1962 (12) TMI 29 - SC - VAT and Sales Tax

Whether the company is liable to pay sales tax in respect of goods consumed for its motor vehicles during the period in question? Held that - Appeal allowed. If it is competent to the Sales Tax Officer to adopt a proceeding, to bring to tax consumption of goods by the company for its own vehicles, relying upon the first part of the definition of retail sale in section 2(1), because of the terms of the agreement and other relevant surrounding circumstances, it will be open to him to do so. The petition will therefore be allowed and a writ will issue declaring that the order of assessment made by the first respondent dated December 26, 1960, in so far as it relates to levy of tax on motor spirit and lubricants consumed during the period of assessment for the vehicles of the company is invalid. The respondents will pay the costs of this petition to the company.

Summary

Issues:
1. Competence of State Legislature to impose tax on consumption of goods by a retail dealer.
2. Interpretation of the definition of "retail sale" under the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act.
3. Severability of the clause regarding consumption by a retail dealer from the definition of "retail sale."
4. Validity of the order of assessment by the Sales Tax Officer.

Detailed Analysis:
1. The judgment addresses the issue of the competence of the State Legislature to impose tax on the consumption of goods by a retail dealer. The petitioners challenged the assessment of sales tax on the consumption of motor spirit and lubricants by the company for its vehicles under the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act. The petitioners argued that the definition of "retail sale" under the Act, which includes consumption by a retail dealer, exceeds the State Legislature's competence and infringes on the fundamental rights of the company under the Constitution.

2. The interpretation of the definition of "retail sale" under the Act was a crucial aspect of the judgment. The Act defines a "retail dealer" as a person who sells motor spirit or lubricants for consumption by the purchaser. The definition of "retail sale" encompasses sales for consumption purposes, including consumption by a retail dealer himself. The Court analyzed previous judgments, such as the Gannon Dunkerley case, emphasizing that for a transaction to be considered a sale liable for tax, it must meet specific criteria, including mutual assent, transfer of property, and payment of a price.

3. The issue of severability of the clause regarding consumption by a retail dealer from the definition of "retail sale" was addressed in the judgment. The Court held that while the clause including consumption by a retail dealer within the definition of "retail sale" was beyond the State Legislature's competence, it was severable from the rest of the definition. The Court declared that particular clause invalid, thereby upholding the validity of the remaining provisions of the Act.

4. The judgment also examined the validity of the order of assessment by the Sales Tax Officer. The Officer sought to impose tax on the motor spirit and lubricants consumed by the company based on the definition of "retail sale" in the Act. However, the Court found that the Officer's reliance on the ultra vires part of the statute was not sustainable. The Court allowed the petition, issuing a writ declaring the assessment order invalid and directing the respondents to pay the costs of the petition to the company.