Partly allowed

Brite Rubber Processor Pvt. Ltd. v. the State of Tripura and Ors.

Tripura HC28 Jul 2017WP(C)/234/2015

Case brief

AI extract

What is this about?

Denial of input tax credit for interstate sales under the Tripura VAT Act was held discriminatory. The court read down the challenged provisions to extend credit, set aside the challenged assessment and demand, and directed reassessment. Relief covered that assessment and subsequent returns or assessments, not unrelated earlier matters.

What did the court decide?

Interstate-sale input tax credit extended; challenged assessment and demand set aside; reassessment directed within six months of submission of the order.

Brite Rubber Processor Pvt. Ltd. Vs the State of… — GST and Indirect Tax | Tripura HC (2017)

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IN THE HIGH COURT OF TRIPURA A G A R T A L A

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W.P.(C) No. 234 of 2015

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	Brite Rubber Processor Pvt. Ltd.,
	Sakuntala Road, Agartala, West
	Tripura-799001, represented by its Director Sri Duli Chand Singhi V e r s u s	.......... Petitioner
1.	The State of Tripura, represented by the Commissioner and
	Secretary to the Government of
	Tripura, Department of Finance, Agartala
2.	The Commissioner of Taxes, Government of Tripura, Pandit Nehru Complex, Gurkhabasti, P.O. Kunjaban, District -West Tripura
3.	The Superintendent of Taxes,
	Charge-III, Government of Tripura,
	Palace Compound, Agartala, West Tripura

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.........Respondents

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BEFORE

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HON‟BLE THE CHIEF JUSTICE THE HON‟BLE MR. JUSTICE S. TALAPATRA

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For the petitioner	: Mr. K. Gulati, Senior Advocate Mr. S. Chetia, Advocate Mr. R. Datta, Advocate
For the respondents	: Mr. B.C. Das, Advocate General Mr. B.P. Todi, Senior Advocate Mr. A. Todi, Advocate Mr. D.C. Nath, Advocate
Date of hearing	: 16.12.2016
Date of delivery of	: 28.07.2017
Judgment and Order Whether fit for reporting	: Yes No √

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[2]

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JUDGMENT & ORDER

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(S. Talapatra, J)

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The petitioner which is a company registered under the Companies Act, 1956 and also registered as ‘the dealer’ under Tripura Value Added Tax Act, 2004, the TVAT Act in short, and the Central Sales Tax Act, 1956, the CST Act in short, carries on business of processing of Indian Standard Natural Rubber commonly known as ISNR/Technically Specified Rubber [TSR in short]. The petitioner-company has set up an industry for processing and manufacturing of INSR/TSR at the Industrial Growth Centre, Bodhjungnagar in the state of Tripura. That factory commenced its commercial production on 19.01.2009. For production of the said products in their factory, the petitionercompany purchased raw rubber scrap which is used as the raw materials from the local dealers within the State of Tripura on making payment of due tax [VAT] within the State of Tripura. After the first sale of its finished products on 02.04.2009, due tax of `1,06,200/-[CST] was paid by the challan dated 31.03.2009 those were sold outside the State within the meaning of the interstate sale but no Input Tax Credit as explained under Section 10 of the TVAT Act was claimed when they filed return. Thereafter, on 22.04.2009 the petitioner-company filed a revised return before the Superintendent of Taxes, Charge-III, Government of Tripura, Agartala, the respondent No.3 herein, for the month of February, 2009 showing adjustment of Input Tax Credit against the CST payable by them along with an application for making

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refund of the CST of 1,06,200/- as paid by the petitionercompany. According to them, that was paid by mistake inasmuch as the same was not chargeable against the petitioner-company. Having scrutinized the said return [for the month of February, 2009], the respondent No.3 had observed by his order No.TIN1603127406/6533-35 dated 17.06.2009, Annexure-I to the writ petition, that the petitioner-company had wrongfully adjusted Input Tax Credit worth 1,06,200/- with the CST arising out of inter-state sale of ISNR/TSR by violation the provisions of Clause (a) of sub section 3 of Section 10 of the TVAT Act. In the said order dated 17.06.2009, it had been further observed that the petitioner-company was not entitled to adjust Input Tax Credit with the CST payable inasmuch as such act would be in contravention to the provisions of Section 10(3) of the TVAT Act. Therefore, there had been no question of excess Input Tax Credit or its adjustment with the CST under Section 11 of the TVAT Act. The petitioner-company being aggrieved by the said order dated 17.06.2009 had preferred a revision petition under Section 70 of TVAT Act before the Commissioner of Taxes, the respondent No.2 herein, which was registered as Rev. Case No.04/Ch-III/09 on 06.07.2009. In that petition, the petitioner-company had asserted that they were entitled to the benefit of Input Tax Credit on their purchases of raw materials against sales made by it of the finished goods outside the State of Tripura. The said plea however, was not accepted by the revisional authority and hence, by the order dated 20.03.2013, Annexure-II to the writ petition,

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the Commissioner of Taxes held that the petitioner-company was not entitled to get adjustment of Input Tax Credit on the sale of manufactured products outside the State of Tripura. However, the respondent No.2, having considered the submission advanced by the petitioner-company, did not allow the Input Tax Credit under Section 10 of the TVAT Act to be set off from the payable CST. The respondent No.2 declined its interfere with the order dated 17.06.2009. Thereafter, the petitioner-company had challenged the order dated 20.03.2013 by filing a revision petition under Section 72 of the TVAT Act in this Court which was registered as Civil Revision Petition No.44 of 2013, but this court by the order dated 26.03.2015, Annexure-III to the writ petition, further declined to give any relief following the judgment in Abhisar Buildwell Private Ltd. vs. State of Tripura, reported in (2014) TLR 813 . In Abhisar Buildwell Private Ltd . (supra),

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this court had observed as under:

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“23. A conjoint reading of the provisions of the Act clearly shows that input tax credit can be claimed only in respect of tax paid or payable under the Act. Section 10(3) makes it absolutely clear that input tax credit is permissible only in respect of sales or resales made within the State of Tripura. Section 10(6) is couched in negative language and is in the nature of an exception or a proviso to sub-section 10(1). We have to read section 10(6) along with section 10(1) and when both of these parts of the section are read harmoniously, then even if a person is entitled to benefit of input tax credit under section 10(1) but is excluded under section 10(6), he would not be entitled to get the benefit of input tax credit. Clause (ix) of section 10(6) provides that input tax credit will not be available in respect of transfer of stock, other than by way of sale outside the State of Tripura. This by no stretch of imagination can be interpreted to mean that under Clause (ix) of subsection (6), such benefit has been given in respect of inter-State sales. Such an interpretation would defeat the very purpose of the legislation. When the

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language of the legislation is clear, we cannot do violence to the language and misinterpret it in such a manner that the purport and intention of the legislature is defeated by such interpretation to the Act.

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24. On reading all the provisions of the Act, we have no doubt in our mind that benefit of input tax credit is only available in respect of taxes collected and payable under the TVAT Act. The benefit of input tax credit is not available in respect of Central Sales Tax or any other tax which may have been collected or which may be payable under any other law.

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26. From a reading of the various provisions of the TVAT Act, we have no doubt in our mind that the intention of the State of Tripura was to give benefit of input tax credit only in respect of sales intended or made within the State of Tripura. There is no doubt in our mind that the Act specifically excludes from its ambit, the inter-State sales and the benefit of tax paid on inter-State sales cannot be availed of by the petitioner to claim input tax credit. There is no ambiguity in the language and, therefore, reliance placed by Sri Dubey on the judgments of the Apex Court in Commissioner of Income Tax, Bombay etc. vs. M/s. Podar Cement Pvt. Ltd. etc., [(1997) 5 SCC 482] and Commissioner of Income Tax, Karnataka, Bangalore vs. M/s. Shaan Finance (P) Ltd., Bangalore, [(1998) 3 SCC 605] is totally misplaced.”

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[Emphasis added]

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[2] The petitioner-company has averred that in the revision petition No.44 of 2013 they had jurisdictional basis challenged the validity of any provisions of the TVAT Act and hence, there had been no occasion for this to examine the validity of any provision including the Sections 10(3)(a) and 10(3)(b) of the TVAT Act. The judgment dated 26.03.2015 had been passed on consideration and interpretation of the provisions as existed. According to the petitioner-company, the TVAT Act makes a discrimination between the sales made in the course of inter-state trade and commerce from the sale within the State of Tripura and the goods transferred by way of stock transfer or consignment basis from the State of Tripura, Input Tax Credit is denied in

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respect of goods purchased within the State of Tripura and sold in course of interstate trade or commerce where the same, according to the petitioner-company, is made available when the goods are transferred by way of stock transfer or on consignment basis. The petitioner-company has further averred that the said classification made between the sales made in the course of interstate trade and commerce from the State of Tripura and the goods transferred on stock transfer or consignment basis for purpose of availing the Input Tax Credit has no reasonable nexus with the object sought to be achieved and hence, the said provisions of TVAT Act are ultravires being violative of Article 14 of the Constitution of India.

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[3] In this background, the petitioner-company has challenged the validity of Sections 10(3)(a) and 10(3)(b) of the TVAT Act being ultravires the constitution. The petitionercompany has emphatically stated that except the State of Tripura, all other states have allowed the Input Tax Credit on the sales made in course of inter-state trade and commerce under their respective statutes. The petitioner-company has provided the relevant provisions of those statutes in a tabular form, AnnexureIV to the writ petition, which is extracted hereunder:

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Sl. NO.	Name State	of	VAT Act provision on Input Tax Credit in brief
1	Andra Pradesh		AP VAT 2005 Act vide Sec. 8(a) stated that there will be Zero rated sales for the purpose of act and eligible for Input Tax Credit for Sale of taxable goods in the course of inter-state trade and commerce falling within the scope of Section 3 of the Central Sales Tax Act, 1956

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2	Arunachal Pradesh	As per Sec 7(1) of Arunachal Pradesh Goods Tax Act, 2005, inter-state sales are not liable to any sales Tax and as per Sec. 9 such sales will also be entitled for Tax Credit on input materials.
3	Assam	Adopted Model Act with slight modification. Sec 14(2) (b) Assam Value Added Tax Act, 2003 provides Input Tax Credit for ‘sale in course of Interstate Trade or Commerce’
4	Bihar	As per Sec 6(1) (a) of Bihar VAT Act, 2005, intersate sales are not liable to any sales Tax and as per Section 16(1) (b) such sales will also be entitled for Input Tax Credit.
5	Chattishgarh	Section 13(1) (a) of the Chattisgarh Value Added Sales Tax Act, 2003 provides for rebate on Input Tax case of interstate sale or commerce
6	Goa	Sec 9(1) of the Goa Value Added Tax Act, 2005 provides Input Tax Credit for interstate sale
7	Gujarat	. Section 11(a) (3)(ii) of Gujarat Value Added Tax Act, 2003 provides tax credit in case of sale in the course of inter-State trade and commerce
8	Harayana	Harayana Value Added Tax Act, 2003. Sec (3) (2) provides nil duty for interstate sale. Sec 30 provides refund of input tax for interstate sale.
9	HP	Adopted Model Act with slight modification. Sec 11(3)(b) of Himachal Pradesh VAT Act provides Input Tax Credit for ‘Sale in course of Interstate Trade and Commerce’
10	J & K	Adopted Model Act with slight modification. Sec 21(4)(b) of Jammu and Kashmir VAT Act provides Input Tax Credit for ‘Sale in course of Interstate Trade and Commerce’
11	Jharkhand	Adopted Model Act with slight modification. Sec 8(4)(ii) of Jharkhand VAT Act provides Input Tax Credit for ‘sale in course of Interstate Trade and Commerce’
12	Karnataka	Model Act with slight modification. Sec 20(1)(b) of Karnataka Value Added Tax Act, 2003 provides deduction of input tax on exports and interstate sales
13	Kerala	Modified Model Act, provides refund of input Tax in case of interstate sale. Sec 13 of the Kerala Value Added Tax Act, 2003
14	MP	The Madhya Pradesh Vat Ct, 2002. Sec 1(a) (1) provides rebate on input Tax.
15	Maharashtra	Maharashtra Value Added Tax Act, (Levy and Amendment) Act, 2005 Sec 8(1)(b) VAT Act does not applied for intestate sale. Sec 49 provides refund of input Tax paid against CST
16	Manipur	Manipur Value Added Tax Act, 2004. Sec 17(4) (c) provides input Tax credit for interstate sale as per model Act.
17	Nagaland	Nagaland Value Added Tax Act, 2004. Sec 17(4) (d) provides input Tax credit for interstate sale as per model Act.
18	Odisha	Orissa Act Sec 18 : Interstate sales are zero rated sale. Sec 20(3) (c) provides Input Tax Credit
19	Punjab	Punjab VAT Act Sec 13(1) provides that input tax credit will be available for interstate sale.
20	Rajasthan	Rajasthan VAT Act Section 18(1)(b) provides input Tax credit for interstate sale and commerce as per Model Act
21	Sikkim	Sikkim VAT Act Sec 21 (1)(D) provides input Tax Credit for intestate sale.
22	Tamilnadu	Adopted Model Act with slight modification. Sec 19(2)(v) of Tamilnadu Value Added Tax Act, 2006 Act provides Input Tax Credit for Sale in course of Interstate Trade and Commerce
23	Uttarakhand	Adopted Model Act with slight modification. Sec 6(3)(b) provides Input Tax Credit for Sale in course of Interstate Trade and Commerce
24	UP	Adopted Model Act with slight modification. Sec 13(1) provides Input Tax Credit for Sale in course of Interstate Trade and
25	West Bengal	Commerce in Sr. No. 1 of attached Table of this section. WB VAT Act, 2003 Sec 22(4)(b) provides Input Tax Credit for

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		Sale in course of Interstate Trade and Commerce
26	Chandigarh	Punjab VAT Act extended to Chandigarh
27	Lakshdweep	Kerala VAT Act extended for Lakshdweep
28	Delhi	Delhi VAT Act
		Sec 7 provides that interstate sale is not liable to tax.
		Sec 9 provides tax credit for tax paid on inputs.

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This table has been provided by the petitionercompany for purpose of illustrating relativity not for questioning the legislative competence.

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[4] After the order dated 26.03.2015 passed by this court, the respondent No.3 passed the assessment order dated 16.06.2015 [17.10.2014 as reflected in the ordersheet] under Section 9 (2) of the CST Act, 1956 for the period from 2008-2009 to 2013-2014. In the said order of assessment, Input Tax Credit as claimed by the petitioner-company in their return for the tax paid under the TVAT Act on the purchase of raw materials used for manufacturing their finished products has been denied. In the said assessment order dated 16.06.2015, Annexure-V to the writ petition, the respondent No.3 has held that the petitionercompany is not entitled to get the benefit of Input Tax Credit from the tax collected under the CST Act against the inter-state sale made by the petitioner-company under the TVAT Act and hence, the Input Tax Credit which has been adjusted in the return by the petitioner-company was in contravention to Section 10 of the TVAT Act. For that reason, the return was not accepted. The respondent No.3 after rejecting the return filed by the petitionercompany, has assessed the tax and also imposed interest and penalty thereon. For realizing the tax, interest and penalty, the

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respondent No.2 issued six demand notices all dated 17.06.2015 for the assessment years 2008-2009 to 2013-2014, Annexure-VI in series to the writ petition, asking the petitioner-company to pay the demand on or before 16.07.2015. For purpose of reference, Section 10 of TVAT Act which deals with Input Tax Credit is reproduced hereunder:

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“10. Input tax credit :-

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(1) For the purpose of calculating the net tax payable by a registered dealer for any tax period after being registered, an input tax credit as determined under this section shall be allowed to such registered dealer for the tax paid or payable in respect of all taxable purchase of goods as mentioned in schedule VIII and all taxable sales other than such sales as may be prescribed subject to the following conditions:

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(a) Input tax credit on capital goods except those mentioned in negative list in Schedule IV shall be adjusted against tax payable by a dealer over a period not exceeding three years.

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Provided that in case of closure of business before the period specified above, no further input tax credit shall be allowed and input tax credit carried forward, if any, shall be forfeited.

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(b) In respect of exporting dealers, input tax credit may be spread over a period less than 3 years as may be prescribed.

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(c) Input tax credit is to be given only after commencement of sale of taxable goods 'and purchase of taxable goods as mentioned in schedule VIII .'

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(d) In respect of inputs used in taxable goods sent on stock /consignment transfer, tax paid in excess of 4% or the prevailing rate of C. S. T. on such inputs is to be credited.

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(e) Tax paid in excess of 4% on petroleum products used as fuel (other than petrol, Aviation Turbine Fuel and diesel and other fuels when used as fuel in production of taxable goods or captive power is to be entitled for input credit. However, no input tax credit will be given if petroleum product is used as fuel in motor vehicle.

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(f) Input tax credit shall be allowed during the return period. Refund of excess tax credit shall be allowed only after the end of the financial year.

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(2) Partial input tax credit is to be made where inputs are used in the following circumstances:-

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(a) Where sale consists of both taxable and exempted goods.

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(b) Where sale consists of sale and dispatch in the form of consignment and stock transfer to other states.

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(c) Where inputs are used for any other purposes in addition to use in the course of business.

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Provided that input tax credit shall be proportionate to taxable sale out of total sales 'and also shall be proportionate to taxable purchase out of total purchase for the goods as mentioned in schedule VIII.'

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Provided further that in case of consignment transfer, so much of input tax credit shall be given as may be prescribed.

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(3) Input tax credit shall be allowed for purchase of goods made within the State of Tripura from a registered dealer holding a valid certificate of registration and which are intended for the purpose of

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–

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(a) sale or resale by him in the State of Tripura; or

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(b) use as raw material or as capital goods in the manufacturing and processing of goods other than those exempted from tax under this Act intended for sale in the State of Tripura; or

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(c) sale in the course of export out of the territory of India; or

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(d) for use as containers for packing of goods other than those exempted from tax under this Act for sale or resale in the State of Tripura;

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Provided that if purchases are used partially for the purposes specified in this sub-section, input tax credit shall be allowed proportionate to the extent they are used for the purposes specified in this sub-section.

