T.G. Venkataraman Vs. State of Madras
& ANR  INSC 146 (17 July 1969)
17/07/1969 SHAH, J.C.
CITATION: 1970 AIR 508 1970 SCR (1) 615 1969
SCC (2) 299
CITATOR INFO :
APL 1974 SC1111 (10) RF 1986 SC1085 (14)
Madras General Sales Tax Act, 1959 as amended
by Madras Act 2 of 1968--'Cane jaggery' liable to tax but 'palm jaggery'
exempted-Discrimination whether violative of Art.
14 of Constitution--Tax on 'cane jaggery'
whether restrictive of trade and commerce within meaning of Art.
301--Whether colourable exercise of power.
As a result of a notification dated December
30, 1967 under s. 59(1) of the Madras General Sales Tax Act and later by Act 2
of 1968 sales of jaggery became liable to tax. But while by notification under
s. 17 'palm jaggery was exempted from tax 'cane jaggery' was not. The
appellants who were dealers in 'cane jaggery' challenged the levy by writ
petitions in the High Court which were, however, dismissed.
In appeal before this Court it was contended
(i) that the tax on 'cane jaggery' while exempting 'palm jaggery' was
,discriminatory and violative of Art. 14 of the Constitution; (ii) that
taxation of 'cane jaggery' was restrictive of trade and commerce and therefore
violative of Art. 301; (iii) that the impugned legislation constituted a
colourable exercise of power.
HELD: (i) The evidence on record clearly
showed that 'cane jaggery' and 'palm jaggery' were commercially different
commodities. The methods of production of 'palm jaggery' and 'cane jaggery'
were different; they reached the consumers through different channels of
distribution; the prices at which they were sold differed and they were
consumed by different sections of the community. 'Cane jaggery' and 'palm
jaggery' did not thus belong to the same class and in differently treating them
for the purpose of taxation there was no unlawful discrimination. [620 B-E; 621
C-D] It was incorrect to say that the State Legislature had always treated the
two products on the same footing. For nearly three years before April 1, 1958
sales of 'palm jaggery' were exempt from tax but sales of 'cane jaggery' were
not. [620 B] Further, it is for the legislature to determine the objects on
which tax shall be levied. The courts will not strike down an Act as denying
equal protection merely because other objects could have been but are not taxed
by the legislature. [621 B-C] N. Venugopala Ravi Varma Rajah v. Union of India,
 3 S.C.R. 827, applied.
(ii) Freedom of trade, commerce and
intercourse guaranteed by Art. 301 of the Constitution is protected against
taxing statutes as well as other statutes, but by imposition of tax on
transactions of sale of 'cane jaggery' no restriction on the freedom of trade
or commerce or in the course of trade with or within the State. was imposed.
[621 D--F] State of Madras v. N..K. Nataraja Mudaliar.  3 S.C.R. 829,
(iii) The plea of colourable exercise of
power had no substance because the legislature had power in the present case
to. levy the tax.[621 G] 4 Sup. C.I./69 616 K.C. Gajapati Narayan Deo &
Ors. v. State of Orissa,  S.C.R.1, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 281, 284, 363, 383 to 393 and 513 to 567 of 1969.
Appeals from the judgment and order dated
December 6, 1968 of the Madras High Court in Writ Petitions Nos. 1659 of 1968.
M.S. Sethu and A.V.V. Nair, for the appellant
(in C.As. Nos. 281 and 363 of 1969).
M.S. Sethu and P. Parameshwara Rao, for the
appellant (in C.A. No. 284 of 1969).
H.R. Gokhale and K. Jayaram, for the
appellant (in C.A. No. 383 of 1969).
K. Jayaram and T.S. Vishwanatha Rao, for the
appellants (in C.As. Nos. 384 to 393 and 513 to 567 of 1969).
S.V. Gupte, S. Mohan and A. V. Rangam, for
the respondent (in C.A. No. 281 of 1969).
S. Mohan and A1. V. Rangam, for the
respondents (in C.As. Nos. 284, 363, 383 to 393 and 513 to 567 of 1969).
The Judgment of the Court was delivered by
Shah, J. At the conclusion of the hearing of these appeals on April 23, 1969,
we announced that "the appeals are dismissed with costs; reasons in
support of the order will be delivered thereafter". We proceed to record
the reasons in support of the order.
