1954 (11) TMI 34 - HC - VAT and Sales Tax

Issues Involved:
1. Legitimacy of the assessment of sales tax on building materials used in execution of building contracts.
2. Whether associations can move for a writ.
3. Validity of the notification withdrawing exemption of sales to government.
4. Arbitrary fixation of material prices for tax purposes.
5. Legislative competence under Entry No. 48 to tax building materials.

Detailed Analysis:

1. Legitimacy of the assessment of sales tax on building materials used in execution of building contracts:

The petitioners challenged the assessment of sales tax on building materials used in execution of building contracts, arguing that there was no transfer of property in the materials as such, they are not goods in the strict sense, and there is no sale for a price. They contended that the materials form part of immovable property before payment is made. The court examined the definitions in the Central Provinces and Berar Sales Tax Act, 1947, and concluded that the supply of goods is tantamount to the sale thereof. The definitions of "contract," "dealer," "goods," "sale," and "turnover" were within the powers of the Provincial Legislature, and the tax levied on the sale of building materials as part of a building contract was legal.

2. Whether associations can move for a writ:

The respondents contended that an association cannot move for a writ. However, the court found that the existence of remedies under the impugned Act did not prevent the issue of a writ to the Sales Tax Authorities when certain provisions of the Act were found to be ultra vires. The court referred to the case of Himmatlal v. State of Madhya Pradesh and concluded that a writ could be issued if the petitioners successfully establish that the impost is illegal.

3. Validity of the notification withdrawing exemption of sales to government:

The petitioners argued that the exemption of sales to government was withdrawn by a mere notification, which amounted to legislation by the State Government and was ultra vires. The court examined the provisions of the Act and found that the power to amend the schedule by withdrawing the exemption flowed from sections 6 and 7 of the Act. The amendment of the schedule had the prior authority of the Legislature, and the State Government did not exceed its powers in issuing the notification.

4. Arbitrary fixation of material prices for tax purposes:

The petitioners contended that the fixation of the price of the materials sought to be taxed under the Act was arbitrary. The court found that the artificial determination of the price of goods by a rule of thumb applicable in any particular area on the basis of the Commissioner's will was not within the power granted to the Legislature. The definition of "sale price" in section 2(h)(ii) and rule 4 of the Sales Tax Rules, 1947, were declared ultra vires as they involved taxation on an artificial basis having no relevance to the price of the goods sold or supplied by a builder.

5. Legislative competence under Entry No. 48 to tax building materials:

The petitioners argued that the Legislature's power under Entry No. 48-taxes on the sale of goods-did not comprehend the supply of building materials. The court referred to the Supreme Court rulings in Sales Tax Officer v. Budh Prakash Jai Prakash and Gannon Dunkerley & Co. v. State of Madras, which discussed the interpretation of the entry. The court held that the Provincial Legislature was competent to sever from a complex transaction any sale involved in it and to tax such sale. The supply of goods was considered equivalent to the sale thereof, and the extended definitions in the Act were within the legislative competence.

Conclusion:

The court held that the definition of "sale price" in section 2(h)(ii) of the Central Provinces and Berar Sales Tax Act, 1947, and rule 4 of the Sales Tax Rules, 1947, were beyond the powers of the Legislature as they involved taxation on an artificial basis. The other impugned provisions were found to be in order. The demand for sales tax based on pre-determined proportions was to cease, and writs of mandamus nisi were made absolute against the respondents. The respondents were ordered to pay the costs of the petitioners.

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