Subba Rao, C.J.
(1) I agree.
Viswanatha Sastri, J.
(2) The petitioners in these revision petitions are merchants carrying on business, mainly in cocoanuts, in several places in the East Godavari and Krishna Districts, which during the relevant period fromed part of the State of Madras. They sold cocoanuts to merchants mostly in Madhya Pradesh and also in a few other places outside the State of Madras. The goods were delivered outside the State to the several buyers.
The petitioners, were assessed to tax under the Madras General Sales Tax Act for assessment years 1949-50 and 1950-51 on sales of the nature described above. The assessee, petitioners in these revision petitiioners, objected to the levy of tax on sales effected by them after 26-1-1950 and before 31-3-1951, on the ground that such levy is illegal, as a result of Art. 286(1) of the Constitution which came into force on 26-1-1950.
(3) The revision petitions first came on for hearing before Chandra Reddy and Unamaheswaram JJ., who could not reach an agreed decision. Chandra Reddy J., was of the opinion that the assessments objected to, were valid under the proviso to Cl. (2) of Art. 286 and the Order of the President made thereunder. Umamaheswaram J., was inclined to the view that cl. (1) of Art. 286 and the explanation to that clause would govern the cases and that the assessments would be illegal in the facts were such as to warrant the application of the Explanation.
Chandra Reddy J. was for dismissing the revision petitions, but directed the cases to be placed before the Chief Justice for being posted before a third Judge on the ffoting that there was a difference of opinion between him and Umamaheswaram J. Under S. 12-B, Madras General Sales Tax Act, 1939, read with S. 98, Civil P. C. and Cl. 36 of the Letters Patent, it is only if there is a difference in opinion between the twoJudges of a Division Bench, the point on which there is a difference between them should be referred to a third Judge.
Umamaheswaram J., though inclined to a contrary opinion, did not in terms dissent from the view of Chandra Reddy J., but suggested the reference of the cases to a Full Bech. In -- 'East India Match Factory v. State of Madras', 1954-2 Mad LJ 585 (A) a Division Bench of the Madras High Court, which had to construe Art. 286 of the Constitution, was of the opinion that cl. (2) of Art. 286 applied to cases like the present.
In -- 'Subbarayudu v. The State', (S) : AIR1955AP87 (B) a Full Bench of this Court laid down that decision of the Madras High Court given prior to the establishment of this Court, should be followed by this Court in the same manner in which the Madras High Court followed its own decisions and that if a Division Bench of this Court doubted the correctness in law of a decision rendered before 5-7-1954 the proper course was to refer the matter for the decision of a Full Bench.
Chandra Reddy J., followed the decision of the Madras High Court above referred to, while Umamaheswaram J., doubted its correctness and decided that the revision petitions should in accordance with the rule of practice laid down by the decision of the Full Bench of this court, be heard by a Full Bench. These cases were then directed to be posted before us.
(4) In the course, of his Judgment, Umamaheswaram J., felt bound to enter a caveat against the opinion of the Full Bench in '(S) : AIR1955AP87 (B)'. With due respect to the learned Judge, the working rules formulated by the Full Bench. serve to minimise the uncertainty and confusion arising from conflicts of judicial opinion, and the resulting disturbance of settled titles and transactions and at the same time, afford reasonable scope for the progressive and orderly development of Judg-made Law.
(5) Section 3 of the Madras General Sales-tax Act, 1939, imposes a tax on the total turnover of every dealer for each year, subject to certain exemptions not now material. Explanation 2 to S. 2 of the Act which defined the term 'sale runs as follows:
'Notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930, the sale or purcahse of any goods shall be deemd, for the purposes of this Act, to have taken place in this State, wherever the contract of sale or purchase might have been made (a) if the goods were actually in this State, at the time when the contract or sale or purchase in respect thereof was made or (b) in case the contract was for the sale or purcahse of future goods by description, them, if the goods are actually produced in this State at any time after the contract of sale or purcahse in respect thereof was made'.
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 for example when the contract of sale was made in one State, the transfer of ownership in the goods took place in another, the payment of the price in a third State and th delivery of the goods in yet another State.
In such cases, there was a real danger of difference states claiming to tax the same transaction on the basis of a sufficient territorial connection between the State and what it sought to tax. The Constitution enated provisions designed to keep the taxing power of the States within bounds and to preserve freedom of trade & commerce with foreign countries as well asbetween the State of the Union. Art. 286 of the Constitution, so far as it is now material, runs as follows:
'Article 286 (1). No Law of a State, shall impose, or authorise the imposition of a tax on the sale or purcahse of goods where such sale or purcahse has taken 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 purpose of sub-cl. (a), a sale or purcahse 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 purcahse for the purpose of consumtpion in that State, notwithstanding thefact that under the general law relating to sale of goods the property in the goods has, by reason of such sale or purcahse passed in another State.
