Import course protection fails where cotton is bought after customs clearance; inter-State sale tax and single-point levy upheld.
A purchase made after imported cotton had crossed the customs frontier was not a purchase in the course of import and therefore did not attract Article 286(1)(b) protection. The movement of cotton from Cochin to Tirupur constituted inter-State commerce, but State taxation was upheld because delivery to the buyer occurred at Tirupur and the goods were consumed within the State, satisfying the constitutional conditions then applicable. Rule 4-A(iv) of the Turnover and Assessment Rules was held consistent with section 5(ii) of the Sales Tax Act because it preserved a single, ascertainable point of levy on the spinning mill's purchase of cotton.
Issues: (i) Whether the purchases of imported cotton were purchases in the course of import so as to fall within the protection of Article 286(1)(b) of the Constitution. (ii) Whether the sales were sales in the course of inter-State commerce and, if so, whether they were nonetheless taxable in the State because delivery and consumption were within the State. (iii) Whether rule 4-A(iv) of the Turnover and Assessment Rules was ultra vires or inconsistent with section 5(ii) of the Sales Tax Act on the ground that it did not validly prescribe a single point of levy.
Issue (i): Whether the purchases of imported cotton were purchases in the course of import so as to fall within the protection of Article 286(1)(b) of the Constitution.
Analysis: The purchases were made after the cotton had already been imported into India by Bombay dealers and after it had crossed the customs frontier. The contractual relationship between the assessee and the Bombay dealer was one of buyer and seller, and the import had been completed before the assessee acquired the goods. The fact that the assessee had facilitated the import licence did not convert the later purchase into a transaction in the course of import.
Conclusion: The purchases were not in the course of import and were not protected by Article 286(1)(b) of the Constitution.
Issue (ii): Whether the sales were sales in the course of inter-State commerce and, if so, whether they were nonetheless taxable in the State because delivery and consumption were within the State.
Analysis: The goods moved from Cochin to Tirupur and the transaction had the character of inter-State commerce. But under the constitutional explanation then applicable, the State could tax only if delivery was within the State and the goods were consumed there. The evidence showed that delivery to the buyer took place at Tirupur, not at Cochin, since the seller's agent cleared the goods, consigned them by rail, and the buyer took delivery against the railway receipts at Tirupur. The consumption requirement was also satisfied.
Conclusion: The transaction was taxable by the State because the constitutional conditions for State taxation of the inter-State sale were satisfied.
Issue (iii): Whether rule 4-A(iv) of the Turnover and Assessment Rules was ultra vires or inconsistent with section 5(ii) of the Sales Tax Act on the ground that it did not validly prescribe a single point of levy.
Analysis: Section 5(ii) required a single point in the series of sales of cotton, and rule 4-A(iv) fixed the incidence on the spinning mill purchasing cotton. The rule did not conflict with the statute merely because the tax was collected from the purchaser, since the statutory incidence remained on the taxable transaction. Nor did the rule permit a multiple-point levy, because on its proper construction the taxable point was identifiable with precision as the purchase by the spinning mill for spinning purposes.
Conclusion: Rule 4-A(iv) was intra vires and consistent with section 5(ii) of the Sales Tax Act.
Final Conclusion: The assessee's challenge failed on all substantial grounds, and the tax liability on the purchase turnover was upheld.
Ratio Decidendi: A purchase is not in the course of import once the import has been completed and the goods have crossed the customs frontier, and a rule fixing tax incidence on the purchaser is valid where it preserves a single, ascertainable point of levy consistent with the parent statute.
TaxTMI 
AI Drafter ✕
TaxTMI 
