1957 (11) TMI 17 - HC - VAT and Sales Tax

Issues Involved:

1. Retrospective levy of sales tax.
2. Violation of fundamental rights under Article 19(1)(g).
3. Discrimination under Article 14.
4. Double taxation.
5. Clarification of the person liable to pay tax under sub-section (2-B).

Issue-wise Detailed Analysis:

1. Retrospective Levy of Sales Tax:

The court addressed the contention that no legislation can be enacted levying a tax retrospectively. It was clarified that the Constitution of India, under Articles 245 and 246, allows the Union Parliament and State Legislatures to make laws, including retroactive laws, within their respective spheres. The court cited *The Union of India v. Madan Gopal Kabra* to support the view that legislatures are competent to enact retroactive laws, provided they do not infringe upon other constitutional provisions. The court concluded that the retrospective levy of sales tax was within the legislative competence and did not violate any constitutional limitations.

2. Violation of Fundamental Rights under Article 19(1)(g):

The petitioners argued that the tax would operate as a clog on free enterprise, violating Article 19(1)(g) of the Constitution. They claimed that the cumulative effect of various levies, including central excise duty and municipal fees, would cause undue hardship. The court noted that there was no material evidence provided to support the claim that the tax would force businesses to discontinue. It emphasized that the policy of taxation is a matter of public policy and administration, and unless the tax exceeds constitutional limits, it cannot be questioned. The court found no violation of Article 19(1)(g) as the tax did not prohibit business but was a legitimate exercise of the State's power to levy taxes.

3. Discrimination under Article 14:

The petitioners contended that the tax discriminated against dealers of certain tobacco products by not exempting turnovers below Rs. 10,000, unlike other goods. The court referred to a similar argument in *Gorantla Butchaiah Chowdary v. The State of Andhra* and reiterated that legislative classification must have a rational basis related to the object sought to be achieved. The State provided a plausible explanation that the intention was to tax all varieties of manufactured tobacco, which was not achieved due to the exemption limit. The court found that the classification was not arbitrary and was connected to the objective of raising revenue, thus not violating Article 14.

4. Double Taxation:

The argument was made that the levy of tax on country tobacco at the purchase point and on cigars and cheroots made from the same tobacco amounted to double taxation. The court clarified that double taxation refers to taxing the same individual on the same income or under the same head of tax. Since cigars and cheroots undergo a manufacturing process and are different from raw tobacco, the tax on these products did not constitute double taxation. The court dismissed this contention, stating that the burden of multiple taxes does not equate to double taxation.

5. Clarification of the Person Liable to Pay Tax under Sub-section (2-B):

The petitioners argued that sub-section (2-B) did not specify whether the seller or the purchaser was liable to pay the tax, making it unenforceable. The court examined the language of the statute and concluded that the intention was to tax the purchaser at the point of first purchase. It noted that while the sub-section did not explicitly state the person liable, the context and the scheme of taxation indicated that the purchaser was intended to be taxed. The court held that the legislative intent was clear, and the tax was exigible from the purchaser.

Conclusion:

The applications challenging the retrospective levy of sales tax, alleged violation of fundamental rights, discrimination, double taxation, and ambiguity in the tax liability under sub-section (2-B) were dismissed. The court found that the retrospective levy was within legislative competence, did not violate fundamental rights or equal protection, did not amount to double taxation, and that the purchaser was the intended taxpayer under sub-section (2-B). The petitions were dismissed with costs.

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