TIKA RAM & SONS LTD. ETC. vs. THE COMMISSIONER OF SALES TAX U.P., LUCKNOW

out of such order. ( 2) If, for reasons to be recorded in writing, the Revising Authority refuses to make such reference, the applicant may, within thirty days of such refusal, either- ( a) withdraw his application (and if he does so, the fee shall be refunded), or (b) apply to the High Court against such refusal. ( 3) If upon the receipt of an application under claUSe (b) of sub-section (2), the High Court is not satisfied that such refusal was justified, it may require the Revising Authority to state a case and refer it to the High Court and on receipt of such requisition the Revising Authority shall state and refer the case accordingly. ( 4) If the High Court is not satisfied that the statement in a case referred under this section is suffi- cient to enable it to determine the question raised thereby, it may refer the case back to the Revising Authority to make such additions thereto or alterations therein as the High Court may direct in that behalf. " ........................................ By the Amending Act of 1954 (U.P. Act VIII of 1954) which came into force on April 1, i 954 the following provisions were substituted in place of sub-sections ( 1), ( 3) and ( 4) :- " (1 ) Within one hundred and twenty days from the date of service of the order under sub-secti.on ( 3) of section 10, the person aggrieved, may, by application in writing .......... require the Revising Authority to refer to the High Court any question of Jaw arising out of such order ...........• (3) The provisions of sub-section (1) shall also be applicable to the Commissioner of Sales Tax with the modification that it shall not be necessary for hint to deposit any fee . • < 4) If on any application being made under sub- section ( 1 ) or ( 3) the Revising Authority refuses to state the case. , .......• the person aggrieved or the Commissioner of. Sales Tax as the case m11y be, may • • . . ..... apply to the High Coart .......... " It wa;i argued by Mr. Chagla in the first place that cl. (ii) of Explanation II to s. 2(h) of the Act means that the goods should have been manufactured and produced in Uttar Pradesh for sale 1"·· [1968] 3 S.C.R. to the person who had contracted to buy them. In other words, there must be a contract for the sale before manufacture or pro- duce. It was pointed out that in the present case the contract was entered into after the goods were manufactured and exported out of Uttar Pradesh. It was contended that as a matter of construction Explanation II does not cover these sales and the deeming provision will not make the appellants liable to pay sales-tax in regard to such sales. We are unable to accept this argument as correct. There is nothing in the language or con- text of Explanation II to suggest that the goods should be pro- duced or manufactured in Uttar Pradesh after the contracts for sale had been entered into. There is hence no warrant for the argument that for attracting the tax liability the goods must have been manufactured or produced after and not before the agree- ment for sale. In other words, it is only necessary for the appli- cation of Explanation II that the goods must have been sold by the person who produced or manufactured them but there is no requirement that he must have manufactured or produced them after the agreement for sale. . It is the admitted position in these appeals· that the goods were manufactured or produced in Urtar Pradesh by the appellants carrying on business in Uttar Pradesh in those good~ and therefore the appellants are liable to pay the tax on their sales irrespective of where and when the contracts for sale were entered into and also irrespective of the fact that the contracts were entered. into after the goods had lieen exported out of Uttar Pradesh. We accordingly hold that the first question was rightly answered by the High Court. We proceed to consider the next, and more important, ques- tion arising in these appeals, namely, whether the deeming provi- sion contained in s. 2(h) Explanation II(ii') of the Act was ultra vires the Government of India Act, 1935. It was argued by Mr. Chagla that the doctrine of nexus was not applicable to sales-tax legislation, because such legislation was concerned with the tax on the transaction of sale, that is to say, a completed sale and to break up a sale into its component parts and to take one or more such parts and to apply the theory to it would mean that the State would be entitled to impose tax on one or more of the ingredients or constituent elements of the transaction of sale which by itself will not amount to a sale. An identical question has been the subject-matter of consideration by this Court in The Tata Iron & Steel Co., Ltd. v. The State of Bihar(1). It was held in that case that the provisions of s. 4 ( 1 ) read with s. 2 ( g) second pro- vi8o, of the Bihar Sales Tax Act, 1947 as amended by the Bihar Sales Tax Amendment Act, 1949 were within the legislame competency of the Provincial Legislature of Bihar. The second proviso added by the amending Act did not extend the meaning (I) [19511 S.C.R. ll55. B c D E F G H

