1990 (8) TMI 349 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990.
2. Validity of the new Section 13AA of the Bombay Sales Tax Act, 1959.
3. Applicability of Entry 54 of List II of the Seventh Schedule to the Constitution.
4. Validity of the validating provisions in Section 3 of the Maharashtra Ordinance No. 9 of 1989 and Act No. 2 of 1990.

Issue-wise Detailed Analysis:

1. Constitutionality of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990:
The petitions challenged the constitutionality of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990, which replaced the ordinance. The court noted that these provisions introduced a new Section 13AA into the Bombay Sales Tax Act, 1959, effective from July 1, 1982, and sought to validate recoveries made under the old Section 13AA. The court found that the new Section 13AA was beyond the competence of the State Legislature and, therefore, unconstitutional and null and void.

2. Validity of the new Section 13AA of the Bombay Sales Tax Act, 1959:
The court examined the new Section 13AA, which levied a purchase tax on goods specified in Part I of Schedule C when used in the manufacture of taxable goods, unless the manufactured goods were sold within the State. The court held that the charging event under the new Section 13AA was the use of the purchased goods in the manufacture of taxable goods, making it a levy in the nature of excise. Since excise duties fall outside the purview of Entry 54 of List II, the State Legislature was not competent to impose such a levy.

3. Applicability of Entry 54 of List II of the Seventh Schedule to the Constitution:
The court referred to the Supreme Court's Goodyear judgment, which held that a tax on despatch was outside the competence of the State Legislature. The court found that the new Section 13AA, whether construed as a levy on manufacture or on non-sale within the State, did not fall within Entry 54 of List II. The levy was either in the nature of excise or too remotely connected with the purchase of goods to qualify as a purchase tax.

4. Validity of the validating provisions in Section 3 of the Maharashtra Ordinance No. 9 of 1989 and Act No. 2 of 1990:
The court held that the validating provision in Section 3 was also unconstitutional. A Legislature can only validate a tax if it cures the defect for which it was struck down. Since the old Section 13AA was found to be a tax on consignment and outside the competence of the State Legislature, the defect could not be cured by the State Legislature. The court cited the Supreme Court's judgment in Shri P.C. Mills Ltd. v. Broach Borough Municipality, which stated that a validating law must remove the defect found by the courts and make adequate provisions for a valid imposition of the tax.

Conclusion:
The court declared that the provisions of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990 were unconstitutional and null and void. It directed the respondents to refund the amounts recovered under the new Section 13AA with interest at the rate of 12% per annum. The petitions were allowed, and the respondents were ordered to pay the costs of the writ petitions, quantified at Rs. 1,000 each. The court refused the oral application for leave to appeal to the Supreme Court.

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