The Constitution of India guarantees equality before law and equal protection of law to all persons in India.1 Given that this guarantee is enshrined as an inviolable fundamental right, the equality doctrine is all pervasive. In its practical dynamics, judiciary has evolved certain principles towards the application of this constitutional mandate whereby it does not interject every inequality and instead permits classification of persons provided there is an “intelligible differentia” for the classification and “the differentia must have a rational relation to the object sought to be achieved by the law”.2 Thus, there exists a “permissible classification” test as a practical measure to consider application of the equality doctrine.
Inter alia considering that the State should have a greater latitude and flexibility in designing the national economic framework, uniquely qua fiscal legislations and tax policy, the judiciary has accorded a further differential standard for assessing their validity.3 It has been candidly stated by the Supreme Court, therefore, that:4
40. … 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 manner in which the tax may be imposed. Courts are extremely circumspect in questioning the reasonability of such classification but after a “judicial generosity is extended to legislative wisdom, if there is writ on the statute perversity, madness in the method or gross disparity, judicial credibility may snap and the measure may meet with its funeral”.
The extent of permissible classification test, thus, has been framed much wider as a consequence of which a wide variety of tax laws and fiscal policy choices have been judicially sustained without a deeper examination. For illustration, the following judicial stance is noteworthy:
(i) Selective taxation by levying tax only on certain species of a larger genus is held to be permissible. For illustration, taxing supply of lottery tickets despite holding it to be an actionable claim, while not taxing other actionable claim, has been upheld by the Supreme Court.5
(ii) Different tax rates depending upon the class of taxpayers have also been sustained. For illustration, the Supreme Court has rejected the argument that imposition of a rate of 150 per cent on imports made by private citizens constitutes a violation of Article 14 of the Constitution on the ground that the rate applied to corresponding imports by the State Trading Corporation is 5 per cent only.6
(iii) Mere anomalies amongst taxpayers on account of enforcement of fiscal laws is also not a ground for judicial injunction against their application.7
The courts have, however, reinforced the need to maintain the limits of permissible classification. Sustaining the equality doctrine, even tax jurisprudence reveals a significant tide of judicial observations which interject the State’s actions when found discriminatory. Broadly, a review of precedents reveals two categories of judicial thoughts. First, wherein the statutory provisions or the actions of government instrumentalities are per se declared invalid in view of the violation of the constitutional prescription of equality and, second, wherein the differentiation amongst the taxpayers is found to cross the limits of permissible classification. In the first, the judicial determination is directed more towards appraising the legal provision or executive actions qua the equal doctrine whereas in the second, the judicial exercise is largely driven by appreciation of the factual setting amongst the taxpayers. In order to appreciate these trends, some illustrations are helpful.
Qua the first variant, some of the followings are examples of judicial decisions wherein the statutory scheme or executive action is in itself found to violate the equality doctrine:
(i) The decision of a five-Judge Bench of the Supreme Court in Kunnathat Thatehunni Moopil Nair v. State of Kerala8 is one of the earliest judicial exposition quashing a taxing provision as violating Article 14. In this case, the Supreme Court found that subjecting differently placed taxpayers to similar tax incidence is a violation of equality doctrine. Interestingly, this decision also stands out as an illustration interjecting lack of classification in a tax law.9 On similar lines, recently the Gujarat High Court has quashed a Goods and Services Tax (GST) Notification No. 11 of 2017
120. … which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.10
(ii) Expounding the discrimination test further, the Supreme Court has even quashed the conditions of an exemption notification which purport to deny benefit of exemption amongst similarly placed taxpayers.11
(iii) The Supreme Court has, furthermore, quashed the tax penalty provisions on the ground that they are mandatory and inflexible which result into treating unequals as equals.12 On similar lines, other provisions of tax laws have been quashed by the Supreme Court, which treat both defaulting and bona fide taxpayers alike.13
(iv) Tax discrimination against taxpayers on grounds of their location has also been quashed additionally by invocation of the constitutional guarantee of freedom of trade and inter-course across the country.14
(v) Substantive tax provisions which illustrate gender misogyny have also been quashed by the Supreme Court.15
Qua the second variant, some of the following aspects illustrate the limits of judicial tolerance towards reining in discriminatory stands vis-à-vis the taxpayers:
(i) In Damodar J. Malpani v. Collector of Central Excise16, the Supreme Court called out the tax authorities for adopting discriminating stands against the taxpayers and directed the Tax Tribunal to address the alleged discrimination. Many other decisions are to similar effect.17
(ii) In Steel Authority of India v. Collector of Customs18, the Supreme Court declared that tax authorities cannot adopt different positions across the country; they must mandatorily adopt a uniform position. Having said that, the burden to demonstrate discrimination, however, is upon the taxpayer.19 Furthermore, the benefit is limited to select instances because Article 14 cannot be attracted where wrong orders are issued in favour of others, that is to say that there is no discrimination if correct orders are passed even if wrong orders were earlier passed in favour of some other persons.20
(iii) The Supreme Court has also quashed circulars issued by tax administration which suffer from bias and are discriminatory in nature.21
To conclude, a review of law reports reveals that there is sufficient judicial reflection to the effect that: (a) While the courts will grant a liberal latitude to the legislature and the executive in the formulation of tax law and policy and permit classification amongst the subjects, limits do exist towards ensuring against discrimination of taxpayers; and (b) though not every discrimination is actionable,22 nonetheless the existence of noticeable decisions expounding the discrimination doctrine enable judicial access to taxpayers aggrieved by unequal and inconsistent formulation or application of tax policy and law.
