M/S. Ram Narain Sons Ltd vs Asst. Commissioner Of Sales Tax

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeals Nos. 132, 133 and 137 of 1955

Decision Date: 20 September, 1955

Coram: Natwarlal H. Bhagwati, B. Jagannadhadas, Syed Jaffer Imam, Chandrasekhara Aiyar

In the appeal titled M/s. Ram Narain Sons Ltd. versus Assistant Commissioner of Sales Tax and Others, the Supreme Court delivered its judgment on the twentieth day of September, 1955. The case was reported in the 1955 All India Report at page 765 and also cited as 1955 Scr (2) 483. The bench hearing the matter comprised Justice Natwarlal H. Bhagwati, Justice B. Jagannadhadas, and Justice Syed Jaffer Imam. The petitioner was M/s. Ram Narain Sons Ltd., while the respondent was the Assistant Commissioner of Sales Tax together with additional respondents. The judgment was authored by Justice Natwarlal H. Bhagwati, and the decision reflected the views of Justices Bhagwati, Imam, and Chandra Sekhara Aiyar, with Justice Jagannadhadas delivering a dissenting opinion. The legal issues addressed involved Article 286 of the Constitution of India, particularly the interpretation of its clauses (1)(a), (2), and (3), the accompanying Explanation to clause (1)(a), and the effect of the proviso to clause (2) on the constitutional bans imposed on State taxation powers. The Court also examined the Central Provinces and Berar Act 1947, specifically Explanation II to Section 2(g) as originally enacted, and considered whether subsequent amendments by the Madhya Pradesh Act IV of 1951 offended the constitutional provisions. The central question was whether the President’s order issued under the proviso to Article 286(2) could protect an assessment that included a sum comprising property expressly exempted from taxation, and what legal effect such inclusion produced.

The Court held that each ban imposed by Article 286 on the taxing authority of the States functioned as an independent and separate limitation, requiring that every such ban be removed before a State Legislature could levy tax on a sale or purchase transaction. The Explanation to clause (1)(a) created a legal fiction that determined the situs of the sale; once the Explanation placed the transaction outside the State, that State could not levy tax on it. This ban operated irrespective of whether the transaction occurred in the course of inter-State trade or involved goods declared essential by Parliament. The ban under clause (2) was also independent, focusing solely on whether a transaction occurred in inter-State trade or commerce. Even if a transaction fell within the ambit of clause (1)(a) and its Explanation, once clause (2) was attracted, its ban prevailed, preventing State taxation except where Parliament expressly provided otherwise or where the President’s order under the proviso to clause (2) saved the tax. The Court clarified that the President’s order could only lift the ban created by clause (2) and did not affect the ban under clause (1)(a) with its Explanation. Further, the Court emphasized that the terms of the proviso to clause (2) made clear that it was intended solely to remove the ban under clause (2) and no other, adhering to the cardinal rule of interpretation that a proviso carves out an exception only to the principal provision it modifies. Consequently, the proviso could not be extended to other provisions of Article 286, and therefore it did not have the effect of lifting the ban imposed by clause (1)(a) and its Explanation.

In the present case the Court observed that even if Parliament by law may otherwise provide for taxation or the power of taxation is preserved by the President’s order contemplated in the proviso, the ban contained in Article 286(2) may be saved by such a Presidential order but that saving does not affect or remove the ban existing under Article 286(1)(a) read with its Explanation. The Court referred to the construction placed on the various clauses of Article 286 in the Bengal Immunity Co. case and noted that the terms of the proviso to Article 286(2) make it clear that the proviso is intended solely to lift the ban imposed by Article 286(2) and no other ban. It was explained that a proviso, by the rules of interpretation, creates an exception only to the principal provision to which it is attached and cannot be extended to other provisions of the Article. This principle is reinforced by the non-obstante clause, which expressly states that it is enacted only with reference to “this clause”, namely Article 286(2). Consequently, the Court held that the proviso cannot be applied to any of the other provisions of Article 286 and therefore does not have the effect of removing the ban imposed by Article 286(1)(a) and its Explanation. As a result, for the period after the Constitution came into force, the ban created by Article 286(1)(a) and its Explanation could not be set aside by the President’s order issued under the proviso to Article 286(2) in the case before the Court. The Court further observed that Explanation 11 to Section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947 violated Article 286(1)(a); consequently the State of Madhya Pradesh was not entitled to tax the sales transactions in which goods had actually been delivered as a direct result of such sales for consumption outside Madhya Pradesh, and that Explanation was protected by the President’s order made under the proviso to Article 286(2). The Court also stated the principle that when an assessment consists of a single undivided sum covering the totality of property deemed assessable, the wrongful inclusion of any items that are expressly exempted by law renders the entire assessment invalid. This principle was supported by the citation of Bennett & White (Calgary) Ltd. and Municipal District of Sugar City No. 5 (1951 Appeal Cases 786 at p. 816). In a dissenting opinion, Justice Jagannadhadas argued that the two bans under Articles 286(1)(a) and 286(2) overlap and that viewing them as independent and cumulatively operative would incorrectly suggest that they serve separate purposes. He emphasized that all bans under Article 286 are intended to achieve the same objective of delineating fields of non-taxation, and therefore the bans and the proviso must be read harmoniously as part of the same Article, with the unequivocal positive language of one part not being negated by the negative language of another.

