1969 (4) TMI 94 - HC - VAT and Sales Tax

Issues Involved:
1. Reassessment of taxable turnover including foreign liquor sales.
2. Constitutionality of sales tax on foreign liquor under Articles 301 and 304.
3. Inclusion of sales tax collected under the Madras Prohibition Act in taxable turnover.
4. Inclusion of gallonage fee in taxable turnover.
5. Levy of sales tax on sprayers used for agricultural purposes.

Detailed Analysis:

1. Reassessment of Taxable Turnover Including Foreign Liquor Sales:
The petitioners, Messrs Spencer and Company, contested the reassessment notices issued by the respondent for the assessment years 1961-62 to 1964-65, arguing that the reassessment to include foreign liquor sales and the collection of 50% tax under the Madras Prohibition Act and gallonage fee in the taxable turnover was illegal and without jurisdiction. The court held that the reassessment was permissible under section 3 of the Madras General Sales Tax Act, 1959, and dismissed the writ petitions (W.Ps. Nos. 2787 to 2790 of 1966).

2. Constitutionality of Sales Tax on Foreign Liquor Under Articles 301 and 304:
The petitioners argued that the proposed tax on foreign liquor violated Articles 301 and 304 of the Constitution of India. The court found that the sales tax on foreign liquor did not infringe upon the freedom of trade as envisaged in Article 301 and was compensatory and regulatory in nature. The court cited the Supreme Court's decision in State of Madhya Pradesh v. Bhailal Bhai to support its conclusion that the levy was constitutional and dismissed the contention.

3. Inclusion of Sales Tax Collected Under the Madras Prohibition Act in Taxable Turnover:
The petitioners contended that including the sales tax collected under section 21-A of the Madras Prohibition Act in the taxable turnover under the Madras General Sales Tax Act was illegal. The court agreed, stating that the sales tax collected under section 21-A retained its distinct individuality as a tax and could not be deemed part of the price of the liquor sold. The court upheld the petitioners' contention and directed that the sales tax collected under the Madras Prohibition Act should not be included in the assessable turnover for the purposes of the Madras General Sales Tax Act.

4. Inclusion of Gallonage Fee in Taxable Turnover:
The petitioners argued that the gallonage fee collected under the Madras Liquor (Licence and Permit) Rules, 1960, should not be included in the taxable turnover. The court disagreed, stating that the gallonage fee was an expense necessary for the trade and formed part of the consideration for the sale of liquor. The court held that the gallonage fee could be included in the taxable turnover and dismissed the petitioners' contention.

5. Levy of Sales Tax on Sprayers Used for Agricultural Purposes:
In T.C. No. 195 of 1967, the petitioners contested the inclusion of the cost of sprayers in the assessable turnover, arguing that sprayers used for agricultural purposes should be exempt under item 23 of the First Schedule to the Madras General Sales Tax Act. The court found that the exclusion of articles used for agricultural purposes was unqualified and intended by the Legislature. The court held that all articles made of any metal used for agricultural purposes were exempt from tax under item 23 and directed the assessing authority to revise the assessment accordingly.

Judgment Summary:
The court dismissed W.Ps. Nos. 2787 to 2790 of 1966 and W.Ps. Nos. 2988 to 2991 of 1966, with specific directions to the assessing authority to exclude the sales tax collected under section 21-A of the Madras Prohibition Act from the assessable turnover. T.Cs. Nos. 102 to 104 of 1967 and T.Cs. Nos. 194 and 195 of 1967 were allowed in part, with directions to reassess the taxable turnover in accordance with the principles laid down in the judgment. No order as to costs was made in any of the cases.

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