1982 (4) TMI 260 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence regarding the inclusion of inter-State and export sales in gross turnover.
2. Alleged discrimination in surcharge imposition.
3. Stage of sales tax liability affecting different classes of manufacturers.
4. Confiscatory nature of the surcharge provision.
5. Inconsistency between the Drugs (Price Control) Order and the impugned provision.

Issue-wise Detailed Analysis:

1. Legislative Competence Regarding the Inclusion of Inter-State and Export Sales in Gross Turnover:
The petitioners contended that the State Legislature lacks the power to legislate on inter-State and export sales, and including these sales in the gross turnover for surcharge determination is beyond legislative competence. The court held that the impugned provisions do not levy a tax on inter-State or export sales but use these figures to classify dealers for surcharge purposes. The actual surcharge is levied only on intra-State sales, which falls within the State Legislature's taxing power. The court referenced the Supreme Court decision in A.V. Fernandez v. State of Kerala, clarifying that including such sales for registration and return submission does not affect their non-liability to sales tax.

2. Alleged Discrimination in Surcharge Imposition:
The petitioners argued that two dealers with the same intra-State sales but different inter-State sales could face different surcharge liabilities, leading to discrimination. The court rejected this argument, stating that classification based on gross turnover is rational and rests on the volume of business, including non-liable sales. The Supreme Court's discussion in S. Kodar's case supported the view that the classification based on turnover is rational and not discriminatory.

3. Stage of Sales Tax Liability Affecting Different Classes of Manufacturers:
The petitioners argued that the surcharge imposition is discriminatory as some manufacturers bear the tax burden at the first sale stage while others do not. The court observed that the stage at which sales tax is levied depends on administrative considerations and is permissible by law. The mere difference in tax burden due to different stages does not make the legislation discriminatory.

4. Confiscatory Nature of the Surcharge Provision:
The petitioners claimed that the surcharge was confiscatory, citing examples where the surcharge would lead to business losses. The court noted that each case must be evaluated on its facts, and the petitioners failed to show that the surcharge made it impossible for anyone in their business category to make a profit. The court referenced the Supreme Court decision in Anakapalle Co-operative Agricultural & Industrial Society Ltd. v. Union of India, emphasizing that the impact on individual businesses does not determine the validity of a tax provision.

5. Inconsistency Between the Drugs (Price Control) Order and the Impugned Provision:
The petitioners argued that the surcharge conflicted with the Drugs (Price Control) Order, which fixes drug prices based on cost and fair return, and prohibits passing the surcharge to consumers. The court held that the impugned legislation falls within the State's power under entry 54 of List II of the Seventh Schedule, and any incidental encroachment on Central law is permissible. The court also noted that the Drugs Control Order allows but does not mandate passing local taxes to consumers, and the petitioner could seek price revision from the relevant authority. The court found no unreasonable restriction on the petitioners' right to carry on business.

Conclusion:
The court dismissed the writ applications, finding no merit in the challenges to the impugned provisions. The surcharge provisions were held to be within legislative competence, non-discriminatory, non-confiscatory, and not in conflict with the Drugs (Price Control) Order.

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