# INDIAN COPPER CORPORATION LTD v. THE STATE OF BIHAB, AND OTHERS

- **Citation:** [1961] 2 S.C.R. 276
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal The State of No. 210 of 1959
- **Bench:** S. K. Dab, M. Hidayatullah, K. c. DAS GUPTA, J. C. Shah, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indian-copper-corporation-ltd-v-the-state-of-bihab-and-others-2227
- **Pages:** 20

## Headnote

Sales Tax-" Explanation Sales "-Sale in one State but delivery outside-Consumption not in State of first destination-Whether "outside" sale-Constitution of India, Art. 286(I)(a)-Bihar
Sales Tax Act, r947 (Bihar XIX of z947), ss. 2(g) and 33.
The appellant effected sales during the period 26-1-1950 to
31-3-1950, whereunder the property in the goods passed in the
State of Bihar but delivery was effected outside Bihar for consumption outside Bihar. In some of these sales the goods were
delivered in the State of first destination for consumption therein whilst in other cases the goods were not for consumption in
the State of first delivery of destination. The appellant contended that both these categories of sale were exempt from tax
under Art. 286(r)(a) as they were outside sales.
Held (per Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ.) that the sales where delivery in the State of first destination was for consumption therein, were outside the State of
Bihar within the Explanation to Art. 286(1)(a) and Bihar could
not tax them, but the sales where delivery in the State of first
destination was not for consumption therein were not " Explana-
,tion Sales " and were not " outside " sales and Bihar could tax
them. Where the property in the goods passed within the State
as a direct result of the sale the sale was not an "outside " sale
for the purpose of Art. 286(r)(a) unless it fell within the Explanation. In the first category of sales the appellant was entitled
to the exemption and it was not necessary for it to prove that
the goods delivered for consumption in the State of first destination were actually consumed therein.
.
The State of Bombay v. United Motors (India) Ltd., [1953]
S.C.R. 1069 and Bengal Immunity Company Ltd. v. The State of
Bihar, [1955] 2 S.C.R. 603, referred to.
Burmah Shell Oil Storage & Distributing Co. of India Ltd. v.
The Commercial Tax Officer, C. A. No. 751 of 57 and C. A. No. ro
of 1958 (Unreported), relied on.
Per S. K. Das and Shah, JJ.-Section 33 introduced in the
Bihar Sales Tax Act by the Adaptation of Laws Order, 1951, engrafted the same restrictions on the taxing power of the State on
the pre-Constitution statutes as were imposed by Art. 286 upon
post-Constitution statutes. Section 33(1)(a)(i) of the Act took
awav only the power to tax " Explanation Sales" but not the
pow'er to tax" non-Explanation Sales". A sale in which goods
had been delivered outside Bihar, but not as a direct result of
2 S.C.R. SUPREME COURT REPORTS
277
the sale or not for the purpose of consumption in the State of
first delivery was not covered by the Explanation, and the
right to tax the sale, if it arose otherwise under the Act, was
Indian Copper
not impaired by s. 33(1)(a)(i).
Corporation Ltd.
v.

## Text

_Characters 0–39,939 of 44,725. This is a partial read: ask again with offset=39939 for what follows._

November 7.
276
SUPREME COURT REPORTS
[1961)
INDIAN COPPER CORPORATION LTD.
v.
THE STATE OF BIHAB, AND OTHERS.
(S. K. DAB,
M. HIDAYATULLAH, K. c. DAS GUPTA,
J. C. SHAH and N. RAJAGOPALA AYYANGAR, JJ.)
Sales Tax-" Explanation Sales "-Sale in one State but delivery outside-Consumption not in State of first destination-Whether "outside" sale-Constitution of India, Art. 286(I)(a)-Bihar
Sales Tax Act, r947 (Bihar XIX of z947), ss. 2(g) and 33.
The appellant effected sales during the period 26-1-1950 to
31-3-1950, whereunder the property in the goods passed in the
State of Bihar but delivery was effected outside Bihar for consumption outside Bihar. In some of these sales the goods were
delivered in the State of first destination for consumption therein whilst in other cases the goods were not for consumption in
the State of first delivery of destination. The appellant contended that both these categories of sale were exempt from tax
under Art. 286(r)(a) as they were outside sales.
Held (per Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ.) that the sales where delivery in the State of first destination was for consumption therein, were outside the State of
Bihar within the Explanation to Art. 286(1)(a) and Bihar could
not tax them, but the sales where delivery in the State of first
destination was not for consumption therein were not " Explana-
,tion Sales " and were not " outside " sales and Bihar could tax
them. Where the property in the goods passed within the State
as a direct result of the sale the sale was not an "outside " sale
for the purpose of Art. 286(r)(a) unless it fell within the Explanation. In the first category of sales the appellant was entitled
to the exemption and it was not necessary for it to prove that
the goods delivered for consumption in the State of first destination were actually consumed therein.
