A. Hajee Abdul Shakoor And Company vs State Of Madras

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

Court: Supreme Court of India

Case Number: Writ Petition Nos. 201 to 203 of 1963

Decision Date: 7 May 1964

Coram: Raghubar Dayal, M. Hidayatullah, J.C. Shah, J.R. Mudholkar

In the matter titled A. Hajee Abdul Shakoor and Company versus State of Madras, the Supreme Court of India delivered its judgment on the seventh day of May, 1964. The bench hearing the case consisted of Justice Raghubar Dayal, Justice M. Hidayatullah, Justice J. C. Shah and Justice J. R. Mudholkar, with the report prepared by the author Raghubar Dayal. The decision is reported in the 1964 All India Reporter at page 1729 and in the 1964 Supplement to the Supreme Court Reports, volume eight, page 217. Subsequent citations of the judgment appear in several later law reports, including the 1969 Supreme Court Reports at page 147, the 1972 Reports at page 217, the 1974 Reports at page 1111, and numerous other citations extending to the 1992 Reports. The case concerned the application of the Madras General Sales Tax (Special Provisions) Act of 1963, specifically section two, and examined whether that provision was constitutionally valid under Articles fourteen, nineteen‑one‑f, nineteen‑one‑g, thirty‑one, two‑eighty‑six‑two, three‑hundred‑one and three‑hundred‑four of the Constitution of India, as well as the relevant provisions of the Madras General Sales Tax Act of 1939 and its accompanying rules.

The petitioners, who were dealers in skins operating within the State of Madras, purchased raw hides and skins both from locations inside the state and from outside the state. After acquiring the raw material, they tanned the hides and skins in the State of Madras and sold the finished products through agents stationed in Madras. For the assessment years 1955‑56, 1956‑57 and 1957‑58, the authorities assessed a sales‑tax on the turnover of those hides and skins in accordance with the Madras General Sales Tax Act of 1939 and rule sixteen, clause two, sub‑clause (ii) of the Madras General Sales Tax (Turnover and Assessment) Rules. The tax rate applied was three pies per rupee on the price of the tanned hides and skins for the first two assessment years and two per cent on the turnover for the year 1957‑58. The petitioners filed three separate writ petitions under Article thirty‑two of the Constitution, challenging the validity of subsection one of section two of the Madras General Sales Tax (Special Provisions) Act, 1963. They argued that the provision was ultra vires the Constitution, discriminatory, and therefore void. The Court allowed the petitions. In its holding, the Court observed that subsection one of section two discriminated against imported hides and skins that had been sold up to the first of August, 1957, a date when the tax on raw hides and skins was still three pies per rupee. Consequently, that subsection was declared void. Because subsection one was held invalid, the remainder of section two became unenforceable. The Court further held that raw hides and skins and dressed hides and skins constitute distinct commodities for the purposes of trade, and therefore may be treated as different goods under the Act. Finally, the Court clarified that sub‑rule one of rule sixteen did not become invalid merely because sub‑rule two of the same rule had been declared invalid in the earlier case of Firm Mehtab Majid Co. versus State of Madras.

The Court held that the State Legislature possessed the authority to enact the provisions contained in sub‑section (1) of section 2 of the Madras General Sales Tax (Special Provisions) Act. It observed that a legislature may pass statutes that have retrospective effect, and that the power to legislate for a period that has already passed is governed by the legislature’s present competence rather than by the scope of its power at the earlier time when the law is intended to operate. In support of this principle the Court referred to the authority in Firm Mehtab Majid Co. v. State of Madras, [1963] Supp. 2 S.C.R. 435, and also cited Government of Andhra Pradesh v. Nagendrappa, 7 S.T.C. 568, State of Andhra Pradesh v. M. A. Abdul Bari & Co., 9 S.T.C. 231, State of Travancore‑Cochin v. Shanmugha Vilas Cashew Nut Factory, [1954] S.C.R. 53, Abdul Subhan & Co. v. State of Madras, 11 S.T.C. 173, and Raghbir Chand Sam Chand v. Excise and Taxation Officer, 11 S.T.C. 149. These precedents were relied upon to confirm that the State could validly enact the specific provision of sub‑section (1) and that such enactment could be applied to transactions occurring before the law’s passage, provided the legislature presently had the requisite authority to do so.

