A) ABSTRACT / HEADNOTE

This case presents a landmark constitutional decision by the Supreme Court of India on the scope and application of Article 286 of the Indian Constitution, which governs sales tax on inter-State trade. The appellant, The Bengal Immunity Company Ltd., was a pharmaceutical company based in Calcutta, West Bengal. It challenged the validity of notices issued under the Bihar Sales Tax Act, 1947, which sought to tax its sales in Bihar, despite having no presence or operations in that State. The judgment primarily addressed whether sales involving inter-State elements can be taxed by a State in the absence of specific legislation by Parliament.

In this pivotal decision, the Supreme Court overruled its earlier judgment in The State of Bombay v. United Motors (India) Ltd. (1953 SCR 1069) and clarified that no State has the authority to tax inter-State sales unless Parliament enacts a law to that effect under Article 286(2). The Court further clarified that the Explanation to Article 286(1)(a), which deemed sales delivered for consumption in a State as occurring in that State, cannot override the prohibition in Article 286(2). The case significantly impacted the interpretation of federal taxation powers, inter-State commerce, and judicial review, and redefined the principle of constitutional supremacy over prior judicial decisions.

Keywords: Article 286, Inter-State Trade, Sales Tax, Constitutional Law, Judicial Review, Bihar Sales Tax Act, Explanation Clause, Federalism, Supreme Court, Overruling Precedent.

B) CASE DETAILS

i) Judgement Cause Title: The Bengal Immunity Company Limited v. The State of Bihar and Others

ii) Case Number: Civil Appeal No. 159 of 1953

iii) Judgement Date: 6th September 1955

iv) Court: Supreme Court of India

v) Quorum: S. R. Das (Acting C.J.), Vivian Bose, Bhagwati, Jagannadhadas, Venkatarama Ayyar, B. P. Sinha, and Jafer Imam JJ.

vi) Author: S. R. Das, Acting Chief Justice

vii) Citation: (1955) 2 SCR 603

viii) Legal Provisions Involved:

• Article 286(1)(a), 286(2), 286(3) of the Constitution of India

• Article 226, Article 141, and Article 245

• Section 13(5) of the Bihar Sales Tax Act, 1947

• Explanation to Article 286(1)(a)

ix) Judgments Overruled by the Case (if any):
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, Federalism, Administrative Law, Inter-State Commerce Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute originated when the State of Bihar issued a notice under Section 13(5) of the Bihar Sales Tax Act, 1947, directing the Bengal Immunity Company, located in Calcutta, to register under the Act and pay sales tax for goods delivered in Bihar. The company had neither an office, nor an agent, nor any direct business presence in Bihar. It contended that it sold goods in Calcutta, where the contract was accepted, and goods were sent via rail or air to various buyers across India, including Bihar.

The central constitutional question was whether Bihar could tax such transactions as “sales” within the State, relying on the Explanation to Article 286(1)(a). This Explanation deemed a sale to have taken place in the State where goods were delivered for consumption. However, the appellant challenged this by invoking Article 286(2), which bars States from taxing inter-State trade unless authorized by Parliament.

The issue also brought to light the power of the Supreme Court to review its own prior decisions, especially the controversial majority judgment in United Motors Case. In a major departure, the Supreme Court adopted a progressive interpretive approach and emphasized the need to prevent multiple and conflicting State taxes on inter-State trade. The judgment highlighted the supremacy of the Constitution and Article 286(2) over any deeming fictions created by an Explanation.

D) FACTS OF THE CASE

The Bengal Immunity Company Limited was a pharmaceutical manufacturer registered in West Bengal. It received orders from all over India, including from parties in Bihar. The company would accept these orders in Calcutta and dispatch the goods from there. These deliveries were usually for consumption in the recipient States.

On 24 October 1951, the Bihar tax authorities asked the company to register under the Bihar Sales Tax Act, 1947. Subsequently, on 18 December 1951, a notice under Section 13(5) was issued, demanding submission of returns for the period between 26 January 1950 to 30 September 1951. The company contested its liability on the ground that it was not present in Bihar and had no local business operations. It further argued that the sales took place entirely in West Bengal, where contracts were concluded and goods dispatched.

The State of Bihar, however, asserted its authority based on the Explanation to Article 286(1)(a), claiming that since the goods were delivered in Bihar for consumption, the sales had to be taxed there. The company approached the Patna High Court under Article 226, which dismissed the petition. The matter reached the Supreme Court under Article 132.

