1 HVN IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3203 OF 2006 WRIT PETITION NO. 3203 OF 2006 WRIT PETITION NO. 3203 OF 2006 1. The Sales Tax Practitioners’ Association of Maharashtra, having its registered at 8 & 9, Mazgaon Tower, 21, Mhatar Pakhadi Road, Mazgaon, Mumbai 400 010. 2. Tushar P. Joshi, President of Petitioner No. 1, having office at 3, Prospect House, First Floor, R.D. Street, Fort, Mumbai 400 001. ... Petitioners Versus 1. The State of Maharashtra, through Revenue Secretary, Ministry of Finance, having office at Mantralaya, Mumbai 400 032. 2. The Commissioner of Sales Tax, having office at 8th Floor, Mazgaon, Mumbai 400 010. 3. The Institute of Chartered Accountants of India (as set up under the Chartered Accountants Act, 1949) having office at Indraprastha Marg, P.O. Box No. 7100, New Delhi 110 002 hereinafter referred to as "ICAI" through its duly constituted "Council of ICAI and its Disciplinary Committee and Secretary, Director and Other Office bearers and also at Mumbai Office, "Anveshank" 17, Cuffee Parade, Colaba, Mumbai 400 005. ... Respondents Mr. R.A. Dada, Sr. Counsel with Mr. Vikram Nankani with Mr. M.R. Baya, Mrs. N.A. Badheka, Mr. B.C. Joshi and Mr. Kumar Tolani for the Petitioners. Mr. A.A. Kumbhakoni, Associate Advocate General for the Respondent No. 1. Mr.V.A. Sonpal, A.G.P. for the Respondent No. 2. Mr. S.B. Jaisinghani, Sr. Counsel with Mr. N. 2 Agarwal i/by Kanga & Co. for the Respondent No. 3. ALONG WITH ALONG WITH ALONG WITH WRIT PETITION (L) NO. 623 OF 2007 WRIT PETITION (L) NO. 623 OF 2007 WRIT PETITION (L) NO. 623 OF 2007 The Bar Council of Maharashtra and Goa, having its office at Annex Building, High Court of Judicature at Bombay, Fort, Mumbai 400 001 through its Ex-Chairman Shri. Aniruddha Choubey, resident of G.P.O. Square, Civil Lines, Nagpur 440 001. ... Petitioner Versus 1. The State of Maharashtra, through the Department of Finance, Mantralaya, Madam Cama Road, Mumbai 400 0323. 2. The Commissioner of Sales Tax, Maharashtra State, 8th Floor, Vikrikar Bhawan, Mazagon, Mumbai 400 010. .. Respondents Mr.B.M. Chatterji with Mr. S.G. Deshmukh, Mr. D.K. Bapat, Mr.V.P. Patkar and Ms. C.S. Radia for the Petitioner. Mr. A.A. Kumbhakoni, Associate Advocate General for the Respondent No. 1. Mr. V.A. Sonpal, A.G.P. for Respondent No. 2. ALONG WITH ALONG WITH ALONG WITH WRIT PETITION NO. 1777 OF 2007 WRIT PETITION NO. 1777 OF 2007 WRIT PETITION NO. 1777 OF 2007 1. The Bombay Small Scale Industries Association, having its registered office at Madhu Compound, Second Floor, Sonwala Cross Road No. 2, Goregaon East, Mumbai 63. 2. Raksh Pal Abrol, President, The Bombay Small Scale Industries Association, having his Office at Madhu Compound, Second Floor, Sonawala Cross Road No. 2, Goregaon (East), Mumbai 63. ...Petitioners Versus 3 The State of Maharashtra, Ministry of Finance, having its Office at Mantralaya, Mumbai 32.. Respondents Mr.N..R. Bodhe, Mr. B.C. Joshi and Mr. M.M. Vaidya for the Petitioners. Mr.A.A. Kumbhakoni, Associate Advocate General for the Respondent. ALONG WITH ALONG WITH ALONG WITH CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 2000 OF 2007 WRIT PETITION NO. 2000 OF 2007 WRIT PETITION NO. 2000 OF 2007 The Maharashtra State Tax Practitioner Associations Federation, A Society registered under the provisions of the Indian Societies Act, through its President, Shri. Tukaram Baburao Shinde, Age 51, Occ. Profession, P.J. Chambers, II Floor, 2A Block No.304, Behind Dr. Ambedkar Statute, Pimpri, Pune 411 018. ...Petitioner Versus 1. The State of Maharashtra ...Respondents Mr. P.B. Shah for the Petitioner. Mr. A.A. Kumbhakoni, Assoc. Advocate General with Mr. V.A. Sonpal, A.G.P. for Respondent. CORAM: F.I. CORAM: F.I. CORAM: F.I. REBELLO REBELLO REBELLO & R.S. MOHITE, JJ. R.S. MOHITE, JJ. R.S. MOHITE, JJ. DATED: MARCH 28, 2008 DATED: MARCH 28, 2008 DATED: MARCH 28, 2008 ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): . All these petitions are being disposed of by this common judgment as the main challenge in all the petitions is to the constitutional validity of Section 61(1) and the explanation thereto, of the Maharashtra Value Added Tax Act (hereinafter referred to as the "Act") on the ground that it infringes the equality clause as enshrined in Article 14, the right to carry on profession under 4 Article 19(1)(g) as also under Article 254, as the provisions for "audit" would not fall within the competence of the State Legislature under Entry No. 54 of List II of the VIIth schedule to the Constitution of India. In the alternative to read down Section 61, so as to empower Advocates and Sales Tax Practitioners to audit and give report in Form No. 704. There are some other incidental challenges in Writ Petition No. 1777 of 2007 to contend that the explanation also be declared void as being violative of Article 265 which provides that no tax shall be levied or collected except by the authority of law and Article 301 as it infringes the freedom to carry on trade, commerce and intercourse through out the territory of India. 