1956 (9) TMI 44 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the transactions and their inter-State character.
2. Applicability of Article 286 of the Constitution.
3. Interpretation of Section 26 of the Travancore-Cochin General Sales Tax Act, 1125.
4. Validity of the Sales Tax Laws Validation Act, 1956.
5. Reconsideration of previous court decisions.

Detailed Analysis:

1. Nature of the transactions and their inter-State character:
The petitioner, Cochin Coal Company Limited, purchases coal from Calcutta and transports it to Cochin. The coal is then sold to steamers berthed in Travancore-Cochin waters for consumption on the high seas. The court analyzed the sequence of transactions, including the issuance of delivery orders, shipping bills, and export permits, and concluded that the goods moved from Candle Island in Madras to the ships in Travancore-Cochin waters under a contract of sale. The property in the goods passed in Travancore-Cochin waters when delivered into the ships' bunkers, rendering the transactions inter-State in nature under Article 286(2) of the Constitution.

2. Applicability of Article 286 of the Constitution:
Article 286(1) prohibits a State from imposing a tax on sales or purchases outside the State or in the course of import/export. The explanation to Article 286(1)(a) deems a sale to take place in the State where goods are delivered for consumption. Article 286(2) bans State taxation on inter-State trade or commerce unless Parliament provides otherwise. The court referenced the Bengal Immunity case, which emphasized that bans under Article 286 are independent and must all be overcome for a State to impose tax. The transactions in question were deemed inter-State, thus falling under the ban of Article 286(2).

3. Interpretation of Section 26 of the Travancore-Cochin General Sales Tax Act, 1125:
Section 26 aligns with Article 286, prohibiting State tax on sales outside the State or in inter-State trade. The court found that the Travancore-Cochin General Sales Tax Act did not authorize tax on inter-State transactions post the insertion of Section 26. Consequently, the Act could not impose tax on the petitioner's transactions.

4. Validity of the Sales Tax Laws Validation Act, 1956:
The Sales Tax Laws Validation Act, 1956, aimed to validate State taxes on inter-State sales retrospectively. However, the court held that this Act did not apply to Travancore-Cochin due to Section 26 of its General Sales Tax Act, which already prohibited such taxes. Thus, the Validation Act could not validate the imposition of tax on the petitioner's transactions.

5. Reconsideration of previous court decisions:
The petitioner argued for reconsideration of decisions in K.J. Mathew v. Sales Tax Officer and Kunju Moideen Kunju v. State of Travancore-Cochin, advocating the views in Tata Iron and Steel Co. v. State of Madras and other cases. The court, however, upheld its previous rulings, stating that any amount collected as tax, whether due or not, must be handed over to the State. The court left open the possibility for the petitioner to contest liability if new proceedings were initiated based on the prior decisions.

Conclusion:
The petition was allowed, and the court ordered that the petitioner was not liable for the sales tax on the inter-State transactions in question. The petitioner was awarded costs, including an advocate's fee of Rs. 150. The court maintained its stance on previous rulings but allowed the petitioner the option to challenge future proceedings.