JUDGMENT [ENTITY], C.J.
1. The respondent was assessed to sales tax under the [ACT], on inter-State sales effected between 1st April, 1951, and 6th September, 1955. The contention of the department is that by virture of the [ACT] the inter-State sales within that period can be taxed, and that the conclusion to the contrary reached by the Sales Tax Appellate Tribunal cannot be sustained. The petition words the question of laraised for our decision as follows :-
Whether in the light of the [ACT] the finding of the Tribunal is correct ?
2. [SECTION] of the [ACT] said :
Notwithstanding any judgment, decree or order of any court, no laof 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 1st 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 levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law.
There can be no doubt that [ACT] was intended to validate State laws imposing or authorising the imposition of taxes on the sale or purchase of goods in the course of inter-State trade or commerce. And there is the decision of the Supreme Court in [PRECEDENT] to support the conclusion that [SECTION] of the [ACT], imposes a tax on the sale or purchase of goods in the course of inter-State trade or commerce, and that the taxation of such sales during the period between 1st April, 1951, and 6th September, 1955, is validated by the Central Act.
3. [SECTION] of the [ACT], as it stood prior to the amendment effected by the [ACT] read as follows :-
(1) Notwithstanding anything contained in this Act,-
(a) a tax on the sale or purchase of goods shall not be imposed under this Act,-
(i) where such sale or purchase takes place outside the State of Travancore-Cochin ; or
(ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India;
(b) a tax on the sale or purchase of any goods shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by laotherwise provide.
(2) The Explanation to [SECTION] of the [ACT] shall apply for the interpretation of Sub-clause (1) of Clause (a) of Sub-section (1).
The corresponding words of [SECTION] of the [ACT], came up for consideration in [PRECEDENT] The Supreme Court said :
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 [ACT], such as [SECTION].
[SECTION]. [ACT] substituted the word "State" for the words "State of Travancore-Cochin" and omitted the words "except in so far as Parliament may by la otherwise provide" in [SECTION] of the [ACT]. It also deleted in its entirety Sub-section (2) of that Section. It is [ACT] that created trouble and raised the controversy as to whether [ACT] can be considered as salvaging the levy of tax on inter-State sales after the amendment it effected to [SECTION] of the [ACT]. [SECTION] after the amendment effected by [ACT] read as follows :-
(1) Notwithstanding anything contained in this Act,-
(a) a tax on the sale or purchase of goods shall not be imposed under this Act,-
(i) where such sale or purchase takes place outside the State; or
(ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India ;
(b) a tax on the sale or purchase of any goods shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce.
5. In [PRECEDENT]., this Court held that inter-State sales after 31st March, 1951, were not taxable. The decision was based on [SECTION] of the [ACT], which as amended by [ACT]-and extracted above-said that notwithstanding anything contained in the [ACT], "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."
6. The [ACT], inserted [SECTION] (Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter- State trade or commerce) in the Union List (List I) after [SECTION] of that List. It also substituted in the State List (List II) for [SECTION] (Taxes on the sale or purchase of goods other than newspapers) the following entry :
Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of [SECTION] [SECTION] and [SECTION] of the Act also amended [SECTION] and [SECTION] respectively of the [ACT]. As a result of the amendment [SECTION] noprovides that taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce shall be levied and collected by the Government of India, and that Parliament may by laformulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. The Act also omitted the Explanation in [SECTION] and substituted neclauses for Clauses (2) and (3) of that Article. The amended [SECTION] is in the following terms :
(1) No laof 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.
(2) Parliament may by laformulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1).
(3) Any laof a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by lato be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by laspecify.
7. The [ACT], came into force on nth September, 1956. [ACT] was enacted subsequent to that date. It received the assent of the Governor on 17th March, 1962, and was published in the Kerala Gazette (Extraordinary), No. 61, on the same date.
8. It is not contended that the words of the amendment will not justify the assessment. The contention of the respondent is not that the wording is inadequate but that the Act is incompetent, that the State Legislature had no power to deal with the subject after the [ACT]. We are in agreement with this submission.
9. The validity of an enactment should be tested on the basis of the legislative power obtaining on the date on which it comes into being. A piece of legislation may be prospective or retrospective or both ; but in every case the legislative competence is something that must exist when the legislation is passed and not at any other time. Ancient competence which had disappeared or future competence not yet in existence are both of no avail. The only question is: Was the Legislature competent to pass the legislation, whether prospective, retrospective or both, on the date it was engrossed in the Statute book of the State ?
