1968 (3) TMI 104 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Validity of section 2 of the Madras General Sales Tax (Special Provisions) Act, 1964.
2. Whether the tax imposed under section 2(1) of the 1964 Act violates Article 286(1) of the Constitution.
3. Legitimacy of reassessment under the 1964 Act.
4. Alleged discrimination between local and imported hides and skins under the 1964 Act.

Detailed Analysis:

1. Validity of Section 2 of the Madras General Sales Tax (Special Provisions) Act, 1964:

The primary issue was the validity of section 2 of the 1964 Act. The court examined whether this section, which imposed tax on the first sale of dressed hides and skins at a rate based on the purchase price of raw hides and skins, was constitutionally valid. The court noted that the tax, although levied on the first local sale, was effectively based on the purchase price of raw hides and skins, which could be from outside the state. This method of taxation was found to be in violation of Article 286(1) of the Constitution, which prohibits states from taxing sales or purchases outside the state.

2. Violation of Article 286(1) of the Constitution:

The court held that section 2(1) of the 1964 Act, while ostensibly taxing the first local sale, in substance imposed a tax on the outside or inter-State purchase. The court emphasized that the substance and effect of the tax should be considered rather than its form. The tax's incidence on the purchase price of raw hides and skins, which were often purchased outside the state, was deemed unconstitutional. The court concluded that the provision indirectly taxed transactions that the state was prohibited from taxing directly, thus offending Article 286.

3. Legitimacy of Reassessment under the 1964 Act:

The assessees argued that reassessment was not possible where original assessment orders had been quashed by courts. The court rejected this argument, stating that the term "reassessment" described dealers who had been assessed, even if those assessments were later quashed. The court clarified that the 1964 Act aimed to rectify defects in previous assessments and authorize reassessment under its provisions, even for those whose original assessments were invalidated.

4. Alleged Discrimination Between Local and Imported Hides and Skins:

The assessees contended that the 1964 Act discriminated between hides and skins purchased locally and those imported from outside the state. The court examined the legislative intent and the provisions of the 1964 Act, which aimed to equalize the tax burden on inter-State and intra-State transactions. The court found that the Act did not allow for tax evasion or immunity for non-assessees and that the provision for reassessment applied uniformly to all dealers. The court also addressed the argument that the 1964 Act did not revive sub-rule (1) of rule 16, stating that the Act effectively revived the rule by deeming the 1939 Act and its rules to be in force, subject to the provisions of section 2.

Conclusion:

The court held that section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1964, was void and unenforceable as it violated Article 286 of the Constitution. The petitions were allowed, and the reassessment proceedings under the impugned provision were quashed. Costs were awarded in specific writ petitions, while no costs were imposed in the rest.