Legislat ive Hist ory of t he Sales Tax Law in Kerala

The hist ory of Sales t ax in I ndia begins fr om 1938. Dur ing t he pr e- independence
days t he Provinces in Br it ish I ndia wer e empower ed under t he Gover nment of
I ndia Act , 1935 t o levy t axes on t he sale of goods and on t he advert isement s, as
per Ent ry 48 in list I I of t he VI I t h Schedule of t he Act . At t he same t ime t he
Pr incely St at e had sovereign legislat ive powers t o pr omulgat e t heir own laws for
t he levy of t ax on t he t ransact ion of sale of goods. The first Pr ovince in I ndia t o
levy a t ax on sale of goods by exercising powers of t he Government of I ndia Act
1935, was Cent ral Provinces and Berar ( renamed Madhya Pradesh aft er
I ndependence) , which in 1938 levied a t ax on t he r et ail sale of mot or spir it and
lubr icant s. This levy however was only a select ive Sales t ax. The Province of
Madras was t he poineer province in I ndia in t he mat t er of int roducing a scheme of
General Sales t ax. Madras int roduced a Gener al Sales t ax in 1939 on mult ipoint
syst em. I n 1941 Bengal followed a single point syst em. I n t he same year Punj ab
commenced General Sales t ax on mult i point syst em. Short ly aft er t his, almost
all t he Pr ovinces and some of t he Pr incely St at es int roduced Sales t ax in one f or m
or ot her.
2. Though t he St at e of Kerala it self was formed only on 1- 11- 1956 by t he
int egrat ion of t he Malabar Dist r ict and t he Kasaragod Taluk of t he Sout h Kanar a
Dist r ict of t he Madras St at e wit h t he Travancor e Cochin St at e ( except ing t he
areas t ransferr ed t o t he Madras St at e) , which it self was t he r esult of an earlier
int egrat ion of t he t wo princely st at e of Travancor e and Cochin on 1- 7- 1949 Sales
t ax was int r oduced in t he component part s of t he St at e on much ear lier dat es. I n
t he erst while Cochin St at e, Sales t ax was int roduced on t he f irst day of Chingam
1122 corr esponding t o t he 17
t h
day of August 1946 by t he Cochin Sales Tax Act
( Act XV of 1121) . I n t he erst while Travancor e St at e t he int r oduct ion of Sales t ax
was on 1- 10- 1124 M E by t he Travancor e General Sales Tax Act 1124 ( Act XVI I I
of 1124) . So far as t he erst while Malabar Dist rict and t he Kasaragod Taluk ar e
concer ned, t he Madras General Sales t ax Act , 1939 ( Act I X of 1939) t he Madras
Sales of Mot or Spir it Taxat ion Act , 1939 ( Act VI of 1939) and t he Madr as Tobacco
( Taxat ion of Sales and Regist rat ion) Act , 1953 ( Act I V of 1953 wer e in force at
t he t ime of t he int egrat ion on 1- 11- 1956. Soon aft er t he int egrat ion of
Travancore and Cochin st at es, a unified Act for t he newly formed Unit ed St at es of
Travancore and Cochin as t he new st at e was t hen called was pr omulgat ed in
1950 under t he t it le "The Unit ed St at e of Travancore and Cochin General Sales
Tax Act 1125 ( Act XI of 1125) ". This Act received t he assent of His Highness t he
Raj Pramukh on 5
t h
Januar y 1950 cor responding t o 21
st
Dhanu 1125 and as per
Government Not ificat ion No S R 1- 353 A / 49/ RD dat ed 29- 5- 1950 t he Act came
int o force on 30
t h
May 1950. The scheme of t axat ion was, in general, a mult i
point one at t he rat e of t here paisa for every I ndian rupee on t he t ot al t ur nover
wit h addit ional t ax at r at es ranging from 3 pies t o 9 pies per rupee at specified
single point s in respect of cert ain specified classes of goods and exempt ion in
respect of some ot hers. At t he same t ime in respect of a few it ems of goods, t he
scheme of t axat ion was single point one. The assessable limit was fixed as net
t ur nover of Rs. 10,000. The Travancor e General Sales t ax Act 1124 ( Act XVI I I of
1124) and t he Cochin Sales t ax Act 1121 ( Act XV of 1121) were r epealed by Act
XI of 1125. By t he end of November 1950, t he t it le of t he Act was alt ered as The
Travancore Cochin General Sales t ax Act , 1125, by t he Travancor e Cochin
Adapt at ion of Laws Act ( Act XXI X of 1950) which was published in t he Travancore
Cochin Gazet t e of 28- 11- 1950 wit h immediat e effect . Aft er t he f ormat ion of t he
Kerala St at e on 1- 11- 1956, t he name of t he Tr avancore Cochin General Sales t ax
Act , 1125 ( Act XI of 1125) was changed as t he General Sales t ax Act 1125 ( Act
XI of 1125) and it was ext ended t o t he Malabar ar ea wit h eff ect fr om 1- 10- 1957
by t he Travancor e Cochin General Sales t ax ( Amendment ) Act 1957 ( Act 12 of
1957) . Till t hen, t he pre int egrat ion Act s ment ioned above cont inued t o be in
force in t he respect ive areas. I n r espect of t he financial year 1957, special
provisions were made in t he Amendment Act for t aking int o account t he t urnover
under t he Madras General Sales t ax Act 1939 also while complet ing t he
assessment for t hat financial year. I n 1963, t he General Sales t ax Act 1125 was
repealed and re- enact ed by t he Kerala Gener al Sales t ax Act , 1963 ( Act XV of
1963) , which now cont inues t o be in force. The changes brought about fr om t ime
t o t ime in t he Sales t ax law from t he int r oduct ion of Act XI of 1125 ar e discussed
below.
