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2006 (8) TMI 302 - SC - VAT and Sales TaxWhether it is an intra-State sale or purchase or not affect validity of section 8-E? Held that - Appeal allowed. The reply filed by the appellant on July 11, 2001 shall be dealt with by the respondent No. 3 in accordance with law. The said authority shall decide as to the nature of the transaction, i.e., whether it is of intra-State or inter-State character. If it is of inter-State character, the decisions in Steel Authority of India Ltd. s case 2000 (2) TMI 729 - SUPREME COURT OF INDIA and Nathpa Jhakri s case 2000 (3) TMI 949 - SUPREME COURT OF INDIA shall apply. Section 8-E, therefore, cannot be held applicable to inter-State transactions. The question whether the appellant has any liability to pay purchase tax shall not be dealt with in the proceedings relating to which the notice was issued on July 8, 2001 and the reply was filed on July 11, 2001. It will be for the appellant to establish that the transaction in question was of inter-State character. The appellant shall be given opportunity to file further reply and place such materials as according to it are relevant before the concerned authority within four weeks from today.
Issues Involved:
1. Constitutional validity of section 8-E of the Uttar Pradesh Trade Tax Act, 1948. 2. Legislative competence of the State Government to provide for deduction of tax in respect of inter-State transactions. 3. Determination of the nature of the transaction (intra-State or inter-State). 4. Liability of the appellant to pay purchase tax. Detailed Analysis: 1. Constitutional Validity of Section 8-E: The appellant challenged the constitutional validity of section 8-E of the Uttar Pradesh Trade Tax Act, 1948, which was inserted by section 7 of the U.P. Act No. 11 of 2001. The High Court had upheld the validity by narrowing down the language of section 8-E to apply only to intra-State sales/purchases. However, the Supreme Court found this approach inappropriate, stating that the High Court should not have attempted to read down the provision to uphold its constitutionality. The Supreme Court emphasized that the principle of reading down cannot be used to distort the clear intention of the Legislature. 2. Legislative Competence for Inter-State Transactions: The appellant argued that the transactions were inter-State in nature, and thus, the State Legislature had no competence to mandate tax deduction at the time of purchase. The Supreme Court referenced its decisions in Steel Authority of India Ltd. v. State of Orissa and Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh, which clarified that the State Legislature cannot levy taxes on inter-State transactions. The High Court erred in questioning the correctness of these Supreme Court judgments and in attempting to narrow down the statutory language to sustain the provision's validity. 3. Determination of Transaction Nature: The Supreme Court directed that the factual determination of whether the transaction was intra-State or inter-State should be made by the concerned trade tax authority. The appellant's reply filed on July 11, 2001, should be examined to ascertain the nature of the transaction. If the transaction is found to be inter-State, section 8-E cannot be applied, following the precedents set in Steel Authority of India and Nathpa Jhakri cases. 4. Liability to Pay Purchase Tax: The High Court incorrectly addressed the appellant's liability to pay purchase tax in the context of determining the validity of section 8-E. The Supreme Court clarified that the liability to pay purchase tax was not relevant to the issue of the provision's validity. The appellant should be given an opportunity to establish the inter-State nature of the transaction and file further replies and materials relevant to the case. The concerned authority must then decide the issue in accordance with the law. Final Directions: 1. The respondent No. 3 must decide the nature of the transaction (intra-State or inter-State) based on the appellant's reply and further submissions. 2. The question of the appellant's liability to pay purchase tax should not be addressed in the proceedings related to the notice issued on July 8, 2001. 3. The appellant must establish that the transaction was of an inter-State character. 4. The appellant should be allowed to file additional replies and materials within four weeks. 5. The trade tax authority must decide the issue based on the submissions and in accordance with the law. The Supreme Court allowed the appeal to the extent mentioned, without any order as to costs, and reminded the Legislature that unnecessary litigations could be avoided by adhering to the principles established in previous judgments.
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