*Advocate, Supreme Court of India; LLM, London School of Economics; BBA, LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur. The author can be reached at mailtotarunjain@gmail.com.
1. Constitution of India, Art. 14 states:
14. Equality before law.—The State shall not deny to any person equality before the law or equal protection of the laws within the territory of India.
2. The decision of State of Punjab v. Davinder Singh, (2025) 1 SCC 1, 116-117, per Chandrachud CJ inter alia states as under:
85. The Constitution permits valid classification if two conditions are fulfilled. First, there must be an intelligible differentia which distinguishes persons grouped together from others left out of the group. The phrase “intelligible differentia” means difference capable of being understood. [See, State of W.B. v. Anwar Ali Sarkar, (1952) 1 SCC 1] The difference is capable of being understood when there is a yardstick to differentiate the class included and others excluded from the group. [Anwar Ali Sarkar case, (1952) 1 SCC 1 (Das, J., SCC para 66)] In the absence of the yardstick, the differentiation would be without a basis and hence, unreasonable. The basis of classification must be deducible from the provisions of the statute; surrounding circumstances or matters of common knowledge. [Ram Krishna Dalmia v. S.R. Tendolkar, 1958 SCC OnLine SC 6, para 12] In making the classification, the State is free to recognise degrees of harm. [Ram Krishna Dalmia case, 1958 SCC OnLine SC 6; Special Courts Bill, 1978, In re, (1979) 1 SCC 380] Though the classification need not be mathematical in precision, there must be some difference between the persons grouped and the persons left out, and the difference must be real and pertinent. [Murthy Match Works v. Collector of Central Excise, (1974) 4 SCC 428] The classification is unreasonable if there is “little or no difference”. [Deepak Sibal v. Punjab University, (1989) 2 SCC 145] Second, the differentia must have a rational relation to the object sought to be achieved by the law, that is, the basis of classification must have a nexus with the object of the classification. [Indra Sawhney v. Union of India, 1992 Supp (3) SCC 217 (Reddy, J., SCC para 643); State of Kerala v. N.M. Thomas, (1976) 2 SCC 310; Ram Krishna Dalmia v. S.R. Tendolkar, 1958 SCC OnLine SC 6; Budhan Choudhry v. State of Bihar, (1954) 2 SCC 791]
3. In R.K. Garg v. Union of India, (1981) 4 SCC 675 : (1982) 133 ITR 239, 690-691, the majority of a five-Judge Bench speaking through Bhagwati, J., inter alia set out this differential standard in appreciation of the fiscal policy and tax law in the following terms:
8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud, [1957 SCC OnLine US SC 105 : 1 L Ed 2d 1485 : 354 US 457 (1957)] where Frankfurter, J., said in his inimitable style:
“In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events — self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.”
The Court must always remember that “legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry”; “that exact wisdom and nice adaption of remedy are not always possible” and that “judgment is largely a prophecy based on meagre and uninterpreted experience”. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig Refining Co., [1950 SCC OnLine US SC 14 : 94 L Ed 381 : 338 US 604 (1950)] be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.
