IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR THURSDAY, THE 8TH MARCH 2007 / 17TH PHALGUNA 1928 WP(C).No. 2844 of 2007(L) -------------------------------------- PETITIONER: ------------------- M/S.FANTACY SALES CORPORATION, NILAMBUR (OOTTY) ROAD, MANJERI, MALAPURAM DISTRICT REPRESENTED BY N.VALEED, PARTNER. BY ADV. DR.K.B.MUHAMED KUTTY (SR.), SRI.K.M.FIROZ. RESPONDENTS: ------------------------ 1. THE SALES TAX INSPECTOR, OFFICER IN CHARGE OF THE CHECK POST, COMMERCIAL TAX CHECK POST, WALAYAR, PALAKKAD DIST. 2. THE COMMERCIAL TAX INSPECTOR, COMMERCIAL TAX CHECK POST, BANGARA, MANJESHWAR, KASARGOD DISTRICT. 3. THE SALES TAX OFFICER, DEPARTMENT OF COMMERCIAL TAXES, MANJERI. 4. THE COMMISSIONER OF COMMERCIAL TAXES, PUBLIC BUILDING, MUSEUM JUNCTION, THIRUVANANTHAPURAM- 695 033. 5. THE STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. BY SPL. GOVT. PLEADER (TAXES) SRI. V.V. ASOKAN. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13/02/2007,ALONG WITH W.P.(C). NO. 2840/2007 AND CONNECTED CASES, THE COURT ON 08/03/2007 DELIVERED THE FOLLOWING: W.P.(C). NO.2844/2007: APPENDIX PETITIONER'S EXHIBITS : EXT.P.1: COPY OF THE CIRCULAR NO. 50 OF 2006 DTD. 18/12/2006. EXT.P.2: COPY OF THE CIRCULAR NO. 53 OF 2006 DTD. 22/12/2006. EXT.P.3: COPY OF THE DETENTION NOTICE NO. AT. 384A/06-07 DTD. 15/01/2007 ALONG WITH INVOICE. EXT.P.4: COPY OF THE DETENTION NOTICE NO. AT 1071/06-07 DTD. 15/01/2007 ALONG WITH INVOICE. EXT.P.5: COPY OF THE ORDER OF THIS HON'BLE COURT IN W.P. NO. 2336 OF 2007 DTD. 19/01/2007. //TRUE COPY// prv. K.BALAKRISHNAN NAIR, J. ---------------------------------------------------------- W.P.(C) NOS.34390 & 34662/2006, 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, 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 & 7738/2007 ------------------------------------------------------------ JUDGMENT The constitutional validity of sub-section (16A) of Section 47 of the Kerala Value Added Tax Act and the sustainability of two circulars issued Wpc 2844/2007 & con.cases 2 by the Commissioner of Commercial Taxes under the said provision are the points, that arise for decision in these writ petitions. Since same points arise for decision in all these writ petitions, they are heard and disposed of by this common judgment. W.P.(C) No.2844/2007 is treated as the main case. W.P.(C) No.2844/2007: 2. The petitioner, which is a firm, is a dealer in glass sheets. It is an assessee on the files of the 3rd respondent, Sales Tax Officer, Manjeri under the Kerala Value Added Tax Act (hereinafter referred to as the KVAT Act) and the Central Sales Tax Act. The 4th respondent Commissioner of Commercial Taxes issued Circular No.50/2006, in exercise of his powers under clause ( c) of sub-section (2) of Section 3 read with sub-section (16A) of Section 47 of the KVAT Act, 2003, directing to collect sales tax in advance at the border check-posts, at the time of import of certain evasion-prone commodities named therein into the State. The said circular dated 18.12.2006 is marked as Ext.P1 in the writ petition. The relevant portion of the said circular reads as follows: “In exercise of the powers conferred by clause (c ) of sub- section (2) of section 3, read with sub-section (16A) of section 47 of the Kerala Value Added Tax Act, 2003, the undersigned, having considered it necessary to prevent evasion of tax in respect of the following evasion-prone commodities, order that tax in Wpc 2844/2007 & con.cases 3 respect of the estimated sales turnover shall be collected at the Check Posts at the time of import into the State at the rates specified against each commodity below: Sl.No. Commodities Rate of tax 1 Marble Slabs and Tiles 20.00% 2 Granite Slabs and Tiles 20.00% 3 Ceramic Floor and Wall Tiles including vitrified tiles 20.00% 4 Lift, Elevators and Escalators 12.50% 5 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.” On the representation of the dealers, further clarifications were issued regarding the collection of sales tax in advance as per Circular No.53/2006 dated 22.12.2006. The relevant portion of the said circular, which is produced as Ext.P2 in the writ petition is extracted below: Wpc 2844/2007 & con.cases 4 “As per Circular No.50/2006 instructions were issued for collection of Advance Tax in respect of twelve evasion-prone commodities at the entry points in to the State such as Check Posts, Ports, Airports and Railway Stations. Now it is brought to the notice of the Commissionerate that dealers are experiencing inconvenience for remitting tax at the entry point in respect of the consignment, especially where the entry point is far from the