Legal Comment on 1980 KLT 283

(By Amicus)

The rulings given by Mr. Justice Khalid in the case of Manuel v. Thomas reported in 1980 KLT. 283 (also in some other journals) appear to be of considerable general importance that they deserve more than passing notice. The decision involves rulings on three important questions:

(1) The meaning and scope of the expression "any matter of an interlocutory character" occurring in clause (5) of S. 3 of the Kerala High Court Act, 1958;

(2) The scope of the jurisdiction and powers of a single Judge to determine the correctness of the valuation of and court Fee to be paid on a Memorandum of appeal already admitted and registered on the file of the High Court; and

(3) The meaning and scope of the provisions of S. 52 of the Kerala Court Fees and Suits Valuation Act, 1959, with particular reference to the facts of the case.

2. In regard to the 1st question the learned Judge holds (with respect, rightly) that the word "interlocutory" means (quoting New Webster's Dictionery) 'spoken intermediately", "pronounced during the course of an action", "pertaining to a provisional decision", (emphasis added). Halsbury is also quoted to the same effect. Now the question is: Is the determination of the right valuation and court fee in respect of an appeal Memorandum a matter arising 'during the course' of an appeal? Obviously 'during the course' implies the existence or pendency of a validily filed appeal (whatever its merits be) awaiting its final disposal in due course; and 'interlocutory' proceedings are proceedings taken in between the two ends, the start and the finish. Indeed, the learned Judge himself says that "Payment of the requisite court fee is a Sine qua non for giving life and existence for an appeal on the file of the court; and that is what is to be done at the threshold". Obviously then, unless and until the court fee question is duly decided and complied with, there cannot be in law an appeal in 'existence', ie., it has not started on its 'course', not yet crossed the threshold, to enable anything being done during' its course, or intermediately'. Indeed, the prefix 'inter' which means 'between' (like inter-national, inter-space etc) postulates the existence of at least two things, stages or points and what is done in between them could alone be 'intermediate' or 'interlocutory'. Where therefore there has been no valid start or beginning yet there cannot possibly be a finish either, or 'final decision' in order to say, as the learned Judge does, that "it is enough to understand that 'interlocutory' means at a stage before final decision". You cannot possibly have a final decision in a case which had not started existence yet, and conceive of an inter-stage 'between' two nothings Thus, it must be obvious that, as according to the learned Judge himself, unless and until the court-fee question was determined and duly complied with there cannot be an appeal in existence under law and therefore such predetermination of the court fee question cannot attract the appellation of 'interlocutory' and authorise a 'single Judge' to invoke the sanction of S. 3(5) of the Kerala High Court Act for assuming jurisdiction to deal with it where the appeal is a Division Bench case. On the other hand, the question is obviously basic to the appeal, going to its very root, for giving "it life and maintainability, so that it can be dealt with only by that court which alone has "the jurisdiction or authority to say whether it shall have life or not, and to dispose of it, namely, here, a Division Bench. The view, there for, that the determination of a disputed court-fee question is an 'interlocutory' matter must appear to be, with due respect, clearly incorrect.

The view is further opposed to the other necessary attribute also stated by Webster and Halsbury and accepted by the learned Judge as "succinctly projects the meaning of the 'interlocutory': namely, pertaining to a provisional decision” '' (Webster), and "gives no final decision on the matters in dispute." (Halsbury); (stress added). Now, is the determination of the question of the valuation and court fee by the learned Judge only 'provisional' and not final? If it is not final, then by whom and when and how can it be revised, altered or finalised? Does any provision of law prescribe it ? The next question dealing with the scope of the jurisdiction covers this aspect also.

3. As already noticed the question of valuation and court fee has to be determined before the appeal memorandum is admitted, registered and numbered on the file of the court, in other words, 'at the threshould' as indeed is the practice too, in our High Court. Does the statute make any specific provisions laying down the persons and the manner for determining this matter? Yes, S.11 of the Kerala Court Fees Act does this. But this vital provision, regrettably the learned Judge has overlooked S.11 provides that in the first instance the officer entrusted with the duty of admitting and filing the Memorandum of Appeal will scrutinise it for any defect including of course the correctness of the valuation and court fee and if satisfied admits it on the register with a number assigned to it If on the other hand the correctness of valuation and court fee (other defects if any apart) is not accepted by the officer and the party (appellant) disputes the officer's opinion:

"The question shall be referred to the Taxing Officer who shall decide the same:"

"Provided that if in the opinion of the Taxing Officer the question is one of general importance he may refer it to the Chief Justice...or such Judge or Judges of the High Court as the Chief Justice shall appoint" and

"Provided further that, when the case comes up for disposal before the court, the decision of the Taxing Officer may be reviewed by the Court".

