judgement:
Civil Appeal No. l502 of 1987 etc.
From the Judgment and order dated 14.7.87 of the Allahabad High Court in C.M.W.P. No. 11907 of 1987.
Rajinder Sachhar and K.C. Dua for the Appellant.
Raja Ram Aggarwal, Salman Khurshid, Ishad Ahmed, section Wasim, N A Siddiqui and Mrs. Rani Chhabra for the Respondents.
The Judgment of the Court was delivered by RANGANATHAN, J.
These matters involve the interpretation of section 2(1)(d) of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, (Act No. 13 of 1972), (hereinafter referred to as 'the Act ').
Section 2(1) of the Act exempt certain classes of buildings from the application of the Act.
One such exemption, under clause (d), is in respect of: "(d) any building used or intended to be used for any other industrial purpose (that is to say, for the purpose of manufacture, preservation or processing of any goods) or as a cinema or theatre, where the plant and apparatus installed for such purpose in the building is leased out along with the building." Though the question for our ultimate.
decision is a short one, there has been a multiplicity of proceedings between the concerned parties.
The relevant facts, therefore, need to be set out at some length.
The building known as Prem Talkies, situated in Mohalla Sahadatpura, Maunath Bhanjan, District Azamgarh, U.P., belongs to Behari Lal Tandon and five others, (hereinafter referred to as 'the landlords ').
They had let out the building to Sunil Sharma and another.
Though the landlords claim that the lease was of the building along with certain fixtures, it has to be taken for the purposes of the present proceedings that the lease to the Sharmas was the lease of the building simplicity and that the building was then subject to the provi 684 sions of the Act.
This was the finding given in the suit for eviction which the landlords had instituted against the Sharmas.
That decree has since become final and the respondents have made out before us no grounds to differ from that finding The landlords succeeded in obtaining delivery of vacant possession of the building from the Sharmas on 30.09.1984.
It appears that the Sharmas had filed a revision petition in the High Court against the eviction order, which was eventually dismissed on 1st August, 1985.
The landlords claim that, subsequent to the recovery of possession, they wished to let out the building along with plant, machinery, furniture and apparatus installed therein for running a cinema theatre.
However, steps in this direction by way of renovation of the building, installation of plant, machinery, new furniture and electrical fittings and the execution of a lease deed could be embarked upon only after the revision petition of the Sharmas was dismissed.
They claim that they proceeded to do the needful.
Thereafter on 5th Feb., 86, an agreement of lease was executed between the landlords and the Mehrotras (respondents in the matters before us).
Under this agreement, the Mehrotras agreed to take the building fully equipped with projector, machines, fixtures and furniture in full running condition for a period of five years with an option to renew for a further period of two years, on certain terms and conditions which are not relevant for our present purposes.
It was provided that the Mehrotras should obtain a cinematographic licence from the appropriate authorities by the end of the year 1987, failing which the lease agreement would stand cancelled.
It is claimed that a generator was purchased on 20th June, 1986 and a projector on 22.9.1986 and that these were duly installed in the building on 26.10.86.
A lease deed pursuant to the agreement of lease between the landlords and the Mehrotras was entered into on 30.12.1986, more or less broadly on the same terms as the agreement of lease earlier referred to.
It is claimed that actual physical possession of the building was given to the Mehrotras on the 8th of January, 1987.
In the meantime, it appears, the present appellant, Satya Narain Pandey had made an application under section 16 of the Act, praying that the building in question should be allotted to him.
There is a dispute regarding the date of the application.
Pandey claims that the application was filed on 25.9.86 and that, on the basis of this application, the Additional District Magistrate had called for a report from the Rent Control and Eviction Inspector, who submitted a report on 28.10.86.
stating that the building was vacant as on that date.
On the 685 other hand, the landlords claim that the vacancy of the building had been declared on 6.3.1987, that a notification calling for applications for allotment had been issued on 9.3 87 and that the application by Pandey for allotment has been made only on 9.3.87.
The landlords, thereupon filed W.P. No. 10346/87 in the Allahabad High Court praying that the order dated 6.3.87 and the notification dated 9.3.87 be quashed.
They also say that, on coming to know of the alleged report of the Rent Control and Eviction Inspector dated 28.10.86, they had applied to the Additional District Magistrate on 23.3.1987, pointing out that the report of the Eviction Inspector had been obtained behind their back and requesting that a fairly high placed official should be sent to inspect the premises again and submit a report This application was granted by the Additional District Magistrate and, in pursuance of the said order, the Sub Divisional Magistrate submitted a report on 28.4 87 According to this report, the building as on that date was a full fledged cinema building fully equipped with projector exhaust and electric fans, electric fixtures, diesel generating set, etc, and the building was not vacant.
He also reported that the landlords appeared to have let out the building to the Mehrotras under the agreements of 5 2 86 & 30 12 86 5 When these proceedings were taking place, the Mehrotras, in pursuance of the lease deed entered into by them with the landlords applied for the grant of a licence for running a cinema in the premises in question under the U P. Cinemas (Regulation) Act, 1985 They did this on 8.1.1987.
This application was granted by the Additional District Magistrate, Azamgarh by his order dated 22 6 1987.
Pandey, who as mentioned above, had applied for the allotment of the premises to himself.
considered himself aggrieved by the grant of the cinematographic licence to the Mehrotras on 22.6.1987 He, therefore, filed Writ Petition No 11907/87 before the Allahabad High Court This writ petition was dismissed.
The Court held that the order granting a licence to the Mehrotras could not be quashed on the ground of the pendency of the allotment proceedings before the Rent Control & Eviction officer and that Pandey did not have any right to challenge the grant of licence merely because the vacancy of the building was declared at his instance, particularly when the dispute as to whether the Act applied or not to the premises in question is yet to be decided A. no 1502/87 has been preferred against the judgment of the Division Bench in the above writ petition.
This court granted special leave to Pandev by its order dated 14.7.87 and also directed, that, in the meantime the proceedings for the grant of the cinema licence be stayed .
686 6.
We have mentioned that the landlords had filed Writ Petition No 10346 of 1987 in the Allahabad High Court against the order of the Additional District Magistrate declaring a vacancy in respect of the premises in question by the order dated 6 3 87 and notice dated 9 3.87 inviting applications for allotment of accommodation thereto.
Their contention was that the cinema building stood excluded from the purview of the Act by virtue of section 2(1)(d) and that, therefore.
the question of declaring a vacancy or allotting it to any person did not arise.
The Mehrotras also filed Writ Petition No 12263 of 1987 raising the same pleas and seeking the same relief These writ petitions were heard together and disposed of by a consolidated order of the High Court dated 20.11 87 The High Court accepted the contentions of the petitioners and allowed the writ petitions The order dated 3 87 and notice dated 9 3 87 were set aside and the Rent Control & Eviction officer Azamgarh was directed not to proceed with the allotment of the cinema building in question under the Act Pandey, who w as one of the respondents in the above writ petitions, has filed SLP nos 15030 31 of 1987 for leave to appeal from the decision of the Allahabad High Court in these writ petitions 7.
From the above narration of facts, it will be seen that the short question that arises for decision in these matters is as to whether the cinema building in question is exempt from the purview of the Act by reason of the exemption contained in section 2(1)(d) The other controversy in A. 1502/87 regarding the grant of the cinema licence to the Mehrotras need not detain us long.
The High Court was clearly right in holding that Pandey had no locus standi in the matter However, the issue of a valid licence to Mehrotras will ultimately depend on the outcome of their right to occupy the premises in question.
If Pandey succeeds in his contention that the building continues to be subject to the provisions of the Act, then, obviously, the allotment of the building on its vacation by the Sharmas will have to be made by the Additional District Magistrate in accordance with law and the Mehrotras will not be in a position to occupy the building and run the cinema theatre in pursuance of the lease deed and the licence obtained by them This is clear from the provision contained in section 13 of the Act.
If, on the other hand, the contention of Pandey is not acceptable, then the Mehrotras will be entitled to run the theatre in pursuance of the lease deed in exercise of the cinematographic licence obtained by them In this view of the matter, the grant of licence to the Mehrotras recedes to the background and is only relevant to this extent that, in case the lease of the building to the Mehrotras is held to be contrary to the provisions of the Act, they may not be entitled to the licence, a condi 687 tion precedent for which will be the availability, to the exhibitor, of a building in which he has a right to exhibit cinema shows.
