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TMI Blog1983 (5) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... laws. We are here concerned with s. 5 of the Act which finds place in Pt. 1 of the Act which bears the heading " Levy of tax on the sale and purchase of goods in Bihar " and is relatable to entry 54 of List II of Sch. VII. By two separate notifications dated January 15, 1981, the State Government of Bihar in exercise of the powers conferred by sub-s. (1) of s. 5 of the Act appointed January 15, 1981, to be the date from which surcharge under s. 5 shall be leviable and fixed the rate of surcharge at 10 Per centum of the total amount of the tax payable by a dealer whose gross turnover during a year exceeds Rs. 5 lakhs, in addition to the tax payable by him. The Act was reserved for the previous assent of the President and received his assent on April 20, 1981. There is no point raised as regards the validity of the notifications in question and, therefore, there is no need for us to deal with it. It will be convenient, having regard to the course taken in the arguments, to briefly refer to the facts as are discernible from the records in Civil Appeal No. 2567 of 1982 (Hoechst Pharmaceuticals Ltd. v. State of Bihar) and Civil Appeal No. 3277 of 1882 (Glaxo Laboratories (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross turnover of their sales in the State of Bihar through their branch at Patna at Rs. 5,17,83,985.76 and Rs. 5,89,22,346.64 respectively. They have paid tax along with the return amounting to Rs. 34,06,809.80 and Rs. 40,13,057.28 inclusive of surcharge at 10% of the tax for the period from January 15, 1981, to March 31, 1981, and April, 1981, to January 19, 1982, amounting to Rs. 34,877.62 and Rs. 3,09,955.86, respectively. There is excess payment of Rs. 55,383.98 in the assessment year 1980-81 and Rs. 13,112.35 in the year 1981-82. These figures show the magnitude of the business carried on by these appellants in the State of Bihar alone and their capacity to bear the additional burden of surcharge levied under sub-s. (1) of s. 5 of the Act. The High Court referred to the decision in Kodar v. State of Kerala [1975] 1 SCR 121 ; [1974] 34 STC 73 ; AIR 1974 SC 2272, where this court upheld the constitutional validity of sub-s. (2) of s. 2 of the Tamil Nadu Additional Sales Tax Act, 1970, which is in pari materia with sub-s. (3) of s. 5 of the Act and which interdicts that no dealer referred to in sub-s. (1) shall be entitled to collect the additional tax payable by him. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate or any part thereof with respect to any of the matters enumerated in List II of Sch. VII subject to the Union power to legislate with respect to any of the matters enumerated in List or List III. That is to say, sub-s. (3) of s. 5 of the Act which provides that no dealer shall be entitled to collect the surcharge levied on him must, therefore, yield to s. 6 of the Essential Commodities Act which provides that any order made under s. 3 of the Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than the Act or any instrument having effect by virtue of any enactment other than the Act. The entire submission proceeds on the doctrine of occupied field and the concept of federal supremacy. In short, the contention is that the Union power shall prevail in a case of conflict between List II and List III. (2) Sub-section (3) of s. 5 of the Act which provides that no dealer shall be entitled to collect the amount of surcharge levied on him, clearly falls within entry 54 of List II of Sch. VII and it collide with, and/or is inconsistent with, or repugnant to, the scheme of the Drugs (Price Control) Order, 1979, generally so far as price f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competent under entry 54 of List II of Sch. VII to enact a provision like sub-s. (1) of s. 5 of the Act which makes the gross turnover of dealer as defined in s. 2(j) to be the basis for the levy of a surcharge, i.e., inclusive of transactions relating to sale or purchase of goods which have taken place in the course of inter-State trade or commerce or outside the territory of India. Such transactions are outside the purview of the Act and, therefore, they cannot be taken into consideration for computation of the gross turnover as defined in s. 2(j) of the Act for the purpose of bearing the incidence of surcharge. The contention to the contrary advanced by the learned SolicitorGeneral, appearing on behalf of the State of Bihar, is that there is no inconsistency between sub-s. (3) of s. 5 of the Act and para. 21 of the Control Order and both the laws are capable of being obeyed. According to him, the question of repugnancy under art. 254(1) between a law made by Parliament and a law made by the State Legislature arises only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List, and there is direct conflict between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of by the other appellants who are dealers in other commodities. The case of such appellants would be squarely governed by the decision of this court in Kodar's case [1975] 1 SCR 121; [1974] 34 STC 73; AIR 1974 SC 2272 and their liability to pay surcharge under sub-s. (1) of s. 5 of the