1996 (12) TMI 370 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Maintainability of the petitions.
2. Validity of Section 27 of the Assam General Sales Tax Act, 1993 concerning public companies under Article 14.
3. Validity of Section 27 of the Assam General Sales Tax Act, 1993 concerning public companies under Article 19(1)(g).

Issue-wise Detailed Analysis:

1. Maintainability of the Petitions:

The respondents argued that the petitions were not maintainable because the petitioners did not specifically mention that they were "public companies." However, the court noted that the petitioners described themselves as "Company Limited," which, under Section 13(1)(a) of the Companies Act, indicates that they are public companies. The court, therefore, held that the petitions were maintainable.

2. Validity of Section 27 under Article 14:

The petitioners contended that Section 27 of the Assam General Sales Tax Act, 1993, which obligates public companies to deduct tax at source, was arbitrary and violated Article 14 of the Constitution due to unreasonable classification. They argued that there was no rational basis for distinguishing public companies from private companies, Hindu Undivided Families (HUFs), or individuals, all of whom are similarly situated regarding tax obligations.

The court examined the principle of equality under Article 14, which allows for reasonable classification for legislative purposes. However, it emphasized that such classification must be based on an intelligible differentia and must have a rational nexus with the object sought to be achieved by the statute. The court found no reasonable basis for differentiating between public companies and private companies, HUFs, or individuals, as all are similarly situated concerning tax obligations. Therefore, the court held that Section 27, as it pertains to public companies, violated Article 14 and was liable to be struck down.

3. Validity of Section 27 under Article 19(1)(g):

The petitioners also argued that the obligation to deduct tax at source imposed by Section 27 constituted an unreasonable restriction on their right to carry on business, violating Article 19(1)(g) of the Constitution. The court acknowledged that the State has the power to impose reasonable restrictions on the right to practice any profession or to carry on any trade or business in the interest of the general public, as per Article 19(6).

The court noted that the collection of taxes is crucial for the State to carry out welfare activities and that preventing tax evasion is a legitimate objective. It concluded that the obligation to deduct tax at source was a part of the business operations and did not constitute an unreasonable restriction on the right to carry on business. Therefore, the court held that Section 27 was not violative of Article 19(1)(g).

Conclusion:

The court concluded that while Section 27 of the Assam General Sales Tax Act, 1993, was not violative of Article 19(1)(g), it was violative of Article 14 due to the lack of reasonable classification between public companies and other entities. Consequently, the provision was struck down as it pertained to public companies. The petitions were allowed to the extent indicated, with no order as to costs.