1954 (3) TMI 39 - SC - VAT and Sales Tax

WHETHER ULTRA VIRES STATE LEGISLATURE APPLICATION UNDER ARTICLE 226 FOR WRIT OF MANDAMUS MAINTAINABILITY

Summary

Issues:
Challenge to vires of provisions of Central Provinces and Berar Sales Tax Act, 1947 under Article 226 of the Constitution.

Analysis:
The appellant, a registered company, challenged the imposition of sales tax on cotton purchases made in Madhya Pradesh under the Central Provinces and Berar Sales Tax Act, 1947. The appellant contended that the transactions in Madhya Pradesh did not constitute "sales" within the state and questioned the validity of Explanation II to Section 2(g) of the Act. The High Court held that the explanation was not enforceable due to constitutional limitations on sales tax collection in the state where goods are delivered for consumption. However, the High Court declined to issue a writ under Article 226, citing procedural grounds and lack of demand for tax payment.

The appellant argued that the imposition of tax without legal authority infringed fundamental rights and sought relief through a writ of mandamus. The relevant provision of the Act defined "sale" and was amended to include Explanation II, which was later declared ultra vires by the High Court. The Supreme Court, referencing a previous judgment, affirmed that sales involving inter-State elements could only be taxed by the state where goods are consumed for the purpose of consumption.

The State conceded that the Explanation was ultra vires but argued against the use of a writ to challenge the assessment, claiming it was inconsistent with the statutory obligation to pay taxes. The Supreme Court rejected this argument, emphasizing that the threat of penal provisions under the Act without legal authority justified the use of a writ. The Court held that the appellant was entitled to relief under Article 226 as the imposition of sales tax in Madhya Pradesh was unauthorized by law and infringed fundamental rights.

In conclusion, the Supreme Court allowed the appeal, directing the issuance of a writ restraining the State from imposing or authorizing the tax under the void Explanation II of the Act. The Court held that the appellant was entitled to relief under Article 226 due to the unconstitutional nature of the tax imposition in Madhya Pradesh.