1986 (4) TMI 335 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of the amendment to section 2(o) of the M.P. General Sales Tax Act, 1958.
2. Validity of the notification dated 1st October, 1978 under section 8(5) of the Central Sales Tax Act, 1956.
3. Legality of demand notices for sales tax.
4. Validity of show cause notices for cancellation of registration certificate.
5. Deduction of tax-paid packing material from taxable turnover.
6. Imposition of penalty under section 43(1) of the M.P. General Sales Tax Act, 1958.

Detailed Analysis:

1. Constitutionality of the Amendment to Section 2(o) of the M.P. General Sales Tax Act, 1958:
The petitioner-firm challenged the constitutionality of the amendment introduced in section 2(o) of the Act by Act No. 48 of 1976, which included the value or cost of packing material in the sale price of goods. The court held that the amendment does not suffer from any vices of illegality or ultra vires on the ground of legislative competence. The explanation appended to section 2(o) was found to be a rational attempt to include the cost of packing material in the sale price, thereby harmonizing with the overall tax scheme. The court concluded that the amendment is not discriminatory and aligns with the single-point tax system.

2. Validity of the Notification Dated 1st October, 1978 under Section 8(5) of the Central Sales Tax Act, 1956:
The petitioner-firm also challenged the notification dated 1st October, 1978, issued under section 8(5) of the Central Sales Tax Act, 1956, claiming it was contrary to the provisions of the Act. The court found that section 8(5) does not prohibit giving benefits if the tax is paid on packing material. The notification was deemed valid and consistent with the statutory provisions.

3. Legality of Demand Notices for Sales Tax:
The petitioner-firm contested the demand notices (annexures B and C) for Rs. 8,515 and Rs. 23,323 towards M.P. sales tax and Central sales tax, respectively, arguing that it had reasonably claimed deductions for tax-paid packing material. The court quashed these demand notices, directing fresh assessment based on the correct interpretation of section 2(o) of the Act, considering tax-paid goods deductions.

4. Validity of Show Cause Notices for Cancellation of Registration Certificate:
The petitioner-firm also challenged the show cause notices (annexures E and F) for the cancellation of its registration certificate. The court did not explicitly address this issue separately, but the quashing of demand notices implies that the show cause notices may also be reconsidered in light of the fresh assessment directive.

5. Deduction of Tax-Paid Packing Material from Taxable Turnover:
The court extensively discussed the deduction of tax-paid packing material from the taxable turnover. It held that the explanation to section 2(o) should be read in conjunction with section 2(r)(ii) of the Act, allowing the deduction of tax-paid packing material from the sale price. The court emphasized that the packing material, when sold with the main goods, should be considered part of the goods sold, thus permitting the deduction of its cost if it was tax-paid.

6. Imposition of Penalty under Section 43(1) of the M.P. General Sales Tax Act, 1958:
In the related case of Kukreja Udyog v. Commissioner of Sales Tax, the court addressed the imposition of penalty under section 43(1) of the Act. It held that the petitioner should be given a reasonable opportunity of being heard before imposing a penalty. The court found that the petitioner had an opportunity to explain the incorrect returns and therefore, the imposition of the penalty was not bad in law. However, the quantum of the penalty needed reconsideration in light of the allowable deduction for tax-paid packing material.

Conclusion:
In conclusion, the court allowed the petition to the extent that the demand notices were quashed and directed a fresh assessment based on the proper interpretation of section 2(o) of the Act. The amendment to section 2(o) was upheld as constitutional, and the notification under section 8(5) of the Central Sales Tax Act was found valid. The court clarified that tax-paid packing material could be deducted from the taxable turnover, and the imposition of penalties should be reconsidered accordingly. The petition was disposed of with no order as to costs, and the security deposit was ordered to be refunded to the petitioner.

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