1999 (7) TMI 640 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of section 4-B of the Karnataka Tax on Entry of Goods Act, 1979.
2. Validity of the notification dated March 31, 1997, issued under section 4-B.
3. Constitutionality of the tax levied on motor vehicles entering from outside the State under Article 304(a) and (b) of the Constitution of India.

Summary:

Issue 1: Validity of Section 4-B of the Karnataka Tax on Entry of Goods Act, 1979
The petitioners challenged the constitutionality of section 4-B, which levies a tax on the entry of motor vehicles into a local area for use or sale, specifically targeting vehicles entering from outside the State. The court noted that this provision discriminates against motor vehicles imported from other States, violating Article 304(a) of the Constitution of India, which mandates non-discriminatory taxation between imported goods and locally manufactured goods.

Issue 2: Validity of the Notification Dated March 31, 1997
The notification issued under section 4-B was also challenged on similar grounds. The court observed that the notification, by imposing a tax solely on imported vehicles, contravenes the principle of non-discrimination as upheld in the case of State of Karnataka v. Hansa Corporation and Shree Mahavir Oil Mills v. State of Jammu and Kashmir. The notification was thus deemed violative of the Constitution.

Issue 3: Constitutionality of the Tax Under Article 304(a) and (b)
The court examined Article 304, which allows States to impose taxes on imported goods provided similar taxes are levied on locally manufactured goods. The court found that section 4-B does not comply with this requirement, as it imposes a tax only on imported motor vehicles, thereby creating a discriminatory tax barrier. The court referenced several Supreme Court decisions, including Atiabari Tea Co. Ltd. v. State of Assam and Kalyani Stores v. State of Orissa, to emphasize that any tax that hampers the free flow of trade and discriminates against imported goods is unconstitutional.

Conclusion:
The court concluded that section 4-B of the Karnataka Tax on Entry of Goods Act, 1979, and the notification dated March 31, 1997, are unconstitutional as they violate Articles 301 and 304(a) of the Constitution of India. The provisions were declared ultra vires, and the petitions were allowed accordingly.

Petitions allowed.