TaxTMI 
TaxTMI 
2007 (3) TMI 687
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...., 4098, 4189, 4206, 4236, 4246, 4277, 4287, 4315, 4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616, 4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319, 5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550, 5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, 6129, 6136, 6250, 6262, 6268, 6269, 6276, 6297, 6409, 6424, 6437, 6622, 6646, 6651, 6752, 6816, 6823, 6824, 6852, 6855, 6982, 6985, 6992, 6997, 7005, 7173, 7174, 7175, 7329, 7334, 7346, 7545, 7550, 7661, 7733 and 7738 of 2007 For the Appellant : K.B. Muhamed Kutty (SR.) and K.M. Firoz, Adv. For the Respondent : V.V. Asokan, Special Government Pleader (Taxes) JUDGMENT K. BALAKRISHNAN NAIR, J. 1. The constitutional validity of Sub-section (16A) of Section 47 of the Kerala Value Added Tax Act, 2003 and the sustainability of two circulars issued by the Commissioner of Commercial Taxes under the said provision are the points, that arise for decision in these writ petitions. Since same points arise for decision in all these writ petitions, they are heard and disposed of by this common judgment. W.P. (C) No. 2844 of 2007 is treated as the main case. W.P. (C) No. ....
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....arding the collection of sales tax in advance as per Circular No. 53 of 2006 dated December 22, 2006. The relevant portion of the said circular, which is produced as exhibit P2 in the writ petition is extracted below: As per Circular No. 50 of 2006 instructions were issued for collection of advance tax in respect of twelve evasion-prone commodities at the entry points into the State such as check-posts, ports, airports and railway stations. Now it is brought to the notice of the Commissionerate that dealers are experiencing inconvenience for remitting tax at the entry point in respect of the consignment, especially where the entry point is far from the ordinary place of business. Suggestions have been put forth from the trade to permit them to remit the tax before the concerned assessing authority. This issue has been examined and the following further instructions are issued. Dealers may remit the tax on the consignments in advance before the respective assessing authority if they can provide details of the consignment such as copy of the bill/invoice, vehicle number, and name of the entry point (check-post/port/airport/railway station) While es....
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....f Section 47 of the KVAT Act and exhibit PI and exhibit P2 circulars are unconstitutional and invalid. 5. Pursuant to the interim order of this court, the goods were released, on executing simple bond without sureties. 6. The petitioner seeks the above reliefs on the following grounds : exhibits PI and P2 circulars are illegal and unconstitutional. They are not supported by any statutory provision and therefore, will be hit by Article 265 of the Constitution of India. Sub-section (16A) of Section 47 of the KVAT Act is ultra vires of the constitutional provisions concerning sales tax. Imposition, levy and collection of tax in advance before the sale is effected, is unconstitutional. The taxable event is the sale and collection of tax before the sale takes place is, therefore, unconstitutional. The provisions contained in Chapter V of the KVAT Act concerning assessment, collection or payment of tax do not authorise collection of tax in advance, by issuing a circular by the first respondent. Section 3(2)(c) authorises to issue only administrative instructions. The Commissioner of Commercial Taxes cannot exercise the statutory power of taxation, based on the said provision. This ....
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....evance about the statutory provision and the circulars. No unreasonable impediment is created as per this provision. The collection of tax in advance is not arbitrary or unreasonable. The impugned provision or circulars do not infringe the right of the petitioners under Article 14 or Article 19(1)(g) of the Constitution of India. The section does not violate any of the constitutional provisions. The petitioners have failed to dislodge the presumption of constitutionality in favour of the statute. In taxing matters, the courts must normally respect the legislative judgment. The allegation that the issuance of the circulars is to get over the decision of the division Bench of this Court dated December 18, 2006 in O. P. No. 434 of 1996 and connected cases Thressiamma 1 Chirayil v. State of Kerala [2007] 7 VST 293, is absolutely baseless. Some dealers transport certain commodities, using the registration numbers of the Kerala dealers. Complaints regarding clandestine transport by bogus parties have been received from honest dealers in the State. In order to prevent clandestine transport of goods into the State, circular No. 50 of 2006 was issued. The direction to pay tax in advance can....
