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CASE NO.: Appeal (civil)  709 of 2004

PETITIONER: Aashirwad Films

RESPONDENT: Union of India & Ors

DATE OF JUDGMENT: 18/05/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T

S.B. SINHA, J :  

1.      Constitutionality of a notification issued by the Government of the  Andhra Pradesh levying different rates of entertainment tax is in question in  this Writ Petition filed by the petitioner herein under Article 32 of the  Constitution of India.   The petitioner herein carries on its business as a   distributor of motion film at Hyderabad.   The field of his activity is said to  be distribution of Hindi films in the State of Andhra Pradesh.   

2.      The State of Andhra Pradesh made an Act known as "Andhra Pradesh  Entertainment Tax Act, 1939".   The said Act was enacted in terms of Entry  No. 62 of List II of the VII Schedule of the Constitution of India which reads  as under :-

"62.   Taxes on luxuries including tax on entertainment,  amusement and betting and gambling."

3.      It is not in dispute that the rate of tax in respect of Telugu film was  fixed at 10% and that of non-Telugu film has been fixed at 24%.

4.      Representations were made to the Government of Andhra Pradesh to  withdraw the said purported discriminatory tax by the Andhra Pradesh State  Film Television and Theatre Development Corporation Ltd. in terms of its  letter dated 9th/11th December, 2002 addressed to the Secretary to the  Government, GA (I&PR) Department, Secretariat, Hyderabad as also other  bodies and parliamentarians, which was not acceded to.  The decision of the  State was communicated to the petitioner by the Principal Secretary to the  Government in terms of its letter dated 19.9.2003 stating;

"I invite attention to the reference cited and inform that  Government have carefully examined your representation  for grant of Tax relief to the Hindi Films on par with Telugu  Films and consider that there is no need to extend such  concession.

Accordingly the representation first cited is hereby  rejected."

5.      We may notice that the number of Hindi Films certified by the Censor  Board is highest in India.  Films made in Telugu, however, appears to be  next in number as would appear from the following comparative chart:- COMPARATIVE CHART SHOWING NUMBER  OF INDIAN FILMS (LANGUAGE-WISE)  CERTIFIED IN INDIA IN 2001, 2002 & 2003

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No.          Language            2003             2002                2001 1.             Hindi                    222               218                  230 2.             Telugu                  155               167                  206 3.             Tamil                    151               178                  196 4.             Kannada               109               113                    93 5.             Malayalam            64                101                   135 6.             Bengali                 49                  47                     48 7.             Marathi                 25                  20                     18 8.             Assamese              17                  17                     13 9.             Gujarati                 14                  15                     12 10.           Chhattisgarhi          4                   12                    14 11.           English                  23                  12                      8 12.           Oriya                     13                  10                      6 \005\005.

6.      Mr. Anil Kumar Tandale, learned counsel appearing on behalf of the  Writ Petitioner inter-alia would submit that the impugned levy is not  justified inasmuch as;

1.      It contravenes Article 351 of the Constitution of India. 2.      It is discriminatory in nature and thus ultra-vires Article 14 thereof.

7.      Mr. R. Sundaravaradhan, learned senior counsel appearing on behalf  of the respondent on the other hand would submit that (i)     Article 351 of the Constitution of India has no application in the  instant case. (ii)    The State enjoys a greater latitude in imposing different types of  taxes on different classes of the people. (iii)   In any event, as the Writ Petition does not contain any ground on  the basis whereof, the plea of discrimination could be raised, the  same should not be entertained by this Court.

8.      We are not impressed with the submission of Mr. Anil Kumar  Tandale, learned counsel that in a case of this nature, Article 351 of the  Constitution of India would have any role to play.  Assuming that there was  a violation thereof, the same would not come within the purview of Part III  of the Constitution of India and thus its application under Article 32 in  relation thereto is not maintainable.           9.      The State undoubtedly enjoys a greater latitude in the matter of a  taxing statute.   It may impose a tax on a class of people, whereas it may not  do so in respect of the other class. 10.     A taxing statute, however, as is well known, is not beyond the pale of  challenge under Article 14 of the Constitution of India.  

