TaxTMI 
TaxTMI 
1986 (4) TMI 303
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....on (1) of section 8 of the Madhya Pradesh General Sales Tax Act, 1958 (M.P. Act No. 2 of 1959), by the Madhya Pradesh General Sales Tax (Amendment) Act, 1968 (M.P. Act No. 9 of 1968), to the extent that the said amendment treated tendu leaves differently from other raw materials and for an appropriate writ, order or direction quashing the levy of sales tax on tendu leaves disposed of by the State Government and for restraining the State Government and its officers from enforcing or giving effect to the Madhya Pradesh General Sales Tax (Amendment) Act, 1968, to the extent that it amended section 8(1) of the Madhya Pradesh General Sales Tax Act, 1958. In view of the reliefs claimed in the said writ petition, it is difficult to understand how article 227 of the Constitution could at all come into the picture. This obviously was the result of the general laxity in drafting pleadings which is unfortunately becoming more prevalent as each year passes. The said writ petition was in reality a petition filed under article 226 of the Constitution. After the enactment of the Madhya Pradesh General Sales Tax (Amendment and Validation) Act, 1971 (M.P. Act No. 13 of 1971), which inter alia amen....
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....ed March 27, 1959, Part 3, Section 1, at page 50. By the M.P. Sales Tax Act all the earlier sales tax laws in force in the State of Madhya Pradesh were repealed. All fiscal enactments are fair game for the amending zeal of the legislatures and the M.P. Sales Tax Act has not been an exception to this rule. We are, however, concerned in this appeal with only a few sections of the M.P. Sales Tax Act and with only certain amendments made therein and we will confine ourselves to referring to them only. Section 4 of the M.P. Sales Tax Act provides for the incidence of taxation. Under it every dealer whose turnover exceeds the limit specified in sub- section (5) of section 4 for a particular period is liable to pay tax on his taxable turnover in respect of his sales or supplies of goods effected in Madhya Pradesh. Clause (d) of section 2 defines the term "dealer". The relevant provisions of that definition as originally enacted wire as follows: "(d) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration a....
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....r relating to goods specified in Schedule II, at the rate and at the point mentioned in the corresponding entry in columns 3 and 4 respectively, of the said Schedule." Schedule II to the M.P. Sales Tax Act is divided into several parts. Part VI is the residuary part and contains only one entry which is as follows: PART VI --------------------------------------------------------------------------------------- "1. All other goods not included 4 per cent. On the point of first sale in in Schedule I or any other the State by a dealer liable part of this Schedule. to tax." --------------------------------------------------------------------------------------- Section 11 of the M.P. Sales Tax Act confers upon the State Government the power to amend, by notification, any entry in Schedule II. By Notification No. 2741-1789-V-ST dated August 29, 1967, the rate of tax mentioned in the said residuary entry was increased from four per cent to seven per cent with effect from September 1, 1967. Schedule I mentioned in the said residuary entry contains the list of goods which are exempted from tax by section 10 of the M.P. Sales Tax Act. Under entry 42 of Sched....
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....er cent of the amount of the sales tax payable by such dealer as the Commissioner may determine having regard to the circumstances in which such use was made." Section 8 was amended several times. It is unnecessary to refer to those amendments except to mention that by the substitution of section 8(1) made by the Madhya Pradesh General Sales Tax (Amendment and Validation) Act, 1967 (M.P. Act No. 23 of 1967), the rate of tax on the sale or purchase of raw material was increased to two per cent. This amendment came into force on December 21, 1967. We are concerned in this appeal only with the amendments made by the Madhya Pradesh General Sales Tax (Amendment) Act, 1968 (M.P. Act No. 9 of 1968) (hereinafter referred to as "the 1968 Act"), which was brought into force from April 15, 1968, and the 1971 Act. By the 1968 Act sub-section (1) of section 8 was substituted as follows: "(1) Notwithstanding anything contained in section 6 or section 7 but subject to such restrictions and conditions as may be prescribed, the rate of tax payable on the sale to or purchase by a registered dealer of any raw material other than tendu leaves for the manufacture of other goods for sale in the State ....
