TaxTMI 
TaxTMI 
1994 (11) TMI 353
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....ion cess and rural employment cess created by the West Bengal Taxation Laws (Second Amendment) Act, 1989, is called in question in these writ petitions preferred by several tea estates in West Bengal. Legislative background: For a proper appreciation of the questions arising herein, it is necessary to have a glimpse of the legislative history behind the impugned Amendment Act. The West Bengal Legislature enacted the West Bengal Primary Education Act, 1953, and the West Bengal Rural Employment and Production Act, 1976, to provide for primary education throughout the State and to provide employment in rural areas respectively. For raising funds for the said purposes, the State Legislature imposed two cesses upon certain lands and buildings in the State. Since the relevant provisions of both the enactments are similar, it would be sufficient to notice the relevant provisions of the West Bengal Rural Employment and Production Act, 1976. Section 4(1) of the 1976 Act levies rural employment cess on all immovable properties on which road or public work cess is assessed or liable to be assessed according to the provisions of the Cess Act, 1880. Section 4(2), as originally enact....
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....olation of article 14 and article 301 of the Constitution as also on the ground of lack of legislative competence on the part of the State Legislature. This Court examined the attack based upon article 301 in the first instance. It held that the levy was really on the despatches of tea from the tea estates. It noted that the first proviso to section 4(2)(aa), since deleted, excluded the despatches of tea for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette from the levy. It further pointed out that the second proviso empowered the State Government to fix different rates on despatches of different classes of tea. Section 4(4), it noted further, empowered the Government to exempt such categories of despatches or such percentage of despatches from levy as the Government may think appropriate. Having regard to the said features, the Bench held, the levy was essentially upon despatches though purporting to be a levy upon the tea estates. The entire structure of the levy, the Bench pointed out, led to the conclusion that it was a levy on despatches and not on tea estates and that there was no nexus between the levy....
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....ed with effect from April 1, 1981. After sub-section (2), sub-section (2A) was introduced with retrospective effect from April 1, 1981. Sub-section (2A) reads: "(2A) The rural employment cess shall be levied annually on a tea estate at the rate of twelve paise for each kilogram of green tea leaves produced in such estate. Explanation.-For the purposes of this sub-section, sub-section (3) and section 4B.- (i) 'green tea leaves' shall mean the plucked and unprocessed green leaves of the plant Camelia Sinensis (L) O. Kuntze; (ii) 'tea estate' shall mean any land used or intended to be used for growing plant Camelia Sinensis (L) O. Kuntze and producing green tea leaves from such plant, and shall include land comprised in a factory or workshop for producing any variety of the product known commercially as 'tea' made from the leaves of such plant and for housing the persons employed in the tea estate and other lands for purposes ancillary to the growing of such plant and producing green tea leaves from such plant." Clause (a) in sub-section (3) was also substituted which had the effect of making the owner of the tea estate liable for the said cess. The other provisions req....
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....a particular year in which event no cess would be payable in that year. The definition of "tea estate" further establishes the absence of nexus between the cess and the land; "tea estate" is defined to include not only the land covered by tea bushes but also the land covered by the factory and buildings; even fallow land within the tea estate is within the definition-all the same, the tea leaves produced in the land covered by tea bushes is made the basis of levy of cess upon the entire land comprised in a tea estate; if in a given year, the owner of the estate decides not to pluck the leaves at all, there would be no cess leviable altogether. All this shows that the tax is not really upon the land; there is no direct connection between the land and the levy; the levy is related to some other thing than the land. Strong reliance is placed upon the ratio of the seven-Judge Bench decision of this Court in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12 and the three- Judge Bench decision in Orissa Cement Ltd. v. State of Orissa (1991) 1 SCC 430. It is pointed out that the provision for exemption, pointed out in Buxa Dooars [1989] 74 STC 447 (SC); (1989) 3 SCC 211 as a vitiat....
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....oticed that generally speaking no tea estate markets green tea leaves. By applying a particular process, the green tea leaves are converted into tea as commercially known and then marketed. It is thus clear that tea estate is a well-understood entity and hence can legitimately and reasonably be classified as a separate category for the purpose of taxation and the rate of tax. According to the State, the impugned cesses are within the purview of "taxes on lands and buildings" in entry 49 of List II of the Seventh Schedule. Alternately, they seek to justify it as "land revenue" within the meaning of entry 45 of List II. The scheme of the entries in the three Lists in the Seventh Schedule is set out in the decision of this Court in Sundararamier & Co. v. State of Andhra Pradesh [1958] 9 STC 298; [1958] SCR 1422 and needs no reiteration. Similarly, the proposition that several entries are legislative heads and must be construed liberally is too well-settled to require any elaboration. It is equally well-recognised that where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation, the rule of pith and subst....
