Goodyear
India Ltd. Vs. State of Haryana & Anr [1989] INSC 311 (19 October 1989)
Mukharji,
Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.
CITATION:
1990 AIR 781 1989 SCR Supl. (1) 510 1990 SCC (2) 71 JT 1989 (4) 229 1989 SCALE
(2)982
ACT:
Haryana
General Sales Tax Act, 1973: Section 9 (Prior to its amendment by Act No. 11 of
1979)--Purchase Tax--Provision for levy of purchase tax on 'Disposal' of
manufactured goods--Notification--(No. S.O 119/H.A. 20/73/Ss. 9 & 15/74
dated July 19, 1974)--Levy of tax on mere despatch of
goods to the dealers themselves outside the State--Validity of.
Section
9(1)(b) (As amended by Haryana General Sales Tax (Amendment and Validation Act,
1983--Purchase Tax--Taxing of purchase of raw material if goods manufactured therefrom
despatched outside the State otherwise than by way of sale in the course of
inter State trade--Whether taxing of consignments in the course of inter State
trade--Whether beyond the legislative competence of State Legislature--Effect
of Constitution (Forty-Sixth) Amendment Act, 1982.
Section
9(1)(c)--Purchase tax on Exports--Food Corporation of India--Purchase of foodgrains
from farmers within the State--Despatch of food grains to its Branches outside
the State--Levy of Tax at the Point Of Despatch--Validity of.
Section
24(3)--Validity of:
Haryana
General Sales Tax (Amendment and Validation) Act, 1983--Law declared ultra
rites State Legislature--Validating Act--No change made in substantive law mere
direction to ignore judgment--Whether void.
Section
50--Penalty--Charging provision held ultra vires-Penalty proceedings based on
charging provision whether invalid.
Bombay
Sales Tax Act 1959: Section 13-AA (As inserted by Maharashtra Act XXVIII of
1982)--Scope, effect and validity of. Purchase tax--Raw material purchased by
paying tax used in the manufacture of goods--Manufactured goods despatched to
Agents in other States--Levy of Additional Tax--Whether tax on the consignment
of manufactured goods outside the State--Whether beyond the legislat511 tive
competence of State Legislature--Whether violative of Articles 14 and 301 of
the Constitution of India.
Constitution
of India, 1950: Article 14--Section 13-AA of
the Bombay Sales Tax Act, 1959 (As inserted by Maharashtra Act XXVIII of
1982)--Vires of.
Articles
245 and 246--Doctrine of Pith and Substance--What is-Test for
determination--Legislative competence--Relevancy of pith and substance rule.
Article
269(1)(h)--Constitution (Forty-Sixth) Amendment Act, 1982--Object and effect
of.
Article
301--Freedom of Trade Commerce and Intercourse Bombay Sales Tax Act, 1959
Section 13-AA (As inserted by Maharashtra Act XXVIII of 1982)--Vires
of--Imposition of Additional purchase tax--Permissibility of.
Schedule
VII--Entries in the Legislative Lists--Only demarcate legislative field--Do not
confer legislative powers.
Statutory
Interpretation: Rules of interpretation of statutes-applicability of to
interpretation of Constitution--Constitution--Not to be interpreted in a narrow
pedantic sense.
Fiscal
statutes--Tax liability--Whether can be determined by reference to
interpretation of a statute other than the statute creating liability--Should
be construed strictly--Assumptions and presumption in interpretation of fiscal
law--Whether permissible.
Determination
of nature of a tax--Standard or measure on which the tax is levied--Whether
relevant and conclusive--Courts whether to look into Pith and Substance Rule.
Taxable
event--Charging event--What is--Test for determination--What is--Stages of
taxation explained.
Excise
duty--Sales Tax--Distinction between--Tax on sale of goods--Tax on use or
consumption of goods--Distinction between--Reasonable construction should be
followed and literal construction to be avoided if that defeats the manifest
object and purpose of the Act.
512
Mischief Rule: Provisions of Constitutional changes--To be construed in the
context of Mischief Rule.
Practice
and Procedure: Precedent--What is--A decision on a question which has not been
argued--Whether can be treated as precedent.
Words
and Phrases: 'Disposal'--Meaning of.
HEAD NOTE:
The
appellant/petitioner company--Good Year India Limited--a registered dealer both
under the Haryana General Sales Tax Act, 1973 and Central Sales Tax Act, 1956,
was manufacturing automobile tyres and tubes at Ballabgarh in the State of Haryana. For the said manufacturing
activity it was purchasing various kinds of raw materials both within the State
and from outside the State of Haryana. The
Company was despatching these manufactured goods viz. tyres and tubes to its
own branches and sales depots outside the State of Haryana.
The
assessing authority imposed upon the appellant company the purchase tax under
section 9 of the Haryana General Sales Tax Act, 1973 in view of the despatches
made by it of the manufactured goods to its various depots outside-the-State.
The
petitioner company filed writ petition in the Punjab and Haryana High Court challenging the validity of the
Notification levying the tax. A Division Bench of the High Court allowed the
petition holding that disposal of goods being separate and 'distinct from despatch
thereof, a mere despatch of goods out Of the State by a dealer to his own
branch while retaining both 'the title-and possession thereof does not come
within the ambit of the phrase "disposes of the manufactured goods in any
manner otherwise than by way of sale", as employed in Section 9(i)(a)(ii)
of the Act.
Accordingly
the High Court set aside the assessment orders and quashed the impugned
Notification as ultra vires of section 9 on the ground that whereas Section 9
provided only for the levy of purchase tax On the disposal of the manufactured
goods, the impugned Notification makes mere despatch of goods to the dealer
themselves taxable. To override the effect of the said judgment the Haryana
Legislature enacted Haryana General Sales Tax (Amendment and Validation) Act
1983 where by Section 9 of the Act was amended with retrospective effect to
include within its sweep the despatch of manufactured goods to a place outside
the State in any manner otherwise than by way of sale. The impugned
Notification and the con513 sequential action taken thereunder were also
validated.
The
petitioner company filed writ petitions challenging the assessments. The High
Court allowed the petitions holding section 9(1)(b) of the Haryana General
Sales Tax Act 1973 as amended by the Haryana General Sales Tax (Amendment and
Validation) Act, 1983 in so far as it levied a purchase tax on the consignment
of goods outside the State in the course of inter-State trade or commerce was
beyond the legislative competence of the State of Haryana and was void and
inoperative because it intruded and trespassed into an arena exclusively meant
for taxation by the Union of India under Entry 92-B of List I of the Seventh
Schedule. Accordingly the High Court set aside the amended provisions of
section 9 as also the retrospective validation of the Notification and the
consequential validation of all actions taken thereunder. Against this decision
of the High Court, State of Haryana
preferred Special Leave Petitions in this Court.
During
the pendency of these Special Leave Petitions, the assessing authority issued
Show-cause notices asking the petitioner company to show-cause why in addition
to the purchase tax, it should not be liable to penalty as well.
The
Petitioner company again filed writ petitions in the Punjab & Haryana High
Court challenging the validity of these notices. In the meantime a Full Bench
of the High Court decided the question again and overruling the decision of the
earlier Division Bench held that the taxing event was the act of purchase and
not the act of despatch of the consignment. The Full Bench of the High Court
held that section 9(1)(b) as amended was neither invalid nor ultra vires.
Against the aforesaid judgment of the Full Bench the Petitioner Company filed
appeals in this Court. All these questions are the subject matters of these
appeals.
In the
connected appeals, the Food Corporation of India was procuring food-grains from the farmers through commission agents in
tile mandis of Haryana and despatching them to its own branches in the deficit State of the country. The Corporation branches in the recipient
States were supplying these stocks to the State agencies/Fair Price Shops and
were also paying tax as per the provisions of the Sales Tax law of the
respective States. Some of the stocks were distributed within the State of Haryana for the public distribution system
for which sales tax was charged. and deposited with the sales-tax depots as per
the Haryana General Sales Tax Act, 1973. In respect of the inter-State despatch
of wheat and other food-grains by the Food Corporation of India to its own
branches tax was attracted at the time of despatch 514 under section 9(1)(c) of
the Haryana Act. The Food Corporation of India impugned the levy of tax.
In the
other connected appeals the appellant companies--Hindustan Lever Ltd. and Wipro
Products--were manufacturing vanaspati, soaps, chemicals and agro chemicals.
For the said manufacturing activities, they were purchasing non-essential
vegetable oil (VNE oil) and other raw materials and were paying purchase tax
@4% under section 3 of the Bombay Sales Tax Act, 1959. The VNE oil was
subsequently used by the appellant companies in the manufacture of vanaspati
and soaps. The finished products manufactured by the appellant companies viz. vanaspati
and soaps used to be despatched outside the State of Maharashtra to their clearing and forwarding
agents. The assessing authority levied additional purchase tax @ 2% under
section 13-AA of the Act on the purchase of said goods---VNE oil.
The
appellant companies filed writ petitions in the High Court challenging the
orders of the assessing authority levying the additional tax of 2% and also the
vires of section 13-AA of the Bombay Sales Tax Act, 1959 under which the
additional tax was levied, contending that the additional tax of 2% levied on
raw materials, where the finished goods manufactured therefrom were despatched
outside the State was in the nature of consignment tax which was not within the
legislative competence of the State Legislature.
The
High Court dismissed the petitions holding (i) the additional purchase tax
levied under section 13-AA of the Act was on the purchase value of VNE oil used
in the manufacturing of goods transferred outside the State and not on the
value of the manufactured goods so transferred; (ii) the State Legislature was
competent to levy the tax under Entry 54 of the State List in the Seventh
Schedule to the Constitution, and (iii) Section 13-AA was not violative of
either Article 14 or Article 301 of the Constitution of India.
Against
the decision of the High Court appellant companies filed appeal in this Court.
Disposing
of the matters, this Court,
HELD:
(Per Mukharji, J.)
1. Analysing
section 9 of the Haryana General Sales Tax Act, 515 1973 it is clear that the
two conditions specified, before the event of despatch outside the State as
mentioned in section 9(1)(b), namely, (i) purchase of goods in the State and
(ii) using them for the manufacture of any other goods in the State, are only
descriptive of the goods liable to tax under Section 9(1)(b) in the event of despatch
outside the State. If the goods do not answer both the descriptions
cumulatively, even though these are despatched outside the State of Haryana, the purchase of those goods would
not be put to tax under Section 9(1)(b). The liability to pay tax under section
9(1)(b) does not accrue on purchasing the goods simpliciter, but only when
these are despatched or consigned out of the State of Haryana. The section itself does not
provide for imposition of the purchase tax on the transaction of purchase of
the taxable goods but when further the said taxable goods are used up and
turned into independent taxable goods, losing its original identity, and
thereafter when the manufactured goods are despatched outside the State' of Haryana
and only then tax is levied and liability to pay tax is created. It is the
cumulative effect of that event which occasions or causes the tax to be imposed.
[539F-H; 540A-B]
1.1 A
taxable event is that which is closely related to imposition. In the instant
section viz. section 9(1)(b) there is such close relationship only with despatch.
The goods purchased are used in manufacture of new independent commodity and
thereafter the said manufactured goods are despatched outside the State of Haryana. In this series of transactions the
original transaction is completely eclipsed or cease to exist when the levy is
imposed at the third stage of despatch of manufacture. The levy has no direct
connection with the transaction of purchase of raw-materials, it has only a
remote connection of lineage. The mere consignment of goods by a manufacturer
to his own branches outside the State does not in any way amount to a sale or
disposal of the goods as such. The consignment or despatch of goods is neither
a sale nor a purchase. The tax imposed under Section 9(1)(b) is a tax on despatch.
The tax on despatch of goods outside the territory of the State certainly is in
the course of inter-State trade or commerce and amounts to imposition of
consignment tax, and hence the latter part of section 9(1)(b) is ultra vires
and void.
[540G-H;
542H; 543A; 544E; 545A] Tata Iron & Steel Co. v. State of Bihar, [1958] SCR
1355, referred to.
Good
Year India Ltd. v. State of Haryana, 53 STC 163 and Bata India Ltd. v. State of
Haryana & Anr., 54 STC 226, approved.
516
Des Raj Pushap Kumar Gulati v. The State of Punjab, 58 STC 393, overruled.
Yusuf Shabeer
& Ors. v. State of Kerala & Ors., 32 STC 359; Coffee Board v.
Commissioner of Commercial Taxes & Ors., 60 STC 142 and Coffee Board,
Karnataka v. Commissioner of Commercial Taxes, Karnataka, 70 STC 162,
distinguished.
State
of Tamil Nadu v. M.K. Kandaswami, 36 STC
191;
Ganesh
Prasad Dixit v. Commissioner of Sales Tax, M.P., [1969] 24 STC 343 and Malabar
Fruit & Company v. Sales Tax Officer, Pallai, 30 STC 537, distinguished.
1.2
The effect of the Constitution (Forty-sixth Amendment) Act, 1982 is that the
field of taxation on the consignment/despatch of goods in the course of
inter-State trade or commerce expressly comes within the purview of the
legislative competence of the Parliament. [543H]
2. If
section 9(1)(b) is ultra vires, the penalty proceedings would automatically go
as they are in substance, based on the violation of section 9(1)(b) of the Act
and the consequent proceedings flowing therefrom. [545B]
3.
Section 24(3) of the Haryana General Sales Tax Act, 1973 without making any
change in the substantive provision purports to give a direction to ignore the
judgments in Goodyear and Bata India Ltd. cases. This provision is void.
[546B]
Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, [1969] 2 SCC 283 and Dy. Commissioner of Sales Tax (Law)
Board of Revenue (Taxes) v. M/s Thomas Stephen & Co. Ltd. Quilon, [1988] 2
SCC 264, followed.
