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General Agencies (India) Ltd. Vs. the Sales Tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 353 of 1969
Judge
Reported inILR1972Delhi5; [1972]29STC270(Delhi)
ActsCentral Sales Tax Act, 1956 - Sections 8(2); Constitution of India - Article 14
AppellantGeneral Agencies (India) Ltd.
RespondentThe Sales Tax Officer and ors.
Advocates: M.L. Khanna,; A.B. Saharia and; B. Kirpal, Advs
Cases ReferredLarsen and Toubro Ltd. v. Joint Commercial Tax Officer
Excerpt:
.....articles 301 and 303 of the constitution - - in that case the assesseds had been charged inter-state sales tax at the rate of 7 per cent as it had failed to produce c and d form in respect of the turnover. it will be immediately clear that their lordships of the supreme court have clearly held that sub-section 2 of section 8(2)(b) is valid and does not offend articles 301 and 303(1) of the constitution. 's case (2). a reference to the various passages in the judgment in sitalakshmi mill's(1) case clearly brings out that the reasoning and the discussion and the decision given in larsen and toubro ltd. l goods other than declared good. it is by now well settled that article 14 is not violated if there is a reasonable basis for the differential. if a law deals equally with members..........order dated 23rd april, 1966. by the said order, the petitioner was assessed to tax on all their interstate sales at the rate of 7 per cent because no c and d forms were produced by the petitioner. a copy of the assessment order has been filed as annexure 'c' to the petition. this order of respondent no. 3 has been challenged in the present writ petition. one of the grounds for challenging the assessment by respondent no. 3 was that he had not been appointed to perform the functions and duties of an assistant sales tax officer/assessing authority under the act as he was appointed by the lt. governor only by an order dated 26th april, 1968 while he purported to act as an assistant sales tax officer/ assessing authority on 23rd april 1966, much earlier than the date of order of his.....
Judgment:

Rajindar Sachar, J.

(1) The Constitutional validity of Section 8(2)(b) of the Central Sales Tax Act, 1956 (hereinafter to be called the Act of 1956) is the point which has been canvassed in the present writ petition filed under Articles 226 and 227 of the Constitution of India.

(2) The petitioner is a Limited Company and carrying on the business of, inter alia, manufacturing and sale of steel security, equipment, office furniture and steel items. The petitioner is registered as a dealer under Section 7 of the Act of 1956. For the assessment year 1962-63 (ending March, 1963) respondent No. 3, Shri v. K. Aggarwal. Assistant Sales Tax Officer, Sales Tax Department, finalized the assessment of the petitioner by his order dated 23rd April, 1966. By the said order, the petitioner was assessed to tax on all their interstate sales at the rate of 7 per cent because no C and D forms were produced by the petitioner. A copy of the assessment order has been filed as Annexure 'C' to the petition. This order of respondent No. 3 has been challenged in the present writ petition. One of the grounds for challenging the assessment by respondent No. 3 was that he had not been appointed to perform the functions and duties of an Assistant Sales Tax Officer/Assessing Authority under the Act as he was appointed by the Lt. Governor only by an order dated 26th April, 1968 while he purported to act as an Assistant Sales Tax Officer/ Assessing Authority on 23rd April 1966, much earlier than the date of order of his appointment. This ground, however, was specifically given up before us at the time of the arguments by the learned counsel for the petitioner Mr. Khanna. This was done apparently because the appointment of respondent No. 3 has been validated by meals of an Act which was passed validating the appointments of certain officers under the Bengal Finance (Sales Tax) Act, 1941 by the Bengal Finance (Sales Tax) Delhi Validation of Appointments and Proceedings Act 1971. This ground thereforee no longer survives.

(3) Section 8 of the Act of 1956 for the relevant period provides that every dealer, who in the course of inter-state trade or commerce sells to the Government any goods or sells to a registered dealer other than the Government goods of the description referred to in subsection (3) shall be liable to pay tax under this Act, which shall be (one per cent) of his turnover. Section 8(4) further provides that the provisions of sub-section ( 1 ) shall not apply to any sale in the course of inter-state trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration form mentioned in Section 8(4), i.e., C form and form as the case may be. The result is that unless the relevant and D forms are produced by the dealer the transaction cannot come within the meaning of Section 8(1) of the Act.

