TMI Blog1991 (7) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... res exercise their powers under Concurrent List. Therefore, the order of the High Court striking down the levy cannot be upheld. - Civil Appeal No. 2722 (NT) of 1991 - - - Dated:- 18-7-1991 - Thommen, T. K. And Sahai, R. M. ,JJ. Umesh Chandra, Rakesh Srivastava, A.K. Srivastava and K.D. Misra for the Appellants. M.H. Baig, P.S. Shroff, R. Sasiprabhu, S.S. Shroff, Suresh A. Shroff and Rajan Mahapatra for the Respondents. JUDGMENT State of Uttar Pradesh Others v. M/s. Synthetics Chemcials Ltd. Others, [1980] 2 SCC 441, overruled in (1990) 1 SCC 109, Referred to. Per R.M. Sahai, J. (Concurring) 2.03. A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decedendi. [93B-C] 2.04. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply and distribution of, the products of a 'controlled' industry (Entry 33 of List Ill). These are not taxing entries and do not, therefore, relate to taxes, but powers of regulation and-control. The power to control industry being thus vested in Parliament (Entry 52 of List I) and the legislative power in respect of trade and commerce in such industry being Concurrently vested in the Union and the States (Entry 33 of List III) any exercise of control by the State must be subject to the legislative power of Parliament. [84H-85C] 3.04. The taxing power of the State on a matter falling within its competence under Entry 54 of List II, namely, sale or purchase of goods (other than newspapers) is, subject to the taxing power of Parliament under Entry 92A of List I and other provisions of the Constitution, plenary and unlimited, and untrammelled by the supervisory or regulatory power of Parliament under Entry 52 of List I read with its Concurrent power under Entry 33 of List III. This is the crucial: distinction between the wide taxing power of the State under Entry 54 of List II and its conditional or restricted taxing power, for example, over mineral rights mentioned in Entry 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let preparations containing alcohol (see Entry 84 of List I). Any transgression by the State on industrial alcohol will be invalid for want' of power by reason of the limitation of Entries 8 and 51 of List II (being confined to potable alcohol) and consequent transgression on areas covered by Entries 52 and 84 of List I respectively relating to declared industry and excise duty on industrial alcohol and medicinal and toilet preparations containing alcohol, and also for repugnancy arising from a clash with the centrally occupied field failing under Entry 33 of List III. [85E, 85H-86D] 3.08. The power to tax under Entry 54 of List II being a specific power, it cannot be cut down or in any manner lettered by the general power of control exercised by Parliament, by legislation on a matter failing under Entry 52 of List I relating to an industry, the control of which by the Union is declared by Parliament by law to be expedient in the public interest, read with Entry 33 of List III dealing with trade anti commerce in, and the production, supply and distribution of the products of any such controlled industry, and imported goods of the same kind as such products, and other articles m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of the State to levy taxes on the sale or purchase of goods. It is no doubt true that the consumer of the article must, in addition to the price, pay purchase tax due in respect of them. But that is by reason of a valid levy which is within the constitutional power of every State, and is dehors the price, though often referrable to it. [90F-H] State of Bombay Anr. v. F.N. Balsara, [1951] SCR 682; India Cement Ltd. Ors. v. State of Tamil Nadu Ors., [1990] 1 SCC 12;I M.P.V. Sundararamier Co. v. The State of Andhra Pradesh Anr., [1958] SCR 1422 at 1479; M/s. R.M.D.C. (Mysore) Private Limited v. The State of Mysore, [1962] 3 SCR 230; Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh Others, [1980] 1 SCC 223: [1980] 1 SCR 769; Ch. Tika Ramji Others etc. v. The State of Uttar Pradesh Ors., [1956] SCR 393; Kannan Devan Hills Produce Company. Ltd. v. The State of Kerala Another, [1973] 1 SCR 356 and Hoechst Pharmaceuticals Ltd. Anr. v. The State of Bihar Others., [1983] 3 SCR 130: AIR 1983 S.C. 1019, referred to. " Per.R.M. Sahai, J. (Concurring) 3.13.-Power to tax is a sovereign power. In federal system of governance it is exercised by distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g clause: "3(1) There shall be levied with effect from May 2, 1974. (b) at the point of first purchase of alcohol in the State, a tax at the rate of 40 paise per litre for the first million liters and at the rate of 20 paise per litre for the remainder, payable by the purchaser, and which shall be collected and paid in the prescribed manner to the State Government. This levy was sought to be justified by the state, when challenged in the writ proceeding, as a valid exercise of its legislative power on a matter falling under Entry 54 of List II of the Seventh Schedule of the Constitution/The writ petitioners, challenging the levy, contended that the State Legislature was incompetent to levy tax with reference to Entry 54 of List II in respect of industrial alcohol in so far as that article was the subject of regulation by the Central Government in exercise of its power under section 18G of the Industries (Development and Regulation) Act, 1951 (Act No. 65 of 1951) (hereinafter referred to as 'the IDR Act) and that the price of that article was regulated by the relevant Price Control Orders made by the Central Government under the said Act. Any levy of sales tax or purchase tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was apparently not concerned with the exercise of legislative power with reference to Entry 54 of List II which reads: "Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I". Significantly, this