1990 (6) TMI 212 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 6D of the Bengal Finance (Sales Tax) Act, 1941 under Article 14 of the Constitution of India.
2. Alleged arbitrary differentiation between contractors based on annual contractual transfer price.
3. Retrospective application of tax liability under Section 6D.

Detailed Analysis:

Issue 1: Constitutionality of Section 6D under Article 14
The applicant challenged Section 6D of the Bengal Finance (Sales Tax) Act, 1941, arguing it was violative of Article 14 of the Constitution of India. The applicant contended that the section was discriminatory and unreasonable, as it imposed tax on sales by way of transfer of property in goods involved in the execution of works contracts from April 1, 1984, based on the contractual transfer price of the previous year ending March 31, 1984.

The Tribunal held that the classification under Section 6D was reasonable and rational. The Tribunal noted that in taxation laws, a certain degree of latitude in the matter of classification is allowed to the Legislature. The classification was based on an intelligible differentia, distinguishing contractors whose annual contractual transfer price exceeded Rs. 2 lakhs from those whose price did not. This differentia had a rational nexus to the legislative objective of taxing economically superior contractors.

Issue 2: Alleged Arbitrary Differentiation
The applicant argued that the differentiation between contractors whose annual contractual transfer price exceeded Rs. 2 lakhs and those whose price did not was arbitrary. Additionally, it was contended that it was unreasonable to require contractors falling under Section 6D(1)(b)(i) to pay tax from April 1, 1984, based on the previous year's contractual transfer price, whereas contractors under Section 6D(1)(b)(ii) would start paying tax from April 1, 1985.

The Tribunal upheld the differentiation, stating that the classification was reasonable and founded on an intelligible differentia. The object of the legislation was to exclude smaller contractors with a contractual transfer price below Rs. 2 lakhs from the tax net, which was a rational objective. The Tribunal referred to various judgments, including Federation of Hotel & Restaurant Association of India v. Union of India, to support the view that the Legislature enjoys wide discretion in classification for tax purposes.

Issue 3: Retrospective Application of Tax Liability
The applicant contended that the concept of "contractual transfer price" could not be applied retrospectively to periods before April 1, 1984. The Tribunal disagreed, stating that the Legislature has the power to legislate retrospectively, even in taxing statutes. The Tribunal noted that the tax was exigible from April 1, 1984, and the Legislature intended to use the contractual transfer price of the previous year to ensure the tax's applicability from that date. This retrospective application was neither arbitrary nor discriminatory.

The Tribunal concluded that Section 6D(1)(b)(i) did not suffer from arbitrariness or discrimination and was intra vires Article 14 of the Constitution. Consequently, the notice for assessment for the period ending March 31, 1985, issued to the applicant was valid and lawful.

Conclusion:
The application challenging Section 6D of the Bengal Finance (Sales Tax) Act, 1941, was dismissed. The Tribunal held that the section was constitutional and did not violate Article 14. The classification between contractors based on the contractual transfer price was reasonable and had a rational nexus to the legislative objective. The retrospective application of the tax liability was also upheld as valid.