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TMI Blog1985 (1) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... their customers. The facts are not in dispute and lie in a narrow compass: The petitioners in the course of their business as hoteliers or keepers of bars and restaurants supply eatables and beverages to their customers. They are consumed in the premises and are not carried away. In State of Himachal Pradesh v. Associated Hotels of India [1972] 29 STC 474 (SC); AIR 1972 SC 1131 the Supreme Court ruled that the supply of meals by the hotels to resident visitors was not sale of food and hence not liable to sales tax. The Supreme Court again in Northern India Caterers v. Lt. Governor of Delhi [1978] 42 STC 386 (SC); AIR 1978 SC 1591 held that there was no distinction between a case of meals supplied to a resident in a hotel and those served to customers in restaurants and even in the latter case the principles laid down in State of Himachal Pradesh v. Associated Hotels of India [1972] 29 STC 474 (SC); AIR 1972 SC 1131 apply. A review sought for of the said decision was also subsequently dismissed by the Supreme Court in Northern India Caterers v. Lt. Governor of Delhi [1980] 45 STC 212 (SC); AIR 1980 SC 674. This Court in Durga Bhavan v. Deputy Commercial Tax Officer [1981] 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said expression shall be deemed to include, and shall be deemed always to have included, a tax (hereinafter in this section referred to as the aforesaid tax) on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) for cash, deferred payment or other valuable consideration; and (b) every transaction by way of supply of the nature referred to in clause (a) made before such commencement shall be deemed to be, and shall be deemed always to have been, a transaction by way of sale, with respect to which the person making such supply is the seller and the person to whom such supply is made, is the purchaser, and notwithstanding any judgment, decree or order of any court, tribunal or authority, no law which was passed or made before such commencement and which imposed or authorised the imposition of, or purported to impose or authorise the imposition of, the aforesaid tax shall be deemed to be invalid or ever to have been invalid on the ground merely that the legislature or other authority passing or making such law did not have competence to pass or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e punishable as an offence which would not have been so punishable if this Act had not come into force." After the said amendment, the sales tax authorities issued notices to the petitioners for payment of sales tax on the supply of food and drinks to customers visiting hotels, restaurants and bars on the ground that consequent to the Amendment Act the definition of "sale" has been widened and that the hoteliers were not entitled to any exemption claimed by them. The petitioners objected to the levy. The sales tax authorities provisionally assessed the petitioners on the gross and net turnover of their sales from the month commencing April, 1983 to July, 1983 and issued notices to pay the tax retrospectively with effect from 1978 onwards. The Commissioner of Commercial Taxes issued a circular dated 26th October, 1983 directing all the Commercial Tax Officers concerned to take immediate action and make final assessments for the past years and provisional assessment for the year 1983-84. The Commissioner also directed that appeals and revisions pending with the authorities should be disposed off at once and that the assessment records should be submitted for revision and imposing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise for consideration and are debated before us in detail are: (1) Whether section 6 of the Amendment Act falls within the amending power of the Parliament under article 368 of the Constitution and is valid, and (2) assuming that section 6 of the Amendment Act is valid and validates the levy and collection of tax made on the foodstuffs supplied by the petitioners, does it authorise the levy of sales tax on the supply of foodstuffs without amending the definition of the expressions "sale" and "turnover" in the Sales Tax Act. (1) Validity of section 6.-There is no dispute that the procedure prescribed for amending the Constitution under article 368 of the Constitution has been complied with. The Bill was passed by both the Houses of Parliament and ratified by the Legislatures of not less than half of the States in accordance with the proviso to clause (2) of article 368. After more than half of the States passed resolutions ratifying the Constitution (Amendment) Bill, it was presented to the President for the assent of the President and the President gave his assent on 2nd February, 1983. Therefore, the procedure contemplated under article 368 of the Constitution for constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of or as part of any service, of food or any drink for cash, deferred payment or other valuable consideration (see clause 4). 