Hansraj Bagrecha Vs. State of Bihar
& Ors [1970] INSC 198 (18 September 1970)
18/09/1970 [J. C. SHAH, K. S. HEGDE AND A. N.
GROVER, JJ.]
ACT:
Constitution of India, Arts. 301 &
304-The Bihar Sales Tax Act, 1959 as amended by Bihar Finance Act, 1966, ss. 3A,
5A, and 42-The Bihar Sales Tax Rules, 1959, R.31B-Levy of purchase tax on goods
whether per se restrictive of freedom of tarade-Presidential assent whether
required for levy of taxSections 3A & 5A of Bihar Act whether invalid on
ground of contravention of s. 15 of Central Sales Tax Act, 1956-Rules 31B
restricts transport of goods pursuant to transactions in course of inter-State
trade-Hence invalid.
HEADNOTE:
Under s. 5A of the Bihar Sales Tax Act 1959
as amended by the Bihar Finance Act, 1966 the purchase tax on goods declared
under s. 3A was to be levied at the point of purchase made from a person other
than a registered dealer.
By a notification dated September 14, 1966
the Governor of Bihar declared jute as a commodity liable to purchase tax at
the rate specified in the notification. The appellant carried on business in
jute, In the course of his business he. purchased raw jute from producers in
West Bengal, transported it to Kishenganj Railway Station in Bihar and then
re-exported it to purchasers in West Bengal. He also bought raw jute in Bihar
and exported it to merchants and mill-owners in West Bengal by rail from
Kishenganj Railway Station. After the enactment of ss. 3A and 5A the State
Government issued a notification dated December 26, 1967 purporting to exercise
power under S. 42 of the Bihar Sales Tax Act, 1959 read with r. 31B of the
Bihar Sales Tax Rules, 1959 notifying that no person shall tender at any
railway station mentioned in Sch. 11 any consignment of goods mentioned in Sch.
I exceeding the quantity specified for transport to any place inside the State
of Bihar and no person shall accept such tender in accordance with the
conditions laid down in the said R. 31B. Under Sch. I jute exceeding 800 kg.
could not be tendered for transport without a despatch Permit and Kishenganj
was one of the railway stations mentioned in Sch. 11. In July 1967 the
Superintendent of Commercial Taxes prohibited the railway authorities from
loading and despatching jute goods from any railway station in Purnea district
without the production of a registration certificate. For non-production of
such certificate the railway authorities refused to despatch from Kishenganj
the jute goods booked by the appellant. The appellant moved a 'writ petition in
the High Court of Patna challenging inter alia the validity ,of ss. 3A and 5A
of the Bihar Sales Tax Act and of R.31B. The High Court dismissed the petition.
With certificate the present appeal was filed. In support of the petition it
was urged (i) that ss.
3A and 5A infringed the guarantee of freedom
of trade under Art. 301 of the Constitution and since the amendment by the
Finance Act, 1966 introducing these sections did not receive the assent of the
President under Art. 304(b) the amendment was not saved; (ii) that ss. 3A and
5A were contrary to' s.15 of the Central Sales Tax Act, 1956 and accordingly
void;
(iii) that P.31B framed by the State
Government and the notification issued on December 2.6, 1967 were unauthorised
and liable to be struck down.
HELD: (i) The assumption that the levy of
purchase tax must be deemed in all circumstances to violate the guarantee under
Art. 301 and 413 the levy will be valid only if the Act is enacted by the State
Legislature with the previous sanction of the President cannot be accepted as
correct. Imposition of tax may in certain circumstances impede free flow of
trade, commerce and intercourse. But every tax does not have that effect.[417
G; 419 E] State of Madras v. N. K. Nataraja Mudaliar [1968] 3 S.C.R.
829, Atiabari Tea Co. Ltd. v. State of Assam,
[1967] 1 S.C.R. 809 and The Andhra Sugars Ltd. v. State of Andhra Pradesh, 21
S.T.C. 212, applied.
