THE BENGAL IMMUNITY COMPANY LIMITED v. Tire Stale of Bihar

In a foot-ncte to this judgment the learned Judge set out a large number of the earlier In another dissenting decisions had been overruled. in David Burnet v. Coronado Oil & Gas judgment the same learned Judge, after quoting a Company(1) passage from judgment of Mr. Justice· Lurton in Hertz v. Woodman( 2 ) proceeded to say: is usually "Stare decisis in cases involving the wise policy, because in most matters it is more important that the appli cable rule of law be settled right. Compare National Bank v. Whitney, 103 U.S. 99; 26 L.Ed. 443-444· This is commonly true even where the error is a matter of rnncern, provided correction can be had by seriom legislation. But the Federal Con stitution, where correction legislative action this Court has often OV('T is practically impossible, ruled its earlier decisions. The:: Court bows lessons of experience and the force of better reasoning recognising that the process of science~, is appropriate also the physical fruitful in the )udicial function". judgment in Mark In his Grave.< v. People of tl1e State of Nefll York(3) Frank forter, J. observed : separate but concurring trial and error, through "Judicial exegesis is unavoidable with reference to an act like our Constitution, drawn in many parti cular~ with purposed vagueness so as for the unfolding future. But the ultimate touchstone of constitutionality itself and not the Constitution (I) 285 U.S. 393; 76 L.Ed. 815. (2) 218 U.S. 205, ·212; 54. L.Ed. 1001, 1005. (3) 306 r .S. 466; 83 L.Ed. 927. 1955 The Be111.al Immunity Company Limited ... The StaU ef Bihar and othtrs Das Actg. C.J. 626 SUPREME COURT REPORTS l 1955] what we have said about it". In this case two previous overruled and two more were impliedly overruled. d·~cisions were expressly to hear appeals the contention that "Their Lordships are unable to hold in such an extreme form We now come to the Privy Council which, prior to In a case about Compensation to in law, and without examination, they consi<lered the commencement of our Constitution, was highest Court of Appeal Indian High Courts. Civil Servants('), in repelling Board was bound to follow an earlier decision whether it right or wrong the Marquess of Reading said : is estab.. proposlt:ion stated It may well be said the Board would lished. long before disturbing a solemn decision by hesitate a prewus Board, which raised an identical or even a similar issue for determination; but for the proposi tion that the Board is, in all circumstances, bound follow a previous decision, as it were, blindfold, In are unable in all inflexible other words, no circumstances to be applied, has been laid down". In Temperance Federation(') Viscount Simon stated practice of the Board in the following terms : the Attorney-General of Ontario v. The Canada to discover any adequate authority. rule, which the Board, as instance, on more "Their Lordships do not doubt that in tendering humble advice to His Majesty, they are not absolutely bound by previous <lecisions of is the House of Lords by its own judgments. In ecclesiastical than one occasion the appeals, for Board has tendered advice contrary a previous case, which further historical research has to have been wrong. But on constitutional the Board questions it must be seldom would depart from a previous decision which it may be assumed will have been acted upon both by Gov ernments and subjects". Finally, in Phanindra Chandra Neogy v. The King(') Lord Simonds said at p. 88 : that given indeed (I) L.R. 1929 A.G. 242; A.LR. 1929 P.C. B4, 87. (2) [1946] 50 c.w.N. 535; A.LR. 1946 P.c. 88. (3) L.R. 76 I.A. IO; 1939 Dom. L.R. 87 (P.C.). 2 S.C.R. SUPREME COURT REPORTS 627 "Theiv Lordships then have before them a deci sion upon facts which in no material respect differ from those of the present case. Even so, it is, as they re.· cognise, competent for them humbly to tender advice inconsistent with a previous decision, to His Majesty it can only be in most exceptional circum- though that such a course should be taken ......... . stances Recognising argument and, having done so, see no reason to doubt the correctness of the the validity of conclusion in Gill's case, and they do not necessary to repeat what was said there". they have heard the reasoning of the possibility, 1955 The Bmgal Immunity Company Limitei v. The State of Bil.ar and othns Das Actg. C.J. in mind there or bv if anv, made by longer apply India. The error, the decisions hereinbefore mentioned, if not corrected bv right by In considering the applicability of the principles laid should be borne that the English decisions may well have been influenced by considerations which the circumstances prevail the Court of if any, of ing in Appeal in England, may be corrected bv the House of Lords or eventually by Parliament by a simple majority. The mistakes, the High itself in a Court of Australia, the Privy subsequent case, could be Council when appeals were appropriate legislativ~ authority. An error made by the Privy Council can easily the House of Lords or be rectified by Parliament by a simple majority by an in a country governed by a amending statute. But federal constitution, such as the United States of America and the Union of India are, it is bv no means easy to amend the Constitution if an erroneous inter pretation is put upon (See article 368 of our Constitution). An erroneous interpretation the Constitution may remain unrectified perpetuated or may at any for a considerable public well being. The considerations adverted to in the decisions of the Supreme Court of America quoted above are, therefore, apposite and apply in full in determining whether a previous decision of Court should or. should not he disregarded or over in our Constitution which ruled. There the great detriment this Court. is nothing conceivably it by 1955 The Benial Immunity Company LimiUd v. The State of Bihar and others Das .~ctg. C. J. 628 SUPREME COURT REPORTS [195SJ interests of the general prevents us from departi11g from a previous dcci, ion if we are convinced of its error and its baneful effect !41 which lays down that the law declared bv this Court territory of shall be binding on all Courts within the India quite obviously refers the Govern Court. The corresponding provision of ment of India Act, 1935 also makes Courts contemplated are the Subordinate Court<. to Courts other rhan the public. Article it clear relating There are the hearing of Judge did not accept several circumstances maiority decision of the Court in The Stale of Bomhav v. The United Motors (India) Ltd. (supra) to which reference must be made. That appeal was heard im the appeal r.ported mediately before as The State of Travqncore-Cochin v. Shanmugha Vilas Cashew Nut Factory(') commenced. The two appeal< were, as ·a matter of fact, heard one after the other judgments were reserved in both of them. The the Benches was. however, different. constitution of In the first appeal one of the Judges of that Bench expressly differed from the majority decision and an<> ther learned the majority d~ci­ In the second appeal one Jud~e sion on many points. of the Bench, who was not a party to the fir>t appeal, differed from the majoritv decision in the first apl"t':ll. The result, the majority decision was definitely differed from by two Judges. Bhagwati J. has now in the judgment he has written in the pre sent appeal which we have had the advantage of read the matter and on further reAection ing reconsidered the pre<ei)t he thinks that issue was erroneous and he now agrees substantially with the view of article 286(1 )(a) read with the Ex planation and article 286(2) which was expressed to above and judgment< which is adopted in the iudgment now being delivered then ex in the present appeal. pre5'ed the views he is now doing, ther> the maioritv in the Bomhav appeal would haYe been 3 to 2 and if we add judicial opinion would Travanrore-Cochin appeal 1hen If Bhagwati J. had the maiority decision on the oninion of therefore. was the dissenting two minority referred (I) (1954] 5 S.C..R. 53. 1955 The Bengal Immunity Company' LimitLd v. The State of /Jiha• and others Das Actg. C. J. 2 S.C.R. SUPREME COURT REPORTS 629 In this juxtaposition have been divided 3 to 3. difficult to give the majority decision in the Bombay appeal that amount of sanctity and reverence which is usually attributed to an unretracted majority deci sion of this Court. a far reaching as it affects It authorises the levying of a tax by to be unsupportable. To follow The majority decision does not merely determine the rights of the two contending parties to the Bom bay appeal. Its effect rights of all consuming public. position and the State on an constitutional provision which interpretation appears . to us interpretation will result in perpetuating what, with humility we say, is an error and in perpetuating a tax burden imposed on the people which, according to our considered opinion, and wholly un 1s manifestly pronouncement authorised. is not an ordinary declaring se. taxing power of the States as against the consuming public gene If the decision is erroneous, as indeed we con rally. to protect the illegal tax burdens which the States them against are seeking to impose on that erro the strength of neous recent decision. It involves an adjudication on the the rights of two private individuals to be, we owe it to that public It The third circumstances is that there appears to be if not inconsistency, in the majority report itself. At p. 1084 of some vagueness, judgment the majority judgment says : the authorised 'for individual ''The expn:ssion the purpose of consumption in that State' must. in our opinion, be understood as having reference not merely pori.er or purchaser but as contemplating distribution the State. to consumers in general within eventually delivery from Thus all buyers within the State out-of-State sellers, except for re-export out of the State, would be within the scope of the the State on Exolanation and liable to be taxed by their inter-State This passage seems huvcrs fa\lin~ within the Explanation who are liable to be taxed by what has been called in the discussion those buying transactions". to suggest is only 1955 The Bengal lmmwtity Company Limited v. The State of Bihar and others Das Aclg. C. J. 630 SUPREME COURT REPORTS [1955] judgment and the delivery State. According before us as passag<, r<ad by itself, the out-of-State sellers are not considered liable to be taxed on the sales. The whole trend of the rest of the majority actuai decision therein run counter to this conclusion, the out-of-State sellers were, by reason of Explanation, subjected taxing power of to the delivery State. Indeed, Bihar is claiming to tax seller, by appellant company, the majority decision and all other States virtue of judgment intervening and supporting Bibar in that way and none of the quoted passage as containing the actual ratio decidendi of the majority judgment. This confusion, we consider, also a cogent reason for re-examining that decision. out-of-the-State them accepts the doctrine of Reference is made to reverse our previous decision except finality of judicial decisions and it is pressed upon us that w< should not cases where a material provision of law has been overlooked or where the decision has proceeded upon the mistaken assumption of the continuance of a re that we should not pealed or expired statute and differ from a previous decision merely because a con It is need trary view appears to us to be preferable. lightly dissent to say that we should not from a previous pronouncement of this Court. Our power of review, which undoubtedly exists, must be exercised with due care and caution and onlv advancing surrounding circumstances of each case brought our notice but we do not consider it right to confine our power within rigidly suggested If on a re-examination of the question we before us. ·come to the conclusion, as indeed we have, that the previous majority decision was erroneous then it will be our duty to say so and not to perpetu learned Judge who ate our mistake even when one was party to the previous decision considers correct on further reflection. We should do so all the more readily as our decision is on a constitutional ·question imposed and our erroneous decision has ·illegal tax burden on the consuming public and has the public well being in the light limits as plainly 1955 The Bengal lmmUTi.ity Company Limited v. The State of Bihar and otlters Das Actg. C. ]. 2 S.C.R. SUPREME COURT REPORTS 631 Further, attempts. the doctrine of founded are sound to public inconvenience or hard otherwise given ship, for it is by no means easy to amend the Coristi tution. Sometimes frivolous attempts may be made the reasons to question our previous decisions but on which our decisions are will by themselves be sufficient safeguard against such frivoious aecisis has hardly any application to an isolated and stray decision of .the Court very recently made and thereon. The problem before us does not involve overruling a the question as series of decisions but oniy involves follow to whether we should approve or disapprove, as a recent previous decision or overrule, a very the doctrine of stare decisis precedent. is not an inflexible rule of law and cannot be per mitted the general welfare of the public or a considerable section thereof. followed by a series of decisions based to perpetuate our errors In any case, the detriment the economy of It is pointed out that all the States are realising sales tax in respect of sales or purchases of goods for consump where the goods are actually delive.red tion within their respective boundaries on of our previous decision and a reversal of that deci the States and will sion will upset indeed render them liable to refund moneys already ·collected by them as taxes. This circumstance, pressed upon us, should alone deter us from differing from the previous decision. We are not impressed by this argument. Court that moneys paid under a mutual mistake of interpretation of a statute or the CQnstitution must necessarily be If, as con fundable as money had and tende<l, moneys so paid are States cannot than a private individual in similar· circumstances could do. Finally, if the State economy is upset the appeal must be itself has Parliament which ample power to make suitable It has not yet been decided by article 286(2) legislation. induced by a wrong judicial complain any more received. refundable The impugned decision is a recent one. The judicial opinion was divided, if not evenly balanced. One of 1955 The B1ragal lmmunitv Compan_;~ Liinited v. The State of Bif1ar and others Das Actg. C. ]. ' r 632 SUPREME COURT REPORTS 11955] reqnires a interpretation of to be somewhat the legislative process the Constitution which the four Judges who formed the majority has revised his opinion as stated above. The decision on the point inconsistent and noted above is, at any rate, not quite clear. It has encouraged the imposition of tax burdens on the consuming public on appears to us to be plainly erroneous. It has given rise to con siderable inconvenience and hardship to business peo ple who have not acqniesccd in it by any means. To is difficult, rectify the error by for a constitutional amendment specified majority which may not always be available and if it it will involves an amendment of the legislative require the consent of a requisite number of the States which, in this instance, cannot reasonably be expected. is precisely a case In the premises, we think that it the meaning, scope and wher7, in the public effect of article 286 should be re-examined afresh the light of the fresh arguments now advanced before us and the experience we have since acquired. In our judgment the majority deci.sion in The State of Bombay v. The United Motors (India) Ltd. (supra) is, in the circumstances alluded to; open to review and we are to re-examine article 286 in order to ascertain entitled its true meaning, scope and effect so far as it is neces the purposes of this appeal and we proceed sary for on this basis. interests, It is a sound rule of construction of a statute firmly far back as 1584 when established in England as Heydon's ·case(') was decided that- ". . . . . . . . . . . . . . . . for the sure and true interpretation of all Statutes they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered:- in general (be ht. What was the common law before the mak ing of the Act., 2nd. What was the mischief and defect for which the common law did not provide., 3rd. What remedy to cure the disease of the Parliament hath resolved the Common and appointed wealth., and (I) 3 Co. Rep. 7a; 76 E.R. 637. 2 S.C.R. SUPREME COURT REPORTS 633 4th. The true reason of continuance of to suppress subtle the remedy ; and then the office of all the judges is always to make such con the mischief, and advance struction as shall suppress inventions the remedy, and the mischief, and pro evasions privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico". In In ,re Mayfair Property Company( 1 ) Lindley, M.R. it was in 1898 found the rule "as necessary now as when Lord Coke reported Heydon's case". In Eastman Photographic Material Company v. Comptroller General of Patents, Designs and Trade Marks(2) Earl of Hals bury re-affirmed the rule as follows : 1955 The Bncgal Immuniry Campany Limilt4 v. The State of Biliat' and othws Das Actg. C. J- legitimate is not only "My Lords, it appears to me that to construe the Statute in question, highly convenient to refer both to the former Act and to th() ascertained evils to which the former Act had given rise, and to the later Act which provided three being compared I cannot doubt remedy. These the conclusion". It appears to us that this rule is equally applicable to the construction of article 286 of our Constitution. the provisions of that In order to properly interpret article to consider how the Constitu the matter tion came into force, what law did not provide and the remedy which has been provided by the Constitution to cure that mischief. immediately before therefore, necessary the mischief was the old is, The position with respect to taxation on sales or the country had purchases of goods that prevailed better be stated in the language of Patanjali Sastri, C. J. who delivered the majority judgment in the State of Bombay v. The United Motors (India) Ltd. (supra). After expressing the view, based on the authority of the Wal/ace Brothers' Case(3) that in the case of sales tax, it · was not necessary that place within the territorial limits of the State in the the ingredients of a sale, like the agree- sense that all the sale should (!} L.ll. [1898] 2Ch. 28, 35. M L.R. [1898] A.C. 571, 576. (3) 1948 F.C.R. I. . 3-84 S. C. India/59 634 SUPREME COURT REPORTS [1955] 1955 The Bmga.l Immunity Co1t1p«ny LimiUd v. Tilt Slat• of Bihar and others D•s Actg. C. ]. speaking, that, broadly territorial connection with ment to sell, the passing of title, delivery of the goods, etc., should have a State and local activities . of buying and selling carried on in the State in relation to local goods would be a sufficient basis to sustain the State, providecj of course the taxing power of that such activities ultimately resulted in a concluded sale to be taxed, learned Chief Justice proceeded to say:- terms by India Act, the Provincial the basis of "In exercise of the legislative power conferred upon them in substantially similar the Govern ment of 1935, Le~is­ respective latures enacted Sales Tax Provinces, acting on the principle of territorial nexus referred to above; that is to say, they picked out one ingredients constituting a sale and or more of made them legislation. Assam and Bengal made, among other thing~ the actual existence of the goods in the Province at the time of the contract of sale the test of taxabilitv. In Bihar the production or manufacture of the goods the Province was made an additional ground. A net the Central of the widest range perhaps was laid in Provinces and Berar where goods were actually "found" the Province at any time after the Contract of Sale or Purchase in respect thereof was made. Whether territorial nexus put forward as the basis of the in each case would be sustained as sufficient was a matter of doubt not ,.having been tested in a Court of law. And such claims to taxing power led taxation of the same transaction by Provinces and cumulation of the burden falling ultimately on consummg the Constitution situation public. This restricting the taxing ·power makers the problem of inter-State elements, on sales or purchases the consumer. At and alleviating the tax burden on the same time they were evidently anxious to main the State power of imposing non-discriminatory taxes on goods from other States, while upholding the economic unity of India by providing trade and commerce. it was sufficient if the freedom of inter-State taxing power to multiple involving imported 1955 Thi Bengal Immunity Company Limited v. T ht State of BibMr Mruf ot/ierJ D•s .dctg. C. J. 2 S.C.R. SUPREME COURT REPORTS 635 In their attempt to harmonise and achieve these some what conflicting objectives, they enacted articles 286, 301 and 304". Leaving out, for the moment, the question as to whe ther articles 301 and 304 have any bearing on question of construction of article 286, as to which we entertain a contrary opinion, the above passage quite adequately depicts the oictml". of chaos and confusion that was brought about trade or com in inter-State merce by indiscriminate exercise of taxing power by the different Provincial Legislatures founded on the respec theory tive Provinces and this mischief of multiple be taxed. Tt was taxation and to preserve the free inter-State trade or commerce in regarded as one economic unit without any provincial barrier the Constitution makers adopted article 286 m the Constitution which runs as follows :- impose, or (1) No law of a State shall authorise the imposition of, a tax on the sale or pur chase of goods where such sale or purchase place- the sales or purchases sought to cure the Union of India territorial flow of between "286. ( a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. to have Explanation.-For the purposes of sub-clause (a), a sale or purchase shall be deemed place in the State in which the goods have actually been delivered as a direct result of such sale or pur that State, notwithstanding the fact the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. for the purpose of consumption in that under (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise sale or purchase of any goods where such sale or purchase trade or takes place commerce: the imposition of, a the course of inter-State tax on Provided that the President may by order direct 1955 Tire Bmg•I /111munil)' ComjJtmJ Limited v. The State of Bihat tJNl t1lhlrs Das)Actg. C. J. 636 SUPREME COURT REPORTS [1955] that any tax. on the sale or purchase of goods which was levied by the Government of any State being lawfully this Con immediatdy before stitution imposition of such tax is contrary to the provisions of this clause, continue levied until th~ thirty-first day of March, 1951. the commencement of shall, notwithstanding to be (3) No law made by the Legislature of a State imposition of, a tax on imposing, or authorising the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the it has life of the community shall have effect unless been reserved the President and has received his assent". the consideration of Article 286 is in Part XII of the Constitution which deals with "Finance, Property, Contracts and Suits". It is one of the several articles which are grouped the heading "Miscellaneous Financial Provi sions" in Chapter I of It is to be noted that Part. that it has not found ·a place in Part XI, Chapter I whereof deals with "Legislative Rdations" including "Distribution of Legislative Powers" between Parlia ment and the Legislatures of States. The marginal note to article 286 is "Restrictions as to imposition of tax on the sale or purchase of goods'', which, unlike in Acts of the British Parliament, the marginal notes is part of the Constitution as passed by the Consti tuent Assembly, prima to the meaning and purpose of the article. Apart from the marginal note, language of that article it abundantly clear object restrictions the States with respect on the sales or purchases of goods. called that section 100(3) of the Government of India Act, 1935 read with Entry 48 of List II of the Seventh Schedule to that Act gave power to the Provincial Legislatures to make laws with respect to "Taxes on sale of goods and on advertisements". Pursuant t::> the Fr<'~ the. legislative power thus conferred on them vincial Legislatures enacted Sales Tax Acts for thei1 in most of those Acts respective Provinces. Althougli facie, furnishes some clue legislative imposition of It will be the very 1955 T!w B,,,,,,l J,,,mlllli? Company l1rniU' v. The Stall of Bifuzr &'1111· ol/rll'I -DtU kit· C. J. 2 S.C.R. SUPREME COURT REPORTS 637 resulted to make transfer of the majority "Sale" was first defined as meaning the passing of property in the goods, so as the property within the Province the principal . basis the imposition of the tax, yet by means of Expla nations to that definition, those Acts gave extended meanings to that word and thereby enlarged the scope imposition of ux on the sales of their operation. The the basis of a very slight or purchases of goods on in what has territorial connection or nexus been graphically described by Patanjali Sastri, C.J. in the passage quoted above from ment in the Bombay appeal. This imposition of mul tiple taxes on one and the same transaction of sale or purchase was certainly calculated to hamper and dis courage free flow of trade within India regarded as one economic unit. This undesirable state of affairs had to be put right. Therefore, while the Constitu tion makers by article 246(3) read with Entry 54 in List II of the Seventh Schedule the Constitution conferred power on the Legislatures of Part A and Part B States to make law with respect to "Taxes op the sale or purchase of goods other than newspapers" they at the same time by article 286 clamped on legislative speaking, taxing power of the the fetters impose or States are autnorise the imposition of a tax on the sale or pur chase of goods where such sale or purchase takes place, (a) outside the State or (b) in the course of import or export or ( c) except in so far as Parliament otherwise trade or com provides, in the course of merce and lastly ( d) that no law made by the Legi~ lature of a State imposing or authorising the imposi tion of a tax on the sale or purchase of a,ny such goods as have been declared by Parliament by law to be essential for the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. It should indepen these arc four separate and be noted legislative compe dent restrictions placed upon tency of the States to make a law with In order matters enumerated in Entry 54 of List II. thus placed on that no law of a State shall fetters. Broadly inter-State life of respect several !955 ;he Bengal lmmuniry Company Limited v. The St ate of Bihar and others Das Actg. C. J. 638 SUPREME COURT REPORTS [1955] leave no the goods the nexus the basis of from any tax impost. to cure the mischief of multiple loophole to make the ban effective and the Constitution makers have considered the different aspects of sales or purchases of goods and placed checks on the legislative power of the States at diff erent angles. Thus in clause (l)(a) of article 286 the question of the situs of a sale or purchase engaged their attention and they forged a fetter on the basis taxation of such situs theory. In by the States on clause (l)(b) they comidered sales or purchases from the point of view of our foreign trade and placed a ban on the States' taxing power in order to make interference by the our foreign trade free In clause (2) States by way of a looked at sales or purchases in their inter-State cha racter and imposed another ban in the interest of the in clause (3) the trade. Finally, freedom of internal Constitution makers' attention was rivetted on character and quality of themselves and they placed a fourth restriction on the States' power of imposing tax on sales or purchases of goocls de clared to be essential for the life of the community. These several bans may overlap in some caseo but in their respective scope and operation they are sep; irate and independent. They deal with different phase, of they are distinct a sale or purchase but, nevertheless, and one has nothing to do with and is not dependent on the other or others. The States' with respect to a sale or purchase may be hit bv one the case of a sale of or more of these bans. Thus, take goods declared by Parliament as essential by a selkr in West Bengal to a nurchaser in Bihar in which goods are actually delivered as a direct result of such sale in the State of Bihar. A law made for consumption the Prcsi:knt by West Bengal without taxing ( l) it wiJI offend article 286(1) (a) as the sale has the Explar1'1- place outside (2) it will also offend article (1) (a), to clause 286(2) as the sale has the course of taken place in inter-State trade or commerce and (3) such law will the goods are to article 286(3) as also be contrary this sale will he unconstitutional because the assent of territory by .virtue of legislative 0 1955 The Beft~al Immunity Company Limited v. The State of Bihar and others Das Actz. c. J. 2 S.C.R. SUPREME COURT REPORTS 639 essential commodities and the law was not obtained as required by clause (3) of article 286. This appears the general scheme of that article. the President's assent to be to us respective themselves taxes on sales or purchases of goods, We come now to the particular bans. Although the Legislatures of the States were empowered by article 246(3) read with Entry 54 of List II to make a law with respect to different State Legislatures, already mentioned, considered to make a law imposing tax on sales or purchases of goods provided they had territorial nexus with such sales or purchases, e.g., that one or other of ingredients or events which go to make up a sale or purchase was found to exist or had happened within tories. ·whether they were right or wrong in so act ing is a question which has not been finally decided is that they did so. This by the Courts but the fact taxation which manifestly pre in multiple resulted the ultimate consumers and interests of judiced also hampered trade or fl.ow of inter-State to cure commerce. So the Constitution makers had that mischief. The first thing that they did was ta!(e away the Statts' taxing power with respect sales or purchases which territorie;. This they did by clause ( 1) (a). respective If the matter had been left there, the solution would have been imperfect, for then the question as to which sale or purchase takes place outside a State would the Constitution makers yet have had to explain what an outside sale was and tliis they did by the Explanation set forth in clause ( 1). The language employed in framing the Explanation, how ever, has given scope fpr argument to counsel and the Court m presented considerable difficulties ascertaining Explanation clause (a), a sale or purchase shall be deemed to have the goods have taken place outside a State when the purpose of consump actually been delivered tion in another State, notwithstanding the fact, etc., then none of the difficulties would have arisen etc.", purpose simply said "For If the purposes of took place outside remained open. So intendment. 1955 Th1Bmgal Immunity Company Limited v. Tiu State of Bihsr 1112d others Dos Aag. C. J. 640 SUPREME COURT REPORTS [1955] inside take place is asked did description beyond in tht Explanation? Was the Constitution at all. But why, to explain what was an outside sale or makers seek purchase by saying that a sale or purchase was to be the particular State deemed the purpose of mentioned the Explanation only to explain what was an outside sale or purchase or was its purpose to allot or it also assign a particular class of sales or purchases of the therein to a particular State so as to kind mentioned put the question of situs of the sales or purchases of controversy ? raised be These are. questions which arise and are somewhat cause of Explanation. Four different views as meaning and effect of the Explanation have been suggested for our consideration and arguments have been advanced for and against the correctness of each is not neces of them. In the view we have taken, it sary for us to express any final opinion in the matter. We propose accordingly the possible views the criticisms relating to each and record very briefly to such those views and criticisms. language of the suggested answers the pale of involved to note (1) (a) In clause remained as One view which has been called the strict view this. the Constitution makers have placed a ban on the taxing power of the States with respect to sales or purchases which take place outside the State. If the matter had been left ther~ the ban would have been imperfect, for the argument would to where a particular sale or have still purchase took place. Does a sale or purchase take place at the place where the contract of sale is made, or in the goods passes or where the goods are delivered? These questions are answered bv the Explanation. That Explanation the pur poses of sub-clause (a)" i.e., for the purpose of ex is to be regarded as plaining which sale or purchase having taken place outside a State. By saying a particular sale or purchase is to be deemed to take the Explanation only indi place in a particular State cates that such sale or purchase has taken place out side all other States. The Explanation is neither an the property is "for 1955 The BengaJ Immunity Company Limited v. The State of Bihar a~d others Das Actg. c. ]. 2 S.C.R. SUPREME COURT REPORTS 641 to in article referred is to use sub-clause (a). This the State of delivery this Explanation confers and untenable introduced in Exception nor a Proviso but only explains what is an outside sale does by creating a fiction. That fiction is only for the purposes of sub-clause (a) and cannot be extended to any other purpose. It should be limited to its avowed purpose. To say that lative power on what for the sake of brevity has been it for a collateral called the delivery State purpose which is not permissible. Further, it is utter 286 illogical to say the Constitution which was to place legislative powers of the State, by restrictions on the legislative a side wind, as it were, gave enlarged explanation by an powers two restrictions. This construc sandwiched between tion runs counter to the entire scheme of the article and the explanation and one may see no justification for imputing such indirect and oblique purpose to this article. Had the Constitution makers so desired could have done so in a more direct and straight-for ward way. To hold that the Explanation has, besides its declared purpose, another hidden purpose of con ferring or enlarging legislative power is to build up a the unfelicitous and in fanciful argument merely on volved is distinctly not the purpose of the Explanation and it does not purport substantively and propno althoµgh to confer any legislative power on any State. vigore, Its only purpose is to explain what an outside sale is, so that, by one stroke, as it were, it takes away taxing power, in respect of sales or purchases of kind referred the Explanation, of all States other than the State where such sales or purchases are, by the Explanation, to be deemed to have taken place. the dis This view of the Explanation was taken in senting judgment in the case of the State of Tr.wan core-Cochin v. Shanmugha Vilas Cashew Nut Factory (supra). The view is only for the purposes of sub-clause (a) of clause (1) and can not be carried over to clause (2) was also taken in the dissenting judgment in the State of Bombay v. The United Motors (India) Ltd. (supra) at p. 1103. the Explanation although language used _in the Explanation to in 1955 Tht Ben1al . Immunity C:?mpany Limited v. TM State of Bihar and otMrs Das Aclg. C. ]. 642 SUPREME COURT REPORTS [1955] The criticislI} that has been levelled against that situation, claim the delivery State and, trade or commerce by clause is said, Parliament lifts the ban tax such sale. The ban under clause the delivery State will become thi1 strict view of the Explanation is that it will not en to tax sales tirely eliminate the claims of the States theory. Sup or purchases on the basis of the nexus .placed on pose, inter-State (2), all the right to tax States will, in sales or purchases if any one of ingredients or events making up the sale is to be found to exist or to have happened in that State. It has been suggested in reply to this criticism that this apprehension is not at all well-founded. When Parliament will ban imposed by clause (2), the Explanation will con tinue to operate, so that inter-State sales or purchases falling within it will still be deemd to have place in therefore, outside all other States none of which latter States will, by rea son of the ban imposed by clause (I) (a), be entitled (2) being lifted such sales or purchases taxing power conferred on read with Entry 54 is asked, what will happen to those sales or purchases which do not fall within ban under clause (2) which State will sales or purchases in which goods are actually delivered in a particular State. not that State to another State for consump but, say, for re-export tion ? One of the suggested answers was sales or purchases were not like! y - to be numerous, for ordinarily a dealer would not actually get the goods imported into a State only for re-exporting the same to another State for consumption last men tioned State but would find it more convenient and economical the delivery of the goods last mentioned State. A further sug straight to gestion was that when Parlia lift the ban of clause (2) it would, ment would by law by the same law, provide which .of the States would tax such inter-State sales or purchases which were not covered by the Explanation and on what basis. to arrange for that it might well be in exercise of it by article 246(3) the Explanation? After Parliament hfts in List II. Then, it for consumption 1955 The Bengal Immunity Ctmftany Limited v. T/it State of Bihar •nd others Das Actg. C. J. 2 S.C.R. SUPREME COURT REPORTS 643 It It is, that is inter-State trade or commerce. to say, Parliameilt may turn, raises a question This suggested answer, legislative power to the scope and ambit of conferred on Parliament by clause .open (2). The ing words ·of clause (2), namely, . "Except in so far as law otherwise provide" clearly Parliament may indicate that the lifting of the ban may be total or partial, the ban wholly and unconditionally or it may lift it to such extent as it may think fit to do and on such terms as that under Entry to be remembered it pleases. 42 of List I Parliament alone may make law with res fore, conceded that in exercise of its legislative powers that entry read with article 286(2) Parliament may make a law permitting State sales or purcj1ases of certain commodities only. It that Parliament may, by fix a way of regulating inter-State trade or commerce, ceiling rate of tax on sales or purchases of goods which the law made hy the States under Entry 54 of II, may not exceed. Can Parliament also over List If not, cannot Parliament at the Explan:ition? least provide which of the States may inter-State sales or purchases of goods which do not fall within the Explanation ? These are some of the questions which may arise as and when Parliament will choose to make a law· in exercise of the powers conferred on it and it will to discus> and then be decide those questions. the C0urts advise Parliament in advance as the scope of . its legislative competency under clause (2) and, therefore, we only note those questions and leave them here. time enough It is not is also not questioned the States The second view as to the meaning and effect of the Explanation is that it once for all fixes rhe situs of a sale or purchase so that one knows when such a sale or purchase is outside a State and when it is in side a State. To put it differently, States are when a sale or purchase is )inside a particular State the States are also told when a sale or and, therdore, In short purchase the Explana tion not c;mly explains what is an outside sale or pur chase but al59 actually the situs of a sale or is outside a State. .. .. - 1955 The Bmgfl/ Immunity Company Limited v. 1'11.e Stall of Bi/uzr and others JJas Actg. C. J. 644 SUPREME COURT REPORTS [19551 taken in the Explanation in a particular State. This view of the majority decision purchase Explanation was the State of Bombay v. The United Motors (India) Ltd. (supra). The majol:ity decision quite clearly concedes does not, by itself, confer any legislative power on any State, not even the delivery State, with respect to sales or purchases of the kind therein but as it fixes the situs of such mentioned that State is sales or purchases in the delivery State left free to tax them in exercise of its legislative powers under article 246(3) read with Entry 54 of List II. The criticism offered against this view is, first of all, it uses the Explanation for a purpose which is beyond fiction that of sulrclause (a). This view created expressly for sub.clause (a) into a reality fix for all ing the location of such sales and purchases purposes. existence of clause (2) which imposes a different ban on the legislative power of all States including the deli long as Parliament does very State also, the delivery State, not lift the ban no State, not even tax sales or purchases which take place course of inter-State trade or commerce, even though they may fall within the Explanation. The further objection is that this view also does not completely eliminate the confusion arising from the nexus theory. Suppose Parliament the ban under clause (2), which State will tax sales or purchases which do not come within the Explanation? The· same answer was in reply to similar objections suggested as was done to the first view. That, as we have said, will call for if and when Parliament exercises decision legis- · lative powers under clause (2). In the next place so that as this · view ignores The third view, which was adQmbrated and dis cussed in the separate judgment of Bhagwati, J. in the case of The State of Bombay v. The United Motors (India) Ltd. (supra) is that the Explanacion concerns itself with notionally fixing the situs of sales or pur chases in the delivery State only but in no way affects the taxing power of the State general law relating to the sale of goods, the property the goods has passed. The result of this view in which, under 2 S.C.R. SUPREME COURT REPORTS 645 the property said to be that the State in which the sales or pur chases are to be deemed to have taken place may the State in which, under the general law them but relating to the sale of goods, them if and when. goods has passed may also Parliament lifts the ban of clause (2). This view, it is said, is open to all the criticisms to which the second to that a further ob jection • has been suggested against this view, namely, that it will perpetuate double, if not multiple, ation on one and transaction of sale or the same purchase at least after Parliament lifts the ban. is subject and in addition 1955 Tire B"'gal tI111munity Company Limited v. T/14 Stau of Bi/iM and olh4rs Das Aclg. C. ]. i.e., the State the delivery State, A fourth view has also been suggested before us as a possible view although it was not put forward on the It is founded on the non-obstante previous occasion. clause in the Explanation. It is said that clause ( 1) (a) and the Explanation concern themselves with only two States, namely the title State, i.e.. the State in which, ~n<ler the general law, title to the goods passes to the purchaser and which goods are actually delivered as a direct result of that State. the sale or purchase for consumption The purpose of the Explanation is said to be to demar cate the taxing power of only two States by taking out the sales or purchases of the kind mention ed therein from the sphere of the taxing power of the taxing power title State and subjecting them In the the delivery State. the Explanation two States clause (l)(a) provides that the title State cannot tax because sales or purchases are, by the fiction, made to take that the delivery State place outside its territory and can tax because the sales or purchases in question are, by the fiction, made to take place inside its territory. In short, Explanation, according to this view, is that the State which cannot ground that thev have tory is only that State in which the property in the goods has passed. The criticism immediately put forward that if clause (l)(a) and the Explanation are limited in their opeation only two States men- result of clause (l)(a) read with tax such sales or purchases · on ju, xtaposition of taken place outside its read with to the ~9.>S T 11' Btng•l Immunit,Y Company Limitti v' Thi Stat1 of Bihu and others .Das ;fclg. C. J. 646 SUPREME COURT REPORTS [1955 J tioned above then the other States which also claimed to tax on the strength of the nexus theory, e.g., the State where the contract was made, or the State where the goods were produced or manufactured or were the mischief of found, will be outside the ban and multiple the Constitution makers taxation which were out to curb will continue to be rampant and un abated. This view other criticisms mentioned other views of the Explanation. is also subjected to some of in connection with express it created a the dissenting any opinion on in our opinion, it taken of the explanation it should be limited fictions fiction. Legal some definite purpose. Here As we have already stated, we do not desire, on this the validity occasion, claimed for or the infirmities imputed to any of these several views, for, is not necessary to do so for disposing of this appeal. Whichever view purpose the Constitution makers had in view when il1ey incorporated it in clause (1). It is quite obvious created only avowed purpose of the Explanation is to explain what is. The an outside sale referred to in sub-clause (a) judicial decisions referred ment in The State of Travancore-Cochin v. Shannwgha Vilas Cashew Nut Factory (supra) at pp. 81 and 82 and the case of East End Dwellings Co. Ltd. v. Fin.cbury Borough Council(') clearly indicate that a legal fiction is to be limited to the purpose for which it was created legitimate and should not be extended beyond cle> field. minant, if not States, in some cases to certain conditions and with that end in view article 286 imposes several bans on the from different angles and sales or purchases viewed In some cases according regard to the ban is absolute as, outside sales covered by clause (!)(a) read with Explanation, or with regard to imports and exports .covered by .clause ( 1 )(b) and in som.e cases it is con- It should further be remembered that the taxing power of the States in relation the sole, purpose of article 286 restrictions on subject to their different aspects. legislative powers of for example, with (!) L. R. 195~ A.C. 109. 132. 1955 The Benial ·Jm.,unity Com;a11y Limited v. T lie State of Bihar •nd •thers . Das .Mz. c. J. 2 S.C.R. SUPREME COURT REPORTS 647 intended in clause to clause thereto or ditional, e.g., in the cases of inter-State sales or pur chases under clause (2) which is, in terms, made sub ject to the proviso thereto and also to the power of Parliament to lift the ban. Again, in some cases the they are distinct bans may overlap but nevertheless, and independent of each othec The operative provi sions of the several parts of article 286, namely, clause (l)(a), clause (l)(b), clause (2) and clause (3) are to deal with different topics and, manifestly therefore, one cannot be projected or read into another. On a careful and anxious consideration of the matter in the light of the fresh arguments advanced and dis cussions held on the present occasion we are definitely ( l) (a) of the opinion that the Explanation cannot be legitimately extended (2) either as an exception or as a proviso read as curtailing or limiting the ambit of clause (2). Indeed, in The State of Bombay v. The United Motors (fodia) Ltd. (supra) at pp. 1083-1084 and again at p. 1086 the majority judgment also accepted the position that the Explanation was not an exception or proviso either If, therefore, the to clause (l)(a) or to clause Explanation cannot be read (2) because of the express language of the Explanation and also be cause of operative provisions of the two clauses, then it must follow far as Parliament may by law provide otherwise, no State law can impose or authorise tax on sales or pur chases when such sales or purchases take place in the course of irrespec tive of whether such sales or purchases do or do not fall within the Explanation. It is not necessary, for the purposes of this appeal, to enter upon a discussion as to what trade or commerce or by the phrase "in the course of", for it is common ground that the sales or purchases made to be by the appellant company which are sought taxed by the State of Bihar actually took place in the course of inrer-State trade or commerce. Parliament not having by law otherwise provided, no State law <;an, these sales or purchases, trade or commerce and is exactly meant by (2). into clause the subject-matter of imposition of any the difference that, except inter-State inter-State therefore, in so 648 SUPREME COURT REPORTS [1955] 1955 The Beng1d Immunity Comp11ny Limited The Siat1 of Bihar and oth1rs Dos A.ctg. C. J. reason of clause (2) tax by to say, Bihar cannot although they fall within the Explanation and other States cannot tax by reason of both clause ( 1) (a) read with the Explanation and clause (2). This conclusion lead us now to consider the arguments by which respondent State intervening States which support position. respondent State seek to get over In their view the majority invest what, the argument recognised that truth, was an the Explanation in regard in the Explanation. In the forefront is placed the State of delivery and clause (2) could, that found favour with the majority of the Bench which decided the case of The State of Bombay v. The United Motors (India) Ltd.· (supra). That argument to be found judgment at pp. 1085-1086. Shortly put, the majority opinion was that the operation of clause (2) stood excluded as a result of the legal fiction enacted the effect inter-State dealings inter-State transaction with an int'ra-State character relation fore, have no application. They legal fiction was to operate "for the purposes of sub that meant merely clause (a) of clause ( 1)" and that the Explanation was designed to explain meaning of the expression "outside the State" clause (1) (a). They, nevertheless, came to the conclu sion that when once it was determined with the aid of that a particular sale or purchase the fictional had taken place within the taxing State, it followed as a corollary, that the transaction lost its inter-State character and fell outside (2), not because the Explanation was used for the purpose of clause (2), but because such sale or purchase became, in the eye of the law, a purely inimitable the learned Chief Justice, who wrote and language the dis delivered the majority the statutory cussion on this point by fiction completely masked the inter-State character of the sale or purchase which, as a collateral result of such masking, fell outside the scope of clause (2). In spite of the great respect we always entertain for the the fiction created by the purview of clause judgment, concluded In his own transaction. saying 1955· Th• Ben.~a/ Immunity Compa11y L1'mitld v. The State of Bihar and others Das Actg. C. J- 2 S.C.R. SUPREME COURT REPORTS 649 learned Chief learned Judges who constituted the majority we for the reasons we now proceed op1ruons of the are unable to accept the aforesaid arguments or conclusions as correct to state. Justice and favours law of concluded, a for determining the place where land.. or by some theories: One, which The situs of an intangible concept like a sale can the application of artificial only be fixed notionally by tules i11vented either by Judges as part of the legislative auth ority. Bur a< far as we know, no fixed rule of universal definitely application finally for all purposes. There evolved are many conflicting is more referred frequently put forward and popular and to :irid m:iy, indeed, be urged to have been adopted the Constitution in the non-obstante clause of the F:xplanation, the property the goods passes, another which is said to be the American view and which was adopted in G. Govinda raju/11 Naidu & Co. v. The State of Madras( 1 ) fixes upon the contract the place where the continental countries of Europe which prevails in prefers the place where the goods sold are actually deli Yered, a tourth ooims to the place where the essential ingredients which go to make up a sale are most dense the Explanation were ly grouped. (2) were to be raised unconditionally it would become necessary the Courts to reach a conclusion and choose between these conflicting views. Article 286( 1 )(a), it should inside sale mav be be noted, does not say taxed. It only says that no outside sale shall be ta~ed. Now if a State claims is inside because its boundaries, by ingredients part of is also an outside sale because the the same logic it its territories and if it is an remaining parts are outside outside sale it cannot be taxed whether or not it can be deemed to be mside for some particular purpose. is against taxing The prohibition of article 286(1)(a) an outside sale and if the sale is outside even partially legislature can it may well be argued that no State that the sale lies within the ban under clause In this situation if there and that an (I) A.LR. 1953 Mad. 116. 4-84 S. C. India/59. 1955 The Bengal linmunity Company Limittd ,- T h6 Stall of Bihar and ot/;e's Das Act:. C.J. -650 SUPREME COURT REPORTS f19551 judicial last of logic of to be established that as soon as override the Constitution by deeming it to be an ir._s;de sale. Therefore, the aforesaid theories were to be adopted, then either no State would be able to tax, or all having the requisite nexus would be able to do so. But this, in our opinion, is the very mischief to avoid and which the Constitution makers wished that, as we understand the ·majority iudgmcnt Bombay case, was their view also. So that view can be placed on one side. On any one of the other views the situs would have to be fixed artificially in one place ancl then one would have to apply the situs majority decision and hold fiction, is determined to be in one place by i.e., a fiction enunciated by judicial decision, the inter State character of transaction must cease. The majority hold that this is the result when the situs is the delivery State, placed in only one State, namely, the Explanation creates. because of the fiction which logically The same result would have the situs were judicial fiction instead of by a constitutional one. The reasoning of logical conclusion, will the majority, pushed that all inter-State transac inevitably lead us to hold tions must eventually be intra-State converted amenable to the therefore, become transactions and, territories the State within whose taxing power of fiction, they are, by to be deemed . to remain no inter-State transaction on which clause (2) may possibly operate. stated to this astounding conclusion to be rejected. The truth is an to be so irrespective State sale or purchase continues located either to be of the State where the sale under the general law when it is finally determined the fiction created by what the general law is or by the Explanation. The situs of a sale or purchase inter-State character. wholly We find no cogent reason in support of the argument that a fiction created for certain definitely expressed the purposes of clause (1) (a) can purposes, namely, foreign and entirely legitimately be used the constitutional or In take place. that what irrelevant as regards The argument which judicial this view to follow only to be to its ' 1955 The Bengal Immunity Company Limited v. The State of Bihar and others Das Actg. C.J. 2 S.C.R. SUPREME COURT REPORTS 651 inter-State ingredient true. Therefore, in the course of collateral purpose of destroying the inter-State charac ter of the transaction and converting it into an intra State sale or purchase Such metamorphosis appears to us to be beyond the purpose and purview of ciause (l)(a) and the Explanation thereto. When we apply a fiction all we do to assume the situation created by the same the fiction consequences must flow fiction as would have flown had the facts supposed to be true been the actual facts from the start. Now, even when the situs of a sale or purchase is in fact inside a State, with no essential taking place outside, nevertheless, if it takes place in the course of inter-State trade or commerce, it will be hit by clause (2). If the sales or purchases are trade or commerce the stream of inter-State trade or commerce will catch up in its vortex all such sales or purchases which take place in its course wherever the situs of the sales or purchases may be. All that the Explana to shift the situs from point A in the tion does It does not lift stream to point X also in the stream. the sales or purchases out of cases where they form part of the stream. The shift ing of the situs of a sale or purchase from its actual situs under the general law to a fictional situs under the Explanation takes the sale or purchase out of the taxing power of all States other than the State where the situs is all that clause (1) (a) and the Explanation do. Whether the delivery State will be entitled to tax such a sale or purchase will depend on the other provisions of the Constitu tion. The assignment of a fictional situs to a sale or purchase has no bearing or effect on the other aspects its inter-State character or its export or import character which are entirely different or purchase in any particular State either under the general law or under the fiction does not conclude the matter. sale or purchase which by virtue of the Explanation has taken place in the delivery State was made in the course of to be ascertained whether the sale or purchase, e.g., trade or commerce. For is fictionally fixed. That fixing of a situs topics. This It has yet the stream inter-State a 1955 The Bengal Immunity Company Limited v. Tht State of Bihar and others Das .4.ct.!!. C.J. 6-, ). SUPREME COURT REPORTS [1955] purpose Jpplication at all. the Explanation can have no relevancy or Another argument adumbrated m the majority judgment in The State of Bombay v. The United Motors (India) Ltd. (supra) at p. 1081 and at pp. 1086-1087 freedom and elaborated before us is that just as of trade referrod to in article 301 has been made the States' power of 1mposmg non give way so must article discriminatory taxes by article . 304 286(2) be regarded as subject taxing power, for the protection of article 286(2) could not have been intended to be larger. This argument was refuted by that Bombay case (supra) at pp. 1102-1103 and p. 1127 and also by the dissenting judgment in The State of Travancore Cochin v. Shanmugha Vilas Cashew Nut Factory (supra) at p. 89. Nothing that we have heard on the present occasion induces us to depart from the views express ed on this subject in those dissenting judgments. the dissenting judgment the States' the general to a cardinal the enunciation of to the express the argument It is next urged that the Explanation in effect ope rates as an exception or a proviso to clause (2). This view runs directly counter language of itself. So the Explanation lated in a slightly different way. It is said that clause contains (2) the Explanation embodies a particular or special rule. According rule of construction the particular or special rule must control or cut the general rule. This view was adopted by the High Court in the judgment under appeal and also found favour with one of the Judges in the Bombay this argument It appears overlooks the basic fact to which is appended the Explanation and clause (2) deal with Jilferent topics altogether. The Explanation cemed with explaining what is an outside sale or pur chase by fixing a fictional situs. It cannot be read as a provision independent of clause (!)(a). It does not, legislative power terms, confer any itself and the Explanation may on anv State. apply to transac tions but that clause (I) (a) for ascertaining. situs of many inter-State is only (supra). to us It is 1955 The Bengal Immunity Company Limi1t~ "· The Stale of Billa• and others Das Act.~. C.]. 2 S.C.R. SUPREME COURT REPORTS 653 to hold therefore, topic. The is not within sales or purchases which the same subject and, that one purposes of clause (l)(a), whether it has taken place in inter-State side or outside a particular State. The aspect of the sales or purchases purview of clause (l)(a) which looks at sales or pur chases from the point of view of their location only. Clause (2), on the other hand, takes note of the inter State character of two provisions do not entirely different relate is not the enunciation of a possible general rule and the other the enunciation of a parti subject. cular or special rule on one and The principle of construction relied upon cannot, our opinion, be called in aid in construing clause (2) If the Expla and the Explanation of clause (l)(a). nation cuts down clause (2), it must also, on a parity of reasoning, cut down clause (3) which, as will here inafter be explained more fully, could not possibly have been import must also cut down clause ( 1) (b) dealing with an<l export; but to hold that would run counter to the decision in State of Travancore-Cochin and others v. The Bombay Co. Ltd.( 1 ). In our opinion to use the Expla nation to cut down the operation of clause (2) or clause (3) will be to us.~ it for a purpose other than its legiti mate' and avowed purpose. the Crmstitution makers. intended by the same inter-State transactions. The same argument is put in a slightly different way It is said that we must and in a more attractive form. construe article' 286. as a whole and give meaning every part of it. Sales or purchases which fall within the Explanation to clause (1) (a) clearly partake of character of Therefore, (2) of article 286 literally and we construe clause the Ex strictly then planation will be redundant and useless and will have no immediate operation and will remain a dead letter, in exercise of its powers at any rate, until Parliament, is urged, under clause (2), to avoid such a result and adopt make an attempt such a construction as will not only · give effect . part each part of the article but also make each the whole of clause (1) (a) and the ban. We must, (I) [195°) 3 S.C.R. 1112. 