Khyerbari Tea Co. Ltd. & ANR Vs.
The State of Assam  INSC 250 (13 December 1963)
13/12/1963 GAJENDRAGADKAR, P.B.
GUPTA, K.C. DAS AYYANGAR, N. RAJAGOPALA
CITATION: 1964 AIR 925 1964 SCR (5) 975
R 1970 SC 129 (10) E 1970 SC1864 (5) R 1971
SC1737 (47) RF 1972 SC1804 (11) F 1975 SC 583 (13) RF 1975 SC1443 (21) MV 1975
SC2065 (35,60) RF 1975 SC2299 (606) F 1976 SC 182 (18) R 1977 SC1686 (5) RF
1980 SC 898 (64) RF 1981 SC 463 (16,26,34) RF 1981 SC 991 (13) E&R 1982 SC
902 (19) MV 1982 SC1325 (31,32) R 1983 SC1155 (13,20,23,25) RF 1990 SC 313 (24)
E 1990 SC 772 (1,3) RF 1990 SC 781 (13)
Constitution of India, 1950, Arts. 301,
304(b) and Seventh Schedule, List II, Entry 56-Assam Taxation (on Goods carried
by Road or on Inland Water-ways) Act (Assam Act X of 1961)Constitutional
This petition challenges the constitutional
validity of the Assam Taxation (on Goods carried by Road or on Inland Waterways)
Act, 1961. The previous Act of 1954 having been declared constitutionally
invalid by this Court in Atiabari Tea Co. Ltd. v. State of Assam  1
S.C.R. 809, the Assam Legislature with the previous sanction of the President
of India under Art. 304(b) of the Constitution, passed the impugned Act with
retrospective effect from the date on which the Act of 1954 had been
promulgated and its provisions were except for certain additional provisions
substantially the same. The Assam High Court which was moved under Art. 226 of
the Constitution held that the Act was constitutionally invalid. The State of
Assam applied for and obtained certificates to appeal to this Court. The
present petitioners moved this Court under Art. 32 of the Constitution. Since
petitioner No. 1 was a company and as such its petition was incompetent,
petitioner No. 2, the Manager of the company, was heard and some of the
respondents in the appeals to be preferred by the State of Assam were allowed
to intervene in the present proceedings.
The case of petitioner No. 2 was that the
company exported tea grown and manufactured in its own garden from Goalpara in
Jalpaiguri District to Calcutta. The booking station and the destination were
both in West Bengal, the total distance between them being 689 miles of which
only 1-1/2 to 2 miles of inland waterways lay in the State of Assam. The tea
was carried by railway from Goalpara to Dhubrighat and thereafter by ferries on
inland waterways and transhipped to steamers at the said Ghat. It was contended
that ss. 3 and 34, which were the material provisions of the Act, were invalid
and that the Assam Legislature was incompetent to enact the said provisions
which constituted unreasonable restrictions on the freedom of trade guaranteed
by Art. 301 and infringed Art. 19(1)(g) of the Constitution.
Held. (per Gajendragadkar, Wanchoo, Das Gupta
and Ayyangar JJ.), As the impugned Act was not found to be compensatory by the
High Court nor was it claimed to be so by the State the only question that fell
to be decided in this petition was whether the restrictions imposed by the
impugned Act were 976 reasonable and in the public interest within the meaning
of Art. 304(b) of the Constitution.
Atiabari Tea Co. Ltd. v. State of Assam,
 1 S.C.R. 809, and Automobile Transport (Rajasthan) Ltd. v. State of
Rajasthan,  1 S.C.R. 491, explained.
The entries in the three lists in the Seventh
Schedule must be given the widest possible interpretation. Power conferred on
the Legislature to levy tax must be widely construed so as to include the power
to select the taxable articles, to fix the rates, to prescribe the machinery
for recovery, to prevent evasion and to prescribe the procedure for determining
the amount payable by any individual. It could not be assumed that Entry 56 of
List II, in giving the Legislature the power to enact the impugned Act,
required that the tax must be levied only against the owner of the goods that
were carried or against persons who carried them,, If the tax was really levied
on goods carried, the Legislature was free to prescribe the machinery for its
R.C. Jall v. Union of India.  Supp. 3
S.C.R. 436, Sardar Baldev Singh v. Commissioner of Income-tax, Delhi &
Ajmer. [1961) 1 S.C.R. 482 and Orient Paper. Mills Ltd. v. State of Orissa.
 1 S.C.R. 549, referred to.
Section 3(1) of the impugned Act which
imposed the tax and s. 3(2) which made the producer liable to pay it could not
therefore be impugned on the ground of legislative incompetence.
M' Cullock v. Maryland, (1819)4 L. Ed. 579,
But the machinery set up for recovery of the
tax should have a rational connection with the tax. The absence of such a nexus
between them would make the tax liable to attack as being unjustified under
Article 304(b), properly construed, does not
require that laws passed under it must always be prospective. It was not
correct to say that once the State Legislature passed an Act without recourse
to that Article and it was struck down, it could not reenact that Act under the
Article and give it retrospective effect. That Article contemplates
restrictions and-not prohibitions and the rule that prohibitory legislation
cannot have retrospective operation can have no application.
Punjab Province v. Daulat Singh., L.R. 73
I.A. 59, held inapplicable.
M.P. V. Sundararamier & Co. v. State of
Andhra Pradesh  S.C.R. 1422, applied.
M/s. West Ramanand Electric Distribution Co.
Ltd. v. State of Madras.  2 S.C.R. 747, referred to.
Nor could it be said that a restrictive
statute passed under Art. 304(b) with retrospective operation must necessarily
defeat the scheme of Part XIII of the Constitution.
977 The mere fact that a validating taxing
statute has retrospective operation does not necessarily change the character
of the tax sought to be recovered by such retrospective operation. The proviso
to s. 3(2) of the impugned Act was not retrospective in character and did not
change the character of the tax.
Rai Ramkrishna v. State of Bihar  1
S.C.R. 897 referred to.
A law enacted under Art. 304(b) with the
previous sanction of the President does not necessarily take away the
jurisdiction of the Court to consider whether the restrictions imposed by it
are reasonable and in the public interest. The observation in Atiabari Tea Co.'s
case in this regard should not be taken as conclusive on the point.
Although there is a presumption in favour of
the constitutionality of a statute, if it is proved that it invades fundamental
rights under Art. 19(1), the onus shifts on to the State and it must justify
its validity under Art.
19(6). Onus under Art. 304(b) is still more
in favour of the citizen as it clearly purports to restrict the freedom of
Saghir Ahmad v. State of U.P.  1 S.C.R.
Hamdard Dawakhana. (Wakf) Lal Kuan, Delhi v.
Union of India.
(1960] 2 S.C.R. 671, referred to.
The impugned Act by making the producer
liable for the tax under s. 3(2) proviso or by assessing the tax on a flat rate
on weight instead of by the ton and mileage method, could not be said to have
imposed unreasonable restrictions. The law of taxation is a balance of complex
considerations and if the Legislature thought that a flat rate was just and
fair to the tea trade as a whole no exception could be taken to it.
It was not correct to say that s. 34 of the
impunged Act was discriminatory or infringed Art. 19(1) (g). It was not
discriminatory in that it selectedonly tea and jute for taxation. The
Legislature had full freedom to determine which articles it should tax, in what
manner and at what rate.
Raja Jagannath Baksh Singh v. State of U.P.
 1 S.C.R.
220 and East India Tobacco Co. v. State of
Andhra Pradesh,  1 S.C.R. 404, referred to.
The power of this Court to strike down a
taxing statute for contravention of Arts. 14, 19 or 301 must be exercised with
circumspection. It is only in cases of such statutes as are clearly
confiscatory in character that the power of this Court can be invoked or
K.T.Moopil Nair v. State of Kerala,  3
S.C.R. 77, referred to.
The impugned Act was not colourable
legislation in any sense.The power of legislation carried with it the power to
make the, law 1 SCI/64-62 978 retrospective And the passing of a validating Act
is essentially subsidiary to that power conferred by the relevant legislative
Nor was the Act extra-territorial in its
Whether the goods are carried for a long or a
short distance had no bearing on legislative competence under Entry 56 List 11
under which the impugned Act was enacted. Since the goods were carried,
although over a very small part of inland waterways in Assam, the doctrine of
nexus, applicable to such cases, was satisfied.
Tata Iron & Steel Co. Ltd. v. State of
Bihar,  S.C.R.
1355, referred to.
The word 'carried' in Entry 56, List 11 is of
wider denotation than 'import' and the Act could not be impugned on the ground
that the goods carried and taxed did not join the mass of goods in the State of
Central India Spinning and Weaving and
Manufacturing Co. Ltd. v. Munkipal Committee, Wardha,  S.C.R. 1102, held
The power to levy the tax conferred by Entry
56, List 11, was not controlled by the Tea Act, 1953, passed by the Parliament
under List I. Nor was it correct to say that the River Boards Act, 1956,
imposed a bar on the Assam Legislature to pass the impugned Act.
Per Sarkar, J.-Entries in the Legislative
Lists have to be read in their widest amplitude. So read there could be no
doubt that the Assam Legislature was competent under Entry 56 of List II to
provide for the realisation of the tax in the manner most suitable to it. The
words of the Entry were wide enough to enable the Legislature to realise the
tax either from the producer, even though he did not carry it, or from the
person who actually carried it.
Under the proviso to s. 3(2) of the Act, a
notification could not be issued with retrospective effect. That proviso made
the producer liable for realisation of the tax from the purchaser from the date
appointed by the notification. If the notification appointed a past date, it
would be incompetent.
It was not correct to say that a statute contemplated
by Art. 304(b) cannot be retrospective. A legislature competent to pass a law
can pass it with retrospective effect. If the flow of the trade could be
restricted prospectively, it could be restricted retrospectively as well. The
restrictions imposed by Art. 304(b) stand on the same footing as those under
There is no prohibition in Art. 304 and,
therefore, it could not be said that it did not contemplate retrospective
operation. It provides for reasonable restrictions on the freedom of trade and
therefore permits and does not prohibit.
Punjab Province v. Daulat Singh L.R. 73 I.A.
59, held inapplicable.
979 Entry 56 of List II does not require that
the tax imposed must be measured according to the distance they are carried.
A flat rate is not wanting in reasonableness.
It would not be wrong to say that since a tax is collected in public interest
and for public good the burden imposed by it on trade would prima facie be
reasonable in the public interest.
The legislature has the power to pick, and
choose the articles on which to impose the tax and such choosing cannot by
itself amount to discrimination. The Act applies to all who are concerned with
the carriage of tea and jute.
Raja Jagannath Baksh Singh v. State of Bihar,
 1 S.C.R. 220, referred to.
Section 34 of the impugned Act did not
violate Art. 14 of the Constitution, nor could it be said that it was a
A validating Act, passed under the same
legislative power under which the invalid Act was passed, would not amount to
Gajapati Narayan Deo v. State of Orissa,
 S.C.R. 1, referred to.
Since the Assam Legislature had the power to
impose the tax on carriage of goods, however short the distance over which they
were carried, the impugned Act could not be said to be bad for
Quaere as to on whom the onus of proving the
reasonableness of a restriction imposed by a statute on which its constitutionality
ORIGINAL, JURISDICTION : Writ Petiton No. 134
Petition under Art. 32 of the Constitution of
India for the enforcement of Fundamental Rights.
S.K. Niyogi and S.C. Mazumdar, for the
B.C. Barua, Advocate-General, Assam, M.C.
Setalvad, R.B. Datar and Naunit Lal, for the respondents.
G.S. Pathak, A.N. Sinha and B.N. Ghosh, for
December 13, 1963. The Judgment of P.B.
Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta and N. Rajagopala Ayyangar JJ.
was delivered by Gajendragadkar J. A. K.
delivered a separate Opinion.
