1968 (9) TMI 114 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence of the State Legislature to enact Section 5-A of the Andhra Pradesh General Sales Tax Act.
2. Alleged discrimination under Section 5-A violating Article 14 of the Constitution.
3. Alleged repugnancy of Section 5-A with Section 15 of the Central Sales Tax Act and Article 286(3) of the Constitution.
4. Alleged violation of Article 19(1)(g) of the Constitution.
5. Alleged violation of Article 301 of the Constitution.

Detailed Analysis:

1. Legislative Competence:
The petitioners contended that Section 5-A of the Andhra Pradesh General Sales Tax Act is beyond the legislative competence of the State Legislature as it does not fall within entry 54 of List II of the Seventh Schedule of the Constitution. They argued that the unit of taxation under entry 54 is the transaction or event of sale, not the total turnover, and therefore, Section 5-A amounts to taxing the trade itself, falling under entry 60 of List II, which is limited by Article 276 of the Constitution.

The court rejected this contention, stating that Section 5-A is not an independent charging section but an ancillary provision to Section 5. The tax under both sections is levied on the transaction of sale or purchase. The additional tax under Section 5-A is merely an increased rate for dealers with a turnover of three lakhs or more. The court emphasized that the nature of the tax remains a tax on the sale or purchase of goods, falling within entry 54 of List II.

2. Alleged Discrimination:
The petitioners argued that Section 5-A is discriminatory as it imposes different tax rates based on the volume of turnover, violating Article 14 of the Constitution. They contended that this creates an invidious distinction between dealers with turnovers above and below three lakhs.

The court held that the classification is reasonable and based on a legitimate objective of augmenting public revenue. The principle of gradation of tax rates according to the capacity to pay is well recognized. The court cited previous judgments supporting the view that differential tax rates based on turnover do not violate Article 14.

3. Alleged Repugnancy:
The petitioners claimed that Section 5-A is repugnant to Section 15 of the Central Sales Tax Act and violates Article 286(3) of the Constitution, which restricts the rate of tax on declared goods to a ceiling rate.

The court clarified that Section 5-A does not apply to declared goods as defined under Section 14 of the Central Sales Tax Act. Section 6 of the Andhra Pradesh Act, which specifically deals with declared goods, excludes the application of Section 5-A. Therefore, there is no conflict between Section 5-A and Section 15 of the Central Sales Tax Act.

4. Alleged Violation of Article 19(1)(g):
The petitioners suggested that the imposition of additional tax under Section 5-A offends Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession or carry on any occupation, trade, or business.

The court dismissed this argument, noting that taxation for public revenue purposes does not violate Article 19(1)(g). The petitioners failed to show that the tax under Section 5-A imposes an excessive or unreasonable burden on their business.

5. Alleged Violation of Article 301:
The petitioners argued that Section 5-A violates Article 301 of the Constitution, which guarantees freedom of trade, commerce, and intercourse throughout India. They claimed that the additional tax would lead purchasers to prefer dealers with turnovers below three lakhs, thereby restricting trade.

The court held that only tax laws directly restricting the flow of trade fall under Article 301. Sales tax does not directly affect the movement of goods and thus does not violate Article 301. The court cited precedents to support this view and concluded that the additional tax under Section 5-A does not impose any restriction on the freedom of trade or commerce.

Conclusion:
The court dismissed all contentions raised by the petitioners, upholding the validity of Section 5-A of the Andhra Pradesh General Sales Tax Act. The petitions were dismissed with costs.

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