TMI Blog1957 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... 228 to 232 and 329 are dealers in cotton, while cotton yarn is the commodity in which the petitioners in W.P. Nos. 455, 590 to 596 of 1956 deal. W.P. Nos. 244 and 245 of 1956 are concerned with the licensing of dealers in tobacco, while W.P. No. 385 of 1956 is by a trader in bullion and it relates to the licensing and licensing fees prescribed in regard to dealings in that class of goods. The petitioner in W.P. No. 158 of 1956 is a commission agent in hides and skins. We shall first set out the problems which arise in relation to dealers engaged in each of the trades we have mentioned above and then proceed to discuss the points which are common to all the petitions. Section 3 of the Madras General Sales Tax Act, 1939 (which it would be convenient to refer to as the Act) made provision for the levy of a tax on every dealer on his total turnover for the year. This was a multiple point tax, that is, it was payable by every successive dealer in these goods. Section 5 of the Act however provided for certain exemptions and for the reduction of this multi-point tax in the case of certain commodities and sold by particular dealers. As this is the section under which the licensing, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exempting the licensed agent from the payment of sales tax under section 3. While on this point, we might also refer to section 6-A under which the penalty incurred by a dealer, who was under an obligation under the rules to take out a licence and pay the prescribed fee therefor, failed to do so was set out. Section 6-A ran: "6-A. If any restrictions or conditions prescribed under section 5 or notified under section 6 are contravened or are not observed by a dealer, or in case a condition so prescribed or notified requires that a licence shall be taken out or renewed, if a licence is not taken out or renewed by the dealer or if any of the conditions of a licence taken out or renewed by him are contravened or are not observed, the sales of the dealer, with effect from the commencement of the year in which such contravention or non-observance took place, may be assessed to tax or taxes under section 3, as if the provisions of section 5 or of the notifi- cation under section 6, as the case may be, did not apply to such sales and notwithstanding that a licence, if any, taken out or renewed by the dealer continued or continues to be in force during the year." Section 19 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over of the dealer's business. The sub-rule further specified that the dealer should pay in advance along with his application for a licence the fee calculated on the basis of his estimated turnover. This was to be treated as provisional and subject to adjustment at the end of the year when the actual turnover was ascertained. Where after this final ascertainment it was found that the licensing fee paid by the dealer was not sufficient to cover that due on his actual turnover, the rules required that this amount should be paid on demand by the licensing authority. Specific provision was also made that the benefit of section 5 or section 8 could be claimed only after the payment of the licence fee, if any, demanded. Rule 32 imposed a penalty for breach of the rules- this being a prosecution and conviction by a Magistrate who was empowered to impose a fine upon the offender which might extend to Rs. 1,000. It would have been seen that the commodities dealt in by the dealers who are the petitioners in these petitions, other than W.P. No. 158 of 1956, are subjected to taxation at single point under section 5, and that the section itself did not in every case specify the single point b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sold to a tanner in the State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer not exempt from taxation under section 3(3) who buys them in the State on the amount for which they were bought by him. (3) Sales by licensed dealers of hides or skins which have been tanned within the State shall be exempt from taxation provided that the hides or skins have been tanned in a tannery which has paid the tax leviable under the Act. If such hides or skins have been tanned in a tannery which is exempt from taxation under section 3(3), the sale of such hides or skins shall be liable to taxation as under the next sub- rule below dealing with hides or skins tanned outside the State. (4) Sales by licensed dealers in hides or skins which have been tanned outside the State, 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 State. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which however this Court held in Syed Mohamed v. State of Madras[1952] 3 S.T.C. 367. to be beyond the rule-making power conferred on the State Govern- ment by section 19 of the Act, a decision which was affirmed by the Supreme Court on appeal in Syed Mohamed v. State of Andhra and Others[1954] 5 S.T.C. 108. The question of the liability of unlicensed dealers in hides and skins came up for consideration before us in Noor Mohamed v. State of Madras[1956] 7 S.T.C. 792., and we held that, as the rules did not prescribe any single point as required by section 5 in the case of dealers who did not take out a licence, they were not liable to tax at all, because the tax on hides and skins was under section 5(vi) at a single point to be prescribed and there was no such prescription to make them liable. The result of this decision was that while licensed dealers were subjected to tax, unlicensed dealers escaped payment of any tax altogether on their dealings. It was to remedy this anomalous state of affairs that amendments were introduced into rule 5, rendering the taking out of a licence not optional as it was before but making it compulsory. After the amendment rule 5(1) ran: "Every perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 in regard to dealers with a turnover of over Rs. 20,000, Rs. 10 however still being continued to be paid by those whose turnover was less than