ivil Appeal No 1451 of 1968
Appeal from the judgment and decree dated March 11 1965 of the Andhra Pradesh High Court in AS Nos 93 and 169 of 1957
Rajeshwara Rao and B Parthasarathi for the appellant
D Munikanniah and AVV Nair for the respondent
The Judgment of the Court was delivered by Ramaswami J
This appeal is brought by certificate from the judgment of the High Court of Andhra Pradesh dated March 11 1965 in AS Nos 93 and 169 of 1957
The appellant was a firm of dealers in pulses at Vijayawada
It was sending pulses like green gram and black gram to other States viz Bombay Bengal Madras and Kerala by rail in the course of their business
The consignments were addressed to self  and the railway receipts were endorsed in favour of Banks for delivery against payments
The purchasers obtained the railway receipts after payments and took delivery of the goods
The total turnover of the business of the appellant for the year 1949 50 was Rs 1705144 2 2
Of the said turnover a sum of Rs 361442 7 3 represented the turnover of sales effected outside the then Madras State
For the assessment year 1949 50 the Deputy Commercial Tax Officer collected sales tax on the total turnover without exempting the value of the sales effected outside the State
The appellant was permitted to pay sales tax underr 12 of the Madras General Sales Tax Turnover and Assessment Rules
The appellant submitted monthly returns and paid sales tax without claiming any such exemption till the end of January 1950
But in the returns for the months of February and March 1950 the appellant claimed exemption on sales effected outside the State
The appellant submitted a consolidated return exhibit A 18 to the Deputy Commercial Tax Officer on March 30 1950 claiming exemption in respect of a sum of Rs 1037334 7 9 being the value of the sales effected outside the 745 State or the period commencing from April 1 1949 and ending January 31 1950
The Deputy Commercial Tax Officer fixed the taxable turnover of the appellant at Rs 170514 4 2 2 and issued a notice exhibit A 23 dated October 24 1950 to show cause why the appellant should not be assessed accordingly
The appellant was thereafter held liable to pay tax amounting to Rs 26642 14 0 on a net turnover of Rs 1705144 2 2
The appellant preferred an appeal to the Commercial Tax Officer and a revision petition to the Board of Revenue Madras but was unsuccessful
The appellant therefore brought a suit for the recovery of Rs 21270 13 0 being the amount of tax illegally collected from him together with interest contending that the sales effected outside the State could not be taxed under article 285 1a of the Constitution of India
The State of Madras contested the suit on the ground that the sales were taxable as they fell within the purview of explanation 2 to section 2h of the Madras General Sales Tax Act 1939 hereinafter referred to
as the Act
The Subordinate Judge held that for the period from April 1 1949 to January 25 1950 the appellant was not entitled to impeach the assessment on the turnover relating to sales outside the State
As regards the period from March 26 1950 to March 31 1950 the Subordinate Judge took the view that the past of the turnover relating to outside sales was not liable to salestax but as there was a single order of assessment for the entire period the entire assessment was illegal
Again the judgment of the Subordinate Judge both the appellant and the respondent filed appeals AS No 93 of 1957 and AS No 169 of 1957 to the High Court of Andhra Pradesh
But its order dated April 18 1960 in Appeal No 169 of 1957 the High Court called for a finding from the trial court as to whether the appellant was able to prove the facts entitling him to invoke the explanation to article 2861a
By its order dated July 21 1962 the trial court submitted a finding to the effect that in view of the decision of the Supreme Court in India Copper Corporation Ltd vs The State of Bihar1 the burden of proof was not on the appellant and that the finding will have to be given in its favour
But by its order dated March 5 1963 the High Court directed the Subordinate Judge to record a finding after considering the evidence adduced by the appellant as to whether the goods in question were delivered for consumption within the delivery States
In its order dated March 22 1963 the trial court after considering the evidence given by the appellant s witnesses came to the conclusion that the deliveries were not made for purposes of consumption within the delivery States only
The High Court by a common judgment dated March 11 1965 in AS No 93 and 169 of 1957 held that the appellant could not claim the benefit under article 2861a of the Constitution in the 1 12STC 56
746 absence of evidence as to how the wholesalers disposed of the goods after obtaining delivery and therefore the entire turnover for the year 1949 50 would be assessable to tax
In the result AS No 169 of 1957 flied by the respondent was allowed and AS No 93 of 1957 filed by the appellant was dismissed
