Sita Ram Bishambher Dayal & Ors Vs.
State of U.P. & Ors  INSC 291 (21 October 1971)
KHANNA, HANS RAJ
CITATION: 1972 AIR 1168 1972 SCR (2) 141
CITATOR INFO :
RF 1973 SC1461 (17,63) R 1974 SC1660 (21,36)
R 1975 SC1007 (15) RF 1979 SC 321 (42) R 1979 SC1475 (23) RF 1982 SC 710 (55) F
1985 SC 421 (25) RF 1990 SC 560 (13,33)
U.P. Sales Tax Act, 1948, s. 3D(1)--Its
validity--Whether delegation of authority under the section excessive and bad
in law--Is the section violative of Art. 14 of the Constitution.
The appellants are dealers in Rab. The State
Government under s. 3D(1) of the U.P. Sales Tax Act, 1948, levied purchase tax
in respect of their, dealings in Rab. Section 3D(1) of the Act, inter alia,
provides that for each assessment year, there shall be levied and paid a tax on
the turnover of first purchases made by a dealer or through a dealer in respect
of such goods, at such rates not exceeding 2 paise per rupee in the case of
foodgrains and 5 paise in respect of other goods and in the explanation it is
provided that "in the case of purchase made by a registered dealer through
a licensed dealer, 'the registered dealer shall be the, first purchaser and in
every other case of fresh purchase, the dealer through whom the first purchase
is made shall be deemed to be the first purchaser. The appellants challenged
the vires of s. 3(d)(1) of the Act before the High Court but the High Court
held against the appellants.
In appeal this Court, it was contended by the
appellants that in empowering the Government to, levy tax on goods other than food
grains at a rate not exceeding 5 paise in a rupee, the legislature had given an
unduly wide power to the executive. Such a delegated power was, therefore,
excessive and bad in law and secondly, s. 3D(1) infringed Art. 14 of the
Constitution because it discriminated between registered dealers who purchased
through licensed dealers and the registered dealers who purchased through other
Dismissing the appeals,
HELD: (i) The power to fix the rate of tax is
a legislative power, but if the legislature lays down the legislative policy
and provides the necessary guidelines that power can be delegated to the
executive., Though a tax is levied primarily for the purpose of gathering revenue,
in selecting the objects to be taxed and in determining the rate of tax,
various social and economic factors are to be considered and since the
legislatures have very little time to go into details, they have to delegate
certain powers to the Executive. This Court has ruled that if a reasonable
upper limit is prescribed, the legislature can always delegate the power of
fixing the rate of purchase 'tax or sales tax. [143 E] Devi Days Gopal Krishnan
v. State of Punjab, 20 S.T.C. 430, followed.
In the present case, taking into
consideration the legislative practice in this country and the rate of tax
levied or leviable under the various sales tax laws in force in this country,
it cannot be said that the power delegated to the. executive is excessive and in
the absence of any material, it cannot be said that the maximum rate fixed
under s. 3D(1) is unreasonably high. 144 E-F] (ii) Section 3D is not violative
of Art. 14 of the Constitution. In the present case, there is nothing wrong for
the legislature to make a classification between licensed dealers and dealers
who are not licensed. A licensed dealer has to maintain true and correct
accounts and other particulars of 142 purchasers whereas dealers who are not
registered are not required to maintain any accounts. Hence, if registered
dealers are permitted to make purchases through dealers who are not licensed
and those dealers are themselves not liable to be taxed, then opportunity for
evasion of tax becomes larger. Under the circumstances, the classification is
not unjustified. [145 G] State of Madras v. Gannon Dunkerlay & Co. (Madras)
Ltd.,  S.C.R. 379 and Devi Deo Gopal Krishna v. State of Punjab, 20
S.T.C. 430, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 62 and 1672 of 1969.
Appeals from the judgments and orders dated
May 17, 1968 of the Allahabad High Court in Writ Petitions Nos. 310 and 627 of
J. P. Goyal and Sobhag Mal Jain, for the
appellants (in both the appeals).
L. M. Singhvi and O. P. Rana, for the
respondents (in both the appeals).
The Judgment of the Court was delivered by
Hegde, J. These are appeals by certificate. They raise a common question of law
for decision. The only contention arising for decision in these appeals is as
to the vires of s. 3-D(1) of the U.P. Sales Tax Act, 1948 (to be hereinafter
referred to as the Act). The validity of that section has been assailed on two
different grounds viz. (1) that the power delegated to the executive under S.
3-D(1) is excessive and as such bad in law and (2) Section 3-D infringes Art.
14 of the Constitution in as much as it discriminates between the registered
dealers who purchase through the agency of licensed dealers and the registered
dealers who purchase through other dealers, The appellants are dealers in Rab.
In respect of their dealings in Rab, they have been levied purchase tax as per
the notification issued by the Government under s. 3 (D) (1) of the Act. They
are challenging the validity of the levy on the grounds mentioned above.
The High Court has repelled both the above
contentions. The High Court has come to the conclusion that the power conferred
on the State Government under s. 3-D is a valid power. It opined that the
conferment of power on the executive to fix the rate of tax within the limits
laid down in the section is not impermissible. Further it held that the section
is not hit by Art. 14 of the Constitution.
143 Before proceeding to consider the
correctness of the contentions advanced on behalf of the appellant, it is
necessary to read S. 3-D(1). It says:
"Except as provided in sub-section (2),
there shall levied and paid, for each assessment year or part thereof, a tax on
the turnover, to be determined in such manner as may be prescribed, of first
purchases made by a dealer or through a dealer, acting as a purchasing agent in
respect of such goods or class of goods, and at such rates, not exceeding two
paisa per rupee in the case of food grains, including cereals and pulses, and
five paisa per rupee in the case of other goods and with effect from such date,
as may, from time to time, be notified by the State Government in this behalf.
