# STATE OF MADRAS v. A. HABIBUR REHMAN SONS

- **Citation:** [1968] 1 S.C.R. 381
- **Court:** Supreme Court of India
- **Decided:** 1967-08-30
- **Case number:** Civil Appeals Nos. 495, 539 and 540, 684. 694, 717 and 857 of 1966
- **Bench:** G. K. Mitter, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-madras-v-a-habibur-rehman-sons-4100
- **Pages:** 13

## Headnote

Constitution of India, 1950, Art. 286(1)(a), Explanation, before
amendment by the Constitution
(Sixth Amendment) Act, 1956;
Madras General Sales Tax Act (9 of 1939) s. 2(h),Explanation (2); and
Sales Tax Laws Validat;on Act (7 of 1956), s. 2-Ban on taxation of
inter-State Sales lifted-Outside sales, if could be taxed.
Under Explanation (2) to s. 2(hi of the Madras General Sales
Tax Act, 1939, a sale is deemed to have taken place in that State,
wherever the contract of sale might have been made, if the goods
were actually in the State at the time when the contract in respect
thereof was made. The Constitution, by Art. 286 as it was originally
enacted, imposed four bans upon the legislative power of the States
to impose sales tax. Clause (l)(a) prohibited every State from
imj:Josing or authorising the imposition of, a tax on outSide sales.
An outsid;e sale was defined by defining an inside sale in the Explanation to the clause, as a sale which shall be deemd to have taken
place in the State in which the goods have actually been delivered
as a direct result of such sale for the purpose of consumption in
that State notwithstandin!I the fact that under the general law relating to sale of goods the property in the goods has by reason of
such sale passed in another State. Clause (l)(b) prohibited the
imposition of tax on sales in the course of import into or export
out of, the territory of India. Clause (2) prohibited the imposition of
tax on the sale of goods \vhere such sale took place in the course
of inter-State trade or comn1erce unless Parliament
other\.\.·ise
provJded. Clause (3) prohitited the State from imposing or authorising the imposition of a tax on the sale of any goods declared by
Parliament by law to be essential for the life of the community,
unless the legislation vvas reserved for the consideration of the
President and had received his assent. This Court, in its judgment in
the Bengal Immunity Co. Ltd. Case, [1955] 2 S.C.R. 603 delivered on
September 6. 1955, held that because of Art. 286(2), the State legislature could not impose sales-tax on inter-State sales until Parlia~
ment provided otherwise. By the Sales Tax Laws Validation Act,
1956, Parliament removed the ban contained in Art. 286(2) retrospectively, during the period between April !, 1951, and September
6, 1955, with the result that, transactions of sale. even though they
were inter-State sales. could, for that period be lawfully charged
to tax. [386C-E; 387D, F-H; 388A-D]
The respondent was a beedi . manufacturer in the appellantState. Beed1es, which were w1thm the territory of the appellantState at the time the contract of sale in respect of them was made
were sold to non-resident buyers. On the question whether the
sales during the period from April 1, 1955 to September 5 1955 were
taxable by virtue of Explanation 2 to s. 2(h) of the Mad~as General
Sales Tax Act, 1939, in view of the lifting of the ban on the· 1eyy
of tax on mter-State sales by the Sales Tax Laws Validation Act.
the High Court relying on additional affidavits filed before it, held
381
L/S5SCI-ll
382
SllPRiiiKlil COi1Rt REPOR'l'S
[1968] 1 s.o.a.
that the sales were outside sales and that the State had no jurisdiction to impose sales tax.
In appeal by the State;
Held: (1) The restrictions ·imposed by the several clauses of
Art. 286 as it stood were cumulative, and the legislative power of
the State to tax sale or purchase transactions could be exercised
only if it was not hit by any of those limitations. The Validation
Act merely lifted the ban under Art. 286(2) but the .ban imposed
by Art. 286(l}(a) was still effective, and could not be removed by
any legislation of Parliament. Thus, even if the ban under Art. 286
(2) was removed by the Validation Act, no State could tax an interstate sale or purchase which took place outside its
territorial
limits. The sales falling within the Explanation to Art. 286(1)(a)
were fictionally to be regarded as inside the State in which the
goods were ac

## Text

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STATE OF MADRAS
v.
A. HABIBUR REHMAN SONS
(With Connected Appeals)
August 30, 1967
[K. N.
WANCHOO, C.J., R. S.
BACHAWAT, V.
RAMASWAMI,
[G. K. MITTER AND K. S. HEGDE, JJ.]
