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Sri M. Madhava Gowda & Others Versus Under Secretary To Government Finance Department

Levy of VAT on Liquor - constitutional validity of Entry No.59A of the III Schedule to Karnataka Value Added Tax Act, 2003 - it was contend that by virtue of this notification, the State has attempted to over come the legislative limitation imposed on the State not to exempt dealers or class of dealers from levy of tax under KVAT Act and the device adopted by the State to confer exemption in respect of liquor sold by the dealers who are not holding certain stated categories of licences under Exc .....

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t be vulnerable to attack on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others.

It could be seen that State legislature in its economic wisdom of taxation has chosen to provide for levy of tax on liquor sold by certain dealers namely, Bar and Restaurants operating in urban areas i.e., licence issued in Form No.CL-9 and in respect of Star Hotels, Clubs and Hotel, Boarding Houses and Lodges located anywhere in the State consi .....

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who are elite customers and they can afford to pay more for the comfort they enjoy with varying degree of facilities. Thus, condition of licence itself enables the licence holder to fix the price of the liquor irrespective of MRP on account of substantial value addition and as such, the legislature has brought this class of dealer also to taxation. However, Bar and Restaurants located in the same rural area which would not cater to the elite class of customers or customers of economic superiorit .....

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tes For the Respondent: By Prof. Ravivarma Kumar, Advocate General A/W Sri. T.K. Vedamurthy, HCGP) O R D E R Petitioners in these writ petitions are challenging the constitutional validity of Entry No.59A of the III Schedule to Karnataka Value Added Tax Act, 2003 (for short KVAT Act ) which came to be inserted by KVAT (Amendment) Act, 2014 i.e., Act No.15/2014 and the notification dated 28.02.2014 issued in exercise of the power under Section 5(1) of the KVAT Act. 2. I have heard the arguments a .....

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t provides for issuance of various kinds of licences in respect of dealers dealing in liquor and all the dealers in the trade are issued with the licence to trade in goods namely, liquor, beer, wine or Fenny. Petitioners have contended that Karnataka Sales Tax Act, 1957 (for short KST Act ) provided for levy of sales tax for almost 50 years and empowered the State to confer exemption by issue of notification either with reference to goods or class of goods or dealers or class of dealers. With ef .....

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x was given up. On account of Rule 2AE and 2AF being added to the original Karnataka Excise (Excise Duty and Fee) Rules, 1968, sales tax was merged with additional excise duty and thereby uniform levy of all kinds of licences within the State of Karnataka being brought about has been now thwarted by deleting Entry in Sl.No.34 of I Schedule of KVAT Act and inserting Entry No.59A in III Schedule by levying tax at the rate of 5.5% and at the same time, correspondingly issuing notification dated 28. .....

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ication, the State has attempted to over come the legislative limitation imposed on the State not to exempt dealers or class of dealers from levy of tax under KVAT Act and the device adopted by the State to confer exemption in respect of liquor sold by the dealers who are not holding certain stated categories of licences under Excise Law and it amounts to class oriented discrimination. It is further contended that KVAT Act does not empower the State to charge on class of persons and as such, lev .....

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o deal in identical goods like manufacturers and sole distributors are exempted and hence liable to be quashed. It is also contended that the exemption notification unreasonably discriminates between the dealers situated in village panchayat s limits and dealers situated in limits other than village panchayat. It is also contended that there is no rational nexus between rural Bars and the Bars located either in panchayat areas or city areas and distinction sought to be placed by the State amount .....

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Tax (Amendment) Act, 2014 (Karnataka Act No.15/2014) being declared as ultravires and opposed to State Policy of merging sales tax with excise duty and consequently, for quashing the notification dated 28.02.2014. In support of their submission, they have relied upon the following judgments: (1) AIR 1963 SC 98 ORIENT WEAVING MILLS (P) LTD. AND ANOTHER vs UNION OF INDIA AND OTHERS (2) ILR 1999 KAR 1814 BASAVARAJ NAGOOR vs STATE OF KARNATAKA AND ANOTHER (3) ILR 2000 KAR 870 STATE OF KARNATAKA AND .....

