November 7 v. THE STATE OF BIHAB & Ors.

this a.ppea.l, which comes by way of special leave is a.s to whether sales under which goods were delivered outside the State of Biha.r for the purpose of consump· tion but not within the State of first delivery or first destination, a.re exempt from the levy of sa.les-ta.x by the Biha.r State by virtue of Art. 286(l)(a.) of the Con- stitution a.s it stood before the recent amendment. The India. Copper Corporation Ltd. (referred to here after a.s the a.ssessee-compa.ny) carries on business in copper a.nd various other materials a.nd mineral pro ducts a.nd the office of its Genera.I Ma.na.ger is in the district of Singhbhum in Biha.r. The period covered by the assessment now in dispute is Ja.nua.ry 26, 1950 to Ma.rob 31, 1950. The normal practice of the a.sses see-compa.ny wa.s to deposit sums of money from time to time provisionally towards payment of sales-tax in a.dva.noe a.nd ha.ve the a.mount finally adjusted after the completion of the a.sseBBment of ea.ch yea.r. The a.sseBBee-compa.ny followed this practice in respect of the a.mount of sa.les-ta.x due by it for the year 1949-50. For the financial year April 1, 1949 to ·March 31, 1950, the Superintendent of Sa.les-ta.x, Singhbhum, Indian Copper Corporation Ltd. v. The State of Bihar & Others Ayyangar ]. 278 SUPREME COURT REPORTS [1961] computed the tax liability of the company in the sum of Rs, 3,60,703-4-0 by an order of assessment dated November 13, 1950, and the company made payment of the amount due by it beyond the sums already paid. It would be noticed that this financial year comprised two periods-(!) before the Constitution, viz., April 1, 1949 to January 25, 1950, and (2) the post. Constitution period from January 26, 1950 to March 31, 1950. There is now no controversy as regards the sales-tax payable in respect of sales the pre-Constitution period. The effected during assessee-company however raised a dispute that in respect of the post-Constitution period, it was not liable to pay any sales-tax in respect of sales to buyers, under which though the property in the goods passed within the State, delivery of the goods was effected outside the State of Bihar for consumption outside that State on the ground that such sales were exempted from tax by Art. 286(l)(a) of the Constitu tion as it originally stood. It addressed a formal letter to the Commissioner of Commercial Taxes, Bihar, on December 30, 1952, making this demand enclosing a statement showing full particulars of the goods sold, the bill numbers, the date and the amount etc., to enable the refund claimed to be calculated. The assessee-compa.ny followed it up by a formal petition for review of the assessment order by filing a revised return under s. 12(2) of the Bihar Sales-tax Act together with an application for refund. The departmental authorities rejected these applications by order dated July 20, 1953. Further proceedings before the department by way of revision etc. failed to secure to .the assessee-compa.ny the relief which it claimed and thereafter it filed an application under Arts. 226 and 227 of the Constitution before the High Court of Patna praying for the issue of a writ to qua.sh the order of assessment dated November 30, 1950, and the orders rejecting the prayers for review, reassessment and refund and for a direction to the departmental authorities to refund the sum realised by them in so far as the tax related to sales as a result of which goods were delivered outside the State of Biha.r for consumption outside the State of Biha.r. 2 S.C.R. SUPREME COURT REPORTS 279 . 196o .r PP The learned Judges of the High Court held that the order of the Superintendent of Sales-tax, Singhbhum, 1 a· ' n san vo er dated November 13, 1950, should be set aside and Corporation Ltd. that the matter should go back to the Superintendent v. to make a reassessment according to law for the post- The State of Constitution period. A further direction was added Bihar & Others requiring the respondent to refund to the assessee so much of the tax as had been paid in excess of the Ayyangar J. amount of reassessment to be made by the Superinten- dent in accordance with the law as laid down by In formulating the law applicable, the the Court. learned Judges drew a distinction between sales as a direct result of which goods were delivered in a State outside the State of Bihar and consumed in that State and those cases in which the goods thus deliver- ed, were not consumed in the State of first destination , but were re-exported from the State of first destina tion to other States. They held that the first category of sales were covered by the Explanation to Art. 286 (l)(a) of the Constitution and were "inside" the State of first delivery and consequently " outside " the State of Bihar within the meaning of the Article and there fore exempt from tax by the Bihar State. In regard, however, to the second category of sales, it was held .that they were not within the Explanation and were therefore