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PETITIONER: THE BENGAL IMMUNITY COMPANY LIMITED

       Vs.

RESPONDENT: THE STATE OF BIHAR AND OTHERS.

DATE OF JUDGMENT: 04/12/1954

BENCH:

ACT: Constitution  of India-Arts. 141, 226, 286(1), (2) and  (3)- Art.  286(1)(a) read with the  Explanation-Construction  of- Whether  controlled  by  Art.  286(2)-Situs  of  a  sale  or purchase determined by general law or created by fiction  in the  Explanation-Whether  relevant for  ascertaining  inter- State  character of such sale or purchase Appellant  company registered in Calcutta-Bihar Sales Tax Act, 1947 (Bihar  Act XIX of 1947)-S. 13-Whether appellant company liable to Sales Tax-Where goods delivered in the State of Bihar as a  direct result  of sale for purposes of consumption there-Art.  226- Petition thereunder-Maintainability of-Supreme Court whether competent to modify or review its prior decisions-Art.  141- Meaning of-Bihar Sales Tax Act, 1947, s. 33-Taxing sales  or purchases  taking place in the course of inter-State  trade- Vilidity of-Act whether wholly ultra vires and void.

HEADNOTE: The  appellant  company,  having its  registered  office  in Calcutta  and its factory and laboratory in the District  of 24-Parganas  in  West  Bengal, carried on  the  business  of manufacturing   and  selling  sera,   vaccines,   biological products and medicines.  It was registered as a dealer under the  Bengal  Finance (Sales Tax) Act:  Its  products  having extensive sales throughout India and abroad were  despatched from  Calcutta  against  orders accepted  by  the  appellant company  in Calcutta.  It had no agent or manager  in  Bihar nor any office or laboratory in that State.  A notice  under s. 13(5) of the Bihar Sales Tax Act, 194,7 was issued by the Bihar  Sales  Tax  authorities calling  upon  the  appellant company  to  apply for registration and  to  submit  returns showing its turn over for a period between the 26th of Janu- ary,  1950 and 30th September 1951.  The  appellant  company denied  its liability on the grounds inter alia that it  was not  resident in Bihar, it carried on no business there  and none of its sales took place in Bihar.  It characterized the notice  ’  under  s. 13(5) as ultra vires  and  illegal  and called  upon the Sales Tax authorities to cancel it  forth-, with.   The Bihar Sales Tax authorities maintained that  all sales in West Bengal or in any other State under which goods had been delivered in the State of Bihar as a direct. result of  the sale for the purposes of consumption in  that  State were  liable to Bihar Sales Tax.  Ultimately  the  appellant company presented before the High Court ,at Patna a petition under  Art.  226 of the Constitution  claiming  the  reliefs mentioned  above.   The High Court dismissed  the.  petition holding  that  it was not maintainable.  On appeal  under  a certificate 77

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604 under Art. 132(1) of the Constitution:- Held, (per curiam) (i) that the High Court was not right  in holding  that the petition under Art. 226 was  misconceived. In  so holding the High Court overlooked the fact  that  the petitioners’  contention was that the Act, in so far  as  it purported  to tax a non-resident in respect  of  inter-State sales   or   purchases  of  goods  was   ultra   vires   the Constitution.   There  are  various provisions  in  the  Act laying  down certain conditions, which dealers  must  comply with  or  submit to.  They constituted restrictions  on  the fundamental  right guaranteed to every citizen of  India  by Art.   19(1)(g)  of  the  Constitution  and  these   onerous conditions could not be justified as reasonable restrictions within the meaning of clause (6) of Art. 19 and further  the remedy  under the Act cannot be said to be adequate and  was indeed  useless  if the Act providing for  such  remedy  was itself ultra vires and void: (ii)that there is nothing in the Constitution which prevents the Supreme Court from departing from a previous decision of its  own  if  the court is satisfied of its  error  and  its baneful effect on the general interests of the public. Held, per S. R. DAS, ACTING C. J., VIVIAN BOSE, BHAGWATI and JAFER  IMAM JJ. (JAGANNADHADAS, VENKATARAMA AYYAR and B.  P. SINHA  JJ., dissenting) that the present is a fib  case  for reviewing  the  previous majority decision  of  the  Supreme Court  in The State of Bombay v. The United  Motors  (India) Ltd. ([1953] S.C.R. 1069), in view of several  circumstances relating to the case. Held, per S. R. DAS, ACTING 0. J., VIVIAN BOSE, BHAGWATI and JAFER.  IMAM JJ. (JAGANNADHADAS, VENKATARAMA AYYAR and  B.P. SINHA  JJ.,  dissenting).  The operative provisions  of  the several  parts  of Art. 286, namely  clause  (1)(a),  clause (1)(b), clause (2) and clause (3) are intended to deal  with different  topics and, one cannot be projected or read  into another  and  therefore the Explanation in  clause  (1)  (a) cannot  be legitimately extended to clause (2) either as  an exception  or as a proviso thereto or read as curtailing  or limiting the ambit of clause (2). The  sales or purchases made by the appellant company  which were sought to be taxed by the State of Bihar actually  took place  in  the  course of  inter-State  trade  or  commerce. Parliament  not having by law otherwise provided,  no  State law could, therefore, tax these sales or purchases, that  is to say, Bihar could not tax by reason of clause (2) although they fell within the Explanation and other States could  not tax  by reason of both clause (1)(a) read with the  Explana- tion and clause (2). What  is an inter-State sale or purchase continues to be  so irrespective  of the State where the sale is to  be  located either  under the general law when it is finally  determined what  the  general law is or by the fiction created  by  the Explanation.   The  situs of a sale or  purchase  is  wholly irrelevant as regards its inter-State character. 605 Until  Parliament  by  law made in exercise  of  the  powers vested  in it by clause (2) of Art. 286 provides  otherwise, no  State can impose or authorise the imposition of any  tax on sales or purchases of goods when such sales or  purchases take  place in the course of inter-State trade  or  commerce and  the  majority decision in The State of  Bombay  v.  The United Motors (India)Ltd.. ([1953] S.C.R. 1069) in so far as it  decides  to  the contrary cannot  be  accepted  as  well founded on principle or authority.      In  view of the above interpretation upon Art. 286  the

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charging section of the Bihar Sales Tax Act, 1947 read  with the  relevant definitions cannot operate to tax  inter-State sales  or  purchases  and as Parliament  has  not  otherwise provided, the Act, in so far as it purports to tax sales  or purchases that take place in the course of interState  trade or commerce, is unconstitutional, illegal and void. The  Act imposes tax on subjects divisible in  their  nature but  does not exclude in express terms subjects exempted  by the  Constitution.  In such a situation the Act need not  be declared  wholly ultra vires and void for it is feasible  to separate  taxes  levied on authorised  subjects  from  those levied on exempted subjects and to exclude the latter in the assessment of the tax. Held  (per JAGANNADHADAS, VENKATARAMA AYYAR and B. P.  SINHA JJ.).  The  scheme of Art. 286(1)(a) is, that it  fixes  the situs  of the sales with a view to avoid  multiple  taxation and  for that purpose it divides them into  two  categories- inside  sales  and  outside sales and enacts  that  a  State cannot  tax an outside sale.  When in the same  context  the Explanation  declares  that a sale in the course  of  inter- State trade must be deemed to have taken place in the  State in  which  the  goods are  delivered  for  consumption,  its purpose  is clearly to take it out of inter-State trade  and stamp it with the character of an intrastate sale. Whether regard is had to the object of the enactment or  its language,  the  Explanation must be held  to  authorise  the imposition of tax by the delivery State. Article 286(2) applies to sales in the course of inter-State trade.   The  sales which fall within  the  Explanation  are intrastate   sales.   The  grounds  covered  by   this   two provisions  are distinct and separate.  Each  has  operation within  its  own sphere, and there is  no  conflict  between them. According  to the view expressed by Bose J. in The State  of Bombay  v.  The United Motors (India)  Ltd.  ([1953]  S.C.R. 1069)  and  by  Das  J. in  State  of  Travancore-Cochin  v. Shanmugha  Vilas  Cashew  Nut  Factory  ([1954]  S.C.R.  53) Article  286(2)  controls the Explanation.  This  cannot  be sustained on the language of the enactment.  The Explanation is not expressed to be subject to Art. 286(2).  Nor does the latter contain the words "notwithstanding anything contained in the Explanation to Art. 286(1)(a)".  These are simple and familiar expressions used by the legislature when it intends that a particular provision in the Statute should be subject to or override 606 another.   Nor  is  there anything in the  language  of  the explanation  providing  that its operation is not to  be  in praesenti but contingent on Parliamentary legislation  under Art.  286(2).   To  construe,  therefore,  Art.  286(2)   as controlling  the  Explanation,  one  must  import   into-the Statute  words which are not there and thereby cut down  the operation of the Explanation which on its terms is of  equal authority and potency with Art. 286(2).  The impugned Act in so far as it authorises the  imposition of  tax  on  sales falling within the  Explanation  to  Art. 286(1)(a)  is  neither ultra vires the powers of  the  State Legislature  nor  bad  on  the  ground  that  it  is  extra- territorial in its operation. Per  JAGANNADHADAS  J. The only reasonable  construction  of Art.  286(1)(a)  taken  with the Explanation  is  that  this provision  while intended to prohibit taxation by States  on outside  sales  was  also meant to  demarcate  the  boundary between inside sales and out., side sales and to  assimilate one  particular category of outside sales into the field  of

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inside  sales and to make it available for taxation  by  the consuming State.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 159 of 1953. Appeal  under  Article 132(1) of the Constitution  of  India from  the Judgment and Order dated the 4th December 1952  of the  High  Court of Judicature at Patna in  Misc.   Judicial Case No. 241 of 1952: N.   C. Chatterji (V.  S. Sawhney, S. N. Mukerji and B.   B. Biswas, with him) for the appellant company.  The High Court was wrong in holding that there was no warrant for issuing a writ  under article 226 of the Constitution on the facts  of the  case.   Although no actual assessment was made  by  the Sales   Tax  authorities  the  issue  of  notice   by   them constituted  a  sufficient threat which the High  Court  had jurisdiction  to quash by means of a writ under article  226 of  the  Constitution: see Himmatlal Harilal  Mehta  v.  The State of Madhya Pradesh ([1954] S.C.R. 1122), The State  ’of Bombay  v.  The United Motors (India)  Ltd.  ([1953]  S.C.R. 1069),   Mohammad  Yasin  v.  The  Town  Area   ’Committee., Jalalabad  ([1952] S.C.R. 572), The King  v.  -Commissioners for  the General Purposes of the Income-Tax  for  Kensington ([1914] 3 K.B. 429), General Commissioners for the  purposes of Income Tax.for Kensington v. Aramayo ([1916] 1 A.C. 215), Madan Gapal Kabra v. The Union of India ([1951] I.T.R. 214), Sales 607 Tax  Officer,  Pilibhit v. Messrs Budh Prakash  Jai  Prakash ([1955]  1  S.C.R. 423), Commissioner of Police,  Bombay  v. Gordhandas  Bhanji  ([1952] S. C. R. 135).   Article  286(2) which  is  in  Part  XII of the  Constitution  is  meant  to implement the supremacy of Parliament with regard to  inter- State  trade or commerce.  That Article puts an  embargo  on the  power  of the State Legislature to levy  any  tax  with respect  to  interState trade or commerce.   Only  when  the embargo  is lifted by appropriate Parliamentary  Legislation that  the  State Legislature can levy any tax  on  sales  or purchases  in the course of inter-State trade  or  commerce. Article 286 puts a fetter on the State Legislatures and  the Explanation to article 286(1) (a) does not confer any  power on  any State Legislature to levy any tax.  The  Explanation is meant to explain only clause (1) (a) of article 286, that is, what is an outside sale or purchase.  It does not remove fetter  and  it  does not convert any  inter-State  sale  or purchase  into an intrastate transaction.  See the  judgment of  Bose  J.  in The State of Bombay v.  The  United  Motors (India) Ltd. ([1953] S.C.R. 1069) and that of Das J. in  The State  of  Travancore-Cochin v. Shanmugha Vilas  Cashew  Nut Factory  ([1954]  S.C.]V.  53).   The  construction  of  the Explanation  by the learned Judges of the High Court is  not correct.  They were wrong in assuming that if article 286(2) is  construed in a full and unqualified sense, the  Explana- tion to article 286 (1) (a) would become nugatory and of  no effect.   They  also erred in holding that  the  Explanation expressly   confers   legislative  power,   and   that   the Explanation is in the nature of an exception which  excludes a  particular  class from a larger class.   The  High  Court erred  in holding that the Explanation created a  nexus  for conferring  jurisdiction on the State Legislature.  Test  of territorial  nexus is no longer applicable after the  coming into force of the Constitution.  See The State of Bombay  v. The United Motors (India) Ltd. ([1953] -S.C.R. 1069).

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On  a proper reading of all the sections of the Bihar  Sales Tax  Act, 1947 the idea seems to be that the  intention  was only to tax the dealers within the 608 State  of Bihar, as some of the provisions of the Act  would be incapable of enforcement outside the State.  Consequently the appellant which has no office or agent   within      the State could not be taxed.  See ss. 1, 2(c),  2(g),  4,   10, 14-A,   17,  26(a)  (c)  (b)  &  (k),  of  the  Act.   Bihar Legislature  has no power to authorise imposition of tax  on outside  dealers.   The legislative competence  of  a  State Legislature is derived from Article 246 read with the Lists. Under  article  245(2) Parliament is given  power  to  enact legislation  with  respect to  extra-territorial  operation. State Legislature has no such power.  The combined effect of article  246(3)  read with item 54 of List 11  is  that  the State Legislature is competent only to make law imposing tax on  sale or purchase of goods for the whole or any  part  of that State.  Under article 245 of the Constitution power  is limited  within  the boundary of the State.   Taxable  event must  happen in that State.  See Swifte v.  Attorney-General for  Ireland ([1912] A.C. 276), Commercial Cable Company  v. Attorney-General  for  Newfoundland ([1912] A. C.  820)  and MacLeod v.     Attorney-General for New South Wales  ([1891] A.C. 455).  High Court failed to appreciate the true  effect of  the  judgment  in  Wallace Brother  sand  Co.,  Ltd.  v. Commissioner of Income-Tax, Bombay City and Bombay  Suburban District ([1948] 75 I.A. 87).  The Australian case cited  by the  High Court viz.) O. Gilpin Limited v. Commissioner  for Road  Transport  and Tramways (New South Wales)  ([1935]  52 C.L.R.   189)  has  been  overruled  in  Hugher  and   Vales Proprietary, Ltd. v. State of-New South Wales ([1954] 3 All. E.R. 607). M.   C. Setalvad, Attorney-General of India (B.  Sen and  P. K.   Bose,  with  him),  for  the  State  of   West   Bengal (Intervener).  Bihar Sales Tax Act has to be read as a whole and on a correct reading of the Act it clearly appears  that the Act is intended to apply only to dealers in Bihar. Bihar cannot tax the sale because it takes place in the course  of inter-State  trade or commerce and the State is barred  from taxing  such sales by reason of clause (2) of  article  286. The  question  is whether the majority view in the  case  of State                             609 of Bombay v. United Motors (India) Ltd. ([1953] S.C.R. 1069) is correct.  Article 245 read with Entry 54 in List 11 gives the   Legislative   power  whereas   article   286   imposes restrictions  on such Legislative power of a  State.   There are  four restrictions placed by that article- the first  by clause  (1) (a), the second by clause (1)(b), the  third  by clause (2.) and the fourth by clause (3).  Basis of  article 286(2)  is  to  ensure freedom of  movement  throughout  the country  which  principle  is to be found  in  article  301. Article  286(2) gives authority to the Parliament  to  watch over  the principles underlying article 301 and to see  what restrictions  are  necessary.  In determining the  ambit  of clause  (2) it is not permissible to apply the  Explanation. If you do so then logically you must also apply it to clause If  the  majority  decision in state  of  Bombay  v.  United Motorola  (India) Ltd ([1953] S.C.R 1069 ) id right  on  the interpretation  of clause(2) then that clause (2) then  that clause becomes absolutely meaningless. The  Supreme Court can overrule its previous decision if  it is satisfied that the decision was erroneous: London  Street Tramways  Company  v. London County Council  ([1898]  A.  C.

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375),   In   re   Transferred   Civil   Servants   (Ireland) Compensation  ([1929] A.C. 242), The Tramways case  (No.  1) (18 C. L. R. 54), Smith v.    All  wright (321 U.S. 649;  88 L. Ed. 987) and Vinayak v.    Moreshwar (I.L.R. [1944]  Nag. 342). Even if the ban imposed by clause (2) of article 286 did not apply, Bihar is not competent to tax on a reading of article 246(3),  Entry 54, List II and article 289(1)(a).  The  word sale  in Entry 54 means passing of property in the sense  of the Sale of Goods Act, S. 4. See Sales Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash ([1955] 1 S.C.R. p. 243). On a true construction of the Explanation to article  286(1) (a)  Bihar  is competent to levy a purchase tax  and  not  a sales tax in respect of transactions entered into by dealers residing outside.  The Explanation cannot be read as  extra- territorial.   It  must be read as consistent  with  article 245.  Although the Federal 610 Legislature   had.   extra-territorial   power   under   the Government of India Act, 1935 the Provincial Legislature did not  have  such power.  The position is the same  under  the Constitution:  The,  Governor-General  in  Council  v.   The Raleigh  Investment Co., Ltd. ([1944] F.C,R. 229) and In  re S.  Mohan  Kumaramangalam (A.I.R. 1951 Mad. 583).   So  far, nexus  theory  has been applied to  extra-territoriality  as between  two  independent States.  Decision of  the  Supreme Court  in Poppatlal Shah’s case is applicable  to  component parts  of  the same State; Poppatlal Shah v.  The  State  of Madras (1953] S.C.R. 677), The State of Bombay v. The United Motors  (India)  Ltd.  ([1953] S.C.R. 1069,  1078)  and  The Governor-General  in Council v. The Raleigh  Investment  Co. Ltd. ([1944] F.C.R. 229).  It is doubtful if nexus theory is applicable  to this kind of legislation.  In any event  the" nexus  theory  is not applicable under the  Constitution  of India.   If machinery for enforcement of the Act has  extra- territorial  operation  and is linked up with  the  charging section  the  whole  scheme of taxation is bad  due  to  the provisions of article 245.  In any event the machinery is bad. M.C.  Setalvad, Attorney-General of India (Rajeswari  Prasad and  S.  P. Varma,, with him) for Tata Iron  and  Steel  Co. Ltd., (Intervener) supported the appellant. T.N. Subramanya Aiyar (T.  V. R. Tatachari, with him) for M. A.  Kuriakose  (Intervener)  adopted the  arguments  of  the Attorney-General  and  referred  to  V.  O.  Vakkan  v.  The Government of the Province of Madras ([1952] 2 M.L.J.  353), Poppatlal  Shah  v.  State of Madras  (A.I.R.  1953  Mad.91) Tobacco  Manufacturers (India) Ltd., Monghyr.  The State  of Bihar  (A I.R. 1950 Pat.’450), The State of Bihar v.  Bengal Chemical  and  Pharmaceutical Works Ltd. (A.I.R.  1954  Pat. 14),  Maxwell on Interpretation of Statutes, 10th  Edn.,  p. 148 and Craies on Statute Law, 5th Edn,, p. 174.       Lal  Narain Sinha (B.K.P. Sinha and B.C. Prasad,  with him) for the respondent (State of Bihar).                             611 Article  246(3) read with Entry 54 of List II is  by  itself enough to grant legislative competence to the making of laws imposing tax on sales of inter-State character having a real and sufficient territorial connection with the taxing State. Delivery of goods within the State where such delivery takes place  in performance of the contract of sale is  by  itself real  and sufficient territorial connection.   The  position was  the same under section 100 of the Government  of  India Act,  1935 read with Entry 48 of List II.  A legislation  on the basis of a real and sufficient connection is not invalid

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on the ground of extra-territorial operation.  The Governor- General in Council v. The Raleigh Investment Co., Ltd. (1944 F.C.R.  229), Wallace Brothers and Co. Ltd. v.  Commissioner of  Income-Tax,  Bombay City and  Bombay  Suburban  District ([1948]  75  I.A.  86), Broken Hill  South  Limited  (Public Officer)  v. The Commissioner of Taxation (New South  Wales) (56  C.L.R.  337), Commissioners of Taxation v.  Kirk  (1900 A.C.  588)  and In re S. Mohan Kumaramangalam  (A.I.R.  1951 Mad.  583, 588).  So far as conception of sale is  concerned it comprises of several elements.  The situs of the sale  is where  the  various  ingredients of  the  sale  take  place. Article  286(1) (a) does not govern the whole of  interState trade or commerce.  It does not apply to a case where  goods are  delivered  in the purchasing State for  purposes  other than consumption.  Article 286 (1) (a) has no application to cases  where  the Explanation itself does not apply.   If  a Bengal dealer sells to a Bihar purchaser and delivery  takes place  in Bihar and if the purpose is consumption  then  the Explanation applies and Bihar alone can tax.  If the purpose is  not  consumption  the Explanation does  not  apply,  the matter  is set at large, and States will be entitled to  tax on  ’  the nexus theory.  The ban imposed by clause  (2)  of article  286  does  not apply to cases  covered  by  article 286(1) (a).  The class of sales falling under the purview of Article 286(1) (a) form a special class of inter-State sales which  on  general principles of  interpretation  cannot  be affected  by the general provisions of clause (2).   Article 286(1) (a) and article 286(2) are exactly on the same  topic and they 78 612 are  to  achieve  the same  purpose,  i.e.,  elimination  of multiple taxation on a single sale.  The device employed  in article  286(1) (a) read with the Explanation is to  convert inter-State  sale  into an intra-state sale and  thereby  to localise  a sale and to take away the taxing power of  other States.    Article  286(1)  (a)  and  article   286(2)   are complimentary to each other and they have to be  interpreted harmoniously so that each of them can operate within its own field.   Whilst  article  286(2) comprises  all  classes  of inter-State  trade, article 286(1) (a) deals with a  special class.   If  article  286(2) applies  to  cases  covered  by article 286 (1) (a) and the Explanation then it will  result in  discrimination against local trade in favour  of  inter- state  trade  and this will be inconsistent  with  the  pro- visions  of Part XIII of the Constitution.  The  purpose  of article  286  being  to eliminate -  multiple  taxation  and article 286(1) (a) having achieved that purpose in regard to a  class  of  sales  falling within  it,  it  is  no  longer necessary  for that purpose to apply article 286(2)  to  the aforesaid class.  The Constitution itself has divided inter- State sales into two categories.  In regard to one class  it has itself provided as to which State will tax the sale  and under  what  conditions.  In regard to the other  class  the Constitution  itself has imposed a ban in general terms  and granted  Parliament  power in general to relax that  ban  to such extent as Parliament thinks fit.  The sale though of an interState  character has been converted into an  intrastate sale  by reason of the legal fiction.  If power of  taxation is  given  all ancillary powers are included  in  that  very power. V.K.  T. Chari, Advocate-General of Madras  (K.   Veerasami, with him) for the State of Madras (Intervener).  A State  is sovereign within the limits of the subject matter of List II as  well  as  within its geographical  area.   The  test  of

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legislative  competence both as regards the  subject  matter and  the geographical limits is the same whether it  is  the Parliament  or  the State Legislature.  As  to  the  subject matter the rule that applies is that of "pith and substance" and  incidental invasion  of the other Lists  is  permitted. As                             613 to area, the test is the territorial connection or nexus  as the  limiting factor.  The connection must be  relevant  and real  and  if  the connection is real  then  any  impact  on persons,  things,  acts  or events,  outside  the  State  is permissible  and valid.  The word  ’extra-territoriality  is used in the sense of legislation with respect to conduct  of citizens  when they are outside the country. [Reference  was made to Charter Act of 1833, s. 43, Government of India Act, 1915,  s.  65(1) (a), Hodge v. The Queen (9 A.C.  117),  the Commissioner of Stamp Duties (New South Wales) v. Miller and another  (48  C.L.R. 618), The  Australasian  Scale  Company Limited  v.  The  Commissioner of Taxes  (Queens  Land)  (53 C.L.R.  534), Broken Hill South Limited v. The  Commissioner of Taxation (New South Wales) (56 C. L. R. 337) ]. Under the Government  of  India Act, 1935 the requirement  of  levying sales tax was that the goods belonging to the seller must be located within the Province and that those goods should have been  made  the subject matter of a  sale  transaction.   To establish  territorial connection for sale  transaction  the sine qua non is that the goods belonging to the seller  must be located within the Province and that the goods should  be made the subject matter of a sale transaction.  The Explana- tion to article 286 (1) (a) is a deliberate reversal of  the pre-existing position. T.L.  Shevde,  Advocate-General  of Madhya  Pradesh  and  M. Adhikari (I.  N. Shroff, with them) for the State of  Madhya Pradesh (Intervener).  Whereas the legislative power of all, States  under article 246(3) read with Entry 54 List  II  to tax  all outside transactions of sale or purchase  has  been curtailed  or restricted by clause I (a) and also by  clause (2)  of  article  286  the said  legislative  power  of  the delivery State is fully saved by the Explanation of clause I (a)  and  is not subject to the provisions  of  clause  (2). Every delivery State is competent to tax extra-territorially -within  the ambit of - the Explanation and is not  fettered by  clause  (2).  Clause (2) puts a ban on  all  inter-State transactions  except those covered by the Explanation.   The contention  that the Explanation does not come  into  effect until the ban under 614 clause  (2)  is  lifted  by  Parliament  is  incorrect   and untenable   and   moreover  such   a   contention   directly contravenes  the  provisions  of article  394  of  the  Con- stitution.   The operation of the Explanation  excludes  the operation  of  clause (2) and vice versa.  Sales Tax  is  in fact  and substance only a purchase tax paid on one and  the same  transaction.  Intention was to put an end to the  evil of multiple taxation. S.M. Sikri, Advocate-General of Punjab (Jindra Lal and P. G. Gokhale,  with  him) for the state of  Punjab  (Intervener). Article 286(1) (a) like article 286(2) deals with only sales or  purchases which take place during the course  of  inter- State  trade or commerce, i.e., trade or commerce  in  which more  than one State have interest.  The words  ’inter-State trade  or  commerce’ have to be given  the  widest  possible meaning.   The  Explanation has the effect  of  divesting  a transaction of its  inter-State character.  Commonwealth  of Australia v.   Bank  of New South Wales (1950 A.C.  235  and

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Bank of   N.  S.  fV. v. The Commonwealth (76 C. L.  R.  1). Assuming that the Supreme Court has jurisdiction to overrule its  own  decision  there is no reason  for  doing  so.  See Denning on The Changing Law, 1935 Edn., p. 5. Nittoor  Sreenivasa  Rao, Advocate-General  of  Mysore,  (R. Ganapathy Iyer and P. G. Gokhale, with him) for the State of Mysore, K. S. Hajela, Advocate-General of Rajasthan (P.   G. Gokhale,  with  him)  for the State  of  Rajasthan,  Lachman Das.Kaushal, Advocate-General of Pepsu (P.  G. Gokhale, with him)  for the State of Pepsu, K. B. Asthana and C.  P.  Lal, for  the  State  of Uttar Pradesh, P. A.  Mehta  and  P.  G. Gokhale,  for the State of Orissa and T. R.Balakrishnan  and Sardar  Bahadur Saharya, for the State of  Travancore-Cochin (Interveners), supported the respondent.       N. C. Chatterji replied. 1955.  September 6. The judgment of S. R. Das, Acting  Chief Justice, Bose and Jafer Imam JJ. was delivered by S. R.  Das Acting Chief Justice.  Bhagwati, Jagannadhadas,  Venkatarama Ayyar and B. P. Sinha JJ, delivered separate judgments, 615 DAS  ACTG.  C.J.-This appeal, filed under a  certificate  of fitness  granted  by the High Court of  Patna,  is  directed against  the judgment of that High Court pronounced  on  the 4th December 1952 whereby it dismissed the application  made by   the  appellant  company  under  article  226   of   the Constitution  praying  for  ,an appropriate  writ  or  order quashing "the proceedings issued by the opposite parties for the  purpose  of levying and realising a tax  which  is  not lawfully   leviable  on  the  petitioners"  and  for   other ancillary reliefs. The  relevant  facts appearing from the  petition  filed  in support of the appellant company’s aforesaid application are as follows: The appellant company is an incorporated company carrying  on  the  business  of  manufacturing  and  selling various  sera, vaccines, biological Products and  medicines. Its registered head office is at Calcutta and its laboratory and factory are at Baranagar in the district of  24-Perganas in  West  Bengal.  It is registered as a  dealer  under  the Bengal Finance (Sales Tax) Act and its registered number  is S.  L. 683A.  Its products have extensive  sales  throughout the  Union  of India and abroad.  The goods  are  dispatched from  Calcutta  by  rail, steamer  ,or  air  against  orders accepted   by  the  appellant  company  in  Calcutta.    The appellant company has neither any agent or manager in  Bihar nor any office, godown or laboratory in that State.  On  the 24th October 1951 the Assistant Superintendent of Commercial Taxes,  Bihar wrote a letter to the appellant company  which concluded as follows:- "Necessary  action may therefore be taken to get  your  firm registered under the Bihar Sales Tax Act.  Steps may  kindly be  taken  to  deposit Bihar Sales Tax  dues  in  any  Bihar Treasury   at  an  early  date  under  intimation  to   this Department". On  the  18th  December, 1951 a notice  was  issued  by  the Superintendent,  Commercial  Taxes,  Central  Circle  Bihar, Patna  calling upon the appellant company (i) to  apply  for registration   and  (ii)  to  submit  returns  showing   its turnover for the period commencing from the  26th   January, 1950 and ending with the 30th 616 September, 1951.  This notice was issued under section 13(5) of  the  Bihar Sales Tax Act, 1947 (hereinafter  called  the Act)  read with rule 28.  It was drawn up according to  Form No.  8  prescribed by the rules and was  headed  "Notice  of hearing  under section 13(5)".  The reason for issuing  this

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notice,  as recited therein, was that on  information  which had come to his possession the Superintendent was  satisfied that  the  appellant company was liable to pay tax  but  had nevertheless wilfully failed to apply for registration under the  Act.  Thereafter there was some correspondence  between the appellant company and the Bihar Sales Tax authorities to which it is not necessary to refer in detail.  Suffice it to say that while the appellant company denied its liability on the  ground, inter alia, that it was not resident in  Bihar, it  carried  on no business there, none of  its  sales  took place  in  Bihar and that it did not collect any  sales  tax from  any  person  of  that  State,  the  Bihar  Sales   Tax authorities  maintained  that under section  33,  which  was substantially  based on article 286 of the Constitution  and was inserted in the Act by the President’s Adaptation  Order promulgated on the 4th April, 1951, all sales in West Bengal or any other State under which the goods had been  delivered in the State of Bihar as a direct result of the sale for the purpose  of consumption in that State were liable  to  Bihar Sales  Tax.  Eventually on the 29th May, 1952 the  Assistant Superintendent of Sales Tax, Bihar called upon the appellant company to comply with the notice by the 14th June, 1952 and threatened that, in default of compliance, he would  proceed to  take steps for assessment to the best of  his  judgment. The appellant company by its letter dated the 7th June, 1952 characterised the notice under section 13 (5)     as   ultra vires   and   entirely   illegal   and   called   upon   the Superintendent to forthwith rescind and cancel the     same. On  the  10th  June, 1952 the  appellant  company  presented before the High Court at Patna a petition under article  226 claiming   the   reliefs  herein  before   mentioned.    The respondents  did  not  file  any  affidavit  in   opposition controverting any of the alle-                             617 gations  of  facts  made  in  the  petition  and  it   must) accordingly,  be  taken  that those facts  are  admitted  as correct  by the respondents.  The High Court  dismissed  the petition  on  the  4th December, 1952 but on  the  next  day issued   a   certificate,  under  article  132(1)   of   the Constitution, that the case involved a substantial  question of law as to the interpretation of the Constitution.   Hence the present appeal. In  view  of the importance of the issues involved  in  this appeal the States of Madras, Uttar Pradesh) Madhya  Pradesh, West  Bengal,  Orissa, Punjab,  Pepsu,  Mysore,  Travancore- Cochin  and  Rajasthan  applied for.and  obtained  leave  to intervene in this appeal.  Similar leave was applied for  by and was granted to Tata Iron and Steel Company Ltd., and one M.  K.  Kuriakose.  The State of West Bengal,  Tata  Iron  & Steel  Company Ltd., and M. K. Kuriakose have supported  the appellant  company  while the rest of the  interveners  have opposed the appeal. Before  the  High Court the question of  maintainability  of the. petition was raised by the respondents as a preliminary objection  and it was answered in their favour by  the  High Court.   In its judgment the High Court noticed  that  facts bad  not  been  investigated nor had the  liability  of  the appellant company been determined and that in fact no  order of assessment had been made.  It pointed out that it was not a case for the Sales Tax Officer usurping a jurisdiction not vested in him by law or acting in excess of his jurisdiction or acting mala fide.  The High Court took the view that  the Act  undoubtedly  conferred jurisdiction on  the  Sales  Tax Officer to investigate the question of liability of a dealer to  Sales  Tax under the Act and accordingly he  was  acting

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well within his jurisdiction in issuing the impugned notice. If on assessment the Sales Tax Officer erroneously holds the appellant liable to any tax, the Act provides for rectifying that error by appeal or revision under sections 24 and 25 of the  Act.   According  to the High Court  such  a  decision, however erroneous, will, nevertheless, be a decision  within the  ambit  of his jurisdiction and the  High  Court  cannot interfere with it by 618 a  writ  of prohibition or certiorari to  quash.   The  High Court   accordingly   held  that  the   petition   was   not maintainable and was liable to be dismissed. We  are  unable  to agree with  the  above  conclusion.   In reaching  that  conclusion the High Court  appears  to  have overlooked  the  fact  that  the  main  contention  of   the appellant company, as set forth in its petition, is that the Act, in so far as it purports to tax a nonresident dealer in respect  of  an inter-State sale or purchase  of  goods,  is ultra  vires  the Constitution and wholly illegal.   In  the impugned  Act  there  are  various  provisions  laying  down conditions  which  dealers must comply with  or  submit  to, namely,   to   give  only  a   few   instances,   compulsory registration  of  dealers (Section 10),  filing  of  returns (Section  12),  attendance  and production  of  evidence  in support  of the return (Section 13), production,  inspection and  seizure of books of account or documents and search  of premises (Section 17).  Section 26 prescribes penalties  for contravention of the provisions of the Act.  These and other like   provisions   in  the   Act   undoubtedly   constitute restrictions  on the fundamental right to carry on  business which  is  guaranteed to every citizen of India  by  article 19(1)(g) of the Constitution.  If, as contended, the Act  is ultra  vires  the Constitution and consequently  void  these onerous  conditions  can never be  justified  as  reasonable restrictions  within  the  meaning of  clause  (6)  of  that article as this Court held in the case of Mohammad Yasin  v. The  Town  Area Committee Jalalabad(1).  The same  view  was also  expressed in the State of Bombay v. The United  Motors (India)  Ltd.(2),  and  again  only  recently  in  Himmatlal Harilal Mehta v. The State of Madhya. Pradesh(3). It  is  urged that the appellant being a company  is  not  a citizen  and cannot, therefore, claim any fundamental  right under  article 19 which is available only to  citizens  and, therefore,  the  decisions of this Court referred  to  above have no application.  While it is noteworthy that the second case mentioned above (1)  [1952] 3 S.C.R. 572. (2)  [1953] 4 S.G.R. 1069, 1077. (3)  [1951] 5 S.C.R. 1122, 1127.                             619 was  concerned  with  the  rights  of  a  company,  it   is, nevertheless, unnecessary, for the purposes of this  appeal, to  decide  whether a juristic person like a  company  is  a citizen  as  defined in Part II of the Constitution  and  as such  entitled  to the benefits of Article 19.   Nor  is  it necessary to consider whether there has been any  infraction of  the right to equal protection of the laws guaranteed  by article  14 in that being a juristic person it cannot  claim any  of the rights under article 19 which only citizens  can do.  It is also true that article 31 which protects citizens and non-citizens alike cannot be availed of as it deals with deprivation of property otherwise than by way of levying  or collecting  taxes  as  held by this  Court  in  Ramjilal  v. Income-Tax Officer, Mohindargarh(1) and that, therefore, the Act  does not constitute an infringement of the  fundamental

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right to property under that article.  It is, however, clear from  article  265 that no tax can be  levied  or  collected except by authority of law which must mean a good and  valid law.   The contention of the appellant company is  that  the Act which authorises the assessment, levying and  collection of   sales   tax  on  inter-State  trade   contravenes   and constitutes   an  infringement  of  article  286   and   is, therefore,   ultra  vires,  void-and   unenforceable.    If, therefore,  this contention be well founded, the  remedy  by way of a writ must, on principle and authority, be available to the party aggrieved. It  has been argued that the application was premature,  for there has, so far, been no investigation or finding on facts and  no  assessment  under  section  13  of  the  Act.   The appellant company, contending, as it does., that the Act  is ultra vires and void,- should have ignored the notice served on  it and should not have rushed into Court at this  stage. This line of argument appears to us to be utterly untenable. In  the  first place, it ignores the plain  fact  that  this notice, calling upon the appellant company to forthwith  get itself registered as a dealer, and to submit a return and to deposit the tax in a treasury in Bihar, places (1)  (1951] 2 S.C.R. 127. 79 620 upon  it  considerable hardship,  harassment  and  liability which,  if  the  Act is void under  article  265  read  with article 286 constitute, in present , an encroachment on  and an   infringement  of  its  right  which  entitles   it   to immediately appeal to the appropriate Court for redress.  In the next place, as was said by this Court in Commissioner of Police,  Bombay  v. Gordhandas Bhanji(1), when an  order  or notice emanates from the State Government or any of its res- ponsible officers directing a person to do something,  then, although the order or notice may eventually transpire to  be ultra vires and bad in law, it is obviously one which  prima facie  compels  obedience  as  a  matter  of  prudence   and precaution.  It is, therefore, not reasonable to expect  the person  served with such an order or notice to ignore it  on the ground that it is illegal, for he can only do so at  his own  risk  and  peril.   This Court has  said  in  the  last mentioned case that a person placed in such a situation  has the  right  to  be  told  definitely  by  the  proper  legal authority exactly where he stands and what he may or may not do.  Another  plea advanced by the respondent State is that  the appellant  company  is  not  entitled  to  take  proceedings praying for the issue of prerogative writs under article 226 as it has adequate alternative remedy under the impugned Act by  way of appeal or revision.  The answer to this  plea  is short  and simple.  The remedy under the Act cannot be  said to  be adequate and is, indeed, nugatory or useless  if  the Act which provides for such remedy is itself ultra vires and void  and the principle relied upon can, therefore, have  no application where a party comes to Court with an  allegation that  his  right  has  been or is  being  threatened  to  be infringed  by a law which is ultra vires the powers  of  the legislature which enacted it and as such void and prays  for appropriate relief under article 226.  As said by this Court in  Himmatlal Harilal Mehta v. The State of  Madhya  Pradesh (supra)  this-plea  of the, State stands  negatived  by  the decision of this Court in The State of -Bombay v. The United Motors (1)  [1952] 3 S.C.R. 135, 148,149. 621

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(India) Ltd. (supra).  We are, therefore,Of the opinion, for reasons  stated above, that the High Court *as not right  in holding that the petition under article 226 was misconceived or  was  not maintainable.  It will, therefore, have  to  be examined and decided on merits. Coming,  then, to the merits of the petition, the  principal question  is whether the tax threatened to be levied on  the sales  made  by  the appellant company  and  implemented  by delivery  in the circumstances and manner mentioned  in  its petition  is  leviable by the State of  Bihar.   The  legal- capacity  of  the  State  of Bihar to  tax  these  sales  is questioned on the following grounds, namely:- (A)  that the sales sought to be taxed having taken place in the  course of inter-State trade or commerce and  Parliament not  having  by  law  provided  otherwise,  all  States  are debarred  from  imposing  tax on such  sales  by  reason  of article 286(2); (B)  that  even  if  the ban under article  286(2)  did  not apply, the State of Bihar is not competent to impose tax  on such sales on a correct reading of article 246(3) read  with Entry  54  of List II in the Seventh  Schedule  and  article 286(1); (C)  that  the Bihar Sales Tax Act, 1947 can have no  extra- territorial  operation and cannot, therefore, impose tax  on such sales by a non-resident seller- (D)  that on a true construction of the Act itself, it  does not apply to the sales sought to be taxed. Re  (A):  The main controversy in this appeal  has  centered round this ground.  It raises a question of construction  of article  286  of the Constitution.  In  the  judgment  under appeal the High Court took the view that sales or  purchases in  the course of inter-State trade or commerce referred  to in  article 286 (2) must be construed so as to  exclude  the particular  ’Class  of sales or purchases described  in  the Explanation  to  clause  (a) of article 286  (1)  and  that, therefore, the provisions of the Bihar Sales Tax Act , 1947, in  so  far as they purported to impose tax on  such  sales, were  not in conflict with article 286 (2) as so  construed. After  this  decision of the Patna High Court  the  question came up for consideration before a Constitution Bench  of  this Court in The State of Bombay v.  The  United Motors (India) Ltd. (supra). the majority of that Bench held that  article 286(1)(a), read with the  Explanation  thereto and  construed  in  the  light  of  articles  301  and  304, prohibited  the  taxation of sales  or  purchases  involving inter-State elements by all States except the State in which the  goods  were  actually  delivered  for  the  purpose  of consumption  therein and that clause (2) of article 286  did not  affect the power of the State in which delivery of  the goods was so made to tax the sales or purchases of the  kind mentioned  in  the Explanation, the effect of which  was  to convert   such  inter-State  transactions  into   intrastate transactions and to take them out of the operation of clause (2)  of  that  article.   It is quite  clear  that  if  this majority  view  is to prevail this ground urged  by  learned counsel for the appellant company and strongly supported  by the learned Attorney-General appearing for the  interveners, the  State  of West Bengal and Tata Iron and  Steel  Company Ltd., and by learned counsel for M. K. Kuriakose must  fail. It  has, accordingly, been pressed upon us that we  are  not bound  by the majority decision in that appeal  from  Bombay and that it is still open to us to examine and ascertain for ourselves the true meaning, import and scope of the  article in  question.  Learned counsel for some of  the  interveners question  our authority to go behind the majority  decision.

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It is, therefore, necessary at this stage to determine  this preliminary   question  before  entering  upon  a   detailed discussion on the question of construction of article 286. In  England, the Court of Appeal has imposed upon its  power of  review  of earlier precedents a limitation,  subject  to certain exceptions.  The limitation thus accepted is that it is bound to follow its own decisions and those of courts  of Co-ordinate  jurisdiction,  and the "full" Court is  in  the same position in this respect as a division Court consisting of three members.  The only exceptions to this rule are: (1) the  Court is entitled and bound to decide which of the  two conflicting  decisions  of its own it will follow;  (2)  the Court is bound to refuse to follow a decision of 623 its  own which, though not expressly overruled,  cannot,  in its opinion stand with a decision of the House of Lords; and (3) the Court is not bound to follow a decision of its  own, if it is satisfied that the decision was given per incuriam, e.g.,  where  a Statute or a rule  having  statutory  effect which  would have affected the decision was not  brought  to the  attention of the earlier Court. [See Young  v.  Bristol Aeroplane  Co.  Ltd. (1) which, on appeal to  the  House  of Lords, was approved by Viscount Simon in L.R. 1946 A.C.  163 at  p..  169].   A decision of the House  of  Lords  upon  a question  of  law  is  conclusive and  binds  the  House  in subsequent  case.   An erroneous decision of  the  House  of Lords  can be set right only by an Act of  Parliament.  [See Street Tramways v. London County Council(2)].  This  limita- tion  was  repeated by Lord Wright in  Radcliffe  v.  Ribble Motor Services Ltd.(3). The  High Court in Australia, which is the highest Court  in that  Commonwealth, has not adopted such a rigid  rule.   In the  Tramways  case(3)  the  rule  was  thus  laid  down  by Griffith, C.J. at p. 58: "In  my  opinion, it is impossible to maintain  an  abstract proposition  that  Court is either  legally  or  technically bound  by previous decisions.  Indeed, it may, in  a  proper case, be its duty to disregard them.  But the rule should be applied  with great caution, and -- only when. the  previous decision  is  manifestly  wrong, as,  for  instance,  if  it proceeded upon the mistaken assumption of the continuance of a repealed or expired Statute, or is contrary to a  decision of another Court which this Court is bound to follow; not, I think,  upon a mere suggestion that some or all of the  mem- bers  of  the later Court might arrive at a  different  con- clusion  if  the matter was res  integra.   Otherwise  there would  be  grave  danger  of  want  of  continuity  in   the interpretation of law". In  the same case Barton, J. in the concluding paragraph  of his judgment at p. 69 expressed himself thus: "In conclusion, I would say that I never thought (1)  L.R. 1944 X.B 718 C.A. (3)  1939 A.C. 215, 245. (2)  1898 A.C. 375. (4)  [1914] 18 C.L.R,. 54. 624 that  it was not open to this Court to review  its  previous decisions upon good cause.  The question is not whether  the Court  can do so, but whether it will, baying due regard  to the  need  for continuity and consistency  in  the  judicial decision.  Changes in the number of appointed Justices  can, I take it, never of themselves furnish a reason for  review. That  the prior decision was that of little more  than  half their  number might be urged with greater fairness,  but  it cannot be urged against Whybrow’s case which was decided  by

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,the  whole Court then in existence save the Justice who  as President’ of the Arbitration Court, was a party  respondent to  the  order  nisi.  But the Court can  always  listen  to argument  as  to  whether it ought to  review  a  particular decision, and the strongest reason for an overruling is that a  decision  is  manifestly wrong  and  its  continuance  is injurious to the public interest". It  is interesting to note that in that case all the  Judges agreed that the decision in Whybrow’s case was to be treated as open to review (Per Griffith, C. J. at p. 58) although in the end, after reviewing the position afresh in the light of new arguments advanced before it, the Court came to the same conclusion.  Amalgamated  Society of Engineers  v.  Adelaide Steamship  Co.(1)  may also be referred to  as  an  instance where the High Court of Australia departed from its previous decision. In   the  United  States  of  America  there  have  been   a considerable number of cases in which the Supreme Court  has explicitly  and avowedly overruled its prior  decisions  but there  have  been  more instances  in  which  the  doctrines declared  in  prior  cases  have  been  in  part  evaded  or ’modified   without   explicit   repudiation.   (Willoughby- Constitution of the United States, 2nd Edn., Vol. 1, pp. 74- 75).   In State of Washington v. Dawson & Co.(2),  Brandies, J. in his dissenting judgment said: "The  doctrine  Of stare decision should not deter  us  from overruling that case and those which follow it, (1) [1920] 28 C.L.R. 129. (2) 264 U.S. 646; 68 L.Ed. 219.                             625 The   decisions  are  recent  ones.   They  have  not   been acquiesced  in.   They have not created a rule  of  property around  which vested interests have clustered.  They  affect solely  matters of a transitory nature.  On the other  hand, they affect seriously the lives of men, women and  children, and the general welfare.  Stare decisis is ordinarily a wise rule  of  action.   But it is not  a  universal,  inexorable command.  The instances in which the Courts have disregarded its admonition are many". In a foot-note to this judgment the learned Judge set out  a large  number of instances where the earlier  decisions  had been  overruled.   In another dissenting judgment  in  David Burnet  v.  Coronado Oil & Gas Company(1) the  same  learned Judge,  after  quoting a passage from the  judgment  of  Mr. Justice Lurton in Hertz v. Woodman(2) proceeded to say: "Stare  decisis is usually the wise policy, because in  most matters it is more important that the applicable rule of law be  settled  right.  Compare National Bank v.  Whitney,  103 U.S. 99; 26 L.Ed. 443-444.  This is commonly true even where the   error  is  a  matter  of  serious  concern,   provided correction  can  be  bad  by,  legislation.   But  in  cases involving the Federal Constitution, where correction through legislative action is practically impossible, this Court has often  overruled its earlier decisions.  The Court  bows  to the lessons of experience and the force of better  reasoning recognising that the process of trial and error, so fruitful in  the  physical  sciences,  is  appropriate  also  in  the judicial function". In  his separate but concurring judgment in Mark Graves  v.- People of the State of New York(3) Frankfurter, J. observed: "Judicial  exegesis is unavoidable with reference to an  act like  our  Constitution,  drawn  in  many  particulars  with purposed  vagueness  so as to leave room for  the  unfolding future.  But the ultimate touchstone of constitutionality is the Constitution itself and not

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(1)  285 U.S. 393; 76 L.Ed. 815. (2)  218 U.S. 205, 212; 51 L.Ed. 1001, 1005. (3)  306 U.S. 466; 83 L. Ed. 927. 626 what we have said about it". In  this  case  two  previous  -  decisions  were  expressly overruled and two more were impliedly overruled. We  now  come  to  the Privy Council  which,  prior  to  the commencement  of our Constitution, was the highest Court  of Appeal  to hear appeals from the Indian High Courts.   In  a case  about Compensation to Civil Servants(1), in  repelling the contention that the Board was bound in law, and  without examination,  to  follow an earlier  decision  whether  they considered it right or wrong the Marquess of Reading said: "Their  Lordships are unable to hold that  this  proposition stated in such an extreme form is established.  It may  well be said that the Board would hesitate long before disturbing a  solemn  decision  by a previous  Board  which  raised  an identical  or even ,a similar issue  for  determination;’but for the proposition that the Board is, in all circumstances, bound to ’follow a previous decision, as it were, blindfold, they  are  unable to discover any  adequate  authority.   In other  words,  no  inflexible  rule,  which  falls  in   all circumstances to be applied has been laid down". In the Attorney-General of Ontario v. The Canada  Temperance Federation(,)  Viscount  Simon stated the  practice  of  the Board in the following terms: "Their  Lordships  do  not doubt that  in  tendering  humble advice  to  His Majesty, they are not  absolutely  bound  by previous decisions of the Board, as is the House of Lords by its own judgments.  In ecclesiastical appeals, for  instance on  more  than one occasion the Board  has  tendered  advice contrary  to  that given in a previous case,  which  further historical  research has shown to have been wrong.   But  on constitutional  questions it must be seldom indeed that  the Board would depart from a previous decision which it may  be assumed  will have been acted upon both by  Governments  and subjects". Finally,  in  Phanindra Chandra Neogy v. The,  King(3)  Lord Simonds said at p. 88: (1)  L.R. 1929 A.C. 242; A.I.R. 1929 P.C. 84, 87. (2)  [1946] 50 C.W.N 535; A.I.R 1946 P.O. 88. (3)  L.R. 76 I.A. 10; 1939 Dom.  L.R. 87 (P.C).                             627 "Their Lordships then have before them a decision upon facts which  in  no  material respect differ  from  those  of  the present case.  Even so, it is, as they recognise,  competent for them humbly to tender advice to His Majesty inconsistent with  a  previous decision,, though it can only be  in  most exceptional  circumstances.  that such a  course  should  be taken................ Recognising the possibility, they have beard  full argument and, having done so, see no  reason  to doubt  the validity of the reasoning or the  correctness  of the  conclusion  in Gill’s case, and they do  not  think  it necessary to repeat what was said there". In considering the applicability of the principles laid down in  the  decisions here in before mentioned,  it  should  be borne in mind that the English decisions may well have  been influenced  by considerations which can no longer  apply  to the  circumstances prevailing in India.  The error, if  any, of  the Court of Appeal in England, may be corrected by  the House  of  Lords  or eventually by Parliament  by  a  simple majority.   The mistakes, if any, made by the High Court  of Australia, if not corrected by itself in a subsequent  case, could  be set right by the Privy Council when  appeals  were

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taken there or by the appropriate legislative authority.  An error  made by the House of Lords or the Privy  Council  can easily be rectified by Parliament by a simple majority by an amending  statute.  But in a country governed by  a  federal constitution,  such as the United States of America and  the Union  of  India are, it is by no means easy  to  amend  the Constitution  if an erroneous interpretation is put upon  it by  this Court. (See article 368 of our  Constitution).   An erroneous  interpretation  of the  Constitution’  may  quite conceivably  be  perpetuated  or  may  at  any  rate  remain unrectified  for a considerable time to the great  detriment to public well being.  The considerations adverted to in the decisions of the Supreme Court of America quoted above  are, therefore,  apposite and apply in full force in  determining whether  a previous decision of this Court should or  should not  be disregarded or overruled.  There is nothing  in  our Constitution which 80 628 prevents  us from departing from a previous decision  if  we are  convinced  of its error and its baneful effect  on  the general  interests  of the public.  Article 141  which  lays down that the law declared by this Court shall be binding on all  Courts  within the territory of India  quite  obviously refers  to Courts other than this Court.  The  corresponding provision of the Government of India Act, 1935 also makes it clear  that  the  Courts contemplated  are  the  Subordinate Courts. There  are  several circumstances relating to  the  majority decision  of the Court in The State of Bombay v. The  United Motors (India) Ltd. (supra) to which reference must be made. That appeal was heard immediately before the hearing of  the appeal  reported  as  The  State  of  Travancore-Cochin   v. Shanmugha  Vilas Cashew Nut Factory(1) commenced.   The  two appeals were, as a matter of fact, heard one after the other and   judgments  were  reserved  in  both  of   them.    The constitution of the Benches was, however, different.  In the first  appeal  one  of the Judges of  that  Bench  expressly differed  from  the majority decision  and  another  learned Judge  did not accept the majority decision on many  points. In  the second appeal one Judge of the Bench, who was not  a party  to  the  first appeal,  differed  from  the  majority decision  in the first appeal.  The result,  therefore,  was that  the majority decision was definitely differed from  by two  Judges.   Bhagwati J. has now in the  judgment  he  has written  in  the  present  appeal  which  we  have  had  the advantage of reading reconsidered the matter and on  further reflection  he  thinks  that the majority  decision  on  the present issue was erroneous and he now agrees  substantially with the view of article 286(1)(a),read with the Explanation and  article 286(2) which was expressed in the two  minority judgments  referred  to above and which is  adopted  in  the judgment  now  being delivered in the  present  appeal.   If Bhagwati  J. had then expressed the views he is  now  doing, then the majority in the Bombay appeal would have been 3  to 2  and if we add the opinion of the dissenting Judge in the -Travancore-Cochin appeal then judicial opinion would (1)  [1954] 5 S.C.R. 53. 629 have  been  divided  3 to 3. In  this  juxtaposition  it  is difficult to give the majority decision in the Bombay appeal that  amount  of  sanctity and reverence  which  is  usually attributed  to  an  unretracted majority  decision  of  this Court. The  majority decision does not merely determine the  rights

