Ganga Sugar Co Ltd. Vs. State of U.P.
& Ors  INSC 190 (20 September 1979)
CHANDRACHUD, Y.V. ((CJ) UNTWALIA, N.L.
CITATION: 1980 AIR 286 1980 SCR (1) 769 1980
SCC (1) 223
R 1984 SC 981 (8) R 1989 SC 100 (32) R 1989
SC1933 (25) F 1990 SC 913 (26)
U.P. Sugarcane Purchase Tax Act, 1961
Sections 3, 3A, 3B-Validity of.
Constitution of India-Sales Tax Entry 54 List
11- Drafting of legislation on "Controlled Industry" by the State,
These appeals arise from a common demand for
tax by the State from a number of Sugar Mills on the purchase of Sugarcane at a
rate regulated by weight and not on value.
The Cess under the U.P. Sugarcane Cess Act,
1956 was declared ultra-vires which resulted in the enactment of Sugarcane
Purchase Tax Act, 1961. In a fiscal sense, the Purchase Tax Act, is a
reincarnation of the Cess Act, but in a legislative sense, it is an independent
statute with a different source of power, impact and structure. The tax in
question is a successor to the Cess which was struck down but
jurisprudentially, the levies are different in character and attributes and
constitutionally the imposts derive from different legislative entities and have
to be tested by different standards. The Act by Section 3 imposes a rate of tax
at the rate of Rs. 1.25 paise per quintal of sugarcane purchased by a factory
owner, the corresponding rate for a "unit" being paise 50. Under
Section 3(2) of the Act, the charge is on the purchase transaction payable by
the owner of the factory or unit "on such date" at such place and in
such instalment as may be prescribed.
The appellant had challenged the charge of
tax. The High Court dismissed the Writ Petition on the ground that the
petitioners have not supplied for any period figures of actual prices paid by
them, actual quantity of cane crushed, actual quantity of juice derived, actual
quantity of sugar produced and their earnings and, therefore, it was not
possible to take the view that tax by weight was unfair and inequitable. The
High Court further held that tax by weight had fairer relation to the
production of sugar by earnings of a factory than tax by price and consequently
no one could complain that the impugned provisions treated unequals as equals,
Equal crushing attracts equal tax.
On appeal to this Court, it was argued on
behalf of the appellants that (i) the scheme and sections of the Act are
ultra-vires (ii) the charge of tax is bad because in its true character it is a
legislation in respect of "Controlled Industry" and this power
belongs exclusively to Parliament under Entry 52 of List I (Seventh Schedule)
of the Constitution, (iii) there is discrimination between sugar factories and
khandsari units by the impost of differential rates of tax and liability is
computed by the weight of the cane as distinguished from its monetary value,
there is an inevitable arbitrariness built into the texture of the scheme and
(iv) the Act, masked as Purchase Tax, in essence asks for an Excise Duty on
sugar-manufacture and is, therefore, invalid as colourable legislation.
HELD: (i) This Court cannot lose sight of the
all-India impact when the law is laid down under Article 141 of the
Constitution and judgments of this Court are decisional between litigants but
declaratory for the nation. The scheme of the Act is simple and workable. It is
undisputed that sugar industry is a controlled industry within the meaning of
Entry 52, List I of Schedule and therefore, the legislative power of Parliament
covers enactments with regard to industries having regard to Article 246(1) of
the Constitution. Entry 54 in List II of the Seventh Schedule, empowers the
State legislature to legislate for taxes on purchase of goods and so if the Act
under consideration is attracted, in pith and substance by this entry,
legislative incompetence cannot void the Act. [774 E-F, 781 G-H, 782 A] (ii)
The contention that the charge of tax is bad because in its true character it
is a legislation in respect of controlled industry and which power belongs
exclusively to Parliament under Entry 52 of List I has no force. Tika Ram's
case deals with the identical question of "controlled industry' vis-a-vis
U.P. Legislation regulating Sugarcane supply and purchase under the U.P.
Sugarcane (Regulation of Supply and Purchase) Act, 1953. That statute reserved
or assigned to sugar factories specified cane purchasing centres for the
purpose. This regimentation of sugarcane growers and regulation of cane
supplies to specified millers by a State enactment was attached on the precise
ground that sugar being a "controlled industry" any enactment
affecting such industry including the regulation of supplies of raw materials
thereto was taboo. The plea was dismissed as specious, and the appeals under
this Court's consideration are a fortiori cases where the rejection of the
contention can be more confidently made. [782 C, F-H, 783 A]
"Industry" as a legislative topic has a large and liberal import,
true. But what peripherally affects cannot be confused with what goes to the
heart. An acquisition of land for sugar mills or of sugar mills may affect the
industry but is not an action in the legislative field forbidden for the
States. Sales tax on raw materials going to a factory may affect the costing
process of the manufacture but is not legislation on industrial process or
allied matters. Indeed, if the State Legislature cannot go anywhere near
measures which may affect topics reserved for Parliament a situation of
reductio ad absurdum may be reached. [780 B-C] Ch. Tikka Ram's case  SCR
393. Shyamkant Lal  SCR 427, Kanan Devan Hills Produce Company Ltd.
 1 S.C.R. 357 followed.
(iii) The contention that there is
discrimination between sugar factories and khandsari units by the impost of
differential rates of tax and that when a purchase tax liability is computed by
the weight of the cane as distinguished from its monetary value, there is an
inevitable arbitrariness built into the texture of the scheme, has no force.
Neither in intent nor in effect is there any discriminatory treatment
discernible to the constitutional eye. Price is surely a safe guide but other
methods are not necessarily vocational. It depends Practical considerations of
the Administration. traditional. practices in the Trade. Other economic pros
and cons enter the verdict but, after a judicial generosity is extended to the
legislative wisdom, if there is writ on the statute perversity. 'madness' in
the method or gross disparity, judicial credulity may snap and the measure may
meet with its funeral. This Court has uniformly held that classi-- 771 fication
for taxation and the application of Article 14, in that context, must be viewed
liberally, not meticulously.
