20TH CENTURY FINANCE CORPORATION LTD. AND ANR. v. STATE OF MAHARASHTRA

The Judgments of the Court were delivered by A

V.N. KHARE, J. (I) Despite the decisions of this Court in Builders' Association of India and others v. Union of India and others, [ 1989] 2 SCC 645 and Mis. Gannon Dunkerley & Co. and others v. State of Rajasthan and Ors., [ 1993] I SCC 364, the controversy as regards the power of the State legislature to levy sales tax under clause (29A)(d) of Article 366 of the B Constitution in the context of the question where is the taxable event on the transfer of right to use any goods remained unresolved. In this group of cases, we are concerned with the power of States legislatures to levy sales tax on the transfer of right to use any goods envisaged under clause (29A)( d) of Article 366 of the Constitution on the premise that goods put to use are located within their States. Several States by their legislations have levied tax on the transactions of transfer of right to use goods on the location of goods at the time of their use within their States irrespective of the place where the agreement for such transfer of the right to use such goods is made. The questions, therefore, that arise for consideration in these cases are, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that - (a) the contract of transfer of right to use has been executed outside the State; (b) sale has taken place in the course of an inter-State trade; and (c) sales are in the course of export or import into the territory of India. The appellants' case is that, the State legislature cannot so frame its law as to convert an outside sale or a sale in the course of import or a sale in the course of an inter-State trade or commerce into a sale inside the State.

(2) The appellants in civil appeals and the petitioners in the writ petitions filed under Article 32 of the Constitution and transferred petition, and respondent in Civil Appeal Nos. 6218- 23/95 are the companies incorporated under the Companies' Act, and some have their registered offices at places outside the respondent States and others have inside the States. They cariy on business of leasing diverse equipments. According to them, they entered into Master Lease Agreements with the lessee i.e. the party who desired to take equipment for use on hire. The appellants and the petitioners agree to give on lease diverse machinery/equipments listed in the Lease Summary Schedule, subject to terms and conditions stipulated in the Master Lease Agreements. The Lease Summary Schedule only mentions the broad category of equipment proposed to be leased and the correct value thereof. The Master Lease Agreement provides that orders for individual equipment will be placed by the appellants at the instance of lessees and that the equipment to be H

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A leased will be dispatched by the manufacturer or supplier concerned to the locations specified in the lease. Thereafter, at the instance of the lessees, the appellants place their purchase orders to the suppliers or manufacturers for supply of individual items or equipments falling within the category and correct value mentioned in the Master Lease Agreement Schedules. The B appellants' and the petitioners' further case is that, they disburse the value of equipment to the suppliers and at the instance of the appellants and the petitioners the suppliers deliver the equipments to the lessees at the specified locations for use. After the equipments are delivered and put to use, the lessee executes supplementary lease schedules acknowledging due receipt of the lease equipments, and such supplementary lease deeds form an integral part of the Master Lease Agreement. Such is the nature of business carried on by the appellants and the petitioners in this group of cases. According to the appellants and the petitioners, one transaction of transfer of right to use goods is subjected to sales tax by more than one States. On such a transaction, some States levy tax on the appellants and the petitioners, merely because the goods were found to be located in their States at the time of execution of contract which has taken place outside the State. Some States levy tax when the goods are delivered in their States for use in pursuance of agreements of transfer executed outside their States and some States tax such transactions of deemed sales on the premise that agreements for transfer of right to use have been executed within their States. The appellants and the petitioners, therefore, have challenged the validity of the legislations by various States whereby one transaction of transfer of right to use goods has been subjected to tax by more than one States.