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....ting to the sale of a particular month shall be made before the 10th of the next month. As per Section 47(16A) the Commissioner can at the most direct that the tax shall be paid at any point of time after the sale and before the 10th of the next month. Under the KGST Rules, advance tax is confined to the month of March alone, which is to be paid before March 31. There is no provision in the KVAT Act to collect tax before the sale is effected. The taxable event is sale and nobody can demand sales tax before the sale takes place. Exhibit PI circular deals with tax on estimated turnover before the sale takes place. Tax is demanded before the goods reach the destination. The circulars are ultra vires of Sub-section (16A) itself. The charging section is Section 6 and the charge is on the turnover, which is attained only by sale. The circular is issued in violation of the parent provision. Collection of tax must be authorised by law and not by administrative instruction or executive fiat. The power under Section 3(2)(c) of the KVAT Act is administrative in character. 9. The learned Senior Counsel further submitted that Sub-section (16A) suffers various constitutional infirmities. Inst....
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....n favour of a legislation. 11. The learned Counsel for the petitioners relied on the following decisions : In re Article 143, Constitution of India AIR 1951 SC 332, Pannalal Binjmj v. Union of India [1957] 1 SCR 233 , K.T. Moopil Nair v. State of Kerala [1961] 3 SCR 77 , Atiabari Tea Co Ltd. v. State of Assam [1961] 1 SCR 809 , State of Punjab v. Jullundur Vegetables Syndicate [1966] 2 SCR 457 , Devi Dass Gopal Krishnan v. State of Punjab [1967] 3 SCR 557 , Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills [1968] 3 SCR 251 , Yogesh Trading Co. v. Intelligence Officer of Sales Tax AIR 1970 Ker 218 , Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 155 ITR 144(SC) , State of Bihar v. Harihar Prasad Debuka [1989] 1 SCR 796 , Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402(SC) , P.D. Sudhi v. Intelligence Officer [1992] 85 STC 337 (Ker), Puri Municipal Council v. Indian Tobacco Co. Ltd. AIR 1996 SC 534 , State of Kerala v. T.C.M. Co. [1999] 1 KLT 91, Gajanana Agencies v. State of Kerala [2002] 3 KLT 242, State of Kerala v. [2004]271ITR290(SC) , Reliance Generators Pvt. Ltd. v. State of Kerala 2005 (2) KLT 573 , Choice Plywood Industrie....
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....accepted, the same will render the provision ineffective to prevent evasion of tax. So, the "golden rule" of interpretation has to be followed. The "golden rule" is dealt with in Principles of Statutory Interpretation (G.P. Singh-Eighth edition), in the following words: VISCOUNT SIMON, L.C, said : 'The golden rule is that the words of a statute must prima facie be given their ordinary meaning'. Natural and ordinary meaning of words should not be departed from 'unless it can be shown that the legal context in which the words are used requires a different meaning'. Such a meaning cannot be departed from by the judges 'in the light of their own views as to policy although they can 'adopt a purposive interpretation if they can find in the statute read as a whole or in material to which they are permitted by law to refer as aids to interpretation an expression of Parliament's purpose or policy. For a modern statement of the rule one may refer to the speech of LORD SIMON to GLAISDALE in a recent case where he said : 'Parliament is prima facie to be credited with meaning what is said in an Act of Parliament. The drafting of statutes, so important t....
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....ort of this submission, several decisions were relied on by the petitioners, they mainly relied on the decision of the apex court in State of Rajasthan v. Rajasthan Chemists Association 2006(202)ELT217(SC) . The question that arose before the Supreme Court in that case was whether the measure to which the rate of tax was to be applied on single point transaction of sale of any formulation (medicine) by the wholesaler to the retailer could be something notional, which was not related to the subject of tax, namely, the maximum retail price which could be chargeable subsequent to the taxing event, by a retailer. The High Court held that where the price is the basis for measuring tax, it must relate to the actual transaction of sale and not the price at which sale might take place in future. The Supreme Court upheld the decision of the High Court. The learned Counsel for the petitioners relied on the following portion of the judgment: 12. Significantly, the court observed about the substance of the levy as under : Budh Prakash Case [1955] 1 SCR 248 'The substance of the matter is that the sales tax is a levy on the price of the goods, and the reason of the thing r....
