1964 (10) TMI 72 - SC - VAT and Sales Tax

Whether the certificate which the appellant-company gave to the local dealers was complied with or not? Whether the proviso to section 5(2)(a)(ii) of the Orissa Sales Tax Act, applied? Held that - Appeal dismissed. Section 5(2)(a)(ii) as enacted by the 1950 amendment with that enacted in 1951 which came into force from November 25, 1951. He pointed out that the words in Orissa were added in the operative part after the quarter involved in this case and, therefore, the export of the sleepers and timber outside the State did not affect the company as prior to the 1951 amendment exemption was available if the goods were for resale irrespective of the place of sale. This is not correct. The tax was always leviable on the first sale and it would have been so levied but for the certificate which was furnished by the company when making purchases from the local dealers. The certificate was that the sleepers and timber were for resale in Orissa and when that condition was not fulfilled, the tax became payable even under section 5(2)(a)(ii) before the 1951 amendment

Summary

Issues:
1. Interpretation of Article 286 of the Constitution regarding taxation on inter-State trade.
2. Application of Orissa Sales Tax Act, 1947, to purchases made by a registered dealer for resale.
3. Compliance with certificate issued by a registered dealer for tax exemption.
4. Validity of the proviso to section 5(2)(a)(ii) of the Orissa Sales Tax Act.
5. Jurisdiction of the State Legislature in taxing sales between registered dealers.

Analysis:
The case involved an appeal by a public company against the High Court of Orissa's order dismissing its application under section 24(2) of the Orissa Sales Tax Act, 1947. The appellant company, engaged in extracting timber and sleepers, had branches in different states, including Orissa, and was registered as a dealer under the Sales Tax Act. The dispute centered around the inclusion of purchases made by the company in its turnover for a specific quarter, with the company claiming exemption under Article 286 of the Constitution for inter-State trade transactions.

The Sales Tax Officer rejected the company's claim under Article 286, citing the President's order and prevailing legal interpretations. The company's subsequent appeals and revisions were unsuccessful, with authorities upholding tax liability due to a breach of the certificate issued by the company for tax-free purchases intended for resale in Orissa. The Board of Revenue and the High Court declined to make references on legal questions raised by the company, leading to the appeal before the Supreme Court.

During the Supreme Court hearing, the company's argument focused on the property passing to the buyer in Orissa and the subsequent resale within the state to avoid tax liability. However, the Court found that the earlier sale to the company by local dealers, which was tax-free between registered dealers, was the taxable transaction due to the breach of the certificate conditions. The Court clarified that the tax liability existed even before the 1951 amendment to the Sales Tax Act, emphasizing compliance with the certificate terms for tax exemption.

Ultimately, the Supreme Court upheld the decision of the High Court, stating that no legal question arose based on previous rulings and dismissing the appeal with costs. The judgment reaffirmed the principles regarding tax liability on the first sale and the importance of adhering to certificate conditions for tax exemptions under the Orissa Sales Tax Act.