TMI Blog1971 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 5-4-1971 - SIKRI S.M., MITTER G.K., HEGDE K.S., GROVER A.N. AND JAGANMOHAN REDDY P. JJ. Polesseti Ramachandra Rao and W.C. Chopra, Advocates, for the appellants in C.A. Nos. 2127 and 2128 of 1970. S.T. Desai, Senior Advocate (K. Rajendra Choudhury, Advocate, with him), for the appellant in C.A. No. 33 of 1971. G. Narayana Rao, Advocate, for the appellants in C.A. No. 2218 of 1970 and C.A. Nos. 144, 157, 159-163 and 164-166 of 1971. M.C. Setalvad, Senior Advocate (W.C. Chopra, Advocate, with him), for the Appellant in C.A. No. 2126 of 1970. M. Natesan, Senior Advocate ( G. Narayana Rao, Advocate, with him), for the appellant in C.A. No. 2217 of 1970. S.V. Gupte, Senior Advocate (G. Narayana Rao, Advocate, with him), for the appellant in C.A. No. 2116 of 1970. P. Ram Reddy, Senior Advocate (P. Parameswara Rao, Advocate, with him), for the respondents in all appeals. -------------------------------------------------- The judgment of the Division Bench of the Andhra Pradesh High Court (GOPAL RAO EKBOTE and RAMACHANDRA RAO, JJ.) in Writ Petition No. 2720 of 1970 etc. dated 5th September, 1970, is as follows: The j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the substituted section, an agent of a resident principal "shall be assessed to tax for all transactions which he made on behalf of such principal irrespective of the fact that such principal is not liable to pay the tax or penalty in respect of that transaction" because the turnover of the principal being below the minimum turnover specified in section 5(1). The new section 11 was also challenged as unconstitutional in a batch of writ petitions filed before this court. The High Court in K. Venkata Ramana v. State of Andhra Pradesh [1969] 24 S.T.C. 367., held the new section 11 as violative of article 14 of the Constitution in so far as it seeks to make the agent primarily liable as if the liability is independent of his representative character. This decision led to the amendment of section 11 along with the insertion of other provisions by the impugned Amendment Act, i.e., Act 9 of 1970. In section 5 of the Act, after the proviso to sub-section (1), the following proviso is inserted by section 2 of the Amendment Act: "Provided further that a dealer in jaggery shall pay a tax at the rate of two paise on every rupee upto the 31st March 1966 and at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority in connection with the assessment, reassessment, levy or collection of such tax shall for all purposes, be deemed to be, and to have always been, done or taken in accordance with law; (b) no suit or other proceedings shall be maintained or continued in any court or before any authority for the refund of any such tax, and (c) no court shall enforce any decree or order directing the refund of any such tax. (2) It is hereby declared that nothing in sub-section (1) shall be construed as preventing any person- (a) from questioning in accordance with the provisions of the principal Act, as amended by this Act, any assessment, reassessment, levy or collection of tax referred to in sub-section (1), or (b) from claiming refund of any tax paid by him in excess of the amount due from him by way of tax under the principal Act as amended by this Act." Section 9 of the Amendment Act relates to exemption from liability to pay tax in certain cases. It is as follows: "(1) Where any sale of jaggery has been effected during the period between 1st August, 1963 and the commencement of section 5 of this Act in so far as it relates to item 77, and the dealer effecting such sale has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot liable to pay any tax for the transactions of jaggery effected between 1st August, 1963, and the date when section 5 of the Amendment Act has come into force, i.e., 1st July, 1968. The principal attack is made on the new proviso inserted in section 5 of the Act and substituted section 11 read with sections 8 and 9 of the Amendment Act. This attack is made on three grounds by Sri T. Anantha Babu, the learned counsel for some of the petitioners. It was firstly contended that section 11 read with the new proviso to section 5(1) makes invidious distinction between dealers in jaggery on the one part and dealers in all other commodities covered by section 5(1) read with section 11 on the other. It was argued that there is no reason to classify them separately. The classification is unreasonable and is not based on any intelligible differentia and there is no nexus with the object which the Amendment Act seeks to achieve. Secondly, it was contended that section 9 worded as it is should be read as a part of section 2 of the Amendment Act by which the new proviso is added to section 5(1) of the principal Act and is a part of the substituted section 11. Thus read, he submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, and the differentiation made is unintelligible and totally unconnected with the object sought to be achieved by the Amendment Act. The object of the amendment is to avoid the heavy financial liability which is involved because of the judgment of the High Court in K. Venkata Ramana v. State of Andhra Pradesh [1969] 24 S.T.C. 367., as the amount which would be required to be refunded as a result of the said judgment "may exceed Rs. 1 crore". This objective is not realised by making this invidious distinction and is one based on irrelevant considerations, proceeded the argument of Sri T. Anantha Babu. It was therefore submitted that the new proviso to section 5(1), the substituted section 11 and sections 8 and 9 of the Amendment Act are ultra vires of article 14 of the Constitution. Taking the first submission for consideration, it can be seen that section 11 read with the new proviso to section 5(1) undoubtedly classifies dealers in jaggery on the one hand and the dealers in other commodities covered by sections 5 and 11 on the other. This classification commenced from 1st August, 1963, and ends on 1st July, 1970, the period for which multiple point tax is levied on jaggery irr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olute equality or uniformity is impossible of achievement. Tax laws usually deal with complex and diverse problems requiring adjustment of several disparate elements. It is because of this that the courts admit subject of course to the principle of equality, a larger play to legislative discretion in the matter of classification. The Legislature in