- (1.) This petition under Art. 32 of the Constitution raises the question as to whether the 1st respondent, the State of Uttar Pradesh illegally and unauthorisedly levied sales tax on the 2nd petitioner firm, under the Uttar Pradesh Sales Tax Act (U. P. Act XV of 1948) with regard to the cloth manufactured by the 2nd petitioner, with a view to exporting such cloth outside the territories of India, by customers of the 2nd petitioner called "indentors."
(2.) The 1st petitioner is the Director of Messrs Cawnpore Textiles Limited, a Public Limited Company, having its registered office in Kanpur, the 2nd petitioner being the Company itself, whose business is the manufacture of cotton cloth an yarn intended for sale in India, as also for export abroad. In the course of that business, the 2nd petitioner sells quantities of cloth to persons styled as Indentors who after dyeing and hand-printing them, export them overseas." The 2nd petitioner is a dealer as defined in S. 2 (c) of the Uttar Pradesh Sales Tax Act, which by S. 3 lays down that every dealer shall subject to the provisions of the Act, in every assessment year pay a tax on his turn-over of each year which shall be determined in such manner as may be prescribed. Under S. 4 of that Act, the State Government has been empowered either to exempt certain kinds of transactions from the payment of sales tax completely, or to allow a rebate of a portion of the tax payable. In pursuance to that, the Uttar Pradesh Government on 3-12-1949 issued a Notification No. ST. 6499-X-902 (20) 48, that with effect from 1-12- 1949 the provisions of S. 3 of the Act (relating to the levy of sales tax) shall not apply to the sales of cotton cloth or yarn manufactured in Uttar Pradesh, made on or after 1-12-1949, with a view to export such cloth or yarn outside the territories of India on the condition that the cloth or yarn is actually exported and proof of such actual export is furnished. This notification having been made in accordance with the power conferred by the statute has statutory force and validity and therefore, the exemption is as if it is contained in the parent Act itself. The question for decision in this petition is whether the petitioners are entitled to avail themselves of this exemption and whether, therefore the levy of tax is illegal.
(3.) During the assessment years 1952-53, 1953-54 and 1954-55, the petitioner had sold quantities of cotton cloth to constituents of theirs who thereafter printed such cloth with hand made apparatus and exported them over seas as hand printed cloth. Such customers are known as indentors who had placed orders with the petitioners for the manufacture of cloth. The modus operandi followed by the indentor in the transaction of business is to the following effect:- Having received orders for the supply of hand printed cloth from merchants over-seas, the indentor applies to the Chief Controller of Export and Import, Ministry of Commerce, Government of India, for the grant of and export licence which, when granted, permits him to export cotton piece goods to be manufactured by a Textile Mill, specified in such a licence. The licence also names the mills where the cotton cloth is to be manufactured and further descriptions of the cloth are also given. A copy of the licence is given to the indentor Land another copy is sent to the Textile Mill named in the licence which is to manufacture the cloth. Thereafter the Mill receives the order from the indentor to manufacture the cloth intended for export under the licence and the required quantity is delivered to the indentor after manufacture in the mills. On delivery the indentor pays the excise duty to the Central Government and removes the goods to his actual place of business. The cloth is then printed by hand-printing and exported. It is to this kind of cloth manufactured with a view to export over-seas for which a licence has already been granted by the Central Government that the exemption from sales tax referred to in the notification above mentioned applies.;