Appeals Nos 412 and 413 of 1956
Appeals by special leave from the judgment and order dated October 17 1955 of the Patna High Court in MJC No 577 of 1953 made on reference by the Board of Revenue Bihar in Appeals Nos 495 and 496 of 1952
1358 M C Setalvad Attorney General for India Rajeshwari Prasad and section P Varma for the appellant
Mahabir Prasad Advocate General for the State of Bihar and R C Prasad for the respondent
February 19
The Judgment of Das CJ Venkatarama Aiyar section K Das and Sarkar JJ as delivered by Das C J Bose J delivered a separate judgment
DAS C J
These two appeals which have been filed with the special leave granted by an order made by this Court on April 3 1956 and which have been consolidated together by the same order are dire led against the judgment pronounced by the Patna high Court on October 17 1955 in Miscellaneous Judicial Case No 577 of 1953 deciding certain questions refer
red to it by the Board of Revenue Bihar under section 25 of the Bihar Sales Tax Act 1947 No XIX of 1947 hereinafter referred to as the 1947 Act
The said references arose out of two orders passed by the Board of Revenue in revision of two sales tax assessment orders made against the appellant company
The appellant company is a company incorporated under the Indian Companies Act
Its registered office is in Bombay its factory and works are at Jamshedpur in the State of Bihar and its head sales  office is in Calcutta in the State of West Bengal
It has store yards in the States of Madras Bombay West Bengal Uttar Pradesh Hyderabad Madhya Pradesh Punjab and Andhra
It carries on business as manufacturer of iron and steel and is a registered dealer under the 1947 Act the registration No being section C 905
Its course of dealing is thus described in the judgment under appeal  The intending purchaser has to apply for a permit to the Iron and Steel Controller at Calcutta who forwards the requisition to the Chief Sales Officer of the assessee working in Calcutta
The Chief Sales Officer thereafter makes a works order and for
wards it to Jamshedpur
The  works order  mentions the complete specification of the goods required
1359 After the receipt of the works order the Jamshedpur factory initiates a  rolling  or  manufacturing  programme
After the goods are manufactured the Jamshedpur factory sends the invoice to the Controller of Accounts who prepares the forwarding notes and on the basis of these forwarding notes railway receipts are prepared
The goods are loaded in the wagons at Jamshedpur and despatched to various stations but the consignee in the railway receipt is the assessee itself and the freight also is paid by the assessee
The railway receipts are sent either to the branch offices of the assessee or to its bankers and after the purchaser pays the amount of consideration the railway receipt is delivered to him
These facts are admitted and the correctness of these facts are not disputed by the State of Bihar
 The appellant company was separately assessed for two periods 1 from July 1 1947 to March 31 1948 and 2 from April 1 1948 to March 31 1949
For the first period the appellant company filed a return under section 121 of the 1947 Act before the Sales Tax Officer showing a gross turnover of Rs 128015327 8 5
From this gross turnover the appellant company claimed to deduct a sum of Rs 28860787 13 0 being the amount of valuable consideration for the goods manufactured at Jamshedpur in the State of Bihar but sold delivered and consumed outside that State on the ground that in none of the transactions in respect of the said sum did the property in the goods pass to the purchasers in the State of Bihar
The appellant company further claimed a deduction of Rs 11087125 13 0 on account of railway freight actually paid by it for the despatch of the goods
The Sales tax Officer by his assessment order dated July 22 1949 disallowed both the claims for deduction and on the other hand added a sum of Rs 1366496 11 0 being the amount of sales tax realised by the appellant company from its purchasers to its taxable turnover and assessed the appellant company to sales tax amounting to Rs 1531374 5 9
For the second period the appellant company filed a return showing a gross turnover of Rs 216445450 0 0 1360 From this gross turnover the appellant company claimed a deduction of Rs 107166233 11 0 being the amount of valuable consideration for goods manufactured at Jamshedpur in the State of Bihar but sold delivered and consumed outside that State on the same ground as hereinbefore mentioned
The appellant company also claimed a deduction of Rs 4089973 9 0 on account of railway freight actually paid by it for the despatch of the goods
The Sales Tax Officer by his assessment order dated September 24 1949 disallowed both the claims and added the sum of Rs 2237919 4 0 being the amount of sales tax realised by the appellant company from its purchasers to its taxable turnover and assessed the appellant company to sales tax amounting to Rs 2830458 6 0
Against these two assessment orders the appellant company preferred two appeals under section 24 of the 1947 Act to the Commissioner of Sales Tax of Chota Nagpur who on April 29 1950 dismissed both the appeals
The appellant company went up to the Board of Revenue on two revision applications against the two orders of the Commissioner
The Board of Revenueby its order dated August 30 1952 confirmed the orders of the Commissioner with certain modifications and remanded the cases to the Sales Tax Officer
The appellant company applied under section 25 of the 1947 Act to the Board of Revenue in Reference Cases Nos 495 and 496 of 1952 for reference of certain questions of law to the High Court
By a common order dated October 5 1953 made in the said two references the Board of Revenue referred the following questions of law to the High Court for its decision  1 Is the Bihar Sales Tax Act 1947 as amended in 1948 ultra vires the Provincial Legislature in view of the extended meaning of the expression taxes on sale of goods given in the Act in the light of the provisions of the Government of India Act 1935  2Are the provisions of section 2g of the 1947 Act ultra vires the Provincial Legislature  1361 3 Is it legal to include sales tax in the taxable turnover of an assessee like the petitioner  4 Was the Bihar Sales Tax Amendment Act of 1948 legally extended to Chotanagpur  5 Were the levy and collection of sales taxes for periods prior to the 26th January 1950 under the Sales Tax Act then in force rendered illegal by the provisions of the Constitution  6 Was the Commissioner who passed orders in appeal after the Constitution came into force bound to decide the appeal according to the provisions of the Constitution in respect of taxes levied or sought to be levied for periods prior to the 26th January 1950 when the Constitution came into force  Out of these six questions question No 3 was decided in favour of the appellant company and the respondent State has not preferred any appeal against that decision or questioned its correctness
