Appeal No 242 of 1965
Appeal from the judgment and order dated February 19 1962 of the Madhya Pradesh High Court in Misc
Petition No 395 of 1958
A K Sen R M Hazarnavis D N Verma O P Malhotra O C Mathur J B Dadachanji and Ravinder Narain for the appellant
B Sen and I N Shroff 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 Madhya Pradesh dated February 19 1962 in Miscellaneous Petition No 395 of 1958
The appellant is a firm carrying on the business of manufac turing and selling bidis
During the period April 1 1951 to September 6 1955 the appellant was registered as a dealer under the Central Provinces  Berar Sales Tax Act 1947 CP  Berar Act 21 of 1947 hereinafter called the Act 
For the purposes of manufacture of bidis the appellant imported from the State of Bombay large quantities of tobacco
During the period from November 7 1953 to October 26 1954 the appellant imported from that State tobacco worth Rs 8429580 15 0 and during the period from October 27 1954 to November 14 1955 the appellant imported tobacco worth Rs 13827630 12 6
In the usual course the tobacco after being imported into the State of Madhya Pradesh was rolled into bidis which were largely exported to other States for sale and consumption in those States
In respect of the imports of tobacco the Sales Tax authorities required the appellant to file returns in Part B of Form IV clause 2 of which stated as follows M19Sup
CI66 7 90 2
Purchase price of goods other than those mentioned in Schedule 11 purchased on declaration under rule 26 as being goods specified in the registration certificate as intended for use as raw materials in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilised for any other purpose such as one s own consumption or for export outside the State for which deduction is claimed under section 27 A or for use in the manufacture of goods exported outside the State for which deduction is claimed under section 27 A etc
 The appellant filed a return for the quarter from May 3 1954 to July 29 1954 showing the amount of Rs 1647567 3 3 as the purchase price of goods purchased on declaration as being goods specified in the registration certificate as intended for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilised for any other purpose
In the return which was filed for the quarter beginning from July 27 1954 and ending with October 26 1954 the appellant did not fill in any figure but showed the above item as blank contending that the Sales Tax authorities were not entitled to levy any purchase tax against it in respect of the same Me appellant thereafter moved this Court under article 32 of the Constitution for the issue of a writ of mandamus or any other suitable writ to restrain the respondents from enforcing the provisions of the Act and for other consequential reliefs
In Writ Peti tion No 67 of 1955 decided on September 20 1955 Ms Mohanlal Hargovind Das vs The State of Madhya Pradesh1 this court observed in the course of its judgment as follows All the transactions entered into by a registered dealer however do not necessarily import a liability to pay tax under the Act because whenever the question arises in regard to his liability to pay any tax under the Act such liability would have to be determined in spite of his being a registered dealer with reference inter alia to the provisions of Section 27 A of the Act which incorporates within its terms the bans which have been imposed on the powers of the State Legislatures to tax under Article 2861 a and 2 of the Constitution
If therefore a dealer who has got himself registered as dealer under the provisions of Section 81 of the Act is sought to be made liable in respect of transactions of sale effected by him he could claim exemption from such liability if the transactions of sale or purchase took place in the course of inter State trade or commerce after the 31st March 1951 except in so far 1  91 as Parliament may by law otherwise provide
In the case before us there was no such provision made by Parliament and the transactions in question were all after the 31st
March 1951 with the result that the ban imposed by Article 2862 was in operation and if the transactions took place in the course of inter State trade or commerce not only were Shri Chhaganlal Ugarchand Nipani and Shri Maniklal Chunanlal Baroda exempt from the liability to pay the tax on these transactions but the petitioners also were similarly exempt
No liability therefore could be imposed either for Sales Tax or for Purchase Tax within the terms of the Act on these transactions which as above stated took place in the course of inter State trade or commerce This Court accordingly granted a writ to the following effect The respondents will be restrained from enforcing the Central Provinces and Berar Sales Tax Act 1947 and its provisions against the petitioners and from imposing a tax in respect of the transactions in question and in particular from imposing a tax on the purchase price of goods purchased on the declarations under Rule 26 being goods specified in the registration certificate as intended for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilised for any other purpose under the provisions of Section 46 of the Act
