2011 (3) TMI 1509 - HC - VAT and Sales Tax

Supreme Court rules in favor of petitioner on sales tax levy for 'dryer felts'

The Supreme Court ruled in favor of the petitioner in a case challenging the retrospective levy of sales tax on 'dryer felts' by Haryana Act No. 10 of ... Striking down of Haryana Act No. 10 of 1981 levying sales tax on 'dryer felts' retrospectively from April 26, 1971 to September 6, 1978 seeked Held that:- The observations made in the context of tobacco that even if tobacco is an article of luxury, a tax on its supply is within the exclusive competence of the State but subject to the constitutional curbs prescribed under article 286 read with sections 14 and 15 of the Central Sales Tax Act, 1956, and most importantly the ADE Act of 1957 under which no sales tax can be levied on tobacco at all if the State was to take the benefits under that Act are fully applicable to the case of textiles which is one of the item mentioned in the ADE Act, 1957. This petition is allowed and the impugned levy is held to be unconstitutional. Issues:1. Validity of Haryana Act No. 10 of 1981 retrospectively levying sales tax on 'dryer felts.'2. Legislative competence of the State Legislature in taxing 'dryer felts.'3. Implications of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 on the taxation of goods.4. Jurisdiction to levy interest with retrospective effect.5. Constitutionality of the retrospective tax levy under article 19(1)(g) of the Constitution of India.Issue 1: Validity of Haryana Act No. 10 of 1981:The petitioner challenged the retrospective levy of sales tax on 'dryer felts' by Haryana Act No. 10 of 1981. The petitioner contended that the goods were tax-exempt under entry 30 of Schedule B and sought to strike down the amendment excluding 'dryer felts' from the definition of 'textiles.' The Supreme Court's ruling in Porritts & Spencer (Asia) Ltd. v. State of Haryana supported the petitioner's claim that 'dryer felts' fell under the category of textiles, thus exempt from tax.Issue 2: Legislative Competence of State Legislature:The petitioner questioned the State Legislature's authority to tax 'dryer felts,' arguing that the amendment contradicted the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The Act aimed to replace sales tax with additional excise duty on specified goods, including textiles. The Supreme Court's decision in Godfrey Phillips India Ltd. v. State of U.P. affirmed that States were bound by the ADE Act, 1957, prohibiting sales tax on items covered under it.Issue 3: Implications of the ADE Act, 1957:The petitioner relied on the ADE Act, 1957 to challenge the State's authority to levy sales tax on 'dryer felts.' The Act aimed to replace sales tax with excise duty on certain goods, ensuring uniformity and restricting State taxation on specific items. The Court's interpretation emphasized that States could not impose sales tax on goods mentioned in the ADE Act, aligning with the constitutional restrictions under article 286 and the Central Sales Tax Act, 1956.Issue 4: Jurisdiction to Levy Interest Retrospectively:The petitioner raised concerns over the retrospective imposition of interest by the State authority from April 26, 1971, to September 6, 1978. The legality of such retrospective interest levy was questioned, highlighting the need for jurisdictional clarity and compliance with legal principles.Issue 5: Constitutionality of Retrospective Tax Levy:The petitioner argued that the retrospective tax levy under Haryana Act No. 10 of 1981 infringed on the constitutional rights under article 19(1)(g) of the Constitution of India. By retroactively imposing taxes and revoking exemptions, the State's actions were deemed unreasonable and unconstitutional. The Court acknowledged the petitioner's contentions and ruled the retrospective levy unconstitutional, thereby upholding the petitioner's position.