2. Writ Petition No. 3203 of 2006 is filed by the Association and its President who is Petitioner No. 2. The association is registered under the Societies Registration Act, 1960 having registration No. Bom 166/71. They contend that for the last 56 years, advocates and sales tax Practitioners who are its members have been enjoying an equal level field in practice before the Sales Tax Authorities. The impugned provision seeks to keep out a class of advocates and sales tax practitioners from their legitimate field of practice. This class of practitioners and advocates have attained 5 appreciable standard of expertise to understand and interpret the sales tax laws before the tax authorities under the Act. The Advocates also practice in the field of sales tax before the High Court and Supreme Court. Therefore, there is no reason to take away a vested right of such large class of practitioners in a bid to favour a particular class at the cost of rest of the categories. Under Section 82 of the Act, various categories of persons are entitled to practice who are called sales tax practitioners. They comprise of (1) Advocates, (2) Chartered Accountants (3) Other persons who hold qualification prescribed under the Act and (4) Government servants of the Sales Tax Department upon their leaving or retiring from the service in sales tax department. On account of the impugned legislation, this class of advocates and practitioners are being denied the rightful field of practice for certifying deductions and claims under the Act. 3. Writ Petition (L) No. 623 of 2007 is by the Bar Council of Maharashtra and Goa . It is their contention that Section 61 of the Act has confined the function of audit only to a Chartered Accountant and excluded other professionals and authorised persons like the Sales Tax Practitioners, Advocates and Cost Accountants. A perusal of Section 61 as 6 also the reading of the prescribed form of Audit would show that the audit is in fact a statutory return of the dealer for the purpose of enabling the Sales Tax Officer to complete assessment and therefore, involves minor skills which can be better performed by the advocates and as such exclusion of advocates and Sales Tax Practitioners from performing audit or carrying on audit is clearly discriminatory, arbitrary and unreasonable. Several other States in the country have provided that the value added tax audit can be done not only by the C.A. but also by other professionals, including advocates. 4. Writ Petition No. 1777 of 2007 is by the Bombay Small Scale Industries Association and Petitioner No. 2 is their President. The Membership of the Association as per the pleadings is open to all individuals and associations of various categories. They contend that all through the existence of the Sales Tax Laws since 1946 under Section 82(1) of the Act, persons specified in clause (c) described as Sales Tax Practitioners and also Advocates specified in clause (b) have been guiding the trade in giving due information of the ever changing sales tax laws, the implication of various claims and in filing the returns and appearing in assessment and if necessary in appeals. There has been no grievance made 7 against the easily accessible and expert services of this class. Even under the present enactment, the traders continue to be advised and guided by this class of sales tax practitioners and advocates and their returns are being compiled by them on the basis of their records. The sales tax practitioners and advocates have been giving commendable services to the industries at all stages of sales tax proceedings. Their valuable guidance and help is easily accessible at affordable charges. By the amendment what is sought to be done is to have the assessment of tax liability under the Act assessed approved and certified as the correct liability of a dealer by a third agency who is described as class of persons called Chartered Accountants. The work that the Chartered Accountant has to do is to verify the return with full details and certify legality or otherwise of the claims in the returns. This function of the assessment for the tax dues from a dealer under the MVT Act has already been assigned and entrusted