Constitution of India, 1950, Art. 286(1)(a), Explanation, before
amendment by the Constitution
(Sixth Amendment) Act, 1956;
Madras General Sales Tax Act (9 of 1939) s. 2(h),Explanation (2); and
Sales Tax Laws Validat;on Act (7 of 1956), s. 2-Ban on taxation of
inter-State Sales lifted-Outside sales, if could be taxed.
Under Explanation (2) to s. 2(hi of the Madras General Sales
Tax Act, 1939, a sale is deemed to have taken place in that State,
wherever the contract of sale might have been made, if the goods
were actually in the State at the time when the contract in respect
thereof was made. The Constitution, by Art. 286 as it was originally
enacted, imposed four bans upon the legislative power of the States
to impose sales tax. Clause (l)(a) prohibited every State from
imj:Josing or authorising the imposition of, a tax on outSide sales.
An outsid;e sale was defined by defining an inside sale in the Explanation to the clause, as a sale which shall be deemd to have taken
place in the State in which the goods have actually been delivered
as a direct result of such sale for the purpose of consumption in
that State notwithstandin!I the fact that under the general law relating to sale of goods the property in the goods has by reason of
such sale passed in another State. Clause (l)(b) prohibited the
imposition of tax on sales in the course of import into or export
out of, the territory of India. Clause (2) prohibited the imposition of
tax on the sale of goods \vhere such sale took place in the course
of inter-State trade or comn1erce unless Parliament
other\.\.·ise
provJded. Clause (3) prohitited the State from imposing or authorising the imposition of a tax on the sale of any goods declared by
Parliament by law to be essential for the life of the community,
unless the legislation vvas reserved for the consideration of the
President and had received his assent. This Court, in its judgment in
the Bengal Immunity Co. Ltd. Case, [1955] 2 S.C.R. 603 delivered on
September 6. 1955, held that because of Art. 286(2), the State legislature could not impose sales-tax on inter-State sales until Parlia~
ment provided otherwise. By the Sales Tax Laws Validation Act,
1956, Parliament removed the ban contained in Art. 286(2) retrospectively, during the period between April !, 1951, and September
6, 1955, with the result that, transactions of sale. even though they
were inter-State sales. could, for that period be lawfully charged
to tax. [386C-E; 387D, F-H; 388A-D]
The respondent was a beedi . manufacturer in the appellantState. Beed1es, which were w1thm the territory of the appellantState at the time the contract of sale in respect of them was made
were sold to non-resident buyers. On the question whether the
sales during the period from April 1, 1955 to September 5 1955 were
taxable by virtue of Explanation 2 to s. 2(h) of the Mad~as General
Sales Tax Act, 1939, in view of the lifting of the ban on the· 1eyy
of tax on mter-State sales by the Sales Tax Laws Validation Act.
the High Court relying on additional affidavits filed before it, held
381
L/S5SCI-ll
382
SllPRiiiKlil COi1Rt REPOR'l'S
[1968] 1 s.o.a.
that the sales were outside sales and that the State had no jurisdiction to impose sales tax.
In appeal by the State;
Held: (1) The restrictions ·imposed by the several clauses of
Art. 286 as it stood were cumulative, and the legislative power of
the State to tax sale or purchase transactions could be exercised
only if it was not hit by any of those limitations. The Validation
Act merely lifted the ban under Art. 286(2) but the .ban imposed
by Art. 286(l}(a) was still effective, and could not be removed by
any legislation of Parliament. Thus, even if the ban under Art. 286
(2) was removed by the Validation Act, no State could tax an interstate sale or purchase which took place outside its
territorial
limits. The sales falling within the Explanation to Art. 286(1)(a)
were fictionally to be regarded as inside the State in which the
goods were actually delivered for consumption and so within the
taxing power of that State and as being outside all other States and
so, exempt from sales-tax by those other States. Therefore, in the
present case, even though the sales fell within Explanation (2) to
s. 2(h) of the Madras General Sales Tax Act, it was beyond the
competence of the Madras State to tax them as the assessee had
delivered the goods for consumption outside the State and were
thus outside sales covered by the ban imposed by Art. 286(1)(a).
[390E-H]
Ol servations at p. 1082 in State of Bombay v. United Motors,
(India} Ltd., [1953) S.C.R. 1069, The Bengal Immunity Co. Ltd. v.
