Commission Agency Vs. State of U.P. & Ors  Insc 468 (2 August 2006)
Pasasyat & S.H. Kapadia Arijit Pasayat, J.
in this Appeal is to the judgment rendered by a Division Bench of the Allahabad
High Court repelling the challenge to constitutional validity of Section 8-E of
the Uttar Pradesh Trade Tax Act, 1948 (in short the 'Act'). By the impugned
judgment several writ petitions involving identical challenge were disposed of.
Aforesaid Section 8-E of the Act was inserted by Section 7 of the U.P. Act No.
11 of 2001.
brief reference to the factual aspects would suffice.
filed the writ petition, inter alia, with following stands:- Appellant is an
agent of principals situated outside the State of Uttar Pradesh, who for the
sake of convenience are described as 'Ex-U.P. Principals'. Appellant purchased Mentha
Oil for and on behalf of Ex-U.P. Principals and dispatched them to the said
principals on the basis of agreements entered into. One consignment of Mentha
Oil was detained by the Trade Tax officer, Mobile Squad, Jhansi and the driver
was informed by a notice that the detention was made because the appellant had
not deducted the tax from the sellers/agriculturists and had not deposited the
same in terms of Section 8-E of the Act. Appellant sent a reply on 11.7.2001
stating that the purchase of Mentha Oil was for and on behalf of Ex-U.P.
Principals from the agriculturists and all the documents accompanying the
consignment clearly established this fact. When the authority insisted on
deposit of the tax in terms of Section 8-E of the Act the Writ Petition was
similar detentions were made in case of others, writ petitions were filed
challenging constitutional validity of Section 8-E of the Act. The primary challenge
was that the seller was not a "dealer" as defined in the Act i.e.
was made to proviso to the provision in this regard.
the transactions in question being inter-state in character the State
Government did not have legislative competence to provide for deduction of tax
in respect of such transactions. The respondents-State and its functionaries
who were respondents in the writ petition supported the constitutional validity
of the impugned provision.
High Court basically came to the conclusion that the language of a statutory
provision can be narrowed down if that is necessary to sustain the
constitutional validity. Accordingly it was held that the language of Section
8-E of the Act shall be narrowed down so as to make it applicable only the
intra-State sales/purchases and held the provision to be valid. It was further
held that even though the agriculturists/farmers who sell their produces to the
appellant cannot be treated as "dealer" in view of proviso to Section
2(c), yet appellant had a liability to pay purchase tax on the purchases made
in view of Section 3(1) of the Act. Though the High Court held that the trade
tax authority concerned may decide in respect of each transaction on the facts
of each case whether it is an intra- State sale or purchase or not, that
according to the High Court did not affect validity of Section 8-E.
correctness of the judgment of the High Court learned counsel for the appellant
submitted the High Court clearly missed to notice the basic issues involved.
The transactions being undisputedly inter-State transactions, the State
legislature had no competence to provide for deduction of tax at the time of
making purchase. Strong reliance was placed on the decisions of this Court in
Steel Authority of India Ltd. v. State of Orissa and others [2000 (3) SCC 200]
and Nathpa Jhakri Joint Venture v. State of H.P. and Others [2000 (3) SCC 319]
with reference to the decisions of this Court in M/s Bhawani Cotton Mills Ltd.
v. State of Punjab and Anr. (AIR 1967 SC 1616). It was submitted that when a
person has ultimately no liability to pay tax, he cannot be compelled to go
through the procedure provided under the statute for the purpose of assessment
and determination of tax liability, if any. It was pointed out that the notice
issued itself accepted the position that the transaction was an inter-State
response, learned counsel for the respondent-State submitted that the High
Court has rightly upheld the constitutional validity of Section 8-E of the Act.
According to him, the High Court should have dismissed the writ petition on the
preliminary ground that alternative remedy was available.
to the plea of alternative remedy, we find that such a plea does not appear to
have been raised by the respondent as there is no discussion in the High
Court's judgment in this regard. Further, the constitutional validity of
Section 8-E issue could not have been decided by the statutory authorities. Be
that as it may, we find that the High Court has thoroughly confused the issues.
