extent are set aside and the tax that has been disallowed by the Tribunal shall be paid by the asses-see. Advocates' fee in T. R. C. Nos. 8, 9, 14, 35, 37, 54 of 1957 and 31 of 1958 is fixed at Rs. 200/- each and in T. R. C. Nos. 6 of 1957 at Rs. 150/- and in the remaining T. R. Cs. at Rs. 100/-.
53. Now as to the other batch of cases viz. T. R. Cs. 3, 4 and 5 of 1957 and 54 and 56 of 1958, T. R. Cs. 3 to 5 of 1957 refer to the purchase of jaggery from Anakapalli which was transported by Railway or ship to places outside the State in pursuance of orders placed with the seller by the non-resident dealers. In some cases the R. Rs. or bills of lading were negotiated through banks while in other cases the R. Rs. were sent direct to the customers without the intercession of banks or bankers depending on the good relations between the asses-see and the non-resident dealer.
In regard to the second category which is subject matter of revisions, the purchase price according to the assessee is said to have been paid by the non-resident dealer after he took delivery of the goods. The assessee thus claimed exemption under Article 286(1)(a). But the Appellate Tribunal in the absence of evidence was not prepared to make any assumption as to the place where in fact the receipts were handed over or the price was collected or whe-ther or not there was any dealing with the railway receipt by way of transfer.
The claim was rejected on the ground of paucity of evidence to bring the case within the ambit of Article 286(1)(a). The assessee did not let in any evidence on account of misapprehension as to onus and eventually they sought to rely on certain inferences to be drawn from the conduct of the parties and requested the Tribunal to decide the case on such inferences. The tribunal was not prepared to entertain such a plea in the absence of the requisite evidence and of course the Tribunal was light therein. It is plain that the benefit of an exemption can be given only on proof of those facts which bring the case under such exemption. But as the assessees were under a misapprehension as to the onus under Article 286(1)(a) of the Constitution and hence failed to adduce evidence, we think a fresh opportunity must be given to them.
That must be done not only in T. R. C. 3 to 5 of 1957 but also in T. R. C. 54 of 1958 for the same reason. The facts of T. R. C. 56 of 1958 are similar to those in the first batch of cases viz., T. H. Cs. 8 and 9 of 1957 etc., but it is said that with regard to the sales effected subsequent to 6-9-1959 the period not covered by the Sales Tax Laws Validation Act there is paucity of evidence as in the second batch of cases and the assessee therefore, is entitled to a fresh opportunity to adduce evidence for bringing his case within the exemption. We, therefore, set aside the orders of the Tribunal and remand these petitions to the Appellate Tribunal with a direction that an opportunity be given to the petitioners to adduce evidence as to whether the sales sought to be charged fall within the explanation to Article 286(1)(a). The tribunal may itself take evidence or call for a finding from the Assessing authorities. There will be no order as to costs. Court-fee may be refunded.
(This case having been set down to 15-6-1960 for being mentioned on the office note, the Court made the following order. The order of the Court was made by)
Satyanarayana Raju, J.
54. This matter has been posted before us for 'being mentioned' on an objection raised by the office with regard to the direction for refund of Court-fee paid in these revision cases.
55. Admittedly, Section 64 of the Andhra Court-Fee and Suits Valuation Act cannot govern tax revision cases; and there is no specific provision in the Sales Tax Act for refund of Court-Fees in revision cases while such a power' is specifically conferred by a rule made under Sales Tax Act with regard to appeals disposed of by the Tribunal.
56. It is, however, submitted that this Court could do so by reason of the power conferred under Sub-section 4(a) of Section 12-B which reads as follows:--
'or pass such other order in relation to the matter as the High Court thinks fit.'
57. This provision does not enable the High Court to make an order for refund of Court-fee which can by no means be said to form the subject matter of the revision.
58. It is then argued that the High Court could do so under its inherent powers. In a te-cent decision in Chandaji Khubaji and Co. v. State of Andhra 1956 A LT 598: AIR 1957 A P 255 a Division Bench of this Court held that the inherent power to make an order for refund of court-fee must be confined to the cases authorised by precedent and could not arbitrarily bo extended. That was also a Tax Revision Case.
59. In Chidambaram Chettiar, In re 67 M LJ 321: AIR 1934 Mad 566 a Division Bench of the Madras High Court pointed out that a court could order a refund of Court-fees in the following cases:--
'1. Where the Court-Fees Act applies;
2. Where there is an excess payment by a this take; and
3. Where on account of a mistake of a Court, a party has been compelled to pay the Court-fees either wholly or in part.'
and that outside these cases, the Court had no authority to direct a refund.
60. We are therefore, constrained to hold that the direction given by us on the former occasion for the refund of Court-fees in these cases should be vacated, and it is therefore ordered accordingly.