TaxTMI 
TaxTMI 
2006 (10) TMI 276
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....) Notification Nos. F.4(52)/99/Fin(G)/(I) and (II), dated 15-1-2000 issued by the Sales Tax Department, GNCTD, including silk fabrics in the First Schedule to the Delhi Sales Tax Act, 1975 and levying sales tax @ 12 paise in the rupee on silk fabrics and garments made of silk thereof. (iii) Notification No. F.4(75)/99-Fin(G)/2095, dated 31-3-2000 issued under Section 4(1) of the Delhi Sales Tax Act, 1975, as amended by the Delhi Sales Tax (Amendment) Act, 1997 read with the Delhi Sales Tax (Amendment) Ordinance, 2000 deleting 'silk fabrics' from the First Schedule and introducing it at Serial No. 62 in the Second Schedule to the Delhi Sales Tax Act, 1975 thus levying sales tax @ 4 paise in the rupee on silk fabrics. In short, the challenge is to the levy of local sales tax in Delhi on silk fabrics for the period 1-4-1999 till 31-3-2001. The CST Act 2. A brief recounting of the background facts leading to the filing of the writ petitions may be useful to understand the issues that arise for determination. In 1957, the Central Sales Tax Act ('CST Act') was enacted by the Parliament pursuant to the legislative power traceable to Article 286(3) of....
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....recommended by the Second Finance Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities after 1st April, 1958 do not participate in the distribution of the net proceeds. Provision is made in the Act for including these goods in the category of goods declared to be of special important in inter-state trade or commerce so that following the imposition of uniform duties of excise on them, the rates of sales tax, if levied by the State are subject from 1st April, 1958 to the restrictions in Section 15 of the Central Sales Tax Act, 1956." 6. S. 3(1) of the ADE Act, which is the charging section, states that there shall be levied and collected an additional duty of excise on goods described in Column 3 of the First Schedule of the ADE Act at the rate specified in Column 4 thereof. These descriptions of goods correspond to the CE Act. When the CST Act was amended in 1961 to include 'silk fabrics' as entry (xi) in Section 14, a simultaneous amendment was made to the ADE Act by including 'silk fabrics' in the definition clause 2 (c), S. 3(1) and the First Schedule of the ADE Act. By Act No. 7 of 1986 further changes were made....
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....y exempted on mill-made fabrics with effect from 1-3-1965, it has been decided to delete item (xi) from section 14 of the Central Sales Tax Act, thereby lifting the restrictions imposed on the States to levy sales tax under their local laws on silk fabrics. [clause 43]." (emphasis supplied) 9. As a result, with effect from 11-5-1968, 'silk fabrics' was dropped from Section 14 CST Act. Consequent upon the above change, the restriction on levy of local sales tax as stipulated by Section 15 of the CST Act did not apply. However, silk fabrics continued to feature in the First Schedule to the ADE Act. The DST Act 10. Prior to its becoming a State, Delhi was a Union Territory in respect of which the Parliament exercised legislative powers. Accordingly, in respect of Delhi, Parliament was competent to enact a law imposing tax on the sale and purchase of goods other than newspapers, under Article 245 of the Constitution of India read with Item No. 54 in List II of Schedule VII thereof. Thus the Delhi Sales Tax Act 1975 (DST Act) was enacted by Parliament providing for sales tax to be levied on sales taking place within the Union Territory of Delhi. Under the DST Act, sales tax....
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.... of withdrawing the sales tax as assured, Respondent No. 2 issued two notifications on 15-1-2000. By the first notification, 'silk fabrics' was inserted as Entry 34 in the First Schedule to the DST Act. By the second notification, the rate of sales tax was increased to 12 paise in a rupee on silk fabrics. This was followed by a further notification dated 31-3-2000 whereby 'silk fabrics' was deleted from the First Schedule of the DST Act and added to the Second Schedule. As a result, the rate of sales tax on silk fabrics was reduced from 12 paise to 4 paise in the rupee. 15. Thereafter, the present writ petitions were filed challenging the notifications as mentioned in para 1 hereinabove. On 14-7-2000 this Court directed notice to issue in the writ petitions and rule DB was issued on 18-5-2001. Meanwhile by a Notification dated 31-3-2001 'silk fabrics' was deleted from the Second Schedule to the DST Act and included in the Third Schedule thereof which meant that under Section 7 DST Act it was fully exempt from sales tax. With effect from 3-7-2003, 'silk and garments made of silk but not including sarees made of silk' was included in the First Schedule (subject to tax @ 12 pais....
