1961 (4) TMI 78 - SC - VAT and Sales Tax

Whether the State Legislature went beyond its legislative competence in enacting by the impugned Madras General Sales Tax Act that the amounts collected by the dealer by way of tax shall be deemed to have formed part of his turnover? Held that - Appeal dismissed. The only question which has been raised in these appeals is regarding the validity of the impugned Act. That question having been decided against the appellants.

Summary

Issues Involved:
1. Whether the transactions in question were inter-State sales.
2. The constitutional validity of the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (the impugned Act).

Issue-wise Detailed Analysis:

1. Whether the transactions in question were inter-State sales:
The appellants, dealers in Ford motor cars, spare parts, and accessories, claimed exemption from tax for certain transactions, arguing they were inter-State sales and thus exempt under Article 286 of the Constitution. The Deputy Commercial Tax Officer rejected this claim and added amounts collected as tax to the turnover. The Sales Tax Appellate Tribunal upheld this decision, and the High Court dismissed the appellants' petitions, stating that the issue was already settled by its earlier decision in Ashok Leyland Ltd. v. The State of Madras. The appellants conceded that this decision governed the present appeals, and thus, the first question no longer survived.

2. The constitutional validity of the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (the impugned Act):
The primary question was whether the impugned Act was validly made under entry 54 of the State List in the Seventh Schedule to the Constitution, which pertains to "Taxes on the sale or purchase of goods other than newspapers."

Arguments on Behalf of the Appellants:
- The appellants argued that the impugned Act imposed a "tax on sales tax," which does not fall within the ambit of entry 54.
- They contended that the principal Act and the impugned Act made a distinction between the sale price of goods and the amount collected by way of tax, and thus, the impugned Act was invalid as it sought to include the tax amount in the turnover.

Arguments on Behalf of the Respondents:
- The respondents argued that the impugned Act sought to enlarge the scope of the definition of "turnover" to include the amount collected by way of tax, which the State Legislature was competent to enact under entry 54.
- They contended that the tax collected by the dealer is part of the sale price and thus falls within the definition of turnover.

Court's Analysis:
- The court noted that the principal Act did not contain a separate definition of sale price and that the definition of "turnover" included the aggregate amount for which goods are bought or sold.
- It observed that the tax collected by the dealer is part of the price paid by the buyer and thus forms part of the turnover.
- The court referred to previous decisions, including The Tata Iron & Steel Co., Ltd. v. The State of Bihar, which held that the tax collected by the dealer is part of the sale price and thus within the legislative competence of the State Legislature.
- The court rejected the argument that the impugned Act imposed a "tax on tax" and held that the tax collected by the dealer is part of the consideration for the sale and thus taxable.

Conclusion:
The court held that the impugned Act was valid and within the legislative competence of the State Legislature under entry 54 of the State List. The appeals were dismissed with costs.

Summary:
The Supreme Court dismissed the appeals, holding that the transactions in question were not inter-State sales and that the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954, was constitutionally valid. The court found that the tax collected by the dealer formed part of the sale price and thus fell within the definition of turnover, making it taxable under entry 54 of the State List.