 In view of this writ the Assistant Commissioner of Sales Tax Jabalpur by his two orders dated September 9 1956 and September 10 1956 exempted the appellant from tax on the purchases of tobacco made in the State of Bombay which after being imported into the State of Madhya Pradesh was used as raw material for manufacturing bidis exported to other States
The appellant preferred appeals to the Deputy Commissioner or Sales Tax against the two orders dated September 9 1956 and September 10 1956
In the meantime on March 21 1956 the Sales Tax Laws Validation Act 1956 Act 7 of 1956 which repealed the Sales Tax Validation Ordinance 3 of 1956 had come into force
Thereupon on December 5 1958 the Deputy Commissioner of Sales Tax issued two notices to the appellant proposing to levy tax on purchases of tobacco during the period from November 7 1953 to September 5 1955 from non resident dealers under section 46 of the Act
The appellant filed in the High Court of Madhya Pradesh Miscellaneous Petition No 395 of 1953 praying for grant of a writ of certiorari to quash the notices dated December 5 1958 issued by the Deputy Commissioner of Sales Tax and for a writ in the nature 92 of mandamus restraining the respondents from enforcing the provisions of the Act and of the Central Act 7 of 1956 and from imposing any tax on purchases of tobacco and other raw materials from non resident dealers
By its judgment dated February 19 1962 the High Court of Madhya Pradesh rejected the petition of the appellant
By the Madhya Pradesh Sales Tax Amendment Act 1953 MP Act 20 of 1953 certain amendments were made in the Act
The material provisions of the latter Act as amended by the former Act were as follows 2
c dealer means any person who whether as principal or agent carries on in Madhya Pradesh the business of selling or supplying goods whether for commission remuneration or otherwise and includes a firm a partnership   2 g sale with all its grammatical variations and cognate expressions mean any transfer of property in goods for cash or deferred payment or other valuable consideration including a transfer of property in goods made in course of the execution of a contract  and the word purchase  shall be construed accordingly Explanation II Notwithstanding anything to the contrary in the Indian  but subject to the provision contained in the Explanation to clause i of Article 286 of the Constitution the sale or purchase of any goods shall be deemed for the purposes of this Act to have taken place in this State wherever the contract of sale or purchase might have been made a if the goods were actually in this State 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 or found in this State at any time after the contract of sale or purchase in respect thereof was made Explanation III
Notwithstanding anything to the contrary in the Indian  the sale of any goods which have actually been delivered in the State of Madhya Pradesh as a direct result of such sale for the purpose of consumption in the said State shall be deemed 93 for the purpose of this Act to have taken place in the said State irrespective of the fact that the property in the goods has by reason of such sale passed in another State 2
j turnover  means the aggregate of the amounts of sale prices and parts of sale prices received or receivable by a dealer in respect of the sale or supply of goods or in respect of sales or supply of goods in the carrying out of any contract affected or made during the prescribed period and the expression taxable turnover  means that part of a dealer s turnover during such period which remains after deducting therefrom a his turnover during that period on iisales to a registered dealer of goods declared by him in the prescribed form as being intended for resale by him by actual delivery in Madhya Pradesh for the purpose of consumption in that State or of goods specified in such dealer s certificate of registration as being intended for use by him as raw materials in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State and of containers and other materials used in the packing of such goods 4
6 Where any goods are purchased by a registered dealer as being intended for resale by him by actual delivery in Madhya Pradesh for the purpose of consumption in that State or as being goods specified in such dealer s certificate of registration as intended for use by him as raw materials in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State and such goods are utilised by him for any other purpose the price paid by him for such goods shall be included in his turnover and be liable to tax in accordance with the provisions of this Act 27 A a 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 Madhya Pradesh or iiwhere such sale or purchase takes place in the course of import of the goods into or export of the goods out of the territories of India 94 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 clause 1 of Article 286 of the Constitution shall apply for the interpretation of subclause i of clause a of sub section 1
 Article 2861 and 2 of the Constitution as it stood at the material time is reproduced below 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 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
