1961 (3) TMI 76 - SC - VAT / Sales Tax

Whether the restraint caused by the law was more than was necessary in the interests of the general public? Held that - Appeal dismissed. The ratio of Narendra Kumar's case 1959 (12) TMI 38 - SUPREME COURT applies fully to the present case and the pro- vision contained in sub-section (6) of section 4 is a reasonable restriction within the meaning of Article 19(6) of the Constitution.

Summary

Issues:
Constitutionality of provisions under the Madras Sales of Motor Spirit Taxation (Andhra Pradesh Extension and Amendment) Act, No. V of 1958 regarding registration and cancellation of registration certificates for dealers in motor spirit in Hyderabad.

Detailed Analysis:

1. Background and Facts:
The petitioners, dealers in motor spirit in Hyderabad, challenged the validity of the Hyderabad Sales of Motor Spirit Taxation Regulation and subsequently the Madras Sales of Motor Spirit Taxation (Andhra Pradesh Extension and Amendment) Act, which repealed the Regulation. The petitioners stopped collecting tax during a stay order, leading to best judgment assessments being made against them. The petitions challenged the Act's provisions on the cancellation of registration certificates as a restriction on their fundamental right to carry on business under Article 19(1)(g) of the Constitution.

2. Constitutionality of Section 4(1) - Registration of Dealers:
Section 4(1) of the Act mandates registration for carrying on the business of motor spirit, enabling the State to identify those liable to pay tax under the Act. The Court found this provision to be reasonable, as it facilitates tax collection for the general revenues of the State without imposing an undue restriction on conducting business in motor spirit. The petitioners did not challenge this section, and hence, it was deemed constitutional.

3. Constitutionality of Section 4(6) - Cancellation of Registration Certificates:
Section 4(6) allows for the suspension or cancellation of registration certificates, impacting a dealer's ability to continue the motor spirit business. The petitioners argued that this provision was an unreasonable restriction on their right to carry on business. However, the Court held that cancellation of registration was a legitimate coercive measure to ensure tax compliance, essential for the State's revenue collection and public administration. The Court referenced a previous case to support its decision, emphasizing that cancellation of registration, even if leading to business extinction, was justified in the interest of the general public.

4. Justification for Cancellation and Tax Collection:
The Court highlighted that dealers typically pass on the tax burden to consumers by including it in the price, effectively collecting the tax from consumers. Therefore, failure to pay the tax or fraudulent evasion by dealers was considered unjustified, justifying the cancellation of registration as a means to ensure tax payment to the State. The Court concluded that the cancellation of registration under Section 4(6) was a reasonable restriction under Article 19(6) of the Constitution, dismissing the petitions with costs.

In summary, the Supreme Court upheld the constitutionality of the provisions under the Madras Sales of Motor Spirit Taxation Act, emphasizing the importance of registration for tax collection and justifying the cancellation of registration certificates as a coercive measure to ensure tax compliance and revenue collection for the State's general revenues and public administration.