1955 (3) TMI 15 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of tax assessments under the Madras General Sales Tax Act for sales made after 26th January 1950 and before 31st March 1951.
2. Interpretation of Article 286 of the Constitution, specifically clauses (1)(a) and (2), and the Explanation to clause (1)(a).
3. Applicability of the President's Order under the proviso to Article 286(2).

Issue-wise Detailed Analysis:

1. Validity of Tax Assessments under the Madras General Sales Tax Act:
The petitioners, merchants dealing in coconuts, were assessed to tax under the Madras General Sales Tax Act for the assessment years 1949-50 and 1950-51. They contested the tax levy on sales made after 26th January 1950, arguing it was illegal under Article 286(1) of the Constitution. The initial hearing before Chandra Reddy and Umamaheswaram, JJ., resulted in differing opinions. Chandra Reddy, J., upheld the assessments under the proviso to Article 286(2) and the President's Order, while Umamaheswaram, J., believed the assessments were illegal if the facts warranted the application of the Explanation to Article 286(1)(a). This disagreement led to the cases being referred to a Full Bench.

2. Interpretation of Article 286 of the Constitution:
The core issue was the interpretation of Article 286, particularly clauses (1)(a) and (2), and the Explanation to clause (1)(a). The Constitution aims to limit the taxing power of States to prevent multiple taxations on inter-State transactions. Article 286(1)(a) prohibits States from taxing sales or purchases outside the State, with the Explanation deeming a sale to occur in the State where goods are delivered for consumption. Article 286(2) restricts States from taxing inter-State trade or commerce, except as provided by Parliament or the President's Order.

The Supreme Court's decision in State of Bombay v. United Motors (India) Ltd. clarified that Article 286(1)(a) read with the Explanation prohibits taxation by all States except the State where goods are delivered for consumption. This interpretation was reaffirmed despite arguments that the Supreme Court's later decision in State of Travancore-Cochin v. Shanmugha Vilas Cashew-Nut Factory might suggest otherwise. The Court concluded that the earlier decision in United Motors remained authoritative.

3. Applicability of the President's Order under the Proviso to Article 286(2):
The President's Order under the proviso to Article 286(2) allowed the continuation of tax levies that were lawful before the Constitution's commencement until 31st March 1951. The petitioners argued that their sales were inter-State transactions and should be exempt under Article 286(1)(a) and its Explanation. The Court held that if the petitioners could prove the sales met the Explanation's criteria, they would be exempt from tax. Otherwise, the sales would be taxable under Article 286(2) and the President's Order.

The Court remitted the petitions to the Appellate Tribunal for further evidence on whether the sales fell within the Explanation to Article 286(1)(a). If proven, the sales would be exempt; otherwise, they would be taxable under the Madras General Sales Tax Act, saved by the President's Order.

Conclusion:
The Court concluded that the interpretation of Article 286, as elucidated by the Supreme Court in United Motors, remained authoritative. The petitioners were given an opportunity to present evidence to determine the applicability of the Explanation to Article 286(1)(a). The cases were remitted to the Appellate Tribunal for this purpose, with no order as to costs.