# THE STATE OF BOMBAY AND ANOTHER v. THE UNITED MOTORS (INDIA) LTD. AND OTHERS - **Citation:** [1953] 1 S.C.R. 1069 - **Court:** Supreme Court of India - **Decided:** 1953 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-bombay-and-another-v-the-united-motors-india-ltd-and-others-97 - **Pages:** 61 ## Headnote S.C.R. SUPREME COURT REPORTS THE STATE OF BOMBAY AND ANOTHER v. THE UNITED MOTORS (INDIA) LTD. AND OTHERS. UNION OF INDIA, . STATE OF BIHAR, STATE OF MADRAS, STATE OF MYSORE, I I I ' ' 1069 STATE OF WEST BENGAL, STATE OF UTTAR PRADESH, STATE OF PUNJAB and STATE OF TRAV ANCOREI )- Interveners. COCHIN I I i j [PATANJALI SASTRI c. J., MUKHERJEA, VIVIAN BosE, GHULAM HASAN and BHAGWATI ,JJ.l Bombay Sales Tax Act (XXIV of 1952). ss. 2 (14), 5, 6, 7, 11 -Bombay Sales Tax Rules, 1952, l'I'. 5, 6-State law imposing sales tax-Validity-Powei· of States to levy tax on inter-State sales -Limitations-Rules-Whether form part of Act-Constitution of India, 1950, arts. 286 (Z) and (2), 14, 301, 304, 226 -ilieaning and scope of art. 286 (1) and art. 286 (2)-Application under art. 226 -D11ty of High Court to find whether fundamental rights have been infringed. The Legislature of Bombay passed an Act entitled the Bombay Sales Tax ,\ct, 1952, which imposed (by s. 5) a general tax on every dealer \Vhose turnover in resper;t of saJes within tho State of Bombay during the prescribed period exceeded Rs. 30,000 and (by s. 10) a special tax on every dealer whose turnover in respect of sales of special goods made within the State of Bombay exceeded Rs. 5,000 during the prescribed period. 'fhe term 'sale' was defined [in s. 2 (l4)] as meaning any transfer of property in goods for cash or deferred payment or other valuable consideration, and an Explanation to this definition provided th·;t the sale of auy goods which have actually been clelivered in the State of Bombay as a direct result of such sale for the purpose of consun1ption in the said State shall be deemed, for the purposes of the Act, to have taken place in the said State irrespective of the fact that the property in the goods has 1 hy reason of c;nch sn.le, passed in 139 • 1963 Mar~h JO • 1070 SUPREME coeRT REPORTS [1953] 1953 another fltate. Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, which were brought into force on the san~e day on which The State of Bom- ss. 5 and 10 of the Bombay Sales Tax \ct came into force providtm11 aml Another ed for the deduction of the following sales in calculating the taxv. able turnover, ·viz., sales which take place (a) in the course of the The Unih'd import o! the goods into, or the export of the goods out of, the .\lotor« (India) territory of India, and (b) in the course of inter-State trade or Ltd. and Other-» commerce (being the two kinds of sales referred to cl. (l)(b) and cl. (2) respectively of art. 286 of the Constitution). Rule 5 (2) (i), however, required, as a conditon of the aforesaid deductions, tho,t the goods should be consigned by a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. In •n application under art. 2% of the Constitution challenging the validity of the Act and praying inter alia for a writ against the State of Bombay and the Collector of Sales Tax, Bombay, restraining them from enforcing the provisions of the Act, the High Court of Bombay held that the definition of 'sale' in the Act was so wide as to include the three categories of sale exempted by art. 286 of the Constitution from the imposition of tax by the States, and as the Act imposed a tax on all such sales, it was wholly void. On appeal Held, per (Pata;ija.li Sastri 0. J., Nukherjea, Ghulam Rasan and Bhagwati JJ,-Bose J. dissenting)-that the Bombay Sales Tax Act (XXIV of 1952) was not nltra vires the State Legislature on the ground that it contravened art. 14 or art. 286 of the Constitution. Bui clause (i) of sub-rule (2) of Rule 5 of the Bombay Sales Tax Rules, 1952, was nltra vires in so far as it provided that in order that sales mentioned in clause (1) (b) and clause (2) of art. 286 of the Constitution may be exempt from tax, the goods shall be consigned only through a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport ## Text _Characters 0–39,914 of 140,278. This is a partial read: ask again with offset=39914 for what follows._ S.C.R. SUPREME COURT REPORTS THE STATE OF BOMBAY AND ANOTHER v. THE UNITED MOTORS (INDIA) LTD. AND OTHERS. UNION OF INDIA, . STATE OF BIHAR, STATE OF MADRAS, STATE OF MYSORE, I I I ' ' 1069 STATE OF WEST BENGAL, STATE OF UTTAR PRADESH, STATE OF PUNJAB and STATE OF TRAV ANCOREI )- Interveners. COCHIN I I i j [PATANJALI SASTRI c. J., MUKHERJEA, VIVIAN BosE, GHULAM HASAN and BHAGWATI ,JJ.l Bombay Sales Tax Act (XXIV of 1952). ss. 2 (14), 5, 6, 7, 11 -Bombay Sales Tax Rules, 1952, l'I'. 