Case: Commissioner of Sales Tax, Indore Vs. Mohammad Hussain Rahim Bux

of the First schedule. In some of the Articles, however, in spite of the aforesaid definition of a State given in Article 264 for the purposes of Part XII Part C States were expressly mentioned For instance Article 268 which relates to duties levied by the Union but collected and appropriated by the States provides inter alia that in case of any States specified in Part C of the First Schedule these duties shall be collected by the Government of India. Article 269 deals with duties and taxes of the nature mentioned therein which shall be levied and collected by the Government of India but shall be assigned to the States. Such duties and taxes could not form part of the Consolidated Fund of India except in so far as those proceeds represent proceeds attributable to States specified in Part C. Article 270 deals with taxes levied and collected by the Union and distributed between the Union and the States. The prescribed percentage of the aforesaid taxes shall not form part of the Consolidated Fund of India except in the case of proceeds attributable to States specified in Part C.7. Now there are several other Articles in Part XlI which precede and follow Article 286 about which even the counsel for the appellant could not confidently say that the word "State" used in these Articles would not take in Part C States as well. Such Articles are 275, 276, 277, 280, 282, 287 and 291. Thus the meaning of the word "State" in Article 286 will have to be ascertained from the context. It will be quite legitimate to not only look at the context but also the purpose and the object for which Article 286 was enacted.8. In the Bengal Immunity Company Ltd. v. The State of Bihar, (1955) 2 SCR 603 =(AIR 1955 SC 661 ) the entire background and the true reasons for the enactment of Article 286 have been discussed at pages 636 and 637. It has been observed that the imposition of multiple taxes on one and the same transaction of sale or purchase was certainly calculated to hamper and discourage free flow of trade within India regarded as one economic unit. By Article 286 the Constitution makers clamped on the legislative power several fetters. Broadly speaking, the fetters thus placed on the taxing power of the States are that no law 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 import or export or (c) except in so far as Parliament otherwise provides, in the course of inter-State trade or commerce and lastly (d) that no law made by the legislature of a State imposing or authorising the imposition of a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent .9. The High Court was fully justified in taking the view that if the framers of the Constitution thought it necessary to put restrictions on the legislative powers of the State for preventing impediment and discouragement to the free flow of trade within India regarded as one economic unit and for preventing commodities essential for the life of the community throughout India from being subjected to sales tax then there could be no ground whatsoever to differentiate Part C States from Part A or Part B State in the matter of restrictions put by Article 286 on the legislative power of the State. It must be remembered that it was contemplated and provided by the Constitution that Part C States could have their own legislatures and even an Act was passed, as previously mentioned in which detailed provisions were made regarding these matters. (The Government of Part C States Act, 1951). In this view of the matter a requirement can certainly be spelt out from the context of Article 286 that the word "State" employed therein should include Part C States. Several anomalies will result if it were to be held that Part C States were immune from the limitations and restrictions imposed by Article 286. The Explanation to Article 286 (1) would become ineffective. For instance, under the Explanation the State in which the goods have actually been delivered as a direct result of sale or purchase for purposes of consumption in that State would be competent to impose the sales tax. Now if the former State of Vindhya Pradesh could also collect sales tax on sales where the delivery was outside the State and was covered by the Explanation then there would be multiple taxation on one transaction, one by the State of Vindhya Pradesh and the other by the State in which the goods were delivered for consumption. Clause (2) of Article 286 as it stood at the material time before the Constitutional amendments made in 1956 provided that 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 took place in the course of inter-State trade or commerce except in so far as Parliament by law otherwise provided. Now, if Article 286 was not applicable to Part C States then the sales or purchases taking place in the course of inter-State trade and commerce could have been taxed by the erstwhile State of Vindhya Pradesh.It is difficult to understand how the Constitution makers could have ever countenanced such an anomalous situation which would have even brought in discrimination between Part C States and the other States. Whatever way the matter is looked at, it is difficult to escape from the conclusion that the context of Article 286 required that the word "State" as used therein should include Part C States.

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

Explanation:
0[ds]It may be mentioned that the High Court had agreed with the tribunal that the said Article was applicable. If that view is affirmed it is not disputed that both the appeals will have to beneed not, in this case, state the views which were expressed in that special reference. Parliament, however, after the opinions expressed by this Court passed the Government of Part C States Act, 1951 in exercise of its powers under Article 240 (1). By this Act Parliament made provision for the legislature, Council of Ministers or Advisers for Part C States. This Act also contained provisions relating to Consolidated Fund for a State which was included in Part C of the Firstspeaking, the fetters thus placed on the taxing power of the States are that no law 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 import or export or (c) except in so far as Parliament otherwise provides, in the course oftrade or commerce and lastly (d) that no law made by the legislature of a State imposing or authorising the imposition of a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent .9. The High Court was fully justified in taking the view that if the framers of the Constitution thought it necessary to put restrictions on the legislative powers of the State for preventing impediment and discouragement to the free flow of trade within India regarded as one economic unit and for preventing commodities essential for the life of the community throughout India from being subjected to sales tax then there could be no ground whatsoever to differentiate Part C States from Part A or Part B State in the matter of restrictions put by Article 286 on the legislative power of the State. It must be remembered that it was contemplated and provided by the Constitution that Part C States could have their own legislatures and even an Act was passed, as previously mentioned in which detailed provisions were made regarding these matters. (The Government of Part C States Act, 1951). In this view of the matter a requirement can certainly be spelt out from the context of Article 286 that the word "State" employed therein should include Part C States. Several anomalies will result if it were to be held that Part C States were immune from the limitations and restrictions imposed by Article 286. The Explanation to Article 286 (1) would become ineffective. For instance, under the Explanation the State in which the goods have actually been delivered as a direct result of sale or purchase for purposes of consumption in that State would be competent to impose the sales tax. Now if the former State of Vindhya Pradesh could also collect sales tax on sales where the delivery was outside the State and was covered by the Explanation then there would be multiple taxation on one transaction, one by the State of Vindhya Pradesh and the other by the State in which the goods were delivered for consumption. Clause (2) of Article 286 as it stood at the material time before the Constitutional amendments made in 1956 provided that 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 took place in the course oftrade or commerce except in so far as Parliament by law otherwise provided. Now, if Article 286 was not applicable to Part C States then the sales or purchases taking place in the course oftrade and commerce could have been taxed by the erstwhile State of Vindhya Pradesh.It is difficult to understand how the Constitution makers could have ever countenanced such an anomalous situation which would have even brought in discrimination between Part C States and the other States. Whatever way the matter is looked at, it is difficult to escape from the conclusion that the context of Article 286 required that the word "State" as used therein should include Part C States.