Rajagopala Ayyangar, J.
1. Messrs. Mettur Industries Ltd., are the petitioners in this tax revision case. These proceedings arose out of the assessment for the year 1951-52. The Deputy Commercial tax Officer, ascertained the net assessable turnover of this assesses at Rs. 2,40,87,084-0-7. Objections were taken to this assessment by the assessee and an appeal was filed to the Commercial-tax Officer, but that appeal was dismissed. The objections were repeated in a further appeal by the assessee to the Tribunal.
2. The objections taken, by the assessee fell under three heads; (1) a sum of Rs. 23,66,029 claimed to be the turnover arising from inter-State sales, the exemption claimed being under Article 286(2) of the Constitution; (2) Rs. 19,41,362 being the turnover on the purchase value of cotton purchased, by the mills from Messrs. Volkart Bros.; and (3) Rs. 2,24,517 being the sales-tax collections made by the appellant, to the inclusion of which in the assessable turnover objection was taken.
The first item of the claim under the head of exemption by reason of the sales being of an inter-State character was allowed by the Tribunal, and is no longer in dispute before us. The third of the items, viz., the inclusion in the turnover of the sales-tax collected by the assessee is now validated by Madras Act 7 of 1954. This was disallowed by the Tribunal, and because of the validating enactment, this was not contested before us. The only matter now in controversy relates to Item (2), viz., the turnover of Rs. 19,41,362 being the value of the cotton purchased during the year by the mills.
3. Section 3 (1), Madras General Sales Tax Act, enacts,
'Every dealer shall pay for each year a tax on his total turnover for such year;' This is subject to the provisions of Section 5, Sub-section 2 of which enacts:
'As regards the sale of cotton, the tax is to be levied only at such single point in the series of sales by successive dealers as may be prescribed.' The relevant rule which prescribes and fixes this single point for taxation is Rule '4 (2) (b) of the Turnover, and assessment rules, read with Rule 4-A of the same rules. The net result of these is that in the case of cotton bought by a Spinning Mill, the tax is levied from the Spinning Mill (that is, it is at the purchase point that the tax is levied, and from the purchaser) on the amount for which it is bought by it, so that, on the terms of the provisions of the Sales Tax Act, the liability to tax is undoubted. The contention that was however advanced before the Tribunal may be summarised in its own words:
'These are inter-State sales which, though liable to tax by reason of the explanation to Article 286(1)(a) on the ground that both delivery and consumption took place in this State, yet are liable to be excluded from taxation as the Stale of Madras have decided to levy tax on such transactions only from 1-4-1953.'
This point in the form in which it was raised before the Tribunal was not repeated before us, but the objection before us was rested on Article 286 of the Constitution, based on the interpretation of that Article by the Supreme Court in Bengal Immunity Co. v. State of Bihar, : 2SCR603 (A).
4. In view of the decision it will not be possible to sustain the validity of this levy, but for the Sales Tax Laws Validation Ordinance 3 of 1956, which was promulgated by the President on 30-1-1956. Its long title is 'An Ordinance, to validate laws of States' imposing or authorising the imposition of taxes on the sale or purchase of goods in the course of inter-State trade or commerce.' The question to be considered in the present case is whether this Ordinance does or does not validate the levy of the tax. The operative part of the Ordinance is in these terms :
'Notwithstanding any judgment, decree or older of any Court, no law of a State, in so far as it imposes, or authorises 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, notwithstanding any defect in, or invalidity of the enactment under which the tax was levied or collected, be deemed always to have been validly levied or collected as if this Ordinance were in force on the date on which such tax was levied or collected.' It will be seen that Section 2 is composed of two parts, the first one validating the law, and the later one validating the levy or collection. The scope, however, of the two limbs, is identical; and while' the collection of the tax is validated by the second, the imposition itself is rendered valid by the first.
5. In view of the terms of this Ordinance, the question that has to be considered is, 'was there a law imposing or authorising the imposition of the lax now sought to be levied by the State, under the Madras General Sales Tax Act?' For, if there was, notwithstanding that such taxation and levy would have been in contravention of Article 288(2), it is now rendered valid by the provisions of this Ordinance. We shall,, therefore, have to examine the scope of the Sales Tax Law of this State, and ascertain, whether before 6-9-1955, a tax was imposed on the purchase of the goods now in dispute since the other terms of the Ordinance are satisfied, in that the purchase transaction of the assessee, on which he is taxed, took place between 1-4-1951 and 6-9-1955.
