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PETITIONER: INDIAN COPPER CORPORATION LTD.

       Vs.

RESPONDENT: THE STATE OF BIHAR AND OTHERS.

DATE OF JUDGMENT: 07/11/1960

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA DAS, S.K. HIDAYATULLAH, M. GUPTA, K.C. DAS SHAH, J.C.

CITATION:  1961 AIR  347            1961 SCR  (2) 276  CITATOR INFO :  F          1964 SC 569  (9)  F          1965 SC 161  (3,4,5)  RF         1966 SC 376  (6)  APL        1970 SC 306  (2,8,9)

ACT: Sales  Tax--"  Explanation Sales "--Sale in  one  State  but delivery   outside--Consumption  not  in  State   of   first destination--Whether     "outside"   sale--Constitution   of India Art. 286(1)(a)--Bihar Sales  Tax Act, 1947 (Bihar  XIX of 1947),  ss. 2(g) and 33.

HEADNOTE: The appellant effected sales during the period 26-1-1950  to 31-3-1950,  whereunder the property in the goods  passed  in the  State of Bihar but delivery was effected outside  Bihar for  consumption outside Bihar.  In some of these sales  the goods  were delivered in the State of first destination  for consumption therein whilst in other cases the goods were not for   consumption  in  the  State  of  first   delivery   of destination.   The  appellant  contended  that  both   these categories of sale were exempt from tax under Art. 286(1)(a) as they were outside sales. Held  (per Hidayatullah, Das Gupta and Rajagopala  Ayyangar, JJ.)  that  the sales where delivery in the State  of  first destination  was for consumption therein, were  outside  the State of Bihar within the Explanation to Art. 286(1)(a)  and Bihar  could not tax them, but the sales where  delivery  in the  State  of  first destination was  not  for  consumption therein  were  not  " Explanation Sales "  and  were  not  " outside  "  sales  and  Bihar could  tax  them.   Where  the property  in the goods passed within the State as  a  direct result of the sale the sale was not an " outside " sale  for the  purpose  of Art. 286(1)(a) unless it  fell  within  the Explanation.   In the first category of sales the  appellant was entitled to the. exemption and it was not necessary  for it to prove that the goods delivered for consumption in  the State of first destination were actually consumed therein. The  State of Bombay v. United Motors (India)  Ltd.,  [1953]

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S.C.R. 1060 and Bengal Immunity Company Ltd. v. The State of Bihar, [1955] 2 S.C.R. 603, referred to. Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. The  Commercial Tax Officer, C. A. No. 751 of 57 and  C.  A. No. 10 of 1958 (Unreported), relied on. Per  S. K. Das and Shah, Jj.--Section 33 introduced  in  the Bihar  Sales Tax Act by the Adaptation of Laws Order,  1951, engrafted  the same restrictions on the taxing power of  the State  on the pre-Constitution statutes as were  imposed  by Art.   286   upon   post-Constitution   statutes.    Section 33(1)(a)(1)  of  the Act took away only the power to  tax  " Explanation  Sales  "  but  not the  power  to  tax  "  non- Explanation  Sales  ".  A  sale  in  which  goods  had  been delivered outside Bihar, but not as a direct result of                             277 the sale or not for the purpose of consumption in the  State of  first delivery was not covered by the Explanation,  and the  right to tax the sale, if it arose otherwise under  the Act, was not impaired by S. 33(1)(a)(i).