1955 The &ngal . Immunity Company Limited v. The State of Bihar ant[ others Das Actg. C.J. 654 SUPREME COURT REPORTS (1955) In effect the Explanation. in presenti. That, it is pointed out, can applicable well be done if clause (2) is restricted interpreted in a manner. The argument runs-give full and immedi leave clause ate. effect to the Explanation and (2) to govern or operate on cases which do not within this argument treat all transactions of sales or means that we must the Explanation purchases falling within as outside thin veneer of disguise this clause (2). Shorn of argument the Explanation, in effect, operates as an exception to clause applicable to that construction will apply mutatis mutandis the argument in the present form. Apart there are obvious fallacies which render the argument utterly unacceptable. We now proceed to deal with these fallacies seriatim. is nothing more the argument cnttmms (2) It has no present application and (i) In the first place, the mere circumstance a provision in the Constitution will, on a proper cof! struction, take effect on the happening of a future itself, be no ground for not giving effect event can, by language of that provision. Take the plain in article 286 itself, namely, clause very next provision its usefulness (3). will ensue only when Parliament by law declares cer the commu tain goods to be essential for nity. The fact far as relates mediate operation until Parliament lifts the ban under clause (2) need not unnecessarily oppress us or lead to adopt a forced construction only whole of it an immediate and present operation. sales, may nor have an the Explanation, in so inter-State life of to give is not correct to as suggested (ii) In the second place, above, that the Explanation, construed It certainly can have no immediate operation at all. to render sales and purchases has immediate operation which fall within the explanal:!on to be outside sales and purchases so as take away immediately the delivery taxing power of all States other State with respect them. Further cases ma,y arise in which purchases or sales which are outside clause and be immediately (2)_ may, nevertheless, fall within 1955 The Bengal Immunity Company Limited , .. Thi Stat; of Bih"' and othtr.r Das Artg. C.J. 2S.C.R. SUPREME COURT REPORTS 655 the full price of that clause (2) the State of Punjab, the State of Delhi. Pursuant seller's godown the State of Delhi, retail shop, both in governtd by the Explanation. We do not wish to ex-· any opm1on on . )'ypothetical cases but that on a given view following illustration will show of the law . the Explanation would be called into play . was not attraded. d~spite tbe' fact instance, a case where both the seller and Take, the buyer reside and carrv on business in Gurgaon the State of Punjab. Let us the seller has a godown in the State of Delhi where his goods are the buyer has also a retail shop at stored and Connaught Circus also the State of Delhi. The ' buyer and the seller enter into a contract at Gurgaon for the sale of certain goods and a term of the con the goods contracted to be sold will be actually delivered buyer's consumption in to this contract made in Gurgaon buyer pavs the goods at Gurgaon and the seller hands over to the buyer - also at Gurgaon a the seller's godown-keeper delivery order addressed retail the buyer's the goods to deliver in Delhi shop. As a direct the seller's result of this sale the presentation of this delivery gcxlown-keeper, on the goods to the buyer's retail order, actually deliver_s shop at Connaught ~ircus for consumption State of Delhi. On one view of the law, the situs of such a sale would be Gurgaon. We need not decide that it is, because that type of case is not before us there may be other views certainly a possible view. to hold trade or commerce, be is no movement of goods across a State that because boundary. Again, we need not decide that also may be controversial. But given postulates the transaction would squarely within it would not come within the Explanation and yet clause (2), for the goods acrrn the border of any State and both the seller and the Expla the buyer are in the same place. Surely, nation will, in presenti, govern such cases irrespective of whether Parliament has the ban under clause is no movement of It is also possible to consider, but inter-State is not lifted 1955 The Benpal immunity Company Limikd v. TM State of Bihcr and othLrs Dm ..4.cl.(· C.J. 656 SUPREME COURT REPORTS [19551 the Explanation (2). It these postulates are accepted then by virtue the State of clause ( 1) (a) read with impose a tax on such of Delhi alone will be entitled the State of Punjab will be pre a sale or purchase and cluded from doing so bv sitt<S assigned to such a sale or purchose by the Explana tion, although the contract was made, price was paid the goods and symbolical or constructive delivery of by the handing over of the delivery order took place in Gurgaon in the State of Punjab. reason of the fictional facie, there was scope therefore, prima (iii) It is not correct terms, supersede clause that any the States the imposition of such the President's order was the Explanation. It will be noticed the Explanation as and when the powers vested to say that ciause (l)(a) read with the Explanation is wholly useless .. It may well for the operation of be argued clause (!)(a) and in him by the President exercised that under Proviso to clause (2). take effect that proviso "notwithstanding tax is this clause". This non contrary to the provisions of obstante clause does not, in (1) the President's at all and, the prohibition of clause (I) (a) order was subject It is, however, pointed read with tax which was be out that the proviso says immediately before ing lawfully levied by continue the commencement of the Constitution will to be levied .until It is said tax was levied bv that before theory the nexus the different States on irrespective of the situs of the sales or purchases and. that the therefore, intention of that all the nexus theorv must continue irrespective of the provisions of the Expla the situs of the sales or nation which fictionally fixes purchases is not without some that the different States used to levy sales tax on basis of slight nexus but the legality ,of them had not, at the date of the Constitution, been in a Court of law. Therefore, the proviso authorised the Presi to continue only such of them as were indicates the Constitution makers was the Constitution sales the basis of the delivery State. The argument the date therein specified. force but cannot prevail. this very proviso clearly imposed on the basis of by order tested It 1955 The Bengal Immunity Company Limited v. The State of Biho1 and others Das Act.~. C. J. 2S.C.R. SUPREME COURT REPORTS 657 it, he deemed the ban imposed on the Explanation. Finally, there is no being "lawfully" levied and consequently intend reason to think. that the President's order was irrespec ed to continue all sales taxes previously ":}e.yie<l tive of their legality. In the next place, there is noth ing to be surprised at if the President's qrder was made the prohibition of ~lause (1) (a) to operate subject read with to · accede to this that we must read into the pro argument must mean viso s0mething which there. To give effect to is not to alter the non obstante this argument we shall have the end of the proviso and substitute clause towards the Words "of the foregoing clauses" for the words "of this clause". However, we need not rest our decision on It will certainly operate as soon as Parlia this point. ment, in exercise of the power vested it by clause (2), the States. Upon the lifting of the ban by Parliament those sales or pur inter-State the Explanation will, by fall within chases which virtue of to take place within the deli very State and such sales or purchases being, as a re -suit of such fiction, outside all other States none of them will be entitled tax such sales or purchases. Whether the delivery State will be entitled to make a law imposing in exer in it by article 24o cise of the legislative powers vested (3) read with Entry 54 in Lisr II or whether Parliament, while lifting the ban, may also by the same law autho to do so or what is the extent of rise the delivery State the authority vested the opening words of clause (2) are questions which will arise consideration only after lifted and we need not in advance express any opinion on a foture problem. (iv) If we accept the argument that we are to give the Explanation and full effect to clause (I) (a) and let it operate immediately on all transactions which come within their terms and leave clause (2) to govern (l)(a) read with have to give effect to clause (l)(a) wning, we shall and the Explanation and leave clause ( 1) (b) and to govern only those cases which do not clause (3) are outside clause then, on a parity of cases which the Explanation tax on such sales or purchases the ban under clause (2) in Parliament by 1955 '.i-M Btnga/ lnununity Co111pan_v Limited v. T!it Slate of Bihar and olhtrs Das Actg. C. J. 658 SUPREME COURT REPORTS [1955} clause saying ( 1 )(a) justified illustrate transaction those which to. be essential for the argument we have read with the Explanation and, the Explana fall within c.lause (3). tion. To this point, Suppose under clause (3) Parliament by law declare' certain goods, say wheat, the lite is a sale of such of the community. Suppose there essential goods by a seller in the State of Delhi to a the State of Punjab in which as buyer in Gurgaon a direct result of such sale the goods are delivered in Gurgaon in Punjab for consumption in that State. Ac cording to to give full efkct first to clause ( 1 )(a) and the Explanati::>n and accord ingly we must hold is wholly covered by therefore, Punjab will be entitled to tax it and clause (3) must be left cases other than to govern only If the argument were sound within the Explanation. it must follow that the State of Punjab will be per the purpose of fectly making a law imposing a tax on such sales or purchases its law need not be reserved for the restrictive President at all. the President" s requirements of reserving the bill for assent and of obtaining such assent before imposes n:iay take effect apply only to a law which the Ex tax on sales or. purchases which are outside planation. our illustratioo, will be entitled to ,:ay that clause (3) sales or purchases of those cases of governs only essential goods which do not come within the des the Explanation, namely, for cription mentioned instance, only those sales or purchases in which es sential goods are delivered for con sumption in that State but for re-export to another State. This will rob clause (3) of practically the best part of its content and, its usefulnes• and defeat• the very purpose the. Constitution makers obviously had of safeguarding sales or purchases of essential commodities by the President's quiring the reservation of the bill for assent and the obtaining of such assent. When a famine is raging in say Punjab, and . sales and pur chases are made of wheat which is declared as essential In other words, the State of Punjab, imposing the restriction It may well say that in a State not the assent of therefore, of 2 S.C.R. SUPREME COURT REPORTS 659 to the life of the community and as a direct result of such sale wheat is delivered in the Punjab for con the State of Punjab may, according sumption to the reasoning underlying the argument, put up the price of these essential goods by imposing a sales tax by making a law to that effect and ignoring the safe guards prescribed by clause (3). An argument which leads us to a result so utterly absurd and untenable in reason cannot for a moment be countenanced. 1955 The Bm.~al lmmunily Compariy Limited v. The-Stale ef Bihar "nd others Das Actg. C. J. No less than five reasons have been suggested the argument support of tion should be placed on clause It will be convenient stage one by one. that a restricted construc (2) of article 286. them at to deal with It fails that bv (a) In the first place, totally overlooks to note it is urged that clause (2) should be construed in a restricted way because class of sales falling within article 286(l)(a) forms a special class of they cannot be inter-State sales and the general provisions of article 286( 2). affected by the real scheme of This argument article 21:16. this article the Constitution makers were imposing 'restrictions on the taxing power of the States with respect to sales or pur their diff.:rent aspects viewed chases in from entirely angles which we h<,ve heretofore already different explained. The subject-matters of the different parts of article 286 are, therefore, different and distinct and special principle of provision cutting down the general provision cannot be properly invoked. (b) The second if article reason urged 286(2) applies to the class of sales or purchases falling within article 286(l)(a) then it will in discri mination against State trade and this will be inconsistent with the pro visions of Part XII I of the Constitution. that when a Bihar dealer sells certain goods to a Bihar purchaser the former is obliged to pay sales tax which he passes on to the into Bihar similar Bihar purchaser directly goods from say a West Bengal dealer consump- 'Bihar purchaser but when result in favour of interpretation, namely, trade and imports It is 1955 The Bengal lmnnmipi Company Limited ·v, Thi Stt:ttt of Bihar and others Das Act,g. C. J. 660 SUPREME COURT REPORTS [1955] trade, argument the words reading lf there is any overlooks real hardship of liable to tion in Bihar that transaction will not be Bihar Sales Tax as it will be an inter-State transac tion. This, it is said, will prejudice the Bihar seller for all Bihar purchasers will then be driven to pur chasing goods from out-of-State sellers and local pro ducers will suffer a set back. The argument is that as a literal construction of clause (2) will result in such the cardinal rule of discrimination against the written provision interpretation, namely, literally ancl their ordinary giving natural meaning should give way to a restricted con several basic struction. This the kind things. refened to, there is Parliament which is expressly in vested with the power of lifting the ban under clause (2) either wholly or to the extent it thinks fit to do. Why should the Court be called upon to discard the cardinal rule of interpretation for mitigating a hard ship, which after all may be entirely fanciful, when the Constillltion itself has expressly provided for an other authority more competent the cor the needful? This argument also rect position to do to take into account the benefit which the con suming public derives from the free flow of goods from one State to another resulting in lower prices. Further, the se>-called the argument overlooks hardship, if any, is brought about, not really by reason of clause (2) but by reason of the liberal construction the State of Bihar imposing a sales tax on an intra-State is not obliged to levy a sales tax on sales or purchases of is competition bet producers, manufacturers the Bihar producers, manufacturers and dealers and dealers and, indeed, if it intends to encourage its local manufac!llrers or producers It will not do for the State of Bihar to say that it must sales or purchases intra-State levy a sales which it is not obliged to do and at the same time that it must protect the Bihar dealers or producers and enable them to compete With outside dealets or therefore, ask us producers and, transaction. The State of Bihar in respect of which there it should not do so. to construe to c:.valuate out-of-State tax on 1955 The Bengal Immuni!Y Company L1miltd v. Tho State of Bihat and others Das Actg. C. ]. 2 S.C.R. SUPREME COURT REPORTS 661 It is retorted oppressed to examine their annual the best of both worlds. to enable it Constitution in an unnatural way so as immedi to have the welfare State must have sufficient revenue to run itself, that if it is to forego totally upset. This its economy will be the States harrowing picture of economic collapse of this Court on this as on the has been pressed upon previous occasion and it evidently minds of the Judges who were parties to the majority It is, therefore, necessary decision. inter-State little more closely. Ordinarily, matter a trade or commerce is done between a dealer in one State and a dealer in another State. The dealer consuming State in his turn sells the goods in retail to actual consumers. There can be no objection to insist ing upon all inside dealers getting themselves registered imported and and submitting returns showing goods sold by turnovers them and bringing to tax which they will pass on to the actual consumers. it a purchase tax vis-a-vis the earlier transaction Call in Bihar for under which the goods were delivered it a sales consumption vis-a-vis the Bihar the State will dealer get the full revenue on these local sales or purchases from the local · sellers. There can be no doubt that sales to or from one dealer to or purchases of another dealer actually form inter-State trade or commerce. To take them out of clause (2) will trade or commerce wholly illusory and to rob clause (2) of the best part of its content and utility. Ordinarily indivi dual local consumers buy goods in local market their personal and do not generally bring goods consumption from outside dealers. It is only in excep tional cases local consumer will be energetic enough to bring goods from outside the State for his consumption and their number will be small. It is only individual consumers who are energetic enough to get goods direct from a dealer in another State and may be willing to pay freight, etc.. and undertake the risk of loss or damage who may ev<!de that State or call in Bihar, to actual consumers the protection of subsequent local the bulk of this kind inter-State to make that a 1955 The Btnial Immuni!J Compan_'I' Limited v. Th.t State of Bihar and others Das Ac ti. C. J. 662 SUPREME COURT REPORTS [1955] to get tracing such stray actual the tax. The difficulty local consumers cannot be any cogent reason adopting the unnatural construction sought to be put If big Bihar pur upon clause (2) of article 286. chasers, e.g., Tata Iron & Steel Co. Ltd., who are very heavy consumers of coal, prefer their supply of coal from Ranigunge coal fields in West Bengal for consumption in their large Bihar to getting the Jharia coal fields in Bihar and tax to detriment of the revenues of the State of Bihar, then again there is Parliament to mitigate such hardship by malting suitable laws in exercise of its power under article 286(2). Such supposed hardship is, in our view, no ground for putting a forced and unnatural interpre tation upon article 286. factories at Tatanagar their supplies from thereby evade sales > > ( c) The third reason in support of a restricted construction of article 286(2) is thus formulated : The purpo~ of article 286 being to eliminate multiple taxation and article 286( 1 )(a) having already achieved to the class falling within that purpose with regard the Explanation, it was no longer necessary that class. This to apply article 286(2) purpose reasoning appears to us to be untenable. It overlooks the patent fact that the different parts of the article look upon sales and purchases from different perspec tives and place different bans on the taxing power of the States at different angles. The circumstance the bans may in given cases overlap is no justification for concluding that the subject-matter of th~ different provisions is the sanie. This line of reasoning assumes that the only purpose of article 286 is to eliminate multiple taxation. The purposes of the different parts of the article have to be ascertained from the language of the article itself read in the light of the contem porary history of different States with respect to taxes on sales or pur chases of goods' and the chaos and confusion that ensued as a result of those arose and the havoc activities. There was multiple taxation which imposed a heavy burden on the consumers and which was also calculated to impede and hinder the free flow of inttt• legislative activities of 1955 The Bmga/ lmm1111i!J Company L1mittd v. The Slate of Bihflr a•d othlr.< Das Actg. C. J. 2 S.C.R. SUPREME COURT REPORTS 663 respect regards trade or inter-State inter-State the States with trade or commerce. The Constitution makers, State therefore, imposed several bans on taxing power to sales or purchases, namely, first on the basis of their situs, secondly and the character of the transac thirdly on the basis of tions,, e.g., foreign trade and fourthly on the basis of the nature or quality of the goods sold or purchased, i.e., whether they have been declared to be essential to the life of the community. the clear As intention of the Constitution makers was to place an the time being, subject to the pro absolute ban for viso, and to Parliament to study result of the ban the situation and to evaluate the and to lift the ban to such extent as it thought fit in the interest of the general public and If the matter is approached Statc trade or commerce. in this way it becomes abundantly clear that this part of the argument we arc now considering proceeds on a wrong assumption of the purpose of the Constitu tion. trade or commerce to give some time that of inter-State into two categories and in regard (d) A restricted construction of article 286(2) said to he necessary and called for because the Con sales or pur stitution itself has divided chases to one class it has itself provided both as to which State will tax them and under what condition and in regard to the other class general general terms to relax such ban as Parliament thinks fit. This is clearly begging the question and does not require any elaborate refutation. imposed a ban to Parliament terms and granted power the Constitution has ( e) Another string to the bow is that because of the legal fiction created by the Explanation State sales or purchases were converted State transactions. This, it will he recalled, was reasoning adopted in the majority decision in 'I' he State Qf Bombay v. The United Motors (India) Ltd. (supra). We are unable to accept this argument for the reasons given above which need not be repeated here. It is said that the picture of harassment and incon the dissenting venience to the traders referred to in 1955 The Bengal lmmtmit)' Company Limit~d v. Th! State of Bihar and others l),l r Actg. C. 7. 664 SUPREME COURT REPORTS [1955\ It is pointed judgments is more imaginary than real. out that it is only big traders who will have sales of .their goods in all the · States in the Union of India. Those big traders maintain a large staff of clerks and a.:countants and there can be no difficulty if they are ubliged to file returns in each State where they sell their goods. This argument overlooks the practical effects of the different sales tax laws enacted by diff erent States. All big traders will have to get themselves registered in each State, study the Sales Tax Acts of each State, conform to the requirements of all State laws which are by no means uniforms and, finally, may be simultaneously called upon their- in support of their rd:lJrns before books of account the officers of each State. Anybody who has any practical experience of the working of the sales tax laws of the different States knows how iong books are detained by the officers of each State during assess ment proceedings. There are different stages of proceedings, original, appellate and revisional there will be as many proceedings under each heading as there are States where the goods are sold. The harassment is quite obvious and needs no exaggeration. On the other hand economy of the States ensues from the construction of anicle 286 which commends itself the appeal must be to Parliament which can by law made the opening words of clause (2) mitigate that risk. to produce if any to us, traders For all the foregoing impose or authorise the reasons we are definitely of opinion that, until Parliament by in exer law made cise of the powers vested in it by clause (2) provides otherwise, no State can im- position of any sales or purchases course of inter-State trade or commerce and the ma jority decision ir: Tlie State of Bombay v. The United Motors (India) Ltd. founded on the contrary cannot be accepted as well principle or auth<>rity. tax on sales or purchases of (supra) in so far as it decides take place m In the view we have taken on ~uestion (A) it is not to discuss that remains to nece; sary this occasion, other questions (B), '(C) or (D}. All for us, on 1955 Till &tiff" Co~ v. Thi Stall of Biltar and othm Das A•tg. C. J. 2 S.C.R. SUPREME COURT REPORTS 665 be seen is whether as a result of our finding on ques tion (A) the Bihar Sales Tax Act, 1947 is ultra vires and void in its entirety or it is only bad in so far as it seeks impose a sales tax on out-of-State sellers in respect of inter-State sales or purchases: This will depend on whether the Act are severable from It will be necessary here Act. the objectionable parts of its provisions. to a few provisions of the rest of to refer recites that "It The long title of the Act is "An Act to provide for the levy of a tax on sales of goods in Bihar". The preamble to make an is necessary addition to the revenues of Bihar and that pur tax on the sale of goods in Bihar". pose to The Act extends to the whole of the State of Bihar. "Dealer" was originally defined in section 2(c) as meaning: impose a for commission, · remuneration firm or a Hindu "any person who sells or supplies any goods in Bihar whether otherwise and includes any family and anv society, club or association which sells or supplies goods to its members". By the Bihar Finance Act, 1950 the words "in Bihar" were omitted from this definition. Clause (g) of the same section defines sale. That definition has under gone various changes from time time. The period this appeal is from 26th we are concerned with January 1950 to the 30th September 1951. Between 1st October 1948 and 31st March 1951 which covers the earlier part of the relevant period the clause stood as follows :- "Sale" means, with all its grammatical variations and cognate expressions, any goods for cash or deferred payment or other valuable consideration, a goods involved in the execution of contract but does include a mortgage, hypothecation, charge or pledge: transfer of property transfer of property including Provided that a transfer of goods on hire-pur chase or other instalment system of payment shall, notwithst:inding that the seller retains a title 5-84 S. C. lndia/59 the fact 1955 Th• Bengal lmmunif.1 Company Limited v. Tk1 Stau of Bi/1at and others Dai Actg. C. J. 666 SUPREME COURT REPORTS [1955] to any goods as security for payment of the price, be deemed to be a sale : further that notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930 (III of 193'b), the sale of any goods- Provided (i) which are actually when, in respect thereof, fined in section 4 of that Act is made, or in Bihar at the contract of sale as de (ii) which are produced or manufactured Bihar by the producer or manufacturer thereof, shall, wherever made, be deemed for the purposes of this Act to have taken place in Bihar : the delivery or contract of • Provided further that the sale of goods in respect 0£ a forward contract, whether goods under such con tract are actually delivered or not, shall be deemed to have taken place on the date originally agreed upon for delivery". This definition was amended and between !st April 1951 and the 31st March 1952 which covers the latter part the relevant period it read as follows:- its grammatical variations " 'sale' means, with all and cognate expressions, any transfer of property goods for 'cash or deferred payment or other valuable consideration, goods involved in the execution of contract but does include a mortgage, hypothecation, charge or pledge: transfer of property including a Provided that a transfer of goods on hire pur instalment system of payment shall, cha<e or other notwithstanding the fact that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale : Provided further pect of a forward contract, whether goods under such contract are actually delivered or not, shall be deemed to have the date originally agreed upon for delivery. the sale of goods in taken place on Explanation.-The delivered the purpuse of consumption for the purpose of this Act to have actually in Bihar as a direct result of such sale for in Bihar shall be deemed taken place any goods sale of 2 S.C.R. SUPREME COURT REPORTS 667 Bihar, notwithstanding the fact that under the gene the property in the ral law relating to sale of goods, goods has, by reason of such sale, passed in another State". It will be noted that the Explanation which is sub to arti stantially a reproduction of cle 286(1)(a) was introduced for the first time by this amendment. the Explanation 1955 T Ill Bmgal Immunity Compa'!Y Limilld v. T Ill Stall of Bihar and ot/llrs Das Actg. C.J. "Turn over" is defined in section 2(i). The charg ing section is .section 4 which provides, amongst other things, that subject to the provisions of sections 5, 6, 7 and 8 and with effect from the commencement of the Act every dealer whose gross turn over during the date of such com immediately preceding taken place both in mencement on sales which have and outside Bihar exceeds Rs. 10,000 shall be liable to pay tax under this Act on sales which have taken place in Bihar and from the date of such commence ment. It will be noticed that although the long title and the preamble refer to the sale of goods in Bihar the words "in Bihar" were deleted from the definition of the word "sat::" in section 2(g). There are various provisions for working out the scheme of the Act to which no detailed reference need be made. It may, how ever, be pointed out that a new section was inserted by the Adaptation of Laws (Third Amendment) Order, provisions reproduced 1951 which substantially of article 286(1) and (2). Although, charging section read with the definition of "dealer" and "sale" may be wide enough inter-State those provisions sales, the new section 33 makes all subject to its provisions which are nothing but a re production of th<; corresponding provisions of article 286. In view of the interpretation we have put upon article 286 it must follow that the charging section of relevant definitions cannot the Act operate to tax inter-State sales or purchases and must be held that as Parliament has not otherwise provided, the Act, in so far as it purports to tax sales the course of inter or purchases that take place State trade or commerce, illegal and void. This being the position the question arises therefore, is unconstitutional, r.ead with to cover 1955 Thi Bmgal lmmuttil Compaf!1 .cY..ma v. Thi SlaU .r Bi/uJr and others Dos Aclg. C.J. 668 SUPREME COURT REPORTS [1955] for it is feasible subjects whether the Act is bad in toto or is bad only in so far as it offends the provisions of article 286 as construed It appears to us that the Act imposes tax on above. subjects divisible in their nature but does not exclude the Constitu in express terms subjects exempted by In such a situation the Act need not be declared tion. wholly ultra vires and void, to sepa levied on authorised the latter levied on exempted subjects and to exclude In these circumstances in the assessment of the it is difficult to say that the scheme of State sales forms such an integral part of the entire scheme of taxation on sales or purchases of goods as it. There to be is no interwoven with reason the Bihar Legislature known that the provisions of the Act might be held bad in so far as they imposed or authorised the im commerce position of a tax on inter-State trade or law provided otherwise it would, nevertheless, not have passed rest of the Act. though Parliament had not by inextricably to presume that had taxing tax. The result, therefore, law provides otherwise, is that this appeal must be that, until allowed and we issue an order directing the State of Parliament by Bihar do forbear and abstain from imposing sales on out-of-State dealers in respect of sales or purchases that have taken place inter-State trade or commerce even though the goods have been delivered as a direct result of such sales or purchases for consumption in Bihar. The State must pay costs of the appellant in this Court and in the Court below. The interveners must bear and pay their own costs. the course of reached reasoning and BHAGWATI J.-I agree with the ·conclusions judgment just deli In so far however as vered by my Brother S. R. Das. I was a party to the judgment in The State of Bombay and Another· v. The United Motors (India) Ltd. and Others(') is but proper that I should record my reasons for doing so. (I) [t95Sl s.c.R. 1069. 1955 Thi Bengal Immunity Comµny Limittd v. Thi Stau qf BU!• and olhn1 Bhagwati]. 2 S.C.R. SUPREME COURT REPORTS 669 The Appellant is a company incorporated under the Indian Companies Act having its registered office at No. 153, Dharamtala Street, Calcutta and laboratory and factory at Baranagar the District of 24 in West Bengal and carrying on business Parganas of manufacturing and selling various sera, vaccines, in Calcutta. biological products and medicines, etc., The Appellant has extensive its products sales of throughout goods are despatthed by the Appellant from Calcutta rail, steamer or air against orders accepted at Calcutta and all sales take place within the State of West Bengal. The Appellant has no offices, agents, · managers, godowns or laboratories the State of It is not a resident of Bihar nor has a place Bihar. of business into any transaction of sale within the State of Bihar. the whole of the Union of India and in Bihar and does not enter that all sales registered under On the 24th October 1951 the Assistant Superinten dent of Commercial Taxes, headquarters Patna, wrote to the Appellant to get itself .the Bihar Sales Tax Act and to take necessary steps to de posit the Bihar Sales Tax dues in any Bihar treasury at an early date, contending in West the goods had been delivered in the Bengal in which State of Bihar as a direct result of the sale purpose of consumption Bihar Sales Tax with effect from the 26th January 1950. The Appellant denied the right of the State of Bihar to tax the sales effected in West Bengal and by his letter dated the 18th December 1951 the Superin tendent of Commercial Taxes, Central Circle, Bihar sent a notice under section 13(5) of the Bihar Sales Tax Act to the Appellant calling upon it to apply for registration and the period from the 26th January 1950 turn-over for to the 30th September 1951. return, showing in Bihar were leviable to submit in which both thereafter ensued Correspondence futile attempts the parties made other of the legality of the stand taken by it. The to assess Appellant asserted ment under authority of the State of Bihar to levy sales tax upon that it was not liable the Bihar Sales Tax Act and denied to convince 1955 The Bengal Immuni; Company LimiUd v. The State of Bihar and oth1rs BhagwatiJ. 670 SUPREME COURT REPORTS [1955] the Appellant. The Assistant Superintendent of Com mercial Taxes, Central Circle, Bihar, ultimately by letter dated the 28th May 1952 rejected the con tention of the Appellant and asked it to comply with the notice under section 13(5) of the Bihar Sales Tax threatened Act failing which he to take steps for assessment the best of his judgment. The Appellant thereupon by its letter dated the 7th June 1952 called upon the Superintendent of Commercial Taxes, Central Circle, Bihar to forthwith rescind and cancel the notice issued under section 13(5) of Bihar Sales Tax Act as the said notice was ultra vires of the Constitution and also the Bihar Sales Tax Act and was entirely illegal and inoperative. to proceed issued the purpose of levying and As the aforesaid demand was not complied with the Appellant filed in the High Court of Judicature at Patna a petition under article 226 of the Constitu tion asking for appropriate reliefs by way of issue of a writ of mandamus, certiorari and prohibition and any the pro other appropriate writs or orders quashing ceedings leviable on the alising a tax which was not lawfully Appellant and asking the Appellant to file a return and register itself as a dealer. The State of Bihar, Res pondent 1, The Superintendent of Commercial Taxes, Central Circle, Patna, Respondent 2 and Assistant Superintendent of Commercial Taxes, Central Circle, Bihar, Respondent 3 were the opposite parties to the petition. They did not in reply. the Appellant were not denied The facts alleged by but arguments on questions of law arising out of the petition were addressed by the Government Pleader appearing for them before the High Court. The High Court held: file any affidavit (1) That the Respondent 3 was acting within his jurisdiction in issuing the notice under section 13(5) and holding that the applicant was liable to pay the that if he made an assessment under section 13 tax, (5) the Act provided a right of appeal whereby any error of law might be corrected by the Appellate authorities prescribed under the Act, that sections 24 and 25 of the Act furnished a complete and effec- 1955 The Bengal Immuni? Compa1rv Limittti v. Thi State q; Bihu and ethers BhagwatiJ. 2 S.C.R. SUPREME COURT REPORTS 671 tive machinery for appeal and revision against assess ments made under the Act and that there was there fore no warrant for issuing a writ under article 226 of the Constitution; (2) That the phrase "sale or purchase in trade or commerce" course of in article 286(2) must be construed so as to exclude the particu lar class of sales or purchases described in the expla nation to article 286(1) and that therefore the amended clauses ( c) and (g) of section 2 and section 33 of the Bihar Sales Tax Act were not in conflict with article 286(2); int<:,r-State (3) That the Bihar Sales Tax Act was in pith and substance not a law with respect to sale of goods but a law imposing tax on the sale of goods and the legislation fell entirely within Item 54 of List II of the Seventh Schedule to the Constitution, viz., taxes on the sale or purchase of goods other than newspapers to be and that the Act could not therefore be said invalid under article .254; (4) That the Bihar Sales Tax Act had the purpose of imposing tax on enacted for the sale of goods and not for regulating inter-State or intra-State trade and commerce and that therefore the Act did not contravene in any way article 304; and (5) That the entire jurisdiction the Act was also not invalid on ground that it was t::xtra-territorial in operation, jurisdiction to tax existed not only in reg-ard persons or property but also as regards the business done within the State, that it was not necessary for the purposes of transac tion of sale should have taken place within the terri tories, that on the other hand the fact that the goods were delivered in Bihar for consumption constituted territorial connection which con sufficient nexus or ferred jurisdiction upon the Bihar legislature to impose the tax and that the explanation to article 286{1)(a) expressly corJerred upon the State power to tax sales or purchases of gooCls which were actually delivered for consumption inside the State. The High Court therefore dismbed the petition with costs. 1955 Tiii Bengal Immunil) Company Limited ;,, Ti.. Stale of Bi\IW and ot/tfrs Bhagwati]. 672 SUPREME COURT REPORTS [1955] The Appellant applied for leave to appeal to this requisite the High Court granted Court certificate under article 132( 1) of the Constitution. At the hearing of the appeal before us the State of West Bengal, Tata Iron & Steel Company, Calcutta, the State of Madras, the State of Myso~e, the State of Uttar Pradesh, the State ot Orissa, the State of Pepsu, the State of Rajasthan, the State of Madhya Pradesh, the State of Travancore-Cochin, the State of East Punjab and one M. K. Kuriakose applied for and were granted veners appeared before us and urged respective points of view. to intervene and counsel for The first question as regards the maintainability of a petition for writ under article 226 on the facts the petition can be disposed of very disclosed shortly in the words of Mahajan, C. J. in Himmatlal Harilal Mehta v. Tht: State of Madhya Pradesh & Others( 1 ) where he repelled a similar contention urged the State of Madhya Pradesh:- the Advocate-General of than by use of statutory obligation "The learned Advocate-General of the State ..... . . . . . . . however contended that on the principle enunci ated by the Privy Council in Raleigh ln~~stment Co. v. Tht: Governor-General-in-Council( ), jurisdiction question assessment otherwise machinery expressly provided by the Act, was to pay, arising sistent with by virtue of the assessment and that the liability liability pay the sales tax under created by the Act itself which at the same time gives a special and particular to be resorted to, and therefore the remedy by a writ ought not to be allowed to be used for evading the provisions of the Act, especially a fiscal Act ............. : ........... . . .. .. . .. .. .. .. .. .. .. .. .. .. . .. . In our opinion the con learned Advocate-General arc tentions raised by not well founded. that the State evinced an intention that it could certainly proceed to apply the penal provisions of the Act against the appellant if it failed to make the return or to meet tl1e demand remedy which ought It is plain the Act is a special (1) [1954] S.C.R. 1122, 1126. (2) 74 I.A. 50. 1955 The Bengal Immuniry Compa'!Y Limiud v. The State of Bihar and others Bhagwati]. 2 S.C.R. SUPREME COURT REPORTS 673 relief. clearly tax on law, and is without the property of fundamental the appellant the authority of law, and and in order to escape from such serious consequences infringing threatened without authority of fundamental rights, relief by way of a writ of manda mus was In Mohd. the appropriate Yasin v. The Town Area Committee( 1 ), it was held by this Court that a licence fee on a business not only licensee but also takes away operates as a restriction on his carry on his business and therefore imposition of a licence fee is without authority of law it can be challenged by way of an application under article These observa 32, a fortiori also under article 226. tions have apposite application the circumstances of the present case. Explanation II to section 2(g) of the Act having been declared ultra vires, any im in Madhya position of sales Pradesh being so a threat by the State by using the coercive machinery of the impugned Act to realize it from the is a sufficient infringement of his appellant mental right under article 19( 1 )(g) and it was clearly entitled to relief under article 226 of the Constitution. The contention pugned Act was available it was disentitled to relief under article 226 stands negatived by the decision of this Court in The State of Bombay v. The United Motors (India) Ltd.( ), above referred to. There it was held that a court , · ~t the principle will not issue a prerogative writ when an adequate could not apply alternative to the court with an allegation where a party came that his fundamental right had been infringed and sought relief under article 226. Moreover, the remedy provided by the Act is of an onerous and burdensomr character. Before the appellant can avail of it he has tax. Such a to deposit provision can hardly be described as w adequate alternative remedy". This sufficiently disposes of that contention and I am of the opinion that the High Court was in error when that there was no warrant for issuing a writ that because remedy under the whole amount of the appellant remedy was available -- it held (I) [1952} S.C.R. 572. (2) tJ'l53] S.C.R. !069. 1955 The Bengal lmmunif:Y Compa1iy Limited ... Thi State of Bilzar and others BhagwatiJ. • 674 SUPREME COURT REPORTS [1955] under article 226 of disclosed in the appellant's petition, the Constitution on the facts On the merits Shri N. C. Chatterjee appearing the appellant urged :- ( 1) That article 286 put a fetter on State Legis lature and explanation did not power on any State Legislature tv levy any taxes but was meant to explain only clause l(a), i.e., what was an outside sale or . purchase and that it did not remove any restrictions or fetters and did not convert any inter-State sale or purchase intra-State or local or domestic tran'Saction; into an confer inter-State trade or commerce and (2) That article 286(2) in Part XII was meant to the supremacy of Parliament with regard it put an the power of State Legislature to levy trade or commerce and that it was only when lifted by appropriate Parliamentary the course of inter-State trade implement embargo on any tax on sale or purchase with respect State the embargo was legislation that State Legislature could on sales or purchases in or commerce; and levy any (3) That legislative competence of a State Legisla ture was derived from article 246 read with the lists of the Seventh Schedule to the Constitution, that under article 245(2) only Parliament ·was given the power t(} legislation with extra-territorial operation and the State Legislatures had no such power, and that the combined effect of article 246 ( 3) and article 245 read' with Item 54 of List II was that the State Legislature wa~ only competent imposing tax on to make sale or purchase of gOods for the whole or part of that State. · The determination of these questions a: construction of the provisions of article 286( 1) and (2) of the Constitution and their trUe scope and effect_ These provi~ions read as follows :- involves "Article 286. (1) No law of a State shall impose,. or . authorise the imposition of, a tax on thr> sale or purchase of goods where such sale or purchase takes. place- (a) outside the State; or l 2 S.C.R. SUPREME COURT REPORTS 675 (b) in the course of the import of the goods into, 1955 The Bengal Immunity Company Limiteif v. The State ef Bihar and olhtrs Bhagwati J. or export of the goods out of, the territory of India. Provided immediately before the commencement of Explanation.-For the purposes of sub-clause (a), a sale or purchase shall be <leemed to have taken place in the State in which the goods have actually been <lelivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwith standing the fact that under the general law relating to sale of goods the property in the goods has by rea son of such sale or purchase passed in another State. (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or pur -chase of any goods where such sale or purchase takes pbce in the course of inter-State trade or commerce : the President may by order direct that any tax on the sale or purchase of goods which w:is being lawfully le.vied by the Government of any State Constitution shall, notwithstanding imposi the provisions of this tion of such tax is contrary clause, continue to be levied until the thirty-first day of March, 1951". They are enacted in Part XII of the Constitution which relates to finance, property, contracts and suits and fall under the caption of 'Miscellaneous Financial Provisions'. Their main purpose restnct10ns imposition of tax on the imposing or authorising lays down sale or purchase of goods. Article 286(1) such restrictions where such sale or purchase place-( a) outside the State, or (b) in the course of the import of the goods into, or export of the goods out of, down such restrictions where such sale or purchase takes place in the course of inter-State trade . or com is hedged in with the explana merce. Article 286(1) in with the excep tion and article 286(2) is hedged tion "in · so far as Parliament may by law otherwise provide" and the proviso under which the President might direct that any tax which was being lawfully State Legislatures India. Article 286(2) is to lay down territory of 676 SUPREME COURT REPORTS [1955] 1955 The Bengal Immunity Company Limited v. The Stat< •f Billar and other1 Bhagwati]. levied by the Government of any State immediately before the commencement of the Constitution mav, notwithstanding the provisions of article 286(2), con tinue to be levied until the .31st March 1951. Except down by article 286(1) and (2) prevail and the true scope and extent of these restrictions would have be culled out of the terms m which these provisions are couched. special dispensations restrictions issued a writ in to be considered by These provisions came the State of Bombay and Court in two cases, ( 1) The State of Bombay and Another v. The United Motors (India) Ltd. and others(') and (2) State of Trat/ancore-Cochin and Others v. Shanmugha Vilas Cashew Nut Factory and Others( 1 ). The first of these cases was concerned with the con stitutionality of the Bombay Sales Tax Act XXIV of 1952. The High Court of Bombay had declared the State Bombay Sales Tax Act, 1952 ultra vires the nature of Legislature and had mandamus against Collector of Sales Tax, Bombay, directing forbear and desist from enforcing the provisions of the said Act against the respondents. The main ground of attack in the High Court had been that the Act purported to tax sales and purchases of goOds regard legislative imposed on less of power by article 286 of the Constitution and in that the provisions of article 286(1) and (2) connection came to be considered by this Court. The majority judgment of this Court delivered by Patanjali Sastri, C.J. with which Mukhcrica, J. and Ghulam Hasan, J. concurred held that article 286(l)(a) of the (',onstitu the explanation the light of article 301 ap.d 304 prohibits strued Statc elements by all States except the State in which the purpose of consump the gOOds arc delivered for tion therein. The latter State is left free to tax such sales or purchases. and it derives this power not . by virtue of article 286(1) but under artic~ 246(3) read with Entry 54 of List judgment (I) [1953] S;C.R. 1069. taxation of sales or purchases II. The majority (2) gQU] s.c.R. 51. thereto and read with restrictions the State involving ' , 1955 TM Bengal Immunity Company Limited v. Tiu State ef Bihar and others Bhagwati]. 2 S.C.R. SUI'REME COURT REPORTS 677 the State that the basic to prohibit taxation the view which was by me differed from that the Explanation does not deprive which the property in the goods passed of this taxing that consequently both the State in which power and the goods passes and the State the property which the goods are delivered for consumption have the power to tax and characterised it as not correct. The majority judgment also held that clause (2) of arti cle 286 does not affect the power of the State in which to tax inter-State sales is made the delivery of goods or purchases of the kind mentioned in the Explanation to clause ( 1). The effect of the Explanation is ·that such transactions are saved from the ban imposed by article 286(2). Bose, J. and myself agreed that arti cle 286(2) could not be construed in the light of arti the two articles dealt with different cle 304(1) matters. Bose, J. however held underlying article 286 case of inter-State trade and commerce until the ban under dause (2) of the said article is lifted by Parlia ment and always in the case of imports and exports. When the ban is lifted, the Explanation to clause (I) of article 286 comes into play the situs of the sale. This Explanation does not govern clause transac (2) of article 286 and as it can only apply tic 1s which in truth and in fact is no course of inter-State need to call it in aid until the ban is removed. The ma.jority judgment as well as Bose, J. recognised the provisions of article 286(1) and (2) had been enacted in order to prevent multiple taxation which used to be levied by the States before the commence ment of to the nex4s theory theory. They however did not discard it was suffi altogether and were of the opinion that jurisdiction cient to invest to impose a tax on sale or purchase of goods, if any ingredients of sale had taken place within territory. They did not accept fer of ownership in the goods or 'the passing of pro the State within situs of the sale and thus investing the sole criterion determining the Constirution having resort the State Legislature with trade and commerce, take place to determine the essential therein as 1955 The Bengal Immuniry Company Limited ... 'The State of Bihar and otherJ · Bhagwati]. 678 SUPREME COURT REPORTS [19551 fiction, the State transactions mentioned in I howe'l'.er held that under whose territories the sale had thus taken place as the only State entitled to impose the tax on sale or pur chase of goods. the gene ral law relating to sale of goods a sale must- be re the State in which taken place in garded as having the property in the goods sold has passed to the pur chaser, and that the State is entitled to tax the sale or purchase as having taken place inside the State. The Explanation to article 286(1) does not take away the right which the State in which the property in the goods passed has to tax the sale or purchase but only deems such purchase or sale, by a legal have taken place in which the delivery for consumption therein of the goods has been made so as to enable the latter State also, to tax the sale or purchase in question. The Explanation only lifts ban imposed by clause ( 1) (a) on taxation of sales or the State, to the purchases which take place outside extent of the Explana tion to enable the delivery State also to tax them. l also held in arti imposition of tax on the sale or cle 286(2) against purchase of goods or commerce should give way to the special provision which is enacted in the Explanation to article 286( 1) (a) enabling the delivery State to tax such sale or purchase in the limited class ·of cases covered by the Explanation, the Expla the transactions covered by nation being thus lifted out of the category of transac trade or commerce tions in the course of inter-State and assimilated sale or purchase which take place the State and thus invested with the character of an intra-State sale or purchase is concerned. There was so far as the delivery State learned Judges as re thus a divergence between gards the true scope and effect of the Explanation article 286(1) (a) read with article 286(2) and even though the same on majority Judges and myself we reached different grounds. The interpretation put on article 286(1) (a) read with fore was that the delivery State is left free to tax such in the course of that the general provision enacted the same conclusion was to transactions of the Explanation reached by inter-State thereto inside 1955 The Bengal .lmmunilJI Company Limited g; The State :f Bihar and others Bhagwati]. 2 S.C.R. SUPREME COURT REPORTS 679 sales or purchases as fall within the terms of the Ex planation and article 286(2) does not affect the power of such a State to tax inter-State trade or commerce the Explanation. The Ex of the kind mentioned in planation saves such posed by article 286(2). transactions the ban taxation of explained what the Explanation the construction of the Explanation as also It may be noted that though there was a consensus of opinion that article 286(1) was designed to avoid the multiple a sale or purchase by various States having resort to the nexus theory was divergence of opinion as regards the real purpose non-obstante clause and the true concept of consump therein. According to the majority tion as embodied is an out side sale by defining what is an inside sale. Bose, J. was of the opinion that the purpose of the Explana the State and tion is to explain what is not outside l was of the view that what therefore what is inside. takes place is otherwise a sale or purchase which outside the State is deemed to have taken place side the delivery State and the only purpose of fiction whereby introduce Explanation the delivery State is also entitled transac tion of sale or purchase along with the State in which the transfer of ownership has taken place or the pro the goods has passed. The non-obstante I clause also was differently the view that the non-obstante clause is incorporated in the Explanation to state what according fixing Constitution makers situs or the location of the sale or purchase place where the transfer of ownership takes place or the property in the goods passes and to indicate that notwithstanding that fact a sale or purch::.se which the Explana falls within the category mentioned taken place tion is nevertheless to be deemed to have judgment the delivery . State. The majority inside stated that the non-obstante clause is inserted in Explanation simply with a view to make it clear be yond all possible doubt that immaterial where the property in the goods passes as it might otherwise ls the basic idea of interpreted. to tax the a. !955 Ti.. Bengal ImmuniJy Company I imited v. The State of Bihar and others Bhagwati]. 680 SUPREME COURT REPORTS [1955] the Explanation the place where the property passes be regarded as indicative of the place of sale. Bose, J. stated that the object of the location of a sale or purchase by means of a fiction, but he disagreed with the view expressed by me that the general 1<1w on the non-obstante clause enunciates this poi_nt. He stated that there was no general which fixed the situs of a sale, not even the Sale of Goods <\ct, that what the general law does is to deter absence of a special agreement, but the place where is not necessarily the place where the property passes the sale takes place, nor has that ever been regarded as the determining factor. As regards the concept of consumption the majority were of that it should be understood as having reference not merely to the individual importer or purchaser but as con templating general within word to mean the usual use made of an article for the purposes of Dictionary meaning of the term and held Explanation covers only those cases where as a direct result of the sale or purchase goods are delivered for the consumer the delivery State by consumption and it is only that limited class of transactions which are covered by the Explanation and which are liable to tax by the delivery State. contention that . the words "for the purpose of con sumption" must · be accepted in a comprehensive sense as having reference to immediate as well as ultimate consumption within the State" and excluding only resales out of the State. distribution eventually the State. Bose, to consumers J. construed I adopted trade and commerce. I did not accept the view In regard to article 286(2) all that transactions of sale or purchase in judges were agreed course of inter-State trade or commerce are within the restriction and no State can transactions, except in so far as Parliament may by law otherwise provide and (2) provided that the President may by order direct that any tax on sale or purchase of goods which was being levied by the Government of any State im the commencement of the Constitu- mediately before the two excepted cases, viz., (1) except tax such 1955 Thi a.,111 ,.....,, Tl,_~ .J.:U. Com,..yu.t#lrl V• 2 S.C.R. SUPREME COURT REPORTS 681 to be transactions aJil intra-State one and tion shall continue to be levied until the 31st March to article 286(1)(a) though it 1951. The Explanation is specifically stated the purposes of sub. clause (a) was construed by me as an exception or proviso to article 286(2), thus enabling the delivery of sale or purchase State to the course of inter-State trade or com taking place in this view merce. The majority Judges differed from and held the Explanation converts State transaction into fore there is no scope at all for the operation of article in cases covered by the Explanation. Bose, J. 286(2) was of the view the article 286(2) bans the deli taxing such transactions, because very State also from the course of inter-State if the transactions were trade or commerce the Explanation merely shifts point from A to B but this shifting is of no conse the points are caught in quence It is the vortex of inter-State trade and commerce. only when the Parliament otherwise provides or President gives the directions within the meaning is lifted and the Explana the proviso that tion is there to settle a matter of considerable troversy regarding the situs of a sale. The argument that on this construction being put on the Explana the Expla tion to article 286(1) and on article 286(2) nation would become nugatory J. by pointing out that once me was rejected by Bose, th~ Parliament by President by order gave the mean the Explanation would come into ing of the proviso the situs of the sale operation and would determine thus· enabling to impose a the appropriate State on such transaction of sale or purchase. law otherwise provided or the direction within all, because both though accepted this ban the construc The second case concerned itself with the Sales tion of article 286(1) (b) in connection with the State of Travancore-Cochin upon Tax levied by territory in cashew nuts within certain dealers the Travancore-Cochin General under the provisions of (Act No. XVIII of 1124 Sales Tax Act, 1124 M.E. M.E.) and Court was whether certain sales and purchases could the question for the consideration of ·- 6-R4'S. C. India'59 1955 "TJ..B'"gaJ ImrnuniJ Com/Jdl'Y Lfmiled "y. TM SlaJ1 of Biluu and °""'' 682 SUPREME COURT REPORTS [1955J series of the point of is not restricted transactions which be said to be in the course of the impor"t of the goods into or the export of the goods out of the territorv of India. The High Court had put a very wide construc tion on the words of ;irticle 2il6(1) (h) and held :.Int the clause time at imported into or exported from India which goods are necess~rily precede export or succeed import of goods will come this clause. There was a diver within the purview of gence of opinion between Pataniali Sastri, C.J., ~.fok­ herjea, J., Bose, J, and Ghulam Hasan, J, on the one side and S. R Das, J. on the other so far as the con the course of" was con struction of the words "in article cerned. But apart from this construction of to the 286(l)(b) S. R. Das, J. who was not a party earlier decision hereinbefore referred to put on record his views on the construction of article 286(1) (a), the Explanation thereto and article 286(2) expressing the maj disagreement with judgement same. He agreed that the Se\1enth porting to act under Entry 48 in List II of India Act, 1935, had Schedule to the Government of enacted the Sales Tax Acts imposing sales or purchases of goods on the basis of one or more of the ingredients of sale having wme connection with Province and that transaction imposition of multiple of sale or purchase commodity concerned to the consumer, that this evil had to be curbed and that is what has been done by clause (I) (a) of article 286. He however was "of the opinion that in imposing ban that no law "of a State shall impose or authorise the imposition of a tax on the sale or purchase where the State, such sale or purchase the Constitution proceeds on that a sale the footing location or situs. He further held or purchase has a the Explanation also clearly implies the Constitution framers of the view that a sale or purchase has a situs adopted and further that the place interpretation which that case had put up on the Provincial Legislatures this practice had resulted taxes on a single the 11rm-obstante clause the serious detriment takes place outside takes place at thereby the price of it ordinarily raising tax on 1955 Thi Bengal lmmuniJY Com/Jal!Y Limited y; TktStaliof Bihar and ot1"'s Bhagwati ].

