The legislative power to impose tax on transactions involving inter-State sales, sales outside the State, and import or export is beyond the State Legislature's competence.

S. RAJENDRA BABU, J.

( 1 ) THESE petitions are filed challenging the constitutional validity of section 50-C of the karnataka Sales Tax Act, 1957 (hereinafter referred to as "the Act"), by which the State levies tax on transfer of right to use any goods.

( 2 ) ON behalf of the petitioners, it is urged that the legislative power under entry 54 of List II of the Seventh Schedule to the Constitution to impose to a tax on the transfer of any right to use any goods would not include the power to levy such tax in respect of transactions which are in the courses of sales in the course of inter-State trade or commerce or in the course of sales outside the State levying such tax or in the course of import or export inasmuch as it is beyond the legislative competence of the State Legislature to impose sales tax on inter-State sales or sales outside the State and also in the course of import or export. It is urged that the law made by the parliament under article 286 (2) and 286 (3) (b) read with article 269 (3) of the Constitution is a condition precedent for exercise of the legislative power of the State to impose tax on transactions involving transfer of right to use any goods for any purpose and since no law has been enacted by Parliament in that regard, it is not open to the State Legislative to exercise power to impose such tax. The definition of "sale" in the Central Tax Act has been amended after the 46th Amendment within its ambit a transfer of the right to use any goods for any purpose and it cannot be treated to be law made under articles 269 (3) and 286 (2) of the constitution in relation to sales arising out of such transfers. In the absence of a common situs being involved in application of such legislative as in section 4 of the Central Sales Tax Act, levy under section 5c impermissible. It is submitted that it is not permissible for the State legislature to expression "sale" so as to include within its ambit the sale or purchase of goods in the course of inter-State trade or commerce or in the course of import or export and thereby assume power to impose taxes on the same and the definition of us situs as contemplated in explanation (3) (d) of section 2 (t) is itself invalid being violative of article 286 of the constitution of India.

( 3 ) WE may now advert to the history of this legislation. Originally, by Act No. 27 of 1985, section 5c was amended to levy tax on the taxable turnover in respect Seventh Schedule. Now, tax is sought to be levied on total turnover in respect of transfer of right to use goods by amending the Act by Act No. 4 of 1992 with retrospective effect.

( 4 ) BEING this history in mind, it is submitted that the Legislature did intend to levy on all transactions which have been excluded in terms of article 286 (1) and (2) under entry 92a of List i of the Seventh Schedule. Thus, it is contended that section 5c is not traceable to entry 54 since it includes transactions covered by article 286 and entry 92a of the Seventh Schedule. It is also urged that the provision itself is opposed to the scheme of the Act and therefore deserves to be quashed. In understanding the concept of an inter-State sale, it is urged that, it must be borne in mind that the movement of goods from one State to another State whether occasioned by the sale and the sale and the movement goods is in incident as an as a necessary consequence and was inseparably connected with sale or purchase; that there was no break between the purchase and movement of goods to another State; that it is immaterial whether the sale or purchase takes place within the State so long as the movement of goods is an incident of the sale or purchase, it amounts to inter-State sale or purchase.

( 5 ) ON behalf of the State following submissions are made : there cannot be any "sale or purchase of goods in the course of inter-State trade and commerce" or "outside the State" or "in the course of the import of goods into, or export of the goods of out of the

Click Here to Read the rest of this document