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Report No. 61

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

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
Genesis, and points referred to the Commission
Scope of the Report
Constitutional position
Limitations on States' powers
The object of constitutional restrictions
The matters under reference
Points enumerated
Policy matters outside the inquiry
Analysis of the Central Sales Tax Act
Chapter 1 The Scope for The Levy of Sales Tax by State Governments
1.1 Introductory
2. Absence of element of passing of property or consensual element
3. Definition of Sale in the Sale of Goods Act
4. Power of States to levy tax on sale-meaning attributed to sale
5. Narrow concept of sale
6. No property passed in hire-purchase and building contracts
7. Certain transactions not to be regarded as sale
8. Definition of 'sale' in the Central Sales Tax Act
9. Should the scope of "sale be widened"?
Chapter IA Taxability of works Contracts
Building Contracts
Difference between "Works and Sale"
Position in Some other Countries
Passing of Property
Tests Adopted
Whether Amendment Needed
Chapter 1B Hire-Purchase Transactions
Nature of Hire-Purchase
Taxability of Hire-Purchase Transactions - Position In States
Position under The Central Sales Tax Act
Position in Union Territories-delhi
Need for Amendment
Constitutional Dichotomy
Hire-purchase not resulting in sale
Chapter 1C Sale of Controlled Commodities
Sale of controlled commodities
Case law as showing a fluid position
Difficulty of applying the test
Effect of judicial decisions
Case relating to sugarcane-a recent illustration
Recommendation to cover sales of controlled commodities
One alternative-Explanation to be added to State List, entry 54
Another alternative-amendment of State List, entry 54
Chapter 1D Sale by Associations to Members
Sale by associations to members
Co-operative societies
Unincorporated associations
Supply by club to members not 'sale'
No 'sale' in such circumstances in England
General observations
Amendment of Constitution not needed
Chapter 1E Some General Observations as to Taxation on Sale
General observations as to "sale"
The basic draw back of the present scheme
Chapter 2 Evasion of Central Sales Tax by Means of Transfer of Goods from one State to another, on what Purports to be Consignment Transfer or a Transfer to another branch of The Same Institution
2.1 Ingredients of Sale
2. Consignment transfers
3,4. Fifth Finance Commission's recommendations
5. Section 6A
6. Criticism of section 6A
7. Bona fide consignments and sham consignments
8 to 11. Telco case decided by the Supreme Court
12. Question of amendment considered
13. Taxation on consignment not within present Act
14. Constitutional difficulty in widening the scope of sale-Consignment transactions
15. Tax why justifiable
16. The Problem of large-scale tax evasion
17. Two alternatives
18. Alternative one-a separate Act - Alternative two-broadening the scale of "sale" in the Act
19. The question of manner of levy
20. Legislative devices
21. What should be the limitations
22. Definition of "sale" should cover transfers other than by sales
23. Recommendation
24. The complex nature of the problem
25. The amendment will cover all consignments
26. Constitutional amendment also needed
27. "Sale of goods"-a composite expression
28. Metaphorical use of sale
29 How far legal concept extended
30. The meaning of "sale" laid dawn in Simpson v. Conolly
31. Wider definitions
32,33. Essential concept-transfer of property
34 to 36. The need to clarify the constitutional basis
37. Past interpretation not a sure guide
38. The common notion is different
39. Recommendation to amend the Constitution
Chapter 3 Sales in The Course of Import-khosla's Case
3.1 Scope of the Chapter
2. Position before the Constitution
3,4. Section 2(g) C.P. and Berar Sales Tax Act, 1947 and its construction by the Supreme Court
5. Other decisions of the Supreme Court
6,7. Position under the Constitution
8. Importance of the Constitutional prohibition
9,10. Question of sale in the course of import
11,12. Suggestions noted in earlier Report
13. Background of the problem
