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TMI Blog2015 (11) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Rupees one crore in the previous year in respect of the said goods. The rate of tax is 2% and, there is no material on record to suggest that the measure of the tax is so excessive that it assumes the nature of a tax on income. The contention of the petitioners that the levy is confiscatory in nature and violates their rights under Article 19(1)(g) of the Constitution cannot therefore be legally sustained. Besides, merely because the legislature, in its wisdom, has chosen not to permit the dealer in question to pass on the tax to his customer, the tax does not cease to be a tax on the sale of goods. As already noticed, this Court is not to concern itself with the reasons that weighed with the legislature in choosing to insist on a dealer paying the tax to bear the tax burden. The wisdom of the legislature in enacting such a measure cannot be gone into by this court. The State Legislature has the legislative competence to levy turnover tax on specified textile articles through the enacted provisions of Section 6A of the KVAT Act. The levy of tax under the State VAT laws has necessarily to be subject to the restrictions imposed by the Constitutional provision and accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly those textile articles as were specified in Entries 17A, 46A and 51 of the I Schedule to the KVAT Act. Sections 4 and 5 of the Kerala Provisional Collection of Revenues Act, 1985 - the State Government would have to refund such taxes or other revenues as have been collected by them in terms of Section 6A, in respect of textile articles other than those specified in Entries 17A, 46A and 51 of the I Schedule to the KVAT Act. Petition disposed off - decided partly in favor of petitioner. X X X X Extracts X X X X X X X X Extracts X X X X ..... Other embroidery of cotton 5810.91.00 (3) Embroidery of man made fibres (a) Embroidered badges, motifs and the like 5810.92.10 (b) Other embroidered articles 5810.92.90 (4) Embroidery of other taxtile materials 5810.99.00 (5) Zari articles [46A. Silk fabrics and sarees made of natural silk 5007 51. Textile fabric (1) Wool (a) Woven fabrics of carded wool or of carded fine animal hair 5111 (b) Woven fabrics of carded wool or of carded fine animal hair 5112 (c) Woven fabrics of coarse animal hair or of horse hair 5113 (2) Cotton (a) Woven fabrics of cotton containing 85% or more by weight of cotton weighing not more than 200 gm/m2 5208 (b) Woven fabrics of cotton containing 85% or more by weight of cotton weighing more than 200 gm/m2 5209 (c) Woven fabrics of cotton containing less than 85% by weight of cotton, mixed mainly or solely with man made fibres, weighing not more than 200 gm/m 5210 (d) Woven fabrics of cotton containing less than 85% by weight of cotton, mixed mainly or solely with man made fibres, weighing more than 200 gm/m2 5211 (e) Other woven fabrics of cotton 5212 (3) Woven fabrics of Flax 5309 (4) Woven fabrics of ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10) Tyre cord fabric of high tenacity yarn or other polymers, polyesters or viscose rayon 5902 (11) Textile wall coverings 5905 (12) Rubberised textile fabrics, other than tyre cord fabrics of high tenacity yarn or nylon or other polyamides polyesters or viscose rayon 5906 (13) Textile fabrics, otherwise impregnated, coated or covered; painted canvas being theatrical scenery, studio backcloths or the like 5907 (14) Knitted or chrocheted fabrics (a) Pile fabrics, including 'long pile' fabrics and terry fabrics, knitted or chrocheted 6001 (b) Knitted or chrocheted fabrics of a width not exceeding 30 cm, containing by weight 5% or more of elasto meric yarn of rubber thread, other than those of HSN heading No.6001 6002 (c) Knitted of chrocheted fabrics of a width not exceeding 30 cm, other than those of HSN heading Nos.6001 or 6002 6003 (d) Knitted of chrocheted fabrics of a width exceeding 30cm, containing by weight 5% or more of elasto meric yarn or rubber thread, other than those of HSN heading No.6001 6004 (e) Wrap knitt fabrics (including those made on gallon knitting machines), other than those of HSN heading Nos.6001 to 6004 6005 (f) Other knitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no separate machinery provision dealing with the filing of returns and payment of the turnover tax under Section 6A of the KVAT Act. There is also no clarity regarding the manner in which the taxable turnover is to be determined. In the absence of a machinery provision, therefore, the levy itself must fail. [See: Municipal Council, Khurai and Another v. Kamal Kumar and Another [AIR 1965 SC 1321]; M/s.Govind Saran Ganga Saran v. Commissioner of Sales Tax and others [AIR 1985 SC 1041]; Cochin Cadalas (P) Ltd. v. State of Kerala [[2008] 16 VST 319 (Ker)]; Heinz India Pvt. Ltd. and Another v. State of U.P. and Others [[2012] 50 VST 13 (SC)]. (vi) There is no such levy in any other State in India. The VAT laws in the various states in India having been rationalized so as to ensure a uniform system of VAT in all states, it was not open to the State legislature to make a departure from the understanding arrived at between the various states, as disclosed in the white paper drawn up at the meeting of empowered chief ministers of the various states. Further, the VAT Laws in India having been implemented to give effect to the obligations of the Central Government pursuant to the GATT ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KVAT Act, and the levy was to operate in respect of such dealers in the specified textile articles, whose total turnover in the previous year, of such textile articles, exceeded a sum of Rupees one crore. The challenge on the ground of legislative competence is multi-pronged and it would be necessary to deal with each of these arguments separately. Before dealing with the various arguments, however, it would be apposite to recall the limitations of judicial power in this jurisdiction as delineated by Mr. Justice Julius Stone of the Supreme Court of the United States in United States v. Butler - [80 L.Ed 477] in the following words: "The power of courts to declare a statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness. One is that courts are concerned only with the power to enact statutes, not with their wisdom. The other is that while unconstitutional exercise of power by the executive and legislative branches of the Government is subject to judicial restraint, the only check upon our own exercise of power is our own sense of self-restraint. For the removal of unwise laws from the statute books appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. An examination of these two groups of entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second. 