The Court observed that the affirmative wording of one part of a provision cannot be considered cancelled by the negative wording of another part so that the provision becomes ineffective. It held that interpreting the proviso, and by the same reasoning the saving clause, as merely eliminating a particular type of ban while permitting another overlapping ban to continue would effectively render both the saving clause and the proviso to Article 286(2) virtually meaningless. The Court explained that a “non-obstante” clause ordinarily does not add to or subtract from the main provision of which it forms a part; it is usually inserted as a precautionary measure. However, such a clause does not limit the operation of the main provision. The suggestion that a Presidential action removes the ban only with respect to inter-State sales would require reading the phrase “notwithstanding that” to mean “in so far as”. The Court found no authority or justification for adopting such a construction.

The judgment was delivered in the civil appellate jurisdiction concerning Civil Appeals numbered 132, 133 and 137 of 1955 together with Petition number 567 of 1954. The appeals arose under Article 132(1) of the Constitution of India from the judgment and order dated 18 October 1954 of the Nagpur High Court in Miscellaneous Petitions numbered 265, 348 and 275 of 1953, and the petition proceeded under Article 32 of the Constitution for the enforcement of fundamental rights. Counsel for the appellant in Civil Appeal 132 of 1955 included the Attorney-General of India, assisted by counsel, while counsel for Intervener 1 and Intervener 2 also appeared. Similar representation was noted for the appellants in Civil Appeals 133 and 137 of 1955. Counsel for the respondents in all the appeals comprised the Deputy Advocate-General of Madhya Pradesh and an additional advocate. The petitioner in Petition 567 of 1954 was represented by the Attorney-General of India together with the Solicitor-General of India and a team of counsel. The respondents in that petition were represented by the Advocate-General of Madhya Pradesh and his team. The judgment was pronounced on 20 September 1955 by Acting Chief Justice S. R. Das, with Justices Bhagwati, Jafer Imam and Chandrasekhara Aiyar forming the Bench. Justice Bhagwati delivered the main judgment, while Justice Jagannadhadas delivered a separate opinion. Justice Bhagwati noted that the three appeals, each bearing a certificate under Article 132(1) of the Constitution, required interpretation of the proviso to Article 286(2) and raised the common question of whether that proviso also exempts the transactions of sale or purchase covered by the Explanation to Article 286(1)(a) from the ban imposed therein. The discussion proceeded with reference to the appellant in Civil Appeal 132.

In 1955 the appellants in Civil Appeal No 132 were Messrs Ramnarain Sons Ltd., a firm that was entered in the register as a “dealer” under the Central Provinces and Berar Sales Tax Act, 1947, and that carried on its trade at Amravati and at other locations in Madhya Pradesh. After the Cotton Control Order of 1949 became operative on 12 September 1949, the firm entered into agreements with several cotton mills that were situated outside Madhya Pradesh. Under those agreements the firm undertook to act as the agents of those mills for the purchase of cotton (kapas) in the various markets of Madhya Pradesh. The purchase was to be made on the account of the mills and on their behalf. Once bought, the cotton was to be ginned, pressed into bales and dispatched to the respective mills. All the expenses incurred in ginning, pressing and transportation were to be borne by the mills, and the proceeds from the sale of cotton seeds were also to be credited to the mills. The firm’s remuneration was limited to a commission calculated as a percentage of the transaction value. The agency relationship continued for the period from 1 October 1949 to 30 September 1950. By an order dated 30 June 1953, the Assistant Commissioner of Sales Tax at Amravati, identified as Respondent No 1, included the transactions with the said mills, valued at Rs 72,86,454-5-10, in the turnover of the appellants and directed them to pay sales tax of Rs 1,13,850-13-6 on those transactions. The appellants appealed this assessment to the Commissioner of Sales Tax, Madhya Pradesh (Respondent No 2) on 30 July 1953. The appeal was subsequently entertained by the Deputy Commissioner of Sales Tax, Madhya Pradesh (Respondent No 3), who ordered the appellants to pay a sum of Rs 25,000 by 31 August 1953. Following this order, the appellants filed a petition under Article 226 of the Constitution, identified as Miscellaneous Petition No 265 of 1953, in the High Court of Judicature at Nagpur seeking, inter alia, the quashing of the 30 June 1953 order issued by Respondent No 1 and other consequential reliefs. The respondents filed a written statement denying the contentions raised by the appellants and prayed for the dismissal of the petition with costs.

The appellants in Civil Appeal No 133 were the Eastern Cotton Company, also entered as a “dealer” under the Central Provinces and Berar Sales Tax Act, 1947, and conducting business at Amravati and at other points in Madhya Pradesh. During the same period, namely from 1 October 1949 to 30 September 1950, the Eastern Cotton Company acted as an agent for certain mills located outside Madhya Pradesh. In that capacity the company procured cotton in Madhya Pradesh on behalf of those mills and thereafter forwarded the cotton to the mills for use outside the State. By an order dated 9 September 1953, Respondent No 1 included the transactions with those mills, valued at Rs 33,47,405-5-6, in the company’s turnover and directed the payment of sales tax amounting to Rs 52,303-4-0 on the said transactions. The Eastern Cotton Company similarly filed a petition under Article 226, recorded as Miscellaneous Petition No 348 of 1953, in the High Court of Judicature at Nagpur, requesting the quashing of the 9 September 1953 order issued by Respondent No 1 and seeking further consequential reliefs. The respondents, in turn, filed a written response denying the company’s claims.