to the Commissioner or its delegates or officers appointed under the said Act. The industries, therefore, it is contended would be obliged to engage services of Chartered Accountants over and above their respective appointee from the class of class of sales tax Practitioners or advocates. On account of this heavy financial burden would be cast on small scale industries and 8 such burden is a serious impediment to the trade and would cut into the net profit of the respective industry. This action of the State is unreasonable and cannot be done even under its exercise of ancillary legislation. The payments to be made to the Chartered Accountant is over and above the payment for the services of a Sales Tax practitioner who keeps the dealer well informed about the law and its changes, who undertakes the work of compiling and the filing of returns, attending to assessments and like proceedings under the Act. This additional payment is in pith and substance nothing but compulsory levy amounting to tax by the State. Such action offends Article 265 of the Constitution. For all the aforesaid reasons, it is contended that the impugned provision under the enactment ought to be struck down. 5. Writ Petition No. 2000 of 2007 is by the Maharashtra State Tax Practitioner Associations Federation which is an registered association. The impugned enactment, it is contended, is contrary to Article 19(1)(g) of the Constitution since it prohibits the members of the Petitioners from practicing their profession and trade of their choice without there being any valid reason. The Petition is by the Association. No individual person has joined as Petitioner. As Petition seeks 9 to challenge also the constitutional validity of Section 61, being in violation of Article 19(1)(g) of the Constitution of India, we do not propose to consider whether this petition would be maintainable in the absence of a person. The other issues involved in this petition are also the subject matter of the other petitions to which we have referred to earlier. 6. To understand the challenges, we may firstly reproduce some of the relevant provisions of the MVAT Act. Section 61 read as under : "61. Accounts to be audited in certain cases : (i) Every dealer liable to pay tax shall,- (a) if his turnover of sales or, as the case may be, of purchases exceed or exceeds rupees forty lakh in any year, or (b) a dealer or person, who holds, licence in,- (i) Form P.L.L. under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966, or (ii) Form B.R.L. under the Maharashtra 10 Manufacture of Beer and Wine Rules, 1966, or (iii) Form E under the Special Permits and Licence Rules, 1952, or (iv) Forms FL-I, FL-II, FL-III, FL-IV under the Bombay Foreign Liquor Rules, 1953, or (v) Forms CL-I, CL-II, CL-III, CL/FL/TOD-III under the Maharashtra Country Liquor Rules, 1973 get his accounts in respect of such year audited by an accountant within the prescribed period from the end of that year and furnish within that period the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars and certificates as may be prescribed. Explanation : For the purposes of this section "Accountant" means a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 or a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959. (2) If any dealer liable to get his accounts audited under sub section (1) fails to furnish 11 a copy of such report within the time as aforesaid, the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, in addition to any tax payable, a sum by way of penalty equal to one tenth per cent, of the total sales. Provided that, if the dealer fails to furnish a copy or such report within the period prescribed under sub section (1), but files it within one month of the end of the said period, and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors, beyond his control,then no penalty under this sub section shall be imposed on him. (3) Nothing in sub sections (1) and (2) shall apply to Departments of the Union Government, any Department of any State Government, local authorities, the Railway Administration as defined under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950." . The next relevant provision is Section 82 (1) and (2) which read as under : 12 "82. Appearance before any authority in proceeding : (i) Any person, who is entitled or required to attend before any authority including the Tribunal in connection with any proceeding under this Act, otherwise than when required to attend personally for examination on oath or affirmation, may attend. - (a) by a relative or a person regularly employed by him, or (b) by a legal practitioner, Chartered