1976 (11) TMI 161 - SC - VAT and Sales Tax

Validity of items 7(a) and 7(b) of the Second Schedule to the Madras General Sales Tax Act, 1959 challenged - Held that - Appeal dismissed. The attack on the validity of item 7(b) of the Second Schedule to the State Act is not well-founded as there appears to be no warrant for the proposition that preferential treatment has been shown to dressed hides and skins prepared from locally purchased raw hides and skins compared to the treatment accorded to imported hides and skins.

Issues Involved:
1. Validity of item 7(a) of the Second Schedule to the Madras General Sales Tax Act, 1959.
2. Validity of item 7(b) of the Second Schedule to the Madras General Sales Tax Act, 1959 in light of Article 304(a) of the Constitution.

Issue-wise Detailed Analysis:

1. Validity of item 7(a) of the Second Schedule to the Madras General Sales Tax Act, 1959:

The appellants argued that item 7(a) would cover inter-State sales and thus exceed the competence of the State Legislature. The Court, however, held that item 7(a) pertains only to intra-State sales, as indicated by the phrase "purchase in the State." Even if the language of item 7(a) were ambiguous, it should be construed to sustain its constitutional validity. Therefore, the levy of tax under item 7(a) arises only in the case of intra-State sales, not inter-State sales.

2. Validity of item 7(b) of the Second Schedule to the Madras General Sales Tax Act, 1959 in light of Article 304(a) of the Constitution:

The appellants contended that item 7(b) violates Article 304(a) of the Constitution, which prohibits discrimination against goods imported from other States. They argued that there are three types of sale transactions for dressed hides and skins:
1. Dressed hides and skins imported from outside Tamil Nadu and sold within the State.
2. Raw hides and skins imported from outside Tamil Nadu, tanned within the State, and sold within the State as dressed hides and skins.
3. Raw hides and skins purchased within Tamil Nadu, tanned, and sold within the State as dressed hides and skins.

The appellants claimed that locally purchased raw hides and skins, which are later tanned and sold as dressed hides and skins, are not subject to tax under item 7(b) if they have already been taxed under item 7(a). In contrast, imported hides and skins sold as dressed hides and skins are taxed at 1 1/2 % under item 7(b). This, they argued, results in discrimination against imported hides and skins.

The Court examined precedents, including Firm A.T.B. Mehtab Majid & Co. v. State of Madras and A. Hajee Abdul Shukoor & Co. v. State of Madras, where discrimination was found due to the same rate of tax being applied to both raw and dressed hides and skins despite substantial price differences. However, the Court found that in the present case, the rate of tax for raw hides and skins is 3%, while for dressed hides and skins, it is 1 1/2 %. This lower rate for dressed hides and skins offsets the price difference between raw and dressed hides and skins.

The Court concluded that the appellants failed to prove discrimination under Article 304(a) as there was no evidence that the tax scheme resulted in discrimination against imported hides and skins. The Court emphasized that Article 304(a) prohibits discriminatory taxation, not the levy of tax itself. The scheme under items 7(a) and 7(b) appropriately considers the higher price of dressed hides and skins and the absence of prior tax on imported hides and skins.

Lastly, the Court addressed the argument that dressed hides and skins are distinct from raw hides and skins. It noted that the appellants did not import dressed hides and skins but only raw hides and skins, which were then tanned and sold as dressed hides and skins. Therefore, there was no basis for claiming discrimination between imported dressed hides and skins and locally produced dressed hides and skins.

The Court found no infirmity in the legislative provision that considers the tax on raw hides and skins when levying tax on dressed hides and skins. Thus, the attack on the validity of item 7(b) was deemed unfounded.

Conclusion:

The appeals were dismissed without costs, upholding the validity of items 7(a) and 7(b) of the Second Schedule to the Madras General Sales Tax Act, 1959.

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