1994 (7) TMI 322 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of the Explanation to section 2(26) of the Bombay Sales Tax Act, 1959.
2. Legislative competence of the State to impose tax on dealers holding patents or trademarks.
3. Alleged violation of Articles 301 and 304 of the Constitution.
4. Alleged violation of Article 14 of the Constitution due to discriminatory classification.
5. Impact of the amendment on the single point levy scheme.
6. Availability of set-off or refund for additional tax under section 15A of the Act.

Detailed Analysis:

1. Constitutional Validity of the Explanation to Section 2(26):
The petitioners challenged the constitutional validity of the Explanation to section 2(26) of the Bombay Sales Tax Act, 1959, as inserted by the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1988. The Explanation excluded sales of goods by dealers holding a trademark or patent from the definition of "resale," making such sales subject to tax. The court noted that the amendment aimed to levy tax on goods sold by a dealer holding a patent or trademark to avoid double taxation, providing set-off or refund under rule 42H.

2. Legislative Competence:
The petitioners argued that the levy was effectively a tax on the use of patents or trademarks, falling under entry 49 of List I, which is within the Parliament's domain. The court rejected this argument, stating that the law was enacted to impose sales tax on sales of purchased goods by dealers holding patents or trademarks and fell under entry 54 of List II. The court held that the classification of dealers based on holding patents or trademarks was merely a criterion for tax imposition and did not deal with patents or trademarks per se.

3. Violation of Articles 301 and 304:
The petitioners contended that the levy restricted the free flow of trade, commerce, and intercourse, violating Article 301, and was not saved by Article 304(b) as it lacked the President's prior sanction. The court found no material evidence that the tax impeded trade or commerce. It cited the Supreme Court's observation that not every tax imposition restricts trade flow and dismissed the challenge, noting that the impugned levy did not affect trade or sales of goods under patents or trademarks.

4. Violation of Article 14:
The petitioners claimed the classification between dealers holding patents or trademarks and other dealers was discriminatory and irrational. The court emphasized that fiscal statutes must pass the test of Article 14 but recognized the Legislature's wide discretion in selecting tax subjects. It held that the classification was reasonable, aimed at checking the practice of paying tax on lower purchase values, and had a rational nexus with the Act's object. Thus, the provision did not violate Article 14.

5. Impact on Single Point Levy Scheme:
The petitioners argued that the amendment contradicted the Act's single point levy scheme. The court noted that the Legislature itself made the amendment, allowing for changes in tax points and schemes. It held that the Legislature could adopt double point or multi-point levies and make changes in taxation from time to time, provided it was within its competence.

6. Set-off or Refund for Additional Tax under Section 15A:
The petitioners contended that they were not entitled to set-off or refund for additional tax paid by the first dealer under section 15A. The court clarified that section 15A prohibited dealers from collecting additional tax from purchasers. Since the incidence of additional tax was not shifted to the petitioners, they could not claim set-off or refund. The validity of section 15A was not challenged, so the court did not address its consequential effects.

Conclusion:
The court found no merit in the writ petitions and dismissed them, upholding the constitutional validity of the Explanation to section 2(26) of the Bombay Sales Tax Act, 1959. The court made no order as to costs and expedited the issuance of certified copies.