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....acter of a tax. Annual value may be the basis of assessment of income-tax. It may also be the basis of assessment of a tax on capital, e.g., in the case of succession to land under the Succession Duties Act in England: In re Elwes (1858) 28 LJ Ex 46, or again it may be the basis of assessment of rates such as the ordinary municipal rates in England, which are neither taxes on income nor taxes on property, but a personal charge on the occupier. Clearly, it is impossible to say that the employment of annual value as the measure of the impugned tax is any indication that it is a tax on income." (Emphasis added) This judgment was affirmed by the Federal Court in Ralla Ram v. Province of East Punjab AIR 1949 FC 81 which has been followed ever since. In Ralla Ram AIR 1949 FC 81 the question was whether the tax imposed by the Punjab Urban Immovable Property Tax Act, 1940, was within the legislative competence of the Provincial Legislature or whether it was in truth and substance a tax upon the income of the person owning the property. The tax was levied on the basis of annual value of the buildings and lands. The "annual value" was to "be ascertained by estimating the gross annual rent....
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.... of the land it is really an income-tax and, therefore, outside the purview of entry 49 of List II. The contention was negatived following, inter alia, the decision of the Federal Court in Ralla Ram AIR 1949 FC 81. In Ajoy Kumar Mukherjee v. Local Board of Barpeta AIR 1965 SC 1561 a Constitution Bench of this Court dealt with the challenge to the constitutionality of an annual tax levied by local boards upon land used for holding markets created by section 62 of the Assam Local Self-Government Act, 1963. While dealing with the challenge, Wanchoo, J., speaking for the court, observed: "........It is well-settled that the entries in the three legislative Lists have to be interpreted in their widest amplitude and, therefore, if a tax can reasonably be held to be a tax on land it will come within entry 49. Further it is equally well- settled that tax on land may be based on the annual value of the land and would still be a tax on land and would not be beyond the competence of the State Legislature on the ground that it is a tax on income. (See Ralla Ram v. Province of East Punjab [1948] FCR 207; AIR 1949 FC 81). It follows, therefore, that the use to which the land is put can be ....
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.... Parsons [1882] 7 AC 96, Russell v. Reg. [1882] 7 AC 829, Union Colliery Co. of British Columbia v. Bryden [1899] AC 580, Attorney-General for Canada v. Attorney-General for British Columbia [1930] AC 1116, Board of Trustees of Northern Irrigation District v. Independent Orders of Foresters [1940] AC 513. In my opinion this rule of interpretation is equally applicable to the Indian Constitution Act." In Federation of Hotel & Restaurant Association of India v. Union of India [1989] 74 STC 102; (1989) 3 SCC 634, the Constitution Bench, speaking through M.N. Venkatachaliah, J. (as he then was), made the following pertinent observations: "The subject of a tax is different from the measure of the levy. The measure of the tax is not determinative of its essential character or of the competence of the Legislature. In Sainik Motors v. State of Rajasthan [1962] 1 SCR 517, the provisions of a State law levying a tax on passengers and goods under entry 56 of List I were assailed on the ground that the State was, in the guise of taxing passengers and goods, in substance and reality taxing the income of the stage carriage operators or, at any rate, was taxing the 'fares and freights' both....
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....ping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time upon the occasion of its sale." It was further pointed out, and which is of some relevance to us in this case, that: "The petitioner's reference to legislative practice as determining the scope of the present legislation does not assist them. There are two infirmities in the contention........Secondly, there is no conclusive material indicating that the appropriate Legislature had limited the notion of a tax of this kind within any confines. It is relevant to recall the words of Lord Uthwatt in Wallace Brothers' case [1948] 16 ITR 240 (PC); [1948] LR 75 IA 86 (PC) quoted in State of Madras v. Gannon Dunkerley and Co. [1958] 9 STC 353 (SC); [1959] SCR 379: 'The point of the reference is emphatically not to seek a pattern to which a due exercise of the power must conform. The object is to ascertain the general conception involved in the words used in the enabling Act'." It is thus clear from the afore....
