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TMI Blog2022 (5) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... ions reached:- a. Section 6 of the TNVAT Act, 2006 is not a charging Section. It only provides for an alternate mode of discharging taxes to the dealers, who voluntarily opt for the compounding scheme to pay taxes at a compounded rate. It is always open to the dealers to fall back under Section 5 from the next year, if their tax planning permits them. No tax under the TNVAT Act, can be levied at the point of interstate purchase. However, when such goods are brought in and used in the execution of the works contract, they are liable to pay tax on the deemed sale in accordance with Sections 5 and 10 of the TNVAT Act. b. While granting the concession at the point of payment of output tax, it is open to the State to impose any restriction or conditions for availing such concession. The concession at the point of interstate purchase from a registered dealer is already available under Section 8 of the CST Act and there is no tax on imported goods and such goods are taxed only at the first point of sale within the State. c. The composition scheme under Section 6 cannot be treated as provision for levy of tax on purchases or imposing any restriction on purchases from other State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive competence of the State and (ii) when it offends or violates the constitutional guarantees and safeguards. In the present case, the authority of the State to levy tax on sale of goods is traceable to Entry 54 of List II of Seventh Schedule as it stood then. The authority to impose tax carries with it all the incidental authority to lay down the procedure, to grant exemption or concession and to impose conditions or restrictions for availment of such exemptions and conditions. Therefore, the amendment challenged is well within the legislative competence of the State. f. As regards the provision offending Article 14, 19(1) (g), 301, 303 and 304 of the Constitution, we have already held that the impugned amendment is based on intelligible differentia, does not affect the right of the dealers to carry on any trade of business or impedes the free movement of goods. The compounding Scheme under Section 6 is only an option to be exercised voluntarily. There is no compulsion to opt under section 6 and it is open to a works contractor to pay taxes under section 5. The condition contained in section 6 cannot be regarded as giving any preference to one State over another or as discrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the writ petitions challenging the notices are concerned, the petitioners are directed to submit their reply within a period of four weeks from the date of receipt of a copy of this order and the concerned assessing officers shall fix a date for personal hearing within two weeks thereafter and pass orders within a further period of four weeks. In case, the assessees fail to submit their reply, it is open to the assessing officers to fix a date for hearing and thereafter, pass orders in accordance with law. k. Insofar as the challenge to the assessment orders is concerned, this court has already upheld the vires of Section 6. In some cases, this court finds that there are other issues which are dealt with in the assessment orders. It is only appropriate that the factual aspects are raised before the appellate authority. Therefore, this court relegates the petitioners to avail the alternative remedy of appeal under Section 51 of the TNVAT Act, 2006 within a period of four weeks from the date of receipt of a copy of this order. The Registry is directed to return the original impugned orders to the respective counsel. The writ petitions challenging the vires of Section 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7117/2013, 7118/2013, 14183/2013 14184/2013, 14130/2016, 14131/2016 Ms. Aparna Nandakumar in WP.Nos.8294 8295 of 2013, 9994/2014, 10097/2014, 10098/2014, 10099/2014, 10100/2014 Mr. P. Rajkumar in WP No. 15458/2010, 15459/2010, 15049/2013, 40071/2016, 40072/2016, 40073/ 2016, 40074/2016 Mr. B. Raveendran in WP No. 26560/2008, 9789/2009 6564/2013 Mr. R. Senniappan in WP No. 10660/2010, 13716/2010, 18097/2010, 1213/2012, 214/2012, 1215/2012, 1216/2012, 2556/2014,2557/2014 2558/2014, 2559/2014, 2560/2014, 2561/2014, 2562/2014. Mrs. Hema Muralikrishna in WP Nos.35593/2007, 30084/2010 and 20469/2011 For Respondents : Mr. Haja Nizudeen Additional Advocate General assisted by Mr. V. Prashanth Kiran Government Advocate (Tax) in all the cases COMMON ORDER R. MAHADEVAN, J. I. INTRODUCTION 1. In these batches of writ petitions, some of which are filed praying to issue a Writ of Declaration, declaring the amendment introduced by Act 21 of 2007 retrospectively with effect from 01.01.2007 to Section 6 of the Tamil Nadu Value Added Tax Act, 2006 (Act 32 of 2006) as unconstitutional, ultravires Articles 14, 19 (1) (g), 20, 301 and 304 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce, not be required to maintain accounts of his business under this Act or the rules made there under except the records in original of the works contract, extent of their execution and payments received or receivable in relation to such works contract, executed or under execution. (5) The dealer, who pays tax under this section, shall not 1[collect any amount by way of tax or purporting to be by way of tax and shall not] be entitled to input tax credit on the goods purchased by him. Explanation .- For the purpose of this section civil works contract includes civil works of construction of new building, bridge, road, runway, dam or canal including any lining, tiling, painting or decorating which is an inherent part of the new construction and any repair, maintenance, improvement or up gradation of such civil works by means of fixing and laying of all kinds of floor tiles, mosaic tiles, slabs, stones, marbles, glazed tiles, painting, polishing, partition, wall panelling, interior decoration, false ceiling, carpeting and extra fittings, or any manner of improvement on an existing structure. 7. Section 3 of the Tamil Nadu Value Added Tax (Amendment Act) 21/2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s.New India Sugar Mills [(AIR) 1963 SC 1207], wherein, the Hon'ble Supreme Court took the view that in the transfer of controlled commodities in pursuance of a direction under a Control Order, the element of volition by the seller, or mutual assent, is absent and, therefore, there is no sale as defined in the Sale of Goods Act, 1930. However, in Oil and Natural Gas Commission v. State of Bihar [A.I.R. 1976 S.C. 2478], the Hon'ble Supreme Court had an occasion to consider its earlier decisions with regard to the liability of transfer of controlled commodities to be charged to sales tax and held that where there are any statutory compulsions, the statute itself should be treated as supplying the consensus and furnishing the modality of the consensus. In Vishnu Agencies v. Commercial Tax Officer [A.I.R. 1978 S.C. 449], six of the seven Judges concurred in over-ruling the decision, in New India Sugar Mill's case while the seventh Judge held the case to be distinguishable. It is, therefore, considered desirable to put the matter beyond any doubt. (ii) Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [A.I.R. 1978 S.C. 1591], in which, it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods shall be deemd to be a sale of those goods by the persons making the tranfer, delivery or supply ad a purchase of those goods by the person to whom such tranfer, deliver or supply is made. 11. The 46th Amendment to the Constitution was challenged by way of a batch of writ petitions and civil appeals in the Builders Association's case [1989(2) SCC 245 : 73 STC 370] giving rise to the following questions viz., (a) The first question related to the constitutional validity of the Constitution (Forty-Sixth Amendment) Act, 1982, by which the legislatures of the States were empowered to levy sales tax on certain transaction described in sub-clauses (a) to (f) of clause (29-A) of Article 366 of the Constitution; and (b) The second question was, whether the power of the State legislature to levy tax on the transfer of property in goods involved in the execution of works contracts referred to sub-clause (b) of clause (29-A) of Article 366 of the Constitution is subject to the restrictions and condition contained in Article 286 of the Constitution. 12. The challenge to the validity of the 46th Amendment was rejected and it was held that the Amendment to the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port. (2) The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b). (3) While defining the expression sale in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression sale in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in execution of the works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he execution of works contract in Gannon Dunkerley s case and the need to provide for a mechanism to deduct elements relating to labour and services involved in works contract and also to exclude the value of the transfer of property involved in the execution of works contract which are governed by Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 (in short, the CST Act ) as being in the course of interstate trade or commerce or export or import made it necessary for a works contractor to maintain books of accounts to distinguish the extent of labour and services and component of goods involved in the execution of works contract, which are in the course of interstate trade or commerce or export or import and claim deduction thereof. 15. The above process was found to be complex, cumbersome, time consuming and administratively inconvenient. Resultantly, a number of States provided for an alternate method to discharge the tax on works contract which invariably was to levy tax at a flat rate on the total contract value which included the element of labour and services and also components of goods covered by sections 3,4 and 5 of the CST Act. However, the flat rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing statute, as per Section 3-B of which, a dealer engaged in the business of transfer of property in goods involved in execution of works contract, has to pay tax on the taxable turnover of transfer of property in goods involved in the execution of works contract. Such taxable turnover had to be calculated by deducting certain amount that was mentioned thereof from the total turnover. Subsequently, Section 7-C was inserted to the Tamil Nadu General Sales Tax Act, 1959 by Act 25 of 1993 with effect from 01.04.1993, which provided for an option for payment of tax compounded rates on works contract only for civil contractors. Thereafter, the Act was further amended in the year 1999, extending the scope of Section 7-C to bring within its fold, all work contractors involved in the execution of work contract in the State. Accordingly, all the contractors engaged in the execution of works contract in the State were eligible to opt for payment of tax at compounded rates as prescribed under Section 7-C on the total value of the contract executed, instead of paying tax under Section 3-B of the Tamil Nadu General Sales Tax Act, 1959. According to the petitioners, Section 7-C provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, the impugned Act 21 of 2007 was passed by the Legislative Assembly and published in the Government Gazette, TNGG Extraordinary No.157 dated 08.06.2007 bringing within its fold various Amendments to the Act. As per Section 3 (i) of the Act 21 of 2007, the expression every dealer was replaced with the words other than the dealer who purchases goods from outside the State or imports goods from outside the Country . This, according to the petitioners, results in hostile discrimination between the dealers who purchase goods within the State and outside the State/country. 23. Further, it is contended that even though the Act was published in the gazette on 08.06.2007, it was notified to have come into force with retrospective effect on 01.01.2007. Therefore, challenging the impugned amendment as arbitrary, beyond legislative competence, resulting in hostile discrimination within the works contractors on the basis of the state of procurement/ purchase of goods and further, the impugned amendment impedes the free movement of the goods in the trade and commerce and imposes higher rate of tax on goods purchased from other states/imports, the writ petitions have been filed. 24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in the absence of any Statement of objects and reasons being appended to the impugned amendment, it may have to be understood in the light of the decision of the Hon'ble Supreme Court in Builders Association's case (supra), wherein it was provided that the intention was to provide a hassle free and alternate method for discharging taxes. That being the object of a composition scheme, the impugned amendment which imposes a condition whereby only those works contractors who do not have any inter-state purchases or receive goods from outside the state or imports/goods from outside the country, would be eligible to opt for the Composition scheme under Section 6 of the Act, has no nexus to the said object. Therefore, the impugned legislation is arbitrary, discriminatory and violative of Article 14 of the Constitution of India. The object and purpose of the impugned provision are to protect the works contractors, who have paid taxes under the VAT Act on their purchases, which object has no application to a case of works Contractor who is not paying any tax on their local purchases as per G.O. Ms. No.193, Commercial Taxes and Registration Department dated 30.12.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 183], Ahmedabad Pvt. Primary Teachers Association v. Administrative Officers and others [2004 (1) SCC 755], Peekay Re-rolling Mills (P) Ltd v. Assistant Commissioner and another [2007 (4) SCC 30], Indian Dairy Machinery Co. Ltd v. Assistant Commissioner of Commercial Taxes [2008 (3) SCC 698], Star Television News Ltd v. Union of India and others [2009 SCC online BOM 2162], Union of India v. Star Television News Ltd [2015 (12) SCC 665], Jayam Co. v. Assistant Commissioner [2018 (19) GSTL 3 (SC)], and TVS Motor Company Ltd v. State of Tamil Nadu and others [2019 (13) SCC 403]. 31. Mrs. R. Hemalatha, learned counsel for the petitioners in WP No. 892 of 2013 etc., submitted that the impugned legislation under Section 6 of the Act, inserting the expressions other than the dealer who purchased goods from outside the State or imports goods from outside the Country introduced under Act 21 of 2007 clearly discriminates the goods on the basis of its origin. The impugned legislation creates two classes of dealers on the basis of the goods dealt with by them viz., those who are dealing in local goods alone and those who deals with imported goods from outside the State or Country. Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it includes within the definition 'works contract'. It is contended that the works contract comes under the purview of 'manufacture' and therefore, the nature of activity of the petitioners engaged in execution of works contract falls within the definition of 'manufacture' and it fails to satisfy Article 304 (a) of the Constitution of India. The essence of Article 304 (a) lies in ensuring equality of fiscal burden without any discrimination. Here, the impugned legislation denies a dealer importing goods from outside the State, the benefit of composition under Section 6 of the Act, while the same legislation enables a dealer executing the same work involving materials procured locally, is extended the benefit of composition under Section 6. This, according to the learned counsel, is a discrimination and it deprives the same class of persons level playing field. Therefore, the learned counsel prayed this Court to observe that the impugned legislation is ultra vires Articles 14, 19(1)(g), 265, 300A, 301 to 304 of the Constitution of India and thereby allowing the writ petitions. 35. Mr. R. Senniappan, learned counsel appearing for the petitioners in Wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officers. 37. Mr. K. Vaitheeswaran, learned counsel for the petitioner in WP No. 29096 of 2007 etc., would contend that the petitioners are engaged in undertaking works contract, which involve both material and labour. According to the learned counsel, the Tamil Nadu General Sales Tax Act, which was hitherto the taxing statute, was repealed on introduction of Tamil Nadu Value Added Tax (TNVAT) Act, 2006 with effect from 01.01.2007. The Act encompasses various added features including a list of goods which are exempted from the purview of VAT, those goods which attract VAT at 1 % and those which attracts 4%. The Act also contains the list of goods which are not exempted or those goods, which will attract VAT at 1%, 4% or 12.5% as the case may be. The Act also provides for Input Tax Credit (ITC) and once the VAT is paid on purchases, it can be used to pay the VAT on the sales. Further, the dealers, who purchase goods on payment of VAT can take ITC of the VAT charged by their supplier and set it off against the VAT payable on their sales. Similarly, the manufacturers, who purchase goods for use as input in manufacture or processing, can take ITC of the V T charged by their supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the essence of democracy and is the basic structure of the Constitution, it is submitted that the amendment to Section 6 of the Act conspicuously restricted inter-state purchase and sale of the goods by a dealer and thereby infringes his right to carry on business under the free trade policy as enshrined under the Constitution of India. By virtue of the impugned amendment, there is a discrimination among the traders by dividing them into two classes, on the ground that one class of dealer purchases goods locally and the others make inter-state purchases. This concept is opposed to the principles of equality as the goods purchased in the course of inter-state trade and brought within the State for being used in the works contract will only result in free flow of trade and commerce and any restriction imposed thereof would offend the constitutional guarantees conferred under Part XIII of the Constitution of India. The learned counsel further contended that when the State denies compounding mechanism among the works contractors, it discriminates against the goods imported into the State and purchased from the State, which results in imposing higher tax burden. Such discriminatory ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an alternative system of taxation for works contracts without restricting any procurement from other States or from outside India. However, two States namely Karnataka and Andhra Pradesh have provided for a restriction in such a way that the restriction would not deny the benefit of the scheme for the rest of the turnover. The learned counsel also relying upon the doctrine of proportionality, contended that the amendment to section 6 imposes a condition which is disproportionate to the alleged object as because even if 0.1% of inputs are purchased from an another state dealer, the assessee is denied the concession for the entire turnover of the works contract and therefore, such a condition is unreasonable. 44. It is further submitted that the retrospective amendment to Section 6 of the Act by introducing Act 21 of 2007 provides that a dealer should not have collected tax with effect from 01.01.2007. Such an amendment makes the dealer for excess collection of tax, so as to make it an offence and requiring the dealer to pay a penalty under the Act. Therefore, if the retrospective amendment is allowed to be operated, the dealer would be exposed to penalty in terms of Section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 8030 and 8031 of 2012 would contend that the impugned amendment is in the nature of restricting the purchase of goods from outside the State or importing goods outside the country thereby depriving the dealers who have opted for composition of tax prior to the impugned amendment and no assent was obtained from the President. According to the learned counsel, the scheme of the Act allowed composition of taxes under Section 3 (4) for dealers whose turnover is less than Rs.50 lakhs and under Section 6-A, similar composition of tax is provided to brick manufacturers. However, there is no similar restriction in the amendment Act. When the composition scheme forms a separate class for the purpose of levy, the respondents are not justified to club or combine the composition of tax in respect of works contract and impose an unworkable condition through the impugned amendment. It is his contention that there is no reason or justification to single out the composition dealers alone by placing restriction on the basis of source or place of purchase of the goods. Even though Section 7-C of the Act is a pari materia provision under the repealed Tamil Nadu General Sales Tax Act, 1959, the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on local purchase as well, which is arbitrary. There is an additional burden on the petitioners, who are now forced to purchase higher rate of tax. The learned counsel also relied upon the judgement in Deputy Commissioner of Income Tax and another v. Pepsi Foods Limited (Now Pepsico India Holdings Private Limited) [2021 (7) SCC 413] and prayed for allowing the writ petitions. 48. It is also contended by all the counsels that the rate of tax cannot be different for same goods and that, all the works contractors being equals cannot be treated as unequal and therefore, the impugned amendment is liable to be struck down as violative of Article 14. It is further contended that in any case, the Act ought to have been only with prospective effect and such retrospective effect is not only arbitrary, but also restrictive and violates Article 19 (1) (g) of the Constitution of India. 49. The learned counsels appearing for other writ petitioners adopted the arguments placed by the aforesaid learned counsels and sought for the impugned amendment and Section 6 to be ultra vires the constitution. VII. CONTENTIONS MADE ON THE SIDE OF THE STATE 50. Mr. Haja Nizudeen, learned Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to amendment, were paying only the compounded rate of tax at 2%. In this fashion, the contractors were benefited, saving the tax legitimately payable by them on the purchase of goods. This has led to large scale trade diversion by which the local traders, who trade in such goods, were badly affected. On the other hand, the contractors, who were also procuring the goods within the State and executing works in the State, were paying tax both under Section 5 and Section 6 of the Act and in some cases only under section 6. This according to the learned Additional Advocate General, is the reason which prompted the Government to bring in the amendment and it is a reasonable classification among the dealers who pay tax and those who do not. Resultantly, the amendment was brought in by including the words other than the dealer who purchases the goods from outside the State or imports goods from outside the country and this had a nexus to the object sought to be achieved. 