# MALAYALAM PLANTATIONS LTD v. THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX

- **Citation:** [1964] 7 S.C.R. 391
- **Court:** Supreme Court of India
- **Decided:** 1961-04-04
- **Case number:** Civil Appeals Nos. 678 and 679 of 1963
- **Bench:** P. B. Gajendragadkar, C.J .. K. N. Wanchoo, J. c. SHAH, N. Rajagopala Ayyangar, S.M. SiKRI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/malayalam-plantations-ltd-v-the-deputy-commissioner-of-agricultural-income-tax-3135
- **Pages:** 12

## Headnote

Sales Tax-Tea sold bu auction at Fort Cochin which was
outside State of Travancore-Cochin-Whether to he included in
turn-over for purposes of Sales-tax-"Outside Sale"-Meanina
of-Doctrine of territorial nexus in Sales Ta.r legis!ationPoint not urged in High Court or taken up in Statement of
case-It can be taken up in Supreme Court-Constitution of
India, Art. 286(i)(a} before and after the
Constitution (Sixth
Amendment) Act, 1956-Travancore-Cochin General Sales Tax
Act. 1950, s. (J).
The appellant company owns several estates wherein tea is
grown and it was assessed to sales-tax by the Sales Tax Officer
in respect of the tea sold by 1t during the years 1954-55 and
1955-56. An appeal filed by the appellant was rejected bv the
Appellate Assistant Commissioner on the ground that the tea
when sold was admittedly in godowns in the State of Travancore-Cochin and that consequently the sales must be deemed tc
have taken place within tl:e State of Travancore-Cochin and
hence liable to be included in the taxable turn-over. When a
further appeal was taken to the Sales Tax Appellate Tribunal.
it was held that the property in the goods sold passed at Fort
Cochin in Madras State on the fall of the hammer at the auction
and hence the same was not taxable. The State filed a revision
petition to the High Court. While the High Court accepted the
finding of the Tribunal that the property in the goods sold passed at Fort. Cochin on the fall of the hammer at the auction. it
differed from the Tribunal as regards the effect of the circm!'-
stance that the tea sold was. at the point of sale, physically in
godowns situated in the State of Travancore-Cochin · and held
the sales to be taxable. The appellant cam<> to this Court after
obtaining a certificate of fitness from the High Court.
The onlv question argued before this court was whetter a
sale of tea effected by the appellant by auction at Fort Cochin
in Madras State wa• a sale outside the State of TravancoreCochin or inside it and whether the same was taxable or not. •
Accepting the appeal.
HELD: No sales tax was to be levied in this case as the sales
took place outside the State of Travancore-Cochin. The test for
determining whP.ther a sale is inside or outside a State is \\·here
the property in the goods passed and in the present case the
property in the goods passed in Fort Cochin in Madras State on
the fall of the hammer at the auction.
The point about the property not having passed in the
Madras State was not argued before the High Court and was
also not urged in the statement of case filed by respondent and
hence the same was not allowed to be argued in the Supreme
Court.
Per Shah. J. The property in the goods passed at Fort
Cochin in Madras State and as the goods were delivered not for
the purpose of consumption in any particular State, the sales
were
not inside Travancore-Cochin but were outside the
1964
March 20
I
1964
Malayalam Planfa.
tions Ltd.
v.
TheDepuly
Commisaioner of
Agricultural
Incomt·tax and
Salea Taz
392
SUPREME COURT REPORTS
[1964]
State and were as held by this Court in A. V. Thomas & Co. v.
Deputy Commissioner of Agricultural Income-tax and Sales Tax
Trivandrum, 14 S.T.C. 363, not liable to be taxed under the
Travancore-Cochin General Sales Tax Act, 1950.
The doctrine of territorial nexus had full play in sales tax
legislation under the Government of India, Act, 1935 and was
not abrogated by the enactment of Art, 286 of the Constitution.
It continued to be in operation in the interregnum between the
promulgation of the Constitution and the amendment of Art.
286 by the Constitution (Sixth Amendment) Act. 1956. It also
applies now subject to certain modifications.