Question No 4 was not pressed before the High Court and does not survive before us
Questions Nos 1 2 5 and 6 were decided against the appellant company and the two consolidated appeals are directed against the High Court s decision on these questions
It will be noticed that questions Nos
I and 2 in effect raise the same problem namely as to the vires of the 1947 Act and questions Nos 5 and 6 are concerned with the validity of the retrospective levy of sales tax by reason of the amendment of section 4 of the 1947 Act
The following points as formulated by the learned Attorney General appearing for the appellant company have been urged before us in support of these appeals  1 The tax levied under section 41 read with section 2g second proviso cl
ii is not a tax on sale within the meaning of Entry 48 in List II of the Seventh Schedule to the Government of India Act 1935
2 The doctrine of nexus is not applicable to sales tax
3 In any event the nexus in the present case is not real and sufficient but is illusory
1362 4Having regard to the provisions of the law mentioned above the tax levied is in the nature of duty of excise rather than a tax on sale
5The retrospective levy by reason of the amendment of section 41 destroys its character as a sales tax and makes it a direct tax on the dealer instead of an indirect tax to be passed on to the consumer
 In order to appreciate the arguments that have been advanced before us on the points noted above it is necessary to refer to the relevant statutory provisions which were in force at the material times
Section 99 of the Government of India Act 1935 authorised a Provincial Legislature subject to the provisions of that Act to make laws for the Province or for any part thereof
Section 1003 of that Act provided that subject to the two preceding sub sections the Provincial Legislature had and the Federal Legislature had not power to make laws for any Province or any part thereof with respect to any of the matters enumerated in List 11 of the Seventh Schedule to that Act
The matter enumerated in Entry 48 in List II was as follows  Taxes on the sale of goods and on advertisements
 It is in exercise of this legislative power that the Provincial Legislature of Bihar passed the 1947 Act which received the assent of the Governor General on June 21 1947 and came into force on July 1 1947 by virtue of a notification made in the official gazette under section 13 of the said Act
The relevant portion of section 41 of the 1947 Act which was the charging section was prior to its amendment hereinafter mentioned expressed in the following terms  Subject to the provisions of sections 5 6 7 and 8 and with effect from such date as the Provincial Government may by notification in the official gazette appoint being not earlier than 30 days after the date of the said notification every dealer whose gross turnover during the year immediately preceding the commencement of this Act on sales which had taken place both in and outside Bihar exceeded Rs 10000 shall be liable to pay tax under this Act 1363 on sales which have taken place in Bihar after the date was notified
 It should be noted that although the 1947 Act came into force on July 1 1947 by virtue of a notification published in the official gazette under section 13 thereof the charging section quoted above did not come into operation because by its own terms it required a further notification in the official gazette to bring it into effect
For some reason not apparent on the record the Provincial Government did not issue any notification as contemplated by section 41
To cure this omission Ordinance III of 1948 was promulgated by the Governor amending section 41a of the 1947 Act
Section 41 as amended read as follows  Subject to the provisions of sections 5 6 7 and 8 and with effect from the commencement of this Act every dealer whose turnover during the year immediately preceding the date of such commencement on sales which have taken place both in and outside Bihar exceeded Rs 10000 shall be liable to pay tax under this Act on sales which have taken place in Bihar on and from the date of such commencement
 On March 22 1949 Ordinance III of 1948 was replaced by Bihar Sales Tax Amendment Act 1948 VI of 1949 hereinafter referred to as the amending Act
Section 16 of this amending Act provided that the substituted section 41 should form part of the 1947 Act and should always be deemed to have formed part thereof with effect from its commencement that is to say from July 1 1947 as hereinbefore mentioned
Two things should be noted namely 1 that the person sought to be charged was every dealer whose gross  turnover during the specified period on  sales  which had taken place both in and outside Bihar exceeded Rs 10000 and 2 that the liability to pay tax was on  sales  which had taken place in Bihar on and from the date of such commencement
This takes us back to section 2g which defines  sale 
The material part of the definition of  sale  previous to the amendment made by the amending Act 173 1364 read as follows  Sale  means with all its grammatical variations and cognate expressions any transfer of property in goods for cash or deferred payment or other valuable consideration including a transfer of property in goods involved in the execution of contract but does not include a mortgage hypothecation charge or pledge Provided         
Provided further that notwithstanding anything to the contrary in the Indian III of 1930 the sale of any goods 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 shall wherever the said contract of sale is made be deemed for the purpose of this Act to have been made in Bihar
         
Section 2 of the amending Act amended section 2g of the 1947 Act by substituting a new proviso to cl g for the original second proviso thereto
The material part of section 2g thus amended read as follows  Sale means with all its grammatical variations and cognate expressions any transfer of property in goods for cash or deferred payment or other valuable consideration including a transfer of property in goods involved in the execution of contract but does not include a mortgage hypothecation charge or pledge Provided         
Provided further that notwithstanding anything to the contrary in the Indian 111 of 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 1365 deemed for the purposes of this Act to have taken place in Bihar
The amending Act by section 3 substituted for the old sub section
