1956 (10) TMI 27 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the assessment of sales tax for inter-State sales from January 26, 1950, to March 31, 1950.
2. Constitutionality of the imposition of sales tax in light of Article 286 and Article 265 of the Constitution.
3. Validity of the President's Sales Tax Continuance Order, 1950.
4. Entitlement to a refund of the sales tax paid.
5. Voluntariness of the tax payment and its implications on the refund claim.

Issue-wise Detailed Analysis:

1. Legality of the assessment of sales tax for inter-State sales from January 26, 1950, to March 31, 1950:
The petitioner challenged the assessment of sales tax amounting to Rs. 69,478-2-0 for sales outside Bihar, arguing that it was illegal and ultra vires. The petitioner relied on Article 286(1) and Article 286(2) of the Constitution, which prohibit the imposition of a tax on sales or purchases involving inter-State elements by all States except the State in which the goods are delivered for consumption. The Supreme Court's decision in the United Motors' case was cited to support this argument. The court held that the assessment was illegal as the sales tax imposed on inter-State sales was in violation of Article 286(1)(a) of the Constitution.

2. Constitutionality of the imposition of sales tax in light of Article 286 and Article 265 of the Constitution:
The petitioner argued that the imposition of the sales tax was unconstitutional due to the violation of Article 286 and Article 265 of the Constitution. The court agreed, stating that the bans imposed by Article 286 are independent and each must be overcome before a State Legislature can impose a tax on sales or purchases. The court found that the President's Continuance Order could not override the ban imposed by the Explanation to Article 286(1)(a).

3. Validity of the President's Sales Tax Continuance Order, 1950:
The respondents argued that the President's Sales Tax Continuance Order, 1950, allowed the continued imposition of sales tax despite the constitutional ban. However, the court held that while the President's Order lifted the ban under Article 286(2), it could not override the ban under Article 286(1)(a). The court cited the majority decision in the Bengal Immunity Company Limited case, which emphasized the independence of the bans under Article 286.

4. Entitlement to a refund of the sales tax paid:
The petitioner sought a refund of the tax paid, arguing it was collected illegally. The court held that the petitioner was entitled to a refund if it could be proven that the goods were delivered and consumed in the State of first destination. The court directed the Sales Tax Officer to reassess the tax according to law and refund any excess amount paid by the petitioner.

5. Voluntariness of the tax payment and its implications on the refund claim:
The respondents argued that no refund should be granted as the petitioner had paid the tax voluntarily. The court rejected this argument, stating that the payment was not voluntary as it was made under the demand of an officer acting under the color of authority. The court cited English authorities and the Indian Contract Act, Section 72, which allows for the recovery of money paid under a mistake of law. The court concluded that the petitioner was entitled to a refund regardless of whether the payment was made under protest or not.

Conclusion:
The court set aside the order of the Sales Tax Officer dated September 10, 1950, and directed a reassessment of the sales tax for the period in question. The respondents were ordered to refund any excess tax paid by the petitioner. The application was allowed with costs.