2012 (12) TMI 74 - HC - VAT and Sales Tax

Kerala Value Added Tax Act business of trade and exporting of cashew nuts - objecting to the fixation of floor rates Held that - Floor value for cashew nuts and cashew kernels have not been fixed in other States is no reason to attract the provisions of article 14 of the Constitution of India - revision of floor value was on the basis of a study conducted by the committee of experts and this court lacks any expertise to sit in judgment over the conclusions of these experts - there is no material to conclude that the quality of the cashew mentioned in exhibits P6 and P7 is comparable with any one of the grades of the cashew mentioned in exhibit P3 and therefore in my view exhibits P6 and P7 cannot be pressed into service. Further there is no material before this court to hold that the floor value fixed is illegal for any reason - circulars can be relied on only for the purpose of levy of advance tax as contemplated under section 47(16A) of the KVAT Act and in cases where undervaluation is detected adopting floor value fixed as a guideline proceedings under the KVAT Act can be initiated.

Summary

Issues involved:
1. Legality of circulars fixing floor rates for cashew nuts and kernels under Kerala Value Added Tax Act.
2. Constitutionality of circulars under Article 14 of the Constitution of India.
3. Discrimination in fixing floor rates for specific commodities.
4. Comparison of floor rates with other states.
5. Realism of floor rates and expert committee's study.

Analysis:
1. The petitioners challenged the circulars, P2 and P3, issued by the second respondent fixing floor rates for cashew nuts and kernels under the Kerala Value Added Tax Act. The petitioners argued that the circulars were ultra vires the Act and unconstitutional under Article 14 of the Constitution of India. The second respondent justified the circulars under sections 3(2) and 47(16A) of the Act, empowering the Commissioner to issue such orders to prevent tax evasion. Previous judgments upheld the validity of similar provisions, confirming the legality of the circulars.

2. The court examined the legality of the circulars in light of the powers granted under the Act. Section 47(16A) empowered the Commissioner to direct payment of advance tax on evasion-prone commodities. The circulars were intended to prevent under-valuation and tax evasion. The court clarified that the circulars could only be used for levy of advance tax and initiating proceedings in cases of under-valuation. Any detention of consignments not related to tax collection or under-valuation would be deemed ultra vires and illegal.

3. The petitioners contended that fixing floor rates only for cashew nuts and kernels was discriminatory as other commodities did not have similar floor rates. The court rejected this argument, stating that each commodity was a separate class, and the power to fix floor rates for evasion-prone items was upheld. The court emphasized that the validity of laws in different states could not be compared to challenge the constitutionality under Article 14.

4. The petitioners raised concerns about the realism of the floor rates, citing objections from a government-sponsored organization. The court noted that a committee of experts revised the rates based on market studies. The court highlighted that without evidence to prove the floor rates were unrealistic, the petitioners could pursue a review with the second respondent. In the absence of illegalities, the court upheld the floor rates.

In conclusion, the court disposed of the writ petition, affirming the legality of the circulars for the levy of advance tax and under-valuation cases. The court clarified the scope of using floor rates and rejected claims of discrimination or unrealistic rates without substantial evidence.