(2015) 440 KLW 368
IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.K.JAYASANKARAN NAMBIAR, J.
W.P.(C).NOS.13384, 13966, 15341, 15578, 15989, 16203, 16427, 16475, 16587, 16858, 18048, 18148, 19940, 21197, 21198, 24400, 29251, 33152, 33336, 33337, 33338 & 34237 OF 2014, W.P.(C).NOS.967, 1272, 2399, 2641, 2684, 2867, 2868, 2869, 2882, 3003, 3031, 3074, 3240, 3242, 3243, 3465, 3476, 3521, 3522, 3561, 3600, 3715, 3716, 3717, 3861, 3862, 3863, 3864, 4132, 4133, 5461, 5854, 6046, 6244, 6328, 6337, 12201, 12202, 12215, 15890, 19666, 19667, 19669, 19832, 21338, 22819, 23753, 23762, 25340, 28026, 30223, 30522, 30726 & 31503 OF 2015
Dated this the 25th day of November, 2015
PETITIONER(S)
1. KERALA TEXTILE AND GARMENTS DEALERS WELFARE ASSOCIATION, NO.100, 101, D.D.BAZAR, GOPALAPRABHU ROAD, ERNAKULAM, KOCHI-682 035, REPRESENTED BY ITS GENERAL SECRETARY SRI.K.KRISHNAN.
2. KALYAN SILKS TRICHUR PVT. LTD. 4/621/2/, KURIACHIRA, TRICHUR-680006, REPRESENTED BY ITS MANAGING DIRECTOR T.S.PATTABHIRAMAN.
3. M/S.JAYALAKSHMI, M.G.ROAD, ERNAKULAM, REPRESENTED BY ITS MANAGING PARTNER, N.NARAYANA KAMATH.
4. FASHION FABRICS, POST OFFICE LINK ROAD, ERNAKULAM, KOCHI-682 031, REPRESENTED BY ITS PARTNER, DEEPAK N.RUPAREL.
5. PARIMAL TEXTILES, GOPALAPRABHU ROAD, ERNAKULAM-682 031, REPRESENTED BY ITS PARTNER KETAN P.LAKSHANI.
6. M/S.V.J.PRABHU, CHERLAI BAZAR, MATTANCHERY, KOCHI-682 002, REPRESENTED BY ITS PARTNER, SATISH S.PRABHU.
7. P.L. PAULY, PROPRIETOR, PANTHALLOOKARAN SILKS AND SAREES, MAIN ROAD, KODAKARA, TRICHUR-680 684.
8. M/S. T.S.KALYANARAMA IYER, POST OFFICE ROAD EAST, TRICHUR-680 001, REPRESENTED BY ITS MANAGING PARTNER, T.A.SREEKANTH.
9. SWAPNA SALES CORPORATION, MARKET ROAD, ERNAKULAM-682 035, REPRESENTED BY ITS MANAGING PARTNER, JOY JOSEPH.
10. REGI B.CHERUVATHOOR, PROPRIETOR, KERALA VASTHRALAYAM, PATTAMBI ROAD, KUNNAMKULAM-680 503.
11. PRESTEEGE TEXTILE DISTRIBUTORS, DEVI COMPLEX, DORAISWAMY IYER ROAD, KOCHI-682 035, REPRESENTED BY ITS PARTNER, RAJEEV V.ASWANI.
BY SRI.V.V.ASOKAN (SENIOR ADVOCATE) ADVS. SRI.K.I.MAYANKUTTY MATHER SRI.M.JAFARKHAN
RESPONDENT(S)
1. STATE OF KERALA, REPRESENTED BY ITS CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM- 695 001.
2. COMMISSIONER OF COMMERCIAL TAXES, OFFICE OF THE COMMISSIONER OF COMMERCIAL TAXES, 8TH FLOOR, KARAMANA, THIRUVANANTHAPURAM- 695 002.
3. PRINCIPAL SECRETARY, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM- 695 001.
4. EMPOWERED COMMITTEE OF STATE FINANCE MINISTERS, REPRESENTED BY ITS MEMBER SECRETARY, ROOM NO.603 B WING, IP ESTATE, CENTRAL SECRETARIAT, NEW DELHI-110 002.
5. UNION OF INDIA, REPRESENTED BY REVENUE SECRETARY, CENTRAL SECRETARIAT, NEW DELHI-110 002.
6. DEPUTY COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM - 682 015.
7. DEPUTY COMMISSIONER, COMMERCIAL TAXES, TRICHUR-680 001.
8. ASSISTANT COMMISSIONER, SPECIAL CIRCLE, COMMERCIAL TAXES, TRICHUR-680 004.
9. ASSISTANT COMMISSIONER, COMMERCIAL TAXES, SPECIAL CIRCLE II, ERNAKULAM, KOCHI-682 015.
10. COMMERCIAL TAX OFFICER, KVAT CIRCLE III, ERNAKULAM - 682 015.
11. COMMERCIAL TAX OFFICER, 1ST CIRCLE, MATTANCHERRY, KOCHI-682 002.
12. COMMERCIAL TAX OFFICER, KUNNAMKULAM -680 503.
13. COMMERCIAL TAX OFFICER, CHALAKKUDY - 680 307.
R1 TO R3 & R6 TO R13 BY GOVT. PLEADER SRI.GEORGE MECHERIL R4 & R5 BY SRI.N.NAGARESH, A S G OF INDIA
J U D G M E N T
In this batch of writ petitions, the petitioners challenge the levy of Turnover Tax on Textile articles, that was introduced in the KVAT Act [hereinafter referred to as the 'KVAT Act'], with effect from 01.04.2014 and continued in the statute book till 01.04.2015, with effect from which date, it was omitted therefrom. The provision was introduced through the Kerala Finance Bill of 2014 and, by virtue of a notification under the Kerala Provisional Collection of Taxes Act, came into force with effect from 01.04.2014. Thereafter, it assumed a modified form when the Kerala Finance Act, 2014 was enacted on 23.07.2014, with effect from 01.04.2014. With effect from 01.04.2015, the levy of turnover tax on textile articles was omitted and the goods were made taxable under the KVAT Act @ 1% under II Schedule to the KVAT Act. Before dealing with the grounds of challenge raised in the writ petitions, therefore, I feel it would be apposite to notice the provisions as they stood, when introduced through the Finance Bill and thereafter, when they were amended and enacted through the Finance Act.
