judgement:
Appeal No. 136 of 1952.
Appeal under articles 132(1) and 133(1)(c) of the Constitution of India from the Judgment and Order dated the 19th October, 1951, of the High Court of Judicature for Rajasthan at Jodhpur in D. B. Miscellaneous Writ Petition No. 3/1951.
K. section Hajela, Advocate General of Rajasthan, for the appellant.
K. N. Aggarwal and P. C. Agarwal for the respondents.
M. C. Setalvad, Attorney General for India (Porus A. Mehta, with him) for the intervener (the Union of India).
March 12.
The Judgment of the Court was delivered by GHULAM HASAN J.
The question involved in this appeal relates to the constitutional validity of clause 25 of the Rajasthan Foodgrains Control Order, 1949, hereinafter called the Control Order, and arises in the following circumstances : The respondents, who are grain merchants at Raniwara in Jodhpur Division, Rajasthan State, held 984 licences for dealing in foodgrains.
They held considerable stocks of bajra in the ordinary course of business but on October 7, 1950, their stocks were frozen by the Deputy Commissioner, Civil Supplies, Jodhpur, through the Sub Divisional Officer.
It is not disputed that the market price then prevailing was about Rs. 18 per maund.
The State, however, requisitioned the stocks at the rate.
of Rs. 9 per maund and sold them at Rs. 13 5 4 per maund.
The respondents claimed that they had purchased the bajra at the prevailing market rate of Rs. 17 to Rs. 18 per maund.
They filed a petition on January 23, 1951, for the issue of a writ under article 226 of the Constitution before the High Court of Rajasthan, contending that clause 25 of the Control Order was void under articles 14, 19 (1) (g) and 31 (2) of the Constitution.
The High Court held that clause 25 was void inasmuch as it is a restriction upon the fundamental right of the respondents to carry on business under article 19 (1)(g) of the Constitution, that the restriction is not reasonable and is not saved by clause (6) of article 19.
The High Court further held that clause 25 was also hit by article 31 (2) as fair compensation had not been fixed by the law for the acquisition of the foodgrains.
As the grains had already been disposed of by the Government, the High Court holding that Rs. 17 a maund was fair compensation directed that the State of Rajasthan shall pay compensation at that rate.
The State has preferred.the present appeal on a certificate granted by the High Court.
The impugned clause 25 is as follows: " 25.
Notwithstanding anything contained in this Order, the Commissioner, the Director, the Deputy Commissioner, the Nazim, the Assistant Commissioner, the Sub Divisional Officer, the Senior Officer of a jurisdictional Thikana, the enforcement officer 'or such other officer as may be authorized by the Commissioner in this behalf, may freeze any stocks of foodgrains held by any person, whether in his own behalf or not, and such person shall not dispose of any foodgrains out of the stock so freezed except with the permission of the said authority.
Such stocks shall 985 also be liable to be requisitioned or disposed of under orders of the said authority at the rate fixed for purposes of Government procurement.
" It is not disputed that bajra is an essential commodity within the meaning of the Essential Supplies Act (No. XXIV of 1946).
The question that arises for consideration is how far and in what respects clause 25 can be said to be void as violating Part III of the Constitution.
The clause authorises the Commissioner and various other authorities mentioned therein and such other officers as may be authorised by the Commissioner to freeze any stock of foodgrains held by a person.
It is true that the authority of the Commissioner to delegate his powers to any other officer at his discretion is expressed in somewhat wide terms but we need not decide that per se would be sufficient to invalidate the clause.
Admittedly that :power has not been exercised in the.
present case.
Nor do we think that the power to freeze the stocks of foodgrains is arbitrary or based on no reasonable basis.
It is not disputed that the clause does not state in express terms the circumstances in or the grounds on which the stocks may be freezed but it should be read along with section 3 of the Essential Supplies Act which lays down the policy for controlling the production,, supply and distribution of essential commodities.
Section 3 in so far as it is material says: " The Central Government, so far as it appears to it to be necessary or expedient for maintaining or increasing supplies of any essential commodity, or for securing their equitable distribution and availability at fair prices, may by order provide for regulating or prohibiting the production, supply and distribution thereof Sub section (2) lays down: " Without prejudice to the generality of the powers conferred by sub section (1) an order made thereunder may provide. . . . (a). . . . . (b). . . . . (c). . . . . 986 (d) for regulating by licences, permits or otherwise the storage, transport, distribution, disposal, acquisition, use or consumption of any essential commodity; (e) for prohibiting the withholding from sale of any essential commodity ordinarily kept for sale; We are clear, therefore, that the freezing of stocks of foodgrains is reasonably related to the object which the Act was intended to achieve, namely, to secure the equitable distribution and availability at fair prices and to regulate transport, distribution, disposal and acquisition of an essential commodity such as foodgrains.
We do not agree with the High Court that the first portion of clause 25 is void under article 19 (1) (g).
The last portion of clause 25 to the effect that such stocks shall also be liable to be requisitioned or disposed of under orders of the said authority at the rate fixed for purposes of Government procurement ", however stands on a different footing.
The clause, as it is worded, leaves it entirely to the Government to requisition the stocks at any rate fixed by it and to dispose of such stocks at any rate in its discretion.
This obviously vests an unrestrained authority to requisition the stocks of foodgrains at an arbitrary price.
In contrast with this provision we may refer to clauses 23 and 24 of the Control Order.
They are as follows: " 23.
The Commissioner or the Director, and the Deputy Commissioner or the Senior Officer of a jurisdictional Thikana with the approval of the Director, may fix the ceiling prices at which foodgrains in any area to which this order applies shall be sold, and may from time to time vary such prices." "24.
The Commissioner, the Director, the Deputy Commissioner, the Nazim, the Assistant Commissioner, the Sub Divisional Officer, or the Senior Officer of the jurisdictional Thikana as the case may be, may direct any person or persons in possession, whether on his own behalf or not of any foodgrains to sell such foodgrains or part thereof to any person or persons at any 987 specified place and at such price as may be fixed under clause 23.
" It appears from these clauses that while the authorities may fix the ceiling price at which foodgrains should be sold in the market by the dealers and may direct any person in possession of foodgrains to sell them to any other person at the price fixed under clause 23, there is no such limitation upon the power of the Government to acquire the stocks.
In other words, it will be open to the Government to requisi tion the stocks at a price lower than the ceiling price thus causing loss to the persons whose stocks are freezed while at the same time the Government is free to sell the same stocks at a higher price and make a profit.
It is obvious that the dealer whose stocks are thus freezed will stand to lose considerably and will be unable to carry on his trade or business at the prevailing market price.
No dealer will be prepared to buy foodgrains at the market price when he knows that he is exposed to the risk of his stocks being freezed any moment and the same being requisitioned at the procurement rate.
The present is a typical case which illustrates how the business of a grain dealer can be paralyzed, for it is admitted that while the Government procurement rate was Rs. 9 a maund, the market rate was Rs. 17 or Rs. 18 per maund, with the result that the stock holder suffered nearly cent.
per cent.
lose, while the Government made a profit of Rs. 4 5 4 per maund on the stock requisitioned.
We hold, therefore, that the last portion of clause 25 places an unreasonable restriction upon the carrying on of trade or business and is thus an infringement of the respondent 's right under article 19(1)(g) of the Constitution and is, therefore, to that extent void.
The same result follows if the impugned clause is examined in the light of article 31(2).
The clause by vesting the power in the authority to acquire the stocks at any price fails to fix the amount of the compensation or ,specify the principles on which the compensation is to be determined.
The clause leaves it entirely to the discretion of the executive authority to fix any compensation it likes.
