1971 (10) TMI 89 - SC - VAT and Sales Tax

Vires of section 3-D(1) of the U.P. Sales Tax Act, 1948 questioned - Held that - Appeal dismissed. The rule of discrimination does not rule out classification. The power of classification under a fiscal law is larger than in the case of other laws. Hence there was nothing wrong in the Legislature making a classification between licensed dealers and dealers who are not licensed. Even when a dealer who is not licensed is liable to pay purchase tax, the ultimate burden falls on his principal. For these reasons, we do not see any basis for the contention that section 3-D is violative of article 14.

Summary

Issues:
Validity of section 3-D(1) of the U.P. Sales Tax Act, 1948 - Delegation of power to the executive - Constitutionality under article 14.

Analysis:
The judgment by the Supreme Court addressed the appeals challenging the validity of section 3-D(1) of the U.P. Sales Tax Act, 1948. The main contention was regarding the excessive delegation of power to the executive under this section and the alleged violation of article 14 of the Constitution. The appellants, who were dealers in rab, questioned the levy of purchase tax based on this section. The High Court had previously upheld the validity of section 3-D, stating that the power conferred on the State Government was valid and not in violation of article 14.

The Court examined the legislative power to delegate the authority to fix tax rates to the executive, emphasizing the necessity for flexibility in taxation to meet societal and economic goals. Referring to the State of Madras v. Gannon Dunkerley & Co. case, the Court reiterated that delegating details of taxation laws to the executive is not unconstitutional. It was noted that the power delegated under section 3-D was not excessive, considering the legislative practice and the upper limit prescribed by the Legislature in similar cases.

Regarding the argument of discrimination under article 14, the Court explained that the power to levy tax inherently includes measures to prevent tax evasion. The distinction made between purchases through licensed and unlicensed dealers was justified, as licensed dealers are bound by regulations to maintain accurate records, enabling authorities to track transactions. In contrast, unlicensed dealers pose a higher risk of tax evasion due to the lack of accountability. The Court emphasized that the power of classification in fiscal laws is broader, and the differentiation between licensed and unlicensed dealers was reasonable to prevent tax evasion.

Ultimately, the Court dismissed the appeals, upholding the validity of section 3-D(1) of the U.P. Sales Tax Act, 1948. The judgment highlighted the importance of delegation in modern governance and the need for flexible taxation policies to address evolving societal needs and economic goals.