1993 (3) TMI 111 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the Collector of Customs to pay sales tax u/s the Kerala General Sales Tax Act, 1963 (KGST Act) for sales of confiscated and unclaimed goods.
2. Applicability of Article 285(1) of the Constitution in exempting the Central Government from state-imposed sales tax.

Summary:

Issue 1: Liability of the Collector of Customs to Pay Sales Tax

The petitioner, the Collector of Customs, Kochi, argued that sales tax is not exigible on sales of confiscated and unclaimed goods by the Customs Department, as these sales are conducted in the discharge of statutory functions under the Customs Act, 1962. The petitioner contended that the Government of India or its officers are not engaged in any business and that these sales are not incidental or ancillary to any business carried on by the Collector of Customs. Additionally, the petitioner asserted that Article 285(1) of the Constitution exempts such sales from state-imposed taxes.

The respondents, representing the State of Kerala, countered that Explanation 2 to the definition of "dealer" in Section 2(viii) of the KGST Act, as amended by Act 3 of 1968, deems the Central Government and State Government as dealers for the purposes of the Act, irrespective of whether the sales are conducted in the course of business. The respondents also argued that Article 285(1) does not apply to sales tax, which is an indirect tax levied on the occasion of the sale of goods.

The court examined the definitions of "business" and "dealer" in the KGST Act and noted that the definition of "dealer" includes the Central and State Governments, irrespective of whether the sales are conducted in the course of business. The court concluded that the Central Government and its officers, including the Collector of Customs, are deemed to be dealers under the Act and are liable to pay sales tax on the sales of confiscated and unclaimed goods.

Issue 2: Applicability of Article 285(1) of the Constitution

The petitioner relied on the Supreme Court decision in State of Punjab v. Union of India (1990) 79 STC 437, which held that sales by the Government are immune from state taxation under Article 285(1) of the Constitution. However, the court noted that this decision was rendered without considering the earlier decision of a nine-member Constitution Bench in In re: Sea Customs Act (1878) AIR 1963 SC 1760, which held that Article 285(1) exempts only direct taxes on property and not indirect taxes like sales tax.

The court observed that the decision in Sea Customs Act, which was not considered in the State of Punjab case, established that sales tax is an indirect tax imposed on the occasion of the sale of goods and not a direct tax on property. Therefore, Article 285(1) does not preclude the operation of state sales tax laws.

The court concluded that the petitioner, representing the Central Government, cannot claim immunity from state sales tax under Article 285(1) of the Constitution. The tax is imposed on the occasion of the sale of goods by the Collector of Customs and is within the legislative competence of the state under Entry 54 of List II to the Seventh Schedule to the Constitution.

Conclusion:

The court dismissed the original petition, holding that the Collector of Customs is liable to pay sales tax on the sales of confiscated and unclaimed goods under the KGST Act. The court also held that Article 285(1) does not exempt the Central Government from state-imposed sales tax. The petition was dismissed without any order as to costs.