1963 (4) TMI 21 - HC - VAT and Sales Tax

Issues Involved:
1. Jurisdiction of the Appellate Assistant Commissioner to enhance the assessment.
2. Classification of transactions as inter-State sales.
3. Application of the Sales Tax Laws Validation Act, 1956.
4. Interpretation of Article 286 of the Constitution.
5. Assessment of taxable turnover.

Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner to Enhance the Assessment:
The assessee contended that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment under section 31 of the Madras General Sales Tax Act, 1959. The Tribunal held that the Appellate Assistant Commissioner had no such power and deleted the enhancement. The State's objection was that the Tribunal misunderstood the scope of sections 16 and 31(3) of the Madras General Sales Tax Act, 1959, and went wrong in deleting the enhancement.

2. Classification of Transactions as Inter-State Sales:
The assessee argued that he was merely acting as the purchasing agent of a non-resident dealer at Bangalore and that the transactions were inter-State sales coming within the ban of Article 286 of the Constitution. The assessing authority held that the assessee was an independent dealer and not the purchasing agent of the Bangalore dealer. The Tribunal examined the correctness of the turnover and fixed the taxable turnover at Rs. 1,94,370-9-10. The main point for decision was whether the sales of wool by the assessee to the Bangalore dealer were inter-State sales and, if so, whether they were liable to be assessed under the Madras Sales Tax Act, in view of the Sales Tax Laws Validation Act, 1956.

3. Application of the Sales Tax Laws Validation Act, 1956:
The State contended that the Validation Act, read along with its interpretation by the Supreme Court in the Ashok Leyland case, clearly made the transactions subject to the sales tax. The assessee argued that these sales were "Explanation sales" falling within the Explanation to Article 286(1)(a) of the Constitution and that the constitutional ban could not be lifted by the Validation Act.

4. Interpretation of Article 286 of the Constitution:
Article 286(1)(a) prohibits taxation of sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for consumption. The Supreme Court in the Bengal Immunity case held that the Explanation created only a limited fiction and should not be read as transforming inter-State sales into intra-State sales. The ban on the States' power to tax outside sales is absolute and independent of other bans in Article 286, and Article 286(2) is not capable of being interpreted as enabling Parliament to destroy it.

5. Assessment of Taxable Turnover:
For the year 1954-55, the Tribunal fixed the taxable turnover at Rs. 1,94,370-9-10. For the year 1955-56, the net taxable turnover fixed by the Appellate Tribunal was Rs. 1,13,879-7-0. The State objected to the deletion of enhancements for the years 1956-57 and 1957-58. The Court held that all sales by the assessee to the Bangalore dealer were non-Explanation sales with reference to the Madras State and were sales outside the State of Madras. Therefore, the State could not justify the assessment of the business turnover because of the Validation Act or the principle laid down in the Ashok Leyland case.

Conclusion:
The Court allowed the assessee's revision petitions (T.C. Nos. 202 and 203 of 1961) and dismissed the State's revision petitions (T.C. Nos. 155 of 1961 and 22, 23, and 24 of 1962) without costs. The Court clarified that it was not expressing any opinion on the merits of the contentions raised by the State in their revision petitions.

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