Par Jiament has
been given the power to formulate principles for determining
when a sale or purcl:ase of goods takes place outside the State
or in the course of the import of the goods into or export of the
goods out of the territory of India. Exercising the power und.er
cl. (2) Parliament has enacted the Central Sa

## Text

7 S.C.R.
SUPREME COURT REPORTS
391
MALAYALAM PLANTATIONS LTD.
v.
THE DEPUTY COMMISSIONER OF AGRICULTURAL
INCOME-TAX AND SALES TAX
[P. B. GAJENDRAGADKAR, C.J .. K. N. WANCHOO, J. c. SHAH, N.
RAJAGOPALA AYYANGAR AND S.M. SiKRI, JJ.]
Sales Tax-Tea sold bu auction at Fort Cochin which was
outside State of Travancore-Cochin-Whether to he included in
turn-over for purposes of Sales-tax-"Outside Sale"-Meanina
of-Doctrine of territorial nexus in Sales Ta.r legis!ationPoint not urged in High Court or taken up in Statement of
case-It can be taken up in Supreme Court-Constitution of
India, Art. 286(i)(a} before and after the
Constitution (Sixth
Amendment) Act, 1956-Travancore-Cochin General Sales Tax
Act. 1950, s. (J).
The appellant company owns several estates wherein tea is
grown and it was assessed to sales-tax by the Sales Tax Officer
in respect of the tea sold by 1t during the years 1954-55 and
1955-56. An appeal filed by the appellant was rejected bv the
Appellate Assistant Commissioner on the ground that the tea
when sold was admittedly in godowns in the State of Travancore-Cochin and that consequently the sales must be deemed tc
have taken place within tl:e State of Travancore-Cochin and
hence liable to be included in the taxable turn-over. When a
further appeal was taken to the Sales Tax Appellate Tribunal.
it was held that the property in the goods sold passed at Fort
Cochin in Madras State on the fall of the hammer at the auction
and hence the same was not taxable. The State filed a revision
petition to the High Court. While the High Court accepted the
finding of the Tribunal that the property in the goods sold passed at Fort. Cochin on the fall of the hammer at the auction. it
differed from the Tribunal as regards the effect of the circm!'-
stance that the tea sold was. at the point of sale, physically in
godowns situated in the State of Travancore-Cochin · and held
the sales to be taxable. The appellant cam<> to this Court after
obtaining a certificate of fitness from the High Court.
The onlv question argued before this court was whetter a
sale of tea effected by the appellant by auction at Fort Cochin
in Madras State wa• a sale outside the State of TravancoreCochin or inside it and whether the same was taxable or not. •
Accepting the appeal.
HELD: No sales tax was to be levied in this case as the sales
took place outside the State of Travancore-Cochin. The test for
determining whP.ther a sale is inside or outside a State is \\·here
the property in the goods passed and in the present case the
property in the goods passed in Fort Cochin in Madras State on
the fall of the hammer at the auction.
The point about the property not having passed in the
Madras State was not argued before the High Court and was
also not urged in the statement of case filed by respondent and
hence the same was not allowed to be argued in the Supreme
Court.
Per Shah. J. The property in the goods passed at Fort
Cochin in Madras State and as the goods were delivered not for
the purpose of consumption in any particular State, the sales
were
not inside Travancore-Cochin but were outside the
1964
March 20
I
1964
Malayalam Planfa.
tions Ltd.
v.
TheDepuly
Commisaioner of
Agricultural
Incomt·tax and
Salea Taz
392
SUPREME COURT REPORTS
[1964]
State and were as held by this Court in A. V. Thomas & Co. v.
Deputy Commissioner of Agricultural Income-tax and Sales Tax
Trivandrum, 14 S.T.C. 363, not liable to be taxed under the
Travancore-Cochin General Sales Tax Act, 1950.
The doctrine of territorial nexus had full play in sales tax
legislation under the Government of India, Act, 1935 and was
not abrogated by the enactment of Art, 286 of the Constitution.
It continued to be in operation in the interregnum between the
promulgation of the Constitution and the amendment of Art.
286 by the Constitution (Sixth Amendment) Act. 1956. It also
applies now subject to certain modifications.
