IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.J.B.KOSHY & THE HONOURABLE MR. JUSTICE V.GIRI TUESDAY, THE 3RD FEBRUARY 2009 / 14TH MAGHA 1930 WA.No. 835 of 2007 -------------------- AGAINST THE JUDGEMENT/ORDER IN WPC.33568/2005 DTD 26.10.2006 .................... APPELLANTS / PETITIONERS: -------------------------------- 1. KERALA TEXTILE & GARMENTS DEALERS WELFARE ASSOCIATION,(REG NO.ER 677/96) NO.100-101, D.D.BAZAR, GOPALA PRABHU ROAD, ERNAKULAM, COCHIN- 682 035 REPRESENTED BY ITS GENERAL SECRETARY, SRI. K.KRISHNAN. 2. M/S SEEMATI, M.G.ROAD, ERNAKULAM REP. BY ITS MANAGER, MARIAPPAN BY ADV. SRI.A.KUMAR RESPONDENTS / RESPONDENTS: ------------------------------------ 1. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY, MINISTRY OF FINANCE, GOVT. SECRETARIAT, TRIVANDRUM. 2. THE COMMISSIONER, COMMERCIAL TAXES, TRIVANDRUM. 3. THE ASSISTANT COMMISSIONER, KVAT, SPECIAL CIRCLE-I, ERNAKULAM. GOVERNMENT PLEADER MR.MOHAMMED RAFIQ THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 03/02/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: J.B.KOSHY, Ag.CJ & V.GIRI, J. =========================== W.A.No.835 of 2007 =============================== Dated this the 3rd day of February, 2009. J U D G M E N T Koshy, Ag.CJ. Writ petitioner approached this Court for a declaration that levy of sales tax under serial No.116 of the 3rd schedule to the Kerala Value Added Tax (Amendment) Act, 2005 (in short 'the Act') on 'silk fabrics and sarees made of natural silk' conforming to HSN code 5007 while excluding all other textile fabrics from levy is arbitrary and discriminatory, violative of Articles 14, 19(1) (g) and 301 of the Constitution of India. The main contention raised before the learned Single Judge was that, since the above article was taxable under Additional Duties of Excise (Goods of Special Importance) act, 1957 (in short 'the Act'), State has no legislative competence to tax on the above goods. State can only claim a share in addition to Excise duty collected. The appellant/petitioner also relied on the observation of the Constitution Bench of the Honourable Supreme Court in Godfrey Philips India Ltd. and another v. State of U.P and Others W.A.No.835 of 2007 2 ((2005) 139 STC 537). The above contention alone was raised before us. The Second Schedule to the above Act deals with distribution of additional duties is as follows: “Distribution of additional duties: During each of the financial years commending on and after the 1st day of April, 1995, there shall be paid to each of the States specified in column (1) of the Table below such percentage of the net proceeds of additional duties levied and collected during that financial year in respect of the goods described in column (3) of the First Schedule, after deducting therefrom a sum equal to 2.203 per cent of the said proceeds as being attributable to Union territories, as is set out against it in column (2) of the said Table: Provided that if during that financial year there is levied and collected in any State a tax on the sale or purchase of the goods described in column (3) of the First Schedule, or one or more of them by or under any law of that State, no sums shall be payable to that State under this paragraph in respect of that financial year, unless the Central Government by special order otherwise directs.” We are also of the view that, a reading of the proviso itself would show that power of the State to levy sales tax is not prohibited because of the imposition of additional duties. 2. Charging Section in the Act is Section 3, which reads as follows: W.A.No.835 of 2007 3 “3. Levy and collection of additional duties- (1) There shall be levied and collected [in respect of the goods described in column (3) of the First Schedule] produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rate or rates [specified in column (4) of the said Schedule]. (2) The duties of excise referred to in sub-section (1) in respect of the goods specified therein shall be in additional to the duties of excise chargeable on such goods under the Central Excises and Salt Act, 1944, or any other law for the time being in force. [(3) The provisions of the Central Excises and Salt Act, 1944, and the rules made thereunder, including those relating to refunds and exemptions from duty, offences and penalties, shall, so far as may be, apply in relation to the levy and collection of the additional duties as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)”]. It shows that it is a tax on manufacture and storing of the goods and not on sale or