1967 (4) TMI 183 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of sections 8(2), 8(2A), 8(5), and 9(3) of the Central Sales Tax Act, 1956.
2. Applicability and interpretation of sections 3 to 6, 8, 9, 14, and 15 of the Central Sales Tax Act, 1956.
3. Maintainability of writ petitions under Article 226 of the Constitution.
4. Inclusion of excise duty in the turnover of inter-State sales.
5. Determination of whether certain transactions are inter-State sales or local sales.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sections 8(2), 8(2A), 8(5), and 9(3) of the Central Sales Tax Act, 1956:

The court examined whether these sections violate Articles 301 and 303(1) of the Constitution. The petitioners argued that these sections impose or authorize varying rates of taxes in different States on similar inter-State transactions, resulting in inequality and discrimination that impedes inter-State trade, commerce, and intercourse.

- Article 301: Declares freedom of trade, commerce, and intercourse throughout the territory of India.
- Article 303(1): Prohibits Parliament and State Legislatures from making any law giving preference to one State over another or discriminating between States in matters of trade and commerce.

The court held that sections 8(2), 8(2A), and 8(5) of the Central Sales Tax Act are unconstitutional as they offend Articles 301 and 303(1) by allowing differential tax rates and exemptions in various States, which impede the free flow of trade and commerce. However, the court did not find section 9(3) unconstitutional, as it relates to procedural aspects and not the imposition of differential tax rates.

2. Applicability and Interpretation of Sections 3 to 6, 8, 9, 14, and 15 of the Central Sales Tax Act, 1956:

- Section 3: Defines inter-State sales as those that occasion the movement of goods from one State to another or are effected by transfer of documents of title during such movement.
- Section 4: Determines the situs of a sale, specifying that a sale is inside a State if the goods are within the State at the time of the contract or appropriation.
- Section 5: Deals with sales in the course of import or export.
- Section 8: Specifies tax rates for inter-State sales.
- Section 9: Concerns the levy and collection of tax by the Government of India, with sub-section (3) applying State laws for procedural matters.

The court clarified that the essential tests for determining inter-State sales include whether the movement of goods is occasioned by the contract of sale and whether the sale is effected by transfer of documents of title during the movement. The court also emphasized that the situs of an inter-State sale is determined by the location of goods at the time of contract or appropriation.

3. Maintainability of Writ Petitions under Article 226 of the Constitution:

The court addressed the objection to the maintainability of writ petitions on the ground that the petitioner had a right of appeal. The court reiterated that jurisdiction under Article 226 is not appellate and is no substitute for other ordinary remedies at law. However, exceptions include questions of vires of a statute, patent errors of jurisdiction, or violations of fundamental rights or principles of natural justice. The court found that the constitutional validity of the statutory provisions in question justified the exercise of jurisdiction under Article 226.

4. Inclusion of Excise Duty in the Turnover of Inter-State Sales:

The court considered whether including excise duty in the turnover of inter-State sales offends Article 301. The court noted that while the Madras General Sales Tax Act allows deduction of excise duty from the turnover, the Central Sales Tax Act does not. This discrepancy results in unequal tax burdens and impedes the free flow of inter-State trade. The court held that this inclusion violates Article 301 and is not saved by Article 303.

5. Determination of Whether Certain Transactions are Inter-State Sales or Local Sales:

The court examined various cases to determine whether specific transactions were inter-State sales or local sales. The court emphasized that the movement of goods from one State to another under a contract of sale or as an incident of the contract qualifies as an inter-State sale. The court remitted cases involving depot sales to the Tribunal for fresh disposal, directing it to ascertain whether the contracts provided for the movement of goods from one State to another.

Separate Judgments:
- W.P. No. 739 of 1966: The court quashed the assessment order regarding the second category of turnover, holding it as purchases in the course of import. The first category was remitted to the appellate authority for re-examination.
- W.P. No. 681 of 1966: Allowed, holding that the transactions occasioned the import of foreign cotton.
- T.C. No. 99 of 1964 and T.C. No. 145 of 1964: The court allowed T.C. No. 99 and dismissed T.C. No. 145, holding that the purchases occasioned the import of cotton.
- T.C. Nos. 248 and 284 of 1964: Allowed, holding that the contracts provided for the import of cotton.
- W.P. Nos. 2443 and 2444 of 1965: Allowed, holding that the contracts occasioned the import of foreign machinery.
- W.P. Nos. 2441 and 2442 of 1965: Allowed, as they related to the levy of penalty and were dependent on the outcome of W.P. Nos. 2443 and 2444.
- T.C. Nos. 300 to 302 of 1965: Allowed, remitting the cases to the Tribunal for fresh disposal.
- W.P. No. 836 of 1966: Allowed, holding that including excise duty in the turnover of inter-State sales violates Article 301.

Ordered accordingly.

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