# The &ngal lmmlllliJv Company limited v. Tire Stale of Bihar and others

- **Citation:** [1955] 2 S.C.R. 603
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeal No. 159 of 1953
- **Bench:** S. R. DAs, Acting C.J, VIVIAN BosE, Bhagwati, ]Agannadhadas, Venkatarama Ayyar, B. P. Sinha, Jafer Imam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-ngal-lmmllllijv-company-limited-v-tire-stale-of-bihar-and-others-1514
- **Pages:** 239

## Headnote

Constitution of India-Arts. 141, 226, 286(1), (2) and (3)-Art.
286(J)(a) read tvith
the
Explanation-Construction of-Whether
controlled by Art. 286(2)-Situs of a sale or purchase determined by
general law or created by fiction in the Explanation-Whether relevant fo1· ascertaining inter-State character of such sale or punhaseAppellant company registered in Calcutta-Bihar Sales Tax Act, 1947
(Bihar Act XIX of 1947)-S. 13-Whether appellant company liable
to Sales Tax-Where goods deliveted in the State of Bihm· as a direct
result of sale for purposes of consumption there-Art. 226-Petition
thereunder-.\1.aintainability of-Supreme Court whether competent to
modify or review its pri01· decisions-Art. 141-Meaning of-Bihar
Sales Tax Act, 1947, s. 33-Taxing sales or purchases taking place in
the course of inter-State trade-Validity of-Act whether wholly ultra
vires and void.
The appellant company, having its registered office in Calcutta
and its factory and laboratory in the District of 24-Parganas in
\Vest Bengal, carried on the business of manufacturing and selling
sera, vaccines, biological products and medicines.
It was registered
as a dealer under the Bengal Finance (Sales Tax) Act. Its products
haYing extensive sales throughout India and abroad were despatched
from Calcutta against orders accepted by the appellant company in
Calcutt'1.
It had no agent or manager in Bihar nor any office or
laboratory in that State. A notice under s. 13(5) of the Bihar Sales
Tax Act, 1947 was issued by the Bihar Sales Tax authorities calling
upon the appellar:t company to apply for registration and to submit
returns showing its turn over for a period between the 26th of January, 1950 and 30th September 1951. The appellant company denied its
liability on the grounds, inter alia that it was not resident in Bihar,
it carried on no business there and none of its sales took place in
Hihar. It characterized the notice under s. 13(5) as ultra vires and
illegal and called upon the Sales Tax authorities to cancel it forthwith.
The Bihar Sales Tax authorities maintained that all sales in
West Bengal or in any other State under which goods had been delivered in the State of Bihar as a direct result of the sale for the purposes of consumption in that State were liable to Bihar Sales Tax.
Ultimately the appellant company presented before the High Court
at Patna a petition under Art. 226 of the Constitution claiming the
reliefs mention.:d above.
The High Court dismissed the petition
holding that it was not maintainable. On appeal under a certificate
1955
Septembw 6
1955
The &ngal
lmmlllliJv
Company limited
v.
Tire Stale of Bihar
and others
604
SUPREME COURT REPORTS
[1955}
under Art. 132(1) of the Constitution:. -
Held, (per curiam) (i) that the High Court was not right in holding that the petition under Art. 226 was misconce,ived.
In so holding the High Court overlooked the fact that the petitioners' contention
was that the Act, in so far as it. purported to tax a non-resident in
respect of inter-State sales or purchases of goods was ultra vires the
Constitution. There are various provisions in the Act laying down
certain conditions, which dealers must comply with or submit to.
They consti_tuted restrictions on the fundamental right guaranteed to
every citizen of India by Art. 19(1) (g) of the Constitution and these
onerous conditions could not be justified as reasonable restrictions
within the meaning of clause (6) of Art. 19 and further the remedy
under the Act cannot be said to be adequate and was indeed useless
if the Act providing for such remedy was itself ultra vires and void :
(ii) that there is nothing in the Constitution which prevent&
the Supreme Court from departing fron1 a previous decision of its
own if the court is satisfied of its error and its baneful effect on the
general interests of the public.
~t..feld, per S. R. DAs,
AcTr~c C. J., V1v1AN BosE, BHAGW.ATI
and
fAFER
IMAM
JJ.
(JAGANNADHADAS,
VENKATARAMA
AvYAJ.
and B. P. S1NHA JJ., Jisse,,ting) t

## Text

_Characters 0–39,176 of 537,900. This is a partial read: ask again with offset=39176 for what follows._

2 S.C.R.
SUPREME COURT REPORTS
603
THE BENGAL IMMUNITY COMPANY LIMITED
''·
THE ST ATE OF BIHAR AND OTHERS.
(S. R. DAs, ACTING C.J., VIVIAN BosE, BHAGWATI,
]AGANNADHADAS, VENKATARAMA AYYAR, B. P. SINHA
and JAFER IMAM JJ.]
Constitution of India-Arts. 141, 226, 286(1), (2) and (3)-Art.
286(J)(a) read tvith
the
Explanation-Construction of-Whether
controlled by Art. 286(2)-Situs of a sale or purchase determined by
general law or created by fiction in the Explanation-Whether relevant fo1· ascertaining inter-State character of such sale or punhaseAppellant company registered in Calcutta-Bihar Sales Tax Act, 1947
(Bihar Act XIX of 1947)-S. 13-Whether appellant company liable
to Sales Tax-Where goods deliveted in the State of Bihm· as a direct
result of sale for purposes of consumption there-Art. 226-Petition
thereunder-.\1.aintainability of-Supreme Court whether competent to
modify or review its pri01· decisions-Art. 141-Meaning of-Bihar
Sales Tax Act, 1947, s. 33-Taxing sales or purchases taking place in
the course of inter-State trade-Validity of-Act whether wholly ultra
vires and void.