#2. S.C.R. SUPREME COURT REPORTS 683 really to attract take away in any of the general take place that under this Explanation the goods passes. the Explanation ends stretched or extended beyond the Explanation creates a legal fiction. the Constitution, by In effect, where the property therefore, the general ( 1) (a), acknowledges clause therein mentioned law the sale or purchase of the kind may not in the delivery State, but to be treated as if it did. That nevertheless requires it is to say, So far he agreed with me, but he differed from me the only effect of this assignment of a holding to a particular kind of sale or pur location fictional the ban chase in a particular State' is clause the taxing power of (1) (a) and .all other States in relation to such a sale or purchase towards even though the other ingredients which go the making up of a sale or purcha~e are to be found within these States or even if under those States. the property in the ~ods passes there and can The purpose of that purpose. not be He therefore held effect of clause (l)(a) read in the light of the Explanation to permit both the property passes States, viz.. in which, under the general by force of sale or purchase, .deemed to take place. to the very purpose because in that event imposi of that clause and it will fail obviously designed tion of multiple taxes which it is In his opinion clause ( 1 )(a) to prevent. only takes away the taxing power of all States with respect to as sale or purchase which, by reason of the fiction introduced by the Explanation, is to be deemed territories and their respective the purpose of the Explanation is only to explain scope of clause ( 1) (a). The Explanation is neither exception nor a proviso. its purpose nor confer any power on any State, not even on the deli very State, to impose any tax. Whether the delivery State can the sale or purchase of the kind men tioned in the Explanation · will depend on other provi sions of the Constitution. Neither clause (1) (a) nor it purport, substantively and proprio vigore, tax such it will stultify law as well as the State the sale or purchase take place outside the State where the Explanation, It is not to prevent is not 195~ TM&ltrJ 1,,.,,...,,, C.mpanJ Limited v. T 1w !i"".:/,/;ih"' Bhagwoli J. 684 SUPREME COURT REPORTS [1955] the Explanation has any bearing on that question. So far as the purpose and design of clause (2) are concerned he was of the opinion that clause (2) places the State yet another ban on the taxing power of under Entry 54 read with article 246(3), in addition the ban imposed by clause (l)(a). A sale or pur chase contemplated by the Explanation to clause ( l) (a) undoubtedly partakes of the nature of a sale or in the course of inter-State trade and, purchase made therefore, no State, whether it is the State in which the property in the goods passes under the general law or the State where the goods are delivered as men the Explanation, can impose a tax on such tioned sale or purchase, unless and until Parliament this ban. He differed from the view taken by me that the Explanation to article 286(l)(a) must be regarded not only as having authorised tax on impose the the sale or purchase covered by the Explanation, but having also exempted ban imposed by clause (2). He also differed from the majority view transac the ban of article 286(2) is converted into tion within transaction by virtue of the Explanation to article 286(1)(a). He saw no warrant for the argument that the fiction embodied in the Explanation pose, can be legitimately used for the entirely foreign inter-State character of the purpose of destroying ttansaction and converting it for all purposes. or purchase completely beyond the purpose and purview of clause (!)(a) and the Explanation thereto. After expressing himself into an intra-State Such metamorphosis intra-State or -local or domestic that what was an inter-State for this definitely expressed the delivery State it from following observations which are very apposite to appeal before us :- as above, he made the "To accede to this argument will mean that the Sales Tax Officer of the delivery State will have jurisdiction to call upon dealers outside that State to submit returns of their turn over in respect of goods delivered by that State under transactions of sale made by them with dealers with in, say, Pepsu who that State. Thus a dealer to dealers 1955 Thi B1ngol lllllftllllilw ca,..., Umild Vo Thi $111#1 of BW.r -"""'' B/iogwtdl