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....s and conditions as may be prescribed, to another registered dealer, for the purpose specified in that sub-section: Provided further that where such registered dealer subsequently purchasing the raw material as aforesaid, utilises it for any purpose other than the purpose specified in sub-section (1), he shall be liable to pay the penalty specified under sub-section (2). (3) Nothing in this section shall apply to the sales of any goods made by the Forest Department of the State Government or any of the offices under that Department: Provided that where any goods other than tendu leaves purchased by any registered dealer from the Forest Department or any of the offices under that Department are used by him as a raw material for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India, the dealer shall be entitled, in such manner, as may be prescribed to a set-off of an amount equal to the difference between the tax payable at the full rate on such goods as mentioned in Schedule II and the tax payable on raw material at the rate specified in sub-section (1)." T....
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....ead with the residuary entry No. I in Part VI of Schedule II. This argument requires merely to be stated in order to be rejected. Schedule I to the M.P. Sales Tax Act sets out the list of goods which are exempted from payment of tax under section 10. Parts I to V of Schedule II to the M.P. Sales Tax Act set out the different classes of goods and the rate at which tax is payable in respect of the sales and purchases thereof. The residuary entry No. I of Part VI states that the rate of tax on sales and purchases of "all other goods not included in Schedule I or any other part of this Schedule" shall be the one specified in that entry. Therefore, sales or purchases of any class of goods not specifically mentioned in any of the entries in Schedule I or any of the entries in Parts I to V of Schedule II are exigible to tax at the rate shown in the residuary entry, unless there is any specific provision in the M.P. Sales Tax Act to the contrary as there is in section 8 which originally provided that its provisions would apply notwithstanding anything contained in the M.P. Sales Tax Act and after the amendment of section 8 by the Madhya Pradesh General Sales Tax (Amendment) Act, 1961 (M.P....
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....entral Government or a State Government selling goods not during the course of business". In this context, it is pertinent to note that for a person to be a dealer within the meaning of clause (d), he must be one who carries on the business of buying, selling, supplying or distributing goods and the definition as originally enacted included within its scope the Central Government or a State Government or any of their departments which carried on such business. This definition was retrospectively amended by the 1971 Act, and the reference to the "Central Government or a State Government or any of their departments" in sub-clause (i) of clause (d) was omitted from that sub-clause and explanation II was added which expressly provided that "the Central Government or a State Government or any of their departments or offices which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash...... or for other valuable consideration, shall be deemed to be a dealer for the purposes of this Act". Merely because a particular provision in a statute is labelled as an explanation, it does not mean that it is inserted merely with a view to exp....
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....ing function in the finished cigarette to that played by a cigarette paper. Thus, without the use of tendu leaves bidis cannot be manufactured. Until the amendment to section 8 made by the 1968 Act, for the purpose of levying tax on the sales and purchases of tendu leaves the State of Madhya Pradesh had throughout treated tendu leaves in the same manner as other raw materials. From this, however, it does not follow that there was any constitutional or legal obligation upon the State to continue doing so for all time. The structure of our Constitution is federal in character. A salient feature of such a Constitution is the distribution of legislative and administrative powers between the federated unit and the federating units, that is, between the Central or Federal Government and the State or Provincial Governments. In keeping with its federal character, our Constitution has bifurcated the field of taxation as regards sales and purchases of goods between the Union and the State. Under clause (1) of article 246 of the Constitution, Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution which is....
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....rse of inter-State trade or commerce has been put in List I and made a Union subject. Taxes on the sale or purchase of goods taking place within the State affect only those who carry on the business of buying and selling goods within the State and, therefore, this subject has been put in List II of the Seventh Schedule, namely, the State List. Sales tax is the biggest source of revenue for a State and it is for the State to decide how and in what manner it will raise this revenue and to determine which particular transactions of sale or purchase of goods taking place within that State should be taxed and at what rates, and which particular transactions of sale or purchase of goods should be exempted from tax or taxed at a lower rate having regard to the subject- matter of sale, as for instance, where particular goods constitute necessities for the poorer classes of people or where the goods in question are of such a nature as are required to be exempted from tax or taxed at a lower rate in order to encourage a local industry. Consideration of these matters must, from the nature of things, differ from State to State. Similarly, it is for each State to determine the methods it will a....
