TaxTMI 
TaxTMI 
2021 (11) TMI 1188
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....d marginal farmers. G.O. Ms. No. 59 dated 28 June 2016 was issued providing guidelines for the implementation of G.O. Ms. No. 50. The guidelines provide that for the classification of farmers as small and marginal, the extent of landholding as mentioned in the landholding register and loan register at the time of sanction of the agricultural loan shall be taken into consideration. As for the definition of 'small farmer' and 'marginal farmer', it provides that 'small farmer' means a farmer who holds land of 2.5 acres to 5 acres and 'marginal farmer' means a farmer who holds land upto 2.5 acres. Subsequently, a circular was issued by the Registrar of Cooperative Societies on 1 July 2016 providing further guidelines for implementation of the scheme. 3. The Respondent challenged the scheme as unconstitutional for violation of Article 14 of the Constitution, and sought a direction to provide loan waiver for all farmers irrespective of the extent of landholding. The High Court allowed the writ petition holding that the exclusion of 'other farmers'-those who hold land exceeding 5 acres-from the land waiver scheme is discriminatory and violative o....
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....he Government of Tamil Nadu to grant any other 'limited benefits' to other categories of farmers. 5. In pursuance of the above directions, the State of Tami Nadu has produced on record GO (MS) 15 and 16 dated 8 February 2021 by which the Government has waived off crop loans of Rs. 12,110.74 crore outstanding as on 31 January 2021 availed by 16,43,346 farmers from cooperative banks. 6. The Appellant has made the following submissions: (i) The court can interfere with the policy of the government only when the action is unconstitutional or contrary to statutory provisions; (ii) The scheme was formulated after studying the financial capacity of the State; (iii) There is an intelligible differentia in providing loan waiver only to small and marginal farmers since they are the most affected class; and (iv) The underlying policy of the Government is to maximize the beneficiaries with an efficient use of funds. Even if farmers with larger landholdings suffered losses, it is a fiscal policy decision of the State to only extend the scheme to small and marginal farmers. 7. The Respondents have made the following submissions: (i) F....
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....ugar Co Ltd. v. Union of India, (1990) 3 SCC 223; Khoday Distilleries Ltd. v. State of Karnataka, (1996) 10 SCC 304; Balco Employees Union v. Union of India, (2002) 2 SCC 333; State of Orissa v. Gopinath Dash, (2005) 13 SCC 495. It is also settled that the Courts would show a higher degree of deference to matters concerning economic policy, compared to other matters of civil and political rights. In R.K. Garg v. Union of India (1981) 4 SCC 675, this Court decided on the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Act 1981. The challenge to the statute was on the principal ground that it was violative of Article 14 of the Indian Constitution. Rejecting the challenge, the Constitution Bench observed that laws relating to economic activities must be viewed with greater latitude and deference when compared to laws relating to civil rights such as freedom of speech: 8. Another Rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be all....
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....tive merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts. Here the policy was tested and the motion defeated in the Lok Sabha on 1-3-2001. 12. Economic policies broadly comprise of policies on taxation, expenditure, and allocation. The State and its agencies often endeavor to make economically feasible decisions. The implementation of every policy of the State involves expenditure. Merely because the policy involves the expenditure of funds, it cannot be termed as an economic policy. The core feature of the policy and the targeted area needs to be determined to identify the nature of the policy. The impugned loan waiver scheme is, in essence, a social policy in pursuance of the Directive Principles of State Policy, introduced with an object to eliminate inequality in status, income, and facilities. 13. In Subramaniam Balaji v. State of T.N. (2013) 9 SCC 659, the scheme of gifts in the State of Tamil Nadu was under challenge. One of the arguments was that the distribution of color television sets, laptops and mixer-grinders violates Artic....
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.... (i) The classification must be based on an intelligible differentia which distinguishes persons or things that are grouped, from others left out of the group; and (ii) The differentia must have a rational relationship to the object sought to be achieved by the statute. 15. Justice Das in Anwar Ali Sarkar (supra) held that there must be some yardstick to differentiate the class included and the others excluded from the group. The differentia used for the classification in the scheme is the total extent of landholding by every individual. Therefore, there is a yardstick used for constituting the class for the purpose of the scheme. 16. The Appellant contended that the objectives of the scheme are thus: (i) Small and Medium farmers are the main producers of food, inspite of their limited access to technology, credit, and capital; (ii) Small and marginal farmers constitute 85% of the crop loan beneficiaries. The objective of the State is to cover maximum beneficiaries with minimum funds. The scheme has been framed after considering vital parameters such as budgetary allocation, revenue mobilization and the position of the farmers vis-....