The Madras General Sales Tax Act 1939 was enacted in exercise of the legislative authority conferred upon the Provincial Legislatures by Entry 48 of List II read with section 1003 of the Government of India Act 1935
The explanation to section 2h of this Act is as follows Notwithstanding anything to the contrary in the Indian the sale or purchase of any goods shall be deemed for the purpose of this Act to have taken place in this Province wherever the contract of sale or purchase might have been made
a If the goods
were actually in this Province at the time when the contract of sale or purchase in respect thereof was made or b in case the contract was for the sale or purchase of future goods by description then if the goods are actually produced in this Province at any time after the contract of sale or purchase in respect thereof was made Under Entry 48 of List II of the Government of India Act 1935the Provincial Legislatures could tax sales by selecting some fact or circumstances 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 Tata Iron  Steel Ca
Ltd vs The State of Bihar1 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 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 1  2 19531 SCR 677
747 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
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
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 Therefore by incorporating section 22 of the Madras 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 Madras 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 section 22 of the Madras Act a sate 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 748 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 and Anr
vs The United Motors India Ltd1 it was held that 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
With a view to impose restrictions on the taxing power of the States under the pre Constitution statutes amendments were made in those statutes by the Adaptation of Laws Order
As regards the Madras Act the President issued on July 8 1952 the Fourth Amendment inserting a new section section 22 in that Act
It runs 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 Madras or ii in the course of 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 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 cl
ai 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
 By this amendment the same restrictions were engrafted on the pre Constitution statute as were imposed by article 286 of the Constitution upon post Constitution statutes
As regards the sales for the period from April 1949 to January 25 1950 it was admitted before the Deputy Commercial 1  749 Tax Officer that the goods were actually in the Madras State at the time the contract of sale was concluded
It was for this reason that the Deputy Commercial Tax Officer negatived the claim which the appellant made in respect of those sales
It appears that in the trial court the appellant challenged the constitutional validity of explanation to section 2h of the Act
But in view of the decision of this Court in the Tata Iron  Steel Co s case1 and Poppatlal Shah s case2 counsel on behalf of the appellant did not seriously dispute the validity of the assessment in regard to sales from April 1 1949 to January 25 1950
With regard to the period from January 26 1950 to March 31 1950 the contention of the appellant  is that the High Court was in error in holding that the burden of proof was on the appellant to show that there was not only delivery of goods for consumption within the delivery States but there was actual consumption of the goods in those States
In our opinion the argument is well founded and must be accepted as correct
In India Copper Corporation s case3 it was pointed out by this Court that if the goods were as a direct result Of a sale delivered outside the State of Bihar for the purpose of consumption in the State of first delivery the assessee would be entitled to the exemption from sales tax by virtue of the Explanation to Art 2861a of the Constitution and 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
In the present case the Subordinate Judge has upon a consideration of the evidence adduced by the parties stated in his report dated June 27 1962 that the intention of the appellant was that the sale and delivery should be for the purpose of consumption in the delivery States
It is true that in his subsequent report dated March 22 1963 the Subordinate Judge gave a different finding
But it is obvious that the subsequent report of the Subordinate Judge is vitiated because the principle laid down by this Court in India Copper Corporation s case3 has not been taken into account
Having regard to the evidence adduced by the appellant in this case we are satisfied that the part of the turnover which related to sale from 2 January 26 1950 to March 31 1950 was not liable to sales tax and the levy of sales tax from the appellant to this extent is illegal
The next question arising in this appeal is whether the assessment order of the Deputy Commercial Tax Officer for the year 1949 50 is illegal in its entirety notwithstanding the fact that the State Government had a right to levy sales tax on outside sales 1  2  3 12 STC 56 750 which were effected prior to January 26 1950
