judgement:
Appeals Nos.
678 and 679 of 1963.
Appeals from the judgment and order dated April 4, 1961 of the Kerala High Court in Tax Revision Nos. 52 & 53 / 1959.
G.B. Pai, T. N. Ramachandra, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the appellants (in all the appeals).
Govinda Menon and V. A. Seyid Muhammad, for the respondent (in both the appeals).
C.S. Pathak, section N. Andley, Rameshwar Nath and P. L. Vohra, for the interveners (in both the appeals).
March 20, 1964.
The judgment of GAJENDRAGADKAR,C.J., WANCHOO, RAJAGOPALA AYYANGAR AND SIKRI, JJ. was delivered by AYYANGAR J. SHAH, J. delivered a separate Opinion.
AYYANGAR, J. The appellant owns several estates wherein inter alia tea is grown and was assessed to sales tax in respect of the tea sold by it during the years 1954 55 and 1955 56, by the Sales Tax Officer, First Circle, Quilon in the State of Travancore Cochin by his order dated December 23.
In the taxable turnover on which sales tax was computed by the assessing authority were included two items which are the subject of complaint in these two appeals which relate to these two years of assessment.
Before the assessing officer the appellant claimed that certain sales of its tea which were 393 conducted by auction at Fort Cochin a place which at the relevant date was in the Madras State, were sales "outside" the Travancore Cochin State and that consequently these sales were exempted from taxation by the State of Travan core Cochin under article 286(l) (a) of the Constitution.
The Sales Tax Officer rejected this contention and included the sum involved in these sales in the taxable turnover.
An appeal filed to the Appellate Assistant Commissioner also failed, this authority holding that as the tea sold was, at the date of the auction, admittedly in godowns in Willingdon Island in the State of Travancore Cochin, the sales must be deemed to have taken place within taxing State by virtue of a provision in the State Sales Tax Act to which we shall refer later and hence liable to be included in the taxable turnover.
There was a further appeal taken by the Appellant to the Sales Tax Appellate Tribunal which upheld the appel lant 's contention and set aside the assessment in so far as it included the turnover relating to the auction sales of tea held at Fort Cochin, this turnover amounting to Rs. 56,43,184/11/in regard to the assessment year 1954 55 and Rs. 62,13,604/3/in regard to the assessment year 1955 56 and remanded the case for fresh disposal by excluding these sums from the computation of the taxable turnover.
A revision petition was thereafter filed before the High Court by the State under section 15(b) of the General Sales Tax Act of Travancore Cochin and the learned Judges allowed the Revision and upheld the order of the assessing officer and the Appellate Commissioner holding the turnover represented by these auction sales to be validly taxable under the State law relating to sales tax.
The appellant thereafter applied to the High Court for a certificate of fitness and this having been granted the appeals are now before us.
Before proceeding further it is necessary to set out the statutory provision contained in the taxing enactment of the State.
The General Sales Tax Act (Act XI of 1125 (ME) 1950) which imposed a sales tax on sales by dealers defines a "sale" by section 2(j) in these terms: " 'Sale ' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, charge or pledge; x x x x Explanation (2) Notwithstanding anything to the contrary in the Sale of Goods Act for the time being in 394 force, the sale or purchase of any goods shall be deemed for the purpose of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made (a) if the goods were actually in the State at the time when the contract of sale or purchase in respect thereof was made .
or (b) in case the contract was for the sale or purchase of future goods by description, then, if the goods are actually produced in the State at any time after the contract of sale or purchase in respect thereof was made.
" When the Constitution came into force a new section numbered section 26 was inserted by the Adaptation Order bringing the Act into line with article 286(1) of the Constitution and this read: "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(a) outside the State or (b). . . . . .
Explanation For the purposes of sub 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 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 sale or purchase passed in another State.
" The position, therefore, was that though cl.
(a) to Explana tion 2 to section 2(j) enacted that "notwithstanding anything contrary in the Sale of Goods Act, the sale or purchase of goods shall be deemed to take place in the State if the goods were actually in the State at the time the contract for sale or purchase of goods thereof was made", still by the non obstante provision contained in section 26 a tax on the sale or purchase of goods could not be imposed where such sale or purchase took place "outside" the State of Travancore Cochin.
It is only necessary to add that even if section 26 were ignored still by the terms of article 286(1)(a) the position would be the same and the State could not validly levy a tax on a sale which is "outside" that State.
Now the question is can a sale of the tea effected by the Appellant by auction at Fort Cochin and which were included in its taxable turnover be said to be "outside" the State? The facts in relation to the transaction relating to the sale of the tea and which the learned Judges of the High Court held not to be an "outside" sale may be stated in their own words: "The sales of teas were concluded at Fort Cochin and the goods were stocked in godowns situated in the 395 Travancore Cochin State.
The deliveries of the goods were also made to the buyers from the godowns in Willingdon island in the Travancore Cochin State.
The Appellate Tribunal has come to the conclusion that the ownership of the commodity having passed in Fort Cochin, the property had not passed within the taxing State, accordingly they would be 'outside ' sales for purpose of article 286(1) and exempt from taxation.
" The Appellate Tribunal had recorded a finding that the property in the goods sold passed at Fort Cochin on the fall of the hammer at the auction and the learned Judges of the High Court proceeded on the same basis.
The point on which the, learned Judges differed from the Tribunal was only as regards the effect of the circumstance that the tea sold, was at the point of sale, physically in godowns situated in the State of Travancore Cochin.
The Appellate Tribunal had, in reaching the conclusion in favour of the appellant, as to the taxable character of the turnover represented by these auction sales, referred to a large number of decisions of this Court and to the observations contained in them as well as to several decisions of the various High Courts.
When the matter came up before the High Court the position was, that that Court had after a review of most of the earlier cases which had been referred to by the Tribunal, held in Deputy Commissioner of Agricultural Income tax and Sales tax, Trivandrum vs A.V. Thomas & Co.(1) that the word 'outside sale ' in article 286(1)(a) had no reference exclusively to the transfer of the property in the goods according to the provisions of the Sales of Goods Act, and therefore that Explanation 2 to section 2(j) was not violative of article 286(1)(a) and that if at the moment when the property passed, it not being very relevant where the property passed, the goods were in the State of Travancore Cochin, then it was not an "outside" sale quoad Travancore Cochin and could be subjected to salestax by that State.
Before the learned Judges a decision of this Court in India Copper Corporation Limited vs State of Bihar(2) was however relied on as leading to a different result but the learned Judges held that the decision of this Court could be distinguished on the facts and they held that their previous decision reported in A.V. Thomas 's case(1) was still good law and entirely covered the point raised.
The question for consideration in the appeal is the cor rectness of the view expressed by the High Court.
The decision in Deputy Commissioner of Agricultural Income tax and Salestax, Trivandrum vs A. V. Thomas & Co.(1) was brought before this Court on appeal and has been reversed (See A.V. Thomas & CO. Ltd. vs Deputy Commissioner of Agricultural Income tax and Sales tax, Trivandrum(3).
In so doing this Court pointed (1) I.L.R. [1960] Kerala 1395.
(2) ; (2)[1963] supp.
2 S.C.R. 608.
396 out that the decision of this Court in the Indian Copper Corporation case(1) had settled the law by laying down that the State (other than a "delivery cum consumption" State) which could tax a 'non explanation sale ' (to adopt the phraseology used in these cases to identify a sale falling outside the explanation to article 286(1)(a)) could only be that State in which the property in the goods passes.
Now, as regards the facts, there is no distinction between the facts in the A. Y. Thomas 's case(2) and the case now under appeal and, indeed, the learned Judges of the High Court have proceeded on that basis.
Dealing with the question as to what is an "outside" sale Kapur, J. speaking for the Court said in the case of A. Y. Thomas & Co.(2) Ltd.: "It has been foundand it has not been disputed that the title to the goods in the present case passed at Fort Cochin the question is whether the sale was 'outside sale ' or 'inside sale ' as the expressions have been compendiously used in various judgments to indicate sales taking place within a State or without it.
The Explanation to article 286(1) (a)explains what a sale outside the State is where the Explanation applies the difficultyabout the situs is resolved but in a case like the present one the difficulty still remains because the Explanation does not operate in the sense that the rival States claiming to tax the same taxable event are not the States of delivery for consumption in that State and those where the title in the goods passes.
" After referring to the decision in the India Copper Corpo ration Ltd. vs State of Bihar (1) the Court held that the sale in the case before them was an "outside" sale quoad TravancoreCochin, because the title passed at Fort Cochin in the State of Madras.