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.... expanded for the Courts to undertake a substantive review of Article 14 violations, away from the formalistic tendency that the twin test leans towards. Within the broad parameters of the two-pronged test, we find it imperative to undertake a much more substantive review by focusing on the multi axle operation of equality and non-discrimination. 21. The State of Tamil Nadu in the counter filed before the High Court states that the classification was required since the small and marginal farmers suffer a greater degree of harm because of their limited capacity and aid. It is judicially recognized that the legislature is free to recognize degrees of harm and may confine its restrictions or benefits to those cases where the need is the clearest. Ram Krishna Dalmia v. SR Tendolkar AIR 1958 SC 538; Mohd. Hanif Quareshi v. State of Bihar AIR 1958 SC 731; Binoy Viswam v. Union of India, (2017) 7 SCC 59. In State of Maharashtra v. Indian Hotel and Restaurants Association (2013) 8 SCC 519, Section 33-A(1) of the Bombay Police Act which prohibited dance performances in eating houses, permit rooms, or beer bars, and Section 33-B which allowed such dances in establishments with restricted ....
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....s fall below the poverty line) so they can sell their produce. Parijat Gosh, Farmers Protest: Why are small and marginal farmers protesting against the farm acts?, (December 11, 2020) https://en.gaonconnection.com/farmers-protests-why-are-small-and-marginal-farmers-protesting-against-the-farm-acts/. 23. The Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India, 2019 https://www.mospi.gov.in/documents/213904/301563//Report_587m1631267040957.pdf/3793650e-8cf1-7872-ae90-51470c8d211c undertakes an extensive discussion on the Average Monthly Income per Agricultural Household. The report depicts that India's small and marginal farmers have essentially become wage earners. For instance, the average monthly income of an agricultural household possessing less than 0.01 hectares of land (0.02 acres) from crop production is Rs. 1,435 and from wages is Rs. 6,435. When compared to an agricultural household that possesses 2-4 hectares of land (4.94-9.88 acres), the income from crop production is Rs. 7,945 and the income from wages is 3,548. A comparative graph of the figures is as under. The x-axis indicates the percentage of income from farm p....
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....ulated based on the information in the landholding register which permits discrepancies. It also held the scheme to be under-inclusive for not extending the benefit to 'other farmers' or the 'large farmers'. The meaning and ambit of under-inclusiveness and over-inclusiveness has been discussed in an erudite exposition by Justice K.K. Mathew, writing for a Constitution Bench in State of Gujarat v. Ambica Mills (1974) 4 SCC 656: 55. A classification is under-inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals than are included in the class of those attended wi....
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....nd. This Court follows the two-pronged test to determine if there has been a violation of Article 14. The test requires the court to determine if there is a rational nexus with the object sought to be achieved. Justice P.N. Bhagwati (as the learned Chief Justice then was) in E.P. Royappa v. State of Tamil Nadu (1974) 4 SCC 3 held that arbitrariness of State action is sufficient to constitute a violation of Article 14. Thus, it came to be recognized that the equality doctrine as envisaged in the Constitution not only guarantees against comparative unreasonableness but also non-comparative unreasonableness. See Tarunabh Khaitan, 'Equality: Legislative Review Under Article 14' in Sujit Choudhry, Madhav Khosla, Pratap Bhanu Mehta (eds), The Oxford Handbook of the Indian Constitution (Oxford University Press 2016) This Court in Modern Dental College and Research Centre v. State of M.P. (2016) 7 SCC 353, invoked the proportionality test while testing the validity of the statute and Rules that sought to regulate admission, fees and provided reservations for postgraduate courses in private educational institutions. In Subramanian Swamy v. Union of India (2016) 7 SCC 221, the Court ....
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....iminates on the basis of an intrinsic and core trait of an individual, it cannot form a reasonable classification based on an intelligible differentia". 31. While non-classification arbitrariness is tested based on the proportionality test, where the means are required to be proportional to the object, classification arbitrariness is tested on the rational nexus test, where it is sufficient if the means share a 'nexus' with the object. The degree of proof under the test would impact the judgment of this Court on whether the law is under-inclusive or over-inclusive. A statute is 'under-inclusive' if it fails to regulate all actors who are part of the problem. It is 'over-inclusive' if it regulates actors who are not a part of the problem that the statute seeks to address. The determination of under-inclusiveness and over-inclusiveness, and degree of deference to it is dependent on the relationship prong ('rational nexus' or 'proportional') of the test. 32. The nexus test, unlike the proportionality test, is not tailored to narrow down the means or to find the best means to achieve the object. It is sufficient if the means have a 'rat....