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....ct. This cannot be overridden by devising a measure of tax which relates to an event which has not come into existence when tax is ex hypothesi determined, much less which can be said a completed sale and which cannot be subject of legislation providing tax on 'sale of goods' by transplanting a sum related to 'likely price' to be charged for subsequent sale to be taxed by the devise of measuring tax for the completed transaction which has become subject of tax. ... 55. If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax, viz., sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done, the legislation can provide for any measure for the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which Legislature may provide will make little difference. It is not contended by the appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, ....
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....at a casual trader may become liable to pay tax under Sub-section (1) thereof in respect of any goods, may with a view to secure payment of tax that may become due upon determination under Sub-section (3) and for reasons to be recorded in writing, demand from such casual trader an amount in advance equivalent to the amount of tax that may become due from him after determination, or security for an equivalent amount after taking into consideration the saleable value of such goods. It does not postulate payment of advance tax. What it aims is an amount in advance equivalent to the amount of tax that may become due from a casual trader or security for an equivalent amount depending upon the saleable value of the goods in question. There is thus a clear nexus between the amount in advance or security and the levy of impost on the casual trader. The provision is meant to ensure collection of tax. Sub-section (8) provides for payment of the amount in advance or the security, if any, referred to in Sub-section (7) by a casual trader on demand under Sub-section (4) at the time of bringing any goods, except those specified in Schedules I and IV or those notified under Section 10(2) of the A....
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.... was upheld on the view that it did not give any unlimited or unrestricted power to the Commissioner and that it was subject to the condition that it must appear to him to be necessary to demand security for the proper realisation of tax. It was observed that the power to levy tax included the power to impose reasonable safeguards for collecting it and, therefore, demanding security for the proper payment of tax was neither an arbitrary condition nor an unreasonable restriction. In our view, this judgment does not help the respondents for reasons more than one. Firstly, Section 8-A of that Act, as it stood at that time was upheld by the Constitution Bench as valid and secondly, in the instant case, the impugned provisions embody ample safeguards for a transporter of goods as also for an owner or lessee of a warehouse, enquiry is contemplated for determination of the amount in advance or security authorised to be demanded which, in any event, cannot be more than the amount of tax that could be levied in respect of the goods in question on such a person. It supports the case of the appellant. 20. In Balaji v. Income-tax Officer [1961]43ITR393(SC) , the petitioner challenged ....
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....iled on the ground of lack of legislative competence. Those provisions required the appellants therein to obtain a certificate of registration and to comply with various other formalities prescribed under the Act and the Rules made thereunder. A learned single Judge of the Gauhati High Court had dismissed the writ petition. That order was upheld by the division Bench of the High Court in appeal2. On further appeal to this court, it was contended that being transporters, they were not trading in sale or purchase of any goods and therefore they could not be held to be 'dealers' within the meaning of the Act and as such the impugned provisions which laid certain obligation on them were beyond the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. Negativing the contention it was held that if the Legislature makes any ancillary or subsidiary provisions which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative List should not be read in a narrow or pedantic sense but must be given their fullest meanin....
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....ent is the sale of goods. It also further lays down that the actual sale price alone can be the basis for levying tax. In this case also, the taxable event is the sale. The actual tax will be assessed only after the sale takes place and that too, based on sale price. But, in the case of evasion-prone goods, it is difficult to trace the goods and in some cases, the dealer also, after they cross the border. So, the consignee-dealer of the goods has to be tied down to them, to avoid tax evasion. Therefore, advance collection is made towards tax. To avoid evasion of tax, enactment of such provisions is constitutionally permissible, in view of the decision of the apex court in State of West Bengal v. E.I.T.A. India Limited [2003]2SCR668 . The decision in Rajasthan Chemists Association 2006(202)ELT217(SC) does not stand in the way of collection of tax in advance. So, the interpretation given to Sub-section (16A) of Section 47 that it is authorising collection of tax in advance will not make it unconstitutional. When the statute authorises issuance of such circulars, there is nothing illegal with exhibits P1 or P2. 20. The petitioners attack the impugned provision as vitiated by excess....
