First sale after inter-State importation treated as local sale; Article 286 exemption and rule challenge both failed.

A first sale of cloth made in Uttar Pradesh after the goods were brought from another State was treated as a local sale completed after importation, not a sale in the course of inter-State trade or commerce, so Article 286 exemption was unavailable. Rule 2(d1) of the U.P. Sales Tax Rules, which treated the dealer making that first sale as an importer, was held consistent with the taxing scheme and not repugnant to Article 286. The 8 June 1948 notification was also upheld because it was valid when issued and the later amendment to section 3A did not affect the tax liability in question.

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Issues: (i) Whether the first sale by a dealer of cloth brought into Uttar Pradesh from another State was a sale in the course of inter-State trade or commerce and therefore exempt under Article 286 of the Constitution; (ii) whether rule 2(d1) of the U.P. Sales Tax Rules, in so far as it treated the first sale after importation as making the dealer an importer, was invalid as repugnant to Article 286; (iii) whether the notification dated 8 June 1948 was invalid for inconsistency with section 3A of the U.P. Sales Tax Act.

Issue (i): Whether the first sale by a dealer of cloth brought into Uttar Pradesh from another State was a sale in the course of inter-State trade or commerce and therefore exempt under Article 286 of the Constitution.

Analysis: The expression "in the course of" in Article 286(2) was treated as having the same meaning as in Article 286(1)(b). On that footing, the earlier decisions on import and export sales were applied to hold that the first sale after goods had been brought into the State was a local sale completed after importation, and not a transaction integrally connected with inter-State trade or commerce.

Conclusion: The contention failed. The first sale was not exempt under Article 286.

Issue (ii): Whether rule 2(d1) of the U.P. Sales Tax Rules, in so far as it treated the first sale after importation as making the dealer an importer, was invalid as repugnant to Article 286.

Analysis: The rule was construed in the context of the charging scheme of the Act. Since the first sale after importation was not part of the inter-State transaction itself, treating the dealer making that first sale as liable did not conflict with the constitutional prohibition. The rule was therefore not repugnant to Article 286.

Conclusion: The challenge to rule 2(d1) failed, and the petitioner was held to be an importer within the rule.

Issue (iii): Whether the notification dated 8 June 1948 was invalid for inconsistency with section 3A of the U.P. Sales Tax Act.

Analysis: The notification was valid when issued under the then-existing form of section 3A. Although section 3A was later amended so that turnover, rather than the proceeds of sale, was expressed as not liable to tax at the single point, the discrepancy did not prejudice the petitioner and did not affect the tax liability in question.

Conclusion: The notification was not quashed and the challenge to its validity failed.

Final Conclusion: The constitutional and statutory objections to the assessment were rejected, and the petition was dismissed with costs.

Ratio Decidendi: A first local sale after goods have been brought into a State is not, without more, a sale in the course of inter-State trade or commerce; and a statutory or delegated provision treating such first sale as taxable does not offend Article 286 where the transaction is completed after importation.

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