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TMI Blog1988 (2) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... The propositions of law that fall for consideration pertain to the validity of the provisions of section 6B of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as "the said Act of 1941") and the provisions of section 4AAA of the West Bengal Sales Tax Act, 1954 (hereinafter referred to as "the Act of 1954") which were incorporated in the said Acts respectively by the Bengal Finance (Sales Tax) Amendment Act, 1979 (hereinafter referred to as "the 1979 Amendment"). Learned counsel appearing for the appellants and the writ petitioners have broadly canvassed the proposition of law that herein are indicated below: 1.. That the West Bengal State Legislature was incompetent to enact the 1979 Amendment which provided for the imposition of "turnover tax" inasmuch as the turnover tax is not a tax on sales but is a tax on income of a dealer which subject does not come within the ambit of entry 54 of List II of the Seventh Schedule to the Constitution of India. 2.. That the provisions of section 6B(4) prohibiting a dealer from realising from its purchasers the turnover tax payable by him come in direct conflict with the provisions of section 64A of the Sale of Goods Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable sales" or "non-leviable sales" are to be excluded. Learned counsel appearing for the dealers have argued as if the matter is totally res integra. It deserves high-lighting that excepting the proposition Nos. 7, 8 and 9 rest of the contentions are squarely covered against the dealers, i.e., the appellants and the writ petitioners herein, by the binding judgment of the Supreme Court. When such being the position, or task is cut out, i.e., we have merely to mention the given contention and identify the relevant decision of the Supreme Court which covers it besides taking notice of the argument advanced on behalf of the dealers seeking to distinguish the given judgment. However, before embarking upon the said task, it is desirable to inform ourselves of all the relevant statutory provisions that bear upon the discussion that would follow. At this stage, it may be observed that since the provisions of section 6B of the Act of 1941 and the provisions of section 4AAA of the Act of 1954 are identical, so the reference shall be made only to the provision of section 6B alone. First the relevant provisions of the Bengal Finance (Sales Tax) Act, 1941 which are in the following terms: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch other sales as may be prescribed. (3) The turnover tax shall be levied at the rate of- (a) one per centum of such part of the turnover as specified in subsection (2), if the aggregate of the gross turnover under this Act and the gross turnover under the West Bengal Sales Tax Act, 1954 (West Ben. Act IV of 1954), of the dealer liable to pay such tax exceeds rupees one crore during the year in respect of which or part of which the turnover tax is levied; (b) one-half of one per centum of such part of the turnover as specified in sub-section (2), if the provisions of clause (a) do not apply: Provided that the tax payable by a dealer under clause (a) shall not exceed a sum equivalent to the aggregate of one-half of the tax payable by him in accordance with the said clause and ten per centum of the amount by which his aforesaid gross turnover exceeds rupees one crore. (4) No dealer shall realise from his purchaser the turnover tax payable by him under this section. Section 27: (1) Notwithstanding anything contained in this Act, (a) a tax on sale or purchase of goods shall not be imposed under this Act- (i) where such sale or purchase takes place outside the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State. Article 286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my opinion, this is also a tax on sale. It is merely an additional tax and not a tax on income." Relevant portion of section 5(1) reads as under: "5. Levy of tax on sales or Purchases of goods.-(1) Every dealer (other than a casual trader and an agent of a non-resident dealer) whose total turnover for a year is not less than Rs. 10,000 and every casual trader or agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year, at the rate of two naye paise on every rupee of his turnover: Provided that if and to the extent to which, such turnover relates to articles of food or drink or both sold in a hotel, boarding-house, restaurant, shall or any other place, the tax shall be calculated at the rate of three naye paise in the rupee, if the total turnover relating to those articles is not less than Rs. 25,000." Perusal of the aforesaid provision of section 5 would indicate that it envisages sales tax at the given rate on the taxable turnover of a dealer whose gross turnover exceeded the prescribed limit. Validity of this provision has not been challenged. If the provision of section 5 is held to