6. For determining this question, it is necessary to set out and examine the relevant portions of the State taxing enactment. The long title of the Madras General Sales Tax Act ran :
'An Act to provide for the levy of a general tax on the sale of goods in the State of Madras..' and this was repeated in its preamble. The tax was laid on the 'turnover' of a dealer, vide Section 3 (1), which is the main charging section and ''dealer' was defined by Section 2 (b) as 'a person who carries on the business of buying or selling goods.'
'Turnover' was defined in Section 2 (i) to mean the aggregate amount for which the goods were either bought or sold by a dealer, to refer only to the material part of the provision, and it was left to the rules to prescribe subject to specified conditions whether in respect of any goods the tax was to be levied on the buyer or the seller (Vide Section 3 (5)). The expression 'sale' also received statutory definition in Section 2 (h) which ran :
'' 'Sale' with all its grammatical variations and cognate expressions means 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, and includes also a transfer of property in goods involved in the execution of a works contract, but does not include' a mortgage, hypothecation charge or pledge;
Explanation (1) : A transfer of goods on the hire-purchase or other instalment system of payment shall, notwithstanding the fact that the seller retains the title in the goods as security for payment of the price', be deemed to be a sale.
Explanation (2): 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 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 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 State at any time after the contract of sale or purchase in respect thereof was made.' The Explanation (2) to this definition was added as a result of an amendment effected to the original Sales Tax Act of 1939, by an Amending Act of 1947, These were the provisions in force at the date of the Constitution, i.e., on 26th January 1950.
7. As the Sales Tax Act was enacted by a Provincial Legislature constituted under the Government of India Act, 1935, the ambit of its territorial extent was determined by Ss. 99 and 100 of the Government of India Act, 1935, under which a Provincial Legislature might make laws 'for the Province' with respect to the matters enumerated in the Provincial Legislative List, to refer only to those now relevant, In the light of this territorial limitation, the transaction, which could be the subject of tax under this enactment, must obviously have been 'sales' which were effected within the territory or which had a real and substantial nexus with this State. The Sale of Goods Act, however, does not define the situs of a sale. So this had to be determined on the basis of other principles.
As emphasis was laid in the main definition of 'sale' on the transfer of property in goods, it would have followed that the Sales Tax Act conceived, as a sale within the State of Madras, primarily a transaction in which the properly in the goods passed within this State (See Poppatlal Shah v. State of Madras, : 1953CriLJ1105 (B)).
8. This, however, was somewhat enlarged by Explanation (2) to Section 2 (h) which introduced the criterion of the situs of the goods at the time of the sale as an additional factor, and introduced the fiction of the sale becoming completed here where such a factor was present even in cases where the property passed elsewhere.
As there was a substantial nexus between this State and such transactions there was no constitutional impediment in the way of such a legislation. If the law were as laid down by the Sales Tax Act, up to this stage, without the complications introduced by the coming into force of the Constitution, the transactions of the assessee would amount to 'a sale within the State', and would therefore be liable to tax. Then came the Constitution, with its Article 286 reading:
'(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 the 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 this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the 31st day of March 1951,'
We shall be reverting to the point of distinction between the exemption created under Clause (1) and that in Clause (2) of this article a little later, after we set out certain other, provisions which bear upon the questions we are now considering. In terms of the proviso to Clause (2) the President issued the Sales Tax Continuance Order, 1950, on the day the Constitution came into force. It ran:
'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 the 31st of March 1951, continue to be levied, notwithstanding that the Imposition of such tax is contrary to the provisions of Clause (2) of Article 289 of the said Constitution.'
The life of this order came to an end on 1-4-1951. On 2-7-1952, the President promulgated the Adaptation of Laws (4th Amendment) Order, 1952, by which a new section was introduced into the Madras General Sales Tax Act, numbered as Section 22 which ran:
'Act not deemed to impose or authorise taxation in certain cases: 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 the 31st day of March 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 purposes 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 o 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.'
It will be seen that Section 22 is, in effect, a verbal reproduction of Article 286 (1) and (2) of the Constitution of India, and was designed to ensure that the Madras General Sales Tax Act was in conformity with the Constitution. Section 22 would, therefore, have to be read as a rider to .the charging sections of the Act. In other words, Section 22 would have to be read as an explanation to the definition of 'sale' which attracted tax liability under the Statute.
So read, it would exempt from tax air sales, whose locus or situs was 'outside the State', this 'outside' sale being that as defined by the Explanation. Secondly, a ban continued to be placed on the taxation of inter-State trade and commerce under Section 22 (b), so long as Parliament did not otherwise provide.