3. The first amendment t o t he Travancor e Cochin General Sales t ax Act 1125
was by t he Act 28 of 1950, which int r oduced an addit ional t ax at 4 annas per
rupee on t he first sale of t obacco. As a r esult of t he Federal Financial I nt egrat ion
t he ent ir e Cust oms, Revenue of t he St at e was vest ed in t he Cent ral Government
and hence t he St at e has t o face a serious set back in t he Collect ion of Revenue.
This amendment was int r oduced t o compensat e for t he loss in cust oms dut y on
t obacco consequent on t he Federal Financial I nt egrat ion.
4. The next amendment of t he Travancore Cochin General Sales t ax Act , 1125
was by Act 12 of 1951, consequent on t he passing of t he Const it ut ion on 26
t h

January 1950. This is an import ant landmark in t he hist or y of Sales t ax Laws in
Kerala. Befor e passing t he Const it ut ion by t he parliament , each st at e or province
exercising eit her it s sover eign legislat ive powers or t he powers under t he
Government of I ndia Act 1935, picked up one or mor e of t he ingr edient s of sale
and act ing on t he pr inciple of t er r it or ial nexus enact ed Sales t ax Laws for t heir
own St at es or Pr ovinces. Assam and Bengal made among ot her t hings t he act ual
exist ence of t he goods in t he Pr ovince at t he t ime of t he cont ract of sale as t he
t est of t axabilit y. I n Bihar , t he pr oduct ion or manufact ur e of t he goods in t he
province was made an addit ional gr ound. A t ax net of t he widest range was laid
in Cent ral Pr ovince and Berar wher e it was sufficient if t he goods were act ually
found in t he Pr ovince at any t ime aft er t he cont ract of sale or pur chase was
made. As regards Madras t he exist ence of t he goods and product ion aft er t he
cont ract in respect of fut ur e goods wit hin t he Pr ovince was adopt ed as t he t est of
t axabilit y. Travancor e Cochin st at es followed t he lines of Madras. This led t o
mult iple t axat ion in int er St at e t rade or commerce result ing in cumulat ion of
burden falling ult imat ely on t he consuming public. This sit uat ion posed t o t he
Const it ut ion makers, t he pr oblem of rest r ict ing t he t axing power of t he St at es on
sales or purchase involving int er St at e element s and alleviat ing t he t ax burden of
t he consumer. At t he same t ime t hey were evident ly anxious t o maint ain t he
St at e power of imposing non discr iminat ory t axes on goods import ed from ot her
St at es, while upholding t he economic unit y of I ndia by pr oviding for t he fr eedom
of int er st at e t rade or commerce. I n t heir at t empt t o harmonise and achieve
t hese goals t hey enact ed t he Art icles 286, 301 and 304. These art icles read as
follows.
286 ( 1) No law of a St at e shall impose, or aut hor ise t he imposit ion of a t ax on
t he sale or purchase of goods wher e such sale or purchase t akes place-
( a) Out side t he St at e or
( b) I n t he course of t he import of t he goods, int o or export of t he goods out of
t he t err it ory of I ndia
Explanat ion- For t he purpose of sub clause ( a) a sale or purchase shall be
deemed t o have t aken place in t he st at e in which t he goods have Act ually been
delivered as a dir ect result of such sale or purchase for t he purpose of
consumpt ion in t hat st at e not wit hst anding t he act t hat under t he general law
relat ing t o sale of goods t he pr opert y in t he goods has by reason of such sale or
purchase passed in anot her st at e.
