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PETITIONER: MESSRS ASHOK LEYLAND LTD.

       Vs.

RESPONDENT: THE STATE OF MADRAS

DATE OF JUDGMENT: 28/03/1961

BENCH: DAS, S.K. BENCH: DAS, S.K. AIYYAR, T.L. VENKATARAMA KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1961 AIR 1433            1962 SCR  (1) 607  CITATOR INFO :  R          1962 SC1037  (4,5)  RF         1968 SC 331  (12)  D          1968 SC 339  (6)

ACT: Sales  Tax-Inter-State  sales before the  enactment  of  the sales  Tax  Laws  Validation Act-Such  sales  taxed  on  the footing  of sales inside the State-Sales found to be  inter- State sales-Validity of assessment after the passing of that Act Madras General Sales Tax Act, 1939 (Mad. 9 of 1939), SS. 2  (h), 22-Sales Tax Laws Validation Act, 1956 (7 of  1956), S. 2-Constitution of India, Art. 286.

HEADNOTE: The  appellant firm had its factory in the State of  Madras, where  it manufactured, assembled and sold  motor  vehicles, spare parts and accessories.  For the assessment year  1952- 53, the sales tax authority computed the appellant’s taxable turnover  of  sales  for that year  excluding  a  sum  which represented  the  value of vehicles etc., sold  outside  the State  of Madras, but on revision, the taxable turnover  was increased  by  including  a sum  which  related  to  certain transactions with dealers outside the State of Madras on the ground  that the sales covered thereby were made within  the State  of Madras and were therefore liable to tax under  the Madras  General Sales Tax Act, 1939.  The appellant  claimed that these sales were in the course of inter-State trade and commerce and not liable to sales tax by reason of the provi- sions  of  Art. 286(2) Of the Constitution  of  India.   The matter  was  taken  up  to the  Supreme  Court  and  in  the meantime, the Sales Tax Laws Validation Act, 1956, had  been passed   by  Parliament.   The  question  was  whether   the transactions  in question, even if they were  considered  as having taken place in the course of inter-State trade,  came within  the  protection of the Validation Act of  1956  and, therefore,  the  assessment in the present case  was  valid. The  appellant  contended (1) that the  Validation  Act  was applicable  only  when  the law of  the  State  imposed,  in express terms, a tax on the sale or purchase of any goods in

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the  course of inter-State trade or commerce, and  (2)  that the new S. 22 inserted in the Madras General Sales Tax  Act, 1939,   by   Madras   Act  1   of   1957,   which   operated retrospectively  from January 26, 1950, talked of  sales  in which the goods were delivered for consumption in the  State of  Madras,  and,  therefore, the  Validation  Act  did  not operate on sales of an inter-State character other than such sales. Held:  (1) that the effect of the Sales Tax Laws  Validation Act, 1956,     was  to  liberate  the State  laws  from  the fetter placed on them by Art. 286(2) of the Constitution  of India  and enable  such laws to operate on their own  terms. Consequently,  the transactions in question were  liable  to tax under the provisions 608 of  the Madras General Sales Tax Act, 1939, and it  was  not necessary  to provide in that Act in express terms  that  it was taxing sales in the course of the inter-State trade. M.   P.  V.  Sundararamier  & Co. v.  The  State  of  Andhra Pradesh and    Another, [1958] S.C.R. I422, relied on. (2)  that  the  transactions  in question  came  within  the definition  of sale in S. 2(h) of the Madras  General  Sales Tax  Act, 1939, and the power to tax conferred on the  State by the charging section, S. 3, was not affected by S. 22  in view of sub-s. (2) therein.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 446 of 1958. Appeal from the judgment and order dated April 18, 1956,  of the High Court of Judicature at Madras in Tax Revision  Case No. 93 of 1955. M.  C. Setalvad, Attorney-General of India,  S.  Swaminathan and K. L. Mehta, for the appellants. V.   K.  T. Chari, Advocate-General of Madras, M. M.  Ismail and T. M. Sen, for the respondent. N.   A.   Palkhivala,  J.  B.  Dadachanji,  S.  N.   Andley, Rameshwar  Nath  and P. L. Vohra, for the  Intervener  (Tata Loco & Engineering Co. Ltd., Bombay). 1961.  March 28.  The Judgment of the Court was delivered by S.   K.  DAB, J.-This is an appeal on a certificate  granted by  the  High Court of Madras.  The firm of  Messrs.   Ashok Leyland  Ltd.,  Ennore,  is the appellant  before  us.   For brevity  and convenience, we shall hereinafter refer to  the firm  as  the  assessee.  The State of  Madras  through  the Commercial  Tax Officer, Saidapet, is the respondent  before us. The  assessee  is a firm with its factory at Ennore  in  the State of Madras, where it manufactures, assembles and  sells motor  vehicles  and spare parts  and  accessories  thereof, through  an  elaborate  organisation  spread  over   several States.   It is, perhaps, necessary to indicate briefly  the organisational  set up in order to appreciate the  point  on which the case was heard in the High Court and argued before us.  The system of distribution of its motor vehicles, spare parts and 609 accessories at one uniform price to consumers in the various States   which  the  assessee  adopted,  consisted  of   the appointment  of  a  distributor (called  a  dealer)  with  a definite  territorial jurisdiction, both inside and  outside the  State of Madras.. To every such dealer it  granted  the sole  right of selling the products of the firm  within  the territory  allotted to him.  If the territory of the  dealer