2Except 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
 In ms Mohanlal Hargovind Das vs The State of Madhya Pradesh1 it was held by this Court that the transaction of purchase of tobacco by the appellant from dealers outside the territory of Madhya Pradesh were transactions in the course of inter State 1  95 trade or commerce and since the ban imposed by article 2862 was in operation the appellant was exempt from liability to pay tax on those transactions
On January 30 1956 the President of India promulgated an Ordinance called The Sales Tax Laws Validation Ordinance 1956  Ordinance No 3 of 1956 which was repealed and replaced by the Sales Tax Law Validation Act 1956 Act 7 of 1956 which came into force on March 21 1956
Section 2 of this Act states Notwithstanding any judgment decree or order of any Court no law of a State imposing or authorising the imposition of a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter State trade or commerce during the period between the Ist day of April 1951 and the 6th day of September 1955 shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter State trade or commerce and all such taxes levied or collected or purporting to have been validly levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law
Explanation
In this section law of a State  in relation to a State specified in Part C of the First Schedule to the Constitution means any law made by the Legislative Assembly if any of that Sate or extended to that State by a notification issued under Section 2 of the Part C States Laws Act 1950 30 of 1950
It was argued by Mr A K Sen on behalf of the appellant in the first place that section 27 A of the Act places a restriction on the power of the taxing authorities and so long as it stood unrepealed there was no pre existing law authorising the imposition of tax on sales made in the course of inter State trade or commerce and in consequence the Sales Tax Laws Validation Act 1956 which merely lifted the ban and did not impose any tax bad no application to the case of the appellant
To put it differently the contention of Mr A K Sen was that before advantage could be taken of the Sales Tax Laws Validation Act 1956 there had to be in existence a State Act imposing tax on such sales and section 27 A of the Act imposed no such tax on the sales
We are unable to accept this argument as correct
An identical question was the subject matter of consideration by this Court in M P V Sundararamier  Co vs The State of Andhra Pradesh  another1 and it was held that section 22 of the Madras Sales Tax Act had a positive content and the Explanation in the context of section 22 authorised the State of 1  96 Madras to impose tax on sales falling within its purview
In the course of his judgment Venkatarama Aiyar J speaking for the Court observed These considerations will clearly be inapposite in construing a taxing statute like the Madras Act the object of which is primarily to confer power on the State to levy and collect tax
When we find in such a statute a provision containing a prohibition followed by an Explanation which is positive in its terms the true interpretation to be put on it is that while the prohibition is intended to prevent taxation of outside sales on the basis of the nexus doctrine the explanation is intended to authorise taxation of sales falling within its purview subject of course to the other provisions of the Constitution such as article 2862
It should be remembered that unlike the Constitution the law of a State can speak only within its own territories
It cannot operate either to invest another State with a power which it does not possess or divest it of a power which it does possess under the Constitution
Its mandates can run only within its own borders
That being the position what purpose would the Explanation serve in section 22 of the Madras Act if it merely meant that when goods are delivered under a contract of sale for consumption in the State of Madras the outside State in which property in the goods passes has no power to tax the sale That is not the concern of the State of Madras and indeed the Legislature of Madras would be incompetent to enact such a law
In its context and setting therefore the Explanation to section 22 must mean that it authorises the State of Madras to impose a tax on sales falling within its purview
Thus while in the context of article 2861 a the Explanation thereto could be construed as purely negative in character though positive in form it cannot be so construed in its setting in section 22 of the Madras Act where it must have a positive content
 Section 22 of the Madras Act is couched in a similar language to section 27 A of the Act
In our opinion the principle of the decision in M P V Sundararamier  Co vs The State of Andhra Pradesh  another1 therefore governs the present case
We should also refer to the additional circumstance that in the present case the third Explanation to section 2gincorporates into the definition of sale  the Explanation occurring in article 286 in contrast to the Madras Act where there is no such incorporation in the definitionof sale under section 2h of that Act
