VENKATARAMA AYYAR, J. -
(1.) THIS petition raises substantial questions as to the interpretation of Article 286 of the Constitution. The petitioners are merchants carrying on business in the City of Madras as tanners and exporters of tanned hides and skins. THIS petition arises out of proceedings taken by the State of madras under the Madras General Sales Tax Act for assessing the tax payable by the petitioners in respect of their dealings for the year 1950-51. The facts as stated before us by agreement of both the parties are that during this period the petitioners purchased 12, 123 pieces of hides and skins from Messrs. Abdul gani & Company, Dacca, for a price of Rs. 1, 04, 595-4-6; 74, 000 pieces from merchants in Calcutta and Cawnpore for a price of Rs. 7, 18, 042-2-9; and 3, 694 pieces locally for a price of Rs. 43, 575-0-10, in all 89, 817 pieces for a price of Rs. 8, 66, 212-8-1. During the same period the petitioners themselves directly exported to foreign countries 7, 250 pieces on C. I. F. contracts for a price of Rs. 1, 67, 515-15-1; sold to dealers in Madras 60, 627 1/2 pieces for a price of Rs. 8, 55, 396-1-0; and sold locally 22, 807 pieces for a price of rs. 2, 76, 099-4-11, in all 90, 684 pieces for a price of Rs. 12, 99, 011-5-0. It must be stated that with reference to the sale of 60, 627 1/2 pieces to local dealers, the petitioners claimed that the goods covered by these sales had in fact been exported to foreign countries, while the respondent stated that it could not be definitely ascertained whether those pieces were ultimately exported or not.
(2.) ON these facts the point in dispute before the taxing authorities was whether the petitioners were liable to pay sales tax on Rs. 8, 66, 212-8-1 under Rule 16 (2) (i) and (ii) of the Madras Turnover and Assessment rules as purchasers of raw hides and skins which were either tanned or exported by them. The petitioners claimed that the goods which they had purchased were all exported to foreign countries either directly or through other dealers and that they must in consequence be regarded as export exempt from taxation under article 286 (1) (b ). The Deputy Commercial Tax Officer, Moore Market Division, rejected this contention by his order dated 14th August, 1951, and stated that "the dealers are not found eligible for any relief under Article 286 of the Indian Constitution as they pay tax on the purchase value of untanned hides and skins bought for tanning, and that all the tanned goods tanned by them and got from others were sold to other dealers in the state, which stages are not one in the course of export outside the Indian territory. " *
On this basis, the tax payable was assessed at Rs. 14, 936-2-8 and after deducting advance payments amounting to Rs. 6, 702-7-9, a demand was made for the balance of Rs. 8, 233-10-11. The petitioners preferred an appeal against this order to the Commercial Tax Officer, Madras North, and in the memorandum of appeal they stated their ground of exemption as follows :- "we have to appeal to you that we have sold goods to the exporters at Madras who have ultimately exported the goods outside India which fact could be verified from their records. For many of the items we have clear proof of the goods being exported by documents and bills which clearly proves that our goods were exported. " *
In a further statement filed by them on 29th September, 1951, they again stated that "out of the total, we have sold to exporting houses for the purpose of export outside India Rs. 10, 22, 912-0-1. " On 23rd February, 1952, the Commercial Tax Officer, North Madras, dismissed the appeal on the ground that "the appellants sold to exporters or themselves exported through commission agents hides and skins tanned by them. " That is to say, it was held that the petitioners did not directly export the goods themselves, but only sold them to dealers who exported them; or that they tanned the raw hides and skins and exported them as tanned goods and therefore, they were liable as purchasers of raw hides and skins and not as exporters or tanned goods. It should be stated that under the Madras Act VI of 1951 which came into force on 20th April, 1951, the petitioners had a right to prefer an appeal against the order of the Commercial Tax Officer dated 23rd February, 1952, to the Sales Tax Tribunal and in fact on 17th March, 1952, they wrote to the Deputy Commercial Tax Officer to stay the collection on the ground that they were appealing to the Tribunal. But no such appeal was preferred and instead, the present writ has been filed challenging