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Wipro Limited And Another vs State Of Maharashtra on 22 March, 1990

Bombay High Court
Wipro Limited And Another vs State Of Maharashtra on 22 March, 1990
Author: S S Manohar
Bench: S V Manohar


JUDGMENT

Smt. Sujata Manohar, J.

1. Under old section 13AA which was incorporated in the Bombay Sales Tax Act, 1959, with effect from 1st July, 1982, it was provided as follows :

“Where a dealer who is liable to pay tax under this Act, purchases any goods specified in Part I of Schedule C, directly or through commission agent, from a person who is or is not a registered dealer and uses such goods in the manufacture of taxable goods and despatches the goods, so manufactured, to his own place of business or to his agent’s place of business situated outside the State within India, then such dealer shall be liable to pay, in addition to the sales tax paid or payable or as the case may be, the purchase tax levied or leviable, under the other provisions of this Act in respect of purchases of such goods, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods so used in the manufacture and accordingly the dealer shall include purchase price of such goods in his turnover of purchases in his return under section 32, which he is to furnish next thereafter.”

2. This section as well as a similar section in the sales tax legislation of the State of Haryana was challenged in a number of writ petitions. The writ petitions were finally decided by the Supreme Court by its judgment and order dated 19th October, 1989, in the case of Goodyear India Ltd. v. State of Haryana and a number of other writ petitions and Civil Appeals, [1990] 76 STC 71, which were heard together. The judgment is annexed as exhibit “A” to Writ Petition No. 587 of 1990. Sabyasachi Mukharji, J. (as he then was) by the said judgment, struck down, inter alia, the old section 13AA of the Bombay Sales Tax Act, 1959, as well as a similar section of the Haryana Sales Tax legislation on the ground, inter alia, that the tax was beyond the legislative competence of the two States. He negatived the contention of the States concerned that the taxable event was the purchase of goods which were used in the manufacture of taxable goods and which were despatched outside the State. He observed (internal page 34 of the judgment, exhibit “A” and pages 94 and 95 of 76 STC). “It is well-settled that the main test for determining the taxable event is that on the happening of which the charge is affixed …… Analysing the section it appears to us that the two conditions specified, before the event of despatch outside the State as mentioned in section 9(i)(b), namely, (i) purchase of goods in the State and (ii) using them for the manufacture of any other goods in the State, are only descriptive of the goods …… Analysing the section, if one looks to the purchase tax under section 9, one gets the conclusion that the section itself does not provide for imposition of the purchase tax on the transaction of purchase of the taxable goods but when further the said taxable goods are used up and turned into independent taxable goods, losing their original identity, and thereafter when the manufactured goods are despatched outside the State of Haryana and only then tax is levied and liability to pay tax is created.” He goes on to say, “In this series of transactions the original transaction is completely eclipsed or ceases to exist when the levy is imposed at the third stage of despatch of manufacture.” The Supreme Court held that the charging event was that event the occurrence of which immediately attracted the charge. It held that the tax which was levied under the old section 13AA was a tax on despatch of goods. The Supreme Court invalidated the old section 13AA on the ground that looking to the pith and substance of the section, it was beyond the legislative competence of the State inasmuch as it was only the Central Government which could, under entry 92B of List I of the Seventh Schedule to the Constitution, levy a tax on consignment of goods. Old section 13AA did not impose a tax on the sale or purchase of goods. The section therefore did not fall within the legislative competence of the State.

3. The Supreme Court, at the stage when it granted special leave in these matters, ordered that in case the petitioners succeed, the amount of tax together with interest recovered from them by the authorities shall be refunded with interest at 12 per cent per annum.

4. The petitioners who were entitled to the benefit of the Supreme Court judgment and orders became entitled to a refund of the tax paid by them under the old section 13AA, together with interest at 12 per cent per annum.

5. The State Government has now sought to nullify the effect of the Supreme Court judgment by enacting the Bombay Sales Tax (Amendment) Ordinance, 1989, which is subsequently converted into an Act. As a result, instead of the old section 13AA a new section 13AA has been substituted and is deemed to have been substituted with effect from July, 1982. This new section 13AA is as follows :

“13AA. (1) Where a dealer, who is liable to pay tax under this Act, purchases any goods specified in Part I of Schedule C, directly or through commission agent, from a person who is or is not a registered dealer and uses such goods in the manufacture of taxable goods, then, unless the goods so manufactured are sold by the dealer, there shall be levied, in addition to the sales tax, paid or payable, if any, or as the case may be, the purchase tax levied or leviable, if any, under the other provisions of this Act in respect of purchases of such goods, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods so used in the manufacture, and accordingly the dealer shall include purchase price of such goods in his turnover of purchases in his return under section 32, which he is to furnish next thereafter.”