In the present case the petitioner has made
no averments in his petition which supported the plea that imposition of
purchase-tax directly and immediately restricts or impedes the free flow of
trade. Since power to impose purchase tax under s. 3A was not shown to restrict
or impede the free flow of trade directly and immediately, it need not seek to
derive for its validity, support from Art.. 304(b). [419 G] (ii) By s. 15 of
the Central Sales Tax Act, tax liable in respect of declared goods on transactions
of sale or purchase is restricted to 3% and is not leviable at more than one
stage. There was no dispute that the purchase tax on jute was leviable at the
first point of purchase under S.
3A of the Bihar Sales Tax Act, and the rate
of tax was not shown to exceed the maximum prescribed by s. 15 of the Central
Sales Tax Act. The provisions of ss. 3A and 5A of the Bihar Sales Tax Act are
not therefore inconsistent with the provisions of s. 15 of the Central Sales
Tax Act.
[420 E] (iii) Rule 31B of the Bihar Sales Tax
Rules must however be struck down as ultra vires. [420 F] The power of the
State Legislature is restricted to legislate in respect of intra--State
transactions of sale and purchase and to matters ancillary or incidental
thereto : it has no power to legislate for levy of tax on sales and purchase in
the course of inter-State transactions. The power conferred by s. 42
authorising the imposition of restriction or transport or movement of goods may
only be exercised in respect of transactions which facilitate levy, collection
and recovery of tax on transactions of intra--State sale or purchase. When r.
31B prohibits transport of goods to any place outside the State of Bihar unless
a certificate is obtained from the appropriate authority, it seeks to prohibit
transport of goods pursuant to transactions which may not even be of the nature
of sale or purchase transactions; in any case it restricts transport pursuant
to transactions in the course of inter--State trade and commerce. The operation
of the rule is not restricted only to transactions in the course of intra State
trade and commerce. The rule authorises restrictions on inter-State
transactions and is on that account unauthorised. For the same reasons the
notification issued on December 26, 1967 must be regarded as also unauthorised.
[421 E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1985 of 1969.
Appeal from the judgment and order dated
January 4, 1969 of the Patna High Court in Civil Writ Jurisdiction case No.
520 of 1967.
M. C. Chagla, D. P. Singh and V. J. Francis,
for the appellant.
L. M. Singhvi and U. P. Singh, for
respondents Nos. 1 to 4.
4 14 The Judgment of the Court was delivered
by SHAH, J. This appeal is filed with certificate granted by the High Court of
Patna under Art. 133 (1) (a) of the Constitution.
The appellant Hansraj Bagrecha carries on
business in jute.
In the course of his business the appellant
buys raw jute from producers in West Bengal, transports it to Kishanganj
Railway Station (which is within the State of Bihar) and then re-exports it to
purchasers in West Bengal. He also buys raw jute in Bihar and exports it to the
merchants or mill owners in West Bengal by rail from Kishahganj Railway
Station.
The Bihar Sales Tax Act 1959, as originally
enacted did not provide for levy of purchase tax. By the Bihar Finance Act,
1966, with effect from April 1, 1967, among others the following sections were
incorporated in the Bihar Sales Tax Act, 1959 S.3A "The State Government
may from tune to time, by notification declare any goods to be liable to
purchase tax on turnover of purchase :
Provided that general sales tax and special
sales tax shall not be payable on the sale of goods or class of goods declared
under this section." S. 5A "The purchase tax on goods declared under
section 3A shall be levied at the pointof purchase made from a person other
than a registered dealer." By a notification dated September 14, 1966 the
Governor of Bihar declared 'jute' as a commodity liable to purchase tax at the
rate specified in the notification.