Par Jiament has
been given the power to formulate principles for determining
when a sale or purcl:ase of goods takes place outside the State
or in the course of the import of the goods into or export of the
goods out of the territory of India. Exercising the power und.er
cl. (2) Parliament has enacted the Central Sales Tax Act, 1956
and by s. 4(2) the doctrine of territorial nexus has been given
legislative recognition th<mgh in somewhat limited form.
Deputy Commissioner of Agricultural Income-tax and Salestax. Trivandrum v. A.V. Thomas & Co., I.L.R. 1960 Kerala 1395;
India Cower Corporation Limited v. State of Bihar, [1961] 2
S.C.R. 276; A. V. Thomas & Co. Ltd. v. Deputu Commissioner of
.4.gri~ultural Income-tax and Sales-tax, Trivandrum 1953 Supp.
2 S.C.R. 608 363; Poppat Lal Shah v. The State of Madras, r1953]
S.C.R. 677; and the Tata Iron & Steel Company Ltd. v. The
State of Bihar [1958] S.C.R. 1356. referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 678
and 679 of 1963.
Appeals from the judgment and order dated April 4,
1961 of the Kerala High Court in Tax Revision Nos. 52 &
53/1959.
G. B. Pai, T. N. Ramachandra, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for the appellants (in all the
appeals).
Govinda Menon a.nd V. A. Seyid Muhammad, for the
respondent (in both the appeals).
C. S. Pathak, S. N. Andley, Rameshwar Nath and P. L.
Vohra, for the interveners (in both the appeals).
March 20, 1964.
The judgment of GAJENDRAGADKAR,
C.J., WANCHOO, RAJAGOPALA AYYANGAR AND SIKRI, JJ. was delivered by AYYANGAR J. SHAH, J. ddivered a separate Opinion.
Ayyanga,, J.
AVYANGAR, J.-The appellant owns several estates wherein
inter alia le~ is grown and was assessed to sales-tax in respect
of the tea sold by it during the years 1954-55 and 1955-56, by
the Sales Tax Officer, First Circle, Quilon in the State of Travancore-Cochin by his order dated December 23.
1956.' In
the taxable turnover on which sales tax was computed by
the assessing authority were included two items which are
the subject of complaint in these two appeals which relate to
these two years of assessment. Before the aSsessing officer
the appellant claimed that certain sales of its tea which were
•
7 S.C.R.
SUPREME COURT REPORTS
393
conducted by auction at Fort Cochin-a place which at the
relevant date was in the Madras State. were sales "outside"
the Travancore-Cochin State and that consequently these
sales were exempted from taxation by the State of Travancore-Cochin under Art. '286(1)-(a) of 1the Constitution. The
Sales Tax Officer rejected this contention and included the
sum involved in these sales in the taxable turnover. An
appeal filed to the Appellate Assistant Commissioner also
failed, this authority holding that as the tea sold was,
at the date of the auction, admittedly in godowns in Willingdon Island in the State of Travancore-Cochin, the sales must
be deemed to ha.ve taken place within taxing State by
virtue of a provision in the State Sales Tax Act to which we
shall refer later and hence liable to be included in the taxable
turnover. There was a further appeal taken by the Appellant
to the Sales Tax Appellate Tribunal which upheld the appellant's contention and set aside the assessment in so far as it included the turnover relating to the auction sales of tea held at
Fort Cochin, this turnover amounting to Rs. 56,43,184111 /-
in regard to the assessment year 1954-55 and Rs. 62,13,60413/-
in regard to the assessment year 1955-56 and remanded the
case for fresh disposal by excluding these sums from the computation of the taxable turnover. A revision petition was
thereafter filed before the High Court by the State under s.
I 5(b) of the General Sales Tax Act of Travancore-Cochin and
the learned Judges allowed the Revision and upheld the order
of the assessing officer and the Appellate Commissioner holding the turnover represented by these auction sales to be validly taxable under the State law relating to sales tax. The appellant thereafter applied to the High Court for a certificate of
fitness and this having been granted the appeals are now before us.