(4) Section 8(2) for the relevant period reads as follows :-

'THEtax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-state trade or commerce not falling within sub-section (1) (a) in the case of declared goods, shall be calculated at the rate applicable to the sale or purchase of such goods inside the appropriate State; and (b) in the case of goods other than declared goods, shall be calculated at the rate of (seven per cent) or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher; and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.'

(5) SUB-SECTION 2 of Section 8 reproduced above was amended by Parliament Act No. 31 of 1958. The same was brought into force with effect from October 1, 1958. Prior to its amendment, it read as under:-

'(2)The tax payable by any dealer in any case not falling within sub-section (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce shall be calculated at the same rates and in the same manner as would have been done if the sale had taken place inside the appropriate .State, and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.'

(6) It will be seen that all transactions which are subject to tax under Section 6 of the Act of 1956 are divided into two categories by section 8. A part of these transactions come within the meaning of Section 8(1) and the remaining part fall within Section 8(2). In the present case, the petitioner did not furnish the declaration forms C and D. Section 8(1) was thus inapplicable to him and he was liable to pay tax as provided in Section 8(2) of the Act. Now clause (b) of Sub-section 2 of Section 8 provides that in the case of goods other than declared goods, the tax payable shall be calculated at the rate of 7 per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher. It is a common case that for the relevant period, the rate for the goods sold to the un-registered dealers within Delhi was 3.8 per cent. As the rate in Clause (b) of 7 per cent was higher respondent No. 3 naturally applied the rate of 7 per cent to the inter-State sales made by the petitioner. The grievance of the petitioner, is that before the amendment made in sub-section 2 of section 8 in 1958, sub-section of section 8 provided that the tax payable by any dealer not being the registered dealer or the Government Department was to be calculated at the same rate and in the same manner as would have been done if the sale had in fact taken place inside the State. But now as a result of the amendment, made in sub-section 2 of Section 8. the turnover of the petitioner had been taxed at the higher rate of 7 per cent as against 3.8 per cent the rate of tax on local sale. It is contended that the amendment made in 1958 to sub-section (2) of Section 8 violates Article 14 of the Constitution as it results in discrimination between the dealers who carry on inter-state trade as against the dealers who carry on the local trade within the State. It is also contended that Article 301 of the Constitution of India is violated by the amended sub-section 2 of Section 8 as it seriously impedes inter-State trade, commerce and intercourse. The contention. thereforee, is that it is not permissible under the Constitution to provide for a rate of tax on inter-State trade at a higher figure than that for a tax on local sales and in so far as Clause (b) of subsection 2 of section 8 provides for such eventuality section 8(2)(b) must be held to be unconstitutional. The inevitable suggestion, thereforee, being that once, it is held that Section 8(2)(b) is unconstitutional section 8(2) un-amended that is prior to 1958) would hold the field and the petitioner would be only liable to pay tax at the rate of 3.8 per cent. Mr. Khanna, the learned counsel for the petitioner in support of his arguments that Section 8(2)(b) was unconstitutional has relied on Sitalakshmi Mills Ltd., Tirunagar, Madurai, and others vs. The Deputy Commercial Tax Officer, No. Ix Teppakulam New Colony, Madurai, and others (1968 Xxii, Sales Tax Cases, 436) (1), decided on 1st March, 1968, a Division Bench Judgment of the Madras High Court. In that case the assesseds had been charged inter-state sales tax at the rate of 7 per cent as it had failed to produce C and D form in respect of the turnover. Three points were raised by the assesseds (i) that the enhancement of inter-state rate by section 8(2)(b) to 7 per cent is a penalty, (ii) that the enhanced inter-state rate which is higher than the normal multi-point State rate acts in effect as a prohibition of inter-State sales to unregistered dealers or to consumers and a law which, has that effect cannot be regarded as one with reference to taxation and (iii) that having regard to the importance of inter-State trade, it is ultra virus to authorise any State to levy on inter-State sale any tax at a higher rate than that it levies on