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TMI Blog1961 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue to tax transactions in respect of which single point tax alone was leviable under the State law, is unconstitutional in that it is violative of the equal protection of laws embodied in Article 14 of the Constitution. It is maintained that, by reason of section 8, while dealers in several kinds of goods in some of the States are exempt from sales tax, dealers in the same commodities in this State are liable to pay tax on their inter-State sales, notwithstanding the fact that tax is leviable on these goods in this State only at a single point and in fact tax was collected in the State on the first sales. Consequently dealers of one State are given preference over those of another and this amounts to a discrimination which is not permissible under Article 14 of the Constitution. The assessees of other States carrying on business in the same commodities enjoy an advantage over those of the State of Andhra Pradesh and this constitutes denial of the equal protection of laws to assessees of this State similarly situated, continues the counsel for the petitioners. For an appreciation of these points, it is useful to extract the relevant provisions of the Central Act and the Andh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne per cent. (whether called a tax or fee or by any other name), the tax payable under this Act on his turnover in so far as the turnover or any part thereof relates to the sale of such goods shall be nil or, as the case may be, shall be calculated at the lower rate. Explanation.-For the purposes of this sub-section, a sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law it is exempt only in specified circumstances or under specified conditions or in relation to which the tax is levied at specified stages or otherwise than with reference to the turnover of the goods." Section 8, as amended, contemplates three categories of exemptions. The State Act has made provision for these three types of exemptions in the shape of sections 8, 9 and 5(3)(a). Section 8 recites: "Subject to such restrictions and conditions as may be prescribed including conditions as to licences and licence fees, a dealer who deals in the goods specified in the Fifth Schedule shall be exempt from tax under section 5 in respect of such goods." Section 9 confers powers on the State Government to notify exemptions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution. A State has to distribute the tax burden evenly and should not place merchants of one State in an advantageous position as against those of another State. Persons having common property and common characteristics should be meted out equal treatment, continued the counsel for the petitioners. The learned counsel also contended that taxing statutes are also subject to the test of the equality clause and the equal protection of laws. In judging whether a particular statute is violative of Article 14 of the Constitution, a practical assessment of the operation of the law should be made, i.e., to see whether it results in practice in inequality between one citizen and another. In examining these arguments, it is useful to bear in mind the historical background of this law. In exercise of the powers conferred by Entry 48 of the Government of India Act, several Provinces of India passed General Sales Tax laws for the purpose of augmenting their revenues. They brought within taxing laws transactions substantially outside the territorial limits of their authority, picking out one or more ingredients constituting a sale as deciding the place of sale. These enactments led to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not removed by Parliament. Meanwhile, the Parliament passed an Act in exercise of the powers derived from clause (3) of Article 286 in 1952 declaring a number of goods like foodstuffs of various kinds, cloth, raw cotton, cattle feeds, iron and steel, coal etc., to be essential to the life of the community. This resulted in a wide disparity from State to State both in the range of exempted goods and in the rates applicable to them. This created a difficult situation for the States in the realisation of revenue from taxes on sales and purchases of goods. Subsequently, the Taxation Enquiry Commission examined these problems and made certain recommendations to Parliament. The Parliament, acting as Constituent Assembly and accepting these recommendations, made certain amendments to the Constitution. A new Entry 92-A was added to the Union List placing taxes on the sale and purchase of goods other than newspapers within the exclusive legislative and executive power of the Union and making Entry 54 of the State List subject to the provisions of the new entry. Article 286 was also suitably amended by omitting the Explanation in clause (1), and clauses (2) and (3) were substituted by the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. "The proceeds (reduced by the cost of collection) in any financial year of any tax levied and collected under this Act in any State on behalf of the Government of India shall, except in so far as those proceeds represent proceeds attributable to Union territories, be assigned to that State and shall be retained by it; and the proceeds attributable to Union territories shall form part of the Consolidated Fund of India." It is plain that in imposing and collecting the tax on inter-State sales, the Union Government acts as the agent of the respective States and also uses the administrative set up of the various States under their Sales Tax laws for the levy and the collection thereof. Apparently, the Act has been passed with a view to enable the State Governments to raise additional revenues by levying tax on inter-State transactions, while under the State laws these transactions were immune from tax. It is in this context that we have to view the question as to how Article 14 impinges on section 8. Section 8 adopted the broad classification of goods: those that are completely exempted from tax and those that are partially exempted, and accepted for the purpose of exempting goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06] A.C. 360. One of the questions that posed itself before their Lordships was whether section 5 of the Excise Tariff Act, which granted exemption from duties thereby imposed on goods on which customs or excise duties had been paid under State legislation, was discriminatory in effect inasmuch as the scale of duties differed in several States, while no duty was imposed on sugar in some of the States and the exemption operated unequally on the traders and manufacturers of the several States. It was contended, inter alia, before their Lordships that the grant of such an exemption was a discrimination between the States within the meaning of the Australian Constitution. The Privy Council repelled this argument, observing that: "The rule laid down by the Act is a general one, applicable to all the States alike and the fact that it operates unequally in the several States arises not from anything done by the Parliament but from the inequality of the duties imposed by the States themselves. The exemption from the new excise duties on the ground of previous payment of customs duties seems justifiable and right in establishing a system based on the absolute freedom of trade among the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Collector on receipt of such a certificate to recover from the assessee the amount specified therein as if it were an arrear of land revenue, was brought into controversy, inter alia, on the contention that it was inconsistent with the fundamental right guaranteed by Article 14 of the Constitution in that in the matter of recovery of land revenue, the