14. Article 286-width of
15,16. First Travancore case
17. Second Travancore case
18. Word 'occasion' not intended to give a precise definition
19,20. Effect of judgment in second Travancore case and Taxation Enquiry Commission
21. Constitutional Amendment
22 to 25. 2nd Report of the Law Commission and Act of 1936
26. Law Commission's earlier Report (2nd Report)
27. Section 5 of the Central Sales Tax Act, 1956 implemented the law enunciated in the Travancore-Cochin case
28. Wide meaning of 'occasion'
29. Intention of majority in the second Travancore case
30,31. Distinction between domestic sales and export sales
32 to 35. Some pre-Khosla cases
36. Distinction between "for export" and "in the course of export"
37. Ben Gorm case
38. The ratio in Ben Gorm case
39. Knowledge of export does not make it an integral part
40. The tests which were found inapplicable in Ben Gorm case
41 to 45. Khosla's case-facts of
46. Khosla's case summarised
47. Case decided exclusively on section 5
48,49. 30th Report
50. Decisions after Khosla's case-import sales
51. Application of Khosla's case to export sales
52. Application of the principle to inter-State sales-a Kerala case
53. Patna cases relating to inter-State sales
54. A border line case
55 to 57. Binani Brothers' case
58. Two interpretations possible on the word 'occasion'
59 to 61. 'Occasion' and 'cause'
62,63. Selection of cause implicit
64. Direct cause nearest to legislative intention in section
65 to 67. Sale after import intended to be excluded by Parliament
68. Two propositions which will have to be given effect to
69,70. Power to formulate a wide one
71,72. Substitution of another word for the word "occasion" not possible
73. Summary of The Principal Points Discussed In This Chapter
Chapter 4 Conflicting Decisions of The Courts as to The Central Sales Tax In Regard to The Scope of The Penal Provisions of That Act
4.1 The close relationship with State laws under section 9(2)
2. The resulting complexity
3. Legislation by reference
4,5. The question of applicability of State amendments
6. Madras view
7. The view of the majority of High Courts bound to prevail
8. Desirability of amendment as regards construction of section 9(2)
9. Constitutional position considered
10 to 12. The principle in Shama Rao's case
13. An analysis of the doctrine
14. Three types of provisions in section 9(2)
15. Alternatives for remedying the situation
16. Recommendation for amendment of section 9(2) to insert date
17. How far offences not listed in the Central Act covered
18. Recommendation to add "offences" in section 9(2)
19. Penalty under State law how far attracted-Calcutta case
20. The principal considerations
21. Insufficient importance attached to the word "penalties"
22. Question of equality
23 to 25. Observations of Supreme Court in N.K. Nataraja Mudaliar's case
26. Express provision as to penalty desirable
27. Recommendation
28. Whole Act should be self-contained
Chapter 5 Punishment for Evasion of Sales Tax
5.1 The question of mens rea with regard to offences
2. Recommendations in Law Commission's 47th Report
3,4. Amendment on above matters not recommended in taxation law
5,6. Court decisions emphasise need for mens rea
7. Provisions of direct tax laws considered
8. The question of higher punishment for certain offences
9. Recommendation to amend section 10, as to insert minimum punishment
10. Adequacy of punishment-a Gujarat case
11,12. Abetment
13. Punishment of Corporations
14. Recommendation to insert section 10C regarding Corporations
15. Section 10D-Publication of names of convicted individuals
Chapter 6 Disposal of Excess Amounts Collected by a Dealer from a Customer as Sales Tax
6.1 Collection of excess amount by dealers-No legislative competence in States
2. Provisions for penalty held void in absence of procedural safeguard
3. Case relating to U.P. Act
4. Earlier cases relied on
5. A case from Bihar
6. Three aspects considered
7. Liability of State
8. Liability of the dealer
9. Three parties involved
10. State to secure restoration to citizen
11. Constitutional position
12. Parliament's power under the residuary power entry
