1962 (1) TMI 51 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the petitioner firms to pay tax on the purchase value of cotton sold to Sitaram Spinning and Weaving Mills under the Madras General Sales Tax Act.
2. Determination of whether the sales were inter-State sales or intra-State sales.
3. Application and effect of the Sales Tax Laws Validation Act, 1956.
4. Determination of the "last purchaser" in the State under Rule 4-A of the Turnover and Assessment Rules.

Detailed Analysis:

1. Liability of the Petitioner Firms to Pay Tax on the Purchase Value of Cotton Sold:
The petitioners, firms engaged in the purchase and sale of cotton and cotton seeds, were assessed under the Madras General Sales Tax Act for the assessment year 1955-56. The Deputy Commercial Tax Officer determined the taxable turnover by estimating the purchase value of cotton sold to Sitaram Spinning and Weaving Mills in Kerala, deducting two percent from the sale value as gross profit. The total taxable turnover for the firms was determined at Rs. 6,70,752-9-6 and Rs. 5,73,988-1-7 respectively. The petitioners contended that the sales were effected within the State and that they were not the last purchasers within the meaning of Rule 4-A.

2. Determination of Whether the Sales Were Inter-State Sales or Intra-State Sales:
The Tribunal, upon remittance by a Division Bench, found that the sales in question were inter-State sales and "explanation sales" under Article 286(1)(a) of the Constitution, with the delivery-cum-consumption State being Kerala. The primary question was whether the sales, though inter-State, were taxable by the Madras State under the Validation Act.

3. Application and Effect of the Sales Tax Laws Validation Act, 1956:
The Validation Act aimed to validate State laws imposing taxes on inter-State sales between April 1, 1951, and September 6, 1955. The Supreme Court in Sundararamier's case clarified that the Validation Act lifted the ban imposed by Article 286(2) but did not validate any specific laws. The petitioners argued that the Validation Act retrospectively enlarged the State's power to tax inter-State sales, making them taxable under the Madras General Sales Tax Act. However, the court held that the Validation Act did not abrogate Article 286 and that only the State where actual delivery for consumption occurred (Kerala) could tax the sales.

4. Determination of the "Last Purchaser" in the State Under Rule 4-A:
Rule 4-A specifies that the tax should be levied from the dealer who is the last purchaser in the State. The burden of proof was on the petitioners to show that they were not the last purchasers. The court held that the petitioners were unable to prove this, as the sales were inter-State transactions with the delivery-cum-consumption State being Kerala. Therefore, the Sitaram Spinning and Weaving Mills at Trichur were the last purchasers in Kerala, not in Madras. The petitioners were deemed the last purchasers within the Madras State for the purpose of the Madras General Sales Tax Act.

Conclusion:
The court dismissed the petitions, holding that the sales in question were inter-State sales and "explanation sales" with the delivery-cum-consumption State being Kerala. The petitioners failed to establish that they were not the last purchasers in the Madras State. The decision of the Tribunal was upheld, and the petitions were dismissed with costs.