5, 6-State law imposing sales tax-Validity-Powei· of States to levy tax on inter-State sales -Limitations-Rules-Whether form part of Act-Constitution of India, 1950, arts. 286 (Z) and (2), 14, 301, 304, 226 -ilieaning and scope of art. 286 (1) and art. 286 (2)-Application under art. 226 -D11ty of High Court to find whether fundamental rights have been infringed. The Legislature of Bombay passed an Act entitled the Bombay Sales Tax ,\ct, 1952, which imposed (by s. 5) a general tax on every dealer \Vhose turnover in resper;t of saJes within tho State of Bombay during the prescribed period exceeded Rs. 30,000 and (by s. 10) a special tax on every dealer whose turnover in respect of sales of special goods made within the State of Bombay exceeded Rs. 5,000 during the prescribed period. 'fhe term 'sale' was defined [in s. 2 (l4)] as meaning any transfer of property in goods for cash or deferred payment or other valuable consideration, and an Explanation to this definition provided th·;t the sale of auy goods which have actually been clelivered in the State of Bombay as a direct result of such sale for the purpose of consun1ption in the said State shall be deemed, for the purposes of the Act, to have taken place in the said State irrespective of the fact that the property in the goods has 1 hy reason of c;nch sn.le, passed in 139 • 1963 Mar~h JO • 1070 SUPREME coeRT REPORTS [1953] 1953 another fltate. Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, which were brought into force on the san~e day on which The State of Bom- ss. 5 and 10 of the Bombay Sales Tax \ct came into force providtm11 aml Another ed for the deduction of the following sales in calculating the taxv. able turnover, ·viz., sales which take place (a) in the course of the The Unih'd import o! the goods into, or the export of the goods out of, the .\lotor« (India) territory of India, and (b) in the course of inter-State trade or Ltd. and Other-» commerce (being the two kinds of sales referred to cl. (l)(b) and cl. (2) respectively of art. 286 of the Constitution). Rule 5 (2) (i), however, required, as a conditon of the aforesaid deductions, tho,t the goods should be consigned by a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. In •n application under art. 2% of the Constitution challenging the validity of the Act and praying inter alia for a writ against the State of Bombay and the Collector of Sales Tax, Bombay, restraining them from enforcing the provisions of the Act, the High Court of Bombay held that the definition of 'sale' in the Act was so wide as to include the three categories of sale exempted by art. 286 of the Constitution from the imposition of tax by the States, and as the Act imposed a tax on all such sales, it was wholly void. On appeal Held, per (Pata;ija.li Sastri 0. J., Nukherjea, Ghulam Rasan and Bhagwati JJ,-Bose J. dissenting)-that the Bombay Sales Tax Act (XXIV of 1952) was not nltra vires the State Legislature on the ground that it contravened art. 14 or art. 286 of the Constitution. Bui clause (i) of sub-rule (2) of Rule 5 of the Bombay Sales Tax Rules, 1952, was nltra vires in so far as it provided that in order that sales mentioned in clause (1) (b) and clause (2) of art. 286 of the Constitution may be exempt from tax, the goods shall be consigned only through a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. These provisions of Rule 5 (2) (i) were, however, severable from the other provisions of the Act and could be ignored. Per Bose J.-The Bomba)' Sales Tax Act, 1952, is wholly ultra vires. Per Patanjali Sastri O.J., Mukherjea and Ghulain Hasan JJ. -Arbicle 286 (1) (a) of the Constitution read with the Explanation thereto and constrned in the light of art. 301 and art. 304 prohibits the taxation of sales or purchases invo!Ying inter. State elements by all States except the State in which the goods are delivered for the purpose of consu1nption therein. The latter State is left free to tax such sales or purchases and it derives this power not by virtue of the Explanation to art. 286 (1) but under art. 246 (3) read with entry 54 of List II. The view that the Explanation does not dep1·ive the State in which the p1·operty in the goods passed, of its taxing power and that consequently both the State in which the property in the goods passes and t]je State • s.c.R. SUPREME COUR'l' REPOH'l'S 1071 in 'vhich the goods are delivered for constunption lHt\'e the pu\'·ler 