52. The instant amendment has been brought out to impose certain restriction on certain categories of dealers who were wrongfully enjoying the benefits of the legislation, which were not intended to be provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of their own, the challenge based on Article 14 of The Constitution of India cannot be sustained. In this context, the learned Additional Advocate General placed reliance on the decision of the Honourable Supreme Court in (i) Chunilal v. Union of India [221 ITR 459] and (ii) Baksh Singh v. State of Uttar Pradesh [46 ITR 169]. 56. The learned Additional Advocate General appearing for the respondents referred to the decision of the Honourable Supreme Court in Additional Commissioner (Legal) and another v. Jyoti Traders and another [(1999) 2 Supreme Court Cases 77] and contended that it is always open to the Government to bring into operation a fiscal statute with retrospective effect. 57. For the same proposition, the learned Additional Advocate General relied on the decision of the Honourable Supreme Court in the case of Mycon Construction Limited v. State of Karnataka and another [(2003) 9 Supreme Court Cases 583]. 58. The learned Additional Advocate General further submitted that the amendment, which is impugned in these writ petitions, denies the benefit of Section 6 inasmuch as they had effected inter-state purchases unlike a local dealer who purchases g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners cannot express any grievance on the ground of hardship and inconvenience. 60. With respect to the competency of the legislature, the learned Additional Advocate General relied upon the judgment of the Hon'ble Supreme Court in Surinder Singh case [(1986) 4 SCC 667] to contend that the absence of any provision conferring power is immaterial and even in the absence of such rule or provision, it is within the legislative domain to exclude certain classes of persons from availing the option. 61. In reply to the exemption for SEZ, the learned Additional Advocate General relied on section 12(1)(a) r/w section 12(2) of the Tamil Nadu Special Economic Zones (Special Provisions) Act, 2005 to contend that exemption from the taxes on sale or purchase of goods under the Tamil Nadu General Sales Tax Act, 1959 (this would refer to Tamil Nadu Value Added Tax Act by virtue of section 87 of the TNVAT Act) is available only if such goods are meant to carry on authorized operations by the developer/entrepreneur subject to the manner, terms and conditions prescribed by the government. One such condition under section 14 of the TNSEZ Act, 2005 r/w Rule 7 of the TNSEZ Rules, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or third party, when the ownership actually passes to the residents and whether there is a difference in stock, are all factual aspects and have to be put forth only before the Appellate Authority. It is also contended that the assessing officer has passed a reasoned order considering the objections of the petitioners in W.P Nos.8103 to 8107/2012. 64. The learned Additional Advocate General therefore prayed for dismissal of these writ petitions by upholding the amendment introduced vide Section 3 of the Amendment Act 21/2007 to Section 6 of the Tamil Nadu Value Added Tax Act. The learned Additional Advocate General also relied upon the following judgements in support of his contentions: N. Venugopala Ravi Varma Rajah v. Union of India [(1969) 1 SCC 681], Shashikant Laxman Kale and another v. Union of India and another [(1990) 4 SCC 366], Pine Chemicals Ltd. v. Assessing Authority [(1992) 2 SCC 683 at page 694], Gannon Dunkerley Co and others v. State of Rajasthan and others [(1993) 1 SCC 364], India Agencies (Regd.) v. CCT [(2005) 2 SCC 129 : 2004 SCC OnLine SC 1616] and Govt. of Andhra Pradesh v. P. Laxmi Devi [(2008) 4 SCC 720: 2008 SCC OnLine SC 370]; Meenakshi v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub clause, and, in particular, nothing in the said sub clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to, (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise Article 246. Subject matter of laws made by the Parliament and the Legislature of the States. (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List ). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause shall be introduced or moved in the Legislature of a State without the previous sanction of the President 70. Central Sales Tax Act, 1956. Section 8. Rates of tax on sales in the course of inter-State trade or commerce:-( 1) Every dealer, who in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, which shall be three per cent, of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax Law of that State, whichever is lower; Provided that the Central Government may, by notification in the Official Gazette, reduce* the rate of tax under this sub-section. (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1), shall be at the rate applicable to the sale or purchase of such goods insi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness in the State in respect of the sale by him, in the course of inter-State trade or commerce, to a registered dealer 1[***] from any such place of business of any such goods or classes of goods as may be specified in the notification, or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) [***] a may be mentioned in the Notification; (b) that in respect of all sales of goods or sales of such classes of goods as may be specified in the Notification, which are made in the course of inter- State trade or commerce, to a registered dealer [***] by any dealer having his place of business in the State or by any class of such dealers as may be specified in the Notification to any person or to such class of persons as may be specified in the Notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) as may be mentioned in the Notification. (6) Notwithstanding anything contained in this section, no tax, under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The voucher shall also specify the mode of dispatch, and delivery of goods with appropriate details. (3) The voucher of each kind shall be serially numbered separately. (3-A) Every principal, who claims exemption on the sale of goods on consignment account through agents outside the State, shall maintain the following records, namely: - (a) a register showing the name and full address of the agent to whom goods were consigned together with description of the goods so despatched for sale, on each occasion and their quantity and value; (b) the originals of authorisation sent to the agent for sale of the goods. Note : Copies of these authorisations and discrptions of goods despatched for sale on each occasion with particulars of their quantity and value should be simultaneously furnished to the assessing officer concerned. (c) the originals of the written contract, if any entered into between the principal and the agent; (d) copies of bills issued by the agents to the purchasers; (e) pattials, i.e., accounts rendered by the agents to the principals from time to time showing the gross amount of bill and deduction on account of commission and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rule 7 prevents or obstructs, inspection or entry, search or seizure of any books or documents by any officers specified in the rule, shall, on conviction, be punishable with fine which may extend to five hundred rupees and where the offence is a continuing one with a daily fine which may extend to fifty rupees for every day during which the offence continues. 72. Tamil Nadu Value Added Tax Act, 2006. Section 2.-Definitions. (27) manufacture with its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods and includes any process of goods which brings into existence a commercially different and distinct commodity but does not include any activity as may be notified by the Government; (28) output tax means tax paid or payable under this Act by any registered dealer in respect of sale of any goods; (33) sale with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Act. Explanation IV.- The transfer of property involved in the purchase, sale, supply or distribution of goods through a factor, broker, commission agent or arhati, del credere agent or an auctioneer or any other mercantile agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a purchase or sale, as the case may be, by such factor, broker, commission agent, arhati, del credere agent, auctioneer or any other mercantile agent, by whatever name called, for the purposes of this Act. Explanation V.-(a) The sale or purchase of goods shall be deemed for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Explanation I.- Agricultural or horticultural produce shall not include such produce as has been subjected to any physical, chemical or other process for being made fit for consumption, save mere cleaning, grading, sorting or dying; Explanation II.- Subject to such conditions and restrictions, if any, as may be prescribed in this behalf- (i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before the delivery thereof; (ii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover; Explanation III.- Any amount realised by a dealer by way of sale of his business as a whole, shall not be included in the turnover; Explanation IV.- Any amount, charged by a dealer by way of tax separately without including the same in the price of the goods sold, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be prescribed. (3) The option exercised under sub-section (1) shall be final for that financial year. (4) A dealer, exercising option under sub-section (1) shall, so long as the option remains in force, not be required to maintain accounts of his business under this Act or the rules made there under except the records in original of the works contract, extent of their execution and payments received or receivable in relation to such works contract, executed or under execution. (5) The dealer, who pays tax under this section, shall not 1[collect any amount by way of tax or purporting to be by way of tax and shall not] be entitled to input tax credit on the goods purchased by him. Explanation .- For the purpose of this section civil works contract includes civil works of construction of new building, bridge, road, runway, dam or canal including any lining, tiling, painting or decorating which is an inherent part of the new construction and any repair, maintenance, improvement or up gradation of such civil works by means of fixing and laying of all kinds of floor tiles, mosaic tiles, slabs, stones, marbles, glazed tiles, painting, polishing, partition, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the best of its judgment the turnover which has escaped assessment and assess the tax payable on such turnover after making such enquiry as it may consider necessary. (b) Where, for any reason, the whole or any part of the turnover of business of a dealer has been assessed at a rate lower than the rate at which it is assessable, the assessing authority may, at any time within a period of 2[six years from the date of assessment], reassess the tax due after making such enquiry as it may consider necessary. (2) Where, for any reason, the input tax credit has been availed wrongly or where any dealer produces false bills, vouchers, declaration certificate or any other documents with a view to support his claim of input tax credit or refund, the assessing authority shall, at any time, within a period of 2[six years from the date of assessment], reverse input tax credit availed and determine the tax due after making such a enquiry, as it may consider necessary: Provided that no order shall be passed under sub-sections (1) and (2) without giving the dealer a reasonable opportunity to show cause against such order. (3) In making an assessment under clause (a) of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be excluded. (8) In computing the period of limitation for assessment or re-assessment under this section, the time during which any appeal or proceeding in respect of any assessment or re-assessment of the same or part of the turnover made under any other enactment was pending before any appellate or revisional authority or the High Court or the Supreme Court shall be excluded. * These words were substituted in Sub-section (4) of Section 27 as per Gazette No 217 Act No 13 of 2015, dated 14.10.2015. 2. These words were substituted by Section 6 of the Amendment Act 2012, effective from 19th June 2012, as per GO.NO.82 for the words five years from the date of order of assessment by the assessing authority. Section 28. Assessment of turnover not disclosed under compounding provisions.-- (1) Where for any reason, any part of the turnover of business of a dealer who has opted to pay tax under sub-section (4) of section 3 or section 6 or section 8 has escaped assessment from the tax, the assessing authority may, at any time within a period of 1[six years from the date of assessment] determine to the best of its judgment the turnover which has escaped assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing authority along with proof of payment of tax. After amendment in 2016, the Rule reads as follows. (1) (a) Every registered dealer liable to pay tax under the Act other than the dealers who opted to pay tax under sub-section (4) of section 3, section 6, section 6-A or section 8 of the Act, including an agent of a non-resident dealer and casual trader, shall file a return for each month in electronic Form I, on or before 20th of the succeeding month, to the assessing authority in whose jurisdiction his principal place of business or head of office is situated. Such return shall be accompanied by proof of electronic payment of tax. (b) The option exercised under sub-section (4) of section 3 of the Act shall be final for the financial year and such option shall be exercised in electronic Form K-1 within thirty days from the date of commencement of the business in case of new business and for others within thirty days from the commencement of each financial year. (c) Every registered dealer who opts to pay tax under sub-section (4) of section 3, section 6, section 6-A or section 8 of the Act shall file a return for each month in electronic Form K on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Watch and / or clock repair Contracts 50 5. Dyeing Contracts 50 6. All other Contracts 30 (e) all amounts, including the tax collected from the customer, refunded to the customer or adjusted towards any amount payable by the customer, in respect of unexecuted portion of works contract based on the corrections on account of measurements or check measurements, subject to the conditions that- (i) the turnover was included in the return and tax paid; and (ii) the amount including the tax collected from the customer is refunded or adjusted, within a period of six months from the due date for filing of the return in which the said amount was included and tax paid. 74. Central Special Economic Zone Act, 2005. Section 2(g) Developer means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer; (j) entrepreneur means a person who has been granted a letter of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State has no authority to bring in such a legislation and hence, is violative of Article 265. It was their further contention that in view of Section 15 and Section 30 of the TNVAT Act, 2006, it is only by executive order, the government can grant exemptions with prospective or retrospective effect and not by the State by enacting the impugned law. We do not agree with the same. The authority of the State to enact any law on any of the entries in State List/List II is derived from Article 246 (3) and the authority to enact any law on the entries in List III/Concurrent List is traceable to Article 246 (2). Prior to the 101st Amendment to the Constitution, the authority of the State to legislate on taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I was traceable to Entry 54 of List II. 77. The authority to legislate carries with it the authority to amend, repeal or omit any provision. The theory of Doctrine of Implied authority is applicable. Insofar as the contention regarding Section 15 and Section 30, the same is fallacious. It is not to be forgotten that the TNVAT Act, 2006 is the parent Act by which powers have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramed, the Central Government had no authority in law to issue administrative directions providing for the transfer of the urban agricultural land by auction-sale. In our opinion the view taken by the High Court is incorrect. 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 rules. But if no rules are framed there is no void and the authority is not precluded from exercising the power conferred by the statute. In T. Cajee v. U. Jormanik Siem [AIR 1961 SC 276 : (1961) 1 SCR 750] the Supreme Court reversed the order of the High Court whereby the order of District Council removing Siem, was quashed by the High Court on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff. 7. As noted earlier Sections 8 and 20 of the Act provides for payment of compensation to displaced persons in any of the forms as specified including by sale to the displaced persons of any property from the compensation pool and setting off the purchase money against the compensation payable to him. Section 16 confers power on the Central Government to take measures which it may consider necessary for the custody, management and disposal of the compensation pool property. The Central Government had therefore ample powers to take steps for disposal of pool property by auction-sale and for that purpose it had authority to issue administrative directions. Section 40(2)(j) provides for framing of rules prescribing procedure for the transfer of property out of the compensation pool and the adjustment of the value of the property so transferred against the amount of compensation. Neither Sections 8, 16, 20 nor Section 40 lay down that payment of compensation by sale of the pool property to a displaced person shall not be done unless rules are framed. These provisions confer power on the Central Government and the authorities constituted under the Act power to pay compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J. in Gordhandas Bhanji [Commr. of Police, Bombay v. Gordhandas Bhanji, AIR 1952 SC 16] : Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.Orders are not like old wine becoming better as they grow older. 81. Per contra, the State has relied upon the following judgments to contend that not only the affidavit, but also the court is empowered to look into any materials cull out the object or the purpose for which a provision was introduced and the same are as under. 82. K.K. Kochunni v. State of Madras [1959 Supp (2) SCR 316 : AIR 1959 SC 725]: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to the Finance Ministry setting out in detail the circumstances which lead to the issue of the impugned notification and the matters recited therein and the several reports referred to in the said affidavit. A similar objection was taken by learned counsel for the petitioners in that case as has now been taken. It was urged that reference could not be made to any extraneous evidence and that the basis of classification must appear on the face of the notification itself and that this Court should not go into disputed questions of fact. This Court overruled that objection and held that there could be no objection to the matters brought to the notice of the Court by the affidavit of the Principal Secretary being taken into consideration in order to ascertain whether there was any valid basis for treating the petitioners and their companies as a class by themselves. As we have already said, it is possible very often to decide questions of fact on affidavits. If the petition and the affidavits in support thereof are not convincing and the court is not satisfied that the petitioner has established his fundamental right or any breach thereof, the Court may dismiss the petition on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents have placed on record Ext. A, which is a copy of the literature which accompanied one of the various medicines put on sale by the petitioners and/or was stated on the cartons in which the medicine was contained. In their affidavit in rejoinder the petitioners reiterated that Unani and Ayurvedic systems had been discriminated against; that selfmedication had no deleterious effect on the health of the community; on the contrary it is likely to affect the well-being of the people, in the context of effective household and domestic remedies based on local herbs popularly known to them in rural areas. Self-medication has its permission (?) limits even in America and Canada where unlicensed itinerant vendors serve the people effectively . For the petitioners in all the petitions Mr Munshi raised four points: (1) Advertisement is a vehicle by means of which freedom of speech guaranteed under Article 19(1)(a) is exercised and the restrictions which are imposed by the Act are such that they are not covered by clause (2) of Article 19; (2) That Act, the Rules made thereunder and the Schedule in the Rules impose arbitrary and excessive restrictions on the rights guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le v. Union of India [(1990) 4 SCC 366 : 1990 SCC (Tax) 428]: 18. Not only this, to sustain the presumption of constitutionality, consideration may be had even to matters of common knowledge; the history of the times; and every conceivable state of facts existing at the time of legislation which can be assumed. Even though for the purpose of construing the meaning of the enacted provision, it is not permissible to use these aids, yet it is permissible to look into the historical facts and surrounding circumstances for ascertaining the evil sought to be remedied. The distinction between the purpose or object of the legislation and the legislative intention, indicated earlier, is significant in this exercise to emphasise the availability of larger material to the court for reliance when determining the purpose or object of the legislation as distinguished from the meaning of the enacted provision. 25. The counter-affidavit filed on behalf of respondent 1 disclosing the reasons which led to the insertion of clause (10-C) in Section 10 of the Act confining the benefit granted thereby only to employees of the public sector indicates that the purposes of the legislation inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n right of the state, as was observed by Chief Justice Marshall in Malloch Vs Maryland. ( L Edp.607) ....the power of taxing the people and their property is essential to the very existence of Government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it. 87. The above passages would suggest that the primary object of any taxing statute is to raise revenue to defray the expenditure of the Government. The following observations are relevant, which would show, how tax is used as a tool to achieve other objectives: 88. Sri Srinivasa theatre v. Government of Tamil Nadu [(1992) 2 SCC]: 11. The instrument of taxation is not merely a means to raise revenue in India; it is, and ought to be, a means to reduce inequalities. You don't tax a poor man. You tax the rich and the richer one gets, proportionately greater burden he has to bear. Indeed, a few years ago, the Income Tax Act taxed 94p out of every rupee earned by an individual over and above Rupees one lakh. The Estate Duty Act, no doubt since repealed, Wealth Tax Act and Gift Tax Act are all measures in the same directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessees is rejected. 