TMI Blog2006 (10) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... endment) Act, 1997, as 3 paise in a rupee in respect of silk fabric. (ii) Notification Nos. F.4(52)/99/Fin(G)/(I) and (II), dated 15-1-2000 issued by the Sales Tax Department, GNCTD, including silk fabrics in the First Schedule to the Delhi Sales Tax Act, 1975 and levying sales tax @ 12 paise in the rupee on silk fabrics and garments made of silk thereof. (iii) Notification No. F.4(75)/99-Fin(G)/2095, dated 31-3-2000 issued under Section 4(1) of the Delhi Sales Tax Act, 1975, as amended by the Delhi Sales Tax (Amendment) Act, 1997 read with the Delhi Sales Tax (Amendment) Ordinance, 2000 deleting silk fabrics from the First Schedule and introducing it at Serial No. 62 in the Second Schedule to the Delhi Sales Tax Act, 1975 thus levying sales tax @ 4 paise in the rupee on silk fabrics. In short, the challenge is to the levy of local sales tax in Delhi on silk fabrics for the period 1-4-1999 till 31-3-2001. The CST Act 2. A brief recounting of the background facts leading to the filing of the writ petitions may be useful to understand the issues that arise for determination. In 1957, the Central Sales Tax Act ( CST Act ) was enacted by the Parliament pursuant to the legislative power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommended by the Second Finance Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities after 1st April, 1958 do not participate in the distribution of the net proceeds. Provision is made in the Act for including these goods in the category of goods declared to be of special important in inter-state trade or commerce so that following the imposition of uniform duties of excise on them, the rates of sales tax, if levied by the State are subject from 1st April, 1958 to the restrictions in Section 15 of the Central Sales Tax Act, 1956. 6. S. 3(1) of the ADE Act, which is the charging section, states that there shall be levied and collected an additional duty of excise on goods described in Column 3 of the First Schedule of the ADE Act at the rate specified in Column 4 thereof. These descriptions of goods correspond to the CE Act. When the CST Act was amended in 1961 to include silk fabrics as entry (xi) in Section 14, a simultaneous amendment was made to the ADE Act by including silk fabrics in the definition clause 2 (c), S. 3(1) and the First Schedule of the ADE Act. By Act No. 7 of 1986 further changes were made to the First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect from 1-3-1965, it has been decided to delete item (xi) from section 14 of the Central Sales Tax Act, thereby lifting the restrictions imposed on the States to levy sales tax under their local laws on silk fabrics. [clause 43]. (emphasis supplied) 9. As a result, with effect from 11-5-1968, silk fabrics was dropped from Section 14 CST Act. Consequent upon the above change, the restriction on levy of local sales tax as stipulated by Section 15 of the CST Act did not apply. However, silk fabrics continued to feature in the First Schedule to the ADE Act. The DST Act 10. Prior to its becoming a State, Delhi was a Union Territory in respect of which the Parliament exercised legislative powers. Accordingly, in respect of Delhi, Parliament was competent to enact a law imposing tax on the sale and purchase of goods other than newspapers, under Article 245 of the Constitution of India read with Item No. 54 in List II of Schedule VII thereof. Thus the Delhi Sales Tax Act 1975 (DST Act) was enacted by Parliament providing for sales tax to be levied on sales taking place within the Union Territory of Delhi. Under the DST Act, sales tax was levied on silk fabrics till its withdrawal with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on 15-1-2000. By the first notification, silk fabrics was inserted as Entry 34 in the First Schedule to the DST Act. By the second notification, the rate of sales tax was increased to 12 paise in a rupee on silk fabrics. This was followed by a further notification dated 31-3-2000 whereby silk fabrics was deleted from the First Schedule of the DST Act and added to the Second Schedule. As a result, the rate of sales tax on silk fabrics was reduced from 12 paise to 4 paise in the rupee. 15. Thereafter, the present writ petitions were filed challenging the notifications as mentioned in para 1 hereinabove. On 14-7-2000 this Court directed notice to issue in the writ petitions and rule DB was issued on 18-5-2001. Meanwhile by a Notification dated 31-3-2001 silk fabrics was deleted from the Second Schedule to the DST Act and included in the Third Schedule thereof which meant that under Section 7 DST Act it was fully exempt from sales tax. With effect from 3-7-2003, silk and garments made of silk but not including sarees made of silk was included in the First Schedule (subject to tax @ 12 paise in the rupee) and Sarees made of silk was included in the Second Schedule (subject to tax @ 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of 3%, 12% and 4% were invalid. Alternatively, he submitted that even if one were to assume that local sales tax could be levied on silk fabrics, it could not in any event exceed 4% as long as it was listed in the ADE Act as goods of special importance. In support of this submission, Mr. Malhotra placed reliance upon the judgment of the Hon ble Supreme Court in State of Kerala v. M/s. Attesee (Agro Industrial Trading Corporation) - 1988 (38) E.L.T. 720 (S.C.) = AIR 1989 SC 222 and in particular the observations contained in para 6 of the judgment to the following effect : The fact that cotton fabrics though listed as item 12 in