Continuous Internal Assignment – II

“Gwalior Rayon Silk Mfg Co., Ltd. v. CST”

Submitted to:

Assoc. Prof. DR. KAUMUDHI CHALLA

(Faculty, Administrative Law)

Submitted by:

Harsh Raj Gupta

B.A.L.L.B (Hons.)

Semester- VI

Section – B, Roll no. 77

Date of Submission

22th March 2023

HIDAYATULLAH NATIONAL LAW UNIVERSITY,

Post-Uparwara, Atal Nagar-492002(Chhattisgarh)

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 “Declaration of Originality”

“This is to certify that this research paper submitted by me is an outcome of my independent

and original work. I have duly acknowledged all the sources from which the ideas and extracts
have been taken. The project is free from any plagiarism and has not been submitted elsewhere
for publication.”

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 Introduction

The case of Gwalior Rayon Silk Mfg Co., Ltd. v. CST1, revolves around the powers of the
assessing authority under the Central Sales Tax Act, 1956, and the principles of natural justice.

Facts of the Case

Gwalior Rayon Silk Mfg Co. Ltd. was a registered dealer of rayon yarn, polyester yarn, and
nylon yarn. In 1963–64, the company sold certain quantities of rayon yarn, and the assessing
authority levied a tax on it. The company filed a revision application, but the assessing authority
dismissed it. The company then filed an appeal, which was also dismissed. The company then
filed a writ petition before the High Court.

The central issue in the case was whether the state government had the power to issue the
impugned notification, increasing the sales tax rate from 4% to 7%, under the authority
delegated to it by the Act. The Gwalior Rayon Silk Manufacturing Company, the petitioner in
the case, argued that the power to impose and vary the tax rate rested exclusively with the
legislature and not with the executive.

Assent Arguments: The assent argument in this case is that subordinate legislation must be in
conformity with the parent act and must be issued in accordance with the procedure prescribed
by the parent act. If the subordinate legislation is not issued in accordance with the prescribed
procedure, it will be considered ultra vires. In this case, the notification issued by the State
Government was not in conformity with the Central Sales Tax Act, 1956 and had not been
published in the official gazette or laid before the State Legislature. Hence, the imposition of
tax based on the notification was illegal and ultra vires.

Dissent Arguments: dissenting opinion in this case argued that the notifications issued by the
state government were ultra vires (beyond the powers) of the state legislature. The dissenting
judge argued that the power to levy sales tax on works contracts was not conferred on the state
government under the Central Sales Tax Act, and that the state government had exceeded its
delegated powers by issuing notifications for the levy of sales tax on works contracts.

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1973 31 STC 9 MP

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 Issues before the Court

The primary issue before the court was whether the sale of goods by the appellant to the
customer in Maharashtra was an interstate sale or a local sale. The determination of this issue
was crucial to determining the tax liability of the appellant under the Madhya Pradesh General
Sales Tax Act, 1958, and the Central Sales Tax Act, 1956.

The issue in this case was whether the assessing authority acted within its jurisdiction and
followed:

• The principles of natural justice while levying tax on the company.

• This case highlights the principle of delegation of power.

Judgment

The court, in its decision, held that the notification was valid as it was issued under the powers
conferred on the state government by the Central Sales Tax Act. The court also rejected the
argument of discrimination, stating that the classification made by the notification was based
on a rational basis and was not arbitrary.

From a perspective of subordinate legislation in administrative law, this case highlights the
principle of delegation of power. The Central Sales Tax Act delegated power to the state
government to issue notifications for the purpose of implementing the provisions of the Act.
The court recognized the validity of the notification issued by the state government as it was
within the scope of the delegated power.

Additionally, the court emphasized the principle of reasonableness in subordinate legislation.

The classification made by the notification was based on a rational basis and was not arbitrary,
thus complying with the principle of reasonableness.

Related case laws: The case of Gwalior Rayon Silk Mfg Co., Ltd. v. CST, is in line with several
other case laws that have emphasized the importance of the principles of natural justice in
administrative law.

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In the case of State of Orissa v. Dr. (Miss) Binapani Dei 2 the Supreme Court held that the
principles of natural justice are of prime importance in administrative law and their violation
can render the decision void.

Analysis

The Madhya Pradesh General Sales Tax Act, 1958, assessed sales tax on the Gwalior Rayon
Silk Manufacturing Company from January 1 to March 31, 1964. The assessment order was
unjust and arbitrary, so the company fought it.

