1992 (12) TMI 212 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Section 5-A of the Orissa Sales Tax Act, 1947.
2. Legislative competency and encroachment upon the field of Union Legislature.
3. Confiscatory nature of the levy.
4. Discrimination and unreasonable restriction affecting the fundamental right to carry on business.
5. Multiple point levy of tax.
6. Commencement of the operation of Section 5-A.
7. Factual disputes regarding the levy of tax and surcharge.

Detailed Analysis:

1. Constitutional Validity of Section 5-A:
The petitions challenged the constitutional validity of Section 5-A of the Orissa Sales Tax Act, 1947, as amended by the Orissa Act 11 of 1990, which imposes a surcharge of ten percent on the total amount of tax payable by a dealer whose gross turnover exceeds ten lakhs. The court referred to the definition of "gross turnover" and "dealer" under the Act and noted that the surcharge is an additional tax on the sale of goods, which falls within the legislative competence of the State under Entry 54 of List II of the Seventh Schedule of the Constitution.

2. Legislative Competency and Encroachment:
The petitioners argued that Section 5-A is beyond the legislative competency of the State Legislature and encroaches upon the field of Union Legislature. The court rejected this argument, stating that the surcharge is a tax on the sale of goods and not on income, profession, or calling. The court cited the apex Court's decision in Kodar v. State of Kerala, which upheld the legislative competency of the State to impose additional sales tax.

3. Confiscatory Nature of the Levy:
The petitioners contended that the surcharge is confiscatory in nature as it significantly corrodes the profit position of the assessees. The court dismissed this contention, stating that the economic wisdom of a tax is within the exclusive domain of the Legislature, and the court's role is limited to examining the rationality of the legislative belief that capacity to pay the tax increases with an increase in receipts.

4. Discrimination and Unreasonable Restriction:
The petitioners argued that the surcharge discriminates against dealers with a turnover exceeding ten lakhs and imposes an unreasonable restriction on the fundamental right to carry on business. The court held that the classification based on turnover is reasonable and has a rational nexus with the object of the legislation. The court cited the apex Court's decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar, which upheld similar provisions.

5. Multiple Point Levy of Tax:
The petitioners contended that the surcharge results in a multiple point levy of tax, which is contrary to the scheme of single point taxation under the principal Act. The court referred to the apex Court's decision in Polaki Motors v. State of Orissa, which upheld the validity of the Orissa Additional Sales Tax Act, 1975, as amended by the Orissa Additional Sales Tax (Amendment and Validation) Act, 1983, and held that the surcharge does not conflict with the scheme of single point taxation.

6. Commencement of the Operation of Section 5-A:
The petitioners argued that there has been no commencement of the operation of Section 5-A. The court rejected this argument, stating that the State Government had issued notifications appointing July 1, 1990, as the date for the commencement of the amending Act, and August 1, 1990, for the commencement of the provisions of Section 4 as amended by the Act.

7. Factual Disputes Regarding Levy of Tax and Surcharge:
The petitioners raised factual disputes regarding the levy of tax and surcharge beyond the prescribed limit and the imposition of penalties. The court held that these are matters involving factual disputes that should be agitated before the assessing authorities prescribed under the statute and do not affect the constitutional validity of the provisions.

Conclusion:
The court concluded that the writ applications are without merit and dismissed them. The court emphasized that the legislative classification based on turnover is reasonable and has a rational nexus with the object of the legislation. The court also held that the surcharge is not confiscatory in nature and does not violate the fundamental rights of the petitioners. The factual disputes regarding the levy of tax and surcharge should be addressed before the appropriate authorities.

Separate Judgment:
D.M. Patnaik, J. concurred with the judgment and agreed with the dismissal of the writ applications.

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