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PETITIONER: THE TATA IRON & STEEL CO., LTD.

       Vs.

RESPONDENT: THE STATE OF BIHAR

DATE OF JUDGMENT: 19/02/1958

BENCH: DAS, SUDHI RANJAN (CJ) BENCH: DAS, SUDHI RANJAN (CJ) AIYYAR, T.L. VENKATARAMA DAS, S.K. SARKAR, A.K. BOSE, VIVIAN

CITATION:  1958 AIR  452            1958 SCR 1355

ACT: Sales  Tax-Provincial  legislation imposing tax  in  certain circumstances-Validity-Power   of  Provincial   Legislature- Retrospective levy, legality of-Theory of territorial nexus, if  applicable Bihar Sales Tax Act, 1947 (No.  XIX of  1947) as  amended by Bihar Sales Tax (Amendment) Act, 1948 (VI  of 1949), ss. 4(1), 2(g).

HEADNOTE: The appellant company, carrying on business as  manufacturer of iron and steel, with its factory and works at  Jamshedpur in Bihar, was assessed to sales tax for two periods prior to the  Constitution, under the Bihar Sales Tax Act, 1947  (No. XIX  Of 1947), enacted by the Bihar Legislature in  exercise of  its exclusive power under the Government of  India  Act, 1935.  The company used to send its goods from Jamshedpur to various parts of India.  In the railway receipt the  company itself figured as the consignee, it paid the freight and the receipt was sent either to its branch offices or bankers  to be  handed  over to the purchaser when he  paid  the  price. From the amounts shown as gross turn-over in the two returns for  the  two  periods, the  company  claimed  deduction  of certain  amounts, being the valuable consideration  for  the goods manufactured in Bihar but sold, delivered and consumed outside,  on the ground that in none of the transactions  in respect  of the said sums did property in the goods pass  to the  purchasers  in Bihar.  The  appellant  claimed  further deductions  on  account of the railway freight paid  by  it. The  Sales Tax Officer disallowed both the claims and  added the amounts of sales tax realised by the appellant from  its purchasers  to the taxable turnover.  The  company  appealed against  the orders of assessment, but the  Commissioner  of Sales  Tax dismissed its appeals.  The Board of Revenue,  in revision,  confirmed  the orders of  the  Commissioner  with certain modifications and remanded the matters to the  Sales Tax  Officer.  On the appellant’s application for  reference of certain questions of law, the Board referred them to  the High  Court.  One of them related to the legality of  adding the Sales Tax to the turn-over and was answered in favour of

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the appellant and the respondent did not appeal.  The  other questions  decided by the High Court against  the  appellant related  to  the  vires  of the  Act  and  the  validity  of retrospective  levy of sales tax under S. 4(1) of  the  Act. The appellant’s contentions in the appeals were that the tax levied  under s. 4(1) read with S. 2(g) second proviso,  cl. (II), of the Act, was not a sales tax within the meaning  of Entry  48 in List II of the Seventh Schedule to the  Govern- ment  of  India Act, 1935, but was in the nature  of  excise duty  172 1356 which a provincial legislature had no power to impose,  that the  theory of territorial nexus was inapplicable  to  sales tax and, in  any case, there was no real or sufficient nexus in  the  present cases and that retrospective  levy  of  the sales  tax under s. 4(1) Of the Act destroyed  the  indirect nature  of  the  tax, thus making it a  direct  tax  on  the dealer which could not be passed on to the consumer: Held, (per Das, C. J., Venkatarama Aiyar, S. K. Das and A.K. Sarkar,  jj.,  Bose, J. dissenting),  that  the  contentions raised  on     behalf  of the appellant must  be  negatived. The provisions of S.     4(1)  read  with  S.  2(g),  second proviso, of the Bihar Sales Tax Act, as amended by the Bihar Sales  Tax (Amendment) Act, 1948, (VI Of 1949), were  within the  legislative  competence  of  the  Legislature  of   the Province of Bihar.  Both before and after the amendment, the word ’sale’ as used in s. 4(1) and as defined by S. 2(g)  of the  Act, meant the transfer of property in the goods  sold. The second proviso added by the amending Act did not  extend that  meaning so as to include a contract of sale.  What  it actually did was to lay down certain circumstances in  which a  sale, although completed elsewhere, was to be  deemed  to have  taken  place in Bihar.  Those  circumstances  did  not constitute the sale, but only located the situs of the sale. Sales  Tax  Officer, Pilibhit v. Messrs.  Budh  Prakash  jai Prakash, [1955] 1 S.C.R. 243, distinguished. Nor  was it correct to contend that the tax levied under  s. 4(1)  read  with  S. 2(g) Of the Act was in  the  nature  of excise  duty.   Under cl. (ii) of the second proviso  to  S. 2(g)  of the Act the producer or manufacturer became  liable to  pay the tax not because he produced or manufactured  the goods but because he sold them. Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R. go  and Governor General v. Province of Madras, (1945)  L.R. 72 I.A. 91, referred to. There  can be no doubt that the theory of territorial  nexus does apply to sales tax legislation.  Although sales tax can be levied only on a completed sale, this theory has its  use in  indicating  the circumstances in which the  tax  may  be enforced  in a particular case.  One or more of the  several ingredients of a sale may furnish the connection between the taxing State and the sale. State of Bombay v. United Motors (India) Ltd., [1953] S.C.R. 1069,  Poppatlal Shah v. The State of Madras, [1953]  S.C.R. 677 and The State of Bombay v. R.M.D. Chamarbaugwala, [1957] S.C.R. 874, relied on. Bengal  Immunity  Co. Ltd. v. The State of Bihar,  [1955]  2 S.C.R. 603, considered. Case law reviewed. 1357 As  in a sale of goods, the goods must necessarily  play  an important  part, the circumstances mentioned in the  proviso to s. 2(g) of the Act, namely, the presence of the goods  in Bihar  at  the  date  of the  agreement  of  sale  or  their