6. Under section 3 of the Validating Ordinance and Act, it is provided as follows :

“Notwithstanding anything contained in any judgment, decree or order of any court or Tribunal to the contrary, any assessment, reassessment, levy or collection of tax in respect of purchases effected by any dealer made or purporting to have been made ……. under the provisions of the principal Act during the period commencing on the 1st day of July, 1982 and ending on …… the date of commencement of this Ordinance, shall be deemed to be as valid and effective as if such assessment …… had been done under the principal Act, as amended by this Ordinance ………”

7. There is considerable force in the submission made by the petitioners that the new section 13AA has made only cosmetic changes in the old section 13AA which has been struck down by the Supreme Court. If the test laid down by the Supreme Court to determine the charging event is applied to the new section 13AA, it is quite clear that in the case of new section 13AA also, there is no nexus or too remote a nexus between the charging event and the purchase of goods on which the tax is sought to be levied. Because under the new section 13AA also three events are contemplated :

(i) there should be a purchase of goods as specified in that section;

(ii) these goods should have been used in the manufacture of goods which are independently taxable;

(iii) such goods so manufactured should not have been sold in the State, i.e., they should have been used up and/or despatched outside the State.

It is only when the last contingency occurs that the original goods which went into the manufacture of taxable goods become liable to extra tax. The ratio of the Supreme Court, prima facie at any rate, would directly apply to the new section 13AA also. The tax is levied on despatched of goods outside the State or using up the manufactured goods, i.e., its “non-sale” in the State. There is therefore a strong prima facie case made out by the petitioners for challenging the validity of the new section 13AA. In fact, the new section 13AA closely resembles section 9 of the Haryana legislation which was also struck down by the Supreme Court.

8. Section 3 of the new Ordinance/Act which validates the earlier collection of tax under old section 13AA is also prima facie unsustainable. Section 3 validates the collection of tax which the State had no legislative competence to collect and which the State was bound to refund with interest at 12 per cent per annum by virtue of the Supreme Court judgment. In the first place, if one looks at the validating section, it validates assessment, etc., or collection of tax in respect of purchases effected by any dealer under the provisions of the previous section 13AA. The Supreme Court has held that the tax collected under the old section 13AA was a tax on consignment of goods and was not a tax on purchase of goods. Therefore, the validating provision does not apply to any tax which was collected under the old section which was not in respect of purchase of goods.

9. Secondly, even assuming (contrary to Supreme Court judgment) that the tax collected under the old section 13AA was a tax in respect of purchase, it is validated, on the footing that it is deemed to have been collected under the new section 13AA. But even the new section 13AA, prima facie, suffers from the same faults as the earlier section 13AA.

10. In the case of State of Tamil Nadu v. M. Rayappa Gounder , the Supreme Court held that “when a legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition of course, is that the legislature must possess the power to impose the tax for if it does not, the action must ever remain ineffective and illegal.” (page 233).

11. In the present case the cause for invalidation of old section 13AA is not removed. The cause for invalidating old section 13AA was lack of legislative competence. This cause has not been removed. Prima facie, even the new section 13AA does not impose a tax on purchase. It is beyond the legislative competence of the State under entry 54 List II of the Seventh Schedule to the Constitution. In these circumstances, the petitioners have made out a strong prima facie case for interim relief.

12. It was submitted by Mr. Thakore, learned counsel for the respondents, that no interim relief should be granted because the impugned legislation relates to collection of revenue. He submitted that the balance of convenience is also in favour of the Revenue. In view, however, of the fact that the Supreme Court has decided this question against the Revenue, and the amending and validating legislation does not remedy the infirmities which were pointed out by the Supreme Court in the earlier legislation, this is a fit case where interim relief must be granted.

(i) Pending the hearing and final disposal of the petition, the operation of section 3 of the impugned Ordinance, that is to say, Maharashtra Ordinance IX of 1989 as also section 3 of the Maharashtra Act II of 1990 is stayed.

(ii) The respondents are directed to refund to the petitioners the tax paid under the old section 13AA together with interest thereon at the rate of 12 per cent per annum as directed by the Supreme Court, within 4 months after verifying the correctness of the particulars of such tax which are set out by the petitioners in exhibit “B” annexed to each of the petitions.

(iii) The petitioners are at liberty to pay tax as from December 6, 1989, under protest, under the new section 13AA. The tax so paid shall be subject to the outcome of the petition, and shall be recovered by the respondents on condition that the respondents shall refund the same with interest at 12 per cent per annum in the event of the petitioners’ succeeding in the petitions.

13. The respondents apply for stay of this order. Since the respondents have been granted 4 months’ time for making payment, there is no need to stay the order.

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