RAMASWAMI, - (1.) THE following Judgment of the court was delivered by :
(2.) THIS appeal is brought on a certificate against the judgment of the division bench of the High court of Jammu and Kashmir at Srinagar, dated 10/07/1962 holding that the respondent is not liable to pay Sales tax for the period from January, 195 5/05/1959 under the Jammu and Kashmir Motor Spirit (Taxation of Sales) Act, 2005 1948 A.D.). The Director-General of Supplies, Delhi entered into a contract with General Manager, Caltex India (Ltd.) at Bombay (hereinafter called the respondent) for the supply of petrol, HSD and Power Kero to the State Mechanized Farm at Nandpur located in the State of Jammu and Kashmir. In pursuance of this contract the respondent directed its depot at Pathankot situated in the Punjab State to supply petrol to the Nandpur Farm. The procedure adopted was as follows. The Officer in charge of the Nandpur farm placed indents with the Pathankot depot for supply of specified quantities of petrol to the farm and on receipt of the indents, the Pathankot depot transported the petrol in its own tank-lorries to Nandpur and delivered the petrol to the farm. The petrol was measured by means of dipping rods and approved by the indenting officer at Nandpur farm and thereafter the petrol was delivered to the Nandpur farm through pumps which belonged to the respondent. The price of petrol so supplied was paid to the respondent at Delhi by the Director-General of Supplies. The Petrol Taxation Officer at Srinagar considered that the sales of petrol to Nandpur farm were liable to be taxed under the Jammu and Kashmir Motor Spirit (Taxation of Sales) Act, 2005 and called upon the respondent to furnish returns of sales between 1952 to 1959. The respondent, however, furnished returns only for the period January, 195 5/05/1959. On the basis of the returns the Petrol Taxation Officer assessed the respondent to pay sales tax to the extent of Rs. 39,619.75 in respect of sales of petrol from January, 195 5/05/1959. The respondent thereafter moved the High court under s. 103 of the Constitution of Jammu and Kashmir for grant of a writ to quash the assessment of sales tax and to restrain the State of Jammu and Kashmir and the Petrol Taxation authorities (hereinafter called the appellants) from levying the tax. It was contended on behalf of the respondent that the sales tax could not be imposed as the sales took place in the course of inter-State trade and commerce. Syed Murtaza Fazl Ali, J. held that the respondent was liable to pay sales tax in respect of the sales which took place during the period January, 195 5/09/1955. Regarding the rest of the period of assessment, the learned Judge held that the appellants were not entitled to levy tax and accordingly issued a writ restraining the appellants from levying the tax for the period from October, 195 5/05/1959. The appellants took the matter in Letters Patent appeal and the respondent also filed Cross-objection with regard to the liability to tax for the period from January,, 195 5/09/1955. The division bench dismissed the appeal in Letters Patent and allowed the cross-objection of the respondent, holding that the appellants were not entitled to levy sales tax for the entire period from January, 195 5/05/1959 and accordingly quashed the assessment of sales tax, dated 3/10/1960. It is necessary, at this stage, to indicate the legislative development in the State of Jammu and Kashmir which provides the setting for the questions to be investigated in this case. Article 286 of the Constitution, as it was originally enacted, read as follows : '(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 purpose 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 be 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.' Article 286 therefore imposes four bans upon the legislative power of the States. Clause (1) prohibited every State from imposing or authorising the imposition of, a tax on outside sales and on sales in the course of import into or export outside the territory of India. By cl. (2) the State was prohibited from imposing tax on the sale of goods where such sale took place in the course of inter-State trade or commerce. But the ban could be removed by legislation made by the Parliament. By cl. (3) the Legislature of a State was incompetent to impose or authorise imposition of a tax on the sale of any goods declared by the Parliament by law to be essential for the life of the community, unless the legislation was reserved for the consideration of the President and had received his assent. But Art. 286 of the Constitution did not apply to the State of Jammu and Kashmir till 14/05/1954, because the Constitution (Application to Jammu and Kashmir) Order 1950 made by the President of India on 26/01/1950 excepted Art. 286 from its applicability to the State of Jammu and Kashmir. Reference, in this connection, may be made to the Second Schedule to the Constitution (Application to Jammu and Kashmir) Order 1950, relevant excerpt from which is reproduced below THE SECOND SCHEDULE. (See paragraph 3) Provisions of Exceptions Modifications the Constitution applicable. Part XII JUDGEMENT_1350_AIR(SC)_1966Html1.htm But Art. 286 was applied to the State of Jammu and Kashmir by the Constitution (Application to Jammu and Kashmir) Order, 1954 which came into force on 14th day of May, 1954. In The Bengal Immunity Company Ltd. v. State of Bihar(f) this court held that the operative provisions of the several parts of Art. 286, namely cl. (1) (a), cl. (1) (b), cl. (2) and cl. (3), were intended to deal with different topics and one cannot be projected or read into another, and therefore the Explanation in cl. (1) (a) cannot legitimately be extended to cl. (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of cl. (2). This court further held that until the Parliament by law, made in exercise of the powers vested in it by cl. (2) of Art. 286, provides otherwise no State may impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-State trade or commerce, and therefore the State Legislature could not