Fiscal classification in taxation upheld; retrospective levy limited by a court-accepted bar on recovery before Gazette publication.

Fiscal classification for sales tax was upheld because bar-attached hotels and hotels above the two-star grade formed a permissible class for differential treatment, and taxation measures may validly distinguish between objects of levy if the classification has an intelligible differentia and a rational nexus with the revenue objective. The Article 14 challenge therefore failed. Although the amendment operated retrospectively from 1 July 1987, the State accepted that recovery would begin only from the date of Gazette publication, and the court directed that no tax be recovered for the intervening period. The levy stood, but recovery was confined to the period after publication.

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Issues: (i) Whether the classification of bar-attached hotels and hotels above the grade of two stars for levy of sales tax on cooked food and beverages, and the levy of tax on liquor at two points, violated Article 14 of the Constitution. (ii) Whether the retrospective operation of the amendment from 1 July 1987 permitted recovery of tax for the period before publication of the Finance Act in the Gazette.

Issue (i): Whether the classification of bar-attached hotels and hotels above the grade of two stars for levy of sales tax on cooked food and beverages, and the levy of tax on liquor at two points, violated Article 14 of the Constitution.

Analysis: Fiscal legislation is subject to Article 14, but taxation may validly classify persons or objects if the classification is founded on an intelligible differentia and bears a rational relation to the object of the levy. In matters of taxation, the legislature enjoys wide latitude in selecting the subjects of tax, fixing the burden, and adopting graded or differential treatment. The levy on higher-category hotels and bar-attached premises was treated as a permissible fiscal classification aimed at revenue raising, with the State's view of the economic capacity of the affected class left largely to legislative judgment.

Conclusion: The classification was valid and the challenge under Article 14 failed.

Issue (ii): Whether the retrospective operation of the amendment from 1 July 1987 permitted recovery of tax for the period before publication of the Finance Act in the Gazette.

Analysis: Although the amendment was stated to take effect retrospectively, the State accepted that the tax would be collected only from the date of publication in the Gazette and not for the earlier period. The Court recorded that assurance and directed that no recovery be made for the intervening period before publication.

Conclusion: Recovery was barred for the period prior to publication in the Gazette.

Final Conclusion: The impugned levy was upheld in substance, while recovery was restricted to the period from the date of Gazette publication onward.

Ratio Decidendi: In fiscal matters, a classification for taxation is constitutionally valid if it is based on a reasonable differentia having a rational nexus with the object of the levy, and retrospective tax operation may be limited by a court-accepted restraint on recovery for the prior period.

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