4. In
respect of inter-State despatch of wheat and other food grains by Food
Corporation of India to its own branches, tax is
attracted at the time of despatch under Section 9(1)(c) of the Haryana Act.
Section 9 is the charging section for taxation in case where the goods are
purchased for export. There is no other provision for levy of purchase or sales
tax in such cases of export. [547B]
4.1 No
tax is payable under the Haryana Act when exports outside the State take place
either in the course of inter State sale or export out of the territory of
India. But the tax is payable for sale in the course 517 of inter-State trade
and commerce i.e. under the Central Sales Tax Act. It is only when the goods
are despatched/consigned to the depots of the FCI in other States that tax is
levied under section 9 of the Haryana Act. This is in addition to the sales tax
paid by the FCI on the sale of grains in the recipient States. In view of
sections 14 & 15 of the Central Sales Tax Act, it becomes clear that wheat
is one of the commodities specified as 'declared goods' and in respect of which
the intention is clear that the tax is payable only once on the declared goods.
In the case of inter-State sale if any tax has been paid earlier on declared
goods inside the State the same is to be refunded to the dealer who is paying
tax on such inter-State Sales. On these transactions no tax is liable in the
recipient State, while in case of inter-State despatches, the tax is leviable
twice. Section 9(1)(c), which insofar as it purports to tax, exports, is beyond
the legislative competence of the State of Haryana. [547E-G]
5. The
incidence of the levy of additional tax of two paise in the rupee under Section
13-AA of the Bombay Sales Tax Act, 1959 is not on the purchase of goods, but
such a levy is attracted only when--(a) the goods which so purchased on payment
of purchase tax are used in the manufacture of taxable goods; and (b) the goods
so manufactured are despatched to his own place of business or to his agent's
place of business outside the State. Therefore, the incidence of tax is
attracted not merely on the purchase but only when the goods so purchased are
used in the manufacture of taxable goods and are despatched outside the State.
The incidence of additional tax has no nexus with the purchase of the
raw-materials. [553A-B; D]
5.1
Purchase tax under section 3 of the Act is attracted when the taxable event
i.e. the purchase of goods occurs but the taxable event for the imposition of
additional tax of two paise in the rupee occurs only when the goods so
purchased are used in the manufacture of taxable goods and such taxable goods
are despatched outside the State by a dealer manufacturer. The goods which are despatched
are different products from the goods on the purchase of which purchase tax was
paid. It is therefore not possible to accept the argument that the chargeable
event was lying dormant and is activated only on the occurrence of the event of
despatch. [553E; 556F; 557C]
5.2
The charging event is the event the occurrence of which immediately attracts
the charge. Taxable event cannot be postponed to the occurrence of the
subsequent condition.
In
that event, it would be the subsequent condition the occurrence of which would
attract the Charge which will be taxable event. Therefore the charge under 518
section 13-AA is a duty on despatch. Accordingly this charge can not be
sustained.[557D] The Bill to amend s. 20 of the Sea Customs Act, 1878 and S. 3
of the Central Excises & Salt Act, [1944], (1964) 3 SCR 787; M/s Guruswamy
& Co. v. State of Mysore, [1967] 1 SCR 548; Mukunda Murari Chakravarti
& Ors. v. Pabitramoy Ghosh & Ors., AIR 1945 FC 1; Kedar Nath Jute Mfg.
Co. Ltd. v. C.I.T., 82 ITR SC 363; State of M.P. v. Shyam Charan Shukla, 29 STC
SC 215; R.C. Jail v. Union of India, [1962] Suppl. 3 SCR 436; Union of India v.
Bombay Tyre International Ltd., [1984] 1 SCR 347 and State of Karnataka v. Shri
Ranganatha Reddy, [1978] 1 SCR 641, referred to.
Wipro
Products v. State of Maharashtra, [1989] 72 STC 69 Bom., Reversed.
5.3
Imposition of a duty or tax in every case would not tantamount per se to any
infringement of Article 301 of the Constitution. Only such restrictions or
impediments which directly or immediately impede free flow of trade, commerce
and intercourse fail within the prohibition imposed by Article 301. A tax in
certain cases may directly and immediately restrict or hamper the flow of
trade. but every imposition of tax does not do so. Every case must be judged on
its own facts and its own setting of time and circumstances.
Unless
the court first comes to the finding on the available material whether or not
there is an infringement of the guarantee under Article 301 the further
question as to whether the Statute is saved under Article 304(b) does not
arise. [558B-C]
5.4 In
the instant case. the goods taxed do not leave the State in the shape of raw
material, which change their form in the State itself and there is no question
of any direct, immediate or substantial hindrance to a free flow of trade.
Therefore Section 13-AA of the Bombay Sales Tax Act 1959 is not violative of
Article 301. [558D-E] Atiabari Tea Co. Ltd. v. The State of Assam & Ors.,
[1961] 1 SCR 809; The Automobile Transport (Rajasthan) Ltd. v. The State of
Rajasthan, [1963] 1 SCR 491; Andhra Sugars Ltd. v. State of Andhra Pradesh,
[1968] 1 SCR 705; State of Madras v. N.K. Nataraja Mudaliar, [1968] 3 SCR 829
and State of Kerala v. A.B. Abdul Khadir & Ors., [1970] 1 SCR 700, referred
to.
Kalyani
Stores v. The State of Orissa & Ors., [1966] 1 S.C.R. 865, relied on.
519
6. The
provisions of constitutional changes have to be construed not in a narrow
isolationism but on a much wider spectrum and the principles laid down in Heydon's
case are instructive. [529H; 530A] Black Clawson International Ltd. v. Papierwerke
Waldhof-Aschaffenburg, [1975] 1 All E.R. 810, referred.
Heydon's
case, (1584) 3 Co. Rep. 7a, relied on.
7. In
construing the expressions of the Constitution to judge whether the provisions
of a statute are within the competence of the State Legislature, one must bear
in mind that the Constitution is to be construed not in a narrow or pedantic
sense. The Constitution is not to be construed as mere law but as the machinery
by which laws are to be made. [533F] James v. Commonwealth of Australia, [1936] A.C. 578; The Attorney
General for the State of New
South Wales v. The
Brewery Employees Union etc., [1908] 6 C.L.R. 469; Re. Central Provinces & Berar
Sales of Motor Spirit and Lubricants Taxation Act 1938, A.I.R. 1939 F.C.I. and
The Province of Madras v. M/s Boddu Paidanna & Sons, A.I.R. 1942 F.C. 33,
referred to.
8. The
nomenclature of the Act is not conclusive and for determining the true
character and nature of a particular tax, with reference to the legislative
competence of a particular Legislature, the Court will look into its pith and
substance. [543H; 544A] Governor General in Council v. Province of Madras, [1945] 72 I.A. 91 and Ralla Ram v. The Province of East Punjab, A.I.R. 1949 F.C. 81, referred to.
9. The
doctrine of pith and substance means that if an enactment substantially falls
within the power expressly conferred by the Constitution upon the Legislature
which enacted it, it cannot be held to be invalid merely because it
incidentally encroaches upon matters assigned to another legislature. [555H;
556A] Kerala State Electricity Board v. Indian Aluminium Co., [1976] 1 S.C.R.
552 and Prafulla Kumar Mukherjee & Ors. v. Bank of Commerce, A.I.R. 1947 PC
60, referred to.
9.1 The
true test to find out what is pith and substance of the 520 legislation is to
ascertain the true intent of the Act which will determine the validity of the
Act. [577B]
10.
There are three stages in the imposition of tax.
There
is the declaration of liability, that is the part of the Statute which
determines what persons in respect of what property are liable. Next, there is
the assessmentLiability does not depend on assessment, that exhypothesi has
already been fixed. But assessment particularises the exact sum which a person
is liable to pay. Lastly comes the method of recovery if the person taxed does
not voluntarily pay.
[539B-C]
Whitney v. Commissioner of Inland Revenue, [1926] A.C. 37 and Chatturam &
Ors. v. C.I.T., Bihar, 15 I.T.R. F.C. 302, referred to.
11.
While determining nature of a tax, though the standard or the measure on which
the tax is levied may be a relevant consideration, it is not the conclusive
consideration. [556C] Governor General in Council v. Province of Madras, [1945]
72 I.A. 91; R.R. Engineering Co. v. Zila Parishad Bareilly & Anr., [1980] 3
S.C.R. 1; In Re A reference under the Government of Ireland Act, 1920, [1936]
A.C. 352 and Navnitlal C. Javeri v. K.K. Sen, Appellate Asstt. Commissioner of
Income Tax 'D' Range Bombay, [1965] 1 S.C.R. 909, referred to.
12.
The liability to tax would be determined with reference to the interpretation
of the Statute which creates it. It cannot be determined by referring to
another Statute. [555G]
13. In
fiscal legislations normally a charge is created. The. mischief of taxation
occurs on the happening of the taxable event. Different taxes have different
taxable events. A taxing event is that event the occurrence of which
immediately attracts the levy or the charge of tax. What is the taxable event
or what necessitates taxation in an appropriate Statute must be found by
construing the provisions.
The
main test for determining the taxable event is that on the happening of which
the charge is affixed. [552H; 553A: 552G: 533E; 539B]
14.
Fiscal laws must be strictly construed. n is not permissible to make
assumptions and presumptions in a fiscal provision. [536H; 538G] C.S.T., U.P.
v. The Modi Sugar Mills Ltd., [1961] 2 S.C.R. 189 and Baidyanath Ayurved Bhawan
(P) Ltd., Jhansi, v. Excise Commis521 sioner, U.P. & Ors., [1971] 2 S.C.R.
590, referred to.
15.
While interpreting a Statute a reasonable construction should be followed and
literal construction may be avoided if that defeats the manifest object and
purpose of the Act. [555F] Commissioner of Wealth-tax, Bihar & Orissa v. Kripashankar
Dayashankar Worah, 81 I.T.R. 763 and Income Tax Commissioners for City of London v. Gibbs, 10 I.T.R. (Suppl.) 121
H.L., referred to.
16.
The Entries in the Constitution only demarcate and legislative fields of the
respective legislatures and do not confer legislative powers as such. [544H;
545A]
17. A
precedent is an authority only for what it actually decides and not for what
may remotely or even logically follows from it. [537E] Quinn v. Leathem, [1901]
A.C. 495 and The State of Orissa v. Sudhansu Sekhar Misra & Ors., [1968] 2
S.C.R. 154, followed.
17.1 A
decision on a question which has not been argued cannot be treated as a
precedent. [542B] Rajput Ruda Maha & Ors. v. State of Gujarat, [1980] 2 S.C.R. 353, followed.
(Per Ranganathan,
J.) (Concurring)
1.
Section 9 of the Haryana General Sales Tax Act, 1973 as well as section 13-AA
of the Bombay Sales Tax Act, 1959 purport only to levy a purchase tax. The tax,
however, becomes exigible not on the occasion or event of purchase but only
later. It materialises only if the purchaser (a) utilises the goods purchased
in the manufacture of taxable goods, and (b) despatches the goods so
manufactured (otherwise then by way of sale) to a place of business situated outside
the State. The legislation, however, is careful to impose the tax only on the
price at which the raw materials are purchased and not on the value of the
manufactured goods consigned outside the State. [559G-H; 560A]
2. It
is one thing to levy a purchase tax where the character and class of goods in
respect of which the tax is levied is described in a particular manner and a
case like the present where the tax, though described as purchase tax, actually
becomes effective with reference to 522 a totally different class of goods and,
that too, only on the happening of an event which is unrelated to the act of
purchase. [560D-E]
2.1
The "taxable event", if one might use the expression often used in
this context, is the consignment of the manufactured goods and not the
purchase. [560E]
2.2
The background of the Constitutional (Forty-sixth Amendment) indicates that
there were efforts at sales tax avoidance by sending goods manufactured in a
State out of raw materials purchased inside to other States by way of
consignments rather than by way of sales attracting tax.
This
situation lends force to the view that the State, unable to tax the exodus
directly, attempted to do so indirectly by linking the levy ostensibly to the
"purchases" in the State. [560G-H] Andhra Sugar Ltd. & Anr. v.
State, [1968] 1 SCR 705, referred to.
State
of Tamil Nadu v. Kandaswami, [1975] 36 S.T.C.
191, distinguished.
CIVIL
APPELLATE JURISDICTION: Civil Appeals Nos. 1166-72 of 1985 etc. etc.
From
the Judgment and Order dated 24.1.85 of the Punjab & Haryana High Court in
C.W.P. Nos. 698 to 703 and 733 of 1984.
Raja
Ram Aggarwal, B. Sen, Dr. Devi Paul, D.S. Tawatia, Soli J. Sorabjee, Kapil Sibal
and S.K. Dholakia, A.N. Hakasar, D.N. Misra, Mukul Mudgal, Ravinder Narain,
P.K. Ram, S.
Sukumaran,
S. Ganesh, Mahabir Singh, H.S. Anand. R. Karaniawala, Mrs. Manik Karanjawala,
A.S. Bhasme and A.M. Khanwilkar for the Appearing Parties.
The
following Judgments of the Court were delivered:
SABYASACHI
MUKHARJI, J. Except civil appeals Nos. 416263 of 1988, in these appeals along
with the special leave petitions and the writ petition, we are concerned with
Sections 9(1) and 24(3) as well as the penalty proceedings initiated under
Section 50 of the Haryana General Sales Tax Act, 1974 (hereinafter referred to
as 'the Act'). So far as civil appeals Nos. 4 162-63 of 1988 are concerned,
these involve the scope, effect and validity of Section 13AA of the Bombay
Sales 523 Tax Act. 1959 (hereinafter referred to as 'the Bombay Act') as
introduced by the Maharashtra Act No. XXVIII of 1982. It will, therefore, be
desirable first to deal with the question of the Act, and then with the
provisions of the Bombay Act as mentioned hereinbefore.
