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TMI Blog1994 (7) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as "the Validating Act") with effect from April 22, 1988. By the said Explanation sales of goods specified therein have been taken out of the definition of "resale" in clause (26) of section 2 of the Act. Clause (26) of section 2 of the Act defines "resale". Prior to the impugned amendment, it read as under: Section 2(26): "resale", for the purposes of sections 7, 8, 8A, 9, 12, 13 and 13AA means a sale of purchased goods- (i) in the same form in which they were purchased, or (ii) without doing anything to them which amounts to, or results in a manufacture, and the word "resale" shall be construed accordingly. By section 2(a)(ii) of the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1988, the following Explanation was added to the above definition of "resale" in section 2(26) of the said Act with retrospective effect from April 22, 1988: "Explanation.-For the purposes of clauses (i), (ii) and (iii) of section 8, a sale of purchased goods other than declared goods, shall not be deemed to be a resale,(i) if the seller holds a trade mark or a patent in respect of the goods sold, or if the seller holds a patent in respect of the method or process of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Bombay Sales Tax Rules, 1959 ("the Rules"), to provide for drawback, set-off, refund, etc., of tax paid on goods purchased by dealers holding a trade mark or a patent. It reads: 42H. Drawback, set-off, etc., of tax paid on goods purchased by a dealer holding a trade mark or a patent.-(1) In assessing the amount of tax payable by a registered dealer (hereinafter in this rule referred to as "the claimant dealer") for any period on his sales of such taxable goods (not being declared goods) in respect of which he holds a trade mark or a patent, the Commissioner shall, in respect of his purchases of such goods or in respect of his purchases of the goods referred to in sub-clause (ii) of clause (a) of sub-rule (2), grant him a drawback, set-off or, as the case may be, a refund of the aggregate of the sales (sic., sales tax) determined in accordance with the provisions of rule 44D, subject to the conditions, restrictions and reductions mentioned in sub-rule (2). (2)(a)(i) the goods purchased have been sold by the claimant dealer within a period of nine months of such purchase or within a further period of three months thereafter; or (ii) the goods purchased have been used in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to section 2(26) of the Act which provides that for the purpose of section 8, a sale of purchased goods by such person shall not be deemed to be a resale. As a result, such a dealer shall be liable to pay sales tax also on the turnover of goods purchased by him from registered dealers. (iii) To avoid incidence of double taxation on the very same goods, rule 42H provides for drawback, set-off or refunds of the whole or any part of the sales tax determined in accordance with the provisions of rule 44D in respect of his purchases of such goods. (iv) As a result, the dealer who holds a trade mark or a patent, in effect pays sales tax on his turnover reduced by the purchase price of such goods. The above position will be clear from the following example: A trade mark holder purchases certain goods for a sum of Rs. 100 and pays sales tax of Rs. 10 thereon calculated at the rate of 10 per cent. If the said goods are sold by him for Rs. 150, he will be assessed in respect of his turnover of Rs. 150 and sales tax amounting to Rs. 15 will be levied on him on the said turnover calculated at the rate of 10 per cent. He will, however, get set-off of the sum of Rs. 10 paid by him by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy in respect of certain sales. Counsel also submits that if we look at the pith and substance of the provision of section 2(26) as amended, it is clear that it is a tax on user of the patent or the trade mark and not a levy of tax on sales and, as such, it is beyond the legislative competence of the State Legislature. The learned counsel also submits that the levy of tax on the resales made by dealers holding patent or trade mark amounts to unreasonable restriction on the free-flow of trade, commerce and intercourse and hence it is violative of article 301 of the Constitution. Counsel further submits that the impugned provision is also not saved by article 304(b) of the Constitution as the Bill in respect thereof had not been introduced with the previous sanction of the President as contemplated by the proviso to article 304(b). Reliance is placed in this connection on the decision of the Supreme Court in Abdulkadir v. State of Kerala AIR 1962 SC 922. Further submission of the counsel is that the classification made between dealers holding a patent or a trade mark and other dealers is discriminatory, irrational and has no nexus to the object of the Act. Reliance is placed in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AdvocateGeneral was that the State has wide discretion in selecting the persons or objects it will tax-it is allowed to pick and choose, objects, persons, methods and even rates of taxation, if it does so reasonably. The submission is that it is only when the law operates unequally within the range of selection and it cannot be justified on the basis of valid classification that it will be violative of article 14. The learned Advocate-General submitted a chart before us containing data supplied by the assessing officers of the turnover of the 13 registered dealers holding patents and trade marks for the years 1988-89, 1989-90 and 1990-91. The said chart contains the turnover of the purchases, turnover of sales of those goods by the dealer holding trade mark, addition to the value and percentage of addition. The said chart is set out below: INFORMATION REGARDING VALUE ADDITION IN SALE PRICE DUE TO TRADE MARK AND TAX RECEIVEDC DUE TO AMENDMENT (DATE SUPPLIED BY ASSESSING OFFICERS) Sr. No. Name