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production or manufacture there must be held to constitute a sufficient  nexus between the taxing province and  the  sale wherever that might take place. Governor  General v. Raleigh Investment, [1944] F.C.R.  229, relied on. Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R. go, distinguished. It would not be correct to contend that the theory of  nexus might  lead  to multiple taxation  or  obstruct  inter-State trade.  Article 286(2) of the Constitution and the  relevant entries in the Legislative List are a complete safeguard  to any such contingency. Although as a matter of economic theory, sales tax maybe  an indirect  tax realisable from the consumer, it need  not  be legally  so  and is not so under the Bihar  Sales  Tax  Act, 1947, which imposes the primary liability on the seller.   A buyer,  moreover,  is not bound to pay sales  tax  over  and above  the agreed sale price unless he is by contract  bound to  do  so.   There  can, therefore, be  no  scope  for  the argument that the retrospective enforcement of the tax under S. 4(1) of the Act could destroy the character of the tax or that  it was beyond the legislative competence of the  Bihar Legislature. Love  v. Norman Wright (Builders) Ltd., L.R. (1944)  1  K.B. 484, referred to. Per Bose, J.-Sales tax can be imposed only on the sale.   It is,  therefore, wrong to look to the goods or the  agreement to  sell  or any other elements that constitute  a  sale  in order to impose the tax. A State can tax a sale of goods that takes place within  its boundary.   It has no power to tax extra-territorially,  and since  a  completed sale can have only one  situs  no  State Legislature  can  be  allowed to break up a  sale  into  its component  parts, which are separate and distinct  from  the sale  itself, and by an application of the theory  of  nexus claim that ,,he sale wholly took place within it.  The nexus can  only be in respect of the entire sale, wherever it  may take place and not of its several parts.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 412 and 413 of 1956. Appeals  by special leave from the judgment and order  dated October 17, 1955, of the Patna High Court in M.J.C. No.  577 of 1953, made on reference by the Board of Revenue, Bihar in Appeals Nos. 495 and 496 of 1952. 1358 M.   C.  Setalvad, Attorney-General, for  India,  Rajeshwari Prasad and S. P. Varma, for the appellant. Mahabir Prasad, Advocate-General for the State of Bihar  and R. C. Prasad, for the respondent. 1958.   February 19.  The Judgment of Das, C.J.  Venkatarama Aiyar,  S. K. Das and Sarkar, JJ.  ",as delivered by Das  C. J. Bose, J. delivered a separate judgment. DAS C.  J.-These two appeals, which have been filed with the special  leave  granted by an order made by  this  Court  on April 3, 1956, and which have been consolidated together  by the same order, are dire-led against the judgment pronounced by   the   Patna  high  Court  on  October  17,   1955,   in Miscellaneous  Judicial  Case  No.  577  of  1953,  deciding certain questions refer. red to it by the Board of  Revenue, Bihar under s. 25 of the Bihar Sales Tax Act, 1947 (No.  XIX of 1947) hereinafter referred to as the 1947 Act.  The  said

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references  arose out of two orders passed by the  Board  of Revenue in revision of two sales tax assessment orders  made against the appellant company. The  appellant company is a company incorporated  under  the Indian  Companies Act.  Its registered office is in  Bombay; its  factory  and works are at Jamshedpur in  the  State  of Bihar and its head sales’ office is in Calcutta in the State of West Bengal.  It has store yards in the States of Madras, Bombay,  West  Bengal,  Uttar  Pradesh,  Hyderabad,   Madhya Pradesh,  Punjab  and  Andhra.  It carries  on  business  as manufacturer  of iron and steel and is a  registered  dealer under  the 1947 Act, the registration No. being S.  C.  905. Its  course  of dealing is thus described  in  the  judgment under appeal:- "  The intending purchaser has to apply for a permit to  the Iron  and  Steel Controller at Calcutta,  who  forwards  the requisition  to  the  Chief Sales Officer  of  the  assessee working  in  Calcutta.  The Chief Sales  Officer  thereafter makes a "works order" and for. wards it to Jamshedpur.   The "  works order " mentions the complete specification of  the goods required. 1359 After  the  receipt  of the  "works  order"  the  Jamshedpur factory  initiates  a  "  rolling "  or  "  manufacturing  " programme.  After the goods are manufactured, the Jamshedpur factory sends the invoice to the Controller of Accounts  who prepares  the  forwarding notes, and on the basis  of  these forwarding notes, railway receipts are prepared.  The  goods are  loaded  in the wagons at Jamshedpur and  despatched  to various  stations, but the consignee in the railway  receipt is  the assessee itself and the freight also is paid by  the assessee.   The  railway  receipts are sent  either  to  the branch offices of the assessee or to its bankers, and  after the purchaser pays the amount of consideration, the  railway receipt  is delivered to him.  These facts are admitted  and the correctness of these facts are not disputed by the State of Bihar." The  appellant  company  was  separately  assessed  for  two periods:  (1) from July 1, 1947 to March 31, 1948,  and  (2) from April 1, 1948 to March 31, 1949.  For the first  period the  appellant company filed a return under s. 12(1) of  the 1947  Act  before  the Sales Tax  Officer  showing  a  gross turnover of Rs. 12,80,15,327-8-5.  From this gross  turnover the  appellant  company  claimed  to deduct  a  sum  of  Rs. 2,88,60,787-13-0 being the amount of valuable  consideration for  the  goods manufactured at Jamshedpur in the  State  of Bihar but sold, delivered and consumed outside that State on the  ground that in none of the transactions in  respect  of the  said  sum  did the property in the goods  pass  to  the purchasers  in  the State of Bihar.  The  appellant  company further  claimed  a  deduction of  Rs.  1,10,87,125-13-0  on account  of  railway freight, actually paid by  it  for  the despatch  of  the  goods.  The  Sales-tax  Officer,  by  his assessment  order dated July 22, 1949, disallowed  both  the claims  for deduction and, on the other hand added a sum  of Rs.  13,66,496-11-0, being the amount of sales tax  realised by the appellant company from its purchasers, to its taxable turnover  and  assessed the appellant company to  sales  tax amounting  to Rs. 15,31,374-5-9.  For the second period  the appellant company filed a return showing a gross turnover of Rs. 21,64,45,450-0-0. 1360 From  this  gross turnover the appellant company  claimed  a deduction  of  Rs.  10,71,66,233-11-0 being  the  amount  of valuable consideration for goods manufactured at  Jamshedpur