Section 42 of the Bihar Sales Tax Act by the
first subsection provided :
"No person shall transport from any
railway station, steamer station, air-port, post office or any other place,
whether of similar nature or otherwise, notified in this behalf by the State
Govt., any consignment of such goods, exceeding such quantity, as may be
specified in the notification, except in accordance with such conditions as may
be prescribed and such conditions shall be made with a view to ensuring that
there is no evasion of tax payable under this Act." Section 46 of the Act
invested the State Government with power to make rules for all matters
expressly required or allowed by the Act to be prescribed and generally for
carrying out the purposes of the Act and regulating the procedure to be
followed, forms to 415 be adopted and fees to be paid in connection with
proceedings under the Act and all other matters ancillary or incidental
thereto.
In exercise of the powers conferred under s,
46 (1) the State of Bihar promulgated under Rules 31 B and 8C, Rule 31B, which
provided "(1) No person shall tender at any railway station, steamer
station, air-port, postoffice or any other place, whether of similar nature or
otherwise, notified under section 42, any consignment of such goods exceeding
such quantity, as may be specified 'in the notification, for transport to any
place outside the State of Bihar, unless such person has obtained a dispatch
permit in Form XXVIIID from the appropriate authority referred to in the
Explanation to rule 31 and no person, shall accept such tender unless the said
permit is surrendered to him." Rule 30(1) provided "The first
purchase of goods declared under section 14 of the Central Sales Tax Act, 1956,
shall be leviable to tax in terms of sections 3, 3A and 5A of the Act and no
subsequent sales or purchases in respect of the said goods shall be liable to
any tax under the Act."' After the enactment of ss. 3A and 5A the State
Government issued. a notification dated December 26, 1967 purporting to
exercise power under s. 42 of the Bihar Sales Tax Act, 1959 read with r. 31B of
the Bihar Sales Tax Rules, 1959, notifying that no person shall tender at any
railway station mentioned in Sch. II, and consignment of goods mentioned in
Sch. I, exceeding the quantity specified for transport to any place outside the
State of Bihar and no person shall accept such tender in accordance with the
conditions prescribed in r. 31B of the Bihar Sales Tax Rules, 1959.
Under Sch. I `Jute' exceeding 800 Kg. could
not be tendered for transport without "a despatch pen-nit", and
Kishanganj was one of the Railway Stations mentioned in Sch. II.
In July 1967 the Superintendent of Commercial
Taxes addressed a letter prohibiting the railway authorities from loading jute
goods and despatching them from any railway station within the Purnea District
of Bihar, except on production of a "registration certificate". By
his letter dated July 10, 1967 the Station Master Kishanganj called upon the
Secretary, Jute Merchants Association, Kishanganj, to produce a certificate as
required in the letter of the Superintendent of Commercial Taxes, before
"loading jute goods for despatch was commenced" and informed them
that in default wagons allotted to the jute merchants shall be cancelled and
416 registration, fees, forfeited and that "demurrage" win be
charged. The appellants request that jute booked by him be despatched from.
Kishanganj was turned down by the railway authorities, because the registration
certificate issued by the Superintendent of Commercial Taxes, Purnea for the
movement of jute from the place was not produced.
The appellant then moved a petition before
the High Court of Patna on August 29, 1967 challenging the validity of ss. 3A,
5A, 42 and 46 and r. 31B of the Bihar Sales Tax Rules, 1959.
The High Court of Patna dismissed the
petition. With certificate granted by the High Court this appeal has been
preferred by the appellant.
In support-of the appeal counsel for the
appellant raised three contentions :
(1) that ss. 3A & 5A as incorporated 4th
Finance Act of 1966 infringed the guarantee of freedom of trade under Art.
301 of the Constitution and since the
amendment made by the Finance Act, 1966 did not receive the assent of the
President under Art. 304(b) the amendment was not saved;
(2) that ss. 3A & 5A and r. 8C "were
contrary to" s. 15 of the Central Sales Tax Act, 1956 and were void on
that account; and (3) that r. 31B framed by the State Government and the
notification issued on December 26, 1967 were unauthorised and liable to. be
struck down.
Article 301 of the Constitution guarantees
freedom of trade, commerce and intercourse throughout the territory of India.
