Writ Petition Nos. 4925 and 4914 of 2015. Case: Nagpur Distillers Private Limited and Ors. Vs The State of Maharashtra and Ors.. High Court of Bombay (India)
| Case Number | Writ Petition Nos. 4925 and 4914 of 2015 |
| Counsel | For Appellant: S.V. Manohar, Senior Advocate and A.A. Naik, Advocate and For Respondents: Shreehari Aney, Advocate General and B.H. Dangre, Govt. Pleader |
| Judges | B. P. Dharmadhikari and V. M. Deshpande, JJ. |
| Issue | Constitution of India - Articles 14, 19(1)(g); East Punjab Urban Rent Restriction Act, 1949 - Section 3; Income Tax Act, 1961 - Section 271B |
| Judgement Date | January 08, 2016 |
| Court | High Court of Bombay (India) |
Judgment:
B. P. Dharmadhikari, J.
1. Considering the nature of controversy and as requested by the parties, matters have been heard finally at the stage of admission by issuing Rule, and making it returnable forthwith.
2. Briefly stated, the petitioners before this Court are dealers within the meaning of said term as defined in Section 2[16-A] of the Maharashtra Municipal Corporation Act, (Act No. LIX of 1949) (hereinafter referred to as "the Corporation Act" for short). The Local Body Tax (LBT) is being charged on goods imported by them within city limits of respondent No. 2 -Nagpur Municipal Corporation. The tax is assessed on goods imported by them for use, consumption or sale within the city limits. As they are dealers whose annual turnover exceeds Rs. 50 Crores, the tax is being recovered from them. Other dealers whose annual turnover is less than Rs. 50 Crores, are exempted from paying any tax on such goods.
3. Petitioners state that they are required to pay the local body tax at 8.5% and hence, their cost of production goes up proportionately. Other dealers who are not required to pay that tax, can therefore, legitimately sell their goods at lesser price, thereby creating unhealthy competition.
4. Prayers in both the petitions are identical. Main thrust is to urge that petitioners and other dealers are similarly situated and on the basis of annual turnover, classification cannot be made between them. That classification therefore, should be quashed and set aside. The provisions of Sub-rule (1) of Rule 3 of the Maharashtra Municipal Corporation (Local Body Tax) Amendment Rules, 2015 should be declared as un-constitutional as they are ultra-vires the provisions of Articles 14 and 19[1][g] of the Constitution of India, as also ultra-vires of the provisions of Section 152P and 152Q of the Maharashtra Municipal Corporation Act. There is also a prayer to quash and set aside the notification dated 01.08.2015, issued by the respondent No. 1- State of Maharashtra effecting said amendment. Petitioners also seek a declaration that respondent No. 2 Nagpur Municipal Corporation cannot impose and recover or collect from it any such tax. Petition has been amended on 24.08.2015 to seek a declaration that Rule 3 of Maharashtra Municipal Corporation (Local Body Tax) Rules, 2010 is ultra-vires.
5. We have heard Senior Counsel Shri S.P. Dharmadhikari and Senior Counsel Shri Sunil Manohar, for petitioners. Senior Counsel Shreehari Aney, Advocate General and Government Pleader Smt. B.H. Dangre, argued the matter on behalf of respondent No. 1 State Government. Shri J.B. Kasat, learned Counsel represented respondent No. 2.
6. Inviting attention to provisions of the Corporation Act, Shri Manohar, learned Senior Counsel submits that LBT needs to be imposed by respondent No. 2 Nagpur Municipal Corporation. In absence of any such decision by Nagpur Municipal Corporation, the direction of State Government to levy and collect LBT in its municipal limits to respondent No. 2 is, without jurisdiction and unsustainable. He further submits that Rules prescribing modalities for levy, collection or recovery of said tax can be framed only by the Nagpur Municipal Corporation, as contemplated in Section 127[3]. He invites attention to provisions of Section 152R to state that as per that Section, Sections 152B, 152D, 152E, 152F, 152I, 152J, 152K, 152K, 152L, 152M, 152M, 152O in Chapter XIA mutatis mutandi apply to levy and collection of LBT in Chapter XIB. Thus, levy of LBT has to be as per Section 152A on entry of goods. The same is to be paid by dealer, in terms of Section 152A[2]. The dealer whose turnover exceeds the prescribed limit in terms of Section 152B has to pay the tax, and purpose of this provisions is to grant exemption to dealers, but, to facilitate its imposition and recovery. Entry of goods cannot cease to be a taxable event and turnover of all dealer cannot substitute it. By way of abundant precaution he adds that the respondents could have thought of a tapering rate, by co-relating it with turnover, and levy can be made proportionately. He argues that turnover can not be the rational diferencial to divide the dealers in two categories and to exempt maximum out of them, as it lacks nexus with the object and also overlooks the event of import of goods.
