1956 (2) TMI 49 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the assessment orders under the Orissa Sales Tax Act, 1947.
2. Applicability of Article 286 of the Constitution of India.
3. Interpretation of inter-State trade or commerce under Article 286(2).

Issue-Wise Detailed Analysis:

1. Validity of the assessment orders under the Orissa Sales Tax Act, 1947:

The petitions were filed under Article 226 of the Constitution of India to quash the assessment orders under the Orissa Sales Tax Act, 1947. The petitioner, a registered dealer, purchased goods with the undertaking to resell them within Orissa, thus availing tax exemption under section 5(2)(a)(ii) of the Act. However, the petitioner sold the goods outside Orissa, breaching the undertaking. Consequently, the Department included the sale prices of such goods in the taxable turnover of the petitioner, relying on the proviso to section 5(2)(a)(ii). The proviso states that if goods are used for purposes other than those specified in the certificate of registration, the price of such goods shall be included in the taxable turnover.

2. Applicability of Article 286 of the Constitution of India:

The petitioner argued that the assessment orders contravened Article 286(1)(a) of the Constitution, which prohibits state laws from imposing taxes on sales or purchases occurring outside the state. The petitioner cited a Supreme Court decision in Mohanlal Hargovind Das v. State of Madhya Pradesh, where similar transactions were exempted from tax as they were in the course of inter-State trade or commerce under Article 286(2). However, the court found that the Supreme Court's decision was not applicable, as the transactions in the present case were not inter-State trade or commerce. The court referred to a previous decision (K.S.E. Ahmed Mohinuddin v. Sales Tax Officer, Ganjam) which held that the basis for taxation was the initial sale within Orissa, not the subsequent sale outside Orissa. The exemption was conditional, and upon breach, the sale prices were rightly included in the taxable turnover.

3. Interpretation of inter-State trade or commerce under Article 286(2):

The petitioner in O.J.C. 241/54 argued that the transactions were in the course of inter-State trade or commerce and thus exempt under Article 286(2). However, the court found insufficient evidence to support this claim. The court emphasized that for transactions to qualify as inter-State trade or commerce, there must be a connected relation and movement of goods across state borders as part of an integrated activity. The mere fact that the goods were sold outside Orissa did not suffice. The court cited the Supreme Court's explanation in State of Travancore-Cochin v. S.V.C. Factory, which defined "in the course of" as implying a connected relation and movement from one point to another. Since there was no indication that the petitioner had contracted to sell the goods outside Orissa at the time of purchase, the transactions did not qualify as inter-State trade or commerce.

Conclusion:

Both petitions were dismissed with costs, as the court held that the assessment orders were valid and in accordance with the law. The petitioner failed to prove that the transactions were in the course of inter-State trade or commerce, and the conditional exemption under section 5(2)(a)(ii) was rightly revoked upon breach of the undertaking. The court assessed hearing fees at Rs. 100 for each petition.