FCI liable for purchase tax under U.P. Sales Tax Act | Constitutional validity upheld

The court held that the Food Corporation of India (FCI) is liable to pay purchase tax under the U.P. Sales Tax Act as it qualifies as a "dealer" engaging in taxable business activities. Transactions under the Levy Orders were considered sales subject to taxation. The challenged provisions of Explanation II to Section 3-D(1) and Section 3-F were upheld as constitutional and valid. The retrospective application of the amendments was deemed permissible, and the additional tax under Section 3-F was found to be reasonable and non-confiscatory. The writ petitions were dismissed, with costs awarded against the FCI.

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Issues Involved:
1. Definition and liability of the Food Corporation of India (FCI) under the U.P. Sales Tax Act, 1948.
2. The nature of transactions under the Levy Orders and whether they constitute "sales."
3. The constitutionality and validity of Explanation II to Section 3-D(1) and Section 3-F of the U.P. Sales Tax Act.
4. The retrospective application of the amendments.
5. The imposition of additional tax under Section 3-F and whether it is discriminatory or confiscatory.

Issue-wise Detailed Analysis:

1. Definition and Liability of the Food Corporation of India (FCI) under the U.P. Sales Tax Act, 1948:
The court examined whether the FCI, which maintains a national pool of foodgrains, is liable to pay purchase tax under the U.P. Sales Tax Act. The FCI argued that it performs governmental functions and should not be liable for tax. The court, however, found that the FCI is a "dealer" under Section 2(c) of the U.P. Sales Tax Act and its activities fall under the definition of "business" in Section 2(aa). The court held that the FCI's activities, including buying and selling foodgrains, constitute "business" and are taxable under Section 3 of the Act.

2. Nature of Transactions under the Levy Orders:
The FCI contended that transactions under the Levy Orders are compulsory acquisitions and not sales, and therefore, not taxable. The court referred to various Supreme Court judgments, including *Joint Director of Food v. State of Andhra Pradesh* and *Vishnu Agencies v. Commercial Tax Officer*, to conclude that transactions under the Levy Orders, despite being regulated, still constitute "sales." The court emphasized that even if the transactions are conducted under statutory compulsion, they involve the transfer of property for consideration, which is a sale.

3. Constitutionality and Validity of Explanation II to Section 3-D(1) and Section 3-F:
The FCI challenged Explanation II to Section 3-D(1) and Section 3-F on the grounds of discrimination and arbitrariness. Explanation II deems the purchase of foodgrains by the FCI from the State Government as the first purchase, making it liable for tax. The court found no discrimination, stating that the provision applies uniformly to all dealers purchasing from the State Government. Section 3-F, which imposed an additional tax on dealers with a turnover exceeding ten crores, was also upheld. The court noted that the provision was not aimed solely at the FCI and applied to any dealer meeting the turnover threshold.

4. Retrospective Application of the Amendments:
The amendments to the U.P. Sales Tax Act, including Explanation II to Section 3-D(1) and Section 3-F, were given retrospective effect. The court upheld the retrospective application, citing various Supreme Court judgments that validated the legislature's power to impose taxes retrospectively. The court found no merit in the argument that the retrospective application was unfair or unconstitutional.

5. Imposition of Additional Tax under Section 3-F:
The FCI argued that the additional tax under Section 3-F was confiscatory and arbitrary, lacking a slab system. The court rejected this argument, stating that the classification based on turnover was reasonable and within the legislature's competence. The court emphasized that the tax was not confiscatory as it applied uniformly to all dealers with a turnover exceeding ten crores, and there was no evidence that the tax burden was unbearable for the FCI.

Conclusion:
The court dismissed the writ petitions, holding that the FCI is liable to pay purchase tax under the U.P. Sales Tax Act. The transactions under the Levy Orders were deemed to be sales, and the provisions of Explanation II to Section 3-D(1) and Section 3-F were found to be constitutional and valid. The retrospective application of the amendments was upheld, and the imposition of additional tax was not considered discriminatory or confiscatory. The petitions were dismissed with costs, and the interim relief was discharged.

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