1997 (11) TMI 458 - SC - VAT and Sales Tax

Whether the turnover in respect of hides and skins which has once been subjected to tax under the Tamil Nadu General Sales Tax Act, on its purchase at the raw stage, could be taxed again on inter-State sales as tanned or dressed hides and skins? Held that - Appeal dismissed. Having come to the conclusion that raw hides and skins and dressed hides and skins are two types of commodities, it must flow therefrom that when the appellants purchased raw hides and skins on payment of tax they would be liable to pay sales tax in respect of dressed hides and skins and such levy will not fall foul of section 15 as the two goods are different taxable commodities. In other words the same goods would not have been taxed more than once. In our opinion, therefore, the High Court was right in coming to the conclusion which it did, namely, that the sales tax authorities could levy sales tax on the sale of dressed hides and skins and that the provisions of section 3 of the Tamil Nadu General Sales Tax (Third Amendment) Act, 1987 are not ultra vires.

Issues Involved:
1. Whether the turnover of hides and skins, taxed under the Tamil Nadu General Sales Tax Act at the raw stage, can be taxed again on inter-State sales as tanned or dressed hides and skins.
2. Whether hides and skins, in raw or dressed form, are considered a single commodity under Section 14(iii) of the Central Sales Tax Act, 1956.
3. Validity of the constitutional challenge to Section 3 of the Tamil Nadu General Sales Tax (Third Amendment) Act, 1987.

Issue-Wise Detailed Analysis:

1. Taxation of Hides and Skins at Different Stages:
The primary issue was whether hides and skins, once taxed at the raw stage under the Tamil Nadu General Sales Tax Act, could be taxed again when sold as dressed hides and skins in inter-State trade. The appellants argued that hides and skins, whether raw or dressed, are declared goods under Section 14(iii) of the Central Sales Tax Act, 1956, and should be treated as a single commodity. Consequently, Section 15 of the Central Sales Tax Act prohibits multiple taxation on the same commodity. The assessing authority, however, considered raw hides and skins and dressed hides and skins as different commodities, thus justifying the additional tax.

2. Single Commodity Argument:
The appellants contended that raw and dressed hides and skins are the same commodity, merely in different forms, and should not be taxed more than once. They argued that the processes of curing, tanning, and dressing do not change the fundamental nature of the commodity. They cited previous rulings, such as State of Tamil Nadu v. Mahi Traders and State of Punjab v. Chandu Lal Kishori Lal, to support their claim that hides and skins should be treated as a single commodity under Section 14(iii) of the Central Sales Tax Act.

3. Constitutional Challenge:
Some appellants challenged the constitutional validity of Section 3 of the Tamil Nadu General Sales Tax (Third Amendment) Act, 1987, which amended item No. 7 in the Second Schedule of the Tamil Nadu General Sales Tax Act, 1959. The High Court upheld the legislative competence of the State to tax dressed hides and skins, even if raw hides and skins had already been taxed.

Court's Analysis and Conclusion:

Taxation of Hides and Skins at Different Stages:
The court examined the statutory provisions of Sections 14 and 15 of the Central Sales Tax Act. It noted that Section 14(iii) includes hides and skins, whether raw or dressed, as goods of special importance in inter-State trade. Section 15 imposes restrictions on the taxation of these declared goods, limiting the tax to a single stage and not exceeding four percent. The court analyzed the historical amendments to item No. 7 of the Second Schedule and concluded that the legislative intent was to treat raw and dressed hides and skins as separate commodities for taxation purposes.

Single Commodity Argument:
The court referred to the Constitution Bench ruling in Hajee Abdul Shukoor and Company v. State of Madras, which held that raw hides and skins and dressed hides and skins are different commodities. The court reaffirmed that tanning and dressing processes transform the raw hides and skins into a different commercial commodity. Therefore, the contention that raw and dressed hides and skins should be treated as a single commodity under Section 14(iii) was rejected.

Constitutional Challenge:
The court upheld the High Court's decision, affirming the legislative competence of the State to tax dressed hides and skins. The court found no conflict between the State law and Section 15 of the Central Sales Tax Act. It concluded that the provisions of Section 3 of the Tamil Nadu General Sales Tax (Third Amendment) Act, 1987, were not ultra vires.

Conclusion:
The Supreme Court dismissed the appeals, holding that raw hides and skins and dressed hides and skins are distinct commodities for taxation purposes. The court upheld the State's authority to levy sales tax on dressed hides and skins, even if raw hides and skins had already been taxed. The constitutional challenge to the Tamil Nadu General Sales Tax (Third Amendment) Act, 1987, was also rejected. The appeals were dismissed with no order as to costs.

← Previous Next →