.
The State of Bombay v. United Motors (India) Ltd., [1953]
S.C.R. 1069 and Bengal Immunity Company Ltd. v. The State of
Bihar, [1955] 2 S.C.R. 603, referred to.
Burmah Shell Oil Storage & Distributing Co. of India Ltd. v.
The Commercial Tax Officer, C. A. No. 751 of 57 and C. A. No. ro
of 1958 (Unreported), relied on.
Per S. K. Das and Shah, JJ.-Section 33 introduced in the
Bihar Sales Tax Act by the Adaptation of Laws Order, 1951, engrafted the same restrictions on the taxing power of the State on
the pre-Constitution statutes as were imposed by Art. 286 upon
post-Constitution statutes. Section 33(1)(a)(i) of the Act took
awav only the power to tax " Explanation Sales" but not the
pow'er to tax" non-Explanation Sales". A sale in which goods
had been delivered outside Bihar, but not as a direct result of
2 S.C.R. SUPREME COURT REPORTS
277
the sale or not for the purpose of consumption in the State of
first delivery was not covered by the Explanation, and the
right to tax the sale, if it arose otherwise under the Act, was
Indian Copper
not impaired by s. 33(1)(a)(i).
Corporation Ltd.
v.
CIVIL APPELLATE JURISDICTION:
Civil Appeal
The State of
No. 210 of 1959.
Bihar & Others
Appeal by special leave from the judgment a.nd
order dated J anua.ry 16, 1958, of the Patna. High Court
in Mis. Judicial case No. 156of1957.
B. O. Ghose a.nd P. K. Chatterjee, for the Appellant.
S. P. Varma, for Respondents Nos. 1 to 5.
R. O. Dutta, for Respondents Nos. 6 to 20.
1960. November 7. The Judgment of Hida.ya.-
tulla.h, Das Gupta. a.nd Ayya.nga.r, JJ., was delivered
by Ayya.nga.r, J., a.nd that of S. K. na.s and Shah, JJ.,
was delivered by Shah, J.
AYYANGAR J.-The sole question which a.rises in
Ayyangar J.
this a.ppea.l, which comes by way of special leave is a.s
to whether sales under which goods were delivered
outside the State of Biha.r for the purpose of consump·
tion but not within the State of first delivery or first
destination, a.re exempt from the levy of sa.les-ta.x by
the Biha.r State by virtue of Art. 286(l)(a.) of the Constitution a.s it stood before the recent amendment.
The India. Copper Corporation Ltd. (referred to hereafter a.s the a.ssessee-compa.ny) carries on business in
copper a.nd various other materials a.nd mineral products a.nd the office of its Genera.I Ma.na.ger is in the
district of Singhbhum in Biha.r. The period covered
by the assessment now in dispute is Ja.nua.ry 26, 1950
to Ma.rob 31, 1950. The normal practice of the a.ssessee-compa.ny wa.s to deposit sums of money from time
to time provisionally towards payment of sales-tax in
a.dva.noe a.nd ha.ve the a.mount finally adjusted after
the completion of the a.sseBBment of ea.ch yea.r. The
a.sseBBee-compa.ny followed this practice in respect of
the a.mount of sa.les-ta.x due by it for the year 1949-50.
For the financial year April 1, 1949 to ·March 31,
1950, the Superintendent of Sa.les-ta.x, Singhbhum,
Indian Copper
Corporation Ltd.
v.
The State of
Bihar & Others
Ayyangar ].
278
SUPREME COURT REPORTS
[1961]
computed the tax liability of the company in the sum
of Rs, 3,60,703-4-0 by an order of assessment dated
November 13, 1950, and the company made payment
of the amount due by it beyond the sums already
paid. It would be noticed that this financial year
comprised two periods-(!) before the Constitution,
viz., April 1, 1949 to January 25, 1950, and (2) the
post.Constitution period from January 26, 1950 to
March 31, 1950. There is now no controversy as
regards the sales-tax payable in respect of sales
effected during the pre-Constitution period.
The
assessee-company however raised a dispute that in
respect of the post-Constitution period, 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
outside that State on the ground that such sales were
exempted from tax by Art. 286(l)(a) of the Constitution as it originally stood. It addressed a formal
letter to the Commissioner of Commercial Taxes,
Bihar, on December 30, 1952, making this demand
enclosing a statement showing full particulars of the
goods sold, the bill numbers, the date and the amount
etc., to enable the refund claimed to be calculated.