E) LEGAL ISSUES RAISED

i. Whether the Explanation to Article 286(1)(a) permits a State to tax inter-State sales merely because goods are delivered there for consumption.

ii. Whether Article 286(2) prohibits all States from taxing sales that occur in the course of inter-State trade unless Parliament legislates otherwise.

iii. Whether the Bihar Sales Tax Act, 1947, in taxing such inter-State transactions, is ultra vires the Constitution.

iv. Whether a petition under Article 226 was maintainable when the assessment proceedings had not concluded.

v. Whether the Supreme Court can overrule its previous decision in The United Motors Case.

F) PETITIONER/APPELLANT’S ARGUMENTS

i. The counsels for Petitioner / Appellant submitted that the sale transactions were inter-State in nature as goods were dispatched from West Bengal to Bihar pursuant to contracts accepted in Calcutta.

ii. They argued that under Article 286(2), a State law cannot tax inter-State sales unless Parliament permits such taxation.

iii. The Explanation to Article 286(1)(a) does not override Article 286(2) and merely clarifies what constitutes an “outside sale”. It does not grant taxing power to the State of delivery.

iv. The Act infringed Article 265, as tax cannot be levied without authority of law; and Article 19(1)(g), as it imposed restrictions on the fundamental right to trade without justification.

v. They emphasized that no alternative remedy was adequate because the statute was itself unconstitutional. Thus, the Article 226 petition was maintainable.

vi. They invoked the principles in Commissioner of Police v. Gordhandas Bhanji (1952 SCR 135) and Himmatlal Harilal Mehta v. State of MP (1954 SCR 1122) to argue that the notice itself was a threat warranting judicial interference.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that the Explanation to Article 286(1)(a) specifically authorized Bihar to tax sales when goods were delivered there for consumption.

ii. The State argued that the impugned transactions became intra-State sales by virtue of the Explanation and hence did not attract the embargo of Article 286(2).

iii. They relied on the United Motors Case and claimed that Bihar had a real and sufficient nexus to the sale, justifying taxability.

iv. They asserted that the Act was not extra-territorial and fell within legislative competence under Article 246(3) read with Entry 54, List II.

v. They claimed the petition under Article 226 was premature, as no actual assessment had been made and an alternate remedy existed.

H) JUDGEMENT

a. RATIO DECIDENDI

i. The Supreme Court held that the Explanation to Article 286(1)(a) does not curtail the scope of Article 286(2).

ii. Inter-State sales, even if deemed to have taken place in a consuming State under the Explanation, still remain protected under Article 286(2) until Parliament legislates otherwise.

iii. The Bihar Sales Tax Act, in seeking to tax inter-State sales without such legislation, was held to be ultra vires, illegal and void.

iv. The Supreme Court explicitly overruled the majority view in The United Motors Case and emphasized that no State can tax inter-State sales unless authorized by Parliament.

b. OBITER DICTA 

i. The Court observed that it can overrule its own prior decisions if they were incorrectly decided and have a baneful impact on public interest.

ii. It clarified that Article 141 does not bind the Supreme Court to its own decisions and is applicable only to subordinate courts.

c. GUIDELINES 

• The Supreme Court reaffirmed that:

  • A State cannot tax inter-State sales without Parliamentary authorization.

  • Explanation clauses cannot override substantive constitutional limitations.

  • Judicial review is available even before formal assessment proceedings if constitutional rights are threatened.

I) CONCLUSION & COMMENTS

This case reshaped India’s federal taxation structure and placed clear constitutional limits on State taxation powers over inter-State commerce. It also reestablished the primacy of constitutional interpretation over prior judicial precedent and laid down strong safeguards for taxpayers engaged in national trade. By reaffirming that judicial precedent is not sacrosanct when found erroneous, the Court displayed judicial dynamism. It continues to be cited in constitutional, taxation, and administrative law cases involving Article 286 and inter-jurisdictional disputes.

J) REFERENCES

a. Important Cases Referred

i. The State of Bombay v. The United Motors (India) Ltd., [1953] SCR 1069
ii. Commissioner of Police, Bombay v. Gordhandas Bhanji, [1952] SCR 135
iii. Himmatlal Harilal Mehta v. State of Madhya Pradesh, [1954] SCR 1122
iv. Mohammad Yasin v. The Town Area Committee, [1952] SCR 572
v. Ramjilal v. Income-Tax Officer, Mohindargarh, [1951] 2 SCR 127

b. Important Statutes Referred

i. Constitution of India – Articles 141, 226, 286(1)(a), 286(2), 286(3), 19(1)(g), 265, 245
ii. Bihar Sales Tax Act, 1947 – Section 13(5), Section 33