1. This appeal is brought on a certificate against the judgment of theDivision Bench of the High Court of Jammu & Kashmir at Srinagar, dated July10, 1962 holding that the respondent is not liable to pay sales tax for theperiod from January, 1955 to May, 1959 under the Jammu & Kashmir MotorSpirit (Taxation of Sales) Act, 2005 (1948 A. D.).
2. The Director-General of Supplies, Delhi entered into a contract withGeneral Manager, Caltex India (Ltd.) at Bombay (hereinafter called therespondent) for the supply of petrol, HSD and Power Kero to the StateMechanized Farm at Nandpur located in the State of Jammu & Kashmir. Inpursuance of this contract the respondent directed its depot at Pathankotsituated in the Punjab State to supply petrol to the Nandpur Farm.
3. The procedure adopted was as follows. The Officer in charge of theNandpur farm placed indents with the Pathankot depot for supply of specifiedquantities of petrol to the farm and on receipt of the indents, the Pathankotdepot transported the petrol in its own tank-lorries to Nandpur and deliveredto petrol to the farm. The petrol was measured by means of dipping rods andapproved by the indenting officer at Nandpur farm and thereafter the petrol wasdelivered to the Nandpur farm through pumps which belonged to the respondent.The price of petrol so supplied was paid to the respondent at Delhi by theDirector-General of Supplies. The Petrol Taxation Officer at Srinagarconsidered that the sales of petrol to Nandpur farm were liable to be taxedunder the Jammu & Kashmir Motor Spirit (Taxation of Sales) Act, 2005 andcalled upon the respondent to furnish returns of sales between 1952 to 1959.The respondent, however, furnished returns only for the period January, 1955 toMay, 1959. On the basis of the returns the Petrol Taxation Officer assessed therespondent to pay sales tax to the extent of Rs. 39,619.75 in respect of salesof petrol from January, 1955 to May, 1959. The respondent thereafter moved theHigh Court under s. 103of the Constitution of Jammu and Kashmir for grant of awrit to quash the assessment of sales tax and to restrain the State of Jammuand Kashmir and the Petrol Taxation authorities (hereinafter called theappellants) from levying the tax. It was contended on behalf of the respondentthat the sales tax could not be imposed as the sales took place in the courseof inter-State trade and commerce. Syed Murtaza Fazl Ali, J. held that therespondent was liable to pay sales tax in respect of the sales which took placeduring the period January, 1955 to September, 1955. Regarding the rest of theperiod of assessment, the learned Judge held that the appellants were notentitled to levy tax and accordingly issued a writ restraining the appellantsfrom levying the tax for the period from October, 1955 to May, 1959. Theappellants took the matter in Letters Patent appeal and the respondent alsofiled Cross-objection with regard to the liability to tax for the period fromJanuary, 1955 to September, 1955. The Division Bench dismissed the appeal inLetters Patent and allowed the cross-objection of the respondent, holding thatthe appellants were not entitled to levy sales tax for the entire period fromJanuary, 1955 to May, 1959 and accordingly quashed the assessment of sales tax,dated October 3, 1960.
4. It is necessary, at this stage, to indicate the legislative developmentin the State of Jammu and Kashmir which provides the setting for the questionsto be investigated in this case.
5. Article 286 of the Constitution, as it was originally enacted, read asfollows :
'(1) No law of a State shallimpose, or authorise the imposition of, a tax on the sale or purchase of goodswhere such sale or purchase takes place -
(a) outside the State; or
(b) in the course of the importof the goods into, or export of the goods out of, the territory of India.
Explanation. - For the purpose ofsub-clause (a), a sale or purchase shall be deemed to have taken place in theState in which the goods have actually been delivered as a direct result ofsuch sale or purchase for the purpose of consumption in that State,notwithstanding the fact that under the general law relating to sale of goodsthe property in the goods has by reason of such sale or purchase passed inanother State.
(2) Except in so far asParliament may by law otherwise provide, no law of a State shall impose, orauthorise the imposition of, a tax on the sale or purchase of any goods wheresuch sale or purchase takes place in the course of inter-State trade orcommerce :
Provided that the President maybe order direct that any tax on the sale or purchase of goods which was beinglawfully levied by the Government of any State immediately before thecommencement of this Constitution shall, notwithstanding that the imposition ofsuch tax is contrary to the provisions of this clause, continue to be levieduntil the thirty-first day of March, 1951.