The Kerala Finance Bill, 2014
“6A. Payment of turnover tax on textile articles:-
Notwithstanding anything contained in section 6, every dealer whose total turnover of the previous year is above rupees one crore shall pay turnover tax at the rate of two percent, on the turnover of sale of textile articles included in the First Schedule”
The Kerala Finance Act, 2014
“6A. Payment of turnover tax on textile articles:-
Notwithstanding anything contained in section 6, every dealer shall pay turnover tax at the rate of two percent on the turnover of sale of textile articles, included in serial numbers 17A, 46A and 51 of the First Schedule:-
Provided that a dealer whose turnover of sale of such textiles in the State for the previous year is below rupees one crore, shall not be liable to pay turnover tax under this section:-
Provided further that this levy would be applicable even if, the constitution of the business has been changed in the current year to proprietorship, firm or association of persons consisting of the proprietor, partner, director or persons of the dealer for the previous year;”
2. The relevant entries in Schedule I of the KVAT Act, during the relevant period, read as follows:-
________________________________________________________________________
Sl.No. Description of goods HSD No.
________________________________________________________________________
(1) (2) (3)
________________________________________________________________________
[17A. Embroidery or zari articles, that is to say, imi, zari, kasab, saima dabka, chumki, gota sitara, naqsi, kora, glass bead, badia
(1) Embroidery without visible ground 5810.10.00
(2) Other embroidery of cotton 5810.91.00
(3) Embroidery of man made fibres
(a) Embroidered badges, motifs and the like 5810.92.10
(b) Other embroidered articles 5810.92.90
(4) Embroidery of other taxtile materials 5810.99.00
(5) Zari articles
[46A. Silk fabrics and sarees made of natural silk 5007
51. Textile fabric
(1) Wool
(a) Woven fabrics of carded wool or of carded fine animal hair 5111
(b) Woven fabrics of carded wool or of carded fine animal hair 5112
(c) Woven fabrics of coarse animal hair or of horse hair 5113
(2) Cotton
(a) Woven fabrics of cotton containing 85% or more by weight of 5208 cotton weighing not more than 200 gm/m2
(b) Woven fabrics of cotton containing 85% or more by weight of cotton weighing more than 200 gm/m2 5209
(c) Woven fabrics of cotton containing less than 85% by weight of cotton, mixed mainly or solely with man made fibres, weighing not more than 200 gm/m 5210
(d) Woven fabrics of cotton containing less than 85% by weight of cotton, mixed mainly or solely with man made fibres, weighing more than 200 gm/m2 5211
(e) Other woven fabrics of cotton 5212
(3) Woven fabrics of Flax 5309
(4) Woven fabrics of jute or of other textile base fibres 5310
(5) Woven fabrics of other vegetable textile fibres; woven fabrics of paper yarn 5311
(6) Man-made filaments
(a) Woven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of HSN heading 5404 5407
(b) Woven fabrics of artificial filament yarn, including woven fabrics obtained from material of HSN heading 5405 5408
(7) Man-made Staple Fibres
(a) Woven fabrics of synthetic staple fibres, contained 85% or more by weight of synthetic staple fibres 5512
(b) Woven fabrics of synthetic staple fibres, containing less than 85% by weight of such fibres, mixed mainly or solely with cotton, of a weight not exceeding 170m2 5513
(c) Woven fabrics of synthetic staple fibres, containing less than 85% by weight of such fibres, mixed mainly or solely with cotton, of a weight exceeding 170m2 5514
(d) Other woven fabrics of synthetic staple fibres 5515
(e) Woven fabrics of artificial staple fibres 5516
(8) Special Woven fabrics; Tufted textile fabrics; Lace, Tapestries, Trimmings; Embroidery
(a) Woven pile fabrics and chennile fabrics other than HSN heading nos. 5802 or 5806 5801
(b) Terry towelling and similar woven terry fabrics other than narrow fabrics of HSN heading no.5806; tufted textile fabrics other than HSN heading no.5703. 5802
(c) Gauze other than narrow fabrics of HSN heading No.5806 5803
(d) Tullies and other net fabrics not including woven, knitted or crochetted fabrics; lace in the piece, in strips or in motifs, other than fabrics of HSN heading Nos.6002 to 6006 5804
(e) Hand woven tapestries of the type gobeline, flanders, aubusson, beauvals and the like and needle worked tapestries (for example petit point, cross stitch), whether or not made up 5805
(f) Narrow woven fabrics other than goods HSN heading No.5807 narrow fabrics consisting warp without weft assembled by means of an adhesive (bolducs) 5806
(g) Woven fabrics of metal thread and woven fabrics of metalised yarn of HSN heading No.5605 of a kind used in apparel as furnishing fabrics of a similar purposes, not elsewhere specified or included 5809
(9) Textile fabrics coated with gum or amylaceous substances, of a kind used for the outer covers of the books or the like; Tracing cloth; Prepared painting canvas; Buckram and similar stiffened textile fabrics of a kind used for hat foundations 5901
(10) Tyre cord fabric of high tenacity yarn or other polymers, polyesters or viscose rayon 5902
(11) Textile wall coverings 5905
(12) Rubberised textile fabrics, other than tyre cord fabrics of high tenacity yarn or nylon or other polyamides polyesters or viscose rayon 5906
(13) Textile fabrics, otherwise impregnated, coated or covered; painted canvas being theatrical scenery, studio backcloths or the like 5907
(14) Knitted or chrocheted fabrics
(a) Pile fabrics, including 'long pile' fabrics and terry fabrics, knitted or chrocheted 6001
(b) Knitted or chrocheted fabrics of a width not exceeding 30 cm, containing by weight 5% or more of elasto meric yarn of rubber thread, other than those of HSN heading No.6001 6002
(c) Knitted of chrocheted fabrics of a width not exceeding 30 cm, other than those of HSN heading Nos.6001 or 6002 6003
(d) Knitted of chrocheted fabrics of a width exceeding 30cm, containing by weight 5% or more of elasto meric yarn or rubber thread, other than those of HSN heading No.6001 6004
(e) Wrap knitt fabrics (including those made on gallon knitting machines), other than those of HSN heading Nos.6001 to 6004 6005
(f) Other knitted or chrocheted fabrics 6006
3. The petitioners challenge the levy of turnover tax under Section 6A of the KVAT Act on various grounds. The grounds of challenge against the levy, as discernible from the pleadings in the writ petitions and the submissions made by counsel for the petitioners at the time of hearing can be summarised as follows:-
(i) The levy of turnover tax on textile articles, which levy is attracted to the turnover of sale of specified textile articles of those dealers whose total turnover for the previous year was more than Rupees one crore, is ultra vires the provisions of the KVAT Act of which it forms a part. The levy militates against the concept of a value added tax, which is a tax on value addition, more so when there is no provision enabling the dealer in question to avail input tax credit and further, there is a prohibition against collecting the tax so paid from the purchaser.