In this matter, the Court identified the appellants in Civil Appeal No 137 of 1955 as the firm Ramdas Khimji Brothers, based in Bombay. The firm was registered as a “dealer” under the Central Provinces and Berar Sales Tax Act, 1947, and it carried on the business of dealing in cotton within Madhya Pradesh. During the period from 1 October 1950 to 30 September 1951, the appellants sold cotton valued at Rs 6,01,949-1-9 to a number of buyers located outside Madhya Pradesh. The sales were concluded with the intention that the cotton would be delivered to those buyers for consumption outside the state, and the deliveries were made as a direct consequence of the sales transactions.

The Sales Tax Officer of Amravati issued an order on 29 December 1952 in which he included the aforementioned inter-state sales in the appellants’ turnover for the assessment year and imposed sales tax on those transactions. The appellants challenged this assessment by filing an appeal before Respondent No I; however, the appeal was dismissed by an order dated 10 July 1953. Unperturbed, the appellants subsequently filed a revision petition on 22 August 1953 before the Commissioner of Sales Tax, Madhya Pradesh, and also instituted a writ petition under Article 226 of the Constitution. The writ petition, recorded as Miscellaneous Petition No 274 of 1953, was filed in the High Court of Judicature at Nagpur, seeking a certiorari to set aside the order of Respondent No I issued in Sales Tax Appeal No 13-A dated 10 July 1953, together with any consequential relief.

The respondents filed a return that denied every contention raised by the appellants and requested that the writ petition be dismissed with costs. These petitions, together with Miscellaneous Petitions No 288 of 1953 and No 132 of 1954, were placed before the Nagpur High Court for final hearing. A comprehensive judgment was delivered in Miscellaneous Petition No 132 of 1954, and the reasoning contained in that judgment governed the decisions in the connected petitions numbered 265, 274 and 348 of 1953. The High Court held that Explanation II to section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947, as amended by the Central Provinces and Berar Act XVI of 1949, had been declared invalid from its inception by the High Court in Messrs Shriram Gulabdas v. Board of Revenue (I.L.R. 1953 Nagpur 332) and by this Court in 1954 S.C.R. 1122. Consequently, the original Explanation remained operative until 1 April 1951, when it was superseded by the Madhya Pradesh Act IV of 1951. Explanation II, as originally enacted, provided: “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 to have taken place in the Central Provinces and Berar.” The appellants contended that this Explanation conflicted with Article 286(1)(a) read with its own Explanation, and therefore asserted that the State of Madhya Pradesh was not entitled to tax the inter-state sale transactions.

In this matter, the Respondents argued that the Explanation remained protected until 31 March 1951 by virtue of Sales Tax Continuation Order No 7 of 1950, which the President had issued on 26 January 1950 under the proviso to article 286(2). The High Court held that the original Explanation had been validly enacted because the Governor-General had given assent on 23 May 1947. According to that Explanation, the tax that had been levied before the Constitution came into force was lawfully imposed on sales of goods wherever the contracts of sale were concluded, provided that the goods were actually present in the State at the time the contracts were made. The Court observed that the State could exercise this power even when the sales occurred in the course of inter-State trade or commerce and the goods were subsequently delivered as a direct result of those sales for consumption outside the State. The rationale was that the location of the goods created a sufficient nexus between the transaction and the taxing State, which had been the basis for taxation prior to the Constitution’s commencement. This position persisted until the Constitution came into effect, and on 26 January 1950 the President issued Sales Tax Continuation Order No 7 of 1950, exercising the authority given by the proviso to article 286(2). The Court noted that the sales in question had taken place during inter-State trade or commerce; consequently they fell within article 286(2) and, by virtue of the President’s order, remained liable to tax even after the Constitution began to operate. The High Court also relied on the majority judgment in The State of Bombay v The United Motors (India) Ltd., 1953 S.C.R. 1069, where it was held that a transaction involving the delivery State ceased to have an inter-State character if it fell within the Explanation to article 286(1)(a) and therefore became taxable by the delivery State. However, the Court explained that for the exporting State the transaction retained its inter-State nature and, under article 286(2), would not be subject to tax by that State. The President’s order, the Court said, removed this restriction and permitted the exporting State to tax the transaction based on the power derived from the same provision. In construing article 286(1) together with article 286(2), the High Court concluded that to hold that article 286(1) overrides the proviso to article 286(2) would render the latter ineffective, thereby stripping all States of any taxing power over inter-State trade or commerce except the delivery State. Accordingly, the High Court dismissed the petitions and awarded costs. The learned Attorney-General for the Appellants subsequently contended that so far as the

In the post-Constitution period, the governing principle was articulated in the decision of The Bengal Immunity Co. Ltd. v. The State of Bihar, rendered on 6 September 1955. The counsel for the State argued that the prohibitions placed on the legislatures of the States by the various clauses of article 286, which prevented them from imposing taxes on the sale or purchase of goods, functioned as independent and separate restraints, and that each category of sale or purchase mentioned in the different clauses had to be examined from its own perspective. He maintained that even when a transaction qualified as an inter-State sale or purchase and the President’s order under the proviso to article 286(2) permitted a State to levy any tax that had been lawfully imposed by that State prior to the commencement of the Constitution, the same transaction would still have to overcome the prohibition contained in article 286(1)(a) and its accompanying Explanation. Consequently, if as a direct result of the sale the goods were actually delivered for consumption in another State, the exporting State—using the terminology of the Nagpur High Court—or the title-State—using the phrasing adopted in several judgments of The Bengal Immunity Co.’s Appeal—would lack the authority to impose a tax on that sale, because the transaction would be deemed fictitiously outside the State according to the Explanation and would therefore fall within the bar established by article 286(1)(a). The State of Madhya Pradesh, however, contended that the President’s order not only removed the restriction imposed by article 286(2) but also eliminated the bar created by article 286(1)(a). It argued that the transactions covered by the Explanation to article 286(1)(a) belonged to the same class as those covered by article 286(2) and were all conducted in the course of inter-State trade or commerce. Moreover, it asserted that if the Explanation-based transactions were not rescued from the prohibition by the President’s order, the entire purpose of the Constitution-makers to preserve the status quo with respect to taxes on sales or purchases of goods that had been lawfully levied by the State before the Constitution’s commencement would be frustrated. Since the Explanation-related transactions were necessarily part of inter-State commerce, the President’s order would become ineffective, leaving the exporting State or the title-State prevented from taxing those transactions despite the removal of the bar by the President’s order. The Court was unable to accept this line of reasoning. As the majority of judges in The Bengal Immunity Co.’s Appeal had held, the prohibitions imposed by article 286 on the taxing powers of the States operate independently and separately, and each prohibition must be overcome before a State legislature may impose a tax on a transaction involving the sale or purchase of goods. These prohibitions arise from distinct viewpoints, and even though the categories of sale or purchase may occasionally overlap, each ban remains operative and must be applied.