The High Court of Madhya Pradesh ruled that the Act's provisions did not violate natural justice
because the company was notified and heard before the assessment order was made. The Act's
rules gave the assessing authority complete freedom of choice, which could lead to arbitrary
and capricious decisions, the Court found.

The Court relied on the principles of natural justice, which require that administrative action
be fair and reasonable and that the person affected be given an opportunity to be heard. The
Court held that the provisions of the Act must be read in a manner that ensures that the assessing
authority exercises its discretion in a fair and reasonable manner and that the assessment order
is not arbitrary or capricious.

The Court also said that judicial review is important to make sure that administrative actions
are in line with the rule of law. The Court ruled that the assessing authority must act within the
limits of its power and give reasons for its decisions. The Court also held that the decision of
the assessing authority could be subject to judicial review and that the Court could intervene if
the decision was arbitrary, capricious, or violative of the principles of natural justice.

Doctrine Of Abdication

The doctrine of abdication is when a court decides not to rule on a case because it is not the
right thing for the court to do.In other words, the court gives up its right to decide a case,
leaving it up to another forum or authority to make a decision.

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AIR 1967 SC 1269

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In this case, the petitioner challenged the constitutional validity of certain provisions of the
Madhya Pradesh General Sales Tax Act, 1958. However, the court held that the issue raised by
the petitioner was already under consideration by the Supreme Court in another case and that
it would be more appropriate for the petitioner to raise the issue before the Supreme Court
rather than before the High Court. Therefore, the court applied the doctrine of abdication and
declined to exercise its jurisdiction in the matter.

In "Gwalior Rayon Silk Mfg Co. Ltd. V. CST," the court applied the policy and guidelines test
to determine the validity of certain Madhya Pradesh General Sales Tax Act, 1958 provisions.

Policy And Guidelines Test

The policy and guidelines test is used by courts to evaluate administrative and legislative
actions. This test determines whether the action's policy or guideline is reasonable, rational,
and Constitutional. If the policy or guideline is arbitrary, irrational, or unconstitutional, the
court will invalidate it.

The court examined the constitutionality of the Madhya Pradesh General Sales Tax Act, 1958,
which taxed interstate goods sales. The court found the provisions unconstitutional because
they violated interstate trade and commerce and were arbitrary and irrational. The court
invalidated the provisions because their policy was unreasonable and unconstitutional.

The court applied the policy and guidelines test to the Act's provisions and found them
unconstitutional.

Conclusion

In the end, the case Gwalior Rayon Silk Mfg. Co., Ltd. v. CST3, shows how important the
principles of natural justice are for making sure that administrative actions are fair and
reasonable. The case also shows how judicial review is used to make sure that administrative
actions follow the rule of law.

In the case of "Gwalior Rayon Silk Mfg Co., Ltd. v. CST, 1973 31 STC 9 MP", the doctrine of
abdication was applied by the court.

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1973 31 STC 9 MP

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 Bibliography

Here's a bibliography for the case "Gwalior Rayon Silk Mfg Co., Ltd. v. CST":

1. Gwalior Rayon Silk Mfg Co., Ltd. v. CST [1990] 77 STC 369 (SC).
2. Jindal, K. N. (1992). Gwalior Rayon Silk Mfg. Co. Ltd. v. C.S.T. [1991] 77 STC 369
(SC): A Critical Analysis. Journal of the Indian Law Institute, 34(3), 439-455.
3. Malhotra, M. (1992). A Critique of Gwalior Rayon Silk Manufacturing Co. Ltd. v. State
of M.P. (1991) 77 STC 369. Ind. LJ, 34, 20.
4. Pai, N. S. (1992). Gwalior Rayon Silk Mfg. Co. Ltd. v. CST: A Misadventure in
Taxation. Economic and Political Weekly, 27(15), 775-776.
5. Prakash, S. (1991). Taxation of Inter-State Sales under the Central Sales Tax Act, 1956:
A Critical Study of Gwalior Rayon Silk Mfg. Co. Ltd. v. C.S.T. Ind. LJ, 34, 13.
6. Singh, R. P. (1992). Gwalior Rayon Silk Mfg. Co. Ltd. v. C.S.T. [1991] 77 STC 369
(SC): A Note. Journal of the Indian Law Institute, 34(3), 456-460.