1963 (11) TMI 72 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Interpretation of sub-clause (c) of rule 5(1)(xi)(1)(A) of the Bombay Sales Tax Rules.
2. Determination of whether the sales were in the course of inter-State trade or commerce under Article 286(2) of the Constitution.

Issue-wise Detailed Analysis:

1. Interpretation of sub-clause (c) of rule 5(1)(xi)(1)(A):

The first issue revolved around whether sub-clause (c) of rule 5(1)(xi)(1)(A) applied to sales where goods were despatched outside the Bombay State by rail. The Tribunal had ruled that sub-clause (c) applied to such sales and required the production of certificates in Form Aid from purchasing dealers for deduction from taxable turnover. However, the High Court noted that the assessee did not rely on sub-clause (c) but on sub-clause (a), which provides for deduction of sales if goods are despatched to a place outside the State of Bombay within three months from the date of sale. The High Court concluded that the Tribunal erred by focusing on sub-clause (c) instead of sub-clause (a) and found it unnecessary to answer this question since it was irrelevant to the assessee's claim.

2. Determination of whether the sales were in the course of inter-State trade or commerce:

The second issue concerned whether the sales were in the course of inter-State trade or commerce, thereby exempt from tax under Article 286(2) of the Constitution. The High Court referred to several Supreme Court judgments to elucidate that a sale can only be considered inter-State if there is a transport of goods from one State to another under the contract of sale. The Court examined the modus operandi of the assessee's business and found that the movement of goods from Bombay to other States was not an integral part of the contracts of sale. The contracts did not necessitate the goods crossing state borders; the buyers had the option to take delivery within Bombay or have the goods despatched to other destinations based on their instructions. Consequently, the Court held that the sales were not in the course of inter-State trade or commerce.

Additionally, the Court noted that even if the sales were considered inter-State, the Sales Tax Laws Validation Act, 1956, lifted the ban on taxing inter-State sales for the period in question, making the sales taxable under the Bombay Sales Tax Act, 1953. The Court rejected the contention that section 46 of the Bombay Sales Tax Act, 1953, prevented the imposition of tax on inter-State sales, citing the Supreme Court's decision in Sundararamier's case, which upheld the conditional nature of the charging sections of the Act.

Conclusion:

The High Court answered the second question in the affirmative, confirming that the sales were not in the course of inter-State trade or commerce and were rightly included in the taxable turnover. The first question was deemed unnecessary to answer. The assessee was ordered to pay the costs of the reference to the Commissioner of Sales Tax.