M/S
Sharma Transport Rep. by Shri D.P.Sharma Vs. Government of A.P. & Ors
[2001] Insc 631 (3
December 2001)
B.N.
Kirpal, K.G. Balakrishnan & Arijit Pasayat Arijit Pasayat, J.
With [C.A. No.4999-5008/2000, C.A. No. 5009/2000, C.A.No.5010/2000, C.A. No.5011/2000, C.A.
No.5012/2000]
J U D
G M E N T
These
appeals relate to a common judgment of the Andhra Pradesh High Court by which
challenge to Notification issued by the State Government in G.O. Ms. No.83,
Transport, Roads and Buildings (Tr.II) Department dated 5.6.2000 was rejected.
By the said Notification issued under clause (b) of Section 9(1) of the Andhra
Pradesh Motor Vehicles Taxation Act, 1963 (in short 'the Taxation Act') an
earlier order dated 1.7.1995 issued by the Transport, Roads and Buildings (Tr.
II) Department, was cancelled. The appellants who are operators of tourist
buses originating from Karnataka State (their home State) and plying in
adjacent States including the State of Andhra Pradesh filed the writ petitions
assailing the legality and constitutional validity of the said Notification
dated 5.6.2000.
Case
of the appellants as canvassed before the High Court and reiterated in this
Court is essentially as follows:
Vehicles
of the appellants are covered by the tourist vehicles permits issued by the
State Transport Authority, Karnataka under Rule 64(1) of the Karnataka Motor
Vehicles Rules and the authorization certificates issued by the same authority
under the Motor Vehicles (All India Permit for Tourist and Transport Operators)
Rules, 1993 (in short 'permit rules) and also the recognition certificates
issued by the Director of Tourism, Bangalore under the said Rules. By virtue of
these permits and certificates, tourist vehicles of the appellants are
authorized to ply in certain contiguous States including the State of Andhra Pradesh. Central Government after
discussions with the State Governments and with their consent formulated
policies in the matter of concessions to be extended to tourist vehicles. A
Notification dated 1.7.1995 was issued pursuant to a directive of the Central
Government and its withdrawal is clearly unconstitutional. Rule 1(4) of the
Permit Rules makes it clear that the conditions prescribed in Rules 82 to 85A
of the Central Motor Vehicles Rules, 1989 (in short 'the Central Rules') do not
apply to permits granted under the scheme governed by the Permit Rules.
Therefore,
in the garb of levying taxes on fares and freights, the directives of the
Central Government are being violated and the same is impermissible.
With
reference to Articles 73, 256 and 257 of the Constitution of India 1950 (for
short 'the Constitution'), it is submitted that the directives of the Central
Government are binding and the withdrawal Notification i.e. G.O.Ms.No.83 dated
5th June, 2000 is clearly illegal. With reference to Entry 35 of List III of
the Seventh Schedule, it was submitted that the earlier Notification was in
accord with the said entry. Section 88(9) of the Motor Vehicles Act, 1988 (in
short 'the Act') throws considerable light on the controversy and similar is
the position in respect of Section 88(14) of the Act. State Legislature has no
competence to rescind or reverse the Notification conferring the benefits of concessional
rate of tax to tourist operators. State law cannot go counter to the directives
of Central Government on this subject. Therefore, the impugned Notification is
beyond the legislative power which the State derives under Entry 57 of List II
of the Seventh Schedule to the Constitution, in view of the express language used
in Entry 35 of List III and also by virtue of the mandate contained in Article
254 of the Constitution. A plea of promissory estoppel was also pressed into
service. It was submitted that the withdrawal of the concessional tax is an
instance of arbitrary exercise of power which is not backed by any relevant
consideration. Article 256 of the Constitution obligates the State to exercise
its executive power to ensure compliance with the laws made by Parliament.
Therefore, the impugned Notification could not have been withdrawn. In any
event, after the withdrawal of the Notification there was a repeal of the
relevant provision and without an operative Notification, taxes cannot be
charged. Lastly, it was submitted that the action is clearly violative of
guarantees and protections provided by Article 301 of the Constitution. It is
to be noted that except the last stand indicated above, all other stands were
examined by the High Court and negatived.
It was
submitted by learned counsel appearing for the appellants that reliance placed
by the High Court on the decision of this Court in B.A.
In appropriate
as factual and legal background involved are different. In any event, some of
the observations made in the said case need re-consideration in view of what
has been stated by a 7-Judge Bench in The Automobile SCR 491).
