1952 (12) TMI 27 - HC - VAT and Sales Tax

State of Bihar's Jurisdiction Upheld for Sales Tax on Out-of-State Company

The court upheld the jurisdiction of the State of Bihar to impose sales tax on a company based outside Bihar. It found Sections 2(c), 2(g), and 4 of the ... - Issues Involved:1. Jurisdiction of the State of Bihar to impose sales tax on a company based outside Bihar.2. Validity of Sections 2(c), 2(g), and 4 of the Bihar Sales Tax Act under the Constitution of India.3. Alleged repugnancy of the Bihar Sales Tax Act with the Indian Sale of Goods Act under Article 254 of the Constitution.4. Alleged conflict of the Bihar Sales Tax Act with Article 304 of the Constitution.5. Extra-territorial operation of the Bihar Sales Tax Act.Detailed Analysis:1. Jurisdiction of the State of Bihar to Impose Sales Tax:The petitioner argued that the State of Bihar has no jurisdiction to impose sales tax on persons residing outside Bihar. The court examined whether a writ under Article 226 of the Constitution could be issued. The Government Pleader contended that only a notice under Section 13(5) had been issued, and no assessment order had been made. The court held that the Sales Tax Officer had the power to investigate and determine the petitioner's liability, and this power included issuing notices under Section 13(5). The court concluded that the Sales Tax Officer was acting within his jurisdiction in issuing the notice and that the petitioner had the right to appeal under Sections 24 and 25 of the Act.2. Validity of Sections 2(c), 2(g), and 4 of the Bihar Sales Tax Act:The petitioner challenged the constitutional validity of Sections 2(c), 2(g), and 4 of the Bihar Sales Tax Act. The court noted that Section 4 is the charging section, which imposes a tax on sales taking place in Bihar. Section 2(c) defines 'dealer,' and Section 2(g) defines 'sale.' The court held that the explanation to Article 286(1) of the Constitution allows the State to tax sales where goods are delivered for consumption within the State, even if the property in the goods passed in another State. Therefore, the newly amended Sections 2(c) and 2(g) and the newly substituted Section 33 of the Bihar Sales Tax Act were not in conflict with Article 286(2) of the Constitution.3. Alleged Repugnancy with the Indian Sale of Goods Act:The petitioner argued that the Bihar Sales Tax Act was repugnant to the Indian Sale of Goods Act and that the assent of the President had not been taken under Article 254 of the Constitution. The court held that the Bihar Sales Tax Act is in pith and substance a law imposing tax on the sale of goods, falling entirely within Item 54 of the State List. Therefore, Article 254 did not apply, and there was no repugnancy.4. Alleged Conflict with Article 304 of the Constitution:The petitioner contended that the Bihar Sales Tax Act imposed restrictions on the freedom of trade and commerce under Article 304(b) and that the Act was invalid as the President's sanction had not been obtained. The court held that the Bihar Sales Tax Act did not discriminate between goods imported and goods produced or manufactured in the State. The Act was in its true nature and character legislation imposing tax on the sale of goods, not regulating inter-State trade and commerce. Therefore, Articles 301 and 304 of the Constitution were not relevant in this context.5. Extra-territorial Operation of the Bihar Sales Tax Act:The petitioner argued that the Act imposed tax on transactions concluded in West Bengal, which was beyond the legislative competence of the Bihar Legislature. The court held that jurisdiction to tax does not depend on the residence or domicile of the assessee but on the business done within the State. The fact that goods were delivered in Bihar for consumption constituted a sufficient nexus to confer jurisdiction upon the Bihar Legislature. The court referred to various judicial precedents, including Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax, to support this view. The explanation to Article 286(1)(a) of the Constitution expressly conferred upon the State the power to tax sales where goods are delivered for consumption inside the State.Conclusion:The court dismissed the application, holding that the Bihar Sales Tax Act was constitutionally valid and that the Sales Tax Officer acted within his jurisdiction. The petitioner was directed to bear the costs of the proceedings.