The appellants carry on business as dealers
in "cane jaggery" in the State of Tamil Nadu. As a result of certain
legislative and executive measures, transactions of sale in "cane
jaggery" were made liable as from January 1, 1968 to tax under the Madras
General Sales Tax Act, 1959, and transactions of sale in "palm
jaggery" remained exempt from sales tax. The appellants filed petitions in
the High Court of Madras challenging the validity of the levy of tax on
"cane jaggery", on three grounds:
(1) that the levy of tax on turnover from
sale of "cane jaggery"' was discriminatory and violated the equality
clause of the Constitution;
(2) that the levy of tax imposes a
restriction on trade and commerce contrary to the provisions of Part XIII of
the Constitution; and (3) there is excessive delegation of legislative
authority to the executive and on that account the levy of tax pursuant to an
order made in 617 exercise of the powers under s. 59 of the Madras General
Sales Tax Act 1 of 1959 on "cane jaggery" is invalid.
The High Court rejected all the contentions.
Counsel for the appellants have in these
appeals urged the first two grounds and have in addition submitted that in
levying tax on turnover from sale of "cane jaggery" legislative power
has been colourably exercised. The argument that there was excessive delegation
to the executive of the legislative power was abandoned before this Court,
because the State of Madras has enacted Act II of 1968 authorising levy of tax
on sale of jaggery by amending Sch. III to Madras Act 1 of 1959.
Turnover from sale of jaggery cane or
palm--was subject to tax under s. 3(1) of the Madras Act IX of 1939 at three
pies per rupee. By G.O. 651 dated February 28, 1955 and G.O. 2780 dated
September 7, 1955 all sales of "palm jaggery" effected through
Co-operative Societies and the Palm Gut Federation were exempt from tax. By another
G.O. No. 1605 dated April 19, 1956, all transactions of sale in "palm
jaggery" were exempted from sales tax with effect from April 1, 1956.
Transactions of sale in "cane jaggery" therefore continued to remain
liable to' tax whereas sales of "palm jaggery" enjoyed the benefit of
exemption from tax.
After the judgment of this Court in The
Bengal Immunity Company Ltd. v. The State of Bihar & Others(1) the
Parliament amended Art. 286 and entry 54 in List II of the Seventh Schedule
'and added a new Entry 92A in List I in the Seventh Schedule by the
Constitution (Sixth Amendment) Act.
In, exercise of the power under Entry 92A
List I the Parliament enacted the Central Sales Tax Act 74 of 1956. By Ch. IV
of that Act the power reserved under the amended Art.
286 cl. (3) was exercised by the Parliament,
and certain classes of goods were declared to be of "special importance in
inter-State trade or commerce". By s. 15 certain modifications were
declared in State Acts relating to the levy of taxes on sales and purchases of
However in the list of goods of "special
importance in inter-State trade or commerce" gur or jaggery was when, the
Act was enacted not included.
The Parliament then enacted the Additional
Duties of Excise (Goods of Special Importance) Act, 1957 (Act 58 of 1957).
Section 3 of that Act authorised the levy and collection of additional duties
in respect of several classes of goods including "sugar". By s. 4 it
was provided that during each financial' year, there shall be paid out of the
Consolidated Fund of India- (1)  2 S.C.R. 603.
618 to the States in accordance with the
provisions of the second schedule, such sums, representing a part of the net
proceeds of the additional duties levied and collected during that financial
year, as are specified in that Schedule. It was enacted by the proviso to cl.