(3) The petitioners by means of writ petitions under Article 32 and transferred petition have challenged the validity of the provisions relating to imposition of tax on transfer of right to use goods contained in the sales tax laws of States of Maharashtra, Kamataka, Tamil Nadu, Haryana, Uttar Pradesh, Rajasthan and Andhra Pradesh. Civil Appeal Nos. 6218-23/95 are directed against the judgment of the Andhra Pradesh High Court allowing the writ petitions filed by the respondents therein. We will separately deal with the sales tax laws of other States. At present, we propose to consider the controversies involved in these cases with reference to the provisions contained in The Maharashtra Sales Tax on the Transfer of the Right to Use Any Goods for any Purpose Act, 1985 (hereinafter referred to as the 'Maharashtra Act'). The Maharashtra Act purports to levy and collect tax on the transfer of the right to use any goods for any purpose in the State of Maharashtra. Section H 2(10) of Maharashtra Act defines 'sale' thus: "sale" means the "transfer of

20THCENTURYFINANCfCORPN. LTD.1•. STATEOFMAHARASHTRA[V.N. KHARE,J.) JJ5 the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration, and the word "sell" with all its grammatical variations and cognate expressions, shall be construed accordingly". The above sub-section has an Explanation, which runs as under: -

"Explanation. - For the purposes of this clause, the transfer of the right to use any such goods shall be deemed to have taken place in the State of Maharashtra if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made, and whether the assent of the party is prior or subsequent to such transfer of the right to use any such goods".

Section 3 of the Maharasthra Act provides for incidence of tax and Section 4 deals with levy of tax. There is no dispute as regards the definition of 'sale'. What is under challenge is the Explanation to sub-section (IO) of Section 2 of the Act, which fixes situs of deemed sale within the State of D Maharashtra on location of goods at the time of their use. The appellants in Civil Appeals excepting Civil Appeal Nos. 6218-23/95, had challenged the levy of sales tax by State of Maharashtra by means of writ petitions under Article 226 of the Constitution before the Bombay High Court. Before the High Court, it was contended by the appellants that the Maharasbtra Act, particularly E Section 3 read with Section 2(10), purports to levy tax not only the transfers of right to use goods which takes place within the State of Maharashtra, but also upon the transfer which occasions the movement of leased or to be leased goods from one State to another, and also upon the transfers effected during movement of goods from one State to another and, therefore, the Act is ultra vires Articles 269(3) and 246 read with Entry 92A of List I of the F Seventh Schedule of the Constitution. It was also contended that the Act imposes sales tax upon transfers of the right to use goods which takes place outside the State of Maharashtra and also in the course of import of the goods into the territory of India and as such the Act is ultra vires Articles 286(l)(a) and (b) of the Constitution. The High Court was of the view that G the transaction of transfer of right to use goods is a species of bailment, as there is no transfer of ownership in such transaction and since such transactions are in the nature of contract of bailment, the transfer is completed only upon the delivery of the goods and, therefore, situs of sale created by the Explanation to Section 2(10) of the Act is valid. Consequently, the writ petitions were dismissed. It is in this way the appellants are in appeal before H )

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A this Court. Excepting two States the provisions of the Sales Tax Acts of all the other States are on line with tha.t of the Maharashtra Act. Since the grounds of challenge to all the Acts are substantially the same, we, therefore, propose to decide these cases by a common judgment.