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in  the  State of Bihar, but  sold, delivered  and  consumed outside  that  State  on the  same  ground  as  hereinbefore mentioned.   The appellant company also claimed a  deduction of Rs. 40,89,973-9-0 on account of railway freight  actually paid  by  it for the despatch of the goods.  The  Sales  Tax Officer  by his assessment order dated September  24,  1949, disallowed  both  the  claims  and  added  the  sum  of  Rs. 22,37,919-4-0, being the amount of sales tax realised by the appellant  company  from  its  purchasers,  to  its  taxable turnover  and  assessed the appellant company to  sales  tax amounting to Rs. 28,30,458-6-0. Against  these two assessment orders the  appellant  company preferred  two  appeals under S. 24 of the 1947 Act  to  the Commissioner of Sales Tax of Chota Nagpur who, on April  29, 1950, dismissed both the appeals. The appellant company went up  to  the Board of Revenue on  two  revision  applications against the two     orders  of the Commissioner.  The  Board of Revenue,by its order dated August 30, 1952, confirmed the orders  of the Commissioner with certain  modifications  and remanded the cases to the Sales Tax Officer.  The  appellant company applied under S. 25 of the 1947 Act-to the Board  of Revenue  in  Reference Cases Nos. 495 and 496  of  1952  for reference of certain questions of law to the High Court.  By a  common order dated October 5, 1953, made in the said  two references  the  Board  of Revenue  referred  the  following questions of law to the High Court for its decision " (1) Is the Bihar Sales Tax Act, 1947, as amended in  1948, ultra  vires  the  Provincial Legislature  in  view  of  the extended  meaning of the expression taxes on sale  of  goods given  in  the  Act in the light of the  provisions  of  the Government of India Act, 1935 ? (2)Are the provisions of section 2(g) of the 1947 Act  ultra vires the Provincial Legislature ? 1361 (3)  Is  it  legal  to  include sales  tax  in  the  taxable turnover  of an assessee like the petitioner ? (4)  Was the Bihar Sales Tax (Amendment) Act of 1948 legally extended  to Chotanagpur ?  (5) Were the levy and collection of sales taxes for periods prior to the 26th January 1950, under the Sales Tax Act then in   force  rendered  illegal  by  the  provisions  of   the Constitution ? (6)  Was  the  Commissioner, who passed orders,  in  appeal, after the Constitution came into force, bound to decide  the appeal  according to the provisions of the  Constitution  in respect  of taxes levied or sought to be levied for  periods prior to the 26th January, 1950, when the Constitution  came into force ?" Out  of these six questions, question No. 3 was  decided  in favour of the appellant company and the respondent State has not preferred any appeal against that decision or questioned its correctness.  Question No. 4 was not pressed before  the High  Court and does not survive before us.  Questions  Nos. 1, 2, 5 and 6 were decided against the appellant company and the  two consolidated appeals are directed against the  High Court’s  decision  on these questions.  It will  be  noticed that  questions  Nos.  I and 2, in effect,  raise  the  same problem,  namely,  as  to  the vires of  the  1947  Act  and questions  Nos. 5 and 6 are concerned with the  validity  of the  retrospective  levy  of  sales tax  by  reason  of  the amendment of s. 4 of the 1947 Act. The following points, as formulated by the learned Attorney- General appearing for the appellant company, have been urged before us in support of these appeals: " (1) The tax levied under s. 4(1) read with s. 2(g), second

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proviso, cl. (ii), is not a tax on sale within the  meaning of  Entry  48  in List II of the  Seventh  Schedule  to  the Government of India Act, 1935. (2)  The doctrine of nexus is not applicable to sales tax. (3)  In any event the nexus in the present case is not  real and sufficient but is illusory. 1362 (4)Having  regard  to the provisions of  the  law  mentioned above,  the  tax levied is in the nature of duty  of  excise rather than a tax on sale. (5)The  retrospective levy by reason of the amendment of  s. 4(1)  destroys its character as a sales tax and makes  it  a direct  tax on the dealer instead of an indirect tax  to  be passed on to the consumer." In order to appreciate the arguments that have been advanced before  us  on the points noted above, it  is  necessary  to refer  to the relevant statutory provisions, which  were  in force at the material times.  Section 99, of the  Government of  India  Act, 1935, authorised a  Provincial  Legislature, subject to the provisions of that Act, to make laws for  the Province  or for any part thereof.  Section 100(3)  of  that Act  provided  that,  subject  to  the  two  preceding  sub- sections,  the Provincial Legislature had, and  the  Federal Legislature had not, power to make laws for any Province  or any  part  thereof  with  respect  to  any  of  the  matters enumerated  in List 11 of the Seventh Schedule to that  Act. The matter enumerated in Entry 48 in List II was as follows: "  Taxes on the sale of goods and on advertisements." It  is in  exercise of this legislative power that  the  Provincial Legislature of Bihar passed the 1947 Act which received  the assent  of the Governor General on June 21, 1947,  and  came into force on July 1, 1947, by virtue of a notification made in the official gazette under s. 1(3) of the said Act.   The relevant  portion of s. 4(1) of the 1947 Act, which was  the charging  section, was, prior to its  amendment  hereinafter mentioned, expressed in the following terms:- "  Subject to the provisions of sections 5, 6, 7 and  8  and with effect from such date as the Provincial Government may, by notification in the official gazette, appoint, being  not earlier   than   30  days  after  the  date  of   the   said notification, every dealer whose gross turnover -during  the year  immediately preceding the commencement of this Act  on sales  which  had  taken place both  in  and  outside  Bihar exceeded  Rs. 10,000 shall be liable to pay tax  under  this Act 1363 on sales which have taken place in Bihar after the date  was notified." It  should  be noted that, although the 1947 Act  came  into force on July 1, 1947, by virtue of a notification published in the official gazette under s. 1(3) thereof, the  charging section quoted above did not come into operation because, by its  own  terms, it required a further notification  in  the official gazette to bring it into effect.  For some  reason, not  apparent on the record, the Provincial  Government  did not  issue any notification as contemplated by s. 4(1).   To cure this omission Ordinance III of 1948 was promulgated  by the  Governor amending s. 4(1)(a) of the 1947 Act.   Section 4(1), as amended, read as follows: "  Subject to the provisions of sections 5, 6, 7 and  8  and with effect from the commencement of this Act, every dealer, whose  turnover  during the year immediately  preceding  the date  of such commencement, on sales which have taken  place both  in  and outside Bihar exceeded Rs.  10,000,  shall  be liable  to pay tax under this Act on sales which have  taken

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place in Bihar on and from the date of such commencement." On  March  22, 1949, Ordinance III of 1948 was  replaced  by Bihar   Sales  Tax  (Amendment)  Act,  1948  (VI  of   1949) hereinafter referred to as the amending Act.  Section 16  of this  amending  Act provided that the  substituted  s.  4(1) should form part of the 1947 Act and should always be deemed to   have   formed  part  thereof  with  effect   from   its commencement,  that  is  to  say,  from  July  1,  1947,  as hereinbefore mentioned.  Two things should be noted, namely, (1)  that the person sought to be charged was  every  dealer whose  gross  " turnover" during the specified period  on  " sales  "  which had taken place both in  and  outside  Bihar exceeded  Rs. 10,000 and (2) that the liability to  pay  tax was on " sales " which had taken place in Bihar on and  from the  date  of such commencement.  This takes us back  to  s. 2(g)  which  defines  " sale ". The  material  part  of  the definition  of " sale ", previous to the amendment  made  by the amending Act, 173 1364  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 .................................................. Provided  further  that  notwithstanding  anything  to   the contrary  in  the  Indian Sale of Goods Act,  1930  (III  of 1930), the sale of any goods 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,  shall,  wherever the said contract of sale is made be deemed for the  purpose of this Act to have been made in Bihar.  .......................................................... Section  2 of the amending Act amended s. 2(g) of  the  1947 Act  by  substituting  a  new proviso to  cl.  (g)  for  the original  second proviso thereto.  The material part  of  s. 2(g), thus amended, 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 ................................................. Provided  further  that  notwithstanding  anything  to   the contrary  in  the  Indian Sale of Goods Act,  1930  (111  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 1365 deemed  for the purposes of this Act to have taken place  in Bihar. The amending Act by s. 3 substituted for the old sub-s.  (1) of s. 4 of the 1947 Act the following sub-’ section, namely: "  (1) Subject to the provisions of sections 5, 6, 7  and  8 and  with  effect from the commencement of this  Act,  every dealer  whose  gross turnover during  the  year  immediately preceding the date of such commencement, on sales which have