980 GAJENDRAGADKAR J.-The present writ
petition by which the two petitioners Khyerbari Tea Co. Ltd., and M. Sudhir
Chandra Guha, Manager of the said Company, seek to challenge the validity of
the Assam ; Taxation (On Goods, Carried by Road or on Inland Waterways) Act,
1961 (No. 10 of 1961) (hereinafter called 'the Act'), is a sequel to the
decision of this Court in the case of Atiabari Tea Co., Ltd. v. The State of
Assam(1). To this petition have been impleaded three respondents, the State of
Assam, the Commissioner of Taxes, the taxing authority appointed under s. 6 of
the Act, and the Superintendent of Taxes, Dhubri Division. We will refer to the
State of Assam as the respondent hereafter.
The respondent had, passed a similar Act No.
13 of 1954 which had received the assent of the Governor on the 9th April,,
1954. The validity of the said Act was challenged by the petitioners and
certain other producers of tea by filing writ petitions before the Assam High
Court. The Assam High Court dismissed the writ petitions and held that the
impugned Act of 1954 was valid. The said judgment was pronounced by the High
Court on the 6th of June, 1955. The petitioners whose writ petitions had been
dismissed, then preferred appeals to this Court by special leave, and they
also, moved this Court by writ petitions under Art. 32 of the Constitution.
These matters were heard by this Court in the case of Atiabari Tea Co. Ltd.(1)
and by its judgment delivered on the 26th September, 1960, the said impugned
Act was struck down as being unconstitutional. Thereafter, the Act with which
we are concerned in, 'the , present proceedings was passed by the Assam
Assembly. It received the assent of the President on the 6th April, 1961. The
relevant terms of the Act are, on the whole, substantially similar to the terms
of the earlier Act which was struck down, The Act has made certain additional
provisions to which we will refer later. The petitioners contend that the
operative provisions of the Act are invalid, and so, they pray for issue of an
appropriate writ (1) (1061] 1 S.C.R. 809.
981 or order directing the respondent not to
enforce the operative provisions, against them. Petitioner No. 1 is a company
and as such," it has no right to move this Court under Art. 32. This position
is conceded by Mr. Mazumdar for the petitioners. Petitioner No. 2 who is the
Manager of Petitioner No. 1 is, however, a citizen of India and as such, he is
entitled to challenge the validity of the Act inasmuch as the respondent
threatens to take action in pursuance of the material provisions of the Act'
against the company of which he is the Manager. Mr. Setalvad does not dispute
the right of petitioner No. 2 to move this Court by a petition under Art. 32.
After the Act was passed and it came into
force, the question about the scope and effect of the provisions contained in
Part XIII of the Constitution which had been dealt with by this Court in the
case of Atiabari Tea Co.(1) came to be considered. by a larger Bench in the
case of the Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan(2),
and the decision of this larger Bench was -pronounced on the 9th April, 1962.
Since the Act has been passed by the Assam Legislature with the previous
sanction of the President directly as a result of the decision. of this Court
in the case of Atiabari Tea Co, the present proceedings can be appropriately
described as an after-math of the said decision.
It appears that 487 persons moved the Assam
High Court by writ petitions under Art. 226 of the Constitution impeaching the
validity of the Act. These writ petitions were considered by a Division Bench
of the said High Court and they were allowed on the 1st August, 1963. The two
learned Judges who constituted the Division Bench have delivered concurring judgments
and held that,, the Act is invalid. On some of the points urged by the
petitioners before them, the two learned Judges have differed, in the result,
they agreed in taking the view operative provisions of the Act were unconstitutional.
The respondent State of Assam then moved the High Court for certificates to
enable it to come to this Court in appeal against the decision of the High
Court in the said 487 writ petitions. The High Court has granted certificates,
but the said appeals will take long to become ready; and so, 12 of the
petitioners who are respondents in some of the said appeals were allowed to
intervene in the present proceedings. In fact by arrangement between
Mr.Mazumdar who appeared for the petitioners before us and Mr.pathak who
represents the interveners, the principal argument has been urged before us by
Mr. Pathak and we expressly told Mr. Pathak that since our decision on the
present writ petition would govern the decision of the appeals which the
respondent is going to bring to this Court against the decision of the Assam
High Court, we would permit him to raise all points in support of the view
taken by the Assam High Court and would not confine him to the points which have
been taken by the petitioners in their petition before us. In fact, the Assam
Judgments in question have been filed by the Interveners, and Mr. Pathak has
invited our attention to the main findings recorded in those judgments.
Normally, counsel for interveners is not allowed a right of reply, but having
regard to the fact that Mr.Mazumdar requested us to allow Mr. Pathak to lead
him in the present proceedings, we have allowed both Mr. Pathak and Mr.
Mazumdar to open the case,, and have heard both of them in reply.
Petitioner No. 25 case is that petitioner No.
1, the company, carries on the business of manufacturers wholesale dealers and
exporters of tea at Jalpaiguri in the State, of West Bengal. The business of
the said garden is managed by petitioner No. 2 and is subject to the control
and direction of the company. Naturally, the remuneration 'and prospects of
petitioner-No. 2 depend upon the good and economical management and the
prosperity of the business of the Company. The petition avers that at all material
983 times the company exported the tea grown and manufactured by it in its tea
garden by Railway from Garopara Railway Station in the district of Jalpaiguri
to the Calcutta port.
It is common ground that Calcutta Port is the
principal tea market in the country for sale for consumption at home as well as
for export overseas. According to the. petition, the tea was delivered packed
in chests to the North Eastern Railway Administration at Garopara Rly. Station
and the rate charged by the said Administration was paid to it for carrying the
goods to Calcutta. It is clear that both the booking station and the station of
destination are in the State of West Bengal. When the tea thus travels from
Garopara to Calcutta, it hag to traverse a short distance of about 67 miles
through Assam to Dhubri Ghat, on the bank of the River Brahmaputra. It appears
that by an arrangement between the Railway and the I.G.N. and R.S.N. Co. Ltd.
these goods. are taken over by ferries on inland waterways and' are
transshipped to steamers at the said Ghat. The steamers ,hen carry the goods
through the Brahmaputra in Assam up to Mankind; the distance between Dhubri
Ghat and Mankachar is about 1 1/2 to 2 miles. In their journey, the steamers
cover a distance of about 572 miles in Pakistan territory, and then they reach
the Calcutta Port. The total distance covered by the journey of the goods is
about 689 miles.
Petitioner No. 2 contends that the material
provisions of the Act are invalid, because the Assam Legislature was not
competent to enact the said provisions. It is also urged that the said
provisions are unconstitutional because they constitute an unreasonable
restriction on the freedom of trade guaranteed by Art. 301, as-well-as
petitioner No. 2's run mental right guaranteed by Art. 19(1)(g) of the Constitution.
The validity of the Act is also challenged on some other grounds which Would be
dealt with later.
These pleas are denied by the respondent and
it is urged on its behalf that the Act is constitutional, that it has been
passed under Art. 304(b) after obtaining the previous sanction of the
President; that its material provisions are in no sense unreasonable and that
the restrictions imposed by them on the freedom of trade are reasonable
restrictions and are required in the 'public interest. It is also alleged that
the said restrictions are reasonable and in the interests of the general public
and as such, they are saved by clause (6) of Art. 19.
Before dealing with these contentions, it is
necessary to indicate at the outset the effect of the two judgments to which we
have already referred. In the case of the Atiabari Tea Co. Ltd.(1), three views
were expressed. Sinha C.J., held that the freedom conferred by Art. 301 did not
mean freedom from taxation simpliciter but only from the erection of trade
barriers, tariff walls and imposts which had a deleterious effect on the free
flow of trade, commerce and intercourse. According to his view, the earlier
Assam Act did not contravene Art. 301 and was valid. This view put a somewhat
narrow construction on the scope and effect of the provisions contained in Art.
Shah J., on the other hand, placed a very
wide construction on the said provision and held that the freedom of trade
guaranteed by the said Article included not only freedom from discriminative
tariffs and trade barriers but also from all taxation on commercial
intercourse. As such, he held that the said Act was unconstitutional.
The majority view was that the freedom of
trade guaranteed by Art. 301 was wider than that contained in s.. 297 of the
Government of India Act, 1935, which meant that taxes which directly and
immediately impeded: the freedom of trade would come within the mischief of
Art. 301. According to this view, Art. 301 provides that the flow of trade
shall run smooth and unhampered by any restriction either at the boundaries of
the States or at any other points inside the States themselves; and if any Act
imposes any direct restrictions on the movement of goods, (1)  1 S.C.R.
985 it attracts the provisions of Art. 301.
On the majority view, if the impugned tax imposes a restriction on the movement
of trade, the Act could be sustained if it complied with the provisions of Art.
304(b). In regard to the Act with which the Court was then concerned, the
majority judgment observed that it may be that one of the objects in passing
the Act was to enable the State Government to raise money to keep its roads and
waterways in repairs; but that object may and can be effectively achieved by
adopting another course of legislation; if the said object is intended to be
achieved by levying a tax on the carriage of goods, it can be so done only by
satisfying the requirements of Art. 304(b).
In the Automobile Transport (Rajasthan) Ltd.
case(1), the majority view expressed by Das J. on behalf of himself and Kapur
& Sarkar JJ was that if a tax is compensatory in character, it cannot be
said to fall within the mischief of Art. 301. According to this view, a
clarificatory rider was added to the majority view expressed in the case of the
Atiabari Tea Co. Ltd. (2) by providing that regulatory measures or measures
imposing compensatory taxes for the use of trading facilities do not come
within the purview of the restrictions contemplated by Art. 301, and such measures
need not comply with the requirements of the provisions of Art. 304(b).
Subba Rao J., who delivered a separate
judgment concurring with the conclusion reached by Das J., preferred to
emphasise that taxing statutes which would escape the mischief of Art. 301
could be appropriately described as regulatory. He, therefore, held that the
Rajasthan Motor Vehicles Taxation Act (No.11 of 1951) with which the Bench was
dealing, was regulatory in character and as such, not unconstitutional. In
other words, whereas Das, Kapur and Sarkar JJ., upheld the validity of the Act
on the ground that it was either compensatory or regulatory, Subba Rao J.,
preferred to base his decision mainly on the ground that it was regulatory.
(1)  1 S.C.R. 491.
(2)  1 S.C.R. 809.
986 The minority view which has been
expressed by Hidayatullah J., on behalf of himself and Ayyangar and Madholkar
JJ., assumed that though regulatory taxing statutes may be said to fall outside
Art.30,compensatory taxing statutes cannot make the same claim. According to
this view, if a taxing statute was sought to be justified on the ground that
the tax imposed by it was compensatory in character, that could be done only by
adopting the procedure prescribed by Art.
304(b). It may be noticed that the scope of
the regulatory statutes as discussed by Hidayatullah J., is much narrower than
the scope of the regulatory statutes as considered by Subba Rao J.
In the result, the majority view expressed in
the case of the Atiabari Tea Co.(1), was substantially accepted by the majority
of the learned Judges constituting the larger Bench which heard the Automobile
Transport (Rajasthan) Ltd. (2) case, but a corollary was added to the said view
as we have just indicated.
The majority view in the Atiabari case("'
proceeded on the basis that the Australian decisions which dealt with the scope
and effect of s. 92 of the Australian Constitution would be of no assistance in
constraing the effect of the provisions in part XIII of our Constitution,
because the legislative, historical and political background, the structure and
the effect of the relevant provisions contained in Part XIII were in material
particulars different from those of s. 92 of the Australian Constitution; s. 92
is absolute in terms and on its literal construction, admits of no exceptions.
The Australian decisions, therefore, had to introduce distinctions, such as
compensatory or regulatory tax laws in order to take laws answering the said
description out of the purview of s. 92.
