1997 (1) TMI 494 - HC - VAT and Sales Tax

Court upholds Gujarat Sales Tax Act provisions on sales tax incentives and exemption limits, denies relief sought.

The court upheld the challenged provisions in the resolution and notification under the Gujarat Sales Tax Act. The deduction of sales tax incentives was ... - Issues Involved:1. Challenge to the order of the Sales Tax Officer regarding sales tax incentives.2. Legality and constitutionality of paragraph 8(iii) of the resolution dated June 16, 1987, and paragraph 13(iii) of entry No. 175 of the notification under section 49(2) of the Gujarat Sales Tax Act, 1969.3. Deduction of Rs. 4,98,01,531 as sales tax incentives.4. Legislative competence of the State Legislature regarding sales outside the State.5. Validity of the method for computing the entitlement limit of tax exemption.Detailed Analysis:1. Challenge to the order of the Sales Tax Officer:The petitioners challenged the order made by the Sales Tax Officer dated May 20, 1994, to the extent of the deduction of Rs. 4,98,01,531 as sales tax incentives enjoyed by the petitioner during the assessment period. They also contested the non-allowance of turnover tax and purchase tax incentives. However, the challenge regarding turnover tax and purchase tax was not pressed during the arguments as an appeal was already preferred.2. Legality and constitutionality of paragraph 8(iii) and paragraph 13(iii):The petitioners argued that the provisions of paragraph 8(iii) of the resolution dated June 16, 1987, and paragraph 13(iii) of entry No. 175 of the notification under section 49(2) of the Gujarat Sales Tax Act, 1969, were arbitrary, illegal, and unconstitutional. They contended that these provisions effectively imposed a tax on goods transported outside the State, which was beyond the legislative competence of the State Legislature, violating Article 286 of the Constitution and section 87 of the Act.3. Deduction of Rs. 4,98,01,531 as sales tax incentives:The court examined the provisions under the Composite Sales Tax Incentive Scheme, 1987, which allowed pioneer units to avail of sales tax incentives. It was noted that the eligibility certificate granted to the petitioner included conditions that required compliance with the resolution dated June 25, 1987, and the circular dated December 5, 1988. The court found that the deduction of Rs. 4,98,01,531 was in accordance with the conditions stipulated in the eligibility certificate and the relevant resolutions.4. Legislative competence of the State Legislature:The petitioners argued that the State had no legislative competence to impose sales tax on goods transported outside the State. The court, however, held that the impugned provisions did not impose any tax on such goods but merely adjusted the entitlement limit of tax exemption to account for revenue loss due to sales outside the State. This adjustment was within the State's power to prescribe conditions for tax exemptions under section 49(2) of the Act.5. Validity of the method for computing the entitlement limit of tax exemption:The court upheld the method prescribed in clause (iii) of paragraph 13 for computing the entitlement limit of tax exemption. It was determined that this method did not amount to imposing a tax on goods sold outside the State but was a way to calculate the revenue loss and adjust the exemption limit accordingly. The court found that this was a reasonable condition to ensure that the State did not suffer undue revenue loss while granting tax incentives.Conclusion:The court rejected the petition, holding that the impugned conditions in paragraph 8(iii) of the resolution dated June 16, 1987, and paragraph 13(iii) of entry No. 175 of the notification under section 49(2) of the Gujarat Sales Tax Act, 1969, were valid. The deduction of Rs. 4,98,01,531 as sales tax incentives was upheld, and the method for computing the entitlement limit of tax exemption was found to be reasonable and within the legislative competence of the State. The petition was dismissed with no order as to costs.