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Subject:Taxation

Title:"MischiefRule"asusedinthecaseofBengalImmunityCase
Author:MissChhaviAgarwal

ChhaviAgarwal*
Introduction
Within the context of law, the mischief rule is a rule of statutory interpretation that attempts to determine the
legislator'sintention.Originatingfroma16thcenturycaseintheUnitedKingdom,itsmainaimistodeterminethe
"mischief and defect" that the statute in question has set out to remedy, and what ruling would effectively
implementthisremedy.Whenmaterialwordsarecapableofbearingtwoormoreconstructionsthemostfirmly
establishedruleforconstructionofsuchwords"ofallstatutesingeneral"istherulelaiddowninHeydonscase 1
also known as mischief rule.2 This rule is also known as purposive construction.3 The rules lay down that the
court should adopt the construction which shall suppress the mischief and advance the remedy.4 In Indian
contexttherulewasbestexplainedinthecaseofBengalimmunityco.vStateofBihar.5
Facts
Theappellantcompanyisanincorporatedcompanycarryingonthebusinessofmanufacturingandsellingvarious
sera,vaccines,biologicalproductsandmedicines.ItsregisteredheadofficeisatCalcuttaanditslaboratoryand
factory are at Baranagar in the district of 24 Perganas in West Bengal. It is registered as a dealer under the
Bengal Finance (Sales Tax) Act and its registered number is S.L. 683A. Its products have extensive sales
throughouttheUnionofIndiaandabroad.ThegoodsaredispatchedfromCalcuttabyrail,steamerorairagainst
ordersacceptedbytheappellantcompanyinCalcutta.Theappellantcompanyhasneitheranyagentormanager
in Bihar nor any office, godown or laboratory in that State. On the 24th October, 1951 the Assistant
SuperintendentofCommercialTaxes,Biharwrotealettertotheappellantcompanywhichconcludedasfollows:
"Necessary action may therefore be taken to get your firm registered under the Bihar Sales Tax Act.
StepsmaykindlybetakentodepositBiharSalesTaxduesinanyBiharTreasuryatanearlydateunder
intimationtothisDepartment".
3. On the 18th December, 1951 a notice was issued by the Superintendent, Commercial Taxes, Central Circle
Bihar,Patnacallingupontheappellantcompany(i)toapplyforregistrationand(ii)tosubmitreturnsshowingits
turnoverfortheperiodcommencingfromthe26thJanuary,1950andendingwiththe30thSeptember,1951.This
noticewasissuedundersection13(5)oftheBiharSalesTaxAct,1947(hereinaftercalledtheAct)readwithrule
28. It was drawn up according to Form No. 8 prescribed by the rules and was headed "Notice of hearing under
section13(5)'.Thereasonforissuingthisnotice,asrecitedtherein,wasthatoninformationwhichhadcometo
his possession the Superintendent was satisfied that the appellant company was liable to pay tax but had
nevertheless willfully failed to apply for registration under the Act. Suffice it to say that while the appellant
company denied its liability on the ground, inter alia, that it was not resident in Bihar, it carried on no business
there,noneofitssalestookplaceinBiharandthatitdidnotcollectanysalestaxfromanypersonofthatState,
theBiharSalesTaxauthoritiesmaintainedthatundersection33,whichwassubstantiallybasedonarticle286of
the constitution and was inserted in the Act by the President's Adaptation Order promulgated on the 4th April,
1951,allsalesinWestBengaloranyotherStateunderwhichthegoodshadbeendeliveredintheStateofBihar
as a direct result of the sale for the purpose of consumption in that State were liable to Bihar Sales Tax.
Eventually on the 29th May, 1952 the Assistant Superintendent of Sales Tax, Bihar called upon the appellant
company to comply with the notice by the 14th June, 1952 and threatened that, in default of compliance, he
would proceed to take steps for assessment to the best of his judgment. The appellant company by its letter
datedthe7thJune,1952characterizedthenoticeundersection13(5)asultraviresandentirelyillegalandcalled
upontheSuperintendenttoforthwithrescindandcancelthesame.Onthe10thJune,1952theappellantcompany
presentedbeforetheHighCourtatPatnaapetitionunderarticle226claimingthereliefshereinbeforementioned.
The respondents did not file any affidavit in opposition controverting any of the allegations of facts made in the
petitionanditmust,accordingly,betakenthatthosefactsareadmittedascorrectbytherespondents.TheHigh
Court dismissed the petition on the 4th December, 1952 but on the next day issued a certificate, under article
132(1) of the Constitution, that the case involved a substantial question of law as to the interpretation of the
constitution.Hencethepresentappeal.
The principal question is whether the tax threatened to be levied on the sales made by the appellant company
andimplementedbydeliveryinthecircumstancesandmannermentionedinitspetitionisleviablebytheStateof
Bihar.Thiswasdonebyconstruingarticle286whoseinterpretationcameintoquestionandthemeaninggranted
toitinthecaseofTheStateofBombayv.TheUnitedMotors(India)Ltd6wasoverruled.Itraisesaquestionof
constructionofarticle286oftheConstitution.
It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's
case 7wasdecidedthat
"......... for the sure and true interpretation of all Statutes in general (be they penal or beneficial,
restrictiveorenlargingofthecommonlaw)fourthingsaretobediscernedandconsidered:
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1st.WhatwasthecommonlawbeforethemakingoftheAct.,
2nd.Whatwasthemischiefanddefectforwhichthecommonlawdidnotprovide.,
3rd. What remedy the Parliament hath resolved and appointed to cure the disease of the
Commonwealth.,and
4th.Thetruereasonoftheremedyandthentheofficeofallthejudgesisalwaystomakesuch
construction as shall suppress the mischief, and advance the remedy, and to suppress subtle
inventions and evasions for continuance of the mischief, and pro privato commodo, and to add
forceandlifetothecureandremedy,accordingtothetrueintentofthemakersoftheAct,pro
bonopublico".Thisruleisequallyapplicabletotheconstructionofarticle286ofourConstitution.
Inordertoproperlyinterprettheprovisionsofthatarticleitis,therefore,necessarytoconsider
howthematterstoodimmediatelybeforetheConstitutioncameintoforce,whatthemischiefwas
for which the old law did not provide and the remedy which has been provided by the
Constitutiontocurethatmischief.
Interpretation
Thepositionwithrespectto taxationonsalesorpurchasesofgoodsthatprevailedinthecountryhadbetter
bestatedinthelanguageofPatanjaliSastri,C.J.whodeliveredthemajorityjudgmentintheStateofBombayv.
TheUnitedMotors(India)Ltd.8itwasnotnecessarythatthesaleshouldtakeplacewithintheterritoriallimitsof
theStateinthesensethatalltheingredientsofasale,liketheagreementtosell,thepassingoftitle,deliveryof
thegoods,etc.,shouldhaveaterritorialconnectionwiththeStateandthat,broadlyspeaking,localactivitiesof
buyingandsellingcarriedonintheStateinrelationtolocalgoodswouldbeasufficientbasistosustainthetaxing
poweroftheState,providedofcoursethatsuchactivitiesultimatelyresultedinaconcludedsaletobetaxed.
By Government of India Act, 1935 the Provincial Legislatures enacted Sales Tax laws for their respective
Provinces, acting on the principle of territorial nexus that is to say, they picked out one or more of the
ingredientsconstitutingasaleandmadethemthebasisoftheirsalestaxlegislation.Whethertheterritorialnexus
putforwardasthebasisofthetaxingpowerineachcasewouldbesustainedassufficientwasamatterofdoubt
not having been tested in a Court of law. And such claims to taxing power led to multiple taxation of the
same transaction by Provinces and cumulation of the burden falling ultimately on the consuming public. This
situation posed to the Constitution makers the problem of restricting the taxing power on sales or purchases
involvinginterStateelementsbuttheyhadtomaintaintheStatepowerofimposingnondiscriminatorytaxeson
goods imported from other States, while upholding the economic unity of India by providing for the freedom of
interState trade and commerce. In their attempt to harmonize and achieve these somewhat conflicting

