1951 (9) TMI 32 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxable turnover and deduction claim.
2. Interpretation of Explanation II to Section 2(g) of the Sales Tax Act.
3. Jurisdiction of the Board of Revenue to declare a provision ultra vires.
4. Nature of the tax: sales tax vs. excise duty.
5. Territorial jurisdiction and extra-territorial legislation.
6. Validity of dual taxation claims.

Issue-Wise Detailed Analysis:

1. Taxable Turnover and Deduction Claim:
The applicant-firm, a dealer in bidis with its head office in Mathura and a branch office in Sagar, contested the Sales Tax Commissioner's refusal to deduct Rs. 82,114-7-6 from the taxable turnover for the assessment period from 1st June 1947 to 12th November 1947. The firm argued that the sales were not effected within the Province, as the property in the goods remained with the firm until the railway receipt was accepted by the customer outside the Province.

2. Interpretation of Explanation II to Section 2(g) of the Sales Tax Act:
The Sales Tax Commissioner relied on Explanation II to Section 2(g) of the Act, which states that "the sale of any goods which are actually in the Central Provinces and Berar at the time when the contract of sale is made shall be deemed for the purpose of this Act to have taken place in the Central Provinces and Berar." The Commissioner held that, although the contract of sale and the transfer of property in the goods occurred outside the Province, the sale should be deemed to have taken place within the Province because the goods were in the Province when the contract of sale was made.

3. Jurisdiction of the Board of Revenue to Declare a Provision Ultra Vires:
The applicant's counsel argued that the Board of Revenue could entertain the question of whether Explanation II was ultra vires the Provincial Legislature. The Board agreed, referencing the Judicial Committee of the Privy Council's decision in Raleigh Investment Co., Ltd. v. Governor-General in Council, which allowed for the review of ultra vires claims within the framework of the Act itself.

4. Nature of the Tax: Sales Tax vs. Excise Duty:
The applicant contended that if the transfer of property in the goods took place outside the Province, the tax levied would not be on the transaction of sale but on the goods themselves, thus becoming a duty of excise. The Board, however, referenced several judgments, including those of the Federal Court and the Privy Council, to conclude that the tax in question was indeed a sales tax and not an excise duty. The Board emphasized that a sales tax is a tax on persons in respect of their transactions of sales of certain goods, distinct from an excise duty, which is a tax on persons in respect of the manufacture or production of goods.

5. Territorial Jurisdiction and Extra-Territorial Legislation:
The Board acknowledged the element of extra-territoriality in Explanation II but held that the Provincial Legislature did not exceed its jurisdiction in enacting it. The Board cited various judgments, including those of the Privy Council and the Federal Court, to support the view that a legislature could legislate extra-territorially if there was a sufficient connection with the territory.

6. Validity of Dual Taxation Claims:
The applicant raised a plea on grounds of equity, stating that taxes had been paid separately in other Provinces where the sales actually took place. The Board dismissed this plea, noting that no proof was provided and that even if true, it would not affect the validity of the Act's provisions. The Board referenced the Privy Council's decision in The Governor-General in Council v. The Province of Madras, which held that dual taxation on a single transaction of sale might be attacked on policy grounds but not legally under the Sales Tax Act.

Conclusion:
The Board upheld the Sales Tax Commissioner's decision, dismissing the application for revision. The Board concluded that Explanation II to Section 2(g) was not ultra vires the Provincial Legislature and that the tax imposed was a sales tax within the meaning of item 48 of List II of the Seventh Schedule to the Government of India Act, 1935. The application for revision was dismissed.