1988 (12) TMI 315 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Entry 129-A under Article 14.
2. Alleged unreasonable restriction on fundamental right under Article 19(1)(g).
3. Discrimination between sweetmeat shop owners and hoteliers/restaurateurs under Section 5-C.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Entry 129-A under Article 14:

The petitioners challenged the constitutional validity of Entry 129-A introduced by the A.P. General Sales Tax (Amendment) Act (19 of 1986), claiming it violated Article 14 of the Constitution. Entry 129-A imposes a tax on articles of processed food prepared from flour of gram, cereals, pulses, or oil seeds, at the point of first sale in the state at a rate of 6 paise in the rupee, effective from June 1, 1986. The petitioners argued that this entry discriminates against them as similar food articles sold by hotels, restaurants, and eating houses are exempt from sales tax under Section 5-C if their annual turnover is less than Rs. 2 lakhs.

The court emphasized that in taxation matters, legislative discretion in classification is given a larger play, provided it adheres to the fundamental principles of equality. The court cited the Supreme Court's stance in V. Venugopala Ravi Varma Rajah v. Union of India, which allows the legislature to classify persons, properties, and transactions differently for tax purposes, as long as the classification is rational.

The court found that the petitioners (sweetmeat shop owners) and hoteliers/restaurateurs are not similarly situated. The distinguishing factor is the element of service provided by hotels and restaurants, which is emphasized in Section 5-C. Hotels and restaurants supply various food articles, including those not covered under Entry 129-A, and their transactions often involve an element of service, unlike the petitioners who primarily sell food items without any service component. Therefore, the court concluded that the classification was rational and did not violate Article 14.

2. Alleged Unreasonable Restriction on Fundamental Right under Article 19(1)(g):

The petitioners contended that the imposition of sales tax under Entry 129-A constituted an unreasonable restriction on their fundamental right to carry on their occupation, trade, or business under Article 19(1)(g). They argued that the tax burden would cause grave prejudice and unnecessary complications.

The court rejected this contention, noting that sales tax is an indirect tax typically passed on to the consumer. The collection and remittance of sales tax are standard business practices and cannot be considered prejudicial or overly burdensome. The court emphasized that this responsibility applies to all dealers dealing in goods listed in the First Schedule, regardless of their turnover. Therefore, the court found no merit in the argument that the tax constituted an unreasonable restriction on the petitioners' fundamental rights.

3. Discrimination Between Sweetmeat Shop Owners and Hoteliers/Restaurateurs under Section 5-C:

The petitioners argued that Section 5-C, which exempts hoteliers and restaurateurs from sales tax if their turnover is less than Rs. 2 lakhs, should also apply to them. They claimed that the differential treatment amounted to double discrimination, as they were taxed at a higher rate of 6 paise in the rupee, while hoteliers/restaurateurs were taxed at 5 paise in the rupee only if their turnover exceeded Rs. 2 lakhs.

The court clarified that Section 5-C specifically applies to dealers running restaurants, eating houses, or hotels, where the supply of food involves an element of service. The court rejected the argument that the words "in any other manner whatsoever" in Section 5-C should be interpreted to include pure sales without service. The court held that the essential element distinguishing hoteliers/restaurateurs from the petitioners is the service component, and where this element is lacking, the transaction would be considered a sale subject to sales tax, not a supply under Section 5-C.

The court also noted that the words in Section 5-C are a repetition of sub-clause (f) in clause (29-A) of Article 366 of the Constitution, introduced by the Forty-sixth Amendment, which treated such supplies as sales for tax purposes. The court concluded that the service element cannot be ignored or excluded from Section 5-C, and the differential treatment was justified.

Conclusion:

The court dismissed the writ petitions, holding that Entry 129-A did not violate Article 14 or constitute an unreasonable restriction under Article 19(1)(g). The court found that the classification between sweetmeat shop owners and hoteliers/restaurateurs was rational, and the differential treatment under Section 5-C was justified due to the service component involved in the latter's transactions. The court also rejected the petitioners' request for leave to appeal to the Supreme Court, stating that the case did not involve a substantial question of law of general importance.

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