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 210 of 1959. Appeal  by special leave from the judgment and  order  dated January 16, 1958, of the Patna High Court in Mis.   Judicial case No. 156 of 1957. B.   C. Ghose and P. K. Chatterjee, for the Appellant. S.   P. Varma, for Respondents Nos.  1 to 5. R.   C. Dutta, for Respondents Nos. 6 to 20. 1960.   November 7. The Judgment of Hidayatullah, Das  Gupta and  Ayyangar, JJ., was delivered by Ayyangar, J., and  that of S. K. Das and Shah, JJ., was delivered by Shah, J. AYYANGAR.  J.-The sole question which arises in this appeal, which  comes by way of special leave is as to whether  sales under which goods were delivered outside the State of  Bihar for  the purpose of consumption but not within the State  of first  delivery  or first destination, are exempt  from  the levy  of  sales-tax  by the Bihar State by  virtue  of  Art. 286(1)(a) of the Constitution as it stood before the  recent amendment. The India Copper Corporation Ltd. (referred to hereafter  as the  assessee-company)  carries on business  in  copper  and various  other  materials  and mineral pro.  ducts  and  the office  of  its  General  Manager  is  in  the  district  of Singhbhum  in Bihar.  The period covered by  the  assessment now  in dispute is January 26, 1950 to March 31, 1950.   The normal practice of the assessee-company was to deposit  sums of money from time to time provisionally towards payment  of sales-tax  in advance and have the amount  finally  adjusted after  the completion of the assessment of each  year.   The assessee-company  followed this practice in respect  of  the amount of sales-tax due by it for the year 1949-50.  For the financial  year  April  1,  1949  to  March  31,  1950,  the Superintendent of Sales-tax, Singhbhum, 278 computed the tax liability of the company in the sum of  Rs. 3,60,703-4-0  by  an  order  of  assessment  dated  November 13,1950,  and the company made payment of the amount due  by it  beyond the sums already paid.  It would be noticed  that this  financial  year comprised two periods-(1)  before  the Constitution,  viz., April 1, 1949 to January 25, 1950,  and (2)  the post-Constitution period from January 26,  1950  to March 31, 1950.  There is now no controversy as regards  the sales-tax  payable in respect of sales effected  during  the

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pre-Constitution   period.   The  assessee-company   however raised  a dispute that in respect of  the  post-Constitution period, it was not liable to pay any sales-tax in respect of sales  to  buyers, under which though the  property  in  the goods  passed  within the State, delivery of the  goods  was effected outside the State of Bihar for consumption  outside that State on the ground that such sales were exempted  from tax  by Art. 286(1)(a) of the Constitution as it  originally stood.  It addressed a formal letter to the Commissioner  of Commercial  Taxes, Bihar, on December 30, 1952, making  this demand enclosing a statement showing full particulars of the goods sold, the bill numbers, the date and the amount  etc., to  enable  the  refund  claimed  to  be  calculated.    The assessee-company  followed  it up by a formal  petition  for review  of the assessment order by filing a  revised  return under  s. 12(2) of the Bihar Sales-tax Act together with  an application   for  refund.   The  departmental   authorities rejected  these applications by order dated July  20,  1953. Further proceedings before the department by way of revision etc.  failed  to secure to the assessee-company  the  relief which  it  claimed and thereafter it  filed  an  application under Arts. 226 and 227 of the Constitution before the  High Court of Patna praying for the issue of a writ to quash  the order of assessment dated November 30, 1950, and the  orders rejecting  the prayers for review, reassessment  and  refund and  for  a  direction to the  departmental  authorities  to refund the sum realised by them in so far as the tax related to  sales as a result of which goods were delivered  outside the State of Bihar.                             279 The learned Judges of the High Court held that the order  of the  Superintendent of Sales-tax, Singhbhum, dated  November 13, 1950, should be set aside and that the matter should  go back to the Superintendent to make a reassessment  according to  law  for  the  post  Constitution  period.   A   further direction  was added requiring the respondent to  refund  to the  assessee so much of the tax as had been paid in  excess of the amount of reassessment to be made by the  Superinten- dent  in accordance with the law as laid down by the  Court. In formulating the law applicable, the learned Judges drew a distinction between sales as a direct result of which  goods were  delivered  in a State outside the State of  Bihar  and consumed  in that State and those cases in which  the  goods thus  delivered,  were not consumed in the  State  of  first destination  but  were re-exported from the State  of  first destination  to  other  States.  They held  that  the  first category  of sales were covered by the Explanation  to  Art. 286 (1)(a) of the Constitution and were " inside " the State of first delivery and consequently " outside " the State  of Bihar within the meaning of the Article and therefore exempt from  tax  by the Bihar State.  In regard, however,  to  the second  category  of sales, it was held that they  were  not within  the  Explanation  and  were  therefore  outside  the constitutional exemption under Art. 286(1)(a). The   assessee-company   not  being  satisfied,   filed   an application  to the High Court for a Certificate of  fitness under Arts. 132 and 133 of the Constitution, but this having been  rejected, they applied to and obtained  special  leave from this Court under Art. 136 of the Constitution and  that is how the appeal is now before us. Three  points  were  urged before us by  Mr.  B.  C.  Ghose, learned  Counsel  for the appellants: (1) that on  a  proper construction  of Art. 286(1)(a) and the Explanation  thereto (as  it  stood  before  the  Article  was  amended  by   the Constitution  Sixth  Amendment Act, 1956) every  sale  as  a