Accountant or Cost Accountant who is not disqualified by or under sub section (2), or (c) by a sales tax practitioner who possesses the prescribed qualifications and is entered in the list which the Commissioner shall maintain in that behalf, and who is not disqualified by or under sub section (2), or (d) any person, who, immediately before the commencement of this Act, was qualified by or under sub section (2), only if such relative, person employed, legal practitioner, Chartered Accountant, Cost Accountant or sales tax practitioner is authorised by such person in the prescribed form, and such authorisation may include the 13 authority to act on behalf of such person in such proceedings. Explanation : "A person regularly employed" means a person whose salary is regularly and periodically debited and recorded in the books of account of the dealer. (2) The Commissioner may, by order in writing and for reasons to be recorded therein, disqualify for such period as is stated in the order from attending before any such authority, any legal practitioner, Chartered Accountant, Cost Accountant or sales tax practitioner,- (i) who has been removed or dismissed from Government service, or (ii) who being a legal practitioner, a Chartered Accountant or a Cost Accountant is found guilty of misconduct in connection with any proceedings under this Act by an authority, empowered to take disciplinary action against the member of the profession to which he belongs, or (iii) who, being a sales tax practitioner, is found guilty of such misconduct by the Commissioner....." 7. The statement of objects and reasons as annexed to the Bill in so far as Section 61 is concerned, reads as under : 14 "Clauses 55 to 62 - A new provision is made for advance ruling by the tribunal on any question relating to interpretation of the law. A new provision provides for compulsory audit to be made in certain circumstances by qualified Accountants." 8. The State of Maharashtra by Maharashtra Act No. 25 of 2007 amended the M.V.A.T. Act. We are concerned with the amendment to Section 61. The relevant portion reads as under : "17. In section 61 of the Value Added Tax Act,- (l) in sub section (l), in the Explanation, for the words and figures "Accountants Act, 1949" the words and figures "Accountants Act, 1949 or a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959", shall be substituted; (2) in sub section (2), the words "or as the case may be, purchases or a sum of one lakh rupees, whichever is less" shall be deleted; (3) after sub section (2), the following sub section shall be added, namely :- (3) Nothing in sub sections (1) and (2) shall apply to Departments of the Union Government, 15 any Department of any State Government, local authorities the Railway Administration as defined under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act,1950." . Thus apart from the Chartered Accountants audit can now also be carried out by Cost Accountant. No Petition has been amended by any of the Petitioners to challenge the amendment. 9. Section 82 of the Act permits Sales Tax Practitioners and others set out therein, the right of appearance before any authority in proceedings under the Act. The right of appearance therefore, has not been taken away. The right to appear subsists. The limited question is whether under section 61, the exercise of getting the accounts audited, can be said to be part of the right to appear and plead before the courts or judicial forums and or getting the accounts audited is part of the right conferred by Section 82 or in the alternative excluding other than Chartered Accountants and Cost Accountants is arbitrary or violative of the rights of these excluded categories to carry on their trade or profession. 16 10. Before we proceed further, we may look as to the meaning of the expression "audit" and "auditor". In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd Edition the "audit" has been explained as under : "Audit" As a verb : to draw up or present an account; to make an official investigation and examination of accounts and vouchers. As a noun : an examination of accounts in general; a formal or official examination and authentication of accounts, setting of accounts; the process of auditing accounts; the hearing and investigation had before an auditor." . In President, Councillors and Ratepayers of the Shire of Frankston and Hastings Vs. Cohen, 102 C.L.R. 607 the High Court of Australia the expression "Audit" came up for consideration and it was explained as under : "But the word, "audit" is a well known English word, and the general nature of what constitutes an