Dated April 03, 2024 from WP(C) No. 7742 of 2019
In Income Tax Officer, Shillong & Ors. v. R. Takin Roy Rymbai & Ors.: [1976] 103 ITR 82, the Supreme Court held as under, in the context of the applicability of Article 14 ibid to fiscal legislations:
- A taxation law cannot claim immunity from the equality clause in Article 14. But, the State has a considerably wide discretion in classification for taxation purposes in view of the intrinsic complexity of fiscal adjustments of diverse elements. Given legislative competence, the legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax.
- If the classification does not transgress the fundamental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others.
- The mere fact that a tax falls more heavily on some in the same category is not a ground to render the law invalid.
- Only when the law operates unequally within the range of its selection, and cannot be justified on the basis of a valid classification, that there would be a violation of Article 14.
In matters of fiscal legislation, the legislature has a wide degree of flexibility and discretion including in matters relating to classification. [Khadinge Sham Bhat v. Agricultural Income Tax Officer, Kasargod & Anr.: AIR 1963 SC 591]
The Constitution Bench of the Supreme Court had, in the context of application of Article 14, held as under: [Twyford Tea Co. Ltd. v. State of Kerala & Anr.: (1970) 1 SCC 189]
- 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. [Ref: Willis in his "Constitutional Law" page 587]
- If a State can validly pick and choose one commodity for taxation, that is not open to attack under Article 14. This indicates a wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate or rates applicable. [East Indian Tobacco Co. v. State of Andhra Pradesh: (1963) 1 SCR 404, at page 409]
The legislature has wide discretion in choosing the persons to be taxed or the objects for taxation. All persons rendering services of a particular nature have been treated uniformly. It is certainly not open for a class of assessees to seek parity with another class of persons, that is, not subject to the same tax. Similarly, selecting a different mechanism to collect tax in respect of some services cannot be challenged under Article 14.
ITC is available only if the statute permits and to the extent that it does. The service providers (rendering services on which tax is payable on under reverse charge) would constitute a class of their own. Article 14 does not prohibit reasonable classification, which has rational nexus to its object. Denying ITC to service providers (who are not liable to pay tax on output services) is founded on a rational basis which has a clear nexus with the classification since such person has no liability against which ITC can be set off. Thus, denial of ITC in such cases cannot be held as irrational and arbitrary.