Learned
Solicitor General appearing for the Union of India stated that the letter dated
30th August, 1993 issued by the Joint Secretary to the Government of India to
which reference was made in the Notification dated 1.7.1995 cannot be construed
to be a directive by the Central Government to the States. Apparently, Articles
73, 256 and 257 deal with different situations in which directives can be
issued. But the present case is one to which none of these Articles apply. He,
however, submitted that there are certain observations in Jayaram's case
(supra) which are prima facie at variance with the views expressed by the
larger Bench in the Automobile Transport's case (supra).
Learned
counsel appearing for the State of Andhra Pradesh submitted that there was no challenge before the High Court
on the question of Article 301 of the Constitution, except a vague and general
plea taken in the writ petitions. In any event, this was a case to which
Article 301 of the Constitution had no application. In fact, President's assent
had been taken and, therefore, without any plea being taken as to how the levy
is not reasonable or is not in public interest. For the first time in these
appeals, such a plea cannot be pressed into service. It was also submitted that
this was not a case of repeal and was cancellation of a Notification in terms
of Section 9 (1)(b) of the Taxation Act.
The
respective stands need careful consideration. The primary question which
appears to have been urged before the High Court was whether the letter of
Joint Secretary to the Government of India dated 30th August, 1993 is in the nature of directive. Articles 73, 256 and 257 are
the relevant provisions. Article 73 relates to the extent of executive power of
the Union, while Articles 256 and 257deal with obligation of States and the Union and the control of the Union over the States in certain cases respectively. Entry
57 of List II of 7th Schedule deals with taxes on motor vehicles. This is,
however, subject to the provisions of Entry 35 of List III.
The
said Entry of the Concurrent List reads as under:
"Mechanically
propelled vehicles including the principles on which taxes on such vehicles are
to be levied".
By no
stretch of imagination the letter dated 30th August, 1993 can be regarded as a law laying
down the principles of taxes on vehicles. It cannot also be treated as a
subordinate legislation deriving its power or force from the Act or any other
law made by the Union. It has been fairly stated by learned
Solicitor General that though reference has been made to the consent of the
various State Governments, it cannot be treated to be a directive. It was only
a request to the States to act in terms of the deliberations which took place
at the meeting of the Transport Development Council. The letter so far as
relevant reads as follows:
"No.RT-11053/1/92-MVL
(Vol.II) 30th August,
1993 To:
All
the Transport Secretaries of The State Govts./Union Territory Administrations.
Sub:
Scheme for national permits for tourist coaches.
Sir, 1
2.3. I am writing to request you to take necessary action to incorporate these
provisions relating to composite fee in the State Motor Vehicles Taxation Rules
and also issue necessary instructions/guidelines to the State Transport
Authorities for grant of permits. It may also be clarified that the composite
fee is in lieu of all taxes.
Yours
faithfully, (C.S.Khairwal) Joint Secretary to the Govt. of India" This is
not a case where the theory of occupied field can be made applicable. The
Taxation Act essentially deals with fares charged from passengers and freight
collected from them. On the contrary, the Act deals with levy on vehicles. They
are conceptually different. Whatever has been stated above in the background of
Article 73 is equally applicable to Articles 256 and 257 of the Constitution.
Article 256 provides that the executive power of every State shall be so
exercised as to ensure compliance with the laws made by Parliament and any
existing laws which apply in that State and the executive power of the Union
shall extend to the giving of such directions to a State as may appear to the
Government of India to be necessary for that purpose. This Article has
application only when any law has been made by Parliament and the executive
power of the State is made subservient to it by requiring it to ensure
compliance with such laws. Where it appears to the Government of India that it
is so necessary to do, directions can be issued. Article 257 provides that the
executive power of every State shall be so exercised as not to impede or
prejudice the exercise of the executive power of the Union. Where the Government of India feels it so necessary
to do so, it can issue a direction. At the cost of repetition it may be noted
that there is no law specifying the principles of taxation on the subject
matter of controversy so as to bring in application of either Article 256 or
Article 257 of the Constitution.
It has
to be noted that clause (b) in Article 73 cannot apply to legislative powers of
the State. The expression 'agreement' referred to in the said clause has to be
considered in terms of Article 299 of the Constitution.
Article
246 deals with subject matter of laws made by Parliament and Legislatures of
States. Clause (1) of the said Article gives exclusive power to deal with the
matters enumerated in List II of the Seventh Schedule. The expression 'for that
purpose' in Article 256 refers to the requirement of compliance with the laws
made by Parliament. Article 256 operates if the Government of India feels that
the executive power of the States is being exercised in a manner which may
amount to impediment with the executive power of the Union. It has to be noted that Entry 56 of List II of the
Seventh Schedule deals with passengers and the Union has no power to levy taxes in respect of passengers. Above
being the position, there is no substance in the plea of the appellants that
the letter of the Joint Secretary to the Government of India dated 30th August, 1993 was in the nature of a direction.
