TMI Blog1952 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... any action instituted to contest its validity. The tax not having been paid, the Commercial Tax Officer instituted proceedings under Section 15(b) of the Act for the recovery of the amount. The section so far as it is material runs as follows: "Any person who fails to pay within the time allowed, any tax assessed on him, or any fee due from him, under this Act shall, on conviction by a Presidency Magistrate or a Magistrate of the first class, be liable to a fine which may extend to one thousand rupees, and in the case of a conviction under clause (b), the Magistrate shall specify in the order the tax, fee or other amount, which the person convicted has failed or evaded to pay or has wrongfully collected, and the tax, fee or amount so specified shall be recoverable as if it were a fine." These proceedings are now pending before the Honorary Special First Class Magistrate, Eluru, as C.C. No. 88 of 1951. The petitioners have taken out this writ for quashing these proceedings on the ground that the Act and the Rules and the assessment made thereunder are void and that the prosecution is illegal. In Writ Petition No. 41 of 1952, the facts are similar. The petitioner is a licensed tan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to pay any tax, fee or other amount so assessed or levied shall not be questioned in any Criminal Court in any prosecution or other proceeding, whether under this Act or otherwise." The contention is that the section prevents the petitioners from showing that they are not liable to be taxed under the Act and is, there- fore, opposed to rules of natural justice. There would have been substance in this objection, if the petitioners had been denied an opportunity of contesting the claim before an order of assessment was made. But where, as here, the tax is determined after notice to the assessees, it is not repugnant to rules of natural justice to provide that the validity of assessment shall not be questioned at the stage of realisation of the tax. The provision is analogous to the rule which precludes judgment-debtors from putting forward at the stage of execution of a decree defences that were open to them, in the suit itself. The law on the subject is thus summed up by Rottschaefer in his work on Constitutional Law at page 686: "The general rule is that due process requires that the taxpayer be accorded an opportunity to be heard at some stage in the proceedings before his li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, as it singles out for taxation purchasers in some trades and is, therefore, discriminatory. (4) The Rules framed under the Act are inconsistent with the pro- visions enacted in the body of the Act and are void. Before dealing with these contentions, it will be convenient to set out the relevant provisions of the Act. The preamble to the Act declares that the object of the enactment is "to provide for the levy of a general tax on the sale of goods in the Province of Madras". Section2(b) defines a "dealer" as a person who carries on the business of buying or selling goods. "Sale" is defined in Section 2(h) as meaning every transfer of the property in goods by one person to another in the course of trade or business. Section 2(i) defines "turnover" as the aggregate amount for which goods are either bought or sold by a dealer. Section 3 which is the charging section runs as follows: Section 3(1) "Subject to the provisions of this Act, (a) every dealer shall pay for each year a tax on his total turnover for such year; and (b) the tax shall be calculated at the rate of three pies for every rupee in such turnover." (1) 102 U.S. 586; 26 L.Ed. 253. Sub-clauses (4) and (5) run as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative competence of the Provincial Legislature. The words "sale of goods" import in their ordinary sense a transac- tion which results in change of ownership from one person to another. That must, by its very nature, be a bilateral transaction, with a seller on the one hand and a purchaser on the other. It is only when there is a contract to which both are parties that there can be a sale. A power to tax sale of goods is, therefore, in reality a power to tax the transaction and the power to tax the transaction carries with it the power to tax either party thereto. In Madras Province v. Boddu Paidanna Sons(1) in discussing the scope of Entry 48 Gwyer, C.J., observed as follows: "The tax on the sale of goods which the Act assigns exclusively to the Provincial Legislature is a tax levied on the occasion of the sale of goods". This construction accords with the views generally held by text- writers on the subject who treat taxes imposed on purchasers as sales tax and express the view that though the tax might in the first instance be levied on the seller or purchaser, that might not be its ultimate incidence. Thus, Dalton observes: "A tax on sales or on turnover is only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is immaterial whether it is collected in the first instance from the sellers or the purchasers, for, eventually it would be passed on to the consumers, and that in either case it would be a tax on sales. It is in this sense that the words "tax on sales" would appear to have been used in Entry No. 48. It is to be particularly remembered that it is a Constitution Act that has to be interpreted and "in interpreting a constituent or organic statute, that construction most beneficial to the widest amplitude of its powers must be adopted": Vide British Coal Corporation v. The King (1) and "that a Constitution must not be construed in any narrow and pedantic sense": Vide James v. Commonwealth of Australia(2). It would be in accordance with these principles to hold that Entry No. 48 in the Provincial List is of sufficient amplitude to authorise