Supreme Court Upholds Sales Tax Liability on Goods Manufactured in Uttar Pradesh

The Supreme Court upheld the decision that the appellants were liable to pay sales tax on their sales of goods manufactured in Uttar Pradesh, regardless of the location and timing of the sale contracts. The Court also affirmed the constitutionality of Explanation II to Section 2(h) of the Act, upheld the jurisdiction of the Revising Authority and High Court to decide on the statute's validity, and confirmed the Commissioner of Sales Tax's competency to apply for a reference under Section 11 of the Act. The appeals were dismissed.

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Issues Involved:
1. Taxability of sales where goods were manufactured in Uttar Pradesh but sold outside the state.
2. Constitutionality of Explanation II to Section 2(h) of the Uttar Pradesh Sales Tax Act, 1948.
3. Jurisdiction of the Revising Authority and High Court to decide on the constitutional validity of the statute.
4. Competency of the Commissioner of Sales Tax to apply for a reference under Section 11 of the Act.

Detailed Analysis:

1. Taxability of Sales Where Goods Were Manufactured in Uttar Pradesh but Sold Outside the State:
The appellants, manufacturers and dealers of oil in Uttar Pradesh, sent their goods to depots outside the state before any contract of sale was made. The Sales Tax Officer assessed these outside sales to sales tax under the Uttar Pradesh Sales Tax Act, 1948. The Revising Authority held that out-of-state sales would be taxable if the goods were in existence in Uttar Pradesh at the time when the contracts for sale were made or if the goods were manufactured after the contracts for sale were made and subsequently appropriated towards those contracts. However, sales of goods that were manufactured and exported before any contracts for sale were made would not be taxable. The Supreme Court upheld the High Court's decision that the appellants were liable to pay sales tax on their sales irrespective of where and when the contracts for sale were entered into, as long as the goods were manufactured or produced in Uttar Pradesh.

2. Constitutionality of Explanation II to Section 2(h) of the Uttar Pradesh Sales Tax Act, 1948:
The appellants argued that the deeming provision in Explanation II to Section 2(h) was ultra vires the Government of India Act, 1935. The Supreme Court rejected this argument, stating that the presence of goods in Uttar Pradesh at the time of the agreement for sale or their production or manufacture in the state constituted a sufficient nexus between the taxing authority and the transaction sought to be taxed. The Court cited previous cases, such as The Tata Iron & Steel Co. Ltd. v. The State of Bihar, to support its decision, emphasizing that the production or manufacture of goods in the state provided a real and pertinent nexus for imposing the tax.

3. Jurisdiction of the Revising Authority and High Court to Decide on the Constitutional Validity of the Statute:
The appellants contended that the Revising Authority and the High Court did not have the jurisdiction to examine the constitutional validity of Explanation II to Section 2(h) of the Act. The Supreme Court dismissed this argument, noting that the appellants had voluntarily submitted to the jurisdiction of both the Revising Authority and the High Court on this matter. The Court highlighted that the appellants had themselves applied to the Revising Authority contending the provision was ultra vires, and thus could not now challenge the jurisdiction of the High Court to decide the question of law referred to it.

4. Competency of the Commissioner of Sales Tax to Apply for a Reference Under Section 11 of the Act:
The appellants argued that the Commissioner of Sales Tax was neither a "dealer" nor a "person aggrieved" within the meaning of Section 11 as it originally stood, and that the amendment to Section 11 by the U.P. Sales Tax Act (8 of 1954) was not retrospective. The Supreme Court rejected this argument, stating that the right to apply for a reference is conferred upon a person aggrieved by an order passed under Section 10 and exists regardless of when the application for revision was made. The Court emphasized that the amendment was procedural and did not alter any vested or substantive rights of the assessee. Therefore, the Commissioner had the right to apply for a reference at the time he did so.

Conclusion:
The Supreme Court dismissed the appeals, holding that the appellants were liable to pay sales tax on their sales of goods manufactured in Uttar Pradesh, irrespective of where and when the contracts for sale were entered into. The Court also upheld the constitutionality of Explanation II to Section 2(h) of the Act and affirmed the jurisdiction of the Revising Authority and the High Court to decide on the constitutional validity of the statute. Finally, the Court confirmed the competency of the Commissioner of Sales Tax to apply for a reference under Section 11 of the Act.

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