1955 (11) TMI 32 - HC - VAT and Sales Tax

Court rules Sales Tax Officer lacked jurisdiction to tax inter-State trade; Writ of mandamus issued

Shri Duli Chand Kheria and Another Versus State of Uttar Pradesh and Others

Shri Duli Chand Kheria and Another Versus State of Uttar Pradesh and Others - [1956] 7 STC 70 (All) Issues:Jurisdiction of U.P. to levy sales tax on traders operating outside the state.Validity of Sales Tax Officer's appointment by U.P. Government in territories outside U.P.Interpretation of Article 286 of the Constitution regarding imposition of sales tax on inter-State trade.Detailed Analysis:The case involved a petition under Article 226 of the Constitution challenging the imposition of sales tax by the Sales Tax Officer of U.P. on a commission agency based in Calcutta. The agency supplied goods to traders in Uttar Pradesh and other parts of India. The Sales Tax Officer issued notices to file returns and pay tax, prompting the petitioners to challenge the jurisdiction of U.P. to levy tax on sales made outside the state. The petitioners argued that the U.P. Sales Tax Act did not apply to their business conducted outside U.P., citing Article 286 of the Constitution, which prohibits such taxation on inter-State trade.The primary contention was whether the petitioners had a place of business in U.P. The petitioners operated from Calcutta, accepting orders and dispatching goods to U.P. for consumption. The U.P. Government attempted to levy sales tax on traders like the petitioners following a Supreme Court decision allowing states to tax sales for consumption within their territories. However, a subsequent Supreme Court decision clarified that states cannot tax inter-State trade unless authorized by Parliament, as per Article 286(2) of the Constitution. The court found that the petitioners' business model constituted inter-State trade, similar to the case precedent, and ruled that U.P. lacked the authority to impose sales tax on such transactions.The judgment highlighted the change in legal interpretation during the case, emphasizing that the Sales Tax Officers had no jurisdiction to impose tax on the petitioners under the U.P. Sales Tax Act. Consequently, a writ of mandamus was issued to prevent any proceedings against the petitioners under the Act until Parliament provided a legal basis for such taxation. The court also directed the parties to bear their own costs due to the evolving legal landscape during the case proceedings. The decision clarified the limitations on state taxation in inter-State trade, safeguarding the petitioners' right to conduct business without undue tax burdens.