M.P. V. Sundararamier and Co vs The State of Andhra Pradesh

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 11 March 1958

Coram: S.K. Das, A.K. Sarkar

In the matter of M.P. V. Sundaramarier and Co. versus the State of Andhra Pradesh, the Supreme Court of India delivered its judgment on 11 March 1958. The bench hearing the case comprised Justices S.K. Das, A.K. Sarkar, and Chief Justice Sudhi Ranjan, together with Justices Aiyyur, T.L. Venkatarama Bose, Vivian Das, and Das, S.K. Sarkar, A.K. The petitioners were the firm M.P. V. Sundaramarier and Co., who operated as dealers in the City of Madras dealing in the sale and purchase of yarn. The respondents included the State of Andhra Pradesh and another connected party. The case concerned the applicability of sales tax to transactions that involved inter‑State sales, specifically where the property in the goods passed outside the State of Andhra Pradesh but the goods were ultimately delivered for consumption within that State. The petitions were filed under Article 32 of the Constitution of India, challenging a tax demand on the ground that the sales in question were inter‑State sales and therefore immune from taxation under Article 286(2) of the Constitution. After the Constitution came into force, the President, exercising the power conferred by Article 372(2), issued Adaptation Orders relating to the sales‑tax statutes of the various States. With respect to the Madras General Sales Tax Act, 1939 (Mad. 9 of 1939), the President inserted a new Section 22, which was a verbatim reproduction of the Explanation to Article 286(i)(a) of the Constitution. On 13 July 1954, the Board of Revenue (Commercial Taxes) of the State of Andhra Pradesh, following the decision in The State of Bombay and another v. The United Motors (India) Ltd. and others, [1953] S.C.R. 1069, directed dealers in the State of Madras to submit returns of their turnover from sales where the goods were delivered in Andhra Pradesh for consumption. Consequently, the petitioners filed the present petitions contesting the demand. While the petitions were pending, the Supreme Court, on 6 September 1955, delivered its judgment in The Begal Immunity Company Limited v. The State of Bihar and others, [1955] 2 S.C.R. 603, holding that the petitioners were not liable to be taxed. Subsequently, Parliament enacted the Sales Tax Laws Validation Act, 1956, Section 2, which declared that no law of a State imposing or authorising tax on inter‑State sales during the period from 1 April 1951 to 6 September 1955 would be deemed invalid solely because the sales occurred in the course of inter‑State trade, and that taxes levied or collected during that period would be deemed validly levied or collected. The State of Andhra Pradesh contended that, pursuant to this provision, it possessed the right to impose tax on inter‑State sales during the specified period. The petitioners, however, argued that Section 22 of the Madras General Sales Tax Laws Validation Act, 1956, which merely gave validity to laws imposing a tax, did not itself authorise the imposition of such tax, and raised additional points of contention concerning the constitutional and legislative framework governing inter‑State sales taxation.

Before the Court could issue final orders on the petitions, Parliament enacted the Sales Tax Laws Validation Act, 1956. Section 2 of that Act stipulated that no law of a State that imposed, or authorized the imposition of, tax on inter‑State sales during the period from 1 April 1951 to 6 September 1955 would be deemed invalid, nor would it ever be considered invalid merely because the sales occurred in the course of inter‑State trade. The same provision further declared that any tax levied or collected on such sales within the stated period would be deemed to have been validly levied and collected. The State of Andhra contended that, by virtue of this provision, it possessed the right to impose tax on inter‑State sales that occurred during the aforesaid period. In contrast, the petitioners advanced a series of objections. First, they argued that Section 22 of the Madras General Sales Tax Laws Validation Act, 1956, although conferring validity on laws that imposed a tax, did not itself confer the authority to impose the tax. Second, they maintained that the Sales Tax Laws Validation Act was ultra vires Article 286(2) of the Constitution. Third, they asserted that Section 22 of the Madras Act did not qualify as a “law of a State” within the meaning of Article 286(2) and Section 2 of the impugned Act. Fourth, they claimed that the impugned Act merely validated taxes that had already been imposed and did not authorize the initiation of fresh proceedings to levy tax. Fifth, they contended that because Section 22 was unconstitutional at the time of its enactment and therefore void, no proceedings could be launched under it, as the effect of its unconstitutionality would erase it from the statute book. Sixth, they argued that the proposed levy violated the rule that the sale of yarn could be taxed only at a single point. Additionally, the petitioners submitted that the Constitution confers upon Parliament alone the competence to tax inter‑State sales, and that the Sales Tax Laws Validation Act of 1956 was defective because it sought to give validity to State laws imposing such tax. The Court, with Sarkar J delivering a dissenting opinion, held that Section 22 of the Madras General Sales Tax Act, 1939, did indeed impose a tax on the class of sales described in the Explanation to Article 286(1)(a). However, that imposition was conditioned upon the ban created by Article 286(2) being lifted by a law of Parliament, as provided in the Validation Act, and consequently the tax was validated by Section 2 of the Sales Tax Laws Validation Act, 1956. The Court further observed that the interpretation given to the Explanation to Article 286(1)(a) in the Bengal Immunity Company case—that it merely prohibited outside States from imposing a tax on the class of sales falling within the Explanation and did not confer upon the delivering State any power to impose such a tax—does not apply to a State taxing statute whose primary purpose was to confer the power on the

Section 22 together with Section 2(h) of the Madras General Sales Tax Act were held to be read jointly in order to define the category of sales that were liable to tax under the Act. The Court approved the rulings in Mettur Industries Ltd. v. State of Madras (AIR 1957 Mad 362), The Mysore Spinning and Manufacturing Co. Ltd. v. Deputy Commercial Tax Officer, Madras (AIR 1957 Mad 368) and Dial Das v. P. S. Talwalkay (AIR 1957 Bom 71). Conversely, it disapproved the decisions in Mathew v. Travancore‑Cochin Board of Revenue (AIR 1957 T.C. 300), Cochin Coal Co. Ltd. v. The State of Travancore‑Cochin ((1956) 7 Sales Tax Cases 731) and The Government of Andhra v. Nooney Govin Arajulu ((1957) 8 Sales Tax Cases 297). The Court also relied on the authorities Queen v. Burah ((1878) 5 IA 178) and In re The Delhi Laws Act, 1912 et al. ([1951] SCR 747) in reaching its conclusions.

The Court, speaking through the Chief Justice and the several learned judges, articulated five principal holdings. First, it observed that the Sales Tax Laws Validation Act 1956, in substance, removed the constitutional prohibition on the taxation of inter‑State sales and that Parliament possessed the authority to enact such a validating law under Article 26(2) of the Constitution, including the power to give the legislation retrospective effect; the earlier decision in Punjab Province v. Daulat Singh ((1946) LR 73 IA 59) was distinguished, as was United Province v. Atiqa Bcgum ([1940] FCR 110). Second, the Court held that the Adaptation Order issued by the President pursuant to Article 372(2) was a valid exercise of power and could not be challenged on the ground that it exceeded the limits contemplated by that Article. Third, it interpreted the phrase “law of a State” appearing in Article 286(2) and Section 2 of the Validation Act to mean any rule that operates as law within the State, thereby including Section 22 of the Madras General Sales Tax Act within the meaning of that expression. Fourth, the Court affirmed that Section 2 of the Validation Act not only validated tax levies that had already been collected but also authorized the imposition of tax on sales falling within the Explanation of Article 286(1)(a) during the period specified in Section 2; although the Act’s operation was confined to sales occurring in that limited period, the Act was not characterized as temporary. The earlier view in Dial Das v. P. S. Talwalkay that a State could not initiate fresh assessment proceedings was expressly disapproved. Fifth, the Court explained that while Section 22 of the Madras General Sales Tax Act was unconstitutional at the time of its enactment, this did not result in its removal from the statute book; unconstitutionality may arise because a law concerns a matter beyond the legislature’s competence or because its provisions infringe a constitutional restriction. A law beyond competence is a nullity, whereas a law within competence but repugnant to the Constitution is merely unenforceable, a distinction the Court emphasized in its analysis.

In this judgment the Court observed that when a constitutional prohibition is removed, the legislation in question becomes enforceable without the need for a fresh enactment. The Court further explained that if an enactment is partly unconstitutional but the remaining part is valid, and assuming the two parts can be separated, the statute is not to be erased from the books; the valid portion must remain in force for the purpose of its enforcement. Additionally, the Court held that because the impugned statute is conditional legislation, it cannot be said to have become void ab initio. The decisions in Behram Khurshed Pesikaka v. State of Bombay, [1955] I.S.C.R. 613 and A.V. Fernandez v. State of Kerala, [1957] S.C.R. 837 were distinguished, while the case of Bhikaji Narayan Dhakras and others v. State of Madhya Pradesh and others, [1955] 2 S.C.R. 589 was relied upon. The Court then turned to the constitutional scheme, noting that under Entry 42 of List I of Schedule VII of the Constitution, legislation concerning inter‑State trade and commerce is vested exclusively in Parliament. Conversely, under Entry 54 of List III, the power to levy taxes on the sale of goods lies exclusively with the State legislatures. Reading these two entries together, the Court concluded that Entry 42 must be interpreted as excluding the power to tax the sale of goods, because the constitutional design treats taxation as a separate subject matter that is set out independently in the lists. Accordingly, Entry 42, List I, does not confer on Parliament the authority to impose a tax on inter‑State sales. The Court further observed that the proposed tax by the State of Andhra does not violate the principle that sales of yarns should be taxed at a single point, since the principle forbids multiple taxation within the same State, whereas the levy is being imposed by Andhra itself. Referring to the opinion of Justice Sarkar, the Court stated that the Sales Tax Act does not permit taxation of a transaction in which the goods are delivered in the State of Andhra but the ownership of the goods passes to a location outside that State. The Explanation to Section 22 of the Act envisions a State other than Andhra as the place where the sale is deemed to have occurred. The expression “for the purposes of clause (a)(i)” carries the same meaning in the Explanation to Article 286(1) of the Constitution as it does in the Explanation to Section 22 of the Act. On this basis, the Court found the present matter indistinguishable from the earlier decision in The Bengal Immunity Company Limited v. State of Bihar and others, [1955] 2 S.C.R. 603. The judgment further recorded that the petitions, numbered 220, 222, 240 and 380 to 395 of 1955, filed under Article 32 of the Constitution for the enforcement of fundamental rights, were heard on the dates 10 to 13, 17, 18 and 19 December 1957 and on 7 to 9 January 1958. The Advocate‑General for the State of Andhra Pradesh and counsel for the respondent were listed. Finally, the Court held that the petitions were premature and incompetent because the factual details of each sale transaction had not yet been examined, making it impossible to ascertain the nature of each sale or to determine which sales could be subject to tax.

In the course of the proceedings, the Court observed that certain transactions could not be taxed by the State of Andhra Pradesh. The Chief Justice remarked that the authorities should be reasonably satisfied that the sales in question are of a character that permits the levy of tax before any notice is issued. Justice Bose added that the State must set out the factual basis on which it believes the sales are taxable. Justice S. K. Das then stated that the State’s position was that every transaction could be taxed by the State in which the goods were delivered. Counsel for the State, D. Narsa Raju, replied that the State was imposing tax in accordance with the decision of this Court in the United Motors case, reported in the 1953 Supreme Court Reporter at page 1069. When counsel for the petitioners indicated that his arguments would be confined to the taxability of “explanation” sales—transactions that some of the sales indisputably fell within—the Court signalled its willingness to hear the petitions. The petitioners were then represented by counsel K. S. Krishnaswami Iyengar, N. Srinivasan and R. Ganapathy Iyer.

The Court noted that the Andhra (Madras) Act was not intended to tax “explanation” sales at all; its language referred only to “property passing,” meaning that the State could tax only those sales in which the property actually passed within Andhra. The Court cited Poppatlal Shah v. State of Madras, reported in the 1953 Supreme Court Reporter at page 677, to support this view. It further observed that Section 22 of the Act did not broaden the definition of a sale but merely limited the State’s taxing power. The explanation to Section 22, similar to the explanation to Article 236(1), served only to define an “outside sale” and was not intended to determine what constituted an “inside sale,” as explained in the Bengal Immunity Company case, 1955 2 S.C.R. 603 at page 640. The Court held that the President’s power under Article 372(2) was confined to bringing State laws into conformity with Article 286 and Section 22, which had been introduced by the Presidential Adaptation Order under Article 372(2); this power could not be interpreted as authorising the levy of tax on “explanation” sales that Article 286 expressly prohibited. If Section 22 were read to permit such a levy, the Court declared the provision unconstitutional, illegal and void, and consequently non‑existent, referring again to the Bengal Immunity Company case at page 667. The Court further stated that what did not exist could not be validated, and that the Sales Tax Laws (Validation) Act 1956 was not valid legislation under Article 286(2). Article 286(2) merely empowers Parliament to lift the constitutional ban on the imposition of tax on inter‑State sales, after which the State legislature may impose the tax. Parliament does not have the competence to impose sales tax, a power that resides solely with the State legislatures, and Article 286(2) does not confer on Parliament the authority to validate or ratify State laws. Moreover, the power under Article 286(2) may be exercised only once, finally and completely, not in a piecemeal fashion, and it operates retrospectively from the date of exercise. The Court cited Punjab Province v. Daulat Singh, 73 I.A. 59, and Behram Khurshed Pesikaka v. State of Bombay, 1955 I.S.C.R. 613 at pages 654 and 655, to support these conclusions.

In this case the Court observed that the earlier decision in Dialdas v. Talwalkar (A.I.R. 1957 Bom. 71) had been decided incorrectly, yet the ruling was nevertheless helpful to the petitioners because it held that where tax had neither been collected nor levied, the Validation Act did not confer any authority to assess or impose such tax. The Court explained that the whole purpose of the Validation Act was to protect the State from having to refund tax that had been collected illegally, and that both the act of levying tax and the act of collecting it had to occur within the period specified in section 2 of that Act. The Court then referred to the decisions in Mettur Industries Ltd. v. State of Madras (A.I.R. 1957 Mad. 362) and Mysore Spinning and Manufacturing Co. Ltd. v. Deputy Commercial Tax Officer (A.I.R. 1957 Mad. 368), which were unfavorable to the petitioners, noting that the reasoning in R. Ganapathy Iyer was followed in those cases. The Court further pointed out that section 22 of the Andhra (Madras) Act did not enlarge the powers of taxation, and cited Mathew v. Travancore‑Cochin Board of Revenue (A.I.R. 1957 T.C. 300) to support that view. Because the validation granted by the Act was only for a temporary period that expired on 6 September 1955, the Court held that no action could be taken under the validated laws after that date. Supporting authorities included Kesavan Madhava Menon v. State of Bombay ([1951] S.C.R. 228, 234, 235), S. Krishnan v. State of Madras ([1951] S.C.R. 621) and State of Punjab v. Mohar Singh ([1955] S.C.R. 893). The Court observed that the tax in question was a single‑point tax under the Act and that the petitioners had already paid the tax at the time they purchased yarn from the mills; consequently, no second tax could be imposed. Because the Andhra (Madras) Act was a new statute, the tax on yarn was subject to the Essential Commodities Act 52 of 1952 read with Article 286(3) of the Constitution. The petitioners were not dealers in Andhra Pradesh and therefore could not be assessed; all sales occurred in Madras, not in Andhra. Counsel for the interveners, Mysore Spinning & Manufacturing Co. Ltd. and Minerva Mills Ltd., supported the petitioners. The Court further held that section 22 did not authorize the imposition of tax on “Explanation sales” and that it could not have been the President’s intention to permit the State to create a new category of sales called Explanation Sales for taxation. The language of Article 286(2) was explained to indicate that lifting the constitutional ban is a condition precedent before any State legislature may impose tax on inter‑State sales, while alternatively the power to tax such sales resides with Parliament under Entry 97 of List I of Schedule VII of the Constitution. The Court remarked that section 22 had been nullified by the judgment in the Bengal Immunity Company case, referencing Behram Khurshed Pesikaka v. State of Bombay ([1955] 1 S.C.R. 613) and Newberry v. United States (65 L.Ed. 913). It was further stated that the same interpretation must be given to the explanation to section 22 as has been given to the explanation to Article 286(1)(a). Finally, the Court concluded that the non‑obstante clause in section 22 merely subtracts from the power to tax rather than adding to it, and it mentioned Ram Narain Sons in the concluding remarks.

