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1995 (3) TMI 443
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....ettes and smoking mixtures which are known as tobacco products. Those factual aspects relating to the nature of business carried on by the petitioner's company are not disputed and are not very much at issue between the parties. 4.. In exercise of powers conferred under article 213 of the Constitution of India, an Ordinance was promulgated and published on February 22, 1993, in the Extraordinary Gazette of Bihar. The said Ordinance is numbered as Bihar Ordinance No. 11 of 1993. By a subsequent notification being S.O. No. 37 dated February 25, 1993, the entry tax was introduced in the State of Bihar and the said notification was made effective from the date of its issue, namely, February 25, 1993. After the said Ordinance, i.e., Bihar Ordinance No. 11 of 1993 lapsed, there was another Ordinance styled as "The Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Second Ordinance, 1993" (Bihar Ordinance No. 19 of 1993). Thereafter the said Second Ordinance became an Act styled as "The Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993" (Bihar Act 16 of 1993). Subsection (3) of section 3 of the said Act which is t....
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....liable to pay tax under the Bihar Finance Act, 1981, by virtue of sale of such scheduled goods, his liability under the Bihar Finance Act, 1981, shall be reduced to the extent of tax paid under the Ordinance. 3. The scheduled goods shall be subject to entry tax only at the first point of entry in local areas and at the subsequent entry in any other local areas the scheduled goods shall not be subject to tax under the Ordinance provided the subsequent importing dealer produces before the assessing officer the original copy of the cash memos or bill or challan of the dealer from whom he purchased or received the goods supported by a declaration in the form and manner prescribed. 4. This notification shall come into force with effect from the date of issue." 6. Under the provisions of the said Act, a set-off is available to an importer of a motor vehicle who is a dealer in motor vehicles and is liable to pay tax under the Bihar Finance Act by virtue of sale of such motor vehicles. In fact the setoff is available in respect of sales tax paid on motor vehicles against the levy of entry tax. Section 6 of the said Act provides for grant of exemption from the levy of tax to any cl....
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..... It was contended on behalf of the petitioners that apart from the aforesaid objects and reasons, from the statements contained in the affidavit filed by the State Government in this proceeding also it appears that the said Act has been enacted for the purpose of augmenting the State revenue and not for the purpose of or for the benefit of any local authority. Therefore, relying on the aforesaid materials the contentions raised by the petitioners' counsel are that the said Act is ultra vires the provisions contained in entry 52 of List II of the Seventh Schedule to the Constitution. The said Act, as it is claimed to have been enacted on the authority of the said entry, therefore, suffers from the lack of legislative competence. In support of the aforesaid contention, learned counsel for the petitioners have placed reliance on the following decisions of the Supreme Court, namely: (a) State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. reported in [1958] 9 STC 353; AIR 1958 SC 560. (b) Empress Mills v. Municipal Committee reported in AIR 1958 SC 341. (c) Diamond Sugar Mills Ltd. v. State of Uttar Pradesh reported in AIR 1961 SC 652. (d) Burmah-Shell Oil Storage and D....
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....e said entry. It is hardly necessary to emphasise that entries in the three Lists in the Seventh Schedule which confer legislative competence on the Legislature in question must receive the widest possible interpretation. 15.. It is equally well-settled that the power of legislation of the State Legislature under the legislative entries is plenary and is only subject to the provisions of the Constitution. Constitution postulates that subject to its provisions, article 245 enumerates the extent of the legislative power of the Parliament and the State Legislature and article 246 distributes the legislative power between the Parliament and the State Legislature with reference to the three legislative Lists under the Seventh Schedule. As has already been noted, these legislative entries have received the widest interpretation by all courts as these are different heads of legislation empowering either State or the Union Legislature as the case may be, to legislate on the subjects mentioned therein. 16.. The reason behind giving the widest meaning to the words used for the grant of legislative power is merely not to make any attempt to define or confine the words to a narrow meanin....
