TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1334
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....l sale of branded apparels, imitation jewellery, hand bags, wallets, belts etc. through its retail outlets spread across the State. The goods are stock transferred by the petitioner into the State from other States and sold in the State upon payment of taxes under the Kerala Value Added Tax Act. Placing reliance on sub section (1A) of Section 3 of the Act, the third respondent, the assessing authority of the petitioner, issued Ext.P1 notice to them demanding surcharge at the rate of 10 percent on the output tax collected by them for the year 2015-16, amounting to Rs. 14,82,716/-. The petitioner objected the demand on the ground that sub section (1A) of Section 3 of the Act is unconstitutional. The third respondent has turned down the objection raised by the petitioner. Ext.P3 is the order issued by the third respondent in this connection. Ext.P3 order is straight away challenged in the writ petition on the ground that sub section (1A) of Section 3 of the Act is unconstitutional. 4. The Act is one providing for levy of surcharges on certain taxes. Sub-section (1A) of Section 3 of the Act provides that the tax payable under sub-sections (1) and (2) of Section 6 of the Kerala Value A....
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....visions contained in Part XIII. It is further stated by them that though clause (a) of Article 304 empowers the State Legislatures to impose by law any tax on goods imported from other States, levy under that provision is permissible only if similar goods manufactured or produced in the State are subject to such tax and the same does not discriminate between the goods so imported and the goods so manufactured or produced in the State. As noted, according to the petitioners, the impugned provision does not conform to the mandate of clause (a) of Article 304 and hence violative of Article 301 of the Constitution. It is also the case of the petitioners that the impugned levy infringes the doctrine of equality established in Article 14 of the Constitution. 6. The stand taken by the State in the counter affidavit is that the impugned levy does not infringe Article 301 of the Constitution. It is also the stand of the State that the impugned levy was introduced with the specific objective of increasing the revenue of the State and for promoting indigenous and local business. It is the further stand of the State that it has the legislative competence to introduce a levy in the nature of o....
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....learned Government Pleader that the legislation would become unconstitutional only if the differentiation is unjustifiable, unintelligible or devoid of reasons. Placing reliance on the decision of the Apex Court in Federation of Hotel and Restaurant Association of India v. Union of India [(1989) 3 SCC 634], the learned Government Pleader pointed out that the petitioners are in fact challenging the wisdom of the legislature in enacting the legislation and the legislative wisdom can never be subjected to judicial review. 10. I have given my thoughtful consideration to the contentions raised by the learned counsel on either side. A quote of the impugned provision namely, sub-section (1A) of Section 3 of the Act is necessary for dealing with the contentions of the parties effectively: (1A) The tax payable under sub-sections(1) and (2) of section 6 of the Kerala Value Added Tax Act, 2003 (30 of 2004), other than declared goods as defined in section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) shall, in the case of national or multinational companies functioning in the State as retail chains or direct marketing chains who import not less than fifty per cent of their ....
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....t the impugned provision does not conform to clause (a) of Article 304 and hence violative of Article 301 of the Constitution. It is the further case of the petitioners that taxing statutes also have to conform to the principles of equality enshrined in Article 14 of the Constitution and the impugned provision does not satisfy the requirements of Article 14 as well. 11. As rightly contended by the petitioners, Part XIII of the Constitution, consisting of Articles 301 to 307, is intended to ensure that inter-state barriers, both economic and political, are minimised, to protect the freedom of trade, commerce and intercourse for the economic unity of the nation. The said part of the Constitution also discourages growth of sectional and local interests of the States which would compromise the development of the nation as a whole. Among the Articles in Part XIII, Article 301 declares that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout the territory shall be free. Article 301 reads thus: "301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." Article 304 confers o....