( 2) Except in so far as Parliament may by law ot herwise provide no law of a St at e
shall impose or aut hor ise t he imposit ion of a t ax on t he sale or purchase of any
goods wher e such sale or purchase t akes place in t he course of int er St at e t rade
or commerce.
Provided t hat t he President may by order dir ect t hat any t ax on t he sale or
purchase of goods which was being lawfully levied by t he Government of any
St at e immediat ely befor e t he commencement of t his Const it ut ion shall
not wit hst anding t he imposit ion of such t ax is cont rary t o t he provisions of t his
clause cont inue t o be levied unt il t he t hirt y- first day of March 1951.
( 3) No law made by t he Legislat ure of a St at e imposing or aut hor ising t he
imposit ion of a t ax on t he sale or purchase of any such goods as have been
declar ed by par liament by law t o be essent ial f or t he life of t he communit y shall
have effect unless it has been reserved for t he considerat ion of t he pr esident and
has received his assent .
301. Subj ect t o t he pr ovisions of t his Part , commerce and int ercourse
t hr oughout t he t er r it ory or I ndia shall be free.
304. Not wit hst anding anyt hing in Art icle 301 or Art icle 303 t he Legislat ur e
of a St at e may by law
( a) I mpose on goods import ed fr om ot her St at es any t ax t o which similar
goods manufact ured or produced in t hat St at e are subj ect , so, however, as not t o
discriminat e bet ween goods so import ed and goods so manufact ured or
produced; and
( b) I mpose such reasonable r est rict ions on t he fr eedom of t rade, commerce
or int ercourse wit h or wit hin t hat St at e as may be requir ed in t he public int er est .
Provided t hat no bill or amendment for t he purposes of clause ( b) shall be
int r oduced or moved in t he Legislat ur e of a St at e wit hout t he pr evious sanct ion of
t he Pr esident .
5. The Const it ut ion came int o force on 26
t h
January 1950. But by t he Sales
t ax Cont inuance Order 1950 t he levy of t ax ion int er St at e sales wer e allowed t o
cont inue t ill 31
st
March 1951. The Sales t ax Cont inuance Order 1950 read as
under;
I n exercise of t he powers conferr ed by t he pr oviso t o clause ( 2) of Art icles 286
of t he Const it ut ion of I ndia, t he President is pleased t o make t he following order ; -
1. ( i) This order may be called t he Sales Tax cont inuance Order 1950
( ii) I t shall come int o force at once
2 Any t ax on t he sale or purchase of goods which was being lawfully levied by t he
Government of any St at e immediat ely befor e t he commencement of t he
Const it ut ion of I ndia, shall unt il t he t hirt y first , day of March 1951, cont inue t o be
levied not wit hst anding t hat t he imposit ion of such t ax is cont rary t o t he pr ovision
of clause ( 2) of Art icle 286 of t he said Const it ut ion.
6. Wit h t he passing of t he Const it ut ion, some of t he St at es in I ndia amended t he
definit ion of sale in t heir Act s, t o bring it in t he line wit h t he pr ovision of Art icle
286. I n Travancore Cochin as in Madras St at e, a new sect ion viz; sect ion 26,
which in effect was only a reproduct ion of Art icle 286 was insert ed by t he
Travancore Cochin General Sales t ax ( Amendment ) Ordinance, 1951 which was
t hen replaced by t he Act 12 of 1951. The st at ement of obj ect s and r easons for
t his sect ion published in t he Travancor e Cochin Gazet t e No 33- dat ed 14- 8- 1951 is
reproduced below.
Art icle 286 of t he Const it ut ion of I ndia lays down cert ain r est rict ions on t he
imposit ion of t ax on t he sale or purchase of goods. Accordingly no t ax is leviable
on t he sale or purchase of goods if t he sale or purchase t akes place out side t he
St at e or in t he course of import int o or export out of t he t errit or y of I ndia. But
under t he provisions of t he Travancor e Cochin General Sales Tax Act , 1125 as
t hey st and t ax is leviable on t he sale or purchase of goods wher ever t he cont ract
of sale or purchase might have been made if t he goods are act ually in t he St at e
at t he t ime when t he cont ract was concluded. I t was t her ef or e necessary t o
amend t he Act in order it make it s provisions conform t o t he pr ovisions of Art icle
286 of t he Const it ut ion. Accordingly, a new sect ion viz; Sect ion 26, which mer ely
st at es t he rest rict ions laid down in Art icle 286 was int roduced in t he Act by t he
Travancore Cochin General Sales t ax ( Amendment ) Ordinance, 1951. This bill is
int ended t o r eplace t he above Ordinance by an Act of t he legislat ur e.