The decisions of this Court in Steel Authority of India's case (supra) and M/s Nathpa
Jhakri's case (supra) related to legislative competence in the matter of
deduction of tax under a state statute in respect of an inter-state
transaction. The High Court commented upon the correctness of the judgments
observing that several larger Benches decisions were not considered. To say the
least the High Court's approach is inappropriate. The decisions in Steel
Authority's case (supra) and M/s Nathpa Jhakri's case (supra) related to issues
on which there appears to be no contrary view taken by any larger Bench. The
High Court could not have sat in judgment over the correctness of the judgments
of this Court. The High Court appears to have proceeded on the basis that this
Court should have read down the provisions under consideration to uphold them.
What is the basic fallacy in this approach is illuminatingly analysed in
Minerva Mills Ltd. and Ors. v. Union of India and Ors. (1980 (3) SCC 625). In
paragraphs 64 and 65, the concept of reading down was succinctly stated as
"xxx xxx xxx
The principle of reading down the provisions of a law for the purpose of saving
it from a constitutional challenge is well-known. But we find it impossible to
accept the contention of the learned Counsel in this behalf because, to do so
will involve a gross distortion of the principle of reading down, depriving
that doctrine of its only or true rationale when words of width are used inadvertently.
The device of reading down is not to be resorted to in order to save the
susceptibilities of the law makers, nor indeed to imagine a law of one's liking
to have been passed. One must at least take the Parliament at its word when,
especially, it undertakes a constitutional amendment.
xxx xxx xxx If
the Parliament has manifested a clear intention to exercise an unlimited power,
it is impermissible to read down the amplitude of that power so as to make it
limited. The principle of reading clown cannot be invoked or applied in
opposition to the clear intention of the legislature. We suppose that in the
history of the constitutional law, no constitutional amendment has ever been
read down to mean the exact opposite of what it says and intends. In fact, to
accept the argument that we should read down Article 31C, so as to make it
conform to the ratio of the majority decision in Kesavananda Bharati is to
destroy the avowed purpose of Article 31C as indicated by the very heading
"Saving of certain laws" under which Articles 31A, 31B and 31C are
grouped. Since the amendment to' Article 31C was unquestionably made with a
view to empowering the legislatures to pass laws of a particular description
even if those laws violate the discipline of Articles 14 and 19, it seems to us
Impossible to hold that we should still save Article 31C from the challenge of
unconstitutionality by reading into that Article words which destroy the
rationale-of that Article and an intendment which is plainly contrary to its
proclaimed purpose." There is no, and can be none, quarrel to the
proposition that if on one construction a given statute will become ultra vires
the powers of the Legislature whereas on another construction, which may be
open, the statute remains effective and operative, the Court will prefer the
latter, on the ground that the Legislature is presumed not to have intended an
excess of its jurisdiction. But as observed by Holmes J. in Northern Securities
Company v. United States 193 US 197, the rule requires that "the statute
must be construed in such a way as not merely to save its constitutionality but
so far as it is consistent with fair interpretation, not to raise grave doubts
on that score".
rule does not apply when the offending words have only one meaning e.g. when
the restricted meaning makes them useless or redundant (See M.P. Cement
Manufacturers' Association v. State of M.P.
and Ors. (2004 (2) SCC 249).
other words, the rule applies only where two views are possible as to the
meaning of the statutory language. In neither Steel Authority's case (supra)
nor M/s Nathpa Jhakri's case (supra) that was the position. The basic issue
related to power to provide for any deduction of tax in respect of inter- state
transactions. There was no issue relating to intra-state transactions.
Therefore, the question of any reading down was of no relevance.
Steel Authority of India's case (supra) it was inter alia observed as follows:
By virtue of
Entry 54 of List II of the Seventh Schedule read with Article 246 of the
Constitution of India, the States are empowered to levy taxes on the sale or
purchase of goods, other than newspapers.
Forty-sixth Amendment to the Constitution introduced, inter alia, Clause (29A)
(b) in Article 366 of the Constitution; as a result, tax on the purchase or
sale of goods included a tax "on the transfer of property in goods
(whether as goods or in some other form) involved in the execution of a works
286(1) of the Constitution states that no law of a State shall impose, or authorise
the imposition of a tax on the sale or purchase of goods where such sale or
purchase takes place outside the State or in the course of the import of goods
into, or export of goods out of the territory of India. Article 286(2) authorises Parliament
by law to formulate principles for determining when a sale or purchase of goods
takes place in any of the ways mentioned in sub-Article (1). Acting upon this
power, Parliament has set out in Sections 3, 4 and 5 of the Central Sales Tax
Act, 1956 principles for determining when a sale or purchase of goods can be
said to take place in the course of inter-State, trade or commerce, when a sale
or purchase of goods can be said to take place outside the State and when a
sale or purchase of goods can be said to take place in the course of import or
export. In Gannon Dunkerley and Co. and Ors. v. State of Rajasthan and Ors.,
1993 (1) SCC 364, this Court has held that it is necessary to exclude from the
value of a works contract the value of goods which are not taxable by a State
in view of Sections 3, 4 and 5 of the Central Sales Tax Act, 1956. The value of
goods involved in the execution of a works contract has to be determined after
making these exclusions from the value of the works contract.