objectives,theyenactedarticles286.Theabovechaoswastocurethismischiefofmultiple taxationandto
preserve the free flow of interState trade or commerce in the Union of India regarded as one economic unit
without any provincial barrier that the Constitution makers adopted article 286 in the Constitution which runs as
follows:
286.(1)NolawofaStateshallimpose,orauthorisetheimpositionof,ataxonthesaleorpurchaseofgoods
wheresuchsaleorpurchasetakesplace
(a)outsidetheStateor
(b)inthecourseoftheimportofthegoodsinto,orexportofthegoodsoutof,theterritoryof
India.
Explanation.Forthepurposesofsubclause(a),asaleorpurchaseshallbedeemedto
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 purpose of consumption in that State,
notwithstandingthefactthatunderthegenerallawrelatingtosaleofgoodstheproperty
inthegoodshasbyreasonofsuchsaleorpurchasepassedinanotherState.
(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or
authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase
takesplaceinthecourseofinterStatetradeorcommerce:
Provided that the President may by order direct that any tax on the sale or purchase of goods
which was being lawfully levied by the Government of any State immediately before the
commencement of this Constitution shall, notwithstanding that the imposition of such tax is
contrary to the provision of this clause continue to be levied until the thirtyfirst day of March,
1951.
(3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the
saleorpurchaseofanysuchgoodsashavebeendeclaredbyParliamentbylawtobeessentialforthe
lifeofthecommunityshallhaveeffectunlessithasbeenreservedfortheconsiderationofthePresident
andhasreceivedhisassent".
Inclause(1)(a)ofarticle286themischiefofmultiple taxationascuredbasedonnexustheory.In
clause(1)(b)theyconsideredsalesorpurchasesfromthepointofviewofourforeigntradeandplaceda
ban on the States' taxing power in order to make our foreign trade free from any interference by the
States by way of a tax impost. In clause (2) they looked at sales or purchases in their interState
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characterandimposedanotherbanintheinterestofthefreedomofinternaltrade.Finally,inclause(3)
theConstitutionmakers'attentionwasrivetedonthecharacterandqualityofthegoodsthemselvesare
they placed a fourth restriction on the States' power of imposing tax on sales or purchases of goods
declaredtobeessentialforthelifeofthecommunity.TheStates'legislativepowerwithrespecttoasale
orpurchasemaybehitbyoneormoreofthesebans.Thus,takethecaseofasaleofgoodsdeclaredby
Parliament as essential by a seller in West Bengal to a purchaser in Bihar in which goods are actually
delivered as a direct result of such sale for consumption in the State of Bihar. A law made by West
Bengal without the assent of the President taxing this sale will be unconstitutional because (1) it will
offendarticle286(1)(a)asthesalehastakenplaceoutsidetheterritorybyvirtueoftheExplanationto
clause(1)(a),(2)itwillalsooffendarticle286(2)asthesalehastakenplaceinthecourseofinterState
trade or commerce and (3) such law will also be contrary to article 286(3) as the goods are essential
commoditiesandthePresident'sassenttothelawwasnotobtainedasrequiredbyclause(3)ofarticle
286.ThiswastheinterpretationgiventoHonbleJDas.TheLegislaturesoftheStateswereempowered
byarticle246(3)readwithEntry54ofListIItomakealawwithrespecttotaxesonsalesorpurchases
of goods and hence the State Legislatures considered themselves free to make a law imposing tax
provided they had some territorial nexus with such sales or purchases. This resulted in prejudicing the
interests of the ultimate consumers and also hampered the free flow of interState trade or commerce.
SotheConstitutionmakershadtocurethatmischief.Thefirstthingthattheydidwastotakeawaythe
States' taxing power with respect to sales or purchases which took place outside their respective
territories.Thistheydidbyclause(1)(a).Ifthematterhadbeenleftthere,thesolutionwouldhavebeen
imperfect,forthenthequestionastowhichsaleorpurchasetakesplaceoutsideaStatewouldyethave
remainedopen.SotheConstitutionmakershadtoexplainwhatanoutsidesalewasandthistheydidby
theExplanationsetforthinclause(1).Itisquiteobviousthatitcreatedalegalfiction.Legalfictionsare
created only for some definite purpose. Here the avowed purpose of the Explanation is to explain what
an outside sale referred to in subclause (a) is. The judicial decisions referred to in the dissenting
judgment in The State of TravancoreCochin v. Shanmugha Vilas Cashew Nut Factory 9 and the case of
East End Dwellings Co. Ltd. v. Finsbury Borough Council10 clearly indicate that a legal fiction is to be
limitedtothepurposeforwhichitwascreatedandshouldnotbeextendedbeyondthatlegitimatefield.It
should further be remembered that the dominant, if not the sole, purpose of article 286 is to place
restrictionsonthelegislativepowersoftheStatesbyarticle286byimposingseveralbans.
For clause 2 it was said that until Parliament by law made in exercise of the powers vested in it by clause (2)
provides otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of goods
whensuchsalesorpurchasestakeplaceinthecourseofinterStatetradeorcommerce.
ItwasdecidedthatBiharSalesTaxAct,1947insofarasitpurportstotaxsalesorpurchasesthattakeplacein
thecourseofinterStatetradeorcommerce,isunconstitutional,illegalandvoid.TheActimposestaxonsubjects
divisibleintheirnaturebutdoesnotexcludeinexpresstermssubjectsexemptedbytheConstitution.Insucha
situationtheActneednotbedeclaredwhollyultraviresandvoid.UntilParliamentbylawprovidesotherwise,the
State of Bihar do forbear and abstain from imposing sales tax on outofState dealers in respect of sales or
purchases that have taken place in the course of interState trade or commerce even though the goods have
been delivered as a direct result of such sales or purchases for consumption in Bihar. The State must pay the
costsoftheappellantinthisCourtandinthecourtbelow.Bhagwati,J.hadagreedtotheaboveinterpretation.
DissentingJudgment:
Venkatarama Ayyar, J. , Sinha, J. along Jagannadhadas, J. had declined the above interpretation. The
Explanationtoarticle286(1)(a)oftheConstitutionhascreatedalegalfictionasaresultofwhichatransactionof
saleorapurchasepartakingofaninterStatecharacterhasbeentreatedasadomestictransaction.Thefiction
has localized sales or purchases contemplated by the Explanation, by converting such transactions as would
otherwisehavebeeninterStatesalesorpurchasesintosalesorpurchasesinsideoneStateinasenseinwhichit
isplacedinaclassdistinctandseparatefromwhatisreferredtoassalesorpurchases"outsidetheState"inthe
mainbodyofarticle286(1)(a)whichprohibitsimpositionoftaxbyanyState.
Themainpurposeofcreatingthefictionistopreventmultiple taxationofthesametransaction,but,itmay

