1959 (2) TMI 23 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the levy of sales tax on "works contracts".
2. Legality of the levy of sales tax on untanned hides and skins.
3. Finality of tax assessments and the authority of the State to collect taxes deemed unlawful by subsequent judicial decisions.
4. Jurisdiction of the Commercial Tax Officers in making the assessments.
5. Applicability of Article 265 of the Constitution regarding the levy and collection of taxes.

Issue-wise Detailed Analysis:

1. Legality of the Levy of Sales Tax on "Works Contracts":
The petitioner firm, Rayalseema Constructions, was assessed under the Madras General Sales Tax Act, 1939, for the years 1951-52 and 1952-53 on a gross turnover of Rs. 2,23,174-10-0 and Rs. 2,54,666-13-9 respectively. Subsequent to the assessment, it was determined that the firm owed Rs. 2,501-6-4. However, the petitioner pointed out that the Court had held in Gannon Dunkerley & Co. (Madras) Ltd. v. State of Madras that "works contracts" did not involve any element of sale of materials, making the levy of sales tax on such materials unlawful. Despite this, the Deputy Commercial Tax Officer demanded payment, leading the petitioner to seek a writ of mandamus to prevent the collection of these amounts.

2. Legality of the Levy of Sales Tax on Untanned Hides and Skins:
The petitioner firm of tanners was assessed on a turnover of Rs. 3,83,883-7-9, with only Rs. 5,787-12-0 representing purchases made inside the State of Madras. The balance was the value of untanned hides and skins purchased outside the State. The Deputy Commercial Tax Officer exempted Rs. 32,314 but assessed the petitioner on the remaining Rs. 3,45,761-11-9. This assessment was challenged based on the decision in Hajee Abdul Shukoor and Co. v. State of Madras, which stated that only sales of untanned hides and skins by a licensed dealer to a licensed tanner were taxable. The petitioner's appeals were dismissed as time-barred, leading to a request for a writ to prohibit the State from recovering the amount.

3. Finality of Tax Assessments and Authority of the State to Collect Taxes Deemed Unlawful:
The Government argued that despite subsequent judicial decisions invalidating the tax provisions, the assessments were not nullities and had become final. The Court examined cases such as Sugar Syndicate v. Excise and Taxation Commissioner, Punjab, and State of Uttar Pradesh v. Kanhaiyalal, where courts directed refunds of taxes paid under ultra vires provisions. The Court noted that finality of an assessment does not equate to its lawfulness, especially if the assessment was made without jurisdiction or based on provisions later deemed ultra vires.

4. Jurisdiction of the Commercial Tax Officers in Making the Assessments:
The Court considered whether the Commercial Tax Officers had jurisdiction over the subject matter and the persons concerned at the time of assessment. It was determined that the officers acted in good faith, believing the assessments were lawful. However, subsequent judicial decisions revealed that the officers lacked jurisdiction to impose the taxes, rendering the assessments unlawful despite their finality under the taxing statute.

5. Applicability of Article 265 of the Constitution:
The Court discussed the implications of Article 265, which states, "No tax shall be levied or collected except by authority of law." The Court emphasized that this Article covers the entire process of taxation, from the statute to the collection of money, and mandates that every stage must be authorized by law. The Court rejected the argument that Article 265 only pertains to the manner of collection, asserting that it also applies to the legality of the levy itself.

Conclusion:
The Court concluded that the assessments in question were made without jurisdiction and were therefore unlawful. It held that the finality of an assessment under a taxing statute does not necessarily validate an unlawful assessment. The Court issued a writ of mandamus directing the respondents to forbear from collecting the amounts in question, emphasizing that the petitioners' objection was to the collection itself, not the mode of collection. The petitions were allowed, with no order as to costs.

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