assessees of one State were subjected to harsher treatment than those in others. The question arose in this way. The assessee was assessed to income-tax by one of the Income-tax Officers, Bombay. Since the assessee failed to pay the assessed amount of tax, the concerned Incometax Officer issued to the Additional Collector of Bombay a recovery certificate under section 46(2) of the Income-tax Act. The Collector, after notice to the assessee for the payment of the assessed amount of tax, attached the properties of the assessee and brought them to sale. As these properties fetched a price which was not sufficient to cover the tax, after following the procedure prescribed by the Land Revenue Recovery Act of that State, the Collector got the assessee arrested and sent him to the civil jail. A petition was filed in the High Court of Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed on its defaulters such coercive process as the circumstances and the needs of that State required. The decision in State of Rajasthan v. Rao Manohar Singhji[1954] 5 S.C.J. 499. does not lay down any proposition different from the doctrine of this case. There, the offending law imposed certain disabilities on jagirdars of a certain area of the State and there was no evidence that those jagirdars were in any way different from the jagirdars of the other areas of the State. This case was referred to in Purushottam Govindji v. Desai[1956] 28 I.T.R. 891; 1956 S.C.J. 75., and distinguished on this ground. What emerges from these authorities is that a law cannot be struck down as infringing Article 14 of the Constitution on the ground that a combined operation of the law impeached and other laws made by other Legislatures will result in hostile discrimination against some individuals. In order to attract Article 14, such a consequence should flow from the operation of the challenged statute. As already remarked, no such effect could be attributed to the impugned section. The validity of a law cannot be judged with reference to Article 14 in the light of other statutes. As point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torial classification. It is also based on a reasonable differentia. It has a reasonable relation to the avowed object of the impugned legislation which is to levy and collect taxes for the benefit of the State and in that process acting as their agent. The Parliament merely adopted the laws of the various States to subserve the purpose for which it was devised, namely, the gathering of revenues for the different States in the form of tax on inter-State sales. For all these reasons, we must hold that section 8 is not repugnant to Article 14 and is therefore immune from challenge. Another point pressed upon us by Sri Ananta Babu appearing in one of the petitions is that geographical classification is not permissible so far as taxing statutes are concerned and since this section attempts such a classification, it should be held to be void. In our opinion, this is an extreme proposition which does not merit serious consideration. It does not receive any support either from decided cases or from general principles. If a law is to be tested on the touchstone of Article 14, we fail to see how geographical classification cannot be permitted in judging its validity. Far from there being su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him in the case of sales to Government of India or to the Government of any State; and (iii) the originals of the certificates in Form E-I or E-II, if any, received by him from the dealer from whom he purchased the goods Provided that in case the dealer has not obtained the declaration forms from the purchasing dealers by the date of submission of the return, the declaration forms shall be obtained and submitted to the assessing authority concerned not later than three months from the close of the assessment year to which the transaction relates." Section 8(4): "The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold, containing the prescribed particulars on a prescribed form obtained from the prescribed authority." The argument founded on sub-section (4) of section 8 is that prescribing a period for the submission of a return in C Form is not comprehended within the expression "prescribed manner" in the sub-section. We do not think we ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner will be subject to a higher rate of 7 per cent. if he fails to get himself registered and this differential treatment amounts to discrimination as against this State within the meaning of Article 303 of the Constitution. The learned counsel urges that the expression "State" in Article 303 comprises within its comprehension the citizens of a State. For this latter proposition, he cites to us a decision of the Australian High Court in Cameron v. The Deputy Federal Commissioner of Taxation for Tasmania32 Com. L.R. 68. Before we examine the soundness of this argument, we will look at the relevant Articles occurring in Chapter XIII of the Constitution. "Article 301.-Subject to the other provisions of this part, trade or commerce and intercourse throughout the territory of India shall be free. Article 302.-Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Article 303.-(1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving or authoris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 43 merely poses the problem as to what "freedom" in Article 301 is and his answer is to be found in the subsequent paragraphs. The learned Judge, after discussing the various Articles of that Chapter, arrives at the decision that it included freedom from taxing laws which have the effect of directly impeding the free flow of trade, commerce and intercourse. Nothing is said in paragraph 74 also which justifies the argument that taxing laws are governed by Article 303. On the other hand, it was observed by the learned Judge that Article 303 emphasises the object of the Constitution-makers to safeguard the economic unity of the nation and to prevent discrimination between constituent States in the matter of trade and commerce and that the discrimination which is prohibited is not limited to discrimination under laws made under items expressly relating to trade and commerce items of the Seventh Schedule. It is seen that stress is laid by the learned Judge on discrimination to be made by Parliament between the different States in exercise of the powers vested in the entries relating to trade and commerce in any of the Lists of the Seventh Schedule. It is brought out that Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Entries 82 to 92 deal with taxes that could be imposed by Parliament. Likewise, in List II, Items 1 to 44 enumerate the subjects on which the State could legislate. Items 45 to 63 form the second group dealing with taxes. Article 303 envisages only entries relating to topics over which the different Legislatures have power to legislate. Taxing laws such as the impugned one are covered by the other group of entries in the concerned lists. This distinction is forcibly brought out by Venkatarama Ayyar, J., in Sundararamier, Co. v. State of Andhra Pradesh[1958] 9 S.T.C. 298; (1958) S.C.J. 459. The learned Judge, after referring to the two groups of entries, remarked that the power to legislate on the main subjects did not include the power to make taxing laws and that the provisions for taxing statutes is made by different groups of items. The learned Judge, inter alia, refers to Entry 22 in List I, "railways" and Entry 89 "Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights" and remarked that if Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. To emphasise the difference betw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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