1990 (8) TMI 373 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to legality and correctness of a notification under the Central Sales Tax Act, 1956; Discrimination against petitioners by exempting a cooperative from tax; Delay in filing statement of objections by the State; Competence of State Government to issue notification; Violation of Article 14 and Article 301; Public interest served by the notification; Discrimination based on the exemption granted; Comparison with similar cases and judgments; Supersession of 1977 notification by 1984 notification.

Detailed Analysis:

The petitioners, registered dealers under the Karnataka Sales Tax Act, challenged a notification issued by the State of Karnataka under section 8(5) of the Central Sales Tax Act, 1956. The notification exempted the Central Arecanut Marketing and Processing Co-operative Limited from paying Central sales tax if their transactions within the State were already taxed, creating a disparity with the petitioners' inter-State sales. The delay in filing objections by the State was noted, with the matter being referred to a Division Bench due to the legal complexities raised by the petition. The competence of the State Government to issue such notifications was questioned, along with allegations of discrimination under Article 14 and Article 301.

The petitioners argued that the notification impeded inter-State trade and commerce and did not serve public interest. They highlighted a Supreme Court case where a similar notification was deemed unconstitutional for affecting free trade and commerce. The State contended that the cooperative was a separate class benefiting the majority of growers, but failed to provide evidence supporting this claim. The court rejected the argument that the cooperative fell into a distinct class, emphasizing that the exemption granted created unfair competition and revenue loss, thus violating Article 14.

Comparisons were drawn with other cases to assess the legality of the notification. While the State referenced a subsequent Supreme Court decision allowing regional economic growth incentives, the court distinguished the present case as involving preferential treatment of a specific outlet. The judgment emphasized that the notification was discriminatory and not in public interest, leading to its quashing. The supersession of the 1977 notification by a 1984 notification was noted, but the court upheld the decision to strike down the impugned notification to ensure future compliance with judicial decisions.

In conclusion, the writ petition was allowed, and the impugned notification was quashed, with no costs awarded. The court emphasized the need to rectify the defects in the notification for future compliance with legal standards under section 8(5) of the Act.