TaxTMI 
TaxTMI 
2020 (8) TMI 108
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....lowed. 3. Levy of surcharge on sales and purchase taxes.- (1) The tax payable under sub-section (1) of section 5 of the Kerala General Sales Tax Act, 1963, by a dealer in foreign liquor shall be increased by a surcharge at the rate of ten per cent, and the provisions of the Kerala General Sales Tax Act, 1963 shall apply in relation to the said surcharge as they apply in relation to the tax payable under the said Act. (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 stock from outside the State or country and not less than seventy-five per cent of whose sales are retail business, and whose total turnover exceeds five crore rupees per annum, but excluding such class of dealers of certain commodities, which may be notified by the Government from time to time, be increased by a surcharge at the rate of ten per cent, and the provisi....
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....isions of Articles 301 to 304 of the Constitution of India and the explanation attached thereto, including Section 3(1A) of 1957 Act. On going through the provisions of Section 3(1A) (ibid), for the purpose of imposition of levy, the following conditions are to be cumulatively met by the dealer:- i) Dealer is a national or multinational company, and ii) It functions as retail chain or direct marketing chain in the State of Kerala; and iii) It imports not less than 50% of its stock from outside the State of Kerala or country; and iv) 75% of its sale are retail business; and v) Its total turnover exceeds five crores per annum." The explanation attached to Section 3(1A) elucidates what `big retail chains and 'Direct Retail Chains` and `Retail Business` mean for the purpose of applicability of the provisions of the Act. 4. Section 304(a) do not denude the local State Government from imposition of levies de hors the provisions of Article 301 of the Constitution of India. 5. By imposing the levy, there is no discrimination amongst the class of dealers, who were importing more than 50% of the goods sold by it as it is permissible in law. Both the counsel relied upon the Nine ....
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....he Constitution and in particular have the impugned State enactments relating to entry tax to be tested with reference to both Articles 304(a) and 304(b) of the Constitution for determining their validity? 9. Parameters laid down in the judgment in support of the submissions were referred to show that once the Single Bench did not accept the contention of respondents qua "unfavourable bias" and in the absence of any cross writ appeal, the findings of the learned Single Bench in striking down the amendment to be actuated out of unintelligible differentia is not sustainable in the eyes of law. Though the learned Single Bench has also relied upon certain parameters of the Hon'ble Supreme Court, but if the judgment is read in its entirety, the pith and substance would reveal that Legislature is not denuded to cause amendment for imposition of levy to a specified class of persons based upon reasonable classification. The respondents are handful people, who are importing goods from outside the State and selling with the local producers being big chains. The imposition of levy, therefore, cannot be said to be discriminatory or violative of Article 301 of the Constitution. 10. Diff....
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....e domain of taxation by creating different classes for the purpose of levy of taxes has been upheld and not violative of Article 19(1)(g) of the Constitution, much less Article 14; c) G anga Sugar Corporation Ltd. Versus State of Uttar Pradesh, 1980 (1) SCC 223, assailment of the imposition of the surcharge was found not to be violative of Article 14 of the Constitution of India, on the premise, that the State had a freedom to adopt any classification in the matters of taxation; d) E ast India Tobacco Company Versus State of Andhra Pradesh, 1963 (1) SCR 404, the constitutional validity of Andhra Act 14 of 1955 was assailed on the ground that it imposed tax on Virginia tobacco while leaving out of country to be violative of Article 14. The aforementioned judgment was rendered by relying upon the decision in case of Kunnathat Thathunni Moopil Nair Versus The State of Kerala, AIR 1961 SC 552; e) In R.K.Garg Versus Union of India, 1981 (4) SCC 675, it was held that classification should not be arbitrary, but rational; f) El el Hotels and Investments Limited Versus Union of India, 1989 (3) SCC 698, that, the differentia created by the Legislation impugned therein was found to be....
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.... Senior Counsel assisted by Sri.Shaji Thomas and Mr.Sonal Singh Beghel, and Mr.A.Kumar, representing the respondents refuted the submissions of the learned counsel for the appellant by submitting that on a bare reading of Section 3(1A) of 1957 Act, it is only a national or a multinational company with total turnover of five crores rupees per annum, which is functioning in the State of Kerala as a retail chain or direct marketing chain with seventyfive percent (75%) of its sale through retail business, is rendered, liable to pay the surcharge 'only' if 50% of the goods sold by it are imported into the State by way of inter-state purchases or stock transfers (emphasis supplied). In other words, a dealer importing more than 50% of goods sold by it, will be subjected to higher tax as compared to a similarly placed dealer procuring local goods. This discrimination in levy of surcharge under Section 3(1A) of 1957 Act is based only on the procurement of goods from outside the State of Kerala. If the imports are not more than 50% of the stock from outside the State of Kerala or Country, would not be liable to pay levy being national or multinational company, retail chain or a direc....