10.. A new entry is sought to be inserted in the Union List in the Seventh Schedule, as entry 92B, to enable the levy of tax on the consignment of goods where such consignment takes place in the course of inter-State trade or commerce (see clause 5). 11.. Clause (1) of article 269 is proposed to be amended so that the tax levied on the consignment of goods in the course of inter-State trade or commerce shall be assigned to the States. Clause (3) of that article is proposed to be amended to enable Parliament to formulate by law principles for determining when a consignment of goods takes place in the course of inter-State trade or commerce (see clause 2). 12.. Clause (3) of article 286 is proposed to be amended to enable Parliament to specify, by law, restrictions and conditions in regard to the system of levy, rates and other incidents of the tax on the transfer of goods involved in the execution of a works contract, on the delivery of goods on hire-purchase or any system of payment by instalments and on the right to use any goods (see clause 3). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 329: "Article 368 does not confer on the amending body the competence to pass any ordinary law whether with or without retrospective effect." The exercise of constituent power to pass a validating provision like section 6 of the Amendment Act, it is submitted, could only be valid if the Parliament possessed legislative power on the subject of tax on sale of or purchase of goods, that the definition in section 4 of the Amendment Act only enables a State Legislature to make laws levying taxes on supply of food and drinks, that the State has not passed any such law and that section 4 of the Amendment Act cannot validate laws that have not been passed. In Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality AIR 1970 SC 192 Hidayatullah, C.J., observed: "If the legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the former is outside the competence of the legislature but the latter is within the permissible limits. Ray, C.J., in Smt. Indira Nehru Gandhi v. Raj Narain AIR 1975 SC 2299 pointed out: "Rendering ineffective of judgments or orders of competent Courts and tribunals by changing their basis by legislative enactment is a well-known pattern of all validating Acts. Such validating legislation which removes the causes for ineffectiveness or invalidity of actions or proceedings is not an encroachment on judicial power." In I.N. Saksena v. State of Madhya Pradesh AIR 1976 SC 2250 the Supreme Court echoed the view expressed in the aforesaid decisions. In Krishnamurthi Co. v. State of Madras [1973] 31 STC 190 (SC); AIR 1972 SC 2455 the Supreme Court held: "Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act has been enacted. Such an amending and validating Act to make 'small repairs' is a permissible mode of legislation and is frequently resorted to in fiscal enactment." What is sought to be achieved by the Constitution (Forty-sixth Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution' in article 368 means any addition or change in any of the provisions of the Constitution within the broad contours of the Preamble and the Constitution to carry out the objectives in the Preamble and the Directive Principles." Ray, J. (as he then was), observed that the Parliament in exercise of the constituent power can amend any provision of the Constitution under article 368 and the power to amend can also be increased. Jaganmohan Reddy, J., observed: "Parliament could amend article 368 and article 13 and also all the fundamental rights and though the power of amendment is wide, it is not wide enough to include the power of totally abrogating or emasculating or damaging any of the fundamental rights or the essential elements in the basic structure of the Constitution or of destroying the identity of the Constitution." Chandrachud, J. (as he then was), observed: "The power of amendment of the Constitution conferred by article 368 was wide and unfettered. It reached every part and provision of the Constitution." Therefore, there can be no doubt that every part of the Constitution including article 368 can be amended in exercise of the amending power, subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inviolability of the basic structure. In Sasanka Sekhar Maity v. Union of India AIR 1981 SC 522 the Supreme Court held: "The submission that Parliament cannot in exercise of its constituent power under article 368 validate a 'State law', proceeds on the misconception arising from failure to distinguish between a law made in exercise of legislative power and the law made in exercise of the constituent power. When article 31-B was introduced in the Constitution by the Constitution (First Amendment) Act, 1951 it validated retrospectively 13 Acts specified in the Ninth Schedule, which, but for this provision, were liable to be impugned under article 13(2). Article 31-B conferred constitutional immunity to such laws (all being enactments of State Legislatures) and Parliament alone could have done so by inserting the said