1955 (11) TMI 29 - HC - VAT and Sales Tax

Issues Involved:

1. Validity of the sales tax assessment on the sale of tea.
2. Constitutional validity of the newly incorporated section 2(g) of the Bihar Sales Tax Act by the amending Act (Bihar Act VI of 1949).

Detailed Analysis:

1. Validity of the Sales Tax Assessment on the Sale of Tea:

The assessee, an incorporated company, Debijhora Tea Co. Ltd., produced and processed tea in Bihar and sent it to their head office in Jalpaiguri for resale. The Sales Tax Authorities assessed the gross turnover and taxable turnover for the periods from 1st October 1948 to 31st March 1949 and from 1st April 1949 to 25th January 1950, resulting in sales tax assessments of Rs. 9,240 and Rs. 10,865-2-0 respectively. The assessee contended that the imposition of sales tax was illegal as no portion of the tea was sold within Bihar. However, the Board of Revenue rejected this contention, holding the imposition of sales tax legally valid.

2. Constitutional Validity of the Newly Incorporated Section 2(g) of the Bihar Sales Tax Act:

The core issue was whether the newly incorporated section 2(g) of the Bihar Sales Tax Act, as amended by Act VI of 1949, was constitutionally valid. The amended section 2(g) includes a legal fiction that deems the sale of goods produced or manufactured in Bihar to have taken place within Bihar, regardless of where the delivery or contract of sale is made. The assessee argued that this provision authorized the imposition of sales tax on "forward contracts," which was not legally valid. They referred to the Supreme Court decision in Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash, which held that the power to impose a tax on the sale of goods did not include the power to tax forward contracts.

The court, however, found this argument fallacious, stating that section 2(g) authorizes the imposition of tax only on completed transactions of sale, not on forward contracts. The legal fiction introduced by section 2(g) was deemed to create sufficient territorial nexus, allowing the Bihar Legislature to impose sales tax on goods produced or manufactured within the State, even if the sale occurred outside Bihar. The court emphasized that the legislative power under section 100(3) of the Government of India Act, read with item 48 of List II of the Seventh Schedule, allowed the Provincial Legislature to make laws for the Province, including taxing transactions with sufficient territorial nexus.

The court also referenced the judicial Committee's decision in Wallace Brothers and Company Limited v. Commissioner of Income-tax and the Supreme Court's decision in The State of Bombay v. The United Motors (India) Ltd., which supported the principle of territorial nexus for legislative jurisdiction. The court concluded that the production of tea in Bihar constituted a real and pertinent connection, justifying the imposition of sales tax by the Bihar Legislature.

Conclusion:

The High Court answered all the questions referred to it in favor of the State of Bihar and against the assessee. The court upheld the validity of the sales tax assessment on the sale of tea and the constitutional validity of the newly incorporated section 2(g) of the Bihar Sales Tax Act, as amended by Act VI of 1949. The court held that the Bihar Legislature had the jurisdiction to tax the sale of goods produced or manufactured within the State, even if the sale occurred outside Bihar, due to the sufficient territorial nexus. The State of Bihar was entitled to the costs of the reference, with a hearing fee of Rs. 250.

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