Deeming fiction in sales tax law upheld as Port Trust sales under statutory power remained taxable.

The Bombay High Court considered the constitutional validity of the Explanation to Section 2(11) of the Bombay Sales Tax Act, 1954, which deems a Port Trust to be a dealer notwithstanding the ordinary meaning of business. It held that the Forty-sixth Amendment and Article 366(29A) enlarge the field of taxable sales, including transfers not made in pursuance of a contract for valuable consideration, and that sales by the Port Trust under Sections 61 and 62 of the Major Port Trusts Act fall within that enlarged scope. The Court also accepted that the State Legislature could use a deeming fiction for taxation classification. The challenge to Section 2(11) failed, and the Port Trust was liable to sales tax on the impugned sales.

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Issues: Whether the explanation to Section 2(11) of the Bombay Sales Tax Act, 1954, by which a Port Trust is deemed to be a dealer notwithstanding the definition of business in Section 2(5A), is constitutionally valid and whether sales effected by the Port Trust under Sections 61 and 62 of the Major Port Trusts Act, 1963 are liable to sales tax.

Analysis: The explanation to Section 2(11) contains a non-obstante clause and creates a deeming fiction that brings the Port Trust within the definition of dealer even if it does not carry on business in the ordinary sense. The Court held that the Forty-sixth Amendment and Article 366(29A) enlarge the concept of taxable sale so as to include transfers otherwise than in pursuance of a contract for valuable consideration, and that sales under Sections 61 and 62 of the Major Port Trusts Act fall within that enlarged field. The earlier authorities relied upon by the petitioner were treated as having lost force after the statutory amendment, and the Court followed the later Supreme Court view that the substratum of the contrary line of cases no longer survived. The Court also held that the State Legislature had sufficient latitude in taxation classification to enact the deeming provision.

Conclusion: The challenge to the constitutional validity of Section 2(11) failed, and the Port Trust was held to be a dealer liable to sales tax on the impugned sales.

Ratio Decidendi: Where a taxing statute validly uses a deeming fiction to include specified entities within the definition of dealer, sales made by such entities pursuant to a statutory power can be taxed even if those entities do not carry on business in the ordinary commercial sense.

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