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was outside the State of Madras, the agreement entered  into by  the dealer provided for the delivery of the products  of the  firm  by  consignment,  by  rail  or  steamer  or  road transport.   The agreement specifically stipulated that  the dealer  must  not canvass or sell the products  outside  the territory allotted to him, and in the event of  infringement or breach of the undertaking by the dealer, the assessee was entitled  to  terminate the agreement  forthwith.   On  such termination,  the assessee reserved the right to  call  upon the  dealer to return all or any of the  products  remaining unsold at the date of such termination.  The case set up  by the assessee was that a substantial number of motor vehicles and  accessories  thereof were consigned to the  dealers  in other  States either by rail or steamer; but due to want  of such  transport facilities, a number of vehicles  were  also transported by road. In  the  year relevant to the assessment year  1952-53,  the total  turnover of the asaessee in respect of all its  sales came  to  Rs. 1,43,67,007 odd.  The  Deputy  Commercial  Tax Officer,  Madras,  computed  the  taxable  turnover  of  the assessee  for  that  year  by  excluding  the  sum  of   Rs. 1,12,21,707  odd  which represented the value  of  vehicles, spare  parts,  etc., sold outside the State  of  Madras  and consigned  by rail or steamer or transported by  road.   The balance  of Rs. 31,45,299 odd was determined to be  the  net assessable turnover of the company.  The tax levied  thereon was a sum of Rs. 1,45,655-13-3 and this sum was duly paid by the assessee. Sometime  thereafter,  the Commercial Tax  Officer,  Madras, purporting to act under the powers of revision given to  him by s. 12 of the Madras General Sales 77 610 Tax  Act, 1939 (Madras Act IX of 1939),  hereinafter  called the  Act, called upon the assessee to produce its  books  of account  for  the purpose of satisfying himself  as  to  the legality  or  propriety  of  the  assessment  made.    After scrutinising the accounts and other records produced by  the assessee,  the  Commercial  Tax  Officer  issued  a   notice proposing to revise the assessment by including a sum of Rs. 42,98,068  odd  on  the ground that the  delivery  of  motor vehicles, etc., in respect of sales covered by the aforesaid sum  was made within the State of Madras and  was  therefore liable  to  tax under the Act.  The assessee  submitted  its objection  to the revision of the assessment  and  contended that  on the sum of.  Rs. 42 lacs odd the assessee  was  not liable  to  pay sales tax as the transactions  were  in  the course  of inter-State trade and commerce.   This  objection was, however, overruled by the Commercial Tax Officer except to a very small extent. From that decision of the Commercial Tax Officer, an  appeal was  taken to the Sales Tax Appellate Tribunal, Madras,  and the  assessee contended in that appeal that the revision  of the  assessment by the Commercial Tax Officer  was  without, jurisdiction  and that the inclusion of Rs. 42 lacs  odd  in the taxable turnover was contrary to the provisions of  Art. 286 of the Constitution.  The Tribunal rejected the plea  of absence of jurisdiction, but held on merits that the sum  of Rs. 12,48,403 odd representing the value of vehicles  driven away  on their own motive power through the  assessee’s  own drivers  to  the  places of  business  of  the  non-resident dealers was not liable to sales, tax. The assessee then preferred a revision to the High Court  of Madras  under  s.  12B(1)  of  the  Act  and  repeated   the contention that the sales in question were in the course  of

