2007 (9) TMI 530 - HC - VAT and Sales Tax

Whether the imported goods, on sufferance of customs duty and subsequently cleared from the customs frontiers, would lose its character as foreign goods for the purpose of levy of sales tax under the provisions of the TNGST Act? Whether the levy of 20% sales tax on imported goods by the amended provision as against the levy of 12% sales tax for the goods manufactured in India would be discriminatory in the wake of Articles 301 to 304 of the Constitution? Whether by virtue of the Agreement (GATT), the State would be competent to bring the goods imported and levy higher rates of sales tax and in such circumstances, whether such enactment would require the assent of the President under Article 304(b) of the Constitution of India? Held that - Part XIII of the Constitution would not be applicable to imported goods. That apart, the impugned amendment Act fixing higher rate of tax for imported goods is on intelligible differentia and on the basis of reasonable classification and therefore we do not find any reason to hold that either the impugned Act is violative of Article 14 or the imposition of higher rate of sales tax for imported goods would in any way amount to restriction of trade under Part XIII of the Constitution of India. Equally the submission as to the impugned Act requires the assent of the President under Article 304(b) also cannot be accepted. Further, as the classification is reasonable, the submission as to the restriction for levy of tax on sale or purchase of goods based on Article 286(3) is also not available to the petitioners. Accordingly, point nos. (i) & (ii) are answered. Merely because the GATT agreement recognises the relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, etc., that will not in any way curtail the State Government to identify the imported goods as separate class and to levy higher rate of sales tax so long as the power of the State Government to levy sales tax even on imported goods is not questioned. Accordingly, point no. (iii) is also answered. W.P. dismissed.

Summary

Issues Involved:
1. Character of imported goods post-customs clearance.
2. Discrimination in sales tax rates between imported and domestically manufactured goods.
3. Applicability of GATT and necessity of Presidential assent under Article 304(b) for the enactment.

Issue-wise Detailed Analysis:

1. Character of Imported Goods Post-Customs Clearance:
The court examined whether imported goods, after customs duty payment and clearance, lose their identity as foreign goods for the purpose of sales tax under the TNGST Act. The petitioners argued that once goods are cleared from customs, they become part of the general mass of goods and should be taxed at the same rate as domestically manufactured goods. The court referred to several judgments, including those from the Andhra Pradesh High Court and the Bombay High Court, which dealt with the concept of goods crossing customs frontiers and losing their character as foreign goods. However, the court concluded that these judgments were not applicable to the issue of state sales tax. It held that for the purpose of sales tax, goods do not lose their identity as imported goods after customs clearance.

2. Discrimination in Sales Tax Rates:
The petitioners contended that the higher sales tax rate of 20% on imported goods, as opposed to 12% on domestically manufactured goods, was discriminatory and violated Articles 14, 301, and 304 of the Constitution. The court emphasized the wide latitude available to the legislature in taxation matters, allowing for reasonable classification based on intelligible differentia. It upheld the state's power to classify imported goods separately and levy a higher tax rate, noting that such classification was not arbitrary or discriminatory. The court also highlighted that the burden of proving discrimination lies heavily on the petitioner, which was not sufficiently discharged in this case.

3. Applicability of GATT and Necessity of Presidential Assent:
The petitioners argued that the differential tax rates violated India's obligations under the General Agreement on Tariffs and Trade (GATT) and required Presidential assent under Article 304(b) of the Constitution. The court referred to the Supreme Court's rulings, which established that international treaties like GATT do not automatically override municipal laws unless expressly incorporated. The court concluded that the state's power to levy sales tax on imported goods was not curtailed by GATT, and the classification of goods for tax purposes did not require Presidential assent.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the impugned provisions and the orders of the Taxation Tribunal. It found no merit in the arguments against the higher sales tax rate on imported goods and ruled that the classification was reasonable and constitutionally valid. The petitions were dismissed, and the connected miscellaneous petitions were closed.