CHENNAI, MAY 02, 2015: THE issue before the Bench is - Whether the Amendment Act No.25 of 2012 Entry 2 of Second Schedule and Explanation No.1 of the Tamil Nadu Value Added Tax Act, 2006 is violative of Articles 14 and 19(1)(g) of the Constitution of India. NO is the answer.

Facts of the case

The assessees are hotels and clubs holding FL 2 and FL 3 licences to sell alcoholic liquor to their customers. The licences encompass both foreign liquor and Indian Made Foreign liquor. The foreign liquor is being sold by the assessees to their customers as a first sale in the State and taxed at 58%. In respect of the liquors manufactured outside the state, the first seller is the Tamil Nadu State Marketing Corporation Limited (TASMAC). While effecting the first sale to the assessees, TASMAC pays 58% tax. Hitherto, the sale by the assessees to their customers was not subjected to any levy of tax. Similarly, for the liquor manufactured within the State, the distiller pays tax at 58% at the point of first sale to TASMAC. Tax at 58% is paid by TASMAC after deducting the tax suffered turnover at the second point of sale to the petitioner. For the third point of sale from the assessees to their customers, there was no tax. Taking note of this anomaly between a sale of foreign liquor and Indian made foreign liquor, the proposed amendment was introduced. The intention of the amendment appears to be that while the assessees paid tax on the sale of liquor of foreign origin, the sale of liquor manufactured outside as well as within the State by the assessees at the second and third point of sale were without any payment of tax. The third sale is also effected by the assessees to their customers by making suitable value additions. Thus, the respondents brought forth the amendment by levying sales tax at the third point of sale in the State at the rate of 14.5% seeking to augment more revenue and to avoid loss.

Aggrieved over the aforesaid levy of tax on the sales effected by the assessees to their customers at 14.5%, these writ petitions have been filed.

Having heard the parties, the Court held that,

++ Section 2(15) defines a dealer. A perusal of the above provision would show that it is very exhaustive in nature. There is no difficulty in holding that both the assessees and the TASMAC would come under the said definition. However, the said Section merely defines a ''dealer'' and it cannot be said that notwithstanding the other provisions, all the dealers are to be treated alike. In other words, a definition provision has to be read in conformity with the substantive ones.

++ The Act speaks about three types of turnovers. One cannot say that the other substantive provisions will have to be made applicable only to the taxable turnover alone, to the exclusion of others.

++ Section 86 empowers the 1st respondent to amend the Schedules. Under Section 86(1), the respondent by a notification can alter, add or cancel any of the Schedules. This provision deals with the amendment of the Schedules alone. The specific language used in Section 86 includes 'add to' to the Schedule in addition to alteration or cancellation. As the constitutionality of this provision is not under challenge and in view of the specification mentioned therein, one can safely conclude that the 1st respondent can exercise the power under Section 86(1) by way of amending the Schedules.

++ In exercise of the foregoing power, the 1st respondent has duly amended the Second Schedule. The Second Schedule deals with certain goods which would be outside the VAT, such as liquor, aviation gasoline, petrol, high speed diesel oil, light diesel oil, kerosene, Molasses, sugar, Sugarcane, etc. It also specifies the point of levy and rate of tax. A perusal of the Second Schedule would show that based upon the basic price, rate of tax has been fixed even beyond 100%. This Second Schedule has to be read in consonance with Section 3(5) of the Act. In other words, the Second Schedule exists, being empowered by section 3(5) of the Act. As the power is available to the 1st respondent under Section 86 to amend the Second Schedule, there is no necessity to exercise the rule making power under Section 80, since it operates on a different field. Merely because a rule making power is available, it cannot be said that the exercise of power under the Act by duly amending it would become unconstitutional. Thus, even assuming that there exists a rule making power, exercise of power under the statute through a different provision cannot be termed as unconstitutional. The respondents merely exercised the power under the Statute, which cannot be faulted with.

++ the amending provision has been introduced to implement the various welfare schemes launched by the Government. It was also introduced to get over the anomaly existed hitherto by which the assessees were given benefits, though they were selling the liquor at the higher price by making considerable value additions. When the object is to augment more revenue as well as to regulate economic life of the Society, it cannot be termed as arbitrary. Though the statement of objects and reasons cannot be the sole basis for construing a provision, it can very well be taken note of for understanding the background and to decipher the real intention behind it.