On this reasoning this Court reversed the decision in the case of the High Court and held that the sale there in question being an "outside" sale was not taxable by reason of the prohibition contained in article 286(1)(a).
Dealing with the connotation of the expression 'outside ' in article 286(1)(a) this Court had observed, in India Copper Corporation Ltd. vs State of Bihar.(1): "If a single State was designed to have the power to tax any particular transaction of sale, the question that next falls to be considered is the determination of that State in regard to which it could be predicated that the sale in question was not 'outside ' that State or in other words, the determination of the (1) ; (2) [1963] Supp.2 S.C.R.698 397 particular State in regard to which it could be said that the sale was 'inside ' that State.
The key to the problem is afforded by two indications in the Article itself: (1) the opening words of Article 286(1) which speak of a sale or purchase taking place and (2) the non obstante clause in the Explanation which refers to the general law relating to sale of goods under which property in the goods has, by reason of such sale or purchase, passed in another State '.
These two together indicate that it is the passing of property within the State that is intended to be fastened on, for the purpose of determining, whether the sale in question is 'inside ' or outside ' the State, and therefore subject to the operation of the 'Explanation ' that State in which property passes would be the only State which would have the power to levy a tax on the sale.
As was explained in the recent decision of this Court in Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs The Commercial Tax Officer.
" It was the principle of law laid down in this passage that was given effect to by this Court in A. V. Thomas 's case(1) and it was on this basis that the appeal was allowed.
it would therefore follow that the present appeals which are wholly dependent on the correctness of the meaning of the expression 'outside sales ' in article 286(1)(a) which High Court adopted in A. V. Thomas 's case have necessarily to be allowed.
Learned Counsel for the respondent State, however, urged that in the present case a point had been raised before the High Court as to whether on the facts the property in the goods sold by auction conducted at Fort Cochin really passed at Fort Cochin in the Madras State or whether it passed in Willingdon island in Travancore Cochin when the goods were actually delivered to the buyer.
As regards this question of fact or of mixed fact and law the position is this.
The Sales Tax Appellate Tribunal recorded a finding on this matter in these terms: "The question whether the sales took place outside the State or not will have to be decided on the basis of the general law relating to sale of goods.
We hold that in the case of auction sales of full lots the sales were of ascertained goods and hence became complete on the fall of the hammer and that the sales took Place within the Madras State." In the revision application which the department filed to the High Court this question Whether the property in the goods (1) [1963] Supp. 2 S.C.R. 608.
398 did pass at Fort Cochin was raised but nevertheless the argument before the High Court proceeded wholly on the basis; of the correctness of the finding by the Appellate Tribunal that the property in the teas did pass on the fall of the hammer at Fort Cochin.
The point about the property not having passed in the Madras State does not appear to have been even argued before the High Court.
Even in the statement of the case filed by the respondent it is not stated that this point about the property not having passed at Fort Cochin in Madras was urged before the High Court during the course of the argument.
Before concluding it might be mentioned that in A. Y. Thomas 's case (supra) where, as we have stated earlier, the nature of the trans action was identical with the one in the appeals before us this Court observed: "It has been found and it has not been disputed that the title to the goods in the present case passed at Fort Cochin.
" In these circumstances, we declined to permit learned Counsel for the respondent to urge any ground relating to the property in the goods in the teas sold not having passed in Fort Cochin in the Madras State to be raised, as the point which is not one of pure law was not urged before the learned fudges of the High Court.
The appeals are, therefore, allowed ' and the, order of the High Court reversed and that of the Sales Tax Appellate Tribunal restored.
The appellant will have his costs here and in the High Court one hearing fee.
If the question raised in these appeals were res integra, I would hold that the price obtained at auction sales of tea held at Fort Cochin when the goods were lying in warehouses in the Travancore Cochin State was liable to be taxed under the General Sales Tax Act (11 of 1125 M.E.), for in my view article 286(1)(a) Explanation, before it was amended by the Constitution (Sixth Amendment) Act, did not altogether exclude the doctrine of territorial nexus in its application to salestax legislation.
It is settled law in this Court that under the Government of India Act, 1935, the Provincial Legislatures could, relying upon the territorial nexus, levy sales tax upon transactions of sale, not wholly completed within their territory, fixing upon one or more ingredients of a sale furnishing a territorial connection with the taxing Province: Poppat Lal Shah vs The State of Madras(1) and The Tata Iron & Steel Company Ltd. vs The State of Bihar (2).
By the Constitution certain restrictions were placed upon the power of the States (1) ; (2) 399 to legislate in respect of taxes on sales and purchases.
By article 286(1)(a) read with the Explanation, an Explanation sale i.e. a sale in which goods sold were actually delivered in a State for the purpose of consumption in that State was made taxable only by the State in which the goods were delivered for consumption.
But article 286 was, in my view, not intended to exclude the operation of the doctrine of territorial nexus in the field not covered by the legislative prohibitions.
In dealing with the effect of section 33 of the Bihar Sales Tax Act which incorporated the prohibitions imposed by article 286(1) & (2).
with the concurrence of section K. Das J., it was observed by me in Indian Copper Corporation Ltd. vs The State of Bihar and others(1) at P. 293: " x x x by enacting that a tax shall not be imposed under the Act when the sale takes place outside the State of Bihar x x, "Only the power to tax "Explanation sales" which do not take place within the State of Bihar is taken away, but not the power to tax "non Explanation sales" in which though under the general law of sale of goods the property passes outside the State, there exists between the taxing power of the State and the sale a nexus as contemplated by the definition of sale in section 2(g).
If the sale is one in which the goods have been delivered outside the State of Bihar, but not as a direct result of the sale or not for the purpose of consumption in the State of first delivery, the sale will not be covered by the Explanation, and the right to tax the sale, if arising otherwise under the Act relying upon the territorial nexus, will not be impaired by the prohibition imposed by cl.
(1)(a)(i) of section 33.
" It may be mentioned that section 33 of the Bihar Sales Tax Act was enacted to give effect expressly to the legislative restrictions imposed by article 286 of the Constitution.
In Indian Copper Corporation Ltd. 's case(1) certain transactions of sale were effected by the assessee after the promulgation of the Constitution, under which the property in the goods passed in the State of Bihar but delivery was effected outside the State of Bihar for consumption also outside Bihar.
In some of these transactions goods were delivered in the State of first destination for consumption therein whilst in others the goods were delivered not for consumption in the State of first delivery.
The assessee contended that both these categories of transactions were exempt from tax under article 286(1)(a) as they were (1) ; 400 outside sales.
This Court unanimously negatived the conten tion of the assessee in respect of sales in which delivery in the State of first destination was not for consumption therein, and the transactions were on that account not "Explanation sales".
It was held that the State of Bihar was competent to tax those "Non explanation sales" in which the property in the goods had passed in the State of Bihar.
But two different grounds were given in support of the conclusion in that case.
My brethren Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ., were of the view that passing of property within the State alone was intended after the Constitution to be fastened upon for the purpose of determining whether the sale is inside or outside the State, and therefore subject to the operation of the Explanation that State in which the property passes would be the only State, which had the power to tax the sale.
section K. Das.
J., and I were of the view that sale transactions not falling within the constitutional prohibitions remained taxable because in adjudging whether a "non Explanation" sale transaction was "outside the State", the doctrine of territorial nexus could not be wholly excluded from consideration.
In a recent judgment of this Court in A.V. Thomas & Co. Ltd. vs Deputy Commissioner of Agricultural Income tax and Sales tax, Trivandrum(1) this Court held in construing article 286(1)(a) in the light of the Explanation before that Article was amended by the Constitution (Sixth Amendment) Act, that: Where the Explanation to Article 286(1)(a) of the Constitution of India is inapplicable, it is the 'passing of property within the State ' that is intended to be fastened on for the purpose of determining whether a sale is 'inside ' or 'outside ' the State.
Therefore subject to the operation of the 'Explanation ', that State in which the property in the goods passes would be the only State which would have the power to levy a tax on the sale.
" In A. V. Thomas & Co. Ltd. 's case(1) chests of tea were stored in warehouses at Willingdon Island in the Travancore Cochin State, but auctions of the tea chests were held at Fort Cochin which was at the material time within the State of ' Madras, and after the price was paid at Fort Cochin delivery orders were given to the purchasers addressed to the warehouse keepers at Willingdon Island and actual delivery was given at the warehouses.
