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TMI Blog1996 (12) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... na General Sales Tax Act, 1973 (hereinafter referred to as "the State Act") and the Central Sales Tax Act, 1956 (hereinafter referred to as "the Central Act"). The levy of purchase tax on raw materials purchased by the petitioner was successfully challenged by it in this Court. By its judgment dated December 4, 1982 (Goodyear India Limited v. State of Haryana [1983] 53 STC 163) this Court declared the levy of purchase tax to be ultra vires to section 9 of the State Act. This judgment relates to the assessment years 197677 and 1977-78. For the assessment years 1973-74, 1974-75 and 1975-76 the challenge made by the petitioner was upheld in Bata India Limited v. State of Haryana [1983] 54 STC 226 (P H). A Division Bench of this Court struck down the amendment made in the State Act by the Haryana General Sales Tax (Amendment and Validation) Act, 1983. The State of Haryana filed petitions for special leave to appeal against the judgments in Goodyear India Limited v. State of Haryana [1983] 53 STC 163 (P H) and Bata India Limited v. State of Haryana [1983] 54 STC 226 (P H). During the pendency of the special leave petitions, the respondents issued notices to the petitioners under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplete without making reference to developments which have taken place during the pendency of these petitions. The appeals filed by the petitioner against the judgment of the Full Bench in Des Raj Pushap Kumar Gulati v. State of Punjab [1985] 58 STC 393 (P H) came to be considered by the Supreme Court along with a batch of other appeals in Goodyear India Ltd. v. State of Haryana [1990] 76 STC 71 (SC); AIR 1990 SC 781 which were filed by the other dealers of the State of Haryana. Their Lordships of the Supreme Court decided not only the appeals filed against the decision of the Full Bench but also similar appeals filed against the judgment of the Full Bench by other dealers, some writ petitions directly filed in the Supreme Court challenging the validity of the Amendment Act No. 11 of 1984 and some appeals filed by the dealers against the decision of the Bombay High Court. A two Judge Bench of the apex Court declared that taxes sought to be levied under section 9(1)(b) of the Haryana Act and section 13-AA of the Bombay Sales Tax Act were taxes on consignment and, therefore, two provisions were beyond the legislative competence of the State. On that premise the judgment of the Ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) in which section 4-B of the Punjab General Sales Tax Act, 1948 came up for interpretation was decided simply on the basis of the decision in Goodyear India's case [1990] 76 STC 71; AIR 1990 SC 781 and the decision rendered in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 was not considered by the Supreme Court. 6.. Validity of section 4-B of the Punjab General Sales Tax Act was again examined along with similar provisions of the Tamil Nadu General Sales Tax Act, Kerala General Sales Tax Act and West Bengal Sales Tax Act in Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab [1994] 95 STC 170 (SC); (1994) 3 JT 239 (SC). It was argued on behalf of the dealers that Hotel Balaji's case [1993] 88 STC 98 (SC) was not correctly decided and in view of the apparent conflict of opinion between Mukerian Papers Ltd. v. State of Punjab [1991] 81 STC 152 (SC) on the one hand and Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC) on the other hand, the question should be referred to a larger Bench. This plea was rejected by a Bench of three Judges which consisted of M.N. Venkatachaliah, C.J., A.M. Ahmadi and B.P. Jeevan Reddy, JJ., two of whom (M.N. Venkatachaliah, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew now presented to us which appeals to me as more realistic, appropriate and preferable, particularly when I see that the view one way or the other would affect the validity of a large number of similar legislations all over India, merely because it may not be consistent with the view I took in Goodyear [1990] 76 STC 71 (SC); (1990) 2 SCC 71. Consistency, for the mere sake of it, is no virtue. If precedent is needed to justify my change of mind, I may quote Bhagwati, J. (as he then was) in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC). 