The appellant company, having its registered office in Calcutta
and its factory and laboratory in the District of 24-Parganas in
\Vest Bengal, carried on the business of manufacturing and selling
sera, vaccines, biological products and medicines.
It was registered
as a dealer under the Bengal Finance (Sales Tax) Act. Its products
haYing extensive sales throughout India and abroad were despatched
from Calcutta against orders accepted by the appellant company in
Calcutt'1.
It had no agent or manager in Bihar nor any office or
laboratory in that State. A notice under s. 13(5) of the Bihar Sales
Tax Act, 1947 was issued by the Bihar Sales Tax authorities calling
upon the appellar:t company to apply for registration and to submit
returns showing its turn over for a period between the 26th of January, 1950 and 30th September 1951. The appellant company denied its
liability on the grounds, inter alia that it was not resident in Bihar,
it carried on no business there and none of its sales took place in
Hihar. It characterized the notice under s. 13(5) as ultra vires and
illegal and called upon the Sales Tax authorities to cancel it forthwith.
The Bihar Sales Tax authorities maintained that all sales in
West Bengal or in any other State under which goods had been delivered in the State of Bihar as a direct result of the sale for the purposes of consumption in that State were liable to Bihar Sales Tax.
Ultimately the appellant company presented before the High Court
at Patna a petition under Art. 226 of the Constitution claiming the
reliefs mention.:d above.
The High Court dismissed the petition
holding that it was not maintainable. On appeal under a certificate
1955
Septembw 6
1955
The &ngal
lmmlllliJv
Company limited
v.
Tire Stale of Bihar
and others
604
SUPREME COURT REPORTS
[1955}
under Art. 132(1) of the Constitution:. -
Held, (per curiam) (i) that the High Court was not right in holding that the petition under Art. 226 was misconce,ived.
In so holding the High Court overlooked the fact that the petitioners' contention
was that the Act, in so far as it. purported to tax a non-resident in
respect of inter-State sales or purchases of goods was ultra vires the
Constitution. There are various provisions in the Act laying down
certain conditions, which dealers must comply with or submit to.
They consti_tuted restrictions on the fundamental right guaranteed to
every citizen of India by Art. 19(1) (g) of the Constitution and these
onerous conditions could not be justified as reasonable restrictions
within the meaning of clause (6) of Art. 19 and further the remedy
under the Act cannot be said to be adequate and was indeed useless
if the Act providing for such remedy was itself ultra vires and void :
(ii) that there is nothing in the Constitution which prevent&
the Supreme Court from departing fron1 a previous decision of its
own if the court is satisfied of its error and its baneful effect on the
general interests of the public.
~t..feld, per S. R. DAs,
AcTr~c C. J., V1v1AN BosE, BHAGW.ATI
and
fAFER
IMAM
JJ.
(JAGANNADHADAS,
VENKATARAMA
AvYAJ.
and B. P. S1NHA JJ., Jisse,,ting) that the present is· a fit case for
reviewing the previous majority decision of the Supre1ne Court in
The State of Bombay v. The United Motors (India) Ltd. ([.1953)
S.C.R. 1069), in view of several circumstances relating to the case.
Held, per ·s. R. DAs, AcTING C. J., V1v1AN BosE, BttAGWATI
and
}AFER IMAM JJ. (JAGANNADHADAs, VENKATARAMA AYYAR and
B. P. SINHA JJ., dissenting). The operative provisions of the several
parts of Art. 286, namely clause (l){a), clause (l)(b), clause (2) and
clause (3) arc intended to deal with different topics and, one cannot
be projected or read into another anc1 therefore the Explanation in
clause ( 1) (a) cannot be legitimately extended to clause (2) either as
an exception or as a proviso thereto or read as curtailing or limiting
the ambit of clause (2).
The sales or purchases made by the appellant company which
were sought to be taxed by the State of Bihar actually took place in
the course of inter·State trade or commerce. Parliament not having
by law otherwise provided, no State law could, therefore, tax these
sales or purchases, that is to say, Bihar could not tax by reason of
clause (2) although they fell within the Explanation and other States
could not tax. by reason of both clause ( 1) (a) read with the Explanation and clause (2).
What is an inter-State sale or purchase continues to be so irrespective of 'tl1e State where the sale is to be located cithc.r under the .
general law when it is finally determined what the. general law is or
by the fiction crean:d by the Explanation. The situs of a sale or
purchase •is wholly irrelevant as regards its intcr ... Statc character.
2 S.C.R.
SUPREME COURT REPORTS
605
Until Parliament by law made in exercise of the powers vested
in it by clause (2) of Art. 286 provides otherwise, no State can
impose or authorise the imposition of any tax on sales or puri:hases
of goods when such sales or purchases take place in the course of
inter-State trade or commerce and the majority decision in The State
of Bombay v. The United Motors (India) Ltd. ((1953] S.C.R. 1069)
in so far as it decides to the contrary cannot be accepted as well
founded on principle or authority.
