1972 (1) TMI 92 - HC - VAT and Sales Tax

Issues Involved:
1. Validity and construction of Section 5A of the Kerala General Sales Tax Act, 1963.
2. Legislative competence of the State to impose tax under Section 5A.
3. Whether Section 5A infringes Article 301 of the Constitution of India.
4. Whether Section 5A is discriminatory and violative of Article 14 of the Constitution.
5. Retrospective operation of Section 5A and its impact on fundamental rights under Articles 14, 19(1)(f), and 31 of the Constitution.

Detailed Analysis:

1. Validity and Construction of Section 5A:
Section 5A of the Kerala General Sales Tax Act, 1963, was introduced to check evasion of sales tax. It imposes a tax on the purchase turnover of goods under certain conditions, specifically when goods are consumed in manufacturing, disposed of other than by sale within the State, or dispatched outside the State not as a result of inter-State trade. The section aims to tax goods that would otherwise escape taxation within the State.

2. Legislative Competence:
The main contention was whether the State Legislature had the competence to impose a tax that depends on subsequent events rather than the occasion of the sale itself. The court held that the power to tax sales includes the ability to tax purchases based on future contingencies. The tax under Section 5A is on the purchase event, although the liability is triggered by subsequent use or disposal. The court referenced several Supreme Court decisions, including State of Madras v. Narayanaswami Naidu, to affirm that such a tax is within the legislative competence of the State under Entry 54 of List II of the Seventh Schedule to the Constitution.

3. Infringement of Article 301:
The petitioners argued that Section 5A restricts trade and thus infringes Article 301 of the Constitution. The court referred to the Supreme Court's decision in Atiabari Tea Company v. The State of Assam, which held that only taxes that directly and immediately restrict trade fall within the purview of Article 301. The court found that Section 5A does not impose any physical barriers or discriminatory taxes that would impede the free movement of goods. Therefore, it does not infringe Article 301.

4. Discrimination and Violation of Article 14:
The petitioners contended that Section 5A discriminates between different dealers. The court held that the classification under Section 5A is reasonable and based on the necessity to tax goods that would otherwise escape taxation. The provision ensures that goods consumed in manufacturing or disposed of in ways that prevent further taxation within the State are taxed at the purchase point. The court found no violation of Article 14, as the classification had a rational basis and was not arbitrary.

5. Retrospective Operation and Fundamental Rights:
The petitioners argued that the retrospective operation of Section 5A violated their fundamental rights under Articles 14, 19(1)(f), and 31, as they could not pass on the tax to consumers for the period before the levy was known. The court referred to the Supreme Court's decision in Rai Ramkrishna v. State of Bihar, which held that retrospective taxation is not inherently unreasonable or confiscatory. The court found that the retrospective period in question was short and did not impose an unreasonable burden that would make the business unviable. Therefore, the retrospective operation of Section 5A was upheld.

Conclusion:
The court dismissed all the petitions, upholding the validity of Section 5A of the Kerala General Sales Tax Act, 1963. The court found that the section was within the legislative competence of the State, did not infringe Article 301, was not discriminatory under Article 14, and that its retrospective operation did not violate fundamental rights under Articles 14, 19(1)(f), and 31. The petitions were dismissed with parties directed to bear their own costs.

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