Shah, J. - (1.) The appellants are a firm having their head office at Jabalpur in Madhya Pradesh and branch offices at Lucknow, Kanpur, Faizabad and Bombay. They are engaged in the business of manufacturing and selling bidis, and are registered as dealers under the C. P. and Berar Sales Tax Act, 1947. Between November 1948 and October 12, 1949, the appellants despatched bidis of the value of Rupees 22,60,241-5 to their branch offices outside the State of Madhya Pradesh, and bidis of the value of Rupees 5,35,404-15 under instructions from their branches to other destinations outside the State. The Sales Tax Officer rejected the contention of the appellants that the turnover resulting from the sale of bidis supplied to the branches and under instructions from the branches was not liable to be taxed under the C. P. and Berar Sales Tax Act, 1947, and brought the aggregate turnover of Rs. 27,85,646-4 to tax. In appeal, the Deputy Commissioner reduced the taxable turnover by 5 percent. The order of the Deputy Commissioner was confirmed in appeal to the Commissioner of Sales Tax. A revision application filed before the Sales Tax Tribunal was unsuccessful.
(2.) At the instance of the appellants, the Tribunal submitted a statement of case, and referred the following questions to the High Court of Madhya Pradesh for opinion: "1. Whether, in the facts and circumstances of the case, the transactions amounting to Rs. 21,47,228 were sales and, therefore, liable for inclusion in the turnover of the applicant for assessment to tax 2. Whether, in the facts and circumstances of the case, the transactions amounting to Rs. 5,35,404-15 were sales and, therefore liable for inclusion in the turnover of the applicant for assessment to tax - The two questions have not been drawn with care. In order to clarify the import of the two questions, the words "sales and therefore" should, in our judgment, be omitted, and the words "liable for inclusion" be substituted by the words "liable to be included". We reframe the questions accordingly.
(3.) The sales in respect of bidis which resulted in the trunover in question did not take place within the State of Madhya Pradesh. It is common ground that the bidis were appropriated to the contracts of sale outside the State of Madhya Pradesh. The transactions were for a period prior to the Constitution and the authority of a State to levy tax on transactions of sale was not subject to the limitation prescribed by Art. 286 of the Constitution. Section 2 (g) of the C. P. and Berar Sales Tax Act, 1947, as then in operation, provided: " 'Sale' with all the grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods made in course of the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge. ********** Explanation (II)-Notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930, the 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 deemed for the purpose of this Act taken place in the Central Provinces and Berar." This Act was enacted in exercise of the powers conferred upon the Provincial Legislature by Entry 48, List II, Seventh Schedule to the Government of India Act, 1935. In exercise of that power the Legislature was competent to enact a law for levying sales tax acting on the principle of territorial nexus, i.e., the province could fix upon one or more ingredients of sale, and make it the foundation for imposing liability for sales tax. The Provincial Legislature, relying upon either the manufacture of the goods within the province, or the existence of the goods at the date of the contract of sale within the province, or the making of the contract of sale within the territory as the basis, could provide for levying sales tax. Sale within the territory was not a condition of the exercise of power to levy sales tax.;