1953 to tax, is not corl'flct. (") . " '1.'hcState ofBu1n· 11 The expression for the purpose of consumption in ba" ,,,~ '· ti S " · E 1 · ( ) . .., ! r" 11 no i.cr that late m the xp anat10n to cl. 1 of art. 286 must be un- '" derstood as having reference not merely to the individual importer J'lw u ·iei or purchaser but as contemplating distribution eventually to \lotors ;7 ~· consumers ~n general within the State, and all buyers 'vit~in the itd. aud 0 1,ih:;:! Sta to of dehvery from out-of-State sellers, except those buy mg for re-export out of the State, would he liable to be taxecl by the State. (iii) Clause (:l) of art. 286 does not affect the power of the State in which deliyery of goods is made to tax inter-State sales or purchases of the kind mentioned in the Explanation to cl. (i). The effect of the Explanation is that such transactions are sayed from the ban imposed by art. 286 (2). (iv) The fact that sales which take plt1Ce (a) in the course of the import of the goods into, or export of the goods out of, tho territory ol India and (h) in the course of inter-State tracle or commerce, are not expressly exempted by the Born hay Sales Tax Act could not render the Act 1!ltra vires inasmuch as the Rules framed under the Act and brought into force simultaneously must be read as a part of the Act and Rules 5 and 6 of these Rules exempt •uch sales. Delhi Laws Act, In re ([1951] S.C.R. 747) referred to. (\') The fact that the Bombay flales Tax Act dues not expreHsly exclude from its operation the transactions mentioned in art. 286 (1) (a) of the Constitution, vi .. , sales and purchases outside the State, l1oes not render the A.ct u,ltra vires inasmuch as) on a true construction of the Explanation to art. 286 (1) (a) sales or purchases in respect of goods delivered for consuinption outside Bombay are not lttxable under the Act, eyen if the goods are in Bombay and the sale is effected there. (vi) The provisions of the charging sections 5 and 10 of tbe Act fixing Rs. 30,000 and Rs. 5,000 as tbe minimum taxable turnover for general tax and special tax resPectively are not dis· criminatory and void under art. 14 rea1l with art. 13 of the Constitution aS snch classification is perfectly reasonable and no discrimination is involved in it. (vii) Taxing statutes imposing tu,x on subjects divisihle in their nature which do not exclude in express ter1us subjects exempted by the Constitution, should not for that_~eason be declal'ed wholly nltra vires and void, for, i:1 such (jases it is al\vays feasible to separate taxes levied on authorised subjects from those levied on exempted subjects and to exclude tbe latter in the assessment to tax. In such cases the statute itself should bo allowed to stand, the taxing authority being prevented by injunction from imposing the tax on subjects exempted by the Constitution. • 1072 SUPREME COURT REPORTS > [1953] 1963 Bowman v. Continental Co. (256 U. S. 642; 65 L. l!ld. 1130) relied on. Punjab Province v. Dattlat Singh tind Another ([1942] The State of Boin- F.C.R. 67) distinguished. bay and Anothe,r (viii) A sale "in the course of inter-State trade" in art. T ' vu. . 286 (2) of the Constitution includes a sale by a trader in one "' mted 0 · S Tl · · t .., (I a· ) otate to a consumer in another tate. ie expression ;.s no con- ~n.otor8 11 ia Ltd. aiul Others fined to sales between t"'O traders only. (ix) The expression "for such State 01· any part thereof" in art. 246 (3) of the Constitution cannot be taken to import into entry 54 of List II the restriction that the sale or purchase referred to must take place within the territory of that State. All that it means is that the laws which a State is empowered to make must be for the purposes of that State. (x) It is always desirable when relief under art. 226 is sought on allegations of infringement of fundamental rights, that the Court should satisfy itself that such allegations are well founded before proceeding further with the matter. Bose J.