TaxTMI 
TaxTMI 
1971 (10) TMI 103
X X X X Extracts X X X X
X X X X Extracts X X X X
....Gordhanbhai Patel and Another v. The State of M.P. and Others. (9) M.P. No. 553/68-M/s. Dayabhai Khushalbhai Patel and Another v. The State of M.P. and Others. (10) M.P. No. 554/68-M/s. M. Ishaq M. Gulam and Another v. The State of M.P. and Others. (11) M.P. No. 555/68-M/s. Chhotalal Keshoram and Another v. The State of M.P. and Others. (12) M.P. No. 556/68-M/s. Patel Dahyabhai Joitram and Another v. The State of M.P. and Others. (13) M.P. No. 557/68-M/s. Lallubhai B. Patel & Co. Pvt. Ltd. and Another v. The State of M.P. and Others. (14) M.P. No. 558/68-M/s. Govind Singh Gurudutt Singh and Another v. The State of M.P. and Others. (15) M.P. No. 559/68-M/s. Do Bhai Bidi Factory and Another v. The State of M.P. and Others. (16) M.P. No. 585/68-M/s. Allauddin Aulia Sahib and Another v. The State of M.P. and Others. (17) M.P. No. 587/68-M/s. Somabhai Kashibhai Patel and Another v. The State of M.P. and Others. (18) M.P. No. 21/69-M/s. Girdharilal Kanchhedilal Kethal and Another v. The State of M.P. and Others. (19) M.P. No. 70/69-M/s. S. M. Shafi & Sons and Another v. The State of M.P. and Others. (20) M.P. No. 80/69-M/s. Mohanlal Harprasad v. The State....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sons and Another v. The State of M.P. and Others. (47) M.P. No. 270/71-M/s. Harishbhai Dahyabhai & Bros. and Another v. The State of M.P. and Another. (48) M.P. No. 271/71-M/s. Devendra Trading Co. and Another v. The State of M.P. and Another. (49) M.P. No. 272/71-M/s. Purshottam Jorabhai & Co. and Another v. The State of M.P. and Others. (50) M.P. No. 284/71-M/s. Patel Dahyabhai Joitram & Co. and Another v. The State of M.P. and Others. (51) M.P. No. 285/71 Shri Uma Transport Company and Another v. The State of M.P. and Another. (52) M.P. No. 286/71-M/s. Lallubhai B. Patel & Co. (P.) Ltd. and Another v. The State of M.P. and Another. (53) M.P. No. 287/71-M/s. Chhotabhai Jethabhai Patel & Co., Gondia v. The State of M.P. and Others. (54) M.P. No. 289/71-M/s. Madhya Pradesh Bidi Leaves Company v. The State of M.P. and Others. (55) M.P. No. 292/71-Shri Dineshchandra Thakorbhai Patel v, The State of M.P. and Another. (56) M.P. No. 293/71-M/s. Patel Bidi Leaves Company and Another v. The State of M.P. and Another. (57) M.P. No. 294/71-M/s. Amul Trading Company, Gondia v. The State of M.P. and Another. (58) M.P. No. 295/71-M/s. Rameshprasad Laxminara....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her registered dealer, for the purpose specified in that subsection: Provided further that where such registered dealer subsequently purchasing the raw material as aforesaid, utilises it for any purpose other than the purpose specified in sub-section (1), lie shall be liable to pay the penalty specified under sub-section (2)." After the amendment section 8 stands as follows: "In section 8 of the Principal Act,- (a) for sub-section (1), the following sub-section shall be substituted, namely: '(1) Notwithstanding anything contained in section 6 or section 7 but subject to the provisions of sub-section (3) and to such restrictions and conditions as may be prescribed, the tax payable under section 6 or section 7, as the case may be, on the sale or purchase by a registered dealer of any raw material other than tendu leaves for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India shall be levied at 2 per cent. of the sale or purchase price of such raw material: Provided that when the tax payable on the sale or purchase of such raw material und....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dealer as- (i) a mercantile agent as defined in the Indian Sale of Goods Act, 1930 (111 of 1930), or (ii) an agent for handling goods or documents of title relating to goods, or (iii) an agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or payment, and every local branch of a firm or company situated outside the State, shall be deemed to be a dealer for the purposes of this Act." 4.. The amended section 2 in the Amending Act No. 13 of 1971 reads as follows: "In section 2 of the Madhya Pradesh General Sales Tax Act, 1958 (No. 2 of 1959) (hereinafter referred to as the Principal Act)- (i) in clause (d)- (a) for sub-clause (i), the following sub-clause shall be substituted, namely: '(i) a local authority, a company, an undivided Hindu family or any society (including a co-operative society), club, firm or association which carries on such business;' (b) the existing Explanation shall be numbered as Explanation I and after Explanation 1 as so re-numbered, the following Explanation shall be inserted, namely: 'Explanation II-The Central or a State Government or any of their departments or offices....