In the proceedings, the Court referred to several earlier decisions, namely Ltd. v. Assistant Commissioner of Sales Tax (1955 2 S.C.R. 483), Aswini Kumar Ghosh v. Arbinda Bose (1953 S.C.R. 1, 22, 24) and A. V. Fernandez v. The State of Kerala (1957 S.C.R. 837). Counsel for Tata Iron & Steel Co., Ltd., which intervened, argued that a factual levy must be in existence before Parliament can give it validation. The Court observed that Section 22(ii) of the relevant statute excludes inter‑State sales from the ambit of the Act, and that the judgment in Fernandez’s case supports this view. On a proper construction of Article 286(2), and following the Bengal Immunity Company decision, the Court noted that there was no levy on inter‑State sales and consequently nothing for Parliament to lift the prohibition. The Court distinguished retrospective from retroactive operation, holding that Parliament does not possess the power to validate a violation of Article 286(2 after the fact. Instead, Parliament must first remove the ban and only thereafter may a State enact legislation imposing tax on inter‑State sales. While Parliament may act to prevent a breach of the Constitution, it cannot condone an already committed breach. Accordingly, Section 2 of the Sales Tax Laws Validation Act will apply only where taxes have already been collected or finally assessed. Counsel for Pashebbhai Patel & Co., Ltd., which also intervened, supported the petitioners. The Advocate‑General of Andhra Pradesh and counsel for the respondents were also cited.

The Court then turned to Article 372(2), stating that this provision requires the Constitution to be taken into account when adapting State laws, and that the relevant power of adaptation is found in Article 286. Implicit in Article 286(1) is the principle that only the “delivery State” may impose tax. The Court explained that the President, acting within his constitutional authority, may enable the delivery State to levy tax, and that this power is consistent with the Constitution. Consequently, the explanation to Section 22 may be read together with the definition of “sale” and it expands that definition to include “Explanation sales.” Counsel for Madura Mills Co., Ltd., which intervened, argued that the Adaptation Order issued by the President does not constitute a “law of a State” for the purposes of the Validation Act. The Court agreed that “law of a State” in the Validation Act must be interpreted in the same way as in Article 286(2). It held that when the President exercises power under Article 372(2) he is acting on his own authority, not on behalf of a State. Therefore, Section 22 of the Andhra (Madras) Act is not a law made by the State Legislature and cannot be validated by the Validation Act. The power to impose sales tax on inter‑State sales had been removed from the States, and the bail under Article 286(2) applies only to existing laws, not to any new enactment by the States.

The Court observed that the restriction in Article 286(2) applied only to laws that already existed, and that the States possessed no authority to enact legislation imposing a tax on inter‑State sales. It held that the power to levy a tax on inter‑State transactions fell exclusively within the jurisdiction of Parliament under Entry 42 of List I of the Seventh Schedule of the Constitution, and that Entry 54 of List II should not be interpreted as granting such power. The Court noted that Article 301 reinforces this view, because the freedom guaranteed by that article includes freedom from sales tax, citing the decision of The Commonwealth v The State of South Australia. The Validation Act, according to the Court, was not legislation falling within Entry 42, and it referred to authorities such as Bank of N. S. W. v The Commonwealth, Robbins v Taxing District of Shelby County, and McLeod v Dilworth Co. The solicitor‑general of India and counsel for the Union of India intervened, contending that the Sales Tax Laws Validation Act, 1956, was valid legislation under Article 286(2). The Court explained that, in effect and in substance, the Validation Act removed the prohibition imposed by Article 286(2) and therefore did not function as a genuine validating statute. It clarified that Article 286(2), concerning existing laws, merely rendered such laws ineffective or inoperative; it did not strip the legislatures of the competence to enact statutes concerning taxes on inter‑State sales. Although a law may be contrary to the Constitution, it is not repealed or nullified; it remains in a state of suspension, as explained in Bhikaji Narain Dhakras and others v State of Madhya Pradesh. Legislative power generally includes retrospective legislation, and there was no limitation in Article 286(2) on such retrospectivity. Consequently, Parliament could lift the ban retrospectively. The Court described Section 22 as conditional legislation that became operative as soon as Parliament lifted the prohibition. It distinguished the Validation Act from a temporary statute, noting that a temporary statute specifies a limited period of operation, whereas the Validation Act continues to operate, though only concerning sales of a particular period. The Court further held that the States could now initiate proceedings to tax the Explanation sales made during the period mentioned in Section 2, even if no action had been taken earlier. Finally, the Court examined Entry 42 of List I, which reads “Inter‑State trade and commerce,” and concluded that this entry does not confer any taxation power on Parliament, because in the constitutional scheme a general entry does not include taxation; taxation powers are enumerated separately in Entries 82‑92 of List I. The advocate‑general for the State of Madras and counsel for the State of Madras intervened, asserting that construction of Section 22 of the Andhra (Madras) Act must consider these principles.

The Court observed that, until the date of 6 September 1955, the law governing the taxation of sales remained as it was when the judgment in the Bengal Immunity Company case was delivered. In accordance with the ruling in United Motors (1953 S.C.R. 1069, 1085‑1086, 1093‑1094), sales falling under the Explanation were treated as “inside sales” within the State where delivery occurred, and that State therefore possessed the authority to levy tax on such sales. Consequently, a State that had enacted a statute imposing tax on Explanation sales continued to have that statute recorded on its books even after the Bengal Immunity Company decision, although the statute could no longer be enforced. The Court cited the decisions in Bhikaji Narain Dhakras and others v. State of Madhya Pradesh and another (1955 2 S.C.R. 589) and Ulster Transport Authority v. James Brown & Sons Ltd. (1953 N.I.R. 79) as supporting authority. Section 2 of the Validating Act was noted to refer expressly to such a law. The Court listed the interveners who appeared before it: Mahabir Prasad, Advocate‑General for the State of Bihar, together with Rajeshwar Prasad and S. P. Varma for Bihar; G. C. Mathur and C. P. Lal for the State of Uttar Pradesh, who supported the respondents and the Union of India; R. Ganapathy Iyer for the petitioners, who offered a reply; and K. V. Subramania Iyer for Madura Mills Co., Ltd., who also replied with the Court’s permission. The judgment dated March 2 1958 was delivered by the puisne judges Das C.J., Venkatarama Aiyar, S. K. Das and Vivian Bose, with the opinion of Venkatarama Aiyar J. being the principal one, while Justice Sarkar delivered a separate judgment.

Justice Venkatarama Aiyar explained that the petitioners were dealers conducting business in the city of Madras, dealing in the sale and purchase of yarn. They had invoked Article 32 of the Constitution and sought a writ of prohibition, or any other appropriate writ, to prevent the State of Andhra from initiating proceedings to impose a tax on certain sales they made to merchants who either resided in or conducted business in the territory now known as the State of Andhra Pradesh. Their contention was that these sales were part of inter‑State trade and, therefore, could not be taxed under the prohibition contained in Article 286(2) of the Constitution. The factual backdrop of the dispute was set out in paragraph 5 of Petition No. 220 of 1955. According to that paragraph, dealers located in Andhra would place orders for yarn with the Madras‑based petitioners; the contractual arrangements would be finalized in Madras; the yarn would be delivered from the petitioners’ godown in Madras and subsequently dispatched to the purchasers either by road lorries or by railway, according to the purchasers’ instructions. When rail transport was used, the railway receipts could be issued either in the name of the consignees and mailed to them, or in the name of the consignor and then endorsed to the purchasers and delivered in Madras, or the receipts could be posted with an endorsement in favour of a bank, after which the purchasers would obtain the goods upon payment to that bank. The petitioners therefore argued that, because the sales involved the movement of goods from Madras to Andhra and were conducted for consumption within Andhra, they fell within the explanation to Article 286(1)(a) and could not be subjected to taxation by the State of Andhra.

It was explained that after the bank received payment, it delivered the railway receipts to the purchasers. The parties asserted that in every transaction the price of the goods was paid in Madras. From these allegations, the Court observed that the sales described were not homogeneous; legally, the circumstances surrounding each sale could differ. The Court further noted that examining the legality of the tax imposition with respect to the various classes of sales would be futile and speculative unless the factual matrix of each class were established, a factual inquiry that had not been undertaken. The counsel for the petitioners admitted that the present dispute was limited to the proposed tax levy as it applied to sales falling within the Explanation to Article 286(1)(a). Such sales were defined as those in which the title to the goods passed outside the State of Andhra, yet the goods themselves were actually delivered for consumption within that State. In the arguments before the Court, these transactions were described as “Explanation sales,” and the Court agreed to use that term for ease of reference in the judgment. The Court pointed out that, had the State of Andhra still been part of the undivided State of Madras, all those sales would have been intrastate, and the issues now raised could not have arisen. On September 14 1953, Parliament enacted the Andhra State Act (Act 30 of 1953), which created a separate State of Andhra by carving out territories formerly belonging to the State of Madras; the Act became effective on October 1 1953. Section 53 of that Act provided that all laws previously applicable in the territories forming the new State would continue to operate, including the Madras General Sales Tax Act of 1939 (referred to as the Madras Act). Section 54 empowered the Government to adapt existing statutes for smooth implementation, and on November 12 1953 an Adaptation Order replaced the word “Madras” with “Andhra” throughout the Madras Act. Consequently, the Court referred to the continued legislation in Andhra as the Andhra (Madras) Act. The preamble of that Act declared, “it is expedient to provide for the levy of a general tax on the sale of goods in the State of Madras.” The definition of “sale” in section 2(h) was quoted as meaning “every transfer of the property in goods.”

In this provision the term “sale” was defined as a transfer of property in goods from one person to another in the course of trade or business for cash, for deferred payment, or for any other valuable consideration. Section 2(i) defined “turnover” as the aggregate amount for which goods were either bought by or sold by a dealer, whether the payment was made in cash, was deferred, or was any other valuable consideration. Section 3, the charging provision, required that every dealer pay, for each year, tax on his total turnover for that year. By the Madras General Sales Tax (Amendment) Act No. 25 of 1947 a new Explanation 2 was inserted into the definition of “sale”. Explanation 2 provided that, notwithstanding any contrary provision in the Indian Sale of Goods Act, 1930, a sale or purchase of any goods would be deemed, for the purposes of the Act, to have taken place in the Province wherever the contract of sale or purchase might have been made if either (a) the goods were actually present in the Province at the time the contract was made, or (b) the contract concerned future goods described by specification and the goods were actually produced in the Province at any time after the contract was made. This amendment became effective on 1 January 1948. In the earlier decision of Poppatlal Shah v. State of Madras the Court examined the scope of the definition of “sale” in section 2(h) together with Explanation 2. The Court held that the power to tax a sale was essentially a power to tax the transaction of sale and that a tax law would be valid if any element of the sale occurred within the State. However, according to the original definition of “sale” in section 2(h) before Explanation 2 was introduced, the Madras Act imposed tax only when the property in the goods passed within the State. Consequently, for sales that occurred before the amendment, the tax would have been unauthorised if the property passed outside the State of Madras. The Court further observed that after the amendment came into force, a tax on a sale falling within Explanation 2 would be valid. This was the position of law under the Madras Act prior to the commencement of the Constitution. The Court then referred to the constitutional amendment introduced by Article 286, which stipulates that no law of a State shall impose, nor authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State, or in the course of the import of the goods into, or export of the goods out of, the territory of India.

The Court examined the text of Article 286 of the Constitution, particularly the Explanation to sub‑clause (a). That Explanation declares that, for the purpose of sub‑clause (a), a sale or purchase is to be treated as having taken place in the State where the goods are actually delivered for consumption, even though the general law of sale of goods may show that title to the goods passed in a different State. The Court then considered clause (2) of Article 286, which prohibits a State law from imposing a tax on any sale or purchase of goods when such transaction occurs in the course of interstate trade or commerce, unless Parliament legislates otherwise. A proviso to this clause permits the President, by order, to allow any tax that was lawfully levied by a State immediately before the Constitution came into force to continue to be levied until 31 March 1951, even though such tax would otherwise contravene the constitutional provision. Clause (3) of Article 286 further provides that no State law may impose a tax on the sale or purchase of goods declared essential for the community’s life by Parliament unless the law has been reserved for the President’s consideration and has obtained his assent. The Court then turned to Article 372(2), which empowers the President to issue orders adapting or modifying any law in force in the territory of India so that it conforms to the Constitution, by repeal or amendment, and declares that such adaptations cannot be questioned in any court. Exercising this authority, the President issued adaptation orders relating to the sales‑tax statutes of all States; with respect to the Madras Act, the President promulgated on 2 July 1952 a Fourth Amendment that inserted a new Section 22. Section 22 states that nothing in the Madras Act shall be deemed to impose or authorise a tax on any sale or purchase of goods when such transaction occurs (a)(i) outside the State of Madras, or (ii) during the import of goods into India or the export of goods from India, or (b) unless Parliament provides otherwise after 31 March 1951 in the course of interstate trade or commerce.

In the provision relating to commerce, the Act required that its provisions be read and construed in accordance with the inserted section. The section contained an Explanation which stated that for the purposes of clause (a)(i), a sale or purchase would be deemed to have taken place in the State where the goods were actually delivered as a direct result of that sale or purchase for consumption in that State, even though under the general law of sale of goods the ownership of the goods might have passed in another State. The Explanation to Article 286(1)(a) was reproduced verbatim in section 22 of the Madras Sales Tax Act. The precise meaning and scope of this Explanation later became the subject of judicial consideration in the case titled The State of Bombay and another v. The United Motors India Ltd. and others. In that case a majority of the judges held that although the sales covered by the Explanation were in reality inter‑State trades, the fictitious device created by the Explanation transformed them into intra‑State sales, thereby making them liable to tax by the State in which the goods were finally delivered for consumption. Following that judgment, the Board of Revenue (Commercial Taxes) of Andhra State issued a notification on 13 July 1954, directing dealers to file returns of their turnover of sales in which the goods were delivered in Andhra State for consumption. A copy of this notification was also sent to the Madras Yarn Merchants’ Association, of which the petitioners were members. The Association contested the liability of the Madras dealers to pay tax on sales made to the Andhra dealers. After a period of correspondence, Andhra State issued, on 30 June 1955, notices to the petitioners requiring them to submit their turnover returns by 15 July 1955, warning that failure to do so would result in assessments being made on a best‑judgment basis and that the dealers would also be subject to penalties prescribed by law (as shown in Annexure H to the petition). Consequently, the petitioners filed the present petitions challenging the validity of the demand made by Andhra State. Their challenge was based, among other grounds, on the argument that the sales proposed to be taxed were inter‑State sales and that, under Article 286(2), such sales were immune from State taxation. These petitions were filed at various times during July and August 1955. While the petitions were pending, the question concerning the true scope of the Explanation to Article 286(1)(a) arose again before the Supreme Court in the case The Bengal Immunity Company Limited v. The State of Bihar and others. By a judgment delivered on 6 September 1955, the Court again, by a majority, held that the sales falling within the Explanation were of inter‑State character and therefore could not be taxed under Article 286(2) unless Parliament specifically removed the constitutional prohibition. The Court further observed that the Explanation to Article 286(1)(a) controlled only the operation of that particular clause and did not affect the application of Article 286(2).

In the earlier judgment concerning The Bengal Immunity Company Limited v. The State of Bihar, the Court reiterated that sales falling within the Explanation to Article 286(1)(a) were in fact inter‑State transactions and therefore could not be taxed under Article 286(2) unless Parliament expressly removed the constitutional prohibition. The Court further observed that the legal principle applied in The United Motors case had been incorrectly formulated. Consequently, the Court indicated that the claim advanced by the Andhra State to impose tax on the sales described in the Explanation would be unconstitutional. The State itself acknowledged this position in a statement dated 21 October 1955, in which it conceded that, taking account of the foregoing decision, the petitions might be allowed, though it sought to avoid any costs.

