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TMI Blog2015 (5) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10887, 10888, 11473 to 11476, 11480, 11481, 12131, 12717, 12943, 12945, 13006, 13010, 13152, 13245, 13273, 13381, 13416, 13436, 13455, 13605, 13749, 13863, 13868, 13956, 13968 to 13973, 14039, 14061 to 14069, 14073 to 14079, 14559 to 14563, 14681, 14706, 14752, 14756, 14793, 14968, 14969, 16353, 16877, 16878, of 2012, 984, 996, 1652, 1653, 5493, 7198, 19633 of 2013 21361, 21362, of 2014 & M.P.Nos.1 to 1 of 2013 1, 1 , 1 of 2015 ORDER The Hon'ble The Chief Justice And M. M. Sundresh,J. The constitutionality of 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, (hereinafter referred to as ''the Act'') on the touch stone of Articles 14 and 19(1)(g) of the Constitution of India, is challenged before us. Acknowledging the commonality of the issues, we deem it appropriate to dispose of the writ petitions by a single order. Factual Matrix:- 2. The petitioners are hotels and clubs holding FL 2 and FL 3 licences to sell alcoholic liquor to their customers. The licences encompass both foreign liquor and Indian Made Foreign liquor. The foreign liquor is being sold by the petitioners to their cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent 2. Alcoholic liquors of all kinds for human consumption, other than liquors falling under items and 3 At the point of third sale in the State 14.5 per cent 5. The working mechanism as per the impugned amendment is provided hereunder for better appreciation: ''Price Structure Per case (12 Bottles - 9 litres) (Per Bottle 750ml.) (Golden Grape Ordinary Brandy) Distilleries to TASMAC Rs. Basic Price - 416.86 Excise duty (@102.93 x 9 litres x 75%)- 694.78 = 1111.64 Sales Tax @ 58% = 644.75 Selling price of distilleries (or)) Purchase price of TASMAC) - 1756.39 TASMAC to Public (or) Clubs (FL2 Licence), Hotels (FL3 License) Purchase price of TASMAC - 1756.39 Insurance @ 0.35% - 6.15 Total Cost - 1762.54 Wholesale profit Margin @ 23.87% - 420.72 Additional profit Margin @ 10% - 41.89 Transfer price - 2225.15 Retail Profit Margin @ 10% - 222.52 Rounding off effect - 32.35 Selling Price - 2480.02 Value Added (2480.02 - 1111.64) - 1368.38 Sales Tax @ 38% 519.98 Selling price of TASMAC (Per Case) - 3000.00 (2480.02 + 519.98) Per Bottle - 3000.00 = 250.00'' 6. Aggrieved over the aforesaid levy of tax on the sales effected by the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers is a third one. The classification based upon economic consideration is perfectly valid. The petitioners were already given adequate benefits on the sale effected by TASMAC. They have made considerable value additions before making sale to their customers. The fact that they are selling at a higher price is not in dispute. The customers of the TASMAC and the customers of the petitioners are totally different. The impugned amendment has been introduced to augment more revenue to carry out welfare measures. The petitioners having availed a set-off at the second point of sale cannot complain that there is no set-off at the third point also. They are catering to the elite clienthle, which forms a separate class by itself. The TASMAC is neither a club nor a hotel having FL license. The petitioners' right to carry on the business has not been taken away. Article 19(1)(g) is subject to Article 19(6). The classification is perfectly valid and there is no arbitrariness involved. As the TASMAC is concerned with the second sale and the petitioners are involved with the third sale, there is no comparison between the two. Certain goods along with liquor have also been included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods for cash, deferred payment or other valuable consideration; (vi) a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (vii) a person engaged in the business of delivery of goods on hire purchase or any system of payment by installments; (viii) a person engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. (ix) a person engaged in the business of supplying by way of, or as part of, any service or in any other manner whatsoever of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration.'' A perusal of the above provision would show that it is very exhaustive in nature. There is no difficulty in holding that both the petitioners and the TASMAC would come under the said definition. However, the said Section merely defines a ''dealer'' and it cannot be said that notwithstanding the other pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred with power to make rules. While Section 80(1) deals with general power, Section 80(2) deals with the matters over which it can be exercised. What is important is that Section 80 is meant to give effect to the substantive provisions of the Act by framing rules. 14. Coming to Section 86, it empowers the 1st respondent to amend the Schedules. Under Section 86(1), the respondent by a notification can alter, add or cancel any of the Schedules. This provision deals with the amendment of the Schedules alone. The specific language used in Section 86 includes 'add to' to the Schedule in addition to alteration or cancellation. As the constitutionality of this provision is not under challenge and in view of the specification mentioned therein, one can safely conclude that the 1st respondent can exercise the power under Section 86(1) by way of amending the Schedules. 15. In exercise of the foregoing power, the 1st respondent has duly amended the Second Schedule. As discussed above, the Second Schedule deals with certain goods which would be outside the VAT, such as liquor, aviation gasoline, petrol, high speed diesel oil, light diesel oil, kerosene, Molasses, sugar, Sugarc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been followed in a subsequent decision of this Court reported in Surinder Singh vs. Central Government & Ors (1986 (4) SCC 667). The Central Government had not framed rules in respect of disposal of property forming part of the compensation pool as contemplated under the provisions of the relevant Act. It was claimed by one of the parties that the authority constituted under the Act had no jurisdiction to dispose of urban agricultural property by auction sale in absence of Rules. The contention was repelled with the following observations: (scc P,673, PARA 6) ".....Where a statute confers powers on an authority to do certain acts or exercise power in respect of certain matters, subject to rules, the exercise of power conferred by the statute does not depend on the existence of rules unless the statute expressly provides for the same. In other words framing of the rules is not condition precedent to the exercise of the power expressly and unconditionally conferred by the statute. The expression "subject to the rules" only means, in accordance with the rules, if any. If rules are framed, the powers so conferred on authority could be exercised in accordance with these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purport of the Act, the court can look to the Statement of Objects and Reasons thereof". (Vide: Kavalappara Kottarathil Kochuni @ Moopil Nayar v. The States of Madras and Kerala & Ors., (AIR 1960 SC 1080); and Tata Power Company Ltd. v. Reliance Energy Ltd. & Ors.,((2009) 16 SCC 659). 