[786 F-H, 787 B-D] Murthy Match Works case,
 3 S.C.R. 121, applied.
It is well established that classification is
primarily for the legislature and becomes a judicial issue only when the
legislation bears on its bosom obvious condemnation by way of caprice or
irrationality. [789 A] (iv) The contention that the Act masked as Purchase tax,
in essence asks for an Excise Duty on sugar manufacture and is therefore
invalid as colourable legislation has no force. Tax on sale of purchase must be
on the occurrence of a taxing event of sale transaction. Beyond that is left to
the free play of the legislature, subject, of course, to the contra-indication
about capricious, arbitrary or irrational features. It is a superstition,
cultivated by familiarity, to consider that all sales-tax must necessarily have
nexus with the price of the commodity. Price as basis is not only usual but
also safe to avoid uneven, unequal burdens, although it is conceivable that a
legislature can regard prices which fluctuate frequently, as too impractical to
tailor the purchase tax. It may even be, in rare cases, iniquitous to link
purchase tax with price, if more sensible bases can be found. Supposing a
legislature classifies sales tax on the basis of human categories and reduces
the rate or exempts the tax in respect of abject desuetudes, or starving flood
victims or notoriously hazardous habitations, with respect lo necessity of
life. Such differentiation cannot be castigated as discrimination out of hand.
It is common and commonsense that reliable stand is the price, although in
regard to customs duties there are still items levied on the nature of the
goods rather than its value in money. For the present, it is sufficient to
state that the practice has been to impose purchase tax by weight of cane.
Also, in weight of cane, its sucrose content and its price have a close nexus,
although, theoretically, they may appear unconnected. Unequals cannot be
treated equally since mechanical uniformity may become unmitigated injustice.
Khandsari units are cottage industries unlike
sugar factories and need legislative succor for survival. Their economy
justifies State action, classifying them as apart from factories and we fail to
appreciate the flaw in the scheme on this score. [789 F-H. 790 A-B. F-G]
Nothing more than prevention of escapement of purchase tax on cane is done and
what is done is legitimately incidental to the taxing power. Peripheral
similarity between purchase tax and excise levy does not spell essential
sameness. Sugarcane tax operates in the neighborhood of sugar excise but
proximity is not identity.
The tax is only on purchase of cane, not its
conversion into sugar. If the miller has his own cane farm and crushes it, he
has no purchase tax to pay but cannot escape excise duty if any. Again if cane
is purchased by a miller and it is later robbed or destroyed before sugar is
manufactured, the State tax is exigible although excise on production is not.
A perspicacious appreciation of the
implications of purchase and production dispels confusion on this issue. To buy
new produce is a step preliminary to manufacture but is not part of
manufacture. [791 D-F]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 712 of 1972.
From the Judgment and Order dated 21-2-1972
of the Allahabad High Court in Civil' Misc.. Writ No. 5271/71.
772 Civil Appeal Nos. 962-964 of 1972 From
the Judgments and Orders dated 14-2-1972/21-2-1972 of the Allahabad High Court
in Civil Writ No. 335/71, 4778/71, and 3334/71.
Civil Appeal No. 1013 of 1972.
From the Judgment and Order dated 14-2-1972
of the Allahabad High Court in Civil Misc. Writ No. 2791/71.
Civil Appeal Nos. 1063-1065 of 1972.
From the Judgment and Order dated
21/22-2-1972 of the Allahabad High Court in Civil Writ Nos. 572, 843 and
Civil Appeal Nos. 1066 & 1067 of 1972.
From the Judgment and Order dated 21/22nd
Feb. 1972 of the Allahabad High Court in C.W. Nos. 5273/71 and 1170/72.
Civil Appeal Nos. 1140-1142 of 1972.
From the Judgment and order dated
29-3-1972/14-2-1972 and 21-2-1972 of the Allahabad High Court in Civil Misc.
Writ Nos. 5064/71, 1801/71 and 5018/71.
Civil Appeal No. 1160 of 1972.
From the Judgment and order dated 18-4-1972
of the Allahabad High Court in Civil Misc. Writ No. 4223/71.
Civil Appeal Nos. 1329-1330 of 1972.
From the Judgment and order dated 18-4-1972
of the Allahabad High Court in Civil Misc. Writ Nos. 4587/71 and 4605/71.
Civi] Appeal No. 1367 of 1972.
From the Judgment and order dated 5-4-1972 of
the Allahabad High Court in C.M.W. No. 2278/70.
Civil Appeal No. 1405 of 1972.
From the Judgment and order dated 14-2-1972
of the Allahabad High Court in Civil Misc. Writ No. 1803/71.
Civil Appeal Nos. 1415 & 1598 of 1972.
From the Judgment and order dated 14-2-1972
of the Allahabad High Court in Civil Misc. Writ No. 1802/71 & 3668/70.
Shanti Bhushan (in C.A. 712) P.R. Mridul (in
C.A. 962) P.N. Tiwari, K.J. John and J.S. Sinha for the Appellants in CA 773
712, 962-963, 1063-1069, 1140-1142, 1160, 1329, 1330 and 1598/72.
Shanti Bhushan (in C.A. 409), O.P. Malhotra
(in C.A. 1415) R.K.P. Shankar Das (1013 and 1409) H. K. Puri and V.K. Bahl for
the appellants in CA 1013 and 1409 and 1415/72.
Yogeshwar Prasad, Mrs. Rani Chhabra and Mrs.
S. Bagga for the Appellants in CA 1367/72.
O. P. Rana and R. Ramachandran for the
The Judgment or the Court was delivered by
KRISHNA IYER, J.-This phalanx of appeals, over 200 strong, has stagnated for
eight years and slowed down other disposals, which is unfortunate.
We believe that the price of healthy justice
from the highest Bench is eschewal of all but those cases which possess the
twin attributes of (i) substantial question of law of general importance (ii)
which needs to be decided by the Supreme Court itself, whether the jurisdiction
be under Article 133, 134 or 136. Such being the jurisdictional dynamic of the
Supreme Court, save in exceptional cases of appalling injustice, we hope the
Bar will share this concern and avoid a breakdown for, truly, the question
today is: To be or not to be.
All these appeals spring from a common demand
for tax by the State of Uttar Pradesh from a number of sugar mills on the
purchase of sugarcane at a rate related by weight, not value, a pragmatic
novelty in the sales tax pattern which has provoked an argument about its
validity. Legal ingenuity, which rich mills, making common cause, could summon,
spun out several constitutional and other challenges to the levy in the High
Court, all of which became casualty when the Division Bench delivered judgment.
Even so, the memoranda of appeals have set forth an imposing array of grounds
of varying merit, all save three of which, by the wise husbandry of counsel,
have been mercifully abandoned.