Rs. 20,000. From 1st April, 1944, these rates were revised and increased, so that after the revision it was Rs. 25 if the turnover was Rs. 10,000 and above but below Rs. 20,000, Rs. 50 if the turnover was between Rs. 20,000 and Rs. one lakh; and for every additional turn- over of rupees one lakh or fraction thereof, Rs. 100. In addition to these changes in the rates, we have already set out, rule 6(4)(a) of the Madras General Sales Tax Rules, under which the fees for the grant of or renewal of a licence were subject to a maximum of Rs. 1,000. This maximum was however increased to Rs. 2,000 by an amendment effected by G.O. No. 2044 Rev. dated 30th June, 1955. One of the points raised by learned counsel for the petitioners in the several petitions was that there was no justification for the increase in the maximum rate of licence fees from Rs. 1,000 to Rs. 2,000 effected by the G.O. now referred to. The learned Advocate-General appearing on behalf of the State did not seek to support the validity of this increase in the maximum fees leviable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of trades with which these petitions are concerned, the licensing was not founded on any need to regulate the trade in them on grounds of morality, public health, sanitation or public safety. Any restriction imposed on the right to carry on such trade was un- reasonable and was obnoxious to the freedom guaranteed by Article 19(1)(g) as the same was not covered by Article 19(6) and was there- fore unconstitutional. The further contention of the learned counsel was that the licence fee imposed upon a dealer by the impugned rules was not a fee but a tax. It did not satisfy the qualitative or quantitative tests laid down for the imposition to be valid as a "fee". The Supreme Court laid down the characteristics of a valid licence fee in the Shirur Math and other connected cases[1954] S.C.J. 335. and this Court summarised and restated them in the Udipi Mutt case(1956) 1 M.L.J. 532 at 546; 69 L.W. 337.(Sudhindra Thirtha v. Commissioner of Hindu Religious and Charitable Endowments, Madras). The passage relied on in the last case ran: ".................the following tests will have to be satisfied before the contribution levied under section 76(1) (of the Madras Hindu Religious etc. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only if this first or the qualitative test were satisfied that the quantitative test, viz., the reasonableness of the amount of the fee levied would arise for consideration. This required that the quantum of the fee should bear a reasonable relation to the service performed by the State to the licensee, the fee being the quid pro quo for the service rendered. In order however to evaluate the service rendered to the licensee the exact nature of the service performed had to be ascertained, and in the present case where the licensing was merely incidental to or an adjunct of the levy of the sales tax and was designed to facilitate the levy and collection of a tax imposition, no service was rendered to the licensee and therefore no quid pro quo would be received by the licensee for the fee exacted from him. It was in this way that the quantitative test was said to shade into the qualitative. On these grounds it was contended that conditions 2, 3 and 4 extracted from our judgment in Sudhindra Thirtha's case(1956) 1 M.L.J. 532; 69 L.W. 337. were not satisfied by the impugned fee and that the licensing contravened condition 5. (3) Dealing next with the quantitative test pure and simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made compulsory for every dealer and a prerequisite for the carrying on of the business. For the quantum of the fee to be reasonable it was no doubt necessary that it should not be of an amount which was excessive to achieve the purpose which the restriction had in view. A restriction might cease to be reasonable either because it was unrelated to the objects sought to be achieved by the restriction or because the burden that it imposed might be out of proportion to the results to be attained. It is this latter condition that is violated when the quantum of the fee imposed for the service rendered is disproportionately large to the service rendered to the licensee. In the present case, however, apart from the increase of the rates in June, 1955, which the State was not seeking to sustain, fees at that previous scale had been in operation for over 7 years between 1948 and 1955 without any complaint that they were excessive. That in itself was an indication that the fees placed no undue burden upon the trade. It was reasonable because it was designed in the interest of the trader and in order that he might enjoy the benefit of the concession as to taxation at a single point; and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rader. The turnover of these dealers, quod the items subjected to single point taxation, had to be separately dealt with from the general mass of licensees in regard to whom the provision of section 3 was attracted and multi-point tax levied. Dealing with the objections to the validity of the levy based on the amount of the fee, the learned Advocate-General urged that the fee collected from these licensees was not out of proportion to the expenditure involved on the staff employed for the purpose. He also disputed the correctness of the contention, that it was unreasonable to relate the quantum of the fee to the turnover. It will be convenient to summarise his submissions on this part of the case by extracting certain passages from the counter affidavit filed on behalf of the State. "When the turnover increases, the work of the officers of the Commercial Taxes Department also increases. The higher the turnover the larger the number of transactions involved. Each transaction has to be verified whether it is eligible or not for the concession under the licence. Making the licensing system compulsory increases the work of the officers as the number of licensees that will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns tanned outside the State are taxable on the first sale. So also hides and skins tanned in tanneries which have not paid tax on purchases on the ground that the minimum turnover is below the limit laid down in section 3(3) are taxable on first sale. Thus the assessing of such dealers to tax and the granting of exemption is dependent on the issue whether the suppliers are the buyers or licensees. Besides the assess- ing officer has to verify whether the purchases were from non-residents and sales were local or export sales, and where exactly the purchase or sale took place.................It is therefore submitted that the work involved in dealing with the case of a normal licensee is much more than that in the case of a normal assessee....................According to the administration report for 1954-55, the total expenditure for administering the Acts under control of the Commercial Taxes Department was Rs. 43.74 lakhs and the licence fee realised under the Madras General Sales Tax Act was Rs. 24.49 lakhs. The increase of the maximum to Rs. 2,000 made on 22nd June 1955, is expected to raise this amount by Rs. 3 lakhs". The counter-affidavit also sought justification for the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and licensing could not be held to be unreasonable restriction. The learned Advocate-General further submitted that the restrictions permitted to be imposed by sub-clauses (2) to (6) of Article 19 must be read as a whole, each throwing light on the scope of the other and that the common thread running through these several pro- visions was the ground of public policy understood in a comprehensive sense. Contrariety to public policy as a ground for the avoidance of transaction or for the non-enforcement of contract has been the accepted principle on which Courts have acted from the earliest times. The public policy thus enforced might be founded on the principles of the common law, vide for instance Egerton v. Earl Brownlow (1853) 4 H.L.C. 1-256. , where the House of Lords said: "No subject can lawfully do that which has a tendency to be injurious to the public, or against the public good." Another instance was afforded by the leading case of Nordenfelt v. Nordenfelt(1) where the House of Lords had to deal with the scope of the common law prohibition against improper restraint of trade. This principle of public policy was not confined to that which the common law recognised or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 23 of the Contract Act and similar provisions in the Transfer of Property Act rest. A statute might therefore itself be the foundation for the creation and emergence of a public interest to preserve its principles and to secure that it is not evaded. To the extent that that law or other law enables this purpose to be achieved, its enforcement must be held to be in the public interest. Take for instance the Industrial Disputes Act, 1947, which has been authoritatively held to be within Article 19(6). It is an enactment conceived in public interest aiming at the promotion of industrial peace. There cannot be any doubt that the Industrial Disputes Act as well as the Tribunals erected under it greatly hamper and impose restrictions on the carrying on of a trade. The restrictions so imposed are certainly not due to the fact that the trade or industry carried on required regulation because those trades or industries were noxious or dangerous to the public. It is therefore not correct to assume or postulate that a restriction or regulation imposed must flow from the inherent nature of the trade intrinsic to the commodities dealt with or the articles manufactured, and could not be fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation; in other words, whether total prohibition of carrying on the business of manufacture of bidis in the agricultural season amounts to a reasonable restriction on the fundamental rights mentioned in Article 19(1)(g) of the Constitution. Unless it is shown that there is a reasonable relation of the provisions of the Act to the purpose in view, the right of freedom of occupation and business cannot be curtailed by it. The phrase 'reasonable restriction' connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word 'reasonable' implies intelligent care and deliberation, that is, the choice of a course which reason dictates. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by clause (6) of Article 19, it must be held to be wanting in that quality." The legislation then before the Court was held to be unconstitutional as violative of Article 19 [1950] S.C.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the right to "acquire" property is a guaranteed right, it cannot be contended that every one must need have an unfettered right to acquire and possess fire-arms, and that any law which imposed prerequisite conditions on a person acquiring or possessing them as distinguished from a law which prescribed the manner in which the fire-arm should be used was not within Article 19(5), whose language in this regard is substantially similar to that of Article 19(6) which we have to construe. We can see no constitutional objection to the licensing being made a prerequisite for carrying on the several trades we are concerned with in these cases. The learned Advocate-General further maintained that nonselective licensing or registration was a feature of modern systems of taxation, while selective licensing was adopted for the control or regulation of industry. It was not therefore correct to regard licensing as confined to selective licensing, which would be the case if the arguments of learned counsel for the petitioners were accepted. We consider this submission to be well-founded. Instances of non-selective licensing as a method or an incident of taxation have come before the Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or collecting it and for avoiding double taxation, it is necessary that certificates shall always be quoted by registered persons on purchases which are not intended to