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legislative relations

Supreme Court of India

The Tata Iron & Steel Co., Ltd vs The State Of Bihar on 19 February, 1958

The appellant company, carrying on business as manufacturer

of iron and steel, with its factory and works at Jamshedpur

in Bihar, was assessed to sales tax for two periods prior to

the Constitution, under the Bihar Sales Tax Act, 1947 (No.

XIX Of 1947), enacted by the Bihar Legislature in exercise

of its exclusive power under the Government of India Act,

1935. The company used to send its goods from Jamshedpur to

various parts of India. In the railway receipt the company

itself figured as the consignee, it paid the freight and the

receipt was sent either to its branch offices or bankers to

be handed over to the purchaser when he paid the price.

From the amounts shown as gross turn-over in the two returns

for the two periods, the company claimed deduction of

certain amounts, being the valuable consideration for the

goods manufactured in Bihar but sold, delivered and consumed

outside, on the ground that in none of the transactions in

respect of the said sums did property in the goods pass to

the purchasers in Bihar. The appellant claimed further

deductions on account of the railway freight paid by it.

The Sales Tax Officer disallowed both the claims and added

the amounts of sales tax realised by the appellant from its

purchasers to the taxable turnover. The company appealed

against the orders of assessment, but the Commissioner of

Sales Tax dismissed its appeals. The Board of Revenue, in

revision, confirmed the orders of the Commissioner with

certain modifications and remanded the matters to the Sales

Tax Officer. On the appellant's application for reference

of certain questions of law, the Board referred them to the

High Court. One of them related to the legality of adding

the Sales Tax to the turn-over and was answered in favour of

the appellant and the respondent did not appeal. The other

questions decided by the High Court against the appellant

related to the vires of the Act and the validity of

retrospective levy of sales tax under S. 4(1) of the Act.

The appellant's contentions in the appeals were that the tax

levied under s. 4(1) read with S. 2(g) second proviso, cl.

(II), of the Act, was not a sales tax within the meaning of

Entry 48 in List II of the Seventh Schedule to the Govern-

ment of India Act, 1935, but was in the nature of excise

duty

172

1356

which a provincial legislature had no power to impose, that

the theory of territorial nexus was inapplicable to sales

tax and, in any case, there was no real or sufficient nexus

in the present cases and that retrospective levy of the

sales tax under s. 4(1) Of the Act destroyed the indirect

nature of the tax, thus making it a direct tax on the

dealer which could not be passed on to the consumer:

Held, (per Das, C. J., Venkatarama Aiyar, S. K. Das and A.K.

Sarkar, jj., Bose, J. dissenting), that the contentions

raised on behalf of the appellant must be negatived.

The provisions of S. 4(1) read with S. 2(g), second

proviso, of the Bihar Sales Tax Act, as amended by the Bihar

Sales Tax (Amendment) Act, 1948, (VI Of 1949), were within

the legislative competence of the Legislature of the

Province of Bihar. Both before and after the amendment, the

word 'sale' as used in s. 4(1) and as defined by S. 2(g) of

the Act, meant the transfer of property in the goods sold.

The second proviso added by the amending Act did not extend

that meaning so as to include a contract of sale. What it

actually did was to lay down certain circumstances in which

a sale, although completed elsewhere, was to be deemed to

have taken place in Bihar. Those circumstances did not

constitute the sale, but only located the situs of the sale.

Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash jai

Prakash, [1955] 1 S.C.R. 243, distinguished.

Nor was it correct to contend that the tax levied under s.

4(1) read with S. 2(g) Of the Act was in the nature of

excise duty. Under cl. (ii) of the second proviso to S.

2(g) of the Act the producer or manufacturer became liable

to pay the tax not because he produced or manufactured the

goods but because he sold them.

Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R.

go and Governor General v. Province of Madras, (1945) L.R.

72 I.A. 91, referred to.

There can be no doubt that the theory of territorial nexus

does apply to sales tax legislation. Although sales tax can

be levied only on a completed sale, this theory has its use

in indicating the circumstances in which the tax may be

enforced in a particular case. One or more of the several

ingredients of a sale may furnish the connection between the

taxing State and the sale.

State of Bombay v. United Motors (India) Ltd., [1953] S.C.R.

1069, Poppatlal Shah v. The State of Madras, [1953] S.C.R.

677 and The State of Bombay v. R.M.D. Chamarbaugwala, [1957]

S.C.R. 874, relied on.

Bengal Immunity Co. Ltd. v. The State of Bihar, [1955] 2

S.C.R. 603, considered.

Case law reviewed.

1357

As in a sale of goods, the goods must necessarily play an

important part, the circumstances mentioned in the proviso

to s. 2(g) of the Act, namely, the presence of the goods in

Bihar at the date of the agreement of sale or their

production or manufacture there must be held to constitute a

sufficient nexus between the taxing province and the sale

wherever that might take place.

Governor General v. Raleigh Investment, [1944] F.C.R. 229,

relied on.

Province of Madras v. Boddu Paidanna and Sons, [1942] F.C.R.

go, distinguished.

It would not be correct to contend that the theory of nexus

might lead to multiple taxation or obstruct inter-State

trade. Article 286(2) of the Constitution and the relevant

entries in the Legislative List are a complete safeguard to

any such contingency.

Although as a matter of economic theory, sales tax maybe an

indirect tax realisable from the consumer, it need not be

legally so and is not so under the Bihar Sales Tax Act,

1947, which imposes the primary liability on the seller. A

buyer, moreover, is not bound to pay sales tax over and

above the agreed sale price unless he is by contract bound

to do so. There can, therefore, be no scope for the

argument that the retrospective enforcement of the tax under

S. 4(1) of the Act could destroy the character of the tax or

that it was beyond the legislative competence of the Bihar

Legislature.



K.C. GAJAPATI NARAYAN DEO AND OTHER


Vs.


RESPONDENT:

THE STATE OF ORISSA.

Bench: Sastri, M. Patanjali (Cj), Mukherjea, B.K., Das, Sudhi Ranjan, Hasan, Ghulam, Bhagwati, Natwarlal H.



(i) that the question whether a law was a

colourable legislation and as such void did not depend on

the. motive or bona fides of the legislature in passing the

law but upon the competency of the legislature to pass that

particular law, and what the courts have to determine in

such cases is whether though the legislature has purported

to act within the limits of its powers, it has in substance

and reality transgressed those powers, the transgression

being veiled by what appears, on proper,examination, to be a

mere pretence or disguise. The whole doctrine of colourable

legislation is based upon the maxim that you cannot do

indirectly what you cannot do directly.


