1992 (8) TMI 270 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the State Legislature.
2. Alleged colourable exercise of legislative power.
3. Violation of freedom of inter-State trade and commerce under Article 301 of the Constitution.
4. Alleged double taxation.
5. Arbitrariness.

Summary:

Issue (a): Legislative Competence

The petitioners argued that the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 ("the Act") was beyond the legislative competence of the State Legislature. They contended that the tax was effectively on the sale and purchase of goods outside the State, violating Article 286(1)(a) of the Constitution, and should fall under entry 92A of List I. Additionally, they argued that the term "local area" in entry 52 of List II should only refer to areas administered by local authorities, not the entire State.

The Court held that the levy was on the entry of vehicles into a local area for use or sale, not on their sale or purchase outside the State. The term "local area" as used in the Act was consistent with entry 52 of List II, as it referred to areas administered by local bodies. The Court rejected the argument that the entire State being covered by the tax made it beyond the legislative competence of the State Legislature.

Issue (b): Colourable Exercise of Legislative Power

The petitioners claimed that the Act was a colourable exercise of legislative power, aiming to recover sales tax on transactions outside the State. The Court clarified that the doctrine of colourable legislation concerns legislative competence, not the motives behind the legislation. Since the State Legislature was competent to enact the law under entry 52 of List II, the question of motive was irrelevant. Therefore, this ground also fell.

Issue (c): Violation of Article 301

The petitioners argued that the Act violated the freedom of inter-State trade and commerce under Article 301 of the Constitution. The Court noted that the freedom under Article 301 is not absolute and is subject to reasonable restrictions in the public interest under Article 304(a) and (b). The tax was non-discriminatory, reasonable, and in the public interest, satisfying the requirements of Article 304(a) and (b). Hence, the Act did not violate Article 301.

Issue (d): Double Taxation

The petitioners contended that the Act amounted to double taxation, as octroi duty was already imposed under various municipal laws. The Court explained that double taxation, in the strict sense, means taxing the same property for the same purpose, period, and by the same authority. Since octroi duty and entry tax were imposed by different authorities for different purposes, there was no double taxation.

Issue (e): Arbitrariness

The petitioners pointed out two arbitrary features: the classification between 15-month-old vehicles and new vehicles, and the absence of a specific provision in Section 12 to exempt bona fide imports. The Court found the classification reasonable, as it presumed that vehicles registered outside the State for over 15 months were not purchased to avoid sales tax. The discretion granted to the State Government under Section 12 was not uncanalized or unguided, as it had to align with the Act's objectives.

Conclusion:

The Act was held to be valid and enforceable. The petitions were dismissed, and the rules were discharged without costs.