S. Kodar Vs. State of Kerala [1974] INSC
98 (17 April 1974)
MATHEW, KUTTYIL KURIEN MATHEW, KUTTYIL KURIEN
RAY, A.N. (CJ) ALAGIRISWAMI, A.
GOSWAMI, P.K.
SARKARIA, RANJIT SINGH
CITATION: 1974 AIR 2272 1974 SCC (4) 422
CITATOR INFO:
F 1980 SC 271 (4) RF 1983 SC 394 (8) F 1983
SC1019 (6,9,10,85,86) F 1985 SC 12 (7,9,11,12) F 1990 SC 913 (26)
ACT:
Tamil Nadu Additional Sales Tax Act.
1970--Constitutional validity--Whether outside the scope of entry 54, List
II--Whether violates fundamental right under Art. 19(1)(f) and (g).
Constitution of India, 1950--Art. 19(1)(f)
and (g) Entry 54.
List II, Schedule VII.
HEADNOTE:
The Tamil Nadu Additional Sales-tax Act 1970
imposed additional sales-tax of 5% on a dealer whose annual total turnover
exceeded Rs. ten lacs. Writ petitions questioning the constitutional validity
of the Act were dismissed by the High Court. In appeal it was contended that
(i) the State legislature had no power to enact the Act as the tax was outside
the scope of entry 54 of List II; (ii) that the provisions of the Act violated
the fundamental rights of the appellant under Art. 19(1)(f) and (g) of the
Constitution and (iii) that the provisions of the Act imposed different rates
of tax upon different dealers depending on their turnover and were, therefore.
violative of Art. 14 of the Constitution.
Dismissing the appeal.
HELD : (1) The contention of the appellants
that the additional sales-tax is not a tax on sales but on the income of the
dealers is without any basis. The additional tax is really a tax on the sale of
goods. The object of the Act is to increase the tax on the sale or purchase of
goods imposed by the Tamil Nadu General Sales-tax Act, 1959 and the fact that
quantum of the additional tax is determined with reference to the sales-tax imposed
would not alter its character. The additional sales-tax is to be imposed only
if the turnover of a dealer exceeds Rs. 10 lacs. It is in reality a tax on the
aggregate of sales effected by a dealer during a year. [123D-E] Kilikar v.
Sales Tax Officer, 21 S.T.C. 253, and A. S. Ramachandra Rao V. State of Andhra
Pradesh, 25 S.T.C. 133, approved.
(2)(a) It cannot be said that the provisions
of the Act imposed any unreasonable restrictions upon the appellants' right to
carry on trade. It is no doubt true that every tax imposes some restrictions
upon the right to carry on business but it would not follow that the imposition
of tax in question was an unreasonable restriction upon the appellants'
fundamental right to carry on trade. Generally speaking, the amount or rate of
a tax is a matter exclusively within legislative judgment and as long as a tax
retains its avowed character and does not confiscate the property to the State
under the guise of a tax, its reasonableness is outside the judicial ken.
[123F-124A] (b) It is not necessary that the dealer should be enabled to pass
on the incidence of the tax on sale to the purchaser in order that it might be
a tax on the sale of goods.
Although the legal incidence of a tax on sale
of goods under the Act falls squarely on the dealer, it may be that he can add
the tax to the price of the goods sold and thus pass it on to the purchaser. It
is not possible to say that because a dealer is disabled from passing on the
incidence of tax to the purchaser to provisions of the Act impose unreasonable
restriction upon the fundamental rights of the appellants under Art. 19(1) (f)
or 19(1) (g). [124B-C, C] J. K. Jute Mills Co. v. State of U.P., [1962] 2
S.C.R. 1 at 13, and Konduri Buchirajaligam v. State of Hyderabad, [1958] 9 S.T.C.
397, referred to.
(3) It can be said that a legislative
classification making the burden of the tax heavier in proportion to the
increase in turnover would be reasonable. A 122 flat rate is thought to be less
efficient than the graded one as an instrument of social justice. The economic
wisdom of a tax is within the exclusive province of legislature.
