Appeal No 210 of 1959
Appeal by special leave from the judgment and order dated January 16 1958 of the Patna High Court in Mis
Judicial case No 156 of 1957
B C Ghose and P K Chatterjee for the Appellant
section P Varma for Respondents Nos 1 to 5
R C Dutta for Respondents Nos
6 to 20 1960
November 7
The Judgment of Hidayatullah Das Gupta and Ayyangar JJ was delivered by Ayyangar J and that of section K Das and Shah JJ was delivered by Shah J AYYANGAR
The sole question which arises in this appeal which comes by way of special leave is as to whether sales under which goods were delivered outside the State of Bihar for the purpose of consumption but not within the State of first delivery or first destination are exempt from the levy of sales tax by the Bihar State by virtue of article 2861a of the Constitution as it stood before the recent amendment
The India Copper Corporation Ltd referred to hereafter as the assessee company carries on business in copper and various other materials and mineral pro
ducts and the office of its General Manager is in the district of Singhbhum in Bihar
The period covered by the assessment now in dispute is January 26 1950 to March 31 1950
The normal practice of the assessee company was to deposit sums of money from time to time provisionally towards payment of sales tax in advance and have the amount finally adjusted after the completion of the assessment of each year
The assessee company followed this practice in respect of the amount of sales tax due by it for the year 1949 50
For the financial year April 1 1949 to March 31 1950 the Superintendent of Sales tax Singhbhum 278 computed the tax liability of the company in the sum of Rs 360703 4 0 by an order of assessment dated November 131950 and the company made payment of the amount due by it beyond the sums already paid
It would be noticed that this financial year comprised two periods 1 before the Constitution viz April 1 1949 to January 25 1950 and 2 the post Constitution period from January 26 1950 to March 31 1950
There is now no controversy as regards the sales tax payable in respect of sales effected during the pre Constitution period
The assessee company however raised a dispute that in respect of the post Constitution period it was not liable to pay any sales tax in respect of sales to buyers under which though the property in the goods passed within the State delivery of the goods was effected outside the State of Bihar for consumption outside that State on the ground that such sales were exempted from tax by article 2861a of the Constitution as it originally stood
It addressed a formal letter to the Commissioner of Commercial Taxes Bihar on December 30 1952 making this demand enclosing a statement showing full particulars of the goods sold the bill numbers the date and the amount etc to enable the refund claimed to be calculated
The assessee company followed it up by a formal petition for review of the assessment order by filing a revised return under section 122 of the Bihar Sales tax Act together with an application for refund
The departmental authorities rejected these applications by order dated July 20 1953
Further proceedings before the department by way of revision etc
failed to secure to the assessee company the relief which it claimed and thereafter it filed an application under articles 226 and 227 of the Constitution before the High Court of Patna praying for the issue of a writ to quash the order of assessment dated November 30 1950 and the orders rejecting the prayers for review reassessment and refund and for a direction to the departmental authorities to refund the sum realised by them in so far as the tax related to sales as a result of which goods were delivered outside the State of Bihar
279 The learned Judges of the High Court held that the order of the Superintendent of Sales tax Singhbhum dated November 13 1950 should be set aside and that the matter should go back to the Superintendent to make a reassessment according to law for the post Constitution period
A further direction was added requiring the respondent to refund to the assessee so much of the tax as had been paid in excess of the amount of reassessment to be made by the Superinten dent in accordance with the law as laid down by the Court
In formulating the law applicable the learned Judges drew a distinction between sales as a direct result of which goods were delivered in a State outside the State of Bihar and consumed in that State and those cases in which the goods thus delivered were not consumed in the State of first destination but were re exported from the State of first destination to other States
They held that the first category of sales were covered by the Explanation to article 286 1a of the Constitution and were  inside  the State of first delivery and consequently  outside  the State of Bihar within the meaning of the Article and therefore exempt from tax by the Bihar State
In regard however to the second category of sales it was held that they were not within the Explanation and were therefore outside the constitutional exemption under article 2861a
The assessee company not being satisfied filed an application to the High Court for a Certificate of fitness under articles 132 and 133 of the Constitution but this having been rejected they applied to and obtained special leave from this Court under article 136 of the Constitution and that is how the appeal is now before us
