A) ABSTRACT / HEADNOTE

This landmark constitutional law judgment examined the constitutional limits on a State’s power to impose a sales tax on inter-State sales, in light of Article 286 of the Indian Constitution. The case arose under the Bombay Sales Tax Act, 1952, where the State of Bombay attempted to levy tax on transactions deemed to involve goods delivered in the State for consumption, regardless of where the sale actually took place. The respondents, being motor vehicle dealers, challenged this under Article 226, asserting that their fundamental rights under Article 19(1)(g) were violated. The Bombay High Court ruled in favour of the respondents, declaring the Act void. The State appealed to the Supreme Court.

The majority of the Supreme Court upheld the constitutional validity of the Act (except a specific sub-rule) and clarified the operation of Article 286(1) and (2). It held that sales involving delivery for consumption within a State could be taxed by that State, even if the sale contract was executed elsewhere. The majority ruled that only the State where the goods are delivered for consumption has the power to tax under Article 286(1)(a) Explanation, thus avoiding double taxation. However, a sub-rule requiring specific modes of consignment for exemption under inter-State sales was struck down as ultra vires. Justice Bose dissented, asserting that the entire Act was unconstitutional. The judgment marked a pivotal moment in interpreting federal taxation powers and constitutional trade freedoms in India.

Keywords: Sales Tax, Inter-State Commerce, Article 286, Constitutional Law, Fundamental Rights, Bombay Sales Tax Act

B) CASE DETAILS

i) Judgment Cause Title: The State of Bombay and Another v. The United Motors (India) Ltd. and Others

ii) Case Number: Civil Appeal No. 204 of 1952

iii) Judgment Date: 30 March 1953

iv) Court: Supreme Court of India

v) Quorum: Patanjali Sastri C.J., Mukherjea J., Vivian Bose J., Ghulam Hasan J., and Bhagwati J.

vi) Author: Patanjali Sastri C.J. (majority opinion), Bose J. and Bhagwati J. (separate opinions)

vii) Citation: AIR 1953 SC 252; 1953 SCR 1069

viii) Legal Provisions Involved:

• Constitution of India, Articles 14, 19(1)(g), 226, 246, 286, 301, 304

• Bombay Sales Tax Act, 1952, Sections 2(14), 5, 6, 7, 10, 11, 45

• Bombay Sales Tax Rules, 1952, Rules 5, 6

ix) Judgments Overruled: None explicitly overruled

x) Law Subjects: Constitutional Law, Taxation Law, Commercial Law, Fundamental Rights

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This case revolves around a significant constitutional question: the power of State legislatures to impose tax on inter-State trade. Post-Constitution, this was regulated primarily by Article 286, which imposed restrictions on States from taxing sales that occur:

• Outside their territory,

• During import/export,

• In the course of inter-State commerce unless authorized by Parliament.

The Bombay Sales Tax Act, 1952, imposed taxes on “sales within the State”, but with a unique explanation that considered goods delivered into Bombay for consumption as being sold within the State, regardless of where title passed. This concept of “deemed delivery for consumption” lay at the heart of the constitutional contest. The respondents, major motor dealers, challenged this on grounds of infringement of their fundamental rights and the ultra vires nature of the Act under Article 286. The High Court sided with them, leading to the State’s appeal before the Supreme Court.

D) FACTS OF THE CASE

The Bombay Sales Tax Act, 1952, imposed general and special sales taxes on dealers based on turnover. The definition of “sale” was expanded to include any transaction where goods were delivered into Bombay for consumption, even if the sale occurred in another State.

The respondents, seven dealers engaged in the business of selling motor cars, challenged the Act under Article 226, asserting that:

• It taxed inter-State transactions, violating Article 286(1)(a) and 286(2).

• It imposed discriminatory burdens contrary to Article 14.

• It infringed upon their right to trade under Article 19(1)(g) by requiring registration and licensing even when sales occurred outside Bombay.

The High Court ruled in their favour, striking down the Act. The State of Bombay, represented by its Advocate-General, appealed to the Supreme Court.

E) LEGAL ISSUES RAISED

i. Whether the Bombay Sales Tax Act, 1952, was ultra vires the State Legislature under Article 286?

ii. Whether the Act imposed a tax on inter-State sales in violation of Article 286(2)?

iii. Whether the definition of “sale” under Section 2(14) of the Act violated the Constitution?

iv. Whether the Act violated fundamental rights under Articles 14 and 19(1)(g)?

v. Whether Rules made under the Act could cure constitutional defects in the Act itself?

