TMI Blog1995 (2) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiling limit of exemption for payment of turnover tax and increase in the rate of turnover tax. With the permission of this Tribunal the applicants filed a supplementary affidavit because of such amendments in 1987 and 1992. The respondents filed affidavitin-opposition to the supplementary affidavit, in addition to the affidavit-inopposition previously filed by them in the case. 2.. The applicant No. 1 is M/s. J. Thomas and Company Private Limited. The case of the applicants is that the applicant No. 1 is one of the oldest tea brokers of international repute in the world. Tea as a single item earns largest foreign exchange for and on behalf of India. As a tea broker, the applicant No. 1 sells approximately 1/3rd teas, in course of export of such tea, through various auctions conducted in the country. The Calcutta Tea Traders' Association ("CTTA", in short), of which the applicant No. 1 is a broker member, has also earned immense reputation both in India and abroad. No turnover tax under section 6B of the Act is payable in respect of the turnover relating to sales of tea in auctions under the auspices of CTTA and Siliguri Tea Auction Committee (hereinafter called "STAC", for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of its commission due to the operation of rule 26 in Part VI of the Rules of the Calcutta Tea Traders' Association (hereinafter called "the Rules of the CTTA", for the sake of convenience). As a broker member of CTTA and STAC, the applicant No. 1 conducts sales at tea auctions, though the tea belongs to the principals and/or owners of garden. For such sales, delivery note/delivery order is given to the highest bidder to take delivery of the tea from the godowns where teas of the principals and/or garden owners are stored, pending sale. The applicant No. 1 conducts sales of various grades of tea belonging to the principals and/or owners of tea gardens by offering the same to very reputed local and international dealers and exporters. After receipt of offers from such dealers and exporters by the applicant No. 1, sales are concluded and teas are delivered to them. The principals and/or the owners of tea gardens whose tea is sold by the applicant No. 1 at auctions or by private treaty pay commission at the rate of 1 per cent on the gross sale value of such tea. The applicant No. 1 does not purchase and resell such tea on its own account. The sale of the tea is between the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 2, Commissioner of Commercial Taxes, Government of West Bengal and made representations as to the alleged liability of the applicant No. 1 to pay turnover tax. Letters dated June 21, 1980 and April 13, 1981 were sent to the respondent No. 2. Unfortunately, the respondent No. 3, the Commercial Tax Officer, Radhabazar Charge, sent a letter dated July 30, 1982 to the applicant No. 1 asking the applicant No. 1 to deposit turnover tax with effect from April 1, 1979 by September 10, 1982 and to produce the receipted treasury challan. Though the applicant No. 1 sent a reply dated August 28, 1982 to the respondent No. 3 in the matter, nothing has been done by the respondents in the matter. As such, the applicants have prayed for declaration that the provisions of section 6B of the Act as well as amendments of section 6B in 1987 and 1992 are ultra vires the Constitution, illegal and void. The applicants have prayed for a writ in the nature of mandamus, commanding the respondents to withdraw and cancel the notice dated July 30, 1982 and all purported proceedings for imposition and/or collection of turnover tax and not to levy any turnover tax on the applicant No. 1. The applicants hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit-in-opposition in respect of the supplementary affidavit filed for the applicants. It is alleged that while upholding the constitutional validity of the imposition of turnover tax the High Court, Calcutta, as well as this Tribunal did not appreciate the legal position in its true perspective. 8.. In the case of Century Spinning Mfg. Co. v. State of West Bengal reported in [1989] 73 STC 277, a Division Bench of the Calcutta High Court upheld the validity and constitutionality of section 6B of the Act. It was held in that case that turnover tax was a tax on sales and not on income and that the State Legislature was competent under entry 54 of List II in the Seventh Schedule of the Constitution to enact section 6B of the Act and section 4AAA of the West Bengal Sales Tax Act, 1954. The decisions in the case of Century Spinning Mfg. Co. [1989] 73 STC 277 (Cal) were that the provision regarding turnover tax was not confiscatory merely because section 6B(4) of the Act prohibited a dealer from passing on the tax burden to the purchaser. It was further held in that case of Century Spinning Mfg. Co. [1989] 73 STC 277 (Cal) that the provisions of section 6B were not violative of articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act were not discriminatory or violative of articles 14 and 19(1)(g) of the Constitution. The decision in the case of Afsar Rahaman Laskar [1994] 93 STC 122 (WBTT) is that in taxing statute the Legislature enjoys a wide freedom in making classifications, although every classification should satisfy the minimum requirements of article 14 of the Constitution. Only those should belong to the same class, who had certain common factors and one should not belong to that class who did not possess those common criteria. The classification should bear a nexus to the object of the statute in question. The further decision in that case of Afsar Rahaman Laskar [1994] 93 STC 122 (WBTT) was that classification in taxing statutes was permitted on the basis of economic superiority, though in making such classification there could be individual cases of hardship. The decision in that case of Afsar Rahaman Laskar [1994] 93 STC 122 (WBTT) was that graduated slabs laid down in section 6B(3) of the Act were clearly based on economic superiority of the dealers included in one class over those included in another, and that the graduated slabs had been done according to the quantum of turnover. Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes of argument to the decisions of this Tribunal in the case of O.P. Lodha v. West Bengal Commercial Taxes Tribunal [1990] 79 STC 364; (1989) 22 STA 496 and the case of Chowringhee Sales Bureau (P) Ltd. v. State of West Bengal (1990) 23 STA 49, it is not necessary to discuss these cases as it is the case of the applicants that the applicants being a commission agent and an auctioneer, is a "dealer" under explanation 2 to section 2(c) of the Act. Under that explanation 2 to section 2(c) of the Act, an auctioneer or a commission agent is a "dealer". In these circumstances, the written arguments submitted by Mr. Somen Bose, learned Senior Advocate for the applicants, should be discussed in relation to sale of tea under the auspices of the CTTA and STAC. 9.. Prior to enforcement of section 6B of the Act with effect from April 1, 1979, payment of sales tax under the Act was exempted in the case of sales of tea at auction in Calcutta under the auspices of the CTTA or at Siliguri under the auspices of STAC to a registered dealer of tea specified in the certificate of registration of such dealers, on some conditions to be fulfilled when a dealer wanted to make a deduction of his tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rules 7 and 9 of Part I of the Rules. Under rule 3 in Part III of the Rules, all sales of tea by broker members, whether by private treaty or printed for sale in auction, whether subsequently sold in auction or outside the auction, shall be held under and subject to the Rules of CTTA for the time being in force. Though brokers have been given the liberty to finance producers and their undertakings, they shall not undertake the duties of agents on behalf of an estate beyond the receipt and sale of invoices in Calcutta either privately or in auction under rule 6 in Part III of the Rules. Delivery of tea entrusted to a broker member for sale shall only be made by warehousemen concerned on presentation of a delivery order duly signed by the broker to whom the tea was entrusted for sale (see rule 20 in Part III of the Rules). Brokers shall charge and collect from both the sellers and buyers the brokerage, commission, service charges and other charges as may be determined from time to time by the general committee of the association and as approved by the Tea Board under rule 13 in Part III of the Rules. All sales of tea by private treaty undertaken by broker members must be subject of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants, in the written notes submitted by him, are to be discussed in the backdrop of the aforesaid Rules of CTTA, Ahuja Committee Report and the Control Order. The main contention of Mr. Somen Bose is that imposition of turnover tax on sale of tea by private treaty is confiscatory. Mr. Somen Bose contends that under the Tea (Marketing) Control Order, 1984, every producer of tea has to sell a minimum of 70 per cent of tea through auction conducted by various tea auction centres and the Tea Board has the power to formulate Rules in order to bring about uniformity. The Tea Board has laid down certain guidelines for brokers, based on which licence would be issued to operate as brokers under the Control Order, 1984. In this way, all tea brokers functioning throughout the country are obliged to obey the Rules made by the Tea Board under the Control Order of 1984. Under rule 1 in Part V of the Rules of the CTTA tea sold in private treaty are subjected to the Rules of CTTA. As such, it is not possible for the applicant No. 1 to charge commission at a higher rate, for, in that event, the applicant No. 1 would not be allowed to remain a member of CTTA and in that event the applicant No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (4) of section 6B of the Act prohibited a dealer from passing on the tax burden relating to turnover tax to the purchaser, it could not be said that the provision was confiscatory, unreasonable and violative of the provisions of article 19(1)(g) and 19(1)(f) of the Constitution. We respectfully agree with this Division Bench decision in the case of Century Spinning Mfg. Co. [1989] 73 STC 277 (Cal) which was also followed in the case of Sawalka Kel Private Limited v. State of West Bengal [1991] 82 STC 302 (WBTT). It was held by this Tribunal in the case of Trot Shoe Company Private Limited v. State of West Bengal [1993] 89 STC 243 that the liability to pay higher tax by reason of the amendment in 1987 did not impose any restriction on the freedom under article 19(1)(g) of the Constitution and did not make the tax confiscatory. In an unreported decision by a Division Bench of this Tribunal in the case of Chemical India v. Commissioner of Commercial Taxes, West Bengal [RN-232(T) of 1992 disposed of by this Tribunal on October 1, 1993] this Tribunal referred to an unreported decision of this Tribunal about the meaning of the word "confiscatory", in the case of Raja Tarapada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rules may be altered or added to at an extraordinary general meeting of CTTA. Out of seventeen members of the general committee, of which two are nominated, there are five broker members. The broker members can take action for altering the Rules of the CTTA as regards payment of commission to them in respect of tea sold in auction and tea sold by private treaty. As regards the alteration