be providing for the imposition of tax on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not relevant in determining whether the given levy is a sales tax or not. A sales tax remains a sales tax even when the dealer is not able to pass on the same to the buyer, which can happen, either when he is specifically prohibited for recouping himself as is envisaged by section 6B(4) or it may arise from an amendment of taxing Act, making the imposition of tax or additional tax to take effect from a back date. [see in this regard [1958] 9 STC 397 (SC); AIR 1958 SC 756 (Konduri Buchirajalingam v. State of Hyderabad)]. In our opinion, in the ultimate analysis, turnover tax is a tax on sales and not on income. What constitutes the gross annual turnover of a dealer is the sale proceeds of individual sale transactions effected during the accounting period and, therefore, the turnover tax which is imposable on taxable turnover of a dealer is a tax on each sale transaction of a dealer and is, therefore, pure and simple sales tax and nothing else. It would be a misnomer to call it a tax on income. The above view receives support from the following observation of the Federal Court in The Province of Madras v. Boddu Paidanna Sons reported in [1942] 1 STC 104, made while repelling th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh reported in [1969] 24 STC 133 which had been expressly approved by their Lordships in Kodar's case [1974] 34 STC 73 (SC); AIR 1974 SC 2272. In that case similar contention had been urged before the court in regard to the constitutional validity of the provision imposing additional tax. Ramachandra Rao, J., who delivered the opinion for the Bench repelled all such contentions including the contention that the turnover tax was not sales tax with the following observations with which we entirely agree. "The legislative power to make laws for imposing taxes on sale or purchase of goods is conferred by entry 92-A of List I and entry 54 of List II of the Seventh Schedule of the Constitution. The word sale' in the said entries is used in the sense in which it occurs in section 4 of the Sale of Goods Act. It is not disputed that what are taxable under section 5 of the Act are the transactions of sales or purchases, and that section 5 has been validly enacted in exercise of the power under entry 54 of List II of the Seventh Schedule of the Constitution. But what is contended for the petitioners is that the unit of taxation fixed under section 5-A is different from that prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of goods under section 5 while that under section 5-A it is the turnover. It is an established principle of interpretation of statutes that when the words used in the sections of the Act are clear and unambiguous the marginal notes cannot control the construction of the section. Even otherwise we are not persuaded that the marginal note of the two sections, sections 5 and 5-A, are in any way materially different. As already mentioned the 'turnover' as defined in the Act is the total amount of consideration for the sale or purchase of goods. Therefore the levy, even according to the marginal note, under section 5-A refers only to the levy of additional tax on the sale or purchase of goods. The plain language of the section does not therefore support the contention of the learned counsel that the unit of taxation under section 5-A is not the transaction of sale and that it falls outside entry 54 of List II of the Seventh Schedule of the Constitution." In the case of S. Kodar v. State of Kerala [1974] 34 STC 73 (SC); AIR 1974 SC 2272, while posing a challenge to the validity of the Tamil Nadu Additional Sales Tax Act, 1970, it was contended that Legislature of Tamil Nadu had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 19(1)(f) and 19(1)(g), as the tax is upon the sale of goods and is not shown to be confiscatory, it cannot be said that the provisions of the Act impose any unreasonable restrictions upon the appellants' right to carry on trade. It is, no doubt, true that every tax imposes some restriction upon the right to carry on a business; but it would not follow that the imposition of the tax in question is an unreasonable restriction upon the appellants' fundamental right to carry on trade. Generally speaking, the amount or rate of a tax is a matter exclusively within the legislative judgment and as long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, its reasonableness is outside the judicial ken. But it was contended that as the dealer is prohibited from passing on the incidence of tax to the purchaser, the additional tax, unlike sales tax, is a tax on income of the dealer which he must pay whether he makes any profit or not and is, therefore, an unreasonable restriction on his fundamental rights under article 19(1)(g). The legal incidence of a tax on sale of goods under the Tamil Nadu General Sales Tax Act, 1959, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification of dealers on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of his greater volume of business. And, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society." In Hoechst Pharmaceuticals Ltd. v. State of Bihar reported in [1984] 55 STC 1 (SC); AIR 1983 SC 1019, facts were that sub-section (1) of section 5 of the Bihar Finance Act provided for the levy of surcharge on every dealer whose gross turnover during a year exceeded Rs. 5 lakhs in addition to the tax payable by him, at such rate as not exceeding 10 per centum of the total amount of the tax. Sub-section (3) of section 5 prohibited such dealer from collecting the amount of surcharge payable by him from the purchasers. It was contended before their Lordships that the field of price fixation of essential commodities in general, and drugs and formulations in particular was an occupied field by virtue of various control orders issued by the Central Government from time to time under sub-section (1) of section 3 of the Essential Commodities Act, 1955 which allowed the manufacturer or producer of goods to pass on the tax liability to the consumer and therefore the State Legislature of Bihar had no legislative competence to enact sub-section (3) of section 5 of the Act whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no dealer referred to in subsection (1) shall be entitled to collect the additional tax payable by him. The court laid down that: (1) The additional tax levied under subsection (1) of section 2 of that Act was in reality a tax on the aggregate of sales effected by a dealer during a year and, therefore, the additional tax was really a tax on the sale of goods and not a tax on the income of a dealer and, therefore, falls within the scope of entry 54 of List II of the Seventh Schedule. (2) Generally speaking, the amount or rate of tax is a matter exclusively within the legislative judgment and so long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, its reasonableness cannot be questioned by the court. The imposition of additional tax on a dealer whose annual turnover exceeds Rs. 10 lakhs is not an unreasonable restriction on the fundamental rights guaranteed under article 19(1)(g) or (f) as the tax is upon the sale of goods and was not shown to be confiscatory. (3) It is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the legislature to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of article 246(3) of the Constitution and it is said that the power of the State Legislature to enact a law with respect to any subject in List II is subject to the power of Parliament to legislate with respect to matters enumerated in Lists I and III. 36.. The principal point in controversy is: Whether there is repugnancy between sub-section (3) of section 6 of the Act and paragraph 21 of the Control Order and therefore sub-section (3) of section 5 must yield to that extent. The submission is that if Parliament chooses to occupy the field and there is price fixation of an essential commodity with liberty to pass on the burden of tax to the consumer by a law made by Parliament under entry 33 of List III of the Seventh Schedule, then it is not competent for the State Legislature to enact a provision like sub-section (3) of section 5 of the Act while enacting a law under entry 54 of List II prohibiting the passing on of liability of tax to the purchaser. 72.. We are unable to appreciate the contention that sub-section (3) of section 5 of the Act being a State law must be struck down as ultra vires as the field of fixation of price of essential commodities is an occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wis [1935] 294 US 550, that a gross sales tax graduated at increasing rates with the volume of sales on a certain class of dealers does not offend against article 14 of the Constitution. The contention that ability to pay is not a relevant criterion for upholding the validity of sub-section (3) of section 5 of the Act cannot be accepted. To say the least, there is no basis for this submission. It is beyond the scope of this judgment to enter into intricacies of public finance, viz., objectives and criteria of a tax, problems of shifting, etc. Nor is it necessary for us to enter into a discussion of the so-called benefit principle, or the alternative approach of ability to pay. There is probably widespread agreement now that taxes that fall on the 'better-off' rather than the 'worse-off', and are progressive rather than proportional, are to be preferred. The concept of 'ability-to-pay' implies both equal treatment of people with equal ability, however measured, and a progressive rate structure. The 'ability-to-pay' doctrine has strong affinities to egalitarian social philosophy; both support measures designed to reduce inequalities of wealth and income. 