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direct result of which goods were delivered for  consumption outside  the State, was not within the taxing power  of  the State in which the 280 goods  were at the time of the sale, and ,in which  property passed  as  a  result thereof, and that  it  was  immaterial whether  the delivery was for the purpose of consumption  in the  State of first destination or whether the  delivery  in such  State was not for the purpose of  consumption  therein but,  for re-export to other States, (2) that even  if  Art. 286(1)(a) exempted only sales in which as a direct result of the  sale  the  goods  were delivered  for  the  purpose  of consumption  in  the  State of  first  destination,  on  the pleadings  and the evidence before the Court  the  assessee- company must be taken to have established that all the sales effected by it and in regard to which exemption from payment of  tax  was claimed, conformed to this requirement,  (3)  a narrower submission, that even it be that to fall within the Explanation  the  delivery  has to be  for  the  Purpose  of consumption  in the State of first destination, the  learned Judges  of the High Court erred in requiring  the  assessee- company  to prove not merely that the goods  were  delivered for the purpose of consumption but further that the goods so delivered were actually consumed within that State. We shall now deal with these points in that order.   Article 286(1)(a)   together   with   the   Explanation   on   whose construction the first point depends ran in these terms: "  Article  286(1).   No law of a  State  shall  impose,  or authorise  the imposition of, a tax on the sale or  purchase of goods where such sale or purchase takes place- (a) outside the State; or (b)............................................................... Explanation.-For  the purposes of sub-clause (a) a  sale  or purchase shall be 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, 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." The scope and the purpose of this Explanation was 281 discussed and explained by this Court in The State of Bombay v.  Unitea Motors (India) Ltd. (1) and it is the passage  in this  judgment extracted below on which reliance was  placed by the learned Counsel in support of his submission: "..............  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  outside the  State  but a localised sale is a  troublesome  concept, for, a sale is a composite transaction involving as it  does several  elements  such as agreement to  sell,  transfer  of ownership,  payment of the price, delivery of the goods  and so    forth,   which   may   take   place    at    different places.  ............  To  solve the  difficulty  an  easily applicable 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

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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 ...... 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 (1)  [1953] S.C.R. 1069, 1081 36 282 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 go.  Multiple  taxation  of the  same  transaction  by different  States  is  also  thus avoided." It  might be mentioned that this portion of the judgment  is unaffected by the dissent expressed in the later decision in The Bengal Immunity Company Ltd. v. The State of Bihar  (1). The  argument based upon this passage was broadly  on  these lines:  Article 286 (1)(a) imposes a ban on the  legislative power to levy a tax on sales which are outside " the  taxing State.   What  sales  are " outside is not  easy  to  decide because  that  depends upon " the situs " of a  sale,  which cannot,  in  most cases, be located in any  one  place  with certainty-being  dependent  on a variety  of  factors  which might  or might not converge.  The Constitution  makers  did not  directly  define what was meant by a ,sale that  was  " outside  the  State  "  but achieved  the  same  purpose  by explaining an " inside " sale with the result that what  was not  an  " inside " sale should be held  to  bean  ,outside" sale.   It  must  however be pointed out  that  it  was  not disputed that the terms of the " Explanation " would not  be satisfied  unless  the  delivery  was  for  the  purpose  of consumption therein, i.e. in the State of first destination, If the terms of the Explanation were satisfied, the State of "  delivery.  cum-consumption  ",  (to  coin  a   convenient expression  to  designate  the  State  in  which  goods  are delivered as a direct result of the sale for the purpose  of consumption  therein), used in the Explanation,  would  have power  to tax the sale as being one fictionally "  inside  " it. In such an event all the other States in India,  barring that State would be prevented from taxing that sale  because the  sale would be " outside " those States.  This  however, it  was  urged,  would  not exhaust  the  operation  of  the Explanation, but further that the Explanation was exhaustive of what the Constitution makers conceived to be a sale which alone  may be the subject of tax by a State.  The  deduction learned  Counsel  made from these premises was  twofold  (1) that (1)  [1955] 2 S.C.R. 603.                             283 in  cases  where goods were as a direct result of  the  sale delivered  outside  the State of Bihar for  the  purpose  of consumption   in  the  State  of  first   destination,   the conditions  of the Explanation were satisfied and the  sales being  " outside " the State of Bihar could not be taxed  by that  State.   So  far there is no dispute  and  indeed  the learned  Judges of the High Court have, subject to a  matter

