1965 (12) TMI 125 - SC - VAT and Sales Tax

Court Rules on Sales Tax Imposition Periods Under Constitution, Partial Appeal Success

The State of Jammu and Kashmir and Others Versus Caltex (India) Ltd.

The State of Jammu and Kashmir and Others Versus Caltex (India) Ltd. - [1966] 17 STC 612 (SC), 1966 AIR 1350, 1966 (3) SCR 149 Issues Involved:1. Imposition of sales tax from October 1955 to May 1959 under Article 286(2) of the Constitution.2. Validity of sales tax levy from January 1, 1955, to September 6, 1955, under the Sales Tax Laws Validation Act, 1956.Issue-wise Detailed Analysis:1. Imposition of Sales Tax from October 1955 to May 1959 under Article 286(2) of the Constitution:The court examined whether sales tax could be imposed on the respondent for the period from October 1955 to May 1959. The facts revealed that petrol was transported from Pathankot in Punjab to Nandpur in Jammu and Kashmir under a contract of sale. The petrol was stored at Pathankot and delivered to Nandpur farm in Jammu and Kashmir. Payments were made to the respondent at Delhi. These transactions involved the movement of goods from one state to another, thereby satisfying the conditions for inter-State trade as per the judgment in the Bengal Immunity Company case [1955] 2 S.C.R. 603; 6 S.T.C. 446, which stated, 'A sale could be said to be in the course of inter-State trade only if two conditions concur: (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale.' The court concluded that these transactions were inter-State sales and thus could not be taxed by the State of Jammu and Kashmir for the period from October 1955 to May 1959 due to the prohibition in Article 286(2).2. Validity of Sales Tax Levy from January 1, 1955, to September 6, 1955, under the Sales Tax Laws Validation Act, 1956:The court addressed whether the respondent was liable to pay sales tax for the period from January 1, 1955, to September 6, 1955, considering the Sales Tax Laws Validation Act, 1956. The respondent argued that the Act did not empower any State to levy tax on inter-State trade sales but merely removed the ban imposed by Article 286(2). The court agreed, stating that the Validation Act did not confer new taxing powers but only removed the constitutional prohibition. The court then examined whether the Jammu and Kashmir Motor Spirit (Taxation of Sales) Act, 2005, applied to these sales. The Act's preamble and sections defined 'retail sale' and 'retail dealer,' and section 3 imposed a tax on all retail sales of motor spirit. The court found that the charging section did not require the assessee to have a place of business or storage within Jammu and Kashmir, nor did it require a retail dealer's license. The court concluded that the respondent was liable to pay sales tax for the period from January 1, 1955, to September 6, 1955, as the transactions were retail sales within the meaning of the Act.Severability of the Assessment:The court also addressed the issue of whether the entire assessment was invalid because it covered both taxable and non-taxable periods. The High Court had held that the assessment was invalid in toto, relying on the principle that an assessment is invalid if one component is wrongly included. However, the Supreme Court disagreed, stating that the assessment could be split and dissected to separate taxable sales from non-taxable ones. The court cited The State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069 at p. 1097; 4 S.T.C. 133, to support this view. Therefore, the court allowed the appeal in part, granting a writ to prevent the appellants from realizing sales tax for the period from September 7, 1955, to May 1959, but upholding the tax liability for the period from January 1, 1955, to September 6, 1955.Conclusion:The appeal was partly allowed, with each party bearing its own costs. The respondent was directed not to pay sales tax for the period from September 7, 1955, to May 1959, but was held liable for sales tax from January 1, 1955, to September 6, 1955.