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....lowed by the Supreme Court in a series of decisions. In the Constitution Bench judgment in the case of Deep Chand v. State of Uttar Pradesh reported in [1959] Supp 2 SCR 8, Subba Rao, J., at page 22 of the Report quoted with approval the above passage of Lord Salborne from the judgment in Burah's case [1878] 5 IA 178. 20.. In elucidating the said concept further Subba Rao, J., at page 23 of the said Report quoted with approval the crisp observations of Earl Loreburn, Lords Chancellor, which are reproduced here: "If the text is explicit the text is conclusive alike in what it directs and what it forbids." The observations were made by the learned Lord Chancellor in the case of Attorney-General for Ontario v. Attorney-General for Canada reported in [1912] AC 571 (PC) at page 583 of the report. 21.. Subsequently also the Supreme Court in the case of Udai Ram Sharma v. Union of India reported in [1968] 3 SCR 41 at page 57, while dealing with the question of legislative competence relied upon the aforesaid observation of Lord Salborne in Burah's case [1878] 5 IA 178 (PC) and held that powers of Legislatures while acting under the limits set down by Indian Constitution are pl....
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....gnation or general description, marks the outlines of the powers granted to the National Legislature; but it does not undertake, with the precision and detail of a code of laws, to enumerate the subdivisions of those powers, or to specify all the means by which they may be carried into execution." 24.. This being the accepted legal position about the interpretation of legislative entry in the Constitution, the width or content of the said entry cannot be cut down on the supposed historical interpretation which, according to the learned counsel for the petitioners, has been acquired by the term known as "octroi" or entry tax from different judicial pronouncements. 25.. In fact none of the judgments which have been cited by the learned counsel for the petitioners in the aid of their submissions about the legislative incompetence has held any enactment on the strength of entry 52 to be beyond the legislative competence of the State Legislature. In other words in none of those judgments, the legislative competence of a legislation on an interpretation of entry 52 of List II was at issue. Therefore, those judgments cannot be said to be an authority for the aforesaid proposition ad....
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....he Supreme Court considering the objects and reasons of the said Act were pleased to observe as follows: ".....The Legislature, therefore, clearly intended to avoid any loss of legitimate sales tax revenue by the State. But the levy cannot be held to be bad because the Legislature intended to avoid any loss of sales tax in the State so long it is not found to be invalid either because of any constitutional or statutory violation. It is not the intention or propriety of a legislation but it is legality or illegality which renders it valid or invalid. 28.. The argument of legislative incompetence has been sought to be developed by placing reliance on (1) objects and reasons of the Act and (2) some averments made in the affidavit. The statements of objects and reasons have already been extracted before. How far can the objects and reasons of an Act be an aid to the interpretation of the statute itself has received the attention of the Supreme Court in a number of cases. The leading judgment on this aspect has been delivered in the case of Aswini Kumar Ghose v. Arabinda Bose reported in AIR 1952 SC 369. In paragraph 32 of the said judgment the following observations have been mad....
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....easonableness of restrictions on the rights guaranteed under article 19(1)(f) of the Constitution. In the famous Kochuni's case (reported in [1960] 3 SCR 887) Subba Rao, J., while delivering the judgment for the majority, resorted to the objects and reasons for the purpose of ascertaining the conditions prevailing at the time the Bill was introduced and the purpose for which the amendment was made. Relevant excerpts from the judgment of Subba Rao, J., at page 899 of the Report are set out below: "This Court has held in Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369 that the statement of objects and reasons is not admissible as an aid to the construction of a statute. But we are referring to it only for the limited purpose of ascertaining the conditions prevailing at the time the Bill was introduced, and the purpose for which the amendment was made." 31.. Therefore, the consistent view of the Supreme Court is that the statement of objects and reasons are to be referred to for a very limited purpose as stated above. But the same cannot be relied upon to advance an argument of legislative incompetence, inasmuch as the competence of State Legislature can only be examined wit....