In view of the above interpretation upon Art. 286 the charging
section of the Bihar Sales Tax Act, 194 7 read with the relevant definitions cannot operate to tax inter·State sales or purchases and as
Parliament has not otherwise provided, the Act, in so far as it purports to tax sales or purchases that take place in the course of interState trade or commerce, is unconstitutional, illegal and void.
The Act imposes tax on subjects divisible in their nature but
does not exclude in express terms · subjects exempted by the Constitution. In such a situation the Act need not be declared wholly
ultra vires and void for it is feasible to separate taxes levied on
authorised subjects from those levied on exempted subjects and to
exciude the latter in the assessment of the tax.
Held (per JAoANNADHADAs,
VENKATARAMA
AYYAR and B. P.
SINHA JJ.). The scheme of Art. 286(1)(a) is, that it fixes the situs of
the sales with a view to avoid multiple taxation and for that purpose
it· divides them into two categories-inside sales and outside salesand cnaets cha~ a State cannot tax an outside sale.
When in the
same context the &planation declares that a sale in the course of
inter-State trade must be deemed to have taken place in the State in
which the goods arc delivered for consumption, its purpose is clearly
to take it out of inter-State trade and stamp it with the character of
an intra-State sale.
Whether regard is had to the object of the enactment or its
language, the Explanation must be held to authorise the imposition
of tax by the delivery Statc.
Article 286(2) applies to sales in the course of inter-State trade.
The salc!s which fall within the Explanation an! intta-Statc
sales.
The grolHlds covered by the two provisions uc distinGt and separate.
:Each has operation within its CIWn sphere, and there is no conllict
between them.
Accerdirtg to die vit:w ellpre!SCd· by Bose J. in The Sllltc of
Bombay v. Tht United Motors (India) Ltd. ((1953] S.C.R. 1069) and
by Das J. in S1111e of TravM1cor11-CocAit1 v. Shanmuglla Vilas Cashuv
Nut Factory ([1954] S.C.R. 53) Articll! 286(2) controls the Explartation.
This cannot be sttstaintd on the language! of the enactment.
The Explanation; is not fiFJl'l'SS'd to be subjert t~ Art. 286(2). N'bc
decs the- latter cootaia tile words "notwiHi.ssmling anyehing OOBt*Md in the Explanation to Art. 286(I)(a)". These arc simple and
familiar capsoession. used by the legislature wh11n it intends that a
particular provision in the Statute should be subject to or override
1955
The B<l!gal
lmmuniry
Company Limiltd
v.
The State of Bihar
and othas
1955
Tu Bengal
1 .. mu11it1
Company L1mittd
v.
Tu Stale ef Bihar
and olhns
606
SUPREME COURT REPORTS
[ 19551
another.
Nor is th~re anything in the language of the Explanation
providing that its operation is not to be in. praesenti but contingent
on Parliamentary legislation under Art. 286(2). To construe, therefore, Art. 286(2) as controlling the Explanation, one must import
into the Statute words which are not there and thereby cut down
the operation of the Explanation \vhich on its terms is of equal
authority and potency with Art. 286(2).
The impugned Act in so far as it authorises the imposition of tax.
or. sales falling within the Explanation to Art. 286(J)(a) is neither
ultra vires the powers of the State Legislature nor bad on the ground
that it is extra-territorial in its operation.
Per ]AGANNADHADAS J.
The only reasonable: construction of
Art. 286(I)(a) taken with the Explanation is that this provision
while intended to prohibit taxation by States on outside: sales was
also meant to demarcate: the boundary between inside sales and out·
side sales and to assimilate one particular category of outside sales
into the field of inside sales and to make it available for taxation by
the consuming State.
CIVIL
APPELLATE
JuRISDICTION :
Civil
Appeal
No. 159 of 1953.
Appeal under Article 132(1) of the Constitution
of India from the Judgment and Order dated the 4th
December 1952 of the High Court of Judicature at
Patna in Misc. Judicial Case No. 241 of 1952.
N. C. Chatterji (V. S. Sawhney, S. N. Mukerii and
R. R. Biswas, with him) for the appellant company.
The High Court was wrong in holding that there was
no warrant for issuing a writ under article 226 of the
Constitution on the facts of the case. Although no
actual assessment was made by the Sales Tax authorities the issue of notice by them constituted a sufficient threat which the High Court had jurisdiction to
quash by means of a writ under article 226 of the
Constitution:
see Himmatlal Harilal Mehta
v.
The
State of Madhya Pradesh ([1954] S.C.R. 1122), The State
of Bombay v. The United Motors (India) Ltd. ([1953]
S.C.R. 1069}, Mohammad Yasin v. The Town Area
Committee, falalabad ([1952) S.C.R. 572), The King v.
Commissioners for the General Purposes of the IncomeTax for Kensington ([19141 3 K.B. 429), Gtnerai Com•
missioners for the purposes of Income Tax for Kensington v. Aramayo ([1916] 1 A.C. 215), Madan
Gopal
Kabra v. The Union of India ([1951 l l.T.R. 214), Sales
2 S.C.R.
SUPREME COURT REPORTS
(fJ7
Tax Officer,
Pilibhit
v.
Messrs
Budh Prakash
/ai
Prakash ([1955] 1 S.C.R. 423), Commissioner of Police,
lJombay v. Gordhandas Bhanji (f1952J S.C.R. 135). Article 286(2) which is in Part XII of the Constitution is
meant to
implement the supremacy of Parliament
with regard to inter-State trade or commerce.