The only question for the Court to consider
it whether there is rationality in the belief of the legislature that capacity
to pay the tax increases, by and large with an increase of receipts. An attempt
to proportion the payment to capacity to pay and thus bring about a real and
factual equality cannot be ruled out as irrelevant in levy of tax on the sale
of purchase of goods. The object of a tax is not only to raise revenue but also
to regulate the economic life of the society. [124H-125D; 126A-B]
ORIGINAL JURISDICTION: Writ Petition No. 363
of 1969.
Petition Under Article 32 of the Constitution
of India.
WITH
CIVIL APPEALS Nos. 1010-1011 OF 1973.
From the Judgment and Order dated the 6th
April, 1972 of the Madras High Court in W.P. Nos. 3826-3827/70.
AND CIVIL APPEALS Nos. 2552-2559/72,
179-180/74, 2/73, 2684/ 72, 1022/73.
From the Judgment and Order dated 11th August
1971 of Madras High Court in W.P. Nos. 3551-52, 3564-3567, 4056-57/ 70,,
3967-668/70, 3934/70, 3960/70 and 496/71 respectively.
AND CIVIL APPEAL No. 967 OF 1971.
From the Judgment and Order dated 19th
August, 1971 of the Madras High Court in WP No. 4469/70.
AND CIVIL APPEAL Nos. 929-930 OF 1973.
From the Judgment and Order dated the 11th
August, 1971 of the Madras High Court in W.P. No. 293 of 1971.
K. Jayaram for the Petitioners (In WP.
363/69) and for the, Appellants in CAS. Nos. 1010-1011/73, 2552-2559/72 and
2/73.
D. D. Sharma for the Appellant in CA 2684/72.
Mrs. S. Gopalakrishnan for the Appellant In
CAS. 927/73 and 179-80/74.
K. S. Ramamurthy and B. R. Agarwala for the
appellant in CA 1022/73.
K. S. Ramamurthy and D. N. Gupta for the
Appellant in CAS.929-30/73.
Dr. Syed Mohammed and K. M. K. Nair for
Respondent in WP.363/69.
S. Govind Swaminadhan, Advocate General for
the State of Tamil Nadu, A. V. Rangam, K. Venkataaswami and Miss A.Subhashini
for Respondent In all the appeals.
123 The Judgment of the Court was delivered
by MATHEW, J.-The question raised in the Civil Appeals are sub- stantially the
same as those raised in the writ petition.
We will deal with the Civil Appeals and our
decision there will govern and dispose of the writ petition.
The appellants filed writ petitions before
the High Court of Madras challenging the validity of the Tamil Nadu Additional
Sales Tax Act (Act No. 14 of 1970), 1970 (hereinafter referred to as the Act)
on the ground that the State Legislature has no competence to enact it, that
its provisions violated their fundamental rights under article 19(1)(f),
19(1)(g) and article 14 of the Constitution. The High Court dismissed the writ
petitions by a common judgment. These appeals are filed on the basis of a
certificate from the High Court.
The material provisions of the Act are as
follows. Section 2(1) provides that the tax payable under the Tamil Nadu
General Sales Tax Act, 1950, shall, in the case of a dealer whose total
turnover for a year exceeds 10 lakhs of rupees, be increased by additional tax
at the rate of 5 per cent of the tax payable by that dealer for that year and
the provisions of the Tamil Nadu General Sales Tax Act, 1959, shall apply in
relation to the additional tax payable under the said Act.
Sub-section (2) of s. 2 says that
notwithstanding anything contained in the Tamil Nadu General Sales Tax, 1959,
no dealer referred to in sub-section (1) shall be entitled to collect the
additional tax payable under the said sub- section.
Sub-section (3) of s. 2 states that any
dealer who collects the additional tax payable under sub-section (1), in
contravention of the provisions of sub-section (2) shall be punishable with
fine which may extend to one thousand rupees.
Sub-section (1) of s. 3 says that the tax
payable by any importer or wholesale dealer under the Tamil Nadu Sales of Motor
Spirit Taxation Act, 1939, shall be increased by an additional tax at the rate
of five per cent of the tax payable under the said Act and the provisions of
the said Act shall apply in relation to the tax payable under the said Act.
Sub-sections (2) and (3) of s. 3 are to the same effect as sub-sections (2) and
(3) of s. 2 Section 4 relates to the rule making power. In the exercise of this
power, rules have been framed which are called the Tamil Nadu Additional Sales
Tax Rules, 1970.
