2005 (1) TMI 659 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the validity of Tripura Sales Tax (Fifth Amendment) Act, 1994 - Competency of State Legislature to impose sales tax on zarda - Constitutional validity under various provisions of the Constitution.

Analysis:
The petitioners challenged the Tripura Sales Tax (Fifth Amendment) Act, 1994, which imposed a five per cent sales tax on zarda, arguing that it was a Union subject and the State Legislature lacked the competence to enact on entry 54 of the State List. They sought relief declaring the amendment unconstitutional under articles 301, 304(b), 286(3), 245, 246, 265, 14, and 19(1)(g) of the Constitution and section 15 of the Central Sales Tax Act, 1956. Respondents contended that the State Legislature had the power under entry 54 of the State List and the Central Sales Tax Act authorized tax imposition up to four per cent on declared goods. It was acknowledged that the tax on zarda should have been four per cent instead of five per cent. The court had to determine the validity of the State Act under the Constitution.

The State Legislature's power to enact on matters in the State List is derived from article 246 of the Constitution. Entry 54 empowers the State Legislature to tax the sale or purchase of goods, subject to entry 92A of List I. Article 286 restricts State laws on the sale or purchase of goods outside the State or in the course of import/export. As the zarda sale took place within Tripura, the tax was justified under the State Act and not in violation of article 286. The court had to assess whether the State had the authority to impose the tax on zarda.

The contention that the Union's control over tobacco industry barred State legislation was refuted. The court referenced a previous case where the State tax imposition was set aside due to receiving a share of additional duties under a Central Act. However, in this case, the State did not receive such benefits, allowing them to impose the tax. The court emphasized that the State's power under entry 54 was not affected by Union List provisions. The Constitution's other articles cited by the petitioners were deemed irrelevant to the issue at hand. The court concluded that the impugned enactment was not invalid under the Constitution, but the tax rate on zarda should have been limited to four per cent as per the Central Sales Tax Act.

In conclusion, the court dismissed the writ petition, directing the State to consider amending the law to align with the concession made in the counter-affidavit. The parties were left to bear their own costs, with the judgment focusing on the State's competence to impose the sales tax on zarda and the need for alignment with Central legislation on tax rates for declared goods.