K.M. Mohamad Abdul Khader Firm Vs.
State of Tamil Nadu & Ors [1984] INSC 192 (16 October 1984)
ERADI, V. BALAKRISHNA (J) ERADI, V.
BALAKRISHNA (J) TULZAPURKAR, V.D.
MADON, D.P.
CITATION: 1985 AIR 12 1985 SCR (1) 980 1984
SCC Supl. 563 1984 SCALE (2)621
ACT:
Tamil Nadu Additional Sales Tax Act, (Act II
of 1976)- Legislative competence to levy Additional Tax in addition to the
collection of surcharge under the Tamil nadu Sales Tax (Surcharge) Act,
1971-Whether the levy of graded rates violates Article 14 of the
Constitution-Whether the levy of Additional Tax itself is violative of Articles
19 and 301 of the Constitution since it prohibits passing of the incidence of
taxation to the consumer of goods-Constitution of India 1950 Article 14, 19 and
301
HEADNOTE:
In Tamil Nadu the levy of the Sales Tax is
regulated by the Tamil Nadu General Sales Tax Act, 1959. In the year 1970 the
State Legislature enacted the Tamil Nadu Additional Sales Tax Act, (Act XIV of
1970) with effect from May 28, 1970. The scheme of section 2 of the Act was to
levy the Additional Tax by the process of increasing the tax payable under the
Act of 1959 by 10 percent the said increase representing the quantum of the
Additional Tax. The proviso to Section stipulates for a concessional treatment
in respect of the declared goods. In September, 1971 the State Legislature
enacted the Tamil Nadu Sales Tax (Surcharge) Act, 1971. with retrospective
effect from June, 1971. Under Section 3 of that Act every dealer liable to pay
tax under the Act of 1959 was subjected to a further liability to pay surcharge
at the rate of 5 per cent of such tax. In 1976 the Tamil Nadu Additional Sales
Tax (Act II) of 1976 was passed amending and substituting Section 2 of the
earlier Act providing for graded rates with a super added condition that the
Additional Tax payable cannot be collected from the consumers, a contravention
of which would attract penal action. On receipt of notices of demand issued
consequent upon the assessment to Additional Sales Tax under the provisions of
the Section as amended by the 1976 Act the petitioners have come up to the
Court challenging the constitutional validity of the Act, 1976 and seeking to
quash the assessment orders and the notices of demand issued to them.
Dismissing the Writ Petitions, the Court
HELD: 1- The contentions that the amended
Section 2 of the Tamil Nadu Additional Sales Tax Act 2 of 1976 is devoid of
legislative competence in as much as it imposes not a tax on sales but a tax on
income, that the adoption 981 of slab system for determining tax liability is
alien to the concept of Sales Tax that the levy of Additional Tax under the
impugned enactment violates Articles 14 and 19 of the Constitution and that the
provisions of the Act are violative of Article 301 of the Constitution are all
totally devoid of merit. [991C-D] M/s Pharma Associates and others v. State of
Bihar, [1983] 4 S.C.C. 45: S. Kodar v. State of Kerala [1975] 1 S.C.R. 121
followed.
2. The constitutional validity of the levy of
Additional Tax is not in any manner affected by the change brought about in the
mode of levy and as a result of the amendments effected by the impugned Act.
The impugned enactment has merely amended the 1970 Act. It has not introduced a
new tax; what it has done is only to amend the 1970 Act by providing for
different method of computation of the Additional Tax leviable under that Act
by linking the rate of levy to the taxable turnover instead or to the amount of
tax assessed under the Act of 1959. The nature and identity of the Additional
Sales Tax imposed by the 1970 Act have not been in any way altered by the
impugned Act.
[985F;C;E;D] S. Kodar v. State of Kerala,
[1975] 1 S.C.R. 121 referred to.
ORIGINAL JURISDICTION: Writ Petition (Civil)
Nos. 4358 of 1978, 212-213, 760 of 1979 and 6449 of 1980.
