1974 (10) TMI 82 - SC - VAT and Sales Tax

Validity of section 2(1) of Madras Act 37 of 1964 questioned - Held that - Appeal allowed. Unable to understand the view of the High Court that if the sale price were taxed and rebate were given then there would be no objection to the tax. We do not understand how that can be done. We asked the learned Advocates appearing for the respondents to tell us how that can be done and they were not able to do so. The cost of conversion of the raw hides and skins to tanned hides and skins might differ from tanner to tanner. It is much easier to get figures for the purchase price of the raw hides and skins or the sale price of the tanned hides and skins than the cost of conversion. As the scheme of taxation is not on the basis of the sale price of tanned hides and skins the suggestion of the High Court cannot be adopted. We therefore hold that the High Court was in error in striking down the impugned provision of law.

Summary

Issues: Validity of section 2(1) of Madras Act 37 of 1964

Analysis:
The judgment of the Supreme Court addressed the validity of section 2(1) of Madras Act 37 of 1964, which pertains to the taxation on the sale of dressed hides and skins. The section imposes a tax on the first seller of such hides and skins, based on the purchase price of the raw hides and skins, irrespective of whether they were purchased within or outside the State. The court referred to the previous decision in Firm A.T.B. Mehtab Majid & Co. v. State of Madras, where a similar provision was struck down due to discrimination between tanners based on the origin of the raw hides and skins. To rectify this, Act 11 of 1963 was enacted, but it was also challenged and subsequently replaced by the current provision in question.

The court highlighted that the tax under the impugned provision is levied on the sale of tanned hides and skins, calculated based on the purchase price of raw hides and skins. It clarified that the tax does not discriminate between hides and skins purchased inside or outside the State, as it is imposed on the first sale of tanned hides and skins. The court emphasized that the tax is not on the purchase of raw hides and skins but on the sale of tanned hides and skins, thereby not violating Article 286 of the Constitution.

Furthermore, the court addressed the argument that taxing the sale price of tanned hides and skins would be a fairer approach. However, it concluded that the State's decision to base the tax on the purchase price of raw hides and skins does not amount to taxing imported raw materials. The court rejected the High Court's reasoning that taxing the sale price with a rebate would be a viable alternative, as it would be challenging to determine the cost of conversion uniformly among tanners. Ultimately, the Supreme Court held that the High Court erred in striking down the impugned provision, thereby allowing the appeals and upholding the validity of section 2(1) of Madras Act 37 of 1964.

In Special Leave Petition No. 1974 of 1970, special leave to appeal was granted, and the appeal was allowed. The appeals were allowed with costs, thereby concluding the judgment in favor of the appellant.