F) PETITIONER / APPELLANT’S ARGUMENTS

i. The counsels for Petitioner / Appellant submitted that:

• The Bombay Sales Tax Act validly taxed sales that culminated in delivery of goods within Bombay for consumption, per the Explanation to Article 286(1)(a).

• The Act, when read with Rules 5 and 6, effectively excluded inter-State and export/import sales, thus complying with Article 286(2).

• The “deemed sale” doctrine in the Explanation enabled the delivery State (Bombay) to tax such transactions, thereby avoiding double taxation.

• The distinction in taxable turnover thresholds (Rs. 30,000 general, Rs. 5,000 special) was a reasonable classification, not discriminatory under Article 14.

• Registration and licensing provisions did not restrict business, but were regulatory measures facilitating tax collection.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that:

• The definition of “sale” under the Act was unconstitutionally wide, covering transactions beyond the State, violating Article 286(1)(a).

• The Act did not expressly exclude inter-State or import/export sales, thereby making it wholly void.

• The Rules, being subordinate legislation, could not save an unconstitutional Act, as held in prior precedents.

• Even if parts of the Act were valid, the bad portions could not be severed, thus making the entire Act invalid.

• The fundamental rights under Article 19(1)(g) were violated due to forced registration/licensing for even non-taxable transactions.

H) RELATED LEGAL PROVISIONS

i. Article 286 of the Constitution of India
ii. Article 301 and 304 – Free trade across India
iii. Sections 2(14), 5, 10, 18 of Bombay Sales Tax Act, 1952
iv. Rules 5 and 6 of Bombay Sales Tax Rules, 1952

I) JUDGEMENT

a. RATIO DECIDENDI

i. A State cannot tax inter-State sales unless it is the State where goods are delivered for consumption, per Article 286(1)(a) Explanation.

ii. Article 286(2) prohibits States from taxing inter-State sales unless permitted by Parliament. However, sales deemed local under the Explanation escape this bar.

iii. The Bombay Act, when read with Rules 5 and 6, did not violate Article 286. The rules formed part of the legal framework and cured any ambiguity in the Act.

iv. The condition in Rule 5(2)(i), which mandated goods be consigned through specific carriers to claim exemptions, was ultra vires, being unreasonable and discriminatory.

v. However, this provision was severable, and the remainder of the Act remained valid.

b. OBITER DICTA

i. The non obstante clause in the Explanation to Article 286(1)(a) was not meant to uphold dual State taxation but only to assign taxing power to the State of delivery.

ii. Subordinate legislation cannot validate a void statute, but when enacted simultaneously and intended to form a complete code, they must be read harmoniously.

c. GUIDELINES 

1. Only the State where goods are delivered for consumption can tax the sale under Article 286(1)(a).

2. Rules should align with the Constitution and must not restrict rights or create artificial barriers beyond statutory intent.

3. The entire Act should not be struck down if the invalid parts are severable and the rest is constitutionally valid.

I) CONCLUSION & COMMENTS

This ruling clarified the intricate interplay between State taxing powers and inter-State trade freedoms. By upholding the Bombay Sales Tax Act (barring a minor rule), the Court cemented the principle that States can tax sales resulting in delivery for consumption within their territory, even if part of the transaction occurred elsewhere. It also stressed the importance of harmoniously reading statutes and rules.

This judgment remains a cornerstone in Indian fiscal federalism, safeguarding State autonomy while preserving the unitary commercial fabric envisioned under Articles 301-304. Justice Bose’s dissent highlights the ongoing tension in interpreting taxing powers and constitutional boundaries, a theme that remains relevant even in today’s GST regime.

J) REFERENCES

a. Important Cases Referred

1. Mohammad Yasin v. Town Area Committee, Jalalabad, [1952] SCR 572

2. Punjab Province v. Daulat Singh, [1942] F.C.R. 67

3. Delhi Laws Act, In Re, [1951] SCR 747

4. Bowman v. Continental Co., 256 U.S. 642

5. Wallace Bros. v. C.I.T., [1948] SCR 1

6. Central Provinces and Berar Sales Tax Act Case, [1939] F.C.R. 18

b. Important Statutes Referred

1. Constitution of India, Articles 14, 19(1)(g), 226, 286, 301, 304

2. Bombay Sales Tax Act, 1952, Sections 2(14), 5, 10, 18, 45

3. Bombay Sales Tax Rules, 1952, Rules 5, 6