1963 (8) TMI 37 - HC - VAT and Sales Tax

Issues Involved
1. Validity of the assessment of sales tax on inter-State sales between 1st April, 1951, and 6th September, 1955.
2. Legislative competence of the State Legislature to pass Act 9 of 1962 post the Constitution (Sixth Amendment) Act, 1956.

Detailed Analysis

1. Validity of the Assessment of Sales Tax on Inter-State Sales
The respondent was assessed to sales tax under the General Sales Tax Act, 1125, for inter-State sales effected between 1st April, 1951, and 6th September, 1955. The department contended that the General Sales Tax (Amendment and Validation) Act, 1962 (Act 9 of 1962) validated the taxation of inter-State sales within that period. The Sales Tax Appellate Tribunal had ruled otherwise, which led to the legal question: "Whether in the light of the Amending Act 9 of 1962 the finding of the Tribunal is correct?"

Section 2 of the Sales Tax Laws Validation Act, 1956 (Central Act 7 of 1956) states:
"Notwithstanding any judgment, decree or order of any court, no law of a State imposing or authorising the imposition of, a tax on the sale or purchase of any goods where such sale or purchase took place in the course of inter-State trade or commerce during the period between the 1st day of April, 1951, and the 6th day of September, 1955, shall be deemed to be invalid or ever to have been invalid merely by reason of the fact that such sale or purchase took place in the course of inter-State trade or commerce; and all such taxes levied or collected or purporting to have been levied or collected during the aforesaid period shall be deemed always to have been validly levied or collected in accordance with law."

The Supreme Court's decision in State of Kerala and Others v. Cochin Coal Company Ltd. supported the conclusion that section 26 of the General Sales Tax Act, 1125, imposed a tax on the sale or purchase of goods in the course of inter-State trade or commerce, and that such taxation during the specified period was validated by the Central Act.

2. Legislative Competence of the State Legislature to Pass Act 9 of 1962
Section 26 of the General Sales Tax Act, 1125, as amended by Act 12 of 1957, stated:
"(1) Notwithstanding anything contained in this Act:
(a) a tax on the sale or purchase of goods shall not be imposed under this Act:
(i) where such sale or purchase takes place outside the State; or
(ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India;
(b) a tax on the sale or purchase of any goods shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce."

The Constitution (Sixth Amendment) Act, 1956, which came into force on 11th September, 1956, inserted Entry 92-A in the Union List and amended Article 286 of the Constitution. It provided that taxes on inter-State sales would be levied and collected by the Government of India, and Parliament could formulate principles for determining when such sales took place.

The respondent contended that the State Legislature had no power to enact Act 9 of 1962 after the Constitution (Sixth Amendment) Act, 1956. The court agreed, stating that the validity of an enactment should be tested based on the legislative power existing on the date it was passed. Legislative competence must exist at the time of enactment, not based on past or future competence.

The court cited Willoughby, stating:
"The validity of a statute is to be tested by the constitutional power of a Legislature at the time of its enactment by that Legislature, and, if thus tested it is beyond the legislative power, it is not rendered valid, without re-enactment, if later, by constitutional amendment, the necessary legislative power is granted."

In light of this, the court held that the State Legislature lacked the power to pass Act 9 of 1962 on the date it was enacted due to the Constitution (Sixth Amendment) Act, 1956. Consequently, the Tax Revision Case failed, and the court decided accordingly without any order as to costs.

Conclusion
The court concluded that the State Legislature was not competent to pass Act 9 of 1962 post the Constitution (Sixth Amendment) Act, 1956, thus invalidating the assessment of sales tax on inter-State sales for the specified period. The judgment emphasized the necessity of legislative competence at the time of enactment and upheld the Tribunal's decision.

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