History of Sales tax in Kerala

History of Sales tax in India is dated back to the Government of India Act, 1935 to levy taxes on the sale of goods and on the advertisements. It was first implemented in 1938 in the Central India by levying tax on motor spirit and lubricants. General Sales tax with a proper scheme was first introduced in the Madras province in 1939. By the early 1940s, almost all the provinces and most of the princely states have introduced Sales tax in one form or other.

In Kerala, Sales tax was introduced in the component parts of the states on much earlier dates. Salers tax was introduced in the erstwhile Cochin State in 17^th August 1946 by the Cochin Sales tax Act (Act XV of 1121). Two years later, the erstwhile Travancore State has also introduced Sales tax under Travancore Sales tax Act (Act XVIII of 1124). After the integration of Travancore and Cochin states, a unified Act for the newly formed United States of Travancore and Cochin as the new state was then called was promulgated in 1950 under the title “The United State of Travancore and Cochin General Sales Tax Act 1125 (Act XI of 1125). As per the Government Notification No.SR 1-353 A/49/RD dated 29.05.1950, the Act came into force on 30^th May 1950. By the end of November 1950, the title of the Act was altered as the Travancore Cochin General Sales Tax Act, 1125 by the Travancore Cochin Adaptation of Laws Act (Act XXIX of 1950) which was published in the Travancore Cochin Gazette of 28.11.1950 with immediate effect. After the formation of the Kerala state on 1.11.1956, the name of the Act was changed as the General Sales Tax Act, 1125 and was extended to the Malabar region with effect from 1.10.1957 by the Travancore Cochin General Sales tax Act (Amendment) 1957.

The first amendment to the Travancore Cochin General Sales Tax Act 1125 was in 1950. This introduced an additional tax at 4 annas per rupee on the first sale of tobacco. The next amendment was by Act 12 of 1951, consequent on the passing of the Constitution on 26^th January 1950. Even after the Constitution came into force, the levy of tax on interstate sales were allowed to continue till 31^st March 1951 by the Sales tax Continuance Order 1950. Another major change was in 1952, by the enhancement of the Additional tax on petrol by Act 13 of 1952. The next important change in the administration of Sales tax  Law was the commencement of levy of tax on certain categories of interstate sales commonly known as Explanation Sales.

During the year 1955 the state had to face a serious situation regarding levy of tax on interstate Sales consequent on the historical decision of the Supreme Court in Bengal Immunity Company Vs State of Bihar on 6^th September 1955. This lead to the promulgation of the Sales tax Laws Validation Ordinance in 1956 on the levy of tax on interstate Sales or purchases between 1.4.1951 and 6.9.1955. This was later followed by the Sales Tax Laws Validation Act, 1956. On 21^st November 1956, the Government of India introduced a Bill in the parliament which was passed as the Central Sales tax Act 1956. The levy of tax under the Central Sales tax Act 1956 commenced from 1^st July 1957.

Act 21 of 1958 made considerable changes in the levy of tax on luxury goods. The rates of Sales tax on luxury goods varied from state to state, which led to diversion of trade and evasion of tax. Another important step forward in the development of Sales tax law in 1958 was the enactment of Section 16A by Act 21 of 1958 providing for the establishment of Check Posts. In 1961, some major changes were made in the provisions of the Act by Act 11 and Act 40 of 1961. By Act 11 of 1961, food grains which were exempt from tax under license were made taxable under the single point scheme. Act 40 of 1961 was enacted to overcome the difficulties caused by the judgment in O P No.987 of 1960 of the Kerala High Court.

These being some of the major changes that were applied to the Act over the years, there had been several amendments to Act XI of 1125 and some of them especially those relating to establishment of Check Posts, checking of goods in transits, inspection of business places etc., which were targets of attacks by the business community and the public. The Government therefore constituted a High Level Sales Tax Committee in November 1960 with Sri. P S Nataraja Pillai, Ex-Finance Minister as the Chairman. After careful studies, the committee drafted a Bill and forwarded it to the Government. The Government introduced the Bill in the parliament and passed on 5.3.1963. The new Act, “The Kerala General Sales tax Act, 1963 (Act 15 of 1963)” was brought into force with effect from 1.4.1963.

As per the Kerala Board of Revenue Abolition Act 1998 in July 1988, the Board of Revenue was renamed as the Department of Commercial Taxes. Other important Acts in the history of taxes in Kerala are Kerala Tax on Luxuries Act 1976, Kerala Agriculture Income Tax Act 1991, Kerala Tax on Entry of Goods into Local Areas Act 1994 and The Kerala Value Added Tax Act (KVAT) 2003. Kerala Value Added Tax (Act 30 of 2004) came into force on 1^st April 2005. The new taxing system called “Goods and Service Tax” has been implemented with effect from 1.07.2017.