1983 (11) TMI 270 - HC - VAT and Sales Tax

Issues Involved:

1. Validity of the U.P. Sales Tax (Amendment and Validation) Ordinance, 1981.
2. Taxability of acrylic yarn sold by the petitioner.
3. Retrospective effect of the ordinance and its impact on the petitioner's ability to recover tax from purchasers.
4. Classification of acrylic yarn as knitting wool or yarn for tax purposes.
5. Rate of tax applicable to acrylic yarn for the period 1st April 1979 to 31st March 1980.
6. Petitioner's representation to the State Government regarding tax recovery.

Issue-Wise Detailed Analysis:

1. Validity of the U.P. Sales Tax (Amendment and Validation) Ordinance, 1981:
The petitioner challenged the amendment in Notification No. 8224/X dated 31st August 1979, made by the U.P. Sales Tax (Amendment and Validation) Ordinance, 1981, with retrospective effect, claiming it was unconstitutional and invalid. The court held that the power of the Governor to promulgate an Ordinance is co-extensive with that of the legislature, and the legislature acting within its own legislative field can make its law prospectively as well as retrospectively. Citing the Supreme Court's decision in Hira Lal Rattan Lal v. Sales Tax Officer, the court found no substance in the petitioner's submission that the retrospective levy violated Article 19(1)(f) and (g) of the Constitution. Therefore, the objection to the constitutional validity of Ordinance No. 12 of 1981 was not sustained.

2. Taxability of Acrylic Yarn Sold by the Petitioner:
The Sales Tax Officer concluded that acrylic yarn sold by the petitioner fell in the category of knitting wool and was taxable at the rate of 7% plus an additional tax of 1%, totaling 8% for the entire period between 1st April 1979 and 31st March 1980. The appellate authority affirmed this decision. The court analyzed the relevant provisions of the Sales Tax Act and various notifications, concluding that acrylic yarn qualified as yarn and should be taxed at the rate of 6% plus an additional tax of 1%, totaling 7%.

3. Retrospective Effect of the Ordinance and its Impact on the Petitioner's Ability to Recover Tax from Purchasers:
The petitioner argued that the retrospective operation of the amendment compelled them to pay tax at a higher rate than they could recover from purchasers, contravening their fundamental rights under Article 19(1)(f) and (g). The court rejected this argument, stating that the retrospective levy did not violate the Constitution as the legislature had the competence to enact such provisions.

4. Classification of Acrylic Yarn as Knitting Wool or Yarn for Tax Purposes:
The court examined whether acrylic yarn should be classified as knitting wool or yarn. The appellate authority had treated acrylic yarn as knitting wool, arguing that knitting wool is considered a commodity different from yarn for tax purposes. However, the court found that acrylic yarn qualifies as yarn under the Supreme Court's decision in Commissioner of Sales Tax, U.P. v. Sarin Textile Mills, which defined yarn as a spun strand meant for use in knitting.

5. Rate of Tax Applicable to Acrylic Yarn for the Period 1st April 1979 to 31st March 1980:
The court concluded that the petitioner's turnover of acrylic yarn for the period 1st April 1979 to 31st March 1980 was taxable at the rate of 6% under section 3-A of the U.P. Sales Tax Act and an additional tax of 1% under section 3-F, totaling 7%. The respondents' computation of the total tax at 8% was not justified.

6. Petitioner's Representation to the State Government Regarding Tax Recovery:
The petitioner contended that they could not realize tax at a rate higher than 2% from purchasers due to the retrospective operation of the ordinance. The court noted that the petitioner had made a representation to the State Government requesting that the difference between the tax payable and the tax actually realized not be recovered. The court did not find it necessary to issue any direction to the State Government regarding this representation, leaving it to the State Government to deal with the representation fairly and equitably.

Conclusion:
The petition partially succeeded. The court set aside the orders dated 31st August 1981 and 27th March 1982, directing the assessing authority to pass a fresh assessment order computing the tax payable by the petitioner at the rate of 7% on the turnover already determined. The challenge to the validity of the U.P. Sales Tax (Amendment and Validation) Act, 1982, which replaced Ordinance No. 12 of 1981, was also not sustained.

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