Taxing classification and inter-State trade burden: Karnataka High Court upholds levy, rejecting Article 14 and Article 304(b) challenges.

Section 5(3-C) of the Karnataka Sales Tax Act was held not to create hostile discrimination merely because liability varied with the number of intra-State sales. The court found no de facto inequality and rejected Article 14 challenge, holding that hypothetical or incidental differences in tax impact do not make a taxing classification unconstitutional. It also held that the provision did not impose a direct barrier on inter-State trade and therefore did not attract Article 304(b) or require President's assent. The levy was upheld as a valid taxing provision and the writ petition was dismissed.

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Issues: (i) Whether section 5(3-C) of the Karnataka Sales Tax Act, 1957 was discriminatory and violative of Article 14 of the Constitution of India. (ii) Whether the impugned provision affected inter-State trade so as to attract Article 304(b) of the Constitution of India and require President's assent.

Issue (i): Whether section 5(3-C) of the Karnataka Sales Tax Act, 1957 was discriminatory and violative of Article 14 of the Constitution of India.

Analysis: The levy under the impugned provision depended on the number of sales within the State and did not, on its face, create unequal treatment. The difference complained of arose only from the manner in which goods moved through transactions in the State. In taxing matters, discrimination must be shown as hostile discrimination, and not merely possible inequality arising from fortuitous or factual circumstances. The challenge was based on hypothetical illustrations and no de facto discrimination was established.

Conclusion: The provision was not discriminatory and was not violative of Article 14.

Issue (ii): Whether the impugned provision affected inter-State trade so as to attract Article 304(b) of the Constitution of India and require President's assent.

Analysis: Since the provision did not create hostile discrimination, the alleged burden on inter-State trade was only incidental to the number of dealings in the goods. The measure did not impose a direct barrier on inter-State trade and, in the light of the governing Supreme Court principles on differentiation and discrimination, Article 304(b) was not attracted.

Conclusion: The provision did not attract Article 304(b) and did not require President's assent.

Final Conclusion: The impugned levy was upheld as a valid taxing provision, and the writ petition was dismissed.

Ratio Decidendi: In a taxing statute, a classification is not unconstitutional unless hostile discrimination or an intentional economic barrier is shown; differential impact arising from the number or pattern of transactions does not by itself violate Articles 14 or 304(b).

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