It was argued for the appellant that the assessment must be treated as one and indivisible and if a part of the assessment is illegal the entire assessment must be deemed to be infected and treated as invalid
In support of this argument reference was made to the decision of this Court in Ram Narain Sons Ltd vs Assistant Commissioner of Sales Tax1 in which this Court observed as follows The necessity for doing so is however obviated by reason of the fact that the assessment is one composite whole relating to
the pre Constitution as well as the post Constitution periods and is invalid in toto
There is authority for the proposition that when an assessment consists of a single undivided sum in respect of the totality of the property treated as assessable the wrongful inclusion in it of certain items of property which by virtue of a provision of law were expressly exempted from taxation renders the assessment invalid in toto The Court cited with approval a passage from the judgment of the Judicial Committee in Bennett  White Calgary Ltdand Municipal District of Sugar City No 52
When an assessment is not for an entire sum but for separate sums dissected and earmarked each of them to a separate assessable item a Court can sever the items and cut out one or more along with the sum attributed to it while affirming the residue
But where the assessment consists of a single undivided sum in respect of the totality of property treated as assessable and when one component not dismissible as de minimis  as on any view not assessable and wrongly included it would seem clear that such a procedure is barred and the assessment is bad wholly
That matter is covered by authority
In Montreal Light Heat  Power Consolidated vs City of Westmount3 the Court see especially per Anglin CJ in these conditions held that an assessment which was bad in part was infected throughout and treated it as invalid
Here their Lordshis are of opinion by parity of reasoning that the assessment was invalid in toto
 Applaying the principle to the special facts are circumstances of the case the Court set aside the orders of assessment and directed that the case should be remanded to the Assessment Officer for reassessment of the appellants in accordance with law
The same principle was applied but with a different result in the later case 1 6 STC 627 at 637
2 at p 816
3 751 the State of Jammu  Kashmir vs Caltex India Ltd 1 in which the question arose as regards the validity of an assessment of sales tax of all retails sales of motor spirit
The Petrol Taxation Officer assessed the respondent to pay sales tax for the period January 1955 to May 1959 under section 3 of the Jammu  Kashmir Motor Spirit Taxation of Sales Act 2005
The respondent applied under section 103 of the Constitution of Jammu  Kashmir and a single Judge of the High Court held that the respondent was liable to pay sales tax only in respect of the sales which took place during the period January to September 1955 and issued a writ restrainig the appellants from levying tax for the period October 1955 to May 1959
On appeal a Division Bench of the High Court quashed the assessment for the entire period
On appeal to this Court it was held that though there was one order of assessment for the period January 1 1955 to May 1959 the assessment could be split up and dissected and the items of sale could be separated and taxed for different periods
It was pointed out that the sales tax was imposed in the ultimate analysis on receipts from individual sales or purchases of goods effected during the entire period and therefore a writ of mandamus could
be issued directing the appellant not to realise sales tax with regard to transactions of sale during the period from September 7 1955 to May 1959
A similar question arose for determination in an American case Frank Rattarman vs Western Union Telegraph Co2
The question in that case was whether a single tax assessed under the Revised Statutes of Ohio section 2778 upon the receipts of a telegraph company which receipts were derived partly from inter state commerce and partly from commerce  within the State but which were returned and assessed in gross and without separation or apportionment is wholly invalid or invalid only in the proportion and to the extent that the said receipts were derived from interstate commerce
It was held unanimously by the Supreme Court of the United States that the assessment was not wholly invalid but it was invalid only in proportion to the extent that such receipts were derived from interstate commerce
It was observed that where the subjects of taxation can be separated so that that which arises from interstate commerce can be distinguished from that which arises from commerce wholly within the State the Court will act upon this distinction and will restrain the tax on interstate commerce
while permitting the State to collect that upon commerce wholly within its own territory
The principle of this case has been consistetly followed in American cases see Bowman vs Continental Company3
