1980 (3) TMI 243 - HC - VAT and Sales Tax

Summary

Issues:
Constitutional validity of the Bengal Finance (Sales Tax) (Amendment) Ordinance, 1980.

Analysis:
The judgment revolves around the constitutional validity of the Bengal Finance (Sales Tax) (Amendment) Ordinance, 1980, specifically concerning the imposition of sales tax on the sale of country liquor. The respondents, engaged in the retail vend of country liquor, challenged the imposition of sales tax, arguing it rendered their business unprofitable. The key contention was that the imposition of sales tax impeded the free flow of trade, violating Article 301 of the Constitution, and was ultra vires Article 304(b) due to non-compliance with its requirements.

The learned Judge in C.R. No. 6862(W) of 1972 held in favor of the respondents, declaring the imposition of tax on the sale of country liquor as ultra vires Article 304(b). This judgment was upheld in subsequent cases, leading to the appeals by the taxing authorities. The introduction of the Bengal Finance (Sales Tax) (Amendment) Ordinance, 1980, omitted entry 25 of Schedule I of the Bengal Finance (Sales Tax) Act, 1941, with retrospective effect, aiming to address the constitutional concerns raised.

The appellants argued that the impugned Ordinance complied with the requirements of Article 304(b) by obtaining prior sanction from the President. However, the reasonableness of the tax imposition was questioned, especially considering the low gross profits of the liquor dealers. The appellants contended that dealers could pass on the tax to customers based on an explanation in the Bengal Excise Act, but practical challenges in retrospective tax collection were acknowledged.

A significant argument was raised by the appellants regarding the nature of the trade in country liquor. They contended that such trade fell outside the scope of trade or commerce protected by Article 301 or Article 304(b) of the Constitution, citing Supreme Court decisions equating liquor trade with activities deemed extra commercium, such as gambling.

The respondents, on the other hand, emphasized the distinction between regulatory measures and fiscal impositions, asserting that while there is no fundamental right to trade in liquor, the imposition of tax for fiscal purposes warranted protection under Article 304(b). They highlighted the difference between regulatory restrictions and fiscal impositions, citing previous judgments on import duties on intoxicants.

The judgment concluded that liquor trade did not fall within the protected realm of trade or commerce under the Constitution, as established by Supreme Court precedents and a Full Bench decision of the Kerala High Court. The Court rejected the contention that liquor sales were not subject to sales tax under the Bengal Finance (Sales Tax) Act, emphasizing that the sale of liquor met the criteria for taxation under the Act.

In the final ruling, the judgments in favor of the respondents were set aside, and the rules nisi were discharged. The appeals by the taxing authorities were allowed, with no order for costs. The respondents' plea for leave to appeal to the Supreme Court was refused, with a stay of operation of the judgment for four weeks granted.