TaxTMI 
TaxTMI 
1994 (7) TMI 322
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....Sales Tax (Amendment and Validating Provisions) Act, 1988 (Maharashtra Act 22 of 1988) (hereinafter referred to as "the Validating Act") with effect from April 22, 1988. By the said Explanation sales of goods specified therein have been taken out of the definition of "resale" in clause (26) of section 2 of the Act. Clause (26) of section 2 of the Act defines "resale". Prior to the impugned amendment, it read as under: Section 2(26): "resale", for the purposes of sections 7, 8, 8A, 9, 12, 13 and 13AA means a sale of purchased goods- (i) in the same form in which they were purchased, or (ii) without doing anything to them which amounts to, or results in a manufacture, and the word "resale" shall be construed accordingly. By section 2(a)(ii) of the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1988, the following Explanation was added to the above definition of "resale" in section 2(26) of the said Act with retrospective effect from April 22, 1988: "Explanation.-For the purposes of clauses (i), (ii) and (iii) of section 8, a sale of purchased goods other than declared goods, shall not be deemed to be a resale,(i) if the seller holds a trade mark or a paten....
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....ion 2(26) read with section 8 of the Act, the State of Maharashtra inserted with effect from April 22, 1988, rule 42H in the Bombay Sales Tax Rules, 1959 ("the Rules"), to provide for drawback, set-off, refund, etc., of tax paid on goods purchased by dealers holding a trade mark or a patent. It reads: 42H. Drawback, set-off, etc., of tax paid on goods purchased by a dealer holding a trade mark or a patent.-(1) In assessing the amount of tax payable by a registered dealer (hereinafter in this rule referred to as "the claimant dealer") for any period on his sales of such taxable goods (not being declared goods) in respect of which he holds a trade mark or a patent, the Commissioner shall, in respect of his purchases of such goods or in respect of his purchases of the goods referred to in sub-clause (ii) of clause (a) of sub-rule (2), grant him a drawback, set-off or, as the case may be, a refund of the aggregate of the sales (sic., sales tax) determined in accordance with the provisions of rule 44D, subject to the conditions, restrictions and reductions mentioned in sub-rule (2). (2)(a)(i) the goods purchased have been sold by the claimant dealer within a period of nine months ....
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....t is concerned, he cannot claim deduction of the resales of goods purchased by him from registered dealers in view of the Explanation to section 2(26) of the Act which provides that for the purpose of section 8, a sale of purchased goods by such person shall not be deemed to be a resale. As a result, such a dealer shall be liable to pay sales tax also on the turnover of goods purchased by him from registered dealers. (iii) To avoid incidence of double taxation on the very same goods, rule 42H provides for drawback, set-off or refunds of the whole or any part of the sales tax determined in accordance with the provisions of rule 44D in respect of his purchases of such goods. (iv) As a result, the dealer who holds a trade mark or a patent, in effect pays sales tax on his turnover reduced by the purchase price of such goods. The above position will be clear from the following example: A trade mark holder purchases certain goods for a sum of Rs. 100 and pays sales tax of Rs. 10 thereon calculated at the rate of 10 per cent. If the said goods are sold by him for Rs. 150, he will be assessed in respect of his turnover of Rs. 150 and sales tax amounting to Rs. 15 will be le....
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....ation to the definition of "resale" in section 2(26) of the Act, according to him, goes counter to it as it purports to provide for double point levy in respect of certain sales. Counsel also submits that if we look at the pith and substance of the provision of section 2(26) as amended, it is clear that it is a tax on user of the patent or the trade mark and not a levy of tax on sales and, as such, it is beyond the legislative competence of the State Legislature. The learned counsel also submits that the levy of tax on the resales made by dealers holding patent or trade mark amounts to unreasonable restriction on the free-flow of trade, commerce and intercourse and hence it is violative of article 301 of the Constitution. Counsel further submits that the impugned provision is also not saved by article 304(b) of the Constitution as the Bill in respect thereof had not been introduced with the previous sanction of the President as contemplated by the proviso to article 304(b). Reliance is placed in this connection on the decision of the Supreme Court in Abdulkadir v. State of Kerala AIR 1962 SC 922. Further submission of the counsel is that the classification made between dealers hold....