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.... be founded on "Intelligible Differentia" which must have a rationale to the object sought to be achieved by the statute in question. 1.d) H.Anraj v. Government of Tamil Nadu (1986) 1 SCC 414. para 38. 1.e) The State of Rajasthan and Another v. M/s.Ghasiram Mangilal Etc. 1969(2) SCC 710. where after noticing the challenge laid to the exemption from payment of tax on sale of Bardana, (old, new or being received as container) except on the first point in the series of sale in the State, the Hon'ble Supreme Court found that it was altogether unnecessary to go into the question of applicability of Articles 301 and 304 (a) as there was no such discrimination between the goods so imported and the goods which were manufactured or produced in the State. 1.f) State of Uttar Pradesh and Others v. Deepak Fertilizers & Petrochemical Corporation Ltd. (2007) 10 SCC 342 1.g) Aashirwad Films v. Union of India and Others (2007) 6 SCC 624. 16. Article 301 read with Article 304(a) of the Constitution of India if read in conjunction, the imposition of levy runs contrary to the principles of equality enunciated in Article 14 and rightly so, declared unconstitutional by the learned Single Ben....
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....aged/backward section of the industry, but only with an intention to increase the revenue. All the persons equally placed, i.e., companies having a specified annual turnover without creation of any distinction on the basis of any procurement, rightly held to be failing the test of discrimination propounded by the Hon'ble Supreme Court and held to be unconstitutional. It attempted to favour `small retailers' over `big retail chains' would justify the exemption to `big chains in retail sector' if their procurements are less than 50% from outside the State of Kerala. In other words, the intention was favourable towards small retailers and not producers or manufacturers. 20. The contention of the appellant-State is totally contrary to the stand taken in the counter reply and the submissions made before this Court. Even if levy has been considered, for the sake of argument though not admitting, a welfare measure, it was imperative for the State, to furnish "empirical data" in support of the reasoning, in view of the law laid down by the Hon'ble Supreme Court in Pasa Associates Pvt. Ltd. Versus State of Chattisgarh & Ors., (2015) 85 VST 439. It is justifiable in extending benefit for a....
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....tates Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law. (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause shall be introduced or moved in the Legislature of a State without the previous sanction of the President." 23. The majority view after discussing the entire case law culled out the following principles: 1) Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word 'Free' used in Article 301 does not mean "free from taxation". 2) Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a nondiscriminatory tax would not constitute an infraction of Article 301. 3) Clauses (a) and (b) of Article 304 have to....
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.... the imposition of levy as import was not less than 50% of the stock from outside the state and not less than 75% of sales retail business and the turn over of 5 crores. The respondents and the purchaser similarly placed, levy, was charged for infinite period only on the goods brought into the State from the neighbouring states in case the conditions, aforementioned, are met with. Such imposition of levy as per the finding of the Nine Judges Bench would definitely amount to hostile discrimination and not based on intelligible differentia or reasonable classification. In other words, State has not been able to bring in a distinction to class of persons disentitling the relief as sought by the respondents. 26. State has not been able to justify that the amendment in the Act was for a limited period and would equally apply to local retailers viz-aviz the respondents. On perusal of principle Nos.8 and 9, it is discerned that incentive of set off granted to a specified class of dealers for a limited period cannot amount to hostile discrimination or violative of Article 304 (a). 27. In fact surcharge under section 3(1A) of the 1997 Act is hit by the stipulation under Article 304(a) in....
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....otection claims under that article are examined with the presumption that the State action is reasonable and justified. This presumption of constitutionality stems from the wide power of classification which the legislature must, of necessity, possess in making laws operating differently as regards different groups of persons in order to give effect to its policies. . . . ." 133. Fazl Ali J. in his concurring judgment explained the concept in the following words: "19. I think that a distinction should be drawn between "discrimination without reason" and "discrimination with reason". The whole doctrine of classification is based on this distinction and on the well-known fact that the circumstances which govern one set of persons or objects may not necessarily be the same as those governing another set of persons or objects, so that the question of unequal treatment does not really arise as between persons governed by different conditions and different sets of circumstances. The main objection to the West Bengal Act was that it permitted discrimination "without reason" or without any rational basis." Any change to a fiscal enactment on the touchstone of Article 304(a) must in o....
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.... permissible and upheld by this Court in Video's case is, in our opinion, juristically sound and legally unexceptionable. Video Electronics, therefore, correctly states the legal position as regards the approach to be adopted by the Court while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, the benefit, must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and incentives in such cases must be deemed to have been inspired by considerations which in the larger context help achieve the Constitutional goal of economic unity." 29. There would have been force in the argument of Mr.Rafiq if the intention behind levy of sur-charge was to equalise the fall of fiscal burden on the goods from within the State and those from outside the State. Obviously, such exemption or set off will not amount to hostile discrimination and offensive of Article 304(a). The judgments cited are prior to the judgment Jinda....