Amrutheswari Jewellers v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **WEDNESDAY, THE 11TH DAY OF JANUARY 2017/21ST POUSHA, 1938** **WP(C).No. 19316 of 2008 (Y)** **----------------------------** **PETITIONER(S): -------------** ## **AMRUTHESWARI JEWELLERS** **KACHERI JUNCTION, TEMPLE ROAD, HARIPPAD,, ALAPPUZHA, REP. BY ITS MANAGING PARTNER, A. JAYANTHAKUMAR.** **BY ADVS.SRI.S.SANTHOSH KUMAR SRI.S.VINODKUMAR** **RESPONDENT(S):** - **--------------** ## **1. STATE OF KERALA** **SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **2. THE COMMISSIONER OF COMMERCIAL TAXES THIRUVANANTHAPURAM** **3. THE COMMERCIAL TAX OFFICER HARIPPAD.** **BY ADV. GOVERMENT PLEADER SMT.M.M.JASMIN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 2110-2016, THE COURT ON 11-01-2017 DELIVERED THE FOLLOWING:** ## **WPC NO.19316/08** ## **APPENDIX** ## **PETITIONER'S EXHIBITS** **EXT.P1: TRUE COPY OF BILL DATED 14.8.2007 ISSUED BY PEEYAR EXPORTERS, THRISSUR.** **EXT.P2: TRUE COPY OF NOTICE DATED 25.2.2008 ISSUED BY THE 3RD RESPONDENT.** **EXT.P3: TRUE COPY OF PETITION DATED 28.2.2008 OF THE PETIITONER TO THE 3RD RESPONDENT.** **EXT.P3(a): TRUE COPY OF CHALAN DATED 3.3.2008 EVIDENCING PAYMENT OF TAX.** ## **//True Copy//** **PS to Judge** ## **Rp** ## **A.M. SHAFFIQUE, J.** ## =============== W.P. (C) No. 19316 of 2008 ================== Dated this, the 11[th] day of January, 2017 ## **J U D G M E N T** Petitioner is a dealer in gold ornaments. He challenges the vires of Section 11(5)(c) of the Kerala Value Added Tax Act, 2003 and seeks to quash Ext.P2. Ext.P2 is a notice dated 25/2/2008 by which the Commercial Tax Officer has informed the petitioner that he will not be allowed input tax credit for the purchase from a dealer paying compounded tax under Section 8. Petitioner had purchased gold worth `60,58,385/- from M/s.Peeyar Exporters and claimed input tax credit to the tune of `2,42,335/-. The Commercial Tax Officer reported that M/s.Peeyar Exporters is an assessee on the rolls of that office and has offered for payment of tax under Section 8(f) of the KVAT Act. It is in the said circumstances that based on Section 11(5)(c) of the Act, petitioner was disallowed the input tax credit and he was called upon to remit `2,42,335/- and file revised return. 2. The short facts involved in the writ petition would disclose that petitioner used to purchase gold ornaments from registered dealers inside Kerala and resell it. Dealers in jewellery of gold, silver W.P(C) No.19316/08 ## -:2:- etc are liable to pay tax on their taxable turnover under Section 6 (1) of the Act. Gold jewellery are taxable @4% under Entry 51A of the III[rd] Schedule to the Act. Under Section 8(f) of the Act, dealers in gold ornaments are eligible to opt for payment of tax at the compounded rate. As stated in the notice, Ext.P2, petitioner purchased gold ornaments as per Ext.P1 bill dated 14/8/2007 by paying tax @4%. In the return for August, 2007, petitioner claimed input tax credit. The 3[rd] respondent assessing officer by Ext.P2 notice rejected the said claim. Petitioner sent a reply Ext.P3 to the said notice _inter alia_ stating that the provision under Section 11(5)(c) has given rise to unjust results to the petitioner. Petitioner also remitted the amount demanded by the assessing officer under protest. It is contended that Section 11(5) (c) which indicates that no input tax credit shall be allowed for purchase from a dealer paying compounded tax under Section 8 is ultravires the statute. Petitioner submits that when the input tax is paid or payable under the Act by a registered dealer to another registered dealer on the purchase of goods in the course of business and includes the tax paid on purchase of materials, once the tax is paid in the nature of input tax, it must be given W.P(C) No.19316/08 -:3:- credit under Section 11. There is no reason or justification for denying the petitioner/dealer input tax credit of the tax paid by him at the purchase point. It is contended that Section 11(5)(c) which imposes a restriction in the input tax credit is arbitrary, discriminatory and against the scheme of taxation of value addition. 3. Counter affidavit has been filed by respondents 2 and 3 wherein it is stated that payment of tax at the compounded rate under Section 8(f) of the KVAT Act is a concession granted to the dealers of gold. Section 11(5)(c) is a part of the scheme of Section 8. The amount of compounded tax is fixed after ensuring that State is not losing the revenue by way of input tax credit in respect of sales effected by dealers who had opted for payment of tax under Section 8 of the KVAT Act. It is stated that there is no compulsion for the dealers to make purchase from the dealers who had opted for payment of tax at compounded rate. It is for the respective dealers to decide either to purchase or not to purchase from the dealers paying compounded tax at their own risk. 4. Reply has been filed by the petitioner reiterating the ## W.P(C) No.19316/08 ## -:4:- contentions urged by them. 5. Heard the learned counsel for the petitioner and the learned Government Pleader appearing on behalf of the State. 6. There is no dispute regarding Section 11(5)(c) which reads as under:- _“11(5) No input tax credit shall be allowed for the purchases:-_ _(a) xxxx_ - _(b) xxxx (c) From a dealer paying compounded tax under Section 8.”