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....that as long as the GNCTD was partaking of the share of the proceeds under the ADE Act, it could not levy local sales tax on silk fabrics. Accordingly the notifications imposing sales tax at the rate of 3%, 12% and 4% were invalid. Alternatively, he submitted that even if one were to assume that local sales tax could be levied on silk fabrics, it could not in any event exceed 4% as long as it was listed in the ADE Act as goods of special importance. In support of this submission, Mr. Malhotra placed reliance upon the judgment of the Hon'ble Supreme Court in State of Kerala v. M/s. Attesee (Agro Industrial Trading Corporation) - 1988 (38) E.L.T. 720 (S.C.) = AIR 1989 SC 222 and in particular the observations contained in para 6 of the judgment to the following effect : "The fact that 'cotton fabrics' though listed as item 12 in the Schedule to the 1944 Act was not brought into the list in Section 14 till 1-10-1958 or that 'silk fabrics' was dropped from the list in Section 14 with effect from 11-6-1968 though it continues in the Schedule to the 1944 Act does not alter the position that these three Acts are inter-connected and that certain goods taken out from the Schedule to the 19....
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....te of duty of ADE was 'Nil' with effect from 1-3-1965. What this meant was that with effect from 1-3-1965, Delhi (or for that matter any State) was not in fact being compensated with the revenue collected as ADE on 'silk fabrics'. (d) Acknowledging this anomaly, the Finance Act, 1968 removed 'silk fabrics' from the purview of Section 14 CST Act with effect from 11-5-1968. This was done to enable the states to levy local sales tax on silk fabrics at a rate higher than 4%. However, 'silk fabrics' continued to feature in the First Schedule to the ADE Act with 'nil' rate of duty. (e) Although 'silk fabrics' continued to feature in the First Schedule to the ADE Act, it did not mean that the legislative assembly of the NCTD could not make a law levying local sales tax on such goods. What it only meant was that if NCTD chose to levy sales tax on silk fabrics in any financial year, then, subject to the central government directing otherwise, NCTD might stand to lose its share of the ADE for that financial year. 22. At the time when the impugned notifications were made, the above position prevailed. In other words, by virtue of the removal o....
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....egislation by reference and legislation by incorporation' and concluded that the subsequent amendments to the CE Act would apply to the definition of 'cotton fabrics' under the Kerala Act as well. 25. In para 6 of its judgment, the Hon'ble Supreme Court observed (as extracted in para 18 hereinabove) that there was an interconnection in the three enactments, viz., the CE Act, the CST Act and the ADE Act. It thereafter noticed the submission of the learned counsel for the State in this context as under : "7. This may be so, says Sri Potti, but there is no justification to bring the 1963 Act into this group. His short point is that the State legislature is completely free within its domain. Its power to levy sales tax includes a power to levy a tax on sales of declared goods as well. Nor is such power inhibited by the levy of an additional excise duty on certain goods. The 1957 amendment to the 1125 Act made no reference even to the 1944 Act. The 1963 Act makes no reference either to the CST Act or to the 1957 Act. Sri Potti emphasizes, pointing out to the practical effects of the two legislations (the 1963 Act and the 1957 Act) to which attention has been invited already,....
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....ses of grant of exemption in the 1963 Act as enacted originally as well as when the latter was amended in 1967 and the specific reference to the 1957 Act when the First Schedule to the 1963 Act was amended in 1980 are quite significant in this context. We, therefore, think that, though the 1963 Act referred only to the definitions in the 1944 Act, the entries in the Schedule have to be juxtaposed into the broad pattern or scheme evolved by the 1956-57 enactments set out earlier in the judgment. Doing so, and even assuming that the reference in the items of the Schedule to the definitions in the 1944 Act is by way of incorporation and not reference, one cannot escape the conclusion that the circumstances are covered by the exceptions outlined in Narasimhan (1976) 1 SCR 6 : (AIR 1975 SC 1835). They certainly fall within the scope of exception (a) mentioned therein and also fall within exception (c) if we read "unworkable and ineffectual" to take in also "unrealistic and impractical." 26. The central question in Attesee was about the definition of the words 'PVC Cloth' and whether the assessee could take advantage of the doctrine of legislation by seeking to contend that the ame....
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...., through the CST Act by inclusion of the declared goods under Section 14 resulting in the restriction on the rate of local sales tax by virtue of Section 15 thereof and by not being able to collect ADE as well since the rate of duty for that purpose is 'Nil'. Therefore, the intention of the Parliament in the instant case in deleting the 'silk fabrics' from the purview of the CST Act is clear. It was with a view to permitting the States to levy local sales tax on the said goods without the fetter of Section 15 of the CST Act. That fetter cannot be sought to be continued to be imposed by the mere fact that the goods figure in the ADE Act even if they are subject to 'Nil' duty. In that view of the matter, we do not think that the letter dated 11-10-1998 of the Additional Secretary of the Department of Revenue is based on a correct understanding of the legal position and therefore it is of no assistance to the petitioners. 29. Even if one were to accept the argument that the rate of duty of ADE being 'Nil' makes no difference as long as the States share the overall revenues under the ADE, even then there is nothing in the ADE Act that impinges on the legislative competence of th....