the levy of a tax on purchasers and that the Madras Act IX of 1939 is intra vires of the powers of the Madras Legislature. (2) It is next contended that even if the Legislature had under Entry 48 the power to tax either the seller or the purchaser, the deci- sion to tax either the one or the other is a legislative act and that must be taken only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nned outside the Province. (4) Sales by licensed dealers in hides or skins which have been tanned outside the Province shall be exempt from taxation except at the stage of sale by the dealer who is the first dealer not exempt from taxation under Section 3(3) who sells them within the Province. The tax shall be levied from such dealer on the amount for which he sells such hides or skins. (5) Sale of hides or skins by dealers other than licensed dealers in hides or skins shall, subject to the provisions of Section 3, be liable to taxation on each occasion of sale." It is argued on behalf of the petitioners that under Article 265 "No tax shall be levied or collected except by authority of law", that it was the Legislature alone that was competent to impose a tax and the delegation of this function to the Administration was unconstitu- tional. Reliance was placed upon the decision of the Court of Appeal in Attorney-General v. Wilts United Dairies, Limited(1). In that case the facts were that a Food Controller, acting under the Defence of Realm Acts and Regulations imposed a tax of two pence per gallon of milk as a condition for the issue of a licence to purchase milk in a certain area. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature was legal, the Privy Council observed as follows: "It is argued that the tax in question has been imposed by the Governor and not by the Legislature who alone had power to impose it. But the duties levied under the Order-in-Council are really levied by the authority of the Act under which the Order is issued. The Legis- lature has not parted with its perfect control over the Governor, and has the power, of course, at any moment, of withdrawing or altering the power which they have entrusted to him. In these circumstances, their Lordships are of opinion that the judgment of the Supreme Court was wrong in declaring Section 133 of the Customs Regulation Act of 1879 to be beyond the power of the Legislature." We may now turn to the American authorities cited by the petitioners. In Panama Refining Co. v. Ryan(1), a Congressional legis- lation conferred on the President power to prohibit the trans- portation of "hot oil" in inter-State and foreign commerce. The Act contained no definition of the circumstances or conditions under which this power could be exercised. In striking down the legislation as unconstitutional delegation, Hughes, C.J., observed as follows: "The Congress man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt complicated problems. It was observed by Marshal, C.J., in Wayman v. Southard(1) that: "the line has not been exactly drawn which separates those im- portant subjects which must be entirely regulated by the Legislature itself from those of less interest in which a general provision may be made and power given to those who are to act under such general provisions to fill up the details." And the course of decisions has been to limit the region of the legislative policies within the narrowest bounds and enlarge the area which can be left to be administered by other bodies. Willis in his work on Constitutional Law at pp. 136-137 remarks: "It is a dogma (in harmony with our definition) that legislative power cannot be delegated either to other branches of the Government or to independent boards or commissions or even back to the people; but the rule of the dogma has so many exceptions that it is difficult to decide whether the dogma or the exceptions state the true rule". One of those exceptions is legislation entrusting to outside bodies the power to fix rates. Authority in America is uniform that such legislation is not invalid as constituting delegation of legislative power. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to legislate within that sphere in any way which appears to it to be the best way to give effect to its intention and policy in making a particular law, and that it may utilize any outside agency to any extent it finds necessary for doing things which it is unable to do itself or finds it inconvenient to do. In other words, it can do everything which is ancillary to and necessary for the full and effective exercise of its power of legislation. (1) 128 U.S. 174; 32 L.Ed. 371. (2) 291 U.S. 457; 78 L.Ed. 909. (3) 276 U.S. 394; 72 L.Ed. 624. (4) (1878) I.L.R. 4 Cal. 172 (P.C.). (5) [1945] F.C.R. 161; [1945] F.L.J. 1. (6) [1949] F.C.R. 595; [1949] F.L.J. 225. (7) [1951] F.C.R. 747; [1951] S.C.J. 527. (3) It cannot abdicate its legislative functions, and therefore while entrusting power to an outside agency, it must see that such agency acts as a subordinate authority and does not become a parallel Legislature. (4) .....Therefore, there are only two main checks in this country on the power of the Legislature to delegate, these being its good sense and the principle that it should not cross the line beyond which delegation amounts to 'abdication and self-effacement.' " Patanjali Sastri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in favour of the rule-making authority. In fact under Section 3(4) the Rules were required to be placed before the Legislative Assembly and they are to come into force only after they were approved by a resolution of the Assembly. In accordance with this provision the Rules were first published on 18th July, 1939, for eliciting public opinion. On 3rd August, 1939, they were laid before the Assembly and the proceedings of the House show that there was considerable debate over the