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K. Mohamed Elias and Co. and ors. Vs. the State of Madras Represented by the Deputy Commissioner, C.T. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Reported in(1962)2MLJ327
AppellantK. Mohamed Elias and Co. and ors.
RespondentThe State of Madras Represented by the Deputy Commissioner, C.T.
Excerpt:
- .....in question. chapter iv of the central sales tax act deals with goods of special importance to inter-state trade or commerce. section 14 of the act sets out the classes of such goods. section 15, as indicated already, imposed certain restrictions upon the state sales tax law in so far as it purported to levy any tax under that law in respect of the sales or purchases of declared goods set out in section 14. broadly stated, the contention is that sections 6, 14 and 15 form as it were a composite group and that having regard to the scheme and object of the act, enforcement of the levy of the central sales tax under section 6 of the act is not possible unless the contemplated restrictions under sections 14 and 15 are brought into force at the same time. it is claimed that the intention.....
Judgment:

Srinivasan, J.

1. The assessments in these three cases relate to the assessment year 1957-58. Though the petitioners are different, certain common questions arise.

2. In T.C. No. 171 of 1960, the assessee was assessed to Central sales tax on a total turnover of Rs. 4,28,735 of which Rs. 2,45,162 was taxed under Section 8(2) of the Act at two per cent. on the turnover. In T.C. No. 172 of 1960, Rs. 1,62,705 was brought to tax at two per cent. out of the total turnover of Rs. 2,03,281. In T.C. No. 173 of 1960, Rs. 34,369, was taxed at two per cent. out of the total turnover of Rs. 76,879. The other parts of the turnovers in each of these cases was taxed at one per cent. under Section 8(1) of the Act. All the petitioners are dealers in hides and skins.

3. In all of these cases, Mr. Karim, for the petitioners, advances the argument that the tax itself has not become exigible under the Central Sales Tax Act by reason of the following circumstances. Section 6 of the Central Sales Tax Act which imposes a liability to tax under that Act was brought into operation by a notification of the Central Government issued on 26th March, 1957, the levy itself was to take effect from 1st July, 1957. All the sections of the Central Sales Tax Act were not brought into operation at the same time. Section 15 in particular which imposed certain restrictions and conditions in regard to tax on sales and purchases of declared goods, was brought into force with effect from 1st October, 1958, that is, on a date outside the assessment year in question. Chapter IV of the Central Sales Tax Act deals with goods of special importance to inter-State trade or commerce. Section 14 of the Act sets out the classes of such goods. Section 15, as indicated already, imposed certain restrictions upon the State Sales Tax Law in so far as it purported to levy any tax under that law in respect of the sales or purchases of declared goods set out in Section 14. Broadly stated, the contention is that Sections 6, 14 and 15 form as it were a composite group and that having regard to the scheme and object of the Act, enforcement of the levy of the Central sales tax under Section 6 of the Act is not possible unless the contemplated restrictions under Sections 14 and 15 are brought into force at the same time. It is claimed that the intention of the Parliament was that simultaneously with the imposition of levy of Central sales tax, the safeguards contemplated by Sections 14 and 15 of the Act should also be made effective. It is contended therefore that since Section 15 was brought into force only with effect from 1st October, 1958, any earlier operation of Section 6 of the Act is not in conformity with the underlying object of the Act.

4. In this regard, learned Counsel invites our attention to the Preamble of the Act, which is set out hereunder:

An Act to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce outside a State or in the course of import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject.

5. Considerable emphasis has been laid by the learned Counsel upon the object of the Act as appearing in this Preamble. In short, the contention of the learned Counsel is that the notification issued by the Central Government bringing Section 6 of the Act, the charging section, into force as and from 1st July, 1957, is invalid in so far as it relates to declared goods, until such date as the relevant provision, Section 15 is also brought into force.

6. Under Section 1 (3) of the Central Sales-Tax Act, power has been conferred upon the Central Government by a notification in the Official Gazette to appoint different dates for the different provisions of the Act. This power, learned Counsel however, contends, must be read in the light of the general scheme of the Act. It is further submitted by the learned Counsel that Section 6 which creates the liability on inter-State sales is prefaced by the expression ' subject to the other provisions contained in this Act,' and subject only thereto.

Every dealer shall, with effect from such date as the Central Government may by notification in the Official Gazette appoint... .be liable to pay tax under this Act on all sales effected by him in the course of inter-State trade or commerce during any year on and from the date so notified.

