DIALDAS PARMANAND Vs. P S TALWALKAR

JUDGEMENT

(1.) THIS petition challenges the validity of Act VII of 1956 being an Act passed by Parliament. The petitioner carries on business of dealing in curios, novelty goods, piece goods etc. at Bombay and he is a registered dealer under the Bombay Sales Tax Act 1953. For the period commencing from 1st April 1954 to 31st March 1955 the petitioner elected as and from the 23rd February 1955 to pay tax on his sales instead of tax on his purchases. In the course of assessment for this period he was taxed on his purchases from persons outside the State of Bombay from the 1st April 1954 to the 23rd February 1955 on the sum of Rs. 2,55,534-5-6. The petitioner's contention was that these purchases were not liable to tax under the Sales Tax Act as they were made in the course of inter-state trade or commerce.

(2.) IN order to understand the contentions of the parties, it is necessary in the first place to look at the provisions of the Constitution and to consider what are the powers of the State Legislature and of Parliament with regard to imposing tax on sales and purchases. Turning first to the legislative competence of Parliament, we find entry 42 in List I of the Seventh Schedule which deals with Inter-State trade and commerce. Turning to List II which deals with the legislative competence of the State Legislatures, under entry 54 power is conferred upon the State Legislature to legislate with regard to taxes on the sale or purchase of goods other than newspapers. Article 286 imposes a restriction on the legislative competence of the State Legislature and the restriction falls under four different heads. The State Legislature is prevented from imposing tax on the sale or purchase of goods where such sale or purchase takes place outside the State, or in the course of the import of the goods into, or export of the goods out of, the territory of India, and from imposing 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, and from imposing 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. It will be noticed that the restriction. with regard to taxing sale or purchase which is out- side the State and a sale in' course of import of goods into, or export of the goods out of, the territory of India, is absolute. With regard to a sale which takes place in the course of inter-state trade or commerce,, the restriction is not absolute because Clause (2) of Article 286 enables Parliament by law to provide otherwise. Therefore, if Parliament removes the restriction, or, in the language of the Supreme Court, removes the ban, then the legislative competence of the Legislature may extend even to tax sales which take place in the course of inter-state trade or commerce. With regard to essential goods also the restriction is not absolute because the Legislature may tax goods which are essential for the life of the community, and if the bill has been reserved for the consideration of the President and has received his assent, then the tax can be validly imposed. Reference may be made to the Explanation to Article 286 which,, explanation, as the explanation itself says, is intended for the purpose of Sub-clause (a) and that explanation introduces a legal fiction and by that legal fiction a sale is 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. Therefore, if we find a State in which goods have been delivered for consumption then by reason of this explanation and by reason of the legal fiction introduced into this explanation, that State, which might be called, as has been called by the Supreme Court, die delivery State, becomes the State in which the sale is deemed to have taken place.

(3.) NOW, the construction of this explanation led to considerable difficulties and a case went up to the Supreme Court from 'this High Court where the Supreme Court had to consider the 'effect of this explanation, and the decision of the Supreme Court is to be found in State of Bombay v. The United Motors (India) Ltd; 1953 SCR 1069: (AIR 1953 SC 252) (A) What the Supreme Court in effect did was to apply the explanation not merely for the interpretation of Article 286 (1) (a)' but also for the purpose of interpretation of Clause (2) of Article 286, and the view taken was that if a sale was within the State, by reason of the explanation that sale was not affected by the restriction contained in Clause (2) of Article 286. To use the language of the learned Chief Justice (at p. 1085 of SCR) (at p. 258 of AIR);