STATE OF MADRAS versus A. HABIBUR REHMAN SONS

Citation: [1968] 1 S.C.R. 381 · Decided: 30-08-1967 · Supreme Court of India · Bench: K.N. WANCHOO · Disposal: Dismissed

cites 3 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
STATE OF MADRAS 
v. 
A. HABIBUR REHMAN SONS 
(With Connected Appeals) 
August 30, 1967 
[K. N. 
WANCHOO, C.J., R. S. 
BACHAWAT, V. 
RAMASWAMI, 
[G. K. MITTER AND K. S. HEGDE, JJ.] 
Constitution of India, 1950, Art. 286(1)(a), Explanation, before 
amendment by the Constitution 
(Sixth Amendment) Act, 1956; 
Madras General Sales Tax Act (9 of 1939) s. 2(h),Explanation (2); and 
Sales Tax Laws Validat;on Act (7 of 1956), s. 2-Ban on taxation of 
inter-State Sales lifted-Outside sales, if could be taxed. 
Under Explanation (2) to s. 2(hi of the Madras General Sales 
Tax Act, 1939, a sale is deemed to have taken place in that State, 
wherever the contract of sale might have been made, if the goods 
were actually in the State at the time when the contract in respect 
thereof was made. The Constitution, by Art. 286 as it was originally 
enacted, imposed four bans upon the legislative power of the States 
to impose sales tax. Clause (l)(a) prohibited every State from 
imj:Josing or authorising the imposition of, a tax on outSide sales. 
An outsid;e sale was defined by defining an inside sale in the Ex-
planation to the clause, as a sale which shall be deemd to have taken 
place in the State in which the goods have actually been delivered 
as a direct result of such sale for the purpose of consumption in 
that State notwithstandin!I the fact that under the general law re-
lating to sale of goods the property in the goods has by reason of 
such sale passed in another State. Clause (l)(b) prohibited the 
imposition of tax on sales in the course of import into or export 
out of, the territory of India. Clause (2) prohibited the imposition of 
tax on the sale of goods \vhere such sale took place in the course 
of inter-State trade or comn1erce unless Parliament 
other\.\.·ise 
provJded. Clause (3) prohitited the State from imposing or authoris-
ing the imposition of a tax on the sale of any goods declared by 
Parliament by law to be essential for the life of the community, 
unless the legislation vvas reserved for the consideration of the 
President and had received his assent. This Court, in its judgment in 
the Bengal Immunity Co. Ltd. Case, [1955] 2 S.C.R. 603 delivered on 
September 6. 1955, held that because of Art. 286(2), the State legi-
slature could not impose sales-tax on inter-State sales until Parlia~ 
ment provided otherwise. By the Sales Tax Laws Validation Act, 
1956, Parliament removed the ban contained in Art. 286(2) retro-
spectively, during the period between April !, 1951, and September 
6, 1955, with the result that, transactions of sale. even though they 
were inter-State sales. could, for that period be lawfully charged 
to tax. [386C-E; 387D, F-H; 388A-D] 
The respondent was a beedi . manufacturer in the appellant-
State. Beed1es, which were w1thm the territory of the appellant-
State at the time the contract of sale in respect of them was made 
were sold to non-resident buyers. On the question whether the 
sales during the period from April 1, 1955 to September 5 1955 were 
taxable by virtue of Explanation 2 to s. 2(h) of the Mad~as General 
Sales Tax Act, 1939, in view of the lifting of the ban on the· 1eyy 
of tax on mter-State sales by the Sales Tax Laws Validation Act. 
the High Court relying on additional affidavits filed before it, held 
381 
L/S5SCI-ll 
382 
SllPRiiiKlil COi1Rt REPOR'l'S 
[1968] 1 s.o.a. 
that the sales were outside sales and that the State had no jurisdic-
tion to impose sales tax. 
In appeal by the State; 
Held: (1) The restrictions ·imposed by the several clauses of 
Art. 286 as it stood were cumulative, and the legislative power of 
the State to tax sale or purchase transactions could be exercised 
only if it was not hit by any of those limitations. The Validation 
Act merely lifted the ban under Art. 286(2) but the .ban imposed 
by Art. 286(l}(a) was still effective, and could not be removed by 
any legislation of Parliament. Thus, even if the ban under Art. 286 
(2) was removed by the Validation Act, no State could tax an inter-
state sale or purchase which took place outside its 
territorial 
limits. The sales falling within the Explanation to Art. 286(1)(a) 
were fictionally to be regarded as inside the State in which the 
goods were actually delivered for consumption and so within the 
taxing power of that State and as being outside all other States and 
so, exempt from sales-tax by those other States. Therefore, in the 
present case, even though th

Excerpt shown. Read the full judgment & AI analysis in Lexace.