Before proceeding further it is necessary to set out the
statutory provision contained in the taxing enactment of the
State. The General Sales Tax Act (Act XI of 1125 (ME) 1950)
which imposed a sales tax on sales by dealers defines a "sale"
by s. 21j) in these terms:-
" 'Sale' with all its grammatical variations and cognate
expressions means e.very transfer of the property in
goods by one person to another in the course of
trade or business for cash or for deferred payment
or other valuable consideration and includes also
a transfer of property in goods involved in the
execution of a works contract, but does not include
a mortgage, hypothecation, charge or pledge;
x
x
x
x
Explanation (2) Notwithstanding anything to the contrary in the Sale of Goods Act for the time bein& in
1954
Maklyalam
Plantations Ltd.
v.
The
Deputy
Commissioner of
Agricultural
Income-tax and
Sale8 Ta:z
Ayyangar, J,
1964
Malayalam
Plantations Ltd.
v.
The De:puty
!)ommisswner of
Ayrkultural
Income-tax and
Srles Tax
394
SUPREME COURT REPORTS
[1964]
force, the sale or purchase of any goods shall be
deemed for the purpose of this Act, to have taken
place in the State wherever the contract of sale or
purchase might have been made (a) if the goods
were actually in the 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 the State at any
time after the contract of sale or purchase in respect thereof was made."
When the Constitution came into force a new section numbered s. 26 was inserted by the Adaptation Order bringing the
Act into line with Art. 286(1) of the Constitution and this
read:-
"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) ................................ .
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 consumption in that State, notwithst,anding
the fact that under the general law relating to sale
of goods the property in the goods has by reason of
such sale "or purchase passed in another State."
The position, therefore, was that though cl. (a) to Explanation 2 to s. 2(j) enacted that "notwithstanding anything
contrary in the Sale of Goods Act, the sale or purchase of
goods shall be deemed to take place in the State if the goods
were actually in the State at the time the contract for sale or
purchase of goods thereof was made", still by the non-obstante
provision contained in s. 26 a tax on the sale or purchase of
goods could not be imposed where such sale or purchase took
place "outside" the State of Travancore-Cochin. It is only
necessary to add that even if s. 26 were ignored still by the
terms of Art. 2860)(a) the position would be the rnme and the
State could not validly levy a tax on a sale which is "outside"
that State.
Now the question is can a sale of the tea effected by the
Appellant by auction at Fort Cochin and which were included
in its taxable turnover be. said to be "outside" the State? The
facts in relation to the transaction relating to the sale of the.tea
and which the learned Judges of the High Court held not to be
an "outside" sale may be stated in their own words: -
"The sales of teas were concluded at Fort Cochin and
the goods were stocked in godowns situated in the
7 S.C.R.
SUPREME COURT REPORTS
395
Travancore Cochin State. The deliveries of the
goods were also made to the buyers from the
godowns in Willingdon island in the Travancore
Cochin State. The Appellate Tribunal has come to
the conclusion that the ownership of the commo·
dity having passed in Fort Cochin, the property had
not passed within the taxing State, accordingly
they would be 'outside' sales for purpose of Art.
286(1) and exempt from taxation."
The Appellate Tribunal had recorded a finding that the
property in the goods sold passed at Fort Cochin on the fall of
the hammer at the auction and the learned Judges of the High
Court proceeded on the same basis. The point on which the.
learned Judges differed from the Tribunal was only as regards
the effect of the circumstance that the tea sold, was at the point
of sale, physically in godowns situated in the State of Travanc:ore-Cocbin. The Appellate Tribunal bad, in reaching the con·
clusion in favour of the appellant, as to the taxable character
of the turnover represented by these auction sales, referred to
a large number of decisions of this Court and to the observations contained in them as well as to several decisions of the
various High Courts. When the matter came up before the
High Court the position was, that that Court bad after a review
of most of the earlier caSes which had been referred to by the
Tnlmnal, held in Deputy Commissioner of A gricu/tura/ Income-tax and Sales-tax, Trivandrum v. A.V. Thomas & Co.(')
that the word 'outside sale' in Art. 286(1)(a) bad no reference
exclusively to the transfer of the property in the goods according to the provisions of the Sales of Goods Act, and therefore.
