2001 (7) TMI 1262 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of sales tax assessment on materials supplied by the petitioner.
2. Applicability of Article 285 of the Constitution regarding tax exemption on Union property.
3. Fairness and conduct of the Commercial Taxes Officer.
4. Necessity of inter-governmental dispute resolution before litigation.
5. Constitution of a high-level committee for dispute resolution.

Issue-wise Detailed Analysis:

1. Legality of Sales Tax Assessment on Materials Supplied by the Petitioner:
The petitioners, involved in extensive construction works for the Ministry of Defence, supplied building materials like cement and steel to contractors, adjusting the cost in the final bills. They argued that these transactions did not constitute a sale and thus were not subject to sales tax under the Rajasthan Sales Tax Act, 1994. The contention was that the ownership of the materials remained with the petitioners and no sale event occurred.

2. Applicability of Article 285 of the Constitution Regarding Tax Exemption on Union Property:
The petitioners invoked Article 285 of the Constitution, arguing that the property belonging to the Union of India is exempt from state taxation. They contended that the materials supplied to contractors for defence work should not be taxed, as they remain Union property. The Commercial Taxes Officer's demand for tax was challenged as unconstitutional and ultra vires under Article 285.

3. Fairness and Conduct of the Commercial Taxes Officer:
The court expressed concern over the conduct of the Commercial Taxes Officer, suggesting a lack of fairness and impartiality. The imposition of a heavy penalty and interest was seen as an attempt to meet revenue targets rather than a fair assessment. The court noted that the officer treated the Union of India more harshly than ordinary assessees, raising questions about potential corruption and unfair practices within the department.

4. Necessity of Inter-Governmental Dispute Resolution Before Litigation:
The court highlighted the need for disputes between the Union of India and state governments to be resolved through mutual consultation before resorting to litigation. Referring to the Supreme Court's directive in the Oil and Natural Gas Commission v. Collector of Central Excise case, the court emphasized the importance of a committee to clear such disputes, avoiding unnecessary litigation and saving public resources.

5. Constitution of a High-Level Committee for Dispute Resolution:
The court directed the formation of a high-level committee under the Chief Secretary of Rajasthan to resolve the dispute within three months. The committee would include the Secretary of Finance and the Law Secretary, and it was expected to hear representatives from both parties. If the committee failed to resolve the issue, it was to provide a reasoned decision and consider giving clearance for litigation.

Conclusion:
The court disposed of the petitions, mandating the formation of a high-level committee to address the dispute between the Union of India and the State of Rajasthan. The Commercial Taxes Department was instructed not to pursue tax recovery until the committee reached a decision. The court emphasized the need for inter-governmental disputes to be resolved amicably, highlighting the importance of saving public funds and time.

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