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R vs M/S.GHASIRAM MANGILAL ETC. (10) (2007)10 SCC 342 STATE OF UTTAR PRADESH AND OTHERS vs DEEPAK FERTILIZERS AND PETROCHEMICAL CORPORATION LTD. (11) (2013)8 SCC 519 STATE OF MAHARASHTRA AND ANOTHER vs INDIAN HOTEL AND RESTAURANTS ASSOCIATION AND OTHERS (12) (2007)6 SCC 317 GUPTA MODERN BREWERIES vs STATE OF J & K AND OTHERS (13) 2006 (4) Kar.L.J 700 THE KARNATAKA BANK LIMITED, MANGALORE AND OTHERS vs UNION OF INDIA (14) (2011)10 SCC 292 RANBAXY LABORATORIES LIMITED vs UNION OF INDIA AND OTH .....

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and the licence issued to retail shops in Form No.CL-9 would indicate that sale of liquor would take place in a sealed bottle and it would not be allowed to be consumed in the premises and licencees are required to adhere to the prescribed Maximum Retail Price ( MRP ) and MRP Bottled Liquor is taxed under the Karnataka Excise Act where no value addition takes place and same liquor would be distinguishable while being consumed with meals and sold in loose and submits that there will be value addi .....

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d and not the dealer and the liability is on the person who vends such liquor to recover and pay and tax is not levied on the person. On this ground, he sustains the validity of the impugned legislation as well as the consequential exemption notification issued. He would further contend that Section 5 is in parimateria with Rule 8 of the Central Excise Rules and as such, he seeks for dismissal of the writ petitions. In support of his submissions, he has relied upon the following judgments: (1) ( .....

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DIA AND ANOTHER (7) (1990)4 SCC 366 SHASHIKANT LAXMAN KALE AND ANOTHER vs UNION OF INDIA AND ANOTHER (8) (1989) SUPP (1) SCC 696 P.M.ASWATHANARAYANA SETTY AND OTHERS vs STATE OF KARNATAKA AND OTHERS (9) (1989)3 SCC 634 FEDERATION OF HOTEL AND RESTAURANT ASSOCIATION OF INDIA ETC. vs UNION OF INDIA AND OTHERS (10) (1978)2 SCC 1 PATHUMMA AND OTHERS vs STATE OF KERALA AND OTHERS (11) (1980)4 SCC 697 STATE OF KARNATAKA AND ANOTHER vs M/S.HANSA CORPORATION (12) (1996)10 SCC 304 KHODAY DISTILLERIES LTD .....

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Amendment) Act, 2014 (Karnataka Act No.15/2014) are liable to be declared as ultra vires of the Constitution of India and as such, the notification bearing No.FD 21 CSL 2014, Bangalore dated 28.02.2014 is liable to be quashed? HISTORICAL BACKGROUND: 6. The State Legislature enacted Karnataka Sales Tax Act, 1957 and the levy of tax was mostly at single point. However, liquor for human consumption was an exception to the single point levy. Tax was levied not only at the point of its sale by the ma .....

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onal Excise Duty at the point of manufacture/import in substitution to levying sales tax at all points. Hence, with effect from 16.02.2001 liquor was exempted from sales tax and Additional Excise Duty in lieu of sales tax was introduced in the State. FACTUAL MATRIX: 7. In 2014-15 Budget, the policy statement of the State was to levy tax on liquor as a measure aimed at Additional Resource Mobilisation ( ARM ) and the said State policy envisaged under the Budget of 2014-15 reads as under: 472. The .....

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e KVAT Act by way of Karnataka Value Added Tax (Amendment) Act, 2014 (Karnataka Act No. 15/2014) and it would be apt to note the statement of objects and reasons in introducing the amendment Bill, 2014 to insert the said Entry, which reads as under: STATEMENT OF OBJECTS AND REASONS It is considered necessary to amend the Karnataka Value Added Tax Act, 2003 to give effect to the proposals made in the Budget particularly to provide for levy of tax on sale of liquor including beer, fenny, liqueur a .....

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. PREFACE: 9. At the outset it requires to be noticed that the citizen of the State has no fundamental right to trade or conduct business in liquor as beverage is considered to be an article which is extra commercium - Outside commerce and for this proposition, the law laid down by Hon ble Apex Court in the case of KHODAY DISTILLERIES LIMITED & OTHERS vs STATE OF KARNATAKA reported in (1995)1 SCC 574 can be looked up. 10. Thus, keeping in mind the dicta laid down by Apex Court in mind, it ca .....

