TMI Blog2007 (3) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... he occurrence of the taxable event. It is true, while interpreting a taxing statute, if there is any doubt, the same should go in favour of the assessee. But, in this case, if the interpretation advanced by the petitioners is accepted, the same will render the provision ineffective to prevent evasion of tax. So, the golden rule of interpretation has to be followed. The golden rule is dealt with in Principles of Statutory Interpretation. In the light of the above principles, sub-section (16A) has to be read as authorising the Commissioner to direct payment of tax before the taxable event takes place. Otherwise, the purpose of the sub-section, namely, prevention of evasion of tax will be defeated. Therefore, the circulars have to be held intra vires of sub-section (16A). Violates articles 14 and 19(1)(g) of the Constitution - It is well-settled that the Legislature enjoys a greater latitude for classification in the field of taxation (See the decision of the apex court in Steelworth Limited v. State of Assam [ 1962 (1) TMI 35 - SUPREME COURT] . Demanding tax in advance cannot be said to be an action, infringing the fundamental rights under article 19(1)(g) of the Constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148, 2194, 2278, 2281, 2288, 2292, 2318, 2336, 2377, 2381, 2382, 2396, 2512, 2531, 2536, 2537, 2538, 2539, 2606, 2667, 2689, 2768, 2772, 2773, 2789, 2796, 2828, 2840, 2844, 2878, 2903, 2904, 2907, 2911, 2922, 2923, 2924, 2980, 2983, 3009, 3036, 3062, 3069, 3076, 3079, 3081, 3082, 3087, 3090, 3092, 3093, 3094, 3095, 3099, 3188, 3199, 3203, 3204, 3220, 3221, 3227, 3281, 3345, 3461, 3465, 3471, 3472, 3473, 3474, 3500, 3543, 3566, 3619, 3620, 3621, 3622, 3623, 3632, 3645, 3738, 3777, 3795, 3797, 3798, 3800, 3803, 3804, 3805, 3807, 3813, 3828, 3937, 3946, 3949, 3950, 3959, 3962, 4098, 4189, 4206, 4236, 4246, 4277, 4287, 4315, 4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616, 4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319, 5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550, 5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, 6129, 6136, 6250, 6262, 6268, 6269, 6276, 6297, 6409, 6424, 6437, 6622, 6646, 6651, 6752, 6816, 6823, 6824, 6852, 6855, 6982, 6985, 6992, 6997, 7005, 7173, 7174, 7175, 7329, 7334, 7346, 7545, 7550, 7661, 7733 and 7738 of 2007 For the Appellant : K.B. Muhamed Kutty (SR.) and K.M. Firoz, Adv. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Glass sheets 12.50% 6. Cuddapah stones, kotta stones, any other similar stones and slabs 12.50% 7. Readymix concrete 12.50% 8. Generator whether assembled or not 12.50% 9. Timber 12.50% 10. Live chicken and chicken meat 12.50% 11. Petroleum products other than LPG 12.50% 12. Bitumen 4.00% While estimating the sale value, guidelines already circulated for valuation of items such as chicken, timber, etc., shall be followed. The dealers who pay advance tax as detailed above can adjust the said amount against the output tax due for the month while filing return for the respective return period. These orders shall take immediate effect. 3. On the representation of the dealers, further clarifications were issued regarding the collection of sales tax in advance as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittances shall be credited under the same head of account as VAT. To monitor these payments a separate register shall be maintained. 4. On the strength of the above circulars, two consignments of the petitioner were detained at the check-posts and it was called upon to pay tax in advance, by issuing exhibits P3 and P4 notices dated January 19, 2007 and January 22, 2007, respectively. Feeling aggrieved by exhibits P3 and P4, this writ petition is filed, seeking the following reliefs: (i) To call for the records leading to exhibit P3 and exhibit P4 notices and quash the same by issuing a writ of certiorari or any other appropriate writ, direction or order. (ii) To direct the first, second and third respondents to release the goods and vehicle covered by exhibit P3 and exhibit P4 notices and future goods and vehicles of the petitioner without detention as per exhibit P1 and exhibit P2 circulars by issuing a writ of mandamus or any other appropriate writ, order or direction. (iii) To declare that Sub-section (16A) of Section 47 of the KVAT Act and exhibit PI and exhibit P2 circulars are unconstitutional and invalid. 