1961 (3) TMI 41 - SC - VAT and Sales Tax

Whether the purchase of goods made by petioner inside the State but sold to dealers outside the State be included in the taxable turnover of the petitioner? Held that - Appeal dismissed. A purchase made inside a State, for sale outside the State cannot itself be held to be in the course of inter-State trade, and the imposition of a tax thereon is not repugnant to Article 286(2) of the Constitution

Summary

Issues:
Validity of sales tax on purchases made in the course of inter-State trade under Article 286(2) of the Constitution.

Analysis:
The judgment pertains to a joint Hindu family firm challenging the imposition of sales tax on purchases made inside the State but sold to dealers outside the State. The Sales Tax Officer included these purchases in the taxable turnover, leading to a tax assessment. The petitioner contests the tax's validity, arguing that the purchases were part of inter-State trade, thus contravening Article 286(2) of the Constitution.

The tax in question was levied under section 5 of the Orissa Sales Tax Act, which mandates the inclusion of sales in the taxable turnover, except for sales to registered dealers for resale in Orissa. If such goods are sold outside the State, the purchases become taxable. In this case, the petitioner's sales were not initially included in the turnover due to a registration certificate declaring the goods for resale in Orissa. However, as the petitioner sold the goods outside the State, the purchases were subject to tax under section 5(2)(a)(ii) of the Act.

The petitioner contends that the purchases were part of inter-State trade, invoking Article 286(2) to challenge the tax imposition. The Court, however, disagrees with this argument, emphasizing that the taxed transactions were purely intra-State sales. Despite the subsequent sales to dealers outside the State, the initial purchases were made and sold within Orissa, making them distinct from inter-State sales. Therefore, the tax on these intra-State purchases does not violate Article 286(2).

Drawing on precedent, the Court highlights a previous case where tax was imposed on purchases involving the movement of goods between states, which was deemed inter-State trade. In contrast, the purchases in the current case did not involve such interstate movement, aligning with the requirement for a sale to be considered inter-State trade. The judgment underscores that for a sale or purchase to qualify as inter-State trade, both the sale of goods and their transport across state borders under the contract must occur.

Additionally, the Court references a related provision under Article 286(1)(b) regarding taxes on goods in the course of import or export. It clarifies that only sales directly related to the export or import process are exempt, while sales preceding or following these events are not. Applying similar principles, a purchase made within a state for sale outside that state does not constitute inter-State trade, justifying the imposition of tax under Article 286(2).

Ultimately, the Court dismisses the petition, upholding the tax assessment on the petitioner's intra-State purchases and emphasizing that such transactions do not fall under the purview of inter-State trade as defined by Article 286(2) of the Constitution.