(4) S/Shri K.R.Parasaran, R.F.Nariman and Harish N. Salve, learned senior B counsel, appearing for the appellants and the petitioners urged, that there are two independent limitations upon the taxing power of the State based on situs of the sale - one is engrafted in Article 286 and the other where the sale occurs within the State, it cannot by virtue of Entry 54 of List II read with Entry 92A of List 1 levy a tax on a sale which is in the course of inter-State C trade or commerce and, therefore, Section 3 and Explanation to Section 2(10) of the Maharashtra Act which seeks to levy tax on mere location of goods at the time of their use within the State, are ultra vires Articles 286 and 269 of the Constitution. Their further argument is that, taxable event of such transaction of sale would be upon the transfer in law of the right to use goods in question and, therefore, the situs of transaction of sale would, on first principle, be the situs of the contract which has the effect in law of transferring the right to use goods and, therefore, no such tax can be levied merely on location of goods in that State. Shri S.K.Dholakia, learned senior counsel, appearing for the State of Maharashtra contended that, in the absence ofi any enactment by the Parliament, the nature of contract i.e. the transfer of right to use goods is to be .determined with reference to law dealing with contract, namely, the Indian Contract Act, and in that connection referred to Sections 148 and 149 of the Indian Contract Act. According to him, the transfer of the right to use goods being in the nature of a contract of bailment, there must be delivery or possession of goods before it can be said that the right to use is transferred. According to him, until the goods are delivered to the lessee it is only an agreement to give it on bailment and, in fact, the delivery of goods is sine qua non of the transfer of right to use goods. Thus, the State legislature was fully competent to enact the Explanation to Section 2(10) of the Act. In brief, the argument is that the taxable event would be the location of goods - delivery of which is to be effected for use. Shri C.S. Vaidyanathan, G learned Additional Solicitor General, appearing for Union of India, Shri A.K.Ganguly, learned senior counsel appearing for the State of Tamil Nadu, Shri K. Ram Kumar, appearing for the State of Andhra Pradesh, Shri Adarsh Goel, appearing for the States of Uttar Pradesh and the State of Haryana, Shri S.K. Jain, appearing for the State of Rajasthan and Shri M. Veerappa for the State of Kamataka argued, that the taxable event of such transaction of deemed sale would be on the location of goods the delivery of which is to (

·2orn CENTURY FINANCECORPN. LTD.''· STATE OF MAHARASHTRA [V.N. KHARE,J.l 137 be effected for use within the State. They further contended that, in view of the decision in the second Gannon Dunkerley 's case (supra), the provisions of Section 4 of the Central Sales Tax Act are applicable to deemed sales envisaged under clause (29A)(d) of Article 366 of the Constitution and, therefore, on the application of Section 4 of the Central Sales Tax Act, States legislatures were fully competent to levy sales tax if the goods at the time of their use are located within their States.

(5) On the argument of learned counsel for the parties, the questions that arise for consideration are (a) what are the limitations on the power of States to levy tax on the transactions of transfer of right to use any goods and (b) where is the situs of taxable event on the transfer of right to use goods under Article 366(29A)(d) of the Constitution. Before we deal with the aforesaid questions, it would be helpful to look into the legislative history of levy of sales tax in this country and the decisional law in order to resolve the controversy before us.

(6) The power of the State legislature to levy sales tax first time found place by virtue of Entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935. The Entry was to the following effect:-

"taxes on sale of goods and on advertisement".

In exercise of the aforesaid power, the then Provincial legislatures levied sales tax on the sale and purchase of a number of commodities. Government of India Act did not make any provision about situs of sale for purposes of levy of sales tax by the then Provincial legislatures with the result, the then Provincial legislatures on the basis of one or more than one elements constituting "sale" made it as the basis for levy of tax by legislations. Some F of the States levied sales tax merely because the goods were located within their provinces at the time of contract. In the province of Bihar, if the goods were produced and manufactured inside the province, it was made a basis for levy of tax, as a result of which one transaction of sale was subjected to levy of sales tax by more than one Provinces resulting in burden on the consumers. These difficulties were well taken care of while framing the Constitution and, G as a result of which we find Articles 286, as it existed in the Constitution, when it was enforced. Relevant Article 286 is reproduced below:-

"Article 286. Restrictions as to imposition of tax on the sale or purchase of goods - (!) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale H

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A or purchase takes place-

(a) outside the State ; or

(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.

B Explanation. - For the purposes of clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such C sale or purchase passed in another State.

