2014 (5) TMI 176 - HC - VAT and Sales Tax

Exemption from Tax - Govt. Circular - Sale of diesel to Fishermen on par with the Government outlets Colorable exercise of power Jurisdiction under Article 226 Reasonable Classification Discriminatory & Arbitrary Actions Article 14 - Held that - By G.O.Ms.No.170 and G.O.M.s.No.130, the Government granted exemption from tax on sale of diesel to fishermen though outlets run by TNFDC, TAFCOFED and Authorised Private Dealers - There is no differentiation in the Government Order - The beneficiary under the Government Orders is the fishermen - If no exemption is granted, they have to purchase diesel at a higher rate - In both the Government Orders referred above, the exemption was also made applicable to Authorised Private Dealers - Therefore, any restriction at the point of supply can only be termed as arbitrary. Again in 2005, G.O.(D)No.110, Animal Husbandry and Fisheries Department was issued, wherein the Government had considered the need to grant exemption from sales tax to sale of diesel to fishermen by opening new outlets and even there no such restriction was contemplated - When the Government has not imposed any restriction in the Government Orders, the Committee has no right to give such findings that too without any reasoning - The Committee was only authorised to identify the private outlets which can be permitted to sell diesel to fishermen with tax exemption - However, it has gone beyond the scope of reference and imposed the conditions which according to us is arbitrary, as the Committee restricted supply in favour of TNFDC and TAFCOFED outlets - No doubt the scope of judicial review in the matters of policy decision is limited - However, when there is colourable exercise of power under the guise of reasonable restriction, this Court under Article 226 of the Constitution of India can very well interfere - For a classification to be reasonable, the conditions under which the classification is made must be different - When the conditions that apply to different parties are one and the same, any restriction on one party can only be termed as arbitrary and erroneous. Similarly, as rightly observed by the learned single Judge, when such restrictions were not imposed by GO, under the guise of memo / recommendations, the respondent cannot impose such restrictions - From the facts it is also seen that there is more demand in the areas where Authorised Private Dealers operate and the Government outlets are unable to sell their indented quota - Therefore, the argument that when sale is made, the revenue goes directly to the Government Agency cannot be applicable to the present facts - Because of the restriction imposed, the objects of the Government Orders are defeated - Not even a single case where there is misuse of the exemption in the sale made by Authorised Private Outlets is reported before this Court - Therefore, mere apprehension cannot be the ground for imposing restrictions, not contemplated under the Government Orders - The indent itself contains check and balance measures - Thus, concurring with the view of the learned single Judge and keeping in mind the public interest, it is hold that the actions of the appellants are discriminatory and arbitrary and affirm the Common order dated 15.06.2010 - In the result, these Writ Appeals are dismissed - Consequently, connected miscellaneous petitions are closed Decided against Revenue.

Summary

Issues Involved:
1. Whether the Government's restriction on the supply of tax-exempt diesel to private outlets is arbitrary and discriminatory.
2. Whether the actions of the Committee in restricting the supply of diesel to private outlets were beyond the scope of their authority.
3. Whether the Government's policy decision to favor TNFDC and TAFCOFED outlets over private outlets violates Article 14 and 19 of the Constitution of India.
4. Whether the private outlets have a right to be treated on par with government-operated outlets under the Government Orders.

Issue-wise Detailed Analysis:

1. Arbitrary and Discriminatory Restrictions:
The petitioners, private diesel outlets, argued that the Government's actions in restricting the supply of tax-exempt diesel to them were arbitrary and discriminatory. They contended that the indent raised to their outlets fell short of the demand, and the actions of the second appellant were against Articles 14 and 19 of the Constitution of India. The learned single Judge held that the ultimate beneficiaries of the Government Orders are the fishermen, and therefore, the actions of the appellants amounted to discrimination. The restrictions not contemplated under the Government Orders could not be imposed, and the authorities were directed to supply the demanded quantity without discrimination if the petitioners satisfied the requirements for supply and raised an indent for supply of diesel exempted from sales tax.

2. Committee's Authority:
The Committee formed under the directions of the Director of Fisheries went beyond their scope of reference by recommending that first priority be given to TNFDC and TAFCOFED and that private bunks selected would not be allotted more than 10% of the total quota eligible for that area. The Committee also stated that the selection of private outlets would be purely temporary and valid for one year only. The learned single Judge found that the Committee had no right to impose such conditions, which were arbitrary, as the Government Orders did not impose any such restrictions.

3. Policy Decision and Constitutional Violation:
The learned Advocate General argued that the Government was empowered to impose any restriction and that the policy decision to favor TNFDC and TAFCOFED outlets was to ensure that the sale of tax-exempt diesel reached the actual fishermen and to prevent black market supply. The learned Advocate General relied on the judgment in KRISHNAN KAKKANTH vs. GOVERNMENT OF KERALA AND OTHERS, where the Hon'ble Apex Court held that policy decisions framed by the Government are outside the scope of judicial review if they are not arbitrary or discriminatory. However, the learned single Judge observed that when there is a colorable exercise of power under the guise of reasonable restriction, the Court can interfere under Article 226 of the Constitution of India. The Court found that the restrictions imposed were arbitrary and erroneous as the conditions applied to different parties were the same.

4. Right to Equal Treatment:
The private outlets argued that the Government Orders granted them the right to be treated on par with government-operated outlets for the supply of tax-exempt diesel. The learned single Judge observed that the Government Orders conferred a right on the authorized private outlets, and any restriction at the point of supply could only be termed as arbitrary. The Court noted that the object of the Government Orders was to reduce the tax burden on fishermen, and the reasoning of profit going to a dealer did not arise. The Court held that the actions of the appellants were discriminatory and arbitrary, affirming the common order dated 15.06.2010, and dismissed the Writ Appeals.

Conclusion:
The High Court dismissed the Writ Appeals, holding that the actions of the appellants were discriminatory and arbitrary. The Court affirmed the common order dated 15.06.2010, directing the authorities to supply the demanded quantity without discrimination if the petitioners satisfied the requirements for supply and raised an indent for supply of diesel exempted from sales tax. The Court also clarified that if the Government decides to restrict the tax exemption for sale of diesel to Government-operated outlets alone, necessary modifications must be made in the Government Orders.