article in the Constitution in exercise of its constituent power under article 368. In substance and reality it was a constitutional device employed to protect State laws from becoming void under article 13(2)." In Minerva Mills Ltd. v. Union of India AIR 1980 SC 1789 Chandrachud, C.J., speaking for himself and Gupta, Untwalia and Kailasam, JJ., said: "Inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and also collection or recoveries made by way of tax under any such law. Therefore, it is submitted by the learned Advocate-General that such amendment cannot affect the basic features of the Constitution or division of powers under the Constitution. In the book, Constitutional Law of India, by H.M. Seervai, Third Edition, the author says at page 150: "It is not enough to say that, in law, a Constitution is federal; we must inquire further and find out whether the Constitution works as a federal Government. For the law of the Constitution is one thing; the practice is another. The mere presence of unitary features in a Constitution, which may make a Constitution quasi-federal in law, does not prevent the Constitution from being predominantly federal in practice....................................The most important feature of a federal Constitution is the distribution of legislative power between the Centre and the States; and our Constitution has bodily adopted the scheme of G.I. Act, 35 with small verbal changes, with substantially enlarged Legislative Lists of Schedule 7." According to Dicey, the leading characteristics of federalism are: (1) the supremacy of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cularly illuminating." Again at page 187 the author says: "Co-operative federalism, according to Birch, is distinguished by the practice of administrative co-operation between general and regional governments, the partial dependence of the regional governments upon payments from the general governments, and the fact that the general governments, by the use of conditional grants, frequently promote developments in matters which are constitutionally assigned to the regions." At page 188 the author says: "Yet the Constitution, said Ambedkar, avoided the 'tight mold of federalism' in which the American Constitution was caught, and could be both unitary as well as federal according to the requirements of time and circumstances." At page 191, the author says: "K.M. Panikkar believed 'Federation is a fair weather constitution' and would be definitely dangerous to the strength, prosperity and welfare of India." Again at page 255 the author says: "Dr. B. R. Ambedkar said that one can safely say that the Indian Federation will not suffer from the faults of rigidity or legalism. Its distinguishing feature is that it is a flexible federation." Articles 249, 250 and 252 of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can have their own way unless strong case is made to the contrary. The aforesaid discussion leads to the conclusion that the Indian Constitution does not suffer from rigidity and legalism of federalism, but it is a Constitution having federal structure with unitary features intended to meet the peculiar conditions of India. Mr. K. Santhanam in his book Union-State Relations said: "India has practically functioned as a unitary State though the Union and the States formally and legally tried to function as a federation. The working of our Constitution for the last 33 years shows that the unitary bias in some respects has strengthened and accentuated it." Let us now turn to the reported decisions on the discussion. The Supreme Court in State of West Bengal v. Union of India AIR 1963 SC 1241 referring to the structure and framework of the Constitution, the Supreme Court said: "The result was a Constitution which was not true to any traditional pattern of federation. There is no warrant for the assumption that the Provinces were sovereign, autonomous units which had parted with such power as they considered reasonable or proper for enabling the Central Government to function for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been inserted by the Parliament in exercise of its constituent power only. On any constitutional or legal principle, it is impermissible to hold that section 6 has been enacted by the Parliament in exercise of its ordinary legislative power and not in exercise of its constituent power. On this and the earlier conclusions reached, it follows that section 6 does not suffer from any infirmity." From the aforesaid discussion of the relevant texts on Constitutional Law and precedents, it can be gleaned that there is no strict separation of powers under the Indian Constitution, that the Indian Constitution, though federal, has unitary bias and tended to be unitary in the actual working, that the Amendment Act was passed in exercise of the constituent power, which is sovereign and therefore sections 4(f) and 6 of the Amendment Act are not ultra vires of article 368 of the Constitution and are not violative of the fundamental rights of the petitioners guaranteed under articles 14, 