Deemed sale by association to members upheld; import-linked exemption denied absent strict proof of statutory conditions.

After the Forty-sixth Amendment, a statutory deeming provision treating supplies or distribution by an association to its members as a sale was upheld, and the earlier mutuality-based view was held no longer controlling under the amended sales tax scheme. The Tribunal also held that protection under the import-linked provision applies only where the transaction is shown to occasion import or to be completed by transfer of title documents before the goods cross the customs frontiers of India; mere assertion that the association acted for members was insufficient. On that basis, the wattle extract distribution remained taxable under the State sales tax law.

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Issues: (i) Whether explanation 1 to section 2(n) of the Tamil Nadu General Sales Tax Act, 1959 was ultra vires the Constitution and the settled law on taxability of supplies by an association to its members. (ii) Whether the transaction of import and distribution of wattle extract by the petitioner-association was protected by section 5(2) of the Central Sales Tax Act, 1956 and therefore not exigible to tax.

Issue (i): Whether explanation 1 to section 2(n) of the Tamil Nadu General Sales Tax Act, 1959 was ultra vires the Constitution and the settled law on taxability of supplies by an association to its members.

Analysis: The Tribunal treated the issue as covered by its earlier decision and the connected judgment of the High Court. It relied on the principle that, after the Forty-sixth Amendment and the State amendment, supply or distribution of goods by an association to its members for consideration is deemed to be a sale. The earlier view in Young Men's Indian Association was held no longer to govern the field in relation to the amended statutory scheme.

Conclusion: The challenge to explanation 1 to section 2(n) failed. The provision was upheld and the transaction was treated as a taxable deemed sale.

Issue (ii): Whether the transaction of import and distribution of wattle extract by the petitioner-association was protected by section 5(2) of the Central Sales Tax Act, 1956 and therefore not exigible to tax.

Analysis: Section 5(2) applies only where the sale or purchase occasions the import or is effected by transfer of documents of title before the goods cross the customs frontiers of India. The Tribunal found no reliable material to establish that the transaction satisfied those conditions. The petition rested only on assertions that the association acted for its members, which was insufficient to attract the statutory protection.

Conclusion: The benefit of section 5(2) was not available. The transaction remained exigible to tax.

Final Conclusion: Both original petitions were rejected, and the levy under the State sales tax law was sustained.

Ratio Decidendi: After the Forty-sixth Amendment, a statutory deeming provision treating supplies by an association to its members as sales is valid, and exemption under the import provision applies only when the statutory conditions for import-linked sale are strictly proved.

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