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of  the  two contending parties to the Bombay  appeal.   Its effect  is  far  reaching as it affects the  rights  of  all consuming public.  It authorises the imposition and  levying of   a  tax  by  the  State  on  an  interpretation   of   a constitutional   provision  which  appears  to  us   to   be unsupportable.  To follow that interpretation will result in perpetuating what, with humility we say, is an error and  in perpetuating  a  tax  burden imposed on  the  people  which, according  to  our  considered opinion,  is  manifestly  and wholly  an authorised.  It is not an ordinary  pronouncement declaring  the rights of two private individuals  inter  se. It  involves  an  adjudication on the taxing  power  of  the States  as against the consuming public generally.   If  the decision  is erroneous, as indeed we conceive it to  be,  we owe  it to that public to protect them against  the  illegal tax  burdens which the States are seeking to impose  on  the strength of that erroneous recent decision. The  third  circumstance is that there appears  to  be  some vagueness,  if not inconsistency, in the  majority  judgment itself.   At p. 1084 of the authorised report  the  majority judgment says: "The  expression  ’for the purpose of  consumption  in  that State’  must,  in  our  opinion,  be  understood  as  having reference not merely to the individual importer or purchaser but as contemplating distribution eventually to consumers in general within the State.  Thus all buyers within the  State of  delivery from out-of-State sellers, except those  buying for  re-export out of the State., would be within the  scope of  the Explanation and liable to be taxed by the  State  on their inter-State transactions". This  passage  seems to suggest that it is only  the  buyers falling within the Explanation who are liable to be taxed by what has been called in the discussion 630 before us as the delivery State.  According to this passage, read by itself, the out-of-State sellers are not  considered liable  to  be taxed on the sales.  The whole trend  of  the rest  of  the  majority judgment  and  the  actual  decision therein run counter to this conclusion, for the out-of-State sellers were, by reason of the Explanation, subjected to the taxing  power  of  the delivery  State.   Indeed,  Bihar  is claiming  to tax the appellant company, an  out-of-the-State seller,  by  virtue of the majority decision and  all  other States intervening and supporting Bihar read the judgment in that  way  and none of them accepts the  quoted  passage  as containing  the  actual  ratio  deciding  of  the   majority judgment.   This  confusion, we consider, is also  a  cogent reason for re-examining that decision. Reference  is made to the doctrine of finality  of  judicial decisions  and  it  is pressed upon us that  we  should  not reverse  our  previous  decision except  in  cases  where  a material  provision of law has been overlooked or where  the decision has proceeded upon @the mistaken assumption of  the continuance  of  a repealed or expired statute and  that  we should not differ from a previous decision merely because  a contrary  view appears to us to be preferable.  It is  need- less for us to say that we should not lightly dissent from a previous pronouncement of this Court.  Our ;power of review, which  undoubtedly exists, must be exercised with  due  care and caution and only for advancing the public well being  in the  light  of the surrounding circumstances  of  each  case brought  to  our notice but we do not consider it  right  to confine  our power within rigidly fixed limits as  suggested before us If on a re-examination of the question we come  to the  conclusion,  as  indeed  we  have,  that  the  previous

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majority decision was plainly erroneous then it will be  our duty  to say so and not to perpetuate our mistake even  when one  learned  Judge who was party to the  previous  decision considers it incorrect on further reflection.  We should  do so   all  the  more  readily  as  our  decision  is   on   a constitutional  question  and  our  erroneous  decision  has imposed illegal tax burden on the consuming public and has 631 otherwise  given rise to public inconvenience  or  hardship, for  it  is  by no means easy  to  amend  the  Constitution. Sometimes  frivolous  attempts may be made to  question  our previous decisions but if the reasons on which our decisions are founded are sound they will by themselves be  sufficient safeguard  against  such frivolous attempts.   Further,  the doctrine  of stare decisis has hardly any application to  an isolated and stray decision of the Court very recently  made and  not  followed by a series of decisions  based  thereon. The  problem before us does not involve overruling a  series of decisions but only involves the question as to whether we should  approve  or disapprove, follow or overrule,  a  very recent  previous decision as a precedent.  In any case,  the doctrine  of stare decisis is not an inflexible rule of  law and  cannot  be permitted to perpetuate our  errors  to  the detriment  to  the  general  welfare  of  the  public  or  a considerable section thereof It  is pointed out that all the States are  realising  sales tax  in  respect of sales or purchases of  goods  where  the goods  are actually delivered for consumption  within  their respective boundaries on the faith of our previous  decision and  a reversal of that decision will upset the  economy  of the  States  and will indeed render them  liable  to  refund moneys   already   collected  by  them   as   taxes.    This circumstance,  it is pressed upon us, should alone deter  us from  differing  from  the previous decision.   We  are  not impressed by this argument.  It has not yet been decided  by this  Court that moneys paid under a mutual mistake  of  law induced  by a wrong judicial interpretation of a statute  or the Constitution must necessarily be refundable as money had and  received.  If, as contended, moneys so paid are in  law refundable  the  States  cannot complain  any  more  than  a private  individual  in  similar  circumstances  could   do. Finally, if the State economy is upset the appeal must be to Parliament which under article 286(2) itself has ample power to make suitable legislation. The impugned decision is a recent one.  The judicial opinion was divided, if not evenly balanced.  One of 632 the  four  Judges who formed the majority  has  revised  his opinion  as stated above.  The decision on the  point  noted above seems to be somewhat inconsistent and is, at any rate, not  quite clear.  It has encouraged the imposition  of  tax burdens on the consuming public on an interpretation of  the Constitution  which appears to us to be  plainly  erroneous. It has given rise to considerable inconvenience and hardship to  business  people who have not acquiesced in  it  by  any means.   To rectify the error by the legislative process  is difficult,   for  a  constitutional  amendment  requires   a specified majority which may not always be available and  if it  involves an amendment of the legislative lists  it  will require  the  consent of a requisite number  of  the  States which, in this instance, cannot reasonably be expected.   In the premises, we think that it is precisely a case where, in the  public  interests,  the meaning, scope  and  effect  of article 286 should be re-examined afresh in the light of the fresh arguments now advanced before us and the experience we

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have since acquired.  In our judgment the majority  decision in  The  State of Bombay v. The United Motors  (India)  Ltd. (supra) is, in the circumstances alluded to, open to  review and  we are entitled to re-examine article 286 in  order  to ascertain its true meaning, scope and effect so far as it is necessary for the purposes of this appeal and we proceed on this basis. It  is  a  sound rule of construction of  a  statute  firmly established  in  England as far back as 1584  when  Heydon’s case(1) was decided that- "....................  for the sure and true  interpretation of  all  Statutes in general (be they penal  or  beneficial, restrictive or enlarging of the common law) four things  are to be discerned and considered:- 1st.  What was the common law before the making of the Act., 2nd.  What was the mischief and defect for which the  common law did not provide., 3rd.  What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth., and (1)  3 Co. Rep. 7a; 76 ElR. 637,                             633 4th.  The true reason of the remedy; and then the office  of all the judges is always to make such construction as  shall suppress  the  mischief,  and advance  the  remedy,  and  to suppress  subtle inventions and evasions for continuance  of the mischief, and pro privato commodo, and to add force  and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico". In  In re Mayfair Property Company(1) Lindley, M.R. in  1898 found  the rule "as necessary now as it was when  Lord  Coke reported  Heydon’s case".  In Eastman Photographic  Material Company v. Comptroller General of Patents, Designs and Trade Marks(2) Earl of Halsbury re-affirmed the rule as follows: "My Lords,, it appears to me that to construe the Statute in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which  the former Act had given rise, and to the  later  Act which  provided  the remedy’ These three  being  compared  I cannot doubt the conclusion". It appears to us that this rule is equally applicable to the construction  of article 286 of our Constitution.  In  order to properly interpret the provisions of that article it  is, therefore,  necessary  to  consider  how  the  matter  stood immediately  before the Constitution came into  force,  what the  mischief was for which the old law did not provide  and the  remedy which has been provided by the  Constitution  to cure that mischief. The position with respect to taxation on sales or  purchases of goods that prevailed in the country had better be  stated in  the language  of Patanjali Sastri, C. J.  who  delivered the  majority judgment in the State of Bombay v. The  United Motors  (India)  Ltd. (supra).  After expressing  the  view, based  on the authority of the Walk" Brothers’ Case(3)  that in the case of sales tax, it was not necessary that the sale should take place within the territorial limits of the State in  the sense that all the ingredients of a sale,  like  the agree- (1) L R. [1898] 2 Ch. 28, 35.  (2) L.R [1898] A.C. 671, 576. (3) 1948 F.C.R. 1. 634 ment  to sell, the passing of title, delivery of the  goods, etc.,  should have a territorial connection with  the  State and  that, broadly speaking, local activities of buying  and selling  carried on in the State in relation to local  goods would  be a sufficient basis to sustain the taxing power  of

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the   State,  provided  of  course  that   such   activities ultimately  resulted  in a concluded sale to be  taxed,  the learned Chief Justice proceeded to say:- "In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India  Act, 1935, the Provincial Legislatures enacted Sales Tax laws for their  respective  Provinces,  acting on  the  principle  of territorial  nexus referred to above; that is to  say,  they picked  out  one or more of the ingredients  constituting  a sale and made them the basis of their sales tax legislation. Assam  and  Bengal  made, among  other  things,  the  actual existence  of the goods in the Province at the time  of  the contract  of  sale  the test of taxability.   In  Bihar  the production  or manufacture of the goods in the Province  was made  an  additional  ground.  A net  of  the  widest  range perhaps was laid in the Central Provinces and Berar where it was  sufficient  if the goods were actually "found"  in  the Province at any time after the Contract of Sale or  Purchase in respect thereof was made.  Whether the territorial  nexus put  forward as the basis of the taxing power in  each  case would  be sustained as sufficient was a matter of doubt  not having  been tested in a Court of law.  And such  claims  to taxing   power  led  to  multiple  taxation  of   the   same transaction  by  Provinces  and  cumulation  of  the  burden falling ultimately on the consuming public.  This  situation posed to the Constitution makers the problem of  restricting the taxing power on sales or purchases involving inter-State elements,  and alleviating the tax burden on  the  consumer. At the same time they were evidently anxious to maintain the State  power of imposing non-discriminatory taxes  on  goods imported  from  other States, while upholding  the  economic unity  of India by providing for the freedom of  inter-State trade and commerce. 635 In  their  attempt to harmonise and achieve  these  somewhat conflicting  objectives, they enacted articles 286, 301  and 304". Leaving  out,  for the moment, the question  as  to  whether articles  301  and 304 have any bearing on the  question  of construction  of  article 286, as to which  we  entertain  a contrary opinion, the above passage quite adequately depicts the picture of chaos and confusion that was brought about in inter-State trade or commerce by indiscriminate exercise  of taxing  power  by  the  different  Provincial   Legislatures founded  on  the  theory of territorial  nexus  between  the respective Provinces and the sales or purchases sought to be taxed.   It was to cure this mischief of  multiple  taxation and  to  preserve  the free flow  of  inter-State  trade  or commerce in the Union of India regarded as one economic unit without any provincial barrier that the Constitution  makers adopted  article  286  in the  Constitution  which  runs  as follows-- "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. 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 2under  the  general  law  relating to  sale  of  goods  the property in the goods has by reason of such sale or purchase

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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 81 636 that  any  tax on the sale or purchase of  goods  which  was being  lawfully  levied  by the  Government  of  any  St-ate immediately  before  the commencement of  this  Constitution shall,  notwithstanding that the imposition of such  tax  is contrary  to the 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". Article  286 is in Part XII of the Constitution which  deals with "Finance, Property, Contracts and Suits". it is one  of the  several  articles which are grouped under  the  heading "Miscellaneous  Financial Provisions" in Chapter I  of  that Part.   It is to be noted that it has not found a  place  in Part   XI,  Chapter  I  whereof  deals   with   "Legislative Relations"  including "Distribution of  Legislative  Powers" between  Parliament  and the Legislatures  of  States.   The marginal   note  to  article  286  is  "Restrictions.as   to imposition of tax on the sale or purchase of goods",  which, unlike the marginal notes in Acts of the British Parliament, is  part  of the Constitution as passed by  the  Constituent Assembly, prima facie, furnishes some clue as to the meaning and  purpose of the article.  Apart from the marginal  note, the very language of that article makes it abundantly  clear that its object is to place restrictions on the  legislative power of the States with respect to the imposition of  taxes on  the -sales or purchases of goods.  It will  be  recalled that  section  100(3) of the Government of India  Act,  1935 read  with Entry 48 of List 11, of the Seventh  Schedule  to that  Act gave power to the Provincial Legislatures to  make laws  with  respect  to  "Taxes on  sale  of  goods  and  on advertisements".   Pursuant  to the legislative  power  thus conferred on them the Provincial Legislatures enacted  Sales Tax  Acts for their respective Provinces.  Although in  most of those Acts 637 ’Sale"  was,  first  defined a,%  meaning  transfer  of  the property  in  the goods, so as to make the  passing  of  the property  within the Province the principal basis,  for  the imposition of the tax, yet by means of Explanations to  that definition,  those Acts gave extended meanings to that  word and  thereby  enlarged the scope of  their  operation.   The imposition of tax on the sales or purchases of goods on  the basis  of  a  very slight territorial  connection  or  nexus resulted in what has been graphically described by Patanjali Sastri,  C.J. in the passage quoted above from the  majority judgment in the Bombay appeal.  This imposition of  multiple taxes  on one and the same transaction of sale  or  purchase was certainly calculated to hamper and discourage free  flow of  trade within India regarded as one economic unit.   This undesirable  state  of  affair  is  had  to  be  put  right. Therefore,  while the Constitution makers by article  246(3)

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read with Entry 54 in List 11 of the Seventh Schedule to the Constitution  conferred power on the Legislatures of Part  A and Part B States to make law with respect to "Taxes on  the sale or purchase of goods other than newspapers" they at the same  time by article 286 clamped on that legislative  power several fetters.  Broadly speaking, the fetters thus  placed on the taxing power of the States are that 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  import or  export or (c) except in so far as  Parliament  otherwise provides, in the course of inter-State trade or commerce and lastly  (d) that 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.  It should be noted that these are four separate and independent restrictions placed upon the legislative  compe- tency  of the States to make a law with respect  to  matters enumerated in Entry 54 of List II.  In order 638 to  make  the  ban effective and to leave  no  loophole  the Constitution makers have considered the different aspects of sales  or  purchases  of  goods and  placed  checks  on  the legislative  power of the States at different angles.   Thus in  clause (1) (a) of article 286 the question of the  situs of  a  sale  or purchase engaged their  attention  and  they forged  a  fetter  on the basis of such situs  to  cure  the mischief of multiple taxation by the States on the basis  of the nexus- theory.  In clause (1) (b) they considered  sales or purchases from the point of view of our foreign trade and placed  a ban on the States’ taxing power in order  to  make our  foreign trade free from any interference by the  States by way of a tax impost.  In clause (2) they looked at  sales or  purchases  in their inter-State  character  and  imposed another  ban  in  the interest of the  freedom  of  internal trade.   Finally,  in clause (3)  the  Constitution  makers’ attention  was riveted on the character and quality  of  the goods themselves and they placed a fourth restriction on the States’  power  of imposing. tax on sales  or  purchases  of goods  declared  to  be  essential  for  the  life  of   the community.  These several bans may overlap in some cases but in  their respective scope and operation they  are  separate and independent.  They deal with different phases of a  sale or purchase but, nevertheless, they are distinct and one has nothing  to  do with and is not dependent on  the  other  or others.   The States’ legislative power ,with respect  to  a sale  or purchase may be bit by one or more of  these  bans. Thus,  take  the  case  of  a  sale  of  goods  declared  by Parliament  as  essential by a seller in West  Bengal  to  a purchaser in Bihar in which goods are actually delivered  as a direct result of such sale for consumption in the State of Bihar.  A law made by West Bengal without the assent of  the president taxing this sale will be unconstitutional  because (1)  it will offend article 286(1)(a) as the sale has  taken place outside the territory by virtue of the Explanation  to clause (1)(a), (2) it will also offend article 286(2) as the sale  has taken place in the course of inter-State trade  or commerce. and (3) such law will also be contrary to  article 286(3) as the goods are                             639 essential commodities and the President’s assent to the  law was  not obtained as required by clause (3) of article  286.

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This appears to us to be the general scheme of that article. We   come  now  to  the  particular  bans.    Although   the Legislatures of the States were empowered by article  246(3) read with Entry 54 of List II to make a law with respect  to taxes  on sales or purchases of goods, the  different  State Legislatures,  as already mentioned,  considered  themselves free  to  make a law imposing tax on sales or  purchases  of goods  provided  they bad some territorial nexus  with  such sales  or  purchases,  e.g.,  that  one  or  other  of   the ingredients or events which go to make up a sale or purchase was  found to exist or had happened within their  respective territories.  Whether they were right or wrong in. so acting is  a  question which has not been finally  decided  by  the Courts  but the fact is that they did so.  This resulted  in multiple taxation which manifestly prejudiced the  interests of the ultimate consumers and also hampered the free flow of inter-State  trade or commerce.  So the Constitution  makers had  to cure that mischief.  The first thing that  they  did was  to take away the States’ taxing power with  respect  to sales or purchases which took place outside their respective territories.  This they did by clause (1)(a).  If the matter had been left there, the solution would have been imperfect, for  then  the question as to which sale or  purchase  takes place outside a State would yet have remained open.  So  the Constitution makers had to explain what an outside sale  was and  this  they did by the Explanation set forth  in  clause (1).  The language employed in framing the Explanation, how- ever, has given scope for argument to counsel and  presented considerable  difficulties to the Court in ascertaining  its purpose and intendment.  If the Explanation simply said "For the  purposes of subclause (a), a sale or purchase shall  be deemed  to have taken place outside a State when  the  goods have actually been delivered for the purpose of  consumption in  another  State, notwithstanding the fact,  etc.,  etc.)) then none of the difficulties would have arisen 540 at  all.  But’ why, it is asked did the Constitution  makers seek  to  explain what was an outside sale  or  purchase  by saying  that  a sale or purchase was to be  deemed  to  take place   inside  the  particular  State  mentioned   in   the Explanation?   Was  the purpose of the Explanation  only  to explain what was an outside sale or purchase or was it  also its  purpose to allot or assign a particular class of  sales or purchases of the. kind mentioned therein to a  particular State  so  as to put the question of situs of the  sales  or purchases   of   that  description  beyond   the   pale   of controversy?  These are questions which arise and are raised because   of   the  somewhat  involved   language   of   the Explanation.   Four different views as to the  true  meaning and  effect of the Explanation have been suggested  for  our consideration  and  arguments  have been  advanced  for  and against  the  correctness of each of them.  In the  view  we have taken, it is not necessary for us to express any  final opinion  in the matter.  We propose accordingly to note  the possible  views  and  record  very  briefly  the  criticisms relating to each of those views and the suggested answers to such criticisms. One view which has been called the strict view is this.   In clause (1) (a) the Constitution makers have placed a ban  on the  taxing  power of the States with respect  to  sales  or purchases which take place outside the State.  If the matter had  been left there the ban would have been imperfect,  for the  argument  would  have  still remained  as  to  where  a particular  sale  or purchase took place.  Does  a  sale  or purchase take place at the place where the contract of  sale

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is made, or where the property in the goods passes or  where the  goods are delivered?  These questions are  answered  by the  Explanation.  That Explanation is "for the purposes  of sub-clause  (a)" i.e., for the purpose of  explaining  which sale  or  purchase is to be regarded as having  taken  place outside  a  State.   By saying that  a  particular  sale  or purchase is to be deemed to take place in a particular State the  Explanation only indicates that such sale  or  purchase has taken place outside all other States, The Explanation is neither an 641 Exception nor a Proviso but only explains what is an outside sale-referred  to  in  sub-clause  (a).   This  it  does  by creating  a fiction.  That fiction is only for the  purposes of  sub-clause  (a)  and cannot be  extended  to  any  other purpose.   It should be limited to its avowed  purpose.   To say that this Explanation confers legislative power on  what for  the sake of brevity has been called the delivery  State is  to  use  it  for  a  collateral  purpose  which  is  not permissible.  Further, it is utterly illogical and untenable to  say  that  article  286  which  was  introduced  in  the Constitution to place restrictions on the legislative powers of  the  States, by aside wind,, as it were,  gave  enlarged legislative   powers  to  the  State  of  delivery   by   an explanation  sandwiched  between  two  restrictions.    This construction  runs  counter  to the  entire  scheme  of  the article and the explanation and one may see no justification for  imputing  such  indirect and oblique  purpose  to  this article.  Had the Constitution makers so desired they  could have done so in a more direct and straight-forward way.   To hold that the Explanation has, besides its declared purpose, another   hidden   purpose  of   conferring   or   enlarging legislative power is to build up a fanciful argument  merely on  the  unfelicitous  and involved  language  used  in  the Explanation although it is distinctly not the purpose of the Explanation  and although it does not purport  substantively and  proprio vigore, to confer any legislative power on  any State.  Its only purpose is to explain what an outside  sale is  so  that, by one stroke, as it were, it takes  away  the taxing  power, in respect of sales or purchases of the  kind referred to in the Explanation, of all States other than the State where such sales or purchases are, by the Explanation, to  be  deemed  to  have taken  place.   This  view  of  the Explanation was taken in the dissenting judgment in the case of the State of Travancore-Cochin v. Shanmugha Vilas  Cashew Nut Factory (supra).  The view that the Explanation is  only for the purposes of sub-clause (a) of clause (1) and  cannot be  carried  over  to  clause (2)  was  also  taken  in  the dissenting  judgment  in the State of Bombay v.  The  United Motors (India) Ltd. (supra) at p. 1103. 642 The criticism that has been leveled against this strict view of  the Explanation is that it will not  entirely  eliminate the  claims of the States to tax sales or purchases  on  the basis of the nexus theory.  Suppose, it is said,  Parliament lifts  the  ban placed on inter-State trade or  commerce  by clause  (2), all States will, in that situation,  claim  the right  to  tax  sales  or  purchases  if  any  one  of   the ingredients  or events making up the sale is to be found  to exist  or  to  have happened in that  State.   It  has  been suggested in reply to this criticism that this  apprehension is  not at all well-founded.  When Parliament will lift  the ban imposed by clause (2), the Explanation will continue  to operate,  so  that inter-State sales  or  purchases  falling within  it will still be deemed to have taken place  in  the

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delivery State and, therefore, outside all other States none of which latter States will, by reason of the ban imposed by clause (1) (a), be entitled to tax such sale.  The ban under clause (2) being lifted the delivery ’State will become free to  tax  such sales or purchases in exercise of  the  taxing power  conferred on it by article 246(3) read with Entry  54 in  List II.  Then, it is asked, what will happen  to  those sales or purchases which do not fall within the Explanation? After Parliament lifts the ban under clause (2) which  State will  tax  sales or purchases in which  goods  are  actually delivered in a particular State, not for consumption in that State but, say, for re-export to another State for  consump- tion?  One of the suggested answers was that those sales  or purchases  were not likely to be numerous, for ordinarily  a dealer  would  not actually get the goods  imported  into  a State  only for re-exporting the same to another  State  for consumption  in the last mentioned State but would  find  it more convenient  and economical to arrange for the  delivery of  the  goods  straight to the  last  mentioned  State.   A further  suggestion  was  that it might well  be  that  when Parliament would by law lift the ban of clause (2) it would, by the same law, provide which of the States would tax  such inter-State sales or purchases which were not covered by the Explanation and on what basis.                             643 This suggested answer, in its turn, raises a question as  to the  scope and ambit of the legislative power  conferred  on Parliament by clause (2).  The opening words of clause  (2), namely, "Except in so far as Parliament may by law otherwise provide" clearly indicate that the lifting of the ban may be total  or partial, that is to say, Parliament may  lift  the ban  wholly  and unconditionally or it may lift it  to  such extent  as  it may think fit to do and on such terms  as  it pleases.  It is to be remembered that under Entry 42 of List I Parliament alone may make law with respect to  inter-State trade  or  commerce.   It is, therefore,  conceded  that  in exercise  of  its legislative powers under that  entry  read with article 286(2) Parliament may make a law permitting the States  to  tax  interState sales or  purchases  of  certain commodities only.  It is also not questioned that Parliament may, by way of regulating inter-State trade or commerce, fix a  ceiling rate of tax on sales or purchases of goods  which the  law made by the States under Entry 54 of List  II,  may not  exceed.  Can Parliament also override the  Explanation? If  not,  cannot Parliament at least provide  which  of  the States may tax inter-State sales or purchases of goods which do  not fall within the Explanation?  These are some of  the questions which may arise as and when Parliament will choose to make a law in exercise of the powers conferred on it  and it  will  then be time enough to discuss  and  decide  those questions.  It is not for the Courts to advise Parliament in advance as to the scope of its legislative competency  under clause (2) and, therefore, -we only note those questions and leave them here. The  second  view  as  to the  meaning  and  effect  of  the Explanation  is  that it once for all-fixes the situs  of  a sale  or  purchase  so that one knows when such  a  sale  or purchase  is outside a State and when it is inside a  State. To  put  it  differently, States are told  when  a  sale  or purchase  is inside a particular State and,  therefore,  the States  are also told when a sale or purchase is  outside  a State.   In short the Explanation not only explains what  is an  outside  sale or purchase but also  actually  fixes  the situs of a sale or 82

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644 purchase   in  a  particular  State.   This  view   of   the Explanation was taken in the majority decision in the  State of  Bombay v. The United Motor8 (India) Ltd.  (supra).   The majority   decision   quite  clearly   concedes   that   the Explanation  does  not, by itself,  confer  any  legislative power  on  any  State, not even  the  delivery  State,  with respect to sales or purchases of the kind mentioned  therein but as it fixes the situs of such sales or purchases in  the delivery  State  that  State is left free  to  tax  them  in exercise  of  its legislative powers under article  246  (3) read  with  Entry  54 of List  11.   The  criticism  offered against  this  view  is,  first of all,  that  it  uses  the Explanation for a purpose which is beyond that of sub-clause (a).  This view turns the fiction created expressly for sub- clause (a) into a reality fixing the location of such  sales and purchases for all purposes.  In the next place this view ignores  the  existence  of  clause  (2)  which  imposes   a different  ban  on  the  legislative  power  of  all  States including  the  delivery  State also, so  that  as  long  as Parliament  does  not lift the ban no State,  not  even  the delivery State, may tax sales or purchases which take  place in the course of inter-State trade or commerce, even  though they may fall within the Explanation.  The further objection is  that  this view also does not completely  eliminate  the confusion arising from the nexus theory.  Suppose Parliament lifts  the ban under clause (2), which State will tax  sales or purchases which do not come within the Explanation?   The same  answer was suggested as was done in reply  to  similar objections  to the first view.  That, as we have said,  will call  for  decision  if and when  Parliament  exercises  its legislative powers under clause (2). The  third view, which was adumbrated and discussed  in  the separate  judgment of Bhagwati, J. in the case of The  State of Bombay v. The United Motor8 (India) Ltd. (supra) is  that the Explanation concerns itself  with notionally fixing  the situs  of sales or purchases in the delivery State only  but in  no way affects the taxing power of the State  in  which, under  the  general law relating to the sale of  goods,  the property  in the goods has passed.  The result of this  view is                             645 said  to be that the State in which the sales  or  purchases are  to be deemed to have taken place may tax them  but  the State  in which, under the general law relating to the  sale of goods, the property in the goods has passed may also  tax them  if  and when Parliament lifts the ban of  clause  (2). This  view,  it is said, is open to all  the  criticisms  to which  the second view is subject and in addition to that  a further  objection  has been suggested  against  this  view, namely,  that  it will perpetuate double, if  not  multiple, taxation on one and the same transaction of sale or purchase at least after Parliament lifts the ban. A  fourth  view  has  also been suggested  before  us  as  a possible  view  although  it  was not  put  forward  on  the previous occasion.  It is founded on the non-obstante clause in the Explanation.  It is said that clause (1) (a) and  the Explanation concern themselves with only two States,  namely the title State, i.e., the State in which, under the general law,  title  to the goods passes to the  purchaser  and  the delivery State, i.e., the State in which goods are  actually delivered  as  a direct result of the sale or  purchase  for consumption  in that State.  The purpose of the  Explanation is  said to be to demarcate the taxing power of  only  these two States by taking out the sales or purchases of the  kind

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mentioned therein from the sphere of the taxing power of the title  State and subjecting them to the taxing power of  the delivery  State.  In the juxtaposition of those  two  States clause  (1) (a) read with the Explanation provides that  the title State cannot tax because such sales or purchases  are, by the fiction, made to take place outside its territory and that  the  delivery  State  can tax  because  the  sales  or purchases  in  question are, by the fiction,  made  to  take place inside its territory.  In short, the result of  clause (1)  (a) read with the Explanation, according to this  view, is  that the State which cannot tax such sales or  purchases on the ground that they have taken place outside its  terri- tory  is only that State in which the property in the  goods has  passed.  The criticism is immediately put  forward.that if  clause (1) (a) and the Explanation are limited in  their operation only to the two States men- 646 tioned above then the other States which also claimed to tax on the strength of the nexus theory, e.g the State where the contract  was  made,  or  the State  where  the  goods  were produced or manufactured or were found, will be outside  the ban  and  the  mischief  of  multiple  taxation  which   the Constitution  makers  were out to curb will continue  to  be rampant  and unabated.  This view is also subjected to  some of  the  other criticisms mentioned in connection  with  the other views of the Explanation. As  we  have  already  stated, we do  not  desire,  on  this occasion, to express any opinion on the validity claimed for or  the infirmities imputed to any of these  several  views, for,  in  our  opinion, it is not necessary  to  do  so  for disposing  of this appeal.  Whichever view is taken  of  the explanation  it  should  be  limited  to  the  purpose   the Constitution makers bad in view when they incorporated it in clause  (1).   It is quite obvious that it created  a  legal fiction.  Legal fictions are created only for some  definite purpose.   Here the avowed purpose of the Explanation is  to explain  what an outside sale referred to in sub-clause  (a) is.   The judicial decisions referred to in  the  dissenting judgment  in  The State of  Travancore-Cochin  v.  Shanmugha Vilas  Cashew Nut Factory (supra) at pp. 81 and 82  and  the case  of  East End Dwellings Co. Ltd.  v.  Finsbury  Borough Council(1)  clearly indicate that a legal fiction is  to  be limited  to the purpose for which it was created and  should not  be  extended beyond that legitimate field.   It  should further  be remembered that the dominant, if not  the  sole, purpose  of  article  286 is to place  restrictions  on  the legislative  powers  of  the  States,  subject  to   certain conditions  in some cases and with that end in view  article 286  imposes several bans on the taxing power of the  States in  relation  to sales or purchases  viewed  from  different angles  and according to their different aspects.   In  some cases  the ban is absolute as, for example, with  regard  to outside  sales  covered  by clause (1)  (a)  read  with  the Explanation,  or with regard to imports and exports  covered by clause (1)(b) and in some cases it is con- (1)  L.R. 1952 A.0. 109,132, 647 ditional,  e.g., in the cases of inter-State sales  or  pur- chases under clause (2) which is, in terms, made subject  to the  proviso thereto and also to the power of Parliament  to lift the ban.  Again, in some cases the bans may overlap but nevertheless,  they  are distinct and  independent  of  each other.   The  operative provisions of the several  parts  of article  286, namely, clause (1) (a), clause (1)(b),  clause (2)  and  clause (3) are manifestly intended  to  deal  with

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different  topics and,, therefore., one cannot be  projected or   read   into  another.   On  a   careful   and   anxious consideration  of  the  matter in the  light  of  the  fresh arguments  advanced  and discussion,s held  on  the  present occasion   we  are  definitely  of  the  opinion  that   the Explanation  in  clause  (1)  (a)  cannot  be   legitimately extended  to  clause  (2) either as an  exception  or  as  a proviso thereto or read as curtailing or limiting the  ambit of clause (2).  Indeed, in The State of Bombay v. The United Motors (India) Ltd. (supra) at pp. 1083-1084 and again at p. 1086  the majority judgment also accepted the position  that the  Explanation was not an exception or proviso  either  to clause  (1)  (a)  or  to clause  (2).   If,  therefore,  the Explanation  cannot be read into clause (2) because  of  the express language of the Explanation and also because of  the difference in the subject-matter of the operative provisions of  the two clauses, then it must follow that, except in  so far as Parliament may by law provide otherwise, no State law can  impose or authorise the imposition of any tax on  sales or purchases when such sales or purchases take place in  the course of inter-State trade or commerce and irrespective  of whether such sales or purchases do or do not fall within the Explanation.  It is not necessary, for the purposes of  this appeal,  to  enter upon a discussion as to what  is  exactly meant by inter-State trade or commerce or by the phrase  "in the  course of", for it is common ground that the  sales  or purchases made by the appellant company which are sought  to be  taxed by the State of Bihar actually took place  in  the course  of  inter-State trade or commerce.   Parliament  not having  by  law  otherwise  provided,  no  State  law   can, therefore, tax these sales , or purchases, that is 648 to  say, Bihar cannot tax by reason of clause  (2)  although they  fall within the’ Explanation and other  States  cannot tax  by  reason  of  both  clause  (1)  (a)  read  with  the Explanation and clause (2).  This conclusion leads us now to consider the arguments by which the respondent State and the intervening  States which support the respondent State  seek to get over this position. In  the forefront is placed the argument that  found  favour with the majority of the Bench which decided the case of The State  of Bombay v. The United Motors (India) Ltd.  (supra). That argument is to be found in the majority judgment at pp. 1085-1086.   Shortly put, the majority opinion was that  the operation  of clause (2) stood excluded as a result  of  the legal fiction enacted in the Explanation.  In their view the effect of the Explanation in regard to inter-State  dealings was to invest what, in truth, was an inter-State transaction with  an  intrastate character in relation to the  State  of delivery   and   clause  (2)  could,  therefore,   have   no application.  They recognised that the legal fiction was  to operate  "for the purposes of subclause (a) of  clause  (1)" and that that meant merely that the Explanation was designed to explain the meaning of the expression "outside the State" in clause (1) (a).  They, nevertheless, came to the  conclu- sion  that when once it was determined with the aid  of  the fictional test that a particular sale or purchase had  taken place  within the taxing State, it followed as a  corollary, that the transaction lost its inter-State character and fell outside  the purview of clause (2), not because the  fiction created  by  the  Explanation was used for  the  purpose  of clause (2), but because such sale or purchase became, in the eye  of  the law, a purely local transaction.   In  his  own inimitable language the learned Chief Justice, who wrote and delivered the majority judgment, concluded the discussion on

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this  point by saying that the statutory fiction  completely masked  the  inter-State character of the sale  or  purchase which, as a collateral result of such masking, fell  outside the  scope of clause (2).  In spite of the great respect  we always entertain for the                             649 opinions  of  the then learned Chief Justice and  the  other learned Judges who constituted the majority we are unable to accept the aforesaid arguments or the conclusions as correct for the reasons we now proceed to state. The  situs of an intangible concept like a sale can only  be fixed  nationally  by the application  of  artificial  rules invented  either by Judges as part of the judgemade  law  of the  land, or by some legislative authority.  But as far  as we know, no fixed rule of universal application has yet been definitely and finally evolved for determining this for  all purposes.   There are many conflicting theories: One,  which is  more popular and frequently put forward and is  referred to  and  may, indeed, be urged to have been adopted  by  the Constitution in the non-obstante clause of the  Explanation, favours  the place where the property in the  goods  passes, another which is said to be the American view and which  was adopted  in  G. Govindarajulu Naidu & Co. v.  The  State  of Madras(1)  fixes  upon  the  place  where  the  contract  is concluded,  a  third  which  prevails  in  the   continental countries  of Europe prefers the place where the goods  sold are  actually delivered, a fourth points to the place  where the  essential  ingredients which go to make up a  sale  are most densely grouped.  In this situation if the  Explanation were  not  there  and the ban under clause (2)  were  to  be raised  unconditionally  it would become necessary  for  the Courts  to  reach  a conclusion  and  choose  between  these conflicting  views.  Article 286(1)(a), it should be  noted, does  not say that inside sale may be taxed.  It  only  says that no outside sale shall be taxed.  Now if a State  claims that the sale is inside because part of its ingredients lies within  its  boundaries,  by the same logic it  is  also  an outside  sale  because the remaining parts are  outside  its territories and if it is an outside sale it cannot be  taxed whether  or  not  it can be deemed to  be  inside  for  some particular  purpose.  The prohibition of article 286(1)  (a) is against taxing an outside sale and if the sale is outside even  partially  it  may  well  be  argued  that  no   State legislature can (1)  A.I.R. 1953 Mad. 116. 650 override  the  Constitution by deeming it to  be  an  inside sale.  Therefore, if the last of the aforesaid theories were to be adopted, then either no State would be able to tax, or all having the requisite nexus would be able to do so.   But this  in  our  opinion,  is  the  very  mischief  which  the Constitution  makers  wished  to  avoid  and  that,  as   we understand  the  majority judgment in the Bombay  case,  was their  view also.  So that view can be placed on  one  side. On  any  one of the other views the situs would have  to  be fixed  artificially in one place and then one would have  to apply  the logic of the majority decision and hold  that  as soon  as  the  situs is determined to be  in  one  place  by judicial  fiction,  i.e., a fiction enunciated  by  judicial decision,  the interState character of the transaction  must cease.   The majority hold that this is the result when  the situs  is  placed in only one State,  namely,  the  delivery State, because of the fiction which the Explanation creates. The same result would have to follow logically if the  situs were  to be established by judicial fiction instead of by  a

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constitutional  one.  The reasoning of the majority,  pushed to  its logical conclusion, will inevitably lead us to  hold that   all  inter-State  transactions  must  eventually   be converted  into  intrastate  transactions  and,   therefore, become  amenable  to the taxing power of  the  State  within whose  territories  they  are,  by  the  constitutional   or judicial fiction, to be deemed to take place.  In this  view there will remain no inter-State transaction on which clause (2) may possibly operate.  The argument which leads to  this astounding conclusion has only to be stated to be  rejected. The  truth  is that what is an interState sale  or  purchase continues to be so irrespective of the State where the  sale is  to  be located either under the general law when  it  is finally determined what the general law is,or by the fiction created,  by  the  Explanation.   The situs  of  a  sale  or purchase  is  wholly irrelevant as regards  its  inter-State character.   We  find  no cogent reason in  support  of  the argument  that  a  fiction created  for  certain  definitely expressed  purposes, namely, the purposes of clause (1)  (a) can legitimately be used for the entirely foreign and 651 collateral  purpose of destroying the inter-State  character of the transaction and converting it into an intraState sale or purchase.  Such metamorphosis appears to us to be  beyond the purpose and purview of clause (1)(a) and the Explanation thereto.   When  we apply a fiction all we do is  to  assume that   the  situation  created  by  the  fiction  is   true. Therefore, the same consequences must flow from the  fiction as  would have flown had the facts supposed to be true  been the  actual facts from the start.  Now, even when the  situs of  a  sale or purchase is in fact inside a State,  with  no essential ingredient taking place outside, nevertheless,  if it  takes  place  in  the course  of  inter-State  trade  or commerce,  it  will be hit by clause (2).  If the  sales  or purchases are in the course of inter-State trade or commerce the stream of inter-State trade or commerce will catch up in its  vortex all such sales or purchases which take place  in its course wherever the situs of the sales or purchases  may be.   All  that the Explanation does is to shift  the  situs from  point A in the stream to point X also in  the  stream. It does not lift the sales or purchases out of the stream in those cases where they form part of the stream.  The  shift- ing of the situs of a sale or purchase from its actual situs under  the  general  law  to a  fictional  situs  under  the Explanation  takes  the sale or purchase out of  the  taxing power of all States other than the State where the situs  is fictionally fixed.  That is all that clause (1) (a) and  the Explanation do.  Whether the delivery State will be entitled to  tax  such a sale or purchase will depend  on  the  other provisions  of  the  Constitution.   The  assignment  of   a fictional  situs  to a sale or purchase has  no  bearing  or effect  on the other aspects of the sale or purchase,  e.g., its inter-State character or its export or import  character which are entirely different topics.  This fixing of a situs for a sale or purchase in any particular State either  under the  general law or under the fiction does not conclude  the matter.   It has yet to be ascertained whether that sale  or purchase which by virtue of the Explanation has taken  place in the delivery State was made in the course of  inter-State trade or commerce.  For this 83 652 purpose the Explanation can have no relevancy or application at all. Another argument adumbrated in the majority judgment in  The

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State of Bombay v. The United Motors (India) Ltd. (supra) at p.  1081  and at pp. 1086-1087 and elaborated before  us  is that just as the freedom of trade referred to in article 301 has  been made to give way to the States’ power of  imposing nondiscriminatory  taxes  by  article 304  so  must  article 286(2)  be regarded as subject to the States’ taxing  power, for  the  protection of article 286(2) could not  have  been intended  to  be larger.  This argument was refuted  by  the dissenting judgment in that Bombay case (supra) at pp. 1102- 1103 and p. 1127 and also by the dissenting judgment in  The State  of  Travancore Cochin v. Shanmugha Vilas  Cashew  Nut Factory (supra) at p. 89.  Nothing that we have heard on the present  occasion  induces  us  to  depart  from  the  views expressed on this subject in those dissenting judgments. It is next urged that the Explanation in effect operates  as an  exception  or a proviso to clause (2).  This  view  runs directly counter to the express language of the  Explanation itself.   So  the  argument  is  formulated  in  a  slightly different way.  It is said that clause (2)   contains    the enunciation of the general rule and     the      Explanation embodies  a  particular  or special rule.   According  to  a cardinal rule of construction the particular or special rule must  control or cut down the general rule.  This  view  was adopted  by the High Court in the judgment under appeal  and also found favour   with  one  of the Judges in  the  Bombay case (supra).  It appears to us that this argument overlooks the  basic fact that clause (1) (a) to which is appended the Explanation  and  clause  (2)  deal  with  different  topics altogether.   The Explanation is concerned  with  explaining what  is an outside sale or purchase by fixing  a  fictional situs.   It  cannot be read as a  provision  independent  of clause (1) (a).  It does not, by itself and in terms, confer any  legislative  power on any State.  It is true  that  the Explanation  may apply to fix the Situs Of many  inter-State transactions but that is only for ascertaining, for the                             653 purposes  of clause (1) (a), whether it has taken  place  in side or outside a particular State.  The inter-State  aspect of  the  sales  or purchases is not within  the  purview  of clause  (1) (a) which looks at sales or purchases  from  the point  of view of their location only.  Clause (2),  on  the other  hand,  takes note of the inter-’ State  character  of sales  or  purchases which is an entirely  different  topic. The  two provisions do not relate to the same  subject  and, therefore,  it  is  not possible to hold  that  one  is  the enunciation of a general rule and the other the  enunciation of a particular or special rule on one and the same subject. The  principle  of construction relied upon cannot,  in  our opinion,  be called in aid in construing clause (2) and  the Explanation of clause (1)(a).  If the Explanation cuts  down clause (2), it must also, on a parity of reasoning, cut down clause  (3)  which, as will hereinafter  be  explained  more fully,  could  not  possibly  have  been  intended  by   the Constitution  makers.  It must also cut down clause (1)  (b) dealing  with import and export; but to hold that would  run counter  to the decision in State of  Travancore-Cochin  and others  v. The Bombay Co. Ltd. (1).  In our opinion  to  use the  Explanation to cut down the operation of clause (2)  or clause  (3) will be to use it for a purpose other  than  its legitimate and avowed purpose. The same argument is put in a slightly different way and  in a  more attractive form.  It is said that we  must  construe article 286 as a whole and give meaning to every part of it. Sales  or  purchases which fall within  the  Explanation  to clause  (1) (a) clearly partake of the character  of  inter-

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State transactions.  Therefore, if we construe clause (2) of article 286 literally and strictly then the whole of  clause (1)  (a) and the Explanation will be redundant  and  useless and will have no immediate operation and will remain a  dead letter,  at any rate, until Parliament, in exercise  of  its powers  under  clause (2), lifts the ban.  We  must,  it  is urged, make an attempt to avoid such a result and adopt such a construction as will not only give effect to each part  of the article but also make each part (1)  [1952] 8 S.C li. 1112. 654 applicable  in presenti.  That, it is pointed out, can  well be done if clause (2) is interpreted in a restricted manner. The  argument  runs-give full and immediate  effect  to  the Explanation and then leave clause (2)  to govern or operate on cases which do not fall  within the Explanation.  In effect this argument means that we must treat all transactions of sales or purchases falling within, the  Explanation as outside clause (2).  Shorn of  its  thin veneer  of disguise this argument is nothing more  than  the argument  that  the Explanation, in effect, operates  as  an exception  ,to clause (2) and all the criticisms  applicable to  that  construction will apply mutatis  mutandis  to  the argument  in  the present form.  Apart from that  there  are obvious   fallacies  which  render  the   argument   utterly unacceptable.   We now proceed to deal with these  fallacies seriatim. (i)In  the  first  place,  the  mere  circumstance  that   a provision  in  the  Constitution  will,  on  a  proper  con- struction,  take effect on the happening of a  future  event can,  by itself, be no ground for not giving effect  to  the plain  language  of  that provision.   Take  the  very  next provision in article 286 itself, namely, clause (3).      It has no present application and its usefulness will     ensue only when Parliament by law declares certain goods   to   be essential for the life of the community.  The fact that  the Explanation,  in so far as it relates to inter-State  sales, may  not have an immediate operation until Parliament  lifts the  ban under clause (2) need not unnecessarily oppress  us or lead us to adopt a forced construction only to give the whole of it an immediate and present operation. (ii)In  the  second  place, it is not correct  to  say  that the  Explanation, construed as suggested above, can have  no immediate  operation  at all.  It  certainly  has  immediate operation  to render sales and purchases which  fall  within the  explanation  to be outside sales and  purchases  so  as immediately  to  take away the taxing power  of  all  States other than the delivery State with respect to them.  Further cases  may  arise  in which purchases  or  sales  which  are outside clause (2)  may,  nevertheless, fall within  and  be immediately                             655 governed by the Explanation.  We do not wish to express  any opinion on hypothetical cases but the following illustration will  show that on a given view of the law  the  Explanation would  be called into play despite the fact that clause  (2) was  not attracted.  Take, for instance, a case  where  both the  seller  and the buyer reside and carry on  business  in Gurgaon in the State of Punjab.  Let us say that the  seller has  a  godown  in the State of Delhi where  his  goods  are stored  and  that  the  buyer has  also  a  retail  shop  at Connaught Circus also in the State of Delhi.  The buyer  and the seller enter into a contract at Gurgaon for the sale  of certain  goods and a term of the contract is that the  goods contracted  to be sold will be actually delivered  from  the

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seller’s  godown  to the buyer’s retail shop,  both  in  the State  of  Delhi,  for consumption in the  State  of  Delhi. Pursuant  to this contract made in Gurgaon in the  State  of Punjab,  the  buyer  pays the full price  of  the  goods  at Gurgaon  and  the  seller hands over to the  buyer  also  at Gurgaon  a delivery order addressed to the seller’s  godown- keeper  in Delhi to deliver the goods to the buyer’s  retail shop.  As a direct result of this sale the seller’s  godown- keeper, on the presentation of this delivery order, actually delivers  the goods to the buyer’s retail shop at  Connaught Circus  for consumption in the State of Delhi.  On one  view of  the law, the situs of such a sale would be Gurgaon.   We need not decide that it is, because that type of case is not before  us and there may be other views to consider, but  it is  certainly a possible view.  It is also possible to  hold that  this  is not inter-State trade  or  commerce,  because there  is  no  movement of goods across  a  State  boundary. Again,  we  need not decide that because that  also  may  be controversial.    But   given  these  two   postulates   the transaction  would fall squarely within the Explanation  and yet  it  would not come within clause (2) for  there  is  no movement  of  the goods across the border of any  State  and both  the  seller  and  the buyer are  in  the  same  place. Surely, the Explanation will, in presenti, govern such cases irrespective of whether Parliament has lifted the ban  under clause 656 (2).  If  these postulates are accepted then  by  virtue  of clause (1) (a) read with the Explanation the State of  Delhi alone  will  be entitled to impose a tax on such a  sale  or purchase  and  the State of Punjab will  be  precluded  from doing so by reason of the fictional situs assigned to such a sale  or purchase by the Explanation, although the  contract was  made,  price was paid and  symbolical  or  constructive delivery  of the goods by the handing over of  the  delivery order took place in Gurgaon in the State of Punjab. (iii)It is not correct to say that clause (1) (a) read  with the  Explanation is wholly useless.  It may well  be  argued that there was scope for the operation of clause (1)(a)  and the  Explanation  as and when the  President  exercised  the powers vested in him by the Proviso to clause (2).  It  will be noticed that under that proviso the President’s order was to take effect "notwithstanding that the imposition of  such tax is contrary to the provisions of this clause".  This non obstante clause does not, in terms, supersede clause (1)  at all and, therefore, prima -facie, the President’s order  was subject  to the prohibition of clause (1)(a) read  with  the Explanation.   It is, however, pointed out that the  proviso says  that  any tax which was being lawfully levied  by  the States   immediately   before  the   commencement   of   the Constitution  will  continue  to be levied  until  the  date therein specified.  It is said that before the  Constitution sales tax was levied by the different States on the basis of the  nexus theory irrespective of the situs of the sales  or purchases   and,  therefore,  this  very   proviso   clearly indicates that the intention of the Constitution makers  was that all taxes imposed on the basis of the nexus theory must continue  irrespective of the provisions of the  Explanation which fictionally fixes the situs of the sales or  purchases in  the  delivery State.  The argument is not  without  some force  but  cannot prevail.  It is true that  the  different States  used to levy sales tax on the basis of slight  nexus but  the  legality  of  them had not, at  the  date  of  the Constitution, been tested in a Court of law.  Therefore, the proviso  authorised the President by order to continue  only

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such of them as were 657 being "lawfully" levied and consequently there is no  reason to think that the President’s order was intended to continue all  sales  taxes previously levied  irrespective  of  their legality.   In  the  next  place, there  is  nothing  to  be surprised  at if the President’s order was made  to  operate subject  to the prohibition of clause (1) (a) read with  the Explanation.  Finally, to accede to this argument must  mean that  we must read into the proviso something which  is  not there.   To  give effect to this argument we shall  have  to alter the non obstante clause towards the end of the proviso and substitute the words "of the foregoing clauses" for  the words  "of  this  clause".  However, we need  not  rest  our decision  on this point.  It will certainly operate as  soon as  Parliament,  in exercise of the power vested  in  it  by clause  (2), lifts the ban imposed on the States.  Upon  the lifting of the ban by Parliament those inter-State sales  or purchases which fall within the Explanation will, by  virtue of  it, be deemed to take place within the  deli-very  State and  such  sales  or purchases being, as a  result  of  such fiction,  outside  all  other States none of  them  will  be entitled  to  tax  such sales  or  purchases.   Whether  the delivery  State will be entitled to make a law imposing  tax on  such sales or purchases in exercise of  the  legislative powers vested in it by article 246 (3) read with Entry 54 in List  II or whether Parliament, while lifting the  ban,  may also  by the same law authorise the delivery State to do  so or what is the extent of the authority vested in  Parliament by the opening words of clause (2) are questions which  will arise for consideration only after the ban under clause  (2) is lifted and we need not in advance express any opinion  on a future problem. (iv) If  we  accept the argument that we are  to  give  full effect  to  clause (1) (a) and the Explanation  and  let  it operate  immediately on all transactions which  come  within their terms and leave clause (2) to govern only those  cases which  are outside clause (1) (a) read with the  Explanation then, on a parity of reasoning, we shall have to give effect to  clause (1) (a) and the Explanation and leave clause  (1) (b) and ’also clause (3) to govern only those cases which do not 658 fall  within  clause (1)(a) read with  the  Explanation.  To illustrate this point, take clause (3). Suppose under clause (3) Parliament by law declares certain goods, say wheat,  to be  essential for the life of the community.  Suppose  there is  a sale of such essential goods by a seller in the  State of  Delhi  to a buyer in Gurgaon in the State of  Punjab  in which  as  a  direct  result of such  sale  the  ’goods  are delivered  in  Gurgaon  in Punjab for  consumption  in  that State.   According  to  the argument we have  to  give  full effect  first  to  clause (1) (a) and  the  Explanation  and accordingly  we  must hold that the  transaction  is  wholly covered  by the Explanation and, therefore, Punjab  will  be entitled  to  tax it and clause (3) must be left  to  govern only   cases  other  than  those  which  fall   within   the Explanation.  If the argument were sound it must follow that the  State of Punjab will be perfectly justified  in  saying that for the purpose of making a law imposing a tax on  such sales  or  purchases its law need not be  reserved  for  the assent  of the President at all.  It may well say  that  the restrictive  requirements  of  reserving the  bill  for  the President’s  assent and of obtaining such assent before  the law may take effect apply only to a law which imposes tax on

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sales  or purchases which are outside the  Explanation.   In other words, the State of Punjab, in our illustration,  will be entitled to say that clause (3) governs only those  cases of  sales or purchases of essential goods which do not  come within the description mentioned in the Explanation, namely, for  instance,  only those sales or purchases in  which  es- sential  goods are delivered in a State not for  consumption in that State but for re-export to another State.  This will rob  clause (3) of practically the best part of its  content and,  therefore,  of  its usefulness  and  defeat  the  very purpose   the   Constitution   makers   obviously   had   of safeguarding sales or purchases of essential commodities  by imposing  the restriction requiring the reservation  of  the bill  for the President’s assent and the obtaining  of  such assent.   When a famine is raging in say Punjab,  and  sales and  purchases  are  made  of wheat  which  is  declared  as essential                             659 to the life of the community and as a direct result of  such sale wheat is delivered in the Punjab for consumption  there the  State  of  Punjab  may,  according  to  the   reasoning underlying the argument, put up the price of these essential goods by imposing a sales tax by making a law to that effect and  ignoring the safeguards prescribed by clause  (3).   An argument  which leads us to a result so utterly  absurd  and untenable in reason cannot for a moment be countenanced. No less than five reasons have been suggested in support  of the argument that a restricted construction should be placed on clause (2) of article 286.  It will be convenient to deal with them at this stage one by one. (a)  In the first place, it is urged that clause (2)  should be construed in a restricted way because the class of  sales falling  within article 286(1) (a) forms a special class  of inter-State sales and they cannot be affected by the general provisions   of  article  286(2).   This  argument   totally overlooks the real scheme of article 286.  It fails to  note that  by this article the Constitution makers were  imposing restrictions on the taxing power of the States with  respect to sales or purchases in their different aspects viewed from entirely  different angles which we have heretofore  already explained.   The subject-matters of the different  parts  of article  286 are, therefore, different and distinct and  the principle  of interpretation, namely, the special  provision cutting  down  the  general  provision  cannot  be  properly invoked. (b)The second reason urged is that if article  286(2)applies to  the class of sales or purchases falling  within  article 286(1)(a)  then  it will result  in  discrimination  against local trade and in favour of interState trade and this  will be  inconsistent  with the provisions of Part  XIII  of  the Constitution.   It  is said that when a Bihar  dealer  sells certain goods to a Bihar purchaser the former is obliged  to pay sales tax which he passes on to the Bihar purchaser  but when the Bihar purchaser directly imports into Bihar similar goods from say a West Bengal dealer for consump- 84 660 tion in Bihar that transaction will not the liable to  Bihar Sales  Tax as it will be an inter-State transaction.   This, it  is said, will prejudice the Bihar seller for  all  Bihar purchasers will then be driven to purchasing goods from out- of-State sellers and local producers will suffer a set back. The argument is that as a literal construction of clause (2) will result in such discrimination against local trade,  the cardinal rule of interpretation, namely, reading the written