The appellants contend firstly that the
legislature of Tamil Nadu has no power to enact the Act as the tax imposed by
the Act is a tax on the income of the dealer, and that the imposition of such a
tax is outside the scope of entry 54 List II. Secondly, they contend that the
provision of the Act in so far as it prohibits a dealer from collecting the tax
from purchaser, is an unreasonable restriction upon their fundamental right to
carry on trade under article 19 (1) (g) and of their right to hold property
under article 19 (1) (f). Thirdly, they submit that the provisions of the Act
are violative of their fundamental 124 right under article 14 in that they
impose different rates of tax on the sale of same goods according to the
turnover of the dealer.
As regards the contention that the State
Legislature has no power to pass the measure, we are of the view that
additional tax is really a tax on the sale of goods. The object of the Act, as
is clear from its provisions, is to increase the tax on the sale or purchase of
goods imposed by Tamil Nadu General Sales Tax Act, 1959 and the fact that
quantum of the additional tax is determined with reference to the sales tax
imposed would not alter its character. It may be noted that additional tax is
to be imposed only if the turnover of a dealer exceeds Rs. 10 lakhs. It is in
reality a tax on the aggregate of sales effected by a dealer during a year. The
additional tax, therefore, is an enhancement in the rate of the sales tax when
the turnover of a dealer exceeds Rs. 10 lakhs a year and it is a tax on the
aggregate of the sales affected by the dealer during the year. The decision in
Ernakulam Radio Company v. State of Kerala(1) which was affirmed by, a Division
Bench of the Kerala High Court in Kiliker v. Sales Tax officer(2) took that
view. The same view was taken by the Andhra Pradesh High Court in A. S.
Ramachandra Rao v. State of Andhra Pradesh.(3) This is the correct view. Entry
54 in List II authorises the state legislature to impose a tax on the sale or
purchase of goods. So, the contention of the appellants that the additional
sales tax is not a tax on sales but on the income of the dealer is without any
basis.
As regards the second contention that the
provisions of the Act ,are violative of the fundamental rights of the
appellants under article 19(1)(f) and 19(1)(g), as the tax is upon the sale of
goods and is not shown to be confiscatory, it cannot be said that the
provisions of the Act impose any unreasonable restrictions upon the appellants'
right to carry on trade. It is, no doubt, true that every tax imposes some
restriction upon the right to carry on a business; but it would not follow that
the imposition of the tax in question is an unreasonable restriction upon the
appellants' fundamental right to carry on trade. Generally speaking, the amount
or rate of a tax is a matter exclusively within the legislative judgment and as
long as a tax retains its avowed ,character and does not confiscate property to
the State under the guise of a tax, its reasonableness is outside the judicial
ken.
But it was contended that as the dealer is
prohibited from passing ,on the incidence of tax to the purchaser, the
additional tax, unlike sales tax, is a tax on income of the dealer which he
must pay whether he makes any profit or not and is, therefore, an unreasonable
restriction ,on his fundamental rights under article 19 (1 ) (g).
The legal incidence of tax on sale of goods
under the Tamil Nadu General Sales Tax, 1959 falls squarely on the dealer.
It may be that he can add the tax to the
price of the goods sold and thus pass it on to the purchaser. But it is not
necessary that the dealer should be enabled to pass on the incidence of the tax
on sale to the purchaser in order that it might be a tax on sales of goods.
(1) 18 S. T. C. 445, 449. (2) 21 S. T. C.
253.
(3) 25 S. T. C. 133.
125 In J.K. Jute Mills Co. V. State of
U.P.(1) this Court said, although it is true that sales tax is, according to
accepted notions, intended to be passed on to the buyer, and provisions
authorising and regulating the collection of sales tax by the seller from the
purchaser are a usual feature of sales tax legislation, it is not an essential
characteristic of a sales tax that the seller must have the right to pass it on
to the consumer, nor is the power of the legislature to impose a tax on sales
conditional on its making a provision for sellers to collect the tax from the
purchasers.