ordinary place of business. Suggestions have been put forth from the trade to permit them to remit the tax before the concerned assessing authority. This issue has been examined and the following further instructions are issued. Dealers may remit the tax on the consignments in advance before the respective assessing authority if they can provide details of the consignment such as copy of the bill/invoice, vehicle number, and name of the entry point (Check Post/Port/Airport/Railway Station) While estimating the sale price for the purpose of collecting the advance tax the assessing authority shall consider the value as disclosed in the invoice/bill, transporting charges and an estimated gross profit at 5%. In the case of stock transfer no gross profit shall be considered for the purpose of computing the sale price. On acceptance of Advance Tax, the assessing authority shall issue a certificate which specifies: details of bills/invoice, name of goods, their quantity and value as per accompanying documents, the value adopted by him for purposes of Advance Tax, details of the Advance Tax remitted, and name of the entry point in to the State. These certificates may be delivered in original or faxed to the entry point at the option of the dealer. Wpc 2844/2007 & con.cases 5 The Check Post authorities shall accept such certificates and permit the consignments to be transported after satisfying the genuineness of the certificate with reference to the consignment. Assessing authorities shall maintain a register in respect of the details of certificates issued and Check Post authorities will maintain a separate register containing the details of consignments allowed on the basis of such certificates. All officers are reminded that Advance Tax remittances shall be credited under the same Head of Account as VAT. To monitor these payments a separate register shall be maintained.” 3. 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 Exts.P3 and P4 notices dated 19.1.2007 and 22.1.2007 respectively. Feeling aggrieved by Exts.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 of direction. iii) To declare that sub-section (16A) of Section 47 of the KVAT Act and Exhibit P1 and Exhibit P2 circulars are Wpc 2844/2007 & con.cases 6 unconstitutional and invalid.” Pursuant to the interim order of this Court, the goods were released, on executing simple bond without sureties. 4. The petitioner seeks the above reliefs on the following grounds: Exts.P1 and P2 circulars are illegal and unconstitutional. They are not supported by any statutory provision and therefore, will be hit by Article 265 of the Constitution of India. Sub-section (16A) of Section 47 of the KVAT Act is ultra vires of the constitutional provisions concerning sales tax. Imposition, levy and collection of tax in advance before the sale is effected, is unconstitutional. The taxable event is the sale and collection of tax before the sale takes place is, therefore, unconstitutional. The provisions contained in Chapter V of the KVAT Act concerning assessment, collection or payment of tax do not authorise collection of tax in advance, by issuing a circular by the 1st respondent. Section 3(2)(c) authorises to issue only administrative instructions. The Commissioner of Commercial Taxes cannot exercise the statutory power of taxation, based on the said provision. This position is covered by the decision of the Division Bench of this Court in Choice Plywood Industries v. State of Kerala (2006(2) KLT 513). Sub-section (16A) of Section 47 is unconstitutional in as much as the said provision gives unlimited discretion to the Wpc 2844/2007 & con.cases 7 Commissioner in respect of taxation. On the strength of it, he can include any commodity under the category of evasion-prone commodities. The delegation in favour of the Commissioner is excessive and therefore, vitiated. Sub-section (16A) of Section 47 is violative of Articles 14, 19(1) (g), 246, 265 and 301 of the Constitution. The circulars are in excess of the constitutional powers of the State flowing from Entry 52 of List II of the 7th Schedule. The detention of the goods at the check-post is oppressive and illegal. The Division Bench of this Court has declared that entry tax is unconstitutional and invalid. In order to get over the said judgment, these circulars have been issued. Therefore, they are liable to be quashed. The levy is discriminatory in as much as the goods moving within the State are not subjected to such a disability. On the above grounds, the petitioner prayed for granting all the reliefs sought in the writ petition. 5. The respondents have filed a counter affidavit in W.P.