Koluthara
Exports Ltd. Vs. State of Kerala & Ors [2002] Insc 57 (2 February 2002)
Cji,
Syed Shah Mohammed Quadri, U.C. Banerjee, S.N. Variava & Shivaraj V. Patil
Syed Shah Mohammed Quadri, J.
This
appeal arises from the judgment and order of a Division Bench of the High Court
of Kerala at Ernakulam upholding the constitutional validity of Section 4(2)
read with Section 2(d) of the Kerala Fishermen's Welfare Fund Act, 1985 (Act 30
of 1985) (as amended by Act 15 of 1987) (for short, 'the Act') in O.P.No.19806
of 1995 and the batch by the common judgment dated August 22/23, 1996.
On September 25, 1997 when this appeal came up for
hearing before a Bench of two learned Judges of this Court, it was noticed that
a Bench of three learned Judges of this Court in Gasket Radiators Pvt. Ltd. vs.
Employees' State Insurance Corporation & Anr. (1985 (2) SCC 68) had taken
the view that any contribution imposed by State Legislation under Entry 23 of
the Concurrent List would not amount to either tax or fee, which was relied
upon by the respondent-State and that the appellant placed reliance on
decisions of the Constitution Bench of this Court in The Corporation of
Calcutta & Anr. vs. Liberty Cinema (AIR 1965 SC 1107) and M/s.Hoechst
Pharmaceuticals Ltd. & Anr. vs. State of Bihar & Ors. (AIR 1983 SC
1019). It was submitted that compulsory impost could be either by way of tax or
fee and that the definition of 'taxation' as found in Article 366 (28) of the
Constitution of India and the said cases were not considered in Gasket Radiators
(supra). The appeal was, therefore, referred to a Bench of three learned
Judges. The Bench of three learned Judges opined that in Gasket Radiators
(supra), a concept of impost in the form of compulsory contribution had been
given birth to and whether such birth should further multiply was a question
touching the interpretation of the Constitution and referred the appeal to a
Constitution Bench of five Hon'ble Judges. That is how this appeal has come up
before us.
Mr.A.K.Jain,
the learned counsel appearing for the appellant, contended that the appellant
was a purchaser and exporter of fishes and there was no relationship of
employer and employee between the appellant and the fishermen as such the
Legislature cannot levy impost by way of contribution on it under Section 4(2)
of the Act and that the impugned provision was bad for want of legislative
competence.
Mr.K.N.Bhat,
the learned senior counsel appearing for the State of Kerala (respondent Nos.1
and 2), has argued that the Act and the scheme framed thereunder are welfare
legislation as postulated in Articles 39 and 41 of the Constitution for the
benefit of the fishermen who are members of poor and downtrodden community. His
further submission was that a legislation under Entry 23 of List III of the Seventh
Schedule of the Constitution requiring one set of persons to pay contributions
for the benefit of another set of persons, is valid and there need not be
relationship of employer and employee between them. To sustain the validity of
Section 4(2) of the Act he relied on the decisions of this Court in Mangalore Ganesh
Beedi Works etc. etc. vs. Union of India etc. (1974 (3) SCR 221) and Gasket
Radiators (supra). He submitted that this Court in Regional Executive, Kerala
Fishermen's Welfare Fund Board vs. Fancy Food & Anr. (1995 (4) SCC 341) had
held that the appellant was a dealer and liable to pay contributions under the
Act.
Mr.V.R.Reddy,
the learned senior counsel appearing for the Welfare Fund Board (respondent
No.3) while adopting the argument of Mr. Bhat, sought to justify the impost as
fee but inasmuch as the learned Advocate-General of the State of Kerala had
taken a stand before the High Court that the impost was neither tax nor fee we
did not permit him to urge that contention.
In
view of the stand of the State that the impost under Section 4(2) of the Act is
neither tax nor fee, it would not be necessary to consider the definition of
'taxation' in Article 366(28) of the Constitution and the decisions of this
Court in Corporation of Calcutta and M/s.Hoechst Pharmaceuticals Ltd.
(supra).
The
short but important question that arises is : whether the impugned impost
levied under Section 4(2) read with Section 2(d) of the Act, is
unconstitutional for want of legislative competence of the State of Kerala.
To
comprehend the nature and the extent of the impost, it will be useful to refer
to the relevant provisions of the Act.
