Kerala High Court · 2009

W.A.No.835 of 20072((2005) 139 STC 537). The above contention alone was raisedbefore us. The Second Schedule to the above Act deals withdistribution of additional duties is as follows:“Distribution of additional duties:During each of the financial years commending onand after the 1st day of April, 1995, there shall be paidto each of the States specified in column (1) of theTable below such percentage of the net proceeds ofadditional duties levied and collected during thatfinancial year in respect of the goods described incolumn (3) of the First Schedule, after deductingtherefrom a sum equal to 2.203 per cent of the saidproceeds as being attributable to Union territories, as isset out against it in column (2) of the said Table:Provided that if during that financial year there islevied and collected in any State a tax on the sale orpurchase of the goods described in column (3) of theFirst Schedule, or one or more of them by or under anylaw of that State, no sums shall be payable to that Stateunder this paragraph in respect of that financial year,unless the Central Government by special orderotherwise directs.”We are also of the view that, a reading of the proviso itself wouldshow that power of the State to levy sales tax is not prohibitedbecause of the imposition of additional duties. 2.Charging Section in the Act is Section 3, which readsas follows: W.A.No.835 of 20073“3. Levy and collection of additional duties-(1) There shall be levied and collected [in respect of thegoods described in column (3) of the First Schedule]produced or manufactured in India and on all suchgoods lying in stock within the precincts of any factory,warehouse or other premises where the said goods weremanufactured, stored or produced, or in any premisesappurtenant 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 inadditional to the duties of excise chargeable on suchgoods under the Central Excises and Salt Act, 1944, orany 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 thoserelating to refunds and exemptions from duty, offencesand penalties, shall, so far as may be, apply in relationto the levy and collection of the additional duties as theyapply in relation to the levy and collection of the dutiesof excise on the goods specified in sub-section (1)”]. It shows that it is a tax on manufacture and storing of the goodsand not on sale or purchase of goods. Section 4 mandatesdistribution of additional duties among States. Merely becausefrom 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 wasconsidering the legislative power of the State to charge luxury W.A.No.835 of 20074tax on goods covered under Additional Duties of Excise Act. Atparagraphs 63 and 64 of the judgment, it is stated as follows:“63.Thus Parliament has been given theoverriding power to limit the rates of sales taxes whichare otherwise within the exclusive competence of theStates in respect of certain items of sale and purchase.The relevant clause for our purpose is clause (a) ofarticle 286(3) which allows Parliament to enact a lawdeclaring goods to be of special importance in inter-State trade or commerce.64.In exercise of this power, section 14 of theCentral Sales Tax Act, 1956, has declared certain goodsto be of special importance in inter-State trade orcommerce. This includes tobacco both in un-manufactured and manufactured form. The States havebeen restricted from imposing or authorizing theimposition of tax on the sale or purchase of the declaredgoods within the State up to a maximum limit of 4 percent of the sale or purchase price under section 15 ofthe Central Sales Tax Act, 1956.”4.It shows that the parliament can limit the rates ofsales tax which are otherwise within the exclusive competence ofthe State in view of Article 286(3) of the Constitution. In thecase of declared goods State can charge maximum up to 4% ofthe sale or purchase price under Section 15 of the Central SalesTax Act. Thereafter, at paragraph 67, it is stated as follows:“67.No State can levy luxury tax on itemscovered by section 3 of the ADE Act in respect of goodsfor the same taxable event, i.e., goods stored on W.A.No.835 of 20075manufacture, just by describing the goods as luxurygoods. The overlapping of the powers exercised underentry 84 of List I and entry 62 of List II would then beevident. similarly storage or stocking of imported goodsis covered by entry 83 of List I and cannot be made thesubject of levy by the States.”5.The Honourable Supreme Court held that the luxurytax or any other tax cannot be levied on manufacturing andstoring of the goods concerned by naming it as luxury tax.Paragraph 69 reads as follows:“69.However, while widening the scope of entry54 of List II, the powers of the State to levy such taxare subjected to a corresponding restriction as aconsequence of the constitutional curbs imposed onsales tax under article 286 read with sections 14 and 15of the Central Sales Tax Act, 1956, and the ADE Act,1957. “The tax leviable by virtue of sub-clause (b) ofclause (29A) of article 366 of the Constitution thusbecomes subject to the same discipline to which anylevy under entry 54 of the State List is made subject tounder the Constitution. The position is the same whenwe look at article 286 of the Constitution. If anydeclared goods which are referred to in section 14 of theCentral Sales Tax Act, 1956, are involved in suchtransfer, supply or delivery, which is referred to inclause (29A) of article 366, the sales tax law of a Statewhich provides for levy of sales tax thereon will have tocomply with the restrictions mentioned in section 15 ofthe Central Sales Tax Act, 1956”.6.It shows that the State can charge sales tax subject tothe restriction under Sections 14 and 15 of the Central Sales Tax W.A.No.835 of 20076Act as provided under clause (29A) of article 366 in respect ofthe goods declared to be public importance. The power of theState to charge sales tax on such goods taxable under the act isalready considered by various High Courts including this Court.