Turnover-based classification for sales tax upheld where levy applies only to taxable turnover and not protected transactions.

Section 5(2A) of the Kerala General Sales Tax Act was upheld as within the State Legislature's competence because the levy operated only on taxable turnover, even though dealer eligibility was determined by reference to total turnover. Earlier Supreme Court authority had accepted turnover-based classification for additional sales tax and surcharge provisions under entry 54 of List II, provided transactions protected by article 286 were not themselves taxed. Applying that principle, the court found the impugned provision did not exceed the State's taxing power, and the constitutional challenges under articles 19(1)(g) and 300A also failed.

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Issues: Whether sub-section (2A) of section 5 of the Kerala General Sales Tax Act, as introduced by the Kerala Finance Act 18 of 1987, was beyond the legislative competence of the State Legislature and unconstitutional because the levy was linked to total turnover, including turnover covered by article 286 of the Constitution, and whether the levy offended articles 19(1)(g) and 300A of the Constitution.

Analysis: The levy imposed turnover tax only on taxable turnover, although eligibility was determined with reference to the dealer's total turnover exceeding the prescribed limit. The classification of dealers by reference to turnover was upheld in earlier Supreme Court decisions sustaining additional sales tax and surcharge provisions under entry 54 of List II, even where gross turnover was used to identify the class of dealers liable to pay the levy. Those decisions accepted that transactions excluded by article 286 were not taxed merely because they were taken into account for classification. The same principle applied here, because the impugned levy was confined to taxable turnover of goods actually liable to tax and did not transgress the State's taxing power. The challenge based on articles 19(1)(g) and 300A failed for the same reasons.

Conclusion: The provision was held to be within legislative competence and constitutionally valid, against the assessee.

Ratio Decidendi: A State tax on taxable turnover remains valid under entry 54 of List II even if liability is determined by reference to total turnover for the purpose of classifying dealers, so long as transactions protected by article 286 are not themselves taxed.

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