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TMI Blog2007 (3) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... 77, 4287, 4315, 4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616, 4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319, 5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550, 5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, 6129, 6136, 6250, 6262, 6268, 6269, 6276, 6297, 6409, 6424, 6437, 6622, 6646, 6651, 6752, 6816, 6823, 6824, 6852, 6855, 6982, 6985, 6992, 6997, 7005, 7173, 7174, 7175, 7329, 7334, 7346, 7545, 7550, 7661, 7733 and 7738 of 2007 For the Appellant : K.B. Muhamed Kutty (SR.) and K.M. Firoz, Adv. For the Respondent : V.V. Asokan, Special Government Pleader (Taxes) JUDGMENT K. BALAKRISHNAN NAIR, J. 1. The constitutional validity of Sub-section (16A) of Section 47 of the Kerala Value Added Tax Act, 2003 and the sustainability of two circulars issued by the Commissioner of Commercial Taxes under the said provision are the points, that arise for decision in these writ petitions. Since same points arise for decision in all these writ petitions, they are heard and disposed of by this common judgment. W.P. (C) No. 2844 of 2007 is treated as the main case. W.P. (C) No. 2844 of 2007: 2. The petitioner, which is a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced as exhibit P2 in the writ petition is extracted below: As per Circular No. 50 of 2006 instructions were issued for collection of advance tax in respect of twelve evasion-prone commodities at the entry points into the State such as check-posts, ports, airports and railway stations. Now it is brought to the notice of the Commissionerate that dealers are experiencing inconvenience for remitting tax at the entry point in respect of the consignment, especially where the entry point is far from the ordinary place of business. Suggestions have been put forth from the trade to permit them to remit the tax before the concerned assessing authority. This issue has been examined and the following further instructions are issued. Dealers may remit the tax on the consignments in advance before the respective assessing authority if they can provide details of the consignment such as copy of the bill/invoice, vehicle number, and name of the entry point (check-post/port/airport/railway station) While estimating the sale price for the purpose of collecting the advance tax the assessing authority shall consider the value as disclosed in the invoice/bill, transporting charges and an est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds : exhibits PI and P2 circulars are illegal and unconstitutional. They are not supported by any statutory provision and therefore, will be hit by Article 265 of the Constitution of India. Sub-section (16A) of Section 47 of the KVAT Act is ultra vires of the constitutional provisions concerning sales tax. Imposition, levy and collection of tax in advance before the sale is effected, is unconstitutional. The taxable event is the sale and collection of tax before the sale takes place is, therefore, unconstitutional. The provisions contained in Chapter V of the KVAT Act concerning assessment, collection or payment of tax do not authorise collection of tax in advance, by issuing a circular by the first respondent. Section 3(2)(c) authorises to issue only administrative instructions. The Commissioner of Commercial Taxes cannot exercise the statutory power of taxation, based on the said provision. This position is covered by the decision of the division Bench of this Court in Choice Plywood Industries v. State of Kerala 2006 (2) KLT 513 . Sub-section (16A) of Section 47 is unconstitutional inasmuch as the said provision gives unlimited discretion to the Commissioner in respect of taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 19(1)(g) of the Constitution of India. The section does not violate any of the constitutional provisions. The petitioners have failed to dislodge the presumption of constitutionality in favour of the statute. In taxing matters, the courts must normally respect the legislative judgment. The allegation that the issuance of the circulars is to get over the decision of the division Bench of this Court dated December 18, 2006 in O. P. No. 434 of 1996 and connected cases Thressiamma 1 Chirayil v. State of Kerala [2007] 7 VST 293, is absolutely baseless. Some dealers transport certain commodities, using the registration numbers of the Kerala dealers. Complaints regarding clandestine transport by bogus parties have been received from honest dealers in the State. In order to prevent clandestine transport of goods into the State, circular No. 50 of 2006 was issued. The direction to pay tax in advance cannot be termed as one amounting to collection of tax from a dealer before the incidence of tax under the KVAT Act. The investigation conducted by the department revealed that certain goods are evasion-prone and therefore, they are included in exhibit PI circular. To enable the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfined to the month of March alone, which is to be paid before March 31. There is no provision in the KVAT Act to collect tax before the sale is effected. The taxable event is sale and nobody can demand sales tax before the sale takes place. Exhibit PI circular deals with tax on estimated turnover before the sale takes place. Tax is demanded before the goods reach the destination. The circulars are ultra vires of Sub-section (16A) itself. The charging section is Section 6 and the charge is on the turnover, which is attained only by sale. The circular is issued in violation of the parent provision. Collection of tax must be authorised by law and not by administrative instruction or executive fiat. The power under Section 3(2)(c) of the KVAT Act is administrative in character. 