The
appellant/petitioner--Goodyear India Ltd., was engaged at all relevant times,
inter alia, in the manufacture and sale of automobile tyres and tubes. It
manufactured the said tyres and tubes at its factory at Ballabhgarh in the
district of Faridabad in the State of Haryana. For the said manufacturing activity the appellant had, from time to
time, to purchase various kinds of raw-materials both within the State and
outside the State. It is stated that about 7 to 10% of the total needs of
raw-materials on an all India basis were locally procured by the
appellant from Haryana itself. The raw-materials purchased in Haryana were:
(i)
pigments (partly),
(ii) chemicals
(partly),
(iii) wires
(partly),
(iv)
carbon black (partly),
(v) rubber
(partly), and
(vi) fabric
(partly).
The
rest of the requirements were imported from other States. The appellant had its
depots at different places in the State of Haryana as well as in other States. After manufacturing the said tyres and
tubes, about 10 to 12% of the total manufactured products used to be sold in
the State of Haryana either locally or in the course of inter-State trade &
commerce or in the course of export outside the country and also sold locally
against Declaration Form No. ST-15. It was stated that at the relevant time the
local sales including sales in the course of inter-State trade & commerce
and in the course of export from the State of Haryana was about 30 to 35%. The appellant was a registered dealer
both under the Haryana Act and the Central Sales Tax Act, and had been
submitting its quarterly returns and paying the sales-tax in accordance with
law, according to the appellant. In 1979, the assessing authority, Faridabad, imposed upon the appellant the
purchase tax under Section 9 of the Act for the assessment year 1973-74 and
subsequently for the years 1974-75 and 1975-76 as well on the despatches made
by the appellant on the manufactured goods to its various depots outside the
State. Subsequently, the relevant revenue authorities sought to impose purchase
tax under Section 9(1) of the Act and imposed purchase tax on despatches of
manufactured goods, namely, tyres and tubes, to its various depots in other
States. This led to the filing of various writ petitions in the Punjab & Haryana
High Court by the appellant/petitioner.
In
respect of the assessment years 1976-77 to 1979-80.
these
questions were considered by the Punjab and Haryana High Court, and the writ. petitions were decided in favour
of the appellant on December 524 4, 1982. The said decision being the decision
in Goodyear India Ltd. v. The State of Haryana & Anr. is reported in 53 STC 163. The Division Bench of the High
Court in the said decision held that both on principle and precedent, a mere despatch
of goods out of the State by a dealer to his own branch while retaining both
title and possession thereof, does not come within the ambit of the phrase
"disposes of the manufactured goods in any manner otherwise than by way of
sale", as employed in section 9(1)(a)(ii) of the Act. The High Court
further held that the decision of this Court in The State of Tamil Nadu v. M.K.
Kandaswami, [1975] 36 STC 191 was no warrant for the proposition that a mere despatch
of goods was within the ambit of disposing them of. The High Court also
distinguished the decision of this Court in Ganesh Prasad Dixit v. Commissioner
of Sales Tax, M.P., [1969] 24 STC 343, and held that Notification No. S.O.
119/H.A. 20/73/Ss. 9 & 15/74 dated July 19, 1974 issued under Section 9 (prior to
its amendment by Act No. 11 of 1979) was ultra vires of Section 9 of the Act.
It was held that whereas the section provided only for the levy of purchase tax
on the disposal of manufactured goods, the impugned notification by making a
mere despatch of goods to the dealers themselves taxable, in essence,
legislates and imposes a substantive tax which it obviously could not. It was
held that this was contrary to and in conflict with the provisions of section
9. The High Court referred to the relevant portion of unamended Section 9 of
the Act with which it was confronted and the notification. In order to appreciate
the said decision and the position, it will be appropriate to set out the said
provisions, namely, the unamended provisions of Section 9 as well as the
notification:
"9.
Where a dealer liable to pay tax under this Act purchases goods other than those
specified in Schedule B from any source in the State and-(a) uses them in the
State in the manufacture of,-(i) goods specified in Schedule B or (ii) any
other goods and disposes of the manufactured goods in any manner otherwise than
by way of sale whether within the state or in the course of inter--State trade
or commerce or within the meaning of sub-section (1) of Section 5 of the
Central Sales Tax Act, 1956, in the course of export out of the territory of
India, 525 (b) exports them, in the circumstances in which no tax is payable
under any other provision of this Act, there shall be levied, subject to the
provisions of section 17, a tax on the purchase of such goods at such rate as
may be notified under section 15." The relevant notification was as follows:
"Notification
No. S.O. 119/H. A. 20/73/Ss. 9 and 15/74 dated the 19th July, 1974.
In
exercise of the powers conferred by section 9 and subsection (1) of section 15
of the Haryana General Sales Tax Act, 1973, the Governor of Haryana hereby
directs that the rate of tax payable by all dealers in respect of the purchases
of goods other than goods specified in Schedules C and D or goods liable to tax
at the first stage notified as such under section 18 of the said Act, if used
by them for purposes other than those for which such goods were sold to them
shall be the rate of tax leviable on the sale of such goods:
Provided
that where any such dealer, instead of using such goods for the purpose for
which they were sold to him, despatches such goods or goods manufactured therefrom
at any time for consumption or sale outside the State of Haryana to his branch
or commission agent or any other person on his behalf in any other State and
such branch, commission agent or other person is a registered dealer in that
State and produces a certificate from the assessing authority of that State or
produces his own affidavit and the affidavit of the consignee of such goods
duly attested by a Magistrate or Oath Commissioner or Notary Public in the form
appended to this notification to the effect that the goods in question have
been so despatched and received and entered in the account books of the
consignee, the rate of tax on such goods shall be three paise in a rupee on the
purchase value of the goods so despatched." The High Court, as stated
before, referred to section 9 and held that the expression 'disposes of' was
not basically a term of legal art and, therefore, it was proper and necessary
to first turn to its ordinary 526 meaning in order to determine whether a mere despatch
of goods by a dealer to himself would connote 'disposal of' such goods by him.
The High Court referred to the dictionary meaning of 'disposes of' in Webster's
Third New International Dictionary. Reference was also made to 27 Corpus Juris Secundum,
P. 345, and ultimately it came to the conclusion that the phrase 'disposes of'
or 'disposal' cannot be possibly equated with the mere despatch of goods by a
dealer to himself. After referring to the relevant provisions with which this
Court was concerned in Kandaswami's case (supra), the High Court held that that
case was no warrant for construing the expression 'despatch' as synonymous to
'disposal'. On the other hand, the court held that the decision of this Court emphasises
that the expression 'disposal' of goods is separate and distinct from despatch
thereof. According to the High Court, the same position was applicable to Ganesh
Prasad Dixit's case (supra), and in those circumstances held that the term
'disposes of' cannot be synonymous with 'disposal', and once that is held then
the notification mentioned above travelled far beyond what is provided in
Section 9 of the Act, while the said provision provided only for levy of
purchase tax on disposal of manufactured goods.
The
High Court observed as follows:
"Once
it is held as above, the impugned Notification No. S.O. 119/H.A. 20/73/Ss. 9
and 15/74 dated 19th
July, 1974 (annexure
P-2), plainly travels far beyond the parent section 9 of the Act. Whereas the
said provision provided only for the levy of a purchase tax on the disposal of
manufactured goods, the notification by making a mere despatch of goods to the
dealers themselves taxable in essence, legislates and imposes a substantive tax
which it obviously cannot.
Indeed,
its terms run contrary to and are in direct conflict with the provisions of
section 9 itself. There is thus no option but to hold that the notification,
which is a composite one, is ultra vires of section 9 of the Act and is hereby
struck down." The High Court also noted that though the challenged
assessment orders were appealable, however, as the challenge was to the very
validity of the notification which was obviously beyond the scope of the
appellate authority, the writ petitions were entertainable as the assessment
was based on the notification which was frontally challenged. As a result, the
High Court quashed the notification and set aside the assessment orders. The
said decision is under challenge in appeal to this Court.
527 It
may be mentioned that sub-section (1) of section 9 of the Act had been
introduced by the Haryana Act, 55 of 1976 in the Act. After the aforesaid
decision of the High Court, the Haryana Legislature intervened and enacted the Haryana
General Sales Tax (Amendment & Validation) Act, 1983 by which Section 9 of
the principal Act was amended as follows:
"Amendment
of Section 9 of Haryana Act 20 of 1973--in Section 9 of the principal Act,-(a)
in sub-section (1) ,-(i) for clause (b), the following clause shall be
substituted and shall be deemed to have been substituted for the period
commencing from the 27th day of May, 1971, and ending with the 8th day of
April, 1979, namely:
"(b)
purchases goods, other than those specified in Schedule B, from any source in
the State and uses them in the State in the manufacture of any other goods and
either disposes of the manufactured goods to a place outside the State in any
manner otherwise than by way of sale in the course of inter-State trade or
commerce or in the course of export outside the territory of India within the meaning
of Sub-section (1) of Section 5 of the Central Sales Tax Act, 1956; or",
(ii) after clause (b), the following clause shall be deemed to have been
inserted with effect from the 9th day of April, 1979, namely:
"(bb)
purchases goods, other than those specified in Schedule B except milk, from any
source in the State and uses them in the State in the manufacture of any other
goods and either disposes of the manufactured goods in any manner otherwise
than by way of sale in the State or despatches the manufactured goods to a
place outside the State in any manner otherwise than by way of Sale in the
course of inter-State trade or commerce or in the course of export outside the
territory of India within the meaning of Sub-Section (1) of Section 5 of the
Central Sales Tax Act, 1956; or"; 528 {iii) the following proviso shall be
added, namely:
"Provided
that no tax shall be leviable under this section on scientific goods and guar
gum, manufactured in the state and sold by him in the course of export outside
the territory of India within the meaning of Sub-section (3) of Section .... of
the Central Sales Tax Act, 1956."; and (b) in sub-section (3), the words
"other than Railway premises" shah be omitted." After the
aforesaid amendment the writ petitions were filed in the High Court by Bata
India Ltd. In the meantime, the petitioner Company also filed writ petitions
for the assessment years 1973-74 to 1975-76 and 1980-81 in the High Court
challenging the assessment. The High Court decided these matters on August 2, 1983. The said decision Bata India Ltd.
v. The State of Haryana & Anr. has been reported in
1983 Vol. 54 STC 226. The High Court held that "mere despatch of goods to
a place outside the State in any manner otherwise than by way of sale in the
course of inter-State trade or commerce" is synonymous with or is in any
case included within the ambit of the consignment of goods either to the person
making it or to any other person in the course of inter-State trade or commerce
as specified in Article 269(1)(h) and Entry No. 92-B of List 1 of the 7th
Schedule to the Constitution. Hence, the levy of sales or purchase tax on such
a despatch or consignment of goods and matters ancillary or subsidiary thereto,
will be within the exclusive legislative competence of Parliament to the total
exclusion of the State Legislature. Therefore, section 9(1)(b) of the Haryana
General Sales Tax Act, 1973, as amended by the Haryana General Sales Tax
(Amendment & Validation) Act, 1983, insofar as it levies a purchase tax on
the consignment of goods outside the State in the course of inter-State trade
or commerce is beyond the legislative competence of the State of Haryana and is
void and inoperative. It was held that the retrospective validation of the
notification of 19th
July, 1974 referred to
hereinbefore, and the consequential validation of all actions taken there under
were liable to be quashed. The High Court further held that mere manufacture
and consignment of goods outside the State to himself by a manufacturer is not
sale or disposal thereof with the result that it will not be within the ambit
of Entry No. 54 of List II of the 7th Schedule to the Constitution.
Consequently, it was held that irrespective of the 46th Amendment, an attempt
to tax the mere consignment or despatch of manufactured goods outside the State
in the course of inter-State trade 529 or commerce will not come within the
ambit of Entry No. 54 of List II of the 7th Schedule, and consequently of the
competence of the respective State Legislatures. Even before the 46th
Amendment, the mere consignment of goods in the course of inter-State trade or
commerce was beyond the scope of the said Entry and thus not within the
legislative competence of the States and was entirely within the parliamentary
field of. legislation by .virtue of Article 248 and the residuary Entry No. 97
of List I.
The
High Court was of the view that neither the original purchase of goods nor the
manufacture thereof into the endproduct by itself attracts purchase tax and
consequently are not even remotely the taxable events. What directly and
pristinely attracts the tax and can be truly labelled as the taxing event under
section 9(1)(b) of the Act is the threefold exigency of; (i) disposal of the
manufactured goods in any manner otherwise than by way of sale in the State; or
(ii) despatch of the manufactured goods to a place outside the State in any
manner otherwise than by way of sale in the course of inter--State trade or
commerce, or (iii) disposal or despatch of the manufactured goods in the course
of export outside the territory of India. It was these three exigencies only
which were the taxable events in the amended section 9(1)(b) of the Act.
Consequently, in a Statute where the taxable event is the despatch or
consignment of goods outside the State, the same would come squarely within the
wide sweep of Entry No. 92B of List I of the Constitution, and thus excludes
taxation by the States.
The
High Court was of the view that section 9 of the Act must be strictly construed
as it was a charging section. If the charging section travels beyond the
legislative Entry and thereby transgresses the legislative field, then the same
cannot possibly be sustained. The constitutional changes brought by the 46th
Amendment in Art. 269 of the Constitution read with the insertion of Entry No.
92B in the Union List, leave no doubt that the legislative arena of tax on the
consignment of goods (whether to one's ownself or to any other person) in the
course of inter-State trade or commerce and all ancillary or complementary or
consequential matters, are now declared to be exclusively reserved for
parliamentary legislation and any intrusion into this field by the State
Legislatures would be barred.