provi- sions. After they were approved the Rules were again published on 12th September, 1939, and actually came into force on 1st October, 1939. Mr. K.V. Venkatasubramania Ayyar argued that the resolutions of Legislative Assemblies have not the force of laws and that, therefore, the Rules must be judged on their own merits. That undoubtedly is so: Vide Dicey on Law of the Constitution, 9th Edition, page 55, and the authorities cited there. But the question now is not whether the Rules have independent force as a piece of legislation, but whether the Legislature has, in leaving the matter to be determined by the rule- making authority, abdicated its functions. The fact that the Rules are to come up for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass legislation without the concurrence and approval of Parliament". In the present case, what the Legislature has done is merely to authorise the rule-making authorities to carry out the policies enunciat- ed in the statute and to fill up the details. The Rules themselves are to come into operation only after they are approved by a resolution of the House. Far from effecting self-effacement, the Legislature has retained complete control over the legislation and in fact it has exerted that control by introducing amendments of the Act from time to time. It must, therefore, be held that the Madras Act IX of 1939 and the Rules are not open to challenge on the ground of unconstitutional delegation. (3) It is next contended on behalf of the petitioners that the provi- sions of the Madras General Sales Tax Act and the Rules framed there- under are discriminatory, in that they impose sales tax in some cases on the purchaser, while laying it on the sellers in other cases, that there is no rational basis for this differentiation and that it is repugn- ant to Article 14 of the Constitution and, therefore, void. This Article is substantially based on Section (i) of the 14th Amendment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication to other persons": Per Fazl Ali, J., in State of Bombay v. Balsara(7). (2) The requirements as to equal protection of laws do not forbid legislative classifications, provided such classifications rest on some difference germane to the purpose of the statute. "It must appear not only that a classification has been made but also that it is one based upon reasonable ground, some difference which bears a just and proper relation to the attempted classification and is not a mere arbitrary selection": Gulf C. S.F.R. Co. v. Ellis(8). (1) [1951] S.C.R. 682; [1951] S.C.J. 478. (2) [1952] S.C.R. 284; [1952] S.C.J. 55. (3) [1952] S.C.R. 435. (4) 268 U.S. 137; 69 L.Ed. 884 (at p. 888). (5) 278 U.S. 515; 73 L.Ed. 483 (at p. 488). (6) [1951] S.C.J. 29 (at p. 53). (7) [1951] S.C.J. 478 (at p. 492). (8) 165 U.S. 150; 41 L.Ed. 666 (at p. 672). "It is unnecessary to say that the equal protection of the laws required by the 14th Amendment does not prevent the States from resorting to classification for the purpose of legislation. Numerous and familiar decisions of this Court establish that they have a wide range of discretion in that regard. But the classification must be reasonable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son(1). "The power to make distinctions exists with full vigour in the field of taxation where 'no iron rule' of equality has ever been enforced by the statutes": New York Rapid Transit Corporation v. City of New York(2). (5) Taxing statutes must also satisfy the test of equal protection and are liable to be struck down, if they do not: Vide Southern Railway v. Greene(3). "Every taxing law must pass the constitutional test applied by the Courts to the method of imposition": Stewart Dry Goods Co. v. Lewis(4). (6) There is a strong presumption in favour of the validity of legislative classification and it is for those who challenge it as arbitrary and unconstitutional to establish it beyond all doubt. "It must be presumed that a Legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based upon adequate grounds": Middleton v. Texas Power and L. Com- pany(5). "By reason of the presumption of validity which attends legislative and official action one who alleges unreasonable discrimination must carry the burden of showing it": Concordia Fire Insurance Company v. Ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign Corporations writing casualty insurance contracts in Indiana is so similar to that of domestic Corporations as to preclude any rational distinction between them as regards the time required for negotiating settlement of claims ..........Where the record is silent, we cannot presume to declare that there is such similarity, or to say that a State is prohibited from making any distinction in the length of time within which suit must be brought". In Charanjit Lal Chowdhury v. The Union of India(2) Fazl Ali, J., observed: "Now, the petitioner has made no attempt to discharge the burden of proof to which I have referred, and we are merely asked to presume that there must necessarily be other companies also which would be open to the charge of mismanagement and negligence." and Mukherjea, J., stated: "Throwing out of vague hints that there may be other instances of a similar nature is not enough for this purpose. We have not even before us any statement on oath by the petitioner that what has been alleged against this company may be said against other companies as well." The petitioners before us have not shown that the conditions in other trades are similar to those in the hides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no relation to the nature of the trade. The learned Advocate for the petitioners has been unable to suggest any reason why the Legislature should have capriciously taxed the pur- chasers in some cases and the sellers in others. Even though the grounds of distinction