that Explanation 2 to s. 2(j) was not violative of Art. 286(l)(a)
and that if at the moment when the property passed, it r.ot
being very relevant where the property passed, the goods were
in the State of Travancore-Cochin, then it was not an "outside"
sale quoad Travancore Cochin and could be subjected to salestax by that State. Before the learned Judges a decision of thi~
Court in India Copper Corporation limited v. State of Bihar.(')
was however relied on as leading to a different result but the
learned Judges held that the decision of this Court could be
distinguished on the facts and they held that their previous deci:
sion reported in A.V. Thomas's case(') was still good law and
entirely covered the point raised.
The question for consideration in the appeal is the correctness of the view expressed by the High Court. The decision
in Deputy Commissioner of Agricultural Income-tax and Sa/estax, Trivandrum v. A. V. Thomas & Co.(') was brought before
this Court on appeal and has been reversed <See A. V. Thomas
& Co. Lid. v. Deputy Commissioner of Agricultural Income-tax
and Sales-tax, Trivandruni('). In so doing this Court pointed
-"l I.L.R. [1960] Kerala 1395. (') [1961] 2 S.C.R. 276 .
. M [1963] Supp. 2 S.C.R. 603.
.
1161
Malayfl/am
PlanlatioMLttl.
v.
Tll<Deputy
Oommi4Biomt o/
.Agricu/lural
1-.ta.:alld
BakaT...,
.Ayyangar,J.
1964
Malayalam
Planlali<>n• Lkl.
v.
TkeDepuly
Oommia&iomr of
Agricultuml
Jncome.la3; and
i:Jak4 p..,,
Agyangar, J.
396
SUPREME COURT REPORTS
[1964]
out that the decision of this Court in the Indian Copper Corpormion case(') had settled the Jaw by laying down that the
State (other than a "delivery-cum-consumption" State) which
could tax a 'non-explanation sale' (to adopt the phraseology
used in these cases to identify a sale falling outside the explanation to Art. 286(l)(a)) could only be that State in which the property in the goods passes. Now, as regards the facts, there is no
distinction between the facts in the A. V. Thomas's case(') and
the case now under appeal and, indeed, the learned Judges of
·the High Court have proceeded on that basis. Dealing with the
question as to what is an "outside" sale Kapur, J. speaking for
the Court said in the case of A. V. Thomas & Co.(') Ltd.: -
"It has been found and it has not been disputed that the
title to the goods in the present case passed at
Fort Cochin ............ the question is whether the
sale was 'outside sale' or 'inside sale' as the expressions have been compendiously used in various
judgments to indicate sales taking place within a
State or without it. The Explanation to Art. 2860)-
(a) . .. .. . .. .. .. . . . explains what a sale outside the
State is . .. .. . . . . . . . where the Explanation applies
the difficulty about the situs is resolved but in a
case like the present one the difficulty still remains
because the Explanation does not operate in the
sense that the rival States claiming to tax the same
taxable event are not the States of delivery for consumption in that State and those where the title in
the goods passes."
After referring to the decision in the India Copper Corporation Ltd. v. State of Bihar (') the Court held that the sale in
the case before them was an "outside" sale quoad TravancoreCochin, because the title passed at Fort Cochin in the State of
Madras. On this reasoning this Court reversed the decision in
the case of the High Court and held that the sale there in question being an "outside" sale was not taxable by reason of the
prohibition contained in Art 286(l)(a).
Dealing with the connotation of the expression 'outside' in
Art. 286(1)(a) this Court had observed, in India Copper Corporation Ltd. v. State of Bihar.(') :-
"If a single State was designed to have the power to tax
any particular transaction of sale, 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 determinati!Jn of the
('} [1961) 2 S.C.R. 276.
(') [1963) Supp. 2 S.C.R. 698.
'
"1 s.c.n.
SUPREME COURT REPORTS
397
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: (l) 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 purchase, passed in
another State'. These two together indicate that it
is the passing of property within the State that is
intended to be fastened on, 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 passes 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 and Distributing Co.
of India Ltd. v. The Commercial Tax Officer."