Act must be upheld, irrespective of the contentions raised in these appeals, based on the opening words " Subject to clauses (1) and (2) " in art. 246(3) of the Constitution and on s. 6 of the Essential Commodities Act. It is, therefore, necessary to first deal with the principles laid down in Kodar's case. In Kodar's case, this court upheld the constitutional validity of the Tamil Nadu Additional Sales Tax Act, 1970, which imposes additional sales tax at 5% on a dealer whose annual gross turnover exceeds Rs. 10 lakhs. The charging provision in sub-s. (1) of s. 2 of that Act is in terms similar to sub-s. (1) of s. 5 of the Act, and provides that the tax payable by dealer whose turnover for a year exceeds Rs. 10 lakhs shall be increased by an additional tax at 5% of the tax payable by him. Sub-section (2) of that Act is in pari materia with sub-s. (3) of s. 5 of the Act and provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of goods made outside the, State or in the course of inter-State trade or commerce or export) but does not include sale prices of goods or class or classes or description of goods which have borne the incidence of purchase tax under section 4. " Sub-section (3) of s. 5 of the Act, the constitutional validity of which is challenged, provides : " 5. (3) Notwithstanding anything to the contrary contained in this Part, no dealer mentioned in sub-s. (1), who is liable to pay surcharge, shall be entitled to collect the amount of this surcharge. " It is fairly conceded that not only sub-s. (1) of s. 5 of the Act which provides for the levy of surcharge on dealers whose gross turnover during a year exceeds Rs. 5 lakhs, but also sub-s. (3) of s. 5 of the Act which enjoins that no dealer who is liable to pay a surcharge under sub-s. (1) shall be entitled to collect the amount of surcharge payable by him, are both relatable to entry 54 of List II of the Seventh Schedule which reads: " 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. " There can be no doubt that the Central and the State legislations operate in two diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Order, unless the context otherwise requires, (a) 'bulk drug' means any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacopoeial or other standards accepted under the Drugs & Cosmetics Act, 1940, which is used as such or as an ingredient in any formulations; (f) 'formulation ' means a medicine processed out of, or containing one or more bulk drug or drugs, with or without the use of any pharmaceutical aids for internal or external use for, or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include . ...... .. We are here concerned with the impact of sub-s. (3) of s. 5 of the Act on the price structure of formulations, but none the less much stress was laid on the fixation of price of bulk drugs under para. 3(2) which allows reasonable return to the manufacturer under sub-para. (3) thereof. manufacturer or producer of such bulk drugs is entitled to sell it at price exceeding the price notified under sub-para. (1), plus local taxes, if any, payable. What is of essence is the price fixation of formulations and the relevant provisions are conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns specified in Category of the Third Schedule; (ii) fifty-five per cent. in the case of formulations specified in Category II of the said Schedule; (iii) one hundred per cent. in the case of formulations specified in Category III of the said Schedule. " It is unnecessary for our purposes to reproduce the provisions of paras. 12 to 14 which formulate a detailed scheme of price fixation. Paragraph 15 confers power of revision of prices and it reads : " 15. Power to revise prices of formulations.-Notwithstanding anything contained in this Order : (a) The Government may, after obtaining such information as it may consider necessary from a manufacturer or an importer, fix or revise the retail price of one or more formulations marketed by such manufacturer or importer, including a formulation not specified in any of the categories of the Third Schedule, in such manner as the pre-tax return on the sales turnover of such manufacturer or importer does not exceed the maximum pre-tax return specified in the Fifth Schedule; (b) the Government may, if it considers necessary so to do in public interest, by order, revise the retail price of any formulation specified in any of the categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e list or the price indicated on the label of the container or pack thereof, whichever is less, plus the local taxes, if any, payable. Explanation.-For the purpose of this paragraph, 'local taxes 'include sales tax and octroi actually paid by the retailer under any law in force in a particular area. 24. Price to the wholesale and retailer.-(1) No manufacturer, importer or distributor shall sell a formulation to a wholesaler unless other wise permitted under the provisions of this Order or any other Order made thereunder at a price higher than:- (a) the retail price minus 14 per cent. thereof, in the case of ethical drugs, and (b) the retail price minus 12 per cent. thereof, in the case of non-ethical drugs. (2) No manufacturer, importer, distributor or wholesaler shall sell formulation to a retailer unless otherwise permitted under the provisions of this Order or any order made thereunder, at a price higher than: (a) the retail price minus 12 per cent. thereof, in the case of ethical drugs, and (b) the retail price minus 10 per cent. thereof, in the case of non-ethical drugs. Explanation.