1. These tax cases arise out of the proceedings of assessment under the Madras General Sales Tax Act, 1939. The petitioner in these petitions is one R. M. Devan a dealer in wool at Vaniyambadi. In this batch of cases, we are concerned only with the assessments against him in respect of the years 1954-55 to 1957-58. The assessment made against him in respect of the year 1953-54 has been set aside by the Appellate Assistant Commissioner on the ground of limitation, and the correctness of that order has not been questioned before us by the State. The petitioner, whom we shall refer to as the assessee in this judgment, did not maintain regular accounts in respect of his business which consisted of selling wool to a dealer at Bangalore, a certain Anantharamiah. He did not file any return for any of the years in question before the department. The Special Assistant Commercial Tax Officer inspected his place of business on 25th June, 1958, and seized some of his books which have been described by the departmental authorities as 'sale bill book, lorry intimation book and railway receipt books'. The business turnovers as disclosed by these books were as follows:
1953-54 ... Rs. 1,72,438- 2- 01954-55 ... Rs. 2,02,348- 1-101955-56 ... Rs. 1,84,773- 2- 31956-57 ... Rs. 1,62,830- 3- 31957-58 ... Rs. 1,48,922-15- 0
2. When called upon to explain as to why he did not submit a return and disclose the above turnovers to the department as assessable turnovers, the assessee contended that he was merely acting as the purchasing agent of Anantharamiah of Bangalore who was a non-resident dealer of carpets and druggets at Bangalore, that he sold the wool to him at Bangalore where delivery was effected for the purpose of consumption in the Mysore State, and that, therefore, the transactions were in the nature of inter-State sales coming within the ban of Article 286 of the Constitution. The assessee filed statements of account in respect of his dealings with the Bangalore merchant. The assessing authority held that he was an independent dealer carrying on business in the Madras State and not the purchasing agent of the Bangalore dealer. It further held that the transactions in question were not inter-State sales or, at any rate, have not been proved to be of that character. According to the assessing officer, there was no proof of delivery of wool outside the State. The contentions of the assessee, therefore, failed and assessments followed. He preferred appeals to the Appellate Assistant Commissioner, Salem, from the assessments in respect of all the years. He repeated the contentions urged by him before the first assessing officer and prayed for cancellation of the assessments. In regard to the assessment for the year 1953-54, he also took an objection that it was barred by limitation. As stated already, the Appellate Assistant Commissioner upheld this plea of limitation and cancelled the assessment for that year. In respect of the assessments for the years 1954-55 to 1957-58, the appellate authority enhanced the turnovers and directed the assessing officer to revise the assessments. As a result of this enhancement, the assessments that came to be made were as follows:
1954-55 ... Rs. 3,29,548- 1-101955-56 ... Rs. 2,49,773- 2- 31956-57 ... Rs. 2,62,030- 3- 71957-58 ... Rs. 2,27,462-15- 0
3. There were further appeals before the Sales Tax Appellate Tribunal. The assessee raised the contention that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment under Under Section 31 of the Madras General Sales Tax Act, 1959, and that, therefore, the enhancement effected as a result of the appellate order should be cancelled. The Appellate Assistant Commissioner had granted relief to the assessee in respect of the sale of wool to the Bangalore dealer effected by delivery through the railway. The consignments of wool, alleged to have been delivered by the assessee at Bangalore through lorries were held not proved to have been delivered at Bangalore for consumption in the Mysore State. The assessee contended that, even in respect of these lorry deliveries, he himself arranged for the transport of the goods to the other State, that there was no difference between the delivery through railway and that through lorries, and that therefore, there was no reason why the appellate authority should have held that the transaction effected through railway would be inter-State sales, but not the others. In respect of the year 1954-55 the dealings of the assessee were classified as follows :
1. Sales to Bangalore dealer as per bills Rs. 2,02,348-1-102. By rail from Ambur and Vaniyambadi toVellore consignees Sheik Imam & Sons andR. Ramaswamy Rs. 35,400-0- 03. By rail from Chittoor to Ellore and Bangaloreconsignees M. Anantharamiah and SheikImam Rs. 16,400-0- 04. Sales as per lorry despatch advices but notcovered by bills and included in (1) above Rs. 1,27,200-0- 0--------------Total Rs. 3,81,348-1-10---------------
4. The item in dispute between the department and the assessee in respect of this particular year was only a turnover of Rs. 1,27,200 which the assessee claimed was exempt from taxation on the ground that it was in respect of inter-State transactions but which the State did not accept for alleged want of proof of actual delivery at Bangalore. Dealing with the contention of the assessee that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment, the Tribunal held that it had no such power and deleted the enhancement. The Tribunal examined the correctness of the turnover of Rs. 2,02,342-1-10 by the assessing authority, and after scrutiny of the relevant documents fixed the taxable turnover at Rs. 1,94,370-9-10. It is from this order that both the State and the assessee have preferred the revision petitions in this Court. T. C. No. 155 of 1961 is preferred by the State and the objection raised is that the Tribunal misunderstood the scope of Sections 16 and 31 (3) of the Madras General Sales Tax Act, 1959, and went wrong in deleting the enhancement. T. C. No. 202 of 1961 is preferred by the assessee and his contention is that the assessment of the taxable turnover of Rs. 1,94,370-9-10 should be totally cancelled, as that turnover fell within the constitutional ban under Article 286 and the Tribunal has not correctly appreciated the scope of the decision of the Supreme Court in Ashok Leyland case  12 S.T.C. 379.