84.. On question of economi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on income, by reason of the limitation contained in sub-section (3) of section 5 of the Act. We are not impressed with the argument. Merely because a dealer falling within the class defined under sub-section (1) of section 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-section (3) of section 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. But 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 a provision for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was then contended before their Lordships that the prescription of different rates of additional sales tax depending upon the quantum of turnover of the different assessees was totally repugnant to the concept of levy of tax on sales and it was urged that there was a clear violation of article 14 of the Constitution as dissimilar treatment was meted out to persons similarly situated. It was also argued before their Lordships that the levy in its present form was really a tax on gross income and not a tax on sales and hence it was ultra vires the State Legislature as it had no competence to levy a tax on income other than agricultural income. Another submission was that the levy of additional sales tax under the impugned Act was confiscatory in nature as it imposed unreasonable restrictions on the petitioners' right to carry on business and offends article 19 of the Constitution, particularly in view of the prohibition contained in sub-section (2) of section 2 against collection of additional tax from the consumers. Lastly it was contended before their Lordships that the levy of additional tax under the impugned Act offended article 301 of the Constitution since the imposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the sale or purchase of goods. So, the contention of the appellants that the additional sales tax is not a tax on sales but on the income of the dealer is without any basis.' Dealing with the contention that since the provisions of the Act imposed different rates of tax on different dealers depending upon their turnover there was a violation of article 14 of the Constitution, Mathew J., who spoke for the court observed (page 77 of [1974] 34 STC and paras 16-17 of AIR 1974 SC 2272): 'The last contention, namely, that the provisions of the Act impose different rates of tax upon different dealers depending upon their turnover which in effect means that the rate of tax on the sale of goods would vary with the volume of the turnover of a dealer and are, therefore, violative of article 14 is also without any basis. Classification of dealers on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discriminatory, really misses the point, namely, that the former kind of dealers are in a position of economic superiority by reason of their volume of business and form a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society.' The same principles have been recently reiterated by a three Judge Bench of this court in the case of Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC 1 (SC); [1983] 4 SCC 45; AIR 1983 SC 1019. In the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State under the guise of a tax, its reasonableness is outside the judicial ken. But it was contended that as the dealer is prohibited from passing on the incidence of tax to the purchaser, the additional tax, unlike sales tax, is a tax on income of the dealer which he must pay whether he makes any profit or not and is, therefore, an unreasonable restriction on his fundamental rights under article 19(1)(g). The legal incidence of a tax on sale of goods under the Tamil Nadu General Sales Tax Act, 1959, falls squarely on the dealer. It may be that he can add the tax to the price of the goods sold and thus pass it on to the purchaser. But it is not necessary that the dealer should be enabled to pass on the incidence of the tax on sale to the purchaser in order that it might be a tax on sales of goods. In J.K. Jute Mills Co. Ltd. v. State of U.P. [1961] 12 STC 429 at 438 (SC); [1962] 2 SCR 1 at 13; AIR 1961 SC 1534 at 1539 this court said, although it is true that sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court is binding, it may be observed that the ratio of the Supreme Court judgment cannot be explained away by urging that their Lordships had not taken notice of the argument which is sought to be advanced before the High Court. What is more their Lordships in an earlier case in Khazan Chand v. State of Jammu and Kashmir [1984] 56 STC 214 (SC) had taken notice of the provisions of section 64A of the Sale of Goods Act. In this regard reference can be made to the following observations of their Lordships: "We do not find section 64A of the Sale of Goods Act to have any relevance to the point before us. That section is subject to a different intention appearing from the terms of the contract and gives a right to the seller to add the amount of customs or excise duty or sales tax or purchase tax to the price of goods where such duty or tax is imposed for the first time after the contract of sale is made, where the contract does not contain any