1966 (6) TMI 7 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of levy of surcharge by the State Legislature under the Kerala Surcharge on Taxes Act, 1957.
2. Interpretation of Entry 54 in List II of the Seventh Schedule to the Constitution regarding the power of the State Legislature to enact the Act.
3. Analysis of Article 271 of the Constitution and its applicability to the power of the State Legislature to impose a surcharge.
4. Requirement of previous recommendation by the Governor for moving a money bill in the State Legislature.

Issue 1: The petitioner challenged the validity of the levy of surcharge under the Kerala Surcharge on Taxes Act, 1957, contending that the State Legislature lacked the power to enact the Act. The crux of the argument was whether the surcharge was a tax on the sale of goods or on the dealer himself. The court held that the surcharge was an enhancement of the sales tax when the dealer's turnover exceeded a certain threshold, thus constituting a tax on the aggregate of sales effected by the dealer. The court relied on precedents to establish that a sales tax need not be an indirect tax, and the ultimate economic burden falls on the consumer. Therefore, the contention that the surcharge was a tax on tax was dismissed.

Issue 2: The interpretation of Entry 54 in List II of the Seventh Schedule was crucial in determining the legislative competence of the State Legislature to enact the Act. The court rejected the argument that Entry 54 only justified a tax on the sale of goods directly passed on to the consumer. It emphasized that the surcharge was aimed at increasing the tax on the sale or purchase of goods, as evident from the preamble of the Act. Precedents were cited to support the notion that the sales tax charged by a dealer is part of the price paid by the consumer, reinforcing the validity of the surcharge as a tax on sales.

Issue 3: The analysis of Article 271 of the Constitution was pivotal in assessing the State Legislature's authority to impose a surcharge. The court elucidated that Article 271 empowered Parliament to increase duties or taxes with a surcharge for the Union's purposes, with the proceeds forming part of the Consolidated Fund of India. It clarified that Article 271 did not grant similar authority to State Legislatures. The court highlighted that the absence of express authorization for State Legislatures to impose a surcharge did not invalidate the Act, as the power to levy surcharge rested with Parliament for Union purposes.

Issue 4: The contention regarding the requirement of a previous recommendation by the Governor for moving a money bill in the State Legislature was addressed. The petitioner argued that the Act was invalid due to the lack of prior recommendation by the Governor. However, the court invoked Article 255 of the Constitution, which stipulates that the absence of a required recommendation does not invalidate an Act if assent is subsequently given by the Governor or the President. Therefore, the court dismissed this contention, affirming the validity of the Act despite the alleged procedural defect.