Case: State Of Madras Vs. N. K. Nataraja Mudaliar

In a proceeding for assessment of tax for 1963-64 under the Central Sales-tax Act, 1956, the Deputy Commercial Tax Officer rejected the contention of the assessee that a part of the turnover of his business in matches arose out of intra-State sale transactions at the assessees depot at Ongole (in the State of Andhra Pradesh) to which depot the goods were despatched by him from his place of business in the State of Madras. The Deputy Commercial Tax Officer held that the goods were moved from "the godown stock" of the assessee in execution of contracts of sale with merchants outside the State of Madras, and on that account the turnover from sales was liable to tax under the Central Sales-tax Act. The assessee moved the High Court of Madras under Art. 226 of the Constitution seeking a writ of certiorari quashing the order of assessment, on the grounds, that the provisions of the Central Sales-tax Act which permitted levy of tax at varying rates in different States were invalid, and that the transactions brought to tax were not in truth inter-State transactions. The High Court did not determine the nature of the transactions, but held that sub-ss. (2), (2-A) and (5) of S. 8 of the Central Sales-tax Act, 1956, in operation at the relevant time imposed or authorised the imposition of varying rates of tax in different States on similar inter-State transactions, and the resultant inequality in the burden of tax affected and impeded inter-State trade, commerce and intercourse, and thereby offended Arts. 301 and 303 (1) of the Constitution. The High Court rejected the plea of the assessee that S. 9 (3) of the Act was ultra vires. The State has appealed to this Court with certificate granted by the High Court against the order declaring sub-ss. (2), (2-A) and (5) of S. 8 of the Central Sales-tax Act, 1956, invalid.

Reasoning: We need express no opinion on the two question argued before us. The question whetherentries relating to trade and commerce in the Lists in the Seventh Schedule are restricted to entries 41 and 42 of List I, entries 26 and 17 of List II and entry 33 of List III or relate to all general entries which affect trade and commerce, is academic in the presentcase. Nor do we think it necessary to decide whetherfor the purpose of Article 303 entries relating to tax on sale or purchase of goods i. e.entry 92A of List I, and entry 54 of List II are entries relating to trade and commerce, for, in our opinion, an Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State does not amount to law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, merely because of varying rates of tax prevail in different States.Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another. Under the Constitutions as originally framed, revenue from sales-tax was reserved to the States. But since the power of taxation could be exercised in a manner prejudicial to the larger public interests by the States, it was found necessary to restrict the power of taxation in respect of transactions which had an inter-State content. Amendment of Article 286 and the enactment of the Sales Tax Validation Act, 1956, and the Central Sales Tax Act 1956, were all intended to serve a dual purpose: to maintain the source of revenue from sales-tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter-State trade so as to obstruct the free flow of trade by making commodities unduly expensive. The effect of the Constitutional provisions achieved in a somewhat devious manner is still clear, viz., to reserve sales-tax as a source of revenue for the States. The Central Sales Tax Act is enacted under the authority of the Union Parliament, but the tax is collected through the agency of the State and is levied ultimately for the benefit of the States and is statutorily assigned to the States. That is clear from the amendments made by the Constitution (Sixth Amendment) Act, 1956, in Article 269, and the enactment of Cls. (1) and (4) of Section 9 of the Central Sales Tax Act.The Central Sales-tax though levied for and collected in the name of the Central Government is a part of the sales-tax levy imposed for the benefit of the States. By leaving it to the States to levy sales-tax in respect of a commodity on intra-State transactions no discrimination is practised: and by authorising the State from which the movement of goods commences to levy on transactions of sale Central sales-tax, at rates prevailing in the State, subject to the limitation already set out, in our judgment, no discrimination can be deemed to be practised.The High Court proceeded to determine the case before them only on the plea that the impugned provisions of the Act were ultra vires. They did not consider whether the transactions in dispute were inter-State transactions and liable to tax in the hands of the assessee in the Madras State. It is the case of the assessee that he has been taxed in the Andhra Pradesh State by the appropriate authority in respect of the transactions of sale of goods which are sought to be taxed, on the footing that the transactions were intra-State transactions. The question whether the transactions were intra-State and were liable to be taxed under the Madras General Sales Tax Act has not been determined. The case must therefore be remanded to the High Court. The High Court will proceed to decide the questions. Since the assessee moved the High Court by a writ petition against the order of the sales tax authorities without filing an appeal before the authority competent to deal with the questions of fact, it will be open to the High Court to require the assessee to have those questions determined by the competent departmental authority.The appeal will be allowed and the order passed by the High Court declaring the provisions of Sections 8 (2), 8 (2A) and 8 (5) ultra vires must be set aside.The petition out of which this appeal arises was one of a group of petitions filed before the High Court. Against orders passed in favour of the other assessees the state has not preferred appeals. The amount involved in the claim is small. The State apparently has approached this Court with a view to obtain a final determination of the important question which was raised in the petitions filed before the High Court. We therefore direct that there will be no order as to costs in the Court and in the High Court.