90. That apart, the object or reason for introducing a provision can be derived from the history of the legislation, the subject of legislation, circumstances warranting the amendment, mischief that is sought to be remedied, other provisions of the same statute or different, but connected or pari materia statutes, common knowledge, affidavits of the parties. The State, relying upon the counter affidavits, has contended that the purpose was to curb the tax diversion by many dealers, who either purchased goods from other State dealers or by import thereby depriving the State of its tax, which is remitted if the goods are purchased in this State. It is also submitted that the condition creates a level playing field by placing the dealers, who purchase goods locally and are engaged in works contract and the dealers, who purchase goods from other State on par and that, such tax diversion also diminished the local sale resulting in not only a loss of revenue to small dealers, but also to the State. 91. This court finds force in the said contention. It is not out of place to mention here that even without the counter affidavit, it is evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue, can bring in any law. The above phenomenon of procuring goods by way of interstate trade or commerce having an adverse impact is not a challenge or evil which is being faced for the first time by a State. As a matter of fact, Entry tax on Motor Vehicles was introduced with a similar objective. The statement of objects and reasons of the Tamil Nadu Tax on Entry of Motor Vehicles into local Areas Act, 1990 was fairly similar. The objects and reasons of the Tamil Nadu Act relating to Entry Tax on Motor Vehicles is as follows:- In order to curb the evasion of sales tax on the sale of motor vehicles which are purchased outside the State and brought into this State, the Government have decided to levy tax on entry of motor vehicles into local areas of this State either for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988 (Central Act LIX of 1988). It has also been decided not to levy the tax in respect of vehicles registered in the Union Territory or in other States fifteen months prior to registration in the State and necessary provision has been provided for. In the case of dealers, entry tax shall be leviable on the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on available to the dealers as held by the Apex Court in Builders' Association Case. The objects held in Builders' Association case cannot be treated as the only object, but rather as only, one of the objects. Therefore, we are of the view that the object sought to be achieved is not illegal and is within the legislative competence of the State. XII. SIMILAR PROVISIONS IN OTHER ACTS OF OTHER STATES 96. The learned counsels for the petitioners, invariably relied upon the judgment of the Division Bench of Andhra Pradesh in Maruthi Constructions case to contend that similar restriction imposed in the erstwhile Andhra Pradesh General Sales Tax Act was held to be violative of Article 14 and was hence struck down. They also contended that when a pari materia provision is struck down, it is incumbent upon this Court to similarly strike down the provision impugned in the present case. It is appropriate to refer to the relevant paragraphs in Maruthi Constructions case (supra): 41. But, the question still remains whether such a provision is violative of Article 14 of the Constitution of India on the ground that from out of the same class of dealers who are taxable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as words are to be understood in their context. Extension of this rule of context permits reference to other statutes in pari materia i.e. statutes dealing with the same subject-matter or forming part of the same system. Viscount Simonds in a passage already noticed conceived it to be a right and duty to construe every word of a statute in its context and he used the word context in its widest sense including other statutes in pari materia . As stated by Lord Mansfield where there are different statutes in pari materia though made at different times, or even expired, and not referring to each other, they shall be taken and construed together, as one system and as explanatory of each other . *** The application of this rule of construction has the merit of avoiding any apparent contradiction between a series of statutes dealing with the same subject; it allows the use of an earlier statute to throw light on the meaning of a phrase used in a later statute in the same context; it permits the raising of a presumption, in the absence of any context indicating a contrary intention, that the same meaning attaches to the same words in a later statute as in an earlier statute if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified rate in case of contractors not covered by sub-section (7). Subsection (7-A) reads: (7-A) Notwithstanding anything contained in sub-section (1) of Section 5 every contractor not covered by sub-section (7) may at his option, instead of paying tax in accordance with the said section, pay tax on the whole amount of contract at the rate of seventy per cent of the rates shown in the Fourth Schedule against such contract, less any tax paid by him under this Act on the purchase of any goods used in such contract, the transfer of which to the works contract was effected without any processing or manufacture; (Proviso omitted as not relevant for the purpose of this case.) 4. Sub-section (7-B) provides that the tax under clause (iv) of sub-section (1) of Section 5 and under sub-sections (7) and (7-A) of this section shall be deducted from the payment made by the awarder at every time including advance payment and remit it to the Government within seven days in the prescribed manner. Sub-section (11) requires every contractor who opts for payment of tax in accordance with sub-section (7) or sub-section (7-A) of Section 7 to file the returns showing all the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and pleasure of the contractor. If he thinks it is beneficial for him to so opt, he will opt; otherwise, he will be governed by the normal method of taxation provided by Section 5(1)(iv). Sub-section (8) provides that the option to come under sub-section (7) or (7-A) has to be exercised by the contractor either by an express provision in the agreement for the contract or by an application to the assessing authority to permit him to pay the tax in accordance with any of the said sub-sections . In these circumstances, it is evident that a contractor who had not opted to this alternate method of taxation cannot complain against the said sub-sections, for he is in no way affected by them. Nor can the contractor who has opted to the said alternate method of taxation, complain. Having voluntarily, and with the full knowledge of the features of the alternate method of taxation, opted to be governed by it, a contractor cannot be heard to question the validity of the relevant subsections or the rules. Sub-sections (8), (11) and (12) of Section 7 are incidental and ancillary to sub-sections (7) and (7-A) and cannot equally be faulted. Secondly, it is true that the goods transferred in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... optional for the assessee. The object of sub-sections (7) and (7-A) is the same as that of Section 5(1)(iv); it is only that they follow a different route to arrive at the same destination. Several taxing enactments contain provisions for composition of tax liability which may sometimes be in the interest of both the Revenue and the assessees. It must also be remembered that in the field of taxation, the legislature must be allowed greater play in the joints , as it is called. Allowance must also be made for trial and error by the legislature, as has been held in R.K. Garg v. Union of India [(1981) 4 SCC 675 : 1982 SCC (Tax) 30] : (SCC pp. 690-91, para 8) laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the proble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that this contention is based upon a misapprehension of the scope and purpose of Rule 22-A. Sub-rule (1) of Rule 22-A says that whether a contractor opts to be governed by sub-sections (7) and (7-A) or whether he is governed by Section 5(1)(iv) of the Kerala Act, tax shall be paid either by the contractor in accordance with the Rules or by the person who awards the contract. No one can have any objection to sub-rule (1) since it only says that where tax is payable, it shall be paid either by the contractor or by the awarder according to law. Now, coming to sub-rule (2), it is equally applicable to all the contractors whether they are governed by Section 5(1)(iv) or by sub-section (7) or (7-A) of Section 7. What the subrule says is that wherever payment is made by the awarder to the contractor, the awarder shall withhold an amount equal to the tax due and remit the same to the assessing authority. It is evident that sub-rule (2) does not provide for deduction of tax at source like the one provided by Section 194-C of the Income Tax Act, 1961. Sub-rule (2) merely says that where tax is due from a contractor, the awarder shall withhold an amount equal to the tax due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of works contract specified in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (4) of the said Schedule. 8. Sub-section (6) was further amended by Act 7 of 1997 with effect from 14-1997. Clause (i) of sub-section (6) of Section 17 of the Act as amended reads as follows: (a) for the words and brackets on his total turnover relating to transfer of property in goods (whether as goods or in some other form) involved in the execution of such works contract , the words on the total consideration received or receivable by him in respect of such works contract executed by him in that year in the State , shall be deemed to have been substituted with effect from the first day of April, 1988; (b) for the words, brackets and figure, at the rates specified in the corresponding entries in column (4) of the said Schedule , the words, at the rate of four per cent , shall be substituted; [Ed.: Considering this amendment by S. 8(13)(iii) of Karnataka Act 7 of 1997 [see 106 STC at p. 50] amended clause (i) of sub-section (6) may possibly read to the effect: (6)(i) Notwithstanding anything contained in Section 5-B, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The petitioners and others like them, who had opted for the composition scheme, as it stood prior to 1-4-1996, could not be saddled with additional burden of tax by the amended provision which was given effect retrospectively from 14-1988. In the facts and circumstances of the case the retrospective operation of the amended provision was arbitrary, violating the right guaranteed to the petitioners under Article 14 of the Constitution of India. 11. The State of Karnataka on the other hand relied upon the decision of this Court in the State of Kerala Vs. Builders Association of India ((1997) 2 SCC 183 and contended that the question was no longer res integra and the validity of sub-section 6 of Section 17 as amended must be upheld. As to the retrospective operation of the amended provision, it was submitted that the legislature had competence not only to enact a law prospectively, but also retrospectively, subject to its being consistent with the constitutional provisions. It was submitted that the rights of the petitioners guaranteed under Article 14 and 19 were not breached at all. In fact the legislature always intended to levy tax on total consideration of works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax on the entire value of the contract meant levy of tax contrary to the provisions of the Central Sales Tax Act and the Kerala General Sales Tax Act. It also meant including the non-taxable components of works contract e.g. labour and services etc. For all these reasons, the High Court held that the said sub-sections were clearly beyond the legislative competence of the State Legislature. This Court repelled the submission urged before it in the following words: (SCC p. 188, para 9) The first feature to be noticed is that the alternate method of taxation provided by sub-section (7) or (7-A) of Section 7 is optional. The subsections expressly provide that the method of taxation provided thereunder is applicable only to a contractor who elects to be governed by the said alternate method of taxation. There is no compulsion upon any contractor to opt for the method of taxation provided by sub-section (7) or sub-section (7A). It is wholly within the choice and pleasure of the contractor. If he thinks it is beneficial for him to so opt, he will opt; otherwise, he will be governed by the normal method of taxation provided by Section 5(1)(iv). Sub-section (8) provides that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort, sub-sections (7) and (7-A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt for it or be governed by the normal method. It is only an alternate method of ascertaining the tax payable, which may be availed of by a contractor if he thinks it advantageous to him. It must be remembered that the analogous system of alternate method of taxation evolved by certain State Legislatures in the matter of levy of entertainment tax has been upheld by this Court in Venkateshwara Theatre v. State of A.P. [(1993) 3 SCC 677] The rough and ready method evolved by the impugned sub-sections for ascertaining the tax payable under Section 5(1)(iv) of the Act cannot be said to be beyond the legislative competence of the State or violative of clause (29-A) of Article 366 either. The Constitution does not preclude the legislature from evolving such alternate, simplified and hassle-free method of assessment of tax payable, making it optional for the assessee. The object of sub-sections (7) and (7-A) is the same as that of Section 5(1)(iv); it is only that they follow a different route to arrive at the same destination. 16. We are of the considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants had opted for assessment under the composition scheme. They were not compelled to exercise their option and otherwise they would have been assessed in accordance with the provisions of the Act particularly Section 5-B thereof. To remove any hardship to the assessees by retrospective operation of the amended scheme of composition, the State Government itself submitted that the appellants and others like them may be given option to opt for assessment under Section 5-B of the Act even if they had earlier opted for assessment under sub-section (6) of Section 17. The High Court has in fact made such a direction. The appellants are therefore not prejudiced in any manner whatsoever. 18. Lastly, counsel submitted that while considering the question of retrospectivity, the High Court has passed its judgment on an erroneous assumption of facts, namely that the assessments so far made were on the basis of total consideration. The learned counsel submitted that this was not factually correct. We have perused the judgment and we find that though the submission of the counsel for the State to this effect was noticed, the judgment of the High Court is not based on this assumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had to submit the application within one hundred and twenty days from the date of commencement of such year before the assessing authority to accept in lieu of tax payable under Section 5-B of the Act on the total value of the works contract being executed by him. The key words under Section 17(6) of the Act are the tax payable during the year by way of composition an amount on the total consideration for the works executed by the contractor in that year in the State. Option to be exercised for composition benefit is not dependent on the dates of the agreements entered into by the parties for execution of the works contract. 16. As already noticed, the relevant assessment year in question is 2002-2003 (ending on 31-3-2003) and the assessee if it elected to compound the tax for this year, it was required to submit the application as provided under Rule 8-B(1) of the Rules. The amended provisions of sub-section (7) of Section 17 were given effect to from 1-4-2002. In view of the restriction imposed under the amended provision, the assessing authority could not have permitted the appellant Company to elect to pay the tax under Section 17(6) of the Act, since admittedly the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier judgment in Builders Association case. 104. In Indian Dairy Machinery Co. Ltd (Supra), the Apex Court was concerned with the challenge to rejection of the benefit of the composition scheme under the Karnataka Act for having received the goods from other state dealers. The Apex Court dismissed the appeal holding that as per the provision, the composition scheme cannot be availed by persons who bring in goods from other states. 105. In Maruthi Constructions (Supra), the judgment relied upon by the assessees, the vires of the composition scheme with the condition to deny the benefit was upheld with respect to Part XIII. However, the challenge was allowed with respect to Article 14 of the Constitution. We are unable to accede our concurrence to the decision in Maruthi Construction's case as the orders were passed without considering the ratio laid down by the Apex Court in Builders Association's case rendered in respect of Kerala General Sales Tax Act and followed in Mycon Construction's case, wherein the challenge to the compounding provision under the Karnataka Act was challenged and negated holding that the compounding scheme introduced is only an option and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may select persons, properties, transactions and objects; and apply different methods and even rates for tax, if the legislature does so reasonably. Protection of the equality clause does not predicate a mathematically precise or logically complete or symmetrical classification: it is not a condition of the guarantee of equal protection that all transactions, properties, objects or persons of the same genus must be affected by it or none at all. If the classification is rational, the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject different classes of property to tax in different ways and adopt different modes of assessment. A taxing statute may contravene Article 14 of the Constitution if it seeks to impose on the same class of property, persons, transactions or occupations similarly situate; incidence of taxation, which leads to obvious inequality. A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects. 15. It is for the legislature to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved. Nowhere has this admonition been more felicit ously expressed than in Morey v. Doud [351 US 457 : 1 L Ed 2d 1485 (1957)] where Frankfurter, J., said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end itself to some possible abuse. 109. Pine Chemicals Ltd. v. Assessing Authority [(1992) 2 SCC 683 @ 694]: 9. It is well settled that if power to do an act or pass an order can be traced to an enabling statutory provision, then even if that provision is not specifically referred to, the act or order shall be deemed to have been done or made under the enabling provision. Thus the government orders satisfy all the requirements of the provisions of Section 5 of the local Act. 17. The High Court was of the view that the government orders are, as such, not exemption orders but only a policy decision. The learned Judges observed that Section 5 of the General Sales Tax Act does not speak of general order of exemption as the power to grant exemption is related to a class of dealers or goods and that too subject to restrictions and conditions as may be prescribed. So there could be no general order of exemption and hence the need for specific order in favour of the petitioner is quite obvious . On this interpretation the High Court held that the appellant has to first establish that he had set up an industry in the State which conforms to the intent of 1971 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession is used in a generic sense - a philosophical sense - whereas the word laws in the latter expression denotes specific laws in force. 10. Equality before law is a dynamic concept having many facets. One facet - the most commonly acknowledged - is that there shall be no privileged person or class and that none shall be above law. A facet which is of immediate relevance herein is the obligation upon the State to bring about, through the machinery of law, a more equal society envisaged by the Preamble and Part IV of our Constitution. For equality before law can be predicated meaningfully only in an equal society i.e., in a society contemplated by Article 38 of the Constitution, which reads: 38. State to secure a social order for the promotion of welfare of the people.- (1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life. (2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities, in status, facilities and opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and a uniform rate may be prescribed for sale of such goods. 51. The aforesaid discussion leads to the following conclusions: (1) In exercise of its legislative power to impose tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. (2) The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b). (3) While defining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. (8) While fixing the rate of tax it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article. 112. Titanium Equipments and Anodes Manufacturing Co. Ltd. v. Union of India [1993 SCC OnLine Mad 467 : (1994) 207 ITR 566 at page 573]: 8. We may now make a brief reference to the decisions relied on by learned counsel for the respondents. In N. Takin Roy Rymbai's case, [1976] 103 ITR 82 (SC), the constitutional validity as well as classification for purpose of exemption from tax between the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of law of the Constitution Bench makes it clear that the mere fact that some crudities and inequities result as a result of complicated experimental economic legislation, the legislation cannot be struck down on that ground alone and that the courts cannot be converted into tribunals for relief from such crudities and inequities. The court must adjudge the constitutionality of a legislation by the generality of its provisions and not by its crudities and inequities . 114. Govt. of Andhra Pradesh v. P. Laxmi Devi [(2008) 4 SCC 720 : 2008 SCC OnLine SC 370]: 18. In our opinion, there is no violation of Articles 14, 19 or any other provision of the Constitution by the enactment of Section 47-A as amended by A.P. Amendment Act 8 of 1998. This amendment was only for plugging the loopholes and for quick realisation of the stamp duty. Hence it is well within the power of the State Legislature vide Entry 63 of List II read with Entry 44 of List III of the Seventh Schedule to the Constitution. 