(3) No law made by theLegislature of a State imposing, or authorising the imposition of, a tax on thesale or purchase of any such goods as have been declared by Parliament by lawto be essential for the life of the community shall have effect unless it hasbeen reserved for the consideration of the President and has received hisassent.'
6. Article 286 therefore imposes four bans upon the legislative power of theStates. Clause (1) prohibited every State from imposing or authorising theimposition of, a tax on outside sales and on sales in the course of import intoor export outside the territory of India. By Clause (2) the State was prohibitedfrom imposing tax on the sale of goods where such sale took place in the courseof inter-State trade or commerce. But the ban could be removed by legislationmade by the Parliament. By Clause (3) the Legislature of a State was incompetentto impose or authorise imposition of a tax on the sale of any goods declared bythe Parliament by law to be essential for the life of the community, unless thelegislation was reserved for the consideration of the President and hadreceived his assent. But Art. 286of the Constitution did not apply to theState of Jammu & Kashmir till May 14, 1954, because the Constitution (Applicationto Jammu & Kashmir) Order 1950 made by the President of India on January26, 1950 excepted Art. 286 from its applicability to the State of Jammu &Kashmir.; Reference, in this connection, may be made to the Second Schedule tothe Constitution (Application to Jammu & Kashmir) Order 1950, relevantexcerpt from which is reproduced below :
'THE SECOND SCHEDULE
(See paragraph 3)
Provisions of the Exceptions. Modifications
Part XII Articles & 264 and 265 1. Articles 266
Clause (2) of Art. 267, shall apply only
Articles 268 to 281 in so far as it
Clause (2) of Art. 283, relates to the
Articles 286 to 291, 293, Consolidated Fund of
295, 296 and 297. India and the public
account of India.
2. Articles 282 and 284
shall apply only in
so far as they
relate to the Union
or the public
account of India.
3. Articles 298, 299 and
300 shall apply only
in so far as they
relate to the Union
or the Govt. of
7. But Art. 286 was applied to the State of Jammu & Kashmir by theConstitution (Application to Jammu & Kashmir) Order, 1954 which came intoforce on 14th day of May, 1954. In The Bengal Immunity Company Ltd. v. State of Bihar : 2SCR603 this Court held that the operative provisions ofthe several parts of Art. 286, namely Clause (1) (a), Clause (1)(b), Clause (2) and Clause(3), were intended to deal with different topics and one cannot be projected orread into another, and therefore the Explanation in Clause (1)(a) cannotlegitimately be extended to Clause (2) either as an exception or as a provisothereto or read as curtailing or limiting the ambit of Clause (2). This Courtfurther held that until the Parliament by law, made in exercise of the powersvested in it by Clause (2) of Art. 286, provides otherwise no State may impose orauthorise the imposition of any tax on sales or purchases of goods when suchsales or purchases take place in the course of inter-State trade or commerce,and therefore the State Legislature could not charge inter-State sales orpurchases until the Parliament had otherwise provided. The judgment of theCourt in the Bengal Immunity Company's case : 2SCR603 , wasdelivered on September 6, 1955. The President issued the Sales Tax LawsValidation Ordinance, 1956, on January 30, 1956, the provisions of which werelater embodied in the Sales Tax Laws Validation Act, 1956. By this Actnotwithstanding any judgment, decree or order of any Court, no law of a Stateimposing, or authorising the imposition of, a tax on the sale or purchase ofany goods where such sale or purchase took place in the course of inter-Statetrade or commerce during the period between the 1st day of April, 1951 and the6th day of September, 1955, shall be deemed to be invalid merely by reason ofthe fact that such sale or purchase took place in the course of inter-Statetrade or Commerce; and all such taxes levied or collected or purported to havebeen levied or collected during the aforesaid period shall be deemed always tohave been validly levied or collected in accordance with law. The Parliamentthus removed the ban contained in Art. 286(2) of the Constitutionretrospectively but limited only to the period between April 1, 1951 andSeptember 6, 1955. All transactions of sale, even though they were inter-Statecould for that period be lawfully charged to tax. But Art. 286(2) remainedoperative after September 6, 1955 till the Constitution was amended by theConstitution (Sixth Amendment) Act, i.e., September 11, 1956. By the amendment,the explanation to Clause (1) of Art. 286 was deleted and for cls. (2) and (3) thefollowing clauses were substituted :
'(2) Parliament may by lawformulate principles for determining when a sale or purchase of goods takesplace in any of the ways mentioned in clause (1).