By Art. 302 the Parliament is authorised by
law to impose such restrictions on the freedom of trade, commerce or
intercourse between one State and another or within any part of the territory
ofIndia as may be required in the public interest. Art. 303(1) imposes
restrictions upon the power which the Parliament or the Legislature of a State may
exercise to make any law giving, or authorising the giving of, any preference
to one State over another, or making or authorising the making of, any
discrimination between one State and another, by virtue of any entry relating
to trade and commerce in any of the Lists in the Seventh Schedule.
But that clause does not operate to restrict
the power of the Parliament to make any law giving, or authorise the giving of,
any preference or making or authorising the making of, any discrimination, if
it is declared by such law that it is necessary to do so for the purpose of
dealing with a situation arising from 417 scarcity, of in, any part of, the
territory of India Art 303 (2). Art. 304 provides in so far as it is relevant
"Notwithstanding anything in article 301 :or article 303, the Legislature
of a State may by law(a) (b) impose such reasonable restrictions on the freedom
of trade, commerce or intercourse with or within that State as may be required
in the public interest Provided that no Bill 'or amendment for the purpose of
clause (b) shall be introduced or moved in the pose Legislature, of a State
without the Previous sanction of the President." Art. 304 is in terms a
restriction on the freedom guaranteed by Art. 301. Notwithstanding the
amplitude of, the freedom of trade, commerce and intercourse throughout the
territory of India, the Legislature of a State may by law impose, among others
such reasonable restrictions on the,, freedom of trade,, cow or intercourse
with or within that State as may be required in the public interest. But that
authority to impose reasonable, restrictions on the freedom of trade, may only
be, exercised by the Legislature of a State if the Bill or amendment for the
Purpose of cl. (b) is introduced or moved in the Legislature of a State with
the previous sanction of the President.
It was contended that since s. 3A providing
for the of purchase tax imposes a restriction on the freedom of trade,,
commerce and intercourse and on that account violates the freedom of trade
guaranteed by Art. 301, it way be saved only if it is legislation of the nature
contemplated by Art.
304(b) and the Bill which was enacted into
the Act received the previous assent of the President. The assumption that the
levy of purchase tax must be deemed in all circumstances, to violate the .
guarantee under Art. 30 1, and the levy will be valid only, if the Act is
enacted by the State Legislature with the previous sanction of the President,
cannot be accepted' as correct. This Court in The State of Madras v. N. K. Nataraja
Mudaliar (1)--examined the validity of laws which impose taxes on sale in the:
light of Art. 301. It was observed at p. 839 "This Article (Art. 301) is
couched in terms of the widest amplitude, trade, commerce and, intercourse am
thereby declared free and unhampered, throughout the story of India.
The freedom of trade (1) [1968] 3 S. C. R.
829.
so declared is against the imposition of
barriers or obstructions within the state as well as inter-State all
restrictions which directly and immediately affect the movement of trade are,
declared by Art 301 to ineffective. The extent to which Art. 301 operates to
make trade. and commerce free has been considered by this Court in several
cases In Atiabari Tea Co. Ltd. v., The State of Assam and others(1) Gajendragadkar,
speaking for himself and Wanchoo and Das Gupta JJ., observed at p. 860
"........we think it, would be reasonable and proper to hold that
restrictions, freedom from which is guaranteed by art 301 would be such
restrictions as,directly and immediately restrict or impede the free flow or
movement of trade." "In Automobile Transport (Rajasthan) Ltd v.
The State of Rajasthan and others (2) the
view expressed by Gajendragadkar, J., in Atiabari Tea Co's case was accepted by
the majority.
Subba Rao, J., who agreed with the majority
observed that the freedom declared under Art.