5. In respect of the assessment year 1955-56, the net taxable turnover fixed by the Appellate Tribunal was Rs. 1,13,879-7-0. This was for the period between 1st April, 1955, to 5th September, 1955. 1st April, 1955, is the date of the commencement of the financial year 1955-56 and 5th September, 1955, is the date of the decision of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446 The appellate authority enhanced the assessment by adding to the turnover a sum of Rs. 65,000 but the Tribunal has set it aside. The State objects to the deletion of this enhancement in T. C. No. 23 of 1962 and the assessee objects to any assessment in his petition, T. C. No. 203 of 1961. The contention of the assessee here again is that the turnover related to inter-State sales prohibited to be taxed by the State by the Constitution and is not subject to tax by the lifting of the ban under the Sales Tax Laws Validation Act of 1956. It is urged that the scope of the decision of the Supreme Court in the Ashok Leyland case  12 S.T.C. 379 has not been correctly appreciated by the Tribunal.
6. In regard to the assessments in the years 1956-57 and 1957-58, there is no revision petition by the assessee; but the State has preferred T.C. Nos. 24 of 1962 and 22 of 1962, raising the objection that the enhancement of Rs. 99,200 and Rs. 78,540 respectively for the two years should not have been cancelled by the Tribunal.
7. The main point that arises for decision in these petitions is whether the sales of wool by the assessee to the Bangalore dealer covered by numerous transactions are in fact and in truth inter-State sales, and, if so, whether they are liable to be assessed under the Madras Sales Tax Act, in view of the Sales Tax Laws Validation Act of 1956. The State contends that the Validation Act read along with its interpretation by the Supreme Court in the Ashok Leyland case  12 S.T.C. 379 clearly makes the transactions subject to the sales tax. The point urged by the assessee is that these sales are, what may be called 'Explanation sales', that is, sales falling within the Explanation to Article 286(1)(a) of the Constitution as it stood before the Sixth Amendment, that therefore, they were 'outside' sales so far as the Madras State is concerned, that the constitutional ban which is absolute could not and was not lifted by the Validation Act, and that the decision of the Supreme Court in the Ashok Leyland case  12 S.T.C. 379 is not authority for the proposition that all interState sales, even including the Explanation sales, could be taxed by any State or by all States because of the provisions in the local State tax laws.
8. Before we deal with this main contention, it would be convenient to dispose of a minor point which was in controversy before us. This relates to the question whether the deliveries effected through lorries by the assessee should not be treated as deliveries for consumption at Bangalore, but should be treated as local sales as if the deliveries had been effected at Vaniyambadi or other places in the State of Madras. As the course of transactions of the assessee in regard to the years 1954-55 and 1955-56 did not appear quite clearly from the record, we called upon the assessee to file an affidavit regarding the mode of sale of wool to the Bangalore merchant. The assessee has now filed an affidavit in which he states as follows:
5. On receipt of orders from the buyer I effect purchase of wool both within this State and from the adjoining State of Andhra.
6. The understanding with the buyer is that the wool should be of quality suitable for conversion into blankets, druggets and rugs by the buyer in his factory at Bangalore.
7. The wool so bought is despatched by me to the buyer's place outside the State by lorry and is taken delivery of by the buyer at his place.
8. In none of the cases have I delivered the wool either to the buyer in person or any vehicle sent by the buyer.
9. There has been no contradiction of these averments by the State. It would have been easy for the State to produce contra evidence, if the averments are not true. The State could have easily verified the correctness of these averments by referring to the purchaser at Bangalore. We have no reason to disbelieve the assessee's version of the course of dealings between him and the Bangalore dealer. We may also point out that, if it could be accepted that the deliveries effected through the railway amounted to deliveries outside the State, there is no reason why the substitution of the lorries for the railway should make any difference. Whether by lorry or through railway it was the Bangalore dealer who took delivery at his place of business. It is true that the lorry charges were admittedly paid only by the Bangalore dealer. But such payment alone would not amount to delivery of wool inside the Madras State. It is fair to presume that the course of business of the assessee was the same, that is, the delivery of the goods at Bangalore, irrespective of the fact whether the mode of delivery was through railway or by lorry. We do not find any justification for introducing a distinction between the deliveries effected through lorries and those effected through railway. We, therefore, proceed to deal with the case on the footing that all sales effected by the assessee to the Bangalore merchant were really inter-State sales, in respect of which the goods were delivered for the purpose of consumption outside the Madras State.