Three points were urged before us by Mr B C Ghose learned Counsel for the appellants 1 that on a proper construction of article 2861a and the Explanation thereto as it stood before the Article was amended by the Constitution Sixth Amendment Act 1956 every sale as a direct result of which goods were delivered for consumption outside the State was not within the taxing power of the State in which the 280 goods were at the time of the sale and in which property passed as a result thereof and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or whether the delivery in such State was not for the purpose of consumption therein but for re export to other States 2 that even if article 2861a exempted only sales in which as a direct result of the sale the goods were delivered for the purpose of consumption in the State of first destination on the pleadings and the evidence before the Court the assessee company must be taken to have established that all the sales effected by it and in regard to which exemption from payment of tax was claimed conformed to this requirement 3 a narrower submission that even it be that to fall within the Explanation the delivery has to be for the Purpose of consumption in the State of first destination the learned Judges of the High Court erred in requiring the assessee company to prove not merely that the goods were delivered for the purpose of consumption but further that the goods so delivered were actually consumed within that State
We shall now deal with these points in that order
Article 2861a together with the Explanation on whose construction the first point depends ran in these terms  Article 2861
No law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place a outside the State or b           Explanation
For the purposes of sub clause a a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State
 The scope and the purpose of this Explanation was 281 discussed and explained by this Court in The State of Bombay vs Unitea Motors India Ltd 1 and it is the passage in this judgment extracted below on which reliance was placed by the learned Counsel in support of his submission   
The authors of the Constitution had to devise a formula of restrictions to be imposed on the State power of taxing sales or purchases involving inter State elements which would avoid the doubts and difficulties arising out of the imposition of sales tax on the same transaction by several Provincial Legislatures in the country before the commencement of the Constitution
This they did by enacting clause 1 a with the Explanation and clause 2 of Article 286
Clause 1a prohibits the taxation of all sales or purchases which take place outside the State but a localised sale is a troublesome concept for a sale is a composite transaction involving as it does several elements such as agreement to sell transfer of ownership payment of the price delivery of the goods and so forth which may take place at different places
To solve the difficulty an easily applicable test for determining what is an outside sale had to be formulated and that is what in our opinion the Explanation was intended to do
It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place notwithstanding the property in such goods passed in another State 
An  outside  sale or purchase is explained by defining what is an inside sale and why actual delivery and consumption in the State are made the determining factors in locating a sale or purchase will presently appear
The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test Are the goods actually delivered in the taxing State as a direct result of a sale or purchase for the purpose of consumption therein  Then such sale or purchase shall be deemed to have taken place 1   1081 36 282 in that State and outside all other States
The latter States are prohibited from taxing the sale or purchase the former alone is left free to do go
Multiple taxation of the same transaction by different States is also thus avoided
 It might be mentioned that this portion of the judgment is unaffected by the dissent expressed in the later decision in The Bengal Immunity Company Ltd vs The State of Bihar 1
The argument based upon this passage was broadly on these lines Article 286 1a imposes a ban on the legislative power to levy a tax on sales which are outside  the taxing State
What sales are  outside is not easy to decide because that depends upon  the situs  of a sale which cannot in most cases be located in any one place with certainty being dependent on a variety of factors which might or might not converge
The Constitution makers did not directly define what was meant by a sale that was  outside the State  but achieved the same purpose by explaining an  inside  sale with the result that what was not an  inside  sale should be held to bean outside sale
It must however be pointed out that it was not disputed that the terms of the  Explanation  would not be satisfied unless the delivery was for the purpose of consumption therein ie in the State of first destination If the terms of the Explanation were satisfied the State of  delivery
cum consumption  to coin a convenient expression to designate the State in which goods are delivered as a direct result of the sale for the purpose of consumption therein used in the Explanation would have power to tax the sale as being one fictionally  inside  it
In such an event all the other States in India barring that State would be prevented from taxing that sale because the sale would be  outside  those States
This however it was urged would not exhaust the operation of the Explanation but further that the Explanation was exhaustive of what the Constitution makers conceived to be a sale which alone may be the subject of tax by a State
The deduction learned Counsel made from these premises was twofold 1 that 1 283 in cases where goods were as a direct result of the sale delivered outside the State of Bihar for the purpose of consumption in the State of first destination the conditions of the Explanation were satisfied and the sales being  outside  the State of Bihar could not be taxed by that State
