TMI Blog1992 (12) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods including goods used or invoiced in the execution of works contract, whether as goods or in some other form, directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration in terms of section 2(c) of the Act. Section 5-A with which primarily we are concerned reads as follows: "5-A. (1) Every dealer whose gross turnover during any year exceeds rupees ten lakhs shall, in addition to the tax payable by him under this Act, also pay a surcharge at the rate of ten per centum of the total amount of the tax payable by him: Provided that the aggregate of the tax and surcharge payable under this Act shall not exceed in respect of goods declared to be of special importance in interState trade or commerce by section 14 of the Central Sales Tax Act, 1956, the rate fixed by section 15 of the said Act: Provided further that in the case of an assessment year which has commenced before the commencement of the Orissa Sales Tax (Amendment) Act, 1990, turnover of the whole of such assessment year shall be taken into account for purposes of determining whether the dealer is liable to pay surcharge under this section, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light. Rummaging through the points urged, we find that they relate to the oft-submitted pleas of lack of legislative competency, encroachment upon the field of operation of the Union Legislature, confiscatory nature of the levy, discrimination, and unreasonable restriction affecting fundamental right to carry on business and multiple point levy of tax. 5.. The primary attack was that section 5-A of the Act in the present form is beyond the legislative competency. According to the learned counsel the same is not a part of the sales tax to be levied by the Act, and was something else. It was strenuously urged that entry 54 of List II does not authorise levy of such tax, more particularly in respect of works contract. With reference to articles 269 and 276 of the Constitution it was contested that it amounted to a tax on profession or calling and employment and is really not a tax on the sale or purchase of goods. With reference to the surcharge payable by several assessees, it was submitted that their profit position was sufficiently corroded by such levy and therefore. was confiscatory in nature. With reference to the decision of the apex Court in Ashok Service Centre v. State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Uttar Pradesh [1961] 12 STC 429, it was observed by the apex Court that although it is true that sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation, it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. 7.. A contention was raised that persons dealing in taxable goods though falling to the more than Rs. 10 lakhs turnover group are to pay tax differently. It is stated to be violative of article 14. A legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 of List II of the Seventh Schedule. Gross turnover is taken into account for the purpose of identifying the class of dealers liable to pay surcharge not on the gross turnover but on the tax payable by them. Merely because a dealer who falls within the class of dealers whose gross turnover exceeds a particular named amount is prevented from collecting the amount of surcharge or turnover tax which is to be recovered from him does not affect the competence of the Legislature to make a provision to that effect, nor it becomes a tax on his income. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, is a matter of policy and does not affect the competence of the Legislature. Article 19(1)(g) is, therefore, not violated. By application of the doctrine of pith and substance the apex Court in the case of Hoechst Pharmaceuticals Ltd.'s case [1984] 55 STC I held that the surcharge or additional sales tax takes the character of tax on the sales or purchase of goods taxable under the relevant sales tax statute. There is a wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajah v. Union of India [1969] 74 ITR 49 (SC); AIR 1969 SC 1094]. Levy of surcharge on dealers having a particular turnover is an impost on the event of transaction of sale or purchase and not on the status or on the volume of trade of the dealer. The provisions fall within the scope and ambit of entry 54 of List II of the Seventh Schedule of the Constitution. It is also not a tax on trade and does not attract article 276 of the Constitution. Both Kodar's case [1974] 34 STC 73 (SC) and Hoechst Pharmaceuticals Ltd.'s case [1984] 55 STC 1 (SC) were taken note by the apex Court in Mohamed Abdul Khader Firm v. State of Tamil Nadu [1985] 58 STC 12, when a fresh attempt was made to challenge the validity of the additional tax under section 2 of the Tamil Nadu Additional Sales Tax Act, 1970, as amended by section 2 of the Tamil Nadu Additional Sales Tax (Amendment) Act, 1976. The view expressed in Kodar [1974] 34 STC 73 (SC) and Hoechst Pharmaceuticals Ltd. cases [1984] 55 STC 1 (SC) was reiterated. The observations of the apex Court in Hoechst Pharmaceuticals