1971 (4) TMI 89 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of Section 8(2) of the Central Sales Tax Act.
2. Validity of Section 9(2) of the Central Sales Tax Act.
3. Constitutionality of Sections 9 and 10 of the Central Sales Tax (Amendment) Act, 1969.
4. Taxation on baled cotton and its packing material.

Detailed Analysis:

1. Validity of Section 8(2) of the Central Sales Tax Act:

The petitioner argued that Parliament had abdicated its legislative function by adopting the rates of tax provided in the State Act through Section 8(2) of the Central Sales Tax Act. The court referred to Article 246 of the Constitution, which delineates the power of Parliament and State Legislatures to make laws. The court noted that the Central Act, through Section 8(1), had fixed a specific rate of tax (3%) for certain inter-State sales, and thus there was no delegation of legislative power in this respect. For declared goods, the rate of tax under Section 8(2)(a) of the Central Act is the same as that under the State Act, which does not exceed 3%. The court held that adopting the rates of the State Act does not amount to delegation of legislative power, as it ensures uniformity and avoids the anomaly of having different rates for the same goods within a State. The adoption of State rates by Parliament was found to be a matter of legislative wisdom and not an abdication of legislative function. The court cited several Supreme Court judgments, including Delhi Laws Act, 1912, In re, and Pandit Banarsi Das Bhanot v. State of Madhya Pradesh, to support its conclusion that the adoption of State rates by the Central Act is constitutionally valid.

2. Validity of Section 9(2) of the Central Sales Tax Act:

The petitioner contended that Section 9(2) of the Central Act, which adopts the procedural provisions of the State Act for the levy and collection of tax, suffers from excessive delegation. The court referred to Article 258(2) of the Constitution, which allows Parliament to confer powers and impose duties on State authorities for administering a law made by Parliament. The court held that Section 9(2) of the Central Act, which utilizes the functionaries and procedural provisions of the State Act for the administration of the Central Act, falls within the scope of Article 258(2) and does not amount to excessive delegation. The court cited the Supreme Court's decision in Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, Delhi, which upheld the validity of a similar provision in the Delhi Municipal Corporation Act.

3. Constitutionality of Sections 9 and 10 of the Central Sales Tax (Amendment) Act, 1969:

The petitioner argued that Sections 9 and 10 of the Amendment Act, which give retrospective effect to the amendments in the Central Act, violate Article 14 of the Constitution by discriminating between dealers who had collected tax and those who had not. The court noted that Section 9 of the Amendment Act gives retrospective effect to the amendments to nullify the effect of the Supreme Court's judgment in State of Mysore v. Lakshminarasimhiah Setty and Sons, which had held that certain inter-State sales were not liable to tax. Section 10 exempts dealers who had not collected tax during the relevant period from liability to pay tax, while those who had collected tax are not exempt. The court held that the classification of dealers into those who had collected tax and those who had not is reasonable and has a nexus with the object of the Amendment Act, which is to ensure that dealers who had collected tax do not retain it. The court cited the Supreme Court's decision in Jonnala Narasimharao v. State of Andhra Pradesh, which upheld a similar classification in the Andhra Pradesh General Sales Tax (Amendment) Act.

4. Taxation on baled cotton and its packing material:

The petitioner argued that baled cotton should be taxed as a single commodity and that it was not permissible to bifurcate it into cotton and packing material (hessian and bardana) for taxation purposes. The court noted that cotton, including baled cotton, is classified as "declared goods" under Section 14 of the Central Act and is subject to a maximum tax rate of 3%. The court held that the bifurcation of baled cotton into cotton and packing material for taxation purposes was not permissible and that the tax on hessian and bardana should be the same as that for cotton. The court quashed the part of the assessment order that levied a 10% tax on hessian and bardana and directed the Assessing Authority to reconsider the levy without bifurcation.

Conclusion:

The court dismissed the writ petitions, upholding the validity of Sections 8(2) and 9(2) of the Central Sales Tax Act and Sections 9 and 10 of the Central Sales Tax (Amendment) Act, 1969. The court quashed the part of the assessment order that bifurcated baled cotton for taxation purposes and directed the Assessing Authority to reconsider the levy on hessian and bardana.