10. It will be convenient, even at the outset, to refer to the constitutional provision, Article 286, as it stood before the Sixth Amendment. It reads:
(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 unde'r 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 thirty-first day of March, 1951.
(3) No law made by the Legislature of a State imposing, or authorise 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.
11. The State's power to levy sales tax in regard to inter-State sales was considered by the Supreme Court in State of Bombay v. United Motors (India) Ltd.  4 S.T.C. 133 The view expressed by the Supreme Court in that decision has, however, not been accepted to be sound by the later decision of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446. But we are referring to the United Motors case  4 S.T.C. 133 in order to appreciate fully the scope of the later decision of the Supreme Court. The view taken in the case-we mean the majority view taken by Patanjali Sastri, C.J., Mukherjea and Ghulam Hasan, JJ.; Bose and Bhagwati, JJ., dissenting -is that the Explanation to Article 286(1) of the Constitution provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place notwithstanding the fact that the property in such goods passed in another State. Under the Explanation if the goods are actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption therein, then such sale or purchase shall be deemed to have taken place in that State and outside all other States. The latter States are prohibited from taxing such sales or purchases; the former alone is left free to do so, and the power is derived not by virtue of the Explanation but under Article 246(3) read with Entry 54 of List II. The effect of this decision was to hold that sales falling within the Explanation to Article 286(1)(a) were really not inter-State transactions, but intra-State transactions, and that, notwithstanding the prohibition in Article 286(2), there was no ban on the delivery-cumconsumption State to tax the goods which reached that State, no doubt as a result of inter-State transactions. According to the Supreme Court in the United Motors case  4 S.T.C. 133 the 'Explanation' sales would be liable to sales tax, if only the provisions of the State tax law were sufficiently wide to bring them to tax.
12. It will be useful to quote the following passage from the United Motors case  4 S.T.C. 133 to point out the essence of the view taken regarding the scope and operation of the Explanation to Article 286(1)(a) and Article 286(2):
We are therefore of opinion that Article 286(1)(a) read with the Explanation prohibits taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein....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....We are of opinion that the operation of Clause (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. It is true that the legal fiction is to operate 'for the purposes of Sub-clause (a) of Clause (1)', but that means merely that the Explanation is designed to explain the meaning of the expression 'outside the State' in Clause (1)(a). When once, however, it is determined with the aid of the fictional test that a particular sale or purchase 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 Clause (2), not because the definition in the Explanation is used for the purpose of Clause (2), but because such sale or purchase becomes in the eye of the law a purely local transaction.
13. But this view has not been accepted to be a correct interpretation of the constitutional provision by the majority of their Lordships of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446. That the Explanation creates only a fiction has been accepted as the true position even in the Bengal Immunity case  6 S.T.C. 446. It is the real scope of the fiction, about which the two decisions, one in the United Motors case  4 S.T.C. 133 and the other in the Bengal Immunity case  6 S.T.C. 446 are not in accord with each other. As stated already, in the United Motors case  4 S.T.C. 133, it was held that the Explanation rendered what may be called 'inside' sales purely local sales, though factually they might be inter-State sales, as the goods moved from one State to another as a result of the contract of sale. What was, however, held by the majority of their Lordships of the Supreme Court in Bengal Immunity case  6 S.T.C. 446 was that the Explanation created only a limited fiction and should not be read as transforming inter-State sales as intra-State or domestic or local sales. It was pointed out that the Explanation, being only a legal fiction, should be restricted in its use and application for the limited purpose for which it was created and should not be extended to cover a wider field. The Explanation is neither an exception nor a proviso to Article 286, Clause (2), which should be construed without the inhibition of the Explanation. It was held that the fetters placed on the taxing powers of the State are that 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 or export, or (c) except in so far as Parliament otherwise provides, in the course of inter-State trade or commerce, and (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. Analysing these bans or fetters on the taxing power of the State in regard to sale or purchase, his Lordship Das, Acting, C.J., observed thus at page 471:
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. In order to make the ban effective and to leave no loophole the Constitution-makers have considered the different aspects of sales or purchases of goods and placed checks on the legislative power of the States at different angles....These several bans may overlap in some cases but in their respective scope and operation they are separate and independent. They deal with different phases of a sale or purchase but, nevertheless, they are distinct and one has nothing to do with and is not dependent on the other or others. The States' legislative power with respect to a sale or purchase may be hit by one or more of these bans.
