2007 (11) TMI 565 - HC - VAT and Sales Tax

Power of the State to levy purchase tax under section 7A on goods purchased, the sale of which enjoyed exemption under the notification issued under section 17 and sent on consignment basis to outside the State otherwise by way of sale under section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959 - Wheteher is unconstitutional and beyond the legislative competence of the State under entry 54, List II of the Seventh Schedule to the Constitution of India and ultra vires entry 92B of List I of the Seventh Schedule to the Constitution and void as repugnant to article 14, violative of article 301 and not saved by article 304(b) of the Constitution of India? Held that - The charge under section 7A need not be necessary to check exemption but certainly it is pointing at the loophole caused by the circumstances stated under section 7A. If the goods are not available in the State for subsequent taxation by reason of the circumstances mentioned in section 7A(1)(a),(b),(c), then the purchaser is made liable under section 7A. Taxation, as such, is not an infringement of the freedom guaranteed by article 301. Yet, it is settled law that tax laws are not outside the purview of Part XIII of the Constitution.However, where the levy is not discriminatory or restrictive or having a direct and immediate restriction on the trade and intercourse, on a mere inconsequential indirect remote impediment, the levy cannot be struck down under article 301. The flow of trade and commerce depends upon a variety of factors like location, availability of market, materials and other infrastructural facilities. In the circumstances, we do not find any basis to sustain this objection that the levy is restrictive of the trade and commerce. As to the contention based on article 304(b), unless and until the petitioner is able to show that the provisions of article 301 or 303 are offended, the question of invoking article 304(b) does not arise. The contentions of the petitioner cannot be upheld and the same is rejected. As already held that section 7A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax . Assessee appeal dismissed.

Issues Involved:
1. Constitutionality of Section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959.
2. Legislative competence of the State to levy purchase tax under Section 7A.
3. Interpretation of the phrase "in circumstances in which no tax is payable" under Section 7A.
4. Violation of Articles 14, 301, and 304(b) of the Constitution of India.

Detailed Analysis:

1. Constitutionality of Section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959:
The petitioner challenged the constitutionality of Section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959, arguing that it was beyond the legislative competence of the State under Entry 54, List II of the Seventh Schedule to the Constitution of India and ultra vires Entry 92B of List I. The petitioner contended that the provision was void as it was repugnant to Article 14 and violative of Article 301, not saved by Article 304(b) of the Constitution of India. The court referred to multiple Supreme Court decisions, including [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami) and [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh), to uphold the constitutionality of Section 7A, stating that it was a charging as well as a remedial provision aimed at plugging leakage and preventing tax evasion.

2. Legislative Competence of the State to Levy Purchase Tax under Section 7A:
The petitioner argued that the State lacked the legislative competence to levy purchase tax under Section 7A, claiming it was effectively a consignment tax, which fell under the purview of Entry 92B of List I. The court rejected this argument, relying on Supreme Court precedents, including [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh), which held that the levy was not on consignment but on the purchase. The court concluded that the levy of purchase tax under Section 7A was within the legislative competence of the State.

3. Interpretation of the Phrase "In Circumstances in Which No Tax is Payable" under Section 7A:
The petitioner contended that the phrase "in circumstances in which no tax is payable" referred to situations where there was no liability under any provision of the Act, excluding cases of exemption. The court rejected this interpretation, citing the Supreme Court decision in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami), which clarified that the phrase included circumstances where particular sales did not suffer tax. The court held that Section 7A was applicable even in cases of conditional exemption, ensuring that the State did not lose revenue due to goods being unavailable for subsequent taxation.

4. Violation of Articles 14, 301, and 304(b) of the Constitution of India:
The petitioner argued that the levy under Section 7A violated Articles 14, 301, and 304(b) of the Constitution. The court referred to the Supreme Court decision in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh), which held that the levy was not a restriction on trade and commerce under Article 301 and did not require Presidential assent under Article 304(b). The court also rejected the argument that the levy violated Article 14, stating that the levy was not discriminatory and was aimed at preventing tax evasion.

Conclusion:
The court upheld the constitutionality of Section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959, and confirmed the legislative competence of the State to levy purchase tax under this provision. The court interpreted the phrase "in circumstances in which no tax is payable" to include cases of conditional exemption and ruled that the levy did not violate Articles 14, 301, and 304(b) of the Constitution of India. The writ petitions challenging the provision were dismissed, and the petitioner was advised to challenge individual assessment orders through the appropriate appellate mechanism.

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