5. Pursuant to the interim order of this court, the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common judgment. The learned Special Government Pleader appearing for the respondents submitted that the said counter-affidavit is adopted in this and other connected writ petitions. The contentions in the said counter-affidavit are the following : Sub-section (16A) of Section 47 of the KVAT Act is a valid piece of legislation enacted by the State Legislature in exercise of its power under Articles 242, 245 and 246 of the Constitution of India read with entry 54 of List II of the Seventh Schedule. Entry 54 is : Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I . Entry 54 is the field of legislation. The Legislature can make laws not only on the legislative entry, but on incidental matters. Such power flows from the words of Article 246. The contention that the attempt is to collect tax even before the incidence of tax, is not correct. The purport of the provision and the circulars is only to plug the evasion of tax. A genuine and honest dealer cannot have any grievance about the statutory provision and the circulars. No unreasonable impediment is created as per this provision. The collection of tax in advance is not arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of Sub-section (16A) is only the tax payable under the KVAT Act. Nothing more is levied or collected by way of advance tax. The sub-section and the circulars only envisage prevention of evasion of tax. Therefore, they cannot be described in any way as unconstitutional. So, the respondents pray for dismissal of the writ petition. 8. Heard Dr. K.B. Muhamed Kutty, learned Senior Counsel for the writ petitioner. I also heard M/s. V.P. Sukumar and A. Kumar, apart from other learned Counsel, appearing for the petitioners in the connected writ petitions. Sri V.V. Asokan, Special Government Pleader (Taxes), was heard on behalf of the respondents. Learned Senior Counsel Dr. K.B. Muhamed Kutty submitted that Sub-section (16A) of Section 47 of the KVAT Act authorises the Commissioner to direct payment of tax in respect of the sale of evasion-prone goods before the date prescribed for payment. He has no authority to direct payment of tax before the sale takes place. Rule 22 of the KVAT Rules prescribes that the payment of tax relating to the sale of a particular month shall be made before the 10th of the next month. As per Section 47(16A) the Commissioner can at the most direct that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, are also bound to pay advance tax. Evasion-prone goods are notified goods in the KVAT Act. But, circular No. 50 of 2006 takes in other items also, which are not included among the notified goods . By virtue of Article 265 of the Constitution, tax can be levied only under the authority of law. But, the Commissioner under the impugned circulars is trying to collect tax without the authority of law. But by virtue of Section 47(16A), the Commissioner can pre-pone the date of payment of tax, to a day between the date of sale and the appointed day. He cannot go to a date before the date of sale. So, the impugned circulars are ultra vires of Section 47(16A) of the KVAT Act. Learned Counsel Sri A. Kumar and other learned Counsel supported the abovesaid contentions. The learned Special Government Pleader reiterated the contentions of the fourth respondent pleaded in his counter-affidavit and submitted that the impugned provision and the circulars are valid. He heavily relied on the presumption of constitutionality available in favour of a legislation. 11. The learned Counsel for the petitioners relied on the following decisions : In re Article 143, Constitution of India AIR 1951 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, did not attack the above quoted sub-section as unconstitutional, on the ground that it authorises collection of tax even before the occurrence of the taxable event. According to them, the said provision only authorises the Commissioner to issue circulars to demand tax after the taxable event, that is, the sale of goods, but before the appointed day for payment of tax by the dealer. But, I think, the said interpretation, if accepted, will make the provision meaningless. The provision is introduced to prevent evasion of tax. If the above interpretation of the petitioners that tax can be demanded only after the sale takes place, is accepted, the very purpose of the section will be defeated. If evasion of tax is to be prevented, the same can be done only by demanding tax in advance before the occurrence of the taxable event. It is true, while interpreting a taxing statute, if there is any doubt, the same should go in favour of the assessee. But, in this case, if the interpretation advanced by the petitioners is accepted, the same will render the provision ineffective to prevent evasion of tax. So, the golden rule of interpretation has to be followed. The golden rule is dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an enactment in its ordinary sense, whereas if you read it in a manner, in which it is capable, though not its ordinary sense, there would not be any inconvenience at all, there would be reason why you should not read it according to its ordinary grammatical meaning'. 