In this case, the Court explained that although the different viewpoints on the constitutional bans might sometimes overlap as to the same sale or purchase transaction, each ban remained operative and had to be enforced. Regarding article 286(1)(a), the Court said that the Explanation creates a legal fiction that fixes the location of the sale. Once the Explanation determines that the sale is situated in a particular State, the transaction automatically becomes a transaction outside every other State. Consequently, the sole enquiry under article 286(1)(a) was whether the transaction was outside the State in question. When the Explanation concluded that the transaction was outside that State, it followed inevitably that the State could not impose tax on that transaction. The Court emphasized that this prohibition operated even if the same transaction also took place in the course of inter-State trade or commerce or involved goods that Parliament had declared essential for the community’s life. The Court further observed that the prohibition contained in article 286(2) was a separate and independent ban. Article 286(2) examined transactions solely on the basis that they occurred in the course of inter-State trade or commerce. Even where such a transaction also fell within the category covered by article 286(1)(a) or by article 286(3), the moment article 286(2) applied because the transaction was part of inter-State trade or commerce, the ban under article 286(2) took effect. Under that ban, a State Legislature could not levy tax on the transaction, except to the extent that Parliament, by law, authorized such taxation or the President’s order saved the power of taxation as contemplated in the proviso. The Court noted that although a President’s order could save the ban created by article 286(2), the order did not affect or remove the ban created by article 286(1)(a) read with its Explanation. In addition, the Court referred to the construction of the various clauses of article 286 advanced by the majority of the Judges in The Bengal Immunity Co.’s Appeal. The Court held that the wording of the proviso made it unmistakably clear that the proviso was intended solely to lift the ban under article 286(2) and no other ban. The Court described a fundamental rule of interpretation: a proviso to a statutory provision applies only to the field covered by the main provision and creates an exception confined to that provision. Even if the non-obstante clause, “Notwithstanding that the imposition of such tax is contrary to the provisions of this clause,” had not been included in the proviso, the Court explained that the proviso could only have been

It was observed that the proviso could be understood only as operating upon the field created by article 286 (2) and that it could not be broadened to cover any other provision of article 286. The non-obstante clause, placed expressly in the proviso, reinforced this limitation by stating in clear terms that it was enacted solely with reference to “this clause”, which the Court identified as article 286 (2). While the President’s order was permitted to direct that any tax on the sale or purchase of goods which had been lawfully levied by a State before the commencement of the Constitution could continue to be imposed until 31 March 1951, the effect of that order was to raise the ban only to the extent that it was imposed by the provisions of “this clause”. Consequently, the President’s order lifted the ban merely for transactions that occurred in the course of inter-State trade or commerce and could not be projected into the sphere of any other clause of article 286. The order therefore did not remove the ban imposed by article 286 (1) (a) and its Explanation, even though the transactions covered by the Explanation to article 286 (1) (a) generally fell within the category of inter-State trade. The ban created by article 286 (1) (a) was independent and separate, and it could not be overridden by the President’s order, which operated only with respect to the inter-State character of the transactions and saved only those inter-State transactions that were not captured by the Explanation. Accepting the contention advanced on behalf of the State of Madhya Pradesh would require the Court to rewrite or amend the proviso to article 286 (2) in order to implement the alleged intention of the Constitution-makers. The alleged intention, according to the State, was to preserve to the States all taxes on the sale or purchase of goods that were being lawfully levied by them immediately before the Constitution came into force, by resorting to the territorial-connection or nexus theory. No evidence was placed before the Court of such a purpose, and the Court held that whatever the Constitution-makers’ intention might have been must be deduced solely from the language they employed, and where that language is plain there is no room for speculation. When the Constitution-makers themselves used the words “Notwithstanding that the imposition of such a tax is contrary to the provisions of this clause”, it would not be proper for the Court to look beyond those plain words or to read into the proviso any implication that would require deletion or rewriting of the non-obstante clause, as was suggested. Whatever be