11.     In M/s. Chhotabhai v. Union of India [AIR 1962 SC 1006], it was  stated : "(37) But it does not follow that every other Article of Part  III is inapplicable to tax laws.   Leaving aside Art. 31(2)  that the provisions of a tax law within legislative  competence could be impugned as offending Art. 14 is  exemplified by such decisions of this Court as Suraj Mal  Mohta & Co. v. A.V. Visvanatha Sastri, (1955) 1 SCR 448  : (AIR 1954 SC 545), and Shree Meenakshi Mills Ltd.,  Maduari v. A.V. Visvanatha Sastri, (1955)  1 SCR 787 : (  (S) AIR 1955 SC 13).  In Moopil Nair v. State of Kerala,  AIR 1961 SC 552 the Kerala Land Tax Act was struck  down as unconstitutional as violating the freedom  guaranteed by Art. 14.  It also goes without saying that if  the imposition of the tax was discriminatory as contrary to  Art. 15, the levy would be invalid."

12.     A taxing statute, however, enjoys a greater latitude.  An inference in

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regard to contravention of Article 14 would, however, ordinarily be drawn if  it seeks to impose on the same class of persons or occupations similarly  situated or an instance of taxation which leads to inequality.   The taxing  event under the Andhra Pradesh State Entertainment Tax Act is on the  entertainment of a person.   Rate of Entertainment tax is determined on the  basis of the amount collected from the visitor of a cinema theatre in terms of  the entry fee charged from a viewer by the owner thereof.    13.     It is not the case of the respondent that the imposition of different  rates of entertainment tax is justified on any ground other than language.   Entertainment of a person may not wholly depend upon the language of the  film he sees.  A film may be produced in one language and may be dubbed  in another. Even within a State, people belonging to different regions may  speak different languages, although the State language may be one.    14.     It has been accepted without dispute that taxation laws must also pass  the test of Article 14 of the Constitution of India. It has been laid down in a  large number of decision of this Court that a taxation statute for the reasons  of functional expediency and even otherwise, can pick and choose to tax  some. Importantly there is a rider operating on this wide power to tax and  even discriminate in taxation: that the classification thus chosen must be  reasonable. The extent of reasonability of any taxation statute lies in its  efficiency to achieve the object sought to be achieved by the statute. Thus,  the classification must bear a nexus with the object sought to be achieved    [See Moopil Nair v. State of Kerala  AIR 1961 SC 552, East India Tobacco  Co. v. State of Andhra Pradesh AIR 1962 SC 1733, V. Venugopala Ravi  Varma Rajah v. Union of India and Anr. AIR 1969 SC 1094, Assistant  Director of Inspection Investigation v. Kum. A.B. Shanthi AIR 2002 SC  2188, The Associated Cement Companies Ltd. v. Government of Andhra  Pradesh and Anr. AIR2006SC928]

15.     Objectives in a statute may have a wide range. But the entire matter  should also be considered from a social angle. In any case, it cannot be the  object of any statute to be socially divisive in which event it may fall foul of  broad constitutional scheme enshrined under Articles 19, 21 as also the  Preamble of the Constitution of India.  16.     In that behalf, it is important to read the object of a taxation statute on  the touchstone of social values as mentioned in the Constitution. An adverse  conclusion can be drawn if a particular statute goes against such values. It is  on thing to say that the taxation statute does not further social good, but  quite another when it disturbs the social fabric. The court may take adverse  note in respect to statutes falling in the latter category. We herein note two  cases where an attempt has been made to raise this discussion to the pedestal  of Directive Principles.  In Sri Srinivasa Theatre and Ors. v. Government of  Tamil Nadu and Ors. [(1992) 2 SCC 643], this Court held: "Article 14 of the Constitution enjoins upon the  State not to deny to any person ’Equality before  law’ or ’the equal protection of laws’ within the  territory of India. The two expressions do not  mean the same thing even if there may be much in  common\005  Equality before law is a dynamic concept having  many facets. One facet - the most commonly  acknowledged - is that there shall be no privileged  person or class and that none shall be above law. A  facet which is of immediate relevance herein is the  obligation upon the State to bring about, through  the machinery of law, a more equal society  envisaged by the preamble and Part IV of our  Constitution. For, equality before law can be  predicated meaningfully only in an equal  society i.e., in a society contemplated by Article  38 of the Constitution, which reads: 38. State to secure a social order for the  promotion of welfare of the people. (l) The  State shall strive to promote the welfare of

