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2012 (11) TMI 1049 - HC - VAT and Sales TaxConstitutional validity of sub-section (5) of section 4 of the Karnataka Value Added Tax Act 2003 - Held that - Sub-section (5) of section 4 of the KVAT Act 2003 which provides for levy of tax on the maximum retail price indicated on the label of the container or pack thereof is declared as unconstitutional on the ground that such a taxing provision is beyond the legislative competence of the State under entry 54 of List II of the Seventh Schedule to the Constitution of India. W.P allowed.
Issues:
Challenge to the constitutional validity of sub-section (5) of section 4 of the Karnataka Value Added Tax Act, 2003. Detailed Analysis: 1. Constitutional Validity Challenge: The petitioner challenged the constitutional validity of sub-section (5) of section 4 of the Karnataka Value Added Tax Act, 2003. The provision imposed tax on the sale of tobacco products based on the maximum retail price indicated on the label, which the petitioner argued was beyond the legislative competence of the State. The petitioner contended that levying tax on a notional measure of tax, such as the maximum retail price, was impermissible under the law. The argument was supported by references to relevant case law, including the Supreme Court's decision in State of Rajasthan v. Rajasthan Chemists Association [2006] 147 STC 542 (SC); [2006] 6 SCC 773, which held a similar provision to be outside the legislative competence of the State. 2. Legal Arguments: The Senior Counsel for the petitioner argued that the measure of tax based on the maximum retail price was not the actual price and, therefore, fell outside the scope of legislative competence. The State Legislature, according to the petitioner, could not levy tax on goods using a notional price as a measure. This argument was supported by a previous judgment of the Rajasthan High Court and affirmed by the Supreme Court, which held a similar provision to be beyond the legislative competence of the State under entry 54 of List II of the Seventh Schedule to the Constitution of India. 3. Supporting Arguments: The Additional Government Advocate, on the other hand, supported the validity of the impugned provision. He relied on judgments of the Supreme Court in Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC); [1993] Supp (4) SCC 536 and Ganga Sugar Corporation Ltd. v. State of U.P. [1980] 45 STC 36 (SC); [1980] 1 SCC 223. The Advocate highlighted that under sub-section (6)(a) of section 4 of the KVAT Act, a registered dealer not liable to pay tax under sub-section (5) could apply for a refund of the tax collected on their purchase. 4. Judicial Decision: The High Court, after considering the arguments and precedents cited, declared sub-section (5) of section 4 of the KVAT Act, 2003 as unconstitutional. The Court concurred with the view that the State Legislature could not levy tax on the sale of goods using a notional price as a measure, as it exceeded the legislative competence under entry 54 of List II of the Seventh Schedule to the Constitution of India. This decision was based on the reasoning upheld by the Supreme Court in a similar case, affirming that such a taxing provision was outside the permissible ambit of the law. In conclusion, the judgment of the High Court declared the provision in question as unconstitutional due to its imposition of tax based on the maximum retail price, which was deemed beyond the legislative competence of the State. The decision was supported by legal arguments, case law references, and the interpretation of relevant constitutional provisions.
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