Devi Das Gopal Krishnan & Ors Vs.
State of Punjab & Ors [1967] INSC 102 (10 April 1967)
10/04/1967 RAO, K. SUBBA (CJ) RAO, K. SUBBA
(CJ) SHAH, J.C.
SHELAT, J.M.
BHARGAVA, VISHISHTHA MITTER, G.K.
CITATION: 1967 AIR 1895 1967 SCR (3) 557
CITATOR INFO :
F 1968 SC 331 (6) RF 1968 SC1232
(20,27,50,88,97) RF 1971 SC2100 (19,21) R 1972 SC1168 (7) RF 1973 SC1374 (10) R
1974 SC1660 (15,21,34,53) R 1975 SC1007 (14) APL 1976 SC 800 (12) R 1979 SC 321
(10,20) E 1979 SC1475 (22,30) RF 1980 SC1789 (36) R 1981 SC1649 (12,13) RF 1988
SC1737 (72) R 1990 SC 560 (13) RF 1992 SC 422 (3,4)
ACT:
Rate fixation-Delegation--Constitutional and
Statutory necessity, if proper guides-East Punjab General Sales Tax Act, 1948
(46 of 1948), s. 5.
Severability-Charging section made subject to
section granting power to fix rates-Latter declared void-If charging section
also void-Efffect of subsequent amendment-East Punjab General Sales Tax Act,
1948 (46 of 1948), ss. 4, 5, 6-East Punjab General Sales Tax (Second Amendment)
Act, 1952 (19 of 1952).
East Punjab General Sales Tax Act,
1948-Legislative competence Section 2 Cl. (ff)-'Acqisition' meaning ofValuable
consideration, meaning of-Act, if in conflict with Sale of Goods Act, 1930; Central
Sales Tax Act, 1956, s. 15.
HEADNOTE:
Section 5 of the East Punjab Sales Tax Act,
1948, as originally enacted, conferred on the Government power to levy tax at
such rates as the Government might fix. The section was amended by Act 18 of
1952, with retrospective effect, fixing the rate of tax at "not exceeding
two piece in a rupee". Section 2(ff) of the Act as amended by Act 13 of
1959, define-, "purchase" as the "acquisition" of the goods
"for use in the manufacture of goods for sale, for cash or deferred
payment or other valuable consideration otherwise than under a mortgage
hypothecation, charge or pledge". The appellants' petition in the High
Court challenging the imposition of purchase tax for the years 1958-59 and
1959-60 on the purchase of oil seeds, steel scrap and cotton for manufacture of
goods for sale, were dismissed, and they appealed to this Court. Mean while,
the High Court had considered the validity of the Act in a Sales Tax Reference
and declared s. 5, as it originally stood, void. In this Court it was contended
: (i) since s. 5 as originally enacted, was declared void that being the
charging section, the entire act was void and the Amending Act of 1952 could
not revive an Act which was non est, and (ii) section 2(ff) was invalid for
want of legislative competence.
HELD : (i) Section 5 as it stood before the
amendment was void, but the section as amended by the Amending Act of 1952 is
valid.
An Act conferring a power to fix rates of
taxation must lay down clear legislative policy or guide-lines in that regard
and the doctrine of constitutional and statutory needs would not afford
-reasonable guidelines in the fixation of such rates. There was nothing in the
provisions of the Act, including the preamble disclosing any policy or guidance
to the State for fixing rates. Section 5 as it stood before the Amendment
conferred on the Government an uncontrolled power in the matter of fixation of
rates and was therefore void. [565 G-566 B; 569 F] Corporation of Calcutta v.
Liberty Cinema, [1965] 2 S.C.R. 377, explained.
State of Madras, v. Gannon Dunkerlev &
Co. (Madras) Ltd. [1959] S.C.R. 379, 435, Vasantlal Maganbhai Sanjanwala v.
State of Bombay.
558 [1961] 1 S.C.R. 341 and The Union of
India v. M/s. Bhana Mal Gulzari .Mal, [1960] 2 S.C.R. 627, referred to.
Although s. 5 was void, the entire Act was
not void.
Section 4 is the 'Charging section and
Section 5 dealt only with the quantification of tax, that is, the charging
section was intact and what was struck down was only the section providing for
rates. The fact that s. 4 is made subject to s. 5 does not render the former
void on the principle of non-severability, because, under the Act, there is a
clear distinction between chargeability and the quantification of tax.
Therefore, striking out s. 5 only made s. 4 unenforceable. The amendment of s.
5 has, in substance, the effect of amending an existing Act. [567 G-H;
568 F-G; 569 B-C] B. Shama Rao v. The Union
Territory of Pondicherry, [1967] 2 S.C.R., distinguished.
Kesoram Industries and Cotton Mills Ltd. v.
Commissioner of Wealth Tax (Central) Calcutta, [1966] 2 S.C.R. 688, referred
to.
Conferment of a reasonable area of discretion
by a fiscal statute is permissible and the discretion to fix the rate between 1
pice and 2 pice cannot be said to exceed the permissible limits. [569D-F]
Khandige Sham Bhat v. The Agricultural Income Tax Officer, [1963] 3 S.C.R. 809,
referred to.
(ii) Clause (ff) of s. 2 is not void for want
of legislative competence.
Although the words "acquisition"
and "valuable consideration in -the definition of "purchase" in
s. 2(ff) of the Act indicate, prima facie, that this definition is wider in
scope than the definition "sale", these expressions in the context
must be given a restricted meaning. The expression "acquisition" in
the definition means only "transfer" and the expression
"valuable consideration" takes colour from the preceding expression
"cash or deferred payment" and can only mean some other monetary
payment in the nature of cash or deferred payment. [571 F-G; 572 B] The State
of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.
[1959] S.C.R. 379, Sales Tax Officer v. Budh
Prakash, A.I.R.
1964 S.C. 459 and George Oakes v. State of
Madras, A.I.R.
