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TMI Blog2009 (7) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... lect 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. - W.P. (C). No. 21777 of 2008 - - - Dated:- 27-7-2009 - JOSEPH K.M. , J. K.M. JOSEPH J. The petitioner is a registered dealer under the Kerala Value Added Tax Act, 2003 (hereinafter referred to as, the Act ). The petitioner opted to pay tax at the compounded rate under section 8 of the Act for the assessment years 2005-06, 2006-07 and 2007-08. The complaint of the petitioner is directed against section 30(2) of the Act to the extent it excludes the dealers who pay compounded tax under clause (a) to clause (d) of section 8 of the Act from the facility to collect the tax under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinod Chandran, on the other hand, would contend that the substituted provision has only prospective operation and it has come into effect only from April 1, 2008 and it has no retroactive operation. He would contend that the petitioner has not pleaded or established a case of discrimination under article 14. He also would submit that there is no basis at all in the writ petition. What is the effect of substitution of section 30(2) of the Act by the amending Act of 2008? Section 30 as it originally stood read as follows: 30. Collection of tax by dealers. (1) A registered dealer may, subject to the provisions of sub-sections (2) and (3), collect tax (at the rates specified under section 6), on the sale of any goods, from the person to whom he sells the goods and pay it over to Government in such manner as may be prescribed. (2) Dealers registered under this Act, except those dealers paying presumptive tax under sub-section (5) of section 6 and those paying compounded tax under clause (a) to clause (d) of section 8 alone shall be eligible to collect any sum by way of, or purporting to be by way of tax under this Act. Subsequently, by amendment Act section 30(2) reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to mean 'to put in the place of another person or thing', or 'to exchange'. In Collins English Dictionary, the word 'substitute' has been defined to mean 'to serve or cause to serve in place of another person or thing'; 'to replace (an atom or group in a molecule) with (another atom or group)'; or 'a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague'. Reliance is placed by the learned senior counsel to the following paragraphs also (pages 385 and 386 in 5 RC): 24. If the Central Government intended to extend the benefit to the members of the respondent-association only with prospective effect, it could have said so explicitly. Such a benefit could also have been extended by taking recourse to the proviso appended to subclause (iv) of clause (2) of the notification dated April 7, 1997. It may, therefore, be safely concluded that by reason of the amended notification, the Central Government only intended to rectify a mistake and, thus, the same will have retrospective effect and retroactive operation. . . . 26.. In Zile Singh v. State of Haryana [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supersession of a rule and substitution of a rule and held that the process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place.' Senior counsel for the petitioner would accordingly contend that the Legislature intended to replace the earlier provision by the substituted provisions as it stands and thereby removes the anomaly and invidious discrimination which was prevalent and it should be accordingly interpreted as a provision having full effect from the date of the commencement of the Act. Learned Government Pleader on the other hand, referred me to the decision of the apex court in Bhagat Ram Sharma v. Union of India [1988] (Supp) SCC 30. That was a case where the member of the Punjab Legislative Assembly raised a claim for pension under the Legislative Act of 1977. Punjab State Public Service Commission (Conditions of Service) Regulations, 1958 conferred pensionary benefits only upon members drawn from the service of Central or State Government. The Regulation was amended in 1972 and a new regulation was substituted. The new regulation conferred pensionary benefits even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amendment has the same qualitative effect as a repeal the abrogation of an existing statutory provision and have therefore applied the term implied repeal and the rules of construction applicable to repeals to such amendments.' 18.. Amendment is, in fact, a wider term and it includes abrogation or deletion of a provision in an existing statute. If the amendment of an existing law is small, the Act professes to amend; if it is extensive, it repeals a law and re-enacts it. An amendment of substantive law is not retrospective unless expressly laid down or by necessary implication inferred. 