Before the final orders on those petitions could be issued, the State promulgated the Sales Tax Validation Ordinance No III of 1956 on 30 January 1956, which was subsequently superseded by the Sales Tax Laws Validation Act (7 of 1956) that came into force on 21 March 1956. Section 2 of the Act provided that, “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 or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of interstate trade or commerce; and all such taxes levied or collected or purporting 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.” On 19 February 1957, the Andhra State, which had become the State of Andhra Pradesh under Section 3(1) of the States Reorganisation Act (37 of 1956), filed a fresh statement asserting that, by virtue of the Validation Act, the State was entitled to tax the Explanation sales that occurred during the specified period of 1 April 1951 to 6 September 1955, and therefore the petitions should be dismissed. The petitioners contested this stance. They argued that the Andhra (Madras) Act did not, in substance, impose a tax on the Explanation sales, rendering the Validation Act inapplicable to it. They further maintained that the Validation Act itself was unconstitutional and void, and even if it were valid, it did not validate Section 22 of the Andhra (Madras) Act. Moreover, they contended that the Act only validated taxes that had already been levied or collected and did not empower the State to initiate fresh assessments or realize new taxes. Finally, they asserted that any purported fresh imposition of tax would require additional legislation, and that no action could be taken under Section 22 because that provision was unconstitutional at the time of its enactment and therefore null and void.

The petitioners contended that the Andhra (Madras) Act was unconstitutional at the time of its enactment and therefore was null and void for all purposes. They argued that, under that Act, a tax on the sale of yarn could be levied only at a single point in time. Because the State of Madras had already imposed a tax on the sale of the goods that were now the subject of the present assessment, the petitioners maintained that the State of Andhra could not impose another tax on the same goods. In addition, they submitted that any tax on yarn imposed by the Andhra State would be invalid insofar as it would be struck down by the Essential Commodities Act of 1952, read in conjunction with Article 286(3) of the Constitution.

The Court noted that, similar to the Adaptation Order which introduced section 22 into the Madras Act, the President had issued Adaptation Orders for the sales‑tax statutes of all the States, and each of those Orders contained provisions comparable to section 22. Because a decision in these petitions would inevitably affect the corresponding provisions in other States, those States sought and were granted permission to intervene. Accordingly, the Advocates‑General of Madras, Uttar Pradesh and Bihar were heard on the matters raised. The principal issue for determination was the constitutional validity of the Sales Tax Laws Validation Act, hereinafter referred to as the impugned Act; the Union of India therefore intervened, and the learned Solicitor‑General addressed the Court on the questions concerning that Act’s validity. Several assessors also obtained leave to intervene, namely the Mysore Spinning and Manufacturing Co., Minerva Mills Ltd., Tata Iron and Steel Co. Ltd., and Madura Mills Co. Ltd., whose counsel generally supported the petitioners. However, counsel for Madura Mills Co. advanced an additional argument that conflicted with the position of the other parties. That argument relied on Entry 42 of List I of the Seventh Schedule to the Constitution, claiming that inter‑State trade and commerce is an exclusive competence of the Union Legislature, that taxes on inter‑State sales fall within that exclusive domain, and that consequently the States lack any power to tax such sales. Moreover, it was contended that Parliament is not empowered to authorise the States to levy such taxes, rendering the impugned Act altogether misconceived and inoperative. In light of these submissions, the Court identified the following questions for determination: (I) whether the Andhra (Madras) Act, in fact, imposes a tax on the class of sales covered by the explanation to Article 286(1)(a); (II) whether the impugned Act is ultra vires because it is not authorised by the terms of Article 286(2); (III)(a) whether section 22 of the Andhra (Madras) Act falls within the protection of the impugned Act, and (III)(b) whether the impugned Act validates only the levies and collections made during the specified period or also authorises future imposition and collection of tax on such sales.

The issues presented for determination were as follows: whether section 22 of the Andhra (Madras) Act was null and void because it contravened Article 286(2); whether any proceedings instituted under that section, on the basis of the contested Act, were incompetent; whether a tax on inter‑State sales fell within the exclusive legislative competence of Parliament and consequently rendered the Act invalid for authorising States to levy such a tax; whether the proposed taxation scheme was illegal on the ground that successive sales of yarn were to be taxed at a single point only, so that the State of Madras, having already taxed the present sale, precluded the State of Andhra from imposing an additional tax; and finally, whether the contemplated levy on yarn by the State of Andhra was barred by the Essential Commodities Act read together with Article 286(3). The Court observed that the first question to be answered was whether the Andhra (Madras) Act, in effect, imposed a tax on the class of sales described in the Explanation to Article 286(1)(a). Only if that premise was established would the further questions concerning the constitutional validity and operation of the impugned legislation merit consideration.

The Court referred to the relevant provisions of the Madras Act and to its earlier decision in Poppatlal Shah v. The State of Madras (1), where it was held that, under the definition of “sale” in section 2(h) of that Act, the Province of Madras possessed authority to tax only those transactions in which title to the goods passed within the State. The Court noted that, aside from the explanatory clauses which were not material to the present dispute, the pre‑Constitutional Madras Act gave the State no power to tax sales falling within the Explanation to Article 286(1)(a). The next issue examined was whether the President’s Adaptation Order dated 2 July 1952, which inserted section 22 into the Madras Act, altered that position. The respondent argued that the insertion incorporated the Explanation to Article 286(1)(a) verbatim, thereby converting all sales within its scope into sales occurring inside Madras and making them taxable under section 2(h) and, consequently, taxable by the State of Andhra under section 22. The petitioners contested this view, asserting that the Explanation did not create authority to levy a tax that was not previously permissible under the Act, and that a proper construction would not extend the tax base beyond what the original legislation allowed.

In this case, the Court explained that the object of Article 286 of the Constitution was simply to impose restrictions on the power that the States possessed under Entry 54 of List III to enact laws imposing tax on sales. In that context, the Court held that the true scope of the Explanation to Article 286(1)(a) was that it removed from a State the authority to tax a sale in which title to the goods passed within that State when the goods were actually delivered under the contract for consumption in another State, and that the Explanation did not confer on the State in which delivery occurred any power to tax such a sale. The Court further observed that section 22, which is a verbatim reproduction of the Explanation to Article 286(1)(a), must be construed as having the same import.

To support this contention, the Court relied on observations made in The Bengal Immunity Company case (reported at page 640). In that decision, the Court noted that the Constitution makers placed a ban on the taxing power of the States with respect to sales or purchases that take place outside the State. The Court explained that, without an explanatory provision, the ban would be imperfect because it would remain unclear where a particular sale or purchase is deemed to have taken place—whether at the place where the contract is made, where title passes, or where the goods are delivered. The Explanation, the Court said, is “for the purposes of sub‑clause (a)”, meaning it is intended solely to identify which transaction should be regarded as occurring outside a State. By deeming a particular sale or purchase to take place in a specified State, the Explanation merely indicates that the transaction has taken place outside all other States. The Court described the Explanation as neither an exception nor a proviso but as a device that creates a legal fiction limited to sub‑clause (a) and that cannot be extended to any other purpose. To say that this Explanation confers legislative power on what the Court referred to as the “delivery State” would be to use it for a collateral purpose, which the Court said is not permissible.

The Court further remarked that it is illogical and untenable to suggest that Article 286, which was introduced in the Constitution to restrict the legislative powers of the States, by a side‑wind, as it were, gave enlarged legislative powers to the delivery State through an Explanation sandwiched between two restrictions. Such a construction, the Court observed, runs counter to the entire scheme of the article and its Explanation, and there is no justification for imputing such an indirect and oblique purpose to the provision. The passage then notes that the contention …

In this case, the petitioners contended that the observations previously made were decisive for the present controversy because the same provision, expressed in exactly the same wording, could not bear one meaning in Article 286(1)(a) and a different meaning in section 22 of the Madras Act. They argued that, based on the construction placed by the Court on the Explanation to Article 286(1)(a), the Explanation to section 22 of the Andhra (Madras) Act must be read as prohibiting any State other than Andhra from taxing sales where the goods are delivered for consumption outside those States, even though the property in the goods passed within the State’s territory. The petitioners further asserted that the provision did not authorize the State of Andhra to tax sales in which the goods are delivered within Andhra for consumption, even though the property in the goods passed outside that State. They relied on the opening words of section 22, which state, “Nothing contained in this Act shall be deemed to impose or authorise the imposition of a tax on the sale or purchase of any goods,” to show that the clause imposed a restriction on the power the State previously possessed to tax sales covered by the definition in section 2(h), rather than enlarging that power. The petitioners cited the decision in Government of Andhra v. Nooney Govindarajulu as supporting authority. The Court noted that the error in this line of argument lay in its exclusive focus on the language of the Explanations in Article 286(1)(a) and section 22, while completely overlooking the fundamental difference in the context and setting of the two enactments.

The Court then recalled that the scope and purpose of Article 286 had been examined extensively in earlier decisions, notably in the United Motors case and the Bengal Immunity Company case, and it briefly recapitulated those principles. Under Entry 48 in List I of the Seventh Schedule to the Government of India Act, 1935, the Provincial Legislature possessed exclusive competence to enact a law imposing a tax on the sale of goods, and Section 99(1) allowed such a law to be made “for the Province or for any part thereof.” The Court referred to Wallace Brothers & Co. Ltd. v. Income‑Tax Commissioner, where the validity of certain provisions of the Indian Income‑Tax Act, which sought to tax non‑resident foreigners on their foreign income, was questioned. In that case, the legislature exercised power under Entry 54 in List I to impose tax on income other than agricultural income, and Section 99(1) permitted the law to be made “for the whole of British India or for any part thereof.” The Privy Council held that the requirements of Section 99 were satisfied where there was a sufficient territorial connection between the State imposing the tax and the person who was to be taxed. The Court emphasized that this doctrine of nexus, when applied to sales‑tax legislation, had been adopted by this Court in United Motors and in Poppatlal Shah’s case, and more recently affirmed in Tata Iron & Steel Co. Ltd. v. State of Bihar. Accordingly, the Court indicated that a State could validly enact a tax on sales not only when the property in the goods passed within the State but also when a sufficient connection existed between the State and the transaction, such as the presence of the goods in the State at the date of the agreement.

In the earlier decision, the Court explained that the receipt of income by the assessee in British India created a sufficient nexus to uphold legislation that taxed the assessee’s foreign income. The Court observed that if this nexus doctrine were extended to statutes imposing tax on sales, and if it had been applied by this Court to the United Motors case (2) at page 1079 and to Poppatlal Shah’s case (3) at pages 682‑683, then a State would be competent to enact a law imposing a tax on a sale even when the title to the goods did not pass within the State, provided that a sufficient connection existed between the State and the transaction. Such a connection could be, for example, the presence of the goods in the State on the date the agreement was concluded, as was held recently by this Court in Tata Iron & Steel Co. Ltd. v. State of Bihar (4). Acting on the nexus theory, several State legislatures subsequently enacted Sales Tax Laws that adopted one or more of these nexi as the basis for taxation. The result was the imposition of multiple taxes on the same transaction, which obstructed the free flow of commerce between the States and harmed the broader economic interests of the country. To remedy this mischief, the Constitution, while retaining the power of the States to tax sales under Entry 54 of List II, introduced specific restrictions on that power in Article 286. One such restriction is contained in Article 286(1)(a), which prohibits a State from taxing sales that occur outside its territory.

The Explanation attached to Article 286(1)(a) is considered in the context of an Article whose purpose was to place fetters on the legislative competence of the States. The Court observed that although the Explanation is positive in form, its substance is negative, because its true purpose is not to confer an additional power of taxation on a State but to limit the power that the State previously possessed under Entry 54. These considerations are particularly relevant when construing a taxing statute such as the Madras Act, whose primary object is to confer on the State the authority to levy and collect tax. When a provision in such a statute contains a prohibition followed by an Explanation that is positive in its terms, the proper interpretation is that the prohibition intends to prevent taxation of outside sales on the basis of the nexus doctrine, while the Explanation authorises taxation of sales that fall within the State’s jurisdiction, subject to other constitutional provisions such as Article 286(2). It should be remembered that, unlike the Constitution, a State law can operate only within its own territory; it cannot confer upon another State a power it does not possess, nor can it divest a State of a power that the Constitution grants it.

The Court observed that a State may neither exercise a power that it lacks under the Constitution nor be stripped of a power that the Constitution confers upon it. Consequently, the legislative authority of a State is limited to actions that can be performed within the territorial boundaries of that State. In this context, the Court questioned the purpose of the Explanation contained in section 22 of the Madras Act if the Explanation merely indicated that, when goods are delivered under a contract of sale for consumption inside the State of Madras, the external State in which the title to the goods passes would be without power to tax the sale. The Court held that such a view would be irrelevant to the State of Madras, and moreover, the Madras Legislature would lack competence to enact a provision addressing the tax jurisdiction of another State. Considering the surrounding provisions and the overall scheme, the Court concluded that the Explanation to section 22 must be interpreted as authorising the State of Madras to levy tax on sales that fall within its territorial jurisdiction. Accordingly, while the Explanation attached to Article 286(1)(a) of the Constitution might be read as a negative provision in form but negative in effect, the same Explanation within the setting of section 22 of the Madras Act cannot be given a purely negative construction; it must carry a positive meaning. The Court further rejected the argument that the non‑obstante clause in section 22 merely subtracts from the taxing power conferred by the charging provision, section 3 read with section 2(h), without adding any new authority. Referring to the decision in Aswini Kumar Ghosh and another v. Arabinda Bose and another, the Court reiterated that where the operative portion of a statute is clear, it controls the non‑obstante clause if the two cannot be harmoniously read together. The Court therefore held that the Explanation, which unambiguously declares that the sales described therein are to be deemed to have taken place inside the State where the goods are delivered for consumption, must be given full effect and cannot be curtailed by reference to the non‑obstante clause. The Court rejected any construction that would render the non‑obstante clause ineffective or useless.

Turning to the definition contained in section 2(h), the Court explained that a sale in which the property in the goods passes within the State of Madras is ordinarily liable to tax, even if the goods are ultimately consumed outside that State. However, under the Explanation, such a sale is deemed to have taken place in the outside State where the goods are delivered for consumption, and consequently the State of Madras would have no power to tax that transaction. The Court clarified that the purpose of the non‑obstante clause is precisely to make the Explanation operative against the definition in section 2(h), not to neutralise the Explanation within its own scope. The Court noted, however, that the opposing party contended that achieving this result required the Explanation to be incorporated into the definition of “sale” under section 2(h). The Court addressed this contention but maintained that the Explanation, as worded, already achieves the intended effect without needing to be absorbed into the definition, thereby preserving the legislative intent of the Madras Act.

Section 2(h) defines “sale” for the purpose of the tax scheme, and under Section 3 the tax is imposed on the turnover of sales that fall within that definition. Consequently, only transactions that satisfy the definition of “sale” in Section 2(h) can be taxed, and where the explanatory provision has not brought a transaction within that definition, no tax can be levied. It was argued that the explanatory provision in Section 22 cannot override Section 2(h), and that if the intention of the explanatory clause was to give the State power to tax sales within its jurisdiction, that intention has not been realised. By contrast, the sales‑tax statutes of other States, for example Bihar and Uttar Pradesh, have incorporated the explanatory provision directly into the definition of “sale”. The suggestion that the Legislature’s purpose failed because of defective drafting is a contention that should be accepted only as a last resort, when no other interpretation is possible. The Court found that this was not the situation here.

