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State of Gujarat Versus Reliance Industries Limited

2016 (11) TMI 214 - GUJARAT HIGH COURT

Levy of tax u/s 8(1) of the CST Act - Inter-State sale of LPG - it was contended that, no tax could be levied on interState sales of LPG since the local sales thereof are exempt from payment of tax - Held that: - The term “rate of tax” used in the proviso and “rate applicable” in the main body of subsection( 1) of section 8 must receive similar interpretation. Further, under subsection( 2) of section 8, it is provided that tax payable by any dealer on his turnover in so far as the turnover or an .....

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cribes only one rate of tax namely, that which is applicable to the sale or purchase of goods in question within the State on the local sales. There is therefore, no warrant to interprete the expression “rate applicable to the sale or purchase of such goods” used in subsection( 1) of section 8 as to mean the prescribed rate and not the rate which may be applicable taking into account the exemption totally or partially that may have been granted by the State Government. - The expression “with .....

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osed of accordingly - appeal dismissed - decided against Revenue. - Tax Appeal No. 649, 660, 661 of 2014 , Special Civil Application No. 13691 of 2014 - Dated:- 19-10-2016 - Akil Kureshi And A. J. Shastri, JJ. Mr Kamal Trivedi, Advocate General With Ms Sk Vishen AGP for the Appellant Mr Venkataraman, Mr Sn Soparkar With Ms Megha Jani, Advocate for the Opponent JUDGMENT ( Per : Honourable Mr. Justice Akil Kureshi ) 1. Tax Appeals and writ petition are closely connected. We may first record facts .....

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LPG from the State to the buyers outside the State? 2. Whether the Tribunal was right in law in holding that the said Entry 69 has made no difference even after its amendment w.e.f. 3.10.2008 by treating IntraState sale of LPG for domestic use by the consumers of the State, and InterState sale of LPG in bulk outside the State, on the same footing? 3. Whether by virtue of modification in entry no.69 of the exemption notification pertaining to sales of Liquefied Petroleum Gas for domestic use by .....

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ducts. During the period under consideration, assessee had sold Liquified Petroleum Gas ( LPG for short) for domestic use to LPG Infrastructure Pvt. Ltd. the purchasing dealer. According to the assessee, since the whole of the tax on such sale was exempt under entry 69 issued under the notification by the Government of Gujarat in exercise of powers section 5(2) of the VAT Act, the appellant had not collected tax on such sale in respect of its interState sales, relying on provisions of section 8( .....

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sis, the assessing authority and the appellate authority demanded CST from the assessee on its interState sales of LPG which were effected after 3.10.2008. The issue was carried before the Tribunal by the assessee. On behalf of the assessee, it was argued that under entry 69, the sale of LPG within the State was exempt from tax. By virtue of section 8(1) of the CST Act, interState sales also would invite no tax. On behalf of the Government, however, much emphasis was placed on the introduction o .....

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dment made in section 8 of the CST Act with effect from 1.4.2007 and observed that prior to such amendment, it was possible for the State Government to restrict its exemption only to local sales by providing for a conditional exemption in which case CST would be leviable at normal rate. However, with effect from 1.4.2007, the State Government cannot make any distinction between the interState and intrastate sales. Interalia on such basis, the Tribunal allowed the assessee's appeal and held t .....

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, Reliance Industries Limited filed Special Civil Application No.13691/2014. The prayer made in the said petition is to declare the notification dated 3.10.2008 issued by the Government of Gujarat under which the said words by the consumers of the State came to be added to entry 69 as unconstitutional. The alternative prayer made by the petitioner is to declare that the said amendment dated 3.10.2008 does not result in denial of exemption from levy of tax by the State Government on sale of Liqui .....

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the CST Act, in view of the petitioner, the amendment in entry 69 with effect from 3.10.2008 would have no effect on the levy of tax on interState sale of LPG. 6. Learned Advocate General appearing for the State Government drew our attention to the various statutory provisions and the decision of this Court in case of State of Gujarat v. Oil and Natural Gas Corporation Limited dated 17.10.2015 in Tax Appeal No.384/2014 and connected appeals in which similar issue came up for consideration. He s .....

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s : 1) Since there is no specific entry in the scheduleII to the VAT Act, sale of LPG would fall under residuary entry 87 and ordinarily, invite tax at the rate of 12.5% with additional tax as applicable. By virtue of sections 14 and 15 of the CST Act and entry 55 to the exemption notification under VAT Act, this rate would be reduced to 5%. He contended that the central sales tax to be charged on the interState sales therefore, would be as prescribed in section 8(1) of the CST Act i.e. 2% or at .....