1 of section 4 of the 1947 Act the following sub  section namely  1 Subject to the provisions of sections 5 6 7 and 8 and with effect from the commencement of this Act every dealer whose gross turnover during the year immediately preceding the date of such commencement on sales which have taken place both in and outside Bihar exceeded Rs 10000 shall be liable to pay tax under this Act on sales which have taken place in Bihar on and from the date of such com mencement Provided that the tax shall not be payable on sales involved in the execution of a contract which is shown to the satisfaction of the Commissioner to have been entered into by the dealer concerned on or before the 1st day of October 1944
 Although the amending Act received the assent of the Governor General on March 15 1949 it came into force on October 1 1948 as provided in section 12 thereof
Section 16 of the amending Act however provided that the amendment made by section 3 should form part and should be deemed always to have formed part of the 1947 Act as if the said Act had been enacted as so amended from the commencement thereof that is to say from July 1 1947
The 1947 Act was further amended in 1951 by Bihar Act VII of 1951 and again in 1953 by Bihar Act XIV of 1953 but we are not in the present case concerned with those amendments
Although the charging section namely section 41 as amended operates from July 1 1947 the definition of sale as amended became operative only from October 1 1948
Therefore the definition of  sale  as it stood prior to the amendment was applicable to all sales made by the appellant throughout the first period hereinbefore mentioned ie the period from July 1 1947 to March 31 1948 and also to those made during the period from April 1 1948 to October 1 1948 which was only a portion of the second 1366 period hereinbefore mentioned and the amended definition applied to all sales made by the appellant during the remaining portion of the second period ie from October 1 1948 to March 31 1949
Bearing in mind the relevant provisions of the 1947 Act as they stood both before and after the amendment and the period of their applicability we now proceed to consider the points urged before us by the learned Attorney General appearing for the appellant company
Points Nos 1 and 4 It will be convenient to take up those two points together for they have been dealt with together by the learned Attorney General
The validity of section 41 read with section 2g second proviso is challenged in two ways
In the first place it is urged that section 1003 of the Government of India Act 1935 read with Entry 48 in List II of the Seventh Schedule thereto authorised the Legislature of Bihar to make a law with respect to tax on the sale of goods  Sale of Goods  as a legal topic has well defined and well understood implications both in English and Indian Law
The English Common Law relating to sale of goods has been codified in the English Sale of Goods Act 1893
In India the matter was originally governed by the provisions of Chapter VII of the 
Those provisions have since been replaced by the Indian Sale of Goods Act Act III of 1930
Our attention has been drawn to section 4 of the Indian Sale of Goods Act which clearly makes a distinction between a sale and an agreement for sale
It is pointed out that that section groups  sales  and  agreements to sell  under the single generic name of  contract of sale  following in this respect the scheme of English Sale of Goods Act 1893 and that it treats  sales  and agreements to sell  as two separate categories the vital point of distinction between them being that whereas in a sale there is a transfer of property in goods from the seller to the buyer there is none in an agreement to sell
It is then urged on the authority of a decision of this Court in the Sales Tax Officer Pilibhit vs Messrs Budh Prakash 1367 Jai Prakash 1 that there having thus existed at the time of the enactment of the Government of India Act 1935 a well defined and well established distinction between a  sale  and an  agreement to sell  it would be proper to interpret the expression  sale of goods  in Entry 48 in the sense in which it was used in legislation both in England and in India and to hold that it authorised an imposition of a tax only when there was a completed sale involving the transfer of title in the goods sold
Reference is then made to the decision of the Federal Court in the case of Province of Madras vs Boddu Paidanna and Sons 2 where the Federal Court at page 101 observed that in the case of sales tax the liability to tax arose on the occasion of a sale  which Patanjali Sastri C J in his judgment in the State of Bombay vs United Motors India Ltd 3 described as  the taxable event
 The argument is that the Bihar Legislature could only make a law imposing a tax on the sale of goods that is to say on a concluded sale involving the transfer of property in the goods sold from the seller to the buyer as contemplated by the Sale of Goods Act
The Bihar Legislature could not by giving an extended definition to the word sale extend its legislative power under Entry 48 in List II of the Seventh Schedule to the Government of India Act 1935 so as to impose a tax on anything which is short of a sale
For our present purpose no exception need be taken to the proposition thus formulated and indeed in Budh Prakash Jai Prakash s case 1 this Court struck down that part of the definition of it sale  in section 2h of the Uttar Pradesh Sales Tax Act 1948 which enlarged the definition of  sale  so as to include  forward contracts
But is the position the same here We think not
It will be noticed that section 41 imposed on the dealer the liability to pay a tax on  sale  as defined in section 2g
Both before and after the amendment of section 2g the principal part of the definition meant the transfer of the property in goods
All that the second proviso did was not to extend the 1   247
2 3   1088
definition of  sale but only to locate the I sale  in certain circumstances mentioned in that proviso in Bihar
The basis of liability under s 41 remained as before namely to pay tax on  sale 
The fact of the goods being in Bihar at the time of the contract of sale or the production or manufacture of goods in Bihar did not by itself constitute a  sale  and did not by itself attract the tax
The taxable event still remained the  sale  resulting in the transfer of ownership in the thing sold from the seller to the buyer
No tax liability actually accrued until there was a concluded sale in the sense of transfer of title
It was only when the property passed and the  sale  took place that the liability for paying sales tax under the 1947 Act arose
There was no enlargement of the meaning of  sale  but the proviso only raised a fiction on the strength of the facts mentioned therein and deemed the  sale  to have taken place in Bihar
Those facts did not by themselves constitute a sale  but those facts were used for locating the situs of the sale in Bihar
It follows therefore that the
provisions of section 41 read with section 2g second proviso were well within the legislative competency of the Legislature of the Province of Bihar
