1952 (2) TMI 17 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence of the U.P. Legislature to include forward contracts in the definition of "sale."
2. Ultra vires nature of the U.P. Legislature's provisions relating to sales with delivery outside the U.P.
3. Inconsistency of Section 2(h) read with Explanation III with Article 286 of the Constitution.
4. Adequacy of alternative remedies available to the applicant.

Detailed Analysis:

1. Legislative Competence of the U.P. Legislature to Include Forward Contracts in the Definition of "Sale":
The applicant argued that the inclusion of forward contracts in the definition of "sale" under Section 2(h) of the U.P. Sales Tax Act was beyond the legislative competence of the U.P. Legislature. The court examined the definition of "sale of goods" under Section 4 of the Indian Sale of Goods Act, which distinguishes between a "sale" and "an agreement to sell." The court noted that forward contracts are agreements to sell where the transfer of property in goods is to take place at a future time or subject to some condition. The court held that the British Parliament's intention in entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935, was to tax actual sales of goods, not agreements to sell. Therefore, Explanation III of Section 2(h), which deemed forward contracts as sales even without actual delivery, was invalid. The court concluded that the U.P. Legislature could not enlarge the definition of "sale" to include forward contracts without actual delivery.

2. Ultra Vires Nature of the U.P. Legislature's Provisions Relating to Sales with Delivery Outside the U.P.:
The applicant contended that the provisions of the U.P. Sales Tax Act relating to the taxation of sales with delivery outside the U.P. were ultra vires. The court noted that the U.P. Legislature's power to tax sales of goods was confined to transactions within the province. Explanation II of Section 2(h) of the Act, which deemed sales of goods produced or manufactured in the U.P. as having taken place within the U.P. regardless of the place of delivery, was beyond the legislative competence of the U.P. Legislature. The court held that the U.P. Legislature could not tax sales where the delivery occurred outside the province, as it contravened the territorial limits of the legislative power.

3. Inconsistency of Section 2(h) Read with Explanation III with Article 286 of the Constitution:
The applicant argued that Section 2(h) read with Explanation III was inconsistent with Article 286 of the Constitution, which prohibits the imposition of tax on sales or purchases of goods where the sale or purchase takes place outside the State. The court, having already determined that Explanation III was invalid, did not find it necessary to address this argument in detail. However, the court implied that any provision taxing forward contracts without actual delivery would be inconsistent with Article 286.

4. Adequacy of Alternative Remedies Available to the Applicant:
The opposite party contended that the application should be rejected as the applicant had an equally speedy and efficacious remedy by way of appeal under the U.P. Sales Tax Act. The court examined the machinery provided by the Act for assessment, appeal, and revision. The court noted that while the Act provided a complete machinery for ascertaining a binding opinion of the High Court on questions of law, it was undesirable to encourage litigants to approach the High Court directly when a proper statutory mechanism existed. However, the court acknowledged that the appellate and revising authorities might feel embarrassed in dealing with constitutional questions. Therefore, the court decided to intervene to avoid multiplicity of proceedings and inconvenience to the parties.

Conclusion:
The court issued an order in the nature of certiorari quashing the assessment orders dated 27th February 1950 and 23rd May 1950, and the provisional assessment order dated 30th January 1950. The court also directed a writ in the nature of prohibition to refrain from proceeding further with the assessment of forward contracts of guar and peas. The court held that Explanation III of Section 2(h) of the U.P. Sales Tax Act was invalid as it sought to tax forward contracts without actual delivery, which was beyond the legislative competence of the U.P. Legislature. The court did not find it necessary to address the other two questions raised by the applicant.

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