Section 22 begins with the words “Nothing contained in this Act”, which indicates that the section must be read as controlling, among other things, the definition of “sale” in Section 2(h). If this were not the case, sales in which the property passes in Madras but the goods are delivered outside the State would become taxable under Sections 2(h) and 3, even though Section 22 expressly prohibits such taxation. Assuming that the provisions of Section 22 are meant to limit the operation of Section 2(h), there is no difficulty in interpreting the explanatory clause in Section 22 as equally effective for the purpose of expanding the definition. Moreover, a well‑established rule of construction requires that the various sections of a statute be read, unless there are compelling reasons to the contrary, as part of a single, coherent scheme designed to give effect to every provision.

Applying this principle, Sections 2(h) and 22 must be read together to determine which sales are taxable under the Act and which are exempt. Under this combined reading, the explanatory clause in Section 22 means that for sales where the goods are delivered for consumption within the State of Madras, the property shall be deemed to have passed inside the State, even though under the Sale of Goods Act the property may have passed outside the State. Consequently, such sales fall within the definition of “sale” in Section 2(h) and are subject to tax. The Court therefore rejected the petitioners’ highly technical contention that the omission of the explanatory provision from Section 2(h) rendered the statute unsound. The petitioners also argued that the President’s power under Article 372(2) is limited to bringing State laws into conformity with Article 286; however, that argument was not pursued further in this portion of the judgment.

The Court examined the operation of Article 286 together with the interpretation advanced in the Bengal Immunity Company case. It observed that, when read in that light, the Explanation appended to section 22 is valid to the extent that it bars the State of Madras from imposing a tax on a transaction in which the goods are taken out of Madras even though the title to those goods passes within Madras. In such a situation the Explanation correctly prevents the State from levying a duty, because the purpose of Article 286 is to prohibit taxation of sales whose goods are delivered outside the State. However, the Court held that the same Explanation, when used to make taxable those sales in which the title passes outside Madras but the goods are delivered for consumption inside Madras, goes beyond the simple task of bringing the State law into conformity with Article 286. By extending the taxing power to cover sales where the goods remain within Madras for consumption, the Explanation does more than merely adapt the State law; it creates a new taxing authority that the Constitution does not confer. Consequently, that portion of the Explanation is unauthorised and cannot be sustained as valid. The Court also noted that while a State legislature, such as the Madras Legislature, could enact such a provision, the President’s special and limited power under Article 372(2) does not extend to creating it.

The petitioners argued that the President’s power under Article 372(2) is confined to excising from the definition of “sale” in section 2(h) of the Madras Act any element that conflicts with Article 286, for example, sales where the goods are delivered for consumption outside Madras, and that it does not permit the addition of new categories. The Court rejected that narrow view. It observed that Article 286(1)(a) and its Explanation, when placed within a taxing statute, constitute two inter‑related facets of a single concept. Transactions in which the property leaves Madras but the goods are consumed inside the State are simultaneously “inside sales” for Madras and “outside sales” for other States. If the power to adapt requires the Explanation to give effect to the prohibition against taxing sales whose goods are delivered outside the State, there is no reason why the same Explanation should not also give effect to the complementary aspect of the concept—taxation of sales whose goods are delivered for consumption within Madras, provided the language of the statute is broad enough to include such sales. The Court found it untenable to hold that the identical Explanation is intra‑vires when it prevents taxation of out‑of‑State deliveries, yet ultra vires when it authorises taxation of in‑State deliveries. Finally, the Court reminded that the President’s adaptation power under Article 372(2) is essentially the legislative power of the State whose law is being adapted, and that power includes the authority to repeal or amend any provision, so long as the resulting law remains within the State’s legislative competence.

In this case, the Court observed that when an adaptation order is enacted by a State and that enactment falls within the State’s legislative competence, and when the purpose of the enactment is to bring the State law into conformity with Article 286 of the Constitution, the adaptation order lies within the scope of the power conferred by Article 372(2). The Court then indicated that the remaining issue was largely of academic interest because Article 372(2) concludes with a clause stating that no adaptation order made under that provision may be subjected to judicial challenge. Petitioners argued that the concluding clause should not apply if the adaptation order exceeded the terms of Article 372(2) and that they could therefore question the order’s validity on the ground that it went beyond merely aligning the existing law with Article 286. The Court rejected that submission, holding that if an adaptation order is genuinely within the ambit of Article 372(2), it possesses inherent validity and does not depend on the protective clause at the end of the provision. Only when an adaptation seeks to accomplish something more than simply bringing the State legislation into constitutional conformity does the need arise for such a protective clause. In the Court’s opinion, the effect of the concluding words of Article 372(2) is to make the question of an adaptation’s validity non‑justiciable. Consequently, the adaptation order before the Court could not be attacked on the basis that it exceeded the limits envisaged by Article 372(2).

The Court further considered the argument that, even if the President’s adaptation order could not be questioned when it introduced a new tax on sales that had previously been exempt, the determination of whether the order actually imposed such a tax must involve an interpretation of the purpose of Article 372(2). The purpose, the Court said, was solely to bring State laws into conformity with the Constitution, and therefore the Explanation in Section 22 of the adapted law should be read in the same way as the Explanation in Article 286(1)(a). While this approach is a legitimate factor in construing the Explanation, the Court noted that at the time the adaptation order was issued, the precise meaning of the Explanation in Article 286(1)(a) had not yet been settled by any decision. Hence, it would be inappropriate to attribute to the framers of Section 22 the interpretation later given by this Court in the Bengal Immunity Company case or the United Motors case. Accordingly, the Court returned to the language of the Explanation itself to ascertain its true scope. If, in drafting the Explanation, the adaptation order solely intended to forbid the State of Madras from levying tax on sales where goods are delivered for

The Court observed that if the legislature had intended to exclude from the scope of the provision any transaction in which goods were delivered for consumption outside the State of Madras but where title to the goods passed inside that State, it would have expressed that intention in clear wording such as: “For the purposes of clause (a)(i), a sale under which goods are delivered for consumption outside the State of Madras shall be deemed to have taken place outside that State, notwithstanding that property in those goods passed inside that State.” However, the wording of the Explanation is broad and does not contain such reserved language. The Explanation therefore fixes the situs of a sale according to the place where the goods are actually delivered for consumption, giving the transaction an inter‑State character in the State in which delivery occurs. Consequently, a sale in which goods are delivered outside the State of Madras is treated as an outside sale for Madras even though title to the goods passes inside the State, and conversely, a sale in which goods are delivered inside the State of Madras is treated as an inside sale for Madras even though title passes outside the State. The Court noted that the Explanation’s language is sufficiently general and expansive to do more than merely restrict the State’s taxing power; it also adds to that power by enabling the State to tax the sales defined by the Explanation. The reasons previously given for interpreting the provision as purely restrictive in Article 286(1)(a) were held to have no force when the provision is applied to a taxing statute. Accordingly, the Court gave full effect to the enactment’s words and held that they operate to confer on the State a power to tax the sales described in the Explanation.

The Court then considered a further contention raised by the petitioners. The petitioners argued that even if the Explanation could be read as authorising a tax on the sales it mentions, a reading of the entire section shows that no tax was in fact imposed because the section expressly states: “Nothing contained in this Act shall be deemed to impose a tax on inter‑State sales.” Their argument was that, because the Explanation sales are inter‑State sales and the section exempts inter‑State sales from taxation, such sales disappear from the statute and have no existence for the purposes of the impugned Act. The Court rejected this argument. It explained that Article 286(2) contains two components: the first imposes a restriction on the power of the States to tax sales falling under Entry 54 when those sales occur in the course of inter‑State trade and commerce; the second vests Parliament with the power to enact a law that removes that restriction. The Court observed that if Section 22 had only incorporated the restrictive portion of Article 286(2) – the prohibition on taxing inter‑State sales – the petitioners’ contention might have had some merit. However, Section 22 incorporates both parts of Article 286(2): it enacts the restriction and simultaneously sets the condition under which that restriction ceases, namely, when Parliament provides otherwise by law. In conjunction with the recognised power of the States to tax sales under Entry 54, the Court concluded that Section 22 does in fact impose a tax on the sales covered by the Explanation, but that the tax becomes operative only when Parliament lifts the constitutional ban.

The Court noted that although the Constitution restricts the power of the States to levy tax on sales falling within Entry 54, section 22 of the Madras Act nevertheless creates a tax liability on the sales described in the Explanation. However, the tax is intended to become operative only after Parliament removes the constitutional prohibition. In effect, the legislation imposes the tax in the present but attaches a condition that it will take effect in the future when Parliament so decides. The Court observed that the Constitution does not forbid a legislature from making a law that operates conditionally, and that this principle was affirmed by the Privy Council in The Queen v. Burah (1). The Court further cited its own precedents, including the decisions in The Delhi Laws Act, 1912, etc. (2) and Sardar Inder Singh v. State of Rajasthan (3), which repeatedly confirmed that a legislature may enact a law either absolutely or subject to a condition when it acts within the authority granted by the Constitution. Consequently, the Madras Legislature was fully competent to pass a law that imposes a tax on sales, provided the tax would become enforceable only after the ban created by Article 286(2) is lifted by a parliamentary enactment. In the Court’s view, that is precisely the operation of section 22. The Act itself defines the specific event that triggers liability, identifies the person who must pay, and sets the rate of tax, thereby constituting a complete code on the matter. The provision cannot have immediate effect because Article 286(2) bars it, but once Parliament removes the bar, there is no legal obstacle to its enforcement, satisfying all requirements of conditional legislation.

The petitioners also argued that section 22 could not be interpreted as conditional because the President, exercising the power conferred by Article 372(2), was not authorized to impose a conditional levy, and they contended that the Madras Legislature could not impose any levy, conditional or otherwise, without a specific parliamentary authorization. The Court found no merit in that argument. It explained that Article 286(2) consists of two parts: a restriction on the State’s taxing power and a condition that the restriction will cease when Parliament legislates otherwise. Any adaptation by a State must therefore reflect the same two‑part structure. Moreover, Article 286(2) does not prohibit the State Legislature from enacting a law that imposes tax on inter‑state sales; it merely declares that such a law will have no effect while the constitutional bar remains. The wording “No law of a State shall impose” is thus limited to effectiveness, not to the existence of the law. The petitioners further contended that the Sales Tax Acts provide for an annual levy with quarterly return filing and quarterly payment, and that a law whose liability would arise only after a future parliamentary act would be inconsistent with that scheme. The Court observed that the present argument merely points out that existing rules do not yet provide a mechanism for collecting a tax that may become payable in the future, but it does not affect the fact that a tax liability has been created. The requirement for the State to later formulate rules to collect the tax does not defeat the existence of the conditional imposition.

In considering the argument that a conditional law, under which the liability to pay tax would become enforceable only in the future, conflicted with the scheme of the Act and its rules, the Court observed that this contention reduced merely to the observation that the present rules did not contain a mechanism for levying and collecting taxes that might become payable at a later date when Parliament removed the prohibition. Even if that description of the procedural situation were accurate, it did not alter the essential fact of the imposition of tax, which was the sole issue before the Court. The Court held that the requirement for the States to formulate rules for actualising a tax that had become payable did not constitute a ground for concluding that no tax had been imposed. The Court further noted that the Madras Act expressly distinguished between sales that fell outside its operation and sales that were within its operation but were exempt from tax. Section 4 of the Act specifically excluded from its provisions the sale of electrical energy, motor spirit, manufactured tobacco and certain other articles. By contrast, section 22 of the Act expressly declared that the Act would not be deemed to impose a tax on inter‑State sales, except to the extent that Parliament might by law provide otherwise. On a true construction of section 22, the Court was of the opinion that an imposition of tax on the so‑called Explanation sales existed, but that such tax could be enforced only when Parliament made a provision for it. Having examined the question on principle and on the language of the statute, the Court then referred to the authorities of the High Courts that had addressed the same issue. In Mettur Industries Ltd. v. State of Madras, the Court directly considered whether section 22 of the Madras Act actually levied a tax on the Explanation sales so as to fall within the protection of the Sales Tax Laws Validation Act, and held that the explanation in section 22 rendered the sale to be within the State and therefore taxable. Subsequently, the Bombay High Court in Dial Das v. P. S. Talwalkar considered the corresponding provision, section 46 of the Bombay Sales Tax Act (Bom. III of 1953), and held that it did impose a tax, although its operation depended on a parliamentary provision. The Travancore‑Cochin High Court, in the cases of Mathew v. Travancore‑Cochin Board of Revenue and Cochin Coal Co., Ltd. v. State of Travancore‑Cochin, reached a similar conclusion regarding section 26 of the Travancore‑Cochin General Sales Tax Act, which corresponded to section 22 of the Madras Act.

The Court examined the operation of section 22 of the Madras Sales Tax Act. It observed that this provision did not, by its own force, create a tax on the sales covered by the Explanation, and therefore the decision in Mettur Industries Ltd. v. Madras State was not followed. Subsequently, the Madras High Court, in Mysore Spinning and Manufacturing Co. Ltd. v. Deputy Commercial Tax Officer, Madras, reaffirmed the earlier view taken in Mettur Industries Ltd. v. State of Madras and held that section 22 did impose a tax on the Explanation sales. The Andhra High Court, hearing Government of Andhra v. Nooney Govindarajulu, considered the true effect of section 22 and, departing from both Mettur Industries Ltd. v. State of Madras (1) and Dial Das v. P. S. Talwalkar (2), concluded that, in view of this Court’s observations on the scope of the Explanation in Article 286(1)(a), the provision could not be read as imposing a tax on the sales described therein. The Court noted that this conclusion also followed from the opening words of the section, which state, “Nothing contained in this Act shall be deemed to impose, or authorise the imposition of a tax…”. For the reasons already explained, the Court could not agree with the decisions in Mathew v. Travancore‑Cochin Board of Revenue (1), Cochin Coal Co. Ltd. v. State of Travancore‑Cochin (2) and Government of Andhra v. Nooney Govindarajulu (3). It held that the law was correctly laid down in Mettur Industries Ltd. v. State of Madras (4) and Dial Das v. P. S. Talwalkar (5), and consequently found that section 22 operated to impose a tax falling within the Explanation, subject to the authorisation provided by Parliament in Article 286(2). In this regard, the argument advanced by the States—that the Explanation to Article 286(1)(a), being a constitutional provision, by itself imposes a tax on the covered sales and does not need supplementary State legislation—was deemed unnecessary for detailed consideration. The Court merely observed that such a contention cannot be sustained if the true scope of Article 286 is understood to define and limit the powers of State legislatures with respect to the imposition of sales tax, rather than to impose tax directly. The discussion then turned to the next issue: whether the impugned Sales Tax Laws Validation Act was ultra vires because it was not authorised by the terms of Article 286(2). The Court reminded that a well‑known rule of interpretation requires understanding the true nature and scope of an Act by ascertaining the evils it was intended to redress.

The Court first identified the wrongs that the legislation was intended to correct. It observed that the origin of the problem which finally prompted the passage of the impugned Act lay in the Explanation to Article 286(1)(a), which had become operative on 26 January 1950. The wording of that Explanation clearly indicated that sales falling within the description specified therein were to be regarded as sales occurring inside the State in which the goods were delivered, for the purpose of levy of tax. This interpretation appeared to have been adopted in the Adaptation Order that introduced section 22 into the Madras Sales Tax Act, as well as in the Adaptation Orders that were issued for the sales‑tax statutes of other States; as previously noted, in a taxing statute the language of the Explanation can only signify that a sale covered by it is an “inside” sale, thereby permitting the State to tax it. In the United Motors case (1) the Court construed the Explanation to mean that, although without it the sales described would have taken place in the course of inter‑State trade and commerce, the effect of the Explanation was to transform those transactions into intra‑State sales, bringing them within the taxing jurisdiction of the State of delivery. Later, in the Bengal Immunity Company case (2), the Court finally held that the sales covered by the Explanation were not stripped of their inter‑State character because the Explanation to Article 286(1)(a) did not govern Article 286(2), and that, in the absence of parliamentary legislation contemplated by Article 286(2), the taxation of such sales would be unconstitutional. That judgment was delivered on 6 September 1955. Nonetheless, relying on the apparent tenor and effect of the Explanation and on the construction given in United Motors, the States across India had been imposing tax on the sales falling within its scope. By the date of the Bengal Immunity Company decision, the States had already imposed and collected substantial sums of tax on the Explanation sales, there were pending proceedings for assessment of tax on those sales, and, but for the Bengal Immunity Company decision, the States would have been entitled to continue such assessment proceedings. The decision in Bengal Immunity Company rendered the levy of tax on the Explanation sales unauthorized, leaving the States confronted with large claims for restitution of amounts realized, which threatened their economic stability. It also required noting that a considerable number of dealers, acting under the powers granted by the Sales Tax Acts to pass the

In the situation described, dealers had collected sales tax from their purchasers with the intention of remitting that tax to the State. After the decision in The Bengal Immunity Company case (1), those dealers could no longer be compelled to pay the collected tax to the State, and consequently they stood to retain an undeserved benefit. The Court identified these circumstances as injustices that required correction. To address the problem, Parliament first promulgated the Sales Tax Validation Ordinance No. III of 1956 and later replaced that ordinance with the statute that is now the subject of this dispute.