(C) No.411/2007, which is one of the writ petitions, which are disposed of by this 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 Wpc 2844/2007 & con.cases 8 of its power under Articles 242, 245 and 246 of the Constitution of India read with Entry 54 of List II of the 7th Schedule. Entry 54 is: “Taxes on the sale or purchase of goods other than newspaper 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 reasonable impediment is created as per this provision. The collection of tax in advance is not arbitrary or unreasonable. The impugned provision or circulars do not infringe the right of the petitioners under Article 14 or Article 19(1)(g) of the Constitution of India. The section does not violate any of the constitutional provisions. The petitioners have failed to dislodge the presumption of constitutionality in favour of the statute. In taxing matters, the courts must normally respect the legislative judgment. The allegation that the issuance of the circulars is to get over the decision of the Division Bench of this Court dated 18.12.2006 in O.P.No.434/1996 and connected cases, is absolutely baseless. Some dealers transport certain commodities, using the registration numbers of the Wpc 2844/2007 & con.cases 9 Kerala dealers. Complaints regarding clandestine transport by bogus parties have been received from honest dealers in the State. In order to prevent clandestine transport of goods into the State, circular No.50/2006 was issued. The direction to pay tax in advance cannot be termed as one amounting to collection of tax from a dealer before the incidence of tax under the KVAT Act. The investigation conducted by the Department revealed that certain goods are evasion-prone and therefore, they are included in Ext.P1 circular. To enable the Commissioner to take effective steps, Section 47 was amended, introducing sub-section (16A). The circulars were issued in public interest, to safeguard the interest of the State and also the interest of honest dealers. Ext.P2 circular was issued to minimize the inconvenience caused to the dealers in bringing goods from outside. Payment of advance tax is not a new levy. No additional liability is cast on the dealer. The incidence of tax continues to be the sale of goods. The dealers are permitted to adjust the advance tax, paid in accordance with the circulars, against the tax due during the same month. The tax paid can be adjusted towards the output tax due for the month. There is no insistence that the set off shall only be against the very same items on which advance tax was paid. The dealers can pay the tax before the assessing authorities also. No honest dealer, as stated earlier, can have any Wpc 2844/2007 & con.cases 10 grievance against the circulars. There is no lack of jurisdiction for the Commissioner to issue the circulars. What is attempted to be collected in advance on the strength 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. 6. Heard Dr.K.B.Mohammedkutty, 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.Mohammedkutty 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 tax shall be paid at any point of time after the sale and before Wpc 2844/2007 & con.cases 11 the 10th of the next month. Under the K.G.S.T. Rules, advance tax is confined to the month of March alone, which is to be paid before 31st of March. There is no provision in the KVAT Act to collect tax before the sale is effected. The taxable event is sale and nobody can demand sales tax before the sale takes place. Ext.P1 circular deals with tax on estimated turnover before the sale takes place. Tax is demanded before the goods reach the destination. The circulars are ultra vires of sub-section (16A) itself. The charging section is Section 6 and the charge is on the turnover, which is attained only by sale. The circular is issued in violation of the parent provision. Collection of tax must be authorised by law and not by administrative instruction or executive fiat. The power under Section 3(2)(c) of the KVAT Act is administrative in character. 7. The learned senior counsel further submitted that sub-section (16A) suffers various constitutional infirmities. Instead of conferring delegated power on the Government, it is delegated to a person. Evasion- prone commodities is a vague concept and therefore, the provision confers unbridled power on the Commissioner. Even an honest dealer, who is dealing in goods, which are labelled as evasion-prone goods, has to pay advance tax. Sub-section (16A) suffers from the vice of excessive delegation. The impugned provision is violative of Article 14 of the Wpc 2844/2007 & con.cases 12 Constitution of India. Further, the circulars violate the freedom of trade under Articles 19(1)(g) and 301 of the Constitution of India. The Government have no jurisdiction to stop inter-State movement of goods. The goods purchased for own use are also held liable. If there is any doubt in interpreting a taxing statute, the doubt must go in favour of the assessee, submitted the learned senior counsel. 