bear tax, and never on transactions which are intended to bear tax..............................double taxation is avoided by means of regulations which, in effect, prescribe that no tax is to be levied on the later transaction. The whole plan of the legislation suggests that it is concerned only with the course of commercial dealing in goods between the time they first appear in Australia, either as a result of manufacture or importation and the time when they retailed. It takes them at the point of importation and manufacture and pro- vides a scheme for following them to that point at which, in the actual course of commerce in the particular articles, they go into the retail market, and then, as nearly as possible, tax is imposed either upon the antecedent sale by wholesale or upon the immediately antecedent wholesale value which they possessed." The point that has next to be considered is whether the provisions as to licensing were required to be imposed in the context of the other provisions of the Madras Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the observations in two decisions of the American Supreme Court. The first was that of Brown, J., in Lawton v. Steels(1), where dealing with the limitation to which the police power of the State was subject the learned Judge said: "To justify the State in thus interposing its authority on behalf of the public, it must appear, first that the interests of the public generally, as distinguished from those of a particular class, require such interference; and, second, that the means are reasonably necessary for the accomplishment of the purpose, and not unduly oppressive upon individuals. The legislature may not, under the guise of protecting the public interests, arbitrarily interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations." The other was a passage in the judgment of McReynolds, J., in Panhandle Eastern Pipe Line Company v. State Highway Commission of Kansas(2): "The police power of a State..................is subordinate to constitutional limitations. It springs from the obligation of the State to protect its citizens and provide for the safety and good order of society. Under it there is no unrestricted authority to accompli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence and maintenance of the State. In the words of Cooley, "It is unlimited in its range, acknowledging in its very nature no limits so that security against its abuse is to be found only in the responsibility of the legislation which imposes the tax to the constituency who are to pay. We are not now concerned with the limitations on this plenary power but will only point out that the test of its being a reasonable restriction on the right to trade is certainly not one of these limitations. The restraints imposed by taxation are wholly beyond the scope of Article 19(6) and therefore not subject to the tests of a valid legislation under that provision. The saving in Article 31, sub-clause (5)(b)(i), placing out of the purview of the main article the deprivation of property which taxes entail and which was put in only by way of abundant caution, is a pointer establishing the plenitude of the taxing power. It is precisely for this reason that the validity of the Sales Tax Act is not challenged, notwithstanding that it might in particular cases be so burdensome to the business or trade as to render the carrying it (1) [1952] S.C.R. 572. (2) [1954] S.C.R. 1122; 5 S.T.C. 115. on not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies conferring the power to levy particular taxes. We are inclined to read this as an indication that the Constitution-makers conceived of fees being leviable in the course of the levy or collection of taxes, and surely this would certainly include fees for licences. We should not be understood as saying that the fees levied for the licences which are the machinery for the enforcement and collection of a tax are not "fees" but are virtually taxes and that they need not satisfy the test of reasonableness laid down in the cases we have quoted at the beginning of this judgment. The next question that arises for consideration is as regards the reasonableness of the quantum of the fee levied from the licensees, which test has to be satisfied whatever be the basis on which the licensing provisions are upheld. In this connection we shall recapitulate the four points urged by learned counsel for the petitioners. (1) No services were rendered to the licensees and hence no fee could be levied. (2) The amount of fee was related to the turnover of each dealer and this had no reasonable or rational relationship with the amount of work involved by the officers of the department or the precise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and skins. The only point on which these petitioners succeed is in relation to their challenge to the validity of the notification G.O. No. 2044 (Revenue) dated 30th June, 1955, which by its clause 2(i) raised the maximum of the licence pay- able from Rs. 1000 to Rs. 2000. This will be struck down as an unreasonable and unjustifiable enhancement of the fee. Subject to this relief, these petitions will stand dismissed. The next group of writ petitions consists of those relating to cotton and cotton yarn. Of these, petitioners in W.P. Nos. 228, 229, 230 and 232 of 1956 are dealers in cotton waste. All these petitioners had taken out licences and paid the licence fee fixed as it was before its enhancement by G.O. No. 2044, dated 30th June, 1955. In their case also the increase in the maximum of the licence fee from Rs. 1000 to Rs. 2000 effected by the G.O. just now referred to will be set aside. Otherwise their petitions will stand dismissed. The petitioner in W.P. No. 231 of 1956 is a dealer in cotton and cotton yarn. In the case of dealers of this type, G.O. No. 2044, dated 30th June, 1955, not only increased the maximum rate of the licence fee but also required them to take ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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