7. The main change in 1952 was t he enhancement of t he Addit ional t ax on pet rol
from 9 pies t o I anna 9 pies per rupee by Act 13 of 1952. This change incr eased
t he Sales t ax r evenue t o a great ext ent .
8. The next import ant change in t he administ rat ion of Sales t ax Law was t he
commencement of levy of t ax on cert ain cat egories of int er St at e sales commonly
known as Explanat ion Sales on t he basis of t he j udicial pronouncement by t he
Supr eme Court of I ndia in t he case of The St at e of Bombay and Anot her Vs. The
Unit ed Mot ors ( I ndia) Lt d; and Ot hers ( 1953 I V S T C 133) . I n t hat case t he
Supr eme Court held t hat t he Explanat ion t o Art icle 286 ( 1) of t he Const it ut ion
provided by means of a legal fict ion t hat t he St at e in which t he goods sold or
purchased ar e act ually delivered for consumpt ion t her e in is t he St at e in which
t he sale or purchase is t o be consider ed t o have t aken place, not wit hst anding t he
fact t hat t he propert y in such goods passed in ot her St at e and t hat St at e had t he
power t o t ax t he sale or purchase. Relying on t his int erpret at ion of Art icle 286 by
t he Supr eme Court ,a number of St at e Gover nment s commenced serving not ices
on dealers in ot her St at es demanding Sales t ax requir ing appearance wit h
account books et c, in r espect of such int er - St at e t ransact ions. The Government
of I ndia received a large number of repr esent at ions complaining against t he
hardship caused by t hese not ices. Aft er consult at ion wit h t he St at e Government s
t he Government of I ndia convened t he officials commit t ee, which was appoint ed
by t he " Conference of Finance Minist ers" t o consider how t he sit uat ion should be
met . The commit t ee evolved an int er im scheme for dealing wit h t he levy of t ax
et c. , on int er St at e sales by t he St at e Gover nment s. A press not e embodying t he
scheme was issued by t he Cent ral Government on 11- 2- 1954. I n pursuance of
t he said scheme t he Gover nment of Travancore Cochin decided t o levy t ax on
int er st at e sales fr om 1- 4- 1953, t he dat e immediat ely following t hat on which t he
Supr eme Court delivered it s j udgment , and t o forgo t he levy pr ior t o t hat dat e. A
Press Not e explaining t he posit ion was issued by t he St at e Gover nment on 5- 2-
1954. As per t he press not e, t ax was payable by non r esident dealers selling
goods for deliver y and consumpt ion in Travancore Cochin St at e from 1- 4- 1953.
9. I n 1955 by Act 18 0f 1955 in t he light of exper ience gained t ill t hen a
number of maj or modificat ions were made in t he provisions of t he Act which
came in t o effect on 1- 10- 1955. The most import ant of t hem were: -
( 1) Making pr ovisions for t he appoint ment of an independent Judicial Tr ibunal
t o hear appeals against orders of t he Appellat e Asst . Commissioners and suo
mot u orders of t he Deput y Commissioner for r evision before t he High Court
against orders of t he Appellat e Tribunal and fr om appeal befor e t he high court
against suo mot u orders of t he Board of Revenue.
( 2) Empower ing t he officers of t he Sales Tax Depart ment t o seize account
books and document s in cert ain circumst ances;
( 3) Enlarging t he list of it ems under t he single point syst em of t axat ion;
( 4) Exempt ing handloom clot h fr om levy of t ax as a measure of
encouragement of t he handloom indust r y; and
( 5) I nt r oduct ion of an addit ional t ax on fine and superfine mill made t ext ile t o
compensat e for t he loss due t o exempt ion of handloom clot h from t ax.
10. Anot her change brought about in 1955 was t hat pet rol and mot or spir it
ot her t han pet rol wer e brought under t he single point scheme of t axat ion by Act
25 of 1955 at t he rat es of t wo annas and t hree pies and nine pies r espect ively.