14. Commenting upon the view taken in the United Motors case  4 S.T.C. 133, on the true perspective of the Explanation, the Supreme Court points out that the Explanation cannot confer legislative power, that it is not permissible to use it for a collateral purpose, and that it would be utterly illogical and untenable to say that Article 286 which was introduced in the Constitution to place restrictions on the legislative powers of the States, gave enlarged powers to the State of delivery by an explanation sandwiched between two restrictions.
15. Now it seems to us that the categorical pronouncement of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446 leaves no room for any doubt regarding the true meaning of Article 286. There is a very clear ban imposed by the Constitution restricting the State to impose a tax on sale or purchase of goods, where such sale or purchase takes place outside the State. Not only is the ban clear, but it is also absolute. The Explanation to Article 286(1)(a)-and there cannot be any doubt that it is only in regard to that provision as the opening words of the Explanation are 'for the purposes of Sub-clause (a)'-defines a sale which should be deemed to have taken place in the taxing State. Perhaps the framers of the Constitution thought that the words in Clause (a) 'outside the State' would prove to be a bone of contention between the taxing State and the subject in the absence of any clear indication as to what is meant by that expression. Obviously the idea was that, if 'inside State' can be postulated, all other States would fall within the expression 'outside State'. 'Inside State' is, according to the Explanation, the State in which the goods have actually been delivered as a direct result of a sale or purchase for the purpose of consumption in that State. The scope of Article 286(2) is no doubt general to some extent, as it provides that 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 except in so far as Parliament may by law otherwise provide. Article 286(1)(a) read with the Explanation takes in and covers inter-State sale or purchase. The ban imposed on the State to tax sale or purchase taking place outside the taxing State is absolute and independent of the other bans in Article 286, and Article 286(2) is not capable of being interpreted as enabling the Parliament to destroy it. Once it is held that there is a ban on the State to tax sale or purchase outside the State and that the Explanation by its own force would not render even the fictional inside sale subject to taxation and that Article 286(2) governs all sales or purchases taking place in the course of inter-State trade or commerce, the only way to reconcile Article 286(1) and (2) is to hold that Parliament may lift the ban in regard to taxation of 'inside sales' or what may be called 'Explanation sales'. Any other interpretation seems to us to be not merely inconsistent with the clear terms of the Constitution but also repugnant to the avowed principles and objects underlying the State's power to tax goods forming the subject-matter of inter-State sale or purchase. We have no doubt that the Supreme Court has laid down in unmistakable terms that there is an absolute ban in regard to tax on inter-State sales by the States where the sales are outside the taxing State. The stress laid by the Supreme Court in the Bengal Immunity case  6 S.T.C. 446, on the nature of the restrictions or bans in Article 286, their distinctness and non-interdependence, and the limitation of the States' power to tax, indicates quite clearly, if we may say so with respect, that the Constitution did not impose a fetter in regard to tax on inter-State sale or purchase located by the Explanation outside the taxing State leaving Parliament to unfetter it. Neither the express terms of Article 286 nor any implication therein can sustain the view that this absolute ban can be removed by the Parliament by appropriate legislation.
16. In tune with the decision of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446 is another decision of the Supreme Court in India Copper Corporation Limited v. State of Bihar  12 S.T.C. 56. In that case, the assessee under the Bihar Sales Tax Act was a company which carried on business in copper and other materials. There was an assessment against the company for the period 26th January, 1950 to 31st March, 1950. There was no controversy as regards the sales tax payable in respect of sales effected during the pre-Constitution period. The assessee, however, raised a dispute that, in respect of the post-Constitution period (26th January, 1950 to 31st March, 1950) it was not liable to pay any sales tax in respect of sales to buyers, under which though the property in the goods passed within the State, delivery of the goods was effected outside the State of Bihar for consumption, on the ground that such sales were exempted from tax by Article 286(1)(a) of the Constitution, as it originally stood. The company was, however, assessed by the department and it filed a writ petition in the High Court of Patna to quash the order of assessment. In formulating the law applicable, the learned Judges of the Patna High Court drew a distinction between sales as a direct result of which the goods were delivered in a State outside the State of Bihar and consumed in that State and those cases in which the goods delivered were not consumed in the State of first destination, but were re-exported from the State of first destination to other States. They held that the first category of sales were covered by the Explanation to Article 286(1) of the Constitution and were 'inside' the State of first delivery and consequently 'outside' the State of Bihar within the meaning of the article and therefore exempt from tax by the Bihar State. In regard to the second category of sales, it was held that they were not within the Explanation and were therefore outside the constitutional exemption under Article 286(1)(a). The assessee was dissatisfied with the order of the High Court and preferred an appeal to the Supreme Court. One of the contentions raised by the assessee was that, even in respect of 'non-Explanation sales', the State of Bihar had no power to levy a tax by reason of such sales being -outside the State within Article 286(1)(a). This contention was rejected. Considering the scope of the Explanation and its proper interpretation, his Lordship, Rajagopala Ayyangar, J., delivering the judgment of the majority, set out the legal position thus at page 62 :
When the terms of the Explanation were satisfied such sales were by a fiction deemed to be 'inside' the State of delivery-cum-consumption and therefore 'outside' all other States. In such cases, therefore, only the State 'inside' which the sale is deemed to take place by virtue of the Explanation, is exempt from the ban imposed by Article 286(1)(a). All other States should be subject to that ban in respect of such sales.