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....y of goods warrants such discrimination or preference. 5. Article 304(a) recognizes the availability of the power to impose taxes on goods imported from other States, the legislative power to do so being found in Articles 245 and 246 of the Constitution. 6. Such power to levy taxes is however subject to the condition that similar goods manufactured or produced in the State levying the tax are also subjected to tax and that there is no discrimination on that account between goods so imported and goods so manufactured or produced. 7. The limitation on the power to levy taxes is entirely covered by Clause (a) of Article 304 which exhausts the universe in so far as the State legislature's power to levy of taxes is concerned. 8. Resultantly a discriminatory tax on the import of goods from other States alone will work as an impediment on free trade, commerce and intercourse within the meaning of Article 301. 9. Reasonable restrictions in public interest referred to in Clause (b) of Article 304 do not comprehend levy of taxes as a restriction especially when taxes are presumed to be both reasonable and in public interest." In the light of the aforesaid conclusions, the powe....
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.... decision of two- Judge Bench of this Court in Shree Mahavir Oil Mills and Anr. v. State of Jammu and Kashmir and Ors. (1996) 11 SCC 39 it was argued that exemptions in favour of locally produced goods from payment of taxes was constitutionally impermissible and offensive to Article 304(a). That was a case where the State Government had totally exempted goods manufactured by small scale industries within the State from payment of sales tax even when the sales tax payable by other industries including manufacturers of goods in adjoining States was in the range of 8%. This exemption was questioned by manufacturers of edible oils from other States on the ground that the same was discriminatory and violative of Articles 301 and 304 of the Constitution. 131. This Court held that the exemption given to manufacturers of edible oil was total and unconditional, while producers of edible oil from industries in adjoining states had to pay sales tax @ 8%. Grant of exemption to local oil producing units thereby put the former at a disadvantage. Having said that, the Court exercised its powers under Article 142 of the Constitution and struck down the exemption by moulding the reliefs to suit t....
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....athi Raning Rawat v. The State of Saurashtra, AIR 1952 SC 123, where a seven-Judge Bench of this Court held that all legislative differentiation is not necessarily discriminatory. Relying upon the meaning of the expression in Oxford Dictionary, Patanjali Sastri, C.J. (as His Lordship then was) explained : "7. All legislative differentiation is not necessarily discriminatory. In fact, the word "discrimination" does not occur in Article 14. The expression "discriminate against" is used in Article 15(1) and Article 16(2), and it means, according to the Oxford Dictionary, "to make an adverse distinction with regard to; to distinguish unfavourably from others". Discrimination thus involves an element of unfavourable bias and it is in that sense that the expression has to be understood in this context. If such bias is disclosed and is based on any of the grounds mentioned in Articles 15 and 16, it may well be that the statute will, without more, incur condemnation as violating a specific constitutional prohibition unless it is saved by one or other of the provisos to those articles. But the position under Article 14 is different. Equal protection claims under that article are examined ....
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....th respect considerable merit in that line of reasoning. A State which is economically and industrially backward on account of several factors must have the opportunity and the freedom to pursue and achieve development in a measure equal to other and more fortunate regions of the country which have for historical reasons, developed faster and thereby acquired an edge over its less fortunate country cousins. Economic unity from the point of view of such underdeveloped or developing states will be an illusion if they do not have the opportunity or the legal entitlement to promote industries within their respective territories by granting incentives and exemptions necessary for such growth and development. The argument that power to grant exemption cannot be used by the State even in case where such exemptions are manifestly intended to promote industrial growth or promoting industrial activity has not appealed to us. The power to grant exemption is a part of the sovereign power to levy taxes which cannot be taken away from the States that are otherwise competent to impose taxes and duties. The conceptual foundation on which such exemptions and incentives have been held permissible an....
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....pra) and the propositions laid down by the Apex Court in earlier cases which are approved in Jindal Stainless Steels Limited (supra), the following conclusions can be arrived at: (1) that taxing statutes do not per se impede free Trade, Commerce and intercourse unless they are discriminatory in nature, (2) in the case of a challenge to a taxing statute, on the touchstone of clause (a) of Article 304, the Court has to see whether the differentiation is intended or inspired by an element of unfavourable bias in favour of the goods produced or manufactured in the State as against those imported from outside and (3) that if the Court were to find that there is no such element of intentional bias favouring the locally produced goods as against those from outside, it may have to go further and see whether the differentiation would be supported by valid reasons, for, differentiation without a valid reason would be unconstitutional. 13. Reverting to the facts of the case on hand, as noted, the impugned provision would apply only to dealers satisfying cumulatively the conditions namely, (i) that they shall be a company incorporated in India or abroad (ii) that they shall be functioni....