The chests of tea were then sent from Willingdon Island for consumption in other parts of India or were exported out of India.
It was held by the Court in that (1) [1963] Supp. 2 S.C.R. 608.
401 case that the property in the goods passed at Fort Cochin and as the goods were delivered not for the purpose of consumption in any particular State, the sales were not inside the State of Travancore Cochin but were outside that State and were not liable to be taxed under the Travancore Cochin General Sales Tax Act (11 of 1125 ME).
The Court observed that in sales which were not "Explanation sales" passing of property within the State was decisive of the liability to pay sales tax.
No opinion was expressed on the question whether the doctrine of territorial nexus as investing the State with the right to tax a sale transaction outside the legislative restrictions imposed by article 286, was, since the promulgation of the Constitution, rendered ineffective.
As the fact which give rise to this case are substantially the same as the facts on which a. V. Thomas & Co. Ltd. 's case(1) was decided, the decision of the appeals must be in favour of the assessee.
It is necessary to record this judgment, lest it be assumed that I agree with the view that the doctrine of territorial nexus in its application to sales tax legislation has, since the enactment of the Constitution, been completely abrogated.
It may be pertinent to note that since the amendment of the Constitution by the Constitution (Sixth Amendment) Act, article 286(1)(a) (which remains unamended) is now free from the shackles of the Explanation which is deleted and by cl.
(2) the Parliament is invested with power to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in cl.
(1), namely, outside the State or in the course of the import of the goods into, or export of the goods out of, the territory of India.
Exercising the power under cl.
(2) the Parliament has enacted the (74 of 1956), and by section 4(2) the doctrine of territorial nexus has been given legislative recognition, though in somewhat limited form.
That subsection provides: "A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods.
at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation.
Where there is a single contract of sale or purchase of goods situated at more places than [1963] Supp.
2 S.C.R. 608.
402 one, the provisions of this sub section shall apply as if there were separate contracts in respect of the goods at each of such places.
" The doctrine of territorial nexus had full play in sales tax legislation under the Government of India Act, 1935: it also applies subject to certain modifications since the amendment of the Constitution by the Constitution (Sixth Amendment) Act.
And I am unable to persuade myself that by the enact ment of article 286 of the Constitution, it stood abrogated in the interregnum between the promulgation of the Constitution and the amendment of article 286 by the Constitution (Sixth Amendment) Act.
Appeal allowed.

summary:
The appellant company owns several estates wherein tea is grown and it was assessed to sales tax by the Sales Tax Officer in respect of the tea sold by it during the years 1954 55 and 1955 56.
An appeal filed by the appellant was rejected by the, Appellate Assistant commissioner on the ground that the tea when sold was admittedly in godowns in the State of Travancore Cochin and that consequently the sales must be deemed to have taken place within the State of Travancore Cochin and hence liable to be included in the taxable turn over.
When a further appeal was taken to the Sales Tax Appellate Tribunal, it was held that the property in the goods sold passed at Fort Cochin in Madras State on the fall of the hammer at the auction and hence the same was not taxable.
The State filed a revision petition to the High Court.
While the High Court accepted the finding of the Tribunal that the property in the goods sold passed at Fort.
Cochin on the fall of the hammer at the auction, it differed from the Tribunal as regards the effect of the circumstance that the tea sold was, at the point of sale, physically in godowns situated in the State of Travancore Cochin and held the sales to be taxable.
The appellant came to this Court after obtaining a certificate of fitness from the High Court.
The only question argued before this court was whether a sale of tea effected by the appellant by auction at Fort Cochin in Madras State was a sale outside the State of Travancore Cochin orinside it and whether the same was taxable or not.
Accepting.the appeal.
HELD: No sales tax was to be levied in this case as the sales took place outside the State of Travancore Cochin.
The test for determining whether a sale is inside or outside a State is where the property in the goods passed and in the present case the property in the goods passed in Fort Cochin in Madras State on the fall of the hammer at the auction.
The point about the property not having passed in the Madras State was not argued before the High Court and was also not urged in the statement of case filed by respondent and hence the same was not allowed to be argued in the Supreme Court.
Per Shah.
The property in the goods passed at Fort Cochin in Madras State and as the goods were delivered not for the purpose of consumption in any particular State, the sales were not inside Travancore Cochin but were outside the 392 State and were as held by this Court in A. V. Thomas & Co. vs Deputy Commissioner of Agricultural Income tax and Sales Tax Trivandrum, 14 S.T.C. 363, not liable to be taxed under the Travancore Cochin General Sales Tax Act, 1950.
The doctrine of territorial nexus had full play in sales tax legislation under the Government of India, Act, 1935 and was not abrogated by the enactment of Art, 286 of the Constitution.
It continued to be in operation in the interregnum between the promulgation of the Constitution and the amendment of article 286 by the Constitution (Sixth Amendment) Act, 1956.
It also applies now subject to certain modifications.
Parliament has been given the power to formulate principles for determining when a sale or purchase of goods takes place outside the State or in the course of the import of the goods into or export of the goods out of the territory of India.
Exercising the power under cl.
(2) Parliament has enacted the and by section 4(2) the doctrine of territorial nexus has been given legislative recognition though in somewhat limited form.
Deputy Commissioner of Agricultural Income tax and Salestax, Trivandrum vs A.V. Thomas & Co., I.L.R. 1960 Kerala 1395; India Copper Corporation Limited vs State of Bihar, ; ; A. V. Thomas & Co. Ltd. vs Deputy Commissioner of Agricultural Income tax and Sales tax, Trivandrum 1953 Supp.
2 S.C.R. 608 363; Poppat Lal Shah vs The State of Madras, ; ; and the Tata Iron & Steel Company Ltd. vs The State of Bihar , referred to.


judgement:
Appeal No. 546 of 1962.
Appeal by special leave from the judgment and decree dated December 17, 1958 of the Allahabad High Court in Misc.
Case No. 152 of 1952.
C. B. Agarwala and C. P. Lal, for the appellant.
section K. Kapur, section K. Mehta and K. L. Mehta, for the respondent.
March 20, 1964.
Under the U.P. Sales Tax Act (15 of 1948) which came into force on April 1, 1948, sales tax became payable on sales of diverse commodi ties including cotton yarn at a uniform rate of three pies in a rupee.
By Act 25 of 1948, section 3 A was incorporated in Act 15 of 1948 conferring upon the Provincial Government power to declare by notification that the proceeds of sale of any goods or class of goods shall not be included in the turnover of any dealer except at such single point in the series of sales by successive dealers as the State Government may specify.
By section 7 as amended by Act 25 of 1948, a dealer had the option to submit his return on the basis of the turnover of the sales in the previous year or on the basis of turnover of the sales in the current year.
The respondent company opted to be assessed on the basis of the turnover of the previous year ending March 31, 1948.
In exercise of the power under section 3 A of the Act the Government of U.P. issued a notification declaring that with effect from June 9, 1948, the proceeds of goods entered in column 2 of the schedule to the said notification (which included cotton yarn) shall not be included in the turnover of any dealer except at the point in the series of sales by successive 385 dealers, and that with effect from June 9, 1949, the rate of tax in respect of the turnover of the aforesaid goods shall be as set out in the schedule.
As a result of the notification the sale of cotton yarn became taxable at a single point i.e. at a point of sale by the importer if the goods were imported from outside Uttar Pradesh and at a point of sale by the manufacturer, if manufactured in Uttar Pradesh, and the rate of tax in respect of cotton yarn was fixed, since the date of notification, at six pies per rupee.
The Sales tax Officer, Hathras in assessing the respondent company to sales tax for the assessment year 1948 49 held that because of the notification issued by the Government, the rate of three pies per rupee in respect of sales of cotton yarn was to apply in the year of assessment for the first 69 days and for the remaining part of the year the rate of six pies per rupee was to apply, and on that account notwithstanding that the assessee had opted under section 7 to be assessed on the basis of the turnover of the previous year, the rate of three pies was applicable to the assessable turnover for the first 69 days and for the rest of the year the rate applicable was six pies per rupee.
This order was modified in appeal by the Judge (Appeals) Sales Tax, Meerut, who directed assessment of tax on the turnover at a uniform rate of three pies per rupee.
But the order of the ap pellate court was reversed by the Judge (Revisions) Sales Tax, U.P. who restored the order of the Sales tax Officer.