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f article 286(3) of the Constitution of India, which places some restrictions on the powers of a State Legislature to legislate in connection with goods of special importance and which have been so declared under section 14 of the Central Sales Tax Act, 1956, and which are used in the course of inter-State trade and commerce. (iv) that the definition of "raw material" as per section 2(1) of the M.P. General Sales Tax Act, 1958, not having been amended by the M.P. General Sales Tax (Amendment and Validation) Act, 1971, the provisions of section 3 of the Amendment and Validation Act, 1971, amending section 8 of the principal Act, would be incongruous and in conflict. with the said definition of "raw material" and as such, the provision relating to the exclusion of tendu leaves as raw material cannot be given effect to on account of such incongruity and conflict. The second line of argument with respect to section 2 of the 1971 Amendment and Validation Act amending the definition of a "dealer" in section 2(d) of the principal Act, is that the Explanation II added by the said section would be conflicting with the main concept of a dealer carrying on business. As such, Explanation II....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d amongst the States. They would be able to share only if they did not impose any extra tax or duty. The First Schedule framed under section 3(1) of the said Act imposes the following duty on the articles mentioned therein, including tobacco. For tobacco the entry reads as follows: (Description of goods) (Rate of additional duty) "TOBACCO- 1.. Unmanufactured tobacco- (1) if flue cured and used in the Per kilogram-Nil. manufacture of cigarettes. (2) if flue cured and used for Per kilogram-One rupee and the manufacture of smoking ten naye paise. mixtures for pipes and cigarettes. (3) if flue cured and not otherForty-four naye paise. wise specified. (4) if other than flue cured and Nil. used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes. (5) if other than flue cured Six naye paise. and not actually used for the manufacture of (a)cigarettes or (b) smoking mixtures for pipes and cigarettes or (c) bidis. (i) stems of tobacco larger than 6.35 millimetres in size, (ii) dust of tobacco, (iii) omitted, (iv) tobacco cured in whole leaf form and packed or tied in bundles, hanks or bunches or in the form of twists or c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ral Sales Tax Act, 1958, provides that no tax shall be payable on the sales or purchases of goods specified in the second column of Schedule I, subject to the conditions and exceptions, if any, set out in the corresponding entry in the third column thereof. Subsection (2) of section 10 empowers the State Government to include in the schedule by notification any goods not already specified in the schedule. Section 6 of the said Act specifies the tax payable by a dealer under the Act on the taxable turnover relating to the goods specified in Schedule II, at the rate mentioned in the corresponding entry in column (3) of the said schedule. Tendu leaves as such are not mentioned in the Second Schedule, but they are taxed at 7 per cent. under the residuary provision contained in Part VI of the Schedule, item 1, which lays down that all other goods not included in Schedule I or any other part of this schedule shall be taxed at 7 per cent. of the sale or the purchase price. 12.. The State Government with a view to create monopoly in the trade of tendu leaves, enacted the M.P. Tendu Patta (Vyapar Viniyaman) Adhiniyam, 1964, which is intended to control the trading in tendu leaves. Under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President." 14. In the light of the constitutional and the statutory provisions mentioned above, we propose to discuss the four main attacks on the levy of the tax on tendu patta at 7 per cent. of the purchase or the sale price by the State Government. The first grievance of the learned counsel for the petitioners is that the said levy is discriminatory and as such, it violates the guarantee of equality under article 14 of the Constitution of India. The suggestion of the learned counsel for the petitioners is that when "raw material" has been defined by section 2(1) of the M.P. General Sales Tax Act, 1958, it has to be construed throughout the Act in the light of the definition provided, which is as follows: "'raw material' means an article used as an ingredient in any manufactured goods or an article consumed in the process of manufacture and includes fuel and lubricants required for the process of manufacture, but does not include bullion and specie." It is contended that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v. Union of India[1970] 40 Comp. Cas. 325 (S.C.); A.I.R. 1970 S.C. 564., wherein their Lordships, while considering the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, made the following observations with reference to article 14 of the Constitution: "By article 14 of the Constitution the State is enjoined not to