2010 (4) TMI 970 - HC - VAT and Sales Tax

Validity and Legality of Punjab Infrastructure Laws and Levies Upheld

Food Corporation of India Versus State of Punjab and another (and other cases)

The court upheld the validity of the Punjab Infrastructure Development Ordinance, 1998, the Punjab Infrastructure Development Act, 1998, and the Punjab ... Validity of (i) the Punjab Infrastructure Development Ordinance, 1998 (Punjab Ordinance No. 7 of 1998)/the Punjab Infrastructure Development Act, 1998 (Punjab Act No. 1 of 1999) and the Punjab Infrastructure Development Cess (Collection) Rules, 1998 framed thereunder; (ii) the Punjab Infrastructure (Development and Regulation) Act, 2002 (inclusive of Schedules I, II and III); (iii) levy of cess under the 1998 Ordinance/Act and Rules at one per cent, and fee at three per cent (though chargeable up to six per cent) under the 2002 Act, on ad valorem basis on sale and purchase of all agricultural produces except fruits, vegetables and pulses; (iv) use of machinery as provided under the Punjab General Sales Tax Act for collection of cess/fee, and (v) the Clarificatory Notification No. 7/8/98-5FBI/-4865 dated April 8, 1999 issued by the Government of Punjab (Department of Finance) challenged Held that:- The impugned 1998 Ordinance (Ordinance No. 7 of 1998), the 1998 Act (Act No. 1 of 1999), the Cess (Collection) Rules, 1999, the clarificatory notification dated April 8, 1999 and the 2002 Act (Act No. 8 of 2002), as valid and intra vires, and the levy of imposts thereunder being sustainable in law. Issues Involved:1. Validity of the Punjab Infrastructure Development Ordinance, 1998, the Punjab Infrastructure Development Act, 1998, and the Punjab Infrastructure Development Cess (Collection) Rules, 1998.2. Validity of the Punjab Infrastructure (Development and Regulation) Act, 2002.3. Levy of cess and fee under the 1998 Ordinance/Act and the 2002 Act.4. Use of machinery under the Punjab General Sales Tax Act for collection of cess/fee.5. Clarificatory Notification dated April 8, 1999.6. Discrimination and violation of Articles 14 and 286(3) of the Constitution.7. Absence of quid pro quo.8. Legislative competence of the State Legislature.9. Nature and character of the imposts.10. Violation of Sections 14 and 15 of the Central Sales Tax Act.11. Collection of cess or fee from registered dealers on the first sale and purchase.12. Deposit of impost amount in a consolidated fund under Article 266 of the Constitution.13. Refund of imposts paid by petitioner-flour and rice mills.14. Opportunity to submit objections or be heard before deciding to levy the imposts.15. Repeal of the 1998 Ordinance and liability to pay the cess.16. Excessive and unreasonable amount of imposts.Detailed Analysis:1. Validity of the Punjab Infrastructure Development Ordinance, 1998, the Punjab Infrastructure Development Act, 1998, and the Punjab Infrastructure Development Cess (Collection) Rules, 1998:The court upheld the validity of the Punjab Infrastructure Development Ordinance, 1998, the Punjab Infrastructure Development Act, 1998, and the Punjab Infrastructure Development Cess (Collection) Rules, 1998. It was held that these enactments were within the legislative competence of the State Legislature under Entry 66 of List II (State List) of the Seventh Schedule to the Constitution.2. Validity of the Punjab Infrastructure (Development and Regulation) Act, 2002:The court also upheld the validity of the Punjab Infrastructure (Development and Regulation) Act, 2002. The Act was found to be within the legislative competence of the State Legislature, and the provisions were not in violation of any constitutional provisions.3. Levy of cess and fee under the 1998 Ordinance/Act and the 2002 Act:The court held that the levy of cess at one per cent and fee at three per cent (extendable up to six per cent) under the 1998 Ordinance/Act and the 2002 Act was valid. The imposts were found to be fees and not taxes, and thus, they did not violate Sections 14 and 15 of the Central Sales Tax Act or Articles 286 and 301 of the Constitution.4. Use of machinery under the Punjab General Sales Tax Act for collection of cess/fee:The court found that the use of machinery provided under the Punjab General Sales Tax Act for the collection of cess/fee under the impugned Acts was valid. The method of collection did not affect the essence of the duty but related to the machinery of collection for administrative convenience.5. Clarificatory Notification dated April 8, 1999:The court upheld the validity of the Clarificatory Notification dated April 8, 1999, which added the incidence of cess on 'purchase.' The notification was found to be within the powers conferred by the 1998 Act and was necessary to remove the difficulty caused by the omission of the word 'purchase' in the original Ordinance/Act and Rules.6. Discrimination and violation of Articles 14 and 286(3) of the Constitution:The court rejected the argument that the levy of cess and fee was discriminatory and violative of Articles 14 and 286(3) of the Constitution. The court held that the selection of items for levy was based on rational classification, and the imposts were not discriminatory.7. Absence of quid pro quo:The court found that there was a reasonable relationship between the fee levied and the services rendered. The amount collected as fee was used for providing infrastructure facilities, and the services rendered were proportionate to the fee collected.8. Legislative competence of the State Legislature:The court held that the State Legislature was competent to enact the impugned Acts under Entry 66 of List II (State List) of the Seventh Schedule to the Constitution. The Acts were found to be within the legislative competence of the State Legislature.9. Nature and character of the imposts:The court held that the imposts were fees and not taxes. The fees were levied for specific services rendered, and there was an element of quid pro quo between the fee payers and the public authority.10. Violation of Sections 14 and 15 of the Central Sales Tax Act:The court rejected the argument that the imposts were in violation of Sections 14 and 15 of the Central Sales Tax Act. The imposts were found to be fees and not taxes, and thus, they did not violate the provisions of the Central Sales Tax Act.11. Collection of cess or fee from registered dealers on the first sale and purchase:The court held that the imposts were to be collected from registered dealers on the first sale and purchase. The collection mechanism was found to be valid and in accordance with the provisions of the impugned Acts.12. Deposit of impost amount in a consolidated fund under Article 266 of the Constitution:The court held that the imposts were fees and not taxes, and thus, the provisions of Article 266 of the Constitution were not attracted. The amount collected as fee was to be deposited in the Punjab Infrastructure Development Fund and used for specific purposes.13. Refund of imposts paid by petitioner-flour and rice mills:The court held that the petitioner-flour and rice mills were entitled to claim a refund of the imposts paid to the Food Corporation of India (FCI), which was a registered dealer under the Central Sales Tax Act and the Punjab General Sales Tax Act.14. Opportunity to submit objections or be heard before deciding to levy the imposts:The court rejected the argument that the petitioners were not given an opportunity to submit objections or be heard before deciding to levy the imposts. The court held that there was no procedural fetter like inviting objections before enacting a legislation.15. Repeal of the 1998 Ordinance and liability to pay the cess:The court held that the liability to pay the cess under the 1998 Ordinance was retained by the 1998 Act. The retrospective applicability of the Cess (Collection) Rules and the clarificatory notification was found to be valid.16. Excessive and unreasonable amount of imposts:The court rejected the argument that the levy of cess or fee amounted to collecting an excessive and unreasonable amount of imposts. The court held that the imposts were proportionate to the services rendered, and there was no element of excessive or unreasonable levy.