If no local sale made then assessee not liable to pay tax, HC

Facts in Brief:

1. The petitioner, which is a firm, is a dealer in glass sheets. It is an assessee on the files of the 3rd respondent, Sales Tax Officer, Manjeri under the Kerala Value Added Tax Act and the Central Sales Tax Act.

2. The 4th respondent Commissioner of Commercial Taxes issued Circular No.50/2006, in exercise of his powers under clause (c) of sub-section (2) of Section 3 read with sub-section (16A) of Section 47 of the KVAT Act, 2003, directing to collect sales tax in advance at the border check-posts, at the time of import of certain evasion-prone commodities named therein into the State.

HC held as under,

3. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (354 US 457) where Frankfurter, J. said in his inimitable style:

'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 event--self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.' The Court must always remember that 'legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry’; 'that exact wisdom and nice adaption of remedy are not always possible' and that 'judgment is largely a prophecy based on meagre and uninterpreted experience'.

Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.

The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company [338 US 604 (1950)] be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.

The Court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois (94 US 13), namely, 'that courts do not substitute their social and economic beliefs for the judgment of the legislative bodies'. The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago [228 US 61 (1912)]

4. 'The problems of government are practical ones and may justify, if they do not require, rough accommodation, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review'."(Emphasis supplied) In view of the above legal position and for other reasons set out hereinabove, the challenge against the constitutional validity of Section 47 (16A) of the KVAT Act is repelled. The validity of the impugned circulars are upheld. The timing of the issuance of the circulars, that is immediately after the rendering of the judgment by this Court, in the "Entry Tax Cases" cannot be a ground to condemn the circulars, if they are otherwise valid. The individual grievance caused to certain dealers cannot be a ground for declaring the provision or the circulars unconstitutional.

5. A dealer, whose entire sales are in the course of export may not be liable to pay tax. If advance tax is collected from him and he does not make any local sale and therefore, not liable to pay tax, he can claim refund of the same. In that event, the State shall refund the amount paid by him. Such individual inconveniences or grievances can never be pressed into service, to attack a legislation. I have not dealt with in this judgment, some of the decisions cited by both sides, as they were not strictly relevant. In the result, the writ petition fails and it is dismissed. 

Case Reference - M/S.Fantacy Sales Corporation vs The Sales Tax Inspector.