We may, therefore, leave the controversy in Civil Appeal No. 1502/87, aside for the time being.
We shall, therefore, grant special leave to Pandey in the Special Leave Petitions and proceed to dispose of the same, as we have heard the learned counsel on both sides 8.
We may, at this stage, outline the scheme and salient provisions of the Act.
Like other enactments of its type, it was a measure designed to meet the acute shortage of urban accommodation in U.P. during and after the Second World War.
The continuing increase in urban population and the relatively slow pace of house building activity mainly due to shortage of materials had rendered it necessary to continue the controls on rents, letting and eviction imposed earlier as a war measure or temporary legislation.
The long title of the Act shows that one its objects was to provide "for the regulation of letting certain classes of buildings situated in urban areas" and this object is given effect to by the provisions of Sections 1 & 2 of the Act.
By section 1, the Act is made applicable to all buildings in the urban areas of the State.
However, section 2 exempts certain buildings form the operation of the Act.
It is sufficient here to extract the provisions of section 2(1), which read thus: "Exemptions from operation of Act: (1) Nothing in this Act shall apply to the following namely: (a) any building of which the Government or a local authority or a public sector Corporation is the landlord; or (b) any building belonging to or vested in a recognised educational institution, the whole of the income from which is utilised for the purposes of such institution; or (c) any building used or intended to be used as a factory within the meaning of the (Act No. LXIII of 1948) (where the plant of such factory is leased out along with the building); or (d) any building used or intended to be used for any other industrial purpose (that is to say, for the purpose of manufacture, preservation or processing of 688 any goods) or as a cinema or theatre, where the plant and apparatus installed for such purpose in the building is leased out along with the building: Provided that nothing in this clause shall apply in relation to any shop or other building, situated within the precincts of the cinema or theatre, the tenancy in respect of which has been created separately from the tenancy in respect of the cinema or theatre; or (e) any building used or intended to be used as a place of public entertainment or amusement (including any sports stadium, but not including a cinema or theatre), or any building appurtenant thereto; or (f) any building built and held by a society registered under the (Act No XXI of 1860) or by a cooperative society, company or firm and intended solely for its own occupation or for the occupation of any of its officers or servants, whether on rent or free of rent, or as a guest house, by whatever name called, for the occupation of per sons having dealing with it in the ordinary course of business " 9 The clear effect of this section is that if any building falls under any one of the above clauses, it is exempt from the operation of the Act.
The whole case of the landlords here is that the premises in question falls under clause (d) The appellant, on the other hand, starts from the uncontroverted position that, as on 30.09 1984 the building was covered by the provisions of the Act.
It is contended that, once this position is admitted, there is no escape from the conclusion that any subsequent letting of the premises can only be in the manner prescribed in Chapter III of the Act, which contains provisions for the regulation of letting of premises governed by the Act.
The scheme of these provisions is that the District Magistrate maintains two registers one of all vacancies of buildings to which the Act applies and the other, of all applications, by needy persons, for allotment The vacancies come to the notice of the District Magistrate by reason of an obligation imposed on landlords and tenants to notify the vacancy or expected vacancy to him within a stated period (section 15).
There are also provisions of deemed vacancy and a provision to ascertain whether a building is vacant or not, with the details of which we are not con 689 cerned The requirements of accommodation are known from applications in prescribed forms received from needy persons from time to time seeking an allotment in general or of a specific building which is or is likely to fall, vacant.
The vacancies are notified to public specifying a date on which allotment will be considered with notice also to the landlord.
On the date fixed, the District Magistrate allots the vacant building to the applicants in accordance with the procedure and priorities outlined in the rules.
The District Magistrate, under section 17, is required to make an allotment order within a specified period.
Failing this, the landlord is entitled to require that the building shall be allotted to a person of his choice and the District Magistrate shall comply with his request unless there are special and adequate reasons not to do so but to allot the building to some other person.
The landlord can also apply to the District Magistrate to release the building to himself The landlord, however, can secure a release order only in certain circumstances outlined in sub section (2) of section 16 It is unnecessary to set out these circumstances here and it is sufficient to say that these circumstances do not exist in the present case.
Teeth are provided for the enforcement of the above scheme by providing that, once there is a vacancy, the building can be dealt with only on the basis of a release or allotment order (s 16); that it cannot be let out to any person other than allottee (section 11); and that any person occupying it otherwise than in pursuance of an allotment or release order shall be deemed to be an unauthorised occupant of the building or part thereof (section 13).
Any contravention of the provisions of the Act is made punishable as a criminal offence (s.31).
On the strength of these provisions, it is contended that, when the premises became vacant on 30.9.84, the provisions of the Act were applicable to it.
It was not open to the landlords to flout the requirements of this Act and to proceed to let out the premises to persons of their own choice.
There was no alternative for them but to let out the premises to an allottee or, if they could, to obtain release of the premises to themselves.
They are not entitled to place the building outside the purview of the Act by merely declaring that they intended to let the premises thereafter along with the plant and machinery thus attracting the exemption under section 2(1)(d).
To permit the landlords to do so would facilitate easy avoidance of the provisions of the Act by landlords purporting or claiming to change the nature or use of the property or the nature of the letting in such a way as to fall under the terms of one clause or other of the exemption section.
This, it is urged, should not be permitted.
On the other hand, the stand taken by the landlords is that section 2(1) exempts certain categories of buildings altogether from 690 the purview of the Act.
In the present case, on the date of notification of the vacancy, namely, 6.3.87, the building let out was a theatre, with full cinematographic equipment and furniture installed therein.
It was also the subject matter of lease, as a running cinema theatre, in favour of the Mehrotras.
This being so, the building fell within the class of buildings exempted under section 2(1)(d).
It is submitted that, the moment section 2(1)(d) is attracted, the building is automatically taken outside the purview of the Act, even if, earlier, it had been a building to which the provisions of the Act were applicable.
It is submitted that the Act is intended to regulate only the letting of buildings and not to regulate or control the development of commerce or to impair the rights of the landlords to deal with their property in any manner they like.
It is, therefore, contended that the High Court was right in holding that the District Magistrate had no jurisdiction to deal with the building under the provisions of the Act.
Though there is a plausibility in the contention urged on behalf of the appellant, we are of opinion, on a careful consideration of the scheme and language of the Act, that the judgment of the High Court should be affirmed and the appeals dismissed.
Section 2(1) of the Act exempts from the operation of the Act various clauses of buildings set out in clauses (a) to (f) of that sub section.
The initial attempt on behalf of the appellants was to suggest that the above exemptions are available only where the premises in question was of the nature specified in one or the other of those clauses as on the date of the commencement of the Act, namely, 15th July, 1972.
We cannot accept this contention.
A perusal of the various clauses makes it clear that the building should fulfill the character indicated therein on the date on which the provisions of the Act are sought to be made applicable thereto.
To give an illustration, clause (a) exempts "any building of which the Government or a local authority or a public sector corporation is the landlord.
" In our opinion it is clear that even a building which might have belonged to private individuals since 1972 will automatically fall within this exemption clause as soon as t is purchased by the Government or a local authority or a public sector corporation.
It will not be correct to read the section as conferring an exemption only on the buildings which belonged to the government etc.
On 15th July, 1972 and not to those acquired by them thereafter.
The position must be construed likewise in respect of the other clauses too.
It is, however, strongly urged on behalf of the appellants is 691 that in any event, the nature of the building has to be determined as on 30th September, 1984 on which date the premises were vacated by the Sharmas.
There is no dispute that, as on that date, the building was subject to the provisions of the Act.
That being so, and a vacancy having arisen in such a building, it was the duty of the landlords to have intimated the same to the District Magistrate and then gone through the procedure prescribed under the Act before letting out the property to any person.
Any letting out of the property by them to the Mehrotras was unlawful in view of section 13 of the Act and the landlords cannot be heard to contend, on the strength of such an unlawful letting that the premises stand outside the purview of the Act.
There is, as we said earlier, a plausibility about this contention but, in our opinion, it cannot be accepted as this construction of the provisions would render the exemption section totally unworkable.
We may first consider the nature of the exemption conferred by section 2(1).
It takes out of the provisions of the Act certain clauses of buildings.
Some of these exemptions are based on the nature of the ownership of the property and some of them on the nature of the use to which the property is either put or intended to be put.