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....the expertise to be involved in detail and circumstances. Nor can Parliament and the State Legislatures visualise and provide for new, strange, unforeseen and unpredictable situations arising from the complexity of modern life and the ingenuity of modern man. That is the raison d'etre for delegated legislation. That is what makes delegated legislation inevitable and indispensable. The Indian Parliament and the State Legislatures are endowed with plenary power to legislate upon any of the subjects entrusted to them by the Constitution, subject to the limitations imposed by the Constitution itself. The power to legislate carries with it the power to delegate. But excessive delegation may amount to abdication. Delegation unlimited may invite despotism uninhibited. So, the theory has been evolved that the Legislature cannot delegate its essential legislative function. Legislate it must by laying down policy and principle and delegate it may to fill in detail and carry out policy. The Legislature may guide the delegate by speaking through the express provision empowering delegation or the other provision of the statute, the preamble, the scheme or even the very subject-matter of the....
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....nly to those industries where by reason of unorganised labour or want of proper arrangements for effective regulation of wages or for other course the wages of labourers in a particular industry were very low. In enacting Section 27 there was, therefore, no delegation of essential legislative power. 6. In Pandit Banarsi Das Bhanot v. State of Madhya Pradesh [1959]1SCR427 this Court held that it was not unconstitutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods and the selection of goods in respect of exemption from taxation might be granted, etc., etc. 7. In Sardar Inder Singh v. State of Rajasthan [1957]1SCR605 the validity of Section 15 of the Rajasthan (Protection of Tenants) Ordinance which authorised the Government to exempt any person or class of persons from the operation of the Act was upheld and the argument that there was impermissible delegation of legislative power was repelled on the ground that the preamble to the Ordinance set out with suff....
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....ground for invalidating the law. 10. In Mohammad Hussain Gulam Mohammed v. State of Bombay [1962]2SCR659 , the question was about the vires of Section 29 of the Bombay Agricultural Produce Markets Act. It gave power to the State Government to add to, or amend, or cancel any of the items of agricultural produce specified in the schedule in accordance with prevailing local conditions. The attack was on the ground that legislative power had been delegated to an extent not permissible. The court while noticing that Section 29 itself did not provide for any criterion for determining which item of agricultural produce should be put into the Schedule, nevertheless upheld its vires on the ground that guidance was writ large in the various provisions and the Scheme of the Act. It was observed that in each case the State Government had to consider whether the volume of trade in the produce was of such a nature as to give rise to wholesale trade so as to merit inclusion in the schedule. 11. Let us now turn to Section 60 of the Madras Co-operative Societies Act, 1932 whose vires is in question and which is as follows: '60. The State Government may, by general or ....
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.... provide for such situations that the Government is invested by Section 60 with a power to relax the occasional rigour of the provisions of the Act and to advance the objects of the Act. Section 60 empowers the State Government to exempt a registered society from any of the provisions of the Act or to direct that such provision shall apply to such society with specified modifications. The power given to the Government under Section 60 of the Act is to be exercised so as to advance the policy and objects of the Act, according to the guidelines as may be gleaned from the preamble and other provisions which we have already pointed out, are clear. 13. We are, therefore, of the view that Section 60 is not void on the ground of excessive delegation of legislative power. 21. In the light of the above principles laid down by the apex court, it has to be held that the impugned provision is valid. The Legislature cannot be blamed for not naming the evasion-prone goods. Their list may change from time to time. So, the Commissioner has been rightly authorised to specify them. The words "evasion-prone goods" give sufficient guidelines to him. So, the challenge of excessive delegatio....
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....tes the needs of Us own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. 8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative ju....
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....re bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues. ... 19....The court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois 94 US 13, namely, 'that courts do not substitute their social and economic beliefs for the judgment of the legislative bodies'. The court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The court should constantly remind itself of what the Supreme Court of th....