1963 (12) TMI 24 - SC - Central Excise

Assam Taxation Act 1961 upheld allowing state tax on tea and jute transport via road and waterways

The SC upheld the validity of the Assam Taxation Act, 1961, which imposed tax on tea and jute carried by road or inland waterways in Assam. The Court ... Levy of a tax on certain goods carried by road or on inland water-ways in the State of Assam - Challenged the validity of the Assam Taxation Act, 1961 - Scope and effect of the provisions contained in Part XIII of the Constitution deleterious effect on the free flow of trade, commerce and intercourse - Validity of retrospective operation of the Act under Article 304(b) - reasonable restrictions in the interests of the general public - charge of discrimination - Colourable exercise of legislative power - Extraterrestrial operation of the Act. GAJENDRAGADKAR J. - HELD THAT:- It is common ground that the ferries by which tea chests of the petitioners are carried over the inland waterways in Assam do not belong to the railway, nor are they hired or worked by the authority of the railway to which the goods were consigned for carriage. In fact, s. 74E of the Railway Act which, after amendment, has become s.76D in 1961, clearly brings out the fact that when any goods are tendered to a railway administration for carriage by railway and have been booked through over a railway or any other transport system not belonging to the railway administration, the person who tenders the goods shall be deemed to have contracted with the railway and the said other transport system separately. Therefore, the argument based on the fact that the goods have been entrusted to the railway for through carriage, and so, the carriage of the goods should be held to be outside the purview of s. 3 of the Act, cannot be sustained. The tax is invalid for the reason that tea which is one of the objects taxed has been covered by the Central Tea Act (Act No. 29 of 1953) and he argues that since the Central Act has been passed by reference to the relevant Entry in List 1 in the Seventh Schedule, it is not open to the State Legislature to pass a taxing statute in respect of tea. It is true that the Tea Act has made several provisions in regard to tea and has constituted a Board to deal with the problems enumerated in the other provisions of the said Act; but one has merely to glance through the relevant provisions of the Tea Act to realise that the scope and purpose of the said Act is entirely different from the scope and purpose of the taxing Act with which we are concerned. The pith and substance of the taxing statute is the levy of a tax on tea, which is carried in the State of Assam and the right to levy such a tax cannot be said to have been taken away merely by the fact that a Tea Act had been passed by the Central Legislature which is referable to the relevant Entry in List 1 of the 7th Schedule. The power to levy a tax which has been conferred on the State Legislature by Entry 56 cannot, therefore, be said to be controlled by the Tea Act in question. 'It would be noticed that List I does not contain any Entry by which the Central Legislature can pass an Act levying a tax on goods carried which can be said to control Entry 56 in List 11. That being so, we, must hold that there is no substance in the argument that the State Legislature has no power to levy a tax on tea which is carried over- a part of the area of the State of Assam. A similar argument was urged by Mr. Mazumdar on the strength of the provisions contained in the River Boards Act, 1956 (No. 49 of 1956). Mr. Mazumdar suggested that the Brahmaputra River over a part of whose stream the tea chests are carried is governed by the provisions of the River Boards Act and that imposes a ban on the power of the Assam Legislature to pass an Act in respect of goods carried over the Brahmaputra River. What we have said about the objection 'raised by Mr. Mazumdar on the strength of the Tea Act applies with equal force to the present argument. The result is, the petition fails and is dismissed with costs. SARKAR J. - Held that:- The first ground on which it was said that the Act imposed an unreasonable restriction was that the rates imposed by it were flat rates. The rates were prescribed in the Schedule mentioned in s. 3 and different rates were fixed for different periods of time but in respect of each period there was one rate, for example, between June 1, 1954, and June 30, 1955, the rate was one pice per pound. The point made was that the tax being a tax on carriage it becomes an unreasonable restriction if the tax did not vary with the distance over which the thing was carried. Put that way, it would really seem not a question of reasonableness but a question of legislative competence. I am wholly unable to see that Item 56 in List 11 requires that the tax imposed must be measured according to the distance over which the goods are carried. Tested by the scale of reasonableness also, a flat rate does not seem to me to be wanting in that quality. One may well ask why is a flat rate not reasonable? I find no answer. Why is a rate depending on the distance carried more reasonable? Again I find no answer. If the rate varied with distance, then it is conceivable that in many cases the burden would be much heavier. How could that have been more reasonable? The only effect of a flat rate may be that people who carry for a short distance pay as much as those who carry a longer distance. I do not see that this can make the levy unreasonable. To start with it would not be wrong to say that since a tax is collected in public interest and for public good the burden imposed by it on trade would prima facie be reasonable in the public interest. There is no reason to think that the burden imposed by this Act is onerous, that it is such as would crush the trade by putting a weight on it which it could not carry. Furthermore it has been established on the affidavit that the Government spends on roads and facilities on waterways much more than what is collected in the shape of tax on the goods carried. That also is a consideration which goes to establish the reasonableness of the levy. The petitioner has not been able to put before us anything which would destroy the effect of these considerations. The fact that the Act imposes the tax with retrospective effect cannot by itself also make the restriction unreasonable. For the reasons earlier mentioned, it may still be reasonable. Charge of discrimination. It was