In my
opinion, the High Court correctly noted in the said decision that the
provisions of constitutional change have to be construed, and such problems
should not be viewed in narrow isolationism but on a much wider. spectrum and
the principles laid down in Heydon's case 530 1584 3 Co. Rep 7a are instructive. Hence, in a situation of
this nature, it was just and proper to see what was the position before the
46th Amendment of the Constitution, and find out what was the mischief that was
sought to be remedied and then discover the true rationale for such a remedy.
In
Black-Clawson International Ltd. v. Papierwerke WaldhofAschaffenburg Ag.,
[1975] 1 All ER 810, Lord Reid observed as follows:
"One
must first read the words in the context of the Act as a whole, but one is
entitled to go beyond that. The general rule in construing any document is that
one should put oneself 'in the shoes' of the maker or makers and take into
account relevant facts known to them when the document was made. The same must
apply to Acts of Parliament subject to one qualification. An Act is addressed to
all the lieges and it would seem wrong to take into account anything that was
not public knowledge at the time. That may be common knowledge at the time or
it may be some published information which Parliament can be presumed to have
had in mind.
It has
always been said to be important to consider the mischief which the Act was
apparently intended to remedy. The word 'mischief' is traditional. I would
expand it in this way. In addition to reading the Act you look at the facts
presumed to be known to Parliament when the Bill which became the Act in
question was before it, and you consider whether there is disclosed some
unsatisfactory state of affairs which Parliament can properly be supposed to
have intended to remedy by the Act ...." The state of affairs that the
Parliament has sought to remedy by the 46th Amendment of the Constitution, was
that prior to the promulgation each State attempted to subject the same
transaction to tax on the nexus doctrine under its sales tax laws.
Consequently, on the basis of one or the other element of the territorial
nexus, the same transaction had to suffer tax in different States with the
inevitable hardship to trade and consumers in the same or different States. The
framers of the Constitution being fully aware of the problems sought to check
the same by a somewhat complex constitutional scheme and by imposing
restrictions on the States' power with regard to levy tax on the sale or
purchase of goods under Art. 286. The High Court in the judgment referred to
hereinbefore, mentioned these factors. It is in 531 this background that Art.
269 was amended and clause (3) was added to it. The effect, inter alia, is that
the power to levy tax on the sale or purchase of goods is now referable to the
legislative power vested in the States by virtue of Entry No. 54 in List II of
the 7th Schedule. However, this legislative authority of the States is
restricted by three limitations contained in Articles 286(1)(a), 286(1)(b)
& 286(3) of the Constitution. It may be mentioned that Parliament by the
6th Amendment to the Constitution, enacted the Central Sales Tax Act, 1956,
with the object to formulate principles for determining when a sale or purchase
of goods takes place in the course of inter-State trade or commerce or outside
a State or in the course of import into or export from India, to provide for
the levy, collection and distribution of taxes on sales of goods in the course
of interState trade or commerce and to declare certain goods to be of special
importance and specify the restrictions and conditions to which State laws
imposing taxes on the sale or purchase of such goods shall be subject. In this
connection, the High Court referred to the various propositions as mentioned by
the Law Commission in its 61st Report rendered in May, 1974. It is not
necessary to set out the same in detail. It was in the aforesaid historical
background that the High Court construed the provisions in question and came to
the conclusion that a plain reading of these would leave little manner of doubt
that the legislative power to tax consignment transfers of goods from one
branch of an institution to another branch thereof outside the State and all
matters incidental, ancillary or complementary thereto were then declared to be
vested in the Union of India to the total exclusion of the States. The High
Court referred to the observations of this Court in Khyerbari Tea Co. Ltd. v.
State of Assam, AIR 1964 SC 925; Navinchandra Mafatlal
v. The Commissioner of Income-tax, Bombay City, [1955] SCR 829 and Waverly Jute
Mills Co. Ltd. v. Raymon & Co. (1) Pvt. Ltd., [1963] 3 SCR 209, and
concluded that Entry 92B enabled the Union of India not only to tax the
consignment of goods in the strict sense but also embraced all ancillary and
complementary areas as well to the exclusion of the State Legislature there from.
In the aforesaid light the High Court construed section 9(1)(b) of the Haryana
Act, 1983. Analysing the provisions in detail it observed that Section 9 of the
Act was a charging section for the levy of purchase tax.
It
imposed liability for payment of purchase tax, therefore, it should be
distinguished from the machinery section. The High Court examined the real
nature of the business outside the State and found that there was merely a
change in the physical situs of the goods without any change in the basic
incidents of ownership and control. Therefore, in its true nature a mere despatch
of goods outside the State to another branch of the original institution is not
and never 532 can be the equivalent of a sale either as a term of art in the
existing sales tax legislation and not remotely so in common parlance, and
construing section 9(1)(b) of the Act, the High Court was of the view that the
real taxing event is the despatch of the manufactured goods to a place outside
the, State in any manner otherwise than by way of sale in the course of
inter-State trade or commerce.
The
High Court found that there was no distinction between the despatch as defined
in the said amended section and the consignment of goods by the manufacturer to
himself or any other person in the course of inter-State trade or commerce, and
referred to the meanings of the expressions 'despatch' and 'consign', which are
similar and almost interchangeable when used in specific commercial sense. The
High Court referred to Webster's New International Dictionary, Shorter Oxford
English Dictionary and also to Random House dictionary for their meanings. On
construction, the High Court came to the conclusion that the amended provisions
of section 9(1)(b) of the Act attempt to levy an identical tax in the garb of a
levy on the despatch of manufactured goods to places outside the State of Haryana,
and therefore intruded and trespassed into an arena exclusively meant for
taxation by the Union of India. The High Court also viewed from another point
of view, namely, who was liable as it was the consignment of goods which
attracted the liability of purchase tax and in pristine essence was the
"taxable event" under section 9(1)(b) of the Act. The High Court also
analysed it from the point of view that under section 9(1)(b), where a dealer
purchases goods for the express purpose of manufacturing other goods within the
State, then in strict sense such purchase by itself did not attract any tax
under the provisions. Hence, the High Court set aside the amended provision so
far as it sought to levy purchase tax on the consignment of goods outside the
State in the course of inter-State trade or commerce, consequently it also set
aside the retrospective validation of the notification and the consequential
validation of all actions taken thereunder. Special leave petitions were filed
in this Court against the said decision of the High Court. These are special
leave petitions Nos. 8397 to 8402 of 1983. During the pendency of the special
leave petitions, show cause notices were issued by the assessing authority in
respect of the assessment years 1973-74 to 1980-81 (except for 1978-79 &
1979-80) and also for 1982-83 asking the petitioner to show cause why in
addition to purchase-tax, it should not be liable to penalty as well. The
petitioner-Company again filed writ petitions in Punjab & Haryana High
Court challenging the validity of those notices. It appears that in the
meantime, a Full Bench of the High Court decided the question again in the case
of Des Raj Pushap 533 Kumar Gulati v. The State of Punjab & Anr.. This decision was
rendered on January 24,
1985, and is reported
in 58 STC 393. The assessment years involved in all appeals are 197374 to
1982-83. According to the Full Bench, the taxing event is the act of purchase
and not the Act of despatch or consignment as held in Bata India Ltd., (supra).
In the premises, it was held that section 9(1)(b) as amended, was neither
invalid nor ultra vires and overruled the decision of Bata India Ltd. The writ
petitions filed were also dismissed.
The
petitioner-Company filed special leave petitions against the aforesaid judgment
of the Punjab & Haryana High Court which were admitted in Civil Appeals
Nos. 1166-72/85.
Goodyear
India also filed writ petition No. 3834
of 1985 in respect of the assessment year 1981-82, as the notices for
assessment and penalty were received after the decision of Punjab & Haryana
High Court in Des Raj Pushap Kumar's case (supra). The said decision was passed
in appeal against the decision of the said court in Goodyear India reported in 53 STC 163, number
being 1514 (NT) of 1984. All these questions are the subjectmatters of these
appeals.
It is
well-settled that what is the taxable event or what necessitates taxation in an
appropriate Statute, must be found out by construing the provisions. The
essential task is to find out what is the taxable event. In what is considered
to be indirect tax, there is a marked distinction between the consequence of
manufacture and the consequence of sale.
It is
well to remember that in construing the expressions of the Constitution to
judge whether the provisions like Section 9(1)(b) of the Act, are within the
competence of the State Legislature, one must bear in mind that the
Constitution is to be construed not in a narrow or pedantic sense. Constitution
is not to be construed as mere law but as the machinery by which laws are to be
made. It was observed by Lord Wright in James v. Commonwealth of Australia,
[1936] AC 578 at 614, that the rules which apply to the interpretation of other
Statutes, however, apply equally to the interpretation of a constitutional
enactment. In this context, Lord Wright referred to the observations of the
Australian High Court in The Attorney-General for the State of New South Wales v. The Brewery Employees Union
etc., [1908] 6 CLR 469 where it was observed that the words of the Constitution
must be interpreted on the same principles as any ordinary law, and these
principles compel us to consider the nature and scope of the Act, and to
remember that the Constitution is a mechanism under which laws 534 are to be
made, and not a mere Act which declares what the law is to be. Hence, such
mechanism should be interpreted broadly, bearing in mind in appropriate cases,
that the Supreme Court like ours is a nice balance of jurisdictions.
A
Constitutional Court,
one must bear in mind, will not strengthen, but only derogate from its position
if it seeks to do anything but declare the law; but it may rightly reflect that
a Constitution is a living and organic thing, which of all instruments has the
greatest claim to be construed broadly and liberally. See the observations of Gwyer,
C.J. in Re: Central Provinces & Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938, AIR 1939 PC 1 at 4). Mr. Justice Sulaiman in his judgment
at p. 22 of the report observed that the power to tax the sale of goods is
quite distinct from any right to impose taxes on use or consumption. It cannot
be exercised at the earlier stage of production nor at the later stage of use
or consumption, but only at the stage of sale, (emphasis supplied). The essence
of a tax on goods manufactured or produced is that the right to levy it accrues
by virtue of their manufacture. On the other hand, a duty on the sale of goods
cannot be levied merely because goods have been manufactured or produced. Nor
can it be levied merely because the goods have been consumed or used or even
destroyed. The right to levy the duty would not at all come into existence
before the time of the sale. In this connection, reference may be made to the
observations of Chief Justice Gwyer in The Province of Madras v. M/s. Boddu Paidanna
& Sons, AIR 1942 FC 33.
Mr
Raja Ram Agarwala, learned counsel for the appellant/assessees, contended
before us that it is necessary to find out or identify the taxable event. If on
a true and proper construction of the amended provisions of section 9(1)(b) it
is the despatch or consignment of the goods that is the taxable event as
contended by the petitioners and appellants, then the power is beyond the
State's competence.
If, on
the other hand, it is the purchase of the goods that is the taxable event as
held by the Full Bench of the High Court, then it will be within its
competence. The Full Bench in Des Raj Pushap Kumar's case (supra) has relied on
the background of the facts and the circumstances which necessitated the
introduction of the amendment.
Mr. Tewatia,
learned counsel appearing for the State canvassed before us the historical perspective
and stated that Haryana State came into being as a result of the Punjab State Reorganisation
Act, 1966, therefore, part of the legislative history of the taxing Statute
like any other Statute is shared by the Haryana State with the Punjab State,
and as such it is proper to notice the concept of purchase tax as it 535
evolved in the State of Punjab. Purchase-tax was introduced in the State of Punjab for the first time by the East
Punjab General Sales Tax (Amendment) Act, 1958. Section 2(ff) was introduced
for the first time to define the expression 'purchase'. The definition of the
term 'dealer' was changed to include therein a purchaser of goods also. The
definition of the term 'taxable turnover' was also altered. Some dealers who
crushed oil-seeds, were called upon to pay purchase tax on the raw-material
purchased by them on the ground that the raw material had not been subjected to
a manufacturing process as the process of crushing oil-seeds did not involve a
process of manufacturing. He referred to the fact that Punjab had originally exempted purchase
tax on the purchase of raw-material by the dealers if such raw-material was to
be used for the manufacture of goods for sale in Punjab and thus generate more revenue to the State as a result of
the sales tax on such manufactured goods. But when the dealers started avoiding
this condition for sale in Punjab by
various ingenious devices after having escaped the payment of purchase tax on
the raw-material purchased by them, the Legislature amended the Act and Punjab
Act No. 18 of 1960 was brought on the statute-book w.e.f. April 1, 1960. Section 2(ff) of the Act was
amended and it provided that all the goods mentioned in Schedule C when
purchased shall be exigible to purchase tax and thus the concession given to
the manufacturers was withdrawn. Explaining this background, Mr. Tewatia
contended that section 9, sub-section (i) of the Act envisages payment of tax
at such rate as may be notified under Section 15 on the purchase of goods from
any source within the State by a dealer liable to pay tax under the Act when
such goods, not being Schedule 'B' goods, were consumed either in producing
Schedule 'B' goods or when the manufactured goods were other than Schedule 'B'
goods, the same not being sold within the State or in the course of inter-State
trade or commerce, or in the course of export outside the territory of India,
or the purchased goods were exported outside the State.
