JUDGMENT
Ramaswami, C.J.
1. In Miscellaneous Judicial Case No. 330 of 1955 the petitioner is an incorporated Company, manufacturing cigarettes and tobacco and having one of its factories at Monghyr. For the – financial year 1950-51 the petitioner was assessed to sales tax by the Superintendent of Sales Tax pf Monghyr by his order dated the 7th of May, 1952. By this assessment order the petitioner was assessed to sales tax to the extent of Rs. 7,46,876/1/3. The petitioner claimed that the following sales were not liable to tax: (1) sale of goods outside Bihar and consumed in the State of first destination to the extent of Rs. 3,79,01,221/11/11, and (2) sale of goods despatched outside Bihar and consumed in States other than the State of first destination to the extent of Rs. 84, 78,260/-.
The petitioner claimed exemption under Article 286(2) of the Constitution. The claim was, however, rejected by the Superintendent of Sales Tax on the ground that the inter-state sales were taxable up to the 31st of March, 1951, by virtue of the President’s Sales Tax Continuance Order, 1950. As a result, therefore, the petitioner was assessed to sales tax to the extent of Rs. 7,46,876/1/3. This amount included the tax of Rs. 7,10,185/12/-on the sale price of goods despatched outside Bihar and delivered for consumption in other States. The amount of sales tax was duly paid on behalf of the petitioner. An appeal was, however, taken on behalf of the petitioner to the Deputy Commissioner of Sales Tax against the order of assessment, but the appeal was dismissed. The petitioner filed an application in revision before the Board of Revenue, and on the 28th of August, 1953, the Board of Revenue allowed the revision application and held that the petitioner was entitled to exemption in respect of the sale price of goods despatched to places outside the State of Bihar. The relevant portion of the order of the Board of Revenue is to the following effect:–
“As regards the admitted despatches of goods outside the State after the 26th January, 1960 when the Constitution came into force, the learned lower Court has been, guided by the decision of the Board in the Bengal Timber case (Case No. 61 of 1952). But this ruling of the Board stands superseded by the subsequent decision of the Supreme Court in State of Bombay v. United Motors Co. Ltd., 1953 SCR 1069: (AIR 1953 SC 252) (A), According to the decision of the Supreme Court, no tax can be levied on despatches to places outside the State after the 26th January, 1950, and on this point the petitions are allowed, and the Sales Tax officer directed to recalculate the amount of tax payable by the assessee.”
On the 9th of October, 1953, the petitioner applied to the Superintendent of Sales Tax under section 15 of the statute for the refund of the amount of Rs. 7,10,185/12/-. Out of this amount a sum of Rs. 5,80,362/7/- was refunded to the petitioner by the respondents on the 21st of September. 1954. This amount was refunded by the respondents because they took the view that the petitioner was entitled to a refund of the amount of tax with regard to sales of goods consumed in the State of first destination; but the respondents did not refund the balance of Rs. 1,29,825/5/- because this amount of tax was with regard to goods consumed not in the State of first destination but in other States. On the 8th of December, 1953, the respondents filed an application for re
view before the Board of Revenue, but the application was rejected by the Board of Revenue on the 25th of April, 1955, holding that in view of the judgment of the Supreme Court in 1953 SCR 1069: (AIR 1953 SC 252 (A) no further clarification was really required. The petitioner alleged that the amount of tax to the extent of Rs. l,29,823/5/- has been illegally realised and that there is a statutory obligation on the part of the respondents to refund this amount of tax to the petitioner. The petitioner has, therefore, prayed that a writ in the nature of mandamus should be issued commanding the respondents to refund to the petitioner the amount of Rs. 1,29,823/57-, being the amount of tax illegally realised.
2. In Miscellaneous Judicial Case No. 331 of 1955 the material facts are of similar character. The claim of the petitioner in this case is for a refund of a sum of Rs. 20,923/13/2 which was illegally realised as sales tax. The grounds on which this claim is based are exactly identical to those in Miscellaneous Judicial Case No. 330 of 1955.
