2009 (7) TMI 1184 - HC - VAT and Sales Tax

Constitutional validity of sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979 and the Notification No. FD 41 CET 2003(iii) dated July 26, 2003 issued by the Government of Karnataka prescribing the rate of entry tax on the motor vehicles mentioned therein challenged Held that - All the writ petitions are allowed. The impugned provisions namely sections 4B, 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979 are declared as ultra vires the articles 301 and 304(a) of the Constitution of India and accordingly quashed. The notification issued in pursuance of the said impugned provision namely Notification No. FD 41 CET 2000(iii) dated July 26, 2003 and other notifications issued under the said provisions are all quashed. Consequently, wherever the assessment orders are passed and demands made in pursuance of the impugned provisions they also stand quashed.Taxes paid, if any, in pursuance of the aforesaid provisions, assessment orders and demands are ordered to be refunded to the respective parties within four weeks from the date of receipt of copy of this order.

Issues Involved:
1. Constitutional validity of sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979.
2. Validity of Notification No. FD 41 CET 2003(iii) dated July 26, 2003, prescribing the rate of entry tax on motor vehicles.
3. Discrimination against motor vehicles imported from other states compared to those manufactured within Karnataka.
4. Whether the impugned provisions violate Articles 301 and 304(a) of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of Sections 4B and 4BB:
The petitioners challenged the constitutional validity of sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979. Section 4B was initially struck down by the Karnataka High Court in the case of Syndicate Bank v. State of Karnataka [2000] 119 STC 155, as it was found to be violative of Articles 301 and 304(a) of the Constitution. The court held that the tax discriminated against motor vehicles imported from outside the state while exempting locally manufactured vehicles. Subsequently, sections 4B and 4BB were introduced to address this issue, but the petitioners argued that these amendments still did not cure the defect of discrimination.

2. Validity of Notification No. FD 41 CET 2003(iii):
The notification issued on July 26, 2003, prescribed the rate of entry tax on motor vehicles. The petitioners contended that this notification, issued under the impugned sections, was also unconstitutional as it perpetuated the discriminatory tax regime. The respondents argued that the notification was in line with the amended provisions and aimed to equate the tax burden on imported and locally manufactured vehicles.

3. Discrimination Against Imported Vehicles:
The petitioners argued that sections 4B and 4BB discriminated against motor vehicles imported from other states. As per section 4BB(2), the sales tax paid on motor vehicles manufactured outside the state could be deducted from the entry tax payable, but this did not eliminate the discrimination. Vehicles purchased inside the state were exempt from entry tax, while those imported from other states were subjected to it, regardless of whether sales tax had been paid in the other state.

4. Violation of Articles 301 and 304(a):
The court examined whether the impugned provisions violated Articles 301 and 304(a) of the Constitution. Article 301 guarantees freedom of trade, commerce, and intercourse throughout the territory of India, while Article 304(a) allows states to impose taxes on goods imported from other states, provided they do not discriminate against similar goods manufactured locally. The court found that the tax imposed under sections 4B and 4BB created a barrier to free trade and commerce by discriminating against imported vehicles.

The court noted that the impugned provisions were neither compensatory nor regulatory in nature. The primary objective was to augment the state's revenue rather than facilitate trade. The court held that the tax was not a compensatory tax as it did not correspond to any specific trading facilities provided by the state. It was also not regulatory as it did not impose conditions on the conduct of trade.

The court referred to the Supreme Court's judgment in Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148, which emphasized that Article 304(a) prohibits discrimination against imported goods in the matter of tax levy. The Karnataka Legislature's imposition of entry tax on imported motor vehicles while exempting locally manufactured vehicles was found to be discriminatory and violative of Article 304(a).

Conclusion:
The Karnataka High Court declared sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979, as unconstitutional and violative of Articles 301 and 304(a) of the Constitution. The notification issued under these sections was also quashed. The court ordered that any taxes paid under the impugned provisions be refunded to the respective parties within four weeks.

← Previous Next →