1956 (9) TMI 50 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of sales tax on works contracts.
2. Determination of the value of goods supplied under works contracts.
3. Constitutionality of the Mysore Sales Tax Act.
4. Alleged discrimination and arbitrariness in tax assessment.
5. Applicability of Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Levy of Sales Tax on Works Contracts:
The petitioners challenged the levy of sales tax on the moneys realized for executing works contracts. They argued that the articles used for carrying out the works were treated as goods sold by them, and the value was determined by a formula rather than the actual cost. The court noted that the assessment conformed to the Mysore Sales Tax Act and the rules framed thereunder, but the issue was whether these provisions were unauthorized, unconstitutional, or unwarranted by the facts.

2. Determination of the Value of Goods Supplied:
The petitioners contended that the value of the goods supplied was not based on the actual cost but on a formula, leading to peculiarity and arbitrariness. The court acknowledged the formula's arbitrariness and the potential for undeserved liability, noting that the word "deemed" in the rule's explanation suggested a fictional basis of assessment. The court found that the classification of contracts for assigning percentages was rough and indefinite, leading to unreasonable discrimination.

3. Constitutionality of the Mysore Sales Tax Act:
The court distinguished the Mysore Sales Tax Act from similar acts in other states, noting that it was passed before the Constitution came into force and was not derived from any entry in the Government of India Act. Therefore, it could not be impugned on the grounds of being outside the ambit of the entry or not in harmony with legislative policy. However, the court emphasized that if the Act was repugnant to the Constitution, particularly Article 14, the petitioners were entitled to relief.

4. Alleged Discrimination and Arbitrariness in Tax Assessment:
The court found force in the contention that the levy was arbitrary and led to unreasonable discrimination. The classification of contracts and the rule's explanation led to artificial and premature determination of tax liability. The court noted that fiscal enactments are not exempt from the ban against discrimination and must pass the constitutional test applied to the method of imposition. The classification must disclose differentiation pertinent to the burden, which was not evident in this case.

5. Applicability of Article 14 of the Constitution of India:
The petitioners argued that the Act violated their right to equality before the law and equal protection of the laws under Article 14. The court agreed, citing several precedents that emphasized the need for reasonable classification and non-discriminatory treatment. The court found that the rule and the notification overlooked factors such as local conditions, differences in wages and prices, and periodic fluctuations, leading to anomalies, inequalities, and arbitrariness. The court concluded that the provisions were repugnant to Article 14 and quashed the assessment orders.

Conclusion:
The court allowed the petitions, quashing the assessment orders due to the arbitrary and discriminatory nature of the tax levy under the Mysore Sales Tax Act. The court directed the parties to bear their own costs, noting the novel and intricate nature of the issue.

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