So far there is no dispute and indeed the learned Judges of the High Court have subject to a matter of detail to which reference will be made later accepted the contention of the assessee
2 a further consequence that in cases where goods were delivered as a result of the sale outside the State of Bihar but not for the purpose of consumption in such State of first destination the terms of the Explanation were no doubt not satisfied and consequently the sale was not inside such State of delivery and indeed not  inside  any State in India within the Explanation but that such sales also must be held to be  outside  every State in India within article 286 1a
The learned Judges of the High Court repelled this contention and in our opinion correctly
The passage in the judgment of the United Motors case extracted earlier dealt with Explanation sales and with none else
When the terms of the Explanation were satisfied such sales were by a fiction deemed to be  inside  the State of delivery cum consumption and therefore  outside  all other States
In such cases therefore only the State  inside  which the sale is deemed to take place by virtue of the Explanation is exempt from the ban imposed by article 2861a
All other States would be subject to that ban in respect of such sales
The learned Chief Justice however did not in the passage extracted deal with the case of sales which did not satisfy the terms of the Explanation
The situs of what might be termed 1 non Explanation  sales has therefore to be determined independently of the terms of the Explanation
Such sales would be exempt from tax only if the sale took place  outside the State but not otherwise
The next question is does a sale take place  outside  the State where as a result of the contract of 284 sale the property in the goods passes to the purchaser within the State in other words is a sale completed by the passing of property within the State not  inside a State for the more reason that as a direct result of the sale the goods are delivered outside the State
The answer depends on the meaning to be attributed to the words  a sale or purchase which has taken place  outside the State occurring in the body of article 286 1
The expression  outside the State  is capable of being understood in more senses than one
It could be understood as comprehending cases where no element or ingredient which constitutes a sale takes place within the State in other words as applying solely to those cases where there exists no territorial nexus between the State imposing the tax and the sale
Obviously this could not have been intended to be incorporated in article 2861 because the tax in such cases would be beyond the legislative power of the State under Entry 54 of the State List read with article 246 of the Constitution
The expression  outside  has therefore to be understood not as a sale so  outside  as not to have any territorial connection between the State in question and the sale but in a somewhat narrower sense
The real difficulty arises in ascertaining the precise content of the narrower sense in which the word is used as meaning a sale in substance  outside  the State though there might be some elements of the sale which if the exemption under article 2861a were not enacted would enable a State to levy a tax on the sale on the ground that it was within the legislative power of the State under article 246 read with Entry 54
As already pointed out the situs of a sale is not easy to determine and several factors which constitute a completed transaction of sale including the delivery of the goods lay claim to be considered as in themselves constituting sufficient next to justify their being treated as determining the locus of a sale
Thus merely by way of illustration the place where the goods are at the time of the contract of sale the place where the contract of sale is concluded the place where the property in the goods passes and that 285 in which the delivery takes place compete for recognition as constituting the locus of a sale
Before the Constitution these and other similar factors were treated as affording sufficient territorial connection to endow the State in which any of the events occurred with legislative competence to tax the sale
This led to a multiplicity of the taxation of the same transaction of sale by a plurality of States with the result that the consumer was hard hit and trade itself and national economy suffered in the process
It has been pointed out that article 2861a was designed to counteract that state of affairs
If a single State was designed to have the power to tax any particular transaction of sale the question that next falls to be considered is the determination of that State in regard to which it could be predicated that the sale in question was not  outside  that State or in other words the determination of the particular State in regard to which it could be said that the sale was  inside  that State
The key to the problem is afforded by two indications in the Article itself 1 the opening words of Article 2861 which speak of a sale or purchase taking place and 2 the non obstante clause in the Explanation which refers to the general law relating to  sale of goods under which property in the goods has by reason of such sale or purchase passed in another State
 These two together indicate that it is the passing of property within the State that is intended to be fastened on for the purpose of determining whether the sale in question is  inside  or  outside  the State and therefore subject to the operation of the  Explanation  that State in which property passes would be the only State which would have the power to levy a tax on the sale