After
referring to the relevant provisions and the provisions of section 9(1)(b), Mr Tewatia
emphasised that the contingency contemplated by "or despatches the
manufactured goods to a place outside the State in any manner otherwise than by
way of sale in the course of inter-State trade or commerce or in the course of
export outside the territory of India within the meaning of section 5(1) of the
Central Sales Tax Act, 1956; or" as well as clause (c) of section 9(1)
which encompasses "purchases goods, other than those specified in Schedule
B, from any source in the State and exports them, in the circumstances in which
no tax is payable under any other provision of 536 this Act, there shall be
levied, subject to the provisions of Section 17, a tax on the purchase of such
goods at such rate as may be notified under Section 15.", have to be judged
for determining their validity in the true historical perspective as well as
bearing in mind the remedial aspect of the provisions for the purpose of which
these were enacted. Therefore, the main question is whether the tax envisaged
by section 9(1) is a tax on purchase/sale of given goods or is a tax on the despatch/
consignment of such goods and that depends on, as to whether the taxable event
is a purchase/sale of goods or despatch/consignment of such goods. As mentioned
hereinbefore, Mr. Tewatia laid great deal of emphasis on the background of the
provisions of section 9(1). He urged that the said section is both a taxing as
well as a remedial provision, as would be evident from the scheme of the Act.
The legislative policy was to see that all goods except non-taxable goods i.e.
Schedule 'B' goods, must yield tax/revenue to the State in the hands of a
dealer, at one stage or the other, according to Mr. Tewatia. He analysed the
scheme and referred us to section 6 along with section 27 of the Act, and then
submitted that the provision of section 9(1) along with subsection (3) of
section 24 of the Act are both composite provisions, i.e. they are both
charging provisions as also remedial provisions. According to him, such
composite provisions of a fiscal Statute deserve to be interpreted properly and
in such a manner as to further remedy and thus effectuate the legislative
intent and suppress the mischief intended to be curbed.
Reliance
was placed by the High Court as well as Mr. Tewatia before us on the
observations of this Court in The State of Tamil Nadu v. Kandaswami, (supra),
where at p. 198 of the Sales Tax Cases, this Court while dealing with section
7A of the Tamil Nadu (Amendment) Act, observed that it was at once a charging
as well as a remedial provision. Its main object was to plug leakage and
prevent evasion of tax.
In
interpreting such a provision, a construction which would defeat its purpose
and, in effect, obliterate it from the statute book, should be eschewed. If
more than one construction is possible, that which preserves its workability
and efficacy is to be preferred to the one which would render it otiose or
sterile, observed this Court in that case. While bearing the aforesaid
principle in mind, it has to be examined as to how far the application of this
provision can be construed with the well-settled principle of fiscal
legislation and the terms and conditions of the present legislation. It has
been said and said on numerous occasions that fiscal laws must be strictly
construed, words must say what these mean, nothing should be presumed or
implied, these must say so. The true test must always be the language used.
537 On
behalf of the assessee, Mr. Rajaram Agarwala, however, further contended that
the ratio of Kandaswami's case (supra) to which Mr. Tewatia referred, must be
understood in the light of the question involved in that case. The said
decision of this Court was concerned with the limited point as to whether the
Madras High Court was right in observing "whether one could say that the
sale which is exempted is liable to tax and then assume that because of
exemption, the tax is not payable". This Court held that the language of
section 7A of the said Act was far from clear as to its intention and did not
concern with the identification of the taxing event. Furthermore, it has to be
borne in mind, as emphasised by Mr. Agarwala, that if at all the taxing event
was spelt out, it was on the assumption that the goods in question were
generally taxable and these were to be put to tax under section 7A of the Tamil
Nadu Act, if these came to be purchased without payment of tax and then sought
to be dealt with in any manner as to escape payment of State sales/purchase tax
within the State.
Mr. Tewatia
drew our attention to the observations of this Court in Kandaswami's case
(supra) to prove that the observations in Malabar Fruit Products Co. v. The
Sales Tax Officer, Palai, 30 STC 537, where these questions were decided by
Justice Poti of the Kerala High Court, who spelt out that the taxing event was
not the event of despatch but the event of purchase/sale of goods. It has,
however, to be borne in mind that the questions involved in Malabar Fruit
Products' case and Kandaswami's case (supra) were not concerned with the actual
argument with which we are concerned in the instant matter. It is well-settled
that a precedent is an authority only for what it actually decides and not for
what may remotely or even logically follows from it. See Quinn v. Leathem,
[1901] AC 495 and The State of Orissa v. Sudhansu
Sekhar Misra & Ors., [1968] 2 SCR 154. Therefore, the ratio of the said
decision cannot be properly applied in construing the provisions of section 9(1)(b)
in this case to determine what is the taxable event.
It was
contended by Mr. Rajaram Agarwala that clause (b) of Section 9(1) dealt with
non-exempted goods purchased in the State, used in the manufacture of any goods
whether exempted or not, but when despatched outside the State of Haryana i.e.
by way of stock transfer consignment will attract the tax liability under this
section, hence, the event of despatch or consignment is the immediate cause
which attracts the tax liability under section 9. The quality or the character
of goods which should be liable to tax under section 9 in clause (1)(a) is the
non-exempted goods purchased in the State; while 538 under the first part of
clause (b) the quality of goods liable to tax is the non-exempted goods
purchased in the State and under the second part of clause (b), the quality of
goods must be non-exempted goods purchased and manufactured in the State,
whether exempted or not in the State which is liable to tax on despatch outside
Haryana; and under clause (c) the goods purchased in Haryana without undergoing
any further change or use is the quality of goods liable to tax when exported.
The
submission of the State is that the taxable event is the purchase of goods in Haryana
while the obligation to pay is postponed on the fulfilment of certain
conditions. The further argument is that there is a general liability to
purchase tax which the dealer avoids on furnishing a Declaration in S.T. Form
15 as provided by section 24 at the time of purchase, wherein certain
conditions are mentioned and when those conditions are not fulfilled, those
revive. It was further argued that the conditions are incorporated in section 9
of the Act. For testing which of the contentions are nearer to find out the
exact taxable event, certain indicias and illustrations may be seen. Their
analysis will indicate that there is no liability to pay sales tax under the Haryana
Act on the purchaser. It is admitted that on such sales the selling dealer is
liable to pay sales-tax. On such purchases, the sale and purchase being the two
sides of the same coin, no purchase tax is imposed under the Act.
This
has been the accepted position by the State also for, while replying to the
question of double taxation counsel for the State admitted that sales as well
as purchase tax is to be imposeable under the scheme of the Act which are of
two sides. Hence, it was rightly urged by Mr. Rajaram Agarwala that the first
contention for attracting the applicability of section 9(i), "whether a
dealer is liable to pay tax under this Act purchases goods", is missing
when the section (1) talks of a dealer liable to pay tax under the Act,
obviously it is with reference to his purchasing activity and if on that
activity no purchase tax is payable, section 9(1) would not be applicable.
To
accept the submissions advanced by Mr. Tewatia, assumptions and presumptions
are to be made. It is not permissible to do so in a fiscal provision. See in
this connection the observations of this Court in C.S.T.U.P. v. The Modi Sugar
Mills Ltd., [1961] 2 SCR 189 and Baidyanath Ayurved Bhawan (P) Ltd., Jhansi v. Excise Commissioner, U.P. &
Ors., [1971] 2 SCR 590 at 592. In that background it must be noted that section
9 of the Act nowhere makes a reference to section 24 or any declaration
furnished by the purchasing dealer on the basis of which he was granted
temporary exemption and thereby revival of 539 the original purchase tax on the
breach of declaration as such. Section 9 of the Act opens with the expression
"where a dealer liable to pay tax under this Act" and not
"whether a dealer has paid tax or has not paid tax". The phrase
'liable to pay tax' under the Act must relate to liability to pay sales tax on
such purchases.
It is
well-settled that the main test for determining the taxable event is that on
the happening of which the charge is affixed. The realisation often is postponed
to further date. The quantification of the levy and the recovery of tax is also
postponed in some cases. It is well settled that there are three stages in the
imposition of tax. There is the declaration of liability, that is the part of
the Statute which 'determines what persons in respect of what property are
liable. Next, there is the assessment.
Liability
does not depend on assessment, that exhypothesi has already been fixed. But
assessment particularises the exact sum which a person is liable to pay. Lastly
comes the method of recovery if the person taxed does not voluntarily pay.
Reference may be made to the observations of Lord Dunedin in Whitney v.
Commissioner of Inland Revenue, [1926] AC 37 at p. 52 and of the Federal Court
in Chatturam & Ors. v. C.I.T., Bihar,
15 ITR FC 302 at 308.
Taxable
event is that which on its occurrence creates or attracts the liability to tax.
Such liability does not exist or accrue at any earlier or later point of time.
The identification of the subject-matter of a tax is to be found in the
charging section. In this connection, one has to analyse the provisions of
section 9(2)(b) as well as section 9(1)(b) and 9(1)(c). Analysing the section,
it appears to us that the two conditions specified, before the event of despatch
outside the State as mentioned in section 9(1)(b), namely, (i) purchase of
goods in the State and (ii) using them for the manufacture of any other goods
in the State, are only descriptive of the goods liable to tax under Section
9(1)(b) in the event of despatch outside the State. If the goods do not answer
both the descriptions cumulatively, even though these are despatched outside
the State of Haryana, the purchase of those goods would
not be put to tax under section 9(1)(b). The focal point in the expression
"goods, the sale or purchase of which is liable to tax under the
Act", is the character and class of goods in relation to exigibility. In
this connection, reference may be made to the observations of this Court in
Andhra Sugars Ltd. v. State of Andhra Pradesh,
[1968] 1 SCR 705. On a clear analysis of the said section, it appears that
section 9(1)(b) has to be judged as and when liability accrues under that
section. The liability to pay tax under this section does not accrue on
purchasing the goods simpliciter, but only when these are despatched or
consigned out of 540 the State of Haryana. In all these cases, it is necessary to find out the true nature of the
tax. Analysing the section, if one looks to the alleged purchase tax under
section 9, one gets the conclusion that the section itself does not provide for
imposition of the purchase tax on the transaction of purchase of the taxable
goods but when further the said taxable goods are used up and turned into
independent taxable goods, losing its original identity, and thereafter when
the manufactured goods are despatched outside the State of Haryana and only
then tax is levied and liability to pay tax is created. It is the cumulative
effect of that event which occasions or causes the tax to be imposed, to draw a
familiar analogy it is the last straw on the camel's back.
In
this connection, reference may be made to the observations of Justice Vivian
Bose in The Tata Iron & Steel Co.
Ltd. v. The State of Bihar, [1958] SCR 1355 at 1381, where he
observed as follows:
"I
would therefore reject the nexus theory in so far as it means that any one sale
can have existence and entity simultaneously in many different places. The
States may tax the sale but may not disintegrate it, and, under the guise of taxing
the sale in truth and in fact, tax its various elements, one its head and one
its tail, one its entrails and one its limbs by a legislative fiction that
deems that the whole is within its claws simply because, after tearing it
apart, it finds a hand or a foot or a heart or a liver still quivering in its
grasp. Nexus, of course, there must be but nexus of the entire entity that is
called a sale, wherever it is deemed to be situate.
Fiction
again. Of course, it is fiction, but it is a fiction as to situs imposed by the
Constitution Act and by the Supreme Court that speaks for it in these matters
and only one fiction, not a dozen little ones." It is, therefore,
necessary in all cases to find out what is the essence of the duty which is
attracted. A taxable event is that which is closely related to imposition. In
the instant section, there is such close relationship only with despatch.
Therefore, the goods purchased are used in manufacture of new independent
commodity and thereafter the said manufactured goods are despatched outside the
State of Haryana. In this series of transactions the
original transaction is completely eclipsed or ceases to exist when the levy is
imposed at the third stage of despatch of manufacture. In the instant case the
levy has no direct connection with the transaction of purchase of raw-materials,
it has only a remote connection of lineage. It may be indirectly and very 541
remotely connected with the transaction of the purchase of raw-material wherein
the present levy would lose its character of purchase tax on the said
transaction.
Mr. Rajaram
Agarwala submitted that the measure of tax is with reference to the value of
purchased goods in the State of Haryana. As mentioned before, reference has been made to the decision of Kandaswami's
case (supra), where this Court dealt with section 7A of the Tamil Nadu Act,
which was not identical but similar to section 9 of the Act.
There
at p. 196 of the report, this Court observed as follows:
"...
Difficulty in interpretation has been experienced only with regard to that part
of the sub-section which relates to ingredients (4) & (5). The High Court
has taken the view that the expression "goods, the sale or purchase of
which is liable to tax under this Act", and the phrase "purchases ...
in circumstances in which no tax is payable under Sections 3, 4 or 5 are a
"contradiction in terms".
Ingredients
Nos. 4 & 5 are as follows:
"4.
The goods purchased are "goods, the sale or purchase of which is liable to
tax under this Act".
5.
Such purchase is, "in circumstances, in which no tax is payable under
sections 3, 4 or 5, as the case may be;" The relevant ingredient involved,
as mentioned at page No. 196, was as under:
"6.
The dealer either-(a) consumes such goods in the manufacture of other goods for
sale or otherwise or (b) despatches all such goods in any manner other than by
way of sale in the State or (c) despatches them to a place outside the State
except as a direct result of sale or purchase in the course of inter-State
trade or commerce." This ingredient was neither argued nor was considered,
so the 542 passing reference based on the phraseology of the section is not the
dictum of Kandaswami's case. Secondly, in section 9, in the instant case, the
raw-materials purchased or used in the manufacture of new goods and thereafter
those new goods were despatched outside the State of Haryana whereupon the tax was levied. This
important factor is wholly missing in Section 7A of the Tamil Nadu Act, which
was considered in Kandaswami's case. In that decision, this Court approved the Kerala
High Court's decision in Malabar Fruit Products, (supra), which was confined to
the interpretation of the words 'goods', the sale or purchase under the Act. A
decision on a question which has not been argued cannot be treated as a
precedent. See the observations of this Court in Rajput Ruda Maha & Ors. v.