Section 2 of the enacted Act states that any law of a State that imposes a tax on sales which occurred in the course of inter‑State trade or commerce during the period from 1 April 1951 to 6 September 1955 shall not be considered invalid, nor shall it ever be deemed invalid, merely because the sales were inter‑State in nature. The provision further declares that all taxes that were levied or collected under such State laws during the specified timeframe shall be treated as having been validly levied and validly collected.

The purpose of the Act, as explained by the Court, is plainly to give effect to the legal position articulated in The United Motors case (2) with respect to sales that fell within the described period up to the date of the judgment in The Bengal Immunity Company case (1). It also seeks to extend the effect of that legal position to sales occurring after that judgment. The central issue before the Court is whether this legislation exceeds the constitutional authority of Parliament under Article 286 (2). The petitioners argue that the Act is unconstitutional and advance several grounds to support that contention.

First, the petitioners maintain that Entry 54 of List II reserves the power to make laws concerning tax on sales exclusively to the States. They contend that the authority granted to Parliament by Article 286 (2) is limited to enacting a law that directs or permits the States to impose a tax on inter‑State sales, and does not extend to Parliament legislating directly on the substance of sales tax. Accordingly, they assert that the impugned Act, which they characterize as a “Sales Tax Laws Validation Act,” is a substantive enactment that falls outside the scope of Article 286 (2) and is therefore ultra vires.

The petitioners further argue that to “validate” a law means to confirm or ratify an act that Parliament itself could have performed. Since Parliament does not possess the power to legislate directly on sales tax, it cannot validate a law that it is not authorized to enact. They rely on the short title of the statute and the marginal note to Section 2, both of which label the statute as a validation act, to support their view. However, the petitioners acknowledge that the true character of a law must be assessed on the basis of its substance rather than its label. They therefore contend that the operative substance of Section 2 of the challenged Act exceeds the constitutional permission granted to Parliament under Article 286 (2), rendering the Act void.

The Court observed that the Act, which constituted the only substantive enactment in the legislation, contained no language of validation. Instead, the provision stated that no law of a State imposing a tax on sales would be deemed invalid merely because those sales occurred in the course of inter‑State trade or commerce. The effect of this clause, the Court explained, was simply to free State statutes from the restriction imposed by Article 286(2) and to permit those statutes to operate on their own terms. Referring to the language employed by this Court in the United Motors case and the Bengal Immunity Company case, the Court held that the true scope of the impugned Act was to lift the ban that prevented States from taxing inter‑State sales, rather than to validate or ratify any such State law. On examining the legislation on its substance, the Court expressed no doubt that the Act fell within the authority conferred on Parliament by Article 286(2) and therefore was not ultra vires. The petitioners then contended that the Act was wholly retrospective because it applied to sales that had taken place during the specified period, and that such retrospective operation was outside the terms of Article 286(2). They argued that the Article first imposed a restriction on the power of a State to levy taxes on inter‑State sales and subsequently vested Parliament with the power to remove that restriction, citing the decisions reported in [1933] S.C.R. 1069 and [1955] 2 S.C.R. 603. According to that line of reasoning, the logical sequence required Parliament first to authorize the States to levy a tax on inter‑State sales and then for the State to enact a law consistent with that authorization; the reversal of this order in the present case, they asserted, rendered the Act unconstitutional. The Court rejected this contention. It noted that Article 286(2) merely provides that no law of a State shall impose tax on inter‑State sales “except in so far as Parliament may by law otherwise provide.” The provision does not prescribe any limitation on the nature of the law that Parliament may enact. Moreover, the phrase “in so far as” expressly leaves to Parliament the discretion to determine both the form and the substance of any legislation it may pass. The Court emphasized that the power conferred on Parliament under Article 286(2) is a legislative power, and such a power vested in a sovereign legislature includes the authority to enact laws prospectively or retrospectively, unless the Constitution itself imposes a specific limitation. The Court found that Article 286(2) contains no express restriction on Parliament’s ability to make a law with retrospective effect. Although the petitioners argued that a restriction should be implied from the scheme of the Article—namely, that a prohibition on State power operates only for the future and therefore any law removing that prohibition must also operate only for the future—the Court did not accept this implication.

In the matter before the Court, it was pointed out that the Constitution authorises a State to enact a law imposing a tax on inter‑State sales unless Parliament removes the constitutional ban, and that the ban is understood to operate only for future transactions; consequently, any law that lifts the ban must also operate only prospectively. The Court considered the decision of the Privy Council in Punjab Province v. Daulat Singh as support for this argument. In that case the validity of a mortgage of agricultural land in the Punjab, executed in 1933, was questioned. Section 13‑A of the Punjab Alienation of Land Act, which became effective in 1939, declared that a conveyance of land by a member of an agricultural tribe to another member of the same tribe would be void if the transferee held the land in trust for a person who was not a member of that tribe, irrespective of whether the conveyance occurred before or after the Act’s commencement. The mortgagee brought a suit challenging the constitutional validity of Section 13‑A on the ground that it contravened section 298(1) of the Government of India Act, 1935, which prohibited the denial of acquisition, possession or disposition of property on the basis of religion, birthplace or descent. In response, the mortgagor relied upon section 298(2), which stated that nothing in the preceding provision would affect the operation of any law that prohibited the sale or mortgage of agricultural land situated in a particular area and owned by a person belonging to the agriculturist class. The Privy Council rejected the mortgagor’s contention and observed that the protection afforded by section 298(2) was limited to a law that prohibited certain kinds of transfers, that the term “prohibition” could properly refer only to acts to be performed in the future, and that Section 13‑A was constitutionally valid insofar as it barred transfers made after its enactment but was ultra vires to the extent that it invalidated transfers that had already taken place. The Court noted that the Privy Council’s decision was based solely on the interpretation of the word “prohibits” in section 298(2) of the Government of India Act and therefore could not be applied to the construction of article 286(2) of the Constitution, where that word does not appear. Moreover, the Court found no substantive analogy between the Punjab Province case and the present controversy. In Punjab Province the law saved by section 298(2) was one that prohibited certain transfers, whereas here Parliament is empowered to enact a law that does not prohibit States from imposing a tax on inter‑State sales but rather permits such imposition. While a law that prohibits transfers must operate prospectively, a law that authorises the levy of a tax may be either prospective or retrospective. The Court further referred to a more directly applicable decision in The United Provinces v. Atiqa Begum, which addressed a similar issue of retrospective legislative power.

In the earlier case the Court examined the meaning of section 292 of the Government of India Act, 1935. That provision declared that, notwithstanding the repeal of the Government of India Act by the same enactment, and subject to the remaining provisions of the Act, every law that was in force in British India immediately before Part III of the Act commenced would continue to operate in British India until it was altered, repealed or amended by a competent legislature or other competent authority. The Legislature of the United Provinces subsequently passed a statute that altered the existing law governing rent payments from tenants to landlords and gave the amendment retrospective effect. The issue before the Court was whether this amendment conflicted with section 292, which seemed to preserve the pre‑existing law until it was changed by competent authority. The Court held that a legislature’s power to enact legislation inherently includes the authority to make that legislation retrospective, and that the wording of section 292 did not limit that power. Consequently, the United Provinces’ amendment was held to be within legislative competence. The present Court applied the principle from that decision to the matter at hand, concluding that the impugned Act could not be invalidated simply because it operated retrospectively. The next contention advanced was that the impugned Act exceeded legislative authority, being more than a mere retrospective law and effectively constituting ex post facto legislation, which Article 286(2) does not empower Parliament to enact. The argument was articulated as follows: a State legislature may, under Entry 54 of List II, enact a law imposing a tax on the sale of goods, and such a law may be given retrospective operation without being vulnerable to constitutional attack, though its policy merits may be questioned. Parliament, however, lacks competence to legislate on taxes falling within Entry 54 of List II, but Article 286(2) authorises Parliament to permit States to levy a tax on inter‑State sales. The impugned Act, according to the contention, does not merely permit such taxes; it validates State laws that retrospectively impose the tax for a specified period, thereby acting as a general law that may be intra‑vires for the States but not for Parliament, and it cannot be sustained by the power given to Parliament to “provide otherwise.” Accordingly, the argument concluded that the Act was unconstitutional and void. The Court observed that this contention merely combined the two earlier arguments already considered and therefore did not merit further detailed analysis. Finally, the Court noted that although the Act is labeled a validating Act, in substance it removes the prohibition contained in Article 286(2). Since no restriction on the nature of that law can be derived from the language of Article 286(2), the Act must be upheld within the authority conferred by that provision.

The Court observed that the petitioners contended, even assuming Parliament possessed a power under Article 286(2) to enact a law with retrospective effect, such power could not be used to authorise something unconstitutional. Accordingly, they argued that section 22 of the Madras Act and the analogous provisions in the statutes of other States were unconstitutional and illegal because they violated the prohibition embodied in Article 286(2). Consequently, they maintained that the impugned Act must be held unauthorised and invalid, since it sought to give effect to those provisions. The Court noted, however, that this line of argument merely assumed the very point that required determination. If the State legislatures were competent to enact a law imposing a tax on inter‑State sales to take effect when Parliament so provided, then there was nothing unconstitutional or illegal in section 22 of the Madras Act or in the corresponding provisions of the other State statutes. Because the Court had already held that conditional legislation of that description was valid, section 22 was clearly intra vires. Hence the foundation of the petitioners’ contention disappeared, and the Court concluded that the impugned Act fell within the authority conferred by Article 286(2). Accordingly, the Court held that the impugned Act was intra vires and could not be attacked on any of the grounds raised by the petitioners.

The Court then turned to the petitioners’ further contention that, even if the impugned Act were valid, it would not give efficacy to section 22 of the Madras Act or to the analogous provisions in the laws of other States that had been adapted under Article 372(2). The petitioners advanced the view that the expression “law of a State” in Article 286(2) had a technical import, meaning only a law enacted by a State legislature in accordance with the constitutional procedure and therefore subject to judicial review. They argued that the phrase occurring in section 2 of the impugned Act should bear the same meaning, and that section 22 of the Madras Act was not a “law of a State” within that sense because it had been made by the President under the special power conferred by Article 372(2) and was, as that article provided, not open to attack in a court of law. The Court rejected this restrictive construction. It explained that the ordinary meaning of “law of a State” encompassed any expression of the legislative authority of a State, as distinguished from executive or judicial power. While the normal mode of such law was enactment by the State legislature following the prescribed procedure, the Court emphasized that this was not the sole mode through which a State’s legislative power could be exercised. Consequently, the Court declined to limit the term “law of a State” to the narrow definition suggested by the petitioners.

The Court observed that a State’s legislative power is not confined solely to statutes passed by its legislature. It noted that, under Article 213, the Governor may, subject to the conditions prescribed in that article, promulgate ordinances that possess the same force as law; such ordinances are undeniably laws of the State even though they have not been enacted by the State legislature. The Court further explained that Article 252 permits Parliament, acting upon resolutions of the legislatures of two or more States, to enact legislation on matters that lie within the exclusive competence of the States. As an illustration, the Court cited Act 42 of 1955, whose validity was examined in R. M. D. Charnarbaugwalla v. Union of India [1957] S.C.R. 930. The Court answered the question whether such statutes could be denied the character of State laws merely because they were not passed by the respective State legislatures in the negative, holding that the expression “law of a State” in Article 286(2) and in section 2 of the impugned Act embraces any enactment that operates as law within the State, and that section 22 of the Madras Act therefore qualifies as a law of the State.

The Court added that the fact that a law may be insulated from judicial challenge does not alter its status as a law. It explained that the right to contest a law depends on the constitutional provisions governing that matter; if those provisions declare that the law is not open to court scrutiny, or that it may be questioned only on specific grounds, such a declaration does not deprive a duly enacted statute of its character as law. The Court also rejected the view that a law adapted under Article 372(2) is beyond attack on the ground of constitutional inconsistency. It held that the concluding words of Article 372(2) only prevent an attack on the adaptation order on the basis that it does more than bring the State law into conformity with the Constitution, and therefore such an order is not ultra vires the powers conferred by that article. Consequently, the Court concluded that section 22 of the Madras Act falls within the protection afforded by section 2 of the impugned Act.

Turning to the petitioners’ next contention, the Court examined whether, even assuming that the impugned Act is intra vices Parliament’s power under Article 286(2), the proceedings that the State of Andhra proposes to initiate for tax assessment are infirm because the Act merely validates levies or collections made during the specified period and does not empower the State to commence fresh levy or collection proceedings. The petitioners argued that although section 2 of the impugned Act contains two clauses, the first clause, which gives effect to State laws imposing tax on inter‑State sales occurring during the period, has no independent operation and merely leads to the second clause, which validates the levy or collection made in that period. They maintained that if the legislature intended to validate only past levies and collections, the second clause alone would suffice; the purpose of the legislation, in their view, was solely to prevent States from having to refund amounts already collected, and therefore the Act does not authorize fresh assessment proceedings.

In this matter the petitioners argued that section 2 of the impugned Act contains two clauses, one that gives effect to State laws imposing tax on inter‑State sales that occurred during the specified period, and a second that validates any levy or collection of tax made during that period. According to the petitioners, the first clause has no independent operation; it exists solely to introduce the second clause, which they contend is the only operative part of the section. They further asserted that if the legislature had intended not merely to validate earlier levies or collections but also to preserve the underlying statutes so that the States could commence fresh assessment and levy proceedings, the second clause would have been unnecessary, because the enactment of the Act would automatically validate those levies and collections. The petitioners maintained that the legislation’s sole purpose was to prevent States from having to refund amounts already collected, and that achieving this purpose required only the effect of the second clause. To support this view they relied on the decision in Dialdas v. P. S. Talwalkar. The Court, however, found the language of the statute to be clear and unambiguous, and rejected that contention. The Court observed that if the petitioners’ purpose were correct, the legislature could easily have drafted the provision to apply only to levies or collections already made, without also giving effect to the underlying law. Discarding the first clause as wholly inoperative would be an untenable construction. While the State contended that the first clause operates independently, rendering the second clause redundant, the Court noted that the first clause refers to the exercise of legislative power, whereas the second clause concerns administrative action. It is plausible that the second clause was inserted as a precautionary measure, a practice not unusual for legislatures, but it would be unreasonable to presume the legislature enacted a provision that is entirely inoperative. When faced with two possible constructions—one leading to the former result and the other to the latter—the Court held that the former must be preferred. The Court also emphasized that it is not permissible to narrow the plain meaning of statutory terms on the basis of presumed legislative policy. Moreover, the Court considered the practical fact that some dealers had collected taxes from purchasers for remittance to the State, and that the petitioners’ approach would have disadvantaged those who complied with the law compared to those who evaded it. Consequently, the Court could not accept the decision in Dialdas v. P. S. Talwalkar that the State was not competent to commence fresh assessment proceedings under the impugned Act. The Court concluded that the proper construction of section 2 is that its two clauses, linked by a conjunction, are distinct and independent in operation; the State laws remain in force for sales that occurred during the specified period, and proceedings for assessment of those sales are protected by the Act.

