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SUPREME COURT OF INDIA
20th September 1955.
S.R. DAS, ACTG. C.J.I., BHAGWATI, JAGANNADHA DAS, IMAM AND CHANDRASEKHARA AIYAR JJ.
Ram Narain Sons Ltd, and others, Appellants
Versus
Asst. Commissioner of Sales Tax and others, Respondents.
Berar Oil Industries, Akola and others, Interveners.
Civil Appeals Nos. 132,133, 137 of 1955 and Petn. No. 567 of 1954.
Advocates appeared
Mr. M. C. Setalvad, Attorney- General of India (Mr. R. M. Hajarnavis and Mr. G. C. Mathur, Advocates , with him), for Appellant in C. A. No. 132 of 55, Mr. N. C. Chatterji, Senior Advocate (Mr. R. N. Hajarnvis and Mr. G. C. Mathur, Advocates, with him) (for No. 1) and Mr. R. M. Hajarnvis and Mr. G. C. Mathur, Advocated (for No. 2), for Interveners (in C. A. No. 132 of 55); Mr. R. M. Hajarnavis and Mr. G. C. Mathure, Advocates (in C. A. No. 137 of 55), for Appellants; Mr. M. Adhikari, Deputy Advocate-General of Madhya Pradesh and Mr. I. N. Shroff, Advocate for Respondents in all Appeals; Mr. M. C. Setalvad, Attorney-General of India and Mr. C. K. Daphtary, Solicitor- General of India (Mr A. P. Sen, Mr. J. B. Dadachanji and Mr. Rajinder Narain, Advocates, with them), for Petitioner in Petn.No. 567 of 54: Mr. T. L. Shevde, Advocate-General of Madhya Pradesh, (Mr. M. Adhikari, Deputy Advocate-General of Madhya Pradesh and Mr. I. N. Shroff, Advocate, with him), for Respondents); Mr. J. B. Dadachanji, Mr. R. M. Hajarnavis and Mr. Rajinder Narain, Advocates, for the Intervener.
C.P. and Berar Sales Tax Act, 1947, Section 2(g), Explanation II as originally enacted (before its amendment by M.P. Act IV of 1951)Whether offended Article 286 (1) (a) read with the Explanation of the Constitution-Whether the Presidents Sales Tax Continuation Order (1950) issued under the proviso to Article 286(2) protected the same.
The Appellants were a firm registered as a "dealer" under the Central Provinces and Berar Sales Tax Act, 1947, and carrying on business at various places in Madhya Pradesh. After the Cotton Control Order, 1949, came into force on the 12th September, 1949, the Appellants entered into agreements with several mills situated outside Madhya Pradesh by which they undertook to purchase kapas in various markets in Madhya Pradesh as their agents on their account and on their behalf. The kapas after purchase was to be ginned and pressed into bales and sent to the mills. All the expenses involved in the process were to be borne by the mills which were also to be credited with the sale proceeds of the cotton seeds and the Appellants were only entitled to commission on a percentage basis. The Appellants worked as such agents for the period 1st October, 1949 to 30th September, 1950. By his order dated the 30th June, 1953 the Assistant Commissioner of Sales Tax, Amravati, included the transactions valued at over Rs. 72 lakhs with the said mills in the Appellants turn-over and ordered the Appellants to pay Rs. 1,13,850/13/6 as sales tax on the said transactions. The Appellants filed an appeal to the Commissioner of Sales Tax Madhya Pradesh on the 30th July, 1953. The appeal was however, entertained by the Deputy Commissioner of Sales Tax, Madhya Pradesh who ordered the Appellants to pay Rs. 25,000/- by 31st August, 1953. The Appellants thereupon filed a petition under Article 226 in the High Court of Judicature at Nagpur, asking inter alia for the quashing of the order of the 30th June, 1953, passed by Respondent No. 1 and for consequential reliefs.
There were similar other two cases. All these petitions came up for hearing before the High Court. The High Court held that the explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947, as amended by the Central Provinces and Berar Act XVI of 1949 having been delcared invalid from its inception by the High Court1 and by the Supreme Court2 the original explanation remained in force until the 1st April, 1951, when it was amended by the Madhya Pradesh Act IV of 19513. The Appellants contended that this Explanation offended article 286 (1) (a) read with the Explanation to the same and the State of Madhya Pradesh was, therefore, not entitled to tax the transactions of sale in which goods had actually been delivered as a direct
1. In Messrs Shriram Gulabdas v. Board of Revenue, A.I.R. 1952 Nag. 328: I.L.R. (1953) Nag. 332.
2 A.I.R. 1954 S.C. 403: (1954) S. C. R. 1122.
3. Explanation II originally enacted was in the following terms:
"Notwithstanding anything to the contrary in the Indian Sales of Goods Act, 1930 the sale of any goods which are actually in the Central Provinces and Berar at the time when the contract of sales as defined in that Act in respect thereof is made, shall wherever the said contract of sale is made, be deemed for the purpose or this Act to have taken place in the Central Provinces and Berar," result of such sale for the purpose of consumption outside Madhya Pradesh. The Respondents, on the other hand, contended that the said explanation was protected until 31st March. 1951, by the Sales Tax Continuation Order No.7 of 1950 issued by the President on the 26th .January, 1950, under the proviso to article 286(2).
