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Issues: Whether section 3(1A) of the Kerala Surcharge on Taxes Act, 1957, which imposes surcharge only on specified retail/direct marketing chains importing not less than fifty per cent of stock from outside the State or country, is discriminatory and violative of Articles 301, 304(a) and 14 of the Constitution.
Analysis: The surcharge operates as an additional tax only on a defined class of dealers, and the classification turns on import of goods from outside the State. A taxing statute does not offend Article 301 unless it is discriminatory, and under Article 304(a) the Court must examine whether the differentiation is inspired by unfavourable bias against imported goods or is supported by valid reasons. Applying the principles governing fiscal classification, the object disclosed for the levy was augmentation of revenue. The classification based on whether dealers import goods from outside the State was held to be unrelated to that object and to lack a rational nexus. The Court therefore treated the levy as discriminatory in effect and not as a permissible non-discriminatory tax.
Conclusion: Section 3(1A) was held to be unconstitutional as violating Articles 301, 304(a) and 14, and the proceedings and demands founded on it were quashed with consequential refund of surcharge paid.
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