The vires of section 41 read with section 2g second proviso is also questioned on the ground that it is in reality not a tax on the sale of goods but is in substance a duty of excise within the meaning of Entry 45 in List I of the Seventh Schedule to the Government of India Act 1935 with respect to which the Provincial Legislature could not under section 100 of that Act make any law
Our attention is drawn to cl
ii of the second proviso which contemplated a sale of the goods by the producer or manufacturer thereof
It is urged that according to this clause tax was not imposed on all sales of goods produced or manufactured in Bihar but was imposed only on those goods produced or manufactured in Bihar which were sold by the producer or manufacturer
It is pointed out as and by way of an illustration that if the goods produced or manufactured in Bihar were taken out of the Province of Bihar and then gifted away by the producer or 1369 manufacturer to a person outside Bihar and that person sold the goods he would not be liable under the proviso
This argument however overlooks the fact that under cl
ii the producer or manufacturer became liable to pay the tax not because he produced or manufactured the goods but because he sold the goods
In other words the tax was laid on the producer or manufacturer only qua seller and not qua manufacturer or producer as pointed out in Boddu
Paidanna s case 1
In the words of their Lordships of the Judicial Committee in Governor General vs Province of Madras 2  a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced
It is a tax on goods and not on sales or the proceeds of sale of goods
 If the goods produced or manufactured in Bihar were destroyed by fire before sale the manufacturer or producer would not have been liable to pay any tax under section 4 1 read with section 2 g second proviso
As Gwyer C J said in Boddu Paidanna s Case 1 at page 102 the manufacturer or producer would be liable if at all to a sales tax because he sells and not because he manufactures or produces and he would be free from liability if he chose to give away everything which came from his factory
 In our judgment both lines of the argument advanced by the learned Attorney General in support of points and 4 are untenable and cannot be accepted
Re point No 2 The theory of nexus has been applied in support of tax legislation in more cases than one not only in this country but also in Australia and England
In Wanganui Rangitikei Electric Power Board vs Australian Mutual Provident Society 3 Dixon J observed  So long as the statute selected some fact or circumstance which provided some relation or connection with New South Wales and adopted this as the ground of its interference the validity of an enactment  would not be open to challenge The same learned Judge in Broken Hill South Ltd vs 1 3   600
2 1945 LR 721A 91 103
1370 Commissioner of Taxation N section W1 said at page 375  If a connection exists it is for the legislature to decide how far it should go in the exercise of its powers
As in other matters of jurisdiction or authority courts must be exact in distinguishing between ascertaining that the circumstances over which the power extends exist and examining the mode in which the power has been exercised
No doubt there must be some relevance to the circumstance in the exercise of the power
But it is of no importance upon the question of validity that the liability imposed is or may be altogether disproportionate to the territorial connection
 Even the dissenting Judge Rich J accepted the theory of nexus at page 361  I do not deny that once any connection with New South Wales appears the legislature of that State may make that connection the occasion or subject of the imposition of a liability
But the connection with New South Wales must be a real one and the liability sought to be imposed must be pertinent to that connection
 The Estate Duty Assessment Act 1914 1928 which charged estate duty on moveable properties situate abroad which had passed from a deceased person domiciled in Australia by gift intervivos made by him within a year of his death was not struck down for extra territoriality but was upheld as constitutional in The Trustees Executors and Agency Co Ltd vs The Federal Commissioner of Taxation 2
The nexus theory was applied in full force in Governor General vs Raleigh Investment Co 3 Wallace Brothers and Co Ltd vs Commissioner of Income Tax Bombay City 4 and A H Wadia vs Commissioner of Income Tax Bombay 5
In Raleigh Investment Co s case3 the assessee company was a company incorporated in England
Its registered office was in England
It held shares in nine Sterling Companies incorporated 1  2  31944 FCR 229
4 5 1371 in England
Those nine Sterling Companies carried on business in British India and earned income profits or gains in British India and declared and paid dividends in England to its shareholders including the assessee company
Tile assessee company was charged to income tax under section 4 1 of the Indian Income tax Act
It should be noted that the assessee company was not resident in British India carried on no business in British India and made no income profits or gains out of any business carried on by it in British India
It invested its money and acquired shares in England in the nine Sterling Companies which were English Companies
It was only when those nine Companies declared and paid dividends in England that the assessee company really earned its income profits or gains out of its investments in England in shares of nine Sterling Companies
The circumstance that the nine Sterling Companies derived their income profits or gains out of business carried on by them in British India out of which they paid dividends to the assessee company was regarded as sufficient nexus so as to fasten the tax liability on the assessee company in respect of the income profits or gains it derived from the nine Sterling Companies
Even such a distantly derivative connection with the source of income was held as a sufficient nexus to enable the British Indian tax autho rities to charge the assessee company with income tax
The conclusions reached by Spens C J in Raleigh Investment Co s case 1 are formulated thus at page 253  If some connection exists the legislature is not compelled to measure the taxation by the degree of benefit received in particular cases by the taxpayer
This affects the policy and not the validity of the legislation 
In Wallace Brothers case 2 the connection of the assessee company with British India was not so remote as in Raleigh Investment Co s case 1 for in the former case the assessee company was a partner in a 1 174 2 1372 firm which carried on business in British India but that connection was held to be sufficient nexus to bring to British Indian tax not only the income profits or gains made by the assessee as a partner in the firm but also its income profits or gains which accrued without British India in the previous year
