2001 (5) TMI 930 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of "turnover tax" under Section 13-A of the Rajasthan Sales Tax Act, 1994.
2. Repugnancy to the Central Sales Tax Act, 1956.
3. Incongruity between Section 3 and Section 13-A of the Rajasthan Sales Tax Act, 1994.
4. Applicability of Article 286 of the Constitution of India.
5. Compliance with Sections 14 and 15 of the Central Sales Tax Act, 1956.

Detailed Analysis:

1. Constitutionality of "turnover tax" under Section 13-A of the Rajasthan Sales Tax Act, 1994:
The petitioners challenged the constitutionality of the "turnover tax" imposed by the State through Section 13-A of the Rajasthan Sales Tax Act, 1994, arguing it was ultra vires and unconstitutional. The Supreme Court had upheld the competence of the State Legislature to levy "turnover tax" under entry 54 of List II [State List] in the Seventh Schedule to the Constitution, recognizing it as an additional tax on the sale or purchase of goods.

2. Repugnancy to the Central Sales Tax Act, 1956:
The petitioners contended that the impugned provisions were repugnant to the Central Sales Tax Act, 1956, as they did not restrict the "levy of tax" on the "turnover" relating to the sale or purchase of goods declared under Section 14 of the Central Sales Tax Act as of special importance in inter-State trade and commerce. This lack of restriction could result in tax rates exceeding the limit prescribed under Section 15 of the Central Sales Tax Act, 1956. The court recognized that the provisions of Section 13-A did not exclude the "turnover" of declared goods from the taxable turnover, nor did it ensure that the tax rate on declared goods did not exceed the maximum prescribed under Section 15.

3. Incongruity between Section 3 and Section 13-A of the Rajasthan Sales Tax Act, 1994:
The petitioners argued that Section 3 of the Rajasthan Sales Tax Act, 1994, exempts dealers dealing exclusively in tax-paid goods from registration unless their "turnover" exceeds Rs. 16 lakhs. However, Section 13-A mandates registration for dealers with a "turnover" of Rs. 3 lakhs, even if their entire "turnover" consists of tax-paid goods. This discrepancy was highlighted as incongruous and problematic. The court found that the provisions were not inherently incongruous but rather a matter of legislative policy.

4. Applicability of Article 286 of the Constitution of India:
Article 286(3) of the Constitution restricts State legislation from imposing tax on the sale or purchase of goods declared by Parliament to be of special importance in inter-State trade or commerce, subject to the conditions and restrictions specified by Parliament. The court noted that the State's plenary power to tax is subject to these constitutional restraints. The Central Sales Tax Act, 1956, which is a law made by Parliament, imposes tax on inter-State trade or commerce and provides restrictions under Sections 14 and 15.

5. Compliance with Sections 14 and 15 of the Central Sales Tax Act, 1956:
Section 15 of the Central Sales Tax Act imposes restrictions on the State's power to tax declared goods, including a maximum tax rate of 4% and a single-point levy. The court emphasized that any State law imposing multiple taxes or exceeding this rate would be invalid. The court referred to the Supreme Court's decision in Govind Saran Ganga Saran v. Commissioner of Sales Tax, which highlighted the importance of clear and definite ascertainability of tax components. The court concluded that Section 13-A of the Rajasthan Sales Tax Act, 1994, did not comply with these restrictions, leading to an excess tax rate on declared goods.

Conclusion:
The court held that the effect of Article 286(3) is to modify the State's charging sections to conform with Section 15(a) of the Central Sales Tax Act, 1956. Thus, the law of the State is subject to the restrictions and conditions contained in the Central Sales Tax Act. The court declared that any tax exceeding the rate prescribed under Section 15(a) of the Central Sales Tax Act is impermissible. Consequently, the petitions were partly allowed, the assessments of turnover tax were set aside, and the Assessing Officer was directed to make fresh orders in accordance with the law, considering the principles and provisions of Sections 14 and 15 of the Central Sales Tax Act, 1956, and Article 286(3) of the Constitution. The circular dated September 12, 2000, issued by the State Government, was quashed.

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