11. Dur ing t he year 1955, t he St at e had t o face a serious sit uat ion regarding
levy of t ax on int er St at e sales consequent on t he hist orical decision of t he
Supr eme Court in Bengal I mmunit y Company Vs. St at e of Bihar on 6
t h

Sept ember 1955. Over ruling it s own ear lier decision in St at e of Bombay and
Anot her Vs. The Unit ed Mot ors I ndia ( I ndia Lt d., ) and Ot hers, t he Supr eme
Court in t he case of Bengal I mmunit y Company gave it s aut hor it at ive
int erpr et at ion on Art icle 286 of t he Const it ut ion and laid down t hat t he St at es had
no power t o t ax on I nt er St at e sales. This decision creat ed ser ious confusion and
uncert aint y regarding t he levy of t ax dur ing t he period 14- 1951 t o 6- 9- 1955.
Several St at es including t he Travancore Cochin st at es had already collect ed t ax
from non- r esident dealers and st eps for collect ion wer e in pr ogr ess in respect of
several ot hers. I n t his sit uat ion t he Gover nment of I ndia had t o st ep in t o set at
rest t he confusions and uncert aint ies. This led t o t he pr omulgat ion of t he Sales
t ax Laws Validat ion Or dinance, 1956 by t he President on 30
t h
Januar y 1956
validat ing t he levy of t ax on int erst at e sales or purchases bet ween 1- 4- 1951 and
6- 9- 1955. This was lat er followed by t he Sales Tax Laws Validat ion Act , 1956
passed by t he Par liament and published wit h t he Pr esident s assent on 21
st
of
March 1956.
12. As regards amendment of t he Act in 1956, t he only change was t hat
Sect ion 3 was amended making provisions for provisional assessment s wit h
ret rospect ive effect from 30- 5- 1950 by Act 8 of 1956.
13. On 1- 11- 1956, t he Kerala St at e was for med and by t he Kerala Adapt at ion
of Laws Order, 1956, t he Travancor e Cochin and t he Madras Act s wer e made
applicable t o t he respect ive part s of t he St at e unt il unificat ion of t he laws.
14. The year 1957 marks an import ant epoch in t he hist ory of sales t ax in
I ndia in general. As discussed above, following t he decision of t he Supr eme
Court in t he St at e of Bombay ands Anot her Vs. The Unit ed Mot ors ( I ndia) Lt d.
and Ot hers, t he st at es began levying t ax on int er St at e sales and we had t he
misfort une of having conflict ing decisions of t he High Court s regarding t he scope
of Art icle 286. I n 1953, t he Gover nment of I ndia convened a Confer ence of
Finance Minist ers t o solve t he difficult ies caused by t hose decisions and t o
consider t he quest ion of br inging about a measure of uniformit y in t he sales t ax
Laws of t he var ious St at es. On 1
st
Apr il 1953, t he Government of I ndia also
const it ut ed t he Taxat ion Enquiry Commission headed by lat e Dr. John
Mat hai. The r eport of t he Commission was published in 1955. One of t he
recommendat ions of t he Commission was t o amend t he Const it ut ion empowering
t he Cent ral Gover nment t o levy t ax on int er St at e sales and purchases of goods
ot her t han newspaper s. Accordingly, t he Const it ut ion was amended by t he
Const it ut ion ( Sixt h Amendment ) Act , 1956 delet ing explanat ion t o clause ( 1) ( a)
of Art icle 286 and subst it ut ing t he exist ing clause ( 2) and ( 3) by new clauses
which enabled t he Parliament t o make laws t o formulat e pr inciples f or
det ermining when a sale of purchase of goods t akes place out side a St at e and in
t he course of import of t he goods int o or expor t of t he goods out of t he t err it ory
of I ndia. A new ent r y viz. 92- A was also int r oduced in t he union List empower ing
t he Cent ral Government t o levy t axes on t he sale or purchase of goods ot her t han
news papers, where such sale or purchase t akes places in t he cour se of int er
st at e t rade or commerce. I n pursuance of t hese changes in t he Const it ut ion, t he
Government of I ndia int roduced a Bill in t he Parliament on 21
st
November 1956
which was passed as t he Cent ral Sales t ax Act 1956 ( Act 74 of 1956) . This Act ,
except sect ion 15 came int o force on 5
t h
Januar y 1957. The Cent ral sales t ax Act
enabled t he St at e Government s t o impose, on behalf of t he Cent ral Government a
t ax on t he sale or purchase of goods in t he course of int er st at e t rade or
commerce. The levy of t ax under t he Cent ral Sales t ax Act 1956 commenced
from 1st July 1957.
15. On 1- 4- 1957 t he rat es of t ax were changed t o t he decimal syst em of
coinage by Act 4 of 1957.
