1987 (10) TMI 362 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the Kerala Finance Act 18 of 1987 regarding the imposition of sales tax on certain items.
2. Challenge based on Article 14 of the Constitution.
3. Retrospective effect of the Act from 1st July 1987.

Summary:

1. Validity of the Kerala Finance Act 18 of 1987:
The petitioners, owners of hotels and restaurants, challenged the Kerala Finance Act 18 of 1987, which imposed sales tax on item 57 of the First Schedule and item 4 of the Fifth Schedule of the Kerala General Sales Tax Act. The amendments introduced by the Finance Act subjected cooked food and beverages sold in bar-attached hotels and hotels above the grade of two stars to a 10% sales tax at the point of first sale. Additionally, "liquor other than foreign liquor, arrack, and toddy" was taxed at two points: 45% at the first sale and 15% at the last sale.

2. Challenge Based on Article 14 of the Constitution:
The petitioners argued that the classification of hotels and restaurants into bar-attached or above two stars for tax purposes was discriminatory and violated Article 14. The court noted that Article 14 forbids class legislation but allows reasonable classification. The classification must be based on an intelligible differentia with a rational nexus to the legislative objective. The court upheld the classification, stating that the State has wide discretion in selecting persons or objects to tax and that the classification was reasonable and related to the legislative objective of raising revenue and partially implementing the directive principle in Article 47 of the Constitution.

3. Retrospective Effect of the Act:
The petitioners also challenged the retrospective effect of the Act from 1st July 1987. The Act received the Governor's assent on 20th August 1987 and was published in the Gazette on the same day. The Advocate-General assured that the tax would only be collected from 20th August 1987 onwards, and no recovery would be made for the period between 1st July 1987 and 19th August 1987. The court recorded this submission and directed that no tax recovery be made for the period prior to the publication date.

Conclusion:
The court dismissed the petitions, holding that the levy on cooked food and liquor as per the amended provisions was valid and not violative of Article 14. The retrospective effect challenge was addressed by the State's assurance not to collect taxes for the period before the publication date. The petitions were dismissed with no order as to costs, and leave to appeal to the Supreme Court was refused.