#2. S.C.R. SUPREME COURT REPORTS 685 there. I repeat inter-State irrespective of the Explanation I cannot imagine the law of any State, the Explanatioh beyond its delivers gOods to a dealer ir., say, Travancore-Cochin will become subject jurisdiction of the · 1ast mentioned State and will have to file returns of their turn over and support the same by producing books of account that our this anoma Constitution makers intended to produce lous result. On the contrary, to me it appears they enacted clauses (l)(a) and (2) for the very pur pose of preventing this anomaly. not permissible, on principle or on authority, to extend imme<liate the fiction of and avowed purpose which I have explained above. In my judgment, until Parliament otherwise pro vides, all sales or purchases which take place in the course of trade or commerce are.. by clause (2) of article 286, made immune from taxation the place where the sales or purchases ma1 take place, . either under the general law or by virtue of the fiction in to clause (l)(a). If a tro<luced by takes place particular outside. a State, either under the general law or by virtue of the fiction created by the Explanation, exempted from taxation by the law of that State both under clause (l)(a) and clause (2). If such inter-State sale or purchase takes place within a particular State, either under Explanation, it is still exempt from taxation even by the law of that State under clause (2), just as a sale takes place within a State, either or purchase which under the general law or by reason of the Explana that State, tion, cannot be taxed by such sale or purchase takes place the course of . the meaning of clause import or export within (l)(b)" .. It may be observed that the contentions urged before the Appellant are in conformity with the above us by observations of S.R. Das, J. Normally speaking majority judgment on the article 286(1), the Explana tion thereto and article 286(i) of the Constitution the Bombay Sales Tax appeal would be the law bind- inter-State sale or purchase the construction put by the. law of law or by reason of the general 1955 The Bengal lmmrmi~ c.,"ompatt.1, Limited ~. Thi Stale of BihtJr lld otlidt Bhagwali J. 686 SUPREME COURT REPORTS [ 19551 ing on all parties and in the judgment just referrc<l to in the Travancore-Cochin Sales Tax Appeal S. R. Das, r. rightly expressed to be binding on that decision him so long as it stands. The Appellant has however sought to urge before us that that decision was errone ous and has attempted to reconsider the same and put a construction on article 286(1)(a), the Explanation thereto and article 286(2) which that. adopted by the Majority Judges different in the Bombay Sales Tax Appeal. to persuade us The question therefore arises whether we arc en titled to reconsider that decision. the Crown, arc pronounced The House of Lords in England has always con its previous decisions. These sidered itself bound by the opinions which <lecisions, as distinguished from arc delivered bv the Judicial Committee of the Privy Council as ad ~ice to the form of judgments and are binding on the House a' precedents. The question whether the House had the power to reconsider the previous decisions of own and if it thought the decisions wrong to overrule in subsequent cases was con or depart from sidi:red in Street Tramways v. London County Council(') Earl of Halsbury, L.C. who delivered the judgment of the House observed at page 379 :- "A decision of this House once given upon a point of law is conclusive upon this House afterwards, and that it is impossible to raise that question again as if it was res integra and could be reargued, and so the House be asked to reverse its own decision. That is a principle which has been, I believe, without any real decision some centuries, and I am therefore of opinion that in this case it is not competent for ·us to rehear and for a,unsel to reargue a question which has been recently decided". The reason of the rule was thus stated at page 380 :- the contrary, established now "Of course I do not deny that cases of individual there may be a current of that such and such a judg that occasional hardship may arise, and opinion in the profession ment was erroneous; but what (I} (1898] App<al Cases 375. 2 S.C.R. SUPREME COURT REPORTS 687 the dealings of mankind inconvenience-the disastrous justice as interference with what is perhaps abstract compared with to be convenience-of having each question subject rendered ing reargued and doubtful by reason of different decisions, so truth and in fact there would be no real final Court of Appeal?' My Lords, "interest rei publicae" should be "finis litittm" at some time, and there could be no "finis litium" if it were possible each case that it might be reargued, because it is "not an ordinary case," whatever they may mean". and the conclusion was thus recorded at page 381 :- to suggest 1955 The Btngal Immunity°!! .,,. Company Limited The State of Bihtir and othws. Bhagwati ]. appears "Under these circumstances to me that your Lordships would do well to act upon the profession, which has been universally assumed so far as I know, to be the principie, namely, that a decision of this House upon a question of law is con that nothing but an Act of Parliament clusive, and is alleged to be wrong 111 a can set right that which judgment of this House". ). In that case :\11 earlier decision of that it is free to. differ from The Judicial Committee of the Privy Council on the other hand has held own dt:cisions or from. those of tht: House of Lords. The power of the Privy Council to rt:consider its own decisions was discussed in In re Compensation to Civil Servants( 1 Board in Wigg v. Attorney-General o.f the Irish Free State(2) was attempted to be reviewed and after dis cussing the case-law on the point the Board came the conclusion that the Privv Council is not bound in the decision law and without examination to follow to be they considered in a prior appeal whether right or wrong although the Privy Council would hesitate long before disturbing a solemn decision bv a previous .Board, which raised an identical or even a for &termination. While laying down similar the earlier cases this principle the Board discussed and in particular the case of Ridsdale v. Clifton( 8 ) which was followed in Tooth v. Power(4) and Read v. Bishop of Lincoln( 5 ) and the proposition was thus laid (1) A.l.R. 1929 P.C. 84. (3) [ 1877] 2 P.D. 276. (2) A.I.R. 1928 P.C.'!39. (4) [1891] A.C. 284. (5) [89 ] A.C. 644. ,- 1955 -T!w&ngol - BM,...ii ]. 1,,...,.;1 eom,...,~ "' TM Sia qf SW. SUPREME COURT REPORTS [1955] down in the last mentioned case :- "In the present case their Lordships cannot but adopt the view expreS&Cd in Ridsdale v. Clifton(') as to the effect of previous decisions. Whilst fully to such decisions, to be attached sible of the weight their · Lordships are at the same time bound to examine the reasons upon which the decisions rest, and 'to give effect fo their own view of the law". The same principle was reiterated by the Privy Coun cil in Attorney-General of Ontario and Others v. Canada Temperance Federation and Others( 2 ). The Board was there concemea with the consideration of a constitu tional question. An earlier decision of Russell v. Reg( 8 ) had upheld the validity of the im pugned statute. That decision had stood unreversed for 63 years and had moreover received express appro val of the Board in subsequent cases between 1883 the case had been and 1937. wrongly decided and ought to be overruled and their Lords.hips repelled that contention :-·· It was contended that the Board further historical "Their Lordships do not doubt that in tendering humble advice to His Majesty they are not absolutely bound by previous decisions of the Board. as House of Lords by its own judgments. Jn ecclesiasti cal appeals, for instance, on more than one occasion, to that given the Board has tendered a\lvice contrary in a previous case, which research has shown to have been wrong. But on constitutional questions it must be seldom the Board would depart may be assumed will have been acted upon both by governments and subjects. decision now sought to be overruled has stood for over sixty years: the Act has been put into operation for varying periods the Dominion; under its ,provisions business must have been closed, lines and imprisonments for breaches of the Act have been imposed and suffered. Time and again the occa sion has arisen when the Board could have overruled. the decision had it thought it wrong. Accordingly, in a previous decision which In the present case in many places indeed (I) (1877] 2 P.D. 276. · (3l [1882] 7 A.c. 8:9. (2) A.I.R.1946 P.C. I 1955 Tu Bengal Immunity Comflilny Limilld V• Thi StaU of Bihar -4 oth111 Bhagwati J. 2 S.C.R. SUPREME COURT REPORTS 689 the opinion of their Lordships, the decision must be regarded as firmly embedded in the constitutional of Canada and it is impossible now to depart from it" themselves bound to examine rest and to give effect 'to the Commonwealth and concerns It is therefore settled law so far as England is con cerned that their Lordships of the Privy Council do law and without not consider examination to follow their decision in a prior appeal to be right or wrong but whether they consider the reasons upon themselves bound the decisions own view of the law. We here are the highest Court land and would derive considerable assistance of the from th.e µractice of the Privy Council set out above. The High Court of Australia is· the highest Court of Appeal itself inter a/ia with deciding constitutional questions. The question whether it is bound by its previous decisions the Tramways Case came up (No. J) (1) and the High Court held that it was not bound by its previous decision but would only review that decision was manifestly a previous decision when wrong. Griffith, C.J. following observations at page 58 :- is impossible as an abstract proposition the Court legally Indeed, or technically bound by previous it mav in a proper case be its duty to disregard them. the rule should be applied with great caution, But and only when is manifestly the previous decision wrong ...... Otherwise there would he grave danger of a want of continuity law'·. Barton, f. observed at page 69 :- to maintain is either llecisions. this connection made "In my opinion it for consideration interpretation of I would "In conclusion, it was not open to this Court that I have never to review thought that its previous decisions upon good cause. The question is not whether the Court can do so, but whether it will, having due regard to the need for continuity and consistency number of appointed Justices can, I take it, never of decisions. Changes judicial (I) 18 C.L.R. 54. 1955 T/,. Bmgal Immunil7 Company Limikd v; T/,. Stole of B;har ad otkMr _ Bhagwati ]. 690 SUPREME COURT REPORTS [1955J listen reason always furnish a to argument review. That its maintenance is manifestly wrong, and to be applied themselves prior decision was that of little more than half their number might be urged with greater fairness, but it cannot be urged against an earlier case. . . . . . . . . . But the Court can whether it ought to review a particular decision, and the strongest reason for an overruling is that a de cision injurious to the public interest". Powers, J. at page 86 referred to an earlier decision the case of The Australian Agricul given by him in tural Co. v. Federated Engine-Drivers and Firemen's Association of AtlStralasia(') :- "I am at all times prepared judicial policy of British, Australian to consider the review of any decision of this Court, by a Full Bench called to consider that question, and to reverse any decision if it is shown to be clearly wrong, subject to the well known considerations the particular time, according to the well in question at American Courts, and I think of all Courts of Appeal in English-speaking communities"-except the House of Lords... . . . . . . . "I decline even to consider a questioa of reversing a decision of this Court casually, or even seriously, raised by counsel, not clearly urgent, and is available. If not raised before as full a bench as we do not show some respect to oui· own Court's deci sions, no counsel will feel safe in advising the public, and it will create uncertainty and confusion" ........... . . . . . . . "Under those circumstances it would have to be shown that the decision was clearly wrong, and, as it has been followed by this Court in other cases, that it would be in the interests of the public to reverse it". This_ question came for consideration again by High Court of Australia in The Amalgamated Society of Enginurs v. The Adelaide Steamship Company Lim ited and Others (2) and the majority judgment stated at p. 142:- "It is I fest duty of this Court to therefore, circumstances, the mani turn its earnest attention (1) 17 C.L.R. 261, "9c. (2) <8 C.L.R. 129. ' 1955 lmmuttity Company Limilld v. The Sla11 of Bi/Jlw ONfllfwl Bhagwati· ]. 2 S.C.R. SUPREME COURT REPORTS 691 instances in the Constitution the provmons of itself. That instrument is the political compact of the whole of the people of Australia, enacted into binding _law by the Imperial Parliament, and it is the chief and special duty of this Court faithfully to expound and give effect to it according to its own terms, finding the in tention from the words of the compact, and upholding it throughout precisely as framed. In doing this, . we follow, not merely previous this Court and other Courts in Australia, but also the precedent of the Privy Council in Read v. Bishop of Lincoln(1), where the Lord Chancellor, speaking for the Judicial Committee in relation to reviewing its own prior deci sion, said: "Whilst fully sensible of the weight to be attached to such decisions, their Lordships are at the same time bound to examine the reasons upon which the decisions rest, and to give effect to their own the Privy view of the law". The ground upon which Council came to that conclusion we refer to, but need not repeat, adding, however the Common wealth and State Parliaments themselves bound by the declarations of this Court as to their powers inter se, our responsibility is so much the greater to give the true eftect to the relevant consti tutional provisions. In doing this, to use the language of Lord Macnaughten in Vacher & Som Ltd. v. London Society of Compositors( 2 tribunal has the policy of any Act which it nothing interpret. That may be a may be called upon to matter for private judgment. The duty of the Court, and !ts only d}Ity, is to expound the language of the Act m accordance with the settled rules of construc tion"." Higgins, J. at page 160 added:- and Executives ), "a judicial to do with that as "But the decision is now directly impugned by the claimant ; and it is our duty subject, and to obey the Act rather than any decision of this Court, if the decision be shown to have been mistaken". The High Court of Australia has therefore considered itself free to review its own decisions just as much the Constitution and to reconsider (l) [1892JA.C. 644. (2) [1913] A.C. 107, 118. 1955 Tht Bengal Immunity Company Limiletl Vo T/1' Stale of Bi/ia' and oth#s Bhagwati ]. 692 SUPREME COURT REPORTS [1955] the Judicial Committee ,pf the Privy Council, exa the decisions rest and mine the reasons upon which to give effect to its own views of in other law, words to reconsider the subject and to obey the Con than any decision of stitution and the Court if to have been mistaken. rather the Act the decision be shown Our Constitution has drawn freely inter ali11 upon the Constitution of the United States and it would be helpful to consider what is the position in the United States in regard to the re-consideration of its previous decisions by the Supreme Court. There have been in which numerous decisions of. the Supreme Court the doctrine of stare the Court has departed from decisis and has either overruled its previous decisions. refused to allow or In Hertz v. Woodman(') Mr. Justice Lurton ob served:- "The rule of stare decisis, though one tending consistency and uniformity of decisions, is not inflexi ble. Whether it shall be followed or departed from is a question entirely within court, which again is called upon to consider a qu~s­ tion once decided". the discretion of Mr. Justice Brandies while delivering his dissenting opinion in Waslzington v. Dawson & Co.( 2 rims ex pressed himself with regard to the proprietv upon the part of the Supreme Court of departing earlier doctrines to consider those doctrine as erroneous :- has coipe ) "The doctrine of stare decisis should not deter us from overruling that case and those which follow it. The decisions are recent ones. They have not been in. They have not created a rule of pro acquiesced perty around which vested interests have clustered. They affect solely matters of a transitory nature. On the other hand, they affect seriously the live; of men, women, and children, and the general welfare. Star~ is ordinarily a wise rule of action. But decisis not a universal, instances (1) 218 u.s. 205. (2) 264 U.S. 219· inexorable command. The 1955 Tht&11gal lmmunily ComjJally Limild v. The Sta11 of Bihar . i o11r1rt Bhagwali J. 2S.C.R. SUPREME COURT REPORTS 693 in which the court has disregarded its admonition arc many". The same learned Judge in a dissenting opinion in David Bttrnet v. Coronado Oil & Gas Company (1) re the same position in the manner following:-- itera1..!d " Stare decisis is not, like the rule of res iudicata, a universal, inexorable command". After quoting the passage from Justice Lurton in Hertz v. Woodman (1 the learned Judge proceeded:- judgment of Mr. ) above cited to the action legislative practically is usually "Stare decisis lessons of experience and legislation. But in cases the wise policy, because the appli in mosr matters it is more important that cable rule of law be settled that it be settled right. ............. This is commonly true even where the error is a matter of serious concern, provided cor rection can be had by volving the Federal Constitution, where correction impossible, through this Court has often overruled its earlier decisions. Tht: (',ourt bows force of better reasoning, recognizing that the process of trial and error, so fruitful in the physical sciences, is appropriate also in the judicial function ........... . Recently, it overruled several leading cases, when that the States should not have been per concluded it had mitted theretofore repeatedly involving the Federal Constitution the position of this Court is that of the highest court of England, where unlike and is policy of strictly applied free to correct any judicial error; and the remedy may be promptly invoked". It will be instructive following passages 825 to be in the report of this case (') :- · "Compare Taney, Ch. stare decisis was to all classes of cases. Parliament J. in Passenger Cases, 7 How. 283, 470; 12 L. Ed., 702, 780: After such opi that ques to be sc;.ttled, so far as any question upon the construction of the Constitution ought to be regarded juncture to note the in foot-note 3 at p. judicially delivered, I had supposed to exercise powers of sanctioned. In cases taxation which formulated (I) 285 U.S. 393. (2) 218 U.S. 205. (3) 76 L. Ed. 815. 1955 Tiu Blng,U Im~ Com~: Limited v. TM Stat, of Bih"' arJt! 9Jbns -B/uJgwati ]. 694 SUPREME COURT REPORTS [1955J to the this Court. the decision of the co'.l,trnction of is always open to discussion when it I <lo not, as closed by however object revision of it, and am quit<; willing that it be regarded her~aher as the law of this court,. that its opinion upon Constitution supposed to have been founded in error, and that its judicial authority should hereafter depend' altogether on the force of the reasoning by which it is supported". Compare Field;J. in Barden v. Northern P.R. Co. ( 1 ) : the court should be '"It later and more elaborate consideration of right upon than consistent with previous declarations. the cases stand which Those doctrines only will eventually test of ex perience". the strictest examination and important that is more In Mark Graves v. People of the State of New Yorlc(') Mr. Justice Frankfurter stated:- the ultimate "But touchstone of constitutionality the Constitution itself and not what we have said about it". The same principle was reiterated in Smith v. Al/ wright (3) :_:: follow precedent. constitutional the desirability of continuity of decision "In reaching this conclusion we are not unmind ful of constitutional questions. However, when convinced of former error, this Court has never felt constrained In questions, where correction depends upon amendment and not its power to re-examine history has decisions. This has the basis of long been accepted practice, practice continued to this day". and in United States South-Eastern Underwriters Association (') iil the dissenting judgment of Stone, C.J. at p. 579:- freely exercised legislative action of America v. constitutional this· Court throughout and this "This Court has never committed to any rule or policy that it will not "bow to the lessons of experience and reasoning" by precedent ............ This 1s overruling a mistaken (I l 154 U. s. "BB, 3 '). force of better itself (2) 306 U. S. 466, 4Si (4) 312 U.S. 533. (3 321 U.S. 649. '- 1955 Tire Bengal Immunity Company Limiteil .v. Tire State ef Bihar fllld others Bhogwati J. 2 S.C.R. SUPREME COURT REPORTS 695 is at the meaning of issue and a mistaken construction the Con espec~ally the case when sl:ltuaon legislative action. one which cannot be corrected by :i rule or policy that no To give blind adherence decision of this Court to be overruled would be to overrule many decisions of the Court which itself that view. But the rule of stare decisis do not accept embodies a wise policy because it is often more portant that it be settled right. This is especially so where as here, Con- gr<'."$s is not without regubtory power ........ The ques- tion then is not whether an earlier decision should ever be overruled, but whether a particular decision ought to be. And before overruling a precedent in any case it is the duty of the Court to make certain that more harm will not be done in rejecting than in retaining a rule of even dubious validity". that a rule of law be settled The position has been thus summarised by Willough the Constitution of the United States--·.V oL by on I-Second Edition-at p. 74 :-- laws. to other interests are rights created "There are indeed good reasons why the doctrine of stare decisis should not be so rigidly applied to the constitutional as In cases of purely that the private import, the chief desideratum remain certain, a!lll, therefore, where a rule has been judicially declared and private there·· under, the courts will not, except in the clearest cases the doctrine of stare decisis. of error, depart from When, however, public inv:>lved, and the question is one of constitutional especially when the matter is otherwise. An error in the construction, construction of a statute may easily be corrected by a legislative act, but a Constitution and particularly the Federal Constitution, may be changed only with great difficulty. Hence an error in interpretation may for all practical purposes be corrected onlv bv repudiating or modifying f~rme~ decision". then are the principles which should guide These in determining whether we should reconsider earlier decisions of this Court. We are here not merely concerned with legislative enactments which it would court's 1955 The Bmf.al Jmm:muy O.mpany Limited ... Tht State of Bihar al•lh1rs BhaKUJQli ]. r 696 SUPREME COURT REPORTS [19S5) erroneous the practical it will be almost the prov1S1ons of impossible be within the competence of either the Union ~ lature or the State Legislatures to enact if our earlier decisions were erroneous. We are concerned with the Constitution construction of to amend. The Howie of Lords considered itself bound by its pR vious decisions, because it felt that the Act of Parlia th" ment could set right an erroneous decision of legislation. But House by enacting appropriate High Court of Australia as well as the Supreme Court of the United States felt themselves free to reconsider their earlier decisions because of decisions correcting possibility through legislative action. They considered the constitutional provi bounden duty to construe the Consti sions and- be guided by the provisions of their earlier tution itself and not bv what had been its construction. The decisions on only safeguard which they put on the exercise of such powers of reconsideration was the earlier deci sion should be manifestly wrong or erroneous. We here also are concerned with the Constitution which cannot he prov1S1ons amended so easilv and if we come the conclusion that the earlier · decision was manifestly wrong or interest demanded that the erroneous and that public same should be reconsidered · we should not have the slightest hesitation therefore ap proach the consideration of the earlier decision of this Court in the Bombay Sales. Tax Appeal bearing in mind the principles above enunciated. It will be necessary at the outset the construction of in doing so. We the questions of to take stock of the situation as it obtained before the enactment of the Constitution. The Government of article 286 of India Act, 1935 contained provisions in regard to the the Domi distribution of legislative powers between nion and in sections 99 and 100. The Dominion Legislature was competent to make including laws having extra-territorial operation for the whole or any part of the Dominion the Provincial Legislatures were competent make laws for the Province or for any part thereof, the Provincial Legislatures 1955 The Btngal lmmuniry Company Limited v. T/16 Stal< of Bihar and others Bhagwati J. 2 S.C.R. SUPREME COURT REPORTS 697 the power transaction resulted respect of which the The legislative heads could be made by respective Legislatures were enumerated in the lists of the Seventh Schedule to the Act and the demarcation between the powers of the the Provincial Legislatures Dominion Legislature and in that behalf was to be found in section 100. Entry 48 in List II of the said Schedule gave the power to the Provincial Legislatures in respect of "taxes on the sale of goods and on advertisements". Even though the entry mentioned taxes on sale of goods · that head was construed to mean in reality a power to tax the transaction and transaction carried with it the power to tax either party thereto. therefore con The expression "taxes on sale" was strued to include also a tax on purchases of goods, as in change of ownership from one person to another and was from its very nature a bilateral transaction with a seller on the one hand and the purchaser . on the other. (Vide V. M. S. Md. & Co. v. State of Madras( 1 ) ). The same distribution of the Constitution legislative powers obtained when to he enacted and article 245 provided Parliament may make laws for the whole or any part the Legislature of a State may make laws for the whole or any part of the laws with respect to to make State. Exclusive power the Union List the legislative heads enumerated the State List (List II) of (List I) and the Seventh Schedule to the Constitution was given to Parliament and the State Legislatures respectively by article 246. Entry 54 of the State List gave the exclusive power to the State Legislatures with respect to taxes on the sale or purchase of goods other than newspapers. What was implicit in the phraseology of Entry 48 of List II the Government of Indja of the ~ev~nth Schedule to Act was thus made explicit by the phraseology adop ted in Entry 54 of the State List in the Seventh Sche dule to the Constitution. the territory of India, and f acie Prima laws enacted by State Legislatures would have operation within States. Primarily legislation of a country is territorial territories of (I) A.LR. 1953 Ma<lra, 105. -84 S. C. i.ndia/59 1955 TM Bengal lmmuniry Company Limited v. Thi State of Bihm and o'thm Bhagwati J. 698 SUPREME COURT REPORTS [1955] is "extra territorium and the general rule jus dicenti impune non paretur". The laws of a nation apply to all. its subjects and to all things and acts within territories. Interpr~tation of Statutes-10th Edn. page 144). Craies' on Statute Law-5th Edn. at p. 174 contains the following cita tion from the speech of Lord Cranworth in Jefferys v. Boosey( 1 (See Maxwell on the Legislature of this country must its QWn subjects exclu be taken to make laws for sively". The same principle has been applied also to sales in American Jurisprudence-Vol. 47, and it is stated p. 202 Para. 5 under the caption "Territorial Jurisdic· tion" that :·- ) : - "Prima facie It would therefore appear to sales that when "The general rule that a State may not ta.:i per sons, property or interests which are not wichin territorial jurisdiction is applicable taxes". the State Legislatures enacted laws in respect of taxes on sales or purchases of goods they would only have operation the States and the sales or within purchases of goods even though they are not specified in the relative entry territories" of the States would prima facie ,be such as take place within the respective territories of the States. to be "within the territories of This po.wer to tax the sales or purchases of goods to be construed with reference to would again have the connotation of term "sale" as it was under stood in the legislative practice of the country at the time when the ·power was conferred. As was observed by Their Lordships of the Privy Council in Croft v. Dunphy(') :- important, topic it is "When a power is conferred legislate on a particular scope of the power, to have regard to what is ordi· in legis narily treated as embraced within that topic lative practice and particularly legislative practice of the State which has conferred the power". The expression "Sale of goods" in Entry 48 in List in determil)ing (1) [1854] 4 H.L.C. 815, 955. (2) [1933] A.G. 156, 165. 1955 Th6BmfJl Immunity Company Limiutl v. Thi Stal4 of Bilutr 01ttl otll#rs Bhogwiiti J. 2S.C.R. SUPREME COURT REPORTS 699 II of the Seventh Schedule to the Government of India Act, 1935 came to be construed by this Court in Sales Tax Officer v. Budh Prakash Jai Prakash(1) in relation to an attempt by the State of Uttar Pradesh forward contracts of sale and this Court held :- in: in which "There having existed at time of the enact ment 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 inter pret the expression 'sale of goods' in Entry 48 in legislation both it was used England and India and to hold that it authorises the imposition of a tax only when is a completed sale involving transfer of title". The expression "sale of goods" was construed in in section light of the definition thereof to be found III of 1930) 4 of the Indian Sale of Goods Act the English as also Sale of Goods Act and Halsbury's Laws of England, Vol. 15, Para 13 quoted therein. Section 4 of the Indian Sale of Goods Act runs as follows :- (Act the corresponding provision of the relevant passage " ( 1) A contract of sale of goods is a contract whereby the seller transfers or agrees property in goods to the buyer for a price. There mav be a contract 9f sale between one part-owner and another. transfer (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of is to take place at a future the property in the goods thereafter to be ful time or subject to some condition filled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses, or the conditions are fulfilled subject which the property in the goods is to be transferred". The corresponding provision in section 1 of English Sale of Goods Act is as follows :- " ( 1) A contract of sale of goods (I) f1955] I S.C.R. 243. is a contract 1955 Ti.. Bengal Immunity Company LimiUd v. TM Statt ef Bihar and othPs Bhagwati ]. 700 SUPREME COURT REPORTS [1955] the seller transfers or agrees transfer the whereby property in goods to the buyer for a money conside ration, called the price. There may be a contract of sale between one part-owner and another. the contract transferred from (3) Where under a contract of sale the goods the property is called a sale; but where transfer of the property in the goods is to take place at a future time or subject to some condition after to be fulfilled the contract is called an agree ment to. sell. the seller ( 4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject which the property in the goods is to be transferred". the power the definition of. This being the legislative practice in India as well as in England at the time when sales or purchases of goods was conferred on State Legislatures the scope of that power would have been ordinarily determined by sale of goods to be found in these· respective Sales of Goods Acts and the State Legislatures would have had the power to tax sales or purchases of goods in the goods passed within the respective territories of the State,s. This was not a power to tax a seller or a purchaser in personam. It was a power to tax the sale or purchase of goods which took place within the territories of the State and was to be exercised in those cases where the pro perty in the goods which were the subject matter of the sale or purchase passed within the territories of the State. property This position however was not acceptable to the the scope of various States which wanted to enlarge their power to tax sales or purchases of goods. There was therefore an attempt made to analyse the concept of sale into its various ingredients and to fasten upon any one of the ingredients as conferring upon them the power to tax the sale or purchase of goods by having resort to the theory of territorial connection or nexus. As was observed by Bose, J. in The State of Bombay and 1955 The Ben~al JmmlJllUy Company LimiUtl ~ The Stau of Bi/tar and olh#I Bhagwati J. 2 S.C.R. SUPREME COURT REPORTS 701 Another v. The United Motors (India) Ltd. & Others(') at p. 1101 :- is apparent when one begins "The difficulty its component parts and analyse split a sale this is done, a sale is found to consist them. When of a number of ingredients which can be said to be essential in the sense that if any one of them is miss ing there is no sale. The following are some of them : the existence of goods which form the subject ( 1) matter of the sale, (2) the bargain or contract which, when executed, will result in the passing of the pro perty in the goods for a price, (3) the payment, or promise of payment, of a price, ( 4) the passing of the title". Having analysed the concept of the sale thus into its essential ingredients condition which was considered necessary to be satisfied was transaction of sale wheresoever the completion of it, may take place and the taxable event was taken to ingredients provided it be any one of these essential took place · within the State. Re this purpose on the decision of liance was placed for the Federal Court in In re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 ( C. P. & Berar Act No. XIV of 1938) ( 2 ) where Their Lordships observed that :- territories of essential to be like mortgages, "Tax on sale of goods must necessarily be a tax imposed at the time of the sale of goods and must ex clude other forms of leases, transfer etc." Similar observations were also Province of Madras v. Boddu Paidanna & Sons(3) where it was ·stated that a tax on the sale of goods is a- tax the occasion of the sale of goods and the levied on liability to tax arises on the occasion of the sale. The sale was therefore ta~en to be the concrete event which gave rise to the power of the State to tax the sale of goods but was taking place taken as not necessarily taxing State, the only within thing considered essential for the purpose being territories of (I) [1953] s.c.R. 1069. (2) (1939] F.C.R. 18, 86. (3) [1942) F.C.R. 90, 101. 702 SUPREME COURT REPORTS [1955] 1955 Tl1' B'"$al Im"""!'!>' Company Limited Y• Th< Sia/< of Bihm and others Bhagwati J. as above. The territorial connection or nexus between taxing State and one or more of the necessary ingredients of territorial connection sale analysed or nexus theory was sought to be supported by ref the High Court of erence e.g., The Wanganui Rangitikey Electric Australia, Power Board v. The Australian Mutual frovident Society(') where Dixon, J. observed : to certain decisions of "So long as the statute selected some fact or circumstance which provided some relation or connec tion with New South Wales, and adopted this as the the validity of an enact ground of its interference, challenge". and the dissenting judgment of Rich, J. in Broken Hill South Ltd. v. Commissioner of Taxation ) which stated that :- interest would not (N.S.W.)( 2 reducing < "I do not deny Investment Co. Ltd.(•). 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 lie a real one and the liability sought to be imposed must be pertinent to that con n~ction". These observations of the learned Judges of the High Court of Australia were referred to with approval by in Governor-General-in-Council v. our Federal Court Raleigh It was an income-tax case and the dispute related to the claim of the Indian Government to levy income-tax and super tax on the dividends paid to the assessee company (which was a joint stock company incorporated under the English Companies Act having its registered offices in the Isle of Man and its main offices in England) by nine sterl ing companies, the bulk of whose shares were held by the assesse~ company. These sterling companies were registered under the English Companies Act and were the Boards of Directors controlled the s~are registers were situate and dividends sat, were declared. They however carried on the business in London where (1) [1934] 50 C.L.R. 581, 60Q. \2) [l937] 56 C.L.R. 331, 361. (S) A.l.R. 1944 F.C. 51 s.c. 1944 F.C.R. 229. 1955 The Bengal Im1nrmily Company Limited v. The State 1( Biha1 and olhtrs 2 S.C.R. SUPREME COURT REPORTS. 703 the business and all the Companies were held cigarettes tobacco and of manufacturing and selling in India and India where all profits were made was managed by the local boards which were constituted by the Boards in London. The finan cial policies of these companies were controlled by important matters of busi· London Boards and in all ness the London Boards were consulted general meetings of England. The dividends of these Companies were aho declared by them in England and paid by England to the assessee company in England. It was however held that the source of the dividends paid to the assessee company by the sterling companies was British Indian and when the attempt was come and not the corpus and the question to be con sidered was legiti-· mate to take into account the place where the business from which the income was derived was in fact carried on and not to treat the situs of the shares in the eves of the law as concluding the matter. The Court ~as the source of the divi therefore of the opinion that sterling dends paid that in making companies was British them liable Indian Legislature was not giving its law any extra-territorial operation. Spens, C.J. who delivered judgment of the Court further quoted with approval the follow judgment of Evatt, J. in Trus ing passage from tees. Executors & Agency Co. Ltd. v. Federal Commis sioner of Taxation( 1 ) at p. 236 :- 'source' of that income it was to the assessee company by to income-tax on Indian and that basis it must be pos "The Constitution requires sible to predicate of every valid law it is for the peace, order and good government of the Dominion with respect to a granted subject, e.g., customs, tion, external affairs. the presence of the challenged law has to non-territorial elements be considered upon a slightly different footing and those affirming its validity have to show not only that the Dominion has some real concern or interest in the matter, thi~g or circumstance dealt with by the legislation, but that the concern or interest is of such In such cases, (I) [1933] 49 C.L.R. 220. 1955 T!it Bengal lmmrmity CtJmpany Limiled v. Till Stau of BiM< and others Blwgwati ]. 704 SUPREME COURT REPORTS [1955] regard that where truly one with to the scope of the former case treated as embraced within the United Kiogdorn with regard that given a sufficient a nature that the challenged respect to an enumerated subject-matter". reiterating Two more decisions of the Federal Court the same principle may be noted this context : Wallace Bros. & Co. Ltd. v. Commissioner of lncome tar, Bombay . City(') and A.H. Wadia v. Commissioner of Income-tar, Bombay( 2 ). In Court held the Imperial Parliament has conferred a power to legislate on a particular topic it i~ permissible and important in determining the scope to what is and meaning of the power to have ordinarily the legislative practice of the United Kingdom. The general conception as legislative practice to in come-tax territorial connec tion between the person sought to be charged and the country seeking to tax him, - income-tax may properly extend to that person in respect of his foreign income. That general conception, both on a consideration of the British legislation and as a matter of construction of the Government of India Act, 1935, finds a place in the phrase "taxes on income" as used in that Act and the principle territorial connection sufficient is implicit in the power conferred by the Act of 1935. India of the major por The derivation from British tion of its income for a year gives to a company as sufficient respects that year a to justify the company being British India for all purposes relating to taxation on it may be derived, and if it is so at home in British India it jurisdiction of the is a person properly subject to the latter case Central Court held that a law imposing a tax cannot be pugned on the ground is sub there is a connection between the person who jected to the tax and the country which imposes tax. The connection must however be a real one and the liability sought to be imposed . must be pertinent to that connection; but, if these conditions are satis- income for that year from whatever source territorial connection treated as at home is extra-territonal legislature. Indian In (1) [19~8] F.C.R. I. (2) (1948] F.C.R. 121. F 2 S.C.R. SUPREME COURT REPORTS . 705 fied it is of no. importance on the question of validity is, or may be, dispropor· tionate to the territorial connection. Kania, C.J. also observed at p. 141 :- imposed liability the aspect of considered sufficient "As mentioned above, it affecting persons who are beyond the jurisdiction of the munici pal courts cannot be Court to hold it ultra vires. The municipal courts are law. Whether after obtaining bound to enforce the same is enforceable against the opinion or decree the other side or not, is not a matter for the Court's consideration. The Court has only legislation the ambit of the powers of the Legislature". is within to see 1955 Thi Benga. Immunity Company Limited v. The Stau of Bihal and otherl Bhogwati J. therefore territories. A Having resort territorial connec tion or the nexus cheory enunciated in the cases abm·c noted and . analysing the concept of various State ingredients necessary in respect of taxes on sales Legislatures enacted or purchases of goods spreading their net as wide as the situation obtaining they could having regard transaction of sale their respective thus came to be taxed by more or purchase of goods States than one even though there was only one transaction of sale or purchase of goods as bet ween the seller and the purchaser. The consumer was the last person who ever counted in the scramble for taxes on sales or purchases of goods and even the free flow of inter-State trade and commerce was affected. The state of affairs was thus graphically described by in Bombay in his Patanjali Sastri, C.J. Sales Tax Appeal(1) at p. 1079 :- judgment really "In exercise of legislative power conferred upon them in substantially similar terms by the Gov the Provisional Legisla 1935, ernment. of India Act sales-tax laws for their respective Pro enacted vinces, acting on territorial nexus the principle of referred to above; that is to say, they picked out one ingredients constituting a sale and or more of legislation. Assam and Bengal made among other things the actual the basis of sales-tax (J) fl953J s.c.R. 1069 1955 The Ben{fal Immunity Company Limited v. T ht State ?f Bihar and others Bhagwali ]. 706 SUPREME COURT REPORTS [1955) the goods in Central test of taxability. existence of the goods in the Province at the time of In Bihar the contract of sale the production or manufacture of Province was made an additional ground. A net of Pro the widest range perhaps was laid it was sufficient if the goods and Berar where vinces in the Province at any time after were actually 'found' the contract of sale or purchase thereof was made. Whether the territorial nexus put forward the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a court of law. And such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulation of the burden falling ultimately on the consuming public. This situation posed problem of taxing power on sales or involving inter-State elements, and alleviat purchases ing the tax burden on the consumer". the Constitution makers the basis of restricting respect also appeared Apart from the States resorting territorial the manner aforesaid theory in connection or nexus lend their support to the the courts theory and the High Court of Madras in particu Jar in two decisions, Poppatlal Shah v. State of Madras(') and C. G. Naidu & Co. v. State of Madras( 2 ), gave its In the former case theorv. imprimatur expression "sale · of goods" was understood m popular sense as distinct from sense and it was held that the sales tax could be levied if the tran saction substantially the State not the property did not pass within withstanding the State. it was held latter case power of the State to impose taxes was not conditioned the power was valid if diction and there was sufficient subject-matter. After American case law on the subject the Court came to the· conclusion that in respect of inter-State sales the contract was concluded wa,; State in which the subject-matter being whollv within territorial connection with took place within the exercise of discussing In (1) A.I.R. 1953 Madras 91. '(2} A.I.R. 1953 Madras 117. 1955 The Bengal •Immunity Comp1J11y Limilltl v. The State of Bih• and others BhagwaJi J. 2 S.C.R. SUPREME COURT REPORTS 707 only State which had the power to impose a tax. This in the Bombay Court also in the majority the position Sales Tax Appeal(1) while summarising of the Constitu tion incidentally ei<:pressed in this behalf at p, 1078 as under :- before the enactment its opinion it obtained judgment thi:: sufficient constitutional validity of turn on the Privy Council in dealing with in the "As pointed out by the compe Wallace Brothers case( ) tency of the Indian Legislature to impose tax on the to a non-resident foreign com income arising abroad pany, relevant statutory pro';isions did not the possession legislature of extra-territorial powers but on territorial connection the existence of a between the taxing State and what it seeks to tax. In that the sale the case of sales-tax it is not necessary or purchase should territorial take place within limits of the State in the sense that all the ingredients of a sale like the passing of title, delivery of the goods, etc.. should have a terri torial connection with the State. Broadly speaking local activities cf buying or selling carried on in the State in relation to local goods would be a sufficient the State, pro basis to sustain vided of course. such activities ultimatelv resulted a concluded sale or purchase to be taxed".· In immediatelv Poppatlal Shah v. The State of Madras(3) understood judgment as connection or nexus :--· thereafter this Court this expression of opinion in the majority territorial taxing power of the principle of the agreement laying down another decided to sell, to .enact a "It :idmits of no dispute that a Provincial Legis taxation statute which would lature could not pass a be binding on anv other part of India outside limits of the Province. but it would be quite ccmpe taxes on transac tions concluded outside there was sufficient and a nexus bet ween such transactions and the taxing Province. This principle, which is based upon Judicial Committee i!1 Wallace Brothers & Companv v. Province, provided the decision of real territorial legislation imposing (I) [1'153] S.C.R. 1069. (2) [1948] F.C.R. I. (3) [1953] S.C.R. 677. 1955 The&IJgal Immunity Company Limited v. The Slate of Bihar and other,' Bha.11,WQti j. 708 SUPREME COURT REPORTS [1955] legislative practice tax· laws adopted by its propriety ) has been held Commissioner of Income-tax, Bombay( 1 by this court to be applicable to sale tax legislation, in its recent decision the· Bombay Sales Ta:r: Art is beyond question. As case(2) and :i in regard matter of fact, the Provincial Legislatures prior to the coming into force of the Constitution has taxes on sales and imposition of to authorise purchases which were in some manner with related the taxing Province by reason of some of the ingredi ents of the transaction having taken place within the Province or by reason of the production or location of goods within it at the time when the transaction took place'°. legislation. ta:-r legislation, the .in income-tax cases legislation and sales tax It may be observed that in the Bombay Sales Tax Appeal the question of territorial connection or nexus was not directly in dispute and in Poppatlal's to above it was taken as decided by referred case(') this C->urt in the Bombay Sales Tax Appeal that the theory of territorial connection or nexus was applica ble to sales tax It is a moot point whe territorial connection or nexus theory of which has been mainly applied 'pheres of also appkable to sales an income-tax legislation be 'Vhereas in the case of income-tax ing quite distinct. legislation the tax is levied either on a person who is within jurisdiction over him in personam or upon income which has accrued or arisen to him or· is deemed to have accrued or arisen to him or has been derived by him from sourcrs with in the territory and it is therefore germane to enquirt whether any part of income has accrued or has been derived from a source within the arisen territory, in the case of sales-tax sale or purchase of goods which is the subject-matter of taxation and it cannot be predicated that the sale or purchase takes place at one or more places where the necessary ingredients of sale happen to be located. The theory of territorial connection or nexus was not put to the test at any time prior to the enactment of (3) [1953] S.C.R. 6i7 (2) [1953] S.C.R. IO!i9. territory by exercising legislation it is (I) [1948] F.C.R. J, 2 S.C.R. SUPREME COURT REPORTS 709 that there was the Constitution and it is not necessary also for us to give a definite pronouncement on the subject. Suffice it to say this evil which was rampant in the pre-Constitution period by reason of the various States fastening upon one or more ingredients of sale and arrogating to themselves sales or purchases of goods by reason of torial connection or nexus which they claimed to have the sale pro with one or more of the ingredients of vided however that a sale or purchase ultimately did take place either within their territories or anywhen: this evil amongst others which was else. the Constitution-makers sought when they came to enact article 286 of the Constitu tion. remedied by the power It was to be 1955 Tk Bengal Immunity Company Limited v. The State of Bihar and others Bhagwati ]. trade, relating commerce in Part XIII The Constitution-makers enacted several trade, commerce and intercourse within the territory of India with an eye towards India. as an economic unit and enacted ahicle 301 intercourse throughout the territory of India shall be free and by they empowered the Parliament to impose article 302 such restrictions on the freedom of trade, commerce intercourse between one State and another or within any part of the territory of India as may be required in the public conception of freedom of trade, commerce and inter course throughout the territory of India and also with a view inter alia to relieve the consumer of the burden of multiple taxation which he was subjected to by the various State Legislatures by having territorial connection or nexus theory as afort>said the Constitution-makers in article 286 enacted restrictions on the power of the State Legislatures in regard to the imposition of tax on the sale or purchase of goods and these restrictions were fourfold :- interest. Broad based on resort (I) State Legislatures were restrained from ing a tax on the sale or purchase of goods where such sale or purchase took place outside the State; (2) The State Legislatures were restrained imposing a such sale or purchase took place in the course of tax on the sale or purchase of goods where 1955 TheBmpl lmmuniry Company LimiUd v. The Stau of Bihar and others Bhagwati J. 710 SUPREME COURT REPORTS [1955] import of the goods into or export of the goods out of the territory of India; restrained ( 3) The State Legislatures were imposing a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce except in so far as the Parliament might by law otherwise provide; and ( 4) The State Legislatures were restrained from imposing a tax on the sale or purchase of any such goods as had been declared by Parliament by law as essential for the life of the community unless such law had been reserved for President and had received his assent. These were the four restrictions which were put upon the powers of the State Legislatures to impose a tax on the sales or purchases of goods and were imposed with different objectives in view. the consideration of the goods to achieve The first restriction was devised objective of relieving the consumer of the burden of multiple taxation and put it out of the power of a State to tax the sale or purchase of goods where such sale or purchase the State. The took place outside Sale of Goods Act contained several provisions which determined when a sale or purchase took place or in other words when the property passed from the seller to the purchaser. But it was silent in regard to the place where the sale or pur chase took place. There was no rule of law enacted therem which determined the situs or location of such sale or purchase and resort was therefore had general law of the land for the purpose. The torial connection or nexus rheory had an eye over the various ingredients of a sale or purchase and if anyone or more , of these ingredients fixed the situs or the location of 'the sale it would mean that a sale had than one. This state of locations affairs could not be allowed to continue any further having reg"d to the interests of the consumer and it the State Legislatures were restrained from tax on sale or purchase of goods where such sale or purchase took place outside the State, also to determine when thought necessary, when imposing a situses or therefore 1955 The Bengal Immunity Company limited v. The State of Biha' and oth.,s Bhagwati ,7. 2 S.C.R. SUPREME COURT REPORTS 711 that under taken place therein was therefore be thus enacted the express purpose such sale or purchase could be said to take place out It was for this purpose that the Ex side the State. planation to article 286(1)(a) was enacted and it was enacted therein mentioned, viz., "for the purposes of sub-clause (a)". The Ex planation was the express purpose of determining what sales or purchases could be said the basic taken place outside the State and to have idea which was adopted general law relating to Sale of Goods property in the goods would by reason of such sale or purchase pass in a particular State which would situs or location of such sale or purchase. But not the sale or purchase was withstanding deemed to have in the. State in which the goods have actually been delivered as a direct result of such sale or purchase for the purposes of consump to have tion in that State. The anti-thesis appears been between the State in which the property in the goods has by reason of such sale or purchase passed and the State in which the goods have actually been delivered as a direct result of such sale or purchase the purpose of consumption in that State and in the Expla the competition between nation provided that circumstances shall be deemed taken place the goo<ls have actually been in the State in which result of such sale or purchase delivered as a direct therein. This Ex planation was interpreted in various ways, one view being that it defined an outside sale and went no fur ther :m(\ that the situs of the sale was determined for the limited purpose of telling the State what it could not tax by telling it that in the cases covered by the EXj'hnatinn in spite of the goods having passed within its territories it was an outside sale qua that State. The other view was that besides fixing the situs of sale in this manner it also defined what was a sale or purchase which shall be deemed to inve taken place in fulfilled a double function of investing only the deli the power to tax such sale or pur- very State with the purpose of consumption the delivery State and the sale or purchase the property two States to have 1955 Tht Btn..t:al Immunity Company Limited v. The State of Bihar and olhtr.t Bhagwati ]. 712 SUPREME COURT REPORTS [1955] resort in which the property the State in which the property in cha;e to the exclusion of all other· States qua whom the sale or purchase was deemed to be an outside sale. The third view was that the Explanation was con cerned with fixing the situs of sale in respe.:t of the the power of delivery State only and did not affect the goods had the State passed to tax such sale or purchase which it enjoyed by reason of the fact that the property in the goods had territories. A fourth possible view passed within was that the only State which could not tax such sale the sale was outside or purchase on the ground that the State was guu, ls had passed leaving open to the other States to tax such sales or purchases by having they possesml under article· 246(3) and power which to the Con Entry 54 of List II of the Seventh Schedule take of the correct view stitution. Whatever be article 286 this Explanation one thereto were enacted with (l)(a) and the Explanation the consumer of the one and only motive to relieve to which he wos sub the burden of multiple territorial connection jected by having theory by the nexus or nexus what may be described as fixing the theory the sale or purchase a1~d putting situs or the location of the States qua a restriction on sale or pur which it could be predicated leaviqg only chase took place outside one State in which actually such sale or purchase delivere<l to tax to the powers the sale by article 246( 3) vested and Entr)' 54 of List II of the Constitution. taxation to replace the purpose of consumption that such the goods have been the State Legislature the Seventh Schedule the taxing power of fact remained as a direct theory and or purchase the State, the situs result of therein having .resort resort the criterion If therefore the situs or down as taxing State the non-obstante clause contained nation gave the clue as Constitution-makers when theory in place of the nexus prevailed. They location of the sale was laid the Expla to what was in mind of the the situs theretofore substituted theory which took cognisance of the general power of 1955 Thi B1ngal lmmunii, Compon;• Lirnitd v. Thi Stott of Bill• and otliln -· Bhtlgwoti ]. 2 S.C.R. SUPREME COURT REPORTS 713 taken in in which territories in whose take place took place or relevant provisions them as determining to sale of goods was location of the sale or purchase and if the sale of goods under which the property relating to in the goods passed by reason of such sale or pur- . the transfer of ownership chase. The conception of the purchase was thus of the goods by the seller accepted by the situs or loca the sale or purchase and this conception had tion of the Sale of its roots in England and in spite Goods Acts both in India and those provisions did not in terms say the fact transfer of owner took place or the where the sale in the goods passed ship came about or the property the general law by reason of such sale or purchase, the . Explana relating fix the situs or location of such sale or pur the territories of a particular State and <:hase within in one State and not that event could only in more .States than one. There could be onlv one situs or were so the State such sale or purchase in the goods passed by reason of such sale or purchase was the State which could claim tax such taken place sale or purchase by reason of It would within its territory. the Expla. the Constitution-makers had the one and only motive of negativing the terri nation torial connection or nexus theory and replacing it by the situs theory and fixing location of the in which the pro sale or purchase withiri the goods passed by reason of such sale or perty in purchase. While doing so they also created a legal the competition between what may fiction whereby be called the delivery State was given impose a tax on sale or purchase of goods where the goods had actually been delivered as a direct result of such sale in that or purchase for the purpose of consumption State. If the object to be achieved was the relief of taxation the consumer that object could only be achieved by subjecting him to taxation at the instance of one State only and not by more States than one and to that C'XtCtt the view ~4 S. C. Jndia/59 the power its having therefore appear the burden of multiple the delivery State title State and the property the situs or in enacting the power the State 1955 The Bengal Immunity C.mpany Limil•d y. T111:s1ate of Bih.ar and otkws 714 SUPREME COURT REPORTS [1955] tax on that both be entitled to impose falling within the only State which would be the sale or purchase which the goods had been actually direct result of such sale or purchase of consumption ~herein. title State and the delivery State woul<l the sale or purchase the Explanation was clearly erroneous, delivered as a for the purpose in question being the State in a position it hdd trade of The second restriction on the course of the Explanation the taxing power of to safeguard territory of India, vide article 286(1) (b ). the im State Legislatures was devised the country and embraced port and ex!JOrt transactions of sale or purchase of goods where such the im sales or purchases took place in into or export of the goods out of port of the goods It to article significant to observe 286(1) (a) was definitely put for the purposes of sub clause (a) and to the cases which were covered by article 286(l)(b). This concept was quite di>tinct the concept which in arcicle 286(l)(a). The sales or pur was dealt with from different view-points and chases were looked at in article the particular aspect whtch was dealt with 286(l)(b) was actions of sales or purchases. That aspect was sepa rately dealt with even though for the sake of economy of words corporated the provision contained in article 286 common with (l)(a). the provisions thereto were in regard in article 286(1). They had nothing therefore no application import-export aspect of to protect trade or commerce and covered The third restriction was divised State transactions of sale or purchase of any goods where such sale or pur chase took place in the course of inter-State trade or commerce except in so far as Parliament might by law otherwise provide. This was still another view point and safeguard the freedom of trade, commerce and inter course throughout the territory of India. The imposi tion of this restriction meant that the States would be deprived of a large part of their income which they used to derive from tairing sales or purchases falling this restriction was put with a view • 1955 The Birtt.J. Immunity Company Limitd VI Thi State of BiM, and oth" -Bhag>JJati J. 2 S.C.R. SUPREME COURT REPORTS 715 taxes which they used to imposition of is contrary to be levied until therefore enacted that any within this category before the commencement of the Constitution. A proviso was tax on the President may by order direct the sale or purchase of goods which was being the Government of any State immedi fully levied by the commencement of the Constitution ately before shall, notwithstanding the provisions of article 286(2), thirty-first day of continue' the State Govern March. 1951. This proviso enabled ments to levy levy be the Constitution up to the fore the commencement of they were ex 31st March 1951 within which period replenish their economies and pected to adjust treasuries by having resort to their legitimate powers the States could of taxation. By the 31st March 1951 also make representations induce the Centre to otherwise provide by appropriate the Parliament the meaning of article 286(2) and legislation within the sale or pur authori~e them to impose chase of any goods where rnch sales or purchases the course of trade or commerce. But until that ban was legisla imposed under article tion by 286(2) was absolute and no of sale or pur chase of goods where ~11ch sale or purchase inter-State trade or commerce the course of could eve.r be made the taxatio'1 at instance of a State Legislature. The Explanation to artide 286(1)(a) being expressly for the purpose of the purpose of determining sub-clause sale or purchase was outside what transaction of the State as above stated could not be State or inside it be read as an ex read into article 286(2) nor could it as ception or proviso such exception or proviso would be contrary to the Explanation and would also express the enactment of article 286 stultify taking a large slice out of the transactions (2) thus falling within that category. The exclusion of the general provision by a special provi sion would also not apply for the simple reason that inter-State lifo::Ll by appropriate terms of the purpose of to article 286(2). Reading the Parliament the ban subject-matter of transaction taxes on i.e.. for rule as (a). 1955 Thi Bengal Immuni~ Company Limited v. The StaU of Bih"' an4 olhen Blaogwati]. 716 SUPREME COURT REPORTS f1955 j 286(l)(a) and the objects being quite different the object of article the Explana tion thereto is quite distinct from the object of article 286(2) and provisions do not cover the same subject-matter and therefore there would be no occasion for the applica tion of that rule of construction. To this extent the view taken by me in the Bombay Sales Tax Appeal(') to article 286( 1 )(a) was an the Explanation exception or proviso to article 286(2) was clearly erroneous. received his assent. This comprised a distinct category by The last restriction on the taxing powers of the State Legislatures was devised to maintain the supply of essential commodities and related to the imposition of a tax on the sale or purchase of any goods as have been declared by Parliament by to be essential life of the community unless such law has been reserved for the consideration of the President restriction also though of another nature was a restriction put on the power of to tax such transac the State Legislatures tions of sale or purchase and was absolute to do with the restrictions having nothing whatever put in the earlier clauses of article 286. These transac themselves and were not affected bv the restrictions put in the earlier clauses of the article. Tt may be noted transactions covered by article 286(l)(a), article though looked at from dif 286(2) and article 286(3) ferent view-points may overlap. A transaction which is covered by article 286( 1 )(a) may also be covered by article 286(2) and both these sets transactions may be covered by article 286(3). Such overlapping the provisions of would not necessarily mean read as fastening one particular clause have to be falling within transactions the category lifted out of comprised therein and treating them as the ban sought to be imposed by the other clauses of the article. Each ban has got to be effective and im posed on the transactions falling within its ambit and even though the transaction may be saved out of the ban imposed in one particular clause it may just as (I) [1953] S. C.R. 1069. 2 S.C.R. SUPREME COURT REPORTS 717 It cannot therefore be urged well fall within the ban imposed in another clause and thus be excluded from the taxing power of the State Legislatures. the Explanation to article 286( 1) (a) lifts the transac tion out of the ban imposed by article 286(2) or by leaves such transaction of sale or article 286(3) and purchase as is covered by the Explanation free to be taxed by the delivery State in spite of the same heing of an inter-State character or being in regard to goods declared by Parliament by law to be essential for life of the community. 1955 Tiii Bengal lmmuni!J> Compo'!)! L1mittd 'Vo Tl# State of Bi!zar and olhw1 Bhagwati]. The whole scheme of article 286 is that four diff erent restrictions are put on the taxing power of the State Legislatures in regard to the sales or purchases of goods and each one of these restrictions has got to be considered separately by itself and it is only those transactions of sale or purchase which do not fall within any of taxed by the State Legislatures by having resort to their powers under article 246(3) and Entry 54 of List II of the Seventh Schedule to the Constitution. those categories that can be The learned Government Advocate for Bihar how five distinct reasons why article 286(2) transactions of sale or purchase the Explanation ever urged cannot apply covered thereto and they were :- by article 286(1)(a) and ( 1) The class of sales falling under article 286( 1) (a) form a special class of inter-State sales which on gene ral principles ought not to be af!ected by the general provisions of article 286(2); article 286(1)(a) and (2) If article 286(2) applies to the class of sales covered the Explanation thereto it would result in discrimination against local trade in favour of inter-State trade and it will be in consistent with the provisions of Part XIII of Constitution; (3) The purpose of article 286 being to eliminate multiple taxation and article 286(1)(a) having already achieved that purpose with regard to the class of sales falling within it it was no longer necessary for to that class of sales; purpose to apply article 286(2) 1955 Thi Be•gal Immuni'l C1mpany Limited v. TM Stale of Bihar and othtrs IJha:•aJi ]. 718 SUPREME COURT REPORTS [1955) ( 4) The Constitution itself has divided inter-State sales into two categories and in relation to one class it has itself provided which State will tax and under what conditions and in relation to the other class the Constitution itself has imposed a ban in general terms and granted Parliament power that ban as and when Parliament thinks lit; in general to relax and (5) By a legal fiction, converted into an intra-State sale. inter-State sale is thereto article 286(1) (a) transactions of We shall deal with these reasons seriatim. As to reason ( 1) : it was submitted that the transac tion~ of sale covered by Explanation covered by article 286(2) were of the same category and both these provisions dealt with the same topic. That being so, article 286(2) contained a general pr<> the Explanation vision whereas article 286(1)(a) and thereto contained a special provision having reference to the transactions of sale or purchase falling within the result that the rule of harm<> that category, with special provision nious construction applied and to the general provi was to be read as an exception sion. This argument the High Court below as well as myself in the Bombay Sales Tax Appeal('). This rule of harmonious construction no doubt would apply if the topics covered by both these provisions were subject matters dealt with in both these provisions were identi the two cal. There is this difference however between provisions, viz., that the transactions covered by both do not fall within the same category and a transac tion of sale which is looked at from the point of view of its being an outside or an as well be a sale or commerce. looked at from the point of view of its situs or loca tion and in article 286(2) ppint of view of its being in the course of inter-State trade or commerce and the two approaches arc quite distinct one from the other. That being so it cannot inside sale may the course of inter-State In article 286(1)(a) looked at from the same, and the transaction favour with (I) [1953] S. C. R. 1069. 2 S.C.R. SUPREME COURT REPORTS 719 the same or be said that the topics which are dealt with by both the subject these provisions are matters thereof are identical. The ban which is pmed by article 286(1)(.a) and the rule of harmonious the special provi construction and the exception of sions from the general one as indicated above would have no application in the matter of the construction of both these provisions. 1955 Th1Bmfll lmmun•I/ Crm/llJtly Limilld VJ Thi Stu- of Rihtrr and othn-; BhagwatiJ. favour of trade or commerce. For As to reason (2) : there is no question of discrimi inter-State nation against local trade if article 286(2) applied the class of sales covered by article 286( 1) (a) and the Explanation there to. The local trade would certainly be liable to the levy of intra-State sales tax· which could be avoided if a transaction takes place the course of State the working of the Union as an economic unit and for the free flow of trade, commerce and intercourse throughout the terri tory of India it is necessary that no fetter should be placed on the course of inter-State trade or commerce. The consumers within a State who would transactions of purchase across a view to avoid the payment of the intra-State sales tax would be comparatively few and could in conceivable tax on cases be caught within the net by imposing a goods of is therefore no meaning of article 304(a). This reason deter:rent to our holdin~ that the ban under article is absolute and unaffected by article 286(l)(a) 286(2) and the Explanation thereto. a non-discriminatory nature within the border with .1 I the article the only purpose of As to reason (3) : it postulates that the only purpose of the enactment of article 286(1)(a) and the Expla nation thereto is to eliminate multiple taxation. If that it might conceiv ably be argued that once that purpose is achieved in regard to the particular set of transactions which are c:overed by article 286(l)(a) and the Explanation thereto there is no further need of putting any ban unller article 286(2). As has been already observed l>efore, the purposes of the enactment of article 286 were manifold and they were achieved by enacting the four distinct provisions in indicated the manne · 1955 TM Bengal Immunity Company Limited .. The Statt of Bihar tmd others 720 SUPREME COURT REPORTS [1955] to tax restrictions which were put on above and powers of the State Legislatures transactions of sale or purchase were mutually exclusive even though the transactions might so far as their naturr. and character be concerned overlap in certain events. Even though ban of article 286(1) (a) it could nonetheless be sub jected to the ban which was imposed by article 286(2) and it could be taxed only if it survived th.is scrutiny also, which could be done if the Parliament by law otherwise provided as set out in article 286(2). transaction fell within therefore a the course of categories, one As to reason ( 4) : it assumes that the Constitution itself has divided transactions of sale or purchase in the course of inter-State commerce into two distinct falling within article 286(l)(a) and the Explanation thereto and the other falling within article 286(2). There is no warrant for inter-State that transactions holding trade or commerce are divided into such distinct categories for the purpose of the imposition of the ban. The transaction of sale or purchase would be one but it is subject to the imposition of distinct bans having regard to the view-point from which it is being looked at. If it is looked at from the view-point of its being an outside or an inside sale it may be caught within the ban of article 286(1) (a). If it is looked at from the view-point of its being a transaction in the course of inter-State trade or commerce it may be caught within the ban imposed by article 286(2). These bans are mutually exclusive and may have to be applied to the same transaction of sale or purchase, one ban not necessarily excluding the other. } ignores As to reason (5) : the argument totally purpose and efficacy of a legal fiction. A legal fiction the correctness of the State of facts on pre-supposes which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. But due regard must be bad in fiction this behalf to the purpose for which If the purpose of this legal hcnon has been created. contained in (a) as expressly solely for the purpose of sub-clause the Explanation to article 286(l)(a) 1955· . The Bmgal Immunity Company Limiutl "'· The State of Bilulr and ot,,.,s B/llJgwali J. 2 S.C.R. SUPREME COURT REPORTS 721 inside the provision. stated it would not be legitimate to travel beyond the scope of that purpose and read into the provision any it may be. The other purpose howsoever attractive legal fiction which was created here was only for the purpose of determining whether a particular sale was an outsid<; sale or one which could be deemed to have the State and that was the only taken place It would be an illegitimate scope of extension of the purpose of to say that it was also created for the purpose of converting the inter-State character of into an transaction intra-State one. This type of conversion could not have been in the contemplation of the Constitution the express purpose· for makers and is contrary which the legal fiction was created as set out in the Explanation to article 286(1)(a). fiction All these reasons therefore taken individually or collectively are not sufficient to negative the position that the transactions c9vered by article 286(1)(a) and the Explanation operation of article 286(2) and the ban under article 286(2) also applies to the same. thereto are not excluded from the Explanation It was also urged that this construction put upon article 286(1) (a) and thereto and article 286(2) would render the Explanation nugatory and that the Constitution makers at the very com mencement of the Constitution would not have given the power by one hand it away by the other and that therefore the Explanation to arti de 286 ( 1) (a) should be read as an exception or a pro to article 286(2). This argument no doubt the Bombay Sales Tax found favour with me Appeal( 1 the High Court below. If due regard however is had to the purpose of the enact ment of article 286 as a whole and also to the various considerations which have been set out herein above is untenable. The transactions of sale Explanation to article 286(1)(a) are not necessarily co-extensive or conterminous with transactions of sale or purchase covered by article 286(2). There transactions which would be and purchase covered bv ) and also with argument is clear covered (I) [1953] .<;. C R. !069. 1955 1 h• Jlmgal lmmunit; Company L1mittd •• The Stat' of Bihar a'1d olh,,s BlrazwatiJ. 722 SUPREME COURT REPORTS [1955] a is also lifted up taxation. There these provisions the subject-matter of the delivery State by the Explanation into operation Explanation to article 286(1) (a) without their being transactions of sale or purchase in the col\fse of inter therefore would State trade or commerce and which without anything more be covered by the Expla nation and would be taxation the appropriate exercise of its power of further to be noted and it is that even though the tran . may be sactions covered by both co-extensive or conterminous with each conceivably other, to article 286 ( 1) (a) would the moment the ban of article 286(2) was lifted by an otherwise provision enacted to the by Parliament and it was certainly 31st March 1951 by the President directing the con tinuance of the operation of the sales tax laws which previously existed in the various States. It coul<l not therefore be stated the construction put upon article 286( I) (a) and thereto and article 286(2) as above would render the Explanation nugatory. the operation of the ban under article 286(2) prevented taxing in the course of inter-State trade and commerce and which are also covered by the Explanation article 286(1)(a) it was open to them to adopt proper measures for lifting the ban under article 286(2) and making themselves transactions of the Explanation. Parlia sale or purchase covered by the proposals made ment would in that event consider their proper perspective having regard the Constitution in regard to the freedom of trade, commerce and inter course throughout venience or inconvenience of the public and the needs of the respective States and lift the ban in the manner and to the extent it thought fit. transactions of sale or purchase which to the provisions of respective States in the Explanation If the States thought that territory of India, The majority judgment in the Bombay Sales Tax Appeal has been construed by the various States as giving them an authority to impose a tax on the tran sactiom of sale or purchase covered hv the Explana to article 286(1)(a) and authorising them 1955 The Rental lmmuniry Company Limited v. Thi State of Bih11r and oth4r• BhagwatiJ. 2 S.C.R. SUPREME COURT REPORTS 723 that a entered the fact the warrant for transaction. When to themselves, and impose such tax on the seller even though he may be territories. The non-resident residing outside into Uansac businessmen therefore who tions of sales of goods where as a direct result of iUch sales the goods are actually delivered for the pur pose of consumption in a particular State have been to the levy of sales tax at the iC>ught to be subjected inconvenience and instance of these States with great harassment action in this behalf is stated by these States to be the judgment of this Court. The various States majority however in the scramble ior taxes have been oblivious transaction of sale or purchase is not a unilateral transaction but a bilateral one and when it is looked at from the point of view of a sale or purchase it is one transaction which has two facets. From the point of view of a seller it is a sale transac tion and from the point of view of a purchaser it is a transac purchase tion is one on which a tax on sale or purchase can be levied it does not necessarily mean that onlv a sales tax can be levied and not a purchase tax. The inside dealer may therefore be taxed on his purchases or if he sells in retail to actual consumers in the State he may be taxed on there will be no difficulty himself in assessing him for his books will show how much he has imported from other States and how much he has the convenience or . incon consumed. venience of collecting a sales tax or a purchase tax \s not a relevant consideration when one is consider ing the validity or otherwise of such a tax, as was observed by Kania, C. J. in the case of A.H. Wadia v. Commissioner of Income-tax, Bomuay(1) at p. 141. In the very judgment of !he Bombay is a passage at p. 1084 Sab Ta:v Appea!C) which indicates the delivery re.-export out of the State except State would be within the scope of the Explanation and liable by the State on such transac to be taxed tions, anti it would be an unwarranted assumption on that all buyers within the sales. those buying for In any case, the consumer inside dealer the majority therefore lf the (ll [1948] F. C. R.121. (2) [1953] S. C.R.1069. 1955 'Tiu Bengal lmmuni? Campany L1miud v. Tlw State of Bilw ond others Bltat, wati]. 124 SUPREME COURT REPORTS [l.955] to the taxation is either to the fact relation theory of the Constitution that territories and judgment to say the part of anyone who read the delivery State was entitled to levy a tax on the sale or purchase of goods falling within the Ex planation to article 286(l)(a) on the seller alone. The taxing seller would be outside the territories of to the juris State and would primarily not be liable taxing diction of the Sales Tax Act enacted by State. It would be by· adopting territorial connection or nexus as it was being done prior to the enactment of the non-resident taxing Sate WQuld if regard be businessmen outside in per transaction of sale or sonam or purchase which takes place within territory is no warrant at all the outside business men on the transactions of sale or purchase covered bv the Explanation to article 286(1)(a). All the prc:> visions contained in the Bihar Sales Tax Act with re maintenance of the, books of account, submission of returns bv him to the Sales Tax authorities of State of Bihar, the production and inspection of books of account before the Sales Tax authorities, the search of the premises of the outside dealer by them and the imposition of penalties on him by reason of his non compliance with the various provisions contained the Act amongst others are unwarranted and illegiti mate exercise of the powers incidental to the power of taxing sales or purchases conferred upon the State of Bihar by article 246(3) and the Entry 54 iri List II of the Seventh Schedule to the Constitution and do nut affect non-resident businessmen who ate outside territories of the State of Bihar. to t~ registration of the outside dealer, taxing the sellers The majority judgment in the Bombay Sales Tax Appeal(') did not say that the delivery State was en titled to tax transactions of sale or in the purchase covered by the Explanation to article 286 (1) (a). The question whether the seller or the purchaser would be subject to the levy of a tax on the transac the delivery of sale or purchase at the instance of (1) [1953] S. C. R. 1069. 1955 The &ni«I lmmun"? Companf Lsmiktl v. The State ef Biltttr and ot/rlr1 Bftai1raali J : S.C.R. SUPREME COURT REPORTS 7'25 the Explanation the Explanation judgment in relation the purchasers being amenable to article 286(1)(a) and thereto by State was not before the Court and the observations contained in the majority judgment were made with reference to a pure question of the interpretation of article 286(1) (a) and the Explanation thereto. As a the passage above-quoted matter of fact that they judgment(1) at p. 1084 would go to show contemplated the case of at the instance of the delivery State article transactions covered by 286(1)(a). Even though it is not strictly relevant consider the consequences of a particular position law when construing a statutory provision it is none tbdess necessary to visualise those consequences when one tries to probe into the mi11d of the legislators and see whether they could have ever contemplated such If the construction sought consequences. to be put the State majority Legislatures were accepted, all outside dealers where soever they may be located or residing or carrying on their liusiness all over tl1e Union would be amenable to the levy of sales tax at the instance of the delivery State and one dealer in a particular State who had a very large business ancl was entering into transactions of sale with consumers in outside States all over Union would be amenable to the jurisdiction of seve ral States in the matter of his transactions of sale of his goods. There are as many as 21 Sales Tax Acts to be found in the Manual of Sales Tax Acts and if a dealer to be held amenable to the in one State was going levy of sales tax at the instance of all the other States it would mean that he would have to ascertain from the purchaser in each of the transactions of sale which the purchaser be the State to which he enters into the purchaser is purchasing the goods longs, whether for the purpose of consumption within that State. get himself registered as a dealer that State; maintain his books of account with a view to produce them and · subject the Sales to submit returns of Tax authorities the sales the . purchasers that State, recovered by him from to inspection by (I) [195!] S. C.R. 1069. 1955 The Bengal Immunity Company Llmilld ... Thi State of Bihal ond othlrs SUPREME COURT REPORTS [1955] task of those were happen to be requirements of territory result of such sale territories of in that State before the Sales Tax authorities of that State and make himself liable for the non-observance the Sales Tax Act of the various enacted by that State. The fulfiliing the re quirements qua one State would be formidable· enough. But when one visualises the dealer who enters into such transactions of sale with the various cusro instance mers may be subjected to this process at of each and every State within whose importing the goods as purchaser may a direct for actual consumption within that State, one can easilv u,nderstand what untold harassment and inconvenf ence the dealer would have to suffer from. It will be the circum easy to understand stances attendant upon his business the dealer may as well close down his business rather than submit to the hands of the various States. all this harassment at intercourse The free thoroughly throughout the territory of choked up and we are quite sure Constitution makers nor the Bombay Sales Tax Appeal would ever have con templated thing could ever have bt:·:n fore to hold that no such contemplated by them and nothing would have l'een farthest from than such a position. The seller in such cases would certainly not be ameuable to the levy of a sales tax at the instance of the deii the delivery State very State and no law passed by in regard to a levy of sales tax would have any ope the non-resident businessman who ration against transaction of sale where as a direct enters into a result pf such sale the goods are actually delivered for consumption within trade, commerce and India will be that neither judgment these consequences. taxing State. the majority their minds legitimate flow of It If however the majority judgment be construed to have said that the seller could be subjected to the levy tax at the instance of the delivery State in of a sales the Explanation the case of transactions covered that it was to article 286(1)(a) I am of the opinion clearly erroneous and public the same should be interests demand reversed. 1955 Th6 Bmgal Immunity Ca-y Liiniltd v Tllc Si4Jeef Bihar lllld.ot/tm j.,""""'°"11J ]. 728 SUPREME COURT REPORTS [1955} settled thereby question if needed, function on the Courts which that the House is bound the pattern by all of the British Judicial system. This rule, in its very strict form, is observed by the English Courts. (Vide Young v. Bristol Aeroplane Co., Ltd.(') and Williams v. Glasbrook Brothers Ltd.('). The House of Lords has ruled, after careful consideration, in its judgment the case in London Street Tramways Co., Ltd. v. Lon don County Council(') its own previous decisions and will not allow follow to be reopened and argued again, nor can the House be asked to reverse its own prior decision. Such reversal, to be brought about by parliamentary one that has legislation. The Judicial Committee of the Privy this extremely Council has, however, not adopted in appropriate rigorous view but has felt itself free, (Vide In Re. cases, to reconsider its prior decisions. Transferred Civil Servants (Ireland) Compensation(') ). The same is the case with the Supreme Court of United States of America. (See Willoughby on the Constitution of the United States, Vol. I, page 74). Our Constitution which has made detailed provision the Supreme Court including a matter relating to its practice, such as, whether there can be a dissenting judgment· (sec article 145(5). has not, in terms, made any provision in this behalf. Article 141, no doubt, provides "the law declared by the Supreme Court shall be bind ing on all Courts within the territory of India". It the phrase "all Courts" has been urged before us that the Supreme include comprehensive enough Cpurt. that since every decision declares the law, a later decision declaring the law in a contrary sense, would in effect, be the exercise of legislative function which must be taken to have been impliedly prohibited. While not without force, it is reasonably clear, the con text of article 141, that the phrase "all Courts" must refer to Courts other than the Suprem~ Court. In the absence, therefore, of any clear provision m arguments various matters is pointed out, relating It (I) [1944] K. B. 718. {3) [1898] A.C. 375. 12) [1947] 2 All E. R. SM. (4) [1929] A. C. 242. ' 1955 TM Bengal Immunity Company Limild v. TM Slat. of Bilur and olhers Jagannadhadas J. 2 S.C.R. SUPREME COURT REPORTS 729 Constitution and in view of the fact that this Court has historically succeeded the pre-existing Federal the Privy Court the Judicial Committee of Council, we cannot· deny to the compe tence to reconsider its prior decisions. this Court, continuity But, it does not follow it erroneous. The necessity that such power can be exercised without restriction or limitation or that a prior decision can be reversed on the ground that, on later consideration, the Court disagrees with the prior decision and thinks in the declaration of law certainty by the highest courts in the cpuntry is recognised on all hands. That necessity is all the greater, and not the less, by reason of the Constitution itself having that the decisions of this Court are formally provided declaratory of the law. The rule as to the binding character of a judicial precedent is based on a juristic principle of universal application. The reason for adoJ,>tion inconvenience of subject ing each question decided by a previous judgment to reargument, thereby rendering the dealings of mankind doubtful by different decisions; so that in truth and in fact there would be no real final court of appeal" (See London Street Tramways Co., Ltd. v. The London County Counojl(1) at page 380). It is, therefore, necessary to the competency of consider within what Court to reconsider its prior decisions may well be exercised. For this purpose the actual practice of other ·requires comparable Courts close examination. affording guidance is "the disastrous limits The practice of the Supreme Court of America is indicated in the following passage from Willoughby on the Constitution of the United States of America, Vol. I, page 74: import, "In cases of purely private the chief desideratum remain certain, and, judicially declared therefore, where a rufe has been and private rights created thereunder, the courts will not, except in the clearest cases of error, depart from the doctrine of stare decisis. When, however, public interest~ are involved, and especially .when the que~ (1) [1898] A.C. 375. 9-$4 s. C. India/59 1955 Tiu Btngal Immunity Company Limited v. The State of Bihm' and ot/:ers .7agannac/ftadas ]• 730 SUPREME COURT REPORTS [1955] therefore, and particularly tion is one of constitutional construction, the matter is otherwise. An error in the construction of a statute may easily be corrected by a legislative act, but a the Federal Constitu· Constitution tion, may be changed only with great difficulty. interpretation may for all prac Hence an error in its tical purposes be corrected only by the Court's IC· pudiating or modifying its former decision". the power of recon It would appear, freely somewhat sideration of a prior decision exercised by the Supreme Court of America in Consti tutional cases. The reason for such free exerc1Se, or to the same extent, does not exist under our Consti· tution. To appreciat~ this, it is necessary to compare two Constitutions for amend· the provisions ment of the Constitution. The machinery for amend ment of the Constitution of the United States is prc.> vided in Article V thereof and "The Congress, whenever of both it necessary, shall propose amend houses ments to two thirds of the several States. shall call a convet!· tion for proposing amendments, which, in either ca~, shall be valid to all intents and purposes, as part of this Constitution, when ratified by legislatures of three fourths of the several States, or by conventions in three fourths thereof, as the one or the other mode of ratification may he proposed by the Congress". Under article 368 of our Constitution, the normal in 1;,spect procedure provided for amendment. except of specified matters to be presently enumerated, is as follows: is as follows : thirds this Constitution, or, on the application shall deem and when "An amendment of this Constitution may he tiated bv the introduction of a Bill for the purpose in either House of Parliament, passed in each House by a majority of the total mem bership of that House and by a majority of not less than two-thirds of the members of that House present · and voting, it shall he presented to the President for assent being given to the his assent and upon such in accord Bill, the Constitution shall stand amended ance with the terms of the Bill". the Bill

