1964 (5) TMI 40 - SC - VAT and Sales Tax

Whether raw hides and and dressed or tanned hides and skins be treated as one class of goods for purpose of taxation or as two different classes of goods? Held that - Appeal allowed. Sub-section (1) of section 2 of the Madras General Sales Tax Act, 1959 discriminates against imported hides and skins which were sold up to the 1st of August, 1957, upto which date the tax on sale of raw hides and skins was at the rate of 3 pies per rupee or 19/16th per cent. This however does not mean that the sub-section is valid with respect to the sales which took place subsequent to August 1, 1957. The sub- section being void in its provisions with respect to a certain initial period, we cannot change the provision with respect to the period as enacted to the period for which it could be valid as that would be re- writing the enactment. We have therefore to hold sub-section (1) of section 2 void, and accordingly hold so. Thus the provisions of sub-section (1) of section 2 being invalid the other provisions of that section become unenforceable.

Issues Involved:
1. Validity of Section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963.
2. Discrimination against imported untanned hides and skins.
3. Application of Article 286(3) of the Constitution.
4. Validity of Rule 16(1) after the invalidation of Rule 16(2).
5. Competence of the State Legislature to enact retrospective tax laws.
6. Taxation of hides and skins in inter-State trade or commerce.

Detailed Analysis:

1. Validity of Section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963:
The petitioners challenged the validity of Section 2 of the Act, arguing it contravened several constitutional provisions, including Articles 14, 19(1)(f) and (g), 31, 286(2), 301, and 304. The court found that Section 2(1) of the Act discriminated against imported untanned hides and skins, making it invalid. The court held, "The present rule therefore is discriminatory and invalid for the same reasons which led this Court to hold sub-rule (2) of rule 16 invalid in Mehtab's case."

2. Discrimination Against Imported Untanned Hides and Skins:
The petitioners argued that Section 2(1) imposed a higher tax rate on imported untanned hides and skins compared to locally sourced ones, thus creating discrimination. The court agreed, noting, "The rate of tax on the sale of tanned hides and skins is 2% on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee." This difference in tax rates was found to be discriminatory.

3. Application of Article 286(3) of the Constitution:
The petitioners contended that the Act required the President's assent as it affected the taxation of goods declared essential for the life of the community. The court disagreed, stating, "The State Legislature is free to enact laws which would have retrospective operation. Its competence to make a law for a certain past period depends on its present legislative power and not on what it possessed at the period of time when its enactment is to have operation."

4. Validity of Rule 16(1) After the Invalidation of Rule 16(2):
The petitioners argued that Rule 16(1) became invalid when Rule 16(2) was declared invalid. The court rejected this argument, holding that tanned and untanned hides and skins are different commodities and can be taxed differently. "We therefore hold that raw hides and skins and dressed hides and skins constitute different commodities or merchandise and they could therefore be treated as different goods for the purposes of the Act."

5. Competence of the State Legislature to Enact Retrospective Tax Laws:
The court upheld the competence of the State Legislature to enact retrospective tax laws. "The State Legislature is free to enact laws which would have retrospective operation. Its competence to make a law for a certain past period depends on its present legislative power and not on what it possessed at the period of time when its enactment is to have operation."

6. Taxation of Hides and Skins in Inter-State Trade or Commerce:
The petitioners argued that the tax imposed by Section 2(1) was on inter-State trade, falling under Entry 92A of List I of the Seventh Schedule, and thus outside the State Legislature's competence. The court disagreed, stating, "The tax is imposed on the sale which took place within the State. The State Legislature is competent to impose such a tax."

Conclusion:
The Supreme Court declared Section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1963, invalid due to its discriminatory nature against imported untanned hides and skins. Consequently, the other provisions of Section 2 became unenforceable. The court issued a writ of mandamus directing the State of Madras and its Sales Tax Authorities to refrain from enforcing any provisions of Section 2 of the Act. "We therefore allow the petitions with costs, one hearing fee, and hold section 2(1) of the Act invalid and order the issue of a writ of mandamus to the State of Madras and the Sales Tax Authorities under the Act to refrain from enforcing any of the provisions of section 2 of the Act."

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