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..... What is of crucial relevance is that the levy of cess was not upon the land or upon its yield (or its income) but upon the royalty amount payable to the lessor, which was included within the definition of the expression "land revenue". Question, therefore, arose whether such cess levied with reference to or calculated on the basis of amount of royalty can be called a tax on land. It was held that it could not be. It was pointed out that the royalty varies according to the mineral quarried in a given year and if no mineral is quarried, no royalty will be payable but this reasoning, as we shall explain a little later, is not the ratio of the judgment apart from being inapplicable in the case of land or tea estates. The basis of the judgment-and the ratio of the decision-in our respectful opinion is that it was a case where the tax was measured not with reference to or on the basis of the income-yield of the land but with reference to the amount of royalty payable by the lessee to his lessor. It was for this reason that the tax was held to be not upon the land. Royalty is a matter of agreement between the lessor and the lessee; it may also be determined by a statutory provision. But....
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....er lands fifty per centum of the annual value." Clause (a) in sub-section (2) was amended by Act 17 of 1989, after which amendment, clause (a) read thus: "(a) in the case of land held for carrying on mining operations in relation to any mineral such per centum of the annual value as the State Government may, by notification, specify from time to time in relation to such mineral." The expression "annual value" occurring in clause (a) (both prior to Amending Act 17 of 1989 and thereafter) was defined in section 7 of the Act. Sub-section (3) of section 7 provided that "in the case of lands held for carrying on mining operations, the annual value shall be the royalty or, as the case may be, the dead rent payable by the persons carrying on mining operation(s) to the Government". It is for this reason that the Division Bench, speaking through Ranganathan, J., held that the case was squarely covered by India Cement (1990) 1 SCC 12. When it was contended by the State that the royalty payable in respect of a land on which mining activity is carried on is only a measure of the tax on land relying upon Ralla Ram AIR 1949 FC 81 and Ajoy Kumar Mukherjee AIR 1965 SC 1561, Ranganathan, J....
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.... that levy of tax on income of land is not tax on land. We are afraid, the learned counsel are tearing one sentence out of context and are seeking to construe it as a statute. That the tax on land and building can be levied with reference to, i.e., measured on the basis of their yield or income is the uniform view taken in the cases referred to hereinbefore. For instance, how is the property tax levied on a building in a municipality. It is only on the basis of its annual rental value, i.e., on the basis of the rent it is fetching when let out or the rent it would fetch if let out. It is open to the Legislature to say that rent of previous year or the average rent of previous two, three or more years shall be the basis. Indeed, there is nothing to prevent the Legislature from taking the rent of that very year as the basis for levying the tax. In the case of a new building, the tax for the first year would naturally be based upon the rental value for that year. What is rent, if not the income of the building- its yield. In India Cement (1990) 1 SCC 12, the court pointed out that the levy in that case being on royalty, it cannot be called a tax on land. The court said: "But in ....
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....e validity of laws are not to be judged with reference to freaks. May be, in certain extraordinary exigencies, it may happen that the tea leaves are not plucked but that is not the generality of the situation. That the basis of this argument is unrealistic and improbable would be evident from the provisions of the Tea Act, an aspect dealt with at a later stage. We are, therefore, of the opinion that taking the quantum of yield of a tea estate for measuring the amount of tax cannot be equated to the situation in India Cement (1990) 1 SCC 12. In judging the validity of taxing laws, it is always instructive to remember the following observations of this Court in R.K. Garg v. Union of India [1982] 1 SCR 947: "Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, 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 legi....
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....pate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light the Legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues." Before we take up the next aspect, we may deal with another submission based upon the separate opinion of G.L. Oza, J., in India Cement (1990) 1 SCC 12. Oza, J., in his separate opinion, concurred with the conclusion arrived at by Mukharji, J., but on a slightly different basis. The learned Judge was of the opinion that whether "royalty is a tax or....
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.... undoubtedly levied upon the land. We cannot, therefore, agree with the said contention of Dr. Pal. Relying upon the decisions in Sudhir Chandra Nawn v. Wealth-tax Officer [1968] 69 ITR 897 (SC); [1969] 1 SCR 108, Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603 (SC); [1970] 1 SCR 268 and Second Gift-tax Officer v. D.H. Nazareth [1970] 76 ITR 713 (SC); [1971] 1 SCR 195 it is contended by S/Sri K.K. Venugopal, Ashok Desai and R.F. Nariman, learned counsel for the petitioners, that a tax to be within the purview of entry 49 of List II should be a tax directly on the lands and buildings and that in the absence of such direct nexus it would cease to be a tax on lands and buildings. In the first two cases, the question was whether the levy of wealth tax created by the Wealth-tax Act, 1957, was outside Parliament's competence inasmuch as it operates as a tax on lands and buildings, which is within the exclusive competence of the State Legislature, while the question in Nazareth [1970] 76 ITR 713 (SC); [1971] 1 SCR 195 was whether the levy of gift-tax created by the Gift-tax Act is a tax on lands and buildings. In the former cases, it was h....