outside the constitutional exemption under Art. 286(l)(a). The assessee-company not being satisfied, filed an application to the High Court for a Certificate of fit ness under Arts. 132 and 133 of the Constitution, but this having been rejected, they applied to and obtain ed special leave from this Court under Art. 136 of the Constitution and that is how the appeal is now before us. Three points were urged before us by Mr. B. C .. Ghose, learned Counsel for the appellants: (1) that on a proper construction of Art. 286(l)(a) and the Expla nation thereto (as it stood before the Article was a.mended by the Constitution Sixth Amendment Act, 1956) every sale as a direct res.ult of which goods were delivered for consumption outside the State, was not within the taxing power of the State in which the .r960 Indian Copper Corporation Ltd. v. The Slate oj Bihar & Others Ayyangar J. 280 SUPREME COURT REPORTS [1961] goods were at the time of the sale, and in which pro perty passed as a result thereof, and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or whether the delivery in such State was not for the purpose of consumption therein but, for re-export to other States, (2) that even if Art. 286(l)(a) exempted only sales in which as a direct result of the sale the goods were delivered for the purpose of consumption in the State of first destination, on the pleadings and the evidence before the Court the assessee-company must be taken to have established that all the sales effected by it and in regard to which exemption from payment of tax was claimed, conformed !o this requirement, (3) a. narrower submission, that even it be that to fall within the Explanation the delivery has to be for the purpose of consumption in the State of first destination, the learned Judges of the High Court erred in requiring the assessee-company to prove not merely that the goods were delivered for the purpose of consumption but further that the goods so delivered were actually consumed within that State. ' . We shall now deal with these points in that order. Article 286(I)(a) together with the Explanation on whose construction the first point depends ran in these terms: "Article 286(1). No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- ( a) outside the State; ::ir (b), ............. ............................ --..................... . Explanation.-For the purposes of sub.clause (a) a sale or puchase shall be deemed to have ta.ken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwith standing the fact that under the genera.I Ia w relating to sale of goods the prope:·ty in the goods has by reason of such sale or purchase passed in another State." The scope and the purpose of this ,Explanation was 2 S.C.R. SUPREME COURT REPORTS 281 I9 60 Indian Copp discussed and explained by this Court in The State of Bombay v. United Motors (India) Ltd. (1) and it is the passage in this judgment extracted below on which Corporation ~;d, reliance was placed by the learned Counsel in support of his submission: v. The State of " ............ The authors of the Constitution had to Bihar & Othm devise a formula of restrictions to be imposed on the Ayyangar J. State-power of taxing sales or purchases involving inter. State elements which would avoid the doubts and difficulties arising out of the imposition of sales-tax on the same transaction by several Provincial Legisla- tures in the country before the commencement of the Constitution. This th~y did by enacting clause (1) (a) with the Explanation and clause (2) of Article 286. Clause (l)(a) prohibits the taxation of all sales or pur- chases which take place outside the State but a localised sale is a troublesome concept, for, a sale is a composite transaction involving as it does severe.~ elements such as agreement to sell, transfer of owner- ship, payment of the price, delivery of the goods e.nd so forth, which may take place at different places • ............ To solve the difficulty an easily applicable test for determining what is an outside sale had to be formulated, and that is what, in our opinion, the Explanation was intended to do. It provides by means of a. legal fiction that the State in which the goods sold or purchased are actually delivered for consump- tion therein is the State in which the sale or purchase is to be considered to have ta.ken place, notwi, thsta.nd- ing the property in such goods passed in another State •........... An "outside" sale or purchase is explained by defining what is an inside sale, and why actual delivery and consumption in the State a.re ma.de the determining factors in locating a. sale or purchase will presently appear. The test of sufficient territorial nexus was thus replaced by a simpler and more easily worka.ble test: Are the goods actua.lly delivered in the taxing State, a.a a. direct result of a. sa.le or purchase, for the purpose of consumption therein ? Then, such sale or purchase shall be deemed to ha.ve taken pla.oe (1) [i;i53] S.C.R. 1o6g, Io8I. 36 282 SUPREME COURT