Karnataka High Court
Itc Limited An Existing Company Within ... vs State Of Karnataka on 20 November, 2012
Equivalent citations: 2013 (2) AKR 413
Author: H.G.Ramesh
Bench: H.G.Ramesh
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W.P.No.11957/2010
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 20TH DAY OF NOVEMBER 2012
BEFORE
THE HON'BLE MR.JUSTICE H.G.RAMESH R
W.P.No.11957/2010 (T-RES)
BETWEEN:
ITC LIMITED
AN EXISTING COMPANY WITHIN
THE MEANING OF COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE
AT #37, JAWAHARLAL NEHRU ROAD
KOLKATA-700 701
AND HAVING ITS BRANCH OFFICE
AT #18, BANASWADI MAIN ROAD
PULIKESHI NAGAR
BENGALURU - 560 005
REPRESENTED BY ITS
DISTRICT MANAGER
MR.A.V.ANIL KUMAR
S/O LT. MR.N.K.NAMBIAR ... PETITIONER
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR
M/S DUA ASSOCIATES, ADVOCATES)
AND:
1. STATE OF KARNATAKA
REPRESENTED BY
PRINCIPAL SECRETARY TO GOVERNMENT
FINANCE DEPARTMENT
VIDHANA SOUDHA
BENGALURU - 560 001
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W.P.No.11957/2010
2. THE COMMISSIONER
COMMERCIAL TAXES
VANIJYA TERIGE BHAVAN
GANDHINAGAR
BENGALURU - 560 009
3. THE ASSISTANT COMMISSIONER
COMMERICAL TAX, LVO-55
BDA COMPLEX
HRBR LAYOUT
KALYAN NAGAR
BENGALURU - 560 043 ... RESPONDENTS
(BY SRI K.M.SHIVAYOGISWAMY, AGA)
THIS WP IS FILED UNDER ARTICLES 226 & 227 OF THE
CONSTITUTION OF INDIA PRAYING TO DECLARE THAT
SUB SECTION (5) OF SECTION 4 OF THE KARNATAKA VALUE
ADDED TAX ACT, 2003, AS INSERTED BY THE PROVISIONS OF
THE KARNATRAKA VALUE ADDED TAX (AMENDMENT) ACT,
2010 AS UNCONSTITUTIONAL, ULTRA VIRES, ILLEGAL, BAD IN
LAW AND NULL AND VOID AND CONSEQUENTLY BY A WRIT
OF CERTIORARY OR A DECLARATION IN THE NATURE OF
WRIT OF CERTIORARY QUASH SUB-SECTION (5) OF SECTION
4 OF KVAT ACT, 2003 INSERTED WITH EFFECT FROM 1ST
APRIL 2010 VIDE AMENDMENT SECTION 2 (IV) OF KARNATAKA
VALUD ADDED TAX (AMENDMENT) ACT, 2010 (KARNATAKA
ACT NO.4 OF 2010) - ANNEXURE 'A' AND ETC.
THIS WP COMING ON FOR PRELIMINARY HEARING IN 'B'
GROUP THIS DAY, THE COURT MADE THE FOLLOWING:
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W.P.No.11957/2010
ORDER
H.G.RAMESH, J. (Oral):
In this writ petition, the petitioner has challenged the constitutional validity of Sub Section (5) of Section 4 of the Karnataka Value Added Tax Act, 2003 ('the KVAT Act' for short) which is inserted by the Karnataka Value Added Tax (Amendment) Act, 2010 (Karnataka Act No.4 of 2010) with effect from the First day of April 2010.
2. By consent of the learned Counsel on both sides, the writ petition is heard on merits. I have heard Shri K.G.Raghavan, learned Senior Counsel appearing for the petitioner and Shri K.M.Shivayogiswamy, learned Additional Government Advocate appearing for the respondents.
3. The impugned provision reads as follows:
"4. Liability to tax and rates thereof ........................................................... (5) Notwithstanding anything contained in sub-section (1), a registered dealer shall be -4- W.P.No.11957/2010 liable to pay tax on the sale of cigarettes, cigars, gutkha and other manufactured tobacco, on the maximum retail price indicated on the label of the container or pack thereof after reducing from such maximum retail price an amount equal to the tax payable, where the total amount payable to the dealer as the consideration for sale of such goods exceeds five hundred rupees or any other higher amount as may be notified by the Commissioner.
(6) ............................................." The petitioner is a manufacturer of Tobacco products and a dealer registered under the KVAT Act. As per the impugned provision, a registered dealer shall be liable to pay tax on the sale of tobacco products, on the maximum retail price indicated on the label of the container or pack thereof, after reducing from such maximum retail price an amount equal to the tax payable, where the total amount payable to the dealer as the consideration for sale of such goods exceeds five hundred rupees or any other higher amount as may be notified by the Commissioner. -5- W.P.No.11957/2010
4. Shri K.G.Raghavan, learned Senior Counsel submitted that the impugned provision provides for levy of tax on the sale of tobacco products by taking the maximum retail price (which is not the actual price) indicated on the label of the container or pack thereof as the measure of tax and as held by the Supreme Court in State of Rajasthan v. Rajasthan Chemists Association [(2006)6 SCC 773], such a taxing provision is beyond the Legislative competence of the State. According to the learned Senior Counsel, the State Legislature has no competence to levy tax on the sale or purchase of goods on any notional measure of tax i.e. on the basis of a notional price as a measure of tax. He further submitted that a similar provision had come up for consideration before the Rajasthan High Court in Rajasthan Chemists Association vs. State of Rajasthan [(2006) 147 STC 476 (RAJ)] which held the said provision as beyond the Legislative competence of the State as being outside the scope of Entry 54 of List II of the Seventh Schedule of the Constitution of -6- W.P.No.11957/2010 India. The said judgment is affirmed by the Supreme Court in State of Rajasthan v. Rajasthan Chemists Association [(2006)6 SCC 773].