State of Gujarat, [1980] 2 SCR 353 at 356. The
decision of the Division Bench of the Kerala High Court in Yusuf Shabeer &
Ors. v. State of Kerala & Ors., 32 STC 359 is clearly distinguishable. In Ganesh
Prasad Dixit's case (supra) the question of constitutional validity was not
argued. A reference was made by Mr. Tewatia to the decision of the High Court
in The Coffee Board v. Commissioner of Commercial Taxes & Ors., 60 STC 142
and the decision of this Court in Coffee Board, Karnataka v. Commissioner of
Commercial Taxes, Karnataka, 70 STC 162. In these cases the question involved
was the acquisition of coffee by the Coffee Board under compulsory acquisition
or purchase or sale of goods. That question is entirely different from the
question with which we are concerned in these appeals.
Prior
to 46 the Amendment, Entry 54 of List II of the 7th Schedule of the
Constitution of India which demarcated the exclusive field of State
Legislation, read with Article 246(3) of the Constitution conferred power on
the State Legislature to impose tax on the transactions of sale or purchase of
goods. The said Entry read as follows:-"Taxes on the sale or purchase of
goods other than Newspapers, subject to the provisions of Entry 92-A of List
I".
Entry
92A of List I, which is in the exclusive domain of the Union, was to the following extent:
"Taxes
on the sale or purchase of goods other than Newspapers, where such sale or
purchase takes place in the course of inter-State trade or commerce." The
mere consignment of goods by a manufacturer to his own branches outside the
State does not in any way amount to a sale or 543 disposal of the goods as
such. The consignment or despatch of goods is neither a sale nor a purchase.
The first judgment in case of Goodyear India was on December
4, 1982 when it was
held that the Notification was beyond the Act, as the word 'disposal' did not
include the word 'mere despatch' as mentioned in the notification. The
Constitution (46th Amendment) Act, 1982 came into force on February 2, 1983, whereby section 9 was amended.
This amendment was after 46th Constitutional Amendment Act, 1982. The 46th
Constitution Amendment Act in the Statement of Objects & Reasons, inter alia,
stated as follows:
"There
were reports from State Government to whom revenues from sales-tax have been
assigned, as to the large scale avoidance of Central Sales Tax leviable on
inter-State sales of goods through the device of consignment of goods from one
State to another and as to the leakage of local Sales Tax in works contracts,
hire purchase transactions, lease of films etc. Though, Parliament could levy a
tax on these transactions, as tax on sales has all along been treated as an
item of revenue to be assigned to the States, in regard to these transactions
which are semble sales also, it is considered that the same policy should be
adopted." The Law Commission of India in its 61st Report made, as
indicated before, certain recommendations, and noticed that the provisions of
existing Central Sales Tax Act were insufficient to tax the consignment
transfers from branch to another, as it was beyond the concept of sale, and its
recommendations are contained in paragraph 2.23 of Chapter II (at page 66), it
recommended that the definition of sale in the Central Sales Tax Act, after
carrying out the requisite Constitution Amendment be amended somewhat on the
lines indicated by them in their report. The Union of India, in part, accepted
the recommendations but instead of amending the definition of sales in Central
Sales Tax Act, inserted a new Entry in the Union List in the shape of Entry 92B
and also inserted a new sub-clause (4) after subclause (g) in Art. 269 (1) of
the Constitution. The Parliament also amended clause (3) of Article 269.
It
appears to us that the effect of the aforesaid amendment is that the field of
taxation on the consignment/despatch of goods in the course of inter-State
trade or commerce expressly come within the purview of the legislative
competence of the Parliament. It is wellsettled that the nomenclature of the
Act is not conclusive and for 544 determining the true character and nature of
a particular tax, with reference to the legislative competence of a particular
Legislature, the Court will look into its pith and substance. See the
observations of Governor General in Council v. Province of Madras, [1945] 72 IA 91. There, Lord Simonds
observed as follows:
"
..... For in a Federal Constitution, in which there is a division of legislative
powers between Central and provincial legislatures it appears to be inevitable
that controversy should arise; Whether one or other legislature is not
exceeding its own, and encroaching on the others Constitutional Legislative
Power, and in such a controversy it is a principle, which their Lordships do
not hesitate to apply in the present case, that it is not the name of the tax,
but its real nature, "it is pith and substance", as it has some times
been said which must determine into what category it fails." We must,
therefore, look not to the form but to the substance of the levy. See the
observations of the Federal Court in Ralla Ram v. The Province of East Punjab, AIR 1949 FC 81.
Therefore,
the nomenclature given by the Haryana Legislature is not decisive. One has to
find out whether in pith and substance, a consignment tax is sought to be
imposed, a tax on despatch in the course of inter-State trade or commerce. I
have no hesitation in holding that it is a tax on despatch. Inter-state trade
or commerce, it has been emphasised, is of great national importance and is
vital to the federal structure of our country. As the imposition of consignment
tax requires very deep consideration of all its aspects and certain amount of
consensus among the States concerned, especially with regard to the rates,
grant of exemption, and ratio relating to distribution of proceeds amongst the
States inter se, the actual imposition of tax is bound to take some time till
an agreeable solution is found, but that would not make the consignment tax to
be in suspended animation in the State, and make us hold that a tax which is in
essence a tax on consignment should be taxed by the States by the plea either
that otherwise there is ample scope of evasion and further States are without
much resources in these days when there is such a tremendous demand on the
revenue of the States.
It is
well settled that the Entries in the Constitution only demarcate the
legislative fields of the respective legislatures and do 545 not confer legislative
powers as such. The tax on despatch of goods outside the territory of the State
certainly is in the course of inter-State trade or commerce, and in other
words, amounts to imposition of consignment tax, and hence the latter part of
section 9(1)(b) is ultra vires and void.
In
these cases, we are concerned with the validity of the latter part of section
9(1)(b) of the Haryana Act which imposes a tax on despatch of manufactured
goods outside the territories of Haryana. If it is accepted that section 9(1)(b)
is ultra vires, the penalty proceedings would automatically go as they are in
substance, based on the violation of section 9(1)(b) of the Act and the
consequent proceedings flowing therefrom. It is in that context that in writ
petition No. 3834 of 1985, Mr. Soli Sorabjee urged that the attempt and action
of the State in imposing tax and attempt to penalise are bad.
In
this connection, it may be mentioned that before the Full Bench of the Punjab
& Haryana High Court on behalf of the State, a statement was made, which
has been recorded in 58 STC 393 at p. 408, as follows:
"Counsel
appearing for the State of Haryana made a statement that if the Full Bench held
that Bata India Limited's, case (1983)54 STC 226 did not lay down the correct
law and the amendment effected by Act No. 11 of 1984 to Section 9 was intra vires,
then the provision of sub-section (3) of section 24 regarding the rate of tax
shall not be enforced and only the old rate will be leviable." In view of
the aforesaid statement, no higher rate except the old rate admissible
factually would be applicable.
Section
24(3) was introduced by the Haryana Act with retrospective effect from May 27, 1971, which is as follows:
"Notwithstanding
any other provisions of this Act or any Judgment, decree or order of any Court
or other authority to the contrary if a dealer who purchases goods, without
payment of tax under Sub-section (1) and fails to use the goods so purchased
for the purpose specified therein he shall be liable to pay tax on the purchase
value of such goods, at the rates notified under Section 15 without prejudice
to the provisions of Section 50 provided that the tax 546 shall not be levied
where tax is payable on such goods under any other provision of this Act."
This provision without making any change in the substantive provision purports
to give a direction to ignore the judgment, in other words, purports to
overrule the judgments, namely, Goodyear and Bata India, which is beyond the legislative
competence of the State Legislature and this provision is void in view of the
decision of this Court. See Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, [1969] 2 SCC 283 at 286. For the
same reason, applying the main section instead of section 9(1), section 24
should also fail as amended. Civil appeal No. 15 15/84 is also liable to be
dismissed in view of the judgment of this Court in Dy. Commissioner of Sales
Tax (Law), Board of Revenue (Taxes) v. M/s. Thomas Stephen & Co. Ltd., Quilon,
[1988] 2 SCC 264, where this Court observed that "disposal means transfer
of title in the goods to any other person", and therefore it would not
include mere despatch to own self or to its agents or to its branch offices or
depots. In the premises, the decision of the Punjab & Haryana High Court in
Goodyear India Ltd., 53 STC 163 is correct on merits as well.
In the
aforesaid view of the matter, it cannot be held that section 9(1) and
sub-section (3) of section 24 are constitutionally valid.
In
civil appeals Nos. 1633 (NT) of 1985 and 3033/86 which are the appeals by the
Food Corporation of India, Mr. Sen submitted that the FCI is
a service agency of the Govt. of India and is discharging the statutory
functions of distribution of foodgrains by procuring/purchasing from the
surplus States and despatching the same to the deficit States in accordance
with the policy of the Govt. of India.
He
further submitted that the Corporation procures foodgrains from the farmers
through commission agents in the Mandis of Haryana and despatch them to its own
branches in the deficit States of the country. The Corporation branches in the
recipient States supply these stocks to the State agencies/fair price shops and
also pay tax as per the provisions of the Sales Tax law of the respective
States. Some of the stocks are distributed within Haryana for the Public
Distribution System (PDS) for which sales tax is charged and deposited with the
Sales Tax depot as per the provisions of the Haryana General Sales Tax Act. In
case the stocks are also sold in the course of inter-State trade or commerce,
central sales tax is levied and deposited with the Haryana Sales Tax
authorities. Some of the grains are also exported out of India on which there is exemption on
payment of any tax.
547 In
fact, the points at which the tax is to be levied have been indicated in
Schedule 'D' to the Act. It is clear from the perusal of the Schedule that in
case of Paddy, the taxable event is the last purchase. Similarly, in case of
rice the taxable event is the first sale point in the State.
In case
of wheat and other cereals the point of taxation is the last sale to the
consumer by a dealer liable to pay tax under the Act.
In
respect of inter-State despatch of wheat and other foodgrains by FCI to its own
branches, tax is attracted at the time of despatch under section 9(1)(c) of the
Haryana Act. Section 9 is, therefore, the charging section for taxation in case
where the goods are purchased for export.
There
is no other provision for levy of purchase or sales tax in such cases of
export. Incidentally, "export" has been defined in section 2(e) of
the Act which reads as follows:
"2(e)
"export" means the taking out of goods from the State to any place
outside it otherwise than by way of sale in the course of inter-State trade or
commerce or in the course of export out of the territory of India;" No tax
is payable under the Haryana Act when exports outside the State take place
either in the course of interState sale or export out of the territory of
India. No tax is therefore payable in regard to export outside India but the tax is payable for sale in
the course of inter-State trade and commerce i.e. under the Central Sales Tax
Act. It is only when the goods are despatched/consigned to the depots of the
FCI in other States that tax is levied under section 9 of the Haryana Act. This
is in addition to the sales tax paid by the FCI on the sale of grains in the
recipient States. On perusal of sections 14 & 15 of the Central Sales Tax
Act, it becomes clear that wheat is one of the commodities specified as 'declared
goods' and in respect of which the intention is clear that the tax is payable
only once on the declared goods. In the case of inter-State sale if any tax has
been paid earlier on declared goods inside the State the same is to be refunded
to the dealer who is paying tax on such inter-State sales. On these
transactions no tax is liable in the recipient State, while in case of
inter-State despatches, the tax is leviable twice. The appeals of. the FCI are
confined to section 9(1)(c), which insofar as it purports to tax export, is
beyond the legislative competence of the State of Haryana.
On
behalf of the State in Bata Co. Ltd. v. State of Haryana (supra), the submission of the State was on the basis that
it had power to tax consignment or despatches of goods. But after the 46th
Amend548 ment, the State Legislature is incompetent to legislate about
consignments/despatches otherwise than by way of sale under which no
purchase/sales tax is leviable under the Haryana Act. It is the Parliament
alone which is legislatively competent to enact a legislation on consignment.
Now,
it is necessary to deal with civil appeals Nos. 4 162-63/85 which deal with the
validity of section 13-AA of the Bombay Sales Tax Act.
These
appeals are by Hindustan Lever Ltd. and Wipro Products the appellants herein.
The appellants, at all material times, manufacture, make and deal in vanaspati,
soaps, etc., chemicals and agro-chemicals, and they used to purchase various
types of VNE oils for their manufacture of vanaspati, soaps and other products.
Since the appellants had a wide net of distribution of their products all over India, they appointed 40 and more
clearing and forwarding agents in the country. The appellant used to despatch
the goods so manufactured from their factory to the clearing and forwarding
agents. They also used to purchase VNE oils and other raw-materials and paid 4%
tax by way of purchase tax under section 3 of the Bombay Sales Tax Act, 1959
(hereinafter called 'the Bombay Act'). The raw-materials are used in the manufacture
of said goods and as the said manufactured goods are despatched outside the
State to the several distributing agencies, the appellant companies were held
to be liable to pay, under section 13-AA of the Act, an additional tax @ 2% on
purchase of the said goods.
The
question, therefore, that arises, is: whether the levy of additional tax at 2%
under Section 13-AA of the Act is a tax on purchases failing under Entry 54 of
List II of the 7th Schedule or it is a tax on the despatch of consignment of the
manufactured goods outside the State. In case of latter, the State Legislature
will have no power to impose any tax on such consignment or despatch of goods
outside the State. If it is the former, then it will be valid. The question is
that under the true constructions of section 13-AA of the Act, on which the
imposition of tax is made, or in other words, what is the incidence of that
taxation or taxable event? In both these appeals, namely, civil appeals No.