17. In another case decided by the Supreme Court, Tobacco . v. Commissioner of Sales Tax  12 S.T.C. 87, the question of the scope of the Explanation came to be considered. The assessees claimed exemption from tax liability under Article 286(1)(a) of the Constitution in respect of sales effected by them as a direct result of which the goods were delivered outside the State of Bihar (1) for consumption in the State of first delivery, and (2) for consumption not in the State of first delivery but in other States. The Sales Tax Authorities held that all sales were liable to tax under the Bihar Act. The assessees filed an application for revision before the Board of Revenue. The Board held that, according to the decision of the Supreme Court, no tax could be levied on despatches to the places outside the State after 26th January, 1950, and on this point upheld the objection of the assessees and the Sales Tax Officer was directed to re-calculate the amount of tax payable. The assessees claimed that the Board, by its order, has given an exemption from tax with regard to all sales outside Bihar. The taxing department, however, took the view that the Board had given relief only with regard to the first category of transactions and not with regard to the second category. The assessees next moved the High Court of Patna by way of a petition under Article 226 of the Constitution. The High Court held that the order of the Board was ambiguous, that the transactions in the second category were not exempt from tax liability, and that the assessees, in a writ of mandamus, could not insist on a manifestly wrong order being enforced. The assessees, therefore, preferred an appeal to the Supreme Court, The Supreme Court held that the Board did not, by its order, intend to decide the point regarding the tax liability of the second category of transactions, but left it to the officer to decide for himself the relief to which the assessees were entitled on that officer's interpretation of the judgment in the United Motors case  4 S.T.C. 133, that the judgment in the United Motors case  4 S.T.C. 133 only dealt with the Explanation sales and did not deal with sales which did not satisfy the requirements of the Explanation, that the first category of transactions would be exempt from the levy of sales tax under the Bihar Act by reason of their being 'inside' sales within the State of delivery-cum-consumption and therefore 'outside' sales quoad the State of Bihar, and that, in regard to the second category of transactions, the orders of the Board had become final as between the parties and the levy of tax was valid. It must be observed that this case is almost similar to the one earlier cited, India Copper Corporation Ltd. v. State of Bihar  12 S.T.C. 56. The view taken is that all outside sales, that is, inter-State in respect of which the taxing State is not the 'inside' State, the delivery-cum-consumption State, are absolutely prohibited from being taxed by the State Legislature.
18. In a recent decision, A. V. Thomas & Co. v. Deputy Commissioner  14 S.T.C. 363, the Supreme Court has reiterated the principle laid down in India Copper Corporation Ltd. v. State of Bihar  12. S.T.C. 56. The question that is now before us did not arise in that case. The simple issue there was whether the Travancore-Cochin State can levy sales tax on tea stored in its territory but in respect of which sales were effected in Madras State where the title to the goods sold passed. The Supreme Court held that the Travancore-Cochin State was not the delivery-cum-consumption State within the Explanation and therefore the sales were 'outside sales' qua that State, coming within the constitutional ban. The Validation Act, 1956, is not referred and the reason is plain. It is implicit in their Lordships' judgment that the ban regarding 'outside sales' cannot be lifted. The period of assessment in that case was 1952-53 and if the Validation Act were to apply the taxing State could well have taxed the sales. It might be contended that there was no movement of the goods from Fort Cochin to Wellingdon Island as they had remained only in the latter place when they were auctioned at Fort Cochin, and as such there was no inter-State element to attract Article 286(2). This contention cannot have force as the ban on 'outside' sale regarding State's power to tax cannot be any the less because it is in the course of inter-State trade or commerce. In William Jacks & Co. v. State of Bihar  14 S.T.C. 375 the Supreme Court has thus set out the ratio of the Bengal Immunity case  6 S.T.C. 446 :
Until Parliament by law made under Article 286(2) provided otherwise, a State could not 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 notwithstanding that the goods under such sales were actually delivered in that State for consumption there.