stipulation as to payment of duty or tax, or in case the goods are sold duty paid or tax paid, where the rate of such duty or tax is increased, to add the extra duty or tax to the contract price. That section also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing observation of the Supreme Court in the case of Kerala State Electricity Board v. Indian Aluminium Co. reported in AIR 1976 SC 1031: "Having discussed the question of the legislative field it might be necessary to discuss the question as to what happens if it should be held that the matter under consideration in these cases falls within the Concurrent List, that is entry 38 in List III as contended in the alternative by some of the respondents. As already mentioned the question will arise only if it should be held that the Kerala State Act falls under entry 38 as contended by Mr. B. Sen. If the impugned legislation falls under List III then the question of repugnancy of that legislation with the existing law or the law made by Parliament, as the case may be, will have to be considered. Both the 1910 Act as well as the 1948 Act are existing law as contemplated under article 372 of the Constitution. An existing law continues to be valid even though the legislative power with respect to the subject-matter of the existing law might be in a different list under the Constitution from the list under which it would have fallen under the Government of India Act, 1935. But after the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legislative competence as it does not come under entry 54 of List II of the Seventh Schedule of the Constitution. Yet another contention advanced on behalf of the dealers is that by putting an embargo on the passing of the turnover tax burden to buyers the State Legislature had encouraged the dealers to become dishonest as they cannot remain without passing on the said burden to the buyers in one form or the other. Hence the provision of section 6B(4) is violative of article 51A of the Constitution of India. As regards the first contention it may be observed that the provisions in the Sales Tax Act prohibiting the dealer from passing the burden of the additional tax on to the purchaser have been upheld in a number of judgments of the Appex Court already noticed and therefore one cannot but hold that the West Bengal State Legislature did not lack the legislative competency in enacting such a provision. As for the decision cited by the learned counsel, it may be observed that, that was a case in which the State Legislature had enacted a law authorising the State Government to call upon a dealer to pay to the Government, the amount which he had collected from the purchasers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IST OF APPELLANTS SHOWING THAT IN THEIR CASES THE TAX IS CONFISCATING Paper Book Part I II, Vol. I (1) 1977-78 Appeal No. 284 of 1980 Tolasaria Trading Co. Pvt. Ltd. Net profit Turnover Rs. 91,22,380 (p. 55-57) Rs. 33,933 T. Tax-Rs. 45,612 (p. 66) (2) 1978-79 Appeal No. 278 of 1980 Champalal Tholia M/s. Prem Chand Padam Chand Total income Turnover Rs. 1,23,67,956 (p. 83Rs. 64,222 85) TOT-Rs. 1,23,679 (p. 89) (3) 1976-77 Appeal No. 285 of 1980 M/s. Santosh Kumar Ramesh Kumar Loss Turnover Rs. 1,26,05,030 Rs. 13,910 (p. 163-165) Tax Rs. 97,677 (p. 203) (4) 1977-78 Appeal No. 276 of 1980 M/s. Kanhaijalal Madhogoria Profit Rs. 1,17,10,904 Rs. 28,224 TOT-Rs. 76,092 (p. 210-212) (p. 220) (5) 1976-77 Appeal No. 283 of 1980 M/s. Arun Trading Co. Income Turnover-Rs. 1,23,87,396 Rs. 50,600 (p. 319-321) (p. 333) Tax Rs. 1,07,294 Part II/Vol. II (6) Appeal No. 294 of 1980 M/s. Ramesh Chand Ratilal Co. Income Rs. 1,31,90,054 (p. 4) Rs. 1,03,726 TOT-Rs. 1,04,264 (p. 13) Part II Vol. III (7) 1977-78 Appeal No. 281 of 1980 M/s. Jadunath Pal Income Rs. 1,21,38,384 (p. 85-89) Rs. 86,490 TOT-Rs. 1,00,000 (p. 93-94) (8) 1977-78 Appeal No. 277 of 1980 Mahabir Prasad Agarwall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 214 (SC) appear to show that they were not impressed by such an argument. "It is clear from the above statutory provisions that the liability to pay sales tax is that of the dealer and not of the person who purchases goods from him and for the purposes of sales tax, it is immaterial whether the price of goods has been paid to the dealer or is payable to him. The fact that a dealer has sold goods on credit is, therefore, wholly immaterial. The Act imposes the liability to pay sales tax on dealers. This liability is irrespective of the fact whether he has made profit or loss in his business and whether he has received the sale price or not." As to the contention No. 7 it may be observed that it carries no weight. A mere reading of the provisions in question would show that the legislature had correctly expressed its intention to bring within the net of "turnover tax " all the dealers whose gross annual turnover exceeded the prescribed limit whether the' said gross turnover was comprised of sale transactions