TMI Blog1970 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as exempt under the Central Sales Tax Act. The contention did not find favour with the sales tax authorities. The petitioner now prays for relief under article 226 of the Constitution. During the pendency of the petition, the President of India promulgated the Central Sales Tax (Amendment) Ordinance, 1969. This has since been replaced by the Central Sales Tax (Amendment) Act, 1969. In view of the Amendment Act, permission was granted to the petitioner to amend the petition and a number of grounds have now been included challenging the constitutional validity of the Amendment Act. During the hearing of this petition, learned counsel for the petitioner has confined himself to those grounds alone. To appreciate fully the contentions raised before us, it is necessary, I think, to refer briefly to the legal position as it developed from stage to stage. Considering the provisions of the Central Sales Tax Act, as originally enacted, the Supreme Court in State of Mysore v. Yaddalam Lakshminarasimhiah Setty Sons[1965] 16 S.T.C. 231 (S.C.). expressed the view that if the turnover of a dealer was exempt from tax at any point of sale under the general sales tax law of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate State if that sale had taken place inside the State." In section 8(2-A) of the principal Act, for the words "notwithstanding anything contained in sub-section (1) or sub-section (2)" the words "notwithstanding anything contained in sub-section (I-A) of section 6 or in subsection (1) or sub-section (2) of this section" were substituted and were deemed to have been substituted with effect from 1st October, 1958. Section 9 was completely re-enacted. It now reads: "9. Levy and collection of tax and penalties.-(1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of sub-section (2), in the State from which the movement of the goods commenced: Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods, the tax shall, where such sale does not fall within sub-section (2) of section 6, be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax occasioned by the amendments introduced in the principal Act, and accordingly section 10 of the Amendment Act exempted from tax those dealers who had effected inter-State sales between 10th November, 1964, and 9th June, 1969, and had not collected the tax from their customers on the ground that such tax was not leviable. The first contention of the petitioner is that article 301 of the Constitution is infringed inasmuch as inter-State trade and commerce is hampered by the Central Sales Tax Act as now amended. It is urged that the Act is not saved by article 302, because the restrictions placed by it on the freedom of trade and commerce are not required in the public interest. It is further urged that even if it were saved by article 302 it contravenes article 303(1) because it gives, or authorises the giving of, preference to one State over another, and discriminates, or authorises the making of discrimination, between one State and another. That it does because while a sale within the State not effected by a manufacturer or importer is exempt from tax, the corresponding inter-State sale has been made liable to tax. Reading articles 301, 302 and 303(1) together, the mandate whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarded as void. It must also be taken as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Tax under the Central Sales Tax Act on inter-State sales is in its essence a tax which encumbers movement of trade or commerce, but it is open to Parliament in view of article 302 to impose such restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest. It was also observed that the "exercise of the power to tax may normally be presumed to be in the public interest". It was urged before the Supreme Court that the impugned legislative provision contravened article 303(1) inasmuch as it constituted a law made by Parliament giving or authorising the giving of preference to one State over another but the learned judges, after examining the nature of the Central sales tax levy, opined that "an Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State 'was not' a law giving, or authorising the giving of, any preference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from levying the tax at other points of sale the State Government had clearly indicated that it needed no more revenue than that flowing from the single point taxed by it, and inasmuch as the Central sales tax is levied entirely for the benefit of the State it cannot be said to have been required in the public interest. There can be no dispute that by reason of article 269(1)(g) the tax recovered on interState sales must be assigned to the States. Effect has been given to that provision by section 9, sub-section (4), of the Central Sales Tax Act, which provides that the proceeds in any financial year of any tax levied and collected under that Act in any State on behalf of the Government of India shall be assigned to that State and shall be retained by it. The question to be considered is whether the decision of the State Government to tax intraState sales at one point only, and not at other points also, demonstrates that the State is not in need of further revenue. In my opinion, the circumstance that the State Government has confined the levy of tax to a single point only and exempted it at other points of sale cannot at all lead to the inference that it is not in need of further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a-State sale at that point, brought about a parity in the tax incidence between interState sales and intra-State sales, thus establishing an equilibrium which would safeguard the free flow of trade within the State and across its boundaries. It is contended that by inserting sub-section (1-A) in section 6 this equilibrium has been destroyed. Upon careful consideration, it appears to me that the contention is misconceived. There can be no question of the Act giving preference to one State over another or discriminating between one State and another when it is a Central statute operating throughout the land. Any benefit enjoyed by one State is enjoyed by all others. So also any disadvantage suffered by one State under the Act is suffered by all others. Then, to infer that the imposition of tax on inter-State sales where it has been exempted in respect of intra-State sales will necessarily impede the flow of trade is to oversimplify the complicated factors which influence the flow of trade. As the Supreme Court observed in Nataraja Mudaliar(1): "The flow of trade does not necessarily depend upon the rates of sales tax: it depends upon a variety of factors, such as the source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 969 S.C. 147.: "The rate which a State Legislature imposes in respect of inter-State transactions in a particular commodity must depend upon a variety of factors. A State may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State, or if it feels that the burden which is falling on consumers within the State will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers. Again; in a democratic constitution political forces would operate against the levy of an unduly high rate of tax. The rate of tax on sales of a commodity may not ordinarily be based on arbitrary considerations, but in the light of the facility of trade in a particular commodity, the market conditions-internal and external-and the likelihood of consumers not being scared away by the price which includes a high rate of tax. Attention must also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney in order to carry on the function of government and to sustain the manifold welfare activities undertaken by it." And at another place in the same judgment, it said: "It is, of course, true that the validity of tax laws can be questioned in the