The Judge (Revisions) Sales Tax at the instance of the respondent company then referred to the High Court of Judicature at Allahabad the following question: "Whether the assessees who had elected the previous year are liable to pay tax in the assessment year 1948 49 according to the rates prevailing during the year", and the High Court following its judgment in Modi Food Products Ltd. vs Commissioner of Sales Tax, U.P.(1) answered the question as follows: "all sales of the assessee during the previous year which corresponded with the calendar year 1947 have to be taxed at the flat rate of 3 pies per rupee when making the assessment for the assessment year 1948 49".
With special leave, the Commissioner of Sales Tax, U.P. has appealed to this Court against the order of the High Court.
It may be observed that the judgment of the Allahabad High Court in Modi Food Products Ltd. 's case(1) was confirmed by this Court: Commissioner of Sales Tax, U.P. vs The (1) A.I.R. 1956 All. 35.
L P(D)ISCI 13 386 Modi Sugar Mills Ltd.(1) But the Legislature of the State of Uttar Pradesh has, since that judgment was pronounced, en acted validating legislation by Act III of 1963 which has provided by section 7 of the Amending Act that: "After section 30 of the Principal Act, the following, shall be added and be deemed to have been added with effect from the first day of April, 1948, as new section 31 : '31 (1) Where any dealer has, in accordance with the provisions of section 7, as it stood prior to its amendment by section 7 of U.P. Act XIX of 1956, opted to be assessed to tax on the basis of his turnover of the previous year, he shall be assessed to tax at such rates as are prevalent during the year for which the assessment is being made, and if the rates of tax on any goods or class of goods arc altered during such assessment year, the dealer, in respect of the turnover of such goods, shall be liable to pay tax at the altered rates, as if the altered rates were in force during the previous year also proportionately for the same number of days as, they are in force during the assessment year.
(2) Notwithstanding any judgment, decree or order of any court, all assessments or orders made, actions.
or proceedings taken, directions issued, jurisdictions exercised or tax levied or collected by any officer or authority purporting to act under the provisions of sub section (1) of section 7, as it stood prior to its amendment by section 7 of U.P. Act XIX of 1956, shall be deemed to be good and valid in law as if such assessments, orders, actions, proceedings, directions, jurisdictions and tax have been duly made, taken, issued, exercised, levied or collected, as the case may be, under or in accordance with the said provisions of this Act as amend ed by the Uttar Pradesh Bikri Kar (Sanshodhan) Adhiniyam, 1962 and as if the amendment so made had been in force on all material dates.
Explanation For the purpose of this section the expression "previous year" shall have the meaning assigned to it in sub clause (ii) of clause (j) of section 2 of this Act, as it stood prior to its amendment by section 2 of the U.P. Act XIX of 1956. ' " Section 31 makes sales tax exigible from an assessee who has, opted to pay tax on the turnover of the previous year, as if the altered rates were in force during the previous year.
The turnover of the previous year must therefore be broken up, the new rate of tax being applicable proportionately for the (1) ; 387 same number of days in the previous year as were in force in the assessment year.
The amendment is retroactive, and applies to assessments pending or closed, as if the validating Act had been in force at the material date.
This Court had in the Modi Sugar Mills Ltd. 's case(1) held that where the assessee had elected to submit his return on the turnover of the previous year under section 7 of Act 15 of 1948 as amended by Act 25 of 1948 he was liable to be assessed to sales tax at the rate in force on the first day of the year of assessment, because the liability arises on that date, and any subsequent enhancement of the rate by virtue of a notification under section 3 A does not alter that liability.
The view expressed by the Court has been modified by express legislation operative retrospectively.
The liability to tax of the turnover of the previous year which is regarded as the fictional turnover of the year of assessment has to be determined on the basis that the rates applicable in the year of assessment were fictionally projected on the taxable turnover.
Mr. Kapur appearing on behalf of the respondent company submitted that in answering the question referred by the Judge (Revisions) this Court was bound to give its opinion in the light of the law applicable to the transaction as it prevailed at the date on which the reference was made and not of any subsequent amendment of the Act.
Counsel submits that as the High Court exercises an advisory jurisdiction, so does this Court in appeal against the order of the High Court, and its advice can only be tendered on the question referred and in the light of the law as was applicable at the date when the reference was made.
Counsel says that if the law as amended is to be taken into consideration, in substance this Court would be answering a question other than the one which was referred by the Judge (Revisions) Sales Tax.
In our view there is no substance in this contention.
The question referred to the High Court posed a problem as to the liability of the respondent company to be assessed for the assessment year 1948 49.
Two rival views were propounded before the Judge (Revisions) Sales Tax.
One was that the rates applicable to the fictional turnover for the year of assessment were those prevalent in the year 1948 49 and for the purpose of assessment they had to be applied to the turnover in the same proportion in which they would have applied if the option had not been exercised.
That was the contention of the Sales Tax X X Department.
The contention of the assessee was that having opted for the turnover of the previous year, the rates applicable to the turnover would be crystalised on the first day of the year of assessment and any modification since the commencement of the year in the rates would be inapplicable.
This Court in the Modi Sugar (1) ; 388 Mills Ltd. 's case(1) accepted the contention raised by the assessee.
But for the amendment, the question which was posed by the Judge (Revisions) Sales Tax would have to be answered as it was answered by the High Court.
The Legislature has,.
however, amended the Act and has declared that notwithstanding the option exercised by the assessee the tax would have to be computed in the light of the rates prevailing in.
1948 49 as.
if they were projected upon the turnover of the previous year.
The Legislature has expressly stated that this rule will prevail as if it was in force during the assessment year and all assessments will be made in the light of this amended rule.
In answering the question which was submitted by the Judge (Revisions) Sales Tax, therefore, the law enacted by the Legislature is the law found incorporated in section 31 by Amending Act III of 1963.
This Court in giving its opinion on the question in the light of the amending Act is seeking to apply a legislative provision which was, by express enactment, in force at the time when the liability arose, for section 31 enacted by Act III of 1963 is to be deemed to have been in operation at all material times in supersession of the previous rule declared by this Court.
This Court is, therefore, not seeking to apply any law to the question posed before the High Court which was not in force.
on the date of the transaction which is the subject matter of the reference.
The following observation made by Jagannadhadas J., in Messrs Chatturam Horilram Ltd. vs Commissioner of Incometax, Bihar and Orissa(2) on which reliance was placed by counsel for the respondent company: "The High Court 's jurisdiction was only to answer the particular question that was referred to it by the Income tax Appellate Tribunal and it is extremely doubtful whether they could have taken notice of a subsequent legislation and answered a different question.
", does not suggest a different rule.
In Messrs Chatturam Horilram Ltd. 's case ( 2 ) a previous assessment to income tax of the assessee fell through because the Indian Finance Act of 1939 was not in force in Chota Nagpur area where the assessee was carrying on business during the relevant assessment year.
Thereafter Bihar Regulation IV of 1942 was promulgated by the Governor of Bihar with the assent of the Governor General and thereby the Indian Finance Act of 1939 was brought into force in Chota Nagpur retrospectively as from March 30, 1939.
On February 8, 1944, the Income tax Officer issued a fresh notice under section 34 of the Indian Income tax Act, 1922, which resulted in the assessment of the appellant to income tax, and the question which fell to be determined was whether the (1) ; (2 ) ; 389 notice was properly issued under section 34 of the Act.
It was argued that when the High Court answered the earlier reference which negatived the claim of the Revenue to assess the assessee, Bihar Regulation IV of 1942 had in fact been enacted, and if the High Court had applied that Regulation the result would have been different, and in meeting that argument the Court observed that it was doubtful if the High Court had jurisdiction to take into consideration the subsequent legislation for answering a question other than the one which was actually raised.
The doubt expressed was therefore in respect of the power of the Court to decide a question other than the question which was actually referred and not in respect of the power and indeed the duty of the High Court to apply to the question referred the law enacted with retroactive operation.
In support of his contention Mr. Kapur relied upon the observation of Desai, C.J., in M/s Rampur Distillery Chemical Works Ltd. vs The Commissioner of Income tax, U.P.(1) to the following effect: "The argument was that though the High Court has to answer the question referred to it with reference to the law in force in 1957 (when the Tribunal disposed of the appeal), what that law was has to be discovered today with reference to the law existing today.
What was the law in 1957 on the basis of which the Tribunal disposed of the appeal has certainly to be decided by this court today but what has to be decided is the law existing in 1957 and not deemed to exist in 1957 by virtue of an amendment in the law made in 1962.