Under article 32 of the Constitution of India
S.N. Kacker and A.T.M. Sampath for the Petitioner in W.P. Nos. 212-213 of 1980.
A.K. Sen, A.T.M. Sampath and P.N. Ramalingam
for the Petitioner in W.P. No. 760 of 1979.
A.T.M. Sampath and P.N. Ramalingam for the
Petitioner in W.P. Nos. 4358 of 1978 and 6449 of 1980.
S.T. Desai and A.V. Rangam for the
Respondent.
The Judgment of the Court was delivered by
BALAKRISHNA ERADI, J. in these Writ Petitions, the petitioners have challenged
the constitutional validity of the provisions of Tamil Nadu Additional Sales
Tax Act 1976 (Act 2 of 1976). By the said Act section 2 of the Tamil Nadu
Additional Sales Tax Act, 1970 was amended by substituting a new provision in
the place of what existed before, section 3 was omitted and section 3A was
newly introduced to the Act.
As the points raised in all these Writ
Petitions are identical, they were heard together and are disposed of by this
common judgment.
982 Before we proceed to set out the provisions
of the impugned Act, it is necessary to narrate in brief the legislative
history that preceded its enactment. The basic statute providing for the levy
of Sales tax in the State of Tamil Nadu is the Tamil Nadu General Sales Tax
Act, 1959 (hereinafter referred to as "the Act of 1959") In the year
1970, the State Legislature enacted the Tamil Nadu Additional Sales Tax Act-Act
14 of 1970 (hereinafter called the 1970 Act)-which was brought into force with
effect from May 28, 1970. The said Act provides for the levy of an additional
tax on the sale or purchase of goods. Section 2 of the Act which is the
charging section was in the following terms:- "2. Levy of additional tax
in the case of certain dealers:-(1) The tax payable under the Tamil Nadu General
Sales Tax Act, 1959 (Tamil Nadu Act of 1959) (thereafter in this section
referred to as the said Act), shall in the case of a dealer whose total
turnover for a year exceeds ten lakhs of rupees, be increased by an additional
tax at the rate of (ten per cent) of the tax payable by that dealer for that
year and the provision of the said Act shall apply in relation to the said
additional tax as they apply in relation to the said tax payable under the said
Act.
Provided that where in respect of declared
goods as defending clause (h) of section of the said Act, the tax payable by
such dealer under the said Act together with the additional tax payable under
this sub-section, exceeds (four percent) of the sale or purchase price thereof,
the rate of additional tax in respect of such goods shall be reduced to such an
extent that the tax and the additional tax together shall not exceed (four per
cent) of the sale or purchase price of such goods." It will be noticed
that the scheme of this section was to levy the additional tax by the process
of increasing the tax payable under the Act of 1959 by ten per cent the said
increase representing the quantum of the additional tax. The proviso to the
section stipulates for a concessional treatment in respect of the declared
goods. It is unnecessary for us to deal with the said proviso or with section 3
of the said Act as these provisions have no relevance to the determination of
the point raised in the cases now before us.
983 In September, 1971, the State Legislature
enacted the Tamil Nadu Sales Tax (Surcharge) Act, 1971 with retrospective
effect from June, 1971. Under section 3 of that Act, every dealer liable to pay
tax under the Act of 1959 was subjected to a further liability to pay a
surcharge at the rate of five per cent of such tax. The first proviso to the
said section states that in the city of Madras the rate of surcharge shall be
ten per cent for the period commencing on the June 19, 1971 and ending with the
June 28, 1971. The second proviso extended certain concessions in the rate of
surcharge in respect of declared goods.
