Case: M. P. V. Sundararamier &amp; Company &amp; Others Vs. State of Andhra Pradesh &amp; Another

2. The course of dealings between the parties resulting in the above sales has been set out in para 5 in Petition No. 220 of 1955. It is therein stated that the dealers in Andhra would place orders for the purchase of yarn with the petitioners in Madras, that the contracts would be concluded at Madras, that the goods would be delivered ex-godown at Madras and would thereafter be despatched to the purchasers either by lorries or by rail as might be directed by them, that when the goods were sent by rail, the railway receipts would be taken either in the name of the consignees, and sent to them by post or in the name of the consignees, and sent to them by post or in the name of the consignor and endorsed to the purchases and delivered to them in Madras or sent to them by post endorsed in favour of a bank and the purchasers would take delivery of those receipts after payment to the bank. It is said that in all cases price of the goods was paid in Madras1. The petitioners are dealers carrying on business in the City of Madras in the sale and purchase of yarn, and they have filed the present applications under Art. 32 of the Constitution for the issue of a writ of prohibition or other appropriate writ restraining the State of Andhra from taking proceedings for imposing tax on certain sales effected by them in favour of merchants who are residing or carrying on business in what is now the State of Andhra Pradesh, on the ground, inter alia, that the said sales were made in the course of inter - State trade, and that no tax could be levied on them by reason of the prohibition contained in Art. 286 (2) of the Constitution.

Reasoning:
It must, therefore, be taken that under the act, as it stood prior to the Constitution, the State of Madras had no power to impose a tax on sales of the kind mentioned in the Explanation to Art. 286 (1) (a). Now, the question is whether the Adaptation Order of the President (Fourth Amendment) dated July 2, 1952, has, by the insertion of S. 22 in the Madras act, altered the position. The contention of the respondent is that it has, because it has bodily incorporated the Explanation to Art. 286 (1) (a) in the section itself, and as under that Explanation, all sales falling within its ambit would be sales inside the State of Madras, they became taxable as sales within the definition in S. 2 (h) of the Madras Act; and that accordingly under S. 22 of the Andhra (Madras) Act the Explanation sales become taxable by the Andhra State as sales within that State17. The error in this argument lies in this that it focusses attention exclusively on the terms in which the Explanations are couched in Art. 286 (1) (a) and in S. 22 and completely overlooks the fundamental difference in the context and setting of these two enactments. The scope and purpose of Art. 286 have been considered at length in the decisions of this Court in The United Motors Case (B) as also in The Bengal Immunity Company Case (C) (supra), and it is sufficient to briefly recapitulate them.Under Entry 48 in List II of the Seventh Schedule tothe Government of India Act,, the Provincial Legislature had the exclusive competence to enact a law imposing a tax on the sale of goods, and under S. 99 (1), such a law could be made "for the Province or for any part thereof"In fact, acting on the nexus theory the Legislatures of the States enacted Sales Tax Laws adopting one or more of the nexi as the basis of taxation. This resulted in multiple taxation, as a consequence of which the free flow of commerce between the States became obstructed and the larger economics interests of the country suffered. It was to repair this mischief that the Constitution, while retaining the power in the States to tax sales under Entry 54 in List II sought to impose certain restrictions on that power in Art. 286. One of those retractions is contained in Art. 186 (1) (a) which prohibits a State from taxing outside sales. The Explanation now under consideration is attached to this provision, and it is in this context, viz., in its setting in an Article, the object of which was to impose fetters on the legislative powers of the States, that this Court observed that though positive in form, it was in substance negative in character, and that its true purpose was not to confer any fresh power of taxation on the State but to restrict the power which it previously had under Entry 54It 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 S. 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 S. 