1993 (6) TMI 236 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for exemption from turnover tax under the West Bengal Sales Tax Act, 1954.
2. Constitutionality of the imposition of turnover tax.
3. Impact of turnover tax on the free-flow of trade and commerce under Article 301 of the Constitution of India.

Detailed Analysis:

1. Eligibility for Exemption from Turnover Tax:
The applicant, Sun Oil Company Private Limited, challenged the imposition of turnover tax, arguing that their subsisting eligibility certificate entitled them to exemption from both sales tax and turnover tax. The applicant claimed that the imposition of turnover tax was invalid and confiscatory. The respondents countered that there was no provision for exemption of turnover tax for small-scale industries under the Act of 1954. The Tribunal had previously decided in Kejriwal Electronics Private Limited & Co. v. Commercial Tax Officer that the imposition of turnover tax was valid and that the notifications under section 4AA did not envisage exemption from turnover tax. The Tribunal upheld this view, stating that the eligibility certificate under section 4AA only exempted sales tax and not turnover tax.

2. Constitutionality of the Imposition of Turnover Tax:
The applicant contended that the imposition of turnover tax was confiscatory, as it would result in losses to their business. They argued that the tax would consume their capital, citing their annual accounts and balance sheets. The respondents argued that the tax was not confiscatory and that the financial difficulties faced by the applicant were due to inefficient cost management and not the tax itself. The Tribunal noted that taxation impacts financial results but emphasized that the rate of turnover tax was minimal and not significant enough to be considered confiscatory. The Tribunal referred to previous judgments, including the Supreme Court's decision in R.S. Joshi's case, to support the view that the validity of a tax should be considered in its totality and not based on individual cases. The Tribunal concluded that the applicant had not provided sufficient evidence to show that their losses were solely due to the turnover tax.

3. Impact of Turnover Tax on Free-flow of Trade and Commerce:
The applicant argued that the imposition of turnover tax violated Article 301 of the Constitution, which guarantees the free-flow of trade and commerce. They claimed that the tax inhibited sales and restricted the movement of goods, and that the President's assent should have been obtained under Article 304(b). The respondents countered that the tax did not directly or immediately impede the flow of trade and commerce, and therefore, Article 301 was not violated. The Tribunal agreed with the respondents, stating that a tax on the sale of goods does not normally impede the free-flow of trade and that the applicant had not provided specific evidence to show that the tax directly restricted their trade. The Tribunal referred to the case of Trot Shoe Company Ltd. and concluded that the imposition of turnover tax did not contravene Article 301, and thus, the question of obtaining the President's assent under Article 304(b) did not arise.

Conclusion:
The Tribunal dismissed the application, upholding the appellate order of the Assistant Commissioner dated June 4, 1991. The interim order passed on August 28, 1991, was vacated, and the security deposit of Rs. 60,000 was to be adjusted against the turnover tax payable by the applicant. The application was dismissed on contest without any order for cost.