The Court observed that relieving a person of an obligation based on the judgment in The Bengal Immunity Company case would, if applied to validate only the levies and collections that had already been made, create an unfair advantage for those who had evaded the law as it was then understood, while disadvantaging those who had faithfully complied with the law. Consequently, the Court said it could not accept the ruling in Dialdas v. P. S. Talwalkar to the extent that the earlier decision held that the State was not empowered to commence fresh proceedings for the assessment of tax on the basis of the impugned Act. In the Court’s view, the proper construction of section 2 is that its two clauses, as linked by the conjunction, are separate and operate independently. Accordingly, the statutes of the respective States continue to apply to sales that occurred during the period specified in the Act, and any assessment proceedings relating to those sales fall within the protection afforded by the Act.

The next argument presented was that the impugned Act should be regarded as a temporary statute because its operation was limited to sales made during the specified period; therefore, once that period had ended, no further proceedings could be instituted under the provisions of that Act. The petitioners relied on observations made by this Court in Keshavan Madhava Menon v. The State of Bombay to support such a view. The Court rejected this contention, holding that the impugned Act is not a temporary enactment. Its existence is not confined to any particular duration; rather, it is a permanent law that continues to apply to all sales that took place within the defined period. The Court explained that the petitioners had mistakenly conflated two distinct concepts: the temporal span during which the sales were made, which may be described as temporary, and the period during which the Act itself remains in force, which is clearly not temporary.

The Court then turned to the argument that even if the impugned Act authorised the initiation of new assessment proceedings for tax on the sales covered by the Explanation, such actions could not be pursued under section 22 of the Andhra (Madras) Act because, at the time of its enactment, the provision was inconsistent with Article 286(2) of the Constitution and was therefore void. It was contended that an unconstitutional statute is a nullity, should be treated as if it never existed, and cannot give life to the impugned Act. The petitioners suggested that the Legislature of the State of Andhra might enact a fresh law that would confer retrospective effect, as the impugned Act attempted to do, but in the absence of such fresh legislation, the provisions of the earlier Act, as they existed before the impugned Act, could not be enforced. The Court answered that section 22 of the Madras Act provides the necessary response to this contention, thereby indicating that the earlier statutory framework remains capable of being applied despite the challenges raised.

In this matter, the provision under review was described as merely a piece of conditional legislation that imposed a tax on inter‑State sales only when Parliament later enacted a law lifting the ban on such sales. The Court observed that, if the conditional legislation was competent—as it had previously held—there could be no question of the section being unconstitutional at the time it was enacted. Nevertheless, the Court preferred to decide the point on its own merits because the question had recently attracted considerable discussion before this Court. While considering the effect of a statute’s unconstitutionality, the Court noted that unconstitutionality could arise in two ways. First, the law might relate to a matter that was not within the legislature’s competence. Second, even if the matter lay within the legislature’s competence, the provisions of the law might offend constitutional restrictions. In a federal constitution where legislative powers are distributed among different bodies, the competence of a legislature to enact a particular law depends on whether the Constitution has assigned that subject to that legislature. Accordingly, a State law dealing with an entry in List 1, Sch. VII of the Constitution would be wholly incompetent and void. By contrast, a law concerning a topic that falls within the legislature’s competence, for example an entry in List II, could still be invalid if it infringed constitutional limitations such as those set out in Part III of the Constitution. In that situation, the portion of the law that is repugnant would be void.

The Court further explained that both a statute that intrudes upon a matter outside the legislature’s competence and a statute that, while within competence, breaches constitutional limitations are treated alike by the courts: each is unenforceable. However, the Court warned against conflating the two categories. It cited extensive American jurisprudence which holds that a law enacted beyond the legislator’s authority is a true nullity, whereas a law enacted within authority but repugnant to constitutional prohibitions is merely unenforceable until the offending provision is removed. This doctrinal distinction was crucial to the present analysis. If a law covered a field that the legislature was never empowered to regulate, the law remained absolutely void even if the Constitution later transferred that field to the legislature; a fresh enactment would be required to give effect to the intended regulation. In contrast, when a law pertained to a subject that lay within the legislature’s jurisdiction but conflicted with constitutional mandates, the law would be suspended only because of the conflict. Once the constitutional obstacle was eliminated, the same law could become operative without the need for a new enactment. The Court concluded its discussion by referring to the authority of Willoughby on the Constitution of

In the treatise Willoughby on the Constitution of the United States, Vol. 1, at page 11, the author explained that the validity of a statute had to be examined by reference to the constitutional authority of the legislature at the time the statute was enacted. The author stated that if, upon such examination, the statute was found to be beyond the legislative power, the statute could not become valid merely because a later constitutional amendment granted the necessary power; the statute would require a fresh enactment to become effective. The author further observed that authorities had held a different result where an act fell within the general legislative competence of the enacting body but was rendered unconstitutional because of an incidental circumstance. Examples of such circumstances included a situation in which a State legislature was barred from regulating a matter because the Federal Congress had already legislated on the same subject, or where the silence of a higher authority was interpreted as indicating that no regulation should be permitted. In those cases, the author noted, the act did not need to be re‑enacted after the removal of the incidental cause of its unconstitutionality.

Cooley on Constitutional Law, at page 201, was cited for the proposition that a finding of unconstitutionality did not destroy the statute; rather, it resulted merely in a decision not to enforce the statute. The judgment then referred to the decision in Wilkerson v. Rahrer, in which the State of Kansas had enacted a law in 1889 prohibiting the sale of intoxicating liquor. That law was invalid insofar as it dealt with sales that occurred in the course of interstate trade because it conflicted with the Commerce Clause. In 1890, however, the United States Congress passed a statute that expressly conferred authority on the States to enact prohibition laws. The court was asked to determine whether a prosecution under the Kansas law of 1889 could be maintained for conduct occurring after the federal statute of 1890. Rejecting the argument that the 1889 law had become a nullity that required re‑enactment, the court observed that the situation was not one in which a law was passed in the unauthorized exercise of a power that was exclusively vested in Congress. Instead, the Kansas law was within the State’s competence, but its operation against certain articles was blocked until the federal act removed the obstacle. The court further stated that the federal act removed the impediment and that there was no adequate reason to require a fresh enactment of the state law before it could affect imported goods in the same way that it had always affected domestic property.

The judgment noted that the 1889 Kansas statute also applied to intrastate sales and was therefore valid to that extent. Consequently, the impugned legislation was unconstitutional only in part. After discussing the conflicting authorities on this question in the United States, Rottschafer was quoted as referring to the decision in Wilkerson v. Rahrer as representing the more persuasive view. The court also cited American Constitutional Law, 1939 edition, page 39, in support of this approach. A similar perspective was said to have been adopted in Ulster Transport (1891) 140 U.S. 545; 35 L. Ed. 572, and in the case Authority v. James Brown & Sons Ltd., where the court was interpreting section 5(1) of the relevant statute.

In discussing the Act of 1920, the Court examined the provision that declared any law made in breach of the restrictions in subsection five to be void to the extent of that breach. Lord MacDermott, serving as the Lord Chief Justice, noted that no authority existed to require a literal gap in the statute when a contravention occurred. He explained that the language did not demand that the offending portion simply disappear from the text, a concept he described as “vertical severability.” Furthermore, he argued that if the circumstances justified it, the statute could be interpreted to achieve a “horizontal severance,” whereby the offending subject‑matter, activity, or application was excluded without physically cutting any words from the legislation. This approach, he contended, would honour the phrase “so far as it contravenes” while preserving the significance attached to the term “void.” The judgment also observed that the decision involved a statute that was partially unconstitutional, highlighting that the court’s analysis applied even when only a section of the law was invalid.

The Court then turned to its own precedents on the same issue. In the case of Behram Khurshed Pesikaka versus the State of Bombay, the dispute centred on the Bombay Prohibition Act of 1949, which prohibited the consumption of liquor except for certain listed exceptions. The Court had previously held, in State of Bombay and another versus F. N. Balsara, that the provision infringed Article 19(1)(g) of the Constitution when it covered medicinal and toilet preparations containing alcohol. The appellant in that matter was charged with drinking liquor, but he claimed that the alcohol had been ingested as part of a medicinal preparation. The pivotal question was whether the appellant bore the burden of proving the medicinal nature of the alcohol or whether the prosecution had to disprove it. The Court ruled that the onus lay with the prosecution; because the prosecution failed to meet that burden, the appellant was acquitted. During the judgment, Mahajan C.J. observed that once a part of section 13(b) of the Bombay Prohibition Act was declared unconstitutional, that portion ceased to have any legal effect in adjudicating the guilt of a citizen and must be treated as “null and void” for the purpose of determining liability. The Court emphasized that the constitutional issue was not directly raised for determination but was considered incidentally while discussing the allocation of the burden of proof. Those observations related specifically to the enforceability of the Act’s provisions, noting that the constitutional bar under Article 19 remained operative. The Court clarified that the phrase “null and void” did not imply that the entire law was non‑existent or incapable of taking effect once the bar was removed; rather, it signified that the Act could not be enforced because of the constitutional obstruction.

In the matter before the Court, it was observed that the provisions of the Bombay Prohibition Act remained in force, while the prohibition created by Article 19 of the Constitution continued to operate. The Court noted that there was no issue presented regarding the removal of the ban imposed by Article 19, and consequently the question of what would happen if such a ban were lifted did not arise for decision. The Court explained that, in the context in which the phrase “null and void” was used, it could not be interpreted to mean that the challenged law ceased to exist in a legal sense, incapable of ever taking effect, even after the bar was removed. Rather, the expression was intended only to convey that the Act could not be enforced because of the constitutional bar. The Court then referred to the decision in A. V. Fernandez v. State of Kerala, a case that dealt with the Travancore‑Cochin General Sales Tax Act and its accompanying rules. Before the Constitution came into force, the assessors were required to pay tax on the entire turnover of their sales, which included sales made both inside and outside the State. In transactions involving coconut oil, the Act allowed a deduction of the purchase price of copra from the total turnover. After the Constitution became operative, a new provision, section 26, which corresponded to section 22 of the Madras Act, was inserted to give effect to Article 286. This amendment excluded sales that occurred outside the State from the turnover calculation. A dispute subsequently arose concerning the amount of deduction that an assessee could claim for his purchase of copra. The assessee argued that he should be permitted to deduct the price of copra not only for oil sold within the State but also for oil sold outside the State. The High Court rejected this contention, limiting the deduction to copra purchases that related solely to intra‑State sales. Upon affirming the High Court’s decision, the Supreme Court observed that, in its view, section 26 of the Act, for cases covered by the categories specified in Article 286 of the Constitution, effectively nullified and erased the provisions of the Act that dealt with the imposition of tax on the sale or purchase of such goods, including the charging section, rule 20(2), and other ancillary provisions. The Court further explained that sales falling within the ambit of Article 286 and the corresponding section 26 were, for all practical purposes, taken out of the scope of the Act, and no effect should be given to the provisions that would otherwise have applied if section 26 had not been inserted. Relying on these observations, the petitioners argued that the provisions relating to inter‑State sales should be regarded as nonexistent.

Consequently, the Court observed that it would be necessary to enact a new statute in order to give effect to the provisions that were presently outside the operation of the law. In the present case, the only issue that required determination was the effect of the prohibition contained in Article 286 on those transactions that fell within its scope. At the relevant time, that prohibition had not been removed, and therefore the consequences of any removal of the prohibition on the existing legal framework did not come within the matters for determination. The Court further held that it could not interpret the submissions of the petitioners to mean that section 22 of the Madras Act had been erased from the statute book.

The Court then referred to the decision in Bhikaji Narayan Dhakras and others v. The State of Madhya Pradesh and another, a case that directly addressed a similar question. In that case, the dispute concerned the Central Provinces and Berar Motor Vehicles (Amendment) Act, 1947, which was enacted as Act 3 of 1948. That amendment had modified section 43 of the Motor Vehicles Act, 1939 by inserting provisions that authorised the Provincial Government to assume control of the entire motor‑transport business in the province and to operate it in competition with, or even to the exclusion of, private motor‑transport operators. Although those provisions were valid when they were originally enacted, they became void upon the commencement of the Constitution because they infringed the constitutional guarantee of the right to carry on trade, protected by Article 19(1)(g). The Constitution, however, was amended on 18 June 1951, and Article 19(6) was altered so as to permit the State to carry on a business to the exclusion, either wholly or partially, of citizens or otherwise. After that amendment, the Government issued a notification under section 43 of the 1948 Amendment Act, and the validity of that notification was placed in issue.

The petitioners argued that, because section 43 of the 1948 Act had become void at the moment the Constitution came into force, any notification issued under that section after the amendment of the Constitution was invalid and should be considered void ab initio. The Court rejected that contention, holding that section 43 of the 1948 Act could not be said to have been removed from the statute book. The provision continued to apply to transactions that had taken place before the Constitution became operative, and even after the Constitution it remained applicable with respect to non‑citizens. The Court explained that the effect of the conflict between section 43 and Article 19(1)(g) was that the provision could not be enforced while the constitutional bar remained in force; however, once that prohibition was lifted by the First Amendment, the dormant provisions of the Act revived and became enforceable. From this authority, the Court derived the principle that when a statute is partially unconstitutional but the remaining part is valid and severable, the statute is not to be regarded as having been erased from the law. The valid portion remains on the books and, when the constitutional obstacle is removed, that portion operates of its own force without requiring fresh legislation.

The Court explained that when a statute is partly unconstitutional but the remainder is valid and severable, the entire enactment cannot be considered removed from the statute book. The valid portion must remain on the books so that it can be enforced, and the invalid portion, although unenforceable while the constitutional bar exists, will operate with its own force once that bar is lifted, without the need for any new legislation. Applying this principle, the Court rejected the petitioners’ reliance on the Explanation in section 22 of the Madras Act. That Explanation addresses two kinds of transactions: it declares illegal the taxation of sales where title passes in Madras but delivery occurs outside Madras because such sales fall within Article 286(1)(a), and it permits tax on sales where title passes outside Madras but the goods are delivered for consumption within Madras. The Explanation is valid to the extent that it prohibits tax on outside sales, but it is invalid to the extent that it allows tax on sales delivered inside the State, because those sales are barred by Article 286(2). The Court held that the partial invalidity does not erase the Explanation from the statute book, since the valid portion must remain for enforcement. By enacting the impugned law, Parliament effectively removed the prohibition in Article 286(2). Consequently, the part of the Explanation dealing with sales where property passes outside Madras but goods are delivered inside Madras, which was previously unenforceable, became valid and enforceable. The Court further stated that it need not consider whether the result would differ if the entire provision were unconstitutional.

The Court then turned to another aspect of the matter, referring to the decisions in Behram Khurshed Pesikaka v. State of Bombay and Bhikaji Narain Dhakras et al. v. State of Madhya Pradesh, which focused on the construction of Article 13 of the Constitution, declaring laws void to the extent they are repugnant to Part III. In the present petitions, however, the issue does not involve any provision of Part III but concerns the breach of Article 286(2). The Court noted that Article 286(2) does not provide that a law contravening it becomes void, and, considering the context of that provision, it is difficult to infer such a consequence. Therefore, the Court concluded that the impugned provisions of the Madras Act are not rendered null and void merely because they conflict with Article 286(2).

Article 372 clause one mandates that every law that existed on the day the Constitution came into force shall continue to be operative. The proviso attached to Article 286 clause two authorises the President, by way of an order, to maintain the operation of the Sales Tax Laws until the thirty‑first day of March, 1951. Article 286 clause two, taken by itself, declares that no law of a State may impose a tax. When these provisions are read in their proper context, the meaning becomes clear: a State law that attempts to impose a tax cannot be effective; in other words, such a law cannot be enforced to the extent that it creates a tax liability. Whether the issue is examined through the broad principle concerning the consequences of an unconstitutional statute or through a strict reading of Article 286 clause two, the result is unavoidable. Section twenty‑two of the Madras Act, together with the analogous provisions contained in the statutes of other States, cannot be declared void or non‑existent merely because they are inconsistent with Article 286 clause two. Since the prohibition contained in that article has now been removed, there is no longer any legal barrier to giving effect to those provisions. (V) The Court now turns to the argument raised by the counsel for Madura Mills Limited, whose approach diverged from that of the petitioners and interveners.