4. Gujarat Ambuja Cements Ltd. v. Union of India, (2005) 4 SCC 214 : (2005) 274 ITR 194 : (2005) 1 VST 1, following Ganga Sugar Corpn. Ltd. v. State of U.P., (1980) 1 SCC 223; Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634 : (1989) 178 ITR 97 : (1989) 74 STC 102, etc.
5. Skill Lotto Solutions (P) Ltd. v. Union of India, (2021) 15 SCC 667 : (2021) 84 GSTR 1 rejecting the argument that such tax policy amounts to “hostile discrimination”.
6. M. Jhangir Bhatusha v. Union of India, 1989 Supp (2) SCC 201.
7. Indian Oil Corpn. Ltd. v. State of Bihar, (2018) 1 SCC 242 : (2018) 53 GSTR 116, 264-265. The decision inter alia observes the following:
24. Shri Datar’s next plea was that a literal reading of the second proviso would lead to a situation where the same goods would suffer different rates of tax and this would be discriminatory. We are afraid that this plea also does not avail the appellant for the simple reason that there are two taxes which are levied in the present case, one is value added tax (VAT) and the other is entry tax. In one case, VAT is set off against the entry tax and in another, VAT is not so set off. Any anomaly arising from the aforesaid position would not lead to a charge of clear and hostile discrimination.
25. When it comes to taxing statutes, the law laid down by this Court is clear that Article 14 of the Constitution can be said to be breached only when there is perversity or gross disparity resulting in clear and hostile discrimination practiced by the legislature, without any rational justification for the same. (See, Twyford Tea Co. Ltd. v. State of Kerala, (1970) 1 SCC 189, paras 16 and 19; Ganga Sugar Corpn. Ltd. v. State of U.P., (1980) 1 SCC 223, 236 and P.M. Ashwathanarayana Setty v. State of Karnataka, 1989 Supp (1) SCC 696, 724-726).
9. The relevant observations are to the following effect:
8. It is common ground that the tax, assuming that the Act is really a taxing statute and not a confiscatory measure, as contended on behalf of the petitioners, has no reference to income, either actual or potential, from the property sought to be taxed. Hence, it may be rightly remarked that the Act obliges every person who holds land to pay the tax at the flat rate prescribed, whether or not he makes any income out of the property, or whether or not the property is capable of yielding any income. The Act, in terms, claims to be “a general revenue settlement of the State” (Section 3). Ordinarily, a tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made, with due diligence, and, therefore, is levied with due regard to the incidence of the taxation. Under the Act in question, we shall take a hypothetical case of a number of persons owning and possessing the same area of land. One makes nothing out of the land, because it is arid desert. The second one does not make any income, but could raise some crop after a disproportionately large investment of labour and capital. A third one, in due course of husbandry, is making the land yield just enough to pay for the incidental expenses and labour charges besides land tax or revenue. The fourth is making large profits, because the land is very fertile and capable of yielding good crops. Under the Act, it is manifest that the fourth category, in our illustration, would easily be able to bear the burden of the tax. The third one may be able to bear the tax. The first and the second one will have to pay from their own pockets, if they could afford the tax. If they cannot afford the tax, the property is liable to be sold, in due process of law, for realisation of the public demand. It is clear, therefore, that inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is no attempt at classification in the provisions of the Act. Hence, no more need be said as to what could have been the basis for a valid classification. It is one of those cases where the lack of classification creates inequality. It is, therefore, clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution. Furthermore, Section 7 of the Act, quoted above, particularly the latter part, which vests the Government with the power wholly or partially to exempt any land from the provisions of the Act, is clearly discriminatory in its effect and, therefore, infringes Article 14 of the Constitution. The Act does not lay down any principle or policy for the guidance of the exercise of discretion by the Government in respect of the selection contemplated by Section 7.
10. Munjaal Manishbhai Bhatt v. Union of India, (2022) 104 GSTR 419 : 2022 SCC OnLine Guj 2593.
11. Union of India v. N.S. Rathnam, (2015) 10 SCC 681 : (2015) 34 GSTR 38. See also, Spentex Industries Ltd. v. CCE, (2016) 1 SCC 780 : (2015) 35 GSTR 332 to similar effect.
