1990 (7) TMI 339 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the State Legislature under section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act.
2. Repugnancy of the provision with sections 3, 4, and 5 of the CST Act.
3. Discrimination under Article 14 of the Constitution.
4. Violation of the right to freedom of trade and commerce under Article 19(1)(g).
5. Violation of Article 286 of the Constitution.
6. Compliance with section 15 of the CST Act.

Detailed Analysis:

1. Legislative Competence of the State Legislature:
The petitioners argued that section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act was beyond the legislative competence of the State Legislature as it related to inter-State sale/export sale, which falls under the exclusive competence of Parliament as per Article 286 and entry 54 of List II of the Seventh Schedule of the Constitution. The Court held that the provision was within the competence of the State Legislature under entry 54 of List II of the Seventh Schedule of the Constitution. The amendment aimed to ensure a single-point levy by nullifying the effect of previous court decisions and was within the legislative powers of the State.

2. Repugnancy with CST Act:
The petitioners contended that the provision was repugnant to sections 3, 4, and 5 of the CST Act, thus violating Articles 254 and 269 of the Constitution. The Court found no repugnancy, stating that the OST Act provision did not conflict with the CST Act. The OST Act provision was designed to ensure that goods purchased without tax for resale within the state, if sold outside the state, would still be taxed, thus maintaining the single-point tax system.

3. Discrimination under Article 14:
The petitioners claimed that the tax levy was discriminatory and violated Article 14 of the Constitution. The Court noted that discrimination claims require a factual basis, which the petitioners failed to establish. The provision applied equally to all registered dealers who purchased goods without paying tax on the condition of resale within the state. The Court found no unequal application or effect of the law on similarly situated persons.

4. Violation of Right to Trade under Article 19(1)(g):
The petitioners argued that the provision infringed upon their right to trade under Article 19(1)(g). The Court held that the freedom to trade is not absolute and is subject to reasonable restrictions. The provision did not impose any unreasonable restrictions or compel dealers to submit declarations. It merely postponed the taxable event to ensure compliance with the declaration, thus not violating Article 19(1)(g).

5. Violation of Article 286:
The petitioners contended that the provision violated Article 286, which restricts state taxation on inter-State trade and commerce. The Court clarified that the provision did not tax inter-State sales or exports but ensured tax compliance for intra-State sales that were later sold outside the state. The taxable event remained the first point of sale/purchase within the state, and the provision did not contravene Article 286.

6. Compliance with Section 15 of the CST Act:
The petitioners argued that the provision conflicted with section 15 of the CST Act, which imposes restrictions on state taxation of declared goods. The Court noted that section 15 provides for reimbursement of state tax on declared goods sold in inter-State trade. The OST Act provision did not violate section 15 as it ensured compliance with tax obligations for intra-State sales that were later sold outside the state, maintaining the single-point tax system.

Conclusion:
The Court upheld the constitutional validity and legality of section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, rule 27, and form XXXIV. The provision was within the legislative competence of the State Legislature, did not conflict with the CST Act, was not discriminatory, did not violate the right to trade, and complied with Article 286 and section 15 of the CST Act. The writ application was dismissed with no order for costs.