Sales tax assessment exceeding 2% limit on hand-made biris invalidated, assessment orders quashed

Katyar and Co. Versus The Sales Tax Officer, Fatehgarh and Another

Katyar and Co. Versus The Sales Tax Officer, Fatehgarh and Another - [1963] 14 STC 133 (All) Issues Involved:
1. Validity of sales tax assessment on hand-made biris for the period 1st April, 1958, to 30th June, 1958.
2. Applicability of Section 15(a) of the Central Sales Tax Act to hand-made biris.
3. Definition of "tobacco" and whether it includes hand-made biris.
4. Whether sales were "last sales" or "first sales".
5. Legality of sales tax rate exceeding 2% as per Section 15(a) of the Central Sales Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Sales Tax Assessment:
The petitioners, manufacturers of hand-made biris and an importer, were assessed to sales tax under the U.P. Sales Tax Act for the assessment year 1958-59. The turnover of hand-made biris was exempted from sales tax with effect from 1st July, 1958. The issue pertains to the sales tax assessed on the sale of biris from 1st April, 1958, to 30th June, 1958, under Notification No. ST-905/X dated 31st March, 1956, which levied sales tax at one anna per rupee.

2. Applicability of Section 15(a) of the Central Sales Tax Act:
The petitioners challenged the validity of the assessment orders, arguing that under Section 15(a) of the Central Sales Tax Act, the tax on declared goods should be levied only on the "last sale" and should not exceed 2%. The petitioners contended that biris are "declared goods" and thus subject to these restrictions.

3. Definition of "Tobacco":
The petitioners argued that the term "tobacco" in Section 7 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, includes hand-made biris. They referred to the definition of "tobacco" in item No. 9 of the First Schedule to the Central Excises and Salt Act, 1944, which includes any form of tobacco, whether manufactured or not, and the definition of "manufacture" in Section 2(f)(i) of the same Act, which includes the preparation of biris. The petitioners cited a Patna High Court decision supporting this interpretation.

4. "Last Sales" vs. "First Sales":
The petitioners claimed that their sales were "first sales" and not "last sales" and thus not assessable in their hands. They argued that the sales were not to consumers and hence should not be taxed at the rate prescribed in the notification. The State contended that whether the sales were "last sales" required investigation into facts such as whether the dealers were registered and whether the purchases were for manufacturing goods for sale or for executing contracts.

5. Legality of Sales Tax Rate Exceeding 2%:
The petitioners argued that the sales tax rate of one anna per rupee (6.25%) exceeded the 2% limit specified in Section 15(a) of the Central Sales Tax Act. The State conceded that the levy in excess of 2% was invalid but argued that the levy up to 2% was valid. The court agreed, stating that the excess portion of the levy must be struck down, but the portion up to 2% was valid and payable.

Conclusion:
The court found that the assessment orders were invalid due to the levy exceeding 2% and quashed the orders and notices of demand. The assessment proceedings were deemed pending, and fresh assessments were to be made in accordance with the law and the court's observations. The petitions were allowed without any order as to costs.