1955 (10) TMI 21 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of the Bihar Sales Tax Act, 1947, as amended in 1948.
2. Constitutionality of section 2(g) of the Bihar Sales Tax Act, 1947.
3. Inclusion of sales tax in the taxable turnover.
4. Legal extension of the Bihar Sales Tax (Amendment) Act of 1948 to Chotanagpur.
5. Legality of levy and collection of sales taxes for periods prior to January 26, 1950, under the Sales Tax Act.
6. Applicability of the Constitution to appeals decided after January 26, 1950, for taxes levied for periods before this date.

Detailed Analysis:

1. Constitutionality of the Bihar Sales Tax Act, 1947, as amended in 1948:
The court examined whether the Bihar Sales Tax Act, 1947, as amended in 1948, was ultra vires the Provincial Legislature. The argument was that the Act imposed a tax on transactions of sale concluded outside Bihar, which was beyond the legislative power of the Province. The court held that the power of the Provincial Legislature to impose sales tax is granted by section 100(3) of the Government of India Act read with item 48 of List II of the Seventh Schedule. The court emphasized that it is sufficient if there is some territorial nexus between the taxing authority and the transaction sought to be taxed. The manufacture of goods in Bihar constituted a sufficient territorial nexus, thereby validating the legislative authority of the Provincial Legislature to impose the tax.

2. Constitutionality of section 2(g) of the Bihar Sales Tax Act, 1947:
The court held that section 2(g) of the Bihar Sales Tax Act, which defines 'sale' to include transactions where goods are manufactured in Bihar, was constitutionally valid. The court rejected the argument that the passing of title outside Bihar invalidated the tax. It emphasized that the location of goods (situs) and the manufacture or production of goods within Bihar provided a sufficient territorial nexus to justify the imposition of sales tax by the Provincial Legislature.

3. Inclusion of sales tax in the taxable turnover:
The court examined whether the amount of sales tax collected from customers should be included in the taxable turnover of the assessee. The court held that the amount collected by the registered dealer from the customers as sales tax and paid over to the Government cannot be treated as part of the purchase price under section 2(h) and does not constitute part of the taxable turnover. The court referred to the statutory provisions, including section 14A, which allows registered dealers to collect sales tax from consumers. The court concluded that the Sales Tax Authorities were not legally entitled to include sales tax in the taxable turnover of the assessee.

4. Legal extension of the Bihar Sales Tax (Amendment) Act of 1948 to Chotanagpur:
The court noted that the Attorney-General conceded no merit in this question and did not argue against the legal extension of the Amendment Act to Chotanagpur. Consequently, the court answered this question against the assessee and in favor of the State of Bihar.

5. Legality of levy and collection of sales taxes for periods prior to January 26, 1950:
The court addressed whether the levy and collection of sales taxes for periods prior to January 26, 1950, were rendered illegal by the provisions of the Constitution. The court held that the Articles of the Constitution are not retrospective and do not affect transactions that are past and closed or liabilities that have already accrued. The liability to pay sales tax was imposed before the Constitution came into force, and the assessment orders were made before this date. Therefore, the assessments were legally valid.

6. Applicability of the Constitution to appeals decided after January 26, 1950:
The court examined whether the Commissioner, who passed orders in appeal after the Constitution came into force, was bound to decide the appeal according to the provisions of the Constitution for taxes levied for periods prior to January 26, 1950. The court held that the liability to pay sales tax does not depend on the assessment but arises from the charging sections of the Act. The Constitution does not have retrospective force, and the assessments made before its promulgation remain valid. Therefore, the Commissioner was not bound to decide the appeal according to Article 286 of the Constitution.

Conclusion:
The court answered the first two questions against the assessee, validating the constitutionality of the Bihar Sales Tax Act and section 2(g). The third question was answered in favor of the assessee, excluding sales tax from the taxable turnover. The fourth question was answered against the assessee, affirming the legal extension of the Amendment Act to Chotanagpur. The fifth and sixth questions were answered against the assessee, upholding the legality of pre-Constitution sales tax assessments and the applicability of the pre-Constitution law to appeals decided post-Constitution. The assessee was directed to pay the costs of the reference.

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