The judgment was delivered in the original jurisdiction concerning Writ Petition Numbers 201 to 203 of 1963, each petition being filed under Article 32 of the Constitution for enforcement of fundamental rights. Counsel for the petitioner, comprising three advocates, represented the partnership firm that had instituted the three petitions, while two advocates represented the respondent State. The judgment was pronounced on 7 May 1964 by Justice J. Raghubar Dayal. The petitions sought a declaration that section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963 (Act No. 11 of 1963), hereinafter referred to as “the Act”, was ultra vires the Constitution and therefore void, and also demanded a writ of mandamus compelling the State of Madras to refrain from enforcing any part of that section. Each petition corresponded to a distinct assessment year. The petitioners, who operated as dealers in skins at Shenbakkam, Vellore, in North Arcot District of Madras State, purchased raw skins from both intra‑state and inter‑state sources, tanned the skins within the state, and sold the finished products through agents in Madras. They were assessed for sales tax pursuant to the Madras General Sales Tax Act 1939 (Madras Act IX of 1939) and rule 16(2)(ii) of the Madras General Sales Tax (Turnover and Assessment) Rules, which taxed the turnover of hides and skins bought untanned outside the state but tanned inside the state for the assessment years 1955‑56, 1956‑57 and 1957‑58. The tax rate applied was three pies per rupee on the price of tanned hides and skins for 1955‑56 and 1956‑57, and two per cent on turnover for 1957‑58. The petitioners had earlier challenged the validity of rule 16 on the ground that it violated Article 304 of the Constitution; those challenges were rejected by the Sales Tax Authorities. Subsequently, the petitioners filed Writ Petition No. 148 of 1959 in this Court contesting the tax assessment for the year 1957‑58.

The Court permitted the petition because it had previously ruled on 22 November 1962, in the case of Firm Mehtab Majid and Co. v. State of Madras, that rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules was unconstitutional because it treated imported hides and skins – those bought or tanned outside the State – differently from domestically sourced goods. After that decision, the validity of rule 16(1) of the same rules was contested in two writ petitions, numbered 43 and 44 of 1963, filed by M. J. Jamal Mohideen & Co. on 5 March 1963. The petitioners argued that sub‑rule (1) on its own exceeded the powers granted by the Constitution, since it imposed tax only on raw hides and skins while allowing the sale of tanned hides and skins in Madras to escape taxation, thereby creating a discriminatory fiscal regime. In response to these challenges, the Governor of Madras issued Madras Ordinance No. 3 of 1963 on 10 June 1963. The ordinance was accompanied by an explanatory statement which observed that the Supreme Court’s decision in W.P. 147 of 1959 – Firm ATB Mehtab Majid & Co. v. State of Madras – would likely lead dealers who had already been taxed under the disputed rule to seek refunds, causing a substantial loss of revenue and creating administrative difficulties. Consequently, the Ordinance was described as necessary to eliminate the discrimination identified by the Supreme Court and to provide a uniform method for assessing, reassessing, and collecting tax on hides and skins, based on the purchase price of the untanned material, without any distinction between imported and domestic products. The Ordinance then set out specific provisions governing the tax on the sale of hides and skins for the period from 1 April 1955 to 31 March 1959, notwithstanding any contrary provisions in the Madras General Sales Tax Act, 1939, or its underlying rules. Under clause (i), the tax on raw hides and skins was to be levied at a rate of two per cent of the purchase price on the dealer who was the last purchaser in the State and who was not exempt under subsection (3) of section 3 of the Act. Under clause (ii), the tax on dressed (i.e., tanned) hides and skins – which had escaped tax under the Act when classified as raw – was to be levied at the same rate on the dealer who was the first seller in the State of such hides and skins, provided that dealer was also not exempt under the same subsection of the Act.