matters of taxation possesses a very large freedom in the matter of classification. The power of the Legislature to classify is, it is said, of "wide range and flexibility". The discretion to classify may be exercised so as to adjust the system of taxation in proper and reasonable ways. The Legislature may select persons, properties, transactions and objects and apply different methods and even rates of tax. It is true to say that the State need not tax everything in order to tax something. It can pick and choose as stated above persons, objects, methods and even rates of taxation if it does so reasonably. A statute thus is not open to attack on the ground that it taxes some persons or objects and not others. Protection of equality clause does not demand a mathematically precise, logically complete or a symmetrical classification. Althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different treatment, it cannot be validly contended that such an Act violates the clause of equality. It cannot be doubted that dealers in different commodities can be lumped together bringing them under a single class and treating them equally in matters relating to sales tax. It cannot also be doubted that some or all the dealers can be differently treated as belonging to different classes and different treatment can be given to them. Indeed the General Sales Tax Act of not only this State but of all other States as well as the Centre have exercised a larger discretion in classifying the dealers selecting them for purposes of giving different treatment as to rates of taxation, the point at which they can be taxed, in levying and collecting the tax either from the agent or from the resident principal etc. etc. It cannot be justifiably argued that once a classification is made, it must always remain so and the Legislature would have no power to bring about any valid change in the classification although it may not offend article 14 of the Constitution. Nor can it be insisted that if the classification had continued for some time no further sub-classification can ever be made and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided to tax it at multi-point restrospectively without any regard to a minimum quantum of turnover. It appears from the record that agricultural produce sold by the farmers either directly or through agents have been consistently exempted from taxation. Jaggery is the only product which the agriculturist produces from sugarcane; whether under compulsion as is urged by the petitioners or as a regular business, it has always been taxed. Of course a minimum quantum of turnover even in the case of jaggery was exempted from the levy of tax. Whether jaggery transactions should be classified separately or whether minimum quantum of turnover should be provided for transactions in jaggery or not are questions of policy which it is for the Legislature to decide and not for the court. No dealer can have a right to insist upon the Legislature to lay down the policy in this behalf one way or the other. The only question which they perhaps can raise is that the different treatment accorded is not reasonable and proper. But we can see nothing unreasonable or improper in such classification and determination of the policy. The business in jaggery has some features which justify its separate class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inimum taxable turnover for general tax and special tax respectively were discriminatory and void under article 14." The Supreme Court observed: "But no discrimination is involved in this classification which is perfectly reasonable when it is borne in mind that the State may not consider it administratively worth while to tax sales by small traders who have no organisational facilities for collecting the tax from their buyers and turn it over to the Government. Each State must, in imposing a tax of this nature, fix its own limits below which it does not consider it administratively feasible or worth while to impose the tax. It is idle to suggest that any discrimination is involved in such classification." It is true that it has been a normal feature in multi-point tax structure to exempt from payment of tax a minimum turnover because in such cases it is considered that it would not be administratively worth while to collect tax on such turnover. But it does not mean that it is a rule which is binding upon the Legislature or that there can be no exemption to this general practice of a State. It is a question of policy. If in some cases the Legislature concludes that there are adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave not so collected the amount by way of tax. It is true that in the preamble it is mentioned that in order to ensure that no hardship is caused to dealers who have not collected the tax, it is proposed to provide that such dealers will not be liable to pay tax. What has to be seen therefore is whether this assertion made in the preamble is decisive and whether it points out that on such dealers no tax really is imposed. Now, the preamble of a statute is a prefactory explanation or statement which purports to state the reason or occasion for making a law or to explain in general terms the policy of the enactment. The preamble usually states the reasons and intent of the law. It serves to portray the intent of the framers and the mischief it seeks to be remedied. Two approaches prevail in the area of construction of a preamble and its use in construing material provisions of the enactment to which the preamble is attached. One approach is based on the rule that the preamble is "not part of the law" as it usually precedes enacting clauses. The second approach is based on the principle that as the preamble like the title accompanies the Bill through the process of an enactment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used as recitals of facts upon which legislative action is based. It thus not only points the mischief which it seeks to remove but also expounds the policy laid down in solving the problem. Courts ordinarily will give great weight to both statements of facts and declarations of policy which indicate that the Legislature considered the proposed legislation and was cognisant of the issue and determined that the statute was reasonable and not arbitrary. It is of course clear that such determination is not decisive and it is always open to the court to examine the constitutionality of the impugned provisions none the less. It is in this