21 March 2024 Central Excise >> Tax Laws   |   Sales Tax >> Tax Laws  

In a recent judgment, the Supreme Court of India settled a dispute concerning the levy of sales tax on silk sarees by the Delhi government. The case centered on the interplay between the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act) and the Central Sales Tax Act (CST Act).

Facts:

The Appellant, a taxpayer, challenged the Delhi government's imposition of sales tax on silk sarees. The crux of the argument hinged on the classification of silk sarees as "declared goods" under the ADE Act. The Appellant contended that this classification, coupled with the Delhi government's receipt of a share of proceeds from the ADE Act, rendered the sales tax levy redundant and consequently, unauthorized.

Appellant's Arguments:

• Classification as Declared Goods: The Appellant emphasized the inclusion of silk sarees in the schedule of the ADE Act, thereby classifying them as "declared goods." This classification, they argued, triggered restrictions on state governments' power to levy sales tax under Article 269(2) of the Constitution of India.
• Receipt of ADE Proceeds: The Appellant further asserted that the Delhi government was already receiving its share of proceeds distributed under the ADE Act. This, in their view, negated the rationale for imposing sales tax on silk sarees.

Respondent's Counter-Arguments:

The Delhi government countered these arguments by drawing attention to a crucial proviso within the ADE Act's framework. This proviso explicitly permits state governments to levy sales tax on declared goods, even when they receive a share of the additional duty proceeds. However, the proviso imposes a consequence - the state forfeits its share of the additional duty on those specific goods it levies sales tax upon. Additionally, the Delhi government pointed out the legislative amendment in 1968 that removed silk fabric from the list of declared goods under the CST Act.

Court's Reasoning and Judgment:

The Supreme Court ultimately sided with the Delhi government. While acknowledging the inclusion of silk sarees in the ADE Act's schedule, the court underscored that the absence of an additional duty levied under the ADE Act on silk fabric did not automatically preclude the state government from imposing sales tax. The court further recognized the legislative change in the CST Act that removed silk fabric from the declared goods list, thereby strengthening the state's authority to levy sales tax.

Legal Significance:

This judgment clarifies the interplay between the ADE Act and state governments' power to levy sales tax. The mere presence of a good within the ADE Act's schedule does not automatically prohibit the imposition of sales tax. The critical factor is the existence of an additional duty levied under the ADE Act. In the absence of such a duty, states retain the authority to levy sales tax on those goods.

  ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL IMPORTANCE) ACT, 1957        Central Sales Tax (Amendment) Act, 1976