The argument is that since the liability created by Section 6 of the Act is subject to the other provisions contained in the Act, notwithstanding that Section 15 was not brought into force till 1st October, 1958, the impact of Section 15 upon Section 6 cannot be ignored. The result, according to the learned Counsel, is that the levy under Section 6 is ineffective till such date as Section 15 comes into force, that is to say, the notification bringing Section 6 into effect is inoperative.

7. We find it exceedingly difficult to follow this argument. On and after the amendment of the Constitution amending Entry 54 in List II of the Seventh Schedule and introducing a new Entry 92-A in List I, power is conferred upon the Parliament to legislate in respect of taxes on the sale or purchase of goods, where such sale or purchase takes place in the course of inter-State trade or commerce. Under Article 286, as it stood, there was a prohibition upon the State imposing or authorising the imposition of any tax on the sale or purchase of goods where such sale or purchase takes place in the course of import of the goods into or export of the goods out of the territory of India. There was the further prohibition that except to the extent to which Parliament may by law otherwise provide, no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce. Article 286 (3) also provided that no law made by the Legislature of a State imposing or authorising the imposition of tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. By the Constitution Sixth Amendment Act, Article 286 (2) was substituted for the following:

Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any one of the ways mentioned in Clause (1).

It is accordingly seen that the Parliament assumed the power to legislate in respect of taxes on sales or purchases taking place in the course of inter-State trade or commerce. Obviously, by reason of this entry, Parliament was competent to legislate and provide for determining what was a sale or purchase in the course of inter-State trade or commerce. Under Article 286 (2), the competency of the Parliament to determine when a sale or purchase takes place outside the State or in the course of the import of the goods into or export of the goods out of the territory of India and to formulate the principles for such determination is unquestionable. Under Article 286 (3) also, as it stood originally, no levy of tax on the sale or purchase of any goods as have been declared by law by Parliament to be essential for the life of the community shall have any effect unless it had been reserved for the consideration of the President and had received his assent.

8. Under the last mentioned clause of Article 286, Parliament enacted Act LII of 1952, entitled the Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act, 1952. It practically embodied as a section of the Act relevant prohibition contained in Article 286 (3) and set out in the Schedule to the Act the classes of goods declared essential for the life of the community.

9. This sub-clause of Article 286 was altered in form and it stands thus:

Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.

10. The above provision of the Constitution along with the Entries in the two Lists establish that Parliament has three distinct powers : firstly, to formulate principles for determining in what manner for the purpose of the various prohibitions, a sale or purchase of goods takes place; secondly, it has the exclusive power of levying a tax on sales or purchases taking place in the course of the inter-State trade; and thirdly, it has the power to impose, restrictions and conditions in respect of any State law levying tax on the purchase and sale of declared goods. It has the incidental power to declare any goods to be of special importance in inter-State trade or commerce.

11. The Central Sales Tax Act of 1956 is undoubtedly a composite piece of legislation embracing all of the powers mentioned above. Section 3 of the Act states when a sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, Section 4 sets out cases where a sale or purchase may be said to take place outside the State; and Section 5, when a sale or purchase takes place in the course of import or export. In so far as the inter-State sales are concerned, Section 6 imposes a liability to tax. Under Section 14 of the Act, certain goods are declared to be of a special importance in inter-State trade or commerce, and simultaneously with such declaration, Act LII of 1952 was repealed. Section 15 laid down restrictions and conditions upon the States' levy of tax on purchases or sales of goods in so far as they related to declared goods. .