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provision  literally and giving to the words their  ordinary natural  meaning  should  give  way  to  a  restricted  con- struction.   This argument overlooks several  basic  things. If there is any real hardship of the kind referred to, there is Parliament which is expressly invested with the power  of lifting  the  ban under clause (2) either wholly or  to  the extent it thinks fit to do.  Why should the Court be  called upon  to  discard the cardinal rule  of  interpretation  for mitigating  a  hardship,  which after all  may  be  entirely fanciful,   when  the  Constitution  itself  has   expressly provided  for another authority more competent  to  evaluate the correct position to do the needful?  This argument  also fails  to take into account the benefit which the  consuming public derives from the free flow of goods from one State to another  resulting in lower prices.  Further,  the  argument overlooks  the fact that the so-called hardship, if any,  is brought   about,  not  really  by  reason  of  the   liberal construction  of  clause (2) but by reason of the  State  of Bihar  imposing  a sales tax on an  intrastate  transaction. The  State of Bihar is not obliged to levy a sales tax on  - sales  or  purchases of goods in respect of which  there  is competition  between out-of-State  producers,  manufacturers and  dealers  and  the Bihar  producers,  manufacturers  and ’dealers  and, indeed, if it intends to encourage its  local manufacturers or producers it should not do so.  It will not do  for the State of Bihar to say that it must levy a  sales tax on intrastate sales or purchases which it is not obliged to  do and at the same time that it must protect  the  Bihar dealers  or  producers,  and enable  them  to  compete  with outside  dealers  or  producers and, therefore,  ask  us  to construe the 661 Constitution in an unnatural way so as to enable it to  have the  best of both worlds.  It is immediately  retorted  that the  welfare  State  must have  sufficient  revenue  to  run itself,  that if it is to forego sales tax its economy  will be  totally  upset.   This  harrowing  picture  of  economic collapse  of the States has been pressed upon this Court  on this as on the previous occasion and it evidently  oppressed the  minds  of the Judges who were parties to  the  majority decision.  It is, therefore, necessary to examine the matter a  little  more closely.  Ordinarily, inter-State  trade  or commerce is done between a dealer in one State and a  dealer in another State.  The dealer in the consuming State in  his turn sells the goods in retail to actual *consumers.   There can  be  no objection to insisting upon all  inside  dealers getting  them  selves  registered  and  submitting   returns showing  goods imported and sold by them and bringing  their annual  turnovers  to  tax which they will pass  on  to  the actual  consumers.   Call it a purchase  tax  vis-a-vis  the earlier transaction under which the goods were delivered  in Bihar  for consumption in that State or call it a sales  tax vis-a-vis the subsequent local sales by the Bihar dealer  to actual  consumers  in  Bihar, the State will  get  the  full revenue  on  these local sales or purchases from  the  local sellers.   There can be no doubt that sales or purchases  of this  kind to or from one dealer to another dealer  actually form  the  bulk of inter-State trade or commerce.   To  take them  out  of clause (2) will be to make the  protection  of inter-State  trade  or commerce wholly illusory and  to  rob clause  (2)  of the best part of its  content  and  utility. Ordinarily individual local consumers buy goods in the local market  and do not generally bring goods for their  personal consumption from outside dealers.  It is only in exceptional cases  that  a local consumer will be  energetic  enough  to

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bring  goods from outside the State for his consumption  and their  number  will  be  small.   It  is  only  those  stray individual  consumers who are energetic enough to get  goods direct from a dealer in another State and may be willing  to pay freight, etc., and undertake the risk of loss or  damage who may evade 662 the tax.  The difficulty in tracing such stray actual  local consumers  cannot  be  any cogent reason  for  adopting  the unnatural  construction sought to be put upon clause (2)  of article  286.   If big Bihar purchasers, e.g., Tata  Iron  & Steel Co. Ltd., who are very heavy consumers of coal, prefer to  get their supply of coal from Ranigunge coal  fields  in West  Bengal  for consumption in their  large  factories  at Tatanagar in Bihar to getting their supplies from the Jharia coal  fields  in Bihar and thereby evade sales  tax  to  the detriment of the revenues of the State of Bihar, then  again there  is  Parliament to mitigate such  hardship  by  making suitable laws in exercise of its power under article 286(21. Such  supposed  hardship  is, in our  view,  no  ground  for putting  a forced and unnatural interpretation upon  article 286. (c)  The   third   reason  in  support   of   a   restricted construction  of  article  286(2) is  thus  formulated:  The purpose of article 286 being to eliminate multiple  taxation and article 286(1) (a) having already achieved that  purpose with regard to the class falling within the Explanation,  it was  no longer necessary for that purpose to  apply  article 286(2)  to that class.  This reasoning appears to us  to  be untenable.  It overlooks the patent fact that the  different parts  of  the article look upon sales  and  purchases  from different  perspectives  and  place different  bans  on  the taxing  power  of  the  States  at  different  angles.   The circumstance that the bans may in given cases overlap is  no justification for concluding that the subject-matter of  the different  provisions is the same.  This line  of  reasoning assumes that the only purpose of article 286 is to eliminate multiple  taxation.  The purposes of the different parts  of the article have to be ascertained from the language of  the article itself read in the light of the contemporary history of  the legislative activities of the different States  with respect  to  taxes on sales or purchases of  goods  and  the chaos and confusion that arose and the havoc that ensued  as a  result of those activities.  There was multiple  taxation which imposed a heavy burden on the consumers and which  was also calculated to impede and hinder the free flow of inter-                             663 State   trade  or  commerce.   The   Constitution   makers., therefore,  imposed several bans on the taxing power of  the States with respect to sales or purchases, namely, first  on the basis of their situs, secondly and thirdly on the  basis of the character of the transactions, e.g., foreign trade or inter-State trade and fourthly on the basis of the nature or quality  of the goods sold or purchased, i.e., whether  they have  been  declared  to be essential to  the  life  of  the community.   As  regards inter-State trade or  commerce  the clear  intention of the Constitution makers was to place  an absolute ban for the time being, subject to the proviso, and to  give some time to Parliament to study the situation  and to  evaluate  the result of the ban and to lift the  ban  to such extent as it thought fit in the interest of the general public  and  that of interState trade or commerce.   If  the matter is approached in this way it becomes abundantly clear that  this  part  of the argument  we  are  now  considering proceeds  on  a  wrong  assumption of  the  purpose  of  the

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Constitution. (d)A restricted construction of article 286(2) is said to be necessary and called for because the Constitution itself has divided  inter-State sales or purchases into two  categories and in regard to one class it has itself provided both as to which  State will tax them and under what condition  and  in regard to the other class the Constitution has imposed a ban in general terms and granted power to Parliament in  general terms  to relax such ban as Parliament thinks fit.  This  is clearly  begging  the  question and  does  not  require  any elaborate refutation. (e)Another  string to the bow is that because of  the  legal fiction created by the Explanation the inter-State     sales or  purchases were converted into  intraState  transactions. This, it will be recalled, was the reasoning adopted in  the majority  decision  in  The State of Bombay  v.  The  United Motors  (India) Ltd. (supra).  We are unable to accept  this argument  for  the  reasons given above which  Deed  not  be repeated here. It is said that the picture of harassment and  inconvenience to the traders referred to in the dissenting 664 judgments  is more imaginary than real.  It is  pointed  out that  it  is only big traders who will have sales  of  their goods  in all the States in the Union of India.   Those  big traders maintain a large staff of clerks and accountants and there  can  be  no difficulty if they are  obliged  to  file returns  in  each State where they sell their  goods.   This argument  overlooks the practical effects of  the  different sales tax laws enacted by different States.  All big traders will have to get themselves registered in each State,  study the   Sales  Tax  Acts  of  each  State,  conform   to   the requirements of all State laws which are by no means uniform and,  finally, may be simultaneously called upon to  produce their  books of account in support of their  returns  before the  officers of each State.  Anybody who has any  practical experience  of  the  working of the sales tax  laws  of  the different  States knows how long books are detained  by  the officers of each State during assessment proceedings.  There are   different  stages  of  these  proceedings,   original, appellate   and  revisional  and  there  will  be  as   many proceedings under each heading as there are States where the goods are sold.  The harassment to traders is quite  obvious and needs no exaggeration.  On the other hand - if any  risk to the economy of the States ensues from the construction of article 286 which commends itself to us, the appeal must  be to Parliament which can by law made under the opening  words of clause (2) mitigate that risk. For  all the foregoing reasons we are definitely of  opinion that, until Parliament by law made in exercise of the powers vested in it by clause (2) provides otherwise, no State  can impose  or authorise the imposition of any tax on  sales  or purchases  of goods when such sales or purchases take  place in  the course of inter-State trade or commerce and the  ma- jority decision in The State of Bombay v. The United  Motor8 (India) Ltd. (supra) in so far as it decides to the contrary cannot   be  accepted  as  well  founded  on  principle   or authority. In  the  view  we  have taken on  question  (A)  it  is  not necessary  for  us, on this occasion, to discuss  the  other questions (B), (C) or (D).  All that remains to                             665 be  seen is whether as a result of our finding  on  question (A) the Bihar Sales Tax Act, 1947 is ultra vires and void in its  entirety  or it is only bad in so far as  it  seeks  to

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impose  a  sales tax on out-of-State sellers in  respect  of inter-State sales or purchases.  This will depend on whether the  objectionable parts of the Act are severable  from  the rest of its provisions.  It will be necessary here to  refer to a few provisions of the Act. The long title of the Act is "An Act to provide for the levy of a tax on sales of goods in Bihar".  The preamble  recites that "It is necessary to make an addition to the revenues of Bihar  and for that purpose to impose a tax on the  sale  of goods in Bihar".  The Act extends to the whole of the  State of Bihar. "Dealer" was originally defined in section 2(c) as meaning: "any person who sells or supplies any goods in Bihar whether for  commission, remuneration or otherwise and includes  any firm  or  a  Hindu joint family and  any  society,  club  or association which sells or supplies goods to its members" ’ By  the  Bihar Finance Act, 1950 the words "in  Bihar"  were omitted  from  this  definition.  Clause  (g)  of  the  same section defines sale.  That definition has undergone various changes from time to time.  The period we are concerned with in  this  appeal  is  from 26th January  1950  to  the  30th September  1951.   Between 1st October 1948 and  31st  March 1951  which covers the earlier part of the  relevant  period the clause stood as follows:- "Sale"  means.,  with  all its  grammatical  variations  and cognate  expressions, any transfer of property in goods  for cash  or deferred payment or other  valuable  consideration, including  a transfer of property in goods involved  in  the execution  of  contract  but does not  include  a  mortgage, hypothecation, charge or pledge: Provided that a transfer of goods on hire-purchase or  other installment  system  of payment shall,  notwithstanding  the fact that the seller retains a title 666 to any goods as security for payment of the price, be deemed to be a sale: Provided  further  that  notwithstanding  anything  to   the contrary in the Indian Sale of Goods Act, 1930 (III)   of 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 section  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: Provided  further  that the sale of goods in  respect  of  a forward  contract,  whether goods under  such  contract  are actually  delivered  or not, shall be deemed to  have  taken place on the date originally agreed upon for delivery". This  definition was amended and between the 1st April  1951 and the 31st March 1952 which covers the latter part of  the relevant period it read as follows: "  sale"  means,, with all its  grammatical  variations  and cognate  expressions, any transfer of property in goods  for cash  or deferred payment or other  valuable  consideration, including  a transfer of property in goods involved  in  the execution  of  contract  but does not  include  a  mortgage, hypothecation, charge or pledge: Provided that a transfer of goods on hire purchase or  other installment  system  of payment shall,  notwithstanding  the fact  that  the  seller  retains a title  to  any  goods  as security for payment of the price, be deemed to be a sale: Provided  further  that the sale of goods in  respect  of  a forward  contract,  whether goods under  such  contract  are

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actually  delivered  or not, shall be deemed to  have  taken place on the date originally agreed upon for delivery- Explanation.-The  sale  of any goods actually  delivered  in Bihar  as  a direct result of such sale for the  purpose  of consumption in Bihar shall be deemed for the purpose of this Act to have taken place in 667 Bihar., notwithstanding the fact that under the general  law relating to sale of goods, the property in the goods has, by reason of such sale, passed in another State". It  will  be  noted  that  the  Explanation  which  is  sub- stantially  a  reproduction of the  Explanation  to  article 286(1)  (a)  was  introduced  for the  first  time  by  this amendment. "Turn  over"  is  defined in  section  2(1).   The  charging section  is section 4 which provides, amongst other  things, that  subject to -the provisions of sections 5, 6, 7  and  8 and  with  effect  from the commencement of  the  Act  every dealer  whose  gross turn over during the  year  immediately preceding the date of such commencement on sales which  have taken  place  both in and outside Bihar exceeds  Rs.  10,000 shall  be  liable to pay tax under this Act on  sales  which have  taken  place  in  Bihar and  from  the  date  of  such commencement.   It  will be noticed that although  the  long title  and the preamble refer to the sale of goods in  Bihar the words "in Bihar" were deleted from the definition of the word  "sale" in section 2(g).  There are various  provisions for  working out the scheme of the Act to which no  detailed reference  need  be made.  It may, however, be  pointed  out that  a new section was inserted by the Adaptation  of  Laws (Third Amendment) Order, 1951 which substantially reproduced the  provisions  of  article  286(1)  and  (2).    Although, therefore, the charging section read with the definition  of "dealer" and "sale" may be wide enough to cover  inter-State sales, the new section 33 makes all those provisions subject to  its provisions which are nothing but a  reproduction  of the corresponding provisions of article 286.  In view of the interpretation  we have put upon article 286 it must  follow that the charging section of the Act read with the  relevant definitions  cannot  operate  to tax  inter-State  sales  or purchases  and  it must be held that as Parliament  has  not otherwise provided, the Act, in so far as it purports to tax sales  or purchases that take place in the course of  inter- State  trade or commerce, is unconstitutional,  illegal  and void.  This being the position the question arises 85 668 whether the Act is bad ?In toto or is bad only in so far  as it offends the provisions of article 286 as construed above. It  appears  to  us that the Act  imposes  tax  on  subjects divisible  in their nature but does not exclude  in  express terms  subjects  exempted by the Constitution.   In  such  a situation  the Act need not be declared wholly  ultra  vires and  void,  for it is feasible to separate taxes  levied  on authorised  subjects from those levied on exempted  subjects and to exclude the latter in the assessment of the tax.   In these  circumstances it is difficult to say that the  scheme of  taxing interState sales forms such an integral  part  of the entire scheme of taxation on sales or purchases of goods as  to  be  inextricably interwoven with it.   There  is  no reason to presume that had the Bihar Legislature known  that the  provisions  of the Act might be held bad in so  far  as they imposed or authorised the imposition of a tax on inter- State  trade or commerce even though Parliament had  not  by law  provided  otherwise it would,  nevertheless,  not  have

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passed the rest of the Act. The  result, therefore, is that this appeal must be  allowed and  we issue an order directing that, until  Parliament  by law  provides otherwise, the State of Bihar do  forbear  and abstain  from imposing sales tax on out-of-State dealers  in respect  of sales or purchases that have taken place in  the course  of  inter-State trade or commerce  even  though  the goods  have been delivered as a direct result of such  sales or  purchases for consumption in Bihar.  The State must  pay the  costs of the appellant in this -Court and in the  Court below.  The interveners must bear and pay their own costs. BHAGWATI  J.-I agree with the reasoning and the  conclusions reached  in the judgment just delivered by my  Brother  S.R. Das.   In so I far however as I was a party to the  judgment in  The  State, of Bombay and Another v. The  United  Motor8 (India)  Ltd. and Others(1) it is but proper that  I  should record my reasons for doing so. (1)  [1953] S.C.R 1069.                             669 The  Appellant  is a company incorporated under  the  Indian Companies  Act  having  its registered office  at  No.  153, Dharamtala  Street, Calcutta and laboratory and  factory  at Baranagar in the District of 24 Parganas in West Bengal  and carrying  on business of manufacturing and  selling  various sera, vaccines, biological products and medicines, etc.,  in Calcutta.  The Appellant has extensive sales of its products throughout the whole of the Union of India and the goods are despatched  by the Appellant from Calcutta by rail,  steamer or  air  against orders accepted at Calcutta and  all  sales take  place within the State of West Bengal.  The  Appellant has no offices, agents, managers, godowns or laboratories in the State of Bihar.  It is not a resident of Bihar nor has a place  of  business  in Bihar and does not  enter  into  any transaction of sale within the State of Bihar. On  the  24th October 1951 the Assistant  Superintendent  of Commercial Taxes, headquarters Patna, wrote to the Appellant to  get itself registered under the Bihar Sales Tax Act  and to take necessary steps to deposit the Bihar Sales Tax  dues in any Bihar treasury at an early date, contending that  all sales  in West Bengal in which the goods had been  delivered in the State of Bihar as a direct result of the sale for the purpose of consumption in Bihar were leviable to Bihar Sales Tax  with effect from the 26th January 1950.  The  Appellant denied  the  right of the State of Bihar to  tax  the  sales effected  in  West Bengal and by his letter dated  the  18th December  1951  the  Superintendent  of  Commercial   Taxes, Central  Circle, Bihar sent a notice under section 13(5)  of the Bihar Sales Tax Act to the Appellant calling upon it  to apply for registration and to submit the return, showing its turn-over  for the period from the 26th January 1950 to  the 30th September 1951. Correspondence  thereafter ensued in which both the  parties made futile attempts to convince each other of the  legality of  the stand taken by it.  The Appellant asserted  that  it was  not liable to assessment under the Bihar Sales Tax  Act and denied the authority of the State of Bihar to levy sales tax upon 670 the  Appellant.  The Assistant Superintendent of  Commercial Taxes, Central Circle, Bihar, ultimately by his letter dated the  28th May 1952 rejected the contention of the  Appellant and  asked it to comply with the notice under section  13(5) of  the Bihar Sales Tax Act failing which he  threatened  to proceed  to  take steps for assessment to the  best  of  his judgment.   The Appellant thereupon by its letter dated  the

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7th  June 1952 called upon the Superintendent of  Commercial Taxes, Central Circle, Bihar to forthwith rescind and cancel the notice issued under section 13(5) of the Bihar Sales Tax Act  as the said notice was ultra vires of the  Constitution and  also the Bihar Sales Tax Act and was  entirely  illegal and inoperative. As the aforesaid demand was not complied with the  Appellant filed  in the High Court of Judicature at Patna  a  petition under article 226 of the Constitution asking for appropriate reliefs  by way of issue of a writ of  mandamus,  certiorari and  prohibition and any other appropriate writs  or  orders quashing  the proceedings issued for the purpose of  levying and  realising a tax which was not lawfully leviable on  the Appellant  and  asking the Appellant to file  a  return  and register itself as a dealer.  The State of Bihar, Respondent 1,  The Superintendent of Commercial Taxes, Central  Circle, Patna,   Respondent  2  and  Assistant   Superintendent   of Commercial  Taxes, Central Circle, Bihar, Respondent 3  were the opposite parties to the petition.  They did not file any affidavit in reply.  The facts alleged by the Appellant were not denied but arguments on questions of law arising out  of the  petition  were  addressed  by  the  Government  Pleader appearing  for them before the High Court.  The  High  Court held: (1)  That   the   Respondent  3  was   acting   within   his jurisdiction  in issuing the notice under section 13(5)  and holding  that the applicant was liable to pay the tax,  that if  he  made  an assessment under section  13  (5)  the  Act provided a right of appeal whereby any error of law might be corrected by the Appellate authorities prescribed under  the Act, that sections 24 and 25 of the Act furnished a complete and effec- 671 tive  machinery for appeal and revision against  assessments made  under the Act and that there was therefore no  warrant for issuing a writ under article 226 of the Constitution; (2)  That  the  phrase "sale or purchase in the,  course  of inter-State  trade or commerce" in article 286 (2)  must  be construed so as to exclude the particular class of sales  or purchases described in the explanation to article 296(1) and that therefore the amended clauses (c) and (g) of section  2 and  section  33  of the Bihar Sales Tax  Act  were  not  in conflict with article 286(2); (3)  That the Bihar Sales Tax Act was in pith and  substance not  a law with respect to sale of goods but a law  imposing tax  on the sale of goods and the legislation fell  entirely within  Item  54 of List II of the Seventh Schedule  to  the Constitution,  viz., taxes on the sale or purchase of  goods other  than newspapers and that the Act could not  therefore be said to be invalid under article 254; (4)  That  the Bihar Sales Tax Act had been enacted for  the purpose  of  imposing tax on the sale of goods and  not  for regulating inter-State or intrastate trade and commerce  and that therefore the Act did not contravene in any way article 304; and (5)  That the Act was also not invalid on the ground that it was extra-territorial in operation, that the jurisdiction to tax  existed not only in regard to persons or  property  but also as regards the business done within the State, that  it was not necessary for the purposes of jurisdiction that  the entire  transaction of sale should have taken  place  within the  territories, that on the other hand the fact  that  the goods  ,were delivered in Bihar for consumption  constituted sufficient  nexus or territorial connection which  conferred jurisdiction  upon the Bihar legislature to impose  the  tax

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and  that  the explanation to  article  286(1)(a)  expressly conferred upon the State power to tax sales or purchases  of goods  which were actually delivered for consumption  inside the State. The High Court therefore dismissed. the petition with costs. 672 The Appellant applied for leave to appeal to this Court  and the  High  Court  granted the  requisite  certificate  under article 132(1) of the Constitution. At  the  hearing of the appeal before us the State  of  West Bengal,  Tata Iron & Steel Company, Calcutta, the  State  of Madras, the State of Mysore, the State of Uttar Pradesh, the State of Orissa, the State of Pepsu, the State of Rajasthan, the State of Madhya Pradesh, the State of Travancore-Cochin, the State of East Punjab and one M. K. Kuriakose applied for and  were  granted leave to intervene and  counsel  for  the Interveners  appeared before us and urged  their  respective points of view. The  first  question  as regards the  maintainability  of  a petition  for writ under article 226 on the facts  disclosed in the petition can be disposed of very shortly in the words of Mahajan, C. J. in Himmatlal Harilal Mehta v. The State of Madhya  Pradesh  &  Others(1) where he  repelled  a  similar contention  urged  by the Advocate-General of the  State  of Madhya Pradesh:- "The  learned Advocate-General of the State........  however contended  that  on the principle enunciated  by  the  Privy Council     in    Raleigh    Investment    Co.    v.     The Governor-General-in-Council(2),  jurisdiction  to   question assessment otherwise than by use of the machinery  expressly provided  by  the Act, was inconsistent with  the  statutory obligation  to pay, arising by virtue of the assessment  and that  the liability to pay the sales tax under the Act is  a special  liability  created by the Act itself which  at  the same time gives a special and particular remedy which  ought to be resorted to, and therefore the remedy by a writ  ought not  to be allowed to be used for evading the provisions  of the Act, especially a fiscal Act............................ In  our  opinion  the  contentions  raised  by  the  learned Advocate-General are not well founded.  It is plain that the State  evinced an intention that it could certainly  proceed to  apply  the  penal  provisions of  the  Act  against  the appellant  if it failed- to make the return or to  meet  the demand (1) [1954] S.C.R. 1122, 1126. (2) 74 I.A. 50 673 and  in  order  to escape  from  such  serious  consequences threatened   without  authority  of  law,   and   infringing fundamental rights, relief by way of a writ of mandamus  was clearly  the appropriate relief In Mohd. Yasin v.  The  Town Area Committee(1), it was held by this Court that a  licence fee  on a bussiness not only takes away the property of  the licensee   but  also  operates  as  a  restriction  on   his fundamental right to carry on his business and therefore  if the imposition of a licence fee is without authority of  law it can be challenged by way of an application under  article 32,  a fortiori also under article 226.  These  observations have  apposite  application  to  the  circumstances  of  the present  case.   Explanation 11 to section 2(g) of  the  Act having  been declared ultra vires, any imposition  of  sales tax  on  the  appellant in Madhya  Pradesh  is  without  the authority of law, and that being so a threat by the State by using the coercive machinery of the Impugned Act to  realize it  from the appellant is a sufficient infringement  of  his

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fundamental right under article 19(1) (g) and it was clearly entitled  to relief under article 226 of  the  Constitution. The  contention that because remedy under the  impugned  Act was available to the appellant it was disentitled to  relief under  article 226 stands negatived by the decision of  this Court  in The State of Bombay v. The United  Motors  (India) Ltd.(2),  above  referred  to. There it was  held  that  the principle  that  a court will not issue a  prerogative  writ when an adequate alternative remedy was available could  not apply  where  a party came to the court with  an  allegation that  his  fundamental right had been infringed  and  sought relief under article 226.  Moreover, the remedy provided  by the  Act is of an onerous and burdensome character.   Before the  appellant can avail of it he has to deposit  the  whole amount of the tax.  Such a provision can hardly be described as an adequate alternative remedy". This  sufficiently disposes of that contention and I  am  of the  opinion that the High Court was in error when  it  held that there was no warrant for issuing a writ (1) [1952] S.C.R. 572. (2) [1953] B.C.R. 1069, 674 under article 226 of the Constitution on the facts disclosed in the appellant’s petition. On  the  merits  Shri N. C.  Chatteriee  appearing  for  the appellant urged:- (1)That  article 286 put a fetter on State  Legislature  and the  explanation  did  not confer any  power  on  any  State Legislature to levy any taxes but was meant to explain  only clause  1(a), i.e."what was an outside sale or purchase  and that it did not remove -any restrictions or fetters and  did not  convert  any  inter-State  sale  or  purchase  into  an intrastate or local or domestic transaction; (2)That  article 286(2) in Part XII was meant  to  implement the supremacy of Parliament with regard to inter-State trade or  commerce  and it put an embargo on the  power  of  State Legislature to levy any tax on sale or purchase with respect to  interState trade or commerce and that it was  only  when the   embargo  was  lifted  by   appropriate   Parliamentary legislation  that  State Legislature could levy any  tax  on sales  or  purchases in the course of inter-State  trade  or commerce; and (3)That  legislative competence of a State  Legislature  was derived from article 246 read with the lists of the  Seventh Schedule to the Constitution, that under article 245(2) only Parliament  was  given the power to enact  legislation  with extra-territorial  operation and the State Legislatures  had no  such  power,  and that the combined  effect  of  article 246(3) and article 245 read with Item 54 of List II was that the  State  Legislature  was only  competent  to  make  laws imposing  tax on sale or purchase of goods for the whole  or part of that State. The determination of these questions involves a construction of  the  provisions  of  article  286(1)  and  (2)  of   the Constitution  and  their  true  scope  and  effect.    These provisions read as follows:- "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 675 (b)  in  the  course  of the import of the  goods  into,  or export of the goods out of, the territory of India. Explanation.-For  the purposes of sub-clause (a), a sale  or purchase shall be deemed to have taken place in the State in

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which  the  goods have actually been delivered as  a  direct result  of  such  sale  or  purchase  for  the  purpose   of consumption  in that State, not withstanding 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 provisions of this clause., continue to be levied until  the thirty-first day of March, 1951". They  are  enacted  in Part XII of  the  Constitution  which relates  to finance, property, contracts and suits and  fall under  the caption of ’Miscellaneous Financial  Provisions’. Their main purpose is to lay down the restrictions on  State Legislatures  to  enact  laws imposing  or  authorising  the imposition of tax on the sale or purchase of goods.  Article 286(1)  lays  down  such restrictions  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.  Article 286(2)  lays down  such  restrictions where such sale or  purchase  takes place  in  the  course of  inter-State  trade  or  commerce. Article 286(1) is hedged in with the explanation and article 286(2)  is  hedged  in  with the exception  "in  so  far  as Parliament  may  by law otherwise provide" and  the  proviso under  which the President might direct that any  tax  which was being lawfully 86 676 levied by the Government of any State immediately before the commencement  of the Constitution may,  notwithstanding  the provisions  of article 286(2), continue to be  levied  until the 31st March 1951.  Except for these special dispensations the restrictions laid down by article 286(1) and (2) prevail and  the true scope and extent of these  restrictions  would have  to  be  culled  out  of  the  terms  in  which   these provisions, are couched. These provisions came to be considered by this Court in  two cases,  (1)  The,  State of Bombay  and  Another  ’v.   The. United  Motors (India) Ltd. and others(1) and (2)  State  of Travancore-Cochin  and Others v. Shanmugha Vilas Cashew  Nut Factory  and  Others(2).   The  first  of  these  cases  was concerned with the constitutionality of the Bombay Sales Tax Act XXIV of 1952.  The High Court of Bombay had declared the Bombay Sales Tax Act, 1952 ultra vires the State Legislature and had issued a writ in the nature of mandamus against  the State  of  Bombay and the Collector of  Sales  Tax,  Bombay, directing  them  to forbear and desist  from  enforcing  the provisions  of  the said Act against the  respondents.   The main  ground of attack in the High Court had been  that  the Act purported to tax sales and purchases of goods regardless of  restrictions imposed on the State legislative  power  by article  286 of the Constitution and in that connection  the provisions  of article 286(1) and (2) came to be  considered by this Court.The majority judgment of this Court  delivered by  Patanjali  Sastri, C. J. with which  Mukherjea,  J.  and Ghulam Hasan, J. concurred held that article 286 (1) (a)  of

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the Constitution read with the explanation thereto and  con- strued  in the light of articles 301 and 304  prohibits  the taxation of sales or purchases involving interState elements by  all  States  except the State in  which  the  goods  are delivered  for  the  purpose of  consumption  therein.   The latter  State is left free to tax such sales  or  purchases, and  it derives this power not by virtue of  article  28611) but under article 246(3) read with Entry 54 of List II.  The majority judgment (1) [1953] S.C.R. 1069.           (2) [1954] S.C.R. 53. 677 differed  from  the  view which was taken  by  me  that  the Explanation does not deprive the State in which the property in   the  goods  passed  of  this  taxing  power  and   that consequently  both  the State in which the property  in  the goods passes and the State in which the goods are  delivered for consumption. have the power to tax and characterised  it as not correct.  The majority judgment also held that clause (2) of article 286 does not affect the power of the State in which the delivery of goods is made to tax inter-State sales or  purchases  of the kind mentioned in the  Explanation  to clause  (1).   The effect of the Explanation  is  that  such transactions  are  saved  from the ban  imposed  by  article 286(2).   Bose,  J. and myself agreed  that  article  286(2) could not be construed in the light of article 304(1) as the two articles dealt with different matters.  Bose, J. however held  that  the  basic idea underlying  article  286  is  to prohibit  taxation  in  the case of  inter-State  trade  and commerce until the ban under clause (2) of the said  article is  lifted by Parliament and always in the case  of  imports and  exports.   When the ban is lifted, the  Explanation  to clause  (1) of article 286 comes into play to determine  the situs of the sale.  This Explanation does not govern  clause (2) of article 286 and as it can only apply to  transactions which  in  truth  and in fact take place in  the  course  of inter-State trade and commerce, there is no need to call  it in  aid until the ban is removed.  The majority judgment  as well  as Bose, J. recognised that the provisions of  article 286(1) and (2) had been enacted in order to prevent multiple taxation  which used to be levied by the States  before  the commencement of the Constitution having resort to the  nexus theory.  They however did not discard that theory altogether and’  were of the opinion that it was sufficient  to  invest the  State Legislature with jurisdiction to impose a tax  on sale  or  purchase  of  goods,  if  any  of  the   essential ingredients  of sale had taken place within  its  territory. The did not accept the transfer of ownership in the goods or the  passing  of  property therein  as  the  sole  criterion determining  the  situs of the sale and thus  investing  the State within 678 whose territories the sale had thus taken place as the  only State  entitled  to impose the tax on sale  or  purchase  of goods.   I however held that under the general law  relating to  sale  of goods a sale must be regarded as  having  taken place  in the State in which the property in the goods  sold has  passed to the purchaser, and that State is entitled  to tax  the sale or purchase as having taken place  inside  the State.  The Explanation to article 286(1) does not take away the right which the State in which the property in the goods passed  has to tax the sale or purchase but only deems  such purchase or sale, by a legal fiction, to have taken place in the  State in which the delivery of the goods has been  made for  consumption  therein so as to enable the  latter  State also,  to  tax  the  sale  or  purchase  in  question.   The

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Explanation only lifts the ban imposed by clause (1) (a)  on taxation of sales or purchases which take place outside  the State,  to the extent of the transactions mentioned  in  the Explanation  to enable the delivery State also to tax  them. I  also held that the general provision enacted  in  article 286(2) against the imposition of tax on the sale or purchase of  goods  in the course of inter-State  trade  or  commerce should give way to the special provision which is enacted in the Explanation to article 286(1) (a) enabling the  delivery State  to tax such sale or purchase in the limited class  of oases  covered by the Explanation, the transactions  covered by the Explanation being thus lifted out of the category  of transactions in the course of inter-State trade or  commerce and  assimilated to transactions of sale or  purchase  which take  place  inside  the State and thus  invested  with  the character  of an intrastate sale or purchase so far  as  the delivery  State is concerned.  There was thus  a  divergence between  the  learned Judges as regards the true  scope  and effect  of the Explanation to article 286(1) (a)  read  with article  286(2)  and  even though the  same  conclusion  was reached  by  the majority Judges and myself we  reached  the same  on  different  grounds.   The  interpretation  put  on article  286(1)(a) read with the Explanation thereto  there- fore was that the delivery State is left free to tax such, 679 sales  or  purchases  as fall within the terms  of  the  Ex- planation  and article 286(2) does not affect the  power  of such  a  State to tax inter-State trade or commerce  of  the kind  mentioned in the Explanation.  The  Explanation  saves such transactions from the ban imposed by article 286(2). It may be noted that though there was a consensus of opinion that  article  286(1)  was designed to  avoid  the  multiple taxation  of  a sale or purchase by  various  States  having resort  to the nexus theory there was divergence of  opinion as  regards the real purpose of the Explanation as also  the construction of the non-obstante clause and the true concept of  consumption  as  embodied  therein.   According  to  the majority  view the Explanation explained what is an  outside sale  by defining what is an inside sale.  Bose, J.  was  of the  opinion  that  the purpose of  the  Explanation  is  to explain what is not outside the State and therefore what  is inside.  I was of the view that what is otherwise a sale  or purchase  which takes place outside the State is  deemed  to have  taken  place inside the delivery State  and  the  only purpose  of the Explanation is to introduce a legal  fiction whereby  the  delivery  State is also entitled  to  tax  the transaction  of  sale or purchase along with  the  State  in which the transfer of ownership has taken place or the  pro- perty in the goods has passed.  The non-obstante clause also was  differently interpreted.  I took the the view that  the non-obstante  clause is incorporated in the  Explanation  to state what according to the Constitution makers is the basic idea  of  fixing the situs or the location of  the  sale  or purchase in the place where the transfer of ownership  takes place  or the property in the goods passes and  to  indicate that  notwithstanding  that fact a sale  or  purchase  which falls  within the category mentioned in the  Explanation  is nevertheless  to  be deemed to have taken place  inside  the delivery State.  The majority judgment stated that the  non- obstante clause is inserted in the Explanation simply with a view to make it clear beyond all possible doubt that it  is, immaterial  where  the property in the goods  passes  as  it might otherwise 680 be  regarded as indicative of the place of sale.   Bose,  J.

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stated  that  the object of the Explanation is  to  fix  the location of a sale or purchase by means of a fiction, but he disagreed  with  the  view expressed by  me  that  the  non- obstante  clause enunciates the general law on  this  point. He  stated  that there was no general law  which  fixed  the situs  of a sale, not even the Sale of Goods Act, that  what the  general  law does is to determine the place  where  the property  passes in the absence of a special agreement,  but the  place where the property passes is not necessarily  the place  where  the sale takes place, nor has that  ever  been regarded as the determining factor.  As regards the  concept of consumption the majority were of the view that it  should be  understood  as  having  reference  not  merely  to   the individual  importer  or  purchaser  but  as   contemplating distribution  eventually to consumers in general within  the State.   Bose, J. construed that word to mean the usual  use made  of an article for the purposes of trade and  commerce. I  adopted the Dictionary meaning of the term and held  that the  Explanation covers only those cases where as  a  direct result  of  the  sale or purchase goods  are  delivered  for consumption in the delivery State by the consumer and it  is only that limited class of transactions which are covered by the Explanation and which are liable to tax by the  delivery State.  I did not accept the contention that the words  "for the   purpose  of  consumption"  must  be  accepted   in   a comprehensive sense as having reference to immediate as well as ultimate consumption within the State and excluding  only resales out of the State. In regard to article 286(2) all the Judges were agreed  that transactions  of  sale or purchase in the course  of  inter- State  trade or commerce are within the restriction  and  no State can tax such transactions, except in the two  excepted cases,  viz., (1) except in so far as Parliament may by  law otherwise provide and (2) provided that the President may by order direct that any tax on sale or purchase of goods which was being levied by the Government of any State  immediately before the commencement of the Constitu-                             681 tion shall continue to be levied until the 31st March 195 1. The  Explanation  to  article  286  (1)  (a)  though  it  is specifically stated to be for the purposes of subclause  (a) was  construed by me as an exception or proviso  to  article 286(2),  thus  enabling  the  delivery  State  to  tax   the transactions of sale or purchase taking place in the  course of  inter-State  trade  or commerce.   The  majority  Judges differed  from  this  view and  held  that  the  Explanation converts the interState transaction into an intra-State  one and therefore there is no scope at all for the operation  of article  286(2) in cases covered by the Explanation.   Bose, J. was of the view that the article 286(2) bans the delivery State  also  from taxing such transactions, because  if  the transactions  were  in the course of  inter-State  trade  or commerce the Explanation merely shifts the point from A to B but this shifting is of no consequence at all, because  both the points are caught in the vortex of inter-State trade and commerce.  It is only when the Parliament otherwise provides or the President gives the directions within the meaning  of the  proviso that this ban is lifted and the Explanation  is there  to  settle  a  matter  of  considerable   controversy regarding  the situs of a sale.  The argument that  on  this construction being put on the Explanation to article  286(1) and on article 286(2) the Explanation would become  nugatory though  accepted by me was rejected by Bose, J. by  pointing out  that once the Parliament by law otherwise  provided  or the President by order gave the direction within the meaning

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of the proviso the Explanation would come into operation and would  determine  the situs of the sale  thus  enabling  the appropriate  State  to impose a tax on such  transaction  of sale or purchase. The  second case concerned itself with the  construction  of article  286(1) (b) in connection with the Sales Tax  levied by  the State of Travancore-Cochin upon certain  dealers  in cashew nuts within its territory under the provisions of the Travancore-Cochin General Sales Tax Act, 1124 M.E. (Act  No. XVIII  of 1124 M.E.) and the question for the  consideration of the Court was whether certain sales and purchases could 682 be said to be in the course of the import of the goods  into or  the export of the goods out of the territory  of  India. The High Court had put a very wide construction on the words of  article  286(1)(b)  and  held that  the  clause  is  not restricted to the point of time at which goods are  imported into  or exported from India and the series of  transactions which necessarily precede export or succeed import of  goods will  come within the purview of this clause.  There  was  a divergence  of opinion between Patanjali Sastri, C.J.,  Muk- herjea,  J., Bose, J. and Ghulam Hasan, J. on the  one  side and S.R. Das, J. on the other so far as the construction  of the words "in the course of" was concerned.  But apart  from this construction of article 286(1) (b) S.R. Das, J. who was not a party to the earlier decision hereinbefore referred to put  on  record  his views on the  construction  of  article 286(1)(a),  the  Explanation  thereto  and  article   286(2) expressing  his disagreement with the  interpretation  which the  majority judgment in that case bad put up on the  same. He agreed that the Provincial Legislatures purporting to act under  Entry  48 in List II of the Seventh Schedule  to  the Government  of  India Act, 1935, bad enacted the  Sales  Tax Acts  imposing  tax on sales or purchases of  goods  on  the basis of one or more of the ingredients of sale having  some connection  with  the Province and that  this  practice  had resulted  in  the imposition of multiple taxes on  a  single transaction of sale or purchase thereby raising the price of the  commodity  concerned to the serious  detriment  to  the consumer,  that this evil had to be curbed and that is  what has  been done by clause (1)(a) of article 286.  He  however was of the opinion that in imposing the ban that no law of a State  shall impose or authorise the imposition of a tax  on the sale or purchase where such sale or purchase takes place outside the State, the Constitution proceeds on the  footing that a sale or purchase has a location or situs.  He further held  that the non-obstante clause in the  Explanation  also clearly implies that the framers of the Constitution adopted the  view  that a sale or purchase has a situs  and  further that it ordinarily takes place at the place 683 where  the  property  in  the  goods  passes.   In   effect, therefore,  the Constitution, by this Explanation to  clause (1) (a), acknowledges that under the general law the sale or purchase  of the kind therein mentioned may not really  take place in the delivery State, but nevertheless requires it to be  treated as if it did.  That is to say,  the  Explanation creates  a legal fiction.  So far he agreed with me, but  he differed  from  me in holding that the only effect  of  this assignment  of a fictional location to a,particular kind  of sale or purchase in a particular State is to attract the ban of  clause (1) (a) and to take away the taxing power of  all other  States  in relation to such a sale or  purchase  even though the other ingredients which go towards the making  up of a sale or purchase are to be found within these States or

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even  if  under the general law the property  in  the  goods passes  in  any  of  those  States.   The  purpose  of   the Explanation  ends there and cannot be stretched or  extended beyond  that purpose.  He therefore held that the effect  of clause  (1) (a) read in the light of the Explanation is  not to  permit both States, viz., the State where  the  property passes under the general law as well as the State in  which, by force. of the Explanation, the sale or purchase is deemed to take place, to tax such sale or purchase, because in that event  it will stultify the very purpose of that clause  and it  will  fail to prevent the imposition of  multiple  taxes which  it is obviously designed to prevent.  In his  opinion clause  (1)(a) in terms only takes away the taxing power  of all  States  with respect to a sale or  purchase  which,  by reason  of the fiction introduced by the Explanation, is  to be deemed to take place outside their respective territories and  the purpose of the Explanation is only to  explain  the scope  of  clause  (1) (a) The  Explanation  is  neither  an exception nor a proviso.  It is not its purpose nor does  it purport,  substantively  and proprio vigore, to  confer  any power  on  any  State, not even on the  delivery  State,  to impose any tax.  Whether the delivery State can tax the sale or  purchase of the kind mentioned in the  Explanation  will depend  on  other provisions of the  Constitution.   Neither clause (1) (a) nor 87 684 the Explanation has any bearing on that question. So  far  as  the  -purpose and  design  of  clause  (2)  are concerned  he was of the opinion that clause (2) places  yet another ban on the taxing power of the State under Entry  54 read with article 246(3), in addition to the ban imposed  by clause  (1)  (a).  A sale or purchase  contemplated  by  the Explanation  to clause (1) (a) undoubtedly partakes  of  the nature  of a sale or purchase made in the course  of  inter- State  trade  and, therefore, no State, whether  it  is  the State  in which the property in the goods passes  under  the general  law or the State where the goods are  delivered  as mentioned in the Explanation, can impose a tax on such  sale or purchase, unless and until Parliament lifts this ban.  He differed  from the view taken by me that the Explanation  to article  286(1)  (a)  must be regarded not  only  as  having authorised the delivery State to impose the tax on the  sale or  purchase  covered by the Explanation,  but  having  also exempted  it  from the ban imposed by clause (2).   He  also differed from the majority view that what was an inter-State transaction  within the ban of article 286 (2) is  converted into  an  intrastate  or local or  domestic  transaction  by virtue of the Explanation to article 286(1) (a).  He saw  no warrant  for the argument that the fiction embodied  in  the Explanation  for this definitely expressed purpose,  can  be legitimately  used  for  the  entirely  foreign  purpose  of destroying the inter-State character of the transaction  and converting  it into an intrastate sale or purchase  for  all purposes.   Such  metamorphosis  is  completely  beyond  the purpose  and purview of clause (1) (a) and  the  Explanation thereto.  After  expressing himself as above, he made  the  following observations  which are very apposite to the  appeal  before us:- "To  accede  to this argument will mean that the  Sales  Tax officer of the delivery State will have jurisdiction to call upon  dealers outside that State to submit returns of  their turn  over in respect of goods delivered by them to  dealers in  that State under transactions of sale made by them  with

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dealers within that State.  Thus a dealer in, say, Pepsu who 685 delivers  goods to a dealer in, say, Travancore-Cochin  will become  subject  to the jurisdiction of the  last  mentioned State  and will have to file returns of their turn over  and support the same by producing their books of account  there. I  cannot imagine that our Constitution makers  intended  to produce this anomalous result.  On the contrary, it  appears to me that they enacted clauses (1) (a) and (2) for the very purpose of preventing this anomaly.  I repeat that it is not permissible,  on  principle or on authority, to  extend  the fiction  of the Explanation beyond its immediate and  avowed purpose which I have explained above.  In my judgment, until Parliament otherwise provides, all sales or purchases  which take  place in the course of inter-State trade  or  commerce are, by clause (2) of article 286, made immune from taxation by the law of any State, irrespective of the place where the sales or purchases way take place, either under the  general law   or  by  virtue  of  the  fiction  introduced  by   the Explanation  to clause (1)(a).  If a particular  inter-State sale  or purchase takes place outside a State, either  under the  general law or by virtue of the fiction created by  the Explanation, it is exempted from taxation by the law of that State  both  under clause (1) (a) and clause (2).   If  such inter-State sale or purchase takes place within a particular State,  either  under the general law or by  reason  of  the Explanation,  it is still exempt from taxation even  by  the law  of  that  State under clause (2), just  as  a  sale  or purchase which takes place within a State, either under  the general law or by reason of the Explanation, cannot be taxed by  the  law of that State if such sale  or  purchase  takes place  in the course of import or export within the  meaning of clause (1) (b) ". It  may be observed that the contentions urged before us  by the Appellant are in conformity with the above  observations of S.R. Das, J. Normally  speaking  the  construction put  by  the  majority judgment on the article 286(1), the Explanation thereto  and article  286(2) of the Constitution in the Bombay Sales  Tax appeal would be the law bind- 686 ing  on all parties and in the judgment just referred to  in the  Travancore-Cochin  Sales  Tax Appeal  S.  R.  Das,  ’J. rightly expressed that decision to be binding on him so long as  it  stands.  The Appellant has however  sought  to  urge before us that that decision was erroneous and has attempted to persuade us to reconsider the same and put a construction on  article 286(1)(a), the Explanation thereto  and  article 286(2) which is different from that adopted by the  majority Judges in the Bombay Sales Tax Appeal. The  question therefore arises whether we are  en,titled  to reconsider that decision. The  House of Lords in England has always considered  itself bound  by  its  previous  decisions.   These  decisions,  as distinguished  from the opinions which are delivered by  the Judicial  Committee  of the Privy Council as advice  to  the Crown,  are  pronounced  in the form of  judgments  and  are binding  on the House as precedents.  The  question  whether the House bad the power to reconsider the previous decisions of its own and if it thought the decisions wrong to overrule ,or  depart from them in subsequent cases was considered  in Street  Tramways  v.  London  County  Council(1).   Earl  of Halsbury,  L.C.  who  delivered the judgment  of  the  House observed at page 379:- "A decision of this House once given upon a point of law  is

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conclusive  upon  this  House afterwards,  and  that  it  is impossible  to  raise that question again as if it  was  res integra and could be reargued, and so the House be asked  to reverse  its  own decision.  That is a principle  which  has been, I believe, without any real decision to the  contrary, established  now for some centuries, and I am  therefore  of opinion  that  in this case it is not competent  for  us  to rehear and for counsel to reargue a question which has  been recently decided". The  reason  of  the rule was thus stated  at  page  380-" "Of  course I do not deny that cases of individual  hardship may  arise,  and there may be a current of  opinion  in  the profession that such and such a judgment was erroneous; but- what is that occasional (1)  [1896] Appeal Cases 375,                             687 interference  with  what  is  perhaps  abstract  justice  as compared   with   the   inconvenience-the   disastrous   in- convenience-of   having  each  question  subject  to   being reargued and the dealings of mankind rendered c ,doubtful by reason of different decisions, so that in truth and in  fact there would be no real final Court of T, Appeal?  My  Lords, "interest rei publicae." that there should be "finis litium" at  some  time, and there could be no "finis litium"  if  it were  possible  to  suggest in each case that  it  might  be reargued,  because  it is "not an ordinary  case,"  whatever they may mean". and the conclusion was thus recorded at page 381:- "Under  these  circumstances  it appears  to  me  that  your Lordships  would  do well to act upon that  which  has  been universally assumed in the profession, so far as I know,  to be the principle, namely, that a decision of this House upon a question of law is conclusive, and that nothing but an Act of  Parliament  can set right that which is  alleged  to  be wrong in a judgment of this House". The  Judicial  Committee of the Privy Council on  the  other hand  has  held  that  it is free to  differ  from  its  own decisions or from those of the House of Lords.  The power of the  Privy  Council  to reconsider  its  own  decisions  was discussed  in In re Compensation to Civil  Servants(1).   In that  case  an  earlier decision of the  Board  in  Wigg  v. Attorney-General of the Irish Free State(2) was attempted to be  reviewed and after discussing the case-law on the  point the  Board came to the conclusion that the Privy Council  is not  bound  in  law and without examination  to  follow  the decision in a prior appeal whether they considered it to  be right  or  wrong although the Privy Council  would  hesitate long  before  disturbing  a solemn decision  by  a  previous Board, which raised an identical or even a similar issue for determination.   While laying down this principle the  Board discussed  the earlier cases and in particular the  case  of Ridsdale  v.  Clifton(3)  which was  followed  in  Tooth  v. Power(4)   and  Read  v.  Bishop  of  Lincoln(5)   and   the proposition was thus laid (1) A.I.B. 1929 P.C. 84.      (2)     1928 P.C. 239. (3) (1877] 2 P.D. 276.        (4) [1891] A.C. 284. (5)[18921 A.C. 644. 688 down in the last mentioned case:- "In  the present case their Lordships cannot but  adopt  the view expressed in Ridsdale v. Clifton(1) as to the effect of previous decisions.  Whilst fully sensible of the weight  to be  attached to such decisions, their Lordships are  at  the same  time  bound  to examine the  reasons  upon  which  the decisions rest, and to give effect to their own view of  the

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law". The  same principle was reiterated by the Privy  Council  in Attorney-General of Ontario and Others V. Canada  Temperance Federation  and  Others(2).  The Board was  there  concerned with  the  consideration of a constitutional  question.   An earlier  decision  of  the Board in Russell  V.  Reg(3)  had upheld the validity of the impugned statute.  That  decision bad stood unreversed for 63 years and had moreover  received express  approval of the Board in subsequent  cases  between 1883  and  1937.  It was contended that the  case  had  been wrongly  decided  and  ought  to  be  overruled  and   their Lordships repelled that contention:- "Their  Lordships  do  not doubt that  in  tendering  humble advice  to  His  Majesty they are not  absolutely  bound  by previous decisions of the Board, as is the House of Lords by its own judgments.  In ecclesiastical appeals, for instance, on  more  than one occasion, the Board has  tendered  advice contrary  to  that given in a previous case,  which  further historical  research has shown to have been wrong.   But  on constitutional  questions it must be seldom indeed that  the Board would depart from a previous decision which it may  be assumed  will have been acted upon both by  governments  and subjects, In the present case the decision now sought to  be overruled  has stood for over sixty years; the Act has  been put into operation for varying periods in many places in the Dominion;  under  its provisions businesses must  have  been closed, fines and imprisonments for breaches of the Act have been imposed and suffered.  Time and again the occasion  has arisen when the Board could have overruled the decision  had it thought it wrong.  Accordingly, in (1) [18T7] 2 P.D. 276.        (2) A.I.R. 1946 P.C. 88. (3)  [1862] 7 A.C. 829,                             689 the  opinion  of  their  Lordships,  the  decision  must  be regarded  as  firmly embedded in the constitutional  law  of Canada and it is impossible now to depart from it". It  is therefore settled law so far as England is  concerned that  their Lordships of the Privy Council do’ not  consider themselves  bound in law and without examination  to  follow their decision in a prior appeal whether they consider it to be  right or wrong but feel themselves bound to examine  the reasons upon which the decisions rest and to give effect  to their own view of the law.  We here are the highest Court of the  land and would derive considerable assistance from  the practice of the Privy Council set out above. The  High Court of Australia is the highest Court of  Appeal in  the  Commonwealth and concerns itself ,inter  alia  with deciding constitutional questions.  The question whether  it is bound by its previous decisions came up for consideration in the Tramways Case (No. 1)(1) and the High Court held that it  was  not bound by its previous decision but  would  only review a previous decision when that decision was manifestly wrong.  Griffith, C.J. in this connection made the following observations at page 58:- "In  my opinion it is impossible to maintain as an  abstract proposition that the Court is ’either legally or technically bound  by  previous decisions.  Indeed, it may in  a  proper case be its duty to disregard them.  But the rule should  be applied  with  great  caution, and only  when  the  previous decision  is manifestly wrong........ Otherwise there  would be   grave   danger  of  a  want  of   continuity   in   the interpretation of the law". Barton, J. observed at page 69:- "In conclusion, I would say that have never thought that  it was not open to this Court to review its previous  decisions

