TMI Blog2020 (8) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... e doctrine of classification is based upon the distinction and on a well known fact that the circumstances which govern one set of the persons and objects may not necessarily be the same governing the other set of persons - there is no illegality or perversity in the order of the learned single Judge to form a different opinion than the one held. Appeal dismissed. - W. A. Nos. 1923, 1926, 1949, 1964, 1993, 2008, 2011, 2015, 2019, 2034, 2038, 2041, 2058, 2073, 2090, 2096, 2103, 2111, 2116, 2133, 2143, 2153 and 2245 of 2018 and 1058, 1157 and 1273 of 2019. - - - Dated:- 19-2-2020 - C. K. Abdul Rehim And Amit Rawal JJ. For the Appellants : Mohammed Rafiq Senior Government Pleader For the Respondents : Shaji Thomas , G. Shivadas , Sonal Singh Beghel , A Kumar , Smt. S. K. Devi , M. Raj Mohan, Jen Jaison , Joseph Kodianthara (Sr.), V. Abraham Markos , Abraham Joseph Markos , Isaac Thomas and P. G. Chandapillai Abraham JUDGMENT AMIT RAWAL, J. 1. By this order, we shall dispose of bunch of 26 writ appeals preferred by the State of Kerala against the judgment/order of the learned Single Judge, whereby the writ petitions filed by the respondents challenging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (2) shall be punishable with fine which may extent to one thousand rupees and no court below the rank of a Magistrate of the first class shall try any such offence. 2. The facts and the circumstances resulting into filing of the writ petitions at the behest of the respondents, are, that on receipt of the notices dated 06.06.2016 (Exhibit P1 in WP(C).No.26980 of 2016 in W.A.2008/18), appellant-State proposed to levy and collect surcharge at the rate of 10% of the Value Added Tax ( VAT ) during the impugned periods 2008-09 to 2016-17 in terms of Section 3(1A) of 1957 Act. The said proposal, vide order dated 25.06.2016 (Exhibit P3), was confirmed in respect of various periods. The appellant-State defended the imposition of levy which was introduced w.e.f. 01.04.2008 owing to Finance Minister s Budget Speech of 2008-09 assigning certain reasons. Learned Single Bench, after considering the respective arguments of the parties, allowed the writ petitions and directed the appellant-State to refund the taxes collected. 3. Mr. Rafiq, learned counsel representing the appellant-State submitted that the judgment/order of the learned Single Judge is liable to be set-aside as the imposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class of industrial units and for a limited period of time, therefore, the amendment in the Act was based upon Intelligible Differentia and in no manner fell within the ambit of discrimination as sought to be projected by the respondents. 7. In Mahavir Oil ( supra ), the State granted exemption from payment of taxes in respect of the goods produced locally, which was held to be constitutionally permissible and not offensive to Article 304(a). It was held that the exemption given to manufacturers of edible oil was totally unconditional, while the producers of edible oil from industries in adjoining States had to pay sales tax @ 8%. It is in this backdrop, the matter was referred to a larger bench. 8. Many writ petitions challenging the validity of the amendment incorporating the different legislations were pending adjudication and for purpose of adjudication, Hon ble Supreme Court framed the following questions:- 1. Can the levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India? 2. f answer to question No.1 is in the affirmative, can a tax which is compensatory in nature also fall foul of Article 301 of the Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged levy creates a class of dealers on whom it is applicable and it is for the policy makers to decide the category to which a taxation law has to be applied. Such power cannot be questioned unless it is exercised in a malafide manner resulting in arbitrariness or discrimination. The present levy is on big business houses, therefore, it is based upon the rational and intelligible basis. 12. The impugned levy is not a tax on goods, but an additional sales tax based on turnover, within the prescribed limit and also cumulatively satisfy other conditions. The findings of the learned Single Judge by referring to the dealers, who are having a turnover of 5 crores and above but not importing the goods is neither here nor there. It is in the competence of a Legislation to stipulate different rate of tax, which does not fall foul of Article 301. It is possible to have such differential rates for boosting economic reserves as well. In support of the aforementioned contentions, reference was made to the following case law:- a) Digvijay Cement Co. Versus State of Rajasthan, AIR 1997 SC 2609, a judgment of the Hon ble Supreme Court between the same parties in subsequent decision, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of different states, the issue pertaining to the levibility of entry tax on the imported/foreign goods was left open to be answered by the regular bench. The regular bench upheld the notification as it did not infringe provision of Article 304 (a) of the Constitution of India. i) Spences Hotel Pvt. Ltd and Another vs. State of West Bengal and Others (1991) 2 SCC 154, It is in the domain of the legislature to augment the debts keeping in view the evolvement of the social, economic, commercial and scientific developments. The concept of equality has to be viewed in the context of distributive justice. In other words, the perfect equality cannot be attained in taxation. 13. Levy was based upon intelligible differentia as it was on a particular big chain and for which the legislature has vide multitude for fiscal adjustment and therefore the classification so arrived cannot be violative of Article 14 of the Constitution of India. 14. Very eloquently Mr.Rafiq laid emphasis on para 8 and 9 of the majority view in Jindal Stainless Steel Ltd. (supra) that any benefit granted to specified class of dealers cannot be said to be hostile discrimination. It is only the taxes disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; or 'purpose' of such discrimination and the other factor commonly associated with discrimination is 'effect', that is, whether a measure has a discriminatory effect or not. The effect of tax should not be such that two like goods are given discriminatory treatment. The Legislature should not exercise power to bring about discrimination between imported and similar goods manufactured in the state. 