Explanation.-In the case of a purchase made
by a registered dealer through the agency of a licensed dealer, the registered
dealer shall be deemed to be the first purchaser, and in every other case of a
first purchase, made through the agency of a dealer, the dealer who is the
agent shall be deemed to be the first purchaser." It is true that the
power to fix the rate of a tax is a legislative power but if the legislature lays
down the legislative policy and provides the necessary guidelines, that power
can be delegated to the executive. Though a tax is levied primarily for the
purpose of gathering revenue, in selecting the objects to be taxed and in
determining the rate of tax, various economic and social aspects, such as the
availability of the goods, administrative convenience, the extent of evasion,
the impact of tax levied on the various sections of the society etc. have to be
In a modem society taxation is an instrument
It can be used to achieve the economic and
social goals of the State. For that reason the power to tax must be a flexible
power. It must be capable of being modulated to meet the exigencies of the
situation. In a Cabinet form of Government, the executive is expected to
reflect the views of the legislatures. In fact in most matters it gives the
lead to the legislature. However, much one might deplore the "New Despotism"
of the executive, the very complexity of the modern society and the demand it
makes on its Government have set in motion forces which have made it absolutely
necessary for the legislatures to entrust more and more powers to the
executive. Text book doctrines evolved in the 19th Century have become out of
Present position as regards delegation of
legislative power may not be ideal, but in the absence of any better
alternative, there is no Escape from it. The legislatures have neither the
time, nor the required detailed information nor even the mobility to deal in
detail with the innumerable problems arising time and again. In certain matters
they can only lay down the policy and guidelines in as clear a manner as
In State of Madras v. Gannon Dunkerley &
Co. (Madras) Ltd.(1) this Court observed :
"Now, the authorities are clear that it
is not unconstitutional for the legislature to leave it to the executive to
determine details relating to the working of taxation laws, such as the
selection of persons on whom the tax is to be levied, the rate at which it is
to be charged in respect of different classes of goods and the like".
It was not contended before us that the power
delegated to the executive to select the goods on which the purchase tax is to
be Ievied was an excessive delegation nor was it contended that the power
granted to the executive to determine the rate of tax by itself amounts to an
excessive delegation. All that was said was that in empowering the Government
to levy tax on goods other than food grains at a rate not exceeding 5 paise in a
rupee, the legislature parted with one of its essential legislative functions
as the power given to the executive is an unduly wide one. We are unable to
accede to this contention. Whether a power delegated by the legislature to the
executive has exceeded the permissible limits in a given case depends on its
facts and circumstances. That question does not admit of any general rule. It
depends upon the nature of the power delegated and the purposes intended to be
achieved. Taking into consideration the legislative practice in this country
and the rate of tax levied or leviable under the various sales tax laws in
force in this country, it cannot be said that the power delegated to the
executive is excessive. In Devi Dass Gopal Krishnan and ors. v. The State of
Punjab and ors(2) this Court ruled that it is open to the legislature to
delegate the power of fixing the rate of purchase tax or sales tax if the
legislature prescribes a reasonable upper limit.
We are unable to accept the contention of Mr.
Goyal, Iearned Counsel for the appellant that the maximum rate fixed under S.
3-D is unreasonably high. At any rate there is no material before us on the
basis of which, we can come to that conclusion.
This takes us to the contention that s. 3-D
is ultra vires Art. 14 of the Constitution. The argument on this question
proceeds thus : The explanation to s. 3-D provides that in 'the case of (1)
 S.C.R. 379.
(2) 20 S.T.C. 430.
145 purchase made by a registered dealer
through the agency of a licensed dealer, the registered dealer would be deemed
to be the first purchaser whereas in every other case of a first purchase made
through the agency of a dealer, the dealer who is the agent would be deemed to
be the first purchaser.
This difference according to Mr. Goyal is discriminatory
in character. He urged that there was no justification for making an agent
liable to pay sale tax merely because he is an unlicensed agent. According to
him there is no rational distinction between the purchases made through
licensed dealers and those made through unlicensed dealers.
The power to levy tax includes within itself
the power to provide against evasion of tax. A licensed dealer has to function
according to the conditions of his licence. He is bound to maintain true and
correct accounts of his day to day transactions Of sales and purchase of goods
notified in sub-s. (1) of s. 3-D in an intelligible-form and in such manner, if
any, as may be prescribed and further he must furnish to the assessing
authority the details of the aforesaid transactions together with the name and
particulars of the purchaser and the number and date of the registration
certificate filed by the purchaser under s. 8A and such other information
regarding the transactions as may, subject to rule, if any, in this behalf be
Hence whenever a purchase is made through a
licensed agent, the authorities have the opportunity to know what purchases
have been made and from whom those purchases were made but that would not be
the case when purchases are made through dealers who are not licensed. They are
not required by law to maintain any accounts or submit any returns. Hence if
registered dealers are permitted to make purchases through dealers who are not
licensed and those dealers themselves are not liable to be taxed then
opportunity for evasion becomes larger. The rule of discrimination does not
rule out classification. The power of classification under a fiscal law is
larger than in the case of other laws. Hence there was nothing wrong in the
legislature making a classification between licensed dealers and dealers who
are not licensed. Even when a dealer who is not licensed is liable to pay
purchase tax, the ultimate burden falls on his principal. For these reasons, we
do not see any basis for the contention that s. 3-D is violative of Art. 14.
For the reasons mentioned above these appeals
fail and they are dismissed with costs-one set.
S.N. Appeals dismissed.