(ii) The impugned Act was in substance and form a law in

respect to the "taxing of agricultural income", as described

in entry 46 of List 11 of the Seventh Schedule to the

Constitution and, as the State Legislature was competent to

legislate on this subject, the Act was not void, and the

fact that the object of the legislature was to accomplish

another purpose, viz., to reduce the compensation payable

under the Estates Abolition Act, cannot render this law a

colourable legislation and void as such, as the ulterior

object itself was not beyond the competence of the

legislature.

(iii) Assuming that in India there is no absolute rule

of law that whatever is affixed to or built on the soil

becomes a part of it and is subject to the same rights of

property as the soil itself, there is nothing in law which

prevents the State Legislature from providing as part of an

estate abolition scheme that buildings lying within the

ambit of an estate and used primarily for the management or

administration of the estate should vest in the Government

as appurtenances to the estate itself. Such acquisition

would come within article 31(2) of the Constitution and if

the conditions laid down in clause (4) of that article are

complied with, it would be protected by that clause even if

the compensation provided for is not just and proper.

(iv) The provisions in the Orissa Estates Abolition Act,

1950, relating to private lands in the possession of

temporary tenants are not unconstitutional. Merely because

compensation was based on the produce rent payable by the

tenants it cannot be said that the landholder was given

compensation only for the landholder's rights and not for

the kudivaram (tenant's) rights also.

(v) The expression "passed by such legislature" in article

31(4) of the Constitution means passed with or without

amendments and the fact that the provisions relating to

vesting of private lands did not form a part of the Estates

Abolition Bill as originally introduced but were added to

the Bill after the new Constitution had come into force

would not deprive those provisions of the protection of

article 31(4) of the Constitution.

(vi) The provision contained in section 37 of the Orissa

Estates Abolition Act, 1950, for payment of compensation by

30 annual instalments is not a piece of colourable

legislation. It comes clearly within entry 42 of List III

of Schedule VII of the Constitution.

[The question whether the provisions of the Madras Estates

Land (Orissa Amendment) Act, 1947, which empowered the

Collector to settle and reduce rents were void because they

involved an improper delegation of legislative powers to the

executive and contravened article 14 of the Constitution was

raised, but with the consent of the counsel, their Lordships

decided to leave the question open as it did not relate to

the validity of the Orissa

3

Estates Abolition Act, which was the subject-matter in

dispute in the present case].



Supreme Court of India

Union Of India vs H. S. Dhillon on 21 October, 1971

HEADNOTE:

Section 3 of the Wealth Tax Act, 1957, imposes a tax on the

capital value of the net wealth of an assessee. Net wealth,

under the Act, is the amount by which the aggregate value of

all assets of the assessee, computed in the manner provided

by the Act, is in excess of the aggregate value of all debts

(subject to some exceptions) owed by the, assessee; and

assets, under s. 2(e) as it originally stood, meant

generally property of every description but not including

agricultural land, growing crops, grass or standing trees on

such land. Section 24 of the Finance Act, 1969, amended s.

2(e) of the Wealth Tax Act and included agricultural land

etc., in the assessee's assets for the purpose of computing

his net wealth.

The High Court held that the amendment was beyond the

legislative competence of Parliament.

In appeal to this Court, on the questions : (1) whether such

a tax on agricultural land could be imposed only by the

States under entry 49, List II, Seventh Schedule to the

Constitution, dealing with 'taxes on lands and buildings'-.

and (2) whether the object of specifically excluding

agricultural land from the scope of entry 86, List I was

also to take it out of the ambit of entry 97, List I, and

Art. 248, dealing with residuary powers of Parliament.

HELD: (Per S. M. Sikri, C.J., S. C. Roy, D. G. Palekar and

G. K. Mitter, JJ.) : The amendment is valid. [75 G]

(Per S. M. Sikri, C.J., S. C. Roy and D. G. Palekar, JJ.) :

(1) (a) Article 248 of the Constitution provides that

Parliament has exclusive power to make any law with respect

to any matter not enumerated in List II or List III and that

such power includes the power of making any law imposing a

tax not mentioned in those Lists. Under entry 97, List I,

Parliament has exclusive power to make laws with respect to

any other matter not enumerated in Lists II or III including

any tax not mentioned in either of those Lists. The scheme

of distribution of legislative powers in the Constitution

namely, Arts. 246 and 248 and entry 97, List I, shows that

any matter including a tax, which has not been allotted

exclusively to the State Legislatures under List II or

concurrently with Parliament under List III, falls. within

List I, including entry 97 of that List read with Art. 248.

If this is the true scope of residuary powers of Parliament,

then when dealing with a Central Act the only enquiry is

whether it is legislation in respect of any matter in List

II, for, this is the only field regarding which there is a

prohibition against Parliament. If a Central Act does not

34

enter or invade these prohibited fields there is no point in

trying to decide as to under which entry or entries of List

I or List III a Central Act would rightly fit to.[46F; 47F-G

61D, E]

Gift Tax Officer v. Nazareth, [1971] 1 S.C.R. 195, 200.

(b) This is the test that had been applied in interpreting

the Canadian Constitution and since the scheme of

distribution of legislative powers between the Dominion and

the Provinces under the British North America Act is

essentially the same as under the Indian Constitution those

principles of interpretation may be accepted as a guide.

[61F-G]

Subrahmanyam Chettiar v. Muthuswami Goundan, [1940] F.C.R.

188, applied.

Lefroy Canada's Federal System; Halsbury's Laws of England,

3rd Ed. Vol. 5 p. 498, Russel v. The Queen [1881-82] 7 A.C.

836, A. G. for Canada v. A.G. for Br. Columbia [1930] A.C.

ill, in re : The Regulation and Control of Aeronautics in

Canada, [1932] A.C. 54, In re : Silver Bros. Ltd. [1932]

A.C. 514 and Canadian Pacific Ry. Co. v. A.G. for Br.

Columbia [1950] A.C. 122, referred to.

Chhotabhai Jethabhai Patel v. Union, [1962] Supp. 2 S.C.R.

1, Province of Madras v. Boddu Paidanna, [1942] F.C.R. 90;

Bombay v. Chamarbaugwala, [1957] S.C.R. 874, Atiabari Tea

Co. v. Assam, [1961] 1 S.C.R. 809 and Automobile Transport

v. Rajasthan, [1963] 1 S.C.R. 491, explained.

(c) The adoption of this mode of enquiry will not affect the

federal structure of the Constitution. The State

Legislatures have full legislative authority to pass laws in

respect of entries in List II and subject to legislation by

Parliament on matters in List III. [67E-F].

(d) it is not right to say that on this basis, List I need

not have been formulated at all. Apart from the reason that

the enumeration was done in List I to allay the fears of

Provinces and Princely States which were not satisfied with

the statement that the Centre was to have only residuary

powers but were particular to know what those Centres'

powers were, there is some merit and legal effect in having

included specified items in List I, for, when there are

three Lists it is easier to construe List II in the light of

Lists I and III. If there had been no List I, many items in

List II would perhaps have been given a much wider

interpretation than can be given under the present scheme.