(2) Except in so far as Paliament 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 purcahse 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 purcahse 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 such tax is contrary to the provisions of this clause, continue to be levied until the thirty first dayof March 1951'.
It is the interpretation of this Article that is now in controversy between the parties.
(6) After the Constitution came into force the Madras General Sales-tax Act was adopted under the Adaptation of Laws Order, IVth Amendment, 1952, and S. 22 was added and given retrospective effect from 26-1-1950 on which date the Constituion came into force. S. 22 really adapted the language of Art. 286 (1) and (2) and also incorporated an Explanation in the same terms as the Explanation to Art. 286(1)(a) of the Constitution.
(7) The contention of the assessees is that though the sales sought to be charged to tax took place in the course of inter-State trade or commerce,being sales of goods by merchants in Madras to traders in Madhya Pradesh, still under Art. 286(1)(a) read with the Explanation such sales are taken out of Cl. (2) and its proviso and treated as if they were sales may only in Madhya Pradesh where the goods were actually delivered for consumption in that State.
Consequently such sales are liable to tax by the State of Madhyapradesh in the same manner as local sales effected within that State. The levy of tax on sales of the above nature transgresses the prohibition in Cl. (1) of Art. 286 and is therefore illegal. Reliance was placed in support of this contention on a recent decision of the Supreme Court to which reference will presently be made. The opposite point of view may be stated thus: Art. 286(1)(a) deals only with sales or purcahse of goods taking place outside the State and debars a State from taxing such outside sales.
The Explanation is statedly in Explanation only to cl. (1) (a) and merely fixes the place where such outisde sales have to be taxed. In view of the provision in Cl. (1) (a) that outside sales shall not be taxable by a State, the Explanation appended to that sub-caluse has to be cosntrued as fixing the locus of an outisde sale by providing that though under the general law a sale might be regarded as having taken place in an outside State, say A. still if the goods are actually delivered as a result of such sale in an outside State say B, for consumption in that State, the sale should be regarded as one outside State A.
Clause (1) of Art. 286 does not deal with sales or purcahses in the course of inter-State trade or commerce for which special provision is made by Cl. (2) of Art. 286. It is not legitimate to construe the Explanation to Cl. (10 (a) as an exception to Cl. (2) so as to effect an abrogation 'protanto of the immunity from tax conferred on sales or purcahses in the course of inter-State trade or commerce by Cl. (2).
The only exception to Cl. (2) is found in the proviso to that clause. We are here concerned with sales effected in the course of inter-State trade or commerce falling within Cl. (2) and as a result of the proviso to Cl. (2) and the President's order thereunder, tax was properly levied on the sales now in question under the Madas General Sales-tax Act.
(8) Whatever might be our view, if the matter were 'res integra, we are bound by the decision of this Supreme Court in -- 'State of Bombay v. United Motors (India Ltd.', : 4SCR1069 (C). The Judgment of the majority of the Court was delivered by Patanjali Sastri C. J., and the conclusions reached by him after an elaborate disucssion of the topic may be summarised as follows:
(1) Clause (1) (a) of Art. 286 read with the Explanation enacts a prohibition of taxation of sales or purcahses involving inter-State elements by all States except the State in which the goods are actually delivered as a direct result of such sales or purcahses, for consumption in that State.
(2) Article 286(2) banning the imposition of tax by a State on sales or purcahses taking place in the course of inter-State trade or commerce applies only to cases not covered by the Explanation, such as inter-State sales or purcahses where goods are imported into the State, not for consumption therein, but for re-export to other States.
(3) Article 286(2) does not affect the power of a State where goods are actually delivered as a direct result of sales or purcahses, for consumption in that State to tax inter-state sales or purchases.
(9) The following passage from the Judgment would bear out the substantial accuracy of the summary we have attempted to make.
'Thus allbuyers within the State of delivery from out-ofState sellers, except those buying for re-export out of the State, would be within the scope of the Explanation and liable to be taxed by the State on their inter-State transactions. It should be remembered here that the Explanation deals only with inter-State sales or purcahses and not with purely local or domestic transactions. That these are subject to the taxing power of the State has never been questioned'.
'We are therefore, of opinion that Art. 286(1)(a) read with the Explanation prohibits taxation of sales or purcahses involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein in the wider sense explained above. The latter State is left free to tax such sales or purchases'.