REPORTS [1961] . r96o c I d nianoppu h" j Co•·pomtion Ltd. t e iormer a one 1s e t ree to o so. in that State and outside all other States. The latter States are prohibited from taxing the sale or purchase; u tip e taxa- tion of the same transaction by different States is also thus avoided." .. Jff MJ'J d v. The Slate of Bih"' & Othm Ayyanga' f. It might be mentioned that this portion of the judgment is unaffected by the dissent expressed in the later decision in The Bengal Immunity Company Ltd. v. The State of Bihar ('). The argument based upon this passage was broadly on these lines: Article 286 (l)(a) imposes a ban on the legislative power to levy a tax on sales which are "outside" the taxing State. What sales are "outside" is not easy to decide because that depends upon "the situa" of a sale, which cannot, in most cases, be located in any one place with certainty-being dependent on a variety of factors which might or might not converge. The Constitution makers did not directly define what was meant by a sale that was " outside the State " but achieved the same purpose by explaining an " inside" sale with the result that what was not an "inside" sale should be held to be an "outside" sale. It must however be pointed out that it was not disputed that the terms of ohe " Explanation " would not be satisfied unless the delivery was for the purpose of consumption therein, i.e. in the State of first destination. If the terms of the Explanation were satisfied, the State of "delivery cum-consumption ",(to coin a convenient expression to designa~e the State in which goods are delivered as a direct result of the sale for the purpose of consump tion therein), used in the Explanation, would have power to tax the sale as being one fictionally " inside" In such an event all the other States in India, it. barring that State would be prevented from taxing that sale because the sale would be "outside " those States. This however, it was urged, would not exhaust the operation of the Explanation, but further that the Explanation was exhaustive of what the Constitution makers conceived to be a sale which alone may be the subject of tax by a State. The deduction learned Counsel made from these premises was twofold (I) that (1) [1955J 2 s.c.R. 603. 2 S.C.R. SUPREME COURT REPORTS 283 ' · e d t ' t' f fi th St t es rna 10n, in cases where goods were as a direct result of the sale i96o delivered outside the State of Bihar for the purpose of r . c ndian opper consumpt10n in a e o e Corporation Ltd. conditions of the Explanation were satisfied and the v. sales being "outside " the State of Bihar could not be The State of taxed by that State. So far there is no dispute and Bihar & Others indeed the learned Judges of the High Court have, subject to a matter of detail to which reference will be made later, accepted the contention of the assessee. (2) a further cons.equence, that in cases where goods were delivered as a result of the sale o~tside the State of Bihar, but not for the purpose of consumption in such State of first destination, the terms of the Expla- nation were no doubt not satisfied and consequently the sale was not inside such State of delivery and indeed not "inside " any State in India within the Explanation, but that such sales also must be held to be "outside " every State in India within Art. 286 (l)(a). Ayyangar 1· The learned Judges of the High Court repelled this contention and, in our opinion, correctly. Tlie passage in the judgment of the United Motors case extracted earlier dealt with Explanation sales and with none else. When the terms of the Explanation were satisfied such sales were by a fiction deemed to be "inside" the State of delivery-cum-consumption and therefore "outside" all other St,ates. In such cases therefor::i, only the State "inside" which the sale is deemed to take place by virtue of the Explanation, is exempt from the ban imposed by Art. 286(l)(a). All other States would be subject to that ban in respect of such sales. The learned Chief Justice however did not, in the passage extracted, deal with the case of sales which did not satisfy the terms of the Explanation. The situs of what might be termed 'non-Explanation' sales has therefore to be determined independently of the terms of the Explanation. Such sales would be exempt from tax only if the sale took place" outside " the State but not otherwise. The next question is, does a sale take place "out side" the State, where as a result of the contract of 284 SUPREME COURT REPORTS [1961]' Indian Coppef' Corporation Ltd. v. Th.e State of Bihar 6· Others Ayyangar ]. sale, the property in the goods passes to the purchaser within the State; in other words, is a sale completed by the passing of property within the State not " in side" a State, for the mere reason that as a direct result of the sale the goods are delivered outside the State. The answer depends on the meaning to be attributed to the words "a sale or purchase which has taken place" outside the State occurring