A) ABSTRACT / HEADNOTE

This landmark case, M/s Ram Narain Sons Ltd. v. Asst. Commissioner of Sales Tax and Others, stands as a significant pronouncement by the Hon’ble Supreme Court of India on the scope and interplay of the constitutional bans imposed under Article 286(1)(a) and Article 286(2) of the Indian Constitution regarding taxation of inter-State sales. The issue pivoted around the constitutional validity of sales tax imposed by the State of Madhya Pradesh on inter-State transactions conducted by dealers, including the appellants, involving the movement of goods like kapas and bidis from Madhya Pradesh to other States for consumption. The case deeply analyzed the presidential power under the proviso to Article 286(2) and the extent to which such an order can save State taxation laws from the embargo under Article 286(1)(a), especially when read with its Explanation. The judgment culminated in the declaration that these constitutional bans are independent and cumulative, and that a Presidential Order issued under Article 286(2) cannot lift the ban under Article 286(1)(a). Consequently, the composite tax assessments which included constitutionally exempt transactions were rendered invalid in toto, leading to a remand for fresh assessment.

Keywords: Article 286, inter-State sale, Presidential Order, Explanation to Article 286(1)(a), Sales Tax, Constitutional ban, Madhya Pradesh Sales Tax Act, 1947.

B) CASE DETAILS

i) Judgement Cause Title: M/s Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax and Others

ii) Case Number: Civil Appeals Nos. 132, 133, 137 of 1955; Writ Petition No. 567 of 1954

iii) Judgement Date: 20th September 1955

iv) Court: Supreme Court of India

v) Quorum: S.R. Das (Acting C.J.), Bhagwati J., Jagannadhadas J., Jafer Imam J., Chandrasekhara Aiyar J.

vi) Author: Bhagwati J. (for majority); Dissenting Opinion by Jagannadhadas J.

vii) Citation: (1955) 2 SCR 483

viii) Legal Provisions Involved:

• Article 286(1)(a) and its Explanation

• Article 286(2) and its Proviso

• Central Provinces and Berar Sales Tax Act, 1947, specifically Section 2(g) Explanation II

• The President’s Sales Tax Continuation Order, 1950

ix) Judgments overruled by the Case: None specifically overruled but significantly distinguished The State of Bombay v. The United Motors (India) Ltd., (1953) SCR 1069

x) Case is Related to which Law Subjects:
Constitutional Law, Taxation Law, Inter-State Trade, Administrative Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arose in a constitutional milieu where State sales tax legislation was seeking to extend its jurisdiction beyond State borders post-Constitution. Before the Constitution came into force on 26 January 1950, States levied sales tax based on the nexus theory — that if the situs of the goods or some aspect of the transaction was within the State, the State could levy tax. However, the Constitution in Article 286 imposed territorial limitations on State taxing powers. Specifically, Article 286(1)(a), read with its Explanation, forbade the imposition of taxes on sales that involved delivery outside the State for the purpose of consumption. Meanwhile, Article 286(2) prohibited taxation of sales in the course of inter-State trade or commerce, unless permitted by Parliament or saved by a Presidential Order under its proviso. The heart of the dispute in this case was whether a Presidential Order under Article 286(2) could validate taxes on inter-State sales that were otherwise barred under Article 286(1)(a).

D) FACTS OF THE CASE

The appellants in the connected appeals — M/s Ram Narain Sons Ltd., Eastern Cotton Company, and Ramdas Khimji Brothers — were registered dealers under the Central Provinces and Berar Sales Tax Act, 1947, conducting business in Madhya Pradesh. They acted as agents for mills located outside Madhya Pradesh, purchasing kapas (raw cotton), processing it within the State, and dispatching it to these mills. Another appellant in the writ petition was a bidi manufacturer in Jabalpur, Madhya Pradesh, who similarly dispatched bidis to branches and customers outside the State.

Despite these transactions involving goods delivered for consumption outside the State, the Assistant Commissioner of Sales Tax included them in the appellants’ taxable turnover and assessed sales tax. The assessments included periods both before and after the Constitution came into force. The appellants contested these assessments before the High Court under Article 226, which upheld the assessments based on the Presidential Order dated 26 January 1950 under Article 286(2), prompting the appeals to the Supreme Court under Article 132.

E) LEGAL ISSUES RAISED

i) Whether the Presidential Order under the proviso to Article 286(2) was competent to override the ban imposed under Article 286(1)(a) read with its Explanation?

ii) Whether the Explanation II to Section 2(g) of the Central Provinces and Berar Sales Tax Act, 1947 validly authorized tax on transactions that resulted in delivery for consumption outside the State?

iii) Whether a composite assessment that includes constitutionally exempt transactions is invalid in toto?

F) PETITIONER/APPELLANT’S ARGUMENTS

i) The counsels for the petitioners, led by M.C. Setalvad, Attorney General of India, argued that the transactions in question, involving delivery of goods outside Madhya Pradesh, were clearly “outside sales” as defined in Article 286(1)(a) and its Explanation. They contended that the situs of sale was statutorily fixed at the place of delivery for consumption, which was outside Madhya Pradesh, thereby attracting the ban under Article 286(1)(a). Thus, even if these transactions also qualified as inter-State sales, and even if the President’s order under Article 286(2) lifted the inter-State embargo, it could not remove the ban under Article 286(1)(a) which stood independently.

