1991 (10) TMI 279 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 29A(2B) of the Kerala General Sales Tax Act.
2. Constitutionality of Section 29A(2A) of the Kerala General Sales Tax Act.
3. Validity of Exhibit P2 Circular issued by the Board of Revenue.
4. Alleged violation of Articles 14, 19(1)(g), 265, and 301-304 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 29A(2B) of the Kerala General Sales Tax Act:
Section 29A(2B) authorizes the detention of goods under three contingencies: non-payment of tax for the sale or purchase of goods under transport, non-payment of tax by the dealer according to prescribed procedures, and default in payment of tax for any period. The court found that the first two contingencies are valid as they deal with evasion of tax concerning goods involved in transport. However, the third contingency, which allows detention of goods for previous tax defaults, was struck down. The court held that this provision acts as an impediment to the free flow of goods and is not directly related to the objective of preventing tax evasion. It was deemed to violate Articles 14, 19(1)(g), and 301 of the Constitution.

2. Constitutionality of Section 29A(2A) of the Kerala General Sales Tax Act:
Section 29A(2A) authorizes the detention of vehicles in cases where there is a calculated act of collusion to evade tax. The court upheld this provision, stating that it is a measure to check tax evasion and is within the legislative competence of the State. The provision was found to be in conformity with entry 54 in Schedule VII, List II, and does not violate any constitutional provisions.

3. Validity of Exhibit P2 Circular issued by the Board of Revenue:
Exhibit P2 contains executive directions to enforce the provisions of Section 29A. The petitioners argued that the circular is beyond the competence of the Board of Revenue and violates statutory provisions. The court noted that, under Section 3 of the Act, the Board of Revenue has the power to issue orders, instructions, and directions for the proper administration of the Act. The court found that Exhibit P2 did not exceed these powers and was intended to prevent tax evasion. However, the court acknowledged that the wording of the circular could have been more precise, particularly concerning "consignment" and "advance tax." Despite these issues, the court upheld the circular, emphasizing that it aims to enforce the collection of taxes legitimately due to the State.

4. Alleged Violation of Articles 14, 19(1)(g), 265, and 301-304 of the Constitution of India:
- Article 14 (Equality before Law): The court held that Section 29A(2A) and (2B) do not violate Article 14 as they are intended to distinguish between tax evaders and compliant taxpayers. The classification is based on intelligible differentia and has a rational relation to the objective of preventing tax evasion.
- Article 19(1)(g) (Right to Practice any Profession, or to Carry on any Occupation, Trade or Business): The court found that the restrictions imposed by Section 29A(2A) and (2B) are reasonable and necessary to prevent tax evasion. The provisions do not impose arbitrary or excessive restrictions beyond what is required in the public interest.
- Article 265 (No Tax shall be Levied or Collected Except by Authority of Law): The court reiterated that the impugned provisions do not create new tax liabilities but are measures to enforce the payment of existing taxes. Therefore, they do not violate Article 265.
- Articles 301-304 (Freedom of Trade, Commerce, and Intercourse): The court held that the provisions of Section 29A(2A) and (2B) do not directly impede the free flow of trade and commerce. The restrictions are regulatory measures to prevent tax evasion and are within the legislative competence of the State. However, the third contingency in Section 29A(2B) was found to be an unjustifiable restriction on trade and was struck down.

Conclusion:
The court upheld the constitutionality of Sections 29A(2A) and the first two contingencies of Section 29A(2B) of the Kerala General Sales Tax Act, as well as the validity of Exhibit P2 Circular. However, it struck down the third contingency of Section 29A(2B) as unconstitutional. The court directed the State of Kerala and the Board of Revenue to issue necessary directions to prevent misuse of these provisions. All other writ petitions were dismissed.