Thereafter followed the impugned statute
namely, the Tamil Nadu Additional Sales Tax (Act 2) of 1976, which was brought
into force with effect from 1.4.1976. Section 2 of the said Act amended section
2 of the Tamil Nadu Additional Sales Tax Act, 1970 by substituting the
following provision in replacement of the original section:
"2. Levy of additional tax in the case
of certain dealers-
1. (a) The tax payable under the Tamil Nadu
General Sales Tax Act, 1959 (Tamil Nadu Act I of 1959) (hereinafter in this
section referred to as the said Act), shall, in the case of a dealer whose
taxable turnover for a year exceeds three lakhs of rupees, be increased by an
additional tax calculated at the following rates, namely:- Rate of tax (i)
Where the taxable turnover exceeds 0.4 per cent of three lakhs of rupees but
does the taxable not exceed five lakhs of rupees. turnover.
(ii) Where the taxable turnover exceeds 0.5
percent five lakhs of rupees but does not of the tax- exceed seven lakhs of
rupees. able turnover.
(iii)Where the taxable turnover exceeds 0.6
percent seven lakhs of rupees but does not of the exceed ten lakhs of rupees.
taxable turnover.
(iv) Where the taxable turnover exceeds 0.7
percent ten lakhs of rupees of the taxable turnover.
984 Provided that where in respect of
declared goods as defined in clause (h) of section 2 of the said Act, the tax
payable by such dealer under this said Act, together with the additional tax
payable under this sub section, exceeds four per cent of the sale or purchase
price thereof, the rate of additional tax in respect of such goods shall be
reduced to such an extent that the tax and the additional tax together shall
not exceed four per cent of the sale or purchase price of such goods.
(b) The provisions of the said Act Shall
apply in relation to the additional tax payable under clause (a) as they apply
in relation to the tax payable under the said Act.
(2) Notwithstanding anything contained in the
said Act no dealer referred to in sub-section (1) shall be entitled to collect
the additional tax payable under the said sub-section.
(3) 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, and no Court below the rank of a Presidency Magistrate or a Magistrate
of the First Class shall try any such offence." While under the provisions
of section 2 as they stood prior to the amendment, the additional sales tax was
to be calculated and levied at a certain percentage of the tax assessed on the
dealer under the Act of 1959, the scheme of the amended section is to adopt the
taxable turnover of the dealer as the base for the levy of the additional tax,
the rate or percentage to be applied for calculation of the additional tax
depending upon the quantum of the taxable turnover and the slab into which the
case of a particular dealer will fall on the basis of the specification of the
slab limits indicated in the section.
On receipt of notices of demand issued
consequent upon assessments to additional sales tax under the provisions of the
section as amended by the impugned Act the petitioners have 985 come up to this
Court challenging the constitutional validity of the impugned Act of 1976 and
seeking to quash the assessment orders and the notices of demand issued to
them.
The first contention urged on behalf of the
petitioners is that since the State Legislature had already provided for the
levy of a tax on sales by the Act of 1959 and had also enacted a further
statute authorising the levy and collection of a surcharge which is in truth
and substance the imposition of an additional sales tax, it could not legally
go on legislating further enactments providing again for levy of additional
sales tax. On this basis it is contended that the provisions of the impugned
Act, 1976 are ultra vires and devoid of legislative competence. We see no
substance in this contention. The impugned enactment has merely amended the
1970 Act. It has not introduced a new tax; what it has done is only to amend
the 1970 Act by providing for a different method of computation of the
additional tax leviable under that Act. The validity of the 1970 Act has been
upheld by a Constitution Bench of this Court in the case of S. Kodar v. State
of Kerala. Hence there is no longer any scope for the petitioners to contend
that the State Legislature had no competence to provide for the levy of
additional sales tax. The nature and identity of the additional sales tax
imposed by the 1970 Act have not been in any way altered by the impugned Act.
As already pointed out what has been done by the impugned Act is only to
provide for a different mode of computation of the additional sales tax by linking
the rate of levy to the taxable turnover instead of to the amount of tax
assessed under the Act of 1959. The constitutional validity of the levy of
additional tax is not in any manner affected by the said change brought about
in the mode of levy and computation as a result of the amendments affected by
the impugned Act.
