Turnover-based tax classification upheld where it serves equitable taxation and meets Article 14 rational nexus requirements.

A turnover-based slab in a taxing rule is constitutionally valid where it rests on an intelligible differentia and has a rational nexus with equitable taxation. Old rule 65 of the Orissa Sales Tax Rules was treated as a special compounding or assessment method for hotel-keepers linked to gross annual turnover, and the Court held that taxing statutes have wide latitude to classify dealers by economic strength. The challenge under Article 14 therefore failed, and the rule was upheld as non-discriminatory. A preliminary objection to the reference also failed because the High Court was not barred from answering the question once the reference had been made.

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Issues: (i) Whether the reference was incompetent because the challenge to old rule 65 under Article 14 could not be referred under section 24(3) of the Orissa Sales Tax Act. (ii) Whether old rule 65 of the Orissa Sales Tax Rules was discriminatory and therefore offended Article 14 of the Constitution of India.

Issue (i): Whether the reference was incompetent because the challenge to old rule 65 under Article 14 could not be referred under section 24(3) of the Orissa Sales Tax Act.

Analysis: The objection was that the Tribunal could not refer a question attacking the validity of the rule and that the proceedings under section 24(2) and (3) were therefore not maintainable. The reference, however, had already been directed by the High Court, and in that situation the Court was not precluded from answering the question referred. The Tribunal's refusal to refer did not prevent the Court from dealing with the reference once made.

Conclusion: The preliminary objection failed and the reference was held competent.

Issue (ii): Whether old rule 65 of the Orissa Sales Tax Rules was discriminatory and therefore offended Article 14 of the Constitution of India.

Analysis: Article 14 forbids class legislation but permits reasonable classification if the classification rests on an intelligible differentia and that differentia has a rational relation to the object of the statute. The Court treated the impugned rule as a method of compounding or special assessment for hotel-keepers, based on the extent of gross annual turnover. The scheme under sections 4 and 5 of the Act already recognised turnover-based taxation thresholds and permitted compounding by rule. The classification was held to be aimed at apportioning the tax burden equitably between dealers of different economic strength, and taxing statutes are allowed a wide latitude in making such distinctions. The Court found support in the Bombay sales tax classification upheld by the Supreme Court and rejected the contention that the slab system created unconstitutional discrimination.

Conclusion: Old rule 65 was held not discriminatory and not in violation of Article 14.

Final Conclusion: The Court upheld the validity of the impugned rule and answered the constitutional challenge against the assessee, while overruling the preliminary jurisdictional objection to the reference.

Ratio Decidendi: A turnover-based slab or classification in a taxing rule is constitutionally valid when it is founded on an intelligible differentia and bears a rational nexus to the object of equitable taxation.

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