2012 (4) TMI 220 - HC - VAT and Sales Tax

Whether restraining the benefit of a concessional rate of duty against the C Form to a purchaser situated outside a particular State constitutes violation of the freedom of inter-state trade and commerce assessee registered under Rajasthan VAT Act, engaged in business of electrical items - participated in e-auction for meter scrap items organized by First Respondent Clause 7.8 of terms & conditions stipulated that normally sales would be treated as local sale and Sale against C form/CST will not be allowed Held that - Court here reiterate two fundamental propositions (i) Court would not adjudicate upon whether a sale which originates in a State is an inter-State sale or not, since that is essentially a question of fact which is required to be determined by the authorities under the Act. See Zunaid Enterprises vs. State of Madhya Pradesh (2012 (3) TMI 285 - SUPREME COURT OF INDIA) (ii) Tender condition which is imposed by the authority which invites bids is not subject to judicial review. However, said clause in tender document stipulating absolute prohibition of sales against C Form/CST will not be allowed. Imposition of such a condition would be arbitrary, ultravires, and violative of Article 14 of the Constitution.

Summary

Issues:
Violation of freedom of inter-state trade and commerce, Breach of Article 301 of the Constitution, Violation of Section 8 of the Central Sales Tax Act, Violation of Article 14 of the Constitution.

Analysis:

Issue 1: Violation of freedom of inter-state trade and commerce
The Petitioner argued that the condition in the auction notice restricting the benefit of a concessional rate of duty against the "C" Form to a purchaser outside Maharashtra violates the freedom of inter-state trade and commerce as per Article 301 of the Constitution. The contention was that this condition effectively restricts bidders participating from outside Maharashtra. The First Respondent justified this condition by stating that it was necessary to ensure tax compliance and avoid penalties. The Court held that such a restriction was arbitrary and violative of Article 14 of the Constitution.

Issue 2: Breach of Section 8 of the Central Sales Tax Act
The Court analyzed the provisions of the Central Sales Tax Act, specifically Section 8, which provides for a reduced rate of Central Sales Tax on inter-State sales. The Act requires certain conditions to be fulfilled by the selling dealer to avail of the reduced tax rate, including the submission of a "C" Form by the purchasing dealer. The Court emphasized the importance of following these provisions to determine the tax liability on inter-State sales.

Issue 3: Violation of Article 14 of the Constitution
The Court further elaborated on the violation of Article 14 of the Constitution, which guarantees equality before the law and prohibits discrimination. The imposition of a condition in the auction notice that sales against "C" Form/CST will not be allowed was deemed arbitrary and contrary to the constitutional guarantee of equality. The Court held that such a prohibition was not justifiable and went against the principles of fairness and non-discrimination.

Conclusion:
The Court ruled that the stipulation in the auction notice prohibiting sales against "C" Form/CST was ultra vires and declared it as such. The judgment clarified that the determination of whether the sale occasioned by the e-auction notice falls under inter-State trade and commerce is a matter for the assessing authority to decide during assessment proceedings. The Court made the rule absolute in favor of the Petitioner, emphasizing the importance of upholding constitutional principles and statutory provisions in matters of trade and commerce.