2006 (8) TMI 529 - HC - VAT and Sales Tax

Summary

Issues Involved: Constitutionality of sections 22(3) and (4) of the Andhra Pradesh Value Added Tax Act, 2005, rule 18(1) of the Andhra Pradesh Value Added Tax Rules, 2005, Explanation VI of section 2(28), section 2(29)(c)(i)(a), and rule 17(2)(k) concerning legislative competence and violation of various articles of the Constitution of India.

Issue-Wise Detailed Analysis:

1. Constitutionality of Sections 22(3) and (4) of APVAT Act:
The petitioners challenged sections 22(3) and (4) of the Andhra Pradesh Value Added Tax Act, 2005, which mandate tax deduction at source (TDS) from payments made to contractors by the government or other entities. The petitioners argued that these provisions are beyond the legislative competence of the State of Andhra Pradesh as they violate Article 286 of the Constitution, which restricts states from taxing inter-state sales, and sections 3 and 4 of the Central Sales Tax Act, 1956. The court noted that these provisions do not account for whether the transactions are liable for state sales tax, leading to the deduction of tax even in cases where no tax is due, making the provisions unconstitutional.

2. Violation of Article 286 and Central Sales Tax Act:
The petitioners contended that the impugned provisions violate Article 286 of the Constitution, which prohibits states from imposing tax on inter-state sales, and sections 3 and 4 of the Central Sales Tax Act, 1956. The court agreed, citing the Supreme Court's decision in Steel Authority of India Ltd. v. State of Orissa, which held that similar provisions in the Orissa Sales Tax Act were unconstitutional as they did not provide a mechanism to exclude non-taxable transactions from TDS, thereby extending the state's taxing power beyond its constitutional limits.

3. Inconsistency with Articles 14, 19(1)(g), 265, and 300A:
The petitioners argued that the provisions are inconsistent with Articles 14 (equality before the law), 19(1)(g) (right to practice any profession), 265 (no tax shall be levied or collected except by authority of law), and 300A (no person shall be deprived of property except by authority of law) of the Constitution. The court found that the mandatory TDS without determining the actual tax liability is discriminatory and confiscatory, thus violating these constitutional provisions. The court emphasized that the provisions lead to the extraction of money without ascertaining the actual tax liability, making them unconstitutional.

4. Legislative Competence of the State:
The court examined the legislative competence of the State of Andhra Pradesh to enact the impugned provisions under Entry 54 of List II of the Seventh Schedule of the Constitution. The court referred to the Supreme Court's decision in Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh, which struck down similar provisions in the Himachal Pradesh General Sales Tax Act, 1968. The court concluded that the provisions in question are beyond the legislative competence of the State as they fail to consider inter-state sales and other non-taxable transactions, thus encroaching upon the Union's legislative domain.

5. Validity of Explanation VI of Section 2(28) and Section 2(29)(c)(i)(a):
The petitioners also challenged Explanation VI of section 2(28) and section 2(29)(c)(i)(a) of the APVAT Act. However, the court did not delve into the constitutional validity of these provisions, stating that the question should be determined in a more appropriate case with a concrete factual foundation. The court left this issue open for future examination.

Conclusion:
The court allowed the writ petitions, declaring sections 22(3) and (4) of the Andhra Pradesh Value Added Tax Act, 2005, unconstitutional and beyond the legislative competence of the State of Andhra Pradesh. The court did not address the validity of Explanation VI of section 2(28) and section 2(29)(c)(i)(a), leaving the question open for future determination.