1957 (1) TMI 21 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative Authority to Tax Purchases
2. Validity of Proviso (b) to Clause (ii) under Rule I of Sub-section (3) of Section 6
3. Definition and Scope of "Turnover" and "Taxable Turnover"
4. Competence of Sales Tax Authorities to Levy Tax

Issue-wise Detailed Analysis:

1. Legislative Authority to Tax Purchases
The primary issue was whether the Legislature had the power to impose a tax on the turnover of purchases made by the dealer. The Tribunal, following the decision of the Madras High Court in V.M. Syed Mohamed & Co. v. The State of Madras, held that the Legislature had the authority to levy such a tax under item 48 of List II of Schedule VII to the Government of India Act, 1935. This item authorizes "taxes on the sale of goods and on advertisements." The Tribunal concluded that the proviso in question, although inartistically inserted, was intra vires and should be regarded as an addition to the charging section 5 of the Act.

2. Validity of Proviso (b) to Clause (ii) under Rule I of Sub-section (3) of Section 6
The assessee contended that the proviso was ultra vires as it was not properly integrated into the charging section of the Act. However, the Tribunal and the High Court disagreed, stating that the Legislature's power to tax purchasers or purchasing dealers was adequately exercised. The High Court emphasized that the Legislature had the authority to define "taxable turnover" in a manner that included the price paid for goods despatched outside the Province of Bombay, even if it altered the traditional understanding of "turnover."

3. Definition and Scope of "Turnover" and "Taxable Turnover"
The High Court examined the definitions provided in the Bombay Sales Tax Act, 1946. The term "turnover" was defined as "the aggregate of the amounts of sale prices received and receivable by a dealer." The charging section, section 5, rendered every dealer liable to pay tax on his turnover in respect of sales or supplies of goods. However, section 6(3) introduced the concept of "taxable turnover," which included amounts equivalent to the purchase price of goods despatched outside the Province. The Court held that this artificial definition was within the Legislature's competence to enact.

4. Competence of Sales Tax Authorities to Levy Tax
The Sales Tax Officer included the purchase price of goods despatched to Madras in the taxable turnover and levied a tax. This was upheld by the Assistant Collector, the Collector, and the Sales Tax Tribunal. The High Court confirmed that the authorities acted within their jurisdiction as the proviso (b) to rule I(ii) under sub-section (3) of section 6 was valid. The Court noted that the Legislature had not altered the incidence of taxation but had merely prescribed a method for ascertaining the taxable turnover for goods despatched outside the State.

Conclusion:
The High Court reframed the question to focus on the legality of the levy of sales tax under the proviso in question. The Court answered in the affirmative, validating the levy of sales tax on Rs. 30,712-12-6 paid by the assessees for the purchase of goods despatched to Madras. The assessees were ordered to pay the costs of the reference to the State. The companion reference, raising the identical question, was also answered in the affirmative.