Section
2 defines various terms employed in the Act.
Section
3 speaks of Fishermen's Welfare Fund Scheme. Sub- section (1) of Section 3 of
the Act enables the Government to frame a scheme to be called 'the Kerala
Fishermen's Welfare Fund Scheme' (for short, 'the scheme') for the
establishment of a fund under the Act by name "the Kerala Fishermen's
welfare Fund" (for short, 'the fund') for the welfare of fishermen and
directs that soon after the framing of the scheme the fund shall be established
in accordance with the provisions of the Act and the scheme. Various items of
amounts which form constituents of the fund and are required to be credited to
the fund are enumerated in sub-section (2). Clause (a) of sub-section (2)
refers to contributions required to be made under section 4 of the Act.
Sub-section (3) directs that the fund shall be vested in and administered by
the Board and sub-section (4) enumerates the objects of the fund. They are as under
:
"3.
Fishermen's Welfare Fund Scheme.- (1) to (3) *** *** *** (4) The fund may be utilised
for all or any of the following purposes, namely :-
(a) to
provide for distress relief to fishermen in times of natural calamities;
(b) for
payment of financial assistance to fishermen who suffer permanent or temporary
disablement;
(c) for
payment of loans or grants to fishermen to meet the expenses for the marriage
of children, or expenses in connection with disease or death of dependants, or
any unexpected expenditure or the day to day expenditure during loan months;
(d) to
provide for the fishermen and the members of their families,- (i) education,
vocational training and part- time employment;
(ii) social
education centres including reading rooms and libraries;
(iii) sports,
games and medical facilities;
(iv) nutritious
food for children; and
(v) employment
opportunities to the handicapped;
(e)
for payment of financial assistance to fishermen who suffer loss of houses or
fishing implements or any other damage due to natural calamities or other
unexpected causes;
(f) to
provide old age assistance to fishermen;
(g)
for the implementation of any other purpose specified in the scheme,"
Sub-section (5) says that every fisherman who is a member of a Fishermen's
Welfare Society constituted under Section 4 of the Kerala Fishermen Welfare
Societies Act, 1980 (7 of 1981) shall be a member of the fund and sub-section
(6) says that the scheme framed under sub-section (1) may provide for all or
any of the matters specified in sub-section (4) and in the Schedule.
Section
4 of the Act contains the list of contributors to the fund. Sub-Section (2) of
Section 4 which is impugned reads as under :
"4.
Contribution to the Fund - (1) - (1A) *** *** *** (2) A dealer shall contribute
to the Fund, every year, one per cent of his sale proceeds in the year."
Clause (d) of Section 2 defines the term 'dealer' in the following terms :
"2.
Definitions :- In this Act, unless the context otherwise requires, - (a) to (c)
*** *** *** (d) "dealer" means any person who carries on, within the
State of Kerala, the business of buying or selling or processing fish or
exporting fish (in raw or processed form) or fish products and includes, -
(i) a
commission agent, a broker or any other mercantile agent, by whatever name
called; and
(ii) a
non-resident dealer or an agent of a non-resident dealer or a local branch of a
firm or company or association situated outside the State of Kerala." Section 12 prescribes the
mode for determination of contribution and Section 13 deals with provisional
assessment and collection of advance contribution.
The
appellant, a dealer under the Act, was served with a notice by the Board under
Section 4(2) of the Act for the period 1988-89 to 1994-95 calling upon it to
show cause why contribution under Section 4 (2) of the Act should not be
demanded from it. It is alleged that without considering the objections, the
order of assessment was passed against it on November 30, 1995. This prompted the appellant to challenge the validity of
the assessment order and Section 4(2) of the Act, in the aforementioned writ
petition in the High Court of Kerala at Ernakulam which was dismissed by the
common judgment on August 22/23, 1996. It is against that order that the
appellant is in appeal before this Court.
Having
regard to the objects of the Act, the High Court opined that the fishermen are
the ultimate beneficiaries of this benevolent legislation. They fight against
the surging waves in the sea for catches of the fishes which after changing hands,
reach the exporters for being exported to foreign countries. The fishermen are
the backbone of the industry and without them the industry cannot exist and
unless they are kept in good humour, the industry cannot nourish or flourish.