We are accordingly of the opinion that the argument of the appellant must be rejected on this aspect of the case
1  97 The next question to be considered in this appeal is whether the provisions of section 46 of the Act are attracted in the circumstances of the case
It was submitted for the appellant that the section has no application because tobacco was not specified in the certificate of registration granted to the appellant as intended for use by it as raw material in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State
Section 2j of the Act as it originally stood was to the following effect  Sales to a registered dealer of goods specified in such dealer s certificate of registration as being intended for resale by him or for use by him in the manufacture of any goods for sale or in the execution of any contract and on sales to a registered dealer of containers and other materials for the packing of such goods The section was amended from time to time until with effect from December 1 1953 it stood as follows Sales to a registered dealer of goods declared by him in the prescribed form as being intended for resale by him by actual delivery in Madhya Pradesh for the purpose of consumption in that State or of goods specified in such dealer s certificate of registration as being intended for use by him as raw materials in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State and of containers and other materials used in the packing of such goods Section 46 of the Act was also inserted with effect from December 1 1953 by the Madhya Pradesh Sales Tax Amendment Act 1953 Act 20 of 1953
In consequence of these amend ments it became necessary to amend the certificate of registration granted to the appellant before the amendment of the Act
Therefore on January 5 1954 even before the relevant Rule was amended the appellant applied for substitution of the words raw materials for the words for the purpose of manufacture
In allowing the application the Sales Tax Officer did not comply with the language of Form II but merely specified as raw materials Tendu leaves Tobacco Yarn The contention of the appellant is that the purchase of tobacco cannot be taxed because it was not specified in the dealers  certificate of registration as intended for use by him as raw materials in the manufacture of any goods for the purpose of sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State as required by section 46 of the Act
We are unable to accept the argument of the appellant as correct
It is true that there is a technical omission in the order of the Sales Tax Officer amending the certificate of registration but the certificate must be fairly construed in the light of the language 98 of section 8 and other relevant provisions of the Act
Before the amendment made by Act XX of 1953 section 83 read as follows 8
3 If the said authority is satisfied that an application for registration is in order it shall in accordance with such rules as may be made under this Act register the applicant and grant him a certificate of registration in the prescribed form which in the case of a registered dealer who himself manufactures any goods for purposes of sale shall specify the class or classes of goods which are intended to be used by him in the manufacture of such goods After the amendment the sub section was to the following effect 8
3 If the said authority is satisfied that an application for registration is in order it shall in accordance with such rules as may be made under this Act register the applicant and grant him a certificate of registration in the prescribed form which in the case of a registered dealer who manufac tures any goods for purposes of sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State shall specify the raw materials which are intended to be used by him in the manufacture of such goods
 In this connection reference may be made to section 2j a ii Which states that a selling dealer is entitled to deduct from his turnover sales to a registered dealer of goods specified in such dealer s certificate of registration as being intended for use by him as raw materials in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State
It is manifest that the only legitimate object which the purchasing dealer seeks in having a class of good specified in the certificate of registration as raw materials is to purchase the goods tax free in the sense contemplated by the Act
By asking for such specification the dealer represents that he intends to use the goods specified in the manufacture of other goods for the purpose of sale by actual delivery in the State of Madhya Pradesh for the purpose of consumption in that State
In this context reference should be made to declarations made by the appellant to the Bombay dealers printed at page 88 of the Paper Book
In these declarations the appellant stated that it was purchasing tobacco for use as raw materials in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State and that tobacco was so specified in its certificate of registration