9. If the provisions of Section 22 were read in conjunction with 'sale' as defined by Section 2 (h), along with Explanation (2) to that section, the position would- be this:
1. Where goods are outside the State at the time of the sale, and the transaction of sale was completed outside the State, the property having passed there, and delivery taken by the buyer there, and the goods are brought in as the goods of a purchaser, the transaction of sale would not be liable to tax under the Madras General Sales Tax Act vide : 1953CriLJ1105 (B);
2. Where the transaction of sale related to goods which were inside the State at the time of the contract of sale, or the goods are produced in this State after an agreement of sale, and the sale is subsequently effected of such goods, i.e., where the transaction' is covered by Explanation (2) to Section 2 (h), the tax liability in regard to that sale would depend upon whether or not the sale is effected 'in the course of inter-State trade or commerce.' If it is, there would be no liability to tax because of the exemption granted by Article 286(2).
But if the transaction of sale is completed here, by delivery to the buyer, and the transport across the boundary is not an integral part of the sale, the tax liability imposed by the extended definition in Section 2 (h) would not be relieved by Article 286(2), and so, not also by Section 22 (b) of die Sales Tax Act.
10. The third class of cases would be, where the goods were originally outside the State, but are brought into the State by reason of the purchase, where the transportation into the State is an integral part of the sale. In this class of cases, whether the property in the goods passed within the State or not, the tax liability would be attracted by virtue of the main portion of the definition of 'sale' in Section 2 (h) read with Section 22.
In regard to them, Article 286(1)(a) and the Explanation thereto, which, by reason of their introduction into the Madras General Sales Tax Act as Section 22 have to be read as part of the Sales Tax Act of this State, would fictionally deem such sales to be 'inside' sales inasmuch as this is the State of delivery or consumption. The only objection to taxability could then be on the basis that there were elements of inter-State commerce involved in the transaction-by reason of the goods corning over from outside.
11. We shall now turn to the decisions of the Supreme Court on the construction of Article 286, which had led to the Ordinance we have set out above. In the State of Bombay v. United Motors (India) Ltd., : 4SCR1069 (C), the majority of the Judges of the Court interpreted the Explanation to Clause (1) (a) as in effect, an explanation to Article 286(2) as well. In the judgment of Chief Justice Patanjali Sastri,' who spoke for the majority of the Court, the position was thus expounded:
'We are therefore of opinion that Article 286(1)(a) read with the Explanation prohibits taxation of sales or purchases involving inter State dements by all the States except the State in which the goods are delivered for the purpose of consumption there in the wider sense explained above. The latter' State is left free to tax such sales or purchases which power it derives not by virtue of the Explanation but under Article 246(3) read, with Entry 54 of List II', Dealing next with the effect of Article 286(2) on the taxability of inter-State sales or purchases, of the kind envisaged by the Explanation, to Clause (1) (a), His Lordship said:
'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 purchases. 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 Clause (2) can, therefore, have no application....
The explanation envisages sales or purchases under which out-of-State goods are imported into the Stale. That is the essential element which makes such a transaction inter-State in character and if it is turned into an intra-State transaction by the operation of the legal fiction which blots out from view the inter-State element, it is not logical to say that the transaction, though now become local and domestic in the eye of the law, still retains its inter-State character. The statutory fiction completely masks the inter-State character of the sale or purchase which, as a collateral result of such masking, falls outside the scope of Cr. (2).'
12. This decision was rendered on 30-3-1953, and held the field till 6-9-1955, which the Supreme Court again by a majority, disapproved of it in : 2SCR603 (A). In the later case, the majority of the Court decided that the Explanation to Clause (1) (a) of Article 286 could not legitimately be extended to Clause (2), either as an exception or as a proviso, or be read as curtailing or limiting the ambit of that clause. Their Lordships, therefore, held that it followed that
'except in so far as Parliament may by law provide otherwise, no State law can impose or authorise the imposition of any tax on sales or purchases when such sales or purchases take place in the course of inter-State trade or commerce, irrespective of whether such sales or purchases do or do not fall within the explanation.'
They further held that 'a delivery State could not tax by reason of Clause (2), although the sales fall within the Explanation to Article 286(1)(a)' ,and that 'other States could not tax by reason of both clauses (1) (a) read with the Explanation, i.e., as being an ''outside' sale as also Clause (2) of Article 286 of the 'Constitution.'