It is
also submitted that Rule 1(4) of the Permit Rules is intended to curtail the
power of State to levy taxes in respect of vehicles. This plea also is without
any substance. The said rule is not intended to have the effect of curtailing
power of States to levy taxes under relevant enactments. The said Rule reads as
follows:
"1(4):
The conditions prescribed in Rules 82 to 85-A of the Central Motor Vehicles
Rules, 1989 shall not apply to the permits granted under this scheme".
Power
to levy taxes on vehicles, whether mechanically propelled or not vests solely
on the State Legislature, though it may be open to the Parliament to lay down
the principles on which the taxes may be levied on mechanically propelled
vehicles in the background of Entry 35 of List III.
To put
it differently, Parliament may lay down the guidelines for the levy of taxes on
such vehicles, but the right to levy such taxes vests solely in the State
Legislature. No principles admittedly have been formulated by the Parliament.
In that sense, the Government of India's communication dated 30th August, 1993 does not in any sense violate the
power of the State Legislature or its delegatee to levy or exempt taxes from
time to time.
It is
the stand of the appellants that what is ruled out by application of Rule 1(4)
of the Permit Rules has been indirectly brought into force.
Reference
has been made to Rule 84 of the Central Rules to submit that the levy which is
permitted in terms of that rule is clearly excluded of its application. This
plea is equally without any substance as Rule 84 states that the liability to
pay taxes under the law does not cease merely on account of obtaining a tourist
permit. Said rule is not a substantive charging provision as far as levy is
concerned. The power to levy tax, to reduce or exempt the tax and to withdraw
concession granted did not have its source in Rule 84, but are clearly founded
on the taxing statutes i.e. Taxation Act. It is nobody's case that State is
authorized to levy or collect taxes only by operation of Rule 84.
Next
plea is the oft repeated one of promissory estoppel. It has to be noted that
even though a concession is extended for a fixed period, the same M/s Shree Durga
Oil Mills and Anr. (1997 (7) SCALE 726), it has been held by this Court that a
Notification granting exemption of tax can be withdrawn by any point of time.
There cannot be estoppel against any statute. Where it is in public interest,
the Court will not interfere because public interest must override any
consideration of private loss or gain [see was observed that where there was
supervening public interest, the Government is free to change its stand and
withdraw the exemption already granted. One such reason for changing its policy
decision can be resource crunch and the loss of public revenue. There is
preponderance of judicial opinion that to invoke the doctrine of promissory estoppel,
clear, sound and positive foundation must be laid in the petition itself by the
party invoking the doctrine and that bald expressions, without any supporting
material, to the effect that the doctrine is attracted because the party
invoking the doctrine has altered its position relying on the assurance of the
Government would not be sufficient to press into aid the doctrine. The
principle of promissory estoppel is that where one party has by his word or
conduct made to the other a clear and unequivocal promise or representation
which is intended to create legal relations or affect a legal relationship to
arise in the future, knowing or intending that it would be acted upon by the
other party to whom the promise or representation is made and it is in fact so
acted upon by the other party, the promise or representation would be binding
on the party making it and he would not be entitled to go back upon it, if it
would be inequitable to allow him to do so, having regard to the dealings which
have been taken place between the parties. The doctrine of promissory estoppel
is now well established one in the field of administrative law. The foundation
for the claim based on the principle of promissory estoppel in Pensions (1949
(1) K.B. 227). Prof. De Smith in his "Judicial Review of Administrative
Action" (4th Edition at page 103) observed that "the citizen is
entitled to rely on their having the authority that they have asserted".
Doctrine
of 'Promissory Estoppel' has been evolved by the courts, on the principles of
equity, to avoid injustice.
'Estoppel'
in Black's Law Dictionary, is indicated to mean that a party is prevented by
his own acts from claiming a right to the detriment of other party who was
entitled to rely on such conduct and has acted accordingly. Section 115 of the
Indian Evidence Act is also, more or less, couched in a language which conveys
the same expression.
'Promissory
Estoppel' is defined as in Black's Law Dictionary as 'an estoppel which arises
when there is a promise which promisor should reasonably expect to induce
action or forbearance of a definite and substantial character on the part of
promise, and which does induce such action or forbearance, and such promise is
binding if injustice can be avoided only by enforcement of promise'.
These
definitions in Black's Law Dictionary which are based on decided cases,
indicate that before the Rule of 'Promissory Estoppel' can be invoked, it has to
be shown that there was a declaration or promise made which induced the party
to whom the promise was made to alter its position to its disadvantage.