The High Court 988 rightly held that the clause offended against article 31(2).
For the foregoing reasons we hold that the last portion of clause 25 is void and dismiss the appeal with costs.
Appeal dismissed.
Agent for the appellant and for the intervener: R. H. Dhebar.

summary:
Held, that the first portion of cl. 25 of the Rajasthan Foodgrains Control Order, 1949, relating to the freezing of stocks of foodgrains is not void under article 19(1)(f) of the Constitution because such freezing of stocks of foodgrains is reasonably related 983 to the object which the Act was intended to achieve, namely to secure the equitable distribution and availability at fair prices and to regulate transport, distribution, disposal and acquisition of an essential commodity such as foodgrains.
Hold, that the last portion of cl. 25 to the effect that " such stocks shall also be liable to be requisitioned or disposed of under orders of the said authority at the rate fixed for purposes of Government procurement ", is void both under article 19(1)(f) and article 31(2) of the Constitution: (i)because the clause places an unreasonable restriction upon the carrying on of trade or business and is thus an infringement of the respondents ' right under article 19(1)(f) of the Constitution; (ii)because the clause by vesting the power in the authority to acquire the stocks at any price fails to fix the amount of compensation or specify the principles on which it is to be determined and leaves it entirely to the discretion of the executive authority to fix any compensation it likes and is thus hit by article 31(2) of the Constitution.


judgement:
Appeals Nos. 526,527 and 529 of 1964.
Appeals from the judgment and order dated December 15, 1959, of the Punjab High Court in Civil Writ Nos.
827, 826 and 823 of 1959 respectively.
Civil Appeals Nos. 39 to 43 of 1965.
Appeals by special leave from the judgments and orders dated March 30, 1961 of the Punjab High Court in Civil Writ Nos. 467, 473, 476, 474 and 477 of 1960 respectively.
Civil Appeal No. 81 of 1965.
Appeal from the judgment and order dated May 2, 1963 of the Punjab High Court in Letters Patent Appeal No. 155 of 1963.
Civil Appeal No. 540 of 1965.
Appeal from the judgment and order dated February 18, 1963 of the Punjab High Court in Civil Writ No. 206 of 1962.
M. C. Setalvad, R. K. Garg and section C. Agarwala, for the appellants (In C.As.
No. 526, 527 and 529 of 1964).
R. Ganapathy Iyer and R. N. Sachthey, for the respondents (in C. A. Nos.
526, 527 and 529 of 1964).
Rameshwar Nath and Mahinder Narain, for the appellants (in C.As.
39 43 of 1965).
Hardev Singh and R. N. Sachthey, for the respondents (in C.As.
39 43 of 1965).
section T. Desai and O. C. Mathur, for the appellants (in C.As.
Nos. 81 and 540 of 1965).
R. Ganapathy Iyer and R. N. Sachthey, for the respondents (in C.A. No. 81 of 1965).
O. P. Malhotra and R. N. Sachthey, for the respondents (in C.A. No. 540 of 1965).
The Judgment of the Court was delivered by Subba Rao, C.J.
The decision on these appeals depends upon the interpretation of the relevant provisions of the Punjab General Sales Tax Act, 1948 (Punjab Act 46 of 1948), as amended by Punjab Act 7 of 1958, relating to three categories of goods, namely, oil seeds, iron and cotton.
The facts may be briefly stated.
560 The assessees in.
Civil Appeals Nos.
526, 527 and 529 of 1964 carry on business at Moga in Punjab and each owns an oil mill They purchase oil seeds and, after crushing the same in their oil mills, sell the oil and the residual oil cake.
They are registered dealers under the Act.
The Amending Act imposed a purchase tax of 2% on the purchase of oil seeds "for the use in the manufacture of goods for sale.
" This was in addition to the sales tax leviable on the sales of oil and oil cake.
On June 23, 1959, the Excise and Taxation Officer, Ferozepore, the 3rd respondent ill the said appeals, issued notices to the 3 appellants assessees to the effect that they did not submit their returns for the year ending 1958 59 and failed to pay purchase tax in respect thereof and asked them to show cause why they should not be prosecuted for the said default.
The appellants filed 3 petitions under article 226 of the Constitution in the High Court of Punjab questioning the validity of the relevant provisions of the Act and for appropriate reliefs.
A Division Bench of the High Court heard the petitions, along with other connected petitions, and dismissed the petitions of the appellants so far as they related to purchase tax on oil seeds.
Hence the appeals.
Civil Appeals Nos.
39 to 43 of 1965 relate to purchase tax on iron.
The appellants carry on business in rolling steel at Gobindgarh.
They purchase steel scrap and steel ingots and convert them into rolled steel sections.
Under the Act, the assessing authority imposed purchase tax at the rate of 2% on the purchase of steel scrap and steel ingots made by them during the period April 1, 1958 to March 31, 1959 for making rolled steel section and selling the same.
The appellants filed petitions under article 226 of the Constitution in the High Court for appropriate writs for quashing the orders of the assessing authorities and for prohibiting them from levying purchase tax on the goods purchased and for refund of the tax illegally collected from them.
A Division Bench of the High Court dismissed the petitions.
Hence the appeals.
Appeals Nos. 81 of 1965 and 540 of 1965 relate to purchase tax on cotton.
The appellants in Civil Appeal No. 81 of 1965 are the trustees of Birla Education Trust.
They own a cotton and textile mill, Bhiwani.
They purchase cotton from various dealers in Punjab and outside for the manufacture of yarn and cloth.
By ,in order dated March 11, 1962, the District Taxation Officer, Hissar, imposed purchase tax on the appellants in respect of the cotton purchased by them for the assessment years 1958 59 and 1959 60.
The appellant in Civil Appeal No. 540 of 1965 is a limited company carrying on the business of producing and selling yarn.
For the purpose of its business it acquires cotton from commission agents.
It is a registered dealer under the Act.
The Excise and Taxation Officer, Hissar, by his order dated November 561 29, 1961, assessed the appellant to purchase tax for the assessment year 1958 59 in respect of the cotton purchased by it and so too on January 27, 1962, he had taken proceedings for making assessment to purchase tax for the assessment year 1959 60 in respect of the same commodity.
The appellants in both the appeals filed petitions under article 226 of the Constitution in the High Court questioning the validity of the said orders.
The said writ petitions were dismissed by a Division Bench of the High Court.
Hence the appeals.
We shall at first take the points raised which are common to all the appeals and then proceed to consider the points peculiar to some of the appeals.
Mr. M. C. Setalvad, learned counsel appearing for the appel lants in the batch of appeals relating to tax on purchase of oil seeds, raised before us the following points which are common to other appeals : (1) Section 5 of the East Punjab General Sales Tax Act, 1948, was held to be, void on the ground that it conferred essentially legislative power on the provincial Government and, therefore, the said section was stillborn and that,, as the said section was the charging section, the entire Act was void, with the result Act 19 of 1952, which amended section 5 with retrospective effect could not breathe a new life into the said Act.
A void Act was non est and, therefore, could not be brought into force by an amending Act.
(2) Clause (ff) of section 2 introduced by Act 7 of 1958 defining "purchase", subject to the conditions mentioned therein as a taxing event was ultra vires the State Legislature inasmuch as the transaction defined therein was not a sale" within the meaning of that expression in entry 52 of List 11 of the 7th.
Schedule to the Constitution and was in fact an "excise" duty inasmuch as it was imposed on the production of oil in the garb of purchase tax.
(3) The said amendment was also bad in that it made an unreasonable discrimination in the matter of taxation between the same classes of goods based on the character of the purchaser.
