1956 (4) TMI 32 - HC - VAT and Sales Tax

Summary

Issues:
1. Inclusion of sales tax in the taxable turnover for a specific period.
2. Validity of Bihar Sales Tax (Amendment) Act, 1948, with retrospective effect.
3. Authorization of levy of sales tax on goods manufactured in Bihar, regardless of sale location.

Analysis:

Issue 1: Inclusion of sales tax in the taxable turnover
The High Court considered whether the sales tax collected from customers should be included in the taxable turnover of the assessee for the period from October 1, 1948, to March 31, 1949. The Court referred to a previous decision in the case of Messrs Tata Iron and Steel Co. Ltd. v. State of Bihar, where it was held that post the enactment of Bihar Act VI of 1949 and the introduction of section 14A, it was not legally permissible for the Sales Tax Authorities to treat sales tax as part of the taxable turnover. The Court, in line with the precedent, ruled that the inclusion of sales tax in the assessee's turnover for the mentioned period was not legal or valid, thereby ruling in favor of the assessee.

Issue 2: Validity of Bihar Sales Tax (Amendment) Act, 1948
The Court examined the constitutionality of the Bihar Sales Tax (Amendment) Act, 1948, which provided for a retrospective increase in the tax rate from October 1, 1948. Citing the Tata Iron and Steel Co. Ltd. case, the Court affirmed that the Bihar Legislature had the authority to enact fiscal legislation retrospectively and that such provisions were constitutionally valid. Consequently, the Court held that the Act giving retrospective effect to the enhanced tax rate was validly enacted, ruling in favor of the State.

Issue 3: Authorization of levy of sales tax on goods manufactured in Bihar
The Court deliberated on whether the amendment allowing the levy of sales tax on goods manufactured in Bihar, irrespective of the sale location, was legally valid and within the Bihar Legislature's competence. Relying on the Tata Iron and Steel Co. Ltd. case, the Court concluded that the Bihar Legislature had the constitutional authority to impose tax based on the territorial nexus created by the goods being manufactured in Bihar. Therefore, the Court held that the amendment authorizing the levy of sales tax on goods manufactured in Bihar was constitutionally valid, ruling in favor of the State.

In conclusion, as the State succeeded on two out of three questions, the Court directed the assessee to bear the costs of the reference and awarded a hearing fee of Rs. 250. The reference was answered accordingly, affirming the validity of the Bihar Sales Tax (Amendment) Act, 1948, and the authorization of sales tax levy on goods manufactured in Bihar.