[58C-F; 67G-H]

(2) The impugned Act is not a law within entry 49, List II.

The nature of wealth-tax is different from that of a tax

under this entry. Wealth tax is a tax annually imposed on

the net value of all assets less liabilities of particular

tax payers. It is deemed to be imposed on the person of the

tax payer, but the requisites of a tax under entry 49, are :

(i) it must be a tax on units, that is, lands and buildings

separately As units, (ii) the tax cannot be a tax on

totality that is, it is not a composite tax on the value of

all lands and buildings, and (iii) the tax is not concerned

with, the division of interest in the buildings or lands,

that is, it is not concerned whether one person owns or

occupies it or two or more persons own or occupy it.

Therefore, the tax under entry 49 is not a personal tax but

a tax on property deemed to be imposed on an object the

property itself. [68B; 70E-H; 71A-B; E-G]

S. C. Nawan v. W. I T.O. [1969] 1 S.C.R. 108, Asstt.

Commissioner Urban Land Tax v. B. & C. Mills [1970] 1 S.C.R.

268 and Gift Tax Officer v. D. H. Nazareth, [1971] 1 S.C.R.

195, discussed and followed

35

The impugned legislation is therefore valid either under

entry 86, List I, read with entry 97, List I or under

entry 97 List I standing by itself. [72G-H]

(2) (a) It cannot be legitimately inferred that taxes on the

capital value of agricultural land were designedly excluded

from entry 97, List, I, because of the use of the words

'exclusive of agricultural land' in entry 86, List I. If the

intention was also not to include taxes on the capital value

of agricultural land in entry 97, then it would have been

included in some entry in List II or III, just as all other

matters and taxes which have been excluded from entries in

List I fall specifically within one or the other entries in

List II or List III, since it is unthinkable that the

Constitution makers, while creating a Sovereign Democratic

Republic, withheld certain matters or taxes beyond the

legislative competence of Parliament and the Legislatures of

the States, legislating either singly or jointly. The words

exclusive of agricultural land' are not words of

prohibition. [46G; 49C-F]

(b) The Constituent Assembly debates show that the first

draft of the 3 lists was such that in the case of the

Princely States taxes on capital value of agricultural land

were not expressly mentioned and could only have been

included in their residuary powers. If so, there can be no

reason for excluding it from the residuary powers ultimately

conferred on Parliament. The content of the residuary power

does not change with its conferment on Parliament. [49G;

50E-H]

(c) The words 'any other matter' in entry 97, List I, have

reference to matters on which Parliament has been given

power to legislate by the enumerated entries 1 to 96 and not

to matters on which it has not been given power to legislate

such as a topic mentioned by way of exclusion. it is true

that the field of legislation is demarcated by entries 1 to

96, List I, but demarcation does not mean that if entry 97

confers additional powers, it should not be given effect to.

[51F-H]

(d) But whatever doubt there may be on the interpretation of

entry 97 is removed by the wide terms of Art. 248. On its

terms, the only question to be asked is : 'Is the matter

sought to be legislated on included in List II or List III

or is the tax sought to be levied mentioned in List II or

List III. If the answer is in the negative, then it follows

that Parliament has power to make laws with respect to that

matter or tax. This is so because, the function of the

Lists is not to confer powers; they merely demarcate the

legislative field. The entries in the three Lists are only

legislative heads or fields of legislation,' and the power

to legislate is given to the appropriate Legislature by

Arts. 246 and 248 of the Constitution. [51H; 52A-B, E]

Harakchand Ratanchand Banthia v. Union, [1970] 1 S.C.R. 471,

489, followed.

G. G. in Council v. Raleigh Investment Co., [1944] F.C.R.

229, 261 applied.

(e) It cannot be said that because of the statement in the

report of the Union Powers Committee (Constituent Assembly

Debates) namely that the 'residuary subjects could only

relate to matters which, while they may claim recognition in

the future,' are not at present identifiable', wealth tax

would not fall under residuary power, since the concept of

tax on net wealth was then well known. On the contrary, the

debates show that notwithstanding that certain taxes were

known to the members of the Constituent Assembly they were

not mentioned in the final lists, and that they would only

fall within the residuary power. It is not a sound

principle of interpretation to adopt, to first ascertain

whether a tax was known to

36

the framers of the Constitution and include it in the

residuary powers only if it was not known, because, it would

be an impossible test to apply. The only safe guide for the

interpretation of an article or articles of an organic

instrument like the Constitution is the language employed,

interpreted not narrowly, but fairly in the light of the

broad and high purposes of the Constitution, but Without

doing violence to the language. Moreover, the debates

themselves show that it was realised that the residuary

entry would cover every matter not included in Lists 11 and

III, and that the enumeration of entries in List I only

followed the precedent of the Canadian Constitution and

informed the Provinces and the Princely States as to the

legislative powers the Union was going to have. [53B-D; 55E-

F; 57C-E]

A.G. for Ontario v. A.G. for Canada, [1947] A.C. 127, 150,

and A.G. for Ontario v. A.G. for Canada, [1912] A.C. 571,

581, referred to.

(4) It is true that under entry 86, List I, aggregation is

necessary because it is a tax on the 'capital value of

assets of an individual', but it does not follow that

Parliament is obliged to provide for deduction of debts in

order to determine the capital value of the assets. So,

even the Wealth Tax Act, as originally passed does not fall

under entry 86, List I. In fact this Court did not hold in

the earlier cases that the Wealth Tax Act fell under entry

86 List I. It was only so assumed. Therefore, it falls only

under entry 97 List I. [74C-E]

(5) Assuming that the Wealth Tax Act as originally enacted

fell under entry 86 List I, there is nothing in the

Constitution preventing Parliament from combining its powers

under entry 86, List I with its powers under entry 97, List

I. There is no principle which debars Parliament from rely-

ing on the powers under the specified entries 1 to 96, List

I and supplement them with the powers under entry 97, List

I, and Art. 248 or even the powers under entries in List

III. [74B-C]

State of Bombay v. Narothamdas Jathabhai, [1951] S.C.R. 51,

followed.

Subramaniam Chettiar v. Muthuswami Goundan, [1940] F.C.R.

188 and In re : The Regulation and Control of Aeronautics in

Canada, [1932] A.C. 54, 77, referred to,.