If the goods were purchased by a manufacturer, they were liable to purchase tax; and if the same goods were purchased by an ordinary dealer, they were not liable to the said tax.
(4) The amended 'provision, section 2(ff), was also void because it contravened sections 14 and 15 of the Central Sales tax Act, 1956, whereunder sales tax was prohibited to be imposed on the declared goods at more than one stage, whereas under the Act it could be imposed both at the purchase point and at the sale point of the transactions entered into by the manufacturer.
(5) Purchase tax was not leviable on oil seeds, as the assessees did not manufacture oil out of the seeds but only produced the oil.
We shall now proceed to consider the points seriatim.
The provisions relevant to the first two points read thus: C1167 6 562 East Punjab General Sales Tax Act (46 of 1948) Section 5.
Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a dealer a tax at such rates as the Provincial Government may by notification direct.
East Punjab General Sales Tax (Second Amendment) Act, 1952 (Act No. 19 of 1952).
Section 2.
Amendment of section 5 of Punjab Act 46 of 1948 : In sub section (1) of section 5 of the East Punjab General Sales Tax Act, 1948, after the word " rates" the following words shall be inserted and shall be deemed always to have been so inserted, namely, 'not exceed in two pice in a rupee '.
The High Court of Punjab held that section 5 of the Act was void as it gave an unlimited power to the executive to levy sales tax at a rate which it thought lit.
But it held that the amendment of section 5 by the Punjab Act 19 of 1952 cured the defect in the said Act and had the effect of giving a new life to it.
The first question, therefore, is whether section 5 of the East Punjab General Sales Tax Act, 1948 (46 of 1948), as it originally stood, was void, and the second question is, if the said section was void, whether the amendment could give life to it.
The law on the subject is fairly well settled, though difficulties are met in its application to each case.
In Corporation of Calcutta, vs Liberty Cinema(1) on which Mr. Ganapati Iyer relied relates to a levy imposed on cinema houses under the Calcutta Municipal Act (33 of 1951).
There, the majority held that the levy therein was a tax, that the fixing of a rate of tax was not of the essence of legislative power, that the fixing of rates might be left to a nonlegislative body and that when it was so left to such a body, the Legislature must provide guidance for such fixation.
The majority he Id in that case that such a guidance was found in the monetary needs of the Municipality for discharging the functions entrusted to it under the Act.
Sarkar I., speaking for the majority &aid thus : "It (the Municipal Corporation) has to perform various statutory functions.
It is often given power to decide when and in what manner the functions are to be performed.
For all this it needs money and its needs will very from time to time, with the prevailing exigen cies.
Its power to collect tax, however, is necessarily (1) [1965]2 S.C.R.4 7 563 limited by the expenses required to discharge those functions.
It has, therefore, where rates have not been specified in the statute, to fix such rates as may be necessary to meet its needs.
That, we think, would be sufficient guidance to make the exercise of its power to fix the rates valid.
" If this decision is an authority for the position that the Legislature can delegate its power to a statutory authority to levy taxes and fix the rates in regard thereto, it is equally an authority for the position that the said statute to be valid must give a guidance to the said authority for fixing the said rates and that guidance cannot be judged by stero typed rules but would depend upon the provisions of a particular Act.
To that extent this judgment is binding on us.
But we cannot go further and hold, as the learned counsel for the respondents asked us to do, that whenever a statute define , the purpose or purposes for which a statutory authority constituted and empowers it to levy a tax that statute necessarily contains a guidance to fix the rates it depends upon the provisions of each statute.
Learned counsel for the State argued that under article 162 of the Constitution the executive power of the State shall extend to: matters with respect to which the Legislature of a State has power to make laws : that is to say, the executive power of a State extends to matters mentioned in List 11 of the Seventh Schedule to, the Constitution, that under article 266(1) of the Constitution all the taxes collected will go to the Consolidated Funds of the State, that the State has an unlimited power to raise funds by taxation to discharge its vast constitutional duties and that necessarily the amount of tax required would depend upon its needs which can only be known to it.
In the said circumstances, the argument proceeds '. the doctrine of constitutional and statutory needs would afford reasonable guidelines for the Government to fix the rate and that the principle laid down by this Court in the aforesaid decision would equally apply to this case.
If this argument be accepted, it would mean that every statute conferring a naked power on the Government to impose taxes would be good, for in every case the discharge of the constitutional duties by the Government would be deemed to be a sufficient guide for fixing the rate.
We cannot accept this argument for three reasons, namely, (1) the decision of this Court in Calcutta Corporation vs Liberty Cinema(1) should he confined only to the provisions of the Calcutta Municipal Act Wherein this Court found a guidance; (2) the provisions of the Sale,; Tax Act, including the preamble, do not disclose any policy or guidance to the, State for fixing the rates: and (3) the general (1) [1965]2 S.C.R. 477, 564 constitutional power to impose taxes has no relevance for discovering a statutory policy under a particular Act.
Nor does the decision of this Court in The State of Madras vs Gannon Dunkerley & Co., (Madras) Ltd.(1) lend support to the argument so widely advanced by the learned counsel.
That case has nothing to do with the fixation of rates of taxes.
There section 6(1) of the Madras General Sales Tax Act, 1939, as amended by Madras Act 25 of 1947, provided that no tax will be payable on any sale of goods specified in the schedule to it.
Section 6(2) ,of that Act authorised the State Government to amend the schedule by notification.
The amendment of the Schedule by the State Government was challenged on the ground that section 6(2) was invalid as it was a delegation of the essential power of legislation ,of the State Government.
Venkatarama Ayyar, J., speaking for the Court, in rejecting that contention, observed thus : "Now, the authorities are clear that it is not unconstitutional for the 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 rates at which it is to be charged in respect of different classes of goods, and the like.
" It is not necessary to scrutinize the correctness of this statement, having regard to the decisions relied upon, for this Court in Corporation of Calcutta vs Liberty Cinema(2) accepted it, but made it clear that such a power to fix the rates must be supported by some reasonable guidance given under the Act whereunder the said power was conferred.
Nor the observations of Rajagopala Ayyangar, J., in the said decision speaking for the minority, lend support to the contentions of the respondents.
The decision in Vasantlal Maganbhai Sanjanwala vs The State of Bombay(3) raised the question whether section 6(2) of the Bombay Tenancy and Agricultural Lands Act, 1948 (Bom. 67 ,of 1948), which enabled the Government to fix the rent payable by a tenant within the maximum limits prescribed thereunder, was valid.
When it was argued that it was bad because of excessive delegation, this Court sustained it on the basis of a legislative policy disclosed by section 12(3) of the Act.
In The Union of India vs Messrs. Bhana Mal Gulzari Mal(4), this Court rejected the contention that caluse 11B of Iron and Steel (Control of Production & Distribution) Order, 1941, whereunder the Central Government was authorised to issue notification fixing the maximum price of steel, was void on the ground of excessive delegation, as it found that the said clause only further canalized the policy disclosed in sections 3 and 4 of the Act.
(1) ; S.C.R.379, 435.
(2) [1965]2 S.C.R. 477.
(3) [1961] 341.
(4) ; 565 Further citation is unnecessary, for the principle of excessive delegation is well settled and the cases are only illustrations of the application of the said principle.
The law on the subject may briefly be stated thus : "The Constitution confers a power and imposes a duty on the legislature to make laws.
The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct.
Obvi ously it cannot abdicate its functions in favour of another.
But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation.
It must necessarily delegate the working out of details to the executive or any other agency.
But there is a danger inherent in such a process of delegation.
