1975 (2) TMI 107 - HC - VAT and Sales Tax

Issues Involved:
1. Liability to pay purchase tax under Section 7A of the Bombay Sales Tax Act, 1953.
2. Applicability of Notification No. STA. 1058-G-1 dated 7th October, 1958, and Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959.
3. Definition and interpretation of "resale" under the Bombay Sales Tax Act.
4. Constitutional restrictions on the imposition of sales tax by the State.

Detailed Analysis:

1. Liability to Pay Purchase Tax under Section 7A of the Bombay Sales Tax Act, 1953:
The applicants were registered dealers who sold goatskins to a foreign buyer, Raznoexport, under a contract dated 27th December, 1958. The dispute arose regarding the purchase tax on goatskins bought from unregistered dealers during the assessment periods 1st April, 1958, to 31st March, 1959, and 1st April, 1959, to 31st December, 1959. The Sales Tax Officer, Assistant Commissioner of Sales Tax, Commissioner of Sales Tax, and the Sales Tax Tribunal all disallowed the applicants' claim for exemption from purchase tax under Section 7A of the Bombay Sales Tax Act, 1953, leading to this reference.

2. Applicability of Notification No. STA. 1058-G-1 dated 7th October, 1958, and Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959:
The applicants argued that their purchases from unregistered dealers were exempt from purchase tax under the aforementioned notifications. The Tribunal, however, confirmed the levy of purchase tax, leading to the reframed question: "Whether the applicants were liable to pay purchase tax under Section 7A of the Bombay Sales Tax Act, 1953, on their purchases of goatskins from unregistered dealers and were not entitled to claim exemption under Notification No. STA 1058-G-1 dated 7th October, 1958, and Notification No. STR. 1058-(xiii)-G-1 dated 10th September, 1959?"

3. Definition and Interpretation of "Resale" under the Bombay Sales Tax Act:
The term "resale" was crucial to determining the applicability of the tax exemption. The Bombay Sales Tax Act defines "sale" in Section 2(13), which includes sales made within the pre-Reorganisation State of Bombay. The notifications issued under Section 7A of the Act did not define "resale," leading to the interpretation that "resale" must mean resale within the State. The Court held that the expression "resale" in the notifications must bear the same meaning as in Section 2(13) of the Act, which includes sales within the pre-Reorganisation State of Bombay.

4. Constitutional Restrictions on the Imposition of Sales Tax by the State:
The Court examined the constitutional provisions under Article 286 and the Central Sales Tax Act, 1956, particularly Sections 3, 4, and 5, which delineate the scope of State taxation powers. The Court noted that the State's power to tax is limited to intra-State sales and purchases, and does not extend to inter-State trade or commerce or export/import transactions. The Court clarified that the issue was not about taxing the sale to Raznoexport but about the taxability of the preceding purchase of goatskins by the applicants.

The Court concluded that the sales made by the applicants to Raznoexport, which occasioned the export of goods, were intra-State sales as per the principles laid down in Section 4(2) of the Central Sales Tax Act, 1956. Therefore, these sales were "resales" within the State, and the applicants were entitled to claim exemption from purchase tax under the notifications.

Conclusion:
The Court answered the reframed question in the negative, holding that the applicants were not liable to pay purchase tax under Section 7A of the Bombay Sales Tax Act, 1953, on their purchases of goatskins from unregistered dealers and were entitled to claim exemption under the relevant notifications. The respondent was directed to pay the costs of the references, and the fee paid by the applicants was ordered to be refunded.

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