195.5 The Bengtl.l Immunit company ~d v. n .. Stau of mna, and othln Jo~]. 2 S.C.R. SUPREME COURT REPORTS 731 the Union and (Supreme Court) (Chapter I of Part XI), as also the Constitution, an additional step In respect, however, of a limited number of matters specified required, namely, that "before the Bill making pro vision for such amendment is presented to the Presi dent for assent, the amendment shall also require the Legislatures of not less than one be ratified by half of the States specified in Parts A and B of First Schedule by resolutions to that effect passed by those Legislatures". Now the special matters where amendment is conditional on this additional require ment relate the election of President (articles 54 and 55), extent of the executive power of the Union (article 73), extent of the executive power of a State to the Union Judi (article 162), provisions relating (Chapter IV of Part V), and to the High Courts of the various States, in Parts A and B (Chapter V of Part VI) and in Part C (article 241), and the relations between States the distribu tion of the legish}tive powers and the various lists in the Seventh Schedule, the representation of the States in Parliament, and the provision in the Constitution relating to the machinery for amendment of the Con stitution. Thus, it will be seen, excepting in respect it may be noticed of a few basic matters-of which article 286 is not one-the normal machinery for the procedure of amendment is the same as that for passing of any statute by Parliament except that a specified majority in each of the Houses is essential, the securing of which would be difficult or easy according to the strength of the Government at time in each of the Houses. The requirement of special the passing of legislation majority as a condition for in respect of certain specified is not items of business that may altogether an unknown feature. However be, it is quite clear that while the amendment of the Constitution does not depend upon ordinary rule under which Parliament conducts majority the machinery therefor is by invoking the business, very same Parliament and not anything so difficult, cumbroµs and dilatory as that envisaged in article V of the American Constitution. Even as regards 1955 The Bengal lmmunit,Y Compa~y Limited v. The Stau of BIM' and others Jagannadhadtu ], 732 SUPREME COURT REPORTS (1955] few specified matters for which an additional require ment of ratification by State Legislatures is provided for, our machinery for amendment is clearly much easier and less cumbersome, me, therefore, right to rely upon the American practice as a safe guide to determine our practice on the ques tion as to the binding character of a judicial prece dent. Neither, are we bound to adopt the very rigid rule which the House of Lords has formulated for its own practice. The problem of interpreting a written Constitution does not generally arise before it. It does not appear to our notice, this question arises, that practice carefully The only other comparable courts whose practice through citation of has been brought cases, are the Judicial Committee of the Privy Council and the High Court of Australia. As th is is the first case in this Court wherein it is desirable to consider for our guidance, though it is not necessary to lay down any absolutely rigid or inelastic formula. It is worthwhile at this stage to notice what, according to the Consti tution of Australia, is the machinery for the altera tion of their Constitution. This is to be gathered from section 128 of the Commonwealth Act of 1900 which -broadly required there is an absolute majority in each of the Houses and the approval of each State to be obtained by a referendum definitely much more ditlicult, cumbersome and dila tory than what. obtains in our Constitution. There there can be no reason for our adopting a less fore, rigid standard than that adopted by the High Court of Commonwealth of Australia, nor is there any rea son for our adopting a standard less rigid of the Judicial Committee of the Privy Council. who while feeling themselves free not the very strict rule of the House of Lords, were under no con stitutional limitations in this behalf. the electors of each State. This speaking-shows that what to follow The practice of the Judicial Committee as to the limits within which they generally exercise dom to reconsider their prior decisions can be gathered in In Re. Transferred Civil Servants from the cases 1955 The Beng"l Immullity Company Limikd Yo The State of Bihar and othlrs ]agannadhadas .1· 2 S.C.R. SUPREME COURT REPORTS 733 : ) formulation of their practice, ( 1) The case came up before (Ireland) Compensation( 1 ) ; Attorney-General for Ontario v. Canada Temperance Federation( 2 ); and Phanindra Chandra Neogy v. The King(3). The matter was dis cussed elaborately and various prior decisions of Privy Council were considered and the conclusion was in In Re. Transferred Civil Ser- summed up as follows 11ants (Ireland) Compensation( 1 "There is no inherent in ordering incompetency the Board, rehearing of a case already decided by even when a question of a right of property is involved but such an indulgence will be granted in very excep tional circumstances only. It is of the nature of an ex traordinarium remedium". the above After Privy Council in this case permitted itself sider the previous decision in Wigg's caseC), on two them on a grounds. the Judicial Committee reference under section 4 of Act of 1933, and that reference would have been futile if it did not necessarily involve such reconsideration. (2) The reference itself was granted on account of an the pre alleged material mistake of fact, into which vious Board of the Judicial Committee had fallen. On such reconsideration the previous decision was affirm ed. In Attorney-General for Ontario v. Canada Tem perance Federation ( 2 Judicial Committee ex pressed itself as follows at page 206 : "The appellants' first contention that Russell's c11Je( •) was wrongly decided and ought to be overruled. tendering Their Lordships do not doubt humble advice to Hi.s Majesty they are not absolutely bound by previous decisions of the Board, as judgments. In ecclesias House of Lords by tical appeals, for instance, on more than one occasion, the Board has tendered advice contrary to that given in a previous case, which further historical research has shown to have been wrong. But on constitutional questions it must be seldom indeed that the Board would it may be depart from a previous decision which its own. ) (I) [19291 A.C. 242. (5) 76 I.A. JO. (5) 7 A. C. 829. (2) [!946] A.C. !93. (4) [1927] A.C. 674. 1955 TM Bmgal lmmunif;Y Company Limited v.· The Stale of Bihar and others Jagannadhadas J. 734 SUPREME COURT REPORTS [1955] · assumed will have been acted on both bv Governments and subjects". In this case the Privy Council was invited sider the correctness of the law laid down by them in Russell v. The Queen ( ) but they declined to do so on two grounds, viz., ( 1) on constitutional questions Board its previous decisions, and (2) the prior decision stood unchallenged for over 60 years. In Phanindra Chandra Ncogy v. The King( 2) the Privy Council stated that it is only "in the most exceptional tender advice to His Majesty cases" reaffirmed inconsistent with a previous decision and the decision in Gill's case('). that they would seldom departs . Three cases of the High Court of Australia out of In the those brought to our notice are instructive. Tramways case( ') the position was expressed following terms. Griffith, C.J. observed as follows : the Court is either technically bound by previous decisions. "In my opinion it is impossible to maintain a» an legally abstract proposition Indeed, it may, in a proper case, be its duty to disregard them. But the rule should be applied with great caution, is manifestly the previous decision and only when instance, wrong, as, mistaken assumption of the continuance of a repealed or expired statute, or is contrary to a decision of ano ther Court ·which this Court is bound to follow; not, I think upon a mere suggestion that some or all of the members of the later Court might arrive at a diff erent conclusion if the matter were res integra. Other· there would be grave danger of want of conti" nuity in Justice Barton observed as follows : interpretation of the law''. it proceeded upon "I have never thought that it was not open this Court to review its previous decisions upon good cause. The question is not whether the Court can do so, but whether it will, having due regard to the need for continuity and consistency judicial decisions. Changes in the number of appointed Justices can, I (I) 7 A.C. 829. (3) 761.A.41. (2) 76 I.A. IO. (4) 18 C.L.R. 54. • 1955 The Bengal lmmunit; Company Limiter/ v. Tl11;State of Bihar and others Jagannar/hadas J. 2 S.C.R. SUPREME COURT REPORTS 735 furnish a reason for re- take it, never of themselves view .......... But the Court can always listen to argu- ment as to whether it ought to review a particular decision, and the strongest reason for an overruling is that a decision is manifestly wrong, and its maintenance is injurious to the public interest". Having so laid down for their Court, the learned Judges, on account of the special circum~tances in reconsider the prior decision and on such reconsidera tion affirmed In so reaffirming the prior decision, one of the learned Judges, Justice Powers, stated his grounds to the following effect. case, unanimously agreed the rule of practice it. judgments were considered "In Whybrow's case( 1 ), the Court consisted of all the Justices of this Court who could sit on the appli cation. The case was very fully argued. Both parties represented by counsel. and two of the States were The judgments delivered more than two weeks after the preliminary objection taken ......... Under the circumstances I have no hesitation in following the judgment". The same judgment stated as follows : learned Judge at another portion of his respect "If we do not •,how some to our own Court's decisions, no counsel will feel safe in advising the public, and it will create uncertainty and con fusion''. The principles so laid down have been reiterated in. a recent case of the High Court of Australia in perpetual Executors and Trustees Association of Australia Ltd. v. Federal Commissioner of Taxation(2) in the follow ing terms: "The Court is not bound by its previous deci to preclude reconsideration of sions so as absolutely a principle approved and :ipplied in a prior case, but, as was stated in Cain v. Malone(3), the exceptions to the rule are exceptions which should be allowed only- - with great caution and in clear cases". Then the above quotation Justice Barton in the Tramways Case( 4 judgment of ) was repeated (I) 11 C.L.R. I. (3) 66 C.L.R. JO. (2) 77 C.L.R. 493. (4) 18 C.L.R. 54. 1955 Tu B'"t•I Imm1111ill C.mpan7 Limikd v. TM Siok of Bihar and """' J•t•tlNl<ihadas J. 736 SUPREME COURT REPORTS [1955] and the principle indicated therein was reaffirmed. this case the Court was asked to overrule decision Federal Commissioner of Taxation( 1 Judges declined observations : In their prior in Trustees Ex~cutors and Agency Co. Ltd. v. learned the following to reconsider ). The it with the duty of the controversy between "The decisions of a superior Court have a double aspect. They determine parties, and in deciding the case they may include a statement of principle which Court and of all subordinate courts to apply in cases to which that principle relevant. Continuity and coherence in the law demand that, particularly in this Court, which is the highest court of appeal in Aus tralia, the principle of stare decisis should be applied, save in very exceptional cases". The criterion, viz., that of manifest error plus injury to public interest by maintenance of previous decision laid down in the above cases as being the ground on which a reconsideration can be granted was reiterated in Attorney by Justice Williams General for N.S. W. v. Perpetual Trustee Co. Ltd.(•). to reconsider In this case the High Court was asked the correctness of in a prior case, viz., that in Commonwealth v. Quince(•). On re consideration the Judges by a majority affirmed prior decision. One of Justice Dixon, considered the matter on its merits elaborately and came the conclusion that if the matter were to be considered afresh he should prefer a view con trary to that which had been expressed in the prior decision but concurred with the majority view with the following observations : the majority decision the learned Judges, judgment in his "There appears to me to be no ground for recon sidering the d~ision in Quince case( 8 ) unless it be a sufficient ground simply that the opposite conclusion is to be preferred. It is evident that the decision was reached only after a very full examination of the ques It cannot be said that any compelling considera tion. tion or important authority was overlooked or that the decision conflicts with well established principle or fails (2) 85 C.L.R. 237. (3) 68 C.L.R. 227. (1) 69 C.L.R. 270. ' ' 2 S.C.R. SUPREME COURT REPORTS 737 to go with a definite stream of authority. It is a re.cent and well considered decision upon what is evi dently a highly disputable question. . • . - • • • • • • • • e e I • • • • • • • e . • . • • e • • e • • e reconsider I do not that we should correctness of that decision. The proper course judi cially is to follow and apply that decision". This is a strong case of the year 1951-52 indicating the most recent practice of that Court, and the above passage aptly summarises almost the very considera tions applicable to the present case. 1955 Thi Bengal lmrmm~ Company Limilld V; Thi State of Bihar .1111 othlll ]ag•naihadas J limits. theoretically to overrule to themselves A consideration of these cases shows that while the highest courts other than the House of Lords have competency reserved to reconsider the correctness of a prior decision, they have also carefully confined the actual exercise of that In a number of ~wer within very narrow to recon cases in which they did permit themselves sider, they have ultimately declined prior decision notwithstanding another view might well have taken. The only instances brought to our notice where, on a reconsideration, a previous decision was not followed, are two. One is the Amalgamated Society of Engineers v. The Adelaide Steamship Co. Ltd.(1). That was a case where the question which arose was a very important one as to the power of State Legislature to encroach on the field of the Commonwealth Legislature by virtue of a rule of construction laid down in an earlier case, viz., Railway Servants' case( 2 ). The learned Judges were of the_ opinion that that was a question of far reach ing public importance and that the prior decision being man~'festly wrong and opposed to the rules of construc tion laid down by the Privy Council in a number of cases, It would be should be reconsidered and overruled. seen that in this case the Court acted upon the course of tations which they have laid down their decisions, overruling of a prior decision is to be confined to cases where the prior decision is manifestly wrong and its maintenance reconsideration and (I) 28 C.L.R. l29. (2) 4 C.L.R. 488. 1955 The Bengal Immunity Company Limited v. /' !11J State of Bif.ar and others 738 SUPREME COURT REPORTS [1955] is productive of great public mischief. The second is the case in Gideon Nkambule v. The King('), where the Privy Council declined to follow its prior de~ision in T umahole' s case (2). In this case, the Privy Coun that a prior the proposition cil, while it reaffirmed decision upon a given set of facts ought not to be re the greatest hesitation, explained why opened without they, in following passage : the previous one fact, differed in which, "From a perusal of the judgment they are foundations on which in Tumahole's the history of the adop· case( 2 ), it is apparent statutes and the various tion and promulgation of the evidence the effect of proclamations dealing with in South Africa was only partially of accomplices put before the Board, and much material which has now been ascertained was not presented to their Lord ships on therefore, tint occasion. The present case, is one in which fresh facts have been adduced which were not under consideration when T11mahole's case was decided, and accordingly it is one justified in reconsider their Lordships' view, that case was deter mined". This was a case where applicability of the English rule of law relating to ac complice evidence as laid down in Rex v. Baskerville("), viz., that a particular portion of the rule which lays down that the evidence of one accomplice cannot be that of another. What was under corroborated by the Privy Council was whether a consideration of prior decision of the Judicial Committee, construing a particular section of the relevant statute applicable in that case the above rule, was It will be noticed that the overruling of the correct. prior decision in this case was based on the fact that and relevant material was not placed be important fore the Judicial Committee in the earlier case. These cases emphasise under what exceptional circumstances the highest and final court in a a prior decision of country is treated as not binding on itself. the question arose as to in consonance with (I) [1950] A.C. 379. (3) [19161 2 K.B. 658. (2) [1949] A.C. 253. 1955 The Bengal Immuni'l' Company Limited ~- The Sta;, q/ Bihar and otheTs Jagannadhadas ]. 2 S.C.R. SUPREME COURT REPORTS 739 course. I should have thought it appears to me-has justify a reconsideration. Now what are the grounds in the present case to justify a reconsideration of the prior decision. At that the argument this stage, I cannot help noticing before us-'3.S taken a some what unusual in a case so recent as that in the the decision United Motors case( 1 ) given after full consideration, sought to be challenged, the first question to have been there were circum considered was whether or not stances to is only after the Court came at least to a prim a f acie conclusion on that preliminary matter merits of that decision should have been permitted. the correctness What has happened, however, the prior decision was straightaway canvassed be fore us and the question as to the competency or the desirability of such I must con and subordinate part in the arguments. important question has accordingly suffered for want of due considera tion thereof at the stage of arguments before us. reconsideration occupied a reargument on that this all that a is that feeling It Now, let us see what are the facts relating to the prior decision. The decision was given on the 30th March, 1953. · The case itself was heard for 12 working days, i.e., from the 9th February, to the 25th February, 1953. The Union of India and as many as eight States were intervene and their arguments were also permitted heard. A perusal of the judgments then given shows that every possible aspect had been fully presented and considered. The decision was that of a majority as against that of one dissenting Judge. One of learned Judges in the majority, though concurring on the main point, was prepared . to go further on one point than what the majority held (though, as appears now, he is prepared to go back on his concurrence). It is true that in a later decision in State of T ravan core-C ochin v. Shanmugha Vilas Cashew Nut Factory(2), another Judge of this Court expressed a view in dis agreement with the view of the majority in this case. But that was a decision given on the 8th May, 1953, the prior more than a month after judgment in (I) [1953) S. C. R. 1069. (2) [1954] S. C.R. 53. 94 1955 . Thi B,.gal lmmunit,1 Company. Limited ''• Tht Slal1 of Bilw and othlrs Jagannadhad., J. 740 SUPREME COURT REPORTS [1955] case had been delivered and had become binding. The question that directly arose for consideration later case was not the one that had come in for con sideration in the earlier case. However this may be, it may also be noticed that in a later decision of this Court in Himmatlal Harilal Mehta v. The State of the law as laid down in the earlier Madhya Pradesh ( 1 ) decision in the United Motors case( 2 ), was reiterated and it was stated the view (See page 1126). In could no longer be questioned. to me prima facie, view of the above that there was no reason for reconsideration except the fact that a different view had been taken by two of the learned Judges of chance of a differently constituted majority emerging on rehearing. that the correctness of this Court and except it appears facts, It is said the error. the consuming public therefore, said that, if that decision the. adjudication of the taxing power of This, however, is sought to be justified on various that the prior decision does not grounds. two contending merely determine the rights of reaching effects on partjes to that case but has far it in the rights of the consuming public and volves in general. States as against is errone It is, It ous, it is our duty not to perpetuate appears to me, with respect, that this is begging the question. There is no absolute standard by which erroneous character of a previous decision can be as certained. What a previous decision has determined, it can be pro must be presumed to be right unless nounced It is, therefore, a strong thing to characterise a previous decision as erroneous where, even on reconsideration, no w1animity is reached and supported by a substantial minority. Nor, can mere fact of one of the prior learned Judges having gone back on his views be any criterion to determine which out of his two views is erroneous. As regards the suggestion of tax burden on the consuming public, it is relevant to notice that the burden, if any, which arises under the prior decision can only be by legis- (2) [1953] s. a. R. 1009, to be perverse or manifestly wrong. (1) [1954] s. a. R. 1122. the previous view 2 S.C.R. SUPREJl.!E!CQURT. REPORTS , ' '141 . "v. and others 1sss .The &ngal Immunity lative action of the very State in .which the'consum• ing public are residents. · The removal of the burden; if called for, is a matter which, under the :constitu- tion, can be brought about by democratic process 'C<nn}any Limiteil which is available to the consuming public, through its representatives in the State Legislature; It appears The st?t• 0! Bihizli to me that that is not a matter for. our considera• t.ion:: I may be permitted to add that in the course Jagann-;;:adasJ;. of the arguments there has been.no serious grievance made about the alleged burden . on .the consuming public. But there has been a good deal of emphasis on the harassment to the business· community, i.e., to the out-of-State dealers, from whom the tax is pri" marilycollected and passed on, under the law,- to the consumer. We are not, however, concerned with any question arising from_ such alleged· hardship. · The hardship such as it is, is one that: may have to be ob". viated by the adoption of a common· and agreed machi~ nery by all the States for the ·assessment (as· disting- uished from levy) and collection of the tax from out• of-State dealers, or if necessary, by the passing of the requisite legislation enabling this to b·e dorie. But that hardship, if any, can afford no reason for reversing the prior decision which, as will ·be shown later, has construed article 286 ·consistently ·with the· entire scheme of the Constitution.. That decision enables the consuming State. to derive· an elastic source· of revenue from its own residents to make it ·available for the expanding needs of the State in the discharge of the responsibilities allotted to it under the Cons ti• tution. It is not for this Court now to choose bet- ween the alleged hardship of the business community and the interests.of the consuming State and treat the former as a ground for reconsideration. : It is next suggested that there is some vagueness, if not inconsistency, in the prior majority judgment which justifies reconsideration .. It is said, with ref erence to a particular passage quoted from· the· judg~ ment, that it is only buyers falling within the Expla nation who were contemplated as liable and nof the out-of-State dealers, but that the whole trend of the rest of the judgment and the actual.. decision i:un$ . !955 The Bengal lmmnnity Company Limiltd v. The State of Bit.M and olhtrs Jagannadha<IU J. 742 SUPREME COURT REPORTS [19551 respect, to whether inconsistent with this. With very great counter I< hardly fair to read the decision as being in any way vague or itself by extracting one single passage. The passage relied on is at page 1084 the question was and appears, in the context where the phrase "acn1al being considered, as to "delivery delivery for consumption" has reference to the actual consumer-purchaser" or delivery also fo_r eventual distribution the consu. "a purchaser indicated in the ex the State". The view to a purclzaser tracted passage was that delivery eventual distribution the State was also "actual delivery for consumption" and hence the designation of purchaser as liable to tax in that passage. That the extracted passage was not meant to indicate that only such purchaser was taxable and not the seller is quite clear from the various passages succeeding paragraph at pages in the 1084 and 1085 where "taxation of sales or purchases involving inter-State elements bi the State in which the goods are delivered for consumption in the sense referred repeatedly explained above" can, If · at all, be said the decision has not, the seller or in terms, indicated the choice hetween the purchaser as regards taxability but has indicated either of them, as taxable. the consumer immed_iately to. All It has next been said that impugned decision is a recent one and that "judicial opinion was divided, if not evenly balanced". It is no doubt tru~ that the prior decision is only two years old. But that is not by itself a ground for reconsideration. On the other hand, I should have thought that the very fact of its recent should militate against reconsideration. Justice The real Dixon for N.S.W. v. Perpetual is whether it was a fully consi Trustee Co. Ltd.(•) judgment and whether any fresh material has been brought to the notice of the Court. In consider ing the question whether a decision consideration on account of its being recent, it is of importance that our decisions become in Attorney-General to my mind, as indicated by ro observe is open (I) 85 C. L .. R. 237. 1955 The Bengal Immunity Company Limiud v. Thi State of Bihll1' and others Jagannadhadas J. 2S.C.R. SUPREME COURT REPORTS 743 declarations of law under article 141 and must be treated norm'!llY as final from the very moment they are pronounced. The finality of the decisions of this Court, which is the court of last resmr, will be greatly weakened and much mischief done treat our recent, as open to re consideration. judgments, even though if we to this. I am unable to appreciate It has next been suggested that rectification of the error, if any, in the view taken by the previous deci sion, is difficult and that this could be brought about only by the amendment of the legislative lists neces the consent of the requisite number of States. sitating With this. The respect, two opposing views ulti points of difference (1) Does the Explanation mately boil down to article 286(1) (a) taken with the relevant legislative the consuming State entry enable fictional (2) If so, does article 286(2) override inside sale? If the right construction of article this taxing power? is not what has been accepted by the majority 286(2) in the prior decision, what all was · required to correct that error would be to amend article 286(2) so as to make it clear that it overrides article 286(1) (a) taken with. the Explanation bv therein of like "notwithstanding Expla some appropriate phrase nation any such amendment, if called for, should be left to recent experience has shown. the Parliament who, as is quite capable of constitutional amendments when it felt the clear necessity for it. to article 286(1) (a)". The responsibility bringing insertion the case The proper course for this Court, therefore, is to adopt the attitude of Justice Dixon Attorney-General for N.S.W. v. The Perpetual Tmstee Co. Ltd.(1) wherein notwithstanding that he came to a contrary conclusion, he declined to disturb the prior decision. The case for not disturbing the prior deci fJresent case, no unanimous opinion could be reached in favour of overruling the prior decision. the stronger. where, as happens in is all Notwithstanding my opinion that there is no ground for reconsideration of the prior decision of this Court (I) 85 C. L. R. 237. 1955 Thi Blngol lmnumil ComJlal!J J;.;i14 v. Thi Stale ef Bi/oar anti othtn ]agannadhadas ]. 744 SUPREME COURT REPORTS [1955! in the United Motors case('), I propose, out of respect for my learned brothers, who are prepared to take the opposite view, to give my reasons why, on a fresh consideration of the question involved, I am clearly m agreement with the said case. Having had the benefit of reading the judgments of my learned brothers, Justice S. R. Das and Justice Venkatarama A yyar, I propose to con the con the consideration of fine myself mainly to struction of article 286. the decision of the majority to legislate "within the State". The There can be no doubt that article 286 taken as a whole has to be read in the context of the power vest ed in the States for levying taxes on ~e sales or pur chases of goods (other than newspapers) under Entry 54 of List II of the Seventh Schedule taken with arti de 246(3). Entry 54 does not, in terms, say that the thereby as sales or purchases of goods contemplated taxable are to be sales or purchases "within the State". In this respect it is in contrast with Entry 26 which in respect of vests in the State the power trade and commerce parently wide language of Entry 54 is in recognition of the theory that in substance a tax on sale or pur chase of goods is a tax on the goods with reference to (See the United the event of sale or purchase thereof. Motors case('). Article 286 appears in Part XII of , the Constitution finance, property, con tracts and suits and is in Chapter I thereof relating to finance. This is mainly concerned with the prob. !cm of allocation of finances between the Centre and the States in order to enable each to carry on the res it under pective governmental in view as also the Constitution. Keeping this context indicated by the avowed purpose of the marginal note, it may be taken that article 286 was intended to indicate clearly the ambit of the tax ing power ot the State on sales or purchases of goods and to limit it to a demarcated field. To determine the exact scope of this ambit and of the limitations, it is relevant to consider what was the sales-tax law b operation just prior to the new Constitution. functions allotted the article as relating (I) [1953] S. ·c; R. 1069. 1955 Tht Bengal Imm11ni(1 Compan_y L1miltd The Stale of Bihar lltld others Jaganrwtfhadas J. 2S.C.R. SUPREME COURT REPORTS 745 additions (with minor A careful and the definition of In addition, each one of thorough examination of the Pro vinciai Sales-tax Acts at the time discloses the follow ing. There were sales tax laws in operation in all the then nine Provinces, which subsequently became Part A States under the Constitution, as also in one Native State of Mysore. The pattern of the sales-tax laws everv one of the ten units had the following common features variations). Under the charging section in each of these Acts, tax turnover of wa~ levied as against a "dealer" whose sales (or purchases) exceeded a particular amount. A "dealer" was defined as a person carrying on the !-msi ness of selling or supplying goods the Province. "Sale" was defined as meaning transfer of property in goods in the course of trade for valuable considera these Sales-tax Acts tion. had an Explanation the word that, notwithstanding anvthing the etfect ''sale" in the Indian Sale of Goods Act, a to the contrarv sale or purch~se of goods "which were actually in the Province'' at the time when the contract of sale or purchase is made, slzall be deemed to have taken place in the Province, wherever for sale or purchase may have been made. This was, broadly the common pattern of every one of the speaking, sales-tax to the Constitution, subject just prior to the definition of sale by to some further additions a few of the States, which will be r,resentk noticed. This pattern the purely internal sales-in respect of which the power of taxa the States was undoubted-the States claimed tion hv the p~wer to tax sales with an outside element in the following two cases: (1) Where the transfer of owner ship in the goods was within the State (assumed to be (2) so) according to the Indian Sale of Goods Act. Where the gocds which are the subject-matter of th-= sale are actuallv in the Province at the time when the contract of sale' is made, i.e., at the crucial moment of If transfer of ownership. another way, ~ales as being within the State1 with reference to (1) .rit!1s (a:; :i~~nmecl) under the Sale of Goods Act, and to-84 s. c tnclhp0 these Sales-tax Acts purported .to I may express the contract that apart indicates, 1955 Th~ 1Je11gal Immunity Com~'V Limited v. T1"JState of Bihar and othns Jag41WJl/hadas J. 746 Su-PREME COURT REPORTS [1955J reference It is possible that (2) situs (as probably assumed to be) under the gene this general law was so ral law. assumed with the dictum of Lord Loreburn in Badische Anz'fin Und Soda Fabrik v. Hick the goods the situs of son( 1 ) which suggests that at the time of appropriation of the goods to a parti the situs of the sale. Whether the un cular sale is these criteria regards both derlying this stage. is not material at were right or wrong While this was the general pattern, four of the States claimed the taxing power with reference to some addi tional criteria. Madras and Mysore had an additional Explanation as follows : assumptions as "In case the contract was for the sale or purchase of future goods by description, then, if the goods are actually produced in the Province at any time, after the contract of sale or purchase in resp.ect thereof was made, the sale or purchase shall be deemed to have taken place in the Province, wherever the contract of sale or purchase might have been made, notwithstand Indian Sale of ing anything to Goods Act". Bihar and United Provinces had the following addi tional Explanation. (Taken from the U. P. Act). the contrary thereof, shall, wherever these additions refer "Notwithstanding anything in the Indian Sale of Goods Act, the sale of any goods which are produced the Province by the producer or or manufactured the delivery manufacturer or contract of sale is made, be deemed for the purposes of the Act to have taken place in the Province". to future goods. Madras Both future goods as and Mysore apparently treated such the moment having been appropriated the Province". The they. were "actually produced Bihar and U .P. addition was more or less the same and is limited to the case of sale by the very manufac in effect turer or prqducer. The above additions are .the same as category No. 2 of the general pattern as applied to future goods. The underlying assumption appears to be that future goods which are contracted to, be sold get appropriated their coming (I) [1906] A. a. +19.· the sale thereto on 195:i T/18 Bengal Immunity Company Limited v. TM State of Bi/uzJ' and DIM'ls J~]. 2 S.C.R. SUPREME COURT REPORTS 747 thus a invalid by the tax was itself as being the definition pf sale relating taxable sale emerges. into existence and Besides the above mentioned variations general pattern, Bihar and Uttar Pradesh had ther additions forward contracts which virtually amounted ing "agreement to sell" taxable event. This, it may be seen, had nothing to do with the nexus ·theory of taxation of sales and has been this Court in The Sales Tax pronounced Officer, Pilibhit v. Messrs Budh Prakash fai Prakash( 1 ). From the above broad summary it will be seen that revenues not the Provinces were deriving sales-tax internal sales, but also in only in respect of purely respect of sales with an outside element. But in the generality of such sales, leviable at either or both of the above mentioned two points, i.e., (1) transfer of ownership within (2) actual existence of goods within the State at the moment of such transfer. The ultimate consumer respect of such sales would normally be not a person within the taxing State. Hence having regard the structure the universally accepted machi of the sales-tax and nery therefor which brings about the passing on, of the incidence thereof, to the ultimate consumer, this It appears to must have been felt to be inequitable. me that in the adjustments called for on the passing of the Constitution it was this feature of the pre-exist ing sales-tax law which called for being remedied by taxation of sales with an the imposition of a ban on that very consideration would outside element. But the permissibility of taxing an out~ equally indicate the ultimate burden of it could be side sale where passed on to the resident of the very taxing State. This could be done by making the consuming State taxing Stat<:. This, in my opinion, was the background with reference to which article 286 was incorporated m the Constitution. the State, The Constitution wanted to put a ban on taxation of sales with an outside element on account of tbct residrnts of other States inequity of making (I) [1955] I g, C. R~43. 1955 The B"'l•I lmmunitl Company Limited v. The Siok of Bihar and olhtrs ]ogannadhados ], 748 SUPREME COURT REPORTS [1955) It to an limited towards inside sale. taxable so that left that category taxing powers allocated inside sale indicated to a purely to me not very reasonable the selling State. the resources of contribute But in doing so it could not have intended to confine the resources of the State under this head to the com paratively small fiejd of pure! y internal sales. Having regard the expanding needs of a . social welfare to it, State and limit an the Constitution could not have meant to elastic source of its own con taxation payable by sumers to the very small field of purely internal sales. took out one category of It, therefore, selected and sale with an outside element restriction, by adopting the device of a fictional in side sale and incidence thereof may be the same as that of a purely internal sale. This, to my mind, is the reason for the the Explanation by a deeming positive approach provision as is on account of to the incidence of taxation. this common feature, as that the fictional in the Expla nation was assimilated internal or intra State sale. It appears that the Explanation to article 286(1) (a) was assume in order merely to determine what an out required side sale intended nothing more than to ban taxation on outside sales, it might well have contented itself with declaring such a ban. I do not think that the Courts would then have found any serious difficulty mean, a sale with a substantial outside element, or in the alternative, as a sale in which the ownership has the assumed sense of the passed outside ft was quite unnecessary and Sale of Goods Act. indeed out of the way to define: 3n outside sale as the inside >;:le. Nor can implied negative of a fictional the purpose of the Explanation be readily ;;~~urned to be to obviate the supposed chaotic condition aris ing out of the adoption of the nexus Sales-tax Acts. This could have been sufficiently and effectively provided· for-as in fact it was done-by imposed under article 286(2). the ban It has been suggested that the Explanation covers some outside sales which do not fall within article 286(2) and that in construing "outside sale" If the Constitution the State in theory is. 1955 Tu &Aglll 1,.._,,w,, Ctnnp;;;Tfmw y, Thi Stall of BWtl Ondolhm Jaganaadliodas J. 2 S.C.R. SUPREME COURT REPORTS 749 time, reason it also to hamper necessary. But In this context became necessary the Explanation was taxation whose ultimate It appears to me, therefore, therefore ingenously illustrated. cascs possibility of a illustration put forward in the like the Gurgaon-Delhi course of • arguments-as falling outside the ambit of article 286(2) and within the scope of article 286(1) (a) taken with the Explanation, would not have been the Constitution involving any adequate itself in two such provisions, mostly overlapping effect. the reasons two provisions were distinct and for having different. Article 286(l)(a) with the Explanation was meant to prevent incidence would fall on residents of outside States. Article 286 (2) was meant to prevent the taxing structure of the States being availed so as unduly freedom of inter-State trade and commerce which, for the Constitution declared by article the first 301. provide that the foreign trade of the country should not be affected at all by the sales-tax structure of the States, while . at internal trade could be permitted limited burden of taxation. various ideas that article 286(1) and (2) were drafted. Judged the only reasonable with the Explanation. This provision, while intended taxation by States on outside sales was to prohibit also meant to demarcate the boundary between inside to assimilate one parti sales and sales and outside cular category of outside sales into the field of inside sales and to make consuming State. The underlying aim of this demar cation was to obviate the inequity of one State levy incidence was on the resi ing a tax whose ultimate instead an dents of another State but elastic source of taxation which in its effect was to be against its own residents. The field of export trade is completely marked off as not being available for the operation ot sales-tax by article 286(1) (b). Then the trade and ban on sales in commerce for a indicating that to bear a reconciliation of is declared. This ban, which was construction of the course of inter-State 286 ( 1 )(a) 'it available for taxation by to provide the same following article It is 1955 Tiu Bengal lmmunitv c.mpany LimiUd v. Tiu Stale of B;har and others Jagannadkadas J. 750 SUPREME COURT REPORTS [1955} positive totally different l?~rpose cannot be so construed as to nullify intended and brought results about by article 286(1) (a) read with the Explanation. To such a situation the principle of harmonious con by Lord struction Herschell in John Carter Colquhoun v. Henry Brooks(') at page 506 in the following terms : enunciated "It is beyond dispute transportation of goods, as for that we are entitled and indeed bound when construing the terms of any pro vision found in a statute to consider any other parts of the Act which throw light upon intention of the legislature and which may serve to shew that the particular provision ought not to be construed as it would be if considered alone and apart from the rest of the Act". If, as my learned brother, Justice Venkatarama Aiyar, is inclined to think, a sale cannot be said to have occurred in the course of inter-State trade and com merce if the sale follows the completion of the State instance, would the case when · a hawking pedlar brings goods across a State boundary and vends in another State, then clearly the fiction which brings about the notional inside sale would by itself be sufficient to take such a sale out of the category trade and commerce". "of the course of the transportation Because, in such a situation, while of goods across State boundaries a fact, the consuming the sale itself is deemed to be inside to shift the very purpose of the fiction being State, the situs of the sale for the purpose of taxability. It is, I think, in this sense that in the earlier decision, that by virtue of this particular category of inter-State sale became an intra-State sale, of course, not for all purposes, but for the limited purposes for the Explanation was inserted, viz., the purpose the non-taxable of demarcating the field. Looked at either on the ground of harmonious construction or on the ground side sale brought about by the Explanation ceased, then Chief Justice the Explanation it from door the notional taxable field laid down remains as inter-State learned (l1 [1889] 14 A. C. 493, 506. 2 S.C.R. SUPREME COURT REPORTS 751 indicated the broad taxation purposes, by that very fiction, to be part of the course of inter State trade and commerce only proper construction of article 286(2) would be taken with that it cannot override article 286(1)(a) the Explanation. Having on which I have, on independent consideration of the construction of articles 286(1) and (2), arrived at the same construction as that adopted in the United Motors case( 1 ), it is unnecessary for me to deal with all the the course of the various aspects raised before us to express my general agreement arguments, except reasoning of my learned with a good deal of brother, Justice Venkatarama Aiyar, on this part of It is, however, necessary to refer to a few the case. matters referred to in the contrary view. 1955 The Bengal Immunity Company Limited v. The State of BihflJ' and others Jagannadhaaas]. It is said inspired by pre-Constitution to the chaos said loopholes to have been created bv The contrary opinion adopted by my learned bro thers is based almost entirely on the view that artick the anxiety of the Constitution 286 to prevent the mischief of multiple taxation, which the pre-existing sales-ta:i. arose from the operation of result was achieved bv laws. from various angles, covering all articl~s 286(1)(a), 286(1)(b), 21l6(2) and 286(3) being said be the four plugging points. With respect, I i;Jn only think that this is the outcome of an overdrawn picture a·lready earlier pointed out, the previous the common feature of all ten Sales-Tax Acts, was to bring about limited multiple taxation in respect of outside sales at two points, viz., (1) transfer of ownership within the taxing State, and (2) the actual presence of goods in the taxing State at transfer of ownership the point of time when the takes place in another State. It must be mentioned that none of the Sales-Tax Acts took the mere presence of goods in the S_tate as enabling it to levy the tax. What was the exist taken as enabling taxation was ence of goods within the State at the crucial point of time, viz., the point at which the ownership became transferred wherever it may be. Once this is appreci ated, it is difficult to agree with the assumption laws. As sales-tax (!) [1953] S. c. R. 1069. 1 1955 TM Btngal lmmunit'V Campan_-v Llmited v. The'iStale of Bihat and othtn ]agannad; tulas ]. ~52 SUPREME COURT REPORTS r 19551 law, taxation. But, than two points. the States would the successive States In none except one of taxauon might get under the pre-existmg multiplied in the course of the transit of goods under sale through a number of States, if the . goods hap pened to remain time. goods be in actual existence at the single crucial point of time of transfer of ownership. Hence, 1 am clear in my mind tftat the previous legislation would not have taxation of the same sale with an normally involved (Whether outside element, at more even this would not get limited by the fact that a "dealer" is defined in all then Acts as "within the Province" would he a matter for consideration). Four of the .then provincial units had, as already stated, an additional criterion for far as Madras and Mysore were concerned that crite rion which relates to futnre r,oods cannot be cumula tive with criterion two. So far as U.P. and Bihar are the manufacturing State concerned which authorised to me that if it is as such to levy the tax, it appears borne in mind that this is limited to the sale b1' the this was also not likely to operate very manufacturer, as a cumulative point. Even otherwise these additional criteria might, if at all, have given rise to taxation at a third point, when the sale transaction had to be put through vja impression of chaotic there is no justification for the conditions resulting sumed. There is no evidence before us that prior to the Constitution taxation of sales in operation, at any rate at more than the m•o points as explained by me above. Hence in the light the vari of the detailed scrutiny of the provisions in ous Sales-Tax Acts which were in torce prior Constitution, I cannot help feeling that the mischief of multiple taxation which might if at all have exist in a limited measure as pointed out above, has future prevention of such multiple theorv recognised by the Privy Council in Wr1!/11ce's casr(') mav well be one of the results of article 286. overstated. No doubt, taxation by particular States. But even therefrom which has been invoking fact multiple there was (I) (1q4q7 F . R. J. • ·. 2 S.C.R. SUPREME COURT REPORTS 753 1955 Till Bengal Immunity Company Limittd v. The State of Bihat and others Jagannaihadas ]. to think conditions of multiple the main purpose But l am unable the provisions ol Wlderlying each and every one of continuance of, pre· article 286 was to prevent chaotic e:ustmg taxa~on I cannot help feelmg by virtue of the nexus theory. the pre-existing that a wholly wrong state of law in this respect has been created by over looking that in a particular State has been taken as a taxing point only if that transfer of existence was at the crucial moment of the definition of ownership. "sale" under each of the Sales-Tax Acts in operation just prior: is appended-as Ap pendix I-for reference). (A statement showing the existence of goods the Constitution impression of On the construction of article 286, reference has also been made in the dissenting view to sub-article (3J of article 286 which runs as follows : It taxation what "No law made by the consideration of the Legislature of a State im posing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been .declared by Parliament by law to be essential for the it has life of the community shall have effect unless the President been reserved for and has received his assent". With great respect, J am unable to see its bearing on the question at issue. is a totally different kind of restriction from what sub-articles (1) .and (2) bri~g about. While sub-articles (1) and (2) impose certam bans on (3) does is not to impose a ban at all but to impose a fet~r 1.n: e,ss~ntial goods dec respect of lared as such by th~ l'arlia~mt'nt1 by requiring before such a taxation-law can have any effect, should be reserved for the consideration of the Presi In this respect it is in line dent and receive his assent. with what would happen if any other Sta~ legisla tion passed 'by that Legislature Governor for his assent and he reserves the same for the President. The only diff the consideration of erence is the latter the reservation for the President is optional, in the case of such essen tial goods is compulsory. Subject taxation on sales of that while in is presented reservation sub-article 754 SUPREME COURT REPORTS f1955J 1955 The Bmgal lmmunit/ Company Limited v. The State of Bihar and others Jagamiadhadas J. taxable in respect of sales thereof. theory this, even essential goods continue and by Constitution, (by selves) therefore, unable to see construction of the other two provisions which bring about a total or contingent ban of taxation in respect of the sales to which they have reference. the bearing of this provision on to be, m the States I am, this Part, There is one other matter which has been stressed or implied in the dissei\ting view and it is this. The assumption is that even a single point tax on a sale trade would be a arising in the course of inter-State the freedom of inter-State trade and com burden on merce guaranteed under the Constitution by article 301 which runs as follows : the other provisions of "Subject commerce intercourse throughout the same State trade, territory of India shall be free". that a tax on a purely internal Now it is not disputed sale which occurs as a result of the transportation of goods from a manufacturing centre within the State to a purchasing market within clearly permissible and not hit by anything· in Constitution. If a sale in that kind of trade can bear the tax and is not a burden on the freedom of trade, it is difficult to see why a single point tax on the same kind of sale where a State boundary intervenes bet the consuming the manufacturing centre and centre need .. be treated as a burden, especially where that tax is ultimately to come out of the residents of the very State by which such sale taxable. Free dom of trade and commerce applies as much within a State, as outside it. It appears to me again, with great respect, that there is no warrant for treating such a tax as in any way contrary either to letter or the spirit of the freedom of trade, commerce and course p~ovided under article 301. For all the above reasons, I am quite clear in my mind that the view taken in the prior decision, viz., that the consuming State has the present power to tax the scope a fictional inside sale which falls within of the Explanation and ,power is not that article 286(2) affected by article 286(2) and that th~ said 19!>5 The Bengal lmmuni~ Company Lsmit4d v. The State of Bihar and others Jagannadhadas J. 2 S.C.R. SUPREME COURT REPORTS 755 I In if any, revenue is under The real difficulty, for consideration and has been cannot be construed as overriding article 286(1)(a) read with the Explanation, is correct and that there is no reason to depart from that decision. that arises view is as regards what has been called the extra territorial operation of the tax which such a view may involve. reached by my learned the conclusion to uphold the dissenting brothern who are prepared that question does view taken in the prior decision left un not arise I do not, therefore, feel called upon to go touched.. into it or to commit myself to any particular view on this . somewhat doubtful difficult question. whether, as between the component States of a Union of the kind, which India the Constitution, there can be any question of extra-territoriality in the sense of the doctrine that one nation does not act laws of another aid of (and foreign) It is true that a defined geographical part of nation. India constitutes the territory of each unit called State and is com to me that on mitted to that State. But that account, the territory of one State is not a foreign territory in respect of another State, when freedom of movement and a number of other common funda I mental rights are guaranteed. On the other hand, think it permissible to suggest the various to the same Constitution .States owe and are subject to its common operation, any taxing power vested in an individual State must carry with it the incidental implication of enforceability, if need be, in any other State within very nature of that tax, as contemplated by the Con this context article 261 ( 1) stitution which enjoins that full faith and credit shall be given throughout the to public acts, re cords and judicial proceedings of the Union and of every State, may well be relied upon to justify such a I am aware that this has been generally view. legislative proceedings. as applicable is capable of wider Rut the language of application. I do not, however, wish to go into that the governance of that unit the Union when their existence judicial and the article territory of that where it appears involves India In it. 1955 The Bengal lmmuni'l Company Lim~ed v. Tiu State of Bili.at and others JaganNJdhadas J. 756 SUPREME COURT REPORTS (1955] emerges if in the course of matter further because even administration of sales-tax, of the kind permissible, in the view of article 286 which the prior decision has accepted, there of extra-terri that by itself can be torial operation of such a tax, the construction of articles no reason for negativing 286( 1) and (2) above necessary to bear in mind the following clear dictum of the Privy Council in British Columbia Electrical Rail way Co., Ltd. v. The King(') : indicated. In this context the element "A legislature which passes a law having extra territorial operation 'may find that what' it has enacted cannot be direct! y enforced, but valid on that account, and the courts ot Its country must enforce the law with the machinery available to them". The question, germane for construction of article 286. therefore, of extra-territoriality the Act is not is not intimates At the present stage we are not concerned with the enforcement of the levy of the assessed tax but with the assessment of the tax. All that we are concerned with is the validity of the steps so far taken by tbe assessment authorities and particularly of the notice dated the 29th May, 1952, which that on the 14th June, 1952, proceed non-compliance before the basis of "best judgment" ings for assessment on will be made. That step, to my mind, is perfectly In Whitney v. valid as appears from Commissioners of Inland Revenue('), the House of Lords tax was leviable on by a majority held that where a a non-resident, a requisition served upon him by post to file a return and to produce accounts was valid so as to entitle the ;,.n assess ment on the basis of best judgment on non-compliance Lord Wrenbury's speech at page 56 is instructive: taxing authority to make following passage requisition. The the following. "There is a S!!Cond question in the case-namely, whether the appellant has been duly brought within the Act. the machinery This turns upon section 7. There was sent to appellant by post addressed the United A.C. 37. for assessment provided by to him (I) 2 S.C.R SUPREME COURT REPORTS 757 States a notice under section 7, sub-section 2, requir ing him to make a return. It is contended that there was no right to post him such a notice so addressed. The case, the case of it is contended, is similar to service of a writ out of the jurisdiction. I do not agree. It is similar rather to the service of a notice of dis honour of a bill or of a notice to quit or of a notice requiring payment of calls upon shares as a prelimi nary to' forfeiture in default of payment. It is not a judicial proceeding but a step which will step in inter partes a state of things in which judicial create proceedings can subsequently be in default of compliance". 1955 Th. Bengal Immunity Company Limiletl v. Th• Stale ef Bihar and others Jagannadhadas ]. is directly challenged. It may be that some or all of the provisions in the Bihar Act which contemplate enforcemerit out of State or create penalties for non-compliance out of State may require closer examination when the validity thereof the harassment consequent on such outside operation may require to be remedied either by agreed co-ordi legisla the States or by appropriate nation between relevant tion, if need be. These, however, are not considerations for us on the question we have now to deal with. It may also be I am accordingly clear in my opinion appeal should be dismissed with costs. APPENDIX-I. STATEMENT SHOWING THE DEFINITION OF "SALE" UNDER EACH OF THE SALES-TAX ACTS IN OPERATION JUST PRIOR TO THE COMMENCEMENT OF THE CONSTITUTION. (Vide Page 753). MADRAS SALES-TAX ACT, 1939. "Sale" (with all its grammatical variations and cognate expressions) means every transfer of the pro perty in goods by one person to another in the course of trade or business for cash or for deferred payment (and includes also· a or other valuable consideration, the execu- transfer of property in goods involved in

195.i:. ·Tht Bengal Immunity Company Limited v. The Stale of Bihar and others ]agannadhadas ]. .. 758 SUPREME COURT REPORTS [1955] tion of a works contract, but does not include a mort gage, hypothecation, charge or pledge;) (Explanation 1 : A transfer of· goods on the hire purchase or other instalment system of payment shall, notwithstanding title in the goods as security for payment of the price, be deemed to be a sale.) that the seller the fact retains Explanation 2 : Notwithstanding anything tlit: contrary in the Indian Sale of Goods Act. J 930, sale or purchase of any goods shall be deemed, the purposes of this Act, to have taken place in this Province, wherever the contract of sale or purchase might have been made- ( a) if the goods were actually in this Province at the time when the contract of sale or purchase in res pect thereof was made, or (b) in case the contract was for the sale or pur chase of future goods by description, then, if the goods are actually produced after the contract of sale or purchase in respect there of was made. this Province at any BENGAL FINANCE (SALES-TAX) ACT, 1941. "Sale" means any transfer of property in goods for cash or deferred payment or other valuable conside- ration ............... . • • • Explanation 2 : Notwithstanding anything • contrary in the Indian .Sale of Goods Act, 1930, the sale of any goods which are actually in West Bengal at the time when the contract of sale (as defined in that Act) in respect thereof is made, shall, wherever the said contract of sale is made, be deemed for purposes of this Act in West Bengal. to have taken place BOMBAY SALES-TAX ACT, 1946. "Sale" means any in goods for cash or deferred payment or other valuable con- sidention .............. . • transfer of property • • • 2 S.C.R. SUPREME COURT REPORTS 759 Explanation 2 : Notwithstanding anything contrary in the Indian Sale of Goods Act, 1930. the sale of any goods which are actually in the Province of Bombay at the time when the contract for is made in respect thereof, (as defined in that Act) shall, wherever the said contract of sale is made, be deemed for the purposes of place in the Province of Bombay. this Act to have 1955 The Be•gal lmmrmi'! Company L1mittd v. TM State of Bih"' and olh,,s Jagannadhuas J. ASSAM SALES-TAX ACT, 1947. "Sale" means any transfer of property in goods by any person for cash or deferred payment or other valuable consideration ............... . anything Explanation : Notwithstanding contrary in the Indian Sale of Goods Act, 1930, the sale of any goods which are actually in the Province at the time when the contract of sale (as defined in that Act) in respect thereof is made, shall, irrespective of the place where the said contract is made, be deemed for the purposes of this Act to have taken place in the Province. BIHAR SALES-TAX ACT, 1947. "Sale" means • • • any transfer of property goods for cash or deferred payment or other valuable consideration ................ . • Provided to the contrary 1930, the sale of any goods- • further • that notwithstanding anything the Indian Sale of Goods Act, • (i) which are actually in Bihar at the time when, the contract of sale as defined in in respect thereof, section 4 of that Act is made, or (ii) which are produced or manufactured in Bihar by the producer or manufacturer thereof, shall, wherever made, be deemed for the purposes of this Act to haW! taken place in Bihar; the delivery of contract of sale Provided further that the sale of goods in respect of a forward contract, whether goods under such con- 1955 TM Bengai Immunity ompany Limited v. ht StaU of Bihar and others agnnnadhadas J. 7(1J SUPREME COURT REPORTS [1955] tract are actually delivered or not, shall be deemed to have taken place on the date originally agreed upon for delivery. CENTRAL PROVINCES AND BERAR SALES-TAX ACT, 1947. • • • "Sale" ............ means any transfer of property in goods for cash or deferred payment or other valuable consideration ........... . • • Explanation 2 : Notwithstanding anything contrary in the Indian Sale of Goods Act, 1930, sale of any goods which are actually in the Central Provinces and Berar at the time when the contract of sale as defined in that Act in respect thereof is made, shall wherever the said contract of sale is made, be to have taken the purpose of this Act deemed place in the Central Provinces and Berar. ORISSA SALES-Tj\.X ACT, 1947. • • • transfer of property "Sale" means .......... any goods for cash or deferred payment or other valuable consideration ..............• • Provided further that notwithstanding anything to the contrary the Indian Sale of Goods Act, 1930, the sale of any goods which are actually in Orissa at the time when, in respect thereof, the contract of sale is made, shall, as defined is made be deemed wherever the said contract of sale for the purpose of this Act to have taken place Orissa. in section 4 of that Act • MYSORE SALES-TAX ACT, 1948. "Sale" means ............ every transfer of the pro- perty in goods by one person to another in the course of trade or business for cash or deferred payment or other valuable consideration ........... . • • • • • 2 S.C.R. SUPREME COURT REPORTS 761 Explanation 2 : Notwithstanding anything contrary in the S:i Ir l}f Goods Act, 1932, the sale or the pur pmchase of any goods shall be deemed, for in Mysore, ' this Act, to have taken place wherever the contract of sale might have been made; (a) if the goods were actually in Mysore at the time the contract of sale or purchase in respect ther.: of was made, or future goods hv description, (b) in case the contract was for or pur if the chase of goods !lre actually produced after the contract of sale or purchase in respect there of was made. in Mysore at any the sale then, 1955 Tiii Bengal lmmuni'l Company Limiltd v. The Slate of Bihar and othns EAST PUNJAB GENERAL SALES-TAX ACT, 1948. "Sale" means any transfer of property in goods for cash or deferred payment or other valuable considera- tion ........... . • • 1930, Indian Sale of Goods Act, Explanation 2 : Notwithstanding anything contrary in the sal~ of any goods whic!i are actually in East Punjab at the time when the contract of sale (as defined in that Act) in . respect thereof is made, shall, wherever ·the said contract of sale is made, be deemed for the in East to have purposes of this Act Punja!,. taken place •• UNITED PROVINCES SALES-TAX ACT, 1948. "S l " a e means ............ any trans er goods for cash or deferred payment or consideration .......... . f of property in other valuable • anything m Explanation II : Notwithstanding Indian Sale of Goods Act, 1930, or any other law for the time being in force, the sale of any goods- (i) which are actually in the United Provinces at the contract of sale the time when as defined in section 4 of that Act is made, or (ii) ...,:J.iich are produced or manufactured in respect thereof, the producer or manufacturer United Provinces by 11-9~ S.C. Ind1a/.5". 1955 T.i1t Bengal lmnwnity Company L;miud v. The StaU of Bihat and ot/rns JagannadMJas J. 762 SUPREME COURT REPORTS [1955] thereof, shall, wherever sale is made, be deemed for to have taken place in the United Provinces. delivery. or contract of the purposes of this Act Explanation Ill : Where goods under a contract are not actually delivered, the sale pect of such contract shall be deemed to have completed on delivery. <lat~ originally agreed upon forward Note : The omitted portions .in the definitions other than those in the Madras Act are to the same effect as those shown within brackets Madras definition. Its ..i\.ssist'.lnt respondent respondent registered under VENKATARAMA AvYAR J.-The appellant is a Com Indian Companies Act carrying on business in the manufacture and sale of sera, biological products and medicines. registered is at No. 153, Dharamtalla Street, Calcutta, and office situated at Baranagar, laboratory and factory are 24 Parganas, West Bengal. The the State of Bihar, and respondents 2 rrnd 3 are res Secret2!"y ::111<l pectiveiy the Secretary of Commercial Taxes. On the 18th December 1951, issued a notice under section the second 13(5) of the Bihar Sales Tax Act, 1947 (Act XIX of 1947) (hereinafter referred to as the Act) calling upon the appellant to register itself as a dealer under the assessment of sales Act and to submit a the 8th tax. To this the appellant sent a reply on january on various grounds, and after between the parties which it is needless to set out, the third respondent sent a notice on the 29th May 1952 that if the appellant failed to comply with the notice dated the 18th December 1951 by the 14th June 1952, steps would be the basis of best judgment. The appellant replied by filing the appli cation out of which the present appeai arises, under artide 226 of the Constitution for a writ of prohibi tion restraining the respondents from proceeding with liability correspondence return for disputing to assess tax on further 1952 1955 The Btn&ol l1111nut1ih Company il,,;;ud v. TM Slau of Bilutr and others 2 S.C.R. SUPREME COURT REPORTS 763 that as the reason the assessment It was alleged the assessment. the petition as the appellant had no .place of business wit}\in State of Bihar, the provisions of the Act under which taxed were ultra vires as extra it was sought to be territorial in operation, and those provi that further the Consti sions were repugnant to article 286(2) of tution and were therefore void. The State of Bihar, which will hereafter be referred to as the respondent. resisted that it the application on the ground firstly, that the appel was not maintainable the Act, a right of lant had, under the provisions of appeal appropriate against the sales proposed authorities, and secondly, taken place by to be taxed must be deemed to have reason of the Explanation to article 286(1)(a) within Bihar, the provisions of tax on a non-resident seller were neither ultra vires- nor uncon the High Court stitutional. The learned Judges of upheld both these contentions and application, and this appeal has been preferred against their judgment on a certificate granted under article 132(1) of the Constitution. In view of the importance of the issues involved, leave of the Court was sought PY and granted to and one individual dealer. Nine out of the ten States, namely Orissa, PEPSU, Punjab, Madhya Pradesh, Madras, Mysore, Rajasthan, Travancore-Cochin Uttar Pradesh, have represented respondents. One State, West Bengal, by the learned Attorney-General supported the appel lant, and so did the Tata Iron and Steel Co., Ltd., and one M. K. Kuriakose. ten States, one commercial intervened and supported dismissed imposing the Act On the arguments addressed before us, the follow ing points arise for determination :

#1. Whether the application for a writ of prohi bition is maintainable?

