Report No. 30
Brief Review Of The System Of Sales Tax.- The system of sale-tax has been reviewed in a recent Report,1 and the relevant passages are quoted below.2-3
1. Committee on Sales Tax (on Commodities exported from India), (Government of India, Ministry of Commerce), Report (1964), Chapter 3, pp. 11 to 13 paras. 5 to 11.
2. For a detailed description, see Report of the Taxation Enquiry Commission (1953-54), Vol. 3, pp. 141-162.
3. For a short analysis, see Harward Law School, Taxation in India (1960), paras. 16/1.1 and 16/3.
"5. Central sales tax is levied under the provisions of the Central Sales Tax Act, 1956. This tax is confined to sales in the course of inter-State trade. A sale or purchase of goods takes place in the course of inter-State trade if the sale or purchase occasions the movement of goods from one State to another or is effected by the transfer of documents of title to the goods during their movement from one State to the other.
The Central Sales Tax Act has declared certain goods such as coal, cotton, cotton-yarn, hides and skins, iron and steel, jute, oil seeds, cotton fabrics, silk fabrics, rayon or art silk fabrics, woollen fabrics, sugar and tobacco as goods of special importance in inter-State trade or commerce.
"On the sales of such "declared" goods the rate of Central sales tax cannot exceed 2 per cent. On other goods when the sales are to persons other than the dealers registered under the Central Sales Tax Act or to Governments, Central and States, the rate is 10 per cent. except that wherever the rate of tax under the local law is higher than 10 per cent. on any goods the said higher rates apply to the inter-State sale. When sales are made to dealers registered under the Central Sales Tax Act and to Government against appropriate certificates in the prescribed forms, (Forms "C" and "D" vide Appendices VI and VII respectively), the rate is 2 per cent.
"These rates are subject to a general exception that if a commodity is subject to tax in a State at a rate lower than 2 per cent. or is exempt from tax, the inter-State sale of that commodity from that State would be subjected to tax at that lower rate or would be exempt from tax, as the case may be, whether such a sale is made to a registered dealer or not.
"Central Sales Tax is complementary to the sales tax levied by the State, and administration of the law is entrusted to the Sales Tax Authorities of the States who generally exercise the same powers for the purpose of levy, collection and enforcement of the payment of Central Sales Tax as are available to them under the Local Sales Tax Act. The proceeds from the Central Sales Tax become a part of the Consolidated Fund of the State where the sale takes place.
In addition to the general provisions, the States are empowered under a section of the Central Act to grant exemption or reduction in the rates of tax in inter-State sales of goods or classes of goods if it is considered expedient in the public interest to do so. Such a power is not available with the Central Government under the present Act."
"7. The State sales taxes are either selective or general. Sales of certain specific commodities like motor spirit, foreign liquor, etc., are taxed in some States under separate laws. The remaining goods in general are governed by the general law of sales tax of each State under which certain specific goods may be exempted while in the case of other goods the rates may be different for different goods. The major part of the sales tax structure of the States consists of multipoint, single-point or two-point taxes or a combination of these."
"8. Broadly speaking, while multi-point sales tax is levied in Andhra Pradesh, Bihar, Kerala, Madras, Mysore and U.P., the States of Assam, Jammu and Kashmir Madhya Pradesh, Orissa, Punjab, Rajasthan and West Bengal impose a single-point tax. Except Madhya Pradesh and Rajasthan, the States belonging to the second group levy tax on the last sale. Maharashtra and Gujarat have a two-point sales tax on the sales of certain commodities, and on others single-point tax is levied.
There is, however, no clear-cut demarcation among the three systems and in every State, whether levying a single-point, a two-point or a multipoint tax, higher sales tax at a suitable stage is levied on certain luxury goods, known as specified goods. Besides, in all States sales tax on "declared goods" is levied at any one stage which may vary from State to State and from commodity to commodity in the same State. Multi-point tax has been combined with single-point tax in some of the multi-point States. There are several other variations also from the general pattern."
"9. Sales tax rates vary from State to State and often from commodity to commodity within the same State. The system of taxation is also not uniform in all the States. The basis of levy is different, the minimum taxable turnover limit is not uniform and there is diversity in the coverage and in the schedule of exempted goods. Among the single point States the general rate of sales tax varies.
It has been fixed at 4 per cent. in Assam, Madhya Pradesh and Rajasthan and 5 per cent. in Orissa and West Bengal and 6 per cent. in Punjab. The minimum rate is 1/2 per cent. and the maximum rate generally 10 per cent. In regard to foreign liquor the rate is higher still: in seven States it is more than 20 per cent."
"10. In the States where a multi-cum-single point tax system is prevalent, i.e., in Andhra Pradesh. Bihar, Kerala. Madras, Mysore and U.P. the general rate of multi-point tax is 2 per cent. except in the case of Bihar where it is 1 per cent. In some States like Madras and Mysore a special rate of 1 per cent. is imposed on the pale of foodgrains whereas in Andhra Pradesh a higher rate of 3 per cent. is levied on the articles of food and drinks sold in hotels, restaurants, etc. In U.P., unlike other States, there are many special rates between 1/4 per cent., and 3 per cent. depending upon the nature of commodities. The minimum rate of single-point tax in multicum-single-point States fluctuates between 1/2 per cent. and 3 per cent."
"11. In all States the liability to pay tax arises only when the taxable turnover is more than the minimum fixed for that purpose. This minimum also varies from State to State. In the majority of the cases it is about Rs. 10.000 per annum though in some cases it is as low as Rs. 5,000. Again, although most of these tax systems contain a list of articles which are exempted from the tax their number varies from State to State.
From the tax laws prevalent in different States it would seem that Kerala has the smallest number of exemptions while Madras has the largest. Both are, incidentally, multi-point systems. In most of the States the exemptions are confined to essential goods, raw materials, goods sold to certain institutions like schools, hospitals, charitable organisations, etc., goods produced by cottage or village industries, etc."
Note By Member, Shri K.G. Datar
1. I regret, I am unable to agree with the view of the majority of the Members on the main question whether Khosla's case goes beyond and is inconsistent with the two Travancore cases. I have, therefore, thought it my duty to place my views on record for whatever they may be worth.
2. Khosla's cas.-Salient facts.- Before considering the scope and effect of the decision now before us, particularly in the light of the previous decisions of the Supreme Court bearing on the points which are involved in it, it would be necessary to state some of the salient facts on which it was rendered.
3. K.G. Khosla and Co., who was the Appellant before the Supreme Court and who may be referred to in this note as the assessee, entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle box bodies.
Under this contract, the assessee undertook to get the axle box bodies manufactured according to specifications therein set out, in Belgium by manufacturers named M/s. La Brugeoies Et. Nivelles Belgium and import them into the territory of India and thereafter deliver them to the consignee (Southern Railway, Perambur and Golden Rock Works and Mysore) as directed by the purchaser,-the Director General of Supplies and Disposals and as agreed to in the contract.
The assessee was entitled to be paid 90 per cent. of the price of the goods supplied by him, only after inspection and delivery of the goods to the consignee (Southern Railway) and the balance of 10 per cent. was payable to him on final acceptance by the Consignee.