2001 (2) TMI 990 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Explanation II to section 2(38) of the Rajasthan Sales Tax Act, 1994.
2. Legislative competence of the State Legislature to levy tax on inter-State trade or commerce.
3. Jurisdiction of statutory authorities to entertain challenges to the validity of statutes.
4. Determination of situs of sale for tax purposes.
5. Impact of Central Sales Tax Act and relevant constitutional provisions on state tax laws.

Detailed Analysis:

1. Constitutional Validity of Explanation II to Section 2(38) of the Rajasthan Sales Tax Act, 1994:

The primary issue in these appeals was the constitutional validity of Explanation II to section 2(38) of the Rajasthan Sales Tax Act, 1994. The provision was challenged on the grounds that it deemed a sale to occur within the State of Rajasthan if the goods were in the State at the time of their use, application, or incorporation in the execution of a works contract, regardless of whether the agreement for the works contract was entered into outside the State or the goods were moved from outside the State. This was argued to impinge on item 92A of the Union List of Schedule VII and the provisions of Article 286 of the Constitution of India.

2. Legislative Competence of the State Legislature:

The court analyzed the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule, which allows states to tax the sale or purchase of goods other than newspapers, subject to entry 92A of List I. Entry 92A reserves the field of levy of tax on inter-State trade and commerce for Parliament. The court emphasized that the State Legislature cannot extend its authority to impose tax on inter-State trade or commerce or sales outside the State by deeming provisions.

3. Jurisdiction of Statutory Authorities:

The court addressed the preliminary objection that the writ petition should not be entertained as the appeal against the impugned order was still pending before the Deputy Commissioner (Appeals). It was established that statutory authorities do not have jurisdiction to entertain challenges to the validity of statutes, and thus, the availability of alternative remedies cannot preclude the examination of constitutional validity in a writ petition.

4. Determination of Situs of Sale:

The court highlighted that for the purpose of levy of tax, the situs of sale is irrelevant. What matters is whether the sale took place within the State, outside the State, or in the course of inter-State trade or commerce. The principle for determining such transactions is exclusively within the prerogative of Parliament, as laid down in the Central Sales Tax Act.

5. Impact of Central Sales Tax Act and Constitutional Provisions:

The court referred to several precedents, including the Supreme Court's decisions in Gannon Dunkerley & Co. v. State of Rajasthan and Builders' Association of India v. State of Karnataka, which established that State Legislatures cannot impose tax on transactions that fall within the domain of inter-State trade or commerce or outside the State. The court noted that the impugned provision of the Rajasthan Sales Tax Act did not exclude such transactions from its purview, thereby violating constitutional limitations.

Conclusion:

The court concluded that the impugned provisions of the Rajasthan Sales Tax Act, 1994, were ultra vires the Constitution as they attempted to tax sales in the course of inter-State trade or commerce, which is beyond the legislative competence of the State Legislature. Consequently, the petitions were allowed, and the impugned assessment orders were quashed. The assessing officer was directed to reassess the tax liability without considering Explanation II to section 2(38) of the Act of 1994.

Order:

The petitions were allowed, and the impugned assessment orders for the assessment year 1997-98 and provisional assessment order for the year 1998-99 were quashed. The assessing officer was directed to decide the question of levy of tax de novo without considering the provisions of Explanation II of section 2(38) of the Act of 1994. No order as to costs.

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