TMI Blog2018 (6) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... business as well, such an object is absent in the Budget Speech of the Minister. Had the same been one of the objectives of the legislation, I have no doubt in my mind that the same would have certainly reflected in the Budget Speech of the Minister with supporting empirical data. In the absence of such an objective in the Budget Speech, the stand taken by the State in the counter affidavit that the impugned levy was introduced with the objective of promoting indigenous and local business cannot be accepted as a bonafide one. If the object of the legislation is augmentation of revenue, a classification of the dealers based on the criterion viz., whether they import goods into the State is per se unjustifiable and unintelligible. There is no hesitation to hold that the impugned levy is discriminatory and violative of Article 301 read with clause (a) of Article 304 as also Article 14 of the Constitution. The contention that the impugned levy is only an additional tax on multi national companies falling within the criteria provided therein, and the same, therefore, does not in any way impede trade or business cannot be accepted, for the liability to pay surcharge applies onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1A) of Section 3 of the Act provides that the tax payable under sub-sections (1) and (2) of Section 6 of the Kerala Value Added Tax Act shall, in the case of national or multinational companies functioning in the State as retail chains or direct marketing chains, who import not less than 50 percent of their stock from outside the State or country, and not less than 75 percent of whose sales are retail business, and whose turnover exceeds ₹ 5 crores per annum, be increased by a surcharge at the rate of 10 percent. Explanation I to the said provision clarifies that retail chains and direct marketing chains mentioned therein mean retail sales outlets or part of retail sales outlets of companies which share a registered business name or commercial name by way of franchise agreements or otherwise with standardized sales, purchase and promotional activities. Explanation II to the said provision clarifies that retail business mentioned therein shall mean, sales to persons other than registered dealers. 5. The case of the petitioners is that dealers who do not import into the State more than 50 percent of their stock, but nevertheless fulfilling all the remaining conditions menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d local business. It is the further stand of the State that it has the legislative competence to introduce a levy in the nature of one impugned in the writ petitions and the same being a matter of policy relating to taxation, it cannot be subjected to judicial scrutiny. 7. Heard Sri.G.Shivadass, Sri.A.Kumar, Dr.K.P.Pradeep, the learned counsel for the petitioners and Dr.Thushara James, the learned Government Pleader. 8. The learned counsel for the petitioners reiterated the case pleaded by the petitioners placing reliance on various decisions of the Apex Court. 9. Per contra, the learned Government Pleader contended that Article 301 is a stand alone provision and Article 304 which is an exception to Article 301 needs to be looked into only if Article 301 cannot be considered in isolation. According to the learned Government Pleader, the impugned levy is only an additional tax on multi national companies falling within the criteria provided therein, and the same does not in any way impede trade or business and therefore there is no infringement of Article 301 of the Constitution. It was also contended by the learned Government Pleader that Article 301 is not attracted in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... multinational companies functioning in the State as retail chains or direct marketing chains who import not less than fifty per cent of their stock from outside the State or country and not less than seventy-five per cent of whose sales are retail business and whose total turnover exceeds five crore rupees per annum, but excluding such class of dealers of certain commodities, which may be notified by the Government from time to time, be increased by a surcharge at the rate of ten per cent, and the provisions of the Kerala Value Added Tax Act, 2003(30 of 2004) shall apply in relation to the said surcharge as they apply in relation to the tax payable under the said Act. Explanation I :- For the purpose of this section big retail chains and direct marketing chains mean retail sales outlets or part of retail sales outlets of companies which share a registered business name or commercial name by way of franchisee agreements or otherwise with standardized sales, purchase and promotional activities. Explanation II :- For the purpose of this section 'retail business' shall mean sales to persons other than registered dealers. In terms of the impugned provision, the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. Article 304 confers on the Legislatures of States, notwithstanding anything contained in Article 301, the power to impose restrictions on trade, commerce and intercourse among the States. Article 304 reads thus: 304. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. The scope and amplitude of Articles 301 and 304 of the Constitution have been dealt with in finer details by a Nine Judge Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) of Article 304 do not comprehend levy of taxes as a restriction especially when taxes are presumed to be both reasonable and in public interest. In the light of the aforesaid conclusions, the power of the State to impose taxes on goods imported from other States cannot be doubted. Of course, the said power is subject to the limitation that such taxes shall not discriminate against the goods imported from other States. In other words, the proposition that levy of non-discriminatory tax would not infringe clause (a) of Article 304 and therefore, such levy would not violate Article 301 of the Constitution is affirmed. 12. One of the questions formulated for decision in the majority judgment rendered in Jindal Stainless Steel Ltd. (supra) was whether the entry tax levied by the States which were impugned in the matters before the Court was violative of Article 301 of the Constitution. In the context of the said question, the court considered the issue whether incentives in the form of exemption or reduced rate of tax levied by the State, in order to promote industrial development, would amount to discrimination and hence violative of clause (a) of Article 304 of the Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oil producing units thereby put the former at a disadvantage. Having said that, the Court exercised its powers under Article 142 of the Constitution and struck down the exemption by moulding the reliefs to suit the exigencies of the situation. The Court no doubt noticed a three-Judge Bench decision in Video Electronics v. State of Punjab (1990) 3 SCC 87 : (AIR 1990 SC 820) in which notifications issued by the States of U.P and Punjab providing for exemptions to new units established in certain areas for a prescribed period of 3 to 7 years were assailed as discriminatory. The challenge to the exemption was in that case also based on the alleged violation of Articles 301 and 304. This Court however upheld the notifications in question on the ground that the same related to a specific class of industrial units and the benefit under the same was admissible for a limited period of time only. The Court observed that if an overwhelmingly large number of local manufacturers were subject to sales tax, it could not be said that the local manufactures were favoured as a class against outsiders. Adverting to the decision in Video Electronics (AIR 1990 SC 820) (supra) this Court in Mahavir (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating a specific constitutional prohibition unless it is saved by one or other of the provisos to those articles. But the position under Article 14 is different. Equal protection claims under that article are examined with the presumption that the State action is reasonable and justified. This presumption of constitutionality stems from the wide power of classification which the legislature must, of necessity, possess in making laws operating differently as regards different groups of persons in order to give effect to its policies..... 133. Fazl Ali J. in his concurring judgment explained the concept in the following words: 19. I think that a distinction should be drawn between discrimination without reason and discrimination with reason . The whole doctrine of classification is based on this distinction and on the well-known fact that the circumstances which govern one set of persons or objects may not necessarily be the same as those governing another set of persons or objects, so that the question of unequal treatment does not really arise as between persons governed by different conditions and different sets of circumstances. The main objection to the West ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sovereign power to levy taxes which cannot be taken away from the States that are otherwise competent to impose taxes and duties. The conceptual foundation on which such exemptions and incentives have been held permissible and upheld by this Court in Video's case is, in our opinion, juristically sound and legally unexceptionable. Video Electronics, therefore, correctly states the legal position as regards the approach to be adopted by the Courts while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, the benefit must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and incentives in such cases must be deemed to have been inspired by considerations which in the larger context help achieve the Constitutional goal of economic unity. 134. Seen in the above context the decision in Mahabir Oil's case is indeed distinguishable inasmuch as the manufactures of edible oil were exempt totally a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the facts of the case on hand, as noted, the impugned provision would apply only to dealers satisfying cumulatively the conditions namely, (i) that they shall be a company incorporated in India or abroad (ii) that they shall be functioning in the State as retail chains or direct marketing chains, (iii) that they shall import not less than 50 percent of their stock from outside the State or country, (iv) that not less than 75 percent of their sales shall be to persons other than registered dealers and (v) that their turnover shall be more than five crore rupees per annum. In other words, a dealer other than a company is not liable to pay surcharge under the impugned provision even if they fulfil conditions (ii) to (v) referred to above. Likewise, a dealer who fulfils condition No.