1962 S.C. 1039, referred to.
Purchase tax, under the Act is leviable on
the purchase of goods and not in respect of manufacture of goods and therefore
is not an excise duty. The purpose for which goods are purchased is only
relevant for fixing the taxable event and the taxable event is fixed before the
goods are actually manufactured. [572 H-573 B] M/s. Shinde Bros. v. The Deputy
Commissioner, Raichur, C.As. Nos. 1580-1586 and 1590-1600 of 1955 (decided on
26-91966), referred to.
The Act does not enable levy of tax on the
same goods at more than one stage and therefore is not in conflict with s.
15 of the Central Sales Tax Act 1596.
Manufacture changes the identity and the goods purchased and the goods sold are
not identical and therefore the same goods are not taxed at two stages.
Further, cl. (ff) of s. 2 of the Act during.
the periods relevant to the present case, in
terms, fixed the stage for taxation, i.e., the stage of purchase by a dealer
for use in the manufacture of goods. [573 B-C; 576 B] 559 The fact that the
same goods when purchased by a manufacturer would be taxed but would not be
taxed when purchased by a person other than a manufacturer would not violate
Art. 14 of the Constitution as s. 2(ff) discloses a reasonable classification.
[572C-E]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 526,527 and 529 of 1964.
Appeals from the judgment and order dated
December 15, 1959, of the Punjab High Court in Civil Writ Nos. 827, 826 and 823
of 1959 respectively.
Civil Appeals Nos. 39 to 43 of 1965.
Appeals by special leave from the judgments
and orders dated March 30, 1961 of the Punjab High Court in Civil Writ Nos.
467, 473, 476, 474 and 477 of 1960
respectively.
Civil Appeal No. 81 of 1965.
Appeal from the judgment and order dated May
2, 1963 of the Punjab High Court in Letters Patent Appeal No. 155 of 1963.
Civil Appeal No. 540 of 1965.
Appeal from the judgment and order dated
February 18, 1963 of the Punjab High Court in Civil Writ No. 206 of 1962.
M. C. Setalvad, R. K. Garg and S. C.
Agarwala, for the appellants (In C.As. No. 526, 527 and 529 of 1964).
R. Ganapathy Iyer and R. N. Sachthey, for the
respondents (in C. A. Nos. 526, 527 and 529 of 1964).
Rameshwar Nath and Mahinder Narain, for the
appellants (in C.As. Nos. 39-43 of 1965).
Hardev Singh and R. N. Sachthey, for the
respondents (in C.As. Nos. 39-43 of 1965).
S. T. Desai and O. C. Mathur, for the
appellants (in C.As. Nos. 81 and 540 of 1965).
R. Ganapathy Iyer and R. N. Sachthey, for the
respondents (in C.A. No. 81 of 1965).
O. P. Malhotra and R. N. Sachthey, for the
respondents (in C.A. No. 540 of 1965).
The Judgment of the Court was delivered by
Subba Rao, C.J. The decision on these appeals depends upon the interpretation
of the relevant provisions of the Punjab General Sales Tax Act, 1948 (Punjab
Act 46 of 1948), as amended by Punjab Act 7 of 1958, relating to three
categories of goods, namely, oil-seeds, iron and cotton.
The facts may be briefly stated.
560 The assessees in. Civil Appeals Nos. 526,
527 and 529 of 1964 carry on business at Moga in Punjab and each owns an
oil-mill They purchase oil-seeds and, after crushing the same in their oil
mills, sell the oil and the residual oilcake. They are registered dealers under
the Act. The Amending Act imposed a purchase tax of 2% on the purchase of
oil-seeds "for the use in the manufacture of goods for sale." This
was in addition to the sales-tax leviable on the sales of oil and oil-cake. On
June 23, 1959, the Excise and Taxation Officer, Ferozepore, the 3rd respondent
ill the said appeals, issued notices to the 3 appellants-assessees to the
effect that they did not submit their returns for the year ending 1958-59 and
failed to pay purchase-tax in respect thereof and asked them to show cause why
they should not be prosecuted for the said default. The appellants filed 3
petitions under Art. 226 of the Constitution in the High Court of Punjab
questioning the validity of the relevant provisions of the Act and for
appropriate reliefs.
A Division Bench of the High Court heard the
petitions, along with other connected petitions, and dismissed the petitions of
the appellants so far as they related to purchase-tax on oil-seeds. Hence the
appeals.
Civil Appeals Nos. 39 to 43 of 1965 relate to
purchase-tax on iron. The appellants carry on business in rolling steel at
Gobindgarh. They purchase steel scrap and steel ingots and convert them into
rolled steel sections. Under the Act, the assessing authority imposed
purchase-tax at the rate of 2% on the purchase of steel scrap and steel ingots
made by them during the period April 1, 1958 to March 31, 1959 for making
rolled steel section and selling the same. The appellants filed petitions under
Art. 226 of the Constitution in the High Court for appropriate writs for
quashing the orders of the assessing authorities and for prohibiting them from
levying purchase-tax on the goods purchased and for refund of the tax illegally
collected from them. A Division Bench of the High Court dismissed the
petitions. Hence the appeals.
Appeals Nos. 81 of 1965 and 540 of 1965
relate to purchasetax on cotton. The appellants in Civil Appeal No. 81 of 1965
are the trustees of Birla Education Trust. They own a cotton and textile mill,
Bhiwani. They purchase cotton from various dealers in Punjab and outside for
the manufacture of yarn and cloth. By ,in order dated March 11, 1962, the
District Taxation Officer, Hissar, imposed purchase-tax on the appellants in respect
of the cotton purchased by them for the assessment years 1958-59 and 1959-60.
The appellant in Civil Appeal No. 540 of 1965 is a limited company carrying on
the business of producing and selling yarn. For the purpose of its business it
acquires cotton from commission agents. It is a registered dealer under the
Act.