(3) Any law of a State shall, inso far as it imposes, or authorises the imposition of, a tax on the sale orpurchase of goods, declared by Parliament by law to be of special importance ininter-State trade or commerce, be subject to such restrictions and conditionsin regard to the system of levy, rates and other incidents of the tax asParliament may by law specify.'
8. By Clause (2) of Art. 286 as amended, Parliament was authorised to formulateprinciples for determining when a sale or purchase of goods take place in anyof the ways mentioned in Clause (1), namely, outside the State or in the course ofthe import into, or export out of the territory of India. By the Constitution(Sixth Amendment) Act, Parliament was entrusted with power under Art. 269(3) toformulate principles for determining when a sale or purchase of goods takesplace in the course of inter-State trade or commerce; and to effectuate theconferment of that power, in the Seventh Schedule, Entry 92A was added in theFirst List and Entry 54 in the Second List was amended. The Parliament enacted,in exercise of that power, the Central sales Tax Act 74 of 1956 to formulateprinciples for determining when a sale or purchase of goods takes place in thecourse of inter-State trade or commerce or outside a State or in the course ofimport into or export from India, and to provide for the levy, collection anddistribution of taxes on sales of goods in the course of inter-State trade orcommerce and to declare certain goods to be of special importance ininter-State trade or commerce etc. Article 286, as amended by the ConstitutionSixth Amendment Act, 1956, was applied to the State of Jammu & Kashmir on16th January 1958 by the Constitution (Application to Jammu & Kashmir)Amendment Order 1958. The Central sales Tax Act (Act 74 of 1956) was enacted byParliament on December 21, 1956 but it was applied to the State of Jammu &Kashmir; on March 23, 1958 by Act 5 of 1958.
9. The questions presented for determination in this appeal are : (1)whether sales tax could be imposed on the respondent for the period fromOctober, 1955 to May, 1959 in view of the prohibition contained in Art. 286(2)of the Constitution as it stood before its amendment, (2) whether sales taxcould be validly levied on sales taking place between January 1, 1955 toSeptember 6, 1955 in view of the provisions of sales Tax Validation Act, 1956(Act 7 of 1956).
10. As regards the first question, it is admitted by the parties that petrolwas transported from Pathankot in the State of Punjab to Nandpur in the Stateof Jammu & Kashmir under the contract of sale. The petrol was kept instorage at a depot of the respondent at Pathankot and it was carried in thetrucks of the respondent from Pathankot and delivered to the Nandpur farm inthe State of Jammu & Kashmir. The price of the petrol supplied was paid tothe respondent at Delhi by the Director-General of Supplies. Upon these factsit is manifest that there was movement of goods from the State of Punjab to theState of Jammu & Kashmir under the contract of sale and there wascompletion of sale by the passing of property and the delivery of the goods tothe purchaser. As pointed out by Venkatarama Ayyar, J. in the Bengal ImmunityCompany case ((1955) 2 S.C.R. 663) :
'A sale could be said to begin the course ofinter-State trade only if two conditions concur : (1) A sale of goods, and (2)a transport of those goods from one State to another under the contract ofsale. Unless both these conditions are satisfied, there can be no sale in thecourse of inter-State trade.'
11. In the present case, both these conditions have been satisfied and thetransactions of sale made between the parties were unquestionably in the courseof inter-State trade. Indeed, the Solicitor-General on behalf of the appellantsdid not seriously challenge the finding of the High Court on his point.
12. We proceed to consider the next question, viz., whether the respondentwas liable to pay sales tax for the period from January 1, 1955 to September 6,1955 in view of the lifting of the finding of the High Court on this point.