Therefore, there is very intimate nexus between the fishermen and an exporter
of the marine products like the appellant. The learned judges of the High Court
also opined that the employee- employer relationship was not wanting in the
cases.
The
Statement of Objects and Reasons of the impugned Act shows that the fishermen
belong to one of the weakest sections of our society. The reasons for their
poor socio- economic condition are stated to be manifold. During off- season
and lean months as well as on special occasions like marriage, death, religious
and social functions etc., in the families, the poor fishermen are forced to
borrow heavily from local money lenders or owners of craft at exorbitant rates
of interest. They often fail to clear off the accumulated debts with the result,
they are permanently indebted to the money lenders and also forced to sell away
the fruits of their hard labour at the prices dictated by the money lenders.
Due to the risky nature of their occupation they are prone to accidents. They
are subjected to loss of houses and fishing implements due to natural
calamities. There is need for providing adequate educational facilities and
vocational training and for providing old age assistance to them.
The
Preamble to the Constitution records the resolve of the people of India to secure to all its citizens
Justice, inter alia, social, economic and political. Part IV of the
Constitution embodies the Directive Principles of State Policy which, though
not enforceable by any court, are fundamental in the governance of the country.
Article 39 enjoins that it shall be the duty of the State to apply those
principles in making laws.
Clauses
(b), (c) and (e) respectively of Article 39 lay down that the State shall, in
particular, direct its policy towards securing that the ownership and control
of material resources of the community are so distributed as best to subserve
the common good; that the operation of economic system does not result in
concentration of wealth and means of production to the common detriment and
that the health and strength of workers, men and women, and the tender age of
children are not abused and that citizens are not forced by economic necessity
to enter avocations unsuited to their age or strength. Article 41 directs that
the State shall, within the limits of its economic capacity and development
(emphasis supplied), make effective provision for securing the right to work,
to education and to public assistance in cases of unemployment, old age,
sickness and disablement, and in other cases of undeserved want.
Keeping
these constitutional objectives and the Statement of Objects and Reasons in
mind it cannot but be said that the Act and the establishment of welfare fund thereunder
for requirements of fishermen outlined in sub-section (4) of Section 3 of the
Act is a commendable legislation. It will be apt to refer to the observations
of Alagiriswami, J. in his concurring opinion in Mangalore Ganesh Beedi Works
(supra) :
"Nobody
can dispute the need for setting right those evils. But good intentions should
not result in a legislation which would become ineffective and lead to a lot of
fruitless litigation over the years." Now adverting to the constitutional
validity of the impugned provisions, it must be remembered that Part IV of the
Constitution contains, as noticed above, fundamental principles in governance
of the country. They indicate and determine the direction for the State but
they are not legislative heads or the fields of legislation like the Entries in
the Lists I, II and III of the Seventh Schedule of the Constitution. When any
statute of a State or any provision therein is questioned on the ground of lack
of legislative competence, the State cannot claim legitimacy for enacting the
impugned provisions with reference to the provisions in Part IV of the
Constitution; the legislative competence must be demonstrated with reference to
one or more of the Entries in Lists II and III of the Seventh Schedule of the
Constitution. It is stated that the legislative competence is referable to
Entry 23 of the Concurrent List, which may be extracted here :
"List
III - Concurrent List - 23. Social security and social insurance;
employment
and unemployment." There can be no doubt that Entry 23 enables the State
Legislature to enact a law in respect of social security and social insurance
or dealing with employment and unemployment. The provisions of sub-section (4)
of Section 3 of the Act (quoted above) postulate social security and welfare
measures for the fishermen. The State can, therefore, justify its competence
under this Entry. But, in our view, the State cannot, in an Act under Entry 23
of List III, place the burden of an impost by way of contribution for giving
effect to the Act and the scheme made thereunder for the social security and
social welfare of a section of society upon a person who is not a member of
such section of society nor an employer of a person who is a member of such
section of society. The burden of the impost may be placed only when there exists
the relationship of employer and employee between the contributor and the
beneficiary of the provisions of the Act and the scheme made thereunder.
The
validity of Employees' State Insurance Act, 1948, in regard to special contribution
of the employer under Chapter V- A of the said Act, was brought under challenge
in appeal before a three-judge Bench of this Court in Gasket Radiators (supra).