The three survivors deserve no better fate
but it behoves the court to state the triple challenges presented from various
angles and ratiocinate at some length to reach the litigative terminus. One or
two more minor matters, which figure in the debate at the bar, may, however, be
noticed in the course of the stride.
Far more facts and a fuller projection of the
law may be in place here. We are concerned with a levy under the U.P. Sugarcane
(Purchase Tax) Act, 1961, (for short, the Act). Sales tax, item 54 in the State
List, was once described in the thirties by a far-sighted Chief 774 Minister
and nation-builder, Sri C. Rajagopalachariar, as a Kamadhenu. True to his
prescience, every State, today, relies heavily on this levy for which the
common man eventually pays heavily. Uttar Pradesh, which grows sugarcane and
runs sugar mills in the private sector, hit upon a tax on the purchase of cane
by millers who manufactured sugar and Khandasari at differential rates, but it
is a heritage from the thirties. A little legislative history, mixed with
tentative inferences, illuminates the legal controversy since appellants'
counsel set much store by this as an auxiliary circumstance.
A broad brush projection of the fiscal story
and back ground economy may now be attempted, although we regret that no
authoritative material, beyond what can be culled from the High Court judgment,
is forthcoming. We will make to with it although litigants, especially in the
battle-field of unconstitutionally, must produce the socio-economic bio- data
of challenged legislation, explaining the 'how', the 'why' and 'why not' of
each clause lest lay minds, lost in legal tuning, should miss meaningful sound
and social sense which experts may explain. Law cannot go it alone-nor lawyers.
Many Stales in India grow sugarcane, all of
which, save negligible quantities, suffer crushing and its sucrose content is
recovered as sugar, khandasari and, on a cottage industry basis, as gur. Andhra
Pradesh, Bihar, Gujarat, Haryana, Kerala, Karnataka, Maharashtra, Madhya
Pradesh, Punjab, Pondicherry, Tamil Nadu and Uttar Pradesh not only grow
sugarcane but enjoy purchase tax, a majority of which levy By weight rather
than on price. And we cannot lose sight of the All India impact when the law is
laid down under Article 141. Judgments of this Court are decisional between
litigants but declaratory for the nation.
Sugar is an export item and, of course, is a
daily necessary at home. Uttar Pradesh, according to the Report of the Tariff
Commission on the cost Structure of the Sugar Industry and the Fair Price for
Sugar (1969) has the heaviest concentration of sugar mills in the country but
several of them are uneconomic and some sick. Modernization is a message lost
on U.P. sugar, manufacture and the cane cultivator's fortune hangs on the
fluctuating prosperity of the marginal millers. The sugar and sugarcane economy
is the victim of a variety of forces which add to the precariousness and poor
efficiency of factories The area under cultivation recedes or expands with the
decrease or increase of crushing by the factories and the misery of losses and
instability of acreage under cane cultivation have played havoc with
agriculturists. Dithering prices of sugar, export promotion as a policy, 'Levy'
of sugar to feed the poor and a number of other intricate economic facts 775
have made the fiscal manoeuvring a matter of expertise and social justice.
While, on a pan-Indian survey, wide
variations in quality of cane and efficiency of mills may be found, within
Uttar Pradesh, broadly speaking, the sucrose content differs but little and the
percentage of recovery also is more or less the same or factories in the State
save where the machinery effects efficiency. So much so, the price of
sugarcane, usually decided by the Central Governments notification of minimum
price, depends on its weight and sucrose recovery and, in practice, within a
region both gravitate towards a common point. Moreover, the Uttar Pradesh sugar
map reveals, as pointed out, by the High Court, that 'the more you crush, the
more you produce; the more you produce, the more you earn. So the quantity of
sugarcane crushed by a factory is an index of its earnings'.
The relevance of this relationship between
consumption of quantity by the mills, their sugar production and quantum of
profits, to the question of tax incidence, its equity and equality will be
taken up by us later on. Prima facie, there is a cane-sucrose correlation for
the State. Apart from it, the more the cane purchased, the more the profits
spun; and the justice of fixing the tax tag on the weight of cane purchased
argues itself. And what makes for just impost of the tax burden is the
antithesis of arbitrariness. When the majority of the sugarcane States have
imposed purchase tax by weight, net value, a reinforcement of sorts is added to
this inference. The High Court observes, based on these data:
"Prime facie, purchase tax by weight
would ensure more stable revenue over the years than the purchase tax by the
price of sugarcane, which rises and falls in a four years' cycle".
This statement has not been upset by any
facts placed before the court and ipse dixits of counsel, sans data, are airy
Another market eccentricity must be noticed.
Business cycles of boom and slump have been the bane of the sorry sugar and
sugarcane story of that State, and fiscal policy to stabilise a wobbling market
G economy has been presumably evolved thoughtfully. The Report we have referred
to bears testimony to this cyclical factor and the High Court has drawn
inferences therefrom. Let us view the inequity of the impost had it been
related to the price of cane. The High Court gives some facts :
"The price of sugarcane is, according to
the Report of the Tariff Commission, determined by the law of supply and 776
demand in a particular year. Accordingly it may vary disproportionately in
various regions of the State. One factory may pay more for the same quantity of
sugarcane than the other. Indeed, the Basti Sugar Mills Company Limited has
made that allegation. The Basti Sugar Mills Company Limited paid Rs. 7,00,000/-
less than the Seksaria Sugar Mills Private Limited for the same quantity of
sugarcane. If the quantity of sugar manufactured by them in that year is more
or less the same, their earnings will be the same. So - tax b.
price would be more oppressive on the
Seksaria Sugar Mills Private Limited. On the other hand, as tax is by weight,
both of them would have paid the same amount of tax in that year. Neither of
them could complain of unfair or inequitable incidence of taxation.
Of course, stabilization or uniform fixation
of cane prices is the annual endeavour of Central and State Governments and
this reduces disparity among millers, except the factor of efficiency.
Variations in cane transport costs ale minimized and taken care of by zoning
purchases statutorily, and then weight-price correlation becomes more stable
and sober in practice that abstract arguments based on printed paper and flight
of fancy may luridly suggest.
The life of the law is real life, not
little-logic and the High Court's deductions, though a lay exercise, cannot be
faulted as fallacious by lay advocacy.