16. On 1- 9- 1957 t he Kerala Surcharge on Taxes Act , 1957 ( Act 11 of 1957)
came int o force. Under t his Act , a Surcharge on Sales t ax came t o be int r oduced
at t he rat e of 2 1/ 2 percent in case t he t ur nover exceed t hirt y t housand r upees.
17. The year 1957 is also of gr eat import ance in t he hist ory of Sales t ax Laws
in Kerala since t he name of t he Travancor e Cochin General Sales t ax Act was
changed as General Sales t ax Act , 1125 and it was ext ended t o t he Malabar ar ea
including Kasaragod as st at ed in para 2 above wit h effect from 1- 10- 1957 by Act
12 of 1957. The Madras Act s already in force in t hose ar eas wer e also r epealed
by Act XI I of 1957. The Amendment Act also br ought under t he single point
scheme of t axat ion a large number of commodit ies by t he insert ion for t he f irst
t ime, a schedule of 40 it ems of goods in t he Act . This was a subst ant ial change
in t he scheme of t axat ion, which originally was almost a mult i point one. Sect ion
26 was also amended by Act 12 of 1957 by delet ing t he words except in so far
as Parliament may by law ot her wise provide from sub sect ion ( 1) ( b) and
delet ing subsect ion ( 2)
18. From 14- 12- 1957 t he Cent ral Government began levying an Addit ional
Excise Dut y on mill made t ext iles ( ot her t han pur e silk) sugar and t obacco and
t he St at e gave up t he t ax on t he sale or purchase of t hose commodit ies. This
was done by promulgat ion of Ordinance VI I I of 1957 which was lat er r eplaced by
Act 7 of 1958
19. The exempt ion of mill made t ext iles, sugar and t obacco fr om Sales t ax
effect ed by Act 7 of 1958 did not however apply t o t he st ock held by a dealer
immediat ely before 14- 12- 1957. Doubt s ar ose as t o t he manner of assessment
of such st ocks. The int ent ion was t hat t hey should be liable t o t ax at t he same
rat es and at t he same point s, as t hey wer e liable immediat ely before 14- 12-
1957. This posit ion was made clear by t he Ordinance I of 1958, which was
replaced by Act 21 of 1958.
20. Act 21 of 1958 also made considerable changes in t he levy of t ax on
luxur y goods. The rat es of Sales t ax on luxury goods var ied f rom st at e t o st at e,
which led t o diversion of t rade and evasion of t ax. Wit h a view t o over come t hese
difficult ies, t he Nat ional Development Council agreed t o a syst em of uniform levy
of sales t ax on luxury goods. The Conf er ence of t he Finance Minist ers which
consider ed t he subj ect furt her unanimously agr eed t hat a uniform rat e of t ax at 7
per cent on single point syst em be levied on cert ain it ems of luxur y goods in all
St at es permit t ing however, t hose St at es which wer e already levying a higher rat e
t o cont inue t he same. Schedule 1 of t he Act was t her efor e amended suit ably. I t
was enlarged t o 45 it ems by br inging in five more it ems under single point t ax.
21. Anot her import ant st ep forward in t he development of sales t ax law in
1958 was t he enact ment of Sect ion 16 A by Act 21 of 1958 providing for t he
est ablishment of Check Post s wit h a view t o pr event evasion of t ax by regulat ing
movement of goods wit hin and across t he st at e borders. Check Post s were
est ablished under t his new provision wit h effect from 1- 12- 1958. The
int r oduct ion of Check Post s proved t o be t he most effect ive met hod of prevent ion
of evasion of t ax.
22. I n t he year 1958, by Act 22 of 1958, t he rat e of t ax on mot or spir it ot her
t han pet r ol was raised t o 20 nps from 8 np and t imber was brought under single
point syst em of t ax at 8 np at t he last purchase point . ( The rat e of t ax on t imber
and 3 np for soft wood wit h r et rospect ive effect fr om 1- 4- 1058) . Bot h t hese
changes were effect ed from 1- 4- 1958. By t he same Amendment Act , t he it ems
Cocoanut and Copr a and Cashew and it s Ker nel in Schedule 1 of t he
Pr incipal Act wer e amended as Cocoanut including copra , and Cashew- nut
including it s ker nel . Unfort unat ely t hese changes subsequent ly gave r ise t o
ser ious difficult ies as discussed in paragraph 31 below.
23. I n t he course of six mont hs, t imber had t o be again brought under mult i
point levy as t he single point levy proved unsuccessful and t his was done wit h
effect fr om 1- 10- 1958 by Ordinance 8 of 1958 which was r eplaced by Act 40 of
1958.
