1986 (11) TMI 359 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of Notification No. S.O. 124/H.A. 20/73/S. 63/82 dated November 30, 1982.
2. Legality of the show cause notice issued by the Assessing Authority, Karnal.
3. Determination of whether the transaction of supply of rice to the Food Corporation of India under the Levy Orders amounts to "sale".
4. Vires of section 4B of the Punjab General Sales Tax Act.
5. Taxability of bardana used for packing rice.

Summary:

1. Constitutional Validity of Notification No. S.O. 124/H.A. 20/73/S. 63/82:
The petition challenged the constitutional validity of the notification dated November 30, 1982, on the grounds of being violative of Article 14 of the Constitution of India. The petitioner argued that the notification imposed a discriminatory tax on the Food Corporation of India while exempting other similarly situated entities. The notification was later withdrawn by another notification dated October 31, 1984.

2. Legality of the Show Cause Notice:
The Assessing Authority issued a show cause notice (annexure P-2) to the Food Corporation of India for the procurement of rice under the Haryana Rice Procurement (Levy) Order, 1979, treating it as a purchase and thereby making it liable to pay tax. The petitioner argued that this stand was contrary to the decision in Food Corporation of India's case [1976] 38 STC 144, which held that such transactions did not constitute sales.

3. Determination of Whether the Transaction Amounts to "Sale":
The court revisited the decision in Food Corporation of India's case [1976] 38 STC 144, which relied on the Supreme Court's decision in Chittar Mal Narain Das v. Commissioner of Sales Tax [1970] 26 STC 344. The court noted that the Supreme Court in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 did not fully overrule Chittar Mal's case. The court held that the transactions under the Levy Orders did not amount to sales as there was no profit motive and no real freedom to bargain, thus following the precedent set in Chittar Mal's case.

4. Vires of Section 4B of the Punjab General Sales Tax Act:
Although the vires of section 4B of the Punjab General Sales Tax Act were challenged, the court did not delve into this issue as the primary finding that the transactions did not amount to sales rendered this point moot.

5. Taxability of Bardana:
The petitioner also challenged the tax imposed on bardana (packing material). The court quashed the order assessing the bardana, citing the Supreme Court's decision in Commissioner of Taxes, Assam v. Prabhat Marketing Co. Ltd. [1967] 19 STC 84, which held that an implied contract to sell packing material independently could not be inferred when the value of the packing material was insignificant compared to the contents.

Conclusion:
The court quashed all the impugned orders and allowed the writ petitions, holding that the transactions under the Levy Orders did not constitute sales and thus were not taxable. The issue of bardana was also resolved in favor of the petitioner, with no costs imposed.