13. Precedent adopted in the Income-Tax Act and State Acts considered
14. No need to provide administrative penalties
15. Recommendation to enact separate law regarding amount illegally collected as taxes
16. Criminal liability for overcharging tax
17. Offence of cheating constituted by over-charging
18. Overcharging whether amounts to a representation
19. Representation as to a matter of law
20. Significance of the "deceiving"
21. Adequacy of law a desideratum
22. Doubt as in provisions in State laws as to overcharging
Chapter 7 Establishment of Check-Posts for Preventing Evasion and Ensuring Better Collection of Taxes on The Sale of Goods
7.1 Introductory
2. Legislative entries
3. Amplitude of the entries
4. Suggestion referred to
5. Judicial decisions-Andhra case
6. Parliament competent to set up check-post under the Central Act
7. Check-posts under State Sales Tax laws
8. State Legislatures competent to establish check-posts
9. Constitutional amendment not appropriate
10. Check-posts in inter-State transactions-Rule struck down as dealing with inter-State transactions
11. No constitutional difficulty
Chapter 8 Other Questions-definitions
8.1 Introductory
2. Meaning of "Customs frontiers"
3. Position under the Customs Act, 1962
4. Difficulties caused by the present position
5. Recommendations to define "crossing the customs frontiers"
6. Expression used in the Customs Act, 1962
7. Section 5-Meaning of 'export'
8. Case Law
9. The question of modifying the position
10. Reason justifying modification of the present interpretation of 'export'
11,12. Other reasons
13. Explanation regarding fuel
14. Section 2(g)-'valuable consideration' in the definition of sale
15. A Madras case
16. Recommendation to amend section 2(g)
Chapter 9 Section 8 and The Rate of Tax
9.1,2. Introductory
3 to 7. Section 8(2)(b)
Chapter 10 Retrospective Restrictions Under Article 286(3)
10.1 Question whether legislation under Article 286 can be retrospective
2. Amendment regarding coal
3. Select Committee's observations
4. Amendment illustrative of doubt on the subject
5,6. No scope for devising suitable mechanism
Chapter 11 Conclusions
11.1 Points dealt with
2. Peculiarities of taxation and commodities
Chapter 12 Summary of Conclusions and Recommendations
Point 1-definition of "Customs Frontiers"
Point 2-sale of Fuel to International Carrier
Point 3-section 2(0-definition of Sale and Element of Valuable Consideration
Point 4-works Contracts
Point 5-Hire-Purchase
Point 6-consignments
Point 7-sale of Controlled Commodities
Point 8-supply of Goods By Clubs Etc
Point 9-Import and Export-Khosia's Case
Point 10-Reference To State Sales Tax Law-section 9, Central Sales Tax Act
Point 11-Penalties-Section 9(2), Central Sales Tax Act
Point 12-Central Sales Tax Act To Be Self-Contained
Point 13-Punishment Under Section 10, Central Sales Tax Act
Point 14-minimum Punishment-Relaxation of
Point 15-Abetment-Proposer Section 10b, Central Sales Tax Act
Point 16-corporations: Proposed Section 10c,Central Sales Tax Act
Point 17-publication of Name of Convicted Individual
Point 18-separate Law Regarding Amount Illegally Collected as Taxes
Point 19-Check Posts
Note By Member, Shri S.P. Sen-Varma
Reference from the Government in April , 1973-Constitution (Sixth Amendment) Act, 1956
Power of Parliament to formulate principles
No specific entry in the Constitution relating to taxes on sales or purchases in the course of export or import
Exact question to be decided
Importance of foreign trade in the interests of federal finance and of sales tax in the interests of State economy
The first Travancore case (1952)
The second Travancore case (1953)
Complexity of the subject
First reference to the Law Commission (1966)
Khosla's case (1966)
Second reference to the Law Commission (1966)
My disagreement with the view taken by the majority on Khosla's case
Difference between the effects of export and the effects import
Care necessary even in exports
Care to be taken in the use of language in legislative drafting
Dealing with a twilight zone whose boundaries should be defined with care
Suggestions for amendment of section

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