'We have given our most anxious consideration to this question, particularly since one of us, namely, P.N. Bhagwati, J., was a party to the decision in Cloth Trader's case [1979] 118 ITR 243 (SC). But having regard to the various considerations to which we shall advert in detail when we examine the arguments advanced on behalf of the parties, we are compelled to reach the conclusion that Cloth Trader's case [1979] 118 ITR 243 (SC) must be regarded as wrongly decided. The view taken in that case in regard to the construction of section 80M must be held to be erroneous and it must be corrected. To perpetuate an error is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of any other goods and (iii) either disposes of the manufactured goods in any manner otherwise than by way of sale in the State or despatches the manufactured goods to a place outside the State in any manner otherwise than by way of sale in the course of a inter-State trade or commerce or in the course of export outside the territory of India within the meaning of sub-section (1) of section 5 of the Central Sales Tax Act, 1956. If all the above three ingredients are satisfied, the dealer becomes liable to pay tax on the purchase of such goods at such rate, as may be notified under section 15. Now, what does the above analysis signify? The section applies only in those cases where (a) the goods are purchased (for convenience sake, I may refer to them as raw material) by a dealer liable to pay tax under the Act in the State, (b) the goods so purchased cease to exist as such goods for the reason they are consumed in the manufacture of different commodities and (c) such manufactured commodities are either disposed of within the State otherwise than by way of sale or despatched to a place outside the State otherwise than by way of an interState sale or export sale. It is evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central sales tax is levied and collected by the Government of India, article 269 of the Constitution provides for making over the tax collected to the States in accordance with certain principles. Where, of course, the sale is an export sale within the meaning of section 5(1) of the Central Sales Tax Act (export sale) the State may not get any revenue but larger national interest is served thereby. It is for these reasons that tax on the purchase of raw material is waived in these two situations. Thus, there is a very sound and consistent policy underlying the provision. The object is to tax the purchase by a manufacturer of goods whose existence as such goods is put an end to by him by using them in the manufacture of different goods in certain circumstances. The tax is levied upon the purchase price of raw material, not upon the sale price-or consignment value-of manufactured goods. Would it be right to say that the levy is upon consignment of manufactured goods in such a case? True it is that the levy materialises only when the purchased goods (raw material) is consumed in the manufacture of different goods and those goods are disposed of within the State otherwise than by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such purchase for a year, pay tax on the taxable turnover relating to such purchase for that year at the rates mentioned in section 5.' One of the arguments urged against the validity of the said provision was that inasmuch as the tax is levied depending upon the mode in which the goods purchased are consumed, disposed of or despatched, the tax is really one in the nature of consumption tax or use tax, but not sales tax. This argument was answered by the learned Judge in the following words: 'According to me, this contention is based on a misconception of the scope of taxation on the sale of goods. It is true that sales tax is a tax imposed on the occasion of the sale of goods. But it has no reference to the point of time at which the sale or purchase takes place. It refers to the connection with the event of purchase or sale and not the point of time at which such purchase or sale takes place. To read it otherwise would render any retrospective imposition of sales tax invalid as in every such case the tax would not be one which arises on the occasion of sale. By the same logic, it would not be possible to tax any goods at the last purchase point in the State, for the last pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observation in Kandaswami [1975] 36 STC 191 (SC) relevant for the present purpose may also be noticed: 'It may be remembered that section 7-A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. The view taken by the High Court is repugnant to this cardinal canon of interpretation.' In the light of the above scheme of section 9, it would not be right, in our respectful opinion, to say that the tax is not upon the purchase of raw material but on the consignment of the manufactured goods......." 10.. Expressing his disagreement with the reasoning of Mukharji, J., in Goodyear India's case [1990] 76 STC 71 (SC), B.P. Jeevan Reddy, J., observed: "For the above reasons, we find it difficult to agree with the reasoning of Mukharji, J., in Goodyear [1990] 76 STC 71 (SC); (1990) 2 SCC 71. It is also not po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no occasion for the Bench either to affirm or dissent from the decision (page 149 of STC) in Goodyear [1990] 76 STC 71 (SC). This aspect has been dealt with in paragraph 101 of the decision in Hotel Balaji [1993] 88 STC 98 (SC) and we agree with it. Accordingly, we see no conflict between Hotel Balaji [1993] 88 STC 98 (SC) and Mukerian Papers [1991] 81 STC 152 (SC); (1991) 2 SCC 580. Now coming to the merits of the contention, we are of the considered opinion that there is no reason to take a view different from the one taken in Hotel Balaji. All the contentions urged now have been considered and dealt with in the said decision. In our opinion, the approach adopted in Goodyear does not accord with the scheme, intendment and language of the relevant provisions of the Haryana and Bombay Acts and cannot be accepted." 