2009 (4) TMI 435 - SC - VAT and Sales Tax

Whether section 7(b) of the Kerala General Sales Tax Act, 1963 (for short, the 1963 Act ) introduced on October 24, 2006 with retrospective effect from July 1, 2006 could be applied to those dealers who had contracted for payment of turnover tax at the compounded rate under the alternate method of taxation provided for under the unamended section 7 for the assessment year 2006-07? Whether section 7(a) and section 7(b) operate in different spheres and if not whether the said amended section violates article 14 and article 19(1)(g) of the Constitution as contended in the writ petition? Held that - If the High Court finds that to decide the above questions, foundational facts need to be established it may direct the appellant(s) to move the assessing officer by filing returns in accordance with law before adjudicating upon the constitutional question(s) on the validity of the amended section 7. Since above questions have not been answered, we set aside the impugned judgment and we remit the matter to the High Court for fresh consideration in accordance with law and accordingly civil appeals are disposed of with no order as to costs.

Summary

Issues:
1. Application of section 7(b) of the Kerala General Sales Tax Act, 1963 with retrospective effect.
2. Determination of whether section 7(a) and section 7(b) operate in different spheres and potential violation of constitutional articles.

Issue 1: Application of Section 7(b) with Retrospective Effect
The Supreme Court considered whether section 7(b) of the Kerala General Sales Tax Act, 1963, introduced with retrospective effect from July 1, 2006, could be applied to dealers who had contracted for payment of turnover tax at the compounded rate under the unamended section 7 for the assessment year 2006-07. The Court analyzed the provisions of the Act before and after the amendment, highlighting the changes in the rates for turnover tax on foreign liquor. The Court referred to Circular No. 44 of 2006, which clarified the option for compounding to be exercised yearly and provided specific rates for calculating turnover tax. The judgment emphasized the need for clarity on the retrospective application of the amended section and the implications for dealers who had already paid taxes under the previous provisions.

Issue 2: Determination of Constitutional Validity
The second crucial issue before the Court was to determine whether section 7(a) and section 7(b) of the Act operated in different spheres or if they potentially violated articles 14 and 19(1)(g) of the Constitution. The Court directed the High Court to assess whether the amended sections created a conflict between the normal method of taxation under section 5 and the alternate method under section 7. Additionally, the Court instructed the High Court to examine the binding nature of Circular No. 44 of 2006 issued by the Commissioner of Commercial Taxes, emphasizing that such circulars are binding on the Department and not the assesses. The judgment highlighted the importance of establishing foundational facts before adjudicating on the constitutional validity of the amended section 7, indicating that the resolution of these issues was crucial for determining the applicability and legality of the tax provisions.

In conclusion, the Supreme Court granted leave in a batch of civil appeals to address the complex legal issues surrounding the application of the amended section 7(b) of the Kerala General Sales Tax Act, 1963, and its potential implications on dealers and the constitutional framework. The Court emphasized the interconnected nature of the questions raised and remitted the matter to the High Court for a fresh consideration in accordance with the law, underscoring the need for a comprehensive analysis of the statutory provisions and their constitutional validity.