1969 (8) TMI 72 - SC - VAT and Sales Tax

Supreme Court Sets Aside High Court Decision, Remands Sales Tax Issue for Reassessment

The Supreme Court allowed the appeals, setting aside the judgment of the High Court and remanding the matter to the Sales Tax Officer for reassessment. ... Deductibility of trade discount in computing taxable turnover under the Central Sales Tax Act - Application of State law deductions to Central Sales Tax assessments pursuant to levy and collection provisions - Retrospective validation by ordinance of past assessments and substitution of statutory text - Scope of challenge to validity of statutory amendments or ordinances before statutory tribunals and appellate courtsDeductibility of trade discount in computing taxable turnover under the Central Sales Tax Act - Application of State law deductions to Central Sales Tax assessments pursuant to levy and collection provisions - Whether the High Court was correct in holding that trade discounts allowable under State law must be deducted in determining taxable turnover under the Central Sales Tax Act - HELD THAT: - The High Court had allowed the respondent's claim to deduct trade discounts from gross turnover when computing taxable turnover under the Central Sales Tax Act, relying on section 9(3) (as then construed) read with rule 7(1)(a) of the General Sales Tax Rules, 1950 and the decision in State of Mysore v. Yaddalam Lakshminarasimhiah Setty & Sons. This Court, however, set aside the High Court's judgment and the orders of the subordinate authorities and directed that the matter be remitted to the Sales Tax Officer for reassessment in accordance with law. The result reflects that the question of allowance of the deduction could not be sustained as finally decided by the High Court in the form it did and requires fresh consideration and assessment applying the law as it stands after legislative amendment and validation by the subsequent Ordinance.High Court's allowance of the trade discount deduction set aside; matter remitted to the Sales Tax Officer for reassessment in accordance with law.Retrospective validation by ordinance of past assessments and substitution of statutory text - Legal effect of the Central Sales Tax (Amendment) Ordinance, 1969 as validated and made retrospective on the questions in dispute - HELD THAT: - The Court noted that the Central Sales Tax (Amendment) Ordinance, 1969 substituted provisions (including a new section 9 and an amendment to section 2(j)) and expressly declared those substitutions to have always been in force. Clause 9 of the Ordinance validated prior assessments, reassessments, levies and collections and denied maintenance of proceedings for refund in respect of such validated actions while permitting persons to question assessments under the Act as amended. The Ordinance thus retrospectively altered the legal position and superseded the majority ratio in Lakshminarasimhiah's case so as to change the applicable law governing the levy, collection and treatment of deductions in Central Act assessments.The Ordinance operates retrospectively to validate and reframe the statutory scheme; the law as stated in the earlier majority decision was superseded.Scope of challenge to validity of statutory amendments or ordinances before statutory tribunals and appellate courts - Whether the constitutional validity of the Ordinance could be canvassed by the parties in these proceedings - HELD THAT: - The Court observed that, in light of precedent (K.S. Venkataraman & Co. v. State of Madras), parties are not permitted to challenge the constitutional validity of such statutory provisions before the statutory tribunals and that the Appellate Tribunal and the High Court were constrained by the statutory scheme to decide disputes in terms of the Act. Consequently the intervener's constitutional objections to the Ordinance (under Articles 14 and 19) could not be entertained in these appeals; the intervener conceded as much in view of the authority.Constitutional challenge to the Ordinance held not open to be raised in these proceedings.Final Conclusion: Appeals allowed; the Kerala High Court judgment and the orders of the Appellate Tribunal, Deputy Commissioner and Sales Tax Officer are set aside and the matter is remitted to the Sales Tax Officer for reassessment in accordance with law; no order as to costs. Issues Involved:1. Deductibility of trade discounts from gross turnover.2. Limitation period for revising assessment orders.3. Constitutional validity of the Central Sales Tax (Amendment) Ordinance, 1969.Detailed Analysis:1. Deductibility of Trade Discounts from Gross Turnover:The primary issue in these appeals was whether the trade discounts allowed by the respondent to its customers could be deducted from its gross turnover while determining the taxable turnover under the Central Sales Tax Act, 1956. The Sales Tax Officer initially allowed this deduction, but the Deputy Commissioner of Agricultural Income-tax and Sales Tax disallowed it, leading to revisions and appeals.The High Court, in its judgment, examined the provisions of Section 9(3) of the Central Sales Tax Act read with Rule 7(1)(a) of the General Sales Tax Rules, 1950. It concluded that 'all deductions allowed under the State law to be made from the gross turnover in determining the net turnover shall be liable to deduction in determining the taxable turnover under the Central Sales Tax Act, 1956.' Consequently, the High Court upheld the deductibility of the trade discounts.2. Limitation Period for Revising Assessment Orders:The Appellate Tribunal addressed the issue of whether the Deputy Commissioner's action to revise the assessment orders was barred by limitation. The Tribunal found that the irregularity sought to be rectified pertained to escaped turnover and that the Deputy Commissioner's order dated June 23, 1966, was beyond the four-year limitation period from the assessment year 1960-61.However, the High Court did not decide on the limitation issue and instead focused on the merits of whether the trade discount was a permissible deduction. The Supreme Court, therefore, did not address the limitation issue directly but allowed the appeals, setting aside the orders of the lower authorities and remanding the matter to the Sales Tax Officer for reassessment.3. Constitutional Validity of the Central Sales Tax (Amendment) Ordinance, 1969:The interveners raised a constitutional objection, arguing that the retrospective effect of the Central Sales Tax (Amendment) Ordinance, 1969, was violative of Articles 19 and 14 of the Constitution. However, the Supreme Court noted that it was not open to the parties in this case to challenge the constitutional validity of the Ordinance, citing the decision in K.S. Venkataraman & Co. v. State of Madras. The Court held that the Appellate Tribunal, being a creature of the statute, could only decide disputes in terms of the statute's provisions, and questions of ultra vires were beyond its jurisdiction.Conclusion:The Supreme Court allowed the appeals, set aside the judgment of the Kerala High Court, and remanded the matter to the Sales Tax Officer for reassessment in accordance with the law. The Court did not impose any order regarding costs in these appeals. The judgment emphasizes the procedural and substantive alignment required between State and Central Sales Tax laws, particularly concerning allowable deductions and the jurisdictional limits of statutory bodies in constitutional matters.