M/S Hotline Electronics Limited vs State of Uttar Pradesh Thru'' Principal Secy

Heard Sri N.C. Gupta, learned counsel for petitioner and learned Standing Counsel for respondents, and perused record.

Petitioner has challenged validity of "State Development Tax" (hereinafter referred to as ''SDT'') and has sought a writ of mandamus declaring levy of ''SDT'' at the rate of 1% from Eligibility Certificate holders, as ultravires. It has also prayed for a writ of certiorari for quashing assessment order dated 5.3.2009 which has included 1% ''SDT'' on the sale of Television chasis, coloured television, television parts and its accessories.

Petitioner is a Private limited company registered under Indian Companies Act, 1956 (hereinafter referred to as ''Act, 1956'') and is engaged in the business of manufacture and sale of Television chasis, Coloured Televisions, Television parts and accessories. It had established its new unit in building 8-A, Udhyog Vihar, Greater Noida, Gautam Buddh Nagar.

Certain tax exemptions have been provided subject to certain conditions under Section 4-A of U.P. Trade Tax Act, 1948(hereinafter referred to as ''Act, 1948''). Petitioner satisfying requirement therein, completed formalities and applied for grant of exemption from payment of tax under Section 4-A of Act, 1948 in the year 2001. A Divisional Level Committee considered the matter and after satisfying that Petitioner is entitled for such exemption, Eligibility Certificate was issued by competent authority, allowing tax exemption for 10 years i.e. with effect from 24.10.2001 to 23.10.2011.

Provincial legislature promulgated "Uttar Pradesh Trade Tax (Amendment) Act, 2005" (hereinafter referred to as "Amendment Act, 2005") making amendment in Act, 1948. By Section 4 of Amendment Act, 2005, Section 3-H has been inserted in Principal Act i.e. Act, 1948 and consequential amendments have also been made in Section 4-A and 4-AA of Act, 1948.

Sections 4,5 and 6 of Amendment Act, 2005 inserting Section 3-H and making amendments in Sections 4-A and 4-AA are reproduced as under:-

"4. Insertion of a new Section 3-H- After Section 3-G of the principal Act, the following Section shall be inserted, namely:-

"3-H. State Development Tax-(1) There shall be levied a State Development Tax at the rate not exceeding one per cent of the taxable turnover as the State Government may be notification specify on the dealers whose aggregate turnover as referred to in sub-section (2) of Section 3 exceeds fifty lakh rupees. The State Development Tax shall be realised in addition to the tax payable under any other provision of this Act. This tax shall cease to be levied after a period of five years from the date of publication of the notification issued by the State Government under this Section.

The facility of composition of tax in relation to compoundable goods under Section 7-D shall also be available in respect of State Development Tax.

The State Development Tax shall be adjustable in the monetary limit specified in the eligibility certificate issued under Section 4-A.

No State Development Tax shall be liviable on.-

(a) the news-papers and other goods or the dealers specified or notified under Section 4;

(b) declared goods under Section 14 of the Central Sales Tax, 1956;

(c) the goods liable for the payment of additional excise duty;

(d) such goods as may be specified by notification by the State Government."

Amendment of Section 4-A- In Section 4-A of the Principal Act, in sub-section (1) for the words "notwithstanding anything contained in this Act". Words, figures and letter ''notwithstanding anything contained in any other provisions except the provisions of Section 3-H of this Act" shall be substituted.

Amendment of Section 4-AA- In Section 4-AA of the Principal Act, for the words "Notwithstanding anything contained in this Act", the words, figure and letter "Notwithstanding anything contained in any other provisions except the provision of Section 3-H of this Act" shall be substituted.

