THE FIRST PRESIDENTIAL REFERENCE ON INDIRECT TAXATION TO THE APEX COURT

[jayaprakash gopinathan]

            At the early stages of GST discussions, reference to the apex court before introduction of GST was a point discussed. Then concerned authorities appear to have dropped it. Many dealing with indirect taxation appears to be in dark about THE FIRST PRESIDENTIAL REFERENCE ON

INDIRECT TAXATION TO THE APEX COURT.

Article 143 of constitution of India provides provision for reference to the Apex court to seek its opinion on a particular subject of national importance. Tax disputes seldom attain such stature. However history informs about the first reference, half a century ago, relating to indirect taxes-the Customs and Central Excise Duties. This reference was IN RE: THE BILL TO AMEND S.20 OF SEA CUSTOMS ACT, 1878{Special Reference No. 1 of 1962. [1963 AIR 1760, 1964 (3) SCR 787]} and was as follows:-

#“In exercise of the powers conferred upon me by clause (1) of article 143 of the constitution of India, hereby refer the following question to the Supreme Court of India for consideration and report of its opinion thereon;

“(1). Do the provisions of Article 289 of the constitution preclude the Union from imposing or authorizing the imposition of, customs duties on the import or export of the property of a state used for purpose other than those specified in clause (2) of that Article?

(2). Do the provisions of Article 289 of the constitution preclude the Union from imposing or authorizing the imposition of, excise duties on the production or manufacture in India of the property of a State used for purpose other than those specified in clause (2) of that Article?

            (3). Will sub section (2) of section 20 of Sea Customs Act, 1878Salt Act, 1944

(Act 1 of 1944) as amended by the bill set out in the Annexure be inconsistent with the provisions of article 289 of the Constitution of India

New Delhi                                                                              Sd/- Rajendra Prasad

Dated the  19-4-1962                                                              President of India

 

Annexure-  DRAFT BILL

                        A BILL

Further to amend the Sea Customs Act, 1878 and Central Excises and Salt Act, 1944.

Be it enacted by Parliament in the year of the Republic of India as follows

1. Short Title- This Act may be called the Sea Customs and Central Excises (Amendment) Act, 19.
2. Amendment of section 20 , Act 8 of 1878 , for sub-section (2) the following sub-section shall be substituted, namely:-

“(2) The provisions of sub-section (1) shall apply in respect of all goods belonging to the Government as they apply in respect of goods not belonging to Government .”

1. Amendment of section 3, Act 1 of 1944. In section 3 of the Central Excises and Salt Act,1944, for sub-section (1A) the following sub-section shall be substituted, namely:-

The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government.                                                                                 

143. Power of President to consult Supreme Court ( 1 ) If at any time it appears to the President that a question of law or fact has arisen, or is likely to arise, which is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court upon it, he may refer the question to that Court for consideration and the Court may, after such hearing as it thinks fit, report to the President its opinion thereon

(2) The President may, notwithstanding anything in the proviso to Article 131, refer a dispute of the kind mentioned in the said proviso to the Supreme Court for opinion and the Supreme Court shall, after such hearing as it thinks fit, report to the President its opinion thereon

The Special Reference No 1 of 1962, was about the proposal to apply the provisions of s. 20 of Sea Customs Act, 1878 { prior to enactment of Customs Act, 1962-( Brought into effect from 1.2.1963)}and s.3 of Central Excise & Salt Act, 1944 on goods belonging to the State Governments. This was sought to be achieved by substituting existing section 20(2) and Section 3(1A) of Sea Customs Act, 1878 and Central Excise and Salt Act, 1944, respectively, which read as

And whereas subsection (2) of section 20 of the said Act applies the provisions of sub-section (1) of that section in respect of all goods belonging to the Government of a state and used for the purposes of a trade or business of any kind carried on by, or on behalf of that Government or of any operations connected with such trade or business as they apply in respect of goods not belonging to any Government;

And whereas sub-section (1A)of section 3 of the said Act applies the provisions of sub-section (1) of that section in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, the Government of a state and used for the purpose of a trade or business of any kind carried on by, or on behalf of ,that Government, or of any operations connected with such trade or business as they apply in respect of goods which are not produced or manufactured by any Government;

Divergent views prevailed over the issue in as much as taxing power is treated as different from regulatory power and if the intention for the amendment being to raise revenue , if made, would be violative of Article 289 of the constitution of India. The dispute was purely technical as to whether Direct Tax and Indirect Tax are similar in nature within the mischief of Article289 when read with the definitions of Taxation and Tax in clause (28) of Article 366of Constitution of India. Article 289 prohibits imposition of Tax by Central Government on the property of state Governments. Some of the State Governments thought that they enjoyed immunity from Union Taxation and imposition of   duty on goods belonging to them was unconstitutional and violative of Article 289, but the Central Government thought otherwise. Since the dispute could not be settled on consultation between State Governments and Central Government, it was decided to refer the matter to the Apex court for its opinion as per the mandate of Article 143 of the constitution before moving the amendment bill in parliament.               

On receipt of reference from the president of India regarding the proposed amendments cited above, the Apex Court constituted an eight judges Bench to hear the reference. During the course of hearing, it appeared that the bench is evenly divided on the issue; the Bench was reconstituted by incorporating one more judge. On further fresh hearing, the court decreed that customs duty is leviable on goods imported by the State also. The decision was not unanimous. It was a 5 to 4 verdict. Soon on receipt of a favourable opinion from the Apex Court, the Central Government substituted section(s) 3(1A) of Central Excise and Salt Act, 1944 and 12(2) of Customs Act, 1962[ Sea Customs Act, 1878 was repealed and Customs Act, 1962 came into effect from 1.2.1963] vide section 2 of the Customs and Central Excises (Amendment) Act, 1963.

These amendments were as follows.

*Central Excises and Salt Act, 1944

 

3(1A)

The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government.   Customs Act, 1962

12[(2) The provisions of sub-section (1) shall apply in respect of all goods belonging to government as they apply in respect of goods not belonging to Government.

The first presidential reference on Indirect tax to the Apex Court about liability of state Governments on customs duty when goods are imported and Central excise duty when goods are manufactured/ produced ( irrespective of the purpose) paved way for the amendment of the two Central Indirect Taxation Statutes.

# . Reproduced from cited decision.* Extracted from   Central Excise& Customs Manual.