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M/S Tamil Nadu State Marketing Corporation Ltd. v. Union of India

Civil Appeal · 2020 INSC 657Decided 25 Nov 2020
Civil Appeal No. 3821 of 2020
Justice Ashok Bhushan · Justice R. Subhash Reddy · Justice M.R. Shah

Background

The Tamil Nadu State Marketing Corporation (TASMAC) challenged Section 40(a)(iib) of the Income Tax Act, 1961 before the Madras High Court, arguing the provision, which disallows certain VAT-related deductions for specific state undertakings, was discriminatory and violated Article 14 of the Constitution. The High Court declined to decide the constitutional challenge on its merits, reasoning that the matter was still pending before the Income Tax assessing officer and could be raised later, and dismissed the writ petition on that technical ground alone.

Decision Breakdown

The Supreme Court held that only a High Court, exercising its writ jurisdiction under Article 226, can decide whether a tax provision is constitutionally valid, and once a show-cause notice had been issued invoking that provision against TASMAC, a genuine cause of action had already arisen for TASMAC to challenge its validity, regardless of whether the tax assessment itself was still pending. The High Court was wrong to sidestep the constitutional question. The Supreme Court therefore set aside the High Court's order and sent the matter back to the High Court, directing it to actually decide the validity of Section 40(a)(iib) on its merits, while making clear it was expressing no opinion of its own on whether the provision is actually valid.

Lesson Learnt

A High Court cannot avoid deciding a genuine constitutional challenge to a law simply because related proceedings are still pending elsewhere, once a person is actually affected by a provision (such as by a show-cause notice), they are entitled to have its validity examined without having to wait.

Official source (sci.gov.in)View Judgment (PDF)

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