-(i) Article 286 (2) cannot be construed in the light of art. 304 (l) as the two articles deal with different matters. (ii) The basic idea underlying art. 286 is to prohibit taxation in the case of inter-State trade and commerce until the ban under cl. (2) of the said article is lifted by Parliament, and always in the case of imports and exiiorts. When the ban is lifted, the l!lxplanation to cl. (l) of 286 comes into play to determine the situs of the sale. This Explanation does not govern cl. (2) of art. 286 and, as it can only apply to transactions which in truth and in fact take place in the course of inter-State trade and commerce, there is no need to call it in aid until the ban is removed. (iii) Explanation (2) to the definition of sale in s. 2 (14) of the Bombay Sales Tax Act, 1952, which embodies word for word the provisions of the l!lxp!anation to art. 286 (1) directly offends cl. (2) of the said article as the ban under cl. (2) has not been lifted by the Parliament. (iv) Assuming that the Bombay Sales Tax Rules exclude all sales which are exempt from taxation under the Constitution, they cannot save the Act, for the Rules are made by a subordinate authority which is not the legislature and the validity of an Act of the legislature cannot be made to depend on what a subordinate authority choses to do or not to do. (v) The good portion of the Act cannot be separated from the bad in this case, even if the Explanation to s. 2 (14) is expunged and the whole Act is therefore ultra vires. Bllagwati J.-(i) Under the general law relating to sale of goods, a sale must be regarded as having "taken place" in the State in which the property in the goods sold bas passed to the s.c.R. SUPREME COURT REPORTS 1073 purchaser and that State is entitled to tax the sale or purchase 1953 as having taken place inside the State. The Explanation to art. -- 286 (1) does not take away the right which the State in which TJ,, "'"'' 0/Bom· the property in the goods passed has to tax the sale or purchase bn!f and Another but only deems such purchase or sale, by a legal fiction, to haYe v. taken place in the State in which the delivery of the goods bas The Unitcrl been made for consumption therein so as to enable the latter ,\lotvrs (India) State also, to tax the sale or purchase in question. The Explana· Lid. and Others tion only lifts the ban imposed by cl. (1) (a) on taxation of s>eles or purchases which take place outside the State, to the extent of the transactions mentioned in the Explanation to enable the delivery State also to tax them. (ii) Delivery of the goods for the purpose of consumption in the delivery State means delivery for the purpose of use by the consumers, and does not include delivery to a dealer purchasing the goods across the border for dealing with or disposing of the same in the ordinary course of trade, and the Jmi and Another firm, all of whom are carrying on business in Bombay · '" of buying and selling motor cars, presented a petition The Unitfd to the High Court under article 226 of the Constitution Motors (India) challenging the validity of the Act on the ground that Ltd. and Othm it is ultra vires the State Legislature, inasmuch as it l J)afanjnli lnu·1Jorted to tax sales anc rmrchases of goods regard- '--' ._, 8aNtti C,J, less of the rc8trictions imposed on r-ltate legislative power by article 28G of the Constitution. It was also alleged that the provisions of the Act \VC;re discriminatory in their effect and, therefore, void under article 14 read with article 13 of the Constitution. The respondents accordingly prayed for the issue of a writ in the nature of mandamus against the appellants preventing them from enforcing the provisions of the Act against the respondents. A further ground of attack was added by amendment of the petition to the effect that the Act being wholly ultra vires and void, the provisions requiring dealers to apply for registration in some cases and to obtain a licence in some others as a condition of carrying on their business, infringed the fundamental rights of the respondents under article HJ (1) (g) of the Constitution. In the affidavit filed in answer the appellants traversed the allegations in the petition and contended, inter alia, that the Act was a complete code and provided for special machinery for dealing with all questions arising under it, inclurling questions of constitutionality, and, therefore, thr petition was not maintainable, that the present case was not an appropriate one for the issue of a writ under article 226 as the validity of the imposition of a tax was questioned, that no assessment proeeedings having been initiated against the respondents and no demand notice having been iswed, ihe respondents had no cause of action, and that, properly construed, the Act and the Rules did not contravene ai·tiele 286 or any other provisions of the Constitution and did not infringe :my fundamental right of the respondents, • 1076 SUPREME COURT REPORTS [1953] 1963 The petition was heard by a Division Bench of the The State of Bom. High et;urt co~sistin& o: Chagla _C. J: and D!x!t J. bay. and Another Chagla C. J., \\ho delivered the Judgment, D1x1t J. v. concurring, overruled the preliminary