That
Article puts an embargo on the power of the State
Legislature to
levy
any tax with respect
to interState trade or commerce. Only when the embargo is
lifted by appropriate Parliamentary
Legislation
that
the State Legislature can levy any tax on sales or
purchases in the course of inter-State trade or commerce. Article 286 puts a fetter on the State Legislatures and the Explanation to article 286(1)(a) does
not confer any power on
any State Legislature to
levy any tax.
The Explanation
is meant to explain
only · clause (1) (a) of article 286, that is, what is an
outside sale or purchase.
It does not remove fetter
and
it
does
not
convert
any inter-State sale or
purchase
into
an
intra-State
transaction.
See
the
judgment of Bose J. in The State of Bombay v. The
United Motors (India) Ltd. ([19531 S.C.R. 1069)
and
that of Das J. in The State of Travancore-Cochin "·
Shanmugha Vilas Cashew Nttt Factory (f 19541 S.C.R.
53). The
construction of
the
Explanation by
the
learned Judges of the High Court is not correct. They
were wrong in assuming that if article 286(2) is construed in a full and unqualified sense, the Explanation to article 286(1)(a) would become nugatory and
of no effect. They also erred in holding that the
Explanation
expressly confers legislative
power,
and
that the Explanation is in the nature of an exception
which excludes a particular class from a larger class.
The High Court erred in holding that the Explanation created a nexus for conferring jurisdiction on the
State
Legis1ature.
Test of
territorial
nexus
1s
no
longer applicable after the coming into force of the
Constitution. See The State of Bombay v. 'i.'he United
Motors (India) Ltd. ([19531 S.C.R. 1069).
On a proper reading of all the sections
of the
Bihar Sales Tax Act, 1947 the idea seems to be that
the intention was only to tax the dealers within
the
1955
The Bmgal
Immunity
Company Limitetf
v.
The State of Bilrur
and others
18&5 -
TM B<q•I
~
Comptmy Limittd
'
\It;
The Sltlle of Biltar
Gnd oJllm
608
SUPREME COURT REPORTS
[1955]
State of Bihar, as some of the provisions of the Act
would be incapable of enforcement outside the State.
Consequently the appellant which has no office or
agent within the State could not be taxed. See ss. 1,
2(c), 2(g), 4, 10, 14-A, 17, 26(a) (c) (b) & (k), of the
Act.
Bihar Legislature has . no power
to authorise
imposition of tax on outside dealers. The legislative
competence of a State Legislature is derived from
Article 246 read with the Lists. Under article 245(2)
Parliament is given power to enact legislation with
respect
to
extra-territorial operation.
State Legislature has no such power. The combined effect of article 246(3) read with item 54 of List II is that the State
Legislature is competent only to make law imposing
tax on sale or purchase of goods for the whole or any
part of that State. Under article 245 of the Constitution power is limited within the boundary of the
State.
Taxable
event must happen in that State.
See Swifte v. Attorney-General for Ireland ( [ 1912] A.C.
276), Commercial Cable Company v. Attorney-General
for N_ewfoundland ([1912] A. C. 820), and MacLeod
v.
Attorney-General for
New South Wales
([1891]
A.C.
455).
High
Court
failed
to appreciate the
true effect of the judgment in Wallace . Brotherr and
Co., Ltd.
v. Commissioner of Income-Tar,
Bombay
City and Bombay Suburban District ( [ 1948 I 75
I.A.
87).
The Australian case cited by the High Court
viz.,
Q. Gilpin
Limited v.
Commissioner for
Road
Transport and Tramways (New South Wale!) ([1935]
52 C.L.R. 189) has been overruled in Hugher and Vale!
Proprietary, Ltd. v. State of New South Wales ([1954]
3 All. E.R. @).
M. C. Setalvad, Attorney-General of India ( B. Se11
and P. K. Bose: with him), for the State of West Bengal
(Intervener). Bihar Sales Tax Act has to be read as
a whole and on a correct reading of the Act it clearly
appears that the Act is intended to apply only
to
dealers in Bihar. Bihar cannot tax the sale because
it takes place in the course of inter-State trade or
commerce and the State is barred from taxing such
sales by reason of clause (2) of article 286. The ques.
tion is whether the majority view in the case of State
2 S.C.R.
SUPREME COURT REPORTS
609
.of Bombay v. Unittd Motors (India) Ltd. ([1953] S.C.R.
1069) is correct. Article 245 read with Entry 54 in
List II gives the
Legislative power whereas article
286 imposes restrictions on such Legislative power of
.a State. There are four restrictions placed by that
article-the first by clause
( 1) (a), the
second
by
clause (l)(b), the third by clause (2) and the fourth
by clause (3). Basis of article 286(2)
is to ensure
freedom of movement throughout the country which
principle is to be found in article 301. Article 286(2)
gives authority to the Parliament to watch over the
principles underlying article
301
and to see what
restrictions are necessary.
In determining the ambit
·of clause (2) it is not permissible to apply the Explanation. If you do so then logically you must also
apply it to clause 1 (b). If the majority decision in
Statt of Bombay v. Unittd Motors (India) Ltd. ([1953]
S.C.R. 1069) is right on the interpretation of clause (2)
then that clause becomes absolutely meaningless.
The
Supreme
Court can overrule
its
previous
·decision if it is satisfied that the decision was erroneous: London Strut Tramways Company v. London
County Council ([18981 A. C. 375), In rt Transftrrtd ·
Civil Strvants
(!rt/and)
Comptnsation ([1929]
A.C.
