1969 (8) TMI 70 - SC - VAT and Sales Tax

Whether the goods in question were delivered for consumption within the delivery States? Whether the assessment order of the Deputy Commercial Tax Officer for the year 1949-50 is illegal in its entirety notwithstanding the fact that the State Government had a right to levy sales tax on outside sales which were effected prior to January 26, 1950? Held that - Appeal allowed. There is a single order of assessment for the period from April 1, 1949, to March 31, 1950, the assessment could be split up and dissected and the items of sale separated and taxed for different periods. It is quite easy in this case to ascertain the turnover of the appellant for the pre-Constitution and post- Constitution periods for these figures are furnished in the plaint by the appellant himself. It is open to the court in these circumstances to sever the illegal part of the assessment and give a declaration with regard to that part alone instead of declaring the entire assessment void. For these reasons we hold that the appellant should be granted a declaration that the order of assessment made by the Deputy Commercial Tax Officer for the year 1949-50 is invalid to the extent that the levy of sales tax is made on sales relating to goods which were delivered for the purpose of consumption outside the State for the period from January 26, 1950, to March 31, 1950.

Summary

Issues Involved:
1. Taxability of sales effected outside the State of Madras for the period from April 1, 1949, to January 25, 1950.
2. Taxability of sales for the period from January 26, 1950, to March 31, 1950, under Article 286(1)(a) of the Constitution.
3. Validity of the entire assessment order for the year 1949-50.
4. Entitlement to refund and interest on the amount illegally collected.

Detailed Analysis:

1. Taxability of Sales Effected Outside the State of Madras (April 1, 1949, to January 25, 1950):
The appellant, a firm of dealers in pulses, sent consignments to other States and claimed exemption on sales effected outside Madras. The Deputy Commercial Tax Officer included these sales in the taxable turnover. The Subordinate Judge upheld the taxability for sales from April 1, 1949, to January 25, 1950, based on the goods being in Madras at the time of the contract. The appellant did not contest this assessment, acknowledging the validity of the explanation to section 2(h) of the Madras General Sales Tax Act, 1939, as upheld in Tata Iron & Steel Co. Ltd. v. State of Bihar and Poppatlal Shah v. State of Madras.

2. Taxability of Sales (January 26, 1950, to March 31, 1950) under Article 286(1)(a):
The appellant argued that sales from January 26, 1950, to March 31, 1950, were not taxable under Article 286(1)(a) of the Constitution, which prohibits tax on sales outside the State. The High Court required proof of consumption within the delivery States, but the Supreme Court, referencing India Copper Corporation Ltd. v. State of Bihar, held that it was sufficient to show delivery for consumption, not actual consumption. The Subordinate Judge's initial finding favored the appellant, but a subsequent report did not. The Supreme Court deemed the latter report invalid for not considering the correct legal principles, thus ruling the sales for this period non-taxable.

3. Validity of the Entire Assessment Order for 1949-50:
The appellant contended that the entire assessment was invalid if any part was illegal. The Supreme Court discussed precedents like Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax and State of Jammu and Kashmir v. Caltex (India) Ltd., which dealt with composite assessments. The Court concluded that the assessment could be split, allowing the valid part to stand while invalidating the illegal portion. Thus, the assessment for the period from January 26, 1950, to March 31, 1950, was severed and declared illegal.

4. Entitlement to Refund and Interest:
The appellant was entitled to a refund for the tax collected on sales from January 26, 1950, to March 31, 1950. The trial court had determined the exempt turnover for this period as Rs. 3,34,107-15-6, with a corresponding tax of Rs. 5,220-7-0. The Supreme Court granted a decree for the refund of Rs. 5,220-7-0 with 6% interest per annum from the date of the suit until realization.

Conclusion:
The Supreme Court allowed the appeal, setting aside the High Court's judgment and declaring the assessment invalid for the period from January 26, 1950, to March 31, 1950. The appellant was granted a refund of Rs. 5,220-7-0 with interest. No order was made regarding costs.