301 of the Constitution of India referred to
the right of free movement of trade without any obstructions by way of
barriers, inter State or intra--State, or other impediments operating as such
barriers. The same view was expressed in Firm A.T.B. Mehtab Majid and Company
v. State of Madras and Another(3) by a unanimous Court. It must be taken as
settled law that the restrictions or impediments which directly and immediately
impede or hamper the free flow of trade commerce and intercourse fall within
the prohibition imposed by Art.
301 and subject to the other provisions of
the Constitution they may be regarded as void.
But it is said that by imposing tax on sales,
no restriction hampering trade is imposed. In the Atiabari Tea Company's case,
Gajendragadkar, J., observed:
"Taxes may and do amount to
restrictions; but it is only such taxes as directly and immediately restrict
trade that would fall within the purview of Art. 30 1. The argument that all
taxes should be governed by Art. 301 whether or not their impact on trade is
immediate or mediate, direct or remote, adopts, in our opinion, an extreme
approach which cannot be upheld." In a recent judgment of this Court in
The Andhra Sugars Ltd.
and Another v. The State of Andhra Pradesh.
and others(4) (1) [1961] 1 S.C.R. 809.
(3)[1963] 1 S.C.R. 491.
(2)[1963] Supp. 2 S. C. R 435.
(4) 21 S.T.C. 212 419 Bachawat, J., speaking
for the Court after referring to, the observations made by Gajendragadkar, J.,
in Atiabari Tea Company's case(1) observed "This interpretation of Article
301 was not dissented from in Automobile Transport (Rajasthan) Ltd. v. State of
Rajasthan (2) .
Normally, a tax on sale of goods does not
directly impede the free movement or transport of goods. Section 21 is no
exception. it does not impede the free movement or transport of goods and is
not violative of Article 301." Section 21 of the Andhra Pradesh Sugar Cant
(Regulation of Supply and Purchase) Act which was referred to in the judgment
authorised the State Government to levy a tax at such rate, "not exceeding
five rupees per metric tonne as may be prescribed on the purchase of cane
required for use, consumption or sale in a factory. It must, therefore, be
regarded as settled law that a tax may in certain cases directly and
immediately restrict or hamper the flow of trade, but every imposition of tax
does. not do so." Imposition of tax of the nature of purchase tax does not
by itself restrict freedom of trade, commerce or intercourse.
Imposition of tax may in certain
circumstances impede free flow of trade, commerce or intercourse. But every tax
doesn't have that effect. Imposition of a purchase-tax by the State does not by
itself infringe the guarantee: of freedom under Art.301.
The argument that imposition of sales or
purchase-tax must be regarded in all cases as infringing the guarantee of
freedom under Art. 301 cannot be accepted as correct.
The appellant filed the petition out of which
their appeal arises soon after the Station Master informed the Jute Merchants
Association about his inability to book consignments of jute. He has made no
averments in the petition which support the plea that imposition of purchasetax
"directly and immediately restricts or impedes" the free flow of
trade. Since power to impose purchase tax under S.
3A on notified goods is not shown to restrict
or impede the free flow of trade directly and immediately, it need not seek to
derive, for its validity, support from Art. 304(b).
The contention that ss. 3A & 5A are
inconsistent with s. 15 of the Central Sales Tax Act, 1956 is without
substance. By s. 14 of 'the 'Central Sales, Tax Act, 1956 certain classes of
goods are declared goods of special importance in inter State trade or
commerce. Jute is one of such classes of goods. By s. 15 as (1) [1961] 1 S. C.
R. 809., (2) [1963] 1 S. C. R, 491.
420 amended by the Central Sales Tax Second
Amendment Act, XXXI ,of 1958 it is provided "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 of purchase of such goods inside the state shall not exceed three percent
of the sale or purchase price thereof, 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 inter-state trade or commerce, the tax
so levied shall refunded to such person in such manner and subject to such
conditions as may be provided in any law in force in that State." By S. 15
of the Central Sales Tax Act in respect of the declared goods on transactions
of sale or purchase the tax leviable is restricted to 3 % and is not leviable
at more than one stage. There, is no dispute that the purchase tax on jute is
leviable at the first point of purchase under s. 3A of the Bihar Sales Tax Act,
and the rate of tax also is not shown to exceed the maximum prescribed by S. 15
of the Central Sales Tax Act. The provisions of ss. 3A & 5A of the Bihar
Sales Tax Act are not therefore inconsistent with the provisions of s. 15 of
the Central Sales Tax Act.