In Konduri Buchirajalingam v. State of
Hyderabad,(2) this Court said ;
"It is then said that the sales tax is
essentially an indirect tax and therefore it cannot be demanded of the
appellant without allowing him to recoup himself by collecting the amount of
the tax from the persons with whom he deals. This Court has already decided in
the case of Tap Iron and Steel Co. Limited v. The State of Bihar [1958] 9
S.T.C. 267 that in law a sales tax need not be an indirect tax and that a tax
can be a sales tax though the, primary liability for it is put upon a person
without giving him any power to recoup the amount of the tax payable, from any
other party." As we said, the additional tax is a tax upon sales of goods
and not upon the income of a dealer and so long as it is not made out that the
tax is confiscatory, it is not possible to accept the contention that because
the dealer is disabled from passing on the incidence of tax to, the purchaser,
the provisions of the Act impose an unreasonable restriction upon the
fundamental rights of the appellants under article:
19(1)(g) or 19(1)(f).
The last contention namely that the provisions
of the Act impose different rates of tax upon different dealers depending upon
their turnover which in effect means that the rate of tax on the sale of goods.
would vary with the volume of the turnover of a dealer and are, therefore,
violative of article 14 is also without any basis. Classification of dealers on
the basis of their respective turnover for the purpose of graded imposition so
long as it is based on differential criteria relevant to the legislative object
to be achieved is not unconstitutional. A classification, depending upon the
quantum of the turnover for the purpose of exemption from tax has been upheld
in several decided cases. By parity of reasoning, it can be said that a
legislative, classification making the burden of the tax heavier in proportion
to the increase in turn over would be reasonable. The basis is that _just as in
taxes upon income or upon transfers at death, so also in imposts upon business,
the little man, by reason of inferior capacity to pay, should bear a lighter
load of taxes, relatively as well as absolutely, than is borne by the big one.
The flat rate is thought to be less efficient than the graded one as an
instrument of social justice. The large dealer occupies a position of economic
superiority by reason of his greater volume of his business..
(1) [1962] 2. S. C. R. 1 at 13.
(2) [1958] 9 S, T. C. 397.
126 And, to make his tax heavier, both
absolutely and relatively, is not arbitrary discrimination, but an attempt to
proportion the payment to capacity to pay and thus to arrive in the end at a
more genuine equality. The economic wisdom of a tax is within the exclusive
province of legislature. The only question for the court to consider is whether
there is rationality in the belief of the legislature that capacity to pay the
tax increases, by and large, with an increase of receipts.
"Certain it is that merchants have faith
in such a correspondence and act upon that faith.
If experience did not teach that economic
advantage goes along with larger sales, there would be an end to the hot
pursuit for wide and wider markets. In brief, there is a relation of
correspondence between capacity to pay and the amount of business done.
Exceptions, of course, there are. The law
builds upon the probable, and shapes the measure of the tax accordingly. At the
very least, an increase of gross sales carries with it an increase of
opportunity for profit, which supplies a rational basis for division into
classes, at all events when coupled, with evidence of a high degree of
probability that the opportunity will be fruitful".
(See the dissenting judgment(1) of Justice
Cardozo, Justice Brandeis and Justice Stone).
The reasoning of the minority in that case
appeals to us as more in consonance with social justice in an egalitarian state
than that of the majority.
As we said, a large dealer occupies a
position of economic superiority by reason of his volume of business and to
make the tax heavier on him both absolutely and relatively is not arbitrary
discrimination but an attempt to proportion the payment to capacity to pay and
thus arrive in the end at a more genuine equality. The capacity of a dealer, in
particular circumstances, to pay tax is not an irrelevant factor in fixing the
rate of tax and one index of capacity is the quantum of turnover. The argument
that while a dealer beyond certain limit is ,obliged to pay higher tax, when
others bear a less tax, and it is consequently discriminatory, really misses
the point namely that the former kind of dealers are in a position of economic
superiority by reason of their volume of business and form a class by
themselves. They cannot ,be treated as on a par with comparatively small
dealers. An attempt to proportion the payment to capacity to pay and thus bring
about a real and factual equality cannot be ruled out as irrelevant in levy of
tax on the sale or purchase of goods. The object of a tax is not only to ,raise
revenue but also to regulate the economic life of the society.
We dismiss the appeals and writ petition with
costs. One set of hearing fee.
P.B.R. Appeals and petitions dismissed.
(1) Stewart Dry Goods Co. v. Lewis, 294 U. S.
550.
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