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2011 DIGILAW 449 (GAU)

Ladhuram Champalal v. State of Assam

2011-05-24

KETULHOU MERUNO, MADAN B.LOKUR

body2011
JUDGMENT Madan B. Lokur C.J. 1. The challenge in this writ petition is to section 17 of the Assam Value Added Tax Act, 2003 (for short, "the Act") and the notification dated April 5, 2007. 2. Section 17 of the Act reads as follows : 17. Powers of Government to amend Schedules.--The Government may, by notification in the Official Gazette, add to or omit from any Schedule any entry or entries or transpose any entry or part of entry from one Schedule to another or vary any entry or entries or the rate or rates or the point or points of levy or otherwise amend or modify any Schedule, prospectively or retrospectively, and thereupon the Schedule shall be deemed to have been amended accordingly : Provided that the Government shall not vary the rate of tax so as to enhance it, any case, exceeding forty paise in a rupee. 3. A bare reading of the aforesaid section would show that it enables the Government by a notification in the official gazette to, inter alia, amend any entry (including relating to the rate of tax) in any schedule to the Act. It is also provided that the rate of tax, if it is enhanced, shall not exceed 40 paise in a rupee (or 40 per cent). 4. The First Schedule to the Act consists of a list of exempted goods and item No. 38 thereof is "tobacco". The petitioners deal in tobacco and at the relevant point of time, tobacco was exempted from the purview of tax under the Act. As such, the petitioners had no grievance in this regard. However, by a notification dated April 5, 2007, the Government omitted "tobacco" from the First Schedule to the Act, thereby making its sales taxable. The notification dated April 5, 2007 reads as follows : No. FTX.55/05/Pt-III/38.--In exercise of the powers conferred by section17 of the Assam Value Added Tax Act, 2003 (Assam Act VIII of 2005), hereinafter referred to as the principal Act, the Governor of Assam is hereby pleased to make the amendment by way of omission in First Schedule to the said Act, namely :-- In the principal Act, in the First Schedule, serial number 38 with entries thereto shall be omitted. This notification shall come into force on the date of its publication in the Official Gazette. 5. This notification shall come into force on the date of its publication in the Official Gazette. 5. The immediate consequence of the notification dated April 5, 2007 was that "tobacco" fell within the purview of entry 1 in the Fifth Schedule to the Act, which reads as follows: Sl. No. Description Rate of tax (paise in the rupee) 1. All other goods not covered by First, Second, Third and Fourth Schedule 12.5 2. Works contract 12.5 3. Lease transactions 12.5 6. The petitioners were, therefore, liable to pay tax on tobacco at the rate of 12.5 per cent. 7. Feeling aggrieved at having to pay tax, the petitioners preferred this writ petition challenging the constitutional validity of section 17 of the Act as well as the notification dated April 5, 2007. 8. During the course of oral submissions, it was pointed out by learned Additional Advocate General that a similar provision was the subject-matter of challenge in State of Assam v. Chhotabhai Jethabhai Patel Tobacco Products Co. Ltd. [2008] 15 VST 70 (Gau) : [2009] 4 GLR 783. In that case, the challenge was to section 3(4) of the Assam Entry Tax Act, 2001. That provision reads as follows : 3. Levy of tax :--(1) to (3)... (4) The State Government may, by notification in the Official Gazette, add to, amend or otherwise modify the said Schedule and also may vary the rates of tax of the goods specified in the Schedule and thereupon the said Schedule shall be deemed to have been amended accordingly. 9. A bare perusal of section 3(4) of the Assam Entry Tax Act, 2001 shows that, in substance, it is more or less similar to section 17 of the Act and even learned counsel for the petitioners does not dispute this. 10. In Chhotabhai Jethabhai Patel [2008] 15 VST 70 (Gau); [2009] 4 GLR 783, the argument of learned counsel for the respondents was that since there was no definite legislative policy or necessary guidelines for the exercise of power by the delegate, section 3(4) of the Assam Entry Tax Act should be struck down as unconstitutional. The Division Bench negatived this challenge and held that the preamble and the objects and reasons of the Assam Entry Tax Act gave sufficient guidance to the State for issuing a notification under section 3(4) of the Assam Entry Tax Act. The Division Bench negatived this challenge and held that the preamble and the objects and reasons of the Assam Entry Tax Act gave sufficient guidance to the State for issuing a notification under section 3(4) of the Assam Entry Tax Act. Paragraphs 134 to 137 of the decision are relevant in this context and they read as follows (pages 143 and 144 in 15 VST) : 134. The question, therefore, is whether the impugned Act has laid down the definite legislative policy and the necessary guidelines for exercise of the power by the delegate, which is discernible from the preamble, objects and reasons and the various provisions of the impugned enactment. It has been contended by the learned counsel appearing on behalf of the assessees that the preamble, objects and reasons as well as various provisions of the Act, which provide for imposition of entry tax on the goods do not lay down the legislative policy and also the guidelines to the executive to exercise their power under delegated legislation, as from the preamble as well as the objects and reasons and the provisions of the Act, it is evident that the same are not compensatory in nature, which is the basic requirement for an enactment imposing entry tax. The counter argument of the learned AAG is that the preamble, objects and reasons and the different provisions of the Act clearly lay down the legislative policy as well as the guidelines to the executive. 