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petitioners have attacked the impugned enactment namely, clauses 8 and 9 of Amendment of Act 15/2014 and the consequential notification dated 28.02.2014 on the principal ground that under Section 5 of KVAT Act State has no power to grant exemption to dealers and it can grant exemption to goods only, unlike the power which was available to the State under Section 8A of the erstwhile Karnataka Sales Tax Act, 1957, which provision provided for grant of exemption for both goods and dealers and as s .....

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TE OF BIHAR reported in AIR 1962 SC 955 can be looked up. Although tax laws are subject to Article 14 of the Constitution, a larger discretion in classification is given to the legislature in tax matters than in other spheres. This is, in view of the inherent complexity of fiscal adjustment of diverse elements. A taxing statute is not open to attack on the ground that it taxes some persons or objects and not others. The State has a wide discretion in selecting the objects or persons that it will .....

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A reported in AIR (1969)1 SCC 681 can be looked up. 13. A fiscal statute has to be strictly construed and nothing can be read into the provision and nothing can be implied and it would not be the endeavour of the Court to ascertain the intendment of the Legislature. It has been held by the Apex Court in the case of RANBAXY LABORATORIES LIMITED vs UNION OF INDIA reported in (2011)10 SCC 292 to the said effect and same reads as under: 14. It is a well-settled proposition of law that a fiscal legis .....

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and the erstwhile KST Act by way of comparison namely, Section 5 and 8-A of the said Acts respectively. They are as under: KVAT ACT, 2003 KST ACT, 1957 5. Exemption of Tax: (1) Goods specified in the First Schedule and any other goods as may be specified by a notification by the State Government shall be exempt from the tax payable under this Act (subject to such restrictions and conditions as may be specified in the notification). (1-A) Any notification issued under sub-section (1), shall be va .....

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ment has already notified exemption of tax under the provisions of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), and such exemption on purchase or sales shall be by way of refund of tax collected on purchases or sales made by such industrial unit. 8-A.Power of State Government to notify exemptions and reductions of tax - (1) The State Government may, by notification, make an exemption, or reduction in rate in respect of any tax payable under this Act.- (a) on the sale or purchase .....

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ecified by a notification by the State Government would be exempt from the tax payable under the Act, subject to such condition and restriction, as may be specified in the notification. Reading of Section 8-A of erstwhile KST Act would indicate that State Government was empowered to grant exemption or reduction in rate in respect of any tax payable under the said Act under the eventualities referred to clause (a) to (c) of sub-section (1). The said clauses would indicate that State Government ma .....

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ons as may be specified in the notification. 16. In the background of discussion made herein above, when the impugned notification is perused, it would indicate that it exempts tax payable on sale of liquor and it does not exempt the dealer as such. However, where such dealer of certain identified categories sells the liquor, such dealer would not be required to collect the tax as in case of other dealers they are required to do so. 17. A conjoint reading of Section 5(1) of the KVAT Act, Section .....

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nder the KVAT Act on sale of liquor including Beer, Fenny, Liqueur and Wine by a dealer who is not a person holding licence in the Forms specified thereunder is exempted. The exemption that is granted is in respect of the goods specified in Entry No.59A of III Schedule and on account of such sale of liquor including Beer, Fenny, Liqueur and Wine is by a dealer who passes on such tax liability on the consumer has been made liable to collect the same and pass it on to the consumer. Hence, petition .....

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n the notification and the impugned notification would indicate that exemption is granted in respect of liquor sold by dealer who is not a person holding licence in the Forms indicated under the said notification. Hence, it cannot be contended that impugned notification has been issued without power under Section 5(1) of the KVAT Act. 18. In fact, under the Central Excise Act, 1944 a provision which is in parimateria with Section 5 of the KVAT Act can be found. Section 5A(1) of Central Excise Ac .....

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excise leviable thereon; Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured - (i) In a free trade zone or a special economic zone and brought to any other place in India; or (ii) by a hundred per cent export- oriented undertaking and brought to any other place in India. (emphasis supplied) In exercise of such power conferred, Government of India has exempted excise duty payable by class of perso .....

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the Official Gazette, exempt subject to such conditions as may be specified in the notification any excisable goods from the whole or any part of the duty leviable on such goods. (emphasis supplied) In pursuance to the powers conferred under sub-rule (1) of Rule 8, notifications came to be issued vide notification No.74 of 1959 dated 31.07.1959 and notification No.70 of 1960 dated 30.04.1960 exempting thereunder:- cotton fabrics from payment of excise duties produced by Power Looms owned by cer .....