3. The argument of the petitioner is that Article 286(2) of the Constitution prohibited taxation of sales or purchases of goods in the course of inter-State trade or commerce. It was submitted that the effect of the decision of the Supreme Court in 1953 SCR 1069: (AIR 1953 SC 252}
(A) was that Article 286(1) (a) of the Constitution, read with the explanation thereto, prohibited taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for the
purpose of consumption therein. It was submitted that in a later decision in the Bengal Immunity
Co. Ltd. v. State of Bihar 1955-6 S.T.C. 446 : ‘(AIR 19S5 SC 661) (B) the Supreme Court express
ed the view that the prohibition on taxation of inter-State sales imposed by Article 286(2) had
a greater and more powerful overriding effect. It was affirmed by the majority of the learn
ed Judges of this case that the explanation to Article 286(1) (a) of the Constitution was meant
to explain what an outside sale referred to in
Sub-clause (1) (a) was and that it did not confer
or enlarge the legislative powers of the States.
It was further held that the explanation could not be legitimately extended to Clause (2) of Article 286, either as an exception or as a proviso there to. The decision of the majority of the learned
Judges was that 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 of purchases do or do not fall within the explanation to Article 285
(1) (a) It was, however, submitted by the learned Government Advocate on behalf of the respondents that the effect of the Supreme Court’s judgment in 1955-6 S.T.C. 446: (AIR 1955 SC 661) (B) has been overriden by the President’s Sales Tax
Continuance Order of 1950, which is in the following terms:
“The Sales Tax Continuance Order, 1950.
In exercise of the powers conferred by the proviso to Clause (2) of Article 286 of the Constitution of India, the President is pleased to make the following order namely,:–
1. (i) This order may be called the Sales Tax Continuance Order, 1950.
(ii) It shall some into force at once.
2. 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 of India, shall, until the thirty first day of March, 1951, continue to be levied notwithstanding that the imposition of such tax is contrary to the provisions
of Clause (2) of Article 286 of the said Constitution.”
The order of the President of course authorises the imposition of sales tax contrary to the provisions of Article 286(2) with regard to the period from the 26th January, 1950, to the 31st of March, 1951. The decision of the Supreme Court in the Bengal Immunity case (B) was pronounced on the 6th of September, 1955, and for the period from the 1st of April, 1951, to the 6th of September, ‘ 1955, the imposition of sales tax on the sales or purchases of goods in the course of inter-state trade has been validated by the Sales Tax Laws Validation Act, 1956 (Central Act No. 7 of 1956) This Act was promulgated on the 21st of March, 1956, Section 2 of this Act is to the following effect:–
“2. Validation of State laws imposing, or authorising the imposition of taxes on sales or purchases of goods in the course of inter-State trade or commerce. Notwithstanding any judgment, decree or order of any court, no law of a State imposing. or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951 and the 6th day of September, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter-State trade or commerce; and all such taxes levied or collected “or purporting to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law.
Explanation.–In this section ‘law of a State’ in relation to a State specified in Part C of the First Schedule to the Constitution, means any law made by the Legislative Assembly, if any, of that State or extended to that State by a notification issued under Section 2 of the Part C States (Laws) Act, 1950″.
On behalf of the petitioner reliance was, however, placed on the decision of the Supreme Court in Ram Narain Sons Ltd v Assistant Commissioner of Sales Tax (1955) 6 STC 627: ((S) AIR 1955 SC 765) (C) and it was submitted that neither the President’s order nor the Central Act No. 7 of 1956 could lift the ban with regard to transactions covered by the explanation to Article 286(1) (a) of the Constitution. In my opinion, the argument addressed on behalf of the petitioner is fallacious, and the decision of the Supreme Court in (1955) 6 STC 627: ((S) AIR 1955 SC 765) (C) is of no assistance to the petitioner. The view taken by the Supreme Court in 1955-6 S. T. C. 627: ( (S) AIR 1955 SC 765) (C) was that the ban imposed by the several clauses of Article 286 on the taxing powers of the States” are independent and separate, and each one of these bans has to be separately surmounted before the State Legislature can Impose a tax on the transactions of sale or purchase of goods.