It was strongly contended on behalf of the
petitioners that the prescription of different rates of additional sales tax
depending upon the quantum of turnover of the different assessees is totally
repugnant to the concept of levy of tax on sales. Another argument advanced by
Counsel for the petitioners was that since under the amended provisions of
section 2, two dealers selling the same commodity will be liable to pay
additional tax at different rates depending upon their respective annual
turnovers, there is a clear violation of Article 14 of the Constitution as
dissimilar treatment similarly situated. A further contention 986 urged on
behalf of the petitioners was that the levy in its present from is really a tax
on 'gross income' and not a tax on 'sales' and hence it is ultra vires the
State Legislature as it has no competence to levy a tax on income other than
agriculture income. Another ground of attack pressed by Counsel was that the
levy of additional sales tax under the impugned Act is confiscatory in nature,
that it impose unreasonable restrictions on the petitioners right to carry on
business and offends Article 19 of the Constitution, particularly in view of
the prohibition contained in sub- section (2) of section 2 against collection
of additional tax from the consumers. Yet another point taken in the Writ
Petitions but not very seriously urged at the time of hearing is that the levy
of additional tax under the impugned Act offends Article 301 of the
Constitution since the imposition of the additional liability would seriously
affect the business of the petitioners and on account of their inability to
bear the heavy burden their right to carry on freely trade, commerce and intercourse
within the territory of India will be adversely affected.
We are spared the necessity of dealing with
any of the aforesaid points in depth because everyone of them is fully covered
by pronouncement of a Constitution Bench of this Court in S. Kodar v. State of
Kerala afore-cited.
The contention that the additional sales tax
levied under the Tamil Nadu Additional Sales Tax Act, 1970 was not a tax on
sales but was in reality a tax on the income of the dealers was rejected by the
Constitution Bench which observed thus:
" As regards the contention that the
State Legislature has no power to pass the measures, 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, there- 987 fore, 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 which was affirmed by a Division
Bench of the Kerala High Court in Kiliker v. Sales Tax Officer took that view.
The same view was taken by the Andhra Pradesh High Court in A.S. Ramachandra
Rao v. State of Andra Pradesh. 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.
The further plea that the levy of additional
tax also was confiscatory in nature and the prohibition against passing on the
burden to the consumers was an unreasonable restriction was also negatived by
this Court by stating:- "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 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, 988 the
additional tax, unlike sales tax, is a tax on income of the dealer which he
must pay whether he makes any pro fit 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.
In J. K. lute Mills Co. v. State of U.P. 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, not 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 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 Tata Iron and Steel Co. Limited v. 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 pay able, from any other
party." 989 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 unreason able restriction upon the
fundamental rights of the appellants under article 19 (1) (g) or 19 (1) (f).
Dealing with the contention that since the
provisions of the Act imposed different rates of tax on different dealers depending
upon their turnover there was a violation of Article 14 of the Constitution,
Mathew J. who spoke for the Court observed:
"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 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 turnover 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. 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.
990 of legislature. The only question for the
court to consider is whether there is rationality in the belief 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 probables, 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 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, 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 991 themselves. They
cannot be treated as on a part 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".
The same principles have been recently
reiterated by a Three Judge Bench of this Court in the case of M/s Pharma
Associates and others v. State of Bihar and Ors. In the light of the aforesaid
pronouncements, it is manifest that the contention put forward by the
petitioners that the impugned enactment is devoid of legislative competence
inasmuch as it imposes not a tax on sales but a tax on income, that the
adoption of a slab system for determining tax liability is alien to the concept
of sales tax and that the levy of additional tax under the impugned enactment
violates Articles 14 and 19 of the Constitution are all totally devoid of
merit. We do not also see any substance in the plea raised in the Writ
Petitions that the provisions of the impugned Act are violative of Article 301
of the Constitution.
In the result, all these Writ Petitions fail
and are dismissed with costs.
S.R. Petition dismissed.
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