So far as the former is concerned, there can be no doubt that any building that satisfies the ownership requirements set out therein automatically goes outside the purview of the Act.
Thus, under clauses (a) and (b), even if a building was previously subject to the provisions of the Act, it will cease to be so the moment it is purchased by a Government or a local authority or a public sector corporation or a recognised educational institution.
The vesting of the ownership of the premises in one of the categories of bodies mentioned effects a statutory cut off of the building from the applicability of the provisions of the Act.
The exclusion of the Act would be automatic and does not need any application by the previous or subsequent landlord or any order by the Additional District Magistrate under any of the provisions of the Act.
So far as clauses (e) and (f) are concerned the exemption depends upon the nature of the use to which the property is put.
There is no difficulty in cases where the building, at the time it falls vacant, was actually used for the purposes specified in these clauses: say, as a place of public entertainment or amusement.
It would, like the buildings described in clauses (a) and (b) fall outside the provisions of the Act.
So far there is no difficulty.
But the exemption conferred by these clauses takes in not only actual user but also intended user; that is, the use to which the property is proposed to be put, whatever may have been the use it was put to earlier.
Thus, if a building let out privately earlier, is intended to be used as a place of amusement or entertainment or a Cooperative 692 Society decides to convert a flat let out to an outsider earlier into one for occupation by its own officer, it will stand outside the purview of the Act.
Now we come to clauses (c) & (d) which not only talk of user or intended user but also impose a further requirement that plant and apparatus "is leased out along with the building".
This creates a somewhat anomalous situation.
It is argued that, if the building had been leased out earlier without the plant and machinery, it would be subject to the provisions of the Act and cannot be leased out without the permission of the District Magistrate; any such lease as may have been purportedly entered into without such permission would be contrary to the provisions of section 11 and therefore, invalid and illegal.
It is argued that where the building is let out wrongfully without an authorisation by the District Magistrate, such letting should be ignored and it cannot be said that the building "is let out" along with plant and machinery.
In our opinion this is not the correct interpretation of these clauses.
What they exempt are: "a building intended to be used as a factory . . where the plant of such factory is leased out along with the building" and a "building intended to be used for any other industrial purpose or a cinema or theatre where the plant and apparatus installed for such purpose in the building is leased out along with the building".
Each of these clauses should be read as a whole and doing so, the exemption is not restricted only to cases where there is a prior valid lease of the building with plant and apparatus but would also extend to cases where, though the building earlier was without such plant and apparatus or was not being used for such purposes as are specified, the owner intends to put them to the specified uses by letting them out with the necessary plant and apparatus.
The words "is leased", therefore, do not connote the idea of a valid actual subsisting lease of the building with plant on the date of vacancy; they are only descriptive of the manner in which the building is intended to be used.
What is needed is (a) that the building should be intended to be used by the prospective tenant, for the purpose specified in either of the clauses and (b) that in order to facilitate the purpose being achieved the building is intended to be let out to him along with necessary plant and apparatus.
In our view, therefore, even in respect of a building covered by the Act, the Act will cease to be applicable if, on a vacancy occurring therein, the landlord intends to put it to the use specified in clauses (c) to (f) and, in cases covered by clauses (c) and (d), also intends to let it out for such use along with the plant and apparatus necessary therefor.
We lean in favour of this interpretation, of an automatic exclusion of certain classes of buildings from the purview of the Act, for the following reasons: 693 (i) The declaration in section 2(1) that nothing in the Act applies to A the classes of buildings mentioned therein has to be given effect to.
It is patent that buildings falling under clauses (a) and (b) go out automatically.
A different rule cannot apply in respect of the other clauses.
(ii) The Act does not contain any provision or machinery whereby the owner of a building subject to the provisions of the Act can ask the District Magistrate or other authority to record the purchase of the property by the bodies specified in clauses (a) and (b) or to grant permission for converting it into a category of building for which exemption would be applicable under clauses (c) to (f).
It does not specifically confer jurisdiction on any authority to adjudicate upon a claim that a building falls within the exemption clause and that the provisions of the Act are, therefore, not applicable to it.
t(iii) on the other hand, under the scheme of the Act on there being a vacancy in a building to which the Act applies, it can only be re occupied in terms of either an allotment order or a release order.
A release order under section 16 can be only got in certain circumstances.
It cannot be obtained by a landlord for the mere asking.
The District Magistrate cannot release the building to the landlord, even if he is satisfied of the landlord 's intention to use the building in the manner specified in one of the clauses of section 2(1) and his intention to let it out with plant and apparatus.
This being so, the interpretation suggested by the appellants would mean that, once a building is subject to the provisions of the Act, it can never be taken out of the Act even if the requirements of clauses (a) and (b) or the intended user in terms of clauses (c) to (f) of section 2(1) can be established.
F (iv) The above interpretation does not result in facilitating any avoidance of the provisions of the Act as contended for by the appellants.
As rightly pointed out on behalf of the landlords, the Act is intended to regulate the letting of the premises but it is not intended to curb commercial activities or to impair the right of the landlord to change the nature of the use to which his building should be put.
Rather, the manner in which clauses (c) to (f) are phrased would show that the intention of the Legislature was to exempt buildings used or intended to be used for commercial or industrial purposes and that intention should be given effect to.
A lease given by the landlord in this manner 694 cannot be attacked as illegal or collusive to get over the provisions of the Act as there is nothing in law to prevent the landlord from doing so.
(v) The appellant 's argument overlooks that the restrictions in sections 11, 13, 16 and other provisions are all applicable only where the building does not fall under section 2(1).
When it does, the right of the landlord to let it out to a tenant of his choice cannot be defeated by continuing to read those restrictions merely because they were applicable at one time to the property.
Naturally the question would arise as to how the question regarding the applicability of the Act is to be determined.
It can certainly not be ipsi dixit of the landlord.
If a landlord acts on his own and lets out the porperty or otherwise deals with it, he takes the risk and, if he is found at fault, will not only render himself.
punishable but will also be unable to resist an allotment of the property by the District Magistrate in due course.
Since the District Magistrate has been empowered to deal with buildings to which the Act applies, it is for the District Magistrate to satisfy himself, before he proceeds to deal with any premises, that it is in fact a building to which the provisions of the Act are applicable.
It is open to the landlord to intimate the vacancy but make a claim before the District Magistrate that the Act has ceased to be applicable to his building but he is not obliged to do this.
Where the landlord fails to do so, the Magistrate may consider the issue if the vacancy in respect of the building is brought to his notice.
The District Magistrate has powers to inspect the property and then decide whether the Act continues to apply or not.
It is for the District Magistrate to consider the circumstances and to satisfy himself that the landlord intends to let out the premises for one of the purposes specified and, in respect of clauses (c) & (d), that he intends to let it out not as a mere building but with plant and apparatus.
We would like to make it clear, however, that, in this process, the District Magistrate has to satisfy himself on the materials made available to him.
But it will not be incumbent or proper on his part to give notice to or convene any of the proposed allottees of the property and hear them on this issue.
Whether a building is one to which the provisions of the Act are applicable or not is a matter which has to be decided by the District Magistrate after hearing the landlord.
It is a matter between the landlord and the Government.
An application for allotment merely confers on the applicant a right to be considered for allotment of a building to which the provisions of the Act are applicable,, and he has no rights qua any property until the District Magistrate comes to the conclusion 695 that the building is one which he can deal with by way of allotment.
It was contended on behalf of the appellants that the present case may be remanded back to the District Magistrate for a determination, after hearing the appellants, also on the question whether the landlords in the present case are entitled to an exemption.
We are unable to agree.
We are of the opinion that this determination has to be arrived at by the District Magistrate after hearing the landlord and on the basis of such inspection or enquiries as he may consider necessary.
We are clearly of the opinion that at this stage he should not permit the intervention of any other party.
A contrary interpretation would make the provisions almost impossible of being worked.
There may be several applicants for allotment, some general and some with regard to the specific property.
If they are considered as having a right to be heard on the availability of a property for allotment, every one of them must be allowed to intervene.
Different persons might come in at different stages and challenge the contention of the landlord that the building is not available for allotment.
The landlord may have to face innumerable challenges by various applicants at different points of time and they might claim that they want to lead evidence and thus delay the proceedings.
We do not think that all this is envisaged under the Act.
It is for the District Magistrate to come to the conclusion whether a building is available for allotment or not, and once he decides that it is not a building to which the Act applies, that is an end of the matter.
