2001 (9) TMI 1098 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of the Punjab Social Security Act, 2000.
2. State's estoppel from imposing the social security cess after granting exemption from sales tax.

Issue-wise Detailed Analysis:

Issue 1: Constitutionality of the Punjab Social Security Act, 2000
The core issue is whether the Punjab Social Security Act, 2000, which imposes a social security cess, is ultra vires the Constitution because there is no entry authorizing the State Legislature to levy such a cess, and the proceeds do not go to the Consolidated Fund of the State.

Relevant Provisions and Arguments:
- The Act aims to establish the Punjab Social Security Fund for providing pensions and financial assistance to senior citizens, widows, destitute women, dependent children, and disabled persons.
- Petitioners argue that no tax can be levied or collected by the State "except by the authority of law," and the relevant entries in List II and List III of the Seventh Schedule do not permit the levy of the impugned cess.
- The petitioners also contend that the proceeds of the cess should be credited to the Consolidated Fund of the State, as per the constitutional mandate, and not to a separate fund like the Punjab Social Security Fund.

Court's Analysis:
- The court examined whether the levy conforms to constitutional requirements and is within the legislative competence of the State.
- The court noted that cess, fee, and tax are compulsory exactions of money by public authorities, but the impugned cess is admittedly a tax.
- Article 265 of the Constitution states that no tax shall be levied or collected except by the authority of law, and the law must be validly enacted within the legislative competence of the Legislature imposing the levy.
- Entries 9 and 42 of List II do not include the power to levy a tax for providing relief to the disabled or for pensions.
- The court found that the impugned cess cannot be sustained with reference to entry 54 of List II, as it is not a surcharge on the sales tax.
- The court held that the proceeds of the cess must go into the Consolidated Fund of the State, as mandated by Article 266 of the Constitution. The scheme of the impugned Act, which allows the proceeds to be deposited in a separate fund, violates the constitutional mandate.

Conclusion:
The court declared that the levy of the cess and the creation of the fund are ultra vires the Constitution. The impugned Act is unconstitutional because it violates the provisions of Article 266 and other related constitutional provisions.

Issue 2: State's Estoppel from Imposing the Social Security Cess
The second issue is whether the State is estopped from imposing the social security cess because it had granted exemption from payment of sales tax to attract industry.

Relevant Provisions and Arguments:
- The petitioners argue that the State, having granted exemption from payment of sales tax, is estopped from imposing the impugned cess.
- The State contends that the social security cess is not a sales tax and does not deprive the petitioners of the privilege of exemption from sales tax.

Court's Analysis:
- The court noted that the sales tax forms a part of the revenues of the State, and the exemption granted to the petitioners remains unaffected.
- The court found that the grant of exemption from sales tax does not preclude the State from levying other taxes.
- The principle of equitable estoppel, as enunciated in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, cannot be invoked to say that the State was estopped from levying the impugned cess.

Conclusion:
The court rejected the plea of equitable estoppel based on the exemption from sales tax. The State is not estopped from imposing the social security cess.

Final Judgment:
The writ petitions are allowed, and the impugned Punjab Social Security Act, 2000, is declared unconstitutional. The parties are left to bear their own costs.