In
this backdrop, let us travel a little distance into the past to understand the
evolution of the Doctrine of 'Promissory Estoppel'.
Proprietary
Gold Mines Ltd. (1938 (59) CLR 641), laid down as under:
"It
is often said simply that the party asserting the estoppel must have been
induced to act to his detriment.
Although
substantially such a statement is correct and leads to no misunderstanding, it
does not bring out clearly the basal purpose of the doctrine. That purpose is
to avoid or prevent a detriment to the party asserting the estoppel by
compelling the opposite party to adhere to the assumption upon which the former
acted or abstained from acting. This means that the real detriment or harm from
which the law seeks to give protection is that which would flow from the change
of position if the assumption were deserted that led to it." The principle,
set out above, was reiterated by Lord Denning in 130), when he stated as under:
"A
promise intended to be binding, intended to be acted upon, and in fact acted
upon is binding" Lord Denning approved the decision of Dixon, J. (supra)
in Central 905). Apart from propounding the above principle on judicial side,
Lord Denning wrote out an article, a classic in legal literature, on
"Recent Developments in the Doctrine of Consideration", Modern Law
Review, Vol.15, in which he expressed as under :
"A
man should keep his word. All the more so when the promise is not a bare
promise but is made with the intention that the other party should act upon it.
Just a contract is different from tort and from estoppel, so also in the sphere
now under discussion promises may give rise to a different equity from other
conduct.
The
difference may, lie in the necessity of showing 'detriment'. Where one party
deliberately promises to waive, modify or discharge his strict legal rights,
intending the other party to act on the faith of promise, and the other party
actually does act on it, then it is contrary, not only to equity but also to
good faith, to allow the promisor to go back on his promise. It should not be
necessary for the other party to show that he acted to his detriment in reliance
on the promise. It should be sufficient that he acted on it." This
principle has been evolved by equity to avoid injustice. It is neither in the
realm of contract nor in the realm of estoppel. Its object is to interpose
equity shorn of its form to mitigate the rigour of strict law. In Union of inter alia observed as follows:
"We
are unable to accede to the contention that the executive necessity releases
the Government from honouring its solemn promises relying on which citizens
have acted to their detriment. Under our constitutional set up no person may be
deprived of his authority of law, if a member of the Executive seeks to deprive
a citizen of his right or liberty otherwise than in exercise of power derived
from the law common or statute the Courts will be competent to and indeed would
be bound to protect the rights of the aggrieved citizens." It was further
held in its summing up thus :
"Under
our jurisprudence the Government is not exempt from liability to carry out the
representation made by it as to its future conduct and it cannot on some
undefined and undisclosed ground of necessity or expediency fail to carry out
the promise solemnly made by it, not claim to be the Judge of its own
obligation to the citizen on an ex parte appraisement of the circumstances in
which the obligation has arisen." Ulhasnagar Municipal Council & Anr. (1970 (3) SCR 854), this doctrine of
promissory estoppel against public authorities was extended thus:
"This
Court refused to make distinction between the private individual and a public
body to far as the doctrine of promissory estoppel is concerned." &
Ors. (1979 (2) SCR 641), the doctrine of promissory estoppel was applied to the
executive action of the State Government and also denied to the State of the
doctrine of executive necessity as a valid defence. It was held that in a
republic governed by the rule of law, no one high or low, is above the law.
Every
one is subject to the law as fully and completely as any other and the
Government is no exception. The Government cannot claim immunity from the
doctrine of promissory estoppel. Equity will, in a given case where justice and
fairness demands, prevent a person from exercising strict legal rights even
where they arise not in contract, but on his own Title deed or in statute. It
is not necessary that there should be some pre-existing contractual
relationship between the parties. The parties need not be in any kind of legal
relationship before the transaction from which the promissory estoppel takes
its origin. The doctrine would apply even where there is no pre-existing legal
relationship between the parties, but the promise is intended to create legal
relations and effect a legal relationship which will arise in future. It was
further held that it is indeed pride of constitutional democracy and rule of
law that the Government stands on the same footing as a private individual so
far as the obligation of the law is concerned. The former is equally bound as
the latter. Therefore, the Government cannot claim any immunity from the
doctrine of promissory estoppel and it cannot say that it is under no
obligation to act in a manner, i.e., fair and just or that it is not bound by
the considerations of honesty and good faith. In fact, the Government should be
held a high standard of rectangular rectitude while dealing with citizens. Since
the doctrine of promissory estoppel is an equitable doctrine, it must yield
where the equity so requires. If it can be shown by the Government that having
regard to the facts as they have transpired, it would be inequitable to hold
the Government or public authority to the promise or representation made by it,
the Court would not raise an equity in favour of the promise and enforce the
promise against the Government. The doctrine of promissory estoppel would be
displaced in such a case, because on the facts, equity would not require that
the Government should be held bound by the promise made by it. But the Govt. must
be able to show that in view of the fact as have been transpired, public
interest would not be prejudiced. Where the Govt. is required to carry out the
promise the Court would have to balance, the public interest in the
Government's carrying out the promise made to the citizens, which helps
citizens to act upon and alter his position and the public interest likely to
suffer if the promises were required to be carried out by the Government and
determine which way the equity lies. It would not be enough just to say that
the public interest requires that the Govt. would not be compelled to carry out
the promise or that the public interest would suffer if the Govt. were required
to honour it. In order to resist its liability the Govt. would disclose to the
Court the various events insisting its claim to be except from liability and it
would be for the Court to decide whether those events are such as to render it
equitable and to enforce the liability against the Govt.