The assessee-compa.ny followed it up by a formal
petition for review of the assessment order by filing
a revised return under s. 12(2) of the Bihar Sales-tax
Act together with an application for refund. The
departmental authorities rejected these applications
by order dated July 20, 1953. Further proceedings
before the department by way of revision etc. failed
to secure to .the assessee-compa.ny the relief which it
claimed and thereafter it filed an application under
Arts. 226 and 227 of the Constitution before the High
Court of Patna praying for the issue of a writ to
qua.sh the order of assessment dated November 30,
1950, and the orders rejecting the prayers for review,
reassessment and refund and for a direction to the
departmental authorities to refund the sum realised
by them in so far as the tax related to sales as a result
of which goods were delivered outside the State of
Biha.r for consumption outside the State of Biha.r.
2 S.C.R. SUPREME COURT REPORTS
279
The learned Judges of the High Court held that the
196o
order of the Superintendent of Sales-tax, Singhbhum,
1 a·
.r PP
'
.
n san vo
er
dated November 13, 1950, should be set aside and Corporation Ltd.
that the matter should go back to the Superintendent
v.
to make a reassessment according to law for the postThe State of
Constitution period. A further direction was added Bihar & Others
requiring the respondent to refund to the assessee so
much of the tax as had been paid in excess of the
Ayyangar J.
amount of reassessment to be made by the Superintendent in accordance with the law as laid down by
the Court. In formulating the law applicable, the
learned Judges drew a distinction between sales as
a direct result of which goods were delivered in a
State outside the State of Bihar and consumed in that
State and those cases in which the goods thus 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 Art. 286
(l)(a) 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,
however, to the second category of sales, it was held
.that they were not within the Explanation and were
therefore outside the constitutional exemption under
Art. 286(l)(a).
The assessee-company not being satisfied, filed an
application to the High Court for a Certificate of fitness under Arts. 132 and 133 of the Constitution, but
this having been rejected, they applied to and obtained special leave from this Court under Art. 136 of the
Constitution and that is how the appeal is now before
us.
Three points were urged before us by Mr. B. C ..
Ghose, learned Counsel for the appellants: (1) that on
a proper construction of Art. 286(l)(a) and the Explanation thereto (as it stood before the Article was
a.mended by the Constitution Sixth Amendment Act,
1956) every sale as a direct res.ult of which goods were
delivered for consumption outside the State, was not
within the taxing power of the State in which the
.r960
Indian Copper
Corporation Ltd.
v.
The Slate oj
Bihar & Others
Ayyangar J.
280
SUPREME COURT REPORTS
[1961]
goods were at the time of the sale, and in which property passed as a result thereof, and that it was
immaterial whether the delivery was for the purpose
of consumption in the State of first destination or
whether the delivery in such State was not for the
purpose of consumption therein but, for re-export to
other States, (2) that even if Art. 286(l)(a) exempted
only sales in which as a direct result of the sale the
goods were delivered for the purpose of consumption
in the State of first destination, on the pleadings and
the evidence before the Court the assessee-company
must be taken to have established that all the sales
effected by it and in regard to which exemption from
payment of tax was claimed, conformed !o this
requirement, (3) a. narrower submission, that even it
be that to fall within the Explanation the delivery has
to be for the purpose of consumption in the State of first
destination, the learned Judges of the High Court
erred in requiring the assessee-company to prove not
merely that the goods were delivered for the purpose
of consumption but further that the goods so delivered
were actually consumed within that State.
We shall now deal with these points in that order.
Article 286(I)(a) together with the Explanation on
whose construction the first point depends ran in these
terms:
"Article 286(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; ::ir
(b), ......................................... --..................... .
Explanation.-For the purposes of sub.clause (a)
a sale or puchase shall be deemed to have ta.ken 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 genera.I Ia w relating
to sale of goods the prope:·ty in the goods has by
reason of such sale or purchase passed in another
State."
The scope and the purpose of this ,Explanation was
' .
2 S.C.R. SUPREME COURT REPORTS
281
discussed and explained by this Court in The State of
I960
Bombay v. United Motors (India) Ltd. (1) and it is the Indian Copp
passage in this judgment extracted below on which Corporation ~;d,
reliance was placed by the learned Counsel in support
v.
of his submission:
The State of
" ............ The authors of the Constitution had to Bihar & Othm
devise a formula of restrictions to be imposed on the
Ayyangar J.
State-power of taxing sales or purchases involving
inter.State elements which would avoid the doubts and
difficulties arising out of the imposition of sales-tax on
the same transaction by several Provincial Legislatures in the country before the commencement of the
Constitution. This th~y did by enacting clause (1) (a)
with the Explanation and clause (2) of Article 286.
