1954 (4) TMI 32 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of Article 286 of the Constitution in relation to sales tax liability on inter-State sales of matches by manufacturers and dealers in the State of Madras after the Constitution of India came into force in 1950.

Analysis:
The judgment by the Madras High Court dealt with two petitions concerning the liability of manufacturers and dealers in matches in the State of Madras for sales tax on inter-State sales after the Constitution of India came into force in 1950. The assessees claimed a rebate under Section 7 of the Madras General Sales Tax Act, contending that the sales were not subject to tax in Madras under the Act. The central issue was whether the turnover from these sales was liable to sales tax under the Madras Act, particularly in light of Article 286 of the Constitution. Article 286(1)(a) prohibited States from imposing tax on sales outside the State, with an Explanation defining the circumstances for a sale to be deemed to have taken place within a State. The President's Order under Article 286(2) allowed States to tax inter-State sales until March 31, 1951.

The court determined that the turnover in question constituted inter-State trade under Article 286(2) and was therefore subject to sales tax under the Madras Act. The assessees argued that the sales fell within the Explanation to Article 286(1)(a), contending that the goods were delivered for consumption in States outside Madras. However, the court found that the necessary proof to support this claim was lacking, as the assessees failed to establish that the goods were delivered for consumption in other States. The court declined to remand the case for further inquiry on this point, citing precedents that discussed the inter-State character of sales under Article 286(1)(a).

Additionally, the court highlighted that the Madras General Sales Tax Act was adapted in accordance with Article 286 after the Constitution came into force, with Section 22 mirroring the language and provisions of Article 286. The court concluded that neither the bans imposed by Article 286(1)(a) nor Article 286(2), nor the provisions of Section 22 of the Madras General Sales Tax Act, applied to the levy of sales tax on the disputed turnover. Consequently, the court dismissed the petitions and ordered costs to be paid by the assessees.