#2. Whether the Explanation to article 286(1)(a) impose the State Legislatures to confers authority on tax on sales falling within its purview?

#3. Whether the Explana tion to article 286(1) (a) are subject to the prohibition contained in article 286(2) ? the sales covered by 1955 The Bengal /mnumilv enpm, dmiled v. TM Stau qf Bilim and "'""' v-. ... 4.l!l"' 1• 764 SUPREME COURT REPORTS (1955]

#4. Whether i11 invalid on its operation, and ultra vires the power of the State Legislature? the Bihar Sales Tax Act, 1947 is extra-territorial the ground that it

#5. Whether the assessment proposed is not authorised by the appellant tion to article 286(1) (a)? to be made the Explana that cannot be tax under the Act, the proper jurisdiction over the subject-matter,

#1. On the question of the maintainability of it was observed application for a writ of prohibition, by the learned Judges that under section 13.(5) of the the Commissioner was competent impugned Act, the appellant was a person liable to decide whether if he came to an that even that did not affect erroneous conclusion on the merits, the Act itself provided in sections . 24 and 25 a complete and effective machinery by way of appeal and revision for that accordingly a writ correction of such errors, and If the of prohibition was not remedy. lay down that a writ of learned Judges intended remedy prohibition should not issue because another supported. was open under the Act, is . a very material The existence of another remedy circumstance . to be Court is calied upon to issue a writ of certiorari, but the writ wholly different considerations arise when is prohibition. Writ of prohibition is issued asked for whenever a, subordinate Court or Tribunal usurps to it, and when jurisdiction which does not belong that has been shown, the issue of the writ, though not of course, is· of right and not discretionary. The point taking to be determined, proc~edings under section 13(5) of the Act, respon jurisdiction or in excess dents 2 and 3 acted without it. The contention of the Bihar Legislature had no competence to tax the sales in question, because they were effected in Bengal, business is we!l within the State of Bihar. founded, "then section 13(5) of the Act would be ~oid the ap-· thereunder would pellant, and the proceedings its application as against the appellant was not carrying on into account when If this contention inoperative in is whether therefore, appellant 1955 Tht &llgal lmmunitl Company LimitMJ v. T/14 State of Bihar and others 2 S.C.R. SUPREME COURT REPORTS 765 is as that the statute be misconceived. But here, jurisdiction. We are not in consequence be without here concerned with a statute whose vires is not in question, and which confers jufisdiction on anv auth ority to take proceedings if certain facts exist and the enquiry directed by to whether the authority those facts exist. The determination in such a case is incidental to the effective exercise by the authority of jurisdiction and if, as a result of that en its undisputed there is 1no quiry, it came to an erroneous conclusion, error of jurisdiction, and it might well he contended in that case that the remedy of the party aggrieved was to resort to the machinery provided ·the statute itself by way of appeal or revision, and that a writ of prohibition would contention of the appellant itself is void in so far as it authorises imposition of a tax on dealers who are not residents within the State <>r do not carry on business there, and that, in con sequence, the proceedings taken under section 13(5) of the Act should be the ground of It is no answer to this conten ·want of jurisdiction. through the channels provided Indeed, the contention that the Act is ultra vires is not one the Tribunals constituted under the Act, whe ther original, appellate, or tain, their duty being merely to administer the Act. It was argued by Mr. N. C. Chatterjee that the appellant should seek redress therefor. that if the tax was illegal, as contended by the appellant, the same would the proceedings taken for imposing amount fundamental right of the appellant to carry on busi ness guaranteed under article 19(1)(g), and that the -courts were bound to interfere under article 226. He relied on in Mahommad Yasin v. The Town Area Committee, /alalabad(1), The State of Bombay v. The United Motors (India) L~d.( 2 ), and Himmatlal Harilal Mehta v. The State of Madhya Pradesh( 8 the position in law, is undoubtedly registered under but as the appellant is a Company the decisions of this court interference with unconstitutional restrained on revisional, ). That the Act (1) [1952] S.C.R. 578. . (2) [1953] s.c.R. 1069. (3) [1954] S.C.R. 1122. 19$5 TIN .Bmpl lmmtmily eo..pan, Llmi1'tl v. TIN Stale of Bihar anti ollN'1 Y lllkatarama AY.1"' J. 7(;6 SUPREME COURT REPORTS [1955] the question whether the Indian Companies Act and a juristic person is a citizen for the purpose ot article 19(1) (g) is still an open ·one, I would prefer not to rest my decision on this ground. It is sufncient the purpose of this appeal to hold that a writ of pr<> hibition should the proceedings taken against it under section 13(5) jurisdiction. The conten the Act are without tions urged in support of that position must now be examined. the appellant establishes issue, in person or they might be the Act did not authorise contentions advanced