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(4) Input tax credit shall not be claimed by the dealer until the tax period in which the dealer receives the tax invoice in original containing the prescribed particulars of the sale evidencing the amount of the input tax:

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Provided that for good and sufficient reasons to be recorded in writing and in the prescribed manner, the Commissioner may allow such credit subject to such conditions and restrictions as may be prescribed.

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(5) A registered dealer who intends to claim input tax credit under subsection (1) shall, for the purpose of determining the amount of input tax credit, maintain accounts, and such other records as may be prescribed in respect of the purchases and sales made by him in the State of Tripura.

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(6) No input tax credit under sub-section (1) shall be claimed or be allowed to a registered dealer –

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(i) in respect of any taxable goods under this Act purchased by him from another registered dealer for resale but give; away by way of free sample or gift;

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(ii) who has been permitted by the Commissioner for composition of tax at a percentage of the turnover of sales in lieu of VAT as provided under section 15;

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(iii) in respect of capital goods of traders in the initial year i. e. the input tax credit on capital goods would be confined to manufacturers;

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(iv) in respect of goods brought from outside the State against the tax paid in other States;

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(v) in respect of stock of goods remaining unsold at the time of closure of business;

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(vi) in respect of goods purchased on payment of tax, if such goods are not sold because of any theft, destruction or damage for any reason;

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(vii) where the tax invoice is –

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(a) not available with the dealer, or

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(b) there is evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased;

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(viii) in respect of goods purchased from a dealer whose certificate of registration has been suspended;

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(ix) in respect of goods used for transfer of stock other than by way of sale outside the State of Tripura;

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(x) in respect of sales exempt from tax as specified in Schedule III.

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(xi) in respect of raw materials used in manufacture or processing of goods where the finished products are despatched other than by way of sales:

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Provided that in respect of transactions falling under item (ix), input tax credit may be allowed on the tax paid in excess of 4% on the raw materials used directly in the manufacture of the finished products.

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(7) The Commissioner may, after giving sufficient reasons in writing, reject the method adopted by the registered dealer in a year to determine the extent to which goods are used, consumed or supplied or intended to be used, consumed or supplied, in the course of making taxable sales and calculate the amount of input tax credit after giving the registered dealer concerned an opportunity of being heard.”

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[The highlighted part is under challenge in this writ petition]

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[5] It is apparent that sub section 1 of Section 10 of TVAT Act provides for Input Tax Credit to a registered dealer for the tax paid or payable in respect of taxable purchase of goods as

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mentioned in Schedule –VIII and all taxable sales other than such sales as may be prescribed subject to the conditions as laid by the clauses below including clause (d) of sub section 1 of Section 10 of the TVAT Act which provides that in respect of inputs used in taxable goods sent on stock/consignment transfer, tax paid in excess of 4% or the prevailing rate of CST on such inputs is also to be credited.

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[6] Sub-Section 3 of Section 10 further provides that Input Tax Credit shall be allowed for purchase of goods made within the State of Tripura from a registered dealer holing a valid certificate of registration and which are intended for the purpose of sale or resale by him in the State of Tripura as per clause (a) to the said sub Section (3). Clause (b) further provides that Input Tax Credit shall also be allowed on purchase of goods made within the State of Tripura from a registered dealer which is used as raw materials or as capital goods in the manufacturing and processing of goods other than those exempted from tax under the TVAT Act intended for sale in the State of Tripura. However, sub section (6) of Section 10 puts a restriction on claiming Input Tax Credit. Clause 9 of the sub section (6) provides that no input credit shall be claimed in respect of raw materials used in manufacture or processing of goods where the finished products are dispatched other than by way of sales. However, proviso to the said clause (xi), Input Tax Credit may be allowed in respect of transaction

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falling under item/clause (ix) ***** under sub-Section 6 of Section 10 of the TVAT Act, on the tax paid in excess of 4% on the raw materials used directly in the manufacture of the finished products.

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[7] According to the petitioner-company, a reading of sub section 10(1) and Clause (ix) of Section 10(6) of TVAT Act provides that the purpose of the said provisions are that the State should at least get tax on the goods purchased in the State of Tripura at the applicable rate of CST even if the said goods are sent on stock/consignment transfer after purchasing the same in the State of Tripura. That is the reason why it has been provided that in case of inputs used in taxable goods sent on stock/consignment transfer the tax paid in excess of 4% or the existing rate of CST, such input is to be credited. The rate of tax under TVAT Act on rubber including latex is 5%. In case such goods after purchase in the State of Tripura are sent on stock/consignment transfer the dealer within the meaning of TVAT Act shall be entitled to the credit of the tax in excess of 4% or the existing CST. Since the rate of CST in case of sale made in the course of inter-state trade and commerce to the registered dealer is 2% such dealer shall be entitled to an Input Tax Credit of 3% [5% VAT – 2% CST]. If there is no tax liability, such dealer can claim refund of 3% tax by way of Input Tax Credit remaining unadjusted. As stated earlier, that Section 10(3), Clauses (a) and

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[ ***** It is, according to the petitioner-company an error in drafting as it was meant to be a proviso to sub-clause XI]

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7(b) put a restriction on claim of Input Tax Credit by a dealer in case of sale or resale made by him of the goods purchased in the State of Tripura or of the finished products in the course of interstate trade and commerce. Benefit of Input Tax Credit has been thus limited only to the extent of sale or resale made by a dealer within the State of Tripura. Therefore, if a dealer instead of sending goods/consignment transfer outside the State of Tripura which incidence provides entitlement for them to an Input Tax Credit in excess of 4% or the existing CST, causes sales of the same in the course of interstate trade and commerce from the State of Tripura, such dealer shall not only be disentitled to claim the Input Tax Credit in respect of VAT paid on the purchase of such goods within the State of Tripura. The said dealer shall also be liable to pay CST on the interstate sale of such goods effected by them. The petitioner-company, therefore, contends that the restriction put under Clauses (a) and (b) of Section 10(3) denying Input Tax Credit to a dealer who causes sale in the course of interstate trade and commerce creates an unreasonable classification in respect of sales of goods sent on stock/consignment transfer and sales made in the course of interstate trade and commerce and that does not have any reasonable nexus with the object sought to be achieved by the TVAT Act. The said severed part, according to the petitionercompany, is hit by Article 14 of the Constitution of India and as such, is liable to be struck down.

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[8] To deny the benefit of Input Tax Credit, according to the petitioner-company, when the inputs purchased in the State of Tripura are sold in the course of interstate trade and commerce, whereas the same is allowed, subject to certain conditions when the goods are sent outside the State of Tripura by way of stock/consignment transfer, the provision to that extent is restriction on the free movement of goods in the interstate trade and commerce. Such restriction as imposed by Section 10(3)(a) and Section 10(3) (b) of the TVAT Act directly impedes the free movement of goods from one state to another in course of the inter-state trade and commerce. Such restriction, according to the petitioner-company, is contrary to Article 301 of the Constitution of India and such restriction is designed to ensure that goods are not sent to outside the State by way of interstate sale. It is the duty of the legislature to indicate the reasonableness of such classification made under a statute. The legislature must indicate why a particular person or a group of person is treated differently. The reasons for such classification must have a nexus with the object sought to be achieved. Such reasons are to be indicated in the legislation itself. The legislature can delegate the power to the executive giving guidelines. According to the petitioner-company, the legislature must indicate why such distinction is made. In the present case, the dealer sending the goods on stock transfer or on consignment transfer basis has been declared to have the benefit of Input Tax Credit but a dealer making sale in the course of interstate trade and commerce has been denied the same benefit

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due to the restriction imposed by the Clauses (a) & (b) of Section 10(3) of the TVAT Act. It is a hostile discrimination between two groups similarly situated and hence, the said provisions are hit by Article 14 of the Constitution of India. Thus, the petitionercompany has prayed for striking down the Section 10(3)(a) & (b) of the TVAT Act, 2004.

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[9] By filing the reply, the respondents have vehemently opposed the interpretation as provided in the writ petition. The respondents have stated that Section 10(3) (a) & Section 10(3) (b) of the TVAT Act cannot be held to cause discrimination or impose restriction. Provision of Section 10(a) and 10(3)(b) of the TVAT Act clearly provide that the transaction in which Input Tax Credit is available and the same cannot be put to challenge for declaring it as ultravires or for striking down on the ground that the said provision does not provide the benefit for Input Tax Credit for inter-state sale. If the proposition as advanced by the petitioner-company is accepted, then the entire provision for Input Tax Credit would be otiose. The respondents have explained further that TVAT Act was enacted as per Entry 54 List II of the Seventh Schedule to the Constitution of India. After the said legislation was passed by Tripura Legislative Assembly, it was assented and promulgated as the Act. They have not denied that the petitioner-company is a registered dealer both under TVAT Act and CST Act and carrying on business in the State of Tripura. The petitioner-company had been assessed under Section 9(2) of the

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CST Act for the assessment years 2008-2009 to 2013-2014. After giving due notice dated 26.09.2014 for appearance on 17.10.2014, the assessment order was passed on hearing the petitioner-company on 16.06.2015. The demand notices dated 17.06.2015 have been raised directing the petitioner-company to deposit the assessed tax on or before 16.07.2015. The petitionercompany is liable to pay the assessed CST as under:

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Sl. No.	Assessment Year	CST assessed and demanded by notice
1	2008-2009	`1,42,916/-
2	2009-2010	`1,26,77,653/-
3	2010-2011	`1,61,41,180/-
4	2011-2012	`1,61,08,331/-
5	2012-2013	`1,27,81,949/-
6	2013-2014	`73,52,929/-	Total Demand for the above assessment years`6,52,04,502/-

¶113

[10] The Assessing Authority while passing the assessment order dated 16.06.2015 has denied the input tax credit as per Section 10 of the TVAT Act. The respondents in their reply have admitted this fragment of fact contending that the assessment orders are in conformity with the provisions of TVAT Act. It has been further asserted that in view of the extant provisions of law as stated, the petitioner-company is not entitled to Input Tax

¶114

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[18]

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Credit. That is the reason their challenge before the revisional authorities under Sections 70 & 72 of the TVAT Act had fallen through. In Para-9 of the reply, the respondents have stated the basis of their decision which according to this court is the sum and substance of the reply of the respondents. For that reason, Para-9 of the reply is reproduced in its entirety.

¶117

“9. That with regard to the statements made in paragraphs 12 and 13 of the petition, the deponent begs to state that the contention raised by the petitioner has already been judicially tested and settled holding that input tax credit is not available to the dealer effecting interstate sale as per provision of Section 10 of the TVACT Act by the Hon‟ble High Court of Tripura in the case of M/S Abhisar Buildwell Pvt. Ltd. vs. State of Tripura : (2014) 75 VAT And Service Tax Cases: (2014) 2 Tripura Law Reports 813 . The said decision was put to challenge before he Hon‟ble Supreme Court of India in Special Leave Petition (C) No.32160-32612/2014 (Abhisar Buildwell Pvt. Ltd. vs. State of Tripura & others) which was dismissed by the Hon‟ble Supreme Court of India vide order dated 05.12.2014. The deponent further begs to state that M/s. Abhisar Buildwell Pvt. Ltd. had again approached the Hon‟ble High Court of Tripura by way of filing W.P.(C) No.117/2015 raising similar contention which was again dismissed by the Hon‟ble High Cout vide order dated 09.04.2015. As against the said order dated 09.04.2015 of the Hon‟ble High Court of Tripura, Special Leave Petition (C) No.15228/2015 was preferred before the Hon‟ble Supreme Court of India in M/s. Abhisar Buildwell Pvt. Ltd. vs. State of Tripura & Ors. which was also dismissed by the Hon‟ble Supreme Court of India vide order dated 28.08.2015. The contention raised in the present petition is exactly similar to the issues raised in the case of M/s. Abhisar Buildwell Pvt. Ltd. vs. State of Tripura & Ors. filed before the Hon‟ble High Court of Tripura as well as before the Hon‟ble Supreme Court of India.

¶118

The deponent further begs to state that the contentions raised in the present petition have already been raised by the petitioner in earlier round of litigation filed before the High Court of Tripura in Civil Revision No.44/2013 ( Brite Rubber Processor Pvt. Ltd. vs. Secretary, Finance Department, Government of Tripura & Ors.) which was dismissed by the Hon‟ble High Court vide order dated 26.03.2015 (Annexure-3 to the writ petition). As such where the contentions raised in the present petition have already been tested and settled by the Hon‟ble High Court of Tripura as well as the Hon‟ble Supreme Court of India the petitioner cannot be permitted to raise again the issue which already settled. The judgment passed by the High Court in case of M/s. Abhisar Buildwell Pvt. Ltd. on 09.04.2015 attained finally since SLP filed as against the said judgment was dismissed on 28.08.2015.

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[19]

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The deponent craves leave of the Hon‟ble High Court to produce copy of the Special Leave Petition (C) filed before the Hon‟ble Supreme Court of India as well as orders passed therein and orders passed by the Hon‟ble High Court of Tripura against which SLP was filed at the time of hearing of the present petition.”

¶122

[11] The respondents have further asserted that under no circumstances, the respondents put any restriction on the free movement of goods in the interstate trade and commerce and hence, there cannot be any question of violating Article 301 of the Constitution of India in any manner. According to the respondents, availability and non-availability of benefit of Input Tax Credit is not an imposition of tax and neither is regulatory or directory. Section 10(3) (a) and Section 10(3) (b) of the TVAT Act do not impede flow of inter-state trade and commerce. The nonavailability of benefit of Input Tax Credit on interstate sale does not in any manner affect and impact on the free flow of trade and commerce to constitute contrary to what has been provided in Article 301. According to them, there is no arbitrary discrimination in conferring the benefit of Input Tax Credit. The transaction of stock transfer made outside the State of Tripura and the interstate sale can be distinguished plainly based on their difference. Those two classes of transactions cannot be similarly treated and hence, import of Article 14 of the Constitution is far-fetched and entirely irrelevant. Section 10(3) (a) and Section 10(3) (b) of TVAT Act unambiguously provide the transactions in which Input Tax Credit is available and in which, such credit is not available. The reason of denying Input Tax Credit in one or some of the transactions cannot be made ground to challenge the vires of

¶123

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[20]

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those provisions. The respondents have asserted that all the contentions raised in this writ petition were so raised in the previous litigation as stated and those were on due consideration rejected by this court as well as by the apex court. The petitionercompany cannot be allowed to agitate the same issue again and again based on some new arguments, so allowed, that would amount to reopening of the entire matter already settled by the judicial pronouncement. According to the respondents, this attempt is nothing short of seeking review of the earlier judgment under the guise of this writ petition.

¶126

[12] From the rival contentions, the pertinent questions that call for consideration by the court are broadly as under:

¶127

(I) Whether in the earlier legal action as instituted by the petitioner-company the challenge to the vires of Section 10(3) (a) and Section 10(3) (b) of the TVAT Act was considered and settled?

¶128

(II) Whether Section 10(3) (a) and Section 10(3) (b) of the TVAT Act are ultravires inasmuch as the classification as based for grant of Input Tax Credit between two transactions viz. the interstate sale and the stock/consignment transfer is unintelligible, has no nexus with the object sought to be achieved and is caused by discrimination?

¶129

(III) Whether do Section 10(3) (a) and Section 10(3) (b) of the TVAT Act put restriction on movements of goods by way

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interstate sale and thus, contravene or violate the provisions of Article 301 of the Constitution of India?

¶133

[13] We have heard Mr. K. Gulati, learned senior counsel with Mr. S. Chetia, learned counsel and Mr. R. Dutta, learned counsel appearing for the petitioner-company. We have also heard Mr. B.P. Todi, learned senior counsel with Mr. A. Todi, learned counsel and Mr. D.C. Nath, learned counsel appearing for the respondents. We have been benefited by the illuminating submissions of Mr. B.C. Das, learned Advocate General whom we asked to address as the vires of the statute is under challenge.

¶134

[14] Mr. Gulati, learned senior counsel appearing for the petitioner-company has at the beginning clearly stated that by the impugned order the assessing authority has refused to allow the Input Tax Credit to the petitioner-company for the input tax paid by it on purchase of raw materials to manufacture ISNR which was the subject-matter of the interstate sale carried out by the petitioner-company. Such denial is based on the provisions of Section 10(3) (a) and Section 10(3) (b) of the TVAT Act. The petitioner-company was not allowed an adjustment of their Input Tax Credit with the payable CST which they were required to deposit for the month of February, 2009. Being aggrieved by the order of the assessing authority, the appeal and thereafter, the first revision were filed before the statutory authorities and finally, revision under Section 72 of the TVAT Act was filed in this court by

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the petitioner-company. But the said revision was dismissed by adopting the interpretation as provided in M/S. Abhisar Buildwell Private Limited vs. State of Tripura , reported in (2014) 75 VST. 386 (Tripura). In the revision, it has been held that if the dealer makes an interstate sale it would not be allowed the benefit of Section 10 as the case would squarely fall within the parameter of Section 10(3) and Section 10(6) of the TVAT Act.

¶138

[15] Mr. Gulati, learned senior counsel appearing for the petitioner-company in the course of his submission has made an unambiguous statement that both in the case of provided in M/S. Abhisar Buildwell Private Limited (supra) as well as in the revision preferred by the petitioner-company there was no challenge to vires of Section 10(3) of the TVAT Act as has been made in this petition. In M/S. Abhisar Buildwell Private Limited (supra) the petitioner-company was not a party. He has contended rightly that in a revision petition filed under Section 72 of the TVAT Act, the petitioner-company could not have challenged the vires of the impugned provisions inasmuch as this court on that occasion was exercising the statutory powers the revisional authority conferred by Section 72 of the TVAT Act.

¶139

[16] While consolidating his submission on the question No.I above, Mr. Gulati, learned senior counsel having referred to the legal principles of res judicata or constructive res judicata has submitted that the petitioner-company was not a party in M/S.

