Legislative competence challenge to sales tax levy and validation law; interim protection granted pending final determination.
The commentary examines a challenge to the substituted section 13AA of the Bombay Sales Tax Act, 1959, on the ground that the levy remained, in substance, a tax on despatch or non-sale of goods and was therefore beyond legislative competence. It also addresses the validating Ordinance and Act, noting that a validating measure can operate only if it cures the original defect and rests on taxing power, which was not shown here. On the interim application, protective relief was granted, including stay of the validating provision and refund of tax earlier collected with interest, with future tax payable under protest pending final determination.
Issues: (i) Whether the substituted section 13AA of the Bombay Sales Tax Act, 1959, raised a strong prima facie challenge on the ground that the levy was in substance a tax on despatch or non-sale of goods and was beyond the State's legislative competence. (ii) Whether section 3 of the validating Ordinance and Act could validly sustain past collections under the struck-down provision. (iii) Whether interim relief, including stay of the validating provision and refund of tax earlier collected with interest, should be granted.
Issue (i): Whether the substituted section 13AA of the Bombay Sales Tax Act, 1959, raised a strong prima facie challenge on the ground that the levy was in substance a tax on despatch or non-sale of goods and was beyond the State's legislative competence.
Analysis: The amended provision still operated only when specified goods were purchased, used in manufacture, and the manufactured goods were not sold in the State. The charge therefore attached only at the stage when the manufactured goods were despatched outside the State or otherwise not sold locally. On a prima facie reading, the amendment did not remove the defect identified in the earlier decision, because the levy still appeared to be linked to despatch or non-sale rather than to the purchase transaction itself. The State's power under the relevant head of legislative competence was therefore not shown to support the levy at this stage.
Conclusion: The petitioners established a strong prima facie case that the substituted section 13AA was also vulnerable on the ground of legislative incompetence.
Issue (ii): Whether section 3 of the validating Ordinance and Act could validly sustain past collections under the struck-down provision.
Analysis: A validating enactment can operate only if it removes the cause of invalidity and is supported by legislative power to impose the tax. Here, the original vice was lack of legislative competence, and the validating measure did not cure that defect. Further, the collections sought to be validated were those made under a provision already held to impose a tax of a different character from that described in the validating clause. Even if the collections were treated as falling within the new provision, that provision itself appeared prima facie open to the same objection.
Conclusion: Section 3 of the validating Ordinance and Act was prima facie unsustainable.
Issue (iii): Whether interim relief, including stay of the validating provision and refund of tax earlier collected with interest, should be granted.
Analysis: The earlier Supreme Court ruling had already gone against the revenue on the central constitutional issue, and the amended and validating measures had not removed the infirmity identified there. In these circumstances, the balance of convenience supported protective interim relief to preserve the petitioners' position pending final adjudication.
Conclusion: Interim relief was granted by staying the validating provision and directing refund of the tax earlier collected with interest, together with permission to pay future tax under protest subject to the result of the petitions.
Final Conclusion: The petitioners obtained interim protection against enforcement of the validating provision and were secured a direction for refund with interest, while the constitutional challenge to the amended levy was left open for final determination.
Ratio Decidendi: A validating law can sustain a tax only if the legislature has the power to impose the tax and the cause of invalidity is effectively removed; where the levy remains in substance beyond legislative competence, interim relief may be granted.
TaxTMI 
AI Drafter ✕
TaxTMI 