Regrettably, we have no contrary statistics
and the learned judges, have stressed this weakness. We agree with those
observations and accept them since nothing urged before us has furnished
factual contradiction of these premises:
"The petitioners have not supplied for
any period figures of actual prices paid by them, actual quantity of cane
crushed by them, actual quantity of juice derived, actual quantity of sugar
produced and their earnings. They have not tried to prove that the standard of
price would be more just and equitable than the standard of weight for levy of
purchase tax. From the meagre data gleaned from the Tariff Commission's Report,
it is not possible to take the view that tax by weight is unfair and
inequitable. And Article 14 ensures to the citizen the basic principle on which
rests justice under the law. It assures to the citizen the ideal of fairness
(Corpus Juris Secundum Vol. XVI-A p. 296). The petitioners have failed to
discharge the heavy burden of proof".
777 Abstract submissions flung from
imagination do not each the point of forensic take-off, if we may add.
Tentatively, subject to further examination, the conclusion of the High Court
commends itself to us:
"The incidence of purchase tax by weight
appears to be more related to the earning capacity of the assessee than the
incidence of tax by price of sugarcane".
To clinch the issue, as it were, the High
Court winds up:
"The petitioners have not argued that
the impugned provision is confiscatory in nature. I have already shown, that
tax by weight has got fairer relation to the production of sugar by an earning
of a factory than tax by price. Consequently, no one can fairly complain that
the impugned provision treats unequals as equals.
Equal crushing attracts equal tax." We
may comment by way of supplement that equal crushing means equal weight of
cane. So cane quantity and tax liability roughly match and remove the fear of
Let us go back to pick up the threads,
leaving this pertinent detour for a while. Sugarcane agriculture and sugar
industry have been the cynosure of legislative attention at Central and State
levels for long. We may start a rapid survey from 1932 when the Sugar Industry
Protection Act, 1932 was put on the statute book.
Its object was to foster and develop the
sugar industry by protective tariffs. Then came the Sugarcane Act 1934 which
empowered the Provincial Government to fix a floor price for sugarcane sold to
sugar factories. This was followed by the U.P. Sugar Factories Control Act 39
.8, which replaced the earlier 1934 Act. Thus came into existence a statutory
Sugarcane Control Board and a Cane Commissioner. Section 29(1) of this Act
imposed a.. sales tax on the sale of sugarcane. Sub-section (3) provides for a
cess on the entry or sugarcane into a local area. The necessity for the
fostering legislative care of sugarcane cultivation and the imposition of a tax
in this behalf is explained in the Statement of objects and Reasons to the Bill
"The future of the sugar industry
depends to a very large extent on a big drive for the improvement of cane
cultivation and its planned production on a rational basis. To enable
Government to carry out the necessary measures in this connection, which will
involve considerable expenditure, and to take other steps conducive to the
welfare of 778 the industry, cane growers and agriculturists generally, it is
proposed to impose a tax upto a maximum limit of six pies a maund of the sale of
sugarcane to a factory or a cess at the same rate on the entry of cane into a
local area notified in this behalf for consumption, use or sale therein."
It is significant that 40 years ago the tax for the benefit of cane growers was
linked up with weight. It is not as if a freak flash flit past the legislative
mind of linking up purchase tax with weight of cane in 1961 only.
Apparently, measure of tax by weight of stuff
in the peculiar circumstances of sugarcane economy has been tested by time and
metabolized into the consciousness of the affected Trade and the
Be that as it may, the development of
sugarcane cultivation was taken up on a systematic basis as per the statutory
mandate. Both the tax and the cess contemplated by the 1938 Act went by the
maund and although the cess was to be levied from the seller he was allowed to
recover it from the purchaser. The 1938 Act gave place to the U.P. Sugarcane
(Regulations of Supply and Purchase) Act, 1953, which created a scientific
scheme, created a Fund, injected the concept of cane growers' cooperatives and
provided for levy of cess. The cess part of the Act was replaced by the U.P.
Sugarcane Cess Act 1956. We must remember
that by now the Government of India Act 1935 had ceased to exist and the
Constitution of India had come vibrantly into being with the fundamental rights
of Part III. The cess under the 1956 Act was attacked and fell victim to a
constitutional challenge and this Court in Diamond Sugar Mills' Case declared
the Cess Act ultra vires. The consequence of this mortality was the incarnation
of the U.P. Sugarcane Purchase Tax Act 1961 which is being impeached as ultra
vires in these appeals.
When cess failed, the State would have been
constrained to refund nearly half a hundred crores of rupees. Validation by
parliamentary legislation in conformity with the Constitution was, therefore,
done. Eventually, the levy of a purchase tax was enacted into law by the U.P.
Sugarcane (Purchase Tax) Act 1961 (referred to as the Act). In a fiscal sense,
the Purchase Tax Act is a reincarnation of the Cess Act but, in a legislative
sense, it is an independent statute with a different source of power, impact
and structure. While the appellants have a case that this fiscal history
substantiates their thesis that the present purchase tax is a disingenuous
disguise, the State contends that its power to impose a purchase tax is well
within List II, Entry
54. An appeal to history cannot impeach
power. Plainly read, the Act, architectures 779 a, typical tax scheme, leviable
at the purchase point with one difference, but we have been invited by Shri
Shanti Bhushan, counsel for some of the appellants, to lift the veil, look at
the true anatomy of the Act and discover the unseemly unconstitutionality in
Before we adventure into an assessment of the
vulnerability of the provisions to the appellants' artillery, we must project a
picture of the impugned Act in its essentials, sufficient to appreciate the
grievances and their constitutional merit, remembering the judicial limitation
that where economic diagnostics and administrative pragmatics blend to produce
a legislative outfit, restraint is prudence save where caprice compels.
The saga of the Act having been chronicled,
we may proceed to a dissection of the Act from the Constitutional angle.
It is worth mentioning that Central and State
Governments have been deeply concerned with the economic pros and cons of
sugarcane and sugar. The Tariff Commission in its report gives much of the
material relied on by the High Court. Indeed, when any legislation is assailed
as arbitrary, unreasonable or otherwise unconstitutional one expects both sides
not to assume the Court to be omniscient but to furnish the surrounding
materials, statistical data and the compulsive factors which operated to
provide the prescriptions in the legislation consistently with the imperatives
of Part III. This statutory "intelligence" should be a necessary
accompaniment to any litigative exercise where constitutionality depends on
Orality unlimited and invitation into
abstractions can hardly do duty for a methodical marshalling of meaningful
facts. Anyway, we will discuss the merits of the contentions on the available
materials supplemented by warrantable guesses; with a presumption in favour of
constitutionality strengthened by the High Court's affirmance since the
principal attack is Article 14.
