2008 (3) TMI 641 - HC - VAT and Sales Tax

Constitutional validity of section 61(1) and the Explanation thereto, of the Maharashtra Value Added Tax Act, 2002 challenged Held that - The challenge based on article 14 is to be rejected as Chartered accountants by reason of their training have special aptitude in the matter of audit. An income-tax practitioner does not have the same expertise as the chartered accountants in the matter of accounts. The argument therefore, that the effect of such a provision will be to exclude all other categories of authorised representatives except the chartered accountants from carrying on their profession is liable to be rejected, as they constitute two distinct class having a nexus with the object of the provisions, which is prevention of evasion of tax dues. The contention that such a provision brings in an oppressive restriction is also liable to be rejected as auditing accounts is a specialised job. Legal practitioners and chartered accountants are equal for the purpose of representation of assessees before assessing authority but they are not equals for the purpose of compulsory audit. In the light of this object, chartered accountants and others cannot be said to be similarly situate. The qualifications and eligibility to be enrolled as income-tax practitioners are entirely different from that of chartered accountants from the point of view Of auditing. Merely because, apart from dealers whose turnover is more than 40 lakhs, dealers dealing in liquor trade have also to get their accounts audited does not make the provision arbitrary. Such dealers are a class by themselves as they are carrying on a trade which is res extra commercium. Section 29 of the Advocates Act till date has not been brought into force. Apart from that one fails to understand the stand of the Bar Council after the decision of the Supreme Court in T.D. Venkata Rao 1998 (12) TMI 6 - SUPREME Court wherein the Supreme Court has accepted the fact that chartered accountants by the reason of their training have special aptitude in the matter of audit. The act of maintaining accounts is neither pleading, practice nor acting. For the reasons already discussed, we find that the challenge to the constitutional validity of the legislation under articles 14 and 19 at the instance of the Bar Council will also have to be rejected. Under section 82, there are a class of persons from whom a dealer can obtain services for being represented before the authorities under the Act. Under section 61, he is bound to select one of the class of accountants also. This is for a category of dealers whose turnover is more than 40 lakhs. The amount of fee which has to be paid is the amount to be decided between the dealer and that person, whom he selects from amongst the accountants that are available. This cannot be said to amount to compulsory levy amounting to tax. That being the case, the challenge under article 265 must also fail. Similarly, the question of article 301 being attracted, does not arise. The challenge on that count also has to be rejected as the right claimed by the petitioner or their members or by the dealer is that advocate and sales tax practitioner cannot carry out audit in terms of section 61 in the State of Maharashtra. The enactment is pursuant to the power of the State legislation to make law within its competence. This does not attract article 301. Appeal dismissed.

Summary

Issues Involved:
1. Constitutional validity of Section 61(1) and its Explanation of the Maharashtra Value Added Tax Act, 2002.
2. Violation of Article 14 (Equality Clause).
3. Violation of Article 19(1)(g) (Right to Carry on Profession).
4. Violation of Article 254 (Competence of State Legislature).
5. Violation of Article 265 (Tax Levy and Collection).
6. Violation of Article 301 (Freedom to Carry on Trade, Commerce, and Intercourse).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 61(1) and its Explanation:
The primary challenge was to the constitutional validity of Section 61(1) of the Maharashtra Value Added Tax Act, 2002, which mandates that only chartered accountants or cost accountants can perform audits for dealers whose turnover exceeds Rs. 40 lakhs. The petitioners argued that this provision excluded advocates and sales tax practitioners, who have historically been involved in such audits.

2. Violation of Article 14 (Equality Clause):
The petitioners contended that Section 61(1) created an arbitrary classification by excluding advocates and sales tax practitioners from performing audits, despite their expertise in sales tax laws. They argued that this exclusion was discriminatory and violated the equality clause under Article 14. The court, however, held that the classification was reasonable and had a nexus with the objective of preventing tax evasion and ensuring proper maintenance of accounts. The court cited the Supreme Court's decision in T.D. Venkata Rao v. Union of India, which upheld similar provisions under the Income-tax Act.

3. Violation of Article 19(1)(g) (Right to Carry on Profession):
The petitioners argued that the exclusion of advocates and sales tax practitioners from performing audits under Section 61(1) violated their right to carry on their profession. The court rejected this argument, stating that the provision did not prohibit them from practicing their profession, as they could still appear before tax authorities. The court held that the restriction was reasonable and served the public interest by ensuring that audits were conducted by professionals with specialized training in accountancy.

4. Violation of Article 254 (Competence of State Legislature):
The petitioners argued that the mandatory requirement to engage chartered accountants for audits was not within the competence of the State Legislature under Entry 54 of List II of the Seventh Schedule. The court held that the provision was within the legislative competence of the State as it was ancillary to the main object of the Act, which was the levy and collection of sales tax. The court found no merit in the argument that the provision amounted to outsourcing statutory powers to a third party.

5. Violation of Article 265 (Tax Levy and Collection):
The petitioners contended that the additional financial burden of engaging chartered accountants for audits amounted to a compulsory levy, violating Article 265. The court rejected this argument, stating that the fees paid to chartered accountants were a matter of private contract between the dealer and the accountant. The court held that the provision did not amount to a compulsory levy or tax.

6. Violation of Article 301 (Freedom to Carry on Trade, Commerce, and Intercourse):
The petitioners argued that the additional financial burden and compliance cost imposed by Section 61(1) impeded their freedom to carry on trade, commerce, and intercourse, violating Article 301. The court rejected this argument, stating that the provision was a reasonable restriction in the interest of public revenue and did not violate Article 301.

Conclusion:
The court found no merit in any of the petitions and upheld the constitutional validity of Section 61(1) and its Explanation of the Maharashtra Value Added Tax Act, 2002. The court held that the classification of chartered accountants and cost accountants for conducting audits was reasonable and had a nexus with the objective of preventing tax evasion. The court also extended the time to file form 704 up to June 30, 2008, for the accounting years 2005-06 and 2006-07.