15. In the light of the above principles, Sub-section (16A) has to be read as authorising the Commissioner to direct payment of tax before the taxable event takes place. Otherwise, the purpose of the sub-section, namely, prevention of evasion of tax will be defeated. Therefore, the circulars have to be held intra vires of Sub-section (16A). 16. The petitioners submit, if such an interpretation is accepted, it will make Sub-section (16A) unconstitutional. They point out that the taxable event is the sale. The Constitution authorises the Legislature to impose tax on sale. So, the demand of tax even before the sale takes place is unauthorised by the constitutional provisions, it is submitted by the petitioners. Though, in support of this submission, several decisions were relied on by the petitioners, they mainly relied on the decision of the apex court in State of Rajasthan v. Rajasthan Chemists Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of levy of tax on sale of goods. It does not deviate from basic principle that a tax of any nature is determined ex hypothesi on occurrence of taxing event. Its actual computation and collection takes place later on through the machinery provided. However, the determination of charge ex hypothesi instantly on occurrence of taxing event which inheres into it that measure of tax is integrally connected with occurrence of the taxing event and is not postponed to a later date. 40. However, this case did not lay down the principle that where price is the measure to which rate of tax can be applied, it can be something else other than the price component of taxing event, whether agreed by mutual consent or as regulated by statutes. 53. By devising a methodology in the matter of levy of tax on sale of goods, law prohibits taxing of a transaction which is not a completed sale and also confines sale of goods to mean sale as defined under the Act. This cannot be overridden by devising a measure of tax which relates to an event which has not come into existence when tax is ex hypothesi determined, much less which can be said a completed sale and which cannot be subject of legislation p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid by him in advance and shall be adjusted with the amount of tax due from him; and the security, if any, for the equivalent amount shall, on demand, be furnished by him, and shall be refunded to him, in such manner and on such terms and conditions as may be prescribed. 18. The tax payable in advance has to be computed based on the saleable value of the goods. So, the tax in advance is authorised to be collected before the actual sale takes place. The apex court upheld the above provisions, on the ground that they were enacted to prevent evasion of tax, which will come under the legislative field covered by entry 54, List II of the Seventh Schedule to the Constitution. The relevant portion of the judgment reads as follows: 16. A careful reading of Sub-section (7) makes it clear that the Commissioner or any person appointed under Sub-section (1) of Section 3 to assist him, on being satisfied that a casual trader may become liable to pay tax under Sub-section (1) thereof in respect of any goods, may with a view to secure payment of tax that may become due upon determination under Sub-section (3) and for reasons to be recorded in writing, demand from such casual trader an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92-A of List I of the Seventh Schedule to the Constitution. It is well-settled that the State Legislature, while providing for levy of impost, has power to provide for incidental matters, including measures for prevention of evasion of tax. 19. In Nand Lal Raj Kishan v. Commissioner of Sales Tax, Delhi [1962]1SCR283 , the validity of Section 8-A of the Bengal Finance (Sales Tax) (Delhi Amendment) Act, 1956 was assailed in a writ petition filed under Article 32 of the Constitution. That provision enables the Commissioner of Sales Tax to demand security from dealers for payment of tax. The contention of the petitioner was that the section conferred undefined, unlimited and unrestricted power to the Commissioner and that there was no limit fixed for the amount of security. It was also urged that no enquiry was contemplated before fixing the amount of security. The validity of Section 8-A was upheld on the view that it did not give any unlimited or unrestricted power to the Commissioner and that it was subject to the condition that it must appear to him to be necessary to demand security for the proper realisation of tax. It was observed that the power to levy tax included the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prevent evasion and to prescribe the procedure for determining the amount payable by any individual. It was added that entry 56 of List II in giving the Legislature the power to enact the impugned Act, required that the tax must be levied only against the owner of the goods that were carried or against persons who carried them. If the tax was really levied on goods carried, the Legislature was free to prescribe the machinery for its recovery. In that view of the matter, it was held that Sub-sections (1) and (2) of Section 3 of that impugned Act, which imposed the tax and made the producer liable to pay the same could not, therefore, be impugned on the ground of legislative incompetence. 