TMI Blog2006 (9) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular. Therefore, set aside the assessments/appellate orders under challenge and direct the assessing officer to consider the case of the appellants with out treating them to be manufacturers for the purpose of levy of tax, solely on the basis of the circular. - Civil Appeal No. 3019 of 2004, 202 of 2005, 3020, 3021 of 2004, 4232, 4233 of 2006, - - - Dated:- 22-9-2006 - ARIJIT PASAYAT AND KAPADIA S.H. JJ. Dr. R.G. Padia, Senior Advocate (S.W.A. Qadri, Rajeev Deubey and Kumlendra Misra, Advocates, with him) for the respondents. Dhruv Agarwal, Praveen Kumar and Prashant Kumar, Advocate for the appellants. -------------------------------------------------- M. KATJU J. By means of this writ petition the petitioner has challenged the constitutional validity of clause (ii) of section 2(ee) of the U.P. Trade Tax Act, 1948. The petitioner has also challenged the validity of the circular dated December 13, 2000 issued by the Commissioner, Trade Tax, U.P., annexure I to the writ petition and the order dated November 30, 2002, annexure 7 to the writ petition. The petitioner has also prayed for a writ of mandamus/prohibition restraining the respondents from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir own land was not taxable because agriculturists are excluded from the definition of the word "dealer " under the proviso to section 2(c) of the Act. The aforesaid proviso to section 2(c) states: "Provided that a person who sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant, or otherwise, or who sells poultry or dairy products from fowls or animals kept by him shall not, in respect of such goods, be treated as a dealer." A representation was made to the State Government on behalf of the Shahjahanpur Timber Dealers Association. On that representation an order dated June 20, 2001 was passed by the Principal Secretary, U.P. Government, true copy of which is annexure 2 to the writ petition. In this order it is stated that dealers who got the timber of agriculturists sold had been earlier exempted from tax, and a decision has yet to be taken on their representations, hence the realisation of tax was stayed till March 31, 2001. This direction for not realising the tax was extended by the direction dated August 27, 2001, annexure 3 to the writ petition and the directions da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the word "manufacturer" who in fact do not manufacture goods as defined in section 2(e-1). It is alleged that clause (ii) of section 2(ee) does not have any nexus with the provisions contained in section 3 of the Act, and it is repugnant to the Scheme of the Act. It is alleged that small traders who are otherwise not manufacturers and are exempted under section 3(2) on a turnover up to Rs. 1,49,000 have been brought within the purview of section 3(2) if their turnover is Rs. 1,01,000 and such dealers are covered by the definition of the word "manufacturer". It is alleged that this is discriminatory. It is alleged in paragraph 25 of the writ petition that two unequal classes, namely, producers and traders have been brought under the same heading of the term "manufacturer", for which there is no reasonable basis. It is alleged that producers and traders were always considered as separate classes. It is alleged in paragraph 35 of the writ petition that the petitioner cannot be treated as manufacturer or importer. The petitioner only purchases goods from the agriculturist on commission and sells the same after charging commission to the extent of 1 to 3 per cent to registered d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods within the State of U.P. they were not liable to tax earlier. By the impugned amendment they have also been made liable to tax. It is alleged that the impugned amendment was made to avoid evasion of tax by such dealers whose turnover is much more than the taxable limit but who allegedly purchased the goods from certain small dealers or manufacturers whose turnover is below the taxable limit and thereby payment of tax was avoided. Hence the object of the impugned amendment was that a commodity liable to tax under the Act must suffer tax once on its sale. The Legislature has enacted this provision with a view to check avoidance of trade tax by such dealers who allegedly disclosed their purchase, from such person who were either not dealer or not liable to tax. Thus the impugned amendment was made to check avoidance and evasion of trade tax. In paragraph 5 of the counter-affidavit it is alleged that the petitioner carries on his business work of timber in his own account and not as a commission agent. In paragraph 12 of the counter-affidavit it is stated that by notification dated November 23, 1998 the dealers of timber have been notified to be manufacturers. In view of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of a particular class of such dealers." By notification dated September 30, 1983 wood and timber of all kinds were liable to tax on sale by forest department, U.P. Forest Corporation or by private owner of forest or by importer. Thus a manufacturer was not included in this notification. However, subsequently, by notification dated November 23, 1998 of the State Government wood and timber of all kinds were liable to be taxed on sale by the forest department, corporation, or by private owner of forest or by importer or manufacturer. Thus by this notification dated November 23, 1998 trade tax is payable on the sale of timber by a manufacturer also. The word "manufacturer" has been defined under section 2(ee) of the Act. The word "manufacturer" as defined under section 2(ee) of the Act creates a legal fiction and such legal fiction is well-known in law. For instance, section 43(3) of the Income-tax Act defines "plant" to include books. Ordinarily the plant means a factory, but by a legal fiction even books are treated as plant under the Income-tax Act for the purpose of depreciation. In our opinion the State Legislature has power under entry 54, List II of the Seventh Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh AIR 1964 SC 