Entry shows that, subject to Entry 92A of List I, taxeson the sale or purchase of goods (other than newspapers) taking place within the State are the exclusive preserve of the State. The only restriction on this legislative power is what is stated in Article 286. Nevertheless, in the concluding portion of the judgment, Sabyasachi Mukharji, J. (as he then was) stated: "The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act. After the amendment, the State is left with only the following powers to legislate in respect of alcohol: (a) It may pass any legislation in the nature of prohibition of potable liquor referable to Entry 6 of List II and regulating powers. (b) It may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. (c) The State may charge excise duty on potable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the levy of fees could not be justified except within the bounds of Entry 8 of List II which is a subject of legislation limited to potable alcohol, but not a taxing Entry, and-of Entry 51 of List II which relates to duties of excise on alcoholic liquors for human consumption, but excluding medicinal and toilet preparations containing alcohol. The contention was that no fee or duty could be levied by the States in respect of industrial alcohol. This contention was accepted by this Court in Synthetics (1990) 1 SCC 109 as correct provided the levy of fees in respect of industrial alcohol was unsupported by quid pro quo. In other words, although Entry 66 of List II justified collection of fees in respect of matters falling in that List, levy of any such fee, by reason of the limitation of the entries in that List concerning alcohol, had to be confined to potable liquor and could not be extended to industrial alcohol unless there was quid pro quo. This was the rationale of the challenge in Synthetics (1990) 1 SCC 109 and the crux of the ratio decidendi of that decision. It was never contended by the States that the vend fee was a tax referfable to Entry 54 of List I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners, however, submits that the prices are strictly controlled by the Central Government in exercise of its power under the IDR Act. The State law cannot be allowed to disturb such prices. Any attempt to raise the prices, despite the strict control exercised by the Central Government by means of statutory orders, is an invalid exercise of power. Levy of sales or purchase tax affects the price, for the incidents of tax fall on the customer. The customer will have to pay the amount of tax levied at the point of first purchase which would be in addition to the price determined by the Central Government under the Price Control Orders. This is a transgression on the legislative control exercised by Parliament and by the Central Government acting as its delegate. The Government of U.P. charged fee under the U.P. Excise Act, 1910 (as amended in 1972 and 1976); the Government of Maharashtra charged transport fee under the Bombay Rectified Spirit (Transport in Bond) Rules, 1951 made under the Bombay Prohibition Act, 1949, and the Andhra Pradesh Government extended the Excise Act, 1968 and the Distillery Rules, 1970 and the Rectified Spirit Rules, 1971 to all alcohol plants. The applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endeavour to bring about prohibition of the consumption except for medicinal purpose of intoxicating drinks and products which are injurious to health...... Does Article 47 oblige the State to prohibit even such industries as are licensed under the IDR Act but which manufacture industrial alcohol..... ? (Para 77). In that view of the matter it appears to us that the relevant provisions of the U.P. Act, A.P. Act, Tamil Nadu Act, Bombay Prohibition Act, as mentioned hereinbefore, are unconstitutional insofar as these purport to levy a tax or charge imposts upon industrial alcohol, namely, alcohol used and usable for industrial purposes...... (Para 82). Furthermore, in view of the occupation of the field by the IDR Act, it was not possible to levy this impost. (Para 84). After the 1956 amendment to the IDR Act bringing alcohol industries (under fermentation industries) as Item 26 of the First Schedule to IDR Act, the control of this industry has vested exclusively in the Union. Thereafter, licences to manufacture both potable and non-potable alcohol is vested in the Central Government Distilleries are manu facturing alcohol under the central licences under IDR Act. No pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng power of the State under Entry 54 of List I1 which deals with 'taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I'. The power of the State to levy taxes on sale or purchase of goods under that Entry was not the subject matter of discussion by this Court,, although in paragraph 86 of the leading judgment of Sabyasachi Mukharji, J. as he then was, there is a reference to sales tax. He says "The State may charge excise duty on potable alcohol and sales tax under Entry 52 of List II". Entry 52 of List II is mentioned in connection with excise duty and sales tax, but neither of them fails under Entry 52. Reference to Entry 51 of List 1I ought to have been made if it was excise duty that the Court had in mind. Entry 54 of List II would have been referred to, and not Entry 52, if the Court had in mind sales tax. On the other hand, Entry 52 refers to "Taxes on the entry of goods into a local area for consumption, use or sale therein". None had a case that this Entry had any application to the fees or charges in question. The Court further says: "However, sales tax cannot be charged on industrial alcohol in the present case, bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for parting with its exclusive right respect of intoxicat ing liquor. This Court stated that `alcohol' included both ordinary as well as specially denatured spirit. Denatured spirit contains ethyl