2005 (5) TMI 637 - HC - Service Tax

Summary

Issues Involved:
1. Constitutional validity of Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975.
2. Legislative competence of the State Legislature regarding the amendment.
3. Repugnancy between the Kerala Chitties Act, 1975 and the Chit Funds Act, 1982.
4. Extra-territorial operation of Sub-section 1(a) to Section 4.
5. Violation of Articles 14 and 19(1)(g) of the Constitution of India.
6. Issuance of a writ of mandamus directing the Union of India to notify the Chit Funds Act, 1982 in Kerala.

Detailed Analysis:

1. Constitutional Validity of Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975:
The petitioners challenged the constitutional validity of Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975, introduced by the Kerala Finance Act, 2002, as being beyond the legislative competence of the State Legislature and violative of Articles 14 and 19(1)(g) of the Constitution of India. They argued that this amendment was unconstitutional, void, and discriminatory.

2. Legislative Competence of the State Legislature:
The court analyzed the legislative powers of the Union and the States under Articles 245 to 255 of the Constitution of India. It was noted that both the State Legislature and Parliament have the power to legislate on matters under Entry 7, List III of the Seventh Schedule, which includes contracts dealing with chitties. The Kerala Chitties Act, 1975, was enacted by the State Legislature and received the President's assent, thus falling within the legislative competence of the State.

3. Repugnancy between the Kerala Chitties Act, 1975 and the Chit Funds Act, 1982:
The court examined whether there was any repugnancy between the Kerala Chitties Act, 1975, and the Chit Funds Act, 1982. It was established that if there is a repugnancy between a State law and a Central law on a matter in the Concurrent List, the Central law prevails. However, the court found that the Kerala Chitties Act, 1975, was not void under Article 254 due to repugnancy, as the Central Act had not been notified in Kerala.

4. Extra-territorial Operation of Sub-section 1(a) to Section 4:
The court found that Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975, had extra-territorial operation. This provision required chitties registered outside Kerala, with 20% or more subscribers residing in Kerala, to open a branch in Kerala and obtain sanction and registration under the Kerala Chitties Act. The court held that this was beyond the legislative competence of the State Legislature, as State laws cannot have extra-territorial operation.

5. Violation of Articles 14 and 19(1)(g) of the Constitution of India:
The court held that Sub-section 1(a) to Section 4 was discriminatory and violated Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession or to carry on any occupation, trade, or business. The requirement for chitties registered outside Kerala to open a branch and obtain registration in Kerala was deemed an unreasonable restriction on the petitioners' fundamental rights.

6. Issuance of a Writ of Mandamus:
The petitioners sought a writ of mandamus directing the Union of India to notify the Chit Funds Act, 1982, in Kerala. The court held that it could not issue such a direction under Article 226 of the Constitution, as the power to notify the Act was vested in the Central Government under Section 1(3) of the Chit Funds Act, 1982. The court cited the decision in Aeltemesh Rein v. Union of India, which established that courts cannot compel the government to bring a statute into force.

Conclusion:
The court set aside the judgment of the learned Single Judge and allowed the appeals. It declared Sub-section 1(a) to Section 4 of the Kerala Chitties Act, 1975, as introduced by the Finance Act, 2002, to be discriminatory, violative of Article 19(1)(g) of the Constitution, beyond the legislative competence of the State Legislature, and therefore void and unconstitutional.