2007 (6) TMI 491 - HC - VAT and Sales Tax

Summary

Issues:
Constitutional validity of the amended Act regarding denatured spirit inclusion in the VAT Act, withdrawal of exemption, legislative competence, discrimination, and impact on business activities.

Constitutional Validity of Amended Act:
The writ petitioner challenged the constitutional validity of the Act as amended in 2007, specifically regarding the inclusion of denatured spirit in the Fourth Schedule of the Karnataka Value Added Tax Act, 2003. The petitioner argued that the State Government's attempt to regulate the activity of manufacturing denatured spirit was beyond its legislative competence as it falls under the exclusive jurisdiction of the Union Parliament. The petitioner contended that the amendment was a colorable exercise of legislative power and relied on previous judgments to support this claim.

Impact on Business Activities:
The petitioner highlighted that denatured spirit is primarily used as industrial alcohol and for producing alternative fuel, leading to a high demand for it. The State Government's concern over the diversion of denatured spirit from liquor manufacturing units prompted the amendment to regulate its trade. The petitioner argued that the high tax rate imposed under the Act was an indirect attempt to stifle or control the trade in denatured spirit, constituting a colorable exercise of legislative power beyond the State's competence.

Legislative Competence and Discrimination:
The petitioner contended that the levy of tax on denatured spirit, specifically targeting the petitioner, was discriminatory and aimed at destroying the petitioner's business. However, the court held that the levy of tax on the sale of denatured spirit fell within the State's legislative competence and did not amount to discrimination merely because the petitioner was the sole taxpayer affected.

Judgment:
The court dismissed the writ petition, ruling that the amended provisions challenged by the petitioner were not unconstitutional on the grounds of lack of legislative competence or discrimination. The court emphasized that the levy of tax on the sale transaction of denatured spirit, although affecting the petitioner's business, was within the legislative competence of the State and did not constitute an unconstitutional act.

In conclusion, the court upheld the constitutional validity of the amended Act and rejected the petitioner's claims of colorable exercise of legislative power and discrimination.