TaxTMI 
TaxTMI 
1991 (7) TMI 297
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....of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law. [93D-E] 2.05. Law declared is not that can be culled out but that which is stated as law to be accepted and applied. A conclusion without reference to relevant provision of law is weaker than even casual observation. [93E-F] 2.06. In absence of any discussion or any argument the order was founded on a mistake of fact, and, therefore, it could not be held to be law declared. [94B-C] 2.07. The conclusion of law by the Constitution Bench in (1990) 1 SCC 109 that no sales or purchase tax could be levied on industrial alcohol with utmost respect fell in both the exceptions, namely, rule of sub-silention and being in per incurium to the binding authority of the precedents. [94C-D] Young v. Bistol Aeroplane Ltd., [1944] I KB 718; Jaisri Sahu v. Rajdewan Dubey, [1962] 2 SCR 558; Lancaster Motor Company (London) Ltd. v. Bremith Ltd., [1941] IKB 675; Municipal Corporation of Delhi v. Gurnam Kaur, [1989]....
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....xing power of the State under Entry 54 of List II and its conditional or restricted taxing power, for example, over mineral rights mentioned in Entry 50 of that List. [82E-G] 3.05. Similarly, the power of the State in respect of potable alcohol (as distinguished from industrial alcohol) falling under Entry 8 of List II is significantly unfettered, unlike, for example, mines and mineral development over which the regulatory power of the State is specifically stated to be subject to the regulatory power of Parliament (see Entry 23 of List II read with Entry 54 of List I). The legislative competence of the State in respect of mines and minerals was held to be denuded to the extent that the field was covered by section 9 of the Central Act, namely, Mines and Minerals (Regulations and Development Act), 1957. [82G83A] 3.06. Unlike mines and minerals, alcohol stands on a different footing, and is dealt with differently, dependent on whether it is potable or not. What is significant is that legislation failing in pith and substance under Entry 8 or Entry 51 of List 1I in relation to alcoholic liquor for human consumption (as distinguished from industrial alcohol) whether for the purp....
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....roduction, supply and distribution of the products of any such controlled industry, and imported goods of the same kind as such products, and other articles mentioned in Entry 33. [89F-H] 3.09. The impugned provision of the Uttar Pradesh Sales of Motor Spirit, Diesel Oil and Alcohol Taxation (Amendment) Act, 1976 levying tax at the point of first purchase of alcohol in the State is undoubtedly an impost failing in pith and substance under Entry 54 of List II. In the absence of any fetter on the legislative power and in the absence of any valid challenge against the provision as a colourable piece of legislation, the impugned legislative enactment' remains unimpeachable. [89H-90B] 3.10. The control exercised by the Central Government by virtue of section 18G of the IDR Act is in a field far/removed from the taxing power of the State under Entry 54 of List II. So long as the impugned legislation fails in pith and substance within the taxing field of the State, the control of the Central Government in exercise of its power under the IDR Act in respect of a controlled industry failing under Entry 52 of List cannot in any manner prevent the State from imposing taxes on the sale or....
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..... 1019, referred to. " Per.R.M. Sahai, J. (Concurring) 3.13.-Power to tax is a sovereign power. In federal system of governance it is exercised by distribution of power between the Union and the State Both are supreme in their sphere. That is brought out Clearly by Article-246(1) and Article 246(3) of the Constitution. The legislative field for levying tax by Union is set out in Entries 82 to 92 in List I and State in Entries 45to 63 in List II of the VIlth Schedule. There is no overlapping. Fields are clearly demarcated. Limitations and restrictions are also mentioned. Unlike general entries power to levy tax cannot be deducted from another Entry as ancillary exercise of power. Since the Concurrent List does not contain any Entry relating to taxing power the concept of occupied field or repugnancy cannot arise. If there is clash between exercise of power under List II and List I then the State legislation may be invalid due to Article 246(1) But since there can be no clash or invalidity in relation to taxing power the question of invalidity cannot arise. [94G-95C] 3.14. Price fixation of ethyl alcohol is an exercise of power for regulating distribution and supply of the general....
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....that the price of that article was regulated by the relevant Price Control Orders made by the Central Government under the said Act. Any levy of sales tax or purchase tax by the State by recourse to Entry 54 of List II, it was contended, would come into direct conflict with the law made by Parliament and the control exercised by the Central Government under that law in regard to an industry falling under Entry 52 of List 1 read with Entry 33 of List III. The writ petitioners, relying upon the decision of a Constitution Bench of this Court in Synthetics and Chemicals Ltd. & Others v. State of U.P. & Others, [1990] 1 SCC 109, contended before the High Court that, in so far as industrial alcohol was concerned, the State was incompetent of levy sales tax by reason of the operation of the Ethyl Alcohol (Price Control) Orders made by the Central Government in exercise of its power under section 18G of the IDR Act. The State contended before the High Court that the aforesaid decision of this Court did not deal with any levy of tax falling under Entry 54 of List II. The power of the State to levy taxes on the sale or purchase of goods was not the subject of consideration in that decision. ....