As was explained in the recent decision of this Court in Burmah Shell Oil Storage  Distributing Co of India Ltd vs The Commercial Tax Officer 1   By sale here article 2861a  is meant a completed transaction by which property in the goods passes
Before the property in the goods passes the contract 1 CA 751 of 1957  CA 10 of 1958 Unreported
286 of sale is only executory and the buyer has only a chose in action   
The Constitution thinks in terms of a completed sale by the passing of property and not in terms of an executory contract for the sale of goods
 Notwithstanding that is not an  outside  sale the power of the State to tax might be negatived by the operation of the Explanation which by its non obstante clause shifts the situs of the sale and renders the sale transaction one within the delivery cum consumption State ie as the State in which the sale transaction must be deemed to take place
Where the terms of the Explanation are satisfied the sale transaction will by a legal fiction created by it be deemed to take place inside the State of delivery and therefore  outside  the State in which the property passes
The conclusion reached therefore is that where the property in the goods passes within a State as a direct result of the sale the sale transaction is not outside the State for the purpose of article 2861a unless the Explanation operates
We need also add that the power of the State to impose the tax might still not be available unless the transaction in question is unaffected by the other bans imposed under sub cl
1b 2 and 3 of article 286
The submission therefore of learned Counsel for the appellants that in respect of non Explanation sales the State of Bihar has no power to levy a tax by reason of such sales being outside  the State within article 2861a must be rejected
The second contention urged by the learned Counsel for the appellant was that even assuming he was wrong on the first point all the sales by the assessee company fell within the terms of the Explanation to article 2861a being sales as a direct result of which the goods were delivered for consumption in the State of first destination and that the learned Judges of the High Court were in error in considering that some of the sales did not conform to this requirement
In support of this submission learned counsel drew our attention to two matters
He first referred us to the application dated December 30 1952 made on behalf 287 of the assessee company to the Commissioner of Commercial Taxes Bihar Patna in which the claim for refund of the tax paid was rested on the following ground  After getting out that the tax on sales effected between the period January 26 1950 to March 31 1950 was not assessable by virtue of article 286 of the Constitution the application stated  Total sales of raw materials of copper and brass sheet and circles sold by us and despatched under railway receipts for buyers  consumption are as follows
Then followed the sales effected and the tax paid in respect of the sales
The claim in this form was annexed to and made part of the petition to the High Court under article 226 and 227 of the Constitution and in paragraph 9 of the petition this letter was referred to and a copy thereof was incorporated and marked as 1A
In this paragraph which was the other matter relied on the claim for refund was said to be  on sales made to buyers outside Bihar State for consumption 
Learned Counsel strongly pressed upon us that paragraph 9 and the annexure had clearly asserted that the sales which were the subject of the claim for refund involved a delivery of the goods outside the State of Bihar for consumption in the State of first destination and the State of Bihar not having filed any counter affidavit challenging the correctness of these allegations the High Court should have held that the terms of the Explanation were satisfied and should have ordered the refund claimed
We however consider that this submission is without force
Neither in the claim put forward in Exh A  nor in para graph 9 of the petition was any distinction drawn between sales under which deliveries were effected outside the State of Bihar for the purpose of consumption in the State of first destination and those in which the deliveries outside the State were effected for the purpose of consumption not in the State of first destination but in other States
In fact this was made clear in the later paragraphs of the petition to the High Court from which it is apparent that the assessee company made a claim for tax exemption in 288 respect of sales in which the delivery took place outside the State of Bihar whether the delivery was for the purpose of consumption in the State of first destination or otherwise
In paragraph 171 of the petition to the High Court the assessee stated  the petitioner was not liable to pay tax on goods delivered outside the State of Bihar which was also for consumption outside the State of Bihar  and again in clause iii of the same paragraph this was repeated  the goods being outside the State of Bihar delivered outside the State of Bihar and consumed outside the State of Bihar were not liable to sales tax by the State of Bihar  and similarly in cl
v of the same paragraph a reference was made to  goods delivered outside the State of Bihar for consumption outside the State of Bihar 
The same idea is emphasized in paragraph 19 also which contained the prayer of the petition
