Uniform surcharge levy upheld, maida excluded from foodgrain exemption, and best judgment assessment set aside for unfair notice.

A surcharge levied uniformly on dealers above the statutory turnover threshold was upheld because the inability to pass it on to consumers did not create hostile discrimination and the levy remained within the State's taxing power. Maida was held outside the foodgrain exemption because the definition covered grains in their original form and notified articles, not processed by-products of wheat. A best judgment assessment was quashed because the notice did not disclose the proposed basis of estimation, denying the assessee a full and effective opportunity to object; fresh assessment was left open after proper notice.

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Issues: (i) Whether the prohibition on collection of surcharge under section 3(2) of the Kerala Surcharge on Taxes Act, XI of 1957 was unconstitutional; (ii) whether maida fell within the exemption for foodgrains under section 5(vi) of the General Sales Tax Act read with section 2(dd); (iii) whether the best judgment assessment was vitiated for want of a fair opportunity.

Issue (i): Whether the prohibition on collection of surcharge under section 3(2) of the Kerala Surcharge on Taxes Act, XI of 1957 was unconstitutional.

Analysis: The surcharge was levied uniformly on all dealers whose turnover exceeded the statutory threshold. The distinction that the general sales tax could be passed on to consumers while the surcharge could not be collected from them did not create hostile discrimination, since all dealers within the class were treated alike. The provision also did not infringe the rights under Article 19(1)(f) or Article 19(1)(g), and the levy was in substance a tax on sale or purchase of goods within the legislative field of Entry 54 of List II, not a profession tax attracting Article 276.

Conclusion: The challenge to section 3(2) failed and the surcharge was upheld.

Issue (ii): Whether maida fell within the exemption for foodgrains under section 5(vi) of the General Sales Tax Act read with section 2(dd).

Analysis: The exemption applied only to foodgrains as specifically defined, namely grains in their original form and such articles as were notified. Maida had not been notified as a foodgrain, and it was only a by-product of wheat. The definition did not extend to subsidiary products obtained by processing wheat into maida.

Conclusion: Maida was not exempt from sales tax and the disallowance of exemption was upheld.

Issue (iii): Whether the best judgment assessment was vitiated for want of a fair opportunity.

Analysis: A notice proposing best judgment assessment must communicate not merely defects in the books but also the basis on which the assessing authority proposes to estimate turnover. The notice in this case did not disclose the proposed basis, and the assessee therefore had no full and effective opportunity to object. That defect rendered the assessment unsustainable, though the fresh assessment could proceed after disposal of the related appeal and after giving proper opportunity.

Conclusion: The assessment was set aside and remitted for fresh consideration in accordance with law.

Final Conclusion: The surcharge levy and the denial of exemption for maida were sustained, but the best judgment assessment was quashed for breach of fair hearing requirements and left open for fresh assessment after proper notice.

Ratio Decidendi: A tax provision is not discriminatory merely because it prevents the dealer from recouping the surcharge from consumers, and a best judgment assessment cannot be sustained unless the assessee is given notice of the basis on which the estimate is proposed to be made.

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