Historically, the tax in question is a
successor to the cess which was struck down, but jurisprudentially, the levies
are different in character and attributes and constitutionally, the imposts
derive from different legislative entries and have to be tested by different
standards. In short, the Purchase Tax Act has to be judged on its own merits in
the light of submissions of counsel.
The anatomy of the Act, to the extent
relevant, may now be envisaged. Section 3 is the charging section and creates a
Liability on the purchase of sugar cane payable by a factory owner or a unit
owner. The rate is one rupee 25 Paise per quintal and 50 Paise per quintal for
factories and unit respectively. The taxing event is the purchase transaction
by the owner of a factory or a unit. An option is provided for in the case of
owners 780 of units to pay tax on an assumed quantity prescribed by Government.
This is obviously to simplify and to benefit owners of Units who are presumably
tiny producers of khandsari sugar. By definition, factories and units fall
under different categories, the former being geared to manufacture of sugar by
power, the latter being engaged in the production of Gur, Rab or Khandsari
sugar in crushers driven by mechanical power. A classification based on scale
of operations, product manufactured another substantial differences bearing on
production capacity, profits of business and ability to pay tax, is
constitutionally valid and the feeble contention counsel put forward that there
is discrimination between owners of factories and units must fail without much
Section 3A, intended to guard against escape
of tax, ensures that the sugar produced out of the sugarcane transaction
exigible to tax shall virtually stand security, if we may crudely express
ourselves that way. The sugar produced in the factory shall not be removed
until the tax levied under Section 3 is paid. Other detailed provisions
calculated to safeguard the tax are also contained in Section 3A Provision for
revision of assessment is contained in Section 3B.
While fines and punishments for
contraventions find a place in Section 8, remission of taxes is also provided
for in Section 14 and comprehensive rule-making power is vested in government
under Section 15. Section 15(2) (F) (G) and (H), in particular, chase the sugar
manufactured from the taxable sugarcane and empower Government to make rules to
secure the sugar bags from leaving the factory premises until the liability of
the State is discharged.
To sum up, the scheme is simple and workable.
Uttar Pradesh has a number of factories which manufacture sugar.
There are quite a few units which, with less
mechanisation, produce, out of raw sugarcane, less refined, perhaps more
nutritious, end-products like khandsari sugar gur or rab.
These two classes are well-established, their
operations, economics and manufactures are different and the fiscal legislation
in question classifies them as factories and units and imposes differential
levies. The Act, by Sec. 3, imposes a rate of tax of 1 rupee 25 Paise per
quintal of sugarcane purchased by a factory owner, the corresponding, rate for
a 'unit' being but 50 Paise. The charge is on the purchase transaction payable
by the owner of the factory or 'unit 'on such date, at such place and in such
installments as may be prescribed' (Sec. 3(2).) Interest and penalty, appeal,
prosecution and other consequential provisions find a place as usual but the
basic challenge is to the charge of tax on three grounds. The charge is had,
firstly, because, argues counsel, it is, in its true character, 781 a
legislation in respect of a 'controlled industry' and this power belongs
exclusively to Parliament under Entry 53 of List I (VII Schedule).
The next submission to shoot down the measure
is that the Act, masked as purchase tax, in essence asks for an excise duty on
sugar manufacture and is, therefore, invalid as colourable legislation, seeking
to achieve, on the sly, what it dare not do straight. Surely, excise duty falls
under Entry 54 of List I and the State Legislature cannot usurp that power.
Even if the levy be a hybrid one, as Sri Malhotra made it out to be, it falls
under Entry 97 of List I, out of bounds for the State Legislature.
The final shot fired to bring down the fiscal
levy on the score of ultra vires is from the customary barrel of Article 14. A
multiprolonged attack, based on Article 14, was launched. The levy cast equal
burdens on unequals and so was invalid on the ground of discrimination. A tax,
by this canon, must be linked to price of canon, not its quantity, lest the
millers be made to pay unevenly for two consignments of equal weight but
unequal price. A refinement of the same argument was developed on the basis of
the sugar output from the cane crushed. The sucrose content of sugarcane varies
from cane to cane and, perhaps, from mill to mill and to lump them together
quantitatively for a uniform impost is to turn the Nelson's eye on the inter se
inequality. Procrustean cruelty is anathema for the law where unequals are
equalised into arbitrary conformity.
Counsel submit that sucrose is the touchstone
and where that content varies but the levy is standardized on the weight of
cane the exaction must he outlawed under Articles 14 and 13 and even 19
We reject all the three contentions and hold
that the Act can parachute to safety despite the ineffectual artillery. For, as
on Bubaivat, we 'heard great argument about it and about but evermore came out
by the same door as in we 'went'. Let us anyway scan, the 'substantial points'
which have sojourned in this Court all these years awaiting a constitutional
pronouncement. Incidentally, most of these pleas have been negatived by this
Court on earlier occasions but phantom arguments often survive after death.
Is the legislation ultra vires because the
State enters the forbidden ground by enacting on controlled industry? It is
undisputed that sugar industry is a controlled industry, within the meaning of
Entry 52, List I of Schedule and, therefore, the legislative power of
Parliament covers enactments with respect to industries having regard to
Article 246(1) of the Constitution If the impugned legislation invades Entry 52
it must be repulsed by this Court. But entry 54 in List II 782 of the Seventh
Schedule empowers the State to legislate for taxes on purchase of goods and so
if the Act under consideration is attracted, in pith and substance, by this
Entry legislative incompetence cannot void the Act. The primary question, which
we have to pose to ourselves, is as to whether this State Purchase Tax Act is
bad because it is a legislation with respect to a controlled industry, to wit,
the sugar industry. What matters is not the name of the Act but its real
nature, its pith and substance. The same problem demands our attention at a
later stage in considering the contention that the levy under examination is,
in a sense, an excise duty and not a purchase tax.