objection disTke United tinguishing the decisions cited in support thereof by Motors (Indw) pointing out that the principle that a (;()Hrt would Ltd. and Othm t · t" "t J d t 1 _ no issue a preroga 1ve wr1 w ien an a equa e a terPatanjali native remedy was available could not apply where, sa,,tri o.J. as here, a party came to the court with an allegation tliat his fundamental rights had been infringed and sought relief under article 226. The learned Judges however thought, in view of the conclusion they had come to on the question of competency of the State Legislature to pass the Act, it was "not necessary to consider the challenge that has been made to the Act under articles 14 and 19" and expressed no opinion on the alleged infringement of the respondents' fundamental rights. On the merits, the learned .Judges held that the definition of "sale" in the Act was so wide as to include the three categories of sale exempted by article 286 . from the imposition of sales tax by the Rtates, and, as the definition governed the charging sections 5 and 10, the Act must be taken to impose the tax:; on such sales also in contravention of article 286. The.Act must, therefore, be declared wholly void, it being impossible to sever any specific offending provision so as to save the rest of the Act, as "the defini. tion pervades the whole Act and the whole scheme of the Act is bound up with the definition of sale". The learned .Judges rejected the argument that the Act and the Rule(must be read together to see whether the State has made a law imposing a tax in contravention of article 286, remarking that "if the Act itself is bad, the rules, made under it cannot have any greater efficacy". Nor was the Government, which was authorised to make rules for earrying out the purpose of the Act, under an obligation to exclude the exempted sales. The rules, too, did not exclude all the three categories of exempted sn,les but only two of them, anrl even stwh exrlnsion was hedged ,. S.C.R. SUPREME COURT REPORTS 1077 In view of the importance of the issues involved, 19"3 notice of_ the appeal was issued to the Advocates-The State of Bom. General oi States under Order XLI, Rule l, and many bay and Another of them intervened and appeared before us. The v. Attorney-General of India, to whom notice was also The United sent, intervened on behalf of the Union of India. We ~~ 0" ~~·~ia) have thus had the assistance of a full argument deal- · "..'.'._ t ers. ing with all aspects of the case. Patanjali The Advocate-General of Bombay, appearing on behalf of the appellants, took strong :exception to the manner in which the learned Judges below disposed of the objection to the maintainability of the petition. He complained that, having entertained the petition on the ground that infringement of fundamental rights was alleged, and that the remedy ·under article 226 was, therefore, appropriate, the learned Judges issued a writ without finding that any.fundamental right had in fact been infringed. Learned counsel for the State of West Bengal also represented that parties in that State frequently got petitions under article 226 admitted by alleging violation of some fundamental right, and the court sometimes issued the writ asked for without insisting on the allegation being substantiated. We are of opinion that it is always desirable, when relief under article 226 is sought on allegations of infringement of fundamental. rights, that the court should satisfy itself that such allegations are well founded before proceeding further with the matter. In the present case, however, the appellants can have no· grievance, as the respondents' allegation of infringement of their fundamental right under article 19 (1) (g) was based on their contention that the Act was ultra vires the State Legislature, and that contention having been accepted by the Court below, there would clearly be an unauthorised restriction on the respondents' right to carry on their trade, registration and licence being required only to facilitate collection of the tax imposed. As !\fr. Seervai for the respondents rightly submitted, the fact that the Court below left the question undecided, though the point was concluded by the 140 Sastri ~ 0 .J. 1078 SUPREME COURT REPORTS [1953] i 9s3 decision of this Court in .'l!ohammad Yasin v. Tlze Th 8 --.,B Town Area Committee, Jalalabad ('); which was e tate oJ 01n- . bay and Another brought to the notice of the learned Judges, was not v. the fault of the respondents and gave no real cause The United for complaint. 