TMI Blog1968 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ach case, except in one, i.e., W.P. 362 of 1968, as typifying the points that arise for determination in all these cases. The petitioner-firm (hereinafter called the assessee) is a registered dealer under the Central and State Acts dealing in groundnuts, on the purchases of which it is being subjected to tax under item 6 of Sche- dule III of the State Act, and on which it is paying tax. For the year 1965-66, the assessee was assessed to a tax of Rs. 4,083.00 on its purchases of groundnut, by the order dated 2nd September, 1966. The assessment for 1966-67 is not yet completed, but the assessee paid the tax in advance on a purchase turnover of Rs. 2,83,247.37 at 3 per cent. For the year 1967-68 the assessee has been submitting monthly returns and has also paid the tax up to November, 1967. It is the case of the assessee that it was advised that the levy of tax on groundnuts is illegal and unconstitutional. It is contended that inasmuch as Article 286(3) of the Constitution, added by the Constitution (Sixth Amendment) Act, authorises Parliament by law to impose such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as it may by law s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the State Act. It is also contended that the classification made between miller-dealers and non-miller-dealers bears no rational relation to the statutory purpose and violates Article 14 of the Constitution; that there being the possibility of the same goods being taxed more than once as is said to have been held by this Court in the above case-even where miller buys and sells groundnuts he is liable as first miller-purchaser under the first limb of item 6 and when such a miller sells to a dealer who is the last purchaser in the State, such dealer would also be liable to pay the tax-it is contrary to the provisions of section 6 of the State Act and section 15 of the Central Act, it having authorised the imposition of tax at more than one stage; and that when the entry fixed the stage by stating "when purchased by a miller other than a decorticating miller in the State, at the point of purchase by such miller", the power to prescribe the stage is exhausted and the State Legislature cannot go further and prescribe a second or alternative stage, and accordingly, the second limb of item 6, under which the petitioner is being assessed, should be struck down. The learned Advocate f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of indefiniteness, is equally applicable to these writ petitions. Sri Venkatappaiah Sastry in W.P. 3385 of 1968 and some others in which he appears while referring to the decision of this Court in Lakshmi Oil Mills case(2), seeks to persuade us to the view that that decision is no longer good law having regard to the subsequent decision of the Supreme Court in Bhavani Cotton Mills case[1967] 20 S.T.C. 290. It is his contention that the Bench in Lakshmi Oil Mills case[1967] 20 S.T.C. 489. held (i) that miller in the first limb of item 6 is a person who has a mill; (ii) that persons who are described as "other dealers" are different from millers; or in other words, millers and other dealers are mutually exclusive; (iii) that the Legislature never contem- plated that a person who has a mill should also be a dealer and (iv) that it is the first miller that is liable for tax. The principles upon which this decision rests, according to the learned Advocate, make it possible for the first miller in whose hands the goods have suffered tax to sell to other dealers and in the course of that transaction, the last of such dealers is liable to suffer tax once again, which is contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is no difference, but on a further scrutiny, he was frank enough to concede that he is unable to contend that they are not different. Even if they are different, he sought to argue that the words "sale price" in section 15(a) of the Central Act should be understood as defined in section 2(h) of the Central Act and not as turnover under section 2(s) of the State Act, because the context in which sale price occurs in section 15(a) is in respect of the relevant sales tax law of the State. In other words, sale or purchase referred to in section 15(a) is sale of purchase according to the State sales tax law in respect of declared goods. According to him, all that section 15 provides is a restriction on the rate of tax on the sale or purchase price. This argument is further elaborated by the learned Government Pleader who says that the tax payable under the Central law is confined to the tax payable on declared goods under the relevant sales tax law of the States, which is being limited to 3 per cent. So the tax payable under the State law must be determined by the definition of State law in respect of sale or purchase price, sale of course connoting a bilateral transaction, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d others(1) which has been pronounced only yesterday, viz., 26th September, 1968, holding that section 5-A has not been enacted beyond the competence of the Legislature, that it is not discriminatory and that it is not repugnant to the provisions of section 15 of the Central Act, and that it is inapplicable to declared goods with which section 15 of the Central Act deals. The reasoning given therein is equally applicable to the contentions raised by the learned Advocates on this aspect of the matter, and we do not therefore propose to burden this judgment by recounting the same reasoning once again. It is now necessary to examine the provisions of Article 286 of the Constitution and the relevant provisions of the State Act and the Central Act. "Article 286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways men- tioned in cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods generally or on any specified goods expressly mentioned in that behalf, and general sales tax law' means the law for the time being in force in any State or part thereof which provides for the levy of tax on the sale or purchase of goods generally." S. 2(j): " turnover' used in relation to any dealer liable to Tax under this Act means