Case: Marikar (Motors) Limited, Trivandrum Vs. Sales Tax Officer, Special Circle, Trivandrum

Sales Tax Act, 1125, is beyond the competence of the State Legislature and is invalid.On behalf of the respondent, the Solicitor-General referred to the decision of this Court in Instalment Supply (P.) Ltd. and Another v. The Union of India and Others ([1962] 2 S.C.R. 644; 12 S.T.C. 489], but the material facts of that case are different. The question which arose for consideration in that case was the constitutional validity of section 24 of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi State which provided as follows :-"Sale means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge.Explanation 1. - A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale."5. It was argued that the explanation had the effect of extending the concept of "sale" to what, in law, was not a real sale, but only an incipient or inchoate sale, and that in so far as the law had extended the definition of "sale" it was unconstitutional. The argument was rejected by this Court. It was pointed out that under Article 246(4) of the Constitution it was Parliament which had the power to legislate for Part C States, that the power was untrammelled by the limitations prescribed by Article 246, clauses (2) and (3), and Entry 54 of List II, that the power of Parliament was plenary and absolute subject only to such restrictions as are imposed by the Constitution, and there was none material to the present question. It was, therefore, competent for Parliament to impose a tax on hire-purchase transactions and impose it under the name of sales tax. In Mithan Lal v. The State of Delhi and Another ([1959] S.C.R. 445; 9 S.T.C. 417), a similar question arose whether Parliament can enact a law imposing tax on the supply of materials used in building contracts. It was held by this Court for the same reasons that it was within the competence of Parliament to impose such a tax and the decision in The State of Madras v. Gannon Dunkerley & Co. (Madras) ltd. ([1959] S.C.R. 379; 9 S.T.C. 353), was held inapplicable. That decision was given on a statute passed by the Provincial Legislature under the Government of India Act, 1935, and it was pointed out in that case that the power of the Provincial Legislature to impose a tax on sales under Entry 48 in List II so Schedule VII of the Government of India Act, 1935, did not extend to imposing a tax on the value of material in building contracts which are entire and indivisible.The second argument of the appellant was that the Kerala Surcharge on Taxes Act, 1957, as amended by Kerala Act 12 of 1960 was discriminatory in character and violated the provisions under Article 14 of the Constitution. It was stated that levy of surcharge on those whose turnover was above Rs. 30, 000 resulted in illegal discrimination against those whose turnover exceeded that amount, especially when the surcharge cannot be passed on to the consumer. It was contended that the classification was based on no intelligible criteria and there was no nexus with the objects sough to be be achieved by the Act. Section 3 of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) states as follows :"3. Levy of surcharge on sales and purchase taxes :(1) The tax payable under the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, shall, in the case of a dealer whose turnover exceeds thirty thousand rupees in a year, be increased by a surcharge at the rate two and a half per centum of the tax payable for that year and the provisions of the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, shall, as the case may be, apply to the levy and collection of the said surcharge :Provided that where in respect of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956, the tax payable by such dealer under the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, together with the surcharge payable under this sub-section, exceeds two per centum of the sale or purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed two per centum of the sale or purchase price.(2) Notwithstanding anything contained in sub-section (1) of section 11 of the Travancore-Cochin General Sales Tax Act, 1125, or in sub-section (1) of section 8B of the Madras General Sales Tax Act, 1939, no dealer referred to in sub-section (1) shall be entitled to collect the surcharge payable under the said sub-section."6. It is conceded that the 2 1/2 per cent. levy referred to in section 3(1) has been increased by section 2 of the Kerala Surcharge on Taxes (Amendment) Act, 1960 (Kerala Act 12 of 1960). After arguing the point for some time Mr. Niren De conceded that in the writ petitions necessary particulars with regard to challenge under Article 14 of the Constitution have not been pleaded and proper materials have not been placed before the High Court in support of this contention. Mr. Niren De ultimately said that he did not wish to press this argument in the present case.7. For the reasons already given, we consider that the orders of assessment of sales tax made by the respondent for the two assessment years 1960-61 and 1961-62 are illegal in so far as the hire-purchase transactions are included in the computation of the taxable turnover of the appellant.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The argument put forward on behalf of the appellant isand must be accepted as correct.For the reasons already given, we consider that the orders of assessment of sales tax made by the respondent for the two assessment years62 are illegal in so far as thetransactions are included in the computation of the taxable turnover of the appellant.