in the body of Art. 286 (I). The expression "outside the State" is capable of being understood in more ~enses than one. It could be umjerstood as comprehending cases where no element or ingredient which constitutes a sale takes place within the State; in other words as applying solely to those cases where there exists no territorial nexus between the State imposing the tax and the sale. Obviously, this could not have been intended . to be incorporated in Art. 286(1) because the tax in such cases would he beyond the legislative power of the State under Entry 54 of the State List read with Art. 246 of the Constitution. The expression "out side " has therefore to be understood not as a sale so "outside" as not to have any territorial connection between the State in question and the sale, but in a somewhat narrower sense. The real difficulty arises in ascertaining the precise content of the narrower sense in which the word is used as meaning a sale in substance "outside" the State, though there might be some elements of the sale which if the exemption under Art. 286(l)(a) were not enacted, would enable a State to levy a tax on the sale on the ground that it was within the legislative power of the State under Art. 246 read with Entry 54. As already pointed out, the situs of a sale is not easy to determine and several factors which consti tute a completed transaction of sale including the delivery of the goods, !ay claim to be considered as in themselves constituting sufficient nexi to justify their being treated as determining the locus of a sale. Thus, merely by way of illustration, the place where the goods are at the time of the contract of sale, the place where the contract of sale is concluded, the place where the property in the goods passes and that I ; • 2 s.c.R. SUPREME COURT REPORTS 285 in which the delivery takes place compete for recogni tion as constituting the locus of a sale. Before the Constit, ution, these and other similar factors were treated as affording sufficient territorial connection to endow the State in which any of the events occurred with legislative competence to tax the sale. This led to a multiplicity of the taxation of the same transac tion of sale by a plurality of States, with the result that the consumer was hard hit and trade itself, and natfonal economy suffered in the process. It has been pointed out that Art. 286(l)(a) was designed to coun teract that state of affairs. Indian Copper Corporation Ltd. v. The State of Bihar & OtheYs Ayyangar ]. If a single State was designed to have the power to tax any particular transaction of sa.le, the question that next falls to be considered is the determination of that State in regard to which it could be predicated that the sale in question was not "outside" that State or in other words, the determination of the particular State in regard to which it could be said that the sale was " inside " that State. The key to the problem is afforded by two indications in the Article itself: (1) the opening words of Article 286(1) which speak of a sale or purchase taking place and (2) the non-obstante clause in the Explanation which refers to the general law relating to " sale of goods under which property in the goods has, by reason of such sale or pu.rchase, passed in another State." These two together indicate that it is the passing of propertv within the State that is intended to be fastened o~, for the purpose of determining, whether the sale in question is "inside " or "outside" the State, and therefore, subject to the operation of the " Explana tion" that State in which property pa!:!ses would be the only State which would have the power to levy a tax on the sale. As was explained in the recent deci sion of this Court in Burmah Shell Oil Storage & Distributing Co., of India, Ltd. v. The Commercial Ta.x Officer (1) : "By sale here (Art. 286(l)(a)) is meant a complet ed transaction by which property in the goods pass.ei:;. Before the property in the goods passes, ' the contract. (1) C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported). Indian Copper Corporation Ltd. v. The State of Bikar & Olhet'S Ayyangar J. 286 SUPREME COURT REPORTS [1961] of sale is only executory, and the buyer has only a chose in action.' ............... The Constitution thinks in terms of a completed sale by the passing of property and not in terms of an executory contract for the sale of goods.'' Notwithstanding that is not an " outside " sale, the power of the State to tax might be negatived by the operation of the Explanation which by its non obstante clause-shifts the situs of the sale and renders the sale transaction one within the de!ivery-cnm-con sumption State, i.e. as the State in which the sale transaction must be deemed to take place. Where the terms of the Explanation are satisfied, the sale tran saction will, by a legal fiction created by it, be deemed to take place " inside " the State of deli very and therefore "outside" the State in which the property passes. The conclusion