The High Court was of the opinion that the Original Explanation was validly enacted as the assent of the Governor-General to the enactment was given on the 23rd May, 1947, and that under that Explanation, the tax prior to the commencement of the Constitution was lawfully levied on the sale of goods wherever the contracts of sale took place, if the goods were actually in the State at the time the contracts of sale were made. This power could be exercised by the State even if the sales took place during the course of inter-State trade or commerce and the goods were delivered as a direct result of the sales for the purpose of consumption outside the State. This was because the situs of the goods constituted a sufficient nexus between the transactions and the taxing State which was the foundation for taxation prior to the commencement of the Constitution. This position continued until the commencement of the Constitution and on the 26th January, 1950, President issued the Sales Tax Continuation Order No.7 of 1950 in exercise of the powers conferred by the proviso to article 286(2). The sales in question had taken place in the course of inter-State trade or commerce and accordingly they were covered by article 286 (2) and would therefore, be liable to tax even after the commencement of the Constitution by virtue of the Presidents order. Reliance was further placed on the majority judgment of this Court in the State of Bombay v. The United Motors (India) Ltd.,1 where it was held that the translation vis-a-vis the delivery State lost its inter-State character if it fell within the Explanation to article 286 (1) (a) and was accordingly made liable to taxation by the delivery State. So far, however, as the exporting State was concerned, it retained its character of an inter-State transaction and would not, therefore, be liable to taxation by that State vide article 286 (2). The Presidents order, however, removed this ban and the exporting State was entitled to tax the transaction by virtue of the power derived by it from the same. On a construction of the relevant provisions of article 286 (1) and article 286 (2) the High Court was of the opinion that it would be making the proviso to article 286 (2) nugatory if it was held that article 286 (1) overrides it and takes away the taxing power of all States in inter-State trade or commerce except the delivery State. The High Court accordingly dismissed the petition with costs.
Held (allowing the appeals and petitions by majority, Jagannadhadas J. dissenting) : (1) So far as the post-Constitution period was concerned the assessment was invalid as the ban imposed by Art. 286 (1) (a) and the Explanation thereto could not be removed by the Presidents Order. Explanation II to Section 2 (g) of the Central Provinces and Berar Sales Tax Act, 1947 offended Article 286 (1) (a) read with the Explanation to the same and the State of Madhya Pradesh was therefore, not entitled to tax the transactions of sale in which goods had actually been delivered as a direct result of such sale for purposes of consumption outside Madhya Pradesh and the said Explanation was not protected by the President order issued under the proviso to Article 286 (2).
1. (1953) S.C.R. 1069 : A.I.R. 1953 S.C. 252.
As the assessment was one composite whole relating to the pre-Constitution and post-Constitution periods, it was invalid in toto, for when an assessment consists of a single individual sum in respect of the totality of the property treated as assessable, the wrongful inclusion in it of certain items of property which by virtue of a provision of law were expressly exempted from taxation renders the assessment invalid in toto.1
(2) The bans imposed by Article 286 of the Constitution on the taxing powers of the States are independent and separate and each one of them has to be got over before a State Legislature can impose tax on transactions of sale or purchase of goods. The Explanation to Article 286 (1) (a) determines by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and once it is determined by the application of the Explanation that a transaction is outside the State it follows as a matter of course that the State, with reference to which the transaction can thus be predicated to be outside it, can never take the transaction.
The bar under Article 286 (I) (a) read with the Explanation is effective independently of the fact that the transaction may have taken place in the course of inter-State trade or commerce or with reference to goods as have been declared by Parliament by law to be essential for the life of the community. The ban imposed under Article 286 (2) is an independent and separate one and looks at the transactions entirely from the point of view of their having taken place in the course of inter State trade or commerce. Even if such transactions may also fall within the category of transactions covered by Article 286 (1) (a) and the Explanation thereto or Article 286 (3) the moment Article 286 (2) is attracted by reason of the transactions being in the course of inter-State trade or commerce, the ban under Article 286 (2) operates and such transactions can never be subjected to tax at the instance of a State Legislature except in so far as Parliament by law may otherwise provide or such power of taxation is saved by the Presidents Order contemplated in the Proviso. The bar under Article 286 (2) may be saved by the Presidents Order but that does not affect or lift the ban under Article 286 (1) (a) read with the Explanation.
