TMI Blog2014 (12) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... every possibility for evasion is ruled out - the legislature, by conferring a degree of latitude or discretion on the executive, does not breach the requirement of a valid classification under Article 14 of the Constitution. Shashikant Laxman Kale And Another Versus Union of India And Others [1990 (7) TMI 3 - SUPREME Court] it has been held that in a taxing statute a greater degree of latitude in matters of classification is permissible, noted that in order to tax something it is not necessary to tax everything - prior to the notification which was issued on 7 October 2013, an earlier notification was issued u/s 34(1) of the VAT Act on 4 March 2008 under which a liability to deduct tax at source was imposed on every person responsible for making payment to a contractor in discharge of a liability under a works contract - The categories of works contracts covered by the notification included transactions between a contractor and several other entities including a University, educational institution and training centre - when the legislation has conferred upon the State a discretion to issue a notification to bring within the purview of section 34(1) certain specific transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards satisfaction of tax payable by the dealer on account of sale of any taxable goods, deduct an amount determined in the manner specified: Provided that where in case of a works contract, the contractor has awarded a sub-contract and the notification provides for deduction of amount by the contractee from the payments made to contractor, the contractor responsible for making any payment or discharge of any liability to any subcontractor, in pursuance of a contract with the subcontractor, shall, while making payment to the subcontractor, deduct amount of tax referred to above. Provided further that where in case of a works contract, the contractor has already made deduction from the payments made to his sub-contractor, the amount of such payments shall be deducted from the amount on which deduction is to be made by the contractee to the contractor. Sub-sections (2) to (14) of section 34 of the Act provide as follows : (2) Upon issue of a notification under subsection (1), where- (a) a dealer, who makes sale of any taxable goods and in whose case notification referred to in subsection (1) applies, for any reason claims that he either is not liable to pay tax on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and within such time, as may be prescribed. (8) If any person referred to in sub-section (1) fails to make the deduction or after making deduction fails to deposit the amount so deducted as required by sub-section (6), the assessing authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into the Government Treasury. (9) Without prejudice to the provisions of subsection (8), if any such person, after deducting, fails to deposit the amount so deducted, he shall be liable to pay simple interest at the rate of fifteen percent per annum on the amount not so deposited from the date on which such amount was deducted to the date on which such amount is actually deposited. (10) Where the amount has not been deposited after deduction, such amount together with interest referred to in sub-section (9) shall be recovered as arrears of land revenue from the person who has deducted and such amount shall be a charge upon all the assets of the person concerned. (11) Nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2008 (U.P. Act No.5 of 2008), the Governor is pleased to direct that with effect from October 08, 2013, every person responsible for making payment to the selling dealer, for discharge of liability on account of valuable consideration payable on sale of goods shall, at the time of making such payment to the seller, either by credit or in cash or in any other manner, towards the satisfaction of tax payable by the dealer on account of sale of any taxable goods, deduct an amount equal to four percent of the value of goods : Provided that this notification shall not be applicable except in the cases of the transactions between the dealer and, - (a) a Department of the Central Government or of any State Government; or (b) a Local Authority under any Act for the time being in force in the State of Uttar Pradesh; or (c) a Corporation or Undertaking established or constituted by or under a Central Act or a Uttar Pradesh Act; or (d) a University or an Educational Institution or a Training Centre. By the notification dated 7 October 2013, a liability to deduct tax equivalent to 4% of the value of the goods at source has been imposed on every person responsible for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Article 14 of the Constitution. It has been submitted that no material has been placed on record by the State to justify either the reason for enacting section 34 or for bringing private educational institutions within the fold of sub-section (1) of section 34 by the notification dated 7 October 2013. In the alternative, it has been urged that the expression educational institution should be read as ejusdem generis and should be confined to aided institutions of the State by excluding from the purview of the notification, private unaided institutions. Private unaided institutions, it has been submitted, are not dealers within the meaning of the VAT Act and hence should be excluded from the liability to deduct tax at source. On the other hand, it has been urged on behalf of the State by the learned Standing Counsel that : (i) there is a presumption of constitutional validity which is attracted where the vires of a legislation is sought to be questioned and the burden lies on the person who seeks to assail the constitutional validity of a law; (ii) section 34 is not a charging provision but is in the nature of a machinery or collection provision which confers a power on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be construed so as to effectuate that objective. Sub-section (1) of section 34 empowers the State to issue a notification. The provisions which follow, make it clear that the legislature has indicated several safeguards. Under sub-section (2), several situations have been envisaged. The first is where a dealer, who makes a sale of any taxable goods and in whose case a notification under sub-section (1) applies, claims on such sale that he is either not liable to pay tax or is liable to pay tax at a lesser amount than the amount of deduction computed in the manner provided. The second situation is where the person responsible for making payments to the dealer selling the goods is unable to ascertain the turnover of any goods sold. In either of these situations the person responsible for making payment has to require the selling dealer to produce a direction issued in this behalf by the assessing authority of the selling dealer and shall act in accordance with the direction of the assessing authority. Sub-section (3) provides that where the purchasing dealer himself is liable to pay tax on the turnover of purchase of any goods under the Act, he shall not deduct any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, much less inexactitude of language employed. Indeed, any such defects of drafting should be ironed out as part of the attempt to sustain the validity/constitutionality of the enactment. After all, an Act made by the Legislature represents the will of the people and that cannot be lightly interfered with. The unconstitutionally must be plainly and clearly established before an enactment is declared as void. ....... The general principles governing a constitutional challenge on the ground of a violation of Article 14 have been formulated in the judgment of the Constitution Bench of the Supreme Court in In re: Special Courts Bill, 1978 ((1979) 1 SCC 380). Classification, it is well settled, does not require an exact or scientific exclusion or inclusion of persons or things. The Supreme Court held thus : The constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts should not insist on delusive exactness or apply doctrinaire tests for determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chanism 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 adoption of remedy are not always possible and that judgment is largely a prophecy based on meagre and un-interpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. ............... The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification issued thereunder, does not cease to be valid nor would it suffer from the vice of arbitrariness, merely because it has not imposed a liability to deduct tax at source on other entities or transactions. These principles are indeed well settled and we may at this stage refer to the decision of the Constitution Bench of the Supreme Court in Federation of Hotel Restaurant Vs. Union of India Ors.(AIR 1990 SC 1637) where it was held as follows : It is now well settled though taxing laws are net 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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