Thus if a dispute as to the correct court fee arises (and this can arise only before the Memorandum of Appeal is admitted and registered) the decision has to be made only by the Taxing Officer presumably after hearing the party, and it can go to a Judge or Judges for decision only through the Chief Justice, and only if the Taxing Officer is of opinion that the question is one of gene­ral importance and accordingly refers it to the Chief Justice or the Judge or Judges he shall have appointed in this behalf. In no other way can it be taken up or decided by a Judge or Judges And under the second proviso, even at the final hearing the court which hears the appeal (in this case a Division Bench) can review only a decision of the Taxing Officer, not of a Judge or Judges appointed by the Chief Justice in this behalf So where a Judge or Judges had to make the decision in the manner prescribed, it would obviously be 'final' and not 'provisional' as it would be if it were only 'interlocutory'. And it is a well established rule adopted by Jessal M. R. a century ago in Taylor v. Taylor and has stood the test of time and been applied by the Privy Council and our Supreme Court in several cases,

"That where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all, and that other methods of performance are necessarily forbidden. The principle behind the rule is that if this were not so, the statutory pro­vision might as well not have been enacted".

It is also an equally well established rule that

"When a statute confers a power on certain judicial officers, that power can obviously be exercised only by those officers. No other officer can exercise that power, for it has not been given to him"—

See State of Uttar Pradesh v. Singhara Singh, AIR. 1964 S.C. 358 (paras& 15); Ramachandra v. Govind, 1975 SC 915 (Para 25) etc Thus S. 11 has laid down the whole scope of the enquiry into and determination of the question of C. F. and no Judge has jurisdiction to take it up and determine it outside of S. 11 of the C. F. Act, in the High Court.

It is apparent that in the instant case valuation and court fee payment were accepted as correct by the concerned 1st Officer himself without demur, and the Memorandum was duly admitted, registered and numbered as A.S. 284 of 1979. (This vital fact also appears to have been overlooked by the learned Judge). Thus, no dispute having had arisen no reference to and decision by the Taxing Officer, and his referring any dispute to the Chief Justice and through him to any Judge, ever arose in this case. It had validly and effectively crossed the threshold and fallen into the seisin and exclusive jurisdiction of the Division Bench which alone was thereafter competent to deal with it in any manner allowed by law, and no single Judge could trench upon its jurisdiction or prejudice the final hearing and disposal of the appeal on its merits by the Division Bench. How then did the learned Single Judge get any jurisdiction to entertain and decide the question of the valuation and court fee payment in the instant case? Quite obviously then the assumption of jurisdiction and making the decision in the court fee matter by the learned Judge were not authorised by law, and hence a patent nullity, having no legal existence or binding force.

4. Next, as to the scope of S. 52 of the Kerala Court Fees Act, and the merits of the view on the actual valuation and C. F. payable, in the case. (I) When the learned Judge says that "under S. 52 of the C. F. Act, valuation of the cause of action of the suit has to be the same as the valuation in the court below", he falls into a patent error and confusion of ideas. What the Section says is:

"52—Appeals. The fee payable in an appeal shall be the same as the fee that would be payable in the Court of first instance on the subject matter of the appeal";

and a proviso and four 'Explanations' follow qualifying the above 'general statement'(stress added). The "fee payable in an appeal” is obviously not on the value of the "cause of action of the suit, "as the learned Judge says. Nor is cause of action of a suit what is valued; what is valued is the 'claim of relief, depending on the 'subject matter' of the action. While cause of action means every fact, which, if traversed it would be necessary for the plaintiff to prove in order to support his right to the judgement of the Court", the "subject matter" refers to "the right which the plaintiff, (here the appellant) seeks to enforce". In an appeal it is the subject matter of the appeal which is not necessarily the subject matter of the suit in the court of first instance, that falls for C. F. taxation, because, as expressly stated in Explanation (4) to the section under which the appellant is seen to have had expressly valued his appeal, (but which also the learned Judge overlooked)

"where the relief prayed for in the appeal is different from the relief prayed for or refused in the court of first instance the fee payable in the appeal shall be the fee that would be payable in the Court of first instance on the relief prayed for in the appeal: (stress added).

