1994 (11) TMI 390 - HC - VAT and Sales Tax

Issues Involved:

1. Legislative competence of the State to levy tax on branch transfers and consignment of goods.
2. Validity of deeming provisions in the 1983 Package Scheme.
3. Conflict between the 1983 Package Scheme and the exemption notification under section 41 of the Bombay Sales Tax Act, 1959.
4. Arbitrariness and irrationality of the impugned provisions.
5. Severability of the impugned portions of the 1983 Package Scheme.

Issue-wise Detailed Analysis:

1. Legislative Competence of the State to Levy Tax on Branch Transfers and Consignment of Goods:

The petitioners argued that the State Legislature lacks the legislative competence to levy tax on transactions that do not amount to a sale or purchase of goods within the framework of entry 54 of List II of the Seventh Schedule to the Constitution of India. Mere transfer of stocks from one branch to another within or outside the State cannot constitute a sale. The court agreed, stating that the State Legislature cannot treat branch transfers or consignment of goods as "deemed sales" since such transactions do not involve a transfer of property in goods for consideration. The court emphasized that the legislative power under entry 54 is confined to actual sales and cannot extend to non-sale transactions.

2. Validity of Deeming Provisions in the 1983 Package Scheme:

The petitioners challenged the deeming provisions in clause 2.11 of the 1983 Package Scheme, which treated branch transfers and consignment of goods as "deemed sales" for the purpose of computing "notional sales tax liability." The court held that the State Legislature and the State executive do not have the jurisdiction to treat non-sale transactions as deemed sales, even for the purpose of computing notional sales tax liability. The court declared the impugned portions of clause 2.11 void ab initio, illegal, unconstitutional, and ultra vires.

3. Conflict Between the 1983 Package Scheme and the Exemption Notification Under Section 41 of the Bombay Sales Tax Act, 1959:

The court noted that the extent of sales tax exemption available to the petitioner is governed by the exemption notification issued under section 41 of the Bombay Sales Tax Act, 1959, and not by government circulars or schemes. The court found a clear conflict between the impugned portions of clause 2.11 of the 1983 Package Scheme and the exemption notification. The court held that the notification issued under section 41 has an overriding effect, and the impugned portions of clause 2.11 are void to the extent of inconsistency with the notification.

4. Arbitrariness and Irrationality of the Impugned Provisions:

The petitioners contended that the impugned portions of the 1983 Package Scheme are arbitrary and irrational, violating article 14 of the Constitution of India. The court agreed, stating that the decision to treat branch transfers and consignment of goods as deemed sales is manifestly arbitrary and irrational. The court emphasized that the State's action must be reasonable, fair, and just, and any arbitrary or irrational conditions in the scheme can be struck down by the court.

5. Severability of the Impugned Portions of the 1983 Package Scheme:

The court addressed the issue of whether the impugned portions of clause 2.11 are severable from the rest of the 1983 Package Scheme. The court held that the impugned portions are distinct and severable and that the rest of the scheme is workable without them. The court applied the doctrine of severability, allowing the beneficial provisions of the scheme to be retained while striking down the illegal and offending portions.

Operative Part:

1. Clause 2.11(a) and (b) of the 1983 Package Scheme are declared void ab initio, illegal, unconstitutional, and ultra vires to the extent they treat branch transfers and consignment of goods as "deemed sales."
2. A writ of mandamus is issued directing the respondents not to enforce the impugned portions of clause 2.11.
3. The impugned assessment orders are quashed to the extent they include branch transfers and consignment of goods in the turnover of sales for the purpose of computing notional sales tax liability.
4. The prescribed authority is directed to pass supplementary assessment orders and recalculate the figures of notional sales tax liability within eight weeks.
5. The petitioners are permitted to avail of the whole of the tax exemption as available under entry 136 of the Schedule appended to the exemption notification, subject to the ceiling limit.
6. The dispute regarding presumptive set-off is kept open and not adjudicated in this petition.
7. No order as to costs.

Writ Petition Allowed.

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