1958 (5) TMI 37 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of sales tax on inter-State transactions.
2. Validity of the Validation Act concerning Explanation sales.
3. Infringement of fundamental rights under Article 19(1)(g).

Issue-Wise Detailed Analysis:

1. Levy of Sales Tax on Inter-State Transactions:
The petitioner, Ashoka Marketing Ltd., challenged the respondents' claim to levy sales tax on transactions where goods were manufactured in Bihar and sold in West Bengal, asserting that these were inter-State sales. The court acknowledged that these transactions were inter-State trade and commerce but fell under the "Explanation sales" category as per the Explanation to Article 286(1) of the Constitution.

The court noted that before the Constitution, taxation of sales was a Provincial subject, and post-Constitution, it became a State subject. The Bengal Finance (Sales Tax) Act, 1941, defined "sale" to include transactions resulting in delivery in West Bengal for consumption, aligning with the Explanation to Article 286(1). The Supreme Court's decision in State of Bombay v. United Motors (India) Ltd. allowed taxation on such sales by the State where goods were delivered for consumption. However, this was overturned by the Bengal Immunity Co. case, which excluded such sales from State taxation unless validated by Parliament.

2. Validity of the Validation Act Concerning Explanation Sales:
The Validation Act (VII of 1956) was enacted to address the period between the conflicting Supreme Court judgments, validating taxes collected on inter-State sales during this period. The court examined whether the Validation Act altered the situation, concluding that it did validate the taxation of Explanation sales for the specified period.

The court referred to the Supreme Court decision in M.P.V. Sundaramier & Co. v. State of Andhra, which upheld the view that State laws, despite having an exemption clause, constituted existing laws for taxation of Explanation sales. The court found that the Bengal Act, similar to the Madras and Bombay Acts, had provisions enabling such taxation, validated by the Validation Act.

3. Infringement of Fundamental Rights Under Article 19(1)(g):
The petitioner argued that the Validation Act violated the fundamental right to practice any occupation, trade, or business under Article 19(1)(g) of the Constitution, as it imposed unreasonable retrospective taxation. The court addressed this argument by noting that the Supreme Court had already declared the Validation Act intra vires.

The court emphasized that the Supreme Court's decision is final and binding, and a State High Court cannot contradict it, even on grounds not previously considered. The court found that the retrospective taxation was reasonable, given that traders were aware of the tax liability based on the United Motors case until the Bengal Immunity decision. The Validation Act aimed to protect State Governments' financial stability, which was deemed reasonable and in the public interest.

The court dismissed the argument of unreasonableness, noting that traders had the opportunity to safeguard their interests by collecting declaration forms or taxes from purchasers. The court concluded that the Validation Act did not impose an unreasonable restriction on the fundamental right to carry on business.

Conclusion:
The court held that the attempted taxation of the transactions in question was lawful due to the Validation Act. The court dismissed the petitions, vacated interim orders, and allowed petitioners to file returns or supplementary returns within one month for pending assessments. Existing assessments remained unaffected, subject to legal recourse available to the petitioners.

Petitions dismissed.

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