State of Bihar and Ors., (1955) 2 S.C.R. 603, Shree Bajrang Jute Mills
v. State of Andhra Pradesh, [1964] 6 S.C.R. 691 and Singareni Collieries Co. Ltd. v. State of Andhra Pradesh, (1966) 2 S.C.R. 190, followed.
Messrs.-Ashok Leyland Co. Ltd. v. The State of Madras [1962)
I S.C.R. 607, explained.
(2) The appellant-State, not having raised any objection before
the High Court that the High Court, in exercising the revisional
powers under s. 38 ol the Madras General Sales Tax Act could not
take the affidavits in evidl!nce could not urge in this Court that the
High Court acted illegaly in taking them in evidence. [392E]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 495,
539 and 540, 684. 694, 717 and 857 of 1966.
Appea1s oy special leave from the judgment and orders dated
September 23, 1963, April 29, 1963, July 29, 1964, March 13,
1964, June 22, 1964 and June 24, 1964 of the Madras High Court
in Tax Cases Nos. 246 of 1962 (Revision No. 96) 202 and 203 of
1961, 67 of 1963 (Appeal No. 6), 43 of 1964 (Revision No. 17), 12
of I 963 (Appeal No. 2) and II 2 of 1964 (Revision No. 64) respectively.
. G. Ramanujam and A. V. Rangam, for the appellants (in all
the appeals).
T. A. Ramachandran, for respondent (in C.A. No. 495 of
1966).
M. S. K. Sastri and M. S. Narasimhan, for respondent (in C. As.
Nos. 539 and 540 of 19(i6).
A. N. Sinha.and D. N. Gupta, for respondent (in C. A. No.
684 of 1966).
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IWJIIAS ii. A. H. :imlllUN SONS (Ramaswami, J.)
383
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Karlar Singh Suri and E. C. Agrawala, for the respondent
(in C.A. No. 694 of 1966).
Avad Behari, for respondent (in C.A. No. 717 of 1966).
G. N. Dikshit, for respondent (in C.A. No. 857 of 1966).
Civil Appeal No. 495 of 1966
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The Judgment of the Court was delivered by
Ramaswami, J.
This appeal is brought, by special leave,
from the judgment of the Madras· High Court dated September 23,
1963, in Tax Case No. 246 of 1962.
The respondent who was 11 Beedi manufacturer in Gudiyattam. Madras State was assessed to sales tax on a taxable turnover of Rs. 1,73,502/ ll /10 for the assessment year 1955-56 by
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the Deputy Commercial Tax Offk.er. Against this order of assess·
ment dated February 15, 1957 the respondent
appealed to the
Appellate Assistant Commissioner of Commercial Taxes, Salem
disputing the inclusion of a sum of Rs. 1,11,299/- and odd on the
ground that the said amount represented either second purchases
or purchases made outside the State of Madras. Pending the appeal
the Madras General Sales Tax Act, 1959 was passed and the
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earlier Act of 1939 was repealed and by force of the provisions
in the 1959 Act, the appeal was finally disposed of by the Appellate Assistant Commissioner of Commercial Taxes, Salem. By his
order dated July 2, 1960, the Appellate Assistant Commissioner
held that the excise duty pa.;d by the respondent could not form
part of his purchase turnover but in purported exercise of his powers
under the new Act enhanced the assessment of the turnover by
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including a sum of Rs. 1.15,406/14/9 as inter-State purchases
from April I, 1955 to September 5, 1955. The respondent t0ok the
matter in further appeal to the Sales Tax AppcllDJte Tribunal. The
appellant also filed petitions before the Tribunal for enhancement
of the assessment by Rs. 3,66.213/12/- on the ground that the
amount represented sales of manufactured beedies to non-resident
buyers during the period May 12, 1955 to September 5, 1955 and
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that the goods in question were within the territory of the State
at the time the contract of sale in respect thereof was
made. It was contended on behalf of the appellant that
the sales were taxable by virtue of Explanation (2) to s. 2(h) of
the Madras General Sa'les Tax Act, 1939 in view of the lifting
of the ban on the levy of tax on inter-State sales by the Sales
Tax Laws Validation Act, 1956 (Central Act VII of J 956), hereG
inafter called the 'Validation Act', DJnd that it was wrongly excluded from the taxable turnover by the taxing authorities. By its
order dated July 13, 1962 the Appellate Tribunal allowed the
petition for enhancement and rejected the contention of the respondent that the sales were ageT\CY sales through Commission
Agents. As regards the alleged second purchases or outside purchases
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of raw tobacco, the Appellate Tribunal remanded the case to the
Appell~te Assistant Oimmissioncr. Against the order of the Appellate Tribunal the respondent filed a petition in the High Court of
L;S5SCI-ll(a)
[196S] I s.c,11,
Madras under s. 38 of the Madras General Sales Tax Act, 1959.
