1960 (10) TMI 82 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of provisional assessment orders under the General Sales Tax Act.
2. Exemption of inter-State sales from sales tax under section 26(1)(b) of the General Sales Tax Act.

Detailed Analysis:

1. Validity of Provisional Assessment Orders:
The petitioners challenged the provisional assessment orders based on a notification under section 5(vii) of the General Sales Tax Act, arguing that these orders were defective and inadequate despite the validation by the General Sales Tax (Amendment) Act, No. III of 1960. The Amendment Act followed a Division Bench decision in Abu v. State of Kerala, which held that the notification did not comply with section 24 of the General Sales Tax Act. This non-compliance meant that the last purchaser of the commodities mentioned in the notification could not be made liable to sales tax, even if the notification was mentioned in rule 4(2) under the Act. The Amendment Act aimed to rectify this by amending section 5(vii) and validating earlier assessment proceedings under section 3. The court, however, found this objection unconvincing and noted that it had already addressed similar objections in a different batch of writ petitions.

2. Exemption of Inter-State Sales:
The petitioners asserted that the sales provisionally assessed were inter-State and thus exempt from tax under section 26(1)(b) of the General Sales Tax Act, which states that tax shall not be imposed on sales or purchases taking place in the course of inter-State trade or commerce. They argued that the assessing authorities had not satisfactorily adjudicated on their objections regarding the transactions being exempted. The court emphasized the limitations on the authority to tax sales, arising from the territorial jurisdiction of the taxing authorities and the freedom of trade, commerce, and intercourse conferred by the Constitution, particularly Article 286. This article excludes outside sales from being taxed and exempts sales in the course of import or export.

The court referred to the Central Sales Tax Act, 1956, which defines inter-State sales under section 3. A sale is deemed inter-State if it occasions the movement of goods from one state to another or is effected by a transfer of documents of title during their movement. The court cited the Supreme Court's interpretation in Tata Iron and Steel Co. Ltd. v. S.R. Sarkar, which clarified that a sale becomes taxable under section 3(a) if the movement of goods from one state to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title during their movement.

The court found substance in the petitioners' complaint that the taxing authorities had levied the tax without adequately considering the claim of the transactions being inter-State under section 3(a) of the Central Sales Tax Act. The provisional assessments were vacated to allow for fresh assessments in light of the Supreme Court's pronouncement. The court rejected the argument that sales transactions complete within the state but involving outside movement of goods under the covenants of sale would still be taxable, citing the Supreme Court's majority pronouncement on section 3(a).

Conclusion:
The court allowed the writ petitions, vacated the provisional assessment orders, and directed the taxing authorities to reassess in accordance with the clarified legal position. The stay on the collection of tax was deemed unnecessary, and the security furnished for the stay order was to be released. Petitions were allowed.

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