On these averments it is clear that the claim made by the assessee was that to invoke the exemption contained in article 2861a it was sufficient that the goods were delivered outside the State of Bihar and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or otherwise
This involved the same argument which was raised by the learned Counsel that we have dealt with earlier
The learned Judges of the High Court were therefore right in drawing a distinction between the two types of sales which we have already indicated
The last point that was urged by the learned Counsel was that the learned Judges of the High Court erred in requiring the assessee to prove that the goods delivered outside the State of Bihar were actually consumed in the State of first destination before the exemption from tax could be availed of In their judgment now under appeal the learned Judges have stated The petitioner would not be entitled to exemption if the goods were not consumed in the State of first destination but were re exported from the State of first destination to other States 
Learned Counsel for the appellant complained that 289 under the Explanation to article 2861a there need be no proof of actual consumption of the goods delivered in the State of first destination but that the Explanation was satisfied if the purpose of the delivery tinder the sale was for consumption in that State
If after a sale that satisfied that requirement viz for the purpose of consumption in the State of first destination the buyer under such a sale for his own purposes reexported the goods that was not a matter with which the seller was concerned and would not affect the character of the sale as one falling within the Explanation to article 2861a
Learned Counsel therefore urged that the learned Judges of the High Court went wrong in requiring proof on the part of the assessee that the goods were actually consumed within the State of first delivery outside Bihar and that this was an unwarranted addition to the requirements of the Explanation
We consider this submission well founded and indeed the learned Counsel for the respondent did not dispute that the actual order of the High Court went beyond the terms of the Explanation to article 2861a
The order of the High Court will therefore be modified by making it clear that if the goods were as a direct result of the sale delivered outside the State of Bihar for the purpose of consumption in the State of first delivery the assessee would be entitled to exemption of the sales tax imposed and that it would not be necessary for the assessee to prove further that the goods so delivered were actually consumed in the State of first destination
Subject to this modification the appeal fails but in the circumstances of the case there will be no order as to costs
SHAH J
We agree with the conclusion of Mr Justice Rajagopala Ayyangar J but because our approach to the question is somewhat different we propose to record our reasons separately
The Bihar Sales Tax Act 1947 was enacted in exercise of legislative authority conferred upon the Provincial Legislatures by entry 42 in List II read 37 290 with section 1003 of the Government of India Act 1935
By section 2g of the Act  sale  was defined in so far as it is material as meaning any  transfer of property in goods for cash or deferred payment or other valuable consideration  provided  provided further that notwithstanding anything to the contrary in the Indian Sales of Goods Act 1930 the sale of any goods i which are actually in Bihar at the time when in respect thereof the contract of sale as defined in section 4 of that Act is made or ii which are produced or manufactured in Bihar by the producer or manufacturer thereof shall wherever the delivery or contract of sale is made be deemed for the purposes of this Act to have taken place in Bihar Under entry 42 of List II of the Government of India Act 1935 the Provincial Legislatures could tax sales by selecting some fact or circumstance which provided a territorial nexus with the taxing power of the State even if the property in the goods sold passed outside the Province or the delivery under the contract of sale took place outside the Province
Legislation taxing sales depending solely upon the existence of a nexus such as production or manufacture of the goods or presence of the goods in the Province at the date of the contract of sale between the sale and the Legislating Province could competently be enacted under the Government of India Act 1935 see the Tata Iron and Steel Co Ltd vs The State of Bihar and Poppatlal Shah vs The State of Madras 2
By article 286 of the Constitution certain fetters were placed upon the legislative powers of the States as follows article 286  1 No law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place a outside the State  or b in the course of the import of the goods into or export of the goods out of the territory of India
1 2  291 ExplanationFor the purposes of sub cl
a a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State
2 Except in so far as Parliament may by law otherwise provide no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State trade or commerce  Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall notwithstanding that the imposition of such tax is contrary to the provisions of this clause continue to be levied until the thirty first day of March 1951
3 No law made by the Legislature of a State imposing or authorising the imposition of a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent
 With a view to impose restrictions on the taxing power of the States under the pre Constitution statutes amendments were made in these statutes by the Adaptation of Laws Order
