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Issues: (i) Whether the executive communications imposing a ban on inter-State sale of motor vehicles and directing levy of local sales tax at 12% were valid in the face of the notification issued under section 8(5) of the Central Sales Tax Act, 1956 and the constitutional scheme governing inter-State trade. (ii) Whether the show cause notice was sustainable when it proceeded on the assumptions that inter-State sale required a written contract, sale only to registered dealers, and production of form C in every case. (iii) Whether the show cause notice was vitiated for want of application of mind and whether the writ petition was maintainable despite the alleged pending representation/appeal.
Issue (i): Whether the executive communications imposing a ban on inter-State sale of motor vehicles and directing levy of local sales tax at 12% were valid in the face of the notification issued under section 8(5) of the Central Sales Tax Act, 1956 and the constitutional scheme governing inter-State trade.
Analysis: Articles 301 to 304 preserve freedom of trade and commerce, and any restriction by a State must be imposed by law and with presidential sanction where required. The Constitution also distributes taxing power so that inter-State sales are governed by Parliament under the Central Sales Tax Act, 1956. Once the State Government had issued a notification under section 8(5) of the Central Sales Tax Act, 1956 reducing tax on inter-State sales of motor vehicles to 2% in favour of sales made to any person, no executive authority could override that concession by directing that such sales be stopped or taxed at the local rate of 12%. The impugned communications were thus contrary to the constitutional scheme and the statutory notification.
Conclusion: The impugned directions were illegal, without jurisdiction, and liable to be quashed, in favour of the assessee.
Issue (ii): Whether the show cause notice was sustainable when it proceeded on the assumptions that inter-State sale required a written contract, sale only to registered dealers, and production of form C in every case.
Analysis: Section 3 of the Central Sales Tax Act, 1956 does not require a written contract; the necessary inter-State element may be inferred from the transaction, the conduct of the parties, and surrounding circumstances. A sale to an individual may still be an inter-State sale. Sections 8(1), 8(2), 8(4) and 8(5) show that form C is a condition for sales to registered dealers or the Government, but a notification under section 8(5) may dispense with that requirement and may extend the benefit to any person. The notification in question covered sales to any person and did not confine the concession to registered dealers. Therefore, the demand that form C must be produced in every case, and that sales to individuals could not qualify, was inconsistent with the statute and the notification.
Conclusion: The show cause notice was misconceived and untenable in law, in favour of the assessee.
Issue (iii): Whether the show cause notice was vitiated for want of application of mind and whether the writ petition was maintainable despite the alleged pending representation/appeal.
Analysis: Quasi-judicial power must be exercised independently on the authority's own satisfaction and not mechanically under dictates of a superior. The material showed that the impugned steps were taken in pursuance of instructions from superior officers, and the notice itself was part of a chain of directions that pre-decided the matter. A notice founded on extraneous assumptions and without proper independent application of mind is without jurisdiction. The plea of alternative remedy also failed because the so-called appeal was in substance only a representation against directions issued by a superior authority, and in any event the writ challenged jurisdictional invalidity of the demand process itself.
Conclusion: The notice was vitiated for want of independent application of mind, and the writ petition was maintainable, in favour of the assessee.
Final Conclusion: The Court held that the State authorities could not override the section 8(5) notification by executive fiat, could not insist on written contracts or form C in the manner demanded, and could not sustain the show cause notice based on mechanically issued directions; the impugned communications and notice were therefore quashed, while leaving the authorities free to proceed in accordance with law in a proper case.
Ratio Decidendi: An executive authority cannot nullify or modify a valid statutory concession granted under section 8(5) of the Central Sales Tax Act, 1956, and a tax demand notice must rest on an independent, lawful application of mind to facts and statutory conditions actually applicable to the transaction.
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