1956 (7) TMI 45 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of the amendment to Section 15(1)(b) of the Assam Sales Tax Act.
2. Validity of Rule 80 of the Assam Sales Tax Rules.
3. Violation of Article 286(2) of the Constitution.
4. Infringement of the fundamental right under Article 19(1)(g) of the Constitution.
5. The impact of the amendment and Rule 80 on inter-State trade and commerce.
6. The applicability of Section 3 of the Assam Sales Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the amendment to Section 15(1)(b) of the Assam Sales Tax Act:
The amendment to Section 15(1)(b) introduced the words "in the State," which altered the exemption conditions for sales tax. Previously, sales to registered dealers for resale were exempt from tax regardless of whether the resale occurred within or outside the State. Post-amendment, the exemption applies only if the resale occurs within the State. This change means that dealers now have to pay sales tax on purchases intended for resale outside the State, which was not the case before the amendment.

2. Validity of Rule 80 of the Assam Sales Tax Rules:
Rule 80 requires dealers to submit a declaration stating that the goods purchased are for resale within the State to avail of the tax exemption. This rule enforces the amendment to Section 15(1)(b) by mandating a declaration for exemption eligibility. The petitioner argued that this rule compels dealers to restrict their trade activities to within the State, thereby imposing an unreasonable restraint on their business operations.

3. Violation of Article 286(2) of the Constitution:
The petitioner contended that the amendment to Section 15(1)(b) and Rule 80 violate Article 286(2) of the Constitution, which prohibits States from imposing taxes on sales or purchases in the course of inter-State trade or commerce. The amendment and Rule 80 effectively impose a tax on purchases intended for resale outside the State, which the petitioner argued is an inter-State trade activity. The court held that the amendment and Rule 80 are indeed in violation of Article 286(2) as they authorize the imposition of tax on inter-State trade.

4. Infringement of the fundamental right under Article 19(1)(g) of the Constitution:
The petitioner argued that the amendment and Rule 80 unreasonably interfere with their fundamental right to carry on trade or business as guaranteed by Article 19(1)(g) of the Constitution. The court noted that the amendment and Rule 80 place the petitioner at a disadvantage compared to other traders who are not burdened with such tax, thus infringing on their right to trade freely.

5. The impact of the amendment and Rule 80 on inter-State trade and commerce:
The court observed that the amendment and Rule 80 compel dealers to either restrict their sales to within the State or pay sales tax for inter-State transactions. This creates a disparity between traders who sell within the State and those engaged in inter-State trade, thereby placing an unreasonable restriction on inter-State commerce. The court emphasized that such provisions are contrary to the intent of Article 286(2) and are therefore invalid.

6. The applicability of Section 3 of the Assam Sales Tax Act:
The court examined the relationship between Section 3 and Section 15 of the Act. Section 3 defines the liability to tax, while Section 15 outlines the method for determining net turnover. The court noted that while Section 3 exempts sales in the course of inter-State trade from tax, Section 15, as amended, does not provide for such an exemption. This inconsistency results in the imposition of tax on inter-State transactions, which is unconstitutional.

Conclusion:
The court declared that the amendments to Section 15(1)(b) of the Assam Sales Tax Act and Rule 80 of the Assam Sales Tax Rules are illegal and ultra vires. The court directed that no action to enforce these provisions can be taken by the taxing authorities against the petitioner. The petition was allowed, and the rule was made absolute.

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