Ltd.'s case [1984] 55 STC 1 to the effect that the contentions put forward by the petitioners that the impugned enactment is dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion. Article 271 of the Constitution empowers the Parliament to levy surcharge on duties and taxes for Union purposes only. The surcharge levied under article 271 is not allocable between the Union and the States. The power conferred on Parliament under this article does not impinge on the plenary power of the State Legislature to legislate under article 246 on the subject-matters falling in List 11, State List, of the Seventh Schedule to the Constitution. The plenary power of legislation available to the State Legislature is not controlled by article 271 of the Constitution. The two are separate and distinct and the power conferred on the State Legislature is not denuded by the power conferred on Parliament for a different purpose under article 271 of the Constitution. A similar contention as raised in this regard was repelled by the Karnataka High Court and view similar to ours was expressed in Deshnur Wine Stores v. State of Karnataka [1986] 61 STC 69. 10.. So far as the applicability of the ratio of Ashok Service Centre's case [1983] 53 STC 1 (SC) is concerned, the questions that arose in the said case were whether (a) section 3(1) of the Orissa Additional Sales Tax Act, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed together and while doing so to give effect to the provisions of the Additional Sales Tax Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the principal Act. The Additional Sales Tax Act, it was held, did not conflict with the scheme of single point taxation as envisaged in the principal Act. The validation enactment intended to override even the charging sections under the principal Act by making section 3 of the Additional Sales Tax Act operate notwithstanding anything contained in sections 4, 5 and 8 of the principal Act and amounted to a multi-point tax going against the very scheme of the Act and it was not possible to treat it as supplement or ancillary to the principal Act. The contentions were negatived by the apex Court. It was held that the Additional Sales Tax Act did not follow the scheme of single point levy provided under the Act in respect of the levy. By use of non obstante clause in section 3(1) and expressly excluding the operation of the provisions of sections 4, 5, 8, 29 and 29A of the Act in section 3(5) also the State Legislature has achieved its twin objectives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject sought to be achieved. In other words, those grouped together must possess a common characteristic justifying their inclusion in the group, but distinguishing them from those excluded, and performance of this exercise must bear a rational nexus with the reason for the exercise. The scope for classification permitted in taxation is greater and unless the classification made can be termed to be palpably arbitrary, it must be left to the legislative wisdom to choose the yardstick for classification, in the background of the fiscal policy of the State to promote economic equality as well. It cannot be doubted that if the classification is made with the object of taxing only the economically stronger while leaving out the economically weaker sections of society, that would be a good reason to uphold the classification if it does not otherwise offend any of the accepted norms of valid classification under the equality clause. A rational nexus exists of this classification with the object for which it is made and the classification is founded on intelligible differentia. This being a relevant basis of classification related to the avowed object, the Legislature having chosen an exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtionate levy. Larger public interest has to be considered while dealing with cases invoking individual rights. It is not necessary for the taxing statute to ensure reasonable profit to traders (see Prag Ice Oil Mills v. Union of India AIR 1978 SC 1296). Fact that profits would be greatly reduced cannot amount to infringement of article 19(1)(g) of the Constitution (see Nazeeria Motor Service v. State of Andhra Pradesh AIR 1970 SC 1864). The policy of a tax, in its effectuation, might of course, bring in some hardship in some individual cases. But that is inevitable so long as law represents a process of abstraction from the generality of cases and reflects the highest common factor. Then again, the mere excessiveness of a tax or even the circumstances that its imposition might tend towards the diminution of the earnings of profits of the persons of incidence does not, per se, and without more constitute violation of the rights under section 19(1)(g). This position in law was elucidated by the apex Court in Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102; AIR 1990 SC 1637. In view of the aforesaid analysis, the challenge to the legality ..... X X X X Extracts X X X X X X X X Extracts X X X X
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