If he comes to a conclusion that the building falls within the provisions of the Act and the landlord is aggrieved, the landlord 's remedy has only to be by way of a writ petition where such conclusion is on its face erroneous or based on no material or perverse.
In the present case, the District Magistrate registered the vacancy on 6.3.87; in other words, he came to a conclusion, mainly on the basis of the appellant 's averments, that the Act continues to be applicable to the premises.
The landlords challenged this conclusion successfully in the writ petition.
As pointed out by them, subsequent to 6.3.87, the District Magistrate himself had the property inspected and there is a report available on record.
Apparently, the District Magistrate has not applied his mind to the terms of the report.
Perhaps, in the normal course, we would have sent the matter back to enable him to do this.
However, in the circumstances of the present case, we think no useful purpose would be served by remitting the matter back to the District Magistrate for fresh consideration.
As pointed out by the High Court, the report of the Sub Divisional Magistrate, the terms of the lease agreement and the registered lease deed as 696 well as the application for, and the grant of, a cinematographic licence in the name of the Mehrotras, clearly show that the landlord intended to let out the property as a fully equipped cinema theatre and that they have done so.
In the face of this evidence, the District Magistrate had clearly no jurisdiction to proceed with the allotment of the premises in question.
We would, therefore, uphold the findings of the High Court in this regard.
In the result the appeals against the order dated 20.11.87 are dismissed.
In consequence of the view taken by us, C.A. No. l502/87 has also to be dismissed.
We direct accordingly.
In the circumstances, however, we make no order as to costs.
Appeal and petitions dismissed.

summary:
% These matters involved the interpretation of section 2(1)(d) of the U.P. Urban Buildings (Regulation of Letting, Rent & Eviction) Act, 1972 (Act No. 13 of 1972).
The landlords of a building known as Prem Talkies had let out the building to Sunil Sharma and another, and the lease to the Sharmas was a lease of the building simpliciter.
The building was subject to the provisions of the Act above said.
The landlords obtained delivery of vacant possession of the building on 30.09.1984 through a suit for eviction instituted by the landlords.
The revision petition filed by the Sharmas in the High Court against the order of eviction was dismissed on 1st August, 1985.
After the Revision Petition of the Sharmas was dismissed, landlords proceeded with the renovation of the building, installation of plant, machinery, new furniture and electrical fittings, as they wished to let out the building alongwith the plant, machinery, furniture and apparatus installed for running a cinema theatre.
On February 5, 1986, an agreement of lease was executed between the landlords and the Mehrotras respondents before this Court under which the Mehrotras agreed to take the building fully equipped with projector, machines, fixtures and furniture for a period of five years with an option to renew.
A lease deed pursuant to the agreement of the lease between the landlord and the Mehrotras was entered into on 30.12.86 and actual possession of the building, it was claimed, was given to the Mehrotras on the 8th January, 1987.
In the meantime, the appellant, Satya Narain Pandey, appeared to have made an application under section 16 of the Act for allotment of the building in question to him.
He claimed to have filed that application on 25.9.86 and that, on the basis of that application, the Additional District Magistrate had called for a report from the Rent Control & Eviction Inspector, who had submitted a report dated 28.10.86, stating that 679 the building was vacant as on that date.
On the other hand, the landlords claimed that the vacancy of the building had been declared on 6.3.87, that a notification calling for applications for allotment had been issued on 9.3.87 and the application by Pandey for allotment had been made only on 9.3.87.
They also applied to the Additional District Magistrate on 23.3.87, requesting that a high placed official should be sent to inspect the premises and submit a report, as the report of the Eviction Inspector had been obtained behind their back.
The application was granted and the Sub Divisional Magistrate submitted a report on 28.4.87, which said that as on that date the building was a full fledged building with all the equipments and was not vacant as it appeared to have been let out to the Mehrotras under the agreements of 5.2.86 and 30.12.86.
In the meantime, the Mehrotras, in pursuance of the lease deed entered into by them with the landlords, had applied on 8.1.87 for the grant of a licence for running a cinema in the building in question.
The application was granted by the Additional District Magistrate.
Pandey, who had applied for the allotment of the building to him, felt aggrieved by the grant of the cinematographic licence to the Mehrotras.
He filed a writ petition in the High Court, challenging the grant of the licence.
The High Court dismissed the writ petition.
Pandey, the appellant, then filed in this Court Civil Appeal No. 1502 of 1987 by Special Leave against the decision of the High Court.
The Writ Petition of the landlords filed in the High Court against the order dated 6.3.87 of the Additional District Magistrate, declaring a vacancy of the building in question and the notice dated 9.3.87 inviting applications for allotment of accommodation in respect thereof, and a similar writ petition filed by the Mehrotras in the High Court, were disposed of by the High Court by a consolidated order dated 20.11.87, by which the High Court had accepted the contentions of the petitioners and allowed the writ petitions setting aside the order dated 6.3.87 and the notice dated 9.3.87 and directing the Rent Control & Eviction Inspector to proceed with the allotment of the cinema building under the Act.
One of the respondents in those two writ petitions was Pandey, the appellant, who then also filed two petitions for special leave in this Court against the said decision of the High Court in the two writ petitions above said.
Dismissing the appeals out of the two petitions for special leave (wherein leave to appeal was granted) and, consequently, the Civil Appeal No. 1502/87, the Court 680 ^ HELD: The short question that arose for decision in these matters was whether the cinema building in question was exempt from the purview of the U.P. Urban Buildings (Regulations of Letting, Rent & Eviction) Act, 1972, by reason of the exemption contained in section 2(1)(d) thereof.
As regards the controversy regarding the grant of the cinema licence to the Mehrotras, the High Court was clearly right in holding that Pandey had no locus standing in the matter.
However, the issue of a valid licence to Mehrotras would ultimately depend upon the outcome of their right to occupy the premises in question.
If had Pandey succeeded in his contention that the building continued to be subject to the provisions of the Act, then, the allotment of the building on its vacation by the Sharmas would have to be made in accordance with law and the Mehrotras would not be able to occupy the building in pursuance of the lease deed and run the cinema, as they would not be entitled to a licence, as, a condition precedent for which was the availability to the exhibitor of a building in which he had a right to exhibit cinema shows.
This was clear from the provision in section 13 of the Act.
If, on the other hand, Pandey 's contention was not acceptable, then, the Mehrotras would be entitled to run the theatre.
The Court, therefore, granted leave to Pandey in the two petitions for special leave and took up those appeals for consideration in the first place.
[686E H; 687A B] On a careful consideration of the scheme and language of the Act, the Court was of the opinion that the judgment of the High Court should be affirmed and the appeals, dismissed.
[690D] Section 2(1) of the Act exempts from the operation of the Act various types of buildings set out in clauses (a) to (f) of the sub section.
The initial attempt of the appellant was to suggest that the above exemptions were available only where the premises in question was of a nature specified in one or the other of those clauses as on the date of the commencement of the Act, namely, 15th July, 1972.
The Court could not accept this contention.
A perusal of the various clauses makes it clear that the building should fulfil the character indicated therein on the date on which the provisions of the Act are sought to be made applicable thereto.
It was clear, in the opinion of the Court, that even a building which might have belonged to private individuals since 1972 would automatically fall within the exemption clause (a) as soon as it was purchased by the Government or a local authority or a public sector corporation.
It would not be correct to read the section as conferring an exemption only on the buildings which belonged to the Government, etc., on 15th July, 1972 and not on those acquired by them thereafter.
The position must be construed likewise in respect of the other clauses too.
[690E H] 681 It was strongly urged by the appellant that the nature of the building had to be determined as on the 30th September, 1984, on which date the building was vacated by the Sharmas, and on that date, the building was subject to the provisions of the Act.
A vacancy having arisen in such a building, it was the duty of the landlord to have intimated the same to the District Magistrate and then followed the procedure under the Act.
Any letting out of the property by them to the Mehrotras was unlawful in view of section 13 of the Act, and on the strength of an unlawful letting, the landlords could not contend that the building was outside the purview of the Act.
There was a plausibility about this contention but the Court could not accept it as this construction of the provisions would render the exemption section totally unworkable.
[690H; 691 A C l Section 2(1) of the Act takes out of the provisions of the Act certain classes of buildings.
Some of these exemptions are based on the nature of the ownership of the property and some of them, on the nature of the use to which the property is either put or intended to be put.
