1964 (7) TMI 21 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Article 286(1)(a) of the Constitution to the State of Vindhya Pradesh during the assessment period.
2. Tax liability on sales amounting to Rs. 31,059-12-0 under the V.P. Sales Tax Ordinance No. II of 1949.
3. Tax liability on despatches of goods worth Rs. 4,01,255-4-0 to customers outside the State under the V.P. Sales Tax Ordinance No. II of 1949.

Issue-wise Detailed Analysis:

1. Applicability of Article 286(1)(a) of the Constitution to the State of Vindhya Pradesh during the assessment period:

The primary question was whether Article 286(1)(a) of the Constitution applied to the State of Vindhya Pradesh during the assessment period. The Tribunal had held that Article 286 was applicable to Part C States, thereby exempting sales tax on bidis sold and exported outside Vindhya Pradesh for consumption. The Court examined Article 264(b) of the Constitution, which stated that "State" does not include a State specified in Part C of the First Schedule. The Court considered the arguments that the context of Article 286 required the word "State" to include Part C States to prevent multiple taxes on the same transaction, which would hamper the free flow of trade within India. The Court concluded that the context and the object of Article 286 necessitated reading "State" to include Part C States, thus applying Article 286 to Vindhya Pradesh during the assessment period.

2. Tax liability on sales amounting to Rs. 31,059-12-0 under the V.P. Sales Tax Ordinance No. II of 1949:

Given the conclusion that Article 286 applied to Vindhya Pradesh, the Court held that the sales of bidis amounting to Rs. 31,059-12-0, which were delivered outside the former State of Vindhya Pradesh as a direct result of sale transactions for consumption, were not liable to sales tax. This decision was based on the Explanation to Article 286(1), which exempted such transactions from sales tax. Consequently, the second question was answered in the negative, confirming that these sales were not liable to tax under the V.P. Sales Tax Ordinance No. II of 1949.

3. Tax liability on despatches of goods worth Rs. 4,01,255-4-0 to customers outside the State under the V.P. Sales Tax Ordinance No. II of 1949:

The Court noted that the Tribunal did not express a clear opinion on whether the despatches of bidis worth Rs. 4,01,255-4-0 from the head office at Maihar to branches in Uttar Pradesh were sales transactions or mere transfers. However, given the applicability of Article 286 to Vindhya Pradesh, the Court concluded that even if these despatches were considered sales transactions, no sales tax could be validly levied on them under the Ordinance. Thus, the third question was also answered in the negative, whether the despatches were regarded as mere transfers or sales falling under the Explanation to Article 286(1).

Conclusion:

The Court concluded that Article 286 applied to Part C States, including Vindhya Pradesh, during the assessment period. Consequently, the sales amounting to Rs. 31,059-12-0 and the despatches worth Rs. 4,01,255-4-0 were not liable to tax under the V.P. Sales Tax Ordinance No. II of 1949. The reference was answered accordingly, with costs awarded to the assessee.