2005 (6) TMI 540 - HC - VAT and Sales Tax

Summary

Issues:
1. Liability of Central Excise and Customs Department to pay sales tax under the Kerala General Sales Tax Act, 1963 on disposal of goods.
2. Validity of the Kerala General Sales Tax Act, 1963 as amended by Act 3 of 1968 and Act 21 of 1978, particularly section 2, in relation to Central Excise and Customs Department.
3. Interpretation of the expression "carrying on business" in the context of disposal of confiscated goods by the Central Excise and Customs Department.
4. Applicability of the decision in Collector of Customs v. State of West Bengal [1999] 113 STC 167; [1999] 1 SCC 192 to the present case.

Analysis:

1. The Writ petition was filed by the Collector of Customs and Central Excise challenging the liability of the Central Excise and Customs Department to pay sales tax under the Kerala General Sales Tax Act, 1963 on the disposal of goods during the course of administering the Customs Act, 1962. The contention was that the Department should not be liable to pay sales tax on the sale of confiscated or unclaimed goods. The learned single Judge initially ruled against the Department, relying on a previous judgment. However, the Collector of Customs and Central Excise appealed against this decision.

2. The main argument put forth was that the Kerala General Sales Tax Act, 1963, as amended by Act 3 of 1968 and Act 21 of 1978, particularly section 2, was ultra vires and contravened Article 285 of the Constitution of India. It was contended that the expression "carrying on business" in the Act did not apply to the activity of disposing of confiscated goods by the Central Excise and Customs Department as it lacked the intention of profit or gain.

3. The contention raised in the present case was similar to that considered by the apex court in Collector of Customs v. State of West Bengal [1999] 113 STC 167; [1999] 1 SCC 192. The apex court in that case had held that the Collector of Customs was considered a "dealer" under the Bengal Finance (Sales Tax) Act, 1941 when selling confiscated goods due to non-payment of customs duty. The court emphasized the distinction between excise duty and sales tax, stating that they were imposed on different events - manufacturing/production and sale, respectively. The court upheld the decision that the Collector of Customs was liable to pay sales tax on the sale of confiscated goods.

4. Ultimately, the High Court, concurring with the decision of the learned single Judge and the principles laid down by the apex court in previous cases, dismissed the appeal of the Collector of Customs and Central Excise. The Court affirmed that the Collector of Customs was indeed liable to pay sales tax on the sale of confiscated or unclaimed goods, in accordance with the provisions of the Kerala General Sales Tax Act, 1963. The order on C.M.P. No. 1444 of 1997 was also dismissed.