An overbur dened legislature or one controlled by a powerful executive may unduly overstep the limits of delegation.
It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation.
This self effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation.
It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits.
But the said liberal on struction should not be carried by the Courts to the extent of always trying to discover a dormaint or latent legislative policy to sustain an arbitrary power conferred on executive authorities.
It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature.
See Vasantlal Maganbhai Sanjanwala vs The State of Bombay(1) at pp.
356 357.
Under section 5 of the Punjab General Sales Tax Act, 1,948, as it originally stood, an uncontrolled power was conferred on the provincial Government to levy every year on the taxable turnover of a dealer a tax at such rates as the said Government might direct.
Under that section the Legislature practically effaced itself in the matter of fixation of rates and it did not give any guidance either under that section or under any other provisions of the Act no other provision was brought to our notice.
The (1) 566 argument of the learned counsel that such a policy could be gathered from the constitutional provisions cannot be accepted, for, if accepted,.
it would destroy the doctrine of excessive delegation.
It would also sanction conferment of power by Legislature on the executive Government without laying down any guide lines in the Act.
The minimum we expect of the Legislature is to lay down in the Act conferring such a power of fixation of rates clear legis lative policy or guide lines in that regard.
As the Act did not prescribe any such policy, it must be held that section 5 of the ,said Act, is it stood before the amendment, was void.
The next step in the argument of Mr. M. C. Setalvad was that sections 4. 5 and 6 of the Punjab Central Sales Tax Act, 1948, together formed a group of charging sections and they were so integrally connected with each other that if section 5 was void, sections 4 and 6 also fell with it, as one was not severable from the other.
As the charging sections were the crux of the Act, the argument proceeded, the whole Act was void and therefore the Act amending section 5 could not revive the Act which was still born.
The relevant provisions may now be read.
Section 4 (1).
Subject to the provisions of sections 5 and 6, every dealer except one dealing exclusively in goods declared tax free under section 6 whose gross turnover during the year immediately preceding the com mencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on ill sales effected after coming into force of this Act.
Section 5 his already been extracted.
Section, 6(1).
No tax shall be payable on the sale of goods specified in the first column of Schedule B subject to the conditions and exceptions, if any, set out in the corresponding entry in the second column thereof and no dealer shall charge sales tax on the sale of goods which are declared tax free from time to time under this section.
It will be seen that section 4 is a charging section, that section 5 provides for fixation of rates and that section 6 prescribes for exemptions.
Section 4 is made subject to sections 5 and 6.
IF section 5 is struck out, will section 4 become void This will depend upon two questions, namely, (i) whether section 5 is a charging section ? and (ii) even if section 4 alone is the charging section.
, as it is made subject to section 5 and as the section subject to which it is made was still born, whether section 4, on the application of the doctrine of severance, becomes void.
567 In the context of Income tax Act it was held by this Court in Kesoram Industries and Cotton Mills Ltd. vs Commissioner of Wealth tax, (Central), Calcutta(1) that the charging section for the purpose of income tax was section 3 of the Indian Income tax Act, 1922, and the annual Finance Acts only gave the rate for quantifying the tax.
Section 3 of the said Income tax Act read: "Where any Central Act enacts that income tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or tile members of tile association Individually.
" Section 2 of tile Finance (No. , read "(1) Subject to the provisions of subsections (2), (3), (4) and (5) for the year beginning on the 1st day of April, 1957, (a)income tax shall be charged at the rates specified in Part 1 of the First Schedule, and, in the cases to which Paragraphs A, B and C of that Part apply, shall be increased by a surcharge for purposes of the Union and a special surcharge on unearned income, calculated in either case in the manner provided therein;" It was argued that the liability to tax did not arise till the Finance Act was made and the tax quantified.
Dealing with this question, this Court by majority observed "A liability to pay income tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data.
" The only difference between Income tax Act and the present Act is that while in the Income tax Act section 3 thereof does not expressly make, the liability subject to the provisions of tile Finance Act which fixes the rate, under the Sales tax Act in question section 4 thereof in terms is made subject to section 5.
But under both the Acts there is a clear distinction between chargeability and the quantification of tax.
While, it is true that the tax cannot be, realised without it being quantified, the non quantification of the liability will not destroy the liability tinder the clearing section.
The liability has to be distinguished from its enforceability.
It cannot be said, and indeed it Is not said, that the Income tax Act has no legal existence till the Finance Act is made, though till the Finance (1) [1966]2 S.C.R. 688, 7,8.
568 Act is made it cannot be enforced.
But reliance is placed on section 67B of the Income tax Act in support of the contention that its existence in the statute book keeps the Act alive, for the rate prescribed by the previous Finance Act is applicable till the new Finance Act is passed.
But it will be noticed that the Court 's decision was not based on the existence of the said provision but on that of the charging section itself.
It follows that striking out section 5 does not make section 4 void, though till an appropriate section is inserted it remains unenforceable.
The decision of this Court in B. Shama Rao vs The Union Territory of Pondicherry(,) is clearly distinguishable.
There, subsection (1) of section 2 of the Pondicherry General Sales Tax Act, 10 of 1965, provided that : "The Madras General Sales Tax Act, 1959 (No. 1 of 1959) (hereinafter referred to as the Act) as in force in the State of Madras immediately before the commencement of this Act shall.
extend to and come into force in the Union of Territory of Pondicherry subject to the following modifications and adaptations. .
Section 1(2) of the said Act provided that the Act would come into force on such date as the Government by notification may appoint.
The effect of the section was that the Madras Act as it stood on the date (if the notification issued would be in force in the Union Territory of Pondicherry.
Indeed it turned out that the Madras Act was ended before the said notification.
This Court held that there was a total surrender in the matter of sales tax legislation by the Pondicherry Assembly in favour of the Madras legislature and for that reason the said sections were void or stillborn.
It was argued that the Act could not be said to be still born as it contained certain provisions independent of the Madras Act, viz., a section which provided for the appellate tribunal and the schedule.
But it was pointed out that the core of the taxing statute was in the charging section and that the remaining sections bad no independent existence.
In the present case the charging section was intact and what was struck out was only the section providing for rates.
It cannot, therefore, be said that when section 5 was struck out, section 4 or other sections fell with it.
It was then contended that even if the whole Act was not stillborn, section 5 was non est, that the amending Act did not insert a new section 5 but purported to amend the earlier section 5 which was not in existence.
Now under the East Punjab General Sales Tax (Second Amendment) Act, 1952 (Act No. 19 of 1952) section 5 of the East Punjab General Sales Tax Act, 1948 was amended.
Section 2 of the said amending Act says: (1) ; 569 .lm15 "In sub section (1) of Section 5 of the East Punjab General Sales Tax Act, 1948, after the word 'rates ' the following words shalt be inserted and shall be deemed always to have been so inserted, namely : 'not exceeding two pice in a rupee '." No doubt in terms the section inserts the words "not exceeding two, pice in a rupee" in section 5.
If section 5 is inserted in the Act by the Amending Act with the said words added, there cannot possibly be any objection, for that would be an amendment of an existing Act.
But in substance the amendment brings about the same effect.
The words "shall be deemed always to have been so inserted" indicate that in substance section 5, as amended, is Inserted in the Act with retrospective effect.
Even so it wits contended that section 5, as amended, only gave the maximum rate and did not disclose any policy giving guidance to the executive for fixing any rate within that maximum.
Here we are concerned with sales tax.
If the Act had said "2 pice In a rupee" it would be manifest that it was a clear guidance.
But as the Act applies to sales or purchases of different commodities it had become necessary to give some discretion to the Government in fixing the rate.
