1. This matter came before us once; but it was sent back to the Board of Revenue for its fresh disposal after a finding whether the goods were delivered outside the State for consumption. The Board has since stated that no proof was forthcoming from the assessee on the aspect of consumption outside the State and, thus, it sustained the imposition of tax. But it did so under explanation (2) to Section 2(h) of the Madras General Sales Tax Act.
2. The turnover in dispute is a sum of Rs. 7,32,954.37 which relates to the period from 1st. April, 1955, to 6th September, 1955. That the transactions constituting the turnover were inter-State in character, is no longer in dispute. The only question is whether the tax on non-explanation sales effected during the period could be the subject of validation under the Sales Tax Laws Validation Act, 1956.
3. In view of the argument presented to us, it is necessary to briefly notice the state of law prior to and after the Constitution in respect of taxation on inter-State sales. Prior to the Constitution, there was no ban on States' powers to tax inter-State sales. That was held in Poppatlal Shah v. State of Madras  4 S.T.C. 188 . Explanation (2) to Section 2(h) defines a sale as a transfer of 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. The scope of this definition was expanded by inclusions and explanations. The second explanation introduced by Madras Act 25 of 1947 sought to include within the scope of definition of sale an inter-State sale, if the goods were actually in the State at the time when the contract of sale or purchase thereof was made. Explanation (2) states:
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.
4. Article 286(1) and (2) imposes certain bans on levy of tax on inter-State sales. By Article 286(1)(a), no State could tax an outside sale. The explanation to Article 286(1)(a) imposes a further ban by enacting that a sale of goods delivered for consumption outside the State shall be regarded as an outside sale. Clause (2) of Article 286 forbade States from imposing a tax on inter-State sales, unless Parliament otherwise provided. Before me Bengal Immunity case  6 S.T.C. 446 , the position as held by the decisions of the Supreme Court was that, by reason of the explanation to Article 286(1)(a), what was inter-State sale was converted into an outside sale. In other words, the inter-State character involved in the explanation sale was masked, with the result the ban under Article 286(1) and (2) did not apply to the power of, the State to charge an explanation sale. In the Bengal Immunity case  6 S.T.C. 446 , however, the Supreme Court did not accept the mask theory; but held that Article 286(2) imposed an independent ban, which, unless removed by Parliament by appropriate provision, would still apply, so that, without such legislation, the delivery State could not bring to tax an explanation sale. This created a difficult situation for the several States which had, on the strength of the earlier law as declared by the Supreme Court, imposed tax on the explanation sales. In order to remove that difficulty, the Sales Tax Laws Validation Ordinance, 1956, was promulgated and it was followed by the Sales Tax Laws Validation Act, 1956. Section 2 of the Act 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.
5. The contention for the assessee is that, notwithstanding the Sale Tax Laws Validation Act, the tax imposed under the pretext of the words in explanation (2) to Section 2(h) read with Section 3 was unauthorised. It is said that the whole purpose of the Validation Act was to validate tax which had been imposed by the several States on what may be called consumption sales falling within the ambit of the explanation to Article 286(1)(a) and also to validate the law authorising imposition of fax on inter-State sales. We are told that, as a matter of fact, before the Constitution, there was no law made by any State which authorised the imposition of tax on inter-State sales as such, and that explanation (2) to Section 2(h) cannot be construed as a law authorising imposition of tax on inter-State sales, for, as may be clear from the language employed in the explanation, it merely deemed a particular type of inter-State sale as inside sale and imposed tax on the said sale. So it is said, the Validation Act will not help the State to retain the tax as having been validly imposed.
6. Though the argument so presented is a new one, in the sense, that, in the form, it did not appear to have been presented in any earlier case, we are satisfied that we cannot accept it. There are two reasons why we take that view. One is, the subject of explanation (2) to Section 2(h) is, in fact, an inter-State sale. It is true the explanation, by deeming, regarded such a sale as inter-State sale so as to include it within the definition of sale. But that, in our opinion, will make no difference to the true character of the sale covered by the explanation as an inter-State sale statutorily deemed as an inside sale. From the standpoint of validity of tax imposed on a sale comprehended by the explanation, we are of the view that the tax is authorised. The second reason which prompts us to take the view, we have taken, is that it is not mere practice but the language employed by the charging provision read with the definition that should be the basis of our interpretation. We agree that the Validation Ordinance and the Act were brought into being in order to save the States from the obligation of refunding the tax imposed under the authority of law as explained by the Supreme Court before the Bengal Immunity case  6 S.T.C. 446 and that, in a way, related to the consumption sales covered by the explanation to Article 286(1)(a). But the language of the Validation Act does not limit the saving to the explanation sales alone. For the Validation Act to apply, the test is whether there was a law prior to the Validation Act which authorised the imposition of tax on the sale or purchase of goods which took place in. the course of inter-State trade or commerce. Since our view of explanation (2) to Section 2(h) is that it does in substance and in truth levy a tax read with the charging section on an inter-State sale deemed for the purpose of inclusion as an inside sale, that provision, as we think, is covered by the Validation Act. It follows that the tax case fails and is dismissed with costs. Counsel's fee Rs. 250.