There can be no
doubt, upon a plain interpretation of Section 13AA, that it is enacted for the
purposes of deduction at source of the State sales tax that is payable by a
contractor on the value of a works contract.
the purposes of the deduction neither the owner nor the Commissioner who issues
to the contractor a certificate under Section 13AA(5) is entitled to take into
account the fact that the works contract involves transfer of property in goods
consequent upon of an inter-State sale, an outside sale or a sale in the course
of import. The owner is required by Section 13AA(1) to deposit towards the
contractor's liability to State sales tax four per cent of such amount as he
credits or pays to the contractor, regardless of the fact that the value of the
works contract includes the value of inter- State sales, outside sales or sales
in the course of import. There is, in our view, therefore, no doubt that the
provisions of Section 13AA are beyond the powers of the State legislature for
the State legislature may make no law levying sales tax on inter-State sales,
outside sales or sales in the course of import." In M/s Nathpa Jhakri's
case (supra) the view expressed in Steel Authority of India's case (supra) was
High Court also observed that it was reading down and narrowing down the
language of the provision to sustain the constitutional validity of the same.
It was observed that the language of Section 8-E can be narrowed down so as to
make it applicable only to intra-state sales/purchases. The appellant in fact
raised the dispute on the factual aspects contending that the transaction was
one of inter-state character. Its emphasis was on the validity of the provision
vis-`-vis inter-state transactions. There was no necessity of any reading down
as there was no dispute in the case at hand relating to intra-state sales. The
question of appellant having liability to pay purchase tax was also not a
relevant factor for determination of the basic question regarding validity of
Section 8-E. The nature of a transaction cannot be decided on the basis of the
provisions of a taxation statute. It has to be factually examined. The High
Court instead of focussing on the factual aspects dealt with issues not
relevant, and that too giving clearly indefensible interpretations. The factual
aspects should have been asked to be dealt with by the authorities.
directing the authorities to do it after laying down the law, which as noted
down was not the correct position in law, would really serve no purpose. On the
facts of the case, there is no need to decide the question relating to validity
of Section 8-E of the Act except stating that the provision is subject to what
has been stated in Steel Authority's case (supra) and M/s Nathpa Jhakri's case
(supra), for which the factual determination has to be done by the authorities.
Therefore, we allow the appeal subject to the following directions:
The reply filed
by the appellant on 11.7.2001 shall be dealt with by the respondent no. 3 in
accordance with law.
said authority shall decide as to the nature of the transaction i.e. whether it
is of intra- state or inter-state character. If it is of inter-State character,
the decisions in Steel Authority's case (supra) and Nathpa Jhakri case (supra)
shall apply. Section 8-E, therefore, cannot be held applicable to inter-State
whether the appellant has any liability to pay purchase tax shall not be dealt
with in the proceedings relating to which the notice was issued on 8.7.2001 and
the reply was filed on 11.7.2001.
It will be for
the appellant to establish that the transaction in question was of inter-State
shall be given opportunity to file further reply and place such materials as
according to it are relevant before the concerned authority within four weeks
reply and further reply and materials to be placed for consideration by the
appellant, the concerned trade tax authority shall decide the issue in
accordance with law.
we part with the case, it would be appropriate to remind the legislatures of
what was stated in Bhawani Cotton Mill's case (supra) that if a person is not
liable for payment of tax at all, at any time, the collection of a tax from
him, with a possible contingency of refund at a later stage, will not make the
original levy valid, because if sales or purchases are exempt from taxation
altogether, they can never be taken into account, at any stage, for the purpose
of calculating or arriving at the taxable turnover and for levying tax. The
view was reiterated in Steel Authority's case (supra) and Nathpa Jhakri case
(supra). In the latter case, it was noted, echoing the view in Bhawani Cotton
Mill's case (supra) that it is no solace to say that such a person can get
refund after completion of assessment. If the principles indicated in these
cases are followed, large number of unnecessary litigations can be avoided.
appeal is allowed to the aforesaid extent without any order as to costs.