M. A. Rahman & Ors Vs. The State of
Andhra Pradesh  INSC 128 (30 March 1961)
30/03/1961 WANCHOO, K.N.
GUPTA, K.C. DAS AYYANGAR, N. RAJAGOPALA
CITATION: 1961 AIR 1471 1962 SCR (1) 694
Motor Spirit-Registration of dealers-If ultra
vires the ConstitutionConstitution of India, Art. 19(1)(g) The Madras Sales of
Motor Spirit Taxation (Andhra Pradesh Extension and Amendment) Act (Andhra
Pradesh V of 1958)-The Madras Sales of Motor Spirit Taxation Act (VI Of 1939)
Ss. 3 and 4, sub-ss. (1) and (4).
The Madras Sales of Motor Spirit Taxation Act
(Mad. VI of 1939) was made applicable to the, State of Andhra Pradesh by the
Madras Sales of Motor Spirit Taxation (Andhra Pradesh Extension and Amendment)
Act (Andhra Pradesh V of 1958).
The purpose and object of the Act was to levy
and collect tax on retail sales of motor spirit and the liability for payment
was placed upon the person effecting the sale. In order that the State may know
the persons from whom tax was due s. 4(1) provided for registration of dealers
and S. 4(6) provided for the suspension of such registration in the event of
some contraventions. All that any one who wanted to carry on business had to do
was to ask for registration which he would get under the rules. The petitioners
who were dealers in motor spirit in Hyderabad filed writ petition challenging
the provisions of the said S. 4 Of subss. (1) and (6) on the ground that such
registration and cancellation were not reasonable restrictions on the
fundamental rights of the petitioners to carry on business under Art. 19(1)(g)
of the Constitution particularly as the cancellation of registration resulted
in the total extinction of the business and was an unreasonable restriction and
prayed that sub-ss. (1) and (4) Of S. 4 Of the Act and r. 14 framed under s. 26
of the Act be declared ultra vires.
Held, that the provisions of S. 4(1) of the
Act were constitutional. Registration of dealers under s. 4(1)was an eminently
reasonable provision in order to carry out the object of the Act, the purpose
behind the registration being that those on whom the liability to pay tax under
S. 3 of the Act lay, were known to the State, so that it could realise the tax
The provision Of S. 4(6) for cancellation of
registration for failure to pay the tax or for fraudulently evading the payment
of it was an additional coercive process which was expected to be immediately
effective and enabled the State to realise its revenue. The fact that in some
cases restriction might result in the extinction of the business of a dealer
would not by itself 695 make the provision as to cancellation of registration
an unreasonable restriction on the fundamental right guaranteed by Art.
19(1)(g) of the Constitution.
Narendra Kumar v. The Union of India, 
2 S.C.R. 375, referred to.
ORIGINAL JURISDICTION: Petition Nos. 145 and
149 to 158 of 1959.
Writ Petition under Art. 32 of the
Constitution of India for enforcement of Fundamental Rights.
Sardar Bahadur, for the petitioners.
C. K. Daphtary, Solicitor-General of India,
R. Ganapathy Iyer and T. M. Sen, for the respondents.
1961. March 30. The Judgment of the Court was
delivered by WANCHOO, J.-These eleven petitions raise a common point and will
be disposed of together. The brief facts necessary for present purposes are
these. The petitioners are dealers in motor spirit in Hyderabad. In 1949 the
Hyderabad Sales of Motor Spirit Taxation Regulation, No. XXIV of 1358 Fasli
(hereinafter called the Regulation) was passed and the petitioners were
registered as retail dealers of petroleum products under the Regulation. In
1957 the petitioners and others filed writ petitions in the High Court of
Andhra Pradesh questioning the validity of the Regulation. There was also a
prayer for stay of the levy and collection of the tax and the High Court
ordered that all further proceedings in the matter of levy, demand and
collection of tax including cancellation of registration certificate and
threatened attachment of property and the launching of criminal proceedings in
pursuance of the Regulation be stayed. The petitioners allege that on this stay
being granted by the High Court, they thought that S. 3 of the Regulation was
suspended during the period of stay and therefore they stopped collecting the
tax from consumers.