(2) of the Schedule that if during that financial year there is levied and
collected in any State specified in the Table a tax on the sale or purchase of
sugar by or under any law of that State, no sums shall be payable to that State
(ii) or sub-cl. (iii) of cl. (b)'in respect
of that financial year, unless the Central Government by special order
otherwise directs. The expression 'sugar' was defined in s. 2(c) as having the
same meaning as it has in the First Schedule to the Central Excises and Salt
The Governor of Madras issued Ordinance 1 of
1957 directing that transactions of sale of "cane jaggery" be liable
to a single point tax at 5 per cent. with effect from April 1, 1957. By virtue
of the Central Sales Tax Act, 1956, as amended by Act 31 of 1958
"sugar" as defined in Item No. 8 of the First Schedule to the Central
Excises and Salt Act, 1944 was declared a commodity essential to the life of
the community and tax could thereafter be levied on "sugar" at the
rate of 2 per cent. only. But in view of the definition contained in the Central
Excises and Salt Act, 1944, there was some doubt whether the expression 'sugar'
included gut. The State of Madras being apparently of the opinion that
"palm jaggery" and "cane jaggery" were subject to the
provisions of the Additional Excise Act 58 of 1957, issued on April 15, 1958,
G.O., No. 1457 exempting all sales of "cane jaggery" from tax with
effect from April 1, 1958. Transactions of sale of "palm jaggery"
were therefore exempt partially from sales tax from February 28 1955 and wholly
from April 1, 1956, and transactions of sale of "cane jaggery" were
exempt from tax from April 1, 1958.
The State Legislature enacted the Madras
General Sales Tax Act 1 of 1959 with effect from April 1, 1959. By s. 3 every
dealer whose total turnover was not less than Rs.
10,000 became liable to pay tax for each year
at the rate of 2 per cent of his taxable turnover. By s. 8 it was:
provided that subject to such restrictions
and conditions as may be prescribed, a dealer who deals in goods specified in
the Third Schedule shall not be liable to pay any tax under the Act in respect
of such goods Item 5 in the Third Schedule was "sugar including jaggery
and gur." Section 17 of that Act authorised the State Government by
notification to exempt or to make reduction in rate 'in respect of any tax
payable under the Act on the sale or purchase of any special goods or class of
goods 'at all points or specified points in respect of sales by successive
dealers or by any specified class on dealers in respect of the whole or ,any
part of their turnover. By s. 59(1) of the Act the State Government was
authorised by notification, to alter, add or cancel any of the Schedules.
619 On April 1, 1959 transactions of sale of
"sugar including jaggery and gur" were exempt from liability to pay
tax under .the Madras General Sales Tax Act 1 of 1959.
The exemption applied to all transactions of
sale of "cane jaggery" and "palm jaggery". On September 10,
1965 the Government of India advised the State Government that
"jaggery" was not included in the expression 'sugar' in the
Additional Duties of Excise Act 58 of 1957. The State of Madras in exercise of
the power under sub-s. (1 ) of s. 59 of the Madras General Sales Tax Act,
issued G.O. 2261 dated December 30, 1967, that:
"In the said (Third) Schedule in item 5,
for the word 'including' the words 'but not including' shall be
substituted." The State simultaneously issued another notification that:
"In exercise of powers conferred by
section 17(1) of the Madras General Sales Tax Act, 1959, the Governor of Madras
granted exemption in respect of tax payable under the Act on all sales of palm
jaggery." In consequence of the two notifications turnover from
transactions of sale of "cane jaggery" which was till then exempt
from tax became liable to tax under s. 3 of the Madras Act 1 of 1959 whereas
sale of "palm jaggery" remained exempt from liability' to pay sales
In support of the plea that the State had
practised unlawful discrimination between sales of "palm jaggery" and
"cane, jaggery" it was urged that "cane jaggery" and "palm
jaggery" which were identical commodities and were treated similarly under
the successive Sales Tax Acts of the State for many years past were without any
rational nexus with the object sought to be served by the Madras General Sales
Tax Act, 1959, differently treated 'and on that account the notification issued
under s. 59 sub-s. (1) which modifies the Third Schedule is ultra vires.
It may be recalled that the notification
under s. 59(1) which was issued in exercise of executive authority has received
legislative sanction by Madras Act 2 of 1968.
Amendment in the Third Schedule now flows
from the exercise of legislative authority and not executive .authority.
Since s. 8 read with the Third Schedule as
amended by Madras Act 2 of 1968 exempts only "sugar" from liability
to tax, sales of jaggery, cane and palm, now fall within the charging section.
But the Government of Madras have in exercise of power under s. 17 of Act 1 of
1959 exempted transactions of sale of "palm jaggery" from tax. It is
true that between April 1,.