19. It is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. As often said, there is no equity i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute. However, as observed by Frankfurter, J. in West Virginia v. Barnette [87 L Ed 1628 : 319 US 624 (1943)], since this power prevents the full play of the democratic process it is vital that it should be exercised with rigorous self-restraint. 51. In our opinion the legislature must be given freedom to do experimentations in exercising its powers, provided of course it does not clearly and flagrantly violate its constitutional limits. 55. In Kesavananda Bharati v. State of Kerala [(1973) 4 SCC 225 : AIR 1973 SC 1461] (vide AIR para 1547) Khanna, J. observed: (SCC p. 821, para 1535) 1535. In exercising the power of judicial review, the courts cannot be oblivious of the practical needs of the Government. The door has to be left open for trial and error. 57. In our opinion, the court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which there can be no manner of doubt about its unconstitutionality. 59. In the light of the above observations, the impugned amendment is clearly constitutional. The amendment was obviously made to plug a loophole in the Stamp Act so as to prevent evasion of stamp duty, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1 L Ed 2d 1485 : 354 US 457 (1957)] where Frankfurter, J. said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events'self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greater latitude must be given to the legislature while adjudging the constitutionality of the statute because the court does not consist of economic or administrative experts. It has no expertise in these matters, and in this age of specialisation when policies have to be laid down with great care after consulting the specialists in the field, it will be wholly unwise for the court to encroach into the domain of the executive or legislative (sic legislature) and try to enforce its own views and perceptions. 99. In view of the fact that the impugned amendment is an economic measure, whose aim is to plug the loopholes and secure speedy realisation of stamp duty, we are of the opinion that the said amendment, being an economic measure, cannot be said to be unconstitutional. 115. Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat [(2008) 5 SCC 33 : 2008 SCC OnLine SC 518]: 39. We have recently held in Govt. of A.P. v. P. Laxmi Devi [(2008) 4 SCC 720 : JT (2008) 2 SC 639], that the court should exercise judicial restraint while judging the constitutional validity of statutes. In our opinion, the same principle also applies when judging the constitutional validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... symmetrical classification. If the classification is rational, the legislature is at free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject different classes of property to tax in different ways and adopt different modes of assessment. A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects. The Courts will not strike down an Act as denying the equal protection of laws merely because other objects could have been, but are not, taxed by the legislature. 7. The economic wisdom of a tax is within the exclusive province of the Legislature and it also extends to the allowing of depreciation on specific items on a higher percentage. It is not the function of the court to consider the propriety or justness of the tax or enter upon the realm of legislative policy. 8. There is a wide discretion in the matter of classification for taxation purposes and there is freedom to select and classify goods / properties, which should be subjected to tax and which should not be. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be achieved. 118. It was also contended that the impugned amendment suffers from the vice of manifest arbitrariness and therefore would fall foul of Article 14 of the Constitution of India. That apart, the impugned amendment fails to see that the execution of works contract would require a variety of inputs and it is permissible when some items necessary for the execution of works contract are not available and thus, the works contractors are under compulsion to procure the same from outside the state/country. In other words, the works contractor may not have the choice of sourcing the materials from within the state or otherwise and the procurement from outside the state may be a result of compulsion. However, in such circumstances, the works contractors are denied the benefit of composition under section 6. It was further submitted by the learned counsel for the petitioners that out of a works contract even if 0.1% is procured from outside the state, the works contractor would stand disqualified, and thus, it is excessive and disproportionate and suffers from manifest arbitrariness . Adding further, it was submitted that the impugned amendment is irrational inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al use. It would be wholly arbitrary - in a situation like this - to deny her the right to evict the tenant. The amendment has created a situation where a tenant can continue in possession of non-residential premises for life and even after the tenant's death his heirs may continue the tenancy. We have no doubt in our mind that the objects, reasons and the scheme of the Act could not have envisaged the type of situation created by the amendment, which is patently harsh and grossly unjust for the landlord of a non-residential premises. 121. Deputy Commissioner of Income Tax and another v. Pepsi Foods Limited (Now Pepsico India Holdings Private Limited) [(2021) 7 Supreme Court Cases 413]: 16. It is settled law that challenges to tax statutes made under Article 14 of the Constitution of India can be on grounds relatable to discrimination as well as grounds relatable to manifest arbitrariness. These grounds may be procedural or substantive in nature. Thus, in Sural Mall Mohta Co. vs. A.V. Visvanatha Sastri (AIR 1954 SC 545) this Court struck down Section 5 (4) of the Taxation on Income (Investigation Commission) Act, 1947 on the ground that the procedure prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided under Section 5G and others are debarred from availing that option on the ground that they utilised goods procured from out of the State of Andhra Pradesh. 42. Learned Counsel for the petitioner argued that though such subclassification of the dealers who otherwise form single class for the purpose of Section 5F is not totally prohibited, the burden that such subclassification bears a reasonable nexus to some legitimate purpose is on the State. Though it is a definite case of the petitioners that the impugned provision is violative of Article 14 of the Constitution of India, no specific reason is given in the counter-affidavit filed by the State indicating any legitimate purpose that is sought to be achieved by making such a sub- classification. 43. We see substantial force in the submission made by the learned Counsel for the petitioner. The counter filed by the State is totally silent on this aspect nor could the learned Government Pleader appearing for the respondents bring to the notice of this court the existence of any legally tenable purpose that could be achieved by the impugned provision. 44. In the circumstances, we are of the opinion that the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explaining the circumstances under which a differential treatment was meted out to the appellant. In this case, the State was exempted from payment of duty on import and the exemption was denied to the individuals without any basis and the department also failed to offer any reasons in their counter affidavit. Therefore, holding that such denial amounted to discrimination, the claim of the assessee was allowed. 126. Nagaraj M v. Union of India [(2006) (9) JT 191; 2006 (8) SCC 212]: Role of enabling provisions in the context of Article 14 106. The gravamen of Article 14 is equality of treatment. Article 14 confers a personal right by enacting a prohibition which is absolute. By judicial decisions, the doctrine of classification is read into Article 14. Equality of treatment under Article 14 is an objective test. It is not the test of intention. Therefore, the basic principle underlying Article 14 is that the law must operate equally on all persons under like circumstances. (emphasis added) Every discretionary power is not necessarily discriminatory. According to the Constitutional Law of India, by H.M. Seervai, 4th Edn., p. 546, equality is not violated by mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the charging provision - Section 4-I, not explicitly mentioning the chargeable event and the incidence of tax. We also accept the challenge made to the levy under Section 4-I of the Act, based on Article 14 of the Constitution of India that the classification is discriminatory and the differential tax as arbitrary. 227. A reading of Section 4-I of the Act, in terms of the definition entertainment under Section 3(4) including DTH, points out that what is sought to be taxed is DTH, meaning thereby, distribution of multi-channel television programmes by using a satellite system by providing television signals direct to the subscriber's premises without passing through an intermediary such as cable operator, which makes the levy more akin to a service tax levy, which is beyond the competence of the State legislature to levy tax. The providing of machinery for recovery, or providing of the rate of tax and measure of tax cannot fill the vacuum seen in the charging Section by the absence of the taxable event and where the incidence of tax falls. Hence, we are constrained to hold that the charging provision under Section 4-I, insofar as it fails to prescribe the taxable eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well [State of A.P. v. McDowell and Co., (1996) 3 SCC 709] when it is said that a constitutional challenge can succeed on the ground that a law is disproportionate, excessive or unreasonable , yet such challenge would fail on the very ground of the law being unreasonable, unnecessary or unwarranted . The arbitrariness doctrine when applied to legislation obviously would not involve the latter challenge but would only involve a law being disproportionate, excessive or otherwise being manifestly unreasonable. All the aforesaid grounds, therefore, do not seek to differentiate between State action in its various forms, all of which are interdicted if they fall foul of the fundamental rights guaranteed to persons and citizens in Part III of the Constitution. 129. S.K. Dutta v. Lawrence Singh Ingty [(1968) 2 SCR 165 : AIR 1968 SC 658 : (1968) 68 ITR 272]: 13. We know of no legislative practice or history treating the government servants as a separate class for the purpose of income tax. The government servants' income has all along been treated in the same manner as the income of other salaried officers. We not know under what circumstances the notifications dated 5-6- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was lastly contended by the learned Solicitor-General a contention which was not taken either in the return or before the High Court or in the appeal memo that it is not possible to strike down only a portion of Section 4(3)(xxi) of the Indian Income Tax Act, 1922 and Section 10(26) of the Income Tax Act, 1961, namely, the words provided that such member is not in the service of government found in Section 4(3)(xxi) of the Indian Income Tax Act, 1922 and the words who is not in, the service of government found in Section 10(26) of the Income Tax Act, 1961, as those words are not severable from the rest of the provisions in which they appear. Further according to him it cannot be definitely predicated that the legislature would have granted the exemption incorporated in those provisions without the exception made in the case of government servants. Therefore if we hold that those provisions as they stand are violative of Article 14 then we must strike down the aforementioned Sections 4(3)(xxi) and 10(26) in their entirety. We are unable to accept the contention that the words mentioned above are not severable, from the rest of the provision in which they appear. They are easily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arishtams and Asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India [AIR 1963 SC 622 : (1963) 3 SCR 957], this Court considered whether the Ayurvedic medicinal preparations known as Mritasanjibani, Mritasanjibani Sudha and Mritasanjibani Sura, prepared in accordance with an acknowledged Ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was Central Act. The Court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverages could not justify their being treated differently from other medicinal preparations. The Court said:(SCR pp. 975-76) So if these preparations are medicinal preparations but are also capable of being used as ordinary alcoholic beverages, they will fall under the (Central) Act and will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally circumstanced users depending on how the oxygen concentrator has been imported. Imposition of IGST is, thus, as per notification dated 03.05.2021, completely waived, i.e., exempted, if the oxygen concentrator is imported through a canalizing agency. 28. The exclusion of individuals, such as the petitioner, from the benefits of the 03.05.2021 notification only because they chose to receive the oxygen concentrators as a gift, albeit directly, without going through a canalizing agency is, in our opinion, violative of Article 14 of the Constitution. While it is permissible for the State to identify a class of persons, to whom tax exemption would be extended, it is not permissible for the State to exclude a set of persons who would ordinarily fall within the exempted class by creating an artificial, unreasonable, and substantially unsustainable distinction. 29. There is, in our opinion, no justification whatsoever in excluding individuals from the purview of notification dated 03.05.2021 only on the ground that they received oxygen concentrators directly as gifts from their friends and/or relatives located outside the country. It is the petitioner's case that the oxyg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, there was no rational nexus between the differentia made and the object to be achieved. That apart, the decisions relied on by the respondents, cannot be applicable to the facts of the present case, as the same stand in a different footing. In such view of the matter, applying the ratio laid down by the Supreme Court that the Executive should only adopt rational means while entering into contracts and if rationality is not present, the Courts can intervene, this Court comes to the conclusion that the classification made in the impugned G.O is violative of Articles 19(1)(g), 301, 304 and 305 of the Constitution and it also infringes Article 14 of the Constitution. 68. The policy decision of the Government can always be subjected to judicial review on the grounds of unreasonableness, discrimination, arbitrariness, perversity and mala fides. The impugned G.O.Ms. No. 57 modifying the State-wise tender to that of a zone-wise tender does not contain any valid and acceptable reason necessitating/warranting modification of the earlier policy decision of G.O.Ms. No. 264, by which, directions were given to float State-wise tenders. The impugned G.O.Ms. No. 57 does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an opportunity to others to compete. Since the same are not based on any rational or relevant principle, it is violative of Article 14 of the Constitution and also the rule of administrative law, which inhibits the arbitrary action by the State. Hence, issuance of G.O.Ms. No. 57, ie., zone-wise tender and the terms of the subsequent Notification excluding the egg traders and suppliers like that of the petitioners, are colourable exercise of power and are unreasonable, arbitrary, irrational and discriminatory and also violative of Article 19(1)(g) of the Constitution. It is nonetheless important to mention here that the public interest is paramount; there should not be any arbitrariness in the tender matters; all the participants in the tender process should be treated alike and there should not be any discrimination and unreasonableness. In this case, the tender was quashed as it was against the earlier decision of the Supreme Court, the conditions imposing embargo on dealers from other state and egg suppliers from participating in the tender was held to be irrational, arbitrary, discriminating and violating Articles 14, 19(1) (g), 301, 304 and 305 of the Constitution. The cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own case as also the stand of the Union of India before the Delhi High Court in Vatika Farms' case, [2008] 302 ITR 98. We have also set out the various figures of pendency of matters and the disposal by the Commission. In the affidavit filed before this court it is the stand of the respondents that the object of the amendment was for early settlement of the cases. The cut-off date did not take into consideration whether the failure to dispose of the application is on account of any act on the part of the applicant or not. The pendency of matters itself will show that the matters could not be disposed of as the adjudicating machinery created by the Act (Legislature) was not in a position to dispose of the applications on or before March 31, 2008, for no fault of the applicant. The application before the Commission was dependent on various circumstances like the matter pending before a particular Bench, a particular matter being taken up by the Commission earlier to others which were pending before it and/or sheer inability to dispose of the petitions. In our opinion, considering the material on record the fixation of date was capricious and/or whimsical. The Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late, the court would attempt to transmute the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to the rule of reading down the provisions if it becomes necessary to uphold the validity of the law. 54. A harmonious interpretation of section 245D(4A) and section. 245HA(1)(iv) would remove the vice of arbitrariness and save the provisions from being struck down as unconstitutional. Following the settled principles of statutory interpretation, this court should read the amended provisions of Chapter XIX-A of the Act harmoniously and in a manner so as to avoid any provision being rendered nugatory or redundant or unconstitutional to the extent possible. 57. By reading the words any other application made under section 245C in section 245HA(1)(iv) as any other application made under section 245C, where due to reasons attributable to the assessee this court would avoid rendering any part of either section 245D(4A)(i) or section 245HA(1) (iv) otiose, meaningless or redundant. The two provisions, read in such a harmonious manner, would mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as the settlement scheme was extended even beyond the cut-off date and hence held to be violative of Article 14. However, instead of striking down, the provision was read down. 134. Union of India v. Star Television News Ltd. [(2015) 12 SCC 665 : 2015 SCC OnLine SC 546 at page 667]: 2. The High Court, by a detailed judgment, found the aforesaid provisions to be violative of Article 14, etc. but at the same time, it did not invalidate these provisions as the High Court was of the opinion that it was possible to read down the provisions of Section 245-HA(1)(iv) in particular to avoid holding the provisions as unconstitutional. 3. The conclusion so arrived at is summed up in para 57 of the impugned judgment [ Star Television News Ltd. v. Union of India, 2009 SCC OnLine Bom 2162 : (2009) 317 ITR 66], which reads as under: 57. From the above discussion having arrived at a conclusion that fixing the cut-off date as 31-3-2008 was arbitrary the provisions of Section 245-HA(1)(iv) to that extent will be also arbitrary. We have also held that it is possible to read down the provisions of Section 245-HA(1)(iv) in the manner set out earlier. This recourse has been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssification. 14. What follows from the above is that in order to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differential which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that, that differential must have a rational relation to the object sought to be achieved by the statute in question. If the Government fails to support its action of classification on the touchstone of the principle whether the classification is reasonable having an intelligible differentia and a rational basis germane to the purpose, the classification has to be held as arbitrary and discriminatory. In Sube Singh v. State of Haryana [(2001) 7 SCC 545], this aspect is highlighted by the Court in the following manner: (SCC p. 548, para 10) 10. In the counter and the note of submission filed on behalf of the appellants it is averred, inter alia, that the Land Acquisition Collector on considering the objections filed by the appellants had recommended to the State Government for exclusion of the properties of Appellants 1 and 3 to 6 and the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the lands of the appellants could not be amalgamated into the plan. 15. The question, therefore, that arises is as to whether the two categories, one mentioned in Notification No. 386/86-CE dated 20-8-1986, which is given the benefit and removal of the second category, which was initially granted same benefit vide Notification No. 102/87-CE dated 27-3-1987, is discriminatory? To put it otherwise, we have to see as to whether the two categories are identical or there is a reasonable classification based on intelligible differentia which has nexus with some objective that is sought to be achieved. The test in this behalf that is to be applied can again be culled out from the judgment in Aashirwad case [(2007) 6 SCC 624]. It is summarised in para 14, after taking note of various earlier judgments. This para reads as under: (SCC pp. 629-30) 14. It has been accepted without dispute that taxation laws must also pass the test of Article 14 of the Constitution of India. It has been laid down in a large number of decisions of this Court that a taxation statute for the reasons of functional expediency and even otherwise, can pick and choose to tax some. Importantly, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no intelligible differentia, held that the notification to be arbitrary. However, the Apex court directed the assessees in the left out method to pay the differential amount to ensure the exemption is also available to them. 136. Bhagat Ram v. State of H.P. [(1983) 2 SCC 442 : 1983 SCC (L S) 342]: 15. The question is once we quash the order, is it open to us to give any direction which would not permit a fresh enquiry to be held? After all what is the purpose of holding a fresh enquiry? Obviously, it must be to impose some penalty. It is equally true that the penalty imposed must be commensurate with the gravity of the misconduct, and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 14 of the Constitution. Having been influenced by all these relevant considerations, we are of the opinion that no useful purpose would be served by a fresh enquiry. What option is open to us in exercise of our jurisdiction under Article 136 to make an appropriate order. We believe that justice and fairplay demand that we make an order of minor penalty here and now without being unduly technical apart jurisdiction, we are fortified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has come about, one can conveniently classify under three heads the grounds on which administrative action is subject to control by judicial review. The first ground I would call illegality , the second irrationality and the third procedural impropriety . That is not to say that further development on a case by case basis may not in course of time add further grounds. I have in mind particularly the possible adoption in the future of the principle of proportionality which is recognised in the administrative law of several of our fellow members of the European Economic Community;. . . 