-For the purposes of this paragraph (i) 'ethical drugs' shall include al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation of the price of a bulk drug allows a reasonable return to the manufacturer. Under sub-para. (3), the manufacturer or producer of such bulk drug is entitled to sell it at a price not exceeding the price so fixed plus local taxes, if any, payable. Much stress is laid that the average cost of an efficient manufacturer allows a reasonable return on the net-worth of the drug manufactured and the price so fixed is exclusive of local taxes, i.e., sales tax. It is further urged that the term " local taxes " in sub-para. (3) means and includes sales tax leviable in a State and attention is drawn to the Explanation to para. 21 for that purpose. We fail to appreciate the relevance of sub-para. (3) of para. 3 which relates to a manufacturer or producer of bulk drugs or of para. 21 of the Control Order which fixes the controlled price of formulations specified in the Third Schedule exclusive of local taxes, i.e., sales tax. The appellants are manufacturers or producers of medicines and drugs and are governed by para. 24. Under para. 24, a manufacturer I or producer is not entitled to sell a formulation to a wholesaler at a price higher than the retail price minus 14% thereof in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevail. The submission rests on a construction of art. 246(3) of the Constitution and it is said that the power of the State Legislature to enact a law with respect to any subject in List II is subject to the power of Parliament to legislate with respect to matters enumerated in Lists I and III. It is convenient at this stage to deal with the contention of the appellants that if sub-s. (3) of s. 5 of the Act were to cover all sales including sales of essential commodities whose prices are controlled by the Central Government under the various control orders issued under sub-s. (1) of s. 3 of the Essential Commodities Act, then there will be repugnancy between the State law and such Control Orders which according to s. 6 of the Essential Commodities Act must prevail. In such a case, the State law must yield to the extent of the repugnancy. In Harishankar Bagla v. State of Madhya Pradesh [1955] 1 SCR 380; AIR 1954 SC 465, the court had occasion to deal with the non obstante clause in s. 6 of the Essential Supplies (Temporary Powers) Act, 1946, which was in pari materia with s. 6 of the Essential Commodities Act and it was observed at (p. 469 of AIR 1954 SC): "The effect of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional sales tax payable under s. 6 to the purchasers. Sub-section (3) of s. 5 of the Act, however, imposes limitation on dealers liable to pay surcharge under sub-s. (1) thereof from collecting the amount of surcharge payable by them from the purchasers which only means that surcharge payable by such dealers under sub-s. (1) of s. 5 of the Act will cut into the profits earned by such dealers. The controlled price or retail price of medicines and drugs under para. 21 remains the same, and the consumer's interest is taken care of inasmuch as the liability to pay surcharge under sub-s. (3) of s. 5 cannot be passed on. That being so, there is no conflict between sub-s. (3) of s. 5 of the Act and para. 21 of the Control Order. The entire submission advanced by learned counsel for the appellants proceeds on the hypothesis that the various control orders issued under sub-s. (1) of s. 3 of the Essential Commodities Act are for the protection of the manufacturer, or producer. There is an obvious fallacy in the argument which fails to take into account the purpose of the legislation. The dominant purpose of issuing a control order under sub-s. (1) of s. 3 of the Essential Commodities Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. It is obvious that art. 246 imposes limitations on the legislative powers of the Union and State Legislatures and its ultimate analysis would reveal the following essentials : 1. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I notwithstanding anything contained in cls. (2) and (3). The non obstante clause in art. 246(1) provides for predominance or supremacy of the Union Legislature. This power is not encumbered by anything contained in cls. (2) and (3) for these clauses themselves are expressly limited and made subject to the non obstante clause in art. 246(1). The combined effect of the different clauses contained in art. 246 is no more and no less than this : that in respect of any matter falling within List I, Parliament has exclusive power of legislation. 