1955 (2) TMI 6 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of assessment order and demand notice under Article 226 of the Constitution.
2. Interpretation of rule 20A of the Central Provinces and Berar Sales Tax Rules, 1947.
3. Competency of the petition under the Act.
4. Tax levy on purchase versus sales under the Act.
5. Legality of rule 20A in relation to the Act.
6. Applicability of tax recovery from purchaser under the Act.

Detailed Analysis:
1. The petitioner challenged an assessment order and demand notice issued by the Assistant Sales Tax Officer, claiming sales tax on the purchase of dye-stuff for his dyeing factory. The petitioner argued that the demands were illegal and that rule 20A exceeded the State Government's rule-making powers under the Act. The petitioner contended that the levy of tax on purchases was contrary to the Act's intention to tax sales, invoking Article 265 of the Constitution for relief through a writ petition under Article 226.

2. The Sales Tax Officer applied rule 20A to include the purchase amount of dye-stuff in the petitioner's turnover for tax assessment. The petitioner argued that rule 20A was ultra vires as it imposed tax on purchases instead of sales, contrary to the Act's provisions. The court examined the definition of turnover and sale price under the Act, emphasizing that the tax was intended to be levied on goods sold, not purchased. The court found that rule 20A deviated from the Act's scheme and was beyond the State Government's rule-making authority.

3. The State contended that the petition was not competent as the Act provided adequate remedies that were not exhausted. However, the court held that if any part of the Act or rules was found illegal, a writ could be issued to prevent its enforcement. The court rejected the preliminary objection, emphasizing that the dispute centered on the validity of rule 20A and its compatibility with the Act.

4. The petitioner argued that taxing the purchaser for goods purchased, rather than the seller, amounted to a purchase tax not authorized by the Act. The court analyzed the tax incidence under the Act, highlighting that the tax liability should fall on the seller based on turnover from sales. Imposing tax on the purchaser for misuse of declaration was deemed beyond the State Government's rule-making powers.

5. The court concluded that rule 20A was ultra vires the State Government, as it altered the tax liability from the seller to the purchaser, contrary to the Act's provisions. A writ of mandamus was issued to prohibit the respondents from applying the rule against the petitioner. The court noted that a modified version of rule 20A had been incorporated into the Act subsequently.

6. Ultimately, the petition was allowed, and the petitioner was granted a writ of mandamus, costs of the petition, and a refund of the security deposit. The court upheld the petitioner's challenge against the assessment order and demand notice, emphasizing the illegality of rule 20A in taxing the purchaser instead of the seller under the Act.