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inter-State  trade and commerce and not liable to sales  tax by   reason  of  the  provisions  of  Art.  286(2)  of   the Constitution.   In the High Court the liability to  tax  was challenged by the assessee in respect of the following  four items only:               (1)   A   sum  of  Rs.  1,43,072   odd   which               represented  the value of  vehicles  delivered               ex-factory to the               611               dealer’s  drivers.  The vehicles  were  driven               away   by   those  drivers   after   temporary               registration  of the vehicles in the  name  of               the dealer, outside the State of Madras.               (2)   A   sum  of  Rs.  28,01,357  odd   which               represented the value of vehicles delivered to               the drivers of the dealers, which were  driven               away  under the trade number of  the  dealers,               outside the State of Madras.               (3)   A sum of Rs. 7,866 odd which represented               the value of spare parts or other  accessories               delivered along with the cars.               (4)   A  sum of Rs. 15,000  which  represented               the  value  of spare parts  consigned  to  the               dealers.  These were delivered to the  dealers               outside   the   State  of   Madras   and   the               consignments were sent by rail or steamer. The  High Court repelled the contention of the  assessee  in respect  of the first three item,,; aforesaid, holding  that they  fell  outside the purview of the ban imposed  by  Art. 286(2)  of the Constitution.  It modified the order  of  the Tribunal  with  respect to the fourth item, as in  its  view that  item  came  within  the scope  of  Art.  286(2).   The assessee  then  moved  the  High  Court  and  obtained   the necessary certificate under Art. 133 of the Constitution. When the learned Attorney-General appearing for the assessee opened  the  appeal, he submitted in the  forefront  of  his argument  that the High Court was in error in  holding  that the  transactions coming under the three items (1), (2)  and (3)  above  were outside the ban imposed by Art.  286(2)  of the’ Constitution, and contended that the transactions  were within  the purview of the ban.  We then drew his  attention to  the  Sales Tax Laws Validation  Act,  1956  (hereinafter called  the Validation Act), and asked him to  consider  the question  whether the transactions in question  came  within the protection of the Validation Act, an aspect of the  case which  does not appear to have been considered in  the  High Court.   The  argument  before us then  centered  round  the question  whether  the assessment in respect  of  the  three items came within the protection of the Validation Act,  and it was conceded by the 612 learned  Attorney-General that if it did, no other  question would  survive and it would be unnecessary to  determine  in this appeal the true scope and effect of Art. 286(2) of  the Constitution  and whether the transactions in question  came within the ban imposed thereby.  On behalf of an  intervener (Tata  Locomotive  & Engineering Co. Ltd,, Bombay)  we  have been pressed to decide, on merits, whether the  transactions under consideration here come within the ban of Art.  286(2) of  the Constitution, on the ground that such decision  will be  of assistance in a pending case to which the  intervener is party.  We do not think that we can do so for the benefit of the intervener.  The intervener has no right to ask us to decide  a question which does not fall for decision  if  the Validation  -Act  applies; for it is conceded  that  if  the