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 Art. 286 (1) (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 S. 22 of the Madras Act, where it must have a positive contentAccording to the definition in S. 2 (h), a sale in which property passes inside the State of Madras will be liable to be taxed, even though the goods are delivered for consumption outside that State, but under the Explanation such a sale will be deemed to have taken place in the outside State in which goods are delivered for consumption, and therefore the State of Madras will have no power to tax it. The purpose which the non-obstante clause serves is to render the Explanation effective against the definition is S. 2(h) and not to render it ineffective in its own sphere, as determined on its termsAgain, it is a rule of construction well-established that the several sections forming part of a statute should be read, unless there are compelling reasons contra, as constituting a single scheme and construed in such manner as would give effect to all of them. On this principle, S. 2(h) and S. 22 must be read together as defining what are sales, which are taxable under the Act and what are not, and so read, the Explanation really means that in sales in which goods are delivered for consumption in the State of Madras, the property therein shall be deemed to have passed inside that State, notwithstanding that it has, under the Sale of Good Act, passed outside that State. On this construction, those sales will fall within the definition in S. 2(h) and will be taxable.The contention of the petitioners, highly technical and based on the non-insertion of the Explanation in S. 2(h) must, in our opinion be rejected as unsound23. It should be remembered in this connection that the power which the President has under Art. 372(2) to adapt is the legislative power of the State whose law is adapted, and that includes the power to repeal and amend any provision. Provided that the law as adapted is within the legislative competence of the State and its enactment is in the process of bringing the State law into conformity with Art. 286, it seems to us that it is within the ambit of the power conferred by Art. 372 (2)If the adaptation order is within the scope of Art. 372 (2), then it is valid of its own force, and does not require the aid of a clause such as is contained in the concluding portions thereof. It is only when the adaptation amounts to something more than merely bringing the State law into conformity with the Constitutional provisions that there can arise a need for such a clause. In our opinion the effect of the concluding words of Art. 372 (2) is to render the question of the validity of the adaptation non-justiciable. The Adaptation Order in question must, accordingly, be held to be not open to attack on the ground that it goes beyond the limits contemplated by Art. 372 (2)We are therefore thrown back on the language of the Explanation itself to discover its true scope. If, in enacting the Explanation, the adaptation order merely intended to prohibit the State of Madras from imposing tax on sales under which goods are delivered for consumption outside that State even though property therein passed inside that State, it would clearly have expressed that intention in words to the following effect : "For the purpose of clause (a) (i); a sale under which goods are delivered for consumption outside the State of Madras shall be deemed to have taken place outside that State, notwithstanding that property in those goods passed inside that State."But the language of the Explanation is general, and fixes the situs of sales of an inter-State character in the State in which goods are actually delivered for consumption. Under this Explanation, a sale under which goods are delivery outside the State of Madras will be an outside sale for that State even though property in the goods passed inside that State, and likewise, a sale under which goods are delivered inside the State of Madras will be an inside sale for that State, even though property in the goods passed outside that State. As the language of the Explanation is general and of sufficient amplitude not merely to restrict but also to add to the power of the State to tax Explanation sales, and the reasons for construing it as purely restrictive in Art. 286 (1) (a) are, as already stated, without force in their application to a taxing statute, we must give full effect to the words of the enactment, and hold that they operate to confer on the State a power to tax Explanation salesArticle 286 (2) consists of two parts, one imposing a restriction on the power possessed by the State to tax sales under Entry 54 in so far as such sales are in the course of inter-State trade and commerce and another, vesting in Parliament a power to enact a law removing that restriction. If S. 22 had merely enacted that portion of Art. 286 (2) which prohibited imposition of taxes on inter-State sales, that might have furnished some plausible ground for the contention now urged by the petitioners; but it enacts both the parts of Art. 286 (2), the restriction, imposed therein and also the condition on which that restriction is be cease, viz., Parliament providing otherwise by law.Taken along with the admitted power of the States to impose tax on sales under Entry 54, the true scope of S. 22 is that it does impose a tax on the Explanation sales, but the imposition is to take effect only when Parliament lifts the ban. In other words, it is a piece of legislation imposing tax in praesenti but with a condition annexed that it is to come into force in futuro as and when Parliament so provides.It is not contended that there is