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Abhisar Buildwell Private Limited (supra) which led to the decision dated 12.09.2014, reported in (2014) 75 VST. 386 (Tripura). Thus, Mr. Gulati, learned senior counsel has contended that the principle of res judicata and constructive res judicata would only apply if the same issue was a subject matter of a previous decision between the same parties. According to him, the stand of the State Government is clearly erroneous and contrary to law. Mr. Gulati, learned senior counsel has repeated that in the revision petition filed under Section 72 of the TVAT Act there was no occasion for the petitioner-company to raise the issue of vires of Section 10 of the TVAT Act in question, in that proceeding, as it is well consolidated that vires of a particular provision of the statute can only be challenged before the High Court on invoking the jurisdiction under Article 226 of the Constitution of India or before the apex court under Article 32 of the Constitution of India. While this court was exercising its jurisdiction under Section 72 of the TVAT Act it was not exercising its jurisdiction for judicial review. Vires of Section 10 (3) (a) and Section 10 (3) (b) of TVAT Act was neither raised nor considered in those proceedings. It is well settled that a judgment is only an authority for what it decided but not what logically would have followed therefrom. To buttress such contention, Mr. Gulati, learned senior counsel has referred a decision of the apex court in Union of India and others vs. Dhanwanti Devi, reported in (1996) 6 SCC 44, where it has been held as under:

¶143

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“9. Before adverting to and considering whither solatium and interest would be payable under the Act, at the outset, we will dispose of the objection raised by Shri Vaidyanathan that Hari Kishan Khosla's case : 1993 Supp (2) SCC 149 is not a binding precedent nor does it operate as ratio decidendi to be followed as a precedent and per se per incuriam . It is not everything said by a Judge who giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi . According to the well settled theory of precedents, every decision contain three basic postulates - [i] findings of material facts, is the inference which the Judge draws from the direct, or perceptible facts; [ii] statements of the principles of law applicable to the legal problems disclosed by the facts; and [iii] judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. Every judgment must be read as applicable to the particular facts proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. It would, therefore, be not profitable to extract a sentence here and there from the judgment and to build upon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone binding between the parties to it, but it is the abstract ratio decidendi , ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis . It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi .

¶146

10. Therefore, in order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents. It would, therefore, be necessary to see whether Hari Kishan Khosla's case : 1993 Supp (2) SCC 149 would form a binding precedent. Therein, admittedly the question that had arisen and was decided by the Bench of three Judges was whether solatium and interest are payable to an owner whose

¶147

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[25]

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land was acquired under the provisions of the Central Act? On consideration of the facts, the relevant provisions in the Central Act and the previous precedents bearing on the topic, the Court had held that solatium and interest are not a part of compensation. It is a facet of the principle in the statute. The Central Act omitted to provide for payment of solatium and interest since preceding the acquisition the property was under requisition during which period compensation was paid to the owner. The position obtained and enjoyed by the Government during the period of requisition continued after acquisition. The same principle was applied without further elaboration on entitlement to payment of interest of an owner. It is true that the decisions relied on by Shri Vaidyanathan on the principle of payment of interest as part of compensation in respect of land acquired were brought to the attention of this Court for discussion. What would be its purport would be considered a little later. Suffice it to say for the present that the finding that solatium and interest are not payable for the lands acquired under the Central Act as part of compensation is a binding precedent. Obviously, therefore, this Court followed the ratio therein in District Judge case: (1994) 4 SCC 737 . The contention, therefore, that Hari Kishan Khosla's case cannot be treated as a binding precedent since therein there is no ratio but a conclusion without discussion, is not tenable and devoid of force. In that view, it is not necessary to discuss in extenso the effect of the decisions cited by Shri Vaidyanathan. Equally, the contention of Shri Vaidyanathan that the ratio in Hari Kishan Khosla's case is in conflict with the ratio in Satinder Singh's case: AIR 1961 908 which was neither distinguished nor overruled and that the decision of a coordinate Bench cannot have the effect of overruling decision of another coordinate Bench, cannot be given countenance. The effect of the ratio in Satinder Singh's case will be considered a little later; suffice it to state that there is no conflict in the ratio of these two cases if the facts in Satinder Singh's case are closely analysed and the principle laid down therein is understood in its proper perspective. Therefore, Hari Kishan Khosla's case cannot be held to be per incuriam not has it the effect of overruling the ratio decidendi of Satinder Singh’s case .”

¶150

[Emphasis added]

¶151

[17] According to Mr. Gulati, learned senior counsel, when this court was considering the issue in M/S. Abhisar Buildwell Private Limited (supra) or in CRP No.44 of 2013 the court had considered the challenge, not against the vires, on the correctness of interpretation having regard to the extant provisions. There had been no occasion for this court to have considered the issue of vires of those provisions. In such circumstances, to raise the issue

¶152

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of vires of Section 10 of the TVAT Act cannot be held barred inasmuch as in Nand Kishore vs. State of Punjab, reported in (1995) 6 SCC 614 , the apex court was considering a similar question as to whether the plea of constructive res judicata as raised by the State of Punjab would apply in the fact situation of that case. The said objection was upheld by the Punjab and Haryana High Court but on appeal, the apex court set aside that judgment holding that the petitioner, Nand Kishore, was not bared to challenge. Rule 5.32(b) of the Punjab Civil Service Rule was challenge in the context of the order of compulsory retirement, in exercise of that rule. The apex court in Nand Kishore (supra) had occasion to observe as under:

¶155

“18. Bearing the above principles in mind what at best was said by the State of Punjab was that failure to raise the constitutionality of Rule 5.32 in the writ petition preferred by the appellant would imply, on the principle of „might and ought‟, that the opportunity of controverting the matter had been lost and that it should on the principles of constructive res judicata be taken that the matter had been actually raised and adversely decided. But in Forward Construction Co. v. Prabhat Mandal (Regd.) : (1986) 1 SCC 100, this Court has taken the view that where a matter has been constructive in issue it cannot be said to have been actually heard and decided. It could only be deemed to have been heard and decided.

¶156

19. It would then have to be seen the twin play of the notion of deemed constitutionality and bar of constructive res judicata. Raising the constitutionality of a provision of law, as it appears to us, stands on a different footing than raising a matter on a bare question of law, or mixed question of law and fact, or on fact. There is a presumption always in favour of constitutionality of the law. The onus is heavy on the person challenging it. It is by the discharge of onus that the presumption of constitutionality can be crossed over. When a person enters a court for relief and does not challenge the constitutionality of the law governing the matters directly and substantially in issue, it only means and implies that he goes by the presumption of constitutionality. He cannot on this stance be deemed to have raised the question of constitutionality and the question of constitutionality to have been decided against him and such matter to have been directly and substantially in issue. The constitutionality of the Rule relating to compulsory retirement cannot be deemed to have been questioned

¶157

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and decided against the appellant on the principles of „might and ought‟ or it being „directly and substantially in issue‟. It cannot be taken as a rule that one of the pleas, either by the plaintiff or the defendant, in every suit or proceeding, must of necessity relate to the constitutionality of the law on which the cause is founded or defended in order to obviate the plea of constructive res judicata being raised in an eventuality. It cannot also be taken as a rule that constitutionality of the law involved is a matter directly and substantially in issue, and if not raised renders a mute decision in favour of its constitutionality barring the plea being raised in a subsequent suit. If there be read such a rule in all civil litigation, it would, to our mind, be against public policy vexing and burdening the courts to go into the constitutionality of provisions of law in every case. When under the impugned Rule, the Government assumed to itself the power to compulsorily retire a permanent government servant after ten years of qualifying service, the court's act of striking that Rule as unconstitutional is the law which appeared on the scene, not only to break the presumption of constitutionality but to declare it void. In a sense the offending provision was never there and in the other it was henceforth not there. In either event, it would be within the ambit of the emphasised words in Mathura Prasad case : (1970) 1 SCC 613.”

¶160

[Emphasis added]

¶161

[18] In this regard, another decision of the apex court in MRF Limited vs. Manohar Parrikar and others, reported in (2010) 11 SCC 374 has been pressed for the petitioner. There the apex court restated the same view. In MRF Limited (supra) an objection was raised that the notification which was questioned have been under challenge could have not been allowed to be so challenged on the ground of constructive res judicata as the similar issue was raised in the previous round of litigation and therefore, the challenge to the aforesaid two notifications might and ought to have been raised in the previous round. As there was no specific challenge in the previous round of litigation to the vires of the notifications dated 15.05.1996 and 31.03.1998 and there was no occasion for the High Court to address itself on such challenge which have been raised in the subsequent writ petition,

¶162

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the apex had repelled such plea of res judicata by observing as

¶165

under:

¶166

“32. There was no challenge whatsoever to the Notifications dated 15^th May, 1996 and 01.08.1996 and the declaration now sought in the instant writ petition was not in issue in the earlier batch of petitions. After taking us through the judgment, the learned Senior Counsel admitted that none of the declarations or directions in Writ Petition No.316 of 1998 had been sought in the earlier batch of writ petitions. Therefore, it cannot be said that the controversy in the earlier batch of writ petitions and the present writ petition in question are the same. This Order dated 27.01.2000 has now become final, though it was an interlocutory order rejecting Miscellaneous Civil Application No. 637 of 1999. This Court was more than convinced that the challenge raised in Writ Petition No. 316 of 1998 was not an issue for consideration before it while handing down the judgment dated 21.01.1999. It is for these reasons, the principle of res judicata will not be applicable in the instant case.

¶167

33. As regards the objections raised by the respondents on the basis of concept of merger, the High Court has held that though the appeals challenging the judgment of the High Court dated 21.01.1999 have been dismissed by this Court, and the findings of the High Court on the relevant issues have been impliedly confirmed and though the principle laid down by this Court in the case of Kunhayammed Vs. State of Kerala : (2000) 6 SCC 359 , is squarely applicable on the issue of merger and the judgment dated 21.01.1999 of the High Court merged with the order of this Court dated 13.02.2001, the concept of merger will not come in its way in deciding the issues involved in this petition for the reasons, that, these issues were not raised and therefore not required to be decided by the High Court in its earlier judgment dated 21.01.1999 as was clear from the order passed by it on 27.01.2000 in Miscellaneous Civil Application No. 637 of 1999.

¶168

34. The High Court held, that, it had no occasion to address itself on the challenge raised to the notification impugned in the writ petition of Manohar Parrikar and the earlier batch of writ petitions proceeded solely against the order dated 31.03.1998, and subsequent Notification issued by the State Government on 24.07.1998. It is observed by the High Court, that, the State Government opposed those writ petitions without examining the legality of the Notifications dated 15.05.1996 and 01.08.1996 and it had contended that the benefit of rebate was withdrawn as the State Government was facing financial crunch and that the said benefit had been introduced as a policy of the State Government and when it was realized by the State that it was facing financial difficulties in extending the benefit of rebate it decided to withdraw the same which has been upheld by the High Court in the earlier batch of writ proceedings.

¶169

35. The High Court therefore has concluded that it cannot now be said that State Government cannot take a stand that the notifications impugned were issued without following the mandatory provisions of Rules of Business or that they were not notifications issued by the State Government in the eye of law. The High Court

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has also observed, that if the State had no occasion to address itself on the legality of these notifications, it is not estopped either from raising a challenge or supporting the challenge at an appropriate time. It is also held by the High Court that as the first respondent herein was not a party to the earlier batch of writ petitions before the High Court and as his application for hearing his petition with that batch of petitions was withdrawn, he is not estopped from continuing with his challenge against the Notifications dated 15.05.1996 and 01.08.1996.

¶173

36. Arguments were also advanced to the effect that the State Government should not be allowed to take contradictory stand as the stand taken by the State Government in its two affidavits filed through the Chief Electrical Engineer in the earlier batch of writ petitions was conflicting with each other. The said contention was sought to be raised by the respondents in view of the change of the Government during the intervening period and the first respondent herein was the Chief Minister at the relevant point of time. The High Court has repelled these contentions by stating that the challenge to the notifications impugned before by the first respondent herein in his petition cannot be decided on the touchstone of affidavits filed even if they are contradictory in nature and the challenge had to be decided on its own merits, on the basis of records and the Constitutional Mandate.

¶174

37. The High Court has observed that in a democratic set up the decisions of the Governments decide the destiny of the people and therefore the validity of such decisions should be decided not on the basis of affidavits filed by the Officers of the Governments or on incomplete or inadequate information made available by them, but on the basis of constitutional provisions and Business Rules framed thereunder. The High Court further felt that it was duty bound to examine the records to reassure itself that the decisions purported to have been taken by the Government are, in fact and in law, the decision of the Government and they are in conformity with the mandate of the Constitution. Thus the High Court has rejected the preliminary objection as to the maintainability of the writ petition and proceeded to decide the challenge made to the above mentioned two notifications on its merits.

¶175

38. In our view, the principle of merger essentially refers to the merging of the orders passed by the superior courts with that of the orders passed by a subordinate court. This Court in the case of Shankar Ramachandra Abhyankar vs. Krishnaji Dattatreya Bapat : (AIR 1970 SC 1) has laid down the condition as to when there can be a merger of the orders of the superior court with that of the orders passed by the lower court. This Court stated, that, if any judgment pronounced by the superior court in the exercise of its appellate or revisional jurisdiction after issue of a notice and a full hearing in the presence of both the parties, then it would replace the judgment of the lower court. Thus, constituting the judgment of the superior court the only final judgment to be executed in accordance with law by the court below. The merger is essentially of the operative part of the order and the principle of merger of the order of the subordinate court with the order of the superior court cannot be applied when there is no order made by the superior court on merits and the controversy between the parties has not been looked into by the superior court.

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39. The issue of merger has no bearing in the facts and circumstances of the present petitions, since, the issue that was decided by the High Court in the earlier batch of writ petitions and the issue that was raised and considered in the subsequent public interest litigation is entirely different. Secondly, in our view, the principles of res judicata are also not attracted since the issue raised and considered in the subsequent public interest litigation had not been raised and considered in the earlier round of litigation. It would be worthwhile to recall the observations made by this Court in the case of Madhvi Amma Bhawani Amma vs. Kunjikutty Pillai Meenakshi Pillai and Ors. : (2000) 6 SCC 301, wherein the Court has observed that:

¶179

„7.......In order to apply general principle of res judicata, the court must find, whether an issue in a subsequent suit, was directly and substantially in issue in the earlier suit or proceedings, was it between the same parties, and was it decided by such court. Thus, there should be an issue raised and decided, not merely a finding on any incidental question for reaching such a decision.‟

¶180

So, if such issue is not raised and if on any other issue, if, incidentally any finding is recorded, it would not come within the periphery of principle of res judicata.

¶181

40. However, Shri K.N. Bhatt, learned Senior Counsel appearing for the former Power Minister, would submit that the principles of res judicata and constructive res judicata bars the exercise of jurisdiction by the High Court as there is a bar not only on issues directly raised in a previous lis but the issue that ought to have been raised. It is further submitted that the record of decision culminating in notification dated 24.03.1998 was available and produced before the High Court in previous writ petitions and the same Finance Secretary who had opined in his cabinet note that Rules of Business stood violated due to non-consultation with Finance Department had filed affidavit in previous writ petitions on the decision to issue notification dated 24.07.1998. Therefore, the learned Senior Counsel would contend that the High Court has erred in deciding this issue against this respondent. In aid of this submission, the learned Senior Counsel has pressed into service the observations made by this Court in the case of State of Karnataka vs. All India Manufacturer Organization : (2006) 4 SCC 683 .

¶182

41. We are not impressed by the submission of the learned Senior Counsel Shri K.N. Bhatt. In our view, the subject matter of earlier writ petitions was completely different and distinct from the public interest litigation filed by Mr. Manohar Parrikar. In the earlier writ petitions, the challenge was against the notification and the circulars issued by the State Government and in the present writ petitions the High Court was primarily concerned with validity or otherwise of the notifications dated 15.5.1996 and 01.08.1996. Therefore, we are of the view that the reasoning and conclusions reached by the High Court, on the aforesaid issue are in accordance with law and in accordance with the principles laid down by this Court. Therefore, we agree with the conclusion reached by the High Court.”

¶183

[Emphasis added]

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[19] The issue of vires of Section 10 (3) (a) and Section 10 (3) (b) of the TVAT Act was never raised in M/S. Abhisar Buildwell Private Limited (supra) but Mr. Gulai, learned senior counsel has fairly placed before this Court that in the special leave petition preferred by M/S. Abhisar Buildwell Private Limited the ground of violation of Article 301 of the Constitution of India was taken since the apex court dismissed the SLP in limine on 28.08.2015 there was no occasion to raise that ground and neither was an issue of vires raised by M/S. Abhisar Buildwell Private Limited nor was the same considered by any court. Thus, the jurisprudential objection in this regard as raised by the State shall fall through inasmuch as the legal principle of res judicata and constructive res judicata cannot be applied in the facts of the present case.

¶187

[20] In respect of the question No. II as formulated above, which is fundamentally structured on infringement of Article 14 of the Constitution of India, Mr. Gulati, learned senior counsel appearing for the petitioner-company has submitted that from a perusal of Section 10(1) of the TVAT Act it would indicate that it provides for Input Tax Credit benefit to all dealers who made taxable sales subject to certain conditions as prescribed in Clauses (a) to (f) of Section 10 (1) of the TVAT. Section 10(a)(b) of the TVAT Act would further indicate that a dealer who exports the goods outside the county is allowed an Input Tax Credit, which may be spread over a period less than three years as may be

¶188

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prescribed. Similarly, in case of inputs used in the taxable goods sent on stock/consignment transfer, tax paid in excess of 4% or the prevailing rate of CST which is at present is 2%, such inputs is to be credited. A perusal of the Section 10(3) (c) of the TVAT Act would indicate that Input Tax Credit shall be allowed for purchase of goods made within the State of Tripura in cases of sales in the course of export out of territory of India by virtue of Section 10(3) (c) of the TVAT Act. Mr. Gulati, learned senior counsel has referred to Section 10(6), Clauses (IX) and (XII) of the TVAT Act for contending that the opening part of Section 10(6) of the TVAT Act provides that no Input Tax Credit under sub-section (1) shall be claimed or be allowed to a registered dealer who stocktransfers goods, other than by way of a sale outside the State of Tripura on raw materials used in the manufacture or processing of goods-where the finished products are dispatched other than by way of sale. The proviso below Section 10(6) of the TVAT Act postulates further that in cases of items falling under Clause IX, Input Tax Credit may be allowed on tax paid in excess of 4% on raw materials used directly in the manufacture of finished goods. It is submitted further by Mr. Gulati, learned senior counsel that ‘Clause-IX’ appearing in the proviso, obviously seems to be an error in drafting as it was always meant to be Clause XI. This is because this proviso states of Input Tax Credit on raw materials used directly in the manufacture of finished goods. The language of the proviso therefore corresponds to Clause XI which is in respect of raw materials in the manufacture of finished goods. Mr.