" But in that case, in the view of the High Court the amendment made by the amending statute of 1962 which came into force after the reference was made by the Income tax Tribunal had no retrospective operation, and the question referred by the Tribunal had to be answered by the High Court in the light of the relevant law applicable at the date of the transaction.
The observation relied upon has to be read in the context of the finding of the High Court as to the character of the amending legislation.
The observation therefore does not assist the contention that even in cases where the relevant statute has been amended with retroactive operation, so as to apply to the transaction which forms the subject matter of the reference, and the High Court or this Court is bound in recording its opinion on the question referred to ignore the amended law.
If what counsel contends is true.
the answer given by the High Court or by this Court would have no value whatever in cases where by retroactive amendment of the law, the old law has (1) I.T. Reference No. 362 of 1958 decided on Jan. 17, 1964.
390 been superseded and is substituted by a new statutory provision.
Undoubtedly the Tribunal called upon to decide a taxing dispute must apply the relevant law applicable to a particular transaction to which the problem relates, and that law normally is the law applicable as on the date on which the transaction in dispute has taken place.
If the law which the Tribunal seeks to apply to the dispute is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide the question in the light of the law so amended.
Similarly when the question has been referred to the High Court and in the meanwhile the law has been amended with retroactive operation, it would be the duty of the High Court to apply the law so amended if it applies.
By taking notice of the law which has been substituted for the original provision, the High Court is giving effect to legislative intent and does no more than what must be deemed to be necessarily implicit in the question referred by the Tribunal, provided the question is couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amended law, and the enquiry does not necessitate investigation of fresh facts.
If the question is not so couched as to invite the High Court to decide the question in the light of the law as amended or if it necessitates investigation of facts which have not been investigated, the High Court may refuse to answer the question.
Application of the relevant law to a problem raised by the reference before the High Court is not normally excluded merely because at the date when the Tribunal decided the question the relevant law was not or could not be brought to its notice.
There is nothing so peculiar in the nature of a reference under the Indian Income tax Act or the Sales Tax Acts that in deciding it the High Court is restricted to the application of the law which has been superseded by legislation since the date when the reference was made by the Tax Tribunal and is obliged to refuse to apply the law which by legislative direction has to be applied to a particular transaction which is the subject matter of the reference.
On the view taken by us this appeal must be allowed and the question raised by the Judge (Revisions) Sales Tax must be answered in the affirmative.
Having regard to the circum stances of the case, the parties will bear their own costs both in this Court and the High Court.
Appeal allowed.

dataset_name: IN-Abs

summary:
The respondent is a manufacturer of cotton yarn and is registered as a dealer under the U.P. Sales Tax Act, 1948.
This act came into force on April 1, 1948.
Under this Act, sales tax was payable on sales of cotton yarn at a uniform rate of 3 pies in a rupee.
Under section 3(A) of the Act the Government of U.P. issued a notification declaring that with effect from June 9, 1948, the Sales Tax would be charged at the rate of six pies per rupee in respect of sales of the cotton yam.
In the present case, the assessee had opted under section 7 of the Act to be assessed on the turnover of previous year.
The Sales Tax Officer held on the basis of the notification dated June 9, 1948, that the rate of three pies per rupee in respect of sales of cotton yarn was to apply in the year of assessment for the first 69 days and for the remaining part of the year the rate of six pies per rupee was to apply.
The decision of the Sales Tax Officer was affirmed by the Judge (Revisions) Sales Tax.
The Judge referred the case to the High Court.
On reference the High Court held on the basis of its judgment in Modi Food Products Ltd. that the rate of three pies per rupee would apply for the assessment of 1948 49 because the assessee had opted under section 7 to be assessed on the basis of the turnover of the previous year.
In the meantime the legislature of Uttar Pradesh by Act III of 1963 enacted section 31 which makes Sales tax exigible from an assessee who has opted to pay tax on the turnover of the previous year, as if the altered rates were in force during the previous year.
The amendment is given retroactive operation and applies to assessments pending or closed.
The question for consideration before this Court was whether this Amending Act would apply to the present assessment.
Held:(i) The law found incorporated in section 31 by Amending Act III of 1963 would apply to the present case.
This Court in giving its opinion on the question in the light of the amending Act is seeking to apply a legislative provision which was, by express enactment, in force at the time when the liability arose, for section 31 enacted by Act III of 1963 is to be deemed to have been in operation at all material times in supersession of the previous law declared by this Court in Modi Sugar Mills Ltd. 's case.
This Court is, therefore, not seeking to apply any law to the question posed before the High Court which was not in force on the date of the transaction which is the subject matter of the reference Modi Food Products Ltd. vs Commissioner of Sales tax, U.P. A.I.R. 1956 All.
35 and Commissioner of Sales tax, U.P. vs Modi Sugar Mills Ltd.; , explained.
384 (ii)When the question has been referred to the High Court and in the meantime the law has been amended with retroactive operation, it would be the duty of the High Court to apply the law so amended as if it applies.
By taking notice of the law which has been substituted for the original provision, the High Court is giving effect to the legislative intent and does no more than what must be deemed to be necessarily implicit in the question referred by the Tribunal, provided the question is couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amended law, and the enquiry does not necessitate investigation of fresh facts.
M/s. Chatturam Horilram Ltd. vs Commissioner of Incometax, Bihar and Orissa, ; and M/s. Rampur Distillery Chemical Works Ltd. vs Commissioner of Income tax, U.P., I.T. Reference No. 362/58 dt.
17 1 64, distinguished.


judgement:
minal Appeals No. 14 of 1963.
Appeal by special leave from the judgment and order dated November 9, 1962 of the Rajasthan High Court in D.B. Criminal Appeal No. 502 of 1961.
section Shaukat Hussain, for the appellant.
H. R. Khanna and section P. Nayar, for the respondent.
March 24, 1964.
The Judgment of the Court was delivered by AYYANGAR, J.
This appeal, by special leave, against the judgment of the High Court of Jodhpur raises for considera tion the legality of the conviction of the appellant for a contravention of section 3 of the (Act XXXI of 1946) which is an offence under section 14 of that Act.
The relevant portion of section 3 enacts: (3) (1) The Central Government may be order make provision, either generally or with respect to all foreigners or with respect to any particular foreigner or any prescribed class or description of foreigners, for prohibiting regulating or restricting the entry of foreigners into India or other de parture therefrom or their presence or continued presence therein.
(2) In particular and without prejudice to the generality of the foregoing power, orders made under this section may provide that the foreigner: (a) shall not enter India or shall enter India only at such times and by such route and at such port or place and subject to the observance of such conditions on arrival as may be prescribed , . . . . . . .
Section 14 reads: "14.
If any person contravenes the provisions of this Act or of any order made thereunder, or any direction given in pursuance of this Act or such order, he shall be punished with imprisonment for a term which may extend to five years and shall also be liable to fine; and if such person has entered into a bond in pursuance of clause (f) of subsection (2) of section 3.
his bond shall be forfeited, and any person bound thereby shall pay the penalty thereof, or show cause to the satisfaction of the convicting Court why such penalty should not be paid.
" 443 The facts giving rise to the appeal are briefly these: The case of the prosecution was that the appellant Ibrahim, s/o Miru a resident of Rajgarh in Bikaner Division was a Pakistani national who had originally come over to India on a Pakistani passport issued to him in 1954 and on the strength of a visa granted in December, 1956.
He was then found to be overstaying in India since February 18, 1957 and an order was thereupon passed in March, 1957 for his deportation.
This order was given effect to and on April 21, 1957 be was taken across the Pakistan border at the Check Post Munabao by the Indian police officials and deported.
Then followed the events which have given rise to the present proceedings.
Subsequent to his deportation to Pakistan and on a date as regards which the prosecution had no information, the appellant had, unknown to the Indian authorities, managed to come over to India clandestinely and he was found again in made a report to the Station House Officer of Rajgarh by which he drew the latter 's attention to the fact that the appellant who had been deported had managed to cross the border on the side of Ganganagar and had re entered India and he, brought this to his notice for the purpose of action being taken.
The accused was thereupon apprehended and was charged with an offence of having entered India without a passport in contravention of section 3(2)(a) of the .
The defence of the appellant was simple.
He said he had been in India all the time since birth, had never gone to Pakistan and so had never come here in 1957 with a Pakistani passport, was never deported therefrom and therefore there was no question of his having entered India without a passport.
in other words, his defence was that he was not the person who had come over in 1957 and had been deported to Pakistan in April 1957.