(2) Apart from the aforesaid construction put upon the several clauses of Article 286 in the Bengal Immunity Co. Ltd. v. The State of Bihar and others,2 the terms of the proviso to Article 286 (2) itself make it abundantly clear that the proviso is meant only to lift the ban under Article 286 (2) and no other. It is a cardinal rule of interpretation that a proviso carves out an exception to the main provision to which it is enacted as a proviso and to no other. This is made further clear by the non-obstante clause which states in express terms that it is enacted only with reference to "this clause" i.e. Article 286 (2).
The proviso cannot be extended to any of the other provisions of Article 286 and it has, therefore, not the effect of lifting the bar which is imposed by Article 286 (1) (a) and the Explanation thereto.
1. Bennet and White (Caliary) Ltd. v. Municipal District of Sugar City No.5, (1951) A.C. 78, applied.
2. (1955) 2 S.C.R. 603 : A.I.R. 1955 S.C. 661.
Judgement
BHAGWATI, J. : These 3 appeals with certificate under Art. 132(1) of the Constitution involve the interpretation of the proviso to Art. 286(2) and raise a common question as to whether that proviso also saves the transactions of sale or purchase covered by the Explanation to Art. 286 (1)(a) from the ban imposed therein.
2. The Appellants in Civil Appeal No. 132 of 1955 are Messrs. Ramnarain Sons Ltd., a firm registered as a "dealer" under the Central Provinces and Berar Sales Tax Act, 1947, and carrying on business at Amaravati and at other places in Madhya Pradesh, After the Cotton Control Order, 1949, came into force on 12-9-1949, the Appellants entered into agreement with several mills situated outside Madhya Pradesh by which they undertook to purchase kapas in the various markets in Madhya Pradesh as their agents on their account and on their behalf.
The kapas after purchase was to be ginned and pressed into bales and sent to the mills, All the expenses involved in the process were to be borne by the mills which were also to be credited with the said proceeds of the cotton seeds and the Appellants were only entitled to commission on a percentage basis. The Appellants worked as such agents for the period 1-10-1949 to 30-9-1950. By his order dated 30-6-1953 the Assistant Commissioner of Sales Tax, Amravati, Respondent 1, included the transactions valued at Rs. 72,86,454-5-10 with the said mills in the Appellants turnover and ordered the Appellants to pay Rs. 1,13,850-13-6 as sales tax on the said transactions.
The Appellants filed an appeal to the Commissioner of Sales Tax, Madhya Pradesh, Respondent 2, on 30-7-1953. The appeal was, however, entertained by the Deputy Commissioner of Sales Tax, Madhya Pradesh, Respondent 3, who ordered the Appellants to pay Rs. 25,000/- by 31-8-1953. The Appellants thereupon filed a petition under Art. 226, being Misc. Petition No. 265 of 1953, in the High Court of Judicature at Nagpur, asking inter alia for the quashing of the under of 30-6-1953, passed by Respondent 1 and for consequential reliefs. The Respondents filed a return denying the contentions of the Appellants and praying for the dismissal of the petition with costs.
3. The Appellants in Civil Appeal No. 133 of 1955 are the Eastern Cotton Company, a firm registered as a "dealer" under the Central Provinces and Berar Sales Tax Act, 1947, and carrying on business at Amravati and at other places in Madhya Pradesh. They also, during the period 1-10-1949 to 30-9-1950, worked as agents of certain mills situated outside Madhya Pradesh, procured kapas for them in Madhya Pradesh and sent it to the mills for consumption outside the State.
By his order dated 9-9-1953, Respondent 1 included the transactions valued at Rs. 33,47,405-5-6 with the said mills in the Appellants turnover and ordered the Appellants to pay Rs. 52,303-4-0 as tax on the said transactions. These Appellants also filed a petition under Art. 226, being Misc. Petition No. 348 of 1953, in the High Court of Judicature at Nagpur for quashing the order dated 9-9-1953, passed by Respondent 1 and for consequential reliefs. The Respondents filed a return denying their contentions.
4. The Appellants in Civil Appeal No. 137 of 1955 are the firm, Ramdas Khimji Brothers, Bombay, registered as a "dealer under the Central Provinces and Berar Sales Tax Act, 1947, and carrying on business as cotton dealers in Madhya Pradesh. During the period 1-10-1950 to 30-9-1951, the Appellants sold cotton worth Rs. 6,01,949-1-9 to various persons outside Madhya Pradesh. The cotton was delivered to the buyers for consumption outside Madhya Pradesh as a direct result of such sales. By his order dated 29-12-1952, the Sales Tax Officer, Amravati, in the assessment of the Appellants for the same period, included the said transactions in the Appellants turnover and assessed sales tax thereon.
The Appellants filed an appeal to Respondent 1 but the same was dismissed by an order dated 10-7-1953. The
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