The Court observed that the effect of its judgment on the treasuries of the exporting or title States could not be achieved by reading into the proviso something that was not supported by any rule of construction. It emphasized that the proviso referred exclusively to article 286(2) and could not be extended to any other clause of article 286. To demonstrate the untenability of the Respondents’ arguments, the Court presented a hypothetical scenario. It supposed that goods were physically located in the State of Madhya Pradesh at the moment contracts of sale for those goods were concluded in the State of Bombay. It further assumed that, as a result of those sales, the title to the goods transferred in the State of Bombay, while the goods themselves were subsequently delivered for consumption in the State of Madras. According to the Respondents, a President’s order made under the proviso to article 286(2) saved the transactions from the ban contained in article 286(1)(a) read with the Explanation. Under that view, the State of Madras would be entitled to tax the goods on the basis of article 286(1)(a) and the Explanation, or on the basis of the nexus theory because the goods were delivered there for consumption; the State of Bombay would be entitled to tax because the title to the goods passed within its territory; and the State of Madhya Pradesh would also be entitled to tax under Explanation 11 to section 2(g) of the Act because the goods were situated in Madhya Pradesh when the contracts were made in Bombay. The Court noted that no one could claim that the Constitution-makers intended to allow such multiple taxation, yet that would be the result if the Respondents’ reasoning were accepted. Consequently, the Court held that, for the period after the Constitution came into force, the prohibition contained in article 286(1)(a) and its Explanation could not be overridden by a President’s order issued under the proviso to article 286(2). The Court concluded that the High Court had erred in interpreting the proviso to article 286(2) as extending into the field of article 286(1)(a) and thereby removing the ban. On that basis, the Court allowed Civil Appeal No. 137 of 1955 filed by the firm of Ramdas Khimji Brothers, Bombay, which concerned only the post-Constitution period, set aside the assessment order dated 29 December 1952, and ordered the Respondents to pay the costs of the Appellants in both the present proceedings and the lower court. However, the Court observed that Civil Appeals Nos. 132 of 1955 and 133 of 1955 involved assessments that covered not only the post-Constitution period but also the pre-Constitution period, where different considerations applied. The validity of those assessments would have to be examined in light of the various legal and factual contentions that the Appellants might raise with respect to the pre-Constitutional portion.

In this case, two unresolved issues were presented by the Attorney General concerning the period under review. The first issue concerned a factual question of whether the appellants acted as agents of the various mills in relation to the transactions that formed the basis of the assessment. The second issue concerned a legal question of whether the statutory provision under which the tax was imposed, namely Explanation II to section 2(g) of the Act, had been validly enacted. Although both matters were also pertinent to the post-Constitution period, they were not specifically argued before the Court because the argument based on the proviso to article 286(2) was deemed sufficient to set aside the assessment for that period. Nonetheless, the Court observed that these questions would appropriately arise and be raised by the appellants when the liability for the pre-Constitution period is to be determined, and that any determination of that liability would require the Court to consider them. The Court further noted that it was unnecessary to address those questions because the assessment in question was a single composite determination covering both the pre-Constitution and post-Constitution periods, and the entire assessment had been found invalid. The Court cited authority that when an assessment consists of an undivided sum for the whole of the property treated as assessable, the wrongful inclusion of any portion of property that is expressly exempt from taxation renders the entire assessment invalid. The Privy Council, in Bennett & White (Calgary) Ltd. and Municipal District of Sugar City No. 5 (1951 Appeal Cases, 786 at page 816), had observed that if an assessment is a single undivided sum, the court cannot sever the exempt portion; the whole assessment must be declared void. The Court also referred to the decision in Montreal Light, Heat & Power Consolidated v. City of Westmount (1926) S.C.R. (Can.) 515, where the Chief Justice, per Anglin, held that an assessment bad in part infects the whole and is to be treated as invalid in its entirety. Accordingly, the Court accepted the submission that, on the facts of the present case, the assessment was invalid in toto and should be set aside. The Deputy Advocate-General of Madhya Pradesh did not seriously contest this position. Consequently, the order of assessment dated 30 June 1953 in Civil Appeal No. 132 of 1955 was held to be set aside.

The Court held that the order of assessment dated 9 September 1953 in Civil Appeal No 133 of 1955 was liable to be set aside. Accordingly, the appeals were allowed and both orders of assessment were declared invalid. The matters were directed to be returned to the Assessment Officer so that the appellants could be reassessed in accordance with law. The appellants were given liberty to place before the Assessment Officer all legal and factual contentions that were available to them in the fresh assessment proceedings, including those previously raised. The respondents were ordered to pay the costs of the appellants both in this Court and in the Court below. The petition, identified as Petition No 567 of 1954, was presented under article 32 of the Constitution. The petition also required the Court to interpret the proviso to article 286(2) and raised the same question concerning the meaning, scope and operation of that proviso as had arisen in Civil Appeals Nos 132, 133 and 137 of 1955, which had just been disposed of.

The petitioners were a partnership firm engaged in the manufacture of bidis at Jabalpur and were registered as a “dealer” under the Central Provinces and Berar Sales Tax Act, 1947. They maintained branches at Lucknow, Kanpur, Faizabad, Agra, Bombay and Bhopal, and also employed selling agents at various locations in Uttar Pradesh and elsewhere outside the State of Madhya Pradesh. In addition, they entered into direct transactions with merchants in Uttar Pradesh. The transactions that formed the basis of the sales-tax assessment covered the period from 21 October 1949 to 9 November 1950. This period was divided into two parts: the pre-Constitution period from 21 October 1949 to 25 January 1950, and the post-Constitution period from 26 January 1950, the date of the Constitution’s inauguration, to 9 November 1950. The petitioners’ gross turnover for the assessment period was determined to be Rs 49,40,140-6-9, and the sales tax assessed on those transactions amounted to Rs 1,51,291-13-0, as recorded in the order of the Deputy Commissioner of Sales Tax, Madhya Pradesh (Respondent No 3), dated 14 July 1954 in Sales Tax Appeal No 6/A-1-6-54. The petitioners filed a second appeal to Respondent No 2 against that order, but Respondent No 2 refused to admit or register the appeal unless the assessed tax was paid in full. The petitioners paid approximately Rs 91,000 towards the tax but, finding it difficult to pay the balance, filed the present petition against the State of Madhya Pradesh (Respondent No 1), the Commissioner of Sales Tax (Respondent No 2), and the Deputy Commissioner of Sales Tax (Respondent No 3). The petition sought a writ of certiorari to quash the order dated 14 July 1954 and requested consequential reliefs. The respondents countered by denying the petitioners’ contentions.

