1956 (10) TMI 30 - HC - VAT and Sales Tax

Issues Involved:
1. Determination of the place of sale for tax purposes.
2. Constitutional validity of the Sales Tax Laws Validation Act, 1956.
3. Retrospective effect of the Validation Act.
4. Existence and enforceability of State sales tax laws post-constitutional amendments.
5. Jurisdiction of tax authorities to assess and levy taxes under the Validation Act.

Issue-wise Detailed Analysis:

1. Determination of the Place of Sale for Tax Purposes:
The contention revolved around whether the place of sale was Calcutta, where the property in the goods passed to the purchasers, or Madras, where the actual transaction was executed. The High Court accepted the respondent-State's contention that the test to determine the locality of the sale was where the actual transaction was put through, not where the property in the goods passed. The Supreme Court's observation was pivotal: "The mere fact that the contract for sale was entered into within the Province of Madras does not make the transaction, which was completed admittedly within another Province, where the property in the goods passed, a sale within the Province of Madras according to the provisions of the Madras Sales Tax Act."

2. Constitutional Validity of the Sales Tax Laws Validation Act, 1956:
The petitioners argued that the impugned Act offended Article 245 of the Constitution, asserting that it was essentially legislation on the subject of sales tax, a matter enumerated in the State List. The High Court held that under Article 245, Parliament may make laws for the whole of India, subject to the Constitution. Article 246 confers exclusive power on Parliament to legislate on matters in the Union List, including inter-State trade and commerce (Entry 42). The Court concluded that the impugned Act did not transgress the power conferred by Article 286(2) read with Entry 42 of the Union List.

3. Retrospective Effect of the Validation Act:
The petitioners contended that Parliament could not retrospectively lift the ban imposed by Article 286(2). The High Court rejected this argument, stating that legislative power, including retrospective legislation, is inherent in a sovereign legislature unless restricted by the Constitution. The Court referenced the Federal Court's decision in United Provinces v. Atiqa Begum, which allowed retrospective effect to legislative amendments.

4. Existence and Enforceability of State Sales Tax Laws Post-Constitutional Amendments:
The petitioners argued that no valid State legislation existed when the impugned Act was passed, as the Madras General Sales Tax Act's provisions on inter-State sales ceased to be enforceable post-constitution. The High Court held that an unconstitutional law is not obliterated but remains dormant and unenforceable until the constitutional ban is lifted. The Court drew parallels with the Supreme Court's interpretation in Bhikaji Narain Dhakras v. The State of Madhya Pradesh, where a law inconsistent with fundamental rights was deemed eclipsed but not void.

5. Jurisdiction of Tax Authorities to Assess and Levy Taxes Under the Validation Act:
The petitioners contended that section 2 of the impugned Act only validated assessments already made and did not authorize new assessments. The High Court dismissed this argument, affirming that section 2 validated the law enabling tax levies and allowed tax authorities to proceed with assessments for transactions within the specified dates.

Conclusion:
The High Court dismissed the petitions, upholding the constitutional validity of the Sales Tax Laws Validation Act, 1956, and confirming the jurisdiction of tax authorities to assess and levy taxes on inter-State sales as per the validated law. The petitioners were ordered to pay the costs of the respondent, with counsel's fee fixed at Rs. 200 in each case.

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