1997 (4) TMI 480 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of S.R.O. 1401 of 1992.
2. Discrimination under Articles 301 and 304(a) of the Constitution of India.
3. Validity of the exemption notification under Section 10 of the Kerala General Sales Tax Act, 1963.
4. Impact of the turnover tax on trade and commerce.

Detailed Analysis:

1. Constitutional Validity of S.R.O. 1401 of 1992:
The primary issue was whether the portion of S.R.O. 1401 of 1992, which denied exemption from turnover tax to goods received on consignment or branch transfer, was constitutionally valid. The learned single Judge struck down this portion as discriminatory and violative of Articles 301 and 304(a) of the Constitution of India. The State appealed this decision.

2. Discrimination Under Articles 301 and 304(a):
The petitioner argued that the notification discriminated against goods imported from outside Kerala, subjecting them to turnover tax, while exempting similar goods manufactured and sold within Kerala. This, they contended, violated Article 301, which ensures freedom of trade, commerce, and intercourse throughout India, and Article 304(a), which prohibits discriminatory taxation on imported goods. The court referred to several Supreme Court decisions, including Firm A.T.B. Mehtab Majid & Co. v. State of Madras, H. Anraj v. Government of Tamil Nadu, and Weston Electroniks v. State of Maharashtra, which established that discriminatory taxation affecting the free flow of trade and commerce is unconstitutional.

3. Validity of the Exemption Notification Under Section 10:
The State contended that the notification was issued under Section 10 of the Kerala General Sales Tax Act, 1963, which allows the government to grant tax exemptions in public interest. They argued that the exemption was not discriminatory as it was based on representations from local manufacturers and aimed at addressing their economic position. However, the court found that the exemption created an unjustifiable distinction between local and imported goods, thereby violating Article 304(a).

4. Impact of the Turnover Tax on Trade and Commerce:
The court examined whether the turnover tax imposed by the notification hampered the free flow of trade and commerce. It was noted that the turnover tax was abolished by the Finance Act, 1993, but for the period from October 27, 1992, to March 31, 1993, the tax was applicable. The court held that the notification discriminated against imported goods, thus violating the constitutional provisions ensuring free trade and commerce.

Conclusion:
The court upheld the learned single Judge's decision, declaring that the portion of S.R.O. 1401 of 1992, which denied exemption from turnover tax to goods received on consignment or branch transfer, was unconstitutional. The appeals were dismissed, affirming that the notification violated Articles 301 and 304(a) of the Constitution of India by discriminating against imported goods. The court did not address the issue of whether an executive order could impose a tax on imported goods, as the discrimination aspect was sufficient to decide the case.