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The Union of India (Uoi) and anr. Vs. the State of Rajasthan and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Writ Petition Nos. 1327, 1328 and 1329 of 1982
Judge
Reported in[1983]52STC13(Raj)
AppellantThe Union of India (Uoi) and anr.
RespondentThe State of Rajasthan and anr.
Advocates: G.S. Bapna, Adv.
DispositionPetition dismissed
Cases ReferredKarnal v. State of Haryana
Excerpt:
.....a mode of regulating trade and commerce with other countries as well as of exercising the taxing power, the goods imported by a state government were subject to the customs laws of the commonwealth. it would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income. the point raised is concluded against the petitioner by a judgment of their lordships of the supreme court in in re sea customs act, 1878, section 20(2) air 1963 sc 1760. 12. a close reading of rule 52 with rule 4 of the rajasthan sales tax rules, 1955, clearly reveals that the commissioner can suo motu transfer a case from one assessing authority to another where offices are situated after..........petitioner further contended that scrap material sold by petitioner no. 2 was the property of the union of india and was exempt from all taxes under article 285 of the constitution of india. the jurisdiction to pass assessment order of the commercial taxes officer, circle 'a', in respect of sale made by petitioner no. 2 was also challenged because the turnover in the previous year relevant to the assessment year was more than one crore and only the commercial taxes officer, special circle, had jurisdiction in the matter. it was then urged that the order of transfer of cases made, vide order dated 17th november, 1981, to the commercial taxes officer, 'a' circle, was illegal and without jurisdiction.3. non-petitioner no. 2, vide his order dated 17th august, 1982, rejected the preliminary.....
Judgment:

M.L. Shrimal, J.

1. All these three writ petitions, though relating to different assessment years, raise common questions of law. They are, therefore, being disposed of by a common order.

2. The petitioner, Union of India, is running railway, which is completely owned by the Government of India, Ministry of Railways, New Delhi. Non-petitioner No. 2 issued a notice dated 5th December, 1981, under Section 10 of the Rajasthan Sales Tax Act (hereinafter referred to as 'the Act') requiring petitioner No. 2 to appear before him and file returns. In compliance with that quarterly returns, after registration, were filed. On 21st May, 1982, the petitioner submitted a preliminary objection dated 17th May, 1982, to the assessing authority, contending that the railway could not be termed to be a dealer of scrap material. In fact the auction is an occasional feature which takes place thrice or four times in a year and as the petitioner is not a dealer of scrap material under the Act, it is not liable to pay tax. The petitioner further contended that scrap material sold by petitioner No. 2 was the property of the Union of India and was exempt from all taxes under Article 285 of the Constitution of India. The jurisdiction to pass assessment order of the Commercial Taxes Officer, Circle 'A', in respect of sale made by petitioner No. 2 was also challenged because the turnover in the previous year relevant to the assessment year was more than one crore and only the Commercial Taxes Officer, Special Circle, had jurisdiction in the matter. It was then urged that the order of transfer of cases made, vide order dated 17th November, 1981, to the Commercial Taxes Officer, 'A' Circle, was illegal and without jurisdiction.

3. Non-petitioner No. 2, vide his order dated 17th August, 1982, rejected the preliminary objection filed by the petitioner and directed the petitioner to appear before the assessing authority for assessment on 1st November, 1982. It was also held that the transaction of sale of scrap material was a 'business' within the meaning of Section 2(cc) of the Act and the transfer of case was also in accordance with law.

4. The petitioners by way of writ petition have challenged the validity of non-petitioner No. 2's order dated 17th August, 1982. The petitioner has prayed that a writ of certiorari or any other suitable writ, order or direction be issued quashing the notice dated 5th December, 1981, as well as the order dated 16th August, 1982, and the direction issued on 17th November, 1981. The provisions of Section 2(f)(i) of the Act may be declared ultra vires of Article 285 of the Constitution.

5. The short questions which arise for consideration in these writ petitions are, (a) whether the railways are liable to pay sales tax on the sale of scrap material for the period in question, (b) whether the provisions of Section 2(f)(i) of the Act are ultra vires of Article 285 of the Constitution and (c) whether petitioner No. 2, Commercial Taxes Officer, 'A' Circle, Kota, had jurisdiction to assess the petitioner.

6. Section 2(f) of the Act defines the word 'dealer'. The definition of 'business' has been provided in Clause (cc) of Section 2 of the Act. The argument advanced before us is that the railway was not carrying on the business of buying and selling, and therefore, the sale of unserviceable material and scrap iron, etc., would not be a transaction in connection with, or incidental or ancillary to trade, commerce, manufacture, adventure or concern In the case of District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC), their Lordships of the Supreme Court, while repelling the arguments of the Union of India, held that the activity of the railway in selling of unserviceable material and scrap iron, etc., would be business within Clause (i) of the definition of the word 'business' in Section 2(cc) as introduced by the Rajasthan Taxation Laws (Amendment) Act, 1965. The word 'business', according to Clause (i) of the definition, would include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not it is carried on with a motive to make gain or profit. In that case it was also held that the railway was concerned in the activity of transportation and was engaged in commerce within the meaning of Clause (i) of the definition and that sale of unserviceable material and scrap iron, etc., was transaction in connection with or ancillary to commerce within Clause (ii) of that Act. Thus, question No. (1) stands determined against the Union of India by the authoritative decision of their Lordships of the Supreme Court in the abovenoted case and as such it need not detain us any more.