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hedule but not with reference to certain licence holders only i.e., dealers and this is beyond the power available under Section 5(1) of the KVAT Act. 20. The contention raised in ORIENTAL WEAVING MILLS s case referred to supra is similar to the contention now raised in the present writ petitions and rejecting the same, Hon ble Apex Court has held that exemption granted by the impugned notification from payment of excise duties on cotton fabrics produced by certain Co-operative Societies is mean .....

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tifications bad insofar as they exempt certain classes of person and not classes of goods from the excise duty. The impugned notification on hand exempts liquor sold by retail sellers in sealed bottles under the specified condition of MRP and liquor sold by Bar and Restaurants operating in rural areas without scope for much value addition unlike liquor along with food and refreshments sold by Bar and Restaurants of urban areas and liquor sold in similar manner by Boarding House and Lodges in rur .....

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dealers in liquor carrying on business selectively since a person holding licence in Form CL-9 carrying on business in village panchayat areas is exempted but it does not exempt a similar licence holder carrying on similar business in the same area and as such, there is no rationale and it amounts to discrimination and impedes free flow of trade and commerce and such levy is violative of Articles 14, 19 and 304-B of the Constitution of India. 22. There cannot be any dispute to the proposition t .....

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in the case of STATE OF T.N. AND ANOTHER vs P.KRISHNAMURTHY AND OTHERS reported in (2006)4 SCC 517 can be looked up. 23. At the cost of repetition, it requires to be noticed that licence is granted to the dealers who deal in sale of liquor which includes Wine, Beer, Fenny under the provisions of Karnataka Excise Act, 1967 and Rules made thereunder. The licence fee prescribed also varies. It is area and population based. 24. The Karnataka Excise Act, 1967 and Rules framed thereunder prescribes is .....

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prescribed for above referred category of dealers is dependent on the area and population and said criteria has nexus with the volume of business in the area. 26. Under the Karnataka Excise Act, 1967 the quantum of licence fee prescribed is based on classification of areas on population criterion. They are classified as under: (i) Area based: (a) City Municipal Corporations (b) City Municipal Council (c) Town Municipal Council (d) Other areas (ii) Population based: (a) population more than 20 la .....

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unicipal Council areas/Town Panchayat areas 2,50,000 2,60,000 3,64,000 (e) Other areas 2,00,000 2,00,000 2,80,000 27. It is not in dispute that dealers holding liquor licence in Form CL-2 and CL-11C sell liquor across the counter to consumers at a sale price not exceeding the MRP indicated on the label of the container or bottle. However, such restriction is not imposed on Bars and Restaurants, Clubs, Star Hotels, Hotel, Boarding Houses and Lodges and this enables them to fix the sale price of t .....

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Form CL-2 or any other licence and has the effect of levying tax on liquor sold by dealers holding licence in Form CL-9 and operating in urban areas, licence in Form CL-4, Form CL-6A, Form CL-7. Thus it has to be examined as to whether exempted class can be considered as a separate class. 29. Article 14 of the Constitution of India forbids class discrimination by conferring privileges or imposing liabilities upon person arbitrarily selected out of a large number of other persons similarly situat .....

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n tests which the impugned legislation or notification will have to pass are: (1) Classification must be based on an intelligible differentia which distinguishes those that are grouped together from others; and (2) That differentia must have rational relation to the object sought to be achieved. 30. Apex Court in the case of THE STATE OF WEST BENGAL vs ANWAR ALI SARKAR AND ANOTHER reported in AIR 1952 SC 75 has held that mere classification, however, is not enough to get over the inhibition of A .....

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)10 SCC 342 was examining as to whether the exemption of Urea NPK 23:23:0 (product of the assessee) - petitioner which was exempted from tax being withdrawn was discriminatory or otherwise and in this background, it has been held that whenever any type of law is to be made for the purposes of levying tax on a particular commodity or exempting some other commodity from taxation, a sort of classification is to be made and in the facts obtained in the said case, it was held that the impugned notifi .....