alcohol. The specially denatured spirit for industrial purposes is different from denatured spirit only because of the difference in the quantity and quality of the denaturants. Specially denatured spirit and ordinary denatured spirit were classified according to their use and denaturants used. This Court rejected the distinction sought to be drawn between denatured spirit for industrial purposes and ordinary denatured spirit. It was this wider understanding of 'intoxicating liquor' so as tocomprehend not only potable alcohol, but also industrial alcohol, that was disapproved in Synthetics, [1990] 1 SCC109. In drawing the distinction between potable and nonpotable alcohol, this Court had in mind the tremendous changes which have taken place in science and technology and industry and commerce and the increasing use of industrial alcohol in various industries. Drawing a distinction between potable and non-potable alcohol and, confining the doctrine of Article 47 to the former, this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by section 9 of the Central Act, namely, Mines and Minerals (Regulation and Development Act), 1957 see India Cement (supra). Unlike mines and minerals, alcohol stands on a different footing, and is dealt with differently, dependant on whether it is potable or not. What is significant is that legislation falling in pith and substance under Entry 8 or Entry 51 of List II in relation to alcoholic liquor for human consumption (as distinguished from industrial alcohol) whether for the purpose of levying vend fee or transport fee or excise duty, strictly confined to such articles, is not subject to challenge on the ground of legislative incompetence or repugnancy by reason of the power vested in Parliament under Entry 52 or Entry 84 of List I or Entry 33 of List III. Incompetence or repugnancy arises only when the impact of the legislation falls, not incidentally, but substantially on industrial alcohol so as to transgress on a field occupied by Parliament. In M.P.V. Sundararamier Co. v. The State of Andhra Pradesh Anr., [1958] SCR 1422 at 1479 Venkatarama Aiyar, J., speaking for the Constitution Bench, referred to the Entries in the three lists of the Seventh Schedule of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt enacted the Central Sales Tax Act, 1956, sections 3 and 4 of which formulate principles for determining when a sale or purchase of goods has taken place in the course of inter-State trade or commerce or outside a State. In all other respects the State enjoys legislative power to levy taxes on the sale or purchase of goods. Industry as a subject of legislation falls under Entry 24 of List II. But this provison is subject to Entries 7 and 52 of List I dealing respectively with "Industries declared by Parliament by law to be necessary for the purpose of defence or for the prosecution of the war" and "Industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest". It is Entry 52 of List 1 that is relevant for the present purpose for it is in respect of that Entry that Parliament enacted the IDR Act, 1951 to provide for the development and regulation of certain industries. This Act contains a declaration by Parliament that 'it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule'. 'Fermentation Industries' i.e. Alcohol and Other products of fermentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India: (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet prepartions containing alcohol or any substance included in sub-paragraph (b) of this entry". While this Entry clearly refers to liquor for human consumption, the same meaning has been judicially ascribed in Synthetics, [1990] 1 SCC 109 to 'intoxicating liquors' in Entry 8 of the same List. The legislative competence of the State in respect Of 'intoxicating liquors' referred to in Entries,8 and 66 of List II as a subject of legislation and fee respectively and the power of the State to levy excise duty on "alcoholic liquors for human consumption" falling under Entry 51 of the same List must necessarily be confined to potable alcohol, and cannot include industrial alcohol or medicinal and toilet preparations containing alcohol (see Entry 84 of List I). Any transgression by the State on industrial alcohol will be invalid for want of power by reason of the limitation of Entries 8 and 51 of List II (being confined to potable alcohol) and consequent transgression on areas covered by Entries 52 and 84 of List I respectively relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions was surrendered to Parliament by the resolution dated February 23, 1956, the power to tax could not be said to have been surrendered. Therefore, if the Mysore Legislature had the power, which in our opinion, it had and it had not surrendered its power to Parliament which, in our opinion, it had not, then it cannot be said that the imposition of the tax is a piece of colourable legislation and is on that ground unconstitutional" In Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh Others, [1980] 1 SCC 223, Krishna Iyer, J., speaking for the Constitution Bench, dealt with a challenge against the levy of purchase tax on the raw material consumed by a controlled industry, namely, the Sugar Industry, and stated: "Is the legislation ultra vires because the State enters the forbidden grounds by enacting on controlled industry? It is undisputed that sugar industry is a controlled industry, within the meaning of Entry 52, List I of Seventh Schedule and, therefore, the legislative power of Parliament 'covers enactments with respect to industries having regard to Article 246(1) of the Constitution. If the impugned legislation invades Entry 52 it must be repulsed by this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt stated: "It seems to us clear that the State has legislative competence to legislate on entry 18 List II and entry 42 List III. This power cannot be denied on