said that the Act offended Art. 14 because it taxed only tea and jute and no other article. But I am unable to see that. this is discrimination. The Act applies to all who are concerned with the carriage of tea and jute. No doubt it does not apply to the carriage of other goods but as has been said, 'it is for the legislature to decide on what objects to levy': see Raja Jagannath Baksh Singh v. The State of Uttar Pradesh [1962 (4) TMI 5 - SUPREME COURT]. The legislature must pick and choose and such picking and choosing cannot by itself amount to discrimination. Besides, it is common knowledge that tea is a very prosperous industry in Assam and is certainly more fit to bear the, burden of taxation than most other industries there.. The flat rate of tax imposed also creates no discrimination for it applies the same rate to all. It has not been shown that in fact a discrimination has arisen. The Act makes no discrimination as alleged. If proceedings by way of appeal and otherwise for which provision is made in the Acts themselves are to be considered, then also there is no discrimination. Under the earlier Act there were provisions for appeal etc. and if one had filed an appeal I under that Act, that appeal had to be deemed to have been filed under the impugned Act. Likewise, in respect of every other kind of proceeding contemplated in the earlier Act. If one has not chosen to take these proceedings under that Act, he cannot complain. That would not be a case of discrimination by the Act but would be giving up by a party of his rights under it. Therefore the position of a tax payer is the same under both the Acts. A validating Act is passed under the legislative power under which the invalid law had been purported to be passed and it had been held that where legislative power exists, it could not be said that the exercise of that power was colourable: Gajapatti Narayan Deo v. State of Orissa [1953 (5) TMI 14 - SUPREME COURT]. Extraterrestrial operation - It was said that to the petitioner it applied only because the tea was carried over inland waterways in Assam for about a mile and a half only. Apparently, the argument is that this distance is too trivial. But it seems to me beyond question that if the goods were carried for any distance over the territory of Assam, however short that distance might be, the Assam Legislature would have full jurisdiction to impose a tax on such carriage. This point is, therefore, also without any merit. Mr. Mazumdar raised certain other points and these have been dealt with by my brother Gajendragadkar. I do not wish to add anything to what he has said concerning them. Dismiss the petition. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this legal judgment were:Whether the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961, was within the legislative competence of the Assam Legislature under Entry 56 in List II of the Seventh Schedule of the Constitution.Whether the Act imposed unreasonable restrictions on the freedom of trade, commerce, and intercourse guaranteed by Article 301 of the Constitution, and if so, whether such restrictions were justified under Article 304(b).Whether the retrospective operation of the Act was valid under Article 304(b).Whether the Act was discriminatory and violated Article 14 of the Constitution.Whether the Act was a colorable exercise of legislative power.Whether the Act had extra-territorial application.2. ISSUE-WISE DETAILED ANALYSISLegislative Competence:The Court analyzed whether the Assam Legislature had the competence to enact the Act under Entry 56 of List II, which allows taxes on goods and passengers carried by road or inland waterways. The Court concluded that the legislative power to levy a tax includes the power to devise a mechanism for its collection. The Act's provision to impose tax liability on the producer, even when the goods were sold before being carried, was upheld as it facilitated tax collection.Reasonableness of Restrictions:The Court examined whether the restrictions imposed by the Act were reasonable and in the public interest under Article 304(b). It considered the revenue raised by the tax as serving a public purpose, such as maintaining roads and waterways, which justified the restrictions. The Court also noted that the flat rate of tax, although not based on distance, was reasonable as it avoided unfair competition among producers.Retrospective Operation:The Court addressed the validity of the Act's retrospective application, concluding that retrospective legislation is permissible unless explicitly prohibited by the Constitution. The Court found no such prohibition in Article 304(b) and held that the retrospective operation did not change the character of the tax.Discrimination and Article 14:The Court considered the argument that the Act was discriminatory for taxing only tea and jute. It held that the legislature has the discretion to select objects for taxation, and the choice of tea and jute was justified given their significance in Assam's economy. The Court found no violation of Article 14.Colorable Legislation:The Court rejected the argument that the Act was a colorable exercise of legislative power, noting that the power to make a law includes the power to make it retrospective and to validate previous invalid legislation.Extra-territoriality:The Court dismissed the claim of extra-territorial application, stating that the tax was levied on goods carried through Assam, regardless of the distance. The physical carriage of goods through Assam was sufficient to establish legislative competence.3. SIGNIFICANT HOLDINGSThe Court upheld the validity of the Assam Taxation (On Goods, Carried by Road or on Inland Waterways) Act, 1961, on several grounds:The Act was within the legislative competence of the Assam Legislature under Entry 56 of List II.The restrictions imposed by the Act were reasonable and in the public interest, as required by Article 304(b).The retrospective operation of the Act was valid and did not change the character of the tax.The Act did not violate Article 14, as the selection of tea and jute for taxation was justified.The Act was not a colorable exercise of legislative power, as it was within the competence of the legislature to validate previous legislation.The Act did not have extra-territorial application, as the tax was levied on goods carried through Assam.Overall, the Court found no constitutional infirmity in the Act and dismissed the petition challenging its validity.