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By its order dated September 23, 1963 the High Court held: ())
that the inclusion of the inter-State purchases from April I, 1955
SUPREllE COUBT REPORTS
to September 5, 1955 of Rs. 1,15,406/14/9 was bad as the Appel·
late Assistant Commissioner had .no jurisdiction to include that
turnover; (2) th~t the turnover of Rs. 3,66,213/12/· included by
the. Appellate Tnbunal could not be brought to tax as the beedies,
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which were the subject of the relevant sales, were delivered outside the State for purposes of consumption and as the sales therefore constituted Explanation sales under Art. 286(1) of the Consti·
tution as it stood prior to the Sixth· Amendment m:id consequently
the Madras State had no jurisdiction to tax the said sales. Being
aggrieved by that part of the decision of the Madras High Court
on the question of taxability of the said transactions of inter-State
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sales effected prior to September 6, 1955, the State of Madras has
brought the present appeal.
The question presented for consideration in this appeal is
whether the Madras State had jurisdiction to levy sales tax on the
alleged "Explanation sales" by the respondent during the period
between April I, 1955 to September 5, 1955 by virtue of Explana·
tion (2) to s. 2(h) of the Madras General Sales Tax Act, 1939.
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Section 2(h) of the Madras General Sales Talx AOt, 1939
states:
"2. In this Act, unless there is anything repugnant in the
subject or context-
(h) 'sale' with all its grammatical variations and cognate
expressions means every tr!lllsfer of the property in goods
by one person to another in the course of trade or business
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for cash or for deferred payment or other valuable consideration, and includes also a transfer of property in
goods inolved in the execution of a works contract, a111d
in the supply or distribution of goods by a co-operartive
society, club, firm or any association to its members for
cash or for deferrea payment or other valuable consideration but does not Include a mortgage, hypothecation,
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charge or pledge;
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Explanation (2)-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 m this State at the time
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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
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made.
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IUDBAB v. A. H. REHMAN SONS (Ramaswami, J.)
385
Section 3 which is the charging section provides as follows:
"Subject to the provisions of this Act,-
(a) every dealer shall pay for each year a tax on his total
turnover for such year; and
(b) the tax shall be calculated at the rate of three pies for
every rupee in such turnover :
Provided that if and to the extent to which such turn·
over relates to articles of food or drink or both sold in a
hotel, boarding house, restaurant, stall or any other
place, the tax shall be calculated at the rate of four and
a half pies for every rupee, if the turnover relating to
those articles is not less than
twenty-five thousand
rupees.".
Under the Government of India Act, 1935, it was open to every
Provincial Legislature to enact legislation authdrising the levy
·of tax on sale of goods in respect of transactions whether within
or outside the Province, provided the Province had a
t~rritorial
nexus with one or more elements constituting the sale. This result·
ed in levy of sales ,tax by many Provinces in respect of the same
transaction'-Cach Province fixing upon one or more elements con·
stituting the sale' with which it had a territorial nexus. The Constitution with a view to prevent imposition of manifold taxes on the
same transaction of sale, imposed by Art. 286 restrictions on the
levy of sale and purchase taxes on certain classes of transactions.
Article 286, as it was originally enacted, read as follows:
"(!) No law of a State shall impose, or authorise the im·
position 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 tq have taken place in the
State in which the goods have actually been delivered
as a direct result of such sale or purchase for the purpose
of consumption in that State, notwithstanding the fact
that under the general law relating to sale of goods the
property in the goods has by reas<:lll 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:
886
SUl'lllQ COURT ltBPOBTS
[1968] 1 s.o.B.
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 im·
mediately before the commencement elf 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 (ax 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.".
Article 286 thus imposed .four bans upon legislative power of the
States. Clause (I) prohibited every State from imposing or authorising the imposition of, a tax Oil outside sales and on sales in the
course of import into or export outside the territory of India. By
cl. (2) the State was prohibited from imposing tax on the sale of
goods where such sale took place in the course of inter.State trade
or commerce. But the ban could be removed by the legislation
made by the Parliament. By cl. (3) the Legislature of a State was
incompetent to impose or authorise imposition of a tax on the
sale or purchase of any goods declared by the Parliament by law
to be essential for the life of the community, unless the Jegisla·
tion was reserved for the consideration of the President and had
received his assent.