It was further held by the Supreme Court that the Sales Tax Continuance Order of the President had the effect of lifting the ban under Article 286(2) and cannot be projected into the sphere of any other ban imposed by other clauses of Article 286. Once it is determined that the situs of the sale is outside the State by virtue of the explanation to Article 286(1) (a), the ban imposed by that Article attaches to that transaction and that ban cannot be lifted by the President’s order. That is the ratio of the decision of the
Supreme Court in 1955-6 S. T. C. 627; ( (S) AIR 1955 SC 765) (C). But the ratio of that decision has no application to the present case. We are concerned in the present case with two categories of sales. (1) Sales of goods despatched outside the State of Bihar and consumed in the State of first destination, and (2) sales of goods despatched outside the State of Bihar and consumed in States other than the State of first destination. With regard to the first category of sales, two bans or restrictions are attracted.
The first ban is imposed by the explanation to Article 286(1) (a), because it fixes the situs of such sales outside the State of Bihar by means of a legal fiction; and because such sales are deemed to be outside sales, the State of Bihar has no legislative authority to tax such sales. The second ban is imposed by Article 286(2) against taxation of goods in inter-State commerce or trade. The second category of sales attracts only one ban, namely, the ban imposed by Article 286(2), and not the ban imposed by the explanation to Article 286(1) (a). It follows, therefore, that the second category of sales has only one hurdle to surmount, namely, the hurdle imposed by Article 286(2), and that hurdle has-been surmounted for the period in question by the President’s order and, by Central Act No. 7 of 1956. As regards the first category of sales, 1955-6 S.T.C. 627: ( (S) AIR 1955 SC 765) (C) clearly demonstrates that there are two hurdles to surmount, and the President’s order of 1950, or the Central Act No. 7 of 1956, are ineffectual and inoperative, because the ban imposed, by the explanation to Article 286(1)(a) has not been surmounted: In the present case, however, the petitioner has already been given relief by the Sales Tax Department with regard to the first category of sales.
The application of the petitioner in both the Miscellaneous Judicial Cases, Nos. 330 and 331 of 1955, seeks relief with regard to the second category of sales. The principle of 1955-6 S. T. C. 627: ((S) AIR 1955 SC 765) (C) has, therefore, no application because that was a case dealing with the first category of sales. To put it in other words, there is only one ban to be surmounted in the present case, namely the ban imposed by Article 286(2) of the Constitution, and that ban has been surmounted by the President’s order and the Central Act No. 7 of “1956. It follows, therefore, that the imposition of sales tax by the authorities on the second category of transactions is legally valid and the petitioner is not entitled to a refund of the amount of sales tax paid either in Miscellaneous Judicial Case No. 330 of 1955 or in Miscellaneous Judicial Case No. 331 of 1955.
4. The argument was presented on behalf of the petitioner that even as regards the second category of sales the State Legislature was not competent to impose sales tax because “there was no sufficient territorial nexus”. I am unable to accept this argument as correct. It is material in this connection to refer to paragraph 7 of the agreement between the petitioner company and the Imperial Tobacco Company (India) Limited. This portion of the agreement is quoted in the order of assessment at page 16 of the paper-book. Paragraph 7 of that agreement reads as follows:
“The manufacturing Company (Tobacco Manufacturers India) shall consign all cigarettes and tobacco pursuant to orders placed by the Brand-owing Company (packed ready for the trade) in accordance, with the directions of the
Brand-owing Company. The property in such cigarettes and tobacco shall pass from the manufacturing Company to the Brand-owing Company when given cigarettes and tobacco are delivered to the carrier at the manufacturing Company’s factory for despatch to the Brand-owing Company or to such other persons as the Brand-owing Company may direct.”
