TMI Blog1987 (10) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... come into force on the 1st day of July, 1987. The Act as it stood prior to the amendment had totally exempted "cooked food including coffee, tea and like articles served in a hotel, restaurant or any other place" as per entry 12 of the Third Schedule. Entry 12 of the Third Schedule was amended by adding the words "not falling under entry 57 of the First Schedule". By entry 57 of the First Schedule introduced by the amendment "cooked food including beverages not falling under any entry in the Fifth Schedule sold or served in bar attached hotels and restaurants and/or hotels above the grade of two stars" is made subject to levy of sales tax at the rate of 10 per cent at the point of first sale in the State by a dealer who is liable to tax under section 5. Thus with effect from 1st of July, 1987 cooked food and beverages sold in bar attached hotels and hotels above the grade of two stars are liable to tax at the point of first sale in the State. As per entry 36 of the First Schedule of the Act as it stood prior to the amendment "liquor other than foreign liquor, arrack and toddy" was liable to tax at 55 per cent at the point of first sale in the State by a dealer who is liable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others left out of the group, and (ii) the differentia must have a rational nexus to the object sought to be achieved by the statute in question. The classification may be founded on different bases; it may be geographical or according to objects or occupations or the like [vide Budhan Choudhry v. State of Bihar AIR 1955 SC 191 (Vol. 42)]. It is also beyond controversy that taxation laws must also pass the test of article 14. To decide whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and the statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally, and that cannot be justified on the basis of any valid classification that it would be violative of article 14 (vide the decision of the Supreme Court in East India Tobacco Company v. State of Andhra Pradesh [1962] 13 STC 529). The Supreme Court accepts the following proposition of law stated at page 587 by Willis on "Constitutional Law": "A State does not have to tax everything in order to tax somethin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not merely to raise revenue, but also to regulate the economic life of the society. The same view is more elaborately discussed by the Supreme Court in State of Gujarat v. Shri Ambica Mills Ltd. [1974] 4 SCC 656, wherein it is stated at page 678: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment." In Murthy Match Works' case (1974) 4 SCC 428 the differential levy of excise duty on classification of match box industry into mechanised and non-mechanised and classifying the "B" and "C" categories of manufacturers into one group were in challenge before the Supreme Court. The Supreme Court upheld the classification for the following reason stated at page 437: "Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly ever accomplished. In this context, we have to remember the relationship between the legislative a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC 1; [1983] 4 SCC 45 upheld the validity of section 5(3) of the Bihar Finance Act which imposed a levy of surcharge on every dealer whose annual turnover exceeds Rs. 5 lakhs. A.P. Sen, J., on behalf of the Bench stated at page 97: "On questions of economic regulations and related matters, the court must defer to the legislative judgment. When the power to tax exists, the extent of the burden is a matter for the discretion of the law-makers. 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. If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied. The equality clause in article 14 does not take from the State a power to classify a class of persons who must bear the heavier burden of tax. The classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequalities." It was accordingly held that the economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ena 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." The following passage from the judgment of Marshall, J. (with which Douglas, J., concurred), is also quoted with approval: "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, for such interests are generally far removed from constitutional guarantees. Moreover, 'the extremes to which the court has gone in dreaming up rational bases for state regulation in that area may in many instances be ascribed to a healthy revulsion from the court's earlier excesses in using the Constitution to protect interests that have more than enough power to protect themselves in the legislative hall: Dandridge v. Williams [1970] 397 US 471 at page 520.'" It is accordingly h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burden to the consumer. The impact of the levy is therefore on the wealthier section of the society and its object is for raising revenue for the State as well as at least partially to implement the directive principle contained in article 47 of the Constitution. As adverted to earlier, it is not for this Court to consider the reasons that weighed with the legislature to make the classification for the purpose of levy of sales tax, the object of the levy is principally for raising revenue and its impact, according to the State, is mainly on the wealthier section of the society. 9.. Counsel for the petitioners have placed considerable reliance on the decision of a Division Bench of the Madras High Court in Sangu Chakra Hotels Pvt. Ltd. v. State of Tamil Nadu [1985] 60 STC 125. The question before the Madras High Court was relating to the validity of the levy of sales tax on articles of food and drink sold to customers in hotels classified or approved by the Government of India, Department of Tourism, as per entry 150 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 as amended in 1981. The Division Bench at page 137 adverts to the decisions of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel, boarding house or restaurant, the tax shall be calculated at the rate of four and a half pies for every rupee, if the turnover relating to those articles is not less than twenty-five thousand rupees." Rajagopalan, J., on behalf of the Division Bench has taken the view that the classification in the above provision of the Act is unrelated to the object of the Act. The proviso aforesaid, according to the Division Bench, makes a three-fold classification-(1) from the group of dealers is marked off one class of dealers, the dealers in articles of food and drink; (2) among the dealers in articles of food and drink a further division is made and dealers in such articles sold in a hotel, boarding house or restaurant are marked off from the other dealers in such articles of food and drink; (3) there is a further division among dealers in articles of food and drink sold in hotel, boarding house or restaurant; (a) those with a total turnover of Rs. 25,000 and more; (b) those with a turnover of less than Rs. 25,000. It was only the validity of the second of the classifications that was challenged before the learned Judges as can be seen from pages 351 and 352 of the report. The Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self and Manohar Pershad, J., after referring to the decision of the Supreme Court in Budhan Choudhry v. State of Bihar AIR 1955 SC 191 and the principles stated by Willis on Constitutional Law referred to in the earlier part of this judgment has taken the view that a very wide latitude should be permitted in the matter of classification for the purpose of taxation. Dissenting from the decision of the Madras High Court in Krishna Iyer's case [1956] 7 STC 346; AIR 1956 Mad. 480 Subba Rao, C.J., on behalf of the Division Bench stated: "The object of the Act, as set out in the preamble, is to provide for the levy of a general tax on the sale of goods in the State of Andhra. But every taxing legislation makes a genuine attempt to adjust the burden with a fair and reasonable degree of equality. It also aims to apportion the burden equitably on different categories of properties or persons with distinct economic characteristics. It is impossible in the nature of things to aim at absolute equality in the matter of taxation. The State resorts to the principle of classification in an attempt to harmonise the doctrine of equality with differences inherent in the categories of properties or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of article 14 of the Constitution. It is observed at page 236: "This court has uniformly held that classification for taxation and the application of article 14, in that context, must be viewed liberally, not meticulously. We must always remember that while the executive and legislative branches are subject to judicial restraint, 'the only check upon our exercise of power is our own sense of self-restraint'." It is further stated at page 238: "It is well-established that classification is primarily for the legislature and becomes a judicial issue only when the legislation bears on its bosom obvious condemnation by way of caprice or irrationality." The plea, based on article 14, was rejected on the ground that "in taxation, the many criteria of intrinsic intricacy and pragmatic plurality persuade the court, as a realist instrument and respecter of the other two branches, to allow considerable free play although never any play for caprice, mala fides or cruel recklessness in intent and effect." 11.. In the light of the decision of the Supreme Court in Ganga Sugar Corporation's case [1980] 1 SCC 223; AIR 1980 SC 286 and the decision of the Andhra Pradesh High Court in Kadiyala C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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