22. In Tripura Goods Transport Association v. Commissioner of Taxes AIR1999SC719 , sections 29, 30, 32, 36-A, 38-B and 2(b) of the Tripura Sales Tax Act, 1976 (11 of 1976) were assailed on the ground of lack of legislative competence. Those provisions required the appellants therein to obtain a certificate of registration and to comply with various other formalities prescribed under the Act and the Rules made thereunder. A learned single Judge of the Gauhati High Court had dismissed the writ p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the provision to collect tax in advance has to be repelled. Though the amount demanded in this case is loosely described as advance tax, it is in effect a payment in advance towards the tax that may become payable in future. The apex court in the above decision upheld the provisions enabling demand of tax in advance while bringing the goods to West Bengal by casual traders. The learned Counsel for the petitioners tried to distinguish this decision by contending that the decision relates to the liability of casual traders. The significance of the decision is that it upholds the power to demand advance payment towards tax when the goods are brought to the State, that is, before the taxable event, namely, the sale. The decision in State of Rajasthan v. Rajasthan Chemists Association 2006(202)ELT217(SC) reiterates the well-settled position that the taxable event is the sale of goods. It also further lays down that the actual sale price alone can be the basis for levying tax. In this case also, the taxable event is the sale. The actual tax will be assessed only after the sale takes place and that too, based on sale price. But, in the case of evasion-prone goods, it is difficult to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenge against a provision in the Madras Co-operative Societies Act, based on excessive delegation, in Registrar of Co-operative Societies v. K. Kunjabmu [1980]2SCR260 . The relevant portion of the said judgment reads as follows: 3... The Parliament and the State Legislature are not bodies of experts or specialists. They are skilled in the art of discovering the aspirations, the expectations and the needs, the limits to the patience and the acquiescence and the articulation of the views of the people whom they represent. They function best when they concern themselves with general principles, broad objectives and fundamental issues instead of technical and situational intricacies which are better left to better equipped full time expert executive bodies and specialist public servants. Parliament and the State Legislatures have neither the time nor the expertise to be involved in detail and circumstances. Nor can Parliament and the State Legislatures visualise and provide for new, strange, unforeseen and unpredictable situations arising from the complexity of modern life and the ingenuity of modern man. That is the raison d'etre for delegated legislation. That is what makes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and availability at fair prices. The principle is clear and offers sufficient guidance to the Central Government in exercising its powers under Section 3. 5. In Edward Mills Co. Ltd., Beawar v. State of Ajmer (1954)IILLJ686SC this Court considered the question whether Section 27 of the Minimum Wages Act under which power was given to the Government to add to either part of the schedule any employment in respect of which it was its opinion that minimum wages should be fixed exceeded the limits of permissible delegation and was, therefore, unconstitutional. The court held that the legislative policy was apparent on the face of the enactment which aimed at the statutory fixation of minimum wages with a view to obviate the chance of exploitation of labour. The intention of the Legislature was not to apply the Act to all industries but only to those industries where by reason of unorganised labour or want of proper arrangements for effective regulation of wages or for other course the wages of labourers in a particular industry were very low. In enacting Section 27 there was, therefore, no delegation of essential legislative power. 