of the Rules regarding rate of brokerage payable to broker members it has been contended for the applicants that the auctioneers are not the only members of CTTA. There are several other categories of members namely garden owners, buyers, warehouse keepers, etc. It is not possible for the applicant No. 1 to change Rules of CTTA as a matter of formality. It is also contended that in view of the very low brokerage commission earned by internationally reputed concern like the applicant No. 1, various statutory authorities have not only recognised the reputation of the applicant No. 1 but have also given various other concessions in the matter of tax. It is contended that if the brokerage commission is suddenly raised, not only the goodwill of the applicant No. 1 about charging of very low commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween persons who have been made liable to pay turnover tax when they sell tea by private treaty and those who have been left out with regard to sales of tea in auction held under the auspices of CTTA. It is also contended that the provisions of section 6B of the Act are arbitrary and violative of the provisions of article 14 of the Constitution in view of the fact that no graduated increased rate has been prescribed in determining the liability of the dealer under the said provisions. The contention does not appear to be correct. The impact of article 14 of the Constitution in relation to turnover tax has already been discussed by this Tribunal in the judgment of this Tribunal in the case of Afsar Rahaman Laskar v. State of West Bengal [1994] 93 STC 122. It has been held in the case of Afsar Rahaman Laskar [1994] 93 STC 122 (WBTT) that graduated slab rates for turnover tax are not discriminatory. When it is the policy of the Government to encourage sales of tea through auctions so as to foster the interest of trade in every respect, as is stated by the respondents in their affidavit-in-opposition, there is no differential treatment between sales of tea in auction and by private tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Somen Bose contends that the Act, being a State Act, has, however, to satisfy the test of the proviso to article 304(b) of the Constitution, which was a mandatory legislative procedure. It is contended that as this has not been done there has been violation of article 301 read with article 304(b) of the Constitution so far as turnover tax payable by the applicant No. 1 with regard to sale of tea by private treaty is concerned. It is further contended that imposition of turnover tax on sale by private treaty acts as a deterrent factor on the applicants' propensity to enlarge the volume of sale by private treaty and thereby free-flow of trade of the applicants is impeded. These contentions cannot be accepted. 15.. The purpose and object of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954, was to collect taxes on goods solely on the ground that they were carried by road or by inland waterways within the area of the State of Assam. That being so, that Act had put a direct restriction on the free-flow of trade, and since in doing so it did not comply with the provisions of article 304(b) nor was it validated by the assent of the President under article 255 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a variety of factors such as the source of supply, place of consumption, existence of trade channels, the rate of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Excepting the allegation that the imposition of turnover tax in respect of sale of tea by private treaty directly impedes the free-flow of trade, the applicant No. 1 has not made out any case as to how such free movement of the trade in tea has been directly hit. Imposition of turnover tax does not directly impede the movement of tea sold by private treaty. If it acts, as a deterrent to the enlargement of volume of sale by private treaty, the purpose of the Government for encouraging sale of tea in auction is served. It cannot thus be held that article 301 has been contravened. The question of resorting to the proviso to article 304(b) of the Constitution does not, thus, arise. Mr. Somen Bose referred to the case of State of Rajasthan v. Ghasiram Mangilal (1969) 2 SCC 710. It is not necessary to discuss the facts of that case. The honourable Supreme Court did not go into the question of article 304(a) in that case, as the honourable Supreme Court was of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be ultra vires the provisions of article 304(b) of the Constitution was no longer available after the promulgation of the Ordinance. Their Lordships of the Calcutta High Court in the Division Bench decision in the case of State of West Bengal v. Jagmohan Lal Gupta [1980] 45 STC 418 held that though the requirement of the proviso to article 304(b) had been complied with after the promulgation of the Ordinance, that was not the only requirement of that article. The further condition that had to be fulfilled was that the restrictions sought to be imposed on the freedom of trade, commerce and intercourse must be reasonable restrictions. It was observed in that case that in view of the fact that the gross profits of the dealers in country liquor varied between 5.7 per cent and 7.8 per cent as found by the learned Judge, it was difficult to hold that the imposition of sales tax at the rate of 6 per cent was a reasonable restriction unless the dealers could pass on the tax to their consumers. These observations of their Lordships in the case of Jagmohan Lal Gupta [1980] 45 STC 418 (Cal) have led Mr. Somen Bose to contend that the imposition of the turnover tax at the rate of 2 per cent, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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