STATE OF MADRAS Vs. ASHER TEXTILES LTD

JUDGEMENT

(1.) These revision petitions are filed on behalf of the state of Madras and arise out of assessments to sales-tax in the years 1951-52 and 1952-53, with regard to the Asher Textiles, Tiruppur, the respondent herein. The latter is the owner of a spinning mill at Tiruppur, and it was assessed by the Deputy Commercial Tax officer to sales-tax on a turnover of Rs. 22,76,160-1-0 for 1951-52, and Rs. 25,73,907-6-3 for 1952-53. The Commercial Tax officer, proceeding to act suo motu under. S. 12(1) of the Madras General Sales-tax Act, revised the assessable turnover in a sum of Rs. 31,94,143-10-6 and Rs. 36,42,116-10-5, respectively. The assessee preferred appeals to the Sales-tax Appellate Tribunal which reduced the respective turnovers by Rs. 2,62,206-4-3-and Rs. 3,98,3430-5. Those sums represented the price of cotton sold and despatched by dealers outside Madras State and delivered to the assessee at Tiruppur, intended to be and later utilised for consumption in the spinning mills belonging to the assessee. The Sales-tax Appellate Tribunal, relying on the decision in Bengal Immunity Co. Ltd. v. State of Bihar, held that the assessment in regard to the turnover representing the price of cotton purchased outside the State of Madras would come within the ban of Art. 286(2) of the Constitution, and, therefore, it would not be liable to be taxed.

(2.) It is disputed before us that the decision of the Tribunal was correct, having regard to the law prevailing on the date when it made the order. But the learned Government Pleader relied for the validity of the assessments on the provisions contained in Ordinance III of 1956, which was subsequently replaced by the Sales-tax Validation Act, VII of 1956. The ordinance and the enactment were passed subsequent to the decision of the Tribunal and had the effect of validating the assessments like those concerned in the disputed transactions.

(3.) The sales in the instant case were inter-State ones, under which the goods were delivered within this State for the purpose of consumption in this State and were assessable under the provisions of the Madras General Sales-tax Act, 1939, having regard to the definition of the word "sale" in S. 2(h) read with S. 22 of the Act. The question, whether a State Legislature could enact laws to tax such sales was considered in State of Bombay v. United Motors (India) Ltd., where it was held that a sale of goods which was essentially an inter-State dealing could be validly taxed in the State, where the goods were delivered for consumption. Conformably to this view the various state legislatures enacted laws to tax sales inter-State in character where delivery for the purpose of consumption was made within the taxing State. Section 22 of the Madras Act enabled the levy of tax on such sales. The question of the validity of such taxing provisions was again considered by the Supreme Court in where it was held that no State could impose or authorise the imposition of any tax on sales or purchases when such sales or purchases took place in the course of inter-State trade or commerce irrespective of the fact, whether the goods were delivered for consumption or not. The explanation to Art. 286(1)(a) of the Constitution, which was relied on in the earlier case for interpreting the scope of Art. 286(2), was held inapplicable for the purpose, and the learned Judges of the Supreme Court held by a majority that, except in s far as Parliament might by law provide otherwise, no State law could impose or authorise the imposition of any tax on sales or purchases which took place in the course of the inter-State trade or commerce. The result was that all taxes on inter-State sales by the State in which delivery was intended and effected became invalid after 1-4-1951 (till which date there was an order by the President under Art. 286(2) proviso). The decision in was rendered on 6-9-1955. Ordinance III of 1956, which was intended to validate all levies and collections of the tax from 1-4-1951 to 6-9-1955, came into force on 30-1-1956. The ordinance was followed by Act VII of 1956, and S. 2 of the enactment validated all the taxes in regard to inter-State sales during the period 1-4-1951 to 6-9-1955. Neither the ordinance nor the enactment by itself imposed any tax; but they removed the ban imposed by Art. 286(2) in cases where there had been an enactment authorising a tax on such sales by the concerned State legislature. Therefore, in order that a levy of sales-tax on inter-State sales could be validated by its provisions, there must have been some legislation in the State concerned levying such a tax. Under S. 22 of the Madras General Sales-Tax Act read with S. 2(h) such sales were liable to be included in the taxable turnover. The question whether in respect of the sales of the nature specified in the Explanation to Art. 286(1)(a) of the Constitution, more compendiously referred to as "explanation sales" (which could not be taxed by any State legislature), there had been a levy which was validated subsequently was considered with reference to the effect of S. 2 of Ordinance III of 1956 in Mettur Industries Ltd. v. State of Madras, It was held that S. 2 of the Ordinance would have the effect of removing the ban on the legislative powers of the State, and that the levy of the taxes on sales between the two dates specified thereunder would be valid. This view was accepted and affirmed in Sundararama Iyer and Co. v. State of Andhra Pradesh, by the Supreme Court. It would follow that S. 2 of Act VII of 1956 which replaced the Ordinance will have a similar effect. The assessment in the instant case should he held therefore to have been valid.