of Kerala & Ors Vs. M/S Travancore
Chemicals & Manufacturing Co.  INSC 529 (11 November 1998)
G.T.Nanavati, B.N.Kirpal Kirpal.J.
these appeals the appellants are aggrieved by the common judgment of the Kerala
High Court which has held Section 59A of the Kerala General Sales Tax Act, 1963
(for short 'the Act') as being invalid.
in these appeals, manufacture and sell various commodities like copper sulphate,
batteries, battery plates, electrical goods, laboratory apparatus, battery
spare parts etc. If during the course of their assessment proceedings under the
Act any question used to arise relating to the rate of tax leviable on the
goods sold by various dealers or the entry under which a particular item sold
by a dealer would fall the same used to be decided by the assessing and the
appellate authorities under the Act. By an amendment Section 59A was inserted
in the Act with effect from 1st April, 1978.
This section sought to give power to the Government to determine the rate of
tax and it reads as follows:
Power of Government to determine rate of tax - If any question arises as to the
rate of tax leviable under this Act on the sale or purchase of any goods, such
question shall be referred to the Govt. for decision and the decision of the
Government thereon shall notwithstanding any other provision in this Act, be
final." In exercise of the powers given by the said Section 59A the State
Govt. issued orders, from time to time, purporting to clarify the rate of sales
tax. On 23rd April,
1984, an order was
issued by the State Govt. Purporting to clarify the rate of sales tax on
various items. One of the items contained in this order was tinned foods like Horlicks,
Viva, Boost, Bournvita, Ovumalt etc. By this order the Government stated that
the said items of tinned food were covered by Entry-6 of the First Schedule of
Parry and Company, one of the respondents in these appeals, wrote a letter
dated 11th Dec., 1984 to the Secretary, Board of Revenue,
with regard to the classification of aforesaid item - Horlicks. It was stated
in this letter that they were registered dealers since 30th June, 1957 and all along successive officers
had accepted their classification of Horlicks as a mild product falling under
SI. No. 33 of the First Schedule and therefore, they were liable to pay tax at
a lesser rate and not at the rate of ten per cent which was payable under SI. No.
6 of the First Schedule. To thin letter the reply which was received was to the
following effect : "No.0S 2661/85/TX/Ldis. Office of the Board of Revenue
(Taxes) Trivandrum - 1 dated 31.1.1985 From The Secretary, Board of Revenue
(Taxes), Trivandrum To M/s Parry & Company Ltd., "DARE HOUSE"
Post Box No.12, Madras - 600001 Gentleman, Sub :Taxes - Sales tax rate of tax
on Horlicks etc.
:Your letter dated 11.12.1984 The case at issue has already been examined
previously and Govt. In GO Rt.314/84/TD Dt. 23.4.1984 have clarified that Horlicks
would come under Entry 6 of the First schedule to the K.G.S.T.Act, 1963.
faithfully Sd/- (Secretary [Taxes]}" It is in view of such decisions taken
by the State Govt. in determining the entries under which different items would
fall, in exercise of its power under Section 59A of the Act, that the
respondents in these appeals filed different writ petitions in the Kerala High
Court challenging the constitutional validity of Section 59A. The main
contention of the dealers was that Section 59A gave the Govt. arbitrary and
unguided power in determining the rate of tax applicable to different items and
furthermore, the said power had in fact been exercised in an arbitrary manner.
High Court in the impugned judgment referred to an earlier bench decision of
that Court in Dadha Pharma Pvt. Ltd. of revision before the High Court under
Section 41 of the Act.
High Court had to deal with the applicability of Section 59A in that case. As
it was exercising limited jurisdiction of tax revision it obviously could not
pronounce on the constitutional validity of Section 59A. The Court observed
that if literal meaning was given to the words used in that Section then such
literal interpretation would render the Section vulnerable to attack of being
vague and uncertain and as one taking away guaranteed rights. The Court,
however, read down the section in a drastic manner and sought to provide some
safeguards against the arbitrary exercise of power by the Govt.
present case the High Court, exercising its jurisdiction under Article 226 of
the Constitution, felt unfettered and proceeded to examine the constitutional
validity of the said provision. After analysing the provision and seeing the
manner in which the power had been exercised under Section 59A of the Act, the
High Court came to the conclusion that the said section had all of the features
of deleterious vagueness and it was unconstitutional being violative of Article
14 of the Constitution.
behalf of the appellants it was contended by Mr. K.N.Bhat, learned senior counsel,
that Section 59A is a piece of delegated legislation conferring power on the
Govt. to decide any question regarding rate of tax. The section, it was
submitted, furnishes the limitations subject to which the power could be
exercised. This power, it was contended, was in respect of classification under
the Schedule and not for levying a tax.
other hand the learned counsel for the respondents submitted that the effect of
Section 59A is that whenever a direction is issued under the said provision the
statutory right of appeal etc. is taken away and the section itself contains no
guidelines and gives unbridled powers to the Govt. to act in any manner it
other taxing statutes the Kerala General Sales Tax Act contains elaborate
provisions relating to assessment of tax and filing of appeals and revisions to
the higher authorities.
IV deals with assessment, collection and levy of tax.
17 contains the procedure which is to be followed by the assessing authority.
