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The section that levied surcharge of 10 percent on retail chains importing more than 50 percent of the stock from other states and fulfilling other conditions as prescribed under Section 3(1A) of the Kerala Surcharge on Taxes Act, 1975, has been struck down by the High Court of Kerala, for being discriminatory and violative of Articles 301 and 14 of the Constitution.
The judgement was given by Justice PB Suresh Kumar following various writ petitions. “If the object of the legislation is augmentation of revenue, according to me, a classification of the dealers based on the criterion viz., whether they import goods into the State is per se unjustifiable and unintelligible”, he said.
The judgement following the main case, FabIndia v. Asst Commissioner, of the batch, the petitioner company, a dealer under the Kerala Value Added Tax Act (KVAT), was engaged in the retail sale of branded apparels etc. through its retail outlets spread across the state. The goods were stock transferred by the petitioner into the state from other states and sold in the state upon payment of taxes under the KVAT. The petitioner was challenging the order issued to it under Section 3(1A) of the Act demanding surcharge at the rate of 10 per cent on the output tax collected by them the year 2015-16.
While the petitioners have argued this section is violative of the Article 301 of the Constitution, also does not satisfy the requirements of Article 14. The Revenue has argued that the section does not infringe the Article 301 of the Constitution.
The court observed that the object of the legislation as evident from the Budget Speech is to augment the revenue for the purpose of implementing social security measures. The contention of the revenue that impugned levy was introduced with the specific objective of promoting indigenous and local business is incorrect as it has not been specifically mentioned in the Budget Speech. Further, it was observed that irrespective of turnover, if a dealer does not import into the state goods other states there is no liability to pay a surcharge.
With the above view, the Court in the judgement has mentioned, “I have, therefore, no hesitation to hold that the impugned levy is discriminatory and violative of Article 301 read with clause (a) of Article 304 as also Article 14 of the Constitution.”
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