9. The learned Senior Counsel further submitted that Sub-section (16A) suffers various constitutional infirmities. Instead of conferring delegated power on the Government, it is delegated to a person. Evasion-prone commodity is a vague concept and therefore, the provision confers unbridled power on the Commissioner. Even an honest dealer, who is dealing in goods, which are labelled as evasion-prone goods, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Assam [1961] 1 SCR 809 , State of Punjab v. Jullundur Vegetables Syndicate [1966] 2 SCR 457 , Devi Dass Gopal Krishnan v. State of Punjab [1967] 3 SCR 557 , Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills [1968] 3 SCR 251 , Yogesh Trading Co. v. Intelligence Officer of Sales Tax AIR 1970 Ker 218 , Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 155 ITR 144(SC) , State of Bihar v. Harihar Prasad Debuka [1989] 1 SCR 796 , Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402(SC) , P.D. Sudhi v. Intelligence Officer [1992] 85 STC 337 (Ker), Puri Municipal Council v. Indian Tobacco Co. Ltd. AIR 1996 SC 534 , State of Kerala v. T.C.M. Co. [1999] 1 KLT 91, Gajanana Agencies v. State of Kerala [2002] 3 KLT 242, State of Kerala v. [2004]271ITR290(SC) , Reliance Generators Pvt. Ltd. v. State of Kerala 2005 (2) KLT 573 , Choice Plywood Industries v. State of Kerala 2006 (2) KLT 513 , State of Rajasthan v. Rajasthan Chemists Association 2006(202)ELT217(SC) and Kagaz Prints-Pack (India) Pvt. Ltd. v. State of Haryana [2007] 5 VST 26 (P&H). The learned Special Government Pleader on the other hand, relied on the decisions in R.S. Joshi v. Aji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule is that the words of a statute must prima facie be given their ordinary meaning'. Natural and ordinary meaning of words should not be departed from 'unless it can be shown that the legal context in which the words are used requires a different meaning'. Such a meaning cannot be departed from by the judges 'in the light of their own views as to policy although they can 'adopt a purposive interpretation if they can find in the statute read as a whole or in material to which they are permitted by law to refer as aids to interpretation an expression of Parliament's purpose or policy. For a modern statement of the rule one may refer to the speech of LORD SIMON to GLAISDALE in a recent case where he said : 'Parliament is prima facie to be credited with meaning what is said in an Act of Parliament. The drafting of statutes, so important to a people who hope to live under the rule of law, will never be satisfactory unless courts seek whenever possible to apply 'the golden rule' of construction, that is to read the statutory language, grammatically and terminologically, in the ordinary and primary sense which it bears in its context, without omissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on single point transaction of sale of any formulation (medicine) by the wholesaler to the retailer could be something notional, which was not related to the subject of tax, namely, the maximum retail price which could be chargeable subsequent to the taxing event, by a retailer. The High Court held that where the price is the basis for measuring tax, it must relate to the actual transaction of sale and not the price at which sale might take place in future. The Supreme Court upheld the decision of the High Court. The learned Counsel for the petitioners relied on the following portion of the judgment: 12. Significantly, the court observed about the substance of the levy as under : Budh Prakash Case [1955] 1 SCR 248 'The substance of the matter is that the sales tax is a levy on the price of the goods, and the reason of the thing requires that such a levy should not be made, unless the stage has been reached when the seller can recover the price under the contract.' 13. The aforesaid decision makes it clear that subject 'tax on sales of goods' in entry 48 of List II of the Seventh Schedule of the 1935 Act providing for legislative field of sale of goods ought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easuring tax for the completed transaction which has become subject of tax. ... 