2008 (2) TMI 831 - HC - VAT and Sales Tax

Higher sales tax rate on cycle parts not discriminatory under Kerala VAT Act. Government urged to review and amend if unintended.

The court found that the levying of a higher sales tax rate on certain cycle parts not covered under the specified entry of the Kerala Value Added Tax Act ... Cycle parts - whether the provisions of the KVAT Act authorising levy of sales tax on parts of bicycles not covered under entry 13(3) at 12.5 per cent are discriminatory and against the mandate of article 14 of the Constitution of India? Held that:- On going through entry 13 of the Third Schedule to the KVAT Act, I find parts of bicycles, tricycles and cycle rickshaws covered by sub-entry (3) are only bicycle rims, bicycle spokes, bicycle hubs, bicycle free-wheels, bicycle saddles, bicycle chain and bicycle wheels. The usual entry to include other parts namely, 'other', is absent in entry 13(3) of the Third Schedule. This obviously means that the Legislature did not intend to cover other cycle parts in the said entry. Therefore, all cycle parts are not covered under entry 13(3) of the Third Schedule. In fact, bicycle has ever so many other parts such as head lamp, fork, pedal, chain-cover, brake, etc. The contention of the petitioner that these items are not different from the other items enumerated in entry 13(3) has some force. The Government Pleader rightly pointed out that by virtue of section 6(1)(d) residuary items can be taxed at 12.5 per cent, without requirement of any notification. Even though agree with this argument of the learned Government Pleader, feel the matter requires to be considered by the Government and if they feel that higher rate of tax on some cycle parts are not intended, amendment has to be carried out. The original petitions are accordingly disposed of directing the Government to consider the matter in the light of the observation made above Issues:Interpretation of entry 13 of the Third Schedule to the Kerala Value Added Tax Act, 2003; Constitutionality of levying sales tax on cycle parts not covered under the specified entry.Analysis:The petitioners, who are dealers in cycle and cycle parts, were assessed by the tax authorities for accounting all items at a lower tax rate of four percent, including cycle parts not covered under entry 13 of the Third Schedule. The assessing officer contended that parts like seat cover, dynamo, bell, etc., not specified under entry 13, should be taxed at a higher rate of 12.5 percent. The petitioners challenged these assessments as discriminatory and against the principles of article 14 of the Indian Constitution.The petitioners relied on Supreme Court decisions to support their argument that discriminatory legislation is unconstitutional under article 14. In contrast, the Government Pleader cited cases emphasizing the wide discretion of the Legislature in tax matters, including the fixation of tax rates. Upon examining entry 13 of the Third Schedule, it was found that only specific cycle parts were listed, indicating that the Legislature did not intend to cover all cycle parts under this entry. The judge noted that the classification of taxed items at a higher rate lacked a clear basis, as many other cycle parts were not included in the specified entry.While acknowledging the Government Pleader's argument that residuary items can be taxed at a higher rate without specific notification, the judge suggested that if the higher tax rate on certain cycle parts was not intended, the Government should consider amending the legislation. The judge found no discrimination in levying a higher rate on certain parts, but suggested that items requiring periodic replacement might warrant a different tax treatment. Ultimately, the judge disposed of the original petitions, directing the Government to review the matter in light of the observations made and allowing the petitioners to file appeals if they disagreed with the revised assessments.