purchase of goods. Section 4 mandates distribution of additional duties among States. Merely because from the additional duty collected a share is given to the State, there is no bar to the State legislature to collect sales tax. 3. In Godfrey Philips's case, Supreme Court was considering the legislative power of the State to charge luxury W.A.No.835 of 2007 4 tax on goods covered under Additional Duties of Excise Act. At paragraphs 63 and 64 of the judgment, it is stated as follows: “63. Thus Parliament has been given the overriding power to limit the rates of sales taxes which are otherwise within the exclusive competence of the States in respect of certain items of sale and purchase. The relevant clause for our purpose is clause (a) of article 286(3) which allows Parliament to enact a law declaring goods to be of special importance in inter- State trade or commerce. 64. In exercise of this power, section 14 of the Central Sales Tax Act, 1956, has declared certain goods to be of special importance in inter-State trade or commerce. This includes tobacco both in un- manufactured and manufactured form. The States have been restricted from imposing or authorizing the imposition of tax on the sale or purchase of the declared goods within the State up to a maximum limit of 4 per cent of the sale or purchase price under section 15 of the Central Sales Tax Act, 1956.” 4. It shows that the parliament can limit the rates of sales tax which are otherwise within the exclusive competence of the State in view of Article 286(3) of the Constitution. In the case of declared goods State can charge maximum up to 4% of the sale or purchase price under Section 15 of the Central Sales Tax Act. Thereafter, at paragraph 67, it is stated as follows: “67. No State can levy luxury tax on items covered by section 3 of the ADE Act in respect of goods for the same taxable event, i.e., goods stored on W.A.No.835 of 2007 5 manufacture, just by describing the goods as luxury goods. The overlapping of the powers exercised under entry 84 of List I and entry 62 of List II would then be evident. similarly storage or stocking of imported goods is covered by entry 83 of List I and cannot be made the subject of levy by the States.” 5. The Honourable Supreme Court held that the luxury tax or any other tax cannot be levied on manufacturing and storing of the goods concerned by naming it as luxury tax. Paragraph 69 reads as follows: “69. However, while widening the scope of entry 54 of List II, the powers of the State to levy such tax are subjected to a corresponding restriction as a consequence of the constitutional curbs imposed on sales tax under article 286 read with sections 14 and 15 of the Central Sales Tax Act, 1956, and the ADE Act, 1957. “The tax leviable by virtue of sub-clause (b) of clause (29A) of article 366 of the Constitution thus becomes subject to the same discipline to which any levy under entry 54 of the State List is made subject to under the Constitution. The position is the same when we look at article 286 of the Constitution. If any declared goods which are referred to in section 14 of the Central Sales Tax Act, 1956, are involved in such transfer, supply or delivery, which is referred to in clause (29A) of article 366, the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the Central Sales Tax Act, 1956”. 6. It shows that the State can charge sales tax subject to the restriction under Sections 14 and 15 of the Central Sales Tax W.A.No.835 of 2007 6 Act as provided under clause (29A) of article 366 in respect of the goods declared to be public importance. The power of the State to charge sales tax on such goods taxable under the act is already considered by various High Courts including this Court. (See Nemichand Parasmal and Co. v. The Deputy Commercial Tax Officer, Evening Bazaar, Assessment Circle, Madras and another (55 STC 47), Prime Impex Ltd. and another v. Asst. Commissioner of Commerical Tax and others (127 STC 23) and Agro-Industrial Trading Corporation v. State of Kerala (38 ELT 618 (DB)(Ker)). 