1956 (3) TMI 18 - HC - VAT and Sales Tax

Higher tax rate on food and drink dealers found unconstitutional under Article 14

AR Krishna Iyer and Another Versus The State of Madras

AR Krishna Iyer and Another Versus The State of Madras - [1956] 7 STC 346 (Mad) Issues Involved:1. Maintainability of the application under Article 226 of the Constitution.2. Validity of the proviso to section 3(1)(b) of the Madras General Sales Tax Act in light of Article 14 of the Constitution.Detailed Analysis:1. Maintainability of the Application under Article 226 of the Constitution:The learned Government Pleader raised a preliminary objection regarding the maintainability of the application under Article 226 of the Constitution, arguing that the first petitioner had statutory remedies available under the Act itself, which should have been exhausted before approaching the Court. However, the Court held that the existence of effective alternative remedies does not bar the assumption of jurisdiction under Article 226. The Court noted that statutory tribunals could not examine the validity of the taxing provision itself, as they are creatures of the statute. Therefore, the Court decided to exercise its discretion in favor of the first petitioner, as the validity of the impugned provision could not be adjudicated upon by the statutory tribunals. Consequently, the preliminary objection failed.2. Validity of the Proviso to Section 3(1)(b) of the Madras General Sales Tax Act in Light of Article 14 of the Constitution:The core issue was whether the proviso to section 3(1)(b) of the Act, which imposed a higher tax rate on dealers in articles of food and drink sold in hotels, boarding houses, or restaurants, violated Article 14 of the Constitution by being discriminatory and thus unconstitutional.The Court recognized that the impugned statutory provision exhibited apparent discrimination as it imposed a higher tax rate on a specific class of dealers-those selling food and drink in hotels, boarding houses, or restaurants. The defense argued that the validity of the provision could be justified on the principle of reasonable classification. The Court examined three lines of classifications within the provision:1. Dealers in articles of food and drink versus other dealers.2. Dealers in articles of food and drink sold in hotels, boarding houses, or restaurants versus other dealers in such articles.3. Dealers with a turnover of Rs. 25,000 and more versus those with less than Rs. 25,000.The Court focused on whether these classifications had a reasonable and just relation to the object of the Act, which was to levy a general tax on the sale of goods. The validity of the first classification was not challenged. However, the second classification-distinguishing dealers based on the situs of sales (in restaurants versus elsewhere)-was found to lack a reasonable basis. The Court noted that the turnover of sales, irrespective of the location, should be taxed uniformly. The third classification based on turnover was not examined in detail as the second classification itself was deemed unreasonable.The Court concluded that the impugned classification did not bear a reasonable and just relation to the object of the Act. The apparent discrimination against dealers in restaurants was not justified by any rational basis linked to the Act's objective. Thus, the proviso to section 3(1)(b) of the Act was held to offend Article 14 of the Constitution and was declared void and unenforceable against the first petitioner.Conclusion:The petition was allowed, and the assessment based on the invalid proviso to section 3(1)(b) was set aside by issuing a writ of certiorari. The petitioners were entitled to their costs, and the rule was made absolute.