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TMI Blog1986 (4) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... sales and purchases of tendu leaves the effect of putting an end to the trade in tendu leaves or bidis or of causing a decline in that trade, the revenue of the State would have suffered and the State would have once again made the sales and purchases of tendu leaves exigible to a lower or concessional rate of tax. - Civil Appeal No. 2635 of 1972, - - - Dated:- 2-4-1986 - SEN A.P. AND MADON D.P. JJ. Rameshwar Nath, Advocate, for the appellants A.K. Sanghi, Advocate, for the respondents. -------------------------------------------------- The judgment of the Court was delivered by MADON, J.- The first appellant is a partnership firm registered under the Indian Partnership Act, 1932 (Act No. 9 of 1932). The second appellant is one of the partners of the first appellant-firm. The first appellant-firm carried on at all relevant times business as manufacturers of bidis and dealers in tendu leaves. The appellants filed a writ petition under articles 226 and 227 of the Constitution of India, being Miscellaneous Petition No. 317 of 1971, against the State of Madhya Pradesh and the Divisional Forest Officer, Raisen Division, challenging the validity of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent regions of the State. These laws were the Central Provinces and Berar Sales Tax Act, 1947, the Madhya Bharat Sales Tax Act, Samvat 2007, the Central Provinces and Berar Sales Tax Act, 1947, as extended to and in force in the Vindhya Pradesh and Bhopal regions, the Rajasthan Sales Tax Act, 1954, as in force in the Sironj region, and the Vindhya Pradesh Sales Tax on Coal Ordinance, 1948. With a view to consolidate and amend all these laws and to replace them by a uniform law for the levy of tax on the sales and purchases of goods in the entire State of Madhya Pradesh, the Madhya Pradesh Legislature enacted the Madhya Pradesh General Sales Tax Act, 1958 (M.P. Act No. 2 of 1959). This Act will hereinafter be referred to in short as "the M.P. Sales Tax Act". Under sub-section (2) of section 1, the M.P. Sales Tax Act extended to the whole of Madhya Pradesh and under sub-section (3) of section 1 it was to come into force on such date as the State Government may, by notification, appoint in that behalf. The M.P. Sales Tax Act was brought into force on April 1, 1959, by the Madhya Pradesh Separate Revenue Department Notification No. 622-1586-V-SR dated March 21, 1959, published in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration or for other valuable consideration, shall be deemed to be a dealer for the purposes of this Act." By section 10 of the 1971 Act certain amendments, including the amendments made by clause (i) of section 2, were deemed to have formed part of the M.P. Sales Tax Act from the date of its commencement. The new sub-clause (i) was thus substituted and the new explanation II was thus inserted in clause (d) of section 2 with retrospective effect from April 1, 1959. By section 11 of the 1971 Act, all assessments, reassessments, levy or collection of any tax or imposition of any penalty made or purported to be made and any action or thing taken or done or purported to have been taken or done in relation to such assessment, reassessment, levy, collection or imposition under the M.P. Sales Tax Act before the commencement of the 1971 Act were validated as if they had been made, taken or done under the M.P. Sales Tax Act as amended inter alia by section 2 of the 1971 Act. The 1971 Act came into force on May 6, 1971. Section 6 of the M.P. Sales Tax Act provides for the levy of tax. As originally enacted section 6 read as follows: "6. Levy of tax.-The tax payable by a dealer under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion "raw material". This definition was as follows: "(1) 'raw material' means an article used as an ingredient in any manufactured goods or an article consumed in the process of manufacture and includes fuel and lubricants required for the process of manufacture, but does not include bullion and specie." Section 8 provides for the rate of tax in the case of raw materials. As originally enacted, section 8 provided as follows: "8. Rate of tax for raw material.-(1) Notwithstanding anything contained in this Act, but subject to such restrictions and conditions as may be prescribed the rate of tax payable on the sale to or purchase by a registered dealer of any raw material for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce shall be one per cent of the sale or purchase price of such raw material. (2) Where any raw material purchased by a registered dealer under sub- section (1) is utilised by him for any purpose other than a purpose specified in the said sub-section, such dealer shall be liable to pay tax at the full rate mentioned in column 3 of Schedule II on the purchase of such raw material, together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India shall be levied at 2 per cent of the sale or purchase price of such raw material: Provided that when the tax payable on the sale or purchase of such raw material under section 6 or 7 is payable at a rate lower than two per cent, the tax payable under this sub-section shall be calculated at such lower rate. (2) Where any raw material purchased by a registered dealer under sub- section (1) is utilised by him for any purpose other than a purpose specified in the said sub-section, such dealer shall be liable to pay as penalty an amount not less than the difference between the amount of tax on the sale of such raw material at the full rate mentioned in column (3) of Schedule II and the amount of