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m the list. According to the notification dated 2-11-1994, the intention of the State was not to tax the sale of "potassium phosphatic fertilizers" but when we go into enquiry of nomenclature of these chemical compounds, we find that the NPK 23:23:0 is a "nitro-phosphate fertilizer" which has no potassium (K) ingredient. The Notifications dated 10-4- 1995 and 15-5-1995 clearly include NPK 20:20:0, which is also a nitro-phosphate fertilizer with zero content of potassium (K). .....

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e of Maharashtra and Ors. [(2004) 5 SCC 783], has held: "15. ….It is no doubt true that the State has enormous powers in the matter of legislation and in enacting fiscal laws. Great leverage is allowed in the matter of taxation laws because several fiscal adjustments are to be made by the government depending upon the needs of the Revenue and the economic circumstances prevailing in the State. Even so an action taken by the State cannot be irrational and so arbitrary so as to one set .....

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n Kerala Hotel and Restaurant Association & Ors. v. State of Kerala & Ors. [AIR 1990 SC 913], contended that the State has widest latitude where measures of economic and fiscal regulation are concerned. There is no dispute on this principle of law as enumerated in the aforesaid decision of this Court. However, this same law must not be repugnant to the Article 14 of the Constitution, i.e., it must not violate the right to equality of the people of India, and if such repugnancy prevails t .....

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product of a blind approach by the administrative authorities on which the responsibility of delegated legislations is vested by the Constitution. In a nutshell, the notifications issued by the Trade Tax Department of the State of U.P., dated 10- 4-1995 and 15-5-1995 lack the sense of reasonability because it is not able to strike a rational balance of classification between the items of the same category. As a result of this, NPK 23:23:0 is not given exemption from taxation whereas all other NP .....

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r burden different from those resting upon the general public. 33. The State will decide what economic and social policy it requires to pursue. The Courts give a larger discretion to the legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways. Thus, if a legislation or the subordinate legislation would pass the test of reasonable classification namely, one which includes all who are similarly situated and n .....

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r words tax is to be paid on the liquor sold by dealers holding licence in Form CL-9 and operating in urban areas, licence holders of Form CL-4, licence in Form CL-6A, licence in Form CL-7. Thus, it has to be seen whether this classification for the purposes of levy of tax and granting exemption stands the test of discrimination or whether it offends Article 14 in any manner whatsoever. 35. If the classification of dealers is based on any rationale, it cannot be said that it is violative of Arti .....

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er would be permissible and repelling the contention of levy being non collectable from the persons being not violative of Article 14 of the Constitution, and such classification being permissible. In the following judgments, similar view has been expressed. (i) It has been held by the Apex Court in N.VENUGOPALA RAVI VARMA RAJAH vs UNION OF INDIA AND ANOTHER reported in (1969)1 SCC 681 that a taxing statute is not exposed to attack on the ground of discrimination merely because different rates o .....

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ity of treatment is impossible of achievement. Again tax laws are aimed at dealing with complex problems of infinite variety necessitating adjustment of several disparate elements. The Courts accordingly admit, subject to adherence to the fundamental principles of the doctrine of equality, a larger play to legislative discretion in the matter of classification. The power to classify may be exercised so as to adjust the system of taxation in all proper and reasonable ways the Legislature may sele .....

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ee 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 groun .....

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The Fourteenth Amendment was not designed to prevent a state from establishing a system of taxation or from effecting a change in its system in all proper and reasonable ways, nor to require the states to adopt an ironclad rule of equality to prevent the classification of property for purposes of taxation or the imposition of different rates upon different classes." Weaver again says at p. 397: "Class legislation is that which makes an improper discrimination by conferring particular p .....

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f the class or classes upon which the law operates. In respect to such distinction, a legislative body has a wide discretion and an Act will not be held invalid unless the classification is clearly unreasonable and arbitrary." 18. The Mappilla families governed by the Marumakkattayam Law reside in a small part of the country and form numerically a small community. The Parliament has again been accustomed in enacting tax laws to make a distinction between a Hindu Undivided Family consisting .....

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ament has not attempted an "obvious inequality" . (ii) In the case of SHASHIKANT LAXMAN KALE AND ANOTHER vs UNION OF INDIA AND ANOTHER reported in (1990)4 SCC 366, Apex Court has held that Court must look beyond 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. Apex Court while upholding the co .....

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istinguishes 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 th Special Courts Bill, 1978 [1979] 2 SCR 476 and to refer to the propositions quoted at pp. 534-537 therein. Some of the propositions are stated thus: (SCC pp.424- 25, para 72) "(2) The State, in the exercise of its governmental power, has of necessity to ma .....