The plaintiff in the Court of 1st instance had asked for eviction of the tenant on the sole 'basis of title' to the property (relief-A) and valued the property at Rs.24,000/-and paid C. F. on it, but the eviction on this basis or 'ground' was refused as the Court had no jurisdiction to accept that ground for eviction in the face of the express statutory prohibition contained in S. 11 (I) of Kerala Act 2 of 1965. He nevertheless granted him agratuitous award namely, 'declaration" of title which was not asked for in the plaint nor -valued and any C F. paid on, in the Court of first instance, so that that gift of the declaration which having been outside the pleadings and hence beyond the court's jurisdiction, is itself a patent nullity and could very well be ignored. In any event it could not be any more than a collateral 'finding' and the appellant has not asked for any relief against it in the appeal, and hence it was obviously no part of the "subject matter of the appeal". Even if it were, it could not be liable for C. F., as the relief of a declaration had not been valued (as well as not asked for) in the Court of first instance, and the plaintiff alone was the person to value that relief under the law. How then did the rejected and prohibited relief of eviction on basis of title, become a subject matter of the appeal and render the appellant liable to pay court fee on it, passes understanding When the sole basis, namely title, on which the eviction was sought was found to be patently unsustainable in law, the only course open to the learned Sub-Judge under law and justice was to dismiss the suit; but instead, he suo moto adopted without any jurisdiction, the alleged 'arrears of rent' as a basis or 'ground' for granting eviction, saying clearly that "the plaintiff is allowed to recover the building on the ground of arrears of rent." And it is this relief based on this ground which is challenged and forms the subject matter of the appeal and hence liable to be taxed to C. F. No doubt the Sub-Judge has added also and the learned 'Single Judge' has repeated it, that the suit was "filed due to a direction in an order passed in a Rent Control Petition". It is however, not apparent, not easy to understand, the relevancy of this to the question at issue. Whatever was or might have been the reasons or motives that impelled the plaintiff to bring his suit, what the appellant and the High Court were concerned with was obviously only What was the decree passed m the suit with which the appellant was aggrieved and concerned to appeal against, and he can be liable to value and pay C. F. only on the decree he challenges, not on the plaintiff's reasons or motives for filing his suit. That is obviously why appellant paid G. F only on the 'arrears of rent' decreed which has been adopted as the sole basis of the decree for eviction, it being, unlike title, one of the grounds permitted for eviction under the Act 2/1965, and is hence challenged in the appeal. It may also be mentioned in this context that it is difficult to appreciate in what is expected to be an unprejudiced, detached and high toned judicial pronouncement, the unnecessary and insinuative remark that "the appellant has taken recourse to a lesser valuation to escape from the real (?) court fee payable" (stress added).

6. Other factual errors also appear in the order of the learned Judge, as apparent on the face of the records of the case. For instance, the learned Jadge fell into patent error when he simply adopted one of the many misstatements and confusion of ideas of the Sub-Judge when, for a justification, he says that "the deft, disputed the title of the landlord." A reference to the Memo of Appeal shows (ground-8) that what was actually questioned was the landlord's right or title to the possession of the plaint Schedule property for various reasons For example, can a landlord have any right or title to disposses a tenant before his lease expires or if the demise were for any reason a permanent one? Is this the same thing as denying the landlord's title to the property ?

7. It will thus be seen that the learned single Judge fell into grave and manifest errors of law and fact in giving the rulings and making the order in question, which, therefore, in the interests of law and justice, requires reconsideration at the earliest opportunity.

Reception To Shri K. Sankaran, The Chief Justice By The Bar Association At N. Paravur

(A.M. Varkey, B.A B.L., Advocate, N. Paravur)

Shri.K. Sankaran, Honorable Chief Justice of the High Court of Kerala who paid his first official visit to the Civil Courts of N. Parur as the Chief Justice of the State, on March 21, was accorded a very grand reception by the members of the Bar Association.