tax payable under sub-section (1) and not exceeding one and one-quarter times the amount of tax at such full rate as the Commissioner may determine having regard to the circumstances in which such use was made: Provided that no such penalty shall be imposed on a registered dealer where any raw material purchased by him under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him as a raw material for the manufacture of other goods for sale within the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India, such dealer became entitled to a set-off of an amount equal to the difference between the tax payable at the full rate on such goods as mentioned in Schedule 11 and the tax payable on raw material at the rate of two per cent; and (4) purchases of tendu leaves by registered dealers from the Forest Department of the State Government or any of the offices under that department did not, however, qualify for the set-off mentioned above even though the condition prescribed for obtaining such set-off was fulfilled. Before we turn to the challenge to the constitutional validity of the impugned amendments to section 8, it will be convenient to dispose of two other contentions which were raised in this appeal. The first contention was that as sales and purchases of tendu leaves cease to be exigible to tax under section 8 by reason of the amendments made therein and as tendu leaves were not mentioned in any of the entries in Schedule II to the M.P. Sales Tax Act, sales and purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. State of Madhya Pradesh [1971] 28 STC 532 in which it was held that the State Government or the Forest Department could not, merely by selling the forest produce grown on their land, be regarded as carrying on any business of buying, selling, supplying or distributing goods and, therefore, in respect of mere sales of forest produce, neither the State Government nor the Forest Department was a dealer within the meaning of the definition of that term contained in clause (d) of section 2. As the Statement of Objects and Reasons to the Legislative Bill which, when enacted became the 1971 Act, expressly states it was in view of the judgments of the Madhya Pradesh High Court on various provisions of the M.P. Sales Tax Act whereby the State stood to lose a considerable amount of revenue by way of tax and penalty, that it was proposed to amend the M.P. Sales Tax Act suitably in the light of the said judgments in order to safeguard the revenue of the State and to validate the imposition of penalty and that amongst the amendments which were being made was that the definition of "dealer" was proposed to be amended in the light of the judgment in the case of Orient Paper Mills Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly be rejected. The challenge to the constitutional validity of the impugned amendments to section 8 was founded upon articles 14, 286(3), 301 and 304 of the Constitution. So far as the challenge under article 14 is concerned, the submissions made in support thereof were that by the impugned amendments tendu leaves were discriminated against hostilely as compared with other raw materials in that the rate of tax on the sales and purchases of tendu leaves was made much higher than the rate of tax on the sales and purchases of other raw materials, not only within the State of Madhya Pradesh but also as compared with the rate of tax in the neighbouring States, and that there was no reasonable basis for making a distinction between tendu leaves and other raw materials inasmuch as the only use to which tendu leaves were put was as a raw material in the manufacture of bidis. As pointed out by Lord Greene delivering the opinion of the judicial Committee of the Privy Council in Mohanlal Hargovind of Jubbulpore v. Commissioner of Income-tax, C.P. and Berar, Nagpur (1948-49) LR 76 IA 235, 237; AIR 1949 PC 311 bidis are country-made cigarettes composed of tobacco contained or rol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o quote the following passage from the judgment of this Court in Khazan Chand v. State of Jammu and Kashmir [1984] 56 STC 214 at 223-224 (SC); [1984] 2 SCR 858 at 873-874: "Our Constitution is federal in its structure and a salient feature of a federal policy is distribution of legislative and administrative powers between the federated unit and the federating units, that is, between the Federal Government and the State Governments. Thus, matters in respect of which our Constitution-makers felt that there should be uniformity of law throughout the country have been placed by them in the Union List (List I in the Seventh Schedule to the Constitution) conferring exclusive power upon Parliament to make laws with respect thereto while matters which they felt were of local concern and may require laws to be made having regard to the particular needs and peculiar problems of each State have been assigned to the State Legislatures by placing them in List II of the Seventh Schedule, that is, the State List. Inter-State trade and commerce is a matter which affects all the States in India and thus the whole country. It is for this reason that in the Seventh Schedule to the Constitution t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers a two-point levy, and yet others a multi-point levy. Just as section 2 of the M.P. Sales Tax Act contains a definition of the term "raw material", it also contains in clause (g) of that section a definition of the term "goods". Under that definition, the term "goods" inter alia means "all kinds of movable property other than actionable claims, newspapers, stocks, shares, securities or Government stamps and includes all