in the Constitution any inhibition against conditional legislation.In the Queen v. Burah, 5, In App 178 (H), it was held by the Privy Council that a Legislature acting within the ambit of authority conferred on it by the Constitution has the power to enact a law either absolutely or conditionally, and that position has been repeatedly affirmed in this Court.Vide In reThe Delhi Laws Act,The only basis for this contention in the Act is its description in the Short Title as the "Sales Tax Laws Validation Act" and the marginal note to S. 2, which is similarly worded. But the true nature of a law has to be determined not on the label given to it in the statute but on its substance. Section 2 of the impugned Act which is the only substantive enactment therein makes no mention of any validation. It only provides that no law of a State imposing tax on sale shall be deemed to be invalid merely because such sales are in the course of inter-State trade or commerce. The effect of this provision is merely to liberate the State laws from the fetter placed on them by Art. 286 (2) and to enable such laws to operate on their own terms. The true scope of rate on their own terms. The true scope of the impugned Act is, to adopt the language of this Court in the decisions in The United Motors Case (B) and The Bengal Immunity Company Case (C) (supra) that it lifts the ban imposed on the States against taxing inter-State sales and not that it validates or ratifies any such law.Considering the legislation on its substance, we have no doubt that it is within the scope of the authority conferred on Parliament by Art. 286 (2) and is not ultra viresThis decision proceeded solely on the connotation of the word "prohibits" in S. 298 (2), Government of India Act, and can be of no assistance in the construction of Art. 286 (2), wherein that word does not occur. And even on the substance of it, we see no real analogy between the case in Punjab Province v. Daulat Singh (P) (supra) and the present. There, the law which was authorised by S. 298 (2) was one prohibiting certain transfers; here the law which Parliament is authorised to make is one not "prohibiting the States from imposing tax on inter-State sales, but permitting them to do so. While a law prohibiting transfers must be prospective, a law authorising imposition of tax need not be. It can be both prospective and retrospectiveThe impugned Act does not do that, but validates ex post facto laws of States imposing such a tax retrospectively for the specified period. Such a general law may be intra vires the States but not Parliament, nor is it one which can be justified by the power granted to it to "provide otherwise". It is therefore unconstitutional and void. In our opinion, this argument is only an amalgam of the two contentions already dealt with, and does not require further detailed consideration.The impugned Act, though it is in name a validating Act, is in essence a law lifting the ban under Art. 286 (2), and if no limitation on the character of that law could be spelt out of the language of that Article , then it must be upheld as within the authority conferred by itIf it is competent to the legislatures of the States to enact a law imposing a tax on inter-State sales to take effect when Parliament so provides, there is nothing unconstitutional or illegal either in S. 22 of the Madras Act or in the corresponding provisions in the Acts of other States. If conditional legislation is valid, as we have held it is, then S. 22 is clearly intra vires, and the foundation on which this contention of the petitioners rests, disappears and it must fall to the ground. In the result, we are of opinion that the impugned Act is intra vires, and is not open to challenge on any of the grounds put forward by the petitionersThe law of a State signifies, in its ordinary acceptation, whatever is an expression of the legislative, as distinguished from the executive or judicial power of a State. Its normal mode under the Constitution is no doubt that it is enacted by the Legislature of the State constituted in accordance with the procedure prescribed therein. But that is not the only mode in which the legislative power of the State could be exercised.Under Art. 213, the Governor is authorised, subject to the conditions laid down therein, to issue Ordinances which have the force of law, and these Ordinances are clearly laws of the State and not the less so by reason of their not having been passed by the State Legislature. Under Art. 252, it is open to Parliament acting on resolutions of the Legislatures of two or more States, to enact laws on subjects which are within the exclusive competence of the States, a recent instance of such legislation being Act No. XLII of 1955, the validity of which was the subject of consideration in R. M. D. Chamarbaugwalla v. Union of India , 1957 S C J 593 : ((S) AIR 1957 S C 628) (R)We entertain no doubt that by the expression "law of a State" in Art. 286 (2) and S. 2 of the impugned Act is meant whatever operates as law in the State, and that S. 22 of the Madras Act is a law within those enactments. Nor does it affect this conclusion