(i), but not functioning in the State as a retail chain or direct marketing chain is also not liable to pay surcharge under the impugned provision even if they fulfil conditions (iii) to (v) referred to above. Again a dealer, who effects more than 25 percent of the sales to registered dealers, but satisfies conditions (i) to (iii) and (v) is not liable to pay surcharge under the impugned provision. Lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution. One of such conditions declared by this Court was that the legislature shall not make any law that takes away or abridges the equality Clause in Article 14. The Court declared that the guarantee of equal protection of laws must extend even to taxing statutes. It clarified that every person may not be taxed equally but property of the same character has to be taxed, the taxation must be by the same standard so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes similar burden on everyone with reference to that particular kind and extent of property on the basis of such taxation, the law shall not be open to attack on the ground of inequality even though the result of taxation may be that the total burden on different persons may be unequal. The Court summed up that taxing statute is not fully immune from an attack on the ground that it infringes equality Clause Under Article 14, no matter the Courts are not concerned with the policy underlying the taxing statute or whether a particular tax could have been imposed in a different way or a way that the Court might think would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law in our view is legally unexceptionable. The argument that Ramjilal and Laxmanappa's cases place taxing statute beyond the purview of challenge under Part III has been correctly repelled and fiscal statutes are also held to be open to challenge on the touchstone of Article 14 of the Constitution. The contention that an aggrieved citizen may have no remedy against a taxing statute does not, therefore, hold good. Whether or not a challenge to such a statute succeeds is, however, a different matter. It is fairly well settled by now that Courts show considerable deference to the legislature in the matter of quantum of tax that may be levied as also the subjects and individuals upon whom the same may be levied. Just because room for challenge to a fiscal statute is limited is in our view no reason to hold that levy of taxes otherwise within the competence of the legislature imposing the same should be seen as a restriction on free trade and commerce guaranteed Under Article 301 which Article does not either textually or contextually recognize levy of taxes as impediments except in cases where the same are discriminatory in nature thereby being offensive to Article 304(a) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sir, the social security schemes announced in this Budget will create a huge financial commitment. There is every likelihood that this will increase in the next three years. To meet this expenditure it is proposed to impose a 1% cess on sales taxes and value added tax levied by the State Government. It is hoped to raise ₹ 100 crore through this measure. 192. Imposition of additional levies on the big chains coming into the retail sector has been demanded by almost all sections of society. It is proposed to impose a surcharge of 10% under the Kerala Surcharge on Taxes Act on the big retail chains, including on direct marketing chains, who import more than 50% of goods from outside the State, whose turnover exceeds ₹ 5 crore per annum and 75% of whose sales are directly to consumers. Purchases from first sellers who are sister-concerns will be deemed to be an import of such retail chain. It is expected to raise ₹ 2 crore additional resources through this measure. The object of the legislation as evident from the Budget Speech is that the same was introduced with a view to augment the revenue for the purpose of implementing social security measures. Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the legislation is augmentation of revenue, according to me, a classification of the dealers based on the criterion viz., whether they import goods into the State is per se unjustifiable and unintelligible. I have, therefore, no hesitation to hold that the impugned levy is discriminatory and violative of Article 301 read with clause (a) of Article 304 as also Article 14 of the Constitution. 15. Now, I shall deal with the contentions advanced by the learned Government Pleader. The contention that the impugned levy is only an additional tax on multi national companies falling within the criteria provided therein, and the same, therefore, does not in any way impede trade or business cannot be accepted, for the liability to pay surcharge applies only to multi national companies who import goods into the State from other States. The contention of the learned Government Pleader that Article 301 is not attracted in the instant case as the impugned levy is only a levy based on the turnover of the dealer also cannot be accepted. The turnover of the dealer is not the sole criterion for the levy. The dealers who have more turnover than what is mentioned in the impugned provision are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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