7. He has invited our attention to provisions of Section 152P to show that discretion is given to Corporation and it cannot be taken away by the respondent No. 1 State. In terms of Section 152Q, Government may in the light of proposal moved by the Municipal Commissioner exempt certain categories of goods from LBT, but, there is no provision to exempt any dealer. Power of State Government to frame Rules under Section 152T is general power and it has to yield to special provision which empowers Corporation to frame Rules. He seeks support from (2000) 3 SCC 40 (Kunj Beharilal Butail and others vrs. State of H.P. and others) and (2015) 9 SCC 209 (Petroleum and Natural Gas Regulatory Board vrs. Indraprastha Gas Limited and others).
8. Our attention is also invited to provisions of Sections 456 and 456A of Corporation Act to contend that the powers given therein to State Government can be exercised only after failure of Corporation to make Rules. Overriding powers given to State Government by Section 456A is to be exercised sparingly, and subject to other provisions of the Act, like Section 127[3], 152A and 152T. Rule 3 of Local Body Tax Rules, 2010 dealing with limits of turnover for registration is, therefore, bad in law.
9. Taking up his next contention, Shri Manohar, learned Senior Counsel submits that by amendment w.e.f. 01.08.2015, an arbitrary classification has been brought into effect. The turnover of a dealer and import of goods cannot be co-related and thus, having annual turnover below Rs. 50 Crores, cannot be straightway given exemption. Such an exemption or classification is not countenanced by Scheme of Corporation Act and is infact counter-productive because the cost of petitioners' product then definitely will be more than the cost thereof for exempted dealers. The amending Rules of 2015, are therefore, bad in law and unsustainable. He relies upon a judgment reported at AIR 1952 SC 75 (The State of West Bengal vrs. Anwar Ali sarkar and another).
10. Our attention is invited to reply affidavit placed on record by the State Government. Learned Counsel points out that therefore, State Government has proceeded to show favour to alleged unorganized dealers as they are not maintaining accounts. By inviting our attention to the fact that VAT is payable by a importer dealer with turnover of Rs. 1 lakh, if he has sold or purchased the taxable goods worth not less than than Rs. 10 thousand during that year. For others, it is Rs. 10 lakhs, if the value of taxable goods sold or purchased during the year, is not less than Rs. 10 thousand. These provisions contained in Section 3 are as amended by the Maharashtra Act No. 14 of 2005 and 32 of 2006. As per Section 63, an obligation is cast upon every dealer to maintain accounts. Section 74 vide its sub-section [3][m] also shows that such dealer has to get its accounts audited. If he fails to do so, he commits an offence. Section 74AB of the Income Tax Act, 1961 is also relied upon to urge that tax audit has been compulsorily for every person who carries on business, if his total sales, turnover or gross receipts exceed Rs. 1 Crore in any previous year and Section 271B prescribes penalty for a defaulter. Thus, dealers whose turnover is less than Rs. 50 Crores, but, who are subject to VAT or/as also Income Tax Act, 1961 cannot be labeled as unorganized dealers or small dealers. Reason for exempting them is unreal and unsustainable. He points out that the State Government in reply affidavit disclosed its intention to give relief to all small and marginal traders from paying LBT. He states that government has carried out statistical exercise on the basis of information gathered from 25 Municipal Corporations, and found that 28% of total LBT received is, from just 1162 dealers, whose turnover is above Rs. 50 Crores. Total number of registered dealers was 8,09,553. The collection from dealers...
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