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....gain entry 49, List II, of the Seventh Schedule contemplates the levy of tax on lands and buildings or both as units. It is normally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under entry 86, List I, tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under entry 49, List II, the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not, in our judgment, make the fields of legislation under the two entries overlapping." From the above observations, in our opinion, it cannot be inferred that the position of law regarding entry 49 of List II is different from the law obtaining under other entries in the Se....
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.... It is not the essence of a tax-nor a condition of its validity- that the tax must be constant or uniform for all the years or for a particular number of years. The fact that generally property taxes on buildings and lands are revised every five years by the municipal bodies is a matter of convenience and not a matter of law. The tax can be revised every year, if the municipality so decides. Dr. Pal, learned counsel for the petitioners conceded-and in our opinion, rightly- that the tax on land or building can be levied and assessed with reference to previous year's income or yield. In such a situation too, the tax may vary from year to year depending upon the income/yield of the previous year. The variation between the amount of tax from year to year, in our opinion, does not reflect upon the character of tax. Dr. Pal evidently draws inspiration for the said argument from the fact that land revenue upon the land is fixed and constant. But this is to ignore the fact that land revenue (entry 45, List II) is different from the tax on lands and buildings contemplated by entry 49 of List II. The characteristics, if any, of the land revenue-assuming for the sake of argument that const....
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....on land to be a tax within the meaning of entry 49 of List II must be levied upon the entire 1,000 acres but in the case of impugned levy, the tax is determined, or assessed, as the case may be, on the entire 1,000 acres with reference to the yield of 400 acres only; thus it is clear, says the learned counsel, that the true nature of the tax is not a tax upon land but upon produce of land comprised in a tea estate. The learned counsel gives yet another example. A tea estate-owner may decide, for his own reasons-justified or unjustified-not to pluck the tea leaves in a given year. He may leave the leaves to wither on the bushes. In such a case, no cess would be payable in respect of the tea estate. If so, the learned counsel asks, can it be said that the tax is connected with land. Would it not be more correct to say that the tax is upon the produce of the land, asks the counsel. In our opinion, the above reasoning is untenable for more than one reason. Once the classification of "tea estate" as a separate category of land, as a separate unit, for the purposes of levy of the said cess is conceded, the edifice of the entire argument falls to the ground. Once, a tea estate is treated ....
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....nnot be faulted. More important, the situation envisaged by Sri Venugopal cannot really come to pass. Section 16B(1)(b) of the Tea Act read with section 16-C and section 16-D provides that if the Central Government is satisfied with respect to a tea estate that the average yield in three out of five preceding years is lower by 25 per cent or more than the district average yield, it can order investigation into the affairs of the tea estate, give appropriate directions and can even assume management of the estate-all with a view to ensure the production of tea at the expected levels. The situation contemplated by the learned counsel, therefore, is an unrealistic one and cannot in any event furnish a ground for holding that there is no reasonable connection between the tax and the land. To repeat, once the tea estate is validly classified as a unit for the purpose of levy of tax (cess) and for applying a particular rate of tax, the levy of tax thereon quantified on the basis of production of tea leaves of such a unit-tea estate-cannot be found fault with. Sri Ashok Desai urged a further contention that inasmuch as the moment tea leaves are plucked, they can no longer be said to....
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....sion. The power of exemption is normally given to the Government to be exercised in appropriate cases. The said provision, in our opinion, can make no difference to the character of the tax. We can understand saying that the tax impugned in Buxa Dooars [1989] 74 STC 447 (SC); (1989) 3 SCC 211 was bad on account of levy being related to despatches and, therefore, the tax impinged upon article 301 of the Constitution but we find it difficult to agree that because of the exemption provision contained in the enactment, the character of levy changes from levy on land to something else. The main holding in Buxa Dooars [1989] 74 STC 447 (SC); (1989) 3 SCC 211 is that levy impugned therein violates article 301. The argument about entry 49 of List II was referred to only for the purpose of saying that the levy on despatches of the tea cannot be related to the said entry. The provision for exemption contained in the impugned enactment, therefore, can certainly not be treated as a ground or reason for holding the said levy to be a levy not on land but on something else. There is no principle nor any authority in support of the said proposition. Yet another contention by Dr. Pal is th....
