Kerala High Court
Das Agencies And Anr. vs State Of Kerala on 17 November, 1987
Equivalent citations: [1988]69STC44(KER)
JUDGMENT P.C. Balakrishna Menon, J.
1. Heard also the learned Advocate-General who took notice on behalf of the respondents.
2. The petitioners in both the original petitions are dealers registered under Section 13 of the Kerala General Sales Tax Act, hereinafter referred to as "the Act". They challenge Sub-section (2A) of Section 5 of the Act introduced by the Kerala Finance Act 18 of 1987.
3. Subject to the exceptions mentioned in the proviso, Clause (i) of Sub-section (2A) imposes what is called a turnover tax at the rate of half per centum on the turnover of goods coming under the First or Fifth Schedule to the Act of every dealer whose total turnover in a year exceeds Rs. 25 lakhs. Clause (i) of Sub-section (2A) omitting the proviso is extracted below :
Notwithstanding anything contained in this Act or the rules made thereunder, every dealer whose total turnover in a year exceeds rupees twenty-five lakhs shall pay turnover tax at the rate of half per centum on the turnover of goods coming under the First or Fifth Schedule to this Act.
Section 2(xxvii) of the Act defines "turnover" to mean "the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer...". Section 2(viii) defines "dealer" to mean "any person who carries on the business of buying, selling, supplying or distributing goods...". Section 5 of the Act provides for the levy of tax on sale or purchase of goods and under Sub-section (1) every dealer whose total turnover for a year is not less than one lakh rupees is required to pay tax on his taxable turnover for that year as specified in the Schedules attached to the Act. The liability for payment of tax under the Act is on the annual taxable turnover of every dealer mentioned in Section 5. Section 5A provides for the levy of purchase tax on every dealer who, in the course of his business, purchases goods liable to tax under the Act in circumstances in which no tax is payable under Section 5. Sub-section (3) makes it clear that the purchase tax is also made payable on the annual turnover of the purchasing dealer.
4. The principal challenge against Sub-section (2A)(i) of Section 5 of the Act introduced by the Kerala Finance Act 18 of 1987 is based on the contention that the State Legislature is not competent to pass a legislation imposing a tax on the turnover under entry 54 of List II of the Seventh Schedule to the Constitution. It is clear from Sub-section (2A)(i) itself that the turnover tax is payable only on the taxable turnover even though the class of dealers liable to pay such tax is reckoned with reference to the total turnover exceeding Rs. 25 lakhs. It is therefore contended that even turnover covered by Article 286 of the Constitution would fall under the concept of the total turnover and to classify a dealer based on the turnover covered by Article 286 for the purpose of levy, according to the counsel for the petitioners, is beyond the legislative competence of the State Legislature.
5. These questions raised in these original petitions are covered by the decisions of the Supreme Court in S. Kodar v. State of Kerala, AIR 1974 SC 2272, Hoechst Pharmaceuticals Ltd. v. State of Bihar AIR 1983 SC 1019 and K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu AIR 1985 SC 12.
6. The Kodar's case AIR 1974 SC 2272 related to the validity of Section 2(1) of the Tamil Nadu Additional Sales Tax Act, 1970 as per which an additional tax at the rate of 5 per cent on the tax payable by a dealer is imposed on all dealers whose total turnover for a year exceeds Rs. 10 lakhs. Sub-section (2) of Section 2 of the Tamil Nadu Act expressly provided that no dealer referred to in Sub-section (1) shall be entitled to collect the additional tax from the customers and under Sub-section (3) any dealer who collects the additional tax payable under Sub-section (1) is liable to punishment with fine extending to Rs. 1,000. The question of legislative competency under entry 54 of List II of the Seventh Schedule to the Constitution is considered and it is held that the additional tax levied under the Tamil Nadu Act is really a tax on the sale of goods and the fact that the quantum of the additional tax is determined with reference to the sales tax imposed would not alter its character. It is further held that the additional tax is in reality a tax on the aggregate of sales effected by a dealer during a year and is in substance and effect an enhancement in the rate of sales tax when the turnover of a dealer exceeds Rs. 10 lakhs a year. The mere fact that the dealer is not able to pass on the tax to the customer is not a ground to invalidate the legislation as the primary liability for payment of tax is on the dealer himself. A contention that it is an extra burden on the dealer and is violative of Article 19(1)(f) and (g) of the Constitution was also negatived for the following reason stated at page 77 of STC; 2275 of AIR :
15. As we said, the additional tax is a tax upon sales of goods and not upon the income of a dealer and so long as it is not made put that the tax is confiscatory, it is not possible to accept the contention that because the dealer is disabled from passing on the incidence of tax to the purchaser, the provisions of the Act impose an unreasonable restriction upon the fundamental rights of the appellants under Article 19(1)(g) or 19(1)(f).