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Gulati, learned senior counsel has refreshed us the statement made by Mr. B.C. Das, learned Advocate General that both in case of exports and stock-transfer outside the state, the benefit of Input Tax Credit are available. Mr. Gulati, learned senior counsel has conceded to such interpretation given by learned Advocate General. Further Mr. Gulati, learned senior counsel has submitted that it is clear that the State Government grants the benefit of Input Tax Credit in two situations viz. (i) where goods are transferred out of state by way of exports and (ii) where their stock is transferred outside the State of Tripura to other states. In both the categories of transactions, the State Government does not earn any revenue by means of tax as it is disabled by virtue of Article 286 of the Constitution of India levying tax on transactions which are not sales such as stock-transfers and in case of exports made outside the country. Mr. Gulati, learned senior counsel has emphatically contended that without any intelligible basis and in exercise of sheer arbitrariness, the State Government by virtue of Section 10(3) (a) and Section 10(3) (b) of the TVAT Act has picked up those dealers who undertake their inter-state sale i.e. make sales of interstate character commencing from the State of Tripura, for denying the benefit of Input Tax Credit. If a dealer were to make a sale of finished products outside the State of Tripura or use raw materials to manufacture finished goods which are not sold in Tripura but are sold outside the State as interstate sale their input tax is not credited in terms of Section 10(1) of the TVAT Act. Mr. Gulati, learned senior counsel has referred the

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provisions of Article 269 of the Constitution of India in this regard. Article 269(1) provides inter alia that taxes on the sales or purchase of goods shall be levied and collected by Government of India but shall be deemed to have been assigned to the State Governments whereas Article 269(2) provides that such taxes collected shall not form part of the consolidated fund of India but shall be assigned to the States. Article 269(3) provides that the Parliament would formulate principles for determining when a sale or purchase takes place in the course of another state trade or commerce. The Central Sales Tax Act, 1956 [CST] has been framed in consonance to the provisions of Article 269 of the Constitution of India. Section 9(1) of the CST Act provides that any tax levied by Government of India on the sale of goods shall be collected by the Government in accordance with the provisions of sub-section 2 of Section 9 of CST Act, in the state from which the movement of goods commenced. Section 9(3) of the CST Act provides that the proceeds of tax collected by the State Government on behalf of the Government of India shall be retained by the state government for its own use. It is apparent from the said constitutional and statutory arrangement, according to Mr. Gulati, learned senior counsel, that from interstate sales made from the state of Tripura it is the state of Tripura alone which would be entitled to levy and collect taxes on this interstate transaction and the tax so collected would be retained by the State Government. Thus, it is only on the interstate sale made from the State of Tripura, the State Government earns revenue by

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way of CST. It is the only class of transaction which has been picked up for discriminatory treatment and therefore, it violates the Article 14 of the Constitution of India. However, Mr. Gulati, learned senior counsel has clearly acceded to the position of law that under the present constitution scheme, the State Governments have the power to pick of certain persons or certain types of transaction for the purpose of taxation while leaving out certain other types of transaction from the net of taxation. This absolute power available with the State Government is however subject to certain well defined restrictions. Repeatedly, the apex court has held that tax laws are subject to the rigours of Article 14 of the Constitution of India. While the State Government has the power to classify, such classification must bear a nexus with the object sought to be achieved. If no basis is indicated by the State Government for such a classification or the classification is based on no intelligible differentia , the provision would be struck down as arbitrary. Further, assuming that the classification is based on some intelligible differentia, however, it has no nexus with the object sought to be achieved. In that event, also the provisions would violate the Article 14 of the Constitution of India. The apex court has held on numerous occasions that even though there is presumption in favour of the constitutionality but when a petition is able to show ex-facie that the differentia or classification does not advance the cause of object sought to be achieved, the burden would be on the State Government to show the reason for classification and how the object was being achieved by making

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such classification. Having referred to this case, Mr. Gulati, learned senior counsel has dilated his submission further to contend that the State Government allows the benefit of Input Tax Credit in case of exporters under Section 10(1)(b) and Section 10(3)(c) of the TVAT Act and in favour of the persons who stocktransfers the finished goods under Sections 10(1)(d) and 10(6) (xi) read with proviso. In both the aforesaid transactions, the State Government does not earn any revenue by way of tax. Only in case of interstate sale the state earns revenue on the output sales. But in such case, the benefit of Input Tax Credit is denied. Mr. Gulati, learned senior counsel has submitted that if the object of the State Government was to prevent the benefit of Input Tax Credit in those categories of transaction where it did not earn any tax on the sale of finished goods, then there was no occasion to grant the Input Tax Credit to the exporters and the persons who made the stock-transfers outside the state. Thus, assuming that the classification of dealer or transaction is taken without admitting the same to be valid this classification fails to achieve the desired objects, in fact it results in a hostile discrimination against those categories of transactions which bring some amount of revenue to the State Government i.e. interstate sales. Having referred to the reply filed by the respondents, Mr. Gulati, learned senior counsel has quite succinctly asserted that the State Government has failed to give any reason for creating the said classification and how such classification seeks to fulfill the object of such classification. Mr. Gulati, learned senior counsel has

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referred further to the statement made by the Advocate General in the course of his address that reason for creating an exemption is that the Input Tax benefit was being given to encourage industrialization. Mr. Gulati, learned senior counsel has categorically stated that the said reason cannot form the basis for classification. Even a unit which undertakes an interstate sale is a unit set up in Tripura. The purpose of industrialization is also achieved by setting up the unit. There is no reason thereafter to distinguish the same unit for the benefit of Input Tax Credit, merely on the basis of the type of sale it is undertaking. In the case of a stock-transfer, it is provided that the Input Tax Credit beyond the CST rate i.e. 2% would be allowed. This is done as and when a stock-transfer is made and no tax is payable. But in the interstate sale the state at least garners the CST for its own use. It is strange enough that where the state gets money by way of CST from the dealers who undertake interstate sale, the benefit of Input Tax Credit is denied. There cannot be any reason to do so. Mr. Gulati, learned senior counsel having referred to Annexure-4 where a list of the States/UTs has been provided to show that none of those States/UTs denies Input Tax Credit to a dealer who makes intestate sale. According to Mr. Gulati, learned senior counsel, Tripura perhaps the only state where such denial of Input Tax Credit prevails. Mr. Gulati, learned senior counsel however has acceded that the state has the power to frame its own taxation laws but such laws has to be made in consonance to the provisions of Article 14 of the Constitution of India. In

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Ayurveda Pharmacy and another vs. State of Tamil Nadu,

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reported in (1989) 2 SCC 285, the apex court while dealing with a challenge to differential rate of tax between two classes of medical preparation has held inter alia as under:

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“6. We think that the appeals are entitled to succeed. Item 95 mentions the rate of 7 per cent (now 8 per cent) as the tax to be levied at the point of first sale in the State. Item 135 provides a rate of 30 per cent in respect of Arishtams and Asavas at the point of first sale. We see no reason why Arishtams and Asavas should be treated differently from the general class of Ayurvedic medicines covered by item 95. It is open to the legislature, or the State Government if it is authorised in that behalf by the legislature, to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a Court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30% on the turnover of Arishtams and Asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India : (1963) 3 SCR 957: (AIR 1963 SC 622) this Court considered whether the Ayurvedic medicinal preparations known as Mritasanjibani, Mritasanjibani Sudha and Mritasanjibani Sura, prepared in accordance with an acknowledged Ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. The Court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverages could not justify their being treated differently from other medicinal preparations. The Court said : (SCR pp.975-76):

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„So if these preparations are medicinal preparations but are also capable of being used as ordinary alcoholic beverages, they will fall under the (Central) Act and will be liable to duty under item No. of the Schedule at the rate of Rs.

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17.50 per gallon of the strength of London proof spirit. On a consideration of the material that has been placed before us, therefore, the only conclusion to which we can come is that these preparations are medicinal preparations according to the standard Ayurvedic text-books referred to already, though they are also capable of being used as ordinary alcoholic beverages. They cannot however be taxed under the various Excise Acts in force in the concerned States in view of their being medicinal preparations which are governed by the Act.‟

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We are of opinion that similar considerations should apply to the appeals before us. The two preparations, Arishtams and Asavas, are medicinal preparations, and even though they contain a high alcohol content, so long as they continue to be identified as medicinal preparations they must be treated, for the purposes of the Sales Tax Law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. On this ground alone the appellants are entitled to succeed.”

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[Emphasis added]

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[21] When the State Government granted exemption to a certain category of fertilizer and excluded one same category of fertilizers from the benefit of exemption, the apex court in State of U.P. and others vs. Deepak Fertilizers and Petrochemical Corporation Ltd., reported in (2007) 10 SCC 342 has held inter alia that tax law are always subject to Article 14 of the Constitution of India and as no reasonable nexus for the classification was found, it was held that refusal to grant an exemption to one such category was arbitrary and violated Article 14 as the State had failed to discharge its burden to disclose good reason for such classification and as to how the object sought to be achieved by such classification was being achieved. For purpose of reference, the following passed of Deepak Fertilizers and Petrochemical Corporation Ltd. (supra) are extracted hereunder:

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“11. The second grievance of the respondent in the writ petition is that the notification dated 15.05.1995 is discriminatory as it exempts all kinds of phosphatic fertilizers of NPK except the NPK 23:23:0 fertilizer manufactured by the respondent company. The learned counsel for the respondent contended that all the fertilizers of NPK category of various combinations are treated as phosphatic fertilizers not only by the Government of India but also by the various agricultural departments of the various State Governments, the farmers, the in-trade and in-common parlance. The High Court relying on a decision of this court in the case of Ayurveda Pharmacy & Anr. v. State of Tamilnadu : (1989) 2 SCC 285 held that the two items of the same category cannot be discriminated. Hence, the High Court held that merely because of composition of NPK, discrimination could not have been made against the respondent.

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12. In Ayurveda Pharmacy: (1989) 2 SCC 285 it was held that while it was open to the legislature or the State Government to select different rates of tax for different categories, where the commodities belonged to the same class or category, it was necessary that there must be a rational basis of discrimination between one commodity and another for the purpose of imposing tax. Accordingly, the High Court went on to hold that merely because of different composition of NPK, discrimination could not have been made against NPK 23:23:0 and hence ordered the appellants not to realise tax on the sale of NPK 23:23:0 from the respondent for the period from 10.04.1995 to 31.03.1996.

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13. From a perusal of the notifications in question, it is evident that other fertilizers of the NPK category i.e. N.P.K. 12:32:16; N.P.K. 15:15:15; N.P.K. 20:20:0; N.P.K. 14:35:14 are included in the exemption list, whereas it is a matter of fact that NPK 23:23:0 fertilizer is also a fertilizer of the same category, but it is omitted from the list. According to the notification dated 02.11.1994, the intention of the State was not to tax the sale of „potassium phosphatic fertilizers‟ but when we go into enquiry of nomenclature of these chemical compounds, we find that the NPK 23:23:0 is a „nitro-phosphate fertilizer‟ which has no potassium (K) ingredient. The Notifications dated 10.04.1995 and 15.05.1995 clearly include NPK 20:20:0, which is also a nitro-phosphate fertilizer with zero content of potassium (K). This classification made under the notification dated 10.04. 1995 does not hold good on the rational basis and is hence subject to scrutiny. The fact remains stagnant that the notifications include a fertilizer NPK 20:20:0 which is of the same category as that of fertilizer NPK 23:23:0, because both are nitro-phosphate fertilizers. This shows that the state has not classified the two commodities on a rational basis for the purpose of imposing tax. This court in the case of Tata Motors Ltd. v. State of Maharashtra and Ors. :(2004) 5 SCC 783 , has held:

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„It is no doubt true that the state has enormous powers of legislation and in enacting fiscal laws. Great leverage is allowed in the matter of taxation laws because several fiscal adjustments are to be made by the government depending upon the needs of the revenue and the economic circumstances prevailing in the state. Even so an

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action taken by the state cannot be irrational and so arbitrary so as to one set of rules for one period and another set of rules for another period by amending the laws in such a manner as to withdraw the benefit that had been given resulting in higher burden so far as the assessee is concerned without any reason. Retrospective withdrawal of the benefit of set-off only for a particular period should be justified on some tangible and rational ground, when challenged on the ground of unconstitutionality.‟

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14. The learned counsel for the appellants could not, however, satisfy us that there was a good reason to introduce the first set of notification for one period and another set of notification for another either by amending the notification or by introducing a new notification so as to withdraw the benefit that was given earlier, resulting in higher burden on the assessee without any reason.

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15. The learned counsel appearing for the State relying heavily on the case of Kerala Hotel and Restaurant Association & Ors. v. State of Kerala & Ors.: (1990) 2 SCC 502, contended that the State has widest latitude where measures of economic and fiscal regulation are concerned. There is no dispute on this principle of law as enumerated in the aforesaid decision of this Court. However, this same law must not be repugnant to the Article 14 of the Constitution, i.e., it must not violate the right to equality of the people of India, and if such repugnancy prevails then, it shall stand void up to the level of such repugnancy under Article 13(2) of the Constitution of India. Therefore, every law has to pass through the test of constitutionality, which is nothing but a formal name of the test of rationality. We understand that whenever there is to be made any type of law for the purpose of levying taxes on a particular commodity or exempting some other commodity from taxation, a sought of classification is to be made. Certainly, this classification cannot be a product of a blind approach by the administrative authorities on which the responsibility of delegated legislations is vested by the constitution. In a nutshell, the notifications issued by the Trade Tax Department of the State of U.P., dated 10.04.1995 and 15.05.1995 lack the sense of reasonability because it is not able to strike a rational balance of classification between the items of the same category. As a result of this, NPK 23:23:0 is not given exemption from taxation where as all other NPK fertilizers of the same category like that of NPK 20:20:0 are provided with the exemption from taxation.

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16. The reasonableness of this classification must be examined on the basis, that when the object of the taxing provision is not to tax the sale of certain chemical fertilizers included in the list, which clearly points out that all the fertilizers with the similar compositions must be included without excluding any other chemical fertilizer which has the same elements and compositions. Thus, there is no reasonable nexus of such classification among various chemical fertilizers of the same class by the state. This court in the case of Ayurveda Pharmacy (supra) held that two items of the same category cannot be discriminated and where such a distinction is made between items falling in the same

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category it should be done on a reasonable basis, in order to save such a classification being in contravention of Article 14 of the Constitution of India.”

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[Emphasis added]

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[22] Mr. Gulati, learned senior counsel has also referred a very recent decision of the apex court in Union of India and others vs. N.S. Rathnam and sons, reported in (2015) 10 SCC 681. Rathnam (supra) was a case where exemption was granted by the Union of India in payment of excise duty in case of iron and steel scraps. If imported the custom duty was payable at 1,400/per Light Displacement Tonnage (LDT). Certain dealers who were not paying the custom duty at 1,400/- per LDT but were paying custom duty under Section 3 of the Customs Tariffs Act, 1975 albeit as a lesser rate challenged the notification providing custom duty at `Rs.1,400/- per LDT as arbitrary being violative of Article of 14 of the Constitution of India. The apex court after noticing the stand of Union of India that it was entirely within their domain to give an exemption to particular class of assesses being a policy decision rejected such trend by observing As Under:

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“12. The judgment of this Court in Kasinka Trading's case : (1995) 1 SCC 274, no doubt, lays down the principle that there is wide discretion available to the Government in the matter of granting, curtailing, withholding, modifying or repealing the exemptions granted by earlier notifications. It is also correct that the Government is not bound to grant exemption to anyone to which it so desires. When the duty is payable under the provisions of the Act, grant of exemption from payment of the said duty to particular class of persons or products etc. is entirely within the discretion of the Government. This discretion rests on various factors which are to be considered by the Government as these are policy decisions. In the present case, however, the issue is not of granting or not granting the exemption. When the exemption is granted to a particular class of persons, then the benefit thereof is to be extended to all similarly situated person. The notification has to apply to the entire class and the Government cannot create sub-

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classification thereby excluding one sub-category, even when both the sub- categories are of same genus. If that is done, it would be considered as violating the equality clause enshrined in Article 14 of the Constitution. Therefore, judicial review of such notifications is permissible in order to undertake the scrutiny as to whether the notification results in invidious discrimination between two persons though they belong to the same class. In Aashirwad Films v. Union of India and Others : (2007) 6 SCC 624 , this aspect has been articulated in the following manner:

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9. The State undoubtedly enjoys greater latitude in the matter of a taxing statute. It may impose a tax on a class of people, whereas it may not do so in respect of the other class.

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10. A taxing statute, however, as is well known, is not beyond the pale of challenge under Article 14 of the Constitution of India.

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11. In Chhotabhai Jethabhai Patel & Co. v. Union of India: AIR 1962 SC 1006 it was stated: (AIR p. 1021, para 37)

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„37. But it does not follow that every other article of Part III is inapplicable to tax laws. Leaving aside Article 31(2) that the provisions of a tax law within legislative competence could be impugned as offending Article 14 is exemplified by such decisions of this Court as Suraj Mall Mohta & Co. v. A.V. Vishvanatha Sastri :AIR 1954 SC 545 and Meenakshi Mills Ltd. v. A.V. Visvanatha Sastri : AIR 1955 SC 13 . In K.T. Moopil Nair v. State of Kerala : AIR 1961 SC 552 the Kerala Land Tax Act was struck down as unconstitutional as violating the freedom guaranteed by Article 14. It also goes without saying that if the imposition of the tax was discriminatory as contrary to Article 15, the levy would be invalid.‟

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12. A taxing statute, however, enjoys a greater latitude. An inference in regard to contravention of Article 14 would, however, ordinarily be drawn if it seeks to impose on the same class of persons or occupations similarly situated or an instance of taxation which leads to inequality. The taxing event under the Andhra Pradesh State Entertainment Tax Act is on the entertainment of a person. Rate of entertainment tax is determined on the basis of the amount collected from the visitor of a cinema theatre in terms of the entry fee charged from a viewer by the owner thereof.