55. If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax, viz., sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done, the legislation can provide for any measure for the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which Legislature may provide will make little difference. It is not contended by the appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, but a transaction of 'sale of goods' as defined under the Sales Act. 17. The learned Special Government Pleader on the other hand, relied on the decision of the apex court in State of West Bengal v. E.I.T.A. India Limited [2003]2SCR668 . In the said decision, the apex court upheld the validity of certain provisions of the West Bengal Sales Tax Act, which included two Sub-sections providing for payment of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he saleable value of such goods. It does not postulate payment of advance tax. What it aims is an amount in advance equivalent to the amount of tax that may become due from a casual trader or security for an equivalent amount depending upon the saleable value of the goods in question. There is thus a clear nexus between the amount in advance or security and the levy of impost on the casual trader. The provision is meant to ensure collection of tax. Sub-section (8) provides for payment of the amount in advance or the security, if any, referred to in Sub-section (7) by a casual trader on demand under Sub-section (4) at the time of bringing any goods, except those specified in Schedules I and IV or those notified under Section 10(2) of the Act, for being adjusted with the amount of tax due from him and for refund after due adjustment in the prescribed manner. 17. It is, thus, clear that Sub-sections (3), (4), (5), (6), (7) and (8) are part of the same scheme aimed at prevention of evasion of tax payable under the Act. Sub-sections (10) and (12) are consequential provisions. Sub-section (10) empowers the Commissioner or the authorised officer to seize the goods with containers or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... striction. In our view, this judgment does not help the respondents for reasons more than one. Firstly, Section 8-A of that Act, as it stood at that time was upheld by the Constitution Bench as valid and secondly, in the instant case, the impugned provisions embody ample safeguards for a transporter of goods as also for an owner or lessee of a warehouse, enquiry is contemplated for determination of the amount in advance or security authorised to be demanded which, in any event, cannot be more than the amount of tax that could be levied in respect of the goods in question on such a person. It supports the case of the appellant. 20. In Balaji v. Income-tax Officer [1961]43ITR393(SC) , the petitioner challenged the provisions of Section 16(3)(a)(i) of the Income Tax Act, 1922 in this Court under Article 32 of the Constitution of India. The petitioner and his wife started a business in partnership and admitted their minor sons to it. While computing the total income of the petitioner for the purpose of assessment to Income Tax, the Income Tax Officer included the share of the income of the wife and the minor sons under the said provision. It was held that entries in the legislative L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in sale or purchase of any goods and therefore they could not be held to be 'dealers' within the meaning of the Act and as such the impugned provisions which laid certain obligation on them were beyond the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. Negativing the contention it was held that if the Legislature makes any ancillary or subsidiary provisions which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative List should not be read in a narrow or pedantic sense but must be given their fullest meaning, the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be comprehended. Thus, the provision incorporating mechanism to seal all loopholes of escape and casting obligation on someone to perform certain acts to achieve this objective was held to be a valid provision. 23. In State ofRajasthan v. D.P. Metals AIR2001SC3076 , the provisions of the Rajasthan Sales Tax Act, 1994 (22 of 1995) for levy of penalty on person-in-charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance collection is made towards tax. To avoid evasion of tax, enactment of such provisions is constitutionally permissible, in view of the decision of the apex court in State of West Bengal v. E.I.T.A. India Limited [2003]2SCR668 . The decision in Rajasthan Chemists Association 2006(202)ELT217(SC) does not stand in the way of collection of tax in advance. So, the interpretation given to Sub-section (16A) of Section 47 that it is authorising collection of tax in advance will not make it unconstitutional. When the statute authorises issuance of such circulars, there is nothing illegal with exhibits P1 or P2. 20. The petitioners attack the impugned provision as vitiated by excessive delegation. According to them, it does not lay down any legislative policy properly. The legislative policy has also been delegated to the Commissioner, it is submitted. Every one familiar with collection of sales tax knows that certain goods are evasion-prone. The "notified" goods are admittedly evasion-prone. Experience may show that some other goods are also evasion-prone. The contention of the petitioners that the identification of the goods is left to the Commissioner without any guidelines, cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them by the Constitution, subject to the limitations imposed by the Constitution itself. The power to legislate carries with it the power to delegate. But excessive delegation may amount to abdication. Delegation unlimited may invite despotism uninhibited. So, the theory has been evolved that the Legislature cannot delegate its essential legislative function. Legislate it must by laying down policy and principle and delegate it may to fill in detail and carry out policy. The Legislature may guide the delegate by speaking through the express provision empowering delegation or the other provision of the statute, the preamble, the scheme or even the very subject-matter of the statute. If guidance there is, wherever it may be found, the delegation is valid. A good deal of latitude has been held to be permissible in the case of taxing statutes and on the same principle a generous degree of latitude must be permissible in the case of welfare legislation, particularly those statutes which are designed to further the Directive Principles of State Policy. 