Report No. 61
4.13. An analysis of the doctrine.-
If the argument that there is a total surrender of the legislative function,1 is regarded as applicable to the provision in section 9(2) of the Central Sales Tax Act2, then, it could be contended with some force that Parliament is not competent to apply future amendments made by the States in their own Sales Tax laws, since Parliament could not have applied its mind to them. If such a view were to be taken by the Supreme Court, the majority interpretation3 of the present provision in section 9(2) will not stand.
1. Para. 4.12, supra.
2. Para. 4.4, supra.
3. Para. 4.5, supra.
4.13A. Three recent cases as to validity of sections 6, 8 and 9.-
Three cases1reported in 1973 raise the important question of the constitutional validity of sections 6, 8 and 9 of the Central Sales Tax Act, 1956. In all the cases, the impugned sections were challenged as violative of the principles of delegated legislation and, in particular, as violating the law laid down in Shama Rao v. Union Territory of Pondicherry, AIR 1967 SC 1480: (1967) 2 MCD 98, para. 4.11, supra. While all the judgments upheld the sections, the reasonings that were given were divergent, with the result that an authoritative interpretation should await a verdict from the Supreme Court. A brief review of the cases is given below.
1. See infra.
4.13AA. Gwalior Rayon case.-
In the Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. v. Assistant Commissioner of Sales Tax, (1973) 31 STC 9 (MP): 1973 MP LJ 85., the main ground of challenge was that since the Constitution vested the exclusive power of imposing sales tax on inter-State transactions in Parliament, it was not competent for Parliament to delegate the power of fixing rates of tax on such transactions to State Legislatures (section 8, inter alia, provided that a State Legislature could vary the rate of tax laid down in the section in certain circumstances). Section 8(2)(b), which provided that if a State fixes a higher rate than ten per cent. on intra-State sales that rate would apply to inter-State sales also in preference to the ten per cent. laid down by Parliament was challenged as amounting to abdication of legislative power by Parliament in favour of State Legislatures.
It was contended that section 8(2)(b) was ultra vires as it amounted to an effacement of itself by Parliament and, therefore, wholly invalid. Dayal, C.J.,1 negatived these arguments and accepted the contentions raised on behalf of the State that the instant case was not a piece of delegated legislation at all and that the principles relating thereto were inapplicable to such a case. On the other hand, he held, it was a case of legislation by reference by which an Act of another legislature was adopted without physically incorporating all the details.
1. Two separate but concurring judgments were given by Bishambhar Dayal, C.J. and Raina, J.
4.13B. Relying on text book writers on Constitutional Law on the distinction between Delegated Legislation and Legislation by reference, Dayal, C.J., concluded that since the provision actually referred to the law prevailing in a particular State and not to a particular part of the State, the reference should be treated as the adoption of the law as it stood from time to time. On this basis, he distinguished the decision in Shama Rao's case,1 Raina, J., also accepted the position that the present case was not a piece of delegated legislation and, therefore, there was no need to see if it suffered from excessive delegation.
However, he felt that the principles which limit excessive delegation would be a good guide to examine the question of abdication of legislative power of self-effacement in the case of legislation by reference also. The question that 'had to be decided was whether the power to determine the rate of tax (which, according to section 8(2)(b), could be increased by State Legislature to more than 10 per cent. as laid down in the Act) was an essential legislative function which could not be assigned to another legislative body, the executive or another authority.
Relying on Bose, J.'s views in Raj Narain Singh v. P.A. Committee, (1955) 1 SCR 290., that an executive authority could be authorised to modify existing and future laws excepting in essential features, Raina, J., inferred that since it was open to a Legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rate at which it is to be charged in respect of different classes of goods and the like, it could be said that the fixing of the rate of tax was not an essential feature of legislation relating to tax and hence could be assigned to another authority.
He distinguished the decision in Devi Das v. State of Punjab, (1967) 20 STC 430 (SC)., In this case, section 5 of the Punjab General Sales Tax Act, 1948 was struck down by the Supreme Court as self-effacement by the Legislature inasmuch as it conferred an uncontrolled power on the State Government to levy tax at rates fixed by itself. on the ground that the basis principle was that fixing of rate of tax could be delegated to an authority provided the statute contained a policy or principle which would furnish guidance to the delegate in the exercise of such powers. He held that fring the limit of the rate of tax was only one of the modes of exercising such guidance and was not the only method of doing so. A delegation could be controlled by indicating the policy, or by providing guidance otherwise.