8. Learned counsel Sri.V.P.Sukumar also adopted the contentions of learned senior counsel Dr.K.B.Mohammedkutty. The learned counsel further submitted that what is demanded under the impugned circulars is entry tax, though the nomenclature of advance tax is employed. What has been prohibited by the Division Bench of this Court, is sought to be implemented in another garb, it is submitted. In the absence of any concluded sale, there cannot be any levy and collection of sales tax. Persons who do export sale only, are also bound to pay advance tax. Evasion-prone goods are 'notified goods' in the KVAT Act. But, circular 50/2006 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 Wpc 2844/2007 & con.cases 13 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 above said contentions. The learned Special Government Pleader reiterated the contentions of the 4th 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. 9. The learned counsel for the petitioners relied on the following decisions:- In re Art.143, Constitution of India, etc. (AIR 1951 SC 332), M/s.Pannalal Binjraj v. Union of India (AIR 1957 SC 397), K.T.Moopil Nair v. State of Kerala (AIR 1961 SC 552), Atiabari Tea Co. Ltd. v. The State of Assam & Others [(1961)1 SCR 809], State of Punjab v. Jullundur Vegetables Syndicate (AIR 1966 SC 1295), M/s.Devi Das v. State of Punjab (AIR 1967 SC 1895), Delhi Municipality v. B.G.S. & W Mills (AIR 1968 SC 1232), Yogesh Trading Co. v. Intelligence Officer of Sales Tax and Others (1970 KLT 154), M/s.Govind Saran Ganga Saran v. S.T.Commr. (AIR 1985 SC 1041), State of Bihar v. Harihar Prasad Wpc 2844/2007 & con.cases 14 Debuka [(1989)2 SCC 192], M/s.Goodyear India Ltd. v. State of Haryana (AIR 1990 SC 781), Sudhi v. Intelligence Officer [(1992)85 STC 337], Puri Municipal Council v. Indian Tobacco Co. Ltd. [(1996)1 SCC 293], State of Kerala v. T.C.M. Co. [1999(1) KLT 91 (SC)], Gajanana Agencies v. State of Kerala (2002(3) KLT 242), State of Kerala v. Alex George [(2005)1 SCC 299], Reliance Generators (P) Ltd. v. State of Kerala (2005(2) KLT 573), Choice Plywood Industries v. State of Kerala (2006(2) KLT 513), State of Rajasthan v. Rajasthan Chemists Assn.[(2006)6 SCC 773] and Kagaz Print-N-Pack (I) P. Ltd. v. State of Haryana [(2007)5 VST 26 (P & H)]. The learned Special Government Pleader on the other hand, relied on the decisions in R.S. Joshi v. Ajit Mills Ltd. [(1977)4 SCC 98], R.K.Garg v. Union of India [(1981)4 SCC 675], M.R.F. Ltd. v. Asst. Commissioner [1995(1) KLT 809 (FB)], State of A.P. v. McDowell & Co. (AIR 1996 SC 1627), Union of India v. Sanyasi Rao [(1996)219 ITR 330], State of Bihar v. Bihar Distillery Ltd. [(1997)2 SCC 453], Venee Corporation. v. Commissioner of Commercial Taxes (2002(1) KLT 456), State of West Bengal v. E.I.T.A. India Ltd. [(2003)5 SCC 239] and A.B.C. (India) Ltd. v. State of Assam [(2005)142 STC 88]. Wpc 2844/2007 & con.cases 15 10. Section 47(16A) reads as follows: “47. Procedure for inspection of goods in transit:-- (1) ............................................................................ (16A) Notwithstanding anything contained in this Act or the rules made there under, the Commissioner may where he deems it necessary to prevent any evasion of tax, direct that the tax in respect of the sale of any evasion prone commodities, as may specified by him, shall be paid before the date prescribed for its payment under this Act.” (Emphasis supplied) The learned counsel for the petitioners, at the time of final hearing, 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 Wpc 2844/2007 & con.cases 16 same should go in favour of the assesee. 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 (G.P.Singh – Eighth Edition), in the following words: “VISCOUNT SIMON, L.C., said: 'The golden rule is that the words of a statute must prima facie be given their ordinary meaning'. Natural and ordinary meaning of words should not be departed from 'unless it can be shown that the legal context in which the words are used requires a different meaning'. Such a meaning cannot be departed from by the judges 'in the light of their own views as to policy' although they can 'adopt a purposive interpretation if they can find in