2003 (7) TMI 661 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the executive instructions imposing a total ban on the sale of motor vehicles outside the State.
2. Validity of the directions to charge local sales tax on inter-State transactions.
3. Requirement of written contracts for inter-State sales.
4. Necessity of sales being made to registered dealers and supported by form "C".
5. Application of mind in issuing the show cause notice.
6. Maintainability of the writ petition in light of the pending appeal.

Detailed Analysis:

1. Legality of the Executive Instructions Imposing a Total Ban on the Sale of Motor Vehicles Outside the State:
The court examined the letter dated February 7, 2002, which imposed a total ban on the sale of motor vehicles outside the State. The court noted that Article 301 of the Constitution ensures free trade, commerce, and intercourse throughout India, subject to reasonable restrictions imposed by law made by the Parliament or State Legislature with the President's prior sanction. The court held that executive authorities could not impose such a ban through executive instructions, as it violated the constitutional scheme of taxation. Hence, the letter dated February 7, 2002, and the related letter dated February 6, 2002, were declared void ab initio and non est in law.

2. Validity of the Directions to Charge Local Sales Tax on Inter-State Transactions:
The court scrutinized the letter dated March 14, 2002, which directed that no inter-State sale of motor vehicles at 2% would be allowed, and dealers were free to sell at 12% local sales tax. The court reiterated that taxation on inter-State sales falls under the Central Sales Tax Act, 1956, and not State legislation. The court emphasized that the State Government's notification dated May 2, 2001, which reduced the Central sales tax to 2%, could not be overridden by executive instructions. Thus, the directions in the letter dated March 14, 2002, were held to be without jurisdiction and void ab initio.

3. Requirement of Written Contracts for Inter-State Sales:
The court addressed the issue of whether a contract of sale must be in writing to qualify as an inter-State sale. The court clarified that section 3 of the Central Sales Tax Act, 1956, does not mandate written contracts. The movement of goods could be inferred from the conduct of the parties or collateral acts. The court cited supporting case law to establish that the obligation to transport goods outside the State could arise from various factors, including mutual understanding or the nature of the transaction.

4. Necessity of Sales Being Made to Registered Dealers and Supported by Form "C":
The court examined the show cause notice's demand that sales must be made to registered dealers and supported by form "C" to avail the benefit of the notification dated May 2, 2001. The court noted that section 8(5) of the Central Sales Tax Act, 1956, allows the State Government to exempt or reduce tax on sales to any person, not necessarily registered dealers. The notification did not impose the requirement of form "C" for availing the benefit. Therefore, the demand for form "C" was held to be misconceived and contrary to the Act's provisions.

5. Application of Mind in Issuing the Show Cause Notice:
The court analyzed whether the show cause notice dated May 27, 2002, was issued with due application of mind. It was found that the notice was issued at the behest of superior officers without independent inquiry or satisfaction by the assessing authority. The court emphasized that quasi-judicial functions must be exercised with proper application of mind and not under superior officers' instructions. The notice was declared illegal, without jurisdiction, and untenable in law.

6. Maintainability of the Writ Petition in Light of the Pending Appeal:
The respondents contended that the writ petition was not maintainable due to a pending appeal before the Deputy Commissioner of Tax and Excise. The court noted that the appeal was actually a representation and could not be treated as a statutory appeal. The court held that the representation did not bar the High Court's jurisdiction under Article 226 of the Constitution. The court also highlighted that the directions under challenge were issued by the senior-most authority, making an appeal to a junior officer inappropriate.

Conclusion:
The court allowed the writ petition partly, setting aside and quashing the impugned orders, directions, instructions, and the show cause notice. The respondents were left at liberty to proceed in accordance with the law if they found any specific case of short-paid or unpaid sales tax or evasion of sales tax by the petitioner. No order as to costs was made.