(ii) The levy is essentially a tax on income since the statutory provisions do not permit a passing on of the tax to the purchaser and the tax is to be borne by the selling dealer. The state legislature does not, therefore, have the legislative competence to levy such a tax.
(iii) Inasmuch as a dealer paying turnover tax has to absorb the tax and include the tax element in his costs, he is forced to increase the price of the goods sold by him and thereby his goods become less attractive to customers. This puts him at a disadvantage when compared to other dealers trading in the same commodity and therefore affects his rights under Article 19(1)(g) of the Constitution. To that extent, therefore, the levy is confiscatory in nature. [See:-
Raja Jagannath Baksh Singh v. State of U.P. and Another [1962 KHC 614]
(iv) The criteria specified under the Act, for attracting the levy of turnover tax, is the total turnover of the dealer crossing the threshold of Rupees one crore in the previous year. As the definition of total turnover under Section 2 (lii) of the KVAT Act includes even the turnover relating to inter-state sale of goods, sales in the course of export, as also sales of goods declared to be of special importance, as specified in Section 14 of the Central Sales Tax Act [hereinafter referred to as the 'CST Act'], the levy falls foul of the provisions of Article 286 of the Constitution of India, read with Sections 14 and 15 of the CST Act.
(v) There is no separate machinery provision dealing with the filing of returns and payment of the turnover tax under Section 6A of the KVAT Act. There is also no clarity regarding the manner in which the taxable turnover is to be determined. In the absence of a machinery provision, therefore, the levy itself must fail. [See:-
Municipal Council, Khurai and Another v. Kamal Kumar and Another [AIR 1965 SC 1321];
M/s.Govind Saran Ganga Saran v. Commissioner of Sales Tax and others [AIR 1985 SC 1041];
Cochin Cadalas (P) Ltd. v. State of Kerala [[2008] 16 VST 319 (Ker)];
Heinz India Pvt. Ltd. and Another v. State of U.P. and Others [[2012] 50 VST 13 (SC)].
(vi) There is no such levy in any other State in India. The VAT laws in the various states in India having been rationalized so as to ensure a uniform system of VAT in all states, it was not open to the State legislature to make a departure from the understanding arrived at between the various states, as disclosed in the white paper drawn up at the meeting of empowered chief ministers of the various states. Further, the VAT Laws in India having been implemented to give effect to the obligations of the Central Government pursuant to the GATT agreement to which India was a signatory, the Central Government directive, as discernible from the white paper referred to above, was binding on the State Government and the State Legislature could not have enacted a law contrary to the said directions of the Central Government. [See:-
Maganbhai Ishwarbhai Patel v. Union of India and Another [AIR 1969 SC 783]; etc.]
(vii) Even if the provision was constitutionally valid, there could not have been a collection of tax as per the provisions of the Finance Bill 2014 since, Section 5 of the Kerala Provisional Collection of Taxes Act would be attracted to the facts of the instant writ petitions.
(viii) The State Legislature had, recognizing the difficulties faced by the trading community, and with a view to streamlining the levy so as to make it compatible with the concept of value added tax, omitted the provisions of Section 6A of the KVAT Act with effect from 01.04.2015 and made the goods taxable under the KVAT Act @ 1% under Schedule II to the KVAT Act. As the amendment was curative in nature, the amended provisions should be seen as having retrospective effect from 01.04.2014.
(ix) As the law was in a state of flux during the year 2014-2015, and there were amendments made to the provisions of the Kerala Finance Bill, 2014 while it matured into the Kerala Finance Act, 2014, the non-compliance with the provisions of the Act during the said period could not have visited the dealers with penal consequences as it could not be said that there was any willful default committed by the dealers with a view to evade payment of tax.
4. I have heard learned Senior Counsel Sri. Mohammedkutty and Sri. K.Srikumar, and learned counsel Sri. Mayankutty Mather, Sri. Azeez, Sri. Mohammed Rafiq and Smt. Latha for the petitioners in these writ petitions. I have also heard the learned Special Government Pleader Sri. George Mecheril, for the respondents in all these writ petitions.
5. As already noticed, the main contention in these writ petitions is as regards the legislative competence of the State Legislature to introduce Section 6A in the KVAT Act with effect from 01.04.2014. The levy was in force only till 01.04.2015, on which date the provision was omitted from the KVAT Act. The levy was of a turnover tax, at a specified rate of 2%, on the turnover of sale of specified textile articles that were included in Schedule I to the KVAT Act, and the levy was to operate in respect of such dealers in the specified textile articles, whose total turnover in the previous year, of such textile articles, exceeded a sum of Rupees one crore. The challenge on the ground of legislative competence is multi-pronged and it would be necessary to deal with each of these arguments separately. Before dealing with the various arguments, however, it would be apposite to recall the limitations of judicial power in this jurisdiction as delineated by Mr. Justice Julius Stone of the Supreme Court of the United States in
United States v. Butler - [80 L.Ed 477]
in the following words:-
“The power of courts to declare a statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness. One is that courts are concerned only with the power to enact statutes, not with their wisdom. The other is that while unconstitutional exercise of power by the executive and legislative branches of the Government is subject to judicial restraint, the only check upon our own exercise of power is our own sense of self-restraint. For the removal of unwise laws from the statute books appeal lies not to the courts but to the ballot and to the process of democratic Government.”