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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 the validity of classification in any given case. Classification is justified if it is not palpably arbitrary. (4) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespecti .....

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ty and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive. (7) The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and 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 t .....

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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 above mentioned. * * * (11) Classification necessarily implies the making of a distinction or discrimination .....

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d 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. It is clear that the role of public sector in the sphere of promoting the national economy and the context of felt needs of the times and societal exigencies informed by experience gained from its functioning till the enactment are of significance. There is no dispute that the impugned provision includ .....

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ees and not merely employees of public sector companies, does not arise. (iii) When constitutional validity of Section 20 of Kerala Agriculturists Debt Relief Act, 1970 came up for consideration before Apex Court in the case of PATHUMMA AND OTHERS vs STATE OF KERALA AND OTHERS reported in (1978)2 SCC Page 1 on the ground of discrimination also, said contention was negatived and held that while making classification, the Legislature cannot be expected to provide abstract symmetry and if classific .....

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r Section 20 of the Act is wholly discriminatory and is violative of Article 14. Secondly, it was argued on behalf of the appellants in Civil Appeal No. 420 of 1973 that they being stranger auction-purchasers were selected for hostile discrimination as against a bonafide alienee who has been given complete exemption from the operation of the provisions of the Act. It is now well settled that what Article 14 forbids is hostile discrimination and not reasonable classification. Equality before law .....

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nable classification which must fulfil two conditions: (1) The classification must he founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group. (1) The differentia must have a reasonable nexus to the object sought to be achieved by the statute. In the case of Shri Ram Krishna Dalmia v.Shri Justice S. R. Tendolkar & Ors. (AIR 1958 SC 538) the Court after considering a large number of its previous decisions observe .....

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rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration". This case has been relied upon in a large number of cases right from 1959 upto this date. In the case of State of Kerala & Anr. v. N. M. Thomas (sup .....

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ication is implicit and inherent in the concept of equality for there can hardly be any country where all the citizens would be equal in all respects. Equality of opportunity would naturally mean a fair opportunity not only to one section or the other but to all sections by removing the handicaps if a particular section of the society suffers from the same. It has never been disputed in judicial pronouncements by this Court as also of the various High Courts that Article 14 permits reasonable cl .....

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rian society, where there, is peace and plenty, where there is complete economic freedom and there is no pestilence or poverty, no discrimination and oppression, where there is equal opportunity to education, to work, to earn their livelihood so that the goal of social justice is achieved". 36. Apex Court in the case of STATE OF KARNATAKA AND ANOTHER vs M/S.HANSA CORPORATION reported in (1980)4 SCC 697 was examining as to whether classification legislation based on population criteria for t .....

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which would lean in favour of the constitutionality unless such construction is wholly untenable. However, where one has to look at a section not very well drafted but the object behind the legislation and the purpose of enacting the same is clearly discernible, the Court cannot hold its hand and blame the draftsman and chart an easy course of striking down the statute. In such a situation the Court should be guided by a creative approach to ascertain what was intended to be done by the legislat .....

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possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticised. A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It .....

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, and then he must supplement the written word so as to give "force and life" to the intention of the legislature. That was clearly laid down (3 Co Rep 7b) by the resolution of the judges (Sir Roger Manwood, C.B., and the other barons of the Exchequer) in Heydon's case (1584) 3 Co. Rep. 7a, and it is the safest guide today. Good practical advice on the subject was given about the same time by Plowden in his note (2 Plowd. 465) to Eyston v. Studd (1574), 2 Plowd. 463. Put into homel .....

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of taxing statute the legislature enjoys a larger discretion in the matter of classification so long as it adheres to the fundamental principle underlying the doctrine of classification. The power of the legislature to classify is of wide range and flexibility so that it can adjust its taxation in all proper and reasonable ways. In Khyerbari Tea Co. Ltd., & Anr. v. The State of Assam (1964)5 SCR 975 this Court observed as under: "It is, of course, true that the validity of tax laws can .....

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ignty and in that sense it is a power of paramount character". It was also observed that legislature which is competent to levy a tax must inevitably be given full freedom to determine which articles should be taxed, in what manner and at what rate. It would, therefore, be idle to contend that a State must tax everything in order to tax something. In tax matters, "the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reas .....

