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

2. The respondent firm manufactures and deals in bidis having head office at Maihar which was a part of the erstwhile United States of Vindhya Pradesh. The Rajpramukh promulgated the Vindhya Pradesh Sales Tax Ordinance No. II of 1949 for the levy of a tax on sales of goods in Vindhya Pradesh. After Vindhya Pradesh had been included in the list of Part C States in the Schedule in the Constitution the aforesaid Ordinance was applied to the whole of Vindhya Pradesh with effect from April 1, 1950 by a notification No. 2 March 28, 1950. The Parliament passed the Part C States (Laws) Act 1950. Section 2 of that Act authorised the Central Government to extend any enactment to Part C States, which was in force in Part A States by a notification in the official gazette with power to repeal and amend any corresponding law. In exercise of that power, the Central Government by a notification dated December 29, 1950 extended to the State of Vindhya Pradesh the Central Provinces and Berar Sales Tax Act, 1947 as was in force in the old State of Madhya Pradesh subject to certain modifications. By that notification a new Section was added to the C. P. and Berar Sales Tax Act, 1947. The newly added Section 29 provided for the repeal and saving and the Vindhya Pradesh Sales Tax Ordinance No. II of 1949 was repealed. On March 20, 1951, the Central Government issued a notification in exercise of the powers conferred under(3) of Section 1 of the C. P. and Berar Sales Tax Act, 1947 as extended to the State of Vindhya Pradesh ordering that, from April 1, 1951, the extended Act would come into force in the State of Vindhya Pradesh. Thereafter the Parliament passed the Government of Part C States Act, 1951. In view of the decision of this Court in Delhi Laws Act case, 1951 SCR 747  = (AIR 1951 SC 332 ) the Part C States (Miscellaneous Law Repealing Act, (Act LXVI of 1951) was enacted by Parliament on October 31, 1951. By Section 2 of that Act Laws declared in column 2 of its Schedule were repealed or deemed to have been repealed with effect from the dates specified in the corresponding entry in column 3 of that Schedule. In the Schedule the Vindhya Pradesh Sales Tax Ordinance II of 1949 was repealed from December 29, 1950. The Vindhya Pradesh Legislative Assembly also passed the Vindhya Pradesh Laws (Validating) Act 1952 (Act VI of 1952). Section 2 of that Act provided that C. P. and Berar Sales Tax Act, 1947 would be deemed to be in force in Vindhya Pradesh from April 1, 1951. This entire history of legislation relating to the sales tax in the erstwhile State of Vindhya Pradesh has been given because the periods of assessments involved in both the appeals are from April 1, 1950 to June 30, 1950 and July 1, 1950 to December 31, 1950 and January 1,1951 to March 31, 1951.3. The relevant facts in C. A. 619/66 need only be stated. In respect of the period of assessment from April 1, 1950 to June 30, 1950 the respondent claimed that it was not liable to tax in respect of the sales of bidis of the value of Rs.as the bidis sold were delivered outside the State of Vindhya Pradesh for consumption and that the transactions of the dispatches of bidis of the value of Rs,from its head office at Maihar to its branches in U. P. were not sale transactions but were merely transfer of goods from the head office to its branches and could not be assessed to sales tax in view of the provisions of Article 286 of the Constitution. The Assistant Commissioner of Sales Tax of Rewa rejected the first claim of the assessee. It is unnecessary to give details of the decisions by the various departmental authorities, but the main controversy before them, as before the Sales Tax Tribunal which was the Board of Revenue, centered on the applicability of Article 286 of the Constitution to the former State of Vindhya Pradesh. It was held by the Tribunal that Article 286 was applicable. In the other appeal i.e. C. A. 628/66, also the same question arose. Certain questions of law were framed in both the cases and referred to the High Court by the tribunal. These questions need not be mentioned because in the present appeals it is common ground that the decision of the appeals would hinge on the point whether Article 286 applied to Part C States.

Reasoning: 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.