12. Shree Bhagwati Steel Rolling Mills v. CCE, (2016) 3 SCC 643 : (2016) 36 GSTR 222.
13. For illustration, see, CIT v. Pepsi Foods Ltd., (2021) 7 SCC 413 : (2021) 433 ITR 295.
14. U.P. Asbestos Ltd. v. State of Rajasthan, 2025 SCC OnLine SC 2057.
15. Assn. of Old Settlers of Sikkim v. Union of India, (2023) 5 SCC 783 : (2023) 451 ITR 213.
17. For illustration, Birla Corpn. Ltd. v. CCE, (2005) 6 SCC 95; Unipatch Rubber Ltd. v. CCE, (2011) 272 ELT 340 (SC).
18. (2001) 9 SCC 198. See further, Boving Fouress Ltd. v. CCE, (2006) 202 ELT 389 (S.C., etc. as an instance of a series of decision which are to the effect that “where the department accepts the principle laid down by the Tribunal in one case and let it become final, then the department is not entitled to raise the same point in other cases. The department cannot pick and choose.”
19. For illustration, see, Amin Merchant v. Central Board of Excise & Revenue, (2016) 9 SCC 191 : (2016) 40 GSTR 1, para 41; Mallur Siddeswara Spinning Mills (P) Ltd. v. CCE, (2004) 12 SCC 65, etc. In fact, in Union of India v. Paliwal Electricals (P) Ltd., (1996) 3 SCC 407, 413, the extent of burden on the taxpayer was framed by the Supreme Court in the following terms:
10. … It should also be remembered that generally speaking the exemption notification and the terms and conditions prescribed therein represent the policies of the Government evolved to subserve public interest and public revenue. A very heavy burden lies upon the person who challenges them on the ground of Article 14. Unless otherwise established, the Court must presume that the said amendment was found by the Central Government to be necessary for giving effect to its policy (underlying the notification) on the basis of the working of the said Notification and that such an amendment was found necessary to prevent persons from taking unfair advantage of the concession.
20. Faridabad CT Scan Centre v. D.G. Health Services, (1997) 7 SCC 752. See also, Collector of Customs v. Maestro Motors Ltd., (2005) 9 SCC 412; Coromandel Fertilisers Ltd. v. Union of India, (2005) 9 SCC 412, etc. to similar effect.
21. Union of India v. Rubfila International Ltd., (2021) 17 SCC 427.
22. For illustration, the Supreme Court in Union of India v. Nitdip Textile Processors (P) Ltd., (2012) 1 SCC 226 : (2011) 11 GSTR 474, 255 famously observed that:
67. … Discrimination resulting from fortuitous circumstances arising out of particular situations, in which some of the tax payers find themselves, is not hit by Article 14 if the legislation, as such, is of general application and does not single them out for harsh treatment. Advantages or disadvantages to individual assessees are accidental and inevitable and are inherent in every taxing Statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line.
In this decision, the Supreme Court further explained the judicial reluctance relying past precedents which were explained in the following terms:
68. The point is illustrated by two decisions of this Court. In Khandige Sham Bhat v. Agricultural Income Tax Officer, Kasaragod, (1963) 48 ITR 21 : 1962 SCC OnLine SC 15. Travancore Cochin Agricultural Income Tax Act was extended to Malabar area on 1-11-1956 after formation of the State of Kerala. Prior to that date, there was no agricultural income tax in that area. The challenge under Article 14 was that the income of the petitioner was from areca nut and pepper crops, which were harvested after November in every year while persons who grew certain other crops could harvest before November and thus escape the liability to pay tax. It was held that, that was only accidental and did not amount to violation of Article 14.
69. In Jain Bros v. Union of India, (1969) 3 SCC 311 : (1970) 77 ITR 107, Section 297(2)(g), Income Tax Act, 1961 was challenged because under that Section proceedings completed prior to April, 1962 was to be dealt under the old Act and proceedings completed after the said date had to be dealt with under the Income Tax Act, 1961 for the purpose of imposition of penalty. 1-4-1962 was the date of commencement of the Income Tax Act, 1961. It was held that the crucial date for imposition of Penalty was the date of completion of assessment or the formation of satisfaction of authority that such act had been committed. It was also held that for the application and implementation of the new Act, it was necessary to fix a date and provide for continuation of pending proceedings. It was also held that the mere possibility that some officer might intentionally delay the disposal of a case could hardly be a ground for striking down the provision as discriminatory.