1981 (3) TMI 237 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 98A of the Karnataka Forest Act, 1963.
2. Applicability of the tax imposed by Section 98A on the balance of the amount of consideration due and paid after the date of its enforcement.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 98A of the Karnataka Forest Act, 1963:

Section 98A was introduced by the Karnataka Forest (Amendment) Act, 1976, and imposes a forest development tax on the consideration paid for forest produce disposed of by the State Government. The petitioners challenged the constitutionality of this section on several grounds:

(i) Legislative Competence: The petitioners argued that Section 98A is invalid for want of legislative competence as it imposes a tax on the disposal of forest produce otherwise than by sale, which is not covered by Entry 54 of List II. However, the court found that the disposal of forest produce under the agreements was by sale, and thus, the tax is within the legislative competence of the State under Entry 54 of List II.

(ii) Double Taxation: The petitioners claimed that the tax under Section 98A results in double taxation as it imposes a second tax on the same transaction already taxed under the Sales Tax Act. The court rejected this contention, stating there is no constitutional prohibition against double taxation.

(iii) Nature of Tax: The petitioners argued that the tax under Section 98A is in the nature of a fee or compensatory tax and lacks quid pro quo. The court held that the levy under Section 98A is a tax and not a fee or compensatory tax, and thus, the existence of quid pro quo is not necessary.

(iv) Excise Duty: The petitioners contended that the levy under Section 98A is in the nature of an excise duty, which the State Legislature is not competent to impose. The court found that the tax is on the sale or purchase of goods and not on manufacture or production, and thus, it is not an excise duty.

(v) Essential Ingredients of Tax Law: The petitioners argued that Section 98A lacks the essential ingredients of a tax law, such as provisions for levy, assessment, and collection. The court found that the section adequately covers these aspects, with provisions for the levy, assessment, and collection of the tax.

(vi) Violation of Article 14: The petitioners claimed that Section 98A is violative of Article 14 of the Constitution as it imposes a tax only on forest produce purchased from the State and not from private individuals. The court held that the State, owning most of the forests, stands on a different footing and the classification has a nexus to the object sought to be achieved.

2. Applicability of the Tax Imposed by Section 98A on the Balance of the Amount of Consideration Due and Paid After the Date of Its Enforcement:

The petitioners contended that the tax under Section 98A should not apply to contracts concluded before 24th December 1975, even if some instalments were payable after that date. The court found that:

(i) The contracts in question were completed sales before the enforcement of Section 98A, with the title to the trees passing to the petitioners upon payment of the first instalment and signing of the agreement.

(ii) The provision for payment in instalments did not affect the finality of the sale, and thus, the tax under Section 98A could not be applied retrospectively to instalments due after the enforcement date.

Judgment:

(i) W.P. Nos. 16614 to 16631 of 1979: The writ petitions were dismissed, and the rule was discharged.

(ii) W.P. Nos. 5375 to 5377 and 8579 of 1976: The writ petitions were partly allowed. The court issued a writ of mandamus directing the respondents not to collect any forest development tax under Section 98A in respect of sales under contracts concluded before 24th December 1975, and to refund any tax already collected.

The Government Advocate was permitted to file a memo of appearance in Writ Petitions Nos. 16614 to 16631 of 1979 within two weeks.