1991 (7) TMI 338 - AT - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Item 2 in Schedule IV to the Bengal Finance (Sales Tax) Act, 1941.
2. Legislative competence and classification for higher tax rates.
3. Allegation of double taxation.
4. Violation of Article 14 of the Constitution.
5. Violation of Article 19(1)(g) of the Constitution.
6. Validity of Section 13 of the 1941 Act read with Rule 67A of the Bengal Sales Tax Rules, 1941.

Issue-wise Detailed Analysis:

1. Constitutionality of Item 2 in Schedule IV to the Bengal Finance (Sales Tax) Act, 1941:
The applicants argued that the amendment introducing Item 2 in Schedule IV, which raised the tax rate from 8% to 15% for air-conditioned hotels, restaurants, etc., was ultra vires the Constitution. They claimed it created inequality among equals and amounted to artificial discrimination. The court found no valid cause for grievance, stating that if the Legislature is competent to levy a tax, it is also competent to raise the rate of tax for one class of dealers unless it violates Article 14 or another constitutional provision.

2. Legislative Competence and Classification for Higher Tax Rates:
The respondents argued that the Legislature made a reasonable classification aimed at collecting higher taxes from affluent sections of society. The court agreed, stating the classification had a rational nexus with the object sought to be achieved. The taxable event was the sale of cooked food, not the luxury or air-conditioning. The court held that the levy was clearly on sales of cooked food and not on luxury, thus falling under entry 54 of List II of the Seventh Schedule to the Constitution.

3. Allegation of Double Taxation:
The applicants contended that the higher tax rate amounted to double taxation since air-conditioning was already taxed under the 1972 Act. The court rejected this argument, stating that double taxation in the strict legal sense means taxing the same property or subject-matter twice for the same purpose, period, and territory. Here, the Legislature imposed a luxury tax under entry 62 and a sales tax under entry 54, which are distinct legislative powers.

4. Violation of Article 14 of the Constitution:
The applicants argued that the classification was unreasonable and violated Article 14. The court held that the classification was reasonable, as it aimed to collect more tax from economically superior sections of society. The court relied on the Supreme Court's decision in Federation of Hotel & Restaurant Association of India, which upheld similar classifications. The court found that the classification had a rational nexus with the object of collecting higher taxes from affluent sections and was not discriminatory.

5. Violation of Article 19(1)(g) of the Constitution:
The applicants claimed that the higher tax rate resulted in a diversion of customers from air-conditioned to non-air-conditioned hotels, violating their right to carry on business. The court found no material evidence to support this claim. It referred to the Supreme Court's decision in Express Hotels Private Ltd., which held that the excessiveness of a tax does not amount to a violation of Article 19(1)(g). The court concluded that the provision did not infringe Article 19(1)(g).

6. Validity of Section 13 of the 1941 Act read with Rule 67A of the Bengal Sales Tax Rules, 1941:
The applicants challenged the requirement to enter the name and address of purchasers in cash memos for transactions exceeding Rs. 20, claiming it was unreasonable and impossible to perform. The court found no substance in this contention, stating that the requirement applied to all registered dealers and was not specific to air-conditioned hotels. The court held that the provision was valid and constitutional, and the applicants failed to establish any violation of constitutional provisions.

Conclusion:
The court held that Item 2 in Schedule IV to the 1941 Act, Section 13 of the 1941 Act, and Rule 67A of the Bengal Sales Tax Rules, 1941, were valid and constitutional. The applications were dismissed, and interim orders, if any, were vacated. No order was made for costs.

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