1963 (11) TMI 68 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of Section 11 of the Madras Commercial Crops Markets Act, 1933.
2. Classification of coconut as an oil-seed under Section 14 of the Central Sales Tax Act, 1956.
3. Levy of cess by way of sales tax under Section 11 of the Madras Commercial Crops Markets Act, 1933.
4. Delegation of legislative power regarding taxation rates.

Detailed Analysis:

1. Validity of Section 11 of the Madras Commercial Crops Markets Act, 1933:
The primary issue revolves around the constitutionality of Section 11 of the Madras Commercial Crops Markets Act, 1933, as amended by the Madras Commercial Crops Markets (Amendment) Act, 1955. The section authorizes the Market Committee to levy a cess by way of sales tax on any commercial crop bought and sold in the notified area, subject to rules prescribed by the State Government. The court noted that the expression "cess by way of sales tax" and the reference to Article 286 suggest that the levy is a tax under entry 54 of the State List (List II) of the Seventh Schedule to the Constitution, which pertains to "Taxes on the sale or purchase of goods other than newspapers."

2. Classification of Coconut as an Oil-Seed:
The court addressed whether coconut falls under the classification of "oil-seeds" as specified in Section 14 of the Central Sales Tax Act, 1956. Section 14 lists goods of special importance in inter-State trade or commerce, including "Oil-seeds, that is to say, seeds yielding non-volatile oils used for human consumption, or in industry, or in the manufacture of varnishes, soaps and the like, or in lubrication, and volatile oils used chiefly in medicines, perfumes, cosmetics and the like." The court concluded that coconut is indeed an oil-seed under item (vi) of Section 14, supported by the exclusion of coconut and copra in Schedule II of the Kerala General Sales Tax Act, 1963, which otherwise lists oil-seeds.

3. Levy of Cess by Way of Sales Tax:
The court determined that the levy under Section 11 of the Madras Commercial Crops Markets Act, 1933, constitutes a sales tax. Given that a sales tax of two percent is already levied on coconuts under the General Sales Tax Act, 1125, it is not permissible to impose an additional sales tax under Section 11 of the Madras Commercial Crops Markets Act. This conclusion aligns with the Mysore High Court's decision in Kasturi Seshagiri Pai and Co. v. Deputy Commissioner of South Kanara, which held that the maximum sales tax on oil-seeds, including coconut and copra, is two percent, and any further levy would violate Article 286(3) of the Constitution and Sections 14 and 15 of the Central Sales Tax Act.

4. Delegation of Legislative Power:
A significant issue raised was the absence of a ceiling for the levy under Section 11, suggesting an impermissible delegation of legislative power. The court agreed with the view that without a legislative provision regarding policy or limits for the assessment, the delegation of power to the executive to fix the tax rate amounts to excessive delegation and is thus invalid. This perspective was supported by the decision in Shanmugha Oil Mills v. Coimbatore Market Committee, which held that uncontrolled power vested in the executive to determine the tax rate without any guiding principles is unconstitutional. The court also referenced the Supreme Court's stance in Banarsi Das Bhanot v. State of Madhya Pradesh, emphasizing that while the executive can determine details relating to the working of taxation laws, the delegation must have discernible limits and should not amount to an abdication of legislative function.

Conclusion:
The court held that:
1. Coconut is classified as an oil-seed under item (vi) of Section 14 of the Central Sales Tax Act, 1956.
2. The levy under Section 11 of the Madras Commercial Crops Markets Act, 1933, is a sales tax.
3. As the maximum permissible sales tax of two percent is already levied under the general sales tax law, no additional sales tax can be imposed under Section 11.
4. The delegation of power to the executive to fix the tax rate without any legislative guidelines is unconstitutional.

Judgment:
The court concluded that the levy of a cess by way of sales tax under Section 11 of the Madras Commercial Crops Markets Act, 1933, cannot be made. The petitions were allowed, with no costs awarded.

← Previous Next →