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....It may lay down regulations to ensure that non-potable alcohol is not diverted and misused as a substitute for potable alcohol. (c) The State may charge excise duty on potable alcohol and sales tax under Entry 52 of List H. However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders, sales tax cannot be charged by the State on industrial alcohol. I (d) However, in-case State is rendering any service, as distinct from its claim of so-called grant of privilege, it may charge fees based on quid proquo." (1990) ISCC 109, 158, (emphasis supplied) So stating, the earlier decision Of this Court in State of Uttar Pradesh & Others v. M/s. SynthetiCs & Chemicals Ltd. & Others,. [1980] 2 SCC 441 so far as it related to industrial alcohol., was overruled, but only prospectively, so as not to affect collection of taxes already made While invalidating the fees levied under various enactments challenged in Synthetics, (1990) 1 SCC 109 (including 'the transport fee levied under the Bombay Prohibition Act, 1949 and the vend fee. levied by the State of Uttar Pradesh in respect of industrial alcohol) tO the extent 'that suc....
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....ynthetics (1990) 1 SCC 109 and the crux of the ratio decidendi of that decision. It was never contended by the States that the vend fee was a tax referfable to Entry 54 of List II or the transport fee imposed by the Prohibition Act and the Rules was a levy under Entry 56 of List II. The Bombay Rectified Spirit (Transport in Bond) Second Amendment Rules, 1981 (made under the Bombay Prohibition Act, 1949) was challenged precisely for the reason that it was an invalid collection of fee amounting to an impermissible interference with the Central control of industrial alcohol. This Court, as seen,above, upheld the challenge in so far as industrial alcohol was concerned, unless there was quid pro quo. The Advocate General, appearing for the appellant-State of U.P. (respondent in the High Court), submits that the reference to sales tax in the judgment of this Court in Synthetics (1990) 1 SCC 109 which the High Court in the present case thought was binding upon it, was accidental and did not arise from the judgment. The levy of sales tax was not in question at any stage of the arguments. Nor was the question considered as it was not in issue. The Court gave no reason whatever for abrupt....
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...., 1949, and the Andhra Pradesh Government extended the Excise Act, 1968 and the Distillery Rules, 1970 and the Rectified Spirit Rules, 1971 to all alcohol plants. The applicability of these Acts and the Rules, so far as industrial alcohol was concerned, was challenged in Synthetics (1990) 1 SCC 109 principally on the ground that the legislative power of the State to levy excise duty under Entry 51 of List II did not extend to industrial alcohol; and, in respect of that article no fee in the nature of a regulation or control or licence could be charged by reference to Entry 51 or 8 of List II which had no application to industrial alcohol, and also by reason of the control exercised by Parliament and the Central Government under the IDR Act, 1951 which is a law referrable to Entry 52 of List I and Entry 33 of List III. Dealing with that contention, this Court states: "The main question that falls for consideration in these matters is whether the vend fee in respect of the industrial alcohol under different legislations and rules in different States is valid. The question is--is the vend fee an impost leviable or extractable by the States under different Acts......... The question....
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....hereafter, licences to manufacture both potable and non-potable alcohol is vested in the Central Government Distilleries are manu facturing alcohol under the central licences under IDR Act. No privilege for manufacture even if one existed, has been transferred to the distilleries by the State. The Statecannot itself manufacture industrial alcohol without the permission of the Central Government. The States cannot claim to pass a right which they do not possess. Nor can the States claim exclusive right to produce and manufacture industrial alcohol which are manufactured under the grant of licence from the Central' Government. Industrial alcoholcannot upon coming into existence under such grant be amenable to States' claim of exclusive possession of privilege. The State can neither rely on Entry 8 of List II no Entry 33 of List III as a basis for such a claim. The State cannot claim that under Entry 33 of List III, it can regulate industrial alcohol as a product of the scheduled industry, because the Union, under Section 18-G of the IDR Act, has evinced clear intention to occupy the whole field. Even otherwise sections like Sections 24A and 24B of the U.P. Act do not constitute any r....