4. In Harishankar Bagla v. State of Madhya Pradesh 1954CriLJ1322 , the question arose whether Section 3 of the Essential Supplies (Temp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods and the selection of goods in respect of exemption from taxation might be granted, etc., etc. 7. In Sardar Inder Singh v. State of Rajasthan [1957]1SCR605 the validity of Section 15 of the Rajasthan (Protection of Tenants) Ordinance which authorised the Government to exempt any person or class of persons from the operation of the Act was upheld and the argument that there was impermissible delegation of legislative power was repelled on the ground that the preamble to the Ordinance set out with sufficient clarity the policy of the Legislature. 8. In Vasantlal Maganbhai Sanjanwala v. State of Bombay 1978CriLJ1281 , Section 6(2) of the Bombay Tenancy and Agricultural Lands Act was challenged as permitting excessive delegation of legislative power as it enabled the Government to fix a lower rate than the maximum rent payable by the tenants of lands situate in any particular area or to fix such rate on any suitable cases as it thought fit. This Court noticed that the Act was undoubtedly a beneficent measure, as shown by the preamble which state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining which item of agricultural produce should be put into the Schedule, nevertheless upheld its vires on the ground that guidance was writ large in the various provisions and the Scheme of the Act. It was observed that in each case the State Government had to consider whether the volume of trade in the produce was of such a nature as to give rise to wholesale trade so as to merit inclusion in the schedule. 11. Let us now turn to Section 60 of the Madras Co-operative Societies Act, 1932 whose vires is in question and which is as follows: '60. The State Government may, by general or special order, exempt any registered society from any of the provisions of this Act or may direct that such provisions shall apply to such society with such modifications as may be specified in the order.' The provision is a near Henry VIII clause. But to give it a name is not to hang it. We must examine the preamble, the scheme and other available material to see if there are any discernible guidelines. Sure the Co-operative Societies Act is a welfare legislation. Its preamble proclaims: 'Whereas it is expedient further to facilitate the formation and working of co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve already pointed out, are clear. 13. We are, therefore, of the view that Section 60 is not void on the ground of excessive delegation of legislative power. 21. In the light of the above principles laid down by the apex court, it has to be held that the impugned provision is valid. The Legislature cannot be blamed for not naming the evasion-prone goods. Their list may change from time to time. So, the Commissioner has been rightly authorised to specify them. The words "evasion-prone goods" give sufficient guidelines to him. So, the challenge of excessive delegation is repelled. 22. Now what remains to be examined are the contentions of the petitioners with reference to other provisions of the Constitution. They submit, the impugned provision violates Articles 14 and 19(1)(g) of the Constitution. The classification, to demand tax in advance, of evasion-prone goods, on the ground that they come from outside the State, is made on a rational basis. Unless tax in advance is demanded, there is likelihood of evasion of tax. So, the classification is made on a sound basis, to achieve the object of safeguarding the interest of Revenue by preventing evasion of tax. It is unnecessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc. It has been said by no less a person than Holmes, J. that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1957] 354 US 457 where Frankfurter, J. said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois 94 US 13, namely, 'that courts do not substitute their social and economic beliefs for the judgment of the legislative bodies'. The court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago [1912] 57 LEd 730 : [1912] 228 US 61: The problems of Government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review'." (Emphasis supplied) 24. In view of the above legal position and for other reasons set out here in above, the challenge against the constitutional validity of Section 47(16A) of the KVAT A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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