Conferment of reasonable area of discretion by a fiscal statute has been approved by this Court in more than (me decision : see Khandige Sham Bhat vs The Agricultural Income tax Officer(1).
At the same time a larger statutory discretion placing a wide gap between the minimum and the maximum rates and thus enabling the Government to fix an arbitrary rate may not be sustained.
In the ultimate analysis, the permissible discretion depends upon the facts of each case.
The discretion to fix the rate between I pice and 2 pice in a rupee is so insignificant that it is not possible to hold that it exceeds the permissible limits.
It follows that section 5 of the Act as amended is valid.
The next argument is that section 2(ff) inserted in the Punjab General Sales Tax Act, 1948, by the East Punjab General Sales Tax (Amendment) Act, 1958 (Act No. 7 of 1958) Lind amended by Amending Act 13 of 1959 is void.
The said clause (ff) as amended by Act 13 of 1959 reads " 'Purchase ', with all its grammatical or cognate expressions, means the acquis ition of goods specified in Schedule 'C ' for use in the manufacture of goods for sale for cash or deferred payment or other valuable considera tion otherwise than under a mortgage, hypothecation, charge or pledge.
" The first limb of the argument is that the definition of "purchase" is more comprehensive than the definition of "sale" under the Indian and, therefore, the State Legislature was (1) ; 570 incompetent to make a law under entry "sale or purchase" in List 11 of the 7th Schedule to the Constitution.
The constitutional position is well settled.
Entry 54 of List II of the 7th Schedule to the Constitution reads : "Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List 1." In The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd.(1) Venkatarama Aiyer, J., speaking for the Court, observed : "Thus, according to the law both of England and India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods.
Unless these elements are present, there can be no sale.
Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale.
" This Court also held that the State Legislature, by enlarging the ,definition of "sale", could not include transactions which were not sales according to the well established concepts of law tinder the Law of Contract or the ; see Sales tax Officer vs Budh Prakash (2 ) and George Oakes vs State of Madras(3).
Bearing that in mind let us look at clause (ff) in section 2 of the Principal Act in which the said clause was inserted.
The ingredients of the definition of "purchase" are as follows : (i) there shall be acquisition of goods; (ii) the acquisition shall be for cash ,or deferred payment or other valuable consideration; (ii) the said valuable consideration shall not be other than under a mortgage, hypothecation, charge or pledge.
Clause (h) of ' section 2 defines thus "sale" means an transfer of property in goods other than goods specified in Schedule C for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge.
If we turn to the , section 4 thereof define contract of sale of goods.
It reads : "Contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property ill goods to the buyer for a price. (1) ; ,397 398.
(2) A.I.R. 1964 S.C. 459 (3) A. 1.
R. 571 The essential requisite of sale are (i) there shall be a transfer of property or agreement to transfer property by one party to another; and (ii) it shall be for consideration of money payment or promise thereof by the buyer.
A sale and a purchase are different aspects of the same transaction.
If we look at it from the standpoint of a purchaser it is purchase and if we look at it from the standpoint of the seller it is a sale.
Whether purchase or sale it shall have the said ingredients both in common law and under the Indian Contract Act. 'Price ' has been defined in the to mean money consideration for the sale of goods : see section 2(10) of the Indian .
It will, therefore, be seen that the definition of 'purchase ' in the Act prima facie appears to be wider in scope than 'sale '.
While transfer of goods from one person to another is the ingredient of 'sale ' in general law, acquisition ion of goods, which may in its comprehensive sense take in voluntary as well as involuntary transfers, is an ingredient of 'purchase ' in clause (ff).
While 'price ', i.e., money consideration, is the ingredient of 'sale ', cash, deferred payment or any valuable consideration is an ingredient of 'Purchase '.
But a closer scrutiny compels us to give a restricted meaning to the expression "acquisition" and "price".
Acquisition is the act by which a person ac quires property in a thin .
"Acquire" is to become the owner of the property.
One can, therefore, acquire a property either by voluntary or involuntary transfer.
But the Sales Tax Act applies only to "sale" as defined in the Act.
Under clause (h) of section 2 of the Act it is defied as a transfer of property.
As purchase is only a differed, aspect of sale, looked at from the stand point of the purchaser, and as the Act imposes tax at different points in respect of sales, having regard to the purpose of the ,ale, it is unreasonable to assume that the Legislature contemplated different categories of transactions when the taxable event is it the purchase point.
Whether it is sale or purchase the transaction is the same.
If it was a transfer inter vivos, in the case of a sale it must equally be so in the case of a purchase.
Context, consistency and avoidance of anomaly demand a restricted meaning.
That it must only mean transfer is also made clear by the nature of the transactions excluded from the acquisition, namely, mortgage, hypothecation,charge or pledge all of them belong to the species of transfer.
We must, therefore,hold that the expression "acquisition" in clause (ff) of section2 of the Act means only "transfer".
coming to the expression "price".
it is no doubt defined in the as "money consideration".
Cash or deferred payment in clause (ff) of section 2 of the Act satisfied the said definition.
The expression "valuable consideration" has a wider connotation, but the said expression is also used in the same collocation in the definition of "sale" in section 2(h) of the Act.
The said expression must bear the same meaning, in clause 5 72 (ff) and clause (h) of section 2 of the Act.
It may also be noticed that in most of the Sales Tax Acts the same three expressions are used.
It has never been argued or decided that the said expression means other than monetary consideration.
This consistent legislative practice cannot be ignored.
The expression "valuable consideration" takes colour from the preceding expression "cash or deferred payment".
If so, it can only mean some other monetary payment in the nature of cash or deferred payment.
We, therefore, hold that clause (ff) of section 2 of the Act is not void for legislative incompetence.
Another argument to invalidate clause (ff) of section 2 of the principal Act may also be noticed.
It is said that that clause offends article 14 of the Constitution on the ground that by reason of the said definition the same goods if purchased by a manufacturer would be taxed but they would not be taxed if purchased by a person other than a manufacturer.
But a close scrutiny of clause (ff) of section 2 discloses that there is a reasonable classi fication in the said definition.
The raw goods purchased by a manufacturer are transformed on manufacture into some other goods and that is the reason why the Legislature taxes the goods before they lose their identity.
But where no manufacturer intervenes there is no such metamorphosis and, therefore, the taxable event is the sale.
There is certainly a reasonable relation between the object of the statute and the differences between the two categories of transactions.
The next argument turns upon the interpretation of clause (ff).
The argument is, to come Linder the definition of "purchase" it is not enough that the acquisition of goods shall be for cash etc.
but that the acquisition shall be for use in the manufacture of goods for sale for cash etc.
On this construction it is argued that the tax levied was excise duty and, therefore, beyond the competence of the State Legislature.
The contention is that the tax on the purchase was in connection with the manufacture of goods and, therefore, an excise duty.
There is an essential distinction between the two imposts : while excise duty is in respect of manufacture of goods, the sales tax is upon the sale of the goods.
The question, therefore, is whether under the Act the purchase tax is imposed on the sale of the goods or in connection with the manufacture of goods.
The decisions of this Court establish that "in order to be ,in excise duty (a) the levy must be upon 'goods ' and (b) the taxable event must be the manufacture or production of goods." : see Messrs. Shinde Brothers vs The Deputy Commissioner, Raichur(1) The tax has no nexus with the manufacture of goods.
The purpose for which the goods are purchased is only relevant for fixing the (1) Civil Appeals No. 1580 1586, 1588 and 1590 1600 of 1966 (decided on 26 9 1966).
573 taxable event, but the tax is on the purchase of the goods.
