2015 (2) TMI 795 - HC - VAT and Sales Tax

Levy of sales tax / VAT on import of yarn from outside India - Constitutional validity of impugned notification dated 13.9.2001 - Government has amended its earlier notification dated 29.1.2001 and imposed tax in pursuance to power conferred by Clause (b) of Sub Section 1 of Section 3A of the Act at the point of sale to the extent of 20 per cent on yarn imported from outside India and 4 per cent on yarn of other kind - Jurisdiction of State Government - Held that - Tax has been imposed providing therein that imported goods brought into the State of U.P., shall be liable to tax at the rate of 20%. Virtually, it is the entry fees over the foreign items brought into the State of U.P. It has got no relationship with either the sale or purchase or the import or export. - There appears to be no ambiguity in the letter and spirit of Article 286 of the Constitution of India. It should be interpreted as a whole right from the head note i.e., beginning which indicates that it relates to imposition of tax on sale and purchase of goods. Thus, if the sale and purchase of goods take place outside the country and brought into the territory of India, no tax may be imposed but when it is brought into the State like in the present case, the State of U.P., sub-clause (b) of Article 286 does not seem to come in the way. A collective reading of the three entries; 53, 56 and 60 seem to confer power on State Government to impose tax in case goods are brought into the State of U.P. for consumption, use or sale therein or it is carried into the State of U.P. through road or on inland waterways. Entry No.60 is wider and empowers the State Government to impose tax on trades. - Thus, the case relied upon by the learned counsel for the petitioners as well as other cases referred to hereinabove, negate the State power to impose tax where transaction of sale and purchase took place outside the country. Article 286 of the Constitution does not debar the State to impose tax when an item is brought into the State. Article 286 should be read in reference to context i.e., imposition of tax on sale or purchase of goods. Subject to condition of sub-clause (a) and sub-clause (b), sale and purchase of goods is condition precedent to ascertain the right of State to impose tax at its end. Imposition of tax at entry level where sale or purchase of goods are not involved, does not seem to come within the purview of sub-clause (b) of clause (1) of Article 286. Case relied upon by the petitioners counsel does not seem to be applicable to the facts and circumstances of the present controversy. 35 In view of the above, these writ petitions lack merit and fail - Decided against assessee.

Issues Involved:
1. Constitutional validity of the impugned notification dated 13.9.2001 imposing tax on yarn imported from outside India.
2. Jurisdiction of the State Government to impose such tax.
3. Alleged violation of Articles 286(1)(b) and 304(a) of the Constitution of India.
4. Applicability of Sections 3 and 4 of the Central Sales Tax Act (CST).
5. Reasonableness of the 20% tax rate on imported yarn compared to 4% on other yarn.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Impugned Notification:
The petitioner challenged the notification dated 13.9.2001, which amended an earlier notification to impose a 20% tax on yarn imported from outside India and 4% on other yarn. The petitioner's argument was based on a treaty between India and Nepal, which purportedly obligated India to provide market access free of customs duties for articles manufactured in Nepal. However, the court found that the notification did not violate this treaty and was within the State's powers under the U.P. Trade Tax Act.

2. Jurisdiction of the State Government:
The petitioner argued that the State of U.P. lacked jurisdiction to impose tax on yarn imported from outside the country, citing Article 286(1)(b) of the Constitution. The court held that Article 286(1)(b) restricts the imposition of tax on sales or purchases occurring in the course of import or export, but does not restrict the State from imposing entry tax on goods brought into the State. The court concluded that the impugned notification was a valid exercise of the State's power to levy entry tax.

3. Alleged Violation of Articles 286(1)(b) and 304(a) of the Constitution:
The petitioner contended that the notification violated Article 286(1)(b) and Article 304(a) of the Constitution. Article 286(1)(b) restricts the imposition of tax on sales or purchases in the course of import or export, while Article 304(a) prohibits discriminatory taxation on goods imported from other States. The court clarified that Article 304(a) applies to goods imported from other States within India, not from outside the country. Therefore, the notification did not violate Article 304(a). Additionally, the court interpreted Article 286 as not barring the State from imposing entry tax on imported goods, as the tax was not on the sale or purchase but on the entry of goods into the State.

4. Applicability of Sections 3 and 4 of the Central Sales Tax Act (CST):
The petitioner argued that Sections 3 and 4 of the CST Act also restricted the State's power to impose the impugned tax. The court found that these sections were not applicable in this context, as they pertain to inter-State sales and purchases, not to the imposition of entry tax on goods imported from outside India.

5. Reasonableness of the 20% Tax Rate:
The petitioner argued that the 20% tax rate on imported yarn was unreasonable and discriminatory compared to the 4% tax on other yarn. The court held that the classification between yarn imported from outside India and yarn from other sources was reasonable and based on a rational distinction. The higher tax rate on imported yarn was justified as it aimed to protect local industries and ensure that the income benefit did not go to foreign entities. The court found no arbitrariness in this classification and upheld the reasonableness of the tax rate.

Conclusion:
The court dismissed the writ petitions, holding that the impugned notification was constitutionally valid, within the jurisdiction of the State Government, and did not violate Articles 286(1)(b) or 304(a) of the Constitution. The classification and tax rates were found to be reasonable and justified. No orders as to costs were issued.

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