1965 (11) TMI 141 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of the levy of sales tax on lubricants and chemicals.
2. Interpretation of excise duty as a replacement for sales tax.
3. Violation of Article 301 of the Constitution regarding free trade and commerce.
4. Discrimination under Article 303 and 304 of the Constitution.

Issue-wise Detailed Analysis:

1. Constitutionality of the Levy of Sales Tax on Lubricants and Chemicals:
The petitioner, a registered dealer, challenged the levy of sales tax on lubricants and chemicals used in the manufacture of blankets by the Punjab Government. The petitioner argued that this levy hindered the free right of inter-State trade or commerce, violating Article 301 of the Constitution. The court noted that the petitioner was assessed under the Punjab General Sales Tax Act for the year 1963-64, and the tax amount was calculated based on the purchase of lubricants and chemicals. The principal argument was that the manufactured blankets were not tax-free as wrongly held by the Assessing Authority. The court found no ambiguity in the statutory language and concluded that the duty imposed was not a tax on the sale or purchase of goods but an excise duty.

2. Interpretation of Excise Duty as a Replacement for Sales Tax:
The petitioner contended that the additional excise duty imposed by the Central Government, in lieu of sales tax, should be construed as a sales or purchase tax. The court referred to the Additional Duties of Excise (Goods of Special Importance) Act, 1957, which levied additional duties of excise on certain goods and distributed the proceeds among the States. The court emphasized that excise duty is attracted when goods are manufactured or produced, whereas purchase tax operates on the transaction of sale or purchase. The court ruled that the excise duty under Act No. 58 of 1957 could not be considered a sales or purchase tax, as it did not involve a transaction of sale or purchase.

3. Violation of Article 301 of the Constitution Regarding Free Trade and Commerce:
The petitioner argued that the imposition of higher purchase tax in Punjab compared to the Union territory of Delhi restricted the freedom of trade and commerce guaranteed by Article 301. The court examined Articles 301, 303, and 304 of the Constitution, which deal with trade, commerce, and intercourse within India. The court found no merit in the argument that the tax rate in Punjab discriminated against the petitioner or restricted trade. The court referred to Supreme Court decisions, including Atiabari Tea Co., Ltd. v. State of Assam and Automobile Transport Ltd. v. State of Rajasthan, to clarify that only taxes directly restricting the movement of goods would violate Article 301. The court concluded that the tax in question did not directly hamper the movement of trade, commerce, or intercourse.

4. Discrimination Under Article 303 and 304 of the Constitution:
The petitioner claimed that the higher tax rate in Punjab compared to Delhi violated Article 303, which prohibits discrimination between States. The court noted that Act 58 of 1957 did not give preference to one State over another. The court also addressed Article 304, which allows States to impose taxes on imported goods provided they do not discriminate against similar goods produced within the State. The court found that the petitioner's argument lacked substance, as the tax did not restrict trade but rather facilitated it. The court emphasized that legislative policy on taxation is within the Legislature's domain and not subject to judicial intervention unless it violates constitutional mandates.

Conclusion:
The court dismissed the petition, upholding the constitutionality of the sales tax on lubricants and chemicals used in manufacturing blankets. The court ruled that the excise duty imposed by Act 58 of 1957 could not be construed as a sales or purchase tax and did not violate Articles 301, 303, or 304 of the Constitution. The court emphasized that legislative policy on taxation is a matter for the Legislature, not the judiciary, as long as it remains within constitutional bounds. The petition was dismissed without costs.