1967 (4) TMI 131 - SC - VAT and Sales Tax

Interpretation of the relevant provisions of the Punjab General Sales Tax Act, 1948 (Punjab Act 46 of 1948) as amended by Punjab Act of 1958, relating to three categories of goods, namely, oil-seeds, iron and cotton Held that - Appeal dismissed.Pursuant to the provisions of section 15 of the Central Sales Tax Act before it was amended, Act 7 of 1958 added clause (ff) to section 2 of the principal Act fixing the same stage indicated by section 15 of the Central Act, i.e., the stage when the purchase is made by a dealer for use in the manufacture of goods. This section was amended by Act 13 of 1959, and Act 24 of 1959. Under the later amendment in clause (ff) of section 2 for the words goods for use in the manufacture of goods for sale the words goods specified in Schedule C for use in the manufacture of goods for sale were substituted, that is to say, the stage for taxation prescribed in the earlier definition was amended. It may be recalled that under the Central Sales Tax Act, as amended, the description of the stage was omitted, but that does not affect the question, for that description is maintained even under the amended clause (ff). It follows from the said discussion that the Punjab General Sales Tax Act, during the crucial period which is the subject-matter of these appeals, in terms fixed a stage for taxation, i.e., the stage of purchase by a dealer for use in the manufacture of goods. There are, therefore, no merits in this contention either.

Issues Involved:
1. Validity of Section 5 of the East Punjab General Sales Tax Act, 1948.
2. Legislative competence regarding the definition of "purchase" in Section 2(ff) of the Act.
3. Discrimination in taxation based on the character of the purchaser.
4. Contravention of Sections 14 and 15 of the Central Sales Tax Act, 1956.
5. Whether the process of producing oil from oil-seeds constitutes manufacturing.
6. Whether converting iron scrap into rolled steel involves manufacturing.
7. Conflict with Section 15 of the Central Sales Tax Act, 1956, regarding multi-stage taxation.
8. Legislative power concerning acquisition through commission agents.
9. Rational basis for singling out specific items for purchase tax.

Issue-wise Detailed Analysis:

1. Validity of Section 5 of the East Punjab General Sales Tax Act, 1948:
The Court held that Section 5, as originally enacted, conferred an uncontrolled power on the Provincial Government to levy sales tax without providing any guidance, thus violating the principle of non-delegation. The Court stated, "The Legislature practically effaced itself in the matter of fixation of rates and it did not give any guidance either under that section or under any other provisions of the Act." However, the amendment by Punjab Act 19 of 1952, which inserted the words "not exceeding two pice in a rupee," was deemed to have cured the defect and provided the necessary guidance, thus validating the amended Section 5.

2. Legislative Competence Regarding the Definition of "Purchase" in Section 2(ff):
The Court examined whether the definition of "purchase" in Section 2(ff) was ultra vires the State Legislature. It concluded that the definition was not void for legislative incompetence. The Court stated, "We must, therefore, hold that the expression 'acquisition' in clause (ff) of section 2 of the Act means only 'transfer'." The Court also held that the term "valuable consideration" in the context of the Act should be interpreted as monetary consideration, consistent with the definition of "sale."

3. Discrimination in Taxation Based on the Character of the Purchaser:
The Court rejected the argument that the amendment made an unreasonable discrimination between manufacturers and ordinary dealers. It stated, "The raw goods purchased by a manufacturer are transformed on manufacture into some other goods and that is the reason why the Legislature taxes the goods before they lose their identity."

4. Contravention of Sections 14 and 15 of the Central Sales Tax Act, 1956:
The Court found that the amended provision did not contravene Sections 14 and 15 of the Central Sales Tax Act, 1956. It held that the same goods were not taxed at more than one stage because the goods purchased and the goods sold were not identical after manufacturing. The Court stated, "Manufacture changes the identity. Therefore, the same goods are not taxed at two stages."

5. Whether the Process of Producing Oil from Oil-seeds Constitutes Manufacturing:
The Court held that the process of producing oil from oil-seeds constitutes manufacturing. It referenced the dictionary meaning of "manufacture" and concluded, "When oil is produced out of the seeds the process certainly transforms raw material into different article for use."

6. Whether Converting Iron Scrap into Rolled Steel Involves Manufacturing:
The Court affirmed that converting iron scrap into rolled steel involves manufacturing. It noted that the process changes the identity of the scrap iron into a new marketable commodity. The Court stated, "The process is certainly one of manufacture."

7. Conflict with Section 15 of the Central Sales Tax Act, 1956, Regarding Multi-stage Taxation:
The Court addressed the issue of multi-stage taxation by examining the relevant provisions before and after the amendment of Section 15 of the Central Sales Tax Act. It concluded that the Punjab General Sales Tax Act complied with the Central Act's requirements during the relevant periods. The Court stated, "The effect of this judgment is that the stage prescribed under section 15 of the Central Sales Tax Act before the amendment and the prohibition against taxation at more than one stage contained in the amended section would automatically control the provisions of the Punjab General Sales Tax Act, 1948."

8. Legislative Power Concerning Acquisition Through Commission Agents:
The Court did not address this issue in detail as it was not specifically raised in the High Court. Therefore, it did not call for consideration in the present appeals.

9. Rational Basis for Singling Out Specific Items for Purchase Tax:
The Court did not find sufficient material to consider the argument that there was no rational basis for singling out specific items like cotton, oil-seeds, and resin for purchase tax. It stated, "On the third point also no adequate material was placed in the court below and, therefore, it does not call for our consideration."

Conclusion:
The appeals were dismissed, and the Court upheld the validity of the amended provisions of the Punjab General Sales Tax Act, 1948. The Court found no merit in the arguments challenging the legislative competence, discrimination in taxation, and multi-stage taxation. The process of producing oil from oil-seeds and converting iron scrap into rolled steel were both considered manufacturing processes.

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