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....". None had a case that this Entry had any application to the fees or charges in question. The Court further says: "However, sales tax cannot be charged on industrial alcohol in the present case, because under thee Ethyl Alcohol (Price Control Orders) sales tax cannot be charged by the State on industrial alcohol". That was an abrupt observation without a preceding discussion, and inconsistent with the reasoning adopted by this Court in earlier decisions from which no dissent was expressed on the point. Coming, as it does, immediately after a reference to Entry 52 of List II in connection with excise duty and sales tax when neither falls under that Entry, the submission of the Advocate General that the observation regarding sales tax in para 86 of the judgment was per incurium assumes great significance. The genesis of the problem dealt with in Synthetics (1990) 1 SCC 109 is traceable to the decision in the State of Bombay & Anr. v. F.N. Balsara, [1951] SCR 682, where this Court stated that the word 'liquor' as understood in this country at the time of the Government of India Act, 1935 comprehended not only alcoholic liquors which were generally used as beverages and which pr....
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....merce and the increasing use of industrial alcohol in various industries. Drawing a distinction between potable and non-potable alcohol and, confining the doctrine of Article 47 to the former, this Court came to the conclusion that the impugned statutory provisions purportedly levying fees or enforcing restrictions in respect of industrial alcohol were impermissible in view of the control assumed by the Central Government in exercise of its power under section 18G of the IDR Act in respect of a declared industry falling under Entry 52 of List I, read with Entry 33 of List III. Alcohol as an industry being one of the industries brought within the purview of the IDR Act and thus under the regulatory control of the Union, the power to grant licence for the manufacture of alcohol is vested in the Central Government. Distilleries manufacturing alcoholare necessarily licensed under the IDR Act for such distilleries can manufacture alcohol of all types and, therefore, are necessarily brought under the control of the Central Government. It is in this background that the cardinal question has to be examined, that is, whether or not the power of the State to levy tax on the sale or purcha....
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....Co. v. The State of Andhra Pradesh & Anr., [1958] SCR 1422 at 1479 Venkatarama Aiyar, J., speaking for the Constitution Bench, referred to the Entries in the three lists of the Seventh Schedule of the Constitution and drew a distinction between the main subjects of legislation forming one group and taxes forming another group. Entries 1 to 81 of List I are the main subjects of legislation within the competence of Parliament. Entries 82 to 92 of that List (92A and B have since been added) enumerate the taxes which Parliament is competent to impose. Likewise, Entries 1 to 44 forming one group in List II relate to the main subjects within the legislative competence of the States, while Entries 45 to 63 of that List deal specifically with the taxes leviable by the States. The general power of legislation vested in the States regarding trade and commerce, production, supply, etc. is referrable to Entries 26 and 27 of List II. The power of the State to levy taxes on the sale or purchase of goods other than newspapers is mentioned in Entry 54 of List II. This power is, however, subject to certain restrictions imposed trader Article 286. Clause (1) of Article 286 prohibits a State from imp....
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.... is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule'. 'Fermentation Industries' i.e. Alcohol and Other products of fermentation industries is Item 26 of the First Schedule. Section 18G of the IDR Act confers upon the Central Government the power of control of supply, distribution, price, etc. of the articles mentioned in the First Schedule of the Act. All powers vested in the Central Government under section 18G of the IDR Act are referfable to Entry 52 of List I dealing with 'controlled' industries, read with Entry 33 of List III which pertains to 'Trade and commerce in, and production, supply and distribution of' the products of controlled industries. None of the entries in the Concurrent List deals with tax but general subjects of legislation. No conflict can, therefore, arise bet-ween the taxing powers of the Union and the States. Parliament has the power to legislate in respect of a 'controlled' industry falling under Entry 52 of List I, and both Parliament and the States have the power to legislate in respect of the trade and commerce in, and the production, supply and distribution of, the products o....
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....for want of power by reason of the limitation of Entries 8 and 51 of List II (being confined to potable alcohol) and consequent transgression on areas covered by Entries 52 and 84 of List I respectively relating to declared industry and excise duty on industrial alcohol and medicinal and toilet preparations containing alcohol, and also for repugnancy arising from a clash with the centrally occupied field falling under Entry 33 of List III. This is why this Court in Synthetics [1990] 1 SCC 109 held that the State should not impose any fee, whether called vend fee, transport fee, excise duty and the like, on industrial alcohol as such impost would trespass upon the statutory orders made by the Central Government in exercise of its power of control under section 18G of the IDR Act as regards ethyl alcohol and other non-potable products of fermentation industries. Article 298 of the Constitution says that the executive power of the State, within the area of its legislative competence, or, subject to legislation by Parliament, in areas falling outside its legisaltive competence, shall include the conduct of any trade or business, the acquisition, holding and disposal of property and ....