Further, they argued that the Presidential Order was limited by its own wording which stated that it operated “notwithstanding that the imposition of such a tax is contrary to the provisions of this clause,” i.e., only Article 286(2). The non-obstante clause made clear the confined scope of the Presidential saving. They relied on the majority in The Bengal Immunity Co. Ltd. v. The State of Bihar, (1955) 2 SCR 603, which had clarified that each ban under Article 286 was independent, and all had to be satisfied before a State could levy tax.

G) RESPONDENT’S ARGUMENTS

i) The counsels for the State of Madhya Pradesh, led by T.L. Shevde, Advocate-General, argued that the transactions were conducted by dealers situated within the State, and thus the situs of the transaction and the economic incidence fell within their legislative competence. They further submitted that since the transactions fell within the scope of inter-State commerce, they attracted Article 286(2), and therefore the Presidential Order dated 26th January 1950 validated these levies for a limited period.

They also contended that it would be illogical and purposeless to save a tax under Article 286(2) via the President’s order if that tax would still fall foul of Article 286(1)(a). They interpreted the Explanation to Article 286(1)(a) narrowly, asserting that it should not override the explicit saving granted by the President under Article 286(2).

H) RELATED LEGAL PROVISIONS

i) Article 286(1)(a): Prohibits taxation on sales taking place outside the State.
Explanation: Declares that sales resulting in delivery for consumption in another State shall be deemed to take place in that State.
ii) Article 286(2): Prohibits taxation on inter-State sales, unless Parliament permits.
Proviso to Article 286(2): Empowers the President to temporarily allow taxes levied prior to Constitution to continue.
iii) Section 2(g) Explanation II, Central Provinces and Berar Sales Tax Act, 1947: Deemed sales to take place in the State if goods were present at the time of contract, irrespective of delivery destination.

H) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court, in majority, held that Article 286(1)(a) and Article 286(2) are distinct and cumulative bans. Each must be separately satisfied for a tax to be valid. A Presidential Order under the proviso to Article 286(2) cannot override or lift the ban imposed by Article 286(1)(a).

ii) If a transaction qualifies as a sale resulting in delivery for consumption in another State, it is statutorily deemed to have occurred outside the State, and the State cannot tax it, regardless of where the sale contract was made or who effected it.

iii) The Explanation II to Section 2(g) of the 1947 Act offended the Constitution because it allowed taxation of sales that were constitutionally outside the State under Article 286(1)(a), and hence was ultra vires to that extent.

iv) When a composite assessment includes both taxable and exempt transactions in one undivided sum, and the exempt portion is not negligible, the whole assessment stands invalid.

b. OBITER DICTA 

i) The Court observed that accepting the respondent’s contention would allow multiple taxation by multiple States — such as origin, destination, and situs States — which would defeat the objective of Article 286 and disrupt economic federalism.

ii) They clarified that statutory legal fiction, as created by the Explanation, must be fully respected, and cannot be set aside by administrative convenience or fiscal policy arguments.

c. GUIDELINES 

1. Article 286(1)(a) and its Explanation must be read strictly and independently.

2. Presidential Orders under Article 286(2) cannot lift bans under Article 286(1).

3. Inter-State sale analysis must include situs test and purpose-of-consumption delivery.

4. Composite assessments must not include exempt sales; if they do, the entire order is void.

5. Sales Tax Acts must comply with the territorial limitations under the Constitution.

I) CONCLUSION & COMMENTS

This judgment cemented the doctrine that each constitutional limitation under Article 286 stands on its own footing, and emphasized federal integrity in fiscal matters. It upheld constitutional supremacy over expedient taxation, providing much-needed clarity post-Constitution adoption. The Court’s insistence on separating constitutional fields of non-taxation curbed the misuse of State laws to encroach on inter-State trade. It also protected dealers from arbitrary composite assessments, forcing tax authorities to follow precision and constitutional boundaries. The dissent by Jagannadhadas J. argued for a broader reading of the Presidential Order to avoid futility but was overridden by a more textually faithful and principled interpretation.

J) REFERENCES

a. Important Cases Referred

[1] The Bengal Immunity Co. Ltd. v. The State of Bihar, (1955) 2 SCR 603
[2] State of Bombay v. United Motors (India) Ltd., (1953) SCR 1069
[3] State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory, (1954) SCR 53
[4] Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City No. 5, (1951) AC 786
[5] Shriram Gulabdas v. Board of Revenue, ILR 1953 Nag 332
[6] Montreal Light, Heat & Power Consolidated v. City of Westmount, (1926) SCR (Canada) 515

b. Important Statutes Referred

[1] Constitution of India, Articles 286(1)(a), 286(2)
[2] Central Provinces and Berar Sales Tax Act, 1947, Section 2(g) Explanation II
[3] Sales Tax Continuation Order, 1950 by President of India