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taken  place both in and outside Bihar exceeded  Rs.  10,000 shall  be  liable to pay tax under this Act on  sales  which have taken place in Bihar on and from the date of such  com- mencement: Provided that the tax shall not be payable on sales involved in  the  execution  of  a contract which  is  shown  to  the satisfaction  of the Commissioner to have been entered  into by the dealer concerned on or before the 1st day of October, 1944.  " Although  the  amending  Act  received  the  assent  of  the Governor  General on March 15, 1949, it came into  force  on October 1, 1948, as provided in s. 1(2) thereof.  Section 16 of  the amending Act, however, provided that  the  amendment made by s. 3 should form part and should be deemed always to have formed part of the 1947 Act as if the said Act had been enacted as so amended from the commencement thereof, that is to say, from July 1, 1947.  The 1947 Act was further amended in 1951 by Bihar Act VII of 1951 and again in 1953 by  Bihar Act  XIV  of  1953, but we are not,  in  the  present  case, concerned with those amendments. Although the charging section, namely, s. 4(1), as  amended, operates  from  July  1, 1947, the  definition  of  sale  as amended,  became  operative  only  from  October  1,   1948. Therefore, the definition of " sale ", as it stood prior  to the  amendment,  was  applicable to all sales  made  by  the appellant   throughout   the   first   period   hereinbefore mentioned,  i.e., the period from July 1, 1947 to March  31, 1948 and also to those made during the period from April  1, 1948  to  October 1, 1948, which was only a portion  of  the second 1366 period  hereinbefore  mentioned and the  amended  definition applied  to  all  sales made by  the  appellant  during  the remaining  portion of the second period, i.e., from  October 1, 1948 to March 31, 1949. Bearing  in mind the relevant provisions of the 1947 Act  as they  stood  both  before and after the  amendment  and  the period of their applicability we now proceed to consider the points  urged  before  us by the  learned  Attorney  General appearing for the-appellant company. Re.   Points Nos. 1 and 4: It will be convenient to take  up those  two  points together for they have  been  dealt  with together  by the learned Attorney General.  The validity  of s. 4(1) read with s. 2(g), second proviso, is challenged  in two ways.  In the first place it is urged that s. 100(3)  of the Government of India Act, 1935 read with Entry 48 in List II   of   the  Seventh  Schedule  thereto   authorised   the Legislature  of Bihar to make a law with respect to  tax  on the sale of goods.  " Sale of Goods ", as a legal topic, has well  defined  and  well  understood  implications  both  in English and Indian Law.  The English Common Law relating  to sale of goods has been codified in the English Sale of Goods Act,  1893.  In India the matter was originally governed  by the  provisions of Chapter VII of the Indian  Contract  Act, 1872.   Those  provisions have since been  replaced  by  the Indian  Sale of Goods Act, Act III of 1930.   Our  attention has been drawn to s. 4 of the Indian Sale of Goods Act which clearly makes a distinction between a sale and an  agreement for  sale.   It is pointed out that that section  groups   " sales " and " agreements to sell " under the single  generic name of " contract of sale ", following in this respect  the scheme  of  English  Sale of Goods Act, 1893,  and  that  it treats  " sales " and "agreements to sell " as two  separate categories,  the  vital point of  distinction  between  them being that whereas in a sale there is a transfer of property

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in  goods from the seller to the buyer, there is none in  an agreement to sell.  It is then urged, on the authority of  a decision of this Court in the Sales Tax Officer, Pilibhit v. Messrs.  Budh Prakash 1367 Jai  Prakash (1) that there having thus existed at the  time of  the  enactment of the Government of India Act,  1935,  a well  defined 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  in  India and to hold that  it  authorised  an imposition  of  a tax only when there was a  completed  sale involving   the  transfer  of  title  in  the  goods   sold. Reference is then made to the decision of the Federal  Court in the case of Province of Madras v. Boddu Paidanna and Sons (2) where the Federal Court at page 101 observed that in the case of sales tax the liability to tax arose on the occasion of a sale " which Patanjali Sastri C. J. in his judgment  in the  State  of  Bombay v. United  Motors  (India)  Ltd.  (3) described  as " the taxable event.  " The argument  is  that the  Bihar Legislature could only make a law imposing a  tax on  the sale of goods, that is to say, on a  concluded  sale involving  the transfer of property in the goods  sold  from the seller to the buyer as contemplated by the Sale of Goods Act. The Bihar Legislature could not, by giving an  extended definition to the word "sale", extend its legislative  power under  Entry  48 in List II of the Seventh Schedule  to  the Government  of  India Act, 1935, so as to impose  a  tax  on anything which is short of a sale.  For our present  purpose no   exception  need  be  taken  to  the  proposition   thus formulated and indeed in Budh Prakash Jai Prakash’s case (1) this  Court  struck down that part of the definition  of  it sale " in s. 2(h) of the Uttar Pradesh Sales Tax Act,  1948, which enlarged the definition of " sale " so as to include " forward contracts".  But is the position the same here?   We think  not.  It will be noticed that s. 4(1) imposed on  the dealer the liability to pay a tax on " sale " as defined  in s. 2(g).  Both before and after the amendment of s. 2(g) the principal  part of the definition meant the transfer of  the property in goods.  All that the second proviso did was  not to extend the (1) [1955] 1 S.C.R. 243, 247.      (2) [1942] F.C.R. 90. (3) [1953] S.C.R. 1069, 1088. definition  of "" sale but only to locate the I" sale  "  in certain  circumstances mentioned in that proviso  in  Bihar. The  basis  of liability under s 4(1)  remained  as  before, namely,  to pay tax on " sale . The fact of the goods  being in  Bihar  at  the  time of the  contract  of  sale  or  the production  or  manufacture  of goods in Bihar  did  not  by itself  constitute a " sale " and did not by itself  attract the  tax.   The taxable event still remained the  "  sale  " resulting  in  the transfer of ownership in the  thing  sold from  the  seller to the buyer.  No tax  liability  actually accrued  until  there was a concluded sale in the  sense  of transfer of title.  It was only when the property passed and the " sale " took place that the liability for paying  sales tax  under the 1947 Act arose.  There was no enlargement  of the  meaning  of  " sale " but the  proviso  only  raised  a fiction  on the strength of the facts mentioned therein  and deemed  the  " sale " to have taken place in  Bihar.   Those facts  did not by themselves constitute a" sale " but  those facts were used for locating the situs of the sale in Bihar. It follows, therefore, that the. provisions of s. 4(1)  read with   s.  2(g),  second  proviso,  were  well  within   the

