2009 (7) TMI 1198 - HC - VAT and Sales Tax

Whether in view of substitution of section 30(2) the substituted provisions will hold sway from the commencement of the Kerala Value Added Tax Act, 2003? Held that - There is no merit in the contention of the petitioner that substitution has retrospective operation and it has effect from the commencement of the Act. Section 30(2) provided for prohibition against collection of tax except in respect of two categories. In other words, it created a substantial right in respect of the assessees who were eligible to collect tax under the provision and it created a liability on the buyer from such assessees to pay the tax. Apart from creating a right in such assessees to collect tax, in the same way, the assessees against whom there was a prohibition against collection of tax were visited with the disability against collecting tax. This necessarily also would mean that the persons to whom they sold the goods had equal right to insist that they shall not be called upon to pay tax. Collection of tax by persons who were not entitled to collect tax under section 30 is made liable to be visited with penal consequences under the Act. Legislation can be vetoed by a Constitutional court only if such result is wholly unavoidable. Judicial deference to the Legislature s declaration of its value judgment is not constitutional anathema. On the other hand, it is one which squares with a long tradition of the judicial exposition of the true role of the court. In the light of the above discussion, the petitioner has failed to establish any ground to grant any relief in its writ petition. The writ petition fails, and it is dismissed.

Summary

Issues Involved:
1. Retrospective Effect of Substitution of Section 30(2)
2. Constitutional Validity of Section 30(2) as Discriminatory

Detailed Analysis:

1. Retrospective Effect of Substitution of Section 30(2)

The petitioner, a registered dealer under the Kerala Value Added Tax Act, 2003, opted to pay tax at a compounded rate for the assessment years 2005-06, 2006-07, and 2007-08. The petitioner challenged Section 30(2) of the Act, arguing that the substitution of Section 30(2) by the amending Act of 2008 should have a retrospective effect from the commencement of the Act, rather than from April 1, 2008.

The court examined the legal principles surrounding the substitution of statutory provisions. The petitioner relied on the decision in Government of India v. Indian Tobacco Association to argue that the substitution should be retrospective. However, the court noted that the Legislature explicitly mentioned April 1, 2008, as the effective date, indicating a conscious decision to limit the substitution's effect to that date.

The court referred to Bhagat Ram Sharma v. Union of India and State of Rajasthan v. Mangilal Pindwal, which clarified that substitution does not automatically imply retroactive operation unless explicitly stated. The court concluded that the amendment to Section 30(2) had no retrospective effect and was effective only from April 1, 2008. The petitioner's contention was rejected based on the legislative intent and the explicit effective date provided.

2. Constitutional Validity of Section 30(2) as Discriminatory

The petitioner argued that Section 30(2) was discriminatory and unconstitutional as it excluded dealers paying compounded tax under clauses (a) to (d) of Section 8 from collecting tax from buyers, while allowing gold dealers to collect tax despite also being allowed to compound. The petitioner contended that all assessees who opt to pay tax under Section 8 constitute a single class and should be treated equally.

The court considered the principles of valid classification under Article 14 of the Constitution. It noted that the Legislature has wide discretion in selecting persons or objects for taxation, and a statute is not discriminatory if it taxes some and not others, provided the classification is rational and has a nexus with the object of the law. The court referred to East India Tobacco Company v. State of Andhra Pradesh and Federation of Hotel & Restaurant Association of India v. Union of India, which upheld the Legislature's discretion in classification for taxation purposes.

The court examined the historical context and legislative intent behind the provisions. It noted that the compounding scheme for gold dealers was reintroduced to augment revenue after a reduction in tax rates led to a decrease in revenue. The court found that the classification was based on rational economic criteria and was aimed at maximizing revenue collection.

The court held that the petitioner failed to establish that the classification was arbitrary or lacked a rational basis. It emphasized that the burden of proving discrimination in taxation statutes is heavy, and the petitioner did not discharge this burden. The differences in the compounding schemes under clauses (a) to (f) of Section 8 were found to be justified based on the legislative intent and economic considerations.

The court concluded that Section 30(2) was not discriminatory and upheld its constitutional validity. The writ petition was dismissed, and no relief was granted to the petitioner.