1955 (9) TMI 40 - SC - VAT and Sales Tax

Whether the petitioners imported tobacco from the State of Bombay in large quantities but stated that the tobacco, after its arrival in the petitioners bidi factories, was cleaned, sieved and blended? Held that - The respondents will be restrained from enforcing the Central Provinces and Berar Sales Tax Act, 1947, and its provisions against the petitioners and from imposing a tax in respect of the transactions in question and in particular from imposing a tax on the purchase price of goods purchased on the declarations under rule 26 being goods specified in the registration certificate as intended for use as raw material in the manufacture of goods for sale by actual delivery in Madhya Pradesh for the purpose of consumption in that State but utilised for any other purpose under the provisions of section 4(6) of the Act.

Issues Involved:
1. Whether the transactions in question were in the course of inter-State commerce.
2. Whether the goods were delivered for consumption in the State of Uttar Pradesh and thus not liable to a tax levy by the State of Madhya Pradesh.
3. The validity of section 4(6) of the Central Provinces and Berar Sales Tax Act, 1947, in light of Article 286(1)(a) of the Constitution.
4. Applicability of section 4(6) of the Act to the facts of the present case.

Issue-wise Detailed Analysis:

1. Inter-State Commerce Transactions:
The petitioners, a firm engaged in the manufacture and sale of bidis, imported tobacco from the State of Bombay, which was then processed and used in Madhya Pradesh. The petitioners argued that these transactions were in the course of inter-State commerce, invoking the ban under Article 286(2) of the Constitution, which prevents states from taxing inter-State transactions. The Court agreed, noting that the transactions involved the movement of goods across state borders, thus qualifying as inter-State commerce. The respondents' argument that the transactions were internal sales because the suppliers were registered dealers under the Central Provinces and Berar Sales Tax Act was rejected. The Court emphasized that the real nature of the transactions, involving the movement of goods across state borders, determined their classification as inter-State commerce.

2. Delivery for Consumption in Uttar Pradesh:
The petitioners contended that the goods were delivered for consumption in Uttar Pradesh and were not subject to tax by Madhya Pradesh. The Court did not delve deeply into this issue, as it had already established that the transactions were inter-State commerce, thus falling under the ban of Article 286(2). This rendered the question of the final destination of the goods moot in terms of tax liability under Madhya Pradesh law.

3. Validity of Section 4(6) of the Act:
The petitioners challenged the validity of section 4(6) of the Central Provinces and Berar Sales Tax Act, 1947, arguing that it contravened Article 286(1)(a) of the Constitution. The Court did not explicitly rule on the constitutionality of section 4(6) but implied its invalidity by stating that the State of Madhya Pradesh could not impose a tax on transactions that were inter-State in nature. The Court's reasoning suggested that any state law imposing such a tax would be inconsistent with the constitutional provisions governing inter-State commerce.

4. Applicability of Section 4(6) to the Present Case:
The petitioners had made declarations that the purchased tobacco was intended for use as raw material in the manufacture of goods for sale within Madhya Pradesh. However, the Court held that these declarations did not create a new tax liability. Since the original transactions were inter-State commerce, the suppliers were not liable to pay tax, and this lack of liability could not be transferred to the petitioners through their declarations. The Court concluded that section 4(6) of the Act did not apply, as the basis for any tax liability under this section was absent.

Conclusion:
The Court restrained the respondents from enforcing the Central Provinces and Berar Sales Tax Act, 1947, against the petitioners and from imposing any tax on the transactions in question. The respondents were also ordered to pay the petitioners' costs of the petition.

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