1995 (12) TMI 358 - HC - VAT and Sales Tax

Issues Involved:

1. Exemption from turnover tax under Section 5(2A) of the Kerala General Sales Tax Act, 1963.
2. Validity of the notification granting exemption but excluding goods received on consignment and/or branch transfer.
3. Application of Articles 301, 302, 303, and 304 of the Constitution of India.
4. Discrimination in taxation between goods manufactured/produced within the state and goods imported into the state.
5. Requirement of Presidential sanction under Article 304(b) for imposing reasonable restrictions in public interest.

Issue-wise Detailed Analysis:

1. Exemption from Turnover Tax Under Section 5(2A) of the Kerala General Sales Tax Act, 1963:

The petitions concern the exemption of "turnover tax" introduced by Section 5(2A) of the Kerala General Sales Tax Act, 1963, effective from July 1, 1987. This tax is levied at 0.5% on the turnover of goods specified in the First and Fifth Schedules of the Act. The State Government has the power under Section 10 to grant exemptions or reductions in taxation if deemed necessary in the public interest.

2. Validity of the Notification Granting Exemption but Excluding Goods Received on Consignment and/or Branch Transfer:

The notification (exhibit P1) issued by the Government of Kerala grants an exemption from turnover tax but excludes goods received on consignment and/or branch transfer. The petitioners challenge this exclusion, arguing that it creates an unfair exception. The notification specifies that turnover tax is payable by dealers whose total turnover exceeds Rs. 50 lakhs, but restricts the levy to the first sale point of goods received on branch transfer or consignment basis only.

3. Application of Articles 301, 302, 303, and 304 of the Constitution of India:

The petitioners argue that the notification violates Part XIII of the Constitution of India, which includes Articles 301 to 307, ensuring the freedom of trade, commerce, and intercourse throughout India. Article 301 guarantees this freedom, subject to other provisions of Part XIII. Article 302 allows Parliament to impose restrictions on this freedom in the public interest. Article 303 prohibits both Parliament and State Legislatures from giving preference to one state over another or discriminating between states, except in cases of scarcity. Article 304 allows State Legislatures to impose taxes on imported goods, provided there is no discrimination against similar goods produced within the state, and to impose reasonable restrictions in the public interest with prior Presidential sanction.

4. Discrimination in Taxation Between Goods Manufactured/Produced Within the State and Goods Imported Into the State:

The petitioners contend that the notification discriminates against goods received on consignment and/or branch transfer by subjecting them to turnover tax while exempting other goods. This, they argue, violates Article 304(a), which prohibits discriminatory taxation between goods imported into the state and those produced within the state. The Supreme Court's precedents, including Atiabari Tea Co. Ltd. v. State of Assam and Firm A.T.B. Mehtab Majid and Co. v. State of Madras, support the view that discriminatory taxation impedes the free flow of trade and is unconstitutional.

5. Requirement of Presidential Sanction Under Article 304(b) for Imposing Reasonable Restrictions in Public Interest:

The petitioners argue that even if the restriction is deemed necessary in the public interest, it requires the prior sanction of the President under Article 304(b). The Government's defense that the exclusion of consignment and branch transfer goods does not constitute discrimination is rejected. The Court emphasizes that the notification's discriminatory nature is evident, as it exempts all other goods from turnover tax, creating a superlative form of discrimination.

Conclusion:

The Court concludes that the notification's exclusion of goods received on consignment and/or branch transfer from the turnover tax exemption is unconstitutional and violates Article 304(a) of the Constitution. The notification is quashed to the extent of the phrase "except on the turnover relating to goods received on consignment and/or branch transfer." The petitions are allowed, and each party bears its own costs.

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