2015 (5) TMI 138 - HC - VAT and Sales Tax

Levy of VAT on third point of sale of liquor of foreign origin in the State at the rate of 14.5% - Constitutional validity - Whether the Amendment Act No.25 of 2012 Entry 2 of Second Schedule and Explanation No.1 of the Tamil Nadu Value Added Tax Act, 2006 is violative of Articles 14 and 19(1)(g) of the Constitution of India - Held that - When a challenge is made to an enactment on the ground of Article 14 being violated, it must be demonstrated that there is an element of negation of equality. A mere discrimination per se cannot be termed as arbitrary, as a classification is meant for providing benefits to a group of persons. A differentiation must distinguish a group of persons or things identified as such from the things left out. While dealing with the classification, an accurate one is not possible. Revenue and economic considerations in taxing statute are permissible classifications. An objective must be a just one. It is a sine qua non for classification. A valid classification is a valid discrimination. A classification without reference to the object sought to be achieved would be hit by Article 14. Such a classification should not be arbitrary, artificial or evasive While dealing with the classification qua the constitutional validity of a statute, a Court of law is required to deal with the facts which made the legislation in classifying a group. However, when the object of the classification itself is discriminatory, then there is no need to go into the classification. Courts are required to afford larger latitude to the legislature in its exercise of classification. In other words, what is reasonable is a question of practical approach. While testing the policy underlying the statute, the intended object is to be ascertained. Goods that are specified in the Second Schedule are not vatable. A combined reading of Section 3(5) of the Act and the Second Schedule would make the said position very clear. Section 3(5) of the Act has not been put into challenge. The impugned Explanation 1 to the amended Entry 2 of the Second Schedule speaks only about the turnover as such. The classification made is perfectly in order. The petitioners, who are clubs and hotels, cannot be compared with the retail outlets of TASMAC. The customers of the TASMAC and the petitioners form two distinct and different categories based upon their respective socio-economic status. The petitioners are not prevented from doing their business. Therefore, there is no violation of Article 19(1)(g) involved. When the petitioners are selling liquor at a higher price than the TASMAC, they cannot seek parity. Having availed a set-off on the second point of sale, the petitioners cannot compel the respondents to extend the benefit at the third point of sale. With no grievance against the point of levy, the petitioners cannot challenge the manner in which it is imposed. The inclusion of certain goods including liquor in Second Schedule has not been put into challenge. Therefore, we are of the view that the petitioners cannot seek protection under Article 19(1)(g) of the Constitution of India. - Decided against assessee.

Issues Involved:
1. Constitutionality of Amendment Act No.25 of 2012, Entry 2 of Second Schedule, and Explanation No.1 of the Tamil Nadu Value Added Tax Act, 2006.
2. Discrimination and violation of Articles 14 and 19(1)(g) of the Constitution of India.
3. Legitimacy of taxing the entire sales turnover at the third point without any set-off.
4. Validity of classification between TASMAC and petitioners.
5. Allegation of double taxation.
6. Legislative competence and judicial review over policy decisions.
7. Applicability of Article 14 and Article 19(1)(g) in the context of liquor trade.

Detailed Analysis:

1. Constitutionality of Amendment Act No.25 of 2012:
The petitioners challenged the constitutionality of the Amendment Act No.25 of 2012, Entry 2 of the Second Schedule, and Explanation No.1 of the Tamil Nadu Value Added Tax Act, 2006 on the grounds of Articles 14 and 19(1)(g) of the Constitution. The court noted that the amendment aimed to address the anomaly in tax treatment between foreign liquor and Indian Made Foreign Liquor (IMFL) and to augment state revenue by imposing a 14.5% sales tax at the third point of sale.

2. Discrimination and Violation of Articles 14 and 19(1)(g):
The petitioners argued that the amendment led to discrimination between TASMAC and them, violating Articles 14 and 19(1)(g). The court held that the petitioners, being FL 2 and FL 3 licensees, formed a distinct category and did not have an absolute right to trade in liquor. The court emphasized that the right to trade in liquor is qualified and subject to state regulation under Article 19(6).

3. Taxing Entire Sales Turnover at the Third Point:
Petitioners contended that taxing the entire sales turnover at the third point without any set-off was arbitrary. The court found that the petitioners were not entitled to the same benefits as TASMAC, as they made considerable value additions and sold liquor at higher prices. The court upheld the classification and the method of taxation, stating that the petitioners could not seek parity with TASMAC.

4. Validity of Classification:
The court examined whether the classification between TASMAC and the petitioners was valid. It concluded that the classification was based on economic considerations and was not arbitrary. The petitioners and TASMAC served different customer bases, and the petitioners' customers formed a distinct socio-economic class. The court held that the classification had a rational nexus to the object sought to be achieved.

5. Allegation of Double Taxation:
The petitioners argued that the amendment resulted in double taxation. The court rejected this claim, stating that the tax was levied at different points of sale, and the petitioners had already availed set-off benefits at the second point of sale. The court found no evidence of double taxation.

6. Legislative Competence and Judicial Review:
The court reiterated that there is a presumption in favor of the constitutionality of an enactment. It emphasized that judicial review of policy decisions, especially in revenue matters, should be limited. The court held that the amendment was a policy decision aimed at increasing state revenue and regulating economic life, and it was not arbitrary or capricious.

7. Applicability of Article 14 and Article 19(1)(g) in Liquor Trade:
The court noted that the right to trade in liquor is not absolute and is subject to state regulation. It referred to the Supreme Court's decision in Khoday Distilleries Ltd. v. State of Karnataka, which held that the state could regulate and even monopolize the liquor trade. The court concluded that the petitioners' rights under Articles 14 and 19(1)(g) were not violated, as the classification and taxation were reasonable and served a legitimate state interest.

Conclusion:
The court dismissed all the writ petitions, upholding the constitutionality of the Amendment Act No.25 of 2012, Entry 2 of the Second Schedule, and Explanation No.1 of the Tamil Nadu Value Added Tax Act, 2006. It found no violation of Articles 14 and 19(1)(g) and held that the classification and taxation were valid and reasonable. The court emphasized the limited scope of judicial review over policy decisions in the field of revenue and affirmed the state's authority to regulate the liquor trade.

← Previous Next →