(Per Mitter, J. : The subject matter of the Wealth Tax Act

including or excluding agricultural land is not covered by

entry 86, List I, of the Seventh Schedule to the

Constitution, read with Art. 246, nor by entry 49, List II

but by entry 97, List I, read with Art. 248. [140C-D]

(a) Broadly speaking, the scheme under Art. 246 is that

Parliament is to have exclusive power to make laws with

respect to matters in List I, the State is to have such

exclusive power with respect to matters in List II, subject

to the powers of Parliament in respect of matters in List I

and List III, while matters in List III would be the subject

matter of legislation both by Parliament and the State

Legislatures. Under entry 97, List I, Parliament has

exclusive powers to. make laws with respect to any other

matter not enumerated in List II or List III including any

tax not mentioned in, either of those lists. Article 248

provides that Parliament has exclusive power to make laws

with respect to any matter not enumerated in the Concurrent

List or State List. The Article makes it clear that the

Constitution-makers were careful to see that the law making

power with .respect to any matters, which, until the date of

the Constitution, had not been thought of as fit for

legislation or had, by some chance, been omitted from the

field of Lists II and III, were to be within the exclusive

jurisdiction of Parliament to legislate. Such law-making

power was to extend to the imposition of a tax mentioned in

either of the lists.[113H; 114-A-F]

37

(b) Under the Wealth Tax Act, both before and after the

amendment in 1969, an annual tax is imposed on the value of

all the assets of an assessee which are in excess of all his

debts on the valuation date subject to certain exceptions.

The taxation was to be based on the net worth of an

individual, that is to say, his total assets less his debts.

It is therefore possible for in assessee, though seemingly

in possession of assets of great value hot to be subject to

proportionately high taxation if he owes large debts. The

scheme of the Wealth-tax Act in substance is thus to treat

the individual as if he were a business, ascertain the price

which the said business would fetch by deducting its

liabilities from its tangible assets and impose a tax on the

balance which is the net wealth of an individual. Whereas

under the Wealth-tax Act as originally enacted a portion of

the assets, namely agricultural land, was not to be taken

into consideration, the amendment of 1969 brought that in

for the computation of the value of the assets. But the

nature of the Act has not been changed, only it has been

made more comprehensive then before. The Act does not

proceed on the lines of Prof. Kaldor's suggestion that an

annual tax on wealth should be a tax on accrual and not a

tax on the principal itself. If the Act does not fall under

any entry in List I or List II or List III it must be

covered by entry 97, List I and be within the legislative

competence of Parliament under Art. 248. Under the express

words of Art. 248(1), one has only to consider whether the

subject-matter of legislation is comprised in List II or

List III : if it is not, Parliament is competent to

legislate on it irrespective of the inclusion of a kindred

subject in List I or the specified limits of such subject in

this List. Although read by itself entry 97 may seem to

suggest that the expression 'any other matter' has reference

to the other entries in List I, Art. 248(1) makes it clear

that such matters are those which are not covered by entries

in Lists II and III, [112C-D. E-F; 119H; 120A-E; 140B-D]

Entry 86 List I, deals with taxes on capital value of the

assets exclusive of agricultural land, of individuals and

companies. This is the only entry in List I to which the

Act could conform. There 'is no entry in List III to which

the Act could conform. It will not be improper to interpret

the expression 'capital value of assets' as meaning the

aggregate value of the. assets which a willing purchaser

would offer a willing seller for the property in its

condition at the time of the transaction. So interpreted the

expression will take in only the assets less the charges

secured on it, hut not a* other liability. The various

decisions and authorities on the law relating to Rating and

which bear on the true meaning of the expression also make

it amply clear that the expression can only mean there

market value of the assets less any encumbrances charged

thereon. The expression does not take in either general

liabilities of the individual owning them or in particular

the debts owed in respect of them. The capital value of the

assets of an individual is as different from his net wealth

as the market value of the saleable assets of a business is

from its value as a going concern ignoring the good will.

When a business is valued as a going concern its assets and

liabilities whether charged on the fixed assets or not have

to be taken into account but in computing the value of the

tangible assets of the business the general liabilities of

the business apart from the encumbrances on its assets do

not figure. [122C-E; 139E-H]

Halsbury's Laws of England, 3rd Ed. Vol. 32, p. 79, Rvde on

Rating, 11th ed. p. 433 and Faraday on Rating, 5th ed., p.

42 referred to.

(d) In all the earlier cases regarding imposition of wealth

tax it was assumed that the Act fell under entry 86, and the

principal ground of attack on the Act was. that 'Hindu

undivided families, are-not 'individuals' and could not be

brought to tax under that entry directly or by the aid of

Art. 248, read with entry 97 of List I. No serious attempt

was made

38

in any of the cases to properly indentify the subject-matter

of the legislation imposing the tax and, ascertain whether

capital value of assets meant the same thing as net wealth.

Therefore, the subject matter of legislation by the Wealth

Tax Act is not. covered by entry 86. [139B-E]

Mahavir Prasad Badridas v. Yagnik, II W.T.O. [1959] 37

I.T.R. 191, N. V. Subrahmanian v. W.T.O. 40 I.T.R. 569, P.

Ramabhadra Raja v. Union, 45 I.T.R. 118, C. K. Mohammad Keyi

v. W.T.O. 44 I.T.R. 277, Jugal Kishore v. W.T.O. 44 I.T.R.

94, S. A. Shitole v. W.T.O.52 I.T.R. 372, M. A. Muthial

Chettiar v. W.T.O. 53 I.T.R. 104, Banarsi Das v. Taxing

Officer, [1965] 2 S.C.R. 355 and S. C. Main v. W.T.O.,

[1969] 1 S.C.R. 108 and Asstt. Commissioner v. B. & C.

Mills, [1970] 1 S.C.R. 286, referred to.

(e) Entry 86 can be utilized for levying a capital levy in

an emergency or by way of a marginal imposition on an

individual's assets without considering his holding of

agricultural land. [14OA-B]

(f) Scanning the lists there can be little doubt that the

Constitution makers took care to insert subject-matters of

legislation regarding land and particularly agricultural

land and matters incidental to the holding of agricultural

land in the exclusive jurisdiction of State Legislatures,

except when such agricultural land is included in evacuee

property or when a question of acquisition or requisitioning

of agricultural property arises. So far as some specific

matters of legislation with regard to agricultural land are

concerned, they have been set forth in List II while there

are corresponding entries in List I which expressly exclude

agricultural land. But, while entry 86, List I, excludes

agricultural land from assets for purposes of capital value,

there is no corresponding entry with regard to tax on

capital value of agricultural lands, the nearest approach to

it being Entry 4.9 in List II dealing with 'taxes on lands

and buildings'. [119A-F]

(g) The concept of tax on net wealth which includes not only

the value of the assets but also excluded the general

liabilities of the assessee to pay his debts, is one

entirely different from a concept of tax attributable to

lands and buildings as such. That is, the levy has no

direct relationship' to the aggregate value of the assets of

an individual, but his net worth which was to be determined

by deducting his liabilities from the total value of the

assets held by him. Even assuming that entry 49, List II

envisages imposition to taxes on lands and buildings

adopting a mode of a certain percentage on their capital

value, lands and buildings must still be subject to taxation

as units and no aggregation is possible. The taxes on

lands, and buildings in the entry should It construed as

taxes on lands and taxes on buildings. Further, no State

Legislature is confident to levy a tax which would embrace

an individual's assets in the shape of lands and buildings

outside the State. [136G-H; 140B-C]

The Asstt Commissioner v. B. & C. Mills, [1970] 1 S.C.R. 268

and S. C. Nawn v. W.T.O. [1969] 1 S.C.R. 108, followed.

