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1971 (3) TMI 88 - SC - VAT and Sales TaxWhether the State Government was competent to levy and collect sales tax on the turnover of works contracts for the period covered by the assessment orders impugned in these proceedings? Held that - Appeal dismissed. Sales tax on works contracts was not leviable by the State of Kerala after the 26th January, 1960, under the Kerala General Sales Tax Act (XI of 1125).
Issues Involved
1. Levy of tax on "works contracts" under the General Sales Tax Act (XI of 1125) from January 26, 1960, to March 30, 1963. 2. Violation of Article 14 of the Constitution. 3. Impact of the agreement dated February 25, 1950, under Article 278 on the power to levy tax. 4. Continuity of levy under Article 277 of the Constitution. 5. Legislative competence and the effect of the Kerala Surcharge on Taxes Act. Detailed Analysis Issue 1: Levy of Tax on "Works Contracts" Under the General Sales Tax Act (XI of 1125) The petitioner, a private limited company, challenged the imposition of sales tax on "works contracts" for the assessment years 1960-61 and 1961-62, arguing that the turnover related to "works contracts" could not be subjected to sales tax. The Sales Tax Officer, Special Circle, Mattancherry, assessed the petitioner to sales tax, including assessments on the turnover of "works contracts." The appellate authorities upheld the levy. The petitioner contended that the levy was not enforceable after January 26, 1960, due to the expiration of the agreement under Article 278. Issue 2: Violation of Article 14 of the Constitution The petitioner argued that the levy of sales tax on "works contracts" violated Article 14 of the Constitution, as there was differential treatment between different areas within the State of Kerala. The High Court found no sufficient materials to establish that Article 14 was attracted, as it was not shown that similarly circumstanced persons were treated differently without reasonable basis. Issue 3: Impact of the Agreement Dated February 25, 1950, Under Article 278 The agreement dated February 25, 1950, between the President of India and the Rajpramukh of Travancore-Cochin under Article 278, suspended the power of the State to levy sales tax on "works contracts" for ten years. The Supreme Court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, Trivandrum, held that during the period covered by the agreement, the State had no power to impose sales tax on "works contracts." The High Court in the present case had to determine whether the right to levy tax revived after the expiration of the agreement on January 26, 1960. Issue 4: Continuity of Levy Under Article 277 of the Constitution Article 277 allowed the continuation of taxes being lawfully levied before the commencement of the Constitution until provision to the contrary was made by Parliament. The High Court concluded that the agreement under Article 278 broke the continuity of the levy of sales tax on "works contracts." Therefore, the power to levy such tax did not revive after the agreement expired. Issue 5: Legislative Competence and the Effect of the Kerala Surcharge on Taxes Act The petitioner argued that the imposition of surcharge under the Kerala Surcharge on Taxes Act altered the rate and incidence of the tax, making it unconstitutional. The High Court found that the legislative intent was to assess "works contracts" based on the General Sales Tax Act (XI of 1125) and the Kerala Surcharge on Taxes Act. The Acts formed part of a single scheme for the imposition of sales tax. Therefore, the levy of sales tax alone, without the surcharge, was permissible. Conclusion The Supreme Court upheld the High Court's decision that the levy of sales tax on "works contracts" was not enforceable after January 26, 1960, due to the expiration of the agreement under Article 278, which broke the continuity of the levy under Article 277. The appeals were dismissed, and the levy of sales tax on "works contracts" was deemed invalid for the period after January 26, 1960. The contention based on Article 14 was also rejected.
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