inside sale. The Division Bench negatived the contention that the higher rate was T.in)-easonable or amounted to a penalty. It also negatived the second contention that Section 8(2)(b) was not within the competence of Parliament under entry 92-A. It, however, accepted the third contention of the assessed and held that Section 8(2)(b) was constitutionally invalid in so far as it provides for a rate higher than the single or multi-point State rate on inside sale. In arriving at this conclusion, the learned Judges mainly relied on an earlier judgment of the same Court reported in Larsen and Toubro Ltd., Madras-2 and. others vs. Joint Commercial Tax Officer, Mount Road Ii Division. Madras-2 and others, (1967, Xx, Sales Tax Cases 150((2) decided on April 7, 1967, where they had held that imposition of varying local rates of taxes in different States on same or similar inter-State transactions, and the resultant inequality in the burden of tax affects and impedes inter-State trade, commerce and intercourse and, thereforee, sub-sections 2, 2A and 5 of Section 8 offended Articles 301 and 303(1) of the Constitution and were unconstitutional and void. It is relevant to mention that sub-section 2 of Section 8 which the Madras High Court was considering in Larsen and Toubro Ltd. case. related to the assessment year for the year 1963-64, that is after the present sub-section 2 of Section 8 had been amended by Act 31 of 1958 (as in the present case). But Larsen and Toubro's case was taken up in appeal to the Supreme Court and the same was reversed by the Supreme Court in a case reported as the State of Madras v. N. K. Nataraja Mudaliar, 22 S T C 376. In this case their lordship observed that the view expressed by the High Court that Section 8(2), (2A) and (5) infringed Articles 301 and Article 303 cannot be sustained and the order passed by the High Court declaring the provisions to be ultra virus was, thereforee, set aside. It will be immediately clear that their lordships of the Supreme Court have clearly held that sub-section 2 of Section 8(2)(b) is valid and does not offend Articles 301 and 303(1) of the Constitution. The contention of Mr. Khanna that in spite of the Supreme Court having held sub-section 2 of Section 8 to be valid and constitutional, a part of sub-section (2) namely Clause (b) of sub-section 2 of Section 8 should be held to be unconstitutional, by this court cannot be accepted as valid. It was sought to be suggested that the arguments on the basis of which Section 8(2)(b) was held to be unconstitutional by the Madras High Court in Sitalakshmi Mills Ltd.s(1) case were different arguments from these which were the basis of decision for holding Section 8(2) invalid by the Madras High Court in Larsen and Toubro Ltd.' s case(2) and that thereforee it was permissible to urge that section 8(2)(b) is unconstitutional in spite of declaration by the Supreme Court that the whole of sub-section (2) of Section 8 is valid. We are not impressed with this argument. It will be seen that the judgment in Larsen and Toubro Ltd.'s case(2) was given on 7th April. 1967 and the second case (Sitalakshmi Mills Ltd) (1) by the Madras High Court was decided on 1st March, 1968. By that time the earlier case in Larsen and Toubro Ltd. (2) still held the field and it was thereforee natural for the later Division Bench to allow the earlier judgment and to strike down section 8(2)(b) also on the same grounds which prevailed with it in striking down section 8(2) earlier. The judgment of the Supreme Court was given on 18th April, 1968 in The State of Madras case by which the earlier division bench judgment of the Madras High Court in Larsen and Toubro Ltd.'s case(2) was reversed. The later division bench decided Sitalakshmi Mills' case(1), thereforee, had not the benefit of the judgment of their lordships of the Supreme Court given in the State of Madras v. N. K. Natarja Mudaliar's case(3). But now that the judgment of the Supreme Court in the Madras's case 22 S T C 376 is available to us, we are not persuaded to hold that we can embark on an inquiry about the constitutional invalidity of Section 8(2)(b) inspire of sub-section 2 of Section 8 having been declared to be valid and constitutional by the Supreme Court. It has been held by the Supreme Court in 5862 Somawanti v. State of Punjab, (1963 SC 151 that the binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which the argument was specifically advanced was actually decided. Constitutional validity of sub-section 2 of section 8 having been specifically upheld by the Supreme Court in the State of Madras's case(4), it is not possible for us to hold that a part of Section namely Clause (b) of sub-section 2 of Section 8 should be held to be unconstitutional on the ground that the argument raised are different than that before the Supreme Court.