19. This, in our opinion, has a considerable bearing on the point now in issue.
20. Before we refer to the Ashok Leyland case  12 S.T.C. 379, which has really given the handle to the State in the present case to advance the contention that the business turnover of the assessee is subject to taxation, we would like to make a few observations regarding the purpose underlying Article 286 of the Constitution as it stood before the amendment. The background of Article 286 of the Constitution throws a clear perspective on its object and purpose, and the language employed, felicitous or not, does not obscure its true intendment. The object was to maintain freedom of inter-State trade or commerce pari passu with the State's power to tax goods imported from sister States without discriminating them from local goods, that is, goods produced or manufactured in the taxing State. A free flow of inter-State trade or commerce is necessary to strengthen the economic unity of India. It cannot be gainsaid that unrestricted taxing power on the States in regard to sales or purchases involving inter-State elements, subject, of course, to the existence of a sufficient territorial connection between the taxing State and what it seeks to tax, would lead to multiple taxation by different States. This would result, inevitably, in increasing the tax burden of the subject and impeding the course of inter-State trade or commerce. Some measure of control was, therefore, necessary to foster inter-State trade or commerce and to prevent the State arm of the Union from checking it by taxation. At the same time, the State autonomy necessary for maintaining the equilibrium of the State's finances should not be crippled, for that would amount to paying a heavy price even for securing the economic solidarity of the Union. This, in our opinion, should be kept in view without, of course, offending any canon or rule of construction of statutes, in order to determine the question whether the framers of the Constitution did or did not intend an absolute ban on inter-State sales or purchases where such transactions lie outside the taxing State.
21. The States were levying and collecting sales tax in accordance with their respective State laws on the principles laid down by the Supreme Court in the United Motors case  4 S.T.C. 133. After the exposition of the law on the subject in the Bengal Immunity case  6 S.T.C. 446, the States were faced with the situation of being obliged to refund large amount of tax already collected. Of course, they could not levy and collect taxes in future after the decision of the Bengal Immunity case  6 S.T.C. 446. This prevention of taxation was, however, not so serious as the liability to refund. At this juncture, the Parliament came to their rescue and passed the Sales Tax Laws Validation Act, 1956. Section 2 is the material portion of this Validation Act, and it reads:
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.
22. The date of 1st April, 1951, was apparently chosen as between 26th January, 1950, the commencement of the Constitution and 31st March, 1951, the President exercised his powers under the proviso to Clause (2) of Article 286. That enabled the President to promulgate an order directing 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 the Constitution, continue to be levied until 31st of March, 1951. 6th September, 1955, is the date of the decision of the Supreme Court in the Bengal Immunity case  6 S.T.C. 446. Prior to this Act there was an Ordinance, the Sales Tax Laws Validation Ordinance No. III of 1956, which was in terms similar to the provisions in the Act. Constitutionality of the Validation Act was challenged before the Supreme Court in Sundararamier's case  9 S.T.C. 298 but without success.
23. The scope of Section 2 of the Validation Act has been explained in Sundararamier's case  9 S.T.C. 298 in these words:
Section 2 of the impugned Act which is the only substantive enactment therein makes no mention of any validation. It only provides that no law of a State imposing tax on sales shall be deemed to be invalid merely because such sales are in the course of inter-State trade or commerce. The effect of this provision is merely to liberate the State laws from the fetter placed on them by Article 286(2) and to enable such laws to operate on their own terms. The true scope of the impugned Act is, to adopt the language of this Court in the decisions in the United Motors case  4 S.T.C 133 and the Bengal Immunity Company case  6 S.T.C. 446, that it lifts the ban imposed on the States against taxing inter-State sales and not that it validates or ratines any such law.
24. Now, what is the ban that is lifted under the Validation Act It is logical to assume-indeed such assumption is inevitable-that the Parliament can remove a ban only if the Constitution permits. If the Constitution prescribes an irremovable ban, it would be in excess of the powers of the Parliament to purport to lift the ban or unfetter the State to enable it to tax sale or purchase in the course of inter-State trade or commerce. This is really a thorny problem, and, so far as we are able to see, there is no decision of the Supreme Court which can be so construed as to lead to the conclusion that an inter-State sale or purchase 'outside' the taxing State can be taxed by State law provided the Parliament permits it or to use the language of the Supreme Court, 'lifts the ban'.