135. As discussed above, when a particular enactment is tested on the ground of excessive delegation of legislative function, what is required to be seen is, whether such particular enactment has laid down any definite legislative policy and also the guideline, from the point of view of that enactment and not from the perspective of whether such enactment is compensatory in nature within the meaning of article 304(b) of the Constitution, as the question of excessive delegation of power by an enactment is one thing and whether it is compensatory in nature, another. 136. The preamble of the impugned Act, reproduced above, reflects the clear legislative policy laid down by the Legislature by providing that the Act has been enacted for imposition of a tax on the entry of goods into any local area in Assam for consumption, use or sale therein. 136. The preamble of the impugned Act, reproduced above, reflects the clear legislative policy laid down by the Legislature by providing that the Act has been enacted for imposition of a tax on the entry of goods into any local area in Assam for consumption, use or sale therein. The objects and reasons for which the Act has been enacted, as quoted above, reflect the purpose and also the reason for such enactment. It states that the Act has been enacted to curb losses of revenue and thereby to mobilize additional resources by levying tax on entry of goods on selected items including motor vehicles, as many bulk customers such as tea companies, oil companies, etc., by taking recourse to inter-State purchase of several items, required for their own consumption, for availing of lower rate of tax under the Central Sales Tax Act, deprives the State of a substantial amount of revenue. Another reason for such enactment, as reflected in the Statement of Objects and Reasons, is that the State is losing revenue as motor vehicles are purchased outside the State and then brought into the State for use, due to disparity in the rate of tax in different States. Section 3 of the principal Act provides for levy of tax, without, however, any stipulation relating to the upper limit of the tax to be levied. Sub-section (4) of section 3, prior to the Second Amendment Act, 2005, authorizes the State Government to add to, delete, amend or otherwise modify the Schedule of the Act and also to vary the rate of tax (which is under challenge in the present batch of writ petitions on the ground of excessive delegation of legislative function). Section 4(1) additionally provides for imposition of tax on motor vehicles brought into a local area by any importer, which are liable for registration or assignment of a new registration mark in the State under the provisions of the Motor Vehicles Act, 1988. 137. The preamble, object and reasons as well as the different provisions of the impugned Act, as stood prior to its amendment, by the Second Amendment Act of 2005, as discussed above, clearly lay down the legislative policy as well as indicate whom are to be taxed, what are to be taxed. 137. The preamble, object and reasons as well as the different provisions of the impugned Act, as stood prior to its amendment, by the Second Amendment Act of 2005, as discussed above, clearly lay down the legislative policy as well as indicate whom are to be taxed, what are to be taxed. It has also, in the objects and reasons, given the guidelines to the delegatee the rate at which such tax is to be levied, by indicating the difference of rate of tax between the Central Sales Tax Act, neighbouring States and the State of Assam. Therefore, it cannot be said that the Legislature by delegating the power to the authority to add to, amend, etc., and by allowing to fix the rate of tax has abdicated its essential legislative functions, without laying down the legislative policy and indicating the guidelines. The objects and reasons of the Act clearly provide the guidelines as to what to tax, whom to tax and at what rate. 11. We have to look at the Act in the above light, and ascertain if any guidance is given for exercise of power under section 17 thereof. The preamble to the Act does give sufficient guidance inasmuch as the statute provides for the imposition and collection of tax on sales or purchases of goods in the State of Assam. 