Substance over form in sales tax: a levy tied to outside-State purchases was invalid despite being framed as a local sale tax.

Constitutional validity of section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1964 turned on the real nature and effect of the levy. Although framed as tax on the first local sale of dressed hides and skins, the rate was linked to the price of the last purchase of untanned goods; where that purchase occurred outside the State or in inter-State trade, the impost in substance fell on a constitutionally protected transaction and was invalid to that extent. The Act could nevertheless revive the earlier charging rule, override limitation-based objections, and support reassessment through its retrospective scheme and non obstante clause.

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Issues: (i) Whether section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1964 was void as, in substance and effect, it imposed a tax on purchases made outside the State or in the course of inter-State trade, commerce and intercourse, in violation of Article 286 of the Constitution of India. (ii) Whether the Act could be sustained on the grounds that it merely revived the earlier rule, authorised reassessment notwithstanding limitation and procedural objections, and did not discriminate between classes of dealers.

Issue (i): Whether section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1964 was void as, in substance and effect, it imposed a tax on purchases made outside the State or in the course of inter-State trade, commerce and intercourse, in violation of Article 286 of the Constitution of India.

Analysis: The charging provision purported to levy tax on the first local sale of dressed hides and skins, but the rate was computed by reference to the price paid for the last purchase of the corresponding untanned goods. Where that last purchase was outside the State or in inter-State trade, the impost did not merely furnish a measure of tax on a local sale; its real incidence fell on the outside or inter-State purchase itself. The form of the levy could not conceal its substance, and the Legislature could not do indirectly what it was constitutionally forbidden to do directly.

Conclusion: The provision was invalid and unenforceable to the extent that it directed assessment on the basis of the amount paid for the last purchase outside the State or in the course of inter-State trade, commerce and intercourse.

Issue (ii): Whether the Act could be sustained on the grounds that it merely revived the earlier rule, authorised reassessment notwithstanding limitation and procedural objections, and did not discriminate between classes of dealers.

Analysis: The earlier rule governing the levy on raw hides and skins had been part of the existing law and could be revived by later retrospective legislation through a deeming provision. The non obstante clause and the retrospective scheme of the Act also displaced limitation-based objections and enabled reassessment by the assessing authority. The challenge based on alleged discrimination for the relevant period was rejected because the legislative classification was treated as explainable by the earlier validation regime and did not by itself defeat the Act.

Conclusion: These objections failed and did not save section 2(1), though the Act was capable in principle of reviving the earlier charging rule and authorising reassessment.

Final Conclusion: The petitions succeeded because the impugned provision was struck down only insofar as it reached outside-State or inter-State purchases through the rate structure tied to the untanned purchase price; the other objections were overruled.

Ratio Decidendi: For constitutional validity, the court must look to the real nature and effect of a tax, and a levy that in substance fastens on an outside-State or inter-State transaction cannot be upheld merely because it is drafted as a tax on a local sale.

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