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TMI Blog1971 (5) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... 2095, 2096, 2121, 2253 and 2971 of 1969, identical questions have been raised, besides a number of other questions which are wholly separate and different. The petitioners of these five petitions are or were "retail vendors" of country liquor under the U.P. Excise Act, 1910. By impugned Notification No. S.T. 1603/X900(12) dated April 2, 1969, issued by the State Government under section 3-A(1) and (2) of the Act, sale of "country liquor" has been subjected to a single point taxation at the rate of 10 naye paise per rupee, the point of taxation being sale by the retail vendor. 4.. As desired by the learned counsel for the petitioners and the learned counsel for the respondents, there has been a common hearing of all the eight petitions in regard to the question of the validity of sub-sections (1) and (2) of section 3-A of the Act. 5.. In 1968, one Gurna Mal and 92 other manufacturers of bricks filed petitions in this court under article 226 of the Constitution challenging the validity and enforceability of the above-mentioned notifications dated April 5, 1961, and December 1, 1962, on the ground, inter alia, that bricks not being a commodity which undergoes multiple sales and be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses a negligible burden on the consumer, is a fruitful source of additional revenue." 10.. The scheme of the original Act was indeed simple and cast a negligible burden on the taxpayer. In section 2, "dealer", "goods", "sale", "turnover" and other material words were defined, and by section 3 tax at the rate of 2 pies per rupee was levied on the turnover of dealers whose turnover exceeded the exempted limit. Section 4 provided that section 3 would not apply to sales of the specified goods and to sales of any other goods or class of goods notified by the Government, as also as to sales of any goods by certain specified bodies or by such other persons or class of persons as might be exempted by the Government conditionally or unconditionally. Section 7 provided for filing of returns, determination of turnovers and assessment of tax, and section 8 for payment and recovery of taxes. Then there were sections providing for appeals, revisions and references. 11.. By U.P. Act 25 of 1948 substantial changes were made in the Act and two new sections 3-A and 8-A were added. The relevant Bill was accompanied by the following statement of objects and reasons: "Since the United Provinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, liable to tax at such rate not exceeding one anna per rupee as may be specified. (3) Every notification made under this section shall be laid before the Legislative Assembly of the State as soon as may be after it is made and if a resolution amending or modifying it is passed by the Assembly within the session in which it is laid, it shall, from the date of the passing of the resolution, be amended or modified accordingly but without prejudice to the validity of anything previously done or of any liability incurred or assessment made." 13.. The words "one anna per rupee" in sub-section (2) were substituted by the words "seven naye paise per rupee" by Act 19 of 1958 and, by Act 14 of 1963 the words "ten naye paise" were substituted in place of "seven naye paise". 14.. By Act 19 of 1956 another new section 3-AA was added which provided that notwithstanding anything contained in section 3 or 3-A, the turnover in respect of coal and other goods specified therein shall not be liable to tax except at the point of sale by a dealer to the consumer and the rate shall not exceed three pies per rupee. This section, as subsequently amended, now empowers the State Government to fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able turnover or turnovers in respect of any goods or class of goods from the operation of the general charging section 3 and to subject the same to taxation at such enhanced rate not exceeding ten naye paise per rupee as the Government might in its absolute discretion fix, as against the fixed and uniform statutory rate of two naye paise per rupee or the maximum of three naye paise per rupee at the most, which is the ceiling of enhancement of rate by the State Government under section 3. The petitioners say that this amounts to a total surrender of vital legislative function and power to the executive by the Legislature, which is wholly unwarranted and is a negation of the basic and salutary injunction enjoined by article 14 of the Constitution. 