Shri. M.P. Thomas, President of the Bar Association, who garlanded and received the Chief Justice on behalf of the Association, while welcoming the Chief Justice and the huge gathering, including Sri M. Narayana Menon, Additional District and Sessions Judge, Mrs. Aley Alexander, Sub-Judge, Sri K. Vasudevan, Munsiff, and Sri R. Gangadharan, Magistrate, paid glowing tributes to the sterling virtues of head and heart of Sri Sankaran who had won the esteem and admiration of the public, the members of the Bar and the clientele during the tenure of his long term of office at Paravur as the District and Sessions Judge

The Chief Justice, during the course of his inspiring and erudite reply, expressed his gratitude to the members of the Bar for the way in which they had demonstrated their warm feelings towards him. His speech contained very valuable pieces of advice to the members of the legal profession. He said thus among many other things:-

‘‘Members of the Bar who wish to have a bright future before them would-do well to specialize in Constitutional Law and other branches of study. Such specialization is feasible only at important centers where there are good libraries and the assistance of top-rank lawyers would be available. The path of progress is easy enough if you make a mark in the profession. You are likely to go down in your profession if you take a keen interest in politics. A successful lawyer will get his time and opportunity to participate in politics after he establishes his reputation in the profession.”

CORPSES CANNOT WALK 

(T G John Advocat Trichu)

Appearing and disappearing with bewildering rapidity, the facts of the Bhowal sanyasi case (Bibhabati v. Ramendra Narayan-ATR. 1947 P.O. 19) have the disjointed quality of a surrealist movie. It has all the thrills and twists of a fictional whodunit-all the dramatic portents of a melodrama; it is a true life story of mystery, crime, love and adventure. It will seem that a dead man has walked out of his funeral pyre-a sequence which can only be imagined as a product of trite fiction of the class of Marie Corelli’s immortal work ‘Vendetta’. But still that was what really happened on that fateful night at Darjeeling in the year 1909. 

Raja Bajendra Narayan Roy, the Zemindar of Bhowal,, one of the largest landed proprietors of East Bengal died on 26-4-1901. The family was regarded as the premier Hindu Zemindar family of Dacca and the annual rent-roll of the estate was about six lakhs of rupees. The Raja was survived by his widow, three sons and three daughters. Ramendra Narayan Roy was his second son. The three sons were mentioned in order of seniority as Bara Kumar, Me jo Kumar and Choto Kumar. 

Though born with silver spoons in their mouth, the three Kumars neglected their studies in such a way that though placed under the tutelage of the best educationists; they never got beyond their Bengali and English alphabets. The Kumars were busy otherwise. They were thriving in other fields; at the age of 18, when his father died, Ramendra Narayan-the hero of our story-was a confirmed debauchee visiting prostitutes and haunting low dens of vice. In 1902 he married Bibhabati, a beautiful girl of 13. Even after his marriage, he kept on sowing wild oats and at some date subsequent to 1905 the second Kumar had gummatous ulcers on or about both the elbows and on his legs, being the tertiary stage of syphillis. 