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of  detail to which reference will be made  later,  accepted the  contention of the assessee. (2) a further  consequence, that in cases where goods were delivered as a result of  the sale outside the State of Bihar, but not for the purpose  of consumption in such State of first destination, the terms of the Explanation were no doubt not satisfied and consequently the,  sale was not inside such State of delivery and  indeed not  " inside " any State in India within  the  Explanation, but  that  such sales also must be held to be  "  outside  " every State in India within Art. 286 (1)(a). The   learned  Judges  of  the  High  Court  repelled   this contention  and, in our opinion, correctly.  The passage  in the  judgment  of the United Motors case  extracted  earlier dealt  with Explanation sales and with none else.  When  the terms of the Explanation were satisfied such sales were by a fiction  deemed to be " inside " the State of  delivery-cum- consumption and therefore " outside " all other States.   In such  cases therefore, only the State " inside "  which  the sale  is deemed to take place by virtue of the  Explanation, is exempt from the ban imposed by Art. 286(1)(a).  All other States  would  be  subject to that ban in  respect  of  such sales. The  learned Chief Justice however did not, in  the  passage extracted, deal with the case of sales which did not satisfy the  terms of the Explanation.  The situs of what  might  be termed   1  non-Explanation’  sales  has  therefore  to   be determined  independently of the terms of  the  Explanation. Such  sales would be exempt from tax only if the  sale  took place " outside the State but not otherwise. The next question is, does a sale take place " outside " the State, where as a result of the contract of 284 sale,  the  property in the goods passes  to  the  purchaser within the State; in other words, is a sale completed    by the  passing  of property within the State not "  inside"  a State,  for the more reason that as a direct result  of  the sale the goods are delivered outside the State.   The answer depends  on  the meaning to be attributed to the words  "  a sale  or purchase which has taken place " outside the  State occurring  in  the body of Art. 286 (1).  The  expression  " outside  the State " is capable of being understood in  more senses  than one.  It could be understood  as  comprehending cases  where  no element or ingredient which  constitutes  a sale  takes  place  within  the State;  in  other  words  as applying  solely  to  those  cases  where  there  exists  no territorial nexus between the State imposing the tax and the sale.   Obviously, this could not have been intended  to  be incorporated  in Art. 286(1) because the tax in  such  cases would  be  beyond the legislative power of the  State  under Entry  54  of  the  State List read with  Art.  246  of  the Constitution.   The expression " outside " has therefore  to be  understood not as a sale so " outside " as not  to  have any territorial connection between the State in question and the  sale,  but  in a somewhat  narrower  sense.   The  real difficulty arises in ascertaining the precise content of the narrower  sense in which the word is used as meaning a  sale in  substance " outside " the State, though there  might  be some elements of the sale which if the exemption under  Art. 286(1)(a)  were not enacted, would enable a State to levy  a tax  on  the  sale  on the ground that  it  was  within  the legislative  power  of the State under Art.  246  read  with Entry 54. As  already pointed out, the situs of a sale is not easy  to determine  and several factors which constitute a  completed transaction of sale including the delivery of the goods, lay

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claim  to  be  considered  as  in  themselves   constituting sufficient   next   to  justify  their  being   treated   as determining  the  locus of a sale.  Thus, merely by  way  of illustration,  the place where the goods are at the time  of the  contract of sale, the place where the contract of  sale is  concluded,  the place where the property  in  the  goods passes and that 285 in which the delivery takes place compete for recognition as constituting the locus of a sale.  Before the  Constitution, these  and other similar factors were treated  as  affording sufficient  territorial  connection to endow  the  State  in which any of the events occurred with legislative competence to tax the sale.  This led to a multiplicity of the taxation of  the same transaction of sale by a plurality  of  States, with  the  result that the consumer was hard hit  and  trade itself,  and national economy suffered in the  process.   It has  been  pointed out that Art. 286(1)(a) was  designed  to counteract that state of affairs. If a single State was designed to have the power to tax  any particular transaction of sale, the question that next falls to  be  considered  is the determination of  that  State  in regard  to  which it could be predicated that  the  sale  in question  was not " outside " that State or in other  words, the determination of the particular State in regard to which it  could be said that the sale was " inside "  that  State. The key to the problem is afforded by two indications in the Article  itself:  (1) the opening words  of  Article  286(1) which  speak of a sale or purchase taking place and (2)  the non-obstante  clause in the Explanation which refers to  the general law relating to " sale of goods under which property in the goods has, by reason of such sale or purchase, passed in  another State." These two together indicate that  it  is the passing of property within the State that is intended to be fastened on, for the purpose of determining, whether  the sale in question is " inside " or " outside " the State, and therefore,  subject to the operation of the " Explanation  " that State in which property passes would be the only  State which  would have the power to levy a tax on the  sale.   As was explained in the recent decision of this Court in Burmah Shell Oil Storage & Distributing Co., of India, Ltd. v.  The Commercial Tax Officer (1) : "  By  sale  here (Art. 286(1)(a) )  is  meant  a  completed transaction by which property in the goods passes.   Before the property in the goods passes, the contract (1)  C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported). 286 of sale is only executory, and the buyer has only a chose in action................. The Constitution thinks in terms  of a completed sale by the passing of property and not in terms of an executory contract for the sale of goods." Notwithstanding  that is not an " outside " sale, the  power of  the State to tax might be negatived by the operation  of the Explanation which by its non-obstante clause-shifts  the situs  of  the  sale and renders the  sale  transaction  one within the delivery-cum-consumption State, i.e. as the State in which the sale transaction must be deemed to take  place. Where  the terms of the Explanation are satisfied, the  sale transaction  will,  by  a legal fiction created  by  it,  be deemed  to  take place "inside" the State  of  delivery  and therefore  "  outside  " the State  in  which  the  property passes.  The conclusion reached therefore is that where  the property  in  the goods passes within a State  as  a  direct result of the sale, the sale transaction is not outside  the State  for  the  purpose  of  Art.  286(1)(a),  unless   the