That taxable event is fixed before the goods are actually manufactured.
We, therefore, hold that the tax under the Act is a purchase tax and not an excise duty.
Then it is contended that while section 15 of the (Act 74 of 1956) imposes a restriction on the State not to tax at more than one stage, the amending Act by introducing the definition of "purchase" enables the State to tax the same goods at the purchase point and at the sale point.
But this argument misses the point that goods purchased and the goods sold are not identical ones.
Manufacture changes the identity.
Therefore, the same goods are not taxed at two stages.
The last argument is that the said definition only takes in the purchase of goods for use in the manufacture of goods, but tax is imposed on the purchase of goods for producing oil.
To state it differently, oil is not manufactured out of oil seeds but only produced.
Reliance is placed upon the user of two words in the Act, viz. manufacturing or processing in the proviso to sub section (2) of section 4 and sub section (5) thereof and the expression "edible oils produced" in entry 57 of Schedule B to the Act and a con tention is raised that the Act itself makes a distinction between manufacturing and processing and manufacture and production and, therefore, oil is not manufactured but only produced from oil seeds.
Support is sought to be derived for this argument from the decision of this Court in Union of India vs Delhi Cloth & General Mills(1).
But a perusal of the judgment shows that this Court only held that refined oil produced out of seeds was only an intermediate stage in the manufacture and was, therefore, not liable to excise duty.
On the other band, the dictionary meaning of "manufacture" is "transform or fashion raw materials into a changed form for use".
When oil is produced out of the seeds the process certainly transforms raw material into different article for use.
We cannot, therefore, accept this contention.
Now coming to Civil Appeals Nos. 39 to 43 of 1965, the first additional point raised is that when iron scrap is converted into rolled steel it does not involve the process of manufacture.
It is contended that the said conversion does not involve any process of manufacture, but the scrap is made into a better marketable commodity.
Before the High Court this contention was not pressed.
That apart, it is clear that scrap iron ingots undergo a vital change in the process of manufacture and are converted into a different commodity, viz., rolled steel sections.
During the process the scrap iron loses its identity and becomes a new marketable commodity.
The process is certainly one of manufacture.
(1) [1963] Supp. 1 S.C.R. 586. 574 The next argument is that the Act is in conflict with section 15 of the , inasmuch as it enables the levy of sales tax at more than one stage.
In these and connected appeals we are concerned only with two periods the first period upto October 31, 1958 and the second period from November 1, 1958 to March 31, 1960.
It is, therefore, necessary to notice the relevant provisions governing the said two periods.
The relevant part of section 15 of the (74 of 1956), as amended by Central Sales Tax (Amendment) Act 16 of 1957, reads thus : "Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on, the ,,ale or purchase of declared goods, be subject to the following restrictions and conditions, namely (a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall be levied only in respect of the last sale or purchase inside the State and shall not exceed two per cent of the sale or purchase price; (b) notwithstanding anything contained in clause (a), no tax shall be levied in respect of the last sale or purchase inside the State if the declared goods purchased are intended for sale in the course of inter State trade or commerce.
Explanation.
The expression "last sale or purchase inside the State means the transaction in which a dealer registered under the sales tax law of the State (i) sells to or purchases from another such dealer declared goods for use by the purchaser in the manufacture of goods for sale or for use by the purchaser in the execution of any contract; or (ii) purchases declared goods from another such dealer for sale to a dealer not registered under the sales tax law of the State or to a consumer in the State." This section was amended by the Central Sales Tax (Amend ment) Act 31 of 1958 with effect from October 1, 1958.
The relevant part of the amended section reads : "Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely (a)the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed.two per cent.
of the sale or purchase price there 575 of, and such tax shall not be levied at more than one stage; (b) Where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of interstate trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions is may be provided in any law in force in that State.
While section 15 of the before the amendment described the stage at which the purchase tax can be levied, section 15 after the amendment only declares that it cannot be levied at more than one stage.
This Court in M/s Modi Spinning & Weaving Mills Co. Ltd. vs Commissioner of Income tax, Punjab & Anr.
(1) observed as follows : "The meaning or the intention of clause (3) of article 286 is not to destroy all charging sections in the Sales Tax Acts of the States which are discrepant with section 5(a) of the , but to modify them in accordance therewith.
The law of the State is declared to be subject to the restrictions and conditions contained in the law made by Parliament and the rate in the State A ct would pro tanto stand modified.
The effect of article 286(3) is now brought out by the second proviso to section 5(1).
But this proviso is enacted out of abundant caution and even without it the result was the same.
" The effect of this judgment is that the stage prescribed under section 15 of the before the amendment and the prohibition against taxation at more than one stage contained in the amended section would automatically control the provisions of the Punjab Genet at Sales Tax Act, 1948.
With the result upto October 1, 1958, tinder the State Sales Tax Act a tax could be levied only in respect of purchase of declared goods inside the State and only on the purchase made by a dealer of goods for use by him in the manufacture of goods; and from October 1, 1958, the State can only levy tax at one stage.
For the second period the Central Act by its own force did not fix the stage.
Pursuant to the provisions of section 15 of the , before it was amended, Act 7 of 1958 added clause (ff) to section 2 of the Principal Act fixing the same stage indicated by section 15 of the Central Act, i.e. the stage when the purchase is made by a dealer for use in the manufacture of goods.
This section was amended by Act 13 of 1959 and Act 24 of 1959.
Under the latter amendment in clause (ff) of section 2 for the words "goods for use in the manufacture of goods for sale" the (1) 576 words "goods specified in Schedule 'C ' for use in the manufacture of goods for sale" were substituted; that is to say, the stage for taxation prescribed in the earlier definition was amended.
It may be recalled that under the , as amended, the description of the stage was omitted, but that does not affect the question, for that description is maintained even under the amended clause (ff).
It follows from the said discussion that the Punjab General Sales Tax Act, during the crucial period which is the subject matter of these appeals, in terms fixed a stage for taxation, i.e., the stage of purchase by a dealer for use in the manufacture of goods.
There are, therefore, no merits in this contention either,.
Now coming to Civil Appeals Nos. 81 of 1965 and 540 of 1965, three additional points are raised by Mr. Desai, namely, (i) by including in the term "purchase", read with the definition of "dealer", where there is acquisition of cotton through commission agents, the State Legislature has exceeded its legislative power under entry 54 of List 11, of Schedule 7 to the Constitution; (ii) ,during the relevant period tax was leviable on cotton without fixing any stage and at more than one stage in violation of section 15 of the ; and (iii) there is no rational basis to single out the three items, namely, cotton, oil seeds and resin for imposition of purchase tax and, therefore, the relevant provisions offend article 14 of the Constitution.
We have already held in another context that there are no merits in the second point.
The first point need not detain us, as in the High Court no specific point was raised in that regard.
On the third point also no adequate material was placed in the court below and, therefore, it does not call for our consideration.
In the result the appeals are dismissed with costs.
One hearing fee R.K.P.S. Appeals dismissed.

dataset_name: IN-Abs

summary:
Section 5 of the East Punjab Sales Tax Act, 1948, as originally enacted, conferred on the Government power to levy tax at such rates as the Government might fix.
The section was amended by Act 18 of 1952, with retrospective effect, fixing the rate of tax at "not exceeding two piece in a rupee".
Section 2(ff) of the Act as amended by Act 13 of 1959, define , "purchase" as the "acquisition" of the goods "for use in the manufacture of goods for sale, for cash or deferred payment or other valuable consideration otherwise than under a mortgage hypothecation, charge or pledge".