materials, articles and commodities". If the contention that sales and purchases of all raw materials must be taxed at the same rate were true, it would necessarily follow that sales and purchases of all goods must also be taxed at the same rate. A submission which leads to such an absurd result can hardly be countenanced by the court. Arguments such as those advanced before us have been consistently rejected by this Court. We need give only four instances. In T.G. Venkataraman v. State of Madras [1970] 25 STC 196 (SC); [1969] 2 SCC 299 a notification issued under the Madras General Sales Tax Act, 1959, which imposed tax on sales of cane jaggery and exempted sales of palm jaggery, was challenged on the ground that it violated article 14 because it was discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urden with a fair and reasonable degree of equality, the constitutional requirement is satisfied. The equality clause in article 14 does not take from the State power to classify a class of persons who must bear the heavier burden of tax. The classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequalities." In Khazan Chand v. State of Jammu and Kashmir [1984] 56 STC 214 (SC); [1984] 2 SCR 858 a challenge to section 81,2) of the Jammu and Kashmir General Sales Tax Act, 1962, on the ground that it was violative of article 14 as it hostilely discriminated against dealers in the State of Jammu and Kashmir as compared with dealers in other States in the matter of the rate at which interest was payable when default was made in payment of tax by the prescribed time was negatived by this Court. Tendu leaves do not stand on the same footing as other raw materials. Their only use appears to be as a consumable packing material or container for tobacco in the manufacture of bidis just as a cigarette paper is used in the manufacture of cigarettes. Thus, tendu leaves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trade in other raw materials. In our opinion, it was strictly not necessary for the High Court to go to the said Act for the purpose of seeking justification for levying tax on the sales and purchases of tendu leaves at a rate different from that on the sales and purchases of other goods. As pointed out earlier, tendu leaves constituted a different commercial commodity and it was open to the State to tax them at a rate different from the rate of tax on other commodities. The said Act would be a justification for treating differently the State as a dealer in tendu leaves from other dealers in tendu leaves. We may mention that the validity of the said Act was upheld by a Constitution Bench of this Court in Anwar Khan Mehboob Co. v. State of Madhya Pradesh [1966] 2 SCR 40. In support of the challenge under article 14, it was further contended that without amending the definition of "raw material" given in clause (1) of section 2 of the M.P. Sales Tax Act, a different rate of tax cannot be levied upon tendu leaves. Section 8 was amended both by the 1968 Act and the 1971 Act but the definition of "raw material" was not amended and it continued to remain the same. We are unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unmanufactured tobacco- * * * * II. Manufactured tobacco- * * * *" Under the sub-heading "Manufactured tobacco" are set out cigars and cheroots, cigarettes, and bidis in the manufacture of which any process has been conducted with or without the aid of power. Tendu leaves nowhere feature in the said item No. 4 though tobacco and bidis do. It is, therefore, tobacco and bidis which are goods of special importance in inter-State trade and commerce and not tendu leaves. Tendu leaves cannot by any stretch of imagination be equated with bidis or tobacco just as cigarette paper used for rolling cigarettes cannot be equated by any stretch of imagination with cigarettes or tobacco. This being the position, it is wholly unnecessary to consider the other arguments advanced in support of this challenge. The challenge to the impugned amendments under articles 301 and 304 of the Constitution was that by taxing tendu leaves at a higher rate than in the neighbouring States, the cost of bidis manufactured in the State of Madhya Pradesh increased considerably and thus it impeded the freedom of trade and commerce throughout the territory of India. Article 301 provides as follows: "301. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was there any material before the High Court or before us to show that by reason of the increase in the rate of tax on the sales and purchases of tendu leaves, the trade in bidis manufactured in the State of Madhya Pradesh has stopped or has decreased. Far from this happening, on the contrary, all factors point to the opposite conclusion. Tendu leaves are a major natural produce of the State of Madhya Pradesh and had the impugned increase in the rate of tax on the sales and purchases of tendu leaves the effect of putting an end to the trade in tendu leaves or bidis or of causing a decline in that trade, the revenue of the State would have suffered and the State would have once again made the sales and purchases of tendu leaves exigible to a lower or concessional rate of tax. What the State, however, has in fact done is to increase the rate of tax mention in the residuary entry, namely, entry No. I in Part VI of Schedule II to the M.P. Sales Tax Act, and consequently on the sales and purchases of tendu leaves, so that as from October 1, 1978, the rate is ten per cent. After all, we must bear in mind that articles 301 to 304 were neither enacted to safeguard the pleasure derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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