reached therefore is where the property in the goods passes within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of Art. 286(l)(a), unless the Explanation operates. We need also add that the power of the State to impose the tax might still not be available unless the transaction in question is unaffected by the other bans imposed under sub. cl. (l)(b), (2) and (3) of Art. 286. The submission therefore of learned Counsel for the appellants, that in respect of non-Explanation sales the State of Bihar has no power to levy a-tax by reason of such sales being" outside" the State within Art. 286(l)(a) must. be rejected. The second contention urged by the learned Counsel for the appellant was that even assumjng he was wrong on the first point, all the sales by the assessee company fell within the terms of the Explanation to Art. 286(l)(a) being sales as a direct result of which the goods were delivered for consumption in the State of first destination, and that the learned .Judges of the High Court were in error in considering, that some In of the sales did not conform to this requirement. support of this submission learned counsel drew our attention to two matters. He first referred us to the application dated December 30, 1952 made on behalf \, Indian Copper Corporation Ltd. v. The Stat• of BihM 0- Others Ayyangar ]. 2 S.C.R. SUPREME COURT REPORTS 287 the Commissioner of of the assessee-company Commercial Taxes, Bihar, Patna in which the claim for refund of the tax paid was rested on the following ground: After setting out that the tax on sales effected between the period January 26, 1950 to March 31, 1950 was not assessable by virtue of Art. 286 of the Constitution, the application stated: "Total sales of raw materials of copper and brass sheet and circles sold by us and despatched under railway receipts for buyers' consumption are as follows ". Then followed the sales effected and the tax paid in respect of the sales. The claim in this form was annexed to and made part of the petition to the High Court under Art. 226 and 227 of the Constitution and in paragraph. U of the petition, this letter was referred to and a copy thereof was incorporated and marked as 'A'. In this paragraph which was the other matter relied on the claim for refund was said to be " on sales made to buyers outside Bihar State for consumption". Learned Counsel strongly pressed upon us that paragraph 9 and the annexure had clearly asserted that the sales which were the subject of the claim for refund involved a delivery of the goods outside the State of Bihar for consumption in the State of first destination and the State of Bihar not having filed any counter-affidavit challenging the correctness of these allegations, the High Court should have held that the terms of the Explanation were satisfied and should have ordered the refund claimed. We however consider that this submission is without force. Neither the claim put forward in Exh. 'A ' nor in para graph 9 of the petition was any distinction drawn between sales under which deliveries were effected outside the State of Bihar for the purpose of con sumption in the State of first destination and those in which the deliveries outside the State were eifect, ed for the purpose of consumption not in the State of first destination but in other States. In fact, this was made clear in the later paragraphs of the petition to the High Court from which it is apparent that the assessee-company made a claim for tax exemption in -I I Indian Copper Corporatlon Ltd. v. The State of Bihar &- Olhers Ayyangar ]. 288 SUPREME COURT REPORTS [l9til] respect of sales in which the delivery took place outside the State of Bihar, whether the delivery was for the purpose of consumption in the State of first destination or otherwise. In paragraph l 7(i) of the petition to the High Court the assessee stated: "(the petitioner was not liable to pay tax on goods delivered outside the State of Bihar which was also for con sumption outside the State of Bihar ", and again in clause (iii) of the same paragraph this was repeated: " the goods being outside the State of Bihar, delivered outside the State of Bihar and consumed outside the State of Bihar were not liable to sales-tax by the State of Bihar" and similarly in cl. (v) of the same paragraph a reference was made to "goods delivered .outside the State of Bihar for consumption outside the State of Bihar ". The same idea is emphasized in paragraph 19 also which contained the prayer of the petition. On these averments it. is clear that the claim made by the assessee was that to invoke the exemption contained in Art. 286(l)(a) it was sufficient that the goods were delivered outside the State of Bihar and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or otherwise. This involved same argument which was raised by the learned Counsel that we have dealt with earlier. The learned Judges of the High Court were therefore right in drawing a distinction between the two types of sales which we have already indicated. The last point that was urged by the learned Counsel was that the learned Judges of the High Court erred in requiring the assessee to prove that the goods delivered outside the State of Bihar were actualJ,y consumed in the State of first distination before the exemption from tax could be availed of. In their judgment now un(jer appeal the learned Judges have stated: "The petitioner would not be entitled to exemp tion if the goods were not consumed in the State of first distination but were re-exported from the State of first destination to other States". Learned Counsel for the appellant complained that 2 S.C.R. SUPREME COURT REPORTS 289 1 a- d h r96o c Ayyangar ). 