2001 (2) TMI 985 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of notices issued under Section 29 of the Rajasthan Sales Tax Act, 1954.
2. Definition and scope of "sale" under the Rajasthan Sales Tax Act, 1954 and 1994.
3. Competence of State Legislature to tax inter-State sales.
4. Appropriation of goods in the execution of works contracts within the State of Rajasthan.
5. Constitutional validity of certain provisions of the Rajasthan Sales Tax Act, 1994.

Detailed Analysis:

1. Validity of Notices Issued Under Section 29 of the Rajasthan Sales Tax Act, 1954:

The petitioner-company engaged in tyre retreading challenged the notices issued under Section 29 of the Rajasthan Sales Tax Act, 1954 for the period 1996-97. The notices called upon the assessee to show details of raw material purchases, whether within Rajasthan or inter-State, intending to include the cost of manufacturing tread rubber by one of its units before it is used in retreading tyres.

2. Definition and Scope of "Sale" Under the Rajasthan Sales Tax Act, 1954 and 1994:

The petitioner argued that Explanations I and II of Section 2(o) of the Rajasthan Sales Tax Act, 1954 and Section 2(38)(ii) read with Explanations II and IV of the Rajasthan Sales Tax Act, 1994 could not be construed to include inter-State sales within the purview of the Act. The petitioner contended that taxing the value of tread rubber during the retreading process was unjustified, as the raw materials purchased were already tax-paid.

3. Competence of State Legislature to Tax Inter-State Sales:

The petitioner challenged the competence of the State Legislature to enact provisions that would bring inter-State sales within the purview of the Rajasthan Sales Tax Act. The court noted that the legislative power of the State under Entry 54 of List II of the Seventh Schedule is subject to Entry 92-A of List I, which reserves the power to tax inter-State sales for the Parliament. The court held that the State Legislature could not enact laws that would tax transactions falling under inter-State trade or commerce.

4. Appropriation of Goods in the Execution of Works Contracts Within the State of Rajasthan:

The court discussed the Revenue's contention that the form of goods at the time of appropriation should be considered for determining taxable turnover. The court opined that this matter involved investigating facts and interpreting statutes, which should be left to the assessing authority. The court emphasized that the assessing authority's findings could be corrected through appropriate remedial forums provided under the Act.

5. Constitutional Validity of Certain Provisions of the Rajasthan Sales Tax Act, 1994:

The petitioner argued that the provisions of Section 2(38)(ii) and (iv) of the Rajasthan Sales Tax Act, 1994, along with Explanations II and IV, were ultra vires the competence of the State Legislature. The court examined these provisions and noted that they attempted to tax transactions based on the situs of appropriation within the State, irrespective of the inter-State nature of the transactions. The court referred to previous judgments, including Gannon Dunkerley & Co. v. State of Rajasthan and 20th Century Finance Corpn. Ltd. v. State of Maharashtra, which held similar provisions to be ultra vires.

The court concluded that Explanation IV to Section 2(38) of the Act of 1994 was also beyond the legislative competence of the State Legislature for the same reasons as Explanation II. The court held that the impugned notices proposing to include the value of goods involved in the execution of works contracts within the taxable turnover by invoking Explanations II and IV were ultra vires.

Conclusion:

The petition was partly allowed. The court held that the assessing officer could determine the value of goods involved in the execution of works contracts under the Rajasthan Sales Tax Act, but only to the extent that such transactions fell within the legislative competence of the State. The determination must be made in accordance with the provisions of the Central Sales Tax Act, without reference to Explanations II and IV to Section 2(38) of the Rajasthan Sales Tax Act, 1994. There was no order as to costs.

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