24. I n 1959 t he only change in law was t hat Toddy was made t axable wit h
effect fr om 1- 4- 1959 by Act 14 of 1959
25. The changes in Sales t ax Act in 1960 wer e t he amendment s of sect ion 5
( vii) wit h effect fr om 1- 10- 1957 by Ordinance 1 of 1960, which was replaced by
Act 3 of 1960 and of Schedule 1 by Act 11 of 1960. The amendment of Sect ion 5
( vii) was necessit at ed by t he j udgment of t he Kerala High Court in O P No 12 of
1959, t hat t he not ificat ion specifying t he last purchase in t he st at e by a dealer
who is not exempt fr om t axat ion under sect ion 3 as t he point liable t o t ax in
respect of some of t he goods specif ied in t he Schedule was beyond t he power
conferred by sect ion 5 ( vii) . Sect ion 5 ( vii) was t herefore suit ably amended wit h
effect fr om 1- 10- 1957 and all t axes levied, assessed and collect ed and all
proceedings t aken, orders passed and act s done in pursuance of t he not ificat ions
under sect ion5 ( vii) wer e validat ed. Act 11 of 1960 brought under t he single
point scheme of t axat ion, a few more it ems like bicycles paint s and colours scent s
and perfumes, lubr icat ing oils and greases et c from 1- 8- 1960 by insert ing it ems
46 t o 49
26. I n t he same year t he rat e of surcharge on sales t ax was raised t o 5% f rom
2 1/ 2 % wit h effect from 1- 4- 1960
27. I n 1961, some maj or changes wer e made in t he provisions of t he Act by
Act 11 of 1961 and Act 40 of 1961. By Act 11 of 1961 food grains which were
exempt from t ax under license were made t axable under t he single point scheme,
t he point of levy being t he first sale in t he st at e allowing however exempt ion on
rice sold t hrough fair price Shops. Provision for payment of t ax at t he
compounded rat es in r espect of dealers wit h t ur nover of not mor e t han t went y
five t housand rupees was made for t he f irst t ime as a measur e of r elief t o small
dealers by Act 11 of 1961. The rat e of t ax on for eign liquor was also enhanced t o
40 percent fr om 25 percent by t he same Amendment Act . These changes wer e
brought int o effect fr om 1- 4- 1961. Act 40 of 1961 which replaced Ordinance 7 of
1961 was enact ed t o overcome t he difficult ies caused by t he j udgment in O P No
987of 1960 of t he Kerala High Court .
28. I n 1962, Sect ion 26 of t he Pr incipal Act regarding int er st at e sales was
amended by Act 9 of 1962 wit h ret rospect ive effect fr om 1- 4- 1951. Sect ion 26 of
t he Pr incipal Act pr ohibit ed t he levy of t ax on int er St at e sales which t ook place
aft er 31- 3- 1951, wher eas t he sales t ax Laws validat ion Act , 1956 validat ed t he
levy of t ax by st at es up t o 6- 9- 1955. I n cert ain t ax revision cases, t he High
Court of Kerala held t hat t he levy of t ax from 1- 4- 1951 t o 6- 9- 1955 was illegal as
sect ion 26 as amended in 1957 prohibit ed t he levy aft er 31- 3- 1951. By Act 9 of
1962 t he words 31
st
day of March 1951 wer e replaced by 6
t h
day of Sept ember
1955 wit h r et rospect ive effect fr om 1- 4- 1951 wit h a view t o validat e t he
imposit ion and collect ion of t ax from 1- 4- 1951 t o 6- 9- 1955. This Amendment
was also st ruck down as ult ravir es by t he High Court in Deput y commissioner ,
Eranakulam Vs. The Cochin Coal Co., Lt d. , - XI V, S T C 845
29. Anot her import ant change in 1962 was t he subst it ut ion of Schedule 1 wit h
effect fr om 1- 4- 1962 by a new Schedule consist ing of as many as 80 it ems by Act
13 of 1962, on t he r ecommendat ions of t he High Level Sales t ax Commit t ee. The
single point scheme of t axat ion was t hereby widened t o a very large ext ent .
