Tax on first sale of processed hides and skins upheld where raw purchase price was only a basis of computation

A levy on the first sale of dressed hides and skins remained a tax on the sale of processed goods, not a tax on the purchase of raw hides and skins, even though the raw purchase price was used only to quantify the levy. The Supreme Court held that this method of computation did not change the character of the tax, because the taxable event was the first sale of dressed hides and skins and the levy operated uniformly on similarly situated dealers. It also did not discriminate between raw hides and skins purchased inside or outside the State, and therefore did not contravene article 286. The constitutional challenge failed and the provision was upheld.

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Issues: Whether section 2(1) of Madras Act 37 of 1964, which levied tax on the first sale of dressed hides and skins by reference to the price for which the raw hides and skins were last purchased, was unconstitutional for discrimination or for contravening article 286 of the Constitution of India.

Analysis: The provision did not tax the purchase of raw hides and skins, whether inside or outside the State, but taxed the first sale of the dressed hides and skins. The purchase price of the raw hides and skins was used only as the measure for quantifying the tax. Since the levy operated uniformly on the first seller of dressed hides and skins and did not distinguish between raw hides and skins purchased within the State and those purchased outside the State, there was no discrimination between traders similarly situated. The tax was also not a levy on imported goods so as to offend article 286; the taxable event remained the sale of dressed hides and skins. The adoption of purchase price as the basis of computation did not alter the character of the levy.

Conclusion: The provision was valid and the challenge based on discrimination and article 286 failed.

Ratio Decidendi: A tax levied on the sale of processed goods does not become a tax on the purchase of the raw materials merely because the purchase price of the raw materials is used only as the basis for quantification, provided the levy is uniform and does not discriminate between similarly situated dealers.

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