12. It is now very well-settled by a catena of decisions that whether an item is to be taxed or not is left to the Legislature to decide and the court has no role to play in this regard. In Gujarat Ambuja Cements Ltd. v. Union of India [2005] 1 VST 1 (SC) : [2005] 274 ITR 194 (SC) : [2005] 4 SCC 214, it was observed in paragraphs 41 and 42 of the report (page 22 in 1 VST) : 41 ... Because of the inherent complexity of fiscal adjustments of diverse elements in the field of tax, the Legislature is permitted a large discretion in the matter of classification to determine not only what should be taxed but also the manner in which the tax may be imposed. Because of the inherent complexity of fiscal adjustments of diverse elements in the field of tax, the Legislature is permitted a large discretion in the matter of classification to determine not only what should be taxed but also the manner in which the tax may be imposed. Courts are extremely circumspect in questioning the reasonability of such classification but after a 'judicial generosity is extended to legislative wisdom, if there is writ on the statute perversity, madness in the method or gross disparity, judicial credibility may snap and the measure may meet with its funeral'. (Vide Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 (SC) : [1980] 1 SCC 223, paragraph 41) 42. The same judicial wariness was expressed in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC) : [1989] 178 ITR 97 (SC) : [1989] 3 SCC 634, 658 where it was said (pages 126 and 127 in 74 STC) : 21. It is now well-settled that though taxing laws are not outside article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation... Decisions of this court on the matter have permitted the Legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. (emphasis supplied) 13. In our case, "tobacco" was initially exempted from the purview of tax, but for generating revenues, the State Government decided to tax "tobacco". It is under these circumstances that the notification dated April 5, 2007 was issued by the State Government bringing "tobacco" within the fold of taxation. It is not for us to say whether the State Government acted rightly or wrongly since it has wide latitude in the matter. 14. We are of the view that there is no excessive delegation of power given to the State Government under section 17 of the Act nor has the notification dated April 5, 2007 been issued arbitrarily. As mentioned above, this is essentially a legislative function and the court has no role to play in this regard. 14. We are of the view that there is no excessive delegation of power given to the State Government under section 17 of the Act nor has the notification dated April 5, 2007 been issued arbitrarily. As mentioned above, this is essentially a legislative function and the court has no role to play in this regard. We, therefore, negative the challenge to section 17 of the Act and the notification dated April 5, 2007. 15. The learned counsel for the petitioner placed reliance on Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC) : AIR 1967 SC 1895 . In that case, section 5 of the East Punjab General Sales Tax Act, 1948 was under challenge as well as the amendment to section 5 of that Act. 16. Section 5 of the East Punjab General Sales Tax Act, 1948, as it originally stood and as it stood after its amendment, reads as follows : S. 5.--Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a dealer a tax at such rates as the Provincial Government may by notification direct. S. 2. Amendment of section 5 of Punjab Act 46 of 1948.--In subsection (1) of section 5 of the East Punjab General Sales Tax Act, 1948, after the word 'rates' the following words shall be inserted and shall be deemed always to have been so inserted, namely, 'not exceeding two pice in a rupee'. 17. The Supreme Court held that in so far the original section 5 of the Act is concerned, since the rate of tax was not at all specified, there was an excessive delegation of power in the hands of the State Government. It was held that since there was a lack of any policy on the quantum of tax to be levied under section 5 of the East Punjab General Sales Tax Act, that section must be held to be void. However, with regard to the amended section 5 , the Supreme Court held that the State had a policy inasmuch as the maximum rate of tax was specified, namely, "not exceeding two pice in a rupee". In view of the reasonable area of discretion given by the statute, the Constitution Bench held that section 5 of the East Punjab General Sales Tax Act, 1948, as amended, was valid. In view of the reasonable area of discretion given by the statute, the Constitution Bench held that section 5 of the East Punjab General Sales Tax Act, 1948, as amended, was valid. In coming to this conclusion, the Supreme Court relied upon Khandige Sham Bhat v. Agricultural Income-tax Officer, Kasargod [1963] 48 ITR 21 (SC) : AIR 1963 SC 591 . 18. In so far as we are concerned with the challenge to section 17 of the Act, there is legislative guidance in the preamble to the Act. The discretion of the State Government is also limited inasmuch as it has been clearly laid down in the proviso to section 17 of the Act that the Government shall not vary the rate of tax so as to enhance it, in any case, exceeding forty paise in a rupee. The upper limit of taxation, has therefore, been fixed. 19. As far as the notification dated April 5, 2007 is concerned, on its deletion from the First Schedule to the Act, "tobacco" came within the purview of entry 1 in the Fifth Schedule to the Act and the tax leviable on tobacco came to be 12.5 paise in a rupee or 12.5 per cent, which is well below 40 paise in a rupee or 40 per cent. 20. Under these circumstances, we are of the opinion that neither section 17 of the Act of 2003 nor the notification dated April 5, 2007 are unconstitutional or can be challenged on the ground of having been issued arbitrarily. 21. We find no merit, in this writ petition. It is dismissed with costs of Rs. 5,000.