It was the principle of law laid down in this passage that
was given effect to by this Court
in A. V. Thomas's case(')
and it was on this basis that the appeal was allowed. It
would therefore ifollow that the present appeals which are
wholly dependent on the correctness of the meaning of the
expression 'outside sales' in Art. 286(1)(a) which High Court
adopted in A. V. Thomas's case have necessarily to be allowed.
Learned Counsel for the respondent-State, however, urged
that in the present case a point had been raised before the
High Court as to whether on the facts the property in the goods
sold by auction conducted at Fort Cochin really passed at Fort
Cochin in the Madras State or whether it passed in Willingdon
island in Travancore-Cochin when the goods were actually
delivered to the buyer. As regards this question of fact or of
mixed fact and law the position is this. The Sales Tax Appellate Tnlmnal recorded a finding on this matter in these terms:
"The question whether the sales took place outside the
State or not will have to be decided on the basis of
the general Jaw relating to sale of goods. We hold
· that in the case of auction sales of full lots the sales
were of ascertained goods and henc~ became complete on the fall of the hammer and that the sales
took place within the Madras State."
In the revision application which the department filed to
the High Court this question whether the property in the goods
{') (1963] Supp. 2 S.C.R. 608.
1964
Malayalam
Planllllionl Ltl.
••
Pit< Dtpvtg
Commisrimw of
Agricoltuml
Income-tax and
Salu Ta:t
196l
.Malayalam
.Planratiom Lid.
v.
The Deptdy
Oommissiontr
of Agricultural
Income-tax
and Sales Tax
., Agya11gar, J.
f,/w.Ji, J.
398
SUPREME COURT REPORTS
[1!164}
did pass at Fort Cochin was raised but nevertheless the
argument before the High Court proceeded wholly on the basis.
of the correctness of the finding by the Appellate Tribunal that
the property in the teas did pass on the fall of the hammer at
Fort Cochin. The point about the property not having passed
in the Madras State does not appear to have been even argued
before the High Court. Even in the statement of the case filed by
the respondent it is not stated that this point about the property
not having passed at Fort Cochin in Madras was urged before
the High Court during the course of the argument. Before concluding it might be mentioned that in A. V. Thomas's case·
isupra) where, as we have stated earlier, the nature of the transaction was identical with the one in the appeals before us this
Court observed: -
"It has been found and it has not been disputed that the
title to the goods in the present case passed at Fort
Cochin."
In these circumstances, we declined to pennit learned
Counsel for the respondent to urge any ground relating to the
property in the goods in the teas sold not having passed in Fort
Cochin in the Madras State to be raised, as the point which is
not one of pure law was not urged before the learned Judges
of the High Court.
The appeals are, therefore, allowed and the order of the
High Court reversed and that of the Sales Tax Appellate Tribunal restored. The appellant will have his costs here and in the
High Court-one hearing fee.
SHAH. J.-If the question raised in these appeals were res
integra, I would hold that the price obtained at auction sales
of tea held at Fort Cochin when the goods were lying in war~
houses in the Travancore-Cochin State was liable to be taxed
under the General Sales Tax Act 01 of 1125 M.E.), for in my
view Art. 286(!)(a) Explanation, before it was amended by the
Constitution (Sixth Amendment) Act, did not altogether exclude the doctrine of territorial nexus in its application to salestax legislation. It is settled law in this Court that tonder the Government of India Act, 1935, the Provincial Legislatures could,
relying upon the territorial nexus, levy sales-tax upon transactions of sale, not wholly completed within their territory.
fixing upon one or more ingredients of a sale furnishing a territorial connection with the taxing Province: Poppat Lal
Shah v. The State of Madras(') and The Tata Iron & Steel
Company Ltd. v. The State of Bihar ('). By the Constitution
certain restrictions were placed upon the power of the States
(') [1953] S.C.R. 677.
(') [1958] S.C.R. 1356.
)
7 S.C.R
SUPRE.11E COURT REPORTS
399
lo legislate in respect of taxes on sales and purchases. By Art.