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ubsection( 1A) of section 6 of the CST Act. 2) It was contended that as per the amended section 8(1) of the CST Act with effect from 1.4.2007, the tax on interState sales has to be at the rate applicable to local sales as per the VAT Act. According to him, the applicable rate of tax must mean the schedule rate as fixed by the legislature and not the effective rate of tax. 3) He submitted that notification dated 3.10.2008 issued by the Government of Gujarat amending entry 69 nowhere attempts to i .....

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tate sales. He therefore, submitted that by virtue of such entry if the State is endeavoring to levy any such tax, same would be beyond the legislative competence of the State legislature. He however, submitted that such interpretation may not be necessary, since even in face of such amendment, by virtue of section 8(1) of the CST Act, no tax could be levied on interState sales of LPG since the local sales thereof are exempt from payment of tax. Counsel drew our attention to various legislative .....

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provisions of sections 14 and 15 of the CST Act when it limits the tax on specified product to 5%. Entry 69 is specific to LPG. The said product may otherwise be covered under entry 55 but by virtue of specific entry, the rate of tax on sale of such product would be nil. It was contended that the specific entry would prevail over the general entry. It was contended that entry 55 did not in any manner intend to provide for a minimum rate of tax. 7.2) It was contended that section 6(1A) of the CS .....

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Our attention was drawn in this respect to the decision of Supreme Court in case of International Cotton Corpn. (P) Ltd v. Commercial Tax officer, Hubli and others reported in (1975) 3 Supreme Court Cases 585. 7.3) Counsel further submitted that the decision of this Court in case of Oil and Natural Gas Corporation Limited(supra), has been challenged by the assessee before the Supreme Court. SLP is granted. Appeals are admitted and judgement of the High Court is stayed. In view of stay of the jud .....

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t for the year 20142015. In such address, he had stated as under : In order to give relief to the customers of L.P.G. For domestic use in the State, the State Government has exempted the L.P.G. for domestic use in the State. But, due to interpretation of the relevant provisions of the Central Sales Tax in the judicial system, this tax exemption becomes available also to the Gas companies to their interstate sales of L.P.G. for domestic use. As a result, the tax revenues of the State are adversel .....

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utside the State and about ₹ 100 crores during the current financial year while the prices of L.P.G. for domestic use in the State will not increase. 7.5) Counsel submitted that consequently, the State legislature removed entry 69 with effect from 1.10.2014 and thereby withdrew the exemption from tax on Liquified Petroleum Gas even on the local sales. As the Finance Minister's speech would show the intention of the State legislature to grant exemption on the local sales of the LPG whil .....

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chaser dealers who are oil marketing companies through the department of Civil Supplies. According to the counsel, this understanding of the legal position by the Finance Minister, would assume significance. 7.6) Counsel relied on various judgments, reference to which would be made at an appropriate stage. 8. Learned counsel Shri S.N. Soparkar while adopting the submissions made by Shri Venkataraman stressed on the aspect of the Supreme Court staying the judgment of this Court in case of Oil and .....

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etroleum Gas invite tax at appropriate rate? This issue however, has many facets. We may first refer to the relevant statutory provisions. Section 6 of the CST Act pertains to liability to tax on interState sales and is thus the charging section. Under subsection( 1) of section 6, subject to the other provisions contained in the Act every dealer is liable to pay tax under the said Act on all sales of goods effected by him in course of interState trade or commerce during any year from the notifie .....

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Act pertains to the rate of tax on sales in the course of interState trade or commerce. Under subsection( 1) of section 8, as it stands presently, every dealer, who in the course of interState trade or commerce, sells to a registered dealer goods of the description referred to in subsection( 3), is liable to pay tax under the said Act, at the rate of two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax Law .....

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y virtue of Amending Act no.31 of 1958, with effect from 16.9.1958, subsection (2A) was added to section 8 which reads as under : (2A) Notwithstanding anything contained in sub section (1) or sub section (2), if under the sales tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than one per cent (whether called a tax or fee or by other name), the tax payable under .....

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cified stages or otherwise than with reference to the turnover of the goods. 11. By virtue of this provision, thus, notwithstanding anything contained in subsection( 1) or subsection( 2) of section 8, if under the Sales Tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than one per cent, the tax payable under the CST on the turnover of the dealer would be nil, or .....