While these petitions were pending in the
High Court, the Madras Sales of Motor Spirit Taxation (Andhra Pradesh Extension
and Amendment) Act, No. V of 1958 (hereinafter called the Act), was passed by
which 696 the Madras Sales of Motor Spirit Taxation Act, No. VI of 1939 was
applied to Andhra Pradesh with some modifications and the Regulation was
repealed. This Act, like the Regulation, had provisions for registration of
dealers and in consequence fresh registration certificates were issued to the
petitioners as well as to all other dealers in the State. In August 1958 the
petitions challenging the validity of the Regulation were dismissed. In
September 1958 notice& were issued to the petitioners informing them that
they had failed to submit returns showing sales of motor spirit from March 1957
to March 1958 and they were required to submit returns within seven days,
failing which best judgment assessments would be made under the relevant
provision of the Regulation. The petitioners made representations against this
order and their main case was that they had not collected any tax from
consumers during this period and it would therefore be harsh to demand tax from
them in the circumstances. Thereupon it is said that best judgment-'
assessments were made against the petitioners and they were required to pay the
tax, though liberty to pay in installments was granted to them for this
purpose. As however the petitioners failed to deposit the tax even in installments,
the registration certificate of one of the petitioners was cancelled and other
petitioners were threatened with cancellation of their registration
certificates about October 1959. Consequently, the present petitions were filed
soon after challenging the provisions of the Act relating to cancellation of
registration certificates on the ground that such cancellation was not a
reasonable restriction on the fundamental rights of the petitioners to carry on
business under Art. 19 (1) (g) of the Constitution. The petitioners therefore
pray for a declaration that sub-ss. (1) and (6) of s. 4 of the Act and r. 14
purported to be framed thereunder are ultra vires as being violative of Art. 19
(1) (g) of the Constitution and for consequential orders against the respondents,
namely, the State of Andhra Pradesh and its officers, from enforcing the said
The petitions have been opposed by the
respondents 697 and their case is that the provisions in question are
reasonable restrictions on the right guaranteed under Art.
19 (1) (g) and are therefore perfectly valid
and constitutional. The respondents also say that the allegation of the
petitioners that they did not collect the tax during the period of the stay
orders from consumers is false.
In order to decide the constitutionality of
the provisions which have been challenged it is necessary to look into the
purpose and object of the Act in which those provisions appear. The Act was
passed in order to levy and collect tax on retail sales of motor spirit in the
interest of the general revenues of the State. Section 2 of the Act is the
definition section. Section 3 is the charging section and provides the rates at
which the tax is to be levied on all retail sales of motor spirit. Section 4
(1) which is being challenged is in these terms:"No person shall, after
the commencement of this Act, carry on business in motor spirit as an importer
or as a wholesale or retail dealer at any place in the State unless he has been
registered as such under this Act." Sub-sections (2) and (3) make certain
ancillary provisions and sub-s. (4) is in these terms:"Registration may be
made subject to such conditions, if any, as may be prescribed including in the
case of an applicant for registration as a retail dealer, the making of such
deposit or the furnishing of such security as the registering authority may
consider necessary to ensure the due payment of the tax which may from time to
time be payable by him." Sub-section (5) is unnecessary for our purpose,
and sub-s. (6) is in these terms:"Any registration under sub-section (1)
may be suspended or cancelled by such authority, for such reasons, and in such
manner, as may be prescribed." It is not necessary to refer to other
sections which make various provisions necessary for the enforcement of the Act
till we come to s. 26 which gives power to 88 698 the State Government to make
rules to carry out the purposes of the Act. Rule 14 which has been attacked has
been made under the power conferred under s. 26 and it is not being disputed
that if the main provisions contained in s. 4 are constitutional, the rule is
within the ambit of the Act and the rule making power of the State Government.
It will be clear from this analysis of the
impugned provisions of the Act that the purpose and object of the Act is to
levy and collect tax for purposes of the general revenues of the State and
the-liability for payment is placed under s. 3 upon the person effecting the
sale. He is required by s. 5 of the Act to keep books of account in the prescribed
form and to submit to the Commercial Officer and to such other officers as may
be prescribed, a I return in such form, 'containing such particulars and at
such intervals, as may be prescribed. Along with the return, under s. 6 he is
required to pay the amount of tax due in respect of the motor spirit sold by
him in retail during the preceding month according to the return. In order
therefore that the State may have a check on the person from whom the tax is
due s. 4(l) provides for registration of dealers who carry on the business in
motor spirit. Without such registration it would be impossible for the State to
know the persons who are selling motor spirit and from whom the tax is due. The
provision therefore under s. 4(l) for registration of dealers is an eminently
reasonable provision in order to carry out the object of the Act, namely, the
levy and collection of this tax for purposes of the State.
It is really no restriction on carrying on
business in motor spirit; anyone who carries on such business is free to do so
and all that he has to do is to ask for registration, which he will get subject
to the provisions of sub-s. (4).
That sub-section has not been challenged in
these petitions and therefore we proceed on the assumption that it is constitutional.
