1971 (8) TMI 206 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence.
2. Violation of Article 19(1)(g) of the Constitution.
3. Violation of Article 14 of the Constitution.
4. Inconsistency with Section 15(a) of the Central Sales Tax Act.
5. Validity of Section 2(2) of the Tamil Nadu Additional Sales Tax Act.
6. Validity of Section 2(3) of the Tamil Nadu Additional Sales Tax Act.
7. Allegation that the additional tax amounts to a tax on tax.
8. Validity of Rule 4 of the Tamil Nadu Additional Sales Tax Rules, 1970.

Detailed Analysis:

1. Legislative Competence:
The court examined whether the Tamil Nadu Additional Sales Tax Act (Act No. 14 of 1970) was within the legislative competence of the State Legislature. The court held that the additional tax is in its character a sales tax and falls within the ambit of Entry 54 of the State List. The court referenced the case of Province of Madras v. Boddu Paidanna, which recognized that sales tax is a tax levied at a specified rate on each sale of goods or commodities. The court concluded that Section 2(1) of the Act, which imposes an additional tax based on the dealer's turnover exceeding Rs. 10 lakhs, is within the State's taxing power.

2. Violation of Article 19(1)(g):
The petitioners argued that the additional tax imposed by Section 2(1) of the Act is an unreasonable restriction on their right to carry on business. The court disagreed, stating that any tax is a restriction, but it must be shown to be unreasonable to violate Article 19(1)(g). The court found that the additional tax is not an unreasonable restriction and is within the legislative competence to augment the State's revenues. The classification based on the quantum of turnover is sensible and relevant to the legislative object, thus not violative of Article 19(1)(g).

3. Violation of Article 14:
The petitioners contended that the additional tax involves arbitrary classification and is discriminatory. The court held that the classification of dealers based on turnover for the purposes of graded charge is constitutional. The court referenced the reasoning in Stewart Dry Goods Co. v. Lewis, where it was held that classification according to the size and economic superiority of dealers is not arbitrary discrimination. The court concluded that the classification in Section 2(1) is relevant to the legislative object and does not violate Article 14.

4. Inconsistency with Section 15(a) of the Central Sales Tax Act:
The petitioners argued that the proviso to Section 2(1) is inconsistent with Section 15(a) of the Central Sales Tax Act, which contemplates only one rate and at one stage. The court held that the proviso to Section 2(1) is intended to conform to the provisions of Section 15 of the Central Sales Tax Act. The tax under the General Sales Tax Act and the additional tax under the impugned Act are not levied at more than one stage, thus not inconsistent with Section 15(a).

5. Validity of Section 2(2):
The petitioners argued that the inhibition on the collection of additional tax in Section 2(2) is not ancillary or incidental to the power to levy sales tax under Entry 54 of the State List. The court held that the inhibition does not alter the character of the additional tax as sales tax. The court referenced the Supreme Court's decision in The Tata Iron and Steel Co. Ltd. v. The State of Bihar, which held that sales tax need not be an indirect tax and can be imposed without the seller passing it on to the buyer. The court concluded that Section 2(2) is within the legislative competence and does not violate Article 19(1)(g) or Article 14.

6. Validity of Section 2(3):
The court held that since Section 2(2) is valid, Section 2(3), which enforces the provisions of Section 2(2), is also within the legislative competence under Entry 64 of the State List.

7. Allegation that the Additional Tax Amounts to a Tax on Tax:
One of the petitioners contended that the additional tax under Section 2(1) amounts to a tax on tax. The court rejected this contention, holding that the additional tax is in its true character a sales tax.

8. Validity of Rule 4 of the Tamil Nadu Additional Sales Tax Rules, 1970:
The petitioners argued that Rule 4, which provides for the levy and collection of advance tax, is ultra vires. The court held that this contention overlooks the concluding part of Section 2(1), which attracts the provisions of the Tamil Nadu General Sales Tax Act, 1959, including the power to levy and collect advance tax.

Conclusion:
The petitions were dismissed, and the court upheld the validity of the Tamil Nadu Additional Sales Tax Act (Act No. 14 of 1970) and the associated rules. The court found that the Act was within the legislative competence, did not violate Articles 19(1)(g) or 14 of the Constitution, and was not inconsistent with Section 15(a) of the Central Sales Tax Act. The classification based on turnover was deemed reasonable and relevant to the legislative objective.

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