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upon good cause.  The question is not whether the Court  can do  so, but whether it will, having due regard to  the  need for  continuity  and  consistency  in  judicial   decisions. Changes in the number of appointed Justices can, I take  it, never of (1)  18 C.L.R. 51. 690 themselves  furnish  a reason for review.   That  the  prior decision  was  that of little more than  half  their  number might be urged with greater fairness, but it cannot be urged against  an earlier case........  But the Court  can  always listen  to  argument  as to whether it  ought  to  review  a particular  decision,  and  the  strongest  reason  for   an overruling  is that a decision is manifestly wrong, and  its maintenance is injurious to the public interest". Powers, J. at page 86 referred to an earlier decision  given by  him  in the case of The Australian Agricultural  Co.  v. Federated   Engine-Drivers  and  Firemen’s  Association   of Australasia(1):- "I  am at all times prepared to consider the review  of  any decision  of this Court, by a Full Bench called to  consider that question, and to reverse any decision if it is shown to be  clearly wrong, subject to the well known  considerations to  be  applied to the particular case in  question  at  the time,  according  to  the  well  known  judicial  policy  of British, Australian -and American Courts, and I think of all Courts of Appeal in English-speaking communities"-except the House  of  Lords "I decline even to consider a  question  of reversing  a  decision  of  this  Court  casually,  or  even seriously,  raised by counsel, not clearly urgent,  and  not raised before as full a bench as is available.  If we do not show  some respect to our own Court’s decisions, no  counsel will  feel safe in advising the public, and it  will  create uncertainty    and    confusion.........    ’Under     those circumstances  I  think it would have to be shown  that  the decision was clearly wrong, and, as it has been followed  by this Court in other cases, that it would be in the interests of the public to reverse it". This question came for consideration again by the High Court of Australia in The Amalgamated Society of Engineers v.  The Adelaide  Steamship  Company Limited and Others(2)  and  the majority judgment stated at p. 142:- "It is therefore, in the circumstances, the manifest duty of this Court to turn its earnest attention (1) 17 C.TA.R. 261, 292. (2) 28 C.L.R. 129. 691 to   the  provisions  of  the  Constitution  itself.    That instrument  is  the political compact of the  whole  of  the people  of  Australia,  enacted  into  binding  law  by  the Imperial Parliament, and it is the chief and special duty of this  Court  faithfully  to expound and give  effect  to  it according  to its own terms, finding the intention from  the words of the compact, and upholding it throughout  precisely as  framed.  In doing this, we follow, not  merely  previous instances  in this Court and other Courts in Australia,  but also the precedent of the Privy Council in Read v. Bishop of Lincoln(1),  where  the Lord Chancellor., speaking  for  the Judicial  Committee in relation to reviewing its  own  prior decisions, said: "Whilst fully sensible of the weight to  be attached to such decisions, their Lordships are at the  same time  bound to examine the reasons upon which the  decisions rest, and to give effect to their own view of the law".  The ground upon which the Privy Council came to that  conclusion we  refer to, but need not repeat, adding, however, that  as

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the  Commonwealth and State Parliaments and  Executives  are themselves  bound  by the declarations of this Court  as  to their  powers  inter se, our responsibility is so  much  the greater  to  give the true effect to  the  relevant  consti- tutional provisions.  In doing this, to use the language  of Lord Macnaughten in Vacher & Sons Ltd. v. London Society  of Compositors(2), "a judicial tribunal has nothing to do  with the  policy  of  any  Act which it may  be  called  upon  to interpret.  That may be a matter for private judgment.   The duty  of  the Court, and its only duty, is  to  expound  the language of the Act in accordance with the settled rules  of construction".  " Higgins, J. at page 160 added:- "But the decision is now directly impugned by the  claimant; and  it is our duty to reconsider the subject, and  to  obey the  Constitution  and the Act rather than any  decision  of this Court, if the decision be shown to have been mistaken". The High Court of Australia has therefore considered  itself free to review its own decisions just as much (1)  [1892] A.C. 644. (2) [1913] A.C. 107, 118. 88 692 as the Judicial Committee of the Privy Council, examine  the reasons upon which the decisions rest and to give effect  to its  own views of the law, in other words to reconsider  the subject and to obey the Constitution and the Act rather than any  decision of the Court if the decision be shown to  have been mistaken. Our  Constitution  has  drawn freely  inter  alia  upon  the Constitution of the United States and it would be helpful to consider what is the position in the United States in regard to  the  re-consideration of its previous decisions  by  the Supreme  Court.  There have been numerous decisions  of  the Supreme  Court  in  which the Court has  departed  from  the doctrine of stare decision and has either refused to  follow or overruled its previous decisions. In Hertz v. Woodman(1) Mr. Justice Lurton observed:- "The   rule  of  stare  decision,  though  one  tending   to consistency  and uniformity of decision, is not  inflexible. Whether it shall be followed or departed from is a  question entirely within the discretion of the court, which again  is called upon to consider a question once decided". Mr. Justice Brandies while delivering his dissenting opinion in  Washington  v. Dawson & Co. (2) thus  expressed  himself with  regard to the propriety upon the part of  the  Supreme Court of departing from its earlier doctrines if it has come to consider those doctrines as erroneous:- "The  doctrine  of stare decisis should not deter  us  from@ overruling  that  case  and  those  which  follow  it.   The decisions  are recent ones.  They have not  been  acquiesced in.   They have not created a rule of property around  which vested interests have clustered.  They affect solely matters of  a  transitory nature.  On the other  hand,  they  affect seriously  the  lives of men, women, and children,  and  the general welfare.  Stare decisis is ordinarily a wise rule of action.  But it is not a universal, inexorable command.  The instances (1)  218 U.S. 205. (2)  264 U.S. 219.                             693 in which the court has disregarded its admonition are many". The  same  learned Judge in a dissenting  opinion  in  David Burnet v. Coronado Oil & Gas Company(1) reiterated the  same position in the manner following:

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"Stare  decisis  is not, like  the rule of res  judicata,  a universal, inexorable command" After  quoting the passage from the judgment of Mr.  Justice Lurton in Hertz v. Woodman(1) above cited the learned  Judge proceeded:- "Stare  decisis is usually the wise policy, because in  most matters it is more important that the applicable rule of law be      settled     than     that     it     be      settled right............................ This is commonly true even where  the  error is a matter of serious  concern,  provided correction  can  be had by legislation.  But  in  cases  in- volving  the Federal Constitution, where correction  through legislative action is practically impossible, this Court has often  overruled its earlier decisions.  The Court  bows  to the lessons of experience and the force of better reasoning, recognizing that the process of trial and error, so fruitful in  the  physical  sciences,  is  appropriate  also  in  the judicial function.................... Recently, it overruled several  leading  cases, when it concluded that  the  States should  not  have  been  permitted  to  exercise  powers  of taxation  which it ’had theretofore  repeatedly  sanctioned. In cases involving the Federal Constitution the position  of this  Court  unlike that of the highest  court  of  England, where  the  policy Of stare decisis was  formulated  and  is strictly  applied  to all classes of cases.   Parliament  is free  to correct any judicial error; and the remedy  may  be promptly invoked". It  will  be  instructive  at  this  juncture  to  note  the following  passages to be found in foot-note 3 at p. 825  in the report of this case(3): "Compare Taney, Ch.  J. in Passenger Cases, 7 How. 283, 470; 12  L.  Ed.,  702,  780:  After  such  opinions   judicially delivered,  I had supposed that question to be  settled,  so far   as   any  question  upon  the  construction   of   the Constitution ought to be regarded (1) 285 T.T.S. 393. (2) 218 U.S. 205. (3) 76 L. Ed. 815, 694 as closed by the decision of this Court.  I do not,  however object  to the revision of it, and am quite willing that  it be  regarded  hereafter as the law of this court,  that  its opinion upon the construction of the Constitution is  always open to discussion when it is supposed to have been  founded in  error, and that its judicial authority should  hereafter depend altogether on the force of the reasoning by which  it is supported". Compare Field, J. in Barden v. Northern P.R. Co.(1): "It  is more important that the court should be  right  upon later  and  more elaborate consideration of the  cases  than consistent with previous declarations.  Those doctrines only will  eventually stand which bear the strictest  examination and the test of experience " . In  Mark  Graves v. People of the State of New  York(")  Mr. Justice Frankfurter stated:- "But  the-ultimate  touchstone of constitutionality  is  the Constitution itself and not what we have said about it". The   same  principle  was  reiterated  in  Smith   v.   All wright(3):- "In  reaching  this conclusion we are not unmindful  of  the desirability  of  continuity of decision  in  constitutional questions.   However, when convinced of former  error,  this Court  has never felt constrained to follow  precedent.   In constitutional  questions,  where  correction  depends  upon amendment  and  not  upon  legislative  action  this   Court

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throughout its history has freely exercised its power to re- examine  the basis of its constitutional decisions.   This;- has  long  been  accepted practice, and  this  practice  has continued to this day". and   in   United  States  of   America   v.   South-Eastern Underwriters  Association (1) in the dissenting judgment  of Stone, C.J. at p. 579:- "This Court has never committed itself to any rule or policy that  it will not "bow to the lessons of experience and  the force   of  better  reasoning"  by  overruling  a   mistaken precedent.................... This is (1)  154 U.S. 288, 322. (3)  321 U.S. 649 (2)  306 U.S. 466,491. (4)  322 U.S. 533 695 especially the case when the meaning of the Constitution  is at issue and a mistaken construction is one which cannot  be corrected by legislative action.  To give blind adherence to a  rule  or policy that no decision of this Court is  to  be overruled would be itself to overrule many decisions of  the Court which do not accept that view.  But the rule of  stare decisis embodies a wise policy because it is often more  im- portant  that  a  rule of law be settled  than  that  it  be settled  right.  This is especially so, where as here,  Con- gress  is not without regulatory power........ The  question then  is  not  whether an earlier decision  should  ever  be overruled,  but whether a particular decision ought  to  be. And before overruling a precedent in any case it is the duty of the Court to make certain that more harm will not be done in  rejecting  than  in retaining a  rule  of  even  dubious validity". The  position has been thus summarised by Willoughby on  the Constitution of the United States-Vol.  I-Second  Edition-at p. 74:- "There  are  indeed good reasons why the doctrine  Of  stare decisis   should   not  be  so  rigidly   applied   to   the constitutional as to other laws.  In cases of purely private import,  the  chief  desideratum  is  that  the  law  remain certain,  and, therefore, where a rule has  been  judicially declared  and private rights created thereunder, the  courts will  not.,  except in the clearest cases of  error,  depart from  the  doctrine of stare decisis When,  however,  public interests are involved, and especially when the question  is one of constitutional construction, the matter is otherwise. An  error  in the construction of a statute  may  easily  be corrected  by  a  legislative act, but  a  Constitution  and particularly  the Federal Constitution, may be changed  only with great difficulty.  Hence an error in its interpretation may  for  all practical purposes be corrected  only  by  the court’s repudiating or modifying its former decision". These  then  are  the principles which should  guide  us  in determining   whether,we  should  reconsider   the   earlier decisions  of this Court.- We are here not merely  concerned with legislative enactments which it would 696 be within the competence of either the Union Legislature  or the  State Legislatures. to enact if our  earlier  decisions were  erroneous.  We are concerned with the construction  of the  Provisions of the Constitution which it will be  almost impossible- to amend.  The House of Lords considered  itself bound  by its previous decisions, because it felt  that  the Act  of Parliament could set right an erroneous decision  of the House by enacting appropriate legislation.  But the High Court  of  Australia  as well as the Supreme  Court  of  the

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United  States  felt  themselves free  to  reconsider  their earlier decisions because of the practical impossibility  of correcting  the  erroneous  decisions  through   legislative action.   They considered it their bounden duty to  construe the  constitutional provisions and be guided the  provisions of  the  Constitution itself and not  what  had  been  their earlier decisions on the questions of its construction.  The only safeguard which they put on the exercise of such power" of  reconsideration was that the earlier decision should  be manifestly  wrong or erroneous.  We here also are  concerned with the construction of the provisions of the  Constitution which  cannot  be amended so easily and if we  come  to  the conclusion that the earlier decision was manifestly Wrong or erroneous  and that public interest demanded that  the  same should  be  reconsidered we should not  have  the  slightest hesitation   in  doing  so.   We  therefore   approach   the consideration  of the earlier decision of this Court in  the Bombay Sales Tax Appeal bearing in mind the principles above enunciated. It  will  be necessary at the outset to take  stock  of  the situation as it obtained before the enactment of article 286 of  the  Constitution.  The Government of  India  Act,  1935 contained  provisions  in  regard  to  the  distribution  of legislative  powers between the Dominion and the  Provincial Legislatures   in  sections  99  and  100.    The   Dominion Legislature  was  competent  to  make  laws  including  laws having  extra-territorial  operation for the whole  or  -any part  of the Dominion and the Provincial  Legislatures  were competent  to  make  laws for the  Provinces  for  any  part thereof, 697 The legislative heads in respect of which the laws could  be made  by the respective Legislatures were enumerated in  the lists   of  the  Seventh  Schedule  to  the  Act  and   the. demarcation  between the powers of the Dominion  Legislature and  the  Provincial Legislatures in that behalf was  to  be found  in  section  100.  Entry 48 in List II  of  the  said Schedule  gave the power to the Provincial  Legislatures  in respect   of   "taxes   on  the  sale  of   goods   and   on advertisements".   Even though the entry mentioned taxes  on sale  of goods that head was construed to mean in reality  a power  to  tax  the transaction and the  power  to  tax  the transaction  carried with it the power to tax  either  party thereto.  The expression "taxes on sale" was therefore  con- strued  to include also a tax on purchases of goods, as  the transaction resulted in change of ownership from one  person to  another  and  was  from  its  very  nature  a  bilateral transaction with a seller on the one hand and the  purchaser on  the  other.  (Vide  V.  M. S. Md.  &  Co.  v.  State  of Madras(1)),  The  same distribution  of  legislative  powers obtained  when  the  Constitution came  to  be  enacted  and article  245 provided that Parliament may make laws for  the whole  or  any  part  of the territory  of  India,  and  the Legislature  of a State may make laws for the whole  or  any part  of  the  State.  Exclusive power  to  make  laws  with respect  to  the legislative heads enumerated in  the  Union List  (List I) and the State List (List II) of  the  Seventh Schedule to the Constitution was given to Parliament and the State  Legislature,-,respectively by article 246.  Entry  54 of  the  State List gave the exclusive power  to  the  State Legislatures  with respect to taxes on the sale or  purchase of  goods other than newspapers.  What was implicit  in  the phraseology  of Entry 48 of List II of the Seventh  Schedule to the Government of India Act was thus made explicit by the phraseology  adoptted in Entry 54 of the State :List in  the

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Seventh Schedule to the Constitution. Prima  facie laws enacted by State Legislatures  would  have operation  within the territories of the States.   Primarily legislation of a country is territorial (1)  A.1 R. 1958 Madras 105, 698 and  the  general  rule is "extra  territorium  jus  dicenti impunne non paretur".  The laws of a nation apply to all its subjects and to all things and acts within its  territories. (See  Maxwell  on the Interpretation of  Statutes-10th  Edn. page  144).   Craies’  on Statute Law-5th  Edn.  at  p.  174 contains  the  following citation from the  speech  of  Lord Cranworth in Jefferys v. Boosey(1) "Prima  facie the Legislature of this country must be  taken to make laws for its own subjects exclusively". The same principle has been applied also to sales tax and it is stated in American Jurisprudence-Vol. 47, p. 202 Para.  5 under the caption "Territorial Jurisdiction" that:- "The general rule that a State may not tax persons, property or   interests   which  are  not  within   its   territorial jurisdiction is applicable to sales taxes". It  would therefore appear that when the State  Legislatures enacted  laws in respect of taxes on sales or  purchases  of goods they would only have operation within the  territories of  the  States  and the sales or purchases  of  goods  even though  they are not specified in the relative entry  to  be "within the territories" of the States would Prima facie  be such as take place within the respective territories of  the States. This  power  to tax the sales or purchases  of  goods  would again have to be construed with reference to the connotation of  the term "sale" as it was understood in the  legislative practice  of  the  country at the time when  the  power  was conferred.  As was observed by Their Lordships of the  Privy Council in Croft v. Dunphy(2):- "When  a  power is conferred to legislate  on  a  particular topic  it  is  important, in determining the  scope  of  the power,  to  have  regard to what is  ordinarily  treated  as embraced  within  that  topic in  legislative  practice  and particularly in the legislative practice of the State  which has conferred the power". The expression "Sale of goods" in Entry 48 in List (1)  [1854] 4 H.L.C. 815, 955. (2)  [1933] A.C. 156, 165. 699 11  of the Seventh Schedule to the Government of India  Act, 1935 came to be construed by this Court in Sales Tax Officer v. Budh Prakash Jai prakash(1) in relation to an attempt  by the State of Uttar Pradesh to tax forward contracts of  sale and this Court held:- "There  having existed at the time of the enactment  of  the Government  of  India  Act, 1935, a  welldefined  and  well- established  distinction between a sale and an agreement  to sell it would be proper to interpret the expression ’sale of goods’  in  Entry 48 in the sense in which it  was  used  in legislation  both in England and India and to hold  that  it authorises  the  imposition of a tax only when  there  is  a completed sale involving transfer of title". The expression "sale of goods" was construed in the light of the  definition  thereof  to be found in section  4  of  the Indian  Sale  of  Goods Act (Act III of 1930)  as  also  the corresponding provision of the English Sale of Goods Act and the  relevant passage from Halsbury’s Laws of England,  Vol. 15, Para 13 quoted therein.  Section 4 of the Indian Sale of Goods Act runs as follows:-

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"(1)  A contract of sale of goods is a contract whereby  the seller transfers or agrees to transfer the property in goods to  the buyer for a price.  There may be a contract of  sale between one part-owner and another. (3)  Where  under  a contract of sale the  property  in  the goods  is  transferred  from the seller to  the  buyer,  the contract  is  called a sale, but where the transfer  of  the property  in the goods is to take place at a future time  or subject  to some condition thereafter to be  fulfilled,  the contract is called an agreement to sell. (4)  An  agreement  to  sell becomes a sale  when  the  time elapses,  or the conditions are fulfilled subject  to  which the property in the goods is to be transferred". The corresponding provision in section I of the English Sale of Goods Act is as follows:- "(1) A contract of sale of goods is a contract (1)  [1955] 1 S.C.R. 243. 89 700 whereby  the  seller  transfers or agrees  to  transfer  the property  in goods to the buyer for a  money  consideration, called  the price.  There may be a contract of sale  between one part-owner and another. (3)Where under a contract of sale the property in the  goods is transferred from the seller to the buyer the contract  is called a sale; but where the transfer of the property in the goods  is to take place at a future time or subject to  some condition thereafter to be fulfilled the contract is  called an agreement to sell. (4)An agreement to sell becomes a sale when the time elapses or  the  conditions  are  fulfilled  subject  to  which  the property in the goods is to be transferred". This  being the legislative practice in India as well as  in England at the time when the power to tax sales or purchases of  goods was conferred on the State Legislatures the  scope of  that power would have been ordinarily determined by  the definition  of  the  sale of goods to  be  found  in  these- respective  Sales of Goods Acts and the  State  Legislatures would have had the power to tax sales or purchases of  goods in  which  the  property  in the  goods  passed  within  the respective territories of the States.  This was not a  power to tax a seller or a purchaser in personam.  It was a  power to tax the sale or purchase of goods which took place within the  territories  of the State and was to  be  exercised  in those  cases where the property in the goods which were  the subject  matter  of the sale or purchase passed  within  the territories of the State. This  position  however was not acceptable  to  the  various States  which wanted to enlarge the scope of their power  to tax  sales  or purchases of goods.  There was  therefore  an attempt made to analyse the concept of sale into its various ingredients and to fasten upon any one of the ingredients as conferring  upon them the power to tax the sale or  purchase of  goods  by  having resort to the  theory  of  territorial connection  or  nexus.  As was observed by Bose, J.  in  The State of Bombay and 701 Another v. The United Motors (India) Ltd. & Others(1) at  p. 1101:- "The difficulty is apparent when one begins to split a  sale into  its  component parts and analyse them.  When  this  is done, a sale is found to consist of a number of  ingredients which can be said to be, essential in the sense that if  any one of them is missing there is no sale.  The following  are some  of  them: (1) the existence of goods  which  form  the

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subject  matter  of the sale, (2) the  bargain  or  contract which, when executed, will result in the passing of the pro- perty in the goods for a price, (3) the payment, or  promise of payment, of a price, (4) the passing of the title". Having  analysed  the  concept of the  sale  thus  into  its essential ingredients the only essential condition which was considered  necessary to be satisfied was the completion  of the  transaction of sale wheresoever it may take  place  and the taxable event was taken to be any one of these essential ingredients provided it took place within the territories of the  State,.   Reliance was placed for this purpose  on  the decision of the Federal Court in In re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938  (O.   P. & Berar Act No. XIV of 1938)(2)  where  Their Lordships observed that:- "Tax  on sale of goods must necessarily be a tax imposed  at the  time of the sale of goods and must exclude other  forms of transfer like mortgages, leases, etc." Similar  observations were also to be found in the  Province of  Madras v. Boddu Paidanna & Sons(3) where it  was  stated that  a  tax  on the sale of goods is a tax  levied  on  the occasion  of  the  sale of goods and the  liability  to  tax arises on the occasion of the sale.  The sale was  therefore taken to be the concrete event which gave rise to the  power of  the State to tax the sale of goods but was taken as  not necessarily  taking  place  within the  territories  of  the taxing  State, the only thing considered essential  for  the purpose being the (1) [1953] S.C.R. 1069.     (2) [1989] F.C.R. 18, 86, 87, (3) [1942] F.C.R. 90, 101. 702 territorial connection or nexus between the taxing State and one or more of the necessary ingredients of sale analysed as above.   The  territorial  connection or  nexus  theory  was sought to be supported by reference to certain decisions  of the  High Court of Australia, e.g., The Wanganui  Rangitikey Electric  Power  Board v. The  Australian  Mutual  Provident Society(1) where Dixon, J. observed:- "So  long as the statute selected some fact or  circumstance which  provided some relation or connection with  New  South Wales,  and adopted this as the ground of its  interference, the validity of an enactment reducing interest would not  be open to challenge". and the dissenting judgment of Rich, J. in Broken Hill South Ltd.  v. Commissioner of Taxation (N.S. W.)(2) which  stated that:- "I do not deny that once any connection with New South Wales appears  the  legislature  of  that  State  may  make   that connection  the occasion or subject of the imposition  of  a liability.  But the connection with New South Wales must  be a  real one and the liability sought to be imposed  must  be pertinent to that connection". These  observations of the learned Judges of the High  Court of  Australia were referred to with approval by our  Federal Court  in Governor-General-in-Council v. Raleigh  Investment Co.  Ltd.(3).  It  was an income-tax case  and  the  dispute related  to  the  claim of the  Indian  Government  to  levy income-tax  and  super  tax on the  dividends  paid  to  the assessee   company   (which  was  a  joint   stock   company incorporated  under  the English Companies  Act  having  its registered  offices in the Isle of Man and its main  offices in  England) by nine sterling companies, the bulk  of  whose shares  were held by the assessee company.   These  sterling companies  were registered under the English  Companies  Act and were controlled in London where the Boards of  Directors

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sat,  the  share registers were situate and  dividends  were declared.  They however carried on the business (1)  (19341 50 C.L.R. 581, 600. (2)  [1937] 56 C.L.R. 331, 361. (8)  A.I.R. 1944 F.C. 51 s.c. 1944 F.C.R. 229 703 of manufacturing and selling tobacco and cigarettes in India and  the business in India where all profits were  made  was managed  by the local boards which were constituted  by  the Boards in London.  The financial policies of these companies were  controlled by the London Boards and in  all  important matters of business the London Boards were consulted and all the general meetings of the Companies were held in  England. The dividends of these Companies were also declared by  them in  England  and  paid by them in England  to  the  assessee company in England.  It was however held that the source  of the  dividends paid to the assessee company by the  sterling companies was British Indian and when the attempt was to tax income and not the corpus and the question to be  considered was  the ’source’ of that income it was legitimate  to  take into  account  the place where the business from  which  the income  was derived was in fact carried on and not to  treat the situs of the shares in the eyes of the law as concluding the matter.  The Court was therefore of the opinion that the source of the dividends paid to the assessee company by  the sterling  companies  was British Indian and that  in  making them   liable  to  income-tax  on  that  basis  the   Indian Legislature  was  not giving its law  any  extra-territorial operation.   Spens, C. J. who delivered the judgment of  the Court  further  quoted with approval the  following  passage from  the  judgment of Evatt, J. in  Trustees,  Executors  & Agency Co. Ltd. v. Federal Commissioner of Taxation(1) at p. 236:- "The  Constitution  requires  that it must  be  possible  to predicate of every valid law that it is for the peace, order and  good  government  of the Dominion  with  respect  to  a granted subject, e.g., customs, taxation, external  affairs. In  such cases, the presence of non-territorial elements  in the  challenged  law has to be considered  upon  a  slightly different  footing and those affirming its validity have  to show  not  only that the Dominion has some real  concern  or interest in the matter, thing or circumstance dealt with  by the legislation, but that the concern or interest is of such (1)  [1933] 49 C.L.R. 220. 704 a  nature that the challenged law is truly one with  respect to an enumerated subject-matter". Two more decisions of the Federal Court reiterating the same principle may be noted in this context: Wallace Bros. &  Co. Ltd. v. Commissioner of Income-tax, Bombay City(1) and A. H. Wadia  v.  Commissioner of Income-tax,  Bombay(2).   In  the former   case  the  Court  held  that  where  the   Imperial Parliament   has  conferred  a  power  to  legislate  on   a particular   topic  it  is  permissible  and  important   in determining  the  scope  and meaning of the  power  to  have regard to what is ordinarily treated as embraced within that topic  in  the legislative practice of the  United  Kingdom. The  general conception as,to the scope of  the  legislative practice in the United Kingdom with regard to income-tax  is that  given a sufficient territorial connection between  the person  sought to be charged and the country seeking to  tax him,  income-tax  may  properly extend  to  that  person  in respect  of  his foreign income.  That  general  conception, both on a consideration of the British legislation and as  a matter of construction of the Government of India Act, 1935,

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finds  a  place in the phrase "taxes on income" as  used  in that  Act  and  the  principle  of  sufficient   territorial connection is implicit in the power conferred by the Act  of 1935.   The derivation from British India of the major  por- tion of its income for a year gives to a company as respects that year a territorial connection sufficient to justify the company  being treated as at home in British India  for  all purposes  relating to taxation on its income for  that  year from  whatever source it may be derived, and if it is so  at home in British India it is a person properly subject to the jurisdiction  of  the Central Indian  legislature.   In  the latter case the Court held that a law imposing a tax’ cannot be  impugned on the ground that it is  extra-territorial  if there is a connection between the person who is subjected to the  tax  and  the  country which  imposes  that  tax.   The connection  must  however be a real one  and  the  liability sought  to be imposed must be pertinent to that  connection; but, if these conditions are satis- (1) [1948] F.C.R. 1. (2) [1948] F.C.R. 121, 705 fled it is of no importance on the question of validity that the liability imposed is, or may be, disproportionate to the territorial  connection.  Kania, C. J. also observed  at  p. 141:- "As mentioned above, the aspect of it affecting persons  who are  beyond the jurisdiction of the municipal courts  cannot be  considered  sufficient for the Court to  hold  it  ultra vires.   The municipal courts are bound to enforce the  law. Whether  after obtaining the opinion or decree the  same  is enforceable  against the other side or not, is not a  matter for  the Court’s consideration.  The Court has only  to  see that  the legislation is within the ambit of the  powers  of the Legislature". Having resort therefore to the territorial Connection or the nexus  theory  enunciated  in  the  cases  above  noted  and analysing the concept of sale into its necessary ingredients as  above  the various State Legislatures  enacted  laws  in respect  of taxes on sales or ’purchases of goods  spreading their  net  as  wide  as they could  having  regard  to  the situation  obtaining  in their  respective  territories.   A transaction  of  sale or purchase of goods thus came  to  be taxed  by more States than one even though really there  was only one transaction of sale or purchase of goods as between the  seller  and the purchaser.  The consumer was  the  last person  who ever counted in the scramble for taxes on  sales or purchases of goods and even the free flow of  inter-State trade  and commerce was affected.  The state of affairs  was thus graphically described by Patanjali Sastri, C. J. in his judgment in Bombay Sales Tax Appeal(1) at p. 1079:- "In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India  Act, 1935, the Provincial Legislatures enacted sales-tax laws for their  respective  Provinces,  acting on  the  principle  of territorial  nexus referred to above; that is to  say,  they picked  out  one or more of the ingredients  constituting  a sale and made them the basis of their sales-tax legislation. Assam and Bengal made among other things the actual (1)  [1953] S.C.R. 1069. 706 existence  of the goods in the Province at the time  of  the contract  of  sale  the test of taxability.   In  Bihar  the production  or manufacture of the goods in the Province  was made  an  additional  ground.  A net  of  the  widest  range perhaps was laid in Central Provinces and Berar where it was

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sufficient  if  the  goods  were  actually  ’found’  in  the Province at any time after the contract of sale or  purchase in respect thereof was made.  Whether the territorial  nexus put  forward as the basis of the taxing power in  each  case would  be sustained as sufficient was a matter of doubt  not having  been tested in a court of law.  And such  claims  to taxing   power  led  to  multiple  taxation  of   the   same transaction  by  different Provinces and cumulation  of  the burden  falling  ultimately on the consuming  public.   This situation  posed to the Constitution makers the  problem  of restricting the taxing power on sales or purchases involving inter-State elements, and alleviating the tax burden on  the consumer". Apart   from  the  States  resorting  to   the   territorial connection  or  nexus  theory in the  manner  aforesaid  the courts also appeared to lend their support to the theory and the  High  Court of Madras in particular in  two  decisions, Poppatlal  Shah v. State of Madras(1) and C. G. Naidu &  Co. v.  State of Madras(2), gave its imprimatur to this  theory. In  the  former  case the expression  "sale  of  goods"  was understood  in its popular sense as distinct from its  legal sense and it was held that the sales tax could be levied  if the  transaction substantially took place within  the  State notwithstanding  that the property did not pass  within  the State.  In the latter case it was held that the power of the State  to impose taxes was not conditioned on  the  subject- matter being wholly within its jurisdiction and the exercise of  the power was valid if there was sufficient  territorial connection  with  reference to  the  subject-matter.   After discussing  the American case law on the subject  the  Court came to the conclusion that in respect of inter-State  sales the State in which the contract was concluded was the (1)  A.I.R. 1953 Madras 91. (2)  A.I.R. 1953 Madras 117.                             707 only State which had the power to impose a tax.  This  Court also  in  the  majority judgment in  the  Bombay  Sales  Tax Appeal(1)  while  summarising the position  as  it  obtained before  the  enactment  of  the  Constitution   incidentally expressed its opinion in this behalf at p. 1078 as under:- "As pointed out by the Privy Council in the Wallace Brothers case(2)  in  dealing  with  the  competency  of  the  Indian Legislature to impose tax on the income arising abroad to  a non-resident foreign company, the constitutional validity of the  relevant  statutory  provisions did  not  turn  on  the possession  by the legislature of  extra-territorial  powers but on the existence of a sufficient territorial  connection between  the taxing State and what it seeks to tax.  In  the case  of  sales-tax  it is not necessary that  the  sale  or purchase should take place within the territorial limits  of the  State in the sense that all the ingredients of  a  sale like  the agreement to sell, the passing of title,  delivery of  the  goods, etc., should have a  territorial  connection with  the  State.   Broadly speaking,  local  activities  of buying  or  selling carried on in the State in  relation  to local  goods  would  be a sufficient basis  to  sustain  the taxing  power  of  the  State,  provided  of  course,   such activities  ultimately  resulted  in  a  concluded  sale  or purchase to be taxed". In  another  case decided immediately  thereafter  Poppatlal Shah  v. The State of Madras(3) this Court  understood  this expression  of  opinion in the majority judgment  as  laying down the principle of territorial connection or nexus:- "It admits of no dispute that a Provincial Legislature could not  pass a taxation statute which would be binding  on  any

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other part of India outside the limits of the Province,  but it would be quite competent to enact a legislation  imposing taxes  on  transactions  concluded  outside  the   Province, provided  that there was sufficient and a  real  territorial nexus  between  such transactions and the  taxing  Province. This  principle,  which is based upon the  decision  of  the Judicial Committee in Wallace Brothers & Company v. (1)  [1953]  B.C.R. 1069.  (2) [1948] F.C.R. 1.  (3)  [1953] S.C.R. 677, 90 708 Commissioner of Income-tax, Bombay(1) has been held by  this court  to  be  applicable to sale tax  legislation,  in  its recent decision in the Bombay Sales Tax Act case(2) and  its propriety  is  beyond question.  As a matter  of  fact,  the legislative  practice in regard to sale tax laws adopted  by the  Provincial Legislatures prior to the coming into  force of  the  Constitution has been to  authorise  imposition  of taxes  on  sales and purchases which were  related  in  some manner  with  the taxing Province by reason of some  of  the ingredients of the transaction having taken place within the Province or by reason of the production or location of goods within it at the time when the transaction took place". It  may be observed that in the Bombay Sales Tax Appeal  the question  of  the territorial connection or  nexus  was  not directly  in dispute and in Poppatlal’s case(3) referred  to above  it was taken as decided by this Court in  the  Bombay Sales  Tax Appeal that the theory of territorial  connection or  nexus was applicable to sales tax legislation.  It is  a moot point whether this theory of territorial connection  or nexus  which has been mainly applied in income-tax cases  is also applicable to sales tax legislation, the spheres of  an income-tax legislation and sales tax legislation being quite distinct.  Whereas in the case of income-tax legislation the tax is levied either on a person who is within the territory by  exercising  jurisdiction over him in  personam  or  upon income  which has accrued or arisen to him or is  deemed  to have  accrued  or arisen to him or has been derived  by  him from  sources  within  the territory  and  it  is  therefore germane  to  enquire  whether any part of  such  income  has accrued  or arisen or has been derived from a source  within the  territory, in the case of sales-tax legislation  it  is the sale or purchase of goods which is the subject-matter of taxation  and  it  cannot be predicated  that  the  sale  or purchase  takes  place  at  one or  more  places  where  the necessary  ingredients  of sale happen to be  located.   The theory of territorial connection or nexus was not put to the test at any time prior to the enactment of (1) [1948] F.C.R. 1. (2)[1953] S.C.R. 1069. (3) [1953] S.C R. 677. 709 the Constitution and it is not necessary also for us to give a definite pronouncement on the subject.  Suffice it to  say that  there  was  this evil which was rampant  in  the  pre- Constitution   period  by  reason  of  the  various   States fastening  upon  one  or more ingredients of  the  sale  and arrogating to themselves the power to tax sales or purchases of  goods by reason of the territorial connection  or  nexus which  they  claimed  to  have  with  one  or  more  of  the ingredients  of  the sale provided however that  a  sale  or purchase  ultimately  did  take place  either  within  their territories  or  anywhere else.  It was  this  evil  amongst others which was sought to be remedied by the  Constitution- makers when they came to enact article 286 of the  Constitu-

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tion. The  Constitution-makers enacted several provisions in  Part XIII relating to trade, commerce and intercourse within  the territory of India with an eye towards India as an  economic unit  and  enacted in article 301 that trade,  commerce  and intercourse throughout the territory of India shall be  free and  by article 302 they empowered the Parliament to  impose such  restrictions  on the, freedom of trade,  commerce  and intercourse between one State and another or within any part of  the territory of India as may be required in the  public interest.   Broad  based on this conception  of  freedom  of trade, commerce and intercourse throughout the territory  of India  and  also  with  a view inter  alia  to  relieve  the consumer  of  the burden of multiple taxation which  he  was subjected  to  by the various State Legislatures  by  having resort  to  the territorial connection or  nexus  theory  as aforesaid  the  Constitution-makers in article  286  enacted restrictions  on  the  power of the  State  Legislatures  in regard  to the imposition of tax on the sale or purchase  of goods and these restrictions were fourfold: - (1)  State Legislatures were restrained from imposing a  tax on the sale or purchase of goods where such sale or purchase took place outside the State; (2)  The State Legislatures were restrained from imposing  a tax  on  the sale or purchase of goods where  such  sale  or purchase took place in the course of, the 710 import  of the goods into or export of the goods out of  the territory of India; (3)  The State Legislatures were restrained from imposing  a tax on the sale or purchase of any goods where such sale  or purchase  took place in the course of inter-State  trade  or commerce  except  in so far as the Parliament might  by  law otherwise provide; and (4) The State Legislatures were restrained from imposing a tax on the sale or purchase of any such goods as had  been declared  by Parliament by law as essential for the life  of the  community  unless such law had been  reserved  for  the consideration of the President and had received his assent. These  were  the four restrictions which were put  upon  the powers  of  the State Legislatures to impose a  tax  on  the sales or purchases of goods and were imposed with  different objectives in view. The  first restriction was devised to achieve the  objective of relieving the consumer of the burden of multiple taxation and  put it out of the power of a State to tax the  sale  or purchase  of  goods where such sale or purchase  took  place outside the State.  The Sale of Goods Act contained  several provisions  which  determined when a sale or  purchase  took place or in other words when the property in the goods  sold passed from the seller to the purchaser.  But it was  silent in  regard  to  the place where the sale  or  purchase  took place.   There  was  no rule of law  enacted  therein  which determined  the situs or location of such sale  or  purchase and resort was therefore had to the general law of the  land for the purpose.  The territorial connection or nexus theory had  an  eye  over  the various ingredients  of  a  sale  or purchase  and if anyone or more of these  ingredients  fixed the  situs or the location of the sale it would mean that  a sale had more situses or locations than one.  This state  of affairs could not be allowed to continue any further having, regard to the interests of the consumer and it was therefore thought   necessary,  when  the  State   Legislatures   were restrained from imposing a tax on sale or purchase of  goods where  such sale or purchase took place outside  the  State,

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also to determine when 711 such  sale or purchase could be said to take  place  outside the State.  It was for this purpose that the Explanation  to article  286(1) (a) was enacted and it was enacted  for  the express  purpose therein mentioned, viz., "for the  purposes of  sub-clause (a)".  The Explanation was thus  enacted  for the  express purpose of determining what sales or  purchases could be said to have taken place outside the State and  the basic  idea  which was adopted therein was  that  under  the general law relating to Sale of Goods property in the  goods would  by  reason  of  such  sale  or  purchase  pass  in  a particular  State  which  would therefore be  the  situs  or location of such sale or purchase.  But notwithstanding that fact the sale or purchase was 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 purposes of consumption  in that State.  The antithesis appears to  have been  between the State in which the property in  the  goods has by reason of such sale or purchase passed and 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 and in the  competition  between -these two States the Explanation provided that the sale  or purchase  in  those circumstances 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 therein.   This  Explanation was  interpreted  in various ways, one view  being  that  It defined  an  outside sale and went no further and  that  the situs of the sale was determined for the limited purpose  of telling  the State what it could not tax by telling it  that in  the  cases covered by the Explanation in  spite  of  the property  in the goods having passed within its  territories it  was an outside sale qua that State.  The other view  was that  besides  fixing the situs of sale in  this  manner  it also.  defined  what was a sale or purchase which  shall  be deemed  to have taken place in the delivery State  and  thus fulfilled  a double function of investing only the  delivery State with the power to tax such sale or pur- 712 chase  to  the’ exclusion of all other States qua  whom  the sale  or  purchase was deemed to be an  outside  sale.   The third  view  was  that the Explanation  was  concerned  with fixing  the situs of sale in respect of the  delivery  State only and did not affect the power of the State in which  the property  in  the  goods  had passed to  tax  such  sale  or purchase  which  it enjoyed by reason of the fact  that  the property in the goods had passed within its territories.   A fourth possible view was that the only State which could not tax  such sale or purchase on the ground that the  sale  was outside the State was the State in which the property in the goods  had  passed leaving open to the other States  to  tax such sales or purchases by having resort to the power  which they possessed under article 246(3) and Entry 54 of List  11 of  the Seventh Schedule to the Constitution.   Whatever  be the  correct  view  to take of  this  Explanation  one  fact remained that article 286 (1) (a)   and   the    Explanation thereto were enacted with the one and only motive to relieve the consumer of the burden of multiple taxation to which  he was subjected by having resort to the territorial connection or nexus theory and to replace the nexus theory by what  may be  described  as the situs theory fixing the situs  or  the location  of the sale or purchase and putting a  restriction on  the  taxing power of the States qua which  it  could  be

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predicated that such sale or purchase took place outside the State,  thus leaving only one State in which the goods  have been  actually delivered as a direct result of such sale  or purchase for the purpose of consumption therein "free to tax the  sale or purchase having resort to the powers vested  in the State Legislature by article 246(3) and Entry 54 of List II of the Seventh Schedule to the Constitution. If therefore the situs or location of the sale was laid down as  the criterion of the taxing power of the State the  non- obstante  clause contained in the Explanation gave the  clue as to what was in mind of the Constitution-makers when  they substituted  the situa theory in place of the  nexus  theory which  theretofore prevailed.  They took cognisance  of  the general law                             713 relating  to the sale of goods under which the  property  in the  goods passed by reason of such sale or  purchase.   The conception of the transfer of ownership of the goods by  the seller  to  the  purchaser  was thus  accepted  by  them  as determining  the situs or location of the sale  or  purchase and this conception had its roots in the relevant provisions of  the Sale of Goods Acts both in India and in England  and in spite of the fact that those provisions did not in  terms say  where the sale took place or the transfer of  ownership came about or the property in the goods passed by reason  of such  sale or purchase, the general law relating to sale  of goods  was  taken in the Explananation to fix the  situs  or location of such sale or purchase within the territories  of a  particular State and that event could only take place  in one  State and not in more States than one.  There could  be only  one situs or location of the sale or purchase  and  if that  were  so the State in whose territories such  sale  or purchase  took place or in which the property in  the  goods passed  by  reason of such sale or purchase  was  the  State which could claim the power to tax such sale or purchase  by reason  of its having taken place within its territory.   It would  therefore appear that the Constitution-makers had  in enacting  the  Explanation  the  one  and  only  motive   of negativing  the territorial connection or nexus  theory  and replacing  it  by the situs theory and fixing the  situs  or location  of the sale or purchase within the State in  which the  property in the goods passed by reason of such sale  or purchase.  While doing so they also created a legal  fiction whereby  in the competition between what may be  called  the title  State and the delivery State the delivery  State  was given the power to impose a tax on sale or purchase of goods where  the  goods had actually been delivered  as  a  direct result  of  such  sale  or  purchase  for  the  purpose   of consumption in that State.  If the object to be achieved was the  relief  of  the consumer from the  burden  of  multiple taxation  that object could only be achieved  by  subjecting him to taxation at the instance of one State only and not by more States than one and to that extent the view 714 that  both the title State and the delivery State  would  be entitled  to impose the tax on the sale or purchase  falling within the Explanation was clearly erroneous, the only State which would be in a position to tax the sale or purchase  in question  being  the  State  in which  the  goods  had  been actually  delivered  as  a direct result  of  such  sale  or purchase for the purpose of consumption therein. The  second  restriction on the taxing power  of  the  State Legislatures was devised to safeguard the import and  export trade  of the country and embraced transactions of  sale  or purchase  of goods where such sales or purchases took  place

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in  the course of the import of the goods into or export  of the goods out of the territory of India, vide article 286(1) (b).   It is significant to observe that the Explanation  to article  286(1)(a)  was definitely put for the  purposes  of subclause  (a)  and it had therefore no application  to  the cases  which  were  covered by  article  286(1)  (b).   This concept was quite distinct from the concept which was  dealt within article286(1)(a).  The sales or purchases were looked at  from  different view-points and  the  particular  aspect which  was dealt with in article 286(1)(b) was  the  import- export  aspect  of the transactions of sales  or  purchases. That  aspect was separately dealt with even though  for  the sake  of economy of words the provisions in  regard  thereto were  incorporated in article 286(1).  They had  nothing  in common with the provision contained in article 286 (1) (a). The  third  restriction was devised  to  protect  interState trade  or  commerce  and covered  transactions  of  sale  or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce except in  so far as Parliament might by law otherwise provide.  This  was still another viewpoint and this restriction was put with  a view to safeguard the freedom of trade, commerce and  inter- course throughout the territory of India.  The imposition of this restriction meant that the States would be deprived  of a large part of their income which they used to derive  from taxing sales or purchases falling 716 within   this  category  before  the  commencement  of   the Constitution.   A  proviso was therefore  enacted  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   the  Constitution  shall,  notwithstanding   that   the imposition  of  such tax is contrary to  the  provisions  of article 286(2), continue to be levied until the thirty-first day of March, 1951.  This proviso enabled the State  Govern- ments  to levy the taxes which they used to levy before  the commencement  of the Constitution up to the 31st March  1951 within  which  period  they were expected  to  adjust  their economies and replenish their treasuries by having resort to their legitimate powers of taxation.  By the 31st March 1951 the States could also make representations to the Centre and induce  the Parliament to otherwise provide  by  appropriate legislation  within  the  meaning  of  article  286(2)   and autborise  them to impose taxes on the sale or  purchase  of any  goods where such sales or purchases took place  in  the course of inter-State trade or commerce.  But until that ban was lifted by appropriate legislation by the Parliament  the by  imposed  under  article  286(2)  was  absolute  and   no transaction of sale or purchase of goods where such sale  or purchase  took place in the course of inter-State  trade  or commerce  could ever be made the subject-matter of  taxation at the instance of a State Legislature.  The Explanation  to article  286(1) (a) being expressly for the purpose of  sub- clause  (a),  i.e.,  for the  purpose  of  determining  what transaction  of  sale or purchase was outside the  State  or inside  the  State as above stated could not  be  read  into article  286(2)  nor  could it be read as  an  exception  or proviso to article 286(2).  Reading it as such exception  or proviso  would  be  contrary to the  express  terms  of  the Explanation  and  would  also stultify the  purpose  of  the enactment  of article 286 (2) thus taking a large slice  out of the transactions falling within that category.  The  rule as  to the exclusion of the general provision by  a  special provision would also not apply for the simple reason that

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91 716 the object of article 286(1)(a) and the Explanation  thereto is quite distinct from the object of article 286(2) and  the objects being quite different these provisions do not cover. the  same  subject-matter and therefore there  would  be  no occasion  for the application of that rule of  construction. To this extent the view taken by me in the Bombay Sales  Tax Appeal(1)  that the Explanation to article 286(1)(a) was  an exception   or  proviso  to  article  286(2)   was   clearly erroneous. The  last  restriction  on the taxing powers  of  the  State Legislatures was devised to maintain the supply of essential commodities  and related to the imposition of a tax  on  the sale  or  purchase  of any goods as have  been  declared  by Parliament  by  law  to be essential for  the  life  of  the community  unless  such  law  has  been  reserved  for   the consideration of the President and has received his  assent. This  restriction  also  though  of  another  nature  was  a restriction  put on the power of the State  Legislatures  to tax  such transactions of sale or purchase and was  absolute in terms having nothing whatever to do with the restrictions put  in the earlier clauses of article 286.  These  transac- tions  comprised a distinct category by themselves and  were not affected by the restrictions put in the earlier  clauses of  the  article.   It may be noted  that  the  transactions covered  by article 286(1) (a), article 286(2)  and  article 286(3)  though  looked  at  from  different  view-points-may overlap.   A transaction which is covered by article  286(1) (a)  may  also be covered by article 286(2) and  both  these sets of transactions may be covered by article 286(3).  Such overlapping  would not necessarily mean that the  provisions of  one particular clause have to be read as fastening  upon the  transactions  falling  within  the  category  comprised therein and treating them as lifted out of the ban sought to be  imposed by the other clauses of the article.   Each  ban has  got  to be effective and imposed  on  the  transactions falling within its ambit and even though the transaction may be saved out of the ban imposed in one particular clause  it may just as (1)  [1958] S.C.R 1069. 717 well fall within the ban imposed in another clause and  thus be excluded from the taxing power of the State Legislatures. It cannot therefore be urged that the Explanation to article 286(1)(a)  lifts the transaction out of the ban  imposed  by article  286(2)  or  by  article  286(3)  and  leaves   such transaction  of  sale  or  purchase as  is  covered  by  the Explanation free to be taxed by the delivery State in  spite of  the same being of an inter-State character or  being  in regard  to  goods  declared  by  Parliament  by  law  to  be essential for the life of the community. The  whole  scheme of article 286 is  that  four,  different restrictions  are  put  on the taxing  power  of  the  State Legislatures  in regard to the sales or purchases  of  goods and each one of these restrictions has got to be  considered separately  by itself and it is only those  transactions  of sale  or  purchase  which do not fall within  any  of  those categories  that can be taxed by the State  Legislatures  by having resort to their powers under article 246(3) and Entry 54 of List 11 of the Seventh Schedule to the Constitution. The learned Government Advocate for Bihar however urged five distinct  reasons  why article 286(2) cannot  apply  to  the transactions  of sale or purchase covered by article  286(1) (a) and the Explanation thereto and they were:-

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(1)  The  class  of sales falling under article  286(1)  (a) form  a special class of inter-State sales which on  general principles   ought  not  to  be  affected  by  the   general provisions of article 286(2); (2)  If article 286(2) applies to the class of sales covered by  article 286(1)(a) and the Explanation thereto  it  would result  in discrimination against local trade in  favour  of inter-State  trade  and  it will be  inconsistent  with  the provisions of Part XIII of the Constitution; (3)  The purpose of article 286 being to eliminate  multiple taxation and article 286(1) (a) having already achieved that purpose with regard to the class of sales falling within  it it was no longer necessary for that purpose to apply article 286(2) to that class of sales; 718 (4)  The  Constitution itself has divided inter-State  sales into  two  categories and in relation to one  class  it  has itself  provided  which  State  will  tax  and  under   what conditions   and  in  relation  to  the  other   class   the Constitution  itself has imposed a ban in general terms  and granted  Parliament  power in general terms again  to  relax that ban as and when Parliament thinks fit; and  (5)  By  a  legal  fiction,  the  inter-State  sale  is converted into an intrastate sale. We shall deal with these reasons seriatim. As to reason (1): it was submitted that the transactions  of sale  covered  by  article 286(1) (a)  and  the  Explanation thereto  and  the transactions of sale  covered  by  article 286(2)  were of the same category and both these  provisions dealt  with the same topic.  That being so,  article  286(2) contained a general provision whereas article 286(1) (a) and the Explanation thereto contained a special provision having reference  to the transactions of sale or  purchase  falling within  that  category,  with the result that  the  rule  of harmonious  construction applied and the  special  provision was  to  be read as an exception to the  general  provision. This argument found favour with the High Court below as well as  myself in the Bombay Sales Tax Appeal(1).  This rule  of harmonious  construction no doubt would apply if the  topics covered  by  both these provisions were the  same,  and  the subject  matters  dealt with in both these  provisions  were identical.  There is this difference however between the two provisions,  viz., that the transactions covered by both  do not fall within the same category and a transaction of  sale which  is looked at from the point of view of its  being  an outside or an inside sale may just as well be a sale in  the course  of  inter-State  trade  or  commerce.   In   article 286(1)(a)  the  transaction is looked at from the  point  of view  of its situs or location and in article 286(2)  it  is looked at from the point of view of its being in the  course of inter-State trade or commerce and the two approaches  are quite distinct one from the other.  That being so it cannot (1)  (1953) B.C.R. 1059.                             719 be  said that the topics which are dealt with by both  these provisions  are the same or that the subjectmatters  thereof are  identical.   The  ban  which  is,  imposed  by  article 286(1)(a)  and the rule of harmonious construction  and  the exception of the special provisions from the general one  as indicated above would’ have no application in the matter  of the construction of both these provisions. As  to  reason (2): there is no question  of  discrimination against  local  trade  in favour  of  inter-State  trade  if article  286(2)  applied to the class of  sales  covered  by article  286(1) (a) and the Explanation thereto.  The  local

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trade  would certainly be liable to the levy of  intra-State sales  tax  which could be avoided if  a  transaction  takes place  in the course of interState trade or  commerce.   For the  working  of the Union as an economic unit and  for  the free flow of trade, commerce and intercourse throughout  the territory of India it is necessary that no fetter should  be placed on the course of inter-State trade or commerce.   The consumers within a State who would resort to transactions of purchase across the border with a view to avoid the  payment of  the intrastate sales tax would be comparatively few  and could  in  conceivable  cases be caught within  the  net  by imposing  a  tax  on goods of  a  non-discriminatory  nature within  the  meaning  of article  304(a).   This  reason  is therefore  no  deterrent to our holding that the  ban  under article 286(2) is absolute and unaffected by article  286(1) (a) and the Explanation thereto. As to reason (3): it postulates that the only purpose of the enactment of article 286 (1) (a) and the Explanation thereto is  to  eliminate multiple taxation.  If that was  the  only purpose  of the article it might conceivably be argued  that once  that purpose is achieved in regard to  the  particular set  of transactions which are covered by article  286(1)(a) and  the  Explanation there to there is no further  need  of putting  any ban under article286(2).  As has  been  already observed  before, the purposes of the enactment  of  article 286  were  manifold and they were achieved by  enacting  the four distinct provisions in the manner indicated 720 above  and the restrictions which were put on the powers  of the  State  Legislatures  to tax  transactions  of  sale  or purchase   were   mutually   exclusive   even   though   the transactions  might so far as their nature and character  be concerned overlap in certain events.  Even though  therefore a  transaction fell within the ban of article  286(1)(a)  it could nonetheless be subjected to the ban which was  imposed by article 286(2) and it could be taxed only if it  survived this scrutiny also, which could be done if the Parliament by law otherwise provided as set out in article 286(2). As  to reason (4): it assumes that the  Constitution  itself has  divided transactions of sale or purchase in the  course of   inter-State  trade  and  commerce  into  two   distinct categories,  one falling within article 286 (1) (a) and  the Explanation  thereto  and the other falling  within  article 286(2).   There is no warrant for holding that  transactions in  the course of inter-State trade or commerce are  divided into  such  distinct  categories  for  the  purpose  of  the imposition of the ban.  The transaction of sale or  purchase would be one but it is subject to the imposition of distinct bans having regard to the view-point from which it is  being looked  at.  If it is looked at from the view-point  of  its being  an outside or an inside sale it may be caught  within the ban of article 286(1) (a).  If it is looked at from  the view-point  of  its  being a transaction in  the  course  of inter-State  trade or commerce it may be caught  within  the ban  imposed  by article 286(2).  These  bans  are  mutually exclusive and may have to be applied to the same transaction of  sale or purchase, one ban not necessarily excluding  the other. As  to reason (5): the argument totally ignores the  purpose and  efficacy  of  a legal fiction.  A  legal  fiction  pre- supposes  the correctness of the state of facts on which  it is based and all the consequences which flow from that state of facts have got to be worked out to their logical  extent. But due regard must be had in this behalf to the purpose for which the legal fiction has been created.  If the purpose of