In the view of the Court, even in respect of a building covered by the Act, the Act would cease to be applicable if, on a vacancy occurring therein, the landlord intended to put it to the use specified in clauses (c) to (f) of the section and in cases covered by clauses (c) and (d) of the section, also intended to let it out for such use along with the plant and apparatus therefor.
The Court favoured this interpretation of an automatic exclusion of certain classes of buildings from the purview of the Act.
[691 D; 692G H l How would the question of the applicability of the Act be determined? It could certainly not be ipsi dixit of the landlord.
If a landlord let out his property or otherwise dealt with it on his own, and was found at fault, he would not only be punishable but would also be unable to resist an allotment of the property by the District Magistrate in due course.
Since the District Magistrate was empowered to deal with buildings to which the Act applied it was for the District Magistrate to satisfy himself, after hearing the landlord, that it was in fact a building to which the Act was applicable.
It was open to the landlord to intimate the vacancy but make a claim before the District Magistrate that the Act had ceased to be applicable to his building.
Where the landlord failed to do so, the Magistrate might consider the issue if vacancy in respect of the building was brought to his notice.
The District Magistrate could inspect the building and then decide whether the Act continued to apply or not.
It was for the District Magistrate to satisfy himself that the landlord intended to let out the premises and he intended to let it out not as a mere building but with plant and apparatus.
The District Magis 682 trate had to satisfy himself on the materials made available to him.
But it would not be incumbent or proper for him to give notice to the proposed allottees of the property and hear them.
An application for allotment merely conferred on the applicant a right to be considered for allotment of a building to which the Act was applicable, and he had no right qua any property until the District Magistrate came to the conclu sion that the building was one which he could allot.
[694C H] The Court did not accept the contention of the appellant for remanding the case to the District Magistrate for a determination after hearing the appellant also on the question whether the landlords in this case were entitled to an exemption.
This determination had to be arrived at by the District Magistrate after hearing the landlord and on the basis of such inspection or enquiries as he might consider necessary.
At this stage, he should not permit the intervention of any other party; a contrary interpretation would make the provisions almost impossible of being worked.
There might be several applicants for allotment, some general, and some with regard to specific property.
If they were con sidered as having a right to be heard on the availability of a property for allotment, every one must be allowed to intervene.
The landlord might have to face innumerable challenges by the various applicants at different points of time, resulting in the proceedings being delayed.
All this was not envisaged under the Act.
Once the District Magistrate decided that a building was not one to which the Act applied, there was an end of the matter.
If the District Magistrate decided that the building fell within the provisions of the Act, an aggrieved landlord 's remedy was only by way of a writ petition, where such conclusion was on the face of it erroneous or perverse or based on no material.
[695B E] In this case, the District Magistrate, after registering the vacancy on 6.3.1987, came to the conclusion on the basis of the appellant 's averments that the Act continued to be applicable to the premises.
The landlords challenged this conclusion successfully by a writ petition.
Subsequent to 6.3.1987, the District Magistrate himself had the property inspected, and, apparently, he did not apply his mind to the terms of the report of the inspection.
In normal course, perhaps, the Court would have sent the matter back to enable him to do this, but in the present case, the Court thought no useful purpose would be served by remanding the matter to the District Magistrate for a fresh consideration.
The report of the Sub Divisional Magistrate, the terms of the lease agreement, the registered lease deed and the application for, and the grant of, a cinematograph licence in the name of the Mehrotras, clearly showed that the landlord intended to let out the property as a fully 683 equipped cinema theatre.
In the fact of this, the District Msgistrate had clearly no jurisdiction to proceed with the allotment of the premises in question.
695F H; 696A B]


judgement:
ition (Civil) No. 422 of 1987.
(Under Article 32 of the Constitution of India).
Dr. Y.S. Chitale, K.J. John, Atul Chitale and Miss Naina for the Petitioners.
577 K. Parasaran, Attorney General, T.S. Krishnamoorthy Iyer, G.A. Shah, V. Jagannatha Rao Advocate General, B.B. Ahuja, Miss A. Subhashini, T.V.S.N. Chari, Miss Vrinda Grover, Badri Nath, Dr. N.M. Ghatate, M. Veerappa, A.M. Khanwilkar, A.S. Bhasme, R. Mohan, R. Ayyam Perumal, A. Subha Rao, M.N. Shroff, J.R. Das, D.K. Sinha, S.N. Khare, T.C. Sharma, S.K. Bhattacharya, Kailash Vasudev and Probir Choudhary for the Respondents.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
The India Cement Limited, Chettinad Cement Corporation, Dalmia Cement (Bharat) Limited and Tamil Nadu Cement Corporation Limited being petitioners 1, 6, 9 and 12 in this application under Article 32 of the Constitution are manufacturers of cement, each of them having its manufacturing unit as also registered offices located within the State of Tamil Nadu; petitioners 2, 7, and 10 are shareholders of petitioners 1, 6 and 9 respectively and are citizens of India, while the remaining petitioners are authorised stockists of the different manufacturers having their places of business at different places located in the States of Karnataka, Kerala and Tamil Nadu.
Manufacturer petitioners have been selling their cement in the States of Karnataka and Kerala and for such purpose they have places of business within those States.
The State of Andhra Pradesh in exercise of powers conferred under sub section ( 1) of Section 9 of the Andhra Pradesh General Sales Tax Act, 1957 made an order on January 27, 1987 (Annexure A) reducing the rate of tax on sale of cement made to the manufacturing units of cement products in the State of Andhra Pradesh.
That order runs thus: "In exercise of the powers conferred by sub section ( 1) of Section 9 of the Andhra Pradesh General Sales Tax Act, 1957 (Andhra Pradesh Act, No. VI of 1957), the Governor of Andhra Pradesh hereby directs that the tax leviable under clause (a) of sub section (2) of Section 5 read with Item 18 in the First Schedule to the said Act, shall, in respect of Cement manufactured by Cement Factories situated in the State and sold to the manufacturing units situated within the State for the purpose of manufacture of Cement products such as Cement sheets, Asbestos Sheets, Cement flooring stones, Cement concrete pipes, hume pipes, Cement water and sanitary fitting, concrete poles and other Cement products, be at the reduced rate of four paise in the rupee at the point of first sale in the State with effect on 578 and from the Ist January, 1987.
" On the same day, another order was made to the following effect: "In exercise of the powers conferred by sub section (5) of Section 8 of the (Central Act 74 of 1956), Governor of Andhra Pradesh hereby directs that the tax leviable under the said Act, shall, in respect of the sales of cement in the course of inter State trade or commerce be at a lower rate of two per cent with or without 'C ' Form, with effect from 1st January, 1987.
" The State of Karnataka issued the following notification on 28.2.1987: "In exercise of the powers conferred by sub section (5) of Section 8 of the (Central Act 74 of 1956), the Government of Karnataka, being satisfied that it is necessary so to do in public interest, hereby reduces with immediate effect the rate of tax payable under the said Act on the sale of cement made in the course of inter State trade or commerce from 15% to 2%.
" Petitioners in this application challenge the vires of Section 8(5) of the (Central Act 74 of 1956) and the notifications referred to above as ultra vires the provisions contained in Part XIII of the Constitution providing that trade, commerce and inter course throughout the territory of India shall be free.
According to the petitioners the three orders referred to above create trade barriers and directly impinge upon the freedom of trade, commerce and inter course provided for in Article 301 of the Constitution.
Since the vires of Section 8(5) of the Central Act 74 of 1956 had been assailed, notice had been issued to the Union of India and learned Attorney General.
Notice was also directed to all the States.
Pursuant to the notice, the State of Madhya Pradesh and Sikkim have filed their affidavits with reference to the challenge against Section 8(5) of the Act.
At the hearing of the writ petition, however, learned counsel for the petitioners gave up that challenge.
In that view of the matter, reference to the counter affidavits of the States of Madhya Pradesh and Sikkim becomes irrelevant and the petition has to be con fined to the challenge against the two notifications of the State of T 579 Andhra Pradesh and the lone notification of the State of Karnataka.
The return to the rule nisi on behalf of the State of Andhra Pradesh is made by the Commercial Tax officer, Company Circle 11, Hyderabad.
He has stated that the State of Andhra Pradesh has surplus production of cement.
In 1986 87, the production of cement was around six million tonnes out of which local consumption was to the tune of about three million tonnes.