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Explanation  operates.  We need also add that the  power  of the  State  to impose the tax might still not  be  available unless  the  transaction in question is  unaffected  by  the other bans imposed under sub-cl. (1)(b), (2) and (3) of Art. 286.   The submission therefore of learned Counsel  for  the appellants,  that  in respect of non-Explanation  sales  the State of Bihar has no power to levy a tax by reason of  such sales being ’outside " the State within Art. 286(1)(a)  must be rejected. The  second contention urged by the learned Counsel for  the appellant  was that even assuming he was wrong on the  first point, all the sales by the assessee-company fell within the terms of the Explanation to Art. 286(1)(a) being sales as  a direct  result  of  which  the  goods  were  delivered   for consumption in the State of first destination, and that  the learned   Judges  of  the  High  Court  were  in  error   in considering, that some of the sales did not conform to  this requirement.  In support of this submission learned  counsel drew our attention to two matters.  He first referred us  to the application dated December 30, 1952 made on behalf 287 of  the assessee-company to the Commissioner  of  Commercial Taxes, Bihar, Patna in which the claim for refund of the tax paid was rested on the following ground : After getting out that the tax on sales effected between the period January 26, 1950 to March 31, 1950 was not assessable by  virtue of Art. 286 of the Constitution, the  application stated:  " Total sales of raw materials of copper and  brass sheet  and circles sold by us and despatched  under  railway receipts  for  buyers’ consumption are  as  follows".   Then followed  the sales effected and the tax paid in respect  of the  sales.  The claim in this form was annexed to and  made part  of the petition to the High Court under Art.  226  and 227 of the Constitution and in paragraph 9 of the  petition, this  letter  was  referred  to  and  a  copy  thereof   was incorporated and marked as 1A.  In this paragraph which  was the other matter relied on the claim for refund was said  to be  "  on  sales  made to buyers  outside  Bihar  State  for consumption ". Learned Counsel strongly pressed upon us that paragraph  9 and the annexure had clearly asserted that  the sales  which  were  the, subject of  the  claim  for  refund involved a delivery of the goods outside the State of  Bihar for  consumption in the State of first destination  and  the State  of  Bihar  not  having  filed  any  counter-affidavit challenging  the correctness of these allegations, the  High Court  should  have held that the terms of  the  Explanation were  satisfied and should have ordered the refund  claimed. We  however consider that this submission is without  force. Neither  in the claim put forward in Exh.  ’A’ nor in  para- graph  9 of the petition was any distinction  drawn  between sales under which deliveries were effected outside the State of  Bihar  for the purpose of consumption in  the  State  of first destination and those in which the deliveries  outside the State were effected for the purpose of consumption  not  in the State of first destination but in other States.  In fact,  this  was made clear in the later paragraphs  of  the petition  to the High Court from which it is  apparent  that the assessee-company  made a claim for tax exemption in 288 respect  of sales in which the delivery took  place  outside the State of Bihar, whether the delivery was for the purpose of  consumption  in  the  State  of  first  destination   or otherwise.   In paragraph 17(1) of the petition to the  High Court the assessee stated: " (the petitioner was not  liable to  pay  tax on goods delivered outside the State  of  Bihar