The
Court held that the payment of contribution by an employer towards the premium
of an employee's compulsory insurance under the Employees' State Insurance Act
fell directly under Entries 23 and 24 of List III. It was also held that the
contributions under the Act or contributions to provident fund or payments of
other benefits to workers are neither taxes nor fees and that they fall within
the ambit of Entries 23 and 24 of List III. We are in agreement with the
observations of Chinnappa Reddy, J. who speaking for the Court observed :
"In
our understanding, Entries 23 and 24 of List III, of their own force, empower
Parliament or the Legislature of a State to direct the payment by an employer
of contributions of the nature of those contemplated by the Employees' State
Insurance Act for the benefit of the employees." In Mangalore Ganesh Beedi
Works (supra), the constitutional validity of Sections 3, 4, 2(g), 2(g)(h),
2(m), 26, 27 and 31 of the Beedi and Cigar Workers (Condition of Employment)
Act, 1966 was assailed on the ground of lack of legislative competence in the
Parliament to enact such a law.
Having
noticed the special feature of the industry of manufacture of beedi through
various categories of workers, the said Act was passed by the Parliament to
provide for the welfare of workers in beedi and cigar establishments and to
regulate the conditions of their work and for matters connected therewith. A
Constitution Bench of this Court held that having regard to the true nature and
character of the legislation meant for enforcing better conditions of labour
amongst those who are engaged in the manufacture of beedis and cigars, the said
Act, in pith and substance, was for welfare of the labour falling within
Entries 22, 23 and 24 of List III. It was pointed out that the said Act had
fastened liability on the person who himself engaged labour or the person for
whom or on whose behalf labour was engaged or the person who had ultimate
control over the affairs of the establishment by reason of advancement of money
or of substantial interest in the control of the affairs of the establishment.
Thus, it is clear that in that case the impugned legislation, while creating
welfare scheme for beedi workers, levied impost by way of contributions on the
employer or a person in the position of an employer.
In
Regional Executive Kerala Fishermen's Welfare Fund Board (supra), the question
before this Court was whether exporters of fish meat, carrying on business of
buying processed fish and exporting the same, fell within the meaning of
'dealer' under Section 4(2) of the Act. The legislative competence of the State
Legislature and the constitutional validity of Section 4(2) of the Act did not
arise for the consideration of the Court in that case. That case, therefore,
does not advance the case of the respondents.
In the
instant case, the only nexus between the categories of persons covered by the
sweep of sub-section (d) of Section 2 of the Act, including the appellant, who
carry on the business of buying or selling or processing fish or exporting fish
(in raw or processed form) or fish products, including –
(i) a
commission agent, a broker or any other mercantile agent, by whatever name
called, and
(ii) a
non-resident dealer or an agent or a non- resident dealer or a local branch of
a firm or company or association situated outside the State of Kerala and the beneficiaries under the Act
and the scheme - the fishermen - is that the former are the purchasers and the
latter are the catchers and sellers of fish. Such a nexus, in our view, is not
sufficient to burden a purchaser/exporter with the impost or levy of the contribution
under Section 4(2) of the Act, which will clearly be outside the ambit of Entry
23 of List III of the Constitution and, therefore, lacking legislative
competence.
For
these reasons, Section 4(2) of the Act is declared to be unconstitutional. Consequently,
the order under challenge is set aside. The writ petition shall stand allowed
to that extent.
Mr.V.R.Reddy
submitted that the amounts, credited to the welfare fund by dealers under
Section 4(2) of the Act, had been expended by the Board for purposes of the Act
and the scheme so this Court might be pleased to relieve the Board of the
obligation to refund the amounts to the dealers-contributors.
On
hearing Mr.Jain and on careful consideration of the submission of Mr.Reddy, we
direct that pursuant to the declaration of invalidity of Section 4(2) of the
Act, the amount of contributions, already paid by persons falling under Section
4(2), will not be liable to be refunded to the dealers-contributors by the
Board.
The
appeal is allowed accordingly. In the circumstances of the case, we make no
order as to costs.
............................................CJI.
................................................J.
[Syed
Shah Mohammed Quadri] ................................................J.
[U.C.Banerjee]
................................................J.
[S.N.Variava]
................................................J.
[Shivaraj
V. Patil] February 1,
2002.
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