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legislative competency of the Legislature of the Province of Bihar. The  vires of s. 4(1) read with s. 2(g), second proviso,  is also  questioned on the ground that it is in reality  not  a tax  on  the  sale of goods but is in substance  a  duty  of excise  within  the  meaning of Entry 45 in List  I  of  the Seventh Schedule to the Government of India Act, 1935,  with respect to which the Provincial Legislature could not, under s. 100 of that Act, make any law.  Our attention is drawn to cl. (ii) of the second proviso which contemplated a sale  of the  goods by the producer or manufacturer thereof.   It  is urged that, according to this clause, tax was not imposed on all  sales of goods produced or manufactured in  Bihar,  but was imposed only on those goods produced or manufactured  in Bihar  which were sold by the producer or manufacturer.   It is  pointed out, as and by way of an illustration,  that  if the  goods produced or manufactured in Bihar were taken  out of  the  Province  of  Bihar and then  gifted  away  by  the producer or 1369 manufacturer to a person ’outside Bihar and that person sold the  goods, he would not be liable under the proviso.   This argument,  however, overlooks the fact that under  cl.  (ii) the  producer or manufacturer became liable to pay  the  tax not  because  he  produced or manufactured  the  goods,  but because he sold the goods.  In other words the tax was  laid on the producer or manufacturer only qua seller and not  qua manufacturer or producer as pointed out in Boddu. Paidanna’s case  (1).  In the words of their Lordships of the  Judicial Committee in Governor General v. Province of Madras (2), " a duty of excise is primarily a duty levied on a  manufacturer or  producer  in respect of the  commodity  manufactured  or produced.   It  is a tax on goods and not on  sales  or  the proceeds  of  sale  of  goods." If  the  goods  produced  or manufactured in Bihar were destroyed by fire before sale the manufacturer  or producer would not have been liable to  pay any  tax under s. 4 (1) read with s. 2 (g), second  proviso. As Gwyer C. J. said in Boddu Paidanna’s Case (1) at page 102 the manufacturer or producer would be "liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory." In our judgment both lines of the argument advanced- by the learned Attorney  General in support of points and 4  are  untenable and cannot be accepted. Re.  point  No. 2: The theory of nexus has been  applied  in support of tax legislation in more cases than one, not  only in  this  country  but also in Australia  and  England.   In Wanganui-Rangitikei  Electric  Power  Board  v.   Australian Mutual Provident Society (3) 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......... would not be open  to challenge." The same learned Judge in Broken Hill South Ltd. v. (1)  [1942] F.C.R. 90. (3)  (1934) 50 C.L.R. 581, 600. (2) (1945) L.R. 721.A. 91, 103. 1370 Commissioner of Taxation (N.  S. W.)(1), said at page 375: "  If  a  connection exists, it is for  the  legislature  to decide how far it should go in the exercise of its  ,powers. As in other matters of jurisdiction or authority courts must be  exact  in distinguishing between ascertaining  that  the

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circumstances  over  which  the  power  extends  exist   and examining  the mode in which the power has  been  exercised. No doubt there must be some relevance to the circumstance in the exercise of the power.  But it is of no importance  upon the  question of validity that the liability imposed is,  or may be, altogether disproportionate to the territorial connection." Even  the  dissenting Judge Rich J. accepted the  theory  of nexus at page 361: "  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." The  Estate  Duty  Assessment Act  1914-1928  which  charged estate duty on moveable properties situate abroad which  had passed from a deceased person domiciled in Australia by gift intervivos  made by him within a year of his death  was  not struck  down  for  extra territoriality but  was  upheld  as constitutional in The Trustees Executors and Agency Co. Ltd. v. The Federal Commissioner of Taxation (2). The  nexus  theory  was applied in full  force  in  Governor General v. Raleigh Investment Co. (3); Wallace Brothers  and Co. Ltd. v. Commissioner of Income Tax, Bombay    City   (4) and A. H. Wadia v. Commissioner of Income    Tax,     Bombay (5).  In Raleigh Investment Co.’s case(3)    the    assessee company   was  a  company  incorporated  in  England.    Its registered  office  was in England. It held shares  in  nine Sterling Companies incorporated (1)  (1937)  56  C.L.R.  337.  (2)  (1933)  49  C.L.R.  220. (3)[1944) F.C.R. 229. (4) [1948] F.C.R. 1. (5)    [1948] F.C.R. 121. 1371 in  England.   Those  nine  Sterling  Companies  carried  on business  in  British India and earned  income,  profits  or gains  in British India and declared and paid  dividends  in England to its shareholders including the assessee  company. Tile  assessee company was charged to income-tax under s.  4 (1)  of the Indian Income-tax Act.  It should be noted  that the  assessee  company was not resident  in  British  India, carried on no business in British India and made no  income, profits  or  gains out of any business carried on by  it  in British India.  It invested its money and acquired shares in England  in the nine Sterling Companies which  were  English Companies.   It was only when those nine Companies  declared and  paid  dividends in England that  the  assessee  company really  earned  its  income, profits or gains,  out  of  its investments in England in shares of nine Sterling Companies. The  circumstance that the nine Sterling  Companies  derived their  income, profits or gains, out of business carried  on by them in British India out of which they paid dividends to the assessee company was regarded as sufficient nexus so  as to  fasten  the  tax liability on the  assessee  company  in respect of the income, profits or gains, it derived from the nine  Sterling Companies.  Even such a distantly  derivative connection  with  the  source  of  income  was  held  as   a sufficient  nexus  to enable the British Indian  tax  autho- rities to charge the assessee company with income-tax.   The conclusions  reached  by Spens C. J. in  Raleigh  Investment Co.’s case, (1) are formulated thus at page 253: "  If  some  connection  exists,  the  legislature  is   not compelled  to measure the taxation by the degree of  benefit received in particular cases by the taxpayer.  This  affects the policy and not the validity of the legislation ".

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In Wallace Brothers case (2) the connection of the  assessee company  with British India was not so remote as in  Raleigh Investment  Co.’s  case  (1), for in  the  former  case  the assessee company was a partner in a (1)  [1944] F.C.R. 229. 174 (2) [1948] F.C.R. 1. 1372 firm  which  carried on business in British India  but  that connection  was  held  to be sufficient nexus  to  bring  to British  Indian  tax not only the income, profits  or  gains made  by the assessee as a partner in the firm but also  its income, profits or gains which accrued without British India in the previous year.  In Wadia’s case (1), also an  income- tax  case, it was held that a law imposing a tax  cannot  be impugned  on  the ground that it is  extra  territorial,  if there is a connection between a person who is subjected to a 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.  At page  140 Chief Justice Kania observed: " Generally, States can legislate effectively only for their own  territories, but for purposes of taxation  and  similar matters,  a State makes laws designed to operate beyond  its territorial limits." The learned Attorney General points out that the three  last mentioned  cases in which the nexus theory was applied  were income-tax  cases and submits that that principle cannot  be extended  to sales tax laws.  He points out that  in  Bengal Immunity  Co.  Ltd.  v. The State of Bihar  (2)  this  Court expressly  left  open the question, whether  the  theory  of nexus applied to legislation with respect to sales tax.  The passage  at  page 639 relied upon by  the  learned  Attorney General  only  refers to the fact that the  different  State Legislatures  considered  themselves  free  to  make  a  law imposing  tax  on sales or purchases of goods  provided  the State  concerned had some territorial nexus with such  sales or  purchases and went on to say that the  question  whether they  were right or wrong in so doing had not  been  finally decided  by the courts.  That passage, properly  understood, can hardly be said to indicate that the theory of nexus does not apply to sales tax legislation at all.  The drift of the meaning  of  the  passage was that the  sufficiency  of  the different  next  relied on by the different States  had  not been tested by the courts.  The passage strongly relied upon by the learned Attorney General is to be (1) [1948] F.C.R. 121. (2) [1955] 2 S.C.R. 603. 1373 found  at page 708 where Bhagwati J. after referring to  the earlier cases, observed : "  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 sphere  of 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 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