18.. On behalf of the respondents it is, on the other hand, contended that the Act is a fiscal statute which provides for different patterns of taxation in section 3 and section 3-A and that these sections are intended to regulate different incidences of taxation. It is urged that if the Legislature has acted within its permissible field of legislative competence, no law, and in particular no taxing law, made by it can be struck down bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, sub-sections (1) and (2) of section 3-A must be held to be valid and cannot be struck down either on the ground that they contravene article 14 of the Constitution or on the ground that they suffer from excessive delegation of essential legislative function and power. The impugned notifications are also valid and the infirmity, if any, therein is cured by U.P. Act 2 of 1970. 19.. The petitioners have sought to refute the submissions made on behalf of the respondents by contesting the correctness of some of the propositions canvassed by the learned counsel for the respondents and the applicability of some of them to the instant cases. Some of the points raised by the respondents' learned counsel, according to the petitioners, are either concluded by the decisions of the Supreme Court or are contrary to the views of that court. 20.. The question whether sub-section (3) of section 3-A of the Act ensures adequate control and provides sufficient safeguard against arbitrary exercise of discretionary powers conferred on the State Government hardly needs any independent discussion. The view taken by this court in Haji Lal Mohammad Biri Works v. Sales Tax Officer, Allahabad[1959 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners. It was also contended that even if the Act was, in effect, confiscatory, it could not be questioned, being a taxing statute. In paragraph 7 of the judgment it was observed: "Article 265 imposes a limitation on the taxing power of the State in so far as it provides that the State shall not levy or collect a tax, except by authority of law, that is to say, a tax cannot be levied or collected by a mere executive fiat. It has to be done by authority of law, which must mean valid law. In order that the law may be valid, the tax proposed to be levied must be within the legislative competence of the Legislature imposing a tax and authorising the collection thereof and, secondly, the tax must be subject to the conditions laid down in article 13 of the Constitution. One of such conditions envisaged by article 13(2) is that the Legislature shall not make any law which takes away or abridges the equality clause in article 14, which enjoins the State not to deny to any person equality before the law or the equal protection of the laws of the country. It cannot be disputed that if the Act infringes the provisions of article 14 of the Constitution, it must be struck down as unconstitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned judges of the Supreme Court again examined the question of constitutionality of delegation of taxing powers to Municipal Corporations. (Previously it was considered in Corporation of Calcutta v. Liberty CinemaA.I.R. 1968 S.C. 1232. and a number of other cases). Wanchoo, C.J., speaking for himself and Shelat, J. (with whom Hidayatullah, Ramaswami and Sikri, JJ., concurred) after a review of all important decided cases observed: "The principle is well-established that essential legislative function consists of the determination of the legislative policy and its formulation as a binding rule of conduct and cannot be delegated by the Legislature. Nor is there any unlimited right of delegation inherent in the legislative power itself. This is not warranted by the provisions of the Constitution." The learned Chief Justice in paragraph 24 of his judgment observed as follows: "The observation in Banarsi Das' case[1958] 9 S.T.C. 388 (S.C.); [1959] S.C. R. 427. that rates of tax are not essential features of legislation therefore seems, with respect, to be too broadly stated, though it may be admitted that rates of taxation also can in certain circumstances be delegated to a subordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 I.T.R. 21 (S.C.). At the same time a larger statutory discretion placing a wide gap between the minimum and the maximum rates and thus enabling the Government to fix an arbitrary rate may not be sustained. In the ultimate analysis, the permissible discretion depends upon the facts of each case. The discretion to fix the rate between 1 pice and 2 pice in a rupee is so insignificant that it is not possible to hold that it exceeds the permissible limits. It follows that section 5 of the Act as amended is valid." 