1959 (9) TMI 43 - HC - VAT and Sales Tax

Issues Involved:
1. Entitlement to a set-off or refund of sales tax paid on unshelled groundnuts converted to oil seeds.
2. Exemption from taxation under Article 286 of the Constitution for sales in the course of import or export.
3. Taxability of sales delivered for consumption in Bihar under Article 286(2) of the Constitution.

Detailed Analysis:

Issue 1: Entitlement to a Set-off or Refund of Sales Tax Paid on Unshelled Groundnuts Converted to Oil Seeds

The applicants purchased unshelled groundnuts and paid sales tax for the period from 1st November 1952 to 31st March 1954. For the subsequent period from 1st April 1954 to 31st March 1955, the Sales Tax Authorities assessed a tax of Rs. 63,099-10-6 on the applicants. The applicants contended that they were entitled to a set-off or refund for the tax already paid on the unshelled groundnuts. The authorities below rejected this contention. However, the court noted that the stock on 1st April 1954 consisted of seeds after the removal of shells, and both unshelled groundnuts and oil seeds are covered under entry 5 in Schedule B of the Act. The court ruled that the applicants were entitled to a refund as the Legislature made no distinction between unshelled groundnuts and oil seeds. This decision was supported by a precedent in Messrs Premji Bhanji & Co. v. The State of Bombay. Consequently, the court allowed the application, directing the Sales Tax Officer to amend the assessment order and determine the precise refund amount.

Issue 2: Exemption from Taxation under Article 286 of the Constitution for Sales in the Course of Import or Export

The assessee argued that the sale of machineries to the Damodar Valley Corporation was exempt from taxation under Article 286(1)(b) of the Constitution, as the sales took place in the course of import. The court rejected this argument, stating that for exemption under Article 286(1)(b), the sale must be part of the activities of import, not merely preparatory. The court referred to the Supreme Court's decision in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, which held that purchases for export were not exempt unless they were part of the export activities. The court found no evidence of a contract of agency between the assessee and the manufacturers, nor any privity of contract between the Damodar Valley Corporation and the manufacturers. Even if the machineries were earmarked for the Corporation, the sale did not occur in the course of import. Thus, the first question of law was answered against the assessee.

Issue 3: Taxability of Sales Delivered for Consumption in Bihar under Article 286(2) of the Constitution

The assessee contended that the sales delivered for consumption in Bihar could not be taxed under Article 286(2) of the Constitution. The court referred to its decision in Mahadeo Ram Bali Ram v. State of Bihar, which held that for sales despatched outside the State and consumed in other States, only the ban under Article 286(2) applied. This ban was surmounted by the President's Sales Tax Continuance Order, 1950, and the Sales Tax Laws Validation Act, 1956, for the period from 26th January 1950 to 6th September 1955. Since the assessment periods in question fell within these dates, the second question of law was also answered against the assessee.

Conclusion:

The court allowed the application for a refund of the sales tax paid on unshelled groundnuts, finding no distinction between unshelled groundnuts and oil seeds in the relevant legislative entry. However, the court rejected the assessee's claims for exemption from taxation under Article 286 for sales in the course of import and for sales delivered for consumption in Bihar, ruling in favor of the State of Bihar on both counts. The assessee was ordered to pay the costs of the reference.

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