2009 (7) TMI 1152 - HC - VAT and Sales Tax

Levy of sales tax on fabrics imported into India on which the additional duty of excise in lieu of sales tax has already been paid under the Act of 1957 challenged Held that - Sales tax could be imposed by the Legislature on fabrics pursuant to entry 54 of List II of the State List. The object of legislation is to generate revenue in the form of sales tax. The State has chosen to exempt payment of sales tax from what we may describe to domestic manufacturers or producers to the exclusion of foreign manufacturers or producers. The reason is found in the Finance Minister s Speech. It is true that the effect is both on the consumer and the manufacturer. The test however is a nexus with the object of the Act. The State has chosen to forego sales tax dues from manufacturers or producers in India. It is open to the State to pick and choose amongst persons as long as it is reasonable. In our opinion, the classification being reasonable and the petitioners who are left out of class which is based on the reasonable nexus with the object has been unable to discharge the burden that the classification is unreasonable and or has no nexus with the object sought to be achieved. It is not possible to hold that the notification to the extent that it denies the benefit to the petitioners is arbitrary and discriminatory. Appeal dismissed.

Issues Involved:
1. Constitutional validity of the levy of sales tax on imported fabrics.
2. Interpretation of Section 5(2) of the Bombay Sales Tax Act (BST Act).
3. Allegation of discrimination between sellers of fabrics manufactured in India and those imported from outside India.

Detailed Analysis:

1. Constitutional Validity of the Levy of Sales Tax on Imported Fabrics:
The petitioners challenged the levy of sales tax on imported fabrics, arguing that additional duty of excise in lieu of sales tax had already been paid under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The court noted that under the BST Act, only goods manufactured or produced in India are exempt from sales tax. The State Legislature is authorized to make laws for the levy of tax on the sale or purchase of goods under entry 54, List II of the Seventh Schedule to the Constitution of India, subject to the provisions of entry 92A under article 246. The court found that the levy of sales tax on imported fabrics is not unconstitutional and does not violate articles 301 and 304 of the Constitution of India.

2. Interpretation of Section 5(2) of the BST Act:
The petitioners argued that under Section 5(2) of the BST Act, the State Government could only relax or omit conditions specified in Schedule "A" but could not add anything to an entry. The court examined Section 5(2) and concluded that it confers power on the State Government to add to, or enlarge any entry in Schedule "A", or relax or omit any condition or exception specified therein. The addition of the words "and manufactured or produced in India" to entry 15 was within the power of the State Government under Section 5(2). The court held that the action of the State Government was not ultra vires or arbitrary.

3. Allegation of Discrimination:
The petitioners contended that the classification between sellers of fabrics manufactured in India and those imported from outside India was unreasonable and discriminatory. The court referred to the principles laid down by the Supreme Court in Shashikant Laxman Kale v. Union of India, which emphasized that classification must not be arbitrary but should have a rational nexus with the object sought to be achieved. The court found that the classification between domestic and imported fabrics was based on an intelligible differentia and had a rational nexus with the object of the legislation, which was to levy sales tax on goods sold in Maharashtra. The court noted that the State had chosen to exempt domestic manufacturers or producers from sales tax to support local industry, as explained in the Finance Minister's speech. The court held that the classification was reasonable and did not violate the principles of equality under Article 14 of the Constitution.

Conclusion:
The court dismissed the writ petition, holding that the levy of sales tax on imported fabrics was constitutionally valid, the State Government had the power under Section 5(2) of the BST Act to amend Schedule "A", and the classification between domestic and imported fabrics was reasonable and not discriminatory. The rule was discharged with no order as to costs.

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