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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 the  Constitution and  it  is  not necessary also for us to  give  a  definite pronouncement on the subject." Apart from the fact that the concluding words in the passage quoted above may be read as indicating that the observations were  obiter, it appears to us to be too late in the day  to contend that the theory of nexus does not apply to sales tax legislation at all.  Indeed an examination of the  decisions of  this Court will clearly show that the  applicability  of the  theory  of  nexus to sales  tax  legislation  has  been clearly recognised by this Court. In The State of Bombay v. The United Motors (India) Ltd. (1) this  Court  bad  to  interpret  the  true  meaning  of  the explanation  to  Art. 286(1)(a) of the  Constitution.   That explanation  created a fiction locating the situs of a  sale or  purchase  in the State in which the goods  had  actually been delivered as a result of such sale or purchase for  the purpose of consumption in that (1)  [1953] S.C.R. 1069, 1088. 1374 State  notwithstanding the fact that, under the general  law relating to sale of goods, the property in the goods had, by reason  of such sale or purchase, passed in  another  State. This  Court  by  a majority then held that in  view  of  the fiction  created  by the explanation the sale which  was  in reality  an inter-State sale became an intrastate  sale  and consequently the delivery and consuming State had the, right to  impose tax on that sale.  It is true that that  decision has been departed from in the Bengal Immunity Co.’s case (1) on  the  question of the interpretation of Art. 286  of  the Constitution,  but on the point we are now  discussing  that decision clearly implies a recognition of the  applicability of  the  nexus theory to the imposition of sales  tax.   The observations  of Patanjali Sastri C. J. on the  question  of nexus  in  that  case  cannot,  therefore,  be  said  to  be unnecessary  for  the decision of that case.   In  Poppatlal Shah v. The State of Madras (2) Mukherjea J. delivering  the unanimous  judgment of the Constitution Bench of this  Court definitely  applied  the  theory  of  nexus  to  sales   tax legislation.  Support for that conclusion was found directly in  the  decision  of  the  Judicial  Committee  in  Wallace Brothers and Co. Ltd. v. Commissioner of Income Tax,  Bombay City (3) which, it was said, had been applied by this  Court to sales tax legislation in the United Motors’ case (4), but it  is quite clear that the decision had,  independently  of the  United  Motors’  case (4),  adopted  the  principle  of Wallace  Brothers and Co.’s case (3) to sales  tax  legisla- tion.   In  a  recent case, The State of  Bombay  v.  R.M.D. Chamarbaugwala(5),  which was concerned with tax  on  cross- word competition, this Court applied the theory of nexus and upheld the legislative competency of the Bombay  Legislature to  impose  tax on the gambling competitions.  At  page  901 this Court said: " The doctrine of territorial nexus is well established  and there is no dispute as to the principles.  As enunciated  by learned   counsel  for  the  petitioners,  if  there  is   a territorial  nexus between the person sought to  be  charged and the State seeking to tax him the (1)  [1955] 2 S.C.R. 603. (3)  [1948] F.C.R. 1. (5) [1957] S.C.R. 874,901. (2)  [1953] S.C.R. 677.

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(4)  [1953] S.C.R. 1069, 1088. 1375 taxing   statute   may  be  upheld.   Sufficiency   of   the territorial  connection  involve  a  consideration  of   two elements,  namely, (a) the connection must be real  and  not illusory and (b) the liability sought to be imposed must  be pertinent to that connection.  It is conceded that it is  of no importance on the question of validity that the liability imposed  is  or may be altogether  disproportionate  to  the territorial  connection.  In other words, if the  connection is  sufficient in the sense mentioned above, the  extent  of such  connection  affects  merely the  policy  and  not  the validity of the legislation." Applying  these  principles to the facts of that  case  this Court   came  to  the  conclusion  that   they   constituted sufficient  territorial  nexus which entitled the  State  of Bombay  to  impose  a tax on the gambling  that  took  place within  its boundaries and that the law could not be  struck down  on  the  ground of extra-territoriality.   It  is  not necessary  for  us on this occasion to lay  down  any  broad proposition  as  to  whether  the  theory  of  nexus,  as  a principle  of  legislation, is applicable to  all  kinds  of legislation.  It will be enough, for disposing of the  point now under consideration, to say that this Court has found no apparent  reason  to confine its application  to  income-tax legislation  but has extended it to sales tax and to tax  on gambling  and  that we see no cogent reason  why  the  nexus theory should not be applied to sales tax legislation. The  learned  Attorney General submits that  the  theory  of nexus  cannot  be applied to sales tax  legislation  because such legislation is concerned with a tax on the  transaction of sale,, that is to say, a completed sale and to break up a sale  into  its component parts and to take one or  more  of such parts and to apply the theory to it will. mean that the State will be entitled to impose a tax on one or more of the ingredients  or constituent elements of the  transaction  of sale  which  by itself or themselves will not  amount  to  a sale.  This argument overlooks the fact that the  provisions of  the sales tax legislation we are considering  limit  its charging  section  to  " sale ". In  order  to  attract  the charging section there must be a completed 1376 sale  involving the transfer of property in the  goods  sold from  the  seller to the buyer.  The nexus theory  does  not impose the tax.  It only indicates the circumstance in which a tax imposed by an act of the ,Legislature may be  enforced in  a  particular  case and unless  eventually  there  is  a concluded  sale in the sense of passing of the  property  in the  goods no tax liability attaches under the Act.  One  or more  of  the several ingredients constituting a  sale  only furnished  the connection between the taxing State  and  the "sale".  The learned Attorney General also said that one and the  same  transaction  of sale may be  taxed  by  different States  by  applying  the nexus theory  and  there  will  be multiple  taxation  which  will obstruct the  free  flow  of inter-State trade.  There is no force in this argument,  for Art. 286(2) of the Constitution, as it stood originally, was a complete safeguard against such eventuality and after  the amendment  of that Article and the relevant entries  in  the Legislative  List such contingency will not arise.   In  our opinion  the  arguments  advanced by  the  learned  Attorney General on this point cannot be accepted. Re. point No. 3: The learned Attorney General next  contends that in any case the nexus must be real and pertinent to the subject-matter  of taxation.  He contends that the  presence

