1996 (9) TMI 522 - SC - VAT and Sales Tax

Whether a watery coconut could be taxed within the permissible restrictions as also the dried coconut that resulted from the drying of the same watery coconut? Held that - Appeal allowed. Watery coconuts, therefore, can only be taxed within the restrictions imposed by section 15 of the Central Sales Tax Act. The notification dated 9th March, 1970, issued by the respondent-State, in so far as it seeks to tax watery coconuts at the rate of 7 per cent, must therefore, be struck down.

Summary

Issues:
Challenge to notification levying sales tax on watery coconuts under Rajasthan Sales Tax Act, 1954 based on Central Sales Tax Act, 1956 provisions.

Detailed Analysis:

The appeal in this case revolves around a notification issued by the State of Rajasthan on 9th March, 1970, imposing a sales tax of 7 per cent on "watery coconuts". The crux of the challenge was that watery coconuts should be governed by section 14 of the Central Sales Tax Act, 1956, and not subjected to the 7 per cent tax rate. The notification was initially upheld by a single Judge and then by a Division Bench of the High Court, citing a previous judgment by the Supreme Court in a similar matter.

The pivotal issue in this case is the classification of watery coconuts under the Central Sales Tax Act. Section 14 of the Act lists goods of "special importance in inter-State trade or commerce," including oilseeds and coconuts. The question arises whether watery coconuts fall under this provision, as it would impact the validity of the 7 per cent sales tax imposed by the notification.

The Court referred to a judgment by the Andhra Pradesh High Court which distinguished between tender coconuts, dried coconuts, and fully grown coconuts with developed kernels containing water. This distinction was crucial in determining the nature of watery coconuts. Additionally, the Court highlighted a previous Supreme Court judgment that emphasized the progression from watery coconuts to dried coconuts or copra, indicating that watery coconuts are within the scope of section 14(vi)(viii) of the Central Sales Tax Act.

It is established that watery coconuts can only be taxed in accordance with the restrictions outlined in section 15 of the Central Sales Tax Act. Therefore, the notification imposing a 7 per cent tax rate on watery coconuts was deemed invalid by the Court. As a result, the appeal was allowed, and the judgment and order of the lower court were overturned. The Court further quashed the 1970 notification by the State of Rajasthan and directed the refund of any excess tax paid by the appellants in compliance with the said notification.

In conclusion, the Court ruled in favor of the appellants, declaring the notification levying sales tax on watery coconuts as unlawful and ordering the refund of any overpaid taxes.