30.. In Delhi Municipality's caseA.I.R. 1968 S.C. 1232. , the basic distinction between the delegation of power of fixing the rates of tax like sales tax to the State Government and the delegation of power of fixing rates of certain taxes for purposes of local taxation was pointed out by the learned Chief justice in paragraph 27 thus: "The needs of the State are unlimited and the purposes for which the State exists are also unlimited. The result of making delegation of a tax like sales tax to the State Government means a power to fix the tax without any limit even if the needs and purposes of the State are to be taken into account. On the other hand, in the case of a mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise of such a statute the court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of the discretion by the Government in the matter of the selection or classification. After such scrutiny the court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself. In such a case the court will strike down both the law as well as the executive action taken under such law." Class (iv) may also be quoted here: "A statute may not make a classification of the persons or things for the purpose of applying its provisions and may leave it to the discretion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature to such body, otherwise the law in question will stand stultified. The learned counsel contends that there is nothing illegal in conferring power on a responsible subordinate body to fix rates of tax even without prescribing the maximum limit, and, in cases where such limit has been laid down by the Legislature itself no ground of attack based on the doctrine of excessive delegation can subsist. 36.. Some of the rulings cited at the Bar have been noted above. Others may now be examined for the purpose of evaluating or testing the respective merits of the contentions of the parties. The authorities on which the respondents rely may be considered first. 37.. In the Delhi Municipality's caseA.I.R. 1968 S.C. 1232., the question was whether section 150 of the Delhi Municipal Corporation Act, 1957, is invalid because it suffers from the vice of excessive delegation. This section enables the Corporation to pass a resolution for levy of optional taxes specified in section 113(2) and to fix the class or classes of persons or the description or descriptions of articles and properties to be taxed and to lay down the system of assessment and exemption, if any, to be granted. The se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidentally, undecided: Bangalore Woollen, Cotton and Silk Mills Co. Ltd., Bangalore v. Corporation of the City of Bangalore[1961] 3 S.C.R. 707 at pp. 716-717. 40.. In the Corporation of Calcutta v. Liberty CinemaA.I.R. 1965 S.C. 1107., the attack was directed against section 548(2) of the Calcutta Municipal Act, 1951, which provided that for every licence or written permission (for running cinema houses etc.) "a fee may be charged at such rates as may from time to time be fixed by the Corporation." In the majority judgment by which it was decided that the impugned section was not invalid due to excessive delegation, the legal position was (in paragraph 26) stated thus: "No doubt when the power to fix rates of taxes is left to another body, the Legislature must provide guidance for such fixation...... We first wish to observe that the validity of the guidance cannot be tested by a rigid uniform rule; that must depend on the object of the Act giving power to fix the rate. It is said that the delegation of power to fix rates of taxes for meeting the needs of the delegate to be valid, must provide the maximum rates that can be fixed or lay down rules indicating that maximum. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 of the Constitution. But no question of excessive delegation appears to have been raised. In paragraph 16 of the judgment to which reference was made by the learned counsel for the respondents it was observed: "The rate which a State Legislature imposes in respect of inter-State transaction in a particular commodity must depend upon a variety of factors. A State may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State or if it feels that the burden which is falling on the consumers within the State will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers. Again in a democratic constitution political forces would operate against the levy of an unduly high rate of tax. The rate of tax on sales of a commodity may not ordinarily be based on arbitrary considerations, but in the light of the facility of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain classes of goods and not to tax others. The Legislature is the best judge to decide as to the incidence of taxation as also to the amount of tax to be levied in respect of different classes of goods." In the said case two questions were examined from a limited angle confined almost solely to the provisions of the impugned rule. In several subsequent cases to which reference has already been made the Supreme Court itself considered the two questions from various angles and enunciated the principles and the tests with reference to which such questions should be generally examined and decided. Passages or observations from the judgments of the Supreme Court in different cases cannot be casually or in isolation picked out for deciding as to whether in a given case the impugned law does or does not suffer from the vice of excessive delegation or infringes article 14 of the Constitution. Such questions necessarily will have to be decided in each individual case with reference to the provisions of the particular Act