In our Constitution, however, though Art. 301
is worded substantially in the same way as s. 92, Art. 302 and 304 provide for
reasonable restrictions being imposed on the freedom of trade subject to the
requirements of the said two Articles, and so, the problem facing judicial
decisions in Australia and in this country (1) 1 S.C.R. 809.
(2)  1 S.C.R. 491.
987 in ragard to the freedom of trade and the
restrictions which it may be permissible to impose on it, is not exactly the
same. The minority view expressed by Hidayatullah J., has pointedly referred to
this aspect of the matter. That, in brief, is the position of the two decisions
of this Court in Atiabari Tea Co. Ltd.(1) and Automobile Transport (Rajasthan)
Ltd. (2) cases respectively.
It would immediately be noticed that though
the majority view in the Automobile Transport (Rajasthan) case(2) Substantially
agreed with the majority decision in the case of Atiabari Tea Co.(1), there
would be a clear difference between the said two views in relation to the scope
and effect of the provisions of Art. 304 (b). According to the majority view in
the case of Atiabari Tea Co., if an Act is passed under Art. 304(b) and its
validity is impeached, then the State may seek, to justify the, Act on the
ground that the restrictions imposed by it are reasonable and in the public
interest, and in doing so, it may, for instance, rely on the fact that the
taxes levied by the impugned Act are compensatory in character. On the other
hand, according to the majority decision in the Automobile Transport
(Rajasthan) (2) case, compensatory taxation would be outside Art. 301 and
cannot therefore, fall under Art. 304(b). If in the present case it had been
urged before us that the tax levied by the Act is compensatory in character, it
would have been necessary to consider the question once again by constituting a
larger Bench. It will be recalled that the Act with which we are concerned has
been passed by the Assam Legislature directly as a result of the decision of
this Court in Atiabari Tea Co.'s case(1); that decision was that if the tax
imposed by the Act was compensatory in character then the Act could be
sustained only if it was passed after complying with the provisions of Art.
30-4(b). The Assam Legislature has accordingly adopted the said procedure and
passed the Act. If the Act had been compensatory in character, it would have
become necessary for us to consider the (1)  1 S.C.R 809.
(2)  1 S.C.R. 491.
988 whole position once again, because it
would obviously be unfair and unjust that the earlier Act should have been
struck down though it was compensatory in character and in testing the validity
of the present Act, it should be open to the petitioners to contend that its
compensatory character is irrelevant to the enquiry under Art. 304(b).
In the present case, the Assam High Court
which dealt with the 487 writ petitions has found that the Act is not
compensatory, and Mr. Setalvad has not urged before us that the Act is in fact
compensatory. That is why we are proceeding to deal with the merits of the
dispute between the parties in the present case on that basis. The main
question, therefore, would be that the tax imposed by the Act not being
compensatory in character, are there any reasons to justify the respondent's
contention that the restrictions imposed by it are reasonable and in the public
interest? Let us then consider the broad features of the Act and its material
provisions before dealing with the several points urged before us. The Act
consists of 34 sections. As we have already noticed, the Bill was introduced
after obtaining the previous sanction of the President, and the Act has been
passed in accordance with the provisions of Art. 304(b). The preamble to the
Act provides that the Act has been passed to provide for the levy of a tax on
certain goods carried by road or on inland water-ways in the State of Assam and
to validate certain taxes imposed on goods carried by road or on inland
waterways and for certain other connected matters. Section 1(3) provides that
the Act shall be deemed to have had effect as from the 24th April, 1954, and
shall remain in force till the 31st March, 1962. In other words, the Act takes
effect from the date when the earlier Act was to have taken effect, and its
life continues for one year after it received the assent of the President and
became effective. Section 2, inter alia, defines a producer as meaning "a
producer of tea and includes the person in charge of the garden where tea is
produced." The Act is concerned with 989 tea and jute, but in the present
proceedings, we are dealing with the petitioners whose interest lies in tea.
Section 3 of the Act deals with the liability to tax, and since its validity is
seriously impugned by the petitioners, it is necessary to read it:
"(1) Subject to the provisions of this
Act, there shall be levied a tax on (a) manufactured tea and (b) jute in bales
carried by motor vehicle, , cart, trolley, boat, animal and human agency or any
other means except railways and airways in such manner and in respect of such
period and at such rate as specified in the Schedule.
(2) Such tax levied on manufactured tea shall
be realised from the producer and that levied on jute shall be realised from
Provided that where tea is sold at the
factory premises, the producer shall be liable for realisation of tax from the
purchaser with effect from such date as the Government may, by notification,
appoint, for the carriage of such tea as provided in this section and the
producer shall be liable for the payment of such tax notwithstanding the fact
that the tea is not carried by the producer;
Provided further that no tax shall be levied
under this Act on any jute or tea in respect of which such tax has already been
paid." Section 4 provides that the tax shall be charged on the total net
weight carried during a return period. Section 5 deals with the problem of
determining the weight. Section 6 prescribes the taxing authorities. Section 7
requires the return to be submitted by the producer and makes appropriate provisions
in that behalf. Section 8 deals with licensing;
s. 9 covers the problem of assessment and it
provides that the Commissioner may, by an order in writing, assess the producer
and determine the tax payable by him on the basis of his return. Section 10 deals
with cancellation of assessment; s. 11 makes a provision 990 for assessment in
cases of evasion and escape and authorises the Commissioner within two years of
the expiry of the period in question to serve on the producer a notice
requiring him to furnish a return, and empowers him to proceed to assess or
reassess the producer as provided by it. Section 12 deals with rectification.
Section 13 provides for penalty for non-submission of returns and evasion of
taxes. Under s. 14 it is provided that assessment is no bar to prosecutions and
penalties. Section 15 makes the tax payable by the representative of a deceased
producer. Sections 16 and 17 deal with appeals and revision, while s. 18
prescribes for the computation of the period of limitation for the said two
remedies. The notice of demand is provided for by s. 19, and the period when
the tax is to be paid is laid down by s. 20. Section 22 prescribes the mode of
recovery; s. 23 provides for refunds;
and s. 24 for employers' prosecution for
failure to furnish returns. Section 25 provides that no court shall take
cognizance of any offence under the Act or under the rules made under it,
except with the previous sanction of the Commissioner. Section 26 permits
composition of offenses.
Section 27 imposes an obligation on the
producer to maintain and preserve account books; s. 28 confers power on
appropriate authorities to require the production of accounts. Section 29 bars
civil suits. Section 30 empowers the appropriate authority to take evidence; s.
31 deals with the delegation of powers; s. 32 confers power on the Government
to make rules; s. 3 3 repeals the earlier Act of 1954 and s. 34 makes
provisions by way of validation. Since this last section has also been
challenged, it is necessary to read it:
"34. (1) Any rule made, any liability
incurred, any tax levied or realised, any returns furnished, any proceedings
commenced, any notification published, any action taken or anything whatsoever
done under the provisions of the Act repealed, shall be deemed to have been
made, incurred, levied, realised, furnished, commenced, 991 published, taken or
done under the corresponding provisions of this Act.
(2) Notwithstanding anything contained in any
judgment, decree or order of any court, all taxes imposed or realised or
purporting to have been imposed or realised under the Act repealed shall for
all purposes be deemed to be, and to have been, validly imposed or realised and
accordingly(a) no suit or other proceeding shall be maintained or continued in
any court against the Government or any person or authority whatsoever for the
refund of any taxes so paid; and (b) no court shall enforce any decree or order
directing the refund of any taxes so paid." The Schedule to the Act gives
the rates for respective periods and these rates correspond to the rates
prescribed by the earlier Act for the period covered by it and prescribes new
rates for the period thereafter. Rules have been made under s. 32(1) and Forms
prescribed for the making of returns. That, in brief, is the scheme of the Act.
It has been urged before us by Mr. Pathak
that s. 3 which is the charging section, is outside the legislative competence
of the Assam Legislature. The Act purports to have been passed by virtue of the
legislative power conferred on the State Legislature under Entry 56 in List 11
of the Seventh Schedule. This Entry reads thus: "Taxes on goods and
passengers carried by road or on inland waterways." It will be recalled
that Entry 30 in List 1 deals with carriage of passengers and goods by railway,
sea or air, or by national waterways in mechanically propelled vessels, and so,
Entry 56 in List II does not cover cases falling under Entry 30 in List 1. It
is only in regard to goods and passengers carried by road or inland waterways
that the State Legislature can pass a law imposing taxes. Mr. Pathak's
contention is that s. 3 read with the proviso to sub-section (2) 992 clearly
contemplates that the primary and the sole liability to pay the tax on tea has
been placed on the producer even in cases where the tea in question may have
been sold at the tea garden before it is carried. In other words, the
contention is that in cases where tea is carried by the purchaser, it is only
the purchaser of the tea which is carried who can be taxed, and since the
producer is taxed even in such cases, the taxation itself is beyond the
legislative competence of the State Legislature. This argument proceeds on the
assumption that the proviso lends colour to the construction of s. 3(2).
Section 3(1) is enacted in terms of Entry 56 and it purports to indicate what
the taxable event is. Section 3(2) makes the producer liable to pay the tax and
the proviso to s. 3(2) enables the -producer to recover the tax from the
purchaser with effect from such date as the Government may, by notification,
appoint; this date was notified as 1St May, 1961. It is clear that the proviso
is prospective, but Mr. Pathak suggests that the proviso can be explained only
on the basis that s. 3(2) includes cases where tea, has been sold by the
producer before it is carried, and in that sense the producer has been made
liable to pay the tax even in regard to tea which has been sold by him before
it is carried.
On the other hand, Mr. Setalvad argues that
s. 3(2) is confined to cases where the producer himself carries tea and his
suggestion is that the proviso which has been added by the present Act and
which was not included in the earlier Act seeks to make the purchaser liable to
pay the tax in case tea which is carried has been purchased by him before it
leaves the garden. He wants us to read the proviso as creating an obligation on
the purchaser to pay the tax and as making the producer liable to recover the
tax from the purchaser as the Agent of the State. In support of his argument
that s. 3(2) cannot be read to include cases where tea has been sold before it
is carried, Mr. Setalvad has referred us to the fact that when the
corresponding provision in the earlier Act was construed by the Assam High
Court, it was 993 held that where tea is sold before it is carried, the producer
is not liable and no tax can be recovered from him, vide H. P. Barua v. State
of Assam(1). He also emphasises the fact that the proviso is prospective in
operation, and so, it indicates that it cannot lend colour to the construction
of section 3(2).
It is, however, not easy to accept Mr.
Setalvad's construction. The words used in the proviso show( that the producer
has been made liable for realisation of the tax from the purchaser, but there
are no words imposing a liability on the purchaser to pay the tax and no
penalty is prescribed in case he fails to pay the tax to the producer.
The relevant forms prescribed for making
returns, also continue to be the same as under the old Act and do not
contemplate cases where the purchaser may have to make returns. In the present
proceedings, we are not concerned with the case of any purchaser, and so, it is
unnecessary for us to pronounce a definite opinion on the construction of s. 3.
We would, therefore, proceed to deal with Mr.
Pathak's argument on the basis that s. 3(2)
makes the producer liable even in. cases where tea has been sold by him to a
purchaser before it is carried away from the garden.
This argument of legislative incompetence
seems to assume that Entry 56 requires that the tax must be levied by the State
legislature on goods which are carried only against the owner of the goods that
are carried, or against the persons who carry them. We do not see any
Justification for introducing such limitations in the said Entry. It is hardly
necessary to emphasise that Entries in the three Lists in the Seventh Schedule
which confer legislative competence on the respective Legislatures to deal with
the topics covered by them must receive the widest possible interpretation; and
so, it would be unreasonable to read in the Entry any limitation of the kind
which Mr. Pathak's argument seems to postulate. Besides, it is well-settled
that when a power is conferred on the Legislature to levy a tax, that power
itself must (1)SCI.R. 1955 Assam 249.