The Excise and Taxation Officer, Hissar, by
his order dated November 561 29, 1961, assessed the appellant to purchase-tax
for the assessment year 1958-59 in respect of the cotton purchased by it and so
too on January 27, 1962, he had taken proceedings for making assessment to
purchase-tax for the assessment year 1959-60 in respect of the same commodity.
The appellants in both the appeals filed
petitions under Art. 226 of the Constitution in the High Court questioning the
validity of the said orders. The said writ petitions were dismissed by a
Division Bench of the High Court. Hence the appeals.
We shall at first take the points raised
which are common to all the appeals and then proceed to consider the points
peculiar to some of the appeals.
Mr. M. C. Setalvad, learned counsel appearing
for the appellants in the batch of appeals relating to tax on purchase of oil
seeds, raised before us the following points which are common to other appeals
: (1) Section 5 of the East Punjab General Sales Tax Act, 1948, was held to be,
void on the ground that it conferred essentially legislative power on the
provincial Government and, therefore, the said section was stillborn and that,,
as the said section was the charging section, the entire Act was void, with the
result Act 19 of 1952, which amended s. 5 with retrospective effect could not
breathe a new life into the said Act. A void Act was non est and, therefore,
could not be brought into force by an amending Act. (2) Clause (ff) of section
2 introduced by Act 7 of 1958 defining "purchase", subject to the
conditions mentioned therein as a taxing event was ultra vires the State
Legislature inasmuch as the transaction defined therein was not a sale"
within the meaning of that expression in entry 52 of List 11 of the 7th.
Schedule to the Constitution and was in fact an "excise" duty
inasmuch as it was imposed on the production of oil in the garb of purchase
tax. (3) The said amendment was also bad in that it made an unreasonable
discrimination in the matter of taxation between the same classes of goods
based on the character of the purchaser. If the goods were purchased by a
manufacturer, they were liable to purchase tax; and if the same goods were
purchased by an ordinary dealer, they were not liable to the said tax. (4) The
amended 'provision, section 2(ff), was also void because it contravened ss. 14
and 15 of the Central Sales-tax Act, 1956, whereunder salestax was prohibited
to be imposed on the declared goods at more than one stage, whereas under the
Act it could be imposed both at the purchase point and at the sale point of the
transactions entered into by the manufacturer. (5) Purchase-tax was not
leviable on oil-seeds, as the assessees did not manufacture oil out of the
seeds but only produced the oil.
We shall now proceed to consider the points
seriatim. The provisions relevant to the first two points read thus:
C1167-6 562 East Punjab General Sales Tax Act
(46 of 1948) Section 5. Subject to the provisions of this Act, there shall be
levied on the taxable turnover every year of a dealer a tax at such rates as
the Provincial Government may by notification direct.
East Punjab General Sales Tax (Second
Amendment) Act, 1952 (Act No. 19 of 1952).
Section 2. Amendment of section 5 of Punjab
Act 46 of 1948 :
In sub-section (1) of section 5 of the East
Punjab General Sales Tax Act, 1948, after the word " rates" the
following words shall be inserted and shall be deemed always to have been so
inserted, namely, 'not exceed in two pice in a rupee'.
The High Court of Punjab held that s. 5 of
the Act was void as it gave an unlimited power to the executive to levy
sales-tax at a rate which it thought lit. But it held that the amendment of
section 5 by the Punjab Act 19 of 1952 cured the defect in the said Act and had
the effect of giving a new life to it.
The first question, therefore, is whether
section 5 of the East Punjab General Sales Tax Act, 1948 (46 of 1948), as it
originally stood, was void, and the second question is, if the said section was
void, whether the amendment could give life to it.
The law on the subject is fairly well
settled, though difficulties are met in its application to each case. In
Corporation of Calcutta, v. Liberty Cinema(1) on which Mr. Ganapati Iyer relied
relates to a levy imposed on cinema houses under the Calcutta Municipal Act (33
of 1951).
There, the majority held that the levy
therein was a tax, that the fixing of a rate of tax was not of the essence of
legislative power, that the fixing of rates might be left to a nonlegislative
body and that when it was so left to such a body, the Legislature must provide
guidance for such fixation. The majority he-Id in that case that such a
guidance was found in the monetary needs of the Municipality for discharging
the functions entrusted to it under the Act.
Sarkar I., speaking for the majority &aid
thus :
"It (the Municipal Corporation) has to
perform various statutory functions. It is often given power to decide when and
in what manner the functions are to be performed. For all this it needs money
and its needs will very from time to time, with the prevailing exigencies. Its
power to collect tax, however, is necessarily (1) [1965]2 S.C.R.4 7 563 limited
by the expenses required to discharge those functions. It has, therefore, where
rates have not been specified in the statute, to fix such rates as may be
necessary to meet its needs. That, we think, would be sufficient guidance to
make the exercise of its power to fix the rates valid." If this decision
is an authority for the position that the Legislature can delegate its power to
a statutory authority to levy taxes and fix the rates in regard thereto, it is
equally an authority for the position that the said statute to be valid must
give a guidance to the said authority for fixing the said rates and that
guidance cannot be judged by stero typed rules but would depend upon the
provisions of a particular Act. To that extent this judgment is binding on us.
But we cannot go further and hold, as the learned counsel for the respondents
asked us to do, that whenever a statute define-, the purpose or purposes for
which a statutory authority constituted and empowers it to levy a tax that
statute necessarily contains a guidance to fix the rates it depends upon the
provisions of each statute.
