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2015 (1) TMI 1273 - HC - VAT and Sales TaxChallenge to notification - Contravention of articles 301 and 304(a) of the Constitution of India Seeking grant of concession in tax for local manufacturers - Manufacturers of steel bars and steel structural outside the state - Respondents issued a notification dated March 4, 2014 under section 15B of the VAT Act levying a flat rate of three per cent tax only on steel bars (excluding in coil form) and steel structural under section 14(iv)(iv) and (v) of the Central Act for the period April 1, 2013 to March 31, 2014 - Held that:- it needs no emphasis that subjecting the same goods imported into the State to a higher rate of tax only as compared to those manufactured locally would make the imported goods more expensive making it unviable and uncompetitive. A natural corollary would be that inflow into the State of these goods from outside the State would drop impeding inter-State trade and commerce. It needs no discussion that the manufacturers outside the State shall be put at a disadvantage and will find no takers for their products in the State who will naturally prefer to purchase it from those granted exemption in the State whose price and costs shall naturally be lesser and lower. No details have been furnished with regard to specified areas, or the number of unit falling in the exempted category situated in the State who have availed of the benefits since it was first introduced on March 30, 2013 and how it has contributed to the economic growth of the State. The respondents have not furnished any data for distinguishing one per cent tax between the two exempted categories of small and medium scale enterprises and an investment limit of 10 lacs. No material has been brought on record that despite grant of exemption manufacturers outside the State have not been put at disadvantage and are continuing to do business. Likewise there is no data with regard to number of industrial units falling outside the exempted category in the State and whether they had been affected or not by the grant of concession. How the exempted category alone had given the desired impetus to industrialisation and how it was necessary to do so and the manner in which it would give a economic boost to the State. Therefore, the impugned notification to the extent that it puts at a disadvantage manufacturers outside the State from doing business in the State putting them at a competitive disadvantage, contravenes articles 301 and 304(a) of the Constitution. The effect of granting exemption to the specified category of manufacturers only is to raise the rate of tax for manufacturers from outside the State. It is not necessary that this discrimination must be only by a positive act of imposition and it can well be by a negative effect of exemption. The effect of such exemption is to subject the local exempted category to a different rate of tax from those outside the State. It shall be the test of the effect of the exemption which shall be crucial to decide if it impedes free-flow of inter- State trade and commerce. Challenge to notification for exemption - Manufacturers of steel bars and steel structural within the state who do not fall in the category of small and medium scale industrial unit and have investment beyond ten crores - Those manufacturing the two specified products in the State form a class. Article 14 of the Constitution permits classification but prohibits class legislation - Held that:- there is no intelligible differentia discernible in creation of these two categories of manufacturers and purchasers from them as a separate favoured class having any nexus with any object of quick industrialisation to be achieved by rationale. No empirical data has been placed with regard to the number of units in each of the two exempted categories, or how many of them had closed down and dealerships surrendered in absence of concessions in recent preceding years. The number of industrial units falling outside the exempted categories and that grant of concessions had not affected them in any manner and none had closed down. Levying of a higher rate of tax on other local manufacturers may well sound the death knell for them in the State rendering them unproductive and uncompetetive. Section 15B of the VAT Act has rightly been urged to be applicable to a class of dealers. If all manufacturers of the two products form a class of dealers and there is no rationale for differentiating criteria between them, it violates the constitutional guarantee for equality under article 14 and the notification is liable to be struck down on that ground also. Therefore, the notification dated May 30, 2014 is held to be bad on both counts of contravening articles 301 and 304(a) of the Constitution as also violating the equality clause under article 14 of the Constitution. The notification is therefore struck down. - Decided in favour of petitioner
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