1963 (2) TMI 36 - HC - VAT and Sales Tax

Issues Involved
1. Vires of Section 5 of the Punjab General Sales Tax Act.
2. Whether the impugned tax is an excise duty beyond the legislative competence of the State Legislature.
3. Constitutionality of the entire Punjab General Sales Tax Act.
4. Compliance with Section 15 of the Central Sales Tax Act.
5. Alleged violation of Article 14 of the Constitution.
6. Whether extraction of oil from oil seeds constitutes "manufacture".

Detailed Analysis

1. Vires of Section 5 of the Punjab General Sales Tax Act
The primary issue addressed was the vires of Section 5 of the Punjab General Sales Tax Act (Punjab Act No. 46 of 1948). The petitioners argued that the purchase tax imposed under Section 5 was, in essence, an excise duty and thus beyond the legislative competence of the State Legislature. The court noted that the tax was imposed on the commercial transaction of sale and purchase of oil seeds, not on the manufacture itself. Therefore, it could not be considered an excise duty. The court concluded that the impugned tax was not an excise duty but a purchase tax, falling within the legislative competence of the State Legislature.

2. Whether the Impugned Tax is an Excise Duty Beyond the Legislative Competence of the State Legislature
The petitioners contended that the purchase tax was, in substance, an excise duty. The court examined various precedents, including decisions from the Federal Court, Privy Council, and Supreme Court, to determine the nature of excise duty. It was held that excise duty is a tax on the manufacture or production of goods, whereas the impugned tax was on the commercial transaction of purchasing oil seeds for manufacturing oil. The court found that the tax was not an excise duty and thus within the legislative competence of the State Legislature.

3. Constitutionality of the Entire Punjab General Sales Tax Act
The petitioners argued that the entire Punjab General Sales Tax Act was void ab initio, as Section 5 had been declared ultra vires. They contended that the Act needed to be re-enacted by a competent legislature. The court, however, found that Section 4 of the Act was the charging section, while Section 5 dealt only with the rate of tax. The court held that the amendment of Section 5 in 1952, which removed the vice of excessive delegation, rendered the Act constitutional and operative.

4. Compliance with Section 15 of the Central Sales Tax Act
The petitioners claimed that the tax violated Section 15 of the Central Sales Tax Act, which restricts the tax on declared goods to a maximum of 2% and mandates that it be levied at only one stage. The court found no evidence that the tax exceeded 2% or was levied at more than one stage. Therefore, the court rejected this contention.

5. Alleged Violation of Article 14 of the Constitution
The petitioners argued that the definition of "purchase" in Section 2(ff) of the Punjab Act, as amended in 1960, was discriminatory and violated Article 14 of the Constitution. However, the court found no merit in this argument and noted that legislative classification enjoys a strong presumption of validity. The court dismissed this contention as well.

6. Whether Extraction of Oil from Oil Seeds Constitutes "Manufacture"
The petitioners asserted that the extraction of oil from oil seeds did not amount to "manufacture." The court held that whether a particular process constitutes manufacture depends on the facts and circumstances of each case. The petitioners failed to demonstrate that the extraction process employed did not constitute manufacture. Thus, the court found no merit in this argument.

Conclusion
The court dismissed all the petitions, holding that the Punjab General Sales Tax Act was constitutional, and the impugned tax was within the legislative competence of the State Legislature. The court also found no violation of Section 15 of the Central Sales Tax Act or Article 14 of the Constitution. The extraction of oil from oil seeds was deemed to constitute manufacture. The petitions were dismissed with no order as to costs.

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