the validity and correctness of the order of assessment. In this petition the following questions were raised for our determination :- (1) Is the Madras General Sales Tax Act ultra vires of the powers of the Madras Legislature on the ground that entry No. 48 in the provincial List in the 7th schedule to the Government of India Act of 1935 authorised tax only on sales and not on purchases " (2) Is the imposition of tax on the purchaser by the Turnover and Assessment Rules void on the ground that the Legislature had unconstitutionally delegated its functions to the executive " (3) Is the Madras General Sales Tax Act void as repugnant to Article 14 of the Constitution on the ground that it discriminated against purchasers in some trades while taxing sellers generally " (4) Are the Turnover and Assessment Rules framed under the Madras General Sales Tax Act void on the ground that they are repugnant to the parent Act " (5) Whether the imposition of tax is in contravention of article 286 of the Constitution and, therefore, illegal " We have held in Writ Petitions Nos. 21 and 41 of 1952 (Since reported as Syed Mohamed & Co. , and Another v. The State of Madras and Another that this Court would not entertain in proceedings by way of writ such objections to the assessment of the sales tax as could have been urged before the Tribunals constituted under the Act and that only objections relating to the validity of the Act would be open to the petitioners. In this view, the petitioners would be entitled to urge objections (1) to (4)aforesaid. As for objection No. (5), we should decline to entertain it in accordance with our judgment in Writ Petitions Nos. 21 and 41 of 1952 (Since reported as Syed Mohamed & Co. , and Another v. The State of Madras and another. But, Mr. K. Rajah Ayyar pressed upon us that it would be inconvenient that some questions should be decided in writ and others before the Sales Tax tribunal and that it would be more satisfactory that the entire question should be disposed of by us. The learned Advocate-General also invited us to decide the issues raised with reference to Article 286 as they go to the root of the matter and a decision thereon would settle all the controversies. We accordingly proceed to deal with the various contentions. This petition was heard along with Writ Petitions Nos. 21 and 41 of 1952 (Since reported as Syed mohamed & Co. , and Another v. The State of Madras and Another in which questions (1) to (4) herein were the sole points for determination and after hearing counsel in all these petitions on those questions, we held therein that the Madras Act IX of 1939 was intra vires of the powers of the Provincial legislature, that it was not open to the objection that it was an unconstitutional delegation by the Legislature of its functions to the executive, that it was not repugnant to Article 14 of the Constitution as being discriminative and that the Rules framed thereunder were valid excepting only rule 16 (5 ). That judgment will govern this petition also and the questions (1)to (4) herein must accordingly be answered against the petitioners. The substantial question that remains for determination is whether the imposition of tax in this case is in contravention of Article 286 of the Constitution. Article 286 of the Constitution so far as is material is as follows :- "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; 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. "
It will be seen that Article 286 deals with three classes of cases : (1) Where the sale or purchase takes place outside the State, which must mean the State imposing the tax, and according to the Explanation, sale or purchase must be deemed to take place in that State where as a direct result of the sale the goods are delivered for the purpose of consumption in that State : article 286 (1) (a) and Explanation; (2) Where the sale or purchase takes place in the course of the import of goods into, or export of goods out of, India : article 286 (1) (b); and (3) Where the sale or purchase takes place in the course of inter-State trade or commerce with a proviso that the operation of this rule might be suspended by the President until 31st March, 1951 : Article 286 (2 ). In the three cases aforesaid, the power of the State to impose a tax is taken away. The third category mentioned above might be left out of account as the assessment in question relates to the period 1950-51 and by virtue of the adaptation of Laws (Fourth Amendment) Orders, 1952, Article 286 is to come into operation in Madras only after 31st March, 1951.