The appellants ' petition in the High Court challenging the imposition of purchase tax for the years 1958 59 and 1959 60 on the purchase of oil seeds, steel scrap and cotton for manufacture of goods for sale, were dismissed, and they appealed to this Court.
Mean while, the High Court had considered the validity of the Act in a Sales Tax Reference and declared section 5, as it originally stood, void.
In this Court it was contended : (i) since section 5 as originally enacted, was declared void,that being the charging section, the entire act was void and the Amending Act of 1952 could not revive an Act which was non est, and (ii) section 2(ff) was invalid for want of legislative competence.
HELD : (i) Section 5 as it stood before the amendment was void, but the section as amended by the Amending Act of 1952 is valid.
An Act conferring a power to fix rates of taxation must lay down clear legislative policy or guide lines in that regard and the doctrine of constitutional and statutory needs would not afford reasonable guidelines in the fixation of such rates.
There was nothing in the provisions of the Act, including the preamble disclosing any policy or guidance to the State for fixing rates.
Section 5 as it stood before the Amendment conferred on the Government an uncontrolled power in the matter of fixation of rates and was therefore void.
[565 G 566 B; 569 F] Corporation of Calcutta vs Liberty Cinema, , explained.
State of Madras, vs Gannon Dunkerlev & Co. (Madras) Ltd. ; , 435, Vasantlal Maganbhai Sanjanwala vs State of Bombay.
558 ; and The Union of India vs M/s. Bhana Mal Gulzari .Mal; , , referred to.
Although section 5 was void, the entire Act was not void.
Section 4 is the 'Charging section and Section 5 dealt only with the quantification of tax, that is, the charging section was intact and what was struck down was only the section providing for rates.
The fact that section 4 is made subject to section 5 does not render the former void on the principle of non severability, because, under the Act, there is a clear distinction between chargeability and the quantification of tax.
Therefore, striking out section 5 only made section 4 unenforceable.
The amendment of section 5 has, in substance, the effect of amending an existing Act.
[567 G H; 568 F G; 569 B C] B. Shama Rao vs The Union Territory of Pondicherry, [1967] 2 S.C.R., distinguished.
Kesoram Industries and Cotton Mills Ltd. vs Commissioner of Wealth Tax (Central) Calcutta, ; , referred to.
Conferment of a reasonable area of discretion by a fiscal statute is permissible and the discretion to fix the rate between 1 pice and 2 pice cannot be said to exceed the permissible limits.
[569D F] Khandige Sham Bhat vs The Agricultural Income Tax Officer, ; , referred to.
(ii) Clause (ff) of section 2 is not void for want of legislative competence.
Although the words "acquisition" and "valuable consideration in the definition of "purchase" in section 2(ff) of the Act indicate, prima facie, that this definition is wider in scope than the definition "sale", these expressions in the context must be given a restricted meaning.
The expression "acquisition" in the definition means only "transfer" and the expression "valuable consideration" takes colour from the preceding expression "cash or deferred payment" and can only mean some other monetary payment in the nature of cash or deferred payment.
[571 F G; 572 B] The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. ; , Sales Tax Officer vs Budh Prakash, A.I.R. and George Oakes vs State of Madras, A.I.R. , referred to.
Purchase tax, under the Act is leviable on the purchase of goods and not in respect of manufacture of goods and therefore is not an excise duty.
The purpose for which goods are purchased is only relevant for fixing the taxable event and the taxable event is fixed before the goods are actually manufactured.
[572 H 573 B] M/s. Shinde Bros. vs The Deputy Commissioner, Raichur, C.As.
1580 1586 and 1590 1600 of 1955 (decided on 26 9 1966), referred to.
The Act does not enable levy of tax on the same goods at more than one stage and therefore is not in conflict with section 15 of the Central Sales Tax Act 1596.
Manufacture changes the identity and the goods purchased and the goods sold are not identical and therefore the same goods are not taxed at two stages.
Further, cl.
(ff) of section 2 of the Act during.
the periods relevant to the present case, in terms, fixed the stage for taxation, i.e., the stage of purchase by a dealer for use in the manufacture of goods.
[573 B C; 576 B] 559 The fact that the same goods when purchased by a manufacturer would be taxed but would not be taxed when purchased by a person other than a manufacturer would not violate article 14 of the Constitution as section 2(ff) discloses a reasonable classification.
[572C E]


judgement:
Appeal No. 38 of 1967.
Appeal from the judgment and order dated December 1, 1966, of the Assam and Nagaland High Court in Civil Rule No. 145 of 1964.
section V. Gupte, Solicitor General and Naunit Lal, for the appellants.
612 Ram Labhaya Obhrai, I. M. Obhrai, S.K. Mehta and K. L. Mehta, for the respondent.
The Judgment of the Court was delivered by Subbarao C.J.
This appeal by certificate is directed against the order of the High Court of Assam declaring that the Assam Motor Vehicles Taxation (Amendment) Acts of 1963 and 1966 were repugnant to the Assam Motor Vehicles Taxation Act, 1936 (Assam Act 9 of 1936), hereinafter called the Principal Act, and, therefore, void as they were made in contravention of the provisions of article 254(2) of the Constitution.
The facts are in a small compass and they are as follows The Principal Act came into force on March 1, 1937.
The assent of the Governor General in Council was given under section 35 of the Government of India Act, 1935.
This Act imposes tax on motor vehicles in the Province of Assam.
In 1955 the Principal Act was amended by Assam Act IV of 1956 and it had received the assent of the President.
Subsequently the Principal Act was amended by Act 15 of 1963, but the Bill was introduced in the Assam State Assembly with the previous sanction of the President and it came into force on April 1, 1963.
Subsequent to the filing of the petition, out of which the present appeal has arisen, the Principal Act was again amended in the year 1966 and it came into force on April 1, 1966.
The tax on the stage carriage motor vehicles was gradually raised under each amendment and under the last of the amendments a sum of Rs. 56/ was imposed per seat.
Under the last amendment Act the petitioner respondent had to pay a sum of Rs. 1680/ as tax for the stage carriage she was plying.
The respondent filed a petition under article 226 of the Constitution in the High Court for declaring the amending Acts void and for other reliefs.
The petition was heard by a Division Bench of the High Court and the learned Judges delivered two separate but concurrent judgments.
They held that the Amending Acts of 1963 and 1966 were void and gave the petitioner respondent the reliefs :asked for.
Hence the present appeal.
The main question in the appeal is whether the said Amending Acts increasing the rate of tax are void for constitution incompetence.
The High Court in effect held that the provisions of the said Amending Acts were inconsistent with those of the existing law, namely, the Principal Act and, therefore, as they had not received the assent of the President, were void under article 254 of the Constitution.
This conclusion was arrived at on the ground that the Amending Acts were made in respect of the matter contained in entry 35 of the Concurrent List.
613 To appreciate the contentions it will be convenient to read at the outset the relevant Articles of the Constitution.
Entry 57 of List II of the Seventh Schedule to the Constitu tion : Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List 111.
Entry 35 of List III Mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied.
article 254 (1) If any provision of law made by the Legislature of a State is repugnant. . to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2). . the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.
(2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State. article 366(10) Existing law means any law, ordi nance or bye law, rule or regulation passed or made before the commencement of the Constitution by any Legislature, authority or person having power to make such a law, ordinance or bye law, rule or regulation.
The application of the said provisions to the subject matter of the present appeal leads to the following result.
The Principal Act was an existing law.
If the Amending Acts were made under entry 35 of the Concurrent List and if they were in conflict with any of the provisions of the existing law, to the extent of the inconsistency the said amendments would he void.
