1955 (4) TMI 32 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of sales tax assessment for the pre-Constitution period.
2. Validity of sales tax assessment for the post-Constitution period.
3. Applicability of the Orissa Sales Tax Act, 1947, in the merged feudatory state of Pallahara.
4. Interpretation and application of Article 286 of the Constitution.

Detailed Analysis:

1. Validity of Sales Tax Assessment for the Pre-Constitution Period:
The Orissa Sales Tax Act, 1947, was applied to the former Orissa States, including Pallahara, by Notification No. 20306/States dated 14th December, 1948. However, the sections dealing with the liability of a dealer to pay sales tax came into force in Pallahara only on 1st March, 1949, by a subsequent notification (No. 2267-F dated 1st March, 1949). The charging section of the Act, Section 4, required a notification for its commencement, and the relevant notification (No. 2269-F dated 1st March, 1949) fixed 31st March, 1949, as the date from which dealers would be liable to pay tax. This notification was found to be defective as it incorrectly referred to the year ending 31st March, 1949, as the year immediately preceding the commencement of the Act, instead of the correct period from 1st April, 1947, to 31st March, 1948. Consequently, the notification was deemed ultra vires and invalid, and the petitioner could not be held liable for sales tax for the quarters ending 30th September, 1949, and 31st December, 1949.

2. Validity of Sales Tax Assessment for the Post-Constitution Period:
Post-Constitution, the Orissa Sales Tax Act, 1947, was amended to conform to Article 286 of the Constitution. Article 286(1) prohibited a State from taxing sales unless the sale took place within the State, and Article 286(2) restricted the power to tax sales in the course of inter-State trade or commerce. The Supreme Court's interpretation in State of Bombay v. United Motors (India) Ltd. clarified that if goods are delivered for consumption in a particular State, only that State can tax the sale. In this case, the sales involved inter-State elements with goods delivered for consumption outside Orissa. Therefore, under Article 286(1), the State of Orissa was not competent to tax such transactions, rendering the assessment for the post-Constitution period invalid.

3. Applicability of the Orissa Sales Tax Act, 1947, in the Merged Feudatory State of Pallahara:
The Orissa Sales Tax Act, 1947, was applied to the former Orissa States by the Government of Orissa under the Extra Provincial Jurisdiction Act. The commencement of the Act in Pallahara was determined to be 1st March, 1949. The Act's provisions required a notification for the liability to pay sales tax to become effective, which was issued on 1st March, 1949, but was found to be defective. Consequently, the petitioner was not liable for sales tax for transactions from 1st April, 1949, to 31st March, 1950, due to the invalid notification under Section 4(1) of the Act.

4. Interpretation and Application of Article 286 of the Constitution:
Article 286 of the Constitution imposed restrictions on the power of States to levy sales tax on inter-State transactions. The Supreme Court's interpretation in relevant cases established that only the State where goods are delivered for consumption can tax the sale. The petitioner's sales involved inter-State elements with delivery and consumption outside Orissa, making the State of Orissa incompetent to tax these transactions under Article 286(1). The President's Order under Article 286(2) did not apply as the transactions were covered by Article 286(1).

Conclusion:
The court held that the sales tax assessment for the entire period was invalid due to the defective notification for the pre-Constitution period and the constitutional restrictions for the post-Constitution period. The petition was allowed, and the assessment order was canceled, with costs awarded to the petitioner.