11Iot<>rs (India) . . . Ltd. and Others Before cons1dermg whether the appellant State has made a law imposing, or authorising the imposition Patanjali of, a tax on sales or purchases of goods in disregard 8ast1'i O.J. of constitutional restrictions on its legislative power in that behalf, it is necessary to aseert.ain the scope of such power and the nature and extent of the restrictions placed upon it by article 286. The power is conferred by article 246 (3) read with entry 54 of List II of the Seventh Schedule to the Constitution. The Legislature of any State has, under these provisions, the exclusive power to make laws "for such State or any part thereof" with respect to "taxes on the sale or purchase of goods other than newspapers". The expression "for such State or any part thereof" cannot, in our view, be taken to import into entry 54 the restriction that the saJe or purchase referred to must take place within the territory of that State. All that it means is that the laws whieh a State is empowered to make must be for the purposes of that State. As pointed out by the Privy Council in the Wallace Brothers case (') in dealing with the competency of the Indian Legislature to impose tax on the income arising abroad to a non-resident foreign company, the constitutional validity of the relevant statutory provisions did not turn on the possession by the legislature of extra-territorial powers but on the existence of a sufficient territorial connection between the taxing State and what it seeks to tax. In the case of sales-tax it is not necessary that the sale or purchase should take place within the territorial limits of the State in the sense that all the ingredients of a sale like the agreement to sell, the passing of title, delivery of the goods, etc., should have a territorial connection with the State. Broadly speaking, local activities of buying or selling carried on in the State in relation to local goods would be a suffieient basis to sustain the taxing power of the State, provided of course, such Ir) [1952] S.C.R. 572. (2) [1948] S.C.R. r. • S.C.R. SUPRE~1E COUR'l' UE.PORTS 1079 sale or 1953 activities ulti1?ately resulted in a concluded purchase to be taxed. '}_'he State of Boniln exercise of the legislative powor conferred upon bay "'"1 Another them in substantially similar terms by the Governv. ment of India Act, 1935, the Provincial Legislatures The United d 1 l .£" il'.lotor;.: (India) enacte sa es-tax aws 1or their respective Provinces, Ltd. and Other.•. acting on the principle of territorial nexus referred to above; that is to say, they picked out one or more of Patanjat1. the ingredients constituting a sale and made them the 8a.•tri O.J. basis of their sales-tax legislation. Assam and Bengal made among other things the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the good~ in the Province was made an additional ground. A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually "found" in the Province at any time after the contract of sale or pure hase in respect thereof was made. Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustiiined as sufficient was a matter of doubt not having been tested in a court of law. And such claims to taxing power led to multiple taxation of the same trnnsaction bv difforent Provinces and cumulation of the burdei; falling ultimately on the consuming public. This situation posed to the Constitution makers the problem of restrieting the taxing power on sales or purchases involving inter-State elements, and alleviating the tax burden on the consumer. At the same time they were evidently anxious to maintain the State power of imposing non-discriminatory taxes on goodH imported from other States, while upholding the economic unity of India by providing for the freedom of inter-State trade and commerce. In their attempt to harmonise and achieve these somewhat conflicting objectives they enacted articles 286, 301 aml 304. These articles read as follows : 286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of good8 where sueh sale or purchase takes place- 1080 SUPREME COURT REPORTS [1953j 1953 (a) outside the State ; or 1'heStateofBom- (b) in the course of the i~port oft!1e go_ods iu~o, bay and Another or export of the goods out of, the territory of India. v. . Explanation.-For the purposes of sub-clause (a), ,}1" U(nlttedd. J a sale or 1mrchase shall be deemed to have ta ken ,1.r.1.otors n 1a · . . 1 Ltd. and Others place in the State m which the goods have actual y - . been delivered as a direct result of such sale or purPatanjali chase for the purpose of consumption in that State, SaslYi o.J. 