1 SCI/64 --63 994 be widely construed; it
must include the power to impose a tax and select the articles or commodities
for the exercise of such power; it must likewise include the power to fix the
rate and prescribe the machinery for the recovery of the tax. This power also
gives jurisdiction to the Legislature to make such provisions as, in its
opinion, would be necessary to prevent the evasion of the tax. In imposing
taxes, the legislature can also appoint authorities for collecting taxes and
may prescribe the procedure for determining the amount of taxes payable by any
all these provisions are subsidiary to the
main power to levy a tax and, therefore, once it is shown that the tax in
question has been levied on goods carried, it would be open to the legislature
to prescribe the machinery for recovering the said tax. As was observed by
Chief Justice Marshall in M'Culloch v. Maryland(" "the power of
taxing the people and their property is essential to the very existence of
Government, and may be legitimately exercised on the objects to which it is
applicable to the utmost extent to which the Government may choose to carry
it". This statement of the law must, however, be read subject to the
condition that even tax statutes have to satisfy the test of reasonableness
prescribed by clause (6) of Art. 19, and the fundamental right of equality
before law guaranteed by Art. 14 as well as the test prescribed by Art. 301.
Reverting then to s. 3(1), we ought to add
that the said section in terms expressly makes the carriage of goods the
taxable event, and s. 3(2) makes the producer liable to pay the tax only on
goods carried. If the goods produced in the tea garden are not carried, there
is no occasion to pay the tax. That being so, the fact that the Legislature has
adopted the machinery of making the producer responsible for the payment of the
tax and liable for it in that sense cannot introduce any element of legislative
incompetence which would vitiate the statute.
It may be conceded that when the legislature
constructs a machinery for the recovery of the taxes (1)  4 L. ed. 579,
607 995 which it is within its competence to impose, the said machinery should
have some rational or intelligent connection with the tax. In the absence of a
rational nexus between the producer and the tax on goods carried, it may be
open to a citizen to contend that the tax is not one justified by Entry 56. But
can we say that between the producer of tea and the tax which is levied on the
tea carried from his garden, there is no rational nexus? Considerations of
administrative convenience as well as considerations of facility in recovering
the tax cannot be treated as irrelevant in this context. The tea which is taxed
has been produced by the producer and even when he sells it to a purchaser, it
is obvious that it would be carried away and not left with the producer, and
so, the legislature may have thought that it would be appropriate to make the
producer liable to pay the tax.
It may also be relevant to bear in mind that
the cases of sale of tea before it is carried cannot be too many. As we have
already seen, the earlier Act did not include the proviso and that seems to
suggest that usually, it is the producers who produce the tea in their gardens
and carry it to Calcutta either for sale, or for home consumption, or for
export. In fact, the petitioners before us are producers who have carried their
own product from their tea gardens to Calcutta, and we were told that amongst
the 487 persons who moved the Assam High Court by their writ petitions, not one
was a purchaser; everyone was a producer who carried his own goods. Apart from
these facts, however, it is impossible to sustain the argument that it is not
competent to the legislature to devise a proper and appropriate machinery to
recover a tax which it is competent to the legislature to levy.
This question has been frequently considered
by this Court and the power of the Legislature to create appropriate machinery
to recover a tax, or to prevent the evasion of the payment of the tax has been
consi996 stently recongised. In R. C. Jall v. Union of India(1) while dealing
with the question about the power of the legislature to decide at what 'stage
and from whom excise duty should be recovered, this Court held that subject
always to the legislative competence of the taxing authority, the tax can be
levied at a convenient stage so long as the character of the impost is not
lost. The method of collection does not affect the essence of the duty but only
relates to the machinery of collection for administrative convenience. While
enunciating this principle, this Court, however, took the precaution of adding
that "whether in a particular case the tax ceases to be in essence an
excise duty and the rational connection between the duty and the person on whom
it is imposed ceased to exist, is to be decided on a fair construction of the
provisions of a particular Act".
In Sardar Baldel, Singh v. Commissioner of
Income-tax, Delhi & Ajmer(2) , this Court was called upon to consider the
validity of s. 23A of the Indian Income-tax Act, 1922. At the relevant time,
the said section gave power to the appropriate authority to make an order that
the undistributed portion of the assessable income of the company shall be
deemed to have been distributed as dividends and provided that thereupon the
proportionate share thereof of each shareholder shall be included in his income
for assessment. The argument which was urged before this Court was that the
Company and its shareholders are different persons and, therefore, s. 23A was
invalid inasmuch as under entry 54 of List 1 a law could be passed imposing a
tax on a person on his own income. This argument was, however, rejected because
this Court took the view that the Entries in the Lists should be read in a very
wide manner so as to include all subsidiary and ancillary matters. That is why
Entry 54 was held to authorise not only the imposition of a tax, but also an
enactment which prevents the tax being evaded.
(1)  Supp. 3 S.R. 436.
(2)  1 S.C.R. 482.
997 Similarly, in the Orient Paper Mills Ltd.
v. The State of Orissa(1), this Court has observed that the power to legislate
with respect to a tax comprehends the power to impose the tax, to prescribe
machinery for collecting the tax, to designate the officers by whom the
liability may be enforced and to prescribe the authority, obligations and
indemnity of those officers. Therefore, we do not think Mr.
Pathak is right in contending that merely
because in a few cases where tea may be sold at the garden before it is
carried, the producer is made liable to pay the tax, s. 3 itself is outside the
legislative competence of the Assam Legislature.
Then, Mr. Pathak argues that the Act which
has been passed under Art. 304(b) cannot act retrospectively. The argument is
that when an Act is passed under Art. 304(b) after introducing the Bill with
the previous sanction' of the President, it must always and in every case
operate prospectively. The scheme of Part XIII according to Mr. Pathak, clearly
shows that if the State Legislature wants to avail itself of the provisions of
Art. 304(b), it cannot purport to pass an Act in the first instance without
taking recourse to Art. 304(b) and if the said Act is struck down, then take
recourse to the said Article and make the law retrospective. If the State
Legislature makes a law without taking recourse to Art. 304(b) and the law is
struck down, the matter must end there and the provisions of the said law
cannot be revived by a subsequent law passed under Art.
304(b) by making its operation retrospective.
If such a process is allowed, it would materially affect the significance and
the validity of the provisions. contained in Art. 301; that is one aspect of
The other aspect of the argument is that a
law passed under Art. 304(b) really imposes restrictions and so, the principle
that a law creating prohibitions can operate only prospectively, must govern
the present case. In support of this argument, Mr. Pathak has relied on the
decision of the Privy Council (1)  1 S.C.R. 549.
998 in the case of Punjab Province v. Daulat
Singh"'. In that case, the Privy Council had occasion to deal with s. 5 of
the Punjab Alienation of Land Act (Indian Act XIII of 1900) considered in the
light of the provisions of s. 298 of the Government of India Act, 1935. Section
298(2) provides that nothing in this section shall affect the operation of any
law which (a) prohibits, either absolutely or subject' to exceptions, the sale
or mortgage of agricultural land therein described. The Privy Council held that
s. 5 of the impugned Act which created such a prohibition could not operate
retrospectively because the word " prohibits" can only mean the
forbidding of a transaction, and such a direction is appropriate only in
respect of transactions to take place subsequently to the date of the
direction, and cannot include an attempt to reopen or set aside transactions
already completed, or to vacate titles already acquired. It would thus be seen
that this decision turned essentially upon the use of the word
"prohibits" in s. 298(2) , and so, it would be unreasonable to extend
the said decision to the cases falling under Art. 304(b) particularly when the
restriction imposed is not of such a character as to amount to prohibition.
A similar argument was in fact rejected by
this Court in the case of M.P.V. Sundararamier & Co. v. The State of Andhra
Pradesh(2). What was urged before this Court in that case was that the
principle laid down by the Privy Council in the case of Punjab Province(1)
should be extended to a law to which Art. 286(2) of the Constitution applied.
In rejecting this contention this Court observed that the Privy Council's
decision proceeded solely on the connotation of the word "prohibits" in
s. 2982' of the Government of India Act, 1935, and can be of no assistance in
the construction of Art. 286(2) wherein the word does not occur. What this
Court has observed about Art. 286(2) as it formerly stood in the Constitution
applies with greater force to Art. 304(b).
It is true that there are some provisions (1)
73 I. A. 59.
(2)  S.C.R. 1422.
999 in the Constitution which prohibit
retrospective legislation as, for instance, Art. 20(1) & (2) vide M/s West
Ramnand Electric Distribution Co. Ltd. v. State of Madras(1). But Art. 304(b)
cannot be construed to mean that a law passed under it must in every case be
prospective. If a Statute is passed under Art. 304(b) retrospectively, its
reasonableness may, of course, fall to be considered on the merits in a given
case but that is not to say that in no case can a statute be passed under the
sain Articles to operate retrospectively.
Then as to the argument about the scheme of
Part XIII, we do not see how a statute passed under Art. 304(b) would always
and necessarily defeat the said scheme if its provisions are made
retrospective. It is not disputed by Mr. Pathak that a taxing statute can be
passed retrospectively, and it is conceded that if such a statute is passed, it
would not be possible for any person to challenge its validity on the ground
that it affects the citizens' fundamental right under Art. 19(1)(g). If such a
challenge is made, it would be easily met by the plea that a taxing statute,
though retrospective in its operation. can be reasonable and in the public
interest within the meaning of clause (6) of Art. 19.
Therefore, if a taxing statute can, in a
given case, operate retrospectively and its validity cannot be successfully
challenged under Art, 19, we do not see how a similar challenge could be sustained
against a taxing statute which has been passed under Art. 304(b). The freedom
of trade guaranteed by Art. 301 is no doubt of very great importance to the
political and economic unity of the country; but the freedom guaranteed to the
individual is no less important;
just as in the case of a challenge to the
validity of a statute under Art. 19 the court has to consider whether the
restrictions imposed by the statute are reasonable and in the interests of the
general public, so in dealing with a challenge to the validity of a statute
passed under Art.
304(b) the court has to consider whether the
restrictions (1)  2 S.C.R.747p.761.
1000 imposed by it are reasonable and are
required in the public interest. The impact of the restrictions on the individual's
right has to be judged in one case, whereas the impact of the restrictions on
the freedom of trade has to be judged in the other; but basically, it is the
invasion of a guaranteed right whose validity is being examined in either case;
and so, if the law can be retrospective in one case, there is no reason why it
cannot be retrospective in the other. We are, therefore, satisfied that there
is no substance in the plea raised by Mr. Pathak that the Act is invalid solely
because it operates retrospectively.
It is then faintly suggested that the
retrospective operation of s. 3, in substance, changes the character of the
tax. The argument is that the proviso to s. 3(2) enables the producer to
recover the tax from the purchaser in case the goods are sold to a purchaser
before they are carried, whereas such a provision did not exist in the past and
in that sense, the retrospective operation changes the character of the tax. We
have already noticed that the proviso in question is not retrospective in operation,
and so, this argument has to be tested by reference to the remaining portion of
s. 3(2). Thus tested, it is difficult to accept it as sound. In this
connection, we may refer to the recent decision of this Court in Rai Ramkrishna
v. State of Bihar(1) where a similar plea was rejected and it was pointed out
that this Court has consistently held that the mere fact that a validating
statute operates retrospectively does not justify the contention that the
character of the tax sought to be recovered by such retrospective operation is
The next question to consider in dealing with
the validity of the Act which has been passed under Art. 304(b) is the extent
of the dispute that is justifiable in law. Art.
304(b) provides that notwithstanding anything
in Art. 301 or Art. 303 the Legislature of a State may by law impose such
reasonable restrictions on the freedom of trade, commerce or (1)  1
1001 intercourse with or within that State as
may be required in the public interest, provided that no Bill or amendment for
the purposes of clause (b) shall be introduced or moved in the Legislature of a
State without the previous sanction of the President. It would thus be clear
that an Act passed under Art. 304(b) can be held to be valid if it is shown
that the restrictions imposed by it are reasonable and in the public interest.