142), Tht Tramways cast (No. 1) (18 C.L.R. 54), Smith
v. Al/wright (321 U.S. 649; 88 L. Ed. 987) and Vinayak
v. Mortshwar (I.LR. [1944] Nag. 342).
Even if the ban imposed by clause (2) of article
186 did not apply, Bihar is not competent to tax on
a reading of article 246(3), Entry 54, List II and
article 286(1) (a). The word 'sale' in Entry 54, means
passing of property in the sense of the Sale of Goods
Act, s. 4. Sec Salt! Tax Offictr, PilibAit v. Mtssrs
Budh Prakash Jai Praka.rh ([19551 1 S.C.R. p. 243}.
'On a true construction of the Explanation to article
286(1)(a) Bihar is competent to levy a purchase tu
and not a sales tax in respect of transactions entered
into
by
dealers
residing outside. The Explanation
cannot be read as extra-territorial.
It must be read
as consistent with article 245. Although the Federal
1'955
Th• Bea,..t
lmmunil,J
Company Limited
v •
The Slilll of Bih•
and other<
1955
Th~ B~ngal
Immunity
Cumpany Limittd
v.
The Stall of Bihar
and othos
610
SUPREME COURT REPORTS
[1955J
Legislature
had
extra-territorial
power
under
the
Government of India Act, 1935 the Provincial Legis_ lature · did not have such power. The position is the
same under the Constitution : The Governor-General
in Council v. The Raleigh Investment Co., Ltd. ([1944]
F.C.R. 229) and In re S. Mohan
Kumaramangalam
(A.LR. 1951 Mad. 583).
So far,
nexus
theory
has
been
applied
to
extra-territoriality
as between
two
independent States.
Decision of
the Supreme Court
in Poppatlal Shah's case is
applicable to
component
parts of the same State; Poppatlal Shah v. The State of
Madras ([1953]' S.C.R. 677), The State of Bombay v.
The United hfotors (India) Ltd. ([1953] S.C.R. 1069,
1078) and The Governor-General in Council v.
The
Raleigh Investment Co. Ltd. ([1944]
F.C.R. 229). It
is doubtful if nexus theory is applicable to this kind
of legislation. -In any event. the nexus theory is not
· applicable under the Constitution of India. If machinery for enforcement of the Ai:t has extra-territorial
operation and is linked up with the charging section
the whole scheme of taxation is bad due to the prov1S1ons of article 245.
In any event the
machinery
is bad.
M. C. Setalvad, Attorney-General of India (Rajeswari Prasad and S. P. Varma, with him) for Tata
Iron and Steel Co., Ltd., (Intervener) supported the
appellant.
T. N. Subramanya Aiyar (T. V. R. Tatachari, with
him) for M. A. Kuriakose
(Intervener) adopted
the
arguments of the Attorney-General and
referred
to
V. 0. Vakkan v. The Government of the Province of
Madras ([19521 2 M.L.J. 353), Poppatlal Shah v. State
of Madras (A.LR. 1953 Mad. 91), Tobacco
Manufacturers
(India) Ltd., Monghyr v. The State of Bihar
(A.LR. 1950 Pat. 450),, The State of Bzhar v. Bengal
Chemical and Pharmaceutical Works Ltd. (A.LR. 1954
Pat. 14), Maxwell on Interpretation of Statutes, 10th
Edn., p. 148 and Craies on Statute Law, 5th Edn., p.
174.
Lal Narain Sinha (B.K.P. Sinha and R.C. Prasad,.
with
him),
for the respondent
(State of Bihar).
2 S.C.R.
SUPREME COURT REPORTS
611
Article 246(3) read with Entry 54 of List II is by itself
enough to grant legislative competence to the making
of laws imposing tax on sales of inter-State character
having
a . real and
sufficient territorial
connection
with the taxing State. Delivery of goods within the
State where such delivery. takes place in performance
of the contract of sale is by itself real and sufficient
territorial
connection.
The
position was the
same
under section
100 of the Government of India Act,
1935 read with Entry 48 of List II. A legislation on
the basis of a real and sufficient connection is not invalid on the ground of ext.ta-territorial . operation. The
Governor-General in Council v. The Raleigh Investment
Co., Ltd. (1944 F.C.R. 229), Wallace Brothers and Co.
Ltd. v. Commissioner of Income-Tax, Bombay City and
Bombay Suburban District ([1948] 75 I.A. 86), Broken
Hill South Limited (Public Officer) v. The Commissioner
of Taxation (New South Wales) (56 C.L.R. 337), Commissioners of Taxation v. Kirk (1900 A.C. 588) and In
re S. Mohan Kumaramangalam (A.LR. 1951 Mad. 583,
588). So far as conception of sale is concerned it comprises of several elements. The situs of the sale is
where the various ingredients of the sale take place.
Article 286(l)(a) dr)CS not govern the whole of interState trade or commerce. It does not apply to a case
where goods are delivered in the purchasing State for
purposes other than consumption.
Article 286(1)(a)
has no application to cases where the Explanation
itself does not apply. If a Bengal dealer sells to a Bihar
purchaser and delivery takes place in Bihar and if
the purpose is
consumption
then
the
Explanation
applies and Bihar alone can tax. If the purpose is
not consumption
the Explanation
does
not apply,
the matter is set at large, and States will be entitled
to tax on the nexus theory.