of company and registration No. Year T.O. of R.D. purchases T.D. of Sale of R.D. purchases on trade mark Value addition Percentage of val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent 63 per cent 11,36,817 14,64,819 6,43,471 8,52,846 4,93,346 6,11,973 9 M/s. Benzer Classic NID-31025 90-91 1,93,81,395 2,42,03,900 48,22,505 25 per cent 9,39,436 7,28,521 2,10,915 10 M/s. Intercraft NID-28069 89-90 90-91 31,02,853 20,73,111 1,12,02,698 1,83,26,254 80,99,845 1,62,53,143 261 per cent 783 per cent 4,62,640 5,19,456 77,188 38,893 3,85,452 4,80,563 11 M/s. Balsara Hygiene Products Ltd. NIA-26586 88-89 89-90 90-91 27,46,105 74,58,598 43,12,503 49,67,404 1,09,60,169 73,22,381 22,21,299 35,01,571 30,09,878 81 per cent 47 per cent 70 per cent 3,97,392 10,05,454 5,85,790 3,39,904 6,94,452 3,59,514 57,488 3,11,002 2,26,276 12 M/s. Bata India Ltd. NIA-1339 89-90 90-91 66,55,030 44,33,496 5,23,52,736 91,59,330 4,56,97,706 47,25,834 686 per cent 107 per cent 41,88,219 9,15,933 3,39,262 3,44,620 38,48,957 5,71,313 13 M/s. Bradma of India NIA-6989 89-90 32,60,238 44,73,15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law does not deal in any way with patents or trade marks as such. It deals with sales tax only. The impugned provision clearly falls within entry 54 of List II of the Seventh Schedule. It is not necessary for that purpose to resort to the theory of pith and substance. In our opinion, Explanation to section 2(26) does not in any way deal with items falling under entry 49 of List I. It is not a legislation in regard to patents or trade marks. It does not even incidentally encroach on entry 49 of List I. However, even if it would have been so, the doctrine of pith and substance would have applied and once it is held that in pith and substance it is a law to levy sales tax, incidental reference to patents or trade marks or its effect on dealers holding patents or trade marks would not affect its validity. Reference may be made in this connection to the decision of the Privy Council in Prafulla Kumar Mukherjee v. Bank of Commerce Limited, Khulna [1947] FCR 28; AIR 1947 PC 60 and Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC). Reference may also be made to the decision of the Supreme Court in Chamarbaugwalla's case 1957 SCR 874; AIR 1957 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sales of goods sold under patent or trade mark. On the other hand the chart furnished above leads to just the opposite conclusion. In view of the above discussion, we do not find any merit in the challenge on the ground of violation of article 301 of the Constitution. 12.. We now turn to the last limb of the contention of the petitioner, i.e., challenge on the ground of violation of article 14 of the Constitution. There is no gainsaying that fiscal statutes are not outside the pale of article 14 of the Constitution and any irrational classification and/or discrimination between persons or objects similarly situated would render the classification violative of article 14 of the Constitution. Taxing laws must also pass the test of article 14. However, in deciding whether the taxation laws are discriminatory or not, it is necessary to keep in mind that the State has a wide discretion in selecting the persons or objects it will tax and a statute is not open to attack on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection the law operates unequally which cannot be justified on the basis of any valid classification th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of the law. 13.. Looking at the facts and circumstances of the present case, the classification of dealers who are holders of patents or trade marks and dealers who are not, for the purpose of levy of tax on the sale of purchased goods by them, appear to be a reasonable classification, having a nexus with the object sought to be achieved. In that view of the matter, in our opinion, the impugned provision does not violate article 14 of the Constitution. 14.. Having dealt with the main grounds of challenge to the validity of the impugned provision, we would like to deal with the two incidental grounds also on which the validity was challenged. The first ground is that the scheme of the Act is to levy a single point tax on goods specified in Schedule "C" whereas the impugned amendment has the effect of double point levy. This submission, in our opinion, is devoid of merit in view of the fact that the impugned amendment has also been made by the State Legislature itself. It is not a case where the State Legislature made a law providing for single point levy but the Government or the executive, in exercise of its executive power or delegated authority provided for double point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et-off in respect of additional tax paid by the first dealer in respect of the sales effected to him under section 15A of the Act. We have perused the provision of the section 15A of the Act. Section 15A provides for levy of additional tax on dealers, whose turnover exceeds Rs. 10 lakhs a year. Sub-section (3) of the said section provides that out of the total additional tax so collected, an amount equal to 50 per cent thereof shall be utilised for the purpose of raising the resources for implementing the Employment Guarantee Scheme under the Maharashtra Employment Guarantee Act, 1977. Sub-section (4) of the said section expressly prohibits collection of additional tax payable by a dealer from the purchasers. It is a non obstante clause and reads as follows: "Section 15-A(4). Notwithstanding anything contained in this Act, no dealer shall be entitled to collect any sum by way of additional tax payable by him under this section." It is thus clear that additional tax is payable by virtue of section 15A by a class of dealers falling thereunder on the sales of goods made by them. Such dealers cannot recover the same from the purchasing dealer. That being the legal position, the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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