It is true that before Bill is introduced in that behalf, the previous sanction
of the President has been obtained; but that does not take away the jurisdiction
of the Court to consider the question as to whether the Act passed with the
previous sanction of the President satisfies the requirements of Art. 304(b).
Since Art. 304(b) permits restrictions to be imposed on the freedom of trade,
the Constitution has made it clear that the said restrictions can be sustained
only if they are reasonable and are required in the public interest. This
position is not disputed by Mr. Setalvad before us. It is true that in the case
of Atiabari Tea Co.(1), whilst contrasting the provisions of Art. 302 with
those of Art.
304(b) the majority judgment has observed
that prima facie the requirement of public interest may be said to have been
satisfied by the previous sanction of the President and it is only the
reasonableness of the restrictions which may fall to be considered in
proceedings before the Court.
However,, this point did not directly arise
for the decision of the Court, and so, those observations should not be read as
definitely expressing the opinion that the requirement of public interest does
not become the subject-matter of adjudication in proceedings before the Court
when the validity of an Act passed under Art. 304(b) is questioned.
That takes us to the question about the onus
of proof in these proceedings. It may be that in most cases, the question about
the onus of proof would turn out to be merely of academic. importance, because
when one considers the reasonableness of a given (1)  1 S.C.R. 809 1002
restriction, one inevitably enquires also whether the said restriction is not
unreasonable; but since the point about the onus has been argued before us, it
is necessary that we should deal with it. Mr.Setalvad contends that in dealing
with the question about the constitutionality of any statute, we must draw an
initial presumption in favour of the constitutionality of the statute, and he
suggests that this initial presumption will cover even the requirement that the
restriction must be reasonable and in the public interest as required by Art.
304(b). The same argument has been urged by him in regard to the presumption in
so far as the petitioners' fundamental right under Art. 19 (1)(g) is concerned.
He urges that in determining the content of the individual's fundamental right
under Art. 19(1)(g), we must take into account Art. 19(1)(g) as well as the
limitations placed on it by clause (6) of Art. 19. The fundamental right to
carry on the trade is not an absolute right; it can be regulated and controlled
by law which imposes restrictions on the said right, provided they said
restrictions are reasonable and in the interests of the general public, and so,
the contention is that when we speak about the initial presumption of
constitutionality, it means that the court should assume that the restrictions
imposed by the statute are reasonable and in the interests of the general
public, unless the contrary is shown.
On the other hand, Mr. Pathak strenuously
argues that the initial presumption would be rebutted as soon as it is shown
that the fundamental right under Art. 19(1)(g ) is invaded by a statute, or the
freedom of trade guaranteed by Art. 301 is assaulted by the impugned statute.
Once a citizen shows that the impugned statute invades either his individual
fundamental right, or the right of freedom of trade, the presumption has worked
itself out and the onus shifts to the State to show that the invasion amounts
to a restriction which is reasonable, or it is in the interests of the general
It may be conceded that, prima facie, there
is some force in the argument raised before us by Mr.
1003 Setalvad. If the freedom guaranteed to
an individual citizen is not absolute and its content must be determined by
reading Art. 19(1)(g) and clause (6) of Art. 19 together, it can perhaps be
said that the initial presumption cannot be rebutted merely by showing that the
freedom under Art.
19(1)(g) has, prima facie, been invaded. But
we do not think it necessary to pursue this matter any further, because we are
satisfied that the question raised by Mr. Setalvad is concluded against him by
a decision of this Court.
In Saghir Ahmad v. The State of U.P.(1) where
this Court was dealing with the invasion of the citizens' fundamental right
under Art. 19(1)(g), it has been observed that when the enactment on the face
of it is found to violate a fundamental right guaranteed under Art. 19(1)(g),
it must be held to be invalid, unless those who support the legislation can
bring it within the purview of the exception laid down in clause (6) of Art.
19. If the respondents do not place any materials before the Court to establish
that the legislation comes within the permissible limits of clause (6), it is
surely not for the appellants to prove negatively that the legislation was not
reasonable and was not conducive to the welfare of the community. It is true
that on several occasions, this Court has generally observed that a presumption
of constitutionality arises where a statute is impeached as being
unconstitutional, but as has been held in the case of Saghir Ahmad(1) in regard
to the fundamental right under Art. 19(1)(g) as soon as the invasion of the
right is proved, it is for the State to prove its case that the impugned
legislation falls within clause (6) of Art. 19.
The position may be different when we are
dealing with Art.
14, because under that Article the initial
presumption of constitutionality may have a larger sway inasmuch as it may
place the burden on the petitioner to show that the impugned law denied
equality before the law, or equal protection of the laws. We may in this
connection refer to the observations made by this Court in the case of Hamdard
(1)  1. S.C.R. 707, 726.
1004 Dawakhana (Wakf) Lal Kuan, Delhi v.
Union of India(1).
Another principle which has to be borne in
mind in examining the constitutionality of a statute, it was observed, is that
it must be assumed that the legislature understands and appreciates the needs
of the people and the laws it enacts are directed to problems which are made
manifest by experience and that the elected representatives assembled in a
legislature enact laws which they consider to be reasonable for the purpose for
which they are enacted.
Presumption is, therefore, in favour of the
constitutionality of an enactment. It is significant that all the decisions to
which reference is made in support of this statement of the law are decisions
under Art. 14 of the Constitution. Mr. Setalvad has fairly conceded that in
view of the decision of this Court in the case of Saghir Ahmad(2), it would not
be open to him to contend that even after the invasion of the fundamental right
of a citizen is proved under Art. 19(1)(g), the onus would not shift to the
State. In our opinion, the said decision is a clear authority for the
proposition that once the invasion of the fundamental right under Art. 19(1) is
proved, the State must justify its case under cl. (6) which is in the nature of
an exception to the main provisions contained in Art. 19(1).
The position with regard to the onus would be
the same in dealing with "lie law passed under Art. 304(b). In fact, in
the case of such a law, the position is somewhat stronger in favour of the
citizen, because the very fact that a law is passed under Art. 304(b) means
clearly that it purports to restrict the freedom of trade. That being so, we think
that as soon as it is shown that the Act invades the right of freedom of trade,
it is necessary to enquire whether the State has proved that the restrictions
imposed by it by way of taxation are reasonable and in the public interest
within the meaning of Art. 304(b). This enquiry would be of a similar character
in regard to cl. (6) of Art. 19.
That naturally takes us to the question as to
whether the respondent has shown that the restrictions (1)  2 S.C.R. 671,
(2)  1 S.C.R. 707, 726.
imposed by the Act by levying a tax on the
movement of tea can be said to be reasonable and in the public interest.
The decision of this question will inevitably
involve the balancing of the importance of freedon of trade as against the
requirements of public interest. Art. 304(b) necessarily postulates that
considerations of public interest may require and justify the imposition of
restrictions on the freedom of trade, provided they are reasonable. In
determining the reasonableness of the restrictions we will have to bear in mind
again the importance of freedom of trade and the requirements of public
interest. It is a question of weighing one relevant consideration against
another and harmonising both the competing interests so as to serve the public interest
in the end. This process of assessment may not always be easy, but,
nevertheless, we must try to weigh the pros and cons urged before us by both
the parties and decide whether the tax levied by the Act satisfies the
requirement prescribed by Art. 304(b). In support of his case, Mr. Pathak has
emphasised the fact that the producer has been made liable for goods even when
they are sold before they are carried.
In other words, the argument which he urged
in support of his case that the Act was beyond the legislative competence of
the State Legislature, has been again pressed by him into service in support of
the plea that the restriction is unreasonable. We are not impressed by this
It is then urged that the serious infirmity
in the Act is that it levies a flat rate in respect of goods carried.
Normally, the method which should have been
adopted by the Act is what is sometimes described as the ton-mileage method,
i.e., levy the tax according to the weight of the goods carried and the
distance over which they are carried.
Since the Act imposes a flat rate merely on
the weight, the burden, imposed by it is unreasonable.
On the other hand, Mr. Setalvad strongly
urges that the tax constitutes a reasonable restriction in the public interest,
because it purports to raise revenue 1006 for public purposes. As we have
already seen, tax laws have to stand. the scrutiny of Art. 19. That being so,
as soon as the validity of a tax law is challenged under Art. 19, the State
would be entitled to rely on the fact that the revenue raised by the tax law
serves public purpose and that is its basic justification for being treated as
a reasonable restriction on the individual's fundamental right under Art.
19(1)(g). It would, therefore. follow that
the consideration on which Mr. Setalvad relies is not irrelevant, though its
significance and importance cannot be over-rated. In this context, it may,
however, be legitimate to bear in mind that the revenue is required by the
State to raise money in order to carry on the function of government and to
sustain the manifold welfare activities undertaken by it. Similarly, the fact
that the President has given previous sanction to the introduction of the Bill
may conceivably be relevant, because the Constitution seems to contemplate that
the sanction of the President would indicate that the Central Government had
applied its mind to the problem and had come to the conclusion that the
proposed tax is reasonable and in the public interest. But we must hasten to
add that the significance of his consideration cannot also be exaggerated.
Mr. Setalvad urges that evidence in the case
shows that the State has levied the tax on the goods carried because it wants
to utilise the income for the purpose of keeping the roads in order and to meet
the huge expenses incurred in maintaining the waterways in the State. In the
affidavit filed on behalf of the respondent, details have been given about the
expenditure incurred by the State on roads and waterways from year to year, and
the revenue received by it form the carriage tax during the same period. The
affidavit points out that tea and the jute are the main products of the State
of Assam and in order to have a regular and easy flow of trade, the State has
to maintain the roads. The trade in these commodities through waterways is
cheaper and, therefore, the State has also to incur large sums on maintaining
the waterways The statement filed in 1007 the affidavit clearly shows that
every year the expenditure incurred is very much more than the revenue received
from carriage tax. It may perhaps be that since the ton-mileage method has not
been adopted in imposing the tax, the State may not be able to claim that the
tax is compensatory in character. Usually, compensatory character may be
claimed for a tax of this kind, provided the extent of the service rendered by
the State by raising the tax is shown and it is also proved that the recovery
of the tax has some relation to the rendering of the said service. That is why
Mr. Setalvad has not argued that the tax in question is compensatory in
character. He, however, suggests that under Art. 304(b) it would be open to him
to sustain the restriction imposed by the tax on the ground that the tax is
levied not merely to raise general revenue for the State which itself is a
public purpose, but that the tax is raised and utilised for keeping the
waterways and the roads in good condition in the State. In our opinion, there
is considerable force in these contentions.
Then we turn to the main point urged by Mr.
Pathak that the flat rate introduces an element of unreasonableness in the levy
of the tax. It is necessary to bear in mind that having regard to the interests
of the trade as a whole, a flat rate may in some cases be reasonable. If
different rates are levied by reference to the distance over which the tea is
carried before it reaches the Calcutta Port, it would obviously mean that some
producers of tea would have to pay more taxes than others and that would
introduce an element of unfair competition between the producers of tea
considered as a class. We are referring to this aspect of the matter to
emphasis the fact that the legislature has to consider several relevant factors
before deciding how a particular tax should be levied. The law of taxation is
in the ultimate analysis the result of the balancing of several complex
considerations, and so, it would be unreasonable to insist upon the application
of a general rule that if a tax is levied at a flat rate, it must be treated as
1008 In the present case, the legislature may
have considered the requirements of the trade carried on by the producers of
tea and may have thought that a flat rate would be just and fair to the trade
as a whole. These are questions which must normally be left to the legislature
to decide. Therefore, we do not think that the main ground on which the
reasonableness of the tax levied by s. 3 was impeached by Mr. Pathak, can be
Mr. Pathak further contended that s. 34 of
the Act is unconstitutional inasmuch as it is discriminatory and imposes an
unreasonable restriction on the citizens' fundamental right to trade under Art.
