2007 (3) TMI 687 - HC - VAT and Sales Tax

Validity of sub-section (16A) of section 47 of the Kerala Value Added Tax Act, 2003 - Circulars directing to collect sales tax in advance at the border check-posts, at the time of import of certain evasion-prone commodities - entry tax - detention of the goods at the check-post - Another Circular issued for collection of advance tax in respect of twelve evasion-prone commodities at the entry points into the State such as check-posts, ports, airports and railway stations - sustainability of two circulars issued by the Commissioner of Commercial Taxes - violates articles 14 and 19(1)(g) of the Constitution - HELD THAT - If evasion of tax is to be prevented, the same can be done only by demanding tax in advance before the occurrence of the taxable event. It is true, while interpreting a taxing statute, if there is any doubt, the same should go in favour of the assessee. But, in this case, if the interpretation advanced by the petitioners is accepted, the same will render the provision ineffective to prevent evasion of tax. So, the golden rule of interpretation has to be followed. The golden rule is dealt with in Principles of Statutory Interpretation. In the light of the above principles, sub-section (16A) has to be read as authorising the Commissioner to direct payment of tax before the taxable event takes place. Otherwise, the purpose of the sub-section, namely, prevention of evasion of tax will be defeated. Therefore, the circulars have to be held intra vires of sub-section (16A). Violates articles 14 and 19(1)(g) of the Constitution - It is well-settled that the Legislature enjoys a greater latitude for classification in the field of taxation (See the decision of the apex court in Steelworth Limited v. State of Assam 1962 (1) TMI 35 - SUPREME COURT . Demanding tax in advance cannot be said to be an action, infringing the fundamental rights under article 19(1)(g) of the Constitution of India. Demand and collection of tax may cause some inconvenience. But, the same cannot be described as violation of any fundamental right. Same is the case of attack, relying on article 301 and also on the ground of lack of competence of the State to tax on inter-State movement of goods. By demanding tax in advance, the State does not impose or levy any tax, which it is not competent to levy. It is only a measure to prevent evasion of tax, which the State is legitimately entitled to collect. It is not an attempt to tax on inter-State sale. The free-flow of goods is also not prevented by demanding tax in advance. Some inconvenience caused at the check-posts cannot be described as violating the rights under article 301 of the Constitution of India. If such a contention is accepted, all the check-posts should be abolished, so as to provide unhindered movement of goods. Such a right cannot be claimed under article 301. The petitioners submit, if such an interpretation is accepted, it will make sub-section (16A) unconstitutional. They point out that the taxable event is the sale. The Constitution authorises the Legislature to impose tax on sale. Thus, the challenge against the constitutional validity of section 47(16A) of the KVAT Act is repelled. The validity of the impugned circulars are upheld. The timing of the issuance of the circulars, that is immediately after the rendering of the judgment by this court, in the Entry Tax Cases cannot be a ground to condemn the circulars, if they are otherwise valid. The individual grievance caused to certain dealers cannot be a ground for declaring the provision or the circulars unconstitutional. A dealer, whose entire sales are in the course of export may not be liable to pay tax. If (1) Here italicised. advance tax is collected from him and he does not make any local sale and therefore, not liable to pay tax, he can claim refund of the same. In that event, the State shall refund the amount paid by him. Such individual inconveniences or grievances can never be pressed into service, to attack a legislation. I have not dealt with in this judgment, some of the decisions cited by both sides, as they were not strictly relevant. In the result, the writ petition fails and it is dismissed.

Summary

Issues Involved:
1. Constitutional validity of Sub-section (16A) of Section 47 of the Kerala Value Added Tax Act, 2003.
2. Sustainability of Circular No. 50 of 2006 and Circular No. 53 of 2006 issued by the Commissioner of Commercial Taxes under the said provision.
3. Legality of collecting sales tax in advance at border check-posts for certain evasion-prone commodities.
4. Alleged violation of Articles 14, 19(1)(g), 246, 265, and 301 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sub-section (16A) of Section 47 of the Kerala Value Added Tax Act, 2003:
The petitioners challenged the constitutional validity of Sub-section (16A) of Section 47 on the grounds that it authorizes the collection of tax before the taxable event (sale) occurs, which they argued is unconstitutional. The court interpreted Sub-section (16A) to mean that the Commissioner can demand tax before the sale to prevent tax evasion. It was noted that if the petitioners' interpretation were accepted, the provision would become ineffective in preventing tax evasion. The court applied the "golden rule" of statutory interpretation, which requires giving words their ordinary meaning unless it leads to absurdity. The court held that Sub-section (16A) is constitutional as it aims to prevent tax evasion by allowing the collection of tax in advance.

2. Sustainability of Circular No. 50 of 2006 and Circular No. 53 of 2006:
The petitioners argued that the circulars issued by the Commissioner were illegal and unconstitutional, not supported by any statutory provision, and thus violated Article 265 of the Constitution. The court found that the circulars were issued under the authority of Sub-section (16A) of Section 47, which is a valid legislative provision. The circulars were intended to prevent tax evasion by requiring advance tax payment for certain evasion-prone commodities at the entry points into the State. The court upheld the circulars, stating that they were intra vires of Sub-section (16A) and did not violate any constitutional provisions.

3. Legality of Collecting Sales Tax in Advance at Border Check-posts:
The petitioners contended that the collection of sales tax in advance before the sale is effected is unconstitutional. The court referred to the decision in State of West Bengal v. E.I.T.A. India Limited, where the Supreme Court upheld the validity of provisions allowing the collection of tax in advance to prevent tax evasion. The court held that the advance collection of tax is a measure to prevent tax evasion and is constitutionally permissible. The court emphasized that the actual tax would be assessed based on the sale price after the sale takes place, and the advance tax paid can be adjusted against the output tax due.

4. Alleged Violation of Articles 14, 19(1)(g), 246, 265, and 301 of the Constitution of India:
The petitioners argued that Sub-section (16A) and the circulars violate Articles 14, 19(1)(g), 246, 265, and 301 of the Constitution. The court found that the classification of evasion-prone goods for advance tax collection is rational and aimed at preventing tax evasion. The court held that the provisions do not infringe the petitioners' fundamental rights under Article 19(1)(g) or violate Article 14, as the classification is based on a sound basis. The court also rejected the contention that the provisions violate Article 301, stating that the advance tax collection does not impede the free flow of goods and is a measure to prevent tax evasion. The court emphasized that legislative judgments in the field of taxation should be respected, and the provisions in question are within the legislative competence of the State.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of Sub-section (16A) of Section 47 of the Kerala Value Added Tax Act, 2003, and the circulars issued under it. The court found that the provisions and circulars are valid measures to prevent tax evasion and do not violate any constitutional provisions.