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which was also for consumption outside the State of Bihar ", and  again  in clause (iii) of the same paragraph  this  was repeated:  "  the goods being outside the  State  of  Bihar, delivered  outside the State of Bihar and  consumed  outside the State of Bihar were not liable to sales-tax by the State of Bihar " and similarly in cl. (v) of the same paragraph  a reference was made to " goods delivered outside the State of Bihar for consumption outside the State of Bihar ". The same idea is emphasized in paragraph 19 also which contained  the prayer of the petition.  On these averments it is clear that the  claim  made  by the assessee was  that  to  invoke  the exemption contained in Art. 286(1)(a) it was sufficient that the goods were delivered outside the State of Bihar and that it  was immaterial whether the delivery was for the  purpose of  consumption  in  the  State  of  first  destination   or otherwise.  This involved the same argument which was raised by the learned Counsel that we have dealt with earlier.  The learned  Judges  of the High Court were therefore  right  in drawing  a distinction between the two types of sales  which we have already indicated. The  last  point that was urged by the learned  Counsel  was that the learned Judges of the High Court erred in requiring the  assessee to prove that the goods delivered outside  the State of Bihar were actually consumed in the State of  first destination  before the exemption from tax could be  availed of  In  their judgment now under appeal the  learned  Judges have stated: "The  petitioner would not be entitled to exemption  if  the goods  were not consumed in the State of  first  destination but were re-exported from the State of first destination  to other States)’. Learned Counsel for the appellant complained that 289 under  the  Explanation to Art. 286(1)(a) there need  be  no proof  of actual consumption of the goods delivered  in  the State  of  first destination but that  the  Explanation  was satisfied if the purpose of the delivery tinder the sale was for  consumption  in  that  State.  If  after  a  sale  that satisfied  that  requirement,  viz.,  for  the  purpose   of consumption  in  the State of first destination,  the  buyer under such a sale for his own purposes reexported the  goods that  was not a matter with which the seller  was  concerned and  would  not  affect the character of  the  sale  as  one falling  within the Explanation to Art. 286(1)(a).   Learned Counsel therefore urged that the learned Judges of the  High Court  went  wrong  in requiring proof on the  part  of  the assessee  that the goods were actually consumed  within  the State  of first delivery outside Bihar and that this was  an unwarranted addition to the requirements of the Explanation. We  consider  this submission well-founded  and  indeed  the learned Counsel for the respondent did not dispute that  the actual order of the High Court went beyond the terms of  the Explanation to Art. 286(1)(a).  The order of the High  Court will, therefore, be modified by making it clear that if  the goods were as a direct result of the sale delivered  outside the  State  of Bihar for the purpose of consumption  in  the State  of first delivery the assessee would be  entitled  to exemption of the sales-tax imposed and that it would not  be necessary  for the assessee to prove further that the  goods so  delivered were actually consumed in the State  of  first destination. Subject  to this modification, the appeal fails, but in  the circumstances  of  the  case there will be no  order  as  to costs. SHAH  J.-We  agree  with  the  conclusion  of  Mr.   Justice

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Rajagopala  Ayyangar,  J., but because our approach  to  the question  is  somewhat different, we propose to  record  our reasons separately. The  Bihar Sales Tax Act, 1947, was enacted in  exercise  of legislative   authority   conferred  upon   the   Provincial Legislatures by entry 42 in List II read 37 290 with s. 100(3) of the Government of India Act, 1935.  By  s. 2(g)  of the Act, " sale " was defined (in so far as  it  is material) as meaning any " transfer of property in goods for cash    or    deferred    payment    or    other    valuable consideration.......  provided....... provided further  that notwithstanding anything to the contrary in the Indian Sales of Goods Act, 1930, the sale of any goods- (i)  which  are  actually  in Bihar at  the  time  when,  in respect thereof, the contract of sale as defined in s. 4  of that Act is made, or (ii) which  are  produced or manufactured in  Bihar  by  the producer  or  manufacturer  thereof,  shall,  wherever   the delivery  or  contract of sale is made, be  deemed  for  the purposes of this Act to have taken place in Bihar." Under  entry 42 of List II of the Government of  India  Act, 1935,  the  Provincial  Legislatures  could  tax  sales   by selecting  some  fact  or  circumstance  which  provided   a territorial nexus with the taxing power of the State even if the  property in the goods sold passed outside the  Province or  the  delivery  under the contract  of  sale  took  place outside  the Province.  Legislation taxing  sales  depending solely upon the existence of a nexus, such as production  or manufacture  of the goods, or presence of the goods  in  the Province  at the date of the contract of sale,  between  the sale  and  the  Legislating Province  could  competently  be enacted under the Government of India Act, 1935 see the Tata Iron and Steel Co., Ltd. v. The State of Bihar and Poppatlal Shah v. The State of Madras (2). By Art. 286 of the Constitution, certain fetters were placed upon the legislative powers of the States as follows: Art. 286:-" (1) No law of a State shall impose, or authorise the  imposition of, a tax on the sale or purchase  of  goods where such sale or purchase takes place- (a)  outside the State ; or (b)  in  the  course  of the import of the  goods  into,  or export of the goods out of, the territory of India. (1) [1958] S.C.R. 1335. (2) [1953] S.C.R. 677. 291 Explanation:For  the  purposes  of sub-cl.  (a)  a  sale  or purchase shall be 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 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

