1968 (4) TMI 61 - SC - VAT and Sales Tax

Supreme Court validates Central Sales Tax Act provisions, clarifies excise duty exclusion.

The State of Madras Versus NK. Nataraja Mudaliar  

The Supreme Court upheld the validity of sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act, 1956, stating that differential tax rates in ... Whether a part of the turnover of assessee's business in matches arose out of intra- State sale transactions at the assessee's depot at Ongole (in the State of Andhra Pradesh) to which depot the goods were despatched by him from his place of business in the State of Madras? Held that:- Appeal allowed. The order passed by the High Court declaring the provisions of sections 8(2), 8(2A) and 8(5) ultra vires must be set aside. Issues Involved:1. Validity of sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act, 1956.2. Whether the provisions of the Central Sales Tax Act, 1956, infringe Articles 301 and 303(1) of the Constitution.3. Inclusion of excise duty in the turnover for the purpose of the Central Sales Tax Act.4. Determination of whether the transactions in dispute were inter-State transactions.Issue-wise Detailed Analysis:1. Validity of Sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act, 1956:The Supreme Court examined the validity of sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act, 1956. The High Court had previously declared these sections invalid, holding that they imposed or authorized the imposition of varying rates of tax in different States on similar inter-State transactions, thereby offending Articles 301 and 303(1) of the Constitution. However, the Supreme Court disagreed with the High Court's view, noting that the Central Sales Tax Act was enacted to prevent multiple taxation on inter-State transactions and to maintain a source of revenue for the States. The Court concluded that the differential rates of tax in different States did not amount to discrimination or preference under Article 303(1) and that the provisions were in the public interest, thus upholding their validity.2. Whether the Provisions of the Central Sales Tax Act, 1956, Infringe Articles 301 and 303(1) of the Constitution:The Court considered whether the imposition of varying rates of tax on inter-State transactions under the Central Sales Tax Act infringed Articles 301 and 303(1) of the Constitution. Article 301 guarantees the freedom of trade, commerce, and intercourse throughout India, while Article 303(1) prohibits laws that give preference to one State over another or discriminate between States. The Court held that the Central Sales Tax Act, which allows States to levy tax on inter-State transactions at rates prevailing in the State, did not violate these constitutional provisions. The Court reasoned that the differential rates were influenced by various factors, including political and economic considerations, and did not necessarily impede the free flow of trade. The Act was deemed to be in the public interest and did not give preference or discriminate between States.3. Inclusion of Excise Duty in the Turnover for the Purpose of the Central Sales Tax Act:The High Court had observed that excise duty was not deductible from the turnover under the Central Sales Tax Act, unlike under the Madras General Sales Tax Act. The Supreme Court clarified that under section 9(1) of the Central Sales Tax Act, the tax should be levied in the same manner as under the State Act, which would include the rules enabling deductions in the computation of turnover. Therefore, the excise duty should not be included in the turnover for the purpose of the Central Sales Tax Act, and there was no discrimination in this regard.4. Determination of Whether the Transactions in Dispute Were Inter-State Transactions:The Supreme Court noted that the High Court had not determined whether the transactions in dispute were inter-State transactions and liable to tax in the hands of the assessee in the Madras State. The case was remanded to the High Court to decide this question. The Court also stated that the assessee could be required to have these questions determined by the competent departmental authority if necessary.Separate Judgments:- SHAH, J.: Delivered the main judgment, addressing the issues comprehensively and concluding that the provisions of the Central Sales Tax Act were valid and did not infringe constitutional provisions.- BACHAWAT, J.: Agreed with the conclusions of Shah, J., but provided additional reasoning, emphasizing that the Central Sales Tax Act did not directly impede the movement of goods or the free flow of trade.- HEGDE, J.: Agreed with the conclusions but provided a separate note, highlighting the complexities of taxing inter-State sales and the importance of the Act in preventing tax evasion and maintaining economic balance.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's order declaring sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act, 1956, ultra vires. The case was remanded to the High Court to determine whether the transactions in dispute were inter-State transactions. The Court directed that there would be no order as to costs in this Court and in the High Court.