13. It was to remedy the dis-equilibrium in the finances of the several States, which would have been bound to refund the tax which they had collected on the basis of the interpretation of the Supreme Court in : 4SCR1069 (C), that Ordinance III of 1956 was promulgated.
14. The questions, therefore, to be considered are: (1) were the sales covered by Explanation to Article 288(1)(a) which we shall for brevity call 'explanation sales' liable to tax under the Madras General Sales Tax Act, between the period 1-4-1951, and 6-9-1955? 12) Were sales, other than ''explanation sales', which however had elements of an inter-State - character, liable to tax under the State Law between the dates mentioned in the Ordinance?
15. We shall first consider the 'explanation sales', i.e., those treated as 'inside sales' by the Explanation to Article 286(1)(a). In regard to these sales, we are of the opinion, that in cases where the property did not pass in this State, the main portion of the definition of 'sale' in Section 2 (h) was not attracted,' and as the goods were outside the State at the time of the contract the transactions were not brought within Explanation (2) of the definition. This was the position when the Constitution came into force.
16. The learned Advocate-General submitted that on the coming into force of the Constitution, the 'explanation sates' become taxable by virtue of the Constitution itself, the argument being, that just as the prohibitions of the Constitution were self-acting, without any need for State legislation, sales, which theretofore might have been ''outside sales' became automatically 'inside sales'. We are not able to accept this position-as correct.
Though the prohibitory or negative provisions-of the Constitution might be self-acting, the provisions such as that found in the Explanation to Article 286(1)(a) cannot fall within that category. The provision is enabling in its nature, and its only effect is to define the scope of the Constitutional exemption granted by the main portion of Article 286(1)(a) from State taxation.
It would, therefore, need State legislation to give effect-to it, and the Constitution cannot, by itself, be deemed to alter the State law, so as to impose a tax on 'explanation sales' if none existed before. As we have already pointed out, the State purported to 'tax only sales 'within the State', and this has to be understood as meaning sales where the property in the goods passed within the jurisdiction.
Where the goods were outside, and the property also passed outside the State, the fact that they were brought over into the State for 'delivery or consumption was riot by itself an element which attracted tax liability on the terms of the Madras General Sales Tax Act as it stood on 26-1-1950.
17. We, however, consider his alternative submission based on the terms of Section 22 of the Act well-founded. The argument was that even if the 'explanation 'Sales', where the property in the goods passed outside the State, we're not within the Madras-General Sales Tax Act, read in the light of the Constitution, the position was altered when Section '22 was introduced by the Adaptation of Indian Laws (4th Amendment) Order.
As we have already indicated, the effect of Section 22 was to render a sale 'within the -State', one which fell under the Explanation to Article 286(1)(a), so that, from that date, such sales became taxable under the Sales Tax Act, notwithstanding that in some cases, an inter-State element might have been involved in the transaction. This really did not affect the enforceability of the levy in view of the decision of the Supreme Court in : 4SCR1069 (C) which held that 'explanation sales' were outside the fetter imposed by Article 286(2).
But when this view was overruled by the Supreme Court in : 2SCR603 (A), the position which emerged was, that though these sales were 'inside' sales for the purposes of the Sales Tax Act, the tax upon, them became obnoxious to the' provisions of Article 286(2), and, therefore, they would have been exempt from tax. The Ordinance, therefore, applies to such sales, and the tax liability arising thereon, and after the Ordinance, the exemption baaed upon Article 286(2) would no longer be applicable. The conditions of the Ordinance are therefore fully satisfied.
18. Mr. Subbaraya Aiyar, learned counsel for the petitioner-asses see, drew our attention to a passage in the Judgment of the Supreme Court in : 2SCR603 (A), where His Lordship the Chief Justice refers to the tact, that in the Bihar Act, the. Explanation to Article 286(1)(a) was introduced, as an explanation to the definition of sale the argument being that unless this were done, it could not be said that what might be termed 'the explanation, sales' were sales liable to tax under the Sales Tax Act.
We are of opinion, that there is no difference in the legal effect achieved by the different methods of drafting adopted in Madras and Bihar. Section 22, with the explanation of what an 'inside' sale is must be read as really part of every provision in the Act, and so read, the same result is achieved as in Bihar.
