1995 (12) TMI 363 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Section 12-A of the Tamil Nadu General Sales Tax Act, 1959.
2. Ultra vires nature of Rule 18-C of the Tamil Nadu General Sales Tax Rules, 1959.
3. Assessment orders and notices issued under Section 12-A.

Issue-Wise Detailed Analysis:

1. Constitutionality of Section 12-A of the Tamil Nadu General Sales Tax Act, 1959:
The petitioners contended that Section 12-A of the Act is unconstitutional as it allows the State to levy sales tax on a fair price or market price disregarding the actual price charged, which is beyond the legislative competence of the State under Entry 54, List II. They argued that Section 12-A, being a machinery provision, should only support the charge and not widen it. They also claimed that Section 12-A applies only to cases of under-invoicing intended to evade tax, and not to bona fide transactions.

The court analyzed Entry 54, List II, and Entry 92-A, List I of the Seventh Schedule of the Constitution to determine the legislative competence. It concluded that Section 12-A is within the legislative competence of the State Legislature as it deals with sales tax on sales or purchases of goods within the State. The court emphasized that Section 12-A is a machinery provision intended to prevent tax evasion by ensuring that the prices shown in accounts reflect the true market price. The provision does not redetermine the price of goods but ensures the returns submitted by a dealer are true and correct, representing the consensual price of transactions.

The court also referred to the statement of objects and reasons for introducing Section 12-A, which aimed to prevent evasion of tax by dealers showing abnormally low prices in their accounts. The court held that Section 12-A does not impinge upon the legislative power of the Parliament and is intended to determine whether there is an attempt to evade sales tax.

2. Ultra vires nature of Rule 18-C of the Tamil Nadu General Sales Tax Rules, 1959:
The petitioners argued that Rule 18-C is ultra vires Section 12-A of the Act as it prescribes the fixation of the market price, which Section 12-A does not authorize. They contended that Rule 18-C(iv) whittles down the power of the assessing authority to fix the turnover by the best of judgment.

The court held that Rule 18-C is intended to guide the assessing authority in exercising the power under Section 12-A. It provides factors to be considered for determining the prevailing market price of goods, thereby eliminating the scope for arbitrary exercise of power. The court emphasized that Rule 18-C does not determine the market price but helps ascertain the real consensual price of goods sold or purchased. The rule is based on long-standing commercial practices and ensures that the returns submitted represent the true consensual value of transactions.

The court concluded that Rule 18-C is not ultra vires Section 12-A of the Act and is valid. It provides necessary guidelines to the assessing authority to determine the real consensual price and prevent tax evasion.

3. Assessment orders and notices issued under Section 12-A:
The petitioners challenged the assessment orders and notices issued under Section 12-A, claiming they were arbitrary and lacked proper guidelines. The court reiterated that Section 12-A and Rule 18-C provide sufficient safeguards and guidelines to prevent arbitrary exercise of power. The assessing authority must be satisfied that the returns submitted are not bona fide and intended to evade tax. The court directed that the petitioners be given an opportunity to file objections to the show cause notices or prefer appeals against the assessment orders by January 15, 1996. The assessing and appellate authorities were instructed to consider the objections and appeals without considering the limitation period and finalize the assessments in light of the court's observations.

Conclusion:
The court dismissed the writ appeals and writ petitions, upholding the constitutionality of Section 12-A and the validity of Rule 18-C. The court provided directions for the petitioners to file objections or appeals against the assessment orders and notices, ensuring that the assessments are finalized based on the court's interpretation of Section 12-A and Rule 18-C. The court made no order as to costs and disposed of the W.M.Ps.

Additional Observations:
The court pointed out that while determining the real consensual price, the price at which similar goods are sold by retailers and wholesalers cannot be used interchangeably for comparison. The real consensual price must be determined based on the specific context of the transaction.

← Previous Next →