1963 (12) TMI 24 - SC - Central Excise

Whether the tax levied by the Act can be said to be discriminatory and as such, unconstitutional because it has selected only tea and jute as objects of taxation? Whether the respondent has shown that the restrictions imposed by the Act by levying a tax on the movement of tea can be said to be reasonable and in the public interest? Held that - The mere fact that a validating statute operates retrospectively does not justify the contention that the character of the tax sought to be recovered by such retrospective operation is necessarily changed. It is very difficult to assume that producers who were taxed under the earlier Act paid the tax without preferring an appeal or revision though they had a grievance against the validity or regularity of the assessment order. Therefore, we do not think the challenge to the validity of s. 34 can be sustained. It is in regard to such a taxing statute which can properly be regarded as purely confiscatory that the power of the Court can be legitimately invoked and exercised. In our opinion, it would be idle to suggest that a tax imposed by the Act in the present case should be struck down because it has taxed only tea and jute. In the present case, undoubtedly, tea has been carried over a part of the inland waterways in Assam and that satisfies the test of nexus. The argument of extra-territoriality must, therefore, fail. The argument based on the fact that the goods have been entrusted to the railway for through carriage, and so, the carriage of the goods should be held to be outside the purview of s. 3 of the Act, cannot be sustained. The power to levy a tax which has been conferred on the State Legislature by Entry 56 cannot, therefore, be said to be controlled by the Tea Act in question. It would be noticed that List I does not contain any Entry by which the Central Legislature can pass an Act levying a tax on goods carried which can be said to control Entry 56 in List 11. That being so, we, must hold that there is no substance in the argument that the State Legislature has no power to levy a tax on tea which is carried over- a part of the area of the State of Assam. The result is, the petition fails and is dismissed with costs.

Issues Involved:
1. Legislative Competence of the Assam Legislature.
2. Retrospective Operation of the Act.
3. Reasonableness of Restrictions Imposed by the Act.
4. Discrimination and Violation of Article 14.
5. Allegations of Colorable Exercise of Legislative Power.
6. Extra-territorial Operation of the Act.
7. Validity of Section 34 of the Act.
8. Validity of Section 24 of the Act.

Detailed Analysis:

1. Legislative Competence of the Assam Legislature:
The petitioners argued that Section 3 of the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961, was beyond the legislative competence of the Assam Legislature. They contended that the tax should only be levied on the person who carries the goods, not on the producer who may have sold the goods before they were carried. However, the Court held that the legislature has the competence to devise appropriate machinery for tax collection, including making the producer liable for the tax even if the goods were sold before being carried. The Court emphasized that Entries in the legislative lists should be read broadly, and considerations of administrative convenience and prevention of tax evasion are valid.

2. Retrospective Operation of the Act:
The petitioners argued that a law passed under Article 304(b) cannot operate retrospectively. The Court rejected this argument, stating that there is no constitutional prohibition against retrospective legislation under Article 304(b). The Court noted that the retrospective operation of a tax law does not inherently make it unreasonable, and it is within the legislature's power to pass laws with retrospective effect.

3. Reasonableness of Restrictions Imposed by the Act:
The petitioners contended that the tax imposed by the Act was unreasonable because it was a flat rate, not varying with the distance over which the goods were carried. The Court held that a flat rate could be reasonable, as it avoids unfair competition among producers who carry goods over different distances. The Court also considered the public interest in raising revenue for maintaining roads and waterways, which justified the tax.

4. Discrimination and Violation of Article 14:
The petitioners argued that the Act was discriminatory because it taxed only tea and jute, not other goods. The Court held that the legislature has the discretion to select the objects of taxation and that taxing only tea and jute, the main products of Assam, was reasonable. The Court emphasized that the power to levy taxes includes the power to pick and choose the subjects of taxation.

5. Allegations of Colorable Exercise of Legislative Power:
The petitioners claimed that the Act was a colorable exercise of legislative power, aimed at validating taxes collected under the earlier invalid Act. The Court rejected this argument, stating that the power to pass validating Acts is an inherent part of the legislative power to impose taxes. The Act's retrospective application was within the legislature's competence and did not constitute a colorable exercise of power.

6. Extra-territorial Operation of the Act:
The petitioners argued that the Act had extra-territorial operation because it taxed goods carried for a very short distance within Assam. The Court dismissed this argument, holding that the physical carriage of goods through any part of Assam, however short the distance, was sufficient to attract the tax. The Court emphasized that the doctrine of nexus supports the validity of the tax.

7. Validity of Section 34 of the Act:
The petitioners contended that Section 34 was unconstitutional as it barred suits for the refund of taxes collected under the earlier invalid Act. The Court held that Section 34 did not prohibit appeals or revisions provided under the Act, and it was reasonable to bar civil suits for refunds to prevent endless litigation.

8. Validity of Section 24 of the Act:
The petitioners challenged Section 24, which prescribed penalties for non-compliance with the Act. The Court found that the petitioners had not shown that any action was proposed against them under Section 24, making the challenge hypothetical. The Court declined to rule on the validity of Section 24 in the absence of a concrete case.

Conclusion:
The Supreme Court dismissed the petition, upholding the validity of the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961. The Court found that the Act was within the legislative competence of the Assam Legislature, its retrospective operation was valid, the restrictions imposed were reasonable, and there was no violation of Article 14. The allegations of colorable exercise of legislative power and extra-territorial operation were also dismissed.

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