1956 (8) TMI 43 - HC - VAT and Sales Tax

Issues Involved:
1. Competence of the Magistrate to decide the validity of rules 10 and 11.
2. Whether rules 10 and 11 are repugnant to section 3 of the Travancore-Cochin General Sales Tax Act and ultra vires the powers of the rule-making authority.

Detailed Analysis:

1. Competence of the Magistrate to Decide Validity:

The first issue addressed was whether the Magistrate was competent to decide the validity of rules 10 and 11 of the Sales Tax Rules or if he was bound to make a reference to the High Court under section 432(1) of the Code of Criminal Procedure. Section 432(1) states that if a court is satisfied that a case involves a question as to the validity of any Act or provision and is of the opinion that such Act or provision is invalid or inoperative, but has not been declared so by the High Court or the Supreme Court, the court must refer the case to the High Court. The court highlighted that section 24(5) of the Travancore-Cochin General Sales Tax Act mandates that all rules made under this section, upon publication in the Gazette, shall have effect as if enacted in the Act. This provision means that the rules must be treated as part of the Act itself. Therefore, a Magistrate cannot pronounce these rules invalid or inoperative until the Supreme Court or the High Court has declared them so. The court cited the case of M.P. Kumaraswami Raja, In re, to support this position, emphasizing that statutory rules are open to judicial scrutiny for validity and consistency with the parent Act. However, due to section 432(1) of the Code of Criminal Procedure, a subordinate criminal court is incompetent to declare such rules invalid until higher courts have done so. Consequently, the Magistrate correctly referred the matter to the High Court.

2. Validity of Rules 10 and 11:

The second issue was whether rules 10 and 11, which provide for provisional assessments, are repugnant to section 3 of the Act and ultra vires the powers of the rule-making authority. The defense argued that section 3(1)(a) of the Act, being the charging provision, mandates that tax can only be levied on the actual turnover of the year, and thus, no assessment can be made before the close of the year. They contended that the Act contemplated only one assessment for the whole year and not a provisional and final assessment. The court examined the scheme of the Sales Tax Act, noting that section 3(1)(a) imposes tax on the turnover for the year itself, unlike the Income-tax Act, which taxes the income of the previous year. The court observed that the argument that no assessment can be made before the close of the year was far-fetched, as there could be scenarios where the turnover could be ascertained before the year's end, such as when a dealer winds up his business early. The court referred to clauses (4) and (5) of section 3 and clause (2)(a) of section 24, which empower the Government to frame rules for determining turnover, and for assessing, levying, and collecting tax in instalments. The court concluded that the provisional assessments under rules 10 and 11, subject to final assessment and adjustment, are consistent with the Act's provisions and the Legislature's intent. The court also referenced V.M. Syed Mohamed and Co. v. State of Madras, where similar rules under the Madras Sales Tax Act were upheld. Therefore, the court held that rules 9 to 11 do not contravene section 3 of the Act and are not ultra vires. They are valid and integral parts of the Sales Tax Act.

Conclusion:

The reference was answered accordingly, affirming that the Magistrate was correct in referring the matter to the High Court and that rules 10 and 11 are valid and consistent with section 3 of the Travancore-Cochin General Sales Tax Act.

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