6. The said observations were quoted with approval by our Supreme Court in
Murthy Match Works v. Assistant Collector of Central Excise - [(1974) 4 SCC 428].
It is, therefore, with the above caveat in mind that I now proceed to consider the arguments advanced on behalf of the petitioners. The argument that the impugned levy is not a tax on sale of goods but on the income of the petitioners and is, therefore, beyond the legislative competence of the state legislature.
7. The petitioners would firstly contend that the levy is essentially a tax on the income of the petitioners and therefore, cannot be justified as a levy of a tax on the sale or purchase of goods as enumerated in Entry 54 of List II of the Seventh Schedule to the Constitution. It is pointed out that while a sales tax is recognised as an indirect tax, where the incidence of tax is on the dealer but the impact of the tax on the customer, to whom the dealer is entitled to pass on the tax, the present levy of turnover tax is hedged in by a condition that the dealer will not pass on the tax to the customer. It is further pointed out that, while under the KVAT Act, a dealer is entitled to set off the tax paid on the commodity at the time of purchase within the state (input tax), against the tax paid by him on the sale of the commodity (output tax), the levy of turnover tax is hedged in with a further condition that a set off of input tax will not be permitted against the payment of turnover tax. These aspects, according to the petitioners, make the levy, effectively, a tax on the income of the petitioners, and not on the sale effected by the petitioners and, therefore, beyond the legislative competence of the State Legislature.
8. To appreciate the arguments of the learned counsel for the petitioners, it is necessary to first understand the scheme underlying the division of legislative powers between the Centre and the States under the Constitution. The legal position was succinctly summed up by a Constitution Bench of the Supreme Court in
M.P.V.Sundaramaier and Co. v. State of Andhra Pradesh – [1958 (9) STC 298]
as follows:-
“1. In List I, entries 1 to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second.
2. In List II, entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes.
3. Taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of article 248, clauses (1) and (2) and of entry 97 in List 1 of the Constitution. Under the scheme of the entries in the Lists, taxation is regarded as a distinct matter and is separately set out.
4. The entries in the Legislative Lists must be construed broadly and not narrowly or in a pedantic manner.
5. The entries in the two Lists-List I and II must be construed, if possible, so as to avoid conflict. Faced with a suggested conflict between entries in List I and List II, what has first to be decided is whether there is any conflict. If there is none, the question of application of the non-obstante clause “subject to” does not arise. And, if there be conflict, the correct approach to the question is to see whether it was possible to effect a reconciliation between the two entries so as to avoid a conflict and overlapping. Illustration If it is possible to construe entry 42 in List I as not including tax on inter-state sales it should be so construed and the power to levy such tax must be held to be included in entry 54 in List II (entries as they existed pre-Forty Second Amendment, 1976) (see
Governor General in Council v. Province of Madras, AIR 1945 PC 98,
and
Province of Madras v. Boddu Paidanna and sons, AIR 1942 PC 33; [1938- 50] 1 STC 104].
6. In the event of a dispute arising it should be determined by applying the doctrine of pith and substance to find out whether between two entries assigned to two different legislatures the particular subject of the legislation falls within the ambit of the one or the other. Where there is a clear and irreconcilable conflict of jurisdiction between the Centre and a provincial legislature it is the law of the Centre that must prevail.”
9. The said legal position continues to hold the field even today. The question to be considered then is whether, the levy of turnover tax under Section 6A of the KVAT Act, which purports to be a levy of tax on the sale of goods, traceable to Entry 54 of List II, would cease to be such solely on account of the fact that the measure of the tax is determined with reference to the sales turnover of the goods, that also constitutes the income of the selling dealer. An answer to that question requires an analysis of the principles that are to be applied while determining the validity of tax legislations. A constitution bench of the Supreme Court in
R.K.Garg v. Union of India – [(1981) 4 SCC 675]
has emphasized the need for greater latitude being allowed to the legislature in economic matters because it has to deal with complex problems that do not admit of solution through doctrinaire or straitjacket formula. In this field the court should feel more inclined to give judicial deference to legislative judgment. The Supreme Court approved the following observations of Frankfurter J in
Morey v. Doud – [1957 (354) US 457];
“In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events, self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.”
10. One has also to keep in mind the distinction between the nature of a tax and its measure. A tax has two elements namely, (i) the person, thing or activity on which the tax is imposed – the subject of the tax, and (ii) the amount, or measure, of the tax. The amount may be measured in many ways but the distinction between the subject matter of the tax and the standard by which the amount of tax is measured cannot be lost sight of. The standard adopted as a measure of the levy may be indicative of the nature of the tax but it does not necessarily determine it. The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of the tax. When deciding an issue of legislative competence in relation to a taxing statute, the court is required to determine whether the nature of the tax is such that it does not fall within the fields of legislation that are earmarked for the legislature concerned. In
Ralla Ram v. Province of East Punjab - [AIR 1949 FC 81],
the Federal Court held that a tax on buildings under section 3 of the Punjab Urban Immovable Property Tax Act, 1940, measured by a percentage of the annual value of such buildings, remained a tax on buildings even though the measure of annual value of a building was also adopted as a standard for determining income from property under the Income-tax Act. The same standard was adopted as a measure for the two levies, yet the levies remained separate imposts by virtue of their distinctive nature. The measure adopted, it was held, could not be identified with the nature of the tax levied. In
Sainik Motors v. State of Rajasthan [[1962] 1 SCR 517],
a tax on passengers and goods was assessed as a rate on the fares and freights payable by the owners of the motor vehicles. The contention that the levy was a tax upon income and not upon passengers and goods was repelled by the Supreme court. The court pointed out that though the measure of the tax is furnished by the fares and freights it does not cease to be a tax on passengers and goods. In
D.G. Gose and Co. (Agents) P. Ltd. v. State of Kerala [[1980 2 SCC 410],
the Supreme court examined the different modes available to the Legislature for measuring the levy of tax on buildings. The court upheld the provision made by the Legislature linking the levy with the annual value of the building and prescribing a uniform formula for determining its capital value and for calculating the tax. In
Hinger- Rampur Coal Co. Ltd. v. State of Orissa [[1961] 2 SCR 537],
the form in which the levy was imposed was held to be an impermissible test for defining in itself the character of the levy. It was argued that the method of determining the rate of levy was by reference to the minerals produced by the mines and, therefore, it was a levy in the nature of a duty of excise. The Supreme court held that the method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances. Referring to
Union of India v. Bombay Tyre International Ltd. [[1983] 4 SCC 210],
the court further held that it is clear that when enacting a measuring to serve as a standard for assessing the levy, the Legislature need not contour it along lines which spell out the character of the levy itself. A broader based standard of reference is permissible to be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy.
