1958 (4) TMI 80 - SC - VAT and Sales Tax

Supreme Court ruling: Assessments upheld for post-Constitution period, reversed for pre-Constitution period.

The Supreme Court upheld the High Court's decision to quash assessments for the post-Constitution period but reversed it for the pre-Constitution period. ... Whether the mistake made in the notification was immaterial? Whether the pre-Constitution assessment orders are justified under sub-section (2) of section 4? Whether the assessment orders for the post-Constitution period to be invalid? Held that:- For a liability to arise under sub-section (1) of section 4, the issue of a notification is an essential prerequisite, and unless the notification complies with the requirements of the sub-section, no liability to tax can arise under it. The notification not only fixed the relevant date, but fixed the relevant period for deter- mining the class of dealers who would be subject to the liability. In doing so, it made a mistake, the result of which was that the notification was not in conformity with the law. We do not think that it can be severed in the way suggested by the learned Solicitor-General. We are, therefore, of the view that all the requirements of sub- section (2) are fulfilled in this case, and the two assessment orders made against the respondent for the pre-Constitution period were validly made under sub-section (2) of section 4 of the Act. The effect of the invalid notification under sub-section (1) was that there was no liability thereunder, and no dealers were liable to pay tax under that sub-section. But that did not mean that any dealer who properly came under sub-section (2) was free to escape his liability to pay tax. Surely, the position cannot be worse than what it would have been if the Provincial Government had failed to issue a notification under sub-section (1). The assessments for the post-Constitution period in this case were hit by clause (1)(a) of Article 286 as also section 30(1)(a)(i) of the Act and were rightly held to be without jurisdiction. The result, therefore, is that in our view this appeal should succeed in part, as we hold that the assessments for the two quarters of the pre-Constitution period were valid under sub-section (2) of section 4 of the Act and the assessments for the post-Constitution period were invalid. Issues Involved:1. Validity of the Notification under Section 4(1) of the Orissa Sales Tax Act.2. Applicability of Section 4(2) of the Orissa Sales Tax Act.3. Validity of the assessments for the pre-Constitution period.4. Validity of the assessments for the post-Constitution period under Article 286 of the Constitution.Detailed Analysis:1. Validity of the Notification under Section 4(1) of the Orissa Sales Tax Act:The Orissa Sales Tax Act required a notification under Section 4(1) to determine the date from which the tax liability would commence. The notification issued on March 1, 1949, by the Government of Orissa was found to be invalid because it incorrectly specified that the tax liability would fall on dealers whose gross turnover during the year ending March 31, 1949, exceeded Rs. 5,000. This was contrary to the Act, which required the relevant period to be the year immediately preceding the commencement of the Act, i.e., April 1, 1947, to March 31, 1948. The notification, therefore, did not comply with the statutory requirements and was partially invalid.2. Applicability of Section 4(2) of the Orissa Sales Tax Act:Section 4(2) applies to dealers whose gross turnover first exceeded Rs. 5,000 in any year after the commencement of the Act. The High Court held that sub-sections (1) and (2) were mutually exclusive and that sub-section (2) could not apply to the respondents because sub-section (1) would have applied if the notification had been correctly drawn. However, the Supreme Court disagreed, stating that sub-section (2) could still apply to dealers whose turnover first exceeded Rs. 5,000 after the commencement of the Act, even if the notification under sub-section (1) was invalid.3. Validity of the Assessments for the Pre-Constitution Period:The Supreme Court held that the assessments for the pre-Constitution period were valid under Section 4(2) of the Act. The respondents' gross turnover exceeded Rs. 5,000 during the year ending March 31, 1949, and therefore, they were liable to pay tax from April 1, 1949, under Section 4(2). The invalidity of the notification under Section 4(1) did not affect the applicability of Section 4(2).4. Validity of the Assessments for the Post-Constitution Period under Article 286 of the Constitution:The High Court had quashed the assessments for the post-Constitution period based on the decision in The State of Bombay v. United Motors (India) Ltd., which held that sales involving inter-State elements could only be taxed by the State where the goods were delivered for consumption. The Supreme Court confirmed that the assessments for the post-Constitution period were invalid under Article 286(1)(a) and Section 30(1)(a)(i) of the Act, as the goods were delivered for consumption outside Orissa. The Bengal Immunity Co. Ltd. v. State of Bihar decision, which modified the earlier United Motors decision, did not affect this conclusion.Conclusion:The Supreme Court upheld the High Court's decision to quash the assessments for the post-Constitution period but reversed the decision regarding the pre-Constitution period. The assessments for the quarters ending on September 30, 1949, and December 31, 1949, were restored, while the assessments for the quarters ending on June 30, 1950, September 30, 1950, and December 31, 1950, remained quashed. Each party was ordered to bear its own costs.