1974 (4) TMI 79 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of the West Bengal Taxation Laws (Amendment) Act, 1972.
2. Whether the sale by licensees is a sale within the meaning of the Indian Sale of Goods Act, 1930.
3. Whether the imposition of sales tax restricts the freedom of trade, commerce, or intercourse under the Constitution.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the West Bengal Taxation Laws (Amendment) Act, 1972:
The petitioners challenged the constitutional validity of the West Bengal Taxation Laws (Amendment) Act, 1972, which imposed a sales tax on the sale of country spirit by licensees. The Act had not received the President's sanction, either prior or subsequent, only the Governor's assent on 21st July 1972. The Act came into effect from 7th August 1972. The petitioners argued that the imposition of sales tax was ultra vires the Constitution because the sale made by them as licensees was not a sale within the meaning of the Indian Sale of Goods Act, 1930, and thus, the State Legislature had no authority to impose the tax.

2. Whether the Sale by Licensees is a Sale within the Meaning of the Indian Sale of Goods Act, 1930:
The petitioners contended that the sale effected by a licensed retail vendor, though a sale in the popular sense, was not a sale in the strict legal sense due to the absence of mutual consent. The licensee was bound under statutory regulations to sell the country spirit in a prescribed manner, quantity, strength, and price, without the option to choose customers. This, they argued, lacked the essential element of mutual assent required for a sale under the Sale of Goods Act. The respondents, however, argued that the sale, though regulated, was a sale in both popular and legal senses, granting the State Legislature the competence to impose sales tax.

3. Whether the Imposition of Sales Tax Restricts the Freedom of Trade, Commerce, or Intercourse under the Constitution:
The petitioners argued that the imposition of sales tax rendered their business unprofitable, directly affecting their trade. Since the business was fully controlled, with fixed prices for purchase and sale, the imposition of a 6% sales tax, which could not be passed on to consumers, would wipe out their gross profit, thus affecting the free flow of trade. They contended that the legislation required the President's sanction under Article 304(b) of the Constitution, which was not obtained, rendering the legislation unconstitutional. The respondents countered that the imposition of sales tax did not constitute a restriction under Article 304 and thus did not require the President's sanction.

Judgment Analysis:

On the Nature of Sale:
The court analyzed the nature of the sale by licensees under the Bengal Excise Act, 1909, and concluded that despite the high level of regulation, the transactions constituted sales in the legal sense. The court referred to various Supreme Court decisions, including State of Madras v. Dunkerley and Andhra Sugars v. State of Andhra Pradesh, to establish that a sale, even under statutory regulation, is still a sale if it involves a contract. The court noted that mutual assent, though regulated, was present in the transactions, making them sales under the Sale of Goods Act.

On the Imposition of Sales Tax:
The court found that the imposition of sales tax, given the regulated nature of the business and the fixed prices, directly affected the licensees' ability to conduct their trade profitably. The court referred to the Supreme Court's decisions in Atiabari Tea Co. v. State of Assam and Automobile Transport Ltd. v. State of Rajasthan, which held that tax laws are subject to the restrictions of Part XIII of the Constitution. The court concluded that the imposition of sales tax in this case directly restricted the free flow of trade, and since the requirements of Article 304(b) were not met, the legislation was ultra vires the Constitution.

Conclusion:
The court declared section 3(5) of the West Bengal Taxation Laws (Amendment) Act, 1972, ultra vires the Constitution insofar as it imposed sales tax on the sale of country spirit. The court issued a writ of mandamus directing the respondents not to enforce this provision. The operation of the order was stayed for one month. The petition was allowed.

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