1968 (8) TMI 114 - SC - VAT and Sales Tax

Whether the supply of coal by the petitioner to the State amounted to a sale? Held that - Appeal partly allowed. A writ of mandamus will issue directing the State of Rajasthan not to realize sales tax except with regard to the transactions of sale between the period April 1, 1955, and September 6, 1955, both days inclusive. The Sales Tax Officer who is also one of the appellants in this case will make appropriate modifications in the order of assessment in the light of the judgment of this Court.

Issues Involved:
1. Whether the supply of coal by the petitioner to the State amounted to a "sale".
2. Whether the transactions were entered into in the course of inter-State trade.
3. Whether the Sales Tax Laws Validation Act, 1956, validated the order of assessment.
4. The proper situs of these sales.

Issue-wise Detailed Analysis:

1. Whether the supply of coal by the petitioner to the State amounted to a "sale":
The High Court initially held that the petitioner was not a dealer but merely a broker or middleman, thus not liable for sales tax. However, the Supreme Court found that the petitioner was an agent within the Explanation to section 2(f) of the Rajasthan Sales Tax Act, 1954, and thus deemed a dealer. The High Court, upon remand, examined whether the supply of coal constituted a sale under the Colliery Control Order, 1945. The High Court concluded that the transactions did not amount to sales due to the lack of volition and mutual assent, essential elements of a sale, as the transactions were governed by the Colliery Control Order. This conclusion was based on the principle established in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, which held that compulsory deliveries under government orders do not constitute sales.

2. Whether the transactions were entered into in the course of inter-State trade:
The High Court determined that the transactions were inter-State sales because the coal was transported from Bengal to Rajasthan under the contract. Article 286(2) of the Constitution, as it stood before the Sixth Amendment, prohibited States from taxing sales in the course of inter-State trade unless Parliament provided otherwise. The High Court found that the transactions fell within this prohibition. However, the Sales Tax Laws Validation Act, 1956, validated such taxes for the period from April 1, 1955, to September 6, 1955. Therefore, the High Court held that the assessment was valid only for this period and invalid for the remaining period.

3. Whether the Sales Tax Laws Validation Act, 1956, validated the order of assessment:
The High Court noted that the Sales Tax Laws Validation Act, 1956, validated the imposition of sales tax on inter-State sales for the period from April 1, 1955, to September 6, 1955. However, the assessment order was a composite one for the entire year 1955-56. The High Court, following the principle in Provincial Government of Madras v. J.S. Basappa, held that a composite and indivisible assessment, which includes both valid and invalid periods, must be declared entirely invalid.

4. The proper situs of these sales:
The High Court did not extensively deal with the situs of the sales as it was not seriously pressed by the petitioner's counsel. The primary focus was on whether the transactions constituted sales and whether they were inter-State sales.

Supreme Court's Judgment:
The Supreme Court reversed the High Court's decision, concluding that the transactions were indeed sales. The Court found that the Colliery Control Order did not negate the contractual nature of the transactions. The Court distinguished the present case from New India Sugar Mills Ltd., noting that in the present case, there was mutual assent and a contractual relationship between the parties. The Court also addressed the composite assessment issue, directing that the assessment be modified to exclude the period not validated by the Sales Tax Laws Validation Act, 1956.

Conclusion:
The Supreme Court allowed the appeal in part, directing the State of Rajasthan not to realize sales tax except for the period from April 1, 1955, to September 6, 1955. The Sales Tax Officer was instructed to modify the assessment order accordingly. No order as to costs was made due to the divided success.

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