In support of their case the prosecution proved the order of Government by which Ibrahim, son of Meeru of Rajgarh had been directed to be deported in which is found a reference to his having come over to India with a passport and having overstayed the time permitted by the visa, the general diary of the Emigration Check Post, Munabao dated April 21, 1957 which recited that on April 21, 1957 the deportee Ibrahim had come with a Head Constable and that the deportation order had been given effect to, and an entry in the deportation register of the Check Post which recited the date and number of the Pakistani passport and the authority by which the order of deportation had been passed and the carrying out of the actual deportation.
In order to establish the identity of the appellant with Ibrahim mentioned in these documents the prosecution examined two witnesses Shiv Rattan who was the Police Inspector in charge of the 444 Munabao Check Post at the relevant date (P.W. 2) and Govind Singh who was a peon who was posted at the police lines at Churn and who accompanied Dube Singh, Head Constable when Ibrahim was taken from Rajgarh to the Check Post at Munabao for being deported.
These two witnesses identified the appellant who was present in Court Ibrahim whom they had seen off at the border Check Post in execution of the order to deport.
The learned Magistrate, however, was not satisfied with this proof of identity, because he was of the view that the two prosecution Witnesses P.Ws 2 and 3could not, after the lapse of 4 years, be believed when they said that they remembered that the appellant was Ibrahim whom they had seen deported at the Check Post.
The learned Magistrate also held that there was some discrepancy in the father 's name of Ibrahim in one of the documents produced by the prosecution which, according to him, did not tally with the name of the appellant 's father.
On these grounds the learned Magistrate acquitted the accused.
The respondent State filed an appeal to the High Court against this order of acquittal and the learned Judges holding that there could be no doubt about the identification by P.W.s 2 and 3 of the appellant as the Ibrahim whom they had deported, reversed the order of acquittal and held the appellant guilty of the offence charged and sentenced him to a term of imprisonment.
It is from this judgment of the High Court that the present appeal has been filed pursuant to leave granted by this Court.
The first point urged by learned counsel for the appellant was as regards the identity of the appellant with Ibrahim.
On this we are quite satisfied that the learned Judges were correct in their appreciation of the evidence in the case.
Both the witnesses P.W.s 2 and 3 are public servants and there is no reason why they should depose falsely against the appellant.
The documents produced as regards which there is no challenge give the name of the person deported as Ibrahim, his father as Miru and besides, they specify his age as 27 which, it is conceded, tallies with the description of the appellant.
The only point that was suggested by learned Counsel was that in exhibit P 1 the deporting register at the Check Post the name of Ibrahim 's father was stated to have been entered as Murra and not Miru.
When, however, it was pointed out to learned Counsel during the course of the arguments that there was a possibility of these words written in Urdu being wrongly transliterated in the English learned Counsel did not persist in the point.
If then Ibrahim s/o Miru, aged 27 was deported and there is evidence adduced which has been accepted by the High Court that it was the appellant that was deported on the former occasion, we find no substance in the argument as regards this question of identity.
445 The second submission of learned counsel was based on the fact that under section 2(a) of the , as originally enacted, a citizen of Pakistan which was a member of the British Commonwealth was not "a foreigner" within that Act :and that citizens of Pakistan became "foreigners" only by virtue of the amendment effected by Central Act XI of 1957 which came into force on January 19, 1957.
The argument based on this feature was as follows: A person who can be held guilty of a contravention of section 3 of the is only a "foreigner".
Even according to the case of the prosecution the appellant had come over to India on the strength of a Pakistani.
passport issued in 1954 and under a visa of December, 1956.
It must, therefore, be taken that he had crossed over to India before the 19th January, 1957.
On that date he was not a foreigner, though a Pakistani, as he was a citizen of a Common wealth country.
He could not, in law, become a "foreigner" subsequently and no action could be taken against him on the footing that he had become a "foreigner".
We see no merit in this submission.
A prima facie reading of the would show that if on the date when the offence is committed a person is a "foreigner", as defined by the Act, it would be no excuse for him to say that on an earlier date he was not a foreigner.
But it is, however, unnecessary to consider this point further because, firstly, there is no proof on the record before us that the appellant entered India before January 19, 1957.
But even if he had it would only mean that the earlier order of deportation which was passed in March/April 1957 was a wrong order and that certainly is not a matter with which we are concerned, because it is common ground, if the identity of the appellant is held to be established, that the appellant was deported to Pakistan in April, 1957.
He could come over to India only subsequent to April, 1957 and if he did come over it is also common ground that he came over without a passport.
As the date upon which he could have come over was certainly after April, 1957 by which date section 2(a) of the containing the definition of "Foreigner" had been amended, the appellant was a foreigner when he came into India without a valid passport and visa in contravention of the provisions of section 3 of the , and that is the offence with which he is now being charged.
We find therefore that there is no substance in this point.
Lastly, it was submitted that the Courts could have no jurisdiction to determine whether the appellant was a "foreigner" and that their jurisdiction in that regard was barred by the provisions of section 9(2) of the .
This argument proceeds upon a misapprehension of the legal position.
In the first place, under section 9 of the the onus is upon the person who is accused tinder that Act to 446 prove that he is not a foreigner.
In the present case once the plea regarding the absence of identity of the appellant with the deportee of April, 1957 was rejected it could not be suggested that the appellant was ever an Indian citizen.
It is only where there is proof that a person is to start with, a citizen of India and it is alleged that he has lost his Indian citizenship by reason of acquiring the nationality of a foreign State that they question of invoking the provisions of section 9(2) of the arises.
That is not the case here.
The case of the pro secution was that the appellant was a Pakistani national who had come over to India on a valid Pakistani passport in 1957 and had been legally deported out of India in April, 1957.
Or, those facts there is no question of section 9(2) of the being invoked or coming into play.
The offence charged was that having been deported once out of India, he again entered India without proper travel documents in violation of the provisions of section 3(2)(a) of the .
There was one further point that was mentioned by learned Counsel but which we did not permit him to argue.
Learned Counsel said that the order now passed was one by the State Government and that there was no proof that the Central Government had delegated this power to the State Government.
Apart from the point being without substance in view of the terms of section 3(2)(a) we have extracted earlier, and which was the offence with which the appellant was charged, this point about delegation was never urged in the Courts below and consequently no evidence was led to establish delegation under section 12 of the Act if that was necessary for sustaining the prosecution in the present case.
As this point was not raised in the Courts below we declined to permit learned Counsel to raise it before us.
We consider that the learned Judges were right in holding that the prosecution had established the offence charged against the accused.
There are no merits in the appeal which fails and is dis missed.

summary:
The appellant, a Pakistani National originally came over to India on a Pakistani Passport and on the strength of visa.
He was found to be overstaying in India and he was deported on April 21, 1957.
Subsequently on finding him again in India he was charged with an offence of having entered India without a passport in contravention of section (2)(a) of the .
His defence was that he had been in India from his birth and that the person who was said to have been deported in 1957 was some other and riot himself.
The trial court accepted this defence and acquitted him.
The State appealed to the High Court and the High Court reversed the finding of the lower court and held him guilty of the offence charged.
The present appeal was filed on a special leave granted by this Court.
The first contention of the appellant was that the High Court was wrong in reversing the finding of the trial court on the issue of the identity of the appellant.
Secondly it was submitted that under section 2(2) of the as it stood before the Amendment which came into force on January 19, 1957 the appellant though a Pakistani citizen was not a "foreigner" and hence his entry into India before that date would not constitute an offence.
It was contended further that the courts had no jurisdiction to determine whether the appellant was or was not a foreigner by reason of the provision of section 9(2) of the Indian Citizen ship act 1955.
Held: The appellant was the person who was deported on April 21, 1957 and the finding of the High Court on the question of his identity was correct.
(ii) If on the date when the offence is committed a person is "a foreigner" as defined by the Act, it would be no excuse for him to say that on an earlier date he was not foreigner.
Since the appellant was deported in April 1957 and he came back to India subsequently without a passport he was a foreigner under the amendment provision which came into force on January 19, 1957 had committed an offence under s, 3 of the .
(iii) Under section 9 of the the onus is upon the person who is accused under the Act to prove that he is not a foreigner.
It is only where there is proof that a person is, to start with a citizen of India and it is alleged that he has lost his Indian Citizenship by reason of acquiring the nationality of the foreign State that any question of invoking the provisions of section 9(2) of the Citizenship Act arises.