that that law may not be open to challenge in a Court of law. A right to challenge a law must depend on the provisions of the Constitution governing the matter, and if those provisions enact that it is not open to question in a Court of law or that it is liable to be questioned only on certain specified grounds, that will not have the effect of depriving a statute duly enacted of its character as law. We are also not satisfied that a law as adapted under Art. 373 (2) is not open to attack on the ground that it contravenes some Constitutional provision. We are disposed to think that the concluding words of Art. 372 (2) preclude an attack on the adaptation order only on the ground that it does more than merely bringing the State law into conformity with the Constitution and is, in consequence, ultra vires the powers conferred by that Article. In the result, we must hold that S. 22 of the Madras Act is within the protection afforded by S. 2 of the impugned Act39. In our judgment, the language of the enactment is too clear and unambiguous to admit of this contention. If the purpose of the enactment is what the petitioners contend it to be, then nothing would have been easier for the Legislature than to have so framed the section as to confine its operation to levies or collections already made without giving effect to the law itself. On the contention of the petitioners, the first clause has to be discarded as wholly inoperative, and we should be loth to adopt a construction which leads to that result. It is true that on the contention of the State that the first clause had independent operation the second clause would be unnecessary, as even without it, the result sought to be achieved by it must follow on the first clause itself.But it is to be noted that the first clause has reference to the exercise of legislative power while the second is concerned with administrative action, and it is possible that the second clause might have been enacted by way of abundant caution. It is nothing strange or unusual for a Legislature to insert a provision ex abundanti cautela, so as to disarm possible objection; but it is inconceivable that it should enact a provision which is wholly inoperative. Of two alternative constructions of which one leads to the former and the other involves the latter result, there cannot be any question that it is the former that is to be preferred. Nor is it permissible to cut down the plain meaning of the terms of the statute on considerations of policy behind the legislation.But even from that point of view, there was the fact that there were dealers who had collected taxes from the purchasers for payment to the State, but were relieved of that obligation by the judgment in The Bengal Immunity Case (C) that , further, to validate only levies and collections made would give an advantage to those who evaded the law as then understood, over those who loyally obeyed it. It follows that we are unable to agree with the decision in Dialdas v. P. S. Talwalkar (L) (supra),in so far as it held that it was not competent to the State to start fresh proceedings for assessment of tax on the strength of the impugned Act. In out opinion, the true construction of S. 2 is that the two clauses therein are, as indicated by the conjunction, distinct and independent in their operation, and that the laws of the States are kept in force in respect of sales which had taken place during the specified period, and that proceedings in respect thereof for assessment are within the protection of the ActBut the impugned Act is in no sense a temporary Act. its life is not limited to any specified period. It is a permanent statute operating on all sales which took place during the specified period. The fallacy in this contention of the petitioners lies in mixing up the period, the sales during which are brought within the operation of the Act, with the period of the operation of the Act itself. The former may be said to be temporary, but the latter clearly is notIt would be sufficient answer to this contention that S. 22 of the Madras Act is only a piece of conditional legislation, imposing tax on inter-State sales when Parliament should enact a law lifting the ban, and if such legislation is competent as we have held it is, then no question of unconstitutionality of the section when it was enacted could arise.But it would be more satisfactory to decide the point on its own merits, as the question raised has been, of late, the subject of considerable discussion in this CourtThus, a law of the State on an Entry in List I, Sch. VII of the Constitution would be wholly incompetent and void. But the law may be on a topic within its competence, as for example, an Entry in List II, but it might infringe restriction imposed by the Constitution on the character of the law to be passed, as for example, limitations enacted in Part III of the Constitution. Here also the law to the extent of the repugnancy will be void.Thus, a legislation on a topic not within the competence of the Legislature and a legislation within its competence but violative of Constitutional limitations have both the same