19.. For the sake of completeness, we wish to add that the mere use of the word 'substitution' does not imply that regulation 8(3) must relate back to November 1, 1956, the appointed day. The problem usually arises in case of repeal by substitution. In the case of executive instructions, the bare issue of a fresh instrument on the same subject would replace a previous instrument. But in the case of a legislative enactment, there would be no repeal of an existing law unless the substituting Act or provision has been validly enacted with all the required formalities. In State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x court in State of Rajasthan v. Mangilal Pindwal [1996] 5 SCC 60. This decision is also referred to by the apex court in Indian Tobacco Association case [2005] 5 RC 379; [2005] 7 SCC 396. The respondent who was working as U.D. clerk was compulsorily retired by the order of the Collector dated March 31, 1973 on payment of three months' pay and allowances in lieu of notice. The said order was passed under sub-rule (2) of rule 244 of the Rules. The writ petition filed by him was allowed by the learned single judge taking the view that there is non-compliance of sub-rule (2) inasmuch as the amount paid to the respondent towards three months pay and allowances was short by Rs. 120. A notification dated March 11, 1976 was published by which rule 244(2) was substituted. The amendment operated from August 19, 1972 and was to prevail up to September 1, 1975. Under the said provisions the requirement of payment of three months pay and allowances in lieu of notice was done away and it was instead provided that Government servant would be entitled to claim three months pay in lieu of notice. The apex court had to deal with the question as to what is the effect of the amendment or substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 1, 1975, stood substituted and, as a result, the said provisions ceased to exist and must be treated to have been obliterated and, therefore, rule 244(2), as it stood on August 19, 1972, was no longer available for supersession, amendment or substitution on March 11, 1976, since the same stood amended and substituted by new provisions contained in notifications dated September 2, 1975 and November 26, 1975. The High Court has placed reliance on the following passages from Craies on Statute Law and Sutherland on Statutory Construction: ' When an Act of Parliament is repealed, said Lord Tenterden in Surtees v. Ellison [1829] 9 B C 750; 109 ER 278, it must be considered (except as to transactions past and closed) as if it had never existed. That is the general rule. Tindal C.J. stated the exception more widely. He said: The effect of repealing a statute is to obliterate it as completely from the records of Parliament as if it had never been passed; and it must be considered as a law that never existed except for the purpose of those actions which were commenced, prosecuted and concluded whilst it was an existing law .' (Craies on Statute Law, 7th Edition, pages 411 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the Constitution so as to operate during the period from August 19, 1972 to September 1, 1975. The notification dated March 11, 1976, by substituting sub-rule (2) of rule 244 of the Rules, repealed the said provision that was operative during the period from August 19, 1972 to September 1, 1975 and replaced it by another provision which was to be operative during the said period. The said notification cannot be held to be invalid on the basis that the said amendment sought to amend a provision which was not in existence. The Statement of Law in Sutherland on Statutory Construction, on which reliance was placed by the learned judges of the High Court, that a repealed law cannot be amended has no application in the present case. I would think 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... published in the Gazette after it receives the assent of the Rajpramukh, the Governor or the President, as the case may be. Explanation. This sub-section shall have effect (a) in relation to an Ordinance promulgated by the Governor, as if for the words 'after it receives the assent of the Rajpramukh, the Governor or the President, as the case may be', the words 'after it is promulgated by the Governor' were substituted; and (b) in relation to a law made by the President or other authority in exercise of the power vested under sub-clause (a) of clause (1) of article 357 of the Constitution, as if for the words 'after it receives the assent of the Rajpramukh, the Governor or the President as the case may be', the words 'after it is made by the President or other authority' were substituted. (2) Unless the contrary is expressed, an Act shall be construed as coming into operation immediately on the expiration of the day preceding its commencement. I have already referred to the decision of the apex court in State of Rajasthan v. Mangilal Pindwal [1996] 5 SCC 60. That would also appear to be a case where there was substitution. I am not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that though a plea of discrimination is set up and the burden is discharged by the petitioner there is no answer in the counteraffidavit and there is no pleading or material to justify the discrimination. The learned Government Pleader, on the other hand, points out that the petitioner has not pleaded how it constitutes part of the same class along with gold merchants. He also submitted that the pleadings in the counteraffidavit, as it stands, suffice and no case is made out for striking down the law as it stood prior to April 1, 2008. It is necessary in this context to refer to the pleading of the petitioner as also the State. In the writ petition, the relevant pleadings are as follows: This prohibition of collecting tax paid at the compounded rate from the buyers was not, however, made applicable to dealers in gold who were also given the option of paying tax at the compounded rate in lieu of the regular rate under section 6 of the Act, 2003. Although this provision, which confines the prohibition of collection of tax paid at the compounded rate from buyers, is clearly discriminatory and hence unconstitutional. The petitioner, however, feels that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) wherein amendments were made in clauses (a), (b), (c) and (d) and inserting clause (e) by which a dealer being an importer or manufacturer of medicines and drugs not entitled to deferment of tax under section 32 was included as per sub-section (e) and with the introduction of the said sub-section (e) necessary changes were made in section 30(2) and the words 'compounded tax under section 8' was substituted with 'compounded tax under clause (a) to clause (d) of section 8'. 