67. In A. Manjula Bhashini & Ors. ((2009) 8 SCC 431), this Court held as under: "The proposition which can be culled out from the aforementioned judgments is that although the Statement of Objects and Reasons contained in the Bill leading to enactment of the particular Act cannot be made the sole basis for construing the provisions contained therein, the same can be referred to for understanding the background, the antecedent state of affairs and the mischief sought to be remedied by the statute. The Statement of Objects and Reasons can also be looked into as an external aid for appreciating the true intent of the legislature and/or the object sought to be achieved by enactment of the particular Act or for judging reasonableness of the classification made by such Act." 68. Thus, in view of the above, the Statement of Objects and Reasons of any enactment spells out the core reason f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undamental rights are not transgressed upon except to the extent permissible under the Constitution.'' 24. In this context, it is fruitful to refer to the authority in Rusom Cavasiee Cooper v. Union of India, (1970) 1 SCC 248 wherein it has been expressed thus: ''It is again not for this Court to consider the relative merits of the different political theories or economic policies. ..... This Court has the power to strike down a law on the ground of want of authority, but the Court will not sit in appeal over the policy of the Parliament in enacting a law.'' 25. In Premium Granites v. State of Tamil Nadu, AIR 1994 SC 2233 = (1994) 2 SCC 691 = LNIND 1994 SC 1219 = (1994) 2 MLJ 55 (SC) while dealing with the power of the courts in interfering with the policy decision, the Court has held that it is not the domain of the court to embark upon unchartered ocean of public policy in an exercise to consider as to whether a particular public policy is wise or a better public policy could be evolved. Such exercise must be left to the discretion of the executive and legislative authorities as the case may be. The court is called upon to consider the validity of a pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sit as an appellate authority as an opinion.'' Judicial Review:- 18. There is always a presumption in favour of the constitutionality of an enactment with the onus to prove it otherwise on the person who laid a challenge. There can only be two challenges to the constitutionality. One is qua the legislative competence and another being contrary to Part III of the Constitution. The settled position has once again been reiterated in the following manner in the decision of Division Bench of this Court in Anti Corruption Movement Vs. The Chief Secretary to Government of Tamil Nadu, (2015-2-L.W.97), in which one of us (Sanjay Kishan Kaul, Chief Justice) is a party: ''38. In the catena of judgments referred to by the learned senior counsel appearing for private respondents 5 to 9, the discussion proceeds on the basis that the compensation in India qua challenge to the constitutional validity of a provision of an enactment is similar to the United States of America, and apart from the two aspects referred to aforesaid, there is no third ground available. It is in this context, it has been observed that no enactment can be struck down by just saying that it is arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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. In other words, it must confine to rationality. 20. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 205) ''205. Arbitrariness on the part of the legislature so as to make the legislation violative of Article 14 of the Constitution should ordinarily be manifest arbitrariness.'' 53. In Bidhannagar (Salt Lake) Welfare Assn. v. Central Valuation Board, ((2007) 6 SCC 668) and Grand Kakatiya Sheraton Hotel and Towers Employees and Workers Union v. Srinivasa Resorts Ltd. ((2009) 5 SCC 342), this Court held that a law cannot be declared ultra vires on the ground of hardship but can be done so on the ground of total unreasonableness. The legislation can be questioned as arbitrary and ultra vires under Article 14. However, to declare an Act ultra vires under Article 14, the Court must be satisfied in respect of substantive unreasonableness in the statute itself.'' Article 19(1)(g): 23. A right under Article 19(1)(g) is subject to Article 19(6). When it comes to trading in liquor, such a right becomes a qualified one. Once it is known that liquor as a beverage is dangerous and injurious to health, the fundamental right to trade therein evaporates. Such a right can be enforced only to the extent of enforcing the equality clause provided a party satisfies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sures permitted by law does not detract from the power of the State to introduce such measures and implement them as best as they can. ....... 60. We may now summarise the law on the subject as culled from the aforesaid decisions. (a) The rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in clauses (2) to (6) of Article 19. The fundamental rights guaranteed in Article 19(1)(a) to (g) are, therefore, to be read along with the said qualifications. Even the rights guaranteed under the Constitutions of the other civilized countries are not absolute but are read subject to the implied limitations on them. Those implied limitations are made explicit by clauses (2) to (6) of Article 19 of our Constitution. (b) The right to practise any profession or to carry on any occupation, trade or business does not extend to practising a profession or carrying on an occupation, trade or business which is inherently vicious and pernicious, and is condemned by all civilised societies. It does not entitle citizens to carry on trade or business in activities which are immoral and criminal and in articles or goods which are obnoxious and injurious to healt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners are different. The petitioners are making considerable value additions to their sales in favour of their customers. The authority of the TASMAG to deal with the liquor within the State is not in dispute. Therefore, having purchased liquor from the TASMAC, the petitioners cannot seek party. Admittedly, TASMAC is an instrumentality of the State. The profit earned by the TASMAC goes to the coffers of the State meant to be used for welfare measures. The fact that the petitioners are selling at a higher price is not in dispute. 25. The 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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