1971 (1) TMI 104 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the modification of section 6(2) of the Bengal Finance (Sales Tax) Act, 1941, by the Central Government.
2. Authority of the Central Government to make modifications post-extension of the Act to the Union Territory.
3. Consistency of the modification with the legislative policy of the Bengal Finance (Sales Tax) Act, 1941.
4. Validity of the notifications withdrawing exemptions without the statutory notice period.

Issue-wise Detailed Analysis:

1. Validity of the Modification of Section 6(2):
The court examined whether the modification of section 6(2) of the Bengal Finance (Sales Tax) Act, 1941, by Notification No. S.R.O. 3908 dated 7th December, 1957, was valid under section 2 of the Union Territories (Laws) Act, 1950. The court concluded that the power to modify given by section 2 was intended only to make the State law applicable to the Union territory with necessary adaptations. The modification made by the notification was unrelated to the purpose of applying the State law to the Union territory and was therefore unauthorized and void. The court emphasized that the power to modify must be exercised within the limits prescribed by the statute, and the modification in question changed the legislative policy, which was not permissible.

2. Authority to Modify Post-Extension:
The court addressed whether the Central Government could make modifications to the Act after it had been extended to the Union Territory. It held that while theoretically possible, future modifications would only be necessary if there were changes in the constitutional structure of the Union territory. Since no such changes occurred in 1957, the modification was not justified. The court also referenced section 21 of the General Clauses Act, which allows for amendments, but emphasized that such power must be exercised within the limits prescribed by the statute conferring the power.

3. Consistency with Legislative Policy:
The court analyzed whether the modification was consistent with the legislative policy of the Bengal Finance (Sales Tax) Act, 1941. It was established that the essential legislative function, including the determination of legislative policy, must remain with the legislature. The modification in section 6(2) changed the legislative policy by allowing the government to decide the notice period, which was originally set by the legislature as a minimum of three months. This shift in policy was not authorized by section 2 of the Union Territories (Laws) Act, 1950, and thus the modification was invalid.

4. Validity of Notifications Without Statutory Notice:
The court examined the validity of the notifications dated 16th June, 1966, and 29th June, 1966, which withdrew exemptions without the statutory notice period of three months as required by the original section 6(2). The court held that the statutory notice period was mandatory for the withdrawal of exemptions as it provided taxpayers an opportunity to object. The failure to comply with this requirement rendered the notifications void. The court also noted that while the grant of exemption did not require the same mandatory notice, the withdrawal did, thus invalidating the withdrawal notifications.

Conclusion:
The court declared that the modification of section 6(2) by the notification dated 7th December, 1957, was ineffective, and the original section 6(2) remained in force. Consequently, the notifications dated 16th June, 1966, and 29th June, 1966, were quashed for non-compliance with the statutory notice requirement. The petitions were allowed, and no order as to costs was made.