Punjab & Haryana High Court in M/s Balaji Bricks Industries & Another v State of Punjab [VSTI 2012 P&H B-238] has held that lump sum scheme for payment of sales tax on the basis of production capacity of Brick Klin owners is ultra vires of Article 246 read with Entry 54, List-II-State List of Seventh Schedule of Constitution.
The brick klin owners were being subjected to lump sum tax under section 5(4) of Punjab General sales tax Act, 1948. The grievence of the petitioners was that they(brick klin owners) cannot be subjected to a lump sum tax which is determined on the basis of the capacity of brick klin rather than actual sales.
It is notable here that State Govt gets the power to levy sales tax from Entry 54 of State List of Seventh Schedule of the Constitution which runs as under:
“54. Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of entry 92A of List 1.”
Thus Entry 54 confers competence on the State Lagislature to frame laws concerning tax on sale or purchase of goods other than newspaper, whereas consequently lagislated section 5(4) of PGST Act, 1948 provided for levy of lump sum tax on the basis of number of Ghoris in a brick klin i.e on the basis of production capacity of a brick klin.
Ghori means a verticle column of bricks of width equal in get length of a brick seperate from the next similar vertical column by a distance of 4″ to 5″ and the number of ghoris is the number of vertical columns of bricks capable of being accomodate between the inner and outer wall of the vessel of a brick klin along its width.
The High court held that the element of sale is completely missing u/s 5(4) and virtually it is lump sum amount of tax being collected on the basis of capacity to produce brick klin by brick klin owners. Lump sum tax is sought to be collected from the brick klin owners whether there was sale of bricks or not.
The Hon’ble High Court further held that it is trite to notice that the tax can be imposed as per Entry 54, list II State List of the Seventh Schedule, on the sale or purchase of goods, it is not possible to accept that the State Lagislature would be competent to impose tax on the capacity to produce brick klins by brick klin owners. The incidence of the tax is the sale and not the production. Therefore the provisions of sub-section 4 of section 5 are beyond the competence of the State Lagislature.
As a result the High Court declared said section 5(4) of Punjab General sales tax Act, 1948 as ultra vires of Article 246 read with Entry 54, List II-State list of Seventh Schedule.
It is worth mentioning here that the notification No. S.O.28/P.A.8/2005/S.8/2008 issued under section 8-A of Punjab VAT Act, 2005 imposing a lump sum tax on brick klin owners on the basis of the number of Ghoris in a brick klin i.e on the basis of the capacity of production, is similar to section 5(4) of Punjab General Sales Tax Act, 1948.
This Judgement of Punjab & Haryana High Court has raised a question mark on the constitutional validity of the lump sum tax imposed on the basis of production on the brick klin owners under Punjab VAT Act, 2005 as well.