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13. It is, thus, beyond any pale of doubt that the justiciability of particular notification can be tested on the touchstone of Article 14 of the Constitution. Article 14, which is treated as basic feature of the Constitution, ensures equality before the law or equal protection of laws. Equal protection means the right to equal treatment in similar circumstances, both in the priviliges conferred and in the liabilities imposed. Therefore, if the two persons or two sets of persons are similarly situated/placed, they have to be treated equally. At the same time, the principle of equality does not mean that every law must have universal

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application for all persons who are not by nature, attainment or circumstances in the same position. It would mean that the State has the power to classify persons for legitimate purposes. The legislature is competent to exercise its discretion and make classification. Thus, every classification is in some degree likely to produce some inequality but mere production of inequality is not enough. Article 14 would be treated as violated only when equal protection is denied even when the two persons belong to same class/category. Therefore, the person challenging the act of the State as violative of Article 14 has to show that there is no reasonable basis for the differentiation between the two classes created by the State. Article 14 prohibits class legislation and not reasonable classification.

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14. What follows from the above is that in order to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differential which distinguishes persons or things that are grouped together from others left out of the group and (ii) that, that differential must have a rational relation to the object sought to be achieved by the statute in question. If the government fails to support its action of classification on the touchstone of the principle whether the classification is reasonable having an intelligible differentia and a rational basis germane to the purpose, the classification has to be held as arbitrary and discriminatory. In Sube Singh v. State of Haryana : (2001) 7 SCC 545 , this aspect is highlighted by the Court in the following manner: „10. In the counter and the note of submission filed on behalf of the appellants it is averred, inter alia, that the Land Acquisition Collector on considering the objections filed by the appellants had recommended to the State Government for exclusion of the properties of appellants 1 and 3 to 6 and the State Government had not accepted such recommendations only on the ground that the constructions made by the appellants were of 'B' or 'C' class and could not be easily amalgamated into the developed colony which was proposed to be built. There is no averment in the pleadings of the respondents stating the basis of classification of structures as 'A' 'B' and 'C' class, nor is it stated how the amalgamation of all 'A' class structures was feasible and possible while those of 'B' and 'C' class structures was not possible. It is not the case of the State Government and also not argued before us that there is no policy decision of the Government for excluding the lands having structures thereon from acquisition under the Act. Indeed, as noted earlier, in these cases the State Government has accepted the request of some land owners for exclusion of their properties on this very ground. It remains to be seen whether the purported classification of existing structures into 'A', 'B' and 'C' class is a reasonable classification having an intelligible differential and a rational basis germane to the purpose. If the State Government fails to support its action on the touchstone of the above principle then this decision has to be held as arbitrary and discriminatory. It is relevant to note here that the acquisition of the lands is for

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the purpose of planned development of the area which includes both residential and commercial purposes. That being the purpose of acquisition it is difficult to accept the case of the State Government that certain types of structures which according to its own classification are of 'A' class can be allowed to remain while other structures situated in close vicinity and being used for same purposes (residential or commercial) should be demolished. At the cost of repetition, it may be stated here that no material was placed before us to show the basis of classification of the existing structures on the land proposed to be acquired. This assumes importance in view of the specific contention raised on behalf of the appellants that they have pucca structures with R.C. roofing, Mozaic flooring etc. No attempt was also made from the side of the State Government to place any architectural plan of different types of structures proposed to be constructed on the land notified for acquisition in support of its contention that the structures which exist on the lands of the appellants could not be amalgamated into the plan.

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15. The question, therefore, that arises is as to whether the two categories, one mentioned in Notification No. 386/86-CE dated 20.08.1986, which is given the benefit and removal of the second category, which was initially granted same benefit vide Notification No.102/87-CE dated 27.03.1987, is discriminatory. To put it otherwise, we have to see as to whether the two categories are identical or there is a reasonable classification based on intelligible differentia which has nexus with some objective that is sought to be achieved. The test in this behalf that is to be applied can again be culled out from the judgment in Aashirwad's case : (2007) 6 SCC 624 . It is summarized in para 14, after taking note of various earlier judgments. This para reads as under:

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„14. It has been accepted without dispute that taxation laws must also pass the test of Article 14 of the Constitution of India. It has been laid down in a large number of decisions of this Court that a taxation statute for the reasons of functional expediency and even otherwise, can pick and choose to tax some. Importantly, there is a rider operating on this wide power to tax and even discriminate in taxation that the classification thus chosen must be reasonable. The extent of reasonability of any taxation statute lies in its efficiency to achieve the object sought to be achieved by the statute. Thus, the classification must bear a nexus with the object sought to be achieved. (See Moopil Nair v. State of Kerala : AIR 1961 SC 552, East India Tobacco Co. v. State of A.P.: AIR 1962 SC 1733, N. Venugopala Ravi Varma Rajah v. Union of India : (1969) 1 SCC 681 : AIR 1969 SC 1094, Asstt. Director of Inspection Investigation v. A.B. Shanthi : (2002) 6 SCC 259 : AIR 2002 SC 2188 and Associated Cement Companies Ltd. v. Govt. of A.P. :(2006 ) 1 SCC 597 : AIR 2006 SC 928).’

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16. In the present case, we find that the two Notifications both dated 27.03.1987 pertain to same

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goods namely those falling under Headings 72.15 and 73.09 of the second Schedule to the Act. Customs duty is leviable on these goods under Section 3 of the Customs Tariff Act. The said duty can be paid under any of the two methods. When two methods are permissible under the statutory scheme itself, obviously option is that of the assessee to choose in all those methods to pay the custom duty. Duty, thus, paid is to be naturally treated as validly paid. Merely because with the adoption of one particular method the duty that becomes payable is lesser would not mean that two such persons belong to different categories. The important factors for the purposes of parity are same in the instant case, viz. the goods are same; they fall under the same Heading and the custom duty is leviable as per the Act which has been paid. Therefore, the impugned Notification giving exemption only to those persons who paid a particular amount of duty, namely Rs.1,400/- per LDT, would not mean that such persons belong to a different category and would be entitled to exemption and not other persons like the respondent herein who paid the duty on the same goods under the same Act but on the formula which he opted and which is permissible, which rate of duty comes to Rs.1,035/- per LDT.

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17. It is also important to bear in mind that the appellants have not supported the withdrawal of exemption by any cogent explanation. The High Court has noted, and rightly so, that Ground C was taken by the respondent in the writ petition specifically urging that no rational policy is mentioned for creating two different classes and no reply to this was given by the appellants even in the counter affidavit filed to the said petition. On the other hand, the specific case made out by the respondent was that the purpose behind Notification No.146/86-CE dated 01.03.1986 and Notification No.386/86-CE dated 20.08.1986 was to treat the ships imported on or before 28.02.1986 differently and to avoid double taxation and additional duty equivalent to excise duty. For this reason, exemption notification became necessary which provided exemption from excise duty. It was argued that the withdrawal of the exemption duty in the cases like that of the respondent amounted to double taxation. Even this could not be refuted by the appellants.

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18. We are conscious of the principle that the difference which will warrant a reasonable classification need not be great. However, it has to be shown that the difference is real and substantial and there must be some just and reasonable relation to the object of legislation or notification. Classification having regard to microscopic differences is not good. To borrow the phrase from the judgment in Roopchand Adlakha v. D.D.A. : (1989) 1 Supp. SCC 116 : „To overdo classification is to undo equality.‟

¶260

19. We are also conscious of the principle that in the field of taxation, the Legislature has an extremely wide discretion to classify items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes [See Secretary to Govt. of Madras v. P.R. Sriramulu : (1996) 1 SCC 345 ]. However, at the same time, when a substantive unreasonableness is to be found in a taxing statute/notification, it may have to be declared

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unconstitutional. Although the Court may not go into the question of a hardship which may be occasioned to the tax payers but where a fair procedure has not been laid down, the validity thereof cannot be upheld. A statute which provides for civil or evil consequences must conform to the test of reasonableness, fairness and non-arbitrariness.

¶264

20. In State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd. : (2007) 10 SCC 342, this aspect is succinctly brought about as is apparent from the following passages in that judgment:

¶265

“15. The learned counsel appearing for the State relying heavily on Kerala Hotel and Restaurant Assn. v. State of Kerala : (1990) 2 SCC 502 , contended that the State has widest latitude where measures of economic and fiscal regulation are concerned. There is no dispute on this principle of law as enumerated in the aforesaid decision of this Court. However, this same law must not be repugnant to Article 14 of the Constitution i.e. it must not violate the right to equality of the people of India, and if such repugnancy prevails then, it shall stand void up to the level of such repugnancy under Article 13(2) of the Constitution of India. Therefore, every law has to pass through the test of constitutionality, which is nothing but a formal name of the test of rationality. We understand that whenever there is to be made any type of law for the purpose of levying taxes on a particular commodity or exempting some other commodity from taxation, a sought of classification is to be made. Certainly, this classification cannot be a product of blind approach by the administrative authorities on which the responsibility of delegated legislations is vested by the Constitution. In a nutshell, the notifications issued by the Trade Tax Department of the State of U.P., dated 10.04.1995 and 15.05.1995 lack the sense of reasonability because it is not able to strike a rational balance of classification between the items of the same category. As a result of this, NPK 23:23:0 is not given exemption from taxation whereas all other NPK fertilisers of the same category like that of NPK 20:20:0 are provided with the exemption from taxation.

¶266

16. The reasonableness of this classification must be examined on the basis, that when the object of the taxing provision is not to tax the sale of certain chemical fertilisers included in the list, which clearly points out that all the fertilisers with the similar compositions must be included without excluding any other chemical fertiliser which has the same elements and compositions. Thus, there is no reasonable nexus of such classification among various chemical fertilisers of the same class by the state. This court in Ayurveda Pharmacy : (1989) 2 SCC 285 , held that two items of the same category cannot be discriminated and where such a distinction is made between items falling in the same category it should be done on a reasonable basis, in order to save such a classification being in contravention of Article 14 of the Constitution of India.”

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21. It was contended by the learned senior counsel for the appellants that purpose was to give exemption only to those who paid custom duty at Rs.1,400/- per LDT and since the duty paid by the respondent herein was lesser in amount, respondent could not ask for exemption. That may be so. In such a case, the only option to bring parity was to demand duty on differential amount, which was even contended by the respondent herein. That provision should have been incorporated to save the impugned Notification from the vice of arbitrariness. In fact, that would bring both the sub-categories completely on a par. Thus, while upholding the view taken by the High Court, we modify the same only to the extent that the respondent herein shall also be entitled to the benefit of the exemption notification subject to the condition that the duty already paid by the respondent herein on LDT, would be taken into account and only the balance out of it would be subject to excise duty.”

¶270

[Emphasis added]

¶271

[23] The same principle has been stated by the apex court in Dr. Subramanian Swamy vs. Director, Central Bureau of Investigation & Anr., reported in (2014) 8 SCC 682 . Even Gauhati High Court in Makum Tea Co. (India) Ltd. vs. State of Assam, reported in ( 1997) 1 GLR 138 has observed likewise. In Makum Tea Co. (India) Ltd. (supra) the Gauhati High Court has laid down as under:

¶272

“17. Under section 27 of the Act, the Government, the Government companies and the public companies are under obligation to deduct tax at source and deposit it to the Government in the manner prescribed therein. Mr. Goswami in this connection has drawn my attention to the piece of legislation prior to the enactment of the Act. Under the previous Act the Government was empowered to notify the authority or persons who were to deduct tax at source. Pursuant to the provisions of the earlier legislation, notification had been issued by the Government. As per the said notification two categories of persons were required . to deduct tax at source viz the Government and Government companies. But the present legislation has also include 'the public companies'. Now the 'public companies' are also under obligation to deduct tax at fcource and deposit it to the Government in the manner prescribed therein. Referring to this piece of legislation, Mr. Goswami submits that the present petitioners have challenged the inclusion of the 'public companies' on the ground that there was no reasonable classification. Object of deduction of tax at source has clearly been mentioned in the statutes. This object is to avoid evasion of tax. The Government and the

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Government companies are required to deduct tax. Mr. Goswami, however, has not made any submission as to whether the obligation of the Government and the Government companies to deduct tax at source and deposit it to the Government as mentioned in section 27 of the Act was illegal as there was no reasonable classification between the public companies and private companies or individual or HUF. While making his submission Mr. Goswami has indicated that though he has nothing to say in respect of Government and Government companies, nevertheless he submits that it may be because that sales tax was to be received by the Government and the Government is also under statutory obligation to pay sales tax. Instead of giving the tax to the Department and taking back by the Government may be an unnecessary and cumbersome procedure. Therefore, in all probability, Mr. Goswami submits that it would be expedient to deduct tax at source. Similar is the case with Government companies. This classification may be reasonable. But Mr. Goswami submits that there was no such differentiation between private companies or HUF or individual and public companies. A copy of the amending Act, was also produced before me. The statement and object of the said piece of legislation does not indicate why and how the public company can be differentiated with private company, HUF or individual, because the object of deduction of tax is to safeguard the tax collection, so that there may not be evasion of tax. As already held by the Supreme Court whenever a group is distinguished from other, though they are similarly situated, it must indicate why such distinction is made. I do not find any intelligible classification between 'public company' and 'private company or HUF or individual' as these are situated similarly. Therefore, in my opinion, the section 27 of the Act, so far public company is concerned is violative of Article 14 of the Constitution and liable to be struck down.”

¶276

[Emphasis added]

¶277

[24] Mr. Gulati, learned senior counsel has, therefore, strongly contended that Section 10(3) (a) and Section 10(3) (b) of the TVAT Act is violatitve of Article 14 of the Constitution of India inasmuch as no intelligible differentia or no reason how to achieve the object for which the classification has been made has been provided by the respondents and as consequence, this court may strike down the said sub sections of Section 10 of the TVAT Act as ultra vires the Constitution of India. As corollary thereof, this Court may also quash the impugned assessment orders and demand notices therefrom. Mr. Gulati, learned senior counsel has

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however has submitted that the petitioner-company shall not insist on the challenge based on the Article 301 of the Constitution of India inasmuch as TVAT Act has got the Presidential Assent on 30.03.2005.

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[25] Mr. Todi, learned senior counsel appearing for the respondents at the beginning has submitted that TVAT Act was passed by Tripura Legislative Assembly and assented by the President of India on 02.04.2005 whereas the CST Act was passed by the Parliament. CST Act makes a distinction between sale and stock transfers of goods [which are not sale as per provision contained in Sections 6 & 6(A) of the CST Act]. In terms of Section 6 of the CST Act all sales effected by a dealer in the course of interstate trade and commerce are attracted by CST Act and the dealer is liable to pay CST. But on the movement of goods, one State to another which is occasioned by reason of transfer of such goods to his agent or principal not by reason of sale, the dealer is not liable to pay tax. TVAT Act has made distinction between the sales made in the course of interstate trade and commerce from the State of Tripura and the stock transfer made to the other States from the State of Tripura and thus, Input Tax Credit is denied in respect of the goods purchased in the State of Tripura and sold in course of the interstate trade and commerce when the Input Tax Credit has been made available for the stock transfer on consignment basis. While dealing with the allegation of hostile discrimination for denying the

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Input Tax Credit to the interstate trade and commerce or providing the benefit to the similarly situated ‘equals’ for stock transfer, Mr. Todi, learned senior counsel has stated that the allegations made in the context that such classification is illogical, unfair, unjust and is hit by the equalative clause under Article 14 Constitution of India and thereby the provisions of Section 10(3)(a) and Section 10(3)(b) of the TVAT Act is liable to be declared ultravires and consequently struck down are not based on sound legal proposition. Mr. Todi, learned senior counsel has contended that in Abhisar Buildwell Private Limited (supra) where the Input Credit Tax was denied, the Division Bench of this High Court has held that the interstate sale has been excluded from the benefit of Input Tax Credit and it has further held that when the language of the legislation is clear the court cannot do violence to the language and misinterpret it in such a manner that the purport of legislation is defeated. Mr. Todi, learned senior counsel has referred a part of the said judgment which this court reproduced from the decision of the apex court in M/s. Polestar Electronic (Pvt.) Ltd. vs. Additional Commissioner, Sales Tax and another, reported in (1978) 1 SCC 636. For purpose of

¶285

reference, that part is extracted hereunder:

¶286

“If the language of a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver. It would not be right to refuse to place on the language of the statute the plain and natural meaning which it must bear on the ground that it produces a consequence which could not have been intended by the legislature. It is only from the language of the statute that the intention of the Legislature must be gathered, for the legislature means no more and no less than what it says. It is not permissible to the Court to speculate as to what the Legislature must have intended and then to twist or

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bend the language of the statute to make it accord with the presumed intention of the legislature.”

¶290

[Emphasis added]

¶291

[26] Mr. Todi, learned senior counsel has specifically stated that the petitioner-company has failed to explain how the dealer effecting inter-state sale is similarly situated or at par with the dealer who transfers goods on stock transfer, otherwise than the sale. The petitioner-company cannot be stated to be similarly situated or in the same class of their position is substantively same. When stock transfer and inter-state sale are all together on different in character, violation of Article 14 of the Constitution of India does not arise as there is no issue of discrimination amongst the equals. In order to claim discrimination under Article 14 of the Constitution of India two groups or persons shall be similarly circumstanced. In that premise only, it can be claimed that the equals have been treated unequally or that there has been violation of Article 14 of the Constitution of India.

