1996 (3) TMI 480 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 2(e) of the A.P. General Sales Tax Act
2. Jurisdiction under Article 226 vs. Article 131 of the Constitution of India
3. Immunity from State taxes under Article 285 of the Constitution
4. Definition and scope of "dealer" and "sale" under the A.P. General Sales Tax Act

Detailed Analysis:

1. Constitutionality of Section 2(e) of the A.P. General Sales Tax Act
The Union of India and others contended that Section 2(e) of the A.P. General Sales Tax Act, as amended by Act 18 of 1985, is ultra vires the Constitution of India. They argued that the transaction of disposing of confiscated goods under the Customs Act, 1962, is not a voluntary sale but a sovereign function, and thus, they should not be deemed as "dealers" under the Act. The court, however, upheld the constitutional validity of the Explanations to the definitions of "dealer" and "sale" in the A.P. General Sales Tax Act, referencing the Supreme Court decision in Vrajlal Manilal & Co. v. State of Madhya Pradesh, which validated similar provisions under the M.P. General Sales Tax Act.

2. Jurisdiction under Article 226 vs. Article 131 of the Constitution of India
The court examined whether the dispute between the Union of India and the State of Andhra Pradesh falls under Article 131, which grants exclusive jurisdiction to the Supreme Court for disputes between the Government of India and one or more States. The court concluded that Article 131 is not attracted unless the dispute involves a question of law or fact on which the existence or extent of a legal right depends. The court held that the dispute over the imposition of sales tax on the sale of confiscated goods does not fall within the scope of Article 131, as it does not involve a constitutional relationship but rather a tax liability issue. Thus, the High Court has jurisdiction under Article 226.

3. Immunity from State taxes under Article 285 of the Constitution
The petitioners claimed immunity from state taxes under Article 285(1) of the Constitution, which exempts Union property from all state taxes unless otherwise provided by Parliament. The court referenced the Supreme Court's majority opinion in In re Sea Customs Act (1878), Section 20(2), which clarified that Article 285(1) pertains to taxes directly on property and not to indirect taxes such as sales tax. The court also noted that the Supreme Court's decision in State of Punjab v. Union of India, which granted immunity to the Union for sales tax on goods sold by the Northern Railway Departmental Catering, was delivered by a smaller bench and thus, the majority opinion in the Sea Customs Act case holds greater authority.

4. Definition and scope of "dealer" and "sale" under the A.P. General Sales Tax Act
The court examined the definitions of "dealer" and "sale" under the A.P. General Sales Tax Act. The petitioners argued that the sale of confiscated goods by customs authorities should not be considered as business activity. However, the court held that the Explanations to the definitions in the Act explicitly include transactions by the Central and State Governments, whether in the course of business or not, within the ambit of the Act. The Supreme Court in Vrajlal Manilal & Co. v. State of Madhya Pradesh had upheld similar provisions, confirming that governments can be deemed dealers for the purposes of sales tax.

Conclusion
The writ petition was dismissed, affirming that the amendments to the A.P. General Sales Tax Act are constitutionally valid, the High Court has jurisdiction under Article 226, and the Union of India is not immune from state sales tax under Article 285 for the sale of confiscated goods. The definitions of "dealer" and "sale" under the Act were upheld, including transactions by the Central and State Governments. The court rejected the request for leave to appeal to the Supreme Court, stating that the case does not involve a substantial question of law of general importance.