4162/ 88 and 4163/88, the appellants M/s Wipro Products Ltd. and Hindustan
Lever Ltd. are contending that the levy is bad. The issue involved in both the
appeals is the constitutional validity and legality of the provisions of
section 13-AA of the Act, which was introduced into the Act by the Maharashtra
Act XXVIII of 1982. The appellant 549 had a factory at Amalnar in Jalgaon
district in the State of Maharashtra wherein it uses non-essential oil
purchased by it for the manufacture and transport. The finished products,
namely, vanaspati manufactured by the appellant used to be despatched to their
various marketing depots in the State of Maharashtra, Madhya Pradesh, Karnataka, Andhra Pradesh, U.P., Tamil Nadu
and Kerala etc. On July 1, 1981 the rate of purchase tax payable on VNE oils
(falling under Schedule C, part I at Entry 35) purchased within the State of Maharashtra
from non-registered dealers increased from 3% to 4%, by the Maharashtra Act 32
of 1981.
Section
13-AA was introduced into the Act providing for levy of 2% additional purchase
tax on the purchase of goods, input goods, specified in part I of the Schedule
from a non-registered dealer if such goods were used in the manufacture of
taxable goods within Maharashtra and thereafter the manufactured goods were
transferred outside Maharashtra in the manner indicated in the said section.
The
appellants filed writ petitions. An order was passed by the Bombay High Court
on July 19, 1988 in respect of these two writ
petitions by the Wipro Products as well as Hindustan Lever Ltd. The decision of
the High Court is reported in [1989] 72 STC 69.
Dismissing
the petitions of the appellants the High Court held that
(i)
three different phases are contemplated in section 13-AA of the Act, namely,
the initial purchase of the raw material, the consumption thereof in the
manufacture of taxable goods, and the despatch of the manufactured goods
outside the State. If the goods purchased remain in the same form within the
State, the question of levying additional tax would not arise. The High Court
came to the conclusion that there was no ground to hold that the additional tax
was levied on the despatch of goods and was unconnected with the initial
transaction of purchase, as it was required to be paid in addition to the sales
or purchase tax paid or payable in respect of the same goods which had been so
purchased before the conditions specified in section 13-AA are fulfilled,
(ii) in
the context of the other provisions of the Act, a sort of concession is given
at the time of purchase on the quantum of tax payable on the purchase of goods
which fall under Part I of Schedule C. However, there is a clear mandate of
law, which is clearly understood between seller and buyer, that though tax at
the concessional rate is paid, the obligation to pay the additional tax on the
happening of certain events, namely, use of such goods in manufacture of
finished goods, and despatch of finished goods outside the State, is undertaken
550 by the purchaser; and
(iii) implicit
in the low rates of tax prescribed on raw material attributable to goods in
Part I of Schedule C is the condition precedent that to avail of this
concession the goods in question are required to be sold in the State after
being used in the manufacture of other taxable goods. The High Court, further,
was of the opinion that a manufacturer who purchases raw-material at a concessional
rate on the strength of declaration in Form 15 cannot transfer the goods
manufactured out of such rawmaterial outside the State. The High Court held
that if he does so, he is liable to pay purchase tax at the full rate on the
raw material under section 14. According to the High Court, similarly, a
manufacturer who purchases goods covered in Part III of Schedule C, uses them
in the manufacture of other taxable goods which he despatches outside the
State, is liable to pay tax at rates ranging from 6% to 15%. Section 13-AA,
therefore, far from being discriminatory, serves to wipe out any discrimination
between the two categories of manufacturers mentioned above and manufacturers
purchasing raw-material covered by Part I of Schedule C, according to the
revenue. The High Court was of the opinion that the additional purchase tax leviable
under section 13-AA of the Bombay Act, is on the purchase value of VNE oil used
in the manufacture of goods transferred outside the State and not on the value
of the manufactured goods so transferred. It further held that the tax levied
under section 13-AA of the Bombay Act, falls squarely and exclusively under
Entry 54 of the State List in the 7th Schedule to the Constitution of India and
the State Legislature was competent to levy it.
It
does not even remotely fall under Entry 92B of the Union List, according to the
High Court.
The
High Court was also of the view that the goods taxed under section 13-AA of the
Bombay Act, are consumed in the State as raw material in the process of
producing other commodities. Hence, there was no question of any hindrance to a
free flow of trade bringing into operation Article 301 of the Constitution.
According to the High Court, the petitioners had not brought forth any material
to show how the free flow of trade has been affected by this additional rate of
tax; and held that section 13AA is not violative of Article 14 of the
Constitution; and that section 13AA of the Bombay Act and the orders requiring
the appellants to pay additional tax @ 2% on purchase of VNE oil used by them
as raw-material in the manufacture of goods despatched outside the State, were
valid.
The
High Court in the judgment under appeal has set out the relevant provisions of
the Act, which was enacted to consolidate and 551 amend the law relating to
levy of tax on the sale or purchase of certain goods in the State of Bombay.
Section 2 contains some of the definitions. Section 24 deals with authorisations
of turnover etc. Section 13AA of the Bombay Act with which the High Court and
these appeals are concerned, is in the following terms:
"13-AA.
Purchase tax payable on goods in Schedule C, Part I, when manufactured goods
are transferred to outside branches.
Where
a dealer, who is liable to pay tax under this Act, purchases any goods
specified in Part I of Schedule C, directly or through Commission agent, from a
person who is or is not a Registered dealer and uses such goods in the
manufacture of taxable goods and despatches the goods, so manufactured, to his
own place of business or to his agent's place of business situated outside the
State within India, then such dealer shall be liable to pay, in addition to the
sales tax paid or payable, or as the case may be, the purchase tax levied or leviable
under the other provisions of this Act in respect of purchases of such goods, a
purchase tax at the rate of two paise in the rupee on the purchase price of the
goods so used in the manufacture, and accordingly the dealer shall include
purchase price of such goods in his turnover of purchases in his return under
section 32, which he is to furnish next thereafter." The questions
involved in these appeals are: whether section 13AA of the Bombay Act is beyond
the legislative competence of the State Legislature; and it is violative of
Article 14 of the Constitution; and thirdly, whether the said provision is violative
of Article 301 of the Constitution. It was contended on behalf of the appeallant
that section 13AA of the Act is a charging section and imposes a charge of an
additional rate of 2% in the rupee if the following conditions laid down
therein are satisfied:
(i) the
charge is levied upon a dealer who is liable to pay tax under the Act;
(ii) such
a dealer purchases any goods specified in Part I of Schedule C, directly or
through commission agent, from a person who is or is not a registered dealer;
(iii) the
goods so purchased are used in the manufacture of taxable goods; and
(iv) the
goods which are so manufactured (and not the goods on which purchase tax had
been paid) are despatched to the dealer's own place of business or to his
agent's place of business situated outside the State.
552
According to the appellant, the said section lays down the person who is liable
to pay tax, the goods on which the same is leviable and the taxable event which
would attract the liability of additional tax of two paise in the rupee, namely
the despatch or consignment of goods by the dealer/manufacturer outside the
State.
According
to Dr. Pal, counsel for the appellant, the taxable event is not the purchase of
goods as such which is the raw-material, but it is the despatch or consignment
of goods manufactured by the dealer/manufacturer to its own branch outside the
state; and that thus manufactured goods are different from commercial
commodity, distinct and separate from the raw materials on which purchase tax
has already been paid. It is well-settled, it was reiterated before:us, that in
case of excise duty, the taxable event is the manufacture of goods and the duty
is not directly on the goods but on the manufacture thereof. In case of sales
tax, taxable event is the sale of goods. Hence, though both excise duty and
sales tax are levied with reference to the goods, the two are different
imposts, in one case the imposition is on the act of manufacture or production
while in case of other the imposition is on the act of sale. But in neither
case the impost is a tax directly on the goods. See in this connection, the
observations of this Court in re:
The
Bill to amend s. 20 of the Sea Customs Act, 1878 and s. 3 of the Central
Excises & Salt Act, 1944, [1964] 3 SCR 787 at 821 and M/s. Guruswarny &
Co. v. State of Mysore, [ 1967] 1 SCR 548 at 562.
The
power to tax the sale or purchase of goods is different from the right to
impose taxes on use or consumption.
According
to Dr. Pal such power to levy sales tax cannot be exercised at the earlier
stage of import or manufacture/production nor the said power can be exercised
at the later stage of use or consumption but only at the stage of sale or
purchase. In respect of sales tax, the right to levy duty would not at all come
into being before the time of sale/purchase. Sales tax cannot be imposed unless
the goods are actually sold and may not be leviable if there is a transfer in
some other form. See in this connection the observations of the Federal Court
in Mukunda Murari Chakravarti & Ors. v. Pabitramoy Ghosh & Ors., AIR
1945 FC 1 at 22. Therefore, in this case it is necessary to ascertain what is
the taxable event under section 13-AA of the Act which attracts duty. A taxing
event is that event the occurrence of which immediately attracts the levy or
the charge of tax.
In the
fiscal legislations normally a charge is created.
The
mischief of taxation occurs on the happening of the taxable event. Diffe553
rent taxes have different taxable events. In the instant case, Dr. Pal
canvassed before us that the incidence of the levy of additional tax of two paise
in the rupee is not on the purchase of goods but such a levy is attracted only
when--(a) the goods which so purchased on payment of purchase tax are used in
the manufacture of taxable goods; and (b) the goods so manufactured are despatched
to his own place of business or to his agent's place of business outside the
State. Therefore, the incidence of tax is attracted not merely on the purchase
but only when the goods so purchased arc used in the manufacture of taxable
goods and are despatched outside the State. In our opinion, it was rightly
submitted that it is the effect of section 13AA of the Act.
It was
further highlighted by Dr. Pal on behalf... of the assessee that additional tax
is not levied on the goods purchased on payment of purchase tax and despatched
outside the State. The goods which are purchased on payment of purchase tax are
used in the manufacture of taxable goods.
What
is despatched is not the raw material which have been purchased on payment of
purchase tax but a completely different commodity, namely, vanaspati and soap.
If the raw materials as such purchased on payment of purchase tax are despatched
outside the State, the additional tax under section 13-AA of the Act is not
attracted. Hence, the incidence of additional tax has no nexus with the
purchase of the raw-materials, as was contended by Mr. S.K. Dholakia, appearing
for the State and as held by the High Court.
Purchase
tax under section 3 of the Act is attracted when the taxable event i.e. the
purchase of goods occurs, but the taxable event for the imposition of additional
tax of two paise in the rupee occurs only when the goods so purchased are used
in the manufacture of taxable goods and such taxable goods are despatched
outside the State by a dealer-manufacturer. Dr. Pal drew our attention to some
of the observations of this Court in Kedarnath Jute Mfg. Co. Ltd. v.
Commissioner of Income-tax (Central), Calcutta, 82 ITR SC 363 and State of
Madhya Pradesh & Ors. v. Shyama Charan Shukla, 29 STC SC 215 at 218-219. On
the other hand, Mr. Dholakia submitted that the submission of the appellant
proceeded on the assumption that the liability to pay is the same as the
obligation to pay but this was wrong. These two are different. It was submitted
that the obligation to pay is not the same thing as liability to tax; and that
it was wrong to proceed on the basis that because 'obligation to pay' is a
later event, 'the despatch of goods' is the taxable event. This is a fallacy,
according to Mr. Dholakia. In this connection, reliance was placed on the
observations of this Court in R.C. Jail v. Union of India, [1962] Suppl. 3 SCR
436, where this Court reiterated that subject always to the legislative com554 petence
of the enacting authority, the tax can be levied at a convenient stage, so long
as the character of the impost is not lost. The method of collection does not
affect the essence of the machinery of collection for administrative
convenience. Reliance was also placed on the observations of Union of India v.
Bombay Tyre International Ltd., [1984] 1 SCR 347.
It was
submitted by Mr. Dholakia that the correct approach is to first determine
whether the State Legislature, having regard to Entry 54 of List II to the 7th
Schedule to the Constitution, can levy tax on purchase of a class of goods,
which class is to be identified by reference to the condition of use of such
goods into other taxable goods and despatch of such taxable goods outside the
State. He submitted that if it is accepted that the State could have the power
to tax purchases of goods meant for use into manufacture of other taxable goods
and despatch outside thereafter, then next question is whether the State
enactment (like section 13AA of the Bombay Act) is so formulated as to come
within the framework described. He admitted that even if it did, it would still
have to be subject to (a) the doctrine of pith and substance, (b) the
fundamental rights, and (c) Article 301.
According
to Mr. Dholakia, the Act contains a charging section which is section 3. It
levies tax on turnover of sales and purchases within section 2(36) and 2(35)
respectively of the said Act. Section 13 of the Act levies tax on purchases in
accordance with rates prescribed in Schedule C if the goods are purchased from
an unregistered dealer.
Section
13A levies a concessional tax on purchases if the goods are purchased from a
registered dealer, provided a declaration in the prescribed form is given under
section 12(b) of the Act, if the purchaser buys directly, or one under section
12(d) if the purchaser buys through a commission agent. In both the forms the relevant
conditions are:
(a) that
the goods fall within Part ii of Schedule C; and (b) that the goods bought
would be used for manufacture of other taxable goods within the State and sold
within the State. Mr. Dholakia submitted that on giving the aforesaid
declaration, the purchaser would have to pay only 4% tax.
The
rates prescribed in Schedule C are as under:
Schedule
'C' Part Minimum Rate Maximum Rate I 2% 4% II 6% 15% 555 The effect of section
13A without section 13-AA, according to Mr. Dholakia, was that only those who
bought goods which fell into Part II, would have benefitted by the declaration,
since the rate mentioned in section 13A was 4%.