be added, not altogether to stop the taxation of such transactions. The next question is how far the legal
fictionshouldbecarriedinitsactualapplication.ThefictioncreatedbytheExplanationbringssuchasalewithin
thetaxingpowersoftheStatewithinwhichsuchasaleissaidtohavetakenplace.Sucharesultisbroughtabout
notbyholdingthattheExplanationhasconferredpositivelythepowerontherelevantStatetoimposesalestax,
butbyholdingthatsuchaninsidesaleisbeyondthescopeoftheprohibitioncontainedinthemainbodyofarticle
286(1)(a)whichinterdictstheimpositionoftaxonasale"outsidetheState".TheExplanationhasgottoberead
asanintegralpartofarticle286(1)(a)andthusread,itmeansnegativelythatasaleorpurchaseoutsideaState
cannotbetaxedandbynecessaryimplication,thatasaleorpurchaseinsideaStatemaybetaxedbythatState
asfallingoutsidethemischiefoftheprohibitiondirectedagainsttheimpositionofataxonasaleorpurchaseof
goodsoutsideaStateinotherwords,assoonasasaleorpurchaseofgoodsisdeclaredtobeoutsidethepale
oftheprohibitioncontainedinarticle286(1)(a),theState'spowerofimposingataxcontainedinarticle246read
with item 54 of List II of 7th Schedule comes into operation. The view of the former 3 judges goes beyond the
purpose of the creation of the fiction which admittedly was to prevent multiple