The Respondents asserted that the sales tax had been lawfully assessed against the petitioners. They set out the petitioners’ turnover for the assessment period by itemising the various sales categories. First, sales made directly to selling agents on orders amounted to Rs 6,15,236-3-0. Second, sales made directly to merchants on orders amounted to Rs 3,99,450-2-0. Third, sales made directly to destinations other than branches or depots, but accounted for against branches and depots, amounted to Rs 6,20,996-14-0. Fourth, sales made directly to stations or destinations that had branches or depots owned by the proprietors of the registered firm in Kanpur, Bombay, Lucknow and Faizabad amounted to Rs 31,06,739-13-0. The Sales Tax authorities treated all of these transactions as sales falling within the definition contained in Explanation II to section 2(g) of the Act. Consequently they assessed the petitioners to sales tax on the entire turnover, rejecting the petitioners’ contention that the transactions were, in any event, sales effected outside the State of Madhya Pradesh and that, therefore, Madhya Pradesh was not entitled to impose tax on them under article 286(1)(a) and its accompanying Explanation.

The learned Attorney-General appearing for the petitioners contended that the bidis manufactured by the petitioners were all delivered as a direct result of the sales transactions for consumption in the State of Uttar Pradesh. He argued that, after the Constitution came into force on 26 January 1950, only the State of Uttar Pradesh, being the delivery State, possessed the exclusive right to levy tax on those transactions, irrespective of the fact that, under the general law of sale of goods, title to the goods might have passed in Madhya Pradesh. Accordingly, he urged that the transactions were sales outside Madhya Pradesh and that Madhya Pradesh could not impose tax on such sales.

In contrast, the learned Advocate-General of Madhya Pradesh maintained that the transactions were purely intra-state sales entered into by the petitioners within Madhya Pradesh. He argued that the Explanation to article 286(1)(a) did not apply because the goods were not actually delivered for consumption in Uttar Pradesh as a direct result of those sales. Consequently, he asserted that, even in the post-Constitution period, there was no prohibition on Madhya Pradesh imposing sales tax on what were essentially “inside sales”.

Given these opposing submissions, the Court found it necessary to ascertain the true nature of the transactions in question. The petitioners, in paragraph 15 of their petition, averred that the bidis produced by the firm were all delivered in Uttar Pradesh for consumption there and that, after 26 January 1950, the delivery State—Uttar Pradesh—alone had the right to impose tax on the commodity. They

In this case the petitioners asserted that once the bidis were manufactured in Madhya Pradesh and shipped to Uttar Pradesh, the State of Madhya Pradesh could no longer levy a tax on those sales because Article 286 prohibited such taxation after the goods were delivered outside the State. The respondents, in the return they filed, did not deny the petitioners’ claim that all the bidis produced by the firm were delivered in Uttar Pradesh for consumption there. Instead, the respondents argued that even though Uttar Pradesh qualified as the “delivery State” under the Explanation to Article 286(1)(a), the liability for sales tax in Madhya Pradesh was preserved by a Presidential order made under the proviso to Article 286(2). They maintained that the tax imposed by Madhya Pradesh was therefore lawful and did not violate Article 286(1)(a) together with its Explanation. The order issued by the Assistant Commissioner of Sales Tax, Jabalpur, in the original assessment case No. 16 of 1950-51 dated 7 August 1953, and the order issued in Sales Tax Appeal No. 6/A-1-6-54 by the Deputy Commissioner of Sales Tax, Madhya Pradesh, dated 14 July 1954, were both based on this reasoning. Both authorities held that although the goods had indeed been delivered as a direct result of the sales for consumption in Uttar Pradesh, the Presidential order under the proviso to Article 286(2) saved the transactions from the ban contained in Article 286(1)(a) and its Explanation, thereby allowing Madhya Pradesh to impose its tax. The respondents never contended before either authority that the sales were purely “inside sales” nor that the Explanation to Article 286(1)(a) was inapplicable. The facts found by the sales-tax officials emphasized that the transactions fell within the definition of “sale” contained in Explanation 11 to section 2(g) of the Act and that, for the post-Constitution period, they were exempt from the ban of Article 286(1)(a) by virtue of the Presidential order. Nevertheless, the Advocate-General of Madhya Pradesh argued that the transactions were pure “inside sales” entered into in Madhya Pradesh on orders received from outside the State. He claimed that those orders were accepted in Madhya Pradesh, that the goods were appropriated to the contracts, and that title to the goods passed within Madhya Pradesh, making the sales intra-State and therefore within the taxing competence of Madhya Pradesh.