370. Similarly, where the State Legislature selects two articles, which are the main products of the State, for taxation, it is valid vide Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925. A tax imposed only on tea and jute is valid vide Atibari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. Imposition of tax on cane jaggery and exempting palm jaggery is not discriminatory vide T.G. Venkataraman v. State of Madras [1970] 25 STC 196 (SC); AIR 1970 SC 508. A tax law is not discriminatory merely because different rates are prescribed for different items vide Malwa Bus Service Pvt. Ltd. v. State of Punjab [1983] 3 SCC 237. Where a law provided that if the assessee sold to a person other than the Government at any time within 10 years in which the motor vehicles was acquired he would forfeit the rebate, but if he sold it to the Government he would not, it was held that there is no violation of article 14. The assessee has a choice of selling it to the Government or to another person. The discrimination, if any, arises out of the choice of the persons vide Chittoor Motor Transport Co. (P.) Ltd. v. ITO [1966] 59 ITR 238 (SC); AIR 1966 SC 570. The classific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utional validity of section 2(ee)(ii) of the U.P. Trade Tax Act in Sikander Baksh Company v. State of U.P. (Civil Misc. Writ Petition No. 321 of 2001 decided on March 1, 2001) and Bharat Enterprises v. State of U.P. (Civil Misc. Writ Petition No. 183 of 2001 decided on March 19, 2001). However, we see that those judgments were somewhat cryptic and hence we have given this detailed judgment taking the same view but giving reasons in detail. In Rapti Commission Agency v. State of Uttar Pradesh [2004] 134 STC 436 (All); [2003] UPTC 780, we have considered the scope of judicial review of a statute at great length and have observed that the courts must exercise judicial restraint in such matters. In that decision we observed: "The court should always hesitate to declare a statute unconstitutional, unless it finds it clearly so, because invalidating a statute is a grave step. Of the three organs of the State, only the judiciary has the power to declare the Constitutional limits of all three. This great power should therefore be exercised by the judiciary with the utmost humility and self-restraint. . . . . In Lochner v. New York [1905] 198 US 45, Mr. Justice Holmes, the celebra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the Government must be left free to engage in social experiments. Progress in the social sciences, even as in the physical Sciences, depends on 'a process of trial and error' and courts must not interfere with necessary experiments'. In the same decision Justice Brandeis also observed: 'To stay experimentation in things social and economic is a grave responsibility. Denial of the right to experiment may be fraught with serious consequences to the Nation.' (See also 'The Legacy of Holmes and Brandeis' by Samual Kanefsky). As Mr. Justice Holmes of the U.S. Supreme Court observed in this dissenting judgment in Tyson v. Banton 273 U.S. 418 (at p.447): 'I am far from saying that I think this particular law a wise and rational provision. That is not my affair. But if the people of the State of New York speaking by their authorised voice say they want it, I see nothing in the Constitution of the United States to prevent their having their will'." For the reasons given above there is no force in this petition. The petition is dismissed. Civil Appeal No. 3019 of 2004 with Civil Appeal Nos. 202 of 2005, 3020 and 3021 of 2004 and 4232 and 4233 of 2006. Civil appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be legal. In support of the appeals, learned counsel for the appellants submitted that the High Court proceeded on entirely erroneous premises. There could be no question of any levy of tax unless the seller is a manufacturer-dealer. The High Court proceeded on the basis as if their case is covered under section 2(ee)(ii) of the Act. That provision applies to transactions between two registered dealers. No liability could have been created by a circular of the Commissioner. The definition of "manufacturer" in terms of section 2(ee) does not encompass the case of the appellants. In response, learned counsel for the State of Uttar Pradesh submitted that a combined reading of section 2(ee) and section 3-AAAA makes the position clear that the validity of the circular has been rightly upheld by the High Court. In order to appreciate the rival submissions, the provisions of the Act and the circular issued by the Commissioner need to be noted. Section 2(e-1) defines "manufacture" and section 2(ee) defines "manufacturer " while section 3-AAAA deals with transaction regarding certain services. They read as follows: "2(e-1) 'manufacture' means producing, making, mining, collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, shall be deemed to be in same form and condition." The Commissioner's circular dated December 13, 2000, which was impugned before the High Court reads as follows: " . . . with regard to the above the tax payability has been prescribed at the manufacturers' and importers' points. After promulgation of section 2(ee) of the Trade Tax Act such traders' purchases or sales from unregistered traders, fall within the category of manufacturers. Thus all the produce purchased from the farmers, timbers, ballis, bamboos, which are being grown, cut or sawing, but their produce does not include burning woods have been purchased and sold to other traders fall within the category of manufacturer under section 2(ee) of "Uttar Pradesh Trade Tax Act". Keeping in view this provision after December 1, 1998, the payability of tax is made out on the registered dealer who purchases the above produce from the unregistered traders." The High Court appears to have completely lost sight of challenge before it and went on to decide issues which are really not relevant. It took note of paragraph 3(c)(iii) of the counter-affidavit filed by the respondent before the High Court which reads as follows: " ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