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. (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce : Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) So law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been 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. 301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. 304. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States any tax to which similar goods manufactured or S.C.R. SUPREME COURT REPORTS 108i produced in that State are subject, so, however, as not J&5J to discriminate !Jetween goods so imported and goods Tl s· -.,8 '-' , w tate oJ 01n· so manufactured or produced ; and bay and Another (b) impose such reasonable restrictions on the v. f. d f d ' t · h 'l'hc Unite4 ree om o tra e, commerce or Ill ercourse wit or }J t (I d' J within that State as may be required in th0 public ~t~. 0 ;:d 0;,.;~. interest: Provided that no Bill or amendment for the purPatan}ali 8astri O.J. poses of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. It will be seen that the principle of freedom of inter8tate trade and commerce declared in article 301 is expressly subordinated to the State power of taxing goods imported from sister States, provided only no discrin1ination is made in favour of similar goods of local origin. Thus the States in India have full power of imposing what in American State legislation is called the use tax, gross receipts tax, etc. not to speak of the familiar property tax, subject only to the condition that such tax is imposed on all goods of the same kind produGed or manufactured in the taxing State, although such taxation is undoubtedly calculated to fetter inter-State trade and commerce. In other words, the commercial unity of India is made to give way before the State-power of imposing "any" non-discriminatory tax on goods imported from sister States. Having thus provided for the freedom of inter-State trade and commerce subject to the important qualification mentioned above, the authors of the Constitution had to devise a formula of restrictions to be imposed on the State-power of taxing sales or purchases involving inter-State elements which would avoid the doubts and difficulties arising out of the imposition of sales-tax on the same transaction by several Provincial Legislatures in the country before the commencement of the Constitution. This they did by enacting clause (1) (a) with the Explanation and clause (2) of article 286. Clause (1) (a) prohibits the taxation of all sales or purchases which take place oul8ide the State, • 1082 SUPREME COURT REPORTS [1953) 1953 but a localised sale is a troublesome coi;i.cept, for, a sale S - 1 B is a composite transaction involving as it does several The tateo om· ] h 11 c f bay and Another e ements sue as agreement to se , trans1er o ownerv. ship, payment of the price, delivery of the goods and Tlte United so forth, which may take place at different places. Motor• (India) How, then, is it to be determined whether a particular Ltd. and Others. sale or purchase took place within or outside the State ? Pa~injalt It is difficult to say that any one of the ingredients sastri o.J. mentioned above is more essential to a sale or purchase than the others. To solve the difficulty an easily applicabie test for determining what is an outside sale had to be formulated, and that is what, in our opinion, the Explanation was intended to do. It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, notwithstanding the property in such goods passed in another State. Why an " outside " sale or purchase is explained 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. It is, however, argued on behalf of Bombay that the Explanation does not say that the State of delivery is the only State in which the sale or purchase shall be deemed to have taken place. If that was the intention, it would have been easy to say so. On the other hand, the non-obstante clause in the Explanation is said to indicate that, apart from cases covered by the legal fiction, the passing of property in the goods is to determine the place of sale. Thus, both the State of delivery • S.C.R. SUPREME COURT REPORTS 1083 and the State in which the property in the goods sold 1953 passes are, it is'claimed, empowered to tax. We are --- unable to accept this view. It is really not necessary 7'he State of Boin- • · • . . bay and An.other m the context to use the word "only ·' m the way v. suggested, for, when the Explanation says that a sale The United or purchase shall be deemed to have taken place in Motors (l11dia) a particular State, it follows that it shall