light of the provisions of articles 14, 19 and article 301 if the said tax directly and immediately imposes a restriction on the freedom of trade; but the power conferred on this court to strike down a taxing statute if it contravenes the provisions of articles 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character." I have already referred to the dictum of the Supreme Court in Nataraja Mudaliar[1968] 22 S.T.C. 376 (S.C.); A.I.R.. 1969 S.C. 147. , that the exercise of the power to tax may normally be presumed to be in the public interest. In the case before us, the petitioner's submission is that as the State Government taxed intra-State sales at a single point only it is evident that it did not need furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes article 19, courts would naturally be circumspect and cautious." The essential basis of the petitioner's contention that his fundamental right under article 19(1)(f) is contravened is that section 6(1-A) introduces a new levy for the first time and does not merely give effect to the original intention of the framers of the Central Sales Tax Act. Because it is a new levy retrospectively imposed, it is urged, distinct provision should have been made for appropriate machinery for assessing and collecting the tax. I think it necessary to clear the position in this regard at once. The history of the legislation indicates that the object always was that as regards the incidence of tax, the point of levy and the determination of the turnover reference was to be made to the Central Act while matters of a procedural nature such as the procedure for collection of tax and the machinery related thereto should be regulated by the State Act. There was considerable difference of opinion whether that object wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with life from an earlier date, and being living provisions operative from that date all the machinery provisions contained in the Act can be employed even as in the case of provisions enacted in fact from the very beginning. It is then urged that when the petitioner entered into inter-State sales in earlier years it could not have foreseen that the Amendment Act of 1969 would be enacted bringing into effect provisions operating directly in respect of those sales. In an ordinary case when a dealer is aware of his liability to tax he passes that burden on to the customer and collects the tax from him. It is said that the retrospective operation of the impugned legislation unreasonably deprives the petitioner of money which he may now have to pay from the profits earned or the capital belonging to him. It has already been seen that the revenue was all along proceeding on the basis that tax could be levied, and the decisions of some of the High Courts lend support to that view. It cannot be said, in the circumstances, that the dealers were not acquainted with the need to recover the tax from their customers. It is further urged that it is no longer possible for the dealers to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des their assessment now. It seems to me that if any classification arises here it is because of the expiry of the period of limitation and not because of the enactment of section 6(1-A). Section 6(1-A) applies equally to all, and equally it is open to all dealers to invoke the bar of limitation against assessment proceedings pursuant to section 6(1-A) wherever such bar of limitation is available. An attempt was made to classify dealers between those against whom originally assessment proceedings had been initiated in respect of such inter-State sales but they had not been assessed ultimately on the ground that they were not liable to assessment, those who had been assessed and taxed on such sales and those in respect of whom no proceedings had been taken at all. I am unable to see how any such classification is justified. Of those dealers against whom no assessment proceedings were initiated at all or against whom assessment proceedings were taken but they were not assessed on the ground that no levy could be made, now by virtue of section 6(1-A) it is open to the sales tax authorities to proceed to assess the escaped turnover if the general sales tax law of the State empowers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax but not on the ground that it was not leviable. There can be no doubt that the classification embodied in section 10 excludes the three categories pointed out by the petitioner. The question before us is whether the classification is not reasonable and related to the object of the Act. It will be recalled that it was on 10th November, 1964, that the Supreme Court delivered judgment in Yaddalam L. Setty and Sons(1) and thereby for the first time the legal position was made certain. By virtue of article 141 of the Constitution, the law so declared is binding on all courts throughout the land. Until then, as I have already pointed out, the position in law had remained uncertain. The revenue insisted on its right to tax while the dealer protested his exemption. The High Courts had also differed. It was only with the judgment of the Supreme Court on 10th November, 1964, that the legal position acquired certainty and a uniform interpretation operative throughout the land was available. The date 10th November, 1964, was, therefore, a reasonable line to draw for the purpose of granting exemption under section 10. The other terminal date is 9th June, 1969, when the Central Sales Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said considerations, I am of opinion that the challenge directed against the validity of section 10 of the Amendment Act must fail. No other contention has been raised before us. The petition fails and is dismissed with costs. MUKERJEE, J.-I agree. TRIVEDI, J.-The facts of the case and the history leading to the passing of the Central Sales Tax (Amendment) Ordinance, 1969, and the Central Sales Tax (Amendment) Act, 1969 (hereinafter referred to as the Amendment Act) have been dealt with by the Honourable Pathak, J. With profoundest respect for brother Pathak, j., 1 do not agree that section 10 of the Amendment Act does not violate article 14 of the Constitution. While it is not possible to exhaust the circumstances which may afford a reasonable basis for classification, yet broad tests laid down by the Honourable Supreme Court in Budhan v. State of BiharA.I.R. 1955 S.C. 191. are: (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that the differentia has a rational relation to the object sought to be achieved by the situation in question. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Yaddalam's case[1965] 16 S.T.C. 231 (S.C.). was that the levy of the tax was invalid and not that it became invalid from the date of the Supreme Court judgment. Section 10 does not mention that exemption is granted because the Supreme Court had disapproved the levy. The wordings of section 10 are too general which go to show that if the dealer has not collected the tax on the ground that no such tax could have been levied or collected in respect of such sale then he is exempt from the payment of the tax for the period specified in the said section. The effect of sections 9 and 10 is that the dealers irrespective of the fact whether they have collected the tax or not will be liable to pay the tax till 9th November, 1964, whereas after that their liability will be only if they have collected it. If the object of the retrospective levy was simply to impose a tax for public purpose retrospectively then there was no point in exempting those who have not collected it after 9th November, 1964, and if the object, as is clear from section 10, was to collect tax already realised by the dealers then there was no justification for fixing a demarcating line. The demarcating period which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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