charge interState sales or purchases until the Parliament had otherwise provided. The judgment of the court in the Bengal Immunity Company's case(1), was delivered on 6/09/1955. The President issued the Sales Tax Laws Validation Ordinance, 1956, on 30/01/1956, the provisions of which were later embodied in the Sales Tax Laws Validation Act, 1956. By this Act notwithstanding any judgment, decree or order of any court, no law of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951 and the 6th day of September, 1955, shall be deemed to be invalid merely by reason of the fact that such sale or purchase took place in the course of inter-State trade or commerce; and all such taxes levied or collected or purported to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law. The Parliament thus removed the ban contained in Art. 286(2) of the Constitution retrospectively but limited only to the period between 1/04/1951 and 6/09/1955. All transactions of sale, even though they were inter-State could for that period be lawfully charged to tax. But Art. 286(2) remained operative after 6/09/1955 till the Constitution was amended by the Constitution (Sixth Amendment) Act, i.e., 11/09/1956. By the amendment, the explanation to cl. (1) of Art. 286 was deleted and for cls. (2) and (3) the following clauses were substituted : '(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods, declared by Parliament by law to be of special importance in inter-state trade or commerce be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.' By cl. (2) of Art. 286 as amended, Parliament was authorised to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in cl. (1), namely, outside the State or in the course of the import into, or export out of the territory of India. By the Constitution (Sixth Amendment) Act, Parliament was entrusted with power under Art. 269(3) to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce; and to effectuate the conferment of that power, in the Seventh Schedule, Entry 92A was added in the First List and Entry 54 in the Second List was amended. The Parliament enacted, in exercise of that power, the central Sales Tax Act 74 of 1956 to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India, and to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce etc. Article 286, as amended by the Constitution Sixth Amendment Act, 1956, was applied to the State of Jammu and Kashmir on 16/01/1958 by the Constitution (Application to Jammu and Kashmir) Amendment Order 1958. The central Sales Tax Act (Act 74 of 1956) was enacted by Parliament on 21/12/1956 but it was applied to the State of Jammu and Kashmir on 23/03/1958 by Act 5 of 1958. The questions presented for determination in this appeal are (1) whether sales tax could be imposed on the respondent for the period from October, 195 5/05/1959 in view of the prohibition contained in Art. 286(2) of the Constitution as it stood before its amendment, (2) whether sales tax could. be validly levied on sales taking place between 1/01/195 5/09/1955 in viewof the provisions of Sales Tax Validation Act, 1956 (Act 7 of 1956).
(3.) AS regards the first question, it is admitted by the parties that petrol was transported from Pathankot in the State of Punjab to Nangpur in the State of Jammu and Kashmir under the contract of sale. The petrol was kept in storage at a depot of the respondent at Pathankot and it was carried in the trucks of the respondent from Pathankot and delivered to the Nandpur farm in the State of Jammu and Kashmir. The price of the petrol supplied was paid to the respondent at Delhi by the Director-General of Supplies. Upon these facts it is manifest that there was movement of goods from the State of Punjab to the State of Jammu and Kashmir under the contract of sale and there was completion of sale by the passing of property and the delivery of the goods to the purchaser. AS pointed out by Venkatarama Ayyar, J. in the Bengal Immunity Company case(1) : 'A sale could be said to begin the course of interState trade only if two conditions concur : (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade.' In the present case, both these conditions have been satisfied and the transactions of sale made between the parties were unquestionably in the course of inter-State trade. Indeed, the Solicitor-General on behalf of the appellants did not seriously challenge the finding of the High court on his point. We proceed to consider the next question, viz., whether the respondent was liable to pay sales tax for the period from 1/01/195 5/09/1955 in view of the lifting of the finding of the High court on this point. On behalf of the respondent Mr. Setalvad put forward the argument that the Sales Tax Validation Act by itself did not empower any State to levy any tax on sales or purchases in the course of inter-State trade but it merely liberated Sales Tax Acts of several States from the fetter imposed by cl. (2) of Art. 286 of the Constitution and left the State Act to operate in its own terms. It was submitted that if there was no law in a State empowering the levy of a tax on sales or purchases in the course of inter-State trade or commerce, the State could not derive any advantage from the Sales Tax Validation Act. It was contended that the Explanation to Art. 286 (1) (a) of the Constitution did not confer any taxing power on any State Legislature. On the contrary, it was intended to place a limitation on the State taxing power and therefore the mere lifting of the ban under cl. (2) of Art. 286 did not enable the State to impose the tax on sales in the course of inter-State trade and such levy of tax could be made only when the taxing statute of the State expressly provides for it. In our opinion, the argument of Mr. Setalvad is well-founded. The question, therefore, arises whether the Jammu and Kashmir Motor Spirit (Taxation of Sales) Act, 2005 (hereinafter called the Act) applies to the sale of petrol made by the respondent between 1/01/195 5/09/1955 and whether the appellants can validly assess the respondent to sales tax with regard to these transactions. ;