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of the goods in Bihar referred to in the old second proviso, which  is  reproduced in el. (i) of the  second  proviso  as amended,   is   of  no  consequence.   The   production   or manufacture,  according to him, has no connection  with  and never  enters into the transactions of sale.  He  relies  on the observations of Chief Justice Gwyer in Boddu  Paidanna’s case  (1),  at  page  102, namely, that  "  a  sale  bad  no necessary  connection with manufacture or production."  That observation  was made by the learned Chief Justice in  order to emphasise the fact that the tax levied on the first  sale by the manufacturer or producer was a tax imposed on him qua seller  and not qua manufacturer or producer.  The  question whether  the fact of production or manufacture of goods  may legitimately  form a nexus between the transaction  of  sale and the taxing (1)  [1942] F. C. R. 90. 1377 State  was  not  in issue in that case at all.   It  is  un- necessary in this case to lay down any hard and fast test as to  the  sufficiency of nexus which will enable a  State  to impose  a  tax  or  to  enumerate  the  instances  of   such connection.   For  the purpose of the present,  case  it  is sufficient  to state that in a sale of goods the goods  must of necessity play an important part, for it is the goods  in which, as a result of the sale, the property will pass.   In our  view  the  presence of the goods -it the  date  of  the agreement for sale in the taxing State or the production  or manufacture  in  that State of goods  the  property  wherein eventually  passed  as a result of the  sale  wherever  that might  have  taken  place, constituted  a  sufficient  nexus between  the taxing State and the sale.  In the  first  case the  goods are actually within the State at the date of  the agreement  for  sale and the property in  those  goods  will generally pass within the State when they are ascertained by appropriation by the seller with the assent of the purchaser and  delivered -to the purchaser or his agent.  Even if  the property  in  those  goods  passes  outside  the  State  the ultimate  sale relates to those very goods.  In  the  second case the goods, wherein the title passes eventually  outside the  State,  are produced or manufactured in Bihar  and  the sale  wherever  that takes place is by the same  person  who produced or manufactured the same in Bihar.  The producer or manufacturer  gets his sale price in respect of goods  which were  in  Bihar  at the date when  the  important  event  of agreement  for  sale  was made or  which  were  produced  or manufactured  in Bihar.  These are relevant facts  on  which the  State could well fasten its tax.  If the facts  in  the Raleigh  Investment  Co.’s case (1), were  sufficient  nexus there  is no reason why the facts mentioned in  the  proviso should not also be sufficient.  Whatever else may or may not constitute  a sufficient nexus, we are of opinion  that  the two  cases  with  which we are concerned in  this  case  are sufficient to do so. Re.  point No. 5: The argument on this point is  that  sales tax is an indirect tax on the consumer.  The (1)  [1044] F.C.R. 229. 1378 idea is that the seller will pass it on to his purchaser and collect  it from them.  If that is the nature of  the  sales tax  then, urges the learned Attorney General, it cannot  be imposed retrospectively after the, sale transaction has been concluded  by  the passing of title from the seller  to  the buyer,  for  it cannot, at that stage, be passed on  to  the purchaser.   According to him the seller collects the  sales tax from the purchaser on the occasion of the sale.  On that

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time goes past, the seller loses the chance of realising  it from  the  purchaser and if it cannot be realised  from  the purchaser,  it cannot be called sales tax.  In our  judgment this  argument is not sound.  From the point of view of  the economist  and  as an economic theory, sales tax may  be  an indirect  tax on the consumers, but legally it need  not  be so.   Under  the 1947 Act the primary liability to  pay  the sales  tax,  so  far as the State is concerned,  is  on  the seller.  Indeed before the amendment of tile 1947 Act by the amending  Act  the sellers had no authority to  collect  the sales  tax  as such from the purchaser.   The  seller  could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales  tax  as such from the purchaser.   That  circumstance could not prevent the sales tax imposed on the seller to  be any  the  less  sales  tax  on  the  sale  of  goods.    The circumstance  that  the  1947  Act,  after  the   amendment, permitted the seller who was a registered dealer to  collect the  sales tax as a tax from the purchaser does not do  away with  the primary liability of the seller to pay  the  sales tax.   This  is  further made clear by the,  fact  that  the registered  dealer  need not, if he so pleases  or  chooses, collect  the tax from the purchaser and sometimes by  reason of competition with other registered dealers he may find  it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax.  This also makes  it clear  that  the  sales tax need not be  passed  on  to  the purchasers  and this fact does not alter the real nature  of the tax which, by the express provisions of the law, is cast upon  the  seller.  The buyer is under no liability  to  pay sales tax in addition to the agreed sale price 1379 unless  the  contract specifically provides  otherwise.  See Love  v. Norman Wright (Builders) Ltd. (1).  If that be  the true  view  of sales tax then the Bihar  Legislature  acting within  its  own  legislative  field had  the  powers  of  a sovereign  legislature and could make its law  prospectively as  well as retrospectively.  We do not think that there  is any substance in this contention either. For  reasons stated above none of the contentions  urged  by the learned Attorney General in support of these appeals can be sustained.  The result, therefore, is that these  appeals must be dismissed with costs. BOSE  J.-With great respect I cannot agree.  It will not  be necessary  to elaborate my point of disagreement  at  length because  this  is pro-Constitution legislation and  much  of what   we  decide  in  this  case  wilt  not  affect   post- Constitution  Acts.   Put  very shortly, my  view  is  this. First,  a State can only impose a tax on the sale of  goods. It has no power to tax extra territorially, therefore it can only  tax sales that occur in the State itself.  With  great respect I feel it is fallacious to look to the goods, or  to the  elements that constitute a sale, because the  power  to tax  is limited to the sale and the tax is not on the  goods or on the agreement to sell or on the price as such but only on the sale.  Therefore, unless the sale itself takes  place in the State, the State cannot tax. That brings me to the next point, the situs of a sale.   Now I  know that this is a matter on which many different  views are  possible but what is clear to me is that a sale  cannot have more than one situs.  It is not a mystical entity  that can be one in many and many in one at one and the same time, here,  there and everywhere all at once nor is it a  puckish elf  that pops up now here, now there and  next  everywhere. It  is  a very mundane business transaction, of  the  earth.