(7) We are also not impressed by the arguments of Mr, Khanna that the decision in Sitalakshmi Mills' case(1) was not mainly following the decision given earlier in Larsen and Toubro Ltd.'s case (2). A reference to the various passages in the judgment in Sitalakshmi Mill's(1) case clearly brings out that the reasoning and the discussion and the decision given in Larsen and Toubro Ltd..(2) case was the main influencing reason for the decision given in the subsequent decision of Sitalakshmi Mill's case(1). In the later decision the Division Bench stated at page 442 as under:-

'LARSEN and Toubro Lid. v. Joint Commercial Tax Officer has n detail narrated the scheme of taxation on sale of goods before and after the Constitution and under the Central Sales Tax Act, 1956. We do not think it necessary to reiterate and cover the entire field over again.'

(8) Again at page 452, it was observed as follows:-

'THEscope and intendment of Articles 301 to 304 of the Constitution were recently examined by this Court in Larsen and Toubro Lid. v. Joint Commercial Tax Officer in the light of Atiabari Tea Co. Ltd. v. State of Assam, Automobile Transport Ltd. v. State of Rajasthan and State of Madhya Pradesh v. Bhailal Bhai.'

(9) Again in summing up their conclusion it was observed at page 454:- ' ..................

'ON this view too, apart from the grounds in Larsen and Toubro Ltd. v. Joint Commercial Tax Officer, clause (b) of sub-section (2) of Section 8 is unconstitutional and void, but only to the extent of the difference' in the inter-State rate provided by it by which such rate exceeds the inter-State single or multi-point rate of tax for similar non-declared goods.'

(10) As we had permitted Mr. Khanna to argue the ase on merits also it is only fair that we deal with his contentions. It was argued by the counsel that because of the differential rates prevailing turn tax on inter-State sale and inter-State trade, a local dealer within a State who does inter-state trade is discriminated against and is placed at a disadvantage compared with the dealers who carry on local trade. Sitalakshmi 'Mills' s case (1) has held that the effect of this on the freedom of inter-State trade, commerce and intercourse is writ large; such a higher discriminatory rate will seriously impede, if not altogether stop, the inter-State sales or purchases as between a local dealer and out of State unregistered dealer or consumer in respect of a!l goods other than declared good. In our opinion, it is a fallacy to compare the case of a dealer who carries on local trade with that of a dealer who does inter-State trade. In our opinion, the two are not similarly situated and the question of any discrimination arising between the two does not arise. It is by now well settled that Article 14 is not violated if there is a reasonable basis for the differential. If a law deals equally with members of a well-defined class, it is not obnoxious and it is not open to the charge of denial of equal protection on the ground that it has no application to other persons. Before the violation of Article 14 could be urged, it is necessary to show that the selection or differential is unreasonable or arbitrary; that it does not rest on any rational basis having regard to the object which the Legislature has in view. The argument thereforee that the dealers who carry on local trade are to pay a rate different from that paid by the dealers who deal in inter-State trade and, thereforee, there is discrimination does not appear to us to be sound either in principle or precedent. It will be seen that there is in fact a single rate of tax applicable to all sales of inter-State trade nature. A minimum of 7 per cent has been provided for all inter-State sales. Thus all dealers selling in the course of inter-State trade in Delhi have to pay a minimum of 7 per cent if the State rate is lower, or the State rate if the same is higher. There is no question of any discrimination against any dealer who is dealing in inter-State transaction. In this respect the law has been even made more uniform than it was prior to the amendment made in 1958. Earlier to the amendment made in 1958, interstate transactions were liable to pay tax at the prevailing rate in respective states, and in some cases it could be even less than 2% and in respect of other states as high as 10%. But now by the amendment a minimum of 7 per cent has been uniformally applied on all inter-state trade transactions throughout the country. The result is that if the tax on a local rate within the state is less than 7 per cent. the transaction of inter-state trade will be taxed at uniform rate of 7 per cent throughout the country. The only variation of higher rate will be when the local state rate is higher than 7 per cent. Thus all dealers who deal in inter-state trade are treated alike. It is thereforee. not possible to accept the argument that amendment made in 1958 is un-constitutional or in any way discriminatory on the ground that a dealer who carries on local trade has to pay different rate of tax than a dealer who deals in inter-State trade. This argument proceeds on a fallacious premises of treating a dealer who carries on inter-state trade in the same category with a dealer who carries on inter state trade but as the two categories are different, the question of discrimination cannot arise between the two.