We are somewhat surprised that the argument
about the invalidity of the Act on the score that it is with respect to a
'controlled industry dies hard, despite the lethal decision of this Court in
Ch. Tika Ramji's case. Enlightened litigative policy in the country must accept
as final the pronouncements of this Court by a Constitution Bench Unless the
subject be of such fundamental importance to national life or the reasoning is
so plainly erroneous in the light of later thought that it is wiser to be
ultimately right rather than to be consistently wrong. Stare decisis is not a
ritual of convenience but a rule with limited exceptions.
Pronouncements by Constitution Benches should
not be treated so cavalierly as to be revised frequently. We cannot devalue the
decisions of this Court to brief ephemerality which recalls the opinion
expressed by Justice Roberts of the U.S.
Supreme Court in Smith v. Allwright
"that adjudications of the Court were rapidly , gravitating 'into the same
class as a restricted railroad ticket, good for this day and train only'
Let us examine the worth of the contention
that the impugned legislation is one on a 'controlled industry' and therefore
out of bounds for the State legislature.
Tika Ramji's case (supra) deals with the
identical question of 'controlled industry' vis-a-vis a U.P.
Legislation regulating sugarcane supply and
Certain sugarcane growers of Uttar Pradesh
assailed the vires of the U.P. Sugarcane (Regulations of Supply and Purchase)
Act 1953. That statute reserved or assigned to sugar factories specified cane
purchasing centres for the purpose. This regimentation of sugarcane growers and
regulation of cane supplies to specified millers by a State enactment was
attacked on the precise ground that sugar being, a 'controlled industry' any
enactment effecting such industry including the regulation of supplies of raw
materials 783 thereto was taboo. The plea was dismissed as specious, and the
appeals under our consideration are a fortiori case where the rejection of the
contention can be more confidently made.
N.H. Bhagwati, J., speaking for the Court
traced the legislative history bearing on sugar and sugarcane.
Reference was made to the Industries
(Development and Regulation) Act 1951 which brought in as Item 8 of the First
Schedule to the Act the industry engaged in the manufacture or production of
sugar. The impugned legislative measures occasioned by the need to streamline
the supplies of cane to factories. The law was designed to provide for a
rational distribution of sugarcane to factories for its development on
organised scientific lines to protect the interests of the cane growers and of
the industry. The submission made there was that even though the impugned Act
purported to legislate in regard to sugarcane required for use in sugar
factories, it was, in pith and substance and in its true nature and effect,
legislation in regard to sugar industry which had been declared by Act LXV of
1951 to be an industry under Entry 52 of List I. It was urged that the word 'industry'
was of wide import and included not merely manufacture but also the raw
materials for the industry. The supply and Distribution of raw materials for
the sugar industry were, therefore matters having a clear impact on the
production of sugar. In this view, it was pleaded that sugarcane control
vis-a-vis sugar factories was a colourable exercise of legislative power by the
State trespassing upon' the field of Entry 52 in List I.
Tika Ramji's case (supra) gave short shrift
to the submission that all sugarcane legislation linked to sugar factories was
Bhagwati, J. Observed:
"What we are concerned with here is not
the wise construction to be put on the term 'industry' as such but whether the
raw materials of an industry which form an integral part of the process are
within the topic of 'industry' for which forms the subject-matter of Item 52 of
List I as ancillary or subsidiary matters which can fairly and reasonably be
said to be comprehended in that topic and whether the Central Legislature while
legislating upon sugar industry could, acting within the sphere of Entry 52 of
List I, as well legislate upon sugarcane." The learned Judge stripped the
argument naked and presented it for examination:
"It was suggested that Item 52 of List I
comprised not only legislation in regard to sugar industry but also in regard
784 to sugarcane which was an essential ingredient of the industrial process of
the manufacture or production of sugar and was, therefore, ancillary to it and
was covered within the topic. If legislation with regard to sugarcane thus came
within the exclusive province of the Central Legislature, the Provincial
Legislature was not entitled to legislate upon the same . .
The court was pressed to impart the widest
amplitude to the topic 'industry' and take within its wings ancillary matters
lie raw materials of the industry .
"It was, therefore, contended that the
Legislation in regard to sugarcane should be considered as ancillary to the
legislation in regard to sugar industry which is a controlled industry and
comprised within Entry 52 of List I....' The edifice of exclusive Parliamentary
jurisdiction so built stood on shifting sands. The semantic sweep of Entry 52
did not come in the way of the State Legislature making laws on subjects within
its sphere and not directly going to the heart of the industry itself. The key
to the problem was furnished in Tika Ramji's case (supra). After comparing the
provisions of the U.P. Act there considered, which related to the regulation of
sugarcane to factories and securing its price to the grower from the occupier
of the factory even by checking the accounts relating to The manufacture of
sugar, The Court clinched the issue thus:
"This comparison goes to show that the
impugned Act merely confined itself to the regulation of the supply and
purchase of sugarcane required for use in sugar factories and did not concern
itself at all with the controlling or licensing of the sugar factories, with
the production or manufacture of sugar or with the trade and commerce in, and
the production, supply and distribution of sugar. If that was so, there was no
question whatever of its trenching upon the jurisdiction of the Centre in
regard to sugar industry which was a controlled industry within Entry 52 of List
I and the U.P. legislature had jurisdiction to enact the law with regard to
sugarcane and had legislative competence to enact the impugned Act." 785
Even the argument of repugnancy was repelled:
"The pith and substance argument also
cannot be imported here for the simple reason that, when both the Centre as
well as the State Legislatures were operating in the concur rent field, there
was no question of any trespass upon the exclusive jurisdiction vested in the
Centre under Entry 52 of List I, the only question which survived being
whether, putting both the pieces of legislation enacted by the Centre and the
State Legislature together, there was any repugnancy ......
This Court further quoted Sulaiman, J. In
Shyamakant Lal to lend strength to this latter limb of reasoning, where the
learned Judge had laid down the principle of construction in; situations of
"When the question is whether a
Provincial legislation is repugnant to all existing Indian Law, the onus of
showing its repugnancy and the extent to which it is repugnant should be on the
party attacking its validity. There ought to be a presumption in favour of its
validity, and every effort should be made to reconcile them and construe both
so as to avoid their being repugnant to each other; and care should be taken to
see whether the two do not really operate in different fields without
encroachment. Further, repugnancy must exist in fact, and not depend merely on
a possibility." Tika Ramji notwithstanding. the contention was advanced by
Sri Shanti Bhushan that industry was a pervasive expression, ambient enough to
embrace raw materials used for the industry and so, sugar industry, as a topic
of legislation, vested in Parliament exclusive power to legislate on sugarcane
supplies to sugar factories, and, pursuing this expansionist logic. any
taxation on supplies of cane to mills would be legislation on sugar industry.
