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M. C. Setalvad, Attorney-General of India (B. Sen and P. K. Bose, with him), for the State of West Bengal (Intervener). Bihar Sales Tax Act has to be read as a whole and on a correct reading of the Act it clearly appears that the Act is intended to apply only to dealers in Bihar. Bihar cannot tax the sale because it takes place in the course of inter-State trade or commerce and the State is barred from taxing such sales by reason of clause (2) of article 286. The question is whether the majority view in the case of State of Bombay v. United Motors (India) Ltd. ([1953] S.C.R. 1069) is correct. Article 245 read with Entry 54 in List 11 gives the Legislative power whereas article 286 imposes restrictions on such Legislative power of a State. There are four restrictions placed by that article- the first by clause (1) (a), the second by clause (1)(b), the third by clause (2.) and the fourth by clause (3). Basis of article 286(2) is to ensure freedom of movement throughout the country which principle is to be found in article 301. Article 286(2) gives authority to the Parliament to watch over the principles underlying article 301 and to see what restrictions are necessary. In determining the ambit of clause (2) it is not permissible to apply the Explanation. If you do so then logically you must also apply it to clause If the majority decision in state of Bombay v. United Motorola (India) Ltd ([1953] S.C.R 1069 ) id right on the interpretation of clause(2) then that clause (2) then that clause becomes absolutely meaningless.

The Supreme Court can overrule its previous decision if it is satisfied that the decision was erroneous: London Street Tramways Company v. London County Council ([1898] A. C.

375), In re Transferred Civil Servants (Ireland) Compensation ([1929] A.C. 242), The Tramways case (No. 1) (18 C. L. R. 54), Smith v. All wright (321 U.S. 649; 88 L. Ed. 987) and Vinayak v. Moreshwar (I.L.R. [1944] Nag.

342).

Even if the ban imposed by clause (2) of article 286 did not apply, Bihar is not competent to tax on a reading of article 246(3), Entry 54, List II and article 289(1)(a). The word sale in Entry 54 means passing of property in the sense of the Sale of Goods Act, S. 4. See Sales Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash ([1955] 1 S.C.R. p. 243). On a true construction of the Explanation to article 286(1)

14), Maxwell on Interpretation of Statutes, 10th Edn., p.

148 and Craies on Statute Law, 5th Edn,, p. 174.

Lal Narain Sinha (B.K.P. Sinha and B.C. Prasad, with him) for the respondent (State of Bihar).

Article 246(3) read with Entry 54 of List II is by itself enough to grant legislative competence to the making of laws imposing tax on sales of inter-State character having a real and sufficient territorial connection with the taxing State. Delivery of goods within the State where such delivery takes place in performance of the contract of sale is by itself real and sufficient territorial connection. The position was the same under section 100 of the Government of India Act, 1935 read with Entry 48 of List II. A legislation on the basis of a real and sufficient connection is not invalid on the ground of extra-territorial operation. The Governor- General in Council v. The Raleigh Investment Co., Ltd. (1944 F.C.R. 229), Wallace Brothers and Co. Ltd. v. Commissioner of Income-Tax, Bombay City and Bombay Suburban District ([1948] 75 I.A. 86), Broken Hill South Limited (Public Officer) v. The Commissioner of Taxation (New South Wales) (56 C.L.R. 337), Commissioners of Taxation v. Kirk (1900 A.C. 588) and In re S. Mohan Kumaramangalam (A.I.R. 1951 Mad. 583, 588). So far as conception of sale is concerned it comprises of several elements. The situs of the sale is where the various ingredients of the sale take place. Article 286(1) (a) does not govern the whole of interState trade or commerce. It does not apply to a case where goods are delivered in the purchasing State for purposes other than consumption. Article 286 (1) (a) has no application to cases where the Explanation itself does not apply. If a Bengal dealer sells to a Bihar purchaser and delivery takes place in Bihar and if the purpose is consumption then the Explanation applies and Bihar alone can tax. If the purpose is not consumption the Explanation does not apply, the matter is set at large, and States will be entitled to tax on ' the nexus theory. The ban imposed by clause (2) of article 286 does not apply to cases covered by article 286(1) (a). The class of sales falling under the purview of Article 286(1) (a) form a special class of inter-State sales which on general principles of interpretation cannot be affected by the general provisions of clause (2). Article 286(1) (a) and article 286(2) are exactly on the same topic and they are to achieve the same purpose, i.e., elimination of multiple taxation on a single sale. The device employed in article 286(1) (a) read with the Explanation is to convert inter-State sale into an intra-state sale and thereby to localise a sale and to take away the taxing power of other States. Article 286(1) (a) and article 286(2) are complimentary to each other and they have to be interpreted harmoniously so that each of them can operate within its own field. Whilst article 286(2) comprises all classes of inter-State trade, article 286(1) (a) deals with a special class. If article 286(2) applies to cases covered by article 286 (1) (a) and the Explanation then it will result in discrimination against local trade in favour of inter- state trade and this will be inconsistent with the pro- visions of Part XIII of the Constitution. The purpose of article 286 being to eliminate - multiple taxation and article 286(1) (a) having achieved that purpose in regard to a class of sales falling within it, it is no longer necessary for that purpose to apply article 286(2) to the aforesaid class. The Constitution itself has divided inter- State sales into two categories. In regard to one class it has itself provided as to which State will tax the sale and under what conditions. In regard to the other class the Constitution itself has imposed a ban in general terms and granted Parliament power in general to relax that ban to such extent as Parliament thinks fit. The sale though of an interState character has been converted into an intrastate sale by reason of the legal fiction. If power of taxation is given all ancillary powers are included in that very power.