The ban imposed by
clause (2) of article 286 does
not apply to cases
covered by article 286(l)(a). The class of sales fallipg under the purview of Article 286(1)(a) form a
special class of
inter-State
sales
which on
general
principles of interpretation cannot be affected by the
general provisions of clause (2). Article 286(1)(a) and
article 286(2) are exactly on the same topic and they
1955
The Bengal
Immunity
Company Limited
v.
The Stau of Bihar
and others
1955
Tht Btotol
1-11.1
Cmtpany Liviited
v.
Tlw Slat1 of Bih1Jr
orul olhtr$
612
SUPREME COURT REPORTS
[1955]
are to achieve the same purpose, i.e., elimination of
multiple taxation on a single sale. The device employed in article 286(1) (a) read with the Explanation
is to convert inter-State sale into an intra-State sale
and thereby to localise a sale and to take away the
taxing power of other States.
Article 286( 1) (a) and
article 286(2) are complimentary
to each other and
they have to be interpreted harmoniously so that each
of them can operate within its own field. Whilst
article
286(2)
comprises
all classes
of inter-State
trade, article 286(1) (a) deals with a special class. If
article 286(2) applies to cases covered by article 286
(!) (a) and the Explanation then it will result in discrimination against local trade in
favour
of intcrState trade and this will be inconsistent with the pr<>-
visions of Part XIII of the Constitution. The purpose of article 286 being to eliminate multiple taxation and article 286(1) (a) having achieved that purpose in regard to a class of sales falling within it, it
is no longer necessary for that purpose to apply article 286(2) to the aforesaid class.
The Constitution
itself has divided inter-State sales into two categories.
In regard to one class it has itself provided as to which
State will tax the sale and under what conditions. In
regard to the other class the Constitution itself has
imposed a ban in general terms and granted Parliament power in general to relax that ban to such extent
as Parliament thinks fit. The sale though of an interState character has been converted into an intJra-Statc
sale by reason of the legal fiction. If power of taxation is given all ancillary powers are included in that
very power.
V. K.- T. Chari, Advocate-General of Mlldras
(K.
Veerasami, with him) for the State of Madras (Intervener). A State is sovereign within the limits of the
subject matter of List II as well as within its geographical area.
The te..t of legislative competence both
as regards the subject matter and
the geographical
limits is the same whether it is the Parliament or the
State Legislature. As to the subject matter the
rul~
that applies is that of "pith and substance" and inO.
dental invasion of the other Lists is permitted. As
2 S.C.R.
SUPREME COURT REPORTS
613
to area, the test is the territorial connection or nexus
as the limiting factor. The connection must be relevant and real and if the connection is real then any
impact on persons, things, acts or events outside the
State is permissible and valid. The word 'extra-territoriality' is used in the sense of legislation with respect
to conduct of citizens when they are outside the country.
[Reference was made to Charter Act of 1833, s.
43, Government of India Act, 1915, s. 65 ( 1) (a), Hodge
v. The Queen (9 A. C. 117), The Commissioner of Stamp
Duties (New South Wales) v. Miller and another
(48
C.L.R. 618), The Australasian Scale Company Limited
v. The Commissioner of Taxes (Queens Land) (53 C.L.R.
534), Broken Hill South Limited v. The Commissioner
of Taxation (New South Wales) (56 C.L.R. 337)]. Under
the Government of India Act, 1935 the requirement of
levying sales tax was that the goods belonging to the
seller must be located within the Province and that
those goods should have been made the subject matter
of a sale transaction.
To establish territk>rial connection for sale. transaction the sine qua non is that the
goods belonging to the seller must be located within
the Province and that the goods should be made the
subject matter of a sale
transaction. The
Explanation to article 286(1) (a) is a deliberate reversal of the
pre-existing position.
T. L. Shet1de, Adt1ocate-General of Madhya Pradesh
and M. Adhikari (I. N. Shroff, with them) for the
State of Madhya Pradesh (Intervener). Whereas
the
legislative power of all States under article
246(3)
read with Entry 54 List II to tax all outside transactions of sale
or purchase has
been
curtailed
or
restricted by clause l(a) and also by clause (2) of
article 286 the said legislative power of the deliverv
State is fully saved by the Explanation of clause I (a)
and is not ~ubject to the provisions of clause
(2).
Every delivery
State is competent to tax extra-territorially within the ambit of the Explanation and is
not fettered by clause (2). Clause (2) puts a ban on
all inter-State
transactions
except
those
covered
by
the Explanation. The contention that the Explanation does not come into effect until the ban under
1955
Thr B'••al
fmmumJ1
Compan.J Limit•d
v.
Thi StoJt of Bihar
and •Iha•
1955
The Bengal
Immunity
Company Limited
v.
The Stale fl.( Bihar
and others.
614
SUPREME COURT REPORTS
[1955]
clause ( 2) is lifted by Parliament is incorrect and
untenable and moreover such a contention directly
contravenes the provisions of article 394 of the Constitution. The operation of the Explanation excludes
the operation of clause (2) and vice versa. Sales Tax
is in fact and substance only a purchase tax paid on
one and the same transaction.
Intention was to put
an end to the evil of multiple taxation.