13. On behalf of the respondent Mr. Setalvad put forward the argument thatthe sales Tax Validation Act by itself did not empower any State to levy anytax on sales or purchases in the course of inter-State trade but it merelyliberated Sales Tax Acts of several States from the fetter imposed by Clause (2)of Art. 286 of the Constitution and left the State Act to operate in its ownterms. It was submitted that if there was no law in a State empowering the levyof a tax on sales or purchases in the course of inter-State trade or commerce,the State could not derive any advantage from the Sales tax Validation Act. Itwas contended that the Explanation to Art. 286(1)(a) of the Constitution didnot confer any taxing power on any State Legislature. On the contrary, it wasintended to place a limitation on the State taxing power and therefore the merelifting of the ban under Clause (2) of Art. 286 did not enable the State to imposethe tax on sales in the course of inter-State trade and such levy of tax couldbe made only when the taxing statute of the State expressly provides for it. Inour opinion, the argument of Mr. Setalvad is well-founded. The question,therefore, arises whether the Jammu & Kashmir Motor Spirit (Taxation of Sales) Act, 2005 (hereinafter called the Act) applies to the sale of petrolmade by the respondent between January 1, 1955 to September 6, 1955 and whetherthe appellants can validly assess the respondent to sales tax with regard tothese transactions.
14. The preamble of the Act states that it is expedient to provide for thelevy of a tax on the retail sale of motor spirit. Section 2 (g) of the Actdefines 'retail sale' to mean a sale by a retail dealer of any motorspirit to a consumer or to any other person for any purpose other than resale.Section 2(f) defines 'retail dealer' to mean any person who, oncommission or otherwise, sells any motor spirit to a consumer or to any otherperson for any purpose other than re-sale or keeps any motor spirit for sale toconsumers or to any other persons for purposes other than resale. Under s. 2(h)of the Act the words 'sale' and 'sell' include exchangebarter and also the consumption of motor spirit by the retail dealer himself.Section 3 deals with the imposition of tax and reads as follows :
'3. There shall be levied and paid to theGovernment on all retail sales of motor spirit a tax at the rate of four annasfor each imperial gallon of motor spirit or at such other rate as theGovernment may prescribe from time to time.'
15. Section 6 of the Act deals with the licensing of the retail dealers andstates that after the expiry of a period of two months from the commencement ofthe Act no person shall carry on business as a retail dealer unless he is inpossession of a valid licence. Section 7 relates to the procedure for grant oflicence. Section 7(4) states as follows :
'No license under this Act shall be granted to anyperson who does not hold a license for the storage of dangerous petroleum underthe Petroleum Act, 1998, and if any such license granted under that Act iscanceled, suspended or is not renewed any license granted under this Act to theholder thereof shall be deemed to be cancelled, suspended or not renewed, asthe case may be.'
16. It was contended on behalf of the respondent that no tax could be leviedunder the Act unless the assessee has his place of business or storage of motorspirit within the State of Jammu & Kashmir. It was pointed out that no retaildealer was permitted to carry on business as a retail dealer of motor spiritunless he holds a license for storage of petroleum under the State PetroleumAct. It is admitted that the respondent had no storage depot or place ofbusiness within the State of Jammu & Kashmir at the material time. It isalso conceded that the respondent did not hold any licence for storage ofpetrol within the State. Mr. Setalvad therefore contended that the appellantswere not authorised to levy sales-tax under the provisions of the Act. We areunable to accept this contention as correct. The charging section - s. 3 -authorises the Government to levy tax on 'all retail sales of motorspirit' at the rate of four annas for each imperial gallon of motor spiritor at such other rate as the Government may prescribe from time to time. Thecharging section does not require that for the purpose of assessment of tax theassessee should have his place of business or his storage depot within theState of Jammu & Kashmir. Nor is it a requirement of the section that theassessee should hold a licence of a retail dealer under the Act. The provisionsin regard to licence contained in Sections 6 and 7 deal with the machinery ofcollection and it is not permissible, in our opinion, to construe the languageof s. 3 of the Act with reference to Sections 6 and 7 or to place any restriction onthe scope and effect of the charge of tax in the context of these sections. Wemay, in this context, refer to the provisions of s. 10 of the Act which states:
'10. Whoever contravenes the provisions of section6 shall be punishable with fine which may extend to one thousand rupees or to asum double to amount of tax due in respect of the sale of any motor spiritconducted by or on behalf of such person, whichever is greater.'