1 .c h' under the Explanation to Art. 286(l)(a) there need be no proof of actual consumption of the goods delivered in the State of first destination but that the Explana- ca:p:~:tio°!~~~. tion was satisfied if the purpose of the delivery under v. the sale was for consumption in that State. If after The State of a sale that satisfied that requirement, viz., for the Bihar & Others purpose of consumption in the State of first destination, is own purposes re- t e uyer un er sue a sa e ior h b exported the goods that was not a matter with which the seller was concerned and would not affect the character of the sale as one falling within the Expla- nation to Art. 286(l)(a). Learned Counsel therefore urged that the learned Judges of the High Court went wrong in requiring proof on the part of the assessee that the goods were actually consumed within the State of first delivery outside Bihar and that this was an unwarranted addition to the requirements of the Explanation. We consider this submission well-found- ed and indeed the learned Counsel for the respondent did not dispute that the actual order of the High Court went beyond the terms of the Explanation to Art. 286(l)(a). The order of the High Court will, therefore, be modified by making it clear that if the goods were as a direct result of the sale delivered out- side the State of Bihar for the purpose of consumption in the State of first delivery the assessee would be entitled to exemption of the sales-tax imposed and that it would not be necessary for the assessee to prove further that the goods so delivered were actually consumed in the State of first destination. Subject to this modification, the appeal fails, but in the circumstances of the case there will be no order as to costs. - SHAH J.-We agree with the conclusion of Mr. Justice Rajagopala Ayyangar, J., but because our approach to the question is somewhat different, we propose to record our reasons separately. The Bihar Sales Tax Act, 1947, was enacted in exercise of legislative authority conferred upon the Provincial Legislatures by entry 42 in List II read Shah]. 37 Indian Copper Corporation Ltd, v. The State of Bihar & Others Shah J. 290 SUPREME COURT REPORTS [1961) with s. 100(3) of the Government of India Act, 1935. By s. 2(g) of the Act, " sale" was defined (in so far as it is material) as meaning any "transfer of property in goods for cash or deferred payment or other valu .. . . .. provided able consideration further that notwithstanding anything to the contrary in the Indian Sales of Goods Act, 1930, the sale of any goods- .. . .. . provided (i) which are actually in Bihar at the time when, in respect thereof, the contract of sale as defined in s. 4 of that Act is made, or (ii) which are produced or manufactured in Bihar by the producer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for the purposes of this Act to have taken place in Bihar." Under entry 42 of List II of the Government of India Act, 1935, the Provincial Legislatures could tax sales by selecting some fact or circumstance which provided a territorial nexus with the taxir.g power of the State even if the property in the goods sold passed outside the Province or the delivery under the con tract of sale took place outside the Province. Legisla tion taxing sales depending solely upon the existence of a nexus, such as production or manufacture of the goods, or presence of the goods in the Province at the date of the contract of sale, between the sale and the Legislating Province could competently be enacted under the Government of India Act, 1935-see the Tata Iron and Steel Go., Ltd. v. The State of Bihar (') and Poppatlal Shah v. The State of Madras('}. By Art. 286 of the Constitution, certain fetters were placed upon the legislative powers of the States as follows: Art. 286 :-"(I) No law of a State shall impose, or · authorise 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 the import of the goods into, or export of the goods out of, the territory of India. (1) [1958] S.C.R. 1355· (•) [1953] S.C.R. 677. I 2 S.C.R. SUPREME COURT REPORTS 291 IC h' h h ' tate m w Explanation: For the purposes of sub-cl. (a) a sale or purchase shall be deemed to have taken place in d h h S t e goo s t e delivered as a direct result of such sale or purchase or orav'.on for the purpose