deny any person equality before the law or the equal protection of the laws within the territory of India. The article forbids class legislation, but not reasonable classification in making laws. The test of permissible classification under an Act lies in two cumulative conditions: (i) classification under the Act must be founded on an intelligible differentia distinguishing persons, transactions or things grouped together from others left out of the group; and (ii) the differentia has a rational relation to the object sought to be achieved by the Act: there must be a nexus between the basis of classification and the object of the Act." For that purpose their Lordships adverted to their earlier pronouncement in many cases. Further on their Lordships observed as follows: "The courts recognise in the Legislature some degree of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xemption in favour of raw materials provided by the M.P. General Sales Tax Act, 1958, and while doing so, the Legislature cannot be said to have violated article 14 of the Constitution of India. 18.. In support of this view, we might advert to the pronouncement of their Lordships of the Supreme Court in Nazeeria Motor Service v. State of A.P.A.I.R. 1970 S.C. 1864. , wherein their Lordships, in relation to the attack on the Andhra Pradesh Motor Vehicles (Taxation of Passengers and Goods) Amendment and Validation Act, 1961, on the ground of violation of article 14 of the Constitution, made the following observations: "Coming to the attack on the ground of violation of article 14 reference may be made to the background relating to taxation of passengers and goods carried in motor vehicles in the State prior to the formation of Andhra Pradesh. It appears that there was no law in the erstwhile Hyderabad State imposing any tax on passengers and goods. After the merger of Telengana and Andhra Pradesh areas the laws in operation in the Telengana region continued to remain in force by virtue of the provisions of section 119 of the States Reorganisation Act, 1956. By Act 10 of 1958, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... persons would not violate article 14 of the Constitution of India. Thus, excluding the tendu Patta from the exemption clause in the M.P. General Sales Tax Act, 1958, would not, in our opinion, be violative of the equality before the law guaranteed by article 14 of the Constitution of India. 20.. In Jonnala Narasimharao & Co. v. State of A.P.[1971] 28 S.T.C. 262 (S.C.); A.I.R. 1971 S.C. 1507., their Lordships had to consider a case where by the Andhra Pradesh General Sales Tax (Amendment) Act, 1970, exemption was granted to dealers who had not collected the tax. An argument was advanced that that exemption was violative of article 14 of the Constitution. Negativing that contention raised on behalf of the dealers, their Lordships observed that the section was enacted by the Legislature with the object of removing shortcomings in the principal Act which were found wanting by judicial interpretation. The interregnum between the declaration by the High Court of certain provision of the Act as being unconstitutional and the attempt of the Legislature to remedy the defects and to give retrospective effect thereto created two distinct categories between the same class of dealers, namel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....endu leaves. We do not find any incongruity or any conflict between the said provisions, although it would have been better if the definition of raw material, as per section 2(1) of the M.P. General Sales Tax Act, 1958, had also been amended by the amending Act in conformity with the provision of section 8, as amended. But, however, that, in our opinion, is not material, although there may be some variance or conflict between the definition section and the charging section. But that would not affect the validity of the charging section. The object of the definition is to define particular words or phrases with precision and such definitions are to be read into the charging section. But the liability is created by the charging section and the charging section, in our opinion, cannot be declared invalid on an assumption of incongruity or conflict with the definition section. Ultimately, the liability has to be determined in accordance with the charging section. 