1958 (6) TMI 4 - HC - VAT and Sales Tax

Issues Involved:
1. Classification of goods sold by the petitioner for sales tax purposes.
2. Legality of levying sales tax on goods sold outside the state.
3. Competence of the assessing authority to revise the assessment under rule 35 of the Mysore Sales Tax Rules, 1948.

Issue-wise Detailed Analysis:

1. Classification of Goods Sold by the Petitioner for Sales Tax Purposes:
- Sub-issue (i): Whether the goods sold fall within the category of 'textiles manufactured by mills' for sales tax purposes.
- The court held that the goods sold by the assessee, which are ready-made garments, do not fall within the category of 'textiles manufactured by mills'. The court reasoned that the assessee applied processes such as cutting and stitching to the textiles, transforming them into a different product-ready-made garments. Therefore, they cannot be classified as 'textiles manufactured by mills'.

- Sub-issue (ii): Whether it is lawful to levy sales tax on the turnover of the petitioner, given that sales tax has already been levied on textiles at one point.
- The court concluded that it is lawful to levy sales tax on the turnover of the petitioner. The court reasoned that the ready-made garments sold by the assessee are distinct from the textiles manufactured by mills, and thus, the restriction on taxation at a single point does not apply.

- Sub-issue (iii): If the petitioner's turnover is chargeable to sales tax, what part of it is chargeable considering the provisions of section 2(k), Explanation (i), of the Act and the cost of labor involved.
- The court held that the provisions of section 2(k), Explanation (i), which allows deductions for the cost of labor in works contracts, do not apply to the present case. The court reasoned that there was no agreement or works contract between the dealer and any other party for making ready-made garments. Therefore, the entire turnover is chargeable to sales tax.

2. Legality of Levying Sales Tax on Goods Sold Outside the State:
- Sub-issue (i): Whether the turnover relating to the sale of goods outside the state within the meaning of Article 286(1) of the Constitution is chargeable to sales tax.
- The court held that the turnover relating to the sale of goods outside the state is not chargeable to sales tax. The court reasoned that Article 286(1) prohibits the imposition of a tax on sales or purchases that take place outside the state.

- Sub-issue (ii): Whether the President's C.O. No. 7 Sales Tax Continuance Order, 1950, under Article 286(2) enables the Government to continue levying sales tax until 31st March 1951, notwithstanding that such levy offends Article 286(1) of the Constitution.
- The court concluded that the President's order does not enable the Government to continue levying sales tax on sales outside the state. The court reasoned that the President's order pertains to clause (2) of Article 286 and does not affect clause (1), which prohibits such levies.

3. Competence of the Assessing Authority to Revise the Assessment Under Rule 35 of the Mysore Sales Tax Rules, 1948:
- The court addressed whether the Sales Tax Officer had the jurisdiction to revise the assessment under rule 35. The court held that rule 35 could not be invoked in this case as the officer considered new materials not present in the original record. The court emphasized that rule 35 allows rectification of mistakes apparent from the record, not a re-assessment based on new evidence. The court also noted that the officer's actions amounted to reopening the assessment on a new basis, which is not permissible under rule 35.

Conclusion:
- The court provided the following answers to the questions referred:
1. The goods sold by the petitioner do not fall within the category of 'textiles manufactured by mills', and it is lawful to levy sales tax on the turnover.
2. The turnover relating to sales outside the state is not chargeable to sales tax, and the President's order does not validate such a levy.
3. The assessing authority was not competent to revise the assessment under rule 35, and the rule cannot be invoked for this purpose.

Disposition:
- The reference was disposed of with the assessee bearing their own costs, and the fee deposited by the assessee was ordered to be refunded.

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