10. As stated by [ENTITY]:
The validity of a statute is to be tested by the constitutional power of a Legislature at the time of its enactment by that Legislature, and, if thus tested it is beyond the legislative power, it is not rendered valid, without reenactment, if later, by constitutional amendment, the necessary legislative power is granted. [ACT] of the United States, Vol. 1, page 11 This is a passage quoted with approval in [PRECEDENT]
11. In the light of what is stated above we must hold that the State Legislature had no power to pass [ACT] on the date it was passed in vieof the [ACT], and that this T.R.C. should fail. We decide accordingly ; but without any order as to costs.
12. Mr. [ENTITY] assisted us as amicus curiae at the hearing of the case. We record our appreciation of the assistance he has given.
[CASE NUMBER].
The judgment of the High Court of Kerala in [CASE NUMBER] ([PRECEDENT].) was delivered on 28th March, 1961, by a Division Bench consisting of [ENTITY] and [ENTITY], JJ. The judgment runs as follows:-
These petitions by the Union Carbide India Limited challenge the correctness of their assessment to sales tax under the [ACT]. [CASE NUMBER] relates to 1955-56 (1st April, 1955, to 6th September, 1955), T. R. C. No. 2 of 1961 to 195[SECTION]-55 and T.R.C. No. 3 of 1961 to 1953-5[SECTION]. The department and the Appellate Tribunal have both proceeded on the assumption that the sales in question were inter-State sales and we see no reason to depart from the assumption they have made.
2. [SECTION] of the [ACT], was inserted by [SECTION] of Act 12 of 1951. That section as adapted by [ACT] and amended by [ACT] provides that the tax shall not be leviable in certain cases. The section as adapted and amended reads as follows:-
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 ; or
(ii) where such sale or purchase takes place in the course of import of the goods into or export of the goods out of the territory of India;
(b) a tax on the sale or purchase of any goods shall not, after the 31st day of March 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce.
The date mentioned in the section is derived from the [ACT], made by the President under [SECTION] of the [ACT]. That Order said:
Any tax on the sale or purchase of goods which was being law- fully levied by the Government of any State immediately before the commencement of the [ACT] shall, until the thirty-first day of March 1951, continue to be levied notwithstanding that the imposition of such tax is contrary to the provisions of [SECTION] of the said [ACT].
3. All the sales with which we are concerned took place subsequent to 31st March, 1951. It is impossible to understand hosuch sales can attract the sales tax under the [ACT], in the light of the assumption made by the department and the Appellate Tribunal to the effect that the sales were sales in the course of inter- State trade or commerce.
[SECTION]. After the decision of the Supreme Court in the Bengal Immunity Company case [1955] 6 S.T.C. [SECTION][SECTION]6 the President promulgated [ACT] on 30th January, 1956. That Ordinance was subsequently replaced by the [ACT]. It came into force on 21st March, 1956.
5. These enactments were intended to validate the State laws imposing or authorising the imposition of taxes on the sale or purchase of goods in the course of inter-State trade or commerce. There is the authority of the Supreme Court in [PRECEDENT] to hold that the [ACT], applies to the [ACT].
6. [SECTION] of the [ACT], provides that:
Notwithstanding any judgment, decree or order of any court, no laof 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 1st 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 levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law.
There can be no doubt that if [SECTION] of the [ACT], specified 6th September, 1955, instead of 31st March, 1951, the inter-State sales with which we are concerned would have been taxable as every one of them took place prior to 6th September, 1955, under the Act. But such is not the case, and we must hold that the tax is not attracted.
7. Counsel for the State dreour attention to the decision of the Supreme Court in [PRECEDENT]. We are unable to see anything in that decision which in any way militates against the conclusion we have reached.
8. In the Bengal Immunity Company case [1955] 6 S.T.C. [SECTION][SECTION]6 the Supreme Court held that the Explanation to [SECTION] of the [ACT] cannot be legitimately extended to Clause (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of Clause (2). In [PRECEDENT] the Supreme Court was considering the [ACT], and all that they said was :
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 [ACT], such as [SECTION].
The significant words are "subject of course to the other provisions of the [ACT], such as [SECTION]."
9. [SECTION] of the [ACT] (omitting the proviso thereto) provided:
Except in so far as Parliament may by laotherwise provide, no laof 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 :
The State loses these cases not for any lack of a parliamentary provision authorising the imposition of the tax but for the reason that out of quiescence or carelessness it has not chosen to alter the date specified in [SECTION] of the [ACT], from 31st March, 1951, to 6th September, 1955.
10. In the light of what is stated above these petitions have to be allowed and we do so, Advocate's fee Rs. 300 for all the three cases together.