1989 (8) TMI 327 - AT - VAT and Sales Tax

Issues Involved:
1. Vires of sections 4(6)(ii) and 5(6)(b) of the Bengal Finance (Sales Tax) Act, 1941.
2. Legislative competence of the State Legislature to impose purchase tax.
3. Violation of Article 286(3) of the Constitution and Section 15 of the Central Sales Tax Act, 1956.
4. Violation of Articles 19(1)(g), 265, and 300-A of the Constitution.
5. Classification under Article 14 of the Constitution.

Issue-Wise Detailed Analysis:

1. Vires of Sections 4(6)(ii) and 5(6)(b) of the BFST Act:
The company challenged the provisions of sections 4(6)(ii) and 5(6)(b) of the BFST Act, as amended by various West Bengal Acts, on the grounds that they were ultra vires Article 286(3) of the Constitution and Section 15 of the CST Act. The primary contention was that these provisions imposed a purchase tax on HR strips, which are declared goods of special importance in inter-State trade and commerce, thereby violating constitutional and statutory limits.

2. Legislative Competence of the State Legislature to Impose Purchase Tax:
The respondents argued that the State Legislature was competent to impose purchase tax under entry 54 of List II of the Seventh Schedule to the Constitution. The court held that the tax in question was exigible on the purchase of goods intended for use in manufacturing within West Bengal, and the taxable event was the purchase itself, not the disposal or transfer of goods. The court cited precedents to support that entries in the Legislative Lists must be given the widest amplitude, thereby affirming the State Legislature's competence to impose the purchase tax.

3. Violation of Article 286(3) of the Constitution and Section 15 of the CST Act:
The company argued that the imposition of both sales tax and purchase tax on the same goods at the same stage violated Article 286(3) of the Constitution and Section 15(a) of the CST Act. The court agreed, stating that the State Legislature could not impose both taxes on the same declared goods at the same stage. The court referenced Supreme Court decisions that emphasized the need for a single, definite, and ascertainable point of taxation, thereby ruling that the State Legislature's imposition of purchase tax was beyond its competence and violated the CST Act.

4. Violation of Articles 19(1)(g), 265, and 300-A of the Constitution:
The company claimed that the purchase tax violated Articles 19(1)(g) (right to practice any profession, or to carry on any occupation, trade, or business), 265 (taxation only by authority of law), and 300-A (right to property) of the Constitution. The court found no merit in these claims, stating that the imposition of purchase tax did not restrict the right to trade and commerce or violate these constitutional provisions.

5. Classification under Article 14 of the Constitution:
The company contended that the purchase tax violated Article 14 (equality before the law) of the Constitution. The court held that the classification of manufacturers who sell their products within West Bengal and those who dispose of them otherwise or transfer them outside the state had a rational nexus with the object sought to be achieved by the BFST Act. Therefore, there was no breach of Article 14.

Conclusion:
The writ petition succeeded to the extent that the court declared the imposition of purchase tax on declared goods, including HR strips, as ultra vires and unconstitutional. The court directed that no purchase tax should be levied or collected on such goods as long as sales tax is collected. All completed assessments of the company from the year ending on 31st December 1981 were to be revised, and excess tax paid was to be adjusted or refunded. The court made no order as to costs, and interim orders were vacated. The bank guarantee was to be released to the applicants within two weeks.

Judgment Delivered by:
- B.C. Chakrabarti (Chairman)
- P.C. Banerji (Technical Member)

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