19. As the transactions involved in T. R. C. No. 129 of 1955 belong to the category we have termed 'explanation sales', the above would be sufficient to dispose of this revision petition. . But as a number of other cases which were heard along, with T. R. C. No. 129 of 1955 are concerned with transactions, where the goods were in this State at the time of the contract, but were transported to other States by reason of the sale, we propose to discuss, next the effect of the Ordinance 'on the tax liability, on such transactions also, as we consider that it would tend to convenience as well as completeness.
20. This other category of cases would comprise those, where goods in this State are the subject of a sale, and where the sale transaction involves inter-State elements, i.e., where the transport from this State across its border is an integrated part of the sale. It will be seen that these sales would have been liable to tax prior to the Constitution by reason of the extended definition of 'sale' introduced by the Amending Act of 1947, and which now figures as Explanation (2) to Section 2 (h) of the Act. Tax on such sales could have been lawfully levied even after the Constitution came into force by virtue of the President's Order dated 26-1-1950, which postponed the application of the prohibition contained in Article 286(2), upto 31-3-1951.
When the Presidential Order expired on l-4-1951, the levy of the tax became subject to the bah imposed by Article 286(2). In other words, sales tax was levied by this State, only it was unenforceable by virtue of the protection afforded by Article 286(2). This position continued, however, only until Section 22 was Introduced into the Sales Tax Act.
The relevant portion of that section, which we have already extracted, runs:
'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 except in so far as Parliament may, by Jaw, otherwise provide after the 31st day of March 1951, in the course of inter-State trade and commerce, and the provisions of this . Act shall be read and construed accordingly.'' The effect of this was, that the ban, which therefore was imposed by the Constitution, became incorporated into the definition of sales which were subject to tax, and until Parliament chose to legislate by loosening the fetter, the State imposed no tax on such sales. In other words, just as 'explanation sales' became taxable by virtue of Section 22, the present category of sales, i.e., where the goods were originally in this State but were taken out as a result of the sale was rendered not subject to tax but so to speak, modifying the content of Explanation (2) to Section 2 (h).
This provision, which incorporated the constitutional ban into the texture of the State Act, had the effect, therefore, of negativing the tax liability as distinguished from the constitutional ban which therefore operated on such imposition. This state of things, however, was to last only till Parliament by law other wise, provides.
21. The argument which the learned Assistant Government Pleader presented to us was that (the Ordinance was a law made by Parliament 'providing otherwise', and as the Ordinance in terms referred to sales', to which the ban imposed by Article 286(2) applied, and lifted the ban in regard to sales between the two dates mentioned in it, sales effected during that period became liable to tax, under the Madras Act. Though the argument is attractive, we are satisfied that it is not sound.
In the first place, Section 2 of the Ordinance in terms removes the fetter on the taxation of inter-State sales only in cases where there was a pre-existing Slate law providing for such an imposition, and where the only impediment on the levy and collection of such tax was the ban imposed by Article 286(2). That such a test was satisfied is exactly the basis on which we have held that the tax on 'explanation sales' possessing an inter-State character could be validly collected by reason of the Ordinance.
If ex hypothesi there was no tax on the sales covered by the second Explanation to Section 2 (h) after the enactment of Section 22, the condition posited by the Ordinance is not satisfied and hence the Ordinance cannot be availed of by the State. Secondly we feel unable to accept an argument, which imputes to the Ordinance a twin effect of imposing a tax on such transaction and validating its levy.
Parliament cannot impose a tax on sales; the imposition could be effected by 'State legislation; Parliament can relax the fetter imposed by Article 286(2) and nothing more. Nor are we impressed by the contention, that Section 22 should be regarded as a piece of conditional legislation, i.e. an enactment which levied a tax on inter-State sales, subject to the condition of the liability being dormant so long as the ban imposed by Article 286(2) continued to operate, and that when the ban was removed the tax liability became automatically attracted.
In our opinion, the admission in this form also suffers from the same fallacy, viz., it imputes to Parliament the power to enact a sales tax legislation for the State. If the State Legislature itself passed a law imposing a. tax, it could take advantage of the lilting of the ban under Article 286(2) by the Ordinance, but Section 22 in its present form is not apt to achieve that purpose.
22. Reverting to the facts of this revision case, we are clearly of the opinion that as the cotton was delivered in this State for consumption here, it was subject to tax under the Madras General Sales Tax Act, between the dates mentioned in the Ordinance, and that as the only objection to the liability to tax could be rested on the provision in Article 286(2), the same is overcome by the Ordinance. The order of the Tribunal disallowing the item is, therefore, correct, and this revision petition fails and is dismissed.
23. There will, however, be no order as to costs.