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nditionally, interState sales of such goods would invite nil rate of duty. 12. This structure in slightly different wording but along the same lines continued even after a few amendments were made in section 8 of the CST Act, particularly, in the Amending Act 61 of 1972 and under the Finance Act 20 of 2002. Under the Finance Act 2002, subsection (2A) was deleted. Subsection( 2) was also substantially changed. By virtue of clause(c) to subsection( 2), it was provided that in the case of goods, th .....

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o in subsection( 3), shall be liable to pay tax under this Act, which shall be two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax Law of that State, whichever is lower; Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this subsection. (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the .....

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on (1): (b) are goods of the class or classes specified in the Certificate of Registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any Rules made by the Central Government in this behalf, for use by him in the manufacture of processing of goods for sale or in the telecommunications network or in mining or in the generation or distribution of electricity or any other form of power; 14. Article 286 of the Constitution pertains to restrictions .....

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uch restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify 15. In terms of subclause( a) of clause (3) of Article 286, section 14 of the CST Act prescribes certain goods to be of special importance in interState trade or commerce. Clause (va) to section 14 refers to liquified petroleum gas for domestic use. 16. Section 15 of the CST Act pertains to restrictions and conditions in regard to tax on sale or purchase of decla .....

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er cent of the sale or purchase price thereof, 17. In terms of clause (va) of section 14, thus LPG for domestic use is one of the products which is declared as goods of special importance in interState trade or commerce. In view of clause(a) to section 15 of the CST Act, the Sales Tax law of the States would not be authorised to levy tax at the rate exceeding 5% on the sale or purchase price thereof. 18. Section 3 of the VAT Act pertains to incidence of tax. Subsection( 1) thereof provides that .....

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urse of the import of goods into or export of goods out of the territory of India. Section 5 of the VAT Act pertains to exemptions. Subsection( 1) of section 5 provides that the sales and purchases of the goods specified in the ScheduleI shall be exempt from tax subject to the conditions and exceptions set out therein. ScheduleII to the VAT Act provides rate of tax for goods which are not exempt. Entry 87 thereof is the residuary entry covering all goods not specified elsewhere. Subsection( 2) o .....

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te Government issues notifications of exemptions from time to time, which entries are posted in a Schedule. Entry 55 thereof reads as under : 55. 1912007 to 10042011 (GHN1) 1912007 Goods declared as of special importance in section 14 of the Central Sales Tax Act, 1956 (Act No.74 of 1956) To be extent to which the amount of tax exceeds four paise in the rupee. Nill 20. Entry 69 which pertains to sale of Liquified Petroleum Gas upto 2.10.2008 read as under : 69 1162008 to 2102008 (GHN32) 1062008 .....

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ision of this Court in case of Oil and Natural Gas Corporation Limited(supra). In the said case, several questions of law were involved. One of them was whether, the Tribunal was right in law in holding that, the interState sales of LPG, effected by the ONGC from the State of Gujarat to other States qualify for total exemption from payment of tax on the ground that intraState sales of LPG for domestic use by the consumers of the State was exempt from payment of whole of the tax as per entry 69 o .....

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in section 8 was made by the Finance Bill of 2002 to provide that central sales tax does not become greater than local sales tax in case of sale of goods to the Government and registered dealer and to provide for exemption from central sales tax in case where goods are exempt from local sales tax. 24. Of many questions which the Court was answering in the said judgement, one of them was whether ONGC's claim of exemption in respect of sales of LPG to various OMCs even within the State was jus .....

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C would qualify for exemption. It was held and observed as under : [12.8] In view of the aforesaid discussion and for the reasons stated above, even the ONGC is not entitled to exemption from tax on the interState sales of LPG, effected by the ONGC from the State of Gujarat to other States as the exemption is available on interState sales of LPG for domestic use by the consumers of the State only. Under the circumstances, the ONGC is liable to pay value added tax on the interState sales of LPG e .....

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assessee, stay order by the Supreme Court would suspend the effect of this judgment. Whether only on account of such stay, we are entitled to take a view, completely independent of the decision of the coordinate Bench, need not be thrashed out. This is so since, in our opinion, the effect of amendments in section 8(1) of the CST Act have not been considered in the said judgment. We would not term the decision per incuriam since as noted, these aspects were argued before the Court and therefore, .....