Learned counsel for the State argued that
under Art. 162 of the Constitution the executive power of the State shall
extend to: matters with respect to which the Legislature of a State has power
to make laws : that is to say, the executive power of a State extends to
matters mentioned in List 11 of the Seventh Schedule to, the Constitution, that
under Art. 266(1) of the Constitution all the taxes collected will go to the
Consolidated Funds of the State that the State has an unlimited power to raise
funds by taxation to discharge its vast constitutional duties and that
necessarily the amount of tax required would depend upon its needs which can
only be known to it. In the said circumstances, the argument proceeds'.. the
doctrine of constitutional and statutory needs would afford reasonable
guidelines for the Government to fix the rate and that the principle laid down
by this Court in the aforesaid decision would equally apply to this case. If
this argument be accepted, it would mean that every statute conferring a naked
power on the Government to impose taxes would be good, for in every case the
discharge of the constitutional duties by the Government would be deemed to be
a sufficient guide for fixing the rate. We cannot accept this argument for
three reasons, namely, (1) the decision of this Court in Calcutta Corporation
v. Liberty Cinema(1) should he confined only to the provisions of the Calcutta
Municipal Act Wherein this Court found a guidance; (2) the provisions of the
Sale,; Tax Act, including the preamble, do not disclose any policy or guidance
to the, State for fixing the rates: and (3) the general (1) [1965]2 S.C.R. 477,
564 constitutional power to impose taxes has no relevance for discovering a
statutory policy under a particular Act.
Nor does the decision of this Court in The
State of Madras v. Gannon Dunkerley & Co., (Madras) Ltd.(1) lend support to
the argument so widely advanced by the learned counsel.
That case has nothing to do with the fixation
of rates of taxes. There section 6(1) of the Madras General Sales Tax Act,
1939, as amended by Madras Act 25 of 1947, provided that no tax will be payable
on any sale of goods specified in the schedule to it. Section 6(2) ,of that Act
authorised the State Government to amend the schedule by notification.
The amendment of the Schedule by the State
Government was challenged on the ground that section 6(2) was invalid as it was
a delegation of the essential power of legislation ,of the State Government.
Venkatarama Ayyar, J., speaking for the Court, in rejecting that contention,
observed thus :
"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 laid, the rates at which it is to
be charged in respect of different classes of goods, and the like." It is
not necessary to scrutinize the correctness of this statement, having regard to
the decisions relied upon, for this Court in Corporation of Calcutta v. Liberty
Cinema(2) accepted it, but made it clear that such a power to fix the rates
must be supported by some reasonable guidance given under the Act where under
the said power was conferred. Nor the observations of Rajagopala Ayyangar, J.,
in the said decision speaking for the minority, lend support to the contentions
of the respondents.
The decision in Vasantlal Maganbhai
Sanjanwala v. The State of Bombay(3) raised the question whether section 6(2)
of the Bombay Tenancy and Agricultural Lands Act, 1948 (Bom. 67 ,of 1948),
which enabled the Government to fix the rent payable by a tenant within the
maximum limits prescribed thereunder, was valid. When it was argued that it was
bad because of excessive delegation, this Court sustained it on the basis of a
legislative policy disclosed by section 12(3) of the Act.
In The Union of India v. Messrs. Bhana Mal
Gulzari Mal(4), this Court rejected the contention that caluse 11B of Iron and
Steel (Control of Production & Distribution) Order, 1941, where under the
Central Government was authorised to issue notification fixing the maximum
price of steel, was void on the ground of excessive -delegation, as it found
that the said clause only further canalized the policy disclosed in ss. 3 and 4
of the Act.
(1) [1959] S.C.R 1 S.C.R.379, 435. (2)
[1965]2 S.C.R.
477.
(3) [1961] 341. (4) [1960] 2 S.C.R. 627.
565 Further citation is unnecessary, for the
principle of excessive delegation is well settled and the cases are only
illustrations of the application of the said principle. The law on the subject
may briefly be stated thus :
"The Constitution confers a power and
imposes a duty on the legislature to make laws. The essential legislative
function is the determination of the legislative policy and its formulation as
a rule of conduct. Obviously it cannot abdicate its functions in favour of
another. But in view of the multifarious activities of a welfare State, it
cannot presumably work out all the details to suit the varying aspects of a
complex situation. It must necessarily delegate the working out of details to
the executive or any other agency. But there is a danger inherent in such a
process of delegation. An overburdened legislature or one controlled by a
powerful executive may unduly overstep the limits of delegation. It may not lay
down any policy at all; it may declare its policy in vague and general terms;
it may not set down any standard for the guidance of the executive; it may
confer an arbitrary power on the executive to change or modify the policy laid
down by it without reserving for itself any control over subordinate
legislation.
This self effacement of legislative power in
favour of another agency either in whole or in part is beyond the permissible
limits of delegation. It is for a Court to hold on a fair, generous and liberal
construction of an impugned statute whether the legislature exceeded such
limits. But the said liberal on struction should not be carried by the Courts
to the extent of always trying to discover a dormaint or latent legislative
policy to sustain an arbitrary power conferred on executive authorities. It is
the duty of the Court to strike down without any hesitation any arbitrary power
conferred on the executive by the legislature.
See Vasantlal Maganbhai Sanjanwala v. The
State of Bombay(1) at pp. 356-357.
Under section 5 of the Punjab General Sales
Tax Act, 1,948, as it originally stood, an uncontrolled power was conferred on
the provincial Government to levy every year on the taxable turnover of a
dealer a tax at such rates as the said Government might direct. Under that
section the Legislature practically effaced itself in the matter of fixation of
rates and it did not give any guidance either under that section or under any
other provisions of the Act no other provision was brought to our notice. The
(1) [1961] 3 S.C.R. 341.
566 argument of the learned counsel that such
a policy could be gathered from the constitutional provisions cannot be
accepted, for, if accepted,. it would destroy the doctrine of excessive
delegation. It would also sanction conferment of power by Legislature on the
executive Government without laying down any guide-lines in the Act. The
minimum we expect of the Legislature is to lay down in the Act conferring such
a power of fixation of rates clear legislative policy or guide-lines in that
regard. As the Act did not prescribe any such policy, it must be held that
section 5 of the ,said Act, is it stood before the amendment, was void.
