1970 (9) TMI 89 - SC - VAT and Sales Tax

Prohibitory injunction contained in rule 31B - Held that - As taken rule 31B and the notification issued by the State Government on December 26, 1967, must be declared ultra vires, and since rule 31B and the notification are ultra vires, the communication issued by the Superintendent of Commercial Taxes to the railway authorities must also be declared unauthorised. A writ will therefore issue declaring rule 31B and the notification issued by the Government of Bihar on December 26, 1967, ultra vires, and the letter written by the Superintendent of Commercial Taxes to the railway authorities is also declared unauthorised.

Issues Involved:
1. Infringement of Article 301 of the Constitution by Sections 3A and 5A of the Bihar Sales Tax Act.
2. Contravention of Section 15 of the Central Sales Tax Act by Sections 3A and 5A and Rule 8C of the Bihar Sales Tax Act.
3. Legitimacy of Rule 31B and the notification issued on December 26, 1967, under the Bihar Sales Tax Rules.

Issue-Wise Detailed Analysis:

1. Infringement of Article 301 of the Constitution by Sections 3A and 5A of the Bihar Sales Tax Act:
The appellant contended that Sections 3A and 5A, as incorporated by the Finance Act of 1966, infringed the guarantee of freedom of trade under Article 301 of the Constitution. Article 301 guarantees freedom of trade, commerce, and intercourse throughout the territory of India. Article 304(b) allows the Legislature of a State to impose reasonable restrictions on this freedom in the public interest, but only with the previous sanction of the President. The appellant argued that since the amendment did not receive the President's assent, it was not saved. However, the court held that the imposition of a purchase tax does not necessarily restrict the freedom of trade, commerce, or intercourse. It was established that only taxes that directly and immediately restrict trade fall within the prohibition of Article 301. The appellant failed to demonstrate that the purchase tax directly and immediately restricted or impeded the free flow of trade. Therefore, the power to impose purchase tax under Section 3A did not need to derive its validity from Article 304(b).

2. Contravention of Section 15 of the Central Sales Tax Act by Sections 3A and 5A and Rule 8C of the Bihar Sales Tax Act:
The appellant argued that Sections 3A and 5A and Rule 8C were contrary to Section 15 of the Central Sales Tax Act, 1956, which imposes restrictions on the tax payable on declared goods. Section 15 restricts the tax on declared goods to 3% and mandates that it should not be levied at more than one stage. The court found that the purchase tax on jute, a declared good, was levied at the first point of purchase and did not exceed the 3% limit. Therefore, Sections 3A and 5A were not inconsistent with Section 15 of the Central Sales Tax Act.

3. Legitimacy of Rule 31B and the Notification Issued on December 26, 1967, under the Bihar Sales Tax Rules:
The court examined Rule 31B and the notification issued on December 26, 1967, which prohibited the transport of jute exceeding 800 Kg without a despatch permit. The court held that the Bihar Sales Tax Act was intended to levy tax on intra-State transactions and prevent tax evasion within the State. However, Rule 31B and the notification sought to regulate inter-State transactions, which were beyond the State Legislature's competence. The rule and notification restricted the transport of goods to any place outside Bihar, thus affecting inter-State trade and commerce, which is not permissible. Consequently, Rule 31B and the notification were declared ultra vires and unauthorised. The communication by the Superintendent of Commercial Taxes to the railway authorities was also declared unauthorised.

Conclusion:
The court declared Rule 31B and the notification issued on December 26, 1967, ultra vires and unauthorised. The letter by the Superintendent of Commercial Taxes was also declared unauthorised. No order as to costs was made.

← Previous Next →