Bhibabati had a brother Satya Babu who was studying for law about the year 1908. He was a very cunning man and he proposed to the second Kumar the idea for visit to Darjeeling. Ramendra set out to Darjeeling with a party consisting of Satyababu, his wife Bhibhabati, a retinue of servants and a doctor. Sixteen days after reaching Darjeeling, Ramendra fell ill and on May 8, 1909, he died a little before midnight. The body lay in the house ‘the entire night and was cremated the next morning’. On 10th May, Bhibabati with the rest of the party left Darjeeling for Jaidobpur where shohadher ordinary residence until April 1911, where she left for Calcutta to live there permanently with her mother and brother Satyendra. She began to enjoy her widow’s estate in the undivided one third share of the Bhowal estate, which her husband the second Kumar had owned, and she recovered the proceeds amounting to Rs 30000, of a life policy taken out by the second Kumar, the necessary certificates of death having been provided. By 1919, Bhibabati had received about nineteen lakhs of rupees from the estate. In 1910, the first Kumar died and in 1913 the third Kumar also died, all due to dissipation and fast living. The Bhowal family was practically extinct. And then things began to happen December - 1920: One cold morning in December an unusually lean sanyasi alighted at the usually crowded railway station of Dacca. He was later found sitting on the Buckland Bund on the river. There he sat night and day, rain or shine, for nearly four months till April 5, 1921. But for a loin cloth, he was naked He had a fairly long beard and his hair fell behind his back, matted into a mass of cords reaching down to his knees, his body besmeared with ashes from head to foot. Buckland Bund was a public walk on the margin of a river where people promenade morning and evening for pleasure or health. All were struck by the close resemblance of this ascetic with the second Kumar of Bhowal. He was later taken to Jaidebpur where all his tenants and his relatives after close scrutiny, deliberation and questioning were finally convinced that he was none other than the second Kumar of Bhowal,-Bhibabati through her brother Satya Babu resisted and maintained that the sanyasi was only a pretender... On April 24, 1930 the second Kumar instituted a suit for declaration that he is Kumar Ramendra Narayan Roy, the second son of the late Rajah Narayan Roy of Bhowal and that his possession should be confirmed in respect of the one third share of the properties described in the schedule, or if from the evidence and under the circumstances plaintiff’s possession thereof should not be established, then possession thereof should be given to him. He further asked for injunctions against obstruction to his possesssion. Bhibabati contested denying inter alia the identity of the plaintiff with Kumar Pamendra Narayan Roy. The rest of the story could be pieced out from the large volume of evidence which was forthcoming in this case. The defence maintained that the second Kumar died shortly before midnight and that the following morning his body was cremated with the usual rites at the new sasan at Darjeeling. The plaintiff admitted that there was a funeral procession and cremation on the morning of 9th of May but maintained that the body so cremated was not of the second Kumar; his case being that the second Kumar was taken for dead at about dusk between seven and eight 0’ clock in the evening of 8th of May, that arrangements were at once made for cremation, that the body was taken in funeral procession to the old sasan and placed in position for cremation, when a violent storm and rain caused the party to take shelter, and that on their return after the rain had abated the body was no longer there, that thereafter another body was procured and was the subject of the procession and cremation, the following morning. The plaintiff’s further case was that while the funeral party were sheltering fr6m the storm, he was found to be still alive by four sanyasis who were nearby and had heard certain sounds from the sasan and who released him and took him away, looked after him and took him with them in their wanderings, that when he had recovered from an unconscious state, he had lost all memory of who he was, where he came from and of past events. Some eleven years later he recalled that he came from Dacca, and that was how he took up a position on Buckland Bund on the margin of the river Buriganga at Dacca. 

Before the First additional District Judge of Dacca, the trial lasted for 608 days. 1042 witnesses testified for the second Kumar and 433 for the defence. On 24-8-1936 the Judgment of the court was delivered which ran into 532 foolscap pages-the limit of judicial endurance! T he plaintiff was declared to be the second Kumar and entitled to an undivided one third share in the properties in suit. The appeal from the trial court’s decree was heard by a special bench of the Calcutta High Court consisting of Costello, Biswas and Lodge JJ. (Lodge J. dissenting) and was dismissed confirming the trial court’s decree. The appeal from the Calcutta High Court to the Privy Council was heard by Lord Thanker-ton, Lord Du Parcq and Sir Madhavan Nair. Mr. D. N. Pritt appeared for the respondent. On 13th of July 1946 Lord Thankerton advised his majesty that the decision of the High Court should be affirmed. 

Strangely enough on 3-8-1946 four days after the Privy Council judgment, the second Kumar died at Calcutta. There was a funeral procession; there was a funeral pyre; there was cremation; and it really did rain on that day. But on that fateful day he could never walk out of the funeral pyre as he did previously; and no sanyasi came to his rescue. Corpses cannot walk. 

The flames of the pyre became longer than long and with one violent crackle of the skull, the curtain was finally rung down on one of the strangest sagas of human history once more flaunting the fact that truth is always stranger than fiction.

RENT CONTROL LAW IN KERALA

(E.P. Varghese, M.A., B.L.)