Learned counsel for petitioner contended that imposition of ''SDT'' by inserting 3-H and making it dominant to Section 4-A, so as to attract levy of ''SDT'' upon such units which are availing tax exemption is illegal and arbitrary. It is said that under Entry 54, seventh Schedule, List II of the Constitution of India, word ''Sale and purchase'' would not embrace anything regarding development of State and therefore levy of ''SDT'' under Act, 1948 is beyond legislative competence and is ultravires

Respondents have filed counter affidavit justifying imposition of ''SDT'' and have also averred that State Legislature is fully competent to make provision for levy of ''SDT''.

The only issue up for consideration is whether State legislature is competent to make provision for levy of ''SDT'' under Act, 1948.

Provincial legislature is competent to make laws with reference to Entry 54 Schedule 7 List II of the Constitution of India on the subject of "sale and purchase of goods other than newspapers subject to provisions of Entry 92-A of list I". Entry 54 reads as under:-

"54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92 A of List I"

Provincial Legislature, in reference to entry 54, thus, is competent for making laws for imposing tax. The incidence of tax must be sale or purchase of goods.

The word ''tax'' itself has not been defined in the Constitution but the term ''tax'' on the "sale or purchase of goods" has been defined in Article 366 (29-A) and it reads as under:-

"(29A) tax on the sale or purchase of goods includes:-

(a) a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration;

(b) a tax on the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract;

(c) a tax on the delivery of goods on hire purchase or any system of payment by instalments;

(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(e) a tax on the supply of goods by any unincorporated contact no. ajmer district court officers association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."

The definition of tax on sale or purchase of goods under Article 366(29-A) is inclusive and covers different kinds of transactions which otherwise in common parlance may not come within the term "sale or purchase of goods". Constitution, however nowhere explains or defines the term ''Tax'' by itself.

Under Act, 1948, Section 2(n) has endeavoured to define ''tax'' but here again definition is inclusive and reads as under:-

"2 Definitions.- In this Act, unless there is anything repugnant the subject or context:-

(a)...

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(n) ''Tax'' includes an additional tax and the composition money accepted under Section 7-D."

It does not say that ''tax'' would mean only ''Trade Tax'' or any particular kind of trade tax. Anything which can be said to be ''tax'' with whatever adjective it may be called, but if it is on the incident of ''sale or purchase of goods'', as defined under Section 366 (29-A), such ''tax'' would be within the ambit of Act, 1948.

We also find that the term ''Trade Tax'' has been separately defined under Section 2 (bb) of Act, 1948 and reads as under:-

"2(bb) ''Trade Tax'' means a tax payable under this Act on sales of purchases of goods, as the case may be;"

A perusal of aforesaid shows that trade tax is one of the tax chargeable and leviable under Act, 1948 and within the ambit of Section 2 (n) but there may be other taxes also which can be imposed under Act, 1948 subject to the condition that incident of tax is "sale or purchase of goods", within the ambit of definition under Article 366(29- A) of the Constitution.

Even charging Section i.e. Section 3 provides that a dealer shall be liable to pay ''tax'' for each assessment year as are provided under various Sections mentioned therein. Therefore, to read Act, 1948 as if therein, legislature can impose only ''Trade Tax'' and not anything else is nothing but a complete lack of understanding in appreciation of above statute.

In State of U.P. and others v. Systematic Conscom Limited 2013 NTN 266(SC) referring to amendment Act, 2005 and Section 3-H. Court observed that the said amendment has introduced levy and collection of SDT. It bears resemblance to the levy and collection of Turnover Tax. It is levied on a particular class of dealer at a particular rate. When coming to the authority of the State to make provisions for different taxes, Court observed that taxation is a mode of raising revenue for public purposes. The terms is ordinarily used to express the exercise of the sovereign power to raise revenue for the expenses of the Government. In the Modern times, Governments are accustomed to levy a great variety of taxes; sometimes relying upon a single kind for all needs of the State and sometimes levying a number of different kinds with a view to distribute the burden more equally or more to the general acceptance. Taxes are often spoken of as special if levied for a special purpose, and general if levied for some of the ordinary purposes of a government. A special tax as the term, used in the statutes, is sometimes held to mean an ''additional tax'' over and above the general tax. The broad feature of ''taxation'' would include, the persons, proper or occupation to be taxed; the amount or rate of tax; the purposes for which taxes shall be levied; the mode, method or kind of tax; the apportionment of the tax; the situs for taxation of goods; and the method of collection.