(2) Except insofar as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of ariy goods where such sale or purchase takes place in the course of inter-State trade or commerce: D Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the day of March 31, 1951. E (3) No law made by the legislature of a State imposing, or authorizing 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 tbe President and has received his assent. F (7) Entry 54 of List II of Seventh Schedule to the Constitution as it existed on the date of enforcement of the Constitution is extracted below:-

"54. Taxes on the sale or purchase of goods other than newspapers"

G (8) After the commencement of the Constitution, two sets of controversies arose as regards the power of States legislatures to levy sales tax on transactions of sales - firstly, with reference to clauses (I) and (2) of Article 286 as it existed prior to the Sixth Amendment of the Constitution and secondly, with reference to the transactions of works contract. The Explanation to definition of 'sale' in the Bombay Sales Tax Act, 1952 gave rise to first H controversy. The said Explanation provided that sale of any goods which

20TH CENTURY FINANCE CORPN. LTD. 1•. STATE OF MAHARASHTRA [V.N. KHARE, J.J 139

have actually been delivered in the State of Bombay as a direct result of such A, sale for the purposes of consumption in the said State, shall be deemed for the purpose of the Act to have taken place in the State, irrespective of the fact that the property in the goods has, by reason of such sales, passed in another State. The question, therefore, arose as to whether the State legislature of Bombay could levy sales tax on the transactions of sales merely on the basis that goods, as a result of such sales, were located for consumption within its State although sales are exempted under Article 286(2) of the Constitution. The Bombay High Court, on a petition under Article 226 of the Constitution, struck down the aforesaid provision being of the view that the definition of "sale" in the Bombay Sales Tax Act was repugnant to Article 286 of the Constitution. But, the said decision of Bombay High Court was reversed by the Supreme Court in the case of State of Bombay and another v. United Motors (India) ltd. and others,[1953] SCR 1069. However, the controversy did not abate and correctness of decision in the case of United Motors (supra), was doubted and, therefore, it was reconsidered in The Bengal Immunity Company ltd v. The State of Bihar and Ors., [1955] SCR, 603, wherein it was held, as thus: D

"The operative provisions of the several parts of Art. 286, namely clause (l)(a), clause (l)(b), clause (2) and clause (3) are intended to deal with different topics and, one cannot be projected or read into another and therefore the Explanation in clause (!)(a) cannot be legitimately extended to clause (2) either as an exception or as a E proviso thereto or read as curtailing or limiting the ambit of clause (2).

xxx xxx xxx

What is an inter-State sale or purchase continues to be so irrespective of the State where the sale is to be located either under the general law when it is finally determined what the general law is or by the fiction created by the Explanation. The situs of a sale or purchase is wholly irrelevant as regards its inter-State character.

Until Parliament by law made in exercise of the powers vested in it by clause(2) of Art. 286 provides otherwise, 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 and the majority decision in The State of Bombay v. The United Motors (India) ltd., [1953) SCR 1069 in so far as it decides to the contrary cannot be accepted as well founded on H

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A principle or authority."

In nutshell, it was held that situs of a sale, as engrafted in Explanation to Article 286(1 ), as it existed prior to the Sixth Amendment of the Constitution, cannot be applied to clause (2) of Article 286, which related to inter-State trade or commerce and situs of sale is wholly immaterial as regards its inter- B State character.

(9) After the decision in The Bengal Immunity case (supra), certain recommendations were made by Tax Inquiry Commission, proposing certain amendments in the Constitution relating to levy of sales tax. The aforesaid recommendations were accepted and as a result of which the Parliament C passed the Constitution (Sixth Amendment) Act, 1956 whereby, in List I of the Seventh Schedule Entry 92-A was added, which runs as under:-

"92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter- State D trade or commerce."

Entry 54 in List II was substituted which reads as thus:-

"54. Taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92-A of List I". E Sub-clause (g) was added to clause (I) and sub-clause (3) was added to Article 269 of the Constitution, which are extracted below:-

"(g) taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter- State trade or commerce. F (3) Parliament may by law formulate principles for determining when. a sale or purchase of goods takes place in the course of inter- State trade or commerce."

