State of Bombay v. United Motors (India) Ltd.
Supreme Court of India, 30 March 1953, 5 judges, 1953 AIR 252; 1953 SCR 1069
The Bombay Sales Tax Act, 1952, read with its Rules, was held not to contravene Article 286; the State where goods are delivered for consumption may tax such inter-State sales, and only the exempted sales were restrained from taxation.
Facts
The respondents, dealers in motor cars in Bombay, petitioned the Bombay High Court under Article 226 challenging the Bombay Sales Tax Act, 1952 as ultra vires because it taxed sales and purchases regardless of the restrictions in Article 286. They also alleged discrimination under Article 14 and that the registration and licence requirements infringed Article 19(1)(g). The High Court held that the definition of 'sale' was wide enough to include the three categories of sales exempted by Article 286, that the Rules could not cure the defect, and that the Act was wholly void, and issued a writ of mandamus. The State appealed under Article 132(1). The Attorney-General and Advocates-General of several States intervened.
Questions before the Court
- What is the effect of the Explanation to Article 286(1)(a), and which State may tax a sale under which goods are delivered for consumption in that State?
- Does Article 286(2) bar the State of delivery from taxing such inter-State sales or purchases?
- Did the Act, read with the Rules, impose tax on sales exempted by Article 286, and if so was it wholly void?
- Were the minimum turnover limits for liability discriminatory under Article 14?
What the Court held
- The Explanation fixes by a legal fiction the State in which goods are actually delivered for consumption as the place of sale. Article 286(1)(a) read with it bars all other States from taxing such sales; the delivery State may tax them under Article 246(3) and entry 54 of List II.
- 'For the purpose of consumption in that State' covers distribution to consumers in general within the State, not only consumption by the purchaser, so buyers from out-of-State sellers, except those buying for re-export, are within the Explanation. This was the view of three judges; Bhagwati, J. confined the words to immediate consumption by the consumer.
- Article 286(2) does not affect the delivery State's power: the fiction gives the transaction an intrastate character in relation to that State. Bhagwati, J. agreed that only the delivery State may tax such sales, on different reasoning.
- The charging sections tax only sales 'within the State of Bombay', and Rules 5 and 6, in force from the same day, excluded sales under Article 286(1)(b) and (2). The Rules form part of the 'law' made by the State. Conditions of proof are valid, but Rule 5(2)(1), limiting modes of transport, is ultra vires and severable.
- Exempting dealers below fixed turnover limits is a reasonable classification and not discriminatory under Article 14.
- For taxing statutes on divisible subjects, severability includes separability in enforcement. The High Court's declaration was set aside and the writ quashed except as to Rule 5(2)(1), with an injunction against taxing sales exempted by Article 286.
Why it matters
The judgment construes the Explanation to Article 286(1)(a) and Article 286(2), holding that only the State of delivery for consumption may tax sales covered by the Explanation and that Article 286(2) does not bar it. It holds that rules brought into force with an Act may be read as part of the State's law, and adopts the principle that severability in taxing statutes includes separability in enforcement.
In the Court's words
Copied from the official judgment; each passage links to its page.
“We are therefore of opinion that article 286 (1) (a) read with the Explanation prohibits taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for the purpose of consumption therein in the wider sense explained above. The latter State is left free to tax such sales or purchases, which power it derives not by virtue of the Explanation but under article 246 (3) read with entry 54 of List II.”
“The effect of the Explanation in regard to inter-State dealings is, in our view, to invest what, in truth, is an inter-State transaction with an intrastate character in relation to the State of delivery, and clause (2) can, therefore, have no application.”
“The Act and the rules having been brought into operation simultaneously, there is no obvious reason why the rules framed in exercise of the power delegated by the Legislature should not be regarded as part of the "law" made by the State.”
“It is a sound rule to extend severability to include separability in enforcement in such cases, and we are of opinion that the principle should be applied in dealing with taxing statutes in this country”
Provisions interpreted
- Article 286(1)(a), Explanation, and Article 286(2), Constitution (as quoted in the judgment)
- Article 246(3), Constitution, with entry 54 of List II
- Article 304(a), Constitution
- Article 14, Constitution
- Sections 5, 10 and 45, Bombay Sales Tax Act, 1952
- Rules 5 and 6, Bombay Sales Tax Rules, 1952
Case and bench
- Parties
- The State of Bombay and Another v. The United Motors (India) Ltd. and Others
- Case
- Civil Appeal No. 204 of 1952
- Decided
- 30 March 1953
- Bench
- Sastri, M. Patanjali (CJ), Mukherjea, B.K., Bose, Vivian, Hasan, Ghulam, Bhagwati, Natwarlal H.
- Opinions
- Majority 4:1. Patanjali Sastri, C.J. delivered the judgment for himself, Mukherjea and Ghulam Hasan, JJ.; Bhagwati, J. agreed with the conclusions but gave different reasoning on the Explanation to Article 286(1)(a); Vivian Bose, J. dissented and would have held the Act ultra vires.
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