It is clear that the cigarettes and tobacco are manufactured by the petitioners in the factory at Monghyr, and the title to the property also passes from the manufacturing Company to the purchaser Company at Monghyr as soon as the goods are delivered to the carrier. It also appears from the assessment order that the order for the supply of cigarettes and tobacco to the different depots of the Imperial Tobacco Company are received at Monghyr and the sale price of these goods are credited to the account of the Imperial Tobacco Company at Monghyr.
It is difficult, therefore, to accept the argument of the petitioner that there is no sufficient territorial nexus and there is no legislative Jurisdiction to tax. On the contrary I am satisfied that the passing of title and the delivery of the goods are the moat important elements in the transaction of sale; and as these elements took place within the territorial limits of Bihar, there is sufficiency of territorial nexus. It was then argued, on behalf of the petitioner that the nexus theory has been completely negatived by the Supreme Court in (1955) 6 STC 446: (AIR 1955 SC 661) (B). I do not think this argument is right. In 1953 SCR 1069: (AIR 1953 SC 252) (A) the doctrine of nexus was expressly applied by the Supreme Court to a Provincial statute imposing sales tax.
It was held by the Supreme Court in that case that Article 286 (1) (a) of the Constitution, read with explanation thereto and construed in the light of Article 301 and Article 304, prohibited the taxation of sales involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein. It was affirmed by the Supreme Court that the latter State had authority to tax such sales or purchases, not by virtue of the explanation to Article 286 (1) but by virtue of Article 246 (3), read with entry 54 of List II of the Constitution.
It is true that in (1955) 6 STC 446: (AIR 1955 SC 661) (B), the Supreme Court reversed by a majority its previous decision in 1953 SCR 1069: (AIR 1953 SC 252) (A) so far as the interpretation of Article 286 (1) (a) and Article 286 (2) of the Constitution was concerned. It was held by the majority of the learned Judges that Article 286 (2) prohibited the imposition of any tax on sales and purchases of goods even though the goods had actually been delivered as a direct result of such sale or purchase for the purpose of consumption in the taxing State But the majority of the learned Judges did not express any opinion as to the correctness of the earlier decision of the Supreme Court in 1953 SCR 1069: (AIR 1953 SC 252) (A) on the doctrine of nexus.
The authority of the previous decision of the Supreme Court in 1953 SCR 1069: (AIR 1953 SO 252) (A) on this point has, therefore; not been affected or in any way shaken by the subsequent decision of the Supreme Court in (1955) 6 STC 446: (AIR 1955 SC 661) (B). It is also important to notice that the doctrine of nexus was applied by the Supreme Court in another sales tax case, Poppatlal Shah v. State of Madras, 1953 SCR 677: (AIR 1953 SC 274) (D). That was a decision of a unanimous Court of five Judges, namely, Patanjali Sastri C.J., Mukharjea, Vivian Bose, Ghulam Hasan and Bhagwati JJ.
In that case, the appellant company received orders in its, Madras office from Calcutta merchants for supply of certain articles. These articles were purchased in the local markets and they were despatched to Calcutta by rail or steamer railway receipts and bills of lading were taken in the name of the appellant company and so also were the insurance policies and they were sent to the Company’s bankers in Calcutta who delivered the same to the consignees on payment of prices and other charges. It was argued before the Supreme Court that in these circumstances the sale transactions were not liable to be taxed under the General Sales Tax Act of Madras. The argument on behalf of the appellants was that sales tax imposed would be extra-territorial in its operation, and, therefore, ultra vires of the provincial legislature.
It was contended on behalf of the appellants that the provincial legislature was constitutionally incompetent to enact a legislation of this character which according to the interpretation put upon it by the High. Court was capable of operating on sale transactions concluded outside the province of Madras. This argument was rejected by the supreme Court which expressed the view that the provincial legislature could impose tax on transactions concluded outside the province, provided there was sufficient and real territorial nexus between such transactions and the taxing province.
5. Counsel for the petitioner also put forward the arguments that only the consuming State had the authority to impose sales tax by virtue of the explanation to Article, 286 (1) (a) and that no other state except the consuming State may impose sales tax, even though such ingredients of the sale transaction like passing of title, making of contract and delivery may take place within the frontiers of that State. I think the argument has been put in an extravagant form and suffers from an obvious fallacy. The argument proceeds upon the assumption that the explanation to Article 286 (1) (a) is a source of power of the taxing State. I think that assumption is not correct.