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provisions  of this clause, continue to be levied until  the thirty-first day of March, 1951. (3)  No 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." With  a view to impose restrictions on the taxing  power  of the  States under the pre-Constitution statutes,  amendments were made in these statutes by the Adaptation of Laws Order. By  the Adaptation of Laws Order, 1951, in the  Bihar  Sales Tax  Act was incorporated with retrospective operation  from January 26, 1950, s. 33, which provided: "’ (1) Notwithstanding anything contained in this Act,- (a)  a  tax  on the sale or purchase of goods shall  not  be imposed under this Act- (i)  where  such  sale or purchase takes place  outside  the State of Bihar ; or 292 (ii) where  such sale or purchase takes place in the  course of import of the goods into, or export of the goods out  of, the territory of India ; (b)  a  tax on the sale or purchase of any goods shall  not, after  the  31st day of March, 1951, be imposed  where  such sale  or purchase takes place in the course  of  inter-State trade or commerce except in so far as Parliament may by  law otherwise provide; (2)  The  Explanation  to  cl.  (1)  of  Art.  286  of   the Constitution  shall apply for the interpretation of  sub-cl. (1) of cl. (a) of sub-s. (1)." By  this amendment, on the taxing power of the  Bihar  State the same restrictions were engrafted on the pre-Constitution statute as were imposed by Art. 286 of the Constitution upon post-Constitution statutes. This court has held in the Bengal Immunity Co., Ltd. v.  The State  of  Bihar (1) that the operative  provisions  of  the several parts of Art. 286 namely cl. (1) (a), (1)(b) and (2) and cl. (3) were intended to deal with different topics  and one could not be projected or read into another.  Therefore, by  the  incorporation of s. 33 in the Bihar Sales  Tax  Act read  with  Art. 286, notwithstanding the amplitude  of  the power  otherwise granted by the charging section  read  with the  definition of " sale ", a cumulative fetter  of  triple dimension  was imposed upon the taxing power of  the  State. The  Legislature of the Bihar State could not since  January 26,  1950, levy a tax on sale of goods taking place  outside the  State or in the course of import of the goods into,  or export  of  the goods out of the territory of India,  or  on sale  of any goods where such sale took place in the  course of  inter-State  trade or commerce.  By the  Explanation  to Art. 286(1)(a) which is incorporated by sub-s. (2) s. 33  of the  Bihar Sales Tax Act, a sale is deemed to take place  in the  State  in which the goods are actually delivered  as  a direct result of such sale for the purpose of consumption in that  State  even though under the law relating to  sale  of goods  the property in the goods has by reason of such  sale passed  in  another State.  In the State of  Bombay  v.  The United Motors (India) Ltd. (2), it was held that (1) [1955]  2 S.C.R. 603. (2) [1953]  S.C.R. 1069. 293 since  the enactment of Art. 286(1)(a), a sale described  in the  Explanation  which may for convenience be called  an  " Explanation  sale " is taxable by that State alone in  which