'The sale by a trader in one State to a user in another would be a sale 'in the course of interState trade' according to the natural meaning of those words, and we can see no reason for importing the restriction that the transaction should be one between two traders only. This is, hwoever, not to say that the ban under Cl. (2) extends to the taxing power which the delivery State is left free, under the Explanation to exercise.
We are of opinion that the operation of Cl. (2) stands excluded as a result of the legal fiction enacted in the Explanation, and the State in which the goods are actually delivered for consumption can impose tax on inter-State sales or purcahses. The effect of the Explanation in regard to inter-State dealings is, in our view, to invest what in truth, is an inter-State transaction with an intra-State character in relation to the State of delivery, and cl. (2) can therefore, have no application.
It is true that the legal fiction is to operate 'for the purposes of sub-cl. (a) of cl. (1)', but that means merely that the Explanation is designed to explain the meaning of the expression 'outside the State' in Cl. (1) (a). When once, however, it is determined with the aid of the fiction test that a particular sale or purcahser has taken place within the Taxing State, it follows 'as a corollary' that the transaction loses its inter-State character and falls outside the purview of cl. (2), not because the definition in the Explanation is used for the purpose of Cl. (2) but because such sale or purcahse becomes in the eye of the law a purely local transaction.'
(10) It was sought to be argued by the learned Government Pleder that the case before the supreme Court did not call for the application of the proviso to Art. 286(2) and that if the Supreme Court had to interpret Art. 286 in the light of the proviso, it is possible that a different conclusion might have been reached. The entire Art. 286 was before the Supreme Court and was even quoted in extenso in its judgment. We see no force in the contention of the Government Pleader.
(11) It is next argued that the decision of the Supreme Court in -- 'State of Travenacore-Cochin v. Shunmugha Vilas Cashew Nut Factory', : 1SCR53 (D), put a different interpretation on Art. 286(2) of the Constitution from that adopted in the earlier case. The assessees in this case were dealers in cashew-nuts in the State of Tranvancore-Cochin. they imported cashew-nuts from the neightbouring districts of Madras State for export to foreign countries and claimed exemtpion from sales tax, but the assessing authorities rejected their claim.
The matter was taken to the Supreme Court and the arguments before that Court turned mainly on the scope of the ban imposed by Art. 286(1)(b) of the Constitution, a question with which we are not now concerned. As regards the taxability of the purcahses of cashewnuts made by the assessees in the State of Madras, Patanjali Sastri C. J., speaking again for the majority of the Supreme Court observed:
'Therespondents' contention was that the purchases were effected and the delivers taken by their own paid servants outside the State of Travancore-Cochin, and it was thus a case of a person buying goods and taking delivery thereof outside the State and bringing them across the border after the transaction was completed in all respects outside the State.
On the other hand, the contention on behalf of the State was that though the purcahses were made outside the State in the neighbouring districts of Madras, deliveries were effected through the oirdinary commercial channels by employing commission agents who made the purcahses and arranged for the deliveries at the respondents' depots at Trichur and Quilon.
All that can be said here is that, if the transactions took place in the manner alleged by the respondents in these two appeals, they would be exempt under Cl. (1) (a). This indeed was not disputed by the Advocate-General of the Appellate State. On the other hand if, as cliamed by the Advocate-General, the purcahser were effected by the employment of firms doing business as commission agents outside the State, and the deliveries were made through normal commercial channels, the transaction would plartake of an inter-State character and fall under Cl. (2).
In that case, it would be unnecessary to enquire further whether they would be covered by the Explanation to Cl. (1) (a), as they would clearly be taxable under the President's order g. O. No. 7 of 1950 to which reference has been made already, as it was admitted that sales-tax was validly levied on such purchases before the commencement of the Constitution. As the taxability of such purcahses on either view of the facts was not disputed, no arguments were addressed to us on the scope of Cl. (2) and the Explanation to clause (1) (a)'.
The The penultimate sentence in the above quotation appears to have some support to the contention of the Government Pleader. In the earlier decision of the Supreme Court in ' : 4SCR1069 (C), Patanajli Sastri C. J., had laid down quote clearly and unambigusouly tht the Explanation to Act. 286 (1) (a) dealt with what really were inter-State sales and purchases and invested them with an intra-state character if the conditions specified in theExplanation were satisfied. It is difficult, therefore, to regard the observations of the learned Chief Justice in the Traveancore case as having overruled the earlier and explicit pronouncement in the Bombay case, particularly when the question was not argued on thelater occasion.
