High Court Declares Haryana Sales Tax Provisions Unconstitutional

The High Court declared Section 38 of the Haryana General Sales Tax Act, 1973, and Rule 53 of the Haryana General Sales Tax Rules, 1975, unconstitutional as they exceeded the State Legislature's authority under Entry 54, List II of the Seventh Schedule. The court ruled in favor of the petitioners, clearing/forwarding agents, stating they are not subject to sales tax obligations. The respondents were prohibited from enforcing the provisions, and no costs were awarded.

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Issues Involved:
1. Competence of the State Legislature under Entry 54, List II of the Seventh Schedule.
2. Ultra vires nature of Section 38 of the Haryana General Sales Tax Act, 1973.
3. Violation of Articles 301 and 304 of the Constitution of India.
4. Colourable legislation.
5. Quid pro quo and imposition of licence fee.
6. Reasonableness under Article 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Competence of the State Legislature under Entry 54, List II of the Seventh Schedule:
The petitioners argued that Section 38 of the Haryana General Sales Tax Act, 1973, and Rule 53 of the Haryana General Sales Tax Rules, 1975, fall outside the competence of the State Legislature as they are beyond the scope of Entry 54, List II of the Seventh Schedule. The petitioners, who are clearing/forwarding agents, are not involved in the sale or purchase of goods but merely provide services for booking and taking delivery of consignments. The State Legislature cannot legislate under Entry 54 to involve persons who are not connected with the sale or purchase of goods.

The court examined the scope of Entry 54, which authorizes the State Legislature to legislate on taxes on the sale or purchase of goods. It was held that the petitioners, being clearing/forwarding agents, are not connected with the sale or purchase of goods and are not liable to pay sales tax. The State Legislature cannot extend its legislative competence to cover individuals who are complete strangers to the sale or purchase of goods.

2. Ultra vires nature of Section 38 of the Haryana General Sales Tax Act, 1973:
The petitioners contended that Section 38 of the Act is ultra vires of the general scheme of the Act, which is intended to levy taxes on the sale or purchase of goods. Section 38, which mandates clearing and forwarding agents to obtain a license and furnish particulars of transactions, is not related to the primary objective of the Act.

The court held that Section 38 of the Act, which involves the petitioners who are not dealers and are not responsible for the payment or evasion of sales tax, is ultra vires the State Legislature. The provision is not ancillary or incidental to the power to levy sales tax under Entry 54, List II of the Seventh Schedule.

3. Violation of Articles 301 and 304 of the Constitution of India:
The petitioners argued that Section 38 hampers the free flow of trade within the territory of India, thus violating Articles 301 and 304 of the Constitution of India. These articles guarantee the freedom of trade, commerce, and intercourse throughout the territory of India.

The court did not specifically address this issue in detail, as the primary focus was on the legislative competence under Entry 54. However, the court's decision to strike down Section 38 implicitly supports the argument that the provision could hamper the free flow of trade.

4. Colourable legislation:
The petitioners claimed that the enactment of Section 38 is a colourable legislation, falling within entries 22 and 30 of List I, which are within the exclusive competence of the Parliament. The State Legislature cannot enact provisions that indirectly encroach upon the legislative domain of the Parliament.

The court agreed with the petitioners, holding that Section 38 is not covered by Entry 54, List II of the Seventh Schedule, and thus falls outside the competence of the State Legislature.

5. Quid pro quo and imposition of licence fee:
The petitioners contended that the maxim quid pro quo is not satisfied, and there is no basis for imposing a licence fee on clearing and forwarding agents who are not involved in the sale or purchase of goods.

The court did not specifically address this issue in detail, but the decision to strike down Section 38 indicates that the imposition of a licence fee on individuals not connected with the sale or purchase of goods is unjustified.

6. Reasonableness under Article 19(1)(g) of the Constitution of India:
The petitioners argued that Section 38 is unreasonable and violates their right to practice any profession, or to carry on any occupation, trade, or business, as guaranteed under Article 19(1)(g) of the Constitution of India.

The court held that the provision is not reasonable, as it imposes undue restrictions on individuals who are not connected with the sale or purchase of goods and are not liable to pay sales tax.

Conclusion:
The High Court struck down Section 38 of the Haryana General Sales Tax Act, 1973, and Rule 53 of the Haryana General Sales Tax Rules, 1975, as unconstitutional. The court restrained the respondents from compelling the petitioners to file returns as prescribed therein. No order as to costs was made.

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