TMI Blog1995 (2) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... e present amendment in the KGST Act, the petitioners are made liable to pay tax on iron and steel at all points of sale at a rate higher than 4 per cent. This, according to the petitioners, is violative of article 286(3) of the Constitution of India read with sections 14 and 15 of the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act"). Petitioners alleged that by interdicting the provisions contained in section 15 of the CST Act read with article 286 of the Constitution of India, the State Legislature has transgressed the limits of the legislative power conferred on it by entry 54 of List II of the Constitution of India. The proviso added to section 5(1)(vi) of the KGST Act cannot be validated by exempting the value already subjected to tax during the previous stage of sale. Petitioners further contended that by taking out of the entry "iron and steel" from the Second Schedule of the Act from among the other declared goods in the Schedule, "iron and steel" has been treated differently. But their insertion in the said entry of the Sixth Schedule consisting of luxurious consumer goods is a discrimination meted out to "iron and steel" only and thereby violating art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acco and textiles are com- pletely exempted from the tax by including them in the Third Schedule. Cereals were being taxed at only 1 per cent under the Second Schedule to the Act and pulses, iron and steel, etc., were being subjected to tax at 4 per cent. Learned Additional Advocate-General also therefore submits that there are no unreasonable restrictions on the fundamental rights of the petitioners as contended by them. Learned Additional Advocate-General therefore says that the provision for levy is intra vires the Constitution and the CST Act and the challenges to the Act is not sustainable. 4.. We have gone through the contentions made on behalf of the parties. To appreciate the points raised, it is necessary to go through the relevant provisions in issue. Article 286 of the Constitution of India imposes restrictions on the power of the State to levy tax on the sale or purchase of goods. Article 286 of the Constitution of India reads as follows: "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- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course 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; (c) where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub-clause (i) of clause (i) of section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy; and (d) each of the pulses referred to in clause (vi-a) of section 14, whether whole or separated, and whether with or without husk, shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value added tax (VAT) for the first time, with a view to increase tax revenue without casting additional burden to consumer................." The second respondent/Board of Revenue has also issued circular No. 9/93 on April 15, 1993, the relevant portion of which reads as follows: "4. The following amendments have been brought about in the Kerala General Sales Tax Act, 1963: (i) By amending sub-section (1) of section 5 of the Act, a new system of levy of tax, value added tax (VAT) has been introduced. It is a multi-point levy. What is taxed at one point is only that part of the turnover which had not suffered tax at the preceding sale in the State. Illustration.-A dealer 'X' manufactures a product and sells it for Rs. 100. At this point which is the first point of sale in the State, tax is levied on Rs. 100 at the rate applicable to the commodity. So the bill issued by 'X' will be as follows: Rs. Value 100.00 Sales tax at 12 per cent 12.00 Total 112.00 'Y', a dealer who purchases the goods from 'X' after incurring freight and other incidental expenses, and after realising a profit, sells the goods at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd his normal profit). The said sale price of Rs. 1,140 is inclusive of Rs. 40 levied as the tax at the rate of 4 per cent at the first point of sale. Now "Y" resells the same commodity to "Z", who is the actual consumer at a sale price of Rs. 1,240 (1,140 + 100 being incidental charges and normal profit). Thus the actual consumer is burdened with Rs. 40 only as 4 per cent tax on the sale consideration at the first point of sale. So there is no violation of the restrictions placed by section 15(a) of the Central Sales Tax Act. (ii) Position after the inclusion of iron and steel in the Sixth Schedule to the Kerala General Sales Tax Act by the Kerala Finance Act, 1994: A registered dealer "X" buys one unit of iron from a wholesaler "W". Suppose that consideration for that one unit of iron is fixed at Rs. 1,000 and the said sale is the first sale of the commodity within the State. As per new amendments, "iron and steel" has been included in the Sixth Schedule. As per the said Schedule, rate of tax on iron and steel is 4 per cent. Vide section 5(1)(vi) of the Act, the tax at the said rate is leviable at all points of sale. So "X" is liable to pay 4 per cent tax upon the sale consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax yielded up to the 3rd point. The said amount of tax works out to 4.15 per cent of the value of the commodity at the 3rd point of sale (Rs. 1,200 = 1,249.82 - 49.82). So the rate of tax leviable as per the amended provisions exceeds the maximum limit of 4 per cent prescribed by section 15(a) of the Central Sales Tax Act. 7. As seen in the above illustrations, the levy of tax transgresses to all points of sale in a series of sales and the rate of tax exceeds the limits of 4 per cent fixed by the CST Act. In the illustrations, 3 points of sale were only visualised, whereas in the actual market, there may be indefinite points of sale until the commodity reaches the actual consumer. In that case, the ultimate burden on the consumer will be much heavier, especially defeating the object of section 14 of the CST Act by which iron and steel have been declared as goods of special importance in the inter-State trade or commerce. 8. The Supreme Court had occasion to consider the scope and ambit of section 15(a) of the CST Act in Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290. The Supreme Court while dealing with the provisions of the Punjab General Sales Tax Act, 1948, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate-General that the proviso to section 5(1)(vi) of the KGST Act ensures that every part of the turnover in respect of item included in the Sixth Schedule is taxed only at one stage cannot be accepted. The proviso permits set-off of that part of turnover which has suffered tax at the immediate preceding points of sale. The proviso only defines the quantum of turnover taxable at successive points of sale. The proviso cannot control the main section since the multi-point levy cannot be validated by exempting the value already subjected to during the previous stage of sale. Admittedly, the declared goods are burdened with levy on all successive points of sale which is clearly prohibited by section 15(a) of the CST Act. Further, it could be seen that the rate of tax which has been specified as 4 per cent will exceed 4 per cent on the implementation of the new system of levy. As could be seen in the explanation by subsequent points of sale the rate of tax works out more than 4 per cent which is violative of the mandate of section 15(a) of the CST Act. Inasmuch as the impugned provisions impose a multi-point levy or tax on the declared goods "iron and steel" in violation of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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