Clause (l)(a) prohibits the taxation of all sales or purchases which take place outside the State but a
localised sale is a troublesome concept, for, a sale is a
composite transaction involving as it does
severe.~
elements such as agreement to sell, transfer of ownership, payment of the price, delivery of the goods e.nd
so forth, which may take place at different places •
............ To solve the difficulty an easily applicable
test for determining what is an outside sale had to be
formulated, and that is what, in our opinion, the
Explanation was intended to do. It 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 ta.ken place, notwi,thsta.nding the property in such goods passed in another State
•........... An "outside" sale or purchase is explained
by defining what is an inside sale, and why actual
delivery and consumption in the State a.re ma.de the
determining factors in locating a. sale or purchase will
presently appear. The test of sufficient territorial
nexus was thus replaced by a simpler and more easily
worka.ble test: Are the goods actua.lly delivered in the
taxing State, a.a a. direct result of a. sa.le or purchase,
for the purpose of consumption therein ? Then, such
sale or purchase shall be deemed to ha.ve taken pla.oe
(1) [i;i53] S.C.R. 1o6g, Io8I.
36
282
SUPREME COURT REPORTS
[1961]
r96o
in that State and outside all other States. The latter
I d .
c
States are prohibited from taxing the sale or purchase;
nianoppu h"
j
.. Jff
d
MJ'J
Co•·pomtion Ltd. t e iormer a one 1s e t ree to o so.
u tip e taxav.
tion of the same transaction by different States is also
The Slate of
thus avoided."
Bih"' & Othm
It might be mentioned that this portion of the
judgment is unaffected by the dissent expressed in the
Ayyanga' f.
later decision in The Bengal Immunity Company Ltd.
v. The State of Bihar (').
The argument based upon
this passage was broadly on these lines: Article 286
(l)(a) imposes a ban on the legislative power to levy a
tax on sales which are "outside" the taxing State.
What sales are "outside" is not easy to decide because
that depends upon "the situa" of a sale, which cannot,
in most cases, be located in any one place with
certainty-being dependent on a variety of factors
which might or might not converge. The Constitution
makers did not directly define what was meant by a
sale that was " outside the State " but achieved the
same purpose by explaining an " inside" sale with the
result that what was not an "inside" sale should be
held to be an "outside" sale. It must however be
pointed out that it was not disputed that the terms of
ohe " Explanation " would not be satisfied unless the
delivery was for the purpose of consumption therein,
i.e. in the State of first destination. If the terms of the
Explanation were satisfied, the State of "deliverycum-consumption ",(to coin a convenient expression to
designa~e the State in which goods are delivered as a
direct result of the sale for the purpose of consumption therein), used in the Explanation, would have
power to tax the sale as being one fictionally " inside"
it. In such an event all the other States in India,
barring that State would be prevented from taxing
that sale because the sale would be "outside " those
States. This however, it was urged, would not exhaust
the operation of the Explanation, but further that the
Explanation was exhaustive of what the Constitution
makers conceived to be a sale which alone may be the
subject of tax by a State. The deduction learned
Counsel made from these premises was twofold (I) that
(1) [1955J 2 s.c.R. 603.
2 S.C.R. SUPREME COURT REPORTS
283
in cases where goods were as a direct result of the sale
i96o
delivered outside the State of Bihar for the purpose of r
. c
'
·
th
St t
f fi
d
t '
t'
th
ndian
opper
consumpt10n in
e
a e o
rst
es rna 10n,
e Corporation Ltd.
conditions of the Explanation were satisfied and the
v.
sales being "outside " the State of Bihar could not be
The State of
taxed by that State. So far there is no dispute and Bihar & Others
indeed the learned Judges of the High Court have,
subject to a matter of detail to which reference will
Ayyangar 1·
be made later, accepted the contention of the assessee.
(2) a further cons.equence, that in cases where goods
were delivered as a result of the sale o~tside the State
of Bihar, but not for the purpose of consumption in
such State of first destination, the terms of the Explanation were no doubt not satisfied and consequently
the sale was not inside such State of delivery and
indeed not "inside " any State in India within the
Explanation, but that such sales also must be held to
be "outside " every State in India within Art. 286
(l)(a).
The learned Judges of the High Court repelled this
contention and, in our opinion, correctly. Tlie passage
in the judgment of the United Motors case extracted
earlier dealt with Explanation sales and with none
else. 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 St,ates. In such cases therefor::i,
only the State "inside" which the sale is deemed to
take place by virtue of the Explanation, is exempt
from the ban imposed by Art. 286(l)(a).