S. M. Sikri, Advocate-General of Punjab
(Jindra
Lal and P. G. Gokhale, with him) for the State of Punjab (Intervener). Article 286(1)(a) like article 286(2)
deals with only sales or purchases which take place
during the course of inter-State trade or commerce, i.e.,
trade or commerce in which more than one State have
interest. The words
'inter-State ·trade or commerce'
have to be given the widest possible meaning. The
Explanation has the effect of divesting a transaction
of its inter-State character. Commonwealth of Australia
v. Bank of New South Wales (1950 A.C. 235) and Bank
of N. S. W. v. The Commonwealth (76 C. L. R. 1).
Assuming that the Supreme Court has jurisdiction to.
overrule its own decision there is no reason for doing
so. Sec Denning on The Changing Law, 1935 Edn.,
p. 5.
Nittoor
Sreenivasa
Rao,
Advocate-General
of
Mysore, (R. Ganapathy Iyer and P. G. Gokhale, with
him) for the State of Mysore, K. S. Hajela, AdvocateGeneral of Rajasthan (P. G. Gokhale, with him) for
the. State 9f Rajasthan, Lachman Das Kaushal, Advocate-Genera/" of Pepsu (P. G. Gokhale, with him) for
the State of Pepsu, K. B. Asthana and C. P. Lal, for
the State of Uttar Pradesh, P. A. Mehta and P. G.
Gokhale, for the State of Orissa and T. R. Balakrishnan
and Sardar Bahadur Saharya, for the State of Travancore-Cochin (Interveners ), supported the respondent.
N. C. Chatterji replied.
1955.
September 6. The judgment of S. R. Das,
Acting Chief Justice, Bose and Jafer Imam JJ. wa•
delivered by S. R. Das Acting Chief Justice. Bhagwati,
f agannadhadas,
Venkatarama Ayyar and · B. P. Sinha
JJ. delivered separate judgments.
2 S.C.R.
SUPREME COURT REPORTS
615
DAs Acre. C.J.-This appeal, filed under a certificate of fitness granted by the High Court of Patna,
is directed against the judgment of that High Court
pronounced on the 4th December 1952 whereby it dismissed the application made by the appellant company under article 226 of the Constitution praying for
an appropriate writ or order quashing "the proceedings issued by the opposite parties for the purpose of
levying and realising a tax which is not lawfully leviable on the petitioners" and for other ancillary reliefs.
The relevant facts appearing from the petition filed
in support of the appellant company's
aforesaid
application are as follows :
The appellant company is
an incorporated company carrying on the business of
manufacturing
and
selling
various
sera,
vaccines,
biological
products
and
medicines.
Its
registered
head office is at Calcutta and its laboratory and
factory are at Baranagar in the district of 24-Perganas in
West Bengal. It is registered as a dealer under the
Bengal
Finance (Sales Tax)
Act and
its
registered
number is S. L. 683A.
Its
products have extensive
sales throughout the Union of India and abroad.
The
goods are despatched from
Calcutta by rail, steamer
or air against orders accepted by . the appellant company in Calcutta.
The appellant company has neither
any agent or manager in Bihar nor any office, go<lown
or laboratory in that State.
On the 24th October
1951
the
Assistant
Superintendent of
Commercial
Taxes, Bihar wrote a letter to the appellant
company
which concluded as follows :-
"Necessary action may therefore be taken to get
your firm registered under the Bihar Sales Tax Act.
Steps may
kindly be
taken
to deposit Bihar
Sales
Jax dues in any Bihar Treasury at an early
date
under intimation to this Departplent."
On the 18th December, 1951 a notice was
issued by
the Superintendent,
Commercial ·Taxes, Central Circle
Bihar, Patna calling upon the appellant company
(i)
to apply for registration and (ii) to submit returns
showing its turnover for the period commencing from
the 26th January,
1950 and ending with the 30th
1955
The Bengal
Immuni!J:
Company Limited
v.
The State of Bihar
and others
Das Actg. C. ].
1955
Tiu Bmgal
ltrm1Uni!J
Company Limited
v.
T 11' Slal1 of Bihm
end tJthers
DtU Adg. C. J.
616
SUPREME COURT REPORTS
[1955}
September, 1951.
This notice was issued under section 13(5) of the Bihar Sales Tax Act, 1947 (hereinafter called the Act) read with rule 28. It was drawn
up according to Form No. 8 prescribed by the rules
and was headed "Notice of hearing
under
section
13(5) ". The reason for issuing this notice, as recited
therein, was that on information which had come to
his possession
the Superintendent was satisfied
that
the appellant company was liable to pay tax but had
nevertheless wilfully failed to apply for registration
under the Act. Thereafter there
was
some
correspondence between
the appellant company and
the
Bihar Sales Tax authorities to which it is not necessary to refer in detail. Suffice it to say that while
the appellant company denied
its liability
on
the
ground, inter alia, that it was not resident in Bihar,
it carried on no business there, none of its sales took
place in Bihar and that it did not collect any sales
tax from any person of that State, the Bihar Sales
Tax authorities maintained
that under section
33,
which was substantially based on article 286 of the
Constitution and was inserted in the Act by the' President's
Adaptation
Order promulgated on
the 4th
April, 1951, all sales in West Bengal or any other
State under which the goods had been delivered in
the State of Bihar as a direct result of the sale for the
purpose of consumption in that State were liable to
Bihar Sales Tax. Eventually on the 29th May,
1952
the
Assistant
Superintendent of
Sales
Tax,
Bihar
called upon the appellant company to comply with
the notice by the 14th June, 1952 and threatened
that, in default of compliance, he would proceed
to
take steps for assessment to the best of his judgment.
