Economic threshold classification and retrospective tax liability under sales tax law were upheld as constitutionally valid.

Section 6D(1)(b)(i) of the Bengal Finance (Sales Tax) Act, 1941, was examined on whether its annual contractual transfer price threshold of more than two lakhs created an article 14 violation. The classification of works contractors was upheld as based on intelligible differentia, namely economic capacity, with a rational nexus to the objective of taxing larger contractors while excluding smaller ones. The provision was also tested on the use of the previous year's contractual transfer price from 1 April 1984, and that reference was treated as a permissible legislative device in a taxing scheme. The retrospective operation was not found discriminatory, as the liability basis applied uniformly within the class.

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Issues: (i) Whether section 6D(1)(b)(i) of the Bengal Finance (Sales Tax) Act, 1941, was violative of article 14 of the Constitution of India on the ground that contractors with annual contractual transfer price above rupees two lakhs were treated differently from those below that threshold; (ii) Whether the application of contractual transfer price of the previous year for fastening liability from 1 April 1984 under section 6D(1)(b)(i) was impermissibly retrospective or discriminatory.

Issue (i): Whether section 6D(1)(b)(i) of the Bengal Finance (Sales Tax) Act, 1941, was violative of article 14 of the Constitution of India on the ground that contractors with annual contractual transfer price above rupees two lakhs were treated differently from those below that threshold.

Analysis: The provision grouped works contractors into a single class for levy of tax. The distinction based on annual contractual transfer price exceeded or not exceeding rupees two lakhs was held to be founded on an intelligible differentia, namely economic capacity, and the classification had a rational nexus with the object of bringing economically superior contractors into the tax net while excluding smaller contractors. In fiscal legislation, the Legislature was held to enjoy a wide latitude in selecting the class of persons to be taxed.

Conclusion: The classification under section 6D(1)(b)(i) was held to be valid and not violative of article 14.

Issue (ii): Whether the application of contractual transfer price of the previous year for fastening liability from 1 April 1984 under section 6D(1)(b)(i) was impermissibly retrospective or discriminatory.

Analysis: The liability under section 6D was made operative from 1 April 1984, and the use of the contractual transfer price of the prior year was treated as a permissible legislative device to identify those already meeting the statutory threshold when the levy commenced. The Court held that the Legislature could validly give retrospective effect in a taxing provision, and that any fortuitous advantage or variation arising from different accounting year-ends did not amount to hostile discrimination. The common basis of liability remained the same for all dealers governed by the provision.

Conclusion: The retrospective reference to the previous year's contractual transfer price was held to be valid and not unconstitutional.

Final Conclusion: The constitutional challenge failed, the assessment notice was upheld, and the application stood dismissed.

Ratio Decidendi: In a fiscal statute, a classification based on an economically relevant threshold is valid if it rests on intelligible differentia having a rational nexus with the legislative object, and retrospective fixation of tax liability is permissible where the statutory scheme applies uniformly to all within the class.

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