(12) In 'Himmatlal Harilal v. State of Madhya Pradesh, : 1SCR1122 (E), Mahajan C. J., in delivering the Judgment of the Supreme Court to the effect that Explanation II to S. 2 (g) of the Central Provinces and Berar Sales-tax Act was ultra vires the State Legislature, observed as follows:
'As pointed out above, the High Court held that the new Explanation II was ultra vires the State Legislature and that the mere production of goods was not enought tomake the tax payable unless the goods were appropriated to a particular contract. The correctness of this view can no longer be questioned by reason of the majority decision of this Court in : 4SCR1069 (C), wherein it was held that Art. 286(1)(a) of the Constitution read with the Explanation thereto and construed in the light of Art. 301 and Art. 304 prohibits the taxation of sales or purcahses involving inter-state elements, by all States except the State in which the goods are delivered for the purpose of consumption therein and that the view that the Explanation does not deprive the State in which the property in the goods passed of its taxing power and that consequently both the State in which the property in the goods passes and the State in which the goods are delivered for consumption have the power to tax, is not correct'.
The learned Chief Justice evidently regarded the earlier decision of the majority of the Supreme Court in : 4SCR1069 (C)', as an authority which remained in full force even after the Travancore case.
(13) In a recent case 1954-5 STC 269 (A)', the Madras High Court was of the opinion that the judgment of the Supreme Court in the Travancore case limited the scope of the observations of that Court in the earlier case of : 4SCR1069 (C)'. In the Madras case, the assessees were manufactures and dealers in matches in the State of Madras.
Theysold matches to buyers outside the State and despatched the goods from Madras. They were assessed to tax on such sales for the period 1950-51. They claim exemption from sales-tax on the ground that the sales came within the purview of the Explanationto Art. 286(1)(a) of the Constitution.
(14) No evidence had been placed before the Appellate Tribunal that the goods sold were actually delivered in an outside State for consumption in that State. The Tribunal held and the High Court agreed that there was not enough evidence to attract the operation of the Explanation to Art. 286(1) of the Constitution.
(15) A request was made on behalf of the assessees to the High Court to remit the cases for further enquiry on the points relevant to the applicability of the Explanation of Cl. (1) (a) of Art. 286. The High Court was of the opinion that such an enquiry would be unnecessary in view of the decision of the Supreme Court in the Travancore case, which according to the High Court, makred a departure from the ealrier decision of the Supreme Court in : 4SCR1069 (C)'.
The High Court held that in view of the clear pronouncement of the Supreme Court in the Travancore case', the sales in question should be regarded as having taken place in the course of inter-State trade and were therefore governed by Art. 286(2) of the Constitution unaffected by the Explanation to Art. 286(1)(a). In this view the Proviso to Cl. (2) of Art. 286 and the orderof the President thereunder were held to justify the levy of sales-tax on the assessees.
With due respect to the learned Judges of the Madras High Court, we are unable to construe the decision in the Travancore case as an authority for the position that inter-State sales and purcahses dealt with in Cl. (2) of Art. 286 remain unaffected by the Explanation to Art. 286(1)(a). Any other interpretationof the Travancore case would mean that in the Travancore case the Supreme Court overruled its previous decision in ' : 4SCR1069 (C)', without even hinting that it was doing so.
The judgments of the majority in both the cases were delivered by the learned Chief Justice and if we are to uphold the contention that the Travancore case upset the view of the Supreme Court in the earlier Bombay case, we should have a clear pronouncement to that effect from the Supreme reme Court in the later case.
Having given full consideratioins to the arguments of the Government Pleader, we are of the opinion that the authority of the decision in ' : 4SCR1069 (C)', remains unshaken by the Travancore case and that we must follow the decision in the former case wherever the facts call for its application.
(16) If the assessees in these revision petitions are able to prove facts entitling them to invoke the aid of the Explanation to Art. 286(1)(a) the sales would be exempt from taxation. In the absence of such proof, the sales would fall within Art. 286(2) of the Constitution and would be liable to Sales-tax under the proviso to Art. 286(2) and the order of the President made thereunder.
It is not disputed that the turnover in these cases was liable to Sales-tax Act before 26-1-1950. The president's Order under the proviso to Art. 286(2) of the Constitution would save the right of the Madras State to tax such sales up to 31-3-1951 if the Explanation to Art. 286(1)(a) is foiund, on the facts to be inapplicable to the sales in question.
In order to give an opportunity to the petitioners to adduce evidence as to whether the sales sought to e charged to tax fall within the Explanation to Art. 286(1)(a), we remit the petitioin to the Appellate Tribunal with our opinion on the points of law raised before us. There will beno order as to costs.
(17) I agree.
(18) Answered accordingly.