1952 (9) TMI 32 - HC - VAT / Sales Tax

Interpretation of Article 286 of the Constitution - Validity of imposition of tax on the purchaser by the Turnover and Assessment Rules - delegation of its functions to the executive - contravention of Article 286 of the Constitution - limitations prescribed in Article 245 (1) - Determination of Madras General Sales Tax Act ultra vires of the powers of the Madras Legislature on the ground that entry No. 48 in the Provincial List in the 7th schedule to the Government of India Act of 1935 authorised tax only on sales and not on purchases - HELD THAT - We are not concerned with the constitutional problem as it presented itself for solution in that case; because under the Constitution the States enjoy both a power under Entry 54 to tax sale and purchase of goods and a power under Entry 52 to tax goods on their entry into a local area subject only to the limitations contained in Article 286. But the observations quoted above are sufficient to show that there is no conflict between the power of States to tax sales under Entry 54 and the power to impose taxes on the use of goods to which the Explanation relates. This interpretation further gives a clue to the correct meaning of the words actual delivery in the Explanation. In the context it can mean only physical delivery and not constructive delivery such as by transfer of documents of title to the goods. In the view taken by us that would not be sufficient to confer on the State a power to tax the sales. If the contracts in respect of these sales were concluded in Calcutta they will be extra-State sales not liable for taxation under the Madras General Sales Tax Act. It would appear however that the goods were actually delivered in Madras and if so that will confer on the State of Madras a power to tax the goods under the Explanation to Article 286(1)(a) which has become incor- porated in the Madras General Sales Tax Act by the Adaptation of Laws (Fourth Amendment) Order 1952 which by virtue of Section 1(2) shall be deemed to have come into force on the 26th January 1950. With reference to the purchases made in Cawnpore also it is stated on behalf of the respondent that the prices were paid to the banks in Madras against delivery of documents of title. This circumstance would not be sufficient to clothe the State of Madras with authority to impose a tax on these sales though property in the goods might pass in Madras as in the view expressed by us the locus of the contract is not where the property passes but where the agreement is concluded. But if the goods were delivered in Madras as appears from the statement on behalf of the respondent the Madras State would have jurisdiction to impose tax under the Explanation to Article 286(1)(a). We must mention that on the construction of the Explanation to Article 286(1)(a) Mr. K. Rajah Ayyar argued that the word consumption occurring therein should be understood in the limited sense of eating and not in the wider sense of using. He relied on the language of Entry 52 in Schedule II where both consumption and use are used disjunctively. But Entry 53 speaks of taxes on the consumption or sale of electricity; and obviously consumption here can mean only use. As already mentioned Article 286 is now part of the Madras General Sales Tax Act by virtue of the Adaptation of Laws (Fourth Amendment) Order 1952; and if the assessment is to any extent not authorised by the Statute the assessees are entitled to be relieved from the imposition to that extent. They cannot claim further that they should be freed altogether from liability even to the extent that they are liable under the Act. As was observed by Holmes J. in New York Ex. Rel. Hatch v. Edward Reardon(1) with regard to taxes especially perhaps it might be assumed that the Legislature meant them to be valid to whatever extent they could be sustained. The result of the findings is that the sum of Rs. 1, 04, 595-4-6 representing the price paid by the petitioners for the hides and skins purchased in Dacca should be excluded from their assessable turnover; and that in respect of the purchases made in Calcutta Cawnpore and locally amounting to Rs. 7, 61, 617-3-7 they are liable for sales tax. The learned Advocate-General agrees that the taxing authorities will revise the assessments in accordance with the conclusions expressed herein. There will be no order as to costs. RAJAMANNAR C.J.-I agree.

Summary

Issues Involved:
1. Is the Madras General Sales Tax Act ultra vires of the powers of the Madras Legislature?
2. Is the imposition of tax on the purchaser by the Turnover and Assessment Rules void due to unconstitutional delegation of legislative functions to the executive?
3. Is the Madras General Sales Tax Act void as repugnant to Article 14 of the Constitution?
4. Are the Turnover and Assessment Rules framed under the Madras General Sales Tax Act void as repugnant to the parent Act?
5. Is the imposition of tax in contravention of Article 286 of the Constitution and, therefore, illegal?

Detailed Analysis:

Issue 1: Ultra Vires of the Madras Legislature
The petitioners argued that the Madras General Sales Tax Act was ultra vires of the powers of the Madras Legislature, contending that Entry No. 48 in the Provincial List authorized tax only on sales and not on purchases. The court held that the Madras Act IX of 1939 was intra vires of the powers of the Provincial Legislature. It was found that the Act was within the legislative competence of the Madras Legislature.

Issue 2: Unconstitutional Delegation of Legislative Functions
The petitioners claimed that the imposition of tax on the purchaser by the Turnover and Assessment Rules was void on the ground that the Legislature had unconstitutionally delegated its functions to the executive. The court found that the delegation of powers to the executive under the Madras General Sales Tax Act was constitutional and did not amount to an unconstitutional delegation of legislative functions.

Issue 3: Repugnancy to Article 14 of the Constitution
The petitioners argued that the Madras General Sales Tax Act was void as it discriminated against purchasers in some trades while taxing sellers generally, thus violating Article 14 of the Constitution. The court held that the Act was not repugnant to Article 14 as being discriminatory. The classification made by the Act was found to be reasonable and based on intelligible differentia.

Issue 4: Repugnancy to the Parent Act
The petitioners contended that the Turnover and Assessment Rules framed under the Madras General Sales Tax Act were void as they were repugnant to the parent Act. The court held that the Rules framed under the Act were valid except for Rule 16(5). The Rules were found to be consistent with the parent Act and did not exceed the legislative intent.

Issue 5: Contravention of Article 286 of the Constitution
The substantial question was whether the imposition of tax in this case was in contravention of Article 286 of the Constitution. Article 286 prohibits the imposition of tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of import into or export out of India. The court examined whether the purchases made by the petitioners were in the course of export and thus exempt from taxation under Article 286(1)(b). The court concluded that the purchases made in Dacca (Pakistan) were not in the course of import into India and, therefore, not exempt under Article 286(1)(b). However, these purchases were outside the operation of the Madras General Sales Tax Act as they were completed in Dacca. The court also examined the purchases made in Calcutta and Cawnpore, concluding that if the goods were delivered in Madras, the State of Madras had the jurisdiction to impose tax under the Explanation to Article 286(1)(a). The court found that the purchases made locally and in Calcutta and Cawnpore were liable for sales tax.

Conclusion:
The court concluded that the Madras General Sales Tax Act was intra vires and constitutional. The delegation of powers to the executive was valid, and the Act did not violate Article 14. The Turnover and Assessment Rules were valid except for Rule 16(5). The imposition of tax was not in contravention of Article 286, except for the purchases made in Dacca, which were outside the operation of the Act. The court ordered the exclusion of the sum representing the price paid for the hides and skins purchased in Dacca from the assessable turnover and upheld the tax liability for the purchases made in Calcutta, Cawnpore, and locally.