taxation. The view as

propoundedbythembesidespreventingmultiple taxationgoestothelengthofprohibitinganyimpositionof
sales tax by any State. Such was not the intention of the Constitution. Whereas the imposition of multiple sales
tax on transactions of sale or purchase may be an obstacle to the free flow of inland trade and commerce, the
imposition of sales tax by a single State in which the sale is deemed to have taken place by virtue of the
Explanationcannotbepredicatedashavingsuchaneffect.Clause(2)ofarticle286oftheConstitutionissubject
toarticle286(1)(a)readwiththeExplanation.
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Finally, the former view was adopted and it was declared that until Parliament by law provides otherwise, the
State of Bihar do for bear and abstain from imposing Sales Tax on outofState dealers in respect of sales or
purchases that have taken place in the course of interState trade or commerce even though the goods have
beendeliveredasadirectresultofsuchsalesorpurchasesforconsumptioninBihar.
Conclusion:
Asitcanbeseenfromthecase,mischiefrulecanbeapplieddifferentlybydifferentjudges.Itismainlyaboutthe
discretionandunderstandingofthepersonapplyingit.Though,itasafarmoresatisfactorywayofinterpreting
actsasopposedtotheGoldenorLiteralrules.Itusuallyavoidsunjustorabsurdresultsinsentencingbutitalso
seentobeoutofdateasithasbeeninusesincethe16thcentury,whencommonlawwastheprimarysourceof
lawandparliamentarysupremacywasnotestablished.Itgivestoomuchpowertotheunelectedjudiciarywhich
isarguedtobeundemocratic.Inthe16thcentury,thejudiciarywouldoftendraftactsonbehalfofthekingand
werethereforewellqualifiedinwhatmischieftheactwasmeanttoremedy.Thisisnotoftenthecaseinmodern
legalsystems.Therulecanmakethelawuncertain,susceptibletotheslipperyslope.

________________________
*ChhaviAgarwal,IIIrdyearBALLB(Hons),HidayatullahNationalLawUniversity,Raipur(C.G)
1.SinghGP,'PrinciplesofStatutoryInterpretation'(10thEdn,2006)p118.
2.SinghGP,p118.
3.AndertonvRyan(1985)2AllER355
4.SinghGP,p118.
5.AIR1955SC661
6.[1953]S.C.R.1069
7.3Co.Rep.7a76E.R.637
8.supra
9.[1954]5S.C.R.53
10.L.R.1952A.C.109.

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