2006 (9) TMI 522 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957.
2. Violation of Article 301 of the Constitution of India.
3. Violation of Articles 14 and 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Constitutionality of sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957:
The petitioners challenged the constitutionality of sub-section (4) of section 5G, which was added by Act No. 25 of 2002 with effect from February 15, 2003. Section 5G provides an alternative mode of assessment of tax for dealers liable under section 5F, allowing them to opt for a lower tax rate of four paise on every rupee of the total amount paid or payable towards the execution of the works contract. However, sub-section (4) denies this option to dealers who purchase or receive goods from outside the State for use in the execution of works contracts. The petitioners argued that this provision is discriminatory and violates the Constitution.

2. Violation of Article 301 of the Constitution of India:
Article 301 guarantees freedom of trade, commerce, and intercourse throughout India, subject to the provisions of Part XIII of the Constitution. The petitioners contended that sub-section (4) of section 5G imposes a restriction on this freedom by creating a disincentive for using goods procured from outside Andhra Pradesh. The Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam held that taxes directly and immediately restricting trade fall within the purview of Article 301. However, the court in the present case found that the impugned provision does not impose a direct or immediate restriction by way of taxation on the freedom of trade and commerce, as it only withdraws an option for a lower tax rate, rather than imposing a tax on goods procured from outside the State.

3. Violation of Articles 14 and 19(1)(g) of the Constitution of India:
The petitioners argued that sub-section (4) of section 5G violates Article 14 (right to equality) and Article 19(1)(g) (right to practice any profession, or to carry on any occupation, trade, or business) of the Constitution. The court noted that while sub-classification within a class of dealers is not prohibited, it must bear a reasonable nexus to a legitimate purpose. The State failed to provide any legitimate purpose for the sub-classification created by sub-section (4). The court found substantial force in the petitioners' submission and concluded that the impugned provision is violative of Article 14, as it lacks any legally tenable purpose and creates an unreasonable classification among dealers.

Conclusion:
The court declared sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957, unconstitutional for violating Article 14 of the Constitution of India. The writ petitions were allowed, and the rule nisi was made absolute, without costs.