1996 (12) TMI 359 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of retrospective tax provisions in the Kerala General Sales Tax (Second Amendment) Ordinance, 1989, and the Kerala General Sales Tax (Amendment) Act, 1990.
2. Imposition of sales tax on "agarbathis" and "garlic" with retrospective effect.
3. Legislative competence and reasonableness of retrospective tax laws.
4. Validity of tax assessments completed based on previous judicial decisions.

Detailed Analysis:

1. Constitutional Validity of Retrospective Tax Provisions:
The primary issue was the constitutional validity of the provisions in the Kerala General Sales Tax (Second Amendment) Ordinance, 1989, and the Kerala General Sales Tax (Amendment) Act, 1990, which amended entries 155 and 179 of the First Schedule to the Kerala General Sales Tax Act, 1963, with retrospective effect. The court found that the Legislature had the competence to enact the impugned provisions retrospectively. However, the learned single Judge initially found the provisions to be unreasonable and arbitrary, as they imposed heavy sales tax liability retrospectively on transactions concluded long before the enactment. This judgment was challenged in the writ appeals.

2. Imposition of Sales Tax on "Agarbathis" and "Garlic":
The dispute regarding "agarbathis" related to the actual rate of tax leviable on the turnover from April 1, 1984, to August 29, 1989. For "garlic," the question was whether any tax was payable during the same period. The learned single Judge quashed the retrospective provisions, but the State appealed, arguing that the amendments were necessary to validate previous tax actions and avoid reopening completed assessments.

3. Legislative Competence and Reasonableness:
The court noted that legislative power to impose tax includes the power to tax retrospectively. The Legislature can enact laws retrospectively to validate actions taken under statutes declared invalid by courts, provided the defects are removed legally. The court cited several Supreme Court decisions affirming this principle, including Union of India v. Madan Gopal Kabra, J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh, and Ujagar Prints v. Union of India. The court emphasized that the inability of dealers to realize sales tax from customers during the retrospective period does not affect the Legislature's competence to enact such laws.

4. Validity of Tax Assessments Based on Previous Judicial Decisions:
The court examined the historical background of the legislative and executive actions to impose sales tax on "agarbathis" and "garlic." It found that the State had attempted to tax "agarbathis" since 1982 through a Government Order, which was later invalidated by the court. The Legislature's subsequent amendments aimed to validate these actions. For "garlic," the court noted that it was treated as a vegetable exempt from tax until the 1989 Ordinance, which retrospectively included it in the taxable category of "spices."

Separate Judgments:
"Agarbathis":
The court concluded that the amendments regarding "agarbathis" were valid as they aimed to validate previous tax actions and avoid reopening completed assessments. The court set aside the learned single Judge's decision, allowing the writ appeals and dismissing the original petitions challenging the retrospective tax on "agarbathis."

"Garlic":
The court upheld the learned single Judge's decision regarding "garlic," agreeing that it was exempt from tax until the 1989 Ordinance. The retrospective imposition of tax on "garlic" was deemed unreasonable and unconstitutional. The court dismissed the writ appeals challenging the decision and upheld the original petitions.

Conclusion:
The court allowed the writ appeals related to "agarbathis" and dismissed the original petitions, validating the retrospective tax provisions. However, it dismissed the writ appeals related to "garlic" and upheld the original petitions, declaring the retrospective tax provisions unconstitutional for "garlic." The tax revision cases were disposed of accordingly, affirming the Tribunal's decisions in favor of the assessees.