Article 285 of the Constitution of India reads as under :

285. (1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.

(2) Nothing in Clause (1) shall, until Parliament by law otherwise provides prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State.

7. Part XII of the Constitution has made elaborate provisions as to the revenue of the Union and of the States and as to how the Union will share the proceeds of duties and taxes imposed by it and collected either by the Union or by the States. Sources of revenue which .have been allocated to the Union are not meant entirely for the purpose of the Union, but have to be distributed according to the principles laid down by the parliamentary legislation. All the taxes and duties levied by the Union and collected either by the Union or by the States do not form part of the Consolidated Fund of India, but many of those taxes and duties are distributed among the States and form part of the Consolidated Funds of the States. Even those taxes and duties which constitute the Consolidated Fund of India may be used for the purpose of supplementing the revenues of the States in accordance with their needs. The financial arrangements and adjustments suggested in Part XII of the Constitution have been designed by our founding fathers in such a way as to ensure an equitable distribution of revenue between the Union and the States even though those revenues may be derived from taxes and duties imposed by the Union and collected by it or through the agencies of the States. The Constitution-makers realised the fact that those sources of revenue allocated to the States might not be sufficient for their purpose and that the Government of India would have to subsidise the welfare activities of the States out of the revenue levied and collected by the Union Government. It is thus clear that the consideration which may apply to those Constitutions which recognise water-tight compartments between the revenues of the federating States and those of the federation do not apply to bur Constitution, which does not postulate any conflict of interest between the Union on the one hand and the States on the other. The resources of the Union Government are not meant exclusively for the benefit of the Union activities. They are also meant for subsidising the activities of the States in accordance with their respective needs irrespective of the amount collected by or through them. In other words, the Union and the States together form one organic whole for the purposes of utilisation of the resources of the territories of India as a whole.

8. Bearing the scheme of our Constitution in mind, let us now turn to the words of Article 285. The contention on behalf of the Union Government is that Article 285 provides for exemption of the property from all taxes imposed by the State or by any authority within a State save in so far as Parliament may by law otherwise provide. In other words, its contention is that the exemption provided in Article 285 relates to all such taxes which are in any way related to the property of the Union. Prima facie the use of the words 'all taxes' in Clause (1) would suggest that the property of the Union would be exempt from all taxes of whatsoever nature, which a State can impose. But if we look to Clause (2) of Article 285 the nature of taxes from which the property of the Union would be exempted is clearly indicative as a tax on property and not taxes which may indirectly affect income or property. Vide In re, Sea Customs Act, 1878, See. 20(2) AIR 1963 SC 1760. Sales tax cannot be said : to be a tax imposed directly on the property. It would thus appear that sales tax partakes of the nature of indirect tax, which is to be distinguished from direct taxes like property tax and income-tax. The immunity granted in favour of the Union of India has to be restricted to the taxes levied directly on the property and income. Sales tax has reference to goods and commodities. It is not a tax on property directly and thus it does not fall within the exemption of Article 285. Language of Article 285 is almost similar to the language of Section 154 of the Government of India Act, 1935, Section 114 of the Common Wealth of Australia Constitution and Section 125 of the Canadian Constitution. The question of the interpretation of Section 114 of the Australian Constitution came before the High Court of Australia in the case of Attorney General of New South Wales v. Collector of Customs for New South Wales (1908) 5 CLR 818. In this case an action was brought by the State of New South Wales to recover the customs duties realised by the Collector of Customs in respect of certain steel rails imported by the plaintiff from England for use in the construction of railways of the State. The State claimed that these rails were not liable to customs duties on the ground that they were the property of the Government and as such exempt from customs duties by virtue of Article 114 of the Constitution. Section 114 reads as under:

A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

9. While interpreting the above provision the majority of the court decided that the imposition of the customs duties being a mode of regulating trade and commerce with other countries as well as of exercising the taxing power, the goods imported by a State Government were subject to the customs laws of the Commonwealth. They also laid down that levying the duties of customs is not an imposition of a tax on property within the meaning of Section 114 aforesaid. This case was read with approval in In re Sea Customs Act, 1878, Section 20 (Special Ref. No. 1 of 1962) AIR 1963 SC 1760.

10. The Constitution Bench of nine Judges after discussing a number of cases on the point enunciated the law as under :

This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore though both excise duty and sales tax are levied with reference to goods, the two are very different imposts ; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.

11. Following the above decision, a Division Bench of the Punjab and Haryana High Court in Government Medical Store Depot, Karnal v. State of Haryana 1977 Tax LR 1713, held as under :

It is no doubt true that Article 285 of the Constitution lays down that the property of the Union of India shall be exempt from all taxes imposed by a State or by any authority within a State, but under the sales tax laws the incidence of taxation is the transaction of sale or purchase and property as such is not subjected to tax. The point raised is concluded against the petitioner by a judgment of their Lordships of the Supreme Court in In re Sea Customs Act, 1878, Section 20(2) AIR 1963 SC 1760.

12. A close reading of Rule 52 with Rule 4 of the Rajasthan Sales Tax Rules, 1955, clearly reveals that the Commissioner can suo motu transfer a case from one assessing authority to another where offices are situated after giving notice to the dealer. There was nothing illegal or irregular on the part of the Additional Commissioner in authorising the Commercial Taxes Officer, 'A' Circle, to dispose of cases mentioned in the order dated 17th November, 1981.

13. For the aforesaid reasons, the three writ petitions are hereby dismissed in limine.


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