concerned and in doing so the basic principles enunciated by the Supreme Court have to be kept in view. Two other cases relied on by the respondents may, however, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no power of supplying the deficiency in a statute, far less in a taxing statute. A number of rulings in support of the argument were cited. It is, however, not necessary to refer to all of them as the law on the subject has been clearly stated by the Supreme Court in two very recent cases-(1) Janapada Sabha, Chhindwara, etc. v. The Central Provinces Syndicate Ltd.A.I.R. 1971 S.C. 57. and (2) M/s. Baidyanath Ayurved Bhawan (P.) Ltd., Jhansi v. The Excise Commissioner, U.P.A.I.R. 1971 S.C. 378. It would be enough to quote the following passage from paragraph 8 of the judgment in the last-mentioned case: "In interpreting a taxing provision, the courts should not ordinarily concern themselves with the policy behind the provision or even with its impact. As observed by Rowlatt, J., in Cape Brandy Syndicate v. Commissioners of Inland Revenue[1921] 1 K.B. 64., that in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The aforesaid dictum of Rowlatt, J., was also cited wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.T.C. 432., and H.L.M. Biri Works v. Sales Tax Officer, Allahabad[1959] 10 S.T.C. 424; A.I.R. 1959 All. 208. 54.. In view of the fact that section 3-A as it obtains now is basically different from the provisions contained therein at the time when its validity was examined by this court in the two aforesaid cases, those cases can be of no help in deciding whether section 3-A, as it stands now, is or is not invalid on the grounds raised by the petitioners. 55.. In Gurna Mal's case[1970] 26 S.T.C. 270; 1970 A.L.J. 584. also section 3-A was held to be valid. It was observed that the statement of objects and reasons accompanying the Bill, which was enacted as Act 25 of 1948, contained the basic legislative policy and in section 3-A the implementation of the policy of the Legislature and the principles laid down by it was only left to the State Government. Therefore, there was sufficient guidance for the exercise of the power by the State Government under section 3-A. A similar view was taken in an earlier case. 56.. It may also be pointed out that when Gurna Mal's case[1970] 26 S.T.C. 270; 1970 A.L.J. 584. was decided, section 3-A(1) had already been amended by U.P. Ordinance 2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is completely severable and, if severed, will not in any way affect the remaining provision. 59.. Apart from the objection that sub-section (1) of section 3-A empowers the State Government to take out the turnover of any goods or class of goods from the operation of the general law enacted in section 3 and to subject the same to hostile taxation under section 3-A, another objection is that the aforesaid clause authorises wholly arbitrary and unguided imposition of enhanced tax not only on the turnover of the goods or class of goods at one selected point out of several points of sale, but also on the sole turnover of any such goods or class of goods as in the ordinary course of business undergo a single sale. Sub-section (1) of section 3-A read with sub-section (2) thereof thus provides the State Government with a dragnet but without any direction or guidance or restriction as to when, how and under what circumstances it is to be used. Within its fold section 3-A(1) engulfs transactions of sale which are radically different and have no nexus and exposes them to higher taxation at enhanced rates to be imposed in its discretion by the State Government. Thus, section 3-A(1) itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f turnovers both in respect of goods which are subject to multiple sales and goods which are subject to only one sale. The position thus appears to be that while in case of multiple sales the exercise of the powers conferred on the State Government under sub-sections (1) and (2) of section 3-A can be said to be guided by the aforesaid policy, in regard to the exercise of such powers, in respect of goods which are subject to single sale, there is no guidance whatsoever. 60.. The clause quoted above, added to section 3-A(1) by U.P. Act 2 of 1970, must, therefore, be held to be vitiated due to excessive delegation of legislative power and function, as also because it creates or is likely to create arbitrary and unwarranted discrimination. That clause, therefore, must be struck down. 61.. Section 3-A(1), however, even without the aforesaid clause would be completely operative and would continue to operate in the same manner as it did operate before the amendment introduced by U.P. Act 2 of 1970. Turnovers in respect of bricks are liable to be and can be legally taxed only under the provisions of section 3 of the Act. 62.. The question which now remains for consideration is as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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