be deemed Ltd. and Others, lilso to have taken place outside the other States. Nor Patanjali can t.lie non-obstante clause be understood as implying Sast•i o.J. that, under the general law relating to the sale of goods, the paosing of the property in the goods is the determining factor in locating a sale or purchase. Neither the Sale of Goods Act nor the common law relating to the sale of goods has anything to say as to what the situs of a sale is, though certain rules have heen la id down for ascertaining the intention of the contracting parties as to when or imder what conditions the property in the goods is to pass to the buyer. That question often raises ticklish problems for lawyers and courts, and to make the passing of title the determining factor in the location 0f a sale or purchase would be to replace old uncertainties and difficulties connected with the nexus basis with new ones. Nor would the hardship of multiple taxation be obviated if two States were still free to impose tax on the same transaction. In our opinion, the non-obstante clause was inserted in the Explanation simply with a view to make it clear beyond all possible doubt that it was immaterial where the property in the goods passed, as it might otherwise be regarded as indicative of the place of sale. It is also to bP noted in this connection that, on the construction suggested by the Advocate-General of Bombay, namely, that the Explanation was not intended to deprive the State in which the property in the goods passed of its taxing power, but only to exclude the sales or purchases of the kind described in the Explanation from the operation of clause (1) (a) which prohibits taxation of outside sales or purchases, the Explanation would operate, not as an explanation, but ris an exception or a proviso to that clause. It • 1084 SUPREME COURT REPORTS [1953] ma may be that the description of a provjsion cannot be Th S --JB decisive of its true meaning or interpretation which e tate o omd d 1 d d h · b h bay and Another must epen Ont le WOr S USC t erem, ut, W en two v. interpretations are sought to be put upon a provision, The United that which fits the description which the legislature Motors (India) has chosen to apply to it is, according to sound canons Ltd. and Othm of construction, to be adopted provided, of course, it is consistent with the language employed, in preference Patanjali h to the one which attributes to t e provision a different Sastri 0.J. effect from what it should have according to its description by the legislatnre. It was then said that the formula of delivery for consumption within a State could only cover the comparatively few cases of sales or purchases taking place directly between the consumers in the delivery State and dealers in other States, and inter-State sales or purchases between dealers in either State, which must be larger in number and volume, would still be outside the scope of the Explanation, which could not, therefore, have been intended to empower only one State, namely, the delivery State, to tax all inter-State sales or purchases. We see no force in this objection. It is to be noted that the Explanation does not say that the consumption should be by the purchaser himself. Nor do the words " as a direct result " have reference to consumption. They qualify "actual delivery". The expression " for the purpose of consumption in that State" must, in our opinion, be understood as having reference not merely to the individual importer or purchaser but as contemplating distribution eventually to consumers in general within the State. Thus all. buyers within the State of delivery 1 from out-of-State sellers, except those buying for I' re-export out of the State, would be within the scope of the Explanation and liable to be taxed by the State on their inter-State transactions. It should be remembered here that the Explanation deals only with interState sales or purchases and not with purely local or domestic transactions. That these are subject to the taxing power of the State has never been questioned. We are therefore of opinion that article 286 (1) (a) read with the Explanation prohibits taxation of sales •• • • S.C.R. SUPREME COURT REPORTS 1085 or purchases involving inter-State elements by all I96J States except the State in which the goods are deli- -- d c th f • h . . h The State of BomV~re 1or e purJ.>OSe o consumpt10n t erem m t e bay and Another wider sense explamed above. The latter State is left v. free to tax such sales or purchases, which power it The United derives not by virtue of the Explanation but under Mot