19(1)(g) and 21 of the Constitution. (2) Does the Amendment authorise levy of tax? Then the next question is whether section 6 of the Amendment Act authorises the taxing authorities to levy and collect tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax. It is clear from the Statement of Objects and Reasons as well as the counter-affidavit filed by the respondents that the effect of the judgment of the Supreme Court in Northern India Caterers v. Lt. Governor of Delhi [1978] 42 STC 386 (SC); AIR 1978 SC 1591 was sought to be neutralised by the Amendment Act by a constitutional device. While the learned counsel for the petitioners, Sri Nariman submits that there is no law authorising the levy of any tax since September, 1980 after the judgment of this Court in Durga Bhavan v. Deputy Commercial Tax Officer [1981] 47 STC 104 by a valid legislative amendment of the Sales Tax Act, the learned Advocate-General maintains that the Amendment Act is intended to remove the mischief, that amendment of statute by incorporation or by a referential statute is permissible, that the expression employed in section 6(1)(a) of the Amendment Act "shall be deemed to include and shall be deemed always to have included a tax on the supply, by way of or as part of any service or in any other manner whatsoever of goods, being food or any other article for human consumption or any drink for cash, deferred payment or other valuable consideration" remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific reference incorporates the provisions of another statute as of the time of adoption. Second, where statute incorporates by general reference the law concerning a particular subject, as a genus. In the case of the former, the subsequent amendments made in the referred statute cannot automatically be read into the adopting statute. In the case of latter category, it may be presumed that the legislative intent was to include all the subsequent amendments also, made from time to time in the generic law on the subject adopted by general reference. This principle of construction of a reference statute has been neatly summed up by Sutherland, thus: *3 Co Rep 7a. 'A statute which refers to the law of a subject generally adopts the law on the subject as of the time the law is invoked. This will include all the amendments and modifications of the law subsequent to the time the reference statute was enacted.'" But it is still contended by the learned counsel for the petitioners that section 6 only validates past transactions and does not authorise future levy and collection of tax, while the learned Advocate-General asserts that since the definition of "sale" is enlarged by se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (2) deals with only exemptions in respect of transactions covered by sub-section (1). The learned Advocate-General, however, submits that in view of the enlargement of the definition of "tax on the sale or purchase of goods" by section 4 of the Amendment Act, further amendment of the Sales Tax Act is not necessary. By section 4 of the Amendment Act, clause (29A) is inserted in article 366 of the Constitution. Sub-clause (f) of clause (29A) defines "tax on the sale or purchase of goods" to include a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink, whether or not intoxicating, whether such supply or service is for cash, deferred payment or other valuable consideration and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer. The words "tax on the sale or purchase of goods" appear in entry 92-A of the Union List and entry 54 of the State List. It is argued that when once the entry in the legislative list relating to "sale" is widened, the same definition should be given to "sale" in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date the legislation was passed, subject to any retrospective amendment of the Constitution. Therefore, it is argued that in view of the retrospective amendment of the Constitution itself by the Amendment Act, the question of invalidity of the provisions under the General Sales Tax Act cannot be canvassed. Reliance is also placed on the passage in "Principles of Statutory Interpretation", Third Edition, by G.P. Singh, at page 230: "The merit of legislation by incorporation is brevity which is largely counterbalanced by 'difficulties and obscurities' which it is likely to create. Criticising this mode of legislation, Mathew, J., said 'sometimes whole Acts of Parliament, sometimes groups of clauses of Acts of Parliament, entirely or partially, sometimes portions of clauses are incorporated into later Act, so that the interpreter has to keep under his eye, or, if he can, bear in his mind, large masses of bygone and not always consistent legislation in order to gather the meaning of recent legislation. There is very often the further provision that these earlier statutes are incorporated only so far as they are not inconsistent with the statute into which they are incorporated; s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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