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this  legal fiction contained in the Explanation to  article 286(1)(a)  is  solely for the purpose of sub-clause  (a)  as expressly 721 stated it would not be legitimate to travel beyond the scope of  that  purpose  and read into  the  provision  any  other purpose  howsoever attractive it may be.  The legal  fiction which  was  created  here  was  only  for  the  purpose   of determining whether a particular sale was an outside sale or one  which could be deemed to have’ taken place  inside  the State  and  that was the only scope of  the  provision.   It would  be  an illegitimate extension of the purpose  of  the legal  fiction  to  say that it was  also  created  for  the purpose  of  converting  the inter-State  character  of  the transaction into an intrastate one.  This type of conversion could not have been in the contemplation of the Constitution makers and is contrary to the express purpose for -Which the legal  fiction was created as set out in the Explanation  to article 286(1)(a). All   these   reasons  therefore   taken   individually   or collectively  are  not sufficient to negative  the  position that the transactions covered by article 286(1) (a) and  the Explanation  thereto are not excluded from the operation  of article  286(2) and that the ban under article  286(2)  also applies to the same. It  was also urged that this-construction put  upon  article 286(1)(a)  and  the Explanation thereto  and  article  286(2 would   render  the  Explanation  nugatory  and   that   the Constitution   makers  at  the  very  commencement  of   the Constitution would not have given the power by one hand  and taken   it  away  by  the  other  and  that  therefore   the Explanation  to  article  286(1) (a) should be  read  as  an exception or a proviso to article 286(2).  This argument  no doubt found favour with me in the Bombay Sales Tax Appeal(1) and  also with the High Court below.  If due regard  however is  had to the purpose of the enactment of article 286 as  a whole and also to the various considerations which have been set  out  herein  above it is clear that  this  argument  is untenable.  The transactions of sale and purchase covered by the  Explanation to article 286(1) (a) are  not  necessarily co-extensive  or conterminous with the transactions of  sale or   purchase   covered  by  article  286(2).    There   are transactions which would be covered by the (1)  (1953] S.C.R. 1069. 722 Explanation  to  article  286 (1) (a)  without  their  being transactions of sale or purchase in the course of interState trade or commerce and which therefore would without anything more be covered by the Explanation and would be the subject- matter of taxation by the delivery State by the  appropriate exercise of its power of taxation.  There is also a  further fact to be noted and it is that even though the transactions covered  by  both these provisions may  be  conceivably  co- extensive  or conterminous with each other, the  Explanation to  article 286(1)(a) would come into operation  the  moment the  ban  of  article  286(2) was  lifted  by  an  otherwise provision enacted by Parliament and it was certainly  lifted up  to  the 31st March 1951 by the President  directing  the continuance  of  the operation of the sales tax  laws  which previously  existed  in the various States.   It  could  not therefore  be stated that the construction put upon  article 286(1)(a) and the Explanation thereto and article 286(2)  as above  would render the Explanation nugatory. if the  States thought  that the operation of the ban under article  286(2) prevented them from taxing transactions of sale or  purchase

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which  take  place in the course of  inter-State  trade  and commerce  and which are also covered by the  Explanation  to article  286  (1) (a) it was open to them  to  adopt  proper measures for lifting the ban under article 286(2) and making themselves free to tax the transactions of sale or  purchase covered by the Explanation.  Parliament would in that  event consider  the  proposals made by the  respective  States  in their proper perspective having regard to the provisions  of the Constitution in regard to the freedom of trade, commerce and intercourse throughout the territory of India, the  con- venience or inconvenience of the public and the needs of the respective States and lift the ban in the manner and to  the extent it thought fit. The  majority  judgment in the Bombay Sales Tax  Appeal  has been  construed  by  the various States as  giving  them  an authority  to  impose a tax on the transactions of  sale  or purchase  covered by the Explanation to article  286(1)  (a) and authorising them to 723 impose such tax on the seller even though he may be residing outside  their  territories.  The  non-resident  businessmen therefore  who entered into transactions of sales  of  goods where  as  a  direct  result of such  sales  the  goods  are actually  delivered  for  the purpose of  consumption  in  a particular  State  have been sought to be subjected  to  the levy of sales tax at the instance of these States with great inconvenience and harassment to themselves, and the  warrant for their action in this behalf is stated by these States to be the majority judgment of this Court.  The various  States however in the scramble for taxes have been oblivious to the fact  that  a  transaction  of sale or  purchase  is  not  a unilateral  transaction but a bilateral one and when  it  is looked at from the point of view of a sale or purchase it is one  transaction  which has two facets.  From the  point  of view of a seller it is a sale transaction and from the point of  view of a purchaser it is a purchase transaction.   When therefore  the transaction is one on which a tax on sale  or purchase  can  be levied it does not necessarily  mean  that only a sales tax can be levied and not a purchase tax.   The inside dealer may therefore be taxed on his purchases or  if be  sells in retail to actual consumers in the State be  may be taxed on the sales.  If the inside dealer is himself  the consumer  then there will be no difficulty in assessing  him for his books will show how much he has imported from  other States  and  how  much he has consumed.  In  any  case,  the convenience or inconvenience of collecting a sales tax or  a purchase  tax  is not a relevant consideration when  one  is considering the validity or otherwise of such a tax, as  was observed  by  Kania, C. J. in the case of A. Lt.   Wadia  v. Commissioner  of  Income-tax, Bombay(1) at p. 141.   In  the very  judgment  of  the majority in  the  Bombay  Sales  Tax Appeal(2) there is a passage at p. 1084 which indicates that all buyers within the delivery State except those buying for re-export out of the State would be within the scope of  the Explanation  and  liable to be taxed by the  State  on  such transactions and it would be an unwarranted assumption on (1) [1948] F.C.R. 121.          (2) [1908] B.C.R. 1069, 92 724 the  part of anyone who read that judgment to say  that  the delivery  State  was entitled to levy a tax on the  sale  or purchase of goods falling within the Explanation to  article 286(1) (a) on the seller alone.  The seller would be outside the territories of the taxing State and would primarily  not be  liable to the jurisdiction of the Sales Tax Act  enacted

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by the taxing State.  It would be by adopting the theory  of the  territorial  connection or nexus as it was  being  done prior  to the enactment of the Constitution that the  taxing State  would  seek  to reach  the  non-resident  businessmen outside  its  territories and if regard be had to  the  fact that  the taxation is either in personam or in  relation  to the transaction of sale or purchase which takes place within its  territory  there is no warrant at all  for  taxing  the outside businessmen on the transactions of sale or  purchase covered by the Explanation to article 286(1 ) (a).  All  the provisions contained in the Bihar Sales Tax Act with  regard to the registration ’of the outside dealer, the  maintenance of the books of account, submission of returns by him to the Sales Tax authorities of the State of Bihar, the  production and  inspection  of books of account before  the  Sales  Tax authorities,  the  search  of the premises  of  the  outside dealer  by  them and the imposition of penalties on  him  by reason  of  his noncompliance with  the  various  provisions contained  in  the Act amongst others  are  unwarranted  and illegitimate  exercise of the powers incidental to the power of  taxing  sales or purchases conferred upon the  State  of Bihar  by article 246(3) and the Entry-54 in List 11 of  the Seventh Schedule to the Constitution and do not affect  non- resident businessmen who are outside the territories of  the State of Bihar. The majority judgment in the Bombay Sales Tax Appeal(1)  did not  say  that the delivery State was entitled  to  tax  the sellers  in the transactions of sale or purchase covered  by the Explanation to article 286(1) (a).  The question whether the seller or the purchaser would be subject to the levy  of a tax on the transaction of sale or purchase at the instance of the delivery (1)  [1953] S.G.A. 1069. 725 State  was  not  before  the  Court  -and  the  observations contained in the majority judgment were made with  reference to  a pure question of the interpretation of article  286(1) (a)  and the Explanation thereto.  As a matter of  fact  the passage  above-quoted from the judgment(1) at p. 1084  would go  to  show  that they contemplated  the  purchasers  being amenable to tax at the instance of the delivery State in the case  of transactions covered by the Explanation to  article 286(1)  (a).   Even though it is not  strictly  relevant  to consider  the consequences of a particular position  in  law when  construing  a statutory provision  it  is  nonetheless necessary to visualise those consequences when one tries  to probe into the mind of the legislators and see whether  they could  have  ever contemplated such  consequences.   If  the construction  sought  to  be put  upon  the  Explanation  to article  286(1) (a) and the majority judgment  in  relation- thereto by the State Legislatures were accepted, all outside dealers  wheresoever  they  may be located  or  residing  or carrying  on  their  business all over the  Union  would  be amenable  to  the levy of sales tax at the instance  of  the delivery State and one dealer in a particular State who  had a very large business and was entering into transactions  of sale  with  consumers in outside States all over  the  Union would  be amenable to the jurisdiction of several States  in the matter of his transactions of sale of his goods.   There are  as many as 21 Sales Tax Acts to be found in the  Manual of Sales Tax Acts and if a dealer in one State was going  to be held amenable to the levy of sales tax at the instance of all  the  other States it would mean that he would  have  to ascertain from the purchaser in each of the transactions  of sale  which he enters into the State to which the  purchaser

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be. longs, whether the purchaser is purchasing the goods for the purpose of consumption within that State, to get himself registered as a dealer in that State, to maintain his  books of  account with a view to produce them and subject them  to inspection  by the Sales Tax authorities in that  State,  to submit  returns of the sales tax recovered by him  from  the purchasers (1)  [1953] S.C.R. 1069, 726 in that State before the Sales tax authorities of that State and  make  himself  liable for  the  non-observance  of  the various  requirements of the Sales Tax Act enacted  by  that State.   The  task of fulfilling the  requirements  qua  one State  would be formidable enough.  But when one  visualises that  the dealer who enters into such transactions  of  sale with the various customers may be subjected to this  process at  the  instance  of  each and  every  State  within  whose territory the purchaser may happen to be importing the goods as  a  direct  result of such sale  for  actual  consumption within  the  territories  of  that  State,  one  can  easily understand  what  untold harassment  and  inconvenience  the dealer  would  have  to suffer from.  It  will  be  easy  to understand  that if those were the  circumstances  attendant upon  his  business the dealer may as well  close  down  his business  rather than submit to all this harassment  at  the hands  of  the  various States.  The  free  flow  of  trade, commerce  and intercourse throughout the territory of  India will  be  thoroughly choked up and we are  quite  sure  that neither the Constitution makers nor the majority judgment in the  Bombay  Sales Tax Appeal would ever  have  contemplated these consequences.  It is legitimate therefore to hold that no such thing could ever have been ,contemplated by them and nothing would have been farthest from their minds than  such a position.  The seller in such cases would certainly not be amenable  to the levy of a sales tax at the instance of  the delivery  State and no law passed by the delivery  State  in regard  to  a  levy of sales tax would  have  any  operation against  the  non-resident  businessman who  enters  into  a transaction  of sale where as a direct result of  such  sale the goods are actually delivered for consumption within  the taxing State. If  however the majority judgment be construed to have  said that  the seller could be subjected to the levy of  a  sales tax  at  the instance of the delivery State in the  case  of transactions  covered by the Explanation to  article  286(1) (a)  I am of the opinion that it was clearly  erroneous  and public interests demand that the same should be reversed, 727 After further and fuller consideration of the matter in  the light  of  the  very elaborate  arguments  which  have  been addressed   before  us  by  the  learned  Counsel  for   the Appellants  and the Respondents and also the Interveners,  I feel  that  the conclusion reached in the Bombay  Sales  Tax Appeal(2)  needs to be revised and I am of the opinion  that article  286(2) puts an absolute restriction on  the  taxing power  of the States where transactions of sale or  purchase take  place in the course of inter-State trade  or  commerce unless and until the ban is lifted by Parliament within  the terms thereof and until such ban is lifted no delivery State within the meaning of the Explanation to article 286(1)  (a) much less the other States are in a position to impose a tax on   transactions  of  sale  or  purchase  covered  by   the Explanation. The  appeal  should  therefore be allowed  and  a  direction should  issue  against the State of Bihar  to  refrain  from

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taxing  the sales or purchases of goods which take place  in the course of inter-State trade or commerce even though  the goods  as  a  direct result of such  sale  or  purchase  are actually  delivered in Bihar for consumption in  that  State until  Parliament otherwise provides within the  meaning  of that expression in article 286(2).  The Appellant should get its  costs throughout from the State of Bihar, the  rest  of the  parties  appearing  before us to  bear  and  pay  their respective costs of this appeal. JAGANNADHADAS  J.-The,  first,  and to  my  mind,  the  most important, point that requires careful consideration in this case  is whether, and if so within what limits,, this  Court will  observe  the  rule as to the binding  character  of  a judicial precedent with reference to its own prior decisions Admittedly the question that has been raised in this case as to  the construction of article 286 of the  Constitution  is one  that is directly covered by a recent -decision of  this Court  in the State of Bombay v. The United  Motors  (India) Ltd.(1).  The rule as to the binding character  of  judicial precedents is one which is normally accepted (1)  (1958) S.C.B. 1069. 728 by  all  the  Courts which function on the  pattern  of  the British  Judicial  system.  This rule, in  its  very  strict form.,  is  observed by the English Courts. (Vide  Young  v. Bristol  Aeroplane Co., Ltd. (1) and Williams  v.  Glasbrook Brothers  Ltd.(1)).  The  House of Lords  has  ruled,  after careful consideration, in its judgment in the case in London Street  Tramways Co., Ltd, v. London County Council(3)  that the House is bound to follow its own previous decisions  and will not allow any question settled thereby  to be  reopened and  argued again nor can the House be asked to reverse  its own  prior decision.  Such reversal, if needed, is one  that has  to be brought about by parliamentary  legislation.  The Judicial  Committee  of the Privy Council  has,however,  not adopted  this  extremely rigorous view but has  felt  itself free,   in  appropriate  cases,  to  reconsider  its   prior decisions. (Vide In Be. Transferred Civil Servants (Ireland) Compensation(4)).   The  same is the case with  the  Supreme Court  of the United States of America. (See Willough by  on the  Constitution of the United States, Vol.  I,  page  74). Our  Constitution  which has made detailed  provision  about various  matters- relating to the Supreme Court including  a matter relating to its practice, such as, whether there  can be  a dissenting judgment (see article 145(5)) has  not,  in terms,  made any provision in this behalf.  Article 141,  no doubt, provides that "the law declared by the Supreme  Court shall  be  binding  on all Courts within  the  territory  of India".   It has been urged before us that the  phrase  "all Courts"  is  comprehensive  enough to  include  the  Supreme Court.   It  is,  pointed out,  that  since  every  decision declares  the law, a later decision declaring the law  in  a contrary  sense,  would  in  effect,  be  the  exercise   of legislative  function  which  must be  taken  to  have  been impliedly prohibited.  While these arguments are not without force,  it  is reasonably clear, in the context  of  article 141, that the phrase "all Courts" must refer to Courts other than  the Supreme Court.  In the absence, therefore, of  any clear provision in the (1)  [1944] K.B. 718. (3)  [1898] A.C. 376. (2)  (1947] 2 All E.R. 884. (4)  [1929] A.C. 242, 729 Constitution  and  in view of the fact that this  Court  has

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historically succeeded to the preexisting Federal Court  and the Judicial Committee of the Privy Council., we cannot deny to  this  Court,  the competence  to  reconsider  its  prior decisions. But,  it  does not follow that such power can  be  exercised without  restriction or limitation or that a prior  decision can be reversed on the ground that, on later  consideration, the  Court disagrees with the prior decision and  thinks  it erroneous.   The necessity for certainty and  continuity  in the declaration of law by the highest courts in the  country is  recognised  on  all hands.  That necessity  is  all  the greater,  and  not the less, by reason of  the  Constitution itself  having formally provided that the decisions of  this Court  are  declaratory  of the law.  The  rule  as  to  the binding  character  of a judicial precedent is  based  on  a juristic principle of universal application.  The reason for its adoption is ’’the disastrous inconvenience of subjecting each question decided by a previous judgment to  reargument, thereby  rendering  the  dealings  of  mankind  doubtful  by different  decisions;  so that in truth and  in  fact  there would be no real final court of appeal" (See ,London  Street Tramways  Co., Ltd. v. The London County Council(1) at  page 380).   It is, therefore, necessary to consider within  what limits the competency of this Court to reconsider its  prior decisions  may  well  be exercised.  For  this  purpose  the actual  practice  of other comparable  Courts  as  affording guidance requires close examination. The practice of the Supreme Court of America is indicated in the following passage from Willoughby on the Constitution of the United States of America, Vol.  I, page 74.- "ln cases of purely private import, the chief desideratum is that  the law remain certain, and, therefore, where  a  rule has  been  judicially declared and  private  rights  created thereunder,  the  courts will not, except  in  the  clearest cases  of error, depart from the doctrine of stare  decisis. When, however, public interests are involved, and especially when the ques- (1)  [1898] A.C. 375. 730 tion  is one of constitutional construction, the  matter  is otherwise.   An error in the construction of a  statute  may easily be corrected by a legislative act, but a Constitution and  particularly the Federal Constitution, may  be  changed only   with  great  difficulty.   Hence  an  error  in   its interpretation  may for all practical purposes be  corrected only  by  the Court’s repudiating or  modifying  its  former decision". It  would  appear,  therefore,  that  the  power  of  recon- sideration of a prior decision is somewhat freely  exercised by  the  Supreme Court of America in  Constitutional  cases. The  reason for such free exercise, or to the  same  extent, does not exist under our Constitution.  To appreciate  this, it  is  necessary  to  compare the  provisions  in  the  two Constitutions  for  amendment  of  the  Constitution.    The machinery  for amendment of the Constitution of  the  United States is provided in Article V thereof and is as follows: "The Congress, whenever two thirds of both houses shall deem it necessary, shall propose amendments to this Constitution, or, on the application of two thirds of the several  States, shall call a convention for proposing amendments, which,  in either case, shall be valid to all intents and purposes,  as part of this Constitution, when ratified by the legislatures of three fourths of the several States, or by conventions in three  fourths  thereof,  as the one or the  other  mode  of ratification may be proposed by the Congress".

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Under article 368 of our Constitution, the normal  procedure provided  for  amendment,  except in  respect  of  specified matters to be presently enumerated, is as follows: "An  amendment of this Constitution may be initiated by  the introduction  of a Bill for the purpose in either  house  of Parliament,  and when the Bill is passed in each House by  a majority  of  the total membership of that House  and  by  a majority of not less than two-thirds of the members of  that House  present  and  voting, it shall be  presented  to  the President for his assent and upon such assent being given to the   Bill,   the  Constitution  shall  stand   amended   in accordance6 with the terms of the Bill". 731 In  respect,  however,  of  a  limited  number  of   matters specified  in  the  Constitution,  an  additional  step   is required, namely, that "before the Bill making provision for such amendment is presented to the President for assent, the amendment   shall  also  require  to  be  ratified  by   the Legislatures  of  not  less  than one  half  of  the  States specified  in  Parts  A  and B  of  the  First  Schedule  by resolutions  to that effect passed by  those  Legislatures". Now  the special matters where amendment is  conditional  on this  additional  requirement  relate  to  the  election  of President  (articles  54 and 55), extent  of  the  executive power  of  the Union (article 73), extent of  the  executive power  of a State (article 162), provisions relating to  the Union Judiciary (Supreme Court) (Chapter IV of Part V),  and to  the High Courts of the various States, in Parts A and  B (Chapter V of Part VI) and in Part C (article 241), and  the relations  between  the Union and the States (Chapter  I  of Part XI), as also the distribution of the legislative powers and   the  various  lists  in  the  Seventh  Schedule,   the representation   of  the  States  in  Parliament,  and   the provision in the Constitution relating to the machinery  for amendment  of  the  Constitution.  Thus, it  will  be  seen, excepting in respect of a few basic matters-of which it  may be  noticed article 286 is not one-the normal machinery  for the  procedure  of  amendment is the same as  that  for  the passing of any statute by Parliament except that a specified majority in each of the Houses is essential, the securing of which  would be difficult or easy according to the  strength of  the Government at the time in each of the  Houses.   The requirement  of  special  majority as a  condition  for  the passing of legislation in respect of certain specified items of  business is not altogether an unknown feature.   However that  may be, it is quite clear that while the amendment  of the Constitution does not depend upon the ordinary  majority rule  under  which  Parliament conducts  its  business,  the machinery  therefor is by invoking the very same  Parliament and not anything so difficult, cumbrous and dilatory as that envisaged  in article V of the American Constitution.   Even as regards the 93 732 few specified matters for which an additional requirement of ratification  by  State Legislatures is  provided  for,  our machinery  for  amendment is clearly much  easier  and  less cumbersome.  It does not appear to me., therefore,  right-to rely  upon  the  American  practice  -as  a  safe  guide  to determine  our  practice on the question as to  the  binding character of a judicial precedent.  Neither, are we bound to adopt  the  very  rigid rule which the House  of  Lords  has formulated   for   its  own  practice.    The   problem   of interpreting a written Constitution does not generally arise before it.

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The  only other comparable courts whose practice  has  been brought  to our notice, through citation of cases,  are  the Judicial  Committee of the Privy Council and the High  Court of  Australia.   As  this is the first case  in  this  Court wherein  this question arises, it is desirable  to  consider that  practice carefully for our guidance, though it is  not necessary  to  lay down any absolutely  rigid  or  inelastic formula.   It  is worthwhile at this stage to  notice  what, according   to  the  Constitution  of  Australia.,  is   the machinery for the alteration of their Constitution.  This is to  be gathered from section 128 of the Commonwealth Act  of 1900  which  -broadly speaking-shows that what  is  required there is an absolute majority in each of the Houses and  the approval of each State to be obtained by a referendum to the electors  of  each  State.  This  is  definitely  much  more difficult, cumbersome and dilatory than what obtains in  our Constitution.   Therefore,  there can be no reason  for  our adopting a less rigid standard than that adopted by the High Court of Commonwealth of Australia, nor is there any  reason for  our  adopting a standard less rigid than  that  of  the Judicial  Committee of the Privy.Council, who while  feeling themselves  free not to follow the very strict rule  of  the House of Lords, were under no constitutional limitations  in this behalf. The  practice  of the Judicial Committee as  to  the  limits within   which  they  generally  exercise  the  freedom   to reconsider  their prior decisions can be gathered  from  the cases in In Re.  Transferred Civil Servants 733 (Ireland-) Compensation(1); Attorney-General for Ontario  v. Canada Temperance Federation(3); and Phanindra Chandra Neogy v.  The King(3).  The matter was discussed  elaborately  and various prior decisions of the Privy Council were considered and  the  conclusion  was summed up as  follows  in  In  Be. Transferred Civil Servants (Ireland) Compensation(1): "There is no inherent incompetency in ordering rehearing  of a case already decided by the Board, even when a question of a right of property is involved but such an indulgence  will be granted in very exceptional circumstances only.  It is of the nature of an extraordinarium remedium". After  the  above formulation of their practice,  the  Privy Council  in  this case permitted itself  to  reconsider  the previous decision in Wigg’s case(4), on two grounds. (1) The case  came up before them on a reference under section 4  of the Judicial Committee Act of 1933, and that reference would have  been  futile if it did not  necessarily  involve  such reconsideration.  (2)  The reference itself was  granted  on account  of an alleged material mistake of fact, into  which the previous Board of the Judicial Committee bad fallen.  On such reconsideration the previous decision was affirmed.  In Attorney-General   for   Ontario   v.   Canada    Temperance Federation(2)  the  Judicial Committee expressed  itself  as follows at page 206: "The appellants’ first contention is that Russell’s  case(5) was  wrongly  decided  and ought  to  be  overruled.   Their Lordships  do not doubt that in tendering humble  advice  to His  Majesty  they  are not  absolutely  bound  by  previous decisions of the Board, as is the House of Lords by its  own judgments.  In ecclesiastical appeals, for instance, on more than one occasion, the Board has tendered advice contrary to that  given  in a previous case,  which  further  historical research   has   shown   to  have  been   wrong.    But   on constitutional  questions it Must be seldom indeed that  the Board would depart from a previous decision which it may be (1)  [1929] A..C. 242.

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(3)  76 I.A. 10. (2)  [1946] A.C. 198. (5) 7 A. C. 829. (4) [1927] A.C. 674. 734 assumed  will  have been acted on both  by  Governments  and subjects". In this case the Privy Council was invited to reconsider the correctness  of the law laid down by them in Russell v.  The Queen(1)  but they declined to do so on two  grounds,  viz., (1)  on  constitutional questions the Board  seldom  departs from  its  previous decisions, and (2)  the  prior  decision stood unchallenged for over 60 years. In Phanindra Chandra Neogy v. The King(2) the Privy  Council stated that it is only "in the most exceptional cases"  that they would tender advice to His Majesty inconsistent with  a previous  decision  and reaffirmed the  decision  in  Gill’s case(3). Three  cases  of the High Court of Australia  out  of  those brought  to  our notice are instructive.   In  the  Tramways case(3)  the position was expressed in the following  terms. Griffith, C. J. observed as follows: "In my opinion it is impossible to maintain as an abstract p imposion  that  the Court is either legally  or  technically bound  by previous decisions.  Indeed, it may, in  a  proper case, be its duty to disregard them.  But the rule should be applied  with  great  caution, and only  when  the  previous decision  is  manifestly  wrong, as,  for  instance,  if  it proceeded upon the mistaken assumption of the continuance of a repealed or expired statute, or is contrary to a  decision of another Court which this Court is bound to follow; not, I think upon a mere suggestion that some or all of the members of the later Court might arrive at a different conclusion if the matter were res integra.  Otherwise there would be grave danger  of want of continuity in the interpretation  of  the law". Justice Barton observed as follows: "I have never thought that it was not open to this Court  to review its previous decisions upon good cause.  The question is  not  whether the Court can do so, but whether  it  will, having due regard to the need for continuity and consistency in  judicial decisions.  Changes in the number of  appointed Justices can, I (1) 7 A.C. 829.                     2) 76 I.A.110. (3) 76 I.A. 41.                   (4) la C. L. B. 54, 735 take  it,  never  of themselves furnish  a  reason  for  re- view.............  But the Court can always listen to  argu- ment as to whether it ought to review a particular decision, and  the  strongest  reason  for an  overruling  is  that  a decision  is  manifestly  wrong,  and  its  maintenance   is injurious to the public interest". Having  so laid down the rule of practice for  their  Court, the learned Judges, on account of the special  circumstances in  that  case, unanimously agreed to reconsider  the  prior decision  and  on such reconsideration affirmed it.   In  so reaffirming  the prior decision, one of the learned  Judges, Justice Powers, stated his grounds to the following effect: "In  Whybrow’s  case(1),  the Court  consisted  of  all  the Justices  of  this Court who could sit on  the  application. The case was very fully argued.  Both parties and two of the States  were  represented by counsel.   The  judgments  were considered judgments delivered more than two weeks after the preliminary  objection  was  taken..............  Under  the circumstances   I  have  no  hesitation  in  following   the

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judgment". The  same learned Judge at another portion of  his  judgment stated as follows: "If  we  do  not  show  some  respect  to  our  own  Court’s decisions, no counsel will feel safe in advising the public, and it will create uncertainty and confusion". The principles so laid down have been reiterated in a recent case  of the High Court of Australia in Perpetual  Executors and  Trustees  Association  of  Australia  Ltd.  v.  Federal Commissioner of Taxation in the following    terms: "The  Court  is not bound by its previous  decisions  so  as absolutely  to  preclude  reconsideration  of  a   principle approved and applied in a prior case, but, as was stated  in Cain v. Malone(3), the exceptions to the rule are exceptions which should be allowed only with great caution and in clear cases" Then the above quotation from the judgment of Justice Barton in the Tramways Ca8e(4) was repeated (1)  11 C.L.R. 1. k$) 66 C.L.R. 10, (2)  77 C.L.B. 493. (4)  18 O.L.R. 54. 736 and the principle indicated therein was reaffirmed.  In this case the Court was asked to overrule their prior decision in Trustees   Executors   and  Agency  Co.  Ltd.   v.   Federal Commissioner of Taxation(1).  The learned Judges declined to reconsider it with the following observations: "The  decisions  of a superior Court have a  double  aspect. They  determine the controversy between the parties, and  in deciding the case they may include a statement of  principle which  it is the duty of that Court and of  all  subordinate courts  to  apply  in  cases  to  which  that  principle  is relevant.  Continuity and coherence in the law demand  that, particularly  in this Court, which is the highest  court  of appeal in Australia, the principle of stare decision  should be applied, save in very exceptional cases". The  criterion, viz., that of manifest error plus injury  to public  interest  by maintenance of previous  decision  laid down  in  the  above cases as being the ground  on  which  a reconsideration  can  be granted was reiterated  by  Justice Williams  in his judgment in Attorney-General for N.S.W.  v. Perpetual  Trustee Co. Ltd(2).  In this case the High  Court was  asked  to reconsider the correctness  of  the  majority decision  in  a prior case) viz., that  in  Commonwealth  v. Quince(3).   On  reconsideration the Judges  by  a  majority affirmed  the  prior decision.  One of the  learned  Judges, Justice   Dixon,  considered  the  matter  on   its   merits elaborately  and came to the conclusion that if  the  matter were  to be considered afresh he should prefer a  view  con- trary to that which had been expressed in the prior decision but  concurred  with the majority view  with  the  following observations: "There  appears to me to be no ground for reconsidering  the decision in Quince case(3) unless it be a sufficient  ground simply that the opposite conclusion is to be preferred.   It is  evident that the decision was reached only after a  very full  examination of the question.  It cannot be  said  that any  compelling  consideration or  important  authority  was overlooked   or  that  the  decision  conflicts  with   well established principle or fails (1) 69 C.L.R. 270, (2) 85 C.L.R. 237. (3) 68 C.L.R. 227, 737 to  go with a definite stream of authority.  It is a  recent

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and well considered decision upon what is evidently a highly disputable question. I do not think that we should reconsider the correctness  of that  decision.  The proper course judicially is  to  follow and apply that decision". This is a strong case of the year 1951-1952 indicating,  the most  recent practice of that Court, and the  above  passage aptly  summarises almost the very considerations  applicable to the present case. A consideration of these cases shows that while the  highest courts  other  than  the House of  Lords  have  reserved  to themselves  theoretically the competency to  reconsider  the correctness  of a prior decision, they have  also  carefully confined  the  actual  exercise of that  power  within  very narrow  limits.   In  a number of cases in  which  they  did permit  themselves  to  reconsider,  they  have   ultimately declined to overrule the prior decision notwithstanding that another view might well have been taken.  The only instances brought  to  our  notice  where,  on  a  reconsideration,  a previous  decision  was not followed, are two.  One  is  the Amalgamated Societal of Engineers v. The Adelaide  Steamship Co. Ltd.(1). ’that was a case where the question which arose was  a  very  important  one  as  to  the  power  of   State Legislature  to  encroach on the field of  the  Commonwealth Legislature by virtue of a rule of construction laid down in an  earlier  case, viz., Rail-way  Servants’  case(2).   The learned Judges were of the opinion that that was a  question of  far  reaching  public  importance  and  that  the  prior decision being manifestly wrong and opposed to the rules  Of Construction  laid down by the Privy Council in a number  of cases,  should be reconsidered and overruled.  It  would  be seen that in this case the Court acted upon the  limitations which they have laid down in the course of their  decisions, that  reconsideration and overruling of a prior decision  is to  be  confined  to  cases  where  the  prior  decision  is manifestly wrong and its maintenance (1) 28 C.L.R 129. (2) 4 C.L.R. 488. 738 is  productive of great public mischief.  The second is  the case  in  Gideon Nkambule v. The King(1),  where  the  Privy Council declined to follow its prior decision in  Tumahole’s case(2).   In  this  case,  the  Privy  Council,  while   it reaffirmed  the  proposition that a prior  decision  upon  a given  set  of facts ought not to be  reopened  without  the greatest  hesitation, explained why they, in fact,  differed from the previous one in the following passage: "From a perusal of the judgment in Tumahole’s case(2), it is apparent  that the history of the adoption and  promulgation of  the various statutes and proclamations dealing with  the effect  of the evidence of accomplices in South  Africa  was only partially put before the Board, and much material which has  now been ascertained was not presented to  their  Lord- ships on that occasion.  The present case, therefore, is one in which fresh facts have been adduced which were not  under consideration   when  Tumahole’s  case  was   decided,   and accordingly  it is one in which, in their  Lordships’  view, they are justified in reconsidering the foundations on which that case was determined". This  was  a  case  where  the  question  arose  as  to  the applicability  of  the English rule of law relating  to  ac- complice  evidence  as laid down in Rex  v.  Baskerville(3), viz., that a particular portion of the rule which lays  down that  the evidence of one accomplice cannot be  corroborated by  that  of another.  What was under consideration  of  the

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Privy  Council was whether a prior decision of the  Judicial Committee,  construing a particular section of the  relevant statute applicable in that case in consonance with the above rule,  was correct.  It will be noticed that the  overruling of  the  prior decision in this case was based on  the  fact that  important and relevant material was not placed  before the  Judicial  Committee in the earliar case.   These  cases emphasise  under  what  exceptional  circumstances  a  prior decision  of  the highest and final court in  a  country  is treated as not binding on itself. (1) [1950] A.C,. 379.             (2) [1949] A.C. 258. (3)[1916] 2 K.B. 658. Now  what are the grounds in the present case to  justify  a reconsideration  of  the prior decision ’ At this  stage,  I cannot  help  noticing  that the argument  before  us-as  it appears to me has taken a somewhat unusual course.  I should have  thought that when the decision in a case so recent  as that   in  the  United  Motors  case(2)  given  after   full consideration,  is  sought  to  be  challenged,  the   first question  to have been considered was whether or  not  there were circumstances to justify a reconsideration.  It is only after the Court came at least to a prima facie conclusion on that  preliminary matter that a reargument on the merits  of that   decision  should  have  been  permitted.   What   has happened,  however,  is that the correctness  of  the  prior decision  was  straightaway canvassed be. fore  us  and  the question  as to the competency or the desirability  of  such reconsideration occupied a later and subordinate part in the arguments.   I  must confess to the feeling  that  this  all important question has accordingly suffered for want of  due consideration thereof at the stage of arguments before us. Now.,  let us see what are the facts relating to  the  prior decision.   The decision was given on the 30th March,  1953. The  case itself was heard for 12 working days,  i.e.,  from the 9th February, to the 25th February, 1953.  The Union  of India  and  as  many  as  eight  States  were  permitted  to intervene and their arguments were also heard.  A perusal of the  judgments then given shows that every  possible  aspect had  been fully presented and considered.  The decision  was that of a majority as against that of one dissenting  Judge. One of the learned Judges in the majority, though concurring on  the main point, was prepared to go further on one  point than  what the majority held (though, as appears now, he  is prepared to go back on his concurrence).  It is true that in a later decision in State of Travancore-Cochin v.  Shanmugha Vilas  Cashew  Nut Factory(2), another Judge of  this  Court expressed  a  view  in disagreement with  the  view  of  the majority in this case.  But that was a decision given on the 8th  May, 1953, more than a month after the judgment in  the prior (1)  [1958] B.C.B. 1069. (2) [1954] S.C.R.53 94 740 case  had  been  delivered  and  had  become  binding.   The question that directly arose for consideration in the  later case  was not the one that had come in for consideration  in the  earlier  case.   However this may be, it  may  also  be noticed that in a later decision of this Court in  Himmatlal Harilal  Mehta v. The State of Madhya Pradesh(1) the law  as laid  down  in  the earlier decision in  the  United  Motors case(2),   was  reiterated  and  it  was  stated  that   the correctness of the view could no longer be questioned.  (See page  1126).  In view of the above facts, it appears  to  me prima  facie, that there was no reason  for  reconsideration

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except the fact that a different view had been taken by  two of the learned Judges of this Court and except the chance of a differently constituted majority emerging on rehearing. This, however, is sought to be justified on various grounds. It is said that the prior decision does not merely determine the  rights of the two contending parties to that  case  but has  far  reaching effects on the rights  of  the  consuming public  and that it involves the adjudication of the  taxing power  of  the  States as against the  consuming  public  in general.   It is, therefore, said that, if that decision  is erroneous,  it is our duty not to perpetuate the error.   It appears  to  me,  with respect, that  this  is  begging  the question.   There  is  no absolute  standard  by  which  the erroneous  character  of  a previous  decision  can  be  as- certained.  What a previous decision has determined, must be presumed  to  be  right unless it can be  pronounced  to  be perverse  or manifestly wrong.  It is, therefore,  a  strong thing  to  characterise  a previous  decision  as  erroneous where, even on reconsideration, no unanimity is reached  and the  previous view is supported by a  substantial  minority. Nor,  can the mere fact of one of the prior  learned  Judges having gone back on his views be any criterion to  determine which  out  of his two views is erroneous.  As  regards  the suggestion  of  tax burden on the consuming  public,  it  is relevant  to  notice that the burden, if any,  which  arises under the prior decision can only be by legis- (1) [1954] S.C.R. 1122. (2) [1953] S.C.R. 1069. 741 lative  action  of  the very State in  which  the  consuming public are residents.  The removal of the burden, if  called for,,  is  a matter which, under the  Constitution,  can  be brought  about by democratic process which is  available  to the  consuming  public, through its representatives  in  the State  Legislature.   It appears to me that that  is  not  a matter  for  our consideration.  I may be permitted  to  add that  in  the  course of the arguments  there  has  been  no serious  grievance  made  about the alleged  burden  on  the consuming  public.   But  there  has been  a  good  deal  of emphasis on the harassment to the business community,  i.e., to the out-of-State dealers, from whom the tax is  primarily collected and passed on, under the law, to the consumer.  We are  not, however, concerned with any question arising  from such  alleged hardship.  The hardship such as it is, is  one that may have to be obviated by the adoption of a common and agreed  machinery by all the States for the  assessment  (as distinguished from levy) and collection of the tax from out- of-State  dealers,  or if necessary, by the passing  of  the requisite  legislation enabling this to be done.   But  that hardship,  if  any, can afford no reason for  reversing  the prior decision which, as will be shown later, has  construed article  286  consistently  with the entire  scheme  of  the Constitution.  That decision enables the consuming State  to derive  an elastic source of revenue from its own  residents to make it available for the expanding needs of the State in the  discharge of the responsibilities allotted to it  under the  Constitution.  It is not for this Court now  to  choose between  the alleged hardship of the business community  and the interests of the consuming State and treat the former as a ground for reconsideration. It  is next suggested that there is some vagueness,  if  not inconsistency,   in  the  prior  majority   judgment   which justifies reconsideration.  It is said, with reference to  a particular passage quoted from the judgment, that it is only buyers falling within the Explanation who were  contemplated

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as  liable  and not the out-of-State dealers, but  that  the whole  trend  of the rest of the judgment  and  the  actual, decision runs 742 counter  to  this.  With -very great respect, it  is  hardly fair  to  read  the decision as being in any  way  vague  or inconsistent  with itself by extracting one single  passage. The  passage relied on is at page 1084 and appears,  in  the context  where  the  question was being  considered,  as  to whether  the  phrase "actual delivery for  consumption"  has reference to "delivery to the actual consumer-purchaser"  or delivery also to Cc& purchaser for eventual distribution  to the consumers in the State".  The view indicated in the  ex- tracted  passage  was  that  delivery  to  a  purchaser  for eventual distribution to the consumer in the State was  also "actual delivery for consumption" and hence the  designation of  purchaser  as liable to tax in that passage.   That  the extracted  passage was not meant to indicate that only  such purchaser was taxable and not the seller is quite clear from the various passages in the immediately succeeding paragraph at pages 1084 and 1085 where "taxation of sales or purchases involving  inter-State  elements by the State in  which  the goods   are   delivered  for  consumption   in   the   sense explained.above"  is repeatedly referred to.  All that  can, if  at all, be said is that the decision has not, in  terms, indicated the choice between the seller or the purchaser  as regards  taxability  but  has indicated either  of  them  as taxable. It has next been said that the impugned decision is a recent one  and that "judicial opinion was divided, if  not  evenly balanced".   It is no doubt true that the prior decision  is only two years old.  But that is not by itself a ground  for reconsideration.   On the other hand, I should have  thought that  the  very  fact of its being  recent  should  militate against  reconsideration.   The  real test to  my  mind,  as indicated by Justice Dixon in Attorney-General for N.S.W. v. Perpetual  Trustee  Co. Ltd.(1) is whether it  was  a  fully considered judgment and whether any fresh material has  been brought  to  the notice of the Court.   In  considering  the question  whether a decision is open to  reconsideration  on account of its being recent, it is of importance to  observe that our decisions become (1)  85 C.L.R. 237, 743 declarations  of law under article 141 and must  be  treated normally as final from the very moment they are  pronounced. The  finality of the decisions of this Court, which  is  the court  of  last resort, will be greatly  weakened  and  much mischief  done  if we treat our own judgments,  even  though recent, as open to reconsideration. It has next been suggested that rectification of the  error, if  any,  in  the view taken by the  previous  decision,  is difficult  and that this could be brought about only by  the amendment of the legislative lists necessitating the consent of  the  requisite  number of States.  With  respect,  I  am unable to appreciate this.  The points of difference in  the two  opposing views ultimately boil down to this.  (1)  Does the  Explanation  to  article  286(1)  (a)  taken  with  the relevant legislative entry enable the consuming State to tax fictional  inside  sales?  (2) If so,  does  article  286(2) override  this taxing power?  If the right  construction  of article 286(2) is not what has been accepted by the majority in the prior decision, what all was required to correct that error  would  be to amend article 286(2) so as  to  make  it clear  that  it overrides article 286(1)(a) taken  with  the

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Explanation  by  the insertion therein of  some  appropriate phrase   like   "notwithstanding  Explanation   to   article 286(1)(a)".   The responsibility for any such amendment,  if called for, should be left to the Parliament who, as  recent experience  has  shown, is quite capable of  bringing  about constitutional  amendments when it felt the clear  necessity for it. The proper course for this Court, therefore, is to adopt the attitude  of Justice Dixon in the case  in  Attorney-General for  N.S. W. v. The Perpetual Trustee Co.   Ltd.(1)  wherein notwithstanding  that he came to a contrary  conclusion,  he declined  to disturb the prior decision.  The case  for  not disturbing the prior decision is all the stronger, where, as happens  in the present case, no unanimous opinion could  be reached in favour of overruling the prior decision. Notwithstanding  my  opinion  that there is  no  ground  for reconsideration of the prior decision of this Court (1)  85 C.L.R. 237, 744 in the United Motors case(1), I propose, out of respect  for my  learned brothers, who are prepared to take the  opposite view,  to give my reasons why, on a fresh  consideration  of the  question involved, I am clearly in agreement  with  the decision  of the majority in the said case.  Having had  the benefit  of  reading the judgments of my  learned  brothers, Justice  S. R. Das and Justice Venkatarama Ayyar, I  propose to  confine myself mainly to the consideration of  the  con- struction of article 286. There can be no doubt that article 286 taken as a whole  has to be read in the context of the power vested in the  States for levying taxes on the sales or purchases of goods  (other than  newspapers) under Entry 54 of List 11 of  the  Seventh Schedule  taken with article 246(3).  Entry 54 does not,  in terms, say that the sales or purchases of goods contemplated thereby as taxable are to be sales or purchases "within  the State".   In  this respect it is in contrast with  Entry  26 which  vests in the State the power to legislate in  respect of  trade and commerce "within the State".   The  apparently wide  language of Entry 54 is in recognition of  the  theory that  in substance a tax on sale or purchase of goods  is  a tax  on  the goods with reference to the event  of  sale  or purchase thereof. (See the United Motors case(1).Article 286 appears in Part XII of the Constitution relating to finance, property, contracts and suits and  is in Chapter  I  thereof relating  to  finance.  This is mainly  concerned  with  the problem of allocation of finances between the Centre and the States  in order to enable each to carry on  the  respective governmental   functions   allotted   to   it   under    the Constitution.   Keeping  this context in view  as  also  the avowed  purpose of the article as indicated by the  marginal note,  it  may  be taken that article 286  was  intended  to indicate clearly the ambit of the taxing power of the  State on  sales  or  purchases  of goods and  to  limit  it  to  a demarcated  field.   To determine the exact  scope  of  this ambit  and  of the limitations, it is relevant  to  consider what  was the sales-tax law in operation just prior  to  the new Constitution, (1)  [1963] S.C.R. 1069.                             745 A careful land thorough examination of the Provincial Sales- tax  Acts at the time discloses the. following.  There  were sales tax laws in operation in all the then nine  Provinces, which   subsequently   became  Part  A  States   under   the Constitution,  as also in one Native State of -Mysore.   The pattern of the sales-tax laws in every one of the ten  units

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had the following common features (with minor additions  and variations).   Under the charging section in each  of  these Acts, tax was levied as against a "dealer" whose turnover of sales  (or  purchases) exceeded a particular  amount.   A  C ’dealer"  was defined as a person carrying -on the  business of  selling or supplying goods in the Province.  "Sale"  was defined  as  meaning transfer of property in  goods  in  the course  of trade for valuable consideration.   In  addition, each  one of these Sales-tax Acts had an Explanation to  the definition   of  the  word  "sale"  to  the   effect   that, notwithstanding anything to the contrary in the Indian  Sale of  Goods  Act,  a sale or purchase  of  goods  "which  were actually  in the Province" at the time when the contract  of sale  or  purchase is made, shall be deemed  to  have  taken place  in the Province, wherever the ’contract for  sale  or purchase  may have been made.  This was,  broadly  speaking, the  common pattern of every one of the sales-tax laws  just prior   to  the  ’Constitution,  subject  to  some   further additions to the definition of sale by a few of the  States, which  will be presently noticed.  This  pattern  indicates, that  apart  from the purely internal  sales-in  respect  of which the power of taxation by the States was  undoubted-the States  claimed  the  power to tax  sales  with  an  outside element  in the following two cases: (1) Where the  transfer of  ownership in the goods was within the State (assumed  to be so) according to the Indian Sale of Goods Act. (2)  Where the  goods  which  are the subject-matter of  the  sale  are actually  in the Province at the time when the  contract  of sale  is  made, i.e., at the crucial moment of  transfer  of ownership.   If  I may express this in  another  way,  these Sales-tax  Acts purported to tax sales as being  within  the State,  with reference to (1) situs (as assumed)  under  the Sale of Goods Act, and 746 (2)situs (as probably assumed to be) under the general  law. It  is  possible that this general law was so  assumed  with reference to the dictum of Lord Loreburn in Badische  Anilin Und Soda Fabrik v. Hickson(1) which suggests that the  situs Of the goods at the time of appropriation of the goods to  a particular  sale is the situs of the sale.  Whether the  un- derlying  assumptions  as regards both these  criteria  were right  or wrong is not material at this stage.   While  this was  the  general pattern, four of the  States  claimed  the taxing  power  with reference to some  additional  criteria. Madras and Mysore had an additional Explanation as follows: "In case the contract was for the sale or purchase of future goods  by  description,  then, if  the  goods  are  actually produced in the Province at any time, after the contract  of sale  or purchase in respect thereof was made, the  sale  or purchase  shall  be  deemed  to  have  taken  place  in  the Province,  wherever the contract of sale or  purchase  might have been made, notwithstanding anything to the contrary  in the Indian Sale of Goods Act". Bihar  and  United Provinces had  the  following  additional Explanation. (Taken from the U. P. Act). "Notwithstanding  anything in the Indian Sale of Goods  Act, the sale of any goods which are produced or manufactured  in the Province by the producer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for  the  purposes  of the Act to have taken  place  in  the Province". Both  these  additions refer to future  goods.   Madras  and Mysore  apparently treated such future goods as having  been appropriated  to  the sale the moment  they  were  "actually produced in the Province".  The Bihar and U.P. addition  was

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more or less the same and is limited to the case of sale  by the very manufacturer or/producer.  The above additions  are in effect the same as category No. 2 of the general  pattern as  applied  to  future goods.   The  underlying  assumption appears  to be that future goods which are contracted to  be sold get appropriated thereto on their coming (1)  [1906] A.G. 419.                             747 into  existence  and  that  thus  a  taxable  sale  emerges. Besides  the  above mentioned variations  from  the  general pattern,  Bihar and Uttar Pradesh had further  additions  to the  definition of sale relating to forward contracts  which virtually amounted to treating "agreement to sell" itself as being the taxable event.  This, it may be seen, had  nothing to  do  with the nexus theory of taxation of sales  and  has been  pronounced  invalid  by this Court in  The  Sales  Tax Officer,  Pilibhit  v. Messrs Budh Prakash  Jai  Prakash(1). From  the  above  broad summary it will  be  seen  that  the Provinces  were  deriving  sales-tax revenues  not  only  in respect  of  purely internal sales, but also in  respect  of sales with an outside element.  But in the generality o such sales,  the tax was leviable at either or both of the  above mentioned  two  points,  i. e., (1)  transfer  of  ownership within  the State, (2) actual existence of goods within  the State at the moment of such transfer.  The ultimate consumer in  respect  of ,such sales would normally be not  a  person within  the  taxing  State.  Hence  having,  regard  to  the structure  of  the sales-tax and  the  universally  accepted machinery  there for which brings about the passing  on,  of the  incidence thereof, to the ultimate consumer, this  must have been felt to be inequitable.  It appears to me that  in the   adjustments   called  for  on  the  passing   of   the Constitution it was this feature of the pre-existing  sales- tax law which called for being remedied by the imposition of a  ban  on taxation of sales with an outside  element.   But that   very   consideration  would  equally   indicate   the permissibility of taxing an outside sale where the  ultimate burden of it could be passed on to the resident of the  very taxing  State.  This could be done by making  the  consuming State  the  taxing  State.  This, in  my  opinion,  was  the background   with  reference  to  which  article   286   was incorporated in the Constitution, The  Constitution wanted to put a ban on taxation  of  sales with an outside element on account of the inequity of making the residents of other States (1)  [1955] 1 S.C.R. 243. 95 748 contribute towards the resources of the selling State.   But in  doing  so  it could not have  intended  to  confine  the resources  of  the  State  under  this  head  to  the   come paratively  small  field of purely internal  sales.   Having regard to the expanding needs of a social welfare State  and the limited taxing powers allocated to it, the  Constitution could not have meant to limit an elastic source of  taxation payable  by  its own consumers to the very  small  field  of purely internal sales,. it, therefore, selected and took out one category of sale with an outside element from the  field of restriction, by adopting the device of a fictional inside sale  and left that category taxable so that  the  incidence thereof  may be the same as that of a purely internal  sale. This, to my mind, is the reason for the positive approach in the Explanation by a deeming provision as to an inside sale. It is on account of this common feature, as to the incidence of taxation, that the fictional inside sale indicated in the

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Explanation  was assimilated to a purely internal or  intra- State sale.  It appears to me not very reasonable to  assume that  the Explanation to article 286(1) (a) was required  in order  merely to determine what an outside sale is.  If  the Constitution  intended nothing more than to ban taxation  on outside  sales,  it might well have  contented  itself  with declaring such a ban.  I do not think that the Courts  would then  have  found  any  serious  difficulty  in   construing "outside  sale" to mean, a sale with a  substantial  outside element,  or  in  the alternative, as a sale  in  which  the ownership has passed outside the State in the assumed  sense of  the  Sale of Goods Act.  It was  quite  unnecessary  and indeed  out  of  the way to define an outside  sale  as  the implied  negative of a fictional inside sale.  Nor  can  the purpose  of  the  Explanation be readily assumed  to  be  to obviate  the supposed chaotic condition arising out  of  the adoption  of the nexus theory in the Sales-tax  Acts.   This could have been sufficiently and effectively provided for-as in fact it was done-by the ban imposed under article 286(2). It  has  been  suggested that the  Explanation  covers  some outside  ,sales which do not fall within article 286(2)  and that 749 therefore   the   Explanation  was   necessary.    But   the possibility of a few ingenuously illustrated cases like  the Gurgaon-Delhi  illustration  put forward in  the  course  of arguments-as falling outside the ambit of article 286(2) and within  the  scope  of article 286(1)  (a)  taken  with  the Explanation, would not have been any adequate reason for the Constitution involving itself in two such provisions, mostly overlapping  in effect.  It appears to ’me, therefore,  that the  reasons for having these two provisions  were  distinct and different.  Article 286 (1) (a) with the Explanation was meant  to  prevent taxation whose ultimate  incidence  would fall  on residents of outside States.  Article 286  (2)  was meant  to prevent the taxing structure of the  States  being availed  so as unduly to hamper the freedom  of  inter-State trade   and  commerce  which,  for  the  first   time,   the Constitution  declared by article 301.  In this  context  it also  became necessary to provide that the foreign trade  of the  country should not be affected at all by the  sales-tax structure  of the States, while at the same time  indicating that the internal trade could be permitted to bear a limited burden  of  taxation.   It is  in  reconciliation  of  these various ideas that article 286(1) and 12) were drafted. Judged  in this light the following is the  only  reasonable construction   of   article   286(1)(a)   taken   with   the Explanation.   This  provision, while intended  to  prohibit taxation  by  States  on outside sales  was  also  meant  to demarcate  the  boundary between inside  sales  and  outside sales  and to assimilate one particular category of  outside sales  into  the  field  of inside  sales  and  to  make  it available   for  taxation  by  the  consuming  State.    The underlying  aim  of  this demarcation  was  to  obviate  the inequity of one State levying a tax whose ultimate incidence was on the residents of another State but to provide instead an elastic source of taxation which in its effect was to  be against  its  own residents.  The field of export  trade  is completely  marked  off  as  not  being  available  for  the operation of sales-tax by article 286 (1) (b).  Then the ban on sales in the course of inter-State trade and commerce  is declared, This ban, which was for a 750 totally  different  purpose  cannot be so  construed  as  to nullify  the positive results intended and brought about  by

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article  286(1)  (a) read with the Explanation.  To  such  a situation  the  principle of harmonious  construction  would apply  as  enunciated  by  Lord  Herschell  in  John  Carter Colquhoun  v. Henry Brooks(1) at page 506 in  the  following terms: "It is beyond dispute that we are entitled and indeed  bound when  construing  the  terms of any  provision  found  in  a statute  to consider any other parts of the Act which  throw light  upon the intention of the legislature and  which  may serve to shew that the particular provision ought not to  be construed as it would be if considered alone and apart  from the rest of the Act". If,  as  my learned brother, Justice Venkatarama  Aiyar,  is inclined to think, a sale cannot be said to have occurred in the  course  of inter-State trade and commerce if  the  sale follows  the completion of the inter.  State  transportation of goods, as for instance, would be the case when a  hawking pedlar  brings  goods across a State boundary and  vends  it from door to door in another State, then clearly the fiction which brings about the notional inside sale would by  itself be  sufficient to take such a sale out of the category "  of the course of inter-State trade and commerce".  Because,  in such  a situation, while the transportation of goods  across State  boundaries  remains  as a fact, the  sale  itself  is deemed to be inside the consuming State, the very purpose of the  fiction  being to shift the situs of the sale  for  the purpose  of taxability.  It is) I think, in this sense  that in the earlier decision, the learned then Chief Justice laid down  that  by  virtue of the  Explanation  this  particular category  of inter-State sale became an intrastate sale,  of course,  not for all purposes, but for the limited  purposes for  which the Explanation was inserted I viz., the  purpose of demarcating the taxable field from the non-taxable field. Looked at either on the ground of harmonious construction or on the ground that the notional inside sale brought about by the Explanation ceased, (1)  [1889] 14 A.C. 493, 506,                             751 by that very fiction, to be part of the course of interState trade  and commerce for taxation purposes, the  only  proper construction  of  article  286(2) would be  that  it  cannot override  article  286 (1) (a) taken with  the  Explanation. Having  indicated  the’  broad lines on  which  I  have,  on independent  consideration of the construction  of  articles 286(1)  and  (2), arrived at the same construction  as  that adopted in the United Motors case(1), it is unnecessary  for me to deal with all the various aspects raised before us  in the  course of the arguments, except to express  my  general agreement  with a good deal of the reasoning of  my  learned brother,  Justice  Venkatarama Aiyar, on this  part  of  the case.   It is, however, necessary to refer to a few  matters referred to in the contrary view. The contrary opinion adopted by my learned brothers is based almost entirely on the view that article 286 is inspired  by the  anxiety of the Constitution to prevent the mischief  of multiple  taxation,  which arose from the operation  of  the preexisting sales-tax laws.  It is said that this result was achieved  by  covering all loopholes  from  various  angles, articles 286(1)(a), 286(1)(b), 286(2) and 286(3) being  said to  be the four plugging points.  With respect, I  can  only think that this is the outcome of an overdrawn picture as to the  chaos  said to have been created by  the  earlier  pre- Constitution  sales-tax laws.  As already pointed  out,  the common  feature of all the previous ten Sales-Tax Acts,  was to  bring  about  limited multiple taxation  in  respect  of

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outside sales at two points, viz., (1)  transfer          of ownership within the taxing State, and (2)   the      actual presence  of goods in the taxing State at the point of  time when the transfer of ownership takes place in another State. It  must be mentioned that none of the Sales-Tax  Acts  took the  mere presence of goods in the State as enabling  it  to levy  the tax.  What was taken as enabling taxation was  the existence of goods within the State at the crucial point  of time,  viz.,  the  point  at  which  the  ownership   became transferred  wherever it may be.  Once this is  appreciated, it is difficult to agree with the assumption that (1)  [1958] S.C.R. 1069. 752 under   the  pre-existing  law,  the  taxation   might   get multiplied in the course of the transit of goods under  sale through a, number of States, if the goods happened to remain in, the successive States for some time.  In none except one of the States would the goods be in actual existence -at the single  crucial  point  of time of  transfer  of  ownership. Hence,  I am clear in my mind that the previous  legislation would  not have normally involved taxation of the same  sale with  an outside element, at more than two points.  (Whether even this would not get limited by the fact that a  "dealer" is  defined  in all the then Acts as "within  the  Province" would  be  a matter for consideration).  Four  of  the  then provincial  units  had, as, already  stated,  an  additional criterion  for taxation.  But, so far as Madras  and  Mysore were concerned that criterion which relates to future  goods cannot be cumulative with criterion two.  So Car as U.P. and Bihar are concerned which authorised the manufacturing State as  such  to levy the tax, it appears to me that  if  it  is borne  in mind that this is limited to the sale by the  very manufacturer,  this.was  also  not likely to  operate  as  a cumulative point.  Even otherwise these additional  criteria might,  if  at all, have given rise to taxation at  a  third point,  when the sale transaction had to be put through  via these   particular  States.   But  even  so  there   is   no justification  for  the  impression  of  chaotic  conditions resulting  therefrom  which has been assumed.  There  is  no evidence before us that prior to the Constitution there  was in fact multiple taxation of sales in operation, at any rate at more than the two points as explained by me above.  Hence in  the light of the detailed scrutiny of the provisions  in the various Sales-Tax Acts which were in force prior to  the Constitution)  I  cannot help feeling that the  mischief  of multiple  taxation which might if at all have existed  in  a limited  measure as pointed out above, has been  overstated. No doubt, the future prevention of such multiple taxation by invoking the nexus theory recognised by the Privy Council in Wallace’s  case(1) may well be one of the result of  article 286, (1)  [1948] F.C.R. 1. 753 But  I am unable to think that the main  purpose  underlying each  and every one of the provisions of article 286 was  to prevent the continuance of preexisting chaotic conditions of multiple  taxation by virtue of the nexus theory.  I  cannot help  feeling  that a wholly wrong impression  of  the  pre- existing  state of law in this respect has been  created  by overlooking  that  the existence of goods  in  a  particular State  has  been  taken  as a  taxing  point  only  if  that existence   was  at  the  crucial  moment  of  transfer   of ownership.  (A statement showing the definition of  "  sale" under each of the Sales-Tax Acts in operation just prior  to the Constitution is appended-as Appendix I-for reference).