The next step in the argument of Mr. M. C.
Setalvad was that sections 4. 5 and 6 of the Punjab Central Sales Tax Act,
1948, together formed a group of charging sections and they were so integrally
connected with each other that if section 5 was void, sections 4 and 6 also
fell with it, as one was not severable from the other. As the charging sections
were the crux of the Act, the argument proceeded, the whole Act was void and
therefore the Act amending section 5 could not revive the Act which was
still-born.
The relevant provisions may now be read.
Section 4 (1). Subject to the provisions of
sections 5 and 6, every dealer except one dealing exclusively in goods declared
tax-free under section 6 whose gross turnover during the year immediately
preceding the commencement of this Act exceeded the taxable quantum shall be
liable to pay tax under this Act on ill sales effected after coming into force
of this Act.
Section 5 his already been extracted.
Section, 6(1). No tax shall be payable on the
sale of goods specified in the first column of Schedule B subject to the
conditions and exceptions, if any, set out in the corresponding entry in the
second column thereof and no dealer shall charge sales tax on the sale of goods
which are declared taxfree from time to time under this section.
It will be seen that section 4 is a charging
section, that section 5 provides for fixation of ratesand that section 6
prescribes for exemptions. Section 4 is made subject to sections 5 and 6. IF
section 5 is struck out, will section 4 become void This will depend upon two
questions, namely, (i) whether section 5 is a charging section ? and (ii) even
if section 4 alone is the charging section., as it is made subject to section 5
and as the section subject to which it is made was still born, whether section
4, on the application of the doctrine of severance, becomes void.
567 In the context of Income-tax Act it was
held by this Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner
of Wealth-tax, (Central), Calcutta(1) that the charging section for the purpose
of income-tax was section 3 of the Indian Income-tax Act, 1922, and the annual
Finance Acts only gave the rate for quantifying the tax. Section 3 of the said
Income-tax Act read:
"Where any Central Act enacts that
income-tax shall be charged for any year at any rate or rates, tax at that rate
or those rates shall be charged for that year in accordance with, and subject
to the provisions of, this Act in respect of the total income of the previous
year of every individual, Hindu undivided family, company and local authority,
and of every firm and other association of persons or the partners of the firm
or tile members of tile association Individually." Section 2 of tile
Finance (No. 2) Act, 1957, read "(1) Subject to the provisions of
subsections (2), (3), (4) and (5) for the year beginning on the 1st day of
April, 1957,(a)income-tax shall be charged at the rates specified in Part 1 of
the First Schedule, and, in the cases to which Paragraphs A, B and C of that
Part apply, shall be increased by a surcharge for purposes of the Union and a
special surcharge on unearned income, calculated in either case in the manner
provided therein;" It was argued that the liability to tax did not arise
till the Finance Act was made and the tax quantified. Dealing with this
question, this Court by majority observed "A liability to pay income-tax
is a present liability though it becomes payable after it is quantified in
accordance with ascertainable data." The only difference between Income-tax
Act and the present Act is that while in the Income-tax Act section 3 thereof
does not expressly make, the liability subject to the provisions of tile
Finance Act which fixes the rate, under the Sales-tax Act in question section 4
thereof in terms is made subject to section 5. But under both the Acts there is
a clear distinction between chargeability and the quantification of tax. While,
it is true that the tax cannot be, realised without it being quantified, the
nonquantification of the liability will not destroy the liability tinder the
clearing section. The liability has to be distinguished from its
enforceability. It cannot be said, and indeed it Is not said, that the
Income-tax Act has no legal existence till the Finance Act is made, though till
the Finance (1) [1966]2 S.C.R. 688, 7,8.
568 Act is made it cannot be enforced. But
reliance is placed on section 67B of the Income-tax Act in support of the
contention that its existence in the statute book keeps the Act alive, for the
rate prescribed by the previous Finance Act is applicable till the new Finance
Act is passed. But it will be noticed that the Court's decision was not based
on the existence of the said provision but on that of the charging section
itself. It follows that striking out section 5 does not make section 4 void,
though till an appropriate section is inserted it remains unenforceable.
The decision of this Court in B. Shama Rao v.
The Union Territory of Pondicherry(,) is clearly distinguishable.
There, subsection (1) of section 2 of the
Pondicherry General Sales Tax Act, 10 of 1965, provided that :
"The Madras General Sales Tax Act, 1959
(No.
1 of 1959) (hereinafter referred to as the
Act) as in force in the State of Madras immediately before the commencement of
this Act shall. extend to and come into force in the Union of Territory of
Pondicherry subject to the following modifications and adaptations.........
Section 1(2) of the said Act provided that
the Act would come into force on such date as the Government by notification
may appoint. The effect of the section was that the Madras Act as it stood on
the date (if the notification issued would be in force in the Union Territory
of Pondicherry. Indeed it turned out that the Madras Act was ended before the
said notification. This Court held that there was a total surrender in the
matter of sales-tax legislation by the Pondicherry Assembly in favour of the
Madras legislature and for that reason the said sections were void or
stillborn.
It was argued that the Act could not be said
to be stillborn as it contained certain provisions independent of the Madras
Act, viz., a section which provided for the appellate tribunal and the
schedule. But it was pointed out that the core of the taxing statute was in the
charging section and that the remaining sections bad no independent existence.
In the present case the charging section was
intact and what was struck out was only the section providing for rates. It
cannot, therefore, be said that when section 5 was struck out, section 4 or other
sections fell with it.
It was then contended that even if the whole
Act was not stillborn, section 5 was non est, that the amending Act did not
insert a new section 5 but purported to amend the earlier section 5 which was
not in existence. Now under the East Punjab General Sales Tax (Second
Amendment) Act, 1952 (Act No. 19 of 1952) section 5 of the East Punjab General
Sales Tax Act, 1948 was amended. Section 2 of the said amending Act says:
(1) [1967] 2 S.C.R. 650.