7. The Hoechst Pharmaceuticals' case AIR 1983 SC 1019 related to the validity of Section 5(1) of the Bihar Finance Act, 1981 providing for the levy of a surcharge on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs in addition to the tax payable by him at such rate not exceeding ten per centum of the total amount of tax. Sub-section (3) of Section 5 prohibits the dealer from collecting the amount of surcharge payable by him from his customers. The contention that the legislation imposing the surcharge on every dealer whose gross turnover exceeds Rs. 5 lakhs is not within the competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution was negatived by the Supreme Court. It was also held that there is nothing wrong in taking into consideration the gross turnover including the turnover covered by Article 286 of the Constitution for the purpose of identifying dealers liable to pay surcharge under the Act. The Supreme Court accordingly held that so long as sales in the, course of inter-State trade and commerce or sales outside the State and sales in the course of import into, or export out of, the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of surcharge under entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide that if the gross turnover exceeds Rs. 5 lakhs in a year, he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10 per centum of the tax as may be provided for. It is stated at page 39 of STC; 1050 of AIR :
The liability to pay a surcharge is not on the gross turnover including the transactions covered by Article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who have a position of economic superiority. The definition of 'gross turnover' in Section 2(j) of the Act is adopted not for the purpose of bringing to surcharge inter-State sales or outside sales or sales in the course of import into, or export of goods out of the territory of India, but is only for the purpose of classifying dealers within the State and to identify the class of dealers liable to pay such surcharge. The underlying object is to classify dealers into those who are economically superior and those who are not.
8. In Mohamed Abdul Khader Firm's case AIR 1985 SC 12, the Supreme Court was concerned with the validity of Section 2 of the Tamil Nadu Additional Sales Tax (Amendment) Act, 1976. Section 2 provided for an additional sales tax at the rates specified therein on the taxable turnover of the respective dealers whose turnover exceeds Rs. 3 lakhs, Rs. 5 lakhs, Rs. 7 lakhs and Rs. 10 lakhs at 0.4 per cent, 0.5 per cent, 0.6 per cent and 0.7 per cent of the taxable turnover. Following the decision in Kodar's case AIR 1974 SC 2272, the Supreme Court upheld the levy as within the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule. The contention that the levy is confiscatory and violative of Article 19(1)(f) and (g) of the Constitution was also negatived for the same reason as was stated in Kodar's case AIR 1974 SC 2272. The Supreme Court in Mohamed Abdul Khader Firm's case AIR 1985 SC 12 was dealing with an additional levy on the turnover and not a mere addition on the tax assessed and in a case where the section itself had prohibited the dealer from passing on the liability to the customers. The Supreme Court held that merely for the reason that the levy is geared to the turnover, it cannot be said that the legislation is outside the scope of entry 54 of List II. It is a different mode of computation of the additional tax by linking the rate to the turnover instead of to the tax assessed under the Sales Tax Act. It is stated at page 16 of STC; 15 of AIR:
The nature and identity of the additional sales tax imposed by the 1970 Act have not been in any way altered by the impugned Act. As already pointed out what has been done by the impugned Act is only to provide for a different mode of computation of the additional sales tax by linking the rate of the levy to the taxable turnover instead of to the amount of tax assessed under the Act of 1959. The constitutional validity of the levy of additional tax is not in any manner affected by the said change brought about in the mode of levy and computation as a result of the amendments effected by the impugned Act.
The decision of the Supreme Court is an authority for the proposition urged by the learned Advocate-General that the additional levy (in the present case called the turnover tax) caii well be linked with the taxable turnover of the dealer whose total turnover exceeds Rs. 25 lakhs. It is not disputed that the goods coming under the First or the Fifth Schedule to the Act are taxable and the turnover relating to those goods is taxable turnover on which alone the levy is imposed by Sub-section (2A) (i) of Section 5 of the Act read with its proviso introduced by the Finance Act 18 of 1987.
9. The above discussion disposes also of the contention that the levy is opposed to Article 19(1)(g) and Article 300A of the Constitution.
10. The decisions in AIR 1939 FC 1 (In re Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938), AIR 1942 FC 33 (Province of Madras v. Boddu Paidanna, & Sons), AIR 1931 PC 248 (Eshugbayi Eleko v. Officer Administering the Government of Nigeria) and AIR 1963 SC 1760 [In re Sea Customs Act, 1878, Section 20(2)] referred to by Sri Rama Shenoi during the course of his arguments have no relevance for decision of this case.
These original petitions are accordingly dismissed, in the circumstances without any order as to costs.