1962 (1) TMI 54 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the levy of surcharge under the Kerala Surcharge on Taxes Act, XI of 1957.
2. Exemption of transactions in "maida" from payment of sales tax under section 5(vi) of the General Sales Tax Act.
3. Whether the order of assessment in O.P. No. 1585 of 1960 is arbitrary and in violation of the principles of natural justice.

Issue-wise Detailed Analysis:

1. Legality of the Levy of Surcharge:
The petitioners challenged the levy of surcharge under the Kerala Surcharge on Taxes Act, XI of 1957. The court noted that the competency of the Legislature to enact this measure was not disputed, referencing a prior decision in Kunahmmed Haji v. Agricultural Income-tax Officer (1960) K.L.J. 517. Section 3(1) of the Act imposes a surcharge on dealers with a turnover exceeding Rs. 30,000, and this provision was not challenged. However, the contention was against section 3(2), which prevents dealers from collecting the surcharge from consumers. The petitioners argued this was discriminatory and violated Articles 14, 19(1)(f), and 19(1)(g) of the Constitution. The court, referencing the Supreme Court's decision in Konduri Buchirajalingam v. State of Hyderabad [1958] 9 S.T.C. 397, held that a sales tax need not be an indirect tax and can be imposed directly on dealers. The court concluded that section 3(2) was not discriminatory as it applied uniformly to all dealers with a turnover exceeding Rs. 30,000, and there was no violation of Articles 14, 19(1)(f), or 19(1)(g). The court also rejected the contention that section 3(2) infringed Article 276, stating that the surcharge was a tax on the sale or purchase of goods, not on the exercise of a profession or trade.

2. Exemption of "Maida" from Sales Tax:
The petitioners claimed that "maida" should be exempt from sales tax under section 5(vi) of the General Sales Tax Act, which exempts foodgrains. The court examined the definition of "foodgrains" in section 2(dd) of the Act, which includes paddy, rice, wheat, maize, jowar, bajra, barley, and ragi, and any other articles specified by the Government. Since "maida" was not notified as a foodgrain, the court held that it could not be considered exempt. The court rejected the argument that "maida," being a by-product of wheat, should be included in the term "wheat," stating that the Legislature intended to exempt only grains in their original form, not by-products. Thus, the court upheld the Sales Tax Officer's decision to deny the exemption for "maida."

3. Arbitrary Assessment in O.P. No. 1585 of 1960:
The petitioners argued that the assessment order was arbitrary and violated natural justice principles because the notice (exhibit P-1) did not provide the basis for the best judgment assessment. The court agreed, noting that the notice only criticized the books of account without indicating the basis for the assessment. The court stated that for a fair opportunity to object, the basis of the assessment must be communicated to the assessee. The court set aside the assessment order (exhibit P-3) and directed the assessing authority to take up the assessment afresh after the disposal of the pending appeal for the previous year's assessment, giving the assessee a full opportunity to present objections.

Conclusion:
The court dismissed O.P. Nos. 214 and 215 of 1960, upholding the levy of surcharge and the denial of exemption for "maida." In O.P. No. 1585 of 1960, the court upheld the validity of the surcharge but set aside the assessment order, directing a fresh assessment after the pending appeal's resolution.

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