reckoning in a Court of law; they are both of them unenforceable. But does it follow from this that both the laws are of the same quality and character, and stand on the same footing for all purposes ?This question has been the subject of consideration in numerous decisions in the American Courts, andthe preponderance of authority is in favour of the view that while a law on a matter not within the competence of the Legislature is a nullity, a law on a topic within its competence but repugnant to the Constitutional prohibitions is only unenforceable. This distinction has a material bearing on the present discussion. If a law is on a field not within the domain of the Legislature, it is absolutely null and void, and a subsequent cession of that field to the Legislature will not have the effect of breathing life into what was a still-born piece of legislation and a fresh legislation on the subject would be requisite. But if the law is in respect of a matter assigned to the Legislature but its provisions disregard Constitutional prohibitions, though the law would be unenforceable by reason of those prohibitions, when once they are removed, the law will become effective without reenactmentWhere an enactment is unconstitutional in part but valid as to the rest, assuming of course that the two portions are severable, it cannot be held to have been wiped out of the statute book as it admittedly must remain there for the purpose of enforcement of the valid portion thereof, and being on the statute book, even that portion which is unenforceable on the ground that it is unconstitutional will operate proprio vigore when the Constitutional bar is removed, and there is no need for a fresh legislation to give effect thereto.On this view, the contention of the petitioners with reference to the Explanation in S. 22 of the Madras Act must fail.That Explanation operates, as already stated, on two classes of transactions. It renders taxation of sales in which the property in the goods passes in Madras but delivery takes place outside Madras illegal on the ground that they are outside sales falling within Art. 286 (1) (a). It also authorises the imposition of tax on the sales in which the property in the goods passes outside Madras but goods are delivered for consumption within Madras. It is valid in so far as it prohibits tax on outside sales, but invalid in so far as sales which goods are delivered inside the State are concerned, because such sales are hit by Art. 286 (2). The fact that it is invalid as to a part has not the effect of obliterating it out of the statute book, because it is valid as to a part and has to remain in the statute book for being enforced as to that part. The result of the enactment of the impugned Act is to lift the ban under Art. 286 (2), and the consequence of it is that that portion of the Explanation which relates to sales in which property passes outside Madras but the goods are delivered inside Madras and which was unenforceable before, became valid and enforceable.In this view, we do not feel called upon to express any opinion as to whether it would make any difference in the result if the impugned provision was unconstitutional in its entiretyArticle 286 (2) does not provide that a law which contravenes it is void, and when regard is had to the context of that provision, it is difficult to draw the inference that that is the consequence of contravention of that provision. Article 372 (1) provides for the continuance in force of all laws existing at the date of the Constitution. The proviso to Art. 286 (2) enacts that the President may by an order-continue operation of the Sales Tax Law up to 31st March 1951, and Art. 286 (2) itself enacts that no law of a State shall impose a tax. In the context in which they occur, the true meaning to be given to these words is, as already observed, that no law of State shall be effective to impose a tax; that is to say, the law cannot be enforced in so far as it imposes such a tax. Whether we consider the question on broad principles as to the effect of unconstitutionality of a statute or on the language of Art. 286 (2),the conclusion is inescapable that S. 22 of the Madras Act and the corresponding provisions in the other statutes cannot be held to be null and void and non est by reason of their being repugnant of Art. 286 (2) and the bar under that Article having been now removed, there is no legal impediment to effect being given to themIt overlooks that our Constitution was not written on a tabula-rasa, that a Federal Constitution has been established underthe Government of India Act,, and though that has undergone considerable change by way of repeal, modification and addition, it still remains the framework on which the present Constitution is built, and that the provisions of the Constitution must accordingly be read in the light of the provisions of the Government of India Act. It fails to give due weight to the setting of the relevant provisions of the Constitution and the interpretation which is to be put upon them in their context. Inthe Government of India Act,, there was no Entry corresponding to Entry 42 in List