In 1987 88 and 1988 89, production was likely to go up by 1.5 million tonnes and three million tonnes respectively and the local consumption was estimated to be within the range of 40% of the production.
60% of the manufactured cement had, therefore, to be marketed out.
Within the State there were certain bulk consumers of cement who use the commodity as raw material for manufacturing Cement sheets, Asbestos sheets, hume pipes, Cement bricks, tiles etc.
Such bulk consumers found products of cement from outside the State to be cheaper in view of the higher incidence of local State tax.
In this background Government considered it necessary to reduce the tax rate under the Andhra Pradesh General Sales Tax Act to help the Cement Industries in easing out their marketing difficulty.
Keeping in view the fact that marketing of indigenous cement had to be inside the State, Government decided to reduce the rate of tax under the Andhra Pradesh General Sales Tax Act to 4%.
That is how the first notification was made reducing the rate of tax in respect of sale of cement to local manufacturers as aforesaid.
Government by the second notification reduced the rate of tax leviable under the in course of inter State trade or commerce to 2% with or without 'C ' Form with effect from 1.1.1987.
In another place of the same affidavit, it has been pleaded: " The classification of the manufacturers and dealers in cement of Andhra Pradesh vis a vis the other States is a reasonable classification and it is not violative of Articles 14 and 19(1)(g)".
"The concession in the rate of tax extended by the State of Andhra Pradesh to the manufacturers and dealers of Andhra Pradesh is well within the statutory powers of the State.
It does not effect the business interest of the manufacturers and dealers of other States.
It is the policy of the State of Andhra Pradesh to help the cement Industries to organise the marketability of their full production to improve the overall industrial activity of the country.
Hence this contention tenable".
580 "As already mentioned earlier, the notifications were issued in public interest and in the interest of State revenue".
Yet at another place in the return.
it has been stated: "The contention that the policy of the Legislature is to promote sales only through registered dealers is not based on correct appreciation of the law.
Any law to that effect would impose a restriction on the rights of the common man and would result in the violation of the provisions of the Constitution which ensures certain fundamental rights to the common man. ' ' The State of Karnataka chose not to make any return to the rule nisi but its counsel joined at the hearing and contended that the order made by the Karnataka State did not affect the provisions in Part XIII of the Constitution.
In view of the fact that counsel for petitioners gave up the challenge to the vires of Section 8(5) of the , learned Attorney General confined his submissions to the scope of of the Constitution and the effect of the notifications on the scheme contained in that part.
In case the notifications operate against the provisions of Article 3o1 of the Constitution, they have got to satisfy the requirements contained in that Part.
We shall now refer to the relevant Articles and to several decisions of this Court which are binding precedents.
The title for Part XIII is "Trade, Commerce and Inter course within the Territory of India.
" The relevant Articles in that Part are 30 1, 302, 303 and 304.
We may now reproduce them: "3o1.
Subject to the other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free.
Parliament 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 (underlining is ours) 303 .
( 1) Notwithstanding anything in Article 302, 581 neither Parliament nor the legislature of a State shall have power to make any law giving, or authorising the giving, or any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of.
any preference or making, or authorising the making of.
any discrimination if it is declared by such law that 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.
Notwithstanding anything in Article 30 1 or Article 303, the Legislature of a State may by law: (a) impose on goods imported from other States or the Union territories 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; and (b) 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: Provided 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. " Judicial authority in regard to interpretation of this Part of the Constitution is abundant.
We shall presently refer to some of the decisions of this Court .
In Ataibari Tea Co. Ltd. vs The State of Assam & Ors., [1961] I SCR 609 a Constitution Bench of this Court was testing the validity of the provisions of the Assam Taxation (on goods carried by Roads and Inland Waterways) Act, 1954 by applying the provisions of this Part of the Constitution.
At page 830 of the Reports.
Sinha, CJ, stated: "Article 301,with which part III commences,con 582 tains the crucial words shall be free and provides the key to the solution of the problems posed by the whole Part.
The freedom declared by this Article is not an absolute freedom from all legislations.
As already indicated, the several entries in the three Lists would suggest that both Parliament and State Legislatures have been given the power to legislate in respect of trade, commerce and intercourse, but it is equally clear that legislation should not have the effect of putting impediments in the way of free flow of trade and commerce.
In my opinion, it is equally clear that the freedom envisaged by the Article is not an absolute freedom from the incidence of taxation in respect of trade, commerce and intercourse, as shown by entries 89 and 92A in the List I, entries 52, 54 and 56 to 6() in List II and entry 35 in List III.
All these entries in terms speak of taxation in relation to different aspects of trade, commerce and intercourse.
The Union and State Legislature, therefore, have the power to legislate by way of taxation in respect of trade, commerce and intercourse, so as not to erect trade barriers, tariff walls or imposts, which have a deleterious effect on the free flow of trade, commerce and intercourse.
That freedom has further been circumscribed by the power vested in Parliament or in the Legislature of a State to impose restrictions in public interest.
Parliament has further been authorised to legislate in the way of giving preference or making discrimination in certain strictly limited circumstances indicated in clause (2) of Article 303.
Thus, on a fair construction of the provisions of Part XIII, the following propositions emerge: (1) trade, commerce and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State; (2) the freedom declared by Article 301 does not mean freedom from taxation simpliciter, but does not mean freedom from taxation which has the effect of directly impeding the free flow of trade, commerce and intercourse; (3) the freedom envisaged in Article 301 is subject to non discriminatory restrictions imposed by Parliament in public interest (Article 302); (4) even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India (Article 303(2)); (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest 583 (Article 304(b)); (6) non discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States, if similar taxes are imposed on goods produced or manufactured in that State (Article 304(a)); and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (Article 305)"; Gajendragadkar, J., as he then was, at page 843 of the Reports observed: "In drafting the relevant Articles of Part XIII, the makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which had been adopted by the Constitution for the governance of the country.
Political freedom which had been won, and political unity which had been accomplished by the Constitution, had to be sustained and strengthened by the bond of economic unity.
It was realised that in course of time, different political parties believing in different economic theories or idealogies may come in power in the several constituent units of the Union, and that may conceivably give rise to local and regional pulls and pressures in economic matters.
Local or regional fears or apprehensions raised by local or regional problems may persuade the State legislatures to adopt remedial measures intended solely for the protection of the regional interests without due regard to their effect on the economy of the nation as a whole.
The object of Part XIII was to avoid such a possibility.
Free movement and exchange of goods throughout the territory of India is essential for the economy of the nation and for sustaining and improving living standards of the country.
The provision contained in Article 301 guaranting the freedom.
Of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of declaratory character; it is not also a mere statement of a Directive Principle of State Policy; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country . . " 584 Then came the case of The Automobile Transport (Rajasthan) Limited vs The State of Rajasthan & orS., [1963] SCR 491 Das, J. who spoke for the Constitution Bench referred to the views expressed in Atiabari Tea Company 's case (supra) and proceeded to say: "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 C0mpany 's case, 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 30 I 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 powers, 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 '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 and 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 up on 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 discriminate in between one State and another by virtue of any entry relating to trade and commerce in Lists I and III of the Seventh Schedule.
Articles 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 585 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(a) 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 tor 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 and 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 from sister States any tax which similar gods manufactured or produced in that State are subject to under its taxing laws.
In other words, goods imported from sister States are placed on 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 powers 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 interstate trade and commerce .
Now clause (b) of Article 304 provides that notwithstanding anything in Article 301 or 303 the Legislature of a State may by law imposes 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 586 Legislation under clause (b) provided in the proviso thereto, there are two important differences between Arti cles 302 and 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 discrimina tions decreed byArticle 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 open ing words of Article 304 contain a non obstante clause both to Article 30 1 and Article 303.
The second difference spr ings from the fact that while Parliament 's to impose restricC tions under Article 302 upon freedom of commerce in the public interest is not subject to the requirement of reason ableness, the power of the State to impose restrictions on the freedom of commerce in the public interest under Arti cle 304 is subject to the condition that they are reason able".
The next authority to which we may now refer is the case of State of Madras vs N.K. Nataraja Mudaliar, ; Shah, J., as he then was, referred to Part XIII of the Constitution at page 839 of the Reports.