The tax prescribed by the Act was to be levied at a rate of two percent of the price for which the hides and skins were last purchased while still in the untanned condition. Explanation II was inserted to remove any doubt, declaring that for sales to which sub‑section (1) applied, nothing in rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, would apply or be deemed ever to have applied. The provision further stated that any dealer in hides and skins who had been finally assessed under the provisions of the Act and the rules could, within ninety days from the commencement date of the Ordinance, apply to the relevant authority or officer for a reassessment under the Ordinance, provided the dealer submitted a correct and complete return. Subject to the provisions of sub‑section (1), the Act and its rules were to be deemed in force for the purpose of assessing, reassessing and recovering tax on the sale of hides and skins during the period mentioned in sub‑section (1). This deeming operated notwithstanding any limitation provisions contained in the Act or the rules; consequently, the authority or officer could assess, reassess and recover tax for that period as if the Ordinance had been in force at the relevant time. The amount of tax already collected from any dealer for sales during the period specified in sub‑section (1) was to be adjusted against the tax due as a result of the new assessment or reassessment under the Ordinance. If the tax determined by the assessment or reassessment exceeded the amount already collected, the excess would be recovered from the dealer; if it was less, the surplus would be refunded to the dealer. On 12 July 1963, the Sales Tax Appellate Tribunal, Madras, heard the petitioners’ appeals against the assessments for the years 1955‑56 and 1956‑57. Relying on section 2(3) of the Ordinance, the Tribunal set aside the assessment orders and remanded the matter for reassessment in accordance with the Ordinance. The Act received the Governor’s assent on 28 August 1963. Sub‑section (2) of section 1 provided that the Act would be deemed to have come into force on 10 June 1963. Sub‑section (1) of section 2 reads: “Notwithstanding anything contained in the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the said Act), or in the rules made thereunder (hereinafter referred to as the said rules), during the period commencing on the 1st April, 1955 and…”.

In this case the Court examined section 2(1) of the Act, which provided that during the period commencing on 1 April 1955 and ending on 31 March 1959, tax under the Madras General Sales Tax Act, 1939 would be levied in respect of the sale of dressed hides and skins—goods that were not subject to tax as raw hides and skins—on the dealer who was the first seller in the State of such hides and skins that were not exempt from taxation under sub‑section (3) of section 3. The tax rate prescribed was two per cent of the amount for which those hides and skins were last purchased in the untanned condition. Explanation I stated that the dealer bore the burden of proving that a transaction was not liable to taxation under this sub‑section. Explanation II clarified that, for sales to which sub‑section (1) applied, rule 16(2) of the Madras General Sales Tax (Turnover & Assessment) Rules, 1939, would not apply nor be deemed ever to have applied. The Court noted that section 2(1) dealt specifically with tax on the sale of dressed hides and skins and not on the sale of raw hides and skins, a distinction that differed from clause (i) of section 2(1) of the earlier Ordinance. Consequently, although the other sub‑sections of section 2 were substantially similar to those of the Ordinance, they had been suitably modified and therefore were not reproduced in full. The validity of section 2 of the Act was challenged on the ground that it infringed Articles 14, 19(i)(f) and (g), 31, 286(2), 301 and 304 of the Constitution. The petitioners advanced several specific reasons. First, they observed that persons who had purchased raw hides and skins within Madras in the years 1955‑56 and 1956‑57 had paid sales tax at the rate of three pies per rupee and incurred no additional tax when those hides were later tanned and sold. By contrast, petitioners who had bought raw hides and skins from outside the State had not paid that tax at the time of purchase, but under the impugned provision they were now required to pay a tax of two per cent of the amount for which the hides and skins were last purchased in the untanned condition. This resulted in a higher tax burden for the petitioners than for sellers of dressed hides and skins who had bought the raw material locally, thereby discriminating against imported untanned hides and skins. Second, the Court observed that section 2(i) imposed a tax of two per cent on the amount for which the dealer himself, located outside the State, last purchased the untanned hides and skins. This created discrimination between a local merchant selling locally dressed hides and skins and a dealer who was the first seller in the State but who had purchased only dressed hides and skins abroad and therefore did not become liable under section 2(1). Third, the petitioners contended that Parliament, by the Essential Goods (Declaration & Regulation of Tax on Sale or Purchase) Act 52 of 1952, had declared hides and skins to be essential goods, and that the Act provided for taxation on their sale only for the period of declaration, namely 1 April 1955 to 11 September 1956. Because the Act required presidential assent under Article 286(3) of the Constitution as then applicable and such assent had not been obtained, the Act could not affect sales prior to 11 September 1956, and consequently no tax could be levied on those earlier sales. Fourth, the petitioners pointed out that rule 16(1) became invalid when this Court held rule 16(2) invalid, and that rule 16(1) therefore had not been applied.

