2012 (10) TMI 956 - HC - VAT and Sales Tax

Constitutional validity of the amendment to entry 22 in Part S of the Second Schedule to the Karnataka Sales Tax Act, 1957, by section 2(24)(xxi) of Karnataka Act No. 18 of 1994 - Held that - The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. It cannot be said that levy of four per cent tax by the impugned amendment, on the sale of raw silk and silk yarn, imported from outside the country, could directly impede the free flow of trade and commerce in the aforesaid goods in the territory of India. Accordingly, the contention that the impugned amendment is violative of article 301 of the Constitution is devoid of merit. The object of article 304(a) is to prevent discrimination against goods imported from other States within the territory of India by imposing on them a tax higher than that borne by goods produced in the State. A plain reading of article 304 would show that it does not impose any restrictions on the Legislature of a State to make any law to impose tax on the sale or purchase of goods imported from outside the country. Hence, the contention that the impugned amendment is violative of article 304 is also devoid of merit. W.P. dismissed.

Summary

Issues:
Challenge to the constitutional validity of the amendment to entry 22 in Part S of the Second Schedule to the Karnataka Sales Tax Act, 1957 by section 2(24)(xxi) of Karnataka Act No. 18 of 1994. Examination of whether the impugned amendment offends articles 301 and 304 of the Constitution of India.

Analysis:

Article 301 - Freedom of trade, commerce, and intercourse: The judgment delves into the interpretation of Article 301, emphasizing that while fiscal measures are not entirely outside its purview, only taxes that directly or immediately impede trade, commerce, and intercourse fall within its prohibition. Reference is made to the Atiabari Tea Co. Ltd. v. State of Assam case to explain the scope of Article 301. The judgment highlights that taxes can amount to restrictions, but only those that directly and immediately restrict trade are covered by Article 301. The analysis concludes that the levy of a four percent tax on the sale of raw silk and silk yarn imported from outside the country does not impede the free flow of trade and commerce, thus dismissing the contention that the amendment violates Article 301.

Article 304 - Restrictions on trade, commerce, and intercourse among States: The judgment addresses the challenge to the impugned amendment under Article 304 of the Constitution. It outlines that Article 304 allows State Legislatures to impose taxes on goods imported from other states without discriminating against them compared to locally produced goods. However, it clarifies that Article 304 does not restrict State Legislatures from imposing taxes on goods imported from outside the country. Consequently, the argument that the impugned amendment violates Article 304 is deemed without merit.

Conclusion: The judgment dismisses the writ petitions challenging the constitutional validity of the amendment, as it finds no merit in the contentions raised regarding the violation of Articles 301 and 304 of the Constitution. The analysis provides a detailed examination of the constitutional provisions, legal precedents, and the specific circumstances surrounding the impugned tax amendment, leading to the dismissal of the petitions.