On page 841 of the Reports, the learned Judge proceeded to say: "Tax under the on inter State sales, it must be noticed, is in its essence a tax which encumbers movement of trade or commerce, since by the definition in section 3 of the Act a sale or purchase of goods is deemed to take place in the course of inter State trade or commerce, if it (a) occasions the movement of goods from one State to another; (b) is effected by a transfer of docu ments of title to the goods during their movement from one State to another.
The question which then falls to be determined is whether the tax imposed in the present case is saved by the operation of the other provisions of Part XIII.
Article 302 of the Constitution provides that Parlia ment 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.
Thereby the Parliament is, notwithstanding the protection conferred by Article 30 1, authorised to impose restrictions on the freedom of trade, 587 commerce or intercourse in the public interest.
The expression "between one State and another ' does not imply that it is only intended to confer upon the Union Parliament the power to remove the fetter upon legislative authority only so as to keep trade, commerce or intercourse free between one State Government and another.
It is intended to declare trade, commerce and intercourse free between residents in one State and residents in another State.
That is clear because Article 302 expressly provides that on the freedom of trade restrictions may be imposed not only as between one State and another, but also within any part of the territory of India.
As we have already observed, Article 30I does not merely protect inter State trade or operate against inter State barriers: all trade is protected whether it is intra State or inter State by the prohibition imposed by Article 30I, and there is nothing in the language or the context for restricting the power of the Parliament which it otherwise possesses in the public interest to impose restrictions on the freedom of trade, commerce or intercoursc, operative only as between one State and another as two entities.
There is also no doubt that exercise of the power to tax may normally be presumed to be in the public interest . .
It is worthwhile to refer to tne observations made by Hegde, J.
At page 855 of the Reports, the learned Judge observed with reference to section 8(5) of the as follows; "Sub section (5) of section 8 provides for giving individual exemptions in public interest.
Such a power is there in all taxation measures.
It is to provide for unforeseen contingencies.
Take for example, when there was famine in Bihar, if a dealer in Punjab had undertaken to sell goods to a charitable society in that State at a reasonable price for distribution to those who were starving, it would have been in public interest if the Punjab Government had exempted that dealer from paying sales tax.
Such a power cannot immediately or directly affect the free flow of trade.
The power in question cannot be said to be bad.
If there is any misuse of that power, the same can be challenged.
" The true purpose of the provisions contained in of the Constitution.
as elucidated in the different decisions of the constitution 588 Benches, is that the restriction provided for in Article 30 I can within A the ambit be limited by law made by the Parliament and the State Legislature.
No power is vested in the executive authority to act in any manner which affects or hinders the very essence and thesis contained in the scheme of Part XIII of the Constitution.
It is equally clear that the declaration contained in Part XIII of the Constitution is against creation of economic barriers and/or pockets which would stand against the free flow of trade, commerce and intercourse There can be no dispute that taxation is a deterrent against free flow.
As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably.
If the scheme which Part XIII guarantees has to be pre served in national interest, it is necessary that the provisions in theArticle must be strictly complied with.
One has to recall the farsighted observations of Gajendragadkar, J. in Atiabari Tea Co. case (supra) and the observations then made obviously apply to cases of the type which is now before us.
The two notifications of the Andhra Pradesh Government may now be referred to.
Under the first notification made under section 9(1) of the Andhra Pradesh General Sales Tax Act, the rate of tax has been reduced to 4 per cent in respect of sales made by indigenous cement manufacturers to manufacturers of cement products.
Admit tedly, the Tamil Nadu producers have sales officers in Andhra Pradeshand in regard to their sale to such manufacturers of cement products the benefit of reduced rate of taxation is not applicable.
The prescribed rate of tax under the Andhra Act is 13.75 per cent on cement.
Thus under the Andhra Notification in regard to the local tax the indigenous producers of cement have a benefit of 9.75 per cent.
The return made to the Court admits of the position that preference has been shown to local manufacturers.
Two reasons have been advanced by way of justification.
One is that it is beneficial to the State revenue and secondly it protects the local manufacturers too.
The counsel for the State Government has not been able to demonstrate to us how the reduction in the rate of sales tax is beneficial to the State revenue.
The other justification is what provisions of Part XIII of the Constitution do not permit.
The reasonable restrictions contemplated in Part XIII have to be backed by law and not by executive action provided the same are within the limitations prescribed under the scheme of Part Xlll.
Coming to the second notification relating to inter state transac 589 tions, the justification pleaded by the State of Andhra Pradesh has already been extracted by us.
We may usefully refer to the decision of the Constitution Bench in the case of Gwalior Rayon Silk Mfg.
(Wvg) Co. Ltd. vs The Assistant Commissioner of Sales Tax & orS., [ ; At page 883 of the Reports, Khanna, J. speaking for the Court observed: "It has been argued on behalf of the appellants that the fixation of rate of tax is a legislative function and as the Parliament has, under section 8(2)(b) of the Act, not fixed the rate of central sales tax but has adopted the rate applicable to the sale or purchase of goods inside the appropriate State in case such rate exceeds lO per cent, the Parliament has abdicated its legislative function.
The above provision is consequently stated to be constitutionally invalid because of excessive delegation of legislative power.
This contention, in our opinion, is not well founded.
Section 8(2)(b) of the Act has plainly been enacted with a view to prevent evasion of the payment of the central sales tax.
The Act prescribed a low rate of tax of 3 per cent in the case of inter State sales only if the goods are sold to the Government or to a registered dealer other than the Government.
In the case of such a registered dealer, it is essential that the goods should be of the description mentioned in subsection (3) of section 8 of the Act.
In order, however, to avail of the benefit of such a low rate of tax under section 8(1) of the Act, it is also essential that the dealer selling the goods should furnish to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer, to whom the goods are sold, containing the prescribed particulars in prescribed form obtained from the prescribed authority, or if the goods are sold to the Government not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government.
In cases not falling under sub section (1), the tax payable by any dealer in respect of inter State sale of declared goods is the rate applicable to the sale or purchase of such goods inside the appropriate state vide section 8(2) of the Act.
As regards the goods other than the declared goods, section 8(2)(b) provides that the tax payable by any dealer on the sale of such goods in the course of inter State trade or commerce shall be calculated at the rate of lO per cent or at the rate 590 applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher.
The question with which we are concerned is whether the Parliament is not fixing the rate itself and in adopting the rate applicable to the sale or purchase of goods inside the appropriate State has not laid down any legislative pol icy and has abdicated its legislative function.
In this con nection we are of the view that a clear legislative policy can be found in the provisions of section 8(2)(b) of the Act.
The policy of the law in this respect is that in case the rate of local sales tax be less than 10 per cent, in such an event the dealer, if the case does not fall within section 8(1) of the Act, should pay central sales tax at the rate of 10 per cent.
If, however, the rate of local sales tax for the goods con cerned be more than 10 per cent, in that event the policy is that the rate of the central sales tax shall also be the same as that of the local sales tax for the said goods.
The object of law thus is that the rate of the central sales tax shall in no event be less than the rate of local sales tax for the goods in question though it may exceed the local rate in case thas t rate be less than 10 per cent.
For example, if the local rate of tax in the appropriate State for the non declared goods be 6 per cent, in such an event a dealer, whose case is not covered by section 8(1) of the Act, would have to pay cent ral sales tax at a rate of lO per cent.
In case, however, the rate of local sales tax for such goods be 12 per cent, the rate of central sales tax would also be 12 per cent because otherwise, if the rate of central sales tax were only lO per cent, the unregistered dealer who purchases goods in the course of inter State trade would be in a better position than an intra State purchaser and there would be no disin centive to the dealers to desist from selling goods to unre gistered purchasers in the course of inter State trade.
The object of the law apparently is to deter inter State sales to unregistered dealers as such inter State sales would faciliG tate evasion of tax.
It is also not possible to fix the max imum rate under section 8(2)(b) because the rate of local sales tax varies from State to State.
The rate of local sales tax can also be changed by the State legislatures from time to time.
It is not within the competence of the Parliament to fix the maximum rate of local sales tax.
The fixation of the rate of local sales tax is essentially a matter for the State 591 Legislatures and the Parliament does not have any control in the matter.
The Parliament has therefore necessarily, if it wants to prevent evasion of payment of central sales tax, to tag the rate of such tax with that of local sales tax, in case the rate of local sales tax exceeds a particular limit.
" Reference may also be made to another decision of the Constitution Bench in the case of State of Tamil Nadu etc.
vs Sitalakshmi Mills etc.
