MALAYALAM PLANTATIONS LTD. versus THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX

SHAH. J.-If the question raised in these appeals were res integra, I would hold that the price obtained at auction sales of tea held at Fort Cochin when the goods were lying in war~ houses in the Travancore-Cochin State was liable to be taxed under the General Sales Tax Act 01 of 1125 M.E.), for in my view Art. 286(!)(a) Explanation, before it was amended by the Constitution (Sixth Amendment) Act, did not altogether exclude the doctrine of territorial nexus in its application to salestax legislation. It is settled law in this Court that tonder the Government of India Act, 1935, the Provincial Legislatures could, relying upon the territorial nexus, levy sales-tax upon transactions of sale, not wholly completed within their territory. fixing upon one or more ingredients of a sale furnishing a territorial connection with the taxing Province: Poppat Lal Shah v. The State of Madras(') and The Tata Iron & Steel Company Ltd. v. The State of Bihar ('). By the Constitution certain restrictions were placed upon the power of the States (') [1953] S.C.R. 677. (') [1958] S.C.R. 1356. lo legislate in respect of taxes on sales and purchases. By Art. 286(l)(a) read with the Explanation, an Explanation sale i.e. a sale in which goods sold were actually delivered in a State for the purpose of consumption in that State was made taxable only by the State in which the goods were delivered for consumption. But Art. 286 was, in my view, not intended to exclude the operation of the doctrine of territorial nexus in the field not covered by the legislative prohibitions. In dealing with the effect of s. 33 of the Bihar Sales Tax Act which in- -corporated the prohibitions imposed by Art. 286( I) & m. with the concurrence of S. K. Das J., it was observed by me in Indian Copper Corporation Ltd. v. The State of Bihar and .others(') at p. 293: - " x x x by enacting that a tax shall not be imposed under the Act when the sale takes

pp. 398–399

place outside the State of Bihar x x, "Only the power to tax "Explanation sales"' which do not take place within the State of Bihar is 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, Bihar, but not as a ·direct result of the sale or not for the purpose of consumption in the State Of first delivery, 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 prohi-

p. 399

bition imposed by cl. (l)(a)(i) of s. 33."

p. 399

It may be mentioned thats. 33 of the Bihar Sales Tax A~t was enacted to give effect expressly to the legislative restrictions imposed by Art. 286 of the Constitution. In Indian Copper Corporation Ltd.'s case(') certain transactions of sale were effected by the assessee after the promulgation of the Constitution, under which the property in the goods passed in the State of Bihar but delivery was effected outside the State of Bihar for consumption also outside Bihar. In some cf these transactions goods were delivered in the State of first destination for consumption therein whilst in others the goods were delivered not for consumption in the State of first delivery. The assessee contended that both these categories of transactions were exempt from tax under Art. 286(1)(a) as they were (') [1961] 2 S.C.R. 276.

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outside sales. This Court unanimously negatived the contention of the assessee in respect of sales in which delivery in the State of first destination was not for consumption therein, and the transactions were on that account not "Explanation sales". It was held that the State of Bihar was competent to tax those "Non-explanation sales" in which the property in the goods had passed in the State of Bihar. But two "different grounds were given in support of the conclusion in that case. My brethren Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ., were of the view that passing of property within the State alone was intended after the Constitution to be fastened upon for the purpose of determining whether the sale is inside or outside the State, and therefore subject to the operation of the Explanation that ;')tale in which the property passes would be the only State, which had the power to tax the sale. S. K. Das, J., and .I were of the view that sale transactions not falling within the constitutional prohibitions remained taxable because in adjudging whether a "non-Explanation" sale-transaction was "outside the State", the doctrine of territorial nexus could not be wholly excluded from consideration.

p. 400

In a recent judgment of this Court in A.V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax ana Sales-tax, T rivandrum(') this Court held in construing Art. 286(l)(a) in the light of the Explanation before that Article was amended by the Constitution (Sixth Amendment) Act. that:- "Where the Explanation to Article 286(l)(a) of the Constitution of India is inapplicable, it is the 'pas" sing of property within the State' that is intended to be fastened on for the purpose of determining whether a sale is 'inside' or 'outside' the State. Therefore subject to the operation of the 'Explanation', that State in which the property in the goods passes would be. the only State which would

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have the power to levy a tax on the sale."

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In A. V. Thomas & Co. Ltd.'s case(') chests of tea 'were stored in warehouses at Willingdon Island in the Travancore- Cochin State, but auctions of the tea chests were held at Fort Cochin which was at the material time within the State of Madras, and after the price was paid at Fort Cochin delivery orders were given to the purchasers addressed to the warehouse-keepers at Willingdon Island and actual delivery was given at the warehouses. The chests of tea were then sent from Willingdon Island for consumption in other parts .of India or were exported out of India. It was held, by the Court in that I') (1963) Supp. 2 S.CR. 608. \ I. case th~t the property in the goods pas~ed .at Fort Cochin and as the goods were delivered not for the purpose of. C<?nsumption in any particular State, the sales were not ms1de the State of Travancore-Cochin but were outside that State and were not liable to be taxed under the Travancore-Cochin General Sales Tax Act of 1125 ME). The Court observed that in sales which were not "Explanation sales" passing of property within the State was decisive of the liability to pay sales-tax. No opinion was expressed on the question whether the doctrine of territorial nexus as investing the State with the right to tax a. sale transaction outside the legislative restridions imposed by Art. 286, was, since the promulgaticin _of the Constitution,· rendered ineffective. ·As the fact which' give rise· to this case are substantially the same as the facts on which A. V. Thomas & Co. Ltd.'s easel') was decided, the decision of the appeals must be in favour of the assessee:

pp. 400–401

It is'necessary to record this judgment, Jest it be assumed that I agree with the view that the doctrine of territorial nexus in its application to sales-tax legislation has. since the enactment of the Constitution, been completely abrogated. It may be pertinent to note that since the amendment of the Constitution by the Constitution (Sixth Amendment) Act, Art. 2860)- (a) (which remains unamended) is now free from the shackles of the Explanation which is deleted and by cl. (2) the Parliament is invested with power to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in cl. (I), namely, outside the State or in the course of the import of the goods into, "or export of the goods out of, the territory of India. Exercising the power under cl. (2) the Parliament has enacted the Central Sales Tax Act (74 of 1956), and bys. 4(2) the doctrine of territoriaI nexus has been given legislative recognition, though in somewhat limited form. That sub-section provides: - "A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the-

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State- (a) in the case of specific or ascertained goods, at

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the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract · of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent

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to such appropriation. Explanation.-Where there is a single contract of sak

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or purchase of goods situated at more places than (') [1963] Supp. 2 S.C.R. 608.

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one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the

p. 402

goods at each uf such places."

p. 402

The doctrine of territorial nexus had full play in sales-tax legislation under the Government of India Act, 1935: it also applies subject to certain modifications since the amendment of the Constitution by \he Constitution (Sixth Amendment) Act. And I am unable to persuade myself that by the enactment of Art. 286 of the Constitution, it stood abrogated in the interregnum between the promulgation of the Constitution and the amendment of Art. 286 by the Constitution (Sixth Amendment) Act.

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Appeal allowed.

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