Sri Prithivi Cotton Mills Ltd. V'. Borough Municipality

[1970] 1 S.C.R.388, Rella Ram v. Province of East Punjab,

[1948] F.C.R. 207; C. K. Mohammad Kali v. W.T.O. 44 I.T.R.

277, Sir Byramjee Jeejeebhoy v. Province of Madras, A.I.R.

1940 Bom. 65, Municipal Corporation v. Godhandas A.I.R. 1954

Bom. 188 and Patel Gordhandas Hargobindas v. Municipal

Commissioner Ahmedabad, [1964] 2 S.C.R. 608, 622, referred

to.

39

Therefore the subject matter of legislation by the Wealth

Tax Act is not covered by Entry 49, List II also-. Hence

Parliament has power to levy tax on net wealth inclusive of

agricultural land under its residuary power.

(Per J. C., Shelat, A. N. Ray and 1. D. Dua, JJ.) Dissenting

: (1) (a) Wealth tax is a tax annually imposed on the net

value of all assets less liabilities. Such a deduction

distinguishes the tax from property taxes such as death

duties and capital levy. It is not imposed directly on the

property but on the person of the assessee as it takes into

consideration the assessee's taxable capacity, by deducting

his debts and liabilities from the gross value of his

assets. [81E-F; 82C-D]

The Wealth Tax Act, 1957, as originally enacted was passed,

by Parliament in exercise of its power under Art., 246(1)

read with entry 86, List I, Seventh Schedule of the

Constitution. That entry deals with a tax on the capital

value of the assets, exclusive of agricultural land, of an

individual or a company. Under the Act the basis of the tax

is the capital value of the assets held by an assessee on

the relevant valuation date. The fact that it excludes one

or more of the assets-agricultural land before amendment-or

allows from its incidence certain deductions, such as debts

and liabilities, pertains to the field of computation and

not the basis of the tax and it does not change the

character of the tax. [80F,-G; 81D]

(b) Prof. Nicholas Kaldar, on whose recommendations in his

Report on Indian Tax Reforms, 1956, the wealth tax was

imposed, though the tax fell under the entry. [82A-C]

(c)In all the earlier cases that came up before this Court

or the High Courts dealing with wealth tax, it was never the

contention of the Union that-the Act did not fall under

entry 86, List I. The discussion regarding Parliament's

power under the entry and the State Legislature's power

under entry 49, List II was not obiter nor did it proceed on

assumptions. In deciding upon the ambit of the respective

powers, the court made a distinction between a tax directly

upon lands and buildings as units by reason of ownership in

such lands and buildings (which would fall under entry 49,

List II) and a tax on the capital value of the total assets

barring agricultural land-. It was categorically held that

the two were conceptually different and that the letter fell

under entry 86, List I.


Supreme Court of India

Hoechst Pharmaceuticals Ltd. And ... vs State Of Bihar And Others on 6 May, 1983

Equivalent citations: 1983 AIR 1019, 1983 SCR (3) 130

Bihar Finance Act, 1981-Sub-ss. (I) and (3) of s. 5-

Levy of surcharge on sales tax and prohibition from passing

on liability thereof to purchasers- Whether void in terms of

opening words of Art. 246(3)for being in conflict with

Paragraph 21 of Drugs (Price Control) order, 1979 issued

under s. 3(1) of Essential Commodities Act?-whether

violative of Arts. 14 and 19(1) (g) ?- Whether it is an

essential characteristic of Sales Tax that these seller must

have right to pass it on to consumer 7-Whether

classification of dealers on the basis of 'gross turnover'

as defined in s. 2(j) invalid ?

Constitution of India-Art. 246-State Legislatures Power

to make law with respect to matters enumerated in List 11-

Whether subject to Parliaments power to make law in respect

of matters enumerated in List 111 ?-Doctrine of 'pith and

substance' and the principle of 'Federal Supremacy '.

Constitution of India-Art. 254(i)-Can repugnancy

between a State law and a law made by Parliament arise

outside the Concurrent field ?

Constitution of India-Arts. 200 and 201-Governor's

decision to refer a Bill t o President-Whether subject to

Court s scrutiny ?-'Assent of President '- Whether

justiciable ?




Sub-section (l) of s. S of the Bihar Finance Act, 1981

provides for the levy of a surcharge in addition to the tax

payable, on every dealer whose gross turnover during a year

exceeds Rs. 5 lakhs and, sub-s. (3) thereof prohibits such a

dealer from collecting amount of surcharge payable by him

from the purchaser. In exercise of the power conferred by

this section, the State Government fixed the rate of

surcharge at 10 per cent of the total amount of tax payable

by a dealer.

Two of the appellants in this batch of appeals were

companies engaged in the manufacture and sale of the

medicines throughout India whose branches sales depots in

Bihar were registered as dealers. Their products were sold

through wholesale distributors/stockists appointed in almost

all the districts of the Slate and their gross turnover

within the State during the relevant period ran into crores

of rupees. Most of the medicines and drugs sold by them were

covered by the Drugs (Price Control) Order, 1919 issued

under sub-s. (l) of

131

s. 3 of the Essential Commodities Act in terms of which they

were expressly prohibited from selling those medicines and

drugs in excess of the controlled A price fixed by the

Central Government from time to time but were allowed to

pass on the liability to the consumer. During the assessment

years 1980-81 and 1981-82 they had to pay the surcharge

under s. 5(1) of the Bihar Finance Act, 1981 at 10 per cent

of the tax payable by them.

The appellants challenged the Constitutional validity

of sub-s. (3) of s. 5 but the same was repelled by the High

Court relying on the decision in S. Kodar. v. State of

Kerala, [1979]1 S.C.R. 121.

It was contended on behalf of the appellants: (i) that

sub-s. (3) of s. S of the Act which is a State law relatable

to Entry 54 of List 11 of the Seventh Schedule to the

Constitution and which provides that no dealer shall be

entitled to collect the surcharge levied on him is void in

terms of the opening words of Art. 246(3) of the

Constitution as it is in direct conflict with paragraph 21

of the Drugs (Price Control) order 1979, issued under sub-s.

