(1.)UNDER section 16(1) of the Mysore Sales Tax Act the Deputy Commissioner has referred to this Court at the instance of the assessee the following questions for decision :-
"(1) Whether the sale of the value of Rs. 5,76,70,424-7-5 during the three quarters ending December, 1950, was not complete as per Explanation 2, clause (1), sub-clause (a), of section 2, of the Mysore Sales Tax Act which was in force in 1950-51 and which reads as follows, 'notwithstanding anything to the contrary in the Sale of Goods Act, 1930, the sale or purchase of any goods shall be deemed for the purpose of this Act to have taken place in Mysore, wherever the contract of sale might have been made (a) if the goods were actually in Mysore at the time when the contract of sale or purchase in respect thereof was made' and hence whether such sales being complete in Mysore do not attract Mysore sales tax." (2) Whether the petitioner is not liable to sales tax on the said quantity of tobacco and cigarettes of the total value of Rs. 5,76,70,424-7-5 which were sold and exported outside the State of Mysore for the purposes of consumption outside the State under clause (2) of Article 286 of the Constitution of India under the Sales Tax Continuance Order of the President issued in October, 1950, stating inter alia that the tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of the Constitution of India shall until 31st March, 1951, continue to be levied notwithstanding that the imposition of such tax is contrary to the provisions of clause (2) of Article 286 of the Constitution as such sales take place in the course of inter-State trade or commerce as contemplated in clause (2) of the said article."
(2.)THE assessee is a company having its registered office in the Isle of Man and carrying on business of manufacturing cigarettes and other tobacco goods in Bangalore and other places in India. Part of the goods manufactured in Bangalore is sold and consumed within this State and part of these is sold and exported and consumed outside the State. There is an agreement dated 9th August, 1948, regarding goods manufactured for export and for consumption outside the State between the assessee and the Imperial Tobacco Company of India, Ltd., Calcutta. Clause 7 of the agreement states :
"The manufacturing company shall consign all cigarettes and tobacco manufactured pursuant to orders placed by the brand-owning company (that is the Calcutta company) (packed ready for the trade) in accordance with the directions of the brand-owning company. The property in such cigarettes and tobacco shall pass from the manufacturing company to the brand-owning company when such cigarettes and tobacco are delivered to the carrier at the manufacturing company's factory for despatch to the brand-owning company or to such other person as the brand-owning company may direct, etc." "Clause 10 is : The manufacturing company shall invoice all goods manufactured for the brand-owning company to the brand-owning company or as the brand-owning company may direct and the amount of each such invoice shall be taken up to the credit of the manufacturing company in the books of the brand-owning company in Calcutta."
Relying on the accounts of the assessee for the transactions during the three quarters ending on 30th of June, of September and of December, 1950, tax was levied on the value of goods sold in Mysore as well as of those sold to outsiders. There is dispute only about the liability for payment of the tax with respect of sales outside Mysore. The taxing officers have disallowed the claim for exempting this from assessment. In the appellate order the assessment is stated to be in accordance with the instructions of the Secretary, Finance Department, in a letter dated 18th June, 1950, which expressed that "the levy of sales tax in respect of transactions outside the State but within India may be continued as before."
Sri Nambiar, learned counsel for the assessee, frankly represented that the decision in the case depends on the interpretation of the provisions of Article 286 of the Constitution of India and stressed upon the conditions to be satisfied when sales to persons outside the State were involved. Article 286 states :-
"(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; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation. - For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under 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. (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 purchase 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 order 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 commencement of this Constitution shall, notwithstanding that the imposition 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 declared 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 received his assent."
(3.)IT was argued that State legislation is subjected by the said article to a threefold restriction and the tax is leviable only if it is not the kind or category prohibited in any of the sub-articles. The instructions of the Financial Secretary refer only to clause (b) of sub-article (1). Particular emphasis was laid on the Explanation to sub-article (1) and the construction of this by the Supreme Court. The nature and extent of what is forbidden under the articles has been a matter of controversy and divergence of opinion in cases before the Supreme Court. There is an elaborate and critical examination of this in Bengal Immunity Co. Ltd. v. State of Bihar ( 6 S.T.C. 446; A.I.R. 1955 S.C. 661) and the decision according to the view of the majority was that "four separate and independent restrictions are placed by Article 286 on the legislative authority of the State to make a law with respect to matters enumerated in Entry 54 of List II of Seventh Schedule. These several bans may overlap in some cases but in their respective scope and operation they are separate and independent. They deal with different phases of the sale or purchase but nevertheless they are distinct and one has nothing to do with and is not dependent on the other or others. The State's legislative power with respect to a sale or purchase may be hit by one or more of these bans."