audit seems plain enough. The Oxford English Dictionary defines the noun "audit" as "an official examination of accounts 17 with verification by reference to witnesses and vouchers". Mr. R.A. Irish in his book "Practical Auditing" (p.1) says : "An audit may be said to be a skilled examination of such books, accounts and vouchers as will enable the Auditor to verify the Balance Sheet. The main objects of any audit are : (a) To certify to the correctness of the financial position as to shown in the Balance sheet, and the accompanying revenue statements, (b) The detection of errors, (c) The detection of fraud. The detection of fraud is generally regarded as being of primary importance." . Thus the word has a specific cannotation in the matter of examination, investigation and auditing of Accounts, where detection of fraud is of primary importance. 11. The prayers as sought and noted earlier are to declare Section 61 of the M.V.A.T. Act, 2002 as unconstitutional and ultra vires being violative of Articles 14, 19(1)(g), 254, 265 and 301 of the Constitution of India or in the alternative to read down or interpret the impugned provisions i.e. Section 61 so as to enable advocates and Sales Tax Practitioners to carry out the audit in terms of Section 61. The challenge in a nutshell is to the 18 exclusion of Advocates and Sales Tax practitioners from doing the work of audit under Section 61 of the Act. 12. The challenge to the vires of the Section may now be summarized : (a) The impugned provision is for certification of the veracity of statutory claims by the dealers under the Act and to certify that the Sales and Purchases are correctly accounted by the dealers and their claims are legally valid. The caption "Accounts to be audited in certain cases" is nothing but the same judicial process of deciding the legality or otherwise of the claims of the dealers under the Act, in case of dealers having turn over exceeding rupees forty lakh in any year, which includes turn over of capital goods. This certificate has to be given by the Accountant to the exclusion of the Sales Tax practitioner or Advocates though the said class of persons are specialized in sales tax laws and practice. Under Section 61, what is to be done is not mathematical correctness but judicial authenticity, legality or authenticity of the various claims under the Sales Tax Laws for which verification and certification is required to be done by the 19 Chartered Accountant. This is over and above verification done under the returns by respective dealer while filing the return. This certificate can only be given by the Chartered Accountant. Since, 1946, apart from Chartered Accountants, it was open to all categories of persons described in Section 82, having sufficient expertise and qualifications to do the accounts as also audit. The impugned Section 61, has resulted in divisive exclusion of advocates and Sales Tax Practitioners, as the traders would not like to engage services of Sales Tax Practitioners or advocates for certification. The result is that a large section of Practitioners in mofusil area and small towns will be rendered out of the practice and consequently adversely affecting their livelihood. As there is no reasonable basis for the exclusion, the provision is arbitrary being violative of Article 14. (b) The practice of Sales Tax Accounts was open to all including Chartered Accountants, advocates and tax practitioners. The Chartered Accountants who happens to pass the examination and has no expertise to adjudicate upon the legality or otherwise of the assessees claims of sales tax law can issue certificate. 20 Similarly Chartered Accountants however, senior they may be, who have not practiced sales tax law and who could not gather experience can issue certificate. There is no relation with object of the enactment for such arbitrary selection of class without relation to their authority, efficiency or otherwise. The sole object and purpose of Section 61(1) is that every dealer who is covered by sub section (a) and (b) should get their returns verified and get their tax liability assessed by a Professional so as to enable them to provide the information required to furnish a report under Rule 65 and to fill out Form 704. There is no other purpose behind section 61. This purpose and object completely exhausts the scope of Section 61. If this being so, the requirement of C.A. alone for the certification in form 704 is wholly irrelevant and arbitrary. In any case, all information contained in Form 704 is for assessment of tax liability by the expert professionals who on the basis of same information are