2008 (8) TMI 812 - HC - VAT and Sales Tax

Unconstitutional Tax Discrimination on Imported Sugar Struck Down

Nand Kishore & Company Versus State of Punjab and another (and other cases)

The court found the notifications under the Punjab Value Added Tax Act, 2005, imposing discriminatory taxation on imported sugar, to be unconstitutional. ... Notification No. S.O. 52/P. A. 8/2005/S. 8/2007 dated November 5, 2007 carrying out amendment in Schedule 'A ', whereby entry '49' has been substituted and Notification No. S.O. 53/P. A. 8/2005/S.8/2007 dated November 5, 2007 (annexure P-2), whereby new entry '152' has been added in Schedule 'B' to the Punjab Value Added Tax Act, 2005 challenged Held that:- The action on the part of the respondents in levying sales tax on sale of sugar imported from outside the State of Punjab except levy sugar is clearly violative of articles 301 and 304(a) of the Constitution of India. In fact, up to November 5, 2007 there was no discrimination as such in the levy of tax on the sugar manufactured in the State of Punjab or imported from outside the State of Punjab as single entry No. 49 existed in Schedule 'A' to the VAT Act providing for tax-free goods. The levy of discriminatory tax came into force with the issuance of impugned notifications, whereby entry 49 in Schedule 'A' was substituted, thereby providing for no tax on the sale of sugar manufactured in the State of Punjab and entry 152 was added in Schedule 'B' providing for tax on the sale of sugar imported from outside the State of Punjab. From a plain reading of the two notifications, it is clearly made out that discriminatory tax was imposed on the imported sugar as against the sugar manufactured in the State of Punjab, which cannot stand scrutiny in the light of the provisions contained in articles 301 and 304(a) of the Constitution of India. Thus no hesitation in striking down Notification No. S.O. 53/P. A. 8/2005/S.8/2007 dated November 5, 2007 (annexure P-2) adding entry 152 in Schedule 'B' to the VAT Act, whereby tax is sought to be levied on sale of sugar imported from outside the State of Punjab. As a necessary consequence and to correct the mischief created with the issuance of Notification No. S.O. 52/P. A. 8/2005/S.8/2007 dated November 5, 2007 (annexure P-1), we further hold that the words 'manufactured in the State of Punjab' used in entry 49 in Schedule 'A' as substituted vide notification (annexure P-1), to be violative of articles 301 and 304(a) of the Constitution of India, as the same create discrimination in the levy of tax on the sale of sugar brought from outside the State as against manufactured within the State of Punjab. Issues Involved:1. Constitutionality of Notifications under the Punjab Value Added Tax Act, 2005.2. Violation of Articles 301 and 304(a) of the Constitution of India.3. Discriminatory Taxation on Imported Sugar vs. Locally Manufactured Sugar.Issue-wise Detailed Analysis:1. Constitutionality of Notifications under the Punjab Value Added Tax Act, 2005:The challenge in the bunch of petitions was to Notification No. S.O. 52/P. A. 8/2005/S. 8/2007 dated November 5, 2007, which amended Schedule 'A' of the Punjab Value Added Tax Act, 2005 (VAT Act) by substituting entry '49', and Notification No. S.O. 53/P. A. 8/2005/S.8/2007 dated November 5, 2007, which added new entry '152' in Schedule 'B'. The effect was that sugar imported from outside Punjab, except levy sugar, was taxed, whereas sugar manufactured in Punjab was tax-exempt.2. Violation of Articles 301 and 304(a) of the Constitution of India:Article 301 mandates that trade, commerce, and intercourse throughout India shall be free. Article 304(a) allows States to impose taxes on goods imported from other States, provided there is no discrimination between imported goods and locally manufactured goods. The petitioners argued that the impugned notifications violated these constitutional provisions by imposing a 4% tax only on imported sugar, while exempting locally manufactured sugar, thus creating an unconstitutional trade barrier.3. Discriminatory Taxation on Imported Sugar vs. Locally Manufactured Sugar:The State defended the notifications, arguing that the discrimination was justified because sugarcane used in locally manufactured sugar was already taxed, whereas imported sugar was not. The petitioners countered that this reasoning was flawed and that the tax on imported sugar directly impeded free trade, violating Articles 301 and 304(a).Judgment Analysis:Constitutional Provisions and Legal Precedents:The court referred to Articles 301 and 304 of the Constitution, which emphasize the freedom of trade and non-discrimination in taxation. Several Supreme Court judgments were cited, including Atiabari Tea Co. Ltd. v. State of Assam, Firm A.T.B. Mehtab Majid & Co. v. State of Madras, and State of Madhya Pradesh v. Bhailal Bhai, which established that discriminatory taxes on imported goods violate constitutional provisions.Application to the Present Case:The court noted that up to November 5, 2007, sugar was uniformly tax-free under entry 49 in Schedule 'A'. The impugned notifications introduced a discriminatory tax regime by exempting locally manufactured sugar while taxing imported sugar. This was found to be a direct violation of Articles 301 and 304(a), as it created an artificial fiscal barrier against imported sugar.Conclusion:The court struck down Notification No. S.O. 53/P. A. 8/2005/S.8/2007 dated November 5, 2007, which added entry 152 in Schedule 'B' and levied tax on imported sugar. It also held that the words 'manufactured in the State of Punjab' in entry 49 of Schedule 'A' were unconstitutional. The writ petitions were disposed of accordingly, ensuring non-discriminatory taxation on sugar, irrespective of its origin.