26. In Bhagat Ram v. State of Himachal Pradesh [(1983) 2 SCC 442 : 1983 SCC (L S) 342 : AIR 1983 SC 454] this Court held: [SCC p. 453, SCC (L S) p. 353, para 15] It is equally true that the penalty imposed must be commensurate with the gravity of the misconduct, and that any penalty disproportionate to the gravity of the misconduct would be violative of Article 14 of the Constitution. The point to note, and emphasise is that all powers have legal limits. 27. In the present case the punishment is so strikingly disproportionate as to call for and justify interference. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act. 2. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense above mentioned. It is clear that Article 14 does not forbid reasonable classification of persons, objects and transactions by the legislature for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o would pay white money for them and even if in some rare and exceptional case, a purchaser could be found who would pay the consideration in white money, no one will dare to sell Special Bearer Bonds for white money, because of the disincentive provided in Section 4, clause (c). The investment of white money in Special Bearer Bonds is accordingly, as a practical measure, completely ruled out and the provisions of the Act are intended to operate only qua persons in possession of black money. There is a practical and real classification made between persons having black money and persons not having such money and this de facto classification is clearly based on intelligible differentia having rational relation with the object of the Act. The petitioners disputed the validity of this proposition and contended that the classification made by the Act is discriminatory in that it excludes persons with white money from taking advantage of the provisions of the Act by subscribing to or acquiring Special Bearer Bonds. But this contention is totally unfounded and we cannot accept the same. The validity of a classification has to be judged with reference to the object of the legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act may thus seem to be putting premium on dishonesty and they may, not, without some justification, be accused of being tinged with some immorality, but howsoever regrettable or unfortunate it may be, they had to be enacted by the legislature in order to bring out black money in the open and canalise it for productive purposes. Notwithstanding stringent laws imposing severe penalties and vigorous steps taken by the tax administration to detect black money and despite various voluntary disclosure schemes introduced by the Government from time to time, it had not been possible to unearth black money and the menace of black money had over the years assumed alarming proportions causing havoc to the economy of the country and the legislature was therefore constrained to enact the Act with a view to mopping up black money so that instead of remaining idle, such money could be utilised for productive purposes. The problem of black money was an obstinate economic problem which had been defying the Government for quite some time and it was in order to resolve this problem that, other efforts having failed, the legislature decided to enact the Act, even though the effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gether. 19. It is true that certain immunities and exemptions are granted to persons investing their unaccounted money in purchase of Special Bearer Bonds but that is an inducement which has to be offered for unearthing black money. Those who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exemptions and it must necessarily be left to the legislature to decide what immunities and exemptions would be sufficient for the purpose. It would be outside the province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These were the reasons for which we passed our Order dated September 2, 1981 [See p. 715 (infra)] rejecting the challenge against the constitutional validity of the Ordinance and the Act and dismissing the writ petitions. Since these writ petitions are in the nature of public interest litigation, we directed that there should be no order as to costs. 140. Shashikant Laxman Kale v. Union of India [(1990) 4 SCC 366 : 1990 SCC (Tax) 428]: 8. The main question for decision is the discrimination alleged by the petitioners. The principles of valid classification are long settled by a catena of decisions of this Court but their application to a given case is quite often a vexed question. The problem is more vexed in cases falling within the grey zone. The principles are that those grouped together in one class must possess a common characteristic which distinguishes them from those excluded from the group; and this characteristic or intelligible differentia must have a rational nexus with the object sought to be achieved by the enactment. It is sufficient to cite the decision in In Re the Special Courts Bill, 1978 [(1979) 1 SCC 380 : (1979) 2 SCR 476] - and to refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped together from others and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act. (8) The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon person arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense abovementioned. * * * (11) Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the essence of a classification that upon the class are cast duties and burdens different from those resting upon the general public. Indeed, the very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality in no manner d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied in the context of the felt needs of the times and societal exigencies informed by experience ; and the courts should not interfere with the legislative wisdom of making the classification unless the classification is found to be invalid by this test. (emphasis supplied) 13. It is useful to refer also to the decision of this Court in ITO v. N. Takin Roy Rymbai [(1976) 1 SCC 916 : 1976 SCC (Tax) 143 : (1976) 103 ITR 82] wherein a similar question relating to validity of classification in another clause of Section 10 of the Income Tax Act, 1961 arose for consideration. This Court while upholding the validity of the classification summarised the principles applied, as under: (SCC pp. 922-23, para 27) ...it must be remembered that the State has, in view of the intrinsic complexity of fiscal adjustments of diverse elements, a considerably wide discretion in the matter of classification for taxation purposes. Given legislative competence, the legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax. So long as the classification made within this wide and flexible rang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a public sector company as the most relevant circumstance to attract the provision. The economic status of employees of a public sector company who get the benefit of the provision is also lower as compared to their counterpart in the private sector. If this be the correct perspective as we think it is in the present case, the very foundation of the challenge to the impugned provision on the basis of economic equality of employees in both sectors is non-existent. Once the stage is reached where the differentiation is rightly made between a public sector company and a private sector company and that too essentially on the ground of economic viability of the public sector company and other relevant circumstances, the argument based on equality does not survive. This is independent of the disparity in the compensation package of employees in the private sector and the public sector. The argument of discrimination is based on initial equality between the two classes alleging bifurcation thereafter between those who stood integrated earlier as one class. This basic assumption being fallacious, the question of any hostile discrimination by granting the benefit only to a few in the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the State Government to adjust the multiple as local conditions and conditions of land may require. It would obviously not have been practicable for the legislature to provide for different multiples in respect of different districts or in regard to different classes of lands. Having laid down the general policy in that behalf, the legislature naturally left the adjustment of the multiple to the discretion of the State Government because the said adjustment had to be made in the light of local conditions and by reference to the class of the land. Therefore, we do not think that the discretion left to the State Government can be said to be unfettered or uncanalised so as to amount to an unreasonable restriction as contended by Mr Goyal; as we have already pointed out the notification issued by the State Government prescribing the multiple has clearly complied with the requirement of Section 5(1). We must accordingly hold that the challenge to the validity of Section 5(1) on the ground that it contravenes Articles 14 and 19(1)(f) must fail. 142. Chunnilal Onkarmal (P) Ltd. v. Union of India [1994 SCC OnLine MP 326 : (1996) 221 ITR 459]: 11. The equal protection of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ederation of Hotel Restaurant Assn. of India v. Union of India, [(1989) 3 SCC 634]: 46. It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. 47. But, with all this latitude certain irreducible desiderata of equality shall govern classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution, as being discriminatory in nature, pure and simple. To this sort of a submission, I am unable to affix my seal of approval on the face of the principles evolved by the apex Court in many a decision, including the recent one in Shashikant Laxman Kale v. Union of India, [1990] 185 ITR 104; (1990) 4 SCC 366 : AIR 1990 SC 2114. (a) It is expressed therein that the latitude for classification in a taxing statute is much greater; and in order to tax something, it is not necessary to tax everything. These basic postulates have to be borne in mind, while determining the constitutional validity of a taxing provision challenged on the ground of discrimination. One has to look beyond the ostensible classification and to the purpose of the law and apply the test of palpable arbitrariness in the context of the felt needs of the times and societal exigencies informed by experience to determine reasonableness, of the classification. For this test, it is first necessary to discern the true purpose or object of the impugned enactment because it is only with reference to the true object of the enactment that the existence of a rational nexus of the differentia on which the class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le bias and it is in that sense that the expression has to be understood in this context. If such bias is disclosed and is based on any of the grounds mentioned in Articles 15 and 16, it may well be that the statute will, without more, incur condemnation as violating a specific constitutional prohibition unless it is saved by one or other of the provisos to those articles. But the position under Article 14 is different. Equal protection claims under that article are examined with the presumption that the State action is reasonable and justified. This presumption of constitutionality stems from the wide power of classification which the legislature must, of necessity, possess in making laws operating differently as regards different groups of persons in order to give effect to its policies. The power of the State to regulate criminal trials by constituting different courts with different procedures according to the needs of different parts of its territory is an essential part of its police power (of Missouri v. Lewis [101 US 22]). Though the differing procedures might involve disparity in the treatment of the persons tried under them, such disparity is not by itself sufficient, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear-cutting, etc. for some of which certain notorious gangs were responsible, and hence Ordinance LXVI of 1949 was promulgated to amend the earlier Ordinance and to constitute Special Courts for the speedy trial of cases arising out of the activities of the dacoits and other criminals guilty of violent crimes. 46. An argument was raised, as in the West Bengal case, that even this part of the section gave an uncontrolled and unguided power of classification which might well be exercised by the State Government capriciously or with an evil eye and an unequal hand so as to deliberately bring about invidious discrimination between man and man although both of them were situated in exactly the same or similar circumstances. I do not accept this argument as sound, for the reasons I adopted in my judgment in the West Bengal case in repelling this argument apply with equal, if not with greater, force to the argument directed against the validity of the Saurashtra Ordinance. It is obvious that this part of Section 11 of the Ordinance which, like the corresponding part of Section 5(1) of the West Bengal Special Courts Act, confers a power on the State Government to make a classificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable relation to the object sought to be achieved by the Act, namely, the maintenance of public order, the preservation of public safety, the peace and tranquillity of State. Such a classification will not be repugnant to the equal protection clause of our Constitution, for there will be no discrimination, for whoever may commit the specified offence in the specified area in the specified circumstances will be treated alike and sent up before a Special Court for trial under the special procedure. Persons thus sent up for trial by a Special Court according to the special procedure cannot point their fingers to the other persons who may be charged before an ordinary Court with similar offences alleged to have been committed by them in a different place and in different circumstances and complain of unequal treatment, for those other persons are of a different category and are not their equals. In my judgment, this part of the section, properly construed and understood, does not confer an uncontrolled and unguided power on the State Government. On the contrary, this power is controlled by the necessity for making a proper classification which is to be guided by the preamble in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore to ascribe a purpose to the statutory classification and coordinate the purpose with the more general purpose of the Act and with other relevant Acts and public policies. For achieving this the court may not only consider the language of Section 23 but also other public knowledge about the evil sought to be remedied, the prior law, the statement of the purpose of the change in the prior law and the internal legislative history. When the purpose of a challenged classification is in doubt, the courts attribute to the classification the purpose thought to be most probable. Instead of asking what purpose or purposes the statute and other materials reflect, the Court may ask what constitutionally permissible objective this statute and other relevant materials could plausibly be construed to reflect. The latter approach is the proper one in economic regulation cases. The decisions dealing with economic regulation indicate that courts have used the concept of purpose and similar situations in a manner which give considerable leeway to the Legislature. This approach of judicial restraint and presumption of constitutionality requires that the Legislature is given the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieved at the cost of some equality. It would seem that in fiscal and regulatory matters the court not only entertains a greater presumption of constitutionality but also places the burden on the party challenging its validity to show that it has no reasonable basis for making the classification. This was the approach of this Court in State of Gujarat v. Ambica Mills [(1974) 4 SCC 656 : AIR 1974 SC 1300] . The Court said: [SCC p. 676 para 58] The piecemeal approach to a general problem permitted by under-inclusive classifications, appears justified when it is considered that legislative dealing with such problems is usually an experimental matter. It is impossible to tell how successful a particular approach may be, what dislocations might occur, what evasions might develop, what new evils might be generated in the attempt. Administrative expedients must be forged and tested. Legislators, recognizing these factors, may wish to proceed cautiously, and courts must allow them to do so (37 California Rev. 341). 148. Balaji v. ITO [(1962) 2 SCR 983 : AIR 1962 SC 123 : (1961) 43 ITR 393]: 5. It is well settled that the entries in the Lists are not powers but are onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be achieved by the statute in question. It was asked how, from the standpoint of imposition of tax, the difference between an individual and his wife doing business in partnership, and between an individual and his wife doing business separately, and an individual doing business in partnership with his wife and an individual doing business in partnership with a third party, male or female, and between an individual who has admitted his minor children to the partnership business and an individual who is doing business in partnership with his major children or outsiders, would have any reasonable basis. This argument ignores the object of the legislation. We have held that the object of the legislation was to prevent evasion of tax. A similar device would not ordinarily be resorted to by individuals by entering into partnership with persons other than those mentioned in the sub-section, as it would involve a risk of the third party turring round and asserting his own rights. The legislature, therefore, selected for the purpose of classification only that group of persons who in fact are used as a cloak to perpetrate fraud on taxation. 8. It was then said that there might be ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved was to prevent the prevalent abuse, namely, evasion of tax by an individual doing business under a partnership nominally entered with his wife or minor children. The scope of the provisions is limited only to a few of the intimate members of a family who ordinarily are under the protection of the assessee and are dependants of him. The persons selected by the provisions, namely, wife and minor children, cannot also be ordinarily expected to carry on their business independently with their own funds, when the husband or the father is alive and when they are under his protection. Doubtless some of the said partnerships may be genuine and the wife or minor children may have contributed capital to the business; but the provisions do not in any way affect their rights and even the liability inter se between the husband and the wife or the minor children, as the case may be, in respect of the tax paid. It is true that in computing the total income of an individual for the purpose of assessment, their income in their capacity as partners shall be included in the income of the individual; but the section does not prevent the husband or the father, as the case may be, from debiting ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether from others left out of the group, and (ii) that such differentia has a rational relation to the object sought to be achieved by the statute in question. The basis for classification may rest on conditions which may be geographical or according to objects or occupation or the like. (See Constitution Bench decision in Budhan Choudhry v. State of Bihar [AIR 1955 SC 191 : (1955) 1 SCR 1045 : 1955 Cri LJ 371].) The classification is well defined and well perceptible. Persons having more than two living children are clearly distinguishable from persons having not more than two living children. The two constitute two different classes and the classification is founded on an intelligible differentia clearly distinguishing one from the other. One of the objects sought to be achieved by the legislation is popularizing the family welfare/family planning programme. The disqualification enacted by the provision seeks to achieve the objective by creating a disincentive. The classification does not suffer from any arbitrariness. The number of children viz. two is based on legislative wisdom. It could have been more or less. The number is a matter of policy decision which is not ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a law void under Article 13 has to be exercised with reference to the specific legislation which is impugned. Two laws enacted by two different Governments and by two different legislatures can be read neither in conjunction nor by comparison for the purpose of finding out if they are discriminatory. Article 14 does not authorize the striking down of a law of one State on the ground that in contrast with a law of another State on the same subject, its provisions are discriminatory. When the sources of authority for the two statutes are different, Article 14 can have no application. So is the view taken in Bar Council of U.P. v. State of U.P. [(1973) 1 SCC 261] , State of T.N. v. Ananthi Ammal [(1995) 1 SCC 519] and Prabhakaran Nair v. State of T.N. [(1987) 4 SCC 238] 64. Hypothetical examples were tried to be floated across the Bar by submitting that there may be cases where triplets are born or twins are born on the second pregnancy and consequently both of the parents would incur disqualification for reasons beyond their control or just by freak of divinity. Such are not normal cases and the validity of the law cannot be tested by applying it to abnormal situations. Except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e burden of showing that it does not rest upon any reasonable basis. [Constitutional Law by Prof. Willis, (Ist Edn.), p. 579] 9. Having summed up the law in this way, the same learned author adds: Many different classifications of persons have been upheld as constitutional. A law applying to one person or one class of persons is constitutional if there is sufficient basis or reason for it . There can be no doubt that Article 14 provides one of the most valuable and important guarantees in the Constitution which should not be allowed to be whittled down, and, while accepting the statement of Professor Willis as a correct exposition of the principles underlying this guarantee, 1 wish to lay particular emphasis on the principle enunciated by him that any classification which is arbitrary and which is made without any basis is no classification and a proper classification must always rest upon some difference and must bear a reasonable and just relation to the things in respect of which it is proposed. 