It is
equally settled law that the promissory estoppel cannot be used compelling the
Government or a public authority to carry out a representation or promise which
is prohibited by law or which was devoid of the authority or power of the
officer of the Government or the public authority to make. Doctrine of
promissory estoppel being an equitable doctrine, it must yield place to the
equity, if larger public interest so requires, and if it can be shown by the
Government or public authority for having regard to the facts as they have
transpired that it would be inequitable to hold the Government or public
authority to the promise or representation made by it. The Court on
satisfaction would not, in those circumstances raise the equity in favour of
the persons to whom a promise or representation is made and enforce the promise
or representation against Government or the public authority. These aspects
were highlighted by this Court in State of U.P.
and another (1998 (2) SCC 502). Above being the position, the plea relating to
promissory estoppel has no substance.
It has
been pleaded as noted above that withdrawal is without any rational or relevant
consideration. In this context, it has to be noted that the operators in the
State of Andhra Pradesh are required to pay the same tax as
those registered in other states. Therefore, there cannot be any question of
irrationality. The tests of arbitrary action applicable to executive action do
not necessarily apply to delegated legislation. In order to strike down a
delegated legislation as arbitrary it has to be established that there is
manifest arbitrariness. In order to be described as arbitrary, it must be shown
that it was not reasonable and manifestly arbitrary. The expression
"arbitrarily" means: in an unreasonable manner, as fixed or done
capriciously or at pleasure, without adequate determining principle, not
founded in the nature of things, non-rational, not done or acting according to
reason or judgment, depending on the will alone. In the present cases all
persons who are similarly situated are similarly affected by the change. That
being so, there is no question of any discrimination. That plea also fails.
What
remains now to be considered is plea in the background of Article 301 of the
Constitution. The said Article talks of freedom of trade, commerce and
intercourse. Imposition of a tax does not in every case tantamount to
infringement of Article 301. One has to determine whether the impugned
provision amounts to a restriction directly and immediately on the movement of
trade or commerce. In the Automobile's case (supra), this question was
elaborately and succinctly stated by this Court. Some of the observations
relevant for the present dispute are as follows:
"We
have tried to summarise above the various stand points and views which were
canvassed before us and we shall now proceed to consider which, according to
us, is the correct interpretation of the relevant articles in Part XIII of the
Constitution. We may first take the widest view, the view expressed by Shah,
J., in the Atiabari Tea Co. case ( 1961)1 SCR 809) a view which has been
supported by the appellants and one or two of the interveners before us. This
view, we apprehend, is based on a purely textual interpretation of the relevant
articles in Part XIII of the Constitution and this textual interpretation
proceeds in the following way. Article 301 which is in general terms and is
made subject to the other provisions of Part XIII imposes a general limitation
on the exercise of legislative power, whether by the Union or the States, under
any of the topics taxation topics as well as other topics enumerated in the
three lists of the Seventh Schedule, in order to make certain that "trade,
commerce and intercourse throughout the territory of India shall be free".
Having placed a general limitation on the exercise of legislative powers by
Parliament and the State Legislatures, Article 302 relaxes that restriction in favour
of Parliament by providing that that authority "may by law impose such
restrictions on the freedom of trade, commerce or intercourse between one State
and another or within any part of the territory of India as may be required in
the public interest". Having relaxed the restriction in respect of
Parliament under Article 302, a restriction is put upon the relaxation by
Article 303(1) to the effect that Parliament shall not have the power to make
any law giving any preference to any one State over another or discriminating
between one State and another by virtue of any entry relating to trade and
commerce in lists I and III of the Seventh Schedule.