5.. In the Kerala Finance Act, 2006 (Act 22 of 2006) the tax rate for jewellery was raised from one per cent to four per cent and a compounding scheme was introduced by adding sub-clause (f) to section 8 wherein it was also provided that a dealer who opts for payment of tax may collect tax on the sales at the rate not exceeding the rate prescribed and that where such tax collected exceeds the compounded tax payable then the tax collected in excess shall be paid over to the Government in addition to the compounded tax. The prohibition under section 30 underwent no change in the year 2008. By Kerala Finance Bill, 2008 it was proposed to permit all compounded works contractors other than metal cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and this burden is all the heavier when the legislation under attack is a taxing statute. In Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC) the court had to deal with the arguments based on contravention of article 14. The law imposed tax on chargeable expenditure incurred in the class of hotels where room charges for residential accommodation was for Rs. 400 or more per individual per day. The court proceeded to hold as follows (page 104 in 74 STC): It is now well-settled that though taxing laws are not outside article 14, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subjectmatter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. A Legislature does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised only in cases that leave no room for reasonable doubt. Constitutionality is presumed. In Twyford Tea Co. Ltd. v. State of Kerala [1970] 1 SCC 189, the Constitution Bench of the apex court speaking through Hidayatullah, J., took the view that the State does not have to tax everything in order to tax something. The court therein referred with approval the dictum of the Supreme Court in United States in Madden v. Kentucky [1940] 309 US 83. In taxation even more than in other fields, Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which must support it. In Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 (SC); [1980] 1 SCC 223, the Constitution Bench of the court observed that Even so, taxing statutes have enjoyed more judicial indulgence. This court has uniformly held that classification for taxation and the application of article 14, in that context, must be viewed liberally not meticulously. . . No doubt, in Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346; [1989] 2 SCC 285 the apex court took the view that ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red whether the ayurvedic medicinal preparations known as mritasanjibani, mritasanjibani sudha and mritasanjibani sura, prepared in accordance with an acknowledged ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. The court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverages could not justify their being treated differently from other medicinal preparations. The court said: 'So if these preparations are medicinal preparations but are also capable of being used as ordinary alcoholic beverages, they will fall under the (Central) Act and will be liable to duty under item No. 1 of the Schedule at the rate of Rs. 17.50 per gallon of the strength of London proof spirit. On a consideration of the material that has been placed before us, therefore, the only conclusion to which we can come is that these preparations are medicinal preparations according to the standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated alike for the purpose of sales tax. The law in this case is different from the law that was considered by this court in Arya Vaidya Pharmacy's case [1989] 73 STC 346; [1989] 2 SCC 285. It is already noticed that for the purpose of item 28, ayurvedic, homeopathic and unani medicines either not containing alcohol or containing less than 12 per cent alcohol have been exempted from the levy of sales tax but the Legislature thought that in regard to the medicinal preparations irrespective of the fact whether they are allopathic, ayurvedic, homeopathic or unani have to be separately classified as 'spirituous medicinal preparations' if it contained more than 12 per cent by volume of alcohol (see item 67). Therefore, so far as the Assam Act is concerned, unlike the Tamil Nadu General Sales Tax Act, 1959, it identified the medicinal preparations containing more than 12 per cent alcohol as a separate class vis-a-vis such preparations either not containing alcohol or containing less than 12 per cent alcohol. This difference distinguishes the basis of the judgment of this court in Arya Vaidya Pharmacy's case [1989] 73 STC 346; [1989] 2 SCC 285 inasmuch as the Assam Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose or object of the legislation, it is permissible to look into the circumstances which prevailed at the time when that law was passed and which necessitated the passing of that law. For the limited purpose of appreciating the background and the antecedent factual matrix leading to the legislation, it is permissible to look into the Statement of Object and Reasons of the Bill which actuated the step to provide a remedy for the then existing malady. Further, to