2. The State Legislature has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of Sch. VII and it also has the power to make laws with respect to any matters enumerated in List III. The exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nything in clauses (2) and (3) ", sub-s. (3) of s. 5 of the Act which provides that no dealer shall be entitled to collect the amount of surcharge must be struck down as ultra vires the State Legislature inasmuch as it is inconsistent with para. 21 of the Drugs (Price Control) Order issued by the Central Government under sub-s. (1) of s. 3 of the Essential Commodities Act which enables the manufacturer or producer of drugs to pass on the liability to pay sales tax to the consumer. The submission is that sub-s. (3) of s. 5 of the Act enacted by the State Legislature while making a law under entry 54 of List II of Sch. VII which interdicts that a dealer liable to pay surcharge under sub-s. (1) of s. 5 of the Act shall not be entitled to collect it from the purchaser, directly trenches upon the Union power to legislate with respect to fixation of price of essential commodities under entry 33 of List III. It is said that if both are valid, then ex hypothesi the law made by Parliament must prevail and the State law pro tanto must yield. We are afraid, the contention cannot prevail in view of the well-accepted principles. The words " Notwithstanding anything contained in clauses (2) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not written on a clean slate because a Federal Constitution had been established by the Government of India Act, 1935, and it still remains the framework on which the present Constitution is built. The provisions of the Constitution must, accordingly, be read in the light of the provisions of the Government of India Act, 1935, and the principles laid down in connection with the nature and interpretation of legislative power contained in the Government of India Act, 1935, are applicable, and have in fact been applied, to the interpretation of the Constitution. In the matter of Central Provinces & Bearer Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1938] 1 STC 1 (FC), Gwyer C.J., referred to the two decisions of the Privy Council in Citizens Insurance Company v. William Parsons [1881] 7 App Cas 96, 108 and Attorney-General for the Province of Ontario v. Attorney-General for the Dominion of Canada [1912] AC 571, 583, which in his opinion had laid down " most clearly the principles which should be applied by courts in the matter of deciding upon the competence of the two rival Legislatures that have been set up under the Indian Federal system ". With regard to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd scheme of the Act. In Subrahmanyan Chettiar v. Muthuswami Goundan [1940] FCR 188; [1940] FLJ 157, Gwyer C. J., reiterated that the principles laid down by the Privy Council in a long line of decisions in the interpretation of ss. 91 and 92 of the British North America Act, 1867, must be accepted as a guide for the interpretation of s. 100 of the Government of India Act, 1935 (p. 165 of [1940] FLJ) : " It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in forbidden sphere. Hence the rule which has been evolved by the judicial Committee whereby the impugned statute is examined to ascertain its 'pith and substance' or its 'true nature and character' for the purposes of determining whether it is legislation in respect to matters in this list or in that. It has already been stated that where the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down that in distinguishing between the powers of the divided jurisdictions under Lists I, II and III of the Seventh Schedule to the Government of India Act, 1935, it is not possible to make a clean cut between the powers of the various Legislatures. They are bound to overlap from time to time, and the rule which has been evolved by the judicial Committee whereby an impugned statute is examined to ascertain its pith and substance or its true character for the purpose of determining in which particular list, the legislation falls, applies to Indian as well as to Dominion legislation. In laying down that principle, the Privy Council observed (p. 65): Moreover, the British Parliament when enacting the Indian Constitution Act had a long experience of the working of the British North America Act and the Australian Commonwealth Act and must have known that it is not in practice possible to ensure that the powers entrusted to the several legislatures will never overlap. " The Privy Council quoted with approval the observations of Gwyer C.J., in Subrahmanyan Chettiar's case [1940] FCR 188 ; AIR 1941 FC 47; [1940] FLJ 157 quoted above, and observed (p. 65 of AIR 1947 PC): " No doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain its pith and substance or its true nature and character for the purpose of determining in which particular list the legislation falls, applies to Indian as well as the Dominion legislations. It also added (p. 65) " ......where they come in conflict, List I has priority over Lists III and II and List III has priority over List II ...... .." But as the Privy Council pointed out: " The priority of the Federal Legislature would not prevent the Provincial Legislature from dealing with any matter within List II though it -may incidentally affect any item in List I. " The decision of the Privy Council in Prafulla Kumar Mukherjee's case, AIR 1947 PC 60, has been repeatedly approved by the Federal Court and this court as laying down the correct rule to be applied in resolving conflicts which