1951 (12) TMI 7 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to sales tax demand under Notification dated 8th November, 1950.

Analysis:
The petitioner entered into contracts with the Government of India to supply hessian cloth, with prices exclusive of sales tax. The Commercial Tax Officer demanded sales tax from the petitioner under Notification No. 6767 dated 8th November, 1950, amounting to Rs. 9,401-10-6. The petitioner challenged this demand as illegal, seeking relief through Article 226 of the Constitution.

The Sales Tax Act, Section 5(2)(iii), defines "taxable turnover" and provides an exemption for sales to specific government departments. The petitioner claimed exemption under this provision for supplies to the Department of Supply. An affidavit affirmed by a Joint Secretary in the Ministry of Works, Production, and Supply supported this claim, detailing the historical evolution of the relevant government departments.

The respondents argued that the Indian Stores Department and the Supply Department had merged into the Department of Industries and Supplies, rendering the exemption under Section 5(2)(iii) unavailable to the petitioner. Despite a subsequent amendment by West Bengal Act X of 1949 withdrawing the exemption, the supplies in question predated this amendment, maintaining the petitioner's entitlement to the exemption.

The court held that the petitioner could not be deprived of the exemption merely due to a change in departmental designations and functions. Notably, although the newly created department assumed the functions of the previous departments, there was no corresponding amendment to Section 5(2)(iii). Consequently, the court ruled in favor of the petitioner, canceling the Notification dated 8th November, 1950, and directing the respondents to refrain from enforcing it. The West Bengal Government was ordered to pay costs, divided between the petitioner and the Union of India.