23.. Another argument was that item 1 in Part VI of Schedule II of the M.P. General Sales Tax Act, 1958, cannot be said to specify any article and the State Government would have no power to impose the sales tax under the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its products from sales tax as per item 42 of Schedule I, framed under section 10 of the Act. The said item specifically excludes tobacco, manufactured or unmanufactured, cured or uncured and tobacco products like cigarettes, cheroots and bidis from imposition of sales tax, whatsoever. However, what the M.P. General Sales Tax Act, 1958, as amended by the M.P. General Sales Tax (Amendment and Validation) Act, 1971, does is to tax the tendu leaves, which may be a raw material for the manufacture of bidis by excluding it from the category of other raw materials. As such, the impugned provision cannot at all be said to be violative of any of the Central enactments. In fact, the impugned provision is in conformity with all the Central enactments and it cannot be said to be violative of the Central enactments, merely because it purports to tax a constituent of bidis, which is a raw material and which can, under no circumstances, be said to be covered by the exemption granted by item No. 42 of Schedule I of the M.P. General Sales Tax Act, 1958. We do not find the impugned provision to be in conflict with this section. Thus, we would negative the contention of the learned counsel for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpact of article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301. The argument that all taxes should be governed by article 301, whether or not their impact on trade is immediate or mediate, direct or remote adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taxation could be exercised in a manner prejudicial to the larger public interests by the States, it was found necessary to restrict the power of taxation in respect of transactions which had an inter-State content. Amendment of article 286 and the enactment of the Sales Tax Laws Validation Act, 1956, and the Central Sales Tax Act, 1956, were all intended to serve a dual purpose: to maintain the source of revenue from sales tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter-State trade so as to obstruct the free flow of trade by making commodities unduly expensive. The effect of the constitutional provisions achieved in a somewhat devious manner is still clear, viz., to reserve sales tax as a source of revenue for the States. The Central Sales Tax Act is enacted under the authority of the Union Parliament, but the tax is collected through the agency of the State and is levied ultimately for the benefit of the States and is statutorily assigned to the States. That is clear from the amendments made by the Constitution (Sixth Amendment) Act, 1956, in article 269, and the enactment of clauses (1) and (4) of section 9 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different classes of property to tax in different ways and adopt different modes of assessment. A taxing statute may contravene article 14 of the Constitution if it seeks to impose on the same class of property, persons, transactions or occupations similarly situate, incidence of taxation, which leads to obvious inequality'." It was also said by the court that: "It is for the Legislature to determine the objects on which tax shall be levied, and the rates thereof. The courts will not strike down an Act as denying the equal protection of laws merely because other objects could have been, but are not, taxed by the Legislature. " "We are accordingly of the view that 'cane jaggery' and 'palm jaggery' are not commodities of the same class, and in any event in imposing liability to tax on transactions of sale of 'cane jaggery' and exempting 'palm jaggery', no unlawful discrimination denying the guarantee of equal protection was practised." 31.. In State of Kerala v. A.B. Abdul Kadir(1969) 2 S.C.C. 363., their Lordships of the Supreme Court were required to consider the validity of the provisions of the Luxury Tax on Tobacco Validation Act, 1964. The Kerala High Court had expres....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bihar Sales Tax Rules, 1959, on the ground that the said provisions were violative of articles 301 and 304(b) of the Constitution of India. The High Court had dismissed the writ petition. Their Lordships of the Supreme Court, while reversing the judgment of the High Court held that the impugned provisions, namely, rule 31-B of the Rules violated the guarantee of free trade. In that particular case, the production of a registration certificate had a direct effect on the right of free trade and it was for that reason that their Lordships struck down that provision. Where there is no such direct effect, the provision of law, as laid down by their Lordships of the Supreme Court in the other cases mentioned above, cannot be struck down. For this reason, we are unable to accept the contention of the learned counsel for the petitioners that section 8 of the M.P. General Sales Tax Act, 1958, as amended by the M.P. General Sales Tax (Amendment and Validation) Act, 1971, should be struck down as being violative of articles 301 and 304 of the Constitution of India. A mere imposition of sales tax on one of the constituents of bidis at the earlier stage would not, in our opinion, impose any res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icle 286(3) of the Constitution of India. 