arise from overlapping powers in mutually exclusive lists. It may be added as a corollary of the pith and substance rule that once it is found that in pith and substance an impugned Act is a law on a permitted field, any incidental encroachment on a forbidden field does not affect the competence of the Legislature to enact that Act: Questions of conflict between the jurisdiction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emacy, sub-s. (3) of s. 5 of the Act must be struck down as ultra vires. The principle deducible from the dictum of Lord Dunedin as applied to the distribution of Legislative powers under art. 246 of the Constitution is that when the validity of an Act is challenged as ultra vires, the answer lies to the question, what is the pith and substance of the impugned Act? No doubt, in many cases, it can be said that enactment which is under consideration may be regarded from more than one angle and as operating in more than one field. If, however, the matter dealt with comes with any of the classes of subjects enumerated in List II, then it is under the terms of art. 246(2) not to be deemed to come within the classes of subjects assigned exclusively to Parliament under art. 246(1), even though the classes of subjects looked at singly overlap in many respects. The whole distribution of powers must be looked at as Gwyer C.J. observed in C. P. & Berar Taxation Act's case, [1939] 1 FCR 18; AIR 1939 FC 1 ; [1938-50] 1 STC 1, in determining the question of validity of the Act in question. Moreover, as Gwyer C.J. laid down in Subrahmanyan Chettiar's case [1940] FCR 188; [1940] FLJ 157 ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament, viz., the Essential Commodities Act, a valid law ? For, if it is not, no question of repugnancy to a State law can arise. If, however, it is a valid law, the question as to what constitutes repugnancy directly arise. The second question turns on a Construction of the words " a law, made by Parliament which Parliament is competent to enact " in art. 254(1). Strong reliance is placed on the judgment of the High Court of Australia in Clyde Engineering Co. Ltd. v. Cowburn [1926] 37 CLR 466, and to a passage in Australian Federal Constitutional Law by Colin Howard, 2nd Edn., at pp. 34-35. Our attention is also drawn to two other decisions of the High Court of Australia : Ex Parte McLean [1930] 43 CLR 472 and Stock Motor Ploughs Ltd. v. Forsyth [1932] 48 CLR 128. The decision in Clyde Engineering Company's case, is an authority for the proposition that two enactments may be inconsistent where one statute takes away the rights conferred by the other, although obedience to each one of them may be possible without disobeying the other. The contention is that para. 21 of the Control Order confers a right on the manufacturers and producers of medicines and drugs to pass on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey, in respect of an identical subject-matter, imposed identical duty upon the subject, but provided for different sanctions for enforcing those duties. In Stock Motor Ploughs Ltd.'s case [1932] 48 CLR 128, Evatt J., held that even in respect of cases where two laws impose one and the same duty of obedience, there may be inconsistency. As already stated, the controversy in these appeals falls to be determined by the true nature and character of the impugned enactment, its pith and substance, as to whether it falls within the legislative competence of the State Legislature under art. 246(3) and does not involve any question of repugnancy under art. 254(1). We fail to comprehend the basis for the submission put forward on behalf of the appellants that there is repugnancy between sub-s. (3) of s. 5 of the Act which is relatable to entry 54 of List II of Sch. VII and para. 21 of the Control Order issued by the Central Government under subs. (1) of s. 3 of the Essential Commodities Act relatable to entry 33 of List III and, therefore, sub-s. (3) of s 5 of the Act which is a law made by the State Legislature is void under art. 254(1). The question of repugnancy under art. 254(1) be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; AIR 1957 SC 297, while dealing with s. 107(1) of the Government of India Act, 1935, to the effect (p. 300 of AIR 1957 SC): " For this section to apply, two conditions must be fulfilled: (1) The provisions of the Provincial law and those of the Central legislation must both be in respect of a matter which is enumerated in the concurrent List, and (2) they must be repugnant to each other. It is only when both these requirements are satisfied that the Provincial law will, to the extent of the repugnancy, become void. In Ch. Tika Ramji's case [1956] SCR 393; AIR 1956 SC 676, this court observed that no question of repugnancy under art. 254 of the Constitution could arise where Parliamentary legislation and State legislation occupy different fields and deal with separate and distinct matters even though of a cognate and allied character and that where, as in that case, there was no inconsistency in the actual terms of the Acts enacted by Parliament and the State Legislature relatable to entry 33 of List III, the test of repugnancy would be whether Parliament and the State Legislature, in legislating an