1968 (3) TMI 98 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of Clause (b) of Sub-section (2) of Section 8 of the Central Sales Tax Act, 1956.
2. Validity of the opening words of Sub-section (4) of Section 8 of the Central Sales Tax Act, 1956.
3. Imposition of higher tax rates for inter-State sales in the absence of C and D Forms.
4. Alleged discrimination and impediment to inter-State trade under Article 301 of the Constitution.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Clause (b) of Sub-section (2) of Section 8:
The court examined the constitutional validity of Clause (b) of Sub-section (2) of Section 8, which prescribes higher tax rates for inter-State sales not covered by C or D Forms. The assessees argued that the enhanced inter-State rate acts as a penalty and is prohibitive, thereby violating the freedom of trade under Articles 301 and 303 of the Constitution. The court noted that the original structure of inter-State taxation was designed to facilitate trade and avoid evasion by routing transactions through registered dealers. However, the court held that the higher rate under Section 8(2)(b) is not a penalty but a measure to ensure compliance with the conditions required for concessional rates. The court found that Section 8(2)(b) is within the legislative competence of Parliament under Entry 92-A of the Union List.

2. Validity of the Opening Words of Sub-section (4) of Section 8:
The assessees contended that the opening words of Sub-section (4) of Section 8, which make Sub-section (1) inapplicable if C and D Forms are not produced, are invalid. They argued that the rate under Sub-section (1) should apply if the character of the sales can be proven otherwise. The court held that the requirement for producing C and D Forms is a part of the scheme to ensure proper tracking of inter-State transactions and goods. The court did not find this requirement to be unreasonable or a penalty and upheld the validity of the opening words of Sub-section (4).

3. Imposition of Higher Tax Rates for Inter-State Sales:
The court addressed the issue of higher tax rates being imposed on inter-State sales in the absence of C and D Forms. The assessees argued that this imposition is unreasonable, especially when delays in obtaining these forms are due to government departments. The court acknowledged the practical difficulties faced by assessees but did not find the higher rate to be a penalty or unreasonable. The court suggested that the Union Government consider modifying the law to address delays in obtaining forms from government departments.

4. Alleged Discrimination and Impediment to Inter-State Trade:
The court examined whether the higher tax rates under Section 8(2)(b) discriminate against inter-State trade and violate Article 301 of the Constitution. The court noted that the higher rates could impede the free flow of inter-State trade, commerce, and intercourse by making goods costlier in the importing state. The court held that such discriminatory rates violate Article 301 and are unconstitutional to the extent that they exceed the intra-State single or multi-point rate for similar goods. The court emphasized that fiscal laws should not impede the free flow of inter-State trade and commerce.

Conclusion:
The court allowed the writ petitions and tax cases, holding that Clause (b) of Sub-section (2) of Section 8 is unconstitutional to the extent that it provides for a rate higher than the intra-State single or multi-point rate. The court upheld the validity of the opening words of Sub-section (4) of Section 8 but suggested legislative modifications to address practical difficulties faced by assessees. The assessees were entitled to costs with counsel's fee fixed at Rs. 100.