The learned Advocate-General of Madhya Pradesh had argued that the transactions were “inside sales” within the taxing jurisdiction of Madhya Pradesh, but the Court found this contention untenable. Regarding the direct supplies made to selling agents and to merchants on orders falling under items (a) and (b), the Court observed that the goods were supplied to merchants who purchased them on a commission basis or for profit on earlier orders, and that the orders were placed either in printed form or by ordinary letters. The sale prices were realised by forwarding bills and railway receipts through scheduled banks. The use of scheduled banks to transmit the bills and railway receipts demonstrated that the petitioners retained the right to dispose of the goods indicated by those receipts and that the title to the goods passed in the State of Uttar Pradesh only after the corresponding bills had been accepted or honoured by the purchasers and the railway receipts had been delivered by the banks. Consequently, the Court concluded that in these instances the sales were completed in Uttar Pradesh and could not be characterised as intra-State sales or “inside sales” for Madhya Pradesh. In relation to the direct supplies to destinations other than branches or depots but accounted for against the branches or depots, identified as item (c), the Court found that the petitioners dispatched the goods and billed depot managers, who were responsible for gathering the orders and for forwarding the railway receipts and bills to the depot. The depot managers prepared additional bills for incidental charges and delivered the railway receipts to the ultimate customers, to whom the goods had been sent from Madhya Pradesh. Although the goods left Madhya Pradesh, the depot managers subsequently prepared their own invoices and handed the railway receipts to the customers, thereby aligning the goods with the contracts of sale entered into by the customers. The Court held that these transactions were consummated in Uttar Pradesh and, therefore, did not fall within the category of intra-State or “inside” sales for Madhya Pradesh. Finally, concerning the direct supplies to stations or destinations that possessed branches or depots owned by the firm in Kanpur, Bombay, Lucknow and Faizabad, described as item (d), the Court determined that these were also outside sales for Madhya Pradesh. The branch managers requested that the petitioners send stock of goods to fulfil orders they had secured from customers, and the petitioners supplied the goods in response to consolidated indents placed by the depot managers for earlier orders. In each of these cases, the Court concluded that the sales were completed in Uttar Pradesh, rendering the notion of “inside sales” inapplicable and establishing that the transactions were inter-State sales taxable only by Uttar Pradesh.

It was found that the depots or branches had collected the orders and that the petitioners had supplied the goods to those depots or branches in accordance with the indents placed by the depot managers. If this description of the supplies is correct, then the sales were completed in the State of Uttar Pradesh, because the depots or branches themselves delivered the goods to a number of customers in that state. Consequently, there was no direct sale between the petitioners and their own depots or branches, and the State of Madhya Pradesh could not claim any right to tax the transaction. The argument that such dealings constituted “inside sales” therefore collapsed. The only remaining characterization was that the transactions were inter-State sales, with the goods being delivered for consumption in Uttar Pradesh as a direct result of the sales. The Explanation to article 286(1)(a) expressly designates Uttar Pradesh as the state in which the sales occurred and the only state authorised to levy tax on them, while Madhya Pradesh is treated as an “outside” state for this purpose. In addition to the prohibition imposed on Madhya Pradesh under article 286(1)(a) and its Explanation, the transactions were also part of inter-State trade or commerce and therefore fell within the ban prescribed by article 286(2). Although the President’s order removed the ban created by article 286(2), it did not have the authority to remove the ban created by article 286(1)(a) together with its Explanation. As a result, even after the President’s order, Madhya Pradesh could not impose tax on these transactions for the period after the Constitution came into force. Accordingly, the assessment that sought to tax these transactions for the post-Constitution period was invalid and could not be upheld. Moreover, that assessment was a composite one that also covered the pre-Constitution period, making it even more untenable.

The matter therefore fell within the principles articulated in the Court’s recent judgment in Civil Appeals Nos. 132, 133 and 137 of 1955. Applying the reasoning of those decisions, the Court concluded that the order dated 14 July 1954, issued by the Deputy Commissioner of Sales Tax, Madhya Pradesh, in Sales Tax Appeal No. 6/A-1.6.54, must be set aside. Consequently, the petition was allowed, the challenged order of 14 July 1954 was rescinded, and the case was remitted to the Assessment Officer for a fresh assessment of the petitioners in accordance with the law. The petitioners were directed that they could, before the Assessment Officer, raise any legal or factual arguments that they deemed appropriate in the new assessment proceedings. The respondents were ordered to bear the costs of the petition. Separately, a dissenting note was recorded, stating that the author of the dissent felt obliged to differ from the majority view regarding the interpretation of the proviso to article 286(2) and the effect of the Presidential order issued under it. The dissent noted that there was no dispute that the proviso must be read as part of article 286(2).

It was explained that the purpose of the constitutional provision was to give the President authority to place the ban created by that provision in a temporary suspension, thereby allowing the States to continue levying taxes on sales under their pre-Constitution sales-tax statutes, provided those statutes were lawful, for a limited period of time. It was then submitted that the proviso, together with the President’s order made under it, operated only to remove the ban specified in article 286(2), while the ban contained in article 286(1)(a) remained in force and continued to apply. The Court acknowledged that it could be said accurately that the two bans were framed from different perspectives and, in that sense, could be described as independent of one another. Nevertheless, the Court observed that there was no doubt that, in practical effect, the two bans overlapped substantially. It noted that a transaction which resulted in a sale outside the State of origin was also, in almost every case, an inter-State transaction, except perhaps for a very few carefully crafted hypothetical examples. The Court further observed that each ban under article 286 was intended to delineate the territory within which a State could not exercise its power to tax sales. Accordingly, if the two bans—those found in article 286(1)(a) and in article 286(2)—were overlapping, the fact that they originated from different angles did not change the ultimate result, namely that both bans created a prohibition on taxation over the same, or at least a substantially similar, field. The Court therefore concluded that the proviso and the President’s order issued pursuant to it must be interpreted in that light. The proviso, together with the Presidential order, expressly declared that the area covered by sales made in the course of inter-State trade and commerce would be taxable for a limited period, and it did so by stating in clear and emphatic terms 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 the Constitution, shall continue to be levied until the 31st day of March, 1951.” The Court recognised that a non-obstante clause also appeared in the provision, and it would consider that clause later, but it emphasized that the clause merely reiterated that the language was a proviso to article 286(2). More importantly, the Court stressed that the positive and mandatory language of the proviso could not be ignored. In the Court’s view, the effect of the proviso was plain and unequivocal: it temporarily made the entire field of inter-State trade and commerce subject to taxation with respect to the sales occurring therein. If that interpretation was correct, the Court held that it was implicitly understood that, for the duration of that temporary period, no other ban on such taxation could operate within that very field. To read the two bans as independently and cumulatively effective would, in the Court’s opinion, attribute to them an imagined “picturesque potency” and would overlook the reality that all the bans under article 286 were intended to achieve the same objective—namely, to impose restrictions and thereby define the fields in which taxation was prohibited. Consequently, the bans and the proviso, being components of the same article, had to be read harmoniously. The Court concluded that the clear and positive language of one part could not be nullified by the negative language of the other part so as to