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I  On  the construction of article 286, reference  has  also been  made  in  the dissenting view to  sub-article  (3)  of article 286 which runs as follows: "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  great respect, I am unable to see its bearing  on  the question  at  issue.   It is a  totally  different  kind  of restriction from what sub-articles (1) and (2) bring  about. While  sub-articles  (1)  and (2)  impose  certain  bans  on taxation what sub-article (3) does is not to impose a ban at all  but to impose a fetter in respect of taxation on  sales of  essential  goods declared as such by the  Parliament  by requiring  that  before  such a taxation-law  can  have  any effect,  it should be reserved for the consideration of  the President and receive his assent.  In this respect it is  in line  with what would happen if any other State  legislation passed by that Legislature is presented to the Governor  for his assent and be reserves the same for the consideration of the  President.   The only difference is that while  in  the latter the reservation for the President is optional, in the case of such essential goods the reservation is  compulsory. Subject to 754 this, even essential goods continue to be, in theory and  by Constitution, taxable (by the States themselves) in  respect of  sales  thereof.   I am, therefore,  unable  to  see  the bearing  of this provision on the construction of the  other two  provisions which bring about a total or contingent  ban of  taxation  in  respect of the sales to  which  they  have reference. There is one other matter which has been stressed or implied in  the dissenting view and it is this.  The  assumption  is that even a single point tax on a sale arising in the course of  inter-State  trade would be a burden on the  freedom  of inter-State   trade  and  commerce  guaranteed   under   the Constitution by article 301 which runs as follows: "Subject  to  the  other provisions  of  this  Part,  trade, commerce  and intercourse throughout the territory of  India shall be free". Now it is not disputed that a tax on a purely internal  sale which occurs as a result of the transportation of goods from a  manufacturing  centre within the State  to  a  purchasing market within the same State is clearly Permissible and  not hit by anything in the Constitution.  If a sale in that kind of trade can bear the tax and is not a burden on the freedom of  trade, it is difficult to see why a single point tax  on the same kind of sale where a State boundary intervenes bet- ween the manufacturing centre and the consuming centre  need be  treated  as  a  burden, especially  where  that  tax  is ultimately to come out of the residents of the very State by which  such sale is taxable.  Freedom of trade and  commerce applies as much within a State as outside it.  It appears to me  again, with great respect, that there is no warrant  for treating  such  a tax as in any way contrary either  to  the letter  or the spirit of the freedom of trade, commerce  and intercourse provided under article 301. For all the above reasons’, I am quite clear in my mind that the  view  taken  in  the prior  decision,  viz.,  that  the consuming  State  has the present power to tax  a  fictional inside sale which falls within the scope of the  Explanation and  that the said power is not affected by  article  286(2)

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and that article 286(2)                             755 cannot  be construed as overriding article 286 (1) (a)  read with the Explanation, is correct and that there is no reason to depart from that decision. The  real difficulty, if any, that arises from this view  is as  regards  what  has  been  called  the   extraterrestrial operation of the tax which such a view may involve.  In  the conclusion  reached by my learned brothers who are  prepared to  uphold the dissenting, view taken in the prior  decision that question does not arise for consideration and has, been left untouched.  I do not, therefore, feel called upon to go into  it or to commit myself to any particular view on  this somewhat  difficult,  question.  I am doubtful  whether,  as between  the component States of a Union of the kind,  which India  is under the Constitution, there can be any  question of  extra-territoriality. in the sense of the doctrine  that one  nation  does  not act in aid of  the  revenue  laws  of another  (and  foreign) nation.  It is true that  a  defined geographical part of India constitutes the territory of each unit  called the State and that the governance of that  unit is  committed to that State.  But it appears to me  that  on that  account, the territory of one State is not  a  foreign territory  in  respect  of another State,  when  freedom  of movement and a number of other common fundamental rights are guaranteed.   On the other hand, I think it  permissible  to suggest that where the various States owe their existence to the  same  Constitution  and  are  subject  to  its   common operation,  any taxing power vested in an  individual  State must   carry   with  it  the   incidental   implication   of enforceability,  if need be, in any other State  within  the Union when the very nature of that tax,, as contemplated  by the  Constitution involves it.  In this context article  261 (1), which enjoins that full faith and credit shall be given throughout  the territory of India to public  acts,  records and  judicial proceedings of the Union and of  every  State, may well be relied upon to justify such a view.  I am  aware that this has been generally taken as applicable to judicial and  legislative  proceedings.   But- the  language  of  the article is capable of wider application.  I do not, however, wish to go into the, 96 756 matter  further  because  even  if  in  the  course  of  the administration of sales-tax, of the kind permissible, in the view  of article 286 which the prior decision has  accepted, there emerges the element of extra-territorial operation  of such  a tax, that by itself can be no reason for  negativing the construction of articles 286(1) and (2) above indicated. In  this  context  it  is necessary  to  bear  in  mind  the following  clear  dictum  of the Privy  Council  in  British Columbia Electric Railway Co., Ltd. v. The King(1): "A  legislature which passes a law  having  extraterritorial operation  may  find  that what it  has  enacted  cannot  be directly  enforced,  but  the Act is  not  invalid  on  that account, and the courts of its country must enforce the  law with the machinery available to them". The  question,  therefore, of  extra-territoriality  is  not germane for construction of article 286. At  the  present  stage  we  are  not  concerned  with   the enforcement  of  the levy of the assessed tax but  with  the assessment  of the tax.  All that we are concerned  with  is the  validity  of the steps so far taken by  the  assessment authorities  and particularly of the notice dated  the  29th May, 1952, which intimates that on non-compliance before the

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14th June, 1952, proceedings for assessment on the basis  of "best  judgment"  will be made.  That step, to my  mind,  is perfectly  valid as appears from the following.  In  Whitney v.  Commissioners of Inland Revenue (1), the House of  Lords by  a majority held that where a tax was leviable on a  non- resident,  a requisition served upon him by post to  file  a return  and to produce accounts was valid so as  to  entitle the  taxing authority to make an assessment on the basis  of best  judgment on non-compliance with the requisition.   The following passage from Lord Wrenbury’s speech at page 56  is instructive: "There is a second question in the case-namely, whether  the appellant  has  been duly brought within the  machinery  for assessment provided by the Act.  This turns upon section  7. There was sent to the appellant by post addressed to him  in the United (1)[1946]A.C.527,542. (2) [1926] A.C. 87. 757 States  a notice under section 7, sub-section  2,  requiring him  to make a return.  It is contended that there  ’was  no right to post him such a notice so addressed.  The case,  it is  contended, is similar to the case of service of  a  writ out  of  the jurisdiction.  I do not agree.  It  is  similar rather to the service of a notice of dishonour of a bill  or of  a  notice to quit or of a notice  requiring  payment  of calls upon shares as a preliminary to forfeiture in  default of  payment.  It is not a step in judicial proceeding but  a step  which  will create inter-partes a state of  things  in which  judicial  proceedings can subsequently  be  taken  in default of compliance". It  may be that some or all of the provisions in  the  Bihar Act  which  contemplate enforcement out of State  or  create penalties for non-compliance out of State may require closer examination   when   the  validity   thereof   is   directly challenged.   It may also be that the harassment  consequent on such outside operation may require to be remedied  either by agreed co-ordination between the States or by appropriate legislation,  if need be.  These, however, are not  relevant considerations  for us on the question we have now  to  deal with. I am accordingly clear in my opinion that this appeal should be dismissed with costs.                         APPENDIX-1. STATEMENT SHOWING THE DEFINITION OF "SALE" UNDER EACH OF THE SALES-TAX  ACTS IN OPERATION JUST PRIOR TO THE  COMMENCEMENT OF THE CONSTITUTION.                                       (Vide Page 753). MADRAS SALES-TAX ACT, 1939. "Sale"  (with  all its grammatical  variations  and  cognate expressions)  means every transfer of the property in  goods by one person to another in the course of trade or  business for   cash  or  for  deferred  payment  or  other   valuable consideration, (and includes also a transfer of property  in goods involved in the execu- 758 tion  of a works contract, but does not include a  mortgage, hypothecation, charge or pledge;) (Explanation  1: A transfer of goods on the hirepurchase  or other  instalment system of payment  shall,  notwithstanding the  fact that the seller retains the title in the goods  as security for payment of the price, be deemed to be a sale.) Explanation  2: Notwithstanding anything to the contrary  in the Indian Sale of Goods Act, 1930, the sale or purchase  of any goods shall be deemed, for the purposes of this Act,  to

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have taken place in this Province, wherever the contract  of sale or purchase might have been made- (a)if the goods were actually in this Province at the  time when the contract of sale or purchase in respect thereof was made, or (b)in  case  the contract was for the sale  or  purchase  of future goods by description, then, if the goods are actually produced in this Province at any time after the contract  of sale or purchase in respect thereof was made. BENGAL FINANCE (SALES-TAX) ACT, 1941. "Sale"  means any transfer of property in goods for cash  or deferred payment or other valuable consideration ration.... Explanation  2: Notwithstanding anything to the contrary  in the  Indian Sale of Goods Act, 1930, the sale of  any  goods which  are  actually  in West Bengal at the  time  when  the contract of sale (as defined in that Act) in respect thereof is made, shall, wherever the said contract of sale is  made, be  deemed for the purposes of this Act to have taken  place in West Bengal. BOMBAY SALES-TAX ACT, 1946. "Sale"  means any transfer of property in goods for cash  or deferred payment or other valuable consideration........... 759 Explanation  2: Notwithstanding anything to the contrary  in the  Indian Sale of Goods Set, 1930, the sale of  any  goods which  are  actually in the Province of Bombay at  the  time when the contract for sale (as defined in that Act) is  made in  respect  thereof, shall, wherever the said  contract  of sale is made, be deemed for the purposes of this Act to have taken place in the Province of Bombay. ASSAM SALES-TAX ACT, 1947. "Sale" means any transfer of property in goods by any person for cash or deferred payment or other valuable consideration             *        *            *               * Explanation:   Notwitbstanding  anything to the contrary  in the  Indian Sale of Goods Act, 1930, the sale of  any  goods which  are  actually in the Province at the  time  when  the contract of sale (as defined in that Act) in respect thereof is  made,  shall, irrespective of the place where  the  said contract is made, be deemed for the purposes of this Act  to have taken place in the Province. BIHAR SALES-TAX ACT, 1947. "sale"  means  * * * any transfer of property in  goods  for cash or deferred payment or other valuable consideration.... *    *       *         *         *           * Provided  further  that  notwithstanding  anything  to   the contrary in the Indian Sale of Goods Act, 1930, the sale  of any goods- (i)  which  are  actually  in Bihar at  the  time  when,  in respect thereof, the cntract of sale as defined in section 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  of  contract of sale is made, be  deemed  for  the purposes of this Act to have taken place in Bihar;  Provided   further that the sale of goods in respect  of  a forward contract, whether goods under such con- 760 tract are actually delivered or not, shall be deemed to have taken place on the date originally agreed upon for delivery. CENTRAL PROVINCES AND BERAR SALES-TAX ACT, 1947. "Sale   means any transfer of property in goods for cash  or deferred payment or other valuable consideration      *   *      *     *      *       * Explanation  2: Notwithstanding anything to the contrary  in

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the  Indian Sale 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 sale as defined in that  Act  in respect thereof is made, shall wherever the said contract of sale is made, be deemed for the purpose of this Act to  have taken place in the Central Provinces and Berar. ORISSA SALES-TAX ACT, 1947. "Sale"  means any transfer of property in goods for cash  or deferred payment or other valuable consideration........... *                 *                   *           * Provided  further  that  notwithstanding  anything  to   the contrary in the Indian Sale of Goods Act, 1930, the sale  of any goods which are actually in Orissa at the time when,  in respect thereof, the contract of sale as defined in  section 4 of that Act is made, shall, wherever the said contract  of sale is made, be deemed for the purpose of this Act to  have taken place in Orissa. MYSORE SALES-TAX ACT, 1948. "Sale" means every transfer of the property in goods by  one person  to  another in the course of trade or  business  for cash or deferred payment or other valuable consideration.... *            *           *            *            * 761 the  Sale  of Goods Act, 1932, the sale or purchase  of  any goods shall be deemed, for the purposes of this Act, to have taken  place in Mysore, wherever the contract of sale  might have been made; (a)  if  the goods were actually in Mysore at the time  when the  contract  of sale or purchase in respect there  of  was made, or (b)in case the contract was for the sale or purchase      of future  goods  by  description,  then,  if  the  goods   are actually produced in Mysore at any time  after the  contract of sale or purchase in respect thereof was made. EAST PUNJAB GENERAL SALES-TAX ACT, 1948. "Sale"  means any transfer of property in goods for cash  or deferred payment or other valuable consideration......... Explanation  2: Notwithstanding anything to the contrary  in the  Indian Sale of Goods Act, 1930, the sale of  any  goods which  are  actually  in East Punjab at the  time  when  the contract of sale (as defined in that Act) in respect thereof is made, shall, wherever the said contract of sale is  made, be deemed for the purposes of this Act to -have taken  place in East Punjab. UNITED PROVINCES SALES-TAX ACT, 1948. "Sale"  means any transfer of property in goods for cash  or deferred payment or other valuable consideration Explanation II: Notwithstanding anything in the Indian  Sale of  Goods Act, 1930, or any other law for the time being  in force, the sale of any goods- (i)  which are actually in the United Provinces at the  time when in respect thereof, the contract of sale as defined  in section 4 of that Act is made, or (ii)which  are  produced  or  manufactured  in  the   United Provinces by the producer or manufacturer 762 thereof, shall, wherever the delivery or conttact of sale is made,  be deemed for the purposes of this Act to have  taken place in the United Provinces. Explanation  111.  Where goods under a forward contract  are not actually delivered, the sale in respect of such contract shall  be  deemed  to  have  been  completed  on  the   date originally agreed upon for delivery. Note:     The omitted portions in the definitions other than those  in  the Madras Act are to the same  effect  as  those

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shown within brackets in the Madras definition. VENKATARAMA  AYYAR J.-The appellant is a Company  registered under  the Indian Companies Act carrying on business in  the manufacture  and  sale  of  sera,  biological  products  and medicines.  Its registered office is at No. 153, Dharamtalla Street,  Calcutta,  and  its  laboratory  and  factory   are situated at Baranagar, 24 Parganas, West Bengal.  The  first respondent  is the State of Bihar, and respondents 2  and  3 are  respectively the Secretary and the Assistant  Secretary of Commercial Taxes.  On the 18th December 1951, the  second respondent issued a notice under section 13(5) of the  Bihar Sales Tax Act, 1947 (Act XIX of 1947) (hereinafter  referred to as the Act) calling upon the appellant to register itself as  a  dealer  under  the Act and to  submit  a  return  for assessment of sales tax., To this the appellant sent a reply on the 8th January, 1952 disputing its liability on  various grounds,  and  after  further  correspondence  between   the parties  which  it  is  needless  to  set  out,,  the  third respondent  sent a notice on the 20th May 1952 that  if  the appellant  failed to comply with the notice dated  the  18th December 1951 by the 14th June 1952, steps would-be I  taken to assess tax on the basis of best judgment.  The  appellant replied  by filing the application out of which the  present appeal  arises, under article 226 of the Constitution for  a writ   of  prohibition  restraining  the  respondents   from proceeding with 763 the assessment.  It was alleged in the petition that as  the appellant  had  no  place of business within  the  State  of Bihar,  the provisions of the Act under which it was  sought to  be  taxed  were  ultra  vires  as  extraterritorial   in operation, and that further those provisions were  repugnant to  article  286(2) of the Constitution and  were  therefore void.  The State of Bihar, which will hereafter be  referred to as the respondent, resisted the application on the ground firstly,  that it was not maintainable for the  reason  that the appellant had, under the provisions of the Act, a  right of   appeal  against  the  assessment  to  the   appropriate authorities, and secondly, that as the sales proposed to  be taxed  must be deemed to have taken place by reason  of  the Explanation   to  article  286(1)  (a)  within  Bihar,   the provisions of the Act imposing tax on a non-resident  seller were neither ultra vires nor unconstitutional.  The  learned Judges  of the High Court upheld both these contentions  and dismissed   the  application,  and  this  appeal  has   been preferred  against their judgment on a  certificate  granted under  article 132(1) of the Constitution.  In view  of  the importance  of the issues involved, leave of the  Court  was sought by and granted to ten States, one commercial firm and one  individual dealer.  Nine out of the ten States,  namely Orissa,  PEPSU,  Punjab,  Madhya  Pradesh,  Madras,  Mysore, Rajasthan,   Travancore-Cochin  and  Uttar   Pradesh,   have intervened  and supported the respondents.  One State,  West Bengal,   represented   by  the   learned   Attorney-General supported the appellant, and so did the Tata Iron and  Steel Co., Ltd., and one M. K. Kuriakose. On  the arguments addressed before us, the following  points arise for determination: 1.Whether  the  application  for a writ  of  prohibition  is maintainable? 2.Whether  the  Explanation  to  article  286(1)(a)  confers authority  on the State Legislatures to impose tax on  sales falling within its purview? 3.Whether  the sales covered by the Explanation  to  article 286(1)  (a)  are  subject to the  prohibition  contained  in

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article 286(2)? 97 764 4.Whether  the Bihar Sales Tax Act, 1947 is invalid  on  the ground  that it is extra-territorial in its  operation,  and ultra vires the power of the State Legislature? 5.Whether  the  assessment  proposed  to  be  made  on   the appellant  is not authorised by the Explanation  to  article 286(1) (a)? 1.   On   the  question  of  the  maintainability   of   the application  for a writ of prohibition, it was  observed  by the learned Judges that under section 13(5) of the  impugned Act,  the Commissioner was competent to decide  whether  the appellant was a person liable to pay tax under the Act, that even  if he came to an erroneous conclusion on  the  merits, that  did  not  affect his jurisdiction  over  the  subject- matter, that the Act itself provided in sections 24 and 25 a complete  and  effective  machinery by  way  of  appeal  and revision for correction of such errors, and that accordingly a  writ  of prohibition was not the proper remedy.   If  the learned  Judges  intended  to  lay  down  that  a  writ   of prohibition should not issue because another remedy was open under  the Act, that cannot be supported.  The existence  of another  remedy is a very material circumstance to be  taken into  account when the Court is called upon to issue a  writ of  certiorari,  but wholly different  considerations  arise when the writ asked for is prohibition.  Writ of prohibition is  issued whenever a subordinate Court or  Tribunal  usurps jurisdiction which does not belong to it, and when that  has been shown, the issue of the writ, though not of course,  is of right and not discretionary.  The point to be determined, therefore,  is whether in taking proceedings  under  section 13(5)  of  the  Act,  respondents  2  and  3  acted  without jurisdiction  or  in excess of it.  The  contention  of  the appellant is that the Bihar Legislature had no competence to tax  the  sales in question, because they were  effected  in Bengal,  and  the  appellant was not  carrying  on  business within  the  State of Bihar.  If this  contention  is  well- founded,  then  section 13(5) of the Act would be  void  and inoperative in its application as against the appellant, and the proceedings taken thereunder would 765 in  consequence  be without jurisdiction.  We are  not  here concerned with a statute whose vires is not in question, and which   confers  jurisdiction  on  any  authority  to   take proceedings if certain facts exist and the enquiry  directed by  the authority is as to whether those facts  exist.   The determination in such a case is incidental to the  effective exercise by the authority of its undisputed jurisdiction and if,  as  a result of that enquiry, it came to  an  erroneous conclusion, there is no error of jurisdiction, and it  might well be contended in that case that the remedy of the  party aggrieved  was  to resort to the machinery provided  in  the statute itself by way of appeal or revision, and that a writ of  prohibition  would  be  misconceived.   But  here,   the contention  of the appellant is that the statute  itself  is void  in so far as it authorises the imposition of a tax  on dealers  who  are not residents within the State or  do  not carry  on  business  there, and that,  in  consequence,  the proceedings  taken under section 13(5) of the Act should  be restrained on the ground of want of jurisdiction.  It is  no answer  to  this contention that the appellant  should  seek redress  through the channels provided in the Act  therefor. Indeed,  the contention that the Act is ultra vires  is  not one  which the Tribunals constituted under the Act,  whether

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original, appellate, or revisional, could entertain,,  their duty being merely to administer the Act. It  was argued by Mr. N. C. Chatterjee that if the  tax  was illegal, as contended by the appellant, then the proceedings taken for imposing the same would amount to unconstitutional interference with the fundamental right of the appellant  to carry  on business guaranteed under article 19(1)  (g),  and that  the courts were bound to interfere under article  226. He  relied on the decisions of this court in Mahommad  Yasin v.  The  Town  Area Committee, Jalalabad(1),  The  State  of Bombay  v. The United Motors (India) Ltd.("), and  Himmatlal Harilal  Mehta v. The State of Madhya Pradesh(3).   That  is undoubtedly  the position in law, but as the appellant is  a Company registered under (1) [1952] S.C.R. 578.            (2) [1953] S.C.R. 1069, (3)[1954] S.C.R. 1122. 766 the Indian Companies Act and the question whether a juristic person is a citizen for the purpose of article 19(1) (g)  is still an open one, I would prefer not to rest my decision on this  ground.   It  is sufficient for the  purpose  of  this appeal  to hold that a writ of prohibition should issue,  if the appellant establishes that the proceedings taken against it under section 13(5) of the Act are without  jurisdiction. The  contentions urged in support of that position must  now be examined. 2.   It  is firstly argued that the Explanation  to  article 286  (1)  (a)  on which the validity  of  the  impugned  Act depends  confers  no authority on the State  Legislature  to impose  a  tax  on sales falling  within  its  purview.   To appreciate the contentions advanced on either side, it  must be mentioned that the Act as passed in 1947 contemplated the imposition  of  a tax on residents within the  State.   They might be natural persons, or they might be juristic  persons carrying  on business within the State.  The business  might be  carried  on  in person or through agents.   But  if  the persons  who carried on the business of buying  and  selling did not reside within the State or carry on business  there, then  the  Act did not authorise the imposition  of  tax  on them.  That was the effect of the definition of "dealer"  as meaning  "any person who carries on the business of  selling or buying goods in Bihar".  Then came the Constitution,  and the  Explanation  to article 286(1) (a) enacted  that  sales shall  be deemed to have taken place in that State in  which the  goods  are delivered for  consumption,  notwithstanding that   title   to  them  passed  in  another   State.    The construction which the respondent puts on the Explanation is that it confers on the States proprio vigore, a power to tax sales  when the conditions mentioned therein are  satisfied. Agreeably  to  this view, the Bihar Finance Act,  1950  (Act XVII  of  1950) substituted for the words  "who  carries  on business of selling or buying goods in Bihar" the word$ "who sells or supplies any goods".  The point to be noted is that the  words  "in  Bihar"  which  occurred  in  the   previous definition were omitted, In 1951 by the Adaptation 767 of  Laws  Order, a new section, section 33, was  added,  and that is as follows: "33. (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 (ii) where  such sale or purchase takes place in the  course of import of the goods into, or export of the goods out  of,

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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 clause (1) of article 286  of  the Constitution  shall  apply for the  interpretation  of  sub- clause (1) of clause (a) of sub-section (1)".    (2)  The contention of the respondent is that the  appel- lant  has become liable to be taxed under these  provisions. The appellant replies that article 286(1) (a) is restrictive in its scope, that it merely takes away a power to tax which the  State  might otherwise possess, but that  it  does  not positively confer on a State a power to tax where it did not previously  exist,  and that on its  true  construction,  it would  operate to divest Bengal of its power to tax but  not to  vest  it  in  Bihar.   To  decide  which  of  these  two contentions  is the correct one, it is necessary to  examine what  the law was prior to the enactment of  article  286(1) (a)  and  the  Explanation, what the defect  was  which  was disclosed  in  the  working  of that law,  and  how  it  was proposed to remedy it. Under the Government of India Act, 1935, the power to  enact a  law  imposing tax on sale of goods was conferred  on  the Provincial  Legislature  by  Entry 48  in  List  II.   Under sections 99(1) and 100(3) that law must be for the Province, and  as interpreted in Wallace Bros. v. 1. T.  Commissioner, Bombay(1),  that  meant  that  there  should  be  sufficient territorial (1)  (1948] F.C.R. I., 768 connection  between the person proposed to be taxed and  the State seeking to tax with reference to the subject matter of the  taxation.   Dealing  with this aspect  of  the  matter, Patanjali  Sastri, C. J. observed in The State of Bombay  v. The United Motors (India) Ltd.(1) as follows: "The expression ’for such State or any part thereof’ cannot, in  our  view,  be  taken  to  import  into  Entry  54   the restriction that the sale or purchase referred to must  take place within the territory of that State.  All that it means is that the laws which a State is empowered to make must  be for          the          purposes          of          that State....................................  In  the  case  of sales-tax  it  is not necessary that the  sale  or  purchase should take place within the territorial limits of the State in  the  sense that all the ingredients of a sale  like  the agreement  to  sell, the passing of title, delivery  of  the goods,  etc. should have a territorial connection  with  the State.   Broadly  speaking, local activities of  buying  and selling  carried on in the State in relation to local  goods would  be a sufficient basis to sustain the taxing power  of the  State, provided of course, such  activities  ultimately resulted in a concluded sale or purchase to be taxed". This statement of the law was again adopted by this Court in Pappatlal  Shah  v.  The  State  of  Madras(2)  .  Vide  the observations of Mukherjea, J. (as he then was) at pages  682 and 683.  In this view, a law of the State imposing a tax on sales  must, to be valid, fulfill two conditions.   Firstly, there  must  be a completed sale involving the  transfer  of title  in the goods to the purchaser.  It is only then  that the power to tax arises.  That was held by this Court in The Sales  Tax  Officer,  Pilibhit v. Messrs  Budh  Prakash  Jai Prakash (1).  Secondly, there must be sufficient territorial nexus  between the transaction and the State which seeks  to

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tax it.  This condition undoubtedly introduced an element of uncertainty  and vagueness in the law with the  result  that the  power  to  tax  which  was  linked  up  with  it,   had indefiniteness which could ].end itself to (1) [1953] S.C.R. 1069.          (2) [1953] S.C.R, 677. (3)  [1955] 1 S.C.R. 243, 769 abuse.   How  expansive  was  the area  open  to  the  State Legislature to impose a tax on the basis of the nexus theory is  forcibly  brought  out  by Bose,  J.  in  the  following observations  in  The State of Bombay v. The  United  Motors (India) Ltd.(1) at page 1101: "The difficulty is apparent when one begins to split a  sale into  its  component parts and analyse them.  When  this  is done, a sale is found to consist of a number of  ingredients which  can be said to be essential in the sense that if  any one of them is missing there is no sale.  The following  are some  of  them: (1) the existence of goods  which  form  the subject-matter  of  the sale, (2) the  bargain  or  contract which,  when  executed., will result in the passing  of  the property  in  the  goods for a price, (3)  the  payment,  or promise  of  payment,  of a price, (4) the  passing  of  the title.   When  all  take place in one  State,  there  is  no difficulty.  The situs of the sale is the place in which all the  ingredients  are brought into being.  But when  one  or more  ingredients  take  place  in  different  States,  what criterion  is one to employ?  It is impossible to  say  that any  of these ingredients is more essential than  any  other because  the result is always the same the moment  you  take one away.  There is then no sale". Many  were the problems which this state of the law  created both for the State and for the consumers.  Whether the  fact on which a State law seeks to tax is sufficient nexus  must, except in some obvious cases, be open to debate, and until a court pronounces on it, there must be a cloud of uncertainty hanging over the validity of the enactment.  More than that, when  the  several elements which go to make up a  sale  are distributed  over different States it might happen that  the same  transaction might be subjected to tax by  more  States than one and the burden thereof must ultimately fall on  the consumers.   It  was  this,  the  possibility  of   multiple taxation  that was the most serious defect in the law as  it stood  prior to the Constitution, and it was to remedy  this that   a   new  provision.,  article  286(1)(a)   with   its Explanation was (1)  [1953] S.C.R. 1069. 770 enacted.  It is as follows: "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. 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". It  will  be convenient hereafter to refer to the  State  in which  title to the goods passes as the selling  State,  and the  State in which goods are delivered for  consumption  as the delivery State. Now we may examine how this provision is designed to put  an

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end to multiple taxation.  The scheme of the enactment is to fix,  what had not been done under the Government  of  India Act,  1935, the situs of the sale, and for that purpose,  to classify  it into two categories, sale inside the State  and sale  outside  the State.  On what principle the  situs  was fixed  will presently be considered.  But when once that  is done,  the problem is solved.  If a sale is inside a  State, the  power  of that State to tax it under Entry  54  remains unaffected.   But  if the sale is outside a  State,  article 286(1)  (a)  prohibits  that State  from  taxing  it.   This process  must  have  the  effect  of  eliminating   multiple taxation, because a sale must be either inside or outside  a State, and if it is inside one State it must be outside  all other States.  In this respect, article 286(1) (a)  effected a  fundamental alteration in the law under Entry 48 in  List II and section 100(3) of the Government of India Act,  1935, as construed by the courts.  Whereas under these  provisions a  State could tax irrespective of where a sale took  place, provided  there  was  sufficient  territorial  nexus,  under article 286(1) (a) that power can be exercised only 771 when  it  takes  place inside the  State,  mere  nexi  being insufficient  to support such a power.  The theory of  nexus as  a source of jurisdiction to tax was thus abandoned,  and the power to tax was annexed to the situs of the sale to  be exercised  by the State wherein it is fixed and as  a  given sale  can take place only in one State and in no  other,  it must follow that the power of taxing that sale is capable of exercise only by one State and not others. The foundation on which this scheme rests is the location of a  sale in a particular State.  But how is this to be  done? When all the essential elements of a sale take place  within one  State, the question presents no difficulty.  But  what, if they are distributed over several States?  It is to  deal with  this situation that the Explanation has been  enacted. Its  purpose is to fix the situs of a sale when it is of  an inter-State  character,, and it does that by providing  that it  shall  be deemed to have taken place in  that  State  in which  the  goods are delivered for consumption.   What  the significance  of  the words " for consumption" is,  will  be considered in due course.  But that apart, it is delivery of the  goods that has been adopted by the Constitution as  the determining factor in fixing the situs of the sale, not  the agreement  to sell, nor the passing of title to  the  goods, nor other ingredients of sale, and there is good reason  for this.    Where  an  agreement  to  sell  is   concluded   by correspondence as generally it must be when the  transaction is  of an inter-State character., difficult questions  might crop up as to where the agreement was concluded.   Likewise, the  conception  as to passing of property in the  goods  is largely juristic and not seldom obscured by legal subtleties and  refinements, and it is conceivable that there might  be conflict  among the States as to in which of them the  title has  passed. ]But delivery is a matter of fact, about  which there ought to be no dispute, and it is consistent with  the purpose  of  article 286(1)(a) that the  Explanation  should have  chosen  delivery  as the determining  element  in  the transaction  of sale.  Now, the question to be  decided  ,is whether in the light of the above discussion, the 98 772 contention  of the appellant that the  Explanation  operates only  to deprive the selling State of its power to  tax  the sale, and that it confers no authority on the delivery State to  impose a tax can be accepted.  An obvious  objection  to

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this  view might at once be stated.  If the Explanation  has no application to any but the selling State, it must  follow that all the other States including the delivery State  will have  power to impose a tax under Entry 54  uncontrolled  by the  Explanation,  and that will bring into play  the  nexus theory  with  its attendant evil of multiple  taxation.   On this contention, therefore, article 286 (1) (a) must be held to  have  failed  to  achieve what it set  about  to  do.  A construction  which  leads to such a  conclusion  cannot  be accepted unless there are cogent reasons therefor.  What are those  reasons?  It is urged that article 286 (1)  (a)  does not,  in  terms, purport to confer a power on the  State  to impose  a tax on sale, that, on the other hand,  it  assumes the  pre-existence  of such a power in the State,  and  then proceeds  to  restrict it, that the  substantive  provisions which  confer  power  to tax are Entry 54  in  List  II  and article 246(3), that when a State has no power to tax  under those  provisions,  then article 286(1) (a)  could  have  no application  as  there could be no question  of  restricting what  does  not  exist, and that it  could  not,  therefore, operate  to confer on it such a power.  In support  of  this position,  reliance is placed on the form of article  286(1) (a)  that  no law of a State shall impose a tax  on  outside sale.   This prescription, it is argued, is merely  negative and  destructive  and  not  positive  and  creative  in  its content. But  this contention does not give sufficient effect to  the Explanation which is in substance and form positive, and  it also fails to take adequately into consideration the purpose of the enactment.  The object of article 286(1)(a)-and there is  no dispute about it -is to avoid multiple  taxation  and that, as already stated, was sought to be achieved by fixing the  situs  of  sale in one State  in  accordance  with  the Explanation.  The scheme of the enactment must, by its  very nature, have both a positive and a negative 773 aspect.   In  so far as it lays down which  of  the  several States could tax-and it does that in the Explanation -it  is positive  in its aspect, and in so far as it  prohibits  the other States from imposing tax-and it does this in the  body of article 286(1)(a)-it is negative in its aspect.  The body of  article  286(1) (a) and the  Explanation  together  form parts  of a single enactment charged with a  single  purpose and  to  refer  to  it either as  negative  or  positive  in character  can  only  be  a  partial  and  not  an  accurate statement  of the true position.  It is no doubt  true  that article  286  (1) (a) assumes that there is in the  State  a power to tax aliunde, and then proceeds to restrict it.  But it is not inconsistent with this to construe the Explanation as positive in character.  The problem of multiple taxation, which  it  is  the  object of the  enactment  to  avoid,  is possible  only when the sale is of an interState  character, and when the Explanation enacts that in such cases the  sale shall  be deemed to have taken place in the delivery  State, that  is  at  once a recognition and a  declaration  by  the Constitution that delivery is sufficient nexus on which  the State  can tax the sale under Entry 54.  The object of  this declaration  was  to remove the question from the  arena  of controversy  and settle it once and for all.  It is  thus  a positive  enactment  and  not the less  so,  because  it  is declaratory in character and it is also restrictive in  that it takes away by necessary implication the power of taxation on the basis of other nexi which other States would have had under Entry 54.  No purpose would be served by entering into a subtle disputation as to whether the Explanation conferred

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a  new  and  substantive power, or whether  it  affirmed  an existing  power.  In either case, the power of the  delivery State to tax could not be challenged. Looking  at the form of the Explanation, it is  emphatically positive  in that it declares that the sale shall be  deemed to  have taken place in the delivery State, and that is  all the  more significant in view of the fact that the  body  of article  286(1) (a) to which it is appended is  negative  in form.   The  change over from the negative of  the  body  of article 286(1)(a) to 774 the  positive of the Explanation is highly significant,  and the  appellant  has been unable to suggest  any  reason  for this,  except inadvertence and slovenliness on the  part  of the draftsman. The  marginal  note to article 286 was also referred  to  as showing  that  the  Explanation was  merely  restrictive  in character.  In Phakuraiit Balraj Kunwar v.   Rae  Jagat  Pal Singh(1) Lord Macnaghten observed: "It  is well settled that marginal notes to the sections  of an  Act of Parliament cannot be referred to for the  purpose of construing the Act.  The contrary opinion originated in a mistake, and it has been exploded long ago.  There seems  to be  no  reason for giving the marginal notes  in  an  Indian statute any greater authority than the marginal notes in  an English Act of Parliament". The  reason  on  which this rule rests was  thus  stated  by Baggallay, L. J. in Attorney-General v. G. E. Ry. (2): "I  never  knew  an amendment set  down  or  discussed  upon marginal  notes  to  a clause.  The  House  of  Commons  has nothing  to  do  with  a  marginal  note".   Vide  also  the observations  of Lord Hanworth, M.R., in  Nixon  v.Attorney- General(3).   This  reasoning applies with  equal  force  to marginal  notes  in  Indian statutes.  In  my  opinion,  the marginal note to article 286(1)(a) cannot be referred to for construing the Explanation.  It is clearly inadmissible  for cutting down the plain meaning of the words of the Constitu- tion.  Vide Commissioner of Income-tax, Bombay v.  Ahmedbhai Umarbhai and Co.(4). Two  other  views as to the scope of the  Explanation  which were discussed by the learned Attorney-General in the course of  his  argument  must now be noticed.   One  is  that  the Explanation does not deprive the selling State of its  power to  tax  under  Entry 54 but  confers  additional  power  of taxation  on the delivery State.  And the other is that  the Explanation  merely  settles  the competing  claims  of  the selling and of the delivery State, and leaves untouched  the power of the (1)  31 I.A,. 132, 142, 143. (3)  [1930] 1 Ch. 666, 593. (2)  [1879] 11 Ch.  D. 449 461. (4)  [1950] S.C.R. 835, 353. 775 other  States  to  tax on the basis  of  the  nexus  theory. Neither  of  these  views has been pressed  by  any  of  the parties  before  us,  and  both of  them  are  open  to  the objection that they would result in multiple taxation, which it was the purpose of the Explanation to avoid, and must  in consequence be rejected.  In the result, 7 whether regard is had  to  the object of the enactment or  its  language,  the Explanation must be held to authorise the imposition of  tax by the delivery State. 3.   It  is next contended by the appellant that  the  sales covered  by the Explanation to article 286(1)(a) are  within the  prohibition  contained in article 286(2)  and  that  in

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consequence the charge sought to be imposed on such sales by the  impugned  Act  is illegal and void.   That  raises  the question as to what the scope of the Explanation to  article 286(1)  (a)  is,  and whether it is  controlled  by  article 286(2).  The Explanation declaring as it does that the situs of  a sale for purposes of taxation is the delivery and  not the  selling  State can apply, by its very  terms,  only  to sales of an inter-State character, and that is the basis  on which  the  argument of both the parties to the  appeal  has proceeded.   Article 286(2) prohibits the imposition of  tax on  sales  in the course of inter-State  trade.   Thus,  the field  on  which the Explanation operates falls  within  the area  covered by article 286(2), and there is  apparently  a conflict between them.  Now the question is how the power of a  State to tax on the basis of the Explanation is  affected by  the impact of article 286(2), and on that,  three  views have been put forward: (a)  The  Explanation  fixes the situs of the  sale  in  the delivery State.  It becomes thereby a sale inside that State and outside all other States.  It accordingly ceases to be a sale  in  the  course of inter-State trade  and  becomes  an intrastate  sale and is, therefore, outside the  purview  of article  286(2); and the power of the delivery State to  tax under the Explanation remains unaffected.  That was the view taken by the majority of the learned Judges in The State  of Bombay v. The United Motors (India) Ltd. (1), and according (1) [1953] B.C.R 1069. 776 to  it,  there is no conflict between  the  Explanation  and article 286(2). (b)  The  sales to which the Explanation applies are in  the course of inter-State trade, and fall within the coverage of article 286(2), and there is thus a conflict between the two provisions, but the Explanation deals with a special  topic, and  therefore  prevails  against  article  286(2)  on   the principle  of  generalia specialisus non derogant,  and  the power  to tax thereunder is unaffected.  That was  the  view taken by Bhagwati, J. in The State of Bombay v. The United Motors(India) Ltd.(1). (c)The  sales  to  which  the  Explanation  applies  are  in the  course  of inter-State trade, and are  hit  by  article 286(2)  and  unless  Parliament lifts the  ban  as  provided therein,  no tax can be levied on them.  According  to  this view, the two provisions are irreconcilably in conflict, and article  286(2)  must  prevail as  against  the  Explanation unless   its  operation  is  superseded   by   Parliamentary legislation.   This  was the view taken by Bose, J.  in  The State of Bombay v. The United Motors (India) Ltd.(1), and by Das,  J.  in State of Travancore-Cochin v.  Shanmugha  Vilas Cashew Nut Factory(2). The points for determination are thus whether there is conflict between the Explanation to article 286(1)(a) and article 286(2), and if so, which of them is to prevail.   To decide this, it is necessary to examine  first what  the  position was under the Government of  India  Act, 1935,  and next how it has been affected by the,  provisions of the Constitution. Under  the Government of India Act, 1935, the Provinces  had under  Entry 48 in List II the exclusive power to make  laws in respect of taxes on sale of goods, and under Entry 27, in respect  of trade and commerce within its territory.   There was  no  entry  relating to trade  and  commerce  among  the Provinces  though  several topics  relating  to  inter-State trade  and commerce were specifically enumerated in List  1. Nor was there any provision for regulating inter-State  com- merce though under section 297 some restrictions were placed

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on the powers of the Provincial Legislature with (1) [1953] S.C.R. 1069. (2) [1954] S.C.R. 53, 777 reference thereto.  The conception of a commerce clause,  as we now have it, was unknown to the Government of India  Act, 1935.   It  came  in  for the first  time  as  part  of  the Constitution.   To  understand its true scope, it  would  be legitimate and indeed necessary to examine its bearings  and incidents   in   other  systems  of   law.    The   American Constitution  is the oldest written Federal Constitution  in the  world, and the problems it had to deal with  were  what many  Federal  Governments  have had  since  to  face.   The commerce clause is one of its notable provisions, and it was before  the framers of the British North America  Act,  1867 and  of  the  Commonwealth  Act  of  Australia,  1900.   Our Constitution also has largely been influenced by it, and  it would be useful to examine it to see what light it throws on the present controversy. In  America the authority of the Congress to enact  laws  on the  matters  delegated  to it  under  the  constitution  is supreme.  In  respect  of  all  other  matters,  the  States possess  plenary  powers  of  legislation  subject  to   the inhibition contained  in the Constitution. It is in exercise of these powers that the States enact laws regulating  sales and  imposing tax on them.  Under section 8 of article I  of the Constitution, the power "to regulate commerce among  the States" is vested in the Congress.  Thus, while  intra-State commerce is within the exclusive jurisdiction of the State,, inter-State commerce is within the exclusive jurisdiction of the  Congress.   A  question which came  up  frequently  for decision  before the Courts was whether the States  had  the power  to enact laws with reference to goods which had  come into a State in the course of inter-State trade, and it  was settled  on the highest authority that if the sale  was  for the  purposes  of  consumption within the  State  it  became domestic in its character,, and fell within the power of the State  to  regulate  and  to tax, but that  if  it  was  for purposes  other than consumption such as re-sale, then  that was in the course of interState commerce, and Congress alone had  the  jurisdiction to legislate in respect  of  it.   In Pennsylvania 778 Gas Co. v. Public Service Commission(1) the question was  as to  the  validity of a statute of New  York  regulating  the rates  which  could be charged for sale of natural  gas  for consumption within the State.  The gas was transported  into the State by pipe lines from outside, and it was accordingly held that the regulation was in respect of inter-State trade and  commerce,  and  was therefore  "subject  to  applicable Constitutional limitations" but that the State law was valid because "the thing which the State Commission has undertaken to  regulate,  while part of  inter-State  transmission,  is local  in  its  nature, and pertains to  the  furnishing  of natural gas to local consumers within the city of Jamestown, in  the State of New York". In Missouri ex rel.  Barrett  v. Kansas  Natural  Gas Co.(2), the facts were  similar  except that the sales were not for consumption within the State but for  resale.   It  was held that those  sales  continued  to retain  the character of inter-State trade, and fell  within the commerce clause.  Vide also Public Utilities  Commission v.   Attleboro  Steam  &  Electric  Co.(3).  The   principle underlying  these  decisions would appear to be  that  goods which are transported in inter-State trade must  necessarily come to the end of their journey when they are consumed, and

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that, therefore, sales for consumption take them out of  the course of inter-State trade.  But if the goods are sold  for resale,  they  are still moving in inter-State  journey  and therefore the commerce clause applies.  In 1938 the Congress enacted a legislation with reference to sales in the  course of inter-State trade for purposes of resale.  Examining  the question  whether  the States had thereafter  the  power  to enact a law regulating sales which take place in the  course of inter-State trade but for local consumption, the  Supreme Court  held  in Panhandle Eastern Pipe Line  Co.  v.  Public Service Commission of India(1) that they had, and observed: "Prior  to  that  time  (1938) this Court  in  a  series  of decisions  bad  dealt with various situations  arising  from State efforts to regulate the sale of imported (1)  252 U.S. 23: 64 L.Ed. 434. (3)  273 U.S. 83; 71 L. Ed. 549. (2) 265 U.S. 298; 68 L. Ed. 1027. (4) 332 U.S. 507; 92 L. Ed. 128. 779 natural  gas.  The story has been adequately told and we  do not stop to review it again or attempt reconciliation of all the  decisions or their groundings.  Suffice it to say  that by 1938 the Court had delineated broadly between the area of permissible state control and that in which the states could not intrude.  The former included interstate direct sales to local  consumers,  the latter, service interstate  to  local distributing companies, for resale". It further held that, the Congress legislation was itself  a recognition of the distinction established by the  decisions "between sales for resale and direct sale for  con’sumption. "This  decision  was -followed quite recently  in  Panhandle Eastern   Pipeline   Co.   v.   Michigan   Public    Service Commission(1).  Four propositions might accordingly be taken as well-settled in American law: (i)The   States   have  plenary  and  exclusive   power   of legislation in respect of intrastate sales. (ii)Regulation of inter-State commerce is a topic within the exclusive jurisdiction of the Congress. (iii)Sales  which  take place in the  course  of  interState trade are local in character and within the jurisdiction  of the State, if they are for consumption within the State. (iv)Where such sales are for other purposes than consumption such as resale, they retain their character as sales in  the course  of  inter-State trade and are within  the  exclusive jurisdiction of the Congress. The  provisions of the Indian Constitution bearing  on  this subject may now be referred to:- (a)The States have exclusive jurisdiction under Entry 54  to impose  sales tax and under Entry 26 to regulate  trade  and commerce within the State.  Legislative powers in respect of these  matters  were  conferred  on  the  Provinces  by  the Government  of India Act, 1935, and these powers  have  been continued in the States by the Constitution. (b)Article  301  enacts that trade and commerce  within  the territory of India shall be free, and under Entry 42 in List I,  the power to legislate on interState trade and  commerce is vested exclusively in the (1)  341 U.S. 329; 95 L. Ed. 993. 99 780 Union.  There was nothing corresponding to, these provisions in the Government of India Act, 1935. (c)  Under  the Explanation to article 286(1)(a), a sale  is deemed to take place within the State in which the goods are delivered  for consumption.  This again is a  new  provision

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introduced in the Constitution. (d)  No  law  of a State can impose a tax on  a  sale  which takes  place  in the course of inter-State  trade.  That  is article 286(2) which is also a new provision. Reading side by side the law on the subject both in  America and under the Indian Constitution, it is difficult to  avoid the  conclusion that the Explanation to article  286(1)  (a) and article 286(2) have been inspired by the American law on the subject, and that their spheres of operation  correspond respectively  to  the jurisdiction of the State and  of  the Congress  in  America  as delineated  in  Missouri  ex  rel. Barrett v. Kansas Natural Gas Co.(1), and Panhandle  Eastern Pipe Line Co. v. Public Service Commission of India(2) . I  shall  now pass on to consider which of the  three  views which have been placed before us as to the effect of article 286(2)  on the Explanation to article 286(1)(a) deserves  to be  accepted.   The  first view is that  the  sales  falling within the Explanation are intra-State in character, and are therefore outside the area covered by article 286(2).   This derives  considerable  support  from  the  language  of  the enactment.   The scheme of article 286(1)(a) is, as  already stated, that it fixes the situs of the sales with a view  to avoid  multiple  taxation, and for that purpose  it  divides them into two categories-inside sales and outside -sales-and enacts  that a State cannot tax an outside ,-sale.  When  in the same context the Explanation declares that a sale in the course of inter-State trade that this is its scope is common ground-must  be deemed to have taken place in the  State  in which  the goods are delivered for consumption, its  purpose is clearly to take it out of inter-State trade and stamp  it with  the character of an intra-State sale.  Under Entry  26 in List II, it is the State that has jurisdic- (1)  265 TT.S. 298; 68 L.Ed. 1027. (2)  332 U.S. 507; 92 L. Ed. 128. 781 tion in respect of trade and commerce within the State,  and reading  that with the language of the Explanation that  the sales  covered by it are deemed to take place in the  State, the  inference  is irresistible that the  intention  of  the Constitution-makers  was  to bring those  sales  within  the exclusive  jurisdiction  of  the 7  State  for  purposes  of taxation under Entry 54.  The result is that with  reference to sales for local consumption made in the course of  inter- State trade, the law under the Constitution is exactly  what it is in America and indeed, the similarity is too  striking to  be merely accidental.  The position may thus  be  summed up: Article 286(2) applies to sales in the course of  inter- State  trade.  The sales which fall within  the  Explanation are  intrastate  sales.   The grounds  covered  by  the  two provisions  are distinct and separate.  Each  has  operation within  its  own sphere, and there is  no  conflict  between them. The  appellant resists this conclusion on  several  grounds, and they will now be considered.  It was argued firstly that the  conclusion  that  the Explanation  and  article  286(2) relate  to two different subjects and that they  operate  on different  fields  could be reached only  by  importing  the Explanation into article 286(2), and that could not be  done because  it  is in terms stated to be "for the  purposes  of subclause  (a)" and also because such a course could not  be supported  on any recognised rule of  interpretation.   Now, what  is the significance of the words "for the purposes  of sub-clause(a)"   occurring  in  the  Explanation?   In   the context,  its purpose is only to exclude its application  to article  286(1)(b).  Article 286(1) deals with two  matters,

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sales  outside the State and sales in the course  of  export and import.  The former is dealt with in sub-clause (a)  and the  latter in sub-clause (b).  If the Legislature  intended that  the Explanation should apply to the former and not  to the latter, the most natural and obvious mode of  expressing that intention would be to enact, as it has, that it is "for the  purposes  of sub-clause (a)".  This problem  would  not have  arisen if the two matters had been dealt with  in  two different clauses as logically they 782 might  have  been.   If  that had  been  done,  the  article simplifying it, would run as follows:           "286. (1) No law of a State shall impose a tax  on a sale, where it takes place outside that State. Explanation:A  sale  shall  be deemed to  have  taken  place within  that  State  where  the  goods  are  delivered   for consumption as a direct result of the sale.       **        *        *      *     * 286. (4)  No law of a State shall impose a tax on a sale  in the course of export or import". Article  286(1) as drafted above, relegating sub-clause  (b) to  a  separate  clause  and omitting  the  words  "for  the purposes of sub-clause (a)" in the Explanation would  convey precisely the import of article 286(1) (a) as it now  stands with  sub-clause (b) and with the words"for the purposes  of sub-clause(a)".   That would clearly show that the force  of the words "for the purposes of sub-clause (a)" becomes spent when  article 286 (1) (b) is excluded from the operation  of the Explanation. But  then, it is contended that whatever the form  in  which the  Explanation  may be couched, it could not  be  extended beyond article 286(1) (a) and projected into article 286(2), and  that unless that was done, it was not possible to  hold that the sales falling within the Explanation are taken  out of  the  purview  of article 286(2).  In  my  opinion,  this argument  proceeds on a misconception of the real  reasoning on which the conclusion that the Explanation and article 286 (2)  relate to two different subjects is based.  In view  of the insistence with which this contention was pressed by the appellant,  it  seems desirable to examine the  position  in some detail.  To start with, the two relevant provisions  to be considered are article 286(1)(a) with the Explanation and article  286(2).  Omitting what is not material, they  would run as follows: "286.  (1) No law of a State shall impose a tax on  a  sale, where it takes place outside that State. Explanation:   A sale in the course of inter-State 783 trade  is  inside  that State in which  goods  are  actually delivered for consumption. (2)  No  law  of a State shall impose tax on a sale  in  the course of inter-State trade". The  argument  of  the  appellant  that  article  286(2)  is comprehensive and includes all sales in the course of inter- State  trade  and that therefore the sales  covered  by  the Explanation fall within its purview, takes into account only article  286(2) and the Explanation, and it would have  been unassailable  if  the  question  had  to  be  decided  on  a construction  only  of  these  two  provisions.   But  that, however, is not the position.  An explanation appended to  a section or clause gets incorporated into it, and becomes  an integral part of it, and has no independent existence  apart from  it.  There is, in the eye of law, only one  enactment, of  which  both  the section and  the  Explanation  are  two inseparable  parts.   "They move in a body if they  move  at

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all".   When,  therefore,  the  question  is  whether  sales falling within the Explanation are comprised within  article 286(2), what has to be construed is that article in relation to,  not  merely the Explanation taken in isolation  but  to article 286(1) (a) read with the Explanation.  If the matter is  thus  considered, the resultant position might  thus  be stated.   Article 286(1) (a) confers on States power to  tax sales inside their territory.  Article 286(2) prohibits them from  taxing  sales  in the  course  of  inter-State  trade. Explanation  to article 286(1) (a) enacts that sales in  the course of inter-State trade in which goods are delivered for consumption  in a State shall be deemed to have taken  place inside  that  State.   The  combined  effect  of  all  these provisions  is  that States can tax sales in the  course  of inter-State trade if they fall within the Explanation.  This conclusion  is reached, it will be seen, not by reading  the Explanation into article 286 (2) as a sort of exception  but giving  to  all  the provisions the  status  of  independent enactments  and determining what, on a construction of  the, language, their respective spheres of operation are. In this view, the argument that if the Explanation could  be read into article 286(2) it might as well be 784 read  into article 286 (1) (b) and article 286 (3) does  not call   for  consideration.   As  the  question  is  one   of determining  on a reading of the entire article the  precise operation  of  the several parts thereof, there  can  be  no objection to examining the scope of article 286(1) including the Explanation in relation to article 286(1)(b) and article 286(3).  Article 286(1) (a) relates to sales inside a State, and article 286(1)(b) to sales in the course of export  from or  import  into  the country, and there could  not  be  any interaction between them, and that is made abundantly  clear by  the  words "for the purposes of sub-clause (a)"  in  the Explanation.  Likewise, reading article 286(1) (a) including the  Explanation along with article 286 (3), the  result  is that  the power to tax which the State  otherwise  possesses has  to be exercised subject to the conditions mentioned  in the  latter,  when  there  is  a  Parliamentary  declaration thereunder.   The impact of article 286(3) is, it should  be noted,  not confined to the Explanation but extends  to  the whole  of article 286(1) (a).  It operates not only  on  the inter-State sales falling within the Explanation but also on sales  which  are indisputably intrastate, and  it  controls both  of them on the principle of generalia specialibus  non derogant. It is next contended that the sales to which the Explanation applies, takes place as a fact in the course of  inter-State trade,  and that the Explanation could not be  construed  as altering  that fact, and that its true scope was  merely  to shift the situs of the sale from the selling to the delivery State.  Conceiving interState trade as a stream flowing from point  A in the selling State to a point B in  the  delivery State,  it was argued that what the Explanation did  was  to shift  the situs of the sale from point A to point  B,  that the stream was still there despite the shifting and that the sale  therefore did not cease to be in the course of  inter- State  trade.   With respect, the fallacy in  this  argument lies  in thinking that after the shifting of the situs  from point  A  to  B; the sale could be regarded as  one  in  the course of inter-State trade.  A sale could be said to be  in the  course  of  inter-State trade only  if  two  conditions concur: (1) A sale of goods, 785 and (2) a transport of those goods from one State to another

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under  the contract of sale.  Unless both  these  conditions are satisfied, there can be no sale in the course of  inter- State  trade.   Thus, if X, a merchant in State  A  goes  to State  B, purchases goods there and transports them into  A, there  is  undoubtedly a movement of  goods  in  inter-State commerce.   But that is not under any contract of  sale.   X might be entitled under article 301 to certain rights in the matter  of  transportation.   But  article  286C2)  has   no application, as there is no sale in the course of interstate trade  or  commerce.  In the same illustration, if  X  after transporting  the goods into State A sells them,  then  also there is no sale in the course of inter-State trade.  It  is true  that there is a sale, and there is also a movement  of goods from one State to another.  But that movement has  not been  under the sale, there having been no sale at the  time of  transportation.  In Rottschaefer on  Constitutional  Law (1939 Edition) sale in the course of inter-State commerce is thus defined: "The activities of buying and selling constitute inter-State commerce   if   the  contracts   therefor   contemplate   or necessarily  involve  the movement of goods  in  inter-State commerce". The  law is thus stated by Gavit in "Commerce Clause"  (1932 Edn.)-- "The dividing line between an interstate sale and intrastate sale  is  rather  fine, although clear.. If  the  goods  are shipped  into  a  State without a previous  sale,  any  sale within the State is intra-State commerce.................. Thus  if  the sale succeeds the transportation in  point  of time, however close, the state may license it". In  William T. Wagner v. City of Covington(1), it  was  held that  local  sales  of goods brought  into  the  State  from outside  for the very purpose of the sale were not parts  of inter-State  commerce.  The following observations  at  page 197 might be quoted:      "Of  course  the transportation  of  plaintiffs’  goods across the state line is of itself interState commerce; (1)  252 U S. 95: 64 L.Ed. 157. 786 but  it is not this that is taxed by the city of  Covington, nor  is such commerce a part of the business that is  taxed, or  anything more than a preparation for it.  So far as  the itinerant vending is concerned the goods might just as  well have been manufactured within the State of Kentucky; to  the extent  that plaintiffs dispose of their goods in that  kind of sales, they make them the subject of local commerce;  and this  being  so,  they  can claim  no  immunity  from  local regulation, whether the goods remain in original packages or not". In  the  light of the above principles, what  is  the  legal character of the sales effected by the appellant and  sought to  be taxed by the respondent?  There is firstly  the  fact that  the  goods  were  actually  delivered  in  Bihar,  and secondly,  there is the fiction enacted by  the  Explanation that  the sale had taken place not in Bengal but  in  Bihar. If  both sale and delivery are in Bihar, it is difficult  to see  how the sale can be said to be in the course of  inter- State trade.  The argument of the appellant that there  was, in  fact, a movement of goods from Bengal to Bihar and  that stood  unaffected by the fictional shifting of the situs  of the  sale from Bengal to Bihar, overlooks that by this  very shifting,  the character and complexion of the  sale  become altered,  because,  as  the sale follows  the  transport  of goods,  it  cannot,  according  to  the  principles  already stated,  be said to be in the course of  inter-State  trade.

