1961 (3) TMI 72 - SC - VAT and Sales Tax

Supreme Court Validates Sales Tax Laws, Upholds Assessment

The Supreme Court held that the Sales Tax Laws Validation Act, 1956, applied to the disputed transactions, lifting the ban under Article 286(2) of the ... Whether the Validation Act applies to the transactions in question? Held that:- Appeal dismissed. Unable to accept as correct the arguments advanced on behalf of the assessee. In our view, the Validation Act applies and the assessment on the transactions in question cannot now be challenged on the ground alleged by the assessee. Issues Involved1. Jurisdiction of the Commercial Tax Officer for revising the assessment.2. Applicability of Article 286(2) of the Constitution to the disputed transactions.3. Applicability of the Sales Tax Laws Validation Act, 1956, to the transactions in question.4. Specific items of turnover challenged by the assessee.Detailed Analysis1. Jurisdiction of the Commercial Tax Officer for Revising the AssessmentThe Commercial Tax Officer, Madras, acting under section 12 of the Madras General Sales Tax Act, 1939, called upon the assessee to produce its books of account to review the legality or propriety of the initial assessment. The assessee objected, arguing that the revision was without jurisdiction. However, the Sales Tax Appellate Tribunal rejected this plea, and the High Court upheld this decision, confirming the officer's jurisdiction to revise the assessment.2. Applicability of Article 286(2) of the Constitution to the Disputed TransactionsThe High Court examined whether the transactions fell within the ban imposed by Article 286(2) of the Constitution, which restricts states from taxing sales that occur in the course of inter-State trade or commerce. The High Court held that three specific items of turnover (items 1, 2, and 3) were outside the purview of this constitutional ban, while the fourth item fell within it. The Supreme Court noted that the primary argument centered on whether these transactions were indeed inter-State sales and thus exempt from state tax under Article 286(2).3. Applicability of the Sales Tax Laws Validation Act, 1956, to the Transactions in QuestionThe Supreme Court focused on whether the Sales Tax Laws Validation Act, 1956, protected the disputed transactions from the ban imposed by Article 286(2). Section 2 of the Validation Act states that no state law imposing a tax on inter-State trade or commerce shall be deemed invalid merely because the sale occurred in the course of inter-State trade. The Court concluded that the Validation Act applies to the transactions in question, as they occurred within the specified period (April 1, 1951, to September 6, 1955), and the Act's broad language encompasses such sales.The learned Attorney-General argued that the Validation Act should only apply if the state law expressly taxed inter-State trade. However, the Court rejected this argument, clarifying that the Validation Act lifts the constitutional ban, allowing state laws to operate on their own terms. The Court also dismissed the argument that new section 22 of the Madras General Sales Tax Act, 1939, limits the state's taxing power to Explanation sales, noting that sub-section (2) of section 22 ensures that other provisions of the Act remain unaffected.4. Specific Items of Turnover Challenged by the AssesseeThe High Court had addressed the liability to tax for the following items:- Item 1: Rs. 1,43,072 for vehicles delivered ex-factory to the dealer's drivers, driven outside Madras.- Item 2: Rs. 28,01,357 for vehicles delivered to the dealer's drivers, driven under the dealer's trade number outside Madras.- Item 3: Rs. 7,866 for spare parts delivered along with the cars.- Item 4: Rs. 15,000 for spare parts consigned to dealers outside Madras by rail or steamer.The High Court ruled that the first three items were not covered by the ban under Article 286(2), while the fourth item was. The Supreme Court did not find it necessary to delve into the merits of these items individually, as the Validation Act's applicability rendered the constitutional ban irrelevant.ConclusionThe Supreme Court concluded that the Sales Tax Laws Validation Act, 1956, applies to the transactions in question, thereby lifting the ban imposed by Article 286(2) of the Constitution. Consequently, the assessment by the Commercial Tax Officer stands valid. The appeal was dismissed with costs, affirming the High Court's decision.