1988 (7) TMI 390 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative Competency of Section 13AA of the Bombay Sales Tax Act, 1959.
2. Violation of Article 301 of the Constitution of India.
3. Violation of Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Legislative Competency of Section 13AA of the Bombay Sales Tax Act, 1959:
The primary contention was whether the additional purchase tax under Section 13AA falls under the legislative competence of the State Legislature as per Entry 54 of the State List or Entry 92-B of the Union List. The petitioners argued that the tax essentially constituted a consignment tax, which falls under Entry 92-B of the Union List, and thus beyond the State's legislative competence.

The court analyzed the provisions of the Bombay Sales Tax Act, including Sections 11, 12, 13, 13A, 13AA, and 14, and concluded that the additional tax under Section 13AA is indeed a purchase tax on the goods purchased within the State, which are later used in the manufacture of taxable goods and despatched outside the State. The court emphasized that the tax is levied on the purchase event, and the subsequent use and despatch of the goods merely activate the levy, which was already inherent at the time of purchase.

The court referenced several judicial pronouncements, including the Kerala High Court's decision in Malabar Fruit Products Company v. Sales Tax Officer, Palai, and the Supreme Court's decision in State of Tamil Nadu v. M.K. Kandaswami, to support its conclusion that the tax is a purchase tax and not a consignment tax. Consequently, it falls within the legislative competence of the State under Entry 54 of the State List.

2. Violation of Article 301 of the Constitution of India:
The petitioners argued that the additional purchase tax under Section 13AA impedes the free flow of trade, commerce, and intercourse throughout the territory of India, thus violating Article 301 of the Constitution.

The court, referencing the Supreme Court's decisions in Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport Limited v. State of Rajasthan, concluded that not all taxes impede free trade. Only those taxes that directly and immediately restrict trade fall within the purview of Article 301. The court found that the additional purchase tax under Section 13AA does not directly impede the free flow of trade, as it is a tax on the purchase of goods within the State, which are later used in manufacturing and despatched outside the State.

The court also noted that there was no material evidence provided by the petitioners to demonstrate how the additional tax impedes free trade. Therefore, the challenge based on Article 301 was dismissed.

3. Violation of Article 14 of the Constitution of India:
The petitioners contended that Section 13AA discriminates between dealers who use purchased goods within the State and those who transfer manufactured goods outside the State, thus violating Article 14 of the Constitution.

The court analyzed the provisions and found that the classification made by Section 13AA is reasonable and has a rational nexus with the object of the Act, which is to raise revenue by levying a tax on the sale or purchase of goods within the State. The court emphasized that the concessional rate of tax on raw materials used in manufacturing within the State is justified, as it encourages local manufacturing and ensures that the State benefits from the sale of manufactured goods within its territory.

The court referenced the Supreme Court's decision in Andhra Sugars Ltd. v. State of Andhra Pradesh and Hindustan Milkfood Manufacturers Ltd. v. State of Andhra Pradesh to support its conclusion that the classification is reasonable and does not violate Article 14. Consequently, the challenge based on Article 14 was dismissed.

Conclusion:
The court upheld the validity of Section 13AA of the Bombay Sales Tax Act, 1959, dismissing the challenges based on legislative competency, Article 301, and Article 14 of the Constitution. The petitions were dismissed, and the rule was discharged with no order as to costs. The court also refused the petitioners' request for leave to appeal to the Supreme Court.

← Previous Next →