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earthy.   It  can  have only one existence  and  one  situs. Opinions  may  differ on where that is and how it is  to  be determined, but it is our duty, as the supreme authority  on the law of the land, to choose (1)  L.R. (1944) 1 K. B. 484. I75 1380 one of those many views and say that that is the law of  our land  and that in India the situs is determined in this  way or that and, having determined it, make it uniform for the whole country. I am conscious that the selection must be arbitrary, but for all  that,  it must be made.  Left to myself, I  would  have preferred  Chesbire’s  view  about the  proper  law  of  the contract  set  out  by him in Chapter VIII of  his  book  on Private International Law, 4th edition.  I referred to  this in  The  Delhi Cloth and General Mills Co.  Ltd.  v.  Harnam Singh(1).  I quote him again: "The  proper  law  is the law of the country  in  which  the contract  is localised.  Its localisation will be  indicated by  what  may  be called the grouping  of  its  elements  as reflected in its formation and in its terms.  The country in which  its elements are most densely grouped will  represent its natural seat." He  is not dealing with this question.  He is  dealing  with International Law and the difficulties that arise in dealing with  contracts  whose  elements are  grouped  in  different States  with different, and often conflicting, laws.  He  is developing the theme that for any one contract there  should be  but one law to govern it in all its stages and that  the most logical conclusion is to select the law of the  country in which the contract has its natural seat.  But whether his view is accepted or any of the others that he discusses,  he stresses  the  need  for one  objective  rule  and  contends strongly  that the choice should not be left to the  parties to the deal, even as I say that it should not be left to the States.   He  quotes an American Judge, at page 203  of  his book, who says that- " Some law must impose the obligation, and the parties  have nothing  whatsoever  to  do with that,  no  more  than  with whether their acts are torts or crimes." Now  none  of that is of immediate application here  but  it contains the germ of an idea and points to the embarrassment and folly of letting differing laws run amuck in governing a single  transaction.  Following up that thought I would  say that we are dealing here with a Constitution Act that speaks with one voice (1)  [1955] 2 S.C.R. 402, 418. 1381 and  authority  throughout the land.  It tells  the  various States,  as one day some international voice that will  rule the  world will say to the peoples in it, " you may do  this and may not do that " ; and " this " and " that " mean,  but one thing everywhere.  One writ runs throughout the land and it has but one meaning and one voice.  " When I say that you may  only legislate for your own territory and that you  may tax certain sales, you must realise that the meaning that  I give  to I sale’ is the meaning that my Supreme Court  shall give  to  it  and that it cannot mean  differing  things  in different  areas ; and you must realise that the only  sales that  you  may  tax  are  the ones  that  lie  in  your  own territory.  My Supreme Court shall determine where a sale is situated  and once that is determined it cannot be  situated anywhere  else.   If  it  does not  happen  to  be  in  your territory you cannot tax it." Our present Constitution did not adopt Cheshire’s view.   It

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made  another  choice.  In the old Explanation to  Art.  286 (now  repealed)  it selected the place where the  goods  are actually  delivered,  as  a direct result  of  the  sale  or purchase, as the situs.  Well, so be it.  That is as good as any  other and I would have been as happy to select that  as any of the other possibilities.  But what I do most strongly press is that a Constitution Act cannot be allowed to  speak with  different  voices in different parts of the  land  and that  a  mundane  business  concept  well  known  and   well understood  cannot be given an ethereal omnipresent  quality that enables a horde of hungry hawks to swoop     down   and devour it simultaneously all over the land:  "  some   sale; some hawks " as Winston Churchill would say. I  would therefore reject the nexus theory in so far  as  it means  that  any  one sale can  have  existence  and  entity simultaneously in many different places.  The States may tax the sale but may not disintegrate it and, under the guise of taxing  the  sale  in truth and in  fact,  tax  its  various elements,  one its head and one its tail, one  its  entrails and  one its limbs by a legislative fiction that deems  that the whole is within its claws simply because, after  tearing it apart, it finds a hand 1382 or  a  foot  or a heart or a liver still  quivering  in  its grasp.   Nexus, of course, there must, be but nexus  of  the entire  entity that is called a sale, wherever it is  deemed to  be situate.  Fiction again.  Of course, it  is  fiction, but it is a fiction as to situts imposed by the Constitution Act  and  by the Supreme Court that speaks for it  in  these matters and only one fiction, not, a dozen little ones. My point is simple.  If you are allowed to tax a dog it must be   within   the  territorial  limits  of   your   taxable, jurisdiction.  You cannot tax it if it is born elsewhere and remains there simply because its mother was with you at some point  of  time during the period  of  gestation.   Equally, after  birth, you cannot tax it simply because its  tail  is cut off (as is often done in the case of certain breeds) and sent back to the fond owner, who lives in your jurisdiction, in a bottle of spirits, or clippings of its hair.  There  is a  nexus  of sorts in both cases but the  fallacy  lies  in. thinking  that  the entity is with you just because  a  part that  is quite different from the whole was once there.   So with a sale of a motor car started and concluded wholly  and exclusively in New York or London or Timbuctoo.  You  cannot tax that sale just because the vendor lives in Madras,  even if the motor car is brought there and even assuming there is no  bar on international sales, for the simple  reason  that what  you are entitled to tax is the sale, and  neither  the owner  nor the car, therefore unless the sale is situate  in your  territory,  there is no real nexus.  And  once  it  is determined objectively by the Constitution Act or in Supreme Court how and where the sale is situate, its situs is  fixed and  cannot be changed thereafter by a succession  of  State legislatures   each  claiming  a  different  situs  by   the convenient fiction of deeming. The  only question is whether it is too late in the  day  to take  this view because of our previous decisions and  those of  the  Federal Court.  I say not, for, though there  is  a consensus of opinion that there must be a territorial  nexus and that it must not be illusory, no decision that I know of says  that  when you are given the right to  tax  a  certain thing which is a composite 1383 entity,  quite  separate  and  distinct  from  the   various

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elements  of which it is composed, you may tear  that  whole apart  and seize on some, element that is quite a  different thing from that which you are entitled to tax and hold  that the  taxable entity is in your State simply because at  some relevant  point of time one of the ingredients that went  to make up the whole but which is a separate and distinct thing from  the  whole,  as different from it  as  chalk  is  from cheese,  happened  to  be within your clutches.   I  do  not intend  to  analyse the cases on this point  because  it  is pointless  to pursue a matter that will only be of  academic interest.   All  I  will do therefore is  to  say  that  the question  of  nexus has been referred to  in  the  following cases  and  that  none of them reaches a  decision  on  this particular  point.  These  cases  are  Governor-General   in Council v. Ratleigh Investment Co., Ltd. (1), A. H. Wadia v. Commissioner  of  Income-tax, Bombay Poppatlal Shah  v.  The Slate of Madras (3), State of Travencore-Cochin v. Shanmugha Vilas  Cashew Nut Factory (4), and The Bengal Immunity  Co., Ltd. v. The State of Bihar (5). I would allow the appeals. ORDER OF THE COURT. In  view  of the opinion of the majority,  the  appeals  are dismissed with costs. Appeals dismissed. (1) [1944]-229, 247, 253. (2)  [1048] F.C.R. 121, 153, 154, 165. (3)  [1953] S.C.R. 677. (4)  [1954]S.C.R. 53, 101. (5)  [1955] 2 S.C.R. 603, 708, 768, 769. 1384