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....t any classification that is effected by the legislature must conform to the mandate of Article 14 of the Constitution. The said proposition was also reiterated by the Nine Judge Bench of the Apex Court in Jindal Stainless Steels Limited (supra). Paragraphs 94 to 96 and 138 of the majority judgment in the said case which are relevant in the context read thus : "94 . Then came Kunnathat Thathunni Moopil Nair v. The State of Kerala and Anr. AIR 1961 SC 552, where again one of the questions that fell for consideration was whether Article 265 of the Constitution was a complete answer to the attack against the Constitutionality of a taxing statute. This Court held that in order that a taxing law may be valid, the tax proposed to be levied must be within the legislative competence of the legislature imposing the tax and authorizing the collection thereof and that the tax must be subject to the condition laid down Under Article 13 of the Constitution. One of such conditions declared by this Court was that the legislature shall not make any law that takes away or abridges the equality Clause in Article 14. The Court declared that the guarantee of equal protection of laws must extend even....
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....be bad, Moopil Nair's case. (3) A law which is made by a competent legislature and which is not otherwise invalid, is not open to attack Under Article 31(1). Ramjilal's case and Laxmanappa's case. (4) A law which is ultra vires either because the legislature has no competence over it or it contravenes, some constitutional inhibition, has no legal existence, and any action taken thereunder will be an infringement of Article 19(1)(g) Himmatlal's case and Laxmanappa's case. The result will be the same when the law is a colourable piece of legislation. (5) Where assessment proceedings are taken without the authority of law, or where the proceedings are repugnant to Rules of natural justice, there is an infringement of the right guaranteed Under Article 19(1) (f) and Article 19(1)(g); Tata Iron & Steel Co. Ltd.; Moopil Nair's case and Shri Madan Lal Arora's case. 96. The above statement of law in our view is legally unexceptionable. The argument that Ramjilal and Laxmanappa's cases place taxing statute beyond the purview of challenge under Part III has been correctly repelled and fiscal statutes are also held to be open to challenge on the touchst....
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....over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine vide Purshottam Govindji v. B.M. Desai, and Kunnathat Thathuni Moopil Nair v. State of Kerala. But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse lements, permit a larger discretion to the legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the legislature to classify is of "wide range and flexibility" so that it can adjust its system of taxation in all proper and reasonable ways" The impugned levy was introduced in Section 3 of the Act in terms of the Kerala Finance Act, 2008. Paragraphs 191 and 192 of the Budget Speech of the Finance Minister of the State dealing with the proposal to introduce the impugned levy read thus: "191. Sir, the social security schemes announced in this Budget will create a huge financial commitment. There is every likelihood that this will increase in the next three years. To meet this expenditure it is proposed to impose a 1% cess on sales taxes and value added tax levied by the....
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.... accepted as sufficient justification for making such a differentiation. Even otherwise, it is trite that a classification can only be based on an intelligible differentia that bears a rational nexus with the object sought to be achieved by the legislation. Such classifications shall be founded on pertinent and real differences as distinguished from irrelevant and artificial ones. It must be based on some qualities or characteristics which are to be found in all the persons put together and not in others who are left out and those qualities or characteristics must have a reasonable relation to the object of the legislation. Article 14 forbids class discrimination in the matter of imposing liabilities upon persons arbitrarily selected out of a large number of persons similarly placed. In the instant case, as noted, the object sought to be achieved is augmentation of revenue. If the object of the legislation is augmentation of revenue, according to me, a classification of the dealers based on the criterion viz., whether they import goods into the State is per se unjustifiable and unintelligible. I have, therefore, no hesitation to hold that the impugned levy is discriminatory and vio....