Hence,
those buying goods falling within Part I of Schedule C had not to give any
declaration under section 12(b) or 12(d), as the case may be, and still
manufacture the taxable goods and despatch them outside the State. According to
him, as a result of this situation, two results emerged, i.e. (i) the State
lost revenue because the goods manufactured with the help of the infrastructure
provided by the State escaped further tax, by goods being resold outside the
State; and (ii) the purchasers of raw-materials used by the manufacturers for
producing new taxable goods, were not being treated equitably because those
whose purchases of goods which fell into Part II had to give a declaration to
get the benefit of reduced rate. On the other hand, those whose purchases of
goods fell in Part I, need not give such a declaration.
According
to him, from the standpoint of the object of encouraging resale within the
State, the classification in form of Part I and II had no rational nexus.
Therefore, that construction should be made which may make section 13-AA of the
Act, to avoid this mischief.
According
to Mr. Dholakia, section 13AA speaks of the requirement of additional purchase
tax from those who have paid purchase tax, if the object of the purchases is to
use the goods falling in Part I of Schedule C for manufacture of taxable goods
and the despatch of such goods outside the State. He alleged it to be a fair
and reasonable construction and it will subserve the purpose of the amendment.
It is
well settled that reasonable construction should be followed and literal
construction may be avoided if that defeats the manifest object and purpose of
the Act. See Commissioner of Wealth-tax, Bihar & Orissa v. Kripashankar Dayashankar
Worah, 81 ITR 763 at 768 and Income-tax Commissioners for city of London v.
Gibbs, 10 ITR Suppl. 121 HL at 132. Mr. Dholakia further submitted that the
Statement of Objects & Reasons also helps this construction. In our
opinion, he rightly submitted that because the accounts had to be maintained in
a particular manner, is no criterion or evidence for determining when the
liability arises. The law is that the liability to tax would be determined with
reference to the interpretation of the Statute which creates it.
It
cannot be determined by referring to another Statute. As contended by both the
sides, it is well-settled that the doctrine of pith and substance means that if
an enactment substantially falls within the powers expressly conferred by the
Constitution upon the Legislature 556 which enacted it, it cannot be held to be
invalid merely because it incidentally encroches upon matters assigned to another
Legislature. See Kerala State Electricity Board v. Indian Aluminium
Co, [1976] SCR 552 and Prafulla Kumar Mukherjee & Ors. v. Bank of Commerce
Ltd., AIR 1947 PC 60 at 65.
Therefore,
the proper question which one should address to oneself is, whether section
13AA is in pith and substance, not levying tax on purchase but one levying tax
on consignment. Depending upon the answer to the question, the validity of the
action can be judged. Mr. Dholakia submitted that the Act is in pith and
substance, an Act levying tax on purchase and not one levying tax on
consignment, and referred to the observations of this Court in State of
Karnataka v. Shri Ranganatha Reddy, [1978] 1 SCR 641. According to him, the
consignment contemplated in section 13-AA is only of manufactured goods and no
tax is levied under section 13AA in respect of such manufactured goods. He emphasised
as aforesaid. It is well-settled that while determining nature of a tax, though
the standard or the measure on which the tax is levied may be a relevant
consideration, it is not the conclusive consideration. One must have regard to
such other matters as decided by the Privy Council in Governor General in
Council v. Province of Madras, (supra) not by the name of tax but to its real nature, its
pith and substance which must determine into what category it fails. See the
observations of R.R. Engineering Co. v. Zila Parishad Bareilly & Anr.,
[1980] 3 SCR 1; in re: A reference under the Govt. of Ireland Act, 1920, [1936]
AC 352 at 358 and Navnitlal C. Javeri v. K.K. Sen, Appellate Asstt. Commissioner
of Income Tax, 'D' Range, Bombay, [1965]
1 SCR 909 at 915.
On an
analysis we find that the goods which are despatched are different products
from the goods on the purchase of which purchase tax was paid. The Maharashtra legislation has to be viewed in the
context of 46th Amendment to the Constitution. The 46th Amendment introduced
Article 269 (1)(h) which lays down that the proceeds of the tax on consignment
of goods (whether the consignment is to the person making it or to any other
person) where such consignment takes place in the course of inter-State trade
or commerce, will be assigned to the States. The said Amendment also introduced
Entry No. 92B in List I of the 7th Schedule.
The
said Amendment was made on the consideration of the 61st Report of the Law
Commission. Entry 92B in List I of the 7th Schedule and Article 269(1)(h) of
the Constitution bring within its sweep the consignment of goods by a person
either to himself or to any other person in the course of interState trade or
557 commerce. Article 269(3) gives the power to Parliament to formulate the
principles for determining when a consignment of goods takes place in the
course of inter-State trade or commerce. If Entry 92B in List I is to be given
the widest interpretation, as it should be, it would be clear that the
constitutional changes introduced by the 46th Amendment in Article 269 read
with the Entry, the tax on consignment of goods now comes within the exclusive
legislative field of Parliament. The true test to find out what is the pith and
substance of the legislation is to ascertain the true intent of the Act which
will determine the validity of the Act. If the Parliament in exercise of its
plenary power under Entry 92B of List I imposes any tax on the despatch or
consignment of goods, Parliament will be competent to do so. It is, therefore,
not possible to accept the argument that the chargeable event was lying dormant
and is activated only on the occurrence of the event of despatch. The argument
on the construction of the enactment is misconceived. The charging event is the
event the occurrence of which immediately attracts the charge. Taxable event
cannot be postponed to the occurrence of the subsequent condition. In that
event, it would be the subsequent condition the occurrence of which would
attract the charge which will be taxable event. If that is so, then it is a
duty on despatch. In that view of the matter, this charge cannot be sustained.
As
mentioned hereinbefore, the section has been challenged as being violative of
Article 14 of the Constitution.
This
attack is based on the discrimination between the two types of taxes but in the
way we have construed the section, in our opinion, this question does not
survive. It was further submitted by Dr. Pal that section 13AA of the Act is violative
of Article 301 of the Constitution. It makes a discrimination between the
dealer/manufacturer who despatches the goods outside the State and the other
dealer/manufacturer. Both the dealer/ manufacturers purchase the goods on
payment of purchase tax and use them in the manufacture of taxable goods. The
incidence of additional tax on the purchase of goods is attracted only when
such manufactured goods are despatched outside the State. If a dealer/manufacturer
has to despatch the goods outside the State, he has to pay a higher rate of tax
and thus he is discriminated as compared to the other dealer/manufacturer who
purchases the raw material on payment of 4% purchase tax, but despatches the
raw material straightaway outside the State and uses them in the manufacturer
of goods outside the State. The High Court held that there was no violation of
Article 301 of the Constitution. Reference was made to the decision of this
Court in Atiabari Tea Co. Ltd. v. The State of Assam & Ors., [1961] 1 SCR
809;
558
The Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan, [1963] 1
SCR 491; Andhra Sugars Ltd. v. State of Andhra Pradesh, (supra), State of
Madras v. N.K. Nataraja Mudaliar, [1968] 3 SCR 829 and State of Kerala v. A.B.
Abdul Khadir & Ors., [1970] 1 SCR 700.
One
has to determine: does the impugned provision amount to restriction directly
and immediately, on the trade or commerce movement? As was observed by this
Court in Kalyani Stores v. The State of Orissa & Ors., [1966] 1 SCR 865,
imposition of a duty or tax in every case would not tantamount per se to any
infringement of Article 301 of the Constitution. Only such restrictions or
impediments which directly or immediately impede free flow of trade, commerce
and intercourse fall within the prohibition imposed by Article 301. A tax in
certain cases may directly and immediately restrict or hamper the flow of
trade, but every imposition of tax does not do so. Every case must be judged on
its own facts and its own setting of time and circumstances.
Unless
the court first comes to the finding on the available material whether or not
there is an infringement of the guarantee under Article 301 the further
question as to whether the Statute is saved under Article 304(b) does not
arise. The goods taxed do not leave the State in the shape of raw material,
which change their form in the State itself and there is no question of any
direct, immediate or substantial hindrance to a free flow of trade. On the evidence
adduced, we are in agreement with the High Court that the challenge to the
imposition in the background of Article 301 cannot be sustained and, therefore,
no question whether such imposition is saved under Article 304(b) of the
Constitution arises.
In the
aforesaid view of the matter and for the reasons mentioned hereinbefore, it
must be held that so far as the appeals in respect of the Haryana Act are
concerned, the High Court was right in the view it took in Goodyear India Ltd's
case, 53 STC 163 as well as the views expressed by the High Court in Bata India
Ltd. v. The State of Haryana & Anr., 54 STC 226 are correct and are
affirmed. The views of the High Court expressed in Des Raj Pushap Kumar Gulati's
case (supra) are incorrect for the reasons mentioned hereinbefore. The last
mentioned judgment and the judgment and orders following passed by the Punjab & Haryana High Court are,
therefore, set aside. In the premises, Civil Appeals Nos. 1166--72/85 (M/s
Goodyear India Ltd. v. State of Haryana & Anr.),
Civil Appeal No. 1173-77 (NT)/85 (Gedore (I) Pvt. Ltd. v. State of Haryana
& Anr.), civil appeal No. 2674/86 (M/s. Kelvinator of India Ltd. & Anr.
v. State of Haryana & Ors.), Civil Appeal No. 1633 (NT)/85 F.C.I. v. State
of Haryana & Anr.) and 559 Civil Appeal No. 3033 (NT)/86 F.C.I., Karnal v. The
State of Haryana & Ors.) are allowed and the
judgment and order of the High Court are set aside.
Civil
Appeals Nos. 15 12 (NT)/84 [State of Haryana & Anr. v. Gedore Tools (P)
Ltd.] and 1515/84 [State of Haryana & Anr. v. Goodyear India Ltd. ] are
dismissed. Special leave petitions Nos. 83988402/83 are dismissed, and for the
reasons mentioned hereinbefore, civil appeal Nos. 4162/88 (M/s. Wipro Products
Ltd. v. State of Maharashtra & Anr. and 4163/88 [Hindustan Lever Ltd. & Anr. v. State of Maharashtra
& Anr. ] are allowed and the judgment and order of the High Court passed
therein, are hereby set aside.
In the
facts and the, circumstances of this case, the parties will pay and bear the
respective costs. So far as the civil appeals Nos. 1633/85 and 3033/86 are
concerned, wherein the appellants are the Food Corpn. of India, I allow these appeals and setting
aside the judgment of the High Court on the ground that tax on despatch or
consignment was not within the competence of the State Legislature. I am,
however, not dealing with or expressing any opinion on the other contentions of
the F.C.I. that in view of the nature of its business it was not liable to tax
in respect of the sales tax. This contention will be decided in the appropriate
proceedings.
So far
as the contention regarding penalty under the Haryana Act, these proceedings
fail because the charging provisions fail. In so far as the penalty proceedings
are impugned on other grounds apart from the failure of the charging
provisions, I am expressing no opinion on these aspects.
RANGANATHAN,
J. I agree but wish to add a few words.
The
question raised in these appeals is a fairly ticklish one. Simply stated,
Section 9 of the Haryana General Sales Tax Act, 1973 as well as section 13AA of
the Bombay Sales Tax Act, 1959, purport only to levy a purchase tax.
The
tax, however, becomes exigible not on the occasion or event of purchase but
only later. It materialises only if the purchaser (a) utilises the goods purchased
in the manufacture of taxable goods and (b) despatches the goods so
manufactured (otherwise than by way of sale) to a place of business situated
outside the State. The legislation, however, is careful to impose the tax only
on the price at which the raw materials are purchased and not on the 560 value
of the manufactured goods consigned outside the State.
The
States describe the tax as one levied on the purchase of a class of goods viz.
those purchased in the State and utilised as raw material in the manufacture of
goods which are consigned outside the State otherwise than by way of sale. On
the other hand, according to the respondents assessees, this is nothing but a
tax on consignment of goods manufactured in the State to places outside the
State, camouflaged as a purchase tax, by quantifying the levy of the tax with
reference to the purchase price of the goods purchased in the State and utilised
in the manufacture. To me it appeared as plausible to describe the levy as a
tax on purchase of goods inside the State (which attaches itself only in
certain eventualities) as to describe it as a tax on goods consigned outside
the State but limited to the value of the raw material purchased inside the
State and utilised therein. 1, therefore, had considerable doubts not only
during the arguments but even some time thereafter as to whether so long as the
tax purports to be a tax on purchases and has a nexus, though a little distant,
with purchase of goods in the State, the State Government's competence to impose
such a tax should not be upheld. But, on deeper thought, I am inclined to agree
with the conclusion of my learned brother. It is one thing to levy a purchase
tax where the character and class of goods in respect of which the tax is
levied is described in a particular manner (vide, Andhra Sugars Ltd. & Anr.
v. State, [1968] 1 SCR 705 and a case like the present where the tax, though
described as purchase tax, actually becomes effective with reference to a
totally different class of goods and, that too, only on the happening of an
event which is unrelated to the act of purchase. The "taxable event",
if one might use the expression often used in this context, is the consignment
of the manufactured goods and not the purchase. I also agree with my learned
brother that the decision in State of Tamil Nadu v. Kandaswami, [1975] 36 S.T.C. 191, though rendered in the context of
an analogous provision, does not touch the issue in the present case.
The
above distinction becomes significant particularly in the background of the
constitutional amendments referred to in the judgment of my learned brother.
These indicate that there were efforts at sales tax avoidance by sending goods
manufactured in a State out of raw materials purchased inside to other States
by way of consignments rather than by way of sales attracting tax. This
situation lends force to the contention of the assessees that the States,
unable to tax the exodus directly, attempted to do so indirectly by linking the
levy ostensibly to the "purchases" in the State.
561
Viewing the impugned statutory provisions from the perspectives indicated
above, I agree with my learned brother that the appeals have to be allowed as
held by him.
T.N.A.
Appeals and petitions disposed of.
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