1983 (5) TMI 32 - SC - VAT and Sales Tax

Whether there is repugnancy between sub-s. (3) of s. 5 of the Bihar Finance Act, 1981 and para. 21 of the Control Order and, therefore, sub-s. (3) of s. 5 must yield to that extent? Held that - The contention that sub-s. (3) of s. 5 of the Act constitutes an unreasonable restriction upon the freedom of trade guaranteed under art. 19(1)(g) of the Constitution proceeds on the basis that sales tax being essentially an indirect tax, it was not competent for the Legislature to make a provision prohibiting the dealer from collecting the amount of surcharge cannot prevail. Merely because a dealer falling within the class defined under sub-s. (1) of s. 5 of the Act is prevented from collecting the surcharge recovered from him, does not affect the competence of the State Legislature to make a provision like sub-s. (3) of s. 5 of the Act nor does it become a tax on his income. It is no doubt true that a, sales tax is, according to the accepted notions, intended to be passed on to the buyer, and the provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. It is not an essential characteristic of sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making provision for sellers to collect the tax from the purchasers.

Issues Involved:
1. Constitutional validity of Section 5(1) and 5(3) of the Bihar Finance Act, 1981.
2. Interpretation of the scope of legislative powers under Article 246 and the concept of federal supremacy.
3. Alleged repugnancy between state law and central law under Article 254.
4. Violation of Articles 14 and 19(1)(g) of the Constitution.
5. Validity of the method of computation of gross turnover for levying surcharge.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of Section 5(1) and 5(3) of the Bihar Finance Act, 1981:
The Supreme Court upheld the constitutional validity of Section 5(1) and 5(3) of the Bihar Finance Act, 1981, which provides for the levy of a surcharge on dealers whose gross turnover exceeds Rs. 5 lakhs and prohibits such dealers from collecting the surcharge from purchasers. The court noted that these provisions are relatable to Entry 54 of List II of the Seventh Schedule, which pertains to taxes on the sale or purchase of goods.

2. Interpretation of the Scope of Legislative Powers under Article 246 and the Concept of Federal Supremacy:
The court discussed the principles of federal supremacy and the distribution of legislative powers between the Union and State Legislatures under Article 246. It emphasized that the power of the State Legislature to enact laws under List II is subject to the Union's power to legislate under List I and List III. The court clarified that the principle of federal supremacy applies only in cases of irreconcilable conflict between the Union and State powers.

3. Alleged Repugnancy between State Law and Central Law under Article 254:
The appellants argued that Section 5(3) of the Act, which prohibits dealers from collecting the surcharge, is repugnant to Paragraph 21 of the Drugs (Price Control) Order, 1979, issued under the Essential Commodities Act, 1955, which allows manufacturers to pass on the tax liability to consumers. The court rejected this argument, stating that there is no repugnancy as the two laws operate in different fields. The Essential Commodities Act deals with the regulation of essential commodities, while the Bihar Finance Act pertains to the levy of sales tax.

4. Violation of Articles 14 and 19(1)(g) of the Constitution:
The appellants contended that Section 5(3) of the Act is discriminatory and imposes an unreasonable restriction on their right to carry on business. The court held that the provision is not arbitrary or irrational and does not violate Article 14. It observed that the surcharge is levied uniformly on all dealers whose gross turnover exceeds Rs. 5 lakhs, irrespective of whether they deal in essential commodities or not. The court also found no violation of Article 19(1)(g), stating that the prohibition on collecting the surcharge from purchasers does not affect the competence of the State Legislature to impose the surcharge.

5. Validity of the Method of Computation of Gross Turnover for Levying Surcharge:
The appellants argued that the method of computing gross turnover, which includes inter-State sales and sales outside the State, is ultra vires the State Legislature. The court rejected this contention, stating that the definition of "gross turnover" in Section 2(j) of the Act is used only for identifying the class of dealers liable to pay the surcharge and not for taxing inter-State or outside sales. The court held that the State Legislature is competent to take into account the total turnover for the purpose of levying the surcharge.

Conclusion:
The Supreme Court dismissed the appeals and upheld the constitutional validity of Sections 5(1) and 5(3) of the Bihar Finance Act, 1981. The court found no merit in the arguments regarding repugnancy, violation of constitutional rights, or the method of computation of gross turnover. The judgment emphasizes the principles of federal supremacy, the distribution of legislative powers, and the rationality of tax laws.

← Previous Next →