G (10) By virtue of the aforesaid amendment in Article 269, the Parliament was empowered to levy and collect tax on sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce, and also to lay down the principles for determining when sale or purchase of goods takes place in the course of inter-State trade or commerce. The Sixth Amendment also omitted Explanation to clause (!)(a) of Article 286 and further, clauses (2) and (3) of Article 286 were substituted by two new clauses.

20TH CENTURY FINANCE CORPN. LTD. v. STATE OF MAHARASHTRA [V.N. KHARE, J.] 141

Amended Article 286 read as under:- A "286. Restrictions as to imposition of tax on the sale or purchase of goods. - (I) 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 - B (a) outside the State ; or

(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.

(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (I).

(3) Any law of a State shall, insofar as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy rates and other incidents of the tax as Parliament may by law specify."

(I 1) After Sixth Amendment in the Constitution, the Parliament passed an Act known as' The Central Sales Tax Act, 1956'. The objects of the said Act were to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in course of imports into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods· of special importance shall be subject. After the enactment of the Central Sales Tax Act by the Parliament, the first controversy stood resolved.

(12) Yet another controversy, as regards the power of the State legislature to levy sales tax on transactions of works contract remained unresolved. In G Gannon Dunkerley & Co. v. State of Madras, AIR (1954) Madras I 130), the High Court of Madras was of the view that the transaction of work contract was not a contract for sale of goods as defined under the provisions of 'Sales of Goods Act' and, therefore, sales tax is not leviable on the amount received by the contractors from the persons for whom they had constructed building during the relevant assessment year. However, the Kerala High Court, the H

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A then High Court of Mysore, the then High Court of Nagpur and the High Court of Rajasthan were of the view that, States legislatures were competent to pick out from the composite transaction of building contract, which included transfer of property in materials, and make the portion attributable to the cost of such materials subject to payment of sales tax. Ultimately, the Supreme Court, in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., B [1959] SCR 379 held, that in a building contract which is one, entire and indivisible, there is no sale of goods and is not within the competence of the Provincial legislature under Entry 48 of List II in Schedule VII of the Government of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as a 'sale'.· c (13) After the decision of this Court in Gannon Dunkerley case (supra}, States suffered losses as a result of avoidance of Central Sales Tax Act leviable on inter-State sales of goods. Therefore, the matters were referred to the Law Commission of India. The Law Commission, after considering the matters referred to, made certain recommendations suggesting amendments in D the Constitution in order to augment the revenue of the States. In the light of recommendations of the Law Commission, Parliament passed Constitution (Forty-sixth Amendment) Act, whereby a new clause 29-A was inserted in Article 366 of the Constitution, which is extracted below:-

"29-A.-'tax on the sale or purchase of goods' includes - E (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration ;

(b) a tax on the transfer of property in goods(whether as goods or in some other form) involved in the execution of a works contract; F (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; G (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (t) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other

20THCENTURY FINANCECORPN. LTD.1•. STATE OF MAHARASHTRA [V.N. KHARE,J.] 143

article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.

and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."

(14) Simultaneously, a new Entry 92-B was inserted in List I of Seventh Schedule to the Constitution, which is extracted as under:

"92-B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where c. such consignment takes place in the course of inter-State trade or commerce".

(15) In clause (I) of Article 269, a sub-clause (h) was also added and clause (3) of Article 269 was also amended. The amended provisions of D Article 269 is extracted as under:

"(h) taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce..... E (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce."

(16) By Forty-sixth Amendment, Article 286 of the Constitution was also amended by substituting clause (3) by a new clause which reads as thus: F "(3) Any law of a State shall, insofar as it imposes, or authorises the imposition of -

(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or G commerce; (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause(b), sub- clause (c) or sub-clause (d) of clause (29-A) of Article 366 be subject to such restrictions and conditions in regard to the system H

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A of levy, rates and other incidents of the tax as Parliament may by law specify".