_ 7. In the light of Sction 11(5)(c), there is nothing wrong on the part of the Commercial Tax Officer to have issued Ext.P2. The only question that may arise for consideration is whether Section 11(5)(c) is _ultra vires_ the statute or is unconstitutional. The main contention urged by the petitioner is that input tax credit can be claimed by all dealers who pays the tax and merely for the reason that the dealer from whom he purchases the goods is a compounded tax dealer, it cannot give rise to a situation where the input tax credit is denied. When all other dealers are entitled for the benefit of input tax credit, in respect of purchases made by dealers who have not compounded, the classification W.P(C) No.19316/08 -:5:- between compounded dealers and non compounded dealers is without any basis in so far as entitlement for input tax credit is a basic feature of the Kerala Value Added Tax regime. 8. But it is relevant to note that as far as taxation regime is concerned, when the statute itself has made it clear that such input tax credit will not be available for purchase of goods from compounded dealers, being a fiscal statute, even if the provision appears to be harsh, there is no reason why this Court should interfere and take a different view. It is settled law that even if a fiscal statute is couched in such terms, which may cause hardship to the dealers or may appear to be harsh, the validity cannot be questioned in so far as the Government has legislative competence to enact such a law. Arbitrariness or unreasonableness of the statute cannot be lightly inferred. It can be inferred only on the basis of sufficient materials. Petitioner being aware of the statutory provision cannot at a later stage challenge the same. 9. Under such circumstances, I do not think that the petitioner is entitled for any relief in the present writ petition. 10. Learned counsel for the petitioner however placed ## W.P(C) No.19316/08 -:6:- reliance on a judgment of the Apex Court in _**Venkateshwara Theatre v. State of Andhra Pradesh and Others**_ [(1993) 3 SCC 677] in order to contend that there is discrimination. Para 23 is relevant, which reads as under:- _“23. Just as a difference in treatment of persons similarly situate leads of discrimination, so also discrimination can arise if persons who are unequals, i.e. differently placed, are treated similarly. In such a case failure on the part of the legislature to classify the persons who are dissimilar in separate categories and applying the same law, irrespective of the differences, brings about the same consequence as in a case where the law makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law.”_ I do not think that the facts involved in the Apex Court judgment can be related to the facts of the present case. The Apex Court at para 11 held as under:- _“11. While considering the question as to legislative competence of the State Legislature, it is necessary to bear in mind that the impugned provisions provide for imposition of a tax and a tax_ -:7:- ## W.P(C) No.19316/08 _has two distinct elements, viz., subject of the tax and the measure of the tax. The subject of the tax is the person, thing or activity on which the tax is imposed, and the measure of the tax is the standard by which the amount of tax is measured. The competence of the Legislature to enact a law imposing a tax under a particular head of the legislative list has to be examined in the context of the subject of the tax. If the subject of the tax falls within the ambit of the legislative power conferred by the head of legislative entry, it would be within the competence of the Legislature to impose such a tax. It is, therefore, necessary to examine the scope of the legislative entry, viz., Entry 62 of List II, which is invoked in support of the competence of the State Legislature to impose the tax and ascertain whether the subject of the tax imposed by the impugned provisions falls within the ambit of the said entry. Entry 62 of List 11 is as follows "62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.”_ ## Further it is held at para 20 as under:- _“20. Article 14 enjoins the State not to deny to any person equality before the law or the equal protection of the laws. The phrase "equality before the law" contains the declaration of equality of the civil rights of all persons within the territories of India. It is a basic principle of republicanism. The phrase "equal protection of laws" is adopted from_ -:8:- ## W.P(C) No.19316/08 _the Fourteenth Amendment to the U.S. Constitution. The right conferred by Article 14 postulates that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Since the State, in exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions namely, (i) it is founded on an intelligible differentia which distinguishes those that are grouped together from others; and (ii) the differentia must have a rational relation to the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete. Classification would be justified if it is not palpably arbitrary. [See: Re Special Courts Bill, [1979] 2 SCR 476 at pp. 534-536. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. (See: Khandige Sham Bhat v.Agricultural I.T.O [1963] 3 SCR 809 at p. 8 171.”_ W.P(C) No.19316/08 -:9:- 11. As already indicated, this is not a case in which the dictum of the Apex Court applies. This is an instance where the statute does not create any ambiguity or arbitrariness. In so far as the legislative competence is very much clear and the benefit of input tax credit is granted only to dealers who purchase gold from dealers who do not pay compounded tax, I do not find any error on the part of the Government in imposing such a restriction. Writ petition is, therefore, dismissed. Sd/- ## **A.M. SHAFFIQUE, JUDGE** Rp //True copy// PS to Judge