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It  may  be  urged as against this conclusion  that  as  the Explanation to article 286(1) (a) merely shifts the situs of the  sales,  and leaves unaffected the  agreements  to  sell which must in the present case be held to have been made  at Calcutta  when  the appellant executed the  orders  received from  the  Bihar  purchasers, the transport  of  goods  from Bengal  to Bihar was under the above contracts to sell,  and that  therefore the sales were in the course of  inter-State trade.   Such a contention would be untenable,  because  the expression  "contract of sale" in this context has the  same meaning  as the words "contract of buying and selling" I  in the definition of inter-State commerce given by Rottschaefer in the passage already quoted, 787 and  they  both refer to the bargain resulting in  the  sale irrespective  of whether it is in the stage of an  agreement to sell, or whether it is a sale in which title to the goods has passed to the purchaser.  That is also the definition of ‘contract  of  sale’ in section 5(1) of the Indian  Sale  of Goods  Act.  As there can be only 2 one final and  concluded bargain  in respect of any particular sale, and as  that  is fixed  by  the Explanation at Bihar, it follows  that  there could not be any bargain with reference thereto in Calcutta, and the movement of goods from Bengal to Bihar was not under any  contract of sale.  The position in law is  exactly  the same as if the goods had been sent by the seller from Bengal to  Bihar  on  his  own account  and  then  sold  there  and delivered  to  the  purchaser, in which  case  it  would  be indistinguishable   from  William  T.  Wagner  v.  City   of Covington(1),  and  the sale would  clearly  be  intrastate. This conclusion does not negative the factum of  inter-State movement of goods, and does not prevent any rights being put forward  on  that  footing  under  article  36-1.  it   only negatives the notion of a sale in the course of  inter-State trade, and thus takes it out of the purview of article 286(2 ). It  was argued that the Explanation merely enacted  a  legal fiction,  and  that  it being  a  well-established  rule  of construction  that legal fictions should be limited  to  the purpose for which they are enacted, it would be contrary  to this  rule to hold that the Explanation not  merely  shifted the  situs  of the sale but also obliterated the  course  of inter-State  commerce.   But the conclusion that  the  sales covered  by  the Explanation cease to be in  the  course  of inter-State trade is not the result of any extension of  the fiction  because,  as already stated, the factum  of  inter- State  transportation  is not ignored.  That  is  the  legal consequence of the fictional shifting of the situs. it  will be useful in this connection to quote what Lord Asquith  ob- served  in  dealing with a similar contention  in  East  End Dwellings Co. Ltd. v. Finsbury Borough Council(2). "If you are bidden to treat an imaginary state of (1)  251 U.S. 95: 64 L. Ed. 157. (2)  11952] A.C. 109, 132. 100 788 affairs  as  real, you must surely, unless  prohibited  from doing  so,  also  imagine  as  real  the  consequences   and incidents  which,  if the putative state of affairs  had  in fact  existed,  must  inevitably have  flowed  from  or  ac- companied  it.   One of these in this case  is  emancipation from  the  1939 level of rents.  The statute says  that  you must  imagine  a certain state of affairs; it does  not  say that  having  done  so,  you  must  cause  or  permit   your imagination  to  boggle  when it  comes  to  the  inevitable

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corollaries of that state of affairs". It is next contended that the view that sales in which goods are  delivered  for  consumption within the  State  are  not within   article   286(2)  would   render   that   provision practically  useless, because sales for purposes other  than consumption  such  as  for  resale  must  be  very  few  and negligible.   Why  should a seller for  consumption,  it  is asked,  get his goods from an intermediary and not  directly from  the  manufacturer?   But then,  the  Constitution  has itself   recognised  in  clear  and  unmistakable  terms   a distinction  between sales in which goods are delivered  for consumption  and  sales  in which  they  are  delivered  for purposes  other  than consumption such as resale,  and  what purpose  this  distinction serves, the  appellant  has  been unable to explain.  Besides, what are the materials on which we  can brush it aside on the ground that it is not  one  of substance?   One of the developments of modern big  business is  the  agency  system under  which  middlemen  enter  into contracts with manufacturers, stipulate for monopoly of  the distribution  rights  within a specified area,  guarantee  a certain   volume  of  business,  and  are  granted   liberal commission on the sales.  In such cases, retail sellers  can get  the  goods only from the distributors,  and  even  when there  is  no grant of monopoly, it is  nothing  unusual  in business  that large distributors are able to get the  goods from the manufacturers on rates more favourable than  retail sellers  can  obtain  and  that  consequently,  it  is  more economical for the latter to buy them from the  distributors than  from  the  manufacturers.   And  it  is  not   without significance that the distinction between the two classes of sales has been recognised in com- 789 mercially  advanced  America for now nearly  a  century  and recognised  for  this  very  purpose; and  how  can  such  a distinction be characterised as unsubstantial? It  was  finally contended by the  learned  Attorney-General that  if  article  286(2)  were  to  be  construed  as   not comprehending  sales falling within the  Explanation.,  then there  would  be  nothing on which it  could  operate.   The argument  was  thus presented: Article  286(1)(a)  bars  the selling  State, in the present case Bengal, from taxing  the sale  because  by reason of the Explanation, it  becomes  an outside  sale’, and if article 286(2) is to be construed  as not  barring the delivery State, in the instant case  Bihar, from taking the sale, then there is no sale to which it  can apply,  and  it will serve no purpose.  The  error  in  this argument  lies in taking the illustration as exhausting  the entire range of inter-State trade.  But that is not correct. Inter-State commerce consists in a flow of goods not  merely from one State to another but in its continuous flow through several  States, and article 286(2) is designed  to  protect such a flow without being burdened by State taxes.  Thus, if A in Bengal sells to B in Bihar., and if in his turn B sells the  same goods to C in U. P. for local  consumption,  there will be interState commerce under article 286(2) and in  the course  thereof, there will be two sales.  Taking first  the sale from Bengal to Bihar, Bengal -can tax it under  article 286(1) (a) because the Explanation thereto is not applicable as the delivery to Bihar is not for local consumption.   But article 286(2) would interpose a bar.  Bihar cannot tax  the sale  under article 286(1) (a), because that is  an  outside sale,, the Explanation being  inapplicable.  Coming next  to the sale by Bihar to U.P., Bihar will   be  entitled to  tax it  under  the body of article 286(1)(a) as  the  sale  took place  inside its limits.  But it cannot do so as under  the

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Explanation, it becomes an outside sale.  But U. P. will  be entitled to tax the sale under the Explanation as it was for consumption  within  that State.  Thus, the  effect  of  the combined operation of both article 286(2) and article 286(1) (a)  read with the Explanation is that the only State  which can tax the. sale is the one in 790 which the goods are sold for local consumption. These  are the objections advanced by the appellant  against the  view  that  the sales covered by  the  Explanation  are outside  article  286(2),  and they are  not  of  sufficient weight to overthrow it. The  consideration  of  this  question  will,  however,   be incomplete  without  an examination of the other  two  views that have been put forward as to the true meaning and  scope of  article 286(2).  The second view-and that was  taken  by Bhagwati,  J.  in The State of Bombay v. The  United  Motors (India)   Ltd.(2)  -is  that  the  sales  covered   by   the Explanation are in the course of inter-State trade and  they are,  therefore, within the purview of article  286(2),  but that as the latter is a general provision covering all sales in  the  course of inter-State trade, and the  former  deals only  with  a  special class thereof,  the  maxim  generalia specialibus  non  derogant  applies,  and  the   Explanation prevails as against article 286(2).  It will be noticed that this  agrees  with the first view in its conclusion  but  it differs  from  it on the reasoning by which it  reaches  it. According  to the first view, sales in the course of  inter- State  trade  contemplated by article  28612)  include  only those  under  which goods are delivered for  purposes  other than  local  consumption; whereas according to  the  second, they  include all sales including those in which  goods  are delivered  for  consumption within the State  and  those  in which  they are delivered for other purposes.  According  to this  view, therefore, there is conflict between the  Expla- nation and article 286(2), and the solution for it is to  be sought  in the application of the rule of construction  that general  provisions  do not derogate from the  special.   As between  these two views, the first view in for the  reasons already given, to be preferred.  But if the contention  that article  286(2)  applies both to sales in  which  goods  are delivered for local consumption and those in which they  are delivered  for  other  purposes  is  correct,  then  it   is difficult to see how the appellant can escape the conclusion reached by Bhagwati, J. in The State of Bombay v. The United (1)  (1953] B.C.R. 1069.                             791 Motors  (India)  Ltd.(1). The appellant is  plainly  in  the horns of a dilemma.  Sales in which goods are delivered  for local  consumption  ’fall either outside article  286(2)  or inside  it.  If they fall outside article 286(2),  then  the appellant  can  claim no immunity from taxation  under  that provision.   In case they fall inside article  286(2),  then the Explanation must prevail as against it on the  principle generalia  specialibus non derogant, and the sales  will  be liable  to  be taxed.  To get out of  this  difficulty,  the appellant contended that article 286(2) and the  Explanation related to two different matters, and therefore the maxim in question had no application.  The argument was that  article 286  imposed  a number of restrictions on the power  of  the State to tax sale of goods from different angles, e.g., when they  were  outside  the State, article  286(1)(a);  in  the course of export or import, article 286(1)(b); in the course of  inter-State  trade, article 286(2); and in  relation  to commodities declared essential by Parliamentary  legislation

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under article 286(3); that the Explanation was enacted  from the standpoint whether the sales were outside or inside  and article 286(2) from the standpoint whether they were in  the course  of inter-State trade or intraState trade,  and  that the  purpose  and  the policy of the  two  provisions  being different, their subject-matter must be held to be different and that therefore the maxim was inapplicable. I see no force in this contention.  It is a cardinal rule of construction that when there are in a Statute two provisions which are in conflict with each other such that both of them cannot  stand, they should, if possible, be  so  interpreted that  effect can be given to both, and that  a  construction which renders either of them inoperative and useless  should not  be adopted except in the last resort.  This is what  is known   as  the  rule  of  harmonious   construction.    One application  of  this  rule  is that when  there  is  a  law generally  dealing  with  a  subject  and  another   dealing particularly  with one of the topics comprised therein,  the general law is to be construed as yielding to the special in (1)  [1953] S.C.R. 1069. 792 respect  of the matters comprised therein.  Now, the  reason of the rule requires that it should apply whenever there  is overlapping  of  the  fields  occupied  by  two  conflicting enactments, and when that is shown, it would not be  logical to exclude its application on the ground that the enactments have been made with a different purpose.  It is the identity of the subject matter of the conflicting provisions, not the identity  of  their  purpose  or angle  of  vision  that  is essential  for the application of the maxim.   No  authority was cited for limiting it in the manner contended for by the appellant.   Now, it is the appellant’s own contention  that the sales covered by the Explanation are within the  purview of article 286(1)(a), and are therefore exempt from taxation thereunder, and that such taxation would be permissible only when  the  hold of article 286(2) over  the  Explanation  is removed by Parliamentary legislation under that  sub-clause. That  is  to say, the subject-matter of the  Explanation  is within  the  coverage of article 286(2), and  that  the  two provisions are directly in conflict.  It is difficult to see how consistently with this stand the appellant could  resist the  application  of the maxim aforesaid.  It is  true  that Bhagwati,  J. who took that view in The State of  Bombay  v. The  United  Motors (India) Ltd.(1) has now  retreated  from that  position.   But with respect,  there  is  irrefragable logic  in his reasoning in that decision, and that  commends itself to me. Then,  there is the third view that the sales to  which  the Explanation  applies are in the course of interState  trade, and therefore fall within the purview of article 286(2), and that in consequence, the power of the delivery State to  tax those  sales is incapable of exercise, as it is  within  the prohibition  contained  in that article, and that  when  the Parliament  enacts a law in terms of article 286(2)  lifting the  ban  thereunder,  then and not  until  then  could  the Explanation have any operation.  That was the view expressed by  Bose,  J. in The State of Bombay v.  The  United  Motors (India) Ltd.(1) and by Das, J. in State of Travancore Cochin v. Shanmugha.  Vilas Cashew Nut Factory(2). (1) [1953] S.C.R. 1069. (2) [1954] S.C.R. 53. 793 Briefly, according to this view article 286(2) controls  the Explanation.   Can this be sustained on the language of  the enactment?’  The Explanation is not expressed to be  subject

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to  article 286 (2).  Nor does the latter contain the  words "notwithstanding  anything contained in the  Explanation  to article   286(1)  (a)".   These  are  simple  and   familiar expressions  used by the legislature when it intends that  a particular provision in the Statute should be subject to  or override another.  Nor is there anything in the language  of the Explanation providing that its operation is not to be in praesenti but contingent on Parliamentary legislation  under article  286(2).  To construe, therefore, article 286(2)  as controlling the Explanation, we must import into the Statute words which are not there and thereby cut down the operation of the Explanation which on its terms is of equal  authority and potency with article 286(2). There being nothing express in the language of the enactment to lead to the conclusion that the Explanation is controlled by article 286(2), it has to be seen whether that conclusion can be drawn on a construction of the relevant provisions of the  Statute.   The  appellant argues that it  can  be,  and relies  firstly on the saving clause in article 286(2),  and secondly,  on  the proviso thereto as  supporting  it.   The argument based on the saving clause may thus be stated:  The contention  that  article 286(2)  controls  the  Explanation would have resulted in rendering the latter wholly nugatory, if  the  words  "except in so far as  Parliament  may  bylaw otherwise  provide" had not been there.  But that result  is avoided by the saving clause under which the Explanation can come into operation when there is Parliamentary  legislation lifting the ban under article 286(2).  This construction, it is argued, gives effect to the plain language of the article and also to both the provisions.  But when examined, it will be seen that far from giving effect to both the  Explanation and article 286(2), this construction results in  destroying one or the other of them.  The harmonious construction which the law favours is one which gives operation to both 794 the  provisions  at the same time but  in  their  respective spheres. But according to the appellant, if article 286(2)is in  force  then the Explanation cannot operate, and  if  the Explanation is to operate, it can only be if the  Parliament puts  an  end to article 286(2) by  legislation  thereunder. This  construction, far from reconciling the two  provisions and giving operation to both of them, renders them uncompro- misingly  hostile,  and  makes  their  coexistence  and  co- operation impossible. It is also open to question whether the saving clause  could be   referred  to  for  the  purposes  of  determining   the respective  spheres of operation of the Explanation and  the body of article 286(2).  The scope of a saving clause or  an exception is that it operates within the area covered by the main  provision on which it is engrafted.  It cannot add  to it though, when in force, it can detract from it.  It would, therefore  "  be  inadmissible  for  enlarging  what   would otherwise  be  the  sphere in  which  article  286(2)  would operate.   If  the  view that article  286(2)  controls  the Explanation  cannot be maintained on a construction  of  the body  of  article  286(2) and  the  Explanation,  it  cannot properly  be  adopted on the strength of the  saving  clause annexed thereto. There was considerable discussion before us as to the nature and  scope  of the law that could be enacted  under  article 286(2).   It must be confessed that the matter is  not  free from  doubts and difficulties.  But about one  thing,  there can be no dispute.The law   to  be enacted  by  Parliament cannot runcounter to     any  of the provisions of  the Constitution.Thus, it  cannot  itself  impose  a  tax   on

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sales, thatbeing  within the exclusive  jurisdiction  of the  states under Entry 54 in List II.  Nor can it confer  a power to tax a sale in the course of inter-State commerce on any  State  of  its  own  choice  in  contravention  of  the Explanation to article 286(1) (a), Its operation can only be negative.   It can lift the ban imposed by  article  286(2). It  was suggested for the appellant that it can do  that  as regards   particular  commodities  or  with   reference   to particular States, and that further in so limiting 795 the  operation  it could enact suitable  provisions  for  an equitable  adjustment  of the interests of all  the  States. But laws limited in their operation to specified commodities and   States  must  in  their  very  nature,  be   temporary legislation to be withdrawn and re-enacted from time to time suitable  to  the ever changing  conditions  of  inter-State trade  and  commerce.  If that was the sort  of  legislation that the Constitution-makers had in mind, one would have ex- pected that the authority contemplated by article 307  would have  been  empowered to deal not merely  with  the  matters mentioned  in articles 301 to 304 but also  article  286(2), and  it is also not a little surprising that no  legislation should  have  been enacted on those lines during  all  these years.   In  any  event, it must be  a  profitless  task  to speculate  on  the  scope  and  effect  of  a   hypothetical legislation under article 286(2), and it would be unsafe  to base any conclusion as to the true scope of the  Explanation on the existence of a power in the Parliament to enact a law under article 286(2).  The contention based on the proviso to article 286(2)  must now be considered.  It was argued that while the proviso  is to  have  operation notwithstanding  anything  contained  in article  286(2) it does not similarly override  article  286 (1)  (a)  and that therefore when the  President  issued  an order  under  that  proviso,  the  Explanation  would   have operation,  and that therefore it was not useless.  To  this contention,  there are two answers: (1) An order  issued  by the President under the proviso can operate only to continue existing  taxes.   It cannot go further, and  authorise  the imposition  of a tax even when the conditions  mentioned  in the Explanation are satisfied, if, in fact, it had not  been previously  collected.  Therefore, the Explanation can  have no practical effect on the operation of the proviso.  If, in fact,  a  delivery State had been levying a tax  before  the commencement of the Constitution, that would continue to  be valid  under  the  proviso,  not by  the  operation  of  the Explanation  but  by  reason of the fact that  it  had  been levied before.  Thus, the Explanation as such has no  opera- tion. (2) It should also be mentioned that prior to 101 796 the Constitution no State was actually levying a tax on  the basis  of delivery and therefore the Explanation could  have no practical effect even when the President made the  order. The Constitution-makers presumably had before them the sales tax  legislation of all the States, and it is  a  legitimate inference   that  they  could  not  have  thought   of   the Explanation as deriving any force or operation by reason  of an order of the President under the proviso. Mr. Taikad Subramanya lyer, counsel for M. K. Kuriakose, one of the interveners, arguing in support of the contention  of the  appellant  that  article  286(2)  is  the   controlling provision,  suggested a third category of cases wherein  the Explanation could operate apart from a law under the  saving clause in article 286(2) or the order of the President under

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the  proviso  thereto. His argument was this:  Suppose  that both  the seller and the purchaser are in State ’A’ and  the goods  are located in State ’B’.  The instrument of sale  is executed  in  State A, and pursuant thereto,  the  purchaser gets actual delivery of the goods in State B. Article 286(2) has  no application to the sale as there is  no  inter-State movement  of  goods thereunder.  But  for  the  Explanation, State  A would have been entitled to tax the sale as it  was inside that State.  But the Explanation bars it, and confers on  State  B the right to tax it.  This)  it  is  contended, gives  operation  to the Explanation consistently  with  the view   that  it  is  controlled  by  article  286(2).    The assumption underlying this argument is that the property  in the goods passed in State A when the instrument of sale  was executed, though the goods were then located in State B. But this  is not correct.  It is one thing to say that title  to the goods passes at the time when the instrument of sale was executed and quite a different thing to state that it passes at  the place where it is executed.  Considering the  matter with particular reference to the power of a State to  impose tax,  sale is a practical conception having relation to  the right  to enjoy and dispose of the goods, and it is a  well- settled feature of all sales-tax legislation that the  power to tax the sale is annexed to the place where 797 the  goods are located at the time of the  contract.   Under the  general  law also, the position is that  title  to  the goods passes in the State in which the goods are situated at the time of the sale.  In Badische c Anilin Und Soda  Fabrik v.  Hickson(1), there was a contract of sale signed by  both the parties in England  with reference to goods  situated in Switzerland.   The action was laid in England for breach  of patent,  and  the  point for decision  was  whether  it  was maintainable  there.  It would have been maintainable  there if the sale was in England but not if it was in Switzerland. It  was held by the House of Lords that the sale was not  in England,  and that the action did not lie.  The position  in law was thus stated by Lord Loreburn, L.C. at page 421: "As  I understood him, Mr. Cripps argued that the  defendant had ’vended’ these goods in England within the terms of  the patent.  He admitted that merely to make a contract of  sale would not be ’vending’ or, to use a word in sense equivalent and in use more familiar, selling.  But the maintained  that if the contract to sell was made in England, and, in  pursu- ance  of it goods were, by the consent of buyer and  seller, appropriated  to  meet the contract,  then  the  transaction became  a  sale completed in England, and that  it  did  not signify  whether  the  goods  were  at  the  time  of   such appropriation in England or abroad. I cannot accept that view.  A contract to sell unascertained goods is not a complete sale, but a promise to sell.   There must be added to it some act which completes the sale,  such as  delivery or the appropriation of specific goods  to  the contract  by the assent ’ express or implied, of both  buyer and  seller.  Such appropriation will convert the  executory agreement into a complete sale.      *       *       *      *      *        * In  my  opinion,  if  you must decide  in  what  country  an appropriation  of  goods by consent takes  place,  it  takes place  not where the consent is given, but where  the  goods are at the time situate", (1)  [1906] A.C. 419, 798 In  view of these observations, it cannot be contended  that the  title to the goods passed in State A and that  State  B

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gets the right to tax by reason of the Explanation.  State B gets the power to tax the sale not under the Explanation but under the general law.  This contention, it should be noted, has  reference  to  cases which  ex  hypothesi  are  outside article  286(2),  and has only an indirect  bearing  on  the question whether article 286(2) controls the Explanation. It  is necessary now to refer to the arguments addressed  by both  parties  based  on what were stated to  be  the  broad principles underlying the Constitution and on considerations of  hardship or inconvenience arising from one view  or  the other.   It was argued for the appellant that the  intention of  the Constitution-makers as disclosed in article 301  was to encourage the free flow of trade and commerce within  the Union unimpeded and unobstructed by State legislation,  that article 286(2) was enacted in furtherance of that policy, as taxation  by the States might become so heavy as  to  become burdensome   to  inter-State  commerce;  that   the   normal situation envisaged by that article was, therefore, that  no tax  should be levied on sales in the course of  inter-State trade,  power being reserved in Parliament to  intervene  in appropriate  cases and that consistently with  this  policy, article 286(2) should be construed as the controlling provi- sion and the Explanation as an emergency reserve.  The reply of the respondent was that the intention of the Constitution as  expressed  in article 286(1) (a) was to  avoid  multiple taxation  of sales in the course of inter-State  trade,  and not  to free them from any taxation, that  the  Constitution did contemplate the levy of one tax on every sale, and  that the  construction of the appellant, if accepted, must  place local  sales  in  a  greatly  disadvantageous  situation  as against  sales in the course of inter-State trade, and  that must  result in driving out local trade and business  across the borders of the State. The  appellant is undoubtedly right in his  contention  that the  Constitution  intended trade and  commerce  within  the Union to be free.  But the question 799 is whether that requires that there should be no tax at  all at  any  stage even when the goods have come to the  end  of their journey as a result of sale.  That clearly is not  the law   in  America  where  inter-State  commerce  is   highly developed  and jealously protected.  That  the  Constitution did  contemplate one tax on a sale-in the course  of  inter- State  trade when it is for local consumption is clear  from the Explanation.  To argue that freedom from taxation  under article  286(2) is the normal condition, and  that  taxation under  the  Explanation is an exception is to beg  the  very question that we have got to decide.  No other provisions of the  Constitution  have  been cited as  expressive  of  that intention.  On the other hand, such indication as there  is, tends in the opposite direction.  Article 304(a) which is an exception to article 301 authorises the imposition of a  tax on  imported goods when similar goods  locally  manufactured are subject to a State tax provided that such imposition  is not discriminatory.  It is true, as contended by the learned Attorney  General,  that  under article 304  (a)  the  taxis levied on the goods whereas under article 286(2) it is  laid on the transaction of buying and selling.  But on a question of policy, what difference would it make whether the tax  is imposed  on  the  transaction of sale or on  the  import  of goods,  as  in either case it must fall  on  the  consumers? That clearly is the reasoning of the majority of the learned Judges in The State of Bombay v. The United Motors (India  ) Ltd.(1), and there has been no satisfactory answer to it  by the appellant.

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On the other hand, article 304(a) lends considerable support to  the contention of the respondent that it could not  have been the intention of the Constitution to place local  sales in a worse position than sales in the course of  inter-State commerce, which must be the result of holding that sales  in the  course  of interState trade are  immune  from  taxation under  article 286(2), while intrastate sales are liable  to be  taxed under Entry 54.  What reason or justice can  there be for making.a local purchaser of goods pay a higher  price therefore than what a purchaser of the same goods (1)  [1953] S.C.R. 1069, 1088. 800 across  the State line would have to pay?  The  only  answer that  was  suggested was that the State might  refrain  from taxing even intra-State sales of those commodities which are the subject-matter of interState trade.  Seeing that  inter- State trade is happily an expanding factor in national life, and  that  it tends to comprehend an increasing  variety  of goods,  there  will  be  left,  if  the  suggestion  of  the appellant is to be followed, very few commodities which  the State could tax, and Entry 54 might as well be effaced  from out  of the Constitution.  There is, besides, the  apprehen- sion  expressed by the respondent-and it cannot  be  brushed aside as fanciful-that if the contention put forward by  the appellant  is  accepted, then it must inevitably  result  in local  trade shifting on to adjacent States.  If the  scheme of the Constitution is, as I conceive it to be, to put  both intrastate  sales  and sales in the  course  of  inter-State trade  on  the  same footing -and that is  manifest  on  the language  of article 301 -it must follow that as the  former are  liable  to be taxed under Entry 54, the  latter  should also be similarly liable to be taxed, and that is  precisely what the Explanation provides for. It  was  next argued for the appellant that  the  view  that under  the Explanation delivery States would be entitled  to tax  all sales in the course of inter-State trade  if  goods are  delivered for consumption there, would  render  sellers liable  to be taxed in all the States in which  their  goods are  sold,  and  that would subject  them  to  a  perplexing multitude  of assessment proceedings in several  States  and that must cause great inconvenience and hardship in business circles.   Our attention was also invited to the  provisions of the impugned Act relating to assessment and collection of tax,  and  it  was  contended  that  they  must  result   in considerable harassment of the assessees.  As against  this, the  respondent  contended that the sellers  had  really  no grievance in the matter as the tax would be ultimately  paid by  the  consumers,  and that, on the  other  hand,  if  the contention of the appellant were to be accepted, the  States would  have  to lose a substantial portion  of  the  revenue derived from                           801 sales tax and that must seriously affect their economy. It  must be conceded that in the view that  the  Explanation authorises the imposition of tax on all sales in the  course of  inter-State  trade  falling  within  its  purview,  non- resident  sellers will be liable to be taxed in every  State in  which the goods are sold for consumption, and that  they must  in  consequence  be  exposed  to  multiple  assessment proceedings  in different jurisdictions and that  that  must cause inconvenience.  But then, that is necessarily inherent in  the Explanation whether it operates when the  ban  under article  286(2)  is lifted by Parliamentary  legislation  as contended for by the appellant, or even without such law, as the respondent maintains.  That does not, therefore,  appear

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to  be  very  material  in  construing  the  scope  of   the Explanation.  The right which residents of one State have to trade freely in other States is one conferred by article 301 and  is  a creature of the Constitution, and when  the  same Constitution provides for taxation of sales in the course of inter-State trade -by the Explanation to article 286(1) (a), and  the  inconvenience  complained  of  results  from  that provision and is incidental to its enforcement, it does  not sound  logical  that the sellers should, while  electing  to take   the  benefit  under  article  301,   disclaim   their obligations under the Explanation. The  point  of substance against the appellant is  that  the sellers  are  not  the  persons  really  affected,  as   the incidence of taxation will ultimately fall on the consumers. The  Explanation applies to goods delivered for  consumption within  the State, and the tax imposed on the sale  of  such goods   is  really  a  tax  laid  on  the   purchasers   for consumption.   It  might  happen that  such  purchasers  are numerous and scattered all over the State, and that must  be so  when  the  goods  sold are,’ as  in  the  present  case, medicines.   The  power  to  tax  in  such  a  case  can  be effectively   exercised   only  through  the   seller.    No administrative   machinery  can  succeed  in  reaching   the consumers  when their name is legion, and as the  seller  is merely  to pass on the tax to the consumer, he is, in  fact, constituted  collector  of the tax on behalf of  the  State. This is the 802 practice largely adopted in America in the collection of Use Tax,  and  its  validity has been  repeatedly  affirmed.   A recent  decision on the question is that in General  Trading Co. v. State Tax Commission of the State of Iowa(1).  There, the State of Iowa imposed a Use Tax on a foreign Company  in respect  of goods distributed by it for  consumption  within the State.  In upholding the tax, Frankfurter, J. observed: "To make the distributor the tax collector for the State  is a  familiar  and sanctioned device.  Monamotor  Oil  Co.  v. Johnson(1), Felt & T. Mfg.  Co. v. Gallagher(3)". It  was argued by the appellant that in the above  case  the foreign  company  was  "a retailer maintaining  a  place  of business" within the State.  But as the tax in question  was not  a sale-tax but a use tax payable by the  purchasers  it would  be  wholly irrelevant whether the distributor  bad  a place of business within the State, and that indeed is  what is stated in the judgment itself. Even looking at the matter from the practical standpoint, it is   easy   to  exaggerate  the  inconvenience   which   the Explanation might cause.  If sellers have trade and commerce all  over  the  States, theirs must  undoubtedly  be  a  big business.  That means that they would have, for the  purpose of   the   business,   adequate   clerical    establishment- accountants,  correspondence clerks and so  forth.   Regular account  books would be maintained showing the  dispatch  of goods to dealers and purchasers in other States.  And  thus, all the materials on which returns have to be made would  be already  there.  The additional burden will consist in  this that in posting the entries in the ledger accounts, separate folios will have to be opened for the several States.   This is  no  doubt  additional work thrown on  the  sellers,  but viewed  in its true perspective, it is too unsubstantial  to deny the States a substantive power to tax.  It is said that there would be considerable harassment of the sellers  under the provisions of the impugned Act.  But why should there (1)  332 U.S. 385; 88 L. Ed. 1309. (2)  292 U.S. 86; 78 L. Ea. 1141, 1147, 1148.

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(3    306 U.S. 62; 82 L. Ed. 488. 803 be?  It  must be presumed that sales-tax  officers  will  do nothing unfair or oppressive, and the correspondence between the  parties  preceding  the proceedings shows  a  just  and sympathetic  attitude on the part of the respondent.   True, some  of  the  provisions  of the Act  are  of  a  stringent character.  But they have’ terrors only for those who  would evade  and avoid tax, and persons like the  appellant  doing big  business  Of  an all-India  character  and  maintaining regular and correct accounts have nothing to fear from them. Now, let us look at the other side of the picture.  Prior to the Constitution, the States bad the power to tax even sales in  the course of interstate trade and commerce, and  it  is stated  that  a  substantial portion of  their  revenue  was derived from this source.  The Constitution enacted  article 286 (1) (a) with a view to avoid multiple taxation of  sales in the course of inter-State trade, and it is the contention of   the  respondent  that  the  Explanation  on  its   true interpretation  provides  for  a single  taxation  of  those sales,  at the stage of consumption.  If the  contention  of the  appellant  as to the scope of the  Explanation  and  of article  286(2)  is accepted, this tax could not  be  levied after the 31st March 1951, and the States would have lost  a substantial source of revenue.  What is the substitute  that the  Constitution  has  provided therefor?   None.   In  the result,  there  must  be, as argued  by  the  respondent,  a financial  crisis  in  the  affairs  of  the  States.    The position,  therefore,  is  that we have  to  choose  between depriving the States of their power to impose a tax on which their  very  existence  depends, and  exposing  the  sellers having business outside their State to the inconvenience  of multiple  assessment  proceedings.  In that  situation,  can there  be  any  doubt as to what  our  decision  should  be? Surely,  the claim of the State should have precedence  over that  of individuals.  It is very significant that  all  the States  which  have  intervened have,  with  one  exception, strongly  supported  the  stand of  the  respondents.   That exception  is  the  State  of  West  Bengal.   The   learned Attorney-General  appearing for this State did  not  contend for any right in it to tax the sales.  His argu- 102 804 ment was that neither West Bengal nor Bihar was entitled  to tax  by reason of article 286(2).  The intervention of  West Bengal is, therefore, not for protecting its rights but  for the vindication of the law, as it conceives it to be. It was suggested for the appellant that the solution to  the problem lay in the Centre taking over the subject of tax  on sales  in the course of inter-State trade,  provision  being made for distribution of the receipts among the States under article  269  after making the necessary amendments  to  the Constitution.   Our  duty is to construe the  provisions  as they  stand and not to discuss questions of policy which  it is  for  the  Legislature to decide; and if  I  examine  the suggestion  of the appellant, it is only for the purpose  of finding out what light it throws on the present controversy, and  how  far  it  will be an  improvement  on  the  present position under the Constitution.  Under Entry 48 in List  II of  the  Government of India Act, 1935, the States  had  the power  to  impose tax on sale of goods  and  advertisements. When  dealing with this topic, the Constitution-makers  took over  advertisement  of newspapers to the  Union  List,  the residue  being  left to the States.  Thus, the  decision  to

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entrust the power to tax sales to the States was deliberate, and  there  is good reason for it.  Sales might  take  place either in the course of inter-State trade or be  intraState. There can be no question of the Centre taking over  taxation of intrastate sales. To confer a power on the Centre to  tax sales  in the course of inter-State trade alone would be  to dichotomise the power to impose sales tax and distribute  it between the States and the Centre.  For such a course, there does  not  appear  to be any precedent,  anywhere,  and  the practical   inconvenience  attendant  thereon  is   obvious. Moreover,  let  us  assume that the Centre  takes  over  the taxation of sales in the course of inter-State trade.   What difference will it make in the present position?  So far  as sellers  are  concerned,  they  will  have  to  submit   one consolidated statement of all the sales outside their  State instead  of splitting them according to the States in  which the sales are effected, and there will 805 be a single assessment proceeding instead of as many as  the States  where  the sales take place., That  would  no  doubt avoid  much of inconvenience.  But, so far as the burden  of taxation on the sellers is concerned, the position would  be exactly what it is now.  And on what principle is the Centre to distribute the tax realisations among the States?  It can only  be on the basis of receipts from the  several  States. And there is justice in each State claiming what is realised from  the consumers resident within its territory.  That  is precisely  the  scope  of  the  consumption  tax  under  the Explanation.   Thus,  the suggestion of  the  appellant,  if acted  upon,  will not relieve it from the liability  to  be taxed;  it will only reduce the assessment proceedings  from many  to  one.   In other words, the  relief  will  be  with reference  not  to substantive rights, but to  a  matter  of procedure.  But the contention of the appellant that article 286(2) controls the Explanation is directed not against  the procedure  in  the assessment of tax, but against  the  very liability   to  be  assessed  to  it,  the   argumentum   ab inconvenienti  being availed of as a ground for denying  it. The suggestion, therefore, that the taxation of sales in the course  of  inter-State trade should be left to  the  Centre lacks substance.  ’Even with reference to the  inconvenience that  might  result  from  the  multiplicity  of  assessment proceedings,  it  is one which is capable of  being  removed without disturbing the existing scheme of the  Constitution, by Parliament enacting a law constituting an authority under article 367 and conferrinly on it power to receive from  the sellers  one  consolidated  -statement of  all  their  sales outside  their  State  and determining  the  precise  extent thereof  effected  in  the several States  and  making  that determination  final  for  purposes  of  assessment  by  the States.   That would, on the one hand, secure to the  States the finance legitimately due to them under the  Explanation, and at the same time,, save the sellers from the  harassment of  multiplicity  of  proceedings.  Such  a  law  cannot  be impugned  as  trespassing  on the exclusive  domain  of  the States to impose sales tax under Entry 54, as the  authority to impose the tax would continue 806 to be the States.  It is the law of the several States  that will  determine the conditions under which, and the rate  at which, the tax will be chargeable.  It is the machinery  set up  by the States that will make the assessment and  collect the  taxes, and these realisations will find their way  into the  coffers of the States.  The effect of the Act would  be only  to  enact a rule of evidence, on which  the  assessing

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authorities have to act.  Such a law would not conflict with any  of the provisions of the Constitution.  It is  scarcely necessary  to  add that this suggestion is only  by  way  of answer to the one put forward by the appellant, and even  if there  are Constitutional difficulties in the way of  acting on  it, that would not affect the decision of  this  appeal, which  must  turn on the provisions of the  Constitution  as they stand. Having  carefully considered the arguments addressed by  the learned counsel appearing for the parties to the appeal  and for the interveners, I am clearly of opinion that the  sales falling within the Explanation are, by reason of the fiction enacted  therein,  intraState sales, that  accordingly  they fall outside the ambit of article 286(2) and are  unaffected by  the  prohibition contained therein.  In coming  to  this conclusion, I have considered the question afresh and on its own  merits as if it were res integra.  But, in fact, it  is concluded  by  the decision of this Court in  The  State  of Bombay v. The United Motors (India) Ltd. (1) to  which  reference  has been made in  the  course  of  the discussion.   It  is conceded that if this  decision  is  to govern,  then this point would have to be found against  the appellant.   But  it is contended that it is  erroneous  and should  not be followed.  That raises the  question  whether this  Court has the power to reconsider a previous  judgment given by it on the identical issue.  As the point arises for decision  for the first time before this Court, and  as  our pronouncement thereon must be of the highest importance,  we have  heard  arguments  as to what the practice  is  in  the highest judicial tribunals of other countries with reference to this matter. (1)  [1953] S.C.R. 1069. 807 In Street Tramways v. London County Council(,), it was  held by the House of Lords that its decision on a question of law was conclusive and binding on the House in subsequent  cases and that if it was erroneous, it could be set right only  by an Act of Parliament.  The practice before the Privy Council however has been different.  In Ridsdale v. Clifton(1), Lord Cairns dealing with this question observed as follows: "In  the  case of -decisions of final Courts  of  appeal  on questions  of law affecting civil rights, especially  rights of  property,  there  are strong  reasons  for  holding  the decisions,  as  a  general rule, to be  final  as  to  third parties.   The law as to rights of property in this  country is  to  a  great  extent  based  upon  and  formed  by  such decisions.   When  once arrived at, these  decisions  become elements in the composition of the law, and the dealings  of mankind are based upon a reliance on such decisions. Even  as to such decisions it would perhaps be difficult  to say  that  they  were,  as  to  third  parties,  under   all circumstances  and in all cases absolutely final,  but  they certainly ought not to be reopened without the very greatest hesitation". The  case  before the Board was one involving  questions  of ecclesiastical law, and it was held that in such cases their Lordships were free to examine for themselves the reason  on which  the prior decision rested and to decide on their  own view  of  the  matter.   The  authorities  bearing  on  this question  were reviewed by the Privy Council at some  length in Re: Transferred Civil Servants (Ireland) Compensation(3), and the result was thus summed up: "There  is no inherent incompetency in ordering a  rehearing of a case already decided by the Board, even when a question of  a right of property is involved, but such an  indulgence

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will be granted in very exceptional circumstances only.   It is of the nature of an extraordinarium remedium". This  opinion was reiterated in Attorney-General of  Ontario v.  Canada Temperance Federation(1) wherein  Viscount  Simon said: (1)  [1898] A.C. 875. (2)  [1877] 2 P.D. 276. (3)  [1929] A.C. 242. (4)  A.I.R. 1946 P.C. 88. 808 "Their  Lordships  do  not doubt that  in  tendering  humble advice  to  His  Majesty they are not  absolutely  bound  by Previous  decisions of the Board, as is the House of  ]Lords by  its  own  judgments.   In  ecclesiastical  appeals,  for instance, on more than one occasion, the Board has  tendered advice  contrary  to that given in a  previous  case,  which further  historical research has shown to have  been  wrong. But  on  constitutional questions it must be  seldom  indeed that  the Board would depart from a previous decision  which it  may be assumed will have acted upon both by  Governments and subjects". Thus,  the  practice  of  the  Privy  Council  has  been  to recognise a power to reconsider its previous decisions,  but it is exercised only in exceptional circumstances.  In James v.  Commonwealth(1)  the High Court of Australia  has  ruled that  it  has the power to examine the  correctness  of  its previous  decisions.  The practice of the Supreme  Court  of America is that it has considered itself free to  reconsider its  previous  decisions  especially  when  they  relate  to questions   of  constitutional  law.  (Vide  Willoughby   on Constitutional  Law, Vol. 1, pages 74 and 75 and  the  cases cited there).  The reason given for this view is that  while errors of law not bearing on constitutional provisions could be corrected by ordinary process of legislation, an error on a question of constitutional law could be set right only  by resort to the dilatory and cumbersome machinery of  amending the   Constitution.  (Vide  Smith  v.  Allright(2)).    This reasoning  will  also be applicable to  decisions  involving interpretation  of our Constitution.  It was argued for  the respondents  that  article 141 gives the decisions  of  this Court the status of law, and that, therefore, if they are to be  changed  that could be only by process  of  legislation. Article 141 only enacts that the decisions of this Court are binding on all courts, and that does not stand in the way of this  Court  itself,  reversing  or  modifying  a   previous decision,  as  when  that  is  done,  such  decision   would thereafter become itself the law under that article.   There is, therefore, good (1) 18 C.L.R. 54.         (2) 321 U.S. 659: 88 L.Ed. 987. 809 reason  for  holding  that  this  Court  has  the  power  to reconsider,  inappropriate cases, a previous decision  given by it. The  question then arises as to the principles on which  and the limits within which this power should be exercised.   It is  of course not possible to enumerate  them  exhaustively, nor  is it even desirable that they should  be  crystallised into  rigid and inflexible rules.  But one principle  stands out prominently above the rest, and that is that in general, there  should  be finality in the decisions of  the  highest courts  in  the  land,  and that  is  for  the  benefit  and protection  of  the  public.   In  this  connection,  it  is necessary   to  bear  in  mind  that  next  to   legislative enactments,  it  is decisions of Courts that form  the  most important  source of law.  It is on the faith  of  decisions

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that  rights  are  acquired and  obligations  incurred,  and States and subjects alike shape their course of action.   It must  greatly  impair  the value of the  decisions  of  this Court,  if the notion came to be entertained that there  was nothing certain or final about them, which must be the  con- sequence  if  the  points decided therein  came  to  be  re- considered  on the merits every time they were  raised.   It should be noted that though the Privy Council has repeatedly declared that it has the power to reconsider its  decisions, in  fact,  no  instance  has been quoted  in  which  it  did actually   reverse   its   previous   decision   except   in ecclesiastical cases.  If that is the correct position, then the  power  to reconsider is one which should  be  exercised very  sparingly and only in exceptional circumstances,  such as when a material provision of law had been overlooked,  or where  a  fundamental assumption on which  the  decision  is based turns out to be mistaken.  In the present case, it  is not  suggested that in deciding the question of law as  they did  in  The State of Bombay v. The  United  Motors  (India) Ltd.(1)  the learned Judges ignored any material  provisions of  law,  or were under any misapprehension as to  a  matter fundamental   to  the  decision.   The  arguments  for   the appellant before us, were in fact only a (1)  [1953] S.C.R. 1069. 810 repetition  of the very contentions which were urged  before the learned Judges and negatived by them.  The question then resolves  itself  to this.  Can we differ  from  a  previous decision  of this Court, because a view contrary to the  one taken   therein   appears  to  be   preferable?    I   would unhesitatingly  answer it in the negative, not  because  the view  previously  taken must necessarily be  infallible  but because  it  is important in public interest  that  the  law declared  should  be certain and final rather than  that  it should  be  declared  in one sense or the  other.   That,  I conceive,  is  the  reason behind article  141.   There  are questions  of  law  on which it is  not  possible  to  avoid difference  of  opinion, and the present case  is  itself  a signal example of it.  The object of article 141 is that the decisions of this Court on these questions should settle the controversy, and that they should be followed as law by  all the Courts, and if they are allowed to be reopened because a different  view appears to be the better one, then the  very purpose  with  which article 141 has been  enacted  will  be defeated,  and  the  prospect  will  have  been  opened   of litigants  subjecting our decisions to a continuous  process of  attack before successive Benches in the hope  that  with changes  in  the  personnel of the  Court  which  time  must inevitably bring, a different view might find acceptance.  I can  imagine nothing more damaging to the prestige  of  this Court  or to the value of its pronouncements.  In  James  v. Commonwealth(1), it was observed that a question settled  by a  previous  decision should not be allowed to  be  reopened "upon  a mere suggestion that some or all of the Members  of the  later Court might arrive at a different  conclusion  if the matter was res integra.  Otherwise, there would be grave danger  of want of continuity in the interpretation  of  the law"  (per  Griffiths,  C.J. at page 58).  It  is  for  this reason that article 141 invests decisions of this Court with special authority, but the weight of that authority can only be what we ourselves give to it. It   was  suggested  as  a  ground  for  reconsidering   the correctness of the decision in The State of Bombay v. (1)  18 C.L.R. 64. 811

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The  United Motors (India) Ltd.(1) that it had caused  great hardship  to the business world.  I have already  held  that there  is not much of substance in this complaint.   On  the other hand, acting on the view that the Explanation  confers on  the  delivery  States power to tax  the  sales,  several States  amended  their Sales Tax Acts in 1951  by  inserting appropriate provisions and it is represented before us  that for  some years, taxes have been collected by the States  on the  basis of these provisions.  If we are now to hold  that the  view taken in The State of Bombay v. The United  Motors (India)  Ltd.(1) is erroneous, the consequences will  be  to render   the   amended  provisions   inoperative   and   the collections  of taxes made thereunder illegal.   The  States will  then  be  not merely powerless to  tax  sales  falling within the Explanation in future, but will have actually  to refund  whatever they might have collected in the  past.   I can see no end to the chaos, confusion and trouble that must ensue  on such a decisions situation that can  be  retrieved only by Parliament removing article 286(2) out of the  scene with  retrospective operation, and all this, to benefit  not the  consumers who are the persons really affected  but  the sellers  who  are only statutory middlemen  for  collection, some  of  whom are stated to have collected sales  tax  from purchasers  outside  their  States.  I  consider  it  wholly inexpedient  that  our power of  reconsideration  should  be exercised  for that end.  This, of course, is apart from  my conclusion   that  on  a  correct  interpretation   of   the Explanation  and  article 286(2), the respondents  have  the power  to  tax.   In the result, this  point  must  be  held against the appellant. 4.   I  shall  now  consider  the  question  urged  by   the appellant  that  the Bihar Sales Tax Act is invalid  on  the ground  that it is extra-territorial in operation and  ultra vires   the   powers   of  the   State   Legislature.    The Constitutional  provisions  bearing  on  this  question  are articles 245(1) and 246(3) which are as follows: "245.  (1) Subject to the provisions of  this  Constitution, Parliament  may make laws for the whole or any part  of  the territory of India, and the Legis- (1)  (1953] S.C.R. 1069. 103 103 812 lature of a State may make laws for the whole or any part of the State. 246.(3)  Subject to clauses (1) and (2), the Legislature  of any State specified in Part A or Part of the First  Schedule has exclusive power to make laws for such State or any  part thereof  with  respect to any of the matters  enumerated  in List  II  in  the Seventh  Schedule  (in  this  Constitution referred to as the "State List")". The  contention of the appellant is that the words "for  the whole  or any part of the State" in article 245(1) and  "for such  State or any part thereof with respect to any  of  the matters  enumerated in List II" in article 246(3), impose  a territorial  limitation  on the jurisdiction  of  the  State Legislature;  that under these provisions it can enact  laws only  for persons and properties within the State  and  that the provisions of the Act to the extent that they impose tax on  sellers who are outside the State are ultra  vires.   It was also contended that the impugned provisions were  extra- territorial  in their operation, and were beyond the  compe- tence  of the State Legislature.  The questions thus  raised are  of great importance involving the determination of  the nature  and  extent of the power which a State has  to  make laws in respect of the matters enumerated in List II.