In Wadia s case 1 also an income tax case it was held that a law imposing a tax cannot be impugned on the ground that it is extra territorial if there is a connection between a person who is subjected to a tax and the country which imposes that tax
The connection must however be a real one and the liability sought to be imposed must be pertinent to that connection
At page 140 Chief Justice Kania observed  Generally States can legislate effectively only for their own territories but for purposes of taxation and similar matters a State makes laws designed to operate beyond its territorial limits The learned Attorney General points out that the three last mentioned cases in which the nexus theory was applied were income tax cases and submits that that principle cannot be extended to sales tax laws
He points out that in Bengal Immunity Co Ltd vs The State of Bihar 2 this Court expressly left open the question whether the theory of nexus applied to legislation with respect to sales tax
The passage at page 639 relied upon by the learned Attorney General only refers to the fact that the different State Legislatures considered themselves free to make a law imposing tax on sales or purchases of goods provided the State concerned had some territorial nexus with such sales or purchases and went on to say that the question whether they were right or wrong in so doing had not been finally decided by the courts
That passage properly understood can hardly be said to indicate that the theory of nexus does not apply to sales tax legislation at all
The drift of the meaning of the passage was that the sufficiency of the different next relied on by the different States had not been tested by the courts
The passage strongly relied upon by the learned Attorney General is to be 1 2 1373 found at page 708 where Bhagwati J after referring to the earlier cases observed   It is a moot point whether this theory of territorial connection or nexus which has been mainly applied in income tax cases is also applicable to sales tax legislation the sphere of income tax legislation and sales tax legislation being quite distinct
Whereas in the case of income tax legislation the tax is levied either on a person who is within the territory by exercising jurisdiction over him in personam or upon income which has accrued or arisen to him or is deemed to have or arisen to him or has been derived by him from sources within the territory and it is therefore germane to enquire whether any part of such income has accrued or arisen or has been derived from a source within the territory in the case of sales tax legislation it is the sale or purchase of goods which is the subject matter of taxation and it cannot be predicated that the sale or purchase takes place at one or more places where the necessary ingredients of sale happen to be located
The theory of territorial connection or nexus was not put to the test at any time prior to the enactment of the Constitution and it is not necessary also for us to give a definite pronouncement on the subject
 Apart from the fact that the concluding words in the passage quoted above may be read as indicating that the observations were obiter it appears to us to be too late in the day to contend that the theory of nexus does not apply to sales tax legislation at all
Indeed an examination of the decisions of this Court will clearly show that the applicability of the theory of nexus to sales tax legislation has been clearly recognised by this Court
In The State of Bombay vs The United Motors India Ltd 1 this Court bad to interpret the true meaning of the explanation to article 2861a of the Constitution
That explanation created a fiction locating the situs of a sale or purchase in the State in which the goods had actually been delivered as a result of such sale or purchase for the purpose of consumption in that 1   1088
1374 State notwithstanding the fact that under the general law relating to sale of goods the property in the goods had by reason of such sale or purchase passed in another State
This Court by a majority then held that in view of the fiction created by the explanation the sale which was in reality an inter State sale became an intrastate sale and consequently the delivery and consuming State had the right to impose tax on that sale
It is true that that decision has been departed from in the Bengal Immunity Co s case 1 on the question of the interpretation of article 286 of the Constitution but on the point we are now discussing that decision clearly implies a recognition of the applicability of the nexus theory to the imposition of sales tax
The observations of Patanjali Sastri C J on the question of nexus in that case cannot therefore be said to be unnecessary for the decision of that case
In Poppatlal Shah vs The State of Madras 2 Mukherjea J delivering the unanimous judgment of the Constitution Bench of this Court definitely applied the theory of nexus to sales tax legislation
Support for that conclusion was found directly in the decision of the Judicial Committee in Wallace Brothers and Co Ltd vs Commissioner of Income Tax Bombay City 3 which it was said had been applied by this Court to sales tax legislation in the United Motors  case 4 but it is quite clear that the decision had independently of the United Motors  case 4 adopted the principle of Wallace Brothers and Co s case 3 to sales tax legisla tion
In a recent case The State of Bombay vs RMD Chamarbaugwala5 which was concerned with tax on cross word competition this Court applied the theory of nexus and upheld the legislative competency of the Bombay Legislature to impose tax on the gambling competitions
At page 901 this Court said  The doctrine of territorial nexus is well established and there is no dispute as to the principles
As enunciated by learned counsel for the petitioners if there is a territorial nexus between the person sought to be charged and the State seeking to tax him the 1 3 5  901
2  4   1088
1375 taxing statute may be upheld
Sufficiency of the territorial connection involve a consideration of two elements namely a the connection must be real and not illusory and b the liability sought to be imposed must be pertinent to that connection
It is conceded that it is of no importance on the question of validity that the liability imposed is or may be altogether disproportionate to the territorial connection
In other words if the connection is sufficient in the sense mentioned above the extent of such connection affects merely the policy and not the validity of the legislation
 Applying these principles to the facts of that case this Court came to the conclusion that they constituted sufficient territorial nexus which entitled the State of Bombay to impose a tax on the gambling that took place within its boundaries and that the law could not be struck down on the ground of extra territoriality