It follows therefore that all that anyone who wants to carry on business in
motor spirit has to do is to ask for registration which he will get under the
rules, and the purpose behind registration is that those on whom the liability
to pay tax 699 that it may realise the tax from them. The challenge therefore
to the constitutionality of s. 4(1) must fail.
Then we turn to sub-s. (6), which provides
that any registration under sub-s. (1) may be suspended or cancelled by such
authority, for such reasons, and in such manner, as may be prescribed. The main
attack of the petitioners is on this sub-section. They contend that this
sub-section authorises the State to cancel a registration. The effect of such
cancellation read with sub-s. (1) is that a person whose registration is
cancelled cannot carry on business in motor spirit as he was doing -before the
cancellation. It is said that cancellation results in the total extinction of
the business of the person whose registration is cancelled and thus the provision
as to cancellation is an unreasonable restriction on the fundamental right to
carry on business.
There is no doubt that if a registration is
cancelled under sub-s. (6) it will not be possible for the person whose
registration is so cancelled to carry on his business in motor spirit. Rule 14
provides conditions under which the registration may be cancelled and we are in
the present case concerned with two of them, namely, where the holder of at.
registration certificate (a) fails to pay the
tax or any other amount payable under the Act and (b) fraudulently evades the
payment of the tax.
The reasonableness of this provision as to
cancellation of registration certificate has to be judged in the background of
what we have already said about the purpose of the levy and its liability on
the seller. It is true that there are other provisions in the law for
realisation of public dues from those who default in making payments; but
generally speaking cancellation of registration in cases like these is one more
method of compelling payment of tax which is due to the State. Collection of
revenue is necessaryin order that the administration of the State may go on
smoothly in the interest of the general public. The State has therefore armed
itself with one more coercive method in order to realise the tax in such cases.
It is true 700 that cancellation of registration may result in a dealer being
unable to carry on the business, but the same result may even follow from the
application of other coercive processes for realisation of dues from a trader,
for his assets may be sold off to pay the arrears of tax and lie may thereafter
be not in a position to carry on the business at all. Therefore the provision
for cancellation of registration for failure to pay the tax or for fraudulently
evading the payment of it is an additional coercive process which is expected
to be immediately effective and enables the State to realise its revenues which
are necessary for carrying on the administration in the interest of the general
public. The fact that in some cases restrictions may result in the extinction
of the business of a dealer would not by itself make the provision as to
cancellation of registration an unreasonable restriction on the fundamental
right guaranteed by Art. 19(1)(g). We may in this connection refer to Narendra
Kumar v. The Union of India (1), where it was held that:
"the word 'restriction' in Arts. 19(5)
and 19(6) of the Constitution includes cases of 'prohibition' also; that where
a restriction reaches the stage of total restraint of rights special care has
to be taken by the Court to see that the test of reasonableness is satisfied by
considering the question in the background of the facts and circumstances under
which the order was made, taking into account the nature of the evil that was
sought to be remedied by such law, the ratio of the harm caused to individual
citizens by the proposed remedy, the beneficial effect reasonably expected to
result to the general public, and whether the restraint caused by the law was
more than was necessary in the interests of the general public." Applying
these tests we are of opinion that the cancellation of registration will be
justified even though it results in the extinction of business as such
cancellation is in respect of a tax meant for the general revenues of the State
to carry on the administration in the interest of the general public.
(1)  2 S.C.R. 375.
701 Besides, there is another consideration
to which we may advert in the end, though even otherwise the cancellation is
justified. Though there is no provision in the Act or the Rules specifically
authorising the seller to pass on the tax to the consumer, what actually
happens is that the seller includes the tax in the price and thus passes it oil
to the consumer. Then in his turn the seller pays the tax to the State. In
effect by thus passing on the tax to the consumer through the price, the dealer
has already collected the tax.
Therefore the compulsion of payment which
arises because of the provision for cancellation of registration is under the
circumstances justified and there is-no reason why he should fail to pay it to
the State or evade payment thereof fraudulently. The fault for failure to pay
the tax or fraudulent evasion in payment thereof lies in the circumstances
entirely on the dealer and he cannot be heard to complain that cancellation of
registration in such a case is a disproportionate restriction on the right to
carry on business which cannot be justified in the interests of the general public.
Under the circumstances we are of opinion
that the ratio of Narendra Kumar's case (1) applies fully to the present case
and the provision contained in sub-s. (6) of s. 4 is a reasonable restriction
within the meaning of Art. 19(6) of the Constitution. The petitions therefore
fail and are hereby dismissed with costs; there will be one set of hearing
(1)  S.C.R. 375.