It was observed that interpreting the proviso in the manner suggested by the learned Attorney-General would lead to a result that is essentially futile. A comparable difficulty would arise when the saving clause contained in article 286(2) is considered. If the proviso were read according to the Attorney-General’s proposal, then whenever Parliament were to lift the prohibition imposed by article 286(2), that very lifting would become ineffective because article 286(1)(a) would continue to operate. The Constitution, however, has not granted Parliament the authority to remove the restriction placed by article 286(1)(a). Consequently, an anomalous situation would emerge: although the Constitution expressly permits the ban on taxation of sales that occur in the course of inter-State trade and commerce to be removed either by ordinary legislation of Parliament or by a Presidential order for a limited period, the exercise of either power would be rendered impotent and ineffective by the continuing operation of article 286(1)(a). The Court found it unreasonable to infer that such an intention was necessarily embedded in the language of the provisions. With due respect, it was held that whether the ban is lifted through legislative action or through a Presidential proclamation, the doctrine of harmonious construction of article 286, treated as a single integrated provision, requires that the removal of the ban be understood as opening the entire field covered by article 286(2) to taxation, and that this opening carries the implication that no other overlapping prohibition may remain in force.

The Court noted that some authorities had argued that, insofar as Parliament lifts the ban under article 286(2), a portion of the ban might still operate by virtue of article 286(1)(a) together with its Explanation, which allows the consuming or delivering State to levy tax. This view had been articulated by the dissenting judge in The State of Bombay v. The United Motors (India) Ltd. [1953] S·C·R 1069. However, the majority in the more recent case of Bengal Immunity Co. Ltd. v. State of Bihar, Civil Appeal No. 159 of 1958, including the same judge, left the issue unresolved. The Court found it problematic to accept that, given the inevitable extra-territorial reach of such a tax and the substantial harassment it could cause to the business community, the Explanation would again be given a liberal construction rather than the stricter reading endorsed in the dissenting judgment of State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory [1954] S·C·R 53. The Court concluded that construing the proviso—and by analogous reasoning the saving clause—as merely removing one specific prohibition while allowing another overlapping ban to persist would effectively make both the saving clause and the proviso to article 286(2) virtually ineffective. The Court also addressed the argument based on the non-obstante clause in the proviso, which states, “Notwithstanding that the imposition of such…”, and indicated that this clause does not limit the operation of the main provision but merely underscores its applicability to article 286(2).

In this case, the Court considered the argument that the clause stating “tax is contrary to the provisions of this clause” must be examined. The parties urged that the clause plainly shows that the operation of the proviso is confined solely to the purpose of lifting the ban that arises under article 286(2). The Court, however, expressed an inability to agree with that view. It observed that the non-obstante clause undeniably confirms that the proviso is operative with respect to article 286(2), but it does not purport to limit the effect of the proviso beyond what a reasonable construction would allow. The Court explained that a non-obstante clause normally does not add to or subtract from the main provision of which it is a part; it is usually inserted as an extra precaution and does not have the effect of restricting the operation of the main provision. The Court cited earlier decisions, namely Aswini Kumar Ghosh v. Arabinda Bose (1) and The Dominion of India v. Shrinbai A. Irani (2), to support this principle. The Court further rejected the suggestion that the Presidential action lifts the ban only as regards inter-State sales, which would require reading the phrase “notwithstanding that” as meaning “insofar as”. It found no warrant for such a reading, noting that the phrase is a standard legislative device indicating that the provision operates despite any inconsistency, rather than limiting its reach. Consequently, the Court concluded that the non-obstante clause does not curtail the operation of article 286(2) and does not create a new limitation on the main provision.

The Court then turned to the consequence of this interpretation for the pre-Constitution sales-tax statutes. In its view, those statutes, if they were lawful at the time of their enactment, are not struck down by article 286(1)(a) at least to the extent that the prohibition in article 286(1)(a) overlaps with the prohibition in article 286(2). Accordingly, the orders of assessment that have been issued in the present cases cannot be set aside on the basis of the non-obstante clause. The validity of the relevant pre-Constitutional laws must still be examined and the additional facts in each case considered. Nevertheless, the Court held that, because the approach adopted by the learned brothers already addresses the matter, it is unnecessary to reopen those issues in these specific cases. The orders proposed by the learned brothers will therefore govern the present disputes, and no further adjudication on the pre-Constitutional sales-tax laws is required at this stage.