1956 (9) TMI 48 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to levy of sales tax under Mysore Sales Tax Act on turnover of petitioners under Article 226 of the Constitution of India.

Analysis:
The judgment involves a challenge to the legality of the levy of sales tax under the Mysore Sales Tax Act on the turnover of petitioners. The Act imposes tax on the annual turnover of every dealer, with specific rates based on different turnover thresholds. Section 11 of the Act prohibits unregistered dealers from collecting tax and restricts registered dealers from collecting tax except for specified goods. The petitioners argued that the tax effectively targets their income, exceeding the state's legislative competence, and is excessively stringent as it disallows deductions allowed under income tax law. However, the court held that the legality of the levy is not contingent on the transferability of liability and that the tax can be imposed even if the dealer cannot recover it from others. The petitioners' argument that the tax is not truly on sales but on income was dismissed, emphasizing that the tax is imposed under Section 3, not Section 11, and the petitioners' uncertainty about the impact of Section 11 on them does not exempt them from payment.

The critical issue addressed in the judgment pertains to the right to equality under Article 14 of the Constitution and whether differentiation in tax liability between sales within and outside hotels of food articles violates this right. The court emphasized that arbitrary discrimination is unconstitutional, and any distinction in a taxing law must have a reasonable basis and a just relation to the Act's objective. The petitioners contended that the higher tax rates for sales within hotels unjustly discriminate against them compared to other sellers of the same articles. The respondents argued that sales within hotels generate more revenue due to the environment and facilities, but the court noted that this advantage is not universal and questioned the rationality of the classification based on sales location. Drawing a parallel with a similar provision in the Madras Sales Tax Act, the court referenced a prior decision where a comparable proviso was deemed void and unenforceable. Consequently, the court ruled that the proviso in the Mysore Act, akin to the one in the Madras Act, is invalid, and the petitioners can only be taxed under Section 3(1)(b) without the proviso.

In conclusion, the court upheld the petitioners' challenge against the validity of the proviso in the Mysore Sales Tax Act, directing that parties bear their own costs and ordering compliance with the judgment.