Ergo the Purchase Tax Act was a usurpation by
Legislature breaching the dykes of Art. 26(1)
read with entry 52 of List I. He expanded on the theme by urging that any
legislation which affected the sugar industry by taxing its raw materials was
one with respect to that industry. The Tika Ramji ratio is diametrically
opposed to this reasoning and a ruling which has stood the field so long, has
been followed by another Constitution 786 Bench as late as 1973 in the Kannan
Devan case, and its force of logic has our deferential assent and cannot be
brushed aside by a mere appeal for reconsideration. Shri Shanti Bhushan
candidly conceded that if Tika Ramji were good law his submission was
still-born. We agree Industry as a legislative topic is of large and liberal
import; true. But what peripherally affects cannot be confuse with what goes to
the heart. An acquisition of land for sugar mills or of sugar mills may affect
the industry but is not an action in the legislative field forbidden for the
States. [See the Kannan Devan Hills Produce Company Ltd.
case (supra) ]. Sales tax on raw materials
going to a factory may affect the costing process or the manufacture but is not
legislation on industrial process or allied matters. Indeed, if the State
Legislature cannot go anywhere near measures which may affect topics reserved
for Parliament a situation of reduction ad absurdum may be reached.
The further refinement made by counsel that
here was legislation confined to factories and units only, the other buyers of
sugarcane being left out, and that therefore the Act was in intent and effect
one with respect to the sugar industry has no substance either.
For one thing, the bulk of the consumption of
sugarcane was by factories and khandsari units only and the omission of trivial
consumers did not mean that the legislation was not on sugarcane purchases
generally. Secondly, it was open to the Legislature to make an intelligent
choice of the persons on whom the tax should be imposed. Here, the bulk
consumers were selected and the marginal buyers omitted. We discern nothing in
this policy which legislates upon the sugar industry.
Before we move on to the submission as to the
nature of the levy being an excise duty, we may dispose of the little
contention on alleged discrimination between sugar factories and khandsari
units by the imp post of differential rates of tax and more serious contention
founded on the breach of Article 14 to the effect that when a purchase tax
liability is computed by the weight of the case, as distinguished from its
monetary value, there is an inevitable arbitrariness built into the texture of
the Scheme. If either of these submissions has substance, the tax in question
must fall to the forces of Articles 14, 19 and 13, especially Art. 14, Art. 19
coming in only consequentially or where expropriation ensues.
Article 14, a great right by any canon, by
its promiscuous forensic misuse, despite the Dalmia decision has given the
impression of being 787 the last sanctuary of losing litigants. In present
case, the levy which is uniform on all sugarcane purchases, is attacked as
ultra vires, on the score that the sucrose content of various consignments may
vary from place to place, the range of variation being of the order of 8 to 10
per cent and yet a uniform levy by weight on these unequals is sanctioned by
the Act. Price of cane is commended as the only permissible criterion for
purchase tax. The whole case is given away by the very circumstance that,
substantially, the sucrose content is the same for sugarcane in the State, the
marginal difference being too inconsequential to build a case of discrimination
or is blamable on the old machinery.
Neither in intent nor in effect is there any
discriminatory treatment discernible to the constitutional eye. Price is surely
a safe guide but other methods are not necessarily vocational. It depends,
practical considerations of the Administration, traditional practices in the
Trade, other economic pros and cons enter the verdict but, after a judicial
generosity is extended to the legislative wisdom, if there is writ on the
status perversity, 'madness' in the method or gross disparity, judicial
credulity may snap and the measure may meet with its funeral.
Even so, taxing statutes have enjoyed more
judicial indulgence This Court has uniformly held that classification for
taxation and the application of Article 14, in that context, must be viewed
liberally, not meticulously. We must always remember that while the executive
and legislative branches are subject to judicial restraint, "the only
check upon our exercise of power is our own sense of self-restraint." In
the Murthy Match Works case, this Court observed:
"Certain principles which bear upon
classification may be mentioned here. It is true that a Ste may classify
persons and objects for the purpose of legislation and pass laws for the
purpose of obtaining revenue or other objects. Every differentiation is not a
discrimination. But classification can be sustained only if it is founded on
pertinent and real differences as distinguished from irrelevant and artificial
The constitutional standard by which the
sufficiency of the differentia which form a valid basis for classification may
be measured, has been repeatedly stated by the courts. If it rests on a
difference which bears a fair and just relation to the object for which it is
proposed it is constitutional. To put it differently, the means must have nexus
with the ends.
Even so, a large latitude is allowed to the
State for classification upon: a reasonable basis and what is reasonable 788 is
a question of practical details and a variety of factors which the court will
be relucant and perhaps ill-equipped to investigate. In this imperfect world
perfection even in grouping is an ambition hardly even accomplished. In this
context, we have to remember the relationship between the legislative and
judicial departments of government in the determination of the validity of
classification. Of course, in the last analysis courts possess the power to
pronounce on the constitutionality of the acts of the other branches whether a
classification is based upon substantial differences or is arbitrary, fanciful
and consequently illegal. At the same time, the question of classification is
primarily for legislative judgment and ordinarily does not become a judicial
question. A power to classify being extremely broad and based on diverse considerations
of executive pragmatism, the judicature cannot rush in where even the
legislature varily treads." The further challenge must be clarified here.
Counsel submitted that unequals were being treated equally by a uniform
purchase tax where equality would have dictated classification and taxation
based on sucrose recovery from the cane or its market price. Even here, we may
notice the observations in Murthy Match Works (supra).
Another proposition which is equally settled
is that merely because there is room for classification it does not follow that
legislation without classification is always unconstitutional. The court cannot
strike down a law because it has not made the classification which commends to
the court as proper. How can the legislative power be said to have been
unconstitutionally exercised because within the class a sub-classification was
reasonable but has not been made.
It is well established that the modern State,
in exercising its sovereign powers of taxation, has to deal with complex
factors relating to the objects to be taxed, the quantum to be levied, the
conditions subject to which the levy has to be made, the social and economic
policies which the tax is designed to subserve, and what not. In the famous
words of Holmes, J. in Bain Peanut Co. v. Finson:
'We must remember that the machinery of
Government would not work if it were not allowed a little play in its
joints." 789 It is well established that classification is primarily for
the legislature and becomes a judicial issue only when the legislation bears on
its bosom obvious condemnation by way of caprice or irrationality.
