1998 (12) TMI 575 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the transactions by the All India Skins and Hides Tanners and Merchants Association constitute a sale.
3. Applicability of the 46th Amendment to the Constitution on the definition of "sale."
4. Distinction between incorporated and unincorporated associations in the context of sales tax.

Detailed Analysis:

Constitutionality of Section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959:
The petitioners challenged the constitutionality of section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959, which deems the supply of goods by an unincorporated association or body of individuals to its members as a sale. The petitioners argued that this provision is ultra vires the Constitution of India. The court held that section 2(n)(v) is valid and aligns with the 46th Amendment to the Constitution, which allows states to levy sales tax on such transactions.

Whether the Transactions by the All India Skins and Hides Tanners and Merchants Association Constitute a Sale:
The court examined the "Pooled Consolidated Service Scheme to Members" operated by the All India Skins and Hides Tanners and Merchants Association. It was found that the association negotiates purchases, imports goods in its name, and distributes them to its members at a fixed price, including service charges. The court concluded that these transactions constitute a sale as they involve parties competent to contract, mutual assent, transfer of property, and a price paid or promised.

Applicability of the 46th Amendment to the Constitution on the Definition of "Sale":
The 46th Amendment to the Constitution inserted clause (29-A) to article 366, expanding the definition of "sale" to include the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment, or other valuable consideration. The court held that this amendment validates section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959, and thus, the transactions in question fall under the purview of sales tax.

Distinction Between Incorporated and Unincorporated Associations in the Context of Sales Tax:
The court discussed various judgments to determine the legal position of incorporated and unincorporated associations. It was noted that an incorporated association, such as a registered society, is a legal entity capable of holding property and entering into contracts. The court held that the supply of goods by such an association to its members for a price constitutes a sale. The court also clarified that the 46th Amendment and the amended sections of the Tamil Nadu General Sales Tax Act adequately cover both incorporated and unincorporated associations, making the distinction irrelevant for tax purposes.

Conclusion:
The court dismissed the petitions, holding that section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959, is constitutional and valid. The transactions by the All India Skins and Hides Tanners and Merchants Association constitute a sale and are subject to sales tax. The 46th Amendment to the Constitution and the amended sections of the Tamil Nadu General Sales Tax Act adequately address the supply of goods by both incorporated and unincorporated associations to their members, making such transactions taxable.