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....e, the legislative power of Parliament 'covers enactments with respect to industries having regard to Article 246(1) of the Constitution. If the impugned legislation invades Entry 52 it must be repulsed by this Court. But Entry 54 in List II of the Seventh Schedule empower the State to legislate for taxes on purchase of goods and so if the Act under consideration is attracted, in pith and substance, by this entry legislative incompetence cannot void the Act......" This is precisely the question in the instant case, namely, 88 whether or not the impugned legislation falls in pith and substance with in Entry 54 of List II, and not whether the industry (producing goods the sale of which is leviable to tax under the impugned legislation) is controlled within the arebit of Entry 52 of List I. This question was not considered in Synthetics, [1990] 1 SCC 109. A like question arose in a different form in Ch. Tika Ramji & Others etc. v. The State of Uttar Pradesh & Ors., [1956] SCR 393. This Court rejected the challenge in that case against the constitutional validity of the U.P. Sugarcane (Regulation of Supply and Purchase) Act, 1953 and the notifications issued thereunder. It was....
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....ficult 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 Bihar Finance Act, 1981) and paragraph 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". These decisions unmistakably demonstrate the power of the State to levy taxes on the sale or purchase of goods other than newspapers but subject to Entry 92A of List I which deals with the legislative power of Parliament to levy taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade Or commerce. Subject to the overriding power of Parliament in respect of what falls under Entry 9....
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....n be justified as a mode of control falling in pith and substance under Entry 8 read with Entry 66 of List 1I only to the extent that it remains within the bounds of the concerned subject matter, namely 'intoxicating liquors', which must necessarily exclude industrial alcohol. We see no substance in the contention that the Price Control Orders made by the Central Government in exercise of its power under the IDR Act fettered the legislative power of the State on a matter falling under Entry 54 of List II. Taxes on sale or purchase are not governed by the Price Control Orders, for the purpose of the latter is to prevent the seller from pricing his goods beyond the limit prescribed by the orders. That is a fetter on the free play of demand and supply. When supply is scarce, the price are bound to rise and it is that vice which is controlled by fixing the maximum price. But that does not in any manner curtail the power of the State to levy taxes on the sale or purchase of goods. It is no doubt true that the consumer of the article must in addition to the price, pay purchase tax due in respect of them. But that is by reason of a valid levy which is within the constitutional power of....
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....be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (Price Control) Orders sales tax cannot be charged by the State on industrial alcohol'. Reliance on Indian Cement Ltd. (supra) was under complete misapprehension. The State in that case attempted to levy cess on royalty. It was held to be invalid. To save it the State attempted to justify it as a tax in exercise of power under Entry 50 of List II. The submission was negatived as the legislative power of State under Entry 50 of List II was 'subject to any limitation imposed by the Parliament by law relating to mineral development'. The Bench held that in view of the Parliamentary legislation under Entry 54 of List 'I and the declaration made under Section 2 and provisions of Section 9 of the Act the State legislation was overridden to that extent. No such restriction or limitation is placed under Entry 54 of List II except that the exercise of power has been made subject to the provisions of Entry 92 of List I. But the problem has arisen due to the conclusion in the case of Synthetic and Chemicals (supra). The question was if the State legislature could levy vend fee or excise duty on industrial al....
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.... are of no moment'. The Courts thus have taken recourse to this principle for relieving from injustice perperated by unjust precedents. A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decedendi. In Shama Rao v. State of Pondicherry, AIR 1967 SC 1680 it was observed, 'it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down therein'. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law. Effort was made to support the conclusion, indirectly, by urging that the State having raised same objections by way of review petition and the same hav....
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....declared as of public importance by adding it as item no. (1) under Entry 26 of the first Schedule appended to the Industrial (Development and Regulation) Act, 1951, (hereinafter referred as IDRA). The effect of this declaration was that it stood removed from Entry 24 of List II and allocated to the Central legislature. The control thus vested in the Parliament. But Entry 33 in Concurrent List permits both the Parliament and the State Legislature to deal with trade and commerce in it and also regulate production, supply and distribution of goods declared to be of public importance. The State could, therefore, enact law under Entry 33 subject to it that the State legislation could not be repugnant to central legislation. That is if the field is already occupied by a Central enactment then the State legislation to that extent shall be invalid. (See Tika Ramji v. State of U. P., AIR 1956 SC 676 and Hoe chest Pharmaceuticals Ltd. v. State of Bihar, AIR 1983 SC 1019). Can this principle apply to levy of purchase tax by an enactment made in exercise of legislative power under Entry 54 of List II? Power to tax is a sovereign power. In federal system of governance it is exercised by dis....