19(1)(g). We have already cited s. 34. The argument that the restriction
imposed by s. 34 is unreasonable, proceeds on the assumption that sub-section
(2) prohibits a producer from ventilating his grievance against irregular,
excessive, or illegal levy of the tax before any forum, and such a prohibition,
it is urged, is patently unreasonable. We are satisfied that the assumption on
which the argument is founded is completely misplaced. What s. 34(2)(a)
prohibits is merely a suit or the other proceeding in any court. It does not
prohibit the remedy of an appeal or revision specifically provided by sections
16 & 17 of the Act.
Then it is urged that s. 34(1) makes an
invidious distinction between producers who had been ordered to pay the tax
under the earlier Act and who took no steps to challenge the said levy either
by an appeal or revision, and those who had adopted the remedy of an appeal or
revision under the said Act. In the case of the latter category of producers
the appeals and revisions would be continued and dealt with as though the said
proceedings had been adopted under the relevant provisions of the Act. whereas
assessments which had been closed under the earlier Act cannot be reopened by
the producers by filing an appeal or revision after the Act was passed. We do
not think there is any substance in this argument. Persons who had taken
proceedings by way of appeal or revision under the earlier Act are, on this
argument, treated as of the same class as persons who had taken no such
proceedings, and that, in our opinion, is not justified because the two
categories are not same or similar in character. Besides, an argument of this kind
is purely hypothetical and not based on any material facts. It is very
difficult to assume that producers who were taxed under the earlier Act paid
the tax without preferring an appeal or revision though they had a grievance
against the validity or regularity of the assessment order. Therefore, we do
not think the challenge to the validity of s. 34 can be sustained.
A similar challenge has been made against the
validity of s. 24 which prescribes punishment for the three categories of
offences specified by it under clauses (1), (2) & (3). The argument is that
since the earlier Act was struck down as unconstitutional, if any producer had
knowingly submitted false returns or had knowingly produced incorrect account,
or had contravened the relevant provision of s. 8(1), it could not be said that
he was guilty of any offence, and so, he could not have been prosecuted under
the corresponding provision of the earlier Act which also was s. 24, that being
so, s. 24, of the present Act which purports to operate retrospectively would
be invalid. There may be some force in this contention; but we do not see how
the petitioners can be permitted to challenge the validity of s. 24 when it is
not alleged by them that any action is proposed to be taken against them under
the said section.
In dealing with petitions under Art. 32, this
Court would naturally confine the petitioners to the provisions of the impugned
Act by which their fundamental rights are either affected or threatened. That
is why we are not satisfied that it is necessary to decide the question about
the validity of s. 24 in the present proceedings.
That takes us to the question whether the tax
levied by the Act can be said to be discriminatory and as such,
unconstitutional because it has selected only tea and jute as objects of
taxation. The argument I/SCI/64-64 1010 appears to be that the legislature
should have taxed other commodities along with tea and jute and in so far as
only tea and jute have been selected for the purpose of taxation, Art. 14 has been
contravened. This argument is entirely fallacious. It is not disputed that tea
and jute are the main products of the State of Assam and it is not surprising
that the Assam Legislature, therefore, levied tax on the said two articles.
Besides, the legislature which is competent to levy a tax must inevitably be
given full freedom to determine which articles should be taxed, in what manner
and at what rate, vide Raja Jagannath Baksh Singh v. The State of U.P.(1). It
would be idle to contend that a State must tax everything in order to tax
something. In tax matters, "the State is allowed to pick and choose
districts, objects, persons, methods and even rates for taxation if it does so
reasonably. The Supreme Court of the United States of America has been practical
and has permitted a very wide latitude in classification for taxation"(2).
This approach has been approved by this Court in the case of East India Tobacco
Co. v. State of Andhra Pradesh .(3).
It is, of course, true that the validity of
tax laws can be questioned in the light of the provisions of Arts. 14, 19;
and Art. 301 if the said tax directly and
immediately imposes a restriction on the freedom of trade; but the power
conferred on this Court to strike down a taxing statute if it contravenes the provisions
of Arts. 14, 19 or 301 has to be exercised with circumspection, bearing in mind
that the power of the State to levy taxes for the purpose of governance and for
carrying out its welfare activities is a necessary attribute of sovereignty and
in that sense it is a power of paramount character. In what cases a taxing
statute can be struck down as being unconstitutional is illustrated by the
decision of this Court in K.T. Moopil Nair v. The State of Kerala (4). In that
case, a careful examination of the scheme of the relevant provisions of the
Travancore-Cochin (1) 1 S.C.R, 220.
(2) Willis on Constitutional Law'p. 587.
(3)  1 S.C.R. 404, 409.
(4)  3 S.C.R. 77.
1011 Land Tax Act (No. 15 of 1955) satisfied
this Court that the said Act imposed unreasonable restrictions on the
fundamental rights of the citizens, conferred unbridled power on the
appropriate authorities, introduced unconstitutional discrimination and in
consequence, amounted to a colourable exercise of legislative power. It is in
regard to such a taxing statute which can properly be regarded as purely
confiscatory that the power of the Court can be legitimately invoked and
exercised. In our opinion, it would be idle to suggest that a tax imposed by
the Act in the present case should be struck down because it has taxed only tea
The next contention to which reference must
be made is that the Act is a colourable exercise of legislative power and
should also be regarded as confiscatory for the reason that it has been passed
substantially for the purpose of validating the recoveries made under the
earlier Act and enforcing the assessment orders passed under the Act. We have
already seen that the Act is retrospective in character and came into force
from the date on which the earlier Act was applied. We have also noticed that
the prospective operation of the Act was limited to one year from the date on
which it was published. In fact, a subsequent Act had been passed by the Assam
Legislature (Act No. 16 of 1962) and this Act has adopted a somewhat different
procedure and prescribed a different machinery for the recovery of the tax
imposed by it. Section 3 of this Act makes the owner liable to pay the tax and
s. 2(7) defines the owner as meaning the owner of a taxable vehicle and
includes in that category the four types of persons specified by clauses (a) to
(d) of s. 2(7). The argument, therefore, is that the Act was deliberately
passed by the legislature merely for the purpose of recovering dues to which it
had originally made a claim under the earlier Act which was unconstitutional
and that, it is suggested, makes the Act open to the charge that it represents
a colourable exercise of legislative power.
We are satisfied that there is 1012 no
substance in this argument. It is not disputed that the power to make a law
necessarily includes the power to make the provisions of the law retrospective.
It is also not disputed that it is within the competence of a legislature to
pass validating Acts, because the power to pass such validating Acts is
essentially subsidiary to the main power of legislation on the topics included
in the relevant List.
Therefore, if the legislature felt that the
infirmity in the earlier Act could be cured and it proceeded to comply with the
requirements of Art. 304(b), it cannot be said that a law passed -under Art.
304(b) is void, because the legislature has thereby attempted to recover taxes
which could not be recovered under the earlier Act owing to the constitutional
infirmity in the said Act. The exercise of legislative power which has resulted
in the passing of the present Act cannot, in our opinion, be said to be
colourable in any sense.
Is the Act extra-territorial in its
application ? That is the next question which calls for an answer, In support
of the plea of extra-territoriality, it is urged that the petitioners are all
residents of Bengal, that they carry on their tea business in Calcutta, and it
is only on the very narrow ground that in its passage from tea garden to
Calcutta the tea in question has to cross a distance of a mile and a half in
Assam that the tax purports to make the producers from Bengal liable under s.
3(2). This argument also is entirely misconceived. Entry 56 in List II empowers
the Assam Legislature to levy a tax on goods carried.
Whether the goods are carried for a long
distance or a short distance cannot effect the question of the legislative
competence of the legislature. It is the carriage goods through Assam that is
the taxing event and since the physical carriage of goods through a part of
Assam is not denied, it is difficult to see how a challenge to the validity of
the Act on the ground that it is extraterritorial in character could be
sustained. The doctrine of nexus has been applied in considering the validity
of tax statutes in this country in the Tata Iron & Steel Co. Ltd. v. The
State of Biliar(1). Das (1)  S.C.R. 1355.
1013 C.J., who spoke for the Court has
examined the genesis of the doctrine of nexus, has considered the relevant
judicial decisions bearing on the point and has expressed the conclusion of the
Court that the said doctrine can be invoked to sustain the validity of tax
statutes. The nexus in question must be rational, but it would be impossible to
accede to the argument that the sufficiency of nexus can be a matter for
adjudication before the Court. In the present case, undoubtedly, tea has been
carried over a part of the inland waterways in Assam and that satisfies the
test of nexus. The argument of extra-territoriality must, therefore, fail.
Mr. Mazumdar has urged before us three
subsidiary points in addition to the points argued by Mr. Pathak. He contends
that the tax levied by the Act is invalid because a tax can be levied on goods
carried only if the said goods join the mass of goods in the taxing State, In
the present case the goods had not entered the mass of goods in the State of
Assam at any stage; they just traveled for a very short distance on their way
from the tea garden, to the Calcutta Port and that cannot attract a tax under
Entry 56 of List 11. In support of this argument, Mr. Mazumdar has invited our
attention to the decision of this Court in The Central India Spinning and
Weaving and Manufacturing Co. Ltd., the Empress Mills, Nagpur v. The Municipal
Committee, Wardha(1). In that case, this Court was considering the scope and
effect of s. 66(1)(c) of the C.P. and Berar Municipalities Act, 1922, and the
decision turned upon the true interpretation of the' words "imported
into". In that connection, the legislative history of the octroi duty was
examined and it was held that the concept of import requires that. the goods
which are brought into must mix,-up with the mass of the property, in the local
area where the goods are alleged to have been imported.. If the goods are just
carried and not mixed with the mass of the property in the area through which
they are carried, they cannot be said to have been imported into that (1)
 S.C.R. 1102.
1014 area. We do not see how this decision
which turned essentially upon the true significance of the concept of import
can have any relevance where the tax with which we are concerned is a tax on
goods carried. The word "carried" is of much wider denotation, and it
would be unreasonable to limit its scope by introducing considerations which
are relevant in dealing with the question of import. Therefore, we do not think
that' the attempt to change the validity of the Act on the ground that the
carried goods which are taxed do not join the mass of goods in the State of
Assam, can succeed.
Mr. Mazumdar has also urged that so far as
the petitioners' goods are concerned, they are substantially carried by the
railway and should, therefore, be field to be outside the purview of s. 3 of
the Act. We have already seen that the operation of the Act is confined to the
goods carried by road or by an inland waterways and the goods carried entirely
by the railway are outside its scope. The question which Mr. Mazumdar has
raised before us is that having regard to the long distance which the tea chests
have travelled between the tea gardens and the Calcutta Port, it should be held
that a short distance of 1-1/2 to 2 miles which they travelled by inland
waterways does not alter the character of their journey; it is, on the whole, a
journey made by the railway, and so, the goods must be deemed to have been
carried by railway throughout. This argument also is misconceived. As we have
just indicated, the length of the distance over which the goods are carried has
no relevance to the point. It is the physical fact of carriage of goods through
a part of Assam that attracts the levy of the tax imposed by s. 3. Besides, the
definition of railway to which Mr. Mazumdar invited our attention contained in
s. 3 of the Indian Railways Act (No. 9 of 1890) itself shows that the carriage
of the goods over the inland waterways cannot be brought within the scope of
Section 3(4) defines the railway as meaning a
railway for any portion of a railway, for the public carriage passengers, 1015
animals or goods, and includes, inter alia, all ferries, ships, boats and rafts
which are used on inland waters for the purposes of the traffic of a railway
and belong to or are hired or worked by the authority administering the
railway. It is common ground that the ferries by which tea chests of the
petitioners are carried over the inland waterways in Assam do not belong to the
railway, nor are they hired or worked by the authority of the railway to which
the goods were consigned for carriage. In fact, s. 74E of the Railway Act
which, after amendment, has become s.76D in 1961, clearly brings out the fact
that when any goods are tendered to a railway administration for carriage by
railway and have been booked through over a railway or any other transport
system not belonging to the railway administration, the person who tenders the
goods shall be deemed to have contracted with the railway and the said other
transport system separately. Therefore, the argument based on the fact that the
goods have been entrusted to the railway for through carriage, and so, the
carriage of the goods should be held to be outside the purview of s. 3 of the
Act, cannot be sustained.
