TMI Blog1990 (2) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... J.S. VERMA, J.- These civil appeals and the connected writ petition involve decision of the substantially common question arising out of the conflicting decisions of the High Courts of Kerala and Madras regarding constitutional validity of similar provisions in the States of Kerala and Tamil Nadu which result in imposition of sales tax in the two States on cooked food sold to the affluent in the luxury hotels while exempting the same from sales tax in the modest eating houses patronised by the lesser mortals. In both these States the exigibility to sales tax of cooked food sold only in luxury hotels was challenged on the ground that it amounted to hostile discrimination. The Kerala High Court rejected the challenge while the Madras High Court has upheld it. This has led to filing of Civil Appeal Nos. 912 to 920 of 1988 against the Kerala High Court's decision and Writ Petition (Civil) No. 281 of 1988 under article 32 of the Constitution by the unsuccessful hoteliers of Kerala while Civil Appeal Nos. 4460 to 4480 of 1985 are by the State of Tamil Nadu against the Madras High Court's decision. These conflicting decisions of the two High Courts giving rise to these matters are: Sangu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hunger of the consumer, there can be no reasonable basis for its classification with reference to the eating house in which it was sold to the customers and, therefore, for exigibility to sales tax the cooked food could not be classified with reference to the place of its sale. Is this the correct approach to examine the reasonableness and validity of the classification made in the present case. In case such an argument is valid, it logically follows that in order to tax sale of cooked food the States must levy the sales tax on cooked food sold in all eating places whether it be a luxury hotel or a roadside dhaba; or not tax it at all, if it wishes to relieve the common man who is in eternal pursuit of adequate means of sustenance of this additional burden. We must frankly admit that unless it be the clear mandate of the Constitution we would not hesitate to reject this argument which, if accepted, may lead to the disastrous consequence of equating for taxation the haves with the have-nots even in the matter of sustenance of the latter. Moreover, such a view may even tempt the legislature to tax all cooked food sold anywhere and we certainly do not wish to make any contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same direction. We are here concerned with the constitutional validity of a legislative provision which has the effect of making the cooked food sold in the posh eating houses alone exigible to sales tax while exempting from that levy the cooked food sold in the moderate eating houses. Reasonableness of the classification has to be decided with reference to the realities of life and not in the abstract. A discernible dissimilarity between those grouped together and those excluded, is a pragmatic test, if there be a rational nexus of such classification with the object to be achieved. In the abstract, all cooked food may be the same since its efficacy is to appease the hunger of the consumer. But when the object is to raise only limited revenue by taxing only some category of cooked food sold in eating houses and not all cooked food sold anywhere, it is undoubtedly reasonable to tax only the more costly cooked food. The taxed cooked food being the more costly variety constitutes a distinct class with a discernible difference from the remaining tax-free cooked food. A blinkered perception of stark reality alone can equate caviar served with champagne in a luxury hotel with the gru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods so exempted are specified in the Third Schedule to the Act. Item 12 in the Third Schedule as it stood prior to April 1, 1976, read: "Item 12.-Cooked food including coffee, tea and like articles served in a hotel, restaurant or any other place by a dealer whose total turnover in respect of such food is less than thirty-five thousand rupees in a year." The above provision was amended by Act 45 of 1976 from April 1, 1976. After the said amendment, the provision read: "Cooked food including coffee, tea and like articles served in a hotel, restaurant or any other place." As a result of the above amendment, cooked food specified in item 12 mentioned above was exempt from sales tax by virtue of section 9 of the Act. This was the position until 1987, when the Kerala Finance Act, 1987, was passed, which was brought into force retrospectively with effect from July 1, 1987. However, we are not concerned with its retrospective operation since an undertaking was given in the High Court on behalf of the State Government that retrospective effect would not be given to this provision. Item 57 in the First Schedule reads: "57. Cooked food including beverages not At the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to also consider the validity of the said amendment introduced by Act 17 of 1988. In addition, Civil Writ Petition No. 281 of 1988 has been filed directly in this Court under article 32 of the Constitution, challenging the constitutional validity of these amendments in the Kerala Act. The relevant provisions of the Tamil Nadu Act may also be noticed. It is the constitutional validity of item 150 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, which is challenged. By an amendment with effect from October 4, 1980, item 150 reads as under- "Articles of food and drinks sold to customers in three star, four star and five star hotels, as recognised by Tourism Department, Government of India, whether such articles are meant to be consumed in the premises or outside." The effect thereof was to tax sales of food and drinks covered by the above item while exempting those outside the item. Thereafter item 160 was substituted with effect from June 12, 1981, as under: "Articles of food and drinks other than those specified elsewhere in this Schedule, sold to customers in hotels classified or approved by the Department of Tourism, Government of India." