1971 (11) TMI 168 - SC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether the turnover of Rs. 3,87,200 estimated as the value of the stock of mill cloth held by the Appellant on December 14, 1957, was exigible to tax.
2. Whether Sub-section (5A) introduced in Section 5 of the Mysore General Sales Tax Act, 1957, by Act No. 9 of 1964, was ultra vires the powers of the Mysore Legislature.
3. Whether the Mysore Legislature had the power to impose tax on sales of textiles retrospectively at a rate higher than that specified in Section 15 of the Central Sales Tax Act, 1956.

Detailed Analysis:

Issue 1: Turnover of Rs. 3,87,200 as Exigible to Tax

The appellant, a dealer in textiles, was assessed to sales tax on April 29, 1965, under the Mysore General Sales Tax Act, 1957, for the period from October 1, 1957, to March 31, 1958. The dispute centered on whether the turnover of Rs. 3,87,200, estimated as the value of the stock of mill cloth held on December 14, 1957, was subject to tax. The appellant contended that the turnover related to mill cloth on which additional excise duty was not payable and, therefore, should be exempt from sales tax. This contention was rejected by the assessing authority, the Deputy Commissioner of Commercial Taxes, and the Sales Tax Appellate Tribunal. The appellant's revision to the Mysore High Court and a writ petition were also dismissed by a Division Bench of the High Court.

Issue 2: Ultra Vires of Sub-section (5A) in Section 5

The appellant argued that Sub-section (5A) of Section 5, introduced by Act No. 9 of 1964, was ultra vires the powers of the Mysore Legislature. The High Court overruled this contention, stating that the tax imposed was on actual sales and not on deemed or fictitious ones. The High Court noted that the amendments to the Act, particularly the substitution of Sub-section (5A), simplified the tax imposition by stating that tax would be levied on sales or purchases related to the stock held by the dealer on December 14, 1957, and excluded the previous condition of unpaid excise duty.

Issue 3: Legislative Power to Impose Retrospective Tax

The appellant sought to raise an additional ground, arguing that on February 27, 1967, when the Mysore Act No. 9 of 1964 came into force, textiles had become declared goods. Consequently, the Mysore State Legislature was competent to levy tax on sales of textiles only subject to the restrictions and conditions laid down in Section 15 of the Central Sales Tax Act, 1956. One such restriction was that the rate of tax should not exceed two percent. The appellant contended that since the Legislature lost its power to impose a tax higher than two percent on declared goods, the retrospective imposition of tax at rates ranging from 3% to 10% was invalid. The court permitted the appellant to raise this ground and considered the relevant portion of Section 15 of the Central Sales Tax Act, which restricted the tax rate to two percent for declared goods.

The court concluded that the Mysore Legislature was competent in 1964 to impose tax on sales of textiles during the assessment period (October 1, 1957, to March 31, 1958) at a rate higher than two percent because textiles were not declared goods during that period. The power to retrospectively levy tax was upheld, and the court noted that there was no limitation on the Legislature's power to impose tax on the turnover of sales of textiles before they became declared goods on April 1, 1958.

Conclusion:

The appeals were dismissed with costs, affirming the validity of the tax imposition on the turnover of Rs. 3,87,200 and upholding the legislative power to impose retrospective tax at rates higher than those specified for declared goods.