of consumption in that State notwith- l'he state of standing the fact that under the general law relating Bihar & Othm to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. iu6o . een c P Indian Copper Ltd 1. · ave actua y Shah 1 · b JI - (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 place in the course of inter-State trade or commerce : Provided that the President may by ordet' direct that any tax: on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencerqent of this Constitution shall, notwithstanding that the imposi tion of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) No law made by the Legislature of a State '.imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declai; ed by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has recei~ed his assent." With a. view to impose restrictions on the tax ing power of the States under the pre-Constitution statutes, amendments were made in these statutes by the Adaptation of Laws Order. By the Adaptation of Laws Order, 1951, in the Bihar Sales Tax Act was incorporated with retrospective operation from Janu ary 26, 1950, s. 33, which provided : "(1) Notwithstanding anything contained in this Act,- ( a) a tax on the sale or purchase of goods shall not be imposed under this Act- (i) where such sate or purchase takes place out side the State of Bihar; or r. Indian Copper Corporation Ltd. v. The State of Bihar 6' Others Shah ]. 292 SUPREME COURT REPORTS [1961] (ii) where such sale or purchase takes place in the course of import of the goods in to, or export of the goods out of, the territory of India ; (b) a tax on the sale or puchase of any goods shall not, after the 31st day of March, 1951, be impos ed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise ·provide; (2) The Explanation to cl. (1) of Art. 286 of the Constitution shall apply for the interpretation of sub- cl. (1) of cl. (a) of sub-s. (l)." By this amendment, on the taxing power of the Bihar State the same restrictions were engrafted on the pre-Constitution statute as were imposed by Art. 286 of the Constitution upon post-Constitution statutes. This court has held in the Bengal Immunity Go., Ltd. v. The State of Bihar (1 ) that the oper!l.tive pro visions of the several parts of Art. 286 namely cl. (1) (a), (l)(b) and (2) and cl. (3) were intended to deal with different topics and one could not be projected or read into another. Therefore, by the incorporation of s. 33 in the Bihar Sales Tax Act read with Art. 286, not withstanding the amplitude of the power otherwise granted by the charging section read with the defini tion of" sale", a cumulative fetter of triple dimension was imposed upon the taxing power of the State. The Legislature of the Bihar State could not. since J anu ary 26, 1950, levy a tax on sale of goods taking place outside the State or in the course of import of the goods into, or export of the goods out of the territory of India, or on sale of any goods where such sale took place in the course of inter-State trade or commerce. By the Explanation to Art. 286(l)(a) which is incor porated by sub-s. (2) s. 33 of the Bihar Sales Tax Act, a sale is deemed to take place. in the State in which the goods are actually delivered as a direct result of such sale for the purpose of consumption in that State even though under the law relating to sale of goods the property in the goods has by reason of such sale passed in another State. In the· State of Bombay v. The United Motors (India) Ltd.('), it was held that (1) [1955] • S.C.R. 603. (2) [1953] S.C.R. 1069 . ' I • 2 S.C.R. SUPREME COURT REPORTS 293 t1ince the enactment of Art. 286(l)(a), a sale described in the Explanation which may for convenience be called an "Explanation sale" is taxable by that State c'npd·iant~oppLetrt alone in which the goods sold are actually delivered v. as a direct result of sale for the purpose of consump- The state of tion in that State. The right to tax arises because Bihar & Others the sale is deemed to take place in that State and outside all other States and the latter States are pro hibited from taxing the sale ; the former alone is left free to do so. or ora ion Shah ]. . • • l The Bihar Sales Tax Act enacted in exercise of the power conferred by entry 42 of List II of the Govern ment of India Act, 1935, upon the Provincial Legisla tures is saved by Art. 372 of the Constitution as existing law, but by the combined operation of sub ss. (1) and (2) of s. 33, the Bihar State is incompetent to tax sales of goods in the course of imports into and exports out of the territory of India, and after March 31, 1951, sales of goods in the course of inter In view of the · exposition State trade or commerce. of the content of the Explanation to Art. 286(l)(a) by this court in the United MotorB caBe (1), the Bihar Sta.te is also incompetent to tax " Explanation sa.les " where the goods are delivered in another State as a direct result of the sa.le for consumption in that State. By this last ban, to the extent provided by sub