11. Prima facie, the argument appears to be a plausible one, but it requires a careful examination, and, while examining it, two principles have to be borne in mind: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory of India in spite of differences of circumstances and conditions. As has been said by the Supreme Court of America, equal protection of laws is a pledge of the protection of equal laws [Yick Wo v. Hopkins, 118 US at 369] , and this means subjection to equal laws applying alike to all in the same situation [Southern Railway Company v. Greene, 216 US 400, 412.] . In other words, there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is the same. I am unable to accept the argument of Mr Chari that a legislation relating to one individual or one family or one body corporate would per se violate the guarantee of the equal protection rule. There can certainly be a law applying to one person or to one group of persons and it cannot be held to be unconstitutional if it is not discriminatory in its character [ Willis Constitutional Law, p. 580] . It would be bad law if it arbitrarily selects one individual or a class of individuals, one corporation or a class of corporations and visits a penalty upon them, which is not imposed upon others guilty of like delinquency [Gulf C SFR Co. v. Ellis, 163 Us 150 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remembered that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is well settled that this burden is all the heavier when the legislation under attack is a taxing statute. In taxation even more than in other fields it was observed by the Supreme Court of United States in Maddenv. Kentucky [(1940) 309 U.S. 83 : 84 L.Ed. 590] Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it . How wide the powers of the Legislature are in classifying objects for purposes of taxation will be seen from the following resume of the law given by Rottschaefer, in his Constitutional Law p. 668: The federal Supreme Court has seldom held invalid any classification made in connection with the levying of property taxes. It has sustained the levy of a heavier burden of taxation upon motor vehicles using the public highways than that levied upon other forms of property, and the imposition of a heavier tax upon oil than upon other property. The equal protection clause does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the State it has logical and legal justification and is necessarily, not unreasonable or arbitrary. 152. Shashikant Laxman Kale v. Union of India [(1990) 4 SCC 366 : 1990 SCC (Tax) 428 at page 386]: 35. It is clear that the government or the public sector undertakings have been treated as a distinct class separate from those in the private sector and the fact that the profit earned in the former is for public benefit instead of private benefit, provides an intelligible differentia from the social point of view which is of prime importance for the national economy. Thus, there exists an intelligible differentia between the two categories which has a rational nexus with the main object of promoting the national economic policy or the public policy. This element also appears in the impugned enactment itself wherein economic viability of such company is specified as the most relevant circumstance for grant of approval of the scheme by the Central Government. This intrinsic element in the provision itself supports the view that the main object thereof is to promote and improve the health of the public sector companies even though its effect is a benefit to its employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit but then that is an incentive for seeking voluntary retirement and at any rate that is the effect of the provision or its fall-out and not its true object. It is similar to the incentive given to the tax payers to invest in the public sector bonds by non-inclusion of the interest earned thereon in the tax-payer's total income which promotes the true object of raising the resources of the public sector for its growth and modernisation. The real distinction between the true object of an enactment and the effect thereof, even though appearing to be blurred at times, has to be borne in mind, particularly in a situation like this. With this perspective, keeping in view the true object of the impugned enactment, there is no doubt that employees of the private sector who are left out of the ambit of the impugned provision do not fall in the same class as employees of the public sector and the benefit or the fall-out of the provision being available only to the public sector employees cannot render the classification invalid or arbitrary. This classification cannot, therefore, be faulted. 39. Some of the cases cited by the petitioners in support of the contention of equality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n used in the newly inserted clause (10-C) of Section 10. In view of the simultaneous definition of public sector company in the Act, there can be no occasion to construe this expression differently without which a private sector company cannot be included in it. It is, therefore, not possible to construe the impugned provision while upholding its validity in such a manner as to include a private sector company also within its ambit. In this case, after laying down the principles to be considered, the Apex Court upholding the provision, held that the distinction drawn between a Private sector company and Public sector company was rational and the provision was refused to be read down. 153. Ravi Agrawal v. Union of India [(2019) 18 SCC 180 :2019 SCC OnLine SC 5]: 15. At the outset, it may be observed that Section 80-DD of the Act is a provision made by Parliament under the Act in order to give incentive to the persons whose dependants are persons with disability. Incentive is to give such persons concessions in income tax by allowing deductions of the amount specified in Section 80-DD of the Act in case such parents/guardians of dependants with disability take insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents have been able to successfully demonstrate that the main provision is based on reasonable classification, which has a valid rationale behind it and there is a specific objective sought to be achieved thereby . 154. In State of U.P. v. Kamla Palace [(2000) 1 SCC 557], the Hon ble Supreme Court, while considering a fiscal statute in relation to Article 14 of the Constitution, has stated as under : (SCC pp. 562-63, para 11) 11. Article 14 does not prohibit reasonable classification of persons, objects and transactions by the legislature for the purpose of attaining specific ends. To satisfy the test of permissible classification, it must not be arbitrary, artificial or evasive but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the legislature. (See Special Courts Bill, 1978, In re [Special Courts Bill, 1978, In re, (1979) 1 SCC 380], seven-Judge Bench; R.K. Garg v. Union of India [R.K. Garg v. Union of India, (1981) 4 SCC 675 : 1982 SCC (Tax) 30], five-Judge Bench.) It was further held in R.K. Garg case [R.K. Garg v. Union of India, (1981) 4 SCC 675 : 1982 SCC (Tax) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the group, and (ii) that differentia must have a rational connection to the object sought to be achieved. Article 14 does not insist upon classification, which is scientifically perfect or logically complete. A classification would be justified unless it is patently arbitrary. If there is equality and uniformity in each group, the law will not become discriminatory, though due to some fortuitous circumstance arising out of peculiar situation some included in a class get an advantage over others so long as they are not singled out for special treatment. 155. Federation of Hotel Restaurant Assn. of India v. Union of India [(1989) 3 SCC 634]: 62. A taxing statute is not, per se, a restriction of the freedom under Article 19(1)(g). The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstance that its imposition might tend towards the diminution of the earnings or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterests of the municipality for those of his clients. No doubt having regard to the best traditions of the profession very few legal practitioners would stoop to such tactics, but the legislature in its wisdom thought it desirable to eliminate any possibility of a conflict between interest and duty and aimed at achieving this object or purpose by prescribing the requisite disqualification. The classification thus would certainly have a reasonable relation to the object or purpose sought to be achieved. 10. It was however urged that besides this category there are also other categories where there would be a possibility of conflict between interest and duty and that in so far as they were not covered by the disqualifications prescribed by Section 16(1) of the Act the provision disqualifying the category to which the appellant belonged was discriminatory. It was particularly pointed out that a client who had a litigation against the municipality was not prevented from standing as a candidate for election whereas the legal practitioner who held a brief against the municipality was disqualified, though the ban against both these categories could be justified on ground of avoidanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was upheld as not violative of article 19 (1) (g). The court also laid down that just because similarly placed persons were not banned, provision cannot be held arbitrary, when the restriction is reasonable, it cannot be termed as violative of any fundamental right. 157. We have considered the rival contentions and the ratio laid down in the above judgments. It is evident that any law, which is not only discriminatory but also manifestly arbitrary, would offend Article 14. The concept of equality, as envisaged under Article 14 encompasses within it an interdiction against arbitrariness and discrimination in its second part. Insofar as the first part, it brings within its fold that the likes must be treated equally. In other words, the law must be equal for persons who fall into a specific category of equals. 158. Though the word 'discrimination' is not used in the Article, the principle object behind both parts of the Article is to avoid discrimination not only at the point of framing a law, but also at the point of implementation. The embargo, therefore, is applicable to substantive as well as procedural laws. To withstand successfully to the challenge of discriminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may be calculated as per the manner prescribed. Rule 8 (5) of the TNVAT Rules enumerates the deductions that are permitted to be deducted from the total turnover to arrive at the taxable turnover. As per rule 8 (5) (d) if the labour charges and other charges not involving transfer of property in goods are ascertainable, then the same are to be deducted from the total turnover. If not, the table prescribed under Rule 8 (5) (d), which deals with different types of works contracts, are to be followed for fixing the taxable turnover. As per the table, the type of works contract is classified into six namely Electrical Contracts, All structural contract, Sanitary contracts, watch and/or clock repair contracts, Dyeing contracts and all other contracts. The sixth classification is the residuary entry. The percentage of deduction towards labour and other charges is not uniform for all the contracts. That apart, three classifications are provided under Section 6 namely Civil Works Contract, Civil maintenance Contract and All other works contract which is a residuary entry. The rate at which the compounded tax is fixed at 2% for Civil Works Contract and Civil maintenance Contract. Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regular taxing method. It is not a charging section. It provides an option for the dealers to voluntarily adopt to the composition scheme. As held by the Apex Court in Builders' Association case as confirmed in Mycon Construction case, a dealer is at free to opt in or opt out of the scheme and submit assessment under Section 5. There is no compulsion on the dealers that they must file their returns only under section 6. The condition therefore is not arbitrary and not violative of Article 19 (1) (g). Such condition has also been upheld by the Apex Court in Indian Dairy Machinery Co Ltd (supra), wherein the challenge to the assessment order by which the return filed under similar scheme for having brought in the goods was rejected by holding that every dealer who wants to come under the compounding scheme, cannot do so if he effects interstate purchase. 163. The Apex Court, recently decided the challenge to the vires of Rule 89(5) of the CGST Rules viz. a. viz Section 54 (3) of the CGST Act and Section 54(3) as ultra vires Article 14, qua rejection of refund of input tax credit on services in view of the amendment in 2018 with retrospective effect from 01-07-2017 on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court in the fiscal arena to compel Parliament to go further and to do more by, for instance, expanding the coverage of the legislation (to liquor, stamp duty and petroleum) or to bring in uniformity of rates. This would constitute an impermissible judicial encroachment on legislative power. Likewise, when the first proviso to Section 54(3) has provided for a restriction on the entitlement to refund it would be impermissible for the Court to redraw the boundaries or to expand the provision for refund beyond what the legislature has provided. If the legislature has intended that the equivalence between goods and services should be progressively realised and that for the purpose of determining whether refund should be provided, a restriction of the kind which has been imposed in clause (ii) of the proviso should be enacted, it lies within the realm of policy. 89. The submission which has been urged on behalf of the assessees is that registered persons constitute a class within the meaning of sub-section (3) of Section 54 and each of them is entitled to claim a refund of unutilised ITC whether its origin lies in input goods or input services. In other words, it has been urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puts (meaning input goods) exceeding the rate of tax on outward supplies, the principles underlying Article 14 of the Constitution would be attracted and the statutory provision would suffer from the vice of arbitrariness. The submission is that this has become an incident of a class legislation : the class consists of registered persons having unutilised ITC. The class comprises of the following species (i) domestic suppliers; and (ii) exporters. The sub-species are (i) input goods; and (ii) input services. Opposing this submission, the learned ASG's submission is that this is a valid classification, denying one of the species, namely, input services the benefit of refund. 101. The principle which the counsel for the assessees espouse is sought to be buttressed by relying upon the decision in State of J K v. Triloki Nath Khosa [State of J K v. Triloki Nath Khosa, (1974) 1 SCC 19 : 1974 SCC (L S) 49] and in Special Courts Bill, 1978, In re [Special Courts Bill, 1978, In re, (1979) 1 SCC 380]. The principles which are gleaned by the counsel from the above decisions, in their application to the present case, are that: 101.1. Once the ITC comes within the fold of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measures of a statute. The precedents of this Court provide abundant justification for the fundamental principle that a discriminatory provision under tax legislation is not per se invalid. A cause of invalidity arises where equals are treated as unequally and unequals are treated as equals. Both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same and they are distinct species. 105. Parliament engrafted a provision for refund Section 54(3). In enacting such a provision, Parliament is entitled to make policy choices and adopt appropriate classifications, given the latitude which our constitutional jurisprudence allows it in matters involving tax legislation and to provide for exemptions, concessions and benefits on terms, as it considers appropriate. The consistent line of precedent of this Court emphasises certain basic precepts which govern both judicial review and judicial interpretation of tax legislation. These precepts are: 105.1. Selecting the objects to be taxed, determining the quantum of tax, legislating for the conditions for the levy and the socio-economic goals which a tax must achi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its governmental power, has, of necessity, to make laws operating differently in relation to different groups or classes of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience. 105.3. In matters of classification, involving fiscal legislation, the legislature is permitted a larger discretion so long as there is no transgression of the fundamental principle underlying the doctrine of classification. In Hiralal Rattanlal [Hirala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Union of India [Elel Hotels Investments Ltd. v. Union of India, (1989) 3 SCC 698] , M.N. Venkatachaliah, J. (as the learned Chief Justice then was) held that : (SCC p. 708, para 20) 20. It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. It must need to be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority. The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of economic superiority of hotels to which the Act is applied is erroneous or irrelevant. 108. In Spences Hotel (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will remain an unattainable good as long as laws and government and man are imperfect. Perfect uniformity and perfect equality of taxation , in all the aspects in which the human mind can view it, is a baseless dream. 110. Parliament while enacting the provisions of Section 54(3), legislated within the fold of the GST regime to prescribe a refund. While doing so, it has confined the grant of refund in terms of the first proviso to Section 54(3) to the two categories which are governed by clauses (i) and (ii). A claim to refund is governed by statute. There is no constitutional entitlement to seek a refund. Parliament has in clause (i) of the first proviso allowed a refund of the unutilised ITC in the case of zero-rated supplies made without payment of tax. Under clause (ii) of the first proviso, Parliament has envisaged a refund of unutilised ITC, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated on a par on a matter of a refund of unutilised ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Doud, 1957 SCC OnLine US SC 105 : 1 L Ed 2d 1485 : 354 US 457 (1957)] where Frankfurter, J., said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g it ultra vires by carrying it to the point of perverting the purposes of the statute. *** 65. As we have already indicated earlier, Rule 3 prior to its amendment in 2001 was totally different. It dealt with the method of calculation of concession keeping in view the concept of fair rental value . In the light of the principle and phraseology in Rule 3, the rule-making authority provided an opportunity to the assessee to satisfy the assessing officer that the rent sought to be recovered from the employee could not be said to be concession as it was fair rent , reasonable rent , market rent or standard rent . When the rule is amended and the concept of fair rental value has been done away with and the only method which has been adopted is to calculate the rent on the basis of population of the city in question, it cannot be successfully contended that the intention of the rulemaking authority was to afford an opportunity to the assessee to convince the assessing officer that the rent recovered by the employer from his employee was not in the nature of concession. Nor a court of law would, by interpretative process, grant such opportunity to the assessee so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terference with the right to carry on any occupation, trade, or profession. Like Section 8 (1) of the CST Act, wherein if a dealer wants to avail a concession in the rate of tax, he must deal only with registered dealers and produce C Forms, the condition imposed here is to be followed to avail the scheme. Similarly, as evident from the settled position of law, if the classification is found to be reasonable and based on intelligible differentia with nexus to the object, as in the instant case, it cannot be termed as arbitrary. The ratio laid down in service matters by invoking the doctrine of proportionality is of no avail to fiscal matters, in which the legislature enjoins a higher leverage and latitude. The condition imposed to avail the scheme cannot be compared with punishments under disciplinary proceedings. When the State is competent to introduce a composition scheme, it is within its right to impose any reasonable restriction in its interest. India is a democratic country with a federal structure. Each State has its own compulsions, reasons, and policy in fiscal matters. The sovereign authority of the State in tax matters is autonomous and cannot be correlated or compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction on the freedom guaranteed under Article 301 in public interest. However, Article 302 is amenable to Article 303 of the Constitution, whereby the Article prohibits the parliament or the legislature from imposing two types of restrictions namely (i) from making any law which gives a preference to one state over another and (ii) from making any discrimination between one state and another, qua any of the entries relating to trade and commerce in any of the list in seventh schedule. An exception to the prohibition in Article 303(1) is found in Article 303(2) by which the parliament is empowered to bring such laws to deal with a particular situation arising from scarcity of goods in any part of the country. Again by Article 304 (a), the legislature notwithstanding previous Articles, has been permitted to impose any tax on goods brought into the state from other states, however such tax shall not discriminate between the goods brought in and the rate of tax on the local goods. By Article 304 (b), the legislature of the State is empowered to bring in reasonable restrictions in the freedom of movement of goods in public interest, however, only with the previous sanction of the Presid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitutional-makers to abolish by Part XIII.' A careful reading of the above would show that Sinha, C.J., had two situations in mind. One, where the State prevents imports into and exports out of the State and the other where the State imposes the high tariff wall with a view to imposing an impediment to the free flow of trade, commerce and intercourse. Insofar as the first category viz., laws that forbid imports into and exports out of a State are concerned, the same would work as a restriction in terms of restrictions within the contemplation of Part XIII and may be permissible in the manner and to the extent the said Part permits to do so, but in the second case viz., legislature imposing a high tariff wall so as to operate as an impediment to free flow of trade, commerce and intercourse, there are considerable difficulties. That is so because the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are manifestly intended to promote industrial growth or promoting industrial activity has not appealed to us. The power to grant exemption is a part of the sovereign power to levy taxes which cannot be taken away from the States that are otherwise competent to impose taxes and duties. The conceptual foundation on which such exemptions and incentives have been held permissible and upheld by this Court in Video case [Video Electronics (P) Ltd. v. State of Punjab, (1990) 3 SCC 87 : 1990 SCC (Tax) 327] is, in our opinion, juristically sound and legally unexceptionable. Video Electronics [Video Electronics (P) Ltd. v. State of Punjab, (1990) 3 SCC 87 : 1990 SCC (Tax) 327], therefore, correctly states the legal position as regards the approach to be adopted by the courts while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, the benefit must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and ince ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways. . 