1964 (9) TMI 43 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale in question qualifies as a sale in the course of import under Section 5(2) of the Central Sales Tax Act, 1956.
2. Whether the sale took place outside the State of Madras under Section 4(2)(b) of the Central Sales Tax Act, 1956.
3. Applicability and interpretation of Article 286(1)(a) of the Constitution.
4. The relevance of the legislative background and amendments introduced by the Constitution Sixth Amendment Act of 1956.

Issue-wise Detailed Analysis:

1. Whether the sale in question qualifies as a sale in the course of import under Section 5(2) of the Central Sales Tax Act, 1956:

The court examined the terms and conditions of the contract between the petitioner-company and the Government of India, which necessitated the import of M.S. Sheets from London. The contract explicitly required the goods to be manufactured in London, inspected there, and shipped to Madras. The court held that the movement of goods from London to Madras was solely occasioned by the contractual stipulation. The court stated, "The shipment and movement of the goods was solely because of the contractual stipulation contained in the contract." Thus, the sale was deemed to be in the course of import under Section 5(2) of the Central Sales Tax Act, 1956.

2. Whether the sale took place outside the State of Madras under Section 4(2)(b) of the Central Sales Tax Act, 1956:

The court analyzed the appropriation of goods to the contract and determined that the specific goods were appropriated in London when they were shipped. The court noted, "The appropriation of the specific goods towards the contract had taken place in London, i.e., outside the State of Madras." Therefore, the sale was considered to have taken place outside the State of Madras under Section 4(2)(b).

3. Applicability and interpretation of Article 286(1)(a) of the Constitution:

The court discussed the limitations on the power of the State to levy sales tax under Article 286 of the Constitution. The court emphasized that the sale in question was an outside sale, and the levy of sales tax by the State of Madras was illegal due to the embargo in Article 286(1)(a). The court stated, "The levy of sales tax is illegal in view of the embargo in Article 286(1)(a) of the Constitution."

4. The relevance of the legislative background and amendments introduced by the Constitution Sixth Amendment Act of 1956:

The court provided a detailed legislative background leading to the Constitution Sixth Amendment Act of 1956 and the enactment of the Central Sales Tax Act, 1956. The court highlighted the amendments introduced to address the issues of multiple taxation and overlapping jurisdiction of States. The court noted that the Central Sales Tax Act defined the principles for determining local sales, inter-State sales, and sales in the course of import or export. The court stated, "In pursuance of the Constitution Sixth Amendment, the Parliament enacted the Central Sales Tax Act of 1956."

Conclusion:

The court concluded that the sale in question was a sale in the course of import under Section 5(2) of the Central Sales Tax Act, 1956, and that the appropriation of goods took place in London, making it an outside sale under Section 4(2)(b). Consequently, the levy of sales tax by the State of Madras was deemed illegal under Article 286(1)(a) of the Constitution. The revision petition was allowed, and the assessment on the disputed turnover was set aside.