1957 (2) TMI 44 - SC - VAT and Sales Tax

Whether the 1st respondent, the State of Uttar Pradesh, illegally and unauthorisedly levied sales tax on the 2nd petitioner-firm, under the Uttar Pradesh Sales Tax Act (U.P. Act XV of 1948) with regard to the cloth manufactured by the 2nd petitioner, with a view to exporting such cloth outside the territories of India, by customers of the 2nd petitioner called indentors ? Held that - There is a vast difference between prepared cashew-nuts and printed cloth and the observations there can, by no stretch of imagination, have any application to this case. We are of the view that the words such cloth or yarn would mean the cloth or yarn manufactured in U.P. and sold. It has nothing to do with the transformation by printing and designs on the cloth. The cloth exported is the same as the cloth sold with this variation or difference that the colour has changed by printing and processing. In the view which we take that the cloth exported is the same as the cloth sold by the petitioners, there can be no question about the exemption clause not applying to it and if the exemption applies, then the tax has been levied without jurisdiction. The disputed levy of sales tax for the year 1953-54 is not according to law and to that extent the levy of tax is hereby quashed. Appeal dismissed.

Issues Involved:
1. Legality of sales tax levy on the 2nd petitioner-firm under the Uttar Pradesh Sales Tax Act.
2. Applicability of the exemption notification issued by the Uttar Pradesh Government.
3. Authority of the State to impose sales tax on exported goods.
4. Interpretation of the exemption clause concerning the transformation of goods.
5. Jurisdiction of the Supreme Court under Article 32 of the Constitution.

Detailed Analysis:

1. Legality of Sales Tax Levy on the 2nd Petitioner-Firm:
The petition under Article 32 raises the question of whether the State of Uttar Pradesh illegally levied sales tax on the 2nd petitioner-firm concerning cloth manufactured for export. The 2nd petitioner, a public limited company, manufactures cotton cloth and yarn for sale in India and for export. The firm sells cloth to indentors who dye and hand-print the cloth before exporting it overseas. The Sales Tax Officer assessed the firm for the years 1952-53, 1953-54, and 1954-55, including the quantity of cloth sold to indentors for export.

2. Applicability of the Exemption Notification:
The Uttar Pradesh Government issued a notification on December 3, 1949, exempting sales of cotton cloth or yarn manufactured in Uttar Pradesh from sales tax if the goods are exported and proof of such export is provided. The petitioners argued that they were entitled to this exemption for the years 1952-53, 1953-54, and 1954-55. The Sales Tax Officer, however, did not accept this exemption, stating that the cloth sold was not the same as the cloth exported due to processing and hand-printing by the indentors.

3. Authority of the State to Impose Sales Tax on Exported Goods:
The Supreme Court examined whether the State had the authority to impose sales tax on goods intended for export. The Court noted that if a tax is levied without due legal authority, it violates the fundamental right to carry on a trade under Article 19(1)(g). The Court referred to previous judgments, including Bengal Immunity Company Limited v. The State of Bihar, which held that onerous conditions imposed by an ultra vires Act could not be justified as reasonable restrictions under Article 19(6).

4. Interpretation of the Exemption Clause:
The Court analyzed whether the cloth exported was the same as the cloth sold by the petitioners. The Sales Tax Authorities argued that the cloth, after being printed and dyed, was transformed into a different material, thus not qualifying for the exemption. The Court rejected this argument, stating that the exemption applies as long as the cloth is manufactured in U.P., sold with a view to export, and actually exported. The Court emphasized that the transformation by printing and dyeing does not change the fundamental nature of the cloth.

5. Jurisdiction of the Supreme Court under Article 32:
The State argued that the imposition of an illegal tax does not entitle the citizen to invoke Article 32 and that the petitioner should resort to remedies under ordinary law or Article 226. The Court dismissed this argument, citing previous cases where it was held that restrictions imposed by an ultra vires Act infringe on the fundamental right to carry on business. The Court concluded that the disputed levy of sales tax for the year 1953-54 was not according to law and quashed the assessment.

Conclusion:
The Supreme Court quashed the sales tax assessment for the year 1953-54, holding that the cloth exported was the same as the cloth sold by the petitioners, despite processing and hand-printing. The Court ruled that the exemption notification applied, and the tax was levied without jurisdiction. The parties were ordered to bear their own costs.

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