Supreme Court Upholds State in Sales Tax Appeal — Amended Section 15 and Rule 80 of Assam Sales Tax Act, 1947 Not Ultra Vires Article 286(2). Intra-State Sale to Registered Dealer for Resale Outside State Taxable as Separate Transaction and Does Not Offend Constitutional Prohibition on Taxing Inter-State Sales.

Appeal by State of Assam against High Court judgment declaring amended Section 15 and Rule 80 of Assam Sales Tax Act, 1947 ultra vires Article 286(2) of Constitution.

State of Assam sought reversal of High Court judgment and upholding validity of amendment to Section 15 and Rule 80.

Respondent challenged the 1951 amendment and Rule 80 as offending Article 286(2) and Part XIII of Constitution and Article 19(1)(g); later only Article 286(2) was pursued.

High Court of Assam, by judgment dated July 16, 1956, held Section 15 as amended and Rule 80 ultra vires Article 286(2); granted certificate under Article 132(1).

Whether amended Section 15 and Rule 80 enabled levy of tax on sales in the course of inter-State trade or commerce in violation of Article 286(2) of the Constitution. Whether a sale by a dealer within the State to another registered dealer of goods for resale outside the State is an intra-State sale taxable under the Assam Sales Tax Act.

Respondent contended that the amendment and Rule 80 had the effect of taxing sales in the course of inter-State trade or commerce and were therefore ultra vires Article 286(2) and Part XIII of the Constitution. Respondent also initially contended that the amendment and Rules were void as offending Article 19(1)(g), but this submission was given up in the High Court. Ram Labhaya J. in the High Court held that the sale to the respondent and the sale by him in Calcutta were separate sales, and the first sale was intra-State and taxable, but that because the machinery section did not exclude such sales, the net turnover would indirectly include inter-State sales. The State of Assam sought to uphold the validity of the amendment and Rule on the ground that intra-State sales were taxable and the charging section already excluded inter-State sales.

A sale of goods to a dealer within the State who purchased them for the purpose of resale outside the State is an intra-State sale distinct from the subsequent inter-State sale, and tax on such intra-State sale does not offend Article 286(2). Section 15 is a machinery section intended to avoid multiple taxation within the State; the charging section under Section 3(1)A(iii) and Article 286(2) expressly exclude inter-State sales, so there is no need for the machinery section to repeat the exemption. Rule 80 merely implements the amended deduction and is not ultra vires.

A sale of goods to a dealer within the State who purchased them for the purpose of selling them to dealers outside the State, and who, in fact, so sold them, would not make it a sale in the course of inter-State trade as the two sales were distinct and separate. What s. 15 does, is to grant an additional exemption in respect of sales in which the goods, though sold to a registered dealer, are meant for resale in the State, itself.

R.C. Dey registered as a dealer under the Assam Sales Tax Act on January 14, 1950. In 1951, the Assam Sales Tax Act was amended by Assam Act 4 of 1951, adding the words 'in the State' after 'resale' in Section 15 and enacting Rule 80. R.C. Dey filed a writ petition under Article 226 challenging the amendment and Rule. The High Court of Assam, by judgment dated July 16, 1956, held Section 15 as amended and Rule 80 ultra vires Article 286(2) and granted certificate under Article 132(1). The State of Assam appealed to the Supreme Court. The Supreme Court, by judgment dated April 14, 1961, allowed the appeal and set aside the High Court judgment.

• Assam Sales Tax Act, 1947: Section 2(12) first proviso, Section 3(1)A(iii), Section 15
• Assam Sales Tax Rules: Rule 80
• Constitution of India: Article 19(1)(g), Article 132(1), Article 286(1), Article 286(2), Part XIII