1964 (11) TMI 62 - SC - VAT and Sales Tax

Supreme Court Upholds Tax Exemption Ruling

The Supreme Court upheld the High Court's decision, exempting the respondents from tax under the Central Sales Tax Act. The majority opinion aligned the ... Whether sales which were not 'first sales' within the Mysore State being not exigible to tax under the Mysore Sales Tax Act, no tax was payable thereon under the Central Sales Tax Act, 1956? Held that:- Appeal dismissed. There is no reason why the Central Act made a departure in the manner of levy of tax on the specified goods which are taxed only at a single point under the State Act; if any such radical departure was intended, the Central Act would have expressly stated so. The Central Act was passed to levy and collect sales tax on inter-State sales to avoid con- fusion and conflict of jurisdictions; the tax is also collected only for the benefit of the States. Therefore, the construction we accept avoids the anomaly of the State collecting tax on powerloom textiles only at a single point and the Centre, through the agency of the State authorities, collecting the said tax for and on behalf of the State at multi- points. Issues Involved:1. Interpretation of Section 8(2) of the Central Sales Tax Act.2. Application of exemptions under the State Sales Tax Act to inter-State sales.3. The manner of levy and collection of tax under Section 9 of the Central Sales Tax Act.Issue-wise Detailed Analysis:1. Interpretation of Section 8(2) of the Central Sales Tax Act:The core issue revolves around the interpretation of Section 8(2) of the Central Sales Tax Act, which specifies that the tax on inter-State sales should be calculated 'at the same rates and in the same manner' as if the sale had taken place within the appropriate State. The judgment highlights the ambiguity in the phrase 'in the same manner,' which could imply either the calculation of tax rates alone or include the manner of levy of tax. The court clarifies that Section 8(2) deals only with the calculation of the tax rate and does not incorporate the entire procedural and substantive provisions of the State law regarding exemptions from tax.2. Application of Exemptions under the State Sales Tax Act to Inter-State Sales:The respondents argued that since they were not the first or earliest dealers in the State, they should be exempt from tax under the Central Sales Tax Act, similar to the exemption provided under the Mysore Sales Tax Act for intra-State sales. The court refuted this argument, stating that the Central Act does not adopt the exemptions provided under the State Act. The phrase 'in the same manner' in Section 8(2) does not imply that the exemptions applicable to intra-State sales under the State law are extended to inter-State sales under the Central Act.3. The Manner of Levy and Collection of Tax under Section 9 of the Central Sales Tax Act:Section 9 of the Central Sales Tax Act outlines the procedure for the levy and collection of tax. Sub-section (1) of Section 9 specifies that the tax payable by any dealer under the Act shall be levied and collected in the appropriate State by the Government of India. Sub-section (2) further elaborates that the authorities empowered to assess, collect, and enforce payment of tax under the State's general sales tax law shall perform these functions for the Central Sales Tax Act. The court clarified that while Section 9(2) incorporates the machinery for the assessment, collection, and enforcement of tax liability, it does not extend the substantive provisions of the State law regarding tax exemptions to the Central Act.Separate Judgments:The judgment delivered by SIKRI, J., on behalf of himself and SUBBA RAO, J., concluded that the High Court's interpretation of Section 8(2) was correct in exempting the respondents from tax under the Central Sales Tax Act. They emphasized that the Central Act should not levy tax at multiple points when the State Act taxes only at a single point, avoiding anomalies and ensuring consistency.In contrast, SHAH, J., delivered a separate judgment disagreeing with the High Court's interpretation. He argued that the Central Act's provisions do not incorporate the State law's exemptions and that the respondents' turnover from inter-State sales should be taxed under the Central Sales Tax Act, regardless of the exemptions applicable under the State Act.Conclusion:The Supreme Court, by a majority opinion, upheld the High Court's decision, exempting the respondents from tax under the Central Sales Tax Act, aligning the manner of levy with that of the State Sales Tax Act. The appeal was dismissed with costs.