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....ras reported in [1970] 25 STC 196; [1969] 2 SCC 299, relying on the principle in Gajapati's case [1954] SCR 1 the Supreme Court held at page 305 of the report (at pages 201-202 of STC) "if the Legislature has the power to impose the tax, its authority is not open to challenge on a plea of colourable exercise of power." 36.. In this case also it cannot be said that the Legislature in question has no authority to impose the tax in question. Therefore, applying the aforesaid principles, this Court cannot hold that the said Act is a colourable one. (c) Violation of rights under articles 301 and 304 of the Constitution: 37.. The next question is that the said Act is violative of the freedom under article 301 of the Constitution of India and particularly the restrictions under article 304 of the Constitution. 38.. The said Act having been admittedly enacted under entry 52, List II of the Seventh Schedule is a tax on entry of goods. It is not disputed that the tax imposed under the said Act is one on trade and commerce and it is also clear that the tax being on entry of goods into a local area for certain specified purpose is a tax directly on movement of goods. Thus the tax i....
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.... put on this relaxation under article 303(1) which prohibits the Parliament from giving preference to one State over another and making or authorising the making of any discrimination between one State and another. (c) Article 303(2) of the Constitution, is an exception to the restriction imposed under article 303(1) on the Parliament and that exception applies only to Parliament and to be resorted only in a specified situation indicated in article 303(2) of the Constitution. (d) Each clause of article 304 of the Constitution operates as a proviso to the provisions under articles 301 and 303 of the Constitution in the following way: (i) Article 304(a) of the Constitution authorises imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. (ii) Article 304(b) of the Constitution is analogous to article 302 for it makes the State power contained in article 304(b) of the Constitution free from the prohibition contained under article 301 of the Constitution in view of the opening word....
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....us, prior to 1950 the flow of trade and commerce was impeded at several points which constituted the boundaries of Indian States. After India attained political freedom in 1947 and before the Constitution was adopted the historical process of the merger and integration of the several Indian States with the rest of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India consisted of Part A States which broadly stated represented the Provinces in British India and Part B States which were made up of Indian States. This merger or integration of Indian States with the Union of India was preceded by the merger and consolidation of some of the States inter se between themselves. It is with the knowledge of the trade barriers which had been raised by the Indian States in exercise of their legislative powers that the Constitution-makers framed the articles in Part XIII. The main object of article 301 obviously was to allow the free flow of the stream of trade, commerce and intercourse throughout the territory of India." 43.. It has been held in the majority judgment of Atiabari's case AIR 1961 SC 232 that the free....
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.... for the use of trading facilities. In the said decision in the case of Automobile Transport (Rajasthan) Limited AIR 1962 SC 1406 S.K. Das, J., speaking for the majority indicated the working test for deciding whether the impugned levy is compensatory or regulatory in the following observations at page 1425 of the report: "It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities." 47.. In his concurring judgment in the said decision in Automobile Transport Limited's case AIR 1962 SC 1406 Subba Rao, J., further elaborated on what can be called a regulatory measure and what cannot be called a regulatory measure. In paragraph 36 at page 1430, his Lordship held as follows: "........... If a law directly and immediately imposes a tax for general revenue purposes on the movement of trade, it would be violating the freedom. On the other hand, if the impact is indirect and remote, it would be unobjectionable." (Emphasis* supplied) 48.. Therefor....
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....erest may require and justify the imposition of restrictions on the freedom of trade, provided they are reasonable. In determining the reasonableness of the restrictions we will have to bear in mind again the importance of freedom of trade and the requirements of public interest. It is a question of weighing one relevant consideration against another and harmonising both the competing, interests so as to serve the public interest in the end. This process of assessment may not always be easy, but, nevertheless we must try to weigh the pros and cons urged before us by both the parties and decide whether the tax levied by the Act satisfies the requirement prescribed by article 304(b)." (Emphasis* supplied) 49.. In a subsequent Constitution Bench judgment of the Supreme Court in the case of Kalyani Stores v. State of Orissa reported in AIR 1966 SC 1686 it has been held that reasonable restrictions which can validly be imposed under article 304(b) of the Constitution can mean restrictions which seek to protect "Public health, safety, morals and property within the territory". As the impugned levy in that case was purely a fiscal measure the learned Judges held that the same "cannot b....