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....ment, if necessary, by relating it to an entry other than the one relied upon by the Government, if that can be reasonably done. Moreover, as pointed out by this Court in Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. [1983] 1 SCR 1000, it is the function and power of the court to interpret an enactment. It is equally the function and power of the judiciary to say to which entry does an enactment relate. The opinion of the Government in this behalf is but an opinion and no more. Yet another argument put forward on behalf of the petitioners is that the quality of tea produced in one tea estate may differ from the quality of tea produced in another tea estate. Prescribing a uniform method of levy on all tea estates, without regard to the quality of tea produced, it is submitted, is discriminatory. It is not possible to agree. It would be sufficient to refer to the judgment of Hidayatullah, C.J., in Twyford Tea Co. Ltd. v. State of Kerala AIR 1970 SC 1133 where a similar argument was rejected in the following words: ".......The burden is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so w....
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.... says that the Act is intended "to provide for the control by the Union of the tea industry including the control, in pursuance of the international agreement now in force, of the cultivation of tea in, and of the export of tea from, India and for that purpose to establish a Tea Board and levy of duty of excise on tea produced in India". Section 2 contains the declaration within the meaning of entry 52 of List I of the Seventh Schedule to the Constitution. It is thus evident that the Act is relatable not only to entry 52 of List I but also to entry 14 of List I. Entry 14 reads: "14. Entering into treaties and agreements with foreign countries and implementing of treaties, agreements and conventions with foreign countries." It is for this reason that not only the tea industry but also the cultivation of tea has been taken under the control of Parliament, which probably could not have been done by a mere declaration under entry 52 of List I. Section 3 defines certain expressions occurring in the Act. The definition of "tea" in clause (n) has already been set out by us hereinabove. Chapter II containing sections 4 to 11 pertains to the constitution of the Tea Board, its co....
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....and has a factory of its own for the production and manufacture of tea"] Section 16E empowers the Central Government to take over a tea undertaking or a tea unit without ordering a prior investigation, in certain specified circumstances. Section 16F specifies the powers of the Central Government where it takes over the management of a tea undertaking/tea unit under section 16D or section 16E, as the case may be. So does section 16G. The other provisions in this chapter are ancillary and supplemental to the power to ensure the production of tea at a particular level. Chapter IV containing sections 17 to 24 provide for control of the Tea Board/Central Government over the export of tea and tea seed. Chapter V contains sections 25 to 29 and they provide for finance, accounts and audit. Since section 25 is strongly relied upon by the learned counsel for the petitioners, it is necessary to set out the section in full: "25(1) There shall be levied and collected as a cess for the purposes of this Act a duty of excise on all tea produced in India at such rate not exceeding fifty paise per kilogram as the Central Government may, by notification in the Official Gazette, fix: Provi....
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.... Ministry of Commerce Notification No. S.O. 488(E) dated August 13, 1986 [as amended by S.O. 799(E) dated October 30, 1986]. The notification reads as follows: "In exercise of the powers conferred by sub-section (1) of section 25 of the Tea Act, 1953 (29 of 1953), the Central Government hereby notifies, with effect from the 15th day of August, 1986, the rate of cess as specified in column (2) of the Table below on the variety/grade of teas specified in column (1) of the said Table. TABLE Variety/grade of tea Rate of cess (1) (2) • All teas except those produced in the areas specified under column (1) of serial number 2. Paise fifteen per kilogram • All teas produced in he Sadar sub-division and Kurseong sub-division excluding the areas in the jurisdiction list Nos. 31, 29, 33, 20, 21, 22, 23 and 24 comprising Subtiguri sub-division of New Chumta tea estate, Smilbarie and Marionbarie; tea estates of Kurseong police station in Kurseong sub-division of the district of Darjeeling in the State of West Bengal. Paise eight per kilogram." It is true that "tea" as defined in section 3(n) means the tea plant and in that sense, ....
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....r Pradesh [1980] 45 STC 36 (SC); [1980] 1 SCR 769 and Federation of Hotel & Restaurant [1989] 74 STC 102 (SC); (1989) 3 SCC 634 (at pages 137-138 of STC; page 655, para 37 of SCC). It is contended by Sri Ashok Desai that the impugned imposition is really an imposition of duty of excise on the goods produced in India within the meaning of entry 84 of List I and, therefore, outside the competence of the State Legislature. The learned counsel also pointed out that the Central Excise Tariff Act levies a duty upon the tea as well. This contention is again premised upon the assumption that the impugned levy is a levy upon the produce of the tea estate and not upon the land comprised in a tea estate. Since we have already held that in pith and substance the impugned levy is a levy of tax on land and that the produce of the land is merely brought in for the purpose of quantifying the tax, i.e., as a measure, the said argument becomes out of place and unsustainable. Sri Ashok Desai submitted that by virtue of the declaration made by Parliament in section 2 of the Tea Act, as contemplated by entry 52 of List I, the State Legislature is denuded of the power to levy any tax on tea. Re....