1963 (12) TMI 24 - SC - Central Excise

Levy of a tax on certain goods carried by road or on inland water-ways in the State of Assam - Challenged the validity of the Assam Taxation Act 1961 - Scope and effect of the provisions contained in Part XIII of the Constitution deleterious effect on the free flow of trade commerce and intercourse - reasonable restrictions in the interests of the general public - Colourable exercise of legislative power. Held that - The mere fact that a validating statute operates retrospectively does not justify the contention that the character of the tax sought to be recovered by such retrospective operation is necessarily changed. It is very difficult to assume that producers who were taxed under the earlier Act paid the tax without preferring an appeal or revision though they had a grievance against the validity or regularity of the assessment order. Therefore we do not think the challenge to the validity of s. 34 can be sustained. It is in regard to such a taxing statute which can properly be regarded as purely confiscatory that the power of the Court can be legitimately invoked and exercised. In our opinion it would be idle to suggest that a tax imposed by the Act in the present case should be struck down because it has taxed only tea and jute. In the present case undoubtedly tea has been carried over a part of the inland waterways in Assam and that satisfies the test of nexus. The argument of extra-territoriality must therefore fail. The argument based on the fact that the goods have been entrusted to the railway for through carriage and so the carriage of the goods should be held to be outside the purview of s. 3 of the Act cannot be sustained. The power to levy a tax which has been conferred on the State Legislature by Entry 56 cannot therefore be said to be controlled by the Tea Act in question. It would be noticed that List I does not contain any Entry by which the Central Legislature can pass an Act levying a tax on goods carried which can be said to control Entry 56 in List 11. That being so we must hold that there is no substance in the argument that the State Legislature has no power to levy a tax on tea which is carried over- a part of the area of the State of Assam. The result is the petition fails and is dismissed with costs.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this legal judgment were:

• Whether the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961, was within the legislative competence of the Assam Legislature under Entry 56 in List II of the Seventh Schedule of the Constitution.
• Whether the Act imposed unreasonable restrictions on the freedom of trade, commerce, and intercourse guaranteed by Article 301 of the Constitution, and if so, whether such restrictions were justified under Article 304(b).
• Whether the retrospective operation of the Act was valid under Article 304(b).
• Whether the Act was discriminatory and violated Article 14 of the Constitution.
• Whether the Act was a colorable exercise of legislative power.
• Whether the Act had extra-territorial application.

2. ISSUE-WISE DETAILED ANALYSIS

Legislative Competence:

The Court analyzed whether the Assam Legislature had the competence to enact the Act under Entry 56 of List II, which allows taxes on goods and passengers carried by road or inland waterways. The Court concluded that the legislative power to levy a tax includes the power to devise a mechanism for its collection. The Act's provision to impose tax liability on the producer, even when the goods were sold before being carried, was upheld as it facilitated tax collection.

Reasonableness of Restrictions:

The Court examined whether the restrictions imposed by the Act were reasonable and in the public interest under Article 304(b). It considered the revenue raised by the tax as serving a public purpose, such as maintaining roads and waterways, which justified the restrictions. The Court also noted that the flat rate of tax, although not based on distance, was reasonable as it avoided unfair competition among producers.

Retrospective Operation:

The Court addressed the validity of the Act's retrospective application, concluding that retrospective legislation is permissible unless explicitly prohibited by the Constitution. The Court found no such prohibition in Article 304(b) and held that the retrospective operation did not change the character of the tax.

Discrimination and Article 14:

The Court considered the argument that the Act was discriminatory for taxing only tea and jute. It held that the legislature has the discretion to select objects for taxation, and the choice of tea and jute was justified given their significance in Assam's economy. The Court found no violation of Article 14.

Colorable Legislation:

The Court rejected the argument that the Act was a colorable exercise of legislative power, noting that the power to make a law includes the power to make it retrospective and to validate previous invalid legislation.

Extra-territoriality:

The Court dismissed the claim of extra-territorial application, stating that the tax was levied on goods carried through Assam, regardless of the distance. The physical carriage of goods through Assam was sufficient to establish legislative competence.

3. SIGNIFICANT HOLDINGS

The Court upheld the validity of the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961, on several grounds:

• The Act was within the legislative competence of the Assam Legislature under Entry 56 of List II.
• The restrictions imposed by the Act were reasonable and in the public interest, as required by Article 304(b).
• The retrospective operation of the Act was valid and did not change the character of the tax.
• The Act did not violate Article 14, as the selection of tea and jute for taxation was justified.
• The Act was not a colorable exercise of legislative power, as it was within the competence of the legislature to validate previous legislation.
• The Act did not have extra-territorial application, as the tax was levied on goods carried through Assam.

Overall, the Court found no constitutional infirmity in the Act and dismissed the petition challenging its validity.