Parliament has the legislative competence to remove the restriction on the legislative competence of State Legislatures to tax inter-state sales or purchases under Article 286(2) of the Constitution.

Headnote:
SALES TAX - VALIDITY OF ACT VII OF 1956 - BOMBAY SALES TAX ACT 1953 - ARTICLE 286 OF THE CONSTITUTION - INTERPRETATION - VALIDATION OF STATE LAWS IMPOSING TAX ON INTER-STATE SALES OR PURCHASES - LEGISLATIVE COMPETENCE OF PARLIAMENT AND STATE LEGISLATURE - DOCTRINE OF RATIFICATION - RETROSPECTIVE LEGISLATION - UNCONSTITUTIONAL LAWS - CONSTRUCTION OF SALES TAX ACT - LEVY AND COLLECTION OF TAX - BIHAR SALES TAX ACT 1947.
Fact of the Case:

The petitioner, a dealer in curios, novelty goods, piece goods, etc., at Bombay, challenged the validity of Act VII of 1956, which validated the imposition of tax on inter-state sales or purchases by State Legislatures during the period 1st April 1951 to 6th September 1955. The petitioner contended that the Act was beyond the legislative competence of Parliament, that Parliament could not validate what the Constitution prohibited, and that the principle of validation was the same as the principle of ratification, which did not apply to the relationship between Parliament and the State Legislature under the Constitution. The petitioner also argued that even if Parliament was functioning under Article 286(2), that legislative function could only be exercised prospectively and not retrospectively, and that the State law which was unconstitutional and therefore dead should have been re-enacted or re-vitalised.
Finding of the Court:

The Court held that Parliament had the legislative competence to enact Act VII of 1956 under Article 286(2) of the Constitution, which empowered Parliament to remove the restriction on the legislative competence of State Legislatures to tax inter-state sales or purchases. The Court rejected the petitioner's argument that Parliament could not validate what the Constitution prohibited, holding that there was no prohibition against a State Legislature imposing a tax upon sales or purchases which take place in the course of inter-state trade or commerce, but only a restriction that could be removed by Parliament. The Court also held that the principle of ratification did not apply to the relationship between Parliament and the State Legislature under the Constitution, as Parliament was exercising its own legislative power and not acting as an agent of the State Legislature. The Court further held that Parliament could exercise its legislative function under Article 286(2) retrospectively, as the power to provide otherwise included both retrospective and prospective legislation. The Court also rejected the petitioner's argument that the State law was unconstitutional and therefore dead, holding that the Constitution itself provided the machinery for curing the defect in the original State legislation and that the validating Act could operate to tax the sales with regard to which Parliament had passed the necessary legislation.
Issues: 1. Whether Parliament had the legislative competence to enact Act VII of 1956 under Article 286(2) of the Constitution? 2. Whether Parliament could validate what the Constitution prohibited? 3. Whether the principle of validation was the same as the principle of ratification, which did not apply to the relationship between Parliament and the State Legislature under the Constitution? 4. Whether Parliament could exercise its legislative function under Article 286(2) retrospectively? 5. Whether the State law which was unconstitutional and therefore dead should have been re-enacted or re-vitalised?
Ratio Decidendi: 1. Parliament had the legislative competence to enact Act VII of 1956 under Article 286(2) of the Constitution, which empowered Parliament to remove the restriction on the legislative competence of State Legislatures to tax inter-state sales or purchases. 2. Parliament could validate what the Constitution prohibited, as there was no prohibition against a State Legislature imposing a tax upon sales or purchases which take place in the course of inter-state trade or commerce, but only a restriction that could be removed by Parliament. 3. The principle of ratification did not apply to the relationship between Parliament and the State Legislature under the Constitution, as Parliament was exercising its own legislative power and not acting as an agent of the State Legislature. 4. Parliament could exercise its legislative function under Article 286(2) retrospectively, as the power to provide otherwise included both retrospective and prospective legislation. 5. The State law which was unconstitutional and therefore dead could be revived by the validating Act, as the Constitution itself provided the machinery for curing the defect in the original State legislation and the validating Act could operate to tax the sales with regard to which Parliament had passed the necessary legislation.
Final Decision: The petition was dismissed, and the petitioner was ordered to pay the costs of the respondents.

Judgment -

1. This petition challenges the validity of Act VII of 1956 being an Act passed by Parliament. The petitioner carries on business of dealing in curios, novelty goods, piece goods etc. at Bombay and he is a registered dealer under the Bombay Sales Tax Act 1953. For the period commencing from 1st April 1954 to 31st March 1955 the petitioner elected as and from the 23rd February 1955 to pay tax on his sales instead of tax on his purchases. In the course of assessment for this period he was taxed on his purchases from persons outside the State of Bombay from the 1st April 1954 to the 23rd February 1955 on the sum of Rs. 2,55,534-5-6. The petitioners contention was that these purchases were not liable to tax under the Sales Tax Act as they were made in the course of inter-state trade or commerce.

2. In order to understand the contentions of the parties, it is necessary in the first place to look at the provisions of the Constitution and to consider what are the powers of the State Legislature and of Parliament with regard to imposing tax on sales and purchases. Turning first to the legislative competence of Parliament, we find entry 42 in List I of the Seventh Schedule which deals with Inter-State trade and commerce. Turning to List II which deals with the legislative competence of the State Legislatures, under entry 54 power is conferred upon the State Legislature to legislate with regard to taxes on the sale or purchase of goods other than newspapers. Article 286 imposes a restriction on the legislative competence of the State Legislature and the restriction falls under four different heads. The State Legislature is prevented from imposing tax on the sale or purchase of goods where such sale or purchase takes place outside the State, or in the course of the import of the goods into, or export of the goods out of, the territory of India, and from imposing 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, and from imposing 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. It will be noticed that the restriction. with regard to taxing sale or purchase which is out- side the State and a sale in course of import of goods into, or export of the goods out of, the territory of India, is absolute. With regard to a sale which takes place in the course of inter-state trade or commerce,, the restriction is not absolute because Clause (2) of Article 286 enables Parliament by law to provide otherwise. Therefore, if Parliament removes the restriction, or, in the language of the Supreme Court, removes the ban, then the legislative competence of the Legislature may extend even to tax sales which take place in the course of inter-state trade or commerce. With regard to essential goods also the restriction is not absolute because the Legislature may tax goods which are essential for the life of the community, and if the bill has been reserved for the consideration of the President and has received his assent, then the tax can be validly imposed. Reference may be made to the Explanation to Article 286 which,, explanation, as the explanation itself says, is intended for the purpose of Sub-clause (a) and that explanation introduces a legal fiction and by that legal fiction a sale is deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State. Therefore, if we find a State in which goods have been delivered for consumption then by reason of this explanation and by reason of the legal fiction introduced into this explanation, that State, which might be called, as has been called by the Supreme Court, die delivery State, becomes the State in which the sale is deemed to have taken place.

3. Now, the construction of this explanation led to considerable difficulties a

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