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the goods sold are actually delivered as a direct result  of sale  for  the purpose of consumption in  that  State.   The right to tax arises because the sale is deemed to take place in  that State and outside all other States and  the  latter States  are  prohibited from taxing the sale  ;  the  former alone is left free to do so. The  Bihar  Sales Tax Act enacted in exercise of  the  power conferred by entry 42 of List II of the Government of  India Act, 1935, upon the Provincial Legislatures is saved by Art. 372 of the Constitution as existing law, but by the combined operation  of sub-ss. (1) and (2) of s. 33, the Bihar  State is  incompetent  to  tax sales of goods  in  the  course  of imports into and exports out of the territory of India,  and after March 31, 1951, sales of goods in the course of  inter State  trade or commerce.  In view of the exposition of  the content  of the Explanation to Art. 286(1)(a) by this  court in  the  United  Motors case (1), the Bihar  State  is  also incompetent to tax " Explanation sales " where the goods are delivered  in another State as a direct result of  the  sale for  consumption  in that State.  By this last ban,  to  the extent provided by subs. (1)(a)(i) and sub-s. (2) of s.  33, the  State of Bihar is deprived of its power to  tax  sales; but  the  ban does not wholly extinguish the  power  of  the State  to  tax sales relying upon a real  territorial  nexus between the sale and the State.  In other words, by enacting that a tax shall not be imposed under the Act when the  sale takes  place outside the State of Bihar in  s.  33(1)(a)(i), only  the  power to tax " Explanation sales " which  do  not take place within the State of Bihar in taken away, but  not the  power to tax " non-Explanation sales " in which  though under  the general law of sale of goods the property  passes outside the State, there exists between the taxing power  of the  State  and  the sale a nexus  as  contemplated  by  the definition of sale in s. 2(g).  If the sale is one in  which the goods have been delivered outside the State of (1) [1953]  S.C.R. 1069. 294 Bihar, but not as a direct result of the sale or not for the purpose  of consumption in the State of first delivery,  the sale  will not be covered by the Explanation, and the  right to tax the sale, if arising-otherwise under the Act  relying upon  the  territorial nexus, will not be  impaired  by  the prohibition imposed by cl. (1)(a)(i) of s. 33.  The right of the  State  of  Bihar  to tax a sale  relying  upon  a  real territorial  nexus not being impaired by s. 33 of  the  Act, all  sales as defined by s. 2(g) of the Bihar Sales Tax  Act are  liable  to  be taxed, except those  falling  within  s. 33(1)(a)(ii), s. 33(2) and " Explanation sales " outside the State of Bihar. The   appellant   company  carries  on   the   business   of manufacturing copper and other mineral products in the State of  Bihar.   It has its registered office and its  place  of business in the District of Singhbhum in the State of  Bihar and is registered as a " dealer " under the Bihar Sales  Tax Act,  1947.  The appellant company sent out its products  to various places in India in the year of assessment ending  on March  31, 1950 and has paid the tax assessed by  the  Sales Tax  Officer.   The  appellant is now seeking  to  obtain  a refund of the tax paid for the period between January 26 and March  31, 1950, on the plea that the tax was paid  under  a misapprehension   of  the  law.   The  High  Court   in   an application under Art. 226 of’ the Constitution directed the Sales  Tax authorities to refund so much of the tax  as  was not  proved to have been paid in respect of sales  of  goods delivered  and consumed in the State of  first  destination.

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On  the goods delivered and consumed in the State  of  first destination outside Bihar, the appellant could not be called upon  to pay sales tax.  That is undisputed.  The  appellant also claimed that on the goods delivered for consumption  in the State of first delivery outside Bihar, it was not liable to  pay  sales tax, even if there was no evidence  to  prove that the goods were in fact consumed in such State.  In  our judgment, the High Court was in error in directing that  the exemption   provided  by  Art.  286(1)(a)  read   with   the Explanation  which was at the material time incorporated  by s. 33 in the Bihar Sales Tax Act by the Adaptation of                             295 Laws  Order,  1951,  only  applied to  all  sales  of  goods delivered  and consumed in the State of  first  destination. If   the  goods  were  delivered  for  consumption,  it   is immaterial  whether they were in fact consumed in the  State where  they were delivered.  The power of the State to  levy sales  tax  relying upon the territorial nexus  between  the taxing  power  of the State and the sale,  is  impaired  for reasons  already  set  out  to the extent  to  which  it  is restricted by the incorporation of Art. 286(1)(a)(i) and the Explanation thereto, in that Act.  Therefore, sales effected on  or after January 26, 1950, where goods are as  a  direct result   of  the  sale  delivered  in  another   State   for consumption in that other State, are not liable to be taxed. The  directions issued by the High Court will  therefore  be modified as follows: The  order of the Superintendent of Taxes is set aside.   He is directed to grant refund of tax paid in the light of this judgment.  The appellant will be entitled to exemption  from payment  of tax if the goods are, as a direct result of  the sale,  delivered  in  another  State  for  the  purpose   of consumption in that State.               Appeal dismissed subject to modification.