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Natural Gas Corporation Limited(supra). 26. With this, we may correlate different statutory provisions noted above. In terms of clause(3) of Article 286 of the Constitution, the State Law imposing tax on sale or purchase of goods declared by the Parliament to be of special importance in interState trade or commerce, shall be subject to such restrictions and conditions, as regard the system of levy, rates and other incidents of the tax as Parliament may specify. Section 14 of CST Act specifies v .....

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pecial importance would not carry VAT more than 5%. In other words, any tax in excess of 5% would be exempt. 27. This however, would not mean that if by virtue of any other entry in the said Schedule, a particular product invites rate of tax lower than 5%, entry 55 would prevail so as to bring the rate of tax to the said rate of 5%. In plain terms what section 15 of the CST Act provides is for the maximum rate of tax on the declared product beyond which it would not be open for the State legisla .....

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e do not find that entry 55 had any effect of increasing the rate of tax on any declared goods which was otherwise lower than 5%. In our opinion, therefore, entry 69 pertaining to sales of Liquified Petroleum Gas for domestic use would apply to intraState sales and in turn the exemption from payment of whole of VAT would therefore, enure to a dealer in case of such sale or purchase of goods. 28. Much debate has been made however, on the introduction of words by the consumers of the State with ef .....

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that State, whichever is lower. In that view of the matter, every interState sale of the said goods in terms of subsection( 1) of section 8 invites rate of tax at 2% of the turnover or at the rate applicable to the sale or purchase of such goods inside the State under the relevant Sales Tax law of the State, if the local tax is lower than 2%. The provision under subsection( 1) of section 8, in the present form, would have to be seen in the background of multiple statutory changes noted above. W .....

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o the turnover of the goods. In plain terms, if certain goods are exempt unconditionally from the payment of local tax, subsection( 2A) of section 8, as it stood at the relevant time, would ensure that no central sales tax would be payable on interState sale of such goods. In different forms, this mechanism continued from time to time. Under the Finance Act, 2002, this distinction was brought in the form of clause(c) to subsection( 2) which provided that in the case of goods, the sale or, as the .....

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lower rate by the State in the course of intraState sales. Thus the vital distinction of the goods being exempt from payment of tax either generally or otherwise, which existed prior to this amendment, came to be obliterated. Till this amendment, it was possible for the State legislature to provide for a regime under which a particular class of goods would though be exempt from payment of local tax, such exemption may not result in exemption from payment of central sales tax. In other words, by .....

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of section 8(1) of the Act. The contention of the learned Advocate General that by virtue of addition of the words by the consumers of the State in entry 69, central sales tax becomes leviable, cannot be accepted. Entry 69 relates to exemption from payment of local tax on sale or purchase of LPG. The added words can therefore have effect only on payment of VAT on local sales. Section 8(1) of CST Act after 1.4.2007 does not recognise distinction between a conditional or unconditional exemption u .....

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ing the annual budget for the financial year 20142015. It is true that in such speech, reference was made to exemption of the local tax on Liquified Petroleum Gas resulting into exemption from payment of central sales tax also. The Hon'ble Minister however, referred to the judicial system due to which, despite the intention of the State Government not to waive the central sales tax, this situation had come about. He was probably referring to the judgment of the Tribunal or the Court. His att .....

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Finance Minister was referring to the judicial pronouncements due to which this unintentional result had come about. It is not unknown that executive on one hand may continue to agitate a legal contention before the higher judicial forum but for prompt results, with the aid of legislature may amend the statutory provisions to overcome the difficulty arising out of the Court judgment. 30. Learned Advocate General however, vehemently contended that interpretation which we have adopted would ignore .....

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ax was payable thereon under the Central Sales Tax Act also. The three Judge Bench of the Supreme Court by majority of two versus one held as under : "16. Section 6 of the Central Act is the charging section. Subject to the other provisions contained in the Act, every dealer is liable to pay tax under the Act on all sales effected by him. It will be noticed that the liability is not absolute but subject to the other provisions of the Act. If the effect of another provision is to take away t .....

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te trade must bear some tax. 17. Section 8(2) provides for the method of calculating the tax; under that subsection, the tax shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State. The expression "in the manner" may give rise to two conflicting views, namely, (i) it is concerned only with the calculation of the tax, and (ii) it deals not only with the calculation of the rates but also the m .....

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law of the State is assessed, paid and collected. The expression "levy' means "impose". Under s.5(3) (a) of the Mysore Sales Tax Act, 1957, hereinafter called the State Act, tax shall be levied in the case of the sale of any of the goods mentioned in col. (2) of the Second Schedule by the first or the earliest of successive dealers in the State, who is liable to tax under that section, a tax at the rate specified in the corresponding entry of Col. (3) of the said Schedule on .....

