1962 (12) TMI 31 - SC - VAT and Sales Tax

Whether the appropriation of goods amounted to transfer of property by the retail dealer to another person? Whether such transfer amounted in law to sale? Held that - Appeal dismissed. The levy and collection of sales tax on motor spirits and lubricants consumed by the company cannot therefore be regarded as illegal unless it is found that the goods were of the ownership of the company, and for reasons already set out the question whether the goods consumed belonged to the company must be left to be determined under the Act. The first question raised in the petition cannot therefore be determined by this Court as it could not be determined by the High Court.

Summary

Issues: Appeal against judgment dismissing petition for writ under Article 226 to quash sales tax order on motor spirits and lubricants used for own vehicles. Grounds: 1) No sale as no transfer of property for price, 2) Illegal levy under Entry 54 List II Schedule VII Constitution.

Analysis:

The judgment of the Supreme Court pertains to an appeal against the Madhya Pradesh High Court's decision dismissing a petition by a company challenging a sales tax order on motor spirits and lubricants used for its own vehicles. The company contended that the Sales Tax Officer had no power to tax consumption of goods for internal use as it did not involve a sale. Additionally, the company argued that the levy of tax was unauthorized and infringed its fundamental rights under Article 19(1)(f) and (g) of the Constitution.

The High Court, instead of considering the grounds raised by the company, focused on the ownership of the goods based on an agreement with a supplier. It concluded that the company did not own the goods and acted as an agent, thus making the consumption of goods a retail sale. The Supreme Court held that the High Court erred in deciding the case based on an assumption not raised by the Sales Tax Officer. The Court emphasized that the High Court should not bypass the statutory machinery provided for tax disputes and should leave the determination of taxable transactions to the taxing authorities in the first instance.

Regarding the constitutional challenge, the Supreme Court clarified that the State had the power to levy tax on sales of motor spirits within its competence. The Court highlighted that unless the goods were owned by the company, the levy of sales tax on consumed goods could not be deemed illegal. The Court emphasized that the determination of ownership and taxable transactions should be left to the statutory authorities. Therefore, the Court dismissed the appeal, allowing the company to raise ownership issues before the taxing authorities based on the supply agreement, without expressing any opinion on the interpretation of the agreement.

In conclusion, the Supreme Court upheld the principle that tax disputes should be resolved through the statutory mechanism provided, and constitutional challenges to tax levies should be based on the competence of the legislature. The Court dismissed the appeal, allowing the company to pursue its arguments before the taxing authorities without awarding costs in the case.