2006 (10) TMI 418 - HC - VAT and Sales Tax

Summary

Issues involved:
The issue in this case is whether the inclusion of silk fabrics and sarees made of natural silk as a taxable item under the Kerala Value Added Tax Act, 2003 is unconstitutional.

Details of the Judgment:

Issue 1: Constitutionality of the inclusion of silk fabrics and sarees made of natural silk as a taxable item under the KVAT Act:
The petitioners, an association of textile and garments dealers of Kerala, challenged the amendment to the KVAT Act which included silk fabrics and sarees made of natural silk as a taxable item. They argued that the State is incompetent to levy any sales tax on silk fabrics or natural silk due to the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The petitioners relied on Article 286(3) of the Constitution of India, which restricts the imposition of tax on goods declared to be of special importance in inter-State trade or commerce. The petitioners contended that if any State imposes sales tax or VAT on woven fabrics of silk/silk waste, the State will not receive any share of the additional duty collected by the Central Government under the ADE Act. The petitioners cited previous court decisions to support their argument that once a commodity is included in the First Schedule to the ADE Act, the State loses the power to impose any sales tax on that item. However, the respondents argued that the State's power to levy tax on the sale of goods is not abrogated by the ADE Act and Article 286(3) only results in the loss of revenue for the State. The court, after considering the arguments and relevant provisions, held that the petitioners' contention was untenable. The court distinguished previous court decisions cited by the petitioners and concluded that the State Legislature has the power to levy tax on items included in the First Schedule to the ADE Act.

Conclusion:
The writ petition challenging the inclusion of silk fabrics and sarees made of natural silk as a taxable item under the KVAT Act was dismissed by the court. The court found that the State had the authority to levy tax on these items despite their inclusion in the First Schedule to the ADE Act.