A B c D E F G H TIKA RAM & SONS v. C.S.T. (Ramaswami, J.) 519 of the expression "sale" so as to include a contract of sale ; what it actually did was to lay down certain circumstances in which a sale, although completed elsewhere, was to be deemed to have taken place in Bihar. The circumstances mentioned in th!l Pro· viso to s. 2 ( g) of the Bihar Sales Tax Act, namely, the presence of the goods in Bihar at the date of the agreement of sale or their production or manufacture there must be held to constitute a sufficient nexus between the taxing Province and the sale wherever that might lake place. It is manifest that a transaction of sale is a composite transaction and consists of legal ingredients like agree- ment of sale, passing of title and delivery of goods bµt it is not necessary for the purpose of legislative juri iction that all legal ingredients of sale or even the transfer of title should have taken place inside the Province. It is sufficient if there is a proper territorial nexus or connection between the taxing autho- rity and the transaction sought to be taxed. . The fact that the goods are manufactured in the Province constitutes a real and pertinent nexus or connection which confers juri iction upon the Provincial Legislature to impose the tax. In dealing with the question whether the production or manufacture of goods consti- tuted a sufficient nexus to the subject-matter of taxation, S. R. Das, C.J., observed as follows : "For the purpose of the present case it is sufficient to state that in a sale of goods the goods must of necessity play an important part, for it is the goods in which, as a result of the sale, the property will pass. In our view the presence of the goods at the date of the agreement for sale in the taxing State or the production or manufac- ture in that State of goods the property wherein even- tually passed as a result of the sale wherever that might have taken place, constituted a sufficient nexus betweep. the taxing State and the sale. In the first case the goods are actually within the State at the date of the agreement for sale .and the property in those goods will generally pass within the State when they are ascertained by ap- propriation by the seller with the assent of the purchaser and delivered to the purchaser or his agent. Even if the property in those goods passes outside the State the ulti- mate sale relates to those very goods. In the second case the goods, wherein the title passes eventually 011tside the State, are produced or manufactured in Bihar and the sale wherever that takes place is by the same person who produced or manufactured the same in Bihar. The pro- ducer or manufacturer gets his sale price in respect of goods which were in Bihar at the date when the imporc . tant event of agreement for sale was made or which were produced or manufactured in Bihar. These are rele- vant facts on which the State could well fasten its tax."

I (19~) 3 S.C.R. The principle of this decision was reiterated ·by this Court in a subsequent case-Bharat Sugar Mills Ltd. v. The State of Bihar('). Jn The Tata Iron & Steel Co. Ltd. v. The State of Blhar('), the course of dealing between the manufacturers and the purchasers was described as follows : "The intending purchaser has to apply for a permit to the Iron and Steel Controller at Calcutta, who forwards the requisition to the Chief Sales Officer of the assessec working in Calcutta. The Chief Sales Officer thereafter makes a 'works order· and forwards it to Jamshedpur. The 'works order' mentions the complete spec.llication of the goods required. After the receipt of the 'works order' the J amshedpur factory initiates a 'rolling' or 'manufac- turing' programme. After the goods are manufactured, the J amshedpur factory sends the invoice to the Con- troller of Accounts who prepares the forwarding notes, and on the basis of these forwarding notes, railway receipts are prepared. The goods are loaded in the wagons at Jamshedpur and despatched to various sta- tions, but the consignee in the railway receipt is the assessee itself and the freight also is paid by the assessee. The railway receipts are sent either to the branch offices of the assessee or to its bankers, and after the purchaser pays the amount of consideration, the railway receipt is delivered to him. These facts are admitted and the cor- rectness of these facts are not disputed by the State of Bihar." In our opinion, the ratio of this decision applies to the present case and it must be accordingly held that Explanation II to s. 2(h) of the Act is not ultra vires as being outside the legislative competence of the State of Uttar Pradesh. Reference was made in he course of argument to the recent decision of this Court in K. S. Venkataraman & Co. v. State of Madras(") in which it was held by' the majority judgment that an authority created by a statute cannot question the vlres of. the statute or any of the provisions thereof under which it functions. The authority must act under the Act and not outside it and if it acts on the basis of a provision of that statute which is ultra vires, to that extent it would be acting outside the Act. In that event, a suit to question the validity of such an order made outside the Act would lie in a civil court. In this context it was pointed out by the majority judgment that the reasoning of the Judicial Com- mittee in Raleigh l11vestment Co.(') case was based upon the 1!5- sumption that the question of ultra vires can be canvassed and finally decided through the machinery provided under the Income- (!) 11 S.T.C. 793. 0) [195'] S.C.R. 1355, (3) [!'l66] 2 S.C.R. 229. (4) 74 I.A. SO. A B c D E F G H