1.b) Vikram Cement and Another v. State of Madhya Pradesh and Others (2015) 11 SCC 708, where the appellants were carrying on manufacture and sale of cement and had been paying entry tax for entry of the goods in the territory of Madhya Pradesh but as per the explanation added thereto, there was a change in the imposition of the entry on a higher side. The explanation was that the amount shall not be refunded in any case on the basis that dealer had paid the tax at a higher rate. On analysis of the argument, the explanation caused by the Madhya Pradesh Government, was held, to be discriminatory in nature. 1.c) Union of India and Others v. N.S. Rethnam and Sons (2015) 10 SCC 681, where two notifications pertaining to same goods were issued granting partial exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to levy tax on goods imported from other States or Union Territories does not mean that it is unqualified or unrestricted. There are two restrictions on that power. The words to which similar goods manufactured or produced in that State are subject impose the first restriction on the power of the State Legislature to levy any such tax. It would imply that a tax on import of goods from other States will be justified only if similar goods manufactured or produced in the State are also taxed. The levy should not create any discrimination between the goods so imported or manufactured and produced. State Government in the matter of levy of taxes cannot discriminate between the goods imported from other States and manufactured or produced within the State levying such tax. 18. The findings in Jindal Stainless (supra) in para 72 leave no manner of doubt that exemptions and incentives, though permissible but only with a restriction that it is based on reasonable classification and intelligible differentia or for a limited period , but in case differentiation is made out by the State with an intention to create an favourable bias and intended to benefit a distinct cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments, it would be relevant to quote the provisions of Articles 301 to 304 of the Constitution of India. 301. Freedom of trade, commerce and intercourse Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free . 302. Power of Parliament to impose restrictions on trade, commerce and intercourse Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce (1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lass of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters. 9) States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters. 10) The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be determined in appropriate proceedings. 24. The major thrust of the argument of Mr.Rafiq was that once the learned single Judge did not agree with the argument that the amendment do not cause any bias it cannot be said to be discriminatory or based on any unintelligible different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court agreed with the line of reasons adopted in Video Electronics (supra) in the following words: 132. We respectfully agree with the line of reasoning adopted in Video Electronics (supra). The expression discrimination has not been defined in the Constitution though the same has fallen for interpretation of this Court on several occasions. The earliest of these decisions was rendered in Kathi Raning Rawat v. The State of Saurashtra AIR 1952 SC 123, where a sever-Judge Bench of this Court held that all legislative differentiation is not necessarily discriminatory. Relying upon the meaning of the expression in Oxford Dictionary, Patanjali Sastri, CJ (as His Lordship then was) explained: 7. All legislative differentiation is not necessarily discriminatory. In fact, the word discrimination does not occur in Article 14. The expression discriminate against is used in Article 15(1) and Article 16(2), and it means, according to the Oxford Dictionary, to make an adverse distinction with regard to; to distinguish unfavourably from others . Discrimination thus involves an element of unfavourable bias and it is in that sense that the expression has to be understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electronic's case, this Court noted that the differentiation made was supported by reasons. This Court held that if economic unity of India is one of the Constitutional aspirations and if attaining and maintaining such unity is a Constitutional goal, such unity and objectives can be achieved only if all parts of the Country develop equally. There is, if we may say so, with respect considerable merit in that line of reasoning. A State which is economically and industrially backward on account of several factors must have the opportunity and the freedom to pursue and achieve development in a measure equal to other and more fortunate regions of the country which have for historical reasons, developed faster and thereby acquired an edge over its less fortunate country cousins. Economic unity from the point of view of such underdeveloped or developing states will be an illusion if they do not have the opportunity or the legal entitlement to promote industries within their respective territories by granting incentives and exemptions necessary for such growth and development. The argument that power to grant exemption cannot be used by the State even in case where such exemptions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court did not end after noticing unfavourable bias but added more by clarifying that it would be discriminatory if not applied equally. 31. The whole doctrine of classification is based upon the distinction and on a well known fact that the circumstances which govern one set of the persons and objects may not necessarily be the same governing the other set of persons. The expression discrimination has not been defined in the Constitution though the same has fallen for interpretation by the Supreme Court in Kathi Raning Rawat vs. State of Saurashtra AIR 1952 SC 123 where the 7-Judge Bench held that all the legislative differentiation is not necessarily discriminatory. The 9 (nine) Judges Bench of Supreme Court has clearly held that if the levy is for a limited period, it cannot be said to be discriminatory, if otherwise would be act of hostile discrimination as has been decided by the learned single Judge. We do not find any illegality or perversity in the order of the learned single Judge to form a different opinion than the one held. 32. In view of what has been observed above, we do not find any reasons to interfere in the impugned judgment of learned Single Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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