1994 (5) TMI 244 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Retrospective application of subordinate legislation.
2. Differential levy of tax based on registration under the Trade and Merchandise Marks Act (TMM Act) and its compliance with Article 14 of the Constitution of India.

Detailed Analysis:

Issue 1: Retrospective Application of Subordinate Legislation

The primary challenge was whether the State Government, as a subordinate legislative body, could issue notifications with retrospective effect under Section 17 of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). The court noted that an authority empowered to make subordinate legislation cannot do so retrospectively unless explicitly authorized by the Legislature. Section 17(1) of the TNGST Act does allow the Government to issue notifications granting exemptions or reductions in tax either prospectively or retrospectively. However, Section 17(3) does not permit the Government to cancel or vary notifications with retrospective effect.

The court examined the sequence of notifications:
- Notification dated March 26, 1981: Granted total exemption to appalams, vermicelli, and certain other products without a registered brand name under the TMM Act, effective from April 1, 1981.
- Notification dated May 30, 1988: Curtailment of exemptions, effective from June 15, 1988, removing vermicelli from the exemption list and limiting the exemption for appalams to dealers with a turnover not exceeding two lakhs of rupees.
- Notification dated October 7, 1988: Rectified the exclusion of vermicelli by including it again for exemption purposes and raised the exemption limit to three lakhs of rupees, with retrospective effect from April 1, 1988.
- Notification dated April 26, 1989: Removed the exemption for appalams prospectively from the date of the notification.

The court concluded that the retrospective effect granted by the notification dated October 7, 1988, was not detrimental to the assessee-traders as it provided additional exemptions. Consequently, the challenge to these notifications failed as they were within the legal framework of Section 17(1) of the TNGST Act.

Issue 2: Differential Levy of Tax Based on Registration under the TMM Act

The second challenge was the differential levy of tax based on whether the products were registered under the TMM Act, which was argued to be discriminatory and a violation of Article 14 of the Constitution of India. Section 3(1) of the TNGST Act levies a general tax on the total turnover of a dealer, while Section 3(2) provides an exception for goods listed in the First Schedule, which are subject to single-point taxation.

The court emphasized that classification for taxation purposes is permissible if it is based on an intelligible differentia and has a rational nexus to the legislative objective. The classification between dealers based on registration under the TMM Act was deemed reasonable as it aimed to tax economically stronger dealers differently from weaker ones. The court cited the Supreme Court's decision in K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu, which upheld similar classifications based on turnover for taxation purposes.

The court noted that:
- Appalams dealt with by dealers registered under the TMM Act were taxable at 10% at the point of first sale.
- Appalams dealt with by unregistered dealers were subject to general tax rates under Section 3(1).
- Casual traders or agents of non-resident dealers were taxed irrespective of turnover, while other dealers were taxed only if their turnover exceeded one lakh of rupees.

The court found that this classification was not arbitrary and did not violate Article 14, as it was based on economic capacity and aimed to achieve genuine equality in tax burdens.

Conclusion:

The court dismissed all writ petitions, upholding the validity of the notifications and the differential tax treatment based on registration under the TMM Act. The retrospective application of certain notifications was found to be within the legal framework, and the classification for tax purposes was deemed reasonable and non-discriminatory. Consequently, all interim reliefs were also dismissed, with no order as to costs.