620 1958 and October 31, 1967 transactions of
sale of "cane jaggery" and "palm jaggery" were exempt from
liability to pay sales tax under the Madras General Sales Tax Acts of 1939 and
1959, but it cannot be inferred therefrom that the Legislature treated
"palm jaggery" and "cane jaggery" as the "same
commodity." For nearly three years before April 1, 1958 sales of
"palm jaggery" were exempt from tax but sales of "cane
jaggery" were not.
The evidence on the record clearly shows that
"cane jaggery" and "palm jaggery" are commercially
different commodities. "Cane jaggery" is produced from the juice of
sugarcane; "palm jaggery" is produced from the juice of the palm
tree. Mr. Raghupathy, Deputy Secretary to the Government of Madras (Commercial
Taxes) has stated in his affidavit that "palm jaggery" industry comes
under the purview of Khadi and Village Industries Board and is one of the
cottage industries which gives ,employment mainly to poor tappers. The tappers,
according to Mr. Raghupathy, collect "neera" from palm and other
trees and prepare jaggery by the traditional method of boiling
"neera" in their huts and produce jaggery without the aid of any
machinery. Production of "palm jaggery" in the State compared to
"cane jaggery" is small. The price of "palm jaggery" and
"cane jaggery" differ widely and apparently "palm jaggery"
and "cane jaggery" are consumed by different sections of the
community. It is clear that the method of production of "palm
jaggery" and "cane jaggery" are different; they reach the
consumers through different channels of distribution; the prices at which they
are sold differ and they are consumed by different sections of the community.
In a recent judgment N. Venugopala Ravi Varma
Rajah v. Union of India and Another(1) this Court observed:
"....Tax laws are aimed at dealing with
complex problems of infinite variety necessitating adjustment of several
disparate elements. The Courts accordingly admit, subject to adherence to the
fundamental principles of the doctrine of equality, a larger play to
legislative discretion in the matter of classification. The power to classify
may be exercised so as to adjust the system of taxation in all proper and
reasonable ways: the Legislature may select persons, properties, transactions
and objects and apply different methods and even rates for tax, if the
Legislatures does so reason ably....If the classification is rational, the
Legislature is free to choose objects of taxation, impose different rates,
exempt classes of property from taxation, subject different classes of property
to tax (1)  3 S.C.R. 827.
621 in different ways and adopt different
modes of assessment. A taxing statute may contravene Article 14 of the
Constitution if it seeks to impose on the same class of property, persons,
transactions or occupations similarly situate;
incidence of taxation, which leads to obvious
inequality." It was also said by the Court that:
"It is for the Legislature to determine
the objects on which tax shall be levied, and the rates thereof. The Courts
will not strike down an Act as denying the equal protection merely because
other objects could have been, but are not, taxed by the Legislature." We
are accordingly of the view that "cane jaggery" and "palm
jaggery" are not commodities of the same class, and in any event in
imposing liability to tax on transactions of sale of "cane jaggery"
and exempting "palm jaggery", no unlawful discrimination denying the
guarantee of equal protection was practised.
No serious argument was advanced in support
of the plea that the freedom of trade and commerce guaranteed by Part XIII of
the Constitution is infringed by the imposition of tax on "cane
jaggery". Freedom of trade, commerce and intercourse guaranteed by Art.
301 of the Constitution is protected against taxing statutes as well as other
statutes, but by imposition of tax on transactions of sale of "cane
jaggery" no restriction on the freedom of trade or commerce or in the
course of trade with or within the State is imposed. The tax imposed on transactions
of sale of "cane jaggery" does not affect the freedom of trade within
the meaning of Art. 301. As observed by this Court in The state of Madras v.
IV. K. Nataraja Mudaliar(1) "a tax may in certain cases directly and
immediately restrict or hamper the free flow of trade, but every imposition of
tax does not do so.
There is no substance in the contention that
the Act which impose tax on "cane jaggery" and the notification which
exempts "palm jaggery" from liability to tax imposes a colourable
exercise of authority. If the Legislature has the power to impose the tax, its
authority is not open to challenge on a plea of colourable exercise of power:
K.C. Gajapati Naravan Deo & Others v. The State of Orissa(2).
There will be one hearing fee.
G.C. Appeals dismissed.
(1)  3 S.C.R. 829.
(2)  S.C.R. 1.