entry in the Concurrent List, exercised their powers over the same subject-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sential commodities et cetera ". When one entry is made " subject to " another entry, all that it means is that out of the Scope of the former entry, a field of legislation covered by the latter entry has been reserved to be specially dealt with by the appropriate Legislature. Entry 54 of List II of the Seventh Schedule is only subject to entry 92A of List I and there can be no further curtailment of the State's power of taxation. It is a well established rule of construction that the entries in the three lists must be read in a broad and liberal sense and must be given the widest scope which their meaning is fairly capable of because they set up a machinery of Government. The controversy which is now raised is of serious moment to the States, and a matter apparently of deep interest to the Union. But in its legal aspect, the question lies within a very narrow compass. The duty of the court is simply to determine as a matter of law, according to the true construction of art. 246(3) of the Constitution whether the State's power of taxation of sale of goods under entry 54 of List II and to make ancillary provisions in regard thereto, is capable of being encroached upon by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d entries 45 to 63 deal with taxes. This mutual exclusiveness is also brought out by the fact that in List III, the concurrent legislative list, there is no entry relating to a tax, but it only contains an entry relating to levy of fees in respect of matters given in that list other than court fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. Thai 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 imposition of a tax on sale or purchase of goods relatable to entry 54 of List II of the Seventh Schedule. It follows that the two laws, viz., sub-s. (3) of s. 5 of the Act and para. 21 of the Control Order issued by the Central Government under sub-s. (1) of s. 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play. The remaining part of the case presents little difficul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it treats it unequals as equals" and thus infringes art. 14 of the Constitution or is confiscatory in nature. There is no ground whatever for holding that sub-s. (3) of s. 5 of the Act is arbitrary or irrational or that it treats " unequals as equals ", or that it imposes a disproportionate burden on a certain class of dealers. It must be remembered that sub-s. (1) of s. 5 of the Act provides for the levy of a surcharge having a gross turnover of Rs. 5 lakhs or more in a year at a uniform rate of 10 per, centum of the tax payable by them, irrespective of whether they are dealers in essential commodities or not. A surcharge in its true nature and character is nothing but a higher rate of tax to raise revenue for general purposes. The levy of surcharge under sub-s. (1) of s. 5 of the Act falls uniformly on a certain class of dealers depending upon, their capacity to bear the additional burden. From a fiscal point of view, sales tax on a manufacturer or producer involves the complication of price structure. It is apt to increase the price of the commodity, and tends to be shifted forward to the consumer. The manufacturers or producers often formulate their prices in terms of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax. It will be noticed that the first proviso to sub-s. (1) of s. 5 enjoins that the aggregate of the tax and surcharge payable under the Act shall not exceed, in respect of goods declared to be of special importance in inter-State trade or commerce by s. 14 of the Central Sales Tax Act, 1956, the rate fixed by s. 15 thereof. Under s. 14 of that Act, almost all commodities which are essential to the life of the community are declared to be goods of special importance in inter-State trade or commerce and, therefore, the maximum sales tax leviable on sale or purchase of such goods cannot exceed 4 per cent. It would, therefore, appear that generally dealers having a gross turnover of Rs. 5 lakhs in a year dealing in commodities covered by s. 14 will not have to bear the burden of surcharge under sub-s. (1) of s. 5 of the Act. It is the misfortune of these appellants that medicines and drugs are not declared to be of special importance in respect of inter-State trade or commerce by s. 14 of the Central Sales Tax Act. That apart, the appellants as manufactures or producers of drugs under para. 24(1) have to bear the burden of sales tax on the controlled price that they cannot c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries of the world. It reveals that the multi-nationals have exploited their monopoly power in the absence of regulations in some third world countries to charge outrageous prices for medicines and life saving drugs. This only shows their capacity to bear the burden of surcharge levied under sub-s. (1) of s. 5 of the Act. In Kodar's case. [1974] 34 STC 73; AIR 1974 SC 2272, the constitutional validity of a similar levy was upheld on the capacity to pay. It was observed (p. 77 of 34 STC) " The large dealer occupies a position of economic superiority by reason of the greater volume