- (1.) THE petitioner, Messrs. Kanpur Oil Mills, Harrisganj, Kanpur, is a firm carrying on the business of manufacturing oils and dealing in them. During the assessment year 1949-50, the firm filed returns for assessment of sales tax under the U. P. Sales Tax Act and an order of assessment was passed by the Sales Tax Officer, Kanpur, on 28th February, 1951. Amongst sales effected by the petitioner were certain transactions in which the purchasers belong to places outside the State of Uttar Pradesh and delivery of goods was also effected to them outside the state of Uttar Pradesh. In a number of cases, the goods, which were sent by rail, were booked by the petitioner, showing itself as the consignee of the goods. Thereafter, in some cases, the railway receipts were sent to the purchasers through the banks and, in some cases, direct to the purchasers. The Sales Tax Officer, when making the assessment, exempted from tax the turn-over in respect of all sales in which the railway receipts were sent to the purchasers through the banks, holding that, in those cases, delivery had taken place outside the State of Uttar pradesh and the amount of turnover was not liable to sales tax. He, however, held that in respect of sales amounting to Rs. 1,55,073/-, in which the railway receipts were sent direct to the purchasers, the property in the goods passed to the purchasers within U. P. even though actual delivery took place outside Uttar Pradesh. He was of the view that these sales must be held to have taken place inside U. P. and, consequently, were subject to the U. P. Sales Tax. The petitioner filed an appeal before the Judge (Appeals), Sales Tax, Kanpur Range. The learned judge (Appeals) upheld the decision of the Sales Tax Officer and dismissed the appeal. In deciding the appeal, the learned Judge Meld: "the admitted facts are that goods worth Rs. 1,55,073/- were actually delivered outside the province but the transaction of sale was complete within U. P. The contract was entered into in u. P. The goods were delivered in U. P. on payment of the price. The question of actual delivery, as contemplated by Article 286 of the Indian Constitution, shall only arise in the case of sales outside the State. The place of sale has got to be determined in accordance with the Sale of goods Act. In this case, the contract was entered into within this Province. The price was paid within this Province. The delivery of goods was made within this Province and as such, under the provisions of the Sale of Goods Act, the sale shall be deemed to have taken place within this province. The sales within this Province are outside the scope of Article 286 (1) of the Indian constitution. Such sales, as were dismissed (?) in this case, shall be considered to be in the nature of inter-State trade and commerce and they shall continue to be taxed upto 31-3-51 in accordance with G. O. No. 7 (Continuance Order ). " This petition has been filed under Article 226 of the Constitution by the petitioner, challenging this order of the Judge (Appeals), Sales Tax, on the ground that the sales under Article 286 (1) of the Constitution must be deemed to have taken place outside the State of Uttar Pradesh in respect of this amount of Rs. 1,55,073/- and the learned Judge's judgment is based on an error apparent on the face of the record and is liable to be quashed in this respect by issue of a writ of certiorari.
(2.) IT does appear that the learned Judge, in applying Article 286 of the Constitution, did not fully comprehend the scope of its various clauses. Clause (1) of Article 286 of the Constitution lays down: "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 ). . . . . . . . . . . . . . . . . . . . . . . . . . " Clause (2) of that section is as follows: "286 (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. "
(3.) BOTH these clauses, of Article 286 of the Constitution are prohibitory clauses, laying down restrictions on the power of a State Law to impose, or authorise the imposition of a tax on sale or purchases of goods. Clause (1) 'inter alia' restricts the power of a State law to impose a tax to such sales or purchases as do not take place outside the State. What are sales outside a State is laid down in the Explanation which forms part of Clause (1) of Article 286 of the Constitution. This Explanation introduces a fiction of law and lays down that, in cases where goods have actually been delivered in a particular State as a direct result of a sale or purchase for the purpose of consumption in that State, that sale shall be deemed to have taken place 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. In cases, therefore, where delivery of goods in pursuance of a sale or purchase takes place in a particular State for consumption in that State, the sale, by this fiction of law, has to be deemed to take place in that state and, consequently, in no other State. The result is that such a sale or purchase cannot be taxed by another State except the State in which the sale is deemed to have taken place because of the actual delivery of goods for consumption in that State. Clause (2) of Article 286 deals with another aspect. Under that clause, all sales in the course of inter-State trade or commerce are exempt from sales tax except to the extent that Parliament may by law otherwise provide. This limitation on the power of a State law to impose tax on sales or purchases taking place in the course of inter-State trade or commerce is a separate and distinct ban on imposition of tax apart from the ban imposed by Clause (1) (a) of that Article. This means that a particular sale or purchase may not be liable to tax because of Clause (1) (a) of Article 286 of the Constitution and this ban would operate even though there may be no such ban on taxing that sale or purchase under Clause (2) of that Article. Similarly, there may be no ban on taxing a sale or purchase under Clause (1) (a) of Article 286 but the ban may occur under Clause (2) of that Article. If either of the two limitations placed by Clause (1) or Clause (2) of Article 286 of the Constitution comes into play, the State law cannot tax such a sale or purchase. In the present case, the petitioner has relied on the ban placed by Clause (1) (a) of Article 286 and not on Clause (2) of that Article. The learned Judge (Appeals), Sales Tax, himself clearly found that all the goods in respect of the sales in dispute were actually delivered outside the State of Uttar Pradesh and the actual delivery was not made within the State of Uttar Pradesh. On behalf of the petitioner, it had been contended before the Sales Tax authorities that the goods were delivered to the purchasers in States other than the State of Uttar Pradesh for consumption in those very States in which they were actually delivered. There is no specific finding either by the Sales Tax Officer or by the judge (Appeals), Sales Tax, whether this contention was correct but a reading of the two orders makes it clear that the contention of the petitioner was not repelled and the authorities proceeded to decide the case assuming that this contention was correct. Once the case of the petitioner was accepted that the delivery of the goods actually took place in a State other than the State of Uttar pradesh for consumption in that very State, it is clear that Clause (1) (a) of Article 286 of the constitution read with the explanation attached to that Clause would prevent the State of Uttar pradesh from imposing sales tax on that transaction of sale. The learned Judge (Appeals), Sales tax, when dealing with this question, held that "the question of actual delivery, as contemplated by Article 286 of the Indian Constitution, shall only arise in the case of sales outside the State. The place of sale has got to be determined in accordance with the Sale of Goods Act. " This view, expressed by the learned Judge, is obviously based on misinterpretation of Article 286 of the Constitution. Whenever any sale takes place in which the parties belong to two different States, it will have to be determined where the sale has taken place for purposes of imposing sales tax. The determination of the place of sale for purposes of the Indian Contract act, or, for determining the rights inter partes to the sale may depend on the provisions of the sale of Goods Act, but when the liability of the sale or purchase to sales tax has to be considered, the place, where the sale takes place, must be determined in accordance with Article 286 of the Constitution for purposes of complying with the provisions of Clause (1) (a) of Article 286 of the Constitution, and the place of sale must be determined after taking into account the explanation appended to that clause. On applying the Explanation to the transaction now in question, it is perfectly clear that all the sales, which are sought to be taxed, took place outside the State of Uttar Pradesh because actual delivery of the goods took place in States other than the state of Uttar Pradesh for consumption in those States, The result is that such sales cannot be taxed under any State law and any such taxation under a State law would be void as contravening the ban imposed by Clause (1) (a), of Article 286 of the Constitution.;