It is not necessary for us on this occasion to lay down any broad proposition as to whether the theory of nexus as a principle of legislation is applicable to all kinds of legislation
It will be enough for disposing of the point now under consideration to say that this Court has found no apparent reason to confine its application to income tax legislation but has extended it to sales tax and to tax on gambling and that we see no cogent reason why the nexus theory should not be applied to sales tax legislation
The learned Attorney General submits that the theory of nexus cannot be applied to sales tax legislation because such legislation is concerned with a tax on the transaction of sale that is to say a completed sale and to break up a sale into its component parts and to take one or more of such parts and to apply the theory to it will
mean that the State will be entitled to impose a tax on one or more of the ingredients or constituent elements of the transaction of sale which by itself or themselves will not amount to a sale
This argument overlooks the fact that the provisions of the sales tax legislation we are considering limit its charging section to  sale 
In order to attract the charging section there must be a completed 1376 sale involving the transfer of property in the goods sold from the seller to the buyer
The nexus theory does not impose the tax
It only indicates the circumstance in which a tax imposed by an act of the Legislature may be enforced in a particular case and unless eventually there is a concluded sale in the sense of passing of the property in the goods no tax liability attaches under the Act
One or more of the several ingredients constituting a sale only furnished the connection between the taxing State and the sale
The learned Attorney General also said that one and the same transaction of sale may be taxed by different States by applying the nexus theory and there will be multiple taxation which will obstruct the free flow of inter State trade
There is no force in this argument for article 2862 of the Constitution as it stood originally was a complete safeguard against such eventuality and after the amendment of that Article and the relevant entries in the Legislative List such contingency will not arise
In our opinion the arguments advanced by the learned Attorney General on this point cannot be accepted
Re point No 3 The learned Attorney General next contends that in any case the nexus must be real and pertinent to the subject matter of taxation
He contends that the presence of the goods in Bihar referred to in the old second proviso which is reproduced in el
i of the second proviso as amended is of no consequence
The production or manufacture according to him has no connection with and never enters into the transactions of sale
He relies on the observations of Chief Justice Gwyer in Boddu Paidanna s case 1 at page 102 namely that  a sale bad no necessary connection with manufacture or production That observation was made by the learned Chief Justice in order to emphasise the fact that the tax levied on the first sale by the manufacturer or producer was a tax imposed on him qua seller and not qua manufacturer or producer
The question whether the fact of production or manufacture of goods may legitimately form a nexus between the transaction of sale and the taxing 1 1377 State was not in issue in that case at all
It is un necessary in this case to lay down any hard and fast test as to the sufficiency of nexus which will enable a State to impose a tax or to enumerate the instances of such connection
For the purpose of the present case it is sufficient to state that in a sale of goods the goods must of necessity play an important part for it is the goods in which as a result of the sale the property will pass
In our view the presence of the goods it the date of the agreement for sale in the taxing State or the production or manufacture in that State of goods the property wherein eventually passed as a result of the sale wherever that might have taken place constituted a sufficient nexus between the taxing State and the sale
In the first case the goods are actually within the State at the date of the agreement for sale and the property in those goods will generally pass within the State when they are ascertained by appropriation by the seller with the assent of the purchaser and delivered to the purchaser or his agent
Even if the property in those goods passes outside the State the ultimate sale relates to those very goods
In the second case the goods wherein the title passes eventually outside the State are produced or manufactured in Bihar and the sale wherever that takes place is by the same person who produced or manufactured the same in Bihar
The producer or manufacturer gets his sale price in respect of goods which were in Bihar at the date when the important event of agreement for sale was made or which were produced or manufactured in Bihar
These are relevant facts on which the State could well fasten its tax
If the facts in the Raleigh Investment Co s case 1 were sufficient nexus there is no reason why the facts mentioned in the proviso should not also be sufficient
Whatever else may or may not constitute a sufficient nexus we are of opinion that the two cases with which we are concerned in this case are sufficient to do so
Re point No 5 The argument on this point is that sales tax is an indirect tax on the consumer
The 1 1044 FCR 229
1378 idea is that the seller will pass it on to his purchaser and collect it from them
If that is the nature of the sales tax then urges the learned Attorney General it cannot be imposed retrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer for it cannot at that stage be passed on to the purchaser
According to him the seller collects the sales tax from the purchaser on the occasion of the sale
On that time goes past the seller loses the chance of realising it from the purchaser and if it cannot be realised from the purchaser it cannot be called sales tax
In our judgment this argument is not sound
From the point of view of the economist and as an economic theory sales tax may be an indirect tax on the consumers but legally it need not be so
Under the 1947 Act the primary liability to pay the sales tax so far as the State is concerned is on the seller
Indeed before the amendment of tile 1947 Act by the amending Act the sellers had no authority to collect the sales tax as such from the purchaser
The seller could undoubtedly have put up the price so as to include the sales tax which he would have to pay but he could not realise any sales tax as such from the purchaser
That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods
The circumstance that the 1947 Act after the amendment permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax
This is further made clear by the fact that the registered dealer need not if he so pleases or chooses collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax
This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which by the express provisions of the law is cast upon the seller
The buyer is under no liability to pay sales tax in addition to the agreed sale price 1379 unless the contract specifically provides otherwise
See Love vs Norman Wright Builders Ltd 1
If that be the true view of sales tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively
We do not think that there is any substance in this contention either
For reasons stated above none of the contentions urged by the learned Attorney General in support of these appeals can be sustained
The result therefore is that these appeals must be dismissed with costs
BOSE J
With great respect I cannot agree
It will not be necessary to elaborate my point of disagreement at length because this is pro Constitution legislation and much of what we decide in this case wilt not affect post Constitution Acts
Put very shortly my view is this
First a State can only impose a tax on the sale of goods
It has no power to tax extra territorially therefore it can only tax sales that occur in the State itself
With great respect I feel it is fallacious to look to the goods or to the elements that constitute a sale because the power to tax is limited to the sale and the tax is not on the goods or on the agreement to sell or on the price as such but only on the sale
Therefore unless the sale itself takes place in the State the State cannot tax
That brings me to the next point the situs of a sale
Now I know that this is a matter on which many different views are possible but what is clear to me is that a sale cannot have more than one situs
It is not a mystical entity that can be one in many and many in one at one and the same time here there and everywhere all at once nor is it a puckish elf that pops up now here now there and next everywhere
It is a very mundane business transaction of the earth
earthy
It can have only one existence and one situs
Opinions may differ on where that is and how it is to be determined but it is our duty as the supreme authority on the law of the land to choose 1 I75 1380 one of those many views and say that that is the law of our land and that in India the situs is determined in this way or that and having determined it make it uniform for the whole country
I am conscious that the selection must be arbitrary but for all that it must be made
Left to myself I would have preferred Chesbire s view about the proper law of the contract set out by him in Chapter VIII of his book on Private International Law 4th edition
I referred to this in The Delhi Cloth and General Mills Co Ltd vs Harnam Singh1
I quote him again The proper law is the law of the country in which the contract is localised
Its localisation will be indicated by what may be called the grouping of its elements as reflected in its formation and in its terms
The country in which its elements are most densely grouped will represent its natural seat He is not dealing with this question
He is dealing with International Law and the difficulties that arise in dealing with contracts whose elements are grouped in different States with different and often conflicting laws
He is developing the theme that for any one contract there should be but one law to govern it in all its stages and that the most logical conclusion is to select the law of the country in which the contract has its natural seat
But whether his view is accepted or any of the others that he discusses he stresses the need for one objective rule and contends strongly that the choice should not be left to the parties to the deal even as I say that it should not be left to the States
He quotes an American Judge at page 203 of his book who says that  Some law must impose the obligation and the parties have nothing whatsoever to do with that no more than with whether their acts are torts or crimes
 Now none of that is of immediate application here but it contains the germ of an idea and points to the embarrassment and folly of letting differing laws run amuck in governing a single transaction
Following up that thought I would say that we are dealing here with a Constitution Act that speaks with one voice 1  418 1381 and authority throughout the land
It tells the various States as one day some international voice that will rule the world will say to the peoples in it  you may do this and may not do that   and  this  and  that  mean but one thing everywhere
One writ runs throughout the land and it has but one meaning and one voice
 When I say that you may only legislate for your own territory and that you may tax certain sales you must realise that the meaning that I give to I sale  is the meaning that my Supreme Court shall give to it and that it cannot mean differing things in different areas  and you must realise that the only sales that you may tax are the ones that lie in your own territory
My Supreme Court shall determine where a sale is situated and once that is determined it cannot be situated anywhere else
If it does not happen to be in your territory you cannot tax it
 Our present Constitution did not adopt Cheshire s view
It made another choice
In the old Explanation to article 286 now repealed it selected the place where the goods are actually delivered as a direct result of the sale or purchase as the situs
Well so be it
That is as good as any other and I would have been as happy to select that as any of the other possibilities
But what I do most strongly press is that a Constitution Act cannot be allowed to speak with different voices in different parts of the land and that a mundane business concept well known and well understood cannot be given an ethereal omnipresent quality that enables a horde of hungry hawks to swoop down and devour it simultaneously all over the land  some sale some hawks  as Winston Churchill would say
I would therefore reject the nexus theory in so far as it means that any one sale can have existence and entity simultaneously in many different places
The States may tax the sale but may not disintegrate it and under the guise of taxing the sale in truth and in fact tax its various elements one its head and one its tail one its entrails and one its limbs by a legislative fiction that deems that the whole is within its claws simply because after tearing it apart it finds a hand 1382 or a foot or a heart or a liver still quivering in its grasp
Nexus of course there must be but nexus of the entire entity that is called a sale wherever it is deemed to be situate
Fiction again
Of course it is fiction but it is a fiction as to situts imposed by the Constitution Act and by the Supreme Court that speaks for it in these matters and only one fiction not a dozen little ones