6. In Pandit Banarsi Das Bhanot v. State of Madhy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be permitted to observe is not without its advantages. So long therefore as the Legislature indicates, in the operative provision of the statute with certainty, the policy and purpose of the enactment, the mere fact that the legislation is skeletal, or the fact that a discretion is left to those entrusted with administering the law, affords no basis, either for the contention that there has been an excessive delegation of legislative power as to amount to an abdication of its functions, or that the discretion vested is uncanalised and unguided as to amount to a carte blanche to discriminate. The second is that if the power or discretion has been conferred in a manner which is legal and constitutional, the fact that Parliament could possibly have made more detailed provisions, could obviously not be a ground for invalidating the law. 10. In Mohammad Hussain Gulam Mohammed v. State of Bombay [1962]2SCR659 , the question was about the vires of Section 29 of the Bombay Agricultural Produce Markets Act. It gave power to the State Government to add to, or amend, or cancel any of the items of agricultural produce specified in the schedule in accordance with prevailing local condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leges of registered societies, property and funds of registered societies, inquiry and inspection, supersession of committees of societies, dissolution of societies, surcharge and attachment, arbitration, etc. We refrain from referring to the details of the provisions except to say that they are generally designed to further the objectives set out in the preamble. But, numerous as the provisions are, they are not capable of meeting the extensive demands of the complex situations which may arise in the course of the working of the Act and the formation and the functioning of the societies. In fact, the too rigorous applications of some of the provisions of the Act may itself occasionally result in frustrating the very objects of the Act instead of advancing them. It is to provide for such situations that the Government is invested by Section 60 with a power to relax the occasional rigour of the provisions of the Act and to advance the objects of the Act. Section 60 empowers the State Government to exempt a registered society from any of the provisions of the Act or to direct that such provision shall apply to such society with specified modifications. The power given to the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n attempt to tax on inter-State sale. The free-flow of goods is also not prevented by demanding tax in advance. Some inconvenience caused at the check-posts cannot be described as violating the rights under Article 301 of the Constitution of India. If such a contention is accepted, all the check-posts should be abolished, so as to provide unhindered movement of goods. Such a right cannot be claimed under Article 301. 23. Further, in the matter of taxation statutes, the courts should respect the legislative judgment and should not lightly interfere with them. See the decision of the apex court in R.K. Garg v. Union of India [1982]133ITR239(SC) . The relevant portion of the judgment reads as follows: 7... the Legislature understands and correctly appreciates the needs of Us own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company [1950] 94 LEd. 381 : [1950] 338 US 604 be converted into Tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any Legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed. 25. W.P. (C) Nos. 34390 and 34662 of 2006, 80, 134, 293, 411, 511, 606, 680, 851, 952, 991, 1189, 1191, 1361, 1372, 1431, 1442, 1449, 1454, 1456, 1464, 1465, 1478, 1482, 1492, 1493, 1494, 1503, 1529, 1532, 1539, 1609, 1639, 1685, 1692, 1698, 1715, 1716, 1717, 1718, 1945, 1949, 1970, 1976, 2095, 2146, 2148, 2194, 2278, 2281, 2288, 2292, 2318, 2336, 2377, 2381, 2382, 2396, 2512, 2531, 2536, 2537, 2538, 2539, 2606, 2667, 2689, 2768, 2772, 2773, 2789, 2796, 2828, 2840, 2878, 2903, 2904, 2907, 2911, 2922, 2923, 2924, 2980, 2983, 3009, 3036, 3062, 3069, 3076, 3079, 3081, 3082, 3087, 3090, 3092, 3093, 3094, 3095, 3099, 3188, 3199, 3203, 3204, 3220, 3221, 3227, 3281, 3345, 3461, 3465, 3471, 3472, 3473, 3474, 3500, 3543, 3566, 3619, 3620, 3621, 3622, 3623, 3632, 3645, 3738, 3777, 3795, 3797, 3798, 3800, 3803, 3804, 3805, 3807, 3813, 3828, 3937, 3946, 3949, 3950, 3959, 3962, 4098, 4189, 4206, 4236, 4246, 4277, 4287, 4315, 4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616, 4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319, 5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550, 5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, ..... 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