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....epelled by the court holding that cane jaggery and palm jaggery were commercially different commodities. In Jaipur Hosiery Mills (P.) Ltd. v. State of Rajasthan [1970] 26 STC 341 (SC); [1971] 1 SCR 396 a notification issued under the Rajasthan Sales Tax Act, 1954, which exempted from tax the sale of any garment the value of which did not exceed four rupees but excluded "hosiery products and hats of all kinds" from this exemption, was challenged under article 14. Repelling this challenge, this Court held (at page 343 of STC) (at pages 397-398 of SCR): "It is well-settled that although a taxing statute can be challenged on the ground of infringement of article 14 but in deciding whether the law challenged is discriminatory it has to be borne in mind that in matters of taxation the legislature possesses the large freedom in the matter of classification. Thus wide discretion can be exercised in selecting persons or objects which will be taxed and the statute is not open to attack on the mere 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 and cannot be justified on the basis of a valid classific....
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....them differently from other commercial commodities falling in the class of goods known as "raw material". The High Court has justified the different treatment given to tendu leaves as compared to that given to other raw materials by a reference to the Madhya Pradesh Tendu Patta (Vyapar Viniyaman) Adhiniyam, 1964 (M.P. Act No. 29 1964), which was passed in order to control the trade in tendu leaves. The long title of that Act is "An Act to make provision for regulating in the public interest the trade of tendu leaves by creation of State monopoly in such trade". In pursuance of the rule-making power conferred by section 19 of the said Act, the State Government made rules called the Madhya Pradesh Tendu Patta (Vyapar Viniyaman) Niyamavali, 1966. Under the said Act, the State Government is to appoint agents in respect of different units for the purpose of purchase of and trade in tendu leaves and no person other than the State Government or an officer of the State Government authorised in writing in that behalf or an agent in respect of the unit in which the tendu leaves have grown can purchase or transport tendu leaves. Further, the State Government is authorised by the said Act to....
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....ded from the concessional rate of tax in respect of other raw materials. Clause (1) of section 2 defines the term "raw material". This cannot, however, prevent the State from taxing different classes of raw materials at different rates. If this contention of the appellants was to be accepted, it would lead to the absurd result that as goods are defined in clause (g) of section 2 to mean all kinds of movable property excluding certain specific articles mentioned therein, section 6 and Schedule II to the M.P. Sales Tax Act which provide for different rates of tax on different classes of goods are also bad in law. This contention is thus wholly without any substance. Turning now to the challenge under article 286(3) to the validity of the impugned amendments, we find this challenge to be as hollow and untenable as the challenge under article 14. Clause (3) of article 286, after its amendment by the Constitution (Sixth Amendment) Act, 1956, provided as follows: "(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subj....
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....e, commerce and intercourse throughout the territory of India shall be free." Under clause (b) of article 304 of the Constitution, the Legislature of a State may by law impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest. The Bill or any amendment of an Act for the purposes of clause (b) is, however, not to be introduced or moved in the Legislature of a State without the previous sanction of the President. It may be mentioned that the M.P. Sales Tax Act had received the assent of the President on February 27, 1959, but neither the 1968 Act nor the 1971 Act was submitted to the President for his sanction and the question, therefore, of either of these Acts receiving the sanction of the President cannot arise. The only question, therefore, is whether taxing the sales and purchases of tendu leaves at a higher rate than in the neighbouring States violates article 301 by impeding the free trade and commerce in tendu leaves throughout the territory of India. An increase in the rate of tax on the sales and purchases of tendu leaves would necessarily result in an increase in the cost of m....