11. The above decisions were considered by a Constitution Bench of the Supreme Court in
State of West Bengal v. Kesoram Industries Limited – [2004 (266) ITR 721 (SC)]
to hold that the mechanism and method chosen by the Legislature for quantification of a tax is not decisive of the nature of the tax though it may constitute one relevant factor out of many for throwing light on the general nature of the tax. It may happen sometimes that a levy, purportedly on the sale of goods, is so excessive that it blurs the distinction between a tax on sale and a tax on income. In such cases, the measure of the levy would be a relevant factor in deciding the true nature of the levy.
12. In the context of levy of turnover tax, a division bench of this Court in
Das Agencies and Another v. State of Kerala - [1988 (69) STC 44 (Ker)]
went into the issue of legislative competence of the State legislature to levy a tax on turnover. The court upheld the levy by finding that the nature of the levy was such that it was a tax on the sale of goods that could be traced to Entry 54 of List II. While reaching the said conclusion, this court relied on the decisions of the Supreme Court in
S. Kodar v. State of Kerala - [1974 (34) STC 73 (SC)]
and
Hoechst Pharmaceuticals Ltd. v. State of Bihar – [(1983) 4 SCC 45].
While the decision of the Supreme Court in the case of S. Kodar (Supra) has since been referred to a seven member bench for a consideration of the issue of whether the State Legislatures have the legislative competence to impose a surcharge on the total amount of sales tax payable by a dealer, this court has necessarily to follow the above decisions in compliance with the principles of judicial discipline. Besides, the levy in the instant case is not in the nature of a surcharge on sales tax.
13. Applying the tests stated above to the legislative provision impugned in these writ petitions, it is seen that the levy contemplated under Section 6A of the KVAT Act is essentially in the nature of a tax levied on the sale of specified goods, that were earlier enjoying an exemption from tax under the KVAT Act, under circumstances where the selling dealer has crossed a threshold turnover of Rupees one crore in the previous year in respect of the said goods. The rate of tax is 2% and, there is no material on record to suggest that the measure of the tax is so excessive that it assumes the nature of a tax on income. The contention of the petitioners that the levy is confiscatory in nature and violates their rights under Article 19(1)(g) of the Constitution cannot therefore be legally sustained. Besides, merely because the legislature, in its wisdom, has chosen not to permit the dealer in question to pass on the tax to his customer, the tax does not cease to be a tax on the sale of goods. As already noticed, this Court is not to concern itself with the reasons that weighed with the legislature in choosing to insist on a dealer paying the tax to bear the tax burden. The wisdom of the legislature in enacting such a measure cannot be gone into by this court. It is also relevant to note that many Constitution Bench decisions of the Supreme Court [See:-
Tata Iron & Steel Company v. Bihar State - [AIR 1958 SC 452];
Konduri Buchirajalingam v. State of Hyderabad & Ors – [AIR 1958 SC 756];
George Oakes Pvt. Ltd. v. State of Madras - [1961 (12) STC 476 (SC)]
have held that it is not a necessary concomitant of a sales tax that it should necessarily be passed on to the buyer. From the point of view of an economist and as an economic theory, sales tax may be an indirect tax on the consumers, but legally it need not be so. In the instant case, the tax is one that is imposed on the sale of specified goods by specified dealers and, therefore, well within the legislative competence of the State Legislature. Further, the tax is one that is imposed only in relation to a specified category of dealers whose turnover exceeds the threshold limit of Rupees one crore, and by that yardstick, in relation to those persons who enjoy a position of economic superiority. The challenge in the writ petitions, to the validity of the levy on this ground, as also on the ground of alleged violation of the rights of the petitioners under Article 19 of the Constitution therefore fails, and is accordingly rejected. The argument that the impugned levy is not in consonance with the scheme of Value Added Tax that is contemplated under the KVAT Act, and against the understanding arrived at between the Centre and the States in the White Paper on State Level Value Added Tax drawn up by the Empowered Committee of State Finance Ministers 14. It is the contention of the petitioners that the impugned levy is one that goes against the very concept of a value added tax as envisaged under the KVAT Act. It is pointed out that an empowered committee of State Finance Ministers was constituted by the Ministry of Finance, Government of India, on the basis of a resolution adopted in the conference of Chief Ministers on November 16,1999, for the purpose of arriving at a consensus with regard to the basic design of the State Level Value Added Tax that was to be introduced in the various states. It is stated that the States, through discussions in the empowered committee had found it in their interests, to avoid unhealthy competition and have certain features of VAT to be common for all the states. These features included, inter alia, the abolition of taxes such as turnover tax, surcharge on sales tax, additional surcharge etc so as to avoid a multiplicity of taxes in the various states. The scheme also contemplated the grant of set-off of the tax paid earlier through the concept of input tax credit/rebate, so that the levy of tax would be on the value addition. The impugned levy, it is contended, goes against the express understanding arrived at between the State Governments at the empowered committee, as stated in the White Paper drawn up by the empowered committee, and is therefore one that the State Legislature could not have introduced in the KVAT Act. It was also contended, on behalf of some of the petitioners, that the White Paper drawn up by the empowered committee should be seen as an executive decision of the Central Government giving effect to the GATT Treaty proposals to which India was a signatory, and therefore a law traceable to Article 73 of the Constitution.