In The Bengal Immunity Co. Ltd., v. The State of Bihar and
Others('), it was held by this Court that the operative provisions
of the several parts of Art. 286, namely cl. (l)(a), cl. (l)(b), cl. (2)
and cl. (3), are intended to deal with different topics and one cannot be projected or read into another. and therefore the Explanation in cl. (])(a) cannot legitimately be extended to cl. (2) either
as an exception or as a proviso thereto or read as curtailing or
limiting the ambit of cl. (2). It was further held that until the Parliament by law made in exercise of the powers vested in it by cl.
(2) of Art. 286 provides otherwise, no State may impose or authorise the imposition of any tax on sales or purchases of goods when
such sales or purchases take place in the course of inter.State
trade or commerce, and therefore the State Legislature could not
charge inter-State sales or purchases until the
Parliament had
otherwise provided. The judgment of this Court in The Bengal Immunity Company's(') case was delivered on September 6, 1955.
The President then issued the Sales Tax Laws Validation Ordinance. 1956. on January 30. 1956, the provisions of which were
later embodied in the Sales Tax Laws Validation· Act, 1956. Section 2 of this Act provided:
-------------~--
(1) [1955J 2 S.C.R. 603,
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)IA])JWI '" .... II. l\ElllUN SONS (Ramaawami, J.)
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"Validation of State laws imposing, or authorising the
imposition of, taxes on sale or purchase of goods in the
course of inter-State trade or commerce.-Nothwithstanding 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 !st 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 salt 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 ............ ".
By this Act therefore the Parliament removed the ban wntained
in Art. 286(2) of the Constitution retrospectively but limited only
to the period between April I. 1951 and September 6, 1955. All
transactions of sale, even though they were inter-State sales could
for that period be lawfully charged to tax.
On behalf of the appellant the argument was put forward that
the Validation Act having lifted the ban on taxation/ of interState sales, the transactions ot the respondent for the period from .
April I, 1955 to September 5, 1955 were assessable to tax under
the provisions of the Madras General Sales Tax Act, 1939 operating on its own terms. Counsel for the appellant particularly based
his argument on the second Explanation to s.2(h) of that Act and
the decision of this Court in Messrs Ashok Leyland Ltd. v. The
State of Madras('). In our opinion, the argument put forward on
behalf of the appellant is not warriinied. The decision of this
Court in Ashok Leyland's(') case has no bearing on the question
presented for determination in this case. The reason is that in
that case the deliveries of motor vehicles were inside the Madras
State and the inter-State sales in question were not "Explanation
Sales" falling within Art. 286(1)(a). It is a well-settled propl:>sition
that the operative provisions of the several parts of Art. 286.
namely cl. l(a), cl. Hbl. cl. (2) and cl. (3), are intended to 'deal
with different topics and one cannot be projected or read into
another, and therefore the Explanation in cl. (!)(a) cannot legitimately be extended to cl. (2) either as an exception or as a proviso
thereto or read as curtailing or limiting the ambit of cl. (2). In
other words, the legislative authority of the States to impose taxes
on sales and p•irchases was restricted by four limitations-in respect of sales or purchases outside the State, in respect of sales or
purchases in the course of imports into or exports out of India, in
respect of sales or purchases which take place in the course of
(1) [1962] I S.C.R. 607.
388
SUPllBMlil COURT RllPORTS
[1968) 1 s.o.R.
inter-State trade or commerce and in respect of sales and purchases
of goods declared by Parliament to be essential for the life of the
community. These limitations overlap to
som~ extent, but the
legislative power of the State to tax sale or purchase transactions
may be exercised only if it is not hit by any c:A. the limitations.
The restrictions imposed by Art. 286 are cumulative. It follows
therefore that even if the ban under Art. 286(2) is lifted by Parlia·
ment by the enactment of the Validation Act, the Madras State
cannot still tax inter-State sales or purch~ses which take place
outside its territorial limit~ because of the ban under Art. 286(l)(a)
of the Constitution. What is an "outside sale" is defined by the
Constitution by the explanation to Art. 286(1) which states what
should be deemed to be an 'inside sale'. As provided by the Ex·
planation to Art. 286(1), a sale or purchase shall be deemeq to
have taken place in the State in which the goods have actually
been delivered as a direct result of the sale notwithstanding the
fact that under the general law relating to sale of goods the property in the goods has, by reason of such sale or purchase, passed
in another State. The legal position was stated by this Court in
The State of Bombay v.