The questions that have been argued before us are :- (1)The purchase of hides and skins by the petitioners in Dacca in Pakistan and in the States of West Bengal and Uttar Pradesh as also locally was all for the purpose of export to foreign countries and that, therefore, they are exempt from taxation on the ground that it was made in the course of export and that article 286 (1) (b) gives to such purchases immunity from State taxation; (2) If the above contention fails, the purchase of 12, 123 pieces from Dacca for a price of Rs. 1, 04, 595-4-6 must be considered as purchase in the course of import into India and that it is, therefore, exempt from taxation under Article 286 (1) (b ). (3) The purchases in Calcutta and Cawnpore were outside the State of Madras and therefore not liable for taxation in view of Article 286 (1) (b ). And (4) Lastly, it was argued that the Turnover and assessment Rules framed as they were in 1939 mixed up indiscriminately sales which are liable to be taxed under the Constitution and sales which are not, and that, therefore, they must be rejected in their entirely. Questions 1 and 2.- It will be convenient of consider these two questions together as their determination depends on the meaning to be given to the words "sale or purchases in the course of export or import. " The learned Advocate-General contends that those words must be limited to the sales or purchases under which the goods are actually exported or imported, whereas Mr. Rajah Ayyar contends that those words must be given an extended significance as including not merely the particular transaction under which the export or import of goods takes place, but all the chain of transactions which are entered into either with the object of exporting or importing the goods or with the knowledge that they would be exported or imported. He argues that for this purpose, we must have regard to the nature of the goods which are exported or imported, the usual course of business and the exigencies of the trade in those goods and on a consideration of all the circumstances it must be decided whether the transactions in respect of which immunity is claimed under the Article are so intimately connected with the actual export or import as properly to be considered as forming part of it. It is stated that the raw hides and skins of South India enjoy considerable popularity in would markets under the name of East India Kips, that there is considerable demand for it in foreign countries, that the export of hides and skins is one of the main items of the foreign trade of this State, that they are generally purchased with the object of being exported and that it would therefore be legitimate to treat the chain of sales culminating in the export as forming one transaction. It is accordingly contended that all the purchases of raw hides and skins wherever made were all made in the course of export and, therefore, not liable for taxation. Authority for this extended construction was sought in American decisions in Article I, Section 8 (3), Section 9 (5), and section 10 (2 ). Section 8 (3) is as follows :- "the Congress shall have power to regulate commerce. . . . among the several States. " This is familiarly known as the "commerce clause. " Section 9 (5) is as follows :- "no tax or duty shall be laid on articles exported from any State. " This is a restriction on the power of the Congress. Section 10 (2) is in these terms :- "no State shall, without the consent of the congress, lay any imposts and duties on imports or exports, except what may be absolutely necessary for executing its inspection laws. "
(3.) THESE two provisions are generally referred to as the export and import clause and as it is on the authorities on this clause that the petitioners mainly rely in support of their position, they will be examined first. In Brown v. The State of Maryland 12 US 419, 6 L. Ed. 678), a statute of maryland provided that all importers of foreign articles should obtain a licence on payment of a prescribed fee before they sold the goods and the appellant was convicted under the Act for selling imported goods without taking out a licence. The Court held that this was in substance a tax on imports and, therefore, opposed to Section 10 (2 ). In answer to a contention that as soon as the goods entered the State they ceased to be imports and were therefore liable to be taxed by the State like other goods within its jurisdiction, the Court observed : "while we admit that there must be a point of time when the prohibition ceases and the power of the State to tax commences, we cannot admit that this point of time is the instant that the articles enter the country. . . . It is sufficient for the present to say generally that when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has perhaps lost its distinctive character as an import and has become subject to the taxing power of the State; but while remaining the property of the importer in his ware-house in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution. " *
