1972 (11) TMI 89 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Deductibility of excise duty from taxable turnover under the Central Sales Tax Act.
2. Retrospective amendment of the Madras General Sales Tax Act.
3. Competence of the Madras State Legislature to enact Madras Act 3 of 1969.
4. Compliance with conditions for exemption under Section 10 of Central Act 28 of 1969.
5. Validity and constitutionality of retrospective legislation.

Detailed Analysis:

1. Deductibility of Excise Duty from Taxable Turnover under the Central Sales Tax Act:
The petitioner, a partnership firm engaged in the match business, claimed deductions of excise duty from the taxable turnover under the Central Sales Tax Act for the assessment years 1964-65 and 1965-66. The petitioner relied on the Supreme Court judgments in Yaddalam's case and Pothan Joseph's case, arguing that excise duty deductible under the local sales tax law should also be deductible under the Central Sales Tax Act. However, this contention was not accepted as Section 9(3) of the Central Sales Tax Act originally did not address exemptions but only prescribed assessment procedures.

2. Retrospective Amendment of the Madras General Sales Tax Act:
The Madras General Sales Tax Rules, 1959, initially allowed deductions of excise duty from taxable turnover. However, Madras Ordinance No. 5 of 1968, later replaced by Madras Act 3 of 1969, deleted this rule retrospectively from April 1, 1959, to March 31, 1966. Consequently, the petitioner was liable for Central sales tax on excise duty paid during the relevant assessment years. The Tribunal upheld this retrospective amendment, stating that excise duty paid by dealers in inter-State trade was not deductible from the taxable turnover.

3. Competence of the Madras State Legislature to Enact Madras Act 3 of 1969:
The petitioner challenged the vires of Madras Act 3 of 1969, arguing it was beyond the legislative competence of the Madras State Legislature and encroached upon Parliament's exclusive power under Article 246 read with Schedule VII, List I, Entry 92-A of the Constitution. The court rejected this contention, holding that the State Legislature was competent to enact the law within its domain, including making retrospective amendments. The court emphasized that legislative wisdom in amending laws retrospectively, especially concerning revenue, cannot be lightly questioned.

4. Compliance with Conditions for Exemption under Section 10 of Central Act 28 of 1969:
Section 10 of Central Act 28 of 1969 provided certain exemptions if three conditions were met: the dealer should not have collected tax, non-collection must be based on the belief that no such tax could have been levied, and no such tax could have been levied if the amendments had not been made. The Tribunal found that the petitioner did not satisfy the second condition, as the consistent judicial view in Madras was that excise duty was includable in the taxable turnover under the Central Sales Tax Act. Thus, the petitioner was not entitled to the exemption.

5. Validity and Constitutionality of Retrospective Legislation:
The court upheld the retrospective amendment of the Madras General Sales Tax Act, stating that retrospective legislation is permissible if it falls within the legislative competence and is not unreasonable. The court noted that retrospective laws are often enacted to address emergent circumstances and balance public revenue interests. The Madras Act 3 of 1969 was deemed valid, as it was within the State Legislature's competence and did not violate constitutional provisions. The court dismissed the petitions, affirming the Tribunal's and Deputy Commercial Tax Officer's orders.

Conclusion:
The court dismissed the writ petitions, holding that the petitioner was liable for Central sales tax on excise duty paid during the relevant assessment years. The retrospective amendment of the Madras General Sales Tax Act was upheld, and the State Legislature was found competent to enact such laws. The petitioner did not meet the conditions for exemption under Section 10 of Central Act 28 of 1969, and the retrospective legislation was deemed valid and constitutional. No costs were awarded.