1992 (3) TMI 308 - SC - VAT and Sales Tax

Whether it was not competent for the Tamil Nadu Legislature to declare that the theatres situated within the five kilometre radius (belt) of the municipal corporation areas and the areas of special grade municipalities shall be subjected to the same method of taxation as the theatres situated within the said areas? Held that - Appeal dismissed. Not impressed by the argument that the impugned changeover amounts to unreasonable restriction upon the petitioners fundamental right to trade. Whichever the system, the exhibitor s liability is only to make over the tax collected by him to the State. We have referred hereinbefore to material placed before the court, which shows that the theatres situated within the belts are in no way differently situated than the theatres located within the corporation areas. It may also be noted that all that has been done by the impugned provision is to bring back these theatres to admission system, by which they were governed prior to 1978 amendment.

Issues Involved:
1. Classification of theatres based on location.
2. Reasonableness and arbitrariness of the amendment.
3. Hostile discrimination and equal protection under Article 14.
4. Legitimate expectation of theatre owners.
5. Confiscatory nature and restriction on trade under Article 19(1)(g).

Detailed Analysis:

1. Classification of Theatres Based on Location:
The appellants contended that the Act classifies theatres with reference to their location, subjecting theatres within municipal corporation limits to higher taxes than those in other areas. The impugned amendment, however, brought theatres within a five-kilometre radius of municipal corporation areas under the same taxation system as those within the corporation limits, creating a "belt" system. The appellants argued that this classification was unreasonable and amounted to hostile discrimination. The court held that the classification was reasonable because theatres within the belt enjoy advantages such as proximity to affluent customers from corporation areas, which justifies treating them similarly to theatres within the corporation limits.

2. Reasonableness and Arbitrariness of the Amendment:
The amendment was challenged as arbitrary and unreasonable for classifying theatres within a local area into two categories and treating them differently. The court found that the classification had a rational basis, as theatres within the belt draw customers from corporation areas and enjoy similar economic advantages. The court cited evidence such as the mushroom growth of theatres just outside municipal limits and their preference by distributors for first-run pictures, supporting the reasonableness of the classification.

3. Hostile Discrimination and Equal Protection Under Article 14:
The appellants argued that the amendment violated Article 14 by treating unequals equally and creating hostile discrimination. The court emphasized that taxation laws must pass the test of Article 14 but allowed for a wide discretion in classification for taxation purposes. The court found that the classification of theatres within the belt was not unreasonable and had a nexus to the object of the enactment, which was to simplify tax collection and increase revenue.

4. Legitimate Expectation of Theatre Owners:
The appellants claimed a legitimate expectation based on legislative practice that they would not be brought under the admission system. The court found no evidence of a consistent legislative practice that could create such an expectation. It noted that prior to 1978, all theatres were governed by the admission system, and changes had been made over the years. The court held that legitimate expectation could not be used to invalidate legislation.

5. Confiscatory Nature and Restriction on Trade Under Article 19(1)(g):
The appellants argued that the amendment was confiscatory and imposed an unreasonable restriction on their fundamental right to trade. The court rejected this argument, stating that the exhibitors' liability was only to make over the tax collected to the State. The court found that the theatres within the belt were in a similar position to those within corporation areas and that the changeover to the admission system did not impose an unreasonable restriction on trade.

Conclusion:
The Supreme Court dismissed the appeals, holding that the classification of theatres within a five-kilometre radius of municipal corporation areas was reasonable and had a rational basis. The amendment did not violate Article 14 or impose an unreasonable restriction on the fundamental right to trade under Article 19(1)(g). The court found no basis for the claim of legitimate expectation and upheld the validity of the impugned provisions.

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