569 .lm15 "In sub-section (1) of Section
5 of the East Punjab General Sales Tax Act, 1948, after the word 'rates' the
following words shalt be inserted and shall be deemed always to have been so
inserted, namely :-'not exceeding two pice in a rupee'." No doubt in terms
the section inserts the words "not exceeding two, pice in a rupee" in
section 5. If section 5 is inserted in the Act by the Amending Act with the
said words added, there cannot possibly be any objection, for that would be an
amendment of an existing Act. But in substance the amendment brings about the
same effect. The words "shall be deemed always to have been so
inserted" indicate that in substance section 5, as amended, is Inserted in
the Act with retrospective effect.
Even so it wits contended that section 5, as
amended, only gave the maximum rate and did not disclose any policy giving
guidance to the executive for fixing any rate within that maximum. Here we are
concerned with sales-tax. If the Act had said "2 pice In a rupee" it
would be manifest that it was a clear guidance. But as the Act applies to sales
or purchases of different commodities it had become necessary to give some
discretion to the Government in fixing the rate. Conferment of reasonable area
of discretion by a fiscal statute has been approved by this Court in more than
(me decision : see Khandige Sham Bhat v. The Agricultural Income-tax
Officer(1). At the same time a larger statutory discretion placing a wide gap
between the minimum and the maximum rates and thus enabling the Government to
fix an arbitrary rate may not be sustained. In the ultimate analysis, the
permissible discretion depends upon the facts of each case. The discretion to
fix the rate between I pice and 2 pice in a rupee is so insignificant that it
is not possible to hold that it exceeds the permissible limits. It follows that
section 5 of the Act as amended is valid.
The next argument is that section 2(ff)
inserted in the Punjab General Sales Tax Act, 1948, by the East Punjab General
Sales Tax (Amendment) Act, 1958 (Act No. 7 of 1958) Lind amended by Amending
Act 13 of 1959 is void. The said clause (ff) as amended by Act 13 of 1959 reads
" 'Purchase', with all its grammatical or cognate expressions, means the
acquis ition of goods specified in Schedule 'C' for use in the manufacture of
goods for sale for cash or deferred payment or other valuable consideration
otherwise than under a mortgage, hypothecation, charge orpledge." The
first limb of the argument is that the definition of "purchase" is
more comprehensive than the definition of "sale" under the Indian Sale of Goods Act
and, therefore, the State Legislature was (1) [1963] 3 S.C.R. 809.
570 incompetent to make a law under entry
"sale or purchase" in List 11 of the 7th Schedule to the
Constitution. The constitutional position is well settled. Entry 54 of List II
of the 7th Schedule to the Constitution reads :
"Taxes on the sale or purchase of goods
other than newspapers, subject to the provisions of entry 92A of List 1."
In The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.(1)
Venkatarama Aiyer, J., speaking for the Court, observed :
"Thus, according to the law both of
England and India, in order to constitute a sale it is necessary that there
should be an agreement between the parties for the purpose of transferring
title to goods which of course presupposes capacity to contract, that it must
be supported by money consideration, and that as a result of the transaction
property must actually pass in the goods. Unless these elements are present,
there can be no sale.
Thus, if merely title to the goods passes but
not as a result of any contract between the parties, express or implied, there
is no sale." This Court also held that the State Legislature, by enlarging
the ,definition of "sale", could not include transactions which were
not sales according to the well established concepts of law tinder the Law of
Contract or the Sale of Goods Act; see Sales-tax Officer v. Budh Prakash (2 )
and George Oakes v. State of Madras(3).
Bearing that in mind let us look at clause
(ff) in section 2 of the Principal Act in which the said clause was inserted.
The ingredients of the definition of
"purchase" are as follows : (i) there shall be acquisition of goods;
(ii) the acquisition shall be for cash ,or deferred payment or other valuable
consideration; (ii) the said valuable consideration shall not be other than
under a mortgage, hypothecation, charge or pledge. Clause (h) of' section 2
defines thus "sale" means an transfer of property in goods other than
goods specified in Schedule C for cash or deferred payment or other valuable
consideration but does not include a mortgage, hypothecation, charge or pledge.
If we turn to the Sale of Goods Act, section
4 thereof define contract of sale of goods. It reads :
"Contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer the property ill goods to
the buyer for a price......
(1) [1959] S.C.R. 379,397-398.
(2) A.I.R. 1964 S.C. 459 (3) A. 1. R. 1962
S.C. 1037 571 The essential requisite of sale are (i) there shall be a transfer
of property or agreement to transfer property by one party to another; and (ii)
it shall be for consideration of money payment or promise thereof by the buyer.
A sale and a purchase are different aspects of the same transaction. If we look
at it from the standpoint of a purchaser it is purchase and if we look at it
from the standpoint of the seller it is a sale. Whether purchase or sale it
shall have the said ingredients both in common law and under the Indian
Contract Act. 'Price' has been defined in the Sale of Goods Act to mean money
consideration for the sale of goods : see s. 2(10) of the Indian Sale of Goods Act.
It will, therefore, be seen that the definition of 'purchase' in the Act prima
facie appears to be wider in scope than 'sale'. While transfer of goods from
one person to another is the ingredient of 'sale' in general law, acquisition
ion of goods, which may in its comprehensive sense take in voluntary as well as
involuntary transfers, is an ingredient of 'purchase' in clause (ff). While
'price', i.e., money consideration, is the ingredient of 'sale', cash, deferred
payment or any valuable consideration is an ingredient of 'Purchase'. But a
closer scrutiny compels us to give a restricted meaning to the expression
"acquisition" and "price". Acquisition is the act by which
a person acquires property in a thin-. "Acquire" is to become the
owner of the property. One can, therefore, acquire a property either by
voluntary or involuntary transfer. But the Sales Tax Act applies only to
"sale" as defined in the Act. Under clause (h) of section 2 of the
Act it is defined as a transfer of property. As purchase is only a differed,
aspect of sale, looked at from the stand point of the purchaser, and as the Act
imposes tax at different points in respect of sales, having regard to the
purpose of the ,ale, it is unreasonable to assume that the Legislature
contemplated different categories of transactions when the taxable event is it
the purchase point. Whether it is sale or purchase the transaction is the same.
