1980 (9) TMI 273 - SC - Indian Laws

Whether a tax of a certain kind can be levied on entry of goods in certain local areas, the classification of local areas, if found to be reasonable, the levy of tax would not be invalid on the ground that choosing certain areas only excluding some others would violate Article 14? Held that - Tax under the impugned legislation would be levied on scheduled goods either manufactured or produced within Karnataka State or imported from outside on their entry in a local area. Thus, this tax is non-discriminatory in that it does not discriminate between scheduled goods manufactured or produced within Karnataka State or those imported from outside. And the microscopic discrimination relied upon by the respondents that there is differential treatment accorded to goods produced within a local area and those imported from outside the local area is hardly relevant for the purpose of Art. 304(a). The High Court was accordingly right in concluding that the impugned tax satisfies the requirements of Art. 304(a). It would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. case 1963 (12) TMI 24 - SUPREME COURT OF INDIA that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Arts. 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce. As has been repeatedly observed by this Court, the taxes generally are imposed for raising public revenue for better governance of the country and for carrying out welfare activities of our welfare State envisaged in the constitution and, therefore, even if a tax to some extent imposes an economic impediment to the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or not in public interest. Thus the impugned tax is not discriminatory in character as envisaged by Art. 304(a) and it does impose restrictions but the restrictions imposed are reasonable and in public interest and the Act subsequently having received the assent of the President, the proviso to Art. 304(b) is complied with and, therefore, the impugned Act is saved by Art. 304 and could not be struck down on the ground that it was violative of Art. 301. The contention must accordingly be negatived.

Issues Involved:
1. Constitutional validity of the Karnataka Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale Therein Act, 1979, and the Notification issued under it.
2. Whether Section 3 of the Act allows the State Government to select specific local areas for tax imposition.
3. Whether the Act imposes unreasonable restrictions on petty dealers.
4. Compliance of the Act with Article 301 and Article 304 of the Constitution.
5. Vagueness in Section 3 regarding the computation of tax.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of the Act and Notification:
The Supreme Court examined the Karnataka Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale Therein Act, 1979, and the Notification No. FD 66 CSL 79 dated May 31, 1979. The Act was challenged on the grounds of being unconstitutional. The High Court had previously struck down the Act and Notification, favoring two contentions: selective application to local areas and unreasonable restrictions on petty dealers.

2. Selection of Local Areas for Tax Imposition:
The respondents argued that Section 3 of the Act does not empower the State Government to apply the Act selectively to certain local areas. The Supreme Court held that Section 3, when read with necessary pause and emphasis, does confer the power to specify different rates for different local areas. The Court found that the expression "as may be specified by the State Government" qualifies both "local area" and "such rate." The Court further noted that population criterion provides a reasonable basis for classification, making the tax productive and equitable.

3. Restrictions on Petty Dealers:
The High Court had found that the Act imposed unreasonable restrictions on petty dealers by requiring them to get registered, maintain accounts, and submit returns, irrespective of the value of goods brought into a local area. The Supreme Court disagreed, noting that the definition of "dealer" includes casual traders and that the volume of business is irrelevant to the tax event, which is the entry of scheduled goods into a local area. The Court found that non-exemption of petty dealers does not constitute unreasonable restrictions and helps prevent tax evasion.

4. Compliance with Articles 301 and 304:
The respondents contended that the Act violated the freedom of trade, commerce, and intercourse guaranteed under Article 301 and was not saved by Article 304. The Supreme Court referred to previous judgments, affirming that compensatory taxes for the use of trading facilities are not hit by Article 301. The Court found that the tax was non-discriminatory as it applied to both goods manufactured within Karnataka and those imported from outside. The Court also held that the restrictions imposed by the tax were reasonable and in public interest, as the tax aimed to compensate municipalities for the loss of revenue due to the abolition of octroi.

5. Vagueness in Computation of Tax:
The respondents argued that Section 3 was vague regarding whether the sale price or purchase price should be considered for tax computation. The Supreme Court clarified that the tax is levied on the entry of scheduled goods into a local area, and the price at the time of entry should be considered for computation. The Court found no ambiguity in this regard.

Conclusion:
The Supreme Court found that the two contentions upheld by the High Court were not sustainable. The Act and the Notification were upheld. The Court also found no merit in other contentions raised by the respondents. The appeal was allowed, and the judgment of the High Court was quashed and set aside. The petition filed by the respondents in the High Court was dismissed with costs throughout.

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