TaxTMI 
TaxTMI 
1980 (9) TMI 273
X X X X Extracts X X X X
X X X X Extracts X X X X
....ferred by s. 3, the State Government issued notification-1 No. FD 66 CSL 79 dated May 31, 1979, specifying the local areas and the rates of tax at which the tax shall be levied and collected under the Act on the entry of scheduled goods mentioned in col. 2 of the table appended to the notification into local areas specified in the corresponding entries. Goods liable to levy of tax under the Act on entry in the specified local areas at the specified rates are those set out in the schedule annexed to the Act. They are (i) all varieties of textiles, viz., cotton, woollen, silk or artificial silk including rayon or nylon whether manufactured in mills, powerlooms or handlooms and hosiery cloth in lengths; (ii) tobacco and all its products; (iii) sugar other than sugar candy confectionery and the like. In all 27 local areas were specified for the purpose of levy of tax on entry of scheduled goods in the respective local areas at varying rates specified in the notification. The Act received the assent of the President on May 17, 1979, and it was published in the State Government Gazette on June 1, 1979, and came into force from that very day. Numerous petitions were filed under Article 22....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m as may be specified by the State Government and different rates may be specified for different local areas". Section 4 provides for registration of dealers and makes it obligatory upon every dealer in scheduled goods to get himself registered under the Act in the prescribed manner. Rule 4, sub-rule (3) of the Karnataka Tax on Entry of Goods into Local Areas for consumption, Use or Sale therein Rules, 1979 ('Rules' for short), enacted under the Act has prescribed a fee of Rs. 25/- for registration as a dealer. Chapter III of the Act contains provisions for return, assessment, payment, recovery and collection of tax. Chapter IV prescribes taxing authorities. Chapter V deals with appeals and revisions and Chapter VI contains miscellaneous provisions. Schedule annexed to the Act sets out the goods on the entry of which in the specified local areas tax can be levied. Entry 52 in State List read with Article 246 of the Constitution confers power on the State legislature to enact a law to levy tax on the entry of goods into a local area for consumption, use or sale therein. This tax in common parlance is known as 'octroi'. Octroi was leviable by the municipality under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al excise duty on them and distribute the net proceeds of such duty amongst the consenting States. Parliament accordingly has enacted the Additional Duties on Goods (Goods of Special Importance) Act, 1957. Therefore, while raising rates of sales tax and levying surcharge in respect of some other items the State Government could not have levied sales tax on the scheduled goods. They were, therefore, selected for the levy of the tax under the impugned Act on their entry into a local area. Having noticed the historical background leading to the enactment of the impugned legislation we may now examine the two contentions which found favour with the High Court and as a result of which the Act and the notification issued thereunder were struck down by the High Court. The respondents contend that upon a true construction s. 3 permits the State Government only to specify different rates of tax not exceeding the maximum prescribed in the section to be levied on entry of scheduled goods into a local area but the State Government has no power to pick and choose local area. In other words, the respondents say that the tax has to be levied on entry of scheduled goods in each and every local ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds 'such rate' but in the expression 'different rates may be specified for different local areas'. Thus an express power of choosing and specifying different rates subject to maximum for different local areas is conferred on the State Government not by the expression 'such rate' but by the expression 'rates' with the adjectival clause 'different rates may be specified for different local areas'. It was, therefore, not necessary to qualify the expression 'such rate' again by the expression 'as may be specified by the State Government' because that is covered by the express power conferred by the expression 'different rates may be specified for different local areas'. In approaching the matter from this angle the expression 'as may be specified by the State Government' would qualify the expression 'local area' and this construction would be further reinforced by use of Article 'a' prefixing 'local area' meaning thereby not every local area but any local area. In this connection reference may be made with advantage to In re. Sankers; ex parte Sergeant, wherein the expression 'under the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rowth, economic development and scale and kind of municipal service rendered. One has to keep in view a local area like Bangalore City, a highly industrially advanced capital city of Karnataka and a small municipality having a population of 10,000. Now, if the expression 'a local area' in s. 3 is interpreted to mean 'every local area' as contended on behalf of the respondents, before any tax can be levied under s. 3 it would be obligatory on State Government to levy tax on entry of scheduled goods in every local area in Karnataka State for consumption, use or sale therein. The contention thus is that coverage of all local areas for levy of tax would provide outside maximum limit of power under s. 3. The question is: Is it a minimum condition for exercise of power ? If it is, the rates of tax will have to vary considerably in direct relation to