¶292

[27] In this context, Mr. Todi, learned senior counsel has referred a decision of the apex Court in Pathumma And Others Vs. State Of Kerala And Others, reported in AIR 1978 SC 771 where a Constitutional Bench of the apex court had occasion to observe as under:

¶293

“It is well settled that before a person can claim to be discriminated against another he must show that all the other persons are similarly situate or equally circumstanced. The pleading of the appellant does not at all contain any facts to show how the two are similarly situate. Unless the appellant is able to establish that he is equated with the bona fide alienee in all and every respect. Article 14 will have no application.” [Emphasis added]

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It has been further observed in Pathumma (supra) as

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under:

¶298

“…… all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situations, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same."

¶299

[28] Mr. Todi, learned senior counsel has thereafter contended that the decisions relied by the petitioner-company are distinguishable on fact. The differential treatment does not mean violation of Article 14 of the Constitution of India unless their position is substantially the same. According to Mr. Todi, learned senior counsel in Makum Tea Company (supra) Section 27 of the Assam General Sales Tax Act was challenged being violative of Article 14 of the Constitution of India. Under Section 27 of the said Act every persons responsible for making any payment under that Section was subject to deduction of tax at source but the section made only public companies liable to deduct tax at source leaving aside ‘private company or HUF and individuals’. The petitioner-company challenged the provision as violative of Article 14 of the Constitution of India in that case for making the public company only liable to deduct the tax at source leaving aside the private company or HUF and individuals. The petitioner’s contention that equals were treated as unequal. Therefore, the provision contained in Section 27 making obligatory on the part of public companies to deduct tax at source etc. is arbitrary,

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unreasonable and without having nexus to the object sought to be achieved. Mr. Todi, learned senior counsel has submitted that the ratio from Makum Tea Companies Case cannot be applied in the present case inasmuch as the fact-situation is entirely different. In

¶303

East India Tobacco Company etc. vs. State of Andhra Pradesh, reported in AIR 1962 SC 1733 , according to Mr. Todi, learned senior counsel, one question arose before the Constitution Bench of the apex court for determination is that- is the impugned act repugnant to Article 14 for the reason that it singles out Virginia Tobacco from taxation? The point for consideration was whether there is in fact a real distinction between Virginia Tobacco and other tobacco viz. the country tobacco called ‘Nattu Tobacco’. If there is, then the act is valid, if not it must be held to be unconstitutional. It has been held that Virginia Tobacco has features which distinguish it from country tobacco and can be treated as a class in itself. It is, therefore, be within the power of the state to impose a tax on the sales of Virginia tobacco, exempting the country tobacco. To repel the charge of discrimination in taxing only Virginia Tobacco, not the country tobacco, it has been held sufficient merely to show that there are differences between two varieties but it was required to show further that the differential has reasonable relation to the object of the legislation. In this regard, the following decisions of the apex court are relied:

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(i) Budhan Choudhury vs. State of Bihar : AIR 1955 SC 191

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(ii) Ram Krishna Dalmia vs. S.R. Tendolkar : AIR 1958 SC 538

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For purpose of reference, the following passages from

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East India Tobacco Company (supra), are extracted hereunder:

¶310

“5. It is argued for the appellants that to repel the charge of discrimination in taxing only Virginia tobacco and not the country tobacco, it is not sufficient merely to show that there are differences between the two varieties, but that it must further be show, as held in Budhan Choudhry v. State of Bihar , AIR 1955 SC 191 and Ram Krishna Dalmia v. S. R. Tendolkar : AIR 1958 SC 538 that the differential has reasonable relation to the object of the legislation. The differences between that Virginia tobacco and the country tobacco, as found by the learned Judges are not, it is argued, germane to the levy of sales tax, & so there is no valid classification. We are unable to agree with this contention. If a state can validly pick and choose one commodity for taxation and that is not open to attack under Art. 14, the same result must follow when the State picks out one category of goods and subjects it to taxation.

¶311

6. It should, in this connection, be remembered that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is well settled that this burden is all the heavier when the legislation under attack is a taxing statute. In taxation even more than in other fields it was observed by the Supreme Court of United States in Madden v. Kentucky, (1940) 309 U.S, 83, 84 Law Ed 590 „Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might, support it,‟. How wide the powers of the Legislature are in classifying objects for purposes of taxation will be seen from the following resume of the law given by Rottschaefer, in his „Constitutional Law‟ p. 668 :-

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„The federal Supreme Court has seldom held invalid any classification made in connection with the levying of property taxes. It has sustained the levy of a heavier burden of taxation upon motor vehicles using the public highways than that levied upon other forms of property, and the imposition of a heavier tax upon oil than upon other property. The equal protection clause does not prohibit the levy of a tax on ores which is not imposed upon similar interests in quarries, forests and other forms or wasting asset, nor even the imposition of a tax upon antracite that is no levied upon bituminous coal. A statute providing for the assessment of one type of intangible at its actual value while other intangibles are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax. The decisions of the Supreme Court in this field have permitted a State legislature to exercise an extremely wide discretion in classifying property for tax purposes so long as it refrained from it clear and hostile

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discrimination against particular persons or classes.‟

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7. A decision near to the present case on the facts is C. Heisler v. Thomas Colliery Company : (1922) 260 U. S. 245: 67 Law Ed 237 . There the question was whether a law imposing a tax on Anthracite coal and not upon bituminous coal was unconstitutional as violating the equal protection of laws guaranteed by the 14^th Amendment to the Federal Constitution. In upholding the validity of the law, justice Mekenna observed as follows:

¶317

„The fact of competition may be accepted. Both coals, being compositions of carbon are of course capable of combustion and may be used as fuels but under different conditions and manifestations and the difference determines a choice between them even as fuels. By disregarding that difference & the greater ones which exist and by dwelling on competition alone, it is easy to erect an argument of strength against the taxation of one and not of the other. But this may not be done. The differences between them are a just basis for their different classification; and the differences are great and important. They differ even as fuels, they differ fundamentally in other particulars. Anthracite coal has no substantial use beyond a fuel; bituminous coal has other uses. Products of utility are obtained from it. The fact is not denied and the products are enumerated and the extent of their use. They are therefore incentives to industries that the State in natural policy might well hesitate to obstruct or burden and to yield to the policy or consider it is well within the concession of the power of the State expressed in the cases we have cited. The distinction in the treatment of the respective coals being within the power conceded by the cases to the State it as logical and legal justification and is necessarily, not unreasonable or arbitrary.‟

¶318

8. In our judgment the differences which exist between the Virginia and 'Natu' country tobacco, as found by the learned Judges, are materials on which the State could treat Virginia tobacco as forming a class by itself for purpose of taxation, and the impugned legislation must be held to be not obnoxious to Art. 14 of the Constitution.”

¶319

[Emphasis held]

¶320

[29] Mr. Todi, learned senior counsel has contended having reference to Tata Iron and Steel Company Ltd. vs. State of Bihar & others, reported in (1999) 114 STC 434 that in the federal structure of our country each state as per Entry. 54, List 2 of Seventh Schedule of the Constitution has been granted liberty to enact its taxation laws and thus, while doing so the

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State is well within its jurisdiction when the classification is based upon rational grounds. The only care to be taken is that in the Act itself there should not be any discrimination against the class of persons situated similarly. In Tata Iron and Steel Company Ltd. (supra), it has been observed as under:

¶324

“13. Equal protection guaranteed under Article 14 of the Constitution only speaks of equal protection amongst the persons and class of persons of the same category. Thus, what Article 14 of the Constitution prohibits is unequal treatment to the persons similarly situated meaning thereby that the traders of a particular State cannot be and should not be discriminated. The words occurring in Article 14 of the Constitution „within the territory of India‟ in this context may not be narrowly construed as it does not mean that there should be only one and uniform law, rule, order or by-laws throughout all the States comprised within the Union Territory while enacting the taxing laws.

¶325

14. If the taxing statues have been enacted in accordance with the legislative competence and relevant entry made in the State List of the Seventh Schedule to the Constitution by different States and on a similar matter when taxes are imposed under two different sets of law in different States discrimination envisaged under Article 14 of the Constitution has no application in the matter of taxation laws. In this regard it is needless to say that in construing taxing statute, the courts permit greater latitude to the discretion of the Legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rate for taxation, of course, if it does so reasonably. In this regard the courts view the law relating to economic activities with greater latitude than other matters. This is what has been recently held in celebrated case on the subject in the case of Mafatlal Industries Ltd. vs. Union of India : (1997) 5 SCC 536 .”

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[Emphasis added]

¶327

[30] Mr. Todi, learned senior counsel has summarized his submission contending that the taxing statute has been enacted in conformity to the legislative competence. In this case, the competence is not under challenge. As such, ‘discrimination’ as envisaged under Article 14 of the Constitution of India has no manner of application when taxes imposed or not imposed under

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two different sets of law in different states. Mr. Todi, learned senior counsel has emphatically submitted that the petitionercompany has failed to show absence of any rational basis for making distinction between two sets of transactions i.e. interstate sale and stock transfer by consignment and export.

¶331

[31] Mr. B.C. Das, learned Advocate General has at the outset stated that the averments in the writ petition are based on fact that while the dealers making stock transfer of goods purchased within the State of Tripura are given Input Tax Credit but the same is not allowed to the dealers making sale in the course of inter-state commerce, although there is no distinction between these two categories of transactions so far the basis of grant of Input Tax Credit is concerned. Further, the petitionercompany has, in sequel, contended that the dealers of those two transactions are similarly situated and hence, denial of Input Tax Credit to the dealer making inter-state sale of good, in the similar backdrop, is hit by Article 14 of the Constitution as the differential is not intelligent and it has no nexus or relation with the object as stated to be achieved.

¶332

[32] Mr. Das, learned Advocate General has raised a serious objection contending that Section 10(3) (a) and Section 10(3) (e) of the TVAT Act deal with to whom Input Tax Credit can be granted and thus, ‘the impugned statutory provisions are not attracted in the fact-situation of the case for determination of their validity.’ He has submitted that if the said clause is set aside

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that may disentitle the other dealers from Input Tax Credit but that would not entitle the petitioner-company to claim Input Tax Credit in that event and in that respect, his assessment order could not be quashed. In sum and substance, even if the statutory provisions as challenged are struck down, the petitioner-company will not be entitled to any relief as his assessment cannot be quashed on that ground. In such a case, deciding the constitutional validity is purely an academic exercise and hence, the court should be reluctant to decide constitutional validity. In support of his contention, Mr. Das, learned Advocate General has referred a decision in State of Bihar vs. Rai Bahadur Hurdut

¶336

Roy Moti Lall Jute Mills And Another, reported in AIR 1960 SC 378, where the apex court has recorded as under:

¶337

“7. On behalf of the appellant Mr. Lal Narain Sinha has contended that the High Court was in error in holding that the proviso to S. 14A violates either Art. 20(1) or Art. 31(2) of the Constitution. He has addressed us at length in support of his case that neither of the two articles is violated by the impugned proviso. On the other hand, the learned Solicitor-General has sought to support the findings of the High Court on the said two constitutional points; and he has pressed before us as a preliminary point of his argument that on a fair and reasonable construction, the proviso cannot be applied to the case of the first respondent. We would, therefore, first deal with this preliminary point. In cases where the vires of statutory provisions are challenged on constitutional grounds, it is essential that the material facts should first be clarified and ascertained with a view to determine whether the impugned statutory provisions are attracted; if they are, the constitutional challenge to their validity must be examined and decided. If, however the facts admitted or proved do not attract the impugned provisions there is no occasion to decide the issue about the vires of the said provisions. Any decision on the said question would in such a case be purely academic. Courts are and should be reluctant to decide constitutional points merely as matters of academic importance.”

¶338

[Emphasis added]

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[33] Mr. Das, learned Advocate General in order to nourish his preliminary objection has further referred a decision in M. B. Ramachandran vs. Gowramma and Others , reported in (2005) 10 SCC 25, where the apex court had occasion to observe as under:

¶342

“7. Shri M.S. Ganesh, learned senior counsel appearing on behalf of the appellant submitted before us that the dispute before the High Court in the Writ Petitions preferred by the Kudli Sringeri Maha Samsthanam, related to religious and charitable Inams and, therefore, in that context, the provisions of the Amendment Act of 1979 relating to the amendment of Mysore Act 18 of 1955, relating to abolition of religious and charitable Inams were challenged. In the Writ Petitions filed by the aforesaid Kudli Sringeri Maha Samsthanam, the validity of Mysore Act 1 of 1955 which was amended by Section 2 of the Amendment Act of 1979 was not in question. Yet, the High Court declared the entire Amendment Act to be ultra vires which was wholly unnecessary. In this context, he relied upon the decisions of this Court to the effect that in exercise of writ jurisdiction, while dealing with the vires of statutory provisions the Court must not decide issues which are merely academic. He has drawn our attention to the Judgment of this Court in State of Bihar vs. Rai Bahadur Hurdut Roy Moti Lall Jute Mills and another : AIR 1960 SC 378 wherein this Court observed :-

¶343

„In cases, where the vires of the statutory provisions are challenged on constitutional grounds, it is essential that the material facts should first be clarified and ascertained with a view to determine whether the impugned statutory provisions are attracted; if they are, the constitutional challenge to their validity must be examined and decided. If, however, the facts admitted or proved do not attract the impugned provisions there is no occasion to decide the issue about the vires of the said provisions. Any decision on the said question would in such a case be purely academic. Courts are and should be reluctant to decide constitutional points merely as matters of academic importance.‟

¶344

8. It is not disputed before us by the respondents that in the aforesaid Writ Petitions preferred by the Kudli Sringeri Maha Samsthanam, the issues involved related only to the amendments to Mysore Act 18 of 1955 which dealt with religious and charitable Inams and not with Mysore Act 1 of 1955 which dealt with abolition of personal Inams. There was, therefore, really no justification for the High Court to quash the entire Amendment Act. It was further submitted by Shri Ganesh that even though the State came up in appeal before this Court, the appeal was disposed of without going into the question of the validity of the Amendment Act of 1979. That was left open to be considered in an appropriate case. He further submits that in these appeals that question may be gone into

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and decided. He, however, submitted that the appellant is not interested in challenging the validity of the Amendment Act in so far as it amends the Mysore Act 18 of 1955 because his appeals do not relate to religious or charitable Inams. His case being one relating to personal Inam, is governed by Mysore Act 1 of 1955 as amended by the Amendment Act of 1979. Since the validity of Mysore Act of 1 of 1955 was not in issue in the Writ Petitions filed by the Kudli Sringeri Maha Samsthanam, the High Court really exceeded its jurisdiction in quashing the entire Amendment Act of 1979. The High Court ought to have confined its declaration to the amendment of the Mysore Act 18 of 1955 which was amended by Section 3 of the Amendment Act.”

¶348

[Emphasis added]

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[34] Mr. B.C. Das, learned Advocate General has further submitted that always there is presumption in favour of constitutionality of the statute. This is based on the assumption that the legislature understands and appreciates the needs of the people and its laws are directed to problems located from the experience. It is the burden of the person who attracks it to show that there had been a clear digression of constitutional principles unless it becomes clear that the legislation in question has transgressed the limit laid down by the organic law of constitution, it shall be allowed to stand as the true expression of the people’s will. In this Regard, Mr. Das, learned Advocate General has drawn attention of this court to a decision of the apex court in Union of India vs. Elphinstone Spinning And

¶350

Weaving Co. Ltd. And Others , reported in (2001) 4 SCC 139,

¶351

where the apex court has enunciated the position of law as under:

¶352

“9. A statute is construed so as to make it effective and operative. There is always a presumption that the legislature does not exceed its jurisdiction and the burden of establishing that the legislature has transgressed constitutional mandates, such as those relating to fundamental rights is always on the person who challenges its vires. Unless it becomes clear beyond reasonable doubt that the legislation in

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[62]

¶355

question transgresses the limits laid down by the orga nic law of the Constitution it must be allowed to stand as the true expression of the national will - Shell Company of Australia v. Federal Commissioner of Taxation : 1931 AC 275 (Privy Council). The aforesaid principle, however, is subject to one exception that if a citizen is able to establish that the legislation has invaded its fundamental rights then the State must justify that the law is saved. It is also a cardinal rule of construction that if one construction being given statute will become ultra vires the powers of the legislature whereas on another construction which may be open, the statute remains effective and operative then the Court will prefer the latter, on the ground that the legislature is presumed not to have intended an excess of jurisdiction. In Sanjeev Coke Manufacturing Company v. M/s. Bharat Coking Coal Limited (1983) 1 SCC 147, the Constitution Bench speaking through Chinnappa Reddy, J. had observed, in the context of interpretation of the provisions of Coking Coal Mines (Nationalisation) Act, 1972 that the Court is not concerned with the statements made in the affidavits filed by the parties to justify and sustain the legislation. The deponents of the affidavits filed into the Court may speak for the parties on whose behalf they swear to the statements. They do not speak for Parliament. No one may speak for Parliament and Parliament is never before the Court. After Parliament has said what it intends to say, only the Court may say what the Parliament meant to say. None else. Once a statute leaves Parliament House, the Court is the only authentic voice which may echo the Parliament. This the Court will do with reference to the language of the statute and other permissible aids. The executive Government may place before the Court their understanding of what Parliament has said or intended to say or what they think was Parliament's object and all the facts and circumstances which in their view led to the legislation. When they do so, they do not speak for Parliament. No Act of Parliament may be struck down because of the understanding or misunderstanding of parliamentary intention by the executive Government or because their spokesmen do not bring out relevant circumstances but indulge in empty and self-defeating affidavits. They do not and they cannot bind Parliament. Validity of legislation is not to be judged merely by affidavits filed on behalf of the State, but by all the relevant circumstances which the Court may ultimately find and more especially by what may be gathered from what the legislature has itself said. In the facts of that case the Court had held (at SCC p. 166, Para-19) that:

¶356

„We do not entertain the slightest doubt that the nationalisation of the coking coal mines, and the specified coke oven plants for the above purpose was towards securing that „the ownership and control of the material resources of the community are so distributed as best to subserve the common good‟

¶357

and that there has been no discrimination or infringement of Article 14 of the Constitution (SCC p.173, Para-25). Justice A. N. Sen in his separate judgment also agreed with the ultimate conclusion of Chinnappa Reddy, J and had said that there was logical basis for the nationalisation of the 4 oven plants of the petitioners, leaving out

¶358

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¶360

a few and I am not satisfied that there has been any wrong and arbitrary discrimination of Article 14 of the Constitution. While examining the constitutional validity of the special Courts Bill on the anvil of Article 14 of the Constitution, after an exhaustive review of all the decisions bearing on the question, in ( 1979) 1 SCC 380 : (AIR 1979 SC 478) , it was held as follows :-

¶361

„(3) The constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The Courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classification in any given case. Classification is justified if it is not palpably arbitrary.