12. Having set out the scheme of the Act, we now proceed to consider the particular contention advanced by the learned Counsel. The tenor of the arguments of the learned Counsel appears to be that Parliament itself is incompetent to levy tax on sales and purchaser in the course of inter-State trade, at least in so far as the declared goods are concerned, without at the same time, restricting the operation of the local Sales Tax Act and its powers of taxation on sales or purchases of those goods. We are unable to find any warrant for the view that the Parliament is bound to bring into operation Sections 6 and 15 of the Act simultaneously. In effect, the argument is that any legislation upon matters which formed the content of Article 286 and Entry 92-A of List I should come into effect at the same time and that the Parliament cannot impose a levy on inter-State sales or purchases of declared goods, unless at the 'same time it exercises the power conferred upon it by Article 286 (3) of the Constitution It seems to us that these are different and distinct powers which have been conferred upon Parliament by the Constitution, and we do not find any indication in any Article of the Constitution which imposes the condition that these powers should be exercised simultaneously. That the Central Sales Tax Act is as it were a composite piece of legislation, enacted by Parliament in virtue of distinct powers conferred upon it by the relevant Article of the Constitution cannot be gam-said What Article 286 (3) contemplated was only the imposition of a restriction upon any levy by a State upon the sale or purchase of declared goods, and the extent of the restriction is set out in Section 15 of the Act. The State cannot impose a tax on the sale or purchase of any such goods taking place inside the State at a rate higher than two per cent. of the sale or purchase price thereof and such tax shall not be levied at more than one stage inside the State. The section also provides that where a tax has been levied under the local law in respect of the sale or purchase inside the State of any declared goods, and such goods are sold in the course of inter-State trade, the tax levied by the State shall be refunded. It is true that till Section 15 is brought into force, these restrictions upon the local Sales Tax Act will not be operative A person dealing in declared goods by way of purchase or sale inside the State will be liable to the local Sales Tax Law at whatever rate such law might prescribe A subsequent inter-State sale of these same goods would also invite the inter-State levy of tax That would be the position so long as Parliament did not exercise the power conferred upon it by Article 286 (3) of the Act. It is no doubt true that Section 15 has been enacted; but the power given to the Central Government to bring into effect this particular provision from such date as the Central Government may appoint clearly amounts to saying that the power under Article 286 (3) cannot be deemed to be exercised by the Parliament till that date is appointed. Though no doubt the section is part of the Act, it does not derive any lite till it is brought into force It is open to the Parliament to legislate in respect of various matters referred to under Article 286 on different dates. If the different matters had been legislated under different enactments on different dates, the argument cannot be accepted that Parliament was incompetent 10 legislate in respect of these matters except conjointly that is, giving effect to all the powers conferred upon it under the relevant Article of the Constitution at the same time. The position is no different when a composite piece of legislation has been enacted by the Parliament. But different portions of it referable to the different powers under Article 286 are brought into effect on different dates.

13. We fail to see therefore how the notification bringing into effect Section 6 of the Act on a date earlier than the date on which Section 15 was brought into force can. be said to invalidate the levy of tax on inter-State sales or purchases.

14. What is the right that is conferred by Section 15 upon a person engaging himself in the sale or purchase of declared goods? It is only that he will be liable in respect of sale of those goods inside the State at a specified rate of tax which is fixed at two per cent and further such sales and purchases inside the State shall not attract tax under the local Sales Tax Law at more than one stage. This right is clearly conferred upon the dealer only from the date on which Section 15 comes into force, and of after it comes into force the State levies the tax in a manner which violates the conditions laid down in Section 15, the complaint of the dealer can only be against the levy of tax by the State. It is the clearly expressed intention behind Section 15 of the Act read with Section 1 (3) thereof, that any Sales Tax Law of a State which imposes a tax on the sale or purchase of declared goods at rates higher than two per cent or at more than one point in the series of sales inside the State shall be valid and shall hold good until Section 15 is brought into play. If Parliament designedly postponed the conferment of the privileges contemplated by Section 15 of the Act to a later date, it was undoubtedly within its powers in doing so, in the absence of any constitutional requirement that such relief as is contemplated by Section 15 should be granted at the same time as the levy of tax on inter-State sales is brought into force.

15. We are unable to see any substance in the argument advanced that the notification under Section 6 is invalid for any reason whatsoever.

16. It has further been urged that the levy of tax at two per cent. on a part of the turnover of each of these dealers under Section 8(2) of the Act is improper. What is contended is that though the necessary declaration contemplated by Section 8(4) of the Act in respect of the part of the turnover referred to was not furnished by the assessee and the levy of inter-State sales tax is made under Section 8(2) as a consequence thereof, the tax under that section has to be levied ' in the same manner ' as would have been done if the sale had in fact taken place inside the appropriate State; it is argued that the expression ' in the same manner ' takes in all incidents of levy of tax as it would obtain under the local Sales Tax Law, that is to say, the nature of the incidents of the tax should apply to the same extent as if the local Sales Tax Law governed the transaction. It is suggested that since under the Madras General Sales Tax Act, these goods being hides and skins arc liable to a single point levy, the tax should be imposed only if in respect of this transaction that point had been reached. In effect, therefore, learned Counsel claims that the taxation of what is undoubtedly a turnover under the Central Sales Tax Act should be made on the application of all the principles governing the imposition of sales tax : under the local law. We are unable to accept this argument. What is. required by Section 8(2) is only that the tax shall be calculated at the same rates and in the same manner as would have been done if the sale has in fact 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 Hot be so liable under that law.

The expression ' at the same rates and in the same manner ' is accordingly qualified to a considerable extent, and even if the dealer and therefore the transaction in question may not attract the tax under the local Sales Tax Law, for the purpose of Section 8(2), the Central sales tax becomes leviable at the same rate as would otherwise be applicable under the local Sales Tax Law.

17. The result is that the contentions advanced fail and the petitions are dismissed with costs. Counsel's fee--one set--Rs. 150.


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