2. In List II, entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. 3. Taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of article 248, clauses (1) and (2) and of entry 97 in List 1 of the Constitution. Under the scheme of the entries in the Lists, taxation is regarded as a distinct matter and is separately set out. 4. The entries in the Legislative Lists must be construed broadly and not narrowly or in a pedantic manner. 5. The entries in the two Lists-List I and II must be construed, if possible, so as to avoid conflict. Faced with a suggested conflict between entries in List I and List II, what has first to be decided is whether there is any conflict. If there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events, self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." 10. One has also to keep in mind the distinction between the nature of a tax and its measure. A tax has two elements namely, (i) the person, thing or activity on which the tax is imposed - the subject of the tax, and (ii) the amount, or measure, of the tax. The amount may be measured in many ways but the distinction between the subject matter of the tax and the standard by which the amount of tax is measured cannot be lost sight of. The standard adopted as a measure of the levy may be indicative of the nature of the tax but it does not necessarily determine it. The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant circumstances. Referring to Union of India v. Bombay Tyre International Ltd. [[1983] 4 SCC 210], the court further held that it is clear that when enacting a measuring to serve as a standard for assessing the levy, the Legislature need not contour it along lines which spell out the character of the levy itself. A broader based standard of reference is permissible to be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. 11. The above decisions were considered by a Constitution Bench of the Supreme Court in State of West Bengal v. Kesoram Industries Limited - [2004 (266) ITR 721 (SC)] to hold that the mechanism and method chosen by the Legislature for quantification of a tax is not decisive of the nature of the tax though it may constitute one relevant factor out of many for throwing light on the general nature of the tax. It may happen sometimes that a levy, purportedly on the sale of goods, is so excessive that it blurs the distinction between a tax on sale and a tax on income. In such cases, the measure of the lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature in enacting such a measure cannot be gone into by this court. It is also relevant to note that many Constitution Bench decisions of the Supreme Court [See: Tata Iron & Steel Company v. Bihar State - [AIR 1958 SC 452]; Konduri Buchirajalingam v. State of Hyderabad & Ors - [AIR 1958 SC 756]; George Oakes Pvt. Ltd. v. State of Madras - [1961 (12) STC 476 (SC)] have held that it is not a necessary concomitant of a sales tax that it should necessarily be passed on to the buyer. From the point of view of an economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. In the instant case, the tax is one that is imposed on the sale of specified goods by specified dealers and, therefore, well within the legislative competence of the State Legislature. Further, the tax is one that is imposed only in relation to a specified category of dealers whose turnover exceeds the threshold limit of Rupees one crore, and by that yardstick, in relation to those persons who enjoy a position of economic superiority. The challenge in the writ petitions, to the validity of the levy on this ground, as also on the ground of alleged violation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islations in the respective states would have some common features, a legislative provision that is introduced by one of the States cannot be struck down on the ground that it goes against the State Government's commitment to an empowered committee. One cannot attribute mala fides to a legislature while considering the validity of a legislative provision. The contention that the legislative provision goes against a law made by the Central Government in exercise of its executive power, to give effect to a treaty obligation, also does not appeal to me as persuasive since it is trite that a law purporting to give effect to an international treaty obligation of the country has, if it has the effect of changing the domestic law of the country, to be by way of legislation and not by way of executive orders. A constitution bench of the Supreme Court in Maganbhai Ishwarbhai Patel etc. v. Union of India and Another - [(1970) 3 SCC 400] has stated the legal position succinctly after referring to well settled principles of International Law, as well as the decision of the Judicial Committee in Attorney General for Canada v. Attorney General for Ontario and others - [LR (1892) AC 491]. At para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slate in respect of treaties lies with the Parliament under Entries 10 and 14 of List I of the Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement operates to restrict the rights of citizens or others or modifies the laws of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty. 81. The argument raised at the Bar that power to make treaty or to implement a treaty, agreement or convention with a foreign State can only be exercised under authority of law, proceeds upon a misreading of Article 253. Article 253 occurs in Chapter I of Part XI of the Constitution which deals with legislative relations- Distribution of Legislative Powers. By Article 245 the territorial operation of legislative power of the Parliament and the State Legislatures is delimited, and Article 246 distributes legislative power subject wise between the Parliament and the State Legislatures. Articles 247, 249, 250, 252 and 253 enact some of the exceptions to the rule contained in Article 246. The effect of Article 253 is that if a treaty, agreement or conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an have no application. This legal position was later re-iterated in P.M. Aswathanarayana Setty and Ors. v. State of Karnataka and Ors - [(1989) Supp (1) SCC 696]. 