152. The non-discriminatory principle is embedded in two provisions of Part XIII : Article 303(1) - Parliament cannot impose restrictions under Article 302 and make a discriminatory law under any Entry relating to trade and commerce; the other is Article 304(a) which (unlike Section 297 of the erstwhile Government of India Act, 1935 which prohibited, through a negative mandate, discriminatory treatment) empowers State Legislatures to impose non-discriminatory taxes on goods. Thus, Article 304(a) differentiates between discriminatory and non-discriminatory taxes. The premise underlying this provision is the paramount aim of Part XIII to establish and foster economic unity of the country. Non-discrimination, or parity of treatment is therefore at the core of its purpose, which Shri T.T. Krishnamachari stressed, in his speech in the Constituent Assembly. He said that restrictions by the State have to be prevented so that the particular idiosyncrasy of some people in power or narrow provincial policies of certain States should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art XIII. In support, we may again refer to the discussion in the Constituent Assembly Debates dealing with the concepts of public interest and interest of general public . Clause 13 was introduced in the chapter dealing with Fundamental Rights making the right to free trade, commerce and intercourse as a fundamental right subject to reasonable restriction. Pandit Thakur Das Bhargava sought to move an amendment [Constituent Assembly Debates, 1949, Vol. 9, p. 1145. That is Amendment No. 269 of List IV (Seventh Week), in clause (b) of the proposed new Article 274-D, for the words in the public interest , the words interests of the general public and are not inconsistent with the provisions of Article 13' be substituted. ] to substitute the words, public interest for interests of the general public he said : (CAD Vol. 9, pp. 1126-27) I maintain that there is great difference between the two expressions. Public interest in regard to a State would only include the interests of the inhabitants of that State at the most though the word public includes portions of the public. Therefore, the interests of a part of the inhabitants of a State would also mean public i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crimination on the basis of taxing the products manufactured within the State vis- -vis imported goods which will only occur if the precondition of manufacturing in the taxing State is satisfied. Freedom in Article 301 does not mean freedom from taxation 320. Historically, Article 301 was meant to do away with barriers between native States and the rest of India. Thus, Article 301 should be interpreted in the light of the object i.e. economic integration of the nation , as opposed to being aimed at any or every action which can possibly have an impact on trade, commerce and intercourse. Free in Article 301 does not mean freedom from taxation; taxation simpliciter is not within the purview of Article 301. In a sense, every tax imposed by a State Legislature may have an indirect effect on the flow of trade, commerce and intercourse. If the power of the State Legislature to enact any tax laws is held to be subject to the limitation under Article 301, the legislative power of the State to levy taxes under various entries in List II would be rendered ineffective. 339. After discussing various provisions of Part XIII and after tracing the constitutional background, speakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y requirement is that the goods imported into the local area should not be discriminated against. As discussed infra, in tax treatment there is no discrimination between the goods. 397. The expression any tax used in Article 304(a) is generic in nature and covers all taxes on goods which a State is competent to impose by virtue of Articles 245 and 246 read with List II of the Seventh Schedule. A scheme adopted by a State Legislature whereby several taxes are levied on the goods (either locally produced or imported from other States) under different heads, cannot be faulted with if it conforms to the principle of equivalence and non-discrimination. For e.g., both sales tax levied under Entry 54 List II and entry tax levied under Entry 52 List II are taxes on goods. It is the burden of the tax which can discriminate and not the form. States are free to equalise the burden of entry tax on the goods imported from other States by giving them set-off against the sales tax paid by them in the exporting State. In such a manner, equivalence can be brought about in the tax burden borne by the goods imported from other States and the locally manufactured/produced goods. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms barriers, etc. which was prevalent in the Indian States. Section 297 of the 1935 Act had contained a prohibition for imposing taxes on entry of goods from other States. The Constitution Framers decided that States have to be conceded some taxing powers for revenue purposes and for purpose of carrying out various development projects. Article 301 provides freedom of trade, commerce and intercourse throughout the territory of India, simultaneously, exceptions to such freedom have been engrafted in Articles 302 to 306. 1067. The trade and commerce being contemplated to be free throughout the territory of India, any restriction on movement of goods per se has to be treated as violating Article 301 unless the tax is saved by exceptions provided in Part XIII. However, there may be a tax which though complies with Article 304(a) but still contains the restriction to trade and commerce which is an area where much difficulty has been felt. We have already concluded that all taxes which comply with Article 304(a) need not be routed through Article 304(b) and it is only those taxes which contain restrictions on trade, commerce and intercourse which need to be routed through Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of freedom of trade and commerce. Coming to Article 304(a) any law framed by the legislature is restriction on freedom of trade and commerce which: (a) imposes on goods imported from other States, any tax when no such tax is imposed on similar goods manufactured or produced in that State, (b) imposes on goods imported from other States any tax which discriminates between goods so imported and goods so manufactured or produced. 1080. Further, it was held in Laxmi Khandsari v. State of U.P. [Laxmi Khandsari v. State of U.P., (1981) 2 SCC 600 : (1981) 3 SCR 92] that incurring of the loss in trade is not a ground to render trade restrictions as unreasonable. Following was laid down : (SCC p. 611, para 21) 21. Finally, in determining the reasonableness of restrictions imposed by law in the field of industry, trade or commerce, the mere fact that some of the persons engaged in a particular trade may incur loss due to the imposition of restrictions will not render them unreasonable because it is manifest that trade and industry pass through periods of prosperity and adversity on account of economic, social or political factors. In a free economy controls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted in a legislation which does not contain any kind of restriction to the freedom of trade and commerce. The question of judis applicability of Part XIII arises only when the legislation contains restrictions which hamper, restrict, impede and adversely affect the freedom of trade and commerce directly and immediately. I. Whether direct and immediate effect test as laid down in Atiabari [Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232 : (1961) 1 SCR 809] and approved in Automobile Transport [Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, AIR 1962 SC 1406 : (1963) 1 SCR 491] is no longer a correct test 1085. Gajendragadkar, J., speaking for the majority in Atiabari Tea Co. [Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232 : (1961) 1 SCR 809] laid down that the restrictions, which directly and immediately impede the trade are hit by Article 301. Following was held at SCR p. 860 : (AIR p. 254, para 51) 51. Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (b). The requirement of obtaining the previous sanction of the President has to be decided in accordance with the nature and content of the State legislation. 1151. What have been expressly prohibited under Articles 302, 303 and 304 are restrictions in the freedom of trade and commerce violating Article 301. A law containing restriction impeding freedom of trade and commerce and intercourse which is not saved by Articles 302, 303 and 304 violates Article 301. 1159. By majority the Court answers the reference in the following terms: 1159.1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word free used in Article 301 does not mean free from taxation . 1159.2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301. 1159.3. Clauses (a) and (b) of Article 304 have to be read disjunctively. 1159.4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied. 1159.7. A tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke laws affecting trade, commerce and intercourse. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which are imported from other States. This means that if the effect of the sales tax on tanned hides or skins imported from outside is that the latter becomes subject to a higher tax by the application of the proviso to sub-rule of Rule 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down. The above case is not applicable to the facts of this case. In that case, a higher rate of tax was imposed on goods brought from outside. Whereas, here, no additional tax is levied but only an option is to be exercised and the rate of tax on the goods is the same. 173. Shree Mahavir Oil Mills and another v. State of Jammu and Kashmir and others [1997 104 STC 148: 1996 (11) SCC 39]: 25. Now, what is the ratio of the decisions of this Court so far as clause (a) of Article 304 is concerned? In our opinion, it is this: the States are certainly free to exercise the power to levy t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndnut oil or refined oil which has been obtained from groundnuts that have not been taxed under the Andhra Pradesh Act. It is declared that the groundnut oil imported by the appellant from Karnataka for sale in Andhra Pradesh cannot be taxed at a rate higher than the rate prescribed in clause (b) of Entry 24 of the First Schedule to the Andhra Pradesh Act. Unfortunately, this is also a case, where a higher rate of tax has been levied on goods that are brought into the state from another state. Therefore, this judgment is also not applicable. The State on the other hand, has relied upon the following judgments to contend that if the aspiration on discrimination is dispelled, there would be no legal grounds for the assessees. 175. Kunhammed Kutty Haji v. Union of India [1989 SCC OnLine Ker 378 : (1989) 1 KLT 639 : (1989) 176 ITR 481 : (1989) 76 CTR 139]: 54. Apart from stating that it is an undue burden and that the provisions are discriminatory, the petitioners have not been able to marshal materials massive enough to make the court feel that a constitutional guarantee of a trader citizen, is under serious jeopardy or that he has been subjected to an evil and vicious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the general rate applicable to locally made goods is the same as that on imported goods. Even supposing without admitting that sales tax is covered by Article 301 as a tax directly and immediately hampering the free flow of trade, it does not follow that it falls within the exemption of Article 304 and it would be hit by Article 301. Still the general rate of tax which is to be compared under Article 304(a) is at par and the same qua the locally made goods and the imported goods. 28. Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often ceases to be so at another point of time. It will be wrong to denude the people of the State of the right to grant exemptions which flow from the plenary powers of legislative heads in List II of the Seventh Schedule of the Constitution. In a federal polity, all the States having powers to grant exemption to specified class for limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. The contents (sic concept) of economic unity by the people of India would necessarily include the power to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the form of subsidies or grant are given to any part of (sic or) units of a State so that it may come out of its limping or infancy to compete as equals with others, that, in our opinion, does not and cannot contravene the spirit and the letter of Part XIII of the Constitution. However, this is permissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for differentiation. If there is none, it will amount to hostile discrimination. Judged in this light, despite the submissions of Mr Sanjay Parikh and Mr Vaidyanathan, we are unable to accept the contentions that the petitioners sought to urge in this application. In the above case, the Apex Court has clearly held that when the rate of tax is same, there is no violation of Article 304 (a). The States are empowered to have their own fiscal policy and that it is not necessary for them to follow any other State in the matters of taxation. 177. Now, in the case before us, we are concerned with the amendment by which the composition scheme is not extended to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion given to file returns under Section 6 with the condition neither has direct effect on the rate of the tax on goods purchased from the other state nor does is it in any way, has the effect of giving preference to any state. It is only an option. In view of the same, the amendment also does not offend the twin conditions in Article 303. At this juncture it is relevant to refer to the judgment of the Division Bench of the Madras High Court in Schwing Stetter (India) Pvt Ltd v. The Commissioner of Commercial Taxes and Others (MANU/TN/0881/2016), wherein while dealing with a challenge to Section 2(11) of the TNVAT Act on the ground of it being ultra vires the constitution as it imposes a condition that the goods shall be deemed to be capital goods only if it is used in the state, it was held as under: 55. We do not know how the definition of the expression capital goods is violative of Article 303 of the Constitution. Clause (1) of Article 303 of the Constitution prohibits the Parliament and the Legislature of a State from making any law that would confer a preferential treatment to one State over the other or from discriminating one State from another. As far as we unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent upon natural or business factors which operate with more or less force in different localities that Parliament is prohibited from making a discrimination. Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another. 180. The Division Bench of this Court rejected the challenge and the said judgment was affirmed by the Apex Court in Special Leave to Petition (Civil) Nos.17804 to 17808/2016 by its order dated 17/10/2016. That apart, the primary and very important difference between the matters before us and in Jindal Stainless Ltd and other cases relied upon by the petitioners is that the option granted to avail the compounded rate is to the dealer. In other words, tax component under Section 6 is calculated with respect to the transaction of the person and not the goods as in other cases. Further, the levy of tax under the provisions of the TNVAT Act, 2006 on the transfer of property in goods is only a tax simpliciter. Though the term tax simpliciter is not defined in any enactment, it is settled law that when the levy, being a compulsory tax, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot be reopened by invoking section 27 as because the tax under Section 6 is not paid on turnover but on the total value of the works contract executed by him. In support of the same, he has relied upon the following judgments of this Court. 182. Sinetech v. Commercial Tax Officer [2008 SCC OnLine Mad 1292 : (2008) 15 VST 398]: 7. A Division Bench of this court in Deputy Commissioner of Commercial Taxes, Vellore v. Devandran Co., [1981] 47 STC 264 dealt with the application of section 16 of the TNGST Act wherein it was held that if earlier assessment was made on a particular percentage and subsequently, if the assessing authority wanted to reopen the assessment by taking away part of the sales turnover from the turnover already assessed for finding out the corresponding purchase turnover of raw hides and skin and subject it to tax at thirteen per cent by invoking section 16 of the TNGST Act, the same power is not available to the authorities. The finding of the Tribunal was affirmed by the Division Bench in the following lines: In this case, as we pointed out already/arid as admitted, the entire sales turnover relating to the tanned hides and skins had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be either the turnover of such dealer or the taxable turnover of such dealer in so far as the works contract in which he is engaged is concerned. 14. It is in this background that the arguments advanced for the dealer that the Tamil Nadu Additional Sales Tax Act which imposes an additional tax on the tax payable under the TNGST Act with reference to taxable turnover of such dealer-a tax which cannot be passed on by the dealer to any other -is not attracted to the amounts paid by the dealer under section 7-C of the TNGST Act, 1959 is required to be considered. 17. While there is no difficulty in determining the taxable turnover of a dealer who is engaged in the execution of a works contract in cases where the tax is computed in terms of section 3-B of the Act, the determination of turnover of a dealer who has opted for payment of tax under section 7-C is not possible at all under the parent Act, as the amount computed under section 7-C is not an amount which is determined as tax on the taxable turnover, but is determined with reference to the total value of the works contract in respect of which option is exercised. As already noticed there is no provision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally added to the original assessment (escaped turnover) Penalty levied and sustained now under dispute 26/72 146/71 1968-69 56,806.00 (under section 7) 90,617 at 3 per cent 33,811.00 1,521 27/72 149/71 1968-69 58,135.00 (under section 7) 80,905.00 at 3 per cent 22,770.00 1,024 28/72 255/71 1967-68 60,827.30 (under section7) 79,897.30 at 3 per cent 19,070.00 855 29/72 280/71 1968-69 60,827.00 (under section7) 92,252.00 (91,879 at 3 per cent; 373 at 5 per cent) 31,052.00 (Multi-point goods 373. single point goods chicory) 1,395 8. Thus, it will be seen that what has been done in this case is to find out the turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplated by section 7 no part of it may be taxable turnover or the entirety may constitute taxable turnover. The section does not take note of the portion of the total turnover which constitutes taxable turnover, when it prescribes the lump sum rate of tax payable in respect of different slabs. As we have pointed out already, in the case of an assessee paying tax under section 7, he might not have any taxable turnover at all. From this point of view, the concept of taxable turnover and the payment of tax at a particular percentage of the said taxable turnover is foreign to the scope of section 7. All that section 7 says is, once an assessee, having regard to the quantum of the total turnover, exercises the option to be assessed under section 7, section 3(1) will not apply. But once the limit of turnover provided for in section 7 is overstepped, automatically the case will go out of section 7 with the result section 3(1) will become immediately applicable and that will be the consequence of the non obstante clause occurring in section 7. In the four cases before us, as we have pointed out already, the turnover originally assessed plus the suppressed turnover exceeded the maximum limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions contained in this Act. (2) Before making the reassessment under sub-section (1), the assessing authority may make such enquiry as it may consider necessary and give the dealer concerned a reasonable opportunity to show cause against such reassessment. (3) The amount of tax already paid by the dealer concerned in pursuance of the permission to compound under section 7 shall be adjusted towards the amount of tax due as the result of reassessment under subsection (1). (4) The provisions of sub-sections (2) to (4) of section 16 shall, as far as may be, apply to reassessment under sub-section (1) as they apply to the reassessment of escaped turnover under sub-section (1) of section 16. 12. One word of explanation is necessary in respect of the turnover of one lakh of rupees mentioned in this section. Section 7 originally had the maximum turnover fixed only as rupees seventy-five thousand. Subsequently that was amended by Tamil Nadu Act No. 25 of 1971 raising that maximum to rupees one lakh. Since Tamil Nadu Act No. 31 of 1972 came into force subsequent to Tamil Nadu Act No. 25 of 1971, it takes note of that increase in the maximum. Thus, a perusal of the diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te General in S.Meenakshi v. State of Tamil Nadu case will be squarely applicable. Section 27 (1) (a) of the TNVAT Act, 2006 deals with escaped turnover. The word turnover means, the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (33), by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration. Section 2 (33) defines sale which also includes deemed sale or transfer of property in goods. It is also necessary to note the difference in the language used by the legislature while framing Section 5, where the term taxable turnover is used and Section 6, where turnover alone is used. 187. The value of the works contract includes the value of goods purchased by the dealer which are deemed to be sold when there is a transfer of property. Section 27 can be invoked even when a part of the turnover has escaped assessment. Section 28 comes into operation when it is learnt that the dealer has failed to disclose any part of turnover under Section 6. The fact that there is provision to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a higher rate, the return filed under Section 6 is to be rejected and the entire taxable turnover becomes assessable as per Section 5. 