All other
States would be subject to that ban in respect of such
sales.
The learned Chief Justice however did not, in the
passage extracted, deal with the case of sales which
did not satisfy the terms of the Explanation. The
situs of what might be termed 'non-Explanation'
sales has therefore to be determined independently of
the terms of the Explanation. Such sales would be
exempt from tax only if the sale took place" outside "
the State but not otherwise.
The next question is, does a sale take place "outside" the State, where as a result of the contract of
Indian Coppef'
Corporation Ltd.
v.
Th.e State of
Bihar 6· Others
Ayyangar ].
284
SUPREME COURT REPORTS
[1961]'
sale, the property in the goods passes to the purchaser
within the State; in other words, is a sale completed
by the passing of property within the State not " inside" a State, for the mere reason that as a direct result
of the sale the goods are delivered outside the State.
The answer depends on the meaning to be attributed
to the words "a sale or purchase which has taken
place" outside the State occurring in the body of
Art. 286 (I). The expression "outside the State" is
capable of being understood in more ~enses than one.
It could be umjerstood as comprehending cases where
no element or ingredient which constitutes a sale takes
place within the State; in other words as applying
solely to those cases where there exists no territorial
nexus between the State imposing the tax and the
sale. Obviously, this could not have been intended
. to be incorporated in Art. 286(1) because the tax in
such cases would he beyond the legislative power of
the State under Entry 54 of the State List read with
Art. 246 of the Constitution. The expression "outside " has therefore to be understood not as a sale so
"outside" as not to have any territorial connection
between the State in question and the sale, but in a
somewhat narrower sense.
The real difficulty arises
in ascertaining the precise content of the narrower
sense in which the word is used as meaning a sale in
substance "outside" the State, though there might
be some elements of the sale which if the exemption
under Art. 286(l)(a) were not enacted, would enable a
State to levy a tax on the sale on the ground that it
was within the legislative power of the State under
Art. 246 read with Entry 54.
As already pointed out, the situs of a sale is not
easy to determine and several factors which constitute a completed transaction of sale including the
delivery of the goods, !ay claim to be considered as in
themselves constituting sufficient nexi to justify their
being treated as determining the locus of a sale.
Thus, merely by way of illustration, the place where
the goods are at the time of the contract of sale, the
place where the contract of sale is concluded, the
place where the property in the goods passes and that
I ;
2 s.c.R. SUPREME COURT REPORTS
285
in which the delivery takes place compete for recognition as constituting the locus of a sale.
Before the
Constit,ution, these and other similar factors were
treated as affording sufficient territorial connection to
endow the State in which any of the events occurred
with legislative competence to tax the sale. This led
to a multiplicity of the taxation of the same transaction of sale by a plurality of States, with the result
that the consumer was hard hit and trade itself, and
natfonal economy suffered in the process. It has been
pointed out that Art. 286(l)(a) was designed to counteract that state of affairs.
If a single State was designed to have the power to
tax any particular transaction of sa.le, the question
that next falls to be considered is the determination
of that State in regard to which it could be predicated
that the sale in question was not "outside" that
State or in other words, the determination of the
particular State in regard to which it could be said
that the sale was " inside " that State. The key to
the problem is afforded by two indications in the
Article itself: (1) the opening words of Article 286(1)
which speak of a sale or purchase taking place and
(2) the non-obstante clause in the Explanation which
refers to the general law relating to " sale of goods
under which property in the goods has, by reason of
such sale or pu.rchase, passed in another State." These
two together indicate that it is the passing of propertv
within the State that is intended to be fastened o~,
for the purpose of determining, whether the sale in
question is "inside " or "outside" the State, and
therefore, subject to the operation of the " Explanation" that State in which property pa!:!ses would be
the only State which would have the power to levy a
tax on the sale.
As was explained in the recent decision of this Court in Burmah Shell Oil Storage &
Distributing Co., of India, Ltd. v. The Commercial Ta.x
Officer (1) :
"By sale here (Art. 286(l)(a)) is meant a completed transaction by which property in the goods pass.ei:;.
Before the property in the goods passes, ' the contract.
(1) C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported).
Indian Copper
Corporation Ltd.
v.
The State of
Bihar & OtheYs
Ayyangar ].
Indian Copper
Corporation Ltd.
v.
The State of
Bikar & Olhet'S
Ayyangar J.
286
SUPREME COURT REPORTS
[1961]
of sale is only executory, and the buyer has only a
chose in action.' ............... The Constitution thinks in
terms of a completed sale by the passing of property
and not in terms of an executory contract for the sale
of goods.''