#2. It is firstly argued that the Explanation to arti cle 286(1)(a) on which the validity ot the impugned Act depends confers no authority on the State Legis lature to impose a tax on sales falling within its pur view. To appreciate either side, it must be mentioned the Act as passed in 1947 contemplated the in.position ot a tax on residents within the State. They might be natural persons, or juristic persons carrying on business within the State. The business might be through agents. But if the carried on the business of buying and persons who carried on the State or carry on selling did not reside within business there, then imposition of tax on them. That was the effect of the definition of "dealer'' as mea.ning "any person who carries on the business of selling or buying goods Bihar". Thi:n came the Constitution, and the Expla nation to article 286(1) (a) enacted that sales shall be that State in which deemed to have taken place in for consumption; notwith die goods are delivered to them passed in another State. standing The construction which the respondent puts on it confers on the States proprio Explanation vigore, a power to tax sales when the conditions men tioned. satisfied. Agreeably to this view, the Bihar Finance Act, 1950 (Act XVII of 1950) sub stituted the words "who carries on business of selling or buying goods in Bihar" the words "who sells or supplies any goods". The point to be noted is that the words "in Bihar" which occurred in the previous In 1951 by definition were omitted. the Adaptation therein are .1955 TluJJmgoJ Jmmunil.J Company Limikd v. Th-. State of Bihar and olhtrS 2 S.C.R. SUPREME COURT REPORTS 761 of Laws Order, a new section, section 33, was added and that is as follows : "33. this Act,- (1) Notwithstanding anything contained (a) a tax on the sale or purchase of goods shall not be imposed under this Act- (i) where such sale or purchase takes place out side the State of Bihar; or (ii) where rnch sale or purchase takes place in the course of import of the gooJs into, or export of the goods out of, the territory of India; ( b) a tax on the sale or purchase of any good' shall not, after the 31st day of March 1951, be imposed where such sale or purchase takes place in the course in so far as trade or commerce except of inter-State Parliament may by law otherwise provide. that article 286(1)(:i) (2) The Explanation to clause (1) of article 286 interpretation the Constitution shall apply for of sub-clause (i) of clause (a) of sub-section (1)". The contention of the respondent is that the appel b nt has become ~iable to be taxed under these provi sions. The appellant replies restrictive in its scope, that it merely takes away a power to tax which the State might otherwise possess, but that it does not positively confer on a State a power to tax where it did not previously exist, and that on divest Bengal of its power to tax but not to vest it in Bihar. To decide which of these two contentions the correct one, it is necessary to examine what the law was prior to the enactment of article 286(1) (a) the Explanation, what the defect was which was disclosed in the working of that law, and how it was proposed to remedy it. it would operate construction, Under the Government of India Act, 1935, the power to enact a law imposing tax on sale of goods was conferred on the Provincial Legisla»1re by Entry 48 in List II. Under sections 99( 1) and 100(3) law must be for .the Province, and as Wallace Bros. v. territorial /. T. Commissioner, Bombay( 1 ), interpreted sufficient should (I) (1948] !i'.C.R. I. 768 SUPREME COURT REPORTS ri95sJ 1955 Tht Btrsgal Immunity Compan_v LimiUd •• 1"h1 StaJt of Bihm and othnt connection between the person proposed to be taxed the State seeking to tax with reference to the subject matter of the matter, Pataniali Sastri, C.J. obsened aspect of in The State of Bombay v. The United Mota,.,. (111<t1al Ltd.(') as follows : taxation. Dealing with 'for ·'The territonal restriction expression that it means taxing· power of the State. Broadly speaking, :;rare or any part thereof' cannot, in our view, be takeu to import mto Entry 54 the sale or purchase referred to must take place within . the territory of that State. All that the laws which a State is empowered to make must be for the purposes of that State. . . . . . . . . . . . . . . . . . . . . In the case of sales the sale or purchase is not necessary should take place , within limits of the State in the sense that all the ingredients of a sale like the agreement to sell, the passing of title, deli very of the goods, etc. should have a territorial .:on nection with locai acti vities of buying and selling carried un m the State in relation to local goods would be a sufficient basis the State, provided of sustain course, such activities ultimately in a con cluded sale or purchase to be taxed". This statement of the law was again adopted l:.y this Court in Poppatlal Shah v. The State ot Madras(•). the observations of Mukherjea, J. (as he then Vide was) at pages 682 and 683. In this view, a law of the State imposing a tax on sales must, to be valid, fulfil there must be a completed two conditions. Firstly, sale involving the transfer of title in the goods to the purchaser. It the power arises. That was held by this Court m The Sales Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash(•). territorial nexus Secondly, between the transaction and the State which seeks introduced an element of uncertainty and vagueness in the law with the result that the power to tax which was linked up with it, had indefiniteness which could lerid it. This condition undoubtedly there must be sufficient is only resulted itself (2) [1953) S.C.R. 677. (i) (1953] s.c.R. 1069. (3) [1~55) 1 •.C.R. 243. 1955 The Bengal Immunity Company Limited v. The Slate of Bih11r and others Venkalarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 769 .abuse. How c:xoansive was the area open to the State Legislature to impose a tax on the basis of the nexus theory is forcibly brought out by Bose, J. in the fol lowing observations in The State of Bombay v. The United Motors (India) Ltd.( 1 ) at page 1101 : that any of these to employ? ingredients the existence of gtX>ds which · form take place in one State, there is apparent when one begins "The difficulty its component parts and analvse ~olit a sale them. When this is found to consist is done, a sale -of a number of ingredients which can be said to be the sense that if any one of them is miss essential in ing there is no sale. The following are some ol: them : the subject ( 1) matter of the sale, (2) the bargain or contract which, when executed, will result in the passing of the pro for a price, (3) the payment, or perty in the goods promise of payment, of a price, ( 4) the passing of the title. When all is no the place in which difficultv. The situs of the sale all the ingredients are brought into being. But when take place in different States, ore or more ingredients It is impossible what criterion is one is more essential -say than any other because the result is always the same the moment you take one away. There is then no sale". Many were the problems which this state of the law created both the consumers. Whether the fact on which a State law seeks to tax is sufficient nexus must, except some obvious cases, be open to debate, and until a court pronounces on it, there must be a cloud of uncertaintv hanging over the validity of the enactment. More than that, when the several elements which go to make up a sale are distributed over different States it might happen that be subjected the same transaction might thereof must more States than one and the burden this, ultimatdy fall on the most possibilitv of multiple serious defect in the law as it stood prior to the Con stitution, and it was to remedy this that a new provi its Explanation was ·sion. the consumers. taxation trticle 286(1 )(a) with It was that was the State and for (I) [1953] S.C.R. 1069. 770 SUPREME COURT REPORTS [1955) 1955 enacted. It is as follows : The Btngal lmmunil' Compan, LimiUd v. The State of Bihar and others Ven.tatarama A.uarJ. "'7.86. ( 1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or pur ehase of goods where place- such sale or purchase (a) outside the State. Explanation.-For to have the purposes of sub-clause (a), a sale or purchase shall be deemed place in the State in which the goods have actually been delivered as a direct result of_ such sale or pur that State, chase for the purpose of consumption notwithstanding the fact the goods relating to sale of goods bas by reason of such sale or purchase passed another State". It will be convenient hereafter to refer to the State in which title to the goods passes as the selling State, and the State in which goods are delivered for con sumption as the delivery State. that under the property the general inside to classify to multiple the problem this provision the State and Now, we may examine how designed to put an end taxation. The scheme of the enactment is to fix, what had not been done under . the Government of India Act, 1935, situs of the sale, and for that purpose, into two categories, sale the situs was outside the State. On what principle fixed will presently be considered. But when once that is solved. If a sale is inside a is done, it under Entry State, the power of that State to tax is outside a 54 remains unaffected. But if the sale State, article 286(1)(a) prohibits ing it This process must have the effect of eliminat ing multiple taxation, because a sale must be either inside or outside a State, and if it is inside one State it must be outside all other States. In this respect, article 286(1)(a) effected a fundamental alteration in the law under Entry .48 in List II and section 100(3) of the Government of India Act; 1935, as construed these provisions a State could tax irrespective of where a sale took place, territorial nexus, under provided that power can be exercised only article 286(1)(a) the courts. Whereas under there was sufficient that State from 2 S.C.R. SUPREME COURT REPORTS 771 jurisdiction as a source of inside the State, mere nexi being when it takes place to support such a power. The theory of insufficient abandoned, and the power to tax was annexed to situs of the sale to be exercised by the State wherein it is fixed and as a given sale can take place only in one State and in no other, power of taxing that sale is capable of exercise only by one State and not others. it must follow tax was :955 Tht Bengal lmmunily Company Limiled v. The State of Bihar and others Ven(catarama · AyyarJ. the situs of a sale when in due course. But· that apart, It is to deal with The foundation on which this scheme rests location of a sale in a particular State. But how is this to be done? When all the essential elements of a sale take place within one State, · the question presents no they are distributed over difficultv. But what, this situation that several States? the Explanation has been enacted. Its purpose inter-State is of an that by providing that it shall character, and it does be deemed to have taken place in that State in which the goods are delivered for consumption. What is, will significance of the words "for consumption" be considered delivery of the goods that has been adopted by Constitution as the determining fixing situs of the sale, not the agreement to sell, nor passing of title to the goods, nor other ingredients of this. Where sale, and an agreement to sell correspondence as generally it must be when the transaction is of an questions m1gnt crop difficult inter-State character, up as to where the agreement was concluded. Like wise, the conception as to passing of property largely juristic and not seldom obscured by goods is is conceivable legal subtleties and refinements, and that there might be conflict among in which of them the title has passed. But deliverv is a matter of fact,' about which. there ought to be no the purpose of dispute, and it should have article 286(l)(a) that chosen delivery as transaction of sale. Now, the question to be decided is whether in the light of the above discussion, the States as the determining element is consistent with is concluded by the Explanation factor in is good reason 1955 The Bengal Immunity ·company Limited v. The State of Bihar and others 772 SUPREME COURT REPORTS [1955] impose a this contention, its attendant evii of multiple tax under Entry 54 uncontrolled by the appellant that the Explanation opc contention of r:>tes only to deprive the selling State of its power to tax the sale, and that it confers no authority on the delivery State tax can be accepted. to this view might at once be An obvious objection If the Explanation has no application to any stated. but the selling State, it must follow that all the other States including the delivery State will have power to impose a the nexus Explanation, and that will bring into play theory with taxation. On therefore, article 286 ( 1) (a) must be held to have failed to achieve what it set about to to such a conclusion do. A construction which cannot be accepted unless reasons therefor. Wl:iat are article 286(1)(a) does not, in terms, purport to confer a power on the State to impose a tax on sale, that, on the other hand, the pre-existence of such a power in the State, and then proceeds to restrict it, that the substantive provisions which confer power to tax are Entry 54 when a State has no power to tax under those provi sions, then article 286(1) (a) could have no application as there could he no question of restricting what does not exist, and that it could not, therefore, operate confer 'on it such a power. In support of this position, reliance form of article 286(J)(a) is placed on that no law of a State shall impose a tax on outside is merely nega sale. This prescription, it is argued, tive and destructive and not positive and creative its content. there are cogent reasons? in List II and article 246(3), it assumes is urged It it also fails the purpose of But this contention does not give sufficient effect to the Explanation which is in substance and form posi to take adequately into consid tive, and eration the enactment. The object of artide 286(1) (a)-and there is no dispute about it that as already -is to avoid multiple taxation and stated, was sought to be achieved by fixing the situs the Explana of sale in one State in accordance with tion. The scheme of very nature, have both a positive. and a negative the enactment must, by 1955 The Bengal Immunity Company Limited v. The State of Bihat and others V enkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 773 restrict it. But together character, and when the enactment then proceeds the State a power aspect. In so far as it lays down which of the several States could .tax-and it <loes that in the Explanation -it is positive in so far as it pro its aspect, and hibits the other Scates from imposing tax-and it does this in the body of article 286(l)(a)-it is negative in its aspect. The body of article 286(l)(a) and the form parts of a single enact Explanation ment charged with a single purpose and to refer to it either as negative or positive in character can only be the true statement of a partial and not an accurate It is no doubt true that article 286(1)(a) position. assumes al.iunde. "111d the Explanation not inconsistent with .this to construe as positive m character. The problem of multiple it is the object of taxation, which avoid, is possible only when the sale is of an inter the Explanation enacts State the sale shall be deemed to have that in such .cases t<1krn place in the delivery State, is at once a recognition and a declaratio!1 by the Constitution that is sufficient nex.us on which the State can tax delivery the sale under Entry 54. The object of this declara from the arena of tion was to remove the question controversy and settle it once and for all. a positive enactment and not . it is decl:iratorv in character and it is also restrictive in that it takes away by necessary implication the power the basis of other nexi which other of taxation on States would have had under Entry 54. No purpose would be served by entering into a subtle disputation to whether the Explanation conferred a new and substantive power, or whether it affirmed an existing In either case, the power of the delivery State power. to tax could not be challenged. form of Looking at that the sale emphaticalfy positive shall be deemed to have taken place the delivery State, and that is all the more significant in view of the fact that the body of article 286(1)(a) to which it in form. The change over from the negative of the body of article 286(l)(a) to that it declares the Explanation, less so, because is negative appended It is 1955 Tiu &ngal lmm11nity Company Limiltd •• T Ju Slalt of Biliar and olhers V o!nkalarama A»"']. 774 SUPREME COURT REPORTS [1955] the appellant has been unable the Explanation the positive of reason for on the part of the draftsman . this, except is highly significant, to suggest any inadvertence and slovenliness in character. The marginal note to article 286 was also referred to as showing that ·the ExP.lanation was merely res trictive In T hakurain Ba/raj Kunwar v. Rae fagat Pal Singh(') Lord Macnaghten observed : "It is well settled that marginal notes to the sec tions of an Act of Parliament cannot be for the purpose of construing the Act. The contrary opinion originated it has been exploded long ago. There seems to be no reason for Indian statute any giving the marginal notes greater authority in an English Ace of Parliament ... The reason on which this ru!e rests was J. by Baggallay, L. Ry.(2): 'tated in Attorney-Genera! v. G. E. the marginal _ notes in a mistake, and referred in an "I never knew an amendment set ·down or dis cussed upon marginal notes to a clause. The House oi Commons has nothing to do with a marginal' note". Vide also the observations of Lord Hanworth, M.R., in Nixon v. Attorney-General('). This reasoning ap in Indian plies with equal to arti 'Statutes. de 286(l)(a) cannot be referred to for construing the Explanation. for cutting down the plain meaning of the words of the Constitu tion. Vide Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai and Co.('). to marginal notes the marginal note In my opinion, inadmissible is clearly It , Two other views as to the scope of the Explanation which were discussed by the learned Attorney-General in the course of his argument must now be noticed. One selling State of its power to tax under Entry 54 but confers additional power of taxation on the delivery State. And the other is that the Explanation merely settles the competing claims of the selling and of the delivery State, and leaves untouched the power of the the Explanation does not deprive (I) 31 I.A. 13~, 142, 143. (3) [1930] I Ch. 566, 593. (2) [1879] 11 Ch. D. 449, 461. (4) [1950] S.C.R. 335, 353. 1955 The Bengal Immunity Company Limited v. The Stale of BihDI and others , Venkatarama AyyarJ. 2 S.C.R. SUPREME COURT REPORTS 775 In language, them are open to tax on the basis of the charge sought to be the nexus theory. other States Neither of these views has been pressed by any of the parties before us, and both of objection that they would result in multiple taxation, which it was the purpose of the Explanation to avoid, and must in consequence be rejected. the result, whether regard is had to the object of the enactment the Explanation must be held authorise the imposition of tax by the delivery State. 3. It is next contended by the appellant that sales covered by the Explanation to article 286(1)(a) are within the prohibition contained in article 286(2) and that in consequence posed on such sales by the impugned Act is illegal and void. That raises the question as to what the scope of the Explanation to article 286(1)(a) is, and whe is controlled by article 286(2). The Explana ther it the situs of a sale for tion declaring as it does that purposes of taxation the delivery and not the sel its very terms, only to sales ling State can apply, by of an the basis on which the argument of both the parties to the appeal has proceeded. Article 286(2) prohibits imposi tio:1. of tax on sales in the course of inter-State trade. Thus, the field on which the Explanation operates the area covered by article 286(2), and falis within them. Now the question is how the power of a State to tax on the basis of the Explanation is affected by the impact of article 286(2), and on that, three views have been put forward : is apparently a conflict between inter-State character, and that is inside · (a) The Explanation fixes ~he situs of the sale b It becomes thereby a sale the delivery Smte. It accordingly that State and outside all other States. ceases to be a sale in the course of inter-State therefore and becomes an the purview of article 286(2); and the power outside tax under the Explanation of the delivery State remains unaffected. That was the view taken by majority of the learned Judges in The State of Bombay v. The United Motors (India) Ltd.(1 ), and accordin1r intra-State sale and is, (I) [1953] S.C.R. 1069. 1955 The Bengal -4mmunUy · Company' Limited v. TM Stau of Bihar and others V tnkatarama AY,1at ]. 776 SUPREME COURT REPORTS f1955J to it, there and article 286(2). is no conflict between the Explanation (b) The sales to which the Explanation applies are in the course of inter-State trade, and fall within the coverage of article 286(2), and there is thus a conflict the Explanation between therefore preva.ils deals with a special against article 286(2) on the principle of generalia speczalibus non derogant, and the power to tax there taken by Bhagwati, J. in The State of Bombay v. The United Motors (India) Lid.('). two provisions, but topic, and is unaffected. That was the view ( c) The sales to which the Explanation applies are in the course of inter, State trade, and are hit by arti cle 286(2) and unless Parliament lifts the ban as pr<> vided therein, no ta can be levied on them. Accord ing to this view, the twn orovisions are irreconcilably in conflict, and article 286(2) must prevail as against i~ superseded by the Explanation unless its operation Parliamentary the view legislation. This was by Bose, J. in The State of Bombay v. The United Motors (India) Ltd.('), and by Das, J. in State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory(•). The points whether there article 286(l)(a) and article 7.86(?.), and if so, which of them is to prevail. To decide this, it is necessary to examine first what the position was under the Gov ernment of India Act, 1935, and next how it has been affected by the provisions of the Constitution. for determination are .conflict between the Explanation Under the Government of India Act, 1935, the Pr<> vinces had under Entry 48. in List II the exclusive power to make laws in respect of taxes on sale of goods, and under Entry 27, in respect of trade commerce within its territory. There was no entry relating to trade and commerce among the Provinces though several topics relating to inter-State trade and commerce were specifically enumerated in List I. Nor was there any provision for regulating inter-State com merce though under section 297 some restrictions were placed on the powers of the Provincial Legislature 'Witll (I) [1953] S.C.R. 1069. (~ [1954J $.C.R.. 53. 2 S.C.R. SUPREME COURT REPORTS 777 incidents legitimate and indeed necessary reference thereto. The conception of a commerce clause, as we now have it, was unknown to the Government of India Act, 1935. It came in for the first time as part true scope, it of the Constitution. To understand its would be tQ examine in other systems of law. its bearings and the oldest written The American Constitution Federal Constitution in the world, and the problems it had to deal with were what many Federal Govern ments have had since to face. The commerce clause is one of its notable provisions, and it was before the framers of the British North America Act, 1867 and cf the Commonwealth Act of Australia, 1900. Our it, Constitution also has and it would be useful to examine it to see what light it throws on the present controversy. influenced by largely been 1955 Thl&ngal Immunity Company LimiUd Yo Th• Slau of Biltar and oli.trs Venkalarama Ayyar J. tax on supreme. imposing legislation sales and the States" the Constitution, the exclusive commerce In America the authority of the Congress to enact laws on the matters delegated to it under the Consti In respect qf all other matters, tution the States po5$ess plenary powers of ject to the inhibitions contained the Constitution. It is in exercise of these powers that the States enact laws regulating them. Under section 8 of article 1 of power "to regulate commerce among vested in the Congress. Thus, while intra-State com is within inter-State State, the Congress. A question jurisdiction of for decision before which came up frequently Courts was wkether the States had the power to enact into a laws with reference to goods which Ind come State 'in the course of inter-State it was trade, and settlecl on the highest authority that if the sale was the purposes of consumption within the State became domestic fell with in the power of the State to regulate tax, but than consumption that if it was for, purposes other such as re-sale, then that was in the course of State commerce, and Congress alone had respect of it. In Pennsylvania cliction its character, and to legislate m jurisdiction of is within and to 12-84 S. C. lndia/59 1955 Th< Bengal lmmiini!J Company Limittd v. The State of Bihar and ot11.ers V en/catarama Ayyar j. 778 SUPREME COURT REPORTS (1955 I part of regulate, while therefore "subject the facts were similar except Gas Co. v. Public Service Commission(') the question was as to the validity of a statute of New York regu· lating the rates which could be charged for sale of natural gas for consumption within the State. The gas was transported into the State by pipe lines from outside, and it was accordingly held that the regula tion was in respect of inter-State trade and commerce, and was to applicable Constitu tional limitations" but that the State law was valid because "the thing which the State Commission has undataken inter-State is lo>al in its nature, and pe;L1ins to the transmission, furnishing of natural gas to local consumers within the State of New York". the city of Jamestown, in In Missouri e.t: rel. Barrett v .. Kansas Natural Gas the sales Co.(2), were not for consumption within the State bu( for re sale. It was held that those sales continued to retain the character of trade, and fell within the commerce clause. Vide also Public Utilities Commis sion v. Attleboro Steam & Electric Co.( 3 ). The principle underlying these ·decisions· would appear to be goods which are transported in inter-State trade must journey when neces5arily come to the end of they are consumed, and that, therefore, sales for con the course of inter-State sumption take them out of trade. But if the goods are sold for re-sale, they are still moving in inter-State commerce applies. the Congress enacted a legislation with course of resale. Examining the. question whether the States had there after the power to enact a law regulating sales which trade but for the course of inter-State take place in in Pan local consumption, handle Eastern Pipe line Co. v. Public Service Commis _rion of India(') that they had, and observed : to sales for purposes of the Supreme Court held journey and therefore inter-State inter-State ln Ed8 reference clause "Prior to that time (1938) this Court in a series of . decisions had dealt with various situations arising from State efforts imported the sale of to regulate (1) 252 U.S.23; 6·1 L, Ed. 434. (3) 273 U.S; 83; 71 L. Rd. 549. (2) 265 U.S. 298; 68 L. Ed. 1027. (4) 332 U.S. 507; 92 L. Ed. 128. 1935 The Bericul lmmui1ity Company LimihJ v. The Slate of JJihar and otlt.rs Yenkatarama ~Y"' J. • 2 S.C.R. SUPREME COURT REPORTS 779 that by 1938 natural gas. The story has been adequately told antl it again or attempt recon we do not stop to review ciliation of all the decisions or their groundings. Suffice the Court had delineated it· to say broadly between the area of permissible state control and that in which the states could not intrude. The local con former inclu<led inter~tatc direct sales sumers, local distri latter, service buting companies, for resale". the Congress legislation was itself It further held a recognition of. the distinction established by. the deci sions "between sales for resale and direct sale for con sumpti•)n". This decision was followed quite recently in Panli1mdle Eastern Pipe Line Co. v. Michigan Public Service Commission (1 ). Four propositions might ac cordingly be taken as well-settled in American law : interstate (i) The States have plenary and exclusive power of . legislation in respect of intra-State sales. (ii) Regulation of inter-State commerce within rhe exclusive jurisdiction of the Congress. is a topic (iii) Sales which take place in the course of inter State tr:idc are local in character and within the juris consumption diction of within the State. the State, they are (iv) Where such sales consum; ition such as resale, ter as s:ilcs are within the exclusive ::ire for other purposes than their charac trade and the Congress. The provisions of the Indian Constitution bearing retain inter-State the course of jurisdiction of on this subject may now be referred to :- (a) The States have exclusive jurisdiction under Entry 54 to impose sales tax and under Entry 26 to regulate trade and commerce within the State. Legis lative .powers in respect of these matters were con ferred on the Provinces by the Govemment of India Act, 1935, and these powers have been continued the States by the COnstitution. (b) Article 301 enacts that trade and commerce within the territory of India shall be free, and under Entry 42 in List I, the power to State trade and commerce is vested exclusively in the legislate on (I) 34-1 U.S. 319; 95 L. Ed. 99S. 780 SUPREME COURT REPORTS [ 19551 1955 The /hnp Immunity Cotnpa1!v limiJed v. The Stale of BiluJr and ot,,as · Venkatarama AJ!1'l' ]. Union. There was nothing corresponding provisions in the Government of India Act, 193;. (c) Under the Explanation to article 286(l)(a), a sale is deemed to take place within the State 111 which the goo<ls are delivered for consumption. This again is a new provision introduced in the Constitution. ( d) No law of a State can impose a tax on a sale takes place in the course of inter-State trade That is article 286(2) which is also a new provision. to avoid Reading side by side the law on the subject both in America and under the Indian Constitution, the conclusion that the Explanation difficult to article 286(l)(a) and article 286(2) have been spired by the American law on the subject, and their spheres of operation correspond respectively the jurisdiction of the State and of the Cougress America as delineatea m Mwot1ri ex rel. Barrett v. Kansas Natural Gas Co.('), and Panhandle Eastern Pipe Line Co. v. Public Service Commission of India('). I shall now pass on to consider which of'· the three views which have been placed before us as to· the to article effect of article 286(2) on the Explanation 286( l )(a) deserves to be accepted. The fir>t view is the Explanation are intra-State in character, an<I are therefore outside the area covered by article 286(2). This derives consid·· erable support from language of the enactment The scheme of article 286( l) (a) is, as already stated, that it fixes the situs of the sales with a view to avoid it divides multiple two categories-inside sales and outside that a State cannot tax an out<i•.le sales-and enacts the same context the Explanation <k· sale. When in trade·-· dares that a sale in the course of inter-State common ground-mrnt be deemed to have taken place in the State in which the goo<ls are delivered for consumption, its purpose is clearly to take it out of inter-State trade and stamo sale. Under it with Entry 26 in List II, it is the State that has juriS<iic- the character of an intra-State falling within taxation, and that purpose (1) 265 U.S. •911; 68 L. Ed. 1027. (2) 332 U.S. 507; 92 L. F.cl. 128. 2S.C.R. SUPREME COURT REPORTS 781 that with jurisdiction of the Constitution-makers was tion in respect of trade and commerce within the State, language of the Explana dlld reading that with the tion that the sales covered by it are deemed place in the State, the inference is irresistible that to bring intention of those sales within the exclusive State for purposes of taxation undc:r Entry 54. The result local con sumption made in the course of intcr··State trade, the iaw under the Constitution America and indeed, the similarity too striking to be merely accidental. The position may summed up : Article 286(2) applies in the .course of within sales. The grounds covered by the two provisions are distinct and separate. Each has operation within its own sphere, and there is no conflict between them. is exactly what to sales sales which the Explanation are trade. The to sales for inter-State intra-State reference it is 1955 Tlt1 Fen.~al Immunig Compan.J limil•d v. Tiu State nf Bihar aod olil4rs V 1nkalaram• ~'"' J. resists The appellant the conclusion importing the Explanation this conclusion on they will now be considered. several It was grounds, and the Expla argued firstly nation and article 21:16(2) relate to two different sub jects and that they operate on different fields could be reached only by article 286(2), and that could not be done because it the purposes of sub is in terms stated to be ·"for clause (a)" and also because such a course could not be supported on any recognised rule of interpretation. Now. \\·i1at is the significance of the words "for the purposes of sub-clause (a)" occurring in the Explana In rhe context, its purpose is only to exclude tion? to article 286( 1 )(b). Artic1e 2R6(1) its application deals w•th two matters, sales outside the State and sales in the course of export and import. The former is dealt with sub-clau~c: (b). Jf the Legislature Exnlanation should aoply to the former and not to the fatter. the most natural and obvious mode of express ing rhat intention would be to enact, as it has, that it is "for the purposes of sub-clause (a)''. This prol)lem wm11f\ 1i1lt have ari~en if, the two matters h:id heen <leal1· wnli in two different clauses as logically intended in sub-clause latter (a) and The ·Be,,gal ltwnunity Cflm~· LirniJtd •• 'I h11 State of Bihar rmd ot, ins I 'tr; katarama .~'l'}Ot ]. 782 SUPREME COURT REPORTS [1955 / might have been. simplifying it, would run as follows : If that had been done, the article "286. (1) No law of a State shall impose a tax on a sale, where it takes place outside that State . Explanation : A shall be deemed to have the goods are for consumption as a direct result of taken place within that State where delivered • 286. • (4) No law of a State s.hall impose a tax • .. on a sale in the course of export or import." Article 286 ( 1) as drafted above, relegating sub-clause (b) to a separate clause and omitting the words "for the purposes of sub-clause the Explanation would convey precisely the import of article 286(1) (a) as it now stands with sub-clause (b) and with the words "for the purposes of sub-clause (a)". That would clearly show that the force of the words "for the pur poses of sub-clause (a)" becomes spent when ar:icle 286(l)(b) is excluded frotn the operation of the Ex planation. (a)" in But then, it is contended that whatever the form in which the Explanation may be couched, it could not be extended beyond article 286(1)(a) and projected into article 286(2), and that unless that was done, it was not possible to hold that the sales falling within the purview of the Explanation are taken out of article 286(2). argument proceeds In my opinion, rhis the real reasoning on which on a misconception of that the Explanation and article 286 the conclusion (2) relate to two different subjects is based. In view contention was of the insistence with which pressed by to exa mine the position in some deta.il. To start with, the two relevant provisions IJC considered are article and article 286(2). 286(1)(a) with the Explanation Omitting what is not material, they would follows: it seems desirable the appellant, "286. (1) No law of a State shall impose a ta~ on a sale, where it takes place outside that State. sale in Explanation: A the course of inter-State ~-~ . ,_ ~ .. --. ,., ... 2 S.C.R. SUPREME COURT REPORTS -. '... ',-. ' --- 783 ' - ' \ 7955 The Bengal Im-,,,zmity - company Limited v. trade is inside that State in which goods are actually_- delivered for consumption. - · _ - · (2 No law of a State shall impose tax on a sale ) .,. - " Venkatarama in the course of inter-State trade". The argument of the appellant that article- 286(2) is comprehensive and includes all sales in the course of The State of mhar inter-State trade and that therefore the sales covered _ and others by the Explanation fall -within its_ purview, ta. kes into account only ar.ticle 286(2) and the Explanation, ' Anar J. and it would have been unassailable if the question had to be decided on a construction only of these tw'o provisions. But that, however, is not the position. An explanation appended to a section or clause get,s __ incorporated into it, and becomes an integral part of it, and has no independent existence apart from it._ There is, in the eye of law, only one enactnient,- of which both the section and the Explanation are two_ inseparable parts. "They move in a body if they move_ at all". When, therefore, the question is whether - sales falling within the Explanation are comprised within article 286(2), what has to be construed is that article in relation to, not merely the Explanation taken· in isolation but to article 286(l)(a) read·with the Ex planation. If the matter is thus considered, the resul- tant position might thus be stated;- Article 286(I)(a) - confers on States power to tax sales inside their terri- tory. Article 286(2) prohibits them from taxing sales in the course of inter-State trade. Explan-ation to article 286(1)(a) enacts that sales in the course of inter-State trade in which goods are delivered for con- sumption in a State shall be deemed to have taken· place inside that State. The combined effect of all these provisions is that States can tax sales in the course of inter-State trade if they _fall within the Explanation. _ This conclusion is .reached, it will be seen, not by reading the Explanation into article 286 (2) as a sort of exception but giving to all the provi- _ sions the status of independent enactments and determining what, on a construction of the language, their respective spheres of operation are. In this view, the argument that if the Explanation could be read into article 286(2) it might as well be r--------~------ - 1955 rt.e &nraJ Immunity Campany Lir1dled v. T111 SltJte of Bifia, and olh#r; Vmhtara•nu A")'ar ]. • 784 SUPREME COURT REPORTS [19551 the question the several parts read into article 286(l)(b) and article 286(3) does not cail for consideration. As is one of the entire article the determining on a reading of thereof, precise operation of can be no objection to examining the scope of article 286(1) including the Explanation in relation to article 286(l)(b) and article 286(3). Article 286(l)(a) relates to sale inside a State, and article 286 ( 1) (b) to sales in the course of export from or import into the country, and there could not be any interaction between them, and that is made abundantly clear by the words "for the purposes of sub-clause (a)" the Explanation. Likewise, reading article 286(l)(a) including the Expla nation along with article 286(3), the result is that power to tax which the State otherwise possesses has to be exercised subject the conditions mentioned latter, when there is a Parliamentary declara tion thereunder. The impact of article 286(3) should be noted, not confined lo the Explanatiun but extends to the whole of article 286(l)(a). It operates not only on Explanation but also on sales which are indisputably intra-State, and it controls both of them on the princi ple of generalia specialibtts 12012 derogant. the inter-State sales falling within is, to which It is next contended that the sales takes place as a Explanation applies, course of inter-State the Explanation trade, and could not be construed as altering that fact, and that true scope was merely to shift the sitlls of the sale from the selling to the delivery State. Conceiving inter State trade as a stream flowing from point A in the selling State to a point B in the delivery State, it was argued that what the Explanation did was to shift the situs of the sale from point A to point B, that stream was still there despite the shifting and the sale therefore did not cease to be in the course of fallacy \Vith respect, inter-State the shifting of argument thinking that after the sittts from point A to B, the sale could be regard ed as one in the course of inter-State trade. A sale could be said to be in oniy if two conditions concur: (!) A sale of goods, the course of inter-State tra, le. 195'.i Tlr• &ngaJ Immunity Company Limit•J v. T ht State of Bi\ar Olld otNrs 2 S.C.R. SUPREME COURT REPORTS 785 inter-State there can be no sale and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, in the trade. Thus, if X, a merchant course of in State A goes to State B, purchases goods there and transports them into A, is undoubtedly a move ment of goods in inter-State commerce. But not under :iny contract of sale. X might be entitled under article 301 to certain rights in the matter of transportation. But article 286(2) has no application, the course of inter-State trade as there is no sale if X after or commerce. In transporting the goods into State A sells them, then also there is no sale in the course of inter-State trade. It is true that is also a there is a sale, and movement of goods from one State ·to another. But that movement has not · been under having been no sale at the time of transportation. In (1939 Edition) Rottschaefer on Constitutional Law sale in the course of inter-State commerce is thus de fined : illustration, the same the sale, "The activities of buying and selling constitute if the contracts thert:for contem inter-State commerce plate or necesrarily involve the movement of goods in in Jer-State Commerce". The law is thus stated by Gavit in "Commerce Clause" (1932 Edn.) :- "The dividing line between an inter-state sale and If the intra-state sale is rather fine, although clear. goods are shipped into a State without a previous sale, any sale within the State is intra-State commerce ..... . transportation ihus if the sale succeeds the -of time, however close, the state may license it". In William T. WaJ!ner v. City of Covington( 1 ), it was held that local sales of goods brought into the State from outside for the very purpose of the sale were not inter-State commerce. The following obser parts of vations at page 197 might be quoted : in point "Of course the transportation of plaintiffs' goods across the state line is of itself inter-state commerce ; (I) 252 U. S. 95; 64 L. Ed. 157. 1955 Th4 Bengal Immunity Company Limited v. Thi State of Bihar and otMrs V 11tkatarama A»ar ]. 786 SUPREME COURT REPORTS [1955] remain the goods that the goods were actually delivered but it is not this that is taxed by the city of Coving ton, nor is such commerce a part of the business that is taxed, or anything more than a preparation for it. So far as the itinerant vending is concerned the goods might just as well have been manufactured within the that plaintiffs dis to the extent State of Kentucky; they make pose of their goods in that kind of sales, them the subject of local commerce; and this being they can claim no immunity from local regulation, so, in original packages or whether, not". In the light of the above principles, what is the legal character of the sales effected by the appellant and sought to be taxed by the respondent? There is firstly the fact Bihar, and secondly, there is the fiction enacted by the Explanation that the sale had taken place not in If both sale and delivery ace in Bengal but in Bihar. Bihar, it is difficult to see how the sale can be said to· be in the course of inter-State trade. The argument of the appellant that there was, in fact, a movement that stood un of goods from Bengal the fictional . shifting of the sittts of the affected by sale from Bengal very shifting, sale become altered, because as transport of goods, it cannot, according to the princi ples already stated, be said to be the course of in ter-State trade. It may be urged as against this conclu sion that as the Explanation to article 286(1) (a) merely shifts leaves unaffected the agreements to sell which must in the present case be held to have been made at Calcutta when the anpel the Bihar lant executed the orders received from Bengal transport of goods purchasers, Bihar was under the above contracts to sell, and that therefore the sales were the course of inter-State· trade. Such a contention would be untenable, because· the expression "contract of. sale" in this context has the same meaning as the words "contract of buying and selling" in the definition of inter-State commerce: the passage already quoted. given by Rottschaefer in that by the character and complexion of the sale follows to Bihar, overlooks the sales, and to Bihar and the situs of ~ I 1955 The B'"gal Immunity Company Limited v. T /,e State ef Bihar and ot/iers V enkatara"'a A;yar ]. 2 S.C.R. SUPREME COURT REPORTS 787 the bargain resulting and they both refer sale irrespective of whether it is in the stage of an agreement to sell, or whether it is a sale in which title 10 the goods has passed to the purchaser. That is also the definition of 'contract of sale' in section 5 (l) of there can be only the Indian Sale of Goods Act. As respect of any one final and concluded bargain in particular sale, and as that is fixed by the Explana tion at Bihar, it follows that there could not be any in Calcutta, and the bargain with reference thereto to Bihar was not movement of goods from Bengal under any contract of sale. The position in law exactly the same as if the goods had been sent by the seller from Bengal to Bihar on his own account and tl1en sold there and delivered which case it would be indistinguishable from William T. Wagner v. City of Covington(1), and the sale would clearly be intra-State. This conclusion does not nega inter-State movement of goods, and does not prevent any rights being put forward on that footing under article 301. notion of a sale in the course of inter-State trade, and thus takes it out of the purview of article 286(2). It only negatives the factum of the purchaser, fictions the course of It was argued that the Explanation merely enacted it being a well-established a legal fiction, and should be rule of construction limited to the purpose for which they are enacted, would be contrary to this rule to hold that the Expla nation not merely shifted the situs of the sale but also inter-State commerce. But obliterated the conclusion that the sales covered by the Explana tion cease to be in the course of inter-State not the result of any extension of the fiction because, as already portation is not ignored. That is the legal consequence of the fictional shifting of the situs. It will be useful uote what Lord Asquith ob in East served in dealing with a similar contention End Dwellings Co. Ltd. v. Finsbury Borough Council(2). "If you are bidden to treat an imaginary state of (I) 251 U. S. 95; 64 L. Ed. 157. (2) [i952] A. C. 109, 13l. this connection to q factum of inter-State stated, 0 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V enkatarama .4yyar ]. 788 SUPREME COURT REPORTS [1955 I render the Constitution has affairs as real, you must surely, unless prohibited from doing so, also imagine as the consequences and inci<lents which, if the putative state of aftairs had in fact existed, must inevitably have flowed from or ac companied it. One of these in this case is emancipa· the 1939 level of rents. The statute says tion from that you must imagine a certain state ur atlatrs; that having dune ,u, yuu must came m does not say permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs". It is next contende<l that the view that sales in which goods are delivered for consumption within the State that pro· are not within article 286(2) would for purposes vision practically useless, because sales resale must be other than consumption such as very few and negligible. Why should a seller in· consumption, it is asked, get his goods from an the manufacture? termediary and not directly from But then, recognise<! clear and unmistakable terms a distinction between sales in which goods arc delivered for consumption and sales for purposes re-sale, and what purpose this distinction serves, the appellant has been unable the materials on which we can hrmh it asicle on the ground that it is not one of substance? One of the developments of modern big business is the agency system under which middlemen enter into contracts with manufacturers, rights stipulate within a specified area, guarantee a certain volume of business, and are granted liberal commission on sales. the goods In such cases, retail sellers can get only from the distributors, and even when there is no grant of monoooly, it is nothing unusual in business that large- distributors are able to get the goods from the manufacturers on it is retail sellers can obtain and more economic~] for the latter to buy them from the distributors the distinction between not without significance rccognistd in com- the two classes of sales has been favourable that consequently, than from the manufacturers. And to explain. Besides, what are than consumption such as for monopoly of they are delivered the distribution rates more in which itselt 1955 The Bengal lmmunitv Company Limited .. The State of Bihnr and ol.iers Venkataramn Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 789 merciallv ::icivanced America :md recogni~ed for such a distinction be characterised as unsubstantial? for now nearly a century this very purpose; and how can inter-State lv'. nr>thing on which it becomes an outside sale, and through several States, and article 286(2) learned Attorney It was finally contended by to be construed as General that 1t article 286 ( 2) were the Explana not comprehending sales falling within tion, then then· wnnld it could thus presented : Article oper:i.te. The argument was 286 ( 1 )(a) bars in the present case selling State, Bengal, from taxing the sale because by reason of the if arti Explanation, cle 286(L) is to be construed 1s 11ut barring the deli very St:ite, in the instant case Bihar, from taking the sale, then there is nn ~ale to which it can apply, and it will serve no purpose. The error this argument lies in taking the illustration as exhausting the entire range of is not correct. trade. But Inter-State commerce consists in a flow of goods not merelv from one State to another but in its continu ous flow designed to protect such a flow without being bur<len <'d by State taxes. Thus, if A in Bengal sells to B in Bihar, and if in his turn B sells the same goods to C in U. P. for local consumption, there will be inrer State commerce under article 286(2) and in the course thereof. there will be two sales. Taking first the sale frnm Benval to Bihar, "RengJI can tax it under article 286(1) (a) becJuse is not ap the Explanation plicable as the delivery to Bihar is not for locJI con interpo<e a har. :mmption. But :uticle 286(2) would article 286(J)(a), Bihar cannot became that is an outside sale. the Explanation heing the sale bv Bihar inapplicable. Coming next tax it under the body U.P .. Bihar will be entitled to of article 286(1) (a) as limits. But it cannot Jo so as under the Explanation, it becomes an outside sale. But U. P. will be entitled it wa~ for to tax the effect of mnsumption within the combined operation of both ::irticlt" 281l(l)(a) .the one m the on Iv State which can article 286(2) the Explanation is the ~-ale took place inside the Explanation as that State. Thus, the sale under tax the sale rf"ad witli the safe thereto 1955 The Bengal lmmU11ity Company Limited v. The State of Bihar and ot.1trs V enkataram.a AJ.>ar J. 790 SUPREME COURT REPORTS [1955] which the goods are sold for local consumption. These are the objections advanced by 1 the appellant against the view that the sales covered by the Expla nation are outside article 286(2), and they are not of sufficient weight to overthrow it. that was they are, trade and The consideration of taken by Bhagwati, J. this question will, however, be incomplete without an examination of the other two views that have been put forward as to the true meaning and scope of article 286(2). The second view-and in The State of Bombay v. The United Motors (India) Ltd.(1) -is that the sales covered by the Explanation are in the course of inter-State fore, within the purview of article 286(2), but that as the latter is a general provision covering all sales the course of inter-State trade, and the former deals only with a special class thereof, the maxim generalia specialibus non derogant applies, and the Explanation prevails as against article 286(2). It will be noticed that this agrees with the fust view in its conchision the reasoning by which it but it differs from it on reaches it. According to the first view, sales course of trade contemplated by article 286(2) include only those under which goods are deli vered for local consumption; whereas according to the second, they include all sales including those in which goods are delivered for con sumption within the State and those in which are delivered to this the Expla view, therefore, there is conflict between nation and article 286(2), and the solution for it is to be sought in the application of the rule of constnic tion that general provisions do not derogate from the the first view special. As between these two views, is, for the reasons already given, to be preferred. But if the contention sales in which goods are delivered for local consump tion and those in which they are delivered for other is difiicult to see how the is correct, then. it purposes appellant can Bhagwati, J. in The State of Bombay v. The. Uniied that article 286(2) applies both for other purposes. According purposes other conclusion inter-State reached escape {1){1953] S.G.R. 1069. '1955 The Bengul Immunity Compa:p Limittd v. The State of Bi!w and others Venkatarmnri A_Y.Yar J. 2 S.C.R. SUPREME COURT REPORTS 791 it on 286(2), In case this difficulty, local consumption the appellant can claim no taxation under that provision. that article 286(2) and two different matters, and is plainly m .Motors (India) Ltd.(1). The appellant in which gooJs are th1: horns of a dilemma. Sales deii vered for either outside anicle 286 ( 2) . or inside it. If they fall outside article immunity 2<~6\2), then they fall the Explanation must m·,Juc article picvall as against the principle generalia spe cwftf4ts non derogant, and the sales will be liable to be the appellant taxed. To get out of the Explanation contended related therefore maxim in question had no application. The argument was that article 286 imposed a number of restrictions on the power of the State to tax sale of goods from different angles, e.g., when State, article 286(1) (a); the course of export or the course of inter-State import, article 286(1)(b); to commodities trade, article 286(2); and in relation decl:ued essential by Parliamentary legislation under article 286(3); that the Explanation was enacted from the standpoint whether the sales were outside or the standpoint whether side and article 286(2) from they were in the course of inter-State trade or State trade, and the policy of the two provi~ions being different, their subject-matter mmt he held to be different and maxim was inapplicable. that the purpose and they were outside therefore I see no force in this contention. It is a cardinal rule of construction that when there are in a Statute two provisions which are in conflict with each other such that both of them cannot ~tand, they should, if possible, be so interpreted that effect can be given to both, and that a construction which renders either of should not be adopted them inopera, tive and useless except is known as the rule of harmonious construction. One application of this rule is that when there is a law generally deal ing with a subject and another dealing particularly therein, the general with one of the topics comprised the special in the last resort. Th~ is what is to be construed as yielding (I) [l953J ~.C.R. 1069. 792 SUPREME COURT REPORTS (1955) v. 1955 Ayyar J. ~';::,~~f;1 respect of the matters comprised therein. Now, the reason of the rule requires that it should apply when~ ever there is overlapping of the fields occupied by two Company Limited conflicting enactments, and when that is shown; it would not be logical to exclude its application on the The State of Bihar ground that the enactments have been made with a different purpose. It is the identity of the subject an.I others Venkatarama matter of the conflicting provisions, not the identity of their purpose or angle of vision that is essential for the application of the maxim. No authority was cited for limiting it in the manner contended for by the appellant. Now, it is the appellant's own contention that t_he sales covered by the Explanation are within the purview of article 286(1)(a), and are· therefore exempt from taxation thereunder, and that such taxation would be permissible only when the hold of article 286(2) over the Explanation is removed by Parliamentary legislation under that sub-clause. That is to say, the subject-matter of the Explanation is · within the coverage of article 286(2), and that the two provisions are directly in conflict. It is difficult to see how consistently with this stand the appellant could· resist the application of the maxim aforesaid. It is true that Bhagwati, J. who took that view in The State of Bombay v. The United Motors (India) Ltd.(') !las now retreated from that position. But with respect, there is irrefragable logic in his reason ing in that decision, and that com~ends itself to me. · Then, there is the third view thatthesalestowhich the Explanation applies are' in the course of inter State trade, and therefore fall within the purview of article 286(2), and that in consequence, the power of the delivery State to tax those sales is incapable of exercise, as it is within the prohibition contained in that article, and that when the Parliament enacts a · · Jaw in terms of article 286(2) lifting the ban there under, then and not until then could the Explanation have any operation. That was the view expressed by Bose, J. in The State of Bombay v. The United :Motors (India). Ltd.(') and by Das, J. in State of Trai-ancore Cochin v. Shanmugha Vilas Cashew Nut Factory('). · 11> (1963) s.c.11. 1069. m r195!) s.0.11. 63, A.. 1955 The Bengal lmmuniry Company Limited v. Thi State of Bihar and others VenkaJarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 793 intends sustained on to the conclusion Explanation. Can the Explanation providing its operation the words "notwithstanding there anything Briefly, according to this view article 286(2) controls language of the enactment? The Explanation is not to article 286(2). Nor does expressed to be subject latter contain . any thing contained in the Exptanation to article 286(1) (a)". These are simple and familiar expressions used by the legislature when it that a particular provision in the Statute should be subject to or over language ride another. Nor is not to be in praesenti but contingent on Parliamen legislation under article 286(2). To construe, therefore, article 286(2) as controlling the Explana the Statute words which tion, we must import the operation of are not there and thereby cut down the Explanation which on its terms is of equal auth ority and potency with article 286(2). There being nothing express in the language of the that the Expla enactment to nation to be seen whether that conclusion can be drawn on a con struction of the Statute. The appellant argues that it can be, and relies firstly on the saving clause in article 286(2), and secondly, the proviso ·thereto as supporting it. The argu ment based on the saving clause may thus be stated : the Ex The contention latter planation would have resulted in rendering wholly nugatory, far as Parliament may by law otherwise provide" had not been there. But that result is avoided by the saving clause under which operation when legislation lifting the ban under article 286(2). This construc the plain tion, it is argued, gives effect language of the article and also to both the provisions. But it will be seen that when examined, far from giving the Explanation and article 286(2), effect this construction other of them. The harmonious construction which the law favours is one which gives operation to both the Explanation can come is Parliamentary is controlled by article 286(2), if the words "except in so that article 286(2) controls in destroying one or relevant provisions of to both it has results 13-64 S. C. lndia/59 794 SUPREME COURT REPORTS [1955] 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V enkatarama Ayyar J. time but in their respec the provisions at the same appellant, according spheres. But if article 286(2) is in force then the Explanation can not operate, and if the Explanation is can only be if the Parliament puts an end to article 286(2) by legislation th~eunder. This construction, far from reconciling two provisions and giving operation to both of them, renders them uncompro misingly hostile, and makes their co-existence and co operation impossible. to operate, It is engrafted. the area covered by is also open to question whether saving clause could be referred to for the purposes of deter mining the respective spheres· of operation of the Ex the body of article 286(2). The scope planation and of a saving clause or an exception is that it operates within the main provision on which it though, when in force, it can detract from it. It would, there fore, enlarging what woul<l otherwise be the sphere in which article 286(2) would operate. Explanation cannot be maintained on a construction of the body of article 286(2) and cannot properly be adopted on saving clause annexed thereto. that article 286(2) controls the strength of the Explanation, It cannot add If the view inadmissible It must be confessed There was considerable discussion before us as to the nature and scope of the law that could be enacted under article 286(2). matter is not free from doubts and difficulties. But about one thing, there can be no dispute. The to be enacted by Parliament cannot run counter any of the provisions of the Constitution. Thus, cannot itself impose a tax on sales, that being within the States under Entry the exclusive 54 in List II. Nor can it confer a power to tax a sale in the course of inter-State commerce on any State of its own choice in contravention of the Explanation Its operation can only be nega to article 286(1) (a). tive. It can lift the ban imposed by article 286(2). It reference limiting regards particular commodities or with to particular States, and that further in so . was suggested for the appellant that jurisdiction of it can do 1955 The Bengal Immunity Company Limited v. TM-State of Bihar and others V enkalarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 795 suitable these years. If that was temporary the sort of legislation legislation conditions of to be withdrawn and time suitable inter-State the operation provisions for an equitable adjustment of the interests of all the States. But laws limited in their operation to speci fied commodities and States must in their very nature, enacted trade and com changing merce. Constitution-makers had in mind, one would have ex that the authority contemplated by article 307 pected would have been empowered to deal not merely with the matters mentioned in articles 301 to 304 but also article 286(2), and it is also not a little surprising that no legislation should have been enacted on those lines In any event, it must be a during all profitless task to speculate on the scope and effect of a hypothetical legislation under article 286(2), and it would be unsafe to base any conclusion as to the true scope of the' Explanation on the existence of a power in the Parliament to enact a law under article 286(2). to article The contention based on 286(2) must now be considered. while the proviso is to have operation notwithstand ing anything contained in article 286(2) it does not similarly override article 286(1)(a) and that therefore when the President issued an order under that pro viso, the Explanation would have operation, and that therefore it was not useless. To this contention, there are two answers: (1) An order issued by the President under the proviso can operate only to continue exist ing taxes. the conditions men imposition of a tax even when tioned in the Explanation are satisfied, if, in fact, it had not been previously collected. Therefore, the ope Explanation can have no practical effect on If, in fact, a delivery State had ration of the proviso. been levying a . tax before the commencement of Constitution, that would continue to be valid under the proviso, not by the operation of the Explanation but by reason of the fact levied before. Thus, the Explanation as such has no opera that prior to tion. (2) It should also be mentioned It cannot go further, and authorise It was argued it had been the proviso 796 SUPREME COURT REPORTS [1955] 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V enkaturama AYJ'OT J. levying a tax the Constitution no State was actually on the basis of delivery and therefore the Explana tion could have no practical effect even when the order. The Constitution-makers President made presumably had before them the sales legislation inference of all the States, and it is a legitimate they could not have the Explanation as thought of deriving any force or operation by reason of an order of the President under the proviso. thereto, the goods the Explanation could operate Mr. Taifad Subramanya Iyer, counsel for M. K. Kuriakose, one of the intervene.rs, arguing in support of the contention of the appellant that article 286(2) is the controlling provision, suggested a third category of cases wherein from a law under the saving clause in article 286(2) or the order of the President under the proviso there to. His argument was this : Suppose that both seller and the purchaser are in State 'A' and the goods located in State 'B'. The instrument of sale is the pur executed in State A, and pursuant chaser gets actual delivery of in State B· the sale as there Article 286(2) has no application is no inter-State movement of goods thereunder. But for the Explanation, State A would have been entitled the sale as it was inside that State. But the Explanation bars it, and confers on State B the right to tax it. This, the Explanation consistently with the view that it is controlled by article 286(2). The assumption under lying this argument is that the property in the goods passed in State A when the instrument of sale was executed, the goods were State B. But It is one thing to say that title to the goods passes at the time when the instrument of sale was executed and quite a diff erent thing to state that it passes at the place where it is executed. Considering the matter with particular reference to the power of a State to impose tax, sale is a practical conception havil)g relatioµ to the right to enjoy and dispose of the goods, and it is a well settled feature of all sales.-tax power to tax the sale is annexed to the place where is contended, gives operation this is not correct. legislation though located 1955 The Bengal lmmuniry Company Limited v. The State of Bihar and others Venkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 797 ), time of located at the contract. time of the goods are is that title Under the general law also, the position the goods to the goods passes in the State in which the de. In Badische are situated at Anilin Und Soda Fabrik v. Hickson( 1 there was a the parties in England contract of sale signed by both to goods situated in Switzerland. The with reference action was laid in England for breach of patent, and the point for decision was whether it was maintain able tliere. if the sale was in England but not if it was in Swit zerland. It was held by the House of Lords that the sale was ,not in England, and that the action did not thus stated by Lord law was lie. The position Loreburn, L. C. at page 421 : It wou}d have been maintainable these goods "As I understood him, Mr. Cripps argued the defendant had 'vended' in England of the patent. He admitted that the terms within · merely to make a contract of sale would not be 'vend i!'lg' or, to use a word in sense equivalent and in use more familiar, selling. But he maintained that if the contract to sell was made in England, and, in pursu ance of it goods were, by the consent of buyer and seller, appropriated transaction became a sale completed in England, and that it did not signify whether the goods were at the time of such appropriation in England or abroad. the contract, to meet I cannot accept that view. A contract unascertained goods is not a complete sale, but a pro it some act mise to sell. There must be added the sale, such as delivery or the which completes to the contract . by the appropriation of specific goods assent, express or implied, of both buyer and seller. the executory agree Such appropriation will convert ment into a complete sale. • In my opm1on, if you must decide in what country an appropriation of goods by consent takes place, it takes place not where the consent is given, but where the goods are at the time situate". (1){1906]A.C. 419 •. 798 SUPREME COURT REPORTS [1955] 1955 Tht Bengal Immuhit) Compahy Limited V• Tht State of Bihar and others V enkatarama AyyaT J. In view of these observations, it cannot be contended that the title to th~ goods passed in State A and that State B gets the right to tax by reason of the Expla nation. State B gets the power to the sale not law. under the Explanation but under This contention, it should be noted, has reference to cases which ex hypothesi are outside article 286(2), and has on! y an indirect bearing on the question whether article 286(2) controls the general the Explanation. to refer taxation by the appellant It is necessary now that the normal situation envisaged by the arguments addressed by both parties based on what were stated to be the broad principles underlying the Constitution inconvenience and on - considerations of hardship or It was argued arising from one vie~ or the other. that the intention of the Constitu tion-makers as disclosed to en in article 301 was courage the free flow of trade and commerce within the Union unimpeded and unobstructed by State legisla tion, that article 286(2) was enacted in furtherance of that policy, as the States might become so heavy as to become burdensome to inter-State com merce; article was, therefore, that no tax should be levied on sales in the course of inter-State trade, power being reserved in appropriate this policy, article cases and 286(2) should 'be construed as the controlling provi sion and the Explanation reserve. an emergency The reply of the respondent was that the intention of the Constitution as expressed in article 286(1)(a) was to avoid multiple taxation of sales the course of trade, and not to free them from any taxa inter-State tion, that the Constitution did contemplate of one tax on every sale, and that the construction of the appellant, if accepted, . must place local sales in a greatly disadvantageous situation as against the coui:_se of inter-State that must result in driving out borders of the Statx. local trade and business across that consistently with in Parliament trade, and intervene The appellant is undoubtedly right in his conten intended trade ahd · com merce within the Union to be free. But the question that the Constitution 1955 Tlie Bengal Immunity Company Limited v. The State of Bihar and others Venkataraina Ayyar J. 2 S.C.R. SUPREME COURT REPORTS intention. On is not the law in America where the course of inter-State trade when there . should be no tax is whether that requires that at all at any stage even when the goods have come to journey as a result of sale. That the end of clearly inter-State commerce is highly developed and jealously protected. That the Constitution did contemplate one tax on a sale in local consumption is clear from the Explanation. To argue that freedom from taxation under article 286(2) is the normal condition, and that taxation under Explanation is an exception is to beg the very ques tion that we have got to decide. No other provisions of the Constitution have beeri cited as expressive of indication as there is, the opposite direction. Article 304(a) which is an exception to article 301 authorises the imposition of a tax on imported goods when similar goods locally manufactured are subject to a State tax is not discriminatory. provided learned Attorney It General, that under article 304(a) the ta.x is levied on the goods whereas under article 286(2) it is laid on the transaction of buying and selling. But on a question of policy, what difference would it make whether the the transaction of sale or on the tax is imposed on it must fall on the in either case import of goods, as consumers? That clearly is reasoning of the ma jority of the learned Judges in The State of Bombay v. The United Motors (India) Ltd.(1), and there has been no satisfactory answer to it by the appellant. imposition true, as contended by the other hand, such that such On the other hand, article 304(a) lends consider able support to the contention of the respondent that it could not have been the intention of the Constitu tion to place local sales in a worse position than sales in the course of inter-State commerce, which must be the result of holding that sales in the course of inter immune from taxation under article State trade are 286(2), while intra-State under Entry 54. What reason or justice can there be for making a local purchaser of goods pay a higher price the same goods therefor than what a purchaser of sales are to be liable (I) [ 1953] S.C.R. I 069, I 088. 1955 The Bengal lmmunily Company Limited v. T1" Slate of Bihar and others Venkatarama Ayyar J. 800 SUPREME COURT REPORTS [1955] taxing even that was to pay? The only across the State line would have answer suggested was that the State might intra-State sales of refrain the subject-matter of commodities which are is happily inter-State trade. Seeing State an expanding factor ,in national life, and that it tends to comprehend an increasing variety of goods, there will be left, if the suggestion of the appellant is to be followed, very few commodities which the State could tax, and Entry 54 might as well be effeced from out of the Constitution. There is, besides, the apprehen sion expressed by it cannot be respondent-and the contention put brushed aside as fanciful-that if forward by the appellant is accepted, then it must in evitably result to adjacent in local States. If the scheme of the Constitution is, as I con ceive it to be, to put both intra-State sales and sales in the course of inter-State trade on the same footing -and that is manifest on the language of article 301 -it must follow that as to be taxed under Entry 54, the latter should also be s1m1- taxed, and that is precisely what larly liable to be the Explanation provides for. trade shifting on the former are liable ' render sellers liable to be It was next argued for the appellant that the view that under the Explanation delivery States would be entitled to tax all sales in the course of inter-State if goods are delivered for consumption there, taxed in all the States in which their goods are sold, and that would subject them to a perplexing multitude of assessment proceed ings in several States and that that must cause great inconvenience and hardship in business circles. Our attention was also to assessment and collection impugned Act relating of tax, and it was contended that they must result considerable harassment of assessees. As that the sellers against this, the respondent contended had really no grievance would be ultimately pa.id by the consumers, and that, on the other hand, if the contention of the appellant were to be accepted, the States would have to lose a substantial portion of the revenue derived the provisions of the matter as .invited 2 S.C.R. SUPREME COURT REPORTS 801 sales tax and that must seriously affect their economy. 1955 Thi Bengal Immunity Company Limited v. The Stale of Bihar and others Venkatarama Ayyar J. the view It must be conceded imposition of tax on all Explanation authorises trade falling within sales in the course of inter-State its purview, non-resident sellers will be to be liable in which the goods ai;-e sold for taxed in every State consumption, and that they must in consequence be exposed to multiple assessment proceedings in different jurisdictions and that that must cause inconvenience. But then, that is necessarily inherent the Expla nation whether it operates when the ban under arti cle 286(2) is lifted by Parliamentary legislation as con tended for by the appellant, or even without such law, as the respondent maintains. That does not, fore, appear to be very material scope of the Explanation. The right which residents of one State have to trade freely in other States is one conferred by article 301 and is a creature of the Con stitution,. and when same Constitution provides for taxation of sales in the course of inter-State trade by the Explanation to article 286(1)(a), and the in convenience complained of results from that proYision and is incidental to its enforcement, it does not sound logical that the sellers should, while electing to take the benefit under article 301, disclaim their obligations under the Explanatiollr in construing the State, and The point of substance against the appellant is that the sellers are not the persons really affected, as the incidence of taxation will ultimately fall on the con to goods delivered sumers. The Explanation applies for consumption within posed on the sale of such goods is really a tax laid on It might happen the purchasers for consumption. that such purchasers are numerous and scattered all over the State, and that must be so when the goods sold are, as in the present case, medicines. The power to tax in such a case can be effectively exercised only . through the seller. No administrative machinery can in reaching the consumers when th~ir name succeed is legion, and as the seller is merely to pass on the tax to the consumer, he is, in fact, constituted collec tor of the tax on behalf of the State. This is 1955 The Bengal Immunity Campany Limil<d v. The Stale •f Bih!W and others Venkatarama Ayyar ]. 802 SUPREME COURT REPORTS [1955] its validity has been practice largely adopted in America in the collection of Use Tax, and repeatedly affirmed. A recent decision on the question is that in General Trading Co. v. State Tax Commi1sion of the State of Iowa('). There, the State of Iowa imposed a Use Tax on a foreign Company in respect of goods distributed by it for consumption within the State. In upholding the tax, Frankfurter, J. observed: fohnson( 2 "To make the distributor the tax collector for the State is a familiar and sanctioned device. M onamotor Oil Co. v. ), Felt & T. Mfg. Co. v. Gallagher(")". It was. argued by the appellant that in the above the foreign Company was "a retailer maintain case, ing· a place of business" within the State. But as the tax in question was not a sale-tax but a use tax pay able by the purchaser, ·it would be wholly irrelevant the distributor had a place of business with whether in the State, and that indeed is what is stated in the judgment itself. the . States, If sellers have establishment-accountants, Even looking at the matter from the practical stand point, it is easy to exaggerate the inconvenience which the Explanation might cause. and commerce all over theirs must un doubtedly be a big business. That means that they would have, for the purpose of the business, adequate clerical correspondence clerks and so forth. Regular account books would be maintained showing the dispatch of goods to dealers in other States. And and purchasers materials on which retnrns have to be made would be already there. The additional burden will consist in this that in posting the entries in the ledger accounts, . separate folios will have to be opened for the several States. This is no doubt additional work thrown on in its the sellers, but viewed it is the States too unsubstantial to deny substantive a power to tax. that there would be con the provi siderable harassment of sions of the impugned Act. But why should the sellers under true perspective, It is said thus, all (1) 332 U.S. 335; 88 L. Ed. 1309 •. (2) 292 U.S. 86; 78 L. Ed. 1141, 1147, 1148. (3) 306 U.S. 62; 82 L.Ed.488. • 2 S.C.R. SUPREME COURT REPORTS 003 It must be presumed that sales-tax officers will be? the c,orrespond do nothing unfair or oppressive, and the proceedings ence between the parties preceding the part of shows a just and sympathetic attitude on the respondent. True, some of the provisions of the Act are of a stringent character. they have terrors only for those who would evade and avoid tax, and persons like the appellant doing big business of an all-India character and maintaining regular and correct accounts have nothing to fear from them. But 1955 The Bengdl lmmrinit) Company Limited v. The State of Bihar and others Venkatarama Ayjar ]. tax even sales Now, let us look at the other side of the picture. Prior to the Constitution, the States had the power the course of inter-State trade and commerce, and it is stated that a substantial por tion of their revenue was derived from this source. The Constitution enacted article 286(1)(a) with a view to avoid multiple taxation of sales in the course of inter-State trade, and it is the contention of the res pondent that the Explanation on interpreta tion provides for a single taxation of those sales, at If the contention of the the stage of consumption. appellant as to the scope of the Explanation and of article 286(2) is accepted, this tax could not be levied after the 31st March 1951, and the States would have lost a substantial source of revenue. substitute the Constitution has provided therefor? None. In the result, there must be, as argued by the respondent, a financial crisis The position, therefore, States. choose between depriving the States of their power to impose a tax on which their very existence depends, and exposing the sellers having business outside their inconvenience of multiple assessment State In that situation, can there be any doubt proceedings. as to what . our decision should be? Surely, the claim of the State should have precedence over that of It is very significant that all the States individuals. intervened have, with one exception, which have strongly supported the stand of the respondents. That the State of West Bengal. The learned e;i:ception this State did not Attorney-General appearing contend for any right in it to· tax the sales. His argu- the affairs of is that we have \Vhat 1955 The Bengal Immunity Company Limited v. Tht St~tt (If Bihar and others Venkatarama Ayyar J. 804 SUPREME COURT REPORTS [1955] that neither West Bengal nor Bihar was ment · was entitled to tax by reason of artide 286(2). The inter vention of West Bengal therefore, not for protect is, ing its rights but for the vindication of the law, as it conceives it to be. I examine to decide; and the Constitution-makers tax on sales the Centre taking ·over It was suggested for the appellant that the · solutiop to the problem subject of the course of inter-State trade, provision being made for distribution of receipts among the States under . article 269 after making the necessary amendments to the Constitution. Our duty is to construe the provisions as they stand and not to discuss questions of policy which it is for the Legislature suggestion of the appellant, it is only for the purpose of finding out what light it throws on the present controversy, and how far it will be an improvement on the present position under the Constitution. Under Entry 48 in List II of the Government of India Act, 1935, the States had the power to impose tax on sale of goods and advertisements. When dealing with this took over advertise topic, ment of newspapers the residue being left to the States. Thus, the decision to entrust the power to tax sales to the States was deliberate, and there is good reason for it. Sales might take place either in the course of inter-State State. There can be no question of the Centre taking over taxation of intra-State sales. To confer a power on the Centre to tax sales in the course of inter-State trade alone would be impose sales tax and distribute it between the States the Centre. For such a course, there does not appear to be any precedent, anywhere, and the practi obvious. ·Moreover, that the Centre takes over the taxation of sales in the course of inter-State trade. What difference will it make in the present position? So far as sellers are concerned, they will have to submit the sales outside one consolidated statement of all their State instead· of splitting States in which the sales are effected, and there will the Union List, to dichotomise them according let us assume inconvenience the power attendant trade or thereon 1955 Tl« Bengal Immuniry Company Limited v. The State of Bih ar and others Venkatarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 805 resident within in each State claiming what consumers he a single assessment proceeding instead of as many as the States where the sales take place. That would no doubt avoid much of inconvenience. But, so as the burden of taxation on the sellers is concerned, the position would be exactly what it is now. And on what principle is the Centre to distribute realisations among the States? It can only be on the basis of receipts from the several States. And realised justice territory. That is precisely the consumption tax the scope of under the Explanation. Thus, the suggestion of appellant, if acted upon, will not relieve it from the liability to be taxed; it will only reduce the assess ment proceedings from many to one. In other words, relief will be with reference not to substantive rights. but to a matter of procedure. But the conten tion of the appellant that article 286(2) controls the the procedure in Explanation is directed not against the assessment of tax, but against liability the very to be assessed to it, the argumentum ab inconvenienti it. The being availed of as a ground for denying suggestion, therefore, that the taxation of sales in the course of inter-State trade should be left to the Centre lacks substance. Even with the multiplicity of venience that might result from ::is~essment proceedings, is one which is capable of being removed without disturbing the existing scheme the Constitution, by Parliament enacting a constituting an authority under article 307 and confer the sellers one con ring on it power to receive from solidated statement of all State and determining the precise extent thereof effect ed in the several States and making that determination final for purposes of assessment by the States. That would, on finance legitimately due to them under the Explana the sellers from the tion, and at the same time, save harassment of multiplicity of proceedings. Such a law cannot be impugned as the exclusive domain of the States to impose sales tax under Entry 54, as the authority to impose the tax would continue the one hand, secure their sales outside trespassing on the States reference 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V enkatarama Ayyar J. 806 SUPREME COURT REPORTS [1955] taxes, and It is the law of the several States to be the States. the conditions under which, and that will determine the rate at which, the tax will be chargeable. It the machinery set up by the States that will make the realisa assessment and collect tiojls will find their way into the coffers of the States. The effect of the Act would be only to enact a rule of evidence, on which the ;tssessing authorities have act. Such a law would not conflict with any of the provisions of It is scarcely neces sary to add is only by way of answer to the one put forward by the appellant, and even if there · are Constitutional difficulties in the way the decision of of acting on it, that would not affect this appeal, which must turn on the provisions of Constitution as they stand. the Constitution. that this suggestion arguments that accordingly Having carefully considered fall outside and are unaffected by dressed by learned counsel appearing for the par ties to the appeal and for the interveners, I am clearly of opinion that the sales falling within the Explana tion are, by reason of the fiction enacted therein, intra State sales, ambit of article 286(2) In coming to this con prohibition contained · therein. clusion, I have considered the question afresh and on its own merits as if it were res integra. But, in fact, this Court in The it is concluded by the decision of State of Bombay v. The United Motors (India) Ltd.(') to which reference has been made in the course of the if this decision is to discussion. govern, then this point would have to be found against the appellant. But it is contended that it is erroneous and should not be followed. That raises the ques tion whether this Court has the power to reconsider a previous judgment given by it on the identical issue. time be As the point arises for decision for the first thereon importance, we have heard must be of arguments as to what the practice is in the highest judicial tribunals of other countries with reference to this matter. this Court, and as our pronouncement It is conceded the highest (I) f1QS3J s.~a. 1Qli9. 2 S.C.R. SUPREME COURT REPORTS 807 In Street Tramways v. London County Council(1), it was held by the House of Lords that its decision on a question of law was conclusive and binding on the House in subsequent cases and that if it was erro neous, it could be set right only by an Act of Parlia ment. The practice before the Privy Council however ), Lord has been Cairns dealing with this question observed as follows : In Ridsdale v. Clifton( 2 different. "In the case of decisions of final Courts of appeal rights, especially on questions of law affecting civil rights of property, there are strong reasons for hold ing the decisions, as a general rule, to be final as to third parties. The law as to rights of property in this country is to a great extent based upon and formed by such decisions. When once arrived at, these deci sions become elements in the composition of the law, and the dealings of mankind are based upon a reliance on such decisions. 1955 The Bengal Immunity Compa'!)I Limited v. The State of Bihar and others Venkatarama Ayyar ]. law, and it was held they were, as Even as to such decisions it would perhaps be difficult to say third parties, under all circumstances and in all cases absolutely final, but they certainly ought not to be reopened with out the very greatest hesitation". The case before the Board was one involving questions of ecclesiastical in such to examine for them cases their Lordships were free selves rested the reason on which the prior decision and to decide on their own view of the matter. The authorities bearing on this question were reviewed by the Privy Council at some length in Re : Transferred Civil Servants result was thus summed up : inherent in ordering incompetency a rehearing of a case already decided by the Board, even when a question of a right of property volved, but such an indulgence will be granted in very the nature exceptional circumstances only. of an extraordinarium remedium". This opinion was in Attorney-General of Ontario v. Cattada Temperance Federa1ion( •) wherein Viscount Simon said : (1) [1898] A.C. 375. (3) [1929] A.C. 242. (Ireland) Compensation( 3 ), and (2) [1877] 2 P.D. 276. (4) A.I.R. J946"P.C. 88. "There is no reiterated is of It 1955 The Bengal lmmuniry Company Limited v. Tht State of Bihar and others Venk~crama Ayyar J. 808 SUPREME COURT REPORTS [1955] reconsider judgments. it must be seldom indeed in a previous case, which "Their Lordships do not doubt that m tendering humble advice to His Majesty they are not absolutely bound by previous decisions of the Board, as House of Lords by In ecclesi its own astical appeals, for instance, on more than one occa sion. the Board has tendered advice contrary to that further historical research has shown to have been wrong. But on con stitutional questions from a previous decision the Board would depart which it may be assumed will have acted upon both by Government and subjects". Thus, the practice of the Privy Council has been its previous deci recognise a power sions, but it is exercised only in exceptional circum stances. In Jame.< v. Commonwealth(') the High Court of Australia has ruled that it has the power to exa the correctness of its previous decisions. The practice of the Supreme Court of America is its previous has considered decisions especially when they to questions of constitutional (Vide Willoughby on Constitu the cases tional Law, Vol. I, pages 74 and 75 and cited there). The reason given for this view while errors of law not bearing on constitutional pro visions could be corrected by ordinary process of legislatior., an error on a question of constitutional law could he set right only by resort to the dilatory and cumbersome machinery of amendng the Consti (Vide Smith v. Al/right(') ). This reasoning tution. will also be applicable to decisions pretation of our Constitution .. It was argued for the respondents the decisions of therefore, this Court the status of they are to be changed that could be only by process of legislation. Article 141 only enacts the deci sions of this Court are binding on all courts, and that does not stand in the way of this Court itself, revers ing or modifying a previous decision, as when that is done, such decision would thereafter become itself law under therefore, good that article 141 gives that article. There reconsider relate itself free law, and involving that, law. is, (1) 18 C.L.R. 54. (2) 321 U.S. 659:·88I .. Ed. 987. 1955 "I he Bengal Immunity Compan_v Limited v. The State onBihat' and others V m/r:atarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 809 reason for holding that this Court has the power reconsider, m appropriate cases, a previous decision given by it. incurred. obligations the value of then arises as The question and States and their course of action. to the principles on which and the limits within which this power should It is of course not possible to enumerate be exercised. that they it even desirable them exhaustively, nor rules. shoulJ be crystallised into rigid and inflexible But oqe principle stands out prominently above rest, and that is that in general, there should be fina in the decisions of the highest courts in the land, the benefit :.mJ protection of the pub that is for an·d lic. In this connection, it is necessary to bear in mind is decisions of that next to legislative enactments, Courts that form the most important source of law. It is on the faith of decisions that rights are acquired subjects It must greatly alike shape the decisions of this Court, if the impa·ir that there was nothing notion c:ime to be entertai1,,:d certain or final about them, which must be the con therein came to be re seq uencc if the points decided considered on the merits every time they were raised. It should be noted that though the Privy Council has repeatedly declared fact, no instance has been its decisions, its previous reverse it cfid actually in which quoted If that decision cases. except reconsider the correct pos1t10n, sparingly 1s one which and only law had been over when a material provision of looked, asmmption or where a to be mis suggested taken. they did in that in deciding Tlze State of Bombff\1 v. The United Motors (India) Ltd.(1) ignored any material pro law, or were under any misapprehension as visions of to a matter fundamental to the decision. The argu ments for the appellant before us, were in fact only a turns out 1s law as the question of circumstances, should be exercised exceptional is based the present case, the decision In ecclesiastical that it has learned Judges fundamental the power the power (I) (1953] S.C.R. 1069. 14-8-1 S. C.Ir.dia/59 1955 The Bengal Immunity Company Limited v. The State of Bihnr and oth~s Venkatarama Ayyar ]. SIO SUPREME COURT REPORTS r i9ss J itself itself a learned Judges and negatived by to the one taken I would unhesitatingly answer the view previously repet1t1on of the very contentions which were urg<d them. before The question ·then resolves this. Can we differ from a previous decision of his Court, because a view contrary therein appears be preferable? the negative, not. because must necessarilv be infallible but because is impor that the law declared should tant in public. interest it should be rather be certain· and declared in one sense or the other. That, I conceive, is the reason behind article 14 L There are questions of law on which it is not possible to avoid difference the present case of opinion, and signal example of it. The object of article 141 decisions of this Court on these questions should settle that they should be followed as the controversy, and law by all the Courts, and if they are allowed to be reopened because a different view appears to be the the very purpose with which articl~ better one, 141 has been enacted will be defeated, and the pros pect will have been opened of litiirants sub1ecting our to . a continuous process of attack before decisions that with changes in successive Benches time must inevit the personnel of ably bring, a different view might find acceptance. l can imagine nothing more damaging the prestige of this Court or to the value of its pronouncements. In fames v. Commonu•ealth(' ), it was observed that a question settled by a previous decision should not be allowed to be reopened "upon a mere suggestion that some or all of the Members of the later Court might arrive at a different conclusion the matter was re.< integra. Otherwise, there would he grave danger of the law" want of continuity (per Griffiths, C.J. at page 58). reason that article 141 this Court with special authority, but that authority can only be what we ourselves give to it. in the hope the Court invests decisions of interpretation of the weight of It is for this in the \vhich It was suggested as a ground for reconsidering the correctness of the decision in The State of Bombay v. (I) 18 C.L.~. 54. 1955 The Btr, gal lmmuniry Cmnpan_1• Limited v. The State <f Bihar and others Venkalarama .l!rr•r ]. 2 S.C.R. SUPREME COURT REPORTS 811 the sales, the view thereunder in 1951 by llJnd, acting on (India) Ltd.(') that is represented before us several States amended The United Motors it had caused I h:::ve already great hardship to the business world. held that there is not much of substance in this com plaint. On the other the Explanati0i1 confers on the delivery States power their Sales to tax inserting appropriate prov1s10ns Tax Acts some y"ars, and it taxes have been collected by the basis the States on If we are now to hold th:tt the of these provisions. view taken in T lze State of Bombay v. The U 11ited Motors (India) Ltd.(') is erroneous, the consequences will be the amended pro,·isions to render inoperative and the illegal. The taxes made collections of States will then be not merely powerless tax sales falling within the Explat13tion in future, but will have actually to refund whatever they might have collected I can see no end to the chaos, confusion in the past. that must ensue on such a decision'-a am\ trouble retrieved only by Parliament situation that can be removing article 286(2) out of the scene with retros pective operation, and all this, to benefit not the con sumers who are sellers who are only statutory middlemen for collec tion, some of whom are stated to have collected sales tax from purchasers outside I consider it wholly reconsidera tion should be exercised for that end. This, of course, that on a correct inter is apart from my conclusion pretation of respondents have result, In this point must be held against the appellant. the Explanation and artick 286(2). their States. that our power of really affected but the persons the power inexpedient tax. is extra-territorial

#4. I shall now consider the question urged by the invalid on appellant that the Bihar Sales Tax Act is the ground operation the State Legislature. and ultra vires The Comtitutional provisions bearing on this ques tion are articles 245(1) and 246(3) which are as follows: this Con- the whole the Legis- the provisions of stitution, Parliament may make laws for or any part of the territory of India, and "245. ( 1) Subject the powers of (ll [1953] S.C.R. 1069. 1955 The Bengal Immunity Company Limited v. The State of Bihar and others Venkatarama Ayyar ]. 812 SUPREME COURT REPORTS I 19551 lature of a State may make laws for part of the State. the whole or any

#246. (2), referred (3) Subject the appellant (1) and to clauses Legislature of any State specified in Part A or Part to make B of the First Schedule has exclusive power laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution to as the "State List")". the words The contention of "for the whole or any part of the State" in article 245(1) and "for such State or any part thereof with in List II" respect to any of the matters enumerated limitation on the in article 246(3), impose a territorial jurisdiction of provisions it can enact laws only for persons and pro perties within the State and that the provisions of . the Act to the extent that they impose tax on sellers who are outside the State are ultra vires. It was also con tended that the impugned provisions were extra-terri torial in their operation, and were beyond the compe tence of raised are of great importance involving the determi nation of the nature and extent of the power which a the matters to make State has enumerated in List II. the State Legislature. The questions the State Legislature; that under in respect of to define the words It is necessary, to begin with, the precise meaning of "extra-territorial operation". to enact A sovereign State has plenary laws for its own •erritory. Such laws may be in res pect of persons within the territory whether citizens or not, of property, situated within the State; or of acts and events which occur Interpretation of In Maxwell on within its borders. Statutes (10th Edn. p. 144) the law is thus stated : immovable or movable, jurisdiction legislation of a country "Primarily, the that extra territorium jus torial. The general rule is, dicenti impune non paretur. The laws of a nation apply to all its subjects and to all things and acts within territories". In "Conflict of Laws-Restatement of the Law" by 1955 Tht Btn~al lmmunil)' Company LimiUd v. Tht Stau of Bili• and olhn"s V en,l;atarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 813 the American Law summed up: Institute, the position "47. A State has jurisdiction over a person : (a) if he is within the territory of the State, ( b) if he is domiciled in the State although not present there, ( c) if he has consented or subjected himself the exercise of jurisdiction over him either before or the exercise of jurisdiction.

