1954 (8) TMI 21 - HC - VAT and Sales Tax

Court Invalidates Sales Tax on Out-of-State Deliveries under Indian Constitution Article 286

The court held that sales tax could not be imposed on sales where delivery occurred outside Uttar Pradesh as per Article 286(1)(a) of the Indian ... - Issues Involved:1. Taxability of sales where delivery occurred outside the State of Uttar Pradesh.2. Interpretation and application of Article 286(1)(a) of the Indian Constitution.3. Validity of the Sales Tax Officer's assessment and the appellate decision.4. Effect of the President's order under Article 286(2) on the imposition of sales tax.5. Applicability of Article 286 to pre-existing laws.Detailed Analysis:1. Taxability of Sales Where Delivery Occurred Outside Uttar Pradesh:The Sales Tax Officer exempted sales where railway receipts were sent through banks but taxed sales amounting to Rs. 1,55,073 where receipts were sent directly to purchasers. The officer held that the property in the goods passed within U.P., making these sales taxable under the U.P. Sales Tax Act. The appellate authority upheld this view, stating that the sale was complete within U.P. despite actual delivery occurring outside the state.2. Interpretation and Application of Article 286(1)(a) of the Indian Constitution:The petitioner challenged the tax imposition under Article 286(1)(a), which restricts state laws from taxing sales occurring outside the state. The court clarified that Article 286(1)(a) and its Explanation create a legal fiction deeming sales to occur in the state where goods are delivered for consumption. Since the goods were delivered outside U.P. for consumption, the sales should be deemed to have occurred outside U.P., making them non-taxable by U.P. state law.3. Validity of the Sales Tax Officer's Assessment and the Appellate Decision:The court found that the appellate authority misinterpreted Article 286 by not considering the Explanation. The determination of the place of sale for tax purposes must align with Article 286, not the Sale of Goods Act. The appellate authority's decision was based on an erroneous interpretation, leading to an invalid assessment.4. Effect of the President's Order under Article 286(2) on the Imposition of Sales Tax:The state argued that the President's order under Article 286(2) allowed the continuation of tax until March 31, 1951. However, the court held that the President's order only dispensed with the ban under Article 286(2) and not under Article 286(1)(a). Therefore, the order did not validate the tax imposition on sales deemed to occur outside U.P.5. Applicability of Article 286 to Pre-existing Laws:The court rejected the argument that Article 286 only applies to laws made post-Constitution. Article 286 imposes a ban on all state laws, regardless of their enactment date, if they contravene the Constitution. Existing laws continue only if they do not conflict with constitutional provisions. The U.P. Sales Tax Act's provision taxing sales deemed to occur outside U.P. under Article 286(1)(a) became void after the Constitution's commencement.Conclusion:The petition was allowed, and the orders imposing sales tax on the disputed sales amounting to Rs. 1,55,073 were quashed. The petitioner was entitled to costs assessed at Rs. 400 and could apply for a tax refund from the appropriate authorities.