(1) of s. 3 of the essential Commodities Act, 1955 which is

a Union Law relatable to Entry 33 of List III and which

enables the manufacturer or producer of drugs to pass on the

liability to pay sales tax to the consumer; (ii) that the

words "a law Mads by Parliament which Parliament is

competent to enact ' contained in Art. 254(1) must be

construed to mean not only a law made by Parliament with

respect to one of the matters enumerated in the Concurrent

List but also to include a law made by Parliament with

respect to any of the matters enumerated in the Union List

and therefore sub-s. (3) of s. 5 of the Act being repugnant

to Paragraph 21 of the Control order is void under Art.

254(iii) that if both sub-s. (1) and sub-s. (3) of s. 5 were

relaxable to Entry 54 of List II, there was no need for the

Governor to have referred the Bihar Finance Bill, 1981 to

the President for his assent and that the President's assent

is justiciable; (iv) that dealers of essential commodities

who cannot raise their sale prices beyond the controlled

price cannot be equated with other dealers who can raise

their sale prices and absorb the surcharge and since sub-s.

(3) of s. S treats "unequals as equals" it is arbitrary and

irrational and therefore Violative of Art. 14 of the

Constitution: (v) that sales tax being essentially an

indirect tax, the legislature was not competent to make a

provision prohibiting the dealer from collecting the amount

of surcharge and that the true nature and character of

surcharge being virtually a tax on income, sub-s. (3) of s.

5. is unconstitutional as it imposes an unreasonable

restriction upon the freedom of trade guaranteed under Art.

19(1)(g). (vi) that sub-s. (3) of s. S of the Act which is a

State law being repugnant to paragraph 21 of the Drugs

(Price Control) Order which is issued under a Union law, the

latter must prevail in view of the non obstants clause in s.

6 of the Essential Commodities Act and the former which is

inconsistent therewith should be by-passed in terms of the

decision in Hari Shankar Bagla and Anr. v. State of Madhya

Pradesh, [1955] I S.C.R. 380. and (vii) that in view of the

decision in A. V fernandez v. State of Kerala.[1957] S.C.R.

837, sub-s. (1) of s. 5 of the Act which makes the "gross

turnover" as defined in s. 2(j) of the Act which includes

transactions taking place in the course of inter-state or

International Commerce to be the basis for the levy of

surcharge is ultra vires the State Legislature,

132

Dismissing the appeals,

^

HELD: 1. (a) It cannot be doubted that the surcharge

partakes of the nature of sales tax and therefore it was

within the competence of the State Legislature to enact sub-

s. (1) of s. 5 of the Act for the purpose of levying

surcharge on certain class of dealers in addition to the tax

payable by them. When the State Legislature had competence

to levy tax on sale or purchase of goods under Entry 54 of

List II of the Seventh Schedule it was equally competent to

select the class of dealers on whom the charge would fall.

If that be so, the State Legislature could undoubtedly have

enacted sub-s. (3) of s. S prohibiting the dealers liable to

pay the surcharge under sub-s.(l) thereof from recovering

the same from the purchaser. [156 H-157 B]

(b) The power of the State Legislature to make a law

with respect to the levy and imposition of a tax on sale or

purchase of goods relatable to Entry 54 of List II and to

make ancillary provisions in that behalf is plenary and is

not subject to the power of Parliament to make a law under

Entry 33 of List III. There is no warrant for projecting the

power of Parliament to make a law under Entry 33 of List III

into the State s power of taxation under Entry 54 of List

II. Otherwise, Entry 54 of List II will have to be read as:

"Taxes on sale or purchase of goods other than the essential

commodities, etc." When one entry is made 'subject to'

another entry, all that it means is that out of the scope of

the former entry, a field of legislation covered by the

latter entry has been reserved to be specially dealt with by

the appropriate legislature. Entry 54 of List II is only

subject to Entry 92A of List I and there can be no further

curtailment of the State's power of taxation.

[183 F-H, 184 A-B]

(c) The Constitution effects a complete separation of

the taxing power of the Union and of the States under Art.

246 The various entries in the three lists are not 'powers

of legislation, but 'fields of legislation. The power to

legislate is given by Art. 246 and other Articles of the

Constitution. Taxation is considered to be a distinct matter

for purposes of legislative competence. Hence, the power to

tax cannot be deduced from a general legislative entry as an

ancillary power. Further, the element of tax does not

directly flow from the power to regulate trade or commerce

in, and the production supply and distribution of essential

commodities under Entry 33 of List II, although the

liability to pay tax may be a matter incidental to the

Centre's power of price control. [184 E-G]

(d) A scrutiny of Lists I and II would show that there

is no overlapping anywhere in the taxing power and that the

Constitution gives independent sources of taxation to the

Union and the States. There is a distinction made between

general subjects of legislation and taxation and these are

dealt with in separate groups of entries: in List I, Entries

I to 81 deal with general subjects of legislation and

entries 82 to 92A deal with taxes; in List II Entries I to

44 deal with general subjects of legislation and Entries 45

to 63 deal with taxes. This mutual exclusiveness is also

brought out by the fact that in List III, there is no entry

relating to a tax it only

133

contains an entry relating to levy of fees. Thus, in our

Constitution, a conflict of taxing power of the Union and of

the States cannot arise. The two A laws viz., sub-s. (3) of

s. S of the Act and paragraph 21 of the Drugs (Price

Control) order issued under sub-s (I) of s. 3 of the

Essential Commodities Act operate on two separate and

distinct fields and both are capable of being obeyed. There

is no question of any clash between them. [184 H-185 F]

M.P. Sundararamier and Co. v. State of Andhra Pradesh

and Anr., [1958] S.C.R. 1422, referred to.

Seervai: Constitutional Law of India, 3rd Ed., Vol, I,

pp. 81-82, referred to.

(e) The words `Notwithstanding anything contained in

cls. (2) and (3) in cl. (1) of Art. 246 and the words

"Subject to cls. (1) and (2)" in cl. (3) thereof lay down

the principle of Federal Supremacy viz., that in case of

inevitable conflict between Union and State powers, the

Union power as enumerated in List I shall prevail over the

State power as enumerated in Lists ll and III, and in case

of overlapping between Lists li and III, the former shall

prevail. But the principle of Federal Supremacy laid down in

Art. 246 cannot be resorted to unless there is an

'irreconcilable' conflict between the Entries in the Union

and State Lists. The non obstante clause in cl. (I) of Art.