Article
303(1) which places a ban on Parliament against the giving of preferences to
one State over another or of discriminating between one State and another, also
provides that the same kind of ban should be placed upon the State Legislature
also legislating by virtue of any entry relating to trade and commerce in lists
II and III of the Seventh Schedule. Article 303(2) again carves out an
exception to the restriction placed by Article 303(1) on the powers of
Parliament, by providing that nothing in Article 303(1) shall prevent
Parliament from making any law giving preference to one State over another or
discriminating between one State and another, if it is necessary to do so for
the purpose of dealing with a situation arising from scarcity of goods in any
part of the territory of India. This exception applies only to Parliament and
not to the State Legislatures. Article 304 comprises two clauses and each
clause operates as a proviso to Articles 301 and 303. Clause (a) of that
article provides that the Legislature of a State may "impose on goods
imported from other States any tax to which similar goods manufactured or
produced in that State are subject, so, however, as not to discriminate between
goods so imported and goods so manufactured or produced." This clause,
therefore, permits the levy on goods imported from sister States any tax which
similar goods manufactured or produced in that State are subject to under its
taxing laws. In other words, goods imported from sister States are placed on a
par with similar goods manufactured or produced inside the State in regard to
State taxation within the State allocated field. Thus, the States in India have
full power of imposing what in American State legislation is called the use
tax, gross receipts tax, etc., not to speak of the familiar property tax,
subject only to the condition that such tax is imposed on all goods of the same
kind produced or manufactured in the taxing State, although such taxation is
undoubtedly calculated to fetter inter-State trade and commerce. As was
observed by Patanjali Sastri, C.J., in State of commercial unity of India is
made to give way before the State power of imposing 'any' non-discriminatory
tax on goods imported from sister States. Now, clauses (b) of Article 304
provides that notwithstanding anything in Article 301 or Article 303, the
Legislature of a State may by law impose such reasonable restrictions on the
freedom of trade, commerce or intercourse with or within that State as may be
required in the public interest. The proviso to clause (b) says that no bill or
amendment for the purpose of clause (b) shall be introduced or moved in the
Legislature of a State without the previous sanction of the President. This
provision appears to be the State analogue to the Union Parliament's authority
defined by Article 302, in spite of the omission of the word 'reasonable'
before the word 'restrictions' in the latter article. Leaving aside the
pre-requisite of previous Presidential sanction for the validity of State
legislation under clause (b) provided in the proviso thereto, there are two
important differences between Article 302 and Article 304(b) which require
special mention. The first is that while the power of Parliament under Article
302 is subject to the prohibition of preferences and discriminations decreed by
Article 303(1) unless Parliament makes the declaration contained in Article
303(2), the State's power contained in Article 304(b) is made expressly free
from the prohibition contained in Article 303(1), because the opening words of
Article 304 contain a non-obstante clause both to Article 301and Article 303.
The second difference springs from the fact that while Parliament's power to
impose restrictions under Article 302 upon freedom of commerce in the public
interest is not subject to the requirement of reasonableness, the power of the
States to impose restrictions on the freedom of commerce in the public interest
under Article 304 is subject to the condition that they are reasonable".
Freedom
granted by Article 301 is of the widest amplitude and is subject to only such
restrictions as are contained in the succeeding Articles in Part XIII of the
Constitution. The following observations in Automobile's case are relevant:
"Even
in the matter of textual construction there are difficulties. One of the
difficulties which was adverted to during the Constituent Assembly debates
related to the somewhat indiscriminate or inappropriate use of the expressions
'subject to' and 'notwithstanding' in the articles in question. Article 302, as
we have seen, makes a relaxation in favour of Parliament. Article 303 again
imposes a restriction on that relaxation 'notwithstanding anything in Article
302 but Article 303 relates both to Parliament and the State Legislature,
though Article 302 makes no relaxation in favour of the State Legislature.
The
non obstante clause in Article 303 is, therefore, somewhat inappropriate.
Clause (2) of Article 303 carves out an exception from the restriction imposed
on Parliament by clause (1) of Article 303. But again clause (2) relates only
to Parliament and not to the State Legislature even though clause (1) relates
to both. Article 304again begins with a non-obstante clause mentioning both
Article 301 and Article 303, though Article 304 relates only to the Legislature
of a State. Article 303 relates to both the State Legislature and Parliament
and again the non obstante clause in article 304 is somewhat inappropriate. The
fact of the matter is that there is such a mix up of exception upon exception
in the series of articles in Part XIII that a purely textual interpretation may
not disclose the true intendment of the articles. This does not mean that the
text of the articles, the words used therein, should be ignored. Indeed, the
text of the articles is a vital consideration in interpreting them; but we must
at the same time remember that we are dealing with the constitution of a
country and the inter- connection of the different parts of the Constitution
forming part of an integrated whole must not be lost sight of. Even textually,
we must ascertain the true meaning of the word 'free' occurring in Article 301.
