1956 (12) TMI 38 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of tax imposition under Article 286(1)(a) of the Constitution.
2. Validity of tax imposition under Article 286(1)(b) of the Constitution.

Issue-wise Detailed Analysis:

1. Validity of Tax Imposition Under Article 286(1)(a) of the Constitution:
The petitioner argued that the sale of aviation spirit to foreign-bound aircraft should be deemed to have taken place outside the State by virtue of the Explanation to Article 286(1)(a) of the Constitution. According to this provision, a sale should be considered outside the State if the goods are delivered as a direct result of the sale for consumption outside the State. The petitioner contended that since the aviation spirit was consumed outside West Bengal, the sale should be considered an "outside sale" and thus exempt from state taxation.

The court examined the facts and concluded that the aviation spirit was sold and delivered within the State of West Bengal. The seller and purchaser were both within the State at the time of the sale and delivery, and the property in the goods passed within the State. Consequently, the sale did not qualify as an "outside sale" under Article 286(1)(a). The court referenced the Supreme Court decision in Bengal Immunity Co., Ltd. v. The State of Bihar, which clarified that the Explanation to Article 286(1)(a) creates a legal fiction to determine the situs of a sale but does not apply to inter-State transactions. Therefore, the court held that the tax imposition under Article 286(1)(a) was valid.

2. Validity of Tax Imposition Under Article 286(1)(b) of the Constitution:
The petitioner further argued that the sale of aviation spirit to foreign-bound aircraft was in the course of export out of the territory of India and thus exempt from state taxation under Article 286(1)(b) of the Constitution. The petitioner claimed that the sale and delivery at Dum-Dum airport were part of the integrated process of exportation.

The court referred to the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, which established that sales or purchases that occasion the export of goods out of India are exempt from taxation. However, purchases for the purpose of export and sales after goods have passed the customs barrier are not exempt. The court found that the petitioner-company was selling aviation spirit to customers within the State, and the sale was complete upon delivery. The court emphasized that the petitioner had no control over the subsequent use of the aviation spirit by the purchaser. Therefore, the sale did not qualify as being in the course of export under Article 286(1)(b).

The court concluded that the petitioner was not exporting goods out of India and was not entitled to exemption under Article 286(1)(b). The court dismissed the petition, stating that the petitioner had not made out any grounds for avoiding the tax. The Rule was discharged, and all interim orders were vacated. The court also certified under Article 132 that the case involved a substantial question of law as to the interpretation of the Constitution, allowing the petitioner to appeal directly to the Supreme Court.

Conclusion:
The court held that the imposition of tax on the sale of aviation spirit to foreign-bound aircraft was valid under the Bengal Motor Spirit Sales Taxation Act, as amended. The petitioner's arguments under Article 286(1)(a) and Article 286(1)(b) of the Constitution were rejected, and the application was dismissed.