1990 (12) TMI 300 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Constitutionality of Section 4(2)(a)(v), third proviso, of the Delhi Sales Tax Act, 1975.
2. Whether the provision conflicts with the charging section of the Act.
3. Jurisdiction of the Parliament to impose tax on consignment transfers.
4. The interpretation and application of the third proviso to Section 4(2)(a)(v) of the Act.
5. Potential violation of Article 301 of the Constitution.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 4(2)(a)(v), third proviso, of the Delhi Sales Tax Act, 1975:

The petitioner challenged the constitutionality of Section 4(2)(a)(v), third proviso, of the Delhi Sales Tax Act, 1975, arguing that it includes in the turnover the value of goods purchased on the basis of the registration certificate but not utilized as per the certificate. The court examined the legislative intent behind the provision, noting that it aims to prevent the misuse of the registration certificate and statutory forms S.T. 1 and S.T. 35. The provision ensures that if goods are not used as intended, their value is included in the taxable turnover of the purchasing dealer, thereby maintaining the integrity of the tax system.

2. Conflict with the Charging Section of the Act:

The petitioner contended that the said provision is ultra vires as it conflicts with the charging section of the Act, which does not contemplate the levy of purchase tax on such purchases. The court clarified that the third proviso does not impose a purchase tax but rather taxes the sale of raw materials in the hands of the purchaser when the terms of the registration certificate are violated. This ensures that the tax liability is appropriately shifted to the purchasing dealer who misutilizes the statutory forms.

3. Jurisdiction of the Parliament to Impose Tax on Consignment Transfers:

The petitioner argued that the Parliament lacks jurisdiction to impose tax on the transfer of goods on a consignment basis from Delhi. The court distinguished this case from the Supreme Court's decision in Goodyear India Ltd. v. State of Haryana, noting that the issue here is not about legislative competence but about the misutilization of statutory forms. The court held that the Parliament has validly enacted the provision under the relevant legislative entries, ensuring that tax is levied on sales that should have been taxed initially.

4. Interpretation and Application of the Third Proviso to Section 4(2)(a)(v) of the Act:

The court provided an in-depth interpretation of the third proviso, explaining that it applies when the raw materials purchased are not utilized as per the registration certificate. This misutilization triggers a taxable event, leading to the inclusion of the value of such goods in the taxable turnover of the purchasing dealer. The court emphasized that this provision is designed to prevent tax evasion and ensure compliance with the declared use of goods.

5. Potential Violation of Article 301 of the Constitution:

The petitioner claimed that the provision violates Article 301 of the Constitution by restricting the free movement of goods. The court rejected this argument, referencing the Supreme Court's decision in Goodyear's case, which held that not every imposition of tax constitutes a restriction on trade. The court concluded that the provision does not directly or immediately impede the free flow of trade, commerce, and intercourse, and therefore, does not violate Article 301.

Conclusion:

The court found no merit in the petitioner's arguments and upheld the constitutionality and validity of Section 4(2)(a)(v), third proviso, of the Delhi Sales Tax Act, 1975. The writ petition was dismissed with costs, affirming the legislative intent to prevent misuse of statutory forms and ensuring proper tax compliance.