The counsel contended that the decisive issue lay in Entry forty‑two of List I of the Seventh Schedule, which deals with “inter‑State trade and commerce.” He argued that under this entry Parliament alone possessed the authority to legislate on matters of inter‑state trade and commerce, and that this exclusive power necessarily included the power to levy a tax on inter‑state sales. Consequently, the States, he claimed, lacked constitutional competence to enact any law imposing a tax on such sales; any State law enacted after the commencement of the Constitution that imposed such a tax would be ultra vires and void. He further maintained that the impugned Act, which sought to give effect to those State laws, was likewise ultra vires and therefore inoperative. As a result, any proceedings contemplated under section twenty‑two of the Madras Act and the corresponding provisions in the sister statutes of other States would be unauthorized and illegal. To support this contentions, he invoked the origin of Entry forty‑two in the United States Constitution’s Commerce Clause, Article one, section eight, which states that “Congress shall have power to regulate commerce among the several States.” The United States Supreme Court has interpreted that clause to mean that the States themselves have no authority to impose a tax on the conduct of inter‑state trade, as illustrated in cases such as Robins v. Taxing District of Shelby County and McLeod v. Dilworth Co. Because the wording of Entry forty‑two mirrors the language of the Commerce Clause, he concluded that it must be given an identical interpretation.

In this matter, the Court noted that a long‑standing rule of statutory construction requires that the entries in the Legislative Lists be read liberally and broadly. Accordingly, the Court explained that the proper meaning of Entry 42 is that Parliament possesses the authority. Because of the non‑obstante clause in Article 246(1) and the words “subject to” in Article 246(3), the States do not possess the power to levy a tax on inter‑State sales. The Court further observed that Article 301, which declares that trade and commerce throughout the territory of India shall be free, is intended to achieve the same result. It pointed out that Article 301 reproduces section 92 of the Commonwealth of Australia Constitution Act. Authorities interpreting that section have held that a tax on inter‑State trade would be contrary to the provision. The Court also observed that the freedom guaranteed by Article 301 implicitly includes freedom from taxation, as reflected in Article 304(a), which carves out an exception for taxes on goods imported from other States. On the basis of these observations, it was argued that, after the Constitution came into force, no State law may impose a tax on inter‑State sales. Consequently, the Court said, Section 22 of the Madras Act, which was enacted after the Constitution, would be invalid if it is read as imposing such a tax. The impugned Act, which assumes that States may legislate taxes on inter‑State sales, would be unconstitutional and void.

The Court then examined the argument and found it to contain serious infirmities. It observed that the argument ignored the historical fact that the Constitution was not drafted on a blank slate, but was built upon the Federal framework created by the Government of India Act, 1935. Although the 1935 Act has been substantially repealed, it has been modified and supplemented, and it still furnishes the structural basis for the present Constitution. Therefore, the provisions of the Constitution must be read in light of the corresponding provisions of the 1935 Act. The Court further noted that the argument failed to give adequate weight to the context in which the relevant constitutional provisions were drafted and the manner in which they should be interpreted. The Court explained that the Government of India Act, 1935 did not contain an entry corresponding to Entry 42 in List I of the Constitution. However, List II of the 1935 Act contained Entry 48, which corresponds to Entry 54 in the Constitution. It was undisputed that under Entry 48 the States possessed the power to enact a law imposing a tax on inter‑State sales. The language of that entry was broad enough to cover both inter‑State and intra‑State sales. On that basis, the Provinces had previously enacted statutes imposing taxes on inter‑State sales. When the Constitution later came into force, it introduced for the first time a new entry, namely Entry 42, thereby altering the constitutional allocation of taxing powers.

The Court observed that Entry 42 appears in List I of the Constitution, while Entry 48 of the Government of India Act, 1935 was reproduced in the Constitution as Entry 54 in List II, and that, for the purposes of this analysis, the two entries were essentially identical. The Court explained that, given the meaning of the corresponding entry in the 1935 Act, one would naturally expect the Constitution‑makers to have expressly stated if they intended to remove from the States the authority they previously possessed under Entry 48 to levy a tax on inter‑State sales. The Court noted that Entry 48 in the Government of India Act was described as “Taxes on the sale of goods and on advertisement,” whereas the original wording of Entry 54 in List II of the Constitution read “Taxes on the sale or purchase of goods other than newspapers.” By inserting the phrase “other than newspapers,” the Constitution clearly narrowed the scope of the earlier entry. The Court reasoned that, if the framers had wished to exclude inter‑State sales from the taxation power, they could have done so by an explicit statement, rather than by leaving such an exclusion to be derived indirectly through a construction of Entry 42 in List I, especially by reference to American decisions on the Commerce Clause. This deliberate omission, the Court held, strongly suggests that Entry 42 should not be interpreted to include a power to tax inter‑State sales.

The Court further reinforced this conclusion by examining the overall design of the Seventh Schedule, which organizes legislative subjects into distinct groups. In List I, Entries I to 81 enumerate the matters over which Parliament may legislate, while Entries 82 to 92 list the specific taxes that Parliament may impose. The Court pointed out that the primary subject of legislation is placed in the first group, with any related tax matters set out separately in the second group. For example, Entry 22 in List I is titled “Railways,” and Entry 89 separately provides for “Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights.” If the railway entry itself were construed to include taxation powers, the separate tax entry would be unnecessary. Likewise, Entry 41 deals with “Trade and commerce with foreign countries; import and export across customs frontiers,” and Entry 83 separately addresses “Duties of customs including export duties.” Again, combining the two would render the latter redundant. Entries 43 and 44 concern the incorporation, regulation, and winding‑up of corporations, while Entry 85 is dedicated to corporation tax. Turning to List II, the Court observed that Entries I to 44 describe the subjects on which the States may legislate, whereas Entries 45 to 63 are reserved exclusively for taxation matters. As an illustration, Entry 18 is “Land,” and Entry 45 is “Land revenue.” This systematic separation of substantive subjects from tax provisions supports the view that taxation is to be treated as a distinct competence, and therefore Entry 42 does not confer a power to impose taxes on inter‑State trade and commerce.

The analysis of the entries shows that Entry 50, “Taxes on mineral rights,” and the other entries demonstrate that taxation is not meant to be subsumed within a broader subject even if a wide construction might suggest such inclusion; instead, taxation is treated as a separate matter for determining legislative competence. This separation is also evident in the wording of Article 248, clauses (1) and (2), and in Entry 97 of List I of the Constitution. When Entry 42 is read in light of this scheme, it becomes difficult to accept that Parliament’s power to legislate on inter‑State trade and commerce under Entry 42 includes the authority to impose a tax on sales made in the course of such trade and commerce.

Article 286 directly addresses the question at hand by imposing several restrictions on a State’s power to enact laws imposing taxes on the sale of goods, and one of those restrictions specifically deals with taxes on inter‑State sales, as stated in Article 286(2). The provision implicitly acknowledges that the States possess the power to levy a tax on such sales, because a restriction cannot apply to a power that does not exist. This interpretation of Article 286(2) was adopted by the Court in The United Motors case (1953 SCR 1069) and in The Bengal Immunity Company case (1955 SCR 603). In those decisions, the Court observed that under Entry 54—just as Entry 48 of the Government of India Act conferred the power to tax sales on the States—Article 286(2) was enacted to prevent multiple taxation of inter‑State sales when exercising the power granted by that entry.

The Court therefore concluded that Entry 54 must be read as including the power to tax inter‑State sales, while Entry 42 must be read as excluding that power. To overcome this conclusion, counsel argued that Article 286(2) referred only to laws existing at the Constitution’s commencement, and that Parliament’s authority was merely to continue those pre‑existing laws. Reliance was placed on the proviso to Article 286(2), which permitted the President to direct that taxes levied by a State before the Constitution’s commencement could continue until 31 March 1951, and it was suggested that the power under Article 286(2) was of the same character—simply allowing Parliament to continue pre‑Constitutional statutes.

However, it cannot be denied that the language of Article 286(2) naturally embraces future legislation as well. A similar phrasing appears in Article 287, where the text clearly refers to laws to be enacted after the Constitution came into force, reinforcing the view that Article 286(2) is not limited to existing statutes but also applies to legislation enacted subsequently.

The Court noted that it had been conceded that the wording of Article 286(2) expressly covered both legislation that already existed at the commencement of the Constitution and legislation that might be enacted thereafter. However, it was also argued that the operation of Article 286(2) should be confined only to laws that were in force at that moment, on the ground that Entry 42 in List I already dealt with tax on inter‑State sales and that any State law made after the Constitution imposing such a tax would therefore be incompetent. The Court observed that this argument was circular and could not be accepted. The real question for determination was whether tax on inter‑State sales fell within the ambit of Entry 42. From the plain language of Article 286(2) the Court inferred that it did not. The Court rejected the proposition that the meaning of Article 286(2) could be narrowed merely because Entry 42 supposedly included the tax, stating that it could not accede to such a contention.

In summarising its analysis, the Court made three points. First, Entry 54 in List II succeeded Entry 48 in the Government of India Act and could properly be interpreted as covering tax on inter‑State sales unless the Constitution contained a provision that was repugnant to such an interpretation; the Court found no such repugnancy. Second, the scheme of the Entries in the three Lists treats taxation as a distinct subject matter that is set out separately. Third, Article 286(2) is premised on the understanding that the States possess the power to enact laws imposing tax on inter‑State sales. From these considerations the Court concluded that under Entry 54 in List II the States were competent to legislate a tax on inter‑State sales.

The Court then turned to the arguments seeking the opposite conclusion. Counsel for that view contended that the Entries in the Legislative Lists must be construed broadly rather than narrowly or pedantically, and that, in the absence of any limitation, Entry 42 should be read to include the power to tax sales made in inter‑State trade and commerce. While acknowledging that the rule of construction cited by the counsel was well established, the Court held that the issue was not simply whether a particular statute fell within an Entry. The dispute was whether, between two Entries assigned to two different legislatures, the subject of the legislation belonged to the scope of one Entry or the other. The Court observed that if Entry 42 in List I were to be given a liberal construction, the same liberal approach must be applied to Entry 54 in List II. Consequently, the matter could not be decided by merely referring to Article 246 clauses (1) and (3) or by invoking the principle articulated in Union Colliery Company of British Columbia v Bryden, which holds that in a conflict of jurisdiction between a Central and a Provincial legislature the Central law prevails. Article 246 clauses (1) and (3) would be relevant only if there were an actual conflict as to the scope of the two Entries, a point that the Court indicated required further consideration.

The first question to be resolved was whether any conflict existed between Entry 42 of List I and Entry 54 of List II. If no conflict could be identified, then neither the non‑obstante clause of Article 246(1) nor the words “subject to” in Article 246(3) would become relevant. A well‑settled rule of construction requires that entries in the two legislative lists be interpreted, wherever possible, so as to avoid a conflict. In the case of Province of Madras v. Boddu Paidanna and Sons, the issue was whether the initial sale of goods by a manufacturer fell within provincial taxation under Entry 48 of List II or whether it constituted an excise duty that, under Entry 45 of List I, lay within the exclusive competence of the centre. The Federal Court held that the proper approach was to seek a reconciliation between the two entries so as to prevent overlap. It observed that, although excise duty might, in a broad sense, cover the first sale of a manufactured product, the specific context of Entry 48 of List II meant that such sales should not be deemed excise, thereby allowing the province to tax the first sale. The Privy Council affirmed this view in Governor‑General in Council v. Province of Madras. Consequently, if Entry 42 can be interpreted as not encompassing a tax on inter‑state sales, the principle articulated in Province of Madras v. Boddu Paidanna and Sons and reaffirmed in Governor‑General in Council v. Province of Madras requires that Entry 42 be construed in that limited manner, thereby averting any clash with Entry 54. It was further contended that Entry 42 should be read to include taxation power because American authorities interpret the Commerce Clause in that way, and there seemed to be no reason to adopt a different construction for Entry 42 in our Constitution. While it is true that the framers of our Constitution were aware of the American Commerce Clause and its jurisprudence, it is erroneous to assume they intended a literal transplantation of that clause into Entry 42. The framers worked under the Government of India Act, 1935, which provided a comprehensive federal structure, and they selectively borrowed and adapted provisions from various federal constitutions worldwide to suit Indian conditions. In this new setting, those borrowed provisions do not necessarily retain the original meaning they possessed in their source constitutions. The threads may have been taken from other constitutions, but once woven into the fabric of our Constitution, they acquired a distinct character and must be interpreted in accordance with the context and purpose of our own constitutional framework.

The Court observed that when constitutional provisions are borrowed from other federal systems, their scope and character inevitably change to suit the new constitutional environment. Consequently, even though American jurisprudence offers valuable insight into how a comparable issue is resolved in a sister federal constitution, as illustrated by the decisions reported in (1) (1945) L.R. 72 I.A. 91 and (2) [1942] F.C.R. 90, great caution must be exercised before importing those rulings into the interpretation of our own Constitution. The Court emphasized that the object of interpretation is the Constitution of India itself, and that any construction must be rooted in the specific context and purpose of the provision under consideration. Applying this principle and taking into account the preceding analysis, the Court concluded that Entry 42 in List I cannot be read as conferring a power to impose taxes. The same conclusion was extended to the reliance placed on section 92 of the Commonwealth of Australia Constitution Act and Article 301 of the Indian Constitution; neither of those authorities would enlarge the meaning of Entry 42 to include taxation. Further, the Court noted that Article 304(a) of the Constitution does not illuminate the scope of Article 301 with regard to taxation, because Article 304(a) merely replicates section 297(1)(b) of the Government of India Act, and that Act contained no provision corresponding to Article 301. Hence, section 297(1)(b) could not be said to imply the tax‑imposing authority that the petitioners attempted to derive from Article 304(a). In the final analysis, the Court held that, assuming the States possessed the power under Entry 54 to levy a tax on inter‑State sales subject only to the limitation set out in Article 286(2), the impugned legislation would be effective and any proceedings instituted under it would be valid. This finding was reached by interpreting the relevant statutory provisions without resorting to the Sixth Amendment of the Constitution, which, on the premise that the States possessed the power to tax inter‑State sales under Entry 54, amended the Constitution to vest that power in the Centre. The petitioners also argued that a tax proposed by the Andhra State on the sale of yarn to dealers within Andhra was illegal because, under the Madras Act and its Rules, a single tax could be levied only at one point in a series of yarn sales, and since the Government of Madras had already imposed such a tax, a second levy by Andhra on the same goods would be unauthorised, rendering any assessment proceedings incompetent. The Court found this contention untenable. It explained that the provision in the Madras Act allowing a single levy on successive sales of yarn applies solely to transactions occurring within the State of Madras; it would be beyond the competence of the Madras Legislature to enact a law capable of operating in another State. While the petitioners further claimed that a proper reading of section 53 of the Andhra State Act, 1953 supported their position, the Court indicated that such an interpretation would not change the outcome of the analysis.