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Validation  Act applies, that will be decisive of the  whole appeal.   We  must,  therefore,  reject  the  plea  of   the intervener. We  proceed  now to consider the main point argued  in  this appeal,  namely, whether the Validation Act applies  to  the transactions in question.  It is convenient to read here  s. 2, which is the relevant section, of the Validation Act:               "Section  2.  Notwithstanding  any   judgment,               decree  or  order of any court, no  law  of  a               State  imposing or authorising the  imposition               of,  a  tax on the sale or  purchase,  of  any               goods  where such sale or purchase took  place               in the course of interstate trade or  commerce               during  the  period  between the  1st  day  of               April,  1951,  and the 6th day  of  September,               1955, shall be deemed to be invalid or ever to               have been invalid merely by reason of the fact               that  such sale or purchase took place in  the               course  of inter-State trade or commerce;  and               all   such  taxes  levied  or   collected   or               purporting  to have been levied  or  collected               during  the aforesaid period, shall be  deemed               always   to  have  been  validly   levied   or               collected in accordance with law". It  will  be  noticed at once that  the  transactions  under consideration  in the present appeal came within the  period mentioned  in  the Validation Act. being transactions  of  a period between April 1, 1951, and 613 March 31, 1952.  Indeed, this is not disputed before us.  It is  also clear that the wording of a. 2 is general and  wide enough  to take in "the sale or purchase of any goods  where such  sale  or purchase took place in the course  of  inter- State  trade or commerce during the period between  the  1st day of April, 1951, and the 6th day of September, 1955." The section states in effect that notwithstanding any  judgment, decree  or order of any court, no law of a State imposing  a tax  on  the sale or purchase of goods referred  to  therein shall  be deemed to be invalid or ever to have been  invalid merely by reason of the fact that such sale or purchase took place  in the course of inter-State trade or commerce.   The learned  Attorney-General  has  advanced  two  arguments  in support  of his contention that the Validation Act does  not apply  to  the transactions under consideration  here.   His first argument is that the Validation Act applies only  when the law of the State imposes, in express terms, a tax on the sale  or purchase of any goods in the course of  inter-State trade or commerce.  He emphasises the expression "where such sale  or  purchase took place in the course  of  inter-State trade  or commerce" occurring in the section and  from  that expression  he has drawn the inference that the law must  in express  terms  say that it is taxing  transactions  in  the course  of  interState  trade  and  commerce.   His   second argument is that by reason of s. 22 of the Act, inserted  by the  amending Act of 1957, being Madras Act I of  1957,  the Act  imposes no tax on transactions under  consideration  in this  appeal; it merely imposes a tax on transactions  which are  generally known as Explanation sales referable  to  the Explanation  to Art. 286(l)(a), such as were  considered  in the  decision of this Court in M. P. V. Sundararamier &  Co. v.  The  State Of Andhra- Pradesh & Another (1).   We  shall consider these two arguments one after the other. It  appears  to  us the first argument  does  not  correctly reflect  the true scope and effect of s. 2 of the  Validtion Act.    It   is  necessary,  perhaps,  to  advert   to   the

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circumstances which led, to the enactment of (1)  1958 J.s.S.C.R. 1422- 614 the  Validation  Act.   The true meaning and  scope  of  the Explanation  to Art. 286(1) of the Constitution came up  for consideration  before this Court in The State of Bombay  and Another v. The United Motors (India) Ltd and Others (1).  It was  therein  held  by the majority that  though  the  sales falling  within  the Explanation would, in fact, be  in  the course of interState trade. they became intrastate sales  by the fiction introduced by the Explanation and were liable to be taxed by the State within which the goods were  delivered for  consumption.   Then, came the decision  in  The  Bengal Immunity  Company Limited v. The State of Bihar  and  Others (2)  where  this Court held, again by a majority,  that  the sales  falling within the Explanation being  inter-State  in character,  could  not  be taxed by reason  of  Art.  286(2) unless  Parliament lifted the ban, that the  Explanation  to Art. 286(l)(a) controlled only that clause and did not limit the  operation  of  Art. 286(2), and that the  law  in  this respect  had  not  been correctly laid down  in  the  United Motors’  case  (2).  The decision in The  Bengal  Immunity’s case  (2) was rendered on September 6, 1955.  The Sales  Tax Validation  Ordinance  No. III of 1956  was  promulgated  on January  30,  1956,  and  that was  later  replaced  by  the Validation Act.  The constitutionality of the Validation Act was   challenged  before  this  Court  and  in  M.   P.   V. Sundararami’s  case  (3)  this Court  upheld  its  validity, though  the sales referred to in the arguments in that  case were Explanation sales. The  Validation  Act is legislation by  Parliament,  and  it lifts  the ban imposed by Art. 286(2).  Clause (2)  of  Art. 286  as it stood before the Constitution  (Sixth  Amendment) Act, 1956, in these terms:                "(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."               In M. P. V. Sundraramier’s case(3) this  court               observed:               (1)  [1953]  S.C.R. 1069.       (2)  [1955]  2               S.C.R.603               (3)   [1958] S.C. 1422.               615               "Section  2 of the impugned Act which  is  the               only  substantive enactment therein  makes  no               mention  of any validation.  It only  provides               that  no law of a State imposing tax on  sales               shall  be deemed to be invalid merely  because               such  sales are in the course  of  inter-State               trade   or  commerce.   The  effect  of   this               provision is merely to liberate the State laws               from the fetter placed on them by Art.  286(2)               and  to enable such laws to operate  on  their               own terms.  The true scope of the impugned Act               is, to adopt the language of this Court in the               decisions  in the United Motors case  (1)  and               The  Bengal Immunity Company’s case (2),  that               it lifts the ban imposed on the States against               taxing inter-State sales and not that it vali-               dates or ratifies any such law." It  should be obvious that in 1939, long before  the  coming into force of the Constitution, the Act could not have  said