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the people by securing and protecting as  effectively as it may a social, economic and  political, shall inform all the institutions of  the national life. (2) The State shall, in particular, strive to  minimise the inequalities in income, and  endeavour to eliminate inequalities, in  status, facilities and opportunities, not only  amongst individuals but also amongst  groups of people residing in different areas  or engaged in different vocations. The instrument of taxation is not merely a  means to raise revenue in India; it is, and  ought to be, a means to reduce inequalities.  You don’t tax a poor man. You tax the rich  and the richer one gets, proportionately  greater burden he has to bear. Indeed, a few  years ago, the Income-tax Act taxed 94p out of  every rupee earned by an individual over and  above Rupees one lakh. The Estate Duty Act, no  doubt since repealed, Wealth-tax Act and Gift- tax Act are all measures in the same direction. It  is for this reason that while applying the doctrine  of classification - developed mainly with  reference to and under the concept of "equal  protection of laws" Parliament - is allowed more  freedom of choice in the matter of taxation vis-a- vis other laws...In the matter of taxation it is,  thus, not a question of power but one of  constraints of policy - the interests of economy,  of trade, profession and industry, the justness of  the burden, its ’acceptability’ and other similar  considerations. We do not mean to say that  taxation laws are immune from attack based upon  Article 14. It is only that Parliament and  legislatures are accorded a greater freedom and  latitude in choosing the persons upon whom and  the situations and stages at which it can levy tax.  We are not unaware that this greater latitude has  been recognised in USA and UK even without  resorting to the concepts of ’equality before law’  or "the equal protection of laws" - as something  that is inherent in the very power of taxation and  it has been accepted in this country as well. In the  context of our Constitution, however, there is an  added obligation upon the State to employ the  power of taxation - nay, all its powers - to  achieve the goal adumbrated in Article 38." (Emphasis supplied) 17.     In Elel Hotels and Investments Limited and Others v. Union of India  [(1989) 3 SCC 698], Justice Venkatachaliah observed:  "\005It is now well settled that a very wide latitude  is available to the legislature in the matter of  classification of objects, persons and things for  purposes of taxation. It must need to be so, having  regard to the complexities involved in the  formulation of a taxation policy. Taxation is not  now a mere source of raising money to defray  expenses of government. It is a recognised fiscal  tool to achieve fiscal and social objectives. The  differentia of classification presupposes and  proceeds on the premise that it distinguishes and  keeps apart as a distinct class hotels with higher  economic status reflected in one of the indicia of  such economic superiority\005"

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(Emphasis supplied)

18.     The fact of the matter remains that it is difficult to laud the objective  of the taxation statute in the instant matter which differentiates on the basis  of language alone. This is definitely derisive of social attributes of the polity  and Article 14 in its basic form i.e. equality before law. If any classification  seeks to take refuge of exception under reasonable differentia category  under Article 14, it must stay clear of the broad constitutional mandate as  mentioned hereinbefore. In the instant matter, the classification solely on the  basis of language, fails in its initiative to be called reasonable. The  classification thus is arbitrary and as such violative of Article 14 of the  Constitution of India.  

19.     In Venkateshwara Theatre v. State of Andhra Pradesh and Others  [(1993) 3 SCC 677] this court observed: "Since in the present case we are dealing with a  taxation measure it is necessary to point out that in  the field of taxation the decisions of this Court  have permitted the legislature 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."