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te Article 14. Whether in this case the classification is reasonable would be presently examined but the contention that if the State Government is granted a choice in the matter of selection of local area, ipso facto, the statute would be unconstitutional as being violative of Article 14, must be negatived. 17. In order to ascertain whether the classification of local areas for the purposes of levy of tax is reasonable or not, a reference may be made to the impugned notification. Table annexed .....

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a reasonable basis for classification vis-a-vis a tax levied on entry of goods in the area ? It would be undeniable that population basis would provide a reasonable criterion for selecting local areas for the purpose of levy tax simultaneously excluding those which do not answer the population criterion. One unquestionable element scientifically established about a taxing statute is that the yield from the tax must be sufficiently in excess of cost of collection so that the tax which is levied .....

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mption of goods is directly related to the population within the local area. Viewed from this angle, population criterion would provide a reasonable basis for classification for selectively levying the tax by choosing local area and by specifying different rates so as to make the tax productive. Therefore, there is no substance in the contention that the classification in this case was unreasonable. The High Court was accordingly in error in holding that Section 3 did not permit the State Govern .....

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tax from the customers or in other words, tax can be passed on to customers. Under Entry 59A of III Schedule of KVAT Act, tax is levied on sale of liquor including Beer, Fenny, Liqueur, Wine which are goods or commodities. Under the impugned notification exemption is on sale of such liquor, etc. by a dealer in rural area namely, the tax payable under Entry 59A of III Schedule on sale of liquor including Beer, Fenny, liqueur and Wine by a dealer who is not a person holding licence in Form No.CL- .....

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of list II of VII Schedule of the Constitution of India which provides for levy of tax on sale or purchase of goods in the State and is subject to Entry 92A of List I and as such, there can be no further curtailment of the State s power of taxation. 39. The classification of dealers for the purpose of levy of tax and granting exemption on the basis of turnover is held to be not hit by Article 14 of the Constitution by the Division Bench of this Court in the case of SHANTILAL & BROTHERS vs ST .....

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ranteed under Article 14 and 19(1)(g) of the Constitution of India. 40. KVAT Act has been enacted by the State Legislature under Entry 54 of List II of VII Schedule to the Constitution of India which provides for levy of tax on sale or purchase of goods in the State and said enactment is in force with effect from 1st April, 2005, on all commodities except Petrol, Aviation Turbine Fuel, Diesel and Sugar cane. Under KVAT Act, tax is levied at every point of sale of goods in the State. First Schedu .....

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nd Beer which was due to merger of sales tax with excise duty and Rule 2AE and 2AF being added to Karnataka Excise (Excise Duty and Fee) Rules, 1968 . 41. However, with effect from 01.03.2014 the State inserted Entry 59A to Third Schedule of KVAT Act for levy of tax on liquor and correspondingly notification dated 28.02.2014 (impugned in these writ petitions) was also issued granting exemption in respect of certain categories of dealers . 42. A perusal of the above referred impugned notification .....

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the State Legislature and 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 range, by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality and it would not be vulnerable to attack on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others. .....

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onsiderably 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 range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimina .....

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era v. Municipal Corporation of Greater Bombay ((1972)1 SCC 70) ; Jaipur Hosiery Mills v. State of Rajasthan ((1970)2 SCC 26). 29. Classification for purposes of taxation or for exempting from tax with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire wrap and woof of the 1961 of the Act has been woven on this pattern. 35. It is not necessary to multiply such instances. Suffice it to say that classification of sources of income .....

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rom a source in the specified areas and the income accruing or received from a source outside such areas is to benefit not only the members of the schedule tribes residing in the specified areas but also to benefit economically such areas. If the contention advanced by Mr.Lahiri is accepted and a member of the scheduled tribe residing in a specified area is held entitled to the exemption irrespective of whether the source of his income lies within or outside such areas, it will lead to potential .....

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ction 10(26) is likely to operate unequally and cause inequality of treatment between individuals similarly situated. A tribal residing in the scheduled areas earning large income from business located outside the specified areas, would be totally exempt while the non-tribal whose source of income is a share in the same business would be taxed although with reference to the source of the income, both were similarly situated 36. We are not persuaded to accept Mr.Lahiri s argument that the making .....