the ground that it has some effect on an industry controlled under entry 52 List I. Effect is not the same thing as subject-matter. If a State Act, otherwise, valid, has effect on a matter in List I it does not cease to be a legislation with respect to an entry in List II or List III ....." In Haechst Pharmaceuticals Ltd. Anr. v. State of Bihar Others, [1983] 3 SCR 130 this Court, reiterating the observations of the Constitution Bench in Sundararamier's case [1958] SCR 1422 as regards the distinction between general subjects of legislation and taxes in List 1 and List II and the absence of any entry in List III relating to taxes (apart from levy of fees stated: "..... Thus in our Constitution, a conflict of the taxing power' of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under Entry 33 of List III into a forbidden field viz. the State's exclusive power to make a law with respect to the levy and impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List II. So long as the impugned legislation falls in pith and substance within the taxing field of the State, the control of the Central Government in exercise of its power under the IDR Act in respect of a controlled industry falling under Entry 52 of List 1 cannot in any manner prevent the State from imposing taxes on the sale or purchase of goods which are the products of such industry and which are referrable to Entry 33 of List III. As seen above, the taxing power of the State under Entry 54 of List II cannot be cut down by the general legislative power of control of the Centre. The levy of fee, whether called vend fee or transport fee or duty or charge, whether levied by Rules purportedly made under the Excise Act or Prohibition Act or any other statute, otherwise than as a proper levy falling in pith and substance under a taxing Entry, was not valid, to the extent that it lacked quid pro quo and applied to industrial alcohol. Any such fee or charge can be justified as a mode of control falling in pith and substance under Entry 8 read with Entry 66 of List 1I only to the extent that it remains within the bounds of the concerned subject matter, namely 'intoxicating liquors' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat control of alcohol industry having been taken over by the Parliament, for purpose of regulation and development the State stood denuded of its taxing power under Entry 54 of List II to the extent the field of price fixation was covered by the price control order issued by the Government. And the purchase price being component of price fixation which squarely fell within the power of Central Government the imposition of purchase tax amounted to intrusion into the forbidden area of price fixation by Central Government. Support for this was drawn, principally, from the two Constitution Bench decision in Indian Cement Ltd. v. State of Tamil Nadu, [1990] 1 SCC 12 and Synthetic and Chemicals v. State of U.P., [1990] 1 SCC 1091. The first was relied for the principle that even a taxing legislation by the State could be invalid to the extent it trenched on Central legislation on the same subject. And the latter for the conclusion that, 'however, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders sales tax cannot be charged by the State on industrial alcohol'. Reliance on Indian Cement Ltd. (supra) was under comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and apply to a conclusion of law, Which was neither raised nor preceded by any consideration. In other words can such conclusions be considered as declaration of law? Here again the English Courts and jurists have carved out an exception to the rule of precedents. It has been explained as rule of sub-silentio. A decision passed sub-silentio, in the technical sense that has come to be attached to that phrase, when the particular' point of law involved in the decision is not perceived by the Court or present to its mind' (Salmond 12th Edition). In Lancaster Motor Company (London) Ltd. v. Bremith Ltd., [1941] IKB 675 the Court did not feel bound by earlier decision as it was rendered 'without any argument, without reference to the crucial words of the rule and without any citation of the authority'. It was approved by this Court in Municipal Corporation of Delhi v. Gumam Kaur, [1989] 1 SCC 101. The Bench held that, 'precedents sub-silentio and without argument are of no moment'. The Courts thus have taken recourse to this principle for relieving from injustice perperated by unjust precedents. A decision which is not express and is not founded on reasons nor it proceeds on considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion or any argu ment the order was founded on a mistake of fact and, therefore, it could not be held to be law declared. The Bench further was not apprised of earlier Constitution Bench decisions in Hoechest Chemicals v. State of Bihar, AIR 1983 SC 1019 and Ganga Sugar Mill v. State of U.P., [1980] 1 SCR 769 which specifically dealt with the legislative competence of levying sales tax in respect of any industry which had been declared to be of public importance. Therefore, the conclusion of law by the Constitution Bench that no sales or purchase tax could be levied on industrial alcohol with utmost respect fell in both the exceptions, namely, rule of sub-silentio and being in per incurium, to the binding authority of the precedents. Ethyl alcohol is not fit for human consumption. It is principally used as raw material for manufacture of rubber etc. Since it was of all India importance the activities of which affected the country as a whole, it was declared as of public importance by adding it as item no. (1) under Entry 26 of the first Schedule appended to the Industrial (Development and Regulation) Act, 1951, (hereinafter referred as IDRA). The effect of this declaration w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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