Case: Malayalam Plantations Ltd Vs. The Deputy Commissioner Of Agriculturalincome-Tax And Sale

assessee contended that both these categorics of transactions were exempt from tax under Art. 286(1) (a) as they were outside sales. This Court unanimously negatived the contention of the assessee in respect of sales in which delivery in the State of first; destination was not for consumption therein, and the transactions were on that account not "Explanation sales". It was held that the State of Bihar was competent to tax those "Non-explanation sales" in which the property in the goods had passed in the State of Bihar. But two different grounds were given in support of the conclusion in that case. My brothers Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ., were of the view that passing of property within the State alone was intended after the Constitution to be fastened upon for the purpose of determining whether the sale is inside or outside the State, and therefore subject to the operation of the Explanation that State in which the property passes would be the only State, which had the power to tax the Sale. S.K. Das, J., and I were of the view that sale transactions not falling within the constitutional prohibitions remained taxable because in adjudging whether a "non explanation" sale-transaction was "outside the State", the doctrine of territorial nexus could not be wholly excluded from consideration.16. In a recent judgment of this Court in 1963-14 STC 363 : (AIR 1964 SC 569 ) this Court held in construing Art. 286(1)(a) in the light of the Explanation before that Article was amended by the Constitution (Sixth Amendment) Act, that :"Where the Explanation to Art. 286(1)(a) of the Constitution of India is inapplicable, it is the passing of property within the State that is intended to be fastened on for the purpose of determining whether a sale is inside or outside the State. Therefore Subject to the operation of the Explanation, that State in which the property in the goods passes would be the only State which would have the power to levy a tax on the sale. "17. In A. V. Thomas and Co. Ltd.s case, 1963-14 STC 363 : (AIR 1964 SC 569 ) chests of tea were stored in warehouses at Willingdon Island in the Travancore-Cochin State, but auctions of the tea chests were held at Fort Cochin which was at the material time within the State of Madras, and after the price was paid at Fort Cochin delivery orders were given to the purchasers addressed to the warehouse keepers at Willingdon island and actual delivery was given at the warehouse. The chests of tea where then sent from Willingdon Island for consumption in other parts of India or were exported out of India. It was held by the Court in that case that the property in the goods passed at Fort Cochin and as the goods were delivered not for the purpose of consumption in any particular State, the sales were not inside the State of Travancore-Cochin but were outside that State and were not liable to be taxed under the Travancore-Cochin General Sales Tax Act (11 of 1125 ME). The Court observed that in sales which were not "Explanation sales" passing of property within the State was decisive of the liability to pay sales tax. No opinion was expressed on the question whether the doctrine of territorial nexus as investing the State with the right to tax a sale transaction outside the legislative restrictions imposed by Art. 286, was, since the promulgation of the Constitution, rendered ineffective. As the facts which give rise to this case are substantially the same as the facts on which A. V. Thomas and Co. Ltd.s case, 1963-14 STC 363 : (AIR 1964 SC 569 ) was decided, the decision of the appeals must be in favour of the assessee.18. It is necessary to record this judgment, lest it be assumed that I agree with the view that the doctrine of territorial nexus in its application to sales-tax legislation has, since the enactment of the Constitution, been completely abrogated. It may be pertinent to note that since the amendment of the Constitution by the Constitution (Sixth Amendment) Act, Article 286(1)(a) (which remains unamended is now free from the shackles of the Explanation which is deleted and by cl.(2) the Parliament is invested with power to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in cl. (1), namely, outside the State or in the course of the import of the goods into, or export of the goods out of, the territory of India. Exercising the power under cl.(2) the Parliament has enacted the Central Sales Tax Act (74 of 1956), and by S. 4(2) the doctrine of territorial nexus has been given legislative recognition, though in somewhat limited form. That sub-section provides :"A sale or purchase of goods shall be deemed to take place-inside a State if the goods are within the State-(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.Explanation- Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places."19. The doctrine of territorial nexus had full play in sales-tax legislation under the Government of India Act, 1935 : it also applies subject to certain modifications since the amendment of the Constitution by the Constitution (Sixth Amendment) Act. And I am unable to persuade myself that by the enactment of Article 286 of the Constitution, it stood abrogated in the interregnum between the promulgation of the Constitution and the amendment of Art. 286 by the Constitution (Sixth Amendment) Act.ORDER20.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In the revision application which the department filed to the High Court this question whether the property in the goods did pass at Fort Cochin was raised but nevertheless the argument before the High Court proceeded wholly on the basis of the correctness of the finding by the Appellate Tribunal that the property in the teas did pass on the fall of the hammer at Fort. The point about the property not having passed in the Madras State does not appear to have been even argued before the High Court. Even in the statement of the case filed by the respondent it is not stated that this point about the property not having passed at Fort Cochin in Madras was urged before the High Court during the course of the argument. Before concluding it might be mentioned that in A.V. Thomass case, 1963-14 STC 363   : (AIR 1964 SC 569  ) where, as we have stated earlier, the nature of the transaction was identical with the one in the appeals before us this Courthas been found and it has not been disputed that the title to the goods in the present case passed at Fortthese circumstances, we declined to permit learned Counsel for the respondent to urge any ground relating to the property in the goods in the teas sold not having passed in Fort Cochin in the Madras State to be raised, as the point which is not one of pure law was not urged before the learned Judges of the High Court.