15. I am not impressed with the said contention of the petitioners. While it may be a fact that there was an express understanding between the various State Governments that the provisions of the VAT legislations in the respective states would have some common features, a legislative provision that is introduced by one of the States cannot be struck down on the ground that it goes against the State Government’s commitment to an empowered committee. One cannot attribute mala fides to a legislature while considering the validity of a legislative provision. The contention that the legislative provision goes against a law made by the Central Government in exercise of its executive power, to give effect to a treaty obligation, also does not appeal to me as persuasive since it is trite that a law purporting to give effect to an international treaty obligation of the country has, if it has the effect of changing the domestic law of the country, to be by way of legislation and not by way of executive orders. A constitution bench of the Supreme Court in
Maganbhai Ishwarbhai Patel etc. v. Union of India and Another – [(1970) 3 SCC 400]
has stated the legal position succinctly after referring to well settled principles of International Law, as well as the decision of the Judicial Committee in
Attorney General for Canada v. Attorney General for Ontario and others – [LR (1892) AC 491].
At paragraphs 80 and 81 of the judgment, it is stated as follows;
“80. The Judicial Committee in Attorney-General for Canada v. Attorney-General for Ontario and Others (supra), made some observations in the context of a rule applicable within the British Empire, which are pertinent:-
“It will be essential to keep in mind the distinction between (1) the formation, & (2) the performance, of the obligations constituted by a treaty, using that word as comprising any agreement between two or more sovereign States. Within the British Empire there is a well-established rule that the making of a treaty is an executive act, while the performance of its obligations if they entail alteration of the existing domestic law, requires legislative action. Unlike some other countries, the stipulations of a treaty duly ratified do not within the Empire, by virtue of the treaty alone, have the force of law. If the national Executive, the Government of the day, decide to incur the obligations of a treaty which involve alteration of law they have to run the risk of obtaining the assent of Parliament to the necessary statute or statues. * * * Parliament, no doubt, * * * has a constitutional control over the Executive; but it cannot be disputed that the creation of the obligations undertaken in treaties and the assent to their form and quality are the function of the executive alone. Once they are created, while they bind the State as against the other contracting parties, parliament may refuse to perform them and so leave the State in default.”
These observations are valid in the context of our constitutional set up. By Article 73, subject to the provisions of the Constitution, the executive power of the Union extends to the matters with respect to which the Parliament has power to make laws. Our Constitution makes no provision making legislation a condition of the entry into an international treaty in times either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance with the Constitution. The Executive is qua the State competent to represent the State in all matters international and may by agreement, convention or treaties incur obligations which in international law are binding upon the State. But the obligations arising under the agreement or treaties are not by their own force binding upon Indian nationals. The power to legislate in respect of treaties lies with the Parliament under Entries 10 and 14 of List I of the Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement operates to restrict the rights of citizens or others or modifies the laws of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty.
81. The argument raised at the Bar that power to make treaty or to implement a treaty, agreement or convention with a foreign State can only be exercised under authority of law, proceeds upon a misreading of Article 253. Article 253 occurs in Chapter I of Part XI of the Constitution which deals with legislative relations- Distribution of Legislative Powers. By Article 245 the territorial operation of legislative power of the Parliament and the State Legislatures is delimited, and Article 246 distributes legislative power subject wise between the Parliament and the State Legislatures. Articles 247, 249, 250, 252 and 253 enact some of the exceptions to the rule contained in Article 246. The effect of Article 253 is that if a treaty, agreement or convention with a foreign State deals with a subject within the competence of the State Legislature, the Parliament alone has, notwithstanding Article 246(3), the power to make laws to implement the treaty, agreement or convention or any decision made at any international conference, association or other body. In terms, the Article deals with legislative power : thereby power is conferred upon the Parliament which it may not otherwise possess. But it does not seek to circumscribe the extent of the power conferred by Article 73. If, in consequence of the exercise of executive power, rights of the citizens or others are restricted or infringed, or laws are modified, the exercise of power must be supported by legislation; where there is not such restriction, infringement of the right or modification of the laws, the Executive is competent to exercise the power.”
16. The aforesaid legal position has been recognised and consistently followed in subsequent case law. The argument that the levy is discriminatory in that no other State in the Country has imposed a similar levy and, further, the levy discriminates between dealers in textile articles and other dealers within the State.
17. The petitioners contend that the levy is discriminatory because the levy of VAT was contemplated as a uniform one to be introduced in all states in the country in lieu of the erstwhile levy of sales tax. It is pointed out that while almost all the states have put in place VAT legislations replacing erstwhile sales tax legislations, it is only in Kerala that a levy of turnover tax on textiles has been introduced. The petitioners see this levy as violating their fundamental rights under Article 14 of the Constitution. I find no merit in the said contention of the petitioners. Once it is found that the State legislature has the legislative competence to introduce the levy in question, then the mere fact that other State legislatures have not introduced a similar levy cannot be cited as an instance of discrimination. A constitution bench of the Supreme Court in
State of Madhya Pradesh v. G.C.Mandawar – [AIR 1954 SC 493]
has held that Article 14 does not authorise the striking down of a law of one state on the ground that, in contrast with a law of another state on the same subject, its provisions are discriminatory. The sources of authority for the two statutes being different, Article 14 can have no application. This legal position was later re-iterated in
P.M. Aswathanarayana Setty and Ors. v. State of Karnataka and Ors – [(1989) Supp (1) SCC 696].
18. As regards the contention that the levy is discriminatory to dealers in textile articles in the State, it must be noted that State legislatures have a greater freedom when it comes to economic legislations and they can pick and choose the subjects of taxation reasonably. In the instant case, other than increasing the rate of tax on specified textile articles, when the turnover in respect of the said articles crosses a specified threshold level in the hands of some dealers, the levy does not mete out discrimination in the matter of taxation to any specified class of dealers. I therefore see no reason to strike down the levy on this ground. The argument that there is no machinery provision dealing with the filing of returns and payment of the turnover tax under Section 6A of the KVAT Act and further, that there is no clarity regarding the manner in which the taxable turnover is to be determined.