In the facts before the Court, the first dealer inside the State had bought only dressed hides and skins from outside the State and then sold those dressed hides and skins within the State. Because that dealer never bought the hides and skins while they were still untanned, he could not be regarded as having purchased the raw goods and therefore he did not become liable to be assessed under subsection 1 of section 2. Parliament, by means of The Essential Goods (Declaration & Regulation of Tax on Sale or Purchase) Act 52 of 1952, declared hides and skins to be essential for the life of the community. That Act authorised taxation on the sale of hides and skins only for the period during which the declaration was in force, namely from 1 April 1955 to 11 September 1956. The Act also required the assent of the President in accordance with article 286(3) of the Constitution as it existed before its repeal in September 1965. Because the President’s assent was never obtained, the Act could not affect any sales that occurred before 11 September 1956 and consequently no tax could be levied in respect of those earlier sales. Subsequently, rule 16(1) was held to be invalid when this Court declared rule 16(2) invalid, and the new Act has not revived rule 16(1). Therefore, the Court concluded that no tax on the sale of raw hides and skins for the period 1955‑57 is legally valid. As a result, the imposition of a tax under subsection 1 of section 2 of the impugned Act would place a tax on imported hides and skins when they are sold in the State after being tanned, while the sale of hides and skins that were purchased in the State in raw condition, then tanned locally and sold, would escape taxation.

The State sought to meet the petitioners’ contentions on three principal grounds. First, the legislature may legally treat dressed hides and skins as a distinct category from raw hides and skins because they are commercially different commodities; consequently, different tax rates may be prescribed for the two categories without constituting discrimination. The tax is applied to the first sale of the goods within the State, whether the goods were tanned locally or abroad, and the earlier taxation of the raw material does not affect the liability on the first sale of the tanned product because of the special exemption provision. Second, the contention that subsection 1 of section 2 does not apply to a dealer who purchases tanned hides and skins from outside the State and sells them inside the State is incorrect; the statute does not require the seller of the tanned hides and skins to be the last purchaser of the raw hides and skins for liability to arise under subsection 1. Third, article 286(3) as it stood before the 1956 amendment imposed restraints only on legislation enacted after the Constitution, and therefore it could not apply to the Madras General Sales Tax Act of 1939, which had been enacted much earlier. These arguments formed the basis of the State’s defence against the petitioners’ claim.

Earlier, Section 2(1) of the Act that was challenged simply established the procedure for assessing and collecting the tax that was imposed by Section 3, as amended by Section 5 of the 1939 Act. The 1939 Act’s provisions did not require the assent of the President. The Court further observed that the decision rendered in Firm A.T.B. Mehtab’s Case (1) did not alter the validity of Rule 16(1). The Court pointed out that Sub‑rule (1) and Sub‑rule (2) of Rule 16 are severable provisions. It expressed the view that the petitioners’ first contention was well‑founded. The effect of Sub‑section (1) of Section 2 of the Act was held to be identical to the effect of Sub‑rule (2) of Rule 16 of the Turnover and Assessment Rules, 1939, which the Court had declared invalid in Mehtab’s Case (1). The impugned Sub‑section therefore authorised the assessment of tax on the sale of dressed hides and skins that had not been taxed under the 1939 Act when they were raw hides and skins. Consequently, the provision exempted from taxation, in accordance with Sub‑section (1) of Section 2, the sale of tanned hides and skins for which tax had already been paid when they were sold in the raw condition. Those tanned hides and skins had previously been exempted from tax under Sub‑clause (ii) of Rule 2 of the Turnover and Assessment Rules. The Court noted that the same situation existed in the present matter, and therefore the rule in question was discriminatory and invalid for the same reasons that led the Court to invalidate Sub‑rule (2) of Rule 16 in Mehtab’s Case (1). No alternative conclusion could be drawn.

