1983 (5) TMI 214 - SC - VAT and Sales Tax

Constitutional validity of sub-section (1) of section 5 of the Bihar Finance Act, 1981 which provides for the levy of a surcharge on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs, in addition to the tax payable by him, at such rate not exceeding 10 per centum of the total amount of the tax, and of sub-section (3) of section 5 of the Act which prohibits such dealer from collecting the amount of surcharge payable by him from the purchasers challenged Held that - Appeal dismissed. As so far as sales of coconut oil outside the State were concerned, they were, as it were, by reason of section 26 of the Act read in conjunction with article 286, taken out of the purview of the Act, and that they had the effect of setting at naught and obliterating in regard thereto the provisions contained in the Act relating to the imposition of tax on the sale or purchase of such goods and in particular the provision contained in the charging section, section 3, and the provisions contained in rule 20(2) and other provisions which were incidental to the process of levying such tax. The aforementioned passage relied upon cannot be read out of context in which it appears and if so read, it is hardly of any assistance to the appellants.

Issues Involved:
1. Constitutional validity of sub-section (1) and sub-section (3) of section 5 of the Bihar Finance Act, 1981.
2. Conflict between the Bihar Finance Act, 1981, and the Drugs (Price Control) Order, 1979.
3. Alleged discrimination under Article 14 of the Constitution.
4. Alleged unreasonable restriction under Article 19(1)(g) of the Constitution.
5. Legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule.
6. Justiciability of the President's assent.
7. Computation of gross turnover for the purpose of levying surcharge.

Detailed Analysis:

1. Constitutional Validity of Sub-section (1) and Sub-section (3) of Section 5 of the Bihar Finance Act, 1981:

The Supreme Court upheld the constitutional validity of sub-section (1) of section 5 of the Bihar Finance Act, 1981, which provides for the levy of a surcharge on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs. The Court also upheld sub-section (3) of section 5, which prohibits such dealers from collecting the surcharge amount from purchasers. The Court referenced the decision in S. Kodar v. State of Kerala [1974] 34 STC 73 (SC), which upheld similar provisions under the Tamil Nadu Additional Sales Tax Act, 1970.

2. Conflict Between the Bihar Finance Act, 1981, and the Drugs (Price Control) Order, 1979:

The Court examined whether there was a conflict between sub-section (3) of section 5 of the Bihar Finance Act and paragraph 21 of the Drugs (Price Control) Order, 1979. The Court held that there was no irreconcilable conflict between the two laws. It was noted that the Essential Commodities Act and the Bihar Finance Act operate in different fields. The former regulates the price of essential commodities, while the latter levies a surcharge on sales tax. The Court concluded that both laws could be obeyed simultaneously without conflict.

3. Alleged Discrimination Under Article 14 of the Constitution:

The appellants argued that sub-section (3) of section 5 of the Act was discriminatory as it treated unequals as equals by imposing the same surcharge on all dealers with a gross turnover exceeding Rs. 5 lakhs, regardless of whether they dealt in essential commodities with controlled prices or not. The Court rejected this argument, stating that the surcharge is a general tax that falls uniformly on a certain class of dealers based on their capacity to bear the additional burden. The Court emphasized that the classification was reasonable and not arbitrary.

4. Alleged Unreasonable Restriction Under Article 19(1)(g) of the Constitution:

The appellants contended that sub-section (3) of section 5 of the Act imposed an unreasonable restriction on their right to carry on business, as guaranteed under Article 19(1)(g) of the Constitution. The Court dismissed this contention, noting that the surcharge did not affect the competence of the State Legislature to impose a tax on sales. The Court reiterated that the power to levy a sales tax includes the power to determine whether the tax should be passed on to the consumer or borne by the dealer.

5. Legislative Competence of the State Legislature Under Entry 54 of List II of the Seventh Schedule:

The Court affirmed that the State Legislature was competent to enact sub-section (1) and sub-section (3) of section 5 of the Act under Entry 54 of List II of the Seventh Schedule. The Court held that the surcharge was a tax on the sale or purchase of goods and fell within the legislative competence of the State Legislature. The Court rejected the argument that the provisions were ultra vires the State Legislature.

6. Justiciability of the President's Assent:

The appellants argued that the President's assent to the Bill was justiciable and that the Bill should not have been reserved for the President's consideration. The Court rejected this argument, stating that the Governor's decision to reserve the Bill for the President's assent under Article 200 of the Constitution was not subject to judicial review. The Court held that the assent of the President was not justiciable.

7. Computation of Gross Turnover for the Purpose of Levying Surcharge:

The appellants contended that it was impermissible to include transactions representing sales in the course of inter-State trade, outside the State, and in the course of import/export in the computation of gross turnover for levying the surcharge. The Court rejected this contention, stating that the definition of "gross turnover" in section 2(j) of the Act was adopted to classify dealers and identify those liable to pay the surcharge. The Court emphasized that the surcharge was levied on the tax payable by the dealer and not on the gross turnover itself.

Conclusion:

The Supreme Court dismissed the appeals, upholding the constitutional validity of sub-section (1) and sub-section (3) of section 5 of the Bihar Finance Act, 1981. The Court found no conflict between the Bihar Finance Act and the Drugs (Price Control) Order, 1979, and rejected the arguments of discrimination and unreasonable restriction under Articles 14 and 19(1)(g) of the Constitution. The Court affirmed the legislative competence of the State Legislature and held that the President's assent was not justiciable. The computation of gross turnover for the purpose of levying the surcharge was also upheld.

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