1954 (12) TMI 16 - HC - VAT and Sales Tax

Issues Involved:
1. Reconsideration of the decision in State of Madras v. Rallis (India) Ltd.
2. Levy of sales tax under the Madras General Sales Tax Act on transactions in untanned hides and skins.
3. Interpretation of Article 286(1)(b) of the Constitution.
4. Validity of the tax on the purchase of untanned hides and skins by licensed dealers.
5. Discrimination under Article 14 of the Constitution.

Detailed Analysis:

1. Reconsideration of the decision in State of Madras v. Rallis (India) Ltd.:
The main issue before the Full Bench was whether the decision in State of Madras v. Rallis (India) Ltd. required reconsideration. The previous decision held that the tax levied on the purchase price of untanned hides and skins, calculated as per Rule 16(2)(ii), was exempt under Article 286(1)(b) of the Constitution. The reasoning was that the taxable event was the sale for export outside the State, not the purchase by the licensed dealer with a view to export. The Full Bench was tasked with determining if this interpretation was correct.

2. Levy of sales tax under the Madras General Sales Tax Act on transactions in untanned hides and skins:
The Madras General Sales Tax Act and the associated rules prescribe that every dealer must pay a tax on their total turnover, with specific provisions for hides and skins. Rule 16(2) specifies that the tax on untanned hides and skins should be levied at the stage when they are sold to a tanner in the State or sold for export outside the State. The tax is calculated based on the amount for which the goods were bought by the dealer. The Full Bench examined whether this levy was consistent with the constitutional provisions.

3. Interpretation of Article 286(1)(b) of the Constitution:
Article 286(1)(b) prohibits the imposition of a tax on the sale or purchase of goods when such sale or purchase takes place in the course of the import of goods into, or export of goods out of, the territory of India. The Full Bench had to determine whether the tax on the purchase of untanned hides and skins by licensed dealers, which were subsequently exported, contravened this constitutional provision. The court referred to the Supreme Court's interpretation in the Travancore cases, which clarified that only sales or purchases that occasion the export or import of goods fall within the exemption under Article 286(1)(b).

4. Validity of the tax on the purchase of untanned hides and skins by licensed dealers:
The Full Bench concluded that the tax on the purchase of untanned hides and skins by licensed dealers, even if the goods were subsequently exported, did not violate Article 286(1)(b). The court reasoned that the taxable event was the purchase, not the export. The fact that the goods were exported was merely a condition for determining the taxable event but did not make the purchase itself a transaction in the course of export. This interpretation was consistent with the Supreme Court's rulings in the Travancore cases.

5. Discrimination under Article 14 of the Constitution:
The petitioners argued that the imposition of sales tax on licensed dealers under Rule 16(2)(ii) was discriminatory, as unlicensed dealers could escape taxation due to Article 286(1)(b). The Full Bench rejected this contention, stating that the classification of merchants into licensed and unlicensed dealers was based on a rational basis and did not constitute discrimination. The court observed that the scheme of assessment under the Madras General Sales Tax Act inherently differentiated between licensed and unlicensed dealers but did not result in unconstitutional discrimination.

Conclusion:
The Full Bench overruled the decision in State of Madras v. Rallis (India) Ltd., holding that the tax on the purchase of untanned hides and skins by licensed dealers, even if the goods were subsequently exported, was valid and did not contravene Article 286(1)(b) of the Constitution. The court also found no violation of Article 14, upholding the rational basis for differentiating between licensed and unlicensed dealers. The case was directed to be posted before the Bench dealing with Tax Revision Cases for further proceedings.

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