12.. Although in the writ petitions the petitioners have challenged the vires of Haryana Act No. 1 of 1990, Haryana Act No. 4 of 1991 and Haryana Act No. 9 of 1993 by which State Act has been amended, at the time of hearing Shri R.R. Aggarwal confined his submission qua the challenge to the impugned notices and orders passed by the Assessing Authority. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous sanction of the President." 14.. One of the earliest decisions of the apex Court in which the provisions of articles 301 to 304 were examined is Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. By a majority decision a Constitution Bench of the Supreme Court held that article 301 must be regarded as imposing constitutional limitation on the legislative powers of Parliament and the Legislatures of the States. Their Lordships examined the provisions of articles 255, 265, 297, 301 to 304 and held: "On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion is inevitable that the content of freedom provided for by article 301 was larger than the freedom contemplated by section 297 of the Government of India Act of 1935, and whatever else it may or may not include, it includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that directly affects the freedom of trade as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .B. Abdul Kadir AIR 1970 SC 1912, a three Judge Bench of the Supreme Court held that before deciding whether an Act is saved by article 304, it must be decided first whether the Act constitutes restriction directly or immediately hampering free-flow of trade, commerce or intercourse. Their Lordships then examined the validity of the tax imposed on tobacco and other products under the Kerala Luxury Tax on Tobacco (Validation) Act, 1964 and held that such imposition did not obstruct the free-flow of trade and commerce. In taking this view the Supreme Court relied on the observations made in Atiabari Tea Company's case AIR 1961 SC 232, Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); AIR 1968 SC 599 and State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147. 18.. In State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147, the Constitution Bench considered the legality of the tax levied on the turnover of matches which were transferred to the assessee's depot at Ongole in the State of Andhra Pradesh from his place of business in the State of Madras. Majority judgment was delivered by J.C. Shah, J., as he then w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot also do so. Neither tax operate directly or immediately on the free-flow of trade or the free movement of the transport of goods from one part of the country to the other. The tax is on the sale. The movement is incidental to and a consequence of the sale." 19.. We may mention that the issue where levy of purchase tax is ultra vires to article 301 of the Constitution was directly raised and decided in Goodyear India Ltd. v. State of Haryana [1990] 76 STC 71 (SC). In the appeals arising out of the decision of the Bombay High Court, one of the arguments advanced before the apex Court was that the levy of purchase tax obstructs the free trade and commerce. While rejecting the challenge the Supreme Court observed: "...........It was further submitted by Dr. Pal that section 13AA of the Act is violative of article 301 of the Constitution. It makes a discrimination between the dealer/manufacturer who despatches the goods outside the State and the other dealer/manufacturer. Both the dealers/manufacturers purchase the goods on payment of purchase tax and use them in the manufacture of taxable goods. The incidence of additional tax on the purchase of goods is attracted only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of law which emerges from the aforementioned decision is that the tax imposed by the State would become ultra vires to article 301 only if it directly impedes the free movement of goods within or outside the State. If the tax is on the sale of goods and the movement is only incidental or in consequence of sale the imposition of tax cannot be treated as ultra vires to article 301 of the Constitution. 21.. In the case in hand what is being charged from the petitioner No. 1 is the tax on the raw material purchased by it. The object of the impugned provisions is to tax the purchase of raw material by the manufacturer which is used in the manufacture of goods. The law does not tax the sale of the manufactured goods or the despatch of the goods. It is, therefore, not possible to agree with Shri Aggarwal that the impugned levy impedes, hampers or obstructs the free-flow of trade or commerce. The stage at which actual collection of tax is made may be postponed till the goods manufactured by the petitioner No. 1 are disposed of but that does not alter the nature of the tax. In fact the petitioners have not been able to show as to how such levy impedes the movement of goods manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aka Sales Tax Act, 1957 was partially declared violative of article 304(a) because by that provision sale of finished goods manufactured out of imported raw material was made taxable but the sale of finished goods manufactured out of locally purchased raw material was exempted from tax. Their Lordships held that by adopting different yardsticks for taxing similar types of goods, the State created discrimination and, therefore, the provision was hit by article 304(a). 