1997 (7) TMI 633 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Section 4A of the Kerala Tax on Luxuries Act, 1976.
2. Competence of the State Legislature to levy luxury tax on cigarettes.
3. Violation of Articles 301 and 304(b) of the Constitution.
4. Compliance with Article 286(3) and Section 15 of the Central Sales Tax Act, 1956.
5. Impact of the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
6. Doctrine of Severability.

Detailed Analysis:

1. Constitutional Validity of Section 4A of the Kerala Tax on Luxuries Act, 1976:
The main question is whether Section 4A of the Kerala Tax on Luxuries Act, 1976, which authorizes the levy and collection of luxury tax on cigarettes, is constitutionally valid. The petitioners argued that this section violates multiple constitutional provisions, including Articles 301, 304(b), 286(3), 265, 245, and 246, as well as Section 15 of the Central Sales Tax Act, 1956, and Section 9 of the Kerala General Sales Tax Act, 1963.

2. Competence of the State Legislature to Levy Luxury Tax on Cigarettes:
The court examined whether the State Legislature had the competence to enact the impugned Act under Entry 62 of List II of the Seventh Schedule, which allows taxes on luxuries. The court found that the State Legislature is competent to levy a luxury tax on cigarettes, as cigarettes are classified as a luxury item.

3. Violation of Articles 301 and 304(b) of the Constitution:
The court analyzed whether the impugned Act violated Article 301, which guarantees the freedom of trade, commerce, and intercourse throughout India. The petitioners argued that no previous sanction of the President was obtained as required under Article 304(b). The court noted that the impugned Act did not have the previous sanction or subsequent assent of the President, making it violative of Article 301.

4. Compliance with Article 286(3) and Section 15 of the Central Sales Tax Act, 1956:
The court examined whether the impugned levy complied with Article 286(3) and Section 15 of the Central Sales Tax Act, 1956, which restricts the imposition of tax on declared goods, including tobacco. The court found that the levy of tax at 5% on cigarettes under the impugned Act exceeded the 4% limit specified in Section 15(a) of the Central Sales Tax Act, making it invalid.

5. Impact of the Additional Duties of Excise (Goods of Special Importance) Act, 1957:
The court considered the impact of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, which provides for the levy of additional excise duty on tobacco and its distribution among states. The court found that since the State had already received its share of excise duty, it could not levy an additional tax on the sale or purchase of tobacco.

6. Doctrine of Severability:
The court applied the doctrine of severability to determine whether the invalid provisions could be separated from the valid ones. The court found that Section 4A and the Schedule, which were introduced by the Finance Act, 1994, could be struck down without affecting the rest of the Act. The remaining provisions of the Act, which levy tax on luxuries provided in hotels, could stand independently.

Conclusion:
The court declared Section 4A of the Kerala Tax on Luxuries Act, 1976, and the Schedule thereto, as amended by the Kerala Finance Bill, 1994, unconstitutional, invalid, and inoperative. The writ petitions were allowed, and the impugned provisions were set aside. The court dismissed the prayer to strike down the entire Act, allowing the valid provisions to remain in effect.

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