1988 (2) TMI 452 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Competence of the West Bengal State Legislature to enact the 1979 Amendment imposing "turnover tax."
2. Conflict between section 6B(4) of the Bengal Finance (Sales Tax) Act, 1941, and section 64A of the Sale of Goods Act, 1930.
3. Validity of including "non-taxable sales" in the calculation of "gross turnover" under section 6B.
4. Whether the 1979 Amendment imposes unreasonable restrictions on the fundamental right to trade under Article 19(1)(g) of the Constitution.
5. Discrimination against dealers with gross turnover exceeding the prescribed limit under section 6B.
6. Violation of Article 301 of the Constitution by the 1979 Amendment.
7. Applicability of turnover tax to dealers dealing in goods covered by only one of the Acts.
8. Competence of the legislature to enact a multi-point tax.
9. Reasonableness of section 6B(1)(c) providing for continuity of liability to pay tax for three years.

Detailed Analysis:

1. Competence of the West Bengal State Legislature to enact the 1979 Amendment imposing "turnover tax":

The court held that the "turnover tax" is indeed a tax on sales and not on income. The primary question was whether the turnover tax falls within the ambit of entry 54 of List II of the Seventh Schedule to the Constitution of India. The court approved the learned single judge's view that the turnover tax is an additional tax on sales and not a tax on income. The court cited several Supreme Court judgments, including S. Kodar v. State of Kerala, Hoechst Pharmaceuticals Ltd. v. State of Bihar, and K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu, which upheld the validity of similar provisions, affirming the legislative competence of the State Legislature.

2. Conflict between section 6B(4) of the Bengal Finance (Sales Tax) Act, 1941, and section 64A of the Sale of Goods Act, 1930:

The court noted that the provision of section 6B(4) prohibiting dealers from realizing the turnover tax from purchasers does not conflict with section 64A of the Sale of Goods Act. Even if there were a conflict, the provision would not be invalid due to Article 254 of the Constitution, which addresses conflicts between State and Central legislation. The court cited the Supreme Court's decision in Khazan Chand v. State of Jammu and Kashmir, which took notice of section 64A and upheld similar provisions.

3. Validity of including "non-taxable sales" in the calculation of "gross turnover" under section 6B:

The court disagreed with the learned single judge's view that "non-taxable sales" should be excluded from the calculation of gross turnover. The court cited the Supreme Court's decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar, which clarified that for the purpose of levying surcharge, it is permissible to include non-taxable sales in the gross turnover to identify the class of dealers liable to pay such surcharge. The court held that the inclusion of non-taxable sales in the gross turnover for the purpose of turnover tax is valid.

4. Whether the 1979 Amendment imposes unreasonable restrictions on the fundamental right to trade under Article 19(1)(g) of the Constitution:

The court held that the turnover tax does not impose unreasonable restrictions on the fundamental right to trade. The court cited several Supreme Court judgments, including S. Kodar v. State of Kerala and Hoechst Pharmaceuticals Ltd. v. State of Bihar, which upheld similar provisions, stating that the imposition of additional tax on dealers with higher turnover is not an unreasonable restriction on their right to trade.

5. Discrimination against dealers with gross turnover exceeding the prescribed limit under section 6B:

The court held that the classification of dealers based on their gross turnover for the purpose of levying turnover tax is reasonable and does not violate Article 14 of the Constitution. The court cited the Supreme Court's decision in S. Kodar v. State of Kerala, which upheld the classification of dealers based on their turnover for the purpose of imposing additional tax.

6. Violation of Article 301 of the Constitution by the 1979 Amendment:

The court rejected the contention that the 1979 Amendment violates Article 301 of the Constitution. The court held that a reasonable tax provision cannot be considered to violate Article 301, and therefore, it does not have to satisfy the requirements of Article 304.

7. Applicability of turnover tax to dealers dealing in goods covered by only one of the Acts:

The court held that the provision of section 6B applies to all dealers whose gross annual turnover exceeds the prescribed limit, regardless of whether the turnover is comprised of sales of goods covered by one or both Acts. The court found no merit in the contention that a dealer dealing in goods covered by only one Act is not liable to pay turnover tax.

8. Competence of the legislature to enact a multi-point tax:

The court found no merit in the contention that the legislature is not competent to enact a multi-point tax. The court noted that the learned counsel for the dealers could not back up this contention with any constitutional provision or judicial precedent directly in point.

9. Reasonableness of section 6B(1)(c) providing for continuity of liability to pay tax for three years:

The court held that the provision of section 6B(1)(c) enacts a pragmatic taxation policy and is not unreasonable or arbitrary. The court noted that similar provisions exist in the sales tax laws of virtually every State, and the learned counsel for the dealers could not cite any precedent in support of their contention.

Conclusion:

The court dismissed the appeals and writ petitions filed by the dealers and allowed the cross-objections filed by the State. The court upheld the validity of the provisions of section 6B of the Bengal Finance (Sales Tax) Act, 1941, and section 4AAA of the West Bengal Sales Tax Act, 1954, as amended by the 1979 Amendment. The court directed the sales tax authorities to deal with the matters in accordance with the judgment.