189. Further, as per the provisions of the TNVAT Act, more particularly Section 10, a dealer is liable to pay tax on the transfer of property in goods, purchases from dealers in the other State. It is relevant at this point to refer to the other judgments relied upon by the Learned Additional Advocate General. 190. State of Kerala v. Unitech Machines Ltd. [2009 SCC OnLine Ker 6740: (2010) 32 VST 80]: 5. The Government Pleader contended that the work awarded to the respondent by the oil companies in Kerala did not provide for any interState sale of goods. Further, he also contended that the respondent also has not made any inter-State sales to the awarders. On the other hand, it is the admitted position that the goods from outside the State were purchased by the respondent for resale in the execution of works contract in Kerala and for this purpose, the respondent availed of concessional rate of tax under the Central Sales Tax Act by issuing C form declarations obtained from Kerala to the outside suppliers. The awarders also understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials purchased or made in Kerala after excluding the value of the goods brought from outside Kerala because there is no provision in the KGST Act pertaining to works contract to exclude so much of the value of the goods from the turnover of the works contract, merely because such goods were brought from outside Kerala or from outside the country. We also notice that what weighed with the Tribunal to exclude the value of the goods brought from outside the State from the turnover on works contract is that the respondent is essentially based in Delhi. We do not think the base of the contractor has any relevance for deciding whether turnover on part of the works contract representing the value of goods brought from outside Kerala was interState sales. As found by all the authorities, the work executed by the respondent was with materials purchased in Kerala and from outside Kerala and the sale for these items took place from the respondent to the awarders only in the course of execution of the works contract in terms of the contracts and not at any time anterior to that. The awarding companies have no case that they made any inter-State purchase of any equipment and issued the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd later appropriated it in the works contract. We are of the view that transfer of property in goods admittedly took place in Kerala when the goods are appropriated to the contract that is by laying pipe in the location identified by the awarder. Until then the goods were retained by the petitioner at their risk in their godown. A trader making inter-State purchase or bringing goods on stock transfer and selling the same later becomes liable for payment of tax under the K.G.S.T. Act on sale of such goods. The position is not different so far as contractors are concerned, who bring goods from outside the State either as stock transfer or as inter-State purchase, stock it in their godown and later use it in the execution of works contract. We are therefore of the view that Tribunal rightly held that transfer of materials in the course of execution of work in Kerala does not amount to inter-State sale of goods from Mumbai to Kerala. We therefore dismiss the Revision Petitions. 192. Sudhakar S. Pangol v. State of Maharashtra [2009 SCC OnLine Bom 1182 : 2010 Supp Bom CR 236 : (2009) 25 VST 369]: 8. In its decision in Builders Association of India v. State of Maharashtra (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided a mechanism as to how the value of the goods, the property in which it is transferred by the contractor/dealer in execution of works contract, is to be determined. This definition is introduced to obviate any dispute in ascertaining the price of the goods which form the total turnover of the contractor/dealer. 193. It was also contended on the side of the assessees that in case of a dealer exercising his option under Section 6, it is not necessary for him to maintain any accounts and therefore, there is no scope for revision of assessment. We are not in agreement with such contention. A dealer opting to file his return under Section 6, is liable to maintain records only relating to his works contract as contemplated under Section 6 (4) of the Act. However, when a dealer purchases goods either from another state dealer or imports goods, he has to maintain the records including the books of accounts relating to purchases, sales, stocks, etc., as per Rule 4 of the Central Sales Tax (Tamil Nadu) Rules, 1957. Failure to maintain such particulars would constitute an offence. In view of the same, the contention that records need not be maintained and hence, there cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r made under the enabling provision. 195. A construction which goes against the scheme of the Act and which defeats the very purpose of the provisions must be avoided. No doubt, in tax matters, if the subject cannot be brought within the four corners of law, it is not possible to tax him. But, once the provisions are clearly available, a harmonious construction would serve the purpose. If the view of the petitioner is accepted, it would create a situation that even an incomplete or an incorrect return or a return by an ineligible person has to be accepted and assessed without any scope for revision. That, according to us, is neither contemplated under the Act nor the object of the provisions. Hence, the contention that a dealer s return under Section 6 cannot be reopened, is rejected. XVII. SPECIAL ECONOMIC ZONE 196. The next contention raised by Mr.N.Sriprakash, learned counsel for the petitioner is that the Co-developer of SEZ, who on the basis of a valid contract with the Developer, is entitled to the benefits like that of a Developer and is entitled to total exemption from the purview of tax. Reliance was placed upon Section 8(6) of the Central Sales Tax Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate General, the factual disputes like stock difference, whether the activity is authorised, the question where the construction is put up, the person is in a processing area, whether the sub-lease is made out to a worker, the duration of the sub-lease and the scope and effect of allotment of building are to be agitated only before the Appellate authority and sought the dismissal of the writ petition. 199. We have considered the rival contentions. The SEZ Act has been enacted to provide for establishment, development and management of the Special Economic Zone for promotion of experts and for matters connected therewith. Section 2(f) of the SEZ Act defines a Co-developer which means a person, who or a State Government which, has been granted by the Central Government, a letter of approval under sub-section 12 of Section 3. Section 2(g) defines the word Developer , which means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section 10 of Section 3 and includes an Entrepreneur and a Co-developer. Section 3 of the Act provides for procedures to establish a Special Economic Zone, either jointly or severally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, reconditioning, re-engineering, packaging or use as packing materials or packing accessories in an unit located as special economic zone or for development, operation and maintenance of special economic zone by the developer. Similarly, whether all the conditions imposed under Section 12 or under the letter dated 12/06/2006 are satisfied, are all factual matters. It is also not out of place to mention here that it has to be factually verified as to whether the constructed residential units are in fact leased out to the workers, the effect of such lease and whether the activities carried out by the petitioners are authorized. The above exercise also involves verification of the terms of agreement between the parties. 201. Insofar as Section 8 (6) of the CST Act is concerned, no tax shall be payable under the CST Act by any dealer in respect of sale of any goods made by such dealer, in the course of interstate trade or commerce to a registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading, production, processing, assembling, repairing, reconditioning, re-engineering, packaging or for use as packing material or packing accessories in a uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the CST Act have to necessarily take into account the effective rate after considering the deductions made under Section 3(3) of the TNVAT Act. It was argued that Section 19(5)(c) of the Tnvat Act, which denied ITC on purchase of goods sold or used in the manufacture of other goods and falls within Section 8(2) of the CST is per se discriminatory. The High Court took note of the scheme of the TNVAT Act and found that though Section 3(2) stipulated many taxable transactions, only few such transactions are carved out to give benefit of ITC. After discussing certain judgments of this Court and other High Courts, the High Court has observed that the legal position was that right to claim ITC is not a vested right or an indefeasible right. It is a benefit conferred under the Act in certain contingencies and subject to conditions prescribed in the statutory scheme. Therefore, it is open to the State Legislature to provide for conditions and restrictions while extending the concession. Likewise, it was also necessary for any assessee to claim input credit to fulfil those conditions. Thus, the provision made in the statute that unregistered dealers in other States would not be entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the aforesaid two provisions would show that when a sale is made to the State of Karnataka, it is made to a dealer but that dealer is under no obligation to get itself registered under the Tnvat Act. Because of this exemption, no State Government does that and since it is not a registered dealer, it would not be in a position to issue any Form C. But for that, the genuineness of sales made to a State Government cannot be doubted. This situation puts those dealers who are making sales to the State Government in disadvantageous position, even when it is clear that there is no possibility of tax evasion as there cannot be any such apprehension in case of sales to the State Government. We may point out here that benefit of ITC is given whenever sale is made to a dealer outside the State of Tamil Nadu and the said dealer is a registered dealer. 47. Having regard to the above, we are of the opinion that the provisions of Section 19(5)(c) are to be read down by construing that those dealers who are making sales exclusively to the other State Governments (i.e. outside the State of Tamil Nadu), the said States would be deemed as registered dealers for the purposes of availing benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for more than one reason. First, as held above, in tax matter, neither any equity nor hardship has any role to play while deciding the rights of any taxpayer qua the Revenue; second, once the action is held in accordance with law and especially in tax matters, the question of invoking powers under Article 142 of the Constitution does not arise; and third, the appellant's donors were admittedly allowed to claim deduction of the amount paid by them to the appellant under Section 35-AC during the two Financial Years 20152016 and 2016-2017. It is for all these reasons, the matter must rest there. 207. Indian Oil Corpn. Ltd. v. State of Bihar [(2018) 1 SCC 242 : 2017 SCC OnLine SC 1321]: 23. Shri Datar then referred to State of Bihar v. Bihar Chamber of Commerce[State of Bihar v. Bihar Chamber of Commerce, (1996) 9 SCC 136] for the proposition that the Objects and Reasons appended to the Bill of the Entry Tax Act showed that it was with a view to make the provision of the Bihar Finance Act more workable. From this it can scarcely be held that this being the object, the second proviso must be completely altered in order that it subserves such object. We have already hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitrary and/or discriminatory, in that the very same tax was levied at different rates without any rational justification for the same and were, thus, struck down as being arbitrary and/or discriminatory. None of these judgments would have any application to the facts of the present case, in which it is clear that the plea of discrimination is qua a set-off of one tax against a separate and independent tax imposed. This fact circumstance would be sufficient to distinguish the said judgments from the facts of the present case. 28. Since we have found that the plea of discrimination must fail on the aforesaid grounds, no question of reading down the provisions would then arise. 208. It is clear from the above judgments that there is no equity or hardship in tax matters. Once provision is held to be valid, the same cannot be read down to confer some benefit or exception contrary to such provision. Further the need to read down the provision instead of striking it down would arise only if the court is satisfied that the provision under challenge suffers from constitutional anomalies. In the present case, we have already held that the classification is rational and has a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 41-E was denied altogether for the period 1-7-1981 to 313-1988 where the manufactured goods falling under Schedule B were in the nature of waste goods/scrap goods/by products. The validity of such retrospective amendment to Rule 41-E was unsuccessfully challenged before the High Court. The High Court took the view [Telco Ltd. v. State of Maharashtra, 1997 SCC OnLine Bom 290 : (1998) 3 Mah LJ 747] that the impugned amendment of Rule 41-E was clarificatory to remove the doubts in interpretation. However, by the Bombay Sales Tax (Amendment) Rules, 1992 Rule 41-E was amended. That amendment removed the exclusionary clause of goods manufactured out of waste or scrap goods or products and restored the position as it stood prior to 1981. The appellant's appeal and another connected appeal were heard simultaneously. 16. The appellant assessee in Tata Motors Ltd. case [Tata Motors Ltd. v. State of Maharashtra, (2004) 5 SCC 783] contended that retrospective operation of a provision depriving the assessee of the vested statutory right and covering a long period (eight years in that case) imposed a prima facie unreasonable restriction and was, therefore, unconstitutional. More ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending upon the needs of the Revenue and the economic circumstances prevailing in the State. Even so an action taken by the State cannot be so irrational and so arbitrary so as to introduce one set of rules for one period and another set of rules for another period by amending the laws in such a manner as to withdraw the benefit that had been given earlier resulting in higher burdens so far as the assessee is concerned, without any reason. Retrospective withdrawal of the benefit of set-off only for a particular period should be justified on some tangible and rational ground, when challenged on the ground of unconstitutionality. Unfortunately, the State could not succeed in doing so .. 18. The entire gamut of retrospective operation of fiscal statutes was revisited by this Court in a Constitution Bench judgment in CIT v. Vatika Township (P) Ltd.[CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1] in the following manner: (SCC p. 24, paras 33-35) 33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas [Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, AIR 1968 SC 1336 : (1968) 3 SCR 623] , while considering the nature of amendment to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. (emphasis in original) 19. When we keep in mind the aforesaid parameters laid down by this Court in testing the validity of retrospective operation of fiscal laws, we find that the amendment in question fails to meet these tests. The High Court has primarily gone by the fact that there was no unforeseen or unforeseeable financial burden imposed for the past period. That is not correct. Moreover, as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in a specified situation i.e. where goods are sold at a lesser price than the purchase price of goods. The manner of calculation of ITC was entirely different before this amendment. In the example, which has been given by us in the earlier part of the judgment, dealer was entitled to ITC of Rs 10 on resale, which was paid by the dealer as VAT while purchasing the goods from the vendors. However, in view of Section 19(20) inserted by way of amendment, he would now be entitled to ITC of Rs 9.50. This is clearly a provision which is made for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2) provided that except as otherwise provided in this section, no order for any assessment year shall be made after the expiry of 4 years from the end of such year. However, after the amendment, a proviso was added to sub-section (2) under which the Commissioner of Sales Tax authorises the assessing authority to make assessment or reassessment before the expiration of 8 years from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion. The proviso came into force w.e.f. 19-2-1991. We do not think that sub-section (2) and the proviso added to it leave anyone in doubt that as on the date when the proviso came into force, the Commissioner of Sales Tax could authorise making of assessment or reassessment before the expiration of 8 years from the end of that particular assessment year. It is immaterial if a period for assessment or reassessment under sub-section (2) of Section 21 before the addition of the said proviso had expired. Here, it is the completion of assessment or reassessment under Section 21 which is to be done before the expiration of 8 years of that particular assessment year. Read as it is, these provisions would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking it effective with retrospective effect. This Court in S.L. Srinivasa Jute Twine Mills (P) Ltd. v. Union of India[(2006) 2 SCC 740 : 2006 SCC (L S) 440] has held that it is a settled principle of interpretation that: (SCC p. 747, para 18) retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication, there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary. 213. Upon consideration of the above judgments, it is evident that the legislature is empowered to bring in legislation with retrospective effect. Such intention must be spelt out by express words or by necessary implication. Retrospective effect can be given only to substantive provision either expressly or by necessary implication. Though with regard to procedural laws, the presumption is, it would apply retrospectively, there is no vested right to procedure. The effect of such enactment because of its retrospectivity must not be irrational or unreasonable. 214. In Jayam Co case, a new provision, namely Section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther effect interstate purchases or imports was not there. Therefore, the dealers filed their returns during the VAT period for 2006-07 under section 6. As per Section 6 (3), the option once exercised is final for that year. With regard to the assessment year 2007-08, the amendment was introduced in June 2007. As per Section 6 (2), the dealer has to exercise his option along with the first monthly return for the financial year or in the first monthly return after the commencement of the works contract. When they had exercised their option as per the then existing provision, they can neither be blamed nor can their returns be termed as incorrect or incomplete or that the turnover has escaped or lower rate of tax has been paid. The right that had accrued to them becomes a vested right. Therefore, we are of the view that the amendment shall not be applicable insofar as the dealers, who had exercised their option in the financial year 2006-07. Insofar as the assessment year 2007-08 is concerned, the provision shall not be applicable for that financial year for the dealers who had exercised their option prior to the date of amendment, but shall apply retrospectively to all dealers who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o import goods to be used in the works contract. There is a rationale behind such classification for the purpose of Section 6. In fiscal or taxing enactments, it is not necessary that every enactment should be backed by objects and reasons. What is relevant is the competence of the State and whether such enactment offends any constitutional rights, which in the instant cases, are held to be negative. The object and the reason adduced in the counter, which in the opinion of this court, can be discerned even without such counter as because, whenever, a purchase takes place in the course of intertrade or commerce falling under Section 8(1) of the CST Act, the rate of tax payable is at a concessional rate upon satisfaction of the requirement under Section 8(4), which is much lower than the rate of tax prescribed for the purchase of goods from a local dealer. The State obviously is at loss of revenue at the point of purchase, added together the option to pay tax at compounded rate on the value of the Contract, the State is at a loss. Such classification or distinction is not unknown in taxing law. Even Sections 5 and 6 of TNVAT Act classify works contractors into different categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect given to the amendment as being violative of Article 19 (1) (g) of the Constitution, the same is rejected as because it is within the authority of the State to bring in such amendments in fiscal statutes by clearly prescribing the date from which it must be given effect. The hardship that is caused to individuals seldom matters as validity of any fiscal enactment ought to be tested on the basis of generality of its operation and not on the basis of few individual cases. However, by the time amendment was introduced, the assessment year 200607 was over. Hence, it will not apply to the assessment year 2006-07. With respect to the assessment year 2007-08, the retrospective operation will not affect the dealers, who had already exercised the option prior to the date of amendment for that year and would be applicable only to those dealers who had not exercised the option by that date. h. Insofar as reading down the provision to permit the assessees to exclude the turnover relating to interstate purchase or import and pay tax for that separately under Section 5 and for the balance turnover under Section 6, the said request is rejected as the same is not possible, once ..... X X X X Extracts X X X X X X X X Extracts X X X X
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