WP(C) 4988/2007 BEFORE HON’BLE THE CHIEF JUSTICE MR.MADAN B. LOKUR HON’BLE MR. JUSTICE K. MERUNO (Madan B. Lokur, CJ) The challenge in this writ petition is to Section 17 of the Assam Value Added Tax, 2003 (for short the Act) and the notification dated 5.4.2007. 2. Section 17 of the Act reads as follows:- 17. Powers of Government to amend Schedules- The Government may, by notification in the Official Gazette, add to or omit from any Schedule any entry or entries or transpose any entry or part of entry from one Schedule to another or vary any entry or entries or the rate or rates or the point or points of levy or otherwise amend, modify any Schedule, prospectively or retrospectively, and thereupon the Schedule shall be deemed to have been amen ded accordingly: Provided that the Government shall not vary the rate of tax so as to enh ance it, any case, exceeding forty paise in a rupee. 3. A bare reading of the aforesaid section would show that it enables the G overnment by a notification in the official gazette to, inter alia, amend any en try (including relating to the rate of tax) in any schedule to the Act. It is al so provided that the rate of tax, if it is enhanced, shall not exceed 40 paise i n a rupee (or 40%). 4. The First Schedule to the Act consists of a list of exempted goods and I tem No.38 thereof is Tobacco . The petitioners deal in tobacco and at the relev ant point of time, tobacco was exempted from the purview of tax under the Act. A s such, the petitioners had no grievance in this regard. However, by a notificat ion dated 5.4.2007 the government omitted Tobacco from the First Schedule to t he Act, thereby making its sale taxable. The notification dated 5.4.2007 reads a s follows:- No.FTX.55/05/Pt-III/38 : In exercise of the powers conferred by section 17 of the Assam Value Added Tax Act, 2003 (Assam Act VIII of 2005), hereinafter referr ed to as the principal Act, the Governor of Assam is hereby pleased to make the amendment by way of omission in First Schedule to the said Act, namely :- In the principal Act, in the First Schedule, Serial Number 38 with entri es thereto shall be omitted. This notification shall come into force on the date of its publication i n the Official Gazette. 5. The immediate consequence of the notification dated 5.4.2007 was that T obacco fell within the purview of Entry 1 in the Fifth Schedule to the Act, whi ch reads as follows :- Sl. No. Description Rate of tax (Paise in the rupee) 1. All other goods not covered by First, Second, Third and Fourth Schedule 12.5 2. Works contract 12.5 3. Lease transactions 12.5 6. The petitioners were, therefore, liable to pay tax on tobacco at the rat e of 12.5%. 7. Feeling aggrieved at having to pay tax, the petitioners preferred this w rit petition challenging the constitutional validity of Section 17 of the Act as well as the notification dated 5.4.2007. 8. During the course of oral submissions, it was pointed out by learned Add itional Advocate General that a similar provision was the subject matter of chal lenge in State of Assam & ors. v. Chotabhai Jethabhai Patel Tobacco Products Co. Ltd., (2009) 4 GLR 783. In that case, the challenge was to Section 3(4) of the Assam Entry Tax Act, 2001. That provision reads as follows :- 3. Levy of Tax - (1) &. (2) & (3) --- (4) The State Government may, by notification in the Official Gazette, add to, a mend or otherwise modify the said Schedule and also may vary the rates of tax of the goods specified in the Schedule and thereupon the said Schedule shall be de emed to have been amended accordingly. 9. A bare perusal of Section 3(4) of the Assam Entry Tax Act, 2001 shows th at, in substance, it is more or less similar to Section 17 of the Act and even l earned counsel for the petitioners does not dispute this. 10. In Chotabhai Jethabhai Patel the argument of learned counsel for the res pondents was that since there was no definite legislative policy or necessary gu idelines for the exercise of power by the delegate, Section 3(4) of the Assam En try Tax Act should be struck down as unconstitutional. The Division Bench negati ved this challenge and held that the preamble and the objects and reasons of the Assam Entry Tax Act gave sufficient guidance to the State for issuing a notific ation under section 3(4) of the Assam Entry Tax Act. Paragraphs 134 to 137 of th e decision are relevant in this context and they read as follows:- 134. The question, therefore, is whether impugned Act has laid down the definit e legislative policy and the necessary guidelines for exercise of the power by t he delegate, is discernable from the preamble, objects and reasons and the vario us provisions of the impugned enactment. It has been contended by the learned