the local area for which the rate is being prescribed. It would be unjust and inequitable to levy tax on entry of goods at the same rate for such local area as Bangalore Municipal Corporation and a small municipal area, the two local areas being uncomparable with regard to area, population, industrial growth and consumption of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i, only some local areas are selected for the purpose of levy of tax leaving others out and there being no reasonable basis to sustain the classification, s. 3 would be unconstitutional. There is always a presumption of constitutionality of a statute. If the language is rather not clear and precise as it ought to be, attempt of the Court is to ascertain the intention of the legislature and put that construction which would lean in favour of the constitutionality unless such construction is wholly untenable. However, where one has to look at a section not very well drafted but the object behind the legislation and the purpose of enacting the same is clearly discernible, the Court cannot hold its hand and blame the draftsman and chart an easy course of striking down the statute. In such a situation the Court should be guided by a creative approach to ascertain what was intended to be done by the legislature in enacting the legislation and so construe it as to give force and life to the intention of the legislature. This is not charting any hazardous course but is amply borne out by an observation worth reproducing in extenso in Seaford Court Estates Ltd. v. Asher. It reads as under:....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and flexibility so that it can adjust its taxation in all proper and reasonable ways. In Khyerbari Tea Co. Ltd., & Anr. v. The State of Assam this Court observed as under: "It is, of course, true that the validity of tax laws can be questioned in the light of the provisions of Arts. 14, 19; and Art. 301 if the said tax directly and immediately imposes a restriction on the freedom of trade; but the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Arts. 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character". It was also observed that legislature which is competent to levy a tax must inevitably be given full freedom to determine which articles should be taxed, in what manner and at what rate. It would, therefore, be idle to contend that a State must tax everything in order to tax something. In tax matters, "the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld be directly proportionate to the consumption of the goods in local areas and the consumption of goods is directly related to the population within the local area. Viewed from this angle, population criterion would provide a reasonable basis for classification for selectively levying the tax by choosing local area and by specifying different rates so as to make the tax productive. Therefore, there is no substance in the contention that the classification in this case was unreasonable. The High Court was accordingly in error in holding that s. 3 did not permit the State Government to pick and choose local areas for the levy of tax and that levy of tax under s. 3 in all local areas within Karnataka State was a minimum condition for exercise of the power under s. 3. The contention must, accordingly be negatived. Another contention that found favour with the High Court was contention No. 13 before the High Court which in the opinion of the High Court was a formidable one. The contention was that the Act in its application has not excluded petty dealers from its purview. Developing the contention it was said that the abolished octroi would have been less oppressive in its application....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration or other valuable consideration and includes amongst others, a casual trader. Section 10(1) makes it obligatory upon every dealer whose total turnover in any year is not less than the specified sum to get himself registered under the Act. Sub-s. (2) carves out an exception to sub-s. (1) that notwithstanding anything contained in sub-s. (1) every casual trader dealing in goods mentioned in the Third Schedule or the Fourth Schedule irrespective of the quantum of his total turnover in such goods shall get himself registered. And in passing it may be mentioned that Schedule Three includes 12 items and Schedule Four includes seven items. In other words, casual trader who is included in the expression 'dealer' in respect of the goods mentioned in the Third or Fourth Schedule, irrespective of his turnover, has to get himself registered. Therefore, it cannot be said that all petty dealers are excluded from the application of Karnataka Sales Tax Act. That apart, the taxing event under the impugned Act being entry of scheduled goods in a local area at the instance of a dealer, the volume or quantum of business of the dealer is not at all relevant. The situation now obtaining m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rce of evasion can be checkmated. Viewed from either angle, non-exemption of petty dealers from the operation of the Act does not lead to the conclusion that the impugned legislation constitutes unreasonable restrictions on the fundamental right of the petty dealers to carry on their trade or business. The High Court was, therefore, in our opinion, in error in striking down the impugned legislation on the ground that the Act imposes unreasonable restrictions on the fundamental right of the petty dealers to carry on their trade. The two contentions which found favour with the High Court for striking down the impugned Act and the notification issued thereunder, in our opinion, are not sustainable and, therefore, the Act and the notification issued thereunder would have to be upheld. Mr. S. T. Desai, learned