2012 (5) TMI 65 - HC - VAT and Sales Tax

Court rules lump sum tax on brick kiln owners unconstitutional, quashes tax demands

M/s Balaji Bricks Industries & another Versus State of Punjab and another

The High Court held that imposing lump sum tax on brick kiln owners solely based on production capacity, rather than actual sales, exceeded the State ... Demand of lump sum tax determined on the basis of the capacity of brick kiln as per proviso of notification dated 30.06.1993 – Punjab General Sales Tax Act, 1948 - Held that:- Sub Section (4) of Section 5 of the Act is declared as ultra vires of the Article 246 read with Entry 54, List-II-State List of Seventh Schedule - in the absence of an element of sale or purchase, it is not possible to accept that the State Legislature would be competent to impose tax on the capacity to produce brick kilns by brick kiln owners - The incidence of tax is the sale not the production, therefore, the provisions of sub Section 4 of Section 5 are beyond the competence of the State Legislature - quashing the notification dated 30.06.1993 (P-1) which incorporated Section 5(4) of the Act – in favour of assessee. Issues:Challenge to notification imposing lump sum tax based on capacity of brick kiln owners instead of actual sales under Punjab General Sales Tax Act, 1948.Detailed Analysis:1. Challenge to Notification: The petitioners, brick kiln owners registered under the Punjab General Sales Tax Act, 1948, contested a notification dated 30.06.1993 (P-1) requiring payment of lump sum tax based on capacity rather than actual sales. They argued that this method deviates from their regular tax payments based on actual sales assessments.2. Constitutional Challenge: The petitioners sought to declare Section 5(4) of the Act as unconstitutional and quash the notification dated 30.06.1993 (P-1). The notification allowed the State Government to direct brick kiln owners to pay lump sum tax, irrespective of actual sales, from 01.07.1993 to 25.04.1995.3. Competence of State Legislature: The legality of imposing lump sum tax without the element of sale or purchase of goods was questioned. The State Legislature's authority to levy taxes under Entry 54 of List II-State List of the 7th Schedule, concerning the sale or purchase of goods, was debated.4. Legislative Provisions: Section 5(4) of the Act empowered the State Government to collect lump sum tax on goods or class of goods, as specified in the notification. The notification categorized brick kilns based on production capacity, leading to demands for lump sum tax payment.5. Judicial Decision: The High Court found that the imposition of lump sum tax solely based on production capacity, without actual sales, exceeded the State Legislature's authority under Entry 54. Consequently, the Court declared Section 5(4) of the Act as ultra vires of the Constitution and directed the respondents to refrain from using this provision. The demands raised on petitioners were set aside, and the petition was disposed of accordingly.