1970 (2) TMI 111 - HC - VAT and Sales Tax

Issues Involved:
1. Vires of Section 29 of the Kerala General Sales Tax Act, 1963.
2. Vires of Rule 35 framed under the Kerala General Sales Tax Act, 1963.
3. Violation of Article 301 of the Constitution.
4. Presidential sanction under Article 304(b) of the Constitution.
5. Power of confiscation and its relation to Entry 54 of List II of Schedule VII of the Constitution.
6. Violation of Articles 14 and 19(1)(f) and (g) of the Constitution.
7. Whether Rule 35(5) exceeds the limits of Section 29 of the Act.

Analysis:

1. Vires of Section 29 of the Kerala General Sales Tax Act, 1963:
The court examined the provisions of Section 29, which authorizes the government to set up check-posts to prevent tax evasion. Clause (2) mandates possession of certain documents during transportation, and Clause (3) requires vehicles to stop for inspection. Clauses (4) to (6) deal with detention, seizure, and confiscation of goods. The court found that these provisions directly affect the transport of goods, thus impacting the free flow of trade.

2. Vires of Rule 35 framed under the Kerala General Sales Tax Act, 1963:
Rule 35 largely mirrors Section 29, specifying the procedures for examination, detention, and confiscation of goods. Clauses (5) to (12) and (15) of Rule 35 detail the process of issuing show-cause notices, conducting inquiries, and confiscating goods. The court noted that these rules extend the powers conferred by Section 29, particularly in the context of suspicion regarding the validity of documents.

3. Violation of Article 301 of the Constitution:
Article 301 ensures freedom of trade throughout India. The court held that the provisions of Section 29 and Rule 35 are not merely regulatory but restrictive, as they impose direct and immediate constraints on the transport of goods. This violates Article 301, as the provisions go beyond mere regulation and hamper the free flow of trade.

4. Presidential Sanction under Article 304(b) of the Constitution:
Article 304(b) allows states to impose reasonable restrictions on trade with Presidential sanction. The court noted that the Kerala General Sales Tax Act did not receive such sanction. Therefore, the restrictions imposed by Section 29 and Rule 35 cannot be justified under Article 304(b).

5. Power of Confiscation and its Relation to Entry 54 of List II of Schedule VII of the Constitution:
Entry 54 authorizes states to levy taxes on the sale or purchase of goods. The court acknowledged conflicting judicial opinions on whether the power of confiscation is incidental to this taxing power. However, the court refrained from giving a final opinion, as the provisions were already found unconstitutional on other grounds.

6. Violation of Articles 14 and 19(1)(f) and (g) of the Constitution:
Article 14 ensures equality before the law, while Articles 19(1)(f) and (g) protect the right to property and trade. The court found that the provisions for confiscation lacked adequate safeguards, making them arbitrary and unreasonable. The requirement for the owner to be present or ascertainable for notice, and the possibility of repeated checks at multiple check-posts, were seen as unreasonable restrictions on fundamental rights.

7. Whether Rule 35(5) Exceeds the Limits of Section 29 of the Act:
Rule 35(5) extends suspicion to all documents required under Section 29(2), which the petitioner argued was beyond the scope of the section. The court noted that while the rule appears to enlarge the section's content, it could be interpreted as investigating the validity of documents. However, as both the section and the rule were struck down on other grounds, the court did not provide a final opinion on this issue.

Conclusion:
The court declared clauses (3), (4), and (5) of Section 29 of the Act, and clauses (3) to (12) and (15) of Rule 35, invalid and unconstitutional. The specific orders and notices challenged in the writ petitions were quashed, and the security deposits made by the petitioners were ordered to be released.

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