2001 (3) TMI 1004 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of the amending Act No. LII of 2000 to the Bombay Sales Tax Act, 1959.
2. Whether the amending Act shifts the incidence of tax from sales to draws.
3. Violation of Article 286(1)(a) of the Constitution.
4. Violation of Articles 301 to 304 of the Constitution.
5. Validity of Section 8D of the amending Act.

Detailed Analysis:

Issue 1: Constitutionality of the Amending Act
The petitioner challenged the amending Act No. LII of 2000 to the Bombay Sales Tax Act, 1959, under Article 226 of the Constitution. The primary contention was that the amendment, which imposed a fixed rate of sales tax on lottery draws rather than on the sale of lottery tickets, was unconstitutional. The petitioner argued that this shift in the tax base was beyond the legislative competence of the State under Entry 54, List II of the Constitution and violated Articles 286(1) and 301 of the Constitution.

Issue 2: Shifting of Tax Incidence from Sales to Draws
The court examined whether the amending Act section 8D shifts the incidence of tax from sales to draws. The court noted that the principal Act, the Bombay Sales Tax Act, 1959, levied tax based on the turnover of sales. However, the amending Act introduced a fixed rate per draw, irrespective of the number of tickets sold, thus shifting the tax incidence from sales to draws. This shift was contrary to the basic taxation principle of the principal Act, which is based on turnover and actual sales. The court held that the table in section 8D(1) shifted the incidence from "sale" to "draw," making both components (CPF and CPD) taxable, contrary to the Supreme Court judgment in H. Anraj v. Government of Tamil Nadu.

Issue 3: Violation of Article 286(1)(a) of the Constitution
Article 286(1)(a) restricts the imposition of tax on the sale of goods where such sale takes place outside the State. The court found that by shifting the tax incidence from "sale" to "draw," the amending Act violated Article 286(1)(a) as it could tax draws that take place outside Maharashtra. The court held that this shift in incidence was unconstitutional.

Issue 4: Violation of Articles 301 to 304 of the Constitution
The petitioner argued that the amending Act violated Articles 301 to 304, which guarantee freedom of trade, commerce, and intercourse throughout India. However, the court referred to the Supreme Court judgment in B.R. Enterprises v. State of U.P., which held that the sale of lottery tickets does not constitute trade or commerce under Article 301. Therefore, Articles 301 to 304 were not applicable to the sale of lottery tickets, and the court ruled against the petitioner on this point.

Issue 5: Validity of Section 8D of the Amending Act
The court found that section 8D(1) of the amending Act imposed liability to pay tax on sale, but the table in the section shifted the incidence to draws, creating an inconsistency. Since the table was integral to section 8D(1) and could not be severed without rendering the section ineffective, the entire section 8D was struck down. Consequently, the court quashed the amending Act No. LII of 2000 as arbitrary, inconsistent with the principal Act, and ultra vires the Constitution. The earlier section 8 with item 151A of Schedule C was revived.

Conclusion:
The court allowed the writ petition and struck down the amending Act No. LII of 2000, declaring it unconstitutional and violative of the basic scheme of the Bombay Sales Tax Act, 1959, and the Constitution. No order as to costs was made.