Article 286 is in Part XII of the Constitution which deals with "Finance, Property, Contracts and Suits". it is one of the several articles which are grouped under the heading "Miscellaneous Financial Provisions" in Chapter I of that Part. It is to be noted that it has not found a place in Part XI, Chapter I whereof deals with "Legislative Relations" including "Distribution of Legislative Powers"

between Parliament and the Legislatures of States. The marginal note to article 286 is "Restrictions.as to imposition of tax on the sale or purchase of goods", which, unlike the marginal notes in Acts of the British Parliament, is part of the Constitution as passed by the Constituent Assembly, prima facie, furnishes some clue as to the meaning and purpose of the article. Apart from the marginal note, the very language of that article makes it abundantly clear that its object is to place restrictions on the legislative power of the States with respect to the imposition of taxes on the -sales or purchases of goods. It will be recalled that section 100(3) of the Government of India Act, 1935 read with Entry 48 of List 11, of the Seventh Schedule to that Act gave power to the Provincial Legislatures to make laws with respect to "Taxes on sale of goods and on advertisements". Pursuant to the legislative power thus conferred on them the Provincial Legislatures enacted Sales Tax Acts for their respective Provinces. Although in most of those Acts 'Sale" was, first defined a,% meaning transfer of the property in the goods, so as to make the passing of the property within the Province the principal basis, for the imposition of the tax, yet by means of Explanations to that definition, those Acts gave extended meanings to that word and thereby enlarged the scope of their operation. The imposition of tax on the sales or purchases of goods on the basis of a very slight territorial connection or nexus resulted in what has been graphically described by Patanjali Sastri, C.J. in the passage quoted above from the majority judgment in the Bombay appeal. This 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. This undesirable state of affair is had to be put right. Therefore, while the Constitution makers by article 246(3) read with Entry 54 in List 11 of the Seventh Schedule to the Constitution conferred power on the Legislatures of Part A and Part B States to make law with respect to "Taxes on the sale or purchase of goods other than newspapers" they at the same time by article 286 clamped on that legislative power several fetters. Broadly speaking, the fetters thus placed on the taxing power of the States are that no law of 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. It should be noted that these are four separate and independent restrictions placed upon the legislative compe- tency of the States to make a law with respect to matters enumerated in Entry 54 of List II. In order to make the ban effective and to leave no loophole the Constitution makers have considered the different aspects of sales or purchases of goods and placed checks on the legislative power of the States at different angles. Thus in clause (1) (a) of article 286 the question of the situs of a sale or purchase engaged their attention and they forged a fetter on the basis of such situs to cure the mischief of multiple taxation by the States on the basis of the nexus- theory. In clause (1) (b) they considered sales or purchases from the point of view of our foreign trade and placed a ban on the States' taxing power in order to make our foreign trade free from any interference by the States by way of a tax impost. In clause (2) they looked at sales or purchases in their inter-State character and imposed another ban in the interest of the freedom of internal trade. Finally, in clause (3) the Constitution makers' attention was riveted on the character and quality of the goods themselves and they placed a fourth restriction on the States' power of imposing. tax on sales or purchases of goods declared to be essential for the life of the community. These several bans may overlap in some cases but in their respective scope and operation they are separate and independent. They deal with different phases of a sale or purchase but, nevertheless, they are distinct and one has nothing to do with and is not dependent on the other or others. The States' legislative power ,with respect to a sale or purchase may be bit by one or more of these bans. Thus, take the case of a sale of goods declared by Parliament as essential by a seller in West Bengal to a purchaser in Bihar in which goods are actually delivered as a direct result of such sale for consumption in the State of Bihar. A law made by West Bengal without the assent of the president taxing this sale will be unconstitutional because (1) it will offend article 286(1)(a) as the sale has taken place outside the territory by virtue of the Explanation to clause (1)(a), (2) it will also offend article 286(2) as the sale has taken place in the course of inter-State trade or commerce. and (3) such law will also be contrary to article 286(3) as the goods are essential commodities and the President's assent to the law was not obtained as required by clause (3) of article 286.