Notwithstanding that is not an " outside " sale, the
power of the State to tax might be negatived by the
operation of the Explanation which by its nonobstante clause-shifts the situs of the sale and renders
the sale transaction one within the de!ivery-cnm-consumption State, i.e. as the State in which the sale
transaction must be deemed to take place. Where the
terms of the Explanation are satisfied, the sale transaction will, by a legal fiction created by it, be deemed
to take place " inside " the State of deli very and
therefore "outside" the State in which the property
passes. The conclusion reached therefore is that
where the property in the goods passes within a State
as a direct result of the sale, the sale transaction is
not outside the State for the purpose of Art. 286(l)(a),
unless the Explanation operates. We need also add
that the power of the State to impose the tax might
still not be available unless the transaction in question
is unaffected by the other bans imposed under sub.
cl. (l)(b), (2) and (3) of Art. 286. The submission
therefore of learned Counsel for the appellants, that
in respect of non-Explanation sales the State of Bihar
has no power to levy a-tax by reason of such sales
being" outside" the State within Art. 286(l)(a) must.
be rejected.
The second contention urged by the learned Counsel
for the appellant was that even assumjng he was
wrong on the first point, all the sales by the assesseecompany fell within the terms of the Explanation to
Art. 286(l)(a) being sales as a direct result of which
the goods were delivered for consumption in the State
of first destination, and that the learned .Judges of
the High Court were in error in considering, that some
of the sales did not conform to this requirement.
In
support of this submission learned counsel drew our
attention to two matters. He first referred us to the
application dated December 30, 1952 made on behalf
\,
-I
I
2 S.C.R. SUPREME COURT REPORTS
287
of the assessee-company to the Commissioner of
Commercial Taxes, Bihar, Patna in which the claim
for refund of the tax paid was rested on the following
ground:
After setting out that the tax on sales effected
between the period January 26, 1950 to March 31,
1950 was not assessable by virtue of Art. 286 of the
Constitution, the application stated: "Total sales of
raw materials of copper and brass sheet and circles
sold by us and despatched under railway receipts for
buyers' consumption are as follows ". Then followed
the sales effected and the tax paid in respect of the
sales.
The claim in this form was annexed to and
made part of the petition to the High Court under
Art. 226 and 227 of the Constitution and in paragraph.
U of the petition, this letter was referred to and a copy
thereof was incorporated and marked as 'A'. In
this paragraph which was the other matter relied on
the claim for refund was said to be " on sales made to
buyers outside Bihar State for consumption". Learned
Counsel strongly pressed upon us that paragraph 9
and the annexure had clearly asserted that the sales
which were the subject of the claim for refund involved
a delivery of the goods outside the State of Bihar for
consumption in the State of first destination and the
State of Bihar not having filed any counter-affidavit
challenging the correctness of these allegations, the
High Court should have held that the terms of
the Explanation were satisfied and should have
ordered the refund claimed.
We however consider
that this submission is without force.
Neither in
the claim put forward in Exh. 'A ' nor in paragraph 9 of the petition was any distinction drawn
between sales under which deliveries were effected
outside the State of Bihar for the purpose of consumption in the State of first destination and those
in which the deliveries outside the State were eifect,ed
for the purpose of consumption not in the State of
first destination but in other States. In fact, this was
made clear in the later paragraphs of the petition to
the High Court from which it is apparent that the
assessee-company made a claim for tax exemption in
Indian Copper
Corporation Ltd.
v.
The Stat• of
BihM 0- Others
Ayyangar ].
Indian Copper
Corporatlon Ltd.
v.
The State of
Bihar &- Olhers
Ayyangar ].
288
SUPREME COURT REPORTS
[l9til]
respect of sales in which the delivery took place
outside the State of Bihar, whether the delivery was
for the purpose of consumption in the State of first
destination or otherwise. In paragraph l 7(i) of the
petition to the High Court the assessee stated: "(the
petitioner was not liable to pay tax on goods delivered
outside the State of Bihar which was also for consumption outside the State of Bihar ", and again in
clause (iii) of the same paragraph this was repeated:
" the goods being outside the State of Bihar, delivered
outside the State of Bihar and consumed outside the
State of Bihar were not liable to sales-tax by the
State of Bihar" and similarly in cl. (v) of the same
paragraph a reference was made to "goods delivered
.outside the State of Bihar for consumption outside
the State of Bihar ". The same idea is emphasized in
paragraph 19 also which contained the prayer of the
petition. On these averments it. is clear that the
claim made by the assessee was that to invoke the
exemption contained in Art. 286(l)(a) it was sufficient
that the goods were delivered outside the State of
Bihar and that it was immaterial whether the delivery
was for the purpose of consumption in the State of
first destination or otherwise.