For the last ten years and more there have been Laws to control the rent of buildings in Kerala. In the Malabar District of Madras which is now a part of the Kerala State, there was the Madras Buildings Lease and Rent Control Act, 1949. In the Cochin State the Rent Control Order of 1117M.E. and the subsequent Cochin Buildings Lease and Rent Control Act, 24 of 1124 M.E. and in Travancore the Travancore House Rent Control Order of 1120 modified by the Order of 1122 were controlling the rents. With the integration of the two States of Travancore and Cochin the law was made uniform by the Travancore-Cochin Buildings Lease and Rent Control Order, 1950. On 17th January 1959 all these Acts and Orders have been superseded by an Ordinance, 3 of 1959 which promulgated a uniform law for the Kerala State.

This Ordinance was promulgated when a Bill, to enact a single law for the State, known as the Kerala Buildings Lease and Rent Control Bill introduced in the Kerala Legislative Assembly was ready for the second reading. The emergency for an Ordinance on a matter pending in the form of a Bill before the Legislature is inexplicable. Anyhow this Ordinance repealed and superseded all the existing laws -Acts and Orders-on the subject.

The Assembly met on 21st February 1959 and another Bill for Rent Control was introduced in the Legislature by the Government. This strange procedure came in ‘for the protest of the opposition and the Government rightly withdrew this 2nd Bill and commenced the 2nd reading of the first Bill. After many amendments, some of them even against the principles of the Bill accepted by the Assembly, the Bill was passed. On receiving the Assent of the Governor the Bill as passed by the Assembly will become law. Whether it has received the assent of the Governor is not yet known. Probably it needs the assent of the President. The Ordinance containing most of the provisions of the Bill was promulgated by the Governor after “instructions from the President have been obtained in pursuance of the proviso to clause (1) of Article 213 of the Constitution of India”. Anyhow the fact is that the Kerala Buildings Lease and Rent Control Bill passed by the Legislature is not yet law, or at least, it has not come into operation, since, under Section 3 of the Travancore-Cochin Interpretation and General Clauses Act, 6 of 1125 as amended by Act 3 of 1957, it has not been published in the Gazette.

Further, it is laid down in Article 213 (2) (a) of the Constitution that an Ordinance “shall cease to operate at the expiration of six weeks from the reassembly of the Legislature”.

Thus, Ordinance 3 of 1959, regarding Rent Control of Buildings has repealed all the existing laws and has itself ceased to operate, since 6 weeks are over after the reassembly of the Legislature on 21st February 1959. The position therefore is, there is no Rent Control Law in Kerala now. The Rent Control Petitions pending disposal will be in cold storage till the Bill passed by the Assembly becomes Law and is published in the Gazette. This period of hibernation may give rise to many difficulties which will need other legislation to rectify. Who is responsible for this state of affairs?

Sales Tax Cases and Art.286 of Constitution of India

(T.K. Kochuthommen, B.A., Barrister-at-law

United Motors Case

The framers of the Constitution wanted to devise a formula of restrictions on the State power of taxing sales or purchases involving inter-State elements, with a view to avoid multiple taxation. This they did by enacting Clause (1)(a) with the explanation and Clause (2) of Article 286.

Clause (1) (a) prohibits the taxation of all sales or purchases which take place outside the State.

There are several ingredients involved in a sale and it is always difficult to locate a particular sale. Before the Constitution came into effect, several States imposed eales-tax, basing their claim on any one of the ingredients being present in their States. This resulted in multiple taxation.

The problem of the Constitution makers was to find out what is an outside sale. The Explanation to Article 286(1) (a) was therefore introduced. It provides by means of a legal fiction that the sale has taken place inside the delivery State i.e., the State in which the goods were actually delivered for consumption, notwithstanding the property in such goods passed in another State.

The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test. If the goods were delivered for consumption in a particular State, then the sale or purchase shall be deemed to have taken place in that State and outside all other States. Even the title State i.e., the State in which the property in the goods passed cannot tax the sale of those goods. Multiple taxation of the same transaction by different States is now avoided.

The explanation deals only with inter-State sales or purchases, and not with purely local or domestic transaction. That these are subject to the taxing power of the State has never been questioned.

Article 286(1) (a) read with explanation prohibits taxation of sales oi purchases involving inter-State elements by all States except the delivery State. The Delivery 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 operation of Clause (2) of Article 286 stands excluded as a result ol the legal fiction enacted in the explanation. The Delivery State is free to impose tax on inter-State sales or purchases, in spite of Clause (2).

