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