By the Adaptation of Laws Order 1951 in the Bihar Sales Tax Act was incorporated with retrospective operation from January 26 1950 section 33 which provided   1 Notwithstanding anything contained in this Act a a tax on the sale or purchase of goods shall not be imposed under this Act i where such sale or purchase takes place outside the State of Bihar  or 292 ii where such sale or purchase takes place in the course of import of the goods into or export of the goods out of the territory of India  b a tax on the sale or purchase of any goods shall not after the 31st day of March 1951 be imposed where such sale or purchase takes place in the course of inter State trade or commerce except in so far as Parliament may by law otherwise provide 2 The Explanation to cl
1 of article 286 of the Constitution shall apply for the interpretation of sub cl
1 of cl
a of sub section
 By this amendment on the taxing power of the Bihar State the same restrictions were engrafted on the pre Constitution statute as were imposed by article 286 of the Constitution upon post Constitution statutes
This court has held in the Bengal Immunity Co Ltd vs The State of Bihar 1 that the operative provisions of the several parts of article 286 namely cl
1 a 1b and 2 and cl
3 were intended to deal with different topics and one could not be projected or read into another
Therefore by the incorporation of section 33 in the Bihar Sales Tax Act read with article 286 notwithstanding the amplitude of the power otherwise granted by the charging section read with the definition of  sale  a cumulative fetter of triple dimension was imposed upon the taxing power of the State
The Legislature of the Bihar State could not since January 26 1950 levy a tax on sale of goods taking place outside the State or in the course of import of the goods into or export of the goods out of the territory of India or on sale of any goods where such sale took place in the course of inter State trade or commerce
By the Explanation to article 2861a which is incorporated by sub section
2 section 33 of the Bihar Sales Tax Act a sale is deemed to take place in the State in which the goods are actually delivered as a direct result of such sale for the purpose of consumption in that State even though under the law relating to sale of goods the property in the goods has by reason of such sale passed in another State
In the State of Bombay vs The United Motors India Ltd 2 it was held that 1 2  293 since the enactment of article 2861a a sale described in the Explanation which may for convenience be called an  Explanation sale  is taxable by that State alone in which the goods sold are actually delivered as a direct result of sale for the purpose of consumption in that State
The right to tax arises because the sale is deemed to take place in that State and outside all other States and the latter States are prohibited from taxing the sale  the former alone is left free to do so
The Bihar Sales Tax Act enacted in exercise of the power conferred by entry 42 of List II of the Government of India Act 1935 upon the Provincial Legislatures is saved by article 372 of the Constitution as existing law but by the combined operation of sub sections
1 and 2 of section 33 the Bihar State is incompetent to tax sales of goods in the course of imports into and exports out of the territory of India and after March 31 1951 sales of goods in the course of inter State trade or commerce
In view of the exposition of the content of the Explanation to article 2861a by this court in the United Motors case 1 the Bihar State is also incompetent to tax  Explanation sales  where the goods are delivered in another State as a direct result of the sale for consumption in that State
By this last ban to the extent provided by subs
1ai and sub section
2 of section 33 the State of Bihar is deprived of its power to tax sales but the ban does not wholly extinguish the power of the State to tax sales relying upon a real territorial nexus between the sale and the State
In other words by enacting that a tax shall not be imposed under the Act when the sale takes place outside the State of Bihar in section 331ai only the power to tax  Explanation sales  which do not take place within the State of Bihar in taken away but not the power to tax  non Explanation sales  in which though under the general law of sale of goods the property passes outside the State there exists between the taxing power of the State and the sale a nexus as contemplated by the definition of sale in section 2g
If the sale is one in which the goods have been delivered outside the State of 1  294 Bihar but not as a direct result of the sale or not for the purpose of consumption in the State of first delivery the sale will not be covered by the Explanation and the right to tax the sale if arising otherwise under the Act relying upon the territorial nexus will not be impaired by the prohibition imposed by cl
1ai of section 33
The right of the State of Bihar to tax a sale relying upon a real territorial nexus not being impaired by section 33 of the Act all sales as defined by section 2g of the Bihar Sales Tax Act are liable to be taxed except those falling within section 331aii section 332 and  Explanation sales  outside the State of Bihar
The appellant company carries on the business of manufacturing copper and other mineral products in the State of Bihar
It has its registered office and its place of business in the District of Singhbhum in the State of Bihar and is registered as a  dealer  under the Bihar Sales Tax Act 1947
The appellant company sent out its products to various places in India in the year of assessment ending on March 31 1950 and has paid the tax assessed by the Sales Tax Officer
