1958 (6) TMI 2 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the levy of sales tax for the period ending 1st January 1948.
2. Legality of the levy of sales tax for the period from 26th January 1950 to 31st March 1950.
3. Applicability of the limitation period under Section 18 of the Madras General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the levy of sales tax for the period ending 1st January 1948:

The appellant challenged the levy of sales tax for transactions occurring before 1st January 1948, arguing that there was no transfer of property in the goods within the State of Madras as per the unamended section 2(h) of the Madras General Sales Tax Act. The court examined the general pattern of transactions, where goods were ordered by customers outside the State and were dispatched by rail with the railway receipt made out in the name of the plaintiff (seller). The property in the goods did not pass to the buyer until the buyer paid the amount mentioned in the invoice, as the seller retained the right of disposal until payment was made. This was evidenced by the railway receipt being taken out in the name of the seller and the goods being delivered to the buyer only upon payment. The court held that the sales took place outside the Province of Madras and thus the Government of Madras could not charge sales tax for this period. The amount of tax collected for this period was ordered to be refunded to the appellant.

2. Legality of the levy of sales tax for the period from 26th January 1950 to 31st March 1950:

The appellant contended that the levy of sales tax for this period was contrary to Article 286 of the Constitution of India. The State relied on the President's Order dated 26th January 1950, which allowed the continuation of tax levies until 31st March 1951, even if they were contrary to Article 286(2). However, the court clarified that the President's Order only lifted the ban under Article 286(2) and not the ban under Article 286(1)(a). The Supreme Court's decisions in The Bengal Immunity Company Limited v. The State of Bihar and Others and Ram Narain Sons Limited v. Assistant Commissioner of Sales Tax established that the removal of one ban does not remove the other. The court rejected the Government's argument that the plaintiff needed to prove actual delivery of goods for consumption in another State. The court held that the sales for this period were also outside the taxing power of the State of Madras and ordered a refund of the tax collected.

3. Applicability of the limitation period under Section 18 of the Madras General Sales Tax Act:

The trial court had held that the suit was barred by time under Section 18 of the Act, which limits the period for filing suits to six months. However, the court found this view inconsistent with the decision in Santhanna v. State, where it was held that Section 18 applies only to suits for compensation or damages and not to cases challenging the imposition, levy, or collection of tax as illegal. The authority of this decision was not questioned by the Government. Therefore, the court held that the suit was not barred by limitation.

Conclusion:

The appeal was partly allowed. The court directed the parties to prepare a memo of calculation for the amount to be refunded to the appellant. The plaintiff was entitled to interest from the date of the suit till the date of payment at 6 percent per annum. The parties were ordered to pay and receive proportionate costs throughout.

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