5. On the contrary, Shri Shivayogiswamy, learned Additional Government Advocate argued supporting the validity of the impugned provision. He relied on two judgments of the Supreme Court in Hotel Balaji v. State of A.P. [1993 Supp(4) SCC 536] and in Ganga Sugar Corpn. Ltd. v. State of U.P [(1980)1 SCC 223]. By referring to Sub Section (6)(a) of Section 4 of the KVAT Act, he submitted that if a registered dealer is not liable to pay tax under Sub Section (5), it is open to him to apply for refund of the tax collected on his purchase.
6. It is relevant to refer to the provision of law which was considered by the Rajasthan High Court; it reads as follows:
"4-A. Levy of tax on retail sale price.─ (1) Notwithstanding anything contained in any other -7- W.P.No.11957/2010 provisions of this Act or the rules made thereunder, tax on sale of such goods, as may be specified by the State Government by notification in Official Gazette, shall be levied and collected on the retail sale price of such goods abated by the rate specified in the said notification.
(2) The goods to be specified under sub-section (1) shall be those in relation to which it is required under the provisions of the Standards of Weights and Measures Act, 1976 (Central Act 60 of 1976) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods.
(3) The State Government may, for the purpose of fixing the rate of abatement under sub-section (1), take into account the amount of sales tax and other local taxes, if any, payable on such goods.
Explanation.─ (i) Where on the package of any goods different retail sale prices are declared with reference to different areas, the retail sale price declared with reference to the area within the State in which it is sold shall be deemed to be the retail sale price for the purposes of this section.
(ii) Where on the package of any goods different retail prices are declared with reference to different areas and none of the areas fall within the State, the maximum of such retail sale prices -8- W.P.No.11957/2010 shall be deemed to be the retail price for the purposes of this section ."
As stated above, the validity of the above provision was considered by the Rajasthan High Court in Rajasthan Chemists Association vs. State of Rajasthan [(2006) 147 STC 476 (RAJ)]. It is useful to refer to the following reasoning therein:
"192 ................................................ ............................................. The measure to which rate of tax is applied must have integral connection with the transaction that is the subject of tax. It cannot be said that once sale has taken place which attracts tax, it can be levied and measured on any standard divorced from the subject of sale.
193 Permitting this means permitting legislation to insert one or other of the essential ingredients of sale by creating legal fiction, which in fact is not ingredient of sale which may become subject of tax. This in turn will result in extending the meaning of "sale" beyond what is meant by sale within the meaning of Act of 1930. As discussed above, it is not permissible for the State Legislature to enlarge the definition of "sale" beyond what is meant under the Indian -9- W.P.No.11957/2010 Sale of Goods Act for taxing purposes under entry 54 of List II of the Seventh Schedule.
............................................................
207 If the tax on sale of goods under entry 54 is tax on sale as defined in the Sale of Goods Act, 1930, the price ..................... ............ remains an integral part of sale which becomes subject of tax and the levy cannot be divorced therefrom where price and not the weight of goods is the measure of tax.
208 If section 4A is designed to bring a levy into existence which is divorced from the sale subject to tax under the Act, it falls foul with the legislative competence under entry 54 of List II of the Seventh Schedule so also notification, annexure 3, to the extent it is intended to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability to tax arises and is determined ex hypothesi".
(Underlining supplied) The aforesaid judgment of the Rajasthan High Court holding that the provision providing for levy of tax on retail sale price was beyond the legislative
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W.P.No.11957/2010competence of the State is upheld by the Supreme Court in Rajasthan Chemists Association [(2006) 6 SCC 773].
7. The judgments relied on by the learned Additional Government Advocate and sub Section (6) referred to by him are of no assistance to the State as the provision referred to in para 6 above, which is similar to the one impugned herein, is held to be unconstitutional by the Supreme Court in Rajasthan Chemists Association.
8. As stated above, the Supreme Court in Rajasthan Chemists Association [(2006)6 SCC 773] while considering the validity of a provision similar to the one impugned herein, has upheld the view of the Rajasthan High Court that it is not permissible for the Legislature of a State to levy tax on the sale of goods by adopting a notional price as a measure of tax ; such a legislative measure is held to be outside the ambit of Entry 54 of List II of the Seventh Schedule of the
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W.P.No.11957/2010Constitution of India. In my opinion, the same reasoning applies to the provision impugned herein as both are similar.
9. In view of the above, sub Section (5) of Section 4 of the KVAT Act, 2003 which provides for levy of tax on the maximum Retail Price indicated on the label of the container or pack thereof, is declared as unconstitutional on the ground that such a taxing provision is beyond the Legislative competence of the State under Entry 54 of List II of the Seventh Schedule of the Constitution of India.
Petition allowed.
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JUDGE Yn/ata.