VOLKART BROTHERSMADRAS Vs. STATE OF MADRAS

JUDGEMENT

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

(2.) The Tribunal considered the question, whether these were "explanation sales", in the sense that they come within the scope of explanation to Art. 286 (1)(a). If they fell within that category, then obviously, Madras State could not tax those transactions, as those would be outside sales as far as Madras State was concerned, and they would be inside or intra-State sales only in the States where the goods were delivered for consumption. The Tribunal, apparently, was of the view, that it was unnecessary to decide the question, because whether the sales come within the scope of Art. 286(1)(a) or whether they were sales in the course of inter-State trade or commerce within the scope of Art. 286(2), the levy would be subject to Sales tax under the President's Sales Tax Continuance Order. That view itself was based upon certain observations of the learned Judges of the Supreme Court in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, and also the observations of this Court in East India Match Factory v. The State of Madras, 1954-5 STC 269, to which the Tribunal referred. We have, however, to reconsider the position in the light of the principles laid down in the Bengal Immunity Co. Ltd. v. State of Bihar, and Ram Narain v. Asstt. Commr. of Sales-tax,

(3.) The "explanation sale", that is, the sale which falls within the scope of Art. 286(1)(a) of the Constitution can itself be a sale in the course of inter-State trade, and to such a sale the ban imposed under Art. 286(2), as it stood, would also apply. If that ban is lifted, then the question would arise under the explanation to Art. 286(1)(a), which is the State that could tax the transaction, in view of the fact, that the ban on the transaction in the course of inter-State trade was lifted by the President's Sales-tax Continuance Order up to 31-31951. Then as we said, we have to decide whether it was an inside sale as far as Madras State was concerned, or whether it was an outside sale which came within the scope of explanation to Art. 286(1)(a). If they were outside sales, the President's Sales tax Continuance order would not enable Madras State to tax on those transactions, because the implied ban imposed by explanation to Art. 286(1)(a) would apply proprio vigore and could not be covered by the President's Sales-tax Continuance Order, which was concerned only with the lifting of the ban on taxing of sales in the course of inter-State trade. That was the principle explained in the subsequent decision of the Supreme Court in