The United Motors (India) Ltd.(') as
follows:
"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 taken place,
notwithstanding the property in such goods passed in
another State. Why an 'outside' sale or purchase is ex·
plained by defining what is an inside sale, and why
actual delivery and consumption in the State are made
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
workable test: Are the goods 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 the sale or purchase; the former
alone is left free to do so. Multiple taxation of the same
transaction by different States is also thus avoided."
This observation was not in any way dissented from by the judg·
ment of this CO'Urt in the later case-The Bengal Immunity Com·
pany's(') case. The result therefore is that if the terms of the
Explanation are satisfied such sales are 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
(I) [1953] S.C.R. 1069, 1082.
(2) [1955) 2 S.C.R. 603.
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lllADRAS v. A. H. REHMAN SONS (Ramaswami, J.)
!l89
Explanation is exempt from the ban imposed by Art, 286( !)(a);
all other States would be subject to that ban in respect of such
sales. This principle underlies the decision of this Court in Shree
Bajrang Jute Mills Ltd. v. State of Andhra Pradesh('). In that case,
the appellant, carrying on business as a manufacturer of jute goods
with its factory at Guntur, used to send jute bags by railway to
the cement factories cf the A.C.C. ootside the State of Andhra.
For securing a regular supply of jute bags, the A.C.C. entered
into a contract with the appellant and under the despatch instructions from that company, the appellant loaded the goods in the
railway wagons, obtained railway receipts in the name of the A.C.C.
as consignee and against payment of ·the price, delivered the
receipts to the Krishna Cement Works, Tadepalli, which was for
the purpose of receiving the railway receipt and making paYment,
the agent of the A.C.C. From the amounts shown as gross turnover in the return for the assessment year 1954-55, the appellant
claimed reduction of certain amounts in respect of the goods
supplied by rail to the A.C.C. outside the State of Andhra Pradesh
under its despatch instructions. The Commercial Tax Officer and
the Deputy Commissioner of Commercial Taxes disallowed the
claim and held that as the railway receipts were delivered to the
agent of the buyer within the State of Andhra, and price Vias also
realized from the agent of the buyer within the State, goods must
be deemed to have been delivered to the buyer in the State of
Andhra Pradesh, and the appellant was liable to pay tnx on the
sales. The question for determination in this Court was whether
the sales by the appellant to the A.C.C. may be regarded as 'nonExplanation sales', i.e .. falling outside the Explanation to Arl
286(1 ). It was held by this Court that if the goods were delivered
pursuant to the contracts of sale outside the State of Andhra for
the purpose of consumption in the State into which the goods
were delivered, the State of Andhra could have no right ·to tax
those sales by virtue of the restriction imposed by Art. 286(1)(a)
read with the Explanation. To attract the Explanation, the goods
had to be actually delivered as a direct result of the sale, for the
purpose of consumption in. the State in which they were delivered.
The expression 'actually delivered' in the context in whidh it occurs, can only mean physical delivery of the goods, or such action
as puts the goods in the possession of the purchaser and it does not
contemplate mere symbolical or notional delivery. It was accordingly held that the State of Andhra had no authority to levy tax
in respect of these sale transactions in which the goods were· sent
under railway receipts to places outside the St~te ?f Andhra and
actually delivered for the purpose of consumption m those States.
The same view was reiterated by this Court in Singareni Collieries
Co. Ltd. v. State of Andhra Pradesh('). In that case, the appellant
company carried oo the business of mi_ni~g coal fro~ its collieries
and supplying it to consumers both w1thm and outside the State.
(1) [19641 6 S.C.R. 691.
(2) [1966) 2 S.C.R. 190.
390
SUPllJDD: COURT BIPOBTS
[1968] 1 s.o.B.
In ·proceedings for assessment to Sales tax, the company claimed
A
that it was not liable to pay sales tax under the Hyderabad General Sales Tax Act, 1950, on the price of coal supplied to allottees
outside the taxing State pursuant to the directions of the Coal
Commissioner issued under the Colliery Control Order, 1945. This
claim was rejected by the Sales Tax Officer on the ground that the
coal in question was sold F.0.R;· colliery siding and was actually
B
delivered to the consumers within the State when it was loaded on
their account in railway wagons at the colliery siding. The appeals against that decision to the appellate authorities as well as
to the High Court were dismissed. It was decided by this Court
that so far as the period between April l, 1954 and Seplt:mber 6,
1955 was concerned, sales of coal for delivery to co11sumers outside the State could not be taxed under the Hyderabad Act because
0
they were covered by the explanation to Art. 286(l)(a) as it stood
before amendment. It was held that the Explanation defines the
State in which the goods have actually been delivered for consumption, as the State in which for the purpose of cl.(l)(a) of Art.