A B c D E F G H TIKA RAM & SONS v. C.S.T. '(Ramaswami, J.) 52'! tax Act. The Judicial Committee 'held' that s. 67 of. the Income- tax Act, 1922' was'·a bar to the maintainability of tlie suit.·, T)ie argument on behalf of 'the assessee in that c~e 'was that an asse5s- ment was not an assessment "made under the Act" if the assess- ment gave effect to a provision which was ·ultra vi res the Indian Legislature; that in law such a proyision, being a nullity, was non- existent; and that an assessm!)nt justifiable in who)e or in part by reference to, ·or by suc)l a provision was more ap.tly described as an assessment not ·made under the Act than as an llSSessment made under the Act. The argument was negatived by the Judicial Committee for the reason that the circumstance that the assessing officer had taken into account an ultra vires provision of the Act was immaterial in detennining whether the assess111ent'was "made under the Act". The main reason that persuaded the Judicial Committee to accept the construction.they placed on s. 67 of the 1ncome-tax Act may be stated in theii' own words as follows: "'The absence of such machinery would greatly assist, the appellant on the question •of construction and, in- deed, it may be added that;if-there were no such machi- nery and if the ~ection affected fo preclude the High Court in its ordinary civil juri iction from considering a point of 11/tra vires, there would be a serious question whether the opening part of the section, s0 far ,as jt de- barred the question of ultra vires ,being debated fell \vithin the competence of the legislature." -.... It was held by this Court in K. S. Venkataraman & Co. v. ·State of· Madras(') that the assumption underlying the reasoning of the Judicial Committee was not correct and it was ·µot open to the Income-tax; Oflicer the Appellate Assistant Commissioner and the Appellate Tribunal to decide any question Jls io the ulfra vires character of any provision of the Income-tax Act. In otherwords, the question' of 11/tra vil'es could not be deemed to arise' out of the Tribunal's order and if an assessee raises such. a question, the Tri- bunal.can ouly reject it on the grounc;l that lt •has ·no juri iction to entertain the objection _or to decide upon it. The High Court also cannot possibly' give any decision on the question of ultra vires, because it~ juri iction ,under s. 66 is a special advisory juri iction and its scope -is strictly limited. 0.n behalf of the appellants it was suggested that in the present ca8e- 'the ·Revising Authority under the Act cannot. on a simjlat line of reasoning; refer to the HiglrCoutt any question regarding tlie eonstitutional validity of Explanation Yr of s. 2(h) of the Act. It was,h,owever. pointed out on behalf of the respondents that in a number of c'ases in which proceedings relating to taxation have reached the High Courts by way of a reference. appeal or revision, the question of constitu- ~~~~~~~~~~·- ' (ll [l'J6~] 2 S.C.R. 2~'>. q

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[1968] 3 S.C.R. tionaI validity of the statute under which the authority functioned was raised, entertained and decided. For instance, in Tata Iron & Steel Co. Ltd. v. State of Bihar(') a reference was made by the Board of Revenue raising questions as to the. validity of certain provisions of the Bihar Sales-tax Att and decided by the High Court, and ultimately by this Court. Similarly, in Sardar Baldev Singh v. C.I.T., Delhi & Ajmer(2 ) in an appeal from ilie order of the Income-tax Appellate Tribunal with special leave, the consti- tutional validity of s. 23A of the Indian Income-tax Act, 1922 was permitted to be challenged. Again, in Navinchandra Ma/at/a/ v. The C.I.T., Bombay City(') in l!- referenee under s. 66(1) of the Indian Income-tax Act, 1922 a question as to the vires of s. 12-B of the Indian Income-tax Act was raised before the Income-tax Appellate Tribunal and was referred to the Bombay High Court. This Court in appeal from the opinion expressed by the Higli Court on the reference also considered that question. Also, in Gannon Dunkerley & Co. v. State of Madras('), the proceeding reached the High Court of Madras in a revision petition under s. 12-B of the Madras General Sales Tax Act, 1939 and the High Court entertained the plea of ultra vires and decided it in favour of the tax-payer. It is, however, not necessary in the present case for us to decide the question as to whether the principle laid down in K. S. Venkataraman's case(') is applicable. The reason is that the appellants did not challenge the juri iction of the High Court to examine the question of law regarding the constitutional vali- dity of Explanation II to s. 2(h) of the Act. Nor was any such challenge made in the Special Leave Petition to this Court _or in the statement of the case. On the contrary, the appellant has itself applied to the Judge, Revisions under s. 10 of the Act con- tending the Explanation II to s. 2(h) was ultra vires. It is not therefore open to the appellants to deny the juri iction of the Revisional Authority to decide the question or to challenge the juri iction of the High Court to examine the question of law referred to it under s. 11 of the Act and to pronounce upon the constitutional validity of the impugned section. In. other words. it must be taken that the appellants had voluntarily submitted to the juri iction of the Revisional Authority and of the High Court on the matter in issue and having submitted to the juri iction and having taken the chance of judgment in its favour, it is not right that the appellants should take exception to the juri iction of the High Court when the judgment has gone against it. We cannot therefore permit the appellants to canvass in this Court for the first time the question whether it was comiJetent for the (J) (1958] S.C.R.1355. (2) (1961] t S.C.R. 482. (3) [1955] I S.C.R. 829. (4) T.L.R. (1955] Mad. 832. (5) (1966] 2 S.C.R. 229. A R c D E F G H