The appellant company by its letter dated the 7th
June, 1952 characterised the notice under section 13
(5) as ultra vires and entirely illegal and called upon
the Superintendent to forthwith
rescind
and
cancel
the same. On the 10th June, 1952 the appellant company presented before the High Court at
Patna
a
petition under article 226 claiming the reliefs hereinbefore mentioned. The respondents did not file any
affidavit in opposition controverting any of the alle-
,
2 S.C.R.
SUPREME COURT REPORTS
617
gations of facts made in the petition and
it must,
accordingly, be taken that those facts are
admitted
as correct by the respondents. The High Court dismissed the petition on the 4th December, 1952 but on
the next day issued a certificate, under article 132(1)
of the Constitption, that the
case involved
a substantial question of law as to the interpretation of the
Constitution.
Hence the present appeal.
In view of the importance of the issues involved in
this 'appeal
the
States
of
Madras,
Uttar
Pradesh,
Madhya
Pradesh,
West
Bengal,
Orissa,
Punjab,
Pepsu,
Mysore,
Travancore-Cochin
and
Rajastban
applied for and obtained leave to intervene in this
appeal. Si111ilar
leave was applied for by and was
granted to Tata Iron and Steel Company Ltd., and
one
M. K.
Kuriakose.
The State of West
Bengal,
Tata Iron & Steel Company Ltd., and M. K. Kuriakose
have supported the appellant company while the rest
of the intervcners have opposed the appeal.
Before the High Court the question of maintainability of the
petition
was
raised
by
the
respondents as a preliminary objection and it was answered
in their favour by the High Court. In its judgment
the High Court noticed that facts
had not been investigated nor had the liability of the appellant company been determined and that in fact no on:1a of
assessment had been made. It pointed out that it was
not a case for the Sales Tax Officer usurping a jurisdiction not vested in him by law or acting in excess of
his jurisdiction or acting ma/a fide. The High Court
took the view
that the Act undoubtedlv conferred
jurisdiction
on the Sales Tax Officer
to. investigate
the question of liability of a dealer to Sales Tax under
the Act and accordingly he was acting well within his
jurisdiction in issuing
the
impugned
notice. lf on
assessment the Sales Tax Officer erroneously holds the
appellant liable
t<l
any tax,
the Act provides for
rectifying that error by appeal or revision under sec- ·
tions 24 and 25 of the Act.
According to the High
Court such a decision, however erroneous, will, nevertheless, be a decision within the ambit of pis jurisdiction and the High Court cannot interfere with it by
2-84 S.C. India/59
The Bengal
Im mun it;:
Company Limited
y.
The State of Bihar
and others
Das Actg. C.J.
1955
The Bengal
Immunity
Company Limited
...
The State of Bihar
and othtrs
D.as Actz. C.]•
6i8
SUPREME COURT REPORTS
11955]
a writ of prohibition or certiorari to quash. The High
Court accordingly
held
that the
petition
was
not
maintainable and was liable to be dismissed.
We are unable to agree with the above conclusion .
In reaching that conclusion the High Court appears
to have overlooked the fact that the main contention
of the appellant company, as set forth ·in its petition,
js that the Act; in so far as it purports to tax a nonresident dealer in respect of an inter-State sale or purchase of goods,
is
ultra vires the Constitution and
wholly illegal.
In the impugned Act there are various provisions laying · down conditions which dealers
must comply with or submit to, namely, to give only
a few instances,
compulsory
registration of
dealers
(Section 10), filing of returns (Section 12), attendance
and production of evidence in support of the return
(Section 13), production,
inspection
and
seizure of
books of account or documents and search of premises
(Section 17). Section 26 prescribes penalties for contravention cif the provisions of the Act. These and
other like provisions
in
the Act
undoubtedly
constitute restrictions on the fundamental right to carry
on business which is guaranteed to every citizen of
India by article 19(1) (g)
of
the Constitution.
If,
as contended, the Act is ultra vires the Constitution
and consequently void these onerous conditions can
never be justified as reasonable restrictions within the
meaning of clause ( 6) of that article as this Court
held in the case of Mohammad Yasin v. The Town Area
Committee, Jalalabad( 1 ). The same view was also expressed in the State of Bombay v. The United Motors
(India) Ltd.('), and again only recently in HimmatlaJ
Harilal Mehta v. The State of Madhya Pradesh(').
It is urged that the appellant being a company is
not a ~itizen ;ind cannot, therefore, claim any fundamental right under article 19 which is available only
to citize~ and, therefore, the decisions of this C',ourt
referred to above have no application.
While it is
noteworthy
that
the
second case mentioned above
(I) [1952} 3 S.C.R. 572.
(2) [1953 4- S.CcR. 1069, 1077.
(3) [1954 s s.c.R. 1122, 1121.
2 S.C.R.
SUPREME COURT REPORTS
619
was concerned with the rights of a company, ·it is,
nevertheless,
unnecessary,
for
the purposes of this
appeal, to decide whether a juristic person like a company is a citizen as defined in Part II of the Constitution and as such entitled to the benefits of Artick 19.
Nor is it necessary
to consider whether there
has
been any infraction of the right to equal protection
of the laws guaranteed by article 14 in that being a
juristic person it cannot claim any of the rights under
article 19 which only citizens can do. It is also true
that article 31 which protects citizens
and
non-citizens alike cannot be availed of
as it deals with
deprivation of property otherwise than by
way
of
levying or collecting taxes as held by this Court in
Ramjilal v.