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....al & Co. v. State of Madhya Pradesh [1986] 63 STC 1; AIR 1986 SC 1085. So far as the question of discrimination is concerned, the submission of the AdvocateGeneral was that the State has wide discretion in selecting the persons or objects it will tax-it is allowed to pick and choose, objects, persons, methods and even rates of taxation, if it does so reasonably. The submission is that it is only when the law operates unequally within the range of selection and it cannot be justified on the basis of valid classification that it will be violative of article 14. The learned Advocate-General submitted a chart before us containing data supplied by the assessing officers of the turnover of the 13 registered dealers holding patents and trade marks for the years 1988-89, 1989-90 and 1990-91. The said chart contains the turnover of the purchases, turnover of sales of those goods by the dealer holding trade mark, addition to the value and percentage of addition. The said chart is set out below: INFORMATION REGARDING VALUE ADDITION IN SALE PRICE DUE TO TRADE MARK AND TAX RECEIVEDC DUE TO AMENDMENT (DATE SUPPLIED BY ASSESSING OFFICERS) Sr. No. Name of company....
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.... 25 per cent 9,39,436 7,28,521 2,10,915 10 M/s. Intercraft NID-28069 89-90 90-91 31,02,853 20,73,111 1,12,02,698 1,83,26,254 80,99,845 1,62,53,143 261 per cent 783 per cent 4,62,640 5,19,456 77,188 38,893 3,85,452 4,80,563 11 M/s. Balsara Hygiene Products Ltd. NIA-26586 88-89 89-90 90-91 27,46,105 74,58,598 43,12,503 49,67,404 1,09,60,169 73,22,381 22,21,299 35,01,571 30,09,878 81 per cent 47 per cent 70 per cent 3,97,392 10,05,454 5,85,790 3,39,904 6,94,452 3,59,514 57,488 3,11,002 2,26,276 12 M/s. Bata India Ltd. NIA-1339 89-90 90-91 66,55,030 44,33,496 5,23,52,736 91,59,330 4,56,97,706 47,25,834 686 per cent 107 per cent 41,88,219 9,15,933 3,39,262 3,44,620 38,48,957 5,71,313 13 M/s. Bradma of India NIA-6989 89-90 32,60,238 44,73,158 12,12,920 37 per cent 3,96,629 1,35,205 2,61,424 The submission is that the classification between general dealers of purchased goods and dealers of purchased goods who hold patent or trade mark is a reasonable classification which has a rational connection or nexus with the object of the Act. It is made with the objec....
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....under entry 49 of List I. It is not a legislation in regard to patents or trade marks. It does not even incidentally encroach on entry 49 of List I. However, even if it would have been so, the doctrine of pith and substance would have applied and once it is held that in pith and substance it is a law to levy sales tax, incidental reference to patents or trade marks or its effect on dealers holding patents or trade marks would not affect its validity. Reference may be made in this connection to the decision of the Privy Council in Prafulla Kumar Mukherjee v. Bank of Commerce Limited, Khulna [1947] FCR 28; AIR 1947 PC 60 and Federation of Hotel & Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC). Reference may also be made to the decision of the Supreme Court in Chamarbaugwalla's case 1957 SCR 874; AIR 1957 SC 628. In this case, it was contended that the tax levied by the Bombay Lotteries and Prize Competitions Act, 1948, was a tax on the business of the respondents since the respondents were taxed on the entry fee received on each entry in the competition. It was held by the Supreme Court that ultimately the tax was a tax on each entry fee received from eac....
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....hallenge on the ground of violation of article 14 of the Constitution. There is no gainsaying that fiscal statutes are not outside the pale of article 14 of the Constitution and any irrational classification and/or discrimination between persons or objects similarly situated would render the classification violative of article 14 of the Constitution. Taxing laws must also pass the test of article 14. However, in deciding whether the taxation laws are discriminatory or not, it is necessary to keep in mind that the State has a wide discretion in selecting the persons or objects it will tax and a statute is not open to attack on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection the law operates unequally which cannot be justified on the basis of any valid classification that it would be violative of article 14. As observed by the Supreme Court in S.K. Dutta, Income-tax Officer v. Lawarence Singh Ingty [1968] 68 ITR 272, it is well-settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so r....
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....at view of the matter, in our opinion, the impugned provision does not violate article 14 of the Constitution. 14.. Having dealt with the main grounds of challenge to the validity of the impugned provision, we would like to deal with the two incidental grounds also on which the validity was challenged. The first ground is that the scheme of the Act is to levy a single point tax on goods specified in Schedule "C" whereas the impugned amendment has the effect of double point levy. This submission, in our opinion, is devoid of merit in view of the fact that the impugned amendment has also been made by the State Legislature itself. It is not a case where the State Legislature made a law providing for single point levy but the Government or the executive, in exercise of its executive power or delegated authority provided for double point levy. It would not be correct to say that having originally enacted/contemplated a single point levy at the first stage of sale, it is not open to the Legislature to adopt a double point levy and/or levy at a different stage or take out certain specified transactions or turnover for double point or multipoint taxation at a later stage. As observed by....