State cannot deem branch transfers and consignments as sales to reduce tax incentives; unconstitutional scheme clauses were struck down.

Branch transfers and consignment of goods could not be treated as deemed sales for computing notional sales tax liability under the 1983 Package Scheme of Incentives, because the State's taxing power did not extend to such non-sale transactions. The notification issued under section 41(1) of the Bombay Sales Tax Act, 1959 had legislative character and governed exemption entitlement, but the State executive could not use a scheme or resolution to enlarge or curtail that exemption by creating a sales fiction. The offending clauses were held unconstitutional, ultra vires and void, while the valid portion of the scheme was severable from the invalid part, and assessments based on the fiction were liable to be quashed and recomputed.

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Issues: Whether branch transfers and consignment of goods could be treated as deemed sales for the purpose of computing notional sales tax liability under the 1983 Package Scheme of Incentives, and whether the impugned scheme clauses and consequential assessment orders were valid.

Analysis: The notification issued under section 41(1) of the Bombay Sales Tax Act, 1959 had legislative character and governed the exemption entitlement. The State Legislature had no competence under entry 54 of List II to levy tax on mere branch transfers, and article 366(29A) did not extend to such non-sale transactions. Consignment transactions were within the Union field under entry 92B of List I. The State executive could not enlarge or curtail the statutory exemption by creating a fiction in a scheme or resolution so as to treat non-sales as sales for computing exemption benefits. The offending clauses were also arbitrary and irrational, and the valid part of the scheme was severable from the invalid part.

Conclusion: The impugned clauses treating branch transfers and consignment of goods as deemed sales were unconstitutional, ultra vires and void, and the assessments based on that fiction were liable to be quashed and recalculated without those transactions.

Ratio Decidendi: A State cannot, by executive scheme or deeming fiction, treat transactions that are not sales as sales for taxation or for reducing statutory tax exemption, where the constitutional and statutory taxing power does not extend to those transactions.

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