286(l)(a) read with the Explanation, an Explanation sale i.e.
a sale in which goods sold were actually delivered in a State
for the purpose of consumption in that State was made taxable
only by the State in which the goods were delivered for consumption. But Art. 286 was, in my view, not intended to exclude the operation of the doctrine of territorial nexus in the
field not covered by the legislative prohibitions. In dealing
with the effect of s. 33 of the Bihar Sales Tax Act which in-
-corporated the prohibitions imposed by Art. 286( I) & m.
with the concurrence of S. K. Das J., it was observed by me
in Indian Copper Corporation Ltd. v. The State of Bihar and
.others(') at p. 293: -
•
"
x
x
x
by enacting that a tax shall not
be imposed under the Act when the sale takes
place outside the State of Bihar
x
x,
"Only the power to tax "Explanation sales"' which do
not take place within the State of Bihar is taken
away, but not the power to tax "non-Explanation
sales" in which though under the general law of
sale of goods the property passes outside the State,
there exists between the taxing power of the State
and the sale a nexus as contemplated by the definition of sale in s. 2(g). If the sale is one in which
the goods have been delivered outside the State of,
Bihar, but not as a ·direct result of the sale or not
for the purpose of consumption in the State Of
first delivery, the sale will not be covered by the
Explanation, and the right to tax the sale, if arising otherwise under the Act relying upon the territorial nexus, will not be impaired by the prohibition imposed by cl. (l)(a)(i) of s. 33."
It may be mentioned thats. 33 of the Bihar Sales Tax A~t
was enacted to give effect expressly to the legislative restrictions imposed by Art. 286 of the Constitution. In Indian Copper Corporation Ltd.'s case(') certain transactions of sale were
effected by the assessee after the promulgation of the Constitution, under which the property in the goods passed in the
State of Bihar but delivery was effected outside the State of
Bihar for consumption also outside Bihar. In some cf these
transactions goods were delivered in the State of first destination for consumption therein whilst in others the goods were
delivered not for consumption in the State of first delivery.
The assessee contended that both these categories of transactions were exempt from tax under Art. 286(1)(a) as they were
(') [1961] 2 S.C.R. 276.
196J
Malayalam
Plan.tatiOfl' Lid,
v.
The Deputy
Commissioner
of Agricultural
Income-tax
and Bale~ Taz
Shah, J.
1964
Malayalam
Planlalions Lid.
v.
The Deputy
Commissi-0ner
of AgricuJ,fural
Jn,come-ta.r
and Sales Tax
Slush, J.
400
SUPREl\fE COURT HEPORTS
[1964]
outside sales. This Court unanimously negatived the contention of the assessee in respect of sales in which delivery in the
State of first destination was not for consumption therein, and
the transactions were on that account not "Explanation sales".
It was held that the State of Bihar was competent to tax those
"Non-explanation sales" in which the property in the goods
had passed in the State of Bihar. But two "different grounds
were given in support of the conclusion in that case. My
brethren Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ., were of the view that passing of property within the
State alone was intended after the Constitution to be fastened
upon for the purpose of determining whether the sale is inside
or outside the State, and therefore subject to the operation of
the Explanation that ;')tale in which the property passes would
be the only State, which had the power to tax the sale. S. K.
Das, J., and .I were of the view that sale transactions not falling within the constitutional prohibitions remained taxable
because in adjudging whether a "non-Explanation" sale-transaction was "outside the State", the doctrine of territorial nexus
could not be wholly excluded from consideration.
In a recent judgment of this Court in A.V. Thomas & Co.
Ltd. v. Deputy Commissioner of Agricultural Income-tax ana
Sales-tax, T rivandrum(') this Court held in construing Art.
286(l)(a) in the light of the Explanation before that Article
was amended by the Constitution (Sixth Amendment) Act.
that:-
I
"Where the Explanation to Article 286(l)(a) of the
Constitution of India is inapplicable, it is the 'pas"
sing of property within the State' that is intended
to be fastened on for the purpose of determining
whether a sale is 'inside' or 'outside' the State.
Therefore subject to the operation of the 'Explanation', that State in which the property in the
goods passes would be. the only State which would
have the power to levy a tax on the sale."