25. We shall now refer to the Ashok Ley land case  12 S.T.C. 379, which has been considerably relied upon by the learned Government Pleader in support of his contention that the Validation Act liberates the taxing power of the State qua inter-State trade or commerce even to the extent of permitting the State to levy tax on outside sales provided the taxing enactment is sufficiently clear and wide in its terms to cast the net of taxation. The facts in the Ashok Leyland case  12 S.T.C. 379 are as follows : The assessee was a firm with its factory at Ennore in the State of Madras, manufacturing, assembling and selling motor vehicles, spare parts and accessories. The system of distribution of its manufactured products consisted of the appointment of a distributor called dealer with a definite territorial jurisdiction both inside and outside the State of Madras. Every such dealer had the monopoly right of selling the products of the firm within the territory allotted to him. If the territory of the dealer is outside the State of Madras, the agreement between the dealer and the assessee provided for the delivery of the products by consignment, by rail or steamer or road transport. The case set up by the assessee was that a substantial number of motor vehicles and accessories thereof were consigned to the dealers in other States either by rail or steamer, but due to want of such transport facilities, a number of vehicles were also transported by road. In the year relevant to the assessment year 1952-53, the assessee contended that a sum of Rs. 42 lakhs was not liable to be included in his turnover, as that amount represented the transactions in the course of inter-State trade or commerce. The Commercial Tax Officer overruled the objection except to a very small extent. The assessee preferred an appeal to the Sales Tax Appellate Tribunal, Madras, and again objected to the inclusion of Rs. 42 lakhs in the taxable turnover. The Tribunal held that a sum of Rs. 12,48,403 odd representing the value of vehicles driven away on their own motive power through the assessee's own drivers to the place of business of the nonresident dealers, was not liable to sales tax. The assessee preferred a revision to this Court Under Section 12-B (1) of the Act, and repeated the contention that the sales in question were exempt from the tax under Article 286 of the Constitution. In the court, the liability to tax was challenged in respect of the following four items :
(1) A sum of Rs. 1,43,072 odd representing the value of vehicles delivered ex-factory to the dealer's drivers (the vehicles were driven away by those drivers after temporary registration of the vehicles in the name of the dealer, outside the State of Madras).
(2) A sum of Rs. 28,01,357 odd representing the value of vehicles delivered to the drivers of the dealers (the trade number of the dealers outside the State of Madras).
(3) A sum of Rs. 7,866 odd representing the value of spare parts or other accessories delivered along with the cars.
(4) A sum of Rs. 15,000 representing the value of spare parts consigned to the dealers (these were delivered to the dealers outside the State of Madras and the consignments were sent by rail or steamer).
26. This Court repelled the contention of the assessee in respect of the first three items, holding that they fell outside the constitutional ban under Article 286. In respect of the fourth item the order of the Tribunal was modified, in the view that it came within the scope of Article 286. It was from this decision that the assessee preferred an appeal to the Supreme Court. The question that was raised in the Supreme Court was whether, in view of the Validation Act of 1956, the assessee could resist taxation by the State. The learned Attorney-General appearing for the assessee advanced two arguments in support of his contention that the Validation Act would not apply to the transactions in question. His first argument was that the Act applied only when the law of the State imposed, in express terms, a tax on the sale or purchase of any goods in the course of inter-State trade or commerce. This contention was negatived. The second argument was that, by reason of Section 22 of the Act (Madras General Sales Tax Act, 1939) inserted by Madras Act 1 of 1957, the Act imposed no tax on transactions under consideration in the appeal, and that it merely imposed a tax on transactions which were generally known as Explanation sales. Dealing with this contention, his Lordship S. K. Das, J., delivering the judgment of the Bench, observed thus at page 387 :
The argument of the learned Attorney-General is that the new section which operates retrospectively from January 26, 1950, talks of sales in which the goods are delivered for consumption in the State of Madras ; in other words, of Explanation sales only; therefore, the Act does not operate on sales of an inter-State character other than Explanation sales. We are unable to agree. First of all, Sub-section (2) of new Section 22 makes it quite clear that the section does not affect the liability to tax of any sale or purchase under any other provision of the Act. Secondly, after Parliament had lifted the ban imposed by Article 286(2), it was unnecessary to repeat the provisions of that article in the Act and old Section 22 in so far as it repeated Article 286(2) became otiose. Therefore, new Section 22 has not the effect of subtracting something from the power to tax conferred on the State by the charging section, Section 3, read with the definition of 'sale' in Section 2(h). To repeat what we have said earlier : after the removal of the fetter of Article 286(2), the Act operating on its own terms makes the transactions in question liable to tax, and new Section 22 makes no difference to that position.
For these reasons, we are unable to accept as correct the arguments advanced on behalf of the assessee.
27. We may now refer to Explanation (2) of Section 2(h) which reads:
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.