In the present case the appellant a Pakistani national came to India originally with a Pakistani Passport and after his deportation in April 1957 came back to India without a passport and hence he cannot invoke section 9(2) of the Citizenship Act and lie had committed an offence under section 3(2)(a) of the . 442


judgement:
Appeals Nos.
107 111 of 1963.
Appeals by special leave from the judgment :and order dated March 23, 1961 of the Punjab High Court in Income tax Reference No. 14 of 1960.
R. Ganapathi Iyer and R.N. Sachthey, for the appellant (in all the appeals).
S.T. Desai, R.K. Gauba, B.P. Singh and Naunit Lal, for the respondent (in all the appeals).
March 24, 1964.
The Judgment of the Court was delivered by SARKAR, J.
We think that these appeals are covered by ;the judgment of this Court in Punjab Distilling Industries Ltd. vs Commissioner of Income tax(1) and the High Court (1) [1959] Supp. 1 S.C.R. 693.
448 was in error in its view that the ratio decidendi of that judgment was not applicable to them.
The earlier case had arisen out of the assessment of the same assessee but it was concerned with the years 1947 48 and 1948 49 while the present appeals are concerned with the years 1946 47, 1949 50, 1950 51, and 1951 52.
The accounting period of the assessee was from December 1, in one year to November 30 of the following year.
In both the cases the assessments were for income tax, excess profits tax and business profits tax.
The point for consideration in respect of all these taxes was, however, the same.
A full statement of the facts will be found in the Judgment in the earlier case and it is unnecessary to state them at length over again.
The assessee who was a distiller and seller of bottled country liquor, started collecting from its customers from the year 1945 besides the price of the liquor and the bottles in which the liquor was sold, a further charge called empty bottles return security deposit".
This charge was made at a certain rate per bottle delivered depending on its size on the term that it would be refunded as and when the bottles were returned to the assessee and that the entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent of the bottles covered by it.
The question is whether this charge is a trading receipt asses sable to tax.
In the earlier case this Court held it to be assessable.
This Court then said (p. 687), "the trade consisted of sale of bottled liquor and the consideration for the sale was constituted by several amounts respectively called, the Price of the liquor, the price of the bottles and the security deposit.
Unless all these sums were paid the appellant would not have sold the liquor.
So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore part of the price of what was sold.
" In respect of the years now under consideration the Income tax Officer taxed these charges and on appeal the Appellate Assistant Commissioner confirmed the Income tax Officer 's view.
On further appeal, however, the Income tax Tribunal reversed the decisions of the authorities below and held that these charges were loans and not trading receipts.
It may be stated that all this had happened before the afore said earlier judgment was delivered.
After the Tribunal 's decision, the Commissioner of Income tax obtained a reference of the following question to the Punjab High Court: "Whether on the facts and circumstances of the case the collections by the assessee company described in its accounts as 'empty bottle return security deposits ' were income assessable under Section 10 of the Income tax Act.
" 449 It is of interest to note that the earlier case also concerned an identical question and had been answered both by the High Court and this Court in the affirmative.
If the judgment in the earlier case covered the present ap peals, then the question referred would, of course, have to be ,answered in the affirmative.
The High Court, however, took the view that as a result of the amendment of the rules made under the Punjab Excise Act, 1914 which came into effect from April 1, 1948, the charges collected after that date were not covered by that judgment.
It held that the amended rule made the ratio decidendi of our judgment inapplicable to the charges collected after that date.
The rule referred to is r. 40(14)(f) and the relevant part of it on which the High Court based its view is as follows: (v) It is compulsory for the licensee to return at least 90 per cent.
of the bottles issued to him by the licensed distiller.
(vi) The licensed distiller may, at the time of issue, demand security at the rates of three rupees, two rupees or one rupee and eight annas per dozen quart, pint or nip bottles respectively upto 10 per cent.
of the bottles issued by him and confiscate the security to the extent falling short of the 90 per cent.
limit.
The licensee referred to in the earlier of the rules quoted is the wholesaler to whom the distiller sold his liquor.
It is not very clear what is meant by the words "upto 10 per cent.
of the bottles issued" or the words "falling short of the 90 per cent.
limit".
It is not necessary, however, to pursue this matter for we shall not be concerned with the precise meaning of these words.
It is not in dispute that some charge described as a deposit was realised on the term that it would be refunded in certain eventualities and that is enough for our purpose for the only question is whether this charge was a trading receipt.
The High Court thought that the earlier judgment of this Court had been based on three considerations, namely (1) that the charge concerned had been made without Government 's sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor; (2) that it could not be security deposit for the return of the bottles for there was no right to their return and (3) that it was refundable under the contract of sale itself.
In the High Court 's view if these circumstances were not there, our decision would have been different.
The High Court held that since the amended rules came into force, none of these considerations was available and, therefore, the LP(D) ISCI 15a 450 charges could not be held to be trading receipts.
The following quotation from the judgment of the High Court fairly summarises its reasoning: "The amended rules were given effect from 1st April, 1948.
To securities demanded in accordance with the above rules the three considerations which prevailed with their Lordships of the Supreme Court and which have been mentioned above will not apply to the instant case.
It cannot, therefore, be said, as was the case in the appeal before their Lordships of the Supreme Court, that the 'additional amounts had been taken without Government 's sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor '.
Again it cannot be said that the 'wholesalers were under no obligation to return the bottles. ' Lastly, in view of the statutory rule amended in 1948 it cannot be said that the deposit 'was part of each trading transaction a) id was refundable under the terms of the contract relating to trading transaction under which it had been made.
" It is not in dispute that if the High Court was in error in this reasoning, the present case will be governed by the earlier decision.
With respect to the learned Judges of the High Court, we think that the earlier judgment of this Court has been misunderstood by them.
That judgment had not been based on the three points mentioned by the High Court and this we now proceed to show.
The first point of distinction between the two cases was based on the observation in the earlier case that the additional amounts had been taken without Government 's sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor '.
The High Court apparently thought that by this observation it was suggested that if the amounts had been taken under Government 's sanction, then they would not have been taxable.
We are wholly unable to agree that this is a correct reading of that judgment.
That observation contained only a recital of fact and was made for the purpose of distinguishing these amounts from the other amounts charged by the assessee as price of bottles to which we have earlier referred.
The other amount was charged under a scheme framed by the Government and called the "buy back scheme".
We find nothing in the earlier judgment to show that the conclusion there arrived at was based on the fact that the charge had not been made with the sanction of the Government.
That nothing turned on whether a charge was made under a Government scheme or purely as a matter of contract would indeed appear to have always been the common case.
Thus even before the 451 amended rules had come into force, the assessee had been 'collecting under the aforesaid "buy scheme" which had the sanction of the Government, from its customers as price of the bottles, a charge which was refundable on the return of the bottles.
The charge now under consideration is a charge additional to that collected under the 'buy back scheme ' and this we have earlier said.
It has never been in dispute, either in the earlier case or now, that the charge under the 'buy back scheme ' which was collected under Government 's sanction constituted a taxable income.
This Court had never said, nor was it ever contended by the assessee that a collection would not be taxable if it had been made with the sanction of the Government.
The first point of distinction sought to be made by the High Court is, therefore, unfounded.
The second point made by the High Court was that the observation in the earlier judgment that the charge could not be a security for the return of the bottles as there was no right to such return, was no longer applicable as under the amended rules there was a right to the return of the bottles.
We do not agree for reasons to be stated later, that under the amended rules there was such a right but we will assume for the present that there was.
Now, the argument in connection with which that observation was made was that if the charges were deposits for securing the return of the bottles, they were not trading receipts.
By the aforesaid observation this Court dealt with the first part of this argument and said that the assumption that the charges were for securing the return of the bottles was unfounded for there was no right to such return.
If the charges were not by way of security deposit the argument must, of course, fail.
So that was one answer that was given to the argument.
But this Court did not stop there and proceeded to consider the argument as a whole, namely, whether if the charges were security deposits, they were not trading receipts.
Now, the reason why it was said that if the charges were security deposits they were not trading receipts is to be found in two cases on which the argument was based.
The first was the case of Davies vs Shall Company of China Ltd.(1).
In that case the Company had delivered its product to certain agents for sale and payment of the sale proceeds to it.
The Company took money from each agent as deposit to secure itself against the risk of default by him to account for the sale proceeds.