In A. V. Thomas & Co. Ltd.'s case(') chests of tea 'were
stored in warehouses at Willingdon Island in the TravancoreCochin State, but auctions of the tea chests were held at Fort
Cochin which was at the material time within the State of
Madras, and after the price was paid at Fort Cochin delivery
orders were given to the purchasers addressed to the warehouse-keepers at Willingdon Island and actual delivery was
given at the warehouses. The chests of tea were then sent from
Willingdon Island for consumption in other parts .of India or
were exported out of India. It was held, by the Court in that
I') (1963) Supp. 2 S.CR. 608.
\
I.
\
. . •
.· .. _ .....
. "·.
' . . .
~-
'_ · .,:;) -, ,
'
\
-.-,:i S.C.R;'
'suPREME COURT REPORTS
__ 401 --·.
case th~t the property in the goods pas~ed .at Fort Cochin and
as the goods were delivered not for the purpose of. C<?nsumption in any particular State, the sales were not ms1de the
State of Travancore-Cochin but were outside that State and
were not liable to be taxed under the Travancore-Cochin
General Sales Tax Act (11 of 1125 ME). The Court observed
that in sales which were not "Explanation sales" passing of
property within the State was decisive of the liability to pay
sales-tax. No opinion was expressed on the question whether
the doctrine of territorial nexus as investing the State with the
right to tax a. sale transaction outside the legislative restridions
imposed by Art. 286, was, since the promulgaticin _of the Constitution,· rendered ineffective. ·As the fact which' give rise· to
this case are substantially the same as the facts on which
A. V. Thomas & Co. Ltd.'s easel') was decided, the decision
of the appeals must be in favour of the assessee:
It is'necessary to record this judgment, Jest it be assumed
that I agree with the view that the doctrine of territorial nexus
in its application to sales-tax legislation has. since the enactment of the Constitution, been completely abrogated. It may
be pertinent to note that since the amendment of the Constitution by the Constitution (Sixth Amendment) Act, Art. 2860)-
(a) (which remains unamended) is now free from the shackles
of the Explanation which is deleted and by cl. (2) the Parliament is invested with power to formulate principles for determining when a sale or purchase of goods takes place in any of
the ways mentioned in cl. (I), namely, outside the State or in
the course of the import of the goods into, "or export of the
goods out of, the territory of India. Exercising the power
under cl. (2) the Parliament has enacted the Central Sales Tax
Act (74 of 1956), and bys. 4(2) the doctrine of territoriaI
nexus has been given legislative recognition, though in somewhat limited form. That sub-section provides: -
"A sale or purchase of goods shall be deemed to take
place inside a State if the goods are within theState-
(a) in the case of specific or ascertained goods, at
the time the contract of sale is made; and
196l
Malayalam
PlawJations Lttl~
v.
The Deyuty
Commissioner
of .Agricultural
lncome-taJ:
and SakaT<n
Shah, J.
(b) in the case of unascertained or future goods, at
the time of their appropriation to the contract ·
of sale by the seller or by the buyer, whether
assent of the other party is prior or subsequent
to such appropriation.
Explanation.-Where there is a single contract of sak
or purchase of goods situated at more places than
(') [1963] Supp. 2 S.C.R. 608.
1964
Ma!ayala·ni
Planlatiom Ltd.
v.
The De,,,Wy
Commissumer
of .Agricultural
income-tax
and Sales Tax
Shah, J.
402
'
j~ '
SUPREME COURT REPORTS
[1964)
one, the provisions of this sub-section shall apply
as if there were separate contracts in respect of the
goods at each uf such places."
The doctrine of territorial nexus had full play in sales-tax
legislation under the Government of India Act, 1935: it also
applies subject to certain modifications since the amendment
of the Constitution by \he Constitution (Sixth Amendment)
Act. And I am unable to persuade myself that by the enactment of Art. 286 of the Constitution, it stood abrogated in the
interregnum between the promulgation of the Constitution
and the amendment of Art. 286 by the Constitution (Sixth
Amendment) Act.
Appeal allowed.
'