From what burden or restrictions is the freedom assured? This is a question of
vital Importance even in the matter of construction. In Section 92 of the
Australian Constitution the expression used was 'absolutely free' and
repeatedly the question was posed as to what this freedom meant.
We do
not propose to recite the somewhat chequered history of the Australian
decisions in respect of which Lord Porter, after a review of the earlier cases,
said in Commonwealth of Australia V. Bank of New South Wales ( 1950 AC 235)
that in the 'labyrinth of cases decided under Section 92 there was no golden
thread.' What is more important for our purpose is that he expressed the view
that two general propositions stood out from the decisions: (i) that regulation
of trade, commerce and intercourse among the States is compatible with its
absolute freedom, and (ii) that Section 92 of the Australian Constitution is
violated only when a legislative or executive act operates to restrict such
trade, commerce and intercourse directly and immediately as distinct from
creating some indirect or inconsequential impediment which may fairly be
regarded as remote. Lord Porter admitted "that in the application of these
general propositions, in determining whether an enactment is regulatory or
something more or, whether a restriction is direct or only remote or
incidental, there cannot fail to be difference of opinion." It seems
clear, however, that since "the conception of freedom of trade, commerce
and intercourse in a community regulated by law presupposes some degree of
restriction upon the individual", that freedom must necessarily be
delimited by considerations of social orderliness. In one of the earlier
Australian decisions (Duncan v. The State of Queensland) (1916 (22)
CLR 556), Griffith, C.J. said:
"But
the word "free" does not mean extra legem, any more than freedom
means anarchy. We boast of being an absolutely free people, but that does not
mean that we are not subject to law". (p.573) As the language employed in
Article 301 runs unqualified the Court, bearing in mind the fact that provision
has to be applied in the working of an orderly society, has necessarily to add
certain qualifications subject to which alone that freedom may be exercised.
This
point has been very lucidly discussed in the dissenting opinion which Fullagar,J.,
wrote in Mc Carter v. Brodie [(1950) 80 CLR 432], an opinion which was
substantially approved by the Privy Council in Hughes and Vale Proprietary Ltd.
V. State of New South Wales [(1955) AC 241]. The learned Judge gave several
examples to show the distinction between what was merely permitted regulation
and what true interference with freedom of trade and commerce. He pointed out
that in the matter of motor vehicles most countries have legislation which
requires the motor vehicle to be registered and a fee to be paid on
registration. Every motor vehicle must carry lamps of a specified kind in front
and at the rear and in the hours of darkness these lamps must be alight if the
vehicle is being driven on the road, every motor vehicle must carry a warning
device, such as a horn; it must not be driven at a speed or in a manner which
is dangerous to the public. In certain localities a motor vehicle must not be
driven at more than a certain speed. The weight of the load which may be
carried on a motor vehicle on a public highway is limited.
Such
examples may be multiplied indefinitely. Nobody doubts that the application of
rules like the above does not really affect the freedom of trade and commerce;
on the contrary they facilitate the free flow of trade and commerce. The reason
is that these rules cannot fairly be said to impose a burden on a trader or
deter him from trading: it would be absurd, for example, to suggest that
freedom of trade is impaired or hindered by laws which require a motor vehicle
to keep to the left of the road and not drive in a manner dangerous to the
public. If the word 'free' in Article 301 means 'freedom to do whatever one
wants to do' then chaos may be the result; for example, one owner of a motor
vehicle may wish to drive on the left of the road while another may wish to
drive on the right of the road. If they come from opposite directions, there
will be an inevitable clash. Another class of examples relates to making a charge
for the use of trading facilities, such as, roads, bridges, aerodromes etc.
The
collection of a toll or a tax for the use of a road or for the use of a bridge
or for the use of an aerodrome is no barrier or burden or deterrent to traders
who, in their absence, may have to take a longer or less convenient or more
expensive route. Such compensatory taxes are no hindrance to anybody's freedom
so long as they remain reasonable; but they could of course be converted into a
hindrance to the freedom of trade. If the authorities concerned really wanted
to hamper anybody's trade, they could easily raise the amount of tax or toll to
an amount which would be prohibitive or deterrent or create other impediments
which instead of facilitating trade and commerce would hamper them. It is here
that the contrast, between 'freedom' (Article 301) and 'restrictions' (Articles
302 and 304) clearly appears: that which in reality facilitates trade and
commerce is not a restriction, and that which in reality hampers or burdens trade
and commerce is a restriction. It is the reality or substance of the matter
that has to be determined. It is not possible a priori to draw a dividing line
between that which would really be a charge for a facility provided and that
which would really be a deterrent to a trade; but the distinction: if it has to
be drawn, is real and clear. For the tax to become a prohibited tax it has to
be a direct tax the effect of which is to hinder the movement part of trade. So
long as a tax remains compensatory or regulatory it cannot operate as a
hindrance".