19. It is contended by the petitioners that there is no machinery provision under the KVAT Act that was simultaneously introduced along with the levy under Section 6A and hence, the levy itself must fail on this ground. Reliance is placed on the decisions in [See:-
Municipal Council, Khurai and Another v. Kamal Kumar and Another [AIR 1965 SC 1321];
M/s.Govind Saran Ganga Saran v. Commissioner of Sales Tax and others [AIR 1985 SC 1041];
Cochin Cadalas (P) Ltd. v. State of Kerala [[2008] 16 VST 319 (Ker)];
Heinz India Pvt. Ltd. and Another v. State of U.P. and Others [[2012] 50 VST 13 (SC)].
20. Chapter V of the KVAT Act, which deals with Assessment and recovery of tax and penalty, provides for the filing of returns by every registered dealer and every dealer liable to be registered under the Act. Read with the provisions of the KVAT Rules, the statutory provisions provide for the filing of returns in the prescribed form (Form 10 for those dealers required to file returns on a monthly basis and Form 10A for those dealers dealing in exempted goods and required to file returns on quarterly basis). There is no distinction made in these forms between goods liable to pay tax in terms of Section 6 of the KVAT Act and those required to pay tax in terms of Section 6A of the KVAT Act. The format of the aforementioned returns clearly enables a dealer to report the relevant details regarding the turnover, rate of tax, tax collected and exemption, if any claimed. No doubt the format prescribed under the Rules also contains columns that pertain to details required to be filled in by dealers subjected to a VAT levy under Section 6 of the KVAT Act, such as details of input tax credit availed etc., but merely because there are sections in the prescribed format that do not apply to the petitioners, it does not follow that the format itself is one that cannot be used by the petitioners to report the result of the taxable event. As a matter of fact, it is pointed out by the learned Government Pleader that almost all the registered dealers who have been subjected to the levy, other than the petitioners, have been using the same return formats for reporting their turnover for the purposes of the levy under Section 6A. I am therefore of the view that the machinery already provided under the KVAT Act is quite adequate for the purposes of enabling the petitioners to report their turnover to the assessing authorities under the Act. The contention of the petitioners, based on an alleged lack of machinery provisions is therefore rejected. The argument that the amendment in the KVAT Act, through the Kerala Finance Act, 2015, which had the effect of omitting the provisions of Section 6A from the KVAT Act, should be seen as curative in nature and, therefore, retrospective in its operation.
21. The petitioners would urge that the provisions of Section 6A of the KVAT Act have been omitted with effect from 01.04.2015, through the amendment brought about by the Kerala Finance Act, 2015. It is contended that, inasmuch as the omission was consequent to a consideration of the difficulties expressed by the traders in connection with the levy, the amendment itself has to be seen as curative in nature and retrospective in its operation from the date of introduction of the levy namely, 01.04.2014. Reliance is placed on the decisions in
Allied Motors P. Ltd. v. CIT [[1997] 224 ITR 677 (SC)];
Tata Motors Ltd. v. State of Maharashtra & Others [2004 (136) STC 1]
and
Commissioner of Income Tax v. Alom Extrusions Ltd. [[2009] 319 ITR 306 (SC)].
22. I cannot accept the said contention of the petitioners. The principles of statutory interpretation mandate that a substantive amendment in a taxing statute be construed as prospective in its operation unless otherwise stated [See:-
Commissioner of Income Tax (Central)-1, New Delhi v. Vatika Township Private Limited – [JT (2014) 10 SC 390].
Merely because, in the speech of the Finance Minister, while presenting the Budget proposals for the year, it was stated that the difficulties faced by the trade were taken into account for deciding to scrap the levy, it does not follow that the amendment that followed was curative in nature. The legislative intent in an amending statute is to be gathered from the express words used by the legislature. Going by the express provisions of the Finance Act, 2015, I find that the omission of Section 6A of the KVAT Act was to take effect only from 01.04.2015. The levy is therefore to be treated as valid till that date.
23. I thus hold that the State Legislature has the legislative competence to levy turnover tax on specified textile articles through the enacted provisions of Section 6A of the KVAT Act.
24. I must now turn to another contention urged on behalf of the petitioners namely, that even if the levy is held to be valid, the provisions of Section 6A of the KVAT Act have to be read down in such manner as to make it conform to the provisions of Article 286 of the Constitution of India, as also the provisions of Sections 14 and 15 of the CST Act. It is pointed out that the impugned levy has the effect of ignoring the provisions of Article 286 (1) of the Constitution read with the provisions of Sections 14 and 15 of the CST Act. It is argued that the impugned levy is at a specified rate on the turnover of specified goods, and the definition of turnover under the KVAT Act, includes the turnover of goods sold in the course of export, in the course of interstate trade, as also declared goods in respect of which the levy of tax cannot exceed 5% in the State. 25. To appreciate the arguments of the petitioners, it is necessary to take note of the definition of the word “turnover” under the KVAT Act, as also the provisions of Article 286 of the Constitution and the relevant portions of Sections 14 and 15 of the CST Act. They read as follows:-
KVAT Act:
2. Definitions:
(lii) “turnover” means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a Company or Firm registered under the Companies Act, 1956 (Central Act 1 fo 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) [or society including a co-operative society or association of individuals whether incorporated or not] of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.
Constitution of India:
“286. Restrictions as to imposition of tax on the sale or purchase of goods. -
(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the gods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, -
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.”
CST Act:
14. Certain goods to be of special importance in Inter-State Trade or Commerce:
(i) ....................
(ii) cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste;
(ii-a) Cotton fabrics covered under heading Nos.52.05, 52.06, 52.07, 52.08, 52.09, 52.10, 52.11, 52.12, 58.01, 58.03, 58.04, 58.05, 58.06, 59.01, 59.03, 59.05, 59.06 and 60.01 of the schedule to the Central Excise Tariff Act, 1985 (5 of 1986). (ii-b) Cotton yarn, but not including cotton yarn waste;
(iii) ......................
(iv) ......................
(v) ......................
(vi) ......................
(vii) man made fabrics covered under heading Nos.54.08, 54.09, 54.10, 54.11, 54.12, 55.07, 55.08, 55.09, 55.10, 55.11, 55.12, 58.01, 58.02, 58.03, 58.04, 58.05, 58.06, 59.01, 59.02, 59.03, 59.05, 59.06, and 60.01, of the schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
15. Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State:
Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions namely:-
(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof,
(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of Inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of Inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of Inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State.