The Court explained that in the earlier case, discrimination arose because the sale price of tanned hides and skins was higher than that of untanned hides and skins, although the tax rate applied to both was the same. In contrast, the present dispute did not involve a difference in the sale price on which the tax was levied; rather, the discrimination stemmed from the fact that the tax on the sale of tanned hides and skins was calculated on the purchase price of those hides and skins in their untanned condition, whereas the tax on the sale of raw hides and skins was a fixed rate of three pies per rupee during the years 1955 to 1957. The Court cited the authorities, including the reference “[1963] SUPP. 2 S.C.R. 435. 51 S.C.–15.” The rate of tax on tanned hides and skins was two per cent of the purchase price of the untanned hides and skins, while the rate on raw hides and skins was three pies per rupee, producing a tax differential of seven‑sixteenths of a paise per rupee, which is slightly less than half a nayepaise per rupee. The Court observed that this discrimination would have operated until 1 August 1957, when the tax rate on raw hides and skins was increased to two per cent of the sale price. The Court then turned to the petitioners’ second contention, which it found to have no merit.

There is no provision in sub‑section (1) of section 2 of the Act that obliges the seller of tanned hides and skins within the State to have been the purchaser of those hides and skins in their raw condition from outside the State. An importer is permitted to bring into the State either tanned hides and skins or untanned hides and skins. When an importer brings in tanned hides and skins, he does not necessarily have to be the last purchaser of those hides and skins while they were still untanned. In such a situation it may be difficult to calculate the tax according to the method laid down in sub‑section (1) of section 2, because the importer may be unable to state the price at which the hides and skins were last bought in the raw condition. The assessment of that price would then have to be made by an estimate. If, however, the importer himself purchases the untanned hides and skins and then imports them either in the same raw condition or after tanning them, the problem of determining the price does not arise. The difficulty that appears in the first circumstance does not inevitably prevent the taxation of an importer of tanned hides and skins who is not the last purchaser, under sub‑section (1) of section 2 of the Act. The next issue was whether sub‑rule (1) of rule 16 became invalid after this Court declared sub‑rule (2) valid in Mehtab’s case. The petitioner argued that the rule became invalid because hides and skins, whether tanned or untanned, constitute a single commodity, and therefore tax could not be imposed on the sale of raw hides and skins when no tax is levied on the sale of tanned hides and skins. The State countered that tanned and untanned hides and skins are distinct commodities and form two separate categories for taxation purposes. The Court was inclined to accept the State’s view that they are different categories. Hides and skins in the untanned condition are unquestionably different articles of merchandise from tanned hides and skins. The petitioners maintained that tanning is merely a preservative process that does not alter the nature of the article itself. The question of whether tanned hides and skins are different commodities from raw hides and skins has been examined by courts on several occasions. In Government of Andhra Pradesh v. Nagendrappa the Court observed that “the tanning of raw hides and skins is a manufacturing process as a result of which the product that emerges is different from the raw material.” In State of Andhra Pradesh v. M. A. Abdul Bari and Co. a similar observation was made, stating that after tanning the hides and skins become different commodities. Encyclopaedia Britannica, volume 13, page 845, defines leather as a material manufactured from the hides and skins of various animals, noting that the purpose of tanning is “the conversion of the putresible skin into a material which under ordinary conditions of use does not putrefy, and which can be wetted and subsequently dried without becoming hard or horny.” Reference may also be made to State of Travancore‑Cochin v. Shanmugha Vilas Cashew Nut Factory, where it was held that raw cashew nuts become a different commodity commercially after certain processes convert them into edible kernels. Consequently, it is not correct to say that tanning brings about no change in raw hides and skins and that both types therefore constitute a single commodity. The petitioners relied on two cases to support their contention that tanned and untanned hides and skins form one commodity, and in Abdul Subban and Co. v. State of Madras the Court observed that...