The grant of taxing power under the Constitution to the State is under Article 246 (3) read with entry No. 54 of List II of the seventh schedule. The provision of Article 286 (1) (a) is only in the way of restriction or fetter on the legislative power of taxation. The affirmative grant of power is contained in Article 246 (3) and in entry No. 54 of List II of the Seventh Schedule. I think that the language of Art 246 (3) and of entry No. 54 is wide enough to support the taxation of the petitioner in the present case with regard to the second category of sales.
5. I shall then deal with the contention of the petitioner that the Board of Revenue granted exemption with regard to both the class of sales by the order dated the 28th of August, 1953 allowing the revision application. It Was submitted that the order of the Board of Revenue was final and it wag the duty of the respondents to comply with the terms of the order of the Board of Revenue, It was pointed out that the petitioner had applied to the Board of Revenue for the grant of relief with regard to the entire sum of RS. 7,10,185/127-.
This amount of tax Included both the categories of transactions, namely a sum of Rs. 5,80,363/7/- with regard to the first category of transactions, and a sum of Rs. 1,29,823/5/- with regard to the second category of transactions. By
his order dated the 28th of August 1953, the Board of Revenue allowed the applications and directed the Sales Tax Officer to recalculate the amount of tax payable by the assessee. An application for review was filed on behalf of the respondents and on the 25th of April, 1955, the Board rejected the application, holding that “no further clarification was really required in view of the specific reference to the judgment of the Supreme Court in the United Motors’ case (A).”
It was submitted on behalf of the petitioner that the order of the Board dated the 28th of August, 1953, shows that the revision application was allowed into to and an exemption of tax was given with regard to all sales outside Bihar. The argument of the respondents, on the contrary, is that the Board of Revenue intended to give the petitioner relief only with regard to the first category of transactions, and not with regard to the second category of transactions. It was pointed out on behalf of the respondents that the Board of Revenue has expressly referred to the decision of the Supreme Court in 1953 SCR 1069: (AIR 1953 SC 252) (A) and the reference to that decision would be meaningless unless the Board intended that relief should be given to the petitioner only with regard to the first category of transactions.
I must say that the order of the Board of Revenue is ambiguous; but I shall assume in favour of the petitioner that the Board intended to give the petitioner relief with regard to both the categories of sales. Even upon that assumption I think that the petitioner cannot apply to the High Court for the grant of a writ of mandamus for the purpose of refunding the tax. The real question in this case is not whether the respondents should be asked to comply with the order of the Board of Revenue; the real question is whether the tax in question has been illegally realised by the respondents, and whether the petitioner is entitled to a refund of the amount of tax.
If the imposition and the realisation of tax is not illegal, there is no legal duty cast upon the respondents to refund the tax realised. Dr. Sultan Ahmad contended on behalf of the petitioner that even if the Board’s order was illegal, the petitioner was entitled to pray to the High Court for the grant of a writ of mandamus to compel the State of Bihar to obey the illegal order of the Board of Revenue.
This proposition is surely not correct; and as I have said, the real question in this case is whether the imposition of tax upon the petitioner was illegal and whether there is a duty cast upon the respondents to refund the amount of tax illegally realised. I have already given reasons for reaching the conclusion that the sales tax authorities were legally entitled to realise sales tax with regard to the second category of transactions. It follows, therefore, that the petitioner is not entitled to a writ of mandamus compelling the respondents to refund the amount of tax realised with regard to the second category of transactions.
7. For the reasons I have expressed, I hold that there is no case made out on behalf of the petitioner for the grant of a writ in the nature of mandamus against the respondents. In my opinion these applications fail and must be dismissed with costs. There will be a consolidated hearing fee of Rs. 400/- for both the Miscellaneous Judicial Cases Nos. 330 and 331 of 1955.
Raj Kishore Prasad, J.
I agree.
