1960 (7) TMI 54 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of sales tax exemption under item 37 of the Schedule.
2. Applicability of excise duty on spirituous preparations.
3. Continuation of excise duty collection under Article 277 of the Constitution.

Analysis:
The judgment by the Punjab High Court involved two civil references made by the Financial Commissioner under the East Punjab General Sales Tax Act of 1948. The case revolved around Messrs Standard Drugs Company, Amritsar, and their exemption from sales tax on drugs and toilet preparations with an alcoholic content for the years 1949-1952. The main issue focused on whether sales tax could be levied on spirituous preparations when excise duty was also being imposed on them under the Punjab Excise Act.

The Court examined the historical context of excise duty on medicinal or toilet preparations containing alcohol, noting the transfer of taxing authority to the Union post-constitution. However, the Punjab State continued collecting excise duty under Article 277 of the Constitution, allowing the State to levy existing taxes until Parliament intervened. The Court emphasized that the duty was charged on the finished articles' alcoholic content, which was previously taxable under the Punjab Excise Act.

The State argued that excise duty was imposed only on the alcoholic content, not the entire finished article. However, the Court clarified that the duty was calculated based on the alcoholic content but applied to the finished article itself. As the duty was levied under the Punjab Excise Act, the finished goods prepared by the assessee were deemed exempt from sales tax under item 37 of the Schedule, covering goods subject to duty under the Punjab Excise Act or Opium Act.

In conclusion, the Court held that the excise duty collected by the Punjab State on the finished goods was in line with the Punjab Excise Act, making the articles exempt from sales tax. The judgment was delivered in favor of the assessee, and the reference was answered accordingly by both judges, with no costs awarded.