In this passage the Court explained that the process of tanning, or the manufacture of leather, converts a perishable skin into a material that does not rot under normal use and that can be wetted and later dried without becoming hard or horn‑like. The Court cited authorities such as 7 S.T.C. 568, 573 and 9 S.T.C. 231, 237 to support this description. It further referred to the decision in State of Travancore Cochin v. Shanmugha Vilas Cashew Nut Factory, where the Court held that raw cashew nuts become a different commercial commodity after they are processed into edible kernels. Accordingly, the Court rejected the proposition that tanning leaves the raw hides and skins unchanged and therefore that both should be regarded as the same commodity. The petitioners relied on two decisions to argue that tanned and untanned hides and skins constitute a single commodity. The first decision, Abdul Subban and Co. v. State of Madras, observed that Section 14(3) of the Central Sales Tax Act, 1956 treats hides and skins, whether dressed or raw, as a single class of goods and therefore a sale of tanned hides cannot be taxed if tax has already been paid on the earlier sale of the same skins in raw form. The Court noted that the earlier case gave no reason for grouping the two types of hides together. The second decision cited by the petitioners was Raghbir Chand Som Chand v. Excise and Taxation Officer, a case dealing with ginned and un‑ginned cotton. That case held that ginning merely removes the seeds and does not alter the character of cotton, so both forms were treated as one commodity, and that the legislature’s classification of ginned and un‑ginned cotton under the same heading indicated that they were considered identical. The Court then explained that the mere fact that a statute or the Constitution places different articles under the same heading does not compel the conclusion that those articles are identical commodities. The inclusion of several items under a single heading may serve reasons other than establishing identity. To illustrate this point, the Court referred to the Madras General Sales Tax Act, 1959. Section 4 of that Act specified that sales tax on declared goods would be payable at the rate and point fixed for each article listed in the Schedule. The Second Schedule listed raw hides and skins separately from dressed hides and skins, assigning them different tax rates and different points of levy. This separation showed that, as of 1959, the legislature in Madras regarded raw hides and skins as a distinct commodity from dressed hides and skins.

The schedule of the Madras General Sales Tax Act listed raw hides and skins separately from dressed hides and skins in serial number seven. The statute assigned a different tax rate to each item and also specified a different point at which the tax was to be imposed. This separation demonstrates that, in 1959, the Madras legislature regarded raw hides and skins as a commodity distinct from dressed hides and skins. There is no persuasive reason to conclude that the legislature had a different intention when it enacted the 1939 Act, especially because other considerations also point to the same conclusion. Consequently, the Court held that raw hides and skins and dressed hides and skins are different commodities of merchandise and may therefore be treated as different goods for the purposes of the Act. At the time relevant for the levy of tax on the sale of hides and skins, the applicable provision was section five, clause six, which provided: “Subject to such restrictions and conditions as may be prescribed, including conditions as to licences and licence fees… (vi) the sale of hides and skins, whether tanned or untanned shall be liable to tax under section three, sub‑section (1) only at such single point in the series of sales by successive dealers as may be prescribed.”

In 1957 that provision was replaced by section five‑A sub‑paragraph four, which stated: “The sale of hides and skins, whether in a raw or dressed state, shall be liable to tax only at such single point in the series of sales by successive dealers as may be prescribed but at the rate of two percent on the turnover at that point.” The Court interpreted the reference to “the series of sales” as meaning two separate series: one series for raw hides and skins and another series for dressed hides and skins. The provision did not create a single continuous series that began with the sale of raw hides and continued after tanning to the sale of tanned hides. The essential question was whether the provisions treated raw hides and skins and dressed or tanned hides and skins as one class of goods for taxation or as two distinct classes. If the provisions were read as covering a single class, the petitioner’s argument would fail because taxing hides and skins at the stage of their raw sale would satisfy the statutory requirement that tax be levied at a single point. Conversely, if the dressed or tanned hides and skins were not taxed at the moment of their sale, that omission would not contravene the statutory language. The Court found no discrimination, noting that a sale of raw hides and skins, regardless of whether the hides originated in the State or were imported, would be equally subject to tax. Thus, the statutory scheme did not differentiate improperly between the two kinds of hides and skins.

In this case, the Court examined sub‑rule (1) of rule 16, which authorised a tax on raw hides and skins at a particular stage even though there was no provision for taxing dressed hides and skins. The Court held that this situation could not be described as discriminatory or invalid because the items subject to taxation were not the same, and the legislature was free to prescribe different tax treatments for different articles. Accordingly, the Court concluded that sub‑rule (1) of rule 16 remained valid despite the Court’s earlier declaration that sub‑rule (2) of the same rule was invalid in Mehtab’s Case(1). The remaining issue for the Court was whether the State legislature possessed the competence to enact the provisions of sub‑section (1) of section 2 of the Act. Hides and skins had previously been declared essential for the life of the community under Act LII of 1952. Article 286(3) of the Constitution, as it stood before its amendment by the Constitution VI Amendment Act of 1956 (dated 11 September 1956), provided that no law made by a State legislature imposing a tax on the sale or purchase of goods declared essential by Parliament would have effect unless it had been reserved for the President’s consideration and received his assent. However, this constitutional provision did not apply to the 1939 Act because that Act had been enacted long before the Constitution came into force. By the time the Madras Legislature enacted the present Act on 28 August 1963, Article 286(3) had been amended and Act LII of 1952 had been repealed. Consequently, there was no constitutional requirement that the Act be reserved for the President’s assent before it could be enforced.

