Supreme Court Dismisses Dealer's Appeal in Sales Tax Case Over Tobacco Purchased for Export. Purchase Tax Under Section 4(6) of Central Provinces and Berar Sales Tax Act, 1947 Applicable to Interstate Purchases of Tobacco Used as Raw Material in Bidies Exported Outside State After Validation by Sales Tax Laws Validation Act, 1956.

Case Note & Summary

The case involved a firm manufacturing and selling bidis in Madhya Pradesh, registered as a dealer under the Central Provinces and Berar Sales Tax Act, 1947 as amended by the Madhya Pradesh Sales Tax (Amendment) Act, 1953. The firm imported large quantities of tobacco from Bombay for manufacture of bidis, which were largely exported to other States. The sales tax authorities required returns showing purchase price of goods purchased on declaration as raw materials but utilized for other purposes like export. The appellant initially filed a writ petition before the Supreme Court under Article 32, and in Writ Petition No. 67 of 1955 decided on September 20, 1955, the court restrained authorities from imposing purchase tax on tobacco purchases on the ground that inter-State transactions were exempt under Article 286 and Section 27A of the Act. After the Sales Tax Laws Validation Act, 1956 came into force, the Deputy Commissioner of Sales Tax issued notices dated December 5, 1958 proposing to levy purchase tax under Section 4(6) on tobacco purchased from non-resident dealers during November 7, 1953 to September 5, 1955. The appellant challenged those notices in the Madhya Pradesh High Court in Miscellaneous Petition No. 395 of 1958, which was dismissed on February 19, 1962. The appellant then appealed to the Supreme Court by certificate. The primary legal issues were whether Section 27A of the Act imposed a tax on inter-State sales so as to be a pre-existing law validated by the Sales Tax Laws Validation Act, 1956, and whether Section 4(6) applied to the tobacco purchases because the registration certificate allegedly did not specify tobacco as raw material for manufacture of goods for sale in Madhya Pradesh for consumption in that State. The appellant contended that before the Validation Act could apply, there had to be a State Act imposing tax on inter-State sales, and Section 27A imposed no such tax; and that tobacco was not specified in the certificate as intended for such use. The respondent State supported the High Court's order upholding the levy. The Supreme Court rejected the appellant's contentions. Relying on M.P.V. Sundararamier & Co. v. State of Andhra Pradesh, the court held that read with the third explanation to Section 2(g), Section 27A had a positive and not merely a negative content; it gave power to the State of Madhya Pradesh to impose tax on transactions falling within its purview. Therefore it was a pre-existing law validated by the Sales Tax Laws Validation Act, 1956, and the appellant could be taxed under it for inter-State sales during the relevant period. On the second issue, the court held that the declaration made by the appellant to Bombay dealers was for obtaining exemption from purchase tax, and the mention of tobacco in the registration certificate under Section 8 served the same purpose. Construing the certificate in the context of Section 8 and the declaration, the requirements of Section 4(6) were satisfied. The technical omission of the Sales Tax Officer to make a specific entry in the certificate would not confer benefit when other incontrovertible evidence showed that the appellant purchased the goods as raw materials for manufacture for sale by actual delivery in Madhya Pradesh for consumption in that State. The court relied on Modi Spinning & Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab. Accordingly, the Supreme Court dismissed the appeal and upheld the High Court's judgment, affirming that purchase tax could be levied on the tobacco purchases after validation.

Headnote

Issue of Consideration

Final Decision

Appeal dismissed. The Supreme Court held that Section 27A read with Explanation III to Section 2(g) had positive content and was validated by Sales Tax Laws Validation Act, 1956; Section 4(6) applied to tobacco purchases because declaration and registration certificate evidence showed intended use as raw material for manufacture of bidis for sale in Madhya Pradesh; technical omission in certificate did not confer benefit. The High Court's dismissal of writ petition was upheld.

Law Points