286 the sale shall be deemed to have taken place, and that State
alone in which the sale is deemed to take place has the power to
tax the sale, and for this purpose it is immaterial that property in
D
the goods has under the general law relating to sale of goods passed
in another State in which the allottee resided or carried on business.
The legal position therefore is that the Validation Act merely
lifted the ban under Art. 286(2) of the Constitution on the State's
power to legislate but the ban imposed by Art. 286(l)(a) of the
Constitutioi:i ~as still effective and coold not be removed by legislation of Parliament. In other words, even if the ban under Art.
286(2) is removed by the Validation Act, no State can tax an interState sale or purchase which takes place outside
its territorial limits. What is an "outside sale" is defined by the Constitu·
tion as Explanation to Art. 286(1) which states what should be
deemed to be an "inside sale". It is well-settled that by Art. 286(1)
(as it stood before the Sixth Amendment) sales as a direct result
of which goods were delivered in a State for consumption in such
State, i.e .. the sales falling within the Explanation to Art. 286(1)
were fictionally to· be regarded as inside that State for the purpose
of cl.
(!)(a) and so
within the taxing
power of the
State in which such delivery took place and
being outside all
other States exempt from sales-tax by those other States. As we
have already said, the Validation Act has lifted the ban under ArL
286(2) alone but did not remove the ban under Art. 286()) which
continued to apply without being affected by the Validation Act.
Therefore, even if a sale fell within the Explanation under s. 2(hl
of the Madras General Sales Tax Act, 1939 it was beyond the ccmpetence of the Madras State to tax if the assessee had delivered th~
goods outside the State for consumption therein. rt follows therefore in the present case that. the goods sold and delivered outside
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MADRAS v. A. H. ,":IHJl!AN SONS RamasWOmi, J·.)
391
the State during the period from April, 1955 to September,
1955
were not liable to tax under the Madras General Sales Tax Act,
1939 and the taxing authorities had no jurisdiction to include
Rs. 3,66,213/12/- in the turnover of the respondent.
We proceed to consider the next question raised in this case,
viz .. that the High Court acted illega<lly in entertaining and relying
upon the affidavits filed by the respondent while exercising its
revisional powers under s. 38 of the Madras
General Sales Tax
Act, 1959 (Madras Act I of 1959). It was contended for the appellant that the High Court could not itself record a finding of fact
after taking additional evidence and there was no express power
conferred by s.- 38 upon the High Court for taking additional evidence. Section 38 of the Madras General Sales Tax Act, 1959
states:
"38. (1) Within ninety days from the date on which a
copy of the order under sub-section (3) of section 36 is
served in the manner prescribed, any person who objects
to such order or the Deputy Commissioner may prefer
a petition to the High Court on the ground that the Appellate Tribunal has either decided erroneously or failed
to decide any question of law:
Provided that the High Court may admit a petition
preferred after the period of ninety days aforesaid if it is
satisfied that the petitioner had sufficient cause for not
preferring the petition within the said period.
(4)(a) If the High Court does not dismiss the petition
summarily, it shall, after giving both the· parties to the ,
petition a reasonable opportunity of being heard, determine the question of law raised and either reverse,
affirm or amend the order against which the ·petition was
preferred or remit the matter to the Appellate Tri.bunal.
with the opinion of the High Court on the question of
law raised or pass such ordllr in relation to the matter as
the High Court thinks fit.
(b) Where the High Court remits the matter under clause
(a) with its opinion on the question of law raised, the. Appellate Tribunal shall amend the order passed by 1t m
conformity with such opinion.
(5) Before passing an order under sub-section (4), the
High Court may, if it considers it ~ecessary so t.o do: remit the petition to the Appellate Tnbuna\, and d~rect 1t to
return the petition with its finding on any specific question or issue.
'
392
SUPREME COURT .llEPO.llTS
[1968] I s.c.11.
(8) (a) The petitioner or the respondent may apply fol' review of any order passed by the High Court under
clause (a) of sub-section (4) on the basis of the discovery
of new and important facts which after the exercise of
due diligence were not within his knowledge or could not
be produced by him when the order was made.
(b) The application for review shall be preferred within
such time, and in such manner as may be prescribed·, and
shall where it is preferred by any party other than the
Deputy Commissioner be accompanied by a fee of one
hundred rupees.