co unsel appearing on behalf of the assessee that the preamble, object and reasons as well as various provisions of the Act, which provides for imposition of entry tax on the goods does not lay down the legislative policy and also the guidelin es to the executive to exercise their power under delegated legislation, as from the preamble as well as the objects and reasons and the provisions of the Act, it is evident that the same are not compensatory in nature, which is the basic r equirement for an enactment imposing entry tax. The counter argument of the lear ned AAG is that the preamble, objects and reasons and the different provisions o f the Act clearly lays down the legislative policy as well as the guidelines to the executive. 135. As discussed above, when a particular enactment is tested on the ground of excessive delegation of legislative function, what is required to be seen is, wh ether such particular enactment has laid down any definite legislative policy an d also the guideline, from the point of view of that enactment and not from the perspective of whether such enactment is a compensatory in nature within the mea ning of article 304(b) of the Constitution, as the question of excessive delegat ion of power by an enactment is one thing and whether it is compensatory in natu re, another. 136. The preamble of the impugned Act, reproduced above, reflects the clear legi slative policy laid down by the Legislature by providing that the Act has been e nacted for imposition of a tax on the entry of goods into any local area in Assa m for consumption, use or sale therein. The objects and reasons for which the Ac t has been enacted, as quoted above, reflect the purpose and also the reason for such enactment. It States that the Act has been enacted to curb losses of reven ue and thereby to mobilize additional resources by levying tax on entry of goods on selected items including motor vehicles, as many bulk customers such as tea companies, oil companies, etc., by taking recourse to interstate purchase of sev eral items, required for their own consumption, for availing lower rate of tax u nder the Central Sales Tax Act, deprives the State of a substantial amount of re venue. Another reason for such enactment, as reflected in the Statement of Objec t and Reasons, is that the State is losing revenue as motor vehicles are purchas ed outside the State and then brought into the State for use, due to disparity i n the rate of tax in different State. Section 3 of the principal Act provides fo r levy of tax to be levied. Sub-section (4) of Section 3, prior to the Second Am endment Act, 2005, authorizes the State Government to add to, delete, amend or o therwise modify the Schedule of the Act and also to vary the rate of tax (which is under challenge in the present batch of writ petitions on the ground of exces sive delegation of legislative function). Section 4(1) additionally provides for imposition of tax in motor vehicles brought into a local area by any importer, which are liable for registration or assignment of a new registration mark in th e State under the provisions of the Motor Vehicles Act, 1988. 137. The preamble, object and reasons as well as the different provisions of the impugned Act, as stood prior to its amendment, by the Second Amendment Act of 2 005, as discussed above, clearly lays down the legislative policy as well as ind icated whom are to be taxed, what are to be taxed. It has also, in the object an d reasons, given the guidelines to the delegate the rate at which such tax is to be levied, by indicating the difference of rate of tax between the Central Sale s Tax Act, neigbouring States and the State of Assam. Therefore, it cannot be sa id that the Legislature by delegating the power to the authority to add to, amen d, etc., and by allowing to fix the rate of tax had abdicated its essential legi slative functions, without laying down the legislative policy and indicating the guidelines. The objects and reasons of the Act clearly provide the guidelines w hat to tax, whom to tax and at what rate. 11. We have to look at the Act in the above light, and ascertain if any guid ance is given for exercise of power under Section 17 thereof. The preamble to th e Act does give sufficient guidance inasmuch as the statute provides for the imp osition and collection of tax on sales or purchases of goods in the State of Ass am. 12. It is now very well settled by a catena of decisions that whether an ite m is to be taxed or not is left to the legislature to decide and the Court has n o role to play in this regard. In Gujarat Ambuja Cements Ltd. v. Union of India, (2005) 4 SCC 214 it was observed in paragraphs 40 and 41 of the Report: Because of the inherent complexity of fiscal adjustments of diverse elements in the field of tax, the legislature is permitted a large discretion in the matter of classification to determine not only what should be taxed but also the manne r in which the tax may be imposed. Courts are extremely circumspect in questioni ng the reasonability of such classification but after a judicial generosity is extended to the legislative wisdom, if there is writ on the statute perversity, ’madness’ in the method or gross disparity, judicial cre dulity may snap and the measure may meet with its funeral . (Vide Ganga Sugar Corpn. Ltd. v. State of U.P. (1980) 1 SCC 223 paragraph 41.) 