,[1974]1 1 SCR 1.
At page 6 of the Reports, Mathew, J. stated: "As already stated, section 8(2)(b) deals with sale of goods other than declared goods and it is confined to interState sale of goods to persons other than registered dealers or Governments.
The rate of tax prescribed is 10 per cent or the rate of tax imposed on sale or purchase of goods inside the appropriate State, whichever is higher.
The report of the Taxation Inquiry Committee would indicate that the main reason for electing the provision was to canalize inter State trade through registered dealers, over whom the appropriate Government has a great deal of control and thus to prevent evasion of tax: Where transactions take place between registered dealers in one State and unregistered dealers or consumers in another, this low rate of levy will not be suitable, as it is likely to encourage avoidance of tax on more or less the same scale as the present provisions of Article 286 have done.
If this is to be prevented, it is necessary that transactions of this type should be taxable at the same rates which exporting States impose on similar transactions within their own territories.
The unregistered dealers and consumers in the importing States will then find themselves unable to secure any advantage over the consumers of locally purchased articles; nor of course will they, under this system, be able to escape the taxation altogether, as many of them do at present.
" (See Report of the Taxation Enquiry Commission, 195354, Vol.3, p. 57) In other words it was to discourage inter State sale to unregistered dealers that Parliament provided a high rate of tax, namely, IO%.
But even that might not serve the 592 purpose if the rate applicable to intra State of such goods was more than 10%.
The rate of 10% would then be favour able and they would be at an advantage compared to local cosumers.
It is because of this that Parliament provided, as a matter of legislative policy that the rate of tax shall be 10% or the rate applicable to intra State sales whichever is higher.
If prevention of evasiorl of tax is a measure in the public interest, there can be no doubt that Parliament is competent to make a provision for that purpose under Article 302 even if the provision would impose restrictions on the inter State trade or commerce.
Variation of the rate of inter State sales tax does affect free trade and commerce and creates a local preference which is contrary to the scheme of Part XIII of the Constitution.
The notification extends the benefit even to unregistered dealers and the observations of Hegde, J. on this aspect of the matter are relevant.
Both the notifications of the Andhra Pradesh Government are, therefore, bad and are hit by the provisions of Part XIII of the Constitution.
They cannot be sustained in law.
Now coming to.
the notification of the Karnataka State, we have already pointed out that no return has been made and no attempt has been made, therefore, to place facts and circumstances to justify the action.
The notification suffers from the same vice as the second notification of the State of Andhra Pradesh suffers and no distinction can be drawn.
We accordingly hold that the notification of the Karnataka Government is also bad in law.
It may be pointed out that the rate of sales tax in Karnataka is 19.5 per cent.in regard to intra State sales.
In view of what we have indicated above, the writ petition has to succeed and the two impugned notifications of the Andhra Pradesh Government and the impugned notification of the Karnataka Government are quashed.
The writ petition is accordingly allowed with costs.
Hearing fees is assessed at Rs.5,OOO and this shall be shared equally by the States of Andhra Pradesh and Karnataka.
section L. Petition allowed.

dataset_name: IN-Abs

summary:
% The State of Andhra Pradesh in exercise of powers conferred under sub section (1) of section 9 of the Andhra Pradesh General Sales Tax Act, 1957, made an order on January 27, 1987, reducing the rate of tax on sale of Cement made to the manufacturing units of Cement products in the State.
On the same date, the State of Andhra pradesh made another order in exercise of the powers conferred by sub section (5) of section 8 of the , reducing the tax leviable under the said Act in respect of sales of Cement in the course of the inter State trade or commerce.
The State of Karnataka in exercise of the powers conferred by sub section (5) of section 8 of the , issued a notification on 28.10.1987, reducing the rate of tax payable under the said Act on the sale of Cement in the course of the inter State trade or commerce.
The petitioners cement manufacturing concerns, their shareholders and their authorised stockists filed this writ petition, challenging the vires of section 8(5) of the (Central Act 74 of 1956) and the notifications referred to above as ultra vires the provisions contained in Part XIII of the Constitution providing that trade, commerce and inter course throughout the territory of India shall be free.
According to the petitioners the three orders referred to above created trade barriers and directly impinged upon the freedom of trade, commerce and inter course provided for in Article 301 of the constitution.
Since the vires of section 8(5) of the Central Act 74 of 1956 had been assailed, notice had been issued to the Union of India, Attorney General, and all the States but at the hearing of the writ petition, the 575 petitioners gave up the challenge against section 8(5) of the Central Act.
In view of that, the writ petition was confined to the challenge against the two notification of the State of Andhra Pradesh and the lone notification of the State of Karnataka.
The return to the rule nisi was made on behalf of the State of Andhra Pradesh.
The State of Karnataka chose not to make any return to the rule nisi, but its counsel joined at the hearing and contended that the order made by the Karnataka State did not affect the provisions in Part XllI of the Constitution.
The Attorney General confined his submission to the scope of Part III of the Constitution and the effect of the notifications on the scheme contained in that part.
Allowing the writ petition, the Court, ^ HELD: The title for Part XIII.
which contains the relevant Articles 30 l, 302, 303 and 304 is "Trade Commerce and inter course within the Territory of India.
" The true purpose of the provisions contained in Part Xlll of the Constitution, as elucidated in the different decisions of the Constitution Benches of this Court, is that the restriction provided for in Article 301 can within the ambit be limited by law made by the Parliament and the State legislature.
No power is vested in the executive authority to act in any manner affecting or hindering the very essence and thesis contained in the scheme of Part XIII of the Constitution.
lt is equally clear that the declaration contained in Part XIIl of the Constitution is against the creation of economic barriers and or pockets which stand against the free now of trade, commerce and inter course.
[580F; 587H; 588A B] Taxation is a deterrent against free flow.
As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably.
If the scheme which Part XIII guarantees has to be preserved in national interest, it is necessary that the provisions in the Article must be strictly complied with.
One has to recall the far sighted observations of Gajendragadkar.
J. in Atiabari Tea Co. Ltd. vs The State of Assam & Ors., [1961] 1.S.C.R. 609 and the observations then made obviously apply to cases of the type now before the Court.[588C D] Under the first notification made under section 9(1) of the Andhra Pradesh General Sales Tax Act, the rate of tax was reduced to 4 percent in respect of the sales made by the indigenous cement manufacturers to manufacturers of Cement products.
The Tamil Nadu producers had sales officers in Andhra Pradesh and in regard to their sale to such manufacturers of cement products, the benefit of the reduced rate of 576 taxation was not applicable.
Two reasons were advanced by way of justification.
One was that it was beneficial to the State revenue and secondly, that it protected the local manufacturers too.
It could not be demonstrated to the Court how the reduction in the rate of sales tax was beneificial to the State revenue.
The other justification was what the provisions of Part XIII of the Constitution did not permit.
The reasonable restriction contemplated in Part XIII have to be backed by law and not by executive action, provided the same are within the limitations prescribed under the Scheme of Part XIII.[588D H] The second notification related to the inter State transactions.
Variation of the rate of inter State sales tax does affect free trade and commerce and creates a local preference which is contrary to the scheme of Part XIII of the Constitution.
The notification extended the benefit even to the unregistered dealers.
Both the notifications of the Andhra Pradesh Government were bad and hit by the provisions of Part Xlll of the Constitution.
They could not be sustained in law.[592D] In the case of the notification of the Karnataka State, as already said, no return had been made and no attempt had been made to place the facts and circumstances to justify the action.
The notification suffered from the same vice as the second notification of the State of Andhra Pradesh suffered, and no distinction could be drawn.
The notification of the Karnataka Government was also bad in law.
[597E F] The writ petition succeeded and the two impugned notifications of the Andhra Pradesh Government and the impugned notification of the Karnataka Government were quashed.
[592G] Atiabari Tea Co. Ltd. vs The State of Assam & Ors., ; The Automobile Transport (Rajasthan) Limited vs The State of Rajasthan & Ors., [1963] S.C.R. 491; State of Madras vs N.K. Nataraja Mudaliar., [1968] 3 S.C.R. 829; Gwalior Rayon Silk Mfg.
(Wvg.) Co. Ltd. vs The Assistant Commissioner of Sales Tax & Ors., [1974] 2 S.C.R. 879 and State of Tamil Nadu, etc.
vs Sitalakshmi Mills, etc.; , , referred to.