If the assessing authority does not accept the return as submitted by the
dealer then he is under an obligation to give a reasonable opportunity to the
dealer of being heard before finalising the assessment. In the event of the
dealer being aggrieved by the assessment order so passed Chapter-VII contains
provisions for appeals and revisions.
to the Appellate Assistant Commissioner is filed under Section 34; Section 36
gives the power to the Deputy Commissioner to revise an order on an application
being made and power of revision is also given to the Board of Revenue under
Section 38 of the Act. Section 39 is a provision which provides for appeal to
the Appellate Tribunals against certain orders. Section 40 enables an appeal to
be filed to the High Court by any person objecting to an order affecting him
which was passed by the Board of Revenue under Section 37, while Section 41
gives a person right to file a revision in the High Court from an order passed
by the Tribunal under Section 39 of the Act. It is apparent from reading of
these provisions that questions like the rate of tax or the entry under which
sale of particular goods are to be taxed can be raised and determined before
various quasi judicial and judicial authorities. There is a right of appeal and
revision which is given to a person who is aggrieved by any order.
reading of Section 59A shows that if any question relating to the rate of tax leviable
under the Act on any goods is referred to the Govt. then its decision thereon,
notwithstanding any other provision in this Act is final".
section does not indicate as to who can make a reference to the Govt. There is
no obligation on the Government to hear any dealer before it decides as to the
rate of tax leviable on the sales or purchase of any type of goods. In fact, as
we have noticed earlier, by an omnibus order dated 23rd April, 1984 the Govt. decided rates of tax payable in respect of
various items without any opportunity of being heard having been granted to any
of the dealers. Lastly section 59A clearly states that the decision so given by
the Govt. shall be final and would have an over-riding effect.
is no warrant in our opinion in trying to read down the provisions of Section
59A. The works of the said provision are clear and unambiguous. The said
section gives absolute power to the Govt. to decide any question regarding the
rate of tax leviable on the sale or purchase of goods any manner it deems
proper and finality is given to such a decision.
59A enables the Govt. to pass an administrative order which has the effect of
negating the statutory provisions of appeal, revision etc. contained in Chapter
VII of the Act which would have enabled the appellate or reversional authority
to decide upon questions in relation to which an order under Section 59A is
passed. Quasi judicial or judicial determination stands replaced by the power
to take an administrative decision. There is nothing in Section 59A which
debars the Government from exercising the power even after a dealer has succeeded
on a question relating to the rate of tax before an appellate authority. The
power under Section 59A is so wide and unbridled that it can be exercised at
any time and the decision so rendered shall be final. It may well be that the
effect of this would be that such a decision may even attempt to over-ride the
appellate or the reversional power exercised by the High Court under Section 40
of the Act as the case may be. The section enables passing of an executive
order which has the effect of subverting the scheme of a quasi-judicial and
judicial resolution of the lis between the State and the dealer.
unable to agree with the submission of Mr. Bhat that the section furnishes a
limitation subject to which the power can be exercised. The section does not
contain any guidelines as to at what stage the power can be exercised and not
does the exercise of such a power make it amenable to the appellate or reversional
provisions provided by the Act. It is no doubt true that in certain enactments
of other States the Govt. has the power but such power is not unbridled. For
example under Section 49 of the Delhi Sales Tax Act, 1975, power has been given
to the Commissioner of Sales Tax to determine certain disputed questions. The
said section reads as under:
Determination of disputed questions - (1) If any question arises, otherwise
than in proceedings before a court, or before the Commissioner has commenced
assessment or reassessment or a dealer under section 23 or section 24, whether
for the purposes of this Act.
person, society, club or association or any firm or any branch or department of
any firm is a dealer; or
any particular thing done to any goods amounts to or results in the manufacture
of goods within the meaning of that term as given in clause (h) of section 2;
transaction is a sale, and if so, the sale price therefor; or
particular dealer is required to be registered; or
tax is payable in respect of any particular sale or if the tax is payable, the
rate thereof; the Commissioner shall, within such period as may be prescribed
make an order determining such question.
Explanation - For the purposes of this
sub-section, the Commissioner shall be deemed to have commenced assessment or
reassessment of a dealer under section 23 or section 24, when the dealer is
served with any notice by the Commissioner under section 23 or section 24, as
the case may be.
The Commissioner may direct that the determination shall not affect the
liability of any person under this Act as respects any sale effected prior to
any such question arises from any order already passed under this Act or under
the Bengal Finance (Sales Tax) Act, 1941, as then in force in Delhi, no such question shall be
entertained for determination under this section; but such question may be
raised in appeal against or by way of revision of such order." The
aforesaid section itself provides that a question for determination must arise
otherwise than in proceeding before a Court or before the Commissioner has
commenced assessment or re-assessment. Furthermore sub-section 2 enables the
Commissioner to direct that the determination of the question shall not affect
the liability of any person under that Act in respect to any sale effected prior
to the determination. No such safeguard or guideline as provided in said
Section 49 of the Delhi Sales Tax Act is present in the main provision.
in complete agreement with the view of the Kerala High Court that Section 59A
of the Act is violative of Article 14 of the Constitution and the High Court
was, therefore, right in striking down the said provision. For the aforesaid
reasons these appeals are dismissed with costs.