This case has been cited with approval by this Court in The State of Bombay 1 17 STC 612
2  3 CI69 4 752 vs The United Motors India Ltd1 wherein it was observed that the same principle should be applied in dealing with taxing statutes in this country also
In the present case we are of opinion that though there is a single order of assessment for the period from April 1 1949 to March 31 1950 the assessment could be split up and dissected and the items of sale separated and taxed for different periods
It is quite easy in this case to ascertain the turnover of the appellant for the pre Constitution and post Constitution periods for these figures are furnished in the plaint by the appellant himself
It is open to the Court in these circumstances to sever the illegal part of the assessment and give a declaration with regard to that part alone instead of declaring the entire assessment void
For these reasons we hold that the appellant should be granted a declaration that the order of assessment made by the Deputy Commercial Tax Officer for the year 1949 50 is invalid to the extent that the levy of sales tax is made on sales relating to
goods which were delivered for the purpose of consumption outside the State for the period from January 26 1950 to March 31 1950
The result is that the appellant is entitled to a refund of the amount illegally collected from him for the period from January 26 1950 to March 31 1950
The trial court has already found that the appellant is entitled to claim exemption with regard to
turnover for this period to the extent of Rs 334107 15 6 and the tax payable on this sum is Rs 5220 7 0
The appellant is
therefore entitled to a decree for the refund of Rs 5220 7 0
The appellant is also entitled to interest at 6 per annum from the date of suit till realisation of this amount
For these reasons we allow this appeal and set aside the judgment of the Andhra Pradesh High Court dated March 11 1965 in AS Nos 93 and 169 of 1957 and allow this appeal to the extent indicated above
There will be no order with regard to costs
RKPS Appeal allowed
1  at 1097


Summary:
The appellant a dealer in pulses in Vijayawada in Madras State made certain sales outside the State during the assessment year 1949 50
The appellant claimed exemption from sales tax of sales effected outside the State during the year but the Deputy Commercial Tax Officer disallowed the claim
A first appeal and a revision petition to the Board of Revenue were unsuccessful
The appellant thereafter brought a suit for the recovery of tax collected from him with interest contending that part of sales effected outside the State could not be taxed under article 2851a of the Constitution
The Trial Court held that the assessment to tax of the sales during the period from April 1 1949 to January 25 1950  could not be impeached but the sales from January 26 to March 31 outside the State were not liable to sales tax as there was a single order of assessment for the whole year the entire assessment was illegal
In appeal to the High Court and upon a direction from that Court the Trial Court gave a finding that deliveries of the goods were not made for purposes of consumption within the delivery State only
The High Court
therefore
allowed the appeal holding that the appellant could not claim the benefit under Article 2861a in the absence of evidence as to how the whole sales disposed of the goods after obtaining delivery and therefore the entire turn over for the year 1949 50 would be assessable to tax
In the appeal to this Court it was contended inter alia i that the High Court was in error in holding that the burden of proof was on the appellant to show that there was not only delivery of goods for consumption within the delivery States but there was actual consumption of goods in those States ii the assessment must be treated as an indivisible one and if a part of the assessment was illegal the entire assessment must be deemed to be infected and treated as invalid
HELD Allowing the appeal i The part of the turnover which related to sales from January 26 1960 to March 31
1960 was not liable to sales tax and the levy of sales tax from the appellant to this extent was illegal
It was rightly contended that the appellant did not carry the burden of showing that there was not only delivery of goods for consumption within the States but that the goods were actually consumed in those States
749 C India Copper Corporation Ltd vs The State of Bihar 12 STC 56 relied upon
744 ii In the present case though there was a single order of assessment for the period from April 1 1949 to March 31 1950 the assessment could be split up and dissected and the items of sales separated and taxed for different periods
It was possible to ascertain the turnover of the appellant for the pre Constitution and post Constitution periods from the figures furnished in the plaint by the appellant himself
It was therefore
open to the Court in these circumstances to sever the illegal part of the assessment and give a declaration with regard to the illegal part alone instead of1 declaring the entire assessment void
752 B Case law referred to