Supreme Court Upholds Tax Amendments Fixing Stage of Levy and Dismisses Challenge to Punjab and Haryana Sales Tax Acts. The Amendments to Punjab General Sales Tax Act, 1948, Were Held Valid and Not in Conflict with Section 15 of the Central Sales Tax Act, 1956, Nor Violative of Constitutional Provisions.

Constitutional challenge to State sales tax law amendments

Petitioners sought a declaration that the amending Acts were unconstitutional and ultra vires, and for appropriate relief

The amendments allegedly violated Section 15 of the Central Sales Tax Act, 1956, and infringed fundamental rights under Articles 14, 19, and 304 of the Constitution

In Bhawani Cotton Mills Ltd. v. State of Punjab (1967), the Supreme Court struck down parts of the original Punjab General Sales Tax Act for not specifying the stage of tax as required by Section 15 of the Central Act

Whether the amendments fixed the stage of tax on declared goods as required by Section 15 of the Central Sales Tax Act, 1956 Whether the legislatures of Punjab and Haryana had the competence to amend the original Act retrospectively Whether there was excessive delegation of legislative power in fixing the tax rate Whether Section 11AA of the Act was discriminatory and violative of Article 14 Whether the Act discriminated between imported and local goods in violation of Article 304 of the Constitution

Petitioners argued that the amendments did not clearly fix the stage of tax, leaving the possibility of multiple taxation, thus contravening Section 15 of the Central Act Petitioners contended that the successor State legislatures could not retrospectively amend an Act passed by the erstwhile composite State of Punjab Petitioners claimed that leaving the rate of tax to be fixed by the executive within a maximum was an excessive delegation of legislative power Petitioners argued that Section 11AA was discriminatory as it gave an option to some dealers for reassessment while others were bound by old assessments Petitioners submitted that taxing imported goods at the same rate but yielding higher tax due to higher value discriminated against importers, violating Article 304 Respondents maintained that the stage was now clearly identified as the sale or purchase by the last dealer, compliant with the Central Act Respondents asserted that after bifurcation, each State was competent to amend its own laws, including retrospectively Respondents argued that fixing a maximum rate and allowing the executive to determine the actual rate was not delegation since the legislature had exercised its power to set the ceiling Respondents contended that Section 11AA was uniformly applicable and the choice of reassessment was voluntary, not discriminatory Respondents submitted that Article 304 only prohibits higher rates on imported goods, not higher tax amounts resulting from uniform rates applied to higher-value goods

The amendments to the Punjab General Sales Tax Act, 1948, which specified that the tax on declared goods would be levied at the stage of the last purchase or sale by a dealer liable to pay tax, were held to comply with the requirement of Section 15 of the Central Sales Tax Act, 1956, that such tax be levied at not more than one stage. This clarity enabled dealers to determine their own liability. The successor State legislatures upon reorganisation were competent to amend the pre-existing Act. The legislative practice of fixing a maximum rate and authorising the executive to impose a tax within that limit did not amount to excessive delegation, as the limit was set by the legislature. The option given to dealers under Section 11AA to seek reassessment or accept the old assessment was a uniform provision and not discriminatory. Under Article 304 of the Constitution, if the rate of tax on imported goods is the same as on local goods, there is no violation even if the tax amount differs due to difference in value.

The Act by specifying the stage as the last purchase or sale a dealer liable to pay the tax makes the stage quite clear. The competency of the legislatures of Punjab and Haryana to amend an Act passed by the composite State cannot be questioned. There is no abdication of legislative functions in favour of the administrative authority as the Central Act itself gives power to the legislature to choose a rate of tax at not more than 3%. When a taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, Article 304 has no application.

The Punjab General Sales Tax Act, 1948 was struck down in part by the Supreme Court in Bhawani Cotton Mills Ltd. v. State of Punjab (1967) for violating Section 15 of the Central Sales Tax Act, 1956. After the bifurcation of the State of Punjab into Punjab and Haryana on 1 November 1966, the respective legislatures enacted amending and validating Acts preceded by ordinances. The petitioners, dealers in cotton and oil seeds, filed writ petitions under Article 32 of the Constitution before the Supreme Court challenging the amendments on multiple grounds.

• Punjab General Sales Tax Act, 1948: 5, 11A, 11AA
• Central Sales Tax Act, 1956: 15
• Constitution of India, 1950: 14, 19, 304