( 17) After the Forty-sixth amendment, States legislatures became competent to levy sales tax on deemed sales envisaged in clause (29A) of Article 366 of the Constitution although such transactions were not sales B within the meaning of 'sale' and most of the States legislatures enacted law to levy sales tax on deemed sale in terms of the provisions of clause (29A) of Article 366 of the Constitution, and sought to assess the contractors on the transactions of works contracts. It is at this stage writ petitions were filed in this Court challenging such levy contending, that the power of States C legislatures to levy tax on transfer of property in goods involved in the execution of works contracts referred to in sub-clause (b) of clause (29A) of Article 366, is in excess of power conferred on States legislature under Entry . 54 List II. The respondent-States in those writ petitions defended the levy on the ground that sub-clause (b) of Article 366(29A) bestowed on them a power to levy tax on works contract independent of Entry 54 of List IL This Court D in the case of Builders Association (supra) held, that the power of the State legislature to levy tax on works contract is subject to the limitation contained in clauses (I), (2) and (3) of Articles 286 and 269. Again, in second Gannon Dunkerley 's case (supra), this Court reiterated that levy of sales tax under sub-clause (b) of clause (29A) of Article 366 is subject to the discipline to which any levy under Entry 54 of the State List is made subject to the Constitution, as held in the Builders' Association case (supra).

(18) We have traced the history as regards the power of States legislatures to levy sales tax only to find out as to whether the power of States legislatures to levy sales tax under clause (29A) (d) of Article 366 is subject to same limitations, as noticed in the earlier decisions.

(I 9) Following the decisions referred to above, we are of the view that the power of States legislatures to enact law to levy tax on the transfer of right to use any goods under Entiy 54 of List II of Seventh Schedule has two limitations - one arising out of the Entry itself; which is subject to Entry 92- A of List I, and the other flowing from the restrictions embodied in Article

286. By virtue of Entry 92-A of List I, Parliament has power to legislate in regard to taxes on sales or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes. Because of these restrictions, States legislatures are not competent to enact law imposing tax

20THCENTURYFINANCECORPN. LTD.1•. STATE OF MAHARASHTRA [V.N.KHARE,J.J 145

on the transactions of transfer of right to use any goods which take place in the course of inter-State trade or commerce. Further, by virtue of clause (1) of Art. 286, the State legislature is precluded to make law imposing tax on the transactions of transfer of right to use any goods where such deemed sales take place (a) outside the State and (b) in the course of import of goods into the territory of India. Yet, there are other limitations on the taxing pQwer of the State legislature by virtue of clause (3) of Article 286. Although Parliament has enacted law under clause (3)(a) of Article 286 but no law so far has been enacted by Parliament under clause (3)(b) of Article 286. When such law is enacted by Parliament, the State legislature would be required to exercise its legislative power in conformity with such law. Thus, what we have stated above, are the limitations on the powers of States legislatures on levy of sales tax on deemed sales envisaged under sub-clause (d) of clause (29A) of Article 366 of the Constitution.

(20) While examining the power of States legislatures under Entry 54 of List II in earlier part of this judgment, we have noticed that the situs of . the sale or purchase is wholly immaterial as regards the inter-State trade or commerce, as held in Bengal Immunity Co. Ltd's case. Further, the State legislature cannot by law, treat sales outside the State and sales in the course of import as 'sales within the State' by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate legislature, i.e. Parliament to fix the location of sale by creating legal fiction or otherwise.

(21) It may be noted that the transactions contemplated under sub- clauses (a) to (f) of clause (29A) of Article 366 are not actual sales within the meaning of 'sale' but are deemed sales by legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge made law, and there is no settled principles for determining the situs of.sale. There are conflicting views on this question. One of the principles providing situs of sale was engrafted in Explanation to clause(!) (a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. G The second view is, situs of sale would be the place where the contract is concluded. The third view is, that the place where the goods are sold or delivered would be the situs of sale. The fourth view is, that where the essential ingredients, which complete a sale, are found in majority would be the situs of sale. There would be no difficulty in finding out situs of sale where it has been provided by legal fiction by the appropriate legislature. In H

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