246 must operate only if reconciliation should prove

impossible. However, no question of conflict between the two

Lists will arise is the impugned legislation, by the

application of the doctrine of 'pith and substance' appears

to fall exclusively under one List, and encroachment upon

another List is only incidental [165 A-E]

(f ) The true principle applicable in judging the

constitutional validity of sub-s. (3) of s. S of the Act is

to determine whether in its pith and substance it is a law

relatable to Entry 54 of List II and not whether there is

repugnancy between it and paragraph 21 of the Drugs (Price

Control) order The constitutionality of the law has to be

judged by its real subject matter and. not by its incidental

effect upon any topic of legislation in another field. Once

it is found that in pith and substance the impugned Act is a

law on a permitted field any incidental encroachment on a

forbidden field does not affect the competence of the

legislature to enact that Act. No doubt, in many cases it

can be said that the enactment which is under consideration

may be regarded from more than one angle and as operating in

more than one field. If, however, the matter dealt with

comes within any of the classes of subjects enumerated in

List II, then, under the terms of Art. 246(3) it is not to

be deemed to come within the classes of subjects assigned

exclusively to Parliament under Art. 246(1) even though the

classes of subjects looked at singly overlap in many

respects. The whole distribution of powers must be looked at

from the point of view of determining the question of

validity of the impugned Act. It is within the competence of

the State Legislature under Art. 246(3) to provide for

matters which though within the competence of Parliament,

are necessarily incidental to effective legislation by the

State Legislature on the subject of legislation expressly

enumerated in List II. [162 B, 171 D, 177 C-E]

134

In the Central Provinces and Berar Sales of Motor

Spirit and Lubricants Taxation Act, 1938, [1939] F.C.R, 18;

Citizen Insurance Company v. William Parsons, L.R. [1882] 7

A.C. 96; Attorney General for the Province of ontario v.

Attorney General for the Dominion of Canada, L.R. [1912]

A.C. 571; A.L.S.P.P.L. Subrahmanyam Chettiar v. Muttuswami

Goundan, [1940] F.C.R. 188; Governor General in Council

v. Province of Madras, [1945] F.C.R. 179; The Province of

Madras v. Messers Boddu Paidanna & Sons, [1942] F.C.R. 90,

Prafulla Kumar Mukherjee & Ors v. Bank of Commerce Ltd.,

Khulna, A.I.R. [1947] P.C. 60; and Grand Trunk Railway

Company of Canada v. Attorney General of Canada, L R [19071

A.C. 65, referred to.

2.(a) The question of repugnancy under Art. 254(1)

between a law made by Parliament and a law made by the State

Legislature arises only in case both the legislations occupy

the same field with respect to one of the matters enumerated

in the Concurrent List and there is direct conflict between

the two laws. It is only when both these requirements are

fulfilled that the State law will, to the extent of

repugnancy become void. Art. 254(1) has no application to

cases of repugnancy due to overlapping found between List ll

on the one hand and List I and List Ill on the other. If

such overlapping exists in any particular case, the State

law will be ultra Vires because of the non obstante clause

in Art. 246(1) read with the opening words 'Subject to' in

Art 246(3). In such a case, the State law will fail not

because of repugnance to the Union law but due to want of

legislative competence. [145 C, 181 F]

(b) It is no doubt true that the expression "a law made

by Parliament which Parliament is competent to enact" in

Art. 254(1) is susceptible of a construction that repugnance

between a State law and a law made by Parliament may take

place outside the Concurrent sphere because Parliament is

competent to enact law with respect to subjects included in

List III as well as List I. But, if Art. 254(1) is read as a

whole, it will be seen that it is expressly made subject to

cl. (2) which makes reference to repugnancy in the field o

Concurrent List. In other words, if cl. (2) is to be the

guide in the determination of the scope of cl. (l), the

repugnancy between Union and State law must be taken to

refer only to the Concurrent field. Art. 254(1) speaks of a

State law being repugnant to a law made by Parliament or an

existing law. The words "with respect to qualify both the

clauses in Art. 254(1) viz., a law made by Parliament which

Parliament is competent to enact as well as any provision of

an existing law. The underlying principle is that the

question of repugnancy arises only when both the

legislatures are competent to legislate in the same field,

i.e., with respect to one of the matters enumerated the Con-

current List. [181 G-182 A, R-C]


(c) Entry 54 of List II is a tax entry and therefore

there is no question of repugnancy between sub-s. (3) of s.

5 of the Act and paragraph 21 of the Control order. The

question of repugnancy can only arise in connection with the

subjects enumerated in the Concurrent List as regards which

both the Union and the State Legislatures have concurrent

powers.

3. It is clear from Arts. 200 and 201 that a Bill

passed by the State Assembly may become law if the Governor

gives his assent to it or if, having been reserved by the

Governor for the consideration of the President, it is

assented to by the President. There is no provision in the

Constitution which lays down that a Bill which has been

assented to by the President would be ineffective as an Act

if there was no compelling necessity for the Governor to

reserve it for the assent of the President. It is for the

Governor to exercise his discretion and to decide whether he

should assent to the Bill or should reserve it for

consideration of the President to avoid any future

complication. Even if it ultimately turns out that there was

no necessity for the Governor to have reserved a Bill for

the consideration of the President still he having done so

and obtained the assent of the President, the Act so passed

cannot be held to be unconstitutional on the ground of want

of proper assent. This aspect of the matter, as the law now

stands, is not open to scrutiny by the Courts. In the

instant case, the Finance Bill which ultimately became the

Act in question was a consolidating Act relating the

Different subjects and perhaps the Governor felt that it was

necessary to reserve it for the assent of the President The

assent of the President is not justifiable and the Court

cannot spell out any infirmity arising out of his decision

to give such assent. [193 A-194 B]

Teh Chang Poh @ Char Meh. v. Public Prosecutor.,

Malaysia, L.R. [1980] A.C 458. referred to.

4. (a) There is no ground for holding that sub-s. (3)

of s. 5 of the Act is arbitrary or irrational or that it

treats "unequals as equals" or that it imposes a

disproportionate burden on a certain class of dealers. A

surcharge in its true nature and character is nothing but a

higher rate of tax to raise revenue for general purposes.

The levy of surcharge under sub-s. (l) of s. S falls

uniformly on a certain class of dealers depending upon their

capacity to bear the additional burden. The economic wisdom

of a tax is within the exclusive province of the

legislature. The only question for the Court to consider is

whether there is rationality in the behalf of the

legislature that capacity to pay the tax increases by and

large with an increase of receipts. The view taken by the

Court in kodar's case that, to make the tax of a large

dealer heavier is not arbitrary discrimination, but an

attempt to proportion the payment to capacity to pay, and

thus to arrive at a more genuine equality, is in consonance

with social justice in an egalitarian State. [186 H-187 A,

191 B, 191 A]

S. Kodar v. State of Kerala, [1975] I S.C.R. 121,

relied on.