41. The same judicial wariness was expressed in Federation of Hotel and Restaura nt Assn. of India v. Union of India, (1989) 3 SCC 634, where it was said: 46. It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in th e matter of selection of persons, subject-matter, events etc. for taxation &... D ecisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. (Emphasis supplied) 13. In our case, Tobacco was initially exempted from the purview of tax, b ut for generating revenues, the State Government decided to tax Tobacco . It is under these circumstances that the notification dated 5.4.2007 was issued by th e State Government bringing Tobacco within the fold of taxation. It is not for us to say whether the State Government acted rightly or wrongly since it has wi de latitude in the matter. 14. We are of the view that there is no excessive delegation of power given to the State Government under Section 17 of the Act nor has the notification dat ed 5.4.2007 been issued arbitrarily. As mentioned above, this is essentially a l egislative function and the Court has no role to play in this regard. We, theref ore, negative the challenge to Section 17 of the Act and the notification dated 5.4.2007. 15. Learned counsel for the petitioner placed reliance on M/s Devi Das Gopal Krishnan, etc. v. State of Punjab and others, AIR 1967 SC 1895. In that case, S ection 5 of the East Punjab General Sales Tax Act, 1948 was under challenge as w ell as the amendment to Section 5 of that Act. 16. Section 5 of the East Punjab General Sales Tax Act, 1948, as it original ly stood and as it stood after its amendment, reads as follows :- Section 5. Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a dealer a tax at such rates as the Provincial Go vernment may by notification direct. Section 2. Amendment of Section 5 of Punjab Act, 46 of 1948: In sub-section (1) of Section 5 of the East Punjab General Sales Tax Act, 1948, after the word ’rates’ the following words shall be inserted and shall be deemed always to have been so inserted; namely, ’not exceeding two pice in a rupee’. 17. The Supreme Court held that in so far the original Section 5 of the Act is concerned, since the rate of tax was not at all specified, there was an exces sive delegation of power in the hands of the State Government. It was held that since there was a lack of any policy on the quantum of tax to be levied under Se ction 5 of the East Punjab General Sales Tax Act, that section must be held to b e void. However, with regard to the amended Section 5, the Supreme Court held th at the State had a policy inasmuch as the maximum rate of tax was specified, nam ely not exceeding two pice in a rupee . In view of the reasonable area of discr etion given by the statute, the Constitution Bench held that Section 5 of the Ea st Punjab General Sales Tax Act, 1948, as amended, was valid. In coming to this conclusion, the Supreme Court relied upon Khandige Sham Bhat v. Agricultural Inc ome Tax Officer Kasargod, AIR 1963 SC 591. 18. In so far as we are concerned with the challenge to section 17 of the Ac t, there is legislative guidance in the preamble to the Act. The discretion of t he State Government is also limited inasmuch as it has been clearly laid down in the proviso to Section 17 of the Act that the Government shall not vary the rat e of tax so as to enhance it, in any case, exceeding forty paise in a rupee. The upper limit of taxation, has therefore, been fixed. 19. As far as the notification dated 5.4.2007 is concerned, on its deletion from the First Schedule to the Act, Tobacco came within the purview of Entry 1 in the Fifth Schedule to the Act and the tax leviable on tobacco came to be 12. 5 paise in a rupee or12.5%, which is well below 40 paise in a rupee or 40%. 20. Under these circumstances, we are of the opinion that neither Section 17 of the Act of 2003 nor the notification dated 5.4.2007 are unconstitutional or can be challenged on the ground of having been issued arbitrarily. 21. We find no merit in this writ petition. It is dismissed with costs of Rs .5,000/-.