1956 (1) TMI 35 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the liability to tax in respect of the goods in question is affected by the Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act No. LII of 1952.
2. Whether the exemption of all kinds of handloom cloth produced at certain places in Madhya Bharat from taxation justifies the petitioners to claim similar exemption under Article 304 of the Constitution of India.
3. Whether the handloom pugrees in which the petitioner deals are not liable to tax because they fall under Item 2 of the list of exempted articles.

Detailed Analysis:

Issue 1: Liability to Tax Under Essential Goods Act No. LII of 1952
The petitioner argued that the pugrees, being cotton cloth manufactured on handlooms, should be exempt from sales tax under Schedule I of the Madhya Bharat Sales Tax Act, 1950. They contended that the Essential Goods Act 52 of 1952, which declared all cloth woven on handlooms as essential for the life of the community, rendered the state act void under Article 286(3) of the Constitution, as it lacked the President's assent.

The court, however, held that the Essential Goods Act only affected laws made after its commencement. Since the Madhya Bharat Sales Tax Act was enacted before the Essential Goods Act, it was not rendered void. The court cited the Supreme Court's decision in AIR 1954 SC 311 (Soma Singh v. The State of Pepsu), which clarified that Article 286(3) contemplates post-Constitution legislation and does not affect pre-existing laws.

Issue 2: Exemption Under Article 304 of the Constitution
The petitioner claimed that similar goods manufactured on handlooms in Madhya Bharat were exempted from sales tax, creating discrimination against goods imported from other states, thus violating Article 304 of the Constitution. The court acknowledged that the notification exempting handloom cloth from certain places in Madhya Bharat created discrimination against similar goods from other states. This was evident from the government notification dated 31-1-1953, which exempted handloom cloth from Maheshwar, Sarangpur, and Shajapur from sales tax for the period from 1-4-1952 to 31-3-1953.

The court concluded that this discrimination violated Article 304, rendering the tax invalid for the period from 1-4-1952 to 31-3-1953. The court dismissed the Advocate-General's argument that the discriminatory exemption should be removed by taxing all handloom cloth, stating it was impractical to require dealers to account for sales of exempted goods retrospectively.

Issue 3: Classification of Handloom Pugrees
The petitioner argued that pugrees with jari borders or pallas should be classified as cotton cloth manufactured on handlooms and thus be exempt from sales tax. The court determined that whether such pugrees fall under the exempt category depends on the extent of jari used. If the jari is negligible and does not substantially increase the value of the cloth, the pugrees should be considered cotton cloth and be exempt. However, if the jari is substantial, the pugrees would not qualify for exemption.

The court emphasized that this determination is a question of fact to be examined by the Sales Tax Authorities. The court rejected the Advocate-General's argument for a strict interpretation that would tax any cloth with even a negligible amount of jari or silk, as it would contradict the legislative intent to exempt handloom cotton cloth.

Conclusion
The court partially accepted the petitions, ruling that the petitioners are not liable for sales tax on pugrees with jari pallas for the period from 1-4-1952 to 31-3-1953 due to unconstitutional discrimination under Article 304. For the rest of the period, the tax liability depends on the specific nature of the goods, as determined by the Sales Tax Authorities. The references under Section 13(1) of the Madhya Bharat Sales Tax Act were answered in line with these findings.

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