Court also held Section 3-H as a charging provision since it has all ingredients of charging provisions as explained in M/s. Ganga Saran & Sons(Pvt.) Ltd., Calcutta v. Income Tax Officer & others, (1981) 3 SCC 143. The four components of incidence of tax was explained as, first, the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second, is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third, is the rate at which tax is imposed, and the fourth, is the measure or value to which the rate will be applied for computing tax liability. Court said that levy would only exist in law when all aforesaid components are clearly and definitely ascertainable. Section 3-H provides for imposition of 1% of SDT separately on the taxable turnover, thereby creating an independent charge. It has not led to any change to the rate of tax on goods.

On the transaction of sale or purchase of goods, legislature proposes to impose tax termed as ''SDT'' and with this intention, Amendment Act, 2005 has been enacted. By Section 3 thereof an amendment has been made under Section 3(1) of Act, 1948 and besides Section 3 A and Section 3D, Section 3-H has been mentioned in Section 3. Further Section 3-H itself has separately been inserted as a new Section imposing ''SDT'' at the rate not exceeding 1% on taxable turnover, as the State may, by notification, specify on the dealers whose aggregate turnover as referred to in Section 3(2) exceeds fifty lakh rupees. ''SDT'' shall be realised in addition to ''tax'' payable under any other provision of Act, 1948. This tax shall cease to be levied after a period of five years from the date of publication of notification issued by State Government under this Section.

The point of levy of Tax i.e. ''SDT'' falls on sale or purchase therefore, is leviable and permissible under Act, 1948. The definition of ''tax'' has also been amended by legislature by Section 2 of Amendment Act, 2005 and now the definition of ''tax'' reads as under:-

"(n) Tax includes an additional tax, and the composition money accepted under Section 7-D and the State Development Tax"

Definition of tax therefore includes ''State Development Tax'' i.e. ''SDT'' and it is chargeable only when there is an event of sale or purchase as defined under Act, 1948.

State legislature is empowered to make laws in respect to tax leviable on the event of sale or purchase of goods and ''SDT'' being a tax under Section 2(n) as amended by Amendment Act, 2005 is a ''Tax'' imposed on the ''Turnover'' which is defined as aggregate amount for which goods are supplied or distributed on sale or purchase by dealer either directly on cash or additional payment or on other valid consideration. There is no bar under Act, 1948 to impose ''tax'' other than ''Trade Tax'' for the reason that Act, 1948 has been made to provide tax on sale or purchase and is not confined to ''Trade Tax''. Power to levy ''tax'' is an inherent attribute of sovereign function of State. It has power under charging provisions, to levy tax on the taxable turnover of dealer at the rates prescribed under provisions of Act, for raising revenue for public purposes. Ordinarily, it is used to express exercise of sovereign power to raise revenue for the expenses of government.

In the present case, State has framed law for imposition of tax on sale or purchase of goods under Act, 1948. It had made provisions for imposition of Trade Tax in general and ''additional tax''. The definition of ''tax'' is inclusive and can be extended to other taxes. To make this clear, legislature has also amended definition of ''tax'' by including therein ''SDT'' also.

Despite repeated query, learned counsel for petitioner could not show as to how State Legislature is not competent to include within the ambit of term ''tax'', ''SDT'' in Act, 1948 when charging section provides tax on sale or purchase of goods. The validity of principal legislation can be challenged on limited grounds i.e. violation of provisions of Constitution of India; or for want of legislative competence but none of such grounds exists in the case in hand.

We, therefore, find no merit in this petition. Dismissed.

No costs.