1975 (7) TMI 155 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the levy is an excise duty or sales tax.
2. Whether the Amending Ordinance and the Act violate Article 14 of the Constitution.
3. Whether the State Legislature can tax alcohol, a controlled industry under the Industries (Development and Regulation) Act, 1951.
4. Whether the tax is confiscatory and a colorable exercise of legislative power.
5. Whether the levy violates Articles 301 and 304(b) of the Constitution.

Issue-wise Detailed Analysis:

1. Excise Duty or Sales Tax:
The petitioner argued that the levy was an excise duty and not a sales tax, thus beyond the legislative competence of the State Legislature. The court reviewed several precedents to distinguish between excise duty and sales tax. The court concluded that the levy was on the act of first sale by dealers, not on the event of manufacture or production, making it a sales tax within the State Legislature's competence. The court noted, "The liability is qua seller and not qua manufacturer or producer."

2. Violation of Article 14:
The petitioner claimed that the Amending Ordinance and the Act were discriminatory, violating Article 14. The court held that the legislative change was rational, aiming for more effective enforcement and administration of sales tax on alcohol through the Excise Department. The court stated, "The dealer is in no way adversely affected, and no charge of discrimination can validly be laid on this ground." The court also rejected the argument regarding different rates for different commodities, citing the legislature's wide discretion in fiscal matters.

3. Alcohol as a Controlled Industry:
The petitioner contended that alcohol, being a controlled industry under the Industries (Development and Regulation) Act, 1951, could not be taxed by the State Legislature. The court referenced previous decisions, stating that control and regulation do not include the power of taxation. The court concluded, "The State Legislature is not deprived of its power of taxation on sales of goods of such a declared industry."

4. Confiscatory Nature and Colorable Exercise of Power:
The petitioner argued that the tax was confiscatory and a colorable exercise of legislative power. The court found that the tax was indeed prohibitive, leading to the inevitable collapse of the business. The court noted, "The tax is not only extortionate but is clearly confiscatory of the business and its assets." The court held that the levy was a colorable exercise of legislative power and quashed it.

5. Violation of Articles 301 and 304(b):
The petitioner argued that the levy violated the freedom of trade and commerce under Article 301 and did not receive the President's assent as required by Article 304(b). The court found that a non-discriminatory tax on sales does not impede the free flow of trade and commerce. The court stated, "A non-discriminatory tax cannot be said to hamper free flow of trade."

Conclusion:
The court quashed the impugned Ordinances and Act, declaring them unconstitutional. The court directed the respondents to refund the amounts paid or recovered from the petitioner company. The court emphasized that the legislative changes were part of an integrated policy, and the amendments to the U.P. Sales Tax Act were not severable from the unconstitutional provisions of the Taxation Act of 1939.