¶362

(4) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same.

¶363

¶364

(6) The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive.

¶365

(7) The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act.‟

¶366

10. In Doypack System Pvt. Ltd. v. Union of India: (1988) 2 SCC 299 , the Court had observed that when the constitutionality of a legislation is being assailed before a Court it is the collective will of the Parliament with which the Court is concerned. No officer of the department can speak for the Parliament. The

¶367

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¶368

[64]

¶369

interpreter of the statute must take note of the well known historical facts. In conventional language the interpreter must put himself in the armchair of those who were passing the Act i.e. the Members of the Parliament. It is the collective will of the Parliament with which we are concerned. The aforesaid observation had been made in the context of an argument sought for by the petitioner for production of certain documents to ascertain the question whether the shares vested in the Government or not? 11. In Bearer Bonds' case (1981) 4 SCC 675, this Court held that it is a rule of equal importance that laws relating to economic activities should be viewed with greater latitude than law touching civil rights, such as freedom of speech, religion etc. The Court observed that (SCC pp. 690-91, Para 8) :-

¶370

„It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey vs. Doud : 354 US 457 where Frankfurter, J. said in his intimitable style :

¶371

In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.

¶372

The Court must always remember that „legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry;‟ „that exact wisdom and nice adaption of remedy are not always possible‟ and that „judgment is largely a prophecy based on meagre and un-interpreted

¶373

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¶374

[65]

¶375

experience‟. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The Courts cannot, as pointed cut by the United States Supreme Court in Secretary of Agriculture v. Central Roig Refining Company : (1950) 94 L Ed 381 be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.‟

¶376

12. In Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar : (AIR 1958 SC 538) this Court held :

¶377

**„(a) *** *** *****

¶378

(b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles;

¶379

(c) that it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds;

¶380

(d) that the legislature is free to recognise degrees of harm and may confine its

¶381

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¶382

[66]

¶383

restrictions to those cases where the need is deemed to be the clearest;

¶384

(e) that in order to sustain the presumption of constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation.‟

¶385

13. In the case of Superintendent and Remembrancer of Legal Affairs, West Bengal v. Girish Kumar Navalakha, (1975) 4 SCC 754 :, this Court held:

¶386

„The preamble provides the key to the general purposes of the Act. That purpose is the regulation of certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion in the economic and financial interest of India. The general purpose or object of the Act given in the preamble may not show the specific purpose of the classification made in Section 23(1)(a) and Section 23(1-A). The Court has therefore to ascribe a purpose to the statutory classification and co-ordinate the purpose with the more general purpose of the Act and with other relevant Acts and public policies. For achieving this the Court may not only consider the language of Section 23 but also other public knowledge about the evil sought to be remedied, the prior law, the statement of the purpose of the change in the prior law and the internal legislative history. When the purpose of a challenged classification is in doubt, the Court attribute to the classification the purpose thought to be most probable. Instead of asking what purpose or purposes the statute and other materials reflect, the Court may ask what constitutionally permissible objective this statute and other relevant materials could plausibly be construed to reflect. The latter approach is the proper one in economic regulation cases. The decisions dealing with economic regulation indicate that Courts have used the concept of „purpose‟ and 'similar situations' in a manner which give considerable leeway to the Legislature. This approach of judicial restraint and presumption of constitutionality requires that the Legislature is given the benefit of doubt about its purpose. How far a Court will go in attributing a purpose which though perhaps not the probable is at least conceivable and which would allow the classification to stand depends to a certain extent upon its imaginative power and its devotion to the theory of judicial restraint.‟

¶387

The Court further held:

¶388

„It would seem that in fiscal and regulatory matters the Court not only entertains a greater presumption of constitutionality but also places the burden on the party challenging its validity to show that it has no reasonable basis for making the classification.‟ ”

¶389

[Emphasis added]

¶390

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¶391

[67]

¶392

[35] Mr. Das, learned Advocate General has asserted that the State has a wider discretion in selecting the persons and objects it will tax and the statute is not open to be challenged on the ground that it taxes on person or object and not others. The State is allowed to pick and choose districts, objects, persons, methods and even rates of taxation. Holmes, J. says that the legislature should be allowed some play in the joints because it has to deal with complex problems. Regarding the latitude that the State enjoyed in respect of the taxation, Mr. Das, learned Advocate General has relied on East India Tobacco Company

¶393

(supra) where the apex court has also observed as under :

¶394

“4. It is not in dispute that taxation laws must also pass the test of Art. 14. That has been laid down recently by this Court in Kunnathat Thathunni Moopil Nair v. State of Kerala : AIR 1961 SC 552 . But in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons on objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification that it would be violative of Art, 14. The following statement of the law in Willis on „Constitutional Law‟ page 587, would correctly represent the position with reference to taxing statutes under our Constitution:-

¶395

„A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably . . . . . .. . . . . . .. The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation.‟

¶396

In the light of these principles, we may now proceed to discuss whether the impugned Act is repugnant to Art, 14 of the Constitution. The point for consideration is whether there is in fact a real distinction between Virginia tobacco and other tobacco called country tobacco 'Natu' to-bacco. If there is, then the Act is valid, if not it must be held to be unconstitutional. The finding of learned Judges on this point is as follows :-

¶397

„Broadly, there are two types, Virginia and Natu, differing in taste, light, colour and

¶398

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¶399

[68]

¶400

texture . . . . . . There are obvious differences between the two categories of tobacco, in the nomenclature used in the process of growing, curing and grading, in the market facilities foreign and inland, in the price and in the variety of uses to which they are put and also the class of customers that take to them.‟

¶401

Thus it will be seen that Virginia tobacco has features which distinguish it from country tobacco, and can be treated as a class in itself. It will therefore be within the power of the State to impose a tax on the sales of Virginia tobacco while exempting the country tobacco.

¶402

5. It is argued for the appellants that to repel the charge of discrimination in taxing only Virginia tobacco and not the country tobacco, it is not sufficient merely to show that there are differences between the two varieties, but that it must further be show, as held in B udhan Choudhry v. State of Bihar : AIR 1955 SC 191 and Ram Krishna Dalmia v. S. R. Tendolkar : AIR 1958 SC 538 that the differential has reasonable relation to the object of the legislation. The differences between that Virginia tobacco and the country tobacco, as found by the learned Judges are not, it is argued, germane to the levy of sales tax, & so there is no valid classification. We are unable to agree with this contention. If a state can validly pick and choose one commodity for taxation and that is not open to attack under Art. 14, the same result must follow when the State picks out one category of goods and subjects it to taxation.

¶403

6. It should, in this connection, be remembered that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is well settled that this burden is all the heavier when the legislation under attack is a taxing statute. In taxation even more than in other fields‟ it was observed by the Supreme Court of United States in Madden v. Kentucky, (1940) 309 U. S, 83, 84 Law Ed 590 „Legislatures possess the greatest freeform in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might, support it.‟ How wide the powers of the Legislature are in classifying objects for purposes of taxation will be seen from the following resume of the law given by Rottschaefer, in his „Constitutional Law‟ p. 668 :-

¶404

„The federal Supreme Court has seldom held invalid any classification made in connection with the levying of property taxes. It has sustained the levy of a heavier burden of taxation upon motor vehicles using the public highways than that levied upon other forms of property, and the imposition of a heavier tax upon oil than upon other property. The equal protection clause does not prohibit the levy of a tax on ores which is not imposed upon similar interests in quarries, forests and other forms or wasting asset, nor even the imposition of a tax upon anthracite that is no levied upon bituminous coal. A statute providing for the assessment of one type of intangible at its actual value while other intangibles are assessed at their face value does not deny equal protection even when

¶405

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¶406

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¶407

both are subject to the same rate of tax. The decisions of the Supreme Court in this field have permitted a State legislature to exercise an extremely wide discretion in classifying property for tax purposes so long is it refrained from it clear and hostile discrimination against particular persons or classes.‟ ”

¶408

[36] Further, reliance has been placed on R.K. Garg vs.

¶409

Union of India and other, reported in ( 1981) 4 SCC 675 as the

¶410

apex court [per majority] has held as under:

¶411

“........When experience shows that the legislation as framed has proved inadequate to achieve its purpose of mitigating an evil or there are cracks and loopholes in it which are being taken advantage of by the resourcefulness and ingenuity of those minded to benefit themselves at the cost of the State or the others, the legislature can and most certainly would intervene and change The law. But the law cannot be condemned as invalid on the ground that after a period of ten years it may lend itself to some possible abuse.”

¶412

[From Para-8 of the above judgment]

¶413

“................................ It is obvious that the Act makes a classification between holders of black money and the rest and provides for issue of special bearer bonds with a view to inducing persons belonging to the former class to invest their unaccounted money in purchase of special bearer bonds, so that such money which is today Lying idle outside the regular economy of the country is canalised into productive purposes. The object of the Act being to unearth black money for being utilised for productive purposes with a view to effective social and economic planning, there has necessarily to be a classification between persons possessing black money and others and such classification cannot be regarded as arbitrary or irrational.”

¶414

“............The validity of a classification has to be judged with reference to the object of the legislation and if that is done, there can be no doubt that the classification made by the Act is rational and intelligible and the operation of the provisions of the Act is rightly confined to persons in possession of black money.”

¶415

[From Para-17 of the above judgment]

¶416

“The legislature had obviously only two alternatives: either to allow the black money to remain idle and unproductive or to induce those in possession of it to bring it out in the open for being utilised for productive purposes. The first alternative would have left no choice to the government but to resort to deficit financing or lo impose a heavy dose of taxation. The former would have resulted in inflationary pressures affecting the vulnerable sections of the society while the latter would have increased the burden on the

¶417

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¶418

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¶419

honest tax payer and perhaps led to greater tax evasion. The legislature therefore decided to adopt the second alternative of coaxing persons in possession of black money to disclose it and make it available to the government for augmenting its resources for productive purposes and with that end in view enacted the Act providing for issue of special bearer bonds.”

¶420

[From Para-18 of the above judgment]

¶421

............................ “It would be outside the province of the court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse Fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would enter into the determination that it would be wise for the court not to hazard an opinion where even economists may differ. The court must while examining the constitutional validity of a legislation „be resilient, not rigid, forward looking, not static, liberal, not verbal‟ and the court must always bear in mind the constitutional proposition „that courts do not substitute their social and economic beliefs for the judgment of legislative bodies‟. The court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary.”

¶422

[From Para-19 of the above judgment]

¶423

[37] Finally, Mr. Das, learned Advocate General has submitted that in the present case, a conjoint reading of the provision of TVAT Act including Section 10(3)(a) and Section 10(3)(b) of the TVAT Act makes it clear that Input Tax Credit is permissible only in respect of sales or resale made within the State of Tripura and in respect of taxes collected payable under the TVAT Act. Sale in course of interstate commerce comes within the purview of CST Act and therefore, it has been kept out of the purview of benefit of Input Tax Credit. It is submitted that the transaction of stock transfer made outside the State of Tripura

¶424

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¶425

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¶426

and interstate sale are not similar but stands on two different footings. Article 14 of the Constitution of India postulates equal treatment to equals which means that there can be unequal treatment to unequals. When the transaction of stock transfer is made outside the State of Tripura by its nature it is distinctly different from the interstate sale. Article 14 of the Constitution does not require equal treatment to those transactions. Hence, there is no discrimination, to say least of hostile discrimination, as asserted by the petitioner-company. In order to nourish his submission, Mr. Das, learned Advocate General has relied on a few decision of the apex court which are referred hereunder.

¶427

In Twyford Tea Co. Ltd. and another vs. the

¶428

State of Kerala and another, reported in AIR 1970 SC 1133,

¶429

the apex court has enumerated the law as under:

¶430

“15. We may now state the principles on which the present case must be decided. These principles have been stated earlier but are often ignored when the question of the application of Article 14 arises. One principle on which our Courts (as indeed the Supreme Court in the United States) have always acted, is nowhere better stated than by Willis in his „Constitutional Law‟ page 587. This is how he put it:

¶431

„A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably .... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation.‟

¶432

This principle was approved by this Court in East Indian Tobacco Co. v. State of Andhra Pradesh : AIR 1962 SC 1733 at p. 1735). Applying it, the Court observed:

¶433

„If a State can validly pick and choose one commodity for taxation and that is not open to attack under Article 14, the same result must follow when the State picks out one category of goods and subjects it to taxation.‟

¶434

This indicates a wide range of selection and freedom in appraisal not only in the objects of taxation and the

¶435

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¶436

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¶437

manner of taxation but also in the determination of the rate or rates applicable. If production must always be taken into account there will have to be a settlement for every year and the tax would become a kind of income-tax.

¶438

16. The next principle is that the burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack. This was also observed in the same case of this Court at page 411 (of SCR) = (at p. 1735 of AIR) approving the dictum of the Supreme Court of the United States in Madden v. Kentucky : (1940) 309 US 83 = 84 Law Ed 590 :

¶439

„In taxation even more than in other fields, Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it.‟

¶440

As Rottschaefer said in his Constitutional Law at p. 668:

¶441

„A statute providing for the assessment of one type of intangible at its actual value while other intangibles are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax‟. The decisions of the Supreme Court in this field have permitted a State Legislature to exercise 'an extremely wide discretion' in classifying property for tax purposes 'so long as it refrained from clear and hostile discrimination against particular persons or classes'. (Emphasis (here in ' ') added).

¶442

The burden is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. It is not proved to us how the different plantations can be said to be 'hostilely or unequally' treated. A uniform wheel tax on cars does not take into account the value of the car, the mileage it runs, or in the case of taxis, the profits it makes and the miles per gallon it delivers. An Ambassador taxi and a Fiat taxi give different out-turns in terms of money and mileage. Cinemas pay the same show fee. We do not take a doctrinaire view of equality. The Legislature has obviously thought of equalising the tax through a method which is inherent in the tax scheme. Nothing has been said to show that there is inequality much less 'hostile treatment'. All that is said is that the State must demonstrate equality. That is not the approach. At this rate nothing can ever be proved to be equal to another.

¶443

17. There is no basis even for counting one tree as equal to another. Even in a thirty years' settlement, the picture may change the very next year for some reason but the tax as laid continues. Siwai income is brought to land revenue on the basis of number of trees but not on the basis of the produce. This is worked out on an average income per tree and not on the basis of the yield of any particular tree or trees.

¶444

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¶445

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¶446

18. What is meant by the power to classify without unreasonably discriminating between persons similarly situated, has been stated in several other cases of this Court. The same applies when the legislature reasonably applies a uniform rate after equalising matters between diversely situated persons. Simply stated the law is this: Differences in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differentially treated. When differential treatment is not reasonably explained and justified the treatment is discriminatory. If different subjects are equally treated there must be some basis on which the differences have been equalised otherwise discrimination will be found. To be able to succeed in the charge of discrimination, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa. However, in Khandige Sham Bhat v. Agricultural Income-tax Officer : AIR 1963 SC 591 at p. 594, it was observed:

¶447

„If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine: vide Purshottam Govindji Halai v. Shree B. N. Desai, : AIR 1961 SC 552 . But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of „wide range and flexibility‟ so that it can adjust its system of taxation in all proper and reasonable ways.‟ ”

¶448

[Emphasis added]

¶449

In M/s. Murthy Match Works, etc. etc. vs. the

¶450

Asst. Collector of Central Excise, etc., reported in AIR 1974

¶451

SC 497, the apex court has held that:

¶452

“15. Certain principles which bear upon classification may be mentioned here. It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not a discrimination. But classification can be sustained only if it is founded on pertinent and real difference as distinguished from irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the courts. If it rests of a difference which bears a fair and

¶453

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¶454

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¶455

just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly ever accomplished. In this context, we have to remember the relationship between the legislative and judicial departments of Government in the determination of the validity of classification. Of course, in the last analysis courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordinarily does not become a judicial question. A power to classify being extremely broad and based on deverse considerations of executive pragmatism, the judicature cannot rush in where even the legislature warily treads. All these operational restrints on judicial power must weigh more emphatically where the subject is taxation.”

¶456

[Emphasis added]

¶457

[38] As referred by Mr. Das, learned Advocate General in State of U.P. and another vs. Kamala Palace , reported in AIR 2000 SC 617 , the apex court has held as under:

¶458

“11. Article 14 does not prohibit reasonable classification of persons, objects and transactions by the Legislature for the purpose of attaining specific ends. To satisfy the test of permissible classification, it must not be „arbitrary, artificial or evasive‟ but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature. [See:- Re : Special Courts Bill (1979) 2 : SCR 476 : (AIR 1979 SC 478), 7 judges Bench ; R. K. Garg v. Union of India, (1981) 4 SCC 675 : (AIR 1981 SC 2138), 5 judges Bench]. It was further held in R. K. Garg's case that laws relating to economic activities or those in the field of taxation enjoy a greater latitude than laws touching civil rights such as freedom of speech, religion etc., Such a legislation may not be struck down merely on account of crudities and inequities inasmuch as such legislations are designed to take care of complex situations and complex problems which do not admit of solutions through any doctrinaire approach or straight - jacket formulas. Their Lordships quoted with approval the observations made by Frank Further, J. in Morey v. Doud : (1957) 354 US 457.