We have discussed earlier the history of
legislative control, the imposition of tax or cess by weight of cane and the
acceptance of that methodology all through the decades without demur by the
Trade. Moreover, this Court has negatived an identical argument in a case from
Andhra Pradesh (where also a similar levy based on weight of sugarcane is
extent) in Andhra Sugar Ltd. Anr. etc. v.
State of Andhra Pradesh & ors.(l) The
Court there observed:
"Mr. Setalvad submitted that there can
be no levy of a purchase tax with reference to the tonnage of the cane. We
cannot accept this contention. Usually the purchase tax is levied with
reference to the price of the goods. But the legislature is competent to levy
the tax with reference to the weight of the goods purchased.
The contention of Mr. Chatterjee that a
purchase tax must be levied with reference to the turnover only is equally
devoid of merit. Where the purchase tax is levied on a dealer, the levy is
usually with reference to his turnover, which normally means the aggregate of
the amounts of purchase prices. But the tax need not necessarily be levied on a
dealer or by reference to his turnover. It may be levied on the occupier of a
factory by reference to the weight of the goods purchased by him." Maybe
the discussion is brief but the conclusion is sound, and we concur. Tax on sale
or purchase must be on the occurrence of a taxing event of sale transaction. Beyond
that is left to the free play of the legislature, subject, of course, to the
contra-indications about capricious, arbitrary or irrational features. It is a
superstition, cultivated by familiarity, to consider that all sales-tax must
necessarily have nexus with the price of the commodity.
Of course, price as basis is not only usual
but also safe to avoid uneven, unequal burdens, although it is conceivable that
a legislature can regard prices which fluctuate frequently, as too impractical
to tailor the purchase tax.
It may even be, in rare cases, iniquitous to
link purchase tax with price, if more sensible bases can be found.
Supposing a legislature classifies sales-tax
on the basis of human categories and reduces the rate or exempts the tax in
respect of abject destitutes, or starving flood 790 victims or notoriously
hazardous habitations, with respect to necessity of life. Such differentiation
cannot be castigated as discrimination out of hand. Of course, it is common and
commonsense that reliable standard is the price, although in regard to customs
duties there are still items levied on the nature of the goods rather than its
value in money. For the present, it is sufficient to state that the practice
has been to impose purchase tax by weight of cane.
Also, in weight of cane its sucrose content
and its price have a close nexus, although, theoretically, they may appear
unconnected. The High Court has stated that the quantity crushed, the sugar
produced and the profits earned, have a substantial linkage. The quality of
cane over the whole of Uttar Pradesh varies over a range of 8 to 10 per cent
which, if converted to purchase tax, may inflict a trivial difference per
quintal Moreover, for many years past the bulk of the sugar has been absorbed
by 'levy' by the State and in the costing components the State, as buyer of
sugar, has borne the burnt. We have no facts to hold that arbitrary or various
burdens are cast because weight, not price, has been the yardstick for tax.
Fine-tuning to attain perfect equality may be
a fiscal ideal but, in the rough and tumble of work-a-day economics, the
practical is preferred to the ideal, provided glaring caprice of gross
disparity does not make the levy arbitrary or frolicsome. Article 14 is not
intellectual chess unrelated to actual impact or the wear and tear of life but
even-handed justice with some play in the joints.
Sri Mridul, one of the advocates appearing
for the appellants, made a naive presentation that equality is inflexible as
enshrined in Article 14 and so the differential in rate of tax as between sugar
mills arid khandsari units is bad. The plea that infants and adults, weeklings
and strongmen, paupers and princes should be put on a par lest legislative
validity be imperilled has an elitist merit but sounds like an argumentum ad
absurdum in the context of social justice. Unequals cannot be treated equally
since mechanical uniformity may become unmitigated injustice. Khandsari units
are cottage industries unlike sugar factories and need legislative succour for
Their economy justifies State action,
classifying them as apart from factories and we fail to appreciate the flaw in
the scheme on this score.
Reference to K. T. Moopil Nair's case was
made at the bar to persuade us that unequals cannot be tortured into equality-a
vice which stultifies the soul of Article 14 as Anatole France exposed in his
sardom epigram that 'the law, in its majestic equality, forbids the 791 rich as
well as the poor to sleep under bridges, to beg in the streets, and to steal
bread'. We are sure that equality has two sides, both important, and Moopil
Nair adverted to one of the facets. Nothing more can be squeezed out of that
case. The inequality of situation, in the total conspectus of socio-economic
facts and human condition, must be striking and the unjust equality the rule
forces down on unequals must be glaring. In taxation, the many criteria of
intrinsic intricacy and pragmatic plurality persuade the Court, as a realist
instrument and respecter of the other two branches, to allow considerable free
play although never any! play for caprice, mala fides or cruel recklessness in
intent and effect Sri Malhotra, counsel for some appellants, explored beyond
Sri Shanti Bhushan, the 'excise' argument in detail, read to us several
sections and rules which enables the tax authorities to keep effective track of
and control over the sugar in the factories to the extent needed for recovery
of the tax. Nothing in these provisions regulates or controls the industry
itself nor exacts any levy on the manufacture of sugar or its wide
ramifications. Nothing more than prevention of escapement of purchase tax on
cane is done and what is done is legitimately incidental to the taxing power.
Peripheral similarity between purchase tax
and excise levy does not spell essential sameness. Sugarcane tax operates in
the neighbourhood of sugar excise but proximity is not identity. The tax is
only on purchase of cane, not its conversion into sugar. If the miller has his
own cane farm and crushes it, he his no purchase tax to pay but cannot escape
excise duty, if any. Again, if cane is purchased by a miller and it is later
robbed or destroyed before sugar is manufactured, the State tax is exigible
although excise on production is not. A perspicacious appreciation of the
implications of purchase and production. dispels confusion on this issue. To
buy raw produce is a step preliminary to manufacture but is not part of
manufacture. Maybe, in some cases tax on such purchase and duty on manufacture
therewith are so close that thin 'partition do their bounds divide' but how can
we obliterate those bounds and telescope the two ? All the appeals deserve to
be and are dismissed with costs, one set.