That leaves only one more point urged by Mr.
Mazumdar to be considered. Mr. Mazumdar contends that the tax is invalid for
the reason that tea which is one of the objects taxed has been covered by the
Central Tea Act (Act No. 29 of 1953) and he argues that since the Central Act
has been passed by reference to the relevant Entry in List 1 in the Seventh
Schedule, it is not open to the State Legislature to pass a taxing statute in
respect of tea. It is true that the Tea Act has made several provisions in
regard to tea and has constituted a Board to deal with the problems enumerated
in the other provisions of the said Act; but one has merely to glance through
the relevant provisions of the Tea Act to realise that the scope and purpose of
the said Act is entirely different from the scope and purpose of the taxing Act
with which we are concerned. The pith and substance of the taxing statute is
the levy of a tax 1016 on tea, which is carried in the State of Assam and the
right to levy such a tax cannot be said to have been taken away merely by the
fact that a Tea Act had been passed by the Central Legislature which is
referable to the relevant Entry in List 1 of the 7th Schedule. The power to
levy a tax which has been conferred on the State Legislature by Entry 56
cannot, therefore, be said to be controlled by the Tea Act in question. 'It
would be noticed that List I does not contain any Entry by which the Central
Legislature can pass an Act levying a tax on goods carried which can be said to
control Entry 56 in List 11. That being so, we, must hold that there is no
substance in the argument that the State Legislature has no power to levy a tax
on tea which is carried overa part of the area of the State of Assam.
A similar argument was urged by Mr. Mazumdar
on the strength of the provisions contained in the River Boards Act, 1956 (No.
49 of 1956). Mr. Mazumdar suggested that the Brahmaputra River over a part of
whose stream the tea chests are carried is governed by the provisions of the River
Boards Act and that imposes a ban on the power of the Assam Legislature to pass
an Act in respect of goods carried over the Brahmaputra River. What we have
said about the objection 'raised by Mr. Mazumdar on the strength of the Tea Act
applies with equal force to the present argument.
The result is, the petition fails and is
dismissed with costs.
SARKAR J.-I agree that the petition fails but
I wish to say a few words of my own.
The petition challenges the validity of the
Assam Taxation (on Goods Carried by Road or on Inland Water-ways) Act, 1961.
(Act 10 of 1961), passed by the Legislature of the State of Assam. There are
two petitioners, one of whom is a limited company and cannot, therefore,
admittedly maintain the petition which is under Art. 32. It is conceded that
the petition is maintainable by the other petitioner, an 1017 officer of the
Company, as he is interested in the rights of the Company. No question of the
competency of the petition was, therefore, raised on behalf of the respondents
who are the State of Assam and two of its officers concerned with the
collection of the tax under the Act.
The petitioner Company is the owner of a tea
estate in Jalpaiguri in the State of West Bengal. One of the grounds on which
the validity of the Act is challenged is that the Act imposes an unreasonable
restriction on the trade of the Company. The respondents contend that the Act
is valid in view of the provisions of Art. 304(b) and also cl. (6) of Art. 19
of the Constitution. They say that the-restriction imposed by the Act is
reasonable. Article 301 of the Constitution provides that subject to the other
provisions of Part XIII, trade, commerce and intercourse throughout the
territory of India shall be free, and the relevant part of Art. 304 is in these
"Notwithstanding anything in article
301......... the Legislature of a State may by law(a)..........................................
(b) impose such reasonable restrictions on
the freedom of trade, commerce or intercourse with or within that State as may
be required in the public interest:
Provided that no Bill or amendment for the
purposes of clause (b) shall be introduced or moved in the Legislature of a
State without the previous sanction of the President." It is not in
dispute that the sanction of the President contemplated in the proviso to Art.
304(b) had been obtained in connection with the impugned Act. That Act had,
however, a predecessor which bore the same title and was Assam Act 13 of 1954
but for which no sanction of the President under Art. 304(b) had been obtained.
In Atiabari Tea Co. Ltd. v. The State of Assam(1), this-Court by a majority
held that as Act 13 of 1954 imposed a tax on the carriage of (1)1 S.C.R.
1018 goods it constituted a direct
restriction on the free movement of trade and as no sanction of the President
had been obtained in respect of it was void. No question arose there as to the
reasonableness of the restriction imposed by the Act. The other members of the
Court who constituted the minority expressed dissenting opinions but no useful
purpose will be served by referring to them. As a result of the opinion of the
majority Act 13 of 1954 became void.
Article 301 and the succeeding articles in
Part XIII, including Art. 304, were again considered by another and a larger
bench of this Court in The Automobile Transport (Rajasthan) Ltd. v. The State
of Rajasthan.(1) Das J., with whose judgment Kapur J., and myself were
associated, accepted the interpretation of Art. 301 by the majority in the
Atiabari Tea Co. case (2) as correct, but stated that regulatory measures such
as rules laying down speed limit or lights to be carried by, vehicles and other
rules of the road as also measures imposing compensatory taxes such as, taxes
collected for maintaining the roads or bridges, were not restrictions within
Art. 301 as such measures really facilitated trade rather than restrict it. It
was, therefore, said by Das J.,that such measures need not comply with the
requirements of the proviso to Art. 304(b) of the Constitution. As I apprehend
the judgment of Subba Rao J., in that case, he seems to have taken the same
view though he used the description 'regulatory measure' to include measures
laying down the rule of the road as also measures intended to raise funds for
construction and maintenance of roads. This was the opinion of the majority of
the Court in that case. It is unnecessary to refer to the other opinion
expressed in it.
Neither of these cases, however, has any
bearing on the case in hand for it is not contended by the respondents that the
impugned Act was a compensatory measure. It was of course not a regulatory
measure as laying down a rule of the road.
Indeed (1) 1 S.C.R. 491.
(2)  1 S.C.R, 809.
1019 it Was not contended that the impugned
Act did not impose restrictions on the movement of trade. In view of the
sanction of the President which had been ,obtained in the present case, the
only question concerning the freedom guaranteed by Art. 301 was whether the
restriction imposed by the Act was reasonably required in the public interest.
It was said that the impugned Act (Act 10 of
1961) is practically in the same terms as the predecessor Act of 1954 but that
by itself would not bring the impugned Act within the mischief of the decision
in the Atiabari Tea Co.(1) case for that case held the earlier Act invalid only
on the ground that the sanction of the President had not been obtained. No
question was canvassed there as to the reasonableness of any restriction
imposed by the Act. The sanction of the President, as already stated, was
obtained for the impugned Act. I should however state here that apart from the
point about the reasonableness of the restrictions imposed on trade by the Act,
there were other attacks on it. These will be mentioned later.
The impugned Act came into force on April 15,
1961, and imposed a tax on manufactured tea and jute carried by any means other
than railway and airways. This case is not, however, concerned with any
carriage of jute. The Act was given a retrospective operation as it was to be
deemed to have effect from April 24, 1954, being the date on which the
predecessor Act, (Act 13 of 1954), came into force.
Further, the Act was to remain in force till
March 31, 1962, that is, for about a year only; see s. 1(3). It has since been
replaced by another Act, namely, Act 16 of 1962. It may be that as this last
mentioned Act was in contemplation, the impugned Act was given a short term of
life. This Act further stated that the tax collected under Act 13 of 1954 would
be deemed to have been collected under the corresponding provisions contained
There is one other matter to which I would
like to refer before I proceed to consider the points argued (1)  1
1020 at the bar. I have said that the tea
estate of the petitioner Company was in West Bengal and not in Assam. Its
practice was to book its tea from a railway station in West Bengal for carriage
to Calcutta for sale there. Now what the railway did was to carry the tea to
another of its stations called Dhubri Ghat on the river Brahmputra situate in
Assam. The railway had arranged for the transshipment of the tea there from its
wagons to) steamers belonging to a carrier company at Dhubri Ghat and these
steamers carried the tea by inland waterways to Calcutta. The steamers in the
course of their journey passed through one and a half mile or two miles of
Assam waterways, about 572 miles of Pakistan waterways and 165 miles of West
Bengal waterways, before reaching Calcutta. The tax was levied in respect of
the carriage of the tea for about two miles on Assam waterways.
At the hearing in this Court learned counsel
appearing in support of the petition really attacked only two sections of the
impugned Act, namely, ss. 3 and 34. Section 3, which is the charging sections
is in these terms:
S. 3. (1) Subject to the provisions of this
Act, there shall be levied a tax on (a) manufactured tea and (b) Jute in bales
carried by motor vehicle, cart, trolley, boat, animal and human agency or any
other means except railways and airways in such manner a,-Id in respect of such
period and at such rate as specified in the Schedule.
(2) Such tax levied on manufactured tea shall
be realised from the producer and that levied on jute shall be realised from
Provided that where tea is sold at the
factory premises, the producer shall be liable for realisation of tax from the
purchaser with effect from such date as the Government, by notification,
appoint, for the carriage of such tea as provided in this section and the
producer shall be liable for the payment of such tax notwithstanding 1021 the
fact that the tea is not carried by the producer:
x x x x x The first contention was that the
section was beyond the legislative competence of the State Legislature. It is
not in dispute that the Act had been passed under the powers contained in Item
56 of List II in the Seventh Schedule to the Constitution which authorised a
State Legislature to pass laws imposing "taxes on goods and passengers
carried on roads or on inland waterways". It was said that under this
entry a tax could be levied only on the person who carried the goods but the
proviso to s. 3(2) showed that even where a producer was not himself carrying
the tea, he was liable for the tax and, therefore, the Act levied the tax not
really on goods carried by road or waterways and was for that reason, ultra
vires the State Legislature and void. It may be that there is nothing in s. 3
imposing directly a tax on the purchaser of the tea even when he is the person
carrying it. It seems to me however that under Item 56 of List II it was
competent for the legislature to provide for the tax being realised from the
producer in the way it has been done in the Act. It is wellknown that the
entries in the legislative lists have to be read with all possible width and
amplitude. An entry authorising the levy of a tax of a particular kind would
justify that levy in the manner best suited for collecting it The purchasers of
tea would be mostly parties in Calcutta. The State of Assam may find it
difficult to realise the tax from them. It may, therefore, legitimately provide
that the tax may be realised from the producer even where he does notches the
tea for otherwise the tax may be evaded. Then again, under s. 3 tax is leviable
only when tea has been carried by road or inland water-ways. It is clear,
however, that it was the action of the producer, namely, the sale by him, which
alone caused the carriage of the tea; without the sale there would have been no
occasion for the purchaser to carry the tea. If he did not actually 1022 carry
the tea himself, he certainly brought about its carriage. Therefore, he might
under Item 56 of List 11 be made liable for the carriage of the tea just as
much as the person actually carrying it. I am unable to see why the words of
Item 56 of List 11 would not cover both.
I do not think it necessary to decide the
question raised at the bar whether the producer mentioned in sub-s. (2) of s. 3
refers only to a producer who himself carries the tea produced by him. Even if
the word 'producer' in that subsection includes one who does not himself carry
the tea, a tax can be legitimately levied on him when the tea is carried as a
result of its sale by him and for facility of collection of the tax.
