1994 (12) TMI 309 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality and effect of entry 174 in the First Schedule to the APGST Act.
2. Taxability of the turnover of rexine cloth under the CST Act and the APGST Act.

Detailed Analysis:

Issue 1: Constitutionality and Effect of Entry 174 in the First Schedule to the APGST Act

The court examined whether the insertion of entry 174 in the First Schedule to the APGST Act was constitutionally valid and its implications. The State amended the First Schedule of the APGST Act, inserting entry 174, which made P.V.C. cloth, waterproof cloth, tarpaulin, and rexine cloth taxable at the point of first sale in the State at the rate of 9 paise in the rupee. The assessee challenged the constitutional validity of this entry, arguing it was ultra vires Article 286(3) of the Constitution of India and section 15(a) of the CST Act.

The court noted that section 15(a) of the CST Act restricts the tax on declared goods to a maximum of 4% and mandates that such tax should not be levied at more than one stage. The court also observed that section 6 of the APGST Act aligns with these restrictions. The court concluded that the legislative competence of the State to impose sales tax on declared goods is subject to these restrictions.

The court further analyzed the legislative intent and found that the inclusion of rexine in entry 174 of the First Schedule to the APGST Act cannot override the provisions of section 6 of the APGST Act and section 15 of the CST Act. The court held that the entry must be read down to comply with these statutory limitations, meaning that sales tax on rexine cannot exceed 4% and should not be levied at more than one stage.

Issue 2: Taxability of the Turnover of Rexine Cloth under the CST Act and the APGST Act

The court examined whether the turnover of rexine cloth by the assessee is exigible to tax under both the CST Act and the APGST Act. The assessee argued that rexine cloth falls within the meaning of "cotton fabrics" as defined in item 5 of the Fourth Schedule to the APGST Act, which exempts such goods from sales tax.

The court referred to various legislative provisions and judicial precedents to interpret the term "cotton fabrics." It noted that the definition of "cotton fabrics" in the Central Excises and Salt Act, 1944, included rexine cloth, and this interpretation was upheld by the Supreme Court. Despite changes in the relevant statutes, the court found that rexine cloth still falls within the meaning of "cotton fabrics" under the CST Act and the APGST Act.

However, the court acknowledged that the State Legislature's insertion of entry 174 in the First Schedule indicated an intention to tax rexine. The court reconciled this by holding that while rexine is taxable, it must be subject to the limitations imposed by section 15 of the CST Act and section 6 of the APGST Act. Thus, the tax rate cannot exceed 4%, and the tax can only be levied at one stage.

Conclusion:

The court concluded that the insertion of entry 174 in the First Schedule to the APGST Act is constitutionally valid but must be read in conjunction with section 15 of the CST Act and section 6 of the APGST Act. Consequently, the turnover of sales of rexine is taxable but subject to the limitations of a maximum 4% tax rate and single-stage levy. The writ petition by the assessee was allowed to this extent, and the tax revision cases filed by the State were dismissed with modifications.