The economic wisdom of a tax is the exclusive province of the legislature: Madras High Court

The constitutional validity of Section 6 of the Tamil Nadu Value Added Tax Act, 2006 was upheld by the High Court of Madras through the learned bench led by HONOURABLE MR. JUSTICE R. MAHADEVANin the case of M/s LG Electronics India v The State of Tamil Nadu (Writ Petition No. 29096 of 2007) and connected petitions

FACTS OF THE CASE: Brief facts of the case are as follows; The case involved the question of the legality of specific requirements to a composition system under which merchants engaged in works contracts might discharge taxes. However, only those labour contractors who did not conduct inter-state transactions received commodities from outside the state or imported/purchased items from outside the nation were qualified to participate in the composition scheme. This condition was declared arbitrary, discriminatory, and the works contractors contended that the section violated Articles 14, 19 (1) (g), 20, 301 and 304 (a) of the Constitution. The petitioners alleged that the amendment discriminated between co-developers who utilised locally acquired commodities and those who bought goods from out-of-state merchants. This was deemed to be compelling individuals to buy items from sellers within the state and thus a violation of their constitutional rights.

JUDGEMENT: After hearing the submissions of both sides, the Court stated that “It is not the court’s function to consider the propriety or justness of the tax or enter upon the realm of legislative policy.”The Court affirmed the provision, noting that the inconvenience caused to an individual or group of people is immaterial for determining the constitutionality of a taxation act.” The legislature in fiscal matters enjoys a greater latitude and must be permitted to experiment. The presumption is always in favour of the constitutionality of a provision, and the courts must seldom interfere,” the Court said. On the other hand, the Court disagreed with the petitioners, noting that works contractors could only be regarded as a genus with several features or species. Despite being works contractors, it was determined that dealers who acquired products locally and those who obtained items via interstate purchase or import were not on an equal footing. The division bench analysed the scope of judicial intervention in fiscal matters and found that the economic wisdom of a tax was within the exclusive province of the legislature. The bench reiterated that it was not the court’s function to consider the justness of the tax. It was held by the court that there was a sound rationale behind the classification under Section 6 and that the act did not offend any constitutional right. Thus, the petitions challenging the vires of Section 6 were rejected.

Judgement reviewed by – Abhinav Paul Mathew

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