1972 (12) TMI 69 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Colourable Legislation
2. Legislation Not Curing the Infirmity
3. Violation of Article 14 (Equality Before Law)
4. Violation of Article 19(1)(f) and (g) (Right to Property and Trade)
5. Violation of Article 304(b) (Freedom of Trade, Commerce, and Intercourse)

Detailed Analysis:

I. Colourable Legislation
The petitioners argued that the Mysore Sales Tax (Amendment) Act, 1969, was a colourable piece of legislation intended to circumvent the decision of the court in D. Cawasji & Co. v. State of Mysore. The court held that if the Legislature is competent to enact a legislation and none of the constitutional limitations are transgressed, it cannot be challenged on the ground that it is a colourable legislation, regardless of the motive behind it. The court found no question of legislative competence being alleged, thus rendering this ground untenable.

II. Legislation Not Curing the Infirmity
The petitioners contended that the impugned Act did not remove the basis of the court's decision in D. Cawasji & Co. v. State of Mysore and merely overruled it without changing the law retrospectively. The court clarified that the impugned Act enhanced the rate of tax from six and a half to 45 per cent retrospectively, effectively removing the basis of the earlier decision. By deeming the rate of tax to have always been 45 per cent from 1st April 1966, the decision of the court was rendered ineffective.

III. Violation of Article 14
The petitioners argued that the differential tax rates for periods before and after 1st July 1969 were discriminatory. The court rejected this argument, stating that no class of licensees was selected for discriminatory treatment and all were treated alike. The court emphasized that classification for taxation is not reviewable by courts unless palpably arbitrary, and no hostile discrimination was shown against particular persons or classes.

IV. Violation of Article 19(1)(f) and (g)
The petitioners claimed that the retrospective tax increase was oppressive and confiscatory, violating their rights under Article 19(1)(f) and (g). The court noted that the petitioners' grievance was based on a misconception that the enhanced levy included excise duty and cesses. The court reiterated that the sales tax was to be collected only on the basic price of arrack, not on the excise duty and cesses. The court also referenced previous cases to support the reasonableness of retrospective taxation, concluding that the retrospective operation of the impugned Act did not constitute an unreasonable restriction on the freedoms guaranteed by Article 19(1)(f) and (g).

V. Violation of Article 304(b)
The petitioners argued that the high rate of sales tax imposed restrictions on the freedom of trade and required the previous sanction of the President under Article 304(b). The court stated that non-discriminatory taxes on goods do not offend Article 301 unless they directly impede the free movement or transport of goods. Given that the trade in arrack is under strict State control and the wholesale trade is a State monopoly, the court concluded that the high rate of sales tax did not directly impede the freedom of trade within the State. Consequently, the impugned Act did not require the previous sanction of the President.

Conclusion
All the contentions urged by the petitioners were found to be without merit. The writ petitions were dismissed with costs, and an advocate's fee of Rs. 250 was awarded.