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....ance was thought to be promulgated in view of the loss of the revenue on cess due to decision rendered by the honourable Supreme Court in the case of India Cement Ltd. reported in AIR 1990 SC 85 as well as several decisions of the honourable Patna High Court following that decision" (para 2). 54.. On an examination of the said explanation it appears that the decision reported in AIR 1990 SC 85 (India Cement Ltd. v. State of Tamil Nadu) invalidated imposition of cess on royalty as beyond the competence of State Legislature in view of the fact that section 9 of the Central Act covers the field. Their Lordships of the Supreme Court in that case were of the view that cess on royalty cannot be sustained under entry 49 of List II of the Constitution. 55.. Without going into any controversy it can be said that the levy in question in that case, namely, cess on royalty was one relating to land revenue and has nothing to do with the freedom of trade and commerce contemplated under Part XIII of the Constitution. It cannot be said, relying on the principle in Hansa Corporation's case AIR 1981 SC 463 that it is same people who were paying the said cess on royalty and to pay the levy of e....
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....r article 304(b) of the Constitution which is set out below: "Thus there are three conditions which must be satisfied in passing an Act under article 304(b), the previous sanction of the President must be obtained, the legislation must be in the public interest and it, must impose restrictions which are reasonable. It is of course true that if the previous sanction of the President is not obtained that infirmity may be cured by adopting the course authorised by article 255." 59.. This Constitution Bench judgment in Atiabari's case AIR 1961 SC 232 considered the decision of the Supreme Court in Saghir Ahmad's case AIR 1954 SC 728. Subsequently also the honourable Supreme Court in the case of Abdul Kadir v. State of Kerala reported in AIR 1976 SC 182 considered this question at page 191 of the Report wherein it has been stated as follows: "........... We may observe that the requirement of the proviso regarding the sanction of the President has been satisfied. It is no doubt true that the assent of the President was given subsequent to the passing of the Bill by the Legislature but that fact would not affect the validity of the impugned Act in view of the provisions o....
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....g on the observation of another Constitution Bench judgment in the case of Ram Krishna Dalmia v. Justice S.R. Tendolkar reported in AIR 1958 SC 538 as follows. The relevant excerpts from paragraph 8 at page 558 of the report are set out below: "A statute may not make any classification of the persons or things for the purpose of applying its provisions but may leave it to the discretion of the Government to select and classify persons or things to whom its provisions are to apply. In determining the question of the validity or otherwise of such a statute the court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification. After such scrutiny the court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the st....
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.... the State is vagrant and unconfined and no standards or principles are laid down by the statute to guide and control the exercise of such power, the statute would be violative of the equality clause because it would permit arbitrary and capricious exercise of power, which is the antithesis of equality before law. Such a case, would fall with in the second proposition laid down by this Court in Jyoti Pershad v. Administrator for the Union Territory of Delhi [1962] 2 SCR 125 at 137; AIR 1961 SC 1602." 67.. In this case the guidance cannot be had even from the statements of objects and reasons inasmuch as the statement of objects and reasons will show that the impugned levy is only for the purpose of swelling general revenue. Therefore, we cannot find any guidance for the exercise of discretion given to the State Government either under the provisions contained in proviso to section 3 or under section 6 of the said Act. In that view of the matter, both the proviso to section 3 as extracted above and section 6 are declared ultra vires article 14 of the Constitution of India. In this connection reference may be made to the decision of the Supreme Court in the case of Municipal Bo....