18. As regards the contention that the levy is discriminatory to dealers in textile articles in the State, it must be noted that State legislatures have a greater freedom when it comes to economic legislations and they can pick and choose the subjects of taxation reasonably. In the instant case, other than increasing the rate of tax on specified textile articles, when the turnover in respect of the said articles crosses a specified threshold level in the hands of some dealers, the levy does not mete out discrimination in the matter of taxation to any specified class of dealers. I therefore see no reason to strike down the levy on this ground. The argument that there is no machinery provision dealing with the filing of returns and payment of the turnover tax under Section 6A of the KVAT Act and further, that there is no clarity regarding the manner in which the taxable turnover is to be determined. 19. It is contended by the petitioners that there is no machinery provision under the KVAT Act that was simultaneously int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions is therefore rejected. The argument that the amendment in the KVAT Act, through the Kerala Finance Act, 2015, which had the effect of omitting the provisions of Section 6A from the KVAT Act, should be seen as curative in nature and, therefore, retrospective in its operation. 21. The petitioners would urge that the provisions of Section 6A of the KVAT Act have been omitted with effect from 01.04.2015, through the amendment brought about by the Kerala Finance Act, 2015. It is contended that, inasmuch as the omission was consequent to a consideration of the difficulties expressed by the traders in connection with the levy, the amendment itself has to be seen as curative in nature and retrospective in its operation from the date of introduction of the levy namely, 01.04.2014. Reliance is placed on the decisions in Allied Motors P. Ltd. v. CIT [[1997] 224 ITR 677 (SC)]; Tata Motors Ltd. v. State of Maharashtra & Others [2004 (136) STC 1] and Commissioner of Income Tax v. Alom Extrusions Ltd. [[2009] 319 ITR 306 (SC)]. 22. I cannot accept the said contention of the petitioners. The principles of statutory interpretation mandate that a substantive amendment in a taxing stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a Company or Firm registered under the Companies Act, 1956 (Central Act 1 fo 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) [or society including a co-operative society or association of individuals whether incorporated or not] of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Constitution of India: "286. Restrictions as to imposition of tax on the sale or purchase of goods. - (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the gods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3)Any law of a State shall, in so far as it imposes, or authorises the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State. 26. It will be apparent from a reading of the provisions of Article 286 of the Constitution that the levy of tax under the State VAT laws has necessarily to be subject to the restrictions imposed by the Constitutional provision and accordingly, the turnover of the specified textile articles reckoned for the purposes of the levy under Section 6A of the KVAT Act cannot take in such turnover as is attributable to export sales of such goods or sales in the course of inter-state trade as defined under the CST Act. This principle of reading down a statutory provision so as to render it in conformity with the provisions of the Constitution is well settled. The Constitution is the highest law of the land and no statutory provision can violate it. If a statutory provision appears to violate the provisions of the Constitution, the court has two options - either to declare the provision as unconstitutional or to read it down to make it constitutional [See Indra Das v. State of Assam - [(2011) 3 SCC 380] and Subramanian Swamy and Others v. Raju through Member, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of this Act. (a) when it comes into operation as an enactment with or without amendment; or (b) when the Government, in pursuance of a motion passed by the Legislative Assembly, directs, by, notification in the Gazette that it shall cease to have the force of law; or (c) if it has not already ceased to have the force of law under clause (a) or clause (b) then on the expiry of one hundred and twenty days from the 1st day of April following the date on which the Bill containing it was introduced. 5. Certain refunds to be made when declaration ceases to have effect:- (1) Where a declared provision comes into operation as an enactment in an amended form before the expiry of the period referred to in clause (c) of sub-section (2) of Section 4, refunds shall be made of all taxes, duties, cesses, fees and other revenues collected which would not have been collected if the provision adopted in the enactment had been the declared provision: Provided that the rate at which refunds of any tax, duty, cess, fee or other revenue may be made under this sub-section shall not exceed the difference between the rate of such tax, duty, cess, fee or other revenue propos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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