136

(b) There is no basis for the submission that the Court

was wrong in Podar's case. The contention that ability to

pay is not a relevant criterion for upholding the validity

of sub-s. (3) of s. 5 of the Act in question cannot be

accepted. On questions of economic regulations and related

matters, the Court must defer to the legislative judgment.

When the power to tax exists, the extent of the burden is a

matter for the discretion of the law-makers It is not the

function of the Court to consider the propriety or justness

of a tax or enter upon the realm of legislative policy. If

the evident intent and general operation of the tax

legislation is to adjust the burden with a fair and

reasonable degree of equality, the constitutional

requirement is satisfied The equality clause in Art. 14 does

not take away from the State the power to classify a class

of persons who must bear the heavier burden of tax. The

classification having some reasonable basis does not offend

against that clause merely because it is not made with

mathematical nicety or because in practice it results in

some inequalities. [189 H-190 G]

(c) There is no lacteal foundation laid to support the

contention that the levy of surcharge imposes a

disproportionate burden on a certain class of dealers such

as manufacturers or producers of drugs, etc. The business

carried on by the appellants in the State of Bihar alone is

of such magnitude that they have the capacity to bear the

additional burden of surcharge That apart under the scheme

of the Control order the profit margins of manufacturers and

producers of medicines and drugs is considerably higher than

that of wholesalers. If the appellants find that the levy of

surcharge cannot be borne within the present price structure

of medicines and drugs, they have the right to apply to the

Centrals Government for revision as the retail price of

'formulations under paragraph I S of the Control order.

[186 F, 187 G, 189 G]

5. It is no doubt true that a sales tax is, according

to the accepted notions, intended to be passed on to the

buyer, and the provisions authorising and regulating the

collection of sales tax by the seller from the purchaser are

a usual feature of sales tax legislation. However, it is not

an essential characteristic of sales tax that the seller

must have the right to pass it on to the consumer; nor is

the power of the legislature to impose a tax on sales

conditional on its making a provision for sellers to collect

the tax from the purchasers Whether a law should be enacted,

imposing a sales tax, or validating the imposition of sales

tax, when the seller is not in a position to pass it on to

the consumer, is a matter of policy and does not affect the

competence of the legislature. The contention based on Art.

19(1)(g) cannot therefore be sustained. [191 E-H]

The Tata Iron & Steel Co., Ltd. v. The State of Bihar,

[1958] S.C.R. 1355; M/s. J. K Judge Mills Co. Ltd. v. 'The

State of Uttar Pradesh, 1962, 2 S.C.R. 1 and S. Kodar v.

State of Kerla, [1975] I S.C.R. 121, referred to.

6. (a) The appellants being manufacturers or producers

of 'formulations' are not governed by paragraph 21 of the

Control order but by paragraph 24 thereof and therefore the

price chargeable by them to wholesaler or distributor is

inclusive of sales tax. There being no conflict between sub-

s. (3) of

137

s. 5 of the Act and paragraph 24 of the Control order, the

question of the non obstante clause to s. 6 of the Essential

Commodities Act coming into play does A not arise. [158 G]

Hari Shankar Bagla & Anr. v. State of Madhya Pradesh,

[1955] 1 S.C.R. 380, referred to.

(b) Even otherwise, i.e., if some of the appellants

were governed by paragraph 21 of the Control order, that

would hardly make any difference. Under the scheme of the

Act, a dealer is free to pass on the liability to pay sales

tax payable under s. 3 and additional sales tax payable

under s. 6 to the purchasers. Sub-s. (3) of s. 5 however

imposes a limitation on dealers liable to pay surcharge

under sub-s. (I) thereof from collecting the amount of

surcharge payable by them from the purchasers which only

means that surcharge payable by such dealers under sub-s.

(I) of s. 5 will cut into the profits earned by such

dealers. The controlled price or retail price of medicines

and drugs under paragraph 21 remains the same, and the

consumer interest is taken care of inasmuch as the liability

to pay surcharge; under sub-s. (3) of s. 5 cannot be passed

on. That being so, there is no conflict between sub-s. (3)

of s. 5 of the Act and paragraph 21 of the Control order.

[158 H-159 C]

The predominant object of issuing a control order under

sub-s. (I) of s. 3 of the Essential Commodities Act is to

secure the equitable distribution and availability of

essential commodities at fair prices to the consumers, and

the mere circumstance that some of those engaged in the

field of industry, trade or commerce may suffer a loss is no

ground for treating such a regulatory law to be

unreasonable, unrest the basis adopted for price fixation is

so unreasonable as to be in excess of the lower to fix the

price, or there is a statutory obligation to ensure a fair

return to the industry. [159 G-H]

Shree Meenakshi Mills Ltd. v. Union of India, [1974] 2

S.C.R. 398; and Prag Ice & oil Mills v. Union of India,

[1978] 3 S.C.R. 293. referred to

7. The decision in Fernandez's case is an authority for

the proposition that the State Legislature, notwithstanding

Art. 286 of the Constitution, while r making a law under

Entry 54 of the List II can, for purposes of registration of

a dealer and submission of returns of sales tax, include the

transactions covered by Art. 286. That being so, the

constitutional validity of sub s. (I) of s. 5 which provides

for the classification of dealers whose gross turnover

during a year exceeds Rs. 5 lakhs for the purpose of levy of

surcharge in addition to the tax payable by them, is not

assailable. So long as sales in the course of inter-State

trade and Commerce or sales outside the State and sales in

the course of import into, or export out of the territory of

India are not taxed there is nothing to prevent the State

Legislature while making a law for the levy of surcharge

under Entry 54 of the List II to take into account the total

turnover of the dealer within the State and provide that if

the gross turnover of such dealer exceeds Rs. 5 lakhs in a

year he shall, in addition to the tax, also pay a surcharge

at such rate not exceeding 10% of the tax as may be

provided. The liability to pay the surcharge is not on the

Gross turnover

138

including the transactions covered by Art. 286 but is only

on inside sales and A the surcharged is sought to be levied

on dealers who have a position of economic superiority. The

definition of gross turnover in s. 2(j) is adopted not for

the purpose of bringing to surcharge inter-State sales etc.,

but is only for the purpose or classifying dealers within

the State and to identify the class of dealers liable to pay

such surcharge. There is sufficient territorial nexus

between the persons sought to be charged and the State

seeking to tax them.


Prafulla Kumar Mukherjee vs The Bank Of Commerce on 11 February, 1947

Equivalent citations: (1947) 49 BOMLR 568

Author: Porter

Bench: Wright, Porter, Uthwatt, M Nair, J Beaumont




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