sustain the presumption of constitutionality, consideration may be had even to matters of common knowledge; the history of the times; and every conceivable state of facts existing at the time of legislation which can be assumed. Even though for the purpose of construing the meaning of the enacted provision, it is not permissible to use these aids, yet it is permissible to look into the historical facts and surrounding circumstances for ascertaining the evil sought to be remedied. It is in the backdrop of these principles that I must approach the question. It is indisputable that reference can be made to the history of the provision. They have been referred in the counter-affidavit which I have extracted. It is by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be executed at the end of the year, the contractor shall continue to pay tax in respect of such works in accordance with the provisions of clause (a) of this section. (ii) any works contractor, other than those undertaking electrical, refrigeration or air conditioning contracts or contracts relating to supply and installation of plant, machinery, rolling shutters, cranes, hoists, elevators (lifts), escalators, generators, generating sets, transformers, weighing machines, air conditioners and air coolers, deep freezers, laying of all kinds of tiles (except brick tiles), slabs and stones (including marble) and not falling under clause (i) above, may, at his option, instead of paying tax in accordance with the provisions of the said sections, pay tax at four per cent of the whole contract amount: Provided that the provisions of this clause shall not apply to any works contract in which the transfer of material is in the form of goods. Explanation I. 'First taxable sale' for the purpose of this section shall have the same meaning as assigned to the term by the Explanation under sub-section (5) of section 6. Explanation II. For the purpose of this clause 'whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... platinum. It was inserted by Act 22 of 2006 with effect from July 1, 2006. It is necessary to extract the provision as it stands. (f)(i) any dealers in ornaments or wares or articles of gold, silver or platinum group metals may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at 200 per cent of the highest tax payable by him as conceded in the return or accounts, either under this Act or under the Kerala General Sales Tax Act, 1963 (15 of 1963), for a period of twelve months during any of the three consecutive years preceding that to which such option relates. (ii) A dealer who is not eligible for option under sub-clause (i) may at his option, instead of paying tax in accordance with the provisions of section 6, pay tax at four hundred per cent of the tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for the previous year. Explanation I. Where during any such preceding year the dealer had not transacted business for any period in that financial year, the tax payable for the twelve months shall be calculated proportionately on the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , metal crushing, cooked food, jewellery, video cassette libraries and lotteries. The consensus at the national level is that in view of the wide divergence in local conditions in different States it may not be practical to insist on a uniform rate of tax or an upper limit of turnover in such cases of composition. I, therefore, propose to include provisions in the VAT Act to continue the composition scheme as it exists in the KGST Act. This will not be applicable to importers and those dealers who are first sellers within the State. The compounding scheme for jewellery will be withdrawn, as the rate of tax has been reduced to one per cent. The compounding provision for lotteries will be discontinued, as they have recently been banned in Kerala. In the year 2006, during the course of the Budget Speech for 2006-07 [2006] 14 KTR 31 in the proposals regarding taxation, the Finance Minister has stated as follows: 223. The rate on gold jewellery had been reduced substantially last year. Unfortunately, dealers have not reciprocated by showing sufficient growth in turnover so that revenue has fallen substantially. I therefore propose to amend section 11 to deny input tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he categories falling under clauses (a) to (f). The scheme of compounding in the sense of rate and the method of compounding are all different from one another. Despite the Legislature reducing rate of tax to one per cent in respect of gold items, collection of Revenue actually fell. The State is concerned with the collection of maximum revenue as it is with the revenue that is collected that it is able to discharge its various duties as a welfare State. Therefore the paramount interest lies in mopping up of maximum income from various legitimate source available to it. I have referred to the context. It is in this historical context apparently I must evaluate the challenge to the legislation. I would think that on the facts pleaded, the materials which are produced, the presumptions which are constitutionally attached to the provision in question, my duty to consider every fact possible in support of the legislation and the differences in the categories themselves falling in clauses (a) to (f) as is manifest in the compounding package which is availed of by them that the plea of discrimination is meritless. As held by the apex court from time to time in taxation statutes in partic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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