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Report No. 61

3.22. 2nd Report of the Law Commission and Act of 1936.-

The Law commission was consulted as to the principles to be formulated under amended Article 286, and the commission, with the intention of codifying what had been laid down in the first Travancore case and by the majority in the second Travancore case, suggested certain "propositions". On the basis of these proposition1 section 5, Central Sales Tax Act, 1956 was enacted, dealing with a sale in the course of import or export. Sections 3 and 4 of the Act also follow the Commission's recommendations, but we are primarily concerned with section 5. It may be noted that this was the view of the majority of the Law Commission.

1. 2nd Report of Law Commission.

See para. 3.26, infra.

3.23. Legislative determination (in section 5 of the Central Sales Tax Act)1 as to when a sale is regarded as in "the course of import", did not prevent the accumulation of case law. The words "occasions the import" used in the section came up for judicial construction in several decisions, including Khosla's case. Most of the relevant decisions have been reviewed in the Report of the Law Commission2 dealing with section 5. That Report was the aftermath of the judgment of the Supreme Court in Khosla's case.

1. Para. 3.22, supra.

2. 30th Report of the Law Commission.

3.24. An important question concerning section 5 was decided in the judgment of the Supreme Court, in K.G. Khosla & Co. v. Deputy Commissumer, (1966) 3 SCR 352: AIR 1966 SC 1216., At this stage, it will be sufficient to mention that in Khosla's case, it was held that the sale of the materials in question by Khosla to the Director-General of Supplies and Disposals was so integrally connected with the import of those materials (at the earlier stage) from the Belgian manufacturers by Khosla's, that the sale to the Director-General of Supplies & Disposals was to be regarded as having occasioned import, within the meaning of section 5.

The sale by Khosla's-which may be described as an internal sale-was not independent of the import, but had occasioned import, and was therefore held to be exempt under section 5 of the Central Sales Tax Act. Because of this Judgment, there is, at present, no right in the States to impose a tax on a sale between an Indian buyer and an Indian seller, if the transaction falls within the principle of Khosla's case. The question to be considered in this Chapter is, whether this position unduly restricts the taking power of the States.

3.25. The Central Sales Tax Act was itself enacted after consulting the Law Commission. After Khosla's case, the Law Commission was, in 1967, again requested to consider the question whether section 5 of the Central Sales Tax Act should be amended. The Commission recommended no change in the section. The question has now to be considered again, in view of the present reference.

Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back

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