The effect of the explanation in regard to inter-State dealings is to invest what in truth, is an inter-State transaction, with an intra-State character relation to the delivery State, and Clause (2) therefore can have no application,

The explanation is merely designed to explain the meaning of the expression ‘Outside the State ‘in Clause (1) (a). Once the sale is located within the taxing State by means of the fictional test, the transaction loses its inter-State character and falls outside the purview of Clause (2). Such sale or purchase be­comes in the eye of the law a purely local transaction. When an inter-Statetransaction is turned into an intrastate transaction by the operation of the legal fiction, Clause [2] ceases to have any operation.

An inter-State sale becomes an intra-State transaction when it comes under the explanation. Article 286(2) imposes a ban only on taxation of inter-State sales. But explanation sales are intra-State sales as a result of the operation of the fiction. Therefore Clause (2) has no application.

Bengal Immunity Case

Explanation in Clause (1) (a) of Article 286 cannot be extended to clause (2) either as an exception or as a proviso thereto or read as curtailing the ambit of Clause (2). Clause (2) has independent operation. To this extent the United Motors case is overruled.

There are four separate and independent restrictions placed upon the legislative competency of the State to make a law with respect to matters in Entry 54 of List II. Constitution makers have considered different aspects of sale or purchase and placed check on the legislative powers of the States at different angles.

Thus in Clause (1) (a) the question of the ‘Situs’ of the 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. The theory of territorial nexus is now replaced by the theory of situs.

In Clause (1) (b) sales or purchases are considered from the point of view of foreign trade, and placed a ban on the power of the State to tax foreign trade. This is with a view to encourage foreign trade.

In Clause (2) the sale is looked at in its inter-State character and a ban is imposed in the interest of the freedom of the internal trade.

In Clause (3) the sale is considered from the point of view of the character and quality of the goods. A restriction is placed on the power of the States to tax ‘declared goods’.

The explanation has created a legal fiction and this fiction is created onlyfor the purpose of Clause 1 (a). It only explains what an outside sale is. Explanation in Clause (1) (a) cannot be extended to Clause (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of Clause (2). Explanation cannot be read into Clause (2). It therefore follows that except in so far as Parliament may by law provide otherwise, no State law can impose any tax on sales or purchases when such sales or purchases take place in the course of inter-State trade or commerce and irrespective of whether such sales or purchases do or do not fall within the explanation.

The ‘situs’ of a sale or purchase is wholly irrelevant as regarded its inter-State character.

Even when the situs of a sale or purchase is in fact inside a State, with no essential ingredient taking place outside, nevertheless if it takes place in the course of inter-State trade or commerce, it will be hit by Clause (2). All that the Explanation does is to shift the ‘situs’ from point A in the stream of inter-State trade to point B also in the stream. It does not lift the sale or purchase out of the stream in those cases where they form part of the stream.

The shifting of “the ‘situs’ of a sale or purchase from its actual ‘situs’ under the general law to a fictional ‘situs’ under the Explanation takes the sale or purchase out of the taxing power of all States other than the State where the ‘situs’ is fictionally fixed. That is all that Clause (1) (a) and the Explanation do. Whether the delivery State will be entitled to tax such sale or purchase will depend on other provisions of the Constitution. The assignment of a fictional situs has no bearing on the inter-State character or the export and import character of a sale or purchase; they are entirely different topics.

The fixing of a ‘situs’ in a particular State either under the general law or under the fiction does not conclude the matter. It has yet to be ascertained whether that sale or purchase which by virtue of the Explanation has taken place in the Delivery State was made in the course of inter-State trade or commerce. For this purpose, the Explanation has no application. Cases may arise in which purchases or sales which are outside Clause (2) may yet fall within and be governed by the Explanation.

Until Parliament has lifted the ban under Clause (2) no State can impose or authorize the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-State trade or commerce. The majority decision in United Motors, in so far as it held that the Explanation sales are taxable by the delivery State in spite of the ban under Clause (2), is overruled by this decision. The taxing power of the State is subject to Clause (2).

Tata Iron & Steel Co. Ltd. vs. Bihar State

(1958 A.I.R. JUNE)

Nexus theory Is it applicable to Sales Tax?

