1952 (9) TMI 32 - HC - VAT / Sales Tax

States can tax sales and purchases under Entry 54 but Article 286 limits extra-state transactions

C. Govindarajulu Naidu & Co. Versus State of Madras and Another

C. Govindarajulu Naidu & Co. Versus State of Madras and Another - [1952] 3 STC 405 (Mad) Issues Involved:1. Is the Madras General Sales Tax Act ultra vires of the powers of the Madras LegislatureRs.2. Is the imposition of tax on the purchaser by the Turnover and Assessment Rules void due to unconstitutional delegation of legislative functions to the executiveRs.3. Is the Madras General Sales Tax Act void as repugnant to Article 14 of the ConstitutionRs.4. Are the Turnover and Assessment Rules framed under the Madras General Sales Tax Act void as repugnant to the parent ActRs.5. Is the imposition of tax in contravention of Article 286 of the Constitution and, therefore, illegalRs.Detailed Analysis:Issue 1: Ultra Vires of the Madras LegislatureThe petitioners argued that the Madras General Sales Tax Act was ultra vires of the powers of the Madras Legislature, contending that Entry No. 48 in the Provincial List authorized tax only on sales and not on purchases. The court held that the Madras Act IX of 1939 was intra vires of the powers of the Provincial Legislature. It was found that the Act was within the legislative competence of the Madras Legislature.Issue 2: Unconstitutional Delegation of Legislative FunctionsThe petitioners claimed that the imposition of tax on the purchaser by the Turnover and Assessment Rules was void on the ground that the Legislature had unconstitutionally delegated its functions to the executive. The court found that the delegation of powers to the executive under the Madras General Sales Tax Act was constitutional and did not amount to an unconstitutional delegation of legislative functions.Issue 3: Repugnancy to Article 14 of the ConstitutionThe petitioners argued that the Madras General Sales Tax Act was void as it discriminated against purchasers in some trades while taxing sellers generally, thus violating Article 14 of the Constitution. The court held that the Act was not repugnant to Article 14 as being discriminatory. The classification made by the Act was found to be reasonable and based on intelligible differentia.Issue 4: Repugnancy to the Parent ActThe petitioners contended that the Turnover and Assessment Rules framed under the Madras General Sales Tax Act were void as they were repugnant to the parent Act. The court held that the Rules framed under the Act were valid except for Rule 16(5). The Rules were found to be consistent with the parent Act and did not exceed the legislative intent.Issue 5: Contravention of Article 286 of the ConstitutionThe substantial question was whether the imposition of tax in this case was in contravention of Article 286 of the Constitution. Article 286 prohibits the imposition of tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of import into or export out of India. The court examined whether the purchases made by the petitioners were in the course of export and thus exempt from taxation under Article 286(1)(b). The court concluded that the purchases made in Dacca (Pakistan) were not in the course of import into India and, therefore, not exempt under Article 286(1)(b). However, these purchases were outside the operation of the Madras General Sales Tax Act as they were completed in Dacca. The court also examined the purchases made in Calcutta and Cawnpore, concluding that if the goods were delivered in Madras, the State of Madras had the jurisdiction to impose tax under the Explanation to Article 286(1)(a). The court found that the purchases made locally and in Calcutta and Cawnpore were liable for sales tax.Conclusion:The court concluded that the Madras General Sales Tax Act was intra vires and constitutional. The delegation of powers to the executive was valid, and the Act did not violate Article 14. The Turnover and Assessment Rules were valid except for Rule 16(5). The imposition of tax was not in contravention of Article 286, except for the purchases made in Dacca, which were outside the operation of the Act. The court ordered the exclusion of the sum representing the price paid for the hides and skins purchased in Dacca from the assessable turnover and upheld the tax liability for the purchases made in Calcutta, Cawnpore, and locally.