My point is simple
If you are allowed to tax a dog it must be within the territorial limits of your taxable jurisdiction
You cannot tax it if it is born elsewhere and remains there simply because its mother was with you at some point of time during the period of gestation
Equally after birth you cannot tax it simply because its tail is cut off as is often done in the case of certain breeds and sent back to the fond owner who lives in your jurisdiction in a bottle of spirits or clippings of its hair
There is a nexus of sorts in both cases but the fallacy lies in
thinking that the entity is with you just because a part that is quite different from the whole was once there
So with a sale of a motor car started and concluded wholly and exclusively in New York or London or Timbuctoo
You cannot tax that sale just because the vendor lives in Madras even if the motor car is brought there and even assuming there is no bar on international sales for the simple reason that what you are entitled to tax is the sale and neither the owner nor the car therefore unless the sale is situate in your territory there is no real nexus
And once it is determined objectively by the Constitution Act or in Supreme Court how and where the sale is situate its situs is fixed and cannot be changed thereafter by a succession of State legislatures each claiming a different situs by the convenient fiction of deeming
The only question is whether it is too late in the day to take this view because of our previous decisions and those of the Federal Court
I say not for though there is a consensus of opinion that there must be a territorial nexus and that it must not be illusory no decision that I know of says that when you are given the right to tax a certain thing which is a composite 1383 entity quite separate and distinct from the various elements of which it is composed you may tear that whole apart and seize on some element that is quite a different thing from that which you are entitled to tax and hold that the taxable entity is in your State simply because at some relevant point of time one of the ingredients that went to make up the whole but which is a separate and distinct thing from the whole as different from it as chalk is from cheese happened to be within your clutches
I do not intend to analyse the cases on this point because it is pointless to pursue a matter that will only be of academic interest
All I will do therefore is to say that the question of nexus has been referred to in the following cases and that none of them reaches a decision on this particular point
These cases are Governor General in Council vs Ratleigh Investment Co Ltd 1 A H Wadia vs Commissioner of Income tax Bombay Poppatlal Shah vs The Slate of Madras 3 State of Travencore Cochin vs Shanmugha Vilas Cashew Nut Factory 4 and The Bengal Immunity Co Ltd vs The State of Bihar 5
I would allow the appeals
ORDER OF THE COURT
In view of the opinion of the majority the appeals are dismissed with costs
Appeals dismissed
1 1944 229 247 253
2 1048 FCR 121 153 154 165
3  4 1954SCR 53 101
5  708 768 769


Summary:
In response to a notice issued under Section 102 of the Uttar Pradesh Imposition of Ceiling on Land Holdings Act 1960 the appellant contended that he was not in possession of 2361 acres of surplus agricultural land as set out in the said notice and that the authorities had failed to notice that he had transferred by means of a registered deed of gift dated January 7 1972 an extent of 1235 acres of land to his invalid daughter who remained unmarried inspite of being 30 years old because she was born a crippled child and that the lands were part of Abadi and therefore stood excluded from the operation of the said Ceiling Act
The Prescribed Authority as well as the Appellate Authority did not find favour with the aforesaid contentions and held that the appellant had failed to establish that the transfer of land in favour of his daughter was made in good faith and was not intended for the immediate or deferred benefit of the appellant and other members of his family and furthermore the transfer appeared to be a device to defeat the provisions of the Act
Being aggrieved with the order of the Prescribed Authority that was affirmed by the Appellate Authority the appellant approached the High Court by way of Writ Petition to quash the said orders
The High Court however dismissed the Writ Petition
In the appeal to this Court it was contended on behalf of the 541 appellant  1  though the registered deed of gift had been executed after the prescribed date viz January 21 1971 the transfer was in pursuance of an earlier family arrangement to provide maintenance for the invalid daughter and therefore the transfer falls outside the purview of Section 56 of the Act 2 if the transfer attracted the operation of Section 56 and did not constitute an excepted transfer under Clause b of the proviso to Section 56 then Section 56 should be held ultra vires Article 31 A of the Constitution 3 the Ceiling Act is violative of Article 14 of the Constitution in that it discriminates between major unmarried daughter and minor unmarried daughter by excluding the former from the definition of family  under Section 37 of the Act
Dismissing the Appeal  HELD 1i From the definition of family  in Section 37 it can be seen that a major daughter of a tenure holder even if she is unmarried
is undoubtedly not treated as a member of the family
544D ii The Legislature has provided by section 56 that any extent of land transferred after 241197l has also to be included in the total extent of holding of the tenure holder for the purposes of calculation of the ceiling area unless the transfer falls within the category of excepted transfers under clauses a or b of the proviso
544E In the instant case the finding of the Prescribed Authority and the Appellate Authority which has found acceptance with the High Court is a finding of fact and as such its correctness cannot be canvassed in an appeal under Article 136 of the Constitution
Even otherwise the appellant had failed to prove that there was an earlier family arrangement and if there was one to explain why he had delayed the execution of gift till after the Ceiling Act came into force especially when the purported gift would only result in himself and his sons being in possession of the land and enjoying the income therefrom
544F G 2
There is no scope for the appellant to raise any contention that section 56 is ultra vires Article 31 A
Its constitutionality cannot be assailed by reason of the immunity enacted in Article 31 B 545AB 3
The provisions of the Ceiling Act do not discriminate between man and woman qua man and woman but merely organise a scheme where life s realism is legislatively pragmatised
545E DG Mahajan vs Maharashtra  and Ambika 542 Prasad vs UP State   referred to