26. It will be apparent from a reading of the provisions of Article 286 of the Constitution that the levy of tax under the State VAT laws has necessarily to be subject to the restrictions imposed by the Constitutional provision and accordingly, the turnover of the specified textile articles reckoned for the purposes of the levy under Section 6A of the KVAT Act cannot take in such turnover as is attributable to export sales of such goods or sales in the course of inter-state trade as defined under the CST Act. This principle of reading down a statutory provision so as to render it in conformity with the provisions of the Constitution is well settled. The Constitution is the highest law of the land and no statutory provision can violate it. If a statutory provision appears to violate the provisions of the Constitution, the court has two options - either to declare the provision as unconstitutional or to read it down to make it constitutional [See
Indra Das v. State of Assam - [(2011) 3 SCC 380]
and
Subramanian Swamy and Others v. Raju through Member, Juvenile Justice Board and Another - [(2014) 8 SCC 390].
It is the latter course that I choose to adopt in this case. I must clarify, however, that the restriction aforementioned applies only in respect of the turnover of sale of specified textile articles as is reckoned for the purposes of the levy, and not to the turnover of the said articles as is taken for determining the threshold turnover, of Rs.One Crore in the previous year, of those dealers on whom the levy is contemplated. Similarly, in the case of those textile articles as are declared to be goods of special importance in interstate trade or commerce under Section 14 of the CST Act, the mandate of Section 15 of the CST Act has necessarily to be followed and the State Legislation has to ensure that the tax payable under the KVAT Act in respect of the sale or purchase of such goods inside the State shall not exceed 5% of the sale price thereof. Section 6A of the KVAT Act is thus read down to the above extent.
27. I now turn to the challenge in the writ petitions against the assessments made under Section 6A of the KVAT Act for the period between 01.04.2014, when the provisions were introduced through the Kerala Finance Bill, 2014, and implemented through a declaration under Section 3 of the Kerala Provisional Collection of Revenues Act, 1985, and 23.07.2014 when the declared provisions came into force as an enactment – the Kerala Finance Act, 2014 - in an amended form. As has already been noted above, when the levy was introduced through the Finance Bill, it contemplated a tax @ 2%, in respect of a specified category of dealers, on their turnover of sale of all textile articles included in the I Schedule to the KVAT Act. In the Finance Act, 2014 which came into effect from 23.07.2014, however, the levy was confined to the turnover of sale of only those textile articles as were specified in Entries 17A, 46A and 51 of the I Schedule to the KVAT Act. Sections 4 and 5 of the Kerala Provisional Collection of Revenues Act, 1985, which would apply in such situations read as follows:-
“4. Effect of the declarations under this Act and duration thereof:
(1) A declared provision shall have the force of law on the 1st day of April, following the date on which the Bill containing it is introduced in the Legislative Assembly.
(2) A declared provision contained in a Bill shall cease to have the force of law under the provisions of this Act.
(a) when it comes into operation as an enactment with or without amendment; or
(b) when the Government, in pursuance of a motion passed by the Legislative Assembly, directs, by, notification in the Gazette that it shall cease to have the force of law; or
(c) if it has not already ceased to have the force of law under clause (a) or clause (b) then on the expiry of one hundred and twenty days from the 1st day of April following the date on which the Bill containing it was introduced.
5. Certain refunds to be made when declaration ceases to have effect:
(1) Where a declared provision comes into operation as an enactment in an amended form before the expiry of the period referred to in clause (c) of sub-section (2) of Section 4, refunds shall be made of all taxes, duties, cesses, fees and other revenues collected which would not have been collected if the provision adopted in the enactment had been the declared provision:-
Provided that the rate at which refunds of any tax, duty, cess, fee or other revenue may be made under this sub-section shall not exceed the difference between the rate of such tax, duty, cess, fee or other revenue proposed in the declared provision and the rate of such tax, duty, cess, fee or other revenue in force immediately before the 1st day of April following the date of introduction of the Bill.
(2) Where a declared provision ceases to have the force of law under clause (b) or clause (c) or subsection (2) of section 4, refunds shall be made of all taxes, duties, cesses, fees and other revenues collected which would not have been collected if the declaration in respect of it had not been made. (3) Notwithstanding anything contained in sub-section (1) or sub-section (2), the amount to be refunded under this section may at the option of the person entitled to the refund, be adjusted against any tax, duty, cess, fee or other revenue which is, or may become, recoverable from such person.”
28. The above provisions would mandate that the State Government would have to refund such taxes or other revenues as have been collected by them in terms of Section 6A, in respect of textile articles other than those specified in Entries 17A, 46A and 51 of the I Schedule to the KVAT Act. The upshot of the above discussions, therefore, is that these writ petitions are disposed with the following findings:
(i) The constitutional validity of Section 6A of the KVAT Act, as it stood till the date of its omission from the KVAT Act, is upheld subject to the restrictions imposed by Article 286 of the Constitution of India read with Sections 3, 5 and 15 of the CST Act.
(ii) Inasmuch as the levy of turnover tax under Section 6A of the KVAT Act was contemplated only in respect of those textile articles as are specified in Entries 17A, 46A and 51 of the I Schedule to the KVAT Act, the tax, if any collected under the said provision in respect of other textile articles during the period between 01.04.2014 and 23.07.2014, cannot be held to be legal. The State Government would, therefore, have to refund such taxes collected from dealers in accordance with the provisions of the Kerala Provisional Collection of Revenues Act, 1985.
(iii) Taking note of the possibility, of the assessment and penalty proceedings against the petitioners having been completed by including in their taxable turnover, such turnover as cannot be reckoned for the purposes of assessment under Section 6A of the KVAT Act, I quash the assessment orders and penalty orders impugned in these writ petitions, for the limited purpose of enabling the respective authorities to complete the proceedings afresh, after hearing the petitioners, and after taking note of the observations in this judgment. The respective authorities shall pass fresh orders within three months from the date of receipt of a copy of this judgment.
A.K.JAYASANKARAN NAMBIAR JUDGE
prp/