light that we have to examine section 9 with a view to find out whether it is a part of sections 2 and 4 of the Amendment Act although separately drafted. It is claimed by the petitioners that section 9 does not impose any tax on those dealers who have not collected the tax and therefore that section has to be read as a part of sections 2 and 4, and if so read, it will be plain that the two provisions impose the tax only on those dealers who have collected the tax. It is, however, contended by the learned Advocate-General that section 9 in truth an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption from payment of the tax. That is why section 9 uses the non obstante clause and declares that in spite of what sections 2, 4 and 8 say, the dealers, who have not collected the tax, shall not be liable to pay the tax. Thus the tax is imposed on all those transactions which are similar in character. The dealers in such transactions are assessed to the tax. Tax can be levied and collected but for the exemption granted from payment of tax to some of the dealers. The preamble and section 9, in our judgment, support this conclusion rather than conflict with it. If the intention of the Legislature was not to tax the transactions but to tax only dealers who have collected the tax or wanted to make as basis the collection of tax, nothing could have prevented the Legislature in combining sections 4 and 9 expressly legislating to that effect. But the Legislature knew that if they taxed the dealers or make the collection as the basis, they would be flying in the face of entry 54 of the State List. They have therefore rightly avoided to get into the question- able field. In view of the statement of facts appearing in the preamble, the mischief which the Legislature sought to remove and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the tax does not remain valid. If that is once held, then there will be no room for contending that the charging provision makes an invidious discrimination between the transactions of the same kind or between the dealers situated in similar situations so as to attract article 14 of the Constitution. We are satisfied that the charging provision does not make any discrimination at all in matters relating to imposition of tax. It imposes tax on all transactions of jaggery retrospectively irrespective of the fact whether the dealers relating to the said transactions have collected the tax or not. We find ourselves therefore unable to accept the second and the third contentions of the learned Advocate Sri T. Anantha Babu. Sri P. Babul Reddy, the learned counsel for some other petitioners, attacked the said provisions from another angle. He urged that the seven years' retrospectivity, which is given by section 1 of the impugned Act to sections 2 to 4, alter the character of the so-called tax which is sought to be imposed. In his submission, it is really taking away from the petitioners the money which they have collected by way of tax under a pretext that the legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective effect, then what remains to be seen is whether the retrospectivity given is unreasonable or improper so as to conflict with article 14 or 19(1)(f) or (g). We have already mentioned the circumstances under which the Legislature had to give retrospective effect to the material provisions of the Amendment Act. After the material provisions of the principal Act were struck down by the High Court twice, two alternatives were left to the Legislature. Either not to legislate imposing tax at all or impose it prospectively after removing the defect on the basis of which the provisions were declared void by the High Court. In the former case, the Government would have been required to refund the taxes collected amounting to rupees one crore and also to forego the tax which remained uncollected. It is unreasonable to expect any Government, which requires revenue for its multiple developmental activities, to afford to do that. When by removing the defects the Legislature can validly make a prospective law, it can as well make the law retrospectively effective. The tax recovered retrospectively like the one which will be recovered prospectively will still continue to be a tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a tax which operates both ways. It is reasonable and proper in its retrospective operation. It is within the competence of the Legislature and certainly not a pretext or device to levy anything but tax under entry 54 of the State List. It is in any case not a colourable exercise of power. When the retrospectivity is found to be reasonable and proper, then it must be recognised that in the exercise of ancillary or subsidiary power, the Legislature can, after removing the defects pointed out by the High Court, as it did in the present case, can validate the assessment orders and actions taken or anything done under the invalid law. That is what section 8 seeks to do. We do not experience any difficulty in construing section 8 as only a validating section. It clearly points out that the assessment orders or action taken or things done under the invalid law shall be deemed to have been made or taken under the principal Act as amended by the impugned Act. We are not impressed with the argument that section 8 apart from validating the said things makes them lawful so as to make them free from any attack even in the appeal or revision against those orders. Any such argument would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be completed. At the time of assessment, it is admitted, no enquiry was made whether the dealers from whom taxes were collected have in fact collected any tax. Nor can it even now be made in regard to those assessments which are pending. For the purpose of section 9, now to introduce exemption and thus inject discrimination would be violative of article 14. No exemption from payment of tax can be made on considerations which are not relevant. The classification, apart from not being based on intelligible differentia, has no nexus whatsoever with the objects sought to be achieved by the impugned Act. If the main purpose, as was argued before us, is to obtain revenue, then merely because some dealers had not collected the tax from the consumers, a consideration which is irrelevant, the State cannot make discrimination between the transactions of the same nature or dealers of the same class. Consideration of hardship has little place in the structure of tax