17. It is evident from the section that a person who trades in petrolwithout taking out a licence under s. 6 of the Act is liable to pay double theamount of tax due from him. In other words, the requirement of s. 6 is only amatter of machinery and does not affect the liability of the person who tradesin petrol to pay tax in accordance with the charging section. It followstherefore that the respondent will be liable to pay sales-tax if it is shownthat it has made retail sales of motor spirit within the meaning of s. 3 of theAct. This takes us to the question whether the transactions of sale betweenJanuary 1, 1955 to September 6, 1955 were 'retail sales of motorspirit' within the meaning of s. 3 of the Act. As observed earlier, theprocedure for supply of petrol was that the officer in-charge of the Nandpurfarm placed indents on the Pathankot depot of the respondent for supplies ofspecified quantities of petrol to the farm. On receipt of the indent thePathankot depot transported the petrol in its own tank-lorries to Nandpurwithin the State of Jammu and Kashmir and decanted the petrol in its ownunderground tanks where it was measured by means of dipping rods and approvedby the indenting officer and was then delivered to Nandpur farm. In this stateof facts it was contended by the Solicitor-General that the property in thepetrol passed to Nandpur farm inside the State of Jammu & Kashmir. It wassubmitted that the sales were, therefore, liable to be taxed under s. 3 of theAct for the period from January 1, 1955 to September 6, 1955 when the ban wasremoved. On behalf of the respondent Mr. Setalvad said that there wasappropriation of the goods to the contract at the bulk depot of the respondentat Pathankot and therefore the property of the goods passed to the Nandpur farmat Pathankot outside the State of Jammu & Kashmir. No such argument appearsto have been advanced on behalf of the respondent before the High Court whichdecided the case on the assumption that there was appropriation of the goods tothe contract at Srinagar when the petrol was transferred from the tank- lorriesof the respondent for delivery to Nandpur farm and measured by means of dippingrods and approved by the indenting officer. The question as to passing of titleof goods is essentially a question of fact and we must deal with the presentcase on the same basis as the High Court has done, viz., that there was passingof title inside the State of Jammu & Kashmir. We accordingly hold that s. 3of the Act applies to transactions of sale of petrol made by the respondent forthe period from January 1, 1955 to September 6, 1955 and assessment ofsales-tax made by the taxing authorities for this period is legally valid.
18. It was lastly contended by the Solicitor-General that the High Court wasin error in taking the view that the taxing authorities were not entitled tolevy sales-tax for the period from January 1, 1955 to September 6, 1955,because the assessment was one composite whole relating to the entire periodfrom January 1, 1955 to May, 1959, and the assessment which was bad in part wasinfected throughout and must be treated as invalid. In our opinion, thecriticism of the Solicitor- General on this point is well-founded and must beaccepted as correct. It is true that there was one order of assessment for theperiod from January 1, 1955 to May, 1959 but the assessment can be easily splitup and dissected and the items of sale can be separated and taxed for differentperiods. In reaching the conclusion that the entire assessment was invalid theHigh Court has relied on the decision of the Judicial Committee in Bennett& White (Calgary) Ltd. v. Municipal District of Sugar City No. 5 ((1951)A.C. 786.) in which Lord Reid observed as follows at page 816 of the Report :
'When an assessment is not for an entire sum, butfor separate sums, dissected and earmarked each of them to a separateassessable item, a court can sever the items and cut out one or more along withthe sum attributed to it, while affirming the residue. But where the assessmentconsists of a single undivided sum in respect of the totality of propertytreated as assessable, and when one component (not dismissible as 'deminimis') is on any view not assessable and wrongly included, it wouldseem clear that such a procedure is barred, and the assessment is badwholly.'
19. But the principle has no application in the present case because thesales-tax is imposed, in ultimate analysis, on receipts from individuals salesor purchases of goods effected during the entire period and it is possible toseparate the assessment of the receipts derived from the sales for the periodfrom January 1, 1955 to September 6, 1955 and to allow the taxing authoritiesto enforce the statute with respect to the sales taking place in this periodand also prevent them by grant of a writ from imposing the tax with regard tosales for the exempted period. In other words, the assessment for the periodfrom January 1, 1955 to September 6, 1955 can be separated and dissected fromthe assessment of the rest of the period and the High Court was in error inholding that the assessment for the entire period was invalid in toto. The viewthat we have expressed is borne out by the decision of this Court in The Stateof Bombay v. The United Motors (India) Ltd. ((1953) S.C.R. 1069 at p. 1097.)For the reasons we allow this appeal in part and order that the respondentshould be granted a writ in the nature of mandamus directing the appellants notto realise sales-tax with regard to transactions of sale between the periodfrom September 7, 1955 to May, 1959 but the respondent will not be entitled toany writ with regard to transactions of sale between January 1, 1955 toSeptember 6, 1955. The appeal is accordingly allowed to this extent but theparties will bear their own costs.
20. Appeal allowed in part.