2006 (1) TMI 558 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the legislation introduced by Act No. 5 of 2001.
2. Alleged discrimination under Article 14 of the Constitution of India.
3. Classification of coconut oil as a toiletry article versus an edible oil.

Detailed Analysis:

1. Validity of the Legislation Introduced by Act No. 5 of 2001:
The petitioner challenged the validity of the legislation introduced by Act No. 5 of 2001, which subjected coconut oil sold under a brand name to a higher tax rate compared to other edible oils. The petitioner argued that this legislation was discriminatory and violated Article 14 of the Constitution of India. The State defended the legislation by asserting that coconut oil is predominantly used as hair oil in Karnataka and only a small percentage is used as an edible oil. Therefore, the legislation aimed to tax coconut oil on par with other toiletry articles.

2. Alleged Discrimination under Article 14 of the Constitution of India:
The petitioner argued that the legislation was discriminatory as it singled out branded coconut oil for a higher tax rate. The petitioner relied on several Supreme Court decisions to argue that the classification failed to pass the test of Article 14, which requires an intelligible criterion and a nexus to the object of the legislation. The State's defense was based on the premise that coconut oil sold under brand names is mainly used as hair oil, constituting a valid classification. However, the court found that the State failed to provide material evidence to support this claim, rendering the classification arbitrary and discriminatory.

3. Classification of Coconut Oil as a Toiletry Article versus an Edible Oil:
The State contended that coconut oil, when sold in branded form, is primarily used as hair oil and should be taxed accordingly. The petitioner countered that coconut oil is largely used as an edible oil and that the higher tax rate adversely affected their business. The court noted that the State did not provide sufficient evidence to substantiate its claim that 95% of branded coconut oil is used as hair oil. The court emphasized that a mere opinion or view without supporting material cannot justify the classification and higher tax rate.

Conclusion:
The court declared the legislation introduced by Act No. 5 of 2001 as unconstitutional, stating that the State failed to defend the validity of the legislation by not providing relevant material to support its stand. The court highlighted that the classification was based on an arbitrary view rather than concrete evidence, thus violating Article 14 of the Constitution of India. Consequently, the court issued a writ declaring the introduction of entry No. 17-A in Part "C" of the Second Schedule to the Karnataka Sales Tax Act, 1957, as unconstitutional and discriminatory.