1974 (5) TMI 103 - HC - VAT and Sales Tax

Issues:
1. Taxability of turnover of vanaspati sold on commission basis.
2. Constitutionality of rule 2(d-1) of the U.P. Sales Tax Rules.
3. Allegation of hostile discrimination under Article 14 of the Constitution.
4. Compliance with Articles 301 and 304 of the Constitution.
5. Ultra vires nature of rule 2(d-1) of the U.P. Sales Tax Rules.

Detailed Analysis:
1. The petitioner, a partnership firm, sold vanaspati on commission basis during the assessment years 1970-71 and 1971-72. The turnover of vanaspati sold on commission basis was subjected to tax under a notification issued under section 3-A of the U.P. Sales Tax Act, which taxed vanaspati at a single point. The petitioner, initially not objecting to the taxability, later claimed a refund under the premise of a mistake of law. The petitioner contended that selling vanaspati as a commission agent should not attract tax liability, citing a previous court decision on a similar matter. However, the court differentiated between sales of goods manufactured in U.P. and those manufactured outside U.P., holding that the sale in question, although by a commission agent, was liable to tax as it took place in U.P.

2. The constitutionality of rule 2(d-1) of the U.P. Sales Tax Rules was challenged on the grounds that it was ultra vires the rule-making powers of the State Government. The argument was that the rule expanded the scope of the charging section by deeming a commission agent as an importer. The court reasoned that the rule was made to ensure taxation of sales within the state, preventing untaxed transactions. It was noted that the State Government had the authority to levy tax on such sales under section 3-A of the Act itself, even without the specific rule.

3. The petitioner alleged hostile discrimination under Article 14 of the Constitution, claiming differential treatment between commission agents selling goods of U.P. manufacturers and those of ex-U.P. dealers. The court held that the classification was rational, as taxing non-resident dealers through commission agents was necessary to prevent untaxed sales. The court emphasized that discrimination arises only when similarly situated persons are treated differently, which was not the case here.

4. The court examined the compliance with Articles 301 and 304 of the Constitution regarding the freedom of trade and taxation on imported goods. It was established that the State Legislature could tax goods imported from other states if similar goods produced within the state were also taxed, without violating the constitutional provisions. The court clarified that the variance in tax incidence between goods manufactured inside the state and those imported did not breach Article 304.

5. Regarding the ultra vires nature of rule 2(d-1), the court concluded that the rule was within the State Government's rule-making powers and aligned with the Act's purpose of taxing sales within the state. The court emphasized that the State Government had the authority to levy tax on commission agents like the petitioner under section 3-A itself, without the need for a specific rule. Consequently, the court dismissed the petition, upholding the tax assessment on the petitioner's turnover of vanaspati sold on commission basis.

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