1994 (8) TMI 281 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Constitutional validity of the levy and collection of sales tax on industrial alcohol.
2. Reimbursement of sales tax amounts during the period of interim relief.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Levy and Collection of Sales Tax on Industrial Alcohol:

The petitioners contended that the levy and collection of sales tax and additional sales tax on industrial alcohol by the State Government were illegal, unconstitutional, and without jurisdiction. They argued that industrial alcohol, being unfit for human consumption, falls within the exclusive legislative competence of the Central Government. They cited the Supreme Court's decision in Synthetics & Chemicals Ltd. v. State of U.P. [1991] 80 STC 270; AIR 1990 SC 1927, which held that states have no power to levy sales tax on industrial alcohol, as it is within the exclusive legislative competence of the Central Government.

However, the court referred to the subsequent Supreme Court judgment in State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289; [1991] 4 SCC 139, which clarified that the States have the power to levy and collect sales tax on industrial alcohol. The court emphasized that "the power of regulation and control is separate and distinct from the power of taxation." Therefore, the taxing power of the State under entry 54 of List II is not restricted by the general legislative control vested in Parliament.

The court concluded that the State has full legislative competence to levy tax on the sale or purchase of goods other than newspapers under entry 54 of List II of the Seventh Schedule to the Constitution. Consequently, the petitions challenging the constitutional validity of the levy were dismissed.

2. Reimbursement of Sales Tax Amounts During the Period of Interim Relief:

Respondents Nos. 8 and 9 filed civil applications requesting reimbursement of sales tax amounts for the period during which the interim relief was in operation, preventing them from collecting sales tax. They argued that the petitioners should not be allowed to take undue advantage of the interim order and that the respondents should not suffer due to the court's order.

The court agreed with the respondents, stating that a litigant should not suffer because of the judicial process, and it is the duty of the court to ensure that no litigant is prejudiced by an act done on the faith of the court's order. The court cited the principle of restitution, which mandates restoring parties to the position they were in before the court's erroneous action. This principle is embodied in section 144 of the Code of Civil Procedure and reinforced by various Supreme Court judgments, including Union Carbide Corporation v. Union of India AIR 1992 SC 248 and Chinnammal v. Arumugham AIR 1990 SC 1828.

The court ordered the petitioners to reimburse the respondents for the sales tax amounts levied on industrial alcohol for the period from March 24, 1990, to October 21, 1991. The petitioners were directed to make the payment on or before December 31, 1994.

Conclusion:

Both Special Civil Application No. 951 of 1990 and Special Civil Application No. 1655 of 1990 were rejected, and the rules were discharged with costs. The petitioners were directed to reimburse the respondents for the sales tax amounts levied on industrial alcohol during the specified period. The petitions were dismissed.