In this case, the Court examined the argument that, although for political reasons Andhra should be treated as a separate State, the provision in section 53 of the Andhra State Act, 1953 required that for the purpose of enforcing laws as they existed on the appointed date Andhra be deemed to form part of the State of Madras. The Court rejected that construction. It held that section 53 merely stated that the statutes which were already in force in the territories that were merged to create the State of Andhra must continue to operate in the same manner as before the merger. The Court examined the wording of section 53, observing that it used language indicating continuity rather than incorporation. It further noted that the political separation of Andhra did not automatically alter the operative status of statutes already applicable to its territory. To illustrate this point, the Court noted that an Adaptation Order dated 12 November 1953 expressly replaced the name “Madras” with “Andhra” in the Madras General Sales Tax Act, thereby confirming that the Act was to be applied in the new State under its existing terms. Consequently, the contention that the section was intended to treat Andhra as a part of Madras for enforcement purposes was found to have no substance. (VII)

Finally, the petitioners contended that the Essential Commodities Act, 1952, enacted by Parliament under the authority of article 286(3) of the Constitution, had declared yarn to be an essential commodity and that, if the Madras Act were to be construed as a fresh enactment for Andhra by virtue of sections 53 and 54 of the Andhra State Act together with the 12 November 1953 Adaptation Order, the enactment would be invalid because the procedure required by article 286(3) had not been observed. The basis of this argument was the assertion that, for the purposes of article 286(3), the Madras Act as applied to Andhra would be a “new Act”. The Court disagreed. It explained that the Madras Act had been in force in the territories that later formed Andhra up to 1 October 1953, and that after that date the Act continued to operate by virtue of section 53 of the Andhra State Act. Moreover, the continuation of the Madras Act in Andhra was not effected by any legislation passed by the Andhra State Legislature; it was effected by a provision of a law enacted by Parliament. The Court also reviewed the constitutional framework, emphasizing that article 286(3) applies only when a new enactment is made by the competent legislature within the State, which was not the case here. The effect of the Adaptation Order was to preserve the operative provisions of the Madras Act without creating a new law. Accordingly, article 286(3) was inapplicable. The Court also pointed out that the Essential Commodities Act, 1952 (Act LII of 1952), has since been repealed and is no longer in force. For these reasons, the Court rejected this contention as well.

The petitioners also raised additional arguments, claiming that they were not “dealers” within the State of Andhra and that the explanation to section 22 of the Sales Tax Act did not apply to the sales in question because the goods were delivered in Madras rather than in Andhra. The Court held that such matters were for the assessing authorities to consider and could not be addressed in the present writ proceedings. The Court stressed that the proper forum for the petitioners’ objections to their classification as dealers and to the applicability of the explanation to section 22 was the tax assessment machinery, not the jurisdiction of this writ petition. In conclusion, the Court found that the petitions failed on all grounds and accordingly dismissed them. Noting the erratic history of the petitions, whose fortunes had varied with changing interpretations of law, the Court ordered that each party bear its own costs. SARKAR J. – The petitioners, who carried on a cotton‑yarn trade in Madras, had sold yarn to various purchasers in the State of Andhra, which, as the respondent, sought to levy tax on those sales under its Sales Tax Act.

The petitioners argued that the respondent State lacked authority to levy tax under the Sales Tax Act that applied within its territory. They filed petitions seeking writs of prohibition or other appropriate writs to prevent the respondent from imposing and collecting the tax on their sales. The Sales Tax Act enumerated several categories of sales that could be subject to taxation under its provisions. However, the methods by which the petitioners carried out those sales were varied and had not been fully determined, making it impossible to decide their taxability without further factual clarification. To avoid this evidentiary difficulty, the parties agreed that the sole issue for determination would be whether the respondent could tax a transaction in which title to the goods passed outside the State of Andhra. The question also required consideration of the fact that the goods were subsequently delivered inside the State for consumption. Before examining that question, it was necessary to recount certain historical events that formed the backdrop of the dispute. The Constitution of India came into force on January 26, 1950, and it preserved existing laws in the Indian territories, subject to constitutional mandates. Article 372(2) of the Constitution provides that the President may, by order, adapt, repeal or amend any law in force in India so that it conforms to the Constitution. Article 286, as it existed before its amendment in 1956 and which governs the present case, set out two principal restrictions on State taxation of sales. Clause (1) prohibited a State law from imposing a tax on a sale or purchase that occurred outside the State or in the course of import into or export out of India. The explanation to sub‑clause (a) clarified that a sale is deemed to have taken place in the State where the goods are actually delivered for consumption. This holds true even though under general sale law the title to the goods may have passed in another State. Clause (2) further declared that, except where Parliament legislates otherwise, a State may not tax a sale or purchase that occurs in the course of inter‑State trade or commerce. In 1939, the legislature of Madras had enacted the Madras General Sales Tax Act, and this was continued in force by the Constitution after its promulgation. In order to bring its.

The President, exercising the power described earlier, issued on 2 July 1952 the Adaptation of Laws (Fourth Amendment) Order, which introduced a new provision, namely section 22, into the Madras General Sales Tax Act. The wording of that newly added section formed a material part of the present dispute and will be reproduced later in the judgment. The significance of the Explanation contained in Article 286(1)(a) of the Constitution was previously examined by this Court in the matter of The State of Bombay v. The United Motors (India) Ltd. (1). In that decision, delivered by a majority on 30 March 1953, the Court held that a State was permitted to levy a tax on a sale of goods that were delivered within the State for consumption even though legal title to the goods passed outside the State’s territory, and that a statutory provision purporting to impose such a tax was not inconsistent with Article 286.

Subsequently, the State of Andhra came into existence on 1 October 1953 under the Andhra State Act, 1953, being carved mainly from territories that had earlier formed part of the State of Madras. Although the new State later acquired the name Andhra Pradesh, the judgment will refer to it simply as the State of Andhra. Section 53 of the Andhra State Act stipulated that all laws which were in operation in the territories before the Constitution of the State of Andhra became effective would continue to apply thereafter. Accordingly, the Madras General Sales Tax Act was deemed applicable to the State of Andhra and it incorporated the newly added section 22. To adapt the legislation to the new jurisdiction, every reference to “Madras” in the Act was replaced with “Andhra”. Henceforth, the statute will be identified as the Sales Tax Act.

In the course of 1954, the respondent—namely the State of Andhra—issued formal notices to the petitioners demanding that they pay taxes prescribed under the Sales Tax Act. The petitioners contested the authority of the State to impose such a tax and a series of communications ensued between the parties. Because the State persisted in its claim to collect the tax, the petitioners filed the present suit in July and August of 1955. While the suit was pending, the question of the reach of Article 286 arose once more before this Court. The matter was reconsidered in the case of the Bengal Immunity Company Ltd. v. The State of Bihar (1). By a majority judgment rendered on 6 September 1955, the Court held that, until Parliament enacted a law under the powers conferred by Article 286(2) providing otherwise, no State could impose a tax on the sale or purchase of goods that occurred in the course of inter‑State trade or commerce. The Court also indicated that the earlier majority decision in State of Bombay v. United Motors (India) Ltd. (2), insofar as it had been decided, could not be sustained in light of this later interpretation of the constitutional provision.

The Court observed that the argument to the contrary could not be accepted and further held that the explanation in Article 286(1)(a) did not give any right to the State in which the goods were delivered, under a sale, to levy tax on those goods even though the property in the goods passed in another State. In view of this decision, the respondent was advised that it could not oppose the petitions and, on 21 October 1955, it actually filed statements in the proceedings submitting that the petitions might be allowed. Before the petitions could be heard and disposed of, an Ordinance called the Sales Tax Laws Validation Ordinance, 1956, was promulgated by the President on 30 January 1956. This Ordinance was later, on 21 March 1956, replaced by the Sales Tax Laws Validation Act, 1956. Both enactments were in identical terms. The operative provision of the Validation Act was set out as follows: “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 or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of interstate trade or commerce; and all such taxes levied or collected or purporting 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.” (See [1955] 2 S.C.R. 603; [1953] S.C.R. 1069). The respondent was advised that the Validation Act had altered the legal position and that, in view of it, the petitions could no longer succeed. Consequently, on 19 February 1957, the respondent filed fresh statements requesting that the petitions be dismissed.

The petitions were then placed for hearing under these circumstances. Although the validity of the Validation Act itself had been challenged, the Court found it unnecessary to decide that issue and proceeded on the assumption that the Act was perfectly valid. The Court noted that the Validation Act did not itself impose any tax; its sole effect, for the purposes of these cases, was to permit the Sales Tax Act to operate and to tax sales that occurred in the course of trade between Andhra and any other State during certain dates, which were not reiterated in the judgment. As agreed between the parties and mentioned at the beginning of the judgment, the only question to be determined was whether a sale in which the goods were delivered in Andhra for consumption there, although the property in the goods passed in Madras, could be taxed by the respondent. The Court recognized that such a transaction would indisputably constitute a sale in the course of trade between Andhra and Madras.

In this case the Court considered whether a transaction in which goods were delivered in the State of Andhra for consumption there, while title to the goods passed in the State of Madras, could be subject to tax by the respondent despite the existence of the Validation Act. The argument presented was that the Sales Tax Act did not intend to tax such a transaction, and therefore the respondent could not impose tax on it. The Court therefore asked whether any provision of the Sales Tax Act actually imposed tax on that kind of sale. The Act, as the Court noted, authorised the levy of tax on sales defined within its own terms, and the definition of “sale” appeared in section 2(h) of the Act. It was not contested that this definition excluded a sale in which the goods were delivered in Andhra for consumption there while the property in the goods passed in Madras; consequently the Court found no need to refer further to that definition.

The parties, however, contended that the explanation appended to section 22 altered the effect of the definition and rendered such a transaction a “sale” within the meaning of the Act, thereby making it liable to tax. The Court accordingly examined section 22 as it stood at the relevant time. Section 22 read as follows: “Nothing contained in this Act shall be deemed to impose, or authorise the imposition of, a tax on the sale or purchase of any goods, where such sale or purchase takes place (a) (i) outside the State of Andhra, or (ii) in the course of the import of the goods into the territory of India or of the export of the goods out of such territory, or (b) except in so far as Parliament may by law otherwise provide, after the 31st day of March 1951 in the course of inter‑State trade or commerce, and the provisions of this Act shall be read and construed accordingly. Explanation—For the purposes of clause (a)(i), 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.”

The Court then asked whether the explanation thereby declared that when, under a sale, goods were delivered in Andhra, the sale should be regarded as having taken place in Andhra even though ownership passed in another State such as Madras. The explanation indeed stated that a sale would be deemed to have occurred in the State where the goods were delivered for consumption, without naming any particular State. The Court observed that, although the wording appeared to make such a conclusion, it was impossible to read the provision as having contemplated a scenario where goods were delivered in Andhra while title passed in a different State. For clarity, the Court omitted the phrase “as to consumption in the State in which the goods were delivered” from its analysis, noting that there was no dispute about consumption in the present cases.

The Explanation commences with the words “For the purposes of clause (a)(i)”. The clause to which it refers contains only the words “outside the State of Andhra” and completes the sentence that precedes it. The full sentence reads: “Nothing in this Act shall be deemed to impose, or authorise the imposition of, a tax on the sale or purchase of any good where such sale or purchase takes place (a)(i) outside the State of Andhra.” That provision then states that no tax shall be levied under the Act on a sale which takes place outside Andhra. It is only after this statement that the Explanation begins, again with the words “For the purposes of clause (a)(i)”. Consequently, those words must be understood to mean “for the purpose of explaining which sale is to be regarded as having taken place outside Andhra”. The Explanation therefore serves to define the scope of clause (a)(i). The Court then examined the substantive portion of the Explanation, which is required to explain when a sale is to be regarded as having taken place outside Andhra. The substantive portion, however, mentions a sale that is to be deemed to have taken place inside a State. In order to fulfil its purpose, this reference must be read as indicating that a particular sale is to be deemed to have occurred inside a State other than Andhra, thereby qualifying it as a sale that occurred outside Andhra. It follows that the Explanation does not contemplate that the State inside which a sale is deemed to have taken place can be Andhra itself; if it did, the Explanation would fail to indicate when a sale is to be regarded as outside Andhra, which is its sole objective. Accordingly, the Explanation can be read only as envisaging a State other than Andhra as the State inside which a sale shall be deemed to have taken place. This is the inevitable conclusion drawn from the opening words of the Explanation when read in their plain meaning. Thus, omitting portions for brevity, the Explanation can be understood to state: “For the purposes of clause (a)(i) a sale or purchase shall be deemed to have taken place in a State other than Andhra, in which the goods have actually been delivered notwithstanding that the property in the goods has passed in the State of Andhra.” The Court found it impossible to interpret the Explanation as stating that a sale shall be deemed to have taken place inside Andhra when the goods are delivered there although the property in them passed in another State. Accordingly, the Explanation does not, in the Court’s view, authorise the taxation of a sale where goods are delivered in Andhra while the property in those goods passed in Madras. The view that the Court has expressed remains incomplete at the close of this passage.

The Court observed that the purpose of the Explanation in section 22 was taken from the purpose of the Explanation in Article 286(1)(a) as explained in the Bengal Immunity Company case. The report on page 646 of that case stated that the declared purpose of the Explanation was to define what an “outside sale” referred to in sub‑clause (a) means. Because the wording of the Explanations and their placement within their respective provisions are identical, the Court held that they must bear the same meaning. It was submitted that the reasoning applied by the Court in the Bengal Immunity Company case could not be extended to section 22, on the ground that section 22 is part of a taxing statute whereas the earlier provision was not. The Court, however, found no justification for allowing a different interpretation of the same words merely because one provision imposes a tax and the other does not; purely on linguistic grounds, identical words must be given the same meaning. Consequently, the words “for the purpose of clause (a)(i)” must be understood in exactly the same way in the Explanation to Article 286(1)(a) as in the Explanation to section 22. The Court was unable to distinguish the present matter from the Bengal Immunity Company case for the purpose of ascertaining the meaning of those words. It was further contended that the Explanation in section 22 has a dual aspect: when it speaks of a sale occurring inside one State, it necessarily also speaks of a sale occurring outside all other States. According to that line of thought, when goods are delivered in Andhra but the property in those goods passes outside Andhra, the Explanation would simultaneously classify the transaction as a sale inside Andhra and as a sale outside all other States. The Court rejected this argument, questioning why the Explanation in the Andhra Act should address the situation of a sale being deemed to have taken place outside all other States, when the State of Andhra cannot legislate for any other State. Moreover, the Act contains no provision that obliges it to specify when a sale is deemed to be outside all other States. Therefore, a construction that renders a sale both inside Andhra and outside all other States cannot be sustained. The Court further noted that the introductory phrase “for the purposes of clause (a)(i)” clearly confines the Explanation to a sale in which goods are delivered in a State other than Andhra while the property in those goods passes in Andhra. The Court found no difficulty with this reading of the Explanation, as it would mean that the Andhra Act is merely stating when a sale is to be regarded as occurring in another State.

The Court observed that a provision stating a sale is deemed to have taken place inside another State cannot be valid because a State legislature possesses authority only to legislate for its own territory and not for any other State. Accordingly, the Court held that raising an objection on this ground would be futile, since when Andhra Pradesh declares that a sale shall be treated as occurring inside another State, it is merely applying its own law to designate such a sale as an “outside” transaction for the purposes of its taxation scheme, and consequently it may not impose tax under section 22(a) of its Sales Tax Act. The Court further noted that one might imagine that the Explanation contained in Article 286(1)(a) could be interpreted in two separate aspects, because that provision deals with all States or any two States taken together, and the Constitution is competent to lay down law for such a universal scope. However, the Court explained that such a dual construction is unavailable when the provision is part of legislation enacted by a State legislature, since a State law cannot regulate the legislative competence of other States. Moreover, the Court emphasized that the language of the Explanation clearly indicates that it is intended solely to explain the circumstances in which a sale is to be deemed to have occurred outside the State of Andhra Pradesh. It is not meant to define when a sale is considered to have taken place outside any other State whatsoever. Consequently, the Court could not discern any part of the Explanation that would describe a sale occurring inside Andhra Pradesh. From this analysis, the Court concluded that the Sales Tax Act that is the subject of these proceedings does not empower the State to tax a sale in which the goods are delivered in Andhra Pradesh but the ownership of the goods passes in Madras. In light of this conclusion, the Court considered it unnecessary to examine the additional arguments that sought to challenge the respondent’s authority to tax the transactions on other grounds.

In the final order, the Court stated that, based on the majority opinion, the petitions were dismissed. Each party was directed to bear its own costs. Accordingly, the petitions were formally dismissed.