28. This has to be read along with the restrictions imposed by the Constitution on States' power to tax sale or purchase in the course of inter-State trade or commerce. Otherwise the provision itself would be ultra vires and unconstitutional. We, therefore, come back to the question whether Clause (2) of Article 286 has conferred a general power on Parliament to lift the ban in respect of sale or purchase in the course of inter-State trade or commerce irrespective of the fact that quoad the taxing State, sales or purchases were really outside its territorial limits. Notwithstanding the fact that there has been a clear elucidation of the scope of the Validation Act, if we may say so with respect, by the Supreme Court, it would not be unreasonable to assume that their Lordships were not departing from the principles already laid down in the Bengal Immunity case  6 S.T.C. 446. If we have understood the decision in the Bengal Immunity case  6 S.T.C. 446 correctly, the ban on the States' power to tax outside sales is permanent and irremovable ; and Article 286(2) has to be read only as enabling the Parliament to lift the ban on 'inside' sale or purchase of the taxing State. It must be noted that it was held in the Bengal Immunity case  6 S.T.C. 446, that even 'inside sales' or 'Explanation sales', as they may be called, should not be taxed by the State, as it was in the chain of inter-State trade or commerce unless the ban is lifted by the Parliament. It seems to us that the Validation Act only provided for lifting of the ban to the extent to which the Parliament was permitted to do so under the clear terms of the Constitution. We are unable to agree with the contention that Article 286(2) completely overrides Article 286(1) leading to the result that provided the Parliament exercises its power, sale or purchase in the course of inter-State trade or commerce could be indiscriminately taxed by all the States. We do not think that such a construction of the constitutional provision is warranted by its phraseology. There was no necessity on the part of the framers of the Constitution to define an 'inside' sale with a view to ascertain what is an 'outside' sale, if the ban could be removed by reason of the operation Article 286(2). If the plain intendment of the Constitution was merely to indicate a ban in regard to all sales or purchases in the course of inter-State trade or commerce, subject to its removability at the instance of the Parliament, less cumbrous language would have been used. Article 286(1) would have stated that no law of the State shall tax any sale or purchase in the course of inter-State or commerce, and then made it subject to Article 286(2), that is, that the State could levy such tax if the Parliament were to enable to do so. The significance of a ban in respect of sale 'outside' the State, as mentioned in Article 286(1), and the punctilious care taken to define what the outside sale is, shows, to our minds, that the intention of the framers of the Constitution was that no law of the State should tax a sale or purchase in the course of inter State trade or commerce which is extra-territorial in character. It is clear that Article 286(1) covers inter-State sale or purchase, though in terms it does not say so. Both the United Motors case  4 S.T.C. 133 and the Bengal Immunity case  6 S.T.C. 446 have expressed this view. It is not conceivable that the Constitution enacted a ban on a mere 'outside sale' in regard to a taxing State, irrespective of its inter-State character. Even without any constitutional provision, Madras State cannot tax a sale or purchase in Bihar or vice versa. It is, therefore, quite plain, there being no scope for misapprehension, that the Constitution has clamped upon the States' power to tax sale or purchase in the course of inter-State trade or commerce, a fetter, which if such sale or purchase is outside the taxing State is incapable of being loosened except by an amendment of the Constitution.
29. In Ramaswami Mudaliar and Co. v. State of Madras  13 S.T.C. 785, we had occasion to consider the scope of the Validation Act and the State's power to tax in the course of inter-State sale or purchase in the light of the constitutional provision. At page 794 we observed thus :
The position that emerges as a result of the elucidation of the law by the Supreme Court can be summed up thus. The Constitution has imposed a ban on the State's power to tax transactions of inter-State sale or purchase. This ban can however be lifted or removed by Parliament. But even if the ban is removed no State can tax an interState sale which takes place outside its territorial limits. What is an 'outside sale' is defined by the Constitution by the Explanation to Article 286(1) which states what should be deemed to be an 'inside sale'. The irresistible inference is that an 'inside sale' falling within the terms of the Explanation can be taxed if the Parliament lifts the ban under Article 286(2). If the terms of the Explanation do not cover a particular inter-State sale then the question whether the sale is an 'outside sale' qua the taxing State has to be determined by finding out the place where the property in the goods passes. In respect of an inter-State sale not falling within the Explanation to Article 286(1)(a) on the lifting of the ban by the Parliament under Article 286(2) the State wherein the property in the goods passes may levy tax if the words of the taxing section of the enactment are wide enough to cover such a transaction. We do not think that the Ashok Leyland case  12 S.T.C. 379 relied upon by the learned counsel for the petitioners can at all help him to press his contentions.
30. We see no reason to differ from the view which we have already taken in that case and we say so after hearing the strenuous contention urged now before us on behalf of the State.
31. In the view we have expressed that all the sales by the assessee to the Bangalore carpet dealer were really non-Explanation sales with reference to the Madras State, and were sales outside the State of Madras, we do not think that the State can justify the assessment of his business turnover, because of the Validation Act or because of the principle laid down in the Ashok Leyland case  12 S.T.C. 379. It is conceded on behalf of the Government that, if the assessee were to succeed in his revision petitions, the petitions filed by the Government cannot be sustained. In the result, T. C. Nos. 202 and 203 of 1961 are allowed. The petitioner will get his costs from the State in T. C. No. 202 of 1961. T. C. Nos. 155 of 1961 and 22, 23 and 24 of 1962 are dismissed, but without costs. We wish to make it clear, that we are not expressing any opinion on the merits of the contentions raised by the State in their revision petitions.