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ed tribes who are enterprising and resourceful enough to move out of the seclusion of the tribal areas and successfully compete with their Indian brethren outside those areas and rise to remunerative positions in service or business, cease to be weaker sections . In any case, the State is the best judge to formulate its policies and to decide how far and for what period and in what situations, the members of a particular scheduled tribe residing in a particular tribal area, should be afforded th .....

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n levy of tax on the sale or purchase of goods. It has been held by Hon ble Apex Court in the case of K.M.MOHAMED ABDUL KHADER FIRM vs THE STATE OF TAMIL NADU AND OTHERS reported in (1985)58 STC 12 to the following effect: The first contention urged on behalf of the petitioners is that since the State Legislature had already provided for the levy of a tax on sales by the Act of 1959 and had also enacted a further statute authorising the levy and collection of a surcharge which is in truth and su .....

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of computation of the additional tax leviable under that Act. The validity of the 1970 Act has been upheld by a Constitution Bench of this Court in the case of S. Kodar v. State of Kerala (1974) 34 STC 73 (SC) :1975)1 SCR 121. Hence there is no longer any scope for the petitioners to contend that the State Legislature had no competence to provide for the levy of additional sales tax. The nature and identity of the additional sales tax imposed by the 1970 Act have not been in any way altered by .....

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as strongly contended on behalf of the petitioners that the prescription of different rates of additional sales tax depending upon the quantum of turnover of the different assessees is totally repugnant to the concept of levy of tax on sales. Another argument advanced by counsel for the petitioners was that since under the amended provisions of Section 2, two dealers selling the same commodity will be liable to pay additional tax at different rates depending upon their respective annual turnover .....

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ional sales tax under the impugned Act is confiscatory in nature, that it imposes unreasonable restrictions on the petitioner s right to carry on business and offends Article 19 of the Constitution, particularly in view of the prohibition contained in sub- section (2) of section 2 against collection of additional tax from the consumers. Yet another point taken in the Writ Petitions but not very seriously urged at the time of hearing is that the levy of additional tax under the impugned Act offen .....

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goods and not upon the income of a dealer and so long as it is not made out that the tax is confiscatory, it is not possible to accept the contention that because the dealer is disabled from passing on the incidence of tax to the purchaser, the provisions of the Act impose an unreasonable restriction upon the fundamental rights of the appellants under article 19 (1) (g) or 19 (1) (f) . Dealing with the contention that since the provisions of the Act imposed different rates of tax on different de .....

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rs on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover w .....

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to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of the legislature. The only question for the court to consider is whether there is rationality in the belief the legislature that capacity to pay the tax increases, by and large, with an increase of receipts. "Certain it is .....

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ase of gross sales carries with it an increase of opportunity for profit, which supplies a rational basis for division into classes, at all events when coupled with evidence of a high degree of probability that the opportunity will be fruitful". Stewart Dry Goods Company v. Levis 294 US 550 (See the dissenting judgment of Justice Cardozo, J., Brandeis and Stone J.) The reasoning of the minority in that case appeals to us as more in consonance with social justice in an egalitarian state than .....

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um 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 to capacity to pay and thus bring about a real an .....

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vide Rule 3(2). Whereas, no such restriction of MRP is imposed on Bars and Restaurants, Clubs, Star Hotels, Hotel, Boarding Houses and Lodges covered under the impugned notification where liquor is sold to the customers or served in loose quantities with food articles in the licenced premises as stipulated in the conditions of the licence. The CL-9 holder licences provide the facilities of varying degrees of comforts to different class of elite customers and as such, they would have the advanta .....

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rm No.CL-9 and in respect of Star Hotels, Clubs and Hotel, Boarding Houses and Lodges located anywhere in the State considering the potential for tax collection being huge, and at the same time, exemption has been extended to similar licence holders running Bar and Restaurants by operating them in rural areas considering the fact of low value addition between the price at which liquor is purchased and sold to customers in rural areas. 46. However, a Hotel, Boarding House or Lodge holding licence .....

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d in the same rural area which would not cater to the elite class of customers or customers of economic superiority have been exempted by virtue of notification dated 28.02.2014. 47. At this juncture, it would be appropriate to note that licence fee fixed for a dealer holding licence in Form No.9 and operating in urban areas is 6.00 lakhs, whereas, licence fee prescribed for a similar licence holder who is running Bar and Restaurant business in rural area is 2.00 lakhs though both the class of l .....

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