This involved the
same argument which was raised by the learned
Counsel that we have dealt with earlier. The learned
Judges of the High Court were therefore right in
drawing a distinction between the two types of sales
which we have already indicated.
The last point that was urged by the learned
Counsel was that the learned Judges of the High
Court erred in requiring the assessee to prove that the
goods delivered outside the State of Bihar were
actualJ,y consumed in the State of first distination
before the exemption from tax could be availed of.
In their judgment now un(jer appeal the learned
Judges have stated:
"The petitioner would not be entitled to exemption if the goods were not consumed in the State of
first distination but were re-exported from the State
of first destination to other States".
Learned Counsel for the appellant complained that
-
2 S.C.R. SUPREME COURT REPORTS
289
under the Explanation to Art. 286(l)(a) there need be
r96o
no proof of actual consumption of the goods delivered
1 ac
in the State of first destination but that the Explanaca:p:~:tio°!~~~.
tion was satisfied if the purpose of the delivery under
v.
the sale was for consumption in that State. If after
The State of
a sale that satisfied that requirement, viz., for the Bihar & Others
purpose of consumption in the State of first destination,
h
b
d
h
1 .c
h'
Ayyangar ).
t e
uyer un er sue a sa e ior is own purposes reexported the goods that was not a matter with which
the seller was concerned and would not affect the
character of the sale as one falling within the Explanation to Art. 286(l)(a). Learned Counsel therefore
urged that the learned Judges of the High Court went
wrong in requiring proof on the part of the assessee
that the goods were actually consumed within the State
of first delivery outside Bihar and that this was an
unwarranted addition to the requirements of the
Explanation. We consider this submission well-founded and indeed the learned Counsel for the respondent
did not dispute that the actual order of the High
Court went beyond the terms of the Explanation to
Art. 286(l)(a). The order of the High Court will,
therefore, be modified by making it clear that if the
goods were as a direct result of the sale delivered outside the State of Bihar for the purpose of consumption
in the State of first delivery the assessee would be
entitled to exemption of the sales-tax imposed and
that it would not be necessary for the assessee to
prove further that the goods so delivered were actually
consumed in the State of first destination.
Subject to this modification, the appeal fails, but in
the circumstances of the case there will be no order as
to costs.
SHAH J.-We agree with the conclusion of Mr.
Justice Rajagopala Ayyangar, J., but because our
approach to the question is somewhat different, we
propose to record our reasons separately.
The Bihar Sales Tax Act, 1947, was enacted in
exercise of legislative authority conferred upon the
Provincial Legislatures by entry 42 in List II read
37
Shah].
Indian Copper
Corporation Ltd,
v.
The State of
Bihar & Others
Shah J.
290
SUPREME COURT REPORTS
[1961)
with s. 100(3) of the Government of India Act, 1935.
By s. 2(g) of the Act, " sale" was defined (in so far as
it is material) as meaning any "transfer of property
in goods for cash or deferred payment or other valuable consideration .. . .. . provided .. . . .. provided
further that notwithstanding anything to the contrary
in the Indian Sales of Goods Act, 1930, the sale of any
goods-
(i) which are actually in Bihar at the time when,
in respect thereof, the contract of sale as defined in
s. 4 of that Act is made, or
(ii) which are produced or manufactured in Bihar
by the producer or manufacturer thereof,
shall, wherever the delivery or contract of sale is made,
be deemed for the purposes of this Act to have taken
place in Bihar."
Under entry 42 of List II of the Government of
India Act, 1935, the Provincial Legislatures could tax
sales by selecting some fact or circumstance which
provided a territorial nexus with the taxir.g power of
the State even if the property in the goods sold passed
outside the Province or the delivery under the contract of sale took place outside the Province. Legislation taxing sales depending solely upon the existence
of a nexus, such as production or manufacture of the
goods, or presence of the goods in the Province at the
date of the contract of sale, between the sale and the
Legislating Province could competently be enacted
under the Government of India Act, 1935-see the
Tata Iron and Steel Go., Ltd. v. The State of Bihar (')
and Poppatlal Shah v. The State of Madras('}.
By Art. 286 of the Constitution, certain fetters were
placed upon the legislative powers of the States as
follows:
Art. 286 :-"(I) 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.
(1) [1958] S.C.R. 1355·
(•) [1953] S.C.R. 677.
I
r.
2 S.C.R. SUPREME COURT REPORTS
291
Explanation: For the purposes of sub-cl. (a) a sale
iu6o
or purchase shall be deemed to have taken place in
.
h
S
'
h' h
h
d
h
JI
b
Indian Copper
t e
tate m w IC
t e goo s
ave actua y
een c P
1.