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in  express terms that it was taxing sales in the course  of inter-State  trade.  What we have to see is that the  fetter under  Art.  286(2)  having  been  removed,  does  the   Act operating  on  its  own terms  affect  the  transactions  in question  even though they be in the course  of  inter-State trade?   If it does, the assessment is no longer  liable  to challenge on the ground of the ban imposed by Art. 286(2). This  brings  us  to  the second  argument  of  the  learned Attorney-General.  One has merely to see the definitions  of ’sale’  and  ’turnover’ and s. 3, the charging  section,  to come  to  the conclusion that the Act operating on  its  own terms  makes  the transactions under consideration  in  this appeal  liable  to  sales  tax.   Explanation  (2)  to   the definition of ’sale’ says:               "The  sale or purchase of any goods  shall  be               deemed, for the purposes of this Act, to  have               taken  place  in  this  State,  wherever   the               contract  of sale or purchase might have  been               made-               (a)   if the goods were actually in this State               at  the  time  when the contract  of  sale  or               purchase in respect thereof was made, or               (b)   in  the  case the contract was  for  the               sale   on   purchase  of   future   goods   by               description, then, if the               (1)  [1953]  S.C.R. 1069.       (2)  [1955]  2               S.C.R. 603.               616               goods  are actually produced in this State  at               any  time  after  the  contract  of  sale   or               purchase in respect thereof was made." There  can  be  no doubt that  the  Explanation  brings  the transactions  in question within the definition  -of  ’sale’ under the Act.  The point now is-does s. 22 of the Act  make any  difference’,?   We are clearly of the opinion  that  it does  not.   A little history of that section  is  necessary here.   Section  22  of  the Act, as  it  stood  before  the amending Act of 1957, was inserted by the Adaptation of Laws (Fourth  Amendment)  Order, 1952, made by the  President  in exercise  of the powers conferred on him by Art.  372(2)  of the  Constitution.  The section was then almost  a  verbatim reproduction  of  Art. 286(l) and (2) of  the  Constitution. The effect of  the section as it stood then, was  considered in M.     P.  V.  Sundararamier’s case (1) and it  was  held that    it     had a positive content and the Explanation in the context of s. 22 (as it then stood) authorised the State of  Madras  to  impose a tax on  sales  falling  within  its purview.  Then came the Validation Act in 1956, which lifted the  ban  imposed  by Art. 286(2).  In 1957 new  s.  22  was inserted in the Act with restrospective effect from  January 26, 1950, and old section 22 was repealed.  The new  section reads:               "Section 22.  Sale or purchase deemed to  have               taken place inside the State in certain cases-               (1)   Any sale or purchase which took place on               or  before  the 6th day  of  September,  1955,               shall be deemed to have taken place inside the               State   if  the  goods  have   actually   been               delivered  as a direct result of such sale  or               purchase for the purpose of consumption in the               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, and.               be subject to tax under this Act accordingly.

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             (2)   The provisions of this section shall not               affect  the  liability to tax of any  sale  or               purchase  under  any other provision  of  this               Act." The argument of the learned Attorney-General is that (1)[1958] S.C.R. 1422. 617 the now section which operates retrospectively from  January 26,  1950, talks of sales in which the goods  are  delivered for  consumption in the State of Madras; in other words,  of Explanation sales only; therefore, the Act does not  operate on  sales of an interState character other than  Explanation sales.  We are unable to agree.  First of all, sub-s. (2) of new  s.  22 makes it quite clear that the section  does  not affect  the liability to tax of any sale or  purchase  under any other provision of the Act.  Secondly, after  Parliament had   lifted  the  ban  imposed  by  Art.  286(2),  it   was unnecessary to repeat the provisions of that Article in  the Act  and  old  s. 22 in so far as it  repeated  Art.  286(2) became  otiose.  Therefore, new s. 22 has not the effect  of subtracting something from the power to tax conferred on the State  by  the  charging  section,  s.  3,  read  with   the definition  of  ’sale’ in s. 2(h).  To repeat what  we  have said  earlier: after the removal of the fetter of  Art.  286 (2),   the  Act  operating  on  its  own  terms  makes   the transactions in question liable to tax, and new s. 22  makes no difference to that position. For  these reasons, we are unable to accept as  correct  the arguments advanced on behalf of the assessee.  In our  view, the  Validation  Act  applies  and  the  assessment  on  the transactions  in  question cannot now be challenged  on  the ground  alleged  by the assessee.  The appeal fails  and  is dismissed with costs. Appeal dismissed. 78 618