7. The Honourable Supreme Court considered the specific question in State of Bihar v. Bihar Chamber of Commerce (103 STC (1) 1996). The question considered by the Honourable Supreme Court is as follows: “3. Whether the Bihar Legislature is deprived of its legislative competence to enact the impugned Act on account of the enactment of ADE Act and/or because the State of Bihar is getting a portion of the taxes levied and collected under the ADE Act?” 8. After considering the proviso to the 2nd schedule to the Act, Apex Court observed as follows: W.A.No.835 of 2007 7 “The proviso states that if during a given financial year, a State levies and collects a tax on the sale or purchase of scheduled goods or on any one or more of the scheduled goods by or under a law of that State, no sums shall be payable to that State under this paragraph in respect of that financial year, unless the Central Government by special order directs otherwise. There is no reference in the Act - or in the Statement of Objects and Reasons - to any tax other than the tax on sale or purchase of goods. There is no ambiguity in the language of the proviso to rule(2), which is a part of the statute. The ADE Act is enacted by the Parliament with reference to entry 84 in List I of the Seventh Schedule to the Constitution where as the impugned enactment is made by the State with reference to entry 52 in List II. The power to levy taxes on sale or purchase of goods is conferred upon the States and the States alone by entry 54 in List II. The Parliament cannot make a law either with reference to entry 52 or for that matter with reference to entry 54. The ADE Act is also not a law made under and with reference to article 252 of the Constitution, which article empowers the Parliament to make a law with respect to any matter mentioned in List II, if two or more States pass resolutions requesting the Parliament to make a law in that behalf. The impugned Act is also not relatable to any of the articles 249 to 253 which are in the nature of exceptions to the normal rule that Parliament can make no law with respect to the entries in List II. If so, it follows that the State Legislatures are not denuded or deprived of their power to make a law either with reference to entry 52 or with reference to entry 54 in List II. That power remains untouched and unaffected. All that the Parliament has said by enacting the ADE Act is that it will levy additional duties of excise and distribute a part of the proceeds among the States provided the States do not levy taxes on sale or purchase of the scheduled commodities. The Parliament has also provided the consequence that follows if any State levies tax on sale or purchase of W.A.No.835 of 2007 8 scheduled commodities; all that happens is that the State will be deprived of its share in the proceeds of additional duties of excise for that financial year. Even this is subject to the power of the Central Government to direct otherwise. The Parliament could not, and did not, prohibit any State from making any law or levying any tax which a State can levy by virtue of the entries in List II. The decision of this Court in State of Kerala v. Attesee (Agro Industrial Trading Corporation)[1989]72 STC 1; (1989) Supp 1 SCC 733 does bear out our understanding. At page 15 of STC (744 of SCC), this Court observed: “The 1957 Act also has a bearing on the sales tax levy of various States. By levying sales tax on an item covered by the Schedule to the 1957 Act, the State will have to forego its share on distribution of the proceeds of the additional excise duty levied. Whether it should impose sales tax on an item of declared goods, limited by the restriction in section 15 of the CST Act and at the risk of losing a share in the additional excise duty levied in respect of those very items, is for the State to determine. As pointed out by Sri.Potti, it was open to the Kerala Legislature to decide - and it did so also - than on some items there should be one or other of the levies or both of them and to modify these levies depending upon its own financial exigencies. But these factual or periodical variations do not detract from the basic reality that the policy of sales tax levy on declared goods has to keep in view, and be influenced by, the provisions of the CST Act and the 1957 Act”” 9. After detailed discussions and reference to various decisions, Honourable Supreme Court answered the question positively in favour of the revenue. State also has got a case that goods in question, covered under HSN code 5007 are not W.A.No.835 of 2007 9 directly taxable under Additional Duties of Excise Act, 1957 and State has not derived any share from it for the relevant financial year. In any event, State has legislative competence to charge sales tax subject to the restrictions in Section 15 of the CST act. In the above circumstances, we see no ground to interfere with the impugned judgment passed by the learned Single Judge and accordingly, we dismiss the writ appeal. J.B.KOSHY, ACTING CHIEF JUSTICE. V.GIRI, JUDGE. bkn/-