1. He also distinguished the Shama Rao's case on the basis of the delegatee being the executive.
4.13C. Thus, Raina, J., though agreeing with the view that in a legislation by reference, it is permissible to adopt the provisions of another statute as they exist as well as any amendments in future, held that the question of abdication of the legislative function or self-effacement must, in such a case, be examined on the same principles as governed the limits of valid delegation. He distinguished the decision.in Shama Rao v. Union Territory of Pondicherry, (1967) 20 STC 215 (SC)., on one more ground other than those mentioned by Dayal, C.J., and said that in Shama Rao's case, an entire enactment which was not in force at the time of enactment was adopted. In the present case, there was adoption of a provision of the Act of the State legislature by general reference, which was limited to the rate of tax.
4.13D. Rallis India case, (Gujarat).-
The next case to be considered is a Rallis India Ltd. v. R.S. Joshi, 31 STC 261 (277) (Guj). The main argument was that Parliament had abdicated its legislative function in favour of State Legislatures in enacting sections 6, 8 and 9 of the Central Sales Tax Act. Bhagwati, C.J., narrowed down the scope of the inquiry to the proposition that it was sufficient to attract the constitutional inhibition against abdication if there was surrender by the legislature of an essential legislative function even in respect of a particular subject-matter of legislation in favour of another person or authority which was not empowered by the Constitution to exercise that function.
He then went on to discuss what was an essential legislative function. Relying on Mukherjea, J.'s observations in In re the Delhi Laws Act, 1912 (in re:), 1951 SCR 747,. that the essential legislative function consisted in the determination of the legislative policy and of formally enacting that policy into a binding rule of conduct, Bhagwati, C.J., explained that it was not always possible for the Legislature to ascertain the facts and circumstances "in all cases, which would have to be determined outside the halls of the legislature." The Legislature will have, in such circumstances, necessarily to delegate subsidiary or ancillary powers of legislation to delegates of its choice for carrying out the policy. However, such delegation should be within limits, and should not be "unconfined and vagrant".
He then posed the question: " has the Parliament said that within its allotted field, which is here tax on inter-State sales, what will operate is not its own legislative policy determined and "chosen by it, but legislative policy enunciated by the State Legislature, which has plenary power of legislation within its own field and which is not subject to any guidance or control from Parliament? If it has, it will be a clear case of abdication or self-effacement". After a detailed examination of sections 6, 8 and 9, he concluded that the provisions did not amount to abdication.
(i) The Court distinguished the power of State Legislatures under section 8 to declare the rate of tax as nil [under section 8(2A)] as not amounting to 'exemption' from tax. It did not affect chargeability, though the rate of tax might be nil.
(ii) About section 8(5), which empowered the State Government in the public interest to direct that the inter-State rate of tax would be at a rate lower than those prescribed in sub-sections (1) and (2), the court held that such a power was in the nature of a conditional legislation, which had been recognised since the decision in Queen v. Burah, (1878) 3 AC 889., Even assuming that the provision was a piece of delegated legislation, the court held that it was valid, because Parliament had clearly laid down the policy or principle which was to guide the State Government in exercise of the power, namely, that it should be in the public interest.
(iii) Regarding the rate of tax under section 8(2A) [sub-section (2A) of the section formed the target of the main attack], the court held that a deliberate choice of legislative policy on the part of Parliament was discernible, inasmuch as the purpose behind the provisions in section 8(2A) was to ensure that consumers in the States to which the goods were imported were not placed at a disadvantage as compared with the consumers in the State from which the goods were imported.
This could haze been carried out by Parliament-(1) by prescribing separate schedules of rates for each State in the Act itself and by amending it from time to time as and when changes were brought in State rates, or (2) by prescribing separate schedules of rates in the Act and allowing the State to amend them from time to time, or (3) by adopting the rate structure as provided in sub-sections (1), (2) and (2A) of section 8. The first two methods, which were undoubtedly within Parliament's competence, could not be adopted on practical considerations. The third, which provided a self-operating machinery whereby the rate structure of the Central Act could be adjusted to the rate structures of State sales tax laws according to the formula laid down in section 8, provided, according to the court, a highly efficient method of carrying out the legislative policy.
4.13E. This was the position regarding section 8, as discussed in Rallis India case. Section 9, which provided that the existing machinery in each State for assessment, re-assessment, collection and enforcement of payment of tax on intra-State sales would assess, re-assess, collect and enforce payment of inter-State tax under the Act, was also (in that case) challenged as exceeding the limits of delegated legislation, inasmuch as it related to substantive matters rather than adoption of procedural provisions. On this, Bhagwati, C.J., found nothing excessive as far as the adoption of the general sales tax law of the appropriate State in the matter of advance payment of tax was concerned.