¶459

„In the utilities, tax and economic regulations cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to

¶460

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¶461

[75]

¶462

reconstruct. When these are added to the complexity of economic regulation, the uncertainly, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.‟

¶463

12. The Legislature gaining wisdom from historical facts, existing situations, matters of common knowledge and practical problems and guided by considerations of policy must be given a free hand to divise classes to whom to tax or not to tax, to whom to exempt or not to exempt and to whom to give incentives and lay down the rates of taxation, benefits or concessions. In the field of taxation if the test of Article 14 is satisfied by generality of provisions the Courts would not substitute judicial wisdom for the legislative wisdom.

¶464

13. In the case at hand it will be seen that at the point of time when the impugned provision was enacted, that is in the year 1992, there existed two classes of cinema owners : one, those who were receiving grant-in-aid under some incentive scheme enunciated by the State Government; and two, such cinema owners as were not receiving such grant-in-aid. It will be seen that the grant-in-aid schemes promulgated by the State Government were temporary schemes having a life span of three to five years which extended incentive depending on the population of the place where the cinema house was situated. It can be said, as was the plea raised before the High Court and also submitted by the learned Standing counsel for the State of U. P. before us, that the incentive was available on a staggered scale depending on the size of population catered to by the cinemas situated in rural areas. The incentive was by way of grant-in-aid equivalent to certain percentage of the quantum of entertainment tax collected by the cinema owner for the State Government. As a condition precedent to the entitlement for such grant-in-aid the cinema owners were subjected to a disability of not charging the fee for admission beyond a ceiling i.e., Rs. 2.50, later on revised to Rs. 5. Such cinema owners formed a class by themselves different and distinct from those cinema owners who were not receiving any grant in aid under an incentive scheme and/or were free to charge fee for admission without any restriction as to upper limit, i.e., their fee for admission to entertainment could be more than Rs. 2.50 or Rs. 5. Such classification is clear, well- defined and real. The object sought to be achieved was to encourage the cinema owners in boosting entertainment facilities available to the people. This was achieved by providing grant-in-aid under an incentive scheme to one class of cinema owners and by permitting recovery of certain amount by way of charges for maintenance to such another class of cinema owners as were not receiving any grant-in-aid. Thus it cannot be said that the classification had no nexus with the object sought to be achieved. The Full Bench has during the course of its judgment observed, and rightly in our opinion, that if the benefit conferred by the impugned amendment was made general, i.e., available to all the cinema owners then the cinema owners operating in rural area would have secured double benefit - one by way of grant-in-aid and other

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¶466

[76]

¶467

by way of recovering maintenance charges from the cinema-goers exempt from payment of entertainment tax and there is nothing wrong in the Legislature having chosen not to confer such double benefit on the cinema owners already enjoying benefit of an incentive scheme of the State Government. Moreover, it cannot be lost sight of that the incentive schemes releasing the grant-in-aid were optional. There was no compulsion on the cinema owners to opt for the incentive scheme and have the grant-in-aid released to them. Such option was available at the commencement of the scheme and remained available throughout. Such of the cinema owners as felt that the fixation of Rs. 2.50 or Rs. 5 as a ceiling on fee for admission was not beneficial to them and they would stand to benefit by opting out from the incentive scheme and availing the benefit of recovering charges for maintenance conferred by the 1992 amendment were always and at any time free to do so.”

¶468

[39] On appreciation of the rival contentions as projected by the learned counsel appearing for the parties as well as by the learned Advocate General, we are in agreement with the statement made by Mr. Das, learned Advocate General that if the Sections 10(3)(a) and 10(3)(b) of the TVAT Act dealing with Input Tax Credit are struck down that would disentitle the other dealers as well from getting Input Tax Credit. That Apart, that action will also not benefit the petitioner-company in getting the Input Tax Credit. The error of drafting as pointed by Mr. Gulati, learned senior counsel appearing for the petitioner-company in respect of reference made in the proviso below Section 10(6) of the TVAT Act that in respect of transaction falling under item (ix) Input Tax Credit on the tax paid in excess of 4% on the raw materials used directly in the manufacture of the finished products, we are in agreement that if the item (ix) as is appearing in the said proviso is not read substituting the same as item (xi) that would make Section 10(1) (d) of the TVAT Act otiose and inoperative. Hence,

¶469

W.P(C) No.234 of 2015 Page 76 of 87

¶470

[77]

¶471

in the proviso, item (ix) shall be read as item (xi) under Section 10(6) of the TVAT Act. As extracted above, sub Section 3(a) of Section 10 of the TVAT Act provides that Input Tax Credit shall be allowed for purchase of goods made within the State of Tripura from registered dealer holding a valid certificate of registration and which are intended for the purpose of sale or resale by him in the State of Tripura whereas clause (b) under sub Section 3 of Section 10 of the TVAT Act stands out that Input Tax Credit shall be allowed for purchase of goods made within the State of Tripura from a registered dealer holding a valid certificate of registration and which are intended for purpose of use raw materials or as capital goods in the manufacturing and processing of goods other than those exempted from tax under this Act intended for sale in the State of Tripura. There is no controversy as to the exclusion of sale in the course of interstate trade or commerce. At our direction, the State has produced the records of interactions and decisions of the Council of Ministers as regards finalization of the draft of the bill called ‘Tripura Value Added Sales Tax Bill, 2003’ under the File No.F.1-1(44)/TAX/2002. It appears from those records that for preparing the draft the model statute for Value Added Sales Tax as prepared by the National Institute of Public Finance and Policy, New Delhi, Model VAT Bill-2003 as prepared by Dr. B.R. Atre, Consultant to the Ministry of Revenue, Government of Tripura and various others states’ draft bills along with the Tripura Sales Tax Act, 1976 were taken into consideration. Even though regarding Input Tax Credit and its

¶472

W.P(C) No.234 of 2015 Page 77 of 87

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[78]

¶474

definition there was some discussion but so far the exclusion of the sale in the course of interstate trade or commerce, from the records we do not find any specific reference. At the primary stage, it was intended to define the Input Tax Credit as the tax paid or payable by a registered dealer to another registered dealer on purchase of goods in Tripura in the course of business for resale or for manufacture of the taxable goods or for use as containers or packing materials or for the execution of the work contract. Therefore, the legislative intent has to be gathered from the statutory provisions alone. The definition of Input Tax Credit as provided above has been adopted without any change as provided in the model statute for Value Added Sales Tax, 1998 [prepared by the National Institute of Public Finance and Policy, New Delhi]. The challenge is based on unreasonable and arbitrary classification. No doubt, the state has widest latitude where the measures of economic and fiscal regulations are concerned. There is no dispute on this principle of law but such law must not be repugnant to Article 14 of the Constitution. Every law has to pass through the test of constitutionality which is nothing but a formal name of the test of rationality. The reasonableness of the classification must be examined on the basis of the object of the taxing statute. In Ayurveda Pharmacy (supra) the apex court held that ‘two items’ of the same category cannot be discriminated and where such distinction is made between items falling in the same category it should be done on a reasonable basis, in order to save such a classification being contravention of Article 14 of the

¶475

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[79]

¶477

Constitution of India. According to the petitioner, the classification made under Section 10 of TVAT Act vis-à-vis the sale in the course of interstate trade or commerce does not have any rational or intelligible basis having regard to the object of providing Input Tax Credit. The classification is grossly irrational and would defeat the very object of providing Input Tax Credit. In this juncture, the statement of the learned Advocate General is required to be referred that purpose or object of giving Input Tax Credit is to accelerate industrialization in the State by way of setting up of manufacturing units.

¶478

[40] The preliminary questions as regards this controversy, as raised by the respondents hinges on the public policy of res judicata as the petitioner-company raised the similar grounds in challenging the assessment order by which the Input Tax Credit for sale in the course of interstate trade or commerce was not allowed by the assessing authority. There is no dispute that in the revision filed by the petitioner no challenge was thrown to the vires of Sections 10(3)(a) & (b) of the TVAT Act. In Nand Kishore (supra) it has been succinctly held that when a person enters a court for relief and does not challenge the constitutionality of the law governing the matters directly and substantially in issue it only means and implies that it goes by the presumption of constitutionality. He cannot for this be deemed to have raised the question of constitutionality and the question of constitutionality to have been decided against him or such matter

¶479

W.P(C) No.234 of 2015 Page 79 of 87

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[80]

¶481

has been directly and substantially in issue. In Madhvi Amma Bhawani Amma vs. Kunjikutty Pillai Meenakshi Pillai and

¶482

others, reported in (2000) 6 SCC 301, the apex court had clearly observed that in order to apply general principles of res judicata the court must find whether an issue in a subsequent suit was directly and substantially an issue in the earlier suit or proceeding, was in between the same parties and was it decided by such court. Even it has been further observed that ‘there should be an issue raised and decided not merely a finding on any incidental question for reaching such a decision’ . In view of the settled position of law, this Court is of the opinion that this petition is not barred under the public policy of res judicata inasmuch as the vires of the said provisions was not under challenge in the previous revision petition. Even in that proceeding the vires or constitutionality of those provisions could not have been challenged for jurisdictional limit.

¶483

[41] Mr. Todi, learned senior counsel appearing for the respondents has strenuously submitted that sale in the course of interstate trade or commerce falls within a well defined class in terms of various provisions of CST Act, 1956. In this regard, Section 3 of the CST Act may be referred. Section 3 provides that ‘a sale or purchase of goods shall be deemed to take place in the course of interstate trade or commerce, if the sale or purchase (a) occasions the movement of goods from one state to another; (b) is effected by a transfer of documents of title to the goods during

¶484

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[81]

¶486

their movement from one state to another.’ Two explanations appended below Section 3 of the CST Act provides further that (1) where goods are delivered to a carrier or bailee for transmission, the movement of the goods shall, for the purposes of clause (b) be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee and (2) where the movement of the goods commences and terminates in the same state it shall not be deemed to be a movement of goods from one state to another by reason merely of the fact that in the course of such movement the goods passed to the territory of any other state.

¶487

Clauses (a) & (b) of Section 3 are mutually exclusive. Clause (a) covers sale in movement of goods from one state to another, if the result of a covenant or the incident of the construct of sale and property in the goods passes in either state [the Tata Iron and Steel Company Ltd. vs. S.R. Sarkar : (1960) 11 STC 655 (SC) ].

¶488

[42] We have no difficulty in accepting the proposition as advanced by Mr. Todi, learned senior counsel appearing for the respondents that by characteristics sale in the course of interstate trade or commerce is different from other mode of sale or transactions, such as sale within the State, the sale outside the State, stock or consignment transfer or export outside the territory of the country. Further analogy as raised by Mr. Todi, learned senior counsel that as a matter of taxation policy, the

¶489

W.P(C) No.234 of 2015 Page 81 of 87

¶490

[82]

¶491

State may impose different tax or may extend the benefits differently for those separate class of transaction. If the language of a statue is clear and explicit it is only from the language of the statue the intention of the legislature be gathered. It is not permissible, as contended by Mr. Todi, learned senior counsel, to the court to speculate as to what the legislature must have intended and on such premise or to bend the language of the statue to make it accord with the presumed intention of the legislature. Here it is not a case that the object of extending Input Tax Credit is in controversy inasmuch as none has disputed the statement made by the learned Advocate General in respect of the object of extending such benefit. It is to encourage industrialization and setting up of manufacturing units in the State based on the raw materials produced in the State. Even Mr. Todi, learned senior counsel did not invest any word in this respect. The entire challenge is that the classification as made for excluding the sale in the course of interstate trade or commerce is unintelligible having regard to the object and thus, it is anathematical to Article 14 of the Constitution. There is no quarrel what has been observed in Pathumma (supra) that before a person can claim to be discriminated against another, he must show that all the other persons are similarly situate or equally circumstanced. There should be no discrimination between one person and another if as regards the subject matter of the legislation their position is substantially the same. Pathumma (supra) has provided the key words to weigh the intelligible differentia in respect of formation of

¶492

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[83]

¶494

class, are ‘the subject matter of legislation’. The classification is, therefore, required to be tested having regard to the subject matter of the legislation not in any other respect. Even if the mode of transaction is different, this by itself would not be sufficient to infer that the transaction since dissimilar cannot claim similar privileges to be conferred. Within the province of Section 10 of TVAT Act whereby the benefit of Input Tax Credit is provided, the formation of class for purpose of excluding the sale in the course of interstate trade or commerce has to be tested. According to the petitioner-company, such formation is unintelligible having regard to the object as declared and sought to be achieved. From plain reading of the provisions, it transpires that for purpose of encouraging industrialization, setting up of manufacturing units based on raw materials produced in the State and sale of local produce used in manufacturing process, the incentive has been visualized by the legislature. It is not in dispute that the petitioner-company has set up the manufacturing/processing unit in the State of Tripura.

¶495

[43] By a table below, a handy comparison has been made in respect of the various transactions relevant for Section 10 of the TVAT Act.

¶496

Nomenclature of transaction	Whether raw material (like latex) purchased on payment of VAT	Whether any tax (VAT or CST paid for sale of the finished product or resale)	Whether entitled to Input Tax Credit (VAT-CST)
Sale of finished product or resale within the State	Yes	Yes	Yes

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Export, outside the territory of the country	Yes	No	Yes
Stock or consignment transfer outside the State	Yes	No	Yes
Sale in the course of interstate trade or commerce	Yes	Yes, CST is paid	No

¶500

From the above comparison, it is clear that so far the object of extending Input Tax Credit is concerned, there is no basis to differently treat the sale in the course of interstate trade and commerce inasmuch as it is preceded by same sort of activity based on which other three transactions are treated at par for granting the benefit of Input Tax Credit. It is on the basis of postproduction commercial activity the benefit is denied to sale in the course of interstate trade and commerce. Such differential does not have any nexus with the object as gathered from the statute or from the statement of the learned Advocate General. Even in the transaction of stock or consignment transfer and export, the State does not get any tax, neither VAT nor CST even then those transactions are under the umbrella of getting benefit of the Input Tax Credit. Thus, the classification made for purpose of the subject matter is unintelligible. Difference in treatment cannot be explained in the light of the object for which Section 10 of TVAT Act generally stands for. The classification is not based on any reasonable distinction. The differential treatment could not be reasonably explained or justified by the respondents and hence,

¶501

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[85]

¶503

denial of the Input Credit Tax for sale in the course of interstate trade or commerce is discriminatory as already noted, even after we have unconventionally delved into the records, preceded the enactment, but did not get any explanation there for purpose of the above differential which we have now declared as discriminatory. But for the reason that if the challenged provisions are struck down the entire scheme of granting Input Tax Credit would cave in, in lieu of striking down those provisions we would prefer to read down those provisions declaring that the Input Tax Credit shall be entitled to sale in the course of interstate trade or commerce, when we are alive of the decision of the apex court in DTC vs. Mazdoor Congress, reported in 1991 Supp. (1) SCC 600, where it has been expressed that:

¶504

“255. It is thus clear that the doctrine of reading down or of recasting the statute can be applied in limited situations. It is essentially used, firstly, for saving a statue from being struck down on account of its unconstitutionality. It is an extension of the principle that when two interpretations are possible-one rendering it constitutional and the other making it unconstitutional, the former should be preferred. The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitution. The second situation which summons its aid is where the provisions of the statute are vague and ambiguous and it is possible to gather the intentions of the legislature from the object of the statute, the context in which the provision occurs and the purpose of which it is made. However, when the provision is cast in a definite and unambiguous language and its intention is clear, it is not permissible either to mend or bend it even if such recasting is in accord with good reason and conscience. In such circumstances, it is not possible for the court to remake the statute. Its only duty is to strike it down and leave it to the legislature if it so desires, to attend it. What is further, if the remaking of the statute by the courts is to lead to its distortion that course is to be scrupulously avoided. One of the situations further where the doctrine can never be called into play is where the statute requires expensive additions and deletions. Not only it is no part of the court‟s duty to undertake such exercise, but it is beyond its jurisdiction to do so.”

¶505

[Emphasis added]

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[86]

¶508

[44] In terms of the above, the benefit of Input Tax shall be available to the petitioner-company for carrying out sale in the course of interstate trade or commerce. But that benefit shall not be extended to the petitioner-company in respect of the returns or the assessment orders unrelated to the assessment order dated 16.06.2015 or prior to but such benefit shall continue in respect of the return or the assessment order posterior to 16.06.2015. As corollary, the assessment order dated 16.06.2015 and demand notice dated 17.06.2015 passed or issued by the respondent No.3 are interfered with and set aside. The respondent No.3 is directed to reassess the liability of the petitioner-company within a period of 6(six) months from the date when a copy of this order shall be submitted by the petitioner-company to him.

¶509

[45] We would be failing in our duty if we do not notice the premise on which this court had interpreted the extant provisions of Section 10 of TVAT Act. In Abhisar Buildwell Private Ltd. (supra) , this Court has observed thus:

¶510

“A conjoint reading of the provisions of the Act clearly shows that input tax credit can be claimed only in respect of tax paid or payable under the Act. Section 10(3) makes it absolutely clear that input tax credit is permissible only in respect of sales or resales made within the State of Tripura. Section 10(6) is couched in negative language and is in the nature of an exception or a proviso to sub-section 10(1). We have to read section 10(6) along with section 10(1) and when both of these parts of the section are read harmoniously, then even if a person is entitled to benefit of input tax credit under section 10(1) but is excluded under section 10(6), he would not be entitled to get the benefit of input tax credit. Clause (ix) of section 10(6) provides that input tax credit will not be available in respect of transfer of stock, other than by way of sale outside the State of Tripura.”

¶511

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¶512

[87]

¶513

That was the premise for such interpretation. The

¶514

basis on which substantively the said interpretation is structured that Input Tax Credit is not available in respect of transfer of stock is not the correct reflection of the statute. On comparison between the sale in the course of interstate trade or commerce and the transaction of stock-transfer, inference that has been in the premise of the said impression, has not persuaded us to utilize the same in this case.

¶515

[46] In the result, this writ petition is allowed to the extent as indicated above.

¶516

There shall be no order as to costs.

¶517

The records as produced by the respondents shall be returned forthwith under a sealed cover.

¶518

JUDGE

¶519

CHIEF JUSTICE

¶520

SUJAY