As we have already said the certificate of registration granted to the appellant must be construed in the context of section 8 as it stood after its amendment and the declarations of the appellant made to the Bombay dealers
If the language of the certificate is so construed 99 in the context of the amended section 8 of the Act and along with the declarations of the appellant it is manifest that the appellant is liable to pay tax on tobacco imported from Bombay dealers for the relevant periods and that the requirements of section 4 6 of the Act are satisfied in this case
The view that we have taken is borne out by the decision of this Court in Modi Spinning  Weaving Mills Co Ltd vs Commissioner of Sales Tax Punjab and another1 in which it was held that the registration certificate was only evidence that the assessee was a registered dealer for purposes of certain commodities to be used in manufacture and any formal defect in the registration certificate was not material
We therefore hold that the technical omission of the Sales Tax Officer to make a specific entry in the certificate will not confer any benefit on the appellant if there is other incontrovertible evidence in the case to show that the appellant did purchase the goods specified in the certificate as raw materials in the manufacture of any goods for the purpose of sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State
We therefore hold that Mr A K Sen has not been able to make good his argument on this aspect of the case
For these reasons this appeal fails and must be dismissed with costs
GC 1 16 section T C 310
Appeal dismissed


Summary:
The appellant was a firm in Madhya Pradesh and was registered as a dealer  under the Central Provinces and Berar Sales Tax Act 1947 as amended by the Madhya Pradesh Sales Tax Amendment Act 1953
During 1951 and 1955 the firm imported tobacco from the State of Bombay on the declaration that it would be used as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for consumption in that State
Tobacco was mentioned as one of the raw materials in the firm s registration certificate issued under section 8 of the Act
However the goods manufactured by the firm were utilised for a different purposes ie for export outside the State
Under section 46 of the Act when goods were used for a different purpose other than the one declared and mentioned in the registration certificate the price paid by the dealer for such goods would be included in his taxable turnover
However in a writ petition before the High Court the appellant firm contended that the goods exempt as interstate sales were exempted from levy of sales tax under section 27A of the Act which incorporated the bans in article 286 of the Constitution
The writ petition was allowed in September 1955
However in 1956 the Sales tax Validation Ordinance and thereafter the Sales Tax Laws Validation Act were passed
Accordingly the Sales Tax Authorities issued notices to the appellant firm proposing to levy purchase tax on the tobacco purchased by it from non resident dealers during the period November 7 1953 to September 5 1955
The appellant thereupon filed another writ petition before the High Court challenging the levy but it was dismissed
With certificate the appellant came to this court
It was urged on behalf of the appellant that i before advantage could be taken of the Sales Tax Laws Validation Act
1956 there had to be in existence a State Act imposing tax on inter Statesales and section 27A of the Act imposed no such tax ii section 46 had no application because tobacco was not specified in the certificate of registration granted to the appellant as intended for use by it as raw material in the manufacture of any goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State
 HELD  i Read with the third explanation to section 2gof the Act section 27 A had a positive and not merely a negative content
It gave power to the State of Madhya Pradesh to impose a tax on a transaction falling Within its purview
It was therefore a pre existing law validated by the Sales Tax Laws Validation Act 1956 and the appellant could be taxed under it in respectof inter State sales only during the relevant period
95 H 96 G H 89 MPV Sundararamier  Co vs The State of Andhra Pradesh   relied on
iiThe declaration made by the appellant to the Bombay dealers was for the purpose of obtaining exemption from purchase tax
The same was the purpose of the mention of tobacco in the registration certificate under section 8
If the language of the certificate were construed in the context of the section 8
of the Act as amended and along with the declaration of the appellant it was manifest that the appellant was liable to pay tax on tobacco imported from Bombay dealers and that the requirements of a 46 were satisfied
The technical omission of the Sales Tax Officer to make a specific entry in the certificate would not confer any benefit on the appellant when there was other incontrovertible evidence to show that the appellant did purchase the goods specified in the certificate as raw materials in the manufacture of any goods for the purpose of sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State
98 F H 99 A Modi Spinning  Weaving Mills Co Ltd vs Commissioner of Sales Tax Punjab  Anr
16 STC 310 relied on