counsel for the respondents, however, wanted us to affirm the judgment of the High Court on some of the contentions which the High Court negatived. It would, therefore, be necessary to examine some of those contentions which were repeated before us. The contention which was put into forefront was that the impugned Act violates the constitutional guarantee of freedom of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade, commerce and intercourse but rather facilitate them". The law was thus further clarified by pointing out that all taxes should and could not be prohibited by Art. 301 and must of necessity for their sustenance seek the coverage of Art. 304. If a measure is shown to be regulatory or the tax imposed is compensatory in character meaning the tax instead of hampering trade or commerce would facilitate the same, it would be immune from a challenge under Art, 301. In other words, if the tax is shown to be compensatory in character irrespective of the fact whether it is saved by Art. 304 or not it does not come within the inhibition of Art. 301. Accordingly, if validity of a tax law is challenged on the ground that it violates freedom of inter-State commerce, trade and intercourse, guaranteed by Art. 301, the contention may be repelled by showing (i) that the tax is compensatory in character as explained in The Automobile Transport (Rajasthan) Ltd. case (Supra); or (ii) that it satisfies the requirements of Art. 304. This very question came up for further examination in Khyerbari Tea Co. Ltd. case (Supra) wherein constitutional validity of Assam Taxation (On Goods carried by Road or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed within the State of Karnataka and similar goods brought into Karnataka State from outside and accordingly Art. 304(a) has been complied with. It was further urged that the requirements of Art. 304(b) are fully satisfied. The High Court was of the opinion that the impugned tax was non-discriminatory in character inasmuch as scheduled goods imported from other States and scheduled goods produced or manufactured within the State but outside the local area were treated alike by the impugned Act. In the opinion of the High Court the discrimination, if at all, was between goods produced or manufactured within a local area and those brought from outside the local area into it, but Art. 304(a) has no relevance to such differential treatment. Article 304 lifts the embargo placed on the legislative power of State to enact law which may infringe the freedom of inter-State trade and commerce if its requirements are fulfilled. Article 304(a) imposes a restriction on the power of legislature of a State to levy tax which may be discriminatory in character by according discriminatory treatment to goods manufactured in the State and identical goods imported from outside the State. The effect of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions which in the facts and circumstances of the case could not be said to be reasonable? It was contended on behalf of the respondents that the tax not being single point tax it would impose a heavy burden and a very burden of tax would certainly constitute unreasonable restriction on the freedom of trade and commerce. To substantiate the contention that the Act places unreasonable restrictions on the freedom of trade it was submitted that it is a multi-point tax and in final analysis the burden would be disproportionately heavy. It was said that whenever goods are taken from one local area to another local area to third local area at every point of entry the tax would be levied and, therefore, in ultimate result the burden would be very heavy so as to make it thoroughly unreasonable. Undoubtedly, the tax would have to be paid every time when scheduled goods enter a local area. In other words, it is not a single point tax and, therefore, if some scheduled goods successively enter different local areas for consumption, use or sale therein, there would be multiple levy. But no attempt was made to substantiate this charge by showing as to how goods are taken from one local area to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. case that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Arts. 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce. The next question is whether this levy is in public interest. As has been pointed out earlier, the levy was to compensate the loss suffered by abolition of octroi. without a demur. After removing the obnoxious features of octroi a very modest impost is levied on en....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... brief mention of them would be in order. It was urged that there is a certain amount of vagueness in s. 3 inasmuch as no light is thrown by the words of the section or the other provisions of the Act on the question as to computation of tax to be made at specified percentage ad valorem without specifying which price is to be taken into consideration for levy of tax, namely, the sale price or the purchase price of the concerned scheduled goods. It was said that sale price and purchase price of a dealer would be different and in the absence of any guideline in the charging section or any other provision in the Act it would lead to arbitrary determination or computation of tax by taking "in one case sale price of the scheduled goods and in another case purchase price". The contention overlooks the specific guideline to be found in the charging section itself. The taxing event is the entry of scheduled goods into a local area. The tax becomes payable on the entry of scheduled goods in a local area. Therefore, the price of the scheduled goods at the time of entry paid by the dealer who is the importer of goods within the scheduled area would be the ad valorem price on the basis of whic....