1997 (8) TMI 482 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the Nagaland Purchase Tax Act, 1993.
2. Allegation of the Act being a colourable piece of legislation.
3. Violation of fundamental rights under Articles 19(1)(g) and 21 of the Constitution.
4. Violation of Part XIII of the Constitution, specifically Article 301 read with Article 304.

Detailed Analysis:

1. Legislative Competence:
The petitioners argued that the Nagaland Purchase Tax Act, 1993, in pith and substance, imposes a tax on inter-State trade, which is beyond the competence of the State Legislature. They contended that the Act targets stock transfers and consignment sales outside Nagaland, falling under Entry 54 read with Entry 92A of the Seventh Schedule and Article 269(1)(g) of the Constitution. The respondents countered that the tax is imposed on the last point purchase made by dealers inside Nagaland, which is within the legislative competence of the State Legislature under Entry 54 in List II of the Seventh Schedule. The court upheld the legislative competence, emphasizing that the Act taxes the purchase of taxable goods within Nagaland and not inter-State trade.

2. Colourable Legislation:
The petitioners claimed that the Act is a colourable legislative device designed to achieve collateral objects not stated in the Bill, essentially to realize tax from inter-State stock transfers and consignment sales. The respondents refuted this, asserting that the Act aims to convert the existing system of last point tax to purchase point tax to check tax evasion. The court found no merit in the petitioners' contention, noting that the legislative intent is clear and the Act's provisions are within the scope of the State Legislature's powers.

3. Violation of Fundamental Rights:
The petitioners argued that the Act violates their fundamental rights under Articles 19(1)(g) and 21 of the Constitution, as the high tax rate of 25% would result in a complete stoppage of their trade and business. The court dismissed this argument, stating that fiscal policy and taxation are within the Legislature's domain, and the judiciary should not interfere unless there is a clear violation of constitutional provisions. The court emphasized that the Legislature has the discretion to formulate its fiscal policy and the tax rate set by the Act is within its competence.

4. Violation of Part XIII of the Constitution:
The petitioners contended that the Act violates Article 301 read with Article 304 of the Constitution, as it was introduced without the President's prior sanction. The court found that the tax is levied on the turnover of purchase of taxable goods within Nagaland and does not impede inter-State trade. The proviso to Section 4 of the Act ensures that tax levied on goods sold in inter-State trade or commerce is refunded, thus complying with constitutional requirements.

Conclusion:
The court upheld the constitutional validity of the Nagaland Purchase Tax Act, 1993, dismissing the writ petitions. The court emphasized the presumption in favor of the constitutionality of statutes and the Legislature's broad discretion in matters of taxation and fiscal policy. The petitioners failed to prove that the Act was beyond the legislative competence or violated their fundamental rights. The court concluded that the Act is a valid exercise of the State Legislature's powers and does not violate any constitutional provisions.