It was observed by Jenkins L.J., "Mr. Grant described the agents ' deposits as part of the Company 's trading structure, not trade receipts but anterior to the stage of trade receipts, and I think that is a fair description of them.
It seems to (1) LP(D)ISCI 15 452 me that it would be an abuse of language to describe one of these agents, after he had made a deposit, as a trade creditor of the Company in respect of the deposit, not on account of any goods supplied or services rendered by him in the course of its trade, but simply by virtue of the fact that he has been appointed an agent of the Company with a view to him trading on its behalf, and as a condition of his appointment has deposited with or, in other words, lent to the Company the amount of his stipulated deposit.
" That was the kind of security deposit which Mr. Sastri appearing for the assessee on the earlier occasion said the "empty bottles return security deposits" were.
The real point, therefore, in contending that the deposits were security deposits was to establish that they were not part of the trading transactions at all but related to a stage anterior to the trading transactions.
This contention was rejected and it was held that the "empty bottles return security deposits" were not the kind of deposits considered in the Shall Company case.
The other case on which Mr. Sastri then relied was K.M. section Lakshmanier & Sons vs Commissioner of Income tax and Excess Profits Tax Madras(1).
That case dealt with three trade arrangements.
Mr. Sastri contended that the "empty bottles return security deposits" were the kind of deposits dealt with in the third arrangement considered in that case but this argument also failed.
Under the third arrangement, the trader took from its constituent at the commencement of an expected series of trading transactions with it a deposit and kept the same till the business connection came to an end whereupon the deposit was refundable to the Constituent with interest at 3 per cent per annum after deduction thereout of any amount remaining due, from the constituent on the trading transactions.
The understanding was that the constituent would pay for each purchase made by him from the trader during the continuance of the business connection and it was only where he failed to make the payment that the amount due became liable to be deducted from the deposit.
This deposit was held by this Court to be a loan for these reasons: "The amount deposited by a customer was no longer to have any relation to the price fixed for the goods to be delivered under a forward contract either in installment or otherwise.
Such price was to be paid by the customer in full against delivery in.
respect of each contract. . .
It was only at the end of the 'business connection ' with the appellants that an adjustment was to be made towards any possible liability arising out (1) ; 453 of the customer 's default. .
The transaction had thus all the essential elements of a contract of loan." (P. 1063).
None of these cases, therefore, was concerned with the question whether a security deposit was by its very nature such that it could not be a trading receipt.
The first case dealt with an actual security deposit but it was held that that deposit was not a trading receipt not for the reason that it was a security deposit but for the reason that it formed, the structure under which trading transactions producing trading receipts were conducted and was not itself connected with any trading transaction.
In the second case the receipt was held to be a loan; that it might be also a security deposit was not even mentioned.
It was held not to be a trading receipt because it had no connection with the trading transactions but related to a stage anterior to the trading transactions.
It is, therefore, clear that the contention that the charges formed a security deposit had been advanced only for the purpose of showing that they were not a part of the trading transactions.
The question was not really whether the charges were security deposits but whether they were part of the trading transactions or had been made at anterior stages.
This Court decided that they were part of the trading transactions and were not relatable to an anterior stage.
That is all that it was called upon to decide and did decide.
That on the earlier occasion this Court was not concerned with the question whether the charges made were security deposits or not would appear from the following observations occurring at p. 690. "Mr. Sanyal was prepared to argue that even if the amounts were securities deposited for the return of the bottles, they would still be trading receipts, for they were part of the trading transactions and the return of the bottles was necessary to enable the appellant to carry on its trade, namely, to sell liquor in them.
As we have held that the amounts had not been paid as security for the return of the bottles, we do not consider it necessary to pronounce upon this contention.
" This Court, therefore, did not decide that if the deposits bad been made to secure the return of the bottles, they could not be a trading receipt.
The High Court was in error in distinguishing the present case from the earlier one on the basis that this Court had then so decided.
We now turn to the question whether under the amended rules there was any right in the distiller to the return of the bottles.
We think there was not and in this respect the two cases are identical; in none was the charge in fact a security deposit.
The reason for that view is this.
The liquor passed through three sales before it reached the consumer; first the distiller sold it to wholesaler then the wholesaler to a retailer and lastly, the retailer to the consumer, If the 454 rules created an obligation on the wholesaler to return the bottles to the distiller, then the rules would provide for a return of the bottles to the wholesaler by the retailer and to the retailer by the consumer; without such rules it would be idle to require the wholesaler to return the bottles to the distiller.
We have not been shown anything creating a right in the wholesaler or the retailer to a return of bottles.
Clearly, the consumers were under no obligation to return the bottles in which they bought liquor.
Sub clause (v) of the rule on which the High Court based itself, referred to the return of the bottles in which liquor was sold.
In the absence of P. right in the wholesaler to a return of the bottles from the retailer, it would be insensible to read that provision as creating an obligation on the wholesaler to return the bottles.
He had no means under the rules to perform that obligation.
That rule, therefore, must be read as intending only to lay down that if the wholesaler could not return the bottles, his deposit was liable to be confiscated under sub cl.
Again, the rules do not lay down any procedure by which the distiller might enforce the return of the bottles to him, which they would have undoubtedly done if it was intended to give him a right to the return of the bottles.
Indeed there is nothing to show that he can obtain such a return.
Whether the wholesaler would be liable to punishment under the Act for breach of his obligation to return the bottles or not is to no purpose, for we are now concerned with the right of the distiller to obtain a return of the bottles.
It seems to us that the only reason why the rules required a wholesaler to return the bottles to the distiller was to authorise the imposition of a term of the sale upon the breach of which, the charges made for the bottles would cease to be refundable.
We now come to the last point of distinction made by the High Court.
On the earlier occasion this Court had said that the amount deposited was refundable under the terms of the contract constituting the trading transaction and was, therefore, a trading receipt.
The learned Judges of the High Court seem to 'have been of the opinion that since the rule was amended, the deposits had to be made under it and, therefore, were not thereafter received under the contract or as part of the trading transaction constituted by it.
With great respect to the learned Judges, there appears to be some confusion here.
The rule by its own force does not compel a deposit to be made.
The terms of the rule make this perfectly clear.
All that it does is to empower a distiller to take a deposit.
But the deposit must be taken under a contract in regard to it; it is not taken under the rule itself.
In other words, all that the rule does is to authorise the making of a contract concerning the deposit on the terms mentioned in it, the object apparently 455 being to avoid any question as to its validity arising later.
We may here point out that the trade in liquor is largely control ( led by Government regulations.
It must, therefore, be held that the deposit was actually taken under a contract; it was none the less so though the contract was authorised by the stationery rules.
The third point of distinction on which the High Court relied was, therefore, also without foundation.
Whether if the deposits had been made without a contract and Indirectly under the rules and in respect of a trading transaction made by a contract they would have been trading receipts or not, is not a question that arises in the present appeals and on that question we express no opinion now.
For these reasons we think that these appeals are completely governed by the earlier judgment of this Court and we answer the question referred in the affirmative.
We should state that even according to the High Court the amounts collected as "empty bottles return security deposit" prior to April 1, 1948, were chargeable to tax.
The appeals are allowed and the respondent will pay the costs here and below.
There will be one set of costs allowed as hearing fee.
Appeals allowed.

summary:
The assessee, a distiller of country liquor, carried on the business of selling liquor to licensed whole salers.
The assesses :started collecting from its customers from the year 1945 besides the price of the liquor and the bottles in which the liquor was sold a further charge called "empty bottles return security deposit.
" The entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent.
of the bottles covered by it.
The question for consideration before this Court was whether the charge "security deposit" amounted to a trading receipt assessable to Income Tax.
Held: The amounts paid to the assessee and described as 'security deposit ' were trading receipts and therefore income of the assessee assessable to tax.
These amounts were paid as an integral part of the commercial transaction of the sale of liquor in bottles and represented an extra price charged for the bottles.
They were not security deposits as there was nothing to secure, there being no right to the return of bottles.
These appeals are covered by the judgment of this Court in Punjab Distilling Industries Ltd. vs Commissioner of Income tax.
Punjab Distilling Industries Ltd. vs Commissioner of Income.
tax [1959] Supp.
1 S.C.R. 693, relied on.
Davies vs Shell Company of China Ltd. (1951)32 T.C. 133 and K.M.S. Lakshmanier & Sons vs Commissioner of Incometax and Excess Profits Tax, Madras [1953] S,.
C.R. 1057, distingushed.