the aggregate of the sale prices Received and receivable by him in respect of sales of any goods in the course of inter-State trade or Commerce made during any prescribed period and determined in the prescribed manner. " Item 6 of Schedule III Description of the goods. Point of levy. Rate of tax. S. 14: "It is hereby declared that the following goods are of special importance in inter-State trade or commerce:- Groundnuts. When purchased by a miller other 2 naye paise (i) to (v) * * * * State Act Central Act Than a decorticating miller in the Sate, at the point of purchase by such miller and in all other cases at the point of purchase by the last dealer who buys in the State. (vi) oil-seeds, that is to say, seeds yie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... probably in order to obviate such controversy, the Explanation had been omitted; and by the Constitution (Sixth Amendment) Act, 1956, clause (2) has been added conferring powers on the Parliament to lay down the principles for determining when a sale shall be deemed to have taken place within a State as envi- saged in clause (1)(a) of Article 286. The Central Act has been enacted in pursuance of that power, section 4 of which provides a simple test of physical location of the goods for determining the situs of the sale by more than one State. Likewise, clause (3) which was added empowers Parliament to impose a restriction upon the State Legislature in regard to the system of levy, rates and other incidence of taxes on sales or purchases of goods declared by Parliament to be of special importance in inter-State trade and commerce. It may be noticed that clause (3) of Article 286 does not fetter a State Legislature from imposing taxes upon goods declared by Parliament to be of special importance. But what it does is to vest powers in Parliament to restrict and confine these powers of the State within certain limits and impose certain conditions in respect of the system of levy, rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government empowered the sales tax authorities for the time being to assess tax and collect taxes and penalties under the general sales tax law of the appropriate State, and they have been authorised under sub-section (3) of section 9 to collect on behalf of the Government of India subject to any rules that may be made under the Central Act etc. The scheme of the Central Act is therefore in conformity with the provisions of Article 286 and in exercise of the legislative power conferred on Parliament under entry 42 and entry 92-A of List I of the Seventh Schedule to the Constitution. It is not disputed that groundnuts are oil-seeds within the meaning of clause (vi) of section 14 of the Central Act; and as such, they are declared goods in respect of which the provisions of section 6 read with item 6 of the Third Schedule to the State Act become applicable. The ques- tion is whether the point of levy of tax in respect of purchases and sales of groundnut at which tax is leviable on these transactions contravenes the provisions of section 15; and if so, what is its effect. The State Legisla- ture has, in respect of item 6 of the Third Schedule, fixed the point of levy in the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of groundnut is only a single point tax; and, therefore, the only question was whether the petitioner, who was a decorticating miller, was at all liable to pay tax as the crushing miller, who purchased groundnut from the petitioner, had paid the tax. It was contended for the petitioner that the levy of tax being admittedly at a single point of purchase the tax having been once collected from the crushing miller, the power to tax is exhausted and the assessing authority had no jurisdiction to collect the same once again from the petitioner on the ground that he is also a miller coming under item 3. The Government Pleader, on the other hand, replied that the petitioner-miller who happened to be the first purchaser, is the person from whom the tax is exigible and consequently he is the right person on whom the tax can be levied because he being the first purchaser is alone liable to pay tax. This argument was repelled as being opposed to the very language of the second column of item 3 of Schedule IV as amended in 1961 which was "when purchased by a miller in the State at the point of purchase by the miller and in all other cases at the point of purchase by the last dealer who bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the Tribunal, namely, that the words "purchased by a miller" refer to mean the last miller who crushes the groundnut into oil. It was argued that the word "miller" signifies a miller who functions as a miller, that is to say, who converts groundnuts into oil in his mill with respect to the particular groundnuts covered by the transaction in question; and where a miller, who does not so convert the goods but deals in them-though purchasing it for crushing changes his mind and deals in them-ought not to be held liable but only the last miller who crushes the groundnuts into oil. In other words, it was contended that the word "miller" means only the crushing miller and not a dealer-miller. The case of Syed Mohamed Co. v. The State of Madras[1952] 3 S.T.C. 367. was relied upon. But this contention was negatived and it was held that it is only the first miller who purchases the goods that will be liable. The reason for rejecting the argument that it is the miller that should be taxed is that the Legislature did not contemplate a miller dealing in goods which alone would justify the conclusion that in a series of transactions between millers who deal in these goods, it is the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as significant and the only manner in which the intention of the Legislature can be spelled out is to treat a miller as a person who crushes groundnuts into oil and not as a dealer who buys and sells these goods as one in a series of transactions of which he can be the last miller. That was the reason why the Bench in Lakshmi Oil Mills case[1967] 20 S.T.C. 489. met the argument that the intention of the Legislature was ambiguous, in that when it used the word "miller" it meant either the first miller or the last miller, by stating that it is the first miller alone. In other words, it is the first miller alone that will be liable to tax because he alone could be deemed to have crushed it, in so far as he is concerned, notwithstand- ing the fact that he may have done something which he was not expected to do, namely, by dealing in the goods as if he was an ordinary dealer. The law does not play to the whims and fancies of persons who are expected to discharge a particular function by acting in a manner they are not expected to act. If it is not the business of a miller to buy and sell goods, the fact that he buys and sells goods has to be ignored. But if a miller can establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is opposed to the provisions of section 15(a) of the Central Act. Further it was argued that the second proviso to section 5(1) of the Punjab Act is contrary to section 15(a) of the Central Act, inasmuch as the main section which prescribes the rate of tax, viz., section 5(1) as well as the notification issued under it, clearly show that the Act levies tax at a far higher rate than the maximum provided under section 15(a) of the Central Act. Under those circumstances, it was pointed out that both the second proviso to section 5(1) and clause (vi) of section 5(2)(a) of the Act will have to be struck down. It was brought to the notice of their Lordships in that case that in the Sales Tax Acts in force in the States of Andhra Pradesh, Madras, Mysore and Uttar Pradesh, the stage at which the tax is to be levied either on purchase or on sale, has been definitely and clearly been indicated, but that was not the case in respect of the Punjab Act. On behalf of the State of Punjab, it was argued that the second proviso to section 5(1) of the Punjab Act makes it very clear that the rate in respect of declared goods shall not exceed the rate mentioned in section 15(a) of the Central Act, eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provi- sions of the Punjab Act in effect complied with the requirements of section 15 of the Central Act, because it is possible to find out the stage at which the purchase tax becomes leviable on goods mentioned in Schedule C. This stage, it was observed, is the first purchase by a dealer, which is not exempted from taxation or which is not deductible from the taxable turnover of a dealer under section 5(2) of the Punjab Act. Further, he thought that the second proviso to section 5 makes the Punjab Act immune from challenge on the ground that the provisions of that Act infringe section 15 of the Central Act. It was further pointed out that if an unregistered dealer wants to escape taxation and his transactions are not known to the sales tax authorities till he is assessed under section 11(6) of the Punjab Act, the only way of complying with the second proviso to section 5 and section 15 of the Central Act is to give refund to a dealer who has been taxed in the meantime. Be that as it may, the Sales Tax Act of the Andhra Pradesh State which was noticed by their Lordships of the Supreme Court, has definitely fixed a stage and that stage in so far as item 6 of Schedule III r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to discriminate between hides and skins imported from outside the State and those manufactured or produced inside the State and, therefore, they contravene the provisions of Article 304(a) of the Constitution and are invalid, inasmuch as taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not compensatory taxes or regu- latory measures. Sales tax on hides and skins imposed under the Madras General Sales Tax Act, 1939, and the Rules framed thereunder, it was held, cannot be said to be a measure regulating any trade or compensatory tax levied for the use of trading facilities, and that sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Article 301 of the Constitution of India and will be valid only if it comes within the terms of Article 304(a). It was further held that the similarity contemplated by Article 304(a) is in the nature of the quality and kind of the goods and with respect to whether they were already the subject of a tax or not. In that view, it was held that the provisions of rule 16(2) discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them." It cannot be said that when the Legislature classifies millers and dealers other than millers who deal in the same commodity, it is arbitrary or unreasonable; nor can it be said that there is no rational basis between the object sought to be achieved and the classification. The object to be achieved is to tax declared goods at one point, and before they cease to be exigible to tax, either by being crushed into oil or by leaving the State. The whole argument relating to discrimination is based on the assumption, as we have said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale or purchase price, but also other matters which the Central Act in defining sale price does not include. In this way, there is a likelihood of exceeding the maximum in so far as item 6 is concerned. But merely because one of the items in Schedule III is likely to exceed the maximum fixed in section 15(a) it does not justify this Court in striking down item 6. In our view, Article 286(3) uses language which supports our view. We have already seen that the State law in so far as it authorises the imposition of tax on the sale or purchase of declared goods is subject to such restrictions and conditions in regard to the system of levy, rates and other incidence of the tax as Parliament may by law specify. The words "subject to" would necessarily imply that the power to impose tax is restricted to that extent and nothing more. Hidaya- tullah, J. (as he then was) in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax[1965] 16 S.T.C. 310., while dealing with this aspect of the matter, negatived the contention of Mr. Pathak that section 5(1) of the Punjab Sales Tax Act, which prescribed the maximum rate of 4 nP. in the rupee as tax must fail in view of sections 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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