(11) The other argument by the counsel for the petitioner was that the rates of tax prevailing in different States on transactions of sales in various commodities are not uniform and that the different rates in various States impose an unequal burden on the same or similar goods which impeded their free movement or flow in the inter-state trade and that a higher rate of tax worked as a barrier to the free movement of similar goods to another State, where there was no tax or a low rate of tax, and that for trade to be free throughout the territory of India, the rate of tax must be uniform. This argument was the basis of the decision given by the Madras High Court in Larsen and Toubro Ltd. case (2). The Supreme Court however in the State of Madras's case 22 Stc 376 observed:

'WE are unable to accept the view propounded by the High Court. The flow of trade does not necessarily depend upon the rates of sales tax; it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a country, the rate of tax is 2 per cent. but if the benefit of that low rate is offset by the freight which a merchant in another States may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher. Existence of long-standing business relations, availability of communications, credit facilities and a host of other factors natural and business enter into the maintenance of trade relations, and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States.'

(12) Again, it was observed at page 389 as follows :-

'THE rate which the State Legislature determines, subject to the maximum prescribed for goods referred to in Section 8(1) and (2) are the operative rates for those transactions : in respect of transactions falling within Section 8(2)(b) the rate is range of two and seven per cent. The rate which a State Legislature imposes in respect of inter-state transactions in a particular commodity must depend upon a variety of factors. A state may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State, or if it feels that the burden which is falling on consumers within the State will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers.'

(13) The Madras High Court in 22 S tC 436 also did not accept the contention of the State that the amendment made in Section 8(2)(b) was intended to avoid evasion of the tax and were. thereforee, reasonable restrictions and were in public interest. But this very argument was accepted by the Supreme Court in 22 Sales Tax Cases 376, where Mr. Justice Hegde who wrote a separate but a concurring judgment observed as follows at page 398:-

'THEN we come to clause (b) of section 8(2), which deals with goods other than declared goods. Here the law at the relevant time was that the tax shall be calculated at the rate of seven per cent of the turnover or at the rate applicable to sale or purchase of such goods inside the appropriate State, whichever is higher. As could be seen from 'the report of the Taxation Enquiry Committee, the main reason for this provision was to prevent as far as possible the evasion of sales tax. The Parliament was anxious that inter-state trade should be canalised through registered dealers over whom the appropriate Government has a great deal of control. It is not very easy for them to evade tax. A measure which is intended to check the evasion of tax is undoubtedly a valid measure. Further, inter-state trade carried on through dealers coming within section 8(2) must be in the very nature of things very little. It is in public interest to see that in the guise of freedom of trade, they do not evade the payment of tax. If the sales tax they have to pay is as high or even higher than inter-State sales tax then they will be constrained to register themselves and pay the tax legitimately due. The impact of this provision on inter-State trade is bound to be negligible, but at the same time it is an effective safeguard against evasion of tax.'

(14) We cannot, thereforee, see how after the decision of the Supreme Court holding that the varying rate of tax in different States on similar inter-state trade-transaction does not impede, inter-State trade and commerce and thereby offends Article 301/303 of the Constitution, can be distinguished in the present case only on the ground that amendment provides a minimum of 7 per cent tax subject to a higher rate if the state tax is higher. We cannot see how this amendment has the effect of restricting or impeding the inter-state trade in any manner. We are, thereforee, of the view that there is no merit in the contention that Section 8(2)(b) is unconstitutional or void or in any way infringes Articles 301/303 of the Constitution of India. In this connection, we may also notice that the Division Bench of the Andhra Pradesh High Court consisting of P. Chandra Reddy, C.J. and Jagnmohan Redy, J. (as he then was) in a case reported in East India Sandal Of Distilleries Ltd. and others v. The State of Andhda Pradesh (1962 13 S T C 79 5 have also held that Section 8 is constitutional and does not violate Article 14 or Article 303 of the Constitution.

(15) We cannot, thereforee, with respect, agree with the view taken by Madras High Court in Sitalakshmi Mill's case 22 ST C 436 as in our opinion it does not lay down the correct law.

(16) As a result of the above, we find no force in the petition and the same is, thereforee, dismissed. Under the circumstances of the case, there will be no order as to costs.


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