It
was further observed:
"After
carefully considering the arguments advanced before us we have come to the
conclusion that the narrow interpretation canvassed for on behalf of the
majority of the State cannot be accepted, namely, that the relevant articles in
Part XIII apply only to legislation in respect of the entries relating to trade
and commerce in any of the lists of the Seventh Schedule. But we must advert
here to one exception which we have already indicated in an earlier part of
this judgment. Such regulatory measures as do not impede the freedom of trade,
commerce and intercourse and compensatory taxes for the use of trading
facilities are not hit by the freedom declared by Article 301.They are excluded
from the purview of the provisions of Part XIII of the Constitution for the
simple reason that they do not hamper trade, commerce and intercourse but
rather facilitate them".
The
following conclusions really constitute the core of the principles:
"Regulatory
measures or measures imposing compensatory taxes for the use of trading
facilities do not come within the purview of the restrictions contemplated by
Article 301 and such measures need not comply with the requirements of the
proviso to Article 304(b) of the Constitution".
It has
to be noted that in Automobile's case (supra) as quoted above, it was held that
it is the reality or substance of the matter that has to be determined. It is
not possible a priori to draw a dividing line between that which would really
be a charge for a facility provided and that which would really be a deterrent
to a trade; but the distinction: if it has to be drawn, is real and clear. For
the tax to become a prohibited tax it has to be a direct tax the effect of
which is to hinder the movement part of trade. So long as a tax rema`ins
compensatory it cannot operate as a hindrance. A Constitution Bench of this
Court considered an identical question in M/s Sainik Motors, Observations in Jayaram's
case (supra) to the following effect do not appear to have kept the said aspect
in view when it was observed as follows:
"Taxes
of a compensatory and regulatory character are outside the expanse of Article
301 of the Constitution.
Regulatory
measures and compensatory taxes far from impeding the free flow of trade and
commerce, often promote such free flow of trade and commerce by creating
agreeable conditions and providing appropriate services. All that is necessary
to uphold a tax which purports to be or is claimed to be a compensatory tax is,
"the existence of a specific, identifiable object behind the levy and a
nexus between the subject and the object of the levy".
(underlined
for emphasis) A mere claim that tax is compensatory would not suffice. To that
extent the observations in Jayaram's case (supra) do not reflect the correct
position in law. Whether a tax is compensatory or not cannot be made to depend
on the preamble of the statute imposing it. A tax cannot also be said not to be
compensatory because the precise or specific amount collected is not actually
used to providing any facilities.
We may
note here that though arguments were advanced in the background of Article 301
of the Constitution, as has been rightly submitted by the learned counsel for
the State of Andhra Pradesh, there were no pleadings in this regard in the writ
petitions, excepting some general statements about violation of Article 301. It
has been fairly considered that President's assent as required has been
obtained. Thus the case is not relatable to Article 301, but Article 304. With
reference to clause (b) of the said Article, it is submitted that mere
obtaining assent is not sufficient, and it has to be shown that the levy was in
public interest. There was no averment in the petitions before the High Court
in this regard. There was also no view expressed by the High Court on this
issue, in the absence of any argument or plea before it. The question whether
public interest was involved or not required a factual adjudication. Since
there were no pleadings, the State did not have an opportunity to indicate its
stand. Under the circumstances, we do not think it appropriate to consider that
question for the first time in these appeals, particularly, when factual
adjudication would be necessary.
Coming
to the plea relating to repeal of the Notification, it is to be noted that the
Notification dated 1.7.1995 was issued in exercise of powers conferred under
Section 9(1)(a) of the Taxation Act, while the impugned Notification was issued
in exercise of powers conferred under Section 9(1)(6) of the said Act. It is to
be noted that originally Notification was issued under Section 3 of the said
Act and its operation has not been questioned. That being the position, there
was no requirement to issue a fresh Notification to make the levy. Notification
dated 1.7.1995, did not supersede the original Notification issued under
Section 3 of the Taxation Act.
In the
result, the appeals are dismissed.
.J.
(B.N.
KIRPAL) .J.
(K.G.
BALAKRISHNAN) J.
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