Surcharge can’t be levied on Retailers on Basis of Stock Imported into State: Kerala HC [Read Judgment]

The Kerala High Court in M/S Fabindia Overseas (P) Ltd. v. The Asst.Commissioner (Assessment), held that the levy of Surcharge on Retailers on the basis of stock imported into the State under Section 3(1A) of the Kerala Surcharge on Taxes Act, 1957 is discriminatory and unconstitutional.

Petitioner-Company, a KVAT Dealer having registered in Mumbai engaged in the retail sale of branded apparels, imitation jewellery, hand bags, wallets, belts etc. through its retail outlets spread across the State. The petitioner challenged Section 3(1A) of the Act levying ten per cent surcharge on the output tax collected by them for the year 2015-16.

The State, in the counter affidavit, said that the impugned levy was introduced with the objective of promoting indigenous and local business. The Court refused to accept the above contention by recalling the budget-speech wherein it was said that the provision was introduced with a view to augment the revenue for the purpose of implementing social security measures.

“If the objective of the legislation is augmentation of revenue, the question is whether there can be a differentiation between dealers who are importing goods into the State from other States and who are not, for the said purpose.”

“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. 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,” the Court said.

The Court further rejected the arguments of the Revenue that the impugned levy is only an additional tax on multi national companies falling within the criteria provided therein, and the same, therefore, does not in any way impede trade or business and Article 301 is not attracted in the instant case as the impugned levy is only a levy based on the turnover of the dealer.

“True, for the purpose of achieving economic parity, the States are empowered to enact legislations imposing surcharge. But, the same shall not go against the provisions of the Constitution. Economic parity and increase in revenue are certainly legitimate objects for a legislation providing for surcharge as in the instant case and an intelligible differentia can certainly be created in such a legislation by confining surcharge only to large business houses.”