If it was a transfer inter vivos, in the case of a sale it must equally be so
in the case of a purchase. Context, consistency and avoidance of anomaly demand
a restricted meaning. That it must only mean transfer is also made clear by the
nature of the transactions excluded from the acquisition, namely, mortgage,
hypothecation charge or pledge-all of them belong to the species of transfer.
We must, therefore hold that the expression "acquisition" in clause
(ff) of section2 of the Act means only "transfer".
Now. coming to the expression
"price". it is no doubt defined in the Sale of Goods Act as
"money consideration".
Cash or deferred payment in clause (ff) of
section 2 of the Act satisfied the said definition. The expression
"valuable consideration" has a wider connotation, but the said
expression is also used in the same collocation in the definition of
"sale" in section 2(h) of the Act. The said expression must bear the
same meaning, in clause 5 72 (ff) and clause (h) of section 2 of the Act. It
may also be noticed that in most of the Sales Tax Acts the same three
expressions are used. It has never been argued or decided that the said
expression means other than monetary consideration. This consistent legislative
practice cannot be ignored. The expression "valuable consideration"
takes colour from the preceding expression "cash or deferred
payment". If so, it can only mean some other monetary payment in the
nature of cash or deferred payment. We, therefore, hold that clause (ff) of
section 2 of the Act is not void for legislative incompetence.
Another argument to invalidate clause (ff) of
section 2 of the principal Act may also be noticed. It is said that that clause
offends Art. 14 of the Constitution on the ground that by reason of the said
definition the same goods if purchased by a manufacturer would be taxed but
they would not be taxed if purchased by a person other than a manufacturer. But
a close scrutiny of clause (ff) of section 2 discloses that there is a
reasonable classification in the said definition. The raw goods purchased by a
manufacturer are transformed on manufacture into some other goods and that is
the reason why the Legislature taxes the goods before they lose their identity.
But where no manufacturer intervenes there is no such metamorphosis and,
therefore, the taxable event is the sale. There is certainly a reasonable
relation between the object of the statute and the differences between the two
categories of transactions.
The next argument turns upon the
interpretation of clause (ff). The argument is, to come Linder the definition
of "purchase" it is not enough that the acquisition of goods shall be
for cash etc. but that the acquisition shall be for use in the manufacture of
goods for sale for cash etc. On this construction it is argued that the tax
levied was excise duty and, therefore, beyond the competence of the State
Legislature. The contention is that the tax on the purchase was in connection
with the manufacture of goods and, therefore, an excise duty. There is an
essential distinction between the two imposts : while excise duty is in respect
of manufacture of goods, the sales-tax is upon the sale of the goods. The
question, therefore, is whether under the Act the purchase tax is imposed on
the sale of the goods or in connection with the manufacture of goods. The
decisions of this Court establish that "in order to be ,in excise duty (a)
the levy must be upon 'goods' and (b) the taxable event must be the manufacture
or production of goods." : see Messrs. Shinde Brothers v. The Deputy Commissioner,
Raichur(1) The tax has no nexus with the manufacture of goods. The purpose for
which the goods are purchased is only relevant for fixing the (1) Civil Appeals
No. 1580-1586, 1588 and 1590-1600 of 1966 (decided on 26-9-1966).
573 taxable event, but the tax is on the
purchase of the goods.
That taxable event is fixed before the goods
are actually manufactured. We, therefore, hold that the tax under the Act is a
purchase tax and not an excise duty.
Then it is contended that while section 15 of
the Central Sales Tax Act, 1956 (Act 74 of 1956) imposes a restriction on the
State not to tax at more than one stage, the amending Act by introducing the
definition of "purchase" enables the State to tax the same goods at
the purchase point and at the sale point. But this argument misses the point
that goods purchased and the goods sold are not identical ones.
Manufacture changes the identity. Therefore,
the same goods are not taxed at two stages.
The last argument is that the said definition
only takes in the purchase of goods for use in the manufacture of goods, but
tax is imposed on the purchase of goods for producing oil. To state it
differently, oil is not manufactured out of oil seeds but only produced.
Reliance is placed upon the user of two words in the Act, viz. manufacturing or
processing in the proviso to sub-section (2) of section 4 and sub-section (5)
thereof and the expression "edible oils produced" in entry 57 of
Schedule B to the Act and a contention is raised that the Act itself makes a distinction
between manufacturing and processing and manufacture and production and,
therefore, oil is not manufactured but only produced from oil seeds. Support is
sought to be derived for this argument from the decision of this Court in Union
of India v. Delhi Cloth & General Mills(1). But a perusal of the judgment
shows that this Court only held that refined oil produced out of seeds was only
an intermediate stage in the manufacture and was, therefore, not liable to
excise duty. On the other band, the dictionary meaning of
"manufacture" is "transform or fashion raw materials into a
changed form for use". When oil is produced out of the seeds the process
certainly transforms raw material into different article for use. We cannot,
therefore, accept this contention.
Now coming to Civil Appeals Nos. 39 to 43 of
1965, the first additional point raised is that when iron scrap is converted
into rolled steel it does not involve the process of manufacture. It is
contended that the said conversion does not involve any process of manufacture,
but the scrap is made into a better marketable commodity. Before the High Court
this contention was not pressed. That apart, it is clear that scrap iron ingots
undergo a vital change in the process of manufacture and are converted into a
different commodity, viz., rolled steel sections. During the process the scrap
iron loses its identity and becomes a new marketable commodity. The process is
certainly one of manufacture.