++ policy decision is not required to be tested by a Court of law with suspicious and microscopic eye. The parameters for decision are good faith and intention. A Constitutional Court will have to look at the decision made by the Executive or a Legislature by taking a practical view and it should rather avoid an absolute and inflexible concept. An interpretation, which serves the legislative object and intent leading to a purposive construction, is required to be made by the Court. Supreme Court rendered in Census Commissioner Vs. R. Krishnamurthy, ((2014) 8 MLJ 241 (SC)) held that it is not within the domain of the courts to embark upon an enquiry as to whether a particular public policy is wise and acceptable or whether a better policy could be evolved. The court can only interfere if the policy framed is absolutely capricious or not informed by reasons or totally arbitrary and founded ipse dixit offending the basic requirement of Article 14 of the Constitution. In certain matters, as often said, there can be opinions and opinions but the Court is not expected to sit as an appellate authority as an opinion.

++ there is always a presumption in favour of the constitutionality of an enactment with the onus to prove it otherwise on the person who laid a challenge. There can only be two challenges to the constitutionality. One is qua the legislative competence and another being contrary to Part III of the Constitution.

++ When a challenge is made to an enactment on the ground of Article 14 being violated, it must be demonstrated that there is an element of negation of equality. A mere discrimination per se cannot be termed as arbitrary, as a classification is meant for providing benefits to a group of persons. A differentiation must distinguish a group of persons or things identified as such from the things left out. While dealing with the classification, an accurate one is not possible. Revenue and economic considerations in taxing statute are permissible classifications. An objective must be a just one. It is a sine qua non for classification. A valid classification is a valid discrimination. A classification without reference to the object sought to be achieved would be hit by Article 14. Such a classification should not be arbitrary, artificial or evasive. In other words, it must confine to rationality.

++ a right under Article 19(1)(g) is subject to Article 19(6). When it comes to trading in liquor, such a right becomes a qualified one. Once it is known that liquor as a beverage is dangerous and injurious to health, the fundamental right to trade therein evaporates. Such a right can be enforced only to the extent of enforcing the equality clause provided a party satisfies the Court that a benefit given to a similarly placed person is denied to him. Supreme Court in Khoday Distilleries Ltd. Vs. State of Karnataka, ((1995) 1 SCC 574) had held that the rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in clauses (2) to (6) of Article 19. State can create a monopoly either in itself or in the agency created by it for the manufacture, possession, sale and distribution of the liquor as a beverage and also sell the licences to the citizens for the said purpose by charging fees. This can be done under Article 19(6) or even otherwise.

++ the TASMAC is the sole authority for selling Indian made liquor to the assessees. It is not a club or hotel having FL 2 and FL 3 licence. On the contrary, the assessees buy the liquor from the TASMAC. Insofar as sale of foreign liquor is concerned, it stands on a different footing in which 58% of tax is levied on sale. The assessees are the beneficiaries of the earlier sale. They cannot expect the said benefit to be extended to the third point as well. TASMAC has involved in only second sale as against the assessees third sale. The assessees made considerable profit by the escalation of sale price. The classification of the customers of TASMAC and the assessees are different. The assessees are making considerable value additions to their sales in favour of their customers. The authority of the TASMAG to deal with the liquor within the State is not in dispute. Therefore, having purchased liquor from the TASMAC, the assessees cannot seek party. Admittedly, TASMAC is an instrumentality of the State. The profit earned by the TASMAC goes to the coffers of the State meant to be used for welfare measures. The fact that the assessees are selling at a higher price is not in dispute.

++ the goods that are specified in the Second Schedule are not vatable. A combined reading of Section 3(5) of the Act and the Second Schedule would make the said position very clear. Section 3(5) of the Act has not been put into challenge. The impugned Explanation 1 to the amended Entry 2 of the Second Schedule speaks only about the turnover as such. The classification made is perfectly in order. The assessees, who are clubs and hotels, cannot be compared with the retail outlets of TASMAC. The customers of the TASMAC and the assessees form two distinct and different categories based upon their respective socio-economic status. The assessees are not prevented from doing their business. Therefore, there is no violation of Article 19(1)(g) involved. When the assessees are selling liquor at a higher price than the TASMAC, they cannot seek parity. Having availed a set-off on the second point of sale, the assessees cannot compel the respondents to extend the benefit at the third point of sale. With no grievance against the point of levy, the assessees cannot challenge the manner in which it is imposed. The inclusion of certain goods including liquor in Second Schedule has not been put into challenge. Therefore, the assessees cannot seek protection under Article 19(1)(g) of the Constitution of India.

(See 2015-TIOL-1124-HC-MAD-VAT)