The appellant is now seeking to obtain a refund of the tax paid for the period between January 26 and March 31 1950 on the plea that the tax was paid under a misapprehension of the law
The High Court in an application under article 226 of  the Constitution directed the Sales Tax authorities to refund so much of the tax as was not proved to have been paid in respect of sales of goods delivered and consumed in the State of first destination
On the goods delivered and consumed in the State of first destination outside Bihar the appellant could not be called upon to pay sales tax
That is undisputed
The appellant also claimed that on the goods delivered for consumption in the State of first delivery outside Bihar it was not liable to pay sales tax even if there was no evidence to prove that the goods were in fact consumed in such State
In our judgment the High Court was in error in directing that the exemption provided by article 2861a read with the Explanation which was at the material time incorporated by section 33 in the Bihar Sales Tax Act by the Adaptation of 295 Laws Order 1951 only applied to all sales of goods delivered and consumed in the State of first destination
If the goods were delivered for consumption it is immaterial whether they were in fact consumed in the State where they were delivered
The power of the State to levy sales tax relying upon the territorial nexus between the taxing power of the State and the sale is impaired for reasons already set out to the extent to which it is restricted by the incorporation of article 2861ai and the Explanation thereto in that Act
Therefore sales effected on or after January 26 1950 where goods are as a direct result of the sale delivered in another State for consumption in that other State are not liable to be taxed
The directions issued by the High Court will therefore be modified as follows The order of the Superintendent of Taxes is set aside
He is directed to grant refund of tax paid in the light of this judgment
The appellant will be entitled to exemption from payment of tax if the goods are as a direct result of the sale delivered in another State for the purpose of consumption in that State
Appeal dismissed subject to modification


Summary:
The National Syndicate a Bombay firm acquired on January 11 1945 a tailoring business as a going concern for Rs 89321 which included the consideration paid for sewing machines and a motor lorry
Soon after the purchase the respondent found it difficult to continue the business therefore closed its business in August 1945
Between August 16 1945 and February 14 1946 sewing machines and the motor lorry were sold at a loss
The respondent closed its account books on February 28 1946 showing the two losses and writing them off
For the assessment year 1946 47 the
respondent claimed a deduction under section 102Vii of the Indian Income Tax Act
The Appellate Tribunal held that the sales of machines and the motor lorry were made in the course of the winding up of the assessee s business after the business had been stopped and that therefore the deduction could not be claimed under section 102Vii
Respondent moved the High Court and obtained an order under section 662 of the Income Tax Act and the following two questions were referred   1 Whether the Tribunal was justified in law in holding that the petitioner had carried on its business only till twenty eight day of August One Thousand Nine Hundred and Forty Five  2 Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal was justified in law in not allowing the sum of Rs 41998 Rupees forty one thousand nine hundred and ninety eight on sale of machines and Rs 3700 Rupees three thousand and seven hundred on the sale of lorry as a deduction from the total income of the applicant  The High Court answered the first question in the affirma tive and the second question in the negative
The Commissioner of Income tax questioned the finding of the High Court and came up in appeal by special leave and con tended that an allowance could only be claimed if sale of machines etc
took place when the business was being continued and not if the business had come to a close
The respondent on the other hand submitted that section 102Vii would be applicable 230 in a case where the business continued for a part of the account year even though the sale of machinery plant etc
took place after the closure of the business during the course of the account year
Held that if the profits or gains of a business for a particular year are to be taxed they must be computed for the whole year taking into account losses incurred during the same year provided that the business had been  carried on by the assessee   the building machinery or plant had been  used for the purpose of the business  the sale etc
had taken place during the year of account and the loss had been brought into the books of the assessee and written off
There is no other condition to be found expressly in the section or in the Act
It is nowhere stated that the business of the assessee should have been carried on for the whole year or that the machinery or plant should have been used for the whole of the accounting period
There are no words which would show that if the assessee worked only for a part of the year and then sold out the loss that he incurred was not a business loss or that he must pay tax on the small profit that he might have made and bear the loss in addition
The Liquidators of Pursa Limited vs Commissioner of Income Tax Bihar   Commissioner of Income tax vs Express Newspapers Ltd  distinguished
Indian Iron  Steel Co Ltd vs Commissioner of Incometax Bengal  Commissioner of Income tax vs Shaw Wallace  Co Ltd 1932 LR 59 IA 206 referred to