On the question of adoption of provisions relating to penalty, imposition of tax liability on a transferee of or successor to a business and recovery of tax from third parties, the court did not give any opinion. However, it was observed that even if they were violative of any principle, the provision was clearly severable, and would not affect the validity of section 9. On the question of the applicability of Shama Rao v. Union Territory of Pondicherry, (1967) 20 STC 215 (SC)., the Court held that Parliament had applied its mind and made a deliberate choice of legislative policy, and there was no parallel between the existing situation and that decision.
4.13F. Thallam case (Andhra).-
In the Thullam Balasubrahmanyam v. State of Andhra Pradesh, (1973) 31 STC 489 (AP): (1972) 1 An WR 263., also, the grounds of attack (before the Andhra Pradesh High Court) were alleged abdication by Parliament of its legislative function in the enactment of sections 8 and 9 of the Act. Gopal Rao Ekbote J., reduced the question to whether even essential functions of legislation, that is to say, laying down the policy and a rule of binding conduct, had been delegated by Parliament to an agency not contemplated by the Constitution. On section 8, the court held that Parliament could not be said to have abdicated its functions merely because it had authorised the State Legislature to fix the same rates in respect of transactions within the State and apply them to transactions which were subject to central tax.
The Court held that it was not a case of applying future laws to central transactions without Parliament applying its mind, but a piece of delegated legislation. On this view, the Court felt it unnecessary to consider the effect of the judgment in Shama Rao's case, supra., which, according to the Court, struck a different note as regards application of future laws from the previous decisions starting with Queen v. Burah, (1878) 3 AC 889., and In re Delhi Laws Act.1 Ekbote, J., concluded with the following observations:-
"We have no hesitation in holding that in delegating the power to fix the rates to the State Legislatures and applying those rates to the transactions subject to tax under the Central Sales Tax Act, whether prevailing or future, it is a case of permissible piece of delegated legislation and, therefore, quite valid. Sections 8 and 9, therefore, do not amount to abdication of legislative function by Parliament
Conclusion.-This observation would seem to indicate that the Court would have upheld any challenge as to the constitutionality of section 9(3) on the basis of prospective amendment of State Tax laws and their validity under section 9(3). The Mysore,2 M.P.3 and Punjab and Haryana High Courts4 have already held that section 9(3) was valid and prospective modifications and amendments to State tax laws and their applicability to transactions under the Central Sales Tax Act was not abdication of Parliamentary duty. The Madras High Court had, however, taken a different view.5
1. Delhi Laws Act, 1912 (in re:), 1951 SCR 747.
2. Mysore Electrical Industries v. Com. Tax Officer, AIR 1970 Mys 259.
3. Commissioner of S.T. v. Kantilal Mohan Lal, AIR 1968 MP 20.
4. Auto Pins (India) v. State of Haryana, AIR 1970 P&H 333.
5. (a) Haji Kareem Sait v. Dy. Coml. Tax Officer, AIR 1967 Mad 171. (b) D.H. Shah & Co. v. State of Madras, (1967) 2 MIJ (261).
4.13A. Punjab case.-
An argument that section 9(2) amounts to excessive delegation was advanced before the High Court1 of Punjab, which, however, rejected it. The High Court relied on clause (2) of Article 258 of the Constitution, which runs as follows2:-
"(2) A law made by Parliament, which applies in any State, may, notwithstanding that it relates to a matter with respect to which the Legislature of the State has no power to make laws, confer powers and impose duties, or authorise the conferring of powers and the imposition of duties upon the State or officers and authorities thereof."
It is in exercise of that power that section 9(2) of the Central Act had been enacted. Availing of the services of the hierarchy of the functionaries acting under the State Act and conferment of powers on them, providing for the procedure to be followed by them and imposition of duties upon them in terms of the procedural, remedial and other provisions devised thereunder to enable them to administer various provisions of the Central Act, falls squarely within the scope of clause (2) of Article 258, and cannot legitimately be contended to be unauthorised or excessive delegation on the part of the Parliament in favour of the State or the authorities administering the State Act.
1. Tek Chand Daulat Ram v. Excise & Tax Officer, (1972) 29 STC 585 (603) (FB) (Punj).
2. Constitution, Article 258(2).
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