But, in our judgment, r. 31B of the Bihar
Sales Tax, Rules, 1959 and the notification issued on December 26, 1967 are
unauthorised and must be struck down. The Bihar Sales Tax Act is enacted by the
Legislature to consolidate and amend the, law relating to the levy of tax on
the sale and purchase of goods in Bihar. The State Legislature is competent in
enacting sales-tax legislation to make a provision which is ancillary or
incidental to any provision relating to levy,; collection and recovery of
sales--tax and purchase-tax. _ A provision which is made by the Act or by the
Rules which seeks to prevent evasion of liability to pay tax on intra--State
sales or purchase would therefore be within the competence of the Legislature
or the authority competent to make the rules . But the State Legislature has no
power to legislate for the levy of tax on transactions which are carried on in
the course of inter-State trade or commerce or in the course of export. Section
42 of the Bihar Sales Tax Act, 1959, prevents any person from transporting from
any railway station, steamer station, 421 air-port, post office or any other
place any consignment of such goods exceeding the.quantity specified with a
view to ensuring that 'there is no evasion of tax payable under the Act. But
the power under s. 42 can only be exercised in respect of levy, collection and
recovery of intra--State or purchase tax. It cannot be utilised for the purpose
of ensuring the effective levy of Inter State sales or purchase tax.
The appellant purchased jute both within and
without the State of Bihar. In respect of transactions of purchase within the
State of Bihar and despatch of goods liability to pay purchase-tax at the point
of purchase may arise. In respect of goods which are purchased in the State of
West Bengal and brought within the State of Bihar and then despatched to other
States in the course of inter-State transactions no question of levy of
purchase-tax under the Bihar Sales Tax Act arises. R. 31 B framed by the State
Government seeks to prohibit transport in pursuance of transactions which are
inter State, for in terms it prohibits transporting of goods to any place
outside the State of Bihar. Again transport of goods for personal consumption
oil use, or of goods, gifted, pledged or dealt with otherwise than by sale,
falls within the injunction contained in r..31B.
The power of the State Legislature is
restricted to legislate in respect of intra--state transactions of sale and
purchase and to matters ancillary or incidental thereto : it has no power to
legislate for levy of tax on sales and purchase in the course of inter State
transactions. The, power conferred by s. 42 authorising the imposition of
restriction on transport or movement of goods may only be exercised in respect
of transactions which facilitate levy, collection and recovery of tax on
transactions of intra--State sale or purchase.When r. 31B prohibits transport
of goods to any place outside the State of Bihar unless a certificate is
obtained from the appropriate authority, it seeks to prohibit transport of
goods pursuant to transactions which may not even be of the nature of sale or
purchase transactions; in any case it restricts transport pursuant to
transactions in the course of inter-Statetrade and commerce. The operation of
the rule is not restricted only to transactions in the course of intra-State
trade and commerce. The rule authorises restrictions on inter-State
transactions and is on that account unauthorised. For the same reasons the
notification issued on December 26, 1967 must be regarded as also unauthorised.
In the view we have taken r. 31B and the
notification issued by the State Government on December 26, 1967 must be
declared ultra vires, and since r. 31B and the notification are ultra vires the
communication issued by the Superintendent of Commercial 4 22 Taxes to the
Railway Authorities must also be declared unauthorised A writ will therefore
issue declaring r. 31B and the notification issued by the Government of Bihar
on December 26, 1967 ultra vires, and the letter written by the Superintendent
of Commercial Taxes to the Railway Authorities is also declared unauthorised.
Having regard to the circumstances, we think
there should be no order as to costs.
G.C.
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