(See Nemichand Parasmal and Co. v. The DeputyCommercial Tax Officer, Evening Bazaar, AssessmentCircle, Madras and another (55 STC 47), Prime Impex Ltd.and another v. Asst. Commissioner of Commerical Tax andothers (127 STC 23) and Agro-Industrial TradingCorporation v. State of Kerala (38 ELT 618 (DB)(Ker)).7.The Honourable Supreme Court considered the specificquestion in State of Bihar v. Bihar Chamber of Commerce(103 STC (1) 1996). The question considered by the HonourableSupreme Court is as follows:“3.Whether the Bihar Legislature is deprived ofits legislative competence to enact the impugned Act onaccount of the enactment of ADE Act and/or becausethe State of Bihar is getting a portion of the taxes leviedand collected under the ADE Act?”8.After considering the proviso to the 2nd schedule to theAct, Apex Court observed as follows: W.A.No.835 of 20077“The proviso states that if during a given financialyear, a State levies and collects a tax on the sale orpurchase of scheduled goods or on any one or more ofthe scheduled goods by or under a law of that State, nosums shall be payable to that State under this paragraphin respect of that financial year, unless the CentralGovernment by special order directs otherwise. There isno reference in the Act - or in the Statement of Objectsand Reasons - to any tax other than the tax on sale orpurchase of goods. There is no ambiguity in thelanguage of the proviso to rule(2), which is a part of thestatute.The ADE Act is enacted by the Parliament withreference to entry 84 in List I of the Seventh Scheduleto the Constitution where as the impugned enactment ismade by the State with reference to entry 52 in List II.The power to levy taxes on sale or purchase of goods isconferred upon the States and the States alone by entry54 in List II. The Parliament cannot make a law eitherwith reference to entry 52 or for that matter withreference to entry 54. The ADE Act is also not a lawmade under and with reference to article 252 of theConstitution, which article empowers the Parliament tomake a law with respect to any matter mentioned in ListII, if two or more States pass resolutions requesting theParliament to make a law in that behalf. The impugnedAct is also not relatable to any of the articles 249 to 253which are in the nature of exceptions to the normal rulethat Parliament can make no law with respect to theentries in List II. If so, it follows that the StateLegislatures are not denuded or deprived of their powerto make a law either with reference to entry 52 or withreference to entry 54 in List II. That power remainsuntouched and unaffected. All that the Parliament hassaid by enacting the ADE Act is that it will levy additionalduties of excise and distribute a part of the proceedsamong the States provided the States do not levy taxeson sale or purchase of the scheduled commodities. TheParliament has also provided the consequence thatfollows if any State levies tax on sale or purchase of W.A.No.835 of 20078scheduled commodities; all that happens is that theState will be deprived of its share in the proceeds ofadditional duties of excise for that financial year. Eventhis is subject to the power of the Central Governmentto direct otherwise. The Parliament could not, and didnot, prohibit any State from making any law or levyingany tax which a State can levy by virtue of the entries inList II. The decision of this Court in State of Kerala v.Attesee (Agro Industrial Trading Corporation)[1989]72STC 1; (1989) Supp 1 SCC 733 does bear out ourunderstanding. At page 15 of STC (744 of SCC), thisCourt observed:“The 1957 Act also has a bearing on the sales taxlevy of various States. By levying sales tax on an itemcovered by the Schedule to the 1957 Act, the State willhave to forego its share on distribution of the proceedsof the additional excise duty levied. Whether it shouldimpose sales tax on an item of declared goods, limitedby the restriction in section 15 of the CST Act and at therisk of losing a share in the additional excise duty leviedin respect of those very items, is for the State todetermine. As pointed out by Sri.Potti, it was open tothe Kerala Legislature to decide - and it did so also -than on some items there should be one or other of thelevies or both of them and to modify these leviesdepending upon its own financial exigencies. But thesefactual or periodical variations do not detract from thebasic reality that the policy of sales tax levy on declaredgoods has to keep in view, and be influenced by, theprovisions of the CST Act and the 1957 Act”” 9.After detailed discussions and reference to variousdecisions, Honourable Supreme Court answered the questionpositively in favour of the revenue. State also has got a casethat goods in question, covered under HSN code 5007 are not W.A.No.835 of 20079directly taxable under Additional Duties of Excise Act, 1957 andState has not derived any share from it for the relevant financialyear. In any event, State has legislative competence to chargesales tax subject to the restrictions in Section 15 of the CST act.In the above circumstances, we see no ground to interfere withthe impugned judgment passed by the learned Single Judge andaccordingly, we dismiss the writ appeal. J.B.KOSHY, ACTING CHIEF JUSTICE. V.GIRI, JUDGE. bkn/-