I of the Constitution. But there was in List II, Entry 48 which corresponds to Entry 54 in the Constitution. It is not in dispute that under Entry 48 the States had power to pass a law imposing a tax on inter-State sales, because the terms of the Entry are wide and would include inter-State as well as inter-State sales. It was on this view that the Provinces had enacted laws imposing tax on inter-State sales. Then the Constitution came into force, and it included for the first time a new Entry 42 in List I. It also reproduced Entry 48 in Entry 54 in List II in terms, for our purposes, identical. Having regard to the connotation of that Entry inthe Government of India Act,, one would have expected that if it was intended by the Constitution-makers that the States should be deprived of the power to tax inter-State sales which they had under Entry 48 inthe Government of India Act,that would have been made clear in the entry itself. It is material to note that while Entry 48 in the Government of India Act was "Taxes on the sale of goods and on advertisement", Entry 54 in List II of the Constitution as originally enacted was "Taxes on the sale or purchase of goods other than newspapers". Thus, the Constitution did limit the scope of entry 48 by excluding from it newspapers and if it was its intention to exclude inter-State sales from its purview, nothing would have been easier for it than to have said so,instead of leaving that result to be referred on a construction of Entry 42 in List I in the light of the American authorities on the Commerce Clause. This is strong indication that Entry 42 is not to be read as including tax on inter-State sales. This conclusion is further strengthened, when regard is had to the scheme of the Lists in the Seventh Schedule and the principle underlying the enumeration of heads of legislation thereinThe above analysis - and it is not exhaustive of the Entries in the Lists - leads to the inference the taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Art. 248, Cls. (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce55.To sum up : (1) Entry 54 is successor to Entry 48 inthe Government of India Act,and it would be legitimate to construe it as including tax on inter-State sales, unless, there is anything repugnant to it in the Constitution, and there is none such. (2) Under the scheme of the Entries in the Lists taxation is regarded as a distinct matter and is separately set out. (3) Article 286 (2) proceeds on the basis that it is the States that have the power to enact laws imposing tax on inter-State sales. It is a fair inference to draw from these considerations that under Entry 54 in List II the States are competent to enact laws imposing tax on inter-State salesIf it is possible therefore to construe Entry 42 as not including tax on inter-State sales, then on the principle enunciated in Province of Madras v. Boddu Paidanna and Sons (Z3) and Governor-General in Council v. Province of Madras (Z4) (supra), we should so construe it, as that will avoid a conflict between the two EntriesTherefore, valuable as the American decisions are as showing how the question is dealt with in a sister Federal Constitution, great care should be taken in applying them in the interpretation of our Constitution. We should not forget that it is our Constitution that we are to interpret, and that interpretation must depend on the context and setting of the particular provision which has to be interpreted. Applying these principles and having regard to the features already set out, we must hold that Entry 42 in List I is not to be interpreted as including taxation. The same remarks apply to the argument based upon S. 92 of the Commonwealth of Australia Act, 1900 and Art. 301 of our Constitution. We should also add that Art. 302 (a) of the Constitution cannot be interpreted as throwing any light on the scope of Art. 301 with reference to the question of taxation, as it merely reproduces S. 297 (1) (b) ofthe Government of India Act,and as there was no provision therein corresponding to Art. 301, S. 297 (1) (b) could not have implied what is now sought to be inferred from Art. 304 (a)59.In the result, we are of opinion that if the State had the power under Entry 54 to impose a tax on inter-State sales subject only to the restriction enacted in Art. 286 (2), then by virtue of the impugned Act such law is rendered operative and proceedings taken thereunder are valid.We have reached this conclusion on a construction of the statutory provisions bearing on the question without reference to the Sixth Amendment of the Constitution which, proceeding on the view that the States had the power to tax inter-State sales under Entry 54, has amended the Constitution, and has vested the power to tax inter-State sales in the CentreIn our opinion, S. 53 merely provides that the laws in existence in the territories which were constituted into the State of Andhra continue to operate as before. In fact, by an Adaptation Order issued on November 12, 1953, even the name of Andhra was substituted for Madras in the Madras General Sales Tax Act. There is no substance in this contention.