of his business. And, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality." The economic wisdom of a tax is within the exclusive province of the Legislature. The only question for the court to consider is whether there is rationality in the belief of the Legislature that capacity to pay the tax increases, by and large, with an increase of receipts. The view taken by the court in Kodar's case is in consonance with social justice in an egalit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss turnover of Rs. 5 lakhs in a year but also sub-s. (3) thereof which interdicts that no such dealer shall be entitled to recover the amount of surcharge collected from him, are both relatable to entry 54 of List II of the Seventh Schedule, there was no occasion for the Governor to have referred the Bill under art. 200 to the President for his assent. It is some what strange that this argument should be advanced for the first time after a lapse of 30 years of the inauguration of the Constitution. Immediate provocation for this argument appears to be an obiter dictum of Lord Diplock while delivering the judgment of the judicial Committee in Teh Cheng Poh alias Char Meh v. Public Prosecutor, Malaysia [1980] AC 458 (PC), that the courts are not powerless when there is a failure to exercise the power of revocation of a Proclamation of Emergency issued by the Ruler of Malaysia under s. 47(2) of the Internal Security Act. The ultimate decision of the Privy Council was that since by virtue of s. 47(2) of that Act, the security area proclamation remained lawful until revoked by resolutions of both Houses of Parliament or by the Ruler, it could not be deemed to lapse because the conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ths from the date of receipt of such message and if it is again passed by the House or Houses with or without amendment, it shall be presented again to the President for his consideration. Thus, it is clear that a Bill passed by the State Assembly may become law if the Governor gives his assent to it or if, having been reserved by the Governor for the consideration of the President, it is assented to by the President. When the Governor reserved the Finance Bill for the consideration of the President under art. 200 and the President gave the assent, the Bill became an Act. The validity of the Act cannot be challenged on the ground that the Bill should not have been reserved for the assent of the President. There is no question of the subjective decision of the Governor to refer a Bill to the President for his assent under art. 200 being subjected to the court's scrutiny. Nor can the courts question the constitutional validity of the assent of the President. The assent of the President is not justiciable. There still remains the contention that for the purpose of levying surcharge it is impermissible to take into account the method of computation of gross turnover, the turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted in the purchase of copra, manufacture of coconut oil and cake therefrom and sale of oil and cake to parties inside the State and sale of oil to parties outside the State. In 1951, the Travancore-Cochin General Sales Tax Act, 1125, was amended by addition of s. 26 which incorporated the ban of art. 286 of the Constitution and was in pari materia with s. 7 of the Act. For the year 1951-52, the Sales Tax Officer assessed the assessee to sales tax on a net assessable turnover by taking the value of the whole of the copra purchased by him, adding thereto the respective values of the oil and cake sold inside the State and deducting only the value of the copra relatable to the oil sold inside the State. It was contended by the assessee that in the calculation of the net turnover, he was entitled to include the total value of the oil sold by him, both inside and outside the State, and deduct therefrom the total value of the copra purchased by him and further, under the overriding provision of s. 26 of the Act, he was entitled to have the value of the oil sold outside the State deducted. The main controversy between the parties centred around the method of computation of the net turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule can, for purposes of the registration of a dealer and submission of returns of sales tax, include the transactions covered by art. 286 of the Constitution. That being so, the constitutional validity of sub-s. (1) of s. 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds Rs. 5 lakhs for the purpose of levy of surcharge, in addition to the tax payable by him, is not assailable. So long as sales in the course of inter State trade and commerce or sales outside the State and, sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of a surcharge under entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide, as has been done by sub-s. (1) of s. 5 of the Act, that if the gross turnover of such dealer exceeds Rs. 5 lakhs in a year, he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10 Per centum of the tax as may be provided. The liability to pay a surcharge is not on the gross turnover including the transactions c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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