of goods wholly covered only by one Act or both the Acts. The provision of section 6B does not lend itself to a construction canvassed on behalf of the dealers that a dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose gross turnover had not ever exceeded the prescribed limit of gross turnover. The two dealers constitute two different classes and, therefore, the question of equals being treated as unequals does not arise. Now coming to the contention No. 3 which had prevailed with the learned judge and the cross-objection of the State Government challenging the said portion of the decision of the learned single judge in regard to the includibility in gross turnover, of the turnover pertaining to "nontaxable sales" for the purpose of judging the liability of a dealer to pay turnover tax, it may be observed that the learned judge in arriving at his conclusion in that regard based himself on the Supreme Court decision in A.V. Fernandez v. State of Kerala reported in [1957] 8 STC 561 and the Full Bench of Allahabad High Court in Commissioner of Sales Tax, U.P. v. Allied Chemicals, Kanpur [1969] 23 STC 165. So far as the Fernandez's case [1957] 8 STC 561 (SC) is concerned, it deserve highlighting that the Supreme Court in a later decision in Hoechst's case [1984] 55 STC 1; AIR 1983 SC 1019; [1983] 4 SCC 45 has explained the ratio of Fernandez's case [1957] 8 STC 561 (SC) in the following word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross turnover as well as the net turnover on which sales tax can be levied or imposed.' The submission appears to proceed on a misapprehension of the principles laid down in Fernandez's case [1957] 8 STC 561 (SC); [1957] SCR 837. 91.. To understand the ratio deducible in Fernandez's case [1967] 8 STC 561 (SC); [1957] SCR 837; AIR 1957 SC 657, a few facts have to be stated. The business of the assessee in that case consisted in the purchase of cobra, manufacture of coconut oil and cake therefrom and sale of oil and cake to parties inside the State and sale of oil to parties outside the State. In 1951, the Travancore-Cochin General Sales Tax Act, 1125, was amended by addition of section 26, which incorporated the ban of article 286 of the Constitution and was in pari materia with section 7 of the Act. For the year 1951-52 the Sales Tax Officer assessed the assessee to sales tax on a net assessable turnover by taking the value of the whole of the cobra purchased by him, adding thereto the respective values of the oil and cake sold inside the State and deducting only the value of the cobra relatable to the oil sold inside the State. It was contended by the assessee that in the calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of these transactions to levy or imposition of sales tax by virtue of the provisions of article 286 of the Constitution and the corresponding provision enacted in the Act, as above.' 93.. The decision in Fernandez's case [1957] 8 STC 561 (SC); [1957] SCR 837; AIR 1957 SC 657 is therefore clearly an authority for the proposition that the State Legislature notwithstanding article 286 of the Constitution while making a law under entry 54 of List II of the Seventh Schedule can, for purposes of the registration of a dealer and submission of returns of sales tax, include the transactions covered by article 286 of the Constitution. That being so, the constitutional validity of sub-section (1) of section 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds Rs. 5 lakhs for the purpose of levy of surcharge, in addition to the tax payable by him, is not assailable. So long as sales in the course of inter-State trade and commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the decision of the larger Bench. There is no dispute with this proposition, but this holds good only where a Bench with lesser strength had not taken notice of or was not aware of the decision of the larger Bench. But when such a Bench is not only aware of the decision of the larger Bench but in fact explains or distinguishes or identifies the correct ratio of that judgment then the High Court and the court below have no choice but to follow the latter decision though rendered by a Bench of lesser strength than the one opposed to it. So far as Allied Chemicals case [1969] 23 STC 165 (All.) [FB] is concerned, it may be observed that it had followed the ratio of Fernandez's case [1957] 8 STC 561 (SC); [1957] SCR 837; AIR 1957 SC 657 and therefore, it cannot be considered to have perceived the ratio of Fernandez's case [1957] 8 STC 561 (SC); [1957] SCR 837; AIR 1957 SC 657 correctly. Because the true ratio of that case is what their Lordships' in Hoechst's case [1984] 55 STC 1 (SC); AIR 1983 SC 1019; [1983] 4 SCC 45 have identified. In view of the above discussion, we hold that there is no merit in the appeals and in the writ petitions filed by the dealers and, therefore, their app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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