Scope and effect of Sales Tax Continuance Order, 1950.

RAJAGOPALAN, J.

These proceedings related to the assessment year 1950-51, when the President's Sales Tax Continuance Order, 1950, was in force. The only item of the assessee's turnover, with which we need concern ourselves at this stage is what was dealt with as the "second item" by the Tribunal, sales of machinery etc., to buyers outside the State, the turnover of which was Rs. 3, 02, 639-3-0. The contention of the assessee was that these were sales which fell within the scope of explanation to Article 286(1)(a) of the Constitution, and that, as the machinery in question had been sold in the course of inter-State trade to persons residing outside the State for consumption in those States, those sales could not be taxed within the State of Madras, nor could they be treated as intra-State sales, as far as Madras State was concerned. Even in the proceedings before the Tribunal, the assessee produced certain affidavits, which no doubt covered only a portion of the disputed turnover, in support of his contention, that the machinery had been sold to buyers in the States outside Madras State for the purpose of consumption in those States, that is, the buyers' States.

The Tribunal considered the question, whether these were "explanation sales", in the sense that they came within the scope of explanation to Article 286(1)(a). If they fell within that category, then, obviously, Madras State could not tax those transactions, as those would be outside sales as far as Madras State was concerned, and they would be inside or intra-State sales only in the States where the goods were delivered for consumption. The tribunal apparently, was of the view, that it was unnecessary to decide the question, because whether the sales came within the scope of Article 286(1)(a) or whether they were sales in the course of inter-State trade or commerce within the scope of Article 286(2), the levy would be subject to sales tax under the President's Sales Tax Continuance Order. That view itself was based upon certain observations of the learned Judges of the Supreme Court in State of Travancore-Cochin v. S.V.C. Factory and also the observations of this Court in East India Match Factory v. The State of Madras to which the Tribunal referred. We have, however, to reconsider the position in the light of the principles laid down in Bengal Immunity Co., Ltd. v. State of Bihar and Ram Narain v. Assistant Commissioner of Sales Tax .The "explanation sale", that is, the sale which falls within the scope of Article 286(1)(a) of the Constitution can itself be a sale in the course of inter-State trade, and to such a sale the ban imposed under Article 286(2), as it stood, would also apply. If that ban is lifted, then the question would arise, under the explanation to Article 286(1)(a), which is the State that could tax the transaction, in view of the fact that the ban on the transaction in the course of inter-State trade was lifted by the President's Sales Tax Continuance Order up to 31st March, 1951. Then, as we said, we have to decide whether it was an inside sale as far as Madras State was concerned, or whether it was an outside sale which came within the scope of explanation to Article 286(1)(a). If they were outside sales, the President's Sales Tax Continuance Order would not enable Madras State to tax those transactions, because the implied ban imposed by explanation to Article 286(1)(a) would apply proprio vigore and could not be covered by the President's Sales Tax Continuance Order, which was concerned only with the lifting of the ban on taxing of sales in the course of inter-State trade. That was the principle explained in the subsequent decision of the Supreme Court in Ram Narain v. Assistant Commissioner of Sales Tax

Since the question at issue, whether there were sales of machinery outside the State of Madras for consumption in the States of delivery, was not decided by the Tribunal, we think that the best course would be to remand the proceedings fo