But, on the other hand, if the Amending Acts were passed under entry 57 of List 11 of the Seventh Schedule, they would fall outside the scope of article 254 of the Constitution, as article 254 would apply only to a conflict between the provisions of an "existing law" and those or the post constitution law in respect of matters enumerated in any of the entries of the Concurrent List.
The learned Solicitor General raised before us two points, namely, (i) article 254 of the Constitution posits the existence of 614 two.
parallel laws One an "existing law" and the other a post Constitutional law in respect of any one of the entries in the Concurrent List and the provisions thereof are in conflict with each other; but it has no application to a case where the State Legislature, within the scope of its legislative competency, amends an existing law so as to extinguish a part of it.
(2) The amending Acts were only made under entry 57 of List 11 and, therefore, there is no scope for invoking the provisions of article 254 of the Constitution.
Learned counsel for the respondent, on the other hand, con tended that there was no distinction between an amending Act and a new Act in the matter of.
application of article 254 of the Constitution, as in either case the provisions of the said Acts would be inconsistent with the existing law.
He further argued that the Amending Acts introduced new principles of taxation and, therefore, fell squarely within the scope of entry 35 of the Concurrent List.
As we are holding in favour of the appellant on the second point, it is not necessary to express our view on the first.
The short question, therefore, is whether any of the provisions of the Amending Acts is repugnant to any of the provisions of the existing law with respect to any of the matters enumerated in the Concurrent List.
Under the existing law, i.e., Act 9 of 1936, no motor vehicle could be used in the Assam Province unless the owner thereof had paid in respect of it a tax at the appropriate rate specified in the Schedule to the Act and, save as therein specified, such tax should thereafter be payable annually notwithstanding that the motor vehicle might from time to time cease to be used (see section 4).
As aforesaid, the Schedule annexed to the Principal.
Act was amended from time to time by different amending Acts and the rate was increased.
Under the 1963 amending Act, apart from other provisions which do not relate to any principles of taxation, a new Schedule has been substituted.
Neither the amending Act nor the Schedule laid down any principles of taxation in respect of motor vehicles.
So too, the amending Act ,of 1966 substituted the Schedule of the Act by another Schedule.
A persual of the aforesaid Schedule only disclose that different rates were fixed; that is to say, the amended Schedule does not lay down any principles on which taxes on motor vehicles are to be levied within the meaning of entry 35 of the Concurrent List; it is solely concerned with taxes on vehicles within the meaning entry 57 of List 11.
The two entries deal With two different matters though allied ones one deals with taxes on vehicles and the other with the principles on which such taxes are to be levied.
When two entries in the Constitution, whether in the same List or different Lists, deal with two subjects, if possible, an attempt 615 shall be made to harmonize them rather than to bring them into conflict.
Taxes on vehicles in their ordinary meaning connote the liability to pay taxes at the rates at which the taxes are to be levied.
On the other hand, the expression "principles of taxation" denotes rules of guidance in the matter of taxation.
We, therefore, hold that the Amending Acts do not come into conflict with the existing law in respect of any principles of taxation, 'but only deal with a subject matter which is exclusively within the legislative competence, of the State Legislature.
In this view, there is no scope for the application of article 254 of the Constitution.
Even so, learned counsel for the respondent contended that the amending Acts offend the provisions of article 301 of the Constitution.
Article 301 reads "Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free,.
" The scope of this Article has been authoritatively defined by this Court in The Automobile Transport (Rajasthan) Ltd. vs The State of Rajasthan(1).
There the majority held that regulatory Measures or measures imposing compensatory taxes for the use of trading facilities did not hamper trade, commerce or interCourse but rather facilitate them, and, therefore, were not hit by the freedom declared by article 301.
There, by virtue of section 4 of the Rajasthan Motor Vehicles Taxation Act, 1951, read with the Schedules, no one could use or keep a motor vehicle in Rajasthan without paying an appropriate tax for it and, if he did so, be was made liable to the penalties imposed under section 11 of that Act.
This Court by majority held that such taxes were com pensatory and regulatory taxes which did not hinder the freedom of trade.
In the present case the respondent in her petition questioned the validity of the provisions, of the amending Acts on the following grounds : (i) The Act abolished the permit fee previously payable on such motor vehicles.
She alleges that as a result of the rationalisation of tax and the introduction of a single point levy, the tax fixed irrespective of road condition.
distance travelled, region catered for imposes crushing burden oil the petitioner and the other stage carriage permit bolders plying their vehicles in the short distance route and gives discriminatory weightage in favour of the State Carriage, Inter State public carriers and other vehicles plying in longer distance routes.
It will be seen that the averments are general and vague.
On the other hand, the State has filed a detailed affidavit.
The following figures show the expenditure incurred on new roads and maintenance of old roads and the income from motor vehicles for (1) [1963] 1 S.C.R.491.
616 some years.
In 1962 63 the expenditure was Rs. 671.60 lakhs and the income was Rs. 75.58 lakhs.
In 1965 66 the expend ture was Rs. 1499.77 lakhs and the income was Rs. 137.96 lakhs.
From the said figures it is clear that the State is charging from the users of motor vehicles some thing in the neighbourhood of II% and IO % respectively for the said two years of the cost it has to, incur in maintaining and making roads.
From Annexure D to the said affidavit it appears that in some cases tax under the 1963 Act had been increased by 50% under the 1966 Act and in some cases the tax under 1963 Act has been increased by 40% under 1966 Act.
It is obvious that comparatively small proportion of the general expenditure is realised through the impugned taxation.
In the circumstances, we must hold that the said Acts were only regulatory measures imposing _compensatory taxes for facilitating trade, commerce and intercourse.
The Acts are, therefore, not hit by article 301 of the Constitution.
in the result the order of the High Court is set aside and the appeal is allowed.
The petition filed by the respondent in the High Court is dismissed with costs here and in the court below.

summary:
Under the Assam Motor Vehicles Taxation Act, 1936, no motor vehicle could be used in the Assam Province unless the owner thereof had paid in respect of it a tax at the appropriate rate specified in the Schedule to the Act.
The Schedule was amended from time to time by the substitution of new Schedules and as a result of such amendments in 1963 and 1966, the tax on stage carriage motor vehicles was gradually raised.
In a writ petition, filed by the respondent, challenging the validity of the Amending Acts of 1963 and 1966, the High Court held that the Amending, Acts were made in respect of the matter contained in Entry 35 of the Concurrent List, namely principles of taxation of motor vehicles, and, as the provisions of the Amending Acts were inconsistent with those of the existing law, namely, the 1936 Act, the Amending Acts were ,void, because, the assent of the President as required by article 254 was not received.
In appeal to this Court, HELD : (i) Taxes on vehicles connote the liability to pay taxes at &he rates at which the taxes are to be levied, while, the expression "principles of taxation" denotes rules of guidance in the matter of taxation.
The Amending Acts do not come into conflict with the existing law in respect of any principles of taxation within the meaning of Entry 35 of the Concurrent List, but only deal with a subject matter , namely, taxes on vehicles within the meaning of Entry 57 of the State List, which is exclusively within the legislative competence of the State Legislature; and as such.
there is no scope for invoking article 254.
[615A C] (ii) It is only a comparatively small proportion of the general expenditure incurred on new roads and the maintenance of the ,)Id roads that was realised through the impugned taxation.
Therefore, the Amending Acts are only regulatory measures imposing compensatory taxes for faci litating trade, commerce and intercourse.
The Acts are, hence, not hit by article 301 of the Constitution.
[616C] The Automobile Transport (Raiasthan) Ltd. vs The State of Rajasthan, [1963] 1 S.C.R. 491, followed.