are not manifest on the face of the statute, this is a fit case for invoking the presumption which the law raises in favour of legislative classification. It was next urged that the presumption in favour of the validity of classification would arise only when it is made by the Legislature and that such a presumption would not extend to a classification made by rule-making authorities and reliance was placed for this proposition on certain observations occurring in Stebbins v. Riley(1) and Metropolitan Casualty Insurance Co. v. Brownell(2). In Stebbins v. Riley(1), it was ob- served, that the basis of classification was "not open to objection unless it precludes the assumption that the classification was made in the exercise of legislative judgment and discretion;" and this passage was adopted in Swiss Oil Corporation v. Shanks(3). In Metropolitan Casualty Insurance Company v. Brownell(2), it was observed: "That C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the legislation or the persons whom it affects." In Concordia Fire Insurance Company v. Illinois(1), the presumption of validity of classification was stated to be applicable not merely to legislative but also official action. In the present case, there is the additional circumstance already referred to that under Section 3(4) the Rules had to be, and were in fact, approved by a resolution of the Legislative Assembly and the classification can, therefore, be properly described as made with the knowledge and experience of the legislators. And above all, there is the fact that the Madras General Sales Tax Act is a measure of taxation and in respect of taxing statutes, the Legis- lature enjoys wide powers of classification. It has the power to determine which class of persons or properties shall be taxed and such determination is not open to question on the ground that the tax is not levied on all persons or on all properties. "A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably." (Willis on Constitutional Law, page 587). If it is competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e West Bengal Special Courts Act; it empowered the Government to establish Special Courts and to direct offences to be tried by that Court according to a special procedure prescribed by the Act. But there was one funda- mental difference between the West Bengal Special Courts Act and the Sowrashtra State Public Safety Ordinance. Under the latter, the Government had the power to direct only classes of offences or classes of cases to be tried by the Special Court, whereas in the former the power could be exercised with reference to individual cases. The Court held by a majority that the Sowrashtra State Public Safety Ordinance was valid because the power to transfer cases to the Special Court could be exercised only with reference to classes of cases and that therefore there was classification such as would take the statute out of the opera- tion of Article 14. Applying these principles to the provisions of the Madras General Sales Tax Act and the Rules, we are unable to agree with the petitioners that they offend Article 14 of the Constitution. (4) It is finally contended that the Rules framed under the Act do not properly carry out the policy laid down therein and they are even inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensed tanner, then under Rule 4(2)(c), the purchaser has to pay the tax. But where the sale is to an unlicensed tanner Rule 4(1) will apply and the tax will fall on the seller. Rule 16(5) provides that sale by dealers other than licensed dealers will be "liable to taxation on each occasion of sale." Under this sub-clause when there are successive sales by unlicensed dealers the tax will be leviable on such occasion of sale and that will be inconsistent with Section 5(vi) which provides for taxation at a single point. Likewise when untanned hides and skins are exported, the last purchaser will be liable under Rule 16(2)(ii) whether he is a licensed dealer or unlicensed dealer, if he purchases from a licensed dealer. But if he purchases from an unlicensed dealer, but is himself a licensed dealer, he will be liable to pay the tax under Rule 4(2)(d). If there is a sale by an unlicensed dealer to an unlicensed dealer who exports the goods on whom does the tax fall? Under Rule 4(1) it is to be borne by the seller. Such a case will fall within the mischief of Rule 16(5), if there are successive sales. Now the contention of the petitioners is that where there are sales by unlicensed deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is wrong on principle that a tax should be levied before it is finally determined; that under Section 3(2) of the Act the assessment should be only on the annual turnover and that, therefore, Rule 15(2) which provides for advance payments of tax every month before the liability to pay arises, which is only when the goods are actually tanned or exported is unconstitutional and that the posi- tion is not altered by Rule 15(5) which provides for deduction of the amounts which turn out in the events not to have been payable in the returns for subsequent months. But advance payment of tax is a well- recognised feature in the mode of realising tax and the provision in Rule 15(2) is in accordance with the practice generally obtaining in this branch of the law. In discussing the validity of a somewhat similar provision in a taxing statute of Southern Iowa, the Court observed: "It is of course true that as the report is required on the twentieth of the calendar month for transactions of the proceeding month, there may at times be gasoline received in the month covered by the report which has not been exported by the twentieth of the succeeding month; but the distributor is entitled to a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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