s. (l)(a)(i) and sub-s. (2) of s. 33, the State of Bihar is deprived of its power to tax sales.; but the ban does not wholly extinguish the power of the State to tax sales relying upon a. real territorial nexus between the sale and the State. In other words, by enacting that a tax shall not be imposed under the Act when the the State of Bihar in s. 33(l)(a)(i}, only the power to tax " Explanation sales" which do not take place within tht\ State of Bihar in taken away, but not the power to tax "non Explanation sales" in which though under the general law of sale of goods the property passes outside the State, there exists between the taxing power of the State and the sale a nexus as contemplated by the definition of sale in s. 2(g). If the sale is one in which the goods have been delivered outside the State of takes place outside (1) [1953] S.C.R. 1069. .- Indian Copper Corporation Ltd. v. The State oj Bihar & Others Shah .f. 294 SUPREME COURT REPORTS [1961] Bihar, but not as a direct result of the sale or not for the purpose of consumption in the State of first deli very, the sale will not be covered by the Explanation, and the right to tax the sale, if arising otherwise under the Act relying upon the territorial nexus, will not be impaired by the prohibition imposed by cl. (l)(a)(i) of s. 33. The right of the State of Bibar to tax a sale relying upon a. real territorial nexus not being impaired by s. 33 of the Act, all sales as defined by s. 2(g) of the Bihar Sales Tax Act are liable to be taxed, except those falling withins. 33(l)(a)(ii), s. 33(2) and "Explanation sales" outside the State of Bihar. The appellant company carries on the business of manufacturing copper and other mineral products in the State of Bihar. It has its registered office and its place of business in the District of Singhbhum in the State of Bihar and is registered as .a " dealer " under the Bihar Sales Tax Act, 1947. The appellant com pany sent out its products to various places in India in the year of assessment ending on March 31, 1950 and has paid the tax assessed by the Sales Til'x Officer. The appellant is now seeking to obtain a refund of the tax pa.id for the period between Janu ary 26 and March 31, 1950, on the plea. that the tax was paid under a misapprehension of the law. The High Court in a.n application under Art. 226 of the Constitution directed the Sales Tax authorities to refund so much of the tax as was not proved to have been pa.id in respect of sales of goods delivered and consumed in the State of first destination. On the goods delivered and consumed in the State of first destination outside Bihar, the appellant could not be ca.lied upon to pay sales tax. That is undisputed. The appellant also claimed that on the goods delivered for consumption in the Sta.te of first delivery outside Bihar, it was not liable to pay sales tax, even if there was no evidence to prove that the goods were in fact consumed in such State. In our judgment, the High Court was in error in directing that the exemption provided by Art. 286( l)(a) read with the Explanation which was at the material time incorporated by s. 33 in the Bihar Sales Tax Act by the Adaptation of 2 S.C.R. SUPREME COURT REPORTS 295 . 1 d d r If th e goo s were e !Vere r96o c ndian opper lOr consumpt10n, It Corporation Lit>. Laws Order, 1951, only applied to all sales of goods delivered and consumed in the State of first destina- t . d l' . ion. is immaterial whether they were in fact conilFmed in v. the State where they were delivered.· The power of The state of the State to levy sales tax relying upon the territorial Bihar & Others nexus between tbe taxing power of the State and the sale, is impaired for reasons already set out to the extent to which it is restricted by the incorporation of Art. 286(l)(a)(i) and the Explanation thereto, in that Act. Therefore, sales effected on or after J a.nuary 26, 1950, where goods a.re as a direct result of the sale delivered in another State for consumption in that other State, are not liable to be taxed. Shah ]. The directions issued by the High Court will there fore be modified as follows: The order of the Superintendent of Taxes is set a.side. He is directed to grant refund of tax pa.id in the light of this judgment. The appellant will be entitled to exemption from payment of tax if the goods are, a.s a direct result of the sale, delivered in another State for the purpose of consumption in that State. Appeal dismissed subject to mod~fication. November 7. M. PENTIAH AND OTHERS v. MUDDALA VEERAMALLAPPA AND OTHERS. (P. B. GAJENDRAGADKAR, A. K. SARKAR, K. SuBBA RAO, K. N. W ANCHOO and J. R. MUDHOLKAR, JJ.) Municipality-Committee constituted under old Act continued by repealing Act-Term of office-Power-If can effect sale of municipal land - Interpretation of statute - Power of Court H yderabad District Municipalities .Act, r956. (H yd. XV I II of 1956), SS. I6, I7, I8, 20, 32, 34, 35, 76, 77 and 320. The respondents were the elected members of the Vicarabad