1956 (4) TMI 46 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inter-State Sales Exemption under Article 286(2) of the Constitution.
2. Taxation of Cotton Purchases from Volkart Brothers.
3. Inclusion of Sales Tax Collections in Assessable Turnover.

Detailed Analysis:

1. Inter-State Sales Exemption under Article 286(2) of the Constitution:
The petitioner, Mettur Industries Ltd., claimed exemption on a sum of Rs. 23,66,029, arguing it arose from inter-State sales under Article 286(2) of the Constitution. The Tribunal allowed this exemption, and it was no longer in dispute before the High Court.

2. Taxation of Cotton Purchases from Volkart Brothers:
The primary issue in controversy was the turnover of Rs. 19,41,362, representing the value of cotton purchased by the mills from Volkart Brothers. Under Section 3(1) of the Madras General Sales Tax Act, every dealer must pay tax on their total turnover, with Section 5(ii) specifying that tax on cotton sales is levied at a single point in the series of sales by successive dealers, as prescribed by rule 4(2)(b) and rule 4A. The tax was levied at the purchase point for the spinning mill.

The petitioner contended that these were inter-State sales, exempt from taxation as per the Supreme Court's interpretation in the Bengal Immunity case. However, the Sales Tax Laws Validation Ordinance, III of 1956, validated the levy of taxes on inter-State trade or commerce for the period between April 1, 1951, and September 6, 1955. The High Court examined whether this Ordinance validated the tax levy under the Madras General Sales Tax Act. Section 2 of the Ordinance validated both the law and the collection of the tax, provided a law existed imposing or authorizing such a tax.

The High Court analyzed the Madras General Sales Tax Act's provisions and concluded that the tax on the purchase of goods was valid under the Act, despite the inter-State nature of the transactions. The Court noted that the introduction of Section 22 into the Act by the Adaptation of Laws (Fourth Amendment) Order, 1952, aligned the Act with Article 286 of the Constitution, exempting inter-State sales from tax unless Parliament provided otherwise. The Ordinance lifted the ban imposed by Article 286(2), validating the tax on inter-State sales during the specified period.

3. Inclusion of Sales Tax Collections in Assessable Turnover:
The third issue involved Rs. 2,24,517, representing sales tax collections included in the assessable turnover. This inclusion was validated by Madras Act VII of 1954. The Tribunal disallowed the inclusion, and due to the validating enactment, this issue was not contested before the High Court.

Conclusion:
The High Court dismissed the revision petition, upholding the Tribunal's order. The Court validated the tax on the purchase of cotton from Volkart Brothers, as the transactions fell within the scope of the Sales Tax Laws Validation Ordinance, III of 1956. The Court found no merit in the petitioner's objections regarding the inter-State nature of the sales, given the Ordinance's provisions. The inclusion of sales tax collections in the assessable turnover was not contested due to the validating enactment. The petition was dismissed without any order as to costs.