35.. In Modi Spinning and Weaving Mills Co. Ltd. v. The Commissioner of Sales Tax, Punjab, and Another[1965] 16 S.T.C. 310 (S.C.); A.I.R. 1965 S.C. 957., an argument was advanced that the provisions of the East Punjab General Sales Tax Act, 1948, as amended by Acts Nos. 13 of 1959 and 18 of 1960, read with rule 26 of the Punjab General Sales Tax Rules, 1949, granting exemption from sales tax on fulfilment of certain conditions, were violative of article 286(3) of the Constitution. Their Lordships rejected that contention and observed that the effect of article 286(3) had been brought out by the second proviso to section 5(1) of the Act, which had been enacted out of an abundant caution and even without it, the result would be the same. 36.. In M/s. Bhawani Cotton Mills Ltd. v. State of Punjab[1967] 20 S.T.C. 290 (S.C.); A.I.R. 1967 S.C. 1616. , the provisions of the Punjab General Sales Tax Act, 1948, were challenged on similar grounds and specially on the ground that they were violative of section 15 of the Central Sales Tax Act, 1956, as also on the ground that they were discriminatory and as such, violated the guarantee of equality....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mption that the phrase "tobacco", manufactured or unmanufactured, including bidis, cigarettes, cheroots, should be construed to include all constituents which are utilised in the manufacture of those articles, such as the paper used in the manufacture of cigarettes, or the tendu leaves used for the manufacture of bidis. Evidently, such an interpretation, in our opinion, cannot be accepted. We feel that the phrase "tobacco", manufactured or unmanufactured with all its products, would mean all forms of tobacco and all its finished products, but the phrase would not include the other non-tobacco constituents, which may have to be utilised in the manufacturing process of other finished products. 38.. Coming to the last line of attack on the impugned provision, the argument of the learned counsel for the petitioners is that as there is incongruity between the definition section, i.e., section 2(1) of the M.P. General Sales Tax Act, 1958, and section 8 of the Act, as amended by the 1971 Amendment and Validation Act, the amended provision which is the charging section cannot be given effect to. It was also pointed out that the said enactment is not in conformity with the well-known and we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ealer for the purposes of the M.P. General Sales Tax Act, 1958. That was a case before the Amendment and Validation Act, 1971, was brought into force and the Government had not monopolised its trade. In view of the earlier provision, the Division Bench laid down that the State Government merely selling a forest produce would not be a dealer. But the M.P. General Sales Tax (Amendment and Validation) Act, 1971, has amended the very definition of a dealer so that now under the amended provision, the State Government is deemed to be a dealer, although it may not carry on business. That also might appear rather incongruous. But the intention of the Legislature being clear and unambiguous, we do not find any difficulty in giving effect to it and as already observed by us, no legislative provision, either of the Parliament or the State Legislature, can be declared void merely because of some minor incongruity or inartistic drafting or the provision not being in conformity with the well-known and wellrecognised principles of interpretation of statutes, provided the intention of the Legislature must be expressed in very clear terms without any ambiguity. If there be any ambiguity, the law c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt the jurisdiction of the Registrar to settle the disputes between a registered society and others which is not envisaged by the main section itself. That would certainly be the purport and scope of an explanation. But, in our opinion, the word "explanation" occurring in section 2(d) and section 8 of the M. P. General Sales Tax Act, 1958, as amended by the M. P. General Sales Tax (Amendment and Validation) Act, 1971, would rather be a case of misdescription, which would not affect the validity of the charging section, i.e., section 8 of the Act, because the intention of the Legislature is very clear in imposing the sales tax on the goods mentioned therein and such an amendment was necessitated because of the State monopoly in the sale and purchase of tendu leaves by the enactment of a special statute. Therefore, we think that the clear intention of the Legislature for which the M. P. Tendu Patta (Vyapar Viniyaman) Adhiniyam, 1964, was enacted, has to be given effect to. 43. Lastly, we may observe that the word "tobacco", manufactured or unmanufactured, occurring in the M.P. General Sales Tax Act, 1958, as also in the Central enactments, i.e., the Central Sales Tax Act, 1....