The petitioner argued that the Act was legislated for a period during which, if it had been passed, it would have required the President’s assent, and therefore the State legislature could not have enacted the provision in 1963 that affected the taxation of goods declared essential for the community. The Court rejected this contention, stating that there was no justification for imposing such a restriction on the State legislature’s law‑making authority. The Court explained that a State legislature may enact statutes with retrospective effect, and its authority to legislate for a past period depends on its present legislative competence rather than on the powers it possessed at the time the period in question began. Accordingly, the Court found no merit in the petitioner’s argument. The Court further noted that the 1939 Act itself required no presidential assent. In 1963 the State legislature was merely doing what the legislature that enacted the 1939 Act had been empowered to do, and therefore its enactment was not subject to the constitutional reservation requirement.

The Court noted that the State had placed Act LII of 1952 on a firm legal footing, and that the Act remained operative at the time the petition was filed. The petitioner then contended that, under section 14 of the Central Sales Tax Act of 1956, hides and skins were expressly declared to be of special importance in inter‑State trade or commerce. On that basis, the petitioner argued that the tax imposed by sub‑section (1) of section 2 of the State Act was a tax on the sale of hides and skins in the course of inter‑State trade or commerce, and therefore fell within entry 92A of List 1 of the Seventh Schedule. Accordingly, the petitioner maintained, the State legislature lacked competence to levy that tax, and could only rely on entry 54 of List II of the Seventh Schedule to tax the sale or purchase of goods that are described in entry 92A of List 1.

The Court rejected that contention as unfounded. It observed that the tax in question was imposed on sales that occurred entirely within the State’s territorial limits. Consequently, the State legislature possessed the authority to levy such a tax. The Court further explained that the mere fact that the merchandise sold in the State had been brought from outside the State did not transform the transaction into a sale “in the course of inter‑State trade or commerce.” The Court clarified that only when a purchaser residing in State X acquires goods through a commission agent situated in State Y, and subsequently receives the goods from that agent, does the transaction satisfy the expression “in the course of inter‑State trade,” citing the authority in State of Travancore Cochin v. Shanmugha Vilas Cashew Nut Factory(1) (supra at p. 70). The State had also argued that Articles 301 to 304 of the Constitution did not apply because they regulated legislative power for statutes to operate in the future, not for statutes intended to have retrospective effect. The Court found that argument untenable, noting that the Act provided for a period subsequent to the commencement of the Constitution and therefore must obey constitutional provisions.

Accordingly, the Court held that sub‑section (1) of section 2 of the State Act discriminated against imported hides and skins that were sold up to 1 August 1957, a date on which the tax on raw hides and skins was fixed at three pies per rupee, or 19⁄16 percent. The Court emphasized that this discrimination did not render the sub‑section valid for sales that occurred after 1 August 1957. Because the sub‑section was void for the initial period, the Court could not amend the provision to extend its validity to a later period without effectively rewriting the enactment. Consequently, the Court declared sub‑section (1) of section 2 to be void, and, as a result of that voidness, held that the remaining provisions of section 2 were likewise unenforceable. In light of this determination, the Court allowed the petitions, ordered the respondents to pay costs, and directed that the invalid provisions cease to have effect.

The Court ordered that the petitioner be awarded a hearing fee of one unit of the prescribed amount. It further declared that subsection 1 of section 2 of the Act was invalid. Accordingly, the Court directed that a writ of mandamus be issued to the Government of Madras and to the sales‑tax authorities operating under the Act. The purpose of the writ was to command those authorities to refrain from enforcing any provision contained in section 2 of the Act. By issuing that mandamus, the Court sought to prevent the continued application of the invalidated subsection and any other provisions of the same section. The Court therefore concluded that the petitions brought before it should be allowed. In sum, the order granted the hearing fee, set aside subsection 1 of section 2, mandated the issuance of a writ of mandamus directing the State of Madras and the sales‑tax officials not to enforce section 2, and granted relief by allowing the petitions.