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sification being permissible, the mode to be adopted is the legislature's choice which has chosen a pragmatic mode based on an existing classification instead of undertaking the exercise of a new classification to identify the two categories of eating houses, the sales wherein should be taxed or exempted. It was urged that unless the classification so made is found to be arbitrary, there is no ground to reject the same and substitute it with another method simply because another method may be more desirable. It was also contended that the object being to raise only limited revenue from this source, it was decided to tax only the sale of costlier food and thereby confine the burden only to fewer people on whom the burden would be light with the added advantage of greater administrative convenience. A catena of decisions was cited at the bar on the point relating to valid classification and the test to be applied when hostile discrimination is alleged. It is not necessary to refer to all those decisions which state the settled principles not in dispute even before us. The difficulty really is in the application of settled principles to the facts of each case. It is settled that cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discriminatory, really misses the point, namely, that the former kind of dealers are in a position of economic superiority by reason of their volume of business and form a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment it to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society." (Emphasis Here italicised. supplied.) A recent decision of this Court in P.M. Ashwathanarayana Setty v. State of Karnataka (1989) Supp 1 SCC 696, gives a fresh look to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well not to impose too rigorous a standard of criticism, under the equal protection clause, reviewing fiscal services. In G.K. Krishnan v. State of Tamil Nadu [1975] 2 SCR 715, this Court referred to, with approval, the majority view in San Antonio Independent School District v. Rodrigues (1973) 411 US 1, speaking through Justice Stewart: "No scheme of taxation, whether the tax is imposed on property, income or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the equal protection clause." and also to the dissent of Marshall, J., who summed up his conclusion thus: "In summary, it seems to me inescapably clear that this Court has consistently adjusted the care with which it will review State discrimination in light of the constitutional significance of the interests affected and the invidiousness of the particular classification. In the context of economic interests, we find that discriminatory State action is almost always sustained, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the present case, to assail the constitutional validity of the impugned provisions reliance is placed on a decision of the Madras High Court in A.R. Krishna Iyer v. State of Madras [1956] 7 STC 346. However, contrary view was taken by the Andhra Pradesh High Court of the same provision in the Madras General Sales Tax Act, 1939, in Kadiyala Chandrayya v. State of Andhra [1957] 8 STC 33. Subba Rao, C.J., as his Lordship then was, upheld the classification in the Andhra decision on the ground that it was made as a genuine attempt to adjust the burden with a fair and reasonable degree of equality and to harmonise the doctrine of equality with differences inherent in the categories of persons assessed. After referring to the principle of classification authoritatively restated by this Court in Budhan Chowdhry v. State of Bihar [1955] 1 SCR 1045 and quoting the oft-quoted passage from Willis on Constitutional Law on this point, Subba Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in hotels, boarding houses and restaurants and other dealers in such articles and held that it was sufficient to deny the validity of the impugned provision. With great respect we cannot agree. In our view, the characteristics of the dealer covered by the proviso should be cumulatively considered and, if so looked at, the said characteristics will afford a reasonable basis of classification which has a rational nexus with the object sought to be achieved. We, therefore, hold that the classification is founded on intelligible differentia distinguishing dealers like the assessee and that it has a rational relation to the object sought to be achieved." (Emphasis Here italicised. supplied.) The vision of Subba Rao, C.J., as his Lordship then was, portrayed in the Andhra decision more than three decades earlier, a forerunner in the field, is fully realised being consistent with the picture emerging from the decisions of this Court already noticed and promotes the principle of economic equality governing formulation of the country's fiscal policy. With great respect, we fully concur with the above view taken by Subba Rao, C.J., as his Lordship then was, even prior to that introductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised with the higher star status to bring it within the tax net, enjoyed an undue advantage not available to those within the tax net. It was also urged that recognition of a hotel for conferment of the star status was made for a different purpose, namely, promotion of tourism and the other facilities available therein which have no relevance to the quality of food served therein. Admittedly, such recognition entails several benefits and seeking recognition depends on volition. In our opinion, such an enquiry is unwarranted for the purpose of classification in the present context. It is well-known that the tariff in hotels depends on its star status, it being higher for the higher star hotels. The object being to tax cooked food sold at a higher tariff, the status of the hotel where it is sold is certainly relevant. The classification is made in the present case to bring within the tax net, hotels or eating houses of the higher status excluding therefrom the more modest ones. A rational nexus exists of this classification with the object for which it is made and the classification is founded on intelligible differentia. This being a relevant basis of classification related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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