Ltd
delivered as a direct result of such sale or purchase
or orav'.on
·
for the purpose of consumption in that State notwithl'he state of
standing the fact that under the general law relating Bihar & Othm
to sale of goods the property in the goods has by
-
reason of such sale or purchase passed in another
Shah 1 ·
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 ordet' 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 commencerqent 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 authorising the imposition of, a tax on
the sale or purchase of any such goods as have been
declai;ed 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 recei~ed his assent."
With a. view to impose restrictions on the taxing power of the States under the pre-Constitution
statutes, amendments were made in these statutes by
the Adaptation of Laws Order.
By the Adaptation of
Laws Order, 1951, in the Bihar Sales Tax Act was
incorporated with retrospective operation from January 26, 1950, s. 33, which provided :
"(1) Notwithstanding anything contained in this
Act,-
( a) a tax on the sale or purchase of goods shall
not be imposed under this Act-
(i) where such sate or purchase takes place outside the State of Bihar; or
•
Indian Copper
Corporation Ltd.
v.
The State of
Bihar 6' Others
Shah ].
292
SUPREME COURT REPORTS
[1961]
(ii) where such sale or purchase takes place in
the course of import of the goods in to, or export of the
goods out of, the territory of India ;
(b) a tax on the sale or puchase of any goods
shall not, after the 31st day of March, 1951, be imposed 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;
(2) The Explanation to cl. (1) of Art. 286 of the
Constitution shall apply for the interpretation of subcl. (1) of cl. (a) of sub-s. (l)."
By this amendment, on the taxing power of the
Bihar State the same restrictions were engrafted on
the pre-Constitution statute as were imposed by
Art. 286 of the Constitution upon post-Constitution
statutes.
This court has held in the Bengal Immunity Go.,
Ltd. v. The State of Bihar (1) that the oper!l.tive provisions of the several parts of Art. 286 namely cl. (1)
(a), (l)(b) and (2) and cl. (3) were intended to deal with
different topics and one could not be projected or read
into another. Therefore, by the incorporation of s. 33
in the Bihar Sales Tax Act read with Art. 286, notwithstanding the amplitude of the power otherwise
granted by the charging section read with the definition of" sale", a cumulative fetter of triple dimension
was imposed upon the taxing power of the State. The
Legislature of the Bihar State could not. since J anuary 26, 1950, levy a tax on sale of goods taking place
outside the State or in the course of import of the
goods into, or export of the goods out of the territory
of India, or on sale of any goods where such sale took
place in the course of inter-State trade or commerce.
By the Explanation to Art. 286(l)(a) which is incorporated by sub-s. (2) s. 33 of the Bihar Sales Tax Act,
a sale is deemed to take place. in the State in which
the goods are actually delivered as a direct result of
such sale for the purpose of consumption in that State
even though under the law relating to sale of goods
the property in the goods has by reason of such sale
passed in another State. In the· State of Bombay v.
The United Motors (India) Ltd.('), it was held that
(1) [1955] • S.C.R. 603.
(2) [1953] S.C.R. 1069 .
'
I
.-
2 S.C.R. SUPREME COURT REPORTS
293
t1ince the enactment of Art. 286(l)(a), a sale described
in the Explanation which may for convenience be
.
called an "Explanation sale" is taxable by that State c'npd·iant~oppLetrt
•
or ora ion
l
•
alone in which the goods sold are actually delivered
v.
as a direct result of sale for the purpose of consumpThe state of
tion in that State. The right to tax arises because Bihar & Others
the sale is deemed to take place in that State and
outside all other States and the latter States are prohibited from taxing the sale ; the former alone is left
free to do so.
The Bihar Sales Tax Act enacted in exercise of the
power conferred by entry 42 of List II of the Government of India Act, 1935, upon the Provincial Legislatures is saved by Art. 372 of the Constitution as
existing law, but by the combined operation of subss. (1) and (2) of s. 33, the Bihar State is incompetent
to tax sales of goods in the course of imports into and
exports out of the territory of India, and after
March 31, 1951, sales of goods in the course of interState trade or commerce. In view of the · exposition
of the content of the Explanation to Art. 286(l)(a) by
this court in the United MotorB caBe (1), the Bihar
Sta.te is also incompetent to tax " Explanation sa.les "
where the goods are delivered in another State as a
direct result of the sa.le for consumption in that State.
By this last ban, to the extent provided by subs. (l)(a)(i) and sub-s. (2) of s. 33, the State of Bihar is
deprived of its power to tax sales.; but the ban does
not wholly extinguish the power of the State to tax
sales relying upon a. real territorial nexus between the
sale and the State.