1989 (7) TMI 325 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of sub-clause (vd) of clause (a) of sub-section (2) of section 5 of the Bengal Finance (Sales Tax) Act, 1941.
2. Alleged unreasonable restriction on trade and commerce.
3. Alleged violation of articles 14, 19(1)(g), 245, 254, 265, 276, 286, and 301 of the Constitution.
4. Requirement of furnishing a declaration in form XXIVC.
5. Alleged discriminatory legislation.
6. Alleged conflict with section 15 of the Central Sales Tax Act, 1956.
7. Alleged arbitrary and confiscatory nature of the requirement.
8. Alleged imposition of multi-point taxation.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sub-clause (vd):
The applicants challenged the constitutional validity of sub-clause (vd) of section 5(2)(a) of the BFST Act, claiming it imposed unreasonable restrictions on trade in iron and steel. They argued that the State Legislature lacked the power to enact such a provision and that it violated articles 14 and 19(1)(g) of the Constitution by imposing additional obligations on subsequent selling dealers to furnish a declaration in form XXIVC.

2. Alleged Unreasonable Restriction on Trade and Commerce:
The applicants contended that the amendment, which shifted the point of taxation to the first point of sale, imposed an unreasonable restriction on trade. They argued that the mandatory requirement to furnish a declaration form impeded the free flow of trade and commerce in iron and steel, thus violating articles 301 and 304(b) of the Constitution.

3. Alleged Violation of Constitutional Articles:
The applicants argued that sub-clause (vd) violated multiple constitutional provisions, including articles 14, 19(1)(g), 245, 254, 265, 276, 286, and 301. They claimed the provision was discriminatory, arbitrary, and imposed an unreasonable restriction on their right to trade.

4. Requirement of Furnishing a Declaration in Form XXIVC:
The applicants argued that the mandatory requirement to furnish a declaration in form XXIVC was unreasonable. They contended that this requirement was peculiar to dealers in iron and steel and not applicable to dealers in other goods, making it discriminatory. They also argued that the provision could lead to multi-point taxation if the declaration was not furnished.

5. Alleged Discriminatory Legislation:
The applicants claimed that the provision was discriminatory as it treated dealers in iron and steel differently from dealers in other goods. They argued that this discrimination was evident as manufacturing dealers continued to enjoy a concessional rate of tax, while other dealers did not.

6. Alleged Conflict with Section 15 of the CST Act, 1956:
The applicants argued that sub-clause (vd) conflicted with section 15 of the CST Act, 1956, which restricts the levy of tax on declared goods to a single point. They contended that the mandatory requirement of the declaration could lead to multi-point taxation, thus violating section 15 of the CST Act.

7. Alleged Arbitrary and Confiscatory Nature of the Requirement:
The applicants argued that the requirement to furnish a declaration was arbitrary and confiscatory. They contended that the provision imposed an unreasonable burden on subsequent selling dealers, who had no control over the first selling dealers to obtain the required declaration.

8. Alleged Imposition of Multi-point Taxation:
The applicants contended that the mandatory requirement of the declaration could lead to multi-point taxation, as subsequent selling dealers would be liable to pay tax if they failed to furnish the declaration. They argued that this contravened section 15(a) of the CST Act and article 286(3) of the Constitution.

Judgment Analysis:

Constitutional Validity and Discrimination:
The Tribunal held that sub-clause (vd) was enacted under entry 54 of List II of the Seventh Schedule to the Constitution, read with articles 245 and 246. The Tribunal accepted the State's contention that sub-clause (vd) aimed to prevent tax evasion and ensure compliance with section 15(a) of the CST Act. The Tribunal found no inconsistency between sub-clauses (va) and (vd) and held that they served distinct purposes, thus rejecting the claim of discrimination.

Unreasonable Restriction on Trade:
The Tribunal acknowledged that the provision aimed to change the point of taxation to the first point of sale and found that the requirement to furnish a declaration form was a convenient mode of proof. However, it held that the mandatory nature of the requirement imposed an unreasonable restriction on trade and commerce, potentially leading to multi-point taxation.

Violation of Constitutional Articles:
The Tribunal found that the mandatory requirement of the declaration form could lead to multi-point taxation, violating section 15(a) of the CST Act and article 286(3) of the Constitution. It also held that the provision was unfair and unreasonable, thus violating article 14.

Requirement of Furnishing a Declaration:
The Tribunal held that the mandatory requirement to furnish a declaration form was unreasonable and could lead to multi-point taxation. It interpreted the provision to mean that the requirement was directory, not mandatory, allowing dealers to prove their case with other evidence.

Discriminatory Legislation:
The Tribunal rejected the claim of discrimination, holding that the provision had a reasonable nexus to the object sought to be achieved. It found that registered dealers in iron and steel constituted a different class and that the provision aimed to prevent tax evasion.

Conflict with Section 15 of the CST Act:
The Tribunal held that the mandatory requirement of the declaration form could lead to multi-point taxation, thus violating section 15(a) of the CST Act. It found that the provision imposed an unreasonable burden on subsequent selling dealers.

Arbitrary and Confiscatory Requirement:
The Tribunal held that the mandatory requirement of the declaration form was arbitrary and imposed an unreasonable burden on subsequent selling dealers. It found that the provision was unfair and unreasonable, thus violating article 14.

Imposition of Multi-point Taxation:
The Tribunal held that the mandatory requirement of the declaration form could lead to multi-point taxation, violating section 15(a) of the CST Act and article 286(3) of the Constitution. It found that the provision imposed an unreasonable restriction on trade and commerce.

Conclusion:
The Tribunal held that sub-clause (vd) of section 5(2)(a) of the BFST Act was valid and constitutional when interpreted to mean that the requirement to furnish a declaration form was directory, not mandatory. It directed that dealers could prove their case with other evidence and that the Commercial Tax Officer should be satisfied with such evidence. The writ petitions were partly allowed, with no order for costs.