1991 (7) TMI 341 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of section 5(3-C) of the Karnataka Sales Tax Act, 1957.
2. Alleged discrimination under Article 14 of the Constitution.
3. Alleged impact on inter-State trade under Articles 301 and 304(b) of the Constitution.

Detailed Analysis:

1. Validity of Section 5(3-C) of the Karnataka Sales Tax Act, 1957:
The petitioner challenged the validity of section 5(3-C) of the Karnataka Sales Tax Act, 1957, as substituted by the Karnataka Sales Tax (Amendment) Act, 1986, effective from April 1, 1986. The impugned provision mandates a tax at the rate specified in the Eighth Schedule to be levied at the point of last sale in the State on the taxable turnover of sales of such dealer in each year relating to such goods. The petitioner, a dealer in refined oil listed in both the Eighth and Second Schedules, argued that the provision resulted in double taxation of the same goods, thereby causing discrimination between similarly situated dealers.

2. Alleged Discrimination under Article 14 of the Constitution:
The petitioner contended that the impugned provision was discriminatory as it subjected refined oil to tax at both the first and last points of sale within the State, unlike goods purchased from outside the State, which were only taxed once. The Court noted that the levy of tax under section 5(3-C) depends on the number of dealings in the State and does not inherently create discrimination. The Court emphasized that a taxing provision cannot be deemed discriminatory merely because of fortuitous circumstances or specific situations that may give some advantage to certain persons within a group. Citing the Supreme Court's decision in Twyford Tea Co. Ltd. v. State of Kerala, the Court reiterated that the burden of proving discrimination is heavy, especially for a taxing statute, and must demonstrate "hostile unequal treatment." The Court found that the petitioner's contention was based on hypothetical illustrations and lacked evidence of de facto discrimination. Consequently, the contention of discrimination was rejected.

3. Alleged Impact on Inter-State Trade under Articles 301 and 304(b) of the Constitution:
The petitioner argued that the impugned provision adversely affected inter-State trade and required the President's assent under Article 304(b) of the Constitution. The Court, however, found no discrimination against locally manufactured goods and noted that any burden caused by the impugned provision resulted from fortuitous circumstances based on the number of dealings in the goods. The Court referenced the Supreme Court's decision in Indian Cement Ltd. v. State of Andhra Pradesh, which dealt with notifications reducing the rate of sales tax for specific transactions, creating local preferences contrary to the scheme of Part XIII of the Constitution. However, the Court also cited the larger Bench decision in Video Electronics Pvt. Ltd. v. State of Punjab, which emphasized harmonizing the State Legislature's power to levy tax with the general restrictions under Part XIII of the Constitution. The Court concluded that mere differentiation in tax rates does not per se constitute discrimination unless it involves intentional and purposeful differentiation creating an economic barrier. The Court found no such intentional discrimination in the impugned provision and thus rejected the contention based on Article 304(b).

Conclusion:
The Court dismissed the writ petition, upholding the validity of section 5(3-C) of the Karnataka Sales Tax Act, 1957, and rejecting the claims of discrimination and adverse impact on inter-State trade. The judgment emphasized the heavy burden of proving discrimination in taxing statutes and the necessity for clear evidence of hostile unequal treatment or intentional economic barriers.

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