1995 (8) TMI 301 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence to enact the Kerala Tax on Entry of Motor Vehicles into Local Areas Act, 1994.
2. Violation of Articles 301 and 304 of the Constitution.
3. Validity and clarity of Section 4(2) of the Act.

Issue-wise Detailed Analysis:

1. Legislative Competence:
The petitioners contended that the Kerala Tax on Entry of Motor Vehicles into Local Areas Act, 1994, was beyond the legislative competence of the State Legislature, arguing that Entry 52 of List II of the Seventh Schedule was intended exclusively for raising revenue for local authorities. The court dismissed this contention, stating that Entry 52 of List II allows the State to impose taxes on the entry of goods into local areas without specifying that it must be for local authorities. The court cited K.K. Mathew, J. in G.K. Krishnan v. State of Tamil Nadu, emphasizing that the motive behind the tax is immaterial if the State has the power to impose it. The court also referenced Lord Salborne's observation in Queen v. Burah and the Supreme Court's decision in Deep Chand v. State of Uttar Pradesh, affirming the plenary legislative power of the State Legislature subject to the Constitution.

2. Violation of Articles 301 and 304:
The petitioners argued that the Act violated Articles 301 and 304 of the Constitution, which ensure the freedom of trade, commerce, and intercourse throughout India. Article 304(b) allows the State to impose reasonable restrictions in the public interest with the President's prior sanction. The State contended that the entry tax was compensatory and regulatory, not violating Articles 301 and 304. The court noted that the decision in Bihar Chamber of Commerce v. State of Bihar was based on specific facts and did not apply here. The court referenced the Supreme Court's decisions in Atiabari Tea Co. Ltd. v. State of Assam and Automobiles Transport (Rajasthan) Ltd. v. State of Rajasthan, which clarified that compensatory or regulatory taxes do not fall under the restrictions of Article 301 and do not require compliance with Article 304(b). The court concluded that the entry tax was compensatory, aimed at curbing sales tax evasion on motor vehicles purchased outside the State, and thus did not violate Articles 301 and 304.

3. Validity and Clarity of Section 4(2):
The petitioners argued that Section 4(2) of the Act was vague, potentially denying purchasers the benefit of tax reduction. Section 4(2) allows tax reduction for importers who paid sales tax in another State or Union Territory. The court clarified that purchasers who provide documentary evidence of tax payment in another State or Union Territory are entitled to a tax reduction. The court instructed assessing authorities to give credit for such tax payments, ensuring purchasers receive the appropriate reduction.

Conclusion:
The court upheld the validity of the Kerala Tax on Entry of Motor Vehicles into Local Areas Act, 1994, dismissing the petitions. The court found the Act within the legislative competence of the State, not violating Articles 301 and 304 of the Constitution, and clarified the application of Section 4(2) to ensure purchasers receive the tax reduction. The petitions were dismissed with the observation that assessing authorities must consider documentary evidence for tax reduction under Section 4(2).