the Schedule to the 1944 Act was not brought into the list in Section 14 till 1-10-1958 or that silk fabrics was dropped from the list in Section 14 with effect from 11-6-1968 though it continues in the Schedule to the 1944 Act does not alter the position that these three Acts are inter-connected and that certain goods taken out from the Schedule to the 1944 Act were to be subjected to the special treatment outlined in the CST Act and the 1957 Act. It is submitted that by virtue of the above declaration of the law, it becomes clear that declared go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k fabrics from the purview of Section 14 CST Act with effect from 11-5-1968. This was done to enable the states to levy local sales tax on silk fabrics at a rate higher than 4%. However, silk fabrics continued to feature in the First Schedule to the ADE Act with nil rate of duty. (e) Although silk fabrics continued to feature in the First Schedule to the ADE Act, it did not mean that the legislative assembly of the NCTD could not make a law levying local sales tax on such goods. What it only meant was that if NCTD chose to levy sales tax on silk fabrics in any financial year, then, subject to the central government directing otherwise, NCTD might stand to lose its share of the ADE for that financial year. 22. At the time when the impugned notifications were made, the above position prevailed. In other words, by virtue of the removal of silk fabrics from the purview of Section 14 CST there was no restriction on the levy of local sales tax on silk fabrics at a rate higher than 4%. Even assuming that silk fabrics continued to remain as declared goods for the purpose of Section 14 CST Act, that only meant that the local sales tax in respect of such goods could not be higher than 4% by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and the ADE Act. It thereafter noticed the submission of the learned counsel for the State in this context as under : 7. This may be so, says Sri Potti, but there is no justification to bring the 1963 Act into this group. His short point is that the State legislature is completely free within its domain. Its power to levy sales tax includes a power to levy a tax on sales of declared goods as well. Nor is such power inhibited by the levy of an additional excise duty on certain goods. The 1957 amendment to the 1125 Act made no reference even to the 1944 Act. The 1963 Act makes no reference either to the CST Act or to the 1957 Act. Sri Potti emphasizes, pointing out to the practical effects of the two legislations (the 1963 Act and the 1957 Act) to which attention has been invited already, that it was not the policy of the Kerala State legislature to exempt from sales tax goods which suffered additional excise duty. The sales tax exemption is conferred on a totally independent basis. It is not linked to the fluctuations in, or variation of, the treatment under the CST Act and the 1957 Act. The description of items 5,7 and 8, by simply incorporating the definitions then readily avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broad pattern or scheme evolved by the 1956-57 enactments set out earlier in the judgment. Doing so, and even assuming that the reference in the items of the Schedule to the definitions in the 1944 Act is by way of incorporation and not reference, one cannot escape the conclusion that the circumstances are covered by the exceptions outlined in Narasimhan (1976) 1 SCR 6 : (AIR 1975 SC 1835). They certainly fall within the scope of exception (a) mentioned therein and also fall within exception (c) if we read unworkable and ineffectual to take in also unrealistic and impractical. 26. The central question in Attesee was about the definition of the words PVC Cloth and whether the assessee could take advantage of the doctrine of legislation by seeking to contend that the amended definition of the term cotton fabrics as obtaining in the ADE Act and the CE Act should be read into the definition of those very words occurring in the Kerala Act. The Hon ble Supreme Court, keeping in view the particular provisions of the Kerala Act and the legislative policy followed by that State, answered the point in favour of the assessee. This is therefore the ratio of Attesee. The issue there did not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy local sales tax on the said goods without the fetter of Section 15 of the CST Act. That fetter cannot be sought to be continued to be imposed by the mere fact that the goods figure in the ADE Act even if they are subject to Nil duty. In that view of the matter, we do not think that the letter dated 11-10-1998 of the Additional Secretary of the Department of Revenue is based on a correct understanding of the legal position and therefore it is of no assistance to the petitioners. 29. Even if one were to accept the argument that the rate of duty of ADE being Nil makes no difference as long as the States share the overall revenues under the ADE, even then there is nothing in the ADE Act that impinges on the legislative competence of the state to levy local sales tax on such goods. The only consequence as spelt out in the Second Schedule to the ADE Act is that the State has to forego its share of the ADE subject to the directions of the Central Government. This legal position has been explained by the Hon ble Supreme Court in Attesee as well as in the subsequent decision in State of Bihar v. Bihar Chamber of Commerce [(1996) 9 SCC 136 = (1996) 103 STC 1]. Here the challenge was to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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