25.. In Buxa Dooars Tea Co. Ltd. v. State of West Bengal [1989] 74 STC 447 (SC); (1989) 3 SCC 211, amendment made in the West Bengal Rural Employment and Production Act, 1976 whereby rural employment cess was sought to be levied on tea estates-was challenged. Their Lordships held that rural employment cess ostensibly imposed in respect of tea estate was in fact a cess on the despatches of tea and as the same impeded the free movement of goods throughout the country, the amendment was violative of article 301 and was not protected by article 304(b). The Supreme Court held that the amended provision was beyond the legislative competence of the West Bengal Legislature. The court further held that as the Bill or amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; AIR 1965 SC 171; (ii) J.P. Jani, Income-tax Officer, Circle IV, Ward G, Ahmedabad v. Induprasad Devshanker Bhatt [1969] 72 ITR 595 (SC); AIR 1969 SC 778; (iii) Commissioner of Income-tax, U.P. v. Mohd. Shakoor Mohd. Bashir [1973] 89 ITR 57 (SC); and (iv) Rajinder Nath v. Commissioner of Income-tax, Delhi [1979] 120 ITR 14 (SC). 28.. Learned Advocate-General, Haryana, argued that orders of assessment were quashed by the court in Goodyear India Limited v. State of Haryana [1983] 53 STC 163 with liberty to the department to pass fresh orders and, therefore, the period of limitation specified in section 31 cannot be applied qua the orders impugned in these writ petitions. He argued that reassessment pre-supposes existence of an order of assessment validly passed and as the High Court and the Supreme Court quashed the assessment orders in these cases, the impugned orders cannot be treated as fresh orders of assessment. He further argued that the theory of relation back should be applied to the orders which have been passed keeping in view the fact that the earlier orders were quashed by the High Court and thereafter the Legislature had amended the provisions of section 9 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formaas it stands tion which has come into his possession, the Assessing Authority after amenddiscovers that the turnover of the business of a dealer has been ment vide under assessed, or has escaped assessment in any year, the Assessing Act No. 1 Authority may, at any time within three years from the date of the of 1988 final assessment order and after giving the dealer a reasonable (effective opportunity in the prescribed manner, of being heard, proceed to from Janureassess the tax payable on the turnover which has been underary 1, assessed or has escaped assessment. 1988): Section 32. Period of limitation for completion of assessment or reassessment not to apply in certain cases.-(1) Notwithstanding the provision relating to the period of limitation contained in section 28, section 29 or section 31 or in any other provision of this Act, assessment or reassessment may be made at any time in consequence of, or to give effect to, any order made by any court or other authority under this Act. (2) Where the assessment proceedings relating to any dealer remained stayed under the orders of any court or other authority for any period, such period shall be excluded in computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other provisions of the statute. 33.. In so far as these cases are concerned the non obstante clause contained in section 32(1) deserves to be given full effect because the very object of enacting section 32(1) is to remove the hurdle of limitation in the making of assessment or reassessment which may be necessitated as a consequence of or with a view to give effect to any order made by the court or other authority. In our opinion, section 32(1) takes within its fold all those cases in which the assessment or reassessment made by the competent authority is quashed by the court on account of any illegality or irregularity or due to striking down the provision of law under which the assessment has been made. Therefore, in cases where the court quashes the assessment or reassessment and does not restrain the competent authority framing fresh proceedings, the period of limitation specified in section 31 does not apply. We, therefore, do not find any merit in the argument of Shri Aggarwal that the impugned assessments should be quashed on the ground that the same are barred by limitation. We are also of the opinion that provision of section 31 cannot be invoked for challenging th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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