This decision relates to the imposition of sales-tax on sales that took place prior to the Constitution.

The legality of the theory of territorial nexus was never questioned in a Court of law, but it was always applied to sales-tax legislation by various States until the introduction of the Constitution. The applicability of the nexus theory to sales-tax legislation has been recognised by the Supreme Court in United Motors Case-

The States, in exercise of the legislative power conferred on them by the Government of India Act, 1935, enacted sales-tax laws acting on the principle of territorial nexus. They picked out one or more of the ingredients constituting a sale and made them the basis of their sale-tax legislation. Such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulating of the burden falling ultimately on the consuming public. It was to avoid this evil of multiple taxation that the Constitution makers enacted Article 286.

Since the enactment of Article 286, the only nexus that is recognized is the delivery nexus-in other words it is the delivery for consumption that gives the State the right to tax.

From the point of view of the economist and as an economictheory, sales-tax may be an indirect tax on the consumers, but legally it need not be so. Retrospective legislation in sales-tax is therefore perfectly valid.

Sundararamaier’s Case

It was to repair the mischief of multiple taxation that Article 286 was introduced. While retaining the power in the States under Entry 54 in List II, Article 286 imposed certain restrictions on that power. One of the restrictions is contained in Clause (1) (a) which prohibits a State from taxing outside sales. The Explanation under Article 286 is attached to this provision, and though the Explanation is positive in form, it is in substance negative in character. Its purpose is not to confer any fresh power of taxation on the State, but to restrict the power which it previously had under Entry 54.

But the purpose of a taxing statute like the Madras Act is to confer a power on the State to levy and collect tax. While the prohibition under the State statute is intended to prevent taxation of outside sales on the basis of the ‘nexus doctrine, the Explanation is intended to authorize taxation of sales falling within its purview, subject to other provision of the Constitution, such as Clause (2) of Article 286. The State law cannot invest another State with a power or divest it of a power; its mandate runs only within its own borders. The only purpose of the Explanation to S.22 in Madras Act is to authorize that State to impose a tax on sales falling within its purview. Thus, while in the context of Article 286(1) (a) the Explanation thereto is 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 content. The Explanation operates to confer on the State a power to tax Explanation sales. 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 under Article 286(2). Article 286(2) is in two parts, one a restriction on the power of the State, and the other a condition on which such restriction will cease to operate. There is no prohibition in Clause (2). It merely enacts that State laws imposing tax on inter-State sales can have no effect, until Parliament has lifted the ban. The words “No law of a State shall impose” mean only that no so much law shall be effective to impose a tax. S.22 therefore imposes a tax on Explanation sales, but it would be enforced only when Parliament so provides. Mathew v. T.C. Board of Revenue A.I.R 1957 T.C. 300 and Cochin Goal Co. Ltd. v. State of T.C. 1956-57 STC 731 are overruled in so far as they held that S.26 of the T.C. Act had not the effect of imposing, of its own force, a tax on Explanation sales.

There is a distinction between a legislation on a topic not within the competence of the legislature & a legislation within its competence but violative of Constitutional limitations. In the former case it is null and void, and a subsequent cession of that field to the legislature will not revive what was null and void. But in the latter case, though the law was “unenforceable by reason of those prohibitions, will become effective without re-enactment when once they are removed. A tax under S.26 of the T-C Act becomes enforceable when the ban under Clause (2) is lifted by the validating Act. The imposition was a valid imposition, though unenforceable at the time of imposition on account of the ban. When the ban is lifted what was once unenforceable becomes enforceable.

During the period between the United Motors case and the Bengal Immunity case, various States had imposed sales tax on Explanation sales basing their claim on the construction put on the Explanation by the majority decision in the United Motors case. But such imposition became unauthorized as a result of the decision in Bengal Immunity case. The purpose of the Validating Act was to enable those States to retain the money so collected. The effect was that it liberated the State laws from the fetter placed on them by Clause (2) and enabled them to operate on their own terms.

The States had the power to tax inter-State sales under Entry 54 subject only to Clause (2). The Validating Act rendered such law operative and pro­ceedings taken there under valid. The sixth Amendment of the Constitution proceeding on the view that the States had the power to tax inter-State sales under Entry 54, amended the Constitution, and vested the power in the Centre.