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ture in the manner of levy of tax on the specified goods which are taxed only at a single point under the State Act : if any such radical departure was intended, the Central Act would have expressly stated so. The Central Act was passed to levy and collect salestax on interState sales to avoid confusion and conflict of jurisdictions; the tax is also collected only for the benefit of the States. Therefore. the construction we accept avoids the anomaly of the State collecting tax on powerloom text .....

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udgment of the Supreme Court in case of Yaddalam Lakshminarasimhiah Setty and sons (supra) where, in essence, it was held that if a certain sale within the State not being the first sale is exempt from payment of local tax, the interState sale thereof also would be exempt from payment of tax. This provision therefore, would not, nor was intended to, nullify or neutralise the provisions contained in subsection( 1) of section 8 of the CST Act. This was precisely what was held by the Supreme Court .....

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nil. Reading section 6(1A) and section 8(2A) together along with the Explanation the conclusion deducible would be this : where the intrastate sales of certain goods are liable to tax, even though only at one point, whether of purchase or of sale, a subsequent interState sale of the same commodity is liable to tax, but where that commodity is not liable to tax at all if it were an intrastate sale the interState sale of that commodity is also exempt from tax. Where an intrastate sale of a partic .....

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ction 8(2A) can stand together. 33. Learned Advocate General had also argued that when subsection (2A) of section 8 refers to rates applicable to sale or purchase of goods inside the appropriate State, the same must mean the rate prescribed under the VAT Act and not the effective rate, as may emerge taking into account any exemption granted by the State Government. The term 'rate applicable to the sale' has not been defined under the Act and must therefore, be understood in the context o .....

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de the State. Quite apart from this intention, there are two additional reasons why we are persuaded to take a view that the expression rate applicable to the sale or purchase of such goods must take within its sweep the rate at which the goods are taxable within the State and not the rate prescribed ignoring any exemption, if made available by the State Government. Firstly, the proviso to subsection( 1) of section 8 provides that the Central Government may by notification in the official gazett .....

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nover in so far as the turnover or any part thereof relates to the sale of goods in the course of interState trade or commerce but not falling within the subsection( 1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State. In contrast to subsection( 1), thus subsection( 2) does not provide for the lower of the two tax rates, 2% as prescribed for interState sales generally or the rate that may be prescribed by th .....

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. 34. We may refer to the authorities cited by the learned Advocate General. In case of Gwalior Rayon Silk Mfg. (WVG) Co. ltd. v. The Asst Commissioner of Sales Tax and others reported in (1974) 4 Supreme Court Cases 98, the Constitution Bench of the Supreme Court was considering whether section 8(2)(b) of the CST Act, as it stood at the relevant time, suffers from the vice of excessive delegation. The said provision provided that the tax payable by any dealer on his turnover in so far as the tu .....

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opriate State legislature in respect of intraState sales with a purpose namely, to check evasion of tax on interState sales and to prevent discrimination between the residents in one State and those in other. We do not see any direct application of the said judgement in facts on hand. 35. The decision in case of Pravara Pulp & Paper Mills v. Collector of Central Excise reported in (1998) 9 Supreme Court Cases 573, was rendered in the background of valuation of goods for the purpose of excisa .....

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tice issued by the State of Rajasthan under section 8(5) of the Central Sales Tax Act reducing the rate of tax on interState sale of cement affected by the local dealers. It was observed that the rate of tax by the State of Rajasthan has direct effect of increasing the flow of trade. The mere fact that the local sale of cement in Gujarat may have been adversely affected, cannot result in the notification being regarded as affecting the free flow of trade and being violative of Article 301 of the .....

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ct. It clearly provides that if the sale or purchase of any goods is exempt from tax generally under the sales tax law of the appropriate State, the tax payable under this Act by a dealer in respect of its turnover relating to the sale of such goods under this Act shall also be nil. It also provides that if the goods are subject to tax under the sales tax law of the State at a rate which is lower than 4 per cent, the tax on the turnover of such goods under this Act also shall be calculated at th .....

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e. In the instant case, looking at the notification dated July 24, 1981, it is clear that all sales of oilcakes including oilcakes used as cattle feed within the State of Maharashtra are exempt from whole of tax without any condition. It may be observed that under the column "condition" it has been clearly mentioned "nil". The contention of the respondents that the use of the expression "within the State of Maharashtra" itself is a condition is untenable as admitted .....

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