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TMI Blog1990 (8) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... variety is used in the manufacture of cotton fabrics by means of several processes. Cotton yarn and cotton fabrics are goods of special importance under the Central Sales Tax Act, 1956. Additional excise duty in lieu of sales tax was levied on cotton fabrics under the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Therefore, the States could not impose sales tax on cotton fabrics. Cotton yarns are tax-free under section 6 of the 1941 Act, being item 15 of Schedule I to the said Act. Cotton fabrics are exempt from sales tax in terms of rule 3(28) of the Bengal Sales Tax Rules, 1941. Prior to enactment of the impugned Amendment Act of 1980, a concessional rate of sales tax was allowed on sales of goods specified in the certificate of registration of the purchasing registered dealer for use directly in the manufacture of goods in West Bengal for sale in West Bengal. Such rate was three per cent (later one per cent, and then two per cent) in place of the general rate of eight per cent. The concessional rate was available to the selling dealer upon furnishing declarations in prescribed form filled up and signed by the purchasing dealer. This prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able turnover as reprepresents sales to a registered resents sales to a registered dealer of goods, other than dealer of goods, other than gold, of the class or classes gold, of the class or classes specified in the certificate of specified in the certificate of registration of such dealer, as registration of such dealer, as being intended for use by him being intended for use by him directly in the manufacture in directly in the manufacture in West Bengal of goods, newsWest Bengal of taxable goods, papers or motor spirit, for sale, newspapers or motor spirit, for in West Bengal, and of sale [**other than that referred containers and other materials to in section 6D,] in West for the packing of goods of the Bengal, and of containers and class or classes so specified." other materials for the packing of goods of the class or classes so specified. [*Amended as 'two per centum' with effect from October 1, 1982.] [**Inserted with effect from April 1, 1984, vide West Bengal Taxation Laws (Second Amendment) Act, 1984.]" Under the proviso to section 5(1)(bb), the concessional rate is available only upon furnishing declarations in the prescribed form duly filled up and signed by the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s invalid, as it is inconsistent with the said Act of 1957, being an Act of the Parliament. Mr. P.K. Chakraborty, learned State Representative, submitted that tax has been levied on neither cotton yarn nor cotton fabrics and that sales tax or in certain cases, purchase tax is payable only on some of the raw materials such as, machinery parts, dyes and chemicals, because cotton and cotton yarn, which are the principal raw materials for cotton fabrics are tax-free under section 6. That being so, the manufacturers are not required to pay sales tax or purchase tax on purchases of cotton and cotton yarn. He further submitted that the additional excise duty could not be deemed to be sales tax or a substitute of sales tax; but if sales tax is imposed, share of collection of additional excise duty under the 1957 Act could not be accepted by the State. In order to properly appreciate the object, scope and effect of the said 1957 Act, relevant portions of that Act and the objects and reasons thereof are extracted below: Statement of objects and reasons: "The object of the Bill is to impose additional duties of excise in replacement of the sales taxes levied by the Union and States on suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial importance in inter-State trade or commerce in item (iia) of section 14 of the Central Sales Tax Act, 1956, with effect from October 1, 1958. It may be mentioned here that with effect from the same date cotton yarn was included in item (iib) of section 14 of the 1956 Act. Thus, those two goods and also cotton already in item (ii) of the same section enjoyed the protection provided by section 15 of the 1956 Act in the matter of imposition of tax on sale or purchase by a State law. But the restrictions and conditions imposed by section 15 of the Central Sales Tax Act have no role to play in the present cases, as these goods, neither were, nor have yet been, subjected to any tax on sale or purchase under any State law in West Bengal. As we have seen, cotton, cotton yarn and cotton fabrics have been either tax-free or exempt from tax or subsequently became tax-free. Therefore, the question of liability to pay sales tax on these goods (which are either tax-free or exempt from tax) at the full general rate (eight per cent) at the time of purchase by tile manufacturers of cotton fabrics due to the impugned 1980 amendment to the 1941 Act does not arise at all. That being the correct p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the additional excise duty was neither sales tax nor purchase tax in another form, nor a substitute of such tax. There is also no bar to the exercise of the State's power to impose tax on sale or purchase of goods where the additional excise duty is levied on the identical goods. The States are competent and free to impose sales or purchase tax, but if they choose to do so, they will forego their share in the net proceeds of the said duty. Mr. Chakraborty made a reference to the case of State of Kerala v. Attesee [1989] 72 STC 1 (SC). At page 15 of the Report the Supreme Court observed in paragraph 8 of the judgment: "............ The 1957 Act also has a bearing on the sales tax levy of various States. By levying sales tax on an item covered by the Schedule to the 1957 Act, the State will have to forego its share on distribution of the proceeds of the additional excise duty levied. Whether it should impose sales tax on an item of declared goods, limited by the restrictions in section 15 of the CST Act and at the risk of losing a share in the additional excise duty levied in respect of those very items, is for the State to determine.........." Accordingly, had the State of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not pressed. They made the following submissions in this connection: (i) Unwarranted discrimination between a group of registered purchasing, dealers manufacturing taxable goods and another group manufacturing non-taxable or tax-free goods. There is no rational nexus to the object sought to be achieved. (ii) Applicants are unduly discriminated against on the ground that there is no tax on cotton fabrics, though there is additional excise duty in lieu of sales tax on cotton fabrics. Had sales tax been levied, the applicants would get the advantage of concessional rate of sales tax on their purchase by giving declarations. The State exercised its option not to impose sales tax. Thus, they are denied the advantage, although the same goods are subjected to the additional excise duty. As a result of the impost of additional excise duty together with the denied concessional sales tax, cotton fabrics are highly priced. (iii) Unregistered dealers are not required to realise sales tax on sales. There is no rational nexus (for discriminating in their favour) to the object sought to be achieved. (iv) If purchases of raw materials are made by the applicants from unregistered dealers, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the goods belonging to the other group. Similar is the case with manufacturers of taxable goods and those of non-taxable goods. The rational nexus has been well-explained by Mr. Chakraborty appearing for the respondents. We, therefore, see no substance in this objection raised by the applicants. 12.. As regards the second contention of the applicants stated in paragraph 10 above, there is no question of any discrimination or, for the matter of that, any undue discrimination against the applicants, because, as already held, additional excise duty on the finished product is not the same as sales tax or purchase tax on raw materials. Payment of one does not amount to payment of the other. By exercising its option in favour of not imposing sales tax on cotton fabrics, the State did what was legally and constitutionally permissible to do. So, it is futile to complain that any discrimination has been meted out to the applicants. If cotton fabrics are highly priced on account of additional excise duty and/or denial of concessional sales tax on purchases of raw materials, that fact by itself does not infringe article 14 or 19. We make it clear that the applicants did not urge or endeavo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urage purchasing dealers against purchasing from unregistered dealers. We are of the view that the above object justifies the provisions of section 4(6)(i) and there is absolutely nothing unreasonable. Moreover, the applicants have always the option to buy or not to buy from unregistered dealers. Furthermore, in this writ petition, vires of the 1980 Amendment Act alone is challenged. Validity of section 4(6)(i) or any other provision, which was not introduced by the 1980 Amendment Act, is clearly outside its scope. 15.. We may sum up our findings in the following manner: (a) The provisions of section 5(1)(bb)(i) of the 1941 Act, as amended in 1980, together with the definition of "taxable goods" given in the explanation to section 5(1)(bb), do not contravene the provisions of section 15 of the Central Sales Tax Act, 1956. The reason is that cotton and cotton yarn, which are declared goods under section 14 and also raw materials of cotton fabrics, are tax-free under section 6 of the 194 1 Act, whereas dyes, chemicals, machinery parts and such other taxable raw materials of cotton fabrics, are not declared goods under section 14 of the Central Sales Tax Act, 1956. Thus, section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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