'
'
I
It was argued for the appellant that under s. 38 the High Court
was empowered to interfere with the order of the Appellate Tribunal only if it had either decided a question of law erroneously or
had failed to decide any question of law. It was said that in any
case the High Court should have remitted the matter to the Appellate Tribunal if it considered it necessary for the proper disposal of the case to take in evidence any additional facts under
s. 38(5) of the Act before passing an order under sub-s. (4) remitting
the matter to the Appellate Tribunal on any specific question or
issue. In our opinion there is considerable force in the argument
put forward on behalf of the appellant. But we do not wish to express any concluded opinion on this point in the present case. It
appears that the appellant did not raise any objection before the
High Court when the affidavits were taken into evidence. Having
preferred no objection before the High Court it is not now open
to the appellant to say that the High Court acted illegally in taking
those affidavits in evidence. rt was submitted for the respondent
that the transactions themselves took place in 1955, nearly 12 years
back and ordinarily accounts of dealings would not be retained
beyond five years. Counsel for the respondent referred in this connection to a rule framed under the Madras General Sales Tax Act.
In these circumstances it was hardly worthwhile for the High
Court to remand the case for a fresh investigation. We therefore
reject the argument of the appellant on this aspect of the case.
For the reasons assigned we hold that this appeal has no
merit and must be dismissed. In the circumstances of the case we
do not propose to make any order as to costs.
Civil Appeals Nos. 539 & 540 of 1966, 717 of 1966, 684 of 1966,
694 of 1966 and 857 of 1966.
The main question to be considered in these appeals is whether, after the enactment of the Validation Act, Madras State had
the Nnstitutional power to tax "Explanation sales" falling under
Art. 286(l)(a) of the Constitution i.e., where goods were delivered
for consumption outside the State and whether the ban under Art.
286(l)(a) was an independent ban and whether it could be removed by Parliamentary legislation under Art. 286(2). This question
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iW>BAll ~ • .i.. H. lllllilwl SONS (Ramaawami, J.)
393
4
has been the subject-matter of consideration in Civil Appeal No.
495 of 1966, and for the reasons given in that case, we hold that
the Madras State had no authority to levy sales tax on such transactions of sale and the High Court was right in holding that the
constitutional bar under Art. 286(l)(a) was not lifted by the Validation Act.
B
In Civil appeals Nos. 539 and 540 of 1966 Counsel for the ap.
pellant took an additional point that the High Court ought not to
have called for an affidavit from · the respondent "regarding the
mode of Sa.le of wool to the Bangalore merchants". It was also
said that the High Court had no power to take that affidavit into
evidence and come to a finding that the sales were . "Explanation
sales" within the meaning of Art. 286(l)(a) of the Constitution. It,
C
however, appears that the appellant did not object to the production of the affidavit in the High Court. It must be taken that the
objection was waived and it is not now open to the appellant to
argue· that the High Court had no power to take the affidavit into
evidence. We accordingly reject the argument of the aooellant on
this point.
In Civil Appeal No. 717 of 1966 it was argued for the appel·
D
!ant that the High Court erred in assuming that in the u ansactions
in question the goods were delivered for consumption outside the
Madras State. It was said that the case should have been remanded
by the High Court to the Appellate Tribunal for a fresh finding
on the point. The High Court has. however. taken the view that
the transactions took place in 1955-56 and ordinarily accounts of
dealings· would not be retained by the assessee beyond five years.
E
The High Court has observed that apart from this the transactions
were very large in number. about 4000 and odd and most of them
were for a comparatively small value. Some of the invoices referred in the assessment order show that they were for small
amounts in regard to articles like paint, aluminium, tar and other
articles. Jn these circumstances the High Court came to the conclusion that the goods were delivered to places outsi11.e the Madras
F
State for the purpose of consumption in the delive1 y States. The
High Court added that it was hardly worthwhile in these circumstances to direct a remand of the case to the Appellate Tribunal
for a fresh enquiry. It is manifest that the finding of the High
Court on this point is a finding on a question of fact and as there
is proper material to support the finding of the High Court it is
11ot possible to accept the contention of the appellant that the findG
ing is in any way defective in law. We accordingly reject the argument of the appellant on this point.
For the reasons expressed we hold that these appeals have no
,merit and they are accordingly dismissed. In the circumstances of
the.case we do not propose to make any order as to costs except
in C.A. 717 of 1966. In that appeal, the respondent will be entitlll
ed to costs as already ordered on 29th July 1965.
V.P.S,
Appeals dismissed.