A B c D E F G H i .. TIKA RAM & SONS v. C.S.T. (Ramaswami, J.) 52 3 High Court to decide the question of law referred to it under s. 11 of the Act. We accordingly reject the argument of the appellants on this aspect of the cillie. It was lastly submitted by Mr. Chagla that a reference to the High Court under s. 11 of the Act at the instance of the Commis- sioner of Sales-tax was incompetent as the Commissioner was neither a 'dealer' n~'a person aggrieved' within the meaning of the section as it originally stood, and the. amendment effected in sub-s. (3) of s. 11 by U.P. Sales-tax Act 8 of 1954 .which came into force on April 1, 1954 was not retrospective in character and could not apply to proceedings which had been initiated earlier before Sales-tax authorities as well as before the Revising Authority. It was pointed out that the appellate order was made on January 4, 1952 and the revision application was filed before the amending Act of 1954 came into force. It further appears that the revision application was disposed of on July 8, 1957 by the Revising Authority. The contention put forward on behalf of the appellants was that the Commissioner had no power to apply for a reference at the time the appellants had made the application for revision. It was conceded by Mr. Chagla that at the time the Commissioner applied for a reference under s. 11 of the Act the amending Act 1954 had already come into force and under the amended section the Commissioner was empower- ed to ask for a reference. The point taken was that the material date was the date on which the appellants made the application for revision and not the date on which the application was ac- tually decided by the Revising Authority. We are unable to accept this argument as correct. The right to apply for a refer- enee is conferred upon a person aggrieved by an order passed under s. 10 and this right exists regardless of when the applica- tion for revision was made. Only the existence of ail order undet s. 10 is required for the accrual of the right to make an applica- tion for a reference. It was suggested by Mr. Chagla that the Commissioner did not have the right to apply for a refe•ence because the right did not exist when the appellants had made the application for revision. But the right did exist on the date O? which the Commissioner applied for a reference and there 1s no thin~ in the language o~ context. of s. 11 . to. sug~est that the Commissioner could exercise the right only 1f 1t existed on the date on which the application for revision had been made. On behalf of the appellants Mr. Chagla referred to the well-re~og­ nised rule that a statute should be interpreted, as far as possible, so as to respect vested rights. But this rule has no application to the present case for we do not think that amendment of s. 11 of the Act by enabling the Commissioner also to ask for a refer- ence of a question to the High Court alters any vest~ or substan- tive right of the assessee. On the contrary, we consider that the L7Sup.C.l/68-9 "Ii

• (1968] 3 S.C.R. amendment is merely a procedural matter and the present case falls within the general principle that the presumption against a retrospective construction has no application to enactments which affect only the procedure and practice of courts. For "it is per- fectly settled that if the legislature forms a new procedure, that, instead of proceeding in this form or that, you should proceed in another· and a different way, clearly there bygone transactions are to be sued for and enforced according to tl)e new form of procedure. Alterations .in the form of procedure are always retrospective, unless there is some good reason or other why they should not be." (Gardner v. Lucas)('). We are accordingly of the opinion that Mr. Chagla is unable to make good his argu- ment on this aspect of the case. For these reasons we hold that there is no merit in these appeals which are . accordingly dismissed with costs--there will be one hearin~ fee. V.P.S Appeals dismissed. (I) [1878) 3 A.C, 582, 603. A B c