(1) [1963] Supp. 1 S.C.R. 586.
574 The next argument is that the Act is in
conflict with section 15 of the Central Sales Tax Act, 1956, inasmuch as it
enables the levy of sales-tax at more than one stage. In these and connected
appeals we are concerned only with two periods-the first period upto October
31, 1958 and the second period from November 1, 1958 to March 31, 1960. It is,
therefore, necessary to notice the relevant provisions governing the said two
periods.
The relevant part of section 15 of the
Central Sales Tax Act, 1956 (74 of 1956), as amended by Central Sales Tax
(Amendment) Act 16 of 1957, reads thus :
"Every sales tax law of a State shall,
in so far as it imposes or authorises the imposition of a tax on, the ,,ale or
purchase of declared goods, be subject to the following restrictions and
conditions, namely (a) the tax payable under that law in respect of any sale or
purchase of such goods inside the State shall be levied only in respect of the
last sale or purchase inside the State and shall not exceed two per cent of the
sale or purchase price;
(b) notwithstanding anything contained in
clause (a), no tax shall be levied in respect of the last sale or purchase
inside the State if the declared goods purchased are intended for sale in the
course of inter-State trade or commerce.
Explanation. The expression "last sale
or purchase inside the State means the transaction in which a dealer registered
under the sales tax law of the State-(i) sells to or purchases from another
such dealer declared goods for use by the purchaser in the manufacture of goods
for sale or for use by the purchaser in the execution of any contract; or (ii)
purchases declared goods from another such dealer for sale to a dealer not
registered under the sales tax law of the State or to a consumer in the
State." This section was amended by the Central Sales Tax (Amendment) Act
31 of 1958 with effect from October 1, 1958. The relevant part of the amended
section reads :
"Every sales tax law of a State shall,
in so far as it imposes or authorises the imposition of a tax on the sale or
purchase of declared goods, be subject to the following restrictions and
conditions, namely (a)the tax payable under that law in respect of any sale or
purchase of such goods inside the State shall not exceed two per cent. of the
sale or purchase price there575 of, and such tax shall not be levied at more
than one stage;
(b) Where a tax has been levied under that
law in respect of the sale or purchase inside the State of any declared goods
and such goods are sold in the course of interstate trade or commerce, the tax
so levied shall be refunded to such person in such manner and subject to such
conditions is may be provided in any law in force in that State.
While section 15 of the Central Sales Tax Act
before the amendment described the stage at which the purchase tax can be
levied, section 15 after the amendment only declares that it cannot be levied
at more than one stage. This Court in M/s Modi Spinning & Weaving Mills Co.
Ltd. v. Commissioner of Income-tax, Punjab & Anr. (1) observed as follows :
"The meaning or the intention of clause
(3) of Art. 286 is not to destroy all charging sections in the Sales Tax Acts
of the States which are discrepant with section 5(a) of the Central Sales Tax
Act, but to modify them in accordance therewith. The law of the State is
declared to be subject to the restrictions and conditions contained in the law
made by Parliament and the rate in the State A ct would pro tanto stand
modified. The effect of Art.
286(3) is now brought out by the second
proviso to s. 5(1). But this proviso is enacted out of abundant caution and
even without it the result was the same." The effect of this judgment is
that the stage prescribed under section 15 of the Central Sales Tax Act before
the amendment and the prohibition against taxation at more than one stage
contained in the amended section would automatically control the provisions of
the Punjab Genet-at Sales Tax Act, 1948. With the result upto October 1, 1958,
tinder the State Sales Tax Act a tax could be levied only in respect of
purchase of declared goods inside the State and only on the purchase made by a
dealer of goods for use by him in the manufacture of goods; and from October 1,
1958, the State can only levy tax at one stage. For the second period the
Central Act by its own force did not fix the stage.
Pursuant to the provisions of section 15 of
the Central Sales Tax Act, before it was amended, Act 7 of 1958 added clause
(ff) to section 2 of the Principal Act fixing the same stage indicated by
section 15 of the Central Act, i.e. the stage when the purchase is made by a
dealer for use in the manufacture of goods. This section was amended by Act 13
of 1959 and Act 24 of 1959. Under the latter amendment in clause (ff) of
section 2 for the words "goods for use in the manufacture of goods for
sale" the (1) [1965] 1 S.C.R. 592.600.
576 words "goods specified in Schedule
'C' for use in the manufacture of goods for sale" were substituted; that
is to say, the stage for taxation prescribed in the earlier definition was
amended. It may be recalled that under the Central Sales Tax Act, as amended,
the description of the stage was omitted, but that does not affect the
question, for that description is maintained even under the amended clause
(ff). It follows from the said discussion that the Punjab General Sales Tax
Act, during the crucial period which is the subject matter of these appeals, in
terms fixed a stage for taxation, i.e., the stage of purchase by a dealer for
use in the manufacture of goods. There are, therefore, no merits in this
contention either,.
Now coming to Civil Appeals Nos. 81 of 1965
and 540 of 1965, three additional points are raised by Mr. Desai, namely, (i)
by including in the term "purchase", read with the definition of
"dealer", where there is acquisition of cotton through commission
agents, the State Legislature has exceeded its legislative power under entry 54
of List 11, of Schedule 7 to the Constitution; (ii) ,during the relevant period
tax was leviable on cotton without fixing any stage and at more than one stage
in violation of section 15 of the Central Sales Tax Act, 1956; and (iii) there
is no rational basis to single out the three items, namely, cotton, oilseeds
and resin for imposition of purchase tax and, therefore, the relevant
provisions offend Art. 14 of the Constitution.
We have already held in another context that
there are no merits in the second point.
The first point need not detain us, as in the
High Court no specific point was raised in that regard.
On the third point also no adequate material
was placed in the court below and, therefore, it does not call for our
consideration.
In the result the appeals are dismissed with
costs. One hearing fee R.K.P.S. Appeals dismissed.
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