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It  is  necessary,  to begin with,  to  define  the  precise meaning  of  the  words  "extra-territorial  operation".   A sovereign  State has plenary jurisdiction to enact laws  for its  own territory.  Such laws may be in respect of  persons within  the territory whether citizens or not, of  property, immovable or movable, situated within the State; or of  acts and  events which occur within its borders.  In  Maxwell  on Interpretation  of  Statutes (10th Edn. p. 144) the  law  is thus stated: "Primarily,  the  legislation of a country  is  territorial. The  general  rule is, that extra  territorium  jus  dicenti impune  non paretur.  The laws of a nation apply to all  its subjects and to all things and acts within its territories". In "Conflict of Laws-Restatement of the Law" by 813 the American Law Institute, the position is thus summed up: "47.  A State has jurisdiction over a person: (a)  if he is within the territory of the State,, (b)  if  he is domiciled in the State although  not  present there, (c)  if  he  has  consented  or  subjected  himself  to  the exercise of jurisdiction over him either before or after the exercise of jurisdiction. 48.  An  immovable thing is subject to the  jurisdiction  of the State within which it is. 49.  A  chattel is subject to the jurisdiction of the  State within which it is. 56.  A  State has jurisdiction over all acts done or  events occurring  within the territory of the State, and  over  all failures to act in cases where there is a legal duty to  act within the State". The  legislation in respect of the above matters  is  intra- territorial,  notwithstanding  that  it  might  operate   on persons residing outside the State.  Thus, a law of a  State taking  over the management of lands  of  absentee-landlords must  operate  on owners who are residing  abroad.   But  in strictness,  this  is not extraterritorial  legislation  but legislation in respect of lands within the State.  Likewise, a  law with reference to acts or events which  occur  within the State is not extra-territorial, though it might have  to be  enforced  against a person who is residing  outside  the State.   Such  a law is one in respect of an  act  or  event within the State.  These laws, though intra-territorial, are often  loosely described as extra-territorial in  operation. In  this  context the  words  "extra-territorial  operation" connote  laws  in respect of properties or  acts  or  events within  a  State but having impact or operation  on  persons outside the State. There is another sense in which these words are used.   When a State enacts a law with reference to an act or event which takes place outside its territory, it is described as extra- territorial, and such legislation is recognised as valid  by rules of International Law where it is directed against  its own nationals and persons in its service.  Thus, in "Con- 814 flict  of  Laws-Restatement of Law" it is observed  that  "a nation  has  jurisdiction over its  nationals  although  not present within the territorial limits of the nation".  (Page 78).   In  Corpus  Juris  Secundum,  extraterritoriality  is defined   as  "the  act  by  which  a  State   extends   its jurisdiction beyond its own boundaries into the territory of another  State",  and  it is added that  "the  almost  self- evident  proposition  should perhaps also be noted  in  this connection  that  a  sovereignty  has  power  to  make  laws regulating  the  conduct of its subjects, while  beyond  the

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limits  of its territorial jurisdiction". (Volume 15,  pages 868-869).   ’Extra-territorial  Legislation",  says  Wheare, "simply  means legislation which attaches  significance  for courts within the jurisdiction to facts and events occurring outside  the  jurisdiction".  (Statute  of  Westminster  and Domination  Status  by Wheare, 4th Edition,  page  167).   A typical  illustration  of  this  class  of  legislation   is furnished by section 4, Indian Penal Code, which enacts that "the  provisions  of  this Code apply also  to  any  offence committed by- (1)any  citizen  of India in any place  without  and  beyond India; (2)any  person on any ship or aircraft registered  in  India wherever it may be. Explanation:In  this  section the  word  ’offence’  includes every  act committed outside (India) which, if committed  in (India) would be punishable under this Code. Illustration:A (who is a citizen of India) commits a  murder in  Uganda.  He can be tried and convicted of murder in  any place in (India) in which he may be found". In  this connection, extra-territorial legislation  means  a law of a State with reference to its own citizens in respect of  acts or events which take place outside the  State..  In discussing    questions   relating   to    extra-territorial operation, it is desirable that the two connotations of  the words should be kept distinct and separate.  As the impugned Act  purports  to  tax  sales  within  its  territory,   its operation  against persons who are residing outside  but  in respect of sales within the 815 State  is extra-territorial in the first sense, ’and  it  is the validity of the provisions of the Act in this sense that this appeal is concerned with. Now, the question is, can a State Legislature make laws with extra-territorial operation in the sense stated above?   The appellant  contends  that  it  cannot,  and  calls  in   aid observations  and  decisions  of  the  Privy  Council   with reference  to  the  powers  of  a  subordinate  or  colonial legislature to enact laws with extra-territorial  operation. In  Macleod v. AttorneyGeneral for New South  Wales(1),  the point  for  decision was whether an Act of New  South  Wales conferred,  on  its true construction, jurisdiction  on  the Courts  within the Colony to try an offence of  bigamy  com- mitted presumably by its national in America.  In construing it  as  intended  to apply to crimes  committed  within  the State, Lord Halsbury, L.C. observed that the jurisdiction of the  colonies to enact laws was "confined within  their  own territories",  and  that  "it would  have  been  beyond  the jurisdiction  of the Colony" to enact a law in respect of  a crime committed outside their territory.  These observations refer  to  extra-territorial operation in the  second  sense stated  above, and have no application when the law  of  the State  is in respect of an act or event taking place  within its  territories.  In Commercial Cable Company v.  Attorney- General of Newfoundland(3), the question was with  reference to  a  law  of  Newfoundland imposing  a  tax  on  telephone companies in respect of cables landed or established in  the Colony.   In discussing the scope of these provisions,  Lord Macnaghten observed at page 826: "While,  of course, it was competent to impose  taxation  on cables  within  its  territorial jurisdiction,  it  was  not competent for the Government to lay a tax on cables  outside its territorial jurisdiction". These  observations again have no bearing on the  point  now under  consideration whether a law enacted in respect of  an

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act  or event occurring within the State is incompetent,  if it  seeks  to operate on a person concerned in the  act  but residing outside the State.  In (1) (1891] A.C. 455. (2) [1912] A.C. 820. 816 Nadan v. The King(1), the question was as to the validity of section 1025 of the Criminal Code of the Dominion of  Canada which enacted that "no appeal shall lie in criminal case  to any  authority  in the United Kingdom by way  of  appeal  or petition  to  His  Majesty  in Council".   It  was  held  by Viscount Cave, L.C., that that section was repugnant to  the Privy Council Acts of 1833 and 1844, and was therefore  void under  the  Colonial  Laws  Validity  Act,  1865,  and  that accordingly  the appeal to the-Privy Council was  competent. He  also  observed  that however widely the  powers  of  the Dominion  Parliament  be construed, they  were  confined  to action to be taken in the Dominion, and could not extend  to annulling  the prerogative right of the King in  Council  to grant  special leave to appeal.  As the law in question  was in  respect  of  crimes committed within  the  State,  these observations  are  capable  of the  construction  which  the appellant  seems  to put on them that such a  law  would  be incompetent  to  the  extent that it is  to  have  operation outside the State.  But it must be mentioned that the  vires of  the  action to be taken under the Act within  the  State itself  was affirmed in unqualified terms, and that is  what we  are  concerned  with  in  this  appeal.   The  question, however, must now be taken to be settled by the decision  in Croft  v. Sylvester Dunphy(1).  There, the question  related to  the validity of sections 151 and 207 of the Customs  Act of  Canada  under  which  the officers  of  the  State  were authorised to search ships within 12 miles of the coast, and seize  dutiable  goods found in them, the  provisions  being obviously  intended  to aid in the effective  collection  of customs.   There  was no dispute that  the  legislation  was within  the competence of the Dominion Legislature,  customs being  one  of the topics enumerated in section  91  of  the British  North America Act, 1867, but the attack was on  the validity  of sections 151 and 207 on the ground  that  their operation was extra-territorial.  Thus, the question  raised is the very question which now arises for determination.  In holding  that  the  legislation was  valid,  Lord  Macmillan observed as follows: (1) (1926) A.C 482.                 (2) [1933] A.C. 156. 817 "Once it is found that a particular topic of legislation  is among   those  upon  which  the  Dominion   Parliament   may competently legislato as being for the peace, order and good Government  of  Canada  or  as being  one  of  the  specific subjects  enumerated  in section 91, British  North  America Act, their Lordships see no reason to restrict the permitted scope of such legislation by any other consideration than is applicable to the legislation of a fully Sovereign State". The  law  as settled by this decision may  thus  be  stated: Whether  a subordinate Legislature has power to  enact  laws with extra-territorial operation will depend on the terms of the  Constitution  Act which creates it and subject  to  any limitations  contained  therein, it has in  respect  of  the topics  assigned to it powers of legislation as  plenary  as the Sovereign Legislature which constitutes it. It was argued by Mr. N. C. Chatterjee that subsequent to the decision  in Croft v. Dunphy(1) the Privy Council had  again to  consider in British Coal Corporation v. The King(1)  the validity  of  a  Canadian law  which  had  extra-territorial

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operation, and therein the grounds of the decision in  Nadan v.  The  King(1)  were  stated at  page  516  with  apparent approval,  and  that though the legislation was held  to  be valid,  it was because of the Statute of Westminster,  1931, and that in the absence of a similar statute for India,  the Legislature  of  this country had only  the  limited  powers recognised  in  Nadan  v.  The  King(1),  and  that   extra- territorial  legislation  was  incompetent.   But  there  is nothing  in the observations in British Coal Corporation  v. The  King(1)  relied  on by the appellant,  to  support  the contention  that the view expressed in Nadan’s case(’.)  was adopted  in preference to that taken in Croft v.  Dunphy(1); in  fact, there was no decision at all on this  point.   Nor does the fact that the Statute of Westminster has  conferred an  express power on the Colonial Legislature to enact  laws with  extra-territorial  operation affect the weight  to  be attached to the conclusions come to in Croft v. Dun- (1) [1933] A.C. 156.           (2) [1935] A.C. 500, 516. (3)[1926] A.C. 482. 818 phy(1), because they were reached, not with reference to the Statute  of  Westminster about the  applicability  of  which retrospectively  to  the  case before the  Board  there  was controversy, but on general principles, and what is more  to the  present  case, it was the law as declared in  Croft  v. Dunphy(1)  that was before the framers of  the  Constitution when  they enacted sections 99 and 100 of the Government  of India Act, 1935. Turning  now  to  the Constitutional  provisions  under  the Indian  law, this topic is dealt with in sections 99(1)  and 100(3)  of the Government of India Act.  To  understand  the precise  scope  of  these provisions,  it  is  necessary  to examine  the position under the previous Constitution  Acts. Section  43  of the Charter Act, 1833 (3 and  4  Will.   IV, Chap. 85) conferred power on the Governor-General in Council "to     make     laws    and     regulations     for     all persons................  and  for  all Courts  and  for  all places and things whatsoever within and throughout the whole and every part of the said territory".  In the Government of India Act, 1915 (5 and 6 Geo.  V) Ch. 61) the  corresponding provision was section 65(1)(a) which enacted that the Indian Legislatures  have the "power to make laws for all  persons, for  all  Courts and for all places and  things  within  the British  India".   Under  these  provisions,  it  cannot  be doubted  that  the  Indian Legislatures would  have  had  no jurisdiction to enact laws operating on persons who were not within  the  State as that would be plainly opposed  to  the limitation  that  they  should be "for  persons  within  the territory".   Both section 43 of the Charter Act,  1833  and section  65(1) (a) of the Government of India Act, 1915  are based  on  the  theory which was then  widely  held  that  a subordinate Legislature had no competence to enact laws with extra-territorial  operation.  Then came the  Government  of India  Act,  1935.   Sections 99(1)  and  100(3)  which  are relevant provisions are as follows: "99. (1) Subject to the provisions of this Act, the  Federal Legislature  may  make laws for the whole or  any.  part  of British India or for any Federated (1)  [1933] A. C. 156. 819 State,  and a Provincial Legislature may make laws  for  the Province or for any part thereof. 100. (3)  Subject  to the two  preceding  sub-sections,  the Provincial Legislature has, and the Federal Legislature  has not,  power to make laws for a Province or any part  thereof

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with respect to any of the matters enumerated in List II  in the  said  Schedule  (hereinafter  called  the   "Provincial Legislative List")". The language of these sections marks, it will be noticed,  a wide  departure from that of section 43 of the  Charter  Act and section 65 (1) (a) of the Government of India Act, 1915. The limitation that the legislation should be for persons or things  within the territory has been removed.  Instead,  it is  enacted  that  it could be "for the  whole  or  part  of British  India in the case of Federal Legislature" and  "for the  Province  or  part thereof in the  case  of  Provincial Legislature", and under section 100(3), the power is to make laws  for a Province or a part thereof with respect  to  the matters  enumerated  in List II.  Under sections  99(1)  and 100, the legislative power of the Centre or the Province  is determined by two conditions.  It must be for the  territory specified,  and  it  must  be  in  respect  of  the   topics enumerated in the respective lists.  If these conditions are satisfied, then the law is valid notwithstanding that it may have  impact or operation outside the State.  The  scope  of the legislative power conferred by sections 99(1) and 100 is precisely the same as that conferred on the Legislatures  of Canada under sections 91 and 92 of the British North America Act.   That  was  also a power  conferred  on  the  Dominion Parliament  or the Provincial Legislature to make  laws  for the  Dominion  or  the Province in respect  of  the  matters mentioned in sections 91 and 92 respectively.  It is on  the construction of these provisions that Lord Macmillan held in Croft  v.  Dunphy(1)  that  the  Dominion  Legislature   was competent to enact laws in respect of those matters even  if they  had extra-territorial operation.  The framers  of  the Government  of  India  Act, 1935, changed  the  language  of section 65(1)(a) of the Gov- (1)  [1933] A.C. 156. 104 104 820 ernment of India Act, 1915, and substituted words similar to those  in  sections 91 and 92 of the British  North  America Act,  1867.  It is a reasonable deduction to make that  they intended  to give effect to the law as declared in Croft  v. Dunphy(’-).   A  law  which  satisfies  the  two  conditions prescribed  in sections 99 (1) and 100, therefore,  must  be held  to  be intra vires, even though it might  have  extra- territorial operation. The precise extent of the powers conferred by sections 99(1) and  100 has also been the subject of considerable  judicial consideration.   In Governor-General in Council  v.  Raleigh Investment Co. Ltd.(1), the question was as to the liability of  a  Company  which was  incorporated  under  the  English Companies Act having its main office in England and no place of business in India to be assessed to income-tax under  the provisions  of the Indian Income-tax Act.  The Company  held the  bulk  of  shares  in nine  Companies  which  were  also registered in England and controlled from there, and carried on business in British India and earned profits.   Dividends in respect of these profits were declared in London and paid to the assessee in London.  The Explanation to section  4(i) (c) of the Indian Income-tax Act enacts that a dividend paid outside British India shall be deemed to be income  accruing in or arising in British India to the extent to which it has been paid out of profits subjected to tax in British  India. The  income-tax  authorities  claimed  that  the   dividends received  by  the assessee-Company were liable to  be  taxed under this provision.  The Company resisted the claim  inter alia  on the ground that as it was not resident  in  British

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India  and  did  not carry on  business  there,  the  Indian Legislature  had  no competence to impose a tax on  it,  and that  the provisions of the Act were ultra vires  as  extra- territorial  in their operation.  This contention  succeeded before  the  High  Court  of  Calcutta,  the  Chief  Justice observing  that  the  impugned  provision  amounted  to  the "Legislature  of British India without specific or  apparent authority  stretching out its legislative arm  and  physical band beyond British (1) [1983] A.C. 156. (2) [19441 F.C.R. 229. 821 India into other countries in an attempt to tax persons  and property  there  not subject to its laws";  and  Mitter,  J. characterising   it   as  a  "piece   of   extra-territorial legislation not by a superior or Dominion Legislature but by a  subordinate Legislature".  On appeal, this  decision  was reversed by the Federal Court.  Spens,  C. J. who  delivered the judgment of the Court held firstly that as the source of the  income  which was subjected to tax was Indian,  it  was competent  for  the  Indian  Legislature  to  impose  a  tax thereon,  and  no question  of  extra-territorial  operation arose.  That is to say, Entry 54 in List I gave power to the Indian  Legislature to tax income which arises from  British India,  even though the person to be taxed was not  resident within British India.  He also held that even if an  element of  extra-territoriality was involved, the  legislation  was not  bad on that account, because section 99(1) and  section 100  of the Government of India Act, 1935 were  intended  to embody  the  law as declared in Croft v.  Dunphy(1)  and  to confer   on  the  Indian  Legislature  plenary   powers   of legislation  in respect of matters mentioned in  the  lists, departing  in this respect from the position  under  section 65(1)(a) of the Government of India Act, 1915. In  Wallace Brothers & Co. Ltd. v. Commissioner  of  Income- tax,  Bombay(1), the appellant was a Company  registered  in England and controlled from there.  It held a 14/32 share in a  firm called Messrs Wallace & Co., which was  carrying  on business  in Bombay.  The appellant was sought to  be  taxed not merely on its income as partner of the Bombay firm about which  there was no dispute but also on the income  of  over seven lakhs of rupees which had arisen and bad accrued to it abroad.  The appellant resisted the claim on the ground that the  provisions of the Indian Act were ultra vires as  their operation was extra-territorial, inasmuch as they sought  to tax  income of a non-resident received abroad.  The  Federal Court rejected this contention.  It held that if the  person proposed to be taxed had sufficient business connec- (1) [1933] A. C. 156. (2) [1945] F.C.R. 65. 822 tion with British India, that would confer a jurisdiction on the  Indian Legislature to tax him, and that what  heads  of income  in his hands should be taxed was a matter of  policy which was within the province of the Legislature to  decide. It  also  held that the provisions of the Act were  "not  in their operation extraterritorial in the strict legal sense". There  was  an  appeal against this judgment  to  the  Privy Council,   i.e.,  Wallace  Bros.  v.  I.  T.   Commissioner, Bombay(1).   Affirming  the judgment of the  Federal  Court, Lord Uthwatt observed that the fact that the appellant  "was a member of the partnership carrying on business in  British India" was irrelevant in considering whether the legislation was  intra vires; that it was to be assumed that  there  was "no  connection  between  the Companies  and  British  India

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except the derivation from British India of the larger  part of  their income", and that the validity of the  legislation should be determined on that basis.  He then observed: "There  is  no rule of law that the  territorial  limits  of subordinate  legislature  define the possible scope  of  its legislative enactments or mark the field open to its vision. The   ambit  of  the  powers  possessed  by  a   subordinate legislature  depends  upon the proper  construction  of  the statute  conferring  those powers.  No  doubt  the  enabling statute  has to be read against the background that  only  a defined  territory has been committed to the charge  of  the legislature.   Concern  by a  subordinate  Legislature  with affairs  or persons outside its own territory may  therefore suggest a query whether the Legislature is in truth  minding its own business.  It does not compel the conclusion that it is not.  The enabling statute has to be fairly construed". He  then  referred to section 99(1) and section 100  of  the Government  of India Act under which the Indian  Legislature had  power  to enact laws for the whole or part  of  British India with respect to tax on incomes, and concluded: "The resulting general conception as to the scope (1)  [1948] F.C.R. 1. 823 of  income-tax is that given a sufficient  territorial  con- nection  between  the person sought to be  charged  and  the country seeking to tax him income-tax may properly extend to that person in respect of his foreign income............ The principle-sufficient  territorial  connection-not  the  rule giving  effect to that principle -residence-is  implicit  in the  power conferred by the Government of India  Act,  1935. The  result  is  that the validity  of  the  legislation  in question  depends  on the sufficiency for  the  purpose  for which it is used of the territorial connection set forth  in the impugned portion of the statutory test". It  is  the contention of the respondent  that  the  present question  is concluded by this decision.  In A. H. Wadia  v. I. T. Commissioner, Bombay(1), the question related to the liability of the Gwalior Durbar to be assessed to income-tax in  respect  of interest received at Gwalior.  There  was  a Company  called the Providence Investment Co. Ltd.  carrying on  business in Bombay.  The shares of the Company were  all held  by the Durbar or by its nominees.  It was financed  by the Durbar, the transaction taking the form of loan advanced at  Gwalior.   On  these  facts.,  the  Income-tax   Officer assessed  the  Agent of the Durbar to tax  on  the  interest received  at Gwalior.  The validity of this  assessment  was disputed  on the ground that the statutory provisions  under which it was made were extra-territorial in their  operation and  therefore ultra vires.  It was held by all the  learned Judges  following  the  decisions  in  Governor-General   in Council v. Raleigh Investment Co. Ltd.(1) and Wallace  Bros. v. I. T. Commissioner, Bombay(1) that the assessee would  be liable  to tax if there was sufficient  business  connection between him and British India, and that, in that event,  the provisions  would  not  be  bad  on  the  ground  of  extra- territorial operation.  There was, however, a difference  of opinion  among  the  learned Judges as to  whether,  on  the facts,   sufficient   territorial   connection   had    been established,  the majority holding that it had  been,  while two learned Judges (1)  [1949]  F.C.R. 18. (2) [1944] F.C.R. 229. (3) [1948] F.C.R. 1. 824 thought  otherwise.  That, however, is not material  to  the

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present discussion. These  authorities  establish that under section  99(1)  and section 100 of the Government of India Act, a law enacted by the Indian Legislature in respect of the matters  enumerated in the appropriate list$ would -be valid provided it is  for the territory entrusted to their charge; that whether it was so  or  not  would depend on whether  there  was  sufficient territorial  connection between the person who is sought  to be  charged  or  proceeded against under  the  law  and  the country which enacts the law; and that when such  connection exists, the law is not strictly speaking  extra-territorial, and  it is not ultra vires on the ground that the person  is not residing within the State which enacts the law. Then, we come to the Constitution.  Articles 245(1) and  246 which  deal with this subject reproduce sections  99(1)  and 100  with  only  alterations of a  formal  character.’  They confer on the Parliament and the State Legislatures power to enact  laws  in  respect  of the  topics  mentioned  in  the respective  lists  to be exercised for  the  territory  over which they have jurisdiction.  It is a well-settled rule  of construction that when a statute is repealed and  re-enacted and words in the repealed statute are reproduced in the  new statute,  they should be interpreted in the sense which  had been judicially put on them under the repealed Act,  because the  Legislature  is  presumed to  be  acquainted  with  the construction  which the Courts have put upon the words,  and when they repeat the same words, they must be taken to  have accepted  the  interpretation put on them by  the  Court  as correctly   reflecting   the   legislative   mind.    On   a construction of articles 245(1) and 246, therefore, it  will be  difficult  to come to any other conclusion than  that  a sales tax legislation of a State which is otherwise valid is not ultra vires on the ground that the person proposed to be taxed  is not resident within the territorial limits of  the State. Three   other  contentions  urged  in  opposition  to   this conclusion must now be considered; 825 1.It is only the Central or Federal Legislature that has the power  to enact laws with extra-territorial  operation,  and that  the  Legislatures  of the States forming  units  of  a Federal  Union do not possess such power. 2.  Under  article 245 (2) there is  a  prohibition  against States enacting laws with extra-territorial operation. 3.  Some of the provisions of the Act forming the  machinery sections for the assessment and collection of taxes are,  in any  event,  unauthorised and the whole Act is void  on  the ground that the valid provisions thereof cannot be separated from the invalid ones. On the first question, it is argued by the learned Attorney- General  that  the  decision  in  Croft  v.  Dunphy(1)   had reference to a law enacted by the Legislature of Dominion of Canada and not any of the Provinces, and that the  decisions in  Governor-General  in Council v. Raleigh  Investment  Co. (1),  Wallace Brothers & Co. v. The Commissioner of  Income- tax, Bombay(1) and A. H. Wadia v. Income-tax  Commissioner., Bombay(1)  related  to the Indian Income-tax Act  which  was enacted  by the Central Legislature, and that to  apply  the doctrine  laid  down in those cases to laws  passed  by  the States  would be to extend its operation  beyond  recognised limits,  and  that  there  was no  warrant  for  it  in  the Constitution.   On principle, it is difficult to see  why  a law enacted by the State in respect of the matters  assigned exclusively to its jurisdiction should stand on a  different footing  from a law passed by Parliament on a matter  within

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its  jurisdiction.   Both  the  Legislatures  derive   their authority from the same source, whether it be the Government of  India  Act, 1935, or the Constitution of  India.   Under these Statutes, the State is not subordinate to the  Centre, its  authority  being  supreme in  respect  of  the  matters entrusted  to it.  Under the Government of India Act,  1935, when  the  British Government decided to change what  was  a unitary into a Federal Government, the process adopted for (1)  [1933] A.C. 156. (2)  [1944] F.C.R. 229. (3)  [1948] F.C.R. 1. (4)  [1949] F.C.R. 18. 826 that purpose was that the Parliament resumed all the  powers that  had been granted under the previous  Constitution  Act and redistributed them between the Centre and the  Province. The  terms  on  which  the  redistribution  was  made   were identical  both  for  the Centre  and  the  Province,  their authority  under sections 99(1) and 100 being to enact  laws in  respect,  of the matters mentioned  in  the  appropriate lists an for their respective territory.  The extent of this authority  must, therefore, be the same both in the case  of the  Centre and the State, each being sovereign  within  its own  sphere.  The principle laid down in Croft v.  Dunphy(1) that a subordinate Legislature has plenary powers in respect of the topics assigned to it will apply as much to the State with  reference to the matters enumerated in List 11  as  to the Centre with reference to the topics mentioned in Lists I and 111.  In Hodge v. The Queen(1) which is one of the cases on  which the decision in Croft v. Dunphy(1) was based,  the law  under challenge was that of the Province of Ontario  in Canada in respect of a topic enumerated in section 92 of the British  North  America Act of 1867.  The  question  whether States as distinct from the Commonwealth have competence  to enact  laws with extra-territorial operation has  also  been considered  in some of the decisions of the Australian  High Court.  In Broken Hill South Limited v. The Commissioner  of Taxation (3) Evatt, J. in discussing this question  observed as follows at page 378: "Some  of the cases also illustrate the  fact,  occasionally overlooked,  that, constitutionally speaking, the status  of the  States of Australia is equal to, or  co-ordinate  with, that  of  the  Commonwealth  itself.   Sovereignty  is   not attributable to one authority more than to the others; it is divided  between them in accordance with the demarcation  of functions set out in the Commonwealth Constitution.   Within the  limits so prescribed, the legislative authority of  the States  is  of precisely equivalent quality and  potency  to that of the Commonwealth, the authority of which (1) [1933] A.C. 156. (2) [1883] 9 A.C. 117. (3) 56 C.L.R. 337. 827 is, in sections 51 and 52 of the Commonwealth  Constitution, limited  by  reference  to subject-matter.   In  short,  the Commonwealth Parliament may legislate for ’the peace,  order and  good government of the Commonwealth with respect to’  a large  number of subject-matters.  Similarly, the  State  of New  South Wales may legislate for ’the peace,  welfare  and good government’ of New South Wales.  In relation to such  a subject-matter as that of taxation, and subject, of  course, to   any   overriding   provision   of   the    Commonwealth Constitution,  it is quite impossible to deny to the  States in relation to their geographical area constitutional powers precisely  analogous to those possessed by the  Commonwealth

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Parliament  in  relation  to  its  geographical  area.   The legislation  of  the  States cannot be  deemed  ultra  vires merely  because  of territorial  reasons,  unless  analogous legislation  of the Commonwealth Parliament would  similarly be deemed unconstitutional and void". These   observations  are  very  apposite  to  the   present controversy.  The conclusion is inescapable that the  powers of  the Union and the State under sections 99(1) and 100  of the  Government of India Act, as also under articles  245(1) and  246  in  respect  of the  matters  mentioned  in  their respective lists have the same content and quality, and that if  legislation with extra-territorial operation  is  within the  competence  of  the Union, it  is  equally  within  the competence of the State. Coming  now  to the second contention, the argument  of  the appellant  is  that in enacting that "no law  of  Parliament shall  be deemed to be invalid on the ground that  it  would have extra-territorial operation", article 245(2)  prohibits by  implication  the enactment of such laws by  the  States. This  contention is unsound.  The  words  "extra-territorial operation"  are  used, as already stated, in  two  different senses  as  connoting firstly, laws in respect  of  acts  or events which take place inside the State but have  operation outside, and secondly, laws with reference to the  nationals of  a  State in respect of their acts outside; that  in  its former sense, the laws are strictly 105 828 speaking  intra-territorial  though loosely  termed  ’extra- territorial’, and that under article 245(1) it is within the competence  of the Parliament and of the State  Legislatures to  enact  laws  with extra-territorial  operation  in  that sense.  The words "laws with extraterritorial operation"  in article  245  (2)  must be understood in  their  second  and strict sense as having reference to the laws of a State  for their  nationals in respect of acts done outside the  State. Otherwise,  the  provision  would be  redundant  as  regards legislation  by Parliament and inconsistent as regards  laws enacted  by States.  This conclusion is placed beyond  doubt when  regard  is had to the history of legislation  on  this topic.    Section  43  of  the  Charter  Act,   1833   while restricting  the scope of legislative authority  to  persons and things within the State thus denying the power to  enact laws  with extra-territorial operations in the first  sense, conferred  a  power to make laws "for all  servants  of  the Company  within  the  Dominion  of  Princes  and  States  in alliance with the said Company".  This was a power to  enact extra-territorial  legislation  in  the  second  sense   for servants of the Company.  Section 65(1) of the Government of India  Act,  1915  followed  the  same  pattern,  and  while limiting   under   sub-clause  (a)  the  power   of   Indian Legislatures  to  enact laws for persons and  things  within British  India  conferred jurisdiction to  enact  laws  with extra-territorial  operation  in the second  sense  by  sub- clauses (b), (c), (d) and (e) which are as follows: "65. (1) The (Indian Legislature) has power to make laws- (b)for all subjects of His Majesty and servants of the Crown within other parts of India; and (c)for  all native Indian subjects of His  Majesty,  without and beyond as well as within British India; and (d)for  the  government of officers,  soldiers,  (airmen)and followers in His Majesty’s Indian forces, wherever they  are serving,  in so far as they are not subject to the Army  Act (or the Air Force Act); and (e)  for all persons employed or serving in or

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829 belonging  to the Royal Indian Marine Service".  This  topic was  again dealt with in section 99(2) of the Government  of India Act, 1935, which runs as follows: "99.  (2) Without prejudice to the generality of the  powers conferred,  by  the preceding sub-section,  no  Federal  law shall,  on the ground that it would  have  extra-territorial operation, be deemed to be invalid in so far as it applies- (a)  to  British subjects and servants of the Crown  in  any part of India; or (b)  to  British subjects who are domiciled in any  part  of India wherever they may be; or (c)  to,  or to persons on, ships or aircraft registered  in British  India or any Federated States where-ever  they  may be; or (d)  in the case of a law with respect to a matter  accepted in  the  Instrument of Accession of a Federated State  as  a matter  with  respect to which the Federal  Legislature  may make laws for that State, to subjects of that State wherever they may be; or (e) in the case of law for the regulation or  discipline  of any  naval, military, or air force raised in British  India, to  members  of, and persons attached to, employed  with  or following, that force, wherever they may be". In Governor-General in Council v. Raleigh Investment Co.(1), the  question  was  raised  whether  these  provisions  were restrictive of the power of the Indian Legislature to  enact laws with extra-territorial operation in respect of  matters other than those enumerated in -section 99(2).  Spens,  C.J. held  that as the impugned provisions were within the  ambit of  legislative  power under sections 99(1) and 100  of  the Government  of  India  Act,  1935,  they  were  not   extra- territorial  in  operation and that even if they  were,  the words  "without  prejudice to the generality of  the  powers conferred by the preceding sub-section" occurring in section 99(2) posited the existence of a power aliunde, and that the enumeration  of the specified topics in that sub-clause  was by way of abundant caution.  On the (1)  [1944] F.C.R. 229. 830 14th  August,  1947, acting under section 9  of  the  Indian Independence  Act the Governor-General issued an  Adaptation Order, and therein, for the words "for the whole or any part of   British  India  or  for  any  Federated   State"   were substituted   the  words  "including  laws   having   extra- territorial  operation  for  the whole or any  part  of  the Dominion";  and  sub-section  (2)  was  omitted.   When  the Constitution  was enacted, the words "including laws  having extra-territorial operation for the whole or any part of the Dominion"  were omitted and in their place,  article  245(2) was enacted.  Thus, article 245(2) is a successor to section 65(1),  sub-clauses (b), (c), (d) and (e) of the  Government of  India Act, 1915 and section 99(2) of the  Government  of India   Act,  1935,  and  its  scope   is   extraterritorial legislation  in  the second sense.  As we are  concerned  in this  appeal with extra-territorial operation in  its  first sense- article 245 (2) has no application, and the attack on the impugned Act on the ground that it is barred by  article 245(2) must fail. The third contention has reference to the machinery sections of  the  Act relating to the assessment  and  collection  of taxes.  The argument was that even if the Bihar  Legislature had  the competence to enact under Entry 54 a  taxation  law against non-residents, it had no power to enforce it outside its own territorial limits, and some of the provisions  were

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bad  on  this ground, such as section  17  which  authorised search  of premises and seizure of accounts, and section  26 which made it an offence to obstruct such search or seizure. But we are not called upon in these proceedings to pronounce on the validity of these provisions.  The respondent  issued notice  under  section  13(5) of the Act  calling  upon  the appellant  to  send  his returns and proposing  in  case  of default  to make assessment on the basis of  best  judgment. It was at this stage that the appellant rushed to the Court, and  moved  for a writ of prohibition to restrain  the  pro- ceedings on the ground of want of jurisdiction.  That is the one  and the only question that now falls to be  determined. Even  if  some of the machinery sections ,Ire  bad-it  is  a question to be decided when it arises 831 whether  they can be justified on the ground that  they  are ancillary or incidental to the substantive provisions, as to which  see Attorney-General for Canada v. Cain(1) and  Croft v. Dunphy(2)-that would not affect the power of the State to impose a tax, and it will therefore be foreign to the  scope of this appeal to enter into a discussion of their validity.  It  was urged by the learned Attorney-General that  if  the machinery  sections  were bad on the ground that  they  were extra-territorial  in their operation, and if the  power  to tax  was  so mixed up with them as to  be  inseparable  from them,  then, when they fall it must also fall.  A  power  to tax  is a matter of substantive law, whereas  the  machinery sections providing for the execution of that power such  as, assessment, and collection of tax, pertain to the domain  of adjectival law, and the two are distinct and separable.   It is  elementary law that the power to tax does not depend  on the  ability  to realise it.  In British  Columbia  Electric Railway Co. Ltd. v The King(1) Viscount Simon observed: "A  legislature which passes a law  having  extraterritorial operation  may  find  that what it  has  enacted  cannot  be directly  enforced,  but  the Act is  not  invalid  on  that account, and the courts of its country must enforce the  law with the machinery available to them". Without  expressing any opinion, therefore, on the  validity of the machinery sections, I must hold that the impugned Act in  so far as it authorises the imposition of tax  on  sales falling  within  the Explanation to article  286(1)  (a)  is neither ultra vires the powers of the State Legislature  nor bad  on  the  ground that it  is  extra-territorial  in  its operation. 5.   Then there remains the contention of the appellant that even assuming that the States could, under the  Explanation, enact  a law imposing a tax on a non-resident and that  such law  would  not be hit by article 286(2), the  impugned  Act must even then be held to be bad for the reason that it  was not auth- (1) [1906] A.C. 542. (2) [1933] A.G. 156. (3) [1946] A.C. 527. 832 orised  by the terms of the Explanation.  Two  grounds  were urged  in  support of this contention: (1)  that  under  the Explanation truly construed, a seller could be taxed only if he is within the State, and (2) that the goods were actually delivered not in Bihar but in Bengal and that therefore  the Explanation  did not apply.  The argument in support of  the first  ground  was that as the Explanation enacts  that  the sale or purchase-not merely the sale-must be deemed to  have taken  place in the delivery State, it must be construed  in the  light of the presumption that the laws of a  State  are

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intended  to  operate  on  persons  or  things  within   its territory, and so construed, it should be held to  authorise the  levy of a tax on the seller only if he was  within  the State or on the purchaser who must be within the  territory. The  assumption on which this argument rests is that  States have  jurisdiction  only over persons  and  property  within their territory: but this, as already shown, is not correct. A  State has jurisdiction to enact laws in respect  of  acts and  events which occur within its territory, and if a  sale takes  place  within the State as under the  Explanation  it does  by a legal fiction, then its jurisdiction to  enact  a law  imposing a tax thereon is complete, and no question  of its  overstepping its territorial limits arises.  It  should also  be  noted that the scope of the presumption  that  the laws  of  a State are not intended to  operate  outside  its territory  is, as stated by Maxwell, that  "Parliament  does not  design its Statutes to operate on its  subjects  beyond the  territorial  limits of the United  Kingdom"  (Maxwell’s Interpretation of Statutes, 10th Edn., page 145).  That  has reference to extraterritorial operation in the second sense. There  is no presumption that the laws of a State made  with reference  to acts and events occurring within  its  borders are not intended to have operation outside its territory. Moreover,  a  tax on sale of goods is, as  observed  in  The Province of Madras v. Messrs Boddu Paidanna & Sons(1) "a tax levied  on  the  occasion  of the sale  of  goods"  and  the liability to tax arises "on the occasion (1)  A.I.R. 1942 F.C. 33. 833 of  a  sale".  In The State of Bombay v. The  United  Motors (India) Ltd. (1), it was stated that the sales tax was a tax imposed  "on the occasion of the sale as a  taxable  event". It  is thus, in essence, a tax levied on the act  of  buying and  selling.   Sale  is the result of a  contract,  and  is bilateral  in  character.   There  can  be  seller  only  in relation  to  a  purchaser and  vice  versa.   It  therefore follows  that  the power to impose a tax on sale  imports  a power to tax either the seller or the purchaser. In V. M. Syed Mohammad & Co. v. The State of Andhra(1),  the question  was  raised for decision whether Entry 48  in  the Provincial List of the Government of India Act 1935 "tax  on sale  of  goods"  included a power to impose a  tax  on  the purchaser.   It  was held that it did, and it  was  observed that when Entry 54 in List II of the Seventh Schedule of the Constitution substituted for the words "tax on sales" occur- ring in Entry 48 the words "tax on sale or purchase", it did not thereby enlarge the powers previously conferred by Entry 48  but  "merely  expressed in  clearer  language  what  was implicit   in  that  corresponding  entry".   When   article 286(1)(a)and  the Explanation refer to a sale  or  purchase, they  merely  conform to the terms of Entry  54,  and  these words  cannot  therefore be construed as  splitting  up  the power to tax sales into two parts, one available against the purchaser at all times, as in the very nature of it he  must be within the State, and the other against a seller if he is within jurisdiction.  The power is one and indivisible to be exercised  when the conditions mentioned in the  Explanation are  satisfied  against  either a seller  or  buyer  as  the Legislature might determine. The  language of the Explanation, it should be marked,  does not  impose any limitation or condition on the  exercise  of this  power.   It  is  general  and  unqualified,  and  will comprehend  all  cases  in which  goods  are  delivered  for consumption in the taxing State irrespective of whether  the seller  is  within the State or not.  To hold that  the  tax

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could be imposed on a seller only if he is within the  State would be to (1) [1953] S.C.R. 1069. (2) [1954] S.C.R. 1117. 834 add  words to the Explanation which are not there., and  for this,  there is no justification.  On the other hand,  there are good reasons why - the power should have been vested  in the legislature to determine whether it will tax the  seller or the buyer.  The tax imposed under the Explanation  really falls on the consumer-purchaser.  While it is possible  that with  reference  to  certain classes of goods  the  tax  can effectively be imposed on the purchaser, it must happen that with  reference  to other kinds of goods  as,  for  example, medicines in the present appeal, it cannot be so done,  and, as  already  pointed out, it is a "familiar  and  sanctioned device"  to  make  the seller the agent  of  the  State  for collection  of  taxes.   In  leaving it  to  the  States  to determine whether they will tax the seller or the buyer, the Explanation  has  merely  given recognition  to  a  familiar principle of taxation laws sanctioned by usage and upheld by authority.  This objection must accordingly be overruled. It  was then contended that the sales proposed to  be  taxed did  not  take  place in Bihar as the  goods  were  actually delivered  as contemplated by the Explanation not there  but in Bengal.  The argument is that the words "actual delivery" in  the Explanation are used in contrast to constructive  or symbolic  delivery  as meaning physical delivery  of  goods, that under section 39(1) of the Sale of Goods Act, 1930 (Act III  of  1930)  the  common carrier  is  the  agent  of  the purchaser,  and that therefore delivery of the goods to  the railway authorities in Bengal was actual delivery thereof to the purchaser in Bengal.  Section 39(1) is as follows: "Where  in  pursuance of a contract of sale, the  seller  is authorised  or  required  to send the goods  to  the  buyer, delivery  of  the goods to a carrier whether  named  by  the buyer or not, for the purpose of transmission to the  buyer, or delivery of the goods to a wharfinger for safe custody is prima  facie  deemed to be a delivery of the  goods  to  the buyer". It  is  difficult to see what there is in  this  section  to support the contention that delivery to a common carrier  is actual delivery to the purchaser.  The section 835 -does  not  say so.  On the other hand, it proceeds  on  the assumption  that  there was, in fact., no  delivery  to  the purchaser, actual or otherwise, a thing a being deemed to be something  only,  when as a fact it is not  that,  and  then enacts  on  that basis a fiction that delivery to  a  common carrier  shall be deemed prima facie to be delivery  to  the buyer.  What is the purpose of this fiction?  It is, as will be  clear from section 39(2), to fix on whom the loss is  to fall  in  case the goods are lost or damaged  in  course  of transit.  But where no such question arises, the fiction has to be ignored, and the matter will have to be decided on the factual basis whether the goods were actually delivered. A  reference to section 51 (I) of the Sale of Goods  Act  is very instructive.  It runs as follows: "Goods  are deemed to be in course of transit from the  time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent  in  that  behalf takes delivery  of  them  from  such carrier  or  other  bailee".   In  this  clause,  the   word "delivery"  is used to denote both the delivery of goods  by the  seller  to the common carrier and the delivery  to  the

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purchaser by the common carrier.  They cannot both be actual deliveries, as goods sold under a sale can actually be deli- vered only once.  If the delivery of the goods to the common carrier  was  actual delivery, then what is  the  nature  of delivery  when  the purchaser took possession of  the  goods from  the common carrier?  It is also physical  delivery  of the   goods,  and  is  therefore  actual  delivery  on   the appellant’s own definition. The  fact  is that while for some purposes delivery  to  the common  carrier  is treated as delivery  to  the  purchaser, there  is  delivery in fact and in its popular  sense,  only when the purchaser obtains possession of the goods and it is this that is connoted by the words "actual delivery".   When section 51 (I) refers to delivery to buyer or his agent,  it refers to actual delivery, and delivery to common carrier is regarded  as constructive, having regard to  section  39(1). The  section, it will be noticed, proceeds on  the.  footing that a 106 836 common carrier is not the agent of the buyer with  reference to  actual delivery.  He is the agent of the  purchaser  for transmission of the goods to him. This  position  was well-established in the  common  law  of England,  and  was  thus stated by Parke, B.,  in  James  v. Griffin(1) in the following terms: "The  delivery by the vendor of goods sold to a  carrier  of any description, either expressly or by implication named by the  vendee,  and  who  is to carry on  his  account,  is  a constructive  delivery to the vendee; but the vendor  has  a right  if unpaid, and if the vendee be insolvent, to  retake the goods before they are actually delivered to the  vendee, or  some  one  whom  he  means to  be  his  agent,  to  take possession  of  and keep the goods for him, and  thereby  to replace  the vendor in the same situation as if he  had  not parted   with  the  actual  possession........  The   actual delivery  to the vendee or his agent, which puts an  end  to the  transitus or state of passage, may be at  the  vendee’s own  warehouse,  or  at a place which he uses  as  his  own, though  belonging  to  another, for the  deposit  of  goods: (Scott v. Prettit(2):  Rowe v. Pickford(3)); or at  a  place where he  means   the   goods  to  remain  until   a   fresh destination is communicated to them by orders from  himself; Dixon  v.  Baldwen(4); or it may be by the  vendee’s  taking possession  by himself or agent at some point short  of  the original intended place of destination". In  Ex  parte Rosevear China Clay Company.   In  Re  Cock(1) James, L.J. said: "The authorities show that the vendor has a right to stop in transitu  until  the goods have actually got home  into  the hands of the purchaser, or of some one who receives them  in the character of his servant or agent". In the same case, the position was stated even more fully by Brett, L.J., in the following terms: "As soon as the clay was appropriated by the vendors to this contract  and was placed on board the ship, the property  in it passed to the purchaser and (1) 2 M. & W. 623; 115 E.R. 906, 910. (2) [1803] 3 B. & P. 469. (3)  [1817]  8 Taunt. 83. (4) [1804] 5 East 175. (5) 11 Ch.  D. 560. 837 at  the same time as between the vendor and  the  purchaser, there was a delivery of the claim to the latter.  But it was

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a constructive not actual delivery". The   same  learned  Judge  again  observed  in  Kendal   v. Marshall(1) as follows: "Where the goods have been appropriated by the 7 vendor, and have been delivered by him to a carrier to be transmitted to the vendee, a constructive possession exists in the vendee". The  law as declared in the above decisions was embodied  in section  32(1) of the English Sale of Goods Act,  which  has been  reproduced  in section 51 (1) of the  Indian  Sale  of Goods Act Vide also Benjamin on Sales, Eighth Edn., page 889 where the possession of the carrier on behalf of the,  buyer is  stated  to  be  "constructive  though  not  yet   actual possession".    It  must  accordingly  be  held   that   the expression  "actual delivery" in the Explanation to  article 286(1)(a)  means delivery of the goods to the  purchaser  or his agent, and delivery to the common carrier is not  actual delivery,  and that, in this case, the goods  were  actually delivered  not  in Bengal when they were  delivered  to  the common carrier but in Bihar when they were delivered to  the purchaser.   This contention of the appellant must  also  be rejected. In  the  result,  the  appeal should,  in  my  judgment,  be rejected with costs. SINHA J.-I have had the advantage of perusing the judgments prepared by my brothers, S. R. Das, N.  H.   Bhagwati,    B. Jagannadhadas and T. L. Venkatarama Aiyar.  After a  careful and anxious consideration of the two viewpoints contained in the  judgments respectively of my brother S. R. Das  holding that  the  previous decision of this court in The  State  of Bombay  v.  The  United Motors (India) Ltd.  (2)  should  be overruled, and of my brother T. L. Venkatarama Aiyar that it should  be followed, I have come to the conclusion that  the latter view is more acceptable. We are all agreed that the present case is governed (1) 11 Q.B.D. 356, 364. (2) [1953] S.C.R. 1069. 838 by the previous decision of this Court just referred to  and that  if that case lays down the correct rule of  law,  this appeal  should  be dismissed.  We are also agreed  that  the language  of  article 286 of the Constitution on  which  the case depends is not felicitous and free from vagueness, with the  result that the interpretation of that article  is  not free from doubt and difficulty.    The very fact that in the case  referred  to, as also in the later  decision  of  this Court reported in State  of  Travancore-Cochin v.  Shanmugha Vilas  Cashew Nut Factory(1) involving the  construction  of article 286, the Court was divided in its opinion shows that the  interpretation  of the articles in question  is  by  no means  easy.  The fact that the Court is sharply divided  in the  present  case  also  emphasizes  the  difficulty.   The question  we have to determine at the outset is  whether  or not we should follow the previous decision of this Court  in The State of Bombay v. The United Motors (India) Ltd.(1). We are  all agreed that in a proper case it is permissible  for this Court to go back upon its previous decision; but we are again  divided  as  to whether this is a  fit  occasion  for reviewing  its previous decision.  For the reasons given  by my  brothers, Jagannadhadas and Venkatarama Aiyar,  I  would agree with them in holding that sufficient grounds have  not been  made out for overruling that decision which  bad  been taken  after  bearing,  all the parties  interested  in  the result of the case.  Not only the parties directly concerned with  the case but a number of States by way of  interveners as in the present case were also heard.  After giving a very

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full  hearing  the Court gave its judgment which is  a  very elaborate one,-the report of the case running into 60  pages in print.  It is true that much can be said for the opposite view as adumbrated in the judgment of my brother S. R.  Das; but, in my opinion, simply because another view may be taken of   the   points  in  controversy  is  not   a   sufficient justification  for  our reviewing the previous  judgment  of this  Court.   It has not been suggested that  any  relevant provisions of the Indian Constitution or any (1) [1954] S.C.R. 53. (2) [1958] S.C.R. 1069. 839 other  provision  of law had been overlooked by  this  Court when  it  pronounced its previous ruling; nor  has  it  been suggested that this Court on the previous occasion proceeded on erroneous suppositions.  Under the Constitution and  even otherwise this Court is naturally looked upon by the country as  the custodian of law and the Constitution, and  if  this Court  were to review its previous decisions simply  on  the ground  that another view is possible, the  litigant  public may  be  encouraged to think that it  is  always  worthwhile taking  a  chance  with  the  highest  court  in  the  land. Definiteness  and  certainty  of  the  legal  position   are essential conditions for the growth of the rule of law.   In my opinion, therefore, this Court should review its previous decisions’  only  in  exceptional circumstances  as  is  the practice  of the Judicial Committee of the Privy Council  in the  cases  referred  to by my  brothers  Jagannadhadas  and Venkatarama  Aiyar.  If this Court has taken a view  of  the relevant  provisions  of  the Constitution  which  does  not commend  itself  to the acceptance of the  Legislature,  the latter  can make necessary amendments, as has been  done  in the recent past. Coming to the merits of the case in hand, we are all  agreed that   the  Explanation  to  article  286(1)  (a)   of   the Constitution  has  created a legal fiction as  a  result  of which  a transaction of sale or a purchase partaking  of  an inter-State  character  has  been  treated  as  a   domestic transaction.   The fiction has localized sales or  purchases contemplated   by  the  Explanation,  by   converting   such transactions as would otherwise have’ been inter-State sales or  purchases into sales or purchases inside one State in  a sense in which it is placed in a class distinct and separate from what is referred to as sales or purchases "outside  the state"  in  the  main  body  of  article  286(1)  (a)  which prohibits  imposition  of  tax by any  State.   There  is  a general  agreement  amongst  us, I take it,  that  the  main purpose  of  creating  the fiction is  to  prevent  multiple taxation of the same transaction, but, it may be added,  not altogether  to stop the taxation of such  transactions.   We are’ also agreed that full effect must 840 be  given to the legal fiction on the supposition  that  the putative  state  of  affairs is the real  one.   While  thus agreeing on the general principle bearing on the question of the  purpose  and  scope of a legal fiction,  we  are  again divided on the question of how far the legal fiction  should be carried in its actual application.  For the reasons given by  my brother Venkatarama Aiyar, I agree with him that  the fiction created by the Explanation brings such a sale within the  taxing power of the State within which such a  sale  is said  to have taken place.  Such a result is  brought  about not by holding that the Explanation has conferred positively the power on the relevant State to impose sales tax, but  by holding that such an inside sale is beyond the scope of  the

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prohibition  contained in the main body of article  286  (1) (a)  which  interdicts  the imposition of a tax  on  a  sale "outside the State".  The Explanation has got to be read  as an  integral  part of article 286(1) (a) and thus  read,  it means  negatively  that a sale or purchase outside  a  State cannot  be taxed; and by necessary implication, that a  sale or  purchase  inside a State may be taxed by that  State  as falling  outside  the mischief of the  prohibition  directed against  the  imposition of a tax on a sale or  purchase  of goods outside a State; in other words, as soon as a sale  or purchase of goods is declared to be outside the pale of  the prohibition  contained  in article  286(1)(a),  the  State’s power  of imposing a tax contained in article 246 read  with item  54  of  List  II  of  the  7th  Schedule  comes-  into operation.  I do not find myself in agreement with the  view propounded by my brother S. R. Das chiefly because that view goes beyond the purpose of the creation of the fiction which admittedly  was to prevent multiple taxation.  The  view  as propounded by him besides preventing multiple taxation  goes to the length of prohibiting any imposition of sales tax  by any  State.  Such, in my opinion, was not the  intention  of the Constitution.  Whereas the imposition of multiple  sales tax  on transactions of sale or purchase may be an  obstacle to  the free flow of inland trade and commerce, the  imposi- tion of sales tax by a single State in which the sale, is 841 deemed  to  have taken place by virtue  of  the  Explanation cannot  be  predicated as having such an effect.   The  view propounded  by my learned brother Venkatarama Aiyar is  thus not   inconsistent   with   the  avowed   purpose   of   the Constitution,  as expressed in article 301,  which  provides that   trade,  commerce  and  intercourse  shall   be   free throughout the territory of India.  In my opinion, the  view propounded by my learned brother S. R. Das about the  actual application of the legal fiction stops short of giving  full effect  to that fiction.  Allied with this question  is  the controversy  as  to  whether clause (2) of  article  286  is subject  to article 286(1)(a) read with the  Explanation  or vice  versa.   In my opinion, for the reasons  given  by  my learned  brother Venkatarama Aiyar the better view  is  that clause (2) of article 286 of the Constitution is subject  to article 286(1)(a) read with the Explanation.  On the  whole, therefore,  I  would agree with the view that  the  previous decision  of this Court in 1953 S.C.R. 1069 should  continue to  hold good and govern the present controversy  also.   In that  view  of the matter I would dismiss this  appeal  with costs. BY  THE COURT.-The appeal is allowed and an order  shall  be issued  directing  that, until Parliament  by  law  provides otherwise,  the State of Bihar do forbear and  abstain  from imposing  Sales  Tax on out-of State dealers in  respect  of sales  or purchases that have taken place in the  course  of inter-State  trade  or commerce even though the  goods  have been delivered as a direct result of such sales or purchases for  consumption in Bihar.  The State must pay the costs  of the  appellant  in this Court and in the Court  below.   The interveners must bear and pay their own costs. 842