1955 (11) TMI 23 - HC - VAT and Sales Tax

Issues Involved:
1. Inclusion of tax collected under section 8-B of the Madras General Sales Tax Act in the assessable turnover.
2. Legislative competence to enact the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954.
3. Validity of retrospective application of the impugned Act.
4. Alleged violation of Article 14 of the Constitution.

Detailed Analysis:

1. Inclusion of Tax Collected Under Section 8-B in Assessable Turnover:
The assessee, a registered dealer, collected a sum of Rs. 46,456-12-6 by way of tax under section 8-B of the Madras General Sales Tax Act during the assessment year 1952-53. This amount was included in the assessable turnover by the taxing authorities and upheld by the Appellate Tribunal. The assessee contended that this sum should not be subject to sales tax. The court referenced a previous decision in Deputy Commissioner of Commercial Taxes v. Krishnaswami Mudaliar, which held that amounts collected by a dealer as sales tax and paid to the government should not be included in the dealer's turnover. However, the Madras Legislature subsequently passed the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954, which deemed such amounts as part of the turnover for sales made before April 1, 1954.

2. Legislative Competence to Enact the Impugned Act:
The petitioner argued that the impugned Act was ultra vires the legislature's competence. The court clarified that the legislative competence under Entry 54 of List II of the Seventh Schedule of the Constitution includes the power to levy taxes on the sale or purchase of goods. The court emphasized that the legislative competence is not limited by section 8-B of the Act. The court held that the legislature had the power to enact laws that include amounts collected by way of tax in the dealer's turnover and that the impugned Act was within this competence.

3. Validity of Retrospective Application of the Impugned Act:
The court noted that section 2 of the impugned Act deemed amounts collected by way of tax to be part of the turnover for a limited period before April 1, 1954. The court held that the legislature's use of the term "deemed" created a legal fiction for this period, which was within its competence. The court also upheld the validity of section 3 of the impugned Act, which validated assessments made under the principal Act as explained in Krishnaswami Mudaliar's case. The court referenced several cases, including United Provinces v. Atiqua Begum and Werrin v. The Commonwealth, to support the principle that the power to validate illegal assessments is incidental to the power to levy the tax.

4. Alleged Violation of Article 14 of the Constitution:
The petitioner contended that the impugned Act violated Article 14 of the Constitution by discriminating between assessments for periods before and after April 1, 1954. The court rejected this contention, stating that changes in the basis of taxation from time to time do not fall within the mischief of Article 14. The court held that the legislature's power to alter the basis of taxation does not result in discrimination or denial of equal protection of laws.

Conclusion:
The court concluded that the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954, was intra vires and valid. The petition challenging the validity of the Act was dismissed with costs, and the court affirmed the inclusion of the disputed amount in the assessee's turnover.

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