2009 (2) TMI 756 - HC - VAT and Sales Tax

Levy of sales tax under serial No. 116 of the Third Schedule to the Kerala Value Added Tax Act, 2003 seeked on silk fabrics and sarees made of natural silk conforming to HSN code 5007 while excluding all other textile fabrics from levy is arbitrary and discriminatory, violative of articles 14, 19(1)(g) and 301 of the Constitution of India Held that - All that the Parliament has said by enacting the ADE Act is that it will levy additional duties of excise and distribute a part of the proceeds among the States provided the States do not levy taxes on sale or purchase of the Scheduled commodities. The Parliament has also provided the consequence that follows if any State levies tax on sale or purchase of Scheduled commodities; all that happens is that the State will be deprived of its share in the proceeds of additional duties of excise for that financial year. Even this is subject to the power of the Central Government to direct otherwise. The Parliament could not, and did not, prohibit any State from making any law or levying any tax which a State can levy by virtue of the entries in List II. The State also has got a case that goods in question, covered under HSN code 5007, are not directly taxable under the Additional Duties of Excise Act, 1957 and State has not derived any share from it for the relevant financial year. In any event, the State has legislative competence to charge sales tax subject to the restrictions in section 15 of the CST Act. Appeal dismissed.

Issues:
1. Declaration of levy of sales tax on specific goods under the Kerala Value Added Tax Act, 2003.
2. Legislative competence of the State to tax goods also covered under the Additional Duties of Excise Act, 1957.
3. Interpretation of relevant constitutional provisions regarding taxation powers of the State and Parliament.
4. Consideration of specific cases and judgments related to sales tax on declared goods.

Analysis:
1. The writ petitioner challenged the levy of sales tax on "silk fabrics and sarees made of natural silk" under the Kerala Value Added Tax Act, 2003, contending it to be arbitrary and discriminatory. The argument was based on the belief that since the goods were already taxable under the Additional Duties of Excise Act, 1957, the State lacked the legislative competence to impose sales tax on them. Reference was made to the Constitution of India to support the claim of violation of articles 14, 19(1)(g), and 301. The court examined the charging section of the Act, which clarified that the tax was on manufacture and storage of goods, not on sale or purchase, thereby upholding the State's authority to collect sales tax alongside excise duties.

2. The court analyzed the distribution of additional duties among States under the Second Schedule of the Act and found that the power of the State to levy sales tax was not prohibited by the imposition of additional duties. The judgment referred to a previous Supreme Court decision that highlighted the limitations on State taxation powers concerning goods declared to be of special importance in inter-State trade or commerce. It was emphasized that the State could charge sales tax within the constraints outlined in the Central Sales Tax Act, 1956, even for goods covered under the Additional Duties of Excise Act, 1957.

3. The court delved into the constitutional provisions governing taxation powers, specifically examining the interplay between the powers of the State and Parliament in levying taxes. Reference was made to the restrictions imposed by article 286 of the Constitution, along with sections 14 and 15 of the Central Sales Tax Act, 1956. The judgment clarified that while the Parliament could regulate sales tax rates for certain goods, the State retained the authority to levy sales tax within the prescribed limits, even on goods subject to additional excise duties.

4. Various High Court and Supreme Court decisions were cited to support the conclusion that the State had the legislative competence to impose sales tax on goods covered by the HSN code 5007, despite being subject to excise duties under the Additional Duties of Excise Act, 1957. The court referenced a specific case where the Supreme Court affirmed the State's power to levy taxes on goods not directly taxable under the excise act. Ultimately, the court dismissed the writ appeal, affirming the State's authority to charge sales tax on the specified goods, subject to the statutory restrictions outlined in the Central Sales Tax Act, 1956.

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