2012 (1) TMI 141 - HC - VAT and Sales Tax

Rate of sales tax on motor tyres/tubes - whether State authorities can levy tax from retrospective date? Held that - The written statement filed by the respondents does not spell out any justification for enforcing the notification, annexure P3, retrospectively from August 20, 1992 instead of April 1, 1992. The respondents vide notification dated November 9, 1990 had amended the notification dated December 2, 1982 reducing the rate from 12 paise to 9 paise in a rupee on motor tyres and tubes up to March 31, 1992 and vide notification dated December 28, 1990, the rate of sales tax on tractor tyres and tubes was reduced from eight per cent to six per cent up to March 31, 1992, which was later on continued up to March 31, 1994 vide notification dated August 20, 1992 (annexure P3). However, vide notification dated December 1, 1992, the rate of nine paise in a rupee on motor tyres and tubes and six paise in a rupee on tractor tyres and tubes has been made effective from August 20, 1992 instead of April 1, 1992 without giving any reasonable ground for adopting such date. Further, the petitioner has refunded ₹ 10,79,659 on the basis of notification, annexure P3, which fact has not been specifically denied by the respondents in the reply. The notification, annexure P5, thus, cannot be held to be valid and is hereby quashed. The respondents cannot be held entitled to charge sales tax at 12 paise in a rupee on motor tyres and tubes and at eight paise in a rupee on tractor tyres and tubes from April 1, 1992 to August 20, 1992. W.P. allowed. It is held that the petitioners shall be liable to pay sales tax for the period from April 1, 1992 to August 20, 1992, in accordance with the notification, annexure P3 and the assessing authority shall determine the liability, if any, accordingly.

Summary

Issues:
Validity of notification dated December 1, 1992 being ultra vires the provisions of section 5 of the Act as the State authorities cannot levy tax from a retrospective date.

Analysis:
The judgment of the court addressed the issue of the validity of a notification dated December 1, 1992, which sought to levy sales tax at an enhanced rate for the period from April 1, 1992, to August 20, 1992, retrospectively. The petitioner challenged the notification as ultra vires the provisions of section 5 of the Act, arguing that the State authorities cannot levy tax from a retrospective date. The State contended that the amendment was a clarification and permissible in law, not creating a fresh levy as claimed by the petitioner.

The court carefully considered the submissions of both parties and found merit in the petitioner's arguments. Referring to a previous case, the court emphasized that the exercise of retrospective power of legislation must be consistent with constitutional principles and not arbitrary. The court highlighted that retrospective legislation may be justified if it is clarificatory or for validating an earlier levy, but in this case, the State failed to provide a reasonable ground for the retrospective application of the notification.

Based on the analysis, the court concluded that the notification dated December 1, 1992, was invalid and quashed it. The court ruled that the State cannot charge sales tax at the enhanced rate for the period in question. The writ petitions were allowed, and the petitioners were directed to pay sales tax for the relevant period in accordance with a different notification, annexure P3. The assessing authority was instructed to determine any liability accordingly.

In summary, the judgment delved into the legality of a notification retrospectively levying sales tax, highlighting the need for justifications and reasonableness in such actions. The court's decision favored the petitioner, declaring the impugned notification as invalid and directing the State to apply the correct tax rates for the specified period.