20.     It is also required to be realized that imposition of reasonable tax is a  facet of good governance. 21.     Another aspect of the matter cannot also be lost sight of.  Taxing  statute like penal statues should receive strict construction.  It cannot be  arbitrary.  [See Bidhannagar (Salt Lake) Welfare Asson. V. Central  Valuation Board & Ors., Civil Appeal No. 6345 of 2000 decided this date]          22.     It may be true that the Court ordinarily is not concerned with the rate  of tax unless the same is wholly arbitrary or confiscatory. However, it is well  settled that generally speaking a tax imposed must be reasonable.  We may  only notice that a Constitution Bench of this Court in Jindal Stainless Ltd. v.  State of Haryana  & Ors. [JT 2006 (4) SC 611] stated : "38.   Tax is levied as a part of common burden.  The basis  of a tax is the ability or the capacity of the taxpayer to pay.   The principle behind the levy of a tax is the principle of  ability or capacity.  In the case of a tax, there is no  identification of a specific benefit and even if such  identification is there, it is not capable of direct  measurement.  In the case of a tax, a particular advantage,  if it exists at all, is incidental to the States’ action.   It is  assessed on certain elements of business, such as,  manufacture, purchase, sale, consumption, use, capital etc.  but its payment is not a condition precedent.   It is not a  term or condition of a licence.  A fee is generally a term of  a licence.   A tax is a payment where the special benefit, if  any, is converted into common burden."

23.     In Hardev Motor Transport v. State of M.P. & Ors. [JT 2006 (9) SC  454], this Court stated; "29.  Section 3 of the 1991 Act is the charging section.   It  provides that the tax shall be levied on every motor vehicle  used or kept for use in the State at the rates specified in the  First Schedule. The levy of tax, therefore, is on the motor  vehicles.   Its rate may vary keeping in view its use or the  nature thereof\005"

24.     This Court in this case is not concerned with the application of test of  reasonableness while considering the constitutionality of a statute.  The test

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of reasonableness, however, would vary from statute to statute and the  nature of the right sought to be infringed or the purpose for imposition of the  restriction.  It is also not a case where a Section of the people have been  picked up and they form the constituted class by itself.  It is furthermore not  a case where the State has picked up and chosen districts, objects, methods  in the matter of imposition of tax.  However, although a legislative body has  a wide discretion, and taking statute may not be held invalid unless the  classification is clearly unreasonable and arbitrary but it is also trite that  class legislation is that which makes an improper discrimination by  conferring particular privileges.   "Class legislation is that which makes an  improper discrimination by conferring particular privileges upon a class of  persons, arbitrarily selected from a large number of persons, all of whom  stand in the same relation to the privilege granted and between whom and  the persons not so favoured no reasonable distinction  or substantial  difference can be found justifying the inclusion of one and the exclusion of  the other from such privilege.  A classification must not be arbitrary,  artificial or evasive and there must be a reasonable, natural and substantial  distinction in the nature of the class or classes upon which the law operates."  (See Weaver’s  Constitutional Law, Page 397)

25.     The purported classification only on the basis of language without  anything more and in particular having regard to the difference in the rate of  tax, in our opinion is ex-facie arbitrary.  The burden was, therefore,  on the  State to show that the imposition was justified. Different rates of  entertainment tax had not been levied having regard to the nature of theatre,  the area where they were situated or extent of occupancy etc.   It has not  been explained as to whether cinema theatres exhibiting Telugu films suffer  from any disadvantage which others had not been.    It has not been shown  as to why the same theatre where films in different languages are exhibited  

would be a class apart, only because at different times exhibit films  produced in different languages.   Moreover, how telugu films have been  treated as a separate class have not been stated.  Although the legislature  enjoys a greater freedom and latitude in chosing person upon whom and  suggest upon which it can levy tax, it is trite that taxing legislations are not  immune from attack based on Article 14.  It is also not the case of the  respondent State that in imposing different rate of tax, they intend to achieve  an avowed object envisaged under Part IV of the Constitution of India.

26.     We, furthermore, may take judicial notice of the fact and keeping in  view that this case was tagged with other matters where it had been brought  to our notice that some States have been making hostile discriminations at  the instance of the distributors of the films produced in local languages.    State of Andhra Pradesh imposed the said tax on the said basis which is per  se discriminatory in nature.

27.     We are, therefore,  of the opinion that the impugned levy cannot be  sustained being discriminatory in nature.  It is struck  down accordingly.  Petitioner would, thus, be bound to pay tax at the rate at which entertainment  tax has been levied in respect of Telugu films.  The  Writ Petition is allowed  with costs.  Counsel’s fees assessed at Rs. 50,000/-.