30. The Madras General Sales t ax Act , 1939 ,t he Madras Sales of Mot or Spir it
Taxat ion Act , 1939 and t he Madras Tobacco ( Taxat ion of Sales and Regist rat ion)
Act , 1953 as in f orce in t he erst while Malabar dist rict and Kasaragod Taluk were
repealed by Act 12 of 1957. The validit y of act s done et c., by t he Officers and
aut horit ies appoint ed under t he General Sales t ax Act 1125 in respect of mat t ers
under t he r epealed Act s was quest ioned on t he ground t hat such Officers wer e
not Officers appoint ed under t he Repealed Act s. Ther ef or e, a new proviso was
added t o Sect ion 27( 2) confer ring upon such Officers, powers under t he said
Repealed Act s, wit h ret r ospect ive effect fr om 1- 10- 1957 by Act 16 of 1962.
31. The only amendment in 1963 was of sect ion 1 by Act 10 of 1963 making
specific provision wit h effect fr om 1- 11- 1957 for t he r ealizat ion and recovery of
all amount s collect ed purport ing t o be sales t ax by any person. This was t he last
amendment of Act XI of 1125, bef ore it s r epeal by Act XV of 1963. But t her e was
one subsequent amendment aft er t he repeal and t hat was by Act 8 of 1964. The
High Court of Kerala by t heir decision in K A Kar im vs. The Sales t ax Appellat e
Tr ibunal and ot hers XI V S T C 36 and Poulose Br os vs. The St at e of Kerala XI V
S T C 40 held t hat t he ent r ies Coconut including Copra and Cashew nut
including it s kernel in t he schedule 1 did not permit levy of t ax on copra and
cashew ker nel at t he point of purchase and assessment s made imposing t ax on
copra and cashew ker nel at t he purchase point wer e illegal. I n order t o overcome
t his difficult y, Ordinance I of 1964 was pr omulgat ed amending t he said it ems in
t he Schedule and validat ing all pr oceedings made and orders passed. The
Ordinance was replaced by Act 8 of 1964. However in K C Ant ony vs. Sales t ax
Officer, Er anakulam 1964 XV S T C 620 t he High Court of Kerala st ruck down
bot h Ordinance I of 1964 and Act 8 of 1964 as ult ra vires.
32. As discussed above t here had been several amendment s t o Act XI of 1125
and some of t hem especially t hose relat ing t o est ablishment of Check Post s
checking of goods in t ransit s, inspect ion of business places et c. , which wer e
t arget s of at t ack by t he business communit y and t he public. Ther e was also
persist ent demand for simplifying t he sales t ax syst em and t he law fr om t he
members of t he Sales Tax Advisory Commit t ee, t rade int erest s and Members of
t he Legislat ur e. At t he same t ime t he Sales t ax Depart ment was also pr essing
t he Government for ser ies of amendment s t o t he sales t ax Act for plugging
loopholes of evasion or in t he alt er nat ive for t he enact ment of a new sales t ax
Law immediat ely. The Gover nment t herefor e const it ut ed a High Level Sales Tax
Commit t ee in November 1960 wit h Sri. P S Nat araj a Pillai Ex- Finance
Minist er as t he Chairman. The commit t ee t ook evidence from t he
represent at ives of t he Trade, Plant at ions and Local Bodies, Members of t he
Legislat ur e, Officers et c and submit t ed it s r eport on 29
t h
March 1961. I n addit ion
t o submit t ing t he r eport , t he Commit t ee was asked t o draft a simplif ied Bill. The
commit t ee aft er making a comparat ive st udy of t he sales t ax Laws in t he
neighbor ing St at es, draft ed a Bill and forwarded it t o Gover nment on 10
t h
March
1961. Aft er a car eful st udy of t he report and t he Bill, t he Government int r oduced
t he Bill in t he Assembly and aft er being passed, r eceived t he assent of t he
Governor on 5- 3- 1963. The new Act , The Kerala General Sales t ax Act , 1963
( Act 15 of 1963) was published in t he Gazet t e dat ed 6- 3- 1063 and brought int o
force wit h eff ect fr om 1- 4- 1963.
33. The First Amendment of t he new Act was in March 1963 by Act 21 of
1963. This Amendment Act raised t he General rat e of Sales t ax fr om 2 per cent
t o 3 percent by amending clause ( ii) of sub sect ion ( 1) of Sect ion 5 and sub
sect ion ( 4) of Sect ion 5, and t he rat e of t ax of it ems 12 t o 21 in Schedule I from
7 percent t o 10 percent by amending t he First Schedule. An addit ional it em 50 A
aviat ion t urfine fuel t axable at t he point of f irst sale in t he st at e at 6 percent was
also int roduced by Act 21 of 1963. As t his Amendment Act was given effect from
1- 4- 1963, act ually, t he Act XV of 1963 came int o force in t he amended form.