In Anglo-Chilean Nilrate Sales Corporation v. Alabama 288 us 218; 77 L. Ed. 710), the appellant was a Corporation carrying on the business of importing nitrate from Chile and selling it to purchasers in its original packages. In holding that a tax by the State of Alabama on these sales was obnoxious to Section 10 (2) as amounting to a tax on imports the Court observed : "the right to import the nitrate included the right to sell it in the original bags while it remained the property of appellant and before it lost its distinctive character as an import. State prohibition of such sales would take from the appellant the very rights in respect of importation that are conferred by the Constitution and laws of the United states. " * It is argued on the basis of these two decisions that if import does not cease on the entry of the goods into the country but extends to the stage of their first sale, export should likewise be held to begin not when the goods leave the country, but when they are purchased with the object of being exported and that therefore the purchase made by the petitioners with the object of export must be held to be purchase which "takes place in the course of export. " It is conceded by the petitioners that no authority on the export and import clause has laid down such a proposition. The case cited by them with reference to export, Fair Bank v. United States 181 US 283; 45 l. Ed. 862), United States v. Hvoslef 237 US 1; 59 L. Ed. 813), and Thames and mersey Marine Insurance Company v. United States 237 US 19; 59 L. Ed. 821), do not bear on this point. They merely decided that to levy a stamp duty on documents which are considered according to mercantile usage as forming part of the documents of title relating to the exported goods, would in substance be to tax the goods themselves and that would be in contravention of Section 9 (5 ). In fair Bank v. United States 181 US 283; 45 L. Ed. 862), the duty was levied on foreign bills of lading; in United States v. Hvoslef 237 US 1; 59 L. Ed. 813), it was imposed upon charter-parties which were exclusively engaged in the carriage of cargo to foreign ports; and in Thames and Mersey Marine Insurance company v. United States 237 US 19; 59 L. Ed. 821), it was upon polices insuring cargo against marine risks during the voyage to foreign ports. On the other hand, the decisions in Turpin v. Burgess 117 US 504; 29 L. Ed. 988), Spalding v. Edwards 262 US 66; 67 L. Ed. 865) and Empresa Siderurgica, S. A. v. Merced 337 US 154; 93 L. Ed. 1276), point to a contrary conclusion.
In Turpin v. Burgess 117 US 504; 29 L. Ed. 988), the tax was levied on manufactured tobacco which was intended for export. At the time of the imposition, the goods were in the factory. It was held that the tax was not on exports because it was laid before the goods had left the factory. In spalding v. Edwards 262 US 66; 67 L. Ed. 865), the appellants had sold goods to a firm in Venezuela through commission agents in New York. The appellants entrusted the goods to a common carrier, the consignment being made deliverable to the firm at Venezuela. But the sale documents were drawn up in the name of the commission agents who paid the price after the appellants had entrusted the goods to the common carrier. In form the transaction was one of sale by the appellants to the commission agents and not to the Venezuela firm. The State of new York claimed the right to impose a tax on the sale on the footing that the sale was to the commission agent and that at that stage the export had not begun and that therefore Section 10 (2) did not apply. It was held that notwithstanding that on the documents the transaction was one of sale between the appellants and the commission agents in substance the export had begun when the goods had been entrusted to the common carrier and that Section 10 (2) would therefore operate on such goods and the document of sale between the appellants and the commission agents did not affect the matter. If the contention of the petitioners is well founded, a simple answer to the claim of the State would have been to hold that even on the basis that the sale was by the appellants to the commission agents, that was impressed with the character of export on the principle laid down in Brown v. The State of Maryland 12 US 419; 6 L. Ed. 678), and that therefore the sale could not be taxed having regard to Section 10 (2 ). Empresa Siderurgica, S. A. v. Merced 337 US 154; 93 L. Ed. 1276) is a recent decision in which the scope of the export and the import clause came up again for consideration. A Corporation in Columbia purchased a cement plant in california with a view to export it to Columbia. The factory was being gradually dismantled and the materials transported to Columbia. During the years of assessment, a portion had been dismantled and the rest was in the process of being dismantled. A tax having been levied on the property at that stage, the question arose whether it could be considered as export for purposes of Section 10 (2 ). Douglas, J. , observed : "it is not enough that there is an intent to export, or a plan which contemplates exportation, or an integrated series of events which will end with it. The tax immunity runs to process of exportation and the transactions and documents embraced in it. . . . It is the entrance of the articles into the export stream that marks the start of the process of exportation. Then there is certainty that the goods are headed for their foreign destination and will not be diverted to domestic use. Nothing less will suffice. " *