which has been given a retrospective effect. Such a provision, admittedly, did not appear in the earlier Acts. We do not therefore consider that either the preamble or the purview of the Act provides any valid basis for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are enforceable on their own without any aid from section 9. The intention of the Legislature seems to us clear that it never wanted to treat the charging provisions and section 9 as integral part of the same scheme. Their language and objects differ. We are sure that if the Legislature were aware that section 9 is invalid, it would never have enacted it. Nevertheless the Legislature would have enacted the main provisions to realise their principal objectives. We have already noticed that the principal purpose of the impugned legislation is to prevent refund being made. That could have been achieved by enacting the charging section with retrospective effect and incidentally validating the assessment orders etc. To grant exemption or not is altogether separate and is not or cannot be said to be inextricably bound up with the charging provisions. These provisions are not dependent on each other and cannot be said to operate together for the same purpose. Section 9 is independent of the valid provisions and forms a complete Act within itself. By separating it, the purpose of the enactment, we are satisfied, would not be defeated. Hence section 9 alone is invalid and the rest of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Appeal No. 2116 of 1970 as typical of the common question arising in all these appeals. The appellants carry on business of commission agents in jaggery in Anakapalli, Visakhapatnam and at various places in West Godavari. In the course of their business the appellants arrange for the sale of jaggery charging a small commission for their services and render an account to the respective principals in respect of these sales. In the pattis issued to the agriculturists the name of the person to whom jaggery is sold is specifically mentioned. The baskets of each principal are separately marked. The stock register also indicates the number of baskets of jaggery held in the name of the commission agents. Every buyer is fully apprised of the fact that he is purchasing the jaggery of specified agriculturist principals and not that of the appellants. This procedure, it is said, has been in vogue for a long time. Till about 1963 under section 11 of the Madras General Sales Tax Act as well as under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter called the "principal Act") commission agents were required to obtain and were being issued licences and if they conformed to the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o v. State of Andhra Pradesh and Another [1969] 24 S.T.C. 367. The High Court held that even after the amendment the liability of the agent continues to be based on the principle of representation and whether he is a dealer in respect of all the principals or only one principal, his liability is co-extensive with that of the principal. It also held that while there is no conflict between section 5 and section 11 of the Act, section 11 which authorises the imposition of a tax independently of the liability of the principal or which takes away or limits the rights of the agent to reimburse himself or withhold moneys due to the principal only where the principal is liable is discriminatory and is hit by article 14. In view of this judgment, which in fact restored the legal position to that prevailing prior to the amendment, large sums of money in which assessments had been made and tax collected became refundable. To meet this situation the Legislature enacted the Andhra Pradesh General Sales Tax (Amendment) Act, 1970 (9 of 1970). The effect of the amendments made by sections 2, 5, 8 and 9 of the Amendment Act is that a proviso was added to section 5(1) and a new section 11 was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 11 would be violative of article 14 inasmuch as the dealers in jaggery similarly situated have been invidiously discriminated by levying tax from those dealers who have collected the tax and the dealers who have not collected the tax. Thirdly, that the basis of the amendment is an imposition of a tax not on the transaction of sale or purchase of jaggery but on the collection or non-collection of the tax by the dealers, as such it is also hit by article 14 of the Constitution. The High Court rejected all these contentions except the one relating to the validity of section 9. The State of Andhra Pradesh as well as the appellants in Civil Appeal No. 33 of 1971 had contended that that provision which granted an exemption from payment of tax to dealers who had not in fact collected the tax from their principals was valid and did not suffer from the vice of discrimination under article 14 because not only was the classification reasonable but that it was based on an intelligible differentia having a nexus with the object of the impugned Act. We shall however deal with the last-mentioned aspect presently but before we do so on the threshold of the argument of the appellants ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is likely to cause prejudice will entitle him to challenge the constitutional validity of the law under which the notice is given. If so, where an assessment has been made the assessee has a right to challenge the provisions of the Amendment Act under which the levy and collection of tax have been given retrospective validity. Apart from the question that this argument does not take into account the distinction between an attack under article 14 and an attack under article 19 it overlooks the fact that what is sought to be recovered from the appellant is in respect of a tax collected on the past dealings and not with respect to the future transactions. We had pointed out that tax had already been collected, no doubt at first illegally, but due to the Amendment Act that collection has become legal and as a dealer he is liable to pay that amount to the State in respect of the assessments made. As there is nothing to show that what is sought to be recovered from the dealer is more than what he has collected, he has not suffered any loss nor any disadvantage which would entitle him to seek a remedy under article 226 of the Constitution. Shri P. Ramachandra Rao in Civil Appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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