It was next said that the proviso in s. 3
may, if effect is given to it from a past date, impose a tax on a producer
which he could not collect from the purchaser. It was pointed out that if he
was made liable by the notification mentioned in the proviso in respect of
sales which had already taken place, he would have to pay the tax personally as
the sales having taken place, he could no more collect the tax from the
purchaser. It was contended that this would make the restriction put by the Act
unreasonable and also make the provision incompetent as outside Item 56 of List
11 for the reasons earlier mentioned. It was also said that this would create a
discrimination between producers hit by such retrospective notification and
those whose sales came after the date when the notification was published.
All these reasons, it was contended, would
make the proviso illegal and void. I think the whole contention is imaginary
and unfounded. It is based on the notification being given a retrospective
effect but I am clear in my mind that under the proviso a notification cannot
be issued with retrospective effect. Under the proviso the producer is made
liable for realisation of the tax from the purchaser from a date appointed by
the notification. The notification, therefore, necessarily contemplates a
situation 1023 in which the producer can collect the tax from a purchaser.He
cannot of course do so in respect of past sales. Therefore, the notification if
it appointed a past date would be incompetent.
The next contention is that the Act must be
held to be void as it had been given retrospective operation. This contention
was founded on the argument that a statute contemplated by Art. 304(b) cannot
be retrospective. I am unable to see why not. Without more, when a legislature
has the power to pass a law it can pass a law having a retrospective operation.
This, I do not think, was disputed.
What was said was that the terms of Art. 304
indicated that it was not intended that a retrospective law would be passed
under it. It was argued that the law contemplated there was one which put
restrictions on the freedom of the flow of trade and, therefore, if the trade
had once 'flown' it could not be restricted and so a retrospective effect could
not be given to a law passed under the Article. I am unable to appreciate this
argument. If the flow of trade in future can be restricted, then I do not see
why a trade which has flown in the past cannot be restricted retrospectively.
It is not disputed that a restriction which can be imposed under cl. (6) of
Art. 19 can be imposed retrospectively.
There is no reason why the same position
should not obtain in regard to the restrictions contemplated by Art. 304(b).
It was then said that the effect of Art. 304
was to prohibit the doing of a thing and a prohibition by its very nature could
only be in respect of the future and, therefore, a retrospective restriction
would be outside the Article.
This argument was sought to be supported by
reference to Punjab Province v. Daulat Singh(1) where the Judicial Committee
said that where a legislature had power to make a law prohibiting something, it
would not in exercise of that power prohibit that thing from a past date
because the word 'prohibit' in the nature of it, referred only to a prospective
prohibition. But I do not (1) L.R. 73 I.A. 59.
1024 find any prohibition in Art. 304. The
effect of Arts. 301 and 304 is that the freedom of trade is not to be
restricted by law passed by a State except by a law imposing a reasonable
restriction on it in the interest of the-public and passed with the sanction of
the President. It then comes to this that the freedom can be restricted by a
law which has to satisfy the two conditions. Article 304, therefore, permits
and does not prohibit. There is no scope for applying here the Punjab Province
The next point to which I wish to refer is
that the restriction imposed by the tax levied under the Act is not reasonable.
A question was raised as to on whom the onus to prove the reasonableness of the
restriction lies. It was said that it has been held by this Court in Saghir
The State of U.P.(2) that the onus lies on
the State. It must be conceded that it does seem to have been so held there. On
the other hand, however, there is a very large number of cases where it is said
that there is a presumption as to the constitutionality of a statute and that,
therefore, the onus of showing that it is unconstitutional is on the party so
alleging: see the cases collected in Hamdard Dawakhana (Wakf) Lal Kuan v. Union
No doubt these cases dealt with the question
of constitutionality arising from discrimination, that is, under Art. 14 of the
Constitution, but I am unable to see that makes a difference on the question of
onus. These cases say that the presumption of constitutionality arises because
"it must be assumed that the legislature understands and appreciates the
need of the people and the laws it enacts are directed to problems which are
made manifest by experience and that the elected representatives assembled in a
legislature enact laws which they consider to be reasonable for the pupose for
which they are enacted.
Presumption is, therefore, in favour of the constitutionality
of an enactment":
Hamdard Dawakhana (Wakf)(3) case at p. 679.
(1) L.R. 73 I.A. 19 (2)  1 S.C.R. 707,
(3) 2 S.C.R. 671, 679.
1025 If the Legislature is to be presumed to
know that an Act which makes a distinction is justified because the people with
whom it is concerned are distinguished from the others by an intelligible
differentia having a rational relation to the objects of the Act, that being
the test to save a statute from being held to be discriminatory, then I do not
see why it cannot be presumed that knowing the people and their needs, the
legislature has passed a law which imposes reasonable restrictions on their
activities. It was said that the restriction is permitted by cl. (6) of Art. 19
which contains an exception and that an exception has to be proved by the party
who wants to take advantage of it. That does not seem to me to be a proper way
of reading a constitution and this rule of construction must, in my view, give
way to the rule of presumption of constitutionality.
It may also legitimately be said that there
is no exception;
the real fundamental right is what is left
after the restriction has been imposed and, therefore, the citizen alleging
violation of his fundamental right must also show that the restriction is
unreasonable. It is not necessary to pursue the matter furtheror to pronounce
finally on it now because for one thing, the observation in Saghir Ahmad's (1)
case is there' and for another, nothing turns on onus in this case. I have only
mentioned it as it is a matter which, to my mind, requires consideration when
the question properly arises.
The first ground on which it was said that
the Act imposed an unreasonable restriction was that the rates imposed by it
were flat rates. The rates were prescribed in the Schedule mentioned in s. 3
and different rates were fixed for different periods of time but in respect of
each period there was one rate, for example, between June 1, 1954, and June 30,
1955, the rate was one pice per pound. The point made was that the tax being a
tax on carriage it becomes an unreasonable restriction if the tax did not vary
with the distance over which the thing was carried. Put that way, it would
really seem not a question of (1)  1 S.C.R 707, 727.
1 SCI/64--65 1026 reasonableness but a
question of legislative competence. I am wholly unable to see that Item 56 in
List 11 requires that the tax imposed must be measured according to the
distance over which the goods are carried. Tested by the scale of reasonableness
also, a flat rate does not seem to me to be wanting in that quality. One may
well ask why is a flat rate not reasonable? I find no answer. Why is a rate
depending on the distance carried more reasonable? Again I find no answer. If
the rate varied with distance, then it is conceivable that in many cases the
burden would be much heavier. How could that have been more reasonable? The
only effect of a flat rate may be that people who carry for a short distance
pay as much as those who carry a longer distance. I do not see that this can
make the levy unreasonable.
Now let me look at the question from another
point of view.
To start with it would not be wrong to say
that since a tax is collected in public interest and for public good the burden
imposed by it on trade would prima facie be reasonable in the public interest.
There is no reason to think that the burden imposed by this Act is onerous,
that it is such as would crush the trade by putting a weight on it which it
could not carry. Furthermore it has been established on the affidavit that the
Government spends on roads and facilities on waterways much more than what is
collected in the shape of tax on the goods carried. That also is a
consideration which goes to establish the reasonableness of the levy. The
petitioner has not been able to put before us anything which would destroy the
effect of these considerations. The fact that the Act imposes the tax with
retrospective effect cannot by itself also make the restriction unreasonable.
For the reasons earlier mentioned, it may still be reasonable.
I now proceed to consider the charge of
discrimination. It was said that the Act offended Art. 14 because it taxed only
tea and jute and no other article. But I am unable to see that. this is
1027 The Act applies to all who are concerned
with the carriage of tea and jute. No doubt it does not apply to the carriage
of other goods but as has been said, "it is for the legislature to decide
on what objects to levy": see Raja Jagannath Baksh Singh v. The State of
Uttar Pradesh(1). The legislature must pick and choose and such picking and
choosing cannot by itself amount to discrimination.
Besides, it is common knowledge that tea is a
very prosperous industry in Assam and is certainly more fit to bear the, burden
of taxation than most other industries there.. The flat rate of tax imposed
also creates no discrimination for it applies the same rate to all. It has not
been shown that in fact a discrimination has arisen.
Then it was said that s. 34 of the Act
amounted to a violation of Art. 14. That section is in these terms:S.34. (1)
Any rules made, any liability incurred, any tax levied or realised, any returns
furnished, any proceedings commenced, any notification published any action
taken or anything whatsoever done under the provisions of the Act repealed,
shall be deemed to have been made, incurred, levied, realised, furnished,
commenced, published, taken or done under the corresponding provisions of this
(2) Notwithstanding anything contained in any
judgment, decree or order of any court, all taxes imposed or realised or
purporting to have been imposed or realised under the Act repealed shall for
all purposes, be deemed to be, and to have been, validly imposed or realised
and accordingly(a) no suit or other proceeding shall be maintained or continued
in any court against the Government or any person or authority whatsoever for
the refund of my taxes so paid;
and (1)  1 S.C. R. 220, 234 1028 (b) no
court shall enforce any decree or order directing the refund of any taxes so
It was first said that the sub-section
prevented people from whom tax had been collected under Act 13 of 1954, from
taking proceedings in court, while those subjected to the tax only under the
impugned Act were not so prevented.
If by 'Proceedings in court' are meant
proceedings outside those for which the Acts provide, then such proceedings
cannot be taken by persons from whom tax is collected under the present Act
either: see s. 29. Therefore the Act makes no discrimination as alleged. If
proceedings by way of appeal and otherwise for which provision is made in the
Acts themselves are to be considered, then also there is no discrimination.
Under the earlier Act there were provisions for appeal etc. and if one had
filed an appeal I under that Act, that appeal had to be deemed to have been
filed under the impugned Act. Likewise, in respect of every other kind of
proceeding contemplated in the earlier Act. If one has not chosen to take these
proceedings under that Act, he cannot complain. That would not be a case of
discrimination by the Act but would be giving up by a party of his rights under
it. Therefore the position of a tax payer is the same under both the Acts.
We were also referred to s. 24 of the Act.
That section provides for 'prosecution for failure to do certain things
required by the Act to be done. It was contended that as the section had been
given retrospective operation, it had the effect of making something which was
not an offence when done, an offence by an ex post facto law: It is not
necessary to go into that question for it is purely academic. It has not been
suggested that the petitioner has been affected by it.
Another point argued was that the Act was
only a colourable exercise of legislative power under Item 56 of List 11. The
contention was that the Act had nothing to do with tax on carriage of goods but
was really passed to retain what had been collected 1029 under an Act which
this Court had declared invalid. That of course is not on the face of it wholly
correct, for the Act operated prospectively also. But apart from that this
contention which was based on s. 34(1) of the Act is wholly unacceptable to me.
Such a contention would make it impossible to pass an Act validating a taxing statute.
Such Acts have very often been passed. A validating Act is passed under the
legislative power under which the invalid law had been purported to be passed
and it had been held that where legislative power exists, it could not be said
that the exercise of that power was colourable: Gajapatti Narayan Deo v. State
of Orissa(1). See also M.P. V. Sundararamier & Co. v. The State of Andhra
Pradesh.(2) The last thing to which I wish to refer is the contention that the
Act was bad as it had extraterrestrial operation.
It was said that to the petitioner it applied
only because the tea was carried over inland waterways in Assam for about a
mile and a half only. Apparently, the argument is that this distance is too
trivial. But it seems to me beyond question that if the goods were carried for
any distance over the territory of Assam, however short that distance might be,
the Assam Legislature would have full jurisdiction to impose a tax on such
carriage. This point is, therefore, also without any merit.
Mr. Mazumdar raised certain other points and
these have been dealt with by my brother Gajendragadkar. I do not wish to add
anything to what he has said concerning them.
I would, therefore, dismiss the petition.
(1)  S.C.R. 1. (2)  S.C.R, 1422.