Trade restriction and equality review: withdrawal of composition benefit survived article 301, but failed article 14 for irrational classification.

Section 5G(4) of the Andhra Pradesh General Sales Tax Act was held not to violate article 301 merely because it withdrew the composition option from dealers using goods purchased from outside the State, since no direct and immediate restriction on trade or proven discriminatory burden was shown. However, the same provision was held unconstitutional under article 14 because the State failed to disclose any rational basis or legitimate object for excluding that class of dealers from the section 5G benefit. The impugned sub-section was therefore struck down as violative of equality, and the writ petitions succeeded without costs.

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Issues: (i) Whether sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957 violates the freedom of trade, commerce and intercourse under article 301 of the Constitution of India by withdrawing the composition option from dealers using goods purchased from outside the State. (ii) Whether the classification created by sub-section (4) of section 5G, excluding such dealers from the benefit of section 5G, is unconstitutional under article 14 of the Constitution of India for want of a rational basis and legitimate object.

Issue (i): Whether sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957 violates the freedom of trade, commerce and intercourse under article 301 of the Constitution of India by withdrawing the composition option from dealers using goods purchased from outside the State.

Analysis: The impugned provision did not impose a direct tax on goods brought from outside the State. It only denied a concessional composition option otherwise available to dealers liable under section 5F. On the facts placed before the Court, there was no specific demonstration that the provision, in operation, necessarily created a higher tax burden or directly and immediately restricted the flow of trade. A mere withdrawal of an optional mode of assessment, without proof of actual discriminatory burden on inter-State trade, was insufficient to attract the prohibition in article 301.

Conclusion: The challenge under article 301 failed.

Issue (ii): Whether the classification created by sub-section (4) of section 5G, excluding such dealers from the benefit of section 5G, is unconstitutional under article 14 of the Constitution of India for want of a rational basis and legitimate object.

Analysis: The provision divided dealers otherwise forming the same class under section 5F into two groups, but the State did not disclose any legitimate purpose for the exclusion or any rational basis linking the classification to the object sought to be achieved. The distinction was not supported by a legally tenable justification, and the counter-affidavit was silent on the necessity for such sub-classification.

Conclusion: The provision was held to be violative of article 14 and unconstitutional.

Final Conclusion: The writ petitions succeeded and the impugned sub-section was struck down as unconstitutional, with no order as to costs.

Ratio Decidendi: A provision withdrawing an assessment benefit from a subclass of dealers will not offend article 301 unless it directly and immediately restricts trade, but it will fail article 14 if the State cannot show a rational basis and legitimate object for the differential treatment.

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