#48. An immovable is subject the juris diction of the State within which it is. 49. A chattel is subject to the State within which it is. jurisdiction of. the in strictness, the above matters

#56. A State has jurisdiction over all acts done or events occurring within the territory of the State, and over all failures to act in cases where there is a legal duty to act within the State". The legislation in respect of it might ope intra-territorial, notwithstanding residing outside the State. Thus, a rate on persons law of a State taking over the management of of absentee-landlords must operate on owners who are residing abroad. But is not extra territorial legislation but legislation in respect of lands within the State. Likewise, a law with reference to is not acts or events which occur within the State though it might have to be enforced extra-territorial, against a person who the State. Such a law is one in respect of an act or event within intra-territorial, are in opera tion. "extra-territorial respect of properties or operation" connote laws in impact or acts or events within a State but having operation on persons outside the State. There is another sense in which State. These laws, loosely described as extra-territorial In used. When a State enacts a law with reference an act or event which takes place outside tory, legislation national Law where nationals and persons these words are is described as extra-territorial,_ and such Inter is recognised as valid by rules of its own in "Con- is directed against in its service. Thus, is residing outside this context the words though 1955 The &ngai Immunfty Company Limited v. 17~ Stale Of Bihar t1t1d othtr's P mkatarama A>J"' J. 814 SUPREME COURT REPORTS [1955J (Page 78). its nationals this connection is observed llict of Laws-Restatement of Law" that "a nation has aJ.. jurisdiction over though not present within the territorial limits of the nation". In Corpus Juris Secundum, extra is defined as "the act by which a State territoriality its own boundaries extends jurisdiction beyond into the territory of another State'', and it is added that "the almost self-evident proposition should per that a sov" haps also be noted the con ereignty has power to make laws regulating duct of limits of its its subjects, while beyond (Volume 15, pages 868-869) territorial says Wheare, "simply "Extra-territorial Legislation", significance courts within facts and events oc (Statute of West curring outside minster and Dominion Status by Wheare, 4th Edi this class tion, page 167). A typical of legislation Indian Penal Code, which enacts that "the provisions of this. Code apply also to any offence committed by- attaches jurisdiction". is furnished by section 4, jurisdiction legislation illustration of jurisdiction". ( 1) any citizen of India in any place without ancl beyond India; · (2) any person on any ship or aircraft registered in India wherever it may be. Explanation : In includes every act committed outside if committed this Code. section 'offence' (India) which, (India) would be punishable under the wore! Illustration : A (who is a citizen of India) com mits a murder in Uganda. He can be tried and con victed of murder in any place in (India) in which ·he may be found". In this connection, extra-territorial legislation means a law of a State with reference to its own cmzens in respect of acts or events which take place outside the State. to extra-terri torial operation, it is desirable that the two connota tions of the words should be kept distinct and sepa rate. As tax sales impugned Act purports its operation against persons who within its territory, in respect of sales within the are residing outside but In discussing questions relating 1955 The Bntgal Immunity Company pmilld V; Tire Stale of Bihm and others V enkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 815 State is extra-territorial in the validity of the provisions. of the Act in this sense that this appeal is concerned with. first sense, and it intended jurisdiction on true construction, legislature to enact its national to apply in aid observations and decisions of Now, the question is, can a State Legislature make laws with extra-territorial operation that it cannot, stated above? The appellant contends and calls Privy Council with reference to the powers of a sub iaws with ordinate or colonial In Macleod v. Attorney extra-territorial operation. General for New South Wales(1), the· point for decision was whetht>r an Act of New South Wales conferred, · on the Courts within the Colony to try an offence of bigamy com in America. mitted presumably by In construin!!' it as to crimes com mitted within the state. Lord Halsbury, L.C. observed tbat the jurisdiction of the colonies to enact laws was that "it confined within · their own have been beyond law in respect of a crime com to enact a Colony" observations These territory. mitted outside rder to extra-territorial operation the second sense stated ah9ve, and have no application when the law respect of an act or event of the State is taking territories. place within In Commercial Cable Company v. Attorney-Genern! of Newfoundland( 2 ), the to a law of Newfound question was with reference in res land imposing a tax on In pect of cables landed or established in the Colony. disrn~sing the scope of these provisions, Lord Mac n:tghtcn observed at page 826 : territories'', and telephone companies jurisdiction of territorial it was competent to impose jurisdiction, the Government to lay a territorial "While, of course, taxation on cables within it was not competent for tax on cables outside its jurisdiction". These observations again have no bearing on point now under consideration whether a law enacted in respect of an act or event occurring within the State to operate on a person con In cerned the act but residing outside incompetent, if it seeks the State. (I) (!89l]A.C.455 ('.:) [19 12] A.C. R20. 1955 T hz Bengal Immunity Campany Limited v. Tire Slate of .Biliar and Others V m/catarama AY.J'OT J. 816 SUPREME COURT REPORTS [1955] to any authority N ad an v. The King('), the question was as validity of section 1025 of the Criminal Code of the that "no appeal Dominion of Canada which enacted shall lie in criminal case United Kingdom by way of appeal or petition to His It was held by Viscount Cave, Majesty in Council". L.C., that that section was repugnant the Privy Council Acts of 1833 and 1844, and was therefore void under the Colonial Laws Validity Act, 1865, and that accordingly the appeal to I he Privy Council was compe tent. He also observed that however widely the powers of the Dominion Parliament be construed, they were confined to action to be taken in the Dominion, and could not extend to annulling the prerogative right of the King in Council to grant special leave to appeal. As the law in question was in respect of crimes committed within the State, these observations are capable of the construction which the appellant seems to put on them that such a law would be incompetent the extent the State. But it that it is to have operation outside must be mentioned the action itself was be taken under the Act within affirmed in unqualified terms, and that is what we are in this appeal. The question, however, concerned with must now be taken to be settled by Croft v. Sylvester Dunphy( 2 the question related to the validity of sections 151 and 207 of the Customs Act of Canada under which the officers of the State were authorised to search ships within 12 miles in them, of the coast, and seize dutiable goods found in the the provisions being obviously intended to aid effective collection of customs. There was no dispute the competence of the that the legislation was within Dominion Legislature,, customs the British North topics enumerated in section 91 of America Act, 1867, but the attack was on the validitv of sections 151 and 207 on the ground that their op~­ ration was extra-territorial. Thus, the question raised is the very question which now arises for determina tion. the kgislation , was valid, Lord In holding that Macmillan obsei:ved as follows : the vires of the decision being one ). There, the State (!) [1926] A.C. 482. (2) [1933] A.C. 156. 2S.C.R. SUPREME COURT REPORTS 817 is among "Once it is found that a particular topic of legis the Dominion those upon which lation as being P::.rliament may competently legislate the peace, order and good Government of Canada or as bdng one of the specific subjects enumerated in sec tion 9.1, British North America Act, their Lordships see no reason to restrict the permitted scope of such legislatiun by any other consideration than is applica ble to lhe legislation of a fully Sovereigi1 State". The law as settled by this decision may thus be stated: Whether a subordinate Legislature has power to enact laws with extra-territorial operation will depend on the terms of the Constitution Act which creates it and subject to any therein, it has 1n . respect of the topics assigned to it powers of legis lation as plenary as the Sovereign Legislature which constitutes it. limitations contained 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V tnkatarama 4J>yar J. to be valid, this country had only the legislation was held It was argued by Mr. N. C. Chatterjee that subse quent to the decision in Croft v. Dunphy(1) the Privy Council had again to consider in British Coal Corpo ration v. The King(2) the validity of a Canadian law and therein the which had extra-territorial operation, :grounds of the decision in Nadan v. The King(3) were stated at page 516 with apparent approval, and that it was though because of the Statute of Westminster, 1931, and that in the absence of a similar statute for India, the Legis lature of limited powers recognised in Nadan v. The King(3), and that extra llut there is territorial nothing in the observations in British Coal Corpora tion v. The King(2) relied on by the appellant, to sup Nadan's case( 3 fact there was no decision at all on this point. Nor does the fact that the Statute of Westminster has conferred an express power on the Colonial Legislature to enact laws with extra-territorial in Croft v. Dtm- :attached ) was adopted in Croft v. Dunphy( 1 operation to the conclusions come in preference ; in the weight legislation was incompetent. contention expressed affect ) (1) [1933) A.C. 156. (2) [!935] A.C. 500, 516. (S) [1926] A.C. 482. 818 SUPREME COURT REPORTS [1955] 1955 T l1e Ben,l!,al lmmuni!J Com/xmy Ltmi'trrl v. Tht Stalt of Bihnr and nlh".1 i 'enkatara111a 1h!:i1ar J. phy('), because they were reached, not with reference to the Statute of Westminister about the applicability of which retrospectively to the case before the Boatd there was controversy, but on general principles, and what is more to the present case, it was the law as declared in Croft v. Dunphy(') framers of the Constitution when enacted 5c, · tions 99 and 100 of India AC!, 1935. the Government of that was before law, to examine is dealt with Turning now to the Constitutiorul provi, ions under the Indian in sections 99(1) and 100(3) of the Government of India Act. To understand the precise scope of these provisions, it is the position under the previous necessary C',onstitution Acts. Section 43 of the Charter Act, 1833 (3 and 4 Will. IV, Chap. 85) conferred power ou the Governor-General in Council "to make laws and regulations for all persons .............. and for all Courts and for all places and things whatsoever within and throughout the wlzole and every part of the said territory". In the Government of India Act, 1915 (5 and 6 .Geo. the corresponding provisions was section V, Ch. 61) 65(1) (a) which enacted Indian Legislatures have the "power to make laws for all persons, for all Courts and for all places and things within the British it cannot be doubted India". Under these provisions, that the Indian Legislatures would have had no juris diction to enact laws operating on persons who were not within the Stat~,. a< that would be plainly opposed to the limitation they should be "for persons within the territory'.'. Both section 43 of the Charter Act, 1833 and section 65(1)(a) of the Government of India Act, 1915 are based on the theory which was then widely held that a subordinate Legislature had no competence laws with extra-territorial operation. Then came the Government of India Act, 1935. Sections 99(1) and 100(3) which are relevant provisions are as follows : to enact that the "99. (1) Subject this Act, the Federal Legislature may make laws for the ·whole or any part of British India or for any Federated the provisions (I) [1933] A.C. 156. i' .. 2 S.C.R. SUPREME COURT REPORTS State, an<l a Provincial Legislature may make for the Province or for any part thereof. gjt) l'aws

#100. ( 3) Subject to the two prece<ling sub-sections, the Provincial Legislature has, an<l the Federal Legis lature has not, power to make laws for a Province or to any of the matters any part thereof with respect enumerated in List II in (herein the said Sche<lule after called the "Provincial Legislative List")". 1955 Tlie Bengal Immunity Companv Limited v. The State of Bi/ia• and others V tnkatarama A;,var J. Instead, in List removed. limitation the power is enacted The language of these sections marks, it will be no ticed, a wide departure from that of section 43 of the Charter Act an<l section 65 (1) (a) of the Government of India Act, 1915. The legisla tion should be for persons or things within tory has been it could be ;'for the whole or ·part of British India in the case of Federal Legislature" and "for the Pro vince or part thereof in the case of Provincial Legis lature", and under section 100(3), make laws for a Province or a part thereof with res II. Under pect to the matters enumerated sections 99(1) and 100, legislative power of is determined by two condi Centre or the Province It must be for territory specified, and tions. must be topics enumerated in respect of If these conditions are satisfied, then rtspective lists. the law it may have impact or operation outside the State. The scope of the legislative power conferred by sections 99( 1) and 100 Legislatµres of Canada under sections 91 and 92 of tht; British North America Act. That was also a power conferred on Provincial Legislature the Dominion in respect of the matters mentioned or the Province in sections 91 and 92 respectively. It is on the con struction of that Lord Macmillan held in Croft v. Dunphy(1) that the Dominion Legis lature was competent to enact laws in respect of those matters even thc;y had extra-territorial operation. The framers of the Government of . India Act, 1935 changed the language of section 65 ( 1) (a) of the Gov- the Dominion Parliament or is valid notwithstanding that conferred on to make laws for the same as is precisely ,provisions if. ( I) [!933] A.C.. '5o. 1955 The Btngnl Immunity C-Ompany Limited v. T ht State of Bihar and others Vmkatarama AJYar ]. 820 SUPREME COURT REPORTS {1955] The precise extent of judicial consideration. to those in sections .91 and 92 of India Act, 1915, and substituted wunls ernment of the British similar North America Act, 1867. It is a reasonable deduc tion to make that they intended to give effect to the in Croft v. Dunphy('). A law which law as declared satisfies the two conditions prescribed m sections 99 (1) and 100, therefore, must be held to L,e intra vtres, even though it might have extra-territorial operation. · the powers conierred by sec tions 99( 1) and 100 has also been the subject of con siderable In Governor-General in. Council v. Releigh. Investment Co. Ltd.("), the ques tion was as to the liability of a Company which was .the English Companies Act hav incorporated under. ing its ~ain office in England and no place of busi ness in India to be assessed . to income-t<l'x under the provmons of . the Indian Income-tax Act. The Com pany held the bulk of shares in nine Companies which were also registered in·· England and controlled there, and carried on business . in British Jndia and these profits earned profits. Dividends in respect of were declared. in London and paid to the assessec London. The Explanation to section 4(i) (c) of Indian Income-tax Act enacts that a dividend paid to be outside British India shall be deemed income to the extent to accruing i!' or arising in British India which it has been paid out .·of profits subjected to _tax in British India. The income-tax authorities claimed that the dividends received by the assessee-Company to be taxed under this provision. The Company resisted the daim inter alia on the ground that as it was not resident in British India. and did not carry on business Indian Legislature there, had no competence to impose ·a tax on it, and that the Act 'were ultiu vires as e:tra the provisions of territorial ceeded before the High Court of Calcutta,. the Chief provision Justice amounted to the "Legislature of British India with out specific or apparent authority stretching out its legislative arm and physical hand beyond British . their operation. This contention impugned observing liable (I) [1933] A.C. 156. (2) [1944] F.C.R. 229, 1955 The Be11gal Immunity Company Limited v. The State of Bihar and others Vt11kalarama A.~l'llT J. 2 S.C.R. SUPREME COURT REPORTS 821 a impose a reversed by there not subject this decision was legislation not by the Indian Legislature India into other countries in an attempt to tax persons and property laws"; and Mitter, J. characterising it as a "piece of extra-terri superior or Dominion torial subordinate Legislature". On Legislature but by a appeal, the Federal Court. Spens, C. J. who delivered the judgment of the Court held firstlv that as the source of the income which was subjected. to tax was Indian, it was com petent for thereon, and no question of extra-territorial operation to say, Entry 54 in List I gave power arose. That is income which arises to the Indian Legislature to tax from British to be taxed was not residrnt within the British India. He also if an element of extra-territoriality wa~ i~volved, the legislation was not bad on account, because section 99( 1) and section 100 of India Act, 1935 were · intended Government of in Croft v. Dunphy(1) embody plenary powers of in respect of matters mentioned in the lists, departing in this respect from the position under section 65 ( 1 )(a) of the Government of India Act, 1915. Indian Legislature law as declared to confer on India, even the person that even legislation though there. In Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax, Bombay("), the appellant was a Company It registered in England and controlled from held a 14/32 share in a firm called Messrs Wallace & Co., which was carrying on business in Bombay. The sought to be taxed not merely on its appellant was income as partner of the Bombay about >vhich there was no dispute but also on the i!'.come of over rupees which had arisen and had acuued it abroad. The appellant claim on the ground that the provisions of the Indian Act were ultra vires as their operation was extra-terri income of a torial; inasmuch as abroad. The Federal Court non-resident rejected this contention. the person that if taxed had sufficient business connec- proposed they sought to tax lakhs of It held received resisted to be (1) [1933] A. C. 156. (2) [1945] F.C.R. 65. 1955 The Bengal Immunity Compan_)' Limited v. The State of Bihat and others Venkatarama AJ:Yar .J .. 822 SUPREME COURT REPORTS [1955] the strict judgment to Privy Council, tion with British India, that would confer a jurisdic tion on the Indian Legislature to tax him, and what heads of income in his hands should be taxed was a matter of policy which was within the province o!' It also held that the pro· the Legislature to decide. visions of the Act were "not in their operation extra sense'". There was an territorial appeal against i.e., /. T. Commissioner, Bombay('). Wallace Bros. v. Affirming the judgment of the Federal Court, Lord Uthwatt observed the appellant the partnership carrying on busi "was a member of irrelevant in .consi(lering India" was in British intra vires; that it w:ts to whether the legislation was there was "no connection between be assumed the Companies and British the deriva larger part of their tion from British legislation income", and should be determined on .then ob served: that basis. He the validity of India of the India except legislature define to be read against "There is no rule of law that the territorial li.mits the possible scope of of subordinate legislative enactments or mark the field open to its vision. The ambit of the powers possessed by a sub ordinate legislature depends upon the proper construc tion of the statute conferring those powers. No doubt the enabling statute has the back· territory has been com ground cha· only a defined legislature. Concern by mitted to the charge of a subordinate Legislature with affairs or persons out territory may therefore suggest a query side its own whether the Legislature its. own business. is not. The enabling statute has to be fairly con strued". He then referred to section 99(1) and section 100 of the Government of India Act unde.r which the Indian Legislature had power to enact laws for the whole or part of British India with respect to tax on incomes, and concluded : in truth minding the conclusion It does not compel "The resulting general conception as to the scope (I) [1948] F.C.R. I. 1955 The Bengal Immunity Company Limited v. T fie State of Bihar and others Venkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 823 interest income-tax territorial connection set _forth India Act, 1935. The result is is that given a sufficient territorial con of income-tax nection between the· person sought to be charged and I he country seeking to tax him income-tax may pro perly extend to that person in respect of his foreign incomf' ............ The principle-sufficient territorial con- nection-not the rule giving effect that principle -residence-is implicit in the power conferred by the Government of the validity of the legislation in question depends on the sufficiency for the purpose for which it is used of in the impugned portion of the statutory test''. It is the contention of the respondent that the present question is concluded by this decision. In A. H. W adia I. T. Commissioner, Bombay(1), the question related v. to the liability of the Gwalior Durbar to be assessed received respect of Gwalior. There was a Company called the Providenc.e in Bombay. Investment Co. Ltd. carrying on business The shares of the Company were all held by Durbar or by its nominees. It was financed by Durbar, Income-tax adv:rncrd at Gwalior. On these facts, the Officer assessed tax on the Agent of the Durbar the interest received at Gwalior. The validity of this assessment was disputed on statutory provisions under which it was made were extra-territorial their operation and therefore ultra It w:i.s held by all the learned Judges follow vires. in Governor-General in Council v Releigh Investment Co, Ltd.(2) and W a/lace Bros. v. I. the assessee would T. Commissioner, Bombay(8) that be liable to ta'lC if there was sufficient business con. that, m ni:ction between him and British India, and the provisions would not be bad on the that event, ground of extra-territorial operation. There was, however, a difference of opinion among the learned Judges as torial connection had been established, · the majority learned Judges holding that it had been, while to whether, on facts, sufficient the decisions the ground transaction form of taking (1) [1949] ~'.C.R. 18. . (3J [1948] F.C.R. J. ~2) [1944] F.C.R. 229. 1955 The Bengal Immunity Company Limited v. T ht State of Bihar and othns Venkalarama Ayym- ]. 824 SUPREME COURT REPORTS [1955] thought otherwise. That, however, to the pre5ent discussion. is not material These authorities establish that under section 99(1) and section 100 of the Government. of India Act, ;i in respect of the Indian Legislature law enacted by lists would the matters enumerated in the appropriate be valid provided it is for the territory entrusted it was so or not would their charge; that whether there was sufficient territorial con depend on whether to be nection between the person who the. charged or proceeded against under .when such country which enacts the law; and .connection exists, is not strictly speaking. extra-territorial, and it is not ultra vires on the ground that the person is not residing within the State which enacts the law. law and sought to enact this subject repealed and It is a well-settled confer on the Parliament and the repealed statute are reproduced in ·the respective territory over which Then, we come to the Constitution. Articles 245 ( 1) and 246 which deal with reproduce sec tions 99(1) and 100 with only alterations of a formal character. They in · respect of State Legislatures power the ~opics mentioned to be exercised rule of construction j1irisdiction. that when a statute is re-enacted and in the words in new statute,. they should be interpreted the sense them under the re which had been judicially put on is presumed to be pealed Act, because the Legislature the Courts acquainted with have put upon the words, and when they repeat . the same words, they must be taken to have accepted the interpretation put on them by the Court as correctly legislative mind. On a construction of reflecting articles 245(1) and 246, therefore, it will be difficult to come to any other conclusion than that a sales tax legislation of a State which is otherwise valid is not ultra vires on the ground that the person proposed to resident within the territorial limits of the State. the construction which is not Three other contentions urged in opposition to this conclusion must now be considered : 1955 The Bengal immunity Company Limited v. The State of Bihar and others Venkatarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 825 I. It is only the Central or Federal Legislature that has the power to enact laws with extra-territorial ope ration, and that the Legislatures of the States forming units of a Federal Union do not possess such power.

#2. Under article 245(2) against States operation. enacting laws with a prohibition extra-territorial the provisions of the Act forrning

#3. Some of rnachinerv sections the assessment and collection taxes , are, · whole Act is void on the ground that the valid pro visions invalid ones. in any event, unauthorised and thereof cannot be separated from ) Indian related On the first question, it is argued by the learned decision in Croft v. Dun Attorney-General the Legis phy(1) had reference to a law enacted by lature of Dominion of Canada and not any of in Governor-General Provinces, and that the decisions in Council v. Raleigh Investment Co.( 2 ), Wallace Bro then f:T Co. v. The Commissioner of Income-tax, Bom bayC) and A. H. Wadia v. Income-tax Commissioner, Bombay( 4 Income-tax Act which was enacteci by the Central Legislature, and ·that to apply the doctrine laid down in those cases to extend it~ to laws passed by the States would be operation beyond was no warrant for it in the Constitution. On princi ple, it is difficult to see why a law enacted by the State in respect of the matters assigned exclusively to footing from a law passed by Parliament on a matter within it be authority from the Constitution Government of India Act, 1935, or of India. Under these Statutes, the State is not sub its authority ' being supreme ordinate to the Centre, in respect of the matters entrusted the British Government of to change what was a unitary Government decided into a Federal Government, jurisdiction should stand on a different the same source, whether India Act, 1935, when the Legislatures derive the process adopted jurisdiction. Both limits, and it. Under recognised (I) [1933] A. C. 156. (3) [1948] F.C.R. I. 15-84 S.C. India/59. ) [1944] F.C.R. 2~9. 0 ( (4) [1949] F.C.R. 18. 1955 The Bengal Immunity Company Limited v. The Stott of Bihar and others Venkatarama A;yar J. 826 SUPREME COURT REPORTS [1955] that a respective laid down the Province, therefore, be their authority In Hodge v. The Queen(') which that had been granted the appropriate territory. The extent of them between the Province. The terms on which identical both for the Parliament resumed all the that purpose was the previous powers Constitution Act and redistributed Centre and redistribution was made were Centre and tions 99(1) and 100 being to enact laws in respect of lists and the matters mentioned authority must, the same both in the case of the Centre and the State, each being sovereign within its own sphere. The principle Croft v. Dunphy(') subordinate Legislature has plenary powers in respect of the topics assigned to it will apply as much the State with reference to the matters enumerated in List II as to the Centre with reference to the topics mentioned in List I and III. is one of the cases on which the decision in Croft v. Dtmplzy('} was that of the Pro based, the law under challenge was vince of Ontario respect of a topic in Canada in enumerated in seetion 92 of the British North America Act of 1867. The question whether States as distinct to enart from the Commonwealth have competence laws with extra-territorial operation has also ·considered in some of the decisions of the Australian In Broken Hill South Limited v. The High Court. Commissioner of Taxation(•), Evatt, J. in discussing this question observed as follows at page 378 : the cases also the fact, occa "Some of speaking, sionally overlooked, the status of the States of Australia to, or co-ordinate with, itself. Sovereignty is not attributable to one authority more than to the others; accordance with the demarcation of functions set out the Commonwealth Constitution. Within limits so pr~scribed, the legislative authority of States is of precisely equivalent quality and potency to that of the Commonwealth, the authority of which ill1JStrate constitutionally the Commonwealth is divided between is equal that of that, (1) [1933] A.C. 156. (3) 56 C.L.R. 337. (2) [1883] 9 A,C, 117, 1955 The Bengal Immunity Company Limited v. The Stalt of BihlW and others Venkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 827 to' a respect to subject-matter. is, in sections 51 and 52 of the Commonwealth Con In reference stitution, limited by legislate short, the Commonwealth Parliament may 'the peace, order and good government of large number of Commonwealth with the State of New South subject-matters. Similarly, Wales may legislate for 'the peace, welfare and good government' of New South Wales. In relation to such a subject-matter as that of taxation, and subject, of the Common course, to any overriding provision of wealth Constitution, it is quite impossible to deny to the States in relation to their geographical area con those pos stitutional powers precisely analogous relation the Commonwealth Parliament sessed by to its geographical area. The legislation of the States cannot be deemed ultra vires merely because of torial reasons, unless analogous Commonwealth Parliament would similarly be deem ed unconstitutional and void". the present These observations are very apposite controversy. The conclusion the State under sections powers of the Union and 99(1) and 100 of the Government of India Act, as also under articles 245 ( 1) and 246 in respect of matters mentioned their respective lists have same content anrl quality, and that if legislation with extra-territorial operation the competence of the Union, it is equally within the competence of the State. inescapable is within legislation to be prohibits by Coming now to the second contention, that in enacting the argu ment of the appellant that "no law of Parliament shall be deemed invalid on the ground that it would have extra-territorial ope ration", article 245(2) enactment of such the States. This conten tion is unsound. The words "extra-territorial opera tion" are used, as already ,stated, two different laws in respect of acts or senses as connoting firstly, the State but have events which take place inside operation outside, and secondly, reference laws with to the nationals of a State in respect of their acts the laws are strictly outside; that in its former sense, implication laws by ..... ' 1955 The Bengal Immunity Company Limited v. The State of Bihar and others V enkatarama Ayyar J. 828 SUPREME COURT REPORTS [1955} loosely regards though intra-territorial inconsistent as topic. Section 43 of termed speaking 'extra-territorial', and that under article 245(1) within the competence of the Parliament and of State Legislatures to enact laws with extra-territorial that sense. The words "laws with extra operation in territorial operation" in article 245(2) must be under stood in their second and strict sense as having ref erence to the laws of a State their nationals the State. Otherwise, respect of acts done outside the provision would be redundant as regards legisla tion by Parliament and enacted by States. This conclusion is placed beyond doubt when regard is had to the history of legislation the Charter Act, 1833 while restricting persons and things within the State thus denying the laws with extra-territorial operations in the first sense, conferred a power "for all servants of the Company within the Domi nion of Princes and States in alliance with the said Company". This was a power to enact extra-!erri legislation in the second sense for servants of torial the Company. Section 65(1) of the Government of India Act, 1915 followed the same pattern, and while Indian limiting under sub-clause Legislatures things within British to enact laws with extra-territorial operation second sense by sub-clauses (b), (c), (d) and (e) which are as follows : "65. the power of for persons and jurisdiction the scope of legislative authority (Indian Legislature) India conferred (1) The to enact to make to enact (a) to make laws- (b) for all subjects of His Majesty and servants ( c) for of the Crown within other parts of India; and subjects native of His Majesty, without and beyond as well as within British India; and Indian ( d) for government of officers, soldiers, (airmen) and followers in His Majesty's Indian forces, wherever in so far as they are not subject to the Army Act (or the Air Force Act); and in or ( e) for all persons employed or serving they are serving, 1955 The Bengal Immunity Company Limited ·"· The State of Bihar and others Venkatarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 829 belonging to the Royal Indian Marine Service". This topic was again dealt with in section 99(2) of the Government of India Act, 1935, which runs as follows: "99. (2) Without prejudice law shall, on the ground the powers co:1ierred, by no Federal have extra-territorial operation, be deemed valid , in so far a~ it applies- subjects British ( a) to servants the generality of the preceding sub-section, that it would iIJ to be Crown in any part of India; or (b) to British subjects who are domiciled m any part of India wherever they may be; or ( c) to, or to persons on, ships or aircraft regis tered in British India or anv Federated States where- ever they may be; or . the case of a to a law with ( d) in in the Instrument of Accession of a matter accepted Federated State as a matter with to which the Federal Legislature may make laws for that State, to subjects of that State wherever they may l:ie; or respect respect ) , India, ( e) in the case of law for the regulation or dis cipline of any naval, military, or air force raised in to members of, and persons attached British to, employed with or following, that force, wherever they may be". · In Governor-General in Council v. Raleigh Investment the question was raised whether these provi Co.( 1 sions were restrictive of the power of the Indian Legis lature to enact laws with extra-territorial operation respect of matters other than those enumerated in sec tion 99(2). Spens, C.J. held that as the impugned provi sions were within the ambit of legislative power under sections 99(1) and 100 of India they were ·not extra-territorial m ope Act, ration and that even if they were, the words "without the powers conferred prejudice to the g~nerality of section the existence of a power aliunde, and 99(2) posited that the enumeration of the specified sub-clause was by way of abundant caution. On the preceding sub-section" occurring the Government topics 1935, (l) [1944] F.C.R. 229. 1955 The Bengal Immunity Company Limited ... Tht State of Bihar and others VenkalaTama Ayyar J. 830 SUPREME COURT REPORTS [1955) "including laws having 14th August, 1947, acting under section 9 of Indian Independence Act the Governor-General issued an Adaptation Order, and therein, for the words "for the whole or any part of British India or for any the words "includ Federated State" were substituted ing laws having extra-territorial operation whole or any part of the Dominion"; and sub-section (2) was omitted. When the Constitution was enacted, extra-territorial the words operation for the whole or any part of the Dominion" their place, article 245(2) was were omitted, and in enacted. Thus, article 245(2) is a successor to section 65(1), sub-clauses (b), (c), (d) and (e) of the Govern ment of India Act, 1915 and section 99(2) of the Gov ernment of India Act, 1935, and its scope is extra in the second sense. As we are territorial legislation this appeal with extra-territorial opera concerned tion in its first sense, article 245(2) has no application, and the attack on the impugned Act on the ground that it is barred by article 245(2) must fail. The third contention has reference the machi the assessment nery sections of the Act relating and collection of taxes. The argument was that even if the Bihar Legislature had the competence to enact under Entry 54 a taxation law against non-residents, it had no power to enforce it outside its own torial limits, and some of the provisions were bad on section 17 which authorised this ground, such search of premises and seizure of accounts, and sec to obstruct such tion 26 which made search or seizure. But we are not called upon in these proceedings to pronounce on the validity of these prc> visions. The respondent issued notice under sectivn 13(5) of the Act calling upon the appellant to .send his returns and proposing in'. case of default to make assessment on the basis of best judgment. It was at this stage that the appellant rushed to the Court, and the pro moved for a writ of prohibition ceedings on the ground of want of jurisdiction. That to be is the one and the only question that now falls determined. Even if some of' the machinery sections are bad-it is a question to be decided when it arises it an offence to restrain 1955 The Bengal Immunity Company Limited v. The State of Bihar and others Vrnkatarama Ayyar J. 2 S.C.R. SUPREME COURT REPORTS 831 whether they can be justified on the ground that they are ancillary or incidental the substantive provi sions, as to which see Attorney-General for lanada v. Cain(1) and Croft v. DunphyC)-that would not to impose a tax, and it affect the power of the State will therefore be foreign this appeal the scope of to enter into a discussion of their validity. then, when their operation, and It was urged_ by the learned Attorney-General if the machinery sections were bad on the ground that . they were extra-territorial the power to tax was so mixed up with them as to be inseparable from them, they fall it must also fall. A power to tax is a matter of substantive law, whereas the machinery sections providing for the execution of such as, assessment, and collection of tax, pertain to the domain of adjectival law, and elementary law that the power to tax does not depend In British Columbia Elec on the abilitv to realise it. tric Railway ·co. Ltd. v. The King(s) Viscount Simon observed: the two are distinct and separable. that power It the courts of "A legislature which passes a law having extra terri~orial operation may find that what it has enacted cannot be directly enforced, but the Act is not its coumry valid on that account, and must enforce the law with the machinery available to them". Without expressing the machinery sections, I must hold that validity of the impugned Act in so far as it authorises the impo sition of tax on sales falling within the Explanation to article 286(1 )(a) is neither ultra vires the powers of the State Legislature nor bad on the ground rhal it is c:xtra-territorial in its operation. therefore, on any opinion,

#5. Then there remains the contention of the appel that the States could, under lant that even assuming imposing a tax on a the Explanation, enact a law non-resident and that such law would not be hit by article 286(2), the impugned Act must even then be it was not auth- held to be bad for the reason \ \) (19061 A.G. SE (3) [1946] A.C. 527. (2) [1933] A.C. 156. )955 The Bengal lmmuniry Corrlj>any Limited v. Tiu Slate of Bikar and others Venkatarama Ayy<U' J. 832 SUPREME COURT REPORTS [1955] therefore this contention : this argument rests sale-must be deemed the State or on orised by the terms of the Explanation. Two grounds ( l) that were urged in support of under the Explanation truly construed, a seller could be taxed only if he is within the State, and (2) that the goods were actually delivered not in Bihar but in Bengal and· that the Explanation did not apply. The argument in support of first ground was that as the Explanation enacts that the sak or purchase-not mere! y have taken place in the delivery State, it must be con strued in the light of the presumption that the laws of a State are intended to operate on persons or things within its territory, and so construed, it should be the seller only held to authorise the levy of a tax on if he was within the purchaser who must be within territory. The assumption on that States have juris diction only over persons and property within territory; but is not correct. A State has in respect of acts and events which occur within its territory; and if a sale takes place within the State as under the Explanation it does by a legal fiction, diction to enact a law imposing a tax thereon is com plete, and no question of torial limits arises. scope of the presumption that the laws of a State are intended is, as that "Parliament does not design stated by Maxwell, its Statutes territorial (Maxwell's Interpretation of Statutes, 10th Edn., page 145). That second sense. There is no presumption that the laws of a State made with reference to acts and events occurring within its borders are not intended to have operation outside its territory. its overstepping It should also be noted that this, as already shown, jurisdiction the United Kingdom" its subjects beyond to operate outside to extra-territorial to operate on limits of operation to .enact reference territory Moreover, a tax on sale of goods is, as observed The Province of Madras v. Messrs Boddu Paidanna & Sons(') "a tax levied on the occasion of the sale of goods" and the liability to tax arises "on the occasion (1) A.I.R. 1942 F.C. 33. 2 S.C.R. SUPREME COURT REPORTS 833 In The State of Bombay v. The United of a sale". Motors (India) Ltd.(1) it was stated that the sales tax was a tax imposed "on the occasion of the sale as a £axable event". It is thus, in essense, a tax levied on the act of buying and selling. Sale is the result of a contract, and is bilateral in character. There can be to a purchaser and vice versa. seller only in relation It therefore follows that the power impose a tax on sale imports a power to tax either the seller or the purchaser. 1955 Thi Beng«l lmr11U1lity <Ampany Limited v. Thi Slate of Bih•r GM oth1rs Yenkatarama AY.Jiar ]. In V. M. Syed Mohammad & Co. v. The State of Andhra(2), the question was raised for decision whe the Govern ther Entry 48 in the Provincial List of ment of India Act 1935 "tax on sale of goods" included a power to impose a tax on the purchaser. It was held that it did, and it was observed that when Entry 54 ' in List II of the Seventh Schedule of the Constitu tion substituted for the words "tax on sales" occur ring in Entry 48 the words "tax on sale or purchase", it did not thereby enlarge the powers previously con in clearer ferred by Entry 48 but "merely expressed corresponding language what was entry". When article 286(1)(a.) and the Explanation refer to a sale or purchase, the terms of Entry 54, and these words cannot there fore be construed as splitting up the power to tax sales into two parts, one available against the purchaser at all times, as in the very nature of it he must be with seller if he is in the State, and the other against a within jurisdiction. The power is one and indivisible to be exercised when the conditions mentioned in the Explanation are satisfied against either a seller or buyer as the Legislah1re might determine. they merely conform implicit the Explanation, The language of it should be limitation or condition marked, does not impose any the exercise of this power. It is general and un in which qualified, and will comprehend all cases taxing goods are delivered for consumption State irrespective of whether the seller State or not. To hold that the tax could be imposed on a seller only if he is within the State would be to is within {l) [1953] S.C.R. 1069. (2) [1954] S.C.R. 1117. 1955 The Bengal Immunity Company Limited v. The State flj Bihar and othrrs V tnkatarama Ayyar ]. 834 SUPREME COURT REPORTS [ 1955) ·are not justification. On is possible there, add words to the Explanation which and for this, there is no the other hand, there are good reasons why the power should have been vested in the legislature to determine w he tax im ther it will tax the seller or the buyer. The the con posed under the Explanation really falls on that with ref sumer-purchaser. While it tax can effec erence to certain classes of goods it must happen tively be imposed on the purchaser, that with reference example, medicines it cannot be so done, and, as already pointed out, it is a "fami liar and sanctioned device" agent of the State for collection of taxes. In leaving it to the States to determine whether the seller or the buyer, the Explanation has merely taxation given recognition laws sanctioned by usage anJ upheld by authority_ This objection must accordingly be overruled. to other kinds of goods as, to a familiar principle of the present appeal, the seller they will to make contemplated by It was then contended that the sales proposed to be taxed did not take place in Bihar as the goods were actually delivered as the Explana tion not there but in Bengal. The argument is that the words "actual delivery" the Explanation are used in contrast to constructive or symbolic delivery as that under sec meaning physical delivery of goods, tion 39(1) of the Sale of Goods Act, 1930 (Act III of 1930) the common carrier is the agent of the purchaser, and that therefore delivery of the goods to the rail way authorities in Bengal was actual delivery thereof to the purchaser in Bengal. Section 39(1) is as fol lows:

#1. "Where in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, deliYcry of the goods to a carrier, whether named by the buyer or not, for the purpose of trans- mission to the buyer, or delivery of the goods to a wharfinger for safe custody is prima facie deemed to be a delivery of the goods to the buyer". is in this section to to see what It is difficult support the to a common contention carrier is actual delivery to the purchaser. The section that deli very 2 S.C.R. SUPREME COURT REPORTS 835 it proceeds on does not say so. On the other hand, in fact, no delivery the assumption that there was, the purchaser, actual or otherwise, a t.hing being deemed to be something only, when as a fact it is not that, and then enacts on that basis a fiction that deli- . very to a common carrier shall be deemed prim a f acie to be delivery to the buyer. What is the purpose. of this fiction? It is, as will be clear from section 39(2), to fix on whom the· loss is to fall in case the goods are lost or damaged in course of transit. But where no the fiction has to be ignored, and such question arises, the matter will have factua>l basis whether the goods were actually delivered. to be decided on A reference to section 51 ( 1) of the Sale of Goods Act is very instructive. It runs as follows : 1955 The Bengal lmmuniry Company Limitet! v. The State of Bi ha~ and others Venkatarama Ayyar J. to be transmission in course of the purpose of "Goods are deemed transit from the time when they are delivered to a carrier or other bailee for buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee". In this clause, the word "delivery" is used to denote both the delivery of goods by the seller to the common carrier and common carrier. They cannot both be acmal deli veries, as goods sold under a sale can actually be deli vered only once. to the common carrier was actual deliYery, the purchaser took possession nature of delivery when the goods from is also physical delivery of the goods, and is therefore actual delivery on the appellant's own definition. If the delivery of the goods then what the common carrier? the purchaser by the delivery It The fact is that while for some purposes delivery to t):ie common carrier treated as delivery purchaser, there is delivery in fact and in its popular sense, only when the purchaser obtains possession of is connoted by the words the goods and it is this that to deli "actual delivery". When section 51(1) refers very to buyer or his agent, it refers to actual delivery, and delivery to common carrier regarded as con structive, having regard to section 39(1). The section, it will be noticed, proceeds on :r footing 1955 The Btntal lmmuniry Company Limited ..;_ The State of Bihar and otht1s V~nkatarama Ayyar ]. 836 SUPREME COURT REPORTS [19551 common carrier reference to actual delivery. He purchaser for transmission of the goods to him. the agent of the buyer with the agent of is not This position was well-established the common law of England, and was thus stated by Parke, B., in James v. Griffin(') in the following terms: retake insolvent, the goods before "The delivery by the vendor of goods sold to a carrier of any description, either expressly or by implication named by the vendee, and who is to carry on his account, is a constructive delivery to the vendee; but. the vendor has a right if unpaid, and if the vendee they are actually delivered to the vendee, or some one whom he means to be his agent, to take possession of and keep the goods for him, and thereby to replace the vendor in the same situation as if he had not parted with the actual possession .......... The actual delivery to tlze vendee or his agent, which puts an end to the transit11s or state of passage, may be at the vendee' s own ware house, or at a place which he uses as his own, though to another, for the deposit of goods: (Scott belonging v. Prettit( 2): Rowe v. Pickford(') ) ; or at a place where he means the goods to remain until a fresh destination them by orders from himself; is communicated the vendee's Dixon v. Baldwen(') ; or it may be by taking possession by himself or agent at some point the original intended place of destination''. short of In Ex parte Rosevear C/zina Clay Company. In Re Cock(') James, L.J. said : "The authorities the vendor has a right to stop in transitu until the goods have actually got home into the hands of the purchaser, or of some one who receives them in the character of his servant -or agent". In the same case, the position was stated even more fully by Brett, L.J., in the following terms : "As soon as the clay was appropriated by vendors to this contract and was placed on board the ship, the property in it passed to the purchaser and (2) [1803] 3 B. & P. 469. (4) (1804] 5 East 175. (1) 2 M. & W. 623; 115 E.R., 906, 910. (3) (1817) 8 Taunt, 83. (5) II Ch. D. 560. 1955 The Bengal Immunity Company Limited v. The State of Bihar and others Ve•katarama Ayyar ]. 2 S.C.R. SUPREME COURT REPORTS 837 at the same time as between the vendor and the pur chaser, there was a delivery of the claim to the latter. But it was a constructive not actual. delivery". The same learned Judge again observed in Kendal v. Marshall (1) as follows : "Where the goods have been appropriated by vendor, and have been delivered by him to a carrier the vendee, a constructive posses to be transmitted to sion exists in the vendee". The law as declared in the above decisions was em bodied in section 32(1) of the English Sale of Goods Act, which has been reproduced in section 51(1) of the Indian Sale of Goods Act. Vide also Benjamin on Sales, Eighth Edn., page 889 where the possession to be of the carrier on behalf of the buyer is stated "constructive It the expression "actual must accordingly be held delivery'' 286(1) (a) means delivery of the goods to the purchaser or his agent, and delivery is not actual delivery, and that, in this case, the goods were they were in Bengal when actually delivered not the common carrier but in Bihar when delivered to they were deliv<;red the purchaser. This conten tion of the appellant must also be rejected. though not yet actual possession". the Explanation the common carrier article In the result, the appeal should, in my judgment, be rejected with costs. Jagannadhadas two viewpoints contained SrNHA J.-1 have had the advantage of perusing judgments prepared by my brothers, . S. R. Das, and T. L. N. H. Bhagwati, B. Venkatarama Aiyar. After a careful and anxious con sideration of judgments respectively of my brother S. R. Das hold the previous decision of this court in The State of Bombay v. The United Motors (India) Ltd.(2) should be overruled, and of my brother T. L. Venkata rama Aiyar that it should be followed, I have come to the conclusion that the latter view is more accept able. We are all agreed that the present case is governed (l) 11 Q.B.D. 356, 3M. (:!) [1953] S.C.R. 1069. 1955 The Bengal Immunity Company Limited v. The State of Bihar and others Sinha]. 838 SUPREME COURT REPORTS [1955] should involving that article interpretation of this appeal that the is whether or not we is not free the previous decision of this Court just referred to rule of and that if that case lays down the correct should be dismissed. We are also law, the Con agreed language of article 286 of felicitous stitution on which the case depends is not and free from vagueness, with result interpretation of from doubt and difficulty. The very the case ref erred to, as also in the later decision of this Court re ported in State of Travancore-Cochin v. Shanmugha the construc Vilas Cashetl! Nut Factory( ) tion of article 286, the Court was divided in its opinion the articles in ques tion is by no means easy. The fact that the Court is sharply divided in the present case also emphasizes the difficulty. The question we have to determine at follow the outset the previous decision of this Court in The State of Bombay v. The United Motors (India) Ltd.('). We are all agreed that in a proper case it is permissible for this Court to go back upon its previous decision; but this is a fit occa we are again divided as to whether sion for reviewing its previous decision. For the rea sons given by my brothers, Jagannadhadas and Ven katarama Aiyar, I would agree with them in holding that sufficient grounds have not been made out for taken after overruling that decision which had been hearing all the parties interested in the result of case. Not only the parties directly concerned with the case but a number of States by way of interve in the present case were also heard. After ners as giving a very full hearing the Court gave its judgment which is a very elaborate one,-the report of the case into 60 pages running It is the opposite view as adum much can be said for judgment of my brother S. R. Das; but, brated in in my opinion, simply because another view may be is not a sufficient taken of the points in controversy judgment justification for our that any of this Court. relevant provisions of the Indian Constitution or any reviewing the previous It has not been suggested in print. (I) [1954] S.C.R. 53. (2) [1953) S.C.R. 1069. 1955 The Bengal lmmuniry Company Limited v. The State of Bihar and ot/.trs Sin.'1a J. 2 S.C.R. SUPREME COURT REPORTS 839 is possible, its previous it pronounced '>ther provision of law had been overlooked by Court when ruling; nor has it been suggested that this Court on the previous suppositions. Under occasion proceeded on erroneous the Constitution and even otherwise this Court naturally looked upon by the country as the custodian of law and the Constitution, and if this Court were to review its previous decisions simply on the ground that another view the litigant public may be encouraged to think that it is always worthwhile taking a chance with the highest court land. Definiteness and certainty of legal position are essential conditions for the growth of the rule of law. this Court should review In my opinion, therefore, decisions only its previous in exceptional circum stances as the practice of the Judicial Committee of the Privy Council in the cases referred to by my and Venkatarama Aiyar. brothers If this Court has taken a view of the relevant provi the Constitution which does not commend sions of itself to the acceptance of latter can make necessary amendments, as has been done in the recent past. the Legislature, Jagannadhadas Coming to the merits of the case in hand, we are all agreed that the Explanation to article 286(1)(a) of the Constitution has created a legal fiction as a result of which a transaction of sale or a purchase partaking of an inter-State character has been as a treated domestic transaction. The fiction has localized the Explanation, by or purchases contemplated by converting such transactions as would otherwise have been inter-State sales or purchases into sales or pur chases inside one State in a sense in which it is placed in a class distinct and separate from what is referred to as sales or purchases "outside in , the main body of article .286(1) (a) which prohibits sition of tax by any State. There is a general agree ment amongst us, I take it, that the main purpose of creating taxation be added, the same not altogether transac· effect must tions. We are also agreed transaction, but, to stop the taxation of such to prevent multiple the fiction the State" it may 1955 Tht Btngal Immunity Company Limited v. The State of Bihar and othtrs Sinha]. 840 SUPREME COURT REPORTS [1955 J be given to the legal fiction on the supposition the putative state of affairs real one. While thus agreeing on the general principle bearing on the question of the. purpose and scope of a legal fiction, we are again divided on the question of how far legal fiction should be carried in its actual application. the reasons given by my brother Venkatarama For fiction created by Aiyar, I agree with him the Explanation brings such a sale within the taxing power of the State within which such a sale is said to taken place. Such a result is brought about not by holding the Explanation has conferred posi tively the power on the relevant State to impose sales tax, but by holding that such an inside sale is beyond the main the scope of the prohibition contained the imposi body of article 286(1)(a) which interdicts tion of a tax on a sale "outside the State". The Ex integral part of planation has got to be read as an article 286(1) ( :i.) and it means negatively thus read, that a sale or purcha, se outside a State cannot be taxed; and by necessary , implication, that a sale or that State purchase inside a State may be the prohibition the imposition of a tax on a sale or directed against purchase of goods outside a State; in other words, as soon as a sale or purchase of goods is declared to be outside the pale of the prohibition contained in article imposing a tax con Z86(l)(a), item 54 of List II of tained in article 246 I do not find the 7th Schedule comes into operation. myself the view propounded by my brother S. R. Das chiefly because that view goes beyond the purpose of the creation Qf the fiction which taxation. The admittedly was view as propounded by him besides preventing multi length of prohibiting any irnposititm of sales in my opinion, was not the Constitution. Whereas the imposition of multiple sales tax on tran sactions of sale or purchase may be an obstacle to the free flow of inland impo<..i tion of sales tax by a single State in which the sale is the State's power of read wil'11 trade and commerce, the tax by any State. Such, to prevent multiple in agreement with the mischief of falling outside taxation goes intention of taxed by 1955 The Bengal lmm1.·nity Co111panr Limited v. The Slate of Bihar and others Sinha). 2 S.C.R. SUPREME COURT REPORTS 841 taken place by virtue of thus not inconsistent with the Constitution, as expressed deemed to have the Expla nation cannot be predicated as having such an effect. learned brother Venkata The view propounded by my the avowed rama Aipr is purpose of in article 301. wb; ch provides that trade, commerce and course shall be free throughout the territory of India. In my opinion, the view propounded by my learned brother S. R. Das application of the legal fiction stops short of giving full effect to that fiction. Allied with the contro versy a~ to. whether clause (2) of article 286 is subject to article 286(1) (a) the Explanation or re:id with the reasons given by /lice versa. the hetter that clause (2) of article 286 of the Con stitutior~ is subject read with the therefore, I would agree Explanation. On the whole, \\'ith the view d1at the previous decision of this Court in 1953 S.C.R. 1069 should continue to hold good :md govern that view